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[NAME]RON DYER
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For fiscal year ended: Commission file number:
August 31, 1995 0-17110
SENSOTRON, INC. (FORMERLY POWEREC INTERNATIONAL, INC.)
(Exact name of registrant as specified in its charter)
California 33-0107249
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization Identification No.)
5881 Engineer Drive
Huntington Beach, CA 92649
(Address of principal executive offices)
Registrant's telephone number, including area code: 714/898-5618
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, no par
(Title of class)
Indicate by check mark 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 the filing requirements
for at least the past 90 days. Yes ____ No X
Check if there is no disclosure of delinquent filer in
response to Item 405 of Regulation S-B contained in this form and
no disclosure will be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ X ]
Revenues for the year ended August 31, 1995 were $1,518,564.
At April 30, 1996, the aggregate market value of voting stock
held by non-affiliates of the registrant was $2,373,655.
At April 30, 1996, 22,372,966 shares of Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(None)
<PAGE>
Item 101.Business
GENERAL
Sensotron, Inc. (formerly Powerec International, Inc.) was
incorporated in the state of California on April 19, 1985 and
designs, develops, produces and markets high-technology products
which convert physical pressure into an electronic signal that
enables a computer or electronic instrument to perform a
predetermined application. The products are produced and marketed
worldwide for military and industrial applications including
aerospace, computer, automotive, geothermic energy generation,
underwater exploration and navigation, telecommunications,
petroleum processing and chemical processing.
The Company has attained international recognition and
prominence and feels that its transducer technology is one of the
most sophisticated in the world. During fiscal year 1991, the
Company granted a license to a major Japanese firm for a lump sum
payment and future royalties restricted to certain transducer
technology and patent rights. Such rights are limited exclusively
to the Far East market.
The Company has successfully completed the research and
development of its Plastic Melt Pressure Transducer for the
plastics industry. This is significant as major companies both
U.S. and international use these transducers for the production of
plastic materials and products. Plastic materials are used in the
food industry, the medical industry, consumer goods, etc.
In addition to having improved accuracy and high temperature
parameters, the Company's transducers have the unique advantage of
not utilizing liquid mercury. Mercury is one of the most severe
elements on the Environmental Protection Agency's list which was
established to curb adverse effects to human life.
During the beginning of fiscal year 1991, the Company entered
into a "team" agreement with a major aerospace company to develop
a special transducer for the Navy to retrofit some 30,000 existing
torpedoes. The Company was notified in 1993 by its customer that
they intended to cancel the contract. The Company negotiated a
satisfactory settlement of $250,000 in connection with such
commitment, which was reported as other income during fiscal year
1994.
The Company has an ongoing program of seeking patent
protection for its developed technology and holds several patents
and patent applications related primarily to the Plastic Melt
Pressure Transducer. Several patent applications are pending or
are scheduled to be filed during fiscal 1996 which are related to
new generations of product.
During the years ended August 31, 1995 and 1994, the Company
incurred approximately $137,944 and -0- respectively, in research
and development expenditures primarily attributable to transducer's
technology.
2
<PAGE>
The Company's backlog on August 31, 1995, is estimated at
approximately $350,000. Backlog includes orders accepted for
delivery to customers primarily during the current fiscal year,
and, in some cases, to customers beyond the current fiscal year,
depending on purchase agreements. At this time, management's
emphasis is on production, shipments, marketing support, and the
promotion of already developed products with emphasis on short and
long term profitability.
The Company has certain customers in the government contract
industry which requires the Company to provide for special training
and security provisions with respect to its operations. Certain
employees have been granted confidential clearance by the Defense
Investigative Service. In addition, the Company has a qualified
Facility Security Officer to maintain a system of security controls
with the organization in accordance with the requirements of the
Department of Defense.
The Company also has complied with government regulations
regarding environmental controls and has met the requirements for
the proper disposal of waste material such as chemicals used in the
manufacturing of its products.
At August 31, 1995, the company had approximately 25 full time
employees.
Item 102. Properties
The Company is headquartered at 5881 Engineer Drive,
Huntington Beach, California 92649. The Company leases its
corporate offices and manufacturing facility from A.N. Sahagen, the
company's Chief Executive Officer and major shareholder. The space
consists of approximately 12,000 square feet, and the monthly
rental was $9,000 until March 31, 1994, which is the prevailing
rental rate for comparable space in this geographic area. The rent
was reduced to $4,000 per month April 1, 1994 to September 30, 1994
and $6,000 on October 1, 1994 to March 31, 1995, then back to
$9,000 per month. The company rents this space pursuant to a term
lease which expires March 31, 1999. The Company's office and
manufacturing facility is adequate for its present needs.
Item 103. Legal Proceedings
The Company is party to various lawsuits which have arisen in
the normal course of business. It is the opinion of management,
that the liability, if any, arising from such lawsuits would not
have a material adverse effect on the Company's financial
statements.
3
<PAGE>
Item 201. Market for Registrant's Common Equity and Related
Stockholder Matters.
Beginning August, 1988, the Company's common stock was quoted
on NASDAQ under the symbol PRINE. The initial public offering
price of the Company's common stock was $2.00. However, the
Company was deleted from NASDAQ on April 10, 1990 for failing to
meet certain financial statement criteria. The Company's common
stock is currently traded over-the-counter under the symbol SOSD
and is listed on the "Bulletin Board" of the National Association
of Securities Dealers, Inc. Set forth below are the high and low
bid prices of the Company's Common Stock as reported by a licensed
marketmaker who continues to make a market in the stock for the
periods indicated for each quarter for the years ended August 31,
1995 and 1994. Such prices represent quotations between dealers
without adjustment for mark-ups, mark-downs or commissions and may
not represent actual transactions. Trading in the Company's Common
Stock is limited to volume and may not be a reliable indicator of
its market value.
The following table indicates the high and low bid prices
during 1995 and 1994:
1995 1994
High/Low High/Low
First Quarter 1/4 - 1/16 1 3/8 - 10/16
Second Quarter 3/16 - 1/8 3/4 - 5/16
Third Quarter 1/4 - 1/8 5/8 - 3/16
Fourth Quarter 3/8 - 1/8 7/16 - 1/8
The Company has paid no dividends on its Common Stock and does
not plan to pay dividends in the foreseeable future. The Company
has approximately 300 shareholders of record on April 30, 1996.
Item 202. Description of Securities
The Company has one class of voting common stock with no par
value of which 50,000,000 shares are authorized as approved at the
Company's board meeting on November 1, 1994. The holders of the
common stock are entitled to equal dividends and distributions, per
share, with respect to the common stock when, as and if declared by
the board of directors from funds legally available. Therefore, no
holder of any shares of common stock has any preemptive right to
subscribe for any other securities of the Company nor are any
shares subject to redemption. Upon liquidation, dissolution or
winding-up, and after payment of creditors, the Company's assets
will be divided pro rata on a share-for-share basis among the
holders of the shares of common stock. All shares of common stock
now outstanding, and shares to be outstanding upon exercise of the
conversion rights described above, are and will be fully paid,
validly issued and non-assessable.
Holders of the Company's common stock do not have cumulative
voting rights, therefore, the holders of more than 50% of the
shares voting for the election of directors will be able to elect
all of the directors if they choose to do so and, in that event,
the holders of the remaining shares will not be able to elect any
members of the board of directors.
4
<PAGE>
The board meeting of November 1, 1994 also authorized the
issuance of up to 10,000,000 shares of preferred stock. The
increase from 30,000,000 shares to 50,000,000 shares in the
authorized number of common shares and the authorization to issue
up to 10,000,000 shares of preferred stock will require an
amendment to the Articles of Incorporation approved by a majority
of the existing shareholders.
The Company intends to furnish annual reports to shareholders
which will contain financial statements audited by the independent
certified public accountants and such other interim reports as its
board of directors may determine.
In August, 1988, the Company's Board of Directors approved an
incentive stock option plan which provides for the granting of
options to purchase shares of the Company's common stock to certain
directors, officers and key employees. The Company has reserved
1,000,000 shares of common stock for issuance under the plan. The
options become exercisable twenty percent each year beginning one
year after the date of grant and expire ten years from the date of
grant. In fiscal 1995, options for 200,000 shares were granted and
200,000 shares were cancelled. At August 31, 1995, options to
purchase 675,000 shares previously issued are outstanding with
exercise prices of $0.25 to $0.50 per share and 311,000 shares were
exercisable; 315,000 shares are available for grant. Common stock
underlying such options are not registered with the Securities and
Exchange Commission.
Item 303. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
Since the inception of the Company, management's emphasis has
been on developing state of the art, limited availability, high
volume transducer products for industry, which resulted in the
Company sustaining recurring operating losses. During fiscal year
1991, the Company successfully completed its Plastic Melt Pressure
Transducer development and in fiscal 1995, the Company has
continued its emphasis on educating potential customers on its
significant advantages over its competition. In addition, the
Company has obtained significant purchase orders for production of
a variety of transducers. The Company is presently working on a
secondary offering which became effective on October 13, 1994.
This was revised in a private placement memorandum on March 27,
1995. The Company is still working on this. When this is finalized,
the Company should have sufficient capital to greatly increase its
marketing efforts which will increase revenues. In fiscal year
1996, the Company hopes to increase production and shipments, and
to place greater emphasis on marketing support to promote the
Company's developed products; however, during the first six months
of fiscal 1996, the Company's shipments have declined. Management
is currently focusing on marketing of the Company's products to
improve 1996 operating results.
5
<PAGE>
Revenues
Total revenues for fiscal year ended August 31, 1995.
increased $243,249 to $1,518,564 from fiscal year ended August 31,
1994. This is a 19% increase from the prior year. This was due to
one large order of $250,000 from one customer. Revenues have not
met management's expectations due primarily to cancellation of
government contracts and change in concentration to the commercial
area.
Costs and Expenses
In fiscal 1995, cost of sales was 77% of net sales compared to
104% in fiscal 1994. As the Company's production of products
increases, the related costs as a percentage of net sales are
expected to decrease due to the ability of the Company to absorb
fixed manufacturing costs. The Company has continued to monitor
its manufacturing costs as part of its cost reduction plan in
effect.
General, selling and administrative expenses decreased $99,881
in fiscal 1995 over 1994. During the year ended August 31, 1995
the Company issued 807,569 shares of its common stock for services
rendered valued at $102,203 which were charged to such expense
classification.
Research and development expenses decreased $11,776 in 1995
versus 1994 as the Company's transducer products are substantially
developed. The Company continues to expend research and
development costs to advance its technologies. The Company
continues its focus on Plastic Melt Pressure Transducers as one of
its primary products. Most of the current research and development
of the optical composition probe and other products are conducted
by the Company's founder and is charged to general and
administrative expenses. Most other expenses are now considered to
be engineering and production expenses, which are reported as
normal cost of sales.
Deferred offering expenses of $507,562 are charged to expense
in 1995 as the offering has not been completed at this time.
The Company's cost of borrowings in 1995 advanced 60% due to
fixed rates of interest incurred in connection with the Company's
borrowings and to an additional $124,000 accrual on a shareholder
note explained in Note 9.
Liquidity and Capital Resources
The financial condition of the Company at August 31, 1995
compared to August 31, 1994 has eroded primarily due to the current
year losses.
At August 31, 1995, the Company has current liabilities in
excess of current assets of $3,537,898 and a shareholders' deficit
of $3,271,043. The increase in current liabilities is primarily
due to the prior years long-term liabilities now becoming current
liabilities. These coupled with recurring net losses from
operations of $1,429,465 and $995,873 in 1995 and 1994,
respectively, raise substantial doubt about the Company's ability
to continue as a going concern.
6
<PAGE>
Management planned to seek additional working capital from
proceeds from the issuance of its common stock through a public
offering. The public offering for the Company became effective
October 13, 1994 for up to $5,000,000; however, the Company must
seek approval from states under "Blue Sky" regulations in which
management intends to sell such securities. The company is now
seeking capital under a private placement memorandum. Such
proceeds would be used to substantially reduce its obligations, and
related financing costs, and expand the Companys marketing
activities to generate revenues necessary to achieve profitable
operations. The Company also would grant licensing rights to one
or more of its products outside the United States. There are no
assurances that such plans will be effected on terms and conditions
acceptable to management of the Company.
Income Taxes
The adoption of SFAS No. 109, "Accounting for Income Taxes",
in 1994 did not expect to have a material impact on the Company's
statement of operations. The Company has approximately $10,000,000
in federal net operating losses which will minimize income taxes in
the future should the Company achieve profitable operations.
Item 304. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
Item 310. Financial Statements
7
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Balance sheet As of August 31, 1995................... F-2, F-3
Statements of Operations For The Years Ended
August 31, 1995 and 1994............................. F-4
Statements of Shareholders' Deficit For The
Years Ended August 31, 1995 and 1994................. F-5
Statements of Cash Flows For The Years
Ended August 31, 1995 and 1994....................... F-6, F-7
Notes To Financial Statements.......................... F-8 to F-17
F-1
<PAGE> SENSOTRON, INC.
(FORMERLY POWEREC INTERNATIONAL, INC.)
BALANCE SHEET
(UNAUDITED)
August 31, 1995
ASSETS (Notes 8 and 9)
Current Assets:
Certificate of deposit - restricted $ 50,000
(Notes 2 and 7)
Trade accounts receivable, net of
allowance for doubtful accounts of
$10,000 145,000
Inventories (Notes 2 and 3) 376,979
Other current assets 2,418
Total current assets 574,397
Property and equipment (Note 2):
Machinery and equipment 413,312
Furniture and fixtures 23,990
Leasehold improvements 4,079
441,381
Less: Accumulated depreciation and
amortization ( 329,734)
Property and equipment, net 111,647
Patents, net of accumulated amortization of
$75,468 (Note 2) 162,558
Other assets 7,650
$ 856,252
CONTINUED F-2
<PAGE> SENSOTRON, INC.
(FORMERLY POWEREC INTERNATIONAL, INC.)
BALANCE SHEET - CONTINUED
August 31, 1995
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Bank overdraft $ 24,092
Accounts payable 587,251
Accrued payroll taxes 339,856
Accrued interest 547,471
Other accrued liabilities (Note 4) 291,835
Obligations under capital leases (Note 10) 80,548
Due to officer/shareholder (Note 6) 214,702
Notes payable to related parties (Note 9) 1,085,527
Notes payable to officer/shareholder (Note 8) 860,526
Note payable to bank (Note 7) 45,000
Notes payable 35,487
Total current liabilities 4,112,295
Notes payable - Private Placement Memorandum 15,000
Total liabilities 4,127,295
Commitments and contingencies (Notes 9, 10 and 13)
Shareholders' deficit (Notes 2, 8, 9, 11, 12 and 17):
Common stock, no par value, 50,000,000 shares
authorized, 21,758,997 shares issued and
outstanding 8,150,453
Note receivable for common stock ( 90,000)
Accumulated deficit (11,331,496)
Total shareholder deficit ( 3,271,043)
$ 856,252
See accompanying notes to financial statements
F-3
<PAGE>
SENSOTRON, INC.
(F0RMERLY POWEREC INTERNATIONAL, INC.)
STATEMENTS OF OPERATIONS
For The Years Ended August 31, 1995 and 1994
1995 1994
Revenues (Note 2):
Net sales $1,502,668 $1,262,986
License and royalties 15,896 12,329
Total revenues 1,518,564 1,275,315
Cost and expenses:
Cost of sales 1,158,004 1,314,105
Selling, general and administrative 801,701 901,582
Research and development -0- 11,776
Total costs and expenses 1,959,705 2,227,463
Loss from operations ( 441,141) ( 952,148)
Other income (expense):
Deferred offering expense write off ( 522,061) - 0 -
Gain from settlement of
contract (Note 16) -0- 250,000
Interest, net ( 464,673) ( 290,892)
Loss before provision for income taxes (1,427,875) ( 993,040)
Provision for income taxes
(Notes 2 and 5) 1,590 2,833
Net loss $(1,429,465) $( 995,873)
Net loss per share (Note 2) $( .07) $( .05)
Weighted average shares outstanding 20,825,291 19,179,201
See accompanying notes to financial statements
F-4
<PAGE>
<TABLE>
SENSOTRON, INC.
(FORMERLY POWEREC INTERNATIONAL, INC.)
STATEMENT OF SHAREHOLDERS' DEFICIT
For The Years Ended August 31, 1995 and 1994
Services Notes
Receivable Receivable
Common Stock For Common For Common Accumulated
Shares Amount Stock Issued Stock Issued Deficit Total
<S> <C> <C> <C> <C> <C> <C>
Balances, September 1, 1993 18,623,285 $7,454,854 $(60,000) ---- $(8,906,158) $(1,511,304)
Forgiveness of note payable
by officer/shareholder
(Note 11) ---- 50,000 --- ---- --- 50,000
Common shares issued for
notes receivable (Note 1) 225,000 90,000 --- ( 90,000) ---- ----
Common shares issued to
officer/shareholder for debt (Note 11) 296,806 ---- ---- 92,752
Common shares issued for
services rendered (Note 11) 617,337 156,542 --- ---- ---- 156,542
Services rendered for
common shares issued
prior to August 31, 1993
(Note 11) ---- ---- 60,000 ---- ---- 60,000
Net Loss ---- ---- --- ---- ( 995,873) 995,873
Balances, August 31, 1994 19,762,428 $7,844,148 $ --- $(90,000) $( 9,902.031) $ (2,147,883)
Common shares issued for services
rendered (Note 11) 807,569 102,203 102,203
Common shares issued to new or
existing shareholders for cash
(Note 11) 1,189,000 204,102 204,102
Net loss ---- ---- ---- ---- ( 1,429,465) ( 1,429,465)
Balance, August 31, 1995 21,758,997 $8,150,453 $ ---- $(90,000) $(11,331,496) $( 3,271,043)
See accompanying notes to financial statements
F-5
</TABLE>
<PAGE> SENSOTRON, INC.
(FORMERLY POWEREC INTERNATIONAL, INC.)
STATEMENTS OF CASH FLOWS
For The Years Ended August 31, 1995 and 1994
1995 1994
Cash flows from operating activities:
Net Loss $(1,429,465) $(995,873)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 81,875 94,877
Provision for allowance for
doubtful trade accounts receivable ( 13,522) 8,522
Issuance of common stock for services
rendered (Note 11) 102,2033 78,292
Issuance of notes payable to officer/
shareholder for rents, royalties and
interest (Notes 6 and 8) --- 147,339
Note payable issued for services
rendered 35,487 ---
Changes in operating assets and
liabilities:
Trade accounts receivable ( 35,824) 104,599
Inventories ( 15,802) 26,167
Deferred offering costs (Note 2) ( 242,846) (104,596)
Other current assets ( 925) 27,960
Accounts payable 244,297 122,161
Accrued payroll taxes 11,355 78,761
Accrued interest 342,540 148,996
Other accrued liabilities 112,635 43,394
Total Adjustments 1,107,165 776,472
Net cash used in operating activities ( 322,300) (219,401)
Cash flows from investing activities:
Other assets ( 1,050) ( 1,600)
Patent expenditures ( 75,930) ( 49,711)
Payment for the purchase of property
and equipment ( 28,630) ( 48,478)
Net cash used in investing activities ( 150,610) ( 99,789)
Cash flows from financing activities:
Advances from officer/shareholder 188,566 26,136
Restricted certificate of deposit
(Note 2 and 7) ---- 218,000
Proceeds from issuance of note payable
to officer/shareholder (Note 8) ( 15,810) 133,444
Principal payments under capital
lease obligations (Note 10) ( 1,059) ( 1,087)
Proceeds from issuance of notes
payable to related parties (Note 9) 267,891 155,100
Interest (Decrease) in Bank Overdraft 11,710 ( 6,303)
Proceeds from N/P Private
Placement Memo 15,000 - 0 -
Continued F-6
<PAGE>
SENSOTRON, INC.
(FORMERLY POWEREC INTERNATIONAL, INC.)
STATEMENTS OF CASH FLOWS - CONTINUED
For The Years Ended August 31, 1995 and 1994
1995 1994
Repayment of notes payable to related
parties (Note 9) (242,490) ( 10,100)
Repayment of note payable to bank
(Note 7) ------ (196,000)
Proceeds from issuance of common
stock, net of commissions (Note 11) 204,102 ----
Net cash provided by financing
activities 427,910 319,190
Net increase in cash ( ------) ----
Cash at beginning of year ---- ----
Cash at end of year $ --- $ ---
Supplemental disclosure of cash flow information -
Cash paid during this year:
Interest $ 9,686 $ 58,962
Income Taxes $ 1,590 $ 3,633
Supplemental schedule of noncash investing and financing activities:
1995
The Company issued 807,569 shares of common stock valued at $102,203 in
payment of services rendered.
The Company issued a note payable for services rendered in the amount of
$35,487.
1994
The Company issued 617,337 shares of common stock valued at $156,542 in
payment of services rendered of which 330,500 shares valued at $78,250
were issued in connection with its proposed public offering.
The Company issued 296,806 shares of common stock in payment of notes
payable to officer/shareholder of $92,752.
An officer/shareholder forgave a liability of $50,000,
The company issued 225,000 shares of common stock to a shareholder and
director for a note receivable of $90,000.
See accompanying notes to financial statements
F-7
<PAGE>
SENSOTRON, INC.
(FORMERLY POWEREC INTERNATIONAL, INC.)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended August 31, 1995 and 1994
NOTE 1 - ORGANIZATION
Sensotron, Inc. (formerly Powerec International, Inc.) (the Company) was
incorporated in the state of California on April 19, 1985. The Company
designs, develops, manufactures and markets electronic components, primarily
transducers. The Company sells to commercial and industrial entities that
service both private enterprises and government agencies.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation - The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. During
the year ended August 31, 1995, the Company incurred a net loss of
$1,429,465, and as of such date has a shareholders' deficit of $3,271,043 and
current liabilities in excess of current assets (working capital deficit) of
$3,537,898. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans with respect to
these conditions, include, but are not limited to, continuing to increase
sales levels sufficient to meet its current cost structure through increased
marketing activities and the reduction of administrative costs to better
enable the Company to generate liquidity through operations. In addition,
management is seeking additional capital through a private placement of its
common stock (see Note 17). There are no assurances that management's plans
will be attained. The accompanying financial statements do not include any
adjustments that may result from the outcome of this uncertainty.
Certificate of Deposit - Restricted - The Company maintains a compensating
certificate of deposit used as collateral for the note payable described in
Note 7. For financial statement purposes, this certificate of deposit is
classified according to the classification of the related borrowing.
Inventories - Inventories are valued at the lower of cost (first in, first-
out) or market.
Postretirement Benefits - In December 1990, the Financial Accounting
Standards Board issued a new standard on employer's accounting for
postretirement benefits other than pensions. The Company is required to
adopt the new accounting and disclosure rules no later than its fiscal year
ending August 31, 1994. As the Company does not offer any postretirement
benefits to its employees, the new standard has no effect on the Company.
F-8
<PAGE>
SENSOTRON, INC.
(FORMERLY POWEREC INTERNATIONAL, INC.)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended August 31, 1995 and 1994
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Property and Equipment - Property and equipment are stated at cost.
Depreciation and amortization are provided for by the straight-line method
over the estimated useful lives of the related assets as follows:
Machinery and equipment - 5 years
Furniture and fixtures - 5 years
Leasehold improvements - the lesser of 5 years or life of lease
Repairs and maintenance are expensed as incurred whereas significant
improvements which materially increase values or extend useful lives are
capitalized and depreciated over the estimated remaining useful lives of the
related assets.
The cost of assets retired or otherwise disposed of and the related
accumulated depreciation are eliminated from the accounts in the year of
disposal. Gains or losses resulting from the disposal of assets are charged
to operations in the year of disposal.
Patents - Direct costs relating to the issuance of patents are capitalized
and amortized over 7 years.
Revenue Recognition - Sales are recorded on the date the products are shipped
to customers.
Income Taxes - Through August 31, 1993, the Company utilized the deferred
method for accounting for income taxes under Accounting Principles Board
Opinion No. 11.
On September 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes", which requires a liability
approach. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using tax rates and laws in effect
when the timing differences are expected to reverse. As permitted, the
Company elected not to restate the financial statements for any prior
periods. The effect of the change was not material to the financial
statements upon adoption on September 1, 1993.
Net Loss Per Share - Net loss per share is computed based on the weighted
average number of common shares and common stock equivalents outstanding.
Stock options have not been included in the calculation for both periods
presented due to their antidilutive effect.
Continued
F-9
<PAGE>
SENSOTRON, INC.
(FORMERLY POWEREC INTERNATIONAL, INC.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended August 31, 1995 and 1994
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
In connection with the Company's proposed private placement (see Note 17),
the Company intends to use proceeds from the proposed private placement to
reduce certain indebtedness. Pro forma effects on loss per share information
for the year ended August 31, 1995, are not significantly different from per
share amounts disclosed in the statement of operations.
Reclassifications - Certain reclassifications have been made to 1994 amounts
to conform with the 1995 presentation.
NOTE 3 - INVENTORIES
Inventories at August 31, 1995, consist of the following:
Raw materials $ 89,273
Work in process 231,979
Finished goods 55,727
$376,979
NOTE 4 - OTHER ACCRUED LIABILITIES
Other accrued liabilities at August 31, 1995, consist of the following:
Accrued vacations $ 62,172
Accrued legal fees 140,107
Accrued commissions 23,733
Accrued other 65,823
$291,835
Continued
F-10
<PAGE> SENSOTRON, INC.
(FORMERLY POWEREC INTERNATIONAL, INC.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended August 31, 1995 and 1994
NOTE 5 - INCOME TAXES
The Company has approximately $10,000,000 and $4,000,000 of federal and state
operating loss carryforwards for income tax reporting purposes, respectively.
The net operating loss carryforwards expire through the year 2010. The
ultimate utilization of such net operating loss carryforwards is dependent
upon achieving profitability from operations. In addition, utilization of
the Company's net operating losses may be limited due to the sales of the
Company's common stock which may cause a change in ownership.
The tax provision for fiscal year 1995 and 1994 includes $1,590 and $1,233
respectively, related to withholding taxes by Japan on the license agreement
with a Japanese firm (see Note 15), and California state minimum taxes.
As of August 31, 1994, the Company's valuation allowance of $3,113,000 offset
in its entirety its only significant deferred tax asset, its net operating
loss carryforwards. In 1994, the valuation allowance increased $370,000 due
to additional net operating losses incurred during the year ended August 31,
1994.
NOTE 6 - DUE TO OFFICER/SHAREHOLDER
Due to officer/shareholder at August 31, 1995, represents primarily unpaid
rent (see Note 10), interest (see Note 8) and royalties (see Note 13) is
interest bearing and is due on demand. Also see Note 8 for other indebtness
with this officer/shareholder.
NOTE 7 - NOTE PAYABLE TO BANK
The note payable at August 31, 1995, of $45,000 consists of a revolving line
of credit that is collateralized by a $50,000 restricted certificate of
deposit (Note 2). The note payable bears interest at 6.199% per annum and is
due October 22, 1995.
Continued
F-11
<PAGE>
SENSOTRON, INC.
(FORMERLY POWEREC INTERNATIONAL, INC.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended August 31, 1995 and 1994
NOTE 8 - NOTES PAYABLE TO OFFICER/SHAREHOLDER
At August 31, 1995, the Company had unsecured borrowings of $860,526 from its
major officer/shareholders that are due September 1, 1995, with interest at
8% per annum. Such notes may be converted into common stock should the
officer/shareholder elect to do so at $1.50 per share. Such obligations are
secured by Company's assets and subordinate to $330,000 of notes payable to
related parties. In connection with the proposed private placement a
substantial portion of this indebtedness may be repaid. Interest to this
officer/shareholder for the year ended August 31, 1995 and 1994 were $78,566
and $65,539, respectively. Also see Note 6 for other indebtedness due this
officer/shareholder.
NOTE 9 - NOTES PAYABLE TO RELATED PARTIES
On June 24, 1990, a certain shareholder of the Company borrowed $1,050,000
from an outside entity collaterized by land owned by the shareholder.
Concurrently therewith, the Company borrowed $585,126 from the shareholder
and the Company also issued shares of its common stock as a fee for obtaining
such loan. As amended April 1, 1994, the Company agreed to pay interest
monthly at 15.5% per annum on the total amount of the debt of $1,078,000
currently owed. In addition, the entire principal balance of the debt was
guaranteed by the Company's officer/shareholder and the Company. Management
intends to repay a portion of its indebtedness with proceeds of $585,126, if
any, from the proposed private placement. (see Note 17).
The shareholder is currently in default under the terms of the note. As a
result of its guarantee, the Company could be liable for the entire
indebtedness of $1,078,000. In management's and legal counsel's opinion, the
Company may have certain defenses which could minimize its ultimate
liability, if any, in excess of $585,126 current outstanding. Accordingly,
a $124,000 provision has been recorded for estimated potential liability
associated with this matter in excess of $585,126, which will cover
additional interest, attorney and foreclosure fees on a portion of this note.
At August 31, 1995, the Company has various notes with aggregate principal
balances amounting to $113,000 due within one year at interest rates ranging
from 10% to 12% per annum.
Since the Company has a large negative net worth and it is questionable
whether or not the company can continue in business, it is extremely
difficult for the company to arrange any financing. The Company's Chief
Financial Officer personally borrowed funds and loaned $57,000 to the company
at 60% annual interest rate.
Continued
F-12
<PAGE> SENSOTRON, INC.
(FORMERLY POWEREC INTERNATIONAL, INC.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended August 31, 1995 and 1994
NOTE 9 - NOTES PAYABLE TO RELATED PARTIES, continued
At August 31, 1994, the Company had 12% notes of $330,000 outstanding due to
a shareholder, which in part carried a convertible feature into the Company's
common stock. On October 1, 1994, effective June 1, 1994, the Company
renegotiated the notes which reduced the interest rate to 8% per annum and
eliminated the convertible feature. The notes are due September 1, 1995 and
are secured by substantially all the Company's assets; should the Company's
proposed public offering be completed (see Note 17), a portion of the
proceeds may be used to retire all or part of this indebtedness.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Leases
The Company leases its corporate offices and manufacturing facility from its
officer/shareholder under an operating lease. This lease expires in March,
1999. In addition, the Company leases certain office equipment under capital
leases. In connection with these capital leases, the Company is in default
and, as a result, all amounts are currently payable. If the Company does not
cure these defaults, action may be taken by the lessor to repossess the
equipment in satisfaction of the obligations. The equipment is hardware and
software for an old computer system purchased in 1989, originally costing
$100,000 which has been fully written off.
Future annual minimum payments under the operating facility lease are as
follows:
1996 $ 108,000
1997 108,000
1998 108,000
1999 63,000
$ 387,000
Rent expense for the years ended August 31, 1995 and 1994 was $91,000 and
$90,335, respectively.
Continued
F-13
<PAGE> SENSOTRON, INC.
(FORMERLY POWEREC INTERNATIONAL, INC.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended August 31, 1995 and 1994
NOTE 10 - COMMITMENT AND CONTINGENCIES, continued
Litigation
The Company is party to various lawsuits which have arisen in the normal
course of business. It is the opinion of management, that the liability, if
any, arising from such lawsuits would not have a material adverse effect on
the Company's financial statements.
NOTE 11 - COMMON STOCK
From time to time, the Company issues it common stock in satisfaction of
indebtedness, services and cash. Shares issued for its indebtedness and for
services rendered are recorded at their estimated fair value as determined by
the Company's board of directors based on the closing bid price per share as
quoted by the National Association of Securities Dealers "Bulletin Board" on
the date the obligation to issue such shares is determined. Below is a
summary of the transactions effected by the Company.
During the year ended August 31, 1995, 807,569 shares valued at $102,203 were
issued for services rendered to the Company.
During the year ended August 31, 1995 1,189,000 shares were issued for net
proceeds of $204,102. Such issuances were effected throughout the year.
During the year ended August 31, 1994, 617,337 shares valued at $156,542 were
issued for services rendered to the Company.
On March 17, 1994, the Company issued 225,000 shares valued at $90,000 for a
note receivable from a director and shareholder of the Company. The notes
bear interest at a referenced bank's prime rate (8.5% at August 31, 1994),
payable quarterly beginning June 30 1994. The note is due on March 17, 1996.
The note has been classified as an increase to shareholders' deficit in the
accompanying balance sheet at August 31, 1994 and 1995.
In December, 1993, a shareholder forgave a note payable of $50,000.
Accordingly, the note payable was reduced by such amount with a corresponding
increase to common stock in the accompanying financial statements.
In November, 1993, 296,806 shares were issued to the officer/shareholder to
retire $92,752 in notes payable.
Continued
F-14
<PAGE>
SENSOTRON, INC.
(FORMERLY POWEREC INTERNATIONAL, INC.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended August 31, 1995 and 1994
NOTE 12 - STOCK OPTIONS
In August, 1988, the Company's Board of Directors approved a stock option
plan which provides for the granting of options to purchase shares of the
Company's common stock to certain directors, officers and key employees. The
Company has reserved 1,000,000 shares of common stock for issuance under the
plan. Stock options granted become exercisable twenty percent each year
beginning one year after the date of grant and expire ten years from the date
of grant. Stock option activity for the years ended August 31, 1994 and 1995
is as follows:
Price Range
Shares Per Share
Stock options outstanding
September 1, 1993 390,000 $0.25 - 0.50
Granted 415,000 ----
Exercised ---- ----
Cancelled ( 130,000) 0.50
Stock options outstanding
August 31, 1994 675,000 0.25 - 0.50
Granted 200,000 0.25
Exercised ____ -----
Cancelled ( 200,000) 0.3125
Stock options outstanding
August 31, 1995 675,000 $0.25 - 0.50
Exercisable at August 31, 1995 311,000 $0.25 - 0.50
Available for grant 315,000
Continued
F-15
<PAGE>
SENSOTRON, INC.
(FORMERLY POWEREC INTERNATIONAL, INC.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended August 31, 1995 and 1994
NOTE 13 - RELATED PARTY TRANSACTIONS
See Notes 6 and 8 for certain indebtedness to an officer/shareholder of the
Company, Note 9 for certain indebtedness to shareholders, and Note 10 for
facility lease agreement to an officer/shareholder.
Effective September 1, 1987, the Company entered into a Purchase and Sale and
Security Agreement (the "Purchase and Sale and Security Agreement") with the
President of the Company. The terms of the agreement provide the sale of
certain technology and intangible assets, such as trade secrets and any
future developments, including patents, equaling 98% of his interest therein,
to the Company for a quarterly royalty payment equal to 1% of gross sales
revenue of at least $10,000,000 and 2% of gross sales thereafter, until the
aggregate royalty payments received by him equal $20,000,000; the agreement
requires minimum annual royalty payments of $25,000, which amount was charged
to operations for the fiscal years ended August 31, 1995 and 1994.
The Company's President has a security interest in the transferred technology
of collateral for the payments to him.
NOTE 14 - SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
For the years ended August 31, 1995 and 1994 the Company had two customers
that amounted to 17% and 6%, and 0% and 6%, respectively, of the Company's
sales. At August 31, 1995, such customers accounts receivable were 0% and 0%
of total accounts receivable (gross).
NOTE 15 - LICENSE AGREEMENT
Effective June, 1991, the Company entered into an agreement and granted a
limited license to a major Japanese corporation to manufacture, use or sell
products resulting from their use of the Company's Silicon-on-Sapphire
technology. The license, for the sole benefit of this Japanese corporation,
provided for a lump sum payment to the Company of $1,500,000 and for future
royalties on net sales of manufactured products by the Japanese corporation.
The agreement is in effect for 10 years and the license and the associated
rights therein, is limited to sales of the above mentioned manufactured
products in the Far East.
Continued
F-16
<PAGE>
SENSOTRON, INC.
(FORMERLY POWEREC INTERNATIONAL, INC.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended August 31, 1995 and 1994
NOTE 16 - GAIN ON SETTLEMENT OF CONTRACT
Effective November 30, 1993, the Company entered into a settlement agreement
with an entity whereby the Company received $250,000 in cash for the
cancellation of an agreement to purchase and deliver a minimum quantity of
the Company's products. As a result of this settlement, the Company recorded
a $250,000 gain in the consolidated statement of operations for the year
ended August 31, 1994.
NOTE 17 - PROPOSED PUBLIC OFFERING
In September 1994, effective February, 1994, the Company entered into an
underwriting agreement to raise equity capital, on a "best efforts" basis,
through the issuance of capital units which contain five shares of common
stock and two warrants to acquire common stock at market value.
The underwriting agreement was to provide for warrant terms, options to be
issued to the underwriter to purchase units, payment by the Company for
certain fees and expenses, restrictions on sales of securities by the Company
and certain other warranties and covenants. Also, the underwriter had an
option to purchase an additional 15% of the total offering issued in the
offering solely to cover over-allotments.
In March, 1995 the Company issued a private placement memorandum authorizing
the sale of up to $5,000,000 of Series A Convertible Preferred Stock.
The underwriter agreement was subsequently cancelled. Deferred offering costs
in the amount of $507,562 have been charged to operations as the secondary
offering has been unsuccessful. The Company is presently in the process of
placing privately up to $8,000,000 of Sensotron common stock.
Effective September 22, 1994, the Company entered into a financial services
agreement whereby the Company issued 350,000 shares of its common stock, held
in escrow to be released upon the receipt of specified funds by the Company.
The release was based on formulas beginning with the receipt of a minimum
amount of $300,000 in capital. This agreement was cancelled in July, 1995
NOTE 18 - SUBSEQUENT EVENTS
In October, 1995, the Company executed a Letter of Intent with a private
investor which if closed, will result in the infusion of $5.0 million dollars
to the the company in exchange for 20,000,000 shares of the company's common
stock. The transaction would be governed by Section 4(2) of the Securities
Act and Rule 505 of Regulation D promulgated thereunder.
In November, 1995, the Company transferred 8,000,000 shares of its common
stock into escrow to be held until the receipt of specified
funds by the Company. This was a partial good faith transfer awaiting final
completion of the agreement.
F-17
<PAGE>
Item 401. Directors and Executive Officers, Promoters and Control Persons
Armen Sahagen has been President and Director of the Company since he
established the Company in 1985. In December, 1993 he resigned as President
and became Chief Executive Officer.
Jan Matthews joined the Company in 1987 as a Director and Vice President
of Marketing. Prior thereto, he worked in the sensor and instrumentation
market for such companies as Texas Instruments, Viatran and Schlumberger. He
served as Vice President of the Statham Division of Schlumberger. He left
that company in 1986 to establish Comat, Inc. where he was president until he
joined the Company in 1987.
Joyce Sahagen is a Director and Secretary of the Company. She was
Business Administrator for the law firm of Layman, Jones & Dye prior to
joining the Company in 1988.
Ronald D. Dyer joined the Company in 1993 as Controller and became Chief
Financial Officer in December 1993. Prior thereto, he worked primarily in
the electronics manufacturing industry for such companies as Interstate
Electronics, Microdata, Wespercorp and Rogerson Aircraft.
Ken Pinkham joined the Company in 1995 as Vice President. His prior
experience was with Gulton Servonic, Bourns Instruments and Gould Measurement
Systems.
Item 402. Executive Compensation
The following table sets forth all cash compensation paid by the Company
for services in all capacities during the fiscal year ended August 31, 1995
to the Company's chief executive officer and each of the executive officers
of the Company to whom the total cash compensation exceeded $100,000, and to
all officers and directors as a group.
Name of Individual Capacities
or Number of Group Which Compensation
Compensation Was Received Cash
Armen N. Sahagen Chief Executive Officer $ 89,369
All Officers and Directors
as a group (8 persons) $329,395
The Company does not pay fees to the Board of Directors
Item 403. Security Ownership of Certain Beneficial Owners and Management
The following table contains information at February 29, 1996 as to each
director, all officers and directors as a group and each person who, to the
knowledge of the Company, was the beneficial owner of 5% or more of the
outstanding shares of Common Stock of the Company. Unless otherwise noted,
the persons listed have sole voting and dispositive powers with respect to
the shares held in their names.
8
<PAGE>
Name of Number of Shares Percentage
Beneficial Owner Beneficially Owned (1) of Common Stock
Armen N. Sahagen (2) 6,041,038 24.8%
Joyce A. Sahagen
5881 Engineer Drive
Huntington Beach, CA 92649
Jan D. Matthews (3) 211,000 .9%
5881 Engineer Drive
Huntington Beach, CA 92649
Ron Dyer (4) 550,000 2.3%
5881 Engineer Drive
Huntington Beach, CA 92649
Ken Pinkham (5) 417,692 1.7%
5881 Engineer Drive
Huntington Beach, CA 92649
Michael Quinn (6) 833,000 3.4%
5881 Engineer Drive
Huntington Beach, CA 92649
Buck Kamphausen (7) 2,206,908 9.1%
1225 W K Street
Venecia, CA 94510
All directors and officers
as a group (8 persons) 8,097,730 33.0%
(1) Based on information furnished by such individuals
(2) Excludes 260,000 shares owned by the grown children of Mr. and Mrs.
Sahagen, as to which Mr. and Mrs. Sahagen disclaim beneficial ownership.
(3) Includes options to purchase 100,000 shares of common stock exercisable
at $.50 per share and options to purchase 100,000 shares of common stock
at $.25 per share. Does not include 11,267 shares owned by the grown
children of Mr. and Mrs. Matthews, as Mr. and Mrs. Matthews disclaim
beneficial ownership.
(4) Includes options to purchase 40,000 shares of common stock exercisable
at $.25 per share.
(5) Includes options to purchase 80,000 shares of common stock exercisable
at $.25 per share.
(6) Excludes 32,000 shares owned by the grown children of Mr. and Mrs.
Quinn, as to which Mr. and Mrs. Quinn disclaim beneficial ownership.
(7) Includes 2,206,908 shares owned by various Mortuaries, Cemeteries and
Cremation societies which are owned by SML Corporation of which Mr.
Kamphausen is President.
9
<PAGE>
Item 404. Certain Relationships and Related Transactions.
Amounts due officer/shareholder and notes payable officers/shareholders
are presented in the financial statements in Item 310. In addition, the
Company has notes payable to a shareholder which is not an officer or
director of the Company which is described in the financial statements. No
additional material items exist.
Item 405. Compliance with Section 16(a) of the Exchange Act
The Company has not been advised of any noncompliance, with respect to
any officer, director or beneficial owner of more than 10 percent of common
stock, with Section 16a of the Exchange Act. Securities counsel is currently
reviewing the status of such compliance with officers, directors and 10
percent beneficial owners of common stock during the year ended August 31,
1995.
10
<PAGE> SIGNATURE
Pursuant to the requirements 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.
SENSOTRON, INC.
By:
ARMEN N. SAHAGEN, CEO
Date: 11/13/96
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 registran
t and in the capacities and on the dates indicated.
Signature Title Date
Chief Executive Officer 11/13/96
Armen N. Sahagen
Secretary 11/13/96
Joyce A. Sahagen
Chief Financial 11/13/96
Ronald D. Dyer Officer
