<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 August 31, 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
----- -----
<PAGE> 2
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
1
<PAGE> 3
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF AUGUST 31, 1997 [UNAUDITED]
<TABLE>
<S> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $1,322,039
Accounts receivable 926,662
Inventories 1,510,889
Other current assets 193,154
Income tax refunds 16,000
----------
TOTAL CURRENT ASSETS 3,968,744
EQUIPMENT AND IMPROVEMENTS - [NET OF
ACCUMULATED DEPRECIATION AND AMORTIZATION] 273,602
OTHER ASSETS
Goodwill 241,974
Deposits and other assets 34,532
----------
TOTAL ASSETS $4,518,852
==========
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE> 4
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF AUGUST 31, 1997 [UNAUDITED]
<TABLE>
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank loans $ 1,435,000
Accounts payable 910,373
Accrued expenses and other current liabilities 595,344
Due to related party 283,333
-----------
TOTAL CURRENT LIABILITIES 3,224,050
-----------
LONG-TERM DEBT
Convertible subordinated notes payable 468,000
Due to related party 0
-----------
TOTAL LONG-TERM DEBT 468,000
-----------
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 (1,038,517)
Treasury shares at cost (313,218)
Cumulative translation adjustment 25,048
-----------
TOTAL STOCKHOLDERS' EQUITY 826,802
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,518,852
===========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE> 5
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS [UNAUDITED]
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
------------ ------------ ------------ ------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 1,579,749 $ 353,504 $ 5,446,889 $ 807,074
Cost of sales 775,418 110,191 2,626,722 356,404
------------ ------------ ------------ ------------
Gross profit 804,331 243,313 2,820,167 450,670
Selling, General and Admin 1,148,440 325,300 3,696,633 909,776
Research and Development 102,160 55,825 289,190 158,892
------------ ------------ ------------ ------------
Operating loss (446,269) (137,812) (1,165,656) (617,998)
------------ ------------ ------------ ------------
Other income (expense)
Interest income 14,954 32,506 45,483 67,292
Other income 1,776 0 24,618 0
Interest expense (28,740) 0 (64,251) 0
Foreign currency transaction loss (37,263) 0 (119,376) 0
------------ ------------ ------------ ------------
Loss before income tax expense (495,542) (105,306) (1,279,182) (550,706)
Provision for income taxes 8,632 3,618 14,620 3,618
------------ ------------ ------------ ------------
Net loss $ (504,174) $ (108,924) $ (1,293,802) $ (554,324)
============ ============ ============ ============
Net loss per share $ (0.01) $ 0 $ (0.02) $ (0.01)
============ ============ ============ ============
Weighted Average Number of
Shares Outstanding 78,919,762 67,360,081 78,919,762 67,360,081
============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 6
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS [UNAUDITED]
<TABLE>
<CAPTION>
NINE MONTHS ENDED
AUGUST 31, AUGUST 31,
----------- -----------
1997 1996
----------- -----------
<S> <C>
OPERATING ACTIVITIES:
Net loss $(1,293,802) $ (554,324)
Adjustments to reconcile net [loss] income to net cash
Provided by [used in] operating activities:
Depreciation and amortization 60,078 33,945
Loss on sale of assets 0 (1,500)
Loss on sale of investments 0 (6,384)
Provision for bad debt 0 18,877
Change in assets and liabilities:
[Increase] decrease in:
Accounts receivable (93,872) (152,344)
Inventories 120,486 52,319
Other current assets (7,319) 25,745
Increase [decrease] in:
Accounts payable 17,317 (1,807)
Accrued expenses and other current liabilities (209,725) 19,706
Currency translation adjustment 27,732 0
----------- -----------
TOTAL ADJUSTMENTS (85,303) (11,443)
----------- -----------
NET CASH USED BY OPERATING ACTIVITIES (1,379,105) (565,767)
----------- -----------
INVESTING ACTIVITIES:
Redemption of short-term investments 0 246,945
Payment to prior shareholder (33,333) (33,333)
Purchase of Equipment and Improvements (1,342) (1,379)
Proceeds on sale of equipment 0 1,500
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (34,675) 213,733
----------- -----------
FINANCING ACTIVITIES:
Net proceeds on note payable - bank 865,000 190,000
Net proceeds on note payable - related party 250,000 0
Organizational Costs 0 (62,500)
Net decrease in factoring of accounts receivable (76,948) 0
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,038,052 127,500
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (375,728) (224,534)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIODS 1,697,767 1,885,975
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIODS $ 1,322,039 $ 1,661,441
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 7
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 August 31, 1997 and the
results of operations and cash flows for the three months ended August 31, 1997
and August 31, 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 August 31, 1997 and
August 31, 1996 are not necessarily indicative of the results to be expected
for the full year.
[3] INVENTORY
Inventories consist of:
<TABLE>
<CAPTION>
AUGUST 31,
----------
1997
----------
<S> <C>
Raw Materials $ 527,322
Work-in-Process 198,673
Finished Goods 784,894
----------
Total $1,510,889
==========
</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.
[6] ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share" which will revise the calculation methods and disclosures
regarding earnings per share. SFAS No. 128 is required to be adopted for
financial statements with fiscal years ending after December 31, 1997. The
Company has not determined the impact, if any, of this standard.
6
<PAGE> 8
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 is
now being 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 September 30, 1997, the Company had not entered into a firm commitment for
any such transaction.
In June 1997, the Company received a letter from the Nasdaq Stock Market, Inc.
("NASDAQ"), expressing a concern regarding the Company's continued listing on
the NASDAQ SmallCap Market. To be eligible for continued listing, all
securities, except warrants and options, must maintain a minimum bid price of
$1.00 or, as an alternative, if the bid price is less than $1.00, maintain
capital and surplus of $2,000,000 and a market value of the public float of
$1,000,000. Inasmuch as the Company was not in compliance with these
requirements, a period of 90 days was provided in which to regain compliance or
submit information as to why delisting was not appropriate. The Company
submitted additional information to NASDAQ in early September 1997. On
September 23,1997, NASDAQ rejected the Company's position. On or about
September 24, 1997, the Company applied for a hearing pursuant to NASDAQ's
internal procedures for a further review of the matter. A meeting is currently
scheduled for November 6, 1997. At the hearing the Company will submit
information intended to establish that delisting is not appropriate. If NASDAQ
rejects the Company's position, the Company will be delisted from the NASDAQ
market.
7
<PAGE> 9
SENTEX SENSING TECHNOLOGY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT'D)
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 August 31, 1997, Monitek's
assets totaled $2,551,000 (including $242,000 of goodwill) and its liabilities
totaled $2,799,000. The inclusion of such assets and liabilities significantly
increased the Company's assets and liabilities as compared to the amounts
reported at August 31, 1996. Total current assets increased to $3,968,000 at
August 31, 1997 as compared to $2,425,000 at August 31, 1996 and, for the same
dates, current liabilities increased to $3,224,000 from $177,000.
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 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 August 31, 1997, have had
an adverse effect on the working capital of the Company.
Working capital decreased to $744,000 at August 31, 1997 as compared to
$2,248,000 as of August 31, 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 $744,000, it should be noted
that $2,438,000 of its current assets are in the form of inventories and
accounts receivables. Cash and cash equivalents equaled $1,322,000 as of
August 31, 1997, $1,185,000 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's management 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 fourth 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
8
<PAGE> 10
SENTEX SENSING TECHNOLOGY, INC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT'D)
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 had borrowed $1,435,000 as of August 31,
1997. In May 1997, the Company entered into a temporary loan and security
agreement with its major shareholder, CPS Capital, Ltd. ("CPS"), to borrow up
to a maximum of $250,000 at an interest rate of prime plus two percent. At
August 31, 1997, borrowings under this agreement totaled $250,000. In
September 1997, the Company established another bank line of credit for
$1,000,000. To-date, the Company has borrowed $800,000 against this line and
has repaid the CPS loan as well as $250,000 of the original bank line, bringing
that balance down to $1,185,000. The primary use of the proceeds of these
loans was to fund operating losses incurred by the Company. Liquidity is
provided principally by cash on hand and the existing bank line of credit. The
Company anticipates the need to raise additional funds to fund its working
capital needs. 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 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
9
<PAGE> 11
SENTEX SENSING TECHNOLOGY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT'D)
air analyzers, a portable and fixed-site water monitoring system and a sensor
which measures the total organic content of air. Sentex 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.
Nine Months Ended August 31, 1997 Compared to Nine Months Ended August 31, 1996
The Company's net sales increased from $807,000 for the nine months ended
August 31, 1996 ("Fiscal 1996 Nine Months") to $5,447,000 for the nine months
ended August 31, 1997 ("Fiscal 1997 Nine Months") as a result of the
acquisition of Monitek. Sentex's net sales decreased from $807,000 to
$661,000, or 18 %, while Monitek's net sales increased from $4,695,000 to
$4,786,000, or 2%. In addition, the backlog of unshipped customer orders for
the combined operations increased from $853,000 at August 31, 1996 to
$1,278,000 at August 31, 1997. Since the Merger with Monitek, management has
implemented a number of organizational and policy changes targeted at
increasing sales. Although it is impossible to measure the impact that these
changes have had on sales to-date, management is confident that they will have
a positive impact on future sales.
Cost of goods sold, as a percentage of sales, increased from 44% for the Fiscal
1996 Nine Months to 48% for the Fiscal 1997 Nine Months. Sentex's cost of good
sold increased from 44% to 47%, primarily as a result of the decrease in net
sales, while Monitek's cost of goods sold amounted to 48% of net sales. For
the Fiscal 1996 Nine Months, Monitek's cost of goods sold, as a percentage of
net sales, was 47%.
Selling, general and administrative expenses increased from $910,000 for the
Fiscal 1996 Nine Months to $3,697,000 for the comparable Fiscal 1997 period,
primarily due to the addition of Monitek. Sentex's expenses increased by
$62,000 and Monitek's expenses totaled $2,725,000. The increase in Sentex's
expenses was primarily the result of the addition of sales and administrative
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 $2,669,000 for the Fiscal 1996 Nine Months.
Management has recently implemented a cost reduction program which is expected
to result in a sizable decrease in selling, general and administrative expenses
starting in the second half of Fiscal 1997.
Research and development expense increased from $159,000 for the Fiscal 1996
Nine Months to $289,000 for the Fiscal 1997 Nine Months. The expenditures of
Sentex decreased by $35,000 for the Fiscal 1997 Nine Months, while Monitek's
expenses totaled $165,000. Monitek's research and development expenses were
$179,000 for the Fiscal 1996 Nine Months.
10
<PAGE> 12
SENTEX SENSING TECHNOLOGY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT'D)
Operating losses increased from $618,000 for the Fiscal 1996 Nine Months to
$1,166,000 for the Fiscal 1997 Nine Months. The Sentex loss for the 1997
period was $772,000 and it exceeded the 1996 loss, primarily as a result the
decrease in sales and the increase in selling, general and administrative
expenses. Monitek's operating losses for the Fiscal 1997 Nine Months and
Fiscal 1996 Nine Months, respectively, were $393,000 and $376,000.
As a result of bank borrowings, the Company incurred interest expense of
$64,000 for the Fiscal 1997 Nine Months compared to no interest expense for the
comparable 1996 period.
As a result of sales transactions between Monitek and its German subsidiary and
currency fluctuations during the Fiscal 1997 Nine Months, Monitek suffered a
foreign currency exchange loss of $119,000 for the period, which represented
more than 9% of the net loss for the period. No foreign currency transactions
were reported during the comparable 1996 period. For the Fiscal 1996 Nine
Months, Monitek's foreign currency exchange loss was $10,000.
Net losses increased from $554,000 for the Fiscal 1996 Nine Months to
$1,294,000 for the Fiscal 1997 Nine Months, primarily as a result of the
$118,000 increase in Sentex's operating loss, Monitek's operating loss of
$393,000, the foreign exchange loss of $119,000 and the interest expense of
$64,000.
11
<PAGE> 13
OTHER INFORMATION
Exhibits and Reports on Form 8-K
(a) EXHIBIT 27.1 -- FINANCIAL DATA Schedule
(b) During the quarter ended August 31, 1997, the Company did not file any
reports on Form 8-K.
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: October 13, 1997 SENTEX SENSING TECHNOLOGY, INC.
By: s/Robert S. Kendall
------------------------------------------
Robert S. Kendall, Chief Executive Officer
s/James S. O'Leary
------------------------------------------
James S. O'Leary, Chief Financial Officer
12
<PAGE> 14
EXHIBIT INDEX
-------------
Exhibit 27.1 -- FINANCIAL DATA SCHEDULE
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> JUN-01-1997
<PERIOD-END> AUG-31-1997
<CASH> 1,322,039
<SECURITIES> 0
<RECEIVABLES> 961,601
<ALLOWANCES> (34,939)
<INVENTORY> 1,510,889
<CURRENT-ASSETS> 3,968,744
<PP&E> 1,197,354
<DEPRECIATION> (923,752)
<TOTAL-ASSETS> 4,518,852
<CURRENT-LIABILITIES> 3,224,050
<BONDS> 0
0
0
<COMMON> 2,153,489
<OTHER-SE> (1,326,687)
<TOTAL-LIABILITY-AND-EQUITY> 4,518,852
<SALES> 1,579,749
<TOTAL-REVENUES> 1,596,479
<CGS> 775,418
<TOTAL-COSTS> 775,418
<OTHER-EXPENSES> 1,287,863
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,740
<INCOME-PRETAX> (495,542)
<INCOME-TAX> 8,632
<INCOME-CONTINUING> (504,174)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (504,174)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
