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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 March 31, 2000
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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 (I.R.S. Employer
of 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 April 30, 2000, there were 1,677,219 shares of the common stock
outstanding.
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<PAGE>
SENTECH EAS CORPORATION
INDEX
FORM 10-QSB
THREE MONTHS ENDED MARCH 31, 2000
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 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
PART II. OTHER INFORMATION
Item 3. Other Information 10
Item 4. Exhibits and Reports on Form 8-K 10
Signatures 10
<PAGE>
<TABLE>
<CAPTION>
SENTECH EAS CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31,
2000 DECEMBER 31,
(UNAUDITED) 1999
-----------------------------
ASSETS
- -------------------------------------------------------------
Current assets
<S> <C> <C>
Cash and cash equivalents $ 107,887 $ 211,642
Accounts receivable, net of allowances of $5,000 198,982 148,043
Inventories 406,078 401,974
Other current assets 26,550 8,176
----------- -----------
Total current assets 739,497 769,835
Property and equipment, net 14,950 18,684
Other assets 149,257 154,457
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$ 903,704 $ 942,976
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------------------------------
Current liabilities
Accounts payable $ 109,508 $ 112,743
Accrued liabilities 52,761 67,630
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Total current liabilities 162,269 180,373
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Long-term debt 203,000 203,000
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Shareholders' equity
Common stock; $0.00024 par value; 20,833,333 authorized;
1,677,219 issued and outstanding 403 403
Additional capital 2,463,182 2,463,182
Accumulated deficit (1,925,150) (1,903,982)
----------- -----------
Total shareholders' equity 538,435 559,603
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$ 903,704 $ 942,976
=========== ===========
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
SENTECH EAS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
2000 1999
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Revenues $ 353,211 $ 288,692
Cost of revenues (214,659) (180,198)
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Gross profit 138,552 108,494
Selling, general, and administrative expenses (160,157) (158,076)
--------- ---------
Operating loss (21,605) (49,582)
Interest expense (1,045) (1,046)
Interest income 1,482 _
--------- ---------
Net loss $ (21,168) $ (50,628)
========= =========
Net loss per share $ (0.01) $ (0.03)
========= =========
- --------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
SENTECH EAS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK ADDITIONAL ACCUMULATED
----------------------------------
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------------- ---------------- ---------------- ------------------ -------------
BALANCE AT DECEMBER 31, 1999 1,677,219 $ 403 $ 2,463,182 $(1,903,982) $ 559,603
Net loss (21,168) (21,168)
--------------- ---------------- ---------------- ------------------ -------------
BALANCE AT MARCH 31, 2000 (UNAUDITED)
1,677,219 $ 403 $ 2,463,182 $(1,925,150) $ 538,435
=============== ================ ================ ================== =============
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
SENTECH EAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
2000 1999
- ------------------------------------------------------------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (21,168) $ (50,628)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 13,234 4,447
Net changes in operating assets and liabilities:
Accounts receivable (50,939) (38,690)
Inventories (4,104) 11,450
Other current assets (18,374) (10,792)
Other assets (4,300) _
Accounts payable (3,235) 27,815
Accrued liabilities (14,869) (8,122)
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Net cash used in operating activities (103,755) (64,520)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures _ _
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on note payable to bank _ _
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Net cash used in financing activities _ _
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Net decrease in cash and cash equivalents (103,755) (64,520))
Cash and cash equivalents at beginning of year 211,642 305,307
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Cash and cash equivalents at end of Quarter $ 107,887 $ 240,787
========= =========
- -------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
5
<PAGE>
SENTECH EAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the financial statements of
SenTech EAS Corporation and its wholly owned subsidiary, SenTech EAS
International, Inc., (collectively, the "Company"). All significant
intercompany balances and transactions have been eliminated in
consolidation.
The interim consolidated financial statements presented have been prepared
by the Company without audit and, in the opinion of the management,
reflect all adjustments of a normal recurring nature necessary for a fair
statement of (a) the results of operations for the three months ended
March 31, 2000 and March 31, 1999, (b) the financial position at March 31,
2000, and (c) the cash flows for the three month periods ended March 31,
2000 and March 31, 1999. Interim results are not necessarily indicative of
results for a full year.
The consolidated balance sheet presented as of December 31, 1999 has been
derived from the consolidated financial statements that have been audited
by the Company's independent public accountants. The consolidated
financial statements and notes are condensed as permitted by Form 10-QSB
and do not contain certain information included in the annual financial
statements and notes of the Company. The consolidated financial statements
and notes included herein should be read in conjunction with the financial
statements and notes included in the Company's Annual Report on Form
10-KSB.
2. INVENTORIES
Inventories consisted of the following:
MARCH 31,
2000 DECEMBER 31,
(UNAUDITED) 1999
----------- ------------
Raw materials $ 116,143 $ 205,289
Finished goods 289,935 262,147
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$ 406,078 $ 467,436
========== =========
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
6
<PAGE>
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 1,677,219 at March 31, 2000 and 1999, respectively.
Potential common stock, when included in the computation of dilutive
earnings per share, was anti-dilutive at March 31, 2000 and 1999.
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.
4. RECENT PRONOUNCEMENTS IN ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income,"
which is effective for fiscal years beginning after December 15, 1997.
SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements which requires the Company to (i) classify items of
other comprehensive income by their nature in a financial statement and
(ii) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in-capital in the
equity section of the balance sheet. There was no material impact to the
Company's financial reporting or presentation due to the adoption of SFAS
No. 130.
Also in June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131 "Disclosures about
Segments of an Enterprise and Related Information," which is effective for
fiscal years beginning after December 15, 1997. SFAS No. 131 supersedes
SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise",
and amends SFAS No. 94, "Consolidation of All Majority-Owned
Subsidiaries". SFAS No. 131 requires annual financial statements to
disclose information about products and services, geographic areas, and
major customers based on a management approach, along with interim
reports. The management approach requires disclosing financial and
descriptive information about an enterprise's reportable operating
segments based on reporting information the way management organizes the
segments for making business decisions and assessing performance. It also
eliminates the requirement to disclose additional information about
subsidiaries that were not consolidated. This new management approach may
result in more information being disclosed than presently practiced and
require new interim information not previously presented. There was no
material impact to the Company's financial reporting or presentation due
to the adoption of SFAS No. 131.
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.
7
<PAGE>
5. COMMITMENTS AND CONTINGENCIES
PURCHASE AND MANUFACTURING AGREEMENT
In June 1997, the Company entered into a three year purchase and
manufacturing agreement (the "Agreement"). with a company whose former
President and Chief Executive Officer is a Director of the Company. The
Agreement, as amended in1999, provided 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 were capitalized at
cost pursuant to paragraphs 11 and 12 of SFAS 2 and are amortized as a
component of cost of revenues using the straight-line method over the
estimated useful life of the technology anticipated to be five years.
Effective January 1, 1999, the Company changed its method of amortization
from the units of production method to the straight line method. The
change was applied on prospective basis.
LEASES
During March 2000, a new lease was entered into for 5,500 square feet of
new office, warehouse and distribution space. The terms of the lease
provide for monthly payments of $4,500 plus sales tax through June 2005.
INSTALLATION AND CUSTOMER SERVICE AGREEMENT
In July 1995, the Company entered into a service agreement effective
August 1995 with a national service organization 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 $800 and
$5,100 for each of the three months ended, March 31, 2000 and 1999.
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.
8
<PAGE>
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 recognized 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 was not impacted by the
year 2000 issue, or by any of its significant suppliers, dealers,
financial institutions in relation to their year 2000 issues. During
1999,the Company completed its plan to be year 2000 compliant and is not
experiencing any material impact to its financial position, operations and
cash flows. There can be no assurance whether the Company or such third
parties has successfully addressed their respective year 2000 issues and
whether the failure to do so will not have a material adverse effects on
the Company's business, financial condition, cash flows, and results of
operations.
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, 1999.
FIRST QUARTER 2000 AS COMPARED TO THE FIRST QUARTER 1999
REVENUES
Revenues were approximately $353,000 for the first quarter 2000, an
increase of $64,000 or 22% from revenues of $289,000 for the first quarter
of 1999. The increase in revenues for the first quarter of 2000 was
primarily attributed to sales from existing customers, which generated 42%
of the Company's total revenues for the first quarter of 2000. At March
31, 2000, the Company ended the quarter with nearly $85,000 in backlog
compared to $94,000 in backlog at March 31, 1999.
GROSS PROFIT
Gross profit was approximately $139,000 for the first quarter of 2000, an
increase of $31,000 or 29% from gross profit of $108,000 for the first
quarter of 1999 primarily as a result of the increase in revenues. Gross
profit margin was 39.2% for the first quarter of 2000, an increase from
37.6% for the first quarter of 1999. 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.
9
<PAGE>
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE
Selling, general, and administrative expenses were approximately $160,000
for the first quarter of 2000, an increase of $2,000 or 1% from selling,
general, and administrative expenses of $158,000 for the first quarter
1999. Operating expenses increased during the first quarter of 2000
resulting from tradeshows and related expenses.
INTEREST EXPENSE AND INTEREST INCOME
Interest expense was approximately $1,100 for the first quarter of 2000
and $1,100 for the first quarter 1999. Interest income for the first
quarter of 2000 was $1,482, primarily represents interest earned on cash
balances in excess of operating requirements.
NET LOSS AND NET LOSS PER SHARE
Net loss was approximately $(21,000) for the first quarter of 2000, a
decrease of $30,000 or 59% from the net loss of $(51,000) for the first
quarter of 1999, primarily as a result of an increase of approximately
$31,000 in gross profit offset by an increase in operating costs of nearly
$2,000.
Net loss per share was $(0.01) at March 31, 2000, an increase of $0.02 per
share or 200% from the net loss per share of $(0.03) at March 31, 1999
resulting from the $30,000 decrease in net loss.
LIQUIDITY AND CAPITAL RESOURCES
The Company's accumulated deficit was approximately $(1,925,000) and
$(1,738,000) at March 31, 2000 and 1999, respectively. Working capital
decreased approximately $161,000 from $738,000 at March 31, 1999 to
$577,000 at March 31, 2000.
Net cash used in operating activities was approximately $(104,000) during
the first quarter of 2000, an increase of $39,000 from $(65,000) during
the first quarter of 1999.
The Company believes the expected results of operations in 2000 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
2000. 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.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
There were no exhibits or reports on Form 8-K filed during the three month
period ended March 31, 2000.
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 May
12, 2000.
SENTECH EAS CORPORATION
By: /s/ JEFF WIEBELL
-----------------
Jeff Wiebell
President and Chief Executive
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 107,887
<SECURITIES> 0
<RECEIVABLES> 203,982
<ALLOWANCES> 5,000
<INVENTORY> 406,078
<CURRENT-ASSETS> 739,497
<PP&E> 18,684
<DEPRECIATION> 3,734
<TOTAL-ASSETS> 903,704
<CURRENT-LIABILITIES> 162,269
<BONDS> 203,000
0
0
<COMMON> 403
<OTHER-SE> 538,032
<TOTAL-LIABILITY-AND-EQUITY> 903,704
<SALES> 353,211
<TOTAL-REVENUES> 353,211
<CGS> 214,659
<TOTAL-COSTS> 214,659
<OTHER-EXPENSES> 160,157
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,045
<INCOME-PRETAX> (21,168)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,168)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
