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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
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, 1999
SENTEX SENSING TECHNOLOGY, INC.
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(Exact name of Registrant as specified in its charter)
New Jersey 22-2333899
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1801 East Ninth Street
Cleveland, Ohio 44114
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(Address of principal executive offices) (Zip Code)
(216) 687-9133
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(Registrant's telephone number including area code)
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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 29, 2000: $7,891,976.
Number of shares of Common Shares (No Par Value) of SENTEX SENSING
TECHNOLOGY, INC., issued and outstanding as of February 29, 2000 is 78,919,762.
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TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (Check One)
Yes No X
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DOCUMENTS INCORPORATED BY REFERENCE
Part IV -Item 13 - Exhibits, Financial Statement
Schedules, and Reports on Form 8-K See Page 17
ITEMS OMITTED
None.
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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, which has
subsequently been 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.
On March 14, 2000, the Company announced the sale of the business
conducted by Monitek and Monitek GmbH to Metrisa, Inc. ("MTRE") of Bedford,
Massachusetts. Under terms of the sale, the Company will sell substantially all
of its Monitek and Monitek GmbH assets to Metrisa for cash, notes, the
assumption of selected liabilities, and Metrisa stock. The consideration
received upon the sale of the assets will not be sufficient to pay any dividends
or distributions to the shareholders. Sentex intends to use the consideration
received in the transaction to satisfy existing liabilities and, if available,
purchase additional assets in other lines of business, which at this time have
not been determined. Metrisa makes scientific and process control equipment for
markets worldwide. Metrisa's sales in fiscal 1999 were $8 million, compared to
$4.1 million for Monitek.
DESCRIPTION OF BUSINESSES OF MONITEK
General
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 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 and
acoustic 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,
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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.
Existing Products
Monitek's products consist of optical based products, acoustic based
products and spare parts.
(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.
Monitek has developed a number of insertable in-line sensors for
measurement of turbidity and 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 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) Acoustic Based Products. Monitek currently markets the Micro Pure
ultrasonic suspended solids meter, which 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 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.
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(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 2000.
Research and Development
Monitek expended approximately $178,000 and $218,000 for research and
development during the fiscal years ended November 30, 1999 ("fiscal 1999") and
November 30, 1998 (the "fiscal 1998"), respectively. During fiscal 1999, a
number of products were improved and two new products were released for
production. The first new product was a forward scatter insertion sensor
("InVision" Turbidity System) for use in low range suspended solids applications
and the second was a micro-processor based transmitter designed to operate with
the InVision sensor and with Monitek's other turbidity sensors.
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 two sales
managers, who oversee and monitor approximately 50 independent sales
representatives worldwide, with about half of such representatives selling in
the United States and the other half selling internationally.
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 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 and 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
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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
Optek, 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 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" and
"Micro Pure" and the Monitek and Micro Pure logos.
Employees
As of February 29, 2000, the Company employed a total of 15 full-time
staff, 2 of whom were engaged in product design and engineering, 7 were engaged
in manufacturing and production, 4 were engaged in marketing and sales and 2
were engaged in general corporate and administrative positions. The Company also
had 4 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.
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ITEM 2 PROPERTIES
Monitek's manufacturing operations occupy approximately 3,000 square
feet of leased space in Livermore, 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 $35,000
and expires in November 2000.
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 $80,000, based on the
rate of exchange in effect at November 30, 1999.
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
A former manufacturers' representative has filed a lawsuit against
Monitek GmbH, captioned Foerster vs Monitek GmbH, in the District Court in
Duesseldorf, Germany, claiming unlawful termination of his contract with the
Company and asking for compensation under a German law protecting
representatives of long standing. The suit asks for a total of $117,000, based
on the currency exchange rate as of November 30, 1999. The Company's enclosed
balance sheet includes an accrual of $51,000 based on an estimate of exposure
provided by the Company's German council.
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 trade on the Over-the-Counter Bulletin
Board. The range of high and low closing bid prices by fiscal quarter is
presented below.
1999 HIGH LOW
- ---- ---- ---
1st quarter .02 .01
2nd quarter .05 .01
3rd quarter .05 .01
4th quarter .012 .01
1998 HIGH LOW
- ---- ---- ---
1st quarter .04 .02
2nd quarter .05 .02
3rd quarter .04 .01
4th quarter .02 .01
The bid quotations represent interdealer quotations and do not include
retail markup, markdown or commissions, and may not represent actual
transactions. On February 29, 2000, there were 78,919,762 Common Shares issued
and outstanding and approximately 4,400 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.
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ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 Annual Report on Form 10-KSB, 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
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.
FINANCIAL CONDITION
Working Capital and Liquidity
During the last several fiscal years, the Company has incurred losses
from operations. In addition, the Company's certified public accountants,
Hausser+Taylor LLP, have included in their auditors' report, which covers the
Company's financial statements for the years ended November 30, 1997 and
November 30, 1998, a statement that the Company's recurring losses from
operations raised substantial doubt about the Company's ability to continue as a
going concern. Subsequently, for fiscal 1999, the Company has sustained losses
of approximately $1,440,000. These losses have had a substantial adverse effect
on the working capital of the Company.
Working capital decreased to negative $3,219,000 at November 30, 1999
as compared to negative $1,823,000 as of November 30, 1998. The decrease is
mainly due to the losses sustained by the Company during fiscal 1999. Cash and
cash equivalents equaled approximately $15,000 as of November 30, 1999 as
compared to $111,000 at November 30, 1998. As set forth in the accompanying
independent auditors' report and notes to consolidated financial statements, 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 November 30, 1999. 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
November 30, 1999, there was an outstanding borrowing of $1,705,000 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 the next
four fiscal years. As of November 30, 1999, payments of $236,000 had been made
to the Cypress shareholders.
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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
fiscal 1999, 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.
RESULTS FROM OPERATIONS
Fiscal 1999 as Compared to Fiscal 1998
The Company's net sales decreased by 26%, from $5,590,000 for fiscal
1998 to $4,115,000 for fiscal 1999. Sales of Systems products decreased to zero
for the Fiscal 1999 compared to $344,000 for Fiscal 1998, as a result of the
sale of Systems to ALR. Monitek's domestic sales decreased by $437,000, or 27%,
while export sales from the United States decreased by $23,000, or 5%. Sales to
Continental Europe by Monitek GmbH decreased by $671,000, or 22%, from fiscal
1998 to fiscal 1999. 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, increased to 54% for
fiscal 1999 from 50% for fiscal 1998 , primarily as a result of the decrease in
sales without a corresponding reduction in direct labor and factory overhead and
an increase in inventory obsolescence reserves. Direct labor and overhead
increased to 15% of net sales for fiscal 1999 from 13% for fiscal 1998. During
fiscal 1999, the Company increased its reserve for obsolescence by $86,000, or
2% of net sales.
Selling, general and administrative expenses decreased to $3,155,000
for fiscal 1999 from $4,494,000 for fiscal 1998. The sale of Systems, which had
total expenses of $592,000 during fiscal 1998, accounted for a large percentage
of the total reduction. Cost reduction measures, which were implemented by
management during fiscal 1998 and fiscal 1999, resulted in a decrease of
approximately $540,000 for fiscal 1999 as compared to fiscal 1998. Sales
commissions decreased to $806,000 from $1,009,000 as a direct result of the
decrease in net sales.
Research and development expenses decreased to $178,000 for fiscal 1999
from $218,000 for fiscal 1998, primarily as a result of a decrease in activities
by outside consultants.
Interest and other income decreased to $18,000 for fiscal 1999 from
$130,000 for fiscal 1998, primarily as a result of average cash balances
maintained for the two fiscal years.
During fiscal 1998, the Company experienced a one-time $423,000 loss on
disposal of assets as a result of the sale of Systems.
Net losses decreased to $1,440,000 for fiscal 1999 from $2,205,000 for
fiscal 1998, primarily as a result of the reduction in selling, general and
administrative expenses, the reduction in research and development expenses and
the
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sale of Systems to ALR, partially offset by the decrease in sales, the increase
in cost of sales as a percentage of net sales and the decrease in interest and
other income.
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.
ITEM 7 FINANCIAL STATEMENTS
See Index to Financial Statements appearing on page F-2.
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:
Name Age Position(s)
---- --- -----------
Robert S. Kendall 60 Chairman, President and Treasurer
James S. O'Leary 61 Director, Chief Financial Officer
James G. Few 50 Director
Julius L. Hess 37 Director
Ronald M. Lipson 64 Director
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. In September 1999, Mr. O'Leary
resigned from his position as Chief Operating Officer but he is still employed
by the Company, on a part-time basis, as Chief Financial Officer.
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
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Capital from 1990 to 1994. From 1989 to 1990 he was Senior Human Resources
Representative for B.F. Goodrich 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.
Three meetings of the Company's Board of Directors were held during the
fiscal year ended November 30, 1999. 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, 1999:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------- OTHER ANNUAL
YEAR SALARIES BONUS COMPENSATION
---- -------- ----- ------------
<S> <C> <C> <C> <C>
Robert S. Kendall 1999 $175,000(1) -0- -0-
(Chief Executive Officer) 1998 $175,000(1) -0- -0-
1997 $275,000(1) -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.
Long-Term Compensation. No long-term compensation was paid during the
fiscal years ended November 30, 1999, 1998 or 1997 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, 1999.
-13-
<PAGE> 14
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, 1999, 1998 or 1997.
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 29, 2000 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) 47,700,814 47.4%
James G. Few -- --
Julius L. Hess -- --
James S. O'Leary(3) 172,438 *
1495 Zephyr Avenue
Hayward, CA 94544
Ronald M. Lipson 687,500 *
3 Laurel Hill Lane
Pepper Pike, Ohio 44124
CPS Capital, Ltd.(4) 47,700,814 47.4%
1801 East Ninth Street
Cleveland, Ohio 44114
All Directors and Officers
(as a group persons) 48,560,752 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
-14-
<PAGE> 15
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 Common Shares in lieu of accrued management fees and
16,569,404 Common Shares which were purchased from a prior
owner of Sentex Common Shares.
*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, 1999, Mr. Kendall purchased
an additional 10,000 Common Shares and he inadvertently failed to report this
transaction on Form 4.
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CPS Management Agreement. 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 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 and subsequent years. CPS and the
Company have agreed that the balance due as of November 30, 1999, which totals
$325,000, and the fee for fiscal 2000, will be paid at some future time when the
financial condition of the Company improves.
Working Capital Assistance. During fiscal 1997 through fiscal 1999, CPS
and Mr. Kendall provided the Company assistance in connection with funding its
working capital needs in the form of loans and security for bank loans. From May
1997 through November 1999, CPS provided the Company a series of temporary
working capital loans at a prime rate at National City Bank, Cleveland, Ohio
("NCB"). The outstanding balance of such loans totaled $1,705,232, including
accrued interest, as of November 30, 1999. 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
-15-
<PAGE> 16
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 unless
the notes are converted into Common Shares at some future date. 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.
-16-
<PAGE> 17
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
</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.
-17-
<PAGE> 18
(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.
* Filed herewith.
(B) REPORTS ON FORM 8-K
None.
-18-
<PAGE> 19
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 15, 2000 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 15, 2000
- ------------------------------------
Robert S. Kendall and Treasurer
/s/ James S. O'Leary Executive V.P., Chief March 15, 2000
- ------------------------------------ Operating Officer, Chief
James S. O'Leary Financial Officer
Director March 15, 2000
- ------------------------------------
James G. Few
/s/ Julius L. Hess Director March 15, 2000
- ------------------------------------
Julius L. Hess
Director March 15, 2000
- ------------------------------------
Ronald M. Lipson
</TABLE>
-19-
<PAGE> 20
SENTEX SENSING TECHNOLOGY, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
F-1
<PAGE> 21
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONTENTS
- ------------------------------------------------------------------------------
Page
AUDITORS' REPORT ON THE FINANCIAL STATEMENTS F-3
FINANCIAL STATEMENTS
Consolidated balance sheet F-4
Consolidated statements of operations F-5
Consolidated statements of stockholders' equity F-6
Consolidated statements of cash flows F-7
Notes to consolidated financial statements F-8 - F-19
F-2
<PAGE> 22
Independent Auditors' Report
----------------------------
To the Board of Directors and Stockholders
Sentex Sensing Technology, Inc.
Cleveland, Ohio
We have audited the accompanying consolidated balance sheet of Sentex
Sensing Technology, Inc. and subsidiaries as of November 30, 1999, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the two years in the period ended November 30, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Sentex
Sensing Technology, Inc. and subsidiaries as of November 30, 1999, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended November 30, 1999, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2A to the
financial statements, the Company has in the past and continues to sustain
substantial net and operating losses. In addition, the Company has used
substantial amounts of working capital in its operations which has reduced the
Company's liquidity to a very low level. Additionally, the Company's stock is no
longer listed on the NASDAQ Small Cap Market tier of the NASDAQ stock market and
is now traded on the Over-the-Counter Bulletin Board which might limit the
Company's ability to raise equity capital. These matters raise substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded assets or the amounts and classification of
liabilities that might be necessary in the event the Company cannot continue in
existence.
HAUSSER + TAYLOR LLP
Cleveland, Ohio
March 3, 2000
F-3
<PAGE> 23
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 15,280
Accounts receivable, less allowance for doubtful
accounts of $10,000 649,034
Inventories 962,390
Other current assets 89,488
-----------
Total current assets $ 1,716,192
PROPERTY AND EQUIPMENT, less accumulated
depreciation and amortization of $209,003 123,793
OTHER ASSETS
Goodwill (net of accumulated amortization of $51,210) 350,192
Consulting contracts ($288,750) and other assets 303,145 653,337
----------- ---------
$ 2,493,322
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Notes payable:
Bank $ 2,000,000
Related party 1,705,232 $ 3,705,232
-----------
Trade accounts payable 628,881
Accrued liabilities 589,683
Convertible subordinated notes payable 11,348
-----------
Total current liabilities $ 4,935,144
LONG-TERM DEBT
Consulting contracts payable 160,550
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, no par value
Authorized - 200,000,000 shares
Issued - 109,460,911 shares
Outstanding - 100,514,911 shares 2,880,079
Retained earnings (deficit) (5,199,658)
Treasury shares at cost, 8,946,000 shares (313,218)
Accumulated other comprehensive income 30,425
-----------
Total stockholders' equity (2,602,372)
----------
$ 2,493,322
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 24
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended November 30, 1999 and 1998
- --------------------------------------------------------------------------------
1999 1998
---- ----
REVENUES
Net sales $ 4,114,559 $ 5,589,591
Interest and other income 18,464 129,567
------------- -------------
Total revenues 4,133,023 5,719,158
COST AND EXPENSES
Cost of sales 2,241,163 2,789,240
Selling, general and administrative 3,154,765 4,493,502
Research and development 177,542 217,789
Loss on sale of assets -- 423,283
------------- -------------
Total costs and expenses 5,573,470 7,923,814
------------- -------------
LOSS BEFORE PROVISION FOR INCOME TAX
EXPENSE (1,440,447) (2,204,656)
PROVISION FOR INCOME TAX EXPENSE -- --
------------- -------------
NET LOSS $ (1,440,447) $ (2,204,656)
============= =============
NET LOSS PER SHARE (BASIC AND DILUTED) $ (0.01) $ (0.02)
============= =============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 100,514,911 90,693,556
============= =============
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 25
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended November 30, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Retained Treasury Stock
---------------------------- Earnings -------------------------
Shares Amount (Deficit) Shares Amount
------ ------ --------- ------ ------
<S> <C> <C> <C> <C> <C>
Balance - November 30, 1997 87,865,762 $ 2,153,489 $ (1,554,555) 8,946,000 $ (313,218)
Comprehensive income (loss)
Net loss -- -- (2,204,656) -- --
Translation adjustment -- -- -- -- --
Comprehensive income (loss)
Issuance of common stock for:
Conversion of subordinated notes and payment
of accrued interest * 16,569,404 529,690 -- -- --
Satisfaction of unpaid management fees * 5,025,745 196,900 -- -- --
------------ ------------ ------------ ------------ ------------
Balance - November 30, 1998 109,460,911 2,880,079 (3,759,211) 8,946,000 (313,218)
Comprehensive income (loss)
Net loss -- -- (1,440,447) -- --
Translation adjustment -- -- -- -- --
Comprehensive income (loss)
------------ ------------ ------------ ------------ ------------
Balance - November 30, 1999 109,460,911 $ 2,880,079 $ (5,199,658) 8,946,000 $ (313,218)
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other Total
Comprehensive Stockholders'
Income Equity
------ ------
<S> <C> <C>
Balance - November 30, 1997 $ 21,951 $ 307,667
Comprehensive income (loss)
Net loss -- (2,204,656)
Translation adjustment 3,748 3,748
------------
Comprehensive income (loss) (2,200,908)
Issuance of common stock for:
Conversion of subordinated notes and payment
of accrued interest * -- 529,690
Satisfaction of unpaid management fees * -- 196,900
------------ ------------
Balance - November 30, 1998 25,699 (1,166,651)
Comprehensive income (loss)
Net loss -- (1,440,447)
Translation adjustment 4,726 4,726
------------
Comprehensive income (loss) (1,435,721)
------------ ------------
Balance - November 30, 1999 $ 30,425 $ (2,602,372)
============ ============
</TABLE>
* These shares are considered issued and outstanding even though they have not
been formally issued by the transfer agent
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 26
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended November 30, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,440,447) $(2,204,656)
Adjustments to reconcile net loss to net cash
used by operating activities:
Amortization of discount on convertible subordinated
notes payable 538 25,500
Depreciation and amortization 197,165 84,283
Translation and other adjustments 5,802 200,578
Loss on sale of assets -- 423,283
Changes in assets and liabilities:
Accounts receivable 50,375 366,782
Inventories 156,600 32,935
Other current assets (27,209) 117,666
Other assets (2,460) 14,225
Accounts payable 24,584 (253,640)
Accrued expenses and other current liabilities (232,591) (313,907)
----------- -----------
Total adjustments 172,804 697,705
----------- -----------
Net cash used by operating activities (1,267,643) (1,506,951)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (16,443) (30,014)
Proceeds from sale of assets -- 18,050
----------- -----------
Net cash used by investing activities (16,443) (11,964)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments to related party -- (33,333)
Net proceeds (payments) on note payable - bank 119,600 (219,600)
Net proceeds on note payable - related party 1,154,232 551,000
Payments on consulting contracts (85,599) --
----------- -----------
Net cash provided by financing activities 1,188,233 298,067
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (95,853) (1,220,848)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 111,133 1,331,981
----------- -----------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 15,280 $ 111,133
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 246,219 $ 89,173
</TABLE>
See notes to the consolidated financial statements for certain
noncash investing and financing activities
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 27
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION, BACKGROUND AND INDUSTRY SEGMENT
The consolidated financial statements include the accounts of Sentex
Sensing Technology, Inc. and its wholly-owned subsidiaries (the
"Company"). All material intercompany accounts and transactions have
been eliminated in consolidation.
The Company's business is confined to a single industry segment,
manufacturing analysis equipment. One of the subsidiaries, Sentex
Systems, Inc., whose assets and operations were disposed of in the year
ended November 30, 1998, was engaged in the business of developing,
manufacturing and selling automated gas chromatography devices designed
to detect the presence of certain substances by identifying and
measuring the concentrations of certain atmospheric vapors (see Note
14). Monitek Technologies, Inc. ("Monitek") was acquired by the Company
on November 30, 1996 and designs, develops, assembles and markets
instruments for the measurement of clarity (turbidity), suspended solid
content, color, purity, flow, level and volume of liquids in industrial
waste water environments. Monitek GmbH, a wholly-owned subsidiary of
Monitek, was formed in Germany to sell and service Monitek's products
throughout Continental Europe. At November 30, 1999, Monitek GmbH's
assets, located in Continental Europe, represent approximately 41% of
the Company's total consolidated assets. A new subsidiary, Cypress
Instruments, Inc. ("Cypress"), was acquired by the Company on March 5,
1998 for the purpose of acquiring a new product line that was currently
under development. The products under development are similar to those
of Monitek and have been folded into their existing product lines.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Going Concern - The accompanying financial statements have
been prepared in conformity with generally accepted accounting
principles, which contemplate continuation of the Company as a
going concern. However, the Company has in the past and
continues to sustain substantial net and operating losses. In
addition, the Company has used substantial amounts of working
capital in its operations which has reduced the Company's
liquidity to a very low level. Additionally, the Company's
stock is no longer listed on the NASDAQ Small Cap Market tier
of the NASDAQ stock market and is now traded on the
Over-the-Counter Bulletin Board which might limit the
Company's ability to raise equity capital. These matters raise
substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any
adjustments relating to the recoverability and classification
of recorded assets or the amounts and classification of
liabilities that might be necessary in the event the Company
cannot continue in existence. The Company's ability to
continue in existence is primarily dependent upon its ability
to arrange adequate financing and to attain satisfactory
levels of operating cash flows.
B. Inventories - Inventories are stated at the lower of cost
(determined by the first-in, first-out method) or market.
F-8
<PAGE> 28
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. Property and Equipment - Property and equipment are stated at
cost less accumulated depreciation and amortization.
Depreciation and amortization are computed using straight-line
and accelerated methods over the estimated useful lives of the
respective assets.
When assets are retired or otherwise disposed of, the cost and
related accumulated depreciation or amortization are removed
from the accounts and any resulting gain or loss is recognized
in income or loss for the period. The cost of maintenance and
repairs is included in the statements of operations as
incurred; significant renewals and betterments are
capitalized.
D. Revenue Recognition - The Company records revenue as products
are shipped to customers.
E. Research and Development Costs - Research and development
costs are expensed as incurred.
F. Cash and Cash Equivalents - Cash equivalents are comprised of
certain highly liquid investments with a maturity of three
months or less when purchased.
G. Concentration of Credit and Risk Factors - Financial
instruments which potentially subject the Company to
concentrations of credit risk are cash and equivalents,
investments in certificates of deposit and accounts receivable
arising from its normal business activities. Concentrations of
credit risk with respect to trade receivables are limited, due
to the number of customers comprising the Company's customer
base and their disposition across different industries and
geographic areas. Bad debt expenses have not been material.
The Company places its cash and cash equivalents with high
credit quality financial institutions. The amount on deposit
in any one institution that exceeds federally insured limits
is subject to credit risk.
The Company operates in an environment with many financial
risks, including, but not limited to, its lack of history of
profitable operations, the inherent risks associated with new
product research and development, the highly competitive
nature of the industry in which it operates and worldwide
economic conditions. The Company's ability to capitalize on
its current and emerging technology and diversity of its
operations and products is also dependent upon the Company's
ability to obtain the necessary capital through operating cash
flow, additional borrowings or additional equity funds.
H. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
F-9
<PAGE> 29
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
I. Income Taxes - The Company utilizes Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), Accounting for
Income Taxes, which requires an asset and liability approach
to financial accounting and reporting for income taxes. The
difference between the financial statement and tax basis of
assets and liabilities is determined annually. Deferred income
tax assets and liabilities are computed for those temporary
differences that have future tax consequences using the
current enacted tax laws and rates that apply to the periods
in which they are expected to affect taxable income. Valuation
allowances are established, if necessary, to reduce the
deferred tax asset to the amount that will, more likely than
not, be realized. Income tax expense is the current tax
payable or refundable for the period plus or minus the net
change in the deferred tax assets and liabilities.
The Company has no current plans to repatriate undistributed
earnings of Monitek's foreign subsidiary. Therefore, no tax
has been provided to cover the repatriation of such
undistributed earnings. The cumulative amount of undistributed
earnings for which the Company has not provided United States
income taxes is not material.
The Company has terminated its IC-DISC and, therefore, has
begun repatriation of the undistributed earnings of the
IC-DISC. The undistributed earnings of approximately $780,000
are recognized as income by the Company over a 10-year period
ending March 31, 2001.
J. Fair Value of Financial Instruments - The fair values of cash,
accounts receivable, accounts payable and other short-term
obligations approximate their carrying values because of the
short maturity of these financial instruments. The carrying
values of the Company's long-term obligations approximate
their fair value. In accordance with Statement of Financial
Accounting Standards No. 107, Disclosure About Fair Value of
Financial Instruments, rates available at balance sheet dates
to the Company are used to estimate the fair value of existing
debt.
K. Foreign Currency Translation - The Company accounts for
foreign currency translation in accordance with Statement of
Financial Accounting Standards No. 52, Foreign Currency
Translation. The functional currency of the Company's German
subsidiary is the deutsche mark. All transactions of that
subsidiary denominated in currency other than the functional
currency are remeasured into the functional currency with the
resulting gain or loss included as foreign currency
transaction gains or losses in the accompanying consolidated
statements of operations. Assets and liabilities denominated
in currencies other than U.S. dollars are translated at year
end exchange rates and all statement of operations items are
translated at the weighted average exchange rate for the year.
L. Loss Per Share - Loss per share is calculated using the
weighted average number of shares outstanding.
F-10
<PAGE> 30
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
M. New Authoritative Pronouncements - 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 adopted the new standard, which did not materially
affect the Company's financial statements.
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, 2000. Management believes this
pronouncement will have no effect on the financial statements.
NOTE 3. ACQUISITIONS
In March 1998, the Company acquired 100% of the outstanding stock of
Cypress Instruments, Inc. ("Cypress") for the purpose of acquiring a
new product line that was under development. The acquisition was not
material to the overall business of the Company and was accounted for
as a purchase. Consideration in the amount of $150,000 was given in the
form of a contingent payment. The excess of the aggregate purchase
price over the estimated fair value of the net assets acquired
(goodwill) was $150,000, and is being amortized over 20 years. In
connection with the acquisition, the Company entered into consulting
agreements with the former shareholders of Cypress (see Note 9).
On November 30, 1996, the Company acquired 100% of the outstanding
stock of Monitek Technologies, Inc. (see Note 1). The acquisition was
accounted for as a purchase and resulted in the issuance of 11,659,681
common shares and convertible notes having face and discounted values
of $622,000 and $468,000, respectively, in exchange for 100% of the
outstanding stock and other securities of Monitek. The acquisition cost
attributable to the common shares of $348,000 was based on the
estimated fair value, including goodwill, of the net assets acquired,
net of the cost attributable to the convertible notes and before costs
associated with the registration of the securities issued ($150,000,
which was charged against stockholders' equity). In addition, the total
acquisition cost includes direct acquisition costs of $72,319. The
estimated fair market value of tangible assets and liabilities acquired
was $2,650,153 and $2,013,236, respectively. The excess of the
aggregate purchase price over the estimated fair market value of the
net assets acquired (goodwill) was approximately $251,402, which is
being amortized on a straight-line basis over 20 years.
F-11
<PAGE> 31
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. INVENTORIES
Inventories consist of the following at November 30, 1999:
Raw materials $431,797
Work-in-process 254,430
Finished goods 276,163
--------
$962,390
========
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at November 30, 1999:
Machinery and equipment $315,192
Furniture and fixtures 17,604
--------
332,796
Less accumulated depreciation and amortization 209,003
--------
$123,793
========
NOTE 6. ACCRUED LIABILITIES
Accrued liabilities consist of the following at November 30, 1999:
Accrued acquisition - Cypress Instruments, Inc. $138,900
Accrued bonuses and other compensation 16,138
Accrued commissions 13,936
Accrued pension 328,764
Accrued payroll and related taxes 24,198
Other accrued liabilities 67,747
--------
$589,683
========
F-12
<PAGE> 32
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. NOTES PAYABLE - BANK AND OTHER BORROWING ARRANGEMENTS
The Company has available a $2,000,000 demand line of credit secured by
the Company's assets and the assets of the Company's Chairman of the
Board. Interest is charged on a 90 day contract period at the lower of
the prime lending rate or LIBOR plus 150 basis points (8.75% as of
November 30, 1999). Interest is payable monthly. Amounts outstanding
under the line amounted to $2,000,000 at November 30, 1999.
During the years ended November 30, 1999 and 1998, a principal
shareholder and the Company's Chairman provided the Company assistance
in connection with funding its working capital needs in the form of
loans and security for bank loans. As of November 30, 1999, the Company
had notes payable of $1,705,232 (bearing interest at the prime rate) to
its principal shareholder, CPS Capital, Ltd., in connection with such
unsecured loans.
Interest expense for the years ended November 30, 1999 and 1998
amounted to $228,525 and $182,372, respectively.
NOTE 8. CONVERTIBLE SUBORDINATED NOTES PAYABLE
In connection with the acquisition of Monitek on November 30, 1996, the
Company issued convertible notes having aggregate face and discounted
values of $622,000 and $468,000, respectively. The unsecured notes,
which are subordinated to all present and future obligations of the
Company, have a stated interest rate of 5.05% per annum and were
discounted using a yield rate of 15% to reflect management's estimate
of the fair value of the debt.
Interest on the notes is payable annually (November 30) in shares of
the Company's common stock based on the average of the bid and ask
prices of the shares on the last ten trading days prior to the date on
which the interest payment is due. Interest expense related to the
convertible subordinated notes payable amounted to approximately $1,562
and $14,645 for the years ended November 30, 1999 and 1998,
respectively. In 1998, the Company issued 1,118,467 shares of common
stock in satisfaction of the accrued interest. The notes were
convertible at various rates ($.0194 and $.0562 on $136,414 and
$485,586 of face amount, respectively) averaging $.03 per face amount
of debt, into an aggregate of 15,671,969 shares of the Company's common
stock.
The notes were convertible by the holder 300 days after the second
anniversary of issuance and earlier under certain conditions including
certain changes in control or the restructuring/recapitalization of the
Company. The notes could be converted at the Company's option 345 days
after the second anniversary of issuance into that number of shares by
dividing the face amount of the note by $.075 or at a time earlier at
the standard conversion rates ($.0194 and $.0562) if there is a proxy
contest for control of the Company's Board of Directors or if the
Company is unable, in the judgment of the Company's Board of Directors,
without compelling such a conversion, to obtain the requisite
shareholder vote to approve a material transaction approved by the
Board of Directors. The conversion terms contain standard anti-dilutive
provisions to adjust the conversion price. In the event the notes are
not converted, they become due on November 30, 1999.
F-13
<PAGE> 33
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. CONVERTIBLE SUBORDINATED NOTES PAYABLE (CONTINUED)
In 1998, a board resolution was proposed to allow the holder of
significantly all of the Company's convertible subordinated notes
payable to convert its notes immediately without regard to restrictions
thereon in the hopes of reducing the amount of the Company's debt. The
holder agreed to convert the notes if CPS Capital, Ltd. ("CPS")
purchased the common shares that would be held by the holder following
conversion. CPS agreed to purchase the common shares (including shares
issued in satisfaction of accrued interest) for approximately $230,000.
Pursuant to the board resolution, convertible notes, having a face
value of $609,578 and a carrying value of $529,690, were converted into
15,450,937 shares of the Company's common stock. The remaining face and
carrying values of the subordinated notes at November 30, 1999 amounted
to $12,423 and $11,348, respectively.
NOTE 9. CONSULTING CONTRACTS PAYABLE
In connection with the purchase of Cypress (see Note 3), the Company
entered into consulting agreements with the principal stockholders of
Cypress. Payments under the agreements total $385,049 and are payable
over thirty-six months. The Company has included the cost of the
contracts in other assets and the payment requirements as a liability
in its financial statements. The cost of contracts will be ratably
expensed over the thirty-six month period of the contracts. As of
November 30, 1999, the following is a schedule of future payment
requirements:
2000 $128,350
2001 128,350
2002 32,200
--------
$288,900
========
NOTE 10. COMMITMENTS AND CONTINGENCIES
The Company leases certain equipment and occupies premises under
various operating leases. Rental expense amounted to approximately
$315,000 and $272,000 (of which $-0- and $32,500 were for related
party leases) for the years ended November 30, 1999 and 1998,
respectively. Future minimum payments under leases that have
initial or remaining terms in excess of one year are as follows at
November 30, 1999:
2000 $135,442
2001 73,333
--------
$208,775
========
F-14
<PAGE> 34
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. STOCK INCENTIVE PLAN
The Company has a long-term incentive plan ("Incentive Plan") to
provide current and future directors, officers and employees incentives
to stimulate their active interest in the development and financial
success of the Company. The Incentive Plan provides for the granting of
"incentive stock options," under Section 422 of the Internal Revenue
Code of 1986, as amended, or other stock options, stock appreciation
rights, restricted or nonrestricted stock awards to purchase not more
than 7,000,000 shares (which shares have been reserved by the Company)
of common stock as determined by the Company's Incentive Plan Committee
(the "Committee"). The option prices per share of common stock, which
is the subject of incentive stock options and other stock options under
the Incentive Plan, shall not be less than 100% of the fair market
value of the Company's shares of common stock on the date such option
is granted. The Committee shall determine when each option is to expire
but no option shall be exercisable for a period of more than 10 years
from the date upon which the option is granted. Generally, options
granted under the Incentive Plan vest or terminate upon the employee
leaving the Company and are subject to automatic acceleration of any
vesting requirements given certain changes in control of the Company.
Stock appreciation rights may be awarded by the Committee at the time
or subsequent to the time of the granting of options. Stock
appreciation rights awarded shall provide that the option holder shall
have the right to receive an amount equal to 100% of the excess, if
any, of the fair market value of the shares of common stock covered by
the option over the option price. Such amount shall be payable, as
determined by the Committee, in one or more of the following manners:
(a) cash; (b) fully-paid shares of common stock having a fair market
value equal to such amount; or (c) a combination of cash and shares of
common stock. As of November 30, 1999, the Company has not granted any
awards under the Incentive Plan.
Stock options outstanding at November 30, 1996 consisted of Monitek
stock options that were automatically converted, at the date of
acquisition (see Note 3), into options to purchase 2,583,110 of the
Company's common shares at an average exercise price of $.1038 per
share and a range of $.0725 to $.1812 per share. During the year ended
November 30, 1997, 241,412 shares under option were forfeited and
689,749 shares under option expired by their terms but were extended
for an additional 18 months with an exercise price equal to the
original exercise price of $.1812 per share (the fair value of the
options under SFAS 123 was not material). During the years ended
November 30, 1999 and 1998, 776,002 and 1,307,075 shares under option
expired or were forfeited. Options outstanding to purchase the
Company's stock at November 30, 1999 amounted to 258,621 shares at an
exercise price of $.0725 per share.
NOTE 12. PROFIT-SHARING PLAN
The Company has a profit-sharing plan and a 401(k) retirement plan for
the benefit of eligible employees. Contributions under the plans are
determined at the discretion of the Board of Directors and are credited
to employees based upon a percentage of eligible salaries. The Company
elected to suspend all contributions for the years ended November 30,
1999 and 1998.
F-15
<PAGE> 35
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13. INCOME TAXES
As referred to in Note 1, the Company utilizes SFAS 109, Accounting for
Income Taxes. A reconciliation between the Company's effective income
tax rate and the statutory federal income tax rate is as follows for
the years ended November 30:
1999 1998
---- ----
Expected federal income tax benefit at the
statutory rate (34.0)% (34.0)%
Increase in taxes resulting from:
Effect of operating loss for which no tax
carrybacks are available 34.0 33.9
Other -- 0.1
---- ----
-- % -- %
==== ====
The tax effects of significant temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities are presented below for the years ended November 30:
1999 1998
---- ----
Deferred tax assets:
Allowance for doubtful accounts and
miscellaneous other $ (17,600) $ (24,200)
Net operating loss carryforward 1,846,200 1,525,400
----------- -----------
Total gross deferred tax assets 1,828,600 1,501,200
Less valuation allowance 1,828,600 1,501,200
----------- -----------
Net deferred tax assets $ -- $ --
=========== ===========
The deferred tax assets do not include deferred tax assets related to
purchased net operating loss carryforwards that are subject to usage
limitations (see below).
The Company established a valuation allowance against tax benefits that
are potentially available to the Company but have not yet been
recognized. This valuation allowance relates to the amount of net
operating loss carryforwards in excess of existing net taxable
temporary differences and to certain deductible temporary differences
that may not reverse during periods in which the Company may generate
net taxable income. During the years ended November 30, 1999 and 1998,
the Company recorded increases of $327,400 and $591,000, respectively,
in the valuation allowance primarily as a result of the net operating
loss generated during the year.
F-16
<PAGE> 36
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13. INCOME TAXES (CONTINUED)
At November 30, 1999, the Company had approximately $11,695,000 of
net operating loss carryforwards available to offset future federal
taxable income. The federal net operating loss carryforwards expire
at various dates through 2019. Federal tax law imposes restrictions
on the utilization of net operating loss carryforwards in the event
of a change in ownership. The Company's net operating loss includes
approximately $6,265,000 of loss carryforwards that are subject to
limitations as a result of these provisions.
NOTE 14. LOSS ON SALE OF ASSETS
In September 1998, the Company divested itself of Sentex Systems,
Inc.'s operation, which generated less than 15% of the Company's
revenues, but a much more significant part of the Company's losses.
The Company agreed to sell all of the outstanding capital stock of
Sentex Systems, Inc. to a company which is principally owned by
Amos Linenberg. Prior to the sale, Mr. Linenberg was the President
of Sentex Systems, Inc. and an Executive Vice President of the
Company. In the past, Mr. Linenberg has been a principal
shareholder of the Company and served as a director of the Company.
In consideration for all of the capital stock of Sentex Systems,
Inc., Mr. Linenberg terminated 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
Sentex Systems, Inc. through June 30, 1998 and the Buyer assumed
all the costs and operating expenses of Sentex Systems, Inc. from
July 1, 1998 through the closing. The Company incurred a $423,283
loss, representing the disposal of the net assets of Sentex
Systems, Inc.
NOTE 15. RELATED PARTY TRANSACTIONS
Effective March 1, 1996, the Company entered into a management
agreement with an affiliate and significant shareholder, CPS
Capital, Ltd., to perform management and executive services at an
annual fee of $193,800, payable ratably each month, plus any
reasonable "out-of-pocket" expenses. In June 1996, 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.
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 $125,000, and the fee for fiscal 1999
($200,000) will be paid at some future time when the financial
condition of the Company improves.
F-17
<PAGE> 37
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16. SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one industry segment as described in Note 1
and two geographical reporting segments. Sales and operating losses
for the years ended November 30, 1999 and 1998, and identifiable
assets classified by the major geographic areas in which the
Company operates, are as follows:
Year Ended November 30,
------------------------
1999 1998
---- ----
Sales to unaffiliated customers:
United States
Domestic $ 1,315,848 $ 2,109,442
Export sales 412,921 423,040
Continental Europe 2,385,790 3,057,109
Intercompany transfers 642,346 396,846
Eliminations (642,346) (396,846)
----------- -----------
Net sales 4,114,559 5,589,591
Operating loss:
United States (734,372) (2,053,572)
Continental Europe (496,014) (57,054)
----------- -----------
Total operating loss (1,230,386) (2,110,626)
Interest expense (230,087) (223,597)
Other income, net 20,026 129,567
----------- -----------
Loss before income tax expense $(1,440,447) $(2,204,656)
=========== ===========
Identifiable assets:
United States $ 1,460,523 $ 1,707,479
Continental Europe 1,032,799 1,240,800
----------- -----------
Total assets $ 2,493,322 $ 2,948,279
=========== ===========
F-18
<PAGE> 38
NOTE 17. SUBSEQUENT EVENT
On March 14, 2000, the Company announced the sale of the business
conducted by Monitek and Monitek GmbH to Metrisa, Inc. (MTRE) of
Bedford, Massachusetts. Under terms of the sale, the Company will
sell substantially all of its Monitek and Monitek GmbH assets to
Metrisa for cash, notes, the assumption of selected liabilities,
and Metrisa stock. The consideration received upon the sale of the
assets will not be sufficient to pay any dividends or distributions
to the shareholders. Sentex intends to use the consideration
received in the transaction to satisfy existing liabilities and, if
available, purchase additional assets in other lines of business,
which at this time have not been determined. Metrisa makes
scientific and process control equipment for markets worldwide.
F-19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONSOLIDATED FINANCIAL STATEMENTS OF SENTEX SENSING TECHNOLOGY, INC, (B)
ANNUAL REPORT, FILED ON FORM 10-KSB, FOR THE FISCAL YEAR ENDING NOVEMBER 30,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. $
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-START> DEC-01-1998
<PERIOD-END> NOV-30-1999
<EXCHANGE-RATE> 1
<CASH> 15,280
<SECURITIES> 0
<RECEIVABLES> 676,815
<ALLOWANCES> 27,788
<INVENTORY> 962,390
<CURRENT-ASSETS> 1,716,192
<PP&E> 332,796
<DEPRECIATION> 209,003
<TOTAL-ASSETS> 2,493,322
<CURRENT-LIABILITIES> 4,935,144
<BONDS> 0
0
0
<COMMON> 2,880,079
<OTHER-SE> (5,482,451)
<TOTAL-LIABILITY-AND-EQUITY> 2,493,322
<SALES> 4,114,559
<TOTAL-REVENUES> 4,133,023
<CGS> 2,241,163
<TOTAL-COSTS> 2,241,163
<OTHER-EXPENSES> 3,102,220
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 238,087
<INCOME-PRETAX> (1,440,447)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,440,447)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,440,447)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
