SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 8-K/A
(Amendment No. 2)
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
April 9, 1998
Micropoint, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
0-24368 33-0615178
(Commission file number) (IRS employer identification no.)
6906 South 300 West, Midvale, Utah 84047
(Address of principal executive (Zip code)
(801) 568-5111
(Registrant's telephone number, including area code)
This document contains a total of 27 pages.
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits.
a. Financial Statements of Businesses Acquired.
See page F-1.
b. Pro Forma Financial Information.
See page F-1.
c. Exhibits.
Number Description
2.1 Agreement and Plan of Reorganization (Incorporated by
reference to Exhibit 2.1 of the Company's current report on
Form 8-K, dated April 9, 1998).
3.1 Certificate of Amendment to Certificate of Incorporation
(Incorporated by reference to Exhibit 3.1 of the Company's
current report on Form 8-K, dated April 9, 1998).
10.1 Employment Agreement with Douglas Odom (Incorporated by
reference to Exhibit 10.1 of the Company's current report
on Form 8-K, dated April 9, 1998).
10.2 Lease Agreement (Incorporated by reference to Exhibit 10.2
of the Company's current report on Form 8-K, dated April 9,
10.3 Ohio Art Agreement (Incorporated by reference to Exhibit
10.3 of the Company's current report on Form 8-K, dated
April 9, 1998).
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned hereunto duly
authorized.
Micropoint, Inc.
Date: September 10, 1998 By /s/ Douglas M. Odom
Douglas M. Odom
President, Chief Executive
Officer and Director
MICROPOINT, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
----
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS F-2
Unaudited Condensed Pro Forma Consolidated Balance Sheet - March 31,
1998 F-3
Unaudited Condensed Pro Forma Consolidated Statements of Operations for
the Year Ended December 31, 1997 and for the Three Months Ended March
31, 1998 F-4
SENSITRON INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants F-6
Consolidated Balance Sheet - December 31, 1997 F-7
Consolidated Statements of Operations for the Years Ended December 31,
1997 and 1996 and for the Period from Janaury 5, 1995 (Date of
Inception) through December 31, 1997 F-8
Consolidated Statements of Stockholders' Equity (Deficit) for the Period
from January 5, 1995, (Date of Inception) through December 31, 1995,
and for the Years Ended December 31, 1996 and 1997 F-9
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997 and 1996 and for the Period from January 5, 1995 (Date of
Inception) through Decmber 31, 1997 F-11
Notes to Consolidated Financial Statements F-12
Condensed Consolidated Balance Sheet - March 31, 1998 (Unaudited) F-23
Condensed Consolidated Statements of Operations for the Three Months
Ended March 31, 1998 and 1997 and for the Period from January 5, 1995
Date of Inception) through March 31, 1998 (Unaudited) F-24
Condensed Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1998 and 1997 and for the Period from Janaury 5, 1995
(Date of Inception) through March 31, 1998 (Unaudited) F-25
Notes to Condensed Consolidated Financial Statements (Unaudited) F-26
----------------------------
MICROPOINT, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
In April 1998, Micropoint, Inc. ("Micropoint") completed a business
combination with Sensitron Inc. The following unaudited pro forma
condensed consolidated balance sheet has been prepared to present the
financial position of Micropoint and subsidiaries as though the merger of
Sensitron Inc. into a newly-formed subsidiary of Micropoint was
consummated on March 31, 1998. The following unaudited pro forma condensed
consolidated statements of operations have been prepared to present the
operations of the consolidated companies assuming the merger had occurred
on January 1, 1997. The merger was accounted for as the reorganization of
Sensitron Inc. and the acquisition of Micropoint using the purchase method
of accounting, with Sensitron Inc. being considered as the acquiring
enterprise.
The following financial information was derived from, and should be read
in conjunction with the separate historical financial statements of
Micropoint included in its annual report to shareholders on Form 10-KSB as
amended and the consolidated financial statements of Sensitron Inc. and
the related notes to those financial statements which are included
elsewhere herein. The unaudited pro forma condensed consolidate balance
sheet and statements of operations have been included herein for
comparative purposes only and do not purport to be indicative of the
results of operations which actually would have been obtained had the
merger occurred March 31, 1998 or January 1, 1997, or the results of
operations which may be obtained in the future. In addition, further
results may vary significantly from the results reflected in these pro
forma financial statements.
F-2
MICROPOINT, INC.
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED
BALANCE SHEET
MARCH 31, 1998
Pro
Forma Pro
Sensitron Micropoint Adjustments Forma
---------- ---------- ----------- ----------
ASSETS
Current Assets
Cash and cash equivalents $ 45,552 $1,492,906 $ - $1,538,458
Accounts receivable, net 51,141 - - 51,141
Receivable from escrow agent - 64,825 - 64,825
Investment in securities
available-for-sale, net
of allowance - 433,857 - 433,857
Note receivable 3,387 - - 3,387
Related party receivable - 1,000,000 (A)(1,000,000) -
---------- ---------- ---------- ----------
Total Current Assets 100,080 2,991,588 (1,000,000) 2,091,668
---------- ---------- ---------- ----------
Equipment 1,078,489 - - 1,078,489
Less accumulated
depreciation (230,875) - - (230,875)
---------- --------- ---------- ----------
Net Equipment 847,614 - - 847,614
---------- --------- ---------- ----------
Goodwill, net of accumulated
amortization 59,901 - - 59,901
Deposits 15,779 - - 15,779
Patents, net of accumulated
amortization 85,249 - - 85,249
---------- ---------- ----------- -----------
Total Assets $1,108,623 $2,991,588 $(1,000,000) $ 3,100,211
========== ========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 174,190 $ - $ - $ 174,190
Deferred revenue 200,000 - - 200,000
Accrued expenses 134,261 - - 134,261
Accrued income taxes - 180,429 (C) (172,115) 8,134
Deferred income taxes - 117,506 (C) (117,506) -
Related party payable 1,000,000 - (A)(1,000,000) -
Notes payable 258,073 - - 258,073
---------- --------- ---------- ----------
Total Current Liabilities 1,766,524 297,935 (1,289,621) 774,838
---------- --------- ---------- ----------
Stockholders' Equity
Preferred stock - - - -
Common stock 3,126,453 6,000 (B)(3,116,593) 15,860
Additional paid-in-capital - 2,688,812 (B) 3,116,593
(C) 288,462 6,093,867
Unrealized loss on securities
available-for- sale - (8,251)(B) 8,251 -
Earnings (deficit) accumulated
during the development
stage (3,784,354) 7,092 (B) (7,092) (3,784,354)
----------- ---------- ---------- ----------
Total Stockholders'
Equity (Deficit) (657,901) 2,693,653 289,621 2,325,373
----------- ---------- ---------- ---------
Total Liabilities and
Stock-holders' Equity
(Deficit) $ 1,108,623 $2,991,588 $(1,000,000) $3,100,211
=========== ========== =========== ==========
NOTES TO UNAUDITED CONDENSED PRO FORMA BALANCE SHEET
A- Elimination of bridge loan from Micropoint to Sensitron Inc.
B- To record the issuance of 9,860,279 shares of common to the Sensitron
Inc. shareholders in connection with the merger of a newly-formed,
wholly-owned subsidiary of Micropoint into Sensitron Inc. For
accounting purposes, Sensitron Inc. is considered the acquiring
enterprise. Since there was no market for the Micropoint common stock
at the date of the merger nor has there been any trading of
Micropoint's common stock since that date, the fair value of the net
assets of Micropoint at the date of the reorganization, as adjusted in
Note D, is considered the fair value of the 6,000,000 shares of
Micropoint outstanding at that date. There were 15,860,279 shares of
common stock, $0.001 par value, issued and outstanding after the
reorganization.
C- To recognize a portion of the benefit of Sensitron's tax operating
loss carry forwards in the purchase business combination.
F-3
MICROPOINT, INC.
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,1997
Pro Forma Pro Forma
Sensitron Micropoint Adjustments Results
----------- ---------- ----------- ----------
Sales $ 261,936 $ - $ - $ 261,936
Cost of sales 93,694 - - 93,694
----------- ---------- ----------- ----------
Gross profit 168,242 - - 168,242
General and administrative
expense 1,654,819 59 (B) 1,669,587 3,324,223
----------- ---------- ---------- ---------
Loss from operations (1,486,577) (59) (1,669,587) (3,156,223)
Interest expense (34,879) - - (34,879)
Other expenses (19,602) - - (19,602)
----------- ---------- ----------- -----------
Net loss $(1,541,058) $ (59) $(1,669,587) $(3,210,704)
=========== ========== =========== ===========
Basic and diluted loss
per common share $ (0.13) $ - $ (0.20)
=========== ========== ===========
Weighted average number
of common shares used in
per share calculation 11,721,842 1,1454,853 (A) 2,683,584 15,860,279
========== =========== ========== ==========
FOR THE THREE MONTHS ENDED MARCH 31, 1998
Sales $ 60,088 $ - $ - $ 60,088
Cost of sales 44,726 - - 44,726
---------- ---------- ---------- -----------
Gross profit 15,362 - - 15,362
General and administrative
expense 471,026 312 (B) 37,767 -
(C) (276,243) 232,862
----------- ---------- ---------- -----------
Loss from operations (455,664) (312) 238,476 (217,500)
Interest expense (40) - - (40)
Investment income - 15,349 - 15,349
Other expenses (40) - - (40)
---------- ---------- ---------- -----------
Income (loss) before
income taxes (455,744) 15,037 238,476 (202,231)
Income tax expense - 4,402 (D) (4,402) -
---------- ---------- ---------- ----------
Net loss $ (455,744) $ 10,635 $ 242,878 $ (202,231)
========== ========== ========== ==========
Basic and diluted loss
per common share $ (0.05) $ - $ (0.01)
========== ========== ==========
Weighted average number
of common shares used in
per share calculation 9,860,279 5,103,719 (A) 896,281 15,860,279
========== ========== ========== ==========
Notes to the Unaudited Condensed Pro Forma Consolidated Statements are
presented on the following page.
F-4
MICROPOINT, INC.
NOTES TO PRO FORMA STATEMENTS OF OPERATIONS
A - In April 1998, Sensitron Inc. merged into a newly-formed subsidiary of
Micropoint. The shareholders of Sensitron exchanged their shares for
9,860,279 of Micropoint common stock. These shares are treated as having
been outstanding from January 1, 1997 for purposes of the pro forma
statements of operations.
B - As a condition of the merger, Micropoint, Inc. was required to raise
$3,000,000 in a private placement offering. Micropoint issued 4,000,000
shares of common stock under the private placement offering upon receipt
of $2,989,587 in the form of $2,014,535 in cash and $975,052 in securities
available-for-sale before related deferred income taxes. The merger
was completed without requiring the remainder of the equity capital.
For pro forma purposes, the equity capital is considered to have been
obtained on January 1, 1997 and the proceeds used at that date to pay
$1,579,587 for research and development expenses and general and
administrative expenses, $450,000 for the purchase of equipment and
$960,000 for the reduction of accounts payable and accrued liabilities.
The effects on the pro forma statement of operations for the year ended
December 31, 1997 are a $1,579,587 increase in general and administrative
expense and a $90,000 increase in depreciation expense. The effect on the
pro forma statement of operations for the three months ended March 31,
1998 is an increase in depreciation expense of $37,767.
C - During the three months ended March 31, 1998, Sensitron Inc. spent
$228,029 on research and development and $241,000 on equipment with
resulting depreciation of $48,214. Consistent with the adjustments
explained in Note B, the pro forma statement of operations for the three
months ended March 31, 1998 reflect the reduction of these expenditures
as though the expenditures and purchases occurred January 1, 1997.
D - To recognize the income tax effect of the above items and the benefit
of Sensitron's tax operating loss carryforward as a reduction of income
tax expense.
F-5
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and the Board of Directors
Sensitron Inc.
We have audited the accompanying consolidated balance sheet of
Sensitron Inc. and subsidiaries (a development stage enterprise) as
of December 31, 1997 and the related statements of operations,
stockholders' deficit, and cash flows for the years ended December
31, 1997 and 1996, and for the cumulative period from January 5,
1995 (date of inception) through December 31, 1997. These 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
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 financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of Sensitron Inc. and subsidiaries as of December 31, 1997
and the results of their operations and their cash flows for the
years ended December 31, 1997 and 1996, and for the cumulative
period from January 5, 1995 (date of inception) through December 31,
1997, in conformity with generally accepted accounting principles.
HANSEN, BARNETT & MAXWELL
June 12, 1998
Salt Lake City, Utah
F-6
SENSITRON INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
ASSETS
CURRENT ASSETS
Cash $ 106,494
Trade accounts receivable, net of allowance of $151,567 45,823
Stock subscription receivable 390,000
Note receivable 4,952
Related party receivable 47,989
----------
TOTAL CURRENT ASSETS 595,258
----------
PROPERTY AND EQUIPMENT 924,696
Less accumulated depreciation (205,808)
----------
NET PROPERTY AND EQUIPMENT 718,888
----------
GOODWILL, net of accumulated amortization of $53,911 65,891
DEPOSITS 13,279
PATENTS, net of accumulated amortization of $30,618 76,702
----------
TOTAL ASSETS $1,470,018
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Trade accounts payable $ 505,732
Related party payable 14,562
Accrued liabilities 398,473
Deferred revenue 200,000
Notes payable 561,409
----------
TOTAL CURRENT LIABILITIES 1,680,176
----------
STOCKHOLDERS' DEFICIT
Preferred stock no par value; 5,000,000 shares authorized;
no shares issued or outstanding -
Common stock no par value; 20,000,000 shares authorized;
9,860,279 shares issued and outstanding 3,118,453
Deficit accumulated during the development stage (3,328,611)
----------
TOTAL STOCKHOLDERS' DEFICIT (210,158)
----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $1,470,018
==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
SENSITRON INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Period
For the Years Ended January 5, 1995
December 31, (Date of Inception)
------------------------- Through
1997 1996 December 31, 1997
----------- ----------- -----------------
Sales $ 261,936 $ 867,724 $ 1,375,097
Cost of Goods Sold 93,694 466,476 708,372
----------- ----------- -----------
Gross Profit 168,242 401,248 666,725
General and administrative
expenses 1,654,819 1,807,263 3,911,455
----------- ----------- -----------
Loss From Operations (1,486,577) (1,406,015) (3,244,730)
Interest expense (34,879) (16,392) (54,044)
Interest income - 10,780 13,434
Other expenses (19,602) (5,670) (43,271)
----------- ----------- -----------
Net Loss $(1,541,058) $(1,417,297) $(3,328,611)
=========== =========== ===========
Basic and Diluted Loss Per
Common Share $ (0.13) $ (0.12) $ (0.34)
=========== =========== ===========
Weighted Average Number of
Common Shares Used in Per
Share Calculation 11,721,842 11,899,511 9,881,152
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
SENSITRON INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Total
Common Stock Receivable Deferred Stockholders'
--------------------- Accumulated For Common Offering Equity
Shares Amount Deficit Stock Costs (Deficit)
---------- -------- ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance - January 5, 1995
(Date of Inception) - $ - $ - $ - $ - $ -
Issuance cash, January 1995,
$0.00 per share 3,705,000 2,000 - - - 2,000
Issuance for cash, January 1995,
$0.46 per share 650,000 300,000 - - - 300,000
Contribution of patents by
stockholder, January 1995 - 22,232 - - - 22,232
Issuance for cash, September and
October 1995, $0.77 per share 852,800 656,000 - (24,000) - 632,000
Issuance to acquire Flexpoint, Inc.
September 26, 1995, $(0.02) per
share 5,395,000 (94,184) - - - 60,000
Issuance to acquire Tamco,
September 26, 1995, $0.46 per
share 130,000 60,000 - - - 60,000
Deferred offering costs - - - - (213,382) (213,382)
Net loss for the period from
January 5, 1995 through
December 31, 1995 - - (370,256) - - (370,256)
---------- -------- ------------ ----------- ---------- ------------
BALANCE - DECEMBER 31, 1995 10,732,787 $946,048 $ (370,256) $ (24,000) $ (213,382) $ 338,410
========== ======== ============ ========== ========== ============
</TABLE>
(Continued)
F-9
SENSITRON INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT) (CONTINUED)
<TABLE>
<CAPTION>
Total
Common Stock Receivable Deferred Stockholders'
--------------------- Accumulated For Common Offering Equity
Shares Amount Deficit Stock Costs (Deficit)
---------- -------- ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
---------- ---------- ------------ ----------- ---------- ------------
Balance - December 31, 1995 10,732,787 $ 946,048 $ (370,256) $(24,000) $ (213,382) $ 338,410
Issuance for services, January
1996, $0.77 per share 260,000 200,000 - - - 200,000
Issuance for cash, February 1996,
$0.77 per share 123,500 95,000 - - - 95,000
Issuance for cash, March through
October 1996, $0.66 per share
before $246,547 of offering
costs 1,957,111 1,053,453 - - 213,382 1,266,835
Forgiveness of stock subscription
receivable - (24,000) - 24,000 - -
Net loss - - (1,417,297) - - (1,417,297)
---------- ---------- ----------- -------- ---------- -------------
Balance - December 31, 1996 13,073,398 2,270,501 (1,787,553) - - 482,948
Issuance for cash, February
through July 1997, $0.97 per
share 143,000 110,000 - - - 110,000
Redemption from officers for
$50,000 of cash and $150,000
of notes payable, August 1997,
$0.03 per share (6,308,666) (200,000) - - - (200,000)
Issuance for cash, September
1997, $0.04 per share 1,820,000 80,000 - - - 80,000
Issuance upon conversion of
debt, September 1997, $0.57
per share 110,672 53,952 - - - 53,952
Issuance for cash and a $390,000
receivable, September through
December 1997, $0.78 per share 1,031,875 804,000 - - - 804,000
Net loss - - (1,541,058) - - (1,541,058)
--------- ---------- ---------- ------- ---------- ------------
BALANCE DECEMBER 31, 1997 9,860,279 $3,118,453 $(3,328,611) $ - $ - $ (210,158)
========= ========== =========== ======= ========== ============
The accompanying notes are anm integral part of these consolidated financial
statements.
F-10
</TABLE>
SENSITRON INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period
For the Period Ended January 5, 1995
December 31, (Date of Inception)
------------------------ Through
1997 1996 December 31, 1997
----------- ----------- ------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net Loss $(1,541,058) $(1,417,297) $ (3,328,611)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 166,040 105,480 295,850
Stock issued for services - 200,000 200,000
Allowance for doubtful accounts - 151,567 151,567
Changes in operating assets and liabilities:
Accounts receivable 249,641 (192,844) (61,349)
Accounts payable 52,327 213,800 326,918
Accrued liabilities 256,996 11,695 294,734
Deferred revenue 193,837 - 193,837
Other assets (3,761) 11,110 1,850
----------- ----------- -----------
Net Cash Used By Operating Activities (625,978) (916,489) (1,925,204)
----------- ----------- -----------
Cash Flows From Investing Activities
Payments to Flexpoint prior to acquisition - - (268,413)
Cash paid to acquire Tamco - - (25,000)
Payments to purchase equipment (92,008) (478,945) (621,534)
Proceeds from sale of equipment 8,090 - 8,090
Issuance of note receivable - (12,507) (12,507)
Payments received on note receivable 6,252 1,303 7,555
Payments for patents (11,769) (42,403) (71,295)
---------- ----------- -----------
Net Cash used by Investing Activities (89,435) (532,552) (983,104)
---------- ---------- -----------
Cash Flows From Financing Activities
Proceeds from issuance of common stock 604,000 1,395,000 2,933,000
Cash payments to officers to repurchase stock (50,000) - (50,000)
Cash paid for offering costs - (33,166) (123,020)
Proceeds from borrowings 303,960 - 303,960
Principal payments of debt (10,000) (35,415) (45,415)
Proceeds from related party notes 39,562 646 60,208
Principal payments of related party notes (66,376) - (63,931)
---------- ---------- -----------
Net Cash Provided by Financing Activities 821,146 1,327,065 3,014,802
---------- ---------- -----------
Net Change in Cash 105,733 (121,976) 106,494
Cash - Beginning of Period 761 122,737 -
---------- ---------- -----------
Cash - End of Period $ 106,494 $ 761 $ 106,494
========== ========== ===========
Supplemental Cash Flow Inormation and Noncash Investing and Financing
Activities - Note 6
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
F-11
SENSITRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF
BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION - Sensitron
Inc. ("Sensitron") was incorporated on January 5, 1995 under the
laws of the State of Utah. Sensitron and its wholly-owned
subsidiaries Flexpoint, Inc. ("Flexpoint") and Technology and
Machine Company, Inc. ("Tamco"), are collectively referred to
herein as the Company. The Company is a development stage
enterprise engaged principally in designing, engineering, and
manufacturing sensor technology and equipment using flexible
potentiometer technology owned by the Company. Sales have
principally been to automobile component manufacturers and toy
manufacturers.
The accompanying consolidated financial statements include the
accounts of Sensitron and its wholly-owned subsidiaries from the
date of their acquisition. All significant intercompany
transactions and account balances have been eliminated in
consolidation. The acquisition of Flexpoint and Tamco occurred
on September 26, 1995 (see Note 2).
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
in financial statements and accompanying notes. Actual results
could differ from those estimates.
BUSINESS CONDITION - The accompanying financial statements have
been prepared in conformity with generally accepted accounting
principles, which contemplates continuation of the Company as a
going concern. However, the Company has suffered losses from
operations and has had negative cash flows from operating
activities during the years ended December 31, 1997 and 1996 and
cumulative from inception through December 31, 1997, which
conditions raise substantial doubt about the Company's ability
to continue as a going concern. Subsequent to year-end, the
Company completed a reorganization with Micropoint, Inc., as
discussed in Note 15, and thereby obtained approximately
$3,000,000 of additional equity financing. The Company's
continued existence is dependent upon its ability to achieve
profitable operations. The Company is continuing its efforts to
negotiate a significant contract to supply flexible sensors to
an automobile component manufacturer, which, if successful,
would provide significant revenue to the Company. Management
believes this and other similar potential contracts will provide
sufficient cash flows for the Company to continue as a going
concern and to ultimately establish profitable operations.
FINANCIAL INSTRUMENTS - The amounts reported as cash, accounts
receivable, accounts payable, and notes payable are considered
to be reasonable approximations of their fair values. The fair
value estimates were based on market information available to
management at the time of the preparation of the financial
statements.
CONCENTRATION OF RISK - The concentration of business in one
industry subjects the Company to a concentration of credit risk
relating to trade accounts receivable. The Company relies on
large production contracts for its business and generally does
not require collateral from its customers with respect to the
Company's trade receivables.
During the year ended December 31, 1997, sales totaling $34,906
were to one customer. During the year ended December 31, 1996,
sales to two customers totaled $418,109 and $152,506,
respectively. An allowance for doubtful accounts of $151,567 was
provided at both December 31, 1997 and 1996.
PROPERTY AND EQUIPMENT - Property and equipment is stated at
cost. Additions and major improvements are capitalized while
maintenance and repairs are charged to operations. Upon
retirement, sale or disposition, the cost and accumulated
depreciation of the items sold are eliminated from the accounts,
and any resulting gain or loss is recognized in operation.
Depreciation is computed using the straight-line and the
double-declining-balance methods and is recognized over the
estimated useful lives of the property and equipment, which are
five to seven years.
LONG-LIVED ASSETS - Impairment losses are recorded when
indicators of impairment are present and undiscounted cash flows
estimated to be generated by those assets are less than the
carrying amount. No impairment losses were required to be
recognized in the accompanying financial statements.
REVENUE RECOGNITION - Revenue from the sale of products is
recorded at the time of shipment to and acceptance by the
customers. Revenue from research and development contracts is
recognized as the contracts are completed. During the year
ended December 31, 1996, approximately $570,615 of the Company's
revenue was related to research and development contracts and to
other research and development activities. Revenue from
contracts to license the Company's technology to others is
deferred until all conditions under the contracts are met by the
Company and then recognized as revenue over the remaining term
of the contracts.
STOCK-BASED COMPENSATION - Stock-based compensation arising from
granting stock options to employees is measured by the
intrinsic-value method. This method recognizes compensation
expense based on the difference between the fair value of the
underlying common stock and the exercise price on the date
granted. The Company also presents pro forma results of
operations assuming compensation had been measured by the
fair-value method.
BASIC AND DILUTED LOSS PER SHARE - In February 1997, the
Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No.128, Earnings Per Share.
Statement No. 128 specifies the computation, presentation, and
disclosure requirements for earnings per share and was adopted
as of December 31, 1997. Loss per share for the year ended
December 31, 1996 and cumulative from inception through December
31, 1997 were restated; however, the effect of the change to
loss per share for those periods was not material.
Basic loss per common share is computed by dividing net loss by
the number of common shares outstanding during the period.
Diluted loss per share reflects potential dilution which could
occur if all potentially issuable common shares from stock
purchase warrants and options or convertible notes payable
resulted in the issuance of common stock. Inasmuch as the
Company incurred losses during all periods presented in the
accompanying financial statements, diluted loss per share is the
same as basic loss per share because potentially issuable common
shares would decrease the loss per share and have been excluded
from the calculation.
NOTE 2 - ACQUISITIONS
In April 1995, Sensitron acquired 100 shares of Flexpoint's
common stock in exchange for the forgiveness of $50,000 of
accounts receivable. On September 26, 1995, Sensitron completed
the acquisition of Flexpoint by exchanging 5,395,000 shares of
Sensitron's common stock for the remaining outstanding common
stock of Flexpoint in a purchase business combination accounted
for in a manner similar to a pooling of interests. Flexpoint
and Sensitron were principally owned by the same individuals
prior to the combination. Flexpoint became a wholly owned
subsidiary and is engaged in manufacturing and selling of
various electronic components and sensors.
On September 26, 1995, Sensitron acquired all of the outstanding
stock of Tamco, a company engaged in manufacturing and selling
various molds and dies. The purchase price was approximately
$170,000, consisting of $25,000 of cash, a long-term note
payable of $85,000 and 130,000 shares of the Company's common
stock valued at $60,000. The purchase price was allocated based
on the estimated fair values of the net assets acquired. This
allocation resulted in the recording of goodwill of $119,802.
Goodwill is being amortized over five years using the
straight-line method.
Subsequent to December 31, 1997, the Company acquired
Micropoint, Inc. as further described in Note 15.
NOTE 3 - PROPERTY AND EQUIPMENT
At December 31, 1997, property and equipment consisted of the
following:
Furniture and fixtures $ 152,140
Machinery and equipment 391,752
Office equipment 104,062
Software 24,650
Leasehold improvements 252,172
---------
Total $ 924,696
=========
Depreciation expense for the years ended December 31, 1997 and
1996 was $130,051 and $70,673, respectively.
NOTE 4 - PATENTS
Costs to obtain patents have been capitalized and are being
amortized over a five year period. The Company has the rights to
several patents. The cost of these perfected patents is $62,583.
The amortization expense for the years ended December 31, 1997
and 1996 was $12,021 and $10,630, respectively. The Company is
in the process of developing new patents and protecting existing
patents internationally. Costs incurred for the development of
these new patents are capitalized. However, until the new
patents are perfected, these costs are not being amortized. The
total cost of the patents and patent being applied for at
December 31, 1997 was $107,320.
NOTE 5 - LICENSE AGREEMENT
In May 1997, the Company granted an otherwise unrelated third
party the worldwide exclusive license to use and sell flexible
potentiometers covered under the Company's patents for use in
toy, traditional games and video game industries. The license
does not include the right to manufacture sensors which will be
purchased from the Company. A licensing fee of $500,000 was
required under the agreement relating to the exclusive use of
the technology through December 1998, of which $200,000 had been
received by the Company as of December 31, 1997. An additional
$50,000 was received in February 1998. The remaining $250,000 is
due December 31, 1998. After 1998, the exclusive license is to
be maintained under the agreement by the licensee providing
revenue from royalties and fees to the Company of at least
$500,000 per year. Royalties to be received are 2% of sales of
the licensee's products in the United States and 3% of related
products to the licensee's international partners.
Under the agreement, the Company guaranteed that it would
deliver flexible potentiometers in marketable quantities to the
licensee by June 1, 1998, and if this condition was not met, it
would return any amounts received under the licensing agreement.
Accordingly, recognition of the $200,000 licensing fee received
by December 31, 1997 was deferred at that date. The funds will
be recognized as revenue at the point when the Company begins
shipping sensors in marketable quantities. Additional payments
received prior to January 1, 1999 will be recognized as revenue
evenly over the period beginning at the point the Company begins
shipping sensors and ending December 31, 1998.
NOTE 6 - CASH FLOW INFORMATION
SUPPLEMENTAL CASH FLOW INFORMATION
For the Years Ended For the Period
December 31, Ended
-------------------- December 31,
1997 1996 1995
-------- -------- --------------
Interest Paid $ 34,879 $ 16,392 $ 965
======== ======== =====
NONCASH INVESTING AND FINANCING ACTIVITIES - On September 26,
1995, the Company acquired all of the common stock of Tamco. In
connection with this acquisition, liabilities were assumed as
follows:
Fair value of assets acquired, including goodwill
of $119,802 $ 170,000
Cash paid in acquisition (25,000)
Fair value of stock issued in acquisition (60,000)
---------
Net liabilities assumed $ 5,000
=========
On September 26, 1995 the Company acquired all of the common
stock of Flexpoint in exchange for 5,395,000 shares of common
stock of the Company. The following assets and liabilities were
acquired at their historical cost basis:
Historical cost of assets acquired $ 174,229
Advances to Flexpoint prior to acquisition (258,413)
---------
Net liabilities assumed $ (94,184)
=========
During the period ended December 31, 1995, the Company assumed
$13,792 of legal costs associated with the patents, in
connection with the assignment of patents to the Company by an
officer. The Company accepted notes receivable for $24,000 as
consideration of 31,200 shares of common stock.
During the year ended December 31, 1996, the Company issued
260,000 shares of common stock valued at $0.77 per share, or
$200,000, for services. The Company also offset the deferred
offering costs against the proceeds from the sale of common stock.
During the year ended December 31, 1997, $111,816 of notes
payable was issued to acquire leasehold improvements. The
Company issued 110,672 shares of common stock upon conversion
of $53,952 of accounts payable and notes payable. Common stock
was redeemed from officers in exchange for $50,000 of cash and
$150,000 of notes payable. The Company issued common stock in
exchange for stock subscription receivables totaling $390,000.
NOTE 7 - EMPLOYMENT AND COMPENSATION AGREEMENTS
During the period ended December 31, 1995, the Company entered
into employment agreements with four officers. Two of the
agreements included annual base salaries of $50,000 and $75,000,
respectively. Both agreements were renewed for one year under
the terms of the agreement. Effective August 26, 1997, both
officers resigned from the Board of Directors and sold 6,308,666
shares of common stock to the Company for approximately $0.03
per share (see Note 10). As part of the settlement agreement,
one of the officers was granted options to acquire 650,000
shares of common stock at $0.30 per share and 325,000 shares for
$0.77 per share for a period of five years. One of the officers
was retained as a consultant for a period of one year. Under the
terms of the agreement the Company and the officers released
each other from any future obligation.
An agreement with a third officer included annual compensation
payments of $50,000. The agreement expired subsequent to
December 31, 1997. The fourth agreement included an annual base
salary of $90,000 during the first year of employment and
$120,000 a year thereafter. This agreement had an initial term
of three years and included a $30,000 signing bonus. On
December 31, 1997, this agreement was extended for an additional
two years, through December 31, 2000. Under the terms of the
agreement, the officer was granted options to purchase 650,000
shares of common stock at $0.77 per share.
Effective May 1, 1995, the Company entered into a compensation
agreement whereby an officer was to provide the Company
technical assistance and be paid a monthly fee of $8,333 for
five years. During 1997, the Company temporarily suspended
payments which resulted in approximately $38,500 being accrued
in accrued liabilities at December 31, 1997. An agreement was
signed April 15, 1998 whereby the Company agreed to pay the
officer $160,000 in settlement of all past and future obligation
under the compensation agreement.
The following is a schedule of future payments due under the
above agreements as of December 31, 1997:
Years Ending December 31:
1998 $ 342,500
1999 120,000
2000 120,000
---------
$ 582,500
=========
NOTE 8 - NOTES PAYABLE
Notes payable at December 31, 1997 consisted of the following:
8% note; payable in quarterly payments of $7,083 through
April 1, 1998; unsecured $ 49,585
8.5% promissory notes; convertible into common stock through
February 28, 1998 at $0.93 to $1.23 per share; due March 28
1998; secured by equipment 200,000
Non-interest bearing notes; unsecured; issued for cash and
leasehold improvements; terms for repayment have not been
established 105,791
Non-interest bearing notes payable to former shareholders;
issued in redemption of common stock; paid February 1998 145,000
18% note payable; guaranteed by shareholders; convertible into
common stock at $0.93 per share; due April 17, 1998 50,000
Other notes 11,033
---------
Total Notes Payable $ 561,409
=========
Future maturities of notes payable as of December 31, 1997 are
as follows: 1998 - $561,409.
NOTE 9 - RELATED PARTY TRANSACTIONS
Transactions with related parties during 1996 consisted of
advances to employees and a payable to a member of the Board of
Directors for cash advances to the Company in the amount of
$20,000. During 1997, the Company made cash advances to
employees for travel and personal expenses and incurred
liabilities payable to employees for Company travel and to a
shareholder for rent of office space. Terms for collection of
the advances to employees as of December 31, 1997 have not been
established. Amounts payable at December 31, 1997 are due
currently and were paid subsequent to year end.
NOTE 10 - STOCKHOLDERS' EQUITY
In January 1995, an officer and shareholder assigned certain
patents to the Company as an additional contribution to capital
of $22,232. No additional shares were issued to the shareholder
for the contribution.
On March 18, 1996, the Company entered into a share purchase
agreement whereby the Company agreed to issue 1,957,111 shares
of its common stock for $1,300,000 in a private placement
offering. The proceeds were received and the shares were issued
throughout the year as required by the Company's cash flow
needs. Offering costs incurred in connection with the offering
were $246,547. The deferred offering costs consist primarily of
legal and audit fees related to the preparation of the private
placement memorandum.
On August 26, 1997, the Company entered into a settlement
agreement with two officers of the Company whereby the
relationship between the officers and the Company was
terminated. As part of the agreement, the Company purchased
6,308,666 shares of common stock from the officers for
approximately $0.03 per share by paying $50,000 in cash and
issuing $150,000 of notes payable.
On December 24, 1997, the Company issued 422,500 shares of
common stock in exchange for stock subscriptions in the amount
of $390,000 receivable from the investors. The subscriptions
were collected in January 1998.
NOTE 11 - STOCK OPTIONS
On April 1, 1995, the Company adopted the Omnibus Stock Option
Plan (the "Plan"). Under the terms of the Plan as amended in
October 1997, the Company may grant options to employees,
directors and consultants for up to 5,037,500 shares of common
stock. Incentive or non-qualified options may be granted under
the Plan. Options may be granted for a maximum of 10 years.
Options generally vest from immediately to five years and expire
five years from the date of grant. The exercise price of each
option granted under the Plan has been equal to or in excess of
the market price of the Company's common stock on the date of
grant.
Generally, the only condition for exercise of options granted
under the Plan is that the employees remain employed through the
exercise date. However, in October 1995, the Company granted an
officer options for 325,000 shares whose vesting is contingent
upon the Company obtaining specified levels of sales and gross
profit. Options for 65,000 shares vested at the end of 1996 due
to meeting non-sales performance criteria. Vesting of options
for 65,000 shares were contingent upon the Company achieving
$2,000,000 of sales with a minimum gross profit margin of 50%
during 1997. That target was not met and the 65,000 options were
forfeited during 1997. The remaining 195,000 options vest
annually based upon the Company having sales of $4,000,000 in
1998 with a minimum gross profit margin of 50%, and further
increases in sales during 1999 and 2000 by amounts not yet
determined by the Board of Directors.
The Company applies APB Opinion 25, Accounting for Stock Issued
to Employees, and related interpretations in accounting for its
Plan. Accordingly, no compensation cost has been recognized for
its fixed or performance stock options granted under the Plan.
Had compensation cost for the
Plan been determined based on the fair value at the grant dates
for awards under the Plan consistent with the alternative method
of SFAS No. 123, Accounting for Stock-Based Compensation, the
Company's net loss and loss per share would have increased to
the pro forma amounts indicated below. The weighted average
assumptions used to estimate the fair value of each option
grant, using the Black-Scholes option-pricing model, are also
presented:
Years Ended December 31,
-------------------------
1997 1996
----------- -----------
Net Loss
As reported $(1,541,058) $(1,417,297)
Pro forma $(1,567,655) $(1,444,149)
Primary and Diluted Loss per share
As reported $(0.13) $(0.12)
Pro forma $(0.13) $(0.12)
Weighted-Average Assumptions:
Divided yield 0.0% 0.0%
Expected volatility 0.0% 0.0%
Risk-free interest rate 5.0% 5.0%
Expected life of options, in years 4.5 5.0
A summary of the status of stock options as of December 31,
1997, 1996 and 1995, and changes during the periods ended on
those dates is presented below:
<TABLE>
<CAPTION>
Options Outstanding
-------------------------------------------
1997 1996
--------------------- --------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of period 1,455,350 $ 0.60 1,443,000 $ 0.60
Granted 3,651,700 0.35 12,350 0.77
Forfeited (60,000) 0.77 -
--------- ---------
Outstanding at end of period 5,047,050 0.42 1,455,350 0.60
========= =========
Options exercisable at end of period 3,059,550 0.40 935,350 0.51
========= =========
Weighted-average fair value of
options granted during period $ - $ 0.17
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Outstanding Exercisable
--------------------------------------------- ----------------------------
Weighted-Average
Range of Number Remaining Weighted-Average Number Weighted-Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
$0.15 871,000 4.7 years $0.15 871,000 $0.15
0.30 650,000 2.7 0.30 650,000 0.30
0.38 1,787,500 4.7 0.38 130,000 0.38
0.46 780,000 2.3 0.46 780,000 0.46
0.77 953,550 4.0 0.77 628,550 0.77
---------- -----------
$0.15 to 0.77 5,042,050 3.9 0.42 3,059,550 0.40
========== ===========
</TABLE>
NOTE 12 - STOCK PURCHASE WARRANTS
In connection with the acquisition of Flexpoint and Tamco, the
Company issued warrants to purchase 22,750 shares of its common
stock exercisable at $0.77 per share ( which was the fair value
of the common stock on the date of the issuance as determined by
the Board of Directors) to its outside legal counsel.
Additionally, the Company issued warrants during 1995 to
purchase 23,010 shares of its common stock at a purchase price
of $0.77 per share to equity investors in the Company.
During 1996, warrants were issued to purchase 214,500 shares of
common stock at $0.77 per share to equity investors in the
Company, and warrants to purchase 6,500 shares at $0.77 per
share were issued to outside legal counsel.
During 1997, the Company issued warrants to purchase 260,000
shares of common stock at $0.77 per share to equity investors in
the Company. Additionally, warrants to purchase 910,000 shares
of common stock at $1.15 per share were issued to a retiring
member of the Board of Directors.
All of these warrants were deemed to have no material fair value
and are therefore not recorded in the accompanying consolidated
balance sheet. The fair value of each warrant was estimated on
the date issued using the Black-Scholes option-pricing model.
The following table summarizes information about warrants
outstanding at December 31, 1997:
Weighted-Average
Range of Warrants Remaining
Exercise Prices Outstanding Contractual Life
--------------- ----------- ----------------
$ 0.77 526,760 3.2 years
1.15 910,000 2.7
-----------
$0.77 to 1.15 1,436,760 2.9
===========
NOTE 13 - INCOME TAXES
There was no provision for or benefit from income tax for any
period. The components of the net deferred tax asset as of
December 31, 1997 were as follows:
Operating Loss Carryforwards $ 1,105,749
Difference in amortization of intangibles 6,804
-----------
TOTAL DEFERRED TAX ASSETS 1,112,553
Valuation Allowance (1,112,553)
-----------
NET DEFERRED TAX ASSET $ -
===========
For tax reporting purposes, the Company has net operating loss
carry forwards in the amount of $3,252,203 that will expire
beginning in the year 2010. The following is a reconciliation of
the amount of tax (benefit) that would result from applying the
federal statutory rate to pretax loss with the provision for
income taxes for the years ended December 31:
1997 1996
---------- ----------
Tax at statutory rate (34%) $ (523,960) $ (481,881)
Non-deductible expenses 9,968 9,915
Change in valuation allowance 571,574 524,831
State tax benefit, net of federal tax effect (57,481) (52,865)
---------- ----------
NET INCOME TAX EXPENSE $ - $ -
========== =========
NOTE 14 - COMMITMENTS AND CONTINGENCIES
The Company is obligated under operating lease agreements for
office space. Future minimum lease payments for the years
ending December 31, 1998 and 1999 are $81,745 and $65,376,
respectively. Lease expense for the years ending December 31,
1997 and 1996 was $93,854 and $53,436.
A third party entity loaned $35,000 to a former officer of the
Company as a personal loan. This entity has made a claim against
the former officer for repayment of the advance and for other
consideration. The Company may be required to provide
compensation to the former officer sufficient to settle the
claim on behalf of the former officer. Management believes,
after consulting with legal counsel, that resolution of this
claim may result in a cost of approximately $52,000 to the
Company. This amount has been accrued in the accompanying
consolidated balance sheet at December 31, 1997.
In February of 1998, an otherwise unrelated third party filed
suit against the Company alleging it provided investment banking
and financial advisory services pursuant to an agreement with
the Company. The plaintiff claims to have sustained damages for
breach of contract and seeks damages in the amount of 6.5% of
financing obtained from an equity investor, plus the issuance of
a warrant to purchase a 2% equity ownership interest in the
Company at a price of $5.00 per share. In addition, the
plaintiff is seeking punitive damages of $5,000,000. The Company
answered the complaint in March 1998 and the action is in the
discovery stage. The Company has been and continues to contest
the case vigorously. Given the early stage of the action, legal
counsel for the Company is unable to provide any evaluation of
the likelihood of an unfavorable outcome, if any, or the amount
or range of potential loss. Management believes, after
consulting with legal counsel, that there is only a remote
possibility that the Company will be subject to a punitive
damage award under the suit. Management has tendered $75,000 to
the plaintiff to completely settle the action and Management
maintains that the most the Company owes the Plaintiff is
$75,000. The Company has recorded $75,000 as an expense
relating to this action in the accompanying statement of
operations during the year ended December 31, 1997.
NOTE 15 - SUBSEQUENT EVENTS
REORGANIZATION - On December 30, 1997, Sensitron Inc. entered
into an agreement with Micropoint, Inc. ("Micropoint") to
reorganize Sensitron into Micropoint. The agreement required
Micropoint to raise capital of approximately $3,000,000 in a
private placement before the completion of the merger. The
agreement was closed in April 1998. Under the terms of the
agreement, a newly-formed wholly-owned subsidiary of Micropoint
was merged into Sensitron. The shareholders of Sensitron
exchanged each of their shares of common stock for 13 shares of
Micropoint common stock in connection with the merger agreement
which resulted in Micropoint issuing 9,860,279 shares of its
common stock to the Sensitron shareholders. As a result of the
merger, the Sensitron shareholders became the majority
shareholders of the Company in a transaction intended to qualify
as a tax-free reorganization.
The merger has been considered the reorganization of Sensitron
and the acquisition of Micropoint in a purchase business
combination. There was no market for Micropoint's common stock;
therefore the fair value of Micropoint's assets were considered
the fair value of the 6,000,000 shares of common stock
outstanding. Accordingly, no goodwill will be recognized in
connection with the acquisition of Micropoint.
SETTLEMENT OF COMPENSATION AGREEMENT - On April 15, 1998, an
agreement was signed whereby the Company agreed to pay an
officer $160,000 as a settlement of all past and future
obligations under a related compensation agreement.
SENSITRON INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
UNAUDITED
ASSETS
Current Assets
Cash $ 45,552
Accounts receivable, net of allowance 51,141
Note receivable 3,387
-----------
Total Current Assets 100,080
-----------
Equipment 1,078,489
Less accumulated depreciation (230,875)
-----------
Net Equipment 847,614
-----------
Goodwill, net of accumulated amortization 59,901
Deposits 15,779
Patents, net of accumulated amortization 85,249
-----------
Total Assets $ 1,108,623
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Trade accounts payable $ 174,190
Deferred revenue 200,000
Accrued expenses 134,261
Payable to related party 1,000,000
Notes payable 258,073
-----------
Total Current Liabilities 1,766,524
-----------
Stockholders' Deficit
Preferred stock - no shares issued -
Common stock- no par value; 20,000,000
shares authorized; 9,860,279 shares
issued and outstanding 3,126,453
Deficit accumulated during the development stage (3,784,354)
Total Stockholders' Deficit (657,901)
-----------
Total Liabilities and Stockholders' Deficit $ 1,108,623
===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-23
SENSITRON INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
For the Period
January 5, 1995
(Date of
Inception)
For the Three Months Through
Ended March 31, March 31,
1998 1997 1998
---------- --------- -----------
Sales $ 60,088 $ 263,177 $ 1,435,185
Cost of Sales 44,726 34,298 753,098
Gross Profit 15,362 228,879 682,087
General and administrative expenses 471,026 618,888 4,382,481
Loss From Operations (455,664) (390,009) (3,700,394)
Interest expense (40) (960) (54,084)
Interest income - - 13,434
Other expenses (40) (6,821) (43,316)
---------- --------- -----------
Net Loss $ (455,744) $(397,790) $(3,784,360)
========== ========= ===========
Basic and Diluted Loss Per
Common Share $ (0.05) $ (0.03) $ (0.38)
========== ========= ===========
Weighted Average Number of
Common Shares Used in Per
Share Calculation 9,860,279 13,158,633 9,860,279
========== ========== ==========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-24
SENSITRON INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Period
January 5, 1995
(Date of
Inception)
For the Three Months Through
Ended March 31, March 31,
1998 1997 1998
---------- --------- -----------
Cash Flows From Operating Activities
Net Loss $ (455,744) $(397,790) $(3,784,360)
Adjustments to reconcile net
loss to net cash used by
operating activities:
Depreciation and amortization 34,657 23,144 330,507
Stock issued for services - - 200,000
Allowance for doubtful accounts - - 151,567
Write-off of related party receivable 47,989 - 47,993
Loss on disposition of equipment - - 3,185
Changes in operating assets and liabilities:
Accounts receivable (5,318) 89,341 (66,667)
Prepaid expenses - (19,160) (2,266)
Related party receivable - - (18,931)
Accounts payable (332,775) 101,897 (5,857)
Accrued liabilities (264,211) 27,221 30,523
Deferred revenue - - 193,837
Related party payable - - 14,562
Other assets (2,500) (13,507) (1,568)
---------- --------- -----------
Net Cash Used By Operating
Activities (977,902) (188,854) (2,907,475)
---------- --------- -----------
Cash Flows From Investing Activities
Payments to Flexpoint prior to
acquisition - - (268,413)
Cash paid to acquire Tamco - - (25,000)
Payments for the purchase of
property and equipment (153,793) (86,262) (775,327)
Proceeds received from sale of
property and equipment - - 8,090
Investment in patents (12,147) (3,494) (83,442)
Proceeds received on note receivable 1,565 1,563 9,120
Issuance of note receivable - - (12,507)
Payments received from related parties - - 646
--------- --------- -----------
Net Cash Used By Investing
Activities (164,375) (88,193) (1,146,833)
--------- --------- -----------
Cash Flows From Financing Activities
Proceeds from issuance of common
stock 8,000 100,000 2,947,000
Cash payments to officers to
repurchase stock - - (50,000)
Cash paid for offering costs - - (123,020)
Proceeds from borrowing - - 297,960
Principal payments of long-term debt (303,336) - (348,751)
Proceeds from related party notes 1,000,000 - 1,045,000
Principal payments of related
party notes - - (45,000)
Payments of related party payable (13,329) - (13,329)
---------- --------- -----------
Net Cash Provided By Financing
Activities 1,081,335 100,000 4,099,860
---------- --------- -----------
Net Change In Cash (60,942) (177,047) 45,552
Cash - Beginning of Period 106,494 761 -
---------- --------- -----------
Cash - End of Period $ 45,552 $(176,286) $ 45,552
========== ========= ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-25
SENSITRON INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
MARCH 31, 1998
NOTE 1--CONDENSED FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements have been
prepared by the Company and are not audited. In the opinion of management,
all adjustments necessary for a fair presentation have been included, and
consist only of normal recurring adjustments. These financial statements
are condensed and, therefore, do not include all disclosures normally
required by generally accepted accounting principles. These statements
should be read in conjunction with the Company's annual financial
statements included elsewhere herein. The financial position and results
of operations presented in the accompanying financial statements are not
necessarily indicative of the results that may be expected for the year
ended December 31, 1998.
NOTE 2--NOTES PAYABLE
During the three months ended March 31, 1998, the Company borrowed
$1,000,000 from Micropoint, Inc., a related party with whom the Company
entered into a reorganization agreement which was consummated on April 9,
1998. The Company also made payments on other notes payable totaling
$303,336 during the three months ended March 31, 1998.
F-26
