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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 1995.
Commission file number: 2-13328
SENTEX SENSING TECHNOLOGY, INC.
(Exact name of registrant as specified in charter)
NEW JERSEY 22-2333899
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation of organization)
553 BROAD AVENUE
RIDGEFIELD NEW JERSEY 07657
(Address of principal executive office) ( Zip Code)
Registrant's telephone number, including area code: 201-945-3694 Securities
registered pursuant to Section 12(b) of the Act: NONE Securities registered
pursuant to Section 12(g) of the Act:
Common Stock, no par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State Issuer's revenues for its most recent fiscal year: $1,553,851
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Aggregate market value of the voting stock held by non-affiliates of the
registrant:
$3,732,876 (based on the average bid and ask price on January 29, 1996,
as reported on the NASDAQ Small Cap Market System).
Number of Shares of Common Stock (No ParValue) outstanding as of February 14,
l996, 67,360,081
Transitional Small Business Disclosure Format (Check One)
Yes _______ No ____X_______
Documents incorporated by Reference:
None
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Item 1. Business
(a) General Development of Business
Sentex Sensing Technology, Inc. (the "Company"), a New Jersey
corporation, was formed in November 1980 under the name Sinex Corp., which name
was changed in May 1982 to the Company's present name. In 1981, the Company
commenced the commercial production of a portable explosives detector of its own
design, the T-54, which was sold on a worldwide basis by an unaffiliated third
party, pursuant to an exclusive distribution agreement. Since 1984, the Company
has marketed this product under the trade name SCANEX JR. and also markets a
walk-through, stationary explosives detector, the SCANEX I. Additionally, in
1984, the Company entered the environmental marketplace with both portable and
fixed site gas chromatographs which test air, soil, and water for chemicals
deemed potentially hazardous.
In September 1983, the Company's Common Stock was
recapitalized pursuant to a 5,053,100 to 1 stock split. In April 1984, the
Company sold, in a public offering, 12,500,000 units, each unit consisting of
two shares of Common Stock and one warrant to purchase one share of Common
Stock.
On May 31, 1991, the Company formed two wholly owned
subsidiaries, Sentex Systems Inc. and Sentex Acquisition Corp. both incorporated
in the State of Delaware, to bifurcate the operations of the Company. Sentex
Systems Inc. continued the Company's gas chromatography operations and Sentex
Acquisition Corp. pursued new investment opportunities. On November 30, 1992,
Sentex Systems, Inc. was merged back into Sentex Sensing Technology, Inc. but
was reincorporated, in the State of Delaware, on August 30, 1994. Hereinafter
the "Company" shall refer to Sentex Sensing Technology, Inc. and its two wholly
owned subsidiaries, Sentex Acquisition Corp and Sentex Systems Inc.
On October 18, 1995, certain principal shareholders executed
Stock Purchase Agreements with CPS Capital, Ltd., an Ohio limited liability
company ("CPS"). Upon consummation of the transaction, CPS will acquire a total
of 17,606,461 shares common stock of the Company, constituting approximately
26.1% of the issued and outstanding shares of common stock ("CPS Transaction").
In addition, upon consummation of the CPS Transaction, CPS will be granted, by
such principal shareholders, voting control of an additional 9,389,204 shares of
the Company's common stock, or approximately 14% of the issued and outstanding
shares of common stock. In connection with the proposed stock purchase, four of
the five current members of the Company's Board of Directors will resign to be
replaced by four designees of CPS. ( See Item 9, Part III Directors...) . The
consummation of the CPS Transaction is subject to certain closing conditions
which, as of January 29, 1996, had not yet been satisfied.
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(b) Narrative Description of Business
The Company is engaged in the business of developing, manufacturing
and selling automated devices designed to identify and measure the
concentrations of certain chemicals. The Company sells a portable and
walk-through explosives detector, two portable air analyzers, a portable and
fixed-site water monitoring system and a sensor which measures the total organic
content of air. The Company, also, provides technical assistence and service to
its customers and, on occasion, performs research and development, on a
contractual basis, to develop instrumentation designed to fufill
customer-specific analytical requirements. All of the Company's products employ
gas chromotography as the method of analysis.
The Company also intends to develop, acquire or merge with other businesses
which may be unrelated to its present activities and is presently investigating
such opportunities. As of February 14, 1996, the Company has not entered into a
firm commitment to enter such transaction.
Gas Chromatography
Gas chromatography is a well-established technique, first developed
over 30 years ago, to identify and determine the concentrations of different
chemicals in a given sample. The principle of gas chromatography is based on the
fact that different chemicals will pass along a liquid surface at different
rates because of the different chemical and physical interactions between each
chemical and the liquid. Gas chromatographs function by passing air or liquid
samples through tubes, called "chromatographic columns", which contain liquid
coated particles. Given certain constant conditions, every chemical has a
specific traveling time known as its "Retention Time", as it passes through a
chromatographic column. Since Retention Time is specific to each chemical,
comparison of the Retention Time of an unknown chemical with the Retention Time
of a known chemical permits identification of the unknown chemical. The
concentration of the chemical is measured by comparing the intensity of the
electronic signal obtained from its detection at its given Retention Time with
the intensity of the signal from a known concentration previously tested. A
unique feature of the Company's products is its method of preconcentrating and
introducing the testing sample to the chromatographic column. This feature
heightens the sensitivity of the Company's products allowing them to detect
minute quantites of potentially hazardous chemicals.
Existing Products
The Company is currently marketing six products: the SCANEX JR. and
the SCANEX I explosives detectors, the SCENTOSCREEN, and the SCENTOGRAPH PLUS II
Portable Gas Chromatographs, the AQUASCAN, a portable and fixed site water
monitoring system used to test continuous water streams for toxic substances and
the SCENTOSCAN, a multipoint air analyzer. The SCENTOGUN, a total organic
analyzer developed in 1993, is marketed on a limited basis due to sharply
decreased market demand.
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SCANEX JR. The SCANEX JR. is a portable, brief-case sized detector, which
samples air to detect the presence of the most commonly used explosives. The
SCANEX JR., however, may be unable to detect non-conventional explosives and may
not be effective where explosives are concealed in tightly sealed containers
which prevent the escape of air.
SCANEX I. The Company also produces a walk-through explosives detector called
the SCANEX I. The SCANEX I screens persons suspected of carrying explosive
substances by sampling the air surrounding the person, in order to analyze for
explosive materials . It is subject, also, to the above described limitations.
SCENTOSCREEN. The SCENTOSCREEN is a self-contained, portable gas chromatograph
designed specifically as a comprehensive screening tool for determination of
hazardous chemicals. It is completely automatic and detects individual volitle
compounds in air, water and soil.
SCENTOGRAPH PLUS II . The SCENTOGRAPH PLUS II is a battery-operated portable gas
chromatograph designed to perform a complete labatory analysis, on site. Powered
by a detachable, lap-top computer, the SCENTOGRAPH PLUS II stores all data on a
disk and is capable of operating remotely with little, or no, user interface.
AQUASCAN The AQUASCAN is a portable or stationary water monitoring system that
can detect volatile organic compounds to sub ppb levels. Totally computerized,
the system can automatically analyze a water sample from multiple sources and
can interface with a variety of water treatment and remediation systems.
SCENTOSCAN. The SCENTOSCAN is a stationary analyzer intended to monitor volitle
compounds in air from up to 32 remote locations. It is fully automatic and
controlled by a desk-top portable computer. This product has been, recently,
redesigned to provide rack mounted operation, multiple computer interfaces,
and customer-selected alarm levels.
Products Under Development
The Company has developed, for an unaffiliated third party, a battery-operated
analyzer to be used to detect underground leaks. Two prototype systems have been
developed and the Company expects completion of the contract in March, 1996.
The Company is developing a portable gas chromatograph which
will be incorporated into a portable mass spectrometer currently under
develpment by an unaffiliated third party. A protype instrument is scheduled for
completion in May, 1995.
Research and Development Programs
The Company was engaged in 1981 by an unrelated limited partnership
to conduct a multi-year program for the development of detection instruments
employing gas chromatography. On December 30, 1981, the Company entered into a
Research and Development Agreement (the "Research Agreement") and a Technology
Transfer Agreement, amended September 22, 1983, (the "Transfer Agreement") with
an unaffiliated limited partnership, Sentex Associates Limited
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Partnership ("SALP"). Neither SALP nor its general partner, Research Management,
Inc., a Delaware corporation, is affiliated with the Company.
Pursuant to the Research Agreement, SALP engaged the Company to
conduct a research program to develop a portable toxic vapor detector, the
SCENTOR. The development was completed and, in 1985, the Company excercised its
option to obtain world-wide marketing and distribution rights to this product.
Pursuant to the Transfer Agreement the Company was obligated to pay royalties to
SALP equal to 4.76% of the "Product Gross Income" as defined in the Transfer
Agreement. In March, 1989 the Company ceased production and marketing of the
SCENTOR due to decreasing market demand. See Part I, Item 3 of this Annual
Report on Form 10-KSB.
On August 30, 1994 the Company was engaged by an unaffiliated,
non-profit corporation which sponsors research and development projects in
energy production and utilization ("Contractor" ) to design and develop several
prototype systems to be used in the detection and measurement of gaseous leaks
(the " Contract") . The prototypes deliverable under the Contract are based upon
the SCENTOGRAPH PLUS II, portable gas chromatograph and certain design critera
provided by the Contractor. The Contract provides for a term not to exceed one
year and and a fixed contract price to the Company of $185,500, payable in
installments during the contract period. The Contract further provides that the
Contractor may terminate the Contract, upon thirty days written notice, upon
payment to the Company for all costs and noncancellable commitments, if any,
incurred prior to the date of termination. Upon completion of the Contract the
Contractor shall own all rights in and to the new items developed pursuant to
the Contract although the Company shall retain the rights to the SCENTOGRAPH
PLUS II or other previously-owned technology , if any, utilized pursuant to the
Contract.
The Company expensed $316,643 and $252,051 for research and development for
the fiscal years ending 1995 and 1994, respectively. During fiscal 1995,
$118,196 of the research and development costs were expensed in completion of
the Contract. The balance, $198,447, was not passed to to the Company's
customers and related to the improvement of existing products, in particular,
the AQUASCAN and the SCENTOSCAN, and the development of a new product. During
fiscal 1994, $33,104 of the research and development costs were expensed in
completion of the Contract; the balance thereof was not passed onto the
Company's customers.
Marketing, Distribution and Sales
The SCANEX JR. is presently sold directly by the Company's employees and
through unaffiliated and non-exclusive representatives. The list price of the
SCANEX JR. is $10,400. The SCANEX JR. is marketed to local and overseas police
agencies, governmental security agencies and private security firms. The SCANEX
I has been successfully marketed to nuclear power plants and to foreign
governments which are concerned about preventing terrorist activities. The
suggested list price of the SCANEX I is $26,959.60, with discounts on multiple
unit orders. The Company presently markets these products directly, through
advertisements, or through non-affiliated, non-exclusive sales representatives,
whom receive a 10% commission on any sales generated by their efforts.
The Company markets its portable and fixed site gas chromatographs, to
regulatory and municipal agencies who must comply with established standards for
levels of toxic substances, to
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environmental consulting firms involved in analysis and remediation of hazardous
sites and to businesses which must comply with various environmental
regulations. The list prices of these products range from $14,980 for a portable
battery-operated device to $39,350 for a rack-mounted, plant-wide system. The
Company sells these products both directly and through sales representatives who
are engaged on an exclusive basis in the United States. Commissions paid to
these sales representatives on sales of the various products are 12%-15% of
their list prices. The representatives receive commissions for sales made in
their territories even if the orders are taken directly by the Company. The
Company directly markets these products by placing advertisements in trade
publications, participating in trade shows, and holding demonstrations. With
respect to direct sales in the territories not covered by representatives the
Company does not pay commissions.
The Company has appointed international representatives in the countries of
Germany, England, Canada, Austria, Israel, Switzerland, Poland, Italy, Australia
and Korea. International representatives are sold products with a 25% discount
from the List Price and are responsible for the sevice and the warranty repair
for the products they sell. All sales are made in United States currency and are
net of transportation costs, export fees and any additional charges incurred by
the representatives.
During fiscal 1995 and fiscal 1994, the Company did not dervive 10% or more
of its annual net sales from any one customer. During fiscal 1993, one customer,
an international representative of the Company, accounted for more than 10% of
its annual net sales.
As of February 14, 1996 the Company has firm orders that total $142,929 for
products to be shipped through April, 1996. The company anticipates no
difficulty in filling these orders.
Government Regulations
Because the Company's products include a detection cell containing small
amounts of radioactive material, the Company is subject to certain regulations
of the Nuclear Regulatory Commission (the "NRC"). The Company has two licenses
from the NRC to handle and sell products with radioactive material. The first
license expires on September 30, 1999; the other expires on July 31, 1996. The
Company anticipates no difficulty in obtaining renewal of either license. In the
event renewal is denied, the Company intends to produce and sell the products
without the radioactive materials. Although this may increase the Company's cost
of production, the Company believes it can correspondingly increase the cost of
its products. The Company's cost of compliance with these licensing requirements
is insignificant.
The Company complies with the Worker and Community Right to Know Act, State
of New Jersey pursuant to which information is provided to that state on any
hazardous material present at the Company's facility. The cost of such
compliance is insignificant.
Because certain of the Company's products are marketed internationaly, as
of January 1, 1996, these products must comply with the European Community
Council Directive 89/336EEC. In February 1996, the SCENTOGRAPH PLUS II was
issued a Certificate of Conformance ("CC"). The Company is presently
investigating whether it must obtain a CC for any other products. Obtaining a CC
involves a singular expense of approximately $7,000 for each product. The costs
associated with maintaining compliance are insignificent.
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Manufacturing/Suppliers
Most of the hardware components used in the Company's products are
manufactured to the Company's specifications by outside sources. The assembly of
the electronic components of the Company's products is currently performed at
the Company's plant in Ridgefield, New Jersey by one production manager, and
four full-time employees. Final assembly and testing of finished products from
the various components purchased from outside sources is also performed by the
Company at its plant.
All supplies required for product assembly are commonly available from
numerous suppliers. In addition, the Company has received bids from alternative
manufacturers who could produce certain components to the Company's
specifications. Thus, the Company believes it would not encounter significant
difficulties in obtaining its supplies at similar prices from alternative
sources should the Company's current sources discontinue business or cease doing
business with the Company.
The Company estimates that it currently has the weekly capacity to assemble
one portable gas chromatograph and one rack mounted monitoring system.
Warranties and Disclaimers
All of the Company's products are sold with a one year warranty for
defective parts . If a unit requires a repair , the customer must pay for
shipping the unit to be repaired to the Company's plant in Ridgefield, New
Jersey, and the Company will replace defective parts at the Company's expense.
Upon the expiration of the one year warranty, the Company will continue to make
any necessary repairs at the Company's or the customer's plant, at the expense
of the customer. The Company disclaims liability for any loss or consequential
damage suffered in connection with the use of its products. While the Company
believes such disclaimer would protect the Company from any liability in the
event of a claim brought against the Company, there can be no guarantee that the
courts would give effect to the disclaimer and the Company would be insulated
from any liability.
Competition
There are companies which produce products which compete with all of the
Company's existing products, most of which companies have substantially greater
resources than the Company's. The primary area of competition for the Company's
portable and stationary gas chromatographs is other companies which currently
sell, or may develop for sale, chemical analyzers similar to, though not
necessarily using the same technology as, the Company's. The Company is aware of
several other portable gas chromatographs and one water monitoring system which
are capable of detecting toxic chemicals. However, based upon factors of price
and performance features, the Company believes that its products compete
favorably.
The Company's portable and walk through explosives detectors face
competition from other companies which currently sell such devices, and from
other companies which are developing such products. The Company believes,
however, that its products are more sensitive and accurate, with less false
alarms, than the competing explosives detectors and are competitively priced.
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The Company's competitors may have greater financial, manufacturing,
technological or marketing resources and current sales which exceed those of the
Company. In addition, as there are relatively few entry barriers to new
manufacturers, the Company may face competition from other companies currently
not engaged in the sale or development of hazardous substance detectors.
Patents, Trademarks and Trade Secrets
The Company presently holds no patents and does not believe patents would
significantly protect the Company's trade secrets and processes. Although the
Company may, in the future, seek patent protection on certain of the components
of its products, the Company intends to rely primarily on common law protection
of trade secrets and other confidential information and on confidentiality
agreements with its employees and distributors to protect its trade secrets and
processes from competitors. Furthermore, there can be no assurance that the
Company's present or future products will not infringe on patents held by
others. The Company has not registered the trademarks "SCANEX I", "SCANEX JR.",
"SCENTOCREEN","SCENTOGRAPH PLUS II", "SCENTOGUN", SCENTOSCAN or "AQUASCAN". The
Company does not believe that marketing of these products will be significantly
affected in the event it was required to market these products under other
tradenames.
Employees
As of February 14, 1996, the Company employed a total of 12 full time
staff. In addition, the Company employs several consultants who work for the
Company at such times as the Company requests their services.
Item 2. Properties
a. The Company currently leases 4,500 square feet on two floors of a three
story building at 553 Broad Avenue, Ridgefield, New Jersey 07657 under month to
month leases. The premises are used for executive offices, research and
development and product assembly and are, generally, in good condition. The
premises are leased from a principal of the Company, Dr. Amos Linenberg. Rental
expense amounted to $53,340 for the year ended November 30, 1995. In addition
the Company and its subsidiary, Sentex Acquisition Corp., lease 500 square feet
of a three story office building, in good condition, at 375 Sylvan Avenue,
Englewood Cliffs, New Jersey from an unaffiliated third party under a month to
month lease. Rent expense, on this facility, amounted to $8,211 for the 1995
fiscal year. On February 29, 1996, this lease will terminate and Company
operations will be located at 553 Broad Avenue, Ridgefield, New Jersey.
b. The Company has no investment in real property nor in real property
mortgages nor in securities of entities which engage in real estate activity.
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Item 3. Legal Proceedings
The Company was a defendant in an action entitled Sentex Associates Limited
Partnership ("SAPL") v. Sentex Sensing Technology, Inc. filed in the United
States District Court Western District of Washington in December, 1988 and
bearing the Case No. C88-1577. This case arose out of the 1981 Research
Agreement between SALP and the Company and the Transfer Agreement, as amended on
September 22, 1983 between SALP and the Company. On or about November 12, 1985,
the Company exercised its option contained in the Transfer Agreement to acquire
an exclusive, worldwide license to use new technology developed for SALP by the
Company. In the course of negotiating the license agreement a dispute arose over
the royalty payments under the Transfer Agreement. SALP sought declaratory and
injunctive relief, an accounting and damages in the amount of $116,556.
Upon the Company's motion, the Complaint was dismissed without prejudice on
the grounds that neither SALP nor its general partner, Research Management, Inc.
("GP") had the capacity to sue and that their allegations failed to state a
claim. Since the dismissal, issued on April 18, 1989, upon advice of counsel,
the Company deposited the royalty payments in dispute in an escrow account
("Escrow") pending appointment of a legal representative for SALP.
The Company was a defendant in an action entitled EMSEECO v. Sentex
Associates Limited Partnership and Sentex Sentex Sensing Technology, Inc. filed
November 2, 1994 in Superior Court, County of Bergen, State of New Jersey and
bearing Docket No. L-010818-94 . The plaintiff was a judgement creditor of SALP
and petitioned the Court to permanently enjoin the Company from paying,
transferring or assigning the Escrow held by the Company to SALP and, to require
the Company to transfer the Escrow to EMSEECO.
On April 3, 1995, the action was decided in favor of EMSEECO, which decision
was appealed by the Company, on April 19, 1995, to the Superior Court of New
Jersey, Appellate Division, bearing Docket No. A-4061-94 T5. On August 11, 1995
the Company obtained a general release from SALP for any and all claims it has
or may have against the Company by payment of a total amount of $40,000, of
which $21,261.39 was paid to EMSEECO. In conjunction with the release , the
Company discontinued the appeal. A Warrant to Satisfy Judgement, bearing Docket
No. L-010818-94, was entered, by EMSEECO, to the Superior Court, County of
Bergen, State of New Jersey on December 7, 1995 and the civil action terminated.
On March 9, 1995 the Company instituted a civil action in the United
States District Court, District of New Jersey entitled Sentex Acquisition Corp.
v. ComCentral Corp. (ComCentral) and bearing docket No. 95-1115 (NHP). The
Company alleged default of a promissory note, due and payable on April 30, 1994
( the "Note"), and requested a judgement against ComCentral in the amount of
$150,000 plus interest and the costs of collection. During the pendancy of the
action ComCentral repaid a portion of the principal and interest past due. On
May 4, 1995, the Company obtained a Judgement, by default, against ComCentral in
the sum of $134,698.91 together with the Company's cost of collection. The
amount represented the principal balance and interest due and owed by ComCentral
to the Company, at the date of the Judgement.
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Item 4 Submission of Matters to a vote of Security Holders
No matter was submitted to a vote of the Company's security holders during
the fourth quarter of the fiscal year ending November 30, 1995.
Part II
Item 5. Market For Common Equity and Related Shareholder Matters
(a) The Company's Common Stock is traded on the NASDAQ SmallCap
Market tier of The NASDAQ Stock Market under the symbol "SENS". The range of
high and low closing bid prices by fiscal quarter is presented below.
<TABLE>
<CAPTION>
1995 HIGH LOW
---- ---- ---
<S> <C> <C>
1st quarter .031 .031
2nd quarter .031 .031
3rd quarter .042 .031
4th quarter .073 .031
</TABLE>
<TABLE>
<CAPTION>
1994
<S> <C> <C>
1st quarter .031 .031
2nd quarter .031 .031
3rd quarter .031 .031
4th quarter .031 .031
</TABLE>
The bid quotations represent interdealer quotations and do not
include retail mark-up, mark-down or commissions, and may not represent actual
transactions. At January 29, 1996 the closing bid price for the shares was .031,
and the high ask price was .125.
The Company's units (Common Stock and Warrants) were traded in the
Over-The Counter (OTC) market until April 9, 1989 when the Warrants expired by
their terms. Thereafter only the Company's Common Stock was listed on the NASDAQ
Stock Market (See above).
(b) On February 14, 1996 there were 67,360,081 shares of Common
Stock outstanding and approximately 1200 Holders of Record of the outstanding
Common Stock.
(c) During the past two fiscal years no dividends have been declared
by the Company. The Company does not plan to pay cash dividends in the
foreseeable future.
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Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Fiscal 1995 as Compared to Fiscal 1994
Net sales of the Company's products decreased significently to $1,313,138 in
fiscal 1995, as compared to $1,593,414 in fiscal 1994. This decrease resulted
from decreases in sales of the AQUASCAN as well as a slight decrease in sales of
accessory items which normally accompany product sales. Sales of other products
and revenue derived from service and technical assistance re mained stable
during fiscal 1995 as compared to fiscal 1994.
Cost of Sales decreased to 37.1% in fiscal 1995 as constrasted to 41.5% in
fiscal 1994, principally, as a result of decreases in purchases of raw materials
and production equipment.
Selling, general and administrative expense remained stable during fiscal 1995,
at $925,029 as compared to $941,502 for the 1994 fiscal year. As a percentage of
total revenue, however, selling, general and administrative expenses increased
to 59.5% during fiscal 1995 as compared to 54.5% during fiscal 1994. This is a
result of the decrease in product sales, while rent, insurance and other
overhead costs remained fixed, certain non-recurring administrative and legal
expenses and a bad debt expense of $35,000.
Due to the decrease in product sales, during fiscal 1995, total revenue
decreased to $1,553,851 from $1,726,812 for the 1994 fiscal year. Interest and
Other Income increased, however, during fiscal 1995 to $240,713 as compared to
$133,398 for the 1994 fiscal year, principally, as a result of proceeds from an
research and development contract. Due to the aforementioned decrease in net
product sales, as well as the reserve for bad debt expense, the Company
experienced an operating loss, for fiscal 1995, of ($177,343) which was offset
by an income tax benifit of $62,466 to a net loss of ($114,877). This is
compared to an operating loss, for fiscal 1994, of ($123,750) offset by an
income tax benifit of $3,875 to a net loss of ($127,625).
In response to decreases in net product sales, the Company has realigned its
direct marketing and sales practices, seeking, instead, joint marketing
arrangements with companies who market and sell in large quantities, generally
under their individual tradenames. For several products, marketing and sales
efforts have been refocused from large industrial users who were the Company's
principal customers in former years to smaller, application specific, product
users. The Company has, also, began offering its customers laboratory and
on-site technical service and short-term leasing programs. In an attempt to
improve profitability, the Company initiated cost reduction measures, including
decreases in personnel, the closing of a Company facility and reductions in
inventory and capital equipment purchases.
During fiscal 1994 the Company converted investments in long-term certificates
of deposits, and U.S. Governmental Agency Bonds into shorter term money-market
accounts and certificates of deposits to anticipate cash requirements in fiscal
1996. As a consequence, cash and cash equivalents increased, substantially,
during fiscal 1995 to $1,885,975 as compared to $576,157 at
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November 30, 1994, a net increase of $1,309,818. Net cash used in investing
activities amounted to $1,386,931 due, primarily, to the aforementioned
redemption of short-term investments. Net cash used by financing activities
amounted to $97,443 which represents the Company's purchase of
Treasury Stock.
Liquidity is provided, principally, by cash generated by operating activities
and from investment income. For the fiscal year ended November 30, 1995, net
cash used by operating activities amounted to $20,330 which represents,
primarily, the significent decrease in the net loss for the current fiscal year.
Despite the net loss from operations, the Company does not anticipate the need
to raise additional funds nor expect to experience difficulty in satisfying its
cash requirements in fiscal 1996.
The effective income tax rate decreased from an actual expense of 3.1%, at the
1994 fiscal year-end, to (34.5%) at November 30, 1995 resulting from a
utilization of a net operating loss carry-backs for both fiscal 1994 and fiscal
1995. At November 30, 1995 the Company had a net operating loss carryforward of
approximately $75,000 for income tax purposes. The carryforward will expire in
the year 2010.
Fiscal 1994 as Compared to Fiscal 1993
Net sales of Company products decreased significently to $1,593,414 in fiscal
1994 from $2,022,808 in fiscal 1993. This decrease resulted, principally, from a
decrease in export sales of the SCENTOGRAPH PLUS II, portable gas chromatograph,
as well as slight decreases in the sales of parts, accessories and servicing of
all products. Sales of other products remained reltitvely stable although an
increase in the revenue generated from sales of the ACQUASCAN system occurred in
the last quarter of the 1994 fiscal year.
Cost of sales increased from 40.3% in fiscal 1993 to 41.2% in fiscal 1994, which
is a result of the decreases in net sales while rent, insurance and other
overhead costs remained fixed.
Selling, general and administrative costs decreased, significently, during
fiscal 1994 to $941,502 as compared to $1,106,720 in fiscal 1993. This decrease
resulted from cost-savings effected through reduction in Company personnel,
decreases in employee benifits, and declines in administrative expenses. As a
percentage of total revenue , selling, general and administrative costs remained
relitively stable at 54.5% as compared to 54.7% from the prior fiscal year.
Due to the decrease in net product sales during fiscal 1994, total revenue
decreased to $1,726,812 as compared to $2,129,374 for the 1993 fiscal year,
although a slight increase in interest and other income was evidenced. Due to
the aforementioned decrease in net product revenue, the Company experienced a
net loss of ($127,625) for the 1994 fiscal year as compared to a net income of
$33,889 for the prior fiscal year.
The Company anticipates revenue growth during fiscal 1995 through
one or more research and development contracts and increased sales efforts,
particularly, of the Aquascan system. This appears to be supported by the
increase in revenue experienced in the final quarter of the 1994
fiscal year.
13
<PAGE>
<PAGE>
Throughout fiscal 1994 the Company converted investments in cash and
certificates of deposit with maturities of three months or less to investments
in U.S. Government and Agency Bonds and certificates of deposit with maturities
of six to fifteen months to maximize return. As a consequence, cash and cash
equivalents decreased in fiscal 1994 from $1,744,463 as of November 30, 1993 to
$576,157 as of November 30, 1994. Cash flow used in investing activities
amounted to $913,392 due, primarily, to the net purchases of short term
investments of $927,589. Net cash used by financing activities amounted to
$129,995 which represents the Company's purchase of treasury stock.
Liquidity is provided, primarily, by cash generated by operating activities and
from investment income. For the fiscal year ended November 30, 1994, net cash
used by operating activities amounted to ($154,919) which is a result of the net
loss for the current fiscal year of ($127,625) and an increase in accounts
recievable due to an increase of products shipped in the last month of the
current fiscal year. Despite the net loss from operations, the Company does not
anticipate the need to raise additional funds nor expect to experience
difficulty in satisfying its cash requirements during fiscal 1995.
The effective pre-tax income rate decreased from 32.2% in fiscal 1993
to 2,4 % for fiscal 1994. This decrease was due, primarily, to the current year
net loss of ($127,625). Approximately 93% of the provision for income taxes is a
result of the change in deferred income taxes together with the net effect of
the previous years under accrual. The remaining 7% represents a combination of
corporate income and minimum taxes.
Financial Condition
At November 30, 1995, total current assets amounted to $2,817,166 as
compared to $3,077,317 at November 30, 1994 with approximately $2,400,000
readily available to fund present operations. Current liabilities decreased as
of November 30, 1995 to $118,149 as compared to $192,789 at November 30, 1994
due, principally, to decreases in the purchases of raw materials. At November
30, 1995, working capital stood at $2,699,017 as compared to $2,884,528 at the
close of the prior fiscal year, a decrease due, primarily, to the operating loss
experienced in the current fiscal year. Funds generated from operations and
investments plus the amount of funds currently available are expected to be
sufficient to fulfill the Company's anticipated cash requirements in fiscal
1996.
Changes in Accounting Standards
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of", in March 1995.
SFAS No. 121 established accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and good will related to those assets
to be held and used, and for the long-lived assets and certain identifible
intangibles to be disposed of. It is effective for financial statements issued
for fiscal years beginning after December 15, 1995. SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan"
14
<PAGE>
<PAGE>
establishes accounting standards for the impairment of certain loans. It is
effective for financial statements for fiscal years beginning after December 15,
1994. Adoptions of SFAS Nos. 121 and 114 is not expected to have a material
impact on the Company's financial statements.
The FASB has also issued SFAS No. 123, "Accounting for Stock Based
Compensation", in October 1995. SFAS No. 123 uses a fair value based method of
accounting for stock options and similiar equity instruments as contrasted to
the intrinsic valued based method of accounting proscribed by Accounting
Principals Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees".The accounting requirements of SFAS No. 123 are effective for
transactions entered into in fiscal years that begin after December 15, 1995;
the disclosure requirements of SFAS No. 123 are effective for financial
statements for fiscal years beginning after December 15, 1995. The Company
currently does not have any outstanding stock options.
In December, 1994, the American Institute of Certified Puplic Accountants
issued Statement of Position ("SOP") 94-6, "Disclosure of Certain Significent
Risks and Uncertainties", the provisions of which are effective for financial
statements issued for fiscal years ended after December 15, 1995. In general,
SOP 94-6 requires disclosures about the nature of a company's operations and the
use of estimates in the preparation of financial statements. The Company does
not anticipate a significent expansion of its financial statement note
disclosure as a result of SOP 94-6.
Item 7. Financial Statements
See Index to Financial Statements appearing on Page F-1.
Item 8. Changes in and Disagreements on Accounting and Financial Disclosure
Not applicable
15
<PAGE>
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance With Section 16(a) of the Exchange Act
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age
<S> <C> <C>
Joanne Bianco...........50 Interim President
Director
Amos Linenberg..........60 Director
Matthew Keshishian......56 Director
Joseph Bianco...........45 Director
Allan Esrine ...........66 Director
</TABLE>
All directors hold office until the next annual meeting of shareholders
of the Company and thereafter until their successors are chosen and qualified.
Executive officers of the Company are elected annually by the Board of Directors
and hold office until their successors are chosen and qualified, subject to
earlier removal by the Board of Directors.
The following relationships exist among the directors and executive
officers of the Company. Dr. Linenberg and Ms. Bianco were formerly married and
divorced in April 1995. Mr. Bianco is the brother of Ms. Bianco.
Ms. Joanne Bianco has acted as the Company's Secretary since November
1982, as a Director since November 1980 and, since May 1991 as President of the
wholly-owned subsidiary, Sentex Acquisition Corp. Ms. Bianco was the General
Manager of the Company from November, 1984 until May, 1991 and has also served
as its Executive Vice President and Chief Financial Officer. In August 1994 she
was appointed Interim President of the Company, to serve until a new President
is appointed. Ms. Bianco, an attorney, was formerly associated with Proskauer
Rose Goetz & Mendelsohn, a New York City law firm from June 1983 to September
1984. She holds an M.A. in Psychology from Fairleigh Dickenson University and a
J.D. from Benjamin N. Cardozo School of Law, Yeshiva University, where she was a
member of the Law Review.
Dr. Amos Linenberg, a Director, has acted in that capacity since
founding the Company in November 1980. From November 1980 until August 1994 Dr.
Linenberg was President of the Company. In May 1991, he was appointed President
of the wholly-owned subsidiary, Sentex Systems, Inc. and was reappointed as its
President upon its reformation. He is primarily responsible for executive
management as well as supervising the Company's research, development and
engineering of new products. From 1979 through 1980, Dr. Linenberg was a
Vice-President of XID Corporation, Clifton, New Jersey, which is a distributor
of the Company's portable explosives detector, the SCANEX JR. Dr. Linenberg
received his M.Sc. in Analytical Chemistry from Hebrew University and his Ph.D.
in Analytical Chemistry from the same university.
16
<PAGE>
<PAGE>
Matthew Keshishian, a Director of the Company since May, 1991, is an
attorney practicing in the State of New Jersey for more than 25 years. He holds
an M.BA from Fairleigh Dickinson University, a L.LB from George Washington
University and has served as an assistant professor of Marketing and Business at
Fairleigh Dickinson University, Teaneck, New Jersey. Mr. Keshishian is a member
of the U.S. Supreme Court, U.S. District Court, the U.S. Tax Court and the New
Jersey Court system. Mr. Keshishian has represented the Company on various legal
matters since 1981 and will be retained in the future should his services be
required.
Mr. Joseph Bianco, a Director, since May 1991, was a treasurer and
Director of the Company for the period November 1981 to April 1988. Since
November 1990, Mr. Bianco has been the Chairman, Chief Executive Officer and a
Director of Alliance Entertainment Inc. a public company engaged in the
distribution of records, compact disks and related items. In 1988, Mr. Bianco
founded Whyte, Lyon & Co., a general investment banking concern, of which he is
President. From August 1988 to August 1992, Mr. Bianco served as Chairman of the
Board of Dream Car Holdings, Inc and from 1992 to 1994, Mr. Bianco served as a
Director of New Day Beverage, Inc., a public company engaged in the bottling of
"new age" beverages. Mr. Bianco holds an M.A. from New York University and a
J.D. from Yale University, where he was a member of Law Review.
Mr. Allan Esrine, a Director since May 1991, has for the past six
years been a Vice President and Director of IDIICO, New York, New York, a
Company engaged in the private finance business.
Upon the closing of the proposed CPS Transaction (See Item 1(a) Business), four
of the five current directors of the Company will resign with CPS designees
being appointed to the Company's Board of Directors pending the next Annual
Meeting of Shareholders. It is contemplated that the four current directors who
will resign at that time are Amos Linenberg, Matthew Keshishian, Allan Esrine
and Joseph Bianco, while Joanne Bianco will remain a director with the four CPS
designees. CPS has advised the Company that the newly constituted Board of
Directors will appoint Mr. Robert S. Kendall as Chairman and President of the
Company and Mr. James Few as its Chief Financial Officer. A brief description of
the four CPS designees is as follows:
Mr. Robert S. Kendall (age 56) is Chairman and President of CPS, a
mergers and acquisition holding company. He is also Chairman of the Board and
founder of LDI Corporation, an asset leasing and technology services company
whose shares are traded on the NASDAQ Stock Market. Mr. Kendall is also a
general partner in NCP, Ltd., a real estate partnership engaged in acquiring,
financing and managing various types of real estate properties. Mr. Kendall
graduated from Case Western Reserve University with a bachelor's degree in
psychology and attended graduate school at John Carroll University.
Mr. James Few (age 46) has served as Vice President and Chief Financial
Officer of CPS since October 1995. From June 1993 to October 1995, Mr. Few was
an independant financial consultant. He served as Senior Vice President of
Boston Distributers from November 1992 to May 1993, which entity was declared
bankrupt pursuant to Chapter 11 of the Bankruptcy laws in February 1993 and
liquidated pursuant to Chapter 7 of the Bankruptcy laws sometime thereafter.
From May 1991 to November 1992, Mr. Few served as Executive Vice President of
Operations and Finance for Progressive Communications Technology. Mr. Few was
engaged as an independant financial consultant from 1989 to 1991. Mr. Few
recieved a bachelor's degree in Business Management from Providence College.
17
<PAGE>
<PAGE>
Mr. Julius Hess (age 34) is Assistant Vice President of CPS, where he is
responsible for research and analysis. Prior to joining CPS in November 1994,
Mr. Hess was Human Resources Manager for a division of GE Capital since 1990.
From 1989 to 1990 he was Senior Human Resources Representative for B.F.
Goodrich. Mr. Hess graduated from Miami University in Oxford, Ohio with a
bachelor's degree in political science and attended graduate school at the
University of Minnesota. Mr. Hess is Mr. Kendall's son-in-law.
Mr. Ronald M. Lipson (age 61) has been a practicing attorney for more
than thirty-five years in Cleveland, Ohio in various areas including corporate,
business and real-estate law. Mr. Lipson is also a general partner in G&C
Properties, an Ohio real estate partnership engaged in the buying, selling and
managing of various types of real estate. Mr. Lipson graduated from Adelbert
College of Case Western Reserve University with a bachelor's degree in business
administration and a J.D. from Case Western Reserve University of Law.
18
<PAGE>
<PAGE>
Item 10. Executive Compensation
The following table sets forth the cash compensation, as well as certain
other compensation on paid or accrued, for services rendered in all capacities
to the Company during the fiscal years ended November 30, 1995, 1994 and 1993
paid (i) to the Company's Chief Executive Officer and (ii) any other executive
officer whose cash compensation exceeded $100,000.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
Name & Fiscal Year Salary Other Restricted Options/
Principal Ended 11/30 Annual Stock SARs
Position Comp. Awards
($) ($) ($) ($)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Joanne Bianco 1995 99,999(1) 0 0 0
Interim President
Director
Amos Linenberg 1995 130,676 18,545(2) 0 0
President, Sentex
Systems, Inc.
Director
Joanne Bianco 1994 104,038(3) 0 0 0
Interim President
Director
Amos Linenberg 1994 132,176 18,377(2) 0 0
President,
Director
Amos Linenberg 1993 121,543 22,079(2,4) 0 0
President,
Director
</TABLE>
- ---------------------------------------
(1) Includes $13,461 of accrued but unpaid salary in fiscal 1995.
(2) Consists of automobile and insurance allowances.
(3) Includes $4,624 of deferred salary from fiscal 1993.
(4) Consists of contributions made to the Sentex Sensing
Technology Employee Profit Sharing Plan
Employment Agreements
The Company has no employment agreements with any Executive Officer. The CPS
Transaction (See Item 1(a) Business) contemplates that the Company will enter
into a four-year employment agreement with Dr. Linenberg. Pursuant to the
proposed employment agreement, Dr. Linenberg will act as Executive
Vice-President of the Company for a base salary of $132,176 per annum plus
annual cost-of living increases and certain incentive compensation up to a
maximum of 25% of his base compensation. The stock purchase agreements further
provide that, coincident with the closing
19
<PAGE>
<PAGE>
of the CPS Transaction, Ms. Bianco will resign as Interim President of the
Company to serve, for a two year period, as a part-time consultant to the
Company. The proposed agreement provides for a base compensation of 75,000 per
annum and further provides that she will agree not to engage directly or
indirectly in any competing business for a three year period. In consideration
of her agreement not to compete , it is contemplated that Ms. Bianco will
recieve an additional $100,000 from the Company payable in three equal
installments, during 1996, 1997 and 1998.
Stock Options
The Company has no stock options outstanding.
Compensation Pursuant to Plans
The Company has no plans pursuant to which cash or non-cash equivalents were
paid or distributed during the last fiscal year or are proposed to be paid or
distributed in the future.
Compensation of Directors
During fiscal 1995, Directors were not compensated for acting in that capacity.
20
<PAGE>
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of February 14, 1996
regarding the beneficial ownership of the Company's Common Stock by (i) all of
those known to the Company to be beneficial owners of more than five percent of
its Common Stock, (ii) each director and officer of the Company and (iii) all
directors and officers of the Company as a group. Except as otherwise indicated,
sole voting and investment power, with respect to shares listed in the table, is
held by the owner indicated.
<TABLE>
<CAPTION>
Amount and % of
Name and address Nature Shares
of Beneficial of Beneficial Out-
Owner(1) Ownership Standing
<S> <C> <C>
Amos Linenberg(2)(5)(6) 11,389,204 16.9%
Joanne Bianco(2)(7) 9,309,917 14.1%
Salvatore Bianco(3)(8) 4,192,000 6.1%
Derco, Ltd. 4,408,000 6.4%
P.O. Box 1790
Georgetown, Grand Cayman
Cayman Islands,
British West Indies
Matthew Keshishian 0 0
Joseph Bianco 0 0
Allan Esrine 0 0
All Directors and
Officers as a group
5 persons) 20,699,121 31.0%
</TABLE>
1) The name and address of each individual listed in the table is c/o Sentex
Sensing Technology Inc., 553 Broad Avenue, Ridgefield, N.J. 07657.
2) Dr. Amos Linenberg and Ms. Joanne Bianco were divorced in April, 1995. In
May, 1995 Dr. Linenberg transferred, for no consideration, 2,229,123 shares of
the Company's common stock to the Daniele Linenberg Trust. Daniele Linenberg is
the daughter of Dr. Linenberg and Ms. Bianco.
3) Mr. S. Bianco disclaims any benifical interest in the stock ownership of his
daughter, Ms. Joanne Bianco.
(4) There are no options or warrants for common stock that are convertible
within 60 days of the date hereof.
(5) In connection with the May 1995 transfer of 2,229,123 shares of common stock
to the Daniele Linenberg Trust, Dr. Linenberg failed to file, on a timely basis,
the report required pursuant Rule 16a-3(e) of the Securities Exchange Act of
1994. During the fiscal year ended November 30, 1995,all other such reports were
filed timely .
21
<PAGE>
<PAGE>
(6) Upon consummation of the CPS Transaction, CPS will own 3,000,000 shares of
common stock currently owned by Dr. Linenberg and will obtain voting control of
the remaining 8,389,204 shares.
(7) Upon consummation of the CPS Transaction, CPS will own 8,509,917 shares of
common stock currently owned by Ms. Bianco and will obtain voting control of the
remaining 1,000,000 shares.
(8) Upon consummation of the CPS Transaction, CPS will own 3,867,421 shares of
common stock, representing all of the shares of common stock currently owned by
Mr. Bianco.
Item 12. Certain Relationships and Related Transactions
Reference is made to Item 2 of this Form 10-KSB for the Company's
lease with Dr. Amos Linenberg.
Mr. Matthew Keshishian a Director of the Company recieved $9,000 and
$7500 for legal and consulting services to the Company during fiscal 1995 and
fiscal 1994, respectively. The Company believes that the terms of his
consultancy to be on terms no less favorable to the Company than could have been
recieved from unaffiliated third parties.
The Company paid Maklin Ltd., a software development company, $31,137
during fiscal 1995 for upgrades and modifications to several of the Company's
products. Maklin Ltd. is owned, in part. by Youri Linenberg, Dr. Linenberg's
son.
All current transactions between the Company, and its officers,
directors and principal stockholders or any affiliates thereof are, and in the
future such transactions will be, on terms no less favorable to the Company than
could be obtained from unaffiliated third parties.
22
<PAGE>
<PAGE>
Item 13. Exhibits, List and Reports on Form 8-K
(a) Exhibits
3.1* Certificate of Incorporation, as amended.
3.2* By-Laws.
3.3*** Certificate of Incorporation of Sentex
Acquisition Corp.
3.4*** Certificate of Incorporation of Sentex
Systems, Inc.
3.5*** Certificate of Merger of Sentex Systems Inc.
into the Company
3.6****Certificate of Incorporation of Sentex
Systems, Inc.
4.1* Specimen Certificate of Common Stock.
4.2* Specimen Warrant Certificate.
4.3* Warrant Agreement.
4.4* Underwriter's Warrant.
10.1* Research and Development Agreement between the
Company and Sentex Associates.
10.2* Technology Transfer Agreement between the Company
and Sentex Associates, as amended.
10.3* Distribution Agreement between the Company and
XID Corporation, as amended.
10.4* Employment Agreement with Dr. Amos Linenberg.
10.5** Consulting Agreement with Mr. Joseph Bianco.
10.6* Form of Shareholders' Option Agreements.
10.7* Letter of Agreement between the Company and XID
Corporation.
20.1 Information Statement provided to Security Holders
pursuant to Section 14(f) and electronically filed with the
Securities and Exchange Comission on December 12, 1995.
27.1 Financial Data Schedules, attached herewith.
* Incorporated by reference to exhibits bearing same exhibit
numbers, filed with the Company's Registration Statement on
Form S-1, File No. 2-86860.
** Incorporated by reference to exhibits bearing same exhibit numbers,
filed with the Company's Form 10-K for the year ended November 30,
1984.
*** Incorporated by reference to exhibits bearing the same exhibit numbers,
filed with the Company's Form 10-KSB for the fiscal year ended November
30, 1992.
**** Incorporated by reference to exhibits bearing the same exhibit numbers,
filed with the Company's Form 10-KSB for the fiscal year ended November
30, 1994.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed by the Company for the quarter ended
November 30, 1995.
23
<PAGE>
<PAGE>
SIGNATURE
Pursuant to the requirements of Sections 13 or 15 (d) 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.
Date: February 20, 1996 SENTEX SENSING TECHNOLOGY, INC.
BY:Joanne M. Bianco
Joanne M. Bianco
Interim President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on
the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
Joanne M. Bianco Interim President February 20,1996
Joanne M. Bianco Director
Amos Linenberg Director February 26, 1996
Amos Linenberg
Allan Esrine Director February 23, 1996
Allan Esrine
Matthew Keshishian Director February 23, 1996
Matthew Keshishian
Joseph Bianco Director February 23, 1996
Joseph Bianco
</TABLE>
24
<PAGE>
<PAGE>
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page to Page
<S> <C>
Report of Independent Auditors. . . . . . . F-2
Consolidated Balance Sheet as of
November 30, 1995 . . . . . . . . . . . . . F-3
Consolidated Statements of Operations
for the years ended November 30,
1995 and 1994 . . . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholders'
Equity for the years ended November 30,
1995 and 1994 . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows
for the years ended November 30,
1995 and 1994 . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial
Statements. . . . . . . . . . . . . . . . . F-7 .F-13
</TABLE>
F-1
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Sentex Sensing Technology, Inc.
Ridgefield, New Jersey
We have audited the accompanying consolidated
balance sheet of Sentex Sensing Technology, Inc. and
subsidiaries as of November 30, 1995, and the related
consolidated statements of operations, stockholders'
equity, and cash flows for each of the two fiscal years
in the period ended November 30, 1995. These
consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to
express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with
generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated
financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the
consolidated financial statements. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all
material respects, the consolidated financial position of
Sentex Sensing Technology, Inc. and its subsidiaries as
of November 30, 1995, and the results of their operations
and their cash flows for each of the two fiscal years in
the period ended November 30, 1995, in conformity with
generally accepted accounting principles.
As discussed in the accompanying notes to the
financial statements, effective December 1, 1994, the
Company adopted a new accounting standard promulgated by
the Financial Accounting Standards Board, changing its
method of accounting for certain investments in debt and
equity securities.
MORTENSON AND ASSOCIATES, P. C.
-------------------------------
MORTENSON AND ASSOCIATES, P. C.
Certified Public Accountants.
Cranford, New Jersey
January 26, 1996
F-2
<PAGE>
<PAGE>
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF NOVEMBER 30, 1995.
<TABLE>
<S> <C>
Assets:
Current Assets:
Cash and Cash Equivalents $1,885,975
----------
Certificates of Deposit 90,000
Short-Term Investments 209,559
Accounts Receivable [Net of Allowance for
Doubtful Accounts of $2,162] 248,953
Inventories 233,975
Prepaid Expenses 11,623
Refundable Income Taxes 12,400
Note Receivable 90,936
Other Current Assets 33,745
----------
Total Current Assets 2,817,166
Property and Equipment - [Net of Accumulated
Depreciation and Amortization] 48,991
Other Assets 10,735
----------
Total Assets $2,876,892
----------
----------
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable $ 37,450
Accrued Expenses 48,338
Accrued Payroll 16,752
Customer Deposits 8,700
Other Current Liabilities 6,909
----------
Total Current Liabilities 118,149
Commitments and Contingencies --
----------
Total Liabilities 118,149
----------
Stockholders' Equity:
Common Stock, No Par Value, Authorized
200,000,000 Shares, Issued 76,206,081 Shares,
Outstanding 67,360,081 Shares 1,955,489
Retained Earnings 1,110,298
----------
Total 3,065,787
Unrealized Holding Gain on Securities
Available for Sale 6,174
Less: Treasury Stock - At Cost -
8,846,000 Shares (313,218)
----------
Total Stockholders' Equity 2,758,743
----------
Total Liabilities and Stockholders' Equity:
$2,876,892
----------
----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
<PAGE>
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended
November 30,
--------------------
1 9 9 5 1 9 9 4
------- -------
<S> <C> <C>
Revenues:
Net Sales $ 1,313,138 $ 1,593,414
------------- ------------
Interest and Other Income 240,713 133,398
------------- ------------
Total Revenues 1,553,851 1,726,812
Costs and Expenses:
Cost of Sales 489,522 657,045
Selling, General and
Administrative 925,029 941,502
Research and Development 316,643 252,015
------------- ------------
Total Costs and Expenses 1,731,194 1,850,562
------------- ------------
Loss Before Income Tax
[Benefit] Expense (177,343) (123,750)
Provision for Income Tax
[Benefit] Expense (62,466) 3,875
------------- ------------
Net Loss $ (114,877) $ (127,625)
------------- ------------
------------- ------------
Net Loss Per Share $ -- $ --
------------- ------------
------------- ------------
Weighted Average Number of
Shares Outstanding 68,024,759 72,962,552
------------- ------------
------------- ------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
<PAGE>
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
Holding
Gain on
Common Stock Securities Treasury Stock Total
----------------------- Retained Available ------------------- Stockholders'
Shares Amount Earnings for Sale Shares Amount Equity
------ ------ -------- ---------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance -
November 30,
1993 76,206,081 $ 1,955,489 $ 1,352,800 $ -- 2,072,000 $ (85,780) $ 3,222,509
Acquisition of
Treasury Stock -- -- -- -- 3,881,000 (129,995) (129,995)
Net [Loss] -- -- (127,625) -- -- -- (127,625)
---------- ------------ ------------- -------- --------- ---------- -----------
Balance -
November 30,
1994 76,206,081 1,955,489 1,225,175 -- 5,953,000 (215,775) 2,964,889
Acquisition
of Treasury
Stock -- -- -- -- 2,893,000 (97,443) (97,443)
Unrealized
Holding
Gain on
Securities
Available
for Sale -- -- -- 6,174 -- -- 6,174
Net [Loss] -- -- (114,877) -- -- -- (114,877)
---------- ------------ ------------- -------- --------- ---------- -----------
Balance -
November 30,
1995 76,206,081 $ 1,955,489 $ 1,110,298 $ 6,174 8,846,000 $ (313,218) $ 2,758,743
---------- ------------ ------------- -------- --------- ---------- -----------
---------- ------------ ------------- -------- --------- ---------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
<PAGE>
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended
November 30,
----------------------
1 9 9 5 1 9 9 4
------- -------
<S> <C> <C>
Operating Activities:
Net [Loss] $ (114,877) $ (127,625)
Adjustments to Reconcile Net
[Loss] to Net Cash Provided by
[Used for] Operating Activities:
Depreciation and Amortization 28,270 33,690
Deferred Income Taxes 1,080 (615)
Gain on Sale of Equipment (4,706) (27,902)
Provision for Bad Debt 35,000 --
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable 206,953 (106,965)
Inventories (44,670) 30,408
Prepaid Expenses (11,567) 12,832
Refundable Income Taxes (11,682) (764)
Other Current Assets 12,760 (7,695)
Other Assets (10,735) --
Increase [Decrease] in:
Accounts Payable (15,370) 24,542
Accrued Expenses (34,556) 14,774
Accrued Payroll 10,825 670
Customer Deposits 215 3,159
Other Current Liabilities (26,610) (3,428)
----------- ------------
Total Adjustments 135,207 (27,294)
----------- ------------
Net Cash - Operating Activities 20,330 (154,919)
----------- ------------
Investing Activities:
Proceeds on Sale of Equipment 11,200 51,325
Redemption of Short-Term
Investments 1,775,370 1,290,000
Purchase of Short-Term
Investments (387,102) (2,217,589)
Acquisition of Equipment and
Improvements (12,537) (37,128)
----------- ------------
Net Cash - Investing Activities 1,386,931 (913,392)
----------- ------------
Financing Activities:
Acquisition of Treasury Stock (97,443) (129,995)
----------- ------------
Net Increase [Decrease] in Cash
and Cash Equivalents 1,309,818 (1,198,306)
Cash and Cash Equivalents -
Beginning of Years 576,157 1,774,463
----------- ------------
Cash and Cash Equivalents -
End of Years $ 1,885,975 $ 576,157
----------- ------------
----------- ------------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest $ -- $ --
Income Taxes $ 689 $ 9,525
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
<PAGE>
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[1] Organization, Background and Industry Segment
The consolidated financial statements include the
accounts of Sentex Sensing Technology, Inc. and its
wholly-owned subsidiaries [the "Company"]. All material
intercompany accounts and transactions have been
eliminated in consolidation.
One of the subsidiaries, Sentex Systems, Inc., is engaged
in the business of developing, manufacturing and selling
automated gas chromatography devices designed to detect
the presence of certain substances by identifying and
measuring the concentrations of certain atmospheric
vapors. The other subsidiary, Sentex Acquisition Corp.,
is pursuing new investment opportunities on behalf of the
Company.
The Company's business is confined to a single industry
segment, manufacturing analysis equipment.
[2] Summary of Significant Accounting Policies
Inventories - Inventories are stated at the lower of
cost, with cost being determined on the first-in,
first-out [FIFO] method, or market.
Equipment and Improvements and Depreciation - Equipment
and improvements are stated at cost less accumulated
depreciation and amortization. Depreciation and
amortization are computed using straight-line and
accelerated methods over the estimated useful lives of
the respective assets. Estimated useful lives range from
3 to 31.5 years as follows:
Machinery and Equipment 3 - 7 Years
Automobiles 3 - 5 Years
Leasehold Improvements 10 - 31.5 Years
Expenditures for normal repairs and maintenance are
charged against income as incurred.
Revenue Recognition - The Company records revenue as
products are shipped to customers.
Warranty Costs - The Company's products are sold with a
warranty for parts and labor. Estimated costs of product
warranties are charged to operations at time of sale.
Research and Development Costs - Research and development
costs are expensed as incurred.
Cash and Cash Equivalents - Cash equivalents are
comprised of certain highly liquid investments with a
maturity of three months or less when purchased. The
Company did not have any cash equivalents as of November
30, 1995.
Reclassification - Certain prior year balances have been
reclassified to conform to current year's presentation.
Concentration of Credit Risk - Financial instruments
which potentially subject the Company to concentrations
of credit risk are cash and cash equivalents, investments
in a certificate of deposit, U.S. Government and Agency
Bonds, and accounts receivable arising from its normal
business activities. Concentrations of credit risk with
respect to trade receivables are limited, due to the
number of customers comprising the Company's customer
base and their disposition across different industries
and geographic areas. Bad debt expenses have not been
material. The Company places its cash and cash
equivalents with high credit quality financial
institutions. The amount on deposit in any one
institution that exceeds federally insured limits is
subject to credit risk. As of November 30, 1995, the
Company had $852,219 in cash balances at financial
institutions which were in excess of the federally
insured limits.
F-7
<PAGE>
<PAGE>
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
[3] Inventories
Inventories consist of:
November 30,
1 9 9 5
-------
Raw Materials $ 115,812
Work-in-Process 36,177
Finished Goods 81,986
-----------
Total $ 233,975
-----------
-----------
[4] Property and Equipment
Property and equipment consist of the following:
November 30,
1 9 9 5
-------
Machinery and Equipment $ 134,475
Automobiles 22,826
Leasehold Improvements 15,100
--------------
Total - At Cost 172,401
Accumulated Depreciation
and Amortization 123,410
--------------
Net $ 48,991
--------------
--------------
[5] Investments
The Company adopted Statement of Financial Accounting
Standards ["SFAS"] No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," at December
1, 1994. In accordance with SFAS No. 115, prior years'
financial statements are not to be restated to reflect
the change in accounting method. There was no cumulative
effect as a result of adopting SFAS No. 115 at
December 1, 1994.
Management determines the appropriate classification of
its investments in debt and equity securities at the time
of purchase and reevaluates such determination at each
balance sheet date. Debt securities for which the
Company does not have the intent or ability to hold to
maturity are classified as available for sale.
Securities available for sale are carried at fair value,
with any unrealized holding gains and losses, net of tax,
reported in a separate component of stockholders' equity
until realized. At November 30, 1995, the Company had no
investments that qualified as trading or held to
maturity. Debt securities available for current
operations are classified in the balance sheet as current
assets.
At November 30, 1994, short-term investments were stated
at the lower of aggregate cost or market.
F-8
<PAGE>
<PAGE>
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
[5] Investments [Continued]
Realized gains and losses on disposition are based on the
net proceeds and the adjusted book value of the
securities sold using the specific identification method.
Unrealized holding gains and losses on investment
securities available for sale are based on the difference
between book value and fair value of each security. At
November 30, 1995, such securities include a gross
unrealized holding gain of $6,174. This gain is shown as
an addition to stockholders' equity. Realized gains and
losses flow through the Company's yearly operations.
There were no realized gains or losses for the year ended
November 30, 1995.
The amortized cost and fair value of investment
securities available for sale at November 30, 1995 are as
follows:
Fair Amortized
Value Cost
----- ----
U.S. Government Securities $ 209,559 $ 203,385
--------- ---------
--------- ---------
The estimated fair value of debt securities available for
sale by contractual maturity at November 30, 1995 is as
follows:
Due during the year ending November 30, 1996 $ 209,559
---------
---------
Expected maturities will differ from contractual
maturities because the issuers of the securities may have
the right to prepay obligations without prepayment
penalties.
[6] Note Receivable
The Note Receivable had an original due date of February
28, 1994, with interest payable at 16% per annum. The
principal portion is currently in default; however,
interest was paid up to and including April of 1995. On
May 4, 1995, the Company received a legal judgement for
the outstanding principal and accrued interest as of
April 30, 1995. The note is collateralized by stock
which had a value of approximately $42,000 as of
November 30, 1995. The Company is currently
renegotiating the remaining outstanding balance of
$115,936 and feels that an allowance of $25,000 is
prudent. Therefore, the outstanding balance as of
November 30, 1995 net of the allowance is $90,936.
[7] Leases [Related Parties]
The Company occupies premises under three operating
leases, which are renewed monthly, two of which are with
a principal shareholder. Rental expense amounted to
approximately $61,551 and $61,629 [of which $53,340 and
$53,418 was for related party leases] for the years ended
November 30, 1995 and 1994, respectively.
The leases provide for reimbursement of real estate taxes
above a base amount.
[8] Profit-Sharing Plan
The Company has a profit-sharing plan for the benefit of
all eligible employees. Contributions under the plan are
determined at the discretion of the Board of Directors
and are credited to employees based upon a percentage of
eligible salaries. The Company elected to suspend all
contributions for the years ended November 30, 1995 and
1994.
F-9
<PAGE>
<PAGE>
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
[9] Research and Development Agreements
The Company has been a party to research and development
agreements with unaffiliated limited partnerships. Under
an agreement which commenced in December 1981, the
Company conducted research relating to the development
and commercial exploitation of a portable toxic vapor
detector using preconcentrated gas chromatography on
behalf of a limited partnership.
The Company was a defendant in an action filed, in which
a judgement creditor of the partnership petitioned the
court to require the Company to transfer the total amount
being held in escrow to satisfy the research and
development agreement with the partnership, to the
judgement creditor. In April 1995, the action was
decided in favor of the creditor. The Company obtained
a release from the partnership for any and all claims it
has or may have against the Company by payment of a total
amount of $40,000, of which $21,261 was paid to the
creditor and $18,739 paid to the partnership.
In 1994, the Company entered into an agreement with a
non-profit corporation organized to sponsor research and
development with respect to electric energy. Based upon
the agreement, the Company is to develop an instrument
for a major utilities corporation. The total contract
revenue is for $185,500, which is to be billed in
installments based upon various stages of completion
throughout the agreement. The related total estimated
costs are approximately $151,300. As the earnings
process is substantially complete and substantially all
costs have been incurred, all revenue under the contract
has been accrued. For the years ended November 30, 1995
and 1994, the effect of this contract is as follows:
Years ended
November 30,
-----------------
1 9 9 5 1 9 9 4
------- -------
Revenue $ 135,500 $ 50,000
Costs Incurred $ 118,196 $ 33,104
[10] Income Taxes
Effective December 1, 1993, the Company adopted Financial
Accounting Standards Statement No. 109, "Accounting for
Income Taxes" ["FAS 109"]. Under FAS 109, deferred tax
assets and liabilities, are determined based on
difference between financial reporting and tax basis of
assets and liabilities, and are measured using the
enacted tax rates and laws that will be in effect when
the differences are expected to reverse. Prior to the
adoption of FAS 109, income tax expense was reported
pursuant to Financial Accounting Standards Statement No.
96. Under FAS 96, deferred tax assets could not be
recognized unless they offset reversals of deferred tax
liabilities. The adoption of SFAS No. 109 was not
material to the financial statements.
F-10
<PAGE>
<PAGE>
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
[10] Income Taxes [Continued]
Income tax [benefit] expense consists of the following:
November 30,
-------------------------
1 9 9 5 1 9 9 4
------- -------
Current:
Federal $(66,976) $ 1,279
State 2,950 3,211
-------- -------
Totals (64,026) 4,490
-------- -------
Deferred [Credit]:
Federal 975 (1,725)
State 585 1,110
-------- -------
Totals 1,560 (615)
-------- -------
Totals $(62,466) $ 3,875
-------- --------
-------- --------
The differences between the provision for income taxes
and income taxes computed using the U.S. federal income
tax rate were as follows:
November 30,
------------------
1 9 9 5 1 9 9 4
------- -------
Federal Statutory Rate (34.0)% (34.0)%
Increase [Reduction] in Taxes
Resulting from:
Effect of Graduated Federal
Tax Rates 19.0 19.0
States Taxes 8.1 12.9
Utilization of Net Operating
Loss Carryback (26.3) --
Other (1.3) 5.2
---- ---
Actual Expense (34.5)% (3.1)%
---- ---
---- ---
Temporary differences between financial reporting and tax
bases of assets and liabilities related to depreciation,
warranty payable, unrealized holding gain and allowance
for doubtful accounts are immaterial.
At November 30, 1995, the Company has net operating loss
carryforwards of approximately $75,000 for income tax
purposes after a carryback of approximately $80,000.
Refundable income taxes of $12,400 have been established
to reflect the tax effect of this carryback. The
carryforward will expire in the year 2010.
At November 30, 1995, the Company has a deferred tax
asset of approximately $42,000 and a valuation allowance
of approximately $42,000 related to the asset. The
deferred tax asset primarily relates to net operating
loss carryforwards.
F-11
<PAGE>
<PAGE>
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
[11] Loss Per Share
Loss per share is based on the weighted average number of
common shares outstanding for the periods presented.
[12] New Authoritative Pronouncements
The Financial Accounting Standards Board [FASB] issued
Statement of Financial Accounting Standards [SFAS] No.
121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed of, in March of
1995. SFAS No. 121 established accounting standards for
the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be
held and used, and for long-lived assets and certain
identifiable to be disposed of. SFAS No. 121 is
effective for financial statements issued for fiscal
years beginning after December 15, 1995. SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan,
establishes accounting standards for the impairment of
certain loans." SFAS No. 114 applies to financial
statement for fiscal years beginning after December 15,
1994. Adoption of SFAS No. 121 and SFAS No. 114 is not
expected to have a material impact on the Company's
financial statements.
The FASB has also issued SFAS No. 123, "Accounting for
Stock-Based Compensation," in October 1995. SFAS No. 123
uses a fair value based method of accounting for stock
options and similar equity instruments as contrasted to
the intrinsic valued based method of accounting
prescribed by Accounting Principles Board [APB] Opinion
No. 25, "Accounting for Stock Issued to Employees." The
accounting requirements of SFAS No. 123 are effective for
transactions entered into in fiscal years that begin
after December 15, 1995; the disclosure requirements of
SFAS No. 123 are effective for financial statements for
fiscal years beginning after December 15, 1995. The
Company currently does not have any outstanding stock
options.
On December 30, 1994, the American Institute of Certified
Public Accountants issued Statement of Position [SOP] 94-6,
"Disclosure of Certain Significant Risks and
Uncertainties," the provisions of which are effective for
financial statements issued for fiscal years ending after
December 15, 1995. In general, SOP 94-6 requires
disclosures about the nature of a company's operations
and the use of estimates in the preparation of financial
statements. The Company does not anticipate a
significant expansion of its financial statement note
disclosure as a result of SOP 94-6.
.............
F-12
<PAGE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information from the consolidated
balance sheet and the consolidated statements of operations and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> NOV-30-1995
<CASH> 1,885,975
<SECURITIES> 209,559
<RECEIVABLES> 248,953
<ALLOWANCES> 27,162
<INVENTORY> 233,975
<CURRENT-ASSETS> 2,817,166
<PP&E> 48,991
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,876,892
<CURRENT-LIABILITIES> 118,149
<BONDS> 0
<COMMON> 1,955,489
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,876,892
<SALES> 1,313,138
<TOTAL-REVENUES> 1,553,851
<CGS> 489,522
<TOTAL-COSTS> 1,731,194
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (177,343)
<INCOME-TAX> (62,466)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (114,877)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
