<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 May 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
incorporation or organization) Identification No.)
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 X 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
<PAGE> 3
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF MAY 31, 1997 [UNAUDITED]
<TABLE>
<S> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $1,556,682
Accounts receivable 1,278,368
Inventories 1,439,313
Other current assets 156,905
Income tax refunds 16,000
----------
TOTAL CURRENT ASSETS 4,447,268
EQUIPMENT AND IMPROVEMENTS - [NET OF
ACCUMULATED DEPRECIATION AND AMORTIZATION] 285,839
OTHER ASSETS
Goodwill 238,832
Deposits and other assets 32,297
----------
TOTAL ASSETS $5,004,236
==========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE> 4
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF MAY 31, 1997 [UNAUDITED]
<TABLE>
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank loans $ 1,435,000
Accounts payable 940,240
Accrued expenses and other current liabilities 550,115
Due to related party 283,333
-----------
TOTAL CURRENT LIABILITIES 3,208,688
-----------
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 (534,343)
Treasury shares at cost (313,218)
Cumulative translation adjustment 21,620
-----------
TOTAL STOCKHOLDERS' EQUITY 1,327,548
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,004,236
===========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 5
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS [UNAUDITED]
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------- -----------------------------
MAY 31, MAY 31, MAY 31, MAY 31,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 2,057,242 $ 144,525 $ 3,867,140 $ 453,570
Cost of sales 993,002 105,931 1,851,304 246,213
------------ ------------ ------------ ------------
Gross profit 1,064,240 38,594 2,015,836 207,357
Selling, General and Admin 1,290,301 301,338 2,548,193 584,476
Research and Development 97,890 48,634 187,030 103,067
------------ ------------ ------------ ------------
Operating loss (323,951) (311,378) (719,387) (480,186)
------------ ------------ ------------ ------------
Other income (expense)
Interest income 12,168 15,531 30,529 34,786
Other income 9,822 0 22,842 0
Interest expense (13,264) 0 (35,511) 0
Foreign currency transaction loss (28,695) 0 (82,113) 0
------------ ------------ ------------ ------------
Loss before income tax expense (343,920) (295,847) (783,640)
Provision for income taxes 5,988 0 5,988 0
------------ ------------ ------------ ------------
Net loss $ (349,908) $ (295,847) $ (789,628) $ (445,400)
============ ============ ------------ ------------
Net loss per share $ 0 $ 0 $ (0.01) $ (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.
5
<PAGE> 6
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS [UNAUDITED]
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------
MAY 31, MAY 31,
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (789,628) $ (445,400)
Adjustments to reconcile net [loss] income to net cash Provided by [used in]
operating activities:
Depreciation and amortization 48,642 19,852
Loss on sale of assets 0 (1,500)
Loss on sale of investments 0 (6,384)
Provision for bad debt 0 15,839
Change in assets and liabilities:
[Increase] decrease in:
Accounts receivable (445,578) 93,094
Inventories 192,062 22,834
Other current assets 33,506 23,482
Increase [decrease] in:
Accounts payable 47,184 (1,807)
Accrued expenses and other current liabilities (254,954) (38,131)
Currency translation adjustment 22,962 0
----------- -----------
TOTAL ADJUSTMENTS (356,176) 127,279
----------- -----------
NET CASH USED BY OPERATING ACTIVITIES (1,145,804) (318,121)
----------- -----------
INVESTING ACTIVITIES:
Redemption of short-term investments 0 337,635
Payment to prior shareholder (33,333) (33,333)
Proceeds on sale of equipment 0 1,500
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (33,333) 305,802
----------- -----------
FINANCING ACTIVITIES:
Net proceeds on note payable - bank 865,000 0
Net proceeds on note payable - related party 250,000 0
Net decrease in factoring of accounts receivable (76,948) 0
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,038,052 0
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (141,085) (12,319)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIODS 1,697,767 1,885,975
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIODS $ 1,556,682 $ 1,873,656
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
6
<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 May 31, 1997 and the
results of operations and cash flows for the three months ended May 31, 1997 and
May 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 May 31, 1997 and May
31, 1996 are not necessarily indicative of the results to be expected for the
full year.
[3] INVENTORY
Inventories consist of:
<TABLE>
<CAPTION>
MAY 31,
1997
----------
<S> <C>
Raw Materials $ 504,270
Work-in-Process 182,635
Finished Goods 752,408
----------
Total $1,439,313
==========
</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
<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 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
June 30, 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 May 31, 1997, Monitek's assets
totaled $2,762,000 (including $239,000 of goodwill) and its liabilities totaled
$2,813,000. The inclusion of such assets and liabilities dramatically increased
the Company's assets and liabilities as compared to the amounts reported at May
31, 1996. Total current assets increased to $4,447,000 at May 31, 1997 as
compared to $2,316,000 at May 31, 1996 and, for the same dates, current
liabilities increased to $3,209,000 from $112,000.
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
8
<PAGE> 9
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 May 31, 1997, have had an adverse effect on the working
capital of the Company.
Working capital decreased to $1,239,000 at May 31, 1997 as compared to
$2,204,000 as of May 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 $1,239,000, it should be noted that
$2,718,000 of its current assets are in the form of inventories and accounts
receivables. Cash and cash equivalents equaled $1,557,000 as of May 31, 1997,
$1,435,000 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 second half 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 $1,435,000 as of May 31, 1997. In
addition, the Company has 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 May 31, 1997,
borrowings under this agreement totaled $250,000. 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.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT'D)
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 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.
Six Months Ended May 31, 1997 Compared to Six Months Ended May 31, 1996
The Company's net sales increased from $454,000 for the six months ended May 31,
1996 ("Fiscal 1996 Six Months") to $3,867,000 for the six months ended May 31,
1997 ("Fiscal 1997 Six Months") as a result of the acquisition of Monitek.
Sentex net sales increased by $31,000, or 7 %, while Monitek's net sales
increased from $3,101,000 to $3,382,000, or 9%. In addition, the backlog of
unshipped customer orders for the combined operations increased from $728,000 at
May 31, 1996 to $893,000 at May 31, 1997.
Cost of goods sold, as a percentage of sales, increased from 46% for the Fiscal
1996 Six Months to 48% for the Fiscal 1997 Six Months. Sentex's cost of good
sold increased from 46% to 47% while Monitek's amounted to 48% of net sales. For
the Fiscal 1996 Six Months, Monitek's cost of goods sold, as a percentage of net
sales, was 47%.
10
<PAGE> 11
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 $584,000 for the
Fiscal 1996 Six Months to $2,548,000 for the comparable Fiscal 1997 period,
primarily due to the addition of Monitek. Sentex's expenses increased by $90,000
and Monitek's expenses totaled $1,842,000. 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 $1,766,000 for the Fiscal 1996 Six Months. Management has recently
implemented a cost reduction program which is expected to result in a sizable
decrease in selling, general and administrative expenses during the second half
of Fiscal 1997.
Research and development expense increased from $103,000 for the Fiscal 1996 Six
Months to $187,000 for the Fiscal 1997 Six Months. The expenditures of Sentex
decreased by $17,000 for the Fiscal 1997 Six Months, while Monitek's expenses
totaled $101,000. Monitek's research and development expenses were $86,000 for
the Fiscal 1996 Six Months.
Operating losses increased from $480,000 for the Fiscal 1996 Six Months to
$719,000 for the Fiscal 1997 Six Months. The Sentex loss for the 1997 period was
$505,000 and it exceeded the 1996 loss, primarily as a result the increase in
selling, general and administrative expenses. Monitek's operating losses for the
Fiscal 1997 Six Months and Fiscal 1996 Six Months, respectively, were $214,000
and $215,000.
As a result of bank borrowings, the Company incurred interest expense of $36,000
for the Fiscal 1997 Six 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 Six Months, Monitek suffered a
foreign currency exchange loss of $82,000 for the period, which represented more
than 10% of the net loss for the period. No foreign currency transactions were
reported during the comparable 1996 period. For the Fiscal 1996 Six Months,
Monitek's foreign currency exchange loss was $31,000.
Net losses increased from $445,000 for the Fiscal 1996 Six Months to $790,000
for the Fiscal 1997 Six Months, primarily as a result of the increases in
operating losses, interest expense and foreign currency exchange losses.
11
<PAGE> 12
OTHER INFORMATION
Exhibits and Reports on Form 8-K
(a) No exhibits are filed herewith.
(b) During the quarter ended May 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: July 14, 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
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> MAR-01-1997
<PERIOD-END> MAY-31-1997
<CASH> 1,556,682
<SECURITIES> 0
<RECEIVABLES> 1,313,537
<ALLOWANCES> (35,169)
<INVENTORY> 1,439,313
<CURRENT-ASSETS> 4,447,268
<PP&E> 1,197,354
<DEPRECIATION> (911,515)
<TOTAL-ASSETS> 5,004,236
<CURRENT-LIABILITIES> 3,208,688
<BONDS> 0
0
0
<COMMON> 2,153,489
<OTHER-SE> (825,941)
<TOTAL-LIABILITY-AND-EQUITY> 5,004,236
<SALES> 2,057,242
<TOTAL-REVENUES> 2,079,232
<CGS> 993,002
<TOTAL-COSTS> 993,002
<OTHER-EXPENSES> 1,416,886
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,264
<INCOME-PRETAX> (343,920)
<INCOME-TAX> 5,988
<INCOME-CONTINUING> (349,908)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (349,908)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
