<PAGE>
UNITED STATESUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File No, 0-16544
For the fiscal year ending March 31, 1996
MONITEK TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 94-1689129
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1495 Zephyr Avenue
Hayward, California 94544
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(510) 471-8300
--------------------------------------------------
(Registrant's telephone number including area code)
______________________
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.01 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. [X]
The aggregate market value of Monitek Technologies Common Stock, $.01 par
value, held by non-affiliates, computed by reference to the average of the
closing bid and asked prices as reported by NASDAQ on June 17, 1996: $827,747.
Number of shares of Common Stock and Class A Common Stock, respectively, of
MONITEK TECHNOLOGIES, INC., $.01 par value, issued and outstanding as of
June 21,1996: 1,690,424 and 1,252,676.
1
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Part IV -Item 14 - Exhibits, Financial Statement
Schedules, and Reports on Form 8-K See Page 18
2
<PAGE>
PART I
Item 1. Business
(a) General Development of Business
Monitek Technologies, Inc. (the "Company") 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. The Company'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. The
Company's current line of products, which are based on optical, ultrasonic,
acoustic and magnetic technologies, have been specially adapted for various
applications in the chemical and petrochemical, water treatment, food and
beverage, pulp and paper, and biotechnology and pharmaceutical industries, where
their abilities to withstand high temperature, extremes in pressure and
corrosive environments are important factors. The Company believes its
instruments are capable of adaptation and enhancement for use in other
industries, as well as for additional applications in those industries which the
Company currently serves. The Company's products are currently sold worldwide.
The Company has experienced continued losses from operations during the
last several years, which has resulted in the reduction of unused sources of
liquidity to a very low level. As set forth in Note 17 of the accompanying
independent auditors' report and notes to consolidated financial statements and
in Management's Discussion and Analysis of Financial Condition and Results of
Operations on page 10 hereof, these losses and the resulting effect on cash flow
raise significant doubt about the Company's ability to continue as a going
concern without additional sources of external financing.
(b) Financial Information about Industry Segments
During the three years ended March 31, 1996, the Company operated in one
business segment.
(c) Narrative Description of Business
General
- -------
The Company was organized in Delaware in April 1987 as a wholly-owned
subsidiary of Monitek, Inc., a California corporation doing business since 1969,
for the purpose of acquiring the latter pursuant to an agreement and plan of
merger. The merger was consummated on July 10, 1987. Prior to the merger, the
Company conducted no operations and had neither assets nor liabilities.
Products
- --------
The Company is engaged in the design, development, assembly and marketing
of a line of instruments for the in-line measurement of clarity (turbidity),
suspended solids content, color, purity, flow, level and volume of liquids in
industrial and waste water environments. The Company's products, which are
based on optical, magnetic, acoustic and ultrasonic technologies, facilitate
automation and control of various processes by providing on-line measurement of
the characteristic being monitored. The Company's products have been specially
adapted for use in the chemical and petrochemical, water treatment, food and
beverage, pulp and paper, and biotechnology and pharmaceutical industries to aid
in quality control procedures, process control, process monitoring, chemical
addition control procedures, contamination measurement, contamination alarm and
other aspects of industrial processes.
Optical Based Products
The heart of the Company's product line are suspended solids analyzers,
which are in-line monitors that measure clarity, suspended solids content and
purity of liquids. The Company'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
3
<PAGE>
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 the Company'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.
The Company's suspended solids analyzers are available in a wide range of
sizes and configurations to meet customer requirements. The Company's basic
instruments can also be specially adapted for particular applications with the
addition of available options. Certain instruments are designed to be
"explosion proof", i.e. the instrument is enclosed in such a way as to prevent
internal electrical or chemical reactions from igniting explosive mixtures
existing in the atmosphere surrounding the encased instrument, and have been
approved for the use in explosive environments by Underwriters' Laboratories
(U.L.). This characteristic is of a particular importance in the petrochemical
industry. Other instruments are adapted to be watertight and dust-tight to
protect the equipment against splashing, seeping or falling water and severe
external condensation, while others are adapted to withstand high temperatures,
extremes in pressure and corrosion for applications in such industries as the
chemical and pulp and paper industries. An example of an adaptation for a
particular application is a line of the Company's suspended solids analyzers -
Cleansimatic Liquid Analysis Meters (CLAM)- which employ a mechanical self-
cleaning apparatus designed to eliminate the problem of fouling inherent in
wastewater treatment applications.
The Company has developed two insertable in-line sensors, one for
measurement of consistency, for use in various industries and the other (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 the Company's original
line of suspended solids analyzers, which require accessories fitted to the
actual pipe size to which the instrument is attached, the insertable fiber optic
sensors are capable of being inserted into any size pipe through special
fittings. The advantage of such devices over conventional suspended solids
analyzers is their ability to provide the customer with an easier, more cost-
effective means of installation and servicing, in that it does not require
shutting down the process flow of the liquid or extensive structural work often
necessary with the non-insertable products.
A second optical-based product line is color monitors, which are used to
measure the difference in the absorption of light through a liquid at two
wavelengths. This measurement is indicative of color or concentration. To
date, these instruments have been sold primarily to petrochemical refineries
where the avoidance of color in the final product is essential. The Company'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 $5,000 to $12,000 per system.
Non-Optical-Based Products
The Company currently markets three non-optical-based products. The first
is an insertable magnetic flowmeter, a device which measures flow of liquids in
closed pipes. The flow of the measured liquid through the sensor's magnetic
field creates a voltage proportional to the flow. This voltage is sensed,
amplified and combined with the cross-sectional area of the pipe to produce a
flow measurement. The Company's magnetic flowmeters, which range in price from
$3,000 to $5,000, have applications in water distribution, water treatment and
pulp and paper plants.
The ultrasonic level and flow meter is the Company's second significant
non-optical-based product line. These instruments were designed to measure the
level of any liquid, solid or granular material in any vessel or open area using
non-contact, ultrasonic techniques and to calculate electronically the height or
volume of the monitored material based on the size of the vessel. When used in
a flume or weir, level is electronically interpreted as flow. Ultrasonic level
and flow meters have traditionally ranged in price from $1,000 to $2,500.
The Micro Pure ultrasonic suspended solids meter, the third significant
non-optical based product line, has allowed the Company 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 the Company'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.
4
<PAGE>
Spare Parts
Sales of spare parts is an important part of the Company's business,
accounting for 15% to 18% of sales volume for the past three years.
Warranty and Service
The Company 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, the Company has not had any
significant claims pursuant to warranties. The Company provides for its own
equipment servicing for certain products with in-house field service personnel.
Areas of Product Research
- -------------------------
The Company's research and development activities are primarily devoted
to the development of new measurement products and the adaptation and
enhancement of existing products for new applications. The Company expended
approximately $399,000, $332,000 and $273,000 for research and development
during the fiscal years ended March 31, 1996 ("Fiscal 1996"), March 31, 1995
("Fiscal 1995") and March 31, 1994 ("Fiscal 1994), respectively.
Spending for research and development, which had been dramatically reduced
in Fiscal 1994, remained at a relatively low level well into Fiscal 1995, at
which time the management made the decision to fund certain projects that had
been placed on hold, resulting in increased expenditures during the second half
of Fiscal 1995 and all of Fiscal 1996. The Company introduced a number of new
and enhanced products during Fiscal 1996, including a low cost transmitter for
its cell density probe , several transmitters that were redesigned to meet new
European electrical standards and a line of low cost ultrasonic level meters.
The Company currently has a number of other products and technology
advances under development, but it is the policy of the current management to
withhold announcement or publication of specific new products until they are
ready to be released for production and sale.
Manufacturing and Suppliers
- ---------------------------
The Company'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 the Company's manufacturing activities
have always been available, and the Company does not anticipate any future
shortages or unavailability of such materials and components.
The Company'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. The
Company attempts to maintain a sufficient inventory of materials and components
so as to be able to fill orders for its products within four to eight weeks
after receipt of an order.
Sales and Marketing
- -------------------
The Company markets its products on a world-wide basis, with particular
emphasis on the United States and Continental Europe. Revenues and operating
income for each of the three years ended March 31, 1996, and identifiable assets
at the end of each period are set forth in Note 13 of the consolidated financial
statements included elsewhere in this document.
Competition
- -----------
The Company sells products which have use in a wide variety of
applications in many industrial and municipal markets. The Company 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 the Company. BTG, Hach, Sigrist and General Signal
are the Company's principle competitors which sell products using the same or
similar technologies as those of the Company. Valmet Automation Inc., Royce
Instruments and Kay-Ray Inc. sell devices based on mechanical, ultrasound and
nuclear technologies which compete with certain of the products sold by the
Company.
5
<PAGE>
Certain of the Company'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 the Company 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 the Company, have financial,
marketing and other resources substantially greater than those of the Company.
The Company 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 a the major competitive factor
for the municipal market. The Company believes it also has a competitive
advantage in its ability to service numerous market segments while other
companies, other than BTG, service only a limited market. Accordingly, a
salesperson or distributor calling on an industrial company which has a liquid-
based product or uses water in its manufacturing process will generally have a
number of the Company's products in its line which it could sell.
Patents, Proprietary Rights and Trademarks
- ------------------------------------------
The Company 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. The Company has also
obtained a United States patent and several foreign patents for its Cell Density
Analyzer.
The Company 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 the Company's employees have entered into confidentiality
agreements and have agreed to assign to the Company any inventions relating to
the Company's business made by them while in the Company'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 the
Company.
While the Company 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 the Company's instruments do infringe upon their
patents or other proprietary rights. There can be no assurance that the Company
will be successful in defending against such claims of infringement, and the
expenses of defending such claims could be substantial.
The Company has obtained registered trademarks for the names "Monitek",
"CLAM" and "Micro Pure" and the Monitek and Micro Pure logos.
Employees
- ---------
As of March 31, 1996, the Company had 34 full-time employees, 3 of whom
were engaged in product design and engineering, 13 were engaged in manufacturing
and production, 12 were engaged in marketing and sales, and 6 were in general
corporate and administrative positions. The Company also had 7 part-time
employees and 2 temporary employees. 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.
Item 2. Properties
The Company's headquarters and manufacturing operations occupy
approximately 23,500 square feet of leased space in Hayward, California. The
lease provides for a base annual rental of approximately $132,000 and expires in
November 1997.
The Company also leases approximately 3,000 square feet of office and
warehouse space in Dusseldorf, Germany pursuant to a lease which expires in
March 2003, and provides for a base annual rental of $95,000, based on the rate
of exchange in effect at March 31, 1996.
Management believes that these facilities are more than adequate to provide
for the Company's business needs during the remaining terms of the respective
leases.
6
<PAGE>
Item 3. Legal Proceedings
The Company was a defendant in a patent dispute in Germany involving its
subsidiary, Monitek GmbH. The complaint sought up to 300,000 Deutsche Marks
(approximately $203,000 at the current rate of exchange) from the Company. A
trial was held in the District Court, Munich, Germany and in May 1991 the Court
ruled that the claim filed against Monitek GmbH was dismissed, at which time the
other party in the action appealed the decision. In June 1995, a hearing was
held before the Supreme Court (Bundesgerichtshof) in Germany and, again, the
outcome was very favorable to the Company, resulting in the revocation of the
other party's patent. The Company's German patent attorney has rendered an
opinion that Monitek GmbH should be able to recover, from the other party,
certain legal and other costs incurred in connection with this case.
The Company is not a party to any other material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted during the fourth quarter of the fiscal
year covered by this report to a vote of Stockholders, through the solicitation
of proxies or otherwise.
7
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Through December 3, 1993, the Company's Common Stock was traded in the
over-the-counter, national quotation system under the NASDAQ symbol MTEK. On
December 6, 1993, the stock was delisted from the NASDAQ SmallCap Market and was
subsequently listed on the OTC Bulletin Board. The following sets forth the
high and low closing bid prices for the Common Stock for the periods indicated,
as reported by the National Association of Securities Dealers Automated
Quotation System and the National Quotation Bureau. Such prices represent
prices between dealers without adjustment for retail mark-ups, mark-downs, or
commissions and may not necessarily represent actual transactions.
The Company had, through July 29, 1994, outstanding Redeemable Common Stock
Purchase Warrants and Units (consisting of two shares of Common Stock and one
Warrant). The Warrants and Units were traded under the NASDAQ symbols MTEKW and
MTEKU, respectively. There has been no significant trading of the Warrants and
Units during the last three years and the Warrants expired on July 29, 1994.
Common Stock High Low
- ------------ ------ ------
1994 First Quarter 0.0625 0.0625
- ---- Second Quarter 0.125 0.0625
Third Quarter 0.1875 0.125
Fourth Quarter 0.20 0.15
1995
- ----
First Quarter 0.20 0.15
Second Quarter 0.15 0.125
Third Quarter 0.125 0.0625
Fourth Quarter 0.25 0.125
1996
- ----
First Quarter 0.1875 0.0625
Second Quarter (Through June 17) 0.125 0.125
On June 17, 1996, the Closing bid price of the Company's Common Stock, as
reported by the National Quotation Bureau, was $0.125.
8
<PAGE>
Item 6. Selected Financial Data
SELECTED FINANCIAL DATA
The following data for the five years ended March 31, 1996, have been taken
from the consolidated financial statements of the Company, which have been
audited by the Company's independent public accountants. The data for the three
years ended March 31, 1996, should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this document and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
------------------------------Years Ended March 31,----------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
- --------------------------------
Net Sales $6,695,396 $6,089,400 $5,680,288 $7,239,869 $7,642,612
Gross profit 3,640,497 3,301,352 2,970,985 3,933,176 4,383,587
Selling, general and
administrative expenses 3,740,091 3,383,701 3,481,502 4,091,425 4,035,130
Operating loss (498,433) (414,339) (783,613) (712,821) (222,089)
Interest expense 101,211 46,055 42,446 55,310 50,649
Loss before income
tax expense (558,163) (269,142) (770,601) (727,528) (165,736)
Income tax expense 3,884 3,858 3,026 3,426 12,087
---------- ---------- ---------- ---------- ----------
Net loss ($562,047) ($273,000) ($773,627) ($730,954) ($177,823)
========== ========== ========== ========== ==========
Net loss per share ($.19) ($.09) ($.26) ($.24) ($.06)
========== ========== ========== ========== ==========
Weighted average shares
outstanding 2,943,100 2,950,100 2,985,100 2,988,213 3,026,750
Balance Sheet Data:
- -------------------
Working capital $ 877,060 $1,381,074 $1,552,547 $2,226,742 $2,915,733
Total assets 2,608,200 2,771,755 2,832,294 3,866,041 4,576,167
Long-term debt and capital
lease obligations --- --- 5,005 6,481 12,232
Stockholders' equity 1,024,186 1,594,502 1,839,917 2,623,533 3,349,830
</TABLE>
- ---------------------------
Note: No cash dividends have been declared during these periods.
9
<PAGE>
Item 7. Management's Discussions and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
- -------------------------------
Net working capital decreased from $1,381,000 on March 31, 1995, to
$877,000 on March 31, 1996, as a result of the net loss for Fiscal 1996,
partially offset by various changes in non-current assets.
While the net working capital may appear to be at a fairly safe level, it
should be noted that a major portion of the Company's assets are in the form of
inventories and accounts receivable. The Company's unused sources of liquidity,
consisting of unrestricted cash and short-term interest bearing securities,
decreased from $60,000 on March 31, 1995, to $51,000 on March 31, 1996. As set
forth in the accompanying independent auditors' report and notes to consolidated
financial statements (Note 17) the Company's recurring losses from operations
and the resulting effect on cash flow raise substantial doubt about its ability
to continue as a going concern without additional sources of external financing.
On June 24, 1996, the Company's Board of Directors approved an Agreement and
Plan of Merger (the "Merger Agreement") with Sentex Sensing Technology, Inc.
("Sentex") and a Sentex subsidiary. On the same date, the Merger Agreement was
approved by the Boards of Directors of Sentex and its subsidiary. Sentex
develops and manufactures automated devices designed to identify and measure the
concentrations of certain chemicals and its stock is traded on the NASDAQ Small
Cap stock market. The Merger Agreement will be submitted for approval by the
Company's shareholders and the Sentex shareholders at special meetings expected
to be held later in the year. The Merger Agreement provides for the merger
(the "Merger") of the Sentex subsidiary into the Company. Consummation of the
Merger is subject to a variety of customary conditions and, accordingly, there
can be no assurance that the Merger will take place. The Company believes
Sentex has a sufficiently strong cash position to satisfy the intermediate term
needs of the Company for working capital. In addition, the Company intends to
seek a working capital loan or loans from its major shareholder, Clarion Capital
Corporation ("Clarion"), pending completion of the Merger. However, there can
be no assurance that Clarion will loan additional funds to the Company. It is a
condition to the consummation of the Merger that any such new loans by Clarion
be repaid by the time of the closing of the Merger.
In the event that the Merger does not take place, the Company's management
will continue to seek other sources of financing including, but not limited to,
loans collateralized by assets of the Company and a sale of equity securities,
to fund its operating and working capital requirements. There is no assurance
that such financing, if available, can be obtained on terms satisfactory to the
Company.
At March 31, 1996, the Company had available net operating loss
carryforwards of approximately $5,405,000 and $1,700,000 to offset future
Federal and California taxable income, respectively. The Tax Reform Act of 1986
imposes certain restrictions on the amount of net operating loss carryforwards
which can be used in any one year by the Company for losses prior to July 31,
1987, the date of the Company's initial public offering, which is deemed to be
a change of ownership for Federal tax purposes. The Company's utilization of
the Federal net operating loss carryforwards from years prior to Fiscal 1988,
totaling $1,640,000, is limited to approximately $620,000 per year. Deductions
available for net operating losses generated in years subsequent to the change
in ownership are unlimited. If the Company's income were to exceed the
permissible net operating loss carryforward deduction, as to which there can be
no assurance, the Company would incur a liability for Federal income taxes on
the excess earnings, even though net operating loss carryforwards would be
available for future years.
As of April 1, 1991, the Company's IC-DISC, Monitek International, Inc.,
was effectively terminated and accordingly, the March 31, 1995 and March 31,
1996, consolidated financial statements and related notes do not include any
activity related to such entity. As a result, the Company has begun
repatriation of the undistributed earnings of the IC-DISC as of April 1, 1991.
The undistributed earnings of approximately $780,000 will be recognized as
income, for tax return purposes, by the Company over the 10-year period ending
March 31, 2001.
The Company has no current plans to repatriate the undistributed earnings
of its foreign subsidiary. Therefore, no tax provision has been made to cover
the repatriation of such undistributed earnings at March 31, 1996, 1995 or 1994.
The cumulative amounts of undistributed earnings for which the Company has not
provided for United States income taxes amounted to approximately $73,000 at
March 31, 1996.
10
<PAGE>
Results of Operations
- ---------------------
Fiscal 1996 Compared with Fiscal 1995
-------------------------------------
Total net sales increased by 10% from $6,089,000 for Fiscal 1995 to
$6,695,000 for Fiscal 1996. Domestic sales and sales to continental Europe by
the Company's wholly owned subsidiary, Monitek GmbH, increased by 12% and 14%,
respectively, while export sales from the United States decreased by 14%.
Management believes that the sales increases in the United States and Europe can
be attributed primarily to improved economic conditions in those areas. The
decrease in export sales is not easily explained, but it is not a source of
major concern inasmuch as it traditionally represents less than 15% of the
Company's total sales.
Cost of sales, as a percentage of net sales, remained constant at 46% for
both Fiscal 1995 and Fiscal 1996. Material costs increased from 35% of net
sales for Fiscal 1995 to 36% for Fiscal 1996, primarily as a result of a change
in product mix. Direct labor and factory overhead, as a percentage of net
sales, decreased from 11% for Fiscal 1995 to 10% for Fiscal 1996 as a result of
the increase in sales with very little change in cost.
Selling, general and administrative expenses increased from $3,384,000 for
Fiscal 1995 to $3,740,000 for Fiscal 1996 but, as a percentage of net sales,
the expenses remained constant at 56% for both years. Sales commissions paid to
independent representatives increased by $138,000 as a result of the increase in
sales. Salaries and related expenses increased by $185,000, primarily as a
result of a reduction of expense in the amount of $107,000 in Fiscal 1995,
related to the bonus payable to the Managing Director of Monitek GmbH..
Research, development and product engineering expenses increased from
$332,000, or 5.5% of net sales, for Fiscal 1995, to $399,000, or 6.0% of net
sales, for Fiscal 1996. Spending during the first half of Fiscal 1995 had been
severely curtailed in order to conserve working capital and reduce operating
losses. Management subsequently made the decision to fund certain projects
that had been placed on hold, resulting in the increased expenditures for the
second half of Fiscal 1995 and all of Fiscal 1996.
Operating losses increased from $414,000 for Fiscal 1995 to $498,000 for
Fiscal 1996 as a result of the increase in cost of sales, selling, general and
administrative expense and research, development and product engineering
expense, partially offset by the increase in sales.
Interest expense increased from $46,000 for Fiscal 1995 to $101,000 for
Fiscal 1996 as a result of increased borrowings from the Clarion Capital
Corporation and the factoring of certain trade accounts receivable, as set forth
in the accompanying consolidated financial statements (Note 3).
Foreign currency transactions resulted in a loss of $30,000 for Fiscal 1996
compared with a gain of $125,000 for Fiscal 1995 as a result of fluctuations in
the value of the U.S. Dollar relative to the German Deutsche Mark.
Fiscal 1995 Compared with Fiscal 1994
-------------------------------------
Total net sales increased by 7% from $5,680,000 for Fiscal 1994 to
$6,089,000 for Fiscal 1995. Domestic sales, export sales from the United States
and sales to continental Europe by the Company's wholly owned subsidiary,
Monitek GmbH, increased by 3%, 7% and 9%, respectively. While these increases
may seem quite modest, they represent a marked improvement when compared with
the severe decline in sales over the past few years. Although net sales for the
second half of Fiscal 1995 were approximately 10% lower than for the first half,
as a result of several large European orders during the first half, which
normally would have been expected to be spread throughout the year, management
remains cautiously optimistic concerning future sales trends. Incoming customer
orders and quotation activity for the two months ended May 31, 1995 have been
quite strong, and Fiscal 1996 sales forecasts generated by the Company's sales
force, primarily independent representatives and agents, are more optimistic
than for Fiscal 1995.
Cost of sales, as a percentage of net sales, decreased from 48% for Fiscal
1994 to 46% for Fiscal 1995. Material costs decreased from 36% of net sales for
Fiscal 1994 to 35% for Fiscal 1995, primarily as a result of a
11
<PAGE>
change in product mix. Direct labor and factory overhead decreased from 12% for
Fiscal 1994 to 11% for Fiscal 1995 as a result of decreased staffing in certain
manufacturing support functions coupled with the increase in sales.
Selling, general and administrative expenses decreased from $3,482,000, or
61% of net sales, for Fiscal 1994, to $3,384,000, or 56% of net sales, for
Fiscal 1995, primarily as a result of decreased staffing in sales and marketing
and reduced expenditures for certain other selling and administrative expenses.
In addition, during Fiscal 1995, the accrued bonus payable to the Managing
Director of Monitek GmbH was finalized as a deferred compensation agreement,
resulting in a reduction of expense in the amount of $107,000.
Research, development and product engineering expenses increased from
$273,000, or 4.8% of net sales, for Fiscal 1994, to $332,000, or 5.5% of net
sales, for Fiscal 1995. Spending during Fiscal 1994 had been severely curtailed
in order to conserve working capital and reduce operating losses. Management
recently made the decision to fund certain projects that had been placed on
hold, resulting in the increased expenditures for Fiscal 1995.
Operating losses decreased from $784,000 for Fiscal 1994 to $414,000 for
Fiscal 1995 as a result of the increased sales volume coupled with the decrease
in cost of sales and selling, general and administrative expense as a percentage
of net sales, partially offset by the increase in research, development and
product engineering expense as a percentage of net sales
Foreign currency transactions resulted in a gain of $125,000 for Fiscal
1995 compared with a loss of $19,000 for Fiscal 1994 as a result of fluctuations
in the value of the U.S. Dollar relative to the German Deutsche Mark.
Item 8. Financial Statements and Supplementary Data
The financial statements and schedules of the Company are annexed to this
Report as pages F-2 to F-19 and S-2. Indexes to such material appears on pages
F-1 and S-1, respectively.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
12
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The executive officers and directors of the Company are as follows:
Name Age Positions
- ---- --- ---------
Morton A. Cohen 61 Chairman of the Board of Directors and
Chief Executive Officer
Frank J. Vetrovec 55 President, Chief Operating Officer and
Director
James S. O'Leary 58 Executive Vice President, Treasurer,
Secretary and Chief Financial Officer
Helmut H. Zoellmer 50 Managing Director of Monitek GmbH and
Director
Erwin S. Weiss 65 Director
Directors are elected to serve until the next annual meeting of
stockholders or until their successors are elected and qualified. Officers
serve at the discretion of the Board of Directors, subject to any contracts of
employment. See "Executive Compensation."
Morton A. Cohen has been Chairman of the Board of the Company since
November 1983. Mr. Cohen has been the Chairman of the Board of Clarion Capital
Corporation ("Clarion"), a small business investment company and the Company's
principal stockholder, since July 1981 and, since April 1982, has been Clarion's
President and Chief Executive Officer. Mr. Cohen is on the Board of Directors
of the following public companies: Zemex Corporation (industrial minerals and
materials) since May 1991; Small's Oilfield Services (specialized rental
equipment) since March 1993 and Cohesant Technologies, Inc. (chemicals and
coatings) since December 1994.
Frank J. Vetrovec has been President and Chief Operating Officer of the
Company and Co-Managing Director of Monitek GmbH since May 1992. As President,
Mr. Vetrovec's primary responsibilities are the overall direction of the
Company's marketing and technical efforts. From 1979 to 1992, Mr. Vetrovec was
with Great Lakes Instruments, Inc., a company engaged in the manufacture and
sale of instrumentation to monitor and control water quality, serving as Vice
President of Marketing for the last two years.
James S. O'Leary has been associated with the Company since August 1982,
becoming Vice President and Chief Financial Officer of the Company in November
1983, Co-Managing Director of Monitek GmbH in May 1984 and Executive Vice
President, Secretary and Treasurer of the Company in April 1987.
Helmut H. Zoellmer has held various positions with Monitek GmbH since 1980,
becoming General Manager and Co-Managing Director in May 1984 and a Director of
the Company in April 1990.
Erwin S. Weiss has been a Director of the Company since October 1992.
Since 1985, Mr. Weiss has owned and operated his own management consulting
company, specializing in organization design, manager evaluation and
development, and strategic business planning. He has been a director of Clarion
since 1991.
The Delaware General Corporation Law permits a corporation through its
Certificate of Incorporation to exonerate its directors from personal liability
to the corporation or its stockholders for monetary damages for breach of duty
as a director, with certain exceptions. The exceptions include a breach of the
director's duty of loyalty, acts or omissions not in good faith or which involve
intentional misconduct or knowing violations of law, improper declarations of
dividends, and transactions from which the director derives an improper personal
benefit. This provision of the law is intended, according to its sponsors, to
assist corporations in retaining qualified directors. The Company's Certificate
of Incorporation exonerates its directors from liability to the full extent
permitted by this statutory provision.
13
<PAGE>
The Company believes that it is the position of the Securities and Exchange
Commission that insofar as the foregoing provisions may be invoked to disclaim
liability for damages arising under Securities Act of 1933, it is against public
policy as expressed in the Act and is therefore unenforceable.
Item 11. Executive Compensation
The following table sets forth information concerning the cash compensation
paid and accrued by the Company for services rendered during the fiscal year
ended March 31, 1996, to the Chairman of the Board and to the executive officers
of the Company whose aggregate compensation exceeded $ 100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
------------------------------------------ -------------------
Fiscal Other Stock All
Name and Yr. ended Salary Bonus Annual Options Other
Principal Position March 31 $ $ Comp. (1) (2) Comp.
- ---------------------------- --------- -------- ------- -------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Morton A. Cohen 1996 - - - - -
Chairman of the Board and 1995 - - - - -
Chief Executive Officer 1994 - - - 89,500 -
Frank J. Vetrovec 1996 113,173 - - - -
President and Chief 1995 117,550 - - - -
Operating Officer 1994 92,956 - - - -
Helmut H. Zoellmer 1996 130,801 - - - -
Managing Director, 1995 129,825 34,965 - - -
Monitek GmbH 1994 109,545 54,426 - 70,000 -
</TABLE>
(1) Excludes perquisites and other benefits, unless the aggregate amount of
such compensation exceeds the lesser of $50,000 or 10 percent of the total
salary and bonus reported for the named executive officer.
(2) Stock options granted were determined by the Board of Directors.
(3) Payments and accruals to Mr. Zoellmer were made in Deutsche Marks. Dollar
amounts have been calculated using average exchange rates for each of the
fiscal years reported.
Stock Option Plan
- -----------------
In May 1987, the Company adopted a stock option plan (the "Plan"), which
was approved by the Company's stockholders, covering up to 200,000 shares of the
Company's Common Stock, pursuant to which officers, directors and key employees
of the Company are eligible to receive incentive and/or non-qualified stock
options. In November 1988, the Company's Board of Directors voted to increase
the number of options to 300,000 shares, which action was approved by the
Company's shareholders in November 1988. In May 1991, the Board of Directors
voted to increase the number of options to 450,000 shares, which action was
approved by the Company's shareholders in October 1991. The Plan, which expires
in May 1997, is administered by the Board of Directors or a committee designated
by the Board of Directors, which will be responsible for determining the
individuals to whom options will be granted, the number of options each
individual will receive, the option price per share and the exercise period of
each option. Incentive stock options granted under the Plan are exercisable for
a period of up to 10 years from the date of grant and at an exercise price which
is not less than the fair market value of the Common Stock on the date of the
grant, except that the exercise period of an incentive stock option granted
under the Plan to a stockholder owning more than 10% of the outstanding Common
Stock must not exceed five years and the exercise price of an incentive stock
option granted to such a stockholder must not be less than 110% of the fair
market value of the Common Stock on the date of the grant.
14
<PAGE>
In April 1995, the Board of Directors granted incentive stock options to 11
employees to purchase an aggregate of 65,000 shares at $.50 per share for a
period of five years, of which options to purchase 25,000 shares were granted to
James S. O'Leary, an officer of the Company. Of the options granted to Mr.
O'Leary, options to purchase 10,000 shares were replacements for options that
expired in April 1995.
In April 1995, the Board of Directors also granted non-qualified stock
options to Erwin S. Weiss, a Director of the Company, to purchase 5,000 shares
at $.50 per share for a period of five years.
Option Grants in Last Fiscal Year
---------------------------------
The following table shows as to the Chief Executive Officer and the two
other Executive officers listed in the Compensation Table, information about
options granted in the last fiscal year:
<TABLE>
<CAPTION>
% of Total
Options
Granted to Exercise
Options Employees or Base
Granted in Fiscal Price Expiration
Name (#) Year ($/Sh) Date
- --------------------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Morton A. Cohen - - - -
Frank J. Vetrovec - - - -
Helmut H. Zoellmer - - - -
</TABLE>
Warrants
- --------
No warrants were granted or exercised during Fiscal 1996 and all previously
granted warrants expired during Fiscal 1995.
Retirement Plan - 401(k)
- ------------------------
In September 1989, the Company established a 401(k) Retirement Plan for
its eligible officers and employees. All full-time employees over 21 years of
age and with at least six months of service with the Company are eligible to
participate in the plan. Participation is strictly voluntary. The plan allows
for, but does not require, Company contributions. To-date, the Company has made
no contributions to the plan but has paid all of the costs of administration.
15
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information, as of June 14, 1996,
concerning ownership of Class A Common Stock and Common Stock by all persons
known by the Company to own beneficially 5% or more of the outstanding shares of
the Company's Class A Common Stock or Common Stock, each Director, and all
officers and Directors of the Company as a group and their percentage ownership
of Class A Common Stock and Common Stock and the percentage voting power:
<TABLE>
<CAPTION>
Amount and Percent Percent
Nature of of Out- of
Name of Beneficial Holder or Beneficial standing Voting
Identity of Group Ownership (1) Stock Power
- ---------------------------- ---------------- --------- --------
<S> <C> <C> <C> <C>
Clarion Capital Corporation
1801 East Ninth St.
Suite 1520
Cleveland, OH 44114 1,220,631 (2) 41.5% 58.2%
Tahoe Partners I
Peter O. Shea
Managing Partner
P.O. Box 489
Walnut, CA 91788 225,600 (3) 7.7 5.4
R & W Ventures II
Roy L. Rogers,
General Partner
3000 Sand Hill Rd,
Bldg. 2-175
Menlo Park, CA 94025 235,600 (4) 8.0 5.6
Robertson Stephens Orphan Fund
Paul H. Stephens
One Embarcadero Plaza
Suite 3100
San Francisco, CA 94111 160,745 (5) 5.5 3.8
Morton A. Cohen 113,000 (6) 3.7 2.6
James S. O'Leary 50,800 (7) 1.7 1.2
Helmut H. Zoellmer 45,000 (8) 1.5 1.1
Frank J. Vetrovec 116,200 (9) 3.8 2.7
Erwin J. Weiss 20,000 (10) 0.7 0.5
All Officers and Directors
as a group (6 persons) 1,565,631 (11) 48.1 61.8
</TABLE>
(1) Each person listed has sole voting and sole investment power over the
shares owned, except where otherwise indicated below. All shares are Class
A Common Stock unless otherwise indicated.
(2) Morton A. Cohen, Chairman of the Board and Chief Executive Officer of the
Company, is Chairman of the Board, President and Chief Executive Officer
and the principal stockholder of Clarion. Mr. Cohen owns 75.7% of Maycap
Holding Company, which owns 94.9% of Clarion.
(3) Based on information reported by Mr. Shea on Schedule 13D filed with the
SEC in December 1994 and confirmed in June 1996. Consists of 225,600
shares of Common Stock.
(4) Based on information provided by Mr. Rogers on Schedule 13D filed with the
SEC in July 1991 and updated in a communication to the Company in June
1996. No subsequent filing of Schedule 13D has been made, inasmuch as the
increase in holdings since the filing represents less than 1% of the
Company's outstanding shares. Consists of 235,600 shares of Common Stock.
16
<PAGE>
(5) Based on information provided by Robertson Stephens & Company on Schedule
13D filed with the SEC in January 1992 and confirmed in June 1996.
Consists of 160,745 shares of Common Stock.
(6) Includes 18,500 shares of Common Stock and 94,500 shares of Common Stock
issuable upon exercise of options. Does not include 1,220,631 shares held
by Clarion Capital Corporation.
(7) Includes 50,000 shares of Common Stock issuable on exercise of options and
800 shares of Common Stock held for the benefit of his children, as to
which Mr. O'Leary disclaims beneficial interest.
(8) Shares of Common Stock issuable on exercise of options. Does not include
25,000 shares of Common Stock covered by options not exercisable within 60
days.
(9) Includes 16,200 shares of Common Stock and 100,000 shares of Common Stock
issuable upon exercise of options.
(10) Shares of Common Stock issuable on exercise of options.
(11) Includes 1,220,631 shares held by Clarion and an aggregate of 309,500
shares of Common Stock issuable upon exercise of options and does not
include 25,000 shares of Common Stock covered by options which are not
exercisable within 60 days, as described in the notes above.
Item 13. Certain Relationships and Related Transactions
-----------------------------------------------
Reference is made to Item 11, "Executive Compensation--Stock Option
Plan", with regard to certain options granted to officers and directors.
In December, 1993, the Company entered into a security agreement with
Clarion to secure repayment of loans from Clarion on a demand basis at an
interest rate of 10% per annum. The principal balance of the Company's
indebtedness to Clarion, including previously accrued interest at June 24, 1996,
was $476,940 and now carries an interest rate of 12% per annum.
In October 1990, the Company advanced $30,000 to James S. O'Leary, which
advance was evidenced by a noninterest-bearing note and was secured by the
pledge of 42,000 shares of the Company's Class A Common Stock. The note has been
treated as a contra to Stockholders' Equity on the consolidated financial
statements. The note was issued to enable the officer to pay off bank loans.
In June 1994, Mr. O'Leary exercised a put provision in the loan agreement,
surrendering the pledged shares of Common Stock in exchange for the cancellation
of the note.
17
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Financial Statement Schedule
- ----------------------------
An index to the consolidated financial statement schedule included herein
appears on Page S-1. All other schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission have
been omitted because they are not applicable, not required or the information to
be presented therein has been furnished elsewhere.
Exhibits
- --------
(a) 3.1 - Certificate of Incorporation*
3.2 - Form of Agreement and Plan of Merger*
3.3 - By-Laws*
4.1 - Form of Unit Purchase Option*
4.2 - Form of Warrant Agreement*
10.1 - Lease for 1495 Zephyr Avenue*
10.2 - Lease for German facility*
10.3 - Form of Indemnification Agreement*
10.4 - Tax Sharing Agreement between Registrant and Clarion Capital
Corp.*
10.5 - Employment Agreement with Frank J. Vetrovec
10.6 - Employment Agreement with James O'Leary*
10.7 - Employment Agreement with Helmut Zoellmer*
10.8 - Stock Option Plan*
10.9 - Form of United States Sales Representative Agreement*
10.10 - Form of Foreign Sales Agent Agreement*
10.11 - License Agreement between Registrant and Vincent S. Cushing*
22.1 - List of Subsidiaries
* Incorporation by reference to Registrant's Registration Statement on Form
S-1 (File No. 33-14201)
Reports on Form 8-K
- -------------------
No reports on Form 8-K were filed for the three months ended March 31,
1996.
18
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 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.
MONITEK TECHNOLOGIES, INC.
Date: June 27, 1996 By:__________________________________
Frank J. Vetrovec,
President
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.
Signature Title Date
- --------- ----- ----
_____________________________ Chairman of the Board of June 27, 1996
Morton A. Cohen Directors and Chief
Executive Officer
(Principal Executive Officer)
_____________________________ President, Chief June 27, 1996
Frank J. Vetrovec Operating Officer, Director
_____________________________ Executive Vice President, June 27, 1996
James S. O'Leary Chief Financial Officer
(Principal Financial and
Accounting Officer)
_____________________________ Managing Director of June 27, 1996
Helmut H. Zoellmer Monitek GmbH, Director
_____________________________ Director June 27, 1996
Erwin S. Weiss
19
<PAGE>
MONITEK TECHNOLOGIES, INC.
AND SUBSIDIARY
Consolidated Financial Statements
March 31, 1996, 1995 and 1994
(With Independent Auditors' Report Thereon)
<PAGE>
MONITEK TECHNOLOGIES, INC.
AND SUBSIDIARY
Consolidated Financial Statements
Index to Consolidated Financial Statements
------------------------------------------
Page
----
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of March 31, 1996 and 1995... F-3
Consolidated Statements of Operations
for the years ended March 31, 1996, 1995 and 1994......... F-4
Consolidated Statements of Stockholders' Equity
for the years ended March 31, 1996, 1995 and 1994......... F-5
Consolidated Statements of Cash Flows
for the years ended March 31, 1996, 1995 and 1994......... F-6 - F-7
Notes to Consolidated Financial Statements.................. F-8 - F-19
F-1
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK LLP]
Independent Auditors' Report
----------------------------
The Board of Directors
and Stockholders
Monitek Technologies, Inc.:
We have audited the consolidated financial statements of Monitek Technologies,
Inc. and subsidiary (the Company) as listed in the accompanying index to
consolidated financial statements. In connection with our audits of the
consolidated financial statements, we also have audited the financial statement
schedule as listed in the accompanying index to consolidated financial statement
schedule. These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedule 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Monitek
Technologies, Inc. and subsidiary as of March 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the three-year
period ended March 31, 1996, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
The accompanying consolidated financial statements and financial statement
schedule have been prepared assuming that the Company will continue as a going
concern. As discussed in note 17 to the financial statements, the Company's
recurring losses from operations raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in note 17.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Oakland, California
May 31, 1996, except as to note 17, which is
as of June 24, 1996
F-2
<PAGE>
MONITEK TECHNOLOGIES, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
------ ---- ----
<S> <C> <C>
Current assets:
Cash $ 51,235 59,908
Trade receivables - less allowance
for doubtful accounts of $35,111
and $35,465 in 1996 and 1995,
respectively (note 3) 859,810 896,004
Inventories (note 4) 1,382,433 1,488,502
Other current assets 167,596 113,913
---------- ---------
Total current assets 2,461,074 2,558,327
Property and equipment, less
accumulated depreciation and
amortization of $976,151 and $910,614
in 1996 and 1995, respectively
(note 5) 103,171 158,708
Product line acquisition costs, less
accumulated amortization of $86,158
and $75,715 in 1996 and 1995,
respectively 42,469 52,912
Other assets 1,486 1,808
---------- ---------
$2,608,200 2,771,755
========== =========
Liabilities and Stockholders' Equity 1996 1995
- ------------------------------------ ---- ----
Current liabilities:
Liability for factored receivables
(note 3) $ 157,219 --
Notes payable to related party (note 7) 300,000 200,000
Trade accounts payable 504,886 350,578
Accrued liabilities (note 6) 621,909 626,675
---------- ---------
Total current liabilities 1,584,014 1,177,253
---------- ---------
Commitments (note 12)
Stockholders' equity (notes 8 and 10):
Common stock - par value $.01 per
share; authorized 10,000,000
shares; 1,690,424 shares issued and
outstanding 16,904 16,904
Class A common stock - par value
$.01 per share; authorized 2,000,000
shares; 1,252,676 shares issued and
outstanding 12,527 12,527
Paid-in capital 6,117,176 6,117,176
Accumulated deficit (5,164,429) (4,602,382)
Cumulative translation adjustment 42,008 50,277
---------- ---------
Total stockholders' equity 1,024,186 1,594,502
---------- ---------
$2,608,200 2,771,755
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
MONITEK TECHNOLOGIES, INC.
AND SUBSIDIARY
Consolidated Statements of Operations
Years ended March 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Net sales $6,695,396 6,089,400 5,680,288
Cost of sales 3,054,899 2,788,048 2,709,303
---------- --------- ---------
Gross profit 3,640,497 3,301,352 2,970,985
---------- --------- ---------
Selling, general and administrative expenses 3,740,091 3,383,701 3,481,502
Research, development and product engineering expenses 398,840 331,990 273,096
---------- --------- ---------
4,138,930 3,715,691 3,754,598
---------- --------- ---------
Operating loss (498,433) (414,339) (783,613)
---------- --------- ---------
Other income (expense):
Interest income 38,415 32,560 27,415
Interest expense (101,211) (46,055) (42,446)
Foreign currency transaction (loss) gain (30,217) 124,989 (18,839)
Other income, net 33,283 33,703 46,882
---------- --------- ---------
(59,730) 145,197 13,012
---------- --------- ---------
Loss before income tax expense (558,163) (269,142) (770,601)
Income tax expense (note 11) 3,884 3,858 3,026
---------- --------- ---------
Net loss $ (562,047) (273,000) (773,627)
========== ========= =========
Net loss per share $(.19) (.09) (.26)
========== ========= =========
Weighted average shares outstanding 2,943,100 2,950,100 2,985,100
========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
MONITEK TECHNOLOGIES, INC.
AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended March 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Common stock Class A common stock
------------------- ---------------------
Number Number Paid-in Accumulated
of shares Amount of shares Amount capital deficit
--------- ------- ---------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances, March 31, 1993 1,690,424 $16,904 1,294,676 $12,947 6,146,756 (3,555,755)
Translation of foreign
currency financial
statements -- -- -- -- -- --
Net loss -- -- -- -- -- (773,627)
--------- ------- --------- ------- --------- ----------
Balances, March 31, 1994 1,690,424 16,904 1,294,676 12,947 6,146,756 (4,329,382)
Retirement of stock (note 9) -- -- (42,000) (420) (29,580) --
Translation of foreign
currency financial
statements -- -- -- -- -- --
Net loss -- -- -- -- -- (273,000)
--------- ------- --------- ------- --------- ----------
Balances, March 31 1995 1,690,424 16,904 1,252,676 12,527 6,117,176 (4,602,382)
Translation of foreign
currency financial
statements -- -- -- -- -- --
Net loss -- -- -- -- -- (562,047)
--------- ------- --------- ------- --------- ----------
Balances, March 31 1996 1,690,424 $16,904 1,252,676 $12,527 6,117,176 (5,164,429)
========= ======= ========= ======= ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Cumulative Notes Total
translation receivable stockholders'
adjustment for stock equity
----------- ---------- -------------
<S> <C> <C> <C>
Balances, March 31, 1993 32,681 (30,000) 2,623,533
Translation of foreign
currency financial
statements (9,989) - (9,989)
Net loss - - (773,627)
--------- ------- ---------
Balances, March 31, 1994 22,692 (30,000) 1,839,917
Retirement of stock (note 9) - 30,000 -
Translation of foreign
currency financial
statements 27,585 - 27,585
Net loss - - (273,000)
--------- ------- ---------
Balances, March 31 1995 50,277 - 1,594,502
Translation of foreign
currency financial
statements (8,269) - (8,269)
Net loss - - (562,047)
--------- ------- ---------
Balances, March 31 1996 42,008 - 1,024,186
========= ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
MONITEK TECHNOLOGIES, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended March 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 6,731,590 5,911,083 5,958,714
Cash paid to suppliers and employees (6,862,238) (6,338,448) (6,235,525)
Interest received 38,415 32,560 30,170
Interest paid (73,172) (46,055) (39,912)
Income taxes paid (3,884) (3,856) (3,026)
Other miscellaneous cash (disbursements) receipts (86,603) 216,814 124,225
----------- ---------- ----------
Net cash used in operating activities (255,892) (227,902) (165,354)
----------- ---------- ----------
Cash flows from investing activities
Capital expenditures (10,000) (55,936) (15,311)
Net decrease in short-term investments -- -- 429,769
----------- ---------- ----------
Net cash (used in) provided by investing activities (10,000) (55,936) 414,458
----------- ---------- ----------
Cash flows from financing activities:
Borrowings against trade receivables 157,219 -- --
Payments under line of credit -- -- (341,110)
Borrowings under notes payable to related party 100,000 100,000 100,000
Payments under capital lease obligations -- (10,727) (9,355)
----------- ---------- ----------
Net cash provided by (used in) financing activities 257,219 89,273 (250,465)
----------- ---------- ----------
Net decrease in cash and cash equivalents (8,673) (194,565) (1,361)
Cash at beginning of year 59,908 254,473 255,834
----------- ---------- ----------
Cash at end of year $ 51,235 59,908 254,473
=========== ========== ==========
</TABLE>
(Continued)
F-6
<PAGE>
MONITEK TECHNOLOGIES, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
Years ended March 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Reconciliation of net loss to net cash used in operating activities:
Net loss $(562,047) (273,000) (773,627)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization:
Property and equipment 65,537 124,514 127,549
Product line acquisition costs 10,443 10,444 10,443
(Decrease) increase in allowance for doubtful accounts (354) (28,698) 23,000
Increase in reserve for inventory obsolescence 6,225 22,248 15,199
Decrease in deferred income taxes -- -- 6,535
Changes in operating assets and liabilities:
Decrease (increase) in trade receivables 36,548 (149,619) 255,426
Decrease in inventories 99,844 12,143 87,707
(Increase) decrease in other current assets (53,683) (69,047) 16,852
(Increase) decrease in other assets (7,947) 27,510 78,083
Increase (decrease) in trade accounts payable 154,308 29,989 (21,220)
(Decrease) increase in accrued liabilities (4,766) 65,614 8,699
--------- -------- --------
Net cash used in operating activities $(255,892) (227,902) (165,354)
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
MONITEK TECHNOLOGIES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 1996, 1995 and 1994
(1) NATURE OF BUSINESS
Monitek Technologies, Inc. (the Company) and its wholly owned subsidiary,
Monitek GmbH, design, develop, assemble and market instruments utilized
for analytical measurement of liquids in industrial and wastewater
environments.
Monitek GmbH was formed in Germany to concentrate on the sale and service
of the Company's products throughout continental Europe.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Management 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.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, Monitek GmbH. All
significant intercompany balances and transactions have been
eliminated.
(c) Inventories
Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method.
(d) Property and Equipment
Property and equipment is stated at cost. Depreciation is computed by
the straight-line method over the estimated useful lives of the
assets, ranging from three to five years. Amortization of leasehold
improvements is computed using the straight-line method over the
shorter of the useful life or the remaining term of the lease. When
assets are retired or otherwise disposed of, the cost and related
accumulated depreciation 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.
(Continued)
F-8
<PAGE>
MONITEK TECHNOLOGIES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(e) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date.
The Company has no current plans to repatriate undistributed earnings
of its foreign subsidiary. Therefore, no tax has been provided to
cover the repatriation of such undistributed earnings at March 31,
1996, 1995 or 1994. The cumulative amount of undistributed earnings
for which the Company has not provided United States income taxes was
approximately $73,000 at March 31, 1996.
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 will be recognized
as income by the Company over a 10-year period ending March 31, 2001.
(f) Product Line Acquisition Costs
Product line acquisition costs, including patents, are capitalized
and allocated to the components of the product line. These costs are
amortized over the estimated useful life of the products or patents,
ranging from 8 to 14 years. The Company annually evaluates the
recoverability of its product line acquisition costs based on
projected, undiscounted, net cash flows related to such product
lines. Impairment would be recognized in operating results if a
permanent diminution in value were to occur.
(g) Revenue Recognition
Revenues from the sale of the Company's product line of instruments
are recognized at the time the product is shipped. The Company's
products are shipped FOB shipping point.
(Continued)
F-9
<PAGE>
MONITEK TECHNOLOGIES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(h) 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 as
incurred 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. The resulting translation adjustment is reported
as a separate component in the equity section of the accompanying
consolidated balance sheets.
(i) Loss Per Share
Loss per share is calculated using the weighted average number of
shares outstanding during the year and additional shares assumed to
be outstanding to reflect the dilutive effect of common stock
equivalents. All common stock equivalents were anti-dilutive for the
years ended March 31, 1996, 1995 and 1994.
(j) Reclassification
Certain 1995 amounts have been reclassified to conform with the 1996
consolidated financial statement presentation.
(3) FACTORING OF RECEIVABLES
The Company entered into an agreement, in May 1995, pursuant to which
it sold certain trade accounts receivable, subject to recourse
provisions. Under the terms of the agreement, the Company has
retained substantially the same risk of credit loss as if the
receivables had not been sold. The proceeds are less than the face
amount of accounts receivable sold by a 20% reserve amount and a 1%
administrative fee on the gross amount of each purchased receivable.
At March 31, 1996, the balance of sold accounts receivable that had
not been collected was approximately $157,000 which has been included
in trade receivables in the accompanying consolidated balance sheet.
As the sold receivables are subject to recourse provisions, a
liability is reflected for the face amount of the receivables sold.
(Continued)
F-10
<PAGE>
MONITEK TECHNOLOGIES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(3) FACTORING OF RECEIVABLES, CONTINUED
Upon collection of these accounts, the 20% withheld by the purchaser, less
a .1% discount per day based on the average daily balance of outstanding
transferred receivables, is forwarded to the seller. As collections reduce
accounts included in the pool, the Company sells its interest in new
receivables.
The discount from the face amount totaled $23,856 for the year ended March
31, 1996 and has been included in interest expense in the accompanying
consolidated statement of operations.
(4) INVENTORIES
Inventories consists of the following at March 31:
<TABLE>
<CAPTION>
1996 1995
---------- -------
<S> <C> <C>
Raw materials $ 174,160 181,593
Component parts and work in progress 521,716 555,170
Finished goods 817,589 876,546
---------- ---------
1,513,465 1,613,309
Less reserve for inventory obsolescence 131,032 124,807
---------- ---------
$1,382,433 1,488,502
========== =========
</TABLE>
(5) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at March 31:
<TABLE>
<CAPTION>
1996 1995
---------- -------
<S> <C> <C>
Machinery and equipment $ 684,581 678,132
Furniture and fixtures 288,606 285,055
Leasehold improvements 106,135 106,135
---------- ---------
1,079,322 1,069,322
Less accumulated depreciation and amortization 976,151 910,614
---------- ---------
$ 103,171 158,708
========== =========
</TABLE>
(Continued)
F-11
<PAGE>
MONITEK TECHNOLOGIES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(6) ACCRUED LIABILITIES
Accrued liabilities consists of the following at March 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Accrued bonuses and other compensation $311,484 352,312
Accrued commissions 52,982 53,932
Accrued payroll and related taxes 96,683 83,180
Accrued professional fees 33,090 34,573
Other accrued liabilities 127,670 102,678
-------- -------
$621,909 626,675
======== ========
</TABLE>
(7) NOTES PAYABLE TO RELATED PARTY
The Company's major stockholder has made available $300,000 in notes
payable of which $300,000 and $200,000 were outstanding at March 31, 1996
and 1995, respectively. These notes accrue interest at 10% per annum and
are payable on demand. The notes are secured by all non-leased assets of
the Company.
(8) COMMON STOCK
The Class A common stock has two votes per share and is automatically
converted to an equal number of shares of common stock upon sale or
transfer to any person who is not a holder of Class A common stock or at
any time at the option of the holder. The common stock has one vote per
share.
(9) LOAN TO OFFICER
In October 1990, the Company advanced funds to an officer in the amount of
$30,000. During the year ended March 31, 1995, the note was forgiven when
the officer exercised a put provision surrendering 42,000 shares of his
Class A common stock in exchange for forgiveness of his advance.
The advance was issued to enable the officer to retire indebtedness
incurred to purchase the Company's common stock. The transaction involves
the Company's stock and as such, the advance was shown as a reduction of
stockholders' equity in the accompanying consolidated financial
statements.
(Continued)
F-12
<PAGE>
MONITEK TECHNOLOGIES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(10) EMPLOYEE STOCK OPTION PLAN
In May 1987, the Company's Board of Directors adopted a stock option plan
(the Plan) under which officers, directors and key employees of the
Company are eligible to receive incentive and/or non-qualified options.
Under the Plan, 450,000 shares of common stock are reserved for issuance.
The Plan is administered by the Board of Directors and expires in May
1997. Options granted under the Plan may be exercised for a period of up
to ten years at an exercise price which is not less than the fair market
value of the common stock at date of grant. At March 31, 1996, outstanding
options were exercisable at prices which ranged from $.50 to $1.25.
Generally, options vest over a four-year period, and the options granted
have had an exercise period of five years.
Changes in stock options for the years ended March 31 are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Options outstanding at
beginning of year 352,000 382,000 237,500
Granted 70,000 -- 224,500
Canceled (40,000) (30,000) (80,000)
------- ------- -------
Outstanding at end of year 382,000 352,000 382,000
======= ======= =======
Currently exercisable 327,000 265,542 220,958
======= ======= =======
Available for grant 68,000 98,000 68,000
======= ======= =======
</TABLE>
(Continued)
F-13
<PAGE>
MONITEK TECHNOLOGIES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(11) INCOME TAXES
The components of domestic and foreign losses and income taxes are as
follows for the years ended March 31:
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Loss before income tax expense:
Domestic $(525,794) (238,881) (659,767)
Foreign (32,369) (30,261) (110,834)
--------- -------- --------
$(558,163) (269,142) (770,601)
========== ======== ========
Income tax expense:
Domestic:
Current - State 1,600 2,400 800
Foreign:
Current 2,284 1,458 2,226
--------- -------- --------
$3,884 3,858 3,026
========== ======== ========
</TABLE>
A reconciliation between the Company's effective income tax rate and
the statutory federal income tax rate is as follows for the years ended
March 31:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Expected federal income tax benefit at
the statutory rate (34.0)% (34.0)% (34.0)%
Increase (decrease) in taxes resulting
from:
Repatriation of DISC and
foreign subsidiary earnings 4.8 8.5 10.1
State benefit net of federal
benefit 0.3 0.5 (6.6)
Effect of operating loss for which
no tax carrybacks are available 26.6 26.5 32.2
Other 3.0 (0.1) (1.3)
------ ------ ------
0.7% 1.4% 0.4%
====== ====== ======
</TABLE>
(Continued)
F-14
<PAGE>
MONITEK TECHNOLOGIES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(11) INCOME TAXES, CONTINUED
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 March 31:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 12,550 9,850
Inventories, principally due to reserve for
obsolescence and tax capitalization 107,355 109,722
Property and equipment, principally due to
depreciation 21,056 32,610
Other accruals 10,946 10,850
Net operating loss carryforward 1,941,995 1,757,279
---------- ----------
Total gross deferred tax assets 2,093,902 1,920,311
Less valuation allowance (1,934,888) (1,734,471)
---------- ----------
Net deferred tax assets 159,014 185,840
Deferred tax liabilities:
DISC accumulated earnings (159,014) (185,840)
---------- ----------
Net deferred taxes $ -- --
========== ==========
</TABLE>
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 March 31, 1996 and 1995, the Company recorded increases of
$200,417 and $114,877, respectively, in the valuation allowance primarily
as a result of the net operating loss generated during the year.
At March 31, 1996, the Company had approximately $5,404,845 of net
operating loss carryforwards available to offset future federal taxable
income and approximately $1,700,023 of net operating loss carryforwards
available to offset future California taxable income. The federal and
state net operating loss carryforwards expire at various dates through
2011.
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 may be subject to potential limitations as a result of
these provisions.
(Continued)
F-15
<PAGE>
MONITEK TECHNOLOGIES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(12) LEASES
The Company leases its offices and production facilities under operating
leases and has commitments under certain other operating leases. Rental
expense under operating leases was $328,452, $334,382 and $236,308 for the
years ended March 31, 1996, 1995 and 1994, respectively.
Future minimum lease payments for operating leases with initial or
remaining terms in excess of one year are as follows at March 31, 1996:
<TABLE>
<S> <C>
1997 $261,514
1998 200,931
1999 114,284
2000 103,621
2001 101,665
Thereafter 194,975
--------
$976,990
========
</TABLE>
(Continued)
F-16
<PAGE>
MONITEK TECHNOLOGIES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(13) SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one industry segment as described in note 1,
Nature of Business. Sales and operating losses for each of the years in
the three-year period ended March 31, 1996 and identifiable assets
classified by the major geographic areas in which the Company operates,
are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ----------- ----------
<S> <C> <C> <C>
Sales to unaffiliated customers:
United States
Domestic $1,869,720 1,676,731 1,622,725
Export sales 590,676 683,382 638,861
Continental Europe 4,235,000 3,729,287 3,418,702
Intercompany transfers 993,654 1,086,456 880,724
Eliminations (993,654) (1,086,456) (880,724)
---------- ---------- ---------
Net sales $6,695,396 6,089,400 5,680,288
========== ========== =========
Operating loss:
United States (475,630) (372,082) (703,221)
Continental Europe (22,803) (42,257) (80,392)
---------- ---------- ---------
Operating loss (498,433) (414,339) (783,613)
Interest expense (101,211) (46,055) (42,446)
Other income, net 41,481 191,252 55,458
---------- ---------- ---------
Loss before income tax expense $ (558,163) (269,142) (770,601)
========== ========== =========
Identifiable assets:
United States 1,263,117 1,191,471
Continental Europe 1,345,083 1,580,284
---------- ----------
Total assets $2,608,200 2,771,755
========== ==========
</TABLE>
(14) EMPLOYEE BENEFIT PLAN
In September 1989, the Company adopted the Monitek Technologies, Inc.
401(k) Retirement Plan (the Benefit Plan). The Benefit Plan covers
substantially all full time employees of the Company. Under the terms of
the Benefit Plan, the Company may make discretionary contributions to the
Benefit Plan. No such contributions were made during the years ended March
31, 1996, 1995 or 1994.
(Continued)
F-17
<PAGE>
MONITEK TECHNOLOGIES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(15) SELECTED QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales:
1996 $1,763,795 1,897,662 1,794,329 1,239,610
1995 1,684,140 1,531,145 1,515,346 1,358,769
Gross profit:
1996 958,544 1,011,591 979,495 690,867
1995 951,146 816,649 837,677 695,880
Net (loss) income:
1996 (147,254) (200,564) (100,724) (113,505)
1995 71,158 18,564 (103,350) (259,372)
Net (loss) income per share:
1996 (.05) (.07) (.03) (.04)
1995 .02 .01 (.04) (.08)
</TABLE>
(16) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reflected in the consolidated balance sheets for cash
and other financial instruments approximate fair value due to the short
maturity of these instruments.
(17) RESULTS OF OPERATIONS, PROPOSED MERGER AND MANAGEMENT'S PLANS
As shown in the accompanying consolidated financial statements, the
Company has incurred recurring losses from operations which have reduced
the Company's unused sources of liquidity to a very low level. These
factors raise substantial doubt about the Company's ability to continue as
a going concern without additional sources of external financing.
On June 24, 1996, the Company's Board of Directors approved an Agreement
and Plan of Merger (the Merger Agreement) with Sentex Sensing Technology,
Inc. (Sentex) and a Sentex subsidiary. On the same date, the Merger
Agreement was approved by the Board of Directors of Sentex and its
subsidiary. Sentex develops and manufactures automated devices designed to
identify and measure the concentrations of certain chemicals and its stock
is traded on the NASDAQ Small Cap stock market. The Merger Agreement will
be submitted for approval by the Company's shareholders and the Sentex
shareholders and provides for the merger of the Sentex subsidiary into the
Company. Consummation of the merger is subject to a variety of customary
conditions and, accordingly, there can be no assurance that the merger
will take place. The Company believes Sentex has a sufficiently strong
cash position to satisfy the intermediate term needs of the Company for
working capital. In addition, the Company intends to seek a working
capital loan or loans from its major shareholder, Clarion Capital
Corporation, pending completion of the merger.
(Continued)
F-18
<PAGE>
MONITEK TECHNOLOGIES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(17) RESULTS OF OPERATIONS, PROPOSED MERGER AND MANAGEMENT'S PLANS, CONTINUED
Operating losses for fiscal years 1996 and 1995 were approximately
$498,000 and $414,000, respectively. Fiscal year 1996 sales and gross
profit were approximately 10% higher than the prior year but the increase
in gross profit was offset by increases in operating expenses. Selling,
general and administrative expenses increased by approximately $356,000,
or 11%, primarily as a result of higher sales commissions and payroll
related expenses. Research, development and product engineering expenses
increased by approximately $67,000, or 20%. Spending during the first half
of fiscal year 1995 had been severely curtailed in order to conserve
working capital and reduce operating losses. Subsequently, management,
with approval from the Board of Directors, made the decision to fund
certain engineering projects that had been placed on hold, resulting in
increased expenditures in subsequent periods.
F-19
<PAGE>
MONITEK TECHNOLOGIES, INC.
AND SUBSIDIARY
Index to Consolidated Financial Statement Schedule
--------------------------------------------------
Page
----
Schedule II Valuation and Qualifying Accounts S-2
S-1
<PAGE>
MONITEK TECHNOLOGIES, INC.
AND SUBSIDIARY
SCHEDULE II
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions-
Balance at charged to Balance at
beginning costs and end
Description of period expenses Write-offs of year
---------------------------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1996 Allowance for doubtful accounts $ 35,465 10,477 10,831 35,111
1995 Allowance for doubtful accounts 64,163 12,000 40,698 35,465
1994 Allowance for doubtful accounts 41,163 27,474 4,474 64,163
1996 Reserve for inventory obsolescence 124,807 32,491 26,266 131,032
1995 Reserve for inventory obsolescence 102,559 36,000 13,752 124,807
1994 Reserve for inventory obsolescence 87,360 111,251 96,052 102,559
</TABLE>
S-2
<PAGE>
EXHIBIT 22.1
------------
Subsidiaries of the Registrant
------------------------------
Name Jurisdiction of Incorporation
---- -----------------------------
Monitek GmbH Germany
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 51,235
<SECURITIES> 0
<RECEIVABLES> 894,921
<ALLOWANCES> 35,111
<INVENTORY> 1,382,433
<CURRENT-ASSETS> 2,461,074
<PP&E> 1,079,322
<DEPRECIATION> 976,151
<TOTAL-ASSETS> 2,603,200
<CURRENT-LIABILITIES> 1,584,01
<BONDS> 0
0
0
<COMMON> 29,431
<OTHER-SE> 994,755
<TOTAL-LIABILITY-AND-EQUITY> 2,608,200
<SALES> 6,695,396
<TOTAL-REVENUES> 6,767,094
<CGS> 3,054,899
<TOTAL-COSTS> 3,054,899
<OTHER-EXPENSES> 4,169,147
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101,211
<INCOME-PRETAX> (558,163)
<INCOME-TAX> 3,884
<INCOME-CONTINUING> (562,047)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (562,047)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (.19)
</TABLE>
