- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
( X ) QUARTERLY REPORT ( ) TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1999_____________________________
Commission File No. 33-20015-NY
-----------
SENTECH EAS CORPORATION
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
FLORIDA 65-0734041
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
484 Southwest 12th Avenue
Deerfield Beach, Florida 33442-3108
- ---------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: 954-426-2965
------------
Former name, former address and former fiscal year,
if changed since last report:
---------------------------------------------------
Same
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ----
As of November 12, 1999, there were 1,677,219 shares of the common stock
outstanding.
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<PAGE>
SENTECH EAS CORPORATION
INDEX
FORM 10-QSB
NINE MONTHS ENDED SEPTEMBER 30, 1999
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statement of Shareholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II. Other Information
Item 1. Legal Proceedings 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 10
<PAGE>
SENTECH EAS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
1999 December 31,
(Unaudited) 1998
-------------------------------
Assets
- -------------------------------------------------------------------------------------------
Current assets
<S> <C> <C>
Cash and cash equivalents $ 199,171 $ 305,307
Accounts receivable, net of allowances of $5,000 120,247 110,576
Inventories 424,663 478,886
Other current assets 56,194 54,847
----------- -----------
Total current assets 800,275 949,616
Property and equipment, net 22,248 33,450
Other assets 160,857 161,570
----------- -----------
$ 983,380 $ 1,144,636
=========== ===========
Liabilities and Shareholders' Equity
-----------
Current liabilities
Accounts payable $ 109,088 $ 110,090
Accrued liabilities 53,976 55,814
----------- -----------
Total current liabilities 163,064 165,904
----------- -----------
Long-term debt 203,000 203,000
----------- -----------
Shareholders' equity
Common stock; $0.00024 par value; 20,833,333 authorized;
1,677,219 issued and outstanding 403 403
Additional capital 2,463,182 2,463,182
Accumulated deficit (1,846,269) (1,687,853)
----------- -----------
Total shareholders' equity 617,316 775,732
----------- -----------
$ 983,380 $ 1,144,636
=========== ===========
</TABLE>
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See accompanying notes to consolidated financial statements.
<PAGE>
SENTECH EAS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
- ----------------------------------------------- ----------------- ----------- ------------- ----------
<S> <C> <C> <C> <C>
Revenues $ 317,145 $ 407,467 $ 972,587 $ 1,624,147
Cost of revenues (202,557) (220,080) (592,634) (1,016,916)
----------- ----------- ----------- -----------
-----------
Gross profit 114,588 187,387 379,953 607,231
Selling, general, and administrative expenses (209,407) (213,175) (535,209) (689,082)
----------- ----------- ----------- -----------
Operating loss (94,819) (25,788) (155,256) (81,851)
Interest expense (1,057) (1,069) (3,160) (3,389)
Interest income -- 4,263 -- 7,562
----------- ----------- ----------- -----------
Net loss $ (95,876) $ (22,594) $ (158,416) $ (77,678)
=========== =========== =========== ===========
Net loss per share $ (0.06) $ (0.02) $ (0.10) $ (0.05)
=========== =========== =========== ===========
</TABLE>
- -------------------------------------------------------------
See accompanying notes to consolidated financial statements.
<PAGE>
SENTECH EAS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Accumulated
------------------------------
Shares Amount capital deficit Total
------------- -------------- ----------------- ------------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 1,667,219 $ 403 $ 2,463,182 $(1,687,853) $ 775,732
Net loss (158,416) (158,416)
============= ============== ================= =================== ===============
Balance at September 30, 1999 (Unaudited)
1,677,219 $ 403 $ 2,463,182 $(1,846,269) $ 617,316
============= ============== ================= =================== ===============
</TABLE>
- ----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
<PAGE>
SENTECH EAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30,
1999 1998
- ------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net loss $(158,416) $ (77,678)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 11,915 15,552
Debt interest converted to common stock -- 2,138
Stock issued in lieu of payment for professional services -- 14,000
Stock based compensation -- 10,500
Net changes in operating assets and liabilities:
Accounts receivable (9,671) 66,829
Inventories 54,223 66,968
Other current assets (1,347) (19,774)
Other assets -- (31,050)
Accounts payable (1,002) (264,656)
Accrued liabilities (1,838) 35,234
--------- ---------
Net cash used in operating activities (106,136) (181,937)
--------- ---------
Cash flows from investing activities:
Capital expenditures -- (1,383)
--------- ---------
Cash flows from financing activities:
Payments on note payable to bank -- (16,657)
--------- ---------
Net cash used in financing activities -- (16,657)
--------- ---------
Net decrease in cash and cash equivalents (106,136) (199,977)
Cash and cash equivalents at beginning of year 305,307 475,263
--------- ---------
Cash and cash equivalents at end of quarter $ 199,171 $ 275,286
========= =========
</TABLE>
- -------------------------------------------------------------
See accompanying notes to consolidated financial statements.
<PAGE>
SENTECH EAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the financial statements of
SenTech EAS Corporation and its wholly owned subsidiary, SenTech EAS
International, Inc., (collectively, the "Company"). All significant
intercompany balances and transactions have been eliminated in
consolidation.
The interim consolidated financial statements presented have been prepared
by the Company without audit and, in the opinion of the management, reflect
all adjustments of a normal recurring nature necessary for a fair statement
of (a) the results of operations for each of the three and nine months
ended September 30, 1999 and September 30, 1998, (b) the financial position
at September 30, 1999, and (c) the cash flows for the nine months ended
September 30, 1999 and September 30, 1998. Interim results are not
necessarily indicative of results for a full year.
The consolidated balance sheet presented as of December 31, 1998 has been
derived from the consolidated financial statements that have been audited
by the Company's independent public accountants. The consolidated financial
statements and notes are condensed as permitted by Form 10-QSB and do not
contain certain information included in the annual financial statements and
notes of the Company. The consolidated financial statements and notes
included herein should be read in conjunction with the financial statements
and notes included in the Company's Annual Report on Form 10-KSB.
2. INVENTORIES
Inventories consisted of the following:
September 30,
1999 December 31,
(Unaudited) 1998
--------------- --------------
Raw materials $ 137,359 $ 249,129
Finished goods 287,304 229,757
--------------- --------------
$ 424,663 $ 478,886
=============== ==============
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
3. NET LOSS PER SHARE
Net loss per share is calculated using the weighted average number of
common shares and dilutive potential common stock outstanding during the
year. The number of shares used in the per share computations were
1,677,219 and 1,677,201 for the three months ended September 30, 1999 and
1998, respectively; and 1,677,219 and 1,656,624 for the nine months ended
September 30, 1999 and 1998, respectively. Potential common stock, when
included in the computation of dilutive earningsper share, was
anti-dilutive at September 30, 1999 and 1998.
<PAGE>
4. Recent Pronouncements in Accounting Standards
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.
5. 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"). During September 1999, the Company and Ensec agreed to
terminate the merger agreement.
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 September 30, 1999, $183,000 of non-recurring engineering
costs were capitalized, net of $4,000 of accumulated amortization, of which
$31,000 and $152,000 are included in other current assets and other assets,
respectively. For the three and nine months ended September 30, 1999 and
1998, there were no amortized non-recurring engineering costs included in
cost of revenues. The Agreement also requires the Company to purchase
minimum quantities of the system each year representing an aggregate
purchase commitment of $2,250,000 with annual obligations of $375,000 by
February 1999; $750,000 by January 2000; and $1,125,000 by January 2001.
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.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS
This Quarterly Report on Form 10-QSB contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. The Company's actual results
could differ materially from those set forth in the forward-looking
statements.
The following discussion should be read in conjunction with the attached
consolidated financial statements and notes thereto and with the Company's
audited financial statements and notes thereto for the fiscal year ended
December 31, 1998.
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1998
REVENUES
Revenues were approximately $317,000 for the third quarter 1999, a decrease
of $90,000 or 22% from revenues of $407,000 for the third quarter 1998.
Revenues of approximately $973,000 for the nine months ended September 30,
1999 decreased $652,000 or 40% from revenues of approximately $1,624,000
for the nine months ended September 30, 1998. The decrease in revenues
during 1999 was primarily attributed to the reduced sales from ink tags
which generated less than 1% of the Company's total revenues for the nine
months ended September 30, 1999, as compared to 22% of the Company's total
revenues for the nine months ended September 30, 1998. At September 30,
1999, the Company ended the quarter with nearly $51,000 in backlog compared
to nearly $94,000 in backlog at September 30, 1998.
GROSS PROFIT
Gross profit was approximately $115,000 for the third quarter 1999, a
decrease of $72,000 or 39% from gross profit of $187,000 for the third
quarter 1998. Gross profit of approximately $380,000 for the nine months
ended September 30, 1999 decreased $227,000 or 37% from gross profit of
approximately $607,000 for the nine months ended September 30, 1998. The
decrease in gross profit during 1999 was primarily a result of the decrease
in revenues. Gross profit margins decreased during 1999 to 36% from 46% for
the third quarter 1999 and 1998, respectively, and increased to 39% from
37% for the nine months ended September 30, 1999 and 1998, respectively.
The change in gross profit for the three and nine months ended September
30, 1999 and 1998 was a result of the change in revenues and the relative
sales mix of products sold. 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 consistent as the
Company's customer base expands.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE
Selling, general, and administrative expenses were approximately $209,000
for the third quarter 1999, a decrease of $4,000 or 2% from selling,
general, and administrative expenses of approximately $213,000 for the
third quarter 1998. Selling, general, and administrative expenses of
approximately $535,000 for the nine months ended September 30, 1999
decreased $154,000 or 22% from approximately $689,000 for the nine months
ended September 30, 1998. Operating expenses decreased significantly during
1999 resulting from cost restructuring and downsizing.
<PAGE>
INTEREST EXPENSE AND INTEREST INCOME
Interest expense primarily represents interest accrued on the $53,000 of 8%
mandatory convertible notes due to a director of the Company. During March
1998, the Company paid in full the 7.5% note payable to bank. Interest
income primarily represents interest earned on cash balances in excess of
operating requirements.
NET LOSS AND NET LOSS PER SHARE
Net loss was approximately $(96,000) for the third quarter 1999, an
increase of $(73,000) or 317% from the net loss of $(23,000) for the third
quarter 1998 primarily as a result of a decrease of approximately $90,000
in revenues.
Net loss was approximately $(158,000) for the nine months ended September
30, 1999, an increase of $(80,000) or 103% from the net loss of $(78,000)
for the nine months ended September 30, 1998 primarily as a result of a
decrease of approximately $652,000 in revenues.
Net loss per share was $(0.06) for the third quarter 1999, an increase of
$(0.04) per share or 200% from the net loss per share of $(0.02) for the
third quarter 1998 resulting from decreased revenues.
Net loss per share was $(0.10) for the nine months ended September 30,
1999, an increase of $(0.05) per share or 100% from the net loss per share
of $(0.05) for the nine months September 30, 1998 resulting from the
decreased revenues.
LIQUIDITY AND CAPITAL RESOURCES
The Company's accumulated deficit was approximately $(1,846,000) and
$(1,688,000) at September 30, 1999 and December 31, 1998, respectively.
Working capital decreased approximately $147,000 from $784,000 at December
31, 1998 to $637,000 at September 30, 1999.
Net cash used in operating activities was approximately $(106,000) during
the nine months ended September 30, 1999, a decrease of $76,000 from
$(182,000) during the nine months ended September 30, 1998.
The Company believes 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. 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.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In October 1996, the Company was named as a defendant in a lawsuit filed in
New Jersey Superior Court whereby the plaintiff is seeking damages with
respect to certain alleged invoices totaling approximately $20,000. A
motion to amend the pleadings was filed and granted to assert counterclaims
and third party claims against the plaintiff and its officers for, among
other things, false designation of origin under the federal Lanham Act,
violations of statutory and common law unfair competition, trademark and
trade dress infringement, and breach of contract. 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. The Company has recorded in accrued liabilities a provision
of approximately $20,000 for any liability which may result from the
plaintiff's claim. Subsequent to September 30, 1999, the Plaintiff
dismissed its entire complaint against the Company.
ITEM 5. OTHER INFORMATION
MARKET FOR REGISTRANT'S COMMON STOCK
The Company's common stock has not commenced trading but is listed on the
National Association of Securities Dealers, Inc. ("NASD") OTC Electronic
Bulletin Board ("Bulletin Board") under the symbol "SETE". There have been
no quotes on the Company's common stock since its listing on the Bulletin
Board.
No assurance can be given that a public trading market for the Company's
common stock will develop or if developed will be sustained.
Employment of New President and Chief Executive Officer
On August 2, 1999, the Board of Directors employed Jeffrey A. Wiebell to
serve as the Company's new President and Chief Executive Officer.
Concurrent with the employment of the new President and Chief Executive
Officer, the Company's former President, Chief Executive Officer, and Chief
Financial Officer, Ronald L. Meggison, Jr., is no longer employed by the
Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibt 27 Financial Data Schedule.
(b) There were no reports on Form 8-K filed during the nine month period
ended September 30, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SENTECH EAS CORPORATION
By: /s/ JEFFREY A. WIEBELL
----------------------
Jeffrey A. Wiebell
President and
Chief Executive Officer
Date: November 9, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 199,171
<SECURITIES> 0
<RECEIVABLES> 125,247
<ALLOWANCES> 5,000
<INVENTORY> 424,663
<CURRENT-ASSETS> 800,275
<PP&E> 22,248
<DEPRECIATION> 0
<TOTAL-ASSETS> 983,380
<CURRENT-LIABILITIES> 163,064
<BONDS> 203,000
0
0
<COMMON> 403
<OTHER-SE> 616,913
<TOTAL-LIABILITY-AND-EQUITY> 983,380
<SALES> 317,145
<TOTAL-REVENUES> 317,145
<CGS> 202,557
<TOTAL-COSTS> 411,964
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,057)
<INCOME-PRETAX> (95,876)
<INCOME-TAX> 0
<INCOME-CONTINUING> (95,876)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (95,876)
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
