<PAGE> 1
UNITED STATES
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
Commission File No, 2-13328
For the fiscal year ending November 30, 1998
SENTEX SENSING TECHNOLOGY, INC.
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(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
New Jersey 22-2333899
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
<TABLE>
<S> <C>
1801 East Ninth Street
Cleveland, Ohio 44114
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
</TABLE>
(216) 687-9133
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(Registrant's telephone number including area code)
----------------------
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Shares, no par value
Indicate by check 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 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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of Sentex Sensing Technology, Inc. Common
Shares, no par value, held by non-affiliates, computed by reference to the
average of the closing bid and asked prices as reported on the Over-the Counter
Bulletin Board on February 25, 1999: $986,497.
Number of shares of Common Shares (No Par Value) of SENTEX SENSING
TECHNOLOGY, INC., issued and outstanding as of February 25, 1999 is 78,919,762.
<PAGE> 2
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (Check One)
Yes No X
--- ---
DOCUMENTS INCORPORATED BY REFERENCE
Part IV - Item 13 - Exhibits, Financial Statement
Schedules, and Reports on Form 8-K See Page 15
ITEMS OMITTED
Items 6 and 7 have been omitted pursuant to Rule 12B-25 and will be filed by
Amendment.
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ITEM 1 BUSINESS
DEVELOPMENT OF BUSINESS
Initially formed in November 1980, under the name Sinex Corp., Sentex
Sensing Technology, Inc., a New Jersey corporation (the "Company"), commenced
the commercial production of a portable explosives detector of its own design,
the T-54. In April 1984, the Company sold, in its initial public offering,
25,000,000 Common Shares, no par value of the Company (the "Common Shares").
Through fiscal 1996, the Company generally conducted the operations of its
business through Sentex Systems, Inc., a Delaware corporation and wholly owned
subsidiary of the Company ("Systems").
On March 1, 1996, certain shareholders of the Company sold a substantial
portion of their shares to CPS Capital, Ltd., an Ohio limited liability company,
("CPS"). As a result of such acquisition, CPS has become the principal
shareholder of the Company. CPS is controlled by Robert S. Kendall, the Chairman
and Chief Executive Officer of the Company.
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 a wholly owned subsidiary of the Company
with and into Monitek. Monitek is now operating 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 approximately 60% of Monitek's total revenues. 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.
In March 1998, the Company purchased Cypress Instruments, Inc. ("Cypress")
for the purpose of acquiring a new product line that is currently under
development and, upon completion, is intended to be folded into the Monitek
product line.
On September 4, 1998, the Company completed the sale of all of the
outstanding capital stock of Systems to ALR Group Incorporated ("ALR"), which is
principally owned by Amos Linenberg ("Linenberg"). Prior to the sale, Linenberg
was the President of Systems and an Executive Vice President of the Company. In
the past, Linenberg has been a principal shareholder of the Company and served
as a director of the Company.
DESCRIPTION OF BUSINESSES OF MONITEK
General
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.
Monitek's products are typically used in-line (i.e., inserted directly into the
monitored liquid), thereby facilitating automation and control of various
industrial processes by providing on-line (i.e., continuous) measurement of the
characteristic being monitored. Monitek's current line of products, which are
based on optical, ultrasonic, acoustic and magnetic technologies, have been
specially adapted for various applications in the chemical and petrochemical,
water treatment, food and beverage, pulp and paper, and biotechnology and
pharmaceutical industries, where their abilities to withstand high temperature,
extremes in pressure and corrosive environments are important factors. The
Company believes Monitek's instruments are capable of adaptation and enhancement
for use in other industries, as well as for additional applications in those
industries which Monitek currently serves. Monitek's products are currently sold
worldwide.
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Existing Products
Monitek's products consist of optical based products, non-optical based
products and spare parts of its optical and non-optical based products.
(i) Optical Based Products. The heart of Monitek's product line are
suspended solids analyzers, which are in-line monitors that measure clarity,
suspended solids content and purity of liquids. Monitek's two major types of
suspended solids analyzers, which operate on the same basic principle, are
turbidimeters and concentration/content monitors. The suspended solids analyzers
work on the principle of light scatter and/or absorption. Light is emitted by
the instrument and photosensors detect the amount of light that is either
scattered or absorbed by the solids in the liquid. This information is
transmitted to a remote electronic indicating transmitter device, which displays
the data on a scale of the characteristic being monitored and retransmits the
information to a control computer or data logger. Many of Monitek's transmitters
offer alarm features while others eliminate false readings caused by bubbles or
signal an abnormal sample. The sales prices of suspended solids analyzers range
from $4,000 to $10,000 per system.
Monitek's suspended solids analyzers are available in a wide range of sizes
and configurations to meet customer requirements. Monitek's basic instruments
can also be specially adapted for particular applications with the addition of
available options. Certain instruments are designed to be "explosion proof,"
(i.e., the instrument is enclosed in such a way as to prevent internal
electrical or chemical reactions from igniting explosive mixtures existing in
the atmosphere surrounding the encased instrument, and have been approved for
the use in explosive environments by Underwriters' Laboratories (U.L.)). This
characteristic is of a particular importance in the petrochemical industry.
Other instruments are adapted to be watertight and dust-tight to protect the
equipment against splashing, seeping or falling water and severe external
condensation, while others are adapted to withstand high temperatures, extremes
in pressure and corrosion for applications in such industries as the chemical
and pulp and paper industries. An example of an adaptation for a particular
application is a line of Monitek's suspended solids analyzers-Cleansimatic
Liquid Analysis Meters (CLAM), which employ a mechanical self-cleaning apparatus
designed to eliminate the problem of fouling inherent in wastewater treatment
applications.
Monitek has developed a number of insertable in-line sensors for
measurement of consistency, for use in various industries. One of the sensors is
called the Cell Density Analyzer, for measurement of cell growth rate and
concentration in fermentation processes. Fermentation is a major process used in
the pharmaceutical and biotechnology industries and the instrument provides a
continuous measurement relative to cell growth. Unlike Monitek's original line
of suspended solids analyzers, which require accessories fitted to the actual
pipe size to which the instrument is attached, the insertable fiber optic
sensors are capable of being inserted into any size pipe through special
fittings. The advantage of such devices over conventional suspended solids
analyzers is their ability to provide the customer with an easier, more
cost-effective means of installation and servicing, in that it does not require
shutting down the process flow of the liquid or extensive structural work often
necessary with the non-insertable products.
A second optical-based product line is color monitors, which are used to
measure the difference in the absorption of light through a liquid at two
wavelengths. This measurement is indicative of color or concentration. To date,
these instruments have been sold primarily to petrochemical refineries where the
avoidance of color in the final product is essential. Monitek's color monitors
also have application in the processes of color addition and color removal in
such industrial liquids as printing inks, sugar, vegetable oil, beverages and
solvents. Color monitors use photosensors and optical filters that detect the
amount of light absorbed by the pertinent wavelength or color. Sales prices of
color monitors range from $6,000 to $14,000 per system.
(ii) Non-Optical-Based Products. Monitek currently markets two
non-optical-based products. The first is the Micro Pure ultrasonic suspended
solids meter, the third significant non-optical based product line, has allowed
Monitek to expand into new markets and improve its effectiveness in existing
markets. The acoustic technique allows the low range measurement of suspended
solids and emulsions independent of color and coating. Significant opportunities
exist for measuring oil in water, inks, dyes and photographic liquids, all of
which have been difficult
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measurements for Monitek's optical products because of the lack of light and/or
existence of substances (i.e., oil) which coat the optical parts. Micro Pure
products range in price from $10,000 to $16,000 per system.
The second non-optical based product is an insertable magnetic flowmeter, a
device that measures flow of liquids in closed pipes. The flow of the measured
liquid through the sensor's magnetic field creates a voltage proportional to the
flow. This voltage is sensed, amplified and combined with the cross-sectional
area of the pipe to produce a flow measurement. Monitek's magnetic flowmeters,
which range in price from $4,000 to $6,000, have applications in water
distribution, water treatment and pulp and paper plants.
(iii) Spare Parts. Sales of spare parts is an important part of Monitek's
business, accounting for approximately 15% of sales volume of Monitek for the
past three years.
Products Under Development
Research and development activities of Monitek are primarily devoted to the
development of new products and the adaptation and enhancement of existing
products for new applications. The Company plans to make available a number of
new products and enhancements of existing Monitek products during fiscal 1999.
One of the new products is the result of the acquisition of Cypress. This
product consists of an insertable in-line sensor and a micro-processor based
transmitter, and was originally designed for specific use in the Produced Water
(oil production) industry, for which a number of units have already been sold.
Subsequent to the acquisition, management made the decision to make further
modifications to the transmitter for the purpose of making it compatible with
the Company's other optical based sensors, both present and future. As a result,
the official release of the product was delayed for several months. The Company
now estimates that the product will be available for sale in the second quarter
of fiscal 1999.
Research and Development
Monitek expended approximately $118,000 and $230,000 for research and
development during the fiscal years ended November 30, 1998 ("fiscal 1998") and
November 30, 1997 (the "fiscal 1997"), respectively. During fiscal 1998, a
number of products were improved but no new products were released for
production. However, a low-cost Nephelometer for the Potable Water and Waste
Water industries, which was designed and produced by a company in Germany, was
introduced into the European marketplace and an improved version of the product
is expected to be introduced into the United States during the second quarter of
fiscal 1999.
Marketing, Distribution and Sales
Monitek markets its products on a world-wide basis, with particular
emphasis on the United States and Continental Europe. Monitek employs three
regional sales managers, who oversee and monitor approximately 60 independent
sales representatives worldwide, with about half of such representatives selling
in the United States and the other half selling internationally. The Company has
begun to integrate the sales and marketing aspects of both Sentex and Monitek
into one domestic and one international marketing and distribution system. The
system has generally been modeled after the system previously employed by
Monitek.
Manufacturing/Suppliers
Monitek's manufacturing operations primarily involve the assembly, testing,
quality control and packaging of materials and components, which are generally
available in the market place from numerous suppliers and sources. Material and
components necessary for Monitek's manufacturing activities have always been
available, and Monitek does not anticipate any future shortages or
unavailability of such materials and components.
Monitek's inventory is comprised primarily of parts to make sub-assemblies,
fully assembled instruments and materials required to adapt instruments for
particular applications and customer specifications. Monitek attempts
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to maintain a sufficient inventory of materials and components it may fill
orders for its products within four to eight weeks after receipt of an order.
Warranties and Disclaimers
Monitek typically warrants its products for a period of one year after
shipment and passes along any warranties from original manufacturers of
components used in its products. To date, Monitek has not had any significant
claims pursuant to warranties. Monitek provides for its own equipment servicing
for certain products with in-house field service personnel.
Competition
Monitek sells products which have use in a wide variety of applications in
many industrial and municipal markets. Monitek faces competition in each market
to which it sells products from companies which sell products that are
substantially similar to, or which perform comparable functions as, those sold
by Monitek. McNabb, Wedgewood Technologies, Optek, BTG, Hach and Sigrist are
Monitek's principle competitors which sell products using the same or similar
technologies as those of Monitek. Valmet Automation Inc., Royce Instruments and
Kay-Ray Inc. sell devices based on mechanical, ultrasound and nuclear
technologies which compete with certain of the products sold by Monitek. Certain
of Monitek's competitors have production facilities in Europe and consequently
may not be subject to the same fluctuations in the value of the United States
dollar as Monitek is with respect to its German subsidiary. All of such
companies, and many smaller entities that specialize in a limited number of
products competitive with those of Monitek, have financial, marketing and other
resources substantially greater than those of Monitek.
Monitek believes that the most significant competitive factors with respect
to the industrial market are technical performance and adaptability, quality,
maintenance and service, while price is the major competitive factor for the
municipal market. Monitek believes it has a competitive advantage in its ability
to service numerous market segments while other companies, other than BTG,
service only a limited market. Accordingly, a salesperson or distributor calling
on an industrial company which has a liquid-based product or uses water in its
manufacturing process will generally have a number of Monitek's products in its
line which it could sell.
Patents, Trademarks and Trade Secrets
Monitek has obtained 11 United States patents and a number of foreign
patents covering fundamental technology and applications of use of the Micro
Pure product line and some other potential products. Monitek has also obtained a
United States patent and several foreign patents for its Cell Density Analyzer.
Monitek believes that trade secrets and unpatented proprietary knowledge
used to adapt its products for specific industries and applications is of
greater importance to the development of its competitive position than patents.
All of Monitek's employees have entered into confidentiality agreements and have
agreed to assign to Monitek any inventions relating to Monitek's business made
by them while in Monitek's employ. However, there can be no assurance that
others may not acquire or independently develop similar technologies which will
enable them to more effectively compete with Monitek.
While Monitek believes that none of its instruments infringes upon patents
or other proprietary rights of others, there is a possibility that other parties
may claim that parts of Monitek's instruments do infringe upon their patents or
other proprietary rights. There can be no assurance that Monitek will be
successful in defending against such claims of infringement, and the expenses of
defending such claims could be substantial.
Monitek has obtained registered trademarks for the names "Monitek", "CLAM"
and "Micro Pure" and the Monitek and Micro Pure logos.
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Employees
As of February 25, 1999, the Company employed a total of 24 full-time
staff, 3 of whom were engaged in product design and engineering, 10 were engaged
in manufacturing and production, 7 were engaged in marketing and sales and 4
were engaged in general corporate and administrative positions. The Company also
had 3 part time employees and 1 temporary employee. The Company's ability to
develop, manufacture, market and sell products and to establish and maintain its
competitive position will depend, in large part, on its ability to attract and
retain qualified personnel. None of the Company's employees is represented by a
union. The Company believes that its relations with its employees are
satisfactory.
Government Regulations
The Company complies with a number of government regulations, including
environmental regulations. The cost of such compliance is not significant. The
Company has routinely received all governmental approvals necessary to conduct
its business.
ITEM 2 PROPERTIES
Monitek's manufacturing operations occupy approximately 23,500 square feet
of leased space in Hayward, California. In addition, Monitek conducts corporate
accounting, sales and research and development functions in California. The
lease provides for a base annual rental of approximately $149,000 and expires in
November 1999.
Monitek also leases approximately 6,000 square feet of office and warehouse
space in Dusseldorf, Germany pursuant to a lease that expires in October 2001,
and provides for a base annual rental of $85,000, based on the rate of exchange
in effect at November 30, 1998.
The Company believes that these facilities are adequate to provide for the
Company's business needs during the remaining terms of the respective leases.
ITEM 3 LEGAL PROCEEDINGS
There are no material lawsuits pending, or to the Company's knowledge,
threatened against the Company or any of its subsidiaries.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Shares were traded on the Nasdaq Small Cap Market tier
of The Nasdaq Stock Market under the symbol "SENS" through November 11, 1997.
The Common Shares now trade on the Over-the-Counter Bulletin Board. The range of
high and low closing bid prices by fiscal quarter is presented below.
<TABLE>
<CAPTION>
1998 HIGH LOW
- ---- ---- ---
<S> <C> <C>
1st quarter .04 .02
2nd quarter .05 .02
3rd quarter .04 .01
4th quarter .02 .01
</TABLE>
<TABLE>
1997 HIGH LOW
- ---- ---- ---
<S> <C> <C>
1st quarter .094 .063
2nd quarter .094 .031
3rd quarter .094 .031
4th quarter .063 .031
</TABLE>
The bid quotations represent interdealer quotations and do not include
retail markup, markdown or commissions, and may not represent actual
transactions. On February 25, 1999, there were 78,919,762 Common Shares issued
and outstanding and approximately 1,300 holders of record of the outstanding
Common Shares. The Company has not paid a dividend since becoming a public
company in November of 1980. The Company does not plan to pay cash dividends in
the foreseeable future.
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This item has been omitted pursuant to Rule 12b-25 and will be filed by
amendment.
ITEM 7 FINANCIAL STATEMENTS
This item has been omitted pursuant to Rule 12b-25 and will be filed by
amendment.
ITEM 8 CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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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:
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Name Age Position(s)
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Robert S. Kendall 59 Chairman, President and Treasurer
James S. O'Leary 60 Director, Executive Vice President, Chief Operating Officer and
Chief Financial Officer
James G. Few 49 Director
Julius L. Hess 36 Director
Ronald M. Lipson 63 Director
</TABLE>
ROBERT S. KENDALL has been the Chairman, President and Treasurer of the
Company since March 1, 1996. He is also Chairman and President of CPS, a mergers
and acquisitions company based in Cleveland. Until April 1996, he was also
Chairman of the Board and founder of LDI Corporation, an asset leasing and
technology services company which he, along with two others, founded in 1972.
LDI is one of the largest independent lessors of technology and computer
equipment in the United States. Mr. Kendall is also a general partner in NCP,
Ltd., a real estate partnership actively engaged in investing, acquiring,
financing and managing commercial, industrial and other properties. From 1969 to
1972, Mr. Kendall was branch manager at Victor-Nixdorf Computer, a manufacturer
and distributor of computer systems. From 1963 to 1969, he was a salesman,
financial specialist and sales manager at Burroughs Corporation (now Unisys
Corp.). Mr. Kendall graduated from Case Western Reserve University with a
bachelor's degree in psychology in 1960, and attended graduate school at John
Carroll University.
JAMES S. O'LEARY has been employed by Monitek since August 1982 and had
served as its Executive Vice President, Secretary and Treasurer since April
1987. The Company has retained his services and, from December 1996 through
November 1998, he served as Vice President of Finance and Chief Financial
Officer. In December 1998, Mr. O'Leary was elected as a Director and was
appointed Chief Operating Officer of the Company.
JAMES G. FEW has been a Director of the Company since March 1996. Mr. Few
is presently a Vice President of Corporate Network, Inc., a management
consulting firm in the long-term health care industry. From March 1996 through
December 1996, he served as the Chief Financial Officer and Vice President of
the Company and from December 1996 through June 1998, he also assumed the role
of Chief Operating Officer. Mr. Few also served as Vice President and Chief
Financial Officer for CPS from October 1995 through June 1998. From June 1993 to
October 1995, he was engaged as an independent financial consultant. Mr. Few
served as Senior Vice President of Boston Distributors from November 1992
through May 1993 where he was responsible for finance, accounting systems and
warehouse operations. In February 1993, Boston Distributors was declared
bankrupt and was liquidated some time thereafter. From May 1991 through November
1992, Mr. Few served as Executive Vice President of Operations and Finance for
Progressive Communications Technology. Mr. Few was engaged as an independent
financial consultant from 1989 to 1991. From 1978 to 1989, he served as
Executive Vice President and Chief Financial Officer of Harris Wholesale Drug
Company, where he oversaw three operating divisions. Prior thereto, he served as
Division Controller of IT&T for eight years. Mr. Few received a bachelor's
degree in Business Management from Providence College.
JULIUS L. HESS has served as Assistant Vice President for CPS since
November 1994 and is responsible for research and analysis. At CPS he serves as
lead analyst in the location and evaluation for acquisitions of publicly held
companies or divisions of companies which are believed to be undervalued, or
closely held companies with potential for appreciation. Prior to joining CPS,
Mr. Hess was Human Resources Manager for a division of GE Capital from 1990 to
1994. From 1989 to 1990 he was Senior Human Resources Representative for B.F.
Goodrich
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and prior thereto he was Compensation and Labor Relations Manager from 1986 to
1989 at the Mayo Clinic Medical Center. Mr. Hess graduated from Miami University
in Oxford, Ohio, with a bachelor's degree in political science in 1983 and
attended graduate school at the University of Minnesota. Mr. Hess is Mr.
Kendall's son-in-law.
RONALD M. LIPSON has been an attorney for more than thirty-five years in
Cleveland, Ohio, practicing in various areas including corporate, business, and
real estate law. He was the incorporating attorney for LDI Corporation and
formerly served as legal counsel and a director of LDI Corporation. Mr. Lipson
is also a general partner in G&C Properties, an Ohio real estate partnership
engaged in buying, selling and managing various types of real estate. Mr. Lipson
attended Ohio University and graduated from Adelbert College of Case Western
Reserve University with a bachelor's degree in business administration in 1955.
He also received a Doctor of Jurisprudence degree in 1958 from Case Western
Reserve University School of Law.
Two meetings of the Company's Board of Directors were held during the
fiscal year ended November 30, 1998. Each Director attended all of the meetings
of the Company's Board of Directors.
The Company's Board of Directors does not currently have a nominating
committee, audit committee or a compensation committee.
ITEM 10 EXECUTIVE COMPENSATION
The following information is set forth with respect to the Company's Chief
Executive Officer and each of the Company's other executive officers whose total
compensation exceeded $100,000 for the fiscal year ended November 30, 1998:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------- OTHER ANNUAL
YEAR SALARIES BONUS COMPENSATION
---- -------- ----- ------------
<S> <C> <C> <C> <C>
Robert S. Kendall 1998 $175,000(1) -0- -0-
(Chief Executive Officer) 1997 $275,000(1) -0- -0-
1996 $ 80,000(1) -0- -0-
Amos Linenberg 1998 $ 84,980 -0- $60,572(2)(3)
(Executive Vice-President) 1997 $140,728 $15,000 $17,779(3)
1996 $128,163 -0- $11,944(3)
Helmut H. Zoellmer(4) 1998 $116,646 -0- $ 7,262(3)
(Managing Director of 1997 $109,626 $ 5,788 $ 6,689(3)
Monitek GmbH) 1996 -0- -0- -0-
</TABLE>
(1) Represents compensation paid to CPS for management services rendered. (See
Item 12). Amounts assigned to Mr. Kendall represent the allocation provided
the Company by CPS at the Company's request, and may not actually represent
any sum actually paid to him by CPS. Amounts for Fiscal 1996 only reflect
amounts reportable from March 1, 1996 through November 30, 1996. Since May
31, 1997, the Company has not made any payments to CPS for management
services but has accrued for such fees.
(2) Mr. Linenberg's employment with the Company was terminated effective June
30, 1998, together with the Company's obligation under his employment
agreement. However, he was paid a consulting fee of approximately $12,000
per month through December 31, 1998.
(3) Consists of automobile and insurance allowances.
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(4) During fiscal 1996, Mr. Zoellmer was not employed by the Company but was
employed by Monitek GmbH. Based on annual reports of Monitek, filed on Form
10-K, for its fiscal years ended March 31, 1996, all reportable forms of
compensation for Mr. Zoellmer totaled $130,801. Payments to Mr. Zoellmer
were made in Deutsche Marks. Dollar amounts have been calculated using
average exchange rates for each of the fiscal periods reported. Mr.
Zoellmer's employment with the Company was terminated in November 1998.
Long-Term Compensation. No long-term compensation was paid during the
fiscal years ended November 30, 1998, 1997 or 1996 to any executive officer of
the Company by way of restricted stock awards, options or stock appreciation
rights, or other long-term incentive plans.
Stock Options. The Company adopted the Plan at a special meeting of its
shareholders held on November 14, 1996. (See Item 4). Under the Plan, the
Company may grant different types of options covering up to 7,000,000 Common
Shares to its existing and future directors, officers and employees. As of
November 30, 1996, there were no Company stock options held by the directors or
executive officers of the Company. Upon consummation of the Merger, options to
purchase Monitek Common Stock held by James O'Leary were converted to options to
purchase 344,875 Common Shares. On December 2, 1996, Mr. O'Leary became the
Chief Financial Officer of the Company. In August 1998, half of Mr. O'Leary's
options expired, leaving him with options to purchase 172,438 Common Shares at
November 30, 1998.
Compensation Pursuant to Plans. The Company has no plans pursuant to which
cash or non-cash equivalents were paid during the fiscal years ended November
30, 1998, 1997 or 1996.
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Shares as of February 28, 1999 by: (a) the Company's
Directors; (b) each other person who is known by the Company to own beneficially
more than 5% of the outstanding Common Shares; (c) the Company's Chief Executive
Officer and the other four most highly compensated executive officers named in
the Summary Compensation Table; and (d) the Company's executive officers and
Directors as a group. Except as otherwise described in the notes below, the
following beneficial owners have sole voting power and sole investment power
with respect to all Common Shares set forth opposite their names.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE
OF BENEFICIAL OWNER(1) OF BENEFICIAL OWNER PERCENTAGE
- ---------------------- ------------------- ----------
<S> <C> <C>
Robert S. Kendall(2) 47,690,814 47.4%
James G. Few -- --
Julius L. Hess -- --
James S. O'Leary(3) 172,438 *
1495 Zephyr Avenue
Hayward, CA 94544
</TABLE>
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<TABLE>
<S> <C> <C>
Ronald M. Lipson 700,000 *
3 Laurel Hill Lane
Pepper Pike, Ohio 44124
CPS Capital, Ltd.(4) 47,690,814 47.4%
1801 East Ninth Street
Cleveland, Ohio 44114
All Directors and Officers
(as a group persons) 48,563,252 48.2%
</TABLE>
(1) The name and address of each individual listed in the table, except
where otherwise indicated, is c/o Sentex Sensing Technology, Inc. 1801
East Ninth Street, Cleveland, OH 44114.
(2) The Common Shares set forth herein with respect to Mr. Kendall are all
held of record by CPS or are beneficially owned by CPS. Mr. Kendall
and his wife own 100% of the outstanding membership interests in CPS.
(3) All Common Shares are held in the form of options that were acquired
pursuant to the Merger.
(4) CPS is the record holder of 19,706,461 Common Shares and has sole
voting and dispositive power with respect to such shares. CPS
beneficially owns 6,389,204 Common Shares, which were purchased from
Linenberg in April 1998, but have not yet been transferred to CPS by
the transfer agent. CPS also beneficially owns 21,595,149 Common
Shares which have not been issued by the transfer agent. CPS received
5,025,745 of these Common Shares in lieu of accrued management fees
and 16,569,404 of these Common Shares which were purchased from
Clarion Capital Corporation ("Clarion") immediately after Clarion
converted two convertible notes into Common Shares. (See Item 12).
*Represents less than 1% of the outstanding Common Shares.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING REQUIREMENTS
As required under the securities laws of the United States, the Company's
directors, its executive (and certain other) officers, and any persons holding
ten percent or more of the Common Shares must report on their ownership of the
Common Shares and any changes in that ownership to the Securities and Exchange
Commission and to the National Association of Securities Dealers, Inc.'s
Automated Quotation System. Specific due dates for these reports have been
established. During the year ended November 30, 1998, reports for all
transactions were filed on a timely basis.
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Linenberg Shareholder Agreement. In December 1998, pursuant to a
Shareholder Agreement between CPS and Linenberg (the "Linenberg Shareholder
Agreement"), Linenberg exercised a put right with respect to 6,389,204 Common
Shares and in April 1998, CPS purchased such Common Shares. The Linenberg
Shareholder Agreement is no longer in effect.
CPS Management Agreement. Within two months after CPS acquired
effective control of the Company, CPS entered into a Management Agreement with
the Company, which was effective on March 1, 1996 (the "Original Management
Agreement"). In connection with the execution of the Merger Agreement, CPS and
the Company
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entered into an Amended and Restated Management Agreement (the "Amended and
Restated Management Agreement"). Pursuant to the Original Management Agreement,
CPS agreed to cause its personnel to perform the functions that would normally
be performed by the officers of the Company. Presently, such personnel consists
mainly of Mr. Kendall, the Chairman of CPS and Peggy Nutaitis, the Secretary of
CPS. In order to permit Mr. Kendall and Ms. Nutaitis to function as officers and
for them to be properly insured as officers of the Company, Mr. Kendall has been
elected as the President and Treasurer of the Company and Ms. Nutaitis has been
elected Secretary of the Company.
Under the terms of the Original Management Agreement, CPS received an
annual fee of $193,800, which was payable monthly. Under the terms of the
Amended and Restated Management Agreement, the annual fee was increased to
$393,800 to account for the increase in tasks and responsibilities relating to
the operation of Monitek. Due to the present financial condition of the Company,
CPS has not received payment under the Amended and Restated Agreement since May
1997, but the Company has accrued such expense. On May 15, 1998, CPS and the
Company entered into the Second Amended and Restated Management Services
Agreement, pursuant to which CPS agreed to accept 5,025,745 Common Shares in
lieu of accrued management fees equaling $196,900, representing fees for the
second half of fiscal 1997. All the shares acquired by CPS were acquired for
investment purposes.
In December 1997, CPS and the Company agreed to a reduced management fee of
$250,000 for fiscal 1998 and in December 1998, the parties agreed to reduce the
fee to $200,000 for fiscal 1999. CPS and the Company have agreed that the
balance due as of November 30, 1998, which totals $250,000, and the fee for
fiscal 1999, will be paid at some future time when the financial condition of
the Company improves.
Clarion. On May 15, 1998, Clarion, Monitek's principal shareholder at the
time of the Merger, converted two convertible notes in the aggregate principal
amount of $609,558, with the agreement of the Company, into an aggregate number
of 16,569,404 Common Shares of the Company. Immediately thereafter, CPS
purchased all 16,569,404 Common Shares from Clarion for $230,000.
Sale of Systems. On September 4, 1998, the Company completed the sale of
all of the outstanding capital stock of Systems to ALR, which is principally
owned by Linenberg. Prior to the sale, Linenberg was the President of Systems
and an Executive Vice President of the Company. In the past, Linenberg has been
a principal shareholder of the Company and served as a director of the Company.
Sales of Systems products had not been successfully integrated into
Monitek's distribution channels, which had resulted in a further drop-off of
Systems sales and even larger losses in this segment of the business. As a
result, the Company's management determined that the Company's best course of
action was to divest itself of the Systems operation, which generated less than
15% of the Company's revenues for the previous 21 months, while suffering 55% of
the Company's losses, as reported.
In consideration for all of the capital stock of Systems, ALR caused
Linenberg to terminate his existing Employment Agreement as of June 30, 1998,
which from July 1, 1998 through February 28, 2000 would have required payments
to Mr. Linenberg of approximately $325,000. Except for approximately $20,000 in
expenses, the Company paid all operating costs and expenses of Systems through
June 30, 1998 ALR assumed all the costs and operating expenses of Systems from
July 1, 1998 through the closing. The Company incurred a $447,327 loss,
representing the disposal of the net assets of Systems.
In connection with the sale of Systems to ALR, the Company retained
Linenberg to consult for the Company on an as needed basis. The consulting
period began effective July 1, 1998 and continued through December 31, 1998.
Linenberg received approximately $12,000 per month under this consulting
arrangement.
Working Capital Assistance. During fiscal 1997 and fiscal 1998, CPS and Mr.
Kendall provided the Company assistance in connection with funding its working
capital needs in the form of loans and security for
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<PAGE> 14
bank loans. From May 1997 through May 1998, CPS provided the Company a series of
temporary working capital loans at a prime rate at National City Bank,
Cleveland, Ohio ("NCB") plus 2%. The outstanding balance of such loans totaled
$551,000, plus accrued interest of $32,000, as of November 30, 1998. From time
to time Mr. Kendall has also provided security to banks by permitting the banks
to obtain a security interest in Mr. Kendall's personal assets and/or providing
guarantees so the Company could obtain financing from the bank. Except for the
interest to be received on the loans provided by CPS, neither Mr. Kendall nor
CPS has received nor will receive any remuneration in connection with providing
such working capital assistance to the Company. The Company believes the
interest payable to CPS is and was on terms no less favorable than could be
obtained pursuant to an arms-length transaction.
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ITEM 13 EXHIBITS, LISTS AND REPORTS ON FORM 8-K
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<S> <C>
3.1 Certificate of Incorporation, as amended(3)
3.2 First Amended and Restated Bylaws of the Company(6)
3.3 Certificate of Incorporation of Sentex Acquisition Corp.(4)
3.5 Certificate of Merger (Sentex Systems, Inc. into Sentex)(4)
3.6 Certificate of Incorporation of Sentex Systems, Inc.(5)
3.7 Certificate of Incorporation of Monitek Technologies, Inc.(6)
4.1 Specimen Certificate of Common Shares(3)
4.2 Specimen of Class A Convertible Note(1)
4.3 Participation Rights Agreements(1)
4.4 Specimen of Clarion Note(1)
9.1 Shareholders Agreement between CPS Capital, Ltd. and Amos Linenberg, dated March 1, 1996(2)
9.2 Shareholders Agreement between CPS Capital, Ltd. and Joanne Bianco, dated March 1, 1996(2)
9.3 Shareholders Agreement among CPS Capital, Ltd. and Clarion Capital Corporation and others(1)
10.1 Employment Agreement with Dr. Amos Linenberg, dated March 1, 1996(2)
10.2 Consulting Agreement with Ms. Joanne Bianco, dated March 1, 1996(2)
10.3 Sentex 1996 Long-Term Incentive Stock Option Plan(1)
21.1 List of Subsidiaries(6)
27.1 Financial Data Schedule(7)
</TABLE>
(1) Incorporated by reference to Annex A of the Joint Proxy
Statement/Prospectus which is a part of Amendment No. 1 to the Registration
Statement on Form S-4, filed on October 4, 1996, File No. 333-12993 (the
"Registration Statement").
(2) Incorporated by reference to exhibits of the Registration Statement bearing
the same exhibit numbers.
(3) Incorporated by reference to exhibits bearing same exhibit numbers, filed
with the Company's Registration Statement on Form S-1, File No. 2-86860.
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<PAGE> 16
(4) 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.
(5) 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,
1984.
(6) 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,
1996.
(7) Omitted pursuant to Rule 12b-25 and will be filed by amendment.
(B) REPORTS ON FORM 8-K
None.
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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: March 1, 1999 SENTEX SENSING TECHNOLOGY, INC.
By: /s/ Robert S. Kendall
------------------------------------------
Robert S. Kendall, Chief Executive Officer
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>
/s/ Robert S. Kendall Chairman, President March 1, 1999
- ---------------------------- and Treasurer
Robert S. Kendall
/s/ James S. O'Leary Executive V.P., Chief March 1, 1999
- ---------------------------- Operating Officer, Chief
James S. O'Leary Financial Officer
Director
- ----------------------------
James G. Few
/s/ Julius L. Hess Director March 1, 1999
- ----------------------------
Julius L. Hess
/s/ Ronald M. Lipson Director March 1, 1999
- ----------------------------
Ronald M. Lipson
</TABLE>
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