UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
10-KSB/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 2-13328
For the fiscal year ending November 30, 2005
SENTEX SENSING TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
|
|
|
New Jersey
|
|
22-2333899 |
|
|
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer
Identification No.) |
|
|
|
1801 East Ninth Street
|
|
44114 |
Cleveland, Ohio
|
|
(Zip Code) |
(Address of principal executive offices) |
|
|
(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
if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the act.
Yes X No ___
Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities 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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained herein, and will not be contained, to the best of
Registrants knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ]
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act.) Yes
No X
The
Companys revenues for the period ended November 30, 2005
were $159,175.
The aggregate market value of Sentex Sensing Technology, Inc. Common Shares, no par value,
held by non-affiliates, computed by reference to the average of the closing bid and asked
prices as reported on March 8, 2006: $1,037,649.
Number of shares of Common Shares (No Par Value) of SENTEX SENSING TECHNOLOGY, INC.,
issued and outstanding as of March 8, 2006 is 103,764,911.
ITEM 1 BUSINESS
Sentex Sensing Technology, Inc. (Sentex of the Company) is a corporation duly
organized in 1980 in the state of New Jersey. On July 2, 2001, the Company purchased
Regency Technologies, LLC (Regency Technologies) from Regency Steel, LLC and other
selling members.
As previously reported, on November 20, 2005, the Company entered into a Contribution and
Investment Agreement (the Investment Agreement) with JJJ-RT, LLC (JJJ-RT), Regency
Technologies, Inc. (Regency), a wholly owned subsidiary of the Company, and Regency Acquisition,
LLC (New LLC), a wholly owned subsidiary of Regency. Under the Investment Agreement, Regency
contributed all of its operating assets to New LLC and New LLC assumed all of the obligations of
Regency except for amounts due Robert Kendall, Chief Executive of the Company, of about $200,000
and certain inter-company accounts payable between Regency and the Company in the amount of
$47,000, and JJJ-RT obtained the right to invest up to $800,000 in New LLC on an as-needed basis.
The members of JJJ-RT primarily control when any such investments are made. For every $10,000 of
capital JJJ-RT invests into New LLC, JJJ-RT is entitled to 1% of the equity interest until it owns
50% of the interests of New LLC. These investments by JJJ-RT dilute the Companys interests in New
LLC. The majority members of JJJ-RT are James Levine, the Executive Vice President of Regency, and
Julius Hess, a former director and executive officer of the Company and a current officer of
Regency. Mr. Levine and Mr. Hess are the sons-in-law of Mr. Kendall.
As a result of these arrangements and with the understanding that it is the intention of JJJ-RT to
obtain a majority position prior to the end of the next fiscal year, the Company, together in
consultation with its outside auditors, has concluded that JJJ-RT should be the consolidating
entity. Accordingly, the Company has not reflected the assets, liabilities, revenue or expenses of
the New LLC in its financial statements. As such, the Company has not provided a discussion of New
LLC operations or liquidity and capital resources.
ITEM 3 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.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Companys Common Shares trade on the Over-the-Counter Bulletin Board. The range of
high and low closing bid prices by fiscal quarter was
|
|
|
|
|
2005 |
|
HIGH |
|
LOW |
1st Quarter |
|
.05 |
|
.02 |
2nd Quarter |
|
.03 |
|
.02 |
3rd Quarter |
|
.05 |
|
.02 |
4th Quarter |
|
.09 |
|
.01 |
3
ITEM 6 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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 in 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.
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, Hausser + Taylor LLC, have included
in their auditors report, which covers the Companys financial statements for the years
ended November 30, 2004 and November 30, 2005, a statement that the Companys recurring
losses from operations raised substantial doubt about the Companys ability to continue as
a going concern. For fiscal year 2004 and the period ended November 20, 2005, the Company
sustained losses of approximately $781,000 and $377,000, 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 2005. As of November 30, 2005,
there was an outstanding balance of $7,091,000 on the loans from CPS and Robert S.
Kendall, its chairman. 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 Vice
President, Secretary and a Director, has provided the Company with cash investments to
help fund certain specified transactions. From December 1, 2004 through November 20,
2005, Mr. Hess has invested a total of $715,925 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 November 20, 2005, Mr. Hess will have received total
proceeds of $822,433. We believe these investments have been secured under
5
terms no less favorable than we could have obtained pursuant to an arms-length
transaction. As of November 20, 2005, there was an outstanding balance of $227,279 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
throuth November 20, 2005 Mr. Hess provided $217,000 in loans of this kind to the Company.
As of November 20, 2005, there was no outstanding balance on these loans.
Net Tax Operating Loss Carryforwards
As of
November 20, 2005 the Company has approximately $16,376,000 in net tax operating
loss carryforwards which will expire at various dates through the year 2025 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 $16,376,000
net operating losses may be subject to these limitations and potentially may not be able
to provide any economic benefit to the Company.
RESULTS FROM OPERATIONS
Fiscal 2005 as Compared to Fiscal 2004
Revenues decreased from approximately $3,915,000 in fiscal 2004 to $2,996,000 in fiscal 2005, a
decrease of 23.5%. Gross margins on sales increased from 23.8% in 2004 to 43.4% in 2005 due
primarily to a better than average sales mix in the first and fourth quarters of the year. Volume
still was not sufficient to allow the Company to be profitable.
Operating expenses (SG & A) increased from $1,544,000 in fiscal 2004 to $1,620,000 for the period
ended November 20, 2005. Operating expenses as a per cent of sales increased from 40.1% in fiscal
2004 to 54.1% in 2005. The increase in operating expenses is due primarily to the growth in
employee costs.
Interest expense at increased significantly from $220,000 in 2004 to $370,000 in 2005 and was due
to the eight increases in the prime rate experienced during the year.
CURRENT OUTLOOK
On November 20, 2005, Sentex Sensing Technology, Inc. (the Company) entered into a Contribution
and Investment Agreement (the Investment Agreement) with JJJ-RT, LLC (JJJ-RT), Regency
Technologies, Inc. (Regency), a wholly owned subsidiary of the Company, and Regency Acquisition,
LLC (New LLC), a wholly owned subsidiary of Regency. Under the Investment Agreement, Regency
contributed all of its operating assets to New LLC and New LLC assumed all of the obligations of
Regency except for amounts due Robert Kendall, Chief Executive of the Company, of about $200,000
and certain inter-company accounts payable between Regency and the Company in the amount of
$47,000, and JJJ-RT has the right to invest up to $800,000 in New LLC on an as-needed basis. The
members of JJJ-RT will primarily control when any such investments are made. For every $10,000 of
capital JJJ-RT invests into New LLC, JJJ-RT would be entitled to 1% of the equity interest until it
owned 50% of the interests of New LLC. These investments by JJJ-RT would dilute the Companys
interests in New LLC. The majority members of JJJ-RT are James Levine, the Executive Vice President
of Regency, and Julius Hess, a former director and executive officer of the Company and a current
officer of Regency. Mr. Levine and Mr. Hess are the sons-in-law of Mr. Kendall.
6
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) January 31, 2006 (the
Event Date), as set forth in the Investment Agreement. If the executive management determines
that more than $500,000 in funds are required to be invested in New LLC prior to the Event Date,
then such funds may be invested in New LLC as a loan, which principal amount of the loan may be
converted into equity interests of New LLC after the Event Date at a rate of 1% of equity interest
for each $10,000 of principal that is converted. Upon conversion of any such loans, all accrued
interest on that portion of the converted principal will be forgiven. JJJ-RT would not have the
right to purchase more than 80% of the equity interests in New LLC, whether by a direct investment
in cash or upon conversion of any loans under the terms of the Investment Agreement, without
further agreement from the Company.
The Investment Agreement was subject to the receipt of a fairness opinion (the Fairness Opinion)
as to the fairness to the shareholders of the Company of the transactions described therein from a
financial point of view. The Fairness Opinion was received by the Company on November 25, 2005. The
Fairness Opinion was prepared by Kline & London CPAs, Inc. (Kline & London). Kline & London had
not previously provided services or received fees from the Company or Regency. Kline & Londons
fees for this engagement were not contingent upon a favorable opinion, and they have no verbal,
written or implied agreement to provide future services or receive future fees from the Company or
Regency.
The Company, together with the other parties to the Investment Agreement, determined that JJJ-RT
should receive 1% equity in New LLC for each 10,000 invested. Such amount of compensation was not
recommended by Kline & London. However, after reviewing and relying upon material relating to the
financial and operating conditions of the Company and Regency, including (a) the Investment
Agreement, (b) the Operating Agreement of New LLC, (c) the annual filings with the Securities and
Exchange Commission (SEC) for the three years ended November 30, 2002, 2003 and 2004, (d) the
quarterly reports filed with the SEC for the first three quarters of 2005, (e) internal financial
analyses and forecasts for the Company and Regency prepared by certain members of the senior
management of the Company and Regency, and (f) certain publicly available information with respect
to the Company and Regency and other companies engaged in similar operations, and after conducting
discussions with executive management of the Company, Regency and JJJ-RT concerning historical
financial performance and future business prospects and forecasts and reviewing summary reports
prepared by a financial advisor engaged to raise capital for the Company, Kline & London provided
its opinion that the terms of the Investment Agreement are fair, from a financial point of view, to
the Companys shareholders.
No limitations were imposed by the Company on the scope of the investigation by Kline & London. The
Fairness Opinion will be made available for inspection and copying at the principal executive
office of the Company during regular business hours by any interested equity security holder.
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.
New Accounting Standards In November 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 151, Inventory Costs, to clarify the
accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted
material. This standard requires that such items be recognized as current-period charges. The
standard also establishes the concept of normal capacity and requires the allocation of fixed
production overhead to inventory based on the normal capacity of the production facilities. Any
unallocated overhead must be recognized as an expense in the period incurred. This standard is
effective for inventory costs incurred starting January 1, 2006. The Company does not
believe the adoption of this standard will have a material impact on its consolidated financial
statements.
7
In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets. This standard
amended APB Opinion No. 29, Accounting for Nonmonetary Transactions, to eliminate the exception
from fair value measurement for nonmonetary exchanges of similar productive assets. This standard
replaces this exception with a general exception from fair value measurement for exchanges of
nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to change significantly as a result
of the exchange. This statement is effective for all nonmonetary asset exchanges completed by the
company starting January 1, 2006. The Company does not believe the adoption of this standard will
have a material impact on its consolidated financial statements.
In December 2004, the FASB released a revised version of SFAS No. 123 (FASB 123R), Accounting for
Stock-Based Compensation. This statement supersedes APB Opinion No. 25, Accounting for Stock
Issued to Employees, and its related implementation guidance. This statement amends and clarifies
the accounting for transactions in which an entity exchanges its equity instruments for goods or
services. This statement requires a public entity to measure the cost of employee services received
in exchange for an award of equity instruments and to recognize this cost over the vesting period
or time period during which the employee is required to provide service in exchange for the reward.
This statement is effective for the Company starting January 1, 2006. The Company does not expect
the adoption of this statement to have a material impact on its financial statements.
In June 2005, the FASB released SFAS No. 154, Accounting Changes and Error Corrections,
a replacement of APB Opinion No. 20 and FASB Statement No. 3, to change the requirements
for the accounting for and reporting of a change in accounting principle. This statement
requires retrospective application to prior periods financial statements of changes in an
accounting principle, unless it is impracticable to determine either the period specific
effects or the cumulative effect. If impracticable to determine period specific effects,
this statement requires the new accounting principle to be applied to balances of assets
and liabilities as of the beginning of the earliest period for which retrospective
application is practicable and a corresponding entry made to opening balance of retained
earnings for that period. If it is impracticable to determine the cumulative effect to
prior periods, the statement requires the new accounting principle to be applied from the
earliest date practicable. This statement requires that a change in depreciation,
amortization and depletion methods for long-lived assets be accounted for as a change in
estimate effected by a change in accounting principle. Lastly, this statement carries
forward guidance from Opinion 20 for reporting the correction of an error in previously
issued financial statements and a change in accounting estimate. This standard is
effective for accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. The Company does not believe the adoption of this standard will
have a material impact on its consolidated financial statements.
ITEM 7 FINANCIAL STATEMENTS
See Index to Financial Statements appearing on page F-2
ITEM 8 CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE |
None.
8
ITEM 8A. 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-14 within 90 days of the filing of this annual report, have concluded that
the Companys disclosure controls and procedures were effective to ensure the timely
collection, evaluation and disclosure of information relating to the Company that would
potentially be subject to disclosure under the Securities Exchange Action of 1934, as
amended, and the rules and regulations promulgated thereunder. There were no significant
changes in the Companys internal controls or in other factors that could significantly
affect the internal controls subsequent to the date the Company carried out its
evaluation.
ITEM 8B. OTHER INFORMATION
None.
9
PART III
|
|
|
ITEM 9 |
|
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS:
COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT |
The Directors and Executive Officers of the Company are as follows:
|
|
|
|
|
|
|
Name |
|
Age |
|
Position |
|
|
|
|
|
|
|
Robert S. Kendall
|
|
|
67 |
|
|
Chairman, President and Treasurer |
James S. OLeary
|
|
|
68 |
|
|
Director |
William R. Sprow
|
|
|
67 |
|
|
Controller |
ROBERT S. KENDALL has been the Chairman, President and Treasurer of the Company since
March 1, 1996. He shall maintain his position as a duly elected director of the Company
until such time as his successor is duly qualified and elected. He is also President and
Chairman of CPS Capital, Limited, an investment company based in Cleveland. Until April
1996, he was also Chairman of the Board and founder of LDI Corporation, an asset leasing
and technology services company which he, along with two others, founded in 1972. LDI was
one of the largest independent lessors of technology and computer equipment in the United
States. Mr. Kendall is also a general partner in NCP, Ltd., a real estate partnership
actively engaged in investing, acquiring, financing and managing commercial, industrial
and other properties. From 1969 to 1972, Mr. Kendall was branch manager at Victor
Computer, a manufacturer and distributor of computer systems. From 1963 to 1969, he was a
salesman, financial specialist and sales manager at Burroughs Corporation (now Unisys
Corp.). Mr. Kendall graduated from Case Western Reserve University with a bachelors
degree in psychology in 1960, and attended graduate school at John Carroll University.
JAMES S. OLEARY had been employed by Monitek since August 1982 and served as its
Executive Vice President, Secretary and Treasurer since April 1987. The Company has
retained his services and, from December 1996 through November 1998, he served as Vice
President of Finance and Chief Financial Officer. In December 1998, Mr. OLeary was
elected as a Director and was appointed Chief Operating Officer of the Company. In
September 1999, Mr. OLeary resigned from his position as Chief Operating Officer but he
remained a Director. He shall maintain his position as a duly elected director of the
Company until such time as his successor is duly qualified and elected.
WILLIAM R. SPROW has served as the Chief Financial Officer of the Company since December
2001. He is responsible for all financial operations from day to day accounting,
financial reporting, SEC report preparation and submission, and a variety of
administrative responsibilities for all CPS companies, Sentex and Regency. He
additionally handles IT administration issues for our own internal system. Mr. Sprow also
serves as Controller of CPS Holding Company, Ltd., a related company that is responsible
for energy purchasing and subsequent energy management for a variety of clients ranging
from large Fortune 1000 clients to large public institutions. With over 38 years of
related accounting and financial experience, Mr. Sprow served as Vice President, Finance
of Borden Consumer Products, Canada from 1980 to 1985; as Controller and Operations
Manager for Sherwin-Williams Canada from 1986 to 1993; in key management positions with a
number of Northeast Ohio companies from 1995 to 1999.
There were two meetings of the Companys Board of Directors during the fiscal year ended
November 30, 2005.
10
The Companys Board of Directors does not currently have a nominating committee, audit
committee or a compensation committee.
Currently Mr. Sprow serves as the Boards Financial Expert as that term is defined in
the Instruction to paragraph (e)(1) of Item 401 of Regulation S-B. Mr. Sprow is not
independent as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the Exchange
Act.
Code of Ethics
The Company has not adopted a code of ethics or similar policy that applies to our
principal executive officer, principal financial officer, principal accounting officer or
Controller. We feel such a code of ethics is not necessary at this time because of the
limited size of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires directors, executive
officers and beneficial owners of more than ten percent of our common shares to file
reports with the Securities and Exchange Commission regarding their ownership and changes
in their ownership of our common shares. To our knowledge, during 2005, our executive
officers, directors and greater than ten percent shareholders complied with all Section
16(a) filing requirements on time.
ITEM 10 EXECUTIVE COMPENSATION
The following information is set forth with respect to the Companys Chief Executive
Officer. No other executive officer whose total compensation exceeded $100,000 for the
fiscal year ended November 30, 2005.
|
|
|
|
|
|
|
|
|
|
|
ANNUAL COMPENSATION |
|
|
|
|
|
|
|
|
|
|
|
|
OTHER ANNUAL |
|
|
YEAR |
|
SALARIES |
|
BONUS |
|
COMPENSATION |
Robert S. Kendall |
|
2005 |
|
-0- |
|
-0- |
|
-0- |
(Chief Executive Officer) |
|
2004 |
|
-0- |
|
-0- |
|
-0- |
|
|
2003 |
|
-0- |
|
-0- |
|
-0- |
Long-Term Compensation:
No long-term compensation was paid during the fiscal years ended November 30, 2005, 2004,
or 2003 to any executive officer of the Company by way of restricted stock awards, options
or stock appreciation rights, or other long-term incentive plans.
Stock Options:
The Company adopted the Sentex Sensing Technology, Inc. Stock Option Plan at a special
meeting of its shareholders held on November 14, 1996. Under the Plan, the Company may
grant different types of options covering up to 7,000,000 Common Shares to its existing
and future directors, officers and employees. As of November 30, 2005, there were no
Company stock options held by the directors or executive officers of the Company.
11
Compensation Pursuant to Plans:
The Company has no plans pursuant to which cash or non-cash equivalents were paid during
the fiscal years ended November 30, 2005, 2004, or 2003.
|
|
|
ITEM 11 |
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDERS MATTERS |
Equity Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities to be |
|
|
|
Number of securities remaining available for |
|
|
issued upon exercise of |
|
Weighted average exercise |
|
future issuance under equity compensation |
|
|
outstanding options, warrants |
|
price of outstanding options, |
|
plans (excluding securities reflected in |
|
|
and rights |
|
warrants and rights |
|
column (a)) |
Plan category |
|
(a) |
|
(b) |
|
(c) |
Equity compensation plans approved by security
holders
|
|
|
0 |
|
|
|
0 |
|
|
|
7.000.000 |
|
|
Equity compensation plans not approved by
security holders
|
|
NA
|
|
NA
|
|
NA
|
|
Total
|
|
|
0 |
|
|
|
0 |
|
|
|
7,000,000 |
|
The following sets forth certain information regarding the beneficial ownership of the Common
Shares as of February 7, 2006 by: (a) the Companys Directors; (b) each other person who is known
by the Company to own beneficially more than 5% of the outstanding Common Shares; and (c) the
Companys executive officers and Directors as a group. Except as otherwise described in the notes
below, the following beneficial owners have sole voting power and sole investment power with
respect to all Common Shares set forth opposite their names.
|
|
|
|
|
|
|
|
|
NAME AND ADDRESS |
|
AMOUNT AND NATURE |
|
|
OF BENEFICIAL OWNER (1) |
|
OF BENEFICIAL OWNER |
|
PERCENTAGE |
|
|
|
|
|
|
|
|
|
Robert S. Kendall (2) |
|
|
48,029,814 |
|
|
|
47.2 |
% |
|
|
|
|
|
|
|
|
|
James S. OLeary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Julius L. Hess |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ronald M.
Lipson
|
|
|
687,500 |
|
|
|
* |
|
3 Laurel Hill Lane |
|
|
|
|
|
|
|
|
Pepper Pike, Ohio 44124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CPS Capital, Limited (3) |
|
|
48,029,814 |
|
|
|
47.2 |
% |
1801 East Ninth Street
|
|
|
|
|
|
|
|
|
Cleveland, Ohio 44114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Directors and Officers |
|
|
48,717,314 |
|
|
|
47.9 |
% |
12
(as a group persons)
|
1) |
|
The name and address of each individual is listed in the table, except where
otherwise indicated, is c/o Sentex Sensing Technology, Inc., 1801 East Ninth
Street, Cleveland, Ohio 44114. |
|
|
2) |
|
All common shares distributed to Mr. Kendall are held of record by CPS
Capital, Ltd. or are beneficially owned by CPS Capital, Ltd. Mr. Kendall and his
wife own 100% of the outstanding membership interests in CPS Capital, Ltd. |
|
|
3) |
|
CPS is the record holder of 48,029,814 Common Shares and has sole voting and
dispositive power with respect to such shares. |
|
|
|
Represents less than 1% of the outstanding Common Shares. |
Change in Control
No arrangements currently exist which may result in a change in control of the Company.
13
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CPS Management Agreement:
After CPS acquired effective control of the Company, CPS entered into a Management
Agreement with the Company, which was effective on March 1, 1996. (the Original
Management Agreement). In connection with the execution of the Merger Agreement, dated
June 24, 1996 (the Merger Agreement), CPS and the Company entered into an Amended and
Restated Management Agreement (the Amended and Restated Management Agreement). Pursuant
to the Original Management Agreement, CPS agreed to cause its personnel to perform the
functions that would normally be performed by officers of the Company. Presently, such
personnel consist mainly of Mr. Kendall, the Chairman of CPS and William R. Sprow the
Controller of CPS. In order to permit Mr. Kendall and Mr. Sprow to function as officers
and for them to be properly insured as officers of the Company, Mr. Kendall has been
elected as the President and Treasurer of the Company and Mr. Sprow has been elected Chief
Financial Officer of the Company.
Under the terms of the Original Management Agreement, CPS received an annual fee of
$193,800, which was payable monthly. Under the terms of the Amended and Restated
Management Agreement, the annual fee was increased to $393,800 to account for the increase
in tasks and responsibilities relating to the operation of Monitek. Due to the present
financial condition of the Company, CPS has not received payment under the Amended and
Restated Management Services Agreement since May 1997, but the Company agreed to accrue
such expense. On May 15, 1998, CPS and the Company entered into the Second Amended and
Restated Management Services Agreement, pursuant to which CPS agreed to accept 5,025,745
Common Shares in lieu of accrue management fees equaling $196,900, representing fees for
the second half of fiscal 1997. All the shares acquired by CPS were acquired for
investment purposes.
In December 1997, CPS and the Company agreed to a reduced management fee of $250,000 for
fiscal 1998. In December 1998, the parties agreed to reduce the fee to $300,000 for fiscal
1999 and subsequent years. CPS and the Company have agreed that the balance due as of
November 30, 2000, which totals $442,000.
Working Capital Assistance:
During fiscal 1997 through fiscal 2001, CPS and Mr. Kendall provided the Company
assistance in connection with funding its working capital needs in the form of loans and
security for bank loans. From May 1997 through November 2002, CPS provided the Company a
series of temporary capital loans at a prime interest rate plus 100 basis points. The
outstanding balance of such loans total $7,090,713, including accrued interest, as of
November 30, 2005. From time to time, Mr. Kendall has also provided security to banks by
permitting the banks to obtain a security interest in Mr. Kendalls personal assets and/or
providing guarantees so the Company could obtain financing from the Bank. Except for the
interest to be received on the loans provided by CPS, neither Mr. Kendall nor CPS has
received nor will receive any remuneration in connection with providing such working
capital assistance to the Company unless the notes are converted into Common Shares at
some future date. The Company believes the interest payable to CPS is and was on terms no
less favorable than could be obtained pursuant to an arms-length transaction.
14
In addition to the CPS loans, from time to time, Mr. Julius L. Hess, the Companys Vice
President, Secretary and a Director, has provided the Company with cash investments to
help fund certain specified transactions. From December 1, 2004 through November 20,
2005, Mr. Hess has invested a total of $715,925 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 November 20, 2005, Mr. Hess will have received total
proceeds of $822,433. 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
November 20, 2005, there was an outstanding balance of $227,279 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
throuth November 20, 2005 Mr. Hess provided $217,000 in loans of this kind to the Company.
As of November 20, 2005, there was no outstanding balance on these loans.
15
ITEM 13 EXHIBIT LISTS AND REPORTS ON FORM 8-K
(A) EXHIBITS
|
|
|
EXHIBIT |
|
|
NUMBER |
|
EXHIBIT DESCRIPTION |
3.1
|
|
Certificate of Incorporation, as amended (3) |
|
|
|
3.2
|
|
First Amended and Restated Bylaws of the Company (6) |
|
|
|
3.3
|
|
Certificate of Incorporation of Sentex Acquisition Corp. (4) |
|
|
|
3.5
|
|
Certificate of Merger (Sentex Systems, Inc. into Sentex) (4) |
|
|
|
3.6
|
|
Certificate of Incorporation of Sentex Systems, Inc. (5) |
|
|
|
4.1
|
|
Specimen Certificate of Common Shares (3) |
|
|
|
10.2
|
|
Consulting Agreement with Ms. Joanne Bianco, dated March 1,
1996 (2) |
|
|
|
10.3
|
|
Sentex 1996 Long-Term Incentive Stock Option Plan (1) |
|
|
|
21.1
|
|
List of Subsidiaries (6) |
|
|
|
31.1
|
|
302 Certification of Chief Executive Officer |
|
|
|
31.2
|
|
302 Certification of Chief Financial Officer |
|
|
|
32.1
|
|
Certification Pursuant To 18 U.S.C. Section 1350, As Adopted
Pursuant To Section 906 Of The Sarbanes-Oxley Act of 2002 |
|
|
|
32.2
|
|
Certification Pursuant To 18 U.S.C. Section 1350, As Adopted
Pursuant To Section 906 Of The Sarbanes-Oxley Act of 200 |
|
1) |
|
Incorporated by reference to Annex A of the Joint Proxy
Statement/Prospectus which is a part of Amendment No. 1 to the Registration
Statement on Form S-4, filed on October 4, 1996, File No. 333-12993 (the
Registration Statement). |
|
|
2) |
|
Incorporated by reference to exhibits of the Registration Statement
bearing the same exhibit numbers. |
|
|
3) |
|
Incorporated by reference to exhibits bearing same exhibit numbers,
filed with the Companys Registration Statement on Form S-1, File No. 2-86860. |
|
|
4) |
|
Incorporated by reference to exhibits bearing the same exhibit
numbers, file with the Companys Form 10-KSB for the fiscal year ended
November 30, 1992. |
16
|
5) |
|
Incorporated by reference to exhibits bearing the same exhibit
numbers, filed with the Companys Form 10-KSB for the fiscal year ended
November 30, 1984. |
|
|
6) |
|
Incorporated by reference to exhibits bearing the same exhibit
numbers, filed with the Companys Form 10-KSB for the fiscal year ended
November 30, 1996. |
(B) REPORTS ON FORM 8-K
None.
ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES
Aggregate
audit fees billed for professional services rendered by Hausser + Taylor LLC (the
Firm) for auditing registrants annual financial statements included in the registrants
10-KSB and review of its internal financial statements included in the registrants 10-QSBs
were $31,100 in 2005 and $43,500 in 2004.
The Firm did not charge the Company any audit-related, tax or other fees for these years.
The
Firm has a continuing relationship with RSM McGladrey
(RSM) from which it leased auditing staff who are full time, permanent employees of TBS and
through which its shareholders provide non-audit services. As a result of this arrangement,
the Firm has no full time employees and, therefore, none of the audit services performed were
provided by permanent full time employees of the Firm. The Firm manages and supervises the
audit and audit staff, and is exclusively responsible for the opinion rendered with its
examination.
SIGNATURE
Pursuant to the requirements of Sections 13 or 15 (d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
Date: April 18, 2006 |
|
SENTEX SENSING TECHNOLOGY, INC. |
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Robert S. Kendall |
|
|
|
|
|
|
Robert S. Kendall, Chief Executive Officer
|
|
|
17
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following person on behalf of the Registrant and in the capacities and
on the dates indicated:
|
|
|
|
|
/s/ Robert S. Kendall |
|
|
|
|
Robert S. Kendall
|
|
Chairman, President and Treasurer
|
|
April 18, 2006 |
|
|
|
|
|
/s/ James S. OLeary |
|
|
|
|
James S. OLeary
|
|
Director
|
|
April 18, 2006 |
|
|
|
|
|
/s/ William R. Sprow |
|
|
|
|
William R. Sprow
|
|
Chief Financial Officer
|
|
April 18, 2006 |
|
|
|
|
|
/s/ William R. Sprow |
|
|
|
|
William R. Sprow
|
|
Controller
|
|
April 18, 2006 |
18
SENTEX SENSING TECHNOLOGY, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
F-1
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONTENTS
|
|
|
|
|
|
|
Page |
|
AUDITORS REPORT ON THE FINANCIAL STATEMENTS |
|
|
F-3 |
|
|
|
|
|
|
FINANCIAL STATEMENTS |
|
|
|
|
Consolidated balance sheet |
|
|
F-4 |
|
Consolidated statements of operations |
|
|
F-5 |
|
Consolidated statements of stockholders equity (deficit) |
|
|
F-6 |
|
Consolidated statements of cash flows |
|
|
F-7 |
|
Notes to consolidated financial statements |
|
|
F-8 - F-18 |
|
F-2
Independent Auditors Report
To the Board of Directors and Stockholders
Sentex Sensing Technology, Inc.
Cleveland, Ohio
We have audited the accompanying consolidated balance sheet of Sentex Sensing Technology, Inc.
and subsidiaries as of November 30, 2005, and the related consolidated statements of operations,
stockholders equity (deficit) and cash flows for each of the two years in the period ended
November 30, 2005. These financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). 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 Sentex Sensing Technology, Inc. and subsidiaries
as of November 30, 2005, and the consolidated results of their operations and their cash flows for
each of the two years in the period ended November 30, 2005, in conformity with accounting
principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will
continue as a going concern. As discussed in Note 2A to the financial statements, the Company has
in the past and continues to sustain substantial net and operating losses. In addition, the
Company has used substantial amounts of working capital in its operations which has reduced the
Companys liquidity to a very low level. At November 30, 2005, current liabilities exceed current
assets by $7,693,586. This and other matters raise substantial doubt about the Companys ability
to continue as a going concern. The financial statements do not include any adjustments relating
to the recoverability and classification of recorded assets or the amounts and classification of
liabilities that might be necessary in the event the Company cannot continue in existence.
Hausser + Taylor LLC
Cleveland, Ohio
April 18, 2006
F-3
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
November 30, 2005
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
Cash |
|
$ |
68 |
|
|
|
|
|
Total current assets |
|
|
|
|
|
$ |
68 |
|
|
OTHER ASSETS |
|
|
|
|
|
|
|
|
Investment
in JJJ-RT, LLC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Notes payable: |
|
|
|
|
|
|
|
|
Related party |
|
$ |
7,090,712 |
|
|
|
|
|
Trade and other accounts payable ($441,671 to
related parties) |
|
|
555,147 |
|
|
|
|
|
Accrued liabilities |
|
|
14,123 |
|
|
|
|
|
Consulting contracts payable |
|
|
21,249 |
|
|
|
|
|
Convertible subordinated notes payable |
|
|
12,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
|
$ |
7,693,654 |
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
Common stock, no par value |
|
|
|
|
|
|
|
|
Authorized - 200,000,000 shares
Issued - 111,460,911 shares
Outstanding - 103,764,911 shares |
|
$ |
2,867,579 |
|
|
|
|
|
Retained earnings (deficit) |
|
|
(10,291,697 |
) |
|
|
|
|
Treasury shares at cost, 7,696,000 shares |
|
|
(269,468 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit) |
|
|
|
|
|
|
(7,693,586 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
68 |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements
F-4
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended November 30, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
REVENUES |
|
|
|
|
|
|
|
|
Sales |
|
$ |
|
|
|
$ |
|
|
Other income |
|
|
159,175 |
|
|
|
33,596 |
|
|
|
|
|
|
|
|
Total revenues |
|
|
159,175 |
|
|
|
33,596 |
|
|
|
|
|
|
|
|
|
|
COST AND EXPENSES |
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
255,730 |
|
|
|
240,949 |
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
255,730 |
|
|
|
240,949 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS |
|
|
(96,555 |
) |
|
|
(207,353 |
) |
|
|
|
|
|
|
|
|
|
OTHER EXPENSE |
|
|
|
|
|
|
|
|
Interest |
|
|
369,819 |
|
|
|
219,969 |
|
Other Expense |
|
|
3,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM CONTINUING OPERATIONS |
|
|
(470,039 |
) |
|
|
(427,322 |
) |
|
|
|
|
|
|
|
|
|
NET LOSS ON DISPOSAL OF SUBSIDIARY |
|
|
(14,414 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME(LOSS) FROM DISCONTINUED OPERATIONS |
|
|
107,817 |
|
|
|
(353,512 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS |
|
$ |
(376,636 |
) |
|
$ |
(780,834 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER SHARE (BASIC AND DILUTED) |
|
$ |
(0.00 |
) |
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING |
|
|
101,967,651 |
|
|
|
101,764,911 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements
F-5
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
Years Ended November 30, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
Retained |
|
|
|
|
|
|
|
|
|
|
Stockholders |
|
|
|
Common Stock |
|
|
Earnings |
|
|
Treasury Stock |
|
|
Equity |
|
|
|
Shares |
|
|
Amount |
|
|
(Deficit) |
|
|
Shares |
|
|
Amount |
|
|
(Deficit) |
|
Balance November 30, 2003 |
|
|
109,460,911 |
|
|
$ |
2,867,579 |
|
|
$ |
(9,134,227 |
) |
|
|
7,696,000 |
|
|
$ |
(269,468 |
) |
|
$ |
(6,536,116 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
(780,834 |
) |
|
|
|
|
|
|
|
|
|
|
(780,834 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance November 30, 2004 |
|
|
109,460,911 |
|
|
|
2,867,579 |
|
|
|
(9,915,061 |
) |
|
|
7,696,000 |
|
|
|
(269,468 |
) |
|
|
(7,316,950 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued shares |
|
|
2,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
(376,636 |
) |
|
|
|
|
|
|
|
|
|
|
(376,636 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance November 30, 2005 |
|
|
111,460,911 |
|
|
$ |
2,867,579 |
|
|
$ |
(10,291,697 |
) |
|
|
7,696,000 |
|
|
$ |
(269,468 |
) |
|
$ |
(7,693,586 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements
F-6
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended November 30, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(376,636 |
) |
|
$ |
(780,834 |
) |
Adjustments to reconcile net loss to net cash
used by operating activities: |
|
|
|
|
|
|
|
|
Loss on disposal of subsidiary |
|
|
(14,414 |
) |
|
|
|
|
Forgiveness
of inter-company debt |
|
|
(232,500 |
) |
|
|
|
|
Depreciation and amortization |
|
|
3,134 |
|
|
|
1,082 |
|
Noncash interest expense |
|
|
369,819 |
|
|
|
141,098 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
5,700 |
|
|
|
127,275 |
|
Inventory |
|
|
7,219 |
|
|
|
240,122 |
|
Other assets |
|
|
36,042 |
|
|
|
4,800 |
|
Accounts payable |
|
|
78,692 |
|
|
|
(136,166 |
) |
Accrued liabilities |
|
|
(508,585 |
) |
|
|
(40,060 |
) |
|
|
|
|
|
|
|
Total adjustments |
|
|
(226,065 |
) |
|
|
338,151 |
|
|
|
|
|
|
|
|
Net cash used by operating activities |
|
|
(602,701 |
) |
|
|
(442,683 |
) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Purchase of leasehold improvements |
|
|
(19,003 |
) |
|
|
|
|
Cash transfer to Regency Technologies, Ltd. |
|
|
(34,248 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities |
|
|
(53,251 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Proceeds on notes and accounts payable related party |
|
|
697,999 |
|
|
|
2,910,225 |
|
Payments on notes and accounts payable related party |
|
|
(54,851 |
) |
|
|
(2,500,000 |
) |
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
643,148 |
|
|
|
410,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH |
|
|
(12,804 |
) |
|
|
(32,458 |
) |
|
|
|
|
|
|
|
|
|
CASH BEGINNING OF YEAR |
|
|
12,872 |
|
|
|
45,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH END OF YEAR |
|
$ |
68 |
|
|
$ |
12,872 |
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
|
|
|
$ |
33,296 |
|
See notes to the consolidated financial statements for
certain noncash investing and financing activities.
The accompanying notes are an integral part of these financial statements
F-7
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
Note 1. |
|
Organization, Background, Industry Segment and Discontinued Operations |
The consolidated financial statements include the accounts of Sentex Sensing Technology,
Inc. and its wholly-owned subsidiaries (the Company). All material intercompany
accounts and transactions have been eliminated in consolidation.
On July 2, 2001, the Company acquired Regency Technologies, Ltd. from Regency Steel, LLC.
In connection with the acquisition, the Company issued 1,250,000 common shares held in
treasury in exchange for 100% of Regency Technologies, Ltd. The Companys only
significant operations in the years ended November 30, 2005 and 2004 consisted of Regency
Technologies, Ltd.s operations. The Company specializes in the buying, selling, and
trading of information technology equipment (primarily computer equipment). The primary
focus of the Companys business revolves around acquiring unneeded, older computer
equipment and reselling that equipment to certain consumers on a global basis. The
Companys business is confined to one industry segment and two geographical reporting
segments. The Companys assets are all located within the United States.
Effective November 20, 2005 the Company transferred substantially all of the net assets
of Regency Technologies, Ltd. to two of the Regency management team members
and others (See Note 13.). The
Company had been unsuccessful in its quest to raise growth capital that was necessary for
further growth of Regency Technologies, Ltd.
We therefore completed a smaller transaction whereby members of management and others
invested their own capital under a purchase agreement with JJJ-RT, LLC which resulted in their acquiring
control of Regency.
The
Company will ultimately retain a 20% minority
interest in JJJ-RT, LLC.
This business has been accounted for as a discontinued operation in the consolidated
statements of operations for all periods presented.
Financial
information relating to the discontinued operations of Regency
Technologies, Ltd.
follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30, |
|
|
|
2005 |
|
|
2004 |
|
REVENUES |
|
|
|
|
|
|
|
|
Net Sales |
|
$ |
2,996,278 |
|
|
$ |
3,847,228 |
|
|
|
|
|
|
|
|
|
|
COST AND EXPENSES |
|
|
|
|
|
|
|
|
Cost of sales |
|
|
1,705,855 |
|
|
|
2,931,456 |
|
Selling and general |
|
|
1,376,403 |
|
|
|
1,303,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
3,082,258 |
|
|
|
4,234,508 |
|
|
|
|
|
|
|
|
|
INCOME(LOSS) FROM OPERATIONS
OF DISCONTINUED OPERATIONS |
|
|
(85,980 |
) |
|
|
(387,280 |
) |
|
|
|
|
|
|
|
|
|
Other income |
|
|
193,797 |
|
|
|
33,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME(LOSS) |
|
$ |
107,817 |
|
|
$ |
(353,512 |
) |
|
|
|
|
|
|
|
F-8
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
Note 2. |
|
Summary of Significant Accounting Policies |
|
A. |
|
Going Concern The accompanying financial statements have been prepared
in conformity with accounting principles generally accepted in the United States of
America, which contemplate continuation of the Company as a going concern. However,
the Company has in the past and continues to sustain substantial net and operating
losses. In addition, the Company has used substantial amounts of working capital in
its operations which has reduced the Companys liquidity to a very low level. At
November 30, 2005, current liabilities exceed current assets by $7,693,586.
Additionally, at November 30, 2005, the Company has no operations. These and other
matters raise substantial doubt about the Companys ability to continue as a going
concern. The financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence. The Companys ability to continue in existence is
primarily dependent upon its planned ability to arrange adequate financing and to
attain profitable operating activities to sustain required cash flows. |
|
|
B. |
|
Receivable and Credit Policies Through November
20, 2005 accounts receivable were uncollateralized
customer obligations due with various trade terms from the invoice
date and were
stated at the amount billed to the customer. Payments of accounts
receivable were
applied to the specific invoices identified on the customers remittance advice.
The carrying amount of accounts receivable was reported net of the allowance for
doubtful accounts reserve, which reflects managements best estimate of the amount
that would not be collected. Management individually reviews all accounts receivable
balances and any customer account balances with invoices dated over 120 days past
due were considered delinquent. These delinquent invoice amounts plus any other invoices deemed not to
be collected were reserved for in the allowance for doubtful accounts reserve.
Specific accounts were charged directly to the reserve when management obtained
evidence of a customers insolvency or otherwise determined that
the account was
uncollectible. |
|
|
C. |
|
Revenue Recognition Through November
20, 2005 the Company recorded revenue as
customers were billed
for consulting services. |
|
|
D. |
|
Concentration of Credit and Risk Factors Financial instruments which
potentially subject the Company to concentrations of credit risk
include cash and equivalents and accounts and notes receivable. The Company places
its cash and cash equivalents with high credit quality financial institutions. The
amount on deposit in any one institution that exceeds federally insured limits is
subject to credit risk. Also see Notes 2.B., 2.G. and 13. |
|
|
E. |
|
Use of Estimates The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from those
estimates. |
F-9
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
Note 2. |
|
Summary of Significant Accounting Policies (Continued) |
|
F. |
|
Income Taxes The Company utilizes Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting for Income Taxes, which requires an asset
and liability approach to financial accounting and reporting for income taxes. The
difference between the financial statement and tax basis of assets and liabilities
is determined annually. Deferred income tax assets and liabilities are computed for
those temporary differences that have future tax consequences using the current
enacted tax laws and rates that apply to the periods in which they are expected to
affect taxable income. Valuation allowances are established, if necessary, to
reduce the deferred tax asset to the amount that will, more likely than not, be
realized. Income tax expense is the current tax payable or refundable for the
period plus or minus the net change in the deferred tax assets and liabilities. |
|
|
G. |
|
Fair Value of Certain Financial Instruments The fair values of cash,
accounts receivable, accounts payable, and other short-term obligations approximate
their carrying values because of the short maturity of these financial instruments. |
|
|
H. |
|
Loss Per Share Loss per share is calculated using the weighted average
number of shares outstanding. Potentially dilutive securities are insignificant. |
|
|
I. |
|
New Accounting Standards In November 2004, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 151, Inventory Costs, to clarify the accounting for abnormal amounts of idle
facility expense, freight, handling costs and wasted material. This standard
requires that such items be recognized as current-period charges. The standard also
establishes the concept of normal capacity and requires the allocation of fixed
production overhead to inventory based on the normal capacity of the production
facilities. Any unallocated overhead must be recognized as an expense in the period
incurred. This standard is effective for inventory costs incurred starting January
1, 2006. The Company does not believe the adoption of this standard will have a material impact on its
consolidated financial statements. |
|
|
|
|
In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets.
This standard amended APB Opinion No. 29, Accounting for Nonmonetary Transactions,
to eliminate the exception from fair value measurement for nonmonetary exchanges of
similar productive assets. This standard replaces this exception with a general
exception from fair value measurement for exchanges of nonmonetary assets that do
not have commercial substance. A nonmonetary exchange has commercial substance if
the future cash flows of the entity are expected to change significantly as a result
of the exchange. This statement is effective for all nonmonetary asset exchanges
completed by the company starting January 1, 2006. The Company does not believe the
adoption of this standard will have a material impact on its consolidated financial
statements. |
F-10
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
Note 2. |
|
Summary of Significant Accounting Policies (Continued) |
In December 2004, the FASB released a revised version of SFAS No. 123 (FASB
123R), Accounting for Stock-Based Compensation. This statement supersedes APB
Opinion No. 25, Accounting for Stock Issued to Employees, and its related
implementation guidance. This statement amends and clarifies the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services. This statement requires a public entity to measure the cost of employee
services received in exchange for an award of equity instruments and to recognize
this cost over the vesting period or time period during which the employee is
required to provide service in exchange for the reward. This statement is effective
for the Company starting January 1, 2006. The Company does not expect the adoption
of this statement to have a material impact on its financial statements.
In June 2005, the FASB released SFAS No. 154, Accounting Changes and Error
Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3, to
change the requirements for the accounting for and reporting of a change in
accounting principle. This statement requires retrospective application to prior
periods financial statements of changes in an accounting principle, unless it is
impracticable to determine either the period specific effects or the cumulative
effect. If impracticable to determine period specific effects, this statement
requires the new accounting principle to be applied to balances of assets and
liabilities as of the beginning of the earliest period for which retrospective
application is practicable and a corresponding entry made to opening balance of
retained earnings for that period. If it is impracticable to determine the
cumulative effect to prior periods, the statement requires the new accounting
principle to be applied from the earliest date practicable. This statement requires
that a change in depreciation, amortization and depletion methods for long-lived
assets be accounted for as a change in estimate effected by a change in accounting
principle. Lastly, this statement carries forward guidance from Opinion 20 for
reporting the correction of an error in previously issued financial statements and a
change in accounting estimate. This standard is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005. The
Company does not believe the adoption of this standard will have a material impact
on its consolidated financial statements.
J. |
|
|
Certain amounts in the financial statements for the year ended
November 30, 2005 have been reclassified to conform with current year
presentation. |
F-11
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
Note 3. |
|
Investment in Regency Technologies, Ltd. |
|
|
|
Due to a change in control, the Company now accounts for its
investment in JJJ-RT, LLC on the equity
method. However, losses and distributions have exceeded the Companys investment in
JJJ-RT, LLC. Accordingly, the Company has reflected such investments at
zero. The Companys share of future losses in this investment will be suspended for book
purposes. Furthermore the Companys share in future income will not be recognized until
the aggregate of such income equals the aggregate of their suspended losses. |
|
|
|
The net loss on disposal of subsidiary (Regency Technologies,
Ltd.) is the result of recognizing the net investment deficit in
Regency as of November 20, 2005 as income to bring the value of the
investment to zero and decreasing that gain by the forgiveness of
inter-company debt as stated in the Contribution and Investment
Agreement. (See note 13.) |
|
|
|
|
Deficit equity in Regency Technologies, Ltd. |
|
$ 218,086 |
|
|
|
|
|
Inter-company debt forgiveness |
|
(232,500 |
) |
|
|
|
|
Net loss on disposal of subsidiary |
|
$ (14,414 |
) |
|
|
|
|
|
|
|
The following table sets forth certain summarized financial information of Regency
Technologies, Ltd., the Companys only investment, based upon the applicable financial
statements, adjusted for accounting principles generally accepted in the United States of
America. |
|
|
|
|
|
BALANCE SHEET DATA |
|
2005 |
|
|
|
|
Current assets |
|
$ |
223,085 |
|
Leasehold improvements |
|
|
15,869 |
|
Other assets |
|
|
990 |
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
|
239,944 |
|
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
458,030 |
|
Partners Equity |
|
|
(218,086 |
) |
|
|
|
|
|
|
|
|
|
Total liabilities and partners equity |
|
$ |
239,944 |
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
2,996,278 |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
107,817 |
|
|
|
|
|
Note 4. |
|
Accrued Liabilities |
|
Accrued liabilities consist of the following at November 30, 2005: |
F-12
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. |
|
Notes Payable Bank and Other Borrowing Arrangements |
|
|
|
During the years ended November 30, 2005 and 2004, the Companys principal stockholder
(CPS Capital, Ltd.) and the Companys Chairman provided the Company assistance in
connection with funding its working capital needs in the form of loans and security for
bank loans. As of November 30, 2005, the Company had notes
payable of $7,090,712,
including accrued interest of approximately $1,121,000 (bearing interest at 1% over the
prime rate) to its principal stockholder in connection with such unsecured loans. |
|
|
|
Interest expense for the years ended November 30, 2005 and 2004 amounted to $369,819 and
$219,969, respectively. Interest expense includes $191,456 and $141,098 for the years
ended November 30, 2005 and 2004, respectively, of interest that has been added to the
principal balance of the notes described in the preceding paragraph. |
|
Note 6. |
|
Convertible Subordinated Notes Payable |
|
|
|
Convertible subordinated notes payable of $12,423 are subordinated to all present and
future obligations of the Company and have a stated interest rate of 5.05% per annum.
The notes can be converted at the holders or Companys option into that number of shares
by dividing the face amount of the note by $.075. The conversion terms contain standard
anti-dilutive provisions to adjust the conversion price. The notes matured December 1,
2000. |
|
Note 7. |
|
Commitments and Contingencies |
|
|
|
The Company leases office space under a non-cancelable operating lease which expires
March 1, 2006. The following is a schedule of future minimum lease payments as of
November 30, 2005: |
|
|
Rent expense for the year ended November 30, 2005 was $48,447. |
F-13
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
Note 8. |
|
Stock Incentive Plan |
|
|
|
The Company has a long-term incentive plan (Incentive Plan) to provide current and
future directors, officers and employees incentives to stimulate their active interest in
the development and financial success of the Company. The Incentive Plan provides for
the granting of incentive stock options, under Section 422 of the Internal Revenue Code
of 1986, as amended, or other stock options, stock appreciation rights, restricted, or
nonrestricted stock awards to purchase not more than 7,000,000 shares (which shares have
been reserved by the Company) of common stock as determined by the Companys Incentive
Plan Committee (the Committee). The option prices per share of common stock, which are
the subject of incentive stock options and other stock options under the Incentive Plan,
shall not be less than 100% of the fair market value of the Companys shares of common
stock on the date such option is granted. The Committee shall determine when each option
is to expire but no option shall be exercisable for a period of more than 10 years from
the date upon which the option is granted. Generally, options granted under the
Incentive Plan vest or terminate upon the employee leaving the Company and are subject to
automatic acceleration of any vesting requirements given certain changes in control of
the Company. No options were outstanding to purchase the Companys stock during the
years ended November 30, 2005 and 2004. |
|
|
|
Stock appreciation rights may be awarded by the Committee at the time or subsequent to
the time of the granting of options. Stock appreciation rights awarded shall provide
that the option holder shall have the right to receive an amount equal to 100% of the
excess, if any, of the fair market value of the shares of common stock covered by the
option over the option price. Such amount shall be payable, as determined by the
Committee, in one or more of the following manners: (a) cash; (b) fully-paid shares of
common stock having a fair market value equal to such amount; or (c) a combination of
cash and shares of common stock. As of November 30, 2005, the Company has not granted
any appreciation rights under the Incentive Plan. |
|
Note 9. |
|
Profit-Sharing Plan |
|
|
|
The Company has a profit-sharing plan and a 401(k) retirement plan for the benefit of
eligible employees. Contributions under the plans are determined at the discretion of
the Board of Directors and are credited to employees based upon a percentage of eligible
salaries. The Company elected to suspend all contributions for the years ended November
30, 2005 and 2004. |
F-14
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10. |
|
Income Taxes |
|
|
|
As referred to in Note 1, the Company utilizes SFAS 109, Accounting for Income Taxes.
A reconciliation between the Companys effective income tax rate and the statutory
federal income tax rate is as follows for the years ended November 30: |
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
Expected federal income tax benefit at
the statutory rate |
|
|
(34.0 |
)% |
|
|
(34.0 |
)% |
|
|
|
|
|
|
|
|
|
Increase in taxes resulting from: |
|
|
|
|
|
|
|
|
Effect of operating loss for which no tax
carrybacks are available |
|
|
(34.0 |
) |
|
|
34.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
% |
|
|
|
|
|
|
|
The tax effects of significant temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented below for
the years ended November 30:
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Net operating loss carryforward |
|
$ |
3,437,700 |
|
|
$ |
3,235,400 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets |
|
|
3,437,700 |
|
|
|
3,235,400 |
|
Less valuation allowance |
|
|
3,437,700 |
|
|
|
3,235,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
The deferred tax assets do not include deferred tax assets related to purchased net
operating loss carryforwards that are subject to usage limitations (see below).
The Company established a valuation allowance against tax benefits that are potentially
available to the Company but have not yet been recognized. This valuation allowance
relates to the amount of net operating loss carryforwards in excess of existing net
taxable temporary differences and to certain deductible temporary differences that may
not reverse during periods in which the Company may generate net taxable income. During
the years ended November 30, 2005 and 2004, the Company recorded increases of $202,300
and $223,300, respectively, in the valuation allowance primarily as a result of the net
operating loss generated during the year.
At November 30, 2005, the Company had approximately $16,376,000 of net operating loss
carryforwards available to offset future federal taxable income. The federal non-limited
net operating loss carryforwards expire at various dates from 2013 through 2025. Federal
tax law imposes restrictions on the utilization of net operating loss carryforwards in
the event of a change in ownership. The Companys net operating loss includes
approximately $6,265,000 of loss carryforwards that may be subject to limitations as a
result of these provisions.
F-15
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11. |
|
Related Party Transactions |
|
|
|
The Company has a management agreement with an affiliate and significant stockholder, CPS
Capital, Ltd., to perform management and executive services. Based on limited
operations, the Company and CPS agreed to reduce the management fee until the Company
expands its operations. As of November 30, 2005, the balance due for unpaid management
fees was $441,671. |
|
Note 12. |
|
Legal Contingencies |
|
|
|
During October 2004, the Company was dismissed without prejudice from the matter, State
of Ohio, Department of Administrative Services v. IQ Solutions, et al.; Case No.
03-CVH05-6054: Franklin County Common Pleas Court, Ohio which was previously disclosed. |
|
Note 13. |
|
Other |
|
|
|
On November 20, 2005, Sentex Sensing Technology, Inc. (the Company) entered into a
Contribution and Investment Agreement (the Investment Agreement) with JJJ-RT, LLC
(JJJ-RT), Regency Technologies, Inc. (Regency), a wholly owned subsidiary of the
Company, and Regency Acquisition, LLC (New LLC), a wholly owned subsidiary of Regency.
Under the Investment Agreement, Regency contributed all of its operating assets to New
LLC and New LLC assumed all of the obligations of Regency except for amounts due Robert
Kendall, Chief Executive of the Company, of about $200,000 and certain inter-company
accounts payable between Regency and the Company in the amount of $47,000, and JJJ-RT has
the right to invest up to $800,000 in New LLC on an as-needed basis. The members of
JJJ-RT will primarily control when any such investments are made. For every $10,000 of
capital JJJ-RT invests into New LLC, JJJ-RT would be entitled to 1% of the equity
interest until it owned 50% of the interests of New LLC. These investments by JJJ-RT
would dilute the Companys interests in New LLC. The majority members of JJJ-RT are James
Levine, the Executive Vice President of Regency, and Julius Hess, a former director and
executive officer of the Company and a current officer of Regency. Mr. Levine and Mr.
Hess are the sons-in-law of Mr. Kendall. |
F-16
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13. |
|
Other (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) January 31, 2006 (the Event Date), as set forth in the Investment Agreement. If the
executive management determines that more than $500,000 in funds are required to be
invested in New LLC prior to the Event Date, then such funds may be invested in New LLC
as a loan, which principal amount of the loan may be converted into equity interests of
New LLC after the Event Date at a rate of 1% of equity interest for each $10,000 of
principal that is converted. Upon conversion of any such loans, all accrued interest on
that portion of the converted principal will be forgiven. JJJ-RT would not have the right
to purchase more than 80% of the equity interests in New LLC, whether by a direct
investment in cash or upon conversion of any loans under the terms of the Investment
Agreement, without further agreement from the Company. |
|
|
|
The Investment Agreement was subject to the receipt of a fairness opinion (the Fairness
Opinion) as to the fairness to the shareholders of the Company of the transactions
described therein from a financial point of view. The Fairness Opinion was received by
the Company on November 25, 2005. The Fairness Opinion was prepared by Kline & London
CPAs, Inc. (Kline & London). Kline & London had not previously provided services or
received fees from the Company or Regency. Kline & Londons fees for this engagement were
not contingent upon a favorable opinion, and they have no verbal, written or implied
agreement to provide future services or receive future fees from the Company or Regency. |
|
|
|
The Company, together with the other parties to the Investment Agreement, determined that
JJJ-RT should receive 1% equity in New LLC for each 10,000 invested. Such amount of
compensation was not recommended by Kline & London. However, after reviewing and relying
upon material relating to the financial and operating conditions of the Company and
Regency, including (a) the Investment Agreement, (b) the Operating Agreement of New LLC,
(c) the annual filings with the Securities and Exchange Commission (SEC) for the three
years ended November 30, 2002, 2003 and 2004, (d) the quarterly reports filed with the
SEC for the first three quarters of 2005, (e) internal financial analyses and forecasts
for the Company and Regency prepared by certain members of the senior management of the
Company and Regency, and (f) certain publicly available information with respect to the
Company and Regency and other companies engaged in similar operations, and after
conducting discussions with executive management of the Company, Regency and JJJ-RT
concerning historical financial performance and future business prospects and forecasts
and reviewing summary reports prepared by a financial advisor engaged to raise capital
for the Company, Kline & London provided its opinion that the terms of the Investment
Agreement are fair, from a financial point of view, to the Companys shareholders. |
|
|
|
No limitations were imposed by the Company on the scope of the investigation by Kline &
London. The Fairness Opinion will be made available for inspection and copying at the
principal executive office of the Company during regular business hours by any interested
equity security holder. |
F-17
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13. |
|
Other (Continued) |
|
|
|
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. |
F-18