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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-QSB
( X ) QUARTERLY REPORT ( ) TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998 Commission File No. 33-20015-NY
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SENTECH EAS CORPORATION
(Exact name of Registrant as specified in its charter)
FLORIDA 65-0734041
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
484 SOUTHWEST 12TH AVENUE
DEERFIELD BEACH, FLORIDA 33442-3108
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: 954-426-2965
Former name, former address and former fiscal year,
if changed since last report: SAME
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 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 __ No X
As of April 30, 1998, there were 1,640,427 shares of the common stock
outstanding.
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<PAGE>
SENTECH EAS CORPORATION
INDEX
FORM 10-QSB
THREE MONTHS ENDED MARCH 31, 1998
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statement of Shareholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 10
1
<PAGE>
SENTECH EAS CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31,
1998 DECEMBER 31,
(UNAUDITED) 1997
---------------------------
ASSETS
- ----------------------------------------------------
Current assets
Cash and cash equivalents $ 287,323 $ 475,263
Accounts receivable, net of allowances of $5,000 198,666 199,802
Inventories 642,510 531,197
Other current assets 48,568 62,150
----------- ------------
Total current assets 1,177,067 1,268,412
Property and equipment, net 47,115 50,916
Other assets 96,057 96,407
----------- ------------
$ 1,320,239 $1,415,735
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------
Current liabilities
Accounts payable $ 337,435 $ 390,759
Accrued liabilities 60,549 63,051
Current maturities of long-term debt -- 16,657
----------- ------------
Total current liabilities 397,984 470,467
----------- ------------
Long-term debt less current maturities 203,000 203,000
----------- ------------
Shareholders' equity
Common stock; $0.00024 par value;
20,833,333 authorized;
1,640,427 issued and outstanding 394 394
Additional capital 2,444,054 2,444,054
Accumulated deficit (1,725,193) (1,702,180)
----------- ------------
Total shareholders' equity 719,255 742,268
----------- ------------
$ 1,320,239 $ 1,415,735
=========== ============
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
SENTECH EAS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
1998 1997
- ----------------------------------------------- ------------- -------------
Revenues $ 685,862 $ 236,094
Cost of revenues (464,742) (155,709)
------------- -------------
Gross profit 221,120 80,385
Selling, general, and administrative expenses (245,160) (169,696)
------------- -------------
Operating loss (24,040) (89,311)
Interest expense (1,263) (2,598)
Interest income 2,290 2,702
------------- -------------
Net loss $ (23,013) $ (89,207)
============= =============
Net loss per share $ (0.01) $ (0.06)
============= =============
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
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SENTECH EAS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------- ADDITIONAL ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------- ----------- ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1997 1,640,427 $ 394 $ 2,444,054 $(1,702,180) $ 742,268
Net loss -- -- -- (23,013) (23,013)
=========== =========== =========== =========== ===========
BALANCE AT
MARCH 31, 1998 (UNAUDITED)
1,640,427 $ 394 $ 2,444,054 $(1,725,193) $ 719,255
=========== =========== =========== =========== ===========
</TABLE>
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
SENTECH EAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
1998 1997
- ----------------------------------------------- --------------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (23,013) $ (89,207)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 5,184 6,121
Net changes in operating assets and liabilities:
Accounts receivable 1,136 49,028
Inventories (111,313) (85,668)
Other current assets 13,582 16,645
Other assets 350 --
Accounts payable (53,324) (119,454)
Accrued liabilities (2,502) (8,126)
--------- ---------
Net cash used in operating activities (169,900) (230,661)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,383) --
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on note payable to bank (16,657) (14,905)
Payments on notes payable to shareholders _ (17,500)
Net proceeds from issuance of common stock _ 182,372
--------- ---------
Net cash provided by financing activities (16,657) 149,967
--------- ---------
Net increase in cash and cash equivalents (187,940) (80,694)
Cash and cash equivalents at beginning of year 475,263 567,212
--------- ---------
Cash and cash equivalents at end of year $ 287,323 $ 486,518
========= =========
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
SENTECH EAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the financial statements of
SenTech EAS Corporation and its wholly owned subsidiary, SenTech EAS
International, Inc., (collectively, the "Company"). All significant
intercompany balances and transactions have been eliminated in
consolidation.
The interim consolidated financial statements presented have been prepared
by the Company without audit and, in the opinion of the management, reflect
all adjustments of a normal recurring nature necessary for a fair statement
of (a) the results of operations for the three months ended March 31, 1998
and March 31, 1997, (b) the financial position at March 31, 1998, and (c)
the cash flows for the three month periods ended March 31, 1998 and March
31, 1997. Interim results are not necessarily indicative of results for a
full year.
The consolidated balance sheet presented as of December 31, 1997 has been
derived from the consolidated financial statements that have been audited
by the Company's independent public accountants. The consolidated financial
statements and notes are condensed as permitted by Form 10-QSB and do not
contain certain information included in the annual financial statements and
notes of the Company. The consolidated financial statements and notes
included herein should be read in conjunction with the financial statements
and notes included in the Company's Annual Report on Form 10-KSB.
2. INVENTORIES
Inventories consisted of the following:
MARCH 31,
1998 DECEMBER 31,
(UNAUDITED) 1997
----------- ------------
Raw materials $ 353,650 $ 339,015
Finished goods 288,860 192,182
----------- ----------
$ 642,510 $ 531,197
=========== ==========
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
3. NET LOSS PER SHARE
Net loss per share is calculated using the weighted average number of
common shares and dilutive potential common stock outstanding during the
year. The number of shares used in the per share computations were
1,640,427 and 1,501,438 at March 31, 1998 and 1997, respectively. Potential
common stock, when included in the computation of dilutive earnings per
share, was anti-dilutive at March 31, 1998 and 1997.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 "Earnings Per Share" and
Statement of Financial Accounting Standards No. 129 "Disclosure of
Information about Capital Structure" which are both effective for fiscal
years beginning
6
<PAGE>
after December 15, 1997. SFAS No. 128 simplifies the current required
calculation of earnings per share ("EPS") under APB No. 15, "Earnings per
Share", by replacing the existing calculation of primary EPS with a basic
EPS calculation. It requires a dual presentation for complex capital
structures of basic and diluted EPS on the face of the income statement and
requires a reconciliation of basic EPS factors to diluted EPS factors. SFAS
No. 129 requires disclosure of the Company's capital structure. There was
no material impact to the Company's financial reporting or presentation due
to the adoption of SFAS No. 128 and SFAS No. 129.
4. RECENT PRONOUNCEMENTS IN ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income,"
which is effective for fiscal years beginning after December 15, 1997. SFAS
No. 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements which requires the Company to (i) classify items of
other comprehensive income by their nature in a financial statement and
(ii) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in-capital in the
equity section of the balance sheet. There was no material impact to the
Company's financial reporting or presentation due to the adoption of SFAS
No. 130.
Also in June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131 "Disclosures about
Segments of an Enterprise and Related Information," which is effective for
fiscal years beginning after December 15, 1997. SFAS No. 131 supersedes
SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise",
and amends SFAS No. 94, "Consolidation of All Majority-Owned Subsidiaries".
SFAS No. 131 requires annual financial statements to disclose information
about products and services, geographic areas, and major customers based on
a management approach, along with interim reports. The management approach
requires disclosing financial and descriptive information about an
enterprise's reportable operating segments based on reporting information
the way management organizes the segments for making business decisions and
assessing performance. It also eliminates the requirement to disclose
additional information about subsidiaries that were not consolidated. This
new management approach may result in more information being disclosed than
presently practiced and require new interim information not previously
presented. There was no material impact to the Company's financial
reporting or presentation due to the adoption of SFAS No. 131.
5. PURCHASE AND MANUFACTURING AGREEMENT
In June 1997, the Company entered into a three year purchase and
manufacturing agreement (the "Agreement") with a company whose President
and Chief Executive Officer is a director of the Company. The Agreement
provides for the development and manufacture of the Company's third
generation EAS system. The Agreement requires the Company to pay $175,000
of non-recurring engineering costs in exchange for an assignment of fifty
percent of the joint technology as defined by the Agreement. Payments made
for non-recurring engineering are recorded at cost and are amortized as a
component of cost of revenues using the units-of-production method. As of
March 31, 1998, approximately $117,000 of non-recurring engineering costs
were capitalized of which $29,000 and $88,000 are included in other current
assets and other assets, respectively. At March 31, 1998, there were no
amortized non-recurring engineering costs included in cost of revenues. The
Agreement also requires the Company to purchase minimum quantities of the
system each year representing an aggregate purchase commitment of
$2,250,000 with annual obligations of $1,125,000 by January 1999 and
$1,125,000 by January 2000.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS
This Quarterly Report on Form 10-QSB contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. The Company's actual results
could differ materially from those set forth in the forward-looking
statements.
The following discussion should be read in conjunction with the attached
consolidated financial statements and notes thereto and with the Company's
audited financial statements and notes thereto for the fiscal year ended
December 31, 1997.
FIRST QUARTER 1998 AS COMPARED TO THE FIRST QUARTER 1997
REVENUES
Revenues were approximately $686,000 for the first quarter 1998, an
increase of $450,000 or 191% from revenues of $236,000 for the first
quarter 1997. The increase in revenues for the first quarter 1998 was
primarily attributed to sales from a new customer which generated 53% of
the Company's total revenues for the first quarter 1998. There is no
assurance of future sales from the new customer. At March 31, 1998, the
Company ended the quarter with nearly $159,000 in backlog compared to
$110,000 in backlog at March 31, 1997.
GROSS PROFIT
Gross profit was approximately $221,000 for the first quarter 1998, an
increase of $141,000 or 176% from gross profit of $80,000 for the first
quarter 1997 primarily as a result of the increase in revenues. Gross
profit margin was 32.2% for the first quarter 1998, a slight decrease from
34.0% for the first quarter 1997. The Company realizes substantially higher
gross profit margins on its manufactured products than it realizes on its
purchased products due to the proprietary nature of purchased products,
however, the current sales mix is expected to remain constant as the
Company's customer base expands.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE
Selling, general, and administrative expenses were approximately $245,000
for the first quarter 1998, an increase of $75,000 or 44% from selling,
general, and administrative expenses of $170,000 for the first quarter
1997. Overall, operating expenses remained stable during the first quarter
1998 with the exception of compensation expense and legal fees.
Compensation expense increased over $30,000 primarily as a result of an
increase of approximately $22,000 paid to new employees and $7,500 of
non-employee directors' compensation. Legal expenses increased
approximately $25,000 primarily due to the costs of litigating existing
trade claims against a competitor of the Company and the costs of increased
compliance reporting.
INTEREST EXPENSE AND INTEREST INCOME
Interest expense was approximately $1,300 for the first quarter 1998, a
decrease of $1,300 or 50% from interest expense of $2,600 for the first
quarter 1997 primarily due to the payment in full of the Company's 7.5%
note payable to bank in March 1998. Interest income for each of the first
quarters 1998 and 1997 primarily represents interest earned on cash
balances in excess of operating requirements.
8
<PAGE>
NET LOSS AND NET LOSS PER SHARE
Net loss was approximately $(23,000) for the first quarter 1998, a decrease
of $66,000 or 74% from the net loss of $(89,000) for the first quarter 1997
primarily as a result of an increase of approximately $141,000 in gross
profit offset by an increase in operating costs of over $75,000.
Net loss per share was $(0.01) at March 31, 1998, a decrease of $0.05 per
share or 83% from the net loss per share of $(0.06) at March 31, 1997
resulting from the $66,000 decrease in net loss and an increase of 138,989
weighted average number of common shares from 1,501,438 during the first
quarter 1997 to 1,640,427 during the first quarter 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's accumulated deficit was approximately $(1,725,000) and
$(1,702,000) at March 31, 1998 and 1997, respectively. Working capital
decreased approximately $19,000 from $798,000 at March 31, 1997 to $779,000
at March 31, 1998.
Net cash used in operating activities was approximately $(170,000) during
the first quarter 1998, a decrease of $61,000 from $(231,000) during the
first quarter 1997.
The Company believes the expected results of operations in 1998 will be
sufficient to fund current business operations and anticipated growth.
However, the Company believes it may need to raise additional capital
through debt or equity financing to fund its anticipated growth beyond
1998. There is no assurance that such additional financing will be
available when needed or available with terms acceptable to the Company.
SEASONALITY
The Company's revenues are substantially dependent on its customers'
seasonal retail sales. Historically, the Company has experienced higher
sales volume in the third and fourth quarters of each year.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In October 1996, the Company was named as a defendant in a lawsuit filed in
New Jersey Superior Court whereby the plaintiff is seeking damages with
respect to certain alleged invoices totaling approximately $20,000. A
motion to amend the pleadings was filed and granted to assert counterclaims
and third party claims against the plaintiff and its officers for, among
other things, false designation of origin under the federal Lanham Act,
violations of statutory and common law unfair competition, trademark and
trade dress infringement, and breach of contract all of which may result in
damages exceeding $1,000,000. The Company's counterclaim and third party
claims arose from an alleged intentional breach of a requirements type
contract in which the plaintiff was authorized to manufacture for the
Company certain equipment for sale to third parties. Although the Company
has recorded in accrued liabilities a provision of approximately $20,000
for any liability which may result from the plaintiff's claims, the Company
plans to continue to vigorously defend against the plaintiff's alleged
claims and to pursue its counterclaims and third party claims against the
plaintiff. While there is no assurance as to the outcome of this legal
action, management and legal counsel for the Company believe the ultimate
resolution of this matter will not have a material adverse effect on its
consolidated financial position or results of operations.
9
<PAGE>
ITEM 5. OTHER INFORMATION
MARKET FOR REGISTRANT'S COMMON STOCK
The Company's common stock has not commenced trading but is listed on the
National Association of Securities Dealers, Inc. ("NASD") OTC Electronic
Bulletin Board ("Bulletin Board") under the symbol "SETE". There have been
no quotes on the Company's common stock since its listing on the Bulletin
Board.
No assurance can be given that a public trading market for the Company's
common stock will develop or if developed will be sustained.
In April 1997, in connection with a private placement of the Company's
common stock under Regulation D Rule 506 of the Securities Act of 1933, as
amended, the Company consummated the sale of 343,894 units, each unit
consisting of one share of common stock and one common stock purchase
warrant. Each warrant expires after five years of issuance and entitles the
registered holder to purchase one share of common stock at a purchase price
equal to the lesser of $5.50 or ten percent above the offering price of a
share of common stock in a proposed public offering. The net proceeds
received by the Company from this offering were approximately $707,000 of
which approximately $198,000 from the sale of 88,173 units was received
during the year ended December 31, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
There were no exhibits or reports on Form 8-K filed during the three month
period ended March 31, 1998.
SIGNATURES
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 hereunto duly authorized.
SENTECH EAS CORPORATION
By: /s/ RONALD L. MEGGISON, JR.
Ronald L. Meggison, Jr.
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
Date: April 27, 1998
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> MAR-31-1998
<CASH> 287,323
<SECURITIES> 0
<RECEIVABLES> 198,666
<ALLOWANCES> 5,000
<INVENTORY> 642,510
<CURRENT-ASSETS> 1,177,067
<PP&E> 47,115
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,320,239
<CURRENT-LIABILITIES> 397,984
<BONDS> 0
<COMMON> 394
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,320,239
<SALES> 685,862
<TOTAL-REVENUES> 685,862
<CGS> 464,742
<TOTAL-COSTS> 464,742
<OTHER-EXPENSES> 245,160
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,263
<INCOME-PRETAX> (23,013)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,013)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
