<PAGE> 1
FORM 10-QSB
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SECURITIES AND EXCHANGE COMMISSION
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WASHINGTON, D.C. 20549
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(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
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ACT OF 1934
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For the quarterly period ended May 31, 2000
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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
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SENTEX SENSING TECHNOLOGY, INC.
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(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)
1801 East Ninth Street, Cleveland, Ohio 44114
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (216)687-9133
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(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
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<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
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State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 100,514,911.
2
<PAGE> 3
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
NOVEMBER 30, 1999 AND MAY 31, 2000
<TABLE>
<CAPTION>
NOVEMBER 30, MAY 31,
1999 2000
(AUDITED) (UNAUDITED)
--------- -----------
<S> <C> <C>
ASSETS
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CURRENT ASSETS:
Cash and cash equivalents $ 15,280 $ 96,981
Accounts receivable 649,034 491,764
Inventories 962,390 920,980
Other Current Assets 89,488 106,414
---------- ----------
TOTAL CURRENT ASSETS 1,716,192 1,616,139
EQUIPMENT AND IMPROVEMENTS - [NET
OF ACCUMULATED DEPRECIATION AND
AMORTIZATION] 123,793 115,536
OTHER ASSETS
Goodwill and other tangibles 350,192 340,155
Consulting contracts and other assets 303,145 235,345
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TOTAL ASSETS $2,493,322 $2,307,175
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE> 4
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
NOVEMBER 30, 1999 AND MAY 31, 2000
<TABLE>
<CAPTION>
NOVEMBER 30, MAY 31,
1999 2000
(AUDITED) (UNAUDITED)
--------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable:
Bank $ 2,000,000 $ 2,000,000
Related party 1,705,232 2,203,524
Accounts payable 628,881 679,753
Accrued expenses and other current liabilities 589,683 537,025
Convertible subordinated notes payable 11,348 11,348
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TOTAL CURRENT LIABILITIES 4,935,144 5,431,650
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LONG-TERM DEBT
Consulting contracts payable 160,550 85,600
STOCKHOLDERS' EQUITY:
Common stock, no par value, authorized
200,000,000 shares, issued 109,460,911
and 100,514,911 shares, outstanding
78,919,762 and 78,919,762 shares,
respectively 2,880,079 2,880,079
Accumulated deficit (5,199,658) (5,850,531)
Treasury shares at cost, 8,946,000 shares (313,218) (313,218)
Cumulative translation adjustment 30,425 73,595
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TOTAL STOCKHOLDERS' EQUITY (2,602,372) (3,210,075)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,493,322 $ 2,307,175
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 5
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED MAY 31, 2000 AND MAY 31, 1999 [UNAUDITED]
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
MAY 31, MAY 31, MAY 31, MAY 31,
------------ ------------ ------------ ------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 771,876 $ 1,174,828 $ 1,666,429 $ 2,406,429
Cost of sales 425,641 601,965 864,961 1,211,224
------------ ------------ ------------
Gross profit 346,235 572,863 801,468 1,195,205
Selling, General and Admin. 591,264 656,262 1,149,152 1,380,408
Research and Development 37,094 51,213 60,920 90,389
------------ ------------ ------------ ------------
Operating loss (282,123) (134,612) (408,604) (275,592)
------------ ------------ ------------ ------------
Other income (expense)
Other income(expense) 2,044 (1,427) 3,345 11,156
Interest expense (80,024) (52,605) (164,202) (103,686)
Foreign currency transaction loss (36,879) (47,445) (81,412) (59,921)
------------ ------------ ------------ ------------
Loss before income tax expense (396,982) (236,089) (650,873) (428,043)
Provision for income taxes 0 0 0 0
------------ ------------ ------------ ------------
Net loss $ (396,982) $ (236,089) $ (650,873) $ (428,043)
============ ============ ============ ============
Net loss per share $ (0.01) $ 0.00 $ (0.01) $ (0.01)
============ ============ ============ ============
Weighted Average Number of
Shares Outstanding 80,245,314 78,919,762 80,245,314 78,919,762
============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
5
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SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED
MAY 31, 2000 AND MAY 31, 1999 [UNAUDITED]
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MAY 31, MAY 31,
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2000 1999
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<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(650,873) $(428,043)
Adjustments to reconcile net [loss] income to net cash
Provided by [used in] operating activities:
Depreciation and amortization 23,434 47,467
Change in assets and liabilities:
[Increase] decrease in:
Accounts receivable 157,270 9,264
Inventories 41,410 (71,712)
Other assets 47,275 (48,318)
Increase [decrease] in:
Accounts payable 50,872 221,649
Accrued expenses and other current liabilities (52,658) (260,376)
Currency translation adjustment 43,170 1,763
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TOTAL ADJUSTMENTS 310,713 (100,263)
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NET CASH USED BY OPERATING ACTIVITIES (340,160) (528,306)
--------- ---------
INVESTING ACTIVITIES:
Acquisition of equipment and improvements (1,541) 4,719)
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NET CASH USED BY INVESTING ACTIVITIES (1,541) (4,719)
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FINANCING ACTIVITIES:
Net proceeds on note payable - bank 0 119,600
Net proceeds on note payable - related party 423,342 338,000
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NET CASH PROVIDED BY FINANCING ACTIVITIES 423,342 457,600
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 81,701 (75,425)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIODS 15,280 111,133
--------- ---------
CASH AND CASH EQUIVALENTS - END OF PERIODS $ 96,981 $ 35,708
========= =========
</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, 2000 and the
results of operations and cash flows for the three months ended May 31, 2000 and
May 31, 1999.
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, 1999 (Commission File No.
2-13328).
[2] The results of operations for the three months ended May 31, 2000 and May
31, 1999 are not necessarily indicative of the results to be expected for the
full year.
[3] INVENTORY
Inventories consist of:
<TABLE>
<CAPTION>
MAY 31,
---------
2000
---------
<S> <C>
Raw Materials $ 408,222
Work-in-Process 264,381
Finished Goods 248,377
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Total $ 920,980
=========
</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] STOCKHOLDERS' EQUITY
On May 15, 1998, Clarion Capital Corporation ("Clarion") converted two
convertible notes in the aggregate principal amount of $609,558 into an
aggregate number of 16,569,404 Common Shares of the Company. Immediately
thereafter, CPS Capital Ltd. ("CPS") purchased all 16,569,404 Common Shares from
Clarion for $230,000.
7
<PAGE> 8
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [CONT'D]
In addition, 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. Such shares have not been issued by the transfer agent. All the shares
acquired by CPS were acquired for investment purposes.
8
<PAGE> 9
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company formed two wholly owned subsidiaries, Sentex Systems, Inc.,
("Systems") 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. On September 4,
1998, all of the outstanding capital stock of Systems was sold to the ALR Group,
Incorporated ("ALR") and the Company is no longer in the gas chromatography
business.
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, 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.
Hereinafter the "Company" shall refer to Sentex Sensing Technology, Inc. and its
wholly owned subsidiary, Monitek.
Monitek designs, develops, assembles and markets instruments for the measurement
of clarity (turbidity), suspended solids content, color and purity of liquids in
industrial and waste water environments. Monitek's current line of products,
which are based on optical and acoustic technologies, have been specially
adapted for various applications in the chemical and petrochemical, food and
beverage, water treatment, pulp and paper, and bio-technology and pharmaceutical
industries, where their abilities to withstand high temperature, extremes in
pressure and corrosive environments are important factors. Monitek's products
are currently sold world-wide.
In March 1998, the Company purchased Cypress Instruments, Inc. ("Cypress") for
the purpose of acquiring a new product line that has subsequently been folded
into the Monitek product line. The acquisition was not material to the overall
business of the Company.
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<PAGE> 10
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT'D)
FINANCIAL CONDITION
-------------------
Working capital decreased to a negative $3,804,000 at May 31, 2000, as compared
to a negative $3,219,000 as of November 30, 1999. The decrease in working
capital is primarily due to the losses sustained by the Company during the first
half of Fiscal 2000. Cash and cash equivalents equaled approximately $97,000 as
of May 31, 2000, compared with $15,000 as of November 30, 1999. As set forth in
the independent auditors' report and notes to consolidated financial statements
that accompanied the Company's Form 10-KSB for the fiscal year ended November
30, 1999, the Company's recurring losses from operations and the resulting
effect on cash flow have reduced the Company's liquidity to its current level,
which raises substantial doubt about the Company's ability to continue as a
going concern.
To address the Company's working capital needs, the Company, in July 1998,
established a bank line of credit of $2,000,000, which was fully drawn on as of
February 29, 2000. This line of credit is secured by the personal guarantee of
Robert S. Kendall, the Chairman of the Company. From time to time, CPS has
provided the Company with temporary working capital loans and, as of February
29, 2000, there was an outstanding borrowing of $2,204,000 on such loans. As a
result of the acquisition of Cypress, the Company became obligated to make
payments to the shareholders of Cypress (for payment of shares and performing
future consulting services) of approximately $535,000 over four years. As of May
31, 2000, payments of $289,000 had been made to the Cypress shareholders.
On July 6, 2000, Sentex Sensing Technology, Inc. (the "Registrant") sold
substantially all of its Monitek and Monitek GmbH assets to Metrisa for cash,
notes, the assumption of selected liabilities and Metrisa common stock. No
dividends or distributions will be available to make payments to the
shareholders resulting from the sale. Monitek manufactures a wide range of
environmental and process control instrumentation to monitor and analyze fluids
of all types. Metrisa makes scientific and process control equipment for markets
worldwide.
At the closing, Metrisa issued 160,000 shares of Metrisa common stock to the
Registrant and paid the Registrant $1,265,000 for substantially all the assets
of Monitek and Monitek GmbH, which was based on the estimated net book value of
certain assets of those companies at July 1, 2000. The payment of the non-stock
consideration was made by the assumption of various liabilities of Monitek and
Monitek GmbH in the approximate amount of $272,000, payment in cash of
approximately $500,000, reduced by $50,000 reflecting the amount of cash Metrisa
advanced to the Registrant prior to closing, and delivery of a promissory note
in the amount of approximately $493,000. A final adjustment to the purchase
price will be made 45 days after closing. Any adjustments will be made to the
amount of the promissory note.
For a period of five years following the closing date, Metrisa and
Metrisa GmbH will pay Monitek, on a monthly basis, a royalty on the amounts
received from the United States Department of Defense by Metrisa or Metrisa GmbH
from the sale of acoustic products of
10
<PAGE> 11
Monitek for measurement of water in jet fuel, net of discounts and returns and
uncollectible accounts. The amount of the royalty is as follows:
<TABLE>
<CAPTION>
Calendar Year Royalty Percentage
------------- ------------------
<S> <C>
2000 10% of gross revenues in excess of $250,000
2001 8% of gross revenues in excess of $500,000
2002 6% of gross revenues in excess of $500,000
2003 4% of gross revenues in excess of $500,000
2004 2% of gross revenues in excess of $500,000
</TABLE>
There is currently no agreement with the United States Department of Defense and
no assurance can be made that Metrisa will make any sales to the United States
Department of Defense.
Prior to the closing, the operation of Monitek and Monitek GmbH
contributed substantially all of the Registrant's total revenues and constitute
substantially all of the Registrant's total assets. Accordingly, the
Registrant's operations currently substantially consist of settling its
liabilities and managing and holding Metrisa shares and promissory notes. The
Registrant may purchase additional assets in other lines of business, which at
this time have not been determined. No assurance can be given that the
Registrant will be able to acquire other lines of business.
Without continued financial support from CPS or Mr. Kendall, the Company would
not generate sufficient cash in the next 12 months to meet its working capital
needs.
Net Operating Losses; IC-DISC
The Company has approximately $11,695,000 in net operating losses as of February
29, 2000, which will expire at various dates through the year 2018 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
$6,265,000 of the $11,695,000 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 had begun 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 income, for tax return purposes, over the 10-year period ending March 31,
2001.
11
<PAGE> 12
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT'D)
RESULTS OF OPERATIONS
---------------------
Six Months Ended May 31, 2000 Compared to Six Months Ended May 31, 1999
The Company's net sales decreased by 31%, from $2,406,000 for the six months
ended May 31, 1999 ("Fiscal 1999 Six Months") to $1,666,000 for the six months
ended May 31, 2000 ("Fiscal 2000 Six Months"). Domestic sales decreased by
$185,000, or 26%, while export sales from the United States decreased by
$39,000, or 11%. Sales to Continental Europe by Monitek GmbH decreased by
$516,000, or 38%, from the Fiscal 1999 Six Months to the Fiscal 2000 Six Months.
The Company's management believes that the primary cause of these sales
reductions was uncertainty on the part of customers and manufacturers'
representatives regarding the strategic direction of the Company.
Cost of goods sold, as a percentage of sales, decreased to 52% for the Fiscal
2000 Six Months from 50% for the Fiscal 1999 Six Months, primarily as a result
of a change in product mix. Direct labor and overhead increased to 14% of net
sales for the Fiscal 2000 Three Months from 13% for the comparable Fiscal 1999
period, while material costs increased to 38% from 37% of net sales.
Selling, general and administrative expenses decreased to $1,149,000 for the
Fiscal 2000 Six Months from $1,380,000 for the Fiscal 1999 Six Months. Cost
reduction measures, which were implemented by management during the second half
of Fiscal 1999, resulted in a decrease of approximately $100,000 for the Fiscal
2000 Six Months as compared to the Fiscal 1999 Six Months. Sales commissions
decreased to $308,000 from $447,000 as a direct result of the decrease in net
sales.
Research and development expenses decreased to $61,000 for the Fiscal 2000 Six
Months from $90,000 for the Fiscal 1999 Six Months, primarily as a result of a
decrease in activities by outside consultants.
Operating losses increased to $409,000 for the Fiscal 2000 Six Months from
$275,000 for the Fiscal 1999 Six Months, primarily as a result of the decrease
in sales and the increase in cost of sales as a percentage of net sales,
partially offset by the reduction in selling, general and administrative
expenses and the reduction in research and development expenses.
Foreign currency transactions between Monitek and its German subsidiary resulted
in losses of $81,000 for the Fiscal 2000 Six Months and $60,000 for the Fiscal
1999 Six Months as a result of fluctuations in the value of the U.S. Dollar
relative to the DM.
Interest expense increased to $164,000 for the Fiscal 2000 Six Months from
$104,000 for the Fiscal 1999 Six Months as a result of increased borrowings.
12
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SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT'D)
Net losses increased to $651,000 for the Fiscal 2000 Six Months from $428,000
for the Fiscal 1999 Six Months, primarily as a result of the increase in
operating losses, the increase in foreign currency exchange losses and the
increase in interest expense.
CHANGES IN ACCOUNTING STANDARDS
-------------------------------
In June 1997, SFAS No. 131, Disclosures About Segments of an Enterprise and
Related Information, was issued. SFAS No. 131 changes the standards for
reporting financial results by operating segments, related products and
services, geographic areas and major customers. The Company must adopt the new
standard no later that November 30, 1999.
In June 1998, SFAS 133, Accounting for Derivative Instruments and Hedging
Activities, was issued. SFAS 133 establishes accounting and reporting standards
for derivative instruments and hedging activities. SFAS 133 is effective for
fiscal years beginning after June 15, 1998. Management believes this
pronouncement will have no effect on the financial statements.
13
<PAGE> 14
II. OTHER INFORMATION
ITEM 2
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
ITEM 5
CAUTIONARY STATEMENT FOR PURPOSES OF THE
"SAFE HARBOUR" OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995.
Certain statements in the Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Financial Statements included in
this Quarterly Report on Form 10-QSB, in the Company's press releases and in
oral statements made by or with the approval of an authorized executive officer
of the Company constitute "forward-looking statements" as that term is defined
under the Private Securities Litigation Reform Act of 1995. These may include
statements projecting, forecasting or estimating Company performance and
industry trends. The achievement of the projections, forecasts or estimates is
subject to certain risks and uncertainties. Actual results and events may differ
materially from those projected, forecasted or estimated. The applicable risks
and uncertainties include general economic and industry conditions that affect
all businesses, as well as matters that are specific to the Company and the
markets it serves.
General risks that may impact the achievement of such forecasts include
compliance with new laws and regulations; significant raw material price
fluctuations; currency exchange rate fluctuations; business cycles; and
political uncertainties. Specific risks to the Company include an inability of
the Company to finance its working capital needs; an inability of the Company to
curtail its recurring losses; an inability of the Company to successfully
integrate the business of Sentex and Monitek; a risk of recession in the
economies in which its products are sold, such as the Chemical or Petroleum
industries; and new or emerging products from current competitors. In light of
these and other uncertainties, the inclusion of a forward-looking statement
herein should not be regarded as a representation by the Company that the
Company's plans and objectives will be achieved.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) Not applicable.
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<PAGE> 15
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 17, 2000 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
15
