<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended February 28, 1997
OR
(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-13328
SENTEX SENSING TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-2333899
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
553 Broad Avenue, Ridgefield, New Jersey 07657
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 945-3694
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
1
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Securities and Exchange Act of 1934
after the distribution of securities under a plan confirmed by a court.
Yes [ ] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 78,919,762
2
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SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF FEBRUARY 28, 1997 [UNAUDITED]
<TABLE>
<S> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $1,642,437
Accounts receivable 869,167
Inventories 1,556,375
Other current assets 175,338
Income tax refunds 16,000
----------
TOTAL CURRENT ASSETS 4,259,317
EQUIPMENT AND IMPROVEMENTS - [NET OF
ACCUMULATED DEPRECIATION AND AMORTIZATION] 294,987
OTHER ASSETS
Goodwill 245,117
Deposits and other assets 34,637
----------
TOTAL ASSETS $4,834,058
==========
</TABLE>
See Notes to Consolidated Financial Statements.
3
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SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF FEBRUARY 28, 1997 [UNAUDITED]
<TABLE>
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank loans $ 1,315,000
Accounts payable 644,979
Accrued expenses and other current liabilities 671,197
Due to related party 33,333
-----------
TOTAL CURRENT LIABILITIES 2,664,509
-----------
LONG-TERM DEBT
Convertible subordinated notes payable 468,000
Due to related party 33,333
-----------
TOTAL LONG-TERM DEBT 501,333
-----------
STOCKHOLDERS' EQUITY:
Common stock, no par value, authorized
200,000,000 shares, issued 87,865,762 shares,
outstanding 78,919,762 shares 2,153,489
Accumulated deficit (188,657)
Treasury shares at cost (313,218)
Cumulative translation adjustment 16,602
-----------
TOTAL STOCKHOLDERS' EQUITY 1,668,216
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,834,058
===========
</TABLE>
See Notes to Consolidated Financial Statements.
4
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SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS [UNAUDITED]
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
FEBRUARY 28 FEBRUARY 29
1997 1996
------------ ------------
<S> <C> <C>
Net sales $ 1,809,898 $ 309,045
Cost of sales 858,302 140,969
------------ ------------
Gross profit 951,596 168,076
Selling, General and Administrative 1,257,892 283,138
Research and Development 89,140 53,746
------------ ------------
Operating loss (395,436) (168,808)
------------ ------------
Other income (expense)
Interest income 18,361 19,255
Other income 13,020 0
Interest expense (16,057) 0
Foreign currency transaction loss (63,830) 0
------------ ------------
Loss before income tax expense (443,942) (149,553)
Provision for income taxes 0 0
------------ ------------
Net loss $ (443,942) $ (149,553)
============ ============
Net loss per share $ (0.01) $ 0
============ ============
Weighted Average Number of
Shares Outstanding 78,919,762 67,360,081
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
5
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SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS [UNAUDITED]
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
FEBRUARY 28 FEBRUARY 29
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (443,942) $ (149,553)
Adjustments to reconcile net [loss] income to net cash Provided by [used in]
operating activities:
Depreciation and amortization 31,879 5,759
Provision for bad debt 7,251 0
Change in assets and liabilities:
[Increase] decrease in:
Accounts receivable (43,628) 122,027
Inventories 75,000 13,296
Other current assets 15,073 (36,301)
Income tax refund 0 (3,600)
Increase [decrease] in:
Accounts payable (248,077) (52,024)
Accrued expenses and other current liabilities (133,872) 48,749
Income taxes payable 0 3,600
Currency translation adjustment 18,914 0
----------- -----------
TOTAL ADJUSTMENTS (277,460) 101,506
----------- -----------
NET CASH USED BY OPERATING ACTIVITIES (721,402) (48,047)
----------- -----------
INVESTING ACTIVITIES:
Purchase of short-term investments 0 (626,803)
Acquisition of equipment and improvements (1,980) 0
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (1,980) (626,803)
----------- -----------
FINANCING ACTIVITIES:
Net proceeds on note payable - bank 745,000 0
Net decrease in factoring of accounts receivable (76,948) 0
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 668,052 0
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (55,330) (674,850)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIODS 1,697,767 1,885,975
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIODS $ 1,642,437 $ 1,211,125
=========== ===========
See Notes to Consolidated Financial Statements.
</TABLE>
6
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SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED]
[1] In the opinion of management, the unaudited financial statements contain all
adjustments [consisting of only normal recurring accruals and repayments]
necessary to present fairly the financial position at February 28, 1997 and the
results of operations and cash flows for the three months ended February 28,
1997 and February 29, 1996.
These interim statements should be read in conjunction with the audited
financial statements and notes thereto included in the Company's Annual Report
on Form 10-KSB for the fiscal year ended November 30, 1996 (Commission File No.
2-13328).
[2] The results of operations for the three months ended February 28, 1997 and
February 29, 1996 are not necessarily indicative of the results to be expected
for the full year.
[3] INVENTORY
Inventories consist of:
<TABLE>
<CAPTION>
February 28,
1997
----------
<S> <C>
Raw Materials $ 575,638
Work-in-Process 197,322
Finished Goods 783,415
----------
Total $1,556,375
==========
</TABLE>
[4] EARNINGS PER SHARE
Earnings [loss] per share are based on the weighted average number of common
shares outstanding for the periods presented, after adjustment for the shares
issued in the stock acquisition.
[5] PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Sentex Sensing
Technology, Inc. and its wholly-owned subsidiaries [the "Company"]. All material
inter-company accounts and transactions have been eliminated in consolidation.
7
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SENTEX SENSING TECHNOLOGY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company formed two wholly owned subsidiaries, Sentex Systems, Inc., and
Sentex Acquisitions Corp. on May 31, 1991 to separate the present operations of
the Company into a subsidiary to continue the business of designing, developing
and marketing gas chromatographic devices, and a subsidiary to develop and
acquire new investment opportunities.
Effective November 30, 1996, Monitek Technologies, Inc., a Delaware corporation
("Monitek") became a wholly owned subsidiary of the Company, pursuant to a
merger (the "Merger") of Sentex Merger Corp., a Delaware corporation and wholly
owned subsidiary of the Company ("Subcorp"), with and into Monitek. Monitek will
now be operated as a wholly owned subsidiary of the Company. Monitek also
operates a portion of its business through a wholly owned German subsidiary of
Monitek named Monitek GmbH, which over the last three years has accounted for
over 60% of Monitek's total revenues. The Company has begun to integrate the
operations of Monitek with the operations of the Company.
Hereinafter the "Company" shall refer to Sentex Sensing Technology, Inc. and its
three wholly owned subsidiaries, Sentex Acquisition Corp., Sentex Systems, Inc.
("Sentex") and Monitek.
The Company also intends to acquire other businesses which may be unrelated to
its present activities and is presently investigating such opportunities. As of
March 31, 1997 the Company had not entered into a firm commitment for any such
transaction.
FINANCIAL CONDITION
Effects of Merger on Working Capital and Liquidity
The Merger became effective on November 30, 1996, the last day of the Company's
fiscal year 1996. Accordingly, assets and liabilities of Monitek have been
included in the balance sheet of the Company. At February 28, 1997, Monitek's
assets totaled $2,404,927 (including $245,117 of goodwill) and its liabilities
totaled $2,348,866. The inclusion of such assets and liabilities dramatically
increased the Company's assets and liabilities as compared to the amounts
reported at February 29, 1996. Total current assets increased to $4,259,317 at
February 28, 1997 as compared to $2,678,258 at February 29, 1996 and, for the
same dates, current liabilities increased to $2,664,509 from $115,738.
During its last three fiscal years, and the eight-month period ended November
30, 1996, Monitek incurred losses from operations. In addition, Monitek's
certified public accountants, KPMG Peat Marwick LLP, had included in their
auditors' report, which covers Monitek's financial statements for each of the
years in the three-year period
8
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SENTEX SENSING TECHNOLOGY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT'D)
ended March 31, 1996, a statement that Monitek's recurring losses from
operations raised substantial doubt about Monitek's ability to continue as a
going concern. Monitek's losses, together with the losses sustained by Company
through the period ended February 28, 1997, have had an adverse effect on the
working capital of the Company.
Working capital decreased to $1,594,808 at February 28, 1997 as compared to
$2,562,520 as of February 29, 1996. The decrease is mainly due to the increase
in current liabilities assumed from Monitek and funding of operating losses.
Even though the Company has working capital of almost $1,600,000, it should be
noted that $2,441,542 of its current assets are in the form of inventories and
accounts receivables. Cash and cash eqivalents equaled $1,642,437 as of February
28, 1997, $1,315,000 of which has been pledged to secure a line of credit.
While no assurance can be made that the Merger will result in the Company
becoming profitable again, the Company believes that by using established
manufacturer representative relationships and expanded industry and market
exposure, it will have the opportunity to potentially exceed sales
volumes achieved by the two prior companies in prior years. The Company also
intends to attempt to take advantage of economies of scale to reduce selling,
general and administrative expenses. The new combined Company has several new
products which are expected to be available for sale during the second quarter
of fiscal 1997. The Company believes that the new products will be less
expensive to produce and easier to use because the customers will have the
ability to service or calibrate the instrument without interrupting the process
flow of liquid or engaging in extensive structural work often necessary with
conventional models. These new products are replacements for existing items and
the Company believes these products will increase sales revenue as well as
increase the overall gross margin percentages of the Company.
To address the Company's immediate working capital needs the Company established
a bank line of credit and has borrowed $1,315,000 as of February 28, 1997. The
primary use of the proceeds was to fund operating losses incurred by both Sentex
and Monitek. Liquidity is provided principally by cash on hand and the existing
bank line of credit. The Company anticipates the need to raise additional funds
during fiscal 1997 to fund its working capital needs that presently cannot be
funded through the operations of the Company. In this regard, the Company will
probably seek to expand its borrowings through increased asset based lines of
credit, which the Company believes it will be able to obtain. There are
currently no material commitments anticipated for capital expenditures during
fiscal 1997. The Company will continue to seek growth through internal means as
well as further acquisitions. In the event an acquisition candidate were
identified, the Company may need to seek additional financing.
Net Operating Losses; IC-DISC
The Company has approximately $7,000,000 in net operating losses as of fiscal
1996, which will expire at various dates through the year 2001, that are mainly
attributable to
9
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SENTEX SENSING TECHNOLOGY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT'D)
losses incurred by Monitek. Federal tax law imposes restrictions on the use of
net operating loss carry-forwards in the event of a change in ownership, such as
a merger. Due to the Merger, approximately $6,000,000 of the $7,000,000 net
operating losses may be subject to these limitations and potentially may not be
able to provide any economic benefit to the Company.
As of April 1, 1991, Monitek's IC-DISC, Monitek International, Inc., was
effectively terminated. As a result, Monitek began repatriation of the
undistributed earnings of the IC-DISC as of April 1, 1991. The undistributed
earnings of approximately $780,000 has been and will continue to be recognized
as non-cash income, for tax return purposes, amortized straight-line, over the
10-year period ending March 31, 2001.
RESULTS OF OPERATIONS
Sentex is engaged in the business of developing, manufacturing and selling
automated devices designed to identify and measure the concentrations of certain
chemicals in air, water and soil. Sentex 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.
Sentex also provides technical assistance and service to its customers and, on
occasion, performs research and development, on a contractual basis, to develop
instrumentation designed to fulfill customer-specific analytical requirements.
All of Sentex's products employ gas chromatography as the method of analysis.
Monitek designs, develops, assembles and markets instruments for the measurement
of clarity (turbidity), suspended solids content, color, purity, flow, level and
volume of liquids in industrial and waste water environments.
Quarter Ended February 28, 1997 Compared to Quarter Ended February 29, 1996
The Company's net sales increased from $309,045 for the three months ended
February 29, 1996 ("Fiscal 1996 Three Months") to $1,809,898 for the three
months ended February 28, 1997 ("Fiscal 1997 Three Months") as a result of the
acquisition of Monitek. Sentex net sales decreased by $129,829, or 42%, while
Monitek generated sales of $1,697,051 for the Fiscal 1997 Three Months. The
decrease in Sentex sales can be attributed somewhat to slow start in
integrating the Sentex product line into the Monitek sales force, which
consists primarily of independent manufacturers' representatives. Sentex's
backlog of unshipped orders increased from $42,046 as of February 29, 1996 to
$251,969 as of February 28, 1997, which indicates that sales momentum was
beginning to build. For comparative purposes, Monitek's net sales for the
Fiscal 1996 Three Months were $1,519,000.
Cost of goods sold, as a percentage of sales, increased from 46% for the Fiscal
1996 Three Months to 47% for the Fiscal 1997 Three Months. Sentex's cost of good
sold remained constant at 46% while Monitek's amounted to 48% of net sales. For
the Fiscal 1996 Three Months, Monitek's cost of goods sold, as a percentage of
net sales, was 47%.
10
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SENTEX SENSING TECHNOLOGY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT'D)
Selling, general and administrative expenses increased from $283,138 for the
Fiscal 1996 Three Months to $1,257,892 for the comparable Fiscal 1997 period,
primarily due to the addition of Monitek. Sentex's expenses increased by
$60,543 and Monitek's expenses totaled $914,211. The increase in Sentex's
expenses was primarily the result of the addition of personnel to manage and
support the new sales force acquired by Sentex as a result of the Monitek
acquisition. Monitek's selling, general and administrative expenses totaled
$885,505 for the Fiscal 1996 Three Months.
Research and development expense increased from $53,746 for the Fiscal 1996
Three Months to $89,140 for the Fiscal 1997 Three Months. The expenditures of
Sentex decreased by $9,041 while Monitek's expenses were $44,435. Monitek's
research and development expenses were $45,493 for the Fiscal 1996 Three
Months.
Operating losses increased from $168,808 for the Fiscal 1996 Three Months to
$395,436 for the Fiscal 1997 Three Months. The Sentex loss for the 1997 period
was $292,420 and it exceeded the 1996 loss as a result of lower sales and
the increase in selling, general and administrative expenses. Monitek's
operating loss for the Fiscal 1997 Three Months and Fiscal 1996 Three Months,
respectively, were $103,016 and $140,989.
As a result of sales transactions between Monitek and its German subsidiary and
currency fluctuations during the Fiscal 1997 Three Months, Monitek suffered a
foreign currency exchange loss of $63,830 for the period. No foreign currency
transactions were reported during the comparable 1996 period. For the Fiscal
1996 Three Months, Monitek's foreign currency exchange loss was $25,490.
Net losses increased from $149,553 for the Fiscal 1996 Three Months to $443,942
for the Fiscal 1997 Three Months, primarily as a result of the increase in
operating losses and foreign currency exchange losses.
11
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OTHER INFORMATION
Exhibits and Reports on Form 8-K
(a) No exhibits are filed herewith.
(b) During the quarter ended February 28, 1997, the Company filed the following
reports on Form 8-K with respect to events that occurred in the fourth quarter
of fiscal year 1996:
(1) Form 8-K, filed on December 3, 1996 covering Item 4 (Changes
in Registrant's Certifying Accountants), file number
000-13328;
(2) Form 8-K, filed on December 13, 1996 covering Item 2
(Acquisition or Disposition of Assets) and Item 5 (Other
Events), file number 000-13328; and
(3) Form 8-K/A, filed on February 7, 1997 amending (2) above to
incorporate by reference the financial statements required to
be filed with (2) above, file number 000-13328.
SIGNATURE
Pursuant to the requirements of section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized:
Date: April 14, 1997 SENTEX SENSING TECHNOLOGY, INC.
By: _______________________________
Robert S. Kendall, Chief
Executive Officer
____________________________________
James S. O'Leary, Chief Financial
Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> FEB-28-1997
<CASH> 1,642,437
<SECURITIES> 0
<RECEIVABLES> 905,406
<ALLOWANCES> 36,239
<INVENTORY> 1,556,375
<CURRENT-ASSETS> 4,259,317
<PP&E> 1,175,703
<DEPRECIATION> 880,716
<TOTAL-ASSETS> 4,834,058
<CURRENT-LIABILITIES> 2,664,509
<BONDS> 0
0
0
<COMMON> 2,153,489
<OTHER-SE> (485,273)
<TOTAL-LIABILITY-AND-EQUITY> 4,834,058
<SALES> 1,809,898
<TOTAL-REVENUES> 1,841,279
<CGS> 858,302
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,410,862
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,057
<INCOME-PRETAX> (443,942)
<INCOME-TAX> 0
<INCOME-CONTINUING> (443,942)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (443,942)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
