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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998 Commission File No. 33-20015-NY
---------------------------
SENTECH EAS CORPORATION
(Exact name of Registrant as specified in its charter)
FLORIDA 65-0734041
(State of Incorporation) (I.R.S. Employer 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
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Not applicable None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $0.00024 PAR VALUE PER SHARE
Title of Class
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B 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-KSB or any amendment to
this Form 10-KSB. Yes X No __
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 such filing
requirements for the past 90 days. Yes X No __
The Registrant's revenues for the year ended December 31, 1998 was $2,049,856.
The aggregate market value of Common Stock held by non-affiliates of the
Registrant as of January 31, 1999 was $0.
As of January 31, 1999 there were 1,677,219 shares of the common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE0
None
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PART I
ITEM 1. BUSINESS
THE COMPANY
SenTech EAS Corporation and its wholly owned subsidiary, SenTech EAS
International, Inc., hereinafter referred to collectively as the "Company" or
"SenTech", manufactures, distributes, and services electronic article
surveillance ("EAS") systems and accessories worldwide. The Company's products
are used primarily by retailers to prevent financial losses attributed to theft
of merchandise. EAS equipment is composed of (i) a detachable or disposable
security circuit, label or other material (often referred to as a "tag" or
"target") which is attached to or placed on the article to be protected, and is
either removed upon sale of the article or, if not removed, activates a
detection system if the article is transported beyond the protected area, and
(ii) a detection system which is usually located in the exit path of the
protected area and is activated when an article, to which a tag or target is
attached, is transported beyond the protected area. EAS equipment has developed
over the last 30 years in response to problems associated with theft and
inventory control in the retail industry.
The Company's original focus was sourcing, refurbishing, marketing, installing,
and servicing EAS equipment developed by other companies in the EAS industry.
Over the past five years, the Company's business has evolved more towards
assembling, marketing, and servicing EAS equipment developed by the Company. The
Company's current strategy is to further expand its operations focusing
primarily on its own EAS equipment while continuing to refurbish, market,
install, and service EAS equipment developed and sold by other companies. The
EAS equipment developed by the Company is compatible with EAS equipment
developed by other companies allowing the Company to market its own products to
retailers who have existing compatible equipment. Therefore, the Company
believes that it is able to attract customers who desire to upgrade their
existing systems as well as those customers who desire to purchase a new system
from an alternative supplier at lower prices.
The Company was incorporated in the State of Florida in February 1990 as
"Ultimate EAS Corporation" and changed its name on several occasions. Prior to
September 1995, the Company's name was "SenTech EAS Corporation." On September
22, 1995, all of the outstanding capital stock of SenTech EAS Corporation was
acquired by Lorry Bay & Co., Inc. through the merger of its subsidiary, Lorry
Bay Capital, into SenTech EAS Corporation. The resulting entity was renamed
SenTech EAS International, Inc. Lorry Bay & Co., Inc. was then merged into a
newly formed Florida corporation, SenTech EAS Corporation whereby the ultimate
surviving entity was SenTech EAS Corporation and its wholly-owned subsidiary,
SenTech EAS International, Inc. The Company's offices are located at 484
Southwest 12th Avenue, Deerfield Beach, Florida 33442-3108, (954) 426-2965.
ELECTRONIC ARTICLE SURVEILLANCE (EAS) INDUSTRY
Three distinct technologies are utilized in the EAS industry; radio frequency
("RF") detection, electromagnetic ("EM") detection, and acousto-magnetic ("AM")
detection. The Company manufactures, distributes, and services only EAS
equipment with RF detection.
EM DETECTION SYSTEMS
EM detection systems also utilize detection monitors at exit points combined
with detectable tags. The tags for EM detection systems also take the form of
reusable hard plastic tags or adhesive tags, however, instead of containing RF
circuitry, the detectable tags are electromagnetically sensitized strips. One of
the disadvantages of utilizing EM detection systems is the systems, unlike RF
detection systems, must be installed close together in order to detect EM tags
passing out of the protected area. EM systems are primarily used in food stores,
video stores, and libraries, where store operators are not as concerned with the
visual appeal of the entrances. One of the advantages of utilizing EM detection
systems is EM detection tags, unlike RF detection tags, are not detuned or
rendered ineffective when applied to metallic surfaces.
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AM DETECTION SYSTEMS
Recently, a new acousto-magnetic technology has been developed. Products
utilizing acousto-magnetic technology are capable of covering broader areas, and
have a higher ability to detect labels and tags than standard EM detection
systems. However, systems utilizing acousto-magnetic technology, and the
required tags, are more expensive than standard EM detection systems.
RF DETECTION SYSTEMS
RF detection systems are the most prevalent in the marketplace. RF detection
systems utilize low ("LF"), high ("HF") or ultra high ("UHF" or "microwave")
frequency systems. In RF detection systems, electronic detectors, consisting of
antennas which emit radio waves of a specified frequency, are housed in
pedestals, overhead units, floor mats or other panels located at the exits of
protected areas (such as checkout counters, doorways, elevators, and escalator
locations). Tags for RF detection systems, which contain electronic circuitry
that interferes with the signal established between the detector panels, are
attached to or placed on the article to be protected.
The tags for RF detection systems take the form of either reusable hard plastic
tags or adhesive tags. Reusable hard plastic tags are attached to the
merchandise being protected usually by means of a specially designed fastener.
The reusable plastic tags can only be removed, without causing damage to the
article, by using a special decoupling device. Adhesive tags are disposable,
intended to be used only once, and are deactivated at the point of purchase by
passing the adhesive tag through a de-activation field. When an adhesive tag is
transported through the area between the detector panels, the radio interference
caused by the tag's circuitry triggers an alarm such as a flashing light, a
buzzer, or a central control point signal.
RF detection systems protect a large entrance or exit area because of their
broad scope of detection stemming from the broad range of radio waves. Although
systems using microwave frequencies (900 MHz) protect the widest entrances, the
Company's EAS equipment does not utilize microwave frequencies because the
Company believes that 8.2 MHz systems, such as those manufactured by the
Company, will be utilized in most of the future growth in the EAS industry. Tags
must be attached to merchandise upon arrival at a store or distribution center
and removed at the time of purchase. RF detection systems are most widely used
in the protection of "soft goods" (i.e., clothing, footwear), although RF tags
in the form of metallic stickers, referred to as "labels", are becoming widely
used in the protection of "hard goods" (i.e., health and beauty supplies,
electronics, books). Increasingly, there is a trend towards source tagging
whereby the manufacturer attaches the EAS tags on products before shipping the
products to retailers.
THE COMPANY'S PRODUCT LINE
The Company currently assembles, refurbishes, markets, installs, and services
the following EAS Equipment for use in the retail industry, all of which were
developed by the Company.
"X"AISLE(TM) SYSTEM
The "X"Aisle System is SenTech's newest and most powerful extended aisle Swept
RF system which was introduced during the third quarter of 1998. The "X"Aisle
System consists of a set of pedestals constructed of durable lightweight
injection molded plastic which contain the RF detection circuits with each
pedestal measuring 60.5" tall, 18.25" wide and 4" deep. The primary color
available is gray, although custom-designed colors may be offered if requested
by customers. Two pedestals are capable of protecting entrances/exits up to 8
feet wide using SenTech's new 8.2 MHz "X" Tag and up to 5.5 feet wide with a
1.5" adhesive label. Since the "X"Aisle System detects any tags with 8.2 or 9.5
MHz RF, which are commonly used frequencies, it is compatible with 8.2 or 9.5
MHz RF tags designed by the Company and its competitors. The "X"Aisle System
also uses advanced software programmable circuit design including a Digital
Signal Processor, surface mounted electronic components, self testing circuitry,
and fiber optics. Its adaptive filtering circuitry is largely immune to false
alarms and electrical interference. The electronics are designed for easy
installation by field technicians, dealers, or end users. The Company believes
the "X"Aisle System is among the most effective wide aisle EAS detection systems
currently available. The "X"Aisle System was designed by the Company and is
manufactured and assembled by a related party company (see "Product Development"
below).
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MULTITAG(TM) II SYSTEM
The MultiTag II System consists of a set of pedestals which contain RF detection
circuits. Each pedestal measures 60" tall, 12" wide and 4.25" deep and is
constructed of a solid all metal frame and composite components. The primary
color available is black although custom-designed colors may be offered if
requested by customers. The MultiTag II System is capable of protecting
entrances/exits up to six feet wide. Since the MultiTag II System detects any
tags with 8.2 or 9.5 MHz RF, which are commonly used frequencies, it is
compatible with 8.2 or 9.5 MHz RF tags designed by the Company and its
competitors. The Company believes the MultiTag II System is among the most
effective EAS detection systems currently available. The Company also believes
the MultiTag II System is less susceptible to false alarm sources than other EAS
detection systems currently available. The MultiTag II System was designed by
the Company, and its sub-assemblies are manufactured by outside sub-contractors
and are assembled by employees of the Company at the Company's facilities.
DEFENDER SYSTEM
The Defender System consists of a set of pedestals which contain RF detection
circuits. Each pedestal measures 60" tall, 12" wide and 3" deep and is
constructed of textured satin black galvanized tubular steel open-frame
construction with charcoal gray molded plastic covers. The primary color
available is black tubing with charcoal gray covers although custom-designed
colors may be offered if requested by customers. The Defender System is capable
of protecting entrances/exits up to five feet wide. Since the Defender System
detects any tags with 8.2 or 9.5 MHz RF, which are commonly used frequencies, it
is compatible with 8.2 or 9.5 MHz RF tags designed by the Company and its
competitors. The Defender System is a low-cost system intended for dealer and
domestic price competitive sales. The Company believes the Defender System is
among the highest in target detection rates of EAS detection systems currently
available. The Company also believes the Defender System is less susceptible to
false alarm sources than other EAS detection systems currently available. The
Defender System was designed by the Company, and its sub-assemblies are
manufactured by outside sub-contractors and are assembled by employees of the
Company at the Company's facilities.
SOLO SYSTEM
The Solo System, introduced during the fourth quarter of 1997, consists of a
single pedestal which contains RF detection circuits. The pedestal measures
60.5" tall, 12" wide and 3" deep and is constructed of textured satin black
galvanized tubular steel open-frame construction with charcoal gray molded
plastic covers. The primary color available is black tubing with charcoal gray
covers although custom-designed colors may be offered if requested by customers.
The Solo System is capable of protecting entrances/exits up to 9 feet wide.
Since the Solo System is available in either 2.0 or 3.25 MHz frequency allowing
for the detection of any tags with 2.0 or 3.25 MHz RF which are commonly used
frequencies, it is compatible with 2.0 and 3.25 MHz RF tags designed by the
Company and its competitors. The Company believes the Solo System is among the
most effective single pedestal EAS detection systems currently available. The
Company also believes the Solo System is less susceptible to false alarm sources
than other single pedestal EAS detection systems currently available. The Solo
System was designed by the Company, and its sub-assemblies are manufactured by
outside sub-contractors and are assembled by employees of the Company at the
Company's facilities.
DEACTIVATION PAD
The deactivation pad is an instrument that permanently deactivates any 8.2 MHz
RF disposable label. Disposable tags are adhesive labels that are attached to
the merchandise and often disguised as a simulated bar code or as a
point-of-purchase advertising message. The deactivation pad electronically
deactivates the RF circuitry contained within the disposable tag. The
deactivation pad was designed by the Company, and its sub-assemblies are
manufactured by outside sub-contractors and are assembled by employees of the
Company at the Company's facilities. The deactivation pad contains all necessary
electronics and does not need to be "slaved" together with other components like
most EAS deactivation equipment. The deactivation pad is a 10.5" by 10.5" square
pad consisting of a black plastic chassis with a solid black metal base.
Multiple deactivation pads may be used together without causing interference
with the RF circuitry unlike most other deactivators available in the EAS
industry.
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MAGNETIC DETACHERS
Magnetic Detachers are instruments used to remove reusable hard tags that
contain RF circuitry from the merchandise to which they are attached. A magnetic
lock releases the pins contained within the reusable hard tags. The Company
offers two types of magnetic detachers; (i) the Table Top Detacher, and (ii) the
Surface Mount Detacher. Both magnetic detachers were designed by the Company,
and their sub-assemblies are manufactured by outside sub-contractors and
assembled by employees of the Company at the Company's facilities. The Table Top
Detacher measures 5" in diameter, is constructed of a durable scratch-resistant
finish, and is designed to be secured to a counter-top using a security lanyard.
The Surface Mount Detacher measures 2.5" or 3" in diameter and is designed to be
permanently attached to a surface such as a counter-top. The magnetic detachers
are compatible with tags that are designed by the Company and its competitors.
THIRD PARTY PRODUCT LINES
The Company currently sells the following EAS equipment which were developed by
other companies in the EAS Industry but are made to the Company's
specifications.
"X" TAG
The "X" Tag is a durable lightweight 8.2 MHz Swept RF tag to be used with
SenTech's newest and most powerful extended aisle Swept RF system, the "X"Aisle
System, which was introduced during the third quarter of 1998. The "X" Tag is
beige and is compatible with all 8.2 MHz RF systems and most ink tags.
MINI SOLO TAG
The Mini Solo Tag, introduced during the fourth quarter of 1997, is a durable
lightweight 2.0 or 3.25 MHz RF tag which is used with SenTech's Solo System. The
Mini Solo Tag is light gray or beige and is compatible with all 2.0 or 3.25 MHz
RF systems and most ink tags.
INK TAGS
Introduced during 1998, the SenTech Ink Tag contains two vials of ink on the
head of the tag which breaks and disperses permanent ink onto the item to which
it is attached if improperly removed. This feature provides an extra level of
deterrence against shoplifting by adding the threat of permanent garment damage
if the tag is improperly or forcibly removed. The SenTech Ink Tag may be used
together with an EAS hard tag or with a locking clutch.
OMNI TAG/MINI TAG
The Omni Tags and Mini Tags are reusable hard tags constructed of strong
lightweight plastic. The Omni Tag is a 2.75" by 2.25" rectangular tag and the
Mini Tag is a 1.875" by 1.625" rectangular tag, both of which contain 8.2 MHz RF
circuitry. Both tags are available in black, beige, or custom-designed colors.
If either tag passes between an RF detection system an alarm is triggered. The
tags are attached to merchandise using special fasteners prior to the
merchandise being placed on the sales floor and are detached at the point of
purchase using a magnetic detacher. Removal of the tags without the magnetic
detacher will damage the protected merchandise. The Omni Tag and the Mini Tag
are compatible with 8.2 MHz RF detection systems.
SENTAG
The SenTag is a reusable hard tag constructed of strong lightweight beige
polypropylene plastic. The SenTag is a 2.735" by 1.165" by 0.695" rectangular
tag containing microwave frequency circuitry. The SenTag is attached to
merchandise using special fasteners prior to the merchandise being placed on the
sales floor and is detached at the point of purchase using a special detacher.
Removal of the tags without the special detacher will damage the protected
merchandise. The SenTag is compatible with most microwave detection systems.
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LANYARDS
Lanyards are used in conjunction with any type of tag. It allows for the tagging
of hard good items which have closed loop openings such as handbags, luggage and
tennis rackets.
PINS
Several styles of pins are available for use with various types of reusable hard
tags.
PRODUCT DEVELOPMENT
The Company maintains an on-going effort to develop new EAS equipment. The
Company recently developed and marketed an ultra-light reusable hard tag, the
SenTag, described above, and introduced the SenTech Ink Tag during 1998. The
Company believes the SenTag and the Ink Tag, which are both manufactured by
non-affiliated companies, are well received by retailers who demand contemporary
styled reusable hard tags.
During the fourth quarter of 1997, the Company also developed and marketed the
Solo System, described above, which has been well received in the marketplace.
The Company believes the Solo System is among the most effective single pedestal
EAS detection systems currently available.
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, Thomas A. Nicolette, is a director of the Company. The Agreement
provides for the development and manufacture of the Company's third generation
EAS system, the "X"Aisle System, and the electronic printed circuit boards for
the MultiTag II System and the Defender System. Currently, the electronic
printed circuit boards for the MultiTag II System and the Defender System are
designed and manufactured by a competitor of the Company. The Agreement requires
the Company to pay for non-recurring engineering costs in exchange for an
assignment of fifty percent of the joint technology as defined by the Agreement
and requires the Company to purchase minimum quantities of the system each year.
Management believes that any new EAS equipment it develops, combined with the
Company's existing equipment, customer and market base, may provide the Company
with the potential for significant growth. Historically, the Company's research
and development expenses have been immaterial relative to the Company's
operations.
ASSEMBLY AND MANUFACTURING OPERATIONS
The Company's manufacturing operations consist primarily of the procurement of
component parts and the assembly of finished products at the Company's leased
facility in Deerfield Beach, Florida. Most of the EAS equipment developed by the
Company consists of component parts manufactured for the Company or purchased
from third parties. The Company does not maintain an extensive finished goods
inventory since the Company believes it is able to obtain required component
parts, assemble, and ship its product within competitive lead times acceptable
to its customers. The Company subcontracts with local vendors to assemble
printed circuit boards, and machine, mold, and finish various component parts.
The Company anticipates it will continue to rely primarily on such third party
manufacturers and vendors in order to minimize overhead. The Company minimizes
dependence on any one supplier by maintaining sufficient alternatives for its
raw materials and finished goods requirements.
REFURBISHING OPERATIONS
The Company acquires and refurbishes existing products developed by its major
competitors primarily from customers who are upgrading or changing their current
detection systems and from liquidation and foreclosure sales. All of the
Company's refurbishing activities, including the inspection and testing of the
refurbished product, are performed by employees of the Company at the Company's
leased facility in Deerfield Beach, Florida.
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INSTALLATION AND CUSTOMER SERVICE
The Company usually provides one-year warranties on all its products covering
both parts and labor and offers optional extended warranties which may be
purchased by customers. In July 1995, the Company entered into a service
agreement effective August 1995 with a national service organization, whose
President and Chief Executive Officer, Thomas A. Nicolette, is a director of the
Company, which provides for the installation and servicing of any 8.2 MHz EAS
system. The national service organization has 31 service centers throughout the
United States and is capable of providing service on a national level. Any EAS
systems not covered by the agreement are handled by the Company's service
personnel or other third party service providers. The agreement is for a
one-year term and is automatically renewable for one-year periods unless
terminated in writing by either party. The Company has not received any
termination notices and believes its relationship with the service provider is
favorable. Although there can be no assurance the agreement will not be
terminated or will be renewed in the future, the Company anticipates the
agreement will automatically be renewed through August 2000.
MARKETS AND MARKETING STRATEGY
The Company markets and sells EAS equipment in the United States and abroad
through an internal sales force of four individuals and Company management. The
Company's current regional sales representatives primarily cover the Eastern
United States. The Company is in the process of recruiting a national sales
force to expand its coverage of the United States market. Domestic dealer and
foreign distributor sales are conducted primarily by internal sales people.
Management markets EAS equipment through a direct-calling program in addition to
attending trade shows, advertising in trade publications, a direct-mailing
program, and internet advertising.
There were no material concentrations of sales or accounts receivable outside
the United States during December 31, 1998 and 1997.
The Company's sales and marketing efforts are focused on retailers who do not
yet utilize EAS equipment as well as retailers who presently utilize EAS
equipment developed by the Company's major competitors and are seeking an
alternative supplier of EAS equipment offering lower prices with more
personalized service. Since the Company refurbishes, markets, and services EAS
equipment developed and sold by other companies, and its own products are
compatible with such other products, the Company believes it is able to compete
for many of the needs of retailers presently utilizing EAS equipment.
The Company's sales and marketing efforts include a "Try Buy" program under
which the Company installs its EAS equipment in a retailer's store for a trial
period at a minimal cost that covers only the Company's cost of labor to install
and monitor such equipment. The trial period lasts for approximately 60-90 days,
after which the retailer decides whether or not to purchase the equipment. If
the retailer chooses not to purchase the Company's EAS equipment, the equipment
is removed from the location without any further obligation. Since the
introduction of this program, most of the trials have resulted in the retailers'
purchase of the Company's equipment.
With respect to EAS equipment developed by other companies, the Company
purchases such equipment from third party manufacturers and distributors in the
United States and abroad and resells such EAS equipment at discounted rates. The
Company is able to purchase such equipment from third parties at favorable rates
based upon its relationship with such third parties.
BACKLOG
At December 31, 1998, the Company ended the year with over $28,000 in backlog of
sales orders compared to $326,000 in backlog at December 31, 1997. The Company
expects the entire backlog of sales orders at the end of 1998 to be shipped
prior to the end of the first quarter of 1999. The amount of backlog at any time
during the year is not necessarily indicative of the volume of business for the
upcoming year. 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.
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EMPLOYEES
The Company currently has 8 full time employees and one part time employee, none
of who have entered into employment agreements with the Company nor are
represented by a labor union. From time to time, the Company hires temporary
personnel to accommodate special requirements for larger projects. The Company
does not have key-man life insurance on any of its employees.
COMPETITION
The Company competes in the EAS industry with several companies. Many of these
companies are larger and better known and have significantly greater financial,
technological, manufacturing and marketing resources than the Company. The
Company's principal competitors are Sensormatic Electronics Corporation
("Sensormatic"), Checkpoint Systems, Inc. ("Checkpoint"), Sentry Technology
Corporation ("Sentry"), and a number of smaller companies. Although the Company
believes it has strived to compete effectively in the past by offering
innovative products and competitive prices, no assurance can be given that the
Company will be capable of effectively competing successfully in the future, or
that the Company will be successful in maintaining or expanding its share of the
market for its products. No assurance can be given the products or technologies
that may be developed and introduced by competitors will not render the
Company's products less competitive or obsolete. The Company remains competitive
in the EAS industry because the equipment developed by the Company is compatible
with EAS equipment developed by other companies. In addition, the Company
purchases EAS equipment developed by other companies from third party
manufacturers and distributors at favorable rates and resells such equipment at
discounted prices.
GOVERNMENT REGULATION
The EAS Industry is subject to extensive regulation by various federal and state
regulatory agencies including the Federal Communications Commission (the "FCC").
Any equipment manufactured by other companies that is refurbished and resold by
the Company has received the required approvals from the FCC. The Company
intends to submit applications for approval by the FCC of equipment invented and
developed by the Company. There can be no assurance that the Company will obtain
the requisite approvals, and the failure to obtain such approvals could have a
materially adverse effect upon the Company's business.
From time to time, legislation and regulations that could potentially affect the
Company, either beneficially or adversely, have been proposed by federal and
state legislators and regulators. Management is not aware of any currently
pending or proposed legislation or regulations which would have a materially
adverse impact on the Company's operations if adopted. There can be no assurance
that the FCC or various state regulators will not adopt regulations or take
other actions that would materially adversely affect the business of the
Company.
ABSENCE OF PATENT PROTECTION
The Company does not currently have patent protection on most of its products.
Its ability to compete effectively with other companies will depend, in part, on
its ability to maintain the proprietary nature of its products. The Company may
apply for patent protection on future products it develops, however, there can
be no assurance that it will be successful in obtaining such patents or, if
obtained, that such patents will afford the Company sufficient protection. The
Company intends to rely substantially on unpatented proprietary information and
technological know-how, and there can be no assurance that others will not
develop such information and know-how independently or otherwise obtain access
to its technology. Also, it is not certain that the Company's proprietary
technology will not infringe patents or other rights owned by others. In the
event that patent infringement claims are brought against the Company, the
Company may be forced to obtain a license for such technology, and there can be
no assurance that it will be successful in obtaining such licenses. In the event
that the Company contests an infringement claim, it may divert the Company's
resources from other purposes.
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TECHNOLOGICAL OBSOLESCENCE OR FAILURE AND UNCERTAIN MARKET ACCEPTANCE OF FUTURE
PRODUCTS
The markets served by the Company are to a certain extent characterized by
technological advances, changes in customer requirements, and occasional new
product introductions and enhancements. The Company's business may require, at
times, ongoing research and development efforts and expenditures, and its future
success may depend on its ability to enhance its current products and develop
and introduce new products which keep pace with technological developments in
response to evolving customer requirements. There can be no assurance the
Company's failure to anticipate or respond adequately to technological
developments and changing customer requirements, or the occurrence of
significant delays in new product development or introduction, or the
technological failures of its products or the systems in which they are
incorporated, would not result in a material loss of anticipated future revenues
and seriously impair the Company's competitiveness. In addition, the Company may
misgauge market needs and introduce products which fail to gain the necessary
market acceptance for whatever reason. Hence, it is also uncertain whether new
products or enhancements of existing products can be successfully marketed and
sold by the Company.
ITEM 2. PROPERTIES
The Company's offices, warehouse, and distribution center are located in 6,300
square feet of leased facilities in Deerfield Beach, Florida of which
approximately 3,600 square feet are used for offices. Through the end of the
lease term on January 31, 2000, the lease provides for payments of approximately
$5,000 per month including sales tax and common area maintenance expenses. The
Company believes these facilities are adequate to accommodate operations through
the end of the lease term.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions arising in the
ordinary course of business. Although the Company is unable to predict the
ultimate disposition of these matters, the Company does not believe the
resolution of such matters will have a material adverse effect on its
consolidated financial position, results of operations, or liquidity.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held on April 30, 1998.
The election of directors and the ratification of the appointment of the
Company's independent certified public accountants were the only matters
submitted to a vote of security holders. All five of the Company's incumbent
directors were re-elected for the ensuing year which are Edward A. Mulhare,
Thomas A. Nicolette, Saul Pozensky, Milan Resanovich, and Richard J. Spagna. The
re-appointment of Spear, Safer, Harmon & Co. as the Company's independent
certified public accountants for the ensuing year was ratified.
-8-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
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.
In June 1998 and October 1997, respectively, the Company issued 30,000 and
97,500 shares of the Company's common stock pursuant to directors' and officers'
compensation agreements.
The Company has never paid a cash dividend on its common stock since its
inception nor does it anticipate paying any cash dividends in the near future.
The Company intends to retain any future earnings to finance the operations of
the Company.
At January 31, 1999, the Company had approximately 110 registered holders of
record.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS
Except for historical information contained herein, certain matters discussed
herein are forward looking statements made pursuant to the safe harbor
provisions of the Securities Litigation Reform Act of 1995. These forward
looking statements are generally based on the Company's expectations and are
subject to certain risks and uncertainties, including but not limited to;
economic, competitive, regulatory, growth strategies, available financing, and
other factors discussed elsewhere in this Form 10-KSB and other documents filed
by the Company with the SEC. The associated risks and uncertainties could cause
actual results to differ materially from historical results or the Company's
expectations. In light of these risks and uncertainties, there can be no
assurance the forward looking statements contained in this Form will occur. The
Company undertakes no obligation to publicly update or revise any forward
looking statements resulting from future events, new information, or from any
other circumstances.
YEAR ENDED DECEMBER 31, 1998 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
REVENUES
Revenues were approximately $2,050,000 for the year ended December 31, 1998, a
decrease of nearly $346,000 or 14% from revenues of $2,396,000 for the year
ended December 31, 1997. The decrease in revenues for the year ended December
31, 1998 was primarily attributed to the decrease in sales from a significant
customer which generated 20% and 35% of the Company's total revenues for the
years ended December 31, 1998 and 1997, respectively. The Company does not
expect significant revenues from the customer during 1999, and there is no
assurance of any future revenues from the significant customer. Excluding
revenues from significant customers, 1998 revenues increased more than 5% from
revenues in 1997 although the Company's customer base remained relatively
constant during 1998. The Company expects revenues to increase during 1999
primarily as a result of the Company's planned merger, the
-9-
<PAGE>
increase in the Company's sales and marketing team, and the results of the
introduction of new products during 1998. The Company's planned merger with a
U.S. company with operations and facilities in Brazil will promote the Company's
expansion into South America while the increase in the Company's sales and
marketing team will facilitate the Company's expansion in North America (see
"Agreement and Plan of Merger" at Item 11 below).
GROSS PROFIT
Gross profit was approximately $822,000 for the year ended December 31, 1998, an
increase of over $38,000 or 5% from gross profit of $784,000 for the year ended
December 31, 1997 primarily as a result of the sales mix of products sold and a
combination of lower product costs and higher unit sales prices. Gross profit
margin was 40% for the year ended December 31, 1998, an increase from 33% for
the year ended December 31, 1997. Gross profit margins are expected to remain
fairly constant in the near term due to the ongoing maintenance of the Company's
new cost control management program and new pricing structure. 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 nearly $811,000 for the year
ended December 31, 1998, a decrease of over $35,000 or 4% from selling, general,
and administrative expenses of $846,000 for the year ended December 31, 1997.
Overall, operating expenses remained stable during 1998. Despite changes and
reductions in Company personnel, overall compensation expense remained fairly
constant including the payment of $30,000 of non-employee directors' cash
compensation plus $3,000 of common stock granted to the Company's officers and
board of directors during 1998 compared to $34,125 of common stock granted to
the Company's officers and board of directors during 1997. Professional fees
were unchanged at approximately $105,000 for both 1998 and 1997. Selling,
general, and administrative expenses are expected to moderately increase over
the next year relative to the expected increase in revenues primarily as a
result of the Company's planned merger and the increased costs of marketing as
the Company continues to expand its customer base.
INTEREST EXPENSE AND INTEREST INCOME
Interest expense was approximately $4,500 for the year ended December 31, 1998,
a decrease of over $4,500 or 50% from interest expense of $9,000 for the year
ended December 31, 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 years
ended December 31, 1998 and 1997 primarily represents interest earned on cash
balances in excess of operating requirements.
NET INCOME/(LOSS) AND NET INCOME/(LOSS) PER SHARE
Net income was approximately $14,000 for the year ended December 31, 1998, an
increase of over $69,000 or 125% from the net loss of $(55,000) for the year
ended December 31, 1997 primarily as a result of an increase of approximately
$38,000 in gross profit plus a decrease in operating costs of over $31,000 net
of interest expense and interest income.
Net income per share was $0.01 at December 31, 1998, an increase of $0.05 per
share or 125% from the net loss per share of $(0.04) at December 31, 1997
resulting from the $69,000 increase in net income offset by an increase of
105,246 weighted average number of common shares from 1,556,564 during 1997 to
1,661,810 during 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's accumulated deficit was approximately $(1,688,000) and
$(1,702,000) at December 31, 1998 and 1997, respectively. Working capital was
stable with approximately $784,000 and $798,000 at December 31, 1998 and 1997,
respectively.
-10-
<PAGE>
Net cash used in operating activities was approximately $(150,000) in 1998, a
decrease of $(52,000) from $(202,000) in 1997 primarily as a result of operating
efficiencies and payment of the Company's liabilities. The Company believes its
working capital plus the expected results of operations in 1999 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 1999. In connection with
the planned merger, the Company is actively seeking various sources of capital.
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.
YEAR 2000 ISSUE
Computer programs used by businesses worldwide were written using two digits
rather than four digits to define the applicable year. Accordingly, these
programs recognize the dates "00" and "01" as the years 1900 and 1901 rather
than the years 2000 and 2001. The Company recognizes the need to ensure its
operations will not be adversely impacted by year 2000 computer program failures
arising from program processes and calculations misinterpreting the year 2000
date. The Company is currently evaluating its financial and operational systems
to determine the impact the year 2000 issue will have on its operations. The
Company also plans to communicate with its significant suppliers, dealers,
financial institutions, and others with which it conducts business to determine
the extent the Company may be impacted by third parties' failure to address the
year 2000 issue. Although the Company plans to be year 2000 compliant prior to
December 31, 1999 and expects no material impact to the Company's operations,
there can be no assurance that the failure of the Company or such third parties
to successfully address their respective year 2000 issues will not have a
material adverse effect on the Company's business, financial condition, cash
flows, and result of operations.
ITEM 7. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Index to Consolidated Financial Statements
<S> <C>
Independent Auditors' Report ...................................................................... 12
Consolidated Balance Sheets at December 31, 1998 and 1997 ......................................... 13
Consolidated Statements of Operations for the years ended December 31, 1998 and 1997 .............. 14
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1998 and 1997 .... 15
Consolidated Statements of Cash Flows for the years ended December 31, 1998 and 1997 .............. 16
Notes to Consolidated Financial Statements ........................................................ 17-25
</TABLE>
Consolidated Financial Statement schedules have been omitted because they are
not applicable or the required information is shown in the Consolidated
Financial Statements or the notes thereto.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
SenTech EAS Corporation and Subsidiary
Deerfield Beach, Florida
We have audited the accompanying consolidated balance sheets of SenTech EAS
Corporation and Subsidiary as of December 31, 1998 and 1997, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated 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 consolidated financial position of SenTech
EAS Corporation and Subsidiary, as of December 31, 1998 and 1997, and the
consolidated results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
/S/ SPEAR, SAFER, HARMON & CO.
Miami, Florida
January 29, 1999
<PAGE>
SENTECH EAS CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
-------------------------------------------
ASSETS
- ---------------------------------------------------------------
Current assets
<S> <C> <C>
Cash and cash equivalents $ 305,307 $ 475,263
Accounts receivable, net of allowances of $5,000 110,576 199,802
Inventories 478,886 531,197
Other current assets 54,847 62,150
--------------------- --------------------
Total current assets 949,616 1,268,412
Property and equipment, net 33,450 50,916
Other assets 161,570 96,407
--------------------- --------------------
$ 1,144,636 $ 1,415,735
===================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------
Current liabilities
Accounts payable $ 110,090 $ 390,759
Accrued liabilities 55,814 63,051
Current maturities of long-term debt 16,657
--
--------------------- --------------------
Total current liabilities 165,904 470,467
--------------------- --------------------
Long-term debt less current maturities 203,000 203,000
--------------------- --------------------
Shareholders' equity
Common stock; $0.00024 par value; 20,833,333 authorized;
1,677,219 and 1,640,427 issued and outstanding 403 394
Additional capital 2,463,182 2,444,054
Accumulated deficit (1,687,853) (1,702,180)
--------------------- --------------------
Total shareholders' equity 775,732 742,268
--------------------- --------------------
$ 1,144,636 $ 1,415,735
===================== ====================
</TABLE>
- ----------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-13-
<PAGE>
SENTECH EAS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1998 1997
- ----------------------------------------------------------------- ------------------ --------------------
<S> <C> <C>
Revenues $ 2,049,856 $ 2,395,844
Cost of revenues (1,227,780) (1,611,975)
------------------ --------------------
Gross profit 822,076 783,869
Selling, general, and administrative expenses (810,967) (846,212)
------------------ --------------------
Operating income/(loss) 11,109 (62,343)
Interest expense (4,458) (8,975)
Interest income 7,676 15,993
------------------ --------------------
Income/(loss) before provision for income taxes 14,327 (55,325)
Provision for income taxes -- --
================== ====================
Net income/(loss) $ 14,327 $ (55,325)
================== ====================
Earnings/(loss) per common share-Basic $ 0.01 $ (0.04)
================== ====================
</TABLE>
- -----------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-14-
<PAGE>
SENTECH EAS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL ACCUMULATED
-----------------------------
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------------- -------------- ----------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 1,452,952 349 2,208,283 (1,646,855) 561,777
Conversion of debt interest 1,802 1 4,324 -- 4,325
Issued pursuant to compensation arrangements
97,500 23 34,102 -- 34,125
Issued pursuant to private offering, net 88,173 21 197,345 -- 197,366
Net loss -- -- -- (55,325) (55,325)
------------- -------------- ----------------- ------------------ ---------------
BALANCE AT DECEMBER 31, 1997 1,640,427 $ 394 $ 2,444,054 $ (1,702,180) $ 742,268
Conversion of debt interest 891 1 2,137 -- 2,138
Issued in lieu of payment for professional
services 5,901 1 13,999 -- 14,000
Issued pursuant to compensation arrangements
30,000 7 2,993 -- 3,000
Net income -- -- -- 14,327 14,327
------------- -------------- ----------------- ------------------ ---------------
BALANCE AT DECEMBER 31, 1998 1,677,219 $ 403 $ 2,463,182 $ (1,687,853) $ 775,732
============= ============== ================= ================== ===============
</TABLE>
- ----------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-15-
<PAGE>
SENTECH EAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1998 1997
- ---------------------------------------------------------------------------------------- --------------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income/(loss) $ 14,327 $ (55,325)
Adjustments to reconcile net income/(loss) to net cash used in operating activities:
Depreciation and amortization 23,658 25,163
Loss on disposal of equipment _ _
Provision for losses on accounts receivable _ _
Debt interest converted to common stock 2,138 4,325
Stock issued in lieu of payment for professional services 14,000 _
Stock based compensation 3,000 34,125
Net changes in operating assets and liabilities:
Accounts receivable 89,226 (13,799)
Inventories 52,311 (133,370)
Other current assets 7,303 (20,117)
Other assets (68,085) (87,066)
Accounts payable (280,669) 18,373
Accrued liabilities (7,238) 26,188
--------------------- ------------------
Net cash used in operating activities (150,029) (201,503)
--------------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,270) (8,998)
--------------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on note payable to bank (16,657) (61,314)
Payments on notes payable to shareholders _ (17,500)
Net proceeds from issuance of common stock _ 197,366
--------------------- ------------------
Net cash (used in) provided by financing activities (16,657) 118,552
--------------------- ------------------
Net decrease in cash and cash equivalents (169,956) (91,949)
Cash and cash equivalents at beginning of year 475,263 567,212
--------------------- ------------------
Cash and cash equivalents at end of year $ 305,307 $ 475,263
===================== ==================
</TABLE>
- --------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-16-
<PAGE>
SENTECH EAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
SenTech EAS Corporation manufactures, distributes, and services electronic
article surveillance (EAS) systems and accessories worldwide used primarily
by retailers to prevent financial losses attributed to theft of
merchandise.
PRINCIPLES OF CONSOLIDATION
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.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements, the Company considers all
highly liquid debt instruments with original maturities of three months or
less to be cash equivalents. Cash in excess of operating requirements is
invested in short term income producing instruments with stable, high
quality financial institutions which may exceed insurable limits. The book
value of the Company's investments approximates fair value because of the
short maturity of these instruments.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives
of the assets or the lease term ranging from three to eight years.
REVENUE RECOGNITION
Revenue from sales of systems and accessories is recognized upon shipment
of the equipment or upon acceptance by a third party leasing company of an
operating lease and the related equipment. Revenue from services are
recognized as earned, and maintenance revenues are recognized ratably over
the term of the maintenance contract.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement assets
and liabilities and their respective tax bases including operating losses
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 differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates
is recognized as income in the period which includes the tax enactment
date. A valuation allowance is recorded to reduce deferred tax assets when
realization of a tax benefit is unlikely.
EARNINGS/(LOSS) PER COMMON SHARE-BASIC
Earnings/(loss) per common share-basic 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 1,661,810 and 1,556,564 at December 31, 1998 and 1997,
-17-
<PAGE>
SENTECH EAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
respectively. Potential common stock, when included in the computation of
dilutive earnings per share, was anti-dilutive at December 31, 1998 and
1997.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
IMPAIRMENT
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and For Long-Lived Assets to Be Disposed Of", the Company
reviews long-lived assets and related goodwill for impairment on an
exception basis whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be fully recoverable through
future cash flows. If this review indicates that the assets and related
goodwill will not be recoverable, as generally determined based on
estimated undiscounted cash flows over the remaining amortization period,
the carrying amount would be adjusted to fair value and any loss will be
recognized in the statement of operations and certain disclosures regarding
the impairment will be disclosed in the notes to financial statements. At
December 31, 1998 and 1997, the Company believes no material impairments
existed.
RECENT PRONOUNCEMENTS IN ACCOUNTING STANDARDS
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 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 EPS
calculation or financial statement presentation and disclosure due to the
adoption of SFAS No. 128 and SFAS No. 129.
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
-18-
<PAGE>
SENTECH EAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132 "Employers' Disclosures About
Pensions and Other Postretirement Benefits-an amendment of FASB Statements
No. 87, 88, and 106" which is effective for fiscal years beginning after
December 15, 1997. SFAS No. 132 revises only the employers' disclosures
about pension and other postretirement benefit plans; it does not change
the measurement or recognition of such plans. Since the Company does not
have such plans, there is no impact to the Company's financial reporting or
presentation due to the adoption of SFAS No. 132.
2. INVENTORIES
Inventories consisted of the following at December 31, :
1998 1997
-------------- --------------
Raw materials $ 249,129 $ 339,015
Finished goods 229,757 192,182
-------------- --------------
$ 478,886 $ 531,197
============== ==============
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31,:
1998 1997
-------------- --------------
Furniture, fixtures and office equipment $ 95,707 $ 94,324
Machinery and equipment 87,850 85,963
Leasehold improvements 5,250 5,250
-------------- --------------
188,807 185,537
Accumulated depreciation and amortization (155,357) (134,621)
-------------- --------------
$ 33,450 $ 50,916
============== ==============
Depreciation expense for the years ended December 31, 1998 and 1997, was
approximately $20,000 and $24,000, respectively.
4. OTHER ASSETS
Other assets consisted of the following at December 31,:
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
Non-recurring engineering costs $156,000 $ 87,500
Accumulated amortization of non-recurring engineering costs (2,922) --
Deposits 8,492 8,907
-------------- --------------
$ 161,570 $ 96,407
============== ==============
</TABLE>
-19-
<PAGE>
SENTECH EAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. LONG-TERM DEBT
Long-term debt consisted of the following at December 31,:
1998 1997
-------------- --------------
7.5% note payable to bank $ -- $ 16,657
8% mandatory convertible notes 53,000 53,000
6% senior notes payable 150,000 150,000
-------------- --------------
203,000 219,657
Current maturities of long-term debt _ (16,657)
-------------- --------------
$ 203,000 $ 203,000
============== ==============
NOTE PAYABLE TO BANK
In March 1998, the Company paid in full the balance of a $225,000 four year loan
agreement bearing interest at 7.5% with its principal lending bank. The note was
collateralized by substantially all the assets of the Company and contained
certain restrictive covenants. Principal and interest payments of $5,429 were
paid monthly through March 1998.
MANDATORY CONVERTIBLE NOTES
Through December 1994, the Company issued 8% Mandatory Convertible Notes
totaling in the aggregate $932,250 due June 1997 of which $226,000 of the notes
were issued to related parties. Upon an event resulting in the Company's common
stock being publicly held as defined by the note, the notes provide for
mandatory conversion at the rate of one share of common stock for each $3.49 of
outstanding amount of principal and accrued interest. Interest at 8% is payable
annually in arrears.
During 1995, $816,250 of the convertible notes plus $125,642 accrued interest
were converted into common stock.
In June 1996, the Company tendered an offer to the holders of the convertible
notes a one time reduced conversion rate of $1.35 to induce note holders to
convert their notes to shares of the Company's common stock. Accordingly, during
1996, $63,000 of the notes plus $19,492 accrued interest were converted to
58,381 shares of the Company's common stock.
The maturity date for the remaining $53,000 of the convertible notes was
extended to January 2001 in exchange for warrants to purchase 5,000 shares of
common stock at $2.40 per share. The warrants were issued during 1998 and 1997.
SENIOR NOTES PAYABLE
In May 1995, the Company issued to two directors of the Company 6% Senior Notes
totaling in the aggregate $330,000 due June 1997 with detachable warrants to
purchase 137,500 common stock shares expiring June 30, 1999. Interest at 6% is
payable annually in arrears subject to certain net income requirements.
In June 1996, the Company tendered an offer to the holders of the senior notes a
one time reduced conversion rate of $1.35 to induce note holders to convert
their notes to shares of the Company's common stock. Accordingly, during 1996,
one holder of $180,000 of the senior notes tendered the full amount in \
-20-
<PAGE>
SENTECH EAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
payment of the exercise price of the detachable warrant and received 133,333
shares of the Company's common stock.
The maturity date for the remaining $150,000 of the senior notes was extended to
January 2001 in exchange for warrants to purchase 20,000 shares of common stock
at $2.40 per share. The warrants were issued during 1998 and 1997.
No interest was paid or payable on the senior notes during 1998 and 1997.
The total long-term debt of $203,000 matures in 2001.
6. SHAREHOLDERS' EQUITY
In April 1997, pursuant to an underwritten private offering, 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 $706,620 of which $509,254 was received in
December 1996. The proceeds were used for working capital purposes and
payment of the balance due under a stock purchase agreement pursuant to
which the Company repurchased shares of common stock held by a former
employee during 1996.
In June 1998 and October 1997, the Company issued 30,000 and 97,500 shares
of the Company's common stock pursuant to directors' and officers'
compensation arrangements, respectively. The Company has accounted for the
issuance of the shares of the Company's common stock to the Company's
directors and officers in accordance with Statement of Financial Accounting
Standards No. 123 "Accounting for Stock-Based Compensation". Accordingly,
the Company included in the consolidated statement of operations
approximately $3,000 and $34,000 of compensation expense during 1998 and
1997, respectively. For purposes of recording compensation expense related
to the Company's directors' and officers' stock based compensation, each
share of stock was valued using the net tangible book value per share.
7. STOCK OPTIONS AND WARRANTS
The following schedule summarizes stock warrant activity and status:
<TABLE>
<CAPTION>
1998 1997
-------------------- ------------------
<S> <C> <C>
Outstanding at beginning of year 879,680 749,007
Issued pursuant to private offering - 88,173
Issued pursuant to compensation arrangements - 30,000
Issued to related parties 12,500 12,500
Exercised - -
Expired - -
==================== ==================
Outstanding at end of year 892,180 879,680
==================== ==================
Price range of warrants outstanding at end of year $1.92 to 5.50 $1.92 to 5.50
Price range of warrants exercised during the year - -
Weighted average exercise price of currently exercisable warrants $4.58 $4.60
Weighted average exercise price of exercisable warrants outstanding $4.58 $4.60
</TABLE>
-21-
<PAGE>
SENTECH EAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INCOME TAXES
At December 31, 1998, the Company had net operating loss carryforwards for
income tax purposes of approximately $1,600,000 which may be available to
offset future taxable income, if any, through 2012.
Deferred tax liabilities (assets) consisted of the following at December
31,:
1998 1997
--------------- ---------------
Net operating loss carryforwards $(540,000) $(543,000)
Valuation allowance 540,000 543,000
--------------- ---------------
- -
=============== ===============
As of December 31, 1998, there was a decrease of approximately $3,000 in the
valuation allowance as a result of the utilization of previous net operating
loss carryforwards used to offset 1998 taxable income.
A reconciliation of the statutory income tax rate with the Company's
effective income tax rate follows:
<TABLE>
<CAPTION>
1998 1997
---------------- ---------------
<S> <C> <C>
Statutory federal income tax rate 34.0% 34.0%
State income tax, net of federal income tax benefit 3.6 3.6
Federal tax benefit of net operating loss carryforward (37.6) (37.6)
---------------- ---------------
Effective income tax rate - -
================ ===============
</TABLE>
9. SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid cash for interest of approximately $200 and $4,700 in 1998
and 1997, respectively.
The Company paid no cash for income taxes in 1998 and 1997.
10. BUSINESS SEGMENT AND OPERATIONS BY GEOGRAPHIC AREA
The Company operates in a single business segment, and its principal
products are electronic article surveillance systems and accessories which
are manufactured and distributed from the Company's only facility in the
United States.
The Company's revenues included sales to one customer in 1998 and 1997
representing 20% and 35% of total revenues, respectively. Approximately $0
and $71,000 was due from the customer and included in accounts receivable
at December 31, 1998 and 1997, respectively. The Company minimizes credit
risk through diversification and continued evaluation of its customers'
financial condition and account status.
During 1998 and 1997, the Company purchased approximately 29% and 49% of
its inventory from one vendor in 1998 and three vendors in 1997, of which
approximately $0 and $182,000 were payable to the suppliers and included in
accounts payable at December 31, 1998 and 1997, respectively. The Company
minimizes dependence on any one supplier by maintaining sufficient
alternatives for its raw materials and finished goods requirements.
-22-
<PAGE>
SENTECH EAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
There were no material concentrations of sales, accounts receivable, nor
identifiable assets outside of the United States during December 31, 1998
and 1997.
11. EMPLOYEE BENEFIT PLANS
Since January 1, 1998, the Company provides a 401(k) and profit sharing
plan (the "Plan") for eligible employees whereby the Company's annual
contributions to the Plan are made at the discretion of the board of
directors. The Company did not make any contributions to the Company's Plan
during 1998.
An employee stock option plan (the "Plan") was adopted by the shareholders
of the Company in 1995. The plan provides for 312,500 shares of common
stock to be issued at the discretion of the Compensation Committee of the
Board of Directors. Of this amount, 156,250 shares may be purchased
pursuant to the exercise of incentive stock options, and 156,250 shares may
be purchased pursuant to the exercise of non-qualified stock options. No
stock options under the Plan have been granted since the inception of the
Plan.
12. COMMITMENTS AND CONTINGENCIES
AGREEMENT AND PLAN OF MERGER
On October 28, 1998, the Company entered into an Agreement and Plan of
Merger with Ensec International, Inc. ("Ensec") which, upon completion of
the merger, will result in the Company and Ensec becoming wholly owned
subsidiaries of a newly formed holding company, Sensec International, Inc.
("Sensec"). Under the terms of the agreement, the Company's stockholders
will receive approximately 40% of the outstanding common shares of Sensec,
and the Ensec stockholders will receive approximately 60% of the
outstanding common shares of Sensec. Completion of the merger is subject to
the approval of the boards of directors and stockholders of both the
Company and Ensec. Ensec is a systems integrator and services provider in
commercial and industrial integrated security systems, video remote
surveillance, and data information security systems and is listed on the
OTC Bulletin Board under the symbol "ENSC".
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, as
amended, provides for the development and manufacture of the Company's
third generation EAS system. The Agreement requires the Company to pay
$187,000 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 December 31, 1998, $187,000 of non-recurring engineering
costs were capitalized of which $31,000 and $153,000 are included in other
current assets and other assets, respectively. For the year ended December
31, 1998, approximately $3,000 of non-recurring engineering costs were
included in cost of revenues (none in 1997). 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 $375,000 by February 1999; $750,000 by January 2000; and
$1,125,000 by January 2001.
-23-
<PAGE>
SENTECH EAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LEASES
The Company leases its office and production facility and certain equipment
under non-cancelable operating leases expiring through 2000. Rent expense
for all operating leases approximated $45,000 and $41,000 in 1998 and 1997,
respectively. Future minimum lease payments for operating leases having
non-cancelable terms in excess of one year at December 31, 1998 are
approximately $48,000 and $4,000 in 1999 and 2000, respectively.
INSTALLATION AND CUSTOMER SERVICE AGREEMENT
In July 1995, the Company entered into a service agreement effective August
1995 with a national service organization, whose President and Chief
Executive Officer is a director of the Company, which provides for the
installation and servicing of any 8.2 MHz EAS system. Any EAS systems not
covered by the agreement are handled by the Company's service personnel or
other third party service providers. The agreement is for a one-year term
and is automatically renewable for one-year periods unless terminated in
writing by either party. The Company has not received any termination
notices and believes its relationship with the service provider is
favorable. Although there can be no assurance the agreement will not be
terminated or will be renewed in the future, the Company anticipates the
agreement will automatically be renewed through August 2000. Costs incurred
in connection with this agreement were approximately $24,000 for each of
the years ended December 31, 1998 and 1997.
LITIGATION
The Company is involved in various claims and legal actions arising in the
ordinary course of business. Although management is unable to predict the
ultimate disposition of these matters, the Company does not believe the
resolution of such matters will have a material adverse effect on its
consolidated financial position, results of operations, or liquidity.
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.
YEAR 2000 ISSUE
Computer programs used by businesses worldwide were written using two
digits rather than four digits to define the applicable year. Accordingly,
these programs recognize the dates "00" and "01" as the years 1900 and 1901
rather than the years 2000 and 2001. The Company recognizes the need to
ensure its operations will not be adversely impacted by year 2000 computer
program failures arising from program processes and calculations
misinterpreting the year 2000 date. The Company is currently evaluating its
financial and operational systems to determine the impact the year 2000
issue will have on its operations. The Company also plans to communicate
with its significant suppliers, dealers, financial institutions, and others
with which it conducts business to determine the extent the Company may be
impacted by third parties' failure to address the year 2000 issue. Although
the Company plans to be year
-24-
<PAGE>
SENTECH EAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2000 compliant prior to December 31, 1999 and expects no material impact to
the Company's operations, there can be no assurance that the failure of the
Company or such third parties to successfully address their respective year
2000 issues will not have a material adverse effect on the Company's
business, financial condition, cash flows, and result of operations.
-25-
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in nor disagreements with the Company's Accountants on
accounting or financial disclosures.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table sets forth certain current information concerning the
directors and executive officers of the Company, including their ages, position,
and tenure as of the date hereof:
<TABLE>
<CAPTION>
DIRECTOR/
NAME AGE OFFICER SINCE POSITIONS WITH THE COMPANY
- ---- --- ------------- --------------------------
<S> <C> <C> <C>
Ronald L. Meggison, Jr. 34 1996 President, Chief Executive Officer, Secretary
and Treasurer
Richard J. Spagna 37 1990 Vice President Operations and Director
Edward A. Mulhare 72 1994 Chairman of the Board of Directors
Milan Resanovich 68 1994 Vice Chairman of the Board of Directors
Thomas A. Nicolette 48 1997 Director
Saul Pozensky 50 1992 Director
</TABLE>
Ronald L. Meggison, Jr. has served as President and Chief Executive Officer
since August 1998. Mr. Meggison joined the Company in August 1996 as Chief
Financial Officer and Vice President of Finance and was appointed Secretary and
Treasurer of the Company in April 1997 and Executive Vice President in February
1998. Prior to joining the Company, Mr. Meggison served as the Director of
Finance from 1995 through 1996 at OMI Corporation, a manufacturer of
electro-optical and laser components and systems. From 1989 to 1995, Mr.
Meggison was a C.P.A. at the international accounting firm of KPMG Peat Marwick
LLP resigning as an audit manager. Mr. Meggison received a degree in accounting
from North Carolina State University in 1989.
Richard J. Spagna founded the Company in 1990 when it was originally named
Ultimate EAS Inc. and served as President until May 1991. Since May 1991, Mr.
Spagna has served as a Director and Vice President Operations. Mr. Spagna was
employed by Sensormatic Electronics Corporation from February 1980 to October
1989 in a variety of positions including six years as Technical Support
Specialist. While at Sensormatic, Mr. Spagna was the inventor of two key
patented products which remain the property of Sensormatic.
Edward A. Mulhare has served as the Chairman of the Board of the Company since
May 1994. From 1982 to 1992, Mr. Mulhare served as the Chairman of the Board and
Chief Executive Officer of Merrill Lynch Interfunding, Inc., a wholly-owned
subsidiary of Merrill Lynch, engaged in the management of a $1.6 billion
leverage acquisition portfolio. From 1980 to 1982, he served as Executive Vice
President of Republic National Bank of New York. For the prior twelve years, he
was a Vice President of Prudential Insurance Company of America where he managed
a $4 billion portfolio of long term commercial loans and was Prudential's
specialist for rebuilding troubled companies. Mr. Mulhare currently serves as a
director of Advance Publishers, L.C., Akers Laboratories, Inc., and Realtec,
Inc. Over the past ten years, Mr. Mulhare has served as a director of fifteen
companies including Aldila Inc., Truck Components, Inc., PanAmerica Diamond Co.,
McGraw Industries, Inc., and American Silver Co. Mr. Mulhare received a B.S. in
Accounting from Boston University in 1950 and an M.B.A. from Farleigh Dickenson
in 1978.
-26-
<PAGE>
Milan Resanovich has served as a Director of the Company since October
1994 and has been a management consultant since 1992. From 1986 to 1992, he
served as a Senior Vice President, and then President, at Merrill Lynch
Interfunding, Inc. At Merrill Lynch Interfunding, Inc. he aided in the
management of a leveraged-buyout investment fund. Prior to such time, Mr.
Resanovich served as a Vice President at Prudential Insurance Company of America
where he was employed in investment management from 1956 to 1986. Mr. Resanovich
serves as a director of Advance Publishers, L.C., SPD Technologies, Inc., and
Lancaster Composites, Inc. and has served as a director of more than ten
companies including IMCO Recycling, a company traded on the New York Stock
Exchange from 1986 through 1995. Mr. Resanovich received a B.A. from Gettysburg
College in 1952 and an M.B.A. from the University of Pennsylvania in 1956.
Thomas A. Nicolette has been President, Chief Executive Officer, and a director
of Sentry Technology Corporation since January 1997 and of Knogo North America,
Inc. since its inception in August 1994. Prior thereto, Mr. Nicolette served in
various capacities at Knogo Corporation where he was Chief Executive Officer
from May 1994 to December 1994; President and Chief Operating Officer from 1990
to May 1994; President of the North America Division from 1989 to 1990; Vice
President from 1986 to 1990; and a Director from 1987 to December 1994. Mr.
Nicolette is Vice Chairman of the Board of Trustees of WLIW, the Long
Island-based affiliate of the Public Broadcasting System. Mr. Nicolette received
a B.S. in Criminal Justice and a B.A. in Management from Michigan State
University in 1972.
Saul Pozensky joined the Company in November 1991 as a sales representative and
became Vice President of Sales in 1992. He was elected to serve as a Director in
early 1995 and served as the Company's President and Chief Executive Officer
from April 1995 to August 1998. From 1988 to June 1991, he was a principal of
CMAC, a sales and finance business. From January 1986 to 1988, Mr. Pozensky
served as Executive Vice President of E.A.S. Technologies, a development stage
company. From 1973 to 1985, Mr. Pozensky was a National Account Manager at
Sensormatic. Mr. Pozensky received a B.A. in Criminology from Florida State
University in 1970.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's directors, its
executive and certain other officers, and any persons holding ten percent or
more of the Company's common stock must report on their ownership of the
Company's common stock and any changes in that ownership to the Securities and
Exchange Commission. The Company does not believe any Section 16(a) reports were
filed or were required to be filed.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth all compensation for services rendered in all
capacities to the Company and its subsidiary for each of the years ended
December 31, 1998 and 1997 by the Company's President and Chief Executive
Officer. There were no other executive officers or other persons whose total
compensation exceeded $100,000 during the years ended December 31, 1998 and
1997.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------- -------------------
NAME/ RESTRICTED OPTIONS/ ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OTHER STOCK SARS COMPENSATION
- ------------------ ---- ------ ----- ----- ----- ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ronald L. Meggison, Jr.
President & CEO 1998 $74,607 0 $25 $500 0 0
1997 67,103 0 19 15,750 0 0
Saul Pozensky
Former President & CEO 1998 48,903 0 104 500 0 0
1997 74,079 0 87 3,500 0 0
</TABLE>
-27-
<PAGE>
Directors of the Company receive 1,000 shares of common stock per year for
acting in such capacities. In addition, Directors receive 1,000 shares of common
stock for each Board of Directors meeting attended, however, no Director shall
receive more than 5,000 shares of common stock in any one year period. For each
of the years ended December 31, 1998 and 1997, 25,000 shares of the Company's
common stock was granted pursuant to the Company's Board of Director's
Compensation policy. Effective January 1, 1998, in addition to the Board of
Director's stock based compensation described above, non-management Directors
receive $10,000 annually payable quarterly in arrears.
The Company does not currently have employment agreements with any of the
Company's executive officers or any other members of management.
There were no performance options granted by the Company during the years ended
December 31, 1998 and 1997.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as to the common stock of the Company
beneficially owned as of December 31, 1998 by each director, each executive
officer, and each beneficial owner owning more than five percent (5%) of the
outstanding shares of common stock of the Company, and by all directors and
executive officers as a group. The table does not include any stock which may be
acquired by the following beneficial owners within 60 days of the date hereof
through the exercise of options or SARS, if any. Unless otherwise indicated, the
address of each such beneficial owner is 484 Southwest 12th Avenue, Deerfield
Beach, Florida, 33442.
<TABLE>
<CAPTION>
PERCENT
AMOUNT OF OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL COMMON
- ------------------------------------ OWNERSHIP (1) STOCK
------------- -----
<S> <C> <C>
Ronald L.Meggison, Jr ............. 50,000 3.0%
Edward A. Mulhare ................. (2) 285,794 17.0%
Thomas A. Nicolette ............... (3) 33,511 2.0%
Saul Pozensky ..................... (4) 165,269 9.9%
Milan Resanovich .................. (5) 40,983 2.4%
Richard J. Spagna ................. (6) 139,794 8.3%
------- ----
All directors and executive officers
as a group ...................... 715,351 42.7%
======= =====
Maurice Shahrabani 98,926 5.9%
======= =====
<FN>
(1) Does not include any shares of common stock issuable upon the
exercise of any of the Company's outstanding warrants.
(2) Does not include (i) warrants to purchase 38,410 shares of common
stock at an exercise price of $1.92 per share expiring in June 1999,
(ii) warrants to purchase 63,851 shares of common stock at an
exercise price equal to the lesser of $5.50 per share or 10% above
the exercise price of warrants offered in a public offering of the
Company's securities of which 55,555 expire in July 2000 and 8,296
expire in October 2001, or (iii) warrants to purchase 10,504 shares
of common stock at an exercise price equal to the lesser of $5.50 per
share or 10% above the exercise price of warrants offered in a public
offering of the Company's securities expiring in December 2001.
(3) Includes 8,000 shares of common stock held in trust for the benefit
of Kara N. Nicolette (4,000 shares) and Alexa J. Nicolette (4,000
shares), each of whom are Mr. Nicolette's daughters, in which Mr.
Nicolette disclaims any beneficial ownership. Does not include (i)
warrants to purchase 7,756 shares of common stock at an exercise
price equal to the lesser of $5.50 per share or 10% above the
exercise price of warrants offered in a public offering of the
Company's securities expiring in October 2001, or (ii) warrants to
-28-
<PAGE>
purchase 4,000 shares of common stock at an exercise price equal to
the lesser of $5.50 per share or 10% above the exercise price of
warrants offered in a public offering of the Company's securities
expiring in October 2001, which consists of 2,000 warrants held in
trust for the benefit of Kara N. Nicolette and 2,000 warrants held in
trust for the benefit of Alexa J. Nicolette, each of whom are
daughters of Mr. Nicolette, in which Mr. Nicolette disclaims any
beneficial ownership, or (iii) warrants to purchase 30,000 shares of
common stock at an exercise price of $2.40 per share expiring in June
2002.
(4) Does not include (i) warrants to purchase 6,525 shares of common
stock at an exercise price of $1.92 per share expiring in June 1999,
or (ii) warrants to purchase 16,889 shares of common stock at an
exercise price equal to the lesser of $5.50 per share or 10% above
the exercise price of warrants offered in a public offering of the
Company's securities expiring in July 2000.
(5) Does not include (i) warrants to purchase 78,305 shares of common
stock at an exercise price of $1.92 per share expiring in June 1999,
or (ii) warrants to purchase 9,859 shares of common stock at an
exercise price equal to the lesser of $5.50 per share or 10% above
the exercise price of warrants offered in a public offering of the
Company's securities expiring in October 2001, or (iii) warrants to
purchase 25,000 shares of common stock at an exercise price of $2.40
per share expiring in January 2001. Mr. Resanovich also holds an 8%
mandatory convertible promissory note in the original principal
amount of $53,000. This note is convertible at the rate of one share
of common stock for each $3.49 of outstanding principal and accrued
interest upon the occurrence of an initial public offering.
(6) Does not include warrants to purchase 16,889 shares of common stock
at an exercise price equal to the lesser of $5.50 per share or 10%
above the exercise price of warrants offered in a public offering of
the Company's securities expiring in July 2000.
</FN>
</TABLE>
AGREEMENT AND PLAN OF MERGER
On October 28, 1998, the Company entered into an Agreement and Plan of Merger
with Ensec International, Inc. ("Ensec") which, upon completion of the merger,
will result in the Company and Ensec becoming wholly owned subsidiaries of a
newly formed holding company, Sensec International, Inc. ("Sensec"). Under the
terms of the agreement, the Company's stockholders will receive approximately
40% of the outstanding common shares of Sensec, and the Ensec stockholders will
receive approximately 60% of the outstanding common shares of Sensec. Completion
of the merger is subject to the approval of the boards of directors and
stockholders of both the Company and Ensec. Ensec is a systems integrator and
services provider in commercial and industrial integrated security systems,
video remote surveillance, and data information security systems and is listed
on the OTC Bulletin Board under the symbol "ENSC".
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In the fourth quarter of 1996 and the first and second quarters of 1997, the
Company sold an aggregate of 343,894 units, each unit consisting of one share of
common stock and one common stock purchase warrant, in a private placement. The
Company's Chairman, Edward A. Mulhare, purchased 10,504 units in this private
placement.
In the second quarter of 1997, the Company entered into a three year purchase
and manufacturing agreement (the "Agreement") with a company whose President and
Chief Executive Officer, Thomas A. Nicolette, is a director of the Company. The
Agreement, as amended, provides for the development and manufacture of the
Company's third generation EAS system. The Agreement requires the Company to pay
$187,000 of non-recurring engineering costs in exchange for an assignment of
fifty percent of the joint technology as defined by the Agreement. As of
December 31, 1998, the Company paid $187,000 of the non-recurring engineering
costs of which approximately $117,000 was paid during 1997. 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 $375,000 by February 1999; $750,000 by January 2000; and
$1,125,000 by January 2001.
-29-
<PAGE>
In the third quarter of 1997, warrants to purchase 12,500 shares of common stock
at an exercise price of $2.40 per share expiring June 2000 were issued to Milan
Resanovich, the Vice Chairman of the Board of Directors, in exchange for
extending the maturity date to December 31, 1998 on both the 8% mandatory
convertible promissory note in the amount of $53,000 and the 6% senior note in
the amount of $150,000 both of which are due to Messr. Resanovich. Additionally,
$4,325 of accrued interest on the 8% mandatory convertible promissory note due
to Messr. Resanovich was converted to 1,802 shares of the Company's common
stock.
In the third quarter of 1997, warrants to purchase 30,000 shares of common stock
at an exercise price of $2.40 per share expiring June 25, 2002 were issued to
Thomas A. Nicolette, a director of the Company, as an incentive for Messr.
Nicolette to serve on the Board of Directors of the Company.
In the fourth quarter of 1997, 45,000 shares of the Company's common stock was
granted for additional compensation to Ronald L. Meggison, Jr., the Company's
President and Chief Executive Officer.
In the first quarter of 1998, in exchange for extending the maturity date to
January 2001 on both the 8% mandatory convertible promissory note in the amount
of $53,000 and the 6% senior note in the amount of $150,000 both of which are
due to Messr. Resanovich, the Vice Chairman of the Board of Directors, the
Company (i) issued to Messr. Resanovich warrants to purchase 12,500 shares of
common stock at an exercise price of $2.40 per share expiring January 2001 and
(ii) amended the warrants to purchase 12,500 shares of common stock at an
exercise price of $2.40 per share expiring June 2000 issued to Messr. Resanovich
in the second quarter of 1997, to expire January 2001.
In the second quarter of 1998, $2,138 of accrued interest on the 8% mandatory
convertible promissory note due to Messr. Resanovich, the Vice Chairman of the
Board of Directors, was converted to 891 shares of the Company's common stock.
In the second quarter of 1998, 5,000 shares of the Company's common stock was
granted for additional compensation to Ronald L. Meggison, Jr., the Company's
President and Chief Executive Officer.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) Financial statements
See Item 7.
(B) Reports on Form 8-K
On November 9, 1998, the Company filed a Form 8-K, Item 1, covering a
potential change in control of the Company-Agreement and Plan of
Merger Among Ensec International Inc., SenTech EAS Corporation, et
al.
(C) Exhibits
2.1 Agreement and Plan of Merger Among Ensec International Inc.,
SenTech EAS Corporation, et al. dated October 28, 1998. (ii)
3.1 Articles of Incorporation. (i)
3.2 Articles of Amendment. (i)
3.3 Bylaws. (i)
10.1 Agreement by and between SenTech EAS Corporation and Knogo
North America Inc. dated June 1, 1997. (iii)
22 Registrant's Subsidiaries. (i)
-30-
<PAGE>
27 Financial Data Schedule (i)
(I) Filed herewith
(II) Incorporated by reference to Registrant's Form 8-K
filed on November 9, 1998.
(III) Incorporated by reference to Registrant's Form 10-KSB
for the year ended December 31, 1997 filed March 27,
1998.
<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, hereunto duly authorized, on February 15, 1999.
SENTECH EAS CORPORATION
By: /s/ RONALD L. MEGGISON, JR.
Ronald L. Meggison, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Company and in
the capacities indicated on February 15, 1999.
SIGNATURE TITLE
- --------- -----
/s/ RONALD L. MEGGISON, JR.
- ---------------------------
Ronald L. Meggison, Jr. President and Chief Executive Officer
(Principal Executive and Financial Officer)
/s/ RICHARD J. SPAGNA
- ---------------------------
Richard J. Spagna Vice President Operations and Director
/s/ EDWARD A. MULHARE
- ---------------------------
Edward A. Mulhare Chairman of the Board of Directors
/s/ MILAN RESANOVICH
- ---------------------------
Milan Resanovich Director
/s/ THOMAS A. NICOLETTE
- ---------------------------
Thomas A. Nicolette Director
/s/ SAUL POZENSKY
- ---------------------------
Saul Pozensky Director
ARTICLES OF INCORPORATION
OF
SENTECH EAS CORPORATION
The undersigned, a natural person competent to contract, does hereby
make, subscribe and file these Articles of Incorporation for the purpose of
organizing a corporation under the laws of the State of Florida.
ARTICLE 1
CORPORATE NAME
--------------
The name of the Corporation is : SenTech EAS Corporation.
ARTICLE II
PRINCIPAL OFFICE AND MAILING ADDRESS
------------------------------------
The principal office and mailing address of the Corporation shall be
located at 484 S.W. 12th Avenue, Deerfield Beach, Florida 33442-3108.
ARTICLE III
CAPITAL STOCK
-------------
The maximum number of shares that this corporation shall be authorized
to issue had have outstanding at any one time shall be Fifty Million
(50,000,000) shares of common stock, $.0001 par value per share.
ARTICLE IV
REGISTERED AGENT AND
INITIAL REGISTERED OFFICE IN FLORIDA
------------------------------------
The Registered Agent and the street address of the initial Registered
Office of this Corporation in the State of Florida shall be:
Stephen Needleman
SenTech EAS Corporation
484 S.W. 12th Avenue
Deerfield Beach, Florida 33442-3108
<PAGE>
ARTICLE V
INCORPORATOR
------------
The name and address of the person signing these Article of
Incorporation as the Incorporator is:
Stephen Needleman
SenTech EAS Corporation
484 S.W. 12th Avenue
Deerfield Beach, Florida 33442-3108
ARTICLE VI
AUTHORITY OF DIRECTORS
----------------------
The Directors shall have the power to make and to alter or amend the
By-Laws; to fix the amount to be reserved as working capital, and to authorize
and cause to be executed, mortgages and liens without limit as to amount, upon
the property and franchise of this Corporation.
With the consent in writing and pursuant to a vote of the holders of a
majority of the capital stock issued and outstanding, the Directors shall have
authority to dispose, in any manner, of the whole property of this Corporation.
ARTICLE VII
BOOKS AND RECORDS
-----------------
The By-Laws shall determine whether and to what extent the account and
books of this corporation, or any of them, shall be upon to the inspection of
the stockholders, no stock holder shall have any right of inspecting any
account, or book, or document of this Corporation, except as conferred by law of
the By-Laws, or by resolution of stockholders.
The stockholders and directors shall have power to hold their meetings
and keep the books, documents and papers of the Corporation outside of the State
of Florida, at such places as may be, form time to time, designated by the
By-Laws or by resolution of the stockholders or directors, except as otherwise
required by the laws of Florida.
ARTICLE VIII
PURPOSE
-------
The general nature of the business to be transacted by the Corporation
shall be to engage is and to do any lawful act permitted under the laws of the
United States of America and of the State of Florida.
<PAGE>
ARTICLE IX
LIMITATION OF LIABILITY
-----------------------
No director of the Corporation shall be liable to the Corporation of
its stockholders for monetary damages for breech of fiduciary duty as a
director, except for liability (i) for any breech of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under the Florid a General Corporation Act, or (iv) for any
transaction form which the director derived as improper personal benefit.
ARTICLE X
TERM
----
The term for which the Corporation is to exist is perpetual
INCORPORATOR
/S/ STEPHEN NEEDLEMEN
Stephen Needlemen
484 S.W. 12th Avenue
Deerfield Beech, Florida 33442-3108
ARTICLES OF AMENDMENT
OF
SENTECH EAS CORPORATION
BY VOTE THE BOARD OF DIRECTORS
WITHOUT SHAREHOLDER ACTION
Pursuant to Section 607.1006 of the Florida Business Corporation Act,
the undersigned corporation adopts these articles of amendment.
FIRST: The name of the corporation is A Sentech EAS Corporation Act,
the undersigned corporation adopts these articles of amendment.
SECOND: The Articles of Incorporation of this Corporation are amended
by changing the articles numbered "III" so that, amended, said article shall
read as follows:
"The Maximum number of shares that this corporation shall be
authorized to issue and have outstanding at any one time
shall be Twenty Million Eight Hundred Thirty-three Thousand,
Three Hundred Thirty-three (20,833,333) shares of common
stock, $.00024 par value per share."
THIRD: A. The Amendment provides for a cancellation of issued shares.
B. Provisions for implementing the amendment, not contained in
the amendment itself, are as follows:
Upon the filing of this Amendment, each 2.4 shares of common
stock outstanding, and held by each holder of record, on
such date shall be automatically combined into 1 share of
common stock without any further action on the part of the
holders thereof or this corporation. No fractional shares
will be issued. Any fractional shares which would be issued
will be rounded up to one full share.
FOURTH: The amendment to the Articles of Incorporation of the
Corporation set forth above was adopted on the 18th day of December, 1996.
FIFTH: Prior to the issuance of shares, the amendment was unanimously
adopted by the board of directors by written consent without shareholder action
and shareholder action was not required.
Signed this 18th day of December, 1996.
SENTECH EAS CORPORATION
/S/ SAUL POZENSKY
Saul Pozensky
President and Director
Bylaws
of
SenTech EAS Corporation
(a Florida corporation)
ARTICLE I
DEFINITIONS
-----------
As used in these Bylaws, the term:
1.1 "Articles of Incorporation" means the initial articles of
incorporation of the Corporation, as amended, supplemented or restated from time
to time.
1.2 "Assistant Secretary" means an Assistant Secretary of the
Corporation.
1.3 "Assistant Treasurer" means an Assistant Treasurer of the
Corporation.
1.4 "Board" means the Board of Directors of the Corporation.
1.5 "Business Corporation Act" means the Florida Business Corporation
Act, Section 607.0101 et seq. of the Florida Statutes, as amended from time to
time.
1.6 "Bylaws" means the initial bylaws of the Corporation, as amended,
supplemented or restated from time to time.
1.7 "Chairman" means the Chairman of the Board of the Corporation.
1.8 "Corporation" means SenTech EAS Corporation, a Florida corporation.
1.9 "Directors" means the directors of the Corporation.
1.10 "President" means the President of the Corporation.
1.11 "Secretary" means the Secretary of the Corporation.
1.12 "Shareholders" means the shareholders of the Corporation.
1.13 "Treasurer" means the Treasurer of the Corporation.
1.14 "Vice President" means a Vice President of the Corporation.
<PAGE>
ARTICLE II
SHAREHOLDERS
------------
2.1 PLACE OF MEETINGS. Every meeting of shareholders shall be held at
the of f ice of the Corporation or at such other place within or without the
State of Florida as shall be specified or fixed in the notice of such meeting or
in the waiver of notice thereof.
2.2 ANNUAL MEETING. A meeting of shareholders shall be held annually
for the election of directors and the transaction of any other business that may
come before the meeting. The time and place of the meeting shall be as
determined by the Board and designated in the notice of meeting.
2.3 SPECIAL MEETINGS. A special meeting of shareholders, unless
otherwise prescribed by statute, may be called at any time by the Board, by the
Chairman, by the President or by the holders of not less than ten percent (10%)
of the outstanding shares entitled to vote at any meeting of the shareholders.
At any special meeting of shareholders only such business may be transacted as
is related to the purpose or purposes of such meeting set forth-in the notice
thereof given pursuant to Section 2.5 of the Bylaws or in any waiver of notice
thereof given pursuant to Section 2.6 of the Bylaws.
2.4 FIXING RECORD DATE. For the purpose of determining the shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or for the purpose of determining shareholders entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock, or for the purpose of any other lawful action, the Board
may fix, in advance, a date as the record date for any such determination of
shareholders. Such date shall not be more than 70 days before the date of such
meeting, nor more than 60 days prior to any other action. if no such record date
is fixed:
(a) the record date for determining shareholders entitled to notice of
or to vote at a meeting of shareholders shall be at the close of business on the
day immediately preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day immediately preceding the day on
which the meeting is held.
(b) the record date for determining shareholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the Board is necessary, shall be the day on which the first written consent
is expressed.
(c) the record date for determining shareholders for any purpose other
than those specified in sections 2.4(a) and 2.4(b) shall be at the close of
business on the day on which the Board adopts the resolution relating thereto.
When a determination of shareholders entitled to notice of or to vote at any
meeting of shareholders has been made -as provided in this Section 2.4, such
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<PAGE>
determination shall apply to any adjournment thereof, unless the Board fixes a
new record date for the adjourned meeting.
2.5 NOTICE OF MEETINGS OF SHAREHOLDERS. Except as otherwise provided in
Sections 2.4 and 2.6 of the Bylaws, whenever under the Business Corporation Act
or the Articles of Incorporation or the Bylaws, shareholders are required or
permitted to take any action at a meeting, written notice shall be given stating
the place, date and hour of the meeting and, in the case of a special meeting,
the purpose or purposes for which the meeting is called. A copy of the notice of
any meeting shall be given, personally or by mail, not less than 10 nor more
than 60 days before the date of the meeting, to each shareholder entitled to
notice of or to vote at such meeting. if mailed, such notice shall be deemed to
be given when deposited in the United States mail, with postage prepaid,
directed to the shareholder at his address as it appears on the records of the
Corporation. An affidavit of the Secretary or an Assistant Secretary or of the
transfer agent of the Corporation that the notice required by this Section 2.5
has been given shall, in the absence of fraud, be prima facie evidence of the f
acts stated therein. When a meeting is adjourned to another time or place,
notice need not be-given of the adjourned meeting if the time and place thereof
are announced at t he meeting at which the adjournment is taken, and at the
adjourned meeting any business may be transacted that might have. been
transacted at the meeting as originally called. If, however, the adjournment is
for more than 120 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each shareholder of record entitled to vote at the meeting.
2.6 WAIVERS OF NOTICE. Whenever notice is required to be given to any
shareholder under any provision of the Business Corporation Act or the Articles
of Incorporation or the Bylaws, a written waiver thereof, signed by the
shareholder entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a shareholder at a meeting
shall constitute a waiver of notice of such meeting, except when the shareholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the shareholders need be specified in any
written waiver of notice.
2.7 LIST OF SHAREHOLDERS. The Secretary shall prepare and make, or
cause to be prepared and made, at least 10 days before every meeting of
shareholders, a complete list of the shareholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
shareholder and the number of shares registered in the name of each shareholder.
Such list shall be open to the examination of any shareholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any shareholder who is
present.
-3-
<PAGE>
2.8 QUORUM OF SHAREHOLDERS:- Adjournment. The holders of a majority of
the shares of stock entitled to vote at any meeting of shareholders, present in
person or represented by proxy, shall constitute a quorum for the transaction of
any business at such meeting. When a quorum is once present to organize a
meeting of shareholders, it is not broken by the subsequent withdrawal of any
shareholder or shareholders. The holders of a majority of the shares of stock
present in person or represented by proxy at any meeting of shareholders,
including an adjourned meeting, whether or not a quorum is present, may adjourn
such meeting to another time and place.
2.9 VOTING OF SHARES. Unless otherwise provided in the Articles of
Incorporation, every shareholder of record shall be entitled at every meeting of
shareholders to one vote for each share of capital stock standing in his name on
the record of shareholders determined in accordance with Section 2.4 of the
Bylaws. The provisions of Sections 607.0721, 607.0723, and 607.0724 of the
Business Corporation Act shall apply in determining whether any shares of
capital stock may be voted and the persons, if any, entitled to vote such
shares, but the Corporation shall be protected in treating the persons in whose
names shares of capital stock stand on the record of shareholders as owners
thereof for all purposes. At any meeting of shareholders at which a quorum is
present to organize the meeting), all matters, except as otherwise provided by
law or by the Articles of Incorporation or by the Bylaws, shall be decided by a
majority of the votes cast at such meeting by the holders of shares of capital
stock present in person or represented by proxy and entitled to vote thereon,
whether or not a quorum is present when the vote is taken.
2.10 BALLOTS. All elections of directors shall be by written ballot. In
voting on any other question on which a vote by ballot is required by law or is
demanded at the commencement of the meeting by any shareholder entitled to vote,
the voting shall be by ballot. Each ballot shall be signed by the shareholder
voting or by his proxy, and shall state the number of shares voted. On all other
questions, the voting shall be by voice vote.
2.11 PROXIES. Every shareholder entitled to vote at a meeting of
shareholders may authorize another person or persons to act for him by proxy.
The validity and enforceability of any proxy shall be determined in accordance
with Section 607.0722 of the Business Corporation Act. 2.12 Selection and Duties
of Inspectors at Meetings of Shareholders. The Board, in advance of any meeting
of shareholders, may appoint one or more inspectors to act at the meeting or any
adjournment thereof. If inspectors are not so appointed, the person presiding at
such meeting may, and on the request of any shareholder entitled to vote thereat
shall, appoint one or more inspectors. In case any person appointed fails to
appear or act, the vacancy may be filled by appointment made by the Board in
advance of the meeting or at the meeting by the person presiding thereat. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspector or
inspectors shall determine the number of shares outstanding and the voting power
of each, the shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are
-4-
<PAGE>
proper to conduct the election or vote with fairness to all shareholders. On
request of the person presiding at the meeting or any shareholder entitled to
vote thereat, the inspector or inspectors shall take a report in writing of any
challenge, question or matter determined by him or them and execute a
certificate made by the inspector or inspectors shall be prima facie evidence of
the facts stated and of the vote as certified by him or them.
2.13 ORGANIZATION. At every meeting of shareholders, the Chairman, or
in the absence of the Chairman, the President, or in the absence of both the
Chairman and the President, a Vice President, and in case more than one Vice
President shall be present, that Vice President designated by the Board (or in
the absence of any such designation, the most senior Vice President, based on
age, present) shall act as chairman of the meeting. The Secretary, or in his
absence one of the Assistant Secretaries, shall act as secretary of the meeting.
in case none of the officers above designated to act as chairman or secretary of
the meeting, respectively, shall be present, a chairman or a secretary of the
meeting, as the case may be, shall be chosen by a majority of the votes cast at
such meeting by the holders of shares of capital stock present in person or
represented by proxy and entitled to vote at the meetings.
2.14 ORDER OF BUSINESS. The order of business at all meetings of
shareholders shall be as determined exclusively by the chairman of the meeting.
2.15 ACTION BY-SHAREHOLDERS WITHOUT A MEETING.
(a) Any action required or permitted to be taken at an annual or
special meeting of shareholders may be taken without a meeting, without prior
notice, and without a vote, if the action is taken by the holders of issued and
outstanding stock entitled to vote thereon having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted. In
order to be effective, the action must be evidenced by one or more written
consents describing the action taken, dated and signed by approving shareholders
having the requisite number of votes entitled to vote thereon, and delivered to
the Corporation by delivery to its principal office. No written consent shall be
effective to take the corporate action referred to therein unless, within 60
days of the date of the earliest dated consent delivered in the manner required
by this Section 2.15, written consents signed by the number of holders required
to take action are delivered to the Corporation.
(b) Any written consent may be revoked prior to the date that the
Corporation receives the required number of consents to authorize the proposed
action. No revocation is effective unless in writing and until received by the
Corporation at its principal office.
(c) Within 10 days after obtaining authorization by written consent,
notice shall be given to those shareholders who have not consented in writing or
who are not entitled to vote on the action. The notice shall fairly summarize
the material features of the authorized action and, if the action is one for
which dissenters, rights are provided by law or the Articles of incorporation,
the
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<PAGE>
notice shall contain a clear statement of the right of shareholders
dissenting therefrom to be paid the fair value of their shares upon compliance
with applicable law.
(d) Whenever action is taken pursuant to written consent, the written
consent or consents of the shareholders consenting thereto or the written
reports of the inspectors appointed to tabulate such consents shall be filed
with the minutes of proceedings of shareholders of the Corporation.
ARTICLE III
DIRECTORS
---------
3.1 GENERAL POWERS. Except as otherwise provided in the Articles of
Incorporation, the business and affairs of the Corporation shall be managed by
or under the direction of the Board. The Board may adopt such rules and
regulations, not inconsistent with the Articles of Incorporation or the Bylaws
or applicable laws, as it may deem proper for the conduct of its meetings and
the management of the Corporation. In addition to the powers expressly conferred
by the Bylaws, the Board may exercise all powers and perform all acts which are
not reviewed, by the Bylaws or the Articles of incorporation or by law, to be
exercised and performed by the shareholders.
3.2 NOMINATIONS FOR DIRECTORS. Nominations for election to the Board
may be made by the Board or by any holder of shares of any outstanding class of
capital stock of the Corporation entitled to vote for the election of directors.
Nominations other than those made by the Board shall be made by notification in
writing delivered to the Secretary not less than 20 nor more than 50 days prior
to any annual or special meeting of shareholders called for the election of
directors; provided, however that if less than 28 days notice of such meeting is
given to shareholders, such nomination shall be delivered to the Secretary not
later than the close of business on the seventh day following the day on which
the notice of such meeting was mailed to shareholders.
3.3 NUMBER: Qualification: Term of office. The Board shall at all times
consist of not less than one nor more than nine persons as the Board shall
determine. Directors need not be shareholders. Each Director shall hold office
until his successor is elected and qualified or until his earlier death,
resignation or removal.
3.4 ELECTION. Directors shall, except as otherwise required by law or
by the Articles of Incorporation, be elected by a plurality of the votes cast at
a meeting of shareholders at which a quorum is present by the holders of shares
entitled to vote in the election.
3.5 NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Unless otherwise
provided in the Articles of Incorporation, newly created directorships resulting
from an increase in the number of directors and vacancies occurring in the Board
for any other reason, including the removal of Directors, shall be filled by
vote of a majority of the Directors then in office, although less than a quorum,
or by a sole remaining director. A Director elected to f ill a vacancy shall be
elected to hold office
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<PAGE>
for a term expiring at the next annual meeting of shareholders, or until his
earlier death, resignation or removal.
3.6 RESIGNATIONS. Any Director may resign at any time by written notice
to the Corporation. Such resignation shall take effect at the time there in
specified, and, unless otherwise specified, the acceptance of such resignation
shall not be necessary to make it effective.
3.7 REMOVAL OF DIRECTORS. Any or all of the Directors may be removed
from office at any time, with or without cause, as is provided in Section
607.0808 of the Business Corporation Act.
3.8 COMPENSATION. Each Director, in consideration of his service as
such, shall be entitled to receive from the Corporation such amount per annum or
such fees for attendance at directors' meetings, or both, as the Board may from
time to time determine, together with reimbursement for the reasonable expenses
incurred by him in connection with the performance of his duties. Each Director
who shall serve as a member of any committee of directors in consideration of
his serving as such shall be entitled to such additional amount per annum or
such fees for attendance at committee meetings, or both, as the Board may from
time to time determine, together with reimbursement for the reasonable expenses
incurred by him in the performance of his duties. Nothing contained in this
Section .3.8 shall preclude any Director from serving the Corporation or its
subsidiaries in any other capacity and receiving compensation therefor.
3.9 PLACE AND TIME OF MEETINGS OF THE BOARD. Meetings of the Board,
regular or special, may be held at any place within or without the State of
Florida. The times and places for holding meetings of the Board may be fixed
from time to time by resolution of the Board or (unless contrary to resolution
of the Board) in the notice of the meeting.
3.10 ANNUAL MEETING. On the day when and at the place where the annual
meeting of shareholders for the election of directors is held, and as soon as
practicable thereafter, the Board may hold its annual meeting, without notice of
such meeting, for the purposes of organization, the election of officers and the
transaction of other business. The annual meeting of the Board may be held at
any other time and place specified in a notice given as provided in Section 3.12
of the Bylaws for special meetings of the Board or in a waiver of notice
thereof.
3. 11 REGULAR MEETINGS . Regular meetings of the Board may be held at
such times and places as may be fixed from time to time by the Board. Unless
otherwise required by the Board, regular meetings of the Board may be held
without notice. If any day fixed f or a regular meeting of the Board shall be a
Saturday or Sunday or a legal holiday at the place where such meeting is to be
held, then such meeting shall be held at the same hour at the same place on the
first business day thereafter which is not a Saturday, Sunday or legal holiday.
3.12 SPECIAL MEETINGS. Special meetings of the Board shall be held
whenever called by the Chairman, by the President or by any two or more
Directors. Notice of each special meeting of the Board shall, if mailed, be
addressed to each director at the address designated by him for that
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<PAGE>
purpose or, if none is designated, at his last known address at least 10 days
before the date on which the meeting is to be held; or such notice shall be sent
to each director at such address by telegraph, cable, telefax or wireless, or be
delivered to him personally, not later than five days before the date on which
such meeting is to be held. Every such notice shall state the time and place of
the meeting but need not state the purposes of the meeting, except to the extent
required by law. If mailed, each notice shall be deemed given when deposited,
with postage thereon prepaid, in a post office or official depository under the
exclusive care and custody of the United States post office department. Such
mailing shall be by first class mail.
3.13 ADJOURNED MEETINGS. A majority of the Directors present at any
meeting of the Board, including an adjourned meeting, whether or not a quorum is
present, may adjourn such meeting to another time and place. Notice of any
adjourned meeting of the Board need not be given to any Director, whether or not
he was present at the time of the adjournment. Any business may be transacted at
any adjourned meeting that might have been transacted at the meeting as
originally called.
3.14 WAIVER OF NOTICE. Whenever notice is required to be given to any
Director or member of a committee of directors under any provision of the
Business Corporation Act or of the Articles of Incorporation or Bylaws, a
written waiver thereof, signed by the person entitled to notice, whether before
or after the time stated there in, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
directors, or members of a committee of directors, need be specified in any
written waiver of notice.
3.15 ORGANIZATION. At each meeting of the Board, the Chairman of the
Corporation, or in the absence of the Chairman, the President, or in the absence
of both, a chairman chosen by a majority -of the Directors present, shall
preside. The Secretary shall act as secretary at each meeting of the Board. In
case the Secretary shall be absent from any meeting of the Board, an Assistant
Secretary shall perform the duties of secretary at such meeting; and in the
absence from any such meeting of the Secretary and all Assistant Secretaries,
the person presiding at the meeting may appoint any person to act as secretary
of the meeting.
3.16 QUORUM OF DIRECTORS . A quorum for the transaction of business or
of any specified item of business at any meeting of the Board shall consist of a
majority of the Directors.
3.17 ACTION BY THE BOARD. All corporate action taken by the Board or
any committee thereof shall be taken at a meeting of the Board or of such
committee, as the case may be, except that any action required or permitted to
be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee. Members of the Board or any
committee designated by
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<PAGE>
the Board may participate in a meeting of the Board or of such committee, as the
case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 3.17 shall
constitute presence in person at such meeting. Except as otherwise provided by
the Articles of Incorporation or by law, the vote -of a majority of the
Directors (including those who participate by means of conference telephone or
similar communications equipment) present at the time of the vote, if a quorum
is present at such time, shall be the act of the Board.
ARTICLE IV
COMMITTEES OF THE BOARD
-----------------------
The Board may, by resolution passed by a majority of the entire Board,
designate one or more committees, each committee to consist of one or more of
the Directors. The Board may designate one or more Directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. in the absence or disqualification of a member of
a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board to act at the meeting in the
place of any such absent or disqualified member. Any such committee, to the
extent provided in the resolution of the Board, shall have and may exercise all
the powers and authority of the Board in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the Articles of Incorporation or
Bylaws, adopting an agreement of merger or consolidation, recommending to the
shareholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the shareholders a
dissolution of the Corporation or a revocation of a dissolution, declaring or
paying any dividend or other distribution in respect of the stock of the
Corporation, issuing or selling stock of the Corporation or acquiring issued and
outstanding stock of the Corporation.
ARTICLE V
OFFICERS
--------
5.1 OFFICERS. The Board shall elect as officers, a Chairman, a
President, a Secretary and a Treasurer, and may elect or appoint one or more
Vice Presidents and such other officers as it may determine. The Board may use
descriptive words or phrases to designate the standing, seniority or area of
special competence of the Vice Presidents elected or appointed by it. Each
officer shall hold his office until his successor is elected and qualified or
until his earlier death, resignation or removal in the manner provided in
Section 5.2 of the Bylaws. Any two or more offices may be held by the same
person. The Board may require any officer to give a bond or other security for
the faithful performance of his duties, in such amount and with such sureties as
the Board may
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<PAGE>
determine. All officers as between themselves and the Corporation shall have
such authority and perform such duties in the management of the Corporation as
may be provided in the Bylaws or as the Board may from time to time determine.
5.2 REMOVAL OF OFFICERS. Any officer elected or appointed by the Board
may be removed by the Board with or without cause. The removal of an officer
without cause shall be without prejudice to his contract rights, if any. The
election or appointment of an officer shall not of itself create contract
rights.
5.3 RESIGNATIONS. Any officer may resign at any time by so notifying
the Board, the Chairman or the President in writing. Such resignation shall take
effect at the date of receipt of such notice or at such later time as is therein
specified, and, unless otherwise specified, the acceptance of such resignation
shall not be necessary to make it effective. The resignation of an officer shall
be without prejudice to the contract rights of the Corporation, if any.
5.4 VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause shall be filled for the unexpired
portion of the term in the manner prescribed in the Bylaws for the regular
election or appointment to such office.
5.5 COMPENSATION. Salaries or other compensation of the officers may be
fixed from time to time by the Board. No officer shall be prevented from
receiving a salary or other compensation by reason of the fact that he is also a
director.
5.6 CHAIRMAN. The Chairman shall be the chief executive officer of the
Corporation and shall have general supervision over the business of the
Corporation; subject, however, to the control of the Board and of any duly
authorized committee of Directors. He shall preside at all meetings of the
Shareholders and of the Board. He may, with the Secretary or the Treasurer or an
Assistant Secretary or an Assistant Treasurer, sign certificates for shares of
capital stock of the Corporation. He may sign and execute in the name of the
Corporation deeds, mortgages, bonds, contracts and other instruments, except in
cases where the signing and executing thereof shall be expressly delegated by
the Board or by the Bylaws to some other officer or agent of the Corporation, or
shall be required by law otherwise to be signed or executed; and, in general, he
shall perform all duties incident to the office of Chairman and such other
duties as from time to time may be assigned to him by the Board.
5.7 PRESIDENT. The President shall be the chief operating officer of
the Corporation and shall have general supervision over the day-to-day affairs
of the Corporation, subject, however, to the control of the Chairman, the Board
and any duly-authorized committee of directors. The President shall, if the
Chairman shall not be present, preside at meetings of the shareholders and at
meetings of the Board. He may, with the Secretary or the Treasurer or an
Assistant Secretary or an Assistant Treasurer, sign certificates for shares of
capital stock of the Corporation. He may sign and execute in the name of the
Corporation deeds, mortgages, bonds, contracts and other instruments, except in
cases where the signing and execution thereof shall be expressly delegated
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<PAGE>
by the Board or by the Bylaws to some other officer or agent of the Corporation,
or shall be required by law otherwise to be signed or executed; and, in general,
he shall perform all duties incident to the office of President and such other
duties as from time to time may be assigned to him by the Board.
5.8 VICE PRESIDENTS. At the request of the President, or, in his
absence, at the request of the Board, the Vice Presidents shall (in such order
as may be designated by the Board or, in the absence of any such designation, in
order of seniority based on age) perform all of the duties of the President and
so acting shall have all the powers of, and be subject to all restrictions upon,
the President. Any Vice President may, with the Secretary or the Treasurer or an
Assistant Secretary or an Assistant Treasurer, sign certificates for shares of
capital stock of the Corporation. Any Vice President may sign and execute in the
name of the Corporation deeds, mortgages, bonds, contracts or other instruments
authorized by the Board, except in cases where the signing and execution thereof
shall be expressly delegated by the Board or by the Bylaws to some other officer
or agent of the Corporation, or shall be required by law otherwise to be signed
or executed. Each Vice President shall perform such other duties as from time to
time may be assigned to him by the Board, by the Chairman or by the President.
5.9 SECRETARY. The Secretary, if present, shall act as secretary of all
meetings of the shareholders and of the Board, and shall keep the minutes
thereof in the proper book or books to be provided for that purpose; he shall
see that all notices required to be given by the Corporation are duly given and
served; he may, with the Chairman, the President or a Vice President, sign
certificates for shares of capital stock of the Corporation; he shall be
custodian of the seal of the Corporation and may seal with the seal of the
Corporation, or a facsimile thereof, all certificates for shares of capital
stock of the Corporation and all documents the execution of which on behalf of
the Corporation under its corporate seal is authorized in accordance with the
provisions of the Bylaws; he shall have charge of the stock ledger and also of
the other books, records and papers of the Corporation relating to its
organization and management as a Corporation, and shall see that the reports,
statements and other documents required by law are properly kept and filed; and
shall, in general, perform all the duties incident to the office of Secretary
and such other duties as f rom time to time may be assigned to him by the Board,
by the Chairman or by the President.
5.10 TREASURER. The Treasurer shall have charge and custody of, and be
responsible for, all funds, securities and notes of the Corporation; receive and
give receipts for moneys due and payable to the Corporation f rom any source
whatsoever; deposit all such moneys in the name of the Corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with these Bylaws; against proper vouchers, cause such funds to be disburse& by
checks or drafts on the authorized depositories of the Corporation signed in
such manner as shall be determined in accordance with any provisions of the
Bylaws, and be responsible for the accuracy of the amounts of all moneys so
disbursed; regularly enter or cause to be entered in books to be kept by him or
under his direction full and adequate account of all moneys received or paid by
him for the account of the Corporation; have the right to require, from time to
time, reports or statements giving such information as he may desire with
respect to any and all
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<PAGE>
financial transactions of the Corporation from the officers or agents
transacting the same; render to the Chairman, the President or the Board,
whenever the Chairman, the President or the Board, respectively, shall require
him so to do, an account of the financial condition of the Corporation and of
all his transactions as Treasurer; exhibit at all reasonable times his books of
account and other records to any of the Directors upon application at the office
of the Corporation where such books and records are kept; and, in general,
perform all the duties incident to the office of Treasurer and such other duties
as from time to time may be assigned to him by the Board, by the Chairman or by
the President; and he may sign with the Chairman, the President or a Vice
President certificates for shares of capital stock of the Corporation.
5.11 ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. Assistant
Secretaries and Assistant Treasurers shall perform such duties an shall be
assigned to them by the Secretary or by the Treasurer, respectively, or by the
Board, by the Chairman or by the President. Assistant Secretaries and Assistant
Treasurers may, with the Chairman, the President or a Vice President, sign
certificates for shares of capital stock of the Corporation.
ARTICLE VI
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
----------------------------------------------
6.1 EXECUTION OF CONTRACTS. The Board may authorize any officer,
employee or agent, in the name and on behalf of the Corporation, to enter into
any contract or execute and satisfy any instrument, and any such authority may
be general or confined to specific instances or otherwise limited.
6.2 LOANS. The Chairman, the President or any other officer, employee
or agent authorized by the Bylaws or by the Board may effect loans and advances
at any time for the Corporation from any bank, trust company or other
institution or from any firm, corporation or individual and for such loans and
advances may make, execute and deliver promissory notes, bonds or other
certificates or evidences of indebtedness of the Corporation, and, when
authorized by the Board so to do, may pledge and hypothecate or transfer any
securities or other property of the Corporation as security for any such loans
or advances. Such authority conferred by the Board may be general or confined to
specific instances or otherwise limited.
6.3 CHECKS, DRAFTS, ETC. All checks, drafts and other orders f or the
payment of money out of the funds of the Corporation and all notes or other
evidences of indebtedness of the Corporation shall be signed on behalf of the
Corporation in such manner as shall from time to time he determined by
resolution of the Board.
6.4 DEPOSITS. The funds of the Corporation not otherwise employed shall
be deposited from time to time to the order of the Corporation in such banks,
trust companies or other depositories as the Board, the Chairman or the
President may select or as may be selected by an officer, employee or agent of
the Corporation to whom such power may from time to time be delegated by the
Board, the Chairman or the President.
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<PAGE>
ARTICLE VII
STOCK AND DIVIDENDS
7.1 CERTIFICATES REPRESENTING SHARES. The shares of capital stock of
the Corporation shall be represented by certificates in such form (consistent
with the provisions of Section 607.0625 of the Business Corporation Act) as
shall be approved by the Board. Such certificates shall be signed by the
Chairman, the President or a Vice President and by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer, and may be sealed with the
seal of the Corporation or a facsimile thereof. The signatures of the officers
upon a certificate may be facsimiles, if the certificate is countersigned by a
transfer agent or registrar other than the Corporation itself or its employee.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon any certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued,
such certificate may, unless otherwise ordered by the Board, be issued by the
Corporation with the same effect as if such person were such officer, transfer
agent or registrar at the date of issue.
7.2 TRANSFER OF SHARES. Transfers of shares of capital stock of the
Corporation shall be made only on the books of the Corporation by the holder
thereof or by his duly-authorized attorney appointed by a power of attorney duly
executed and filed with the Secretary or a transfer agent of the Corporation,
and on surrender of the certificate or certificates representing such shares of
capital stock properly endorsed for transfer and upon payment of all necessary
transfer taxes. Every certificate exchanged, returned or surrendered to the
Corporation shall be marked ,Canceled," with the date of cancellation, by the
Secretary or an Assistant Secretary or the transfer agent of the Corporation. A
person in those name shares of capital stock shall stand on the books of the
Corporation shall be deemed the owner thereof to receive dividends, to vote as
such owner and for all other purposes as respects the Corporation. No transfer
of shares of capital stock shall be valid as against the Corporation, its
shareholders and creditors for any purpose, except to render the transferee
liable for the debts of the Corporation to the extent provided by law, until
such transfer shall have been entered on the books of the Corporation by an
entry showing from and to whom transferred.
7.3 TRANSFER AND REGISTRY AGENTS. The Corporation may from time to time
maintain one or more transfer offices or agents and registry offices or agents
at such place or places as may be determined from time to time by the Board.
7.4 LOST, DESTROYED, STOLEN AND MUTILATED CERTIFICATES. The holder of
any shares of capital stock of the Corporation shall immediately notify the
Corporation of any loss, destruction, theft or mutilation of the certificate
representing such shares, and the Corporation may issue a new certificate to
replace the certificate alleged to have been lost, destroyed, stolen or
mutilated. The Board may, in its discretion, as a condition to the issue of any
such new certificate, require the
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<PAGE>
owner of the lost, destroyed, stolen or mutilated certificate, or his legal
representatives, to make proof satisfactory to the Board of such loss,
destruction, theft or mutilation and to advertise such fact in such manner as
the Board may require, and to give the Corporation and its transfer agents and
registrars, or such of them as the Board may require, a bond in such form, in
such sums and with such surety or sureties as the Board may direct, to indemnify
the Corporation and its transfer agents and registrars against any claim that
may be made against any of them on account of the continued existence of any
such certificate so alleged to have been lost, destroyed, stolen or mutilated
and against any expense in connection with such claim.
7.5 REGULATIONS. The Board may make such rules and regulations as it
may deem expedient, not inconsistent with the Bylaws or with the Articles of
incorporation, concerning the issue, transfer and registration of certificates
representing shares of its capital stock.
7.6 RESTRICTION ON TRANSFER OF STOCK. A written restriction on the
transfer or registration of transfer of capital stock of the Corporation, if
permitted by Section 607.0627 of the Business Corporation Act and noted
conspicuously on the certificate representing such capital stock, may be
enforced against the holder of the restricted capital stock or any successor or
transferee of the holder including an executor, personal representative,
administrator, trustee, guardian or other fiduciary entrusted with like
responsibility for the person or estate of the holder. Unless noted
conspicuously on the certificate representing such capital stock, a restriction,
even though permitted by Section 607.0627 of the Business Corporation Act, shall
be ineffective except against a person with actual knowledge of the restriction.
A restriction on the transfer or registration of transfer of capital stock of
the Corporation may be imposed either by the Articles of Incorporation or by an
agreement among any number of shareholders or among such shareholders and the
Corporation. No restriction so imposed shall be binding with respect to capital
stock issued prior to the adoption of the restriction unless the holders of such
capital stock are parties to an agreement or voted in favor of the restriction.
7.7 DIVIDENDS, SURPLUS, ETC. Subject to the provisions of the Articles
of Incorporation and of law, the Board may:
(a) declare and pay dividends or make other distributions on
the outstanding shares of capital stock in such amounts and at such time or
times as, in its discretion, the condition of the affairs of the Corporation
shall render it advisable;"
(b) use and apply, in its discretion, any of the surplus of
the Corporation in purchasing or acquiring any shares of capital stock of the
Corporation, or purchase warrants or options therefor, in accordance with law,
or any of its bonds, debentures, notes, scrip or other securities or evidences
of indebtedness; and
(c) set aside f rom time to time out of such surplus or net
profits such sum or sums as, in its discretion, it may think proper, as a
reserve fund to meet contingencies, or for equalizing dividends or for the
purpose of maintaining or increasing the property or business of the
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<PAGE>
Corporation, or for any purpose it may think conducive to the best interests of
the Corporation.
ARTICLE VIII
INDEMNIFICATION
---------------
The corporation shall indemnify and hold harmless its directors,
officers, employees and agents to the fullest extent permitted by the laws of
the State of Florida.
ARTICLE IX
BOOKS AND RECORDS
-----------------
9.1 BOOKS AND RECORDS. The Corporation shall keep correct and complete
books and records of account and shall keep minutes of the proceedings of the
shareholders, the Board and any committee of the Board. The Corporation shall
keep at its principal office or at the office of the transfer agent or registrar
of the Corporation a record containing the names and addresses of all
shareholders, the number and class of shares held by each and the dates when
they respectively became the owners of record thereof.
9.2 FORM OF RECORDS. Any records maintained by the Corporation in the
regular course of its business, including its stock ledger, books of account,
and minute books, may be kept on, or be in the form of, punch cards, magnetic
tape, floppy disks, photographs, microphotographs, or any other information
storage device, provided that the records so kept can be converted into clearly
legible - written form within a reasonable time. The Corporation shall so
convert any records so kept upon the request of any person entitled to inspect
the same.
9.3 INSPECTION OF BOOKS AND RECORDS. Except as otherwise provided by
law, the Board shall determine from time to time whether, and, if allowed, when
and under what conditions and regulations, the accounts, books, minutes and
other records of the Corporation, or any of them, shall be open to the
inspection of the shareholders.
ARTICLE X
SEAL
----
The Board may adopt a corporate seal which shall be in the form of a
circle and shall bear the full name of the Corporation, the year of its
incorporation and the word "Florida."
ARTICLE XI
FISCAL YEAR
-----------
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<PAGE>
The fiscal year of the Corporation shall be determined, and may be
changed, by resolution of the Board.
ARTICLE XII
SECURITIES OF OTHER ENTITIES
----------------------------
Unless otherwise provided by resolution of the Board, the President
may, from time to time, appoint one or more attorneys or agents of the
Corporation, in the name and on behalf of the Corporation, to cast the votes
which the corporation may be entitled to cast as a shareholder or otherwise in
any corporation or other entity, any of whose shares or securities may be held
by the Corporation, at meetings of the holders of stock or other securities of
such corporation or other entity, or to consent in writing to any action by any
such corporation or other entity, and may instruct the person or persons so
appointed as to the manner of casting such votes or giving such consent, and may
execute or cause to be executed on behalf of the Corporation and under its
corporate seal, or otherwise, such written proxies, consents, waivers or other
instruments as he may deem necessary or proper in his discretion; or the
President may himself attend any meeting of the holders of the stock or other
securities of any such corporation or other entity and thereat vote or exercise
any or all other powers of the Corporation as the holder of such stock or other
securities of such corporation or other entity.
ARTICLE XIII
GENDER
------
As used in these Bylaws, the masculine gender shall extend to and shall
include the feminine and the neuter genders.
ARTICLE XIV
AMENDMENTS
----------
These Bylaws may not be amended, modified, altered, changed or
repealed, in whole or in part, unless such amendment, modification, alteration,
change or repeal is approved by a majority of the Directors at a meeting of the
Board at which a quorum is present.
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EXHIBIT 22
SENTECH EAS CORPORATION
REGISTRANT'S SUBSIDIARIES
SenTech EAS International, Inc. is a wholly owned subsidiary of SenTech EAS
Corporation.
END OF PAGE
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