SENTEX SENSING TECHNOLOGY, INC. Form 10QSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-13328
For the quarterly period ending August 31, 2005
SENTEX SENSING TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
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New Jersey
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22-2333899 |
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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1801 East Ninth Street
Cleveland, Ohio
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44114 |
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(Address of principal executive offices)
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(Zip Code) |
(216) 687-0289
(Registrants telephone number including area code)
Securities registered pursuant to Section 12 (b) of the Exchange Act:
None
Securities registered pursuant to Section 12 (g) of the Exchange Act:
Common Shares, no par value
Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 of 15(d) of the Securities and 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
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act. Yes
No X
Number of shares of Common Shares (No Par Value) of SENTEX SENSING TECHNOLOGY, Inc.,
issued and outstanding as of August 31, 2005 is 101,764,911.
TABLE OF CONTENTS
SENTEX
SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
NOVEMBER 30, 2004 AND AUGUST 31, 2005
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NOVEMBER 30, |
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AUGUST 31, |
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2004 |
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2005 |
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(AUDITED) |
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(UNAUDITED) |
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ASSETS |
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CURRENT ASSETS |
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Cash |
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$ |
12,872 |
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$ |
37,165 |
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Accounts receivable trade, net of allowance for
doubtful accounts of $55,000 |
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98,206 |
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152,518 |
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Inventory |
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103,550 |
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105,333 |
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TOTAL CURRENT ASSETS |
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214,628 |
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295,016 |
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FIXED ASSETS |
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Computer equipment |
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4,009 |
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3,343 |
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Leasehold improvements |
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25,000 |
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Less accumulated depreciation |
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(4,009 |
) |
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(7,143 |
) |
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21,200 |
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OTHER ASSETS |
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Goodwill |
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36,042 |
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36,042 |
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Deposits |
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990 |
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990 |
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37,032 |
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37,032 |
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TOTAL ASSETS |
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$ |
251,660 |
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$ |
353,248 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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CURRENT LIABILITIES |
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Notes payable: |
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Related party |
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$ |
6,203,340 |
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$ |
6,372,058 |
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Trade and other accounts payable ($913,174 and
$1,347,125 to related parties) |
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1,171,122 |
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1,684,421 |
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Accrued liabilities |
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160,476 |
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47,795 |
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Consulting contracts payable |
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21,249 |
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21,249 |
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Convertible subordinated notes payable |
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12,423 |
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12,423 |
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TOTAL CURRENT LIABILITIES |
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7,568,610 |
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8,137,946 |
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STOCKHOLDERS EQUITY |
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Common
stock, no par value
Authorized - 200,000,000 shares
Issued - 109,460,911 shares
Outstanding - 101,764,911 shares |
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2,867,579 |
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2,867,579 |
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Accumulated deficit |
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(9,915,061 |
) |
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(10,382,809 |
) |
Treasury shares at cost, 7,696,000 shares |
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(269,468 |
) |
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(269,468 |
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TOTAL STOCKHOLDERS EQUITY |
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(7,316,950 |
) |
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(7,784,698 |
) |
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
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$ |
251,660 |
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$ |
353,248 |
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See Notes to Consolidated Financial Statements
2
SENTEX
SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS AND THE
NINE MONTHS
ENDED AUGUST 31, 2004 AND AUGUST 31, 2005 (UNAUDITED)
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THREE MONTHS ENDED |
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NINE MONTHS ENDED |
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AUGUST 31, |
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AUGUST 31, |
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AUGUST 31, |
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AUGUST 31, |
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2004 |
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2005 |
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2004 |
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2005 |
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REVENUES |
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Sales |
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$ |
1,305,970 |
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$ |
660,884 |
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$ |
2,680,314 |
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$ |
2,280,982 |
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Interest and other income |
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24,256 |
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707 |
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59,889 |
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160,506 |
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Total Revenues |
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1,330,226 |
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661,591 |
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2,740,203 |
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2,441,488 |
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COST OF GOODS SOLD |
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997,675 |
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406,587 |
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2,144,379 |
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1,433,473 |
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GROSS PROFIT |
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332,551 |
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255,004 |
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595,824 |
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1,008,015 |
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OPERATING EXPENSES |
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Administration |
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357,762 |
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401,053 |
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1,141,941 |
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1,228,940 |
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Total expenses |
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357,762 |
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401,053 |
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1,141,941 |
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1,228,940 |
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LOSS FROM OPERATIONS |
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(25,211 |
) |
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(146,049 |
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(546,117 |
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(220,925 |
) |
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OTHER EXPENSE |
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Interest Expense |
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51,903 |
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77,625 |
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161,178 |
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246,822 |
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LOSS BEFORE PROVISION FOR
INCOME TAX EXPENSE |
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(77,114 |
) |
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(223,674 |
) |
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(707,295 |
) |
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(467,747 |
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PROVISION FOR INCOME TAX EXPENSE |
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NET LOSS |
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(77,114 |
) |
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(223,674 |
) |
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(707,295 |
) |
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(467,747 |
) |
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NET LOSS PER SHARE (BASIC AND DILUTED) |
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$ |
(0.00 |
) |
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$ |
(0.00 |
) |
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$ |
(0.01 |
) |
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$ |
(0.00 |
) |
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WEIGHTED NUMBER OF SHARES OUTSTANDING |
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101,764,911 |
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101,764,911 |
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101,764,911 |
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101,764,911 |
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See Notes to Consolidated Financial Statements
3
SENTEX
SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE NINE MONTHS
ENDED AUGUST 31, 2004 AND AUGUST 31, 2005 (UNAUDITED)
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NINE MONTHS ENDED |
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AUGUST 31, |
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AUGUST 31, |
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2004 |
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2005 |
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OPERATING ACTIVITIES: |
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Net loss |
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$ |
(707,295 |
) |
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$ |
(467,747 |
) |
Adjustment to reconcile net loss to net
cash used by operating activities: |
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Depreciation and amortization |
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405 |
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3,134 |
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Noncash interest expense |
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113,760 |
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|
246,822 |
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Accounts receivable |
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(105,049 |
) |
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(54,312 |
) |
Inventories |
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187,033 |
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(1,783 |
) |
Other assets |
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4,800 |
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Accounts payable |
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|
293,565 |
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|
513,299 |
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Accrued liabilities |
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(131,399 |
) |
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(359,504 |
) |
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Total adjustments |
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363,115 |
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|
347,656 |
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Net cash used by operating activities |
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(344,180 |
) |
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|
(120,091 |
) |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Purchase of leasehold improvements |
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(24,334 |
) |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Proceeds on notes and accounts payable related party |
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2,811,962 |
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|
168,718 |
|
Payments on note payable related party |
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Payments on note payable bank |
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(2,500,000 |
) |
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Net cash provided by financing activities |
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|
311,962 |
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|
168,718 |
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NET INCREASE (DECREASE) IN CASH |
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(32,218 |
) |
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|
24,293 |
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CASH BEGINNING OF PERIOD |
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|
45,330 |
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|
12,872 |
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CASH END OF PERIOD |
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$ |
13,112 |
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$ |
37,165 |
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Supplemental disclosure of cash flow information: |
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Cash paid during the nine month period for: |
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Interest |
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$ |
47,418 |
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|
$ |
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|
See Notes to Consolidated Financial Statements
4
SENTEX
SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) In the opinion of management, the unaudited financial statements contain all adjustments
(consisting of only normal recurring accruals and repayments) necessary to present fairly the
financial position at August 31, 2005 and the results of operations and cash flows for the three
months and the nine months ended August 31, 2004 and August 31, 2005.
These interim statements should be read in conjunction with the audited financial statements and
notes thereto included in the Companys Annual Report on Form 10-KSB for the fiscal year ended
November 30, 2004 (Commission File No. 2-13328).
(2) The results of operations for the nine months ended August 31, 2004 and August 31, 2005 are
not necessarily indicative of the results to be expected for the full year.
(3) PROFIT(LOSS) PER SHARE
Profit(loss) per share is calculated using the weighted average number of common shares
outstanding. Potentially dilutive securities are insignificant.
(4) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Sentex Sensing Technology, Inc. and
its wholly-owned subsidiaries (the Company). All material inter-company accounts and
transactions have been eliminated in consolidation.
(5) LEGAL PROCEEDINGS
State of Ohio, Department of Administrative Services v. IQ Solutions, LLC, et al.; Case
No. 03-CVH05-6054; Franklin County Common Pleas Court, Ohio.
During October 2004, the Company was dismissed without prejudice from the above-caption and
previously disclosed matter.
5
SENTEX
SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On July 2, 2001, the Company purchased Regency Technologies, LLC from Regency Steel, LLC
and other members.
Regency Technologies specializes in the buying, selling, and trading of information
technology equipment (primarily computer equipment). The primary focus of our business
revolves around acquiring unneeded, older computer equipment and reselling that equipment
to certain consumers on a global basis.
FINANCIAL CONDITION
Working Capital and Liquidity
During the last several fiscal years, the Company has incurred losses from operations. In
addition, the Companys certified public accountants have included in their auditors
report, which covers the Companys financial statements for the years ended November 30,
2003 and November 30, 2004, a statement that the Companys recurring losses from
operations raised substantial doubt about the Companys ability to continue as a going
concern. For fiscal years 2003 and 2004, the Company sustained losses of approximately
$531,000 and $781,000, respectively. These losses have had a substantial adverse effect
on the working capital of the Company.
In June of 2004, the Company restructured its $2,500,000 in bank financing. This
financing has subsequently been taken over by CPS, which now holds much of the working
capital debt that has been used in the business during 2004. As of August 31, 2005, there
was an outstanding balance of $6,372,000 on the loans from CPS. We believe these loans
have been secured under terms no less favorable than we could have obtained pursuant to an
arms-length transaction.
In addition to the CPS loans, from time to time, Mr. Julius L. Hess, the Companys former
Vice President, Secretary and a Director, has provided the Company with cash investments
to help fund certain specified transactions. From December 1, 2004 through August 31,
2005, Mr. Hess has invested a total of $638,735 to fund such transactions. In agreement
for providing such funds, which amounts may not otherwise have been available to the
Company, Mr. Hess typically receives remuneration in the amount of up to fifty percent of
the gross profit from such transactions. Upon settlement of the transactions during the
period from December 1, 2004 through August 31, 2005, Mr. Hess will have received total
proceeds of $792,736. We believe these investments have been secured under terms no less
favorable than we could have obtained pursuant to an arms-length transaction. As of
August 31, 2005, there was an outstanding balance of $271,418 on these loans.
In addition to the above-noted investments, Mr. Hess has, from time to time, provided
loans to the Company to cover certain working capital expenses such as payroll. Mr. Hess
does not receive any remuneration for these loans, other than the return of principal.
These loans are typically paid back within a short period of time. From December 1, 2004
through August 31, 2005, Mr. Hess provided $229,000 in loans of this kind to the Company.
As of August 31, 2005 there was an outstanding balance of $62,000 on these loans.
6
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Net Tax Operating Loss Carryforwards
As of August 31, 2005 the Company has approximately $16,249,000 in net tax operating loss
carryforwards which will expire at various dates through the year 2024 that are mainly attributable
to losses incurred by Monitek. Federal tax law imposes restrictions on the use of net operating
loss carryforwards in the event of a change in ownership, such as a merger. Due to the merger with
Monitek, approximately $6,265,000 of the $16,249,000 net operating losses may be subject to these
limitations and potentially may not be able to provide any economic benefit to the Company.
RESULTS OF OPERATIONS
Nine Months ended August 31, 2004 compared to Nine Months Ended August 31, 2005.
Sales decreased by $399,000 or 14.9%. Gross profit went from $596,000 (or 22.2% on sales) in 2004
to $1,008,000 (or 44.2% on sales) in 2005. The sales shortfall was due to an overall softness in
the asset recovery and broker/dealer market, however, this was more than offset by improved margins
in both categories.
Operating expenses of $1,229,000 (53.9% on sales) were in line with sales.
Interest expense was significantly higher for 2005 primarily due to the increases in the prime
rate.
Losses for the nine months amounted to $467,000.
CURRENT OUTLOOK
The unanticipated slowdown we experienced in our third quarter had a negative impact on our third
quarter results compared to the same period last year. While we have seen a recent increase in
business activity in the beginning of the fourth quarter, we do not expect to show a profit for
fiscal 2005. The Regency business is not expected to be become profitable unless it receives
required capital.
Despite significant efforts by our financial advisors and the management of Regency, we have not
been able to complete a transaction with outside investors, whether strategic or financial, to
invest in the growth opportunity we believe is necessary for the success of Regency Asset Recovery
Business. The companys efforts only resulted in four investors that expressed a significant
interest, but ultimately each of them passed on the opportunity. Our financial advisor had
contacted over 137 small transaction investors.
This has caused us to change our focus on this business unit, and currently we are in discussions
with James Levine, the Executive Vice President of Regency, Julius Hess, a former director and
executive officer of the Company and a current officer of Regency, and Jeff Cohen, an unaffiliated individual.
Under the
current discussions, Mr. Hess, Mr. Levine and Mr. Cohen, would
capitalize JJJ-RT, LLC (JJJ-RT), which in turn would invest up to $500,000 in Regency on an as
needed basis. Mr. Hess, Mr. Levine and Mr. Cohen would primarily control when any such investments were made
and will control JJJ-RT. As JJJ-RT invested capital into Regency it would be entitled to purchase
from Regency 10% of the equity interest from Regency for every $100,000 invested until it owned 50%
of the interests of Regency. Contribution in amount less than $100,000 would be prorated. These
investments would dilute the Companys interests in Regency.
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SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
JJJ-RT would not be entitled to purchase any further equity interests beyond a 50% interest until the
later of (a) the date the Company had another operating business or (b) an agreed-upon specified
date (the Event Date). If more than $500,000 of capital were required to be invested in Regency
prior to Event Date, then JJJ-RT would have the option to invest up to $300,000 in additional funds
as a loan that would bear interest at a rate of 12% and would be secured by substantially all of
the assets of Regency. After the Event Date, JJJ-RT would have the option to convert the
outstanding principal amount of any such loans into equity interests of Regency and to directly
invest any such uninvested balance of $300,000 directly into Regency as equity. The rate of
conversion and equity interest that could be purchased with respect to the $300,000 would be the
same rate JJJ-RT could purchase the equity with the $500,000, but JJJ-RT would not have the right
to purchase more than 80% of the equity interests from Regency for its aggregate investment of
$800,000 without further agreement from the Company. JJJ-RT may have the right to loan more funds
to Regency. This proposed transaction is subject to negotiating definitive documents and the
receipt of a fairness opinion. None of the Company, JJJ-RT, Mr. Hess, Mr. Levine and Mr. Cohen are legally
obligated to complete this proposed transaction and there can be no assurance that it will be
completed or that a transaction will be completed on these terms.
The Company will not receive any of the invested cash from JJJ-RT as a payment for its existing
equity interest in Regency, and will be diluted with each sale of equity interests to JJJ-RT. The
Company believes, however, that this transaction provides it the best opportunity to realize a
potential return on its existing investment in light of its existing options.
Currently, we are looking for other businesses that may wish to become part of a public company,
and we are focusing on leasing businesses where Mr. Kendall has had significant experience and
success.
There can be no assurance that any of these transactions will be completed.
CHANGES IN ACCOUNTING STANDARDS
New Accounting Standards In December 2004, the Financial Accounting Standards Board (FASB)
issued
SFAS No. 123, Share Based Payment. SFAS No. 123R, which amends SFAS No. 123, Accounting
For Stock Based Compensation, and SFAS No. 95, Statement of Cash Flows. SFAS 123R requires
all
companies to measure compensation cost for all share-based payments at fair value, and will be
effective for
public companies for interim and annual periods beginning after June 15, 2005. This new standard
may be
adopted in one of two ways the modified prospective transition method of the modified
retrospective transition
method. The Company currently has no stock-based compensation plans.
In December 2003, the FASB issued Interpretation No. 46 (revised December 2003) (FIN 46R),
Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin
No. 51. FIN 46R requires certain variable interest entities, or VIEs, to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional subordinated financial support from other
parties. FIN 46R is effective for all VIEs created or acquired after January 31, 2003. For VIEs
created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the
first interim or annual period beginning after March 15,
2004. The Company currently has no contractual relationship or other business relationship with a
variable interest entity.
The adoption of the new standards did not, or is not expected to, materially affect the Companys
financial position and results of operations
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOUR OF THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995.
Certain statements in the Managements Discussion and Analysis of Financial Condition and
Results of Operations and the Financial Statements included in this Annual Report on Form
10-KSB, in the Companys press releases and in oral statements made by or with the
approval of an authorized executive officer of the Company constitute forward-looking
statements as that term is defined under the Private Securities Litigation Reform Act of
1995. These may include statements projecting, forecasting or estimating Company
performance and industry trends. The achievement of the projections, forecasts or
estimates is subject to certain risks and uncertainties. Actual results and events may
differ materially from those projected, forecasted or estimated. The applicable risks and
uncertainties include general economic and industry conditions that affect all business,
as well as matters that are specific to the Company and the markets it serves.
Specific risks to the Company include an inability of the Company to finance its working capital
needs. In light of this and other uncertainties, the inclusion of a forward-looking statement
herein should not be regarded as a representation by the Company that the Companys plans and
objectives will be achieved.
8
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIESS
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
CONTROLS AND PROCEDURES
The Companys Chief Executive Officer and Principal Accounting Officer, after evaluating the
effectiveness of the Companys disclosure controls and procedures pursuant to Exchange Act Rule
13a-15(e) as of the end of the period covered by this report, have concluded that the Companys
disclosure controls and procedures were effective.
There were no changes in the Companys internal controls over financial reporting that occurred
during the Companys last fiscal quarter to which this report relates that have materially
affected, or are reasonably likely to materially affect, the Companys internal controls over
financial reporting.
9
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized:
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Date: October 14, 2005
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SENTEX SENSING TECHNOLOGY, INC.
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By:
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/s/ Robert S. Kendall |
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Robert S. Kendall, Chief Executive Officer
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/s/ William R. Sprow |
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William R. Sprow, Chief Financial Officer
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/s/ William R. Sprow |
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William R. Sprow, Controller |
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EXHIBITS AND REPORTS ON FORM 8-K
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a)
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Exhibit 31.1
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302 Certification of Chief Executive Officer |
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Exhibit 31.2
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302 Certification of Chief Financial Officer |
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Exhibit 32.1
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Certification Pursuant To 18 U. S. C. Section 1350, As Adopted Pursuant To
Section 906 Of The Sarbanes-Oxley Act of 2002 |
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Exhibit 32.2
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Certification Pursuant To 18 U. S. C. Section 1350, As Adopted Pursuant To
Section 906 Of The Sarbanes-Oxley Act of 2002 |
b) |
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No reports on Form 8-K were filed with the Commission during the small business
issuers third quarter. |
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