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 February 28, 2006
SENTEX SENSING TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-2333899
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1801 East Ninth Street
Cleveland, Ohio 44114
(Address of principal executive offices) (Zip Code)
(216) 687-0289
(Registrant's 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 February 28, 2006 is 103,764,911
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
NOVEMBER 30, 2005 AND FEBRUARY 28, 2006
NOVEMBER 30, FEBRUARY 28,
2005 2006
(AUDITED) (UNAUDITED)
ASSETS
CURRENT ASSETS
Cash $ 68 $ --
------------ ------------
TOTAL CURRENT ASSETS 68 --
OTHER ASSETS
Investment in JJJ-RT, LLC -- --
------------ ------------
TOTAL ASSETS $ 68 $ --
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable:
Related party $ 7,090,712 $ 7,241,744
Trade and other accounts payable ($441,671
and $441,671 to related parties) 555,147 536,330
Accrued liabilities 14,123 14,123
Consulting contracts payable 21,249 21,249
Convertible subordinated notes payable 12,423 12,423
------------ ------------
TOTAL CURRENT LIABILITIES 7,693,654 7,825,869
STOCKHOLERS' EQUITY
Common stock, no par value
Authorized - 200,000,000 shares
Issued - 111,460,911 shares
Outstanding - 103,764,911 shares 2,867,579 2,867,579
Accumulated deficit (10,291,697) (10,423,980)
Treasury shares at cost, 7,696,000 shares (269,468) (269,468)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (7,693,586) (7,825,869)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 68 $ (0)
============ ============
See Notes to Consolidated Financial Statements
2
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED FEBRUARY 28, 2005 AND FEBRUARY 28, 2006 (UNAUDITED)
THREE MONTHS ENDED
FEB 28, 2005 FEB 28, 2006
------------- -------------
REVENUES
Sales $ -- $ --
Interest and other income 4,164 5,246
------------- -------------
Total Revenues 4,164 5,246
COST OF GOODS SOLD -- --
------------- -------------
GROSS PROFIT 4,164 5,246
OPERATING EXPENSES
Administration 61,830 26,777
------------- -------------
Total expenses 61,830 26,777
------------- -------------
LOSS FROM OPERATIONS (57,666) (21,531)
OTHER EXPENSE
Interest Expense 78,834 110,752
------------- -------------
LOSS FROM CONTINUING OPERATIONS (136,500) (132,283)
INCOME FROM DISCONTINUED OPERATIONS 53,238 --
------------- -------------
NET LOSS (83,262) (132,283)
NET PROFIT(LOSS) PER SHARE (BASIC AND
DILUTED) $ (0.00) $ (0.00)
WEIGHTED NUMBER OF SHARES OUTSTANDING 101,764,911 103,764,911
See Notes to Consolidated Financial Statements
3
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE THREE MONTHS
ENDED FEBRUARY 28, 2005 AND FEBRUARY 28, 2006 (UNAUDITED)
THREE MONTHS ENDED
FEB 28, 2005 FEB 28, 2006
------------ ------------
OPERATING ACTIVITIES:
Net loss $ (83,262) $ (132,283)
Adjustment to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization -- --
Noncash interest expense 78,834 110,752
Accounts receivable (86,275) --
Inventories 8,091 --
Other assets -- --
Accounts payable 96,283 (18,818)
Accrued liabilities (53,476) --
------------ ------------
Total Adjustments 43,457 91,934
------------ ------------
Net cash used by operating activities (39,805) 40,349
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on notes and accounts payable - related party 38,507 40,281
Payments on note payable - related party -- --
------------ ------------
Net cash provided by financing activities 38,507 40,281
------------ ------------
NET INCREASE (DECREASE) IN CASH (1,298) (68)
CASH - BEGINNING OF PERIOD 12,872 68
------------ ------------
CASH - END OF PERIOD $ 11,574 $ --
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the quarter for:
Interest $ -- $ --
============ ============
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 February 28, 2006 and the
results of operations and cash flows for the three months ended February 28,
2005 and February 28, 2006.
These interim statements should be read in conjunction with the audited
financial statements and notes thereto included in the Company's Annual Report
on Form 10-KSB for the fiscal year ended November 30, 2005 (Commission File No.
2-13328).
(2) The results of operations for the three months ended February 28, 2005 and
February 28, 2006 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
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 Company's 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.
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 & London's 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 Company's
shareholders.
6
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
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.
FINANCIAL CONDITION
Working Capital and Liquidity
During the last several fiscal years, the Company has incurred losses from
operations. In addition, the Company's certified public accountants, Hausser +
Taylor LLC, have included in their auditors' report, which covers the Company's
financial statements for the years ended November 30, 2004 and November 30,
2005, a statement that the Company's recurring losses from operations raised
substantial doubt about the Company's 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.
Net Tax Operating Loss Carryforwards
As of August 31, 2005 the Company has approximately $16,508,000 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 $16,508,000 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
On November 20, 2005, JJJ-RT, LLC assumed the operations of the former Regency
Technologies, Ltd.
The Company currently has no active operation. Expenses shown on the
Consolidated Statement of Operations include corporate administrative overhead
only.
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
exceeeded the Company's investment in JJJ-RT, LLC. Accordingly, the Company has
reflected such investments at zero. The Company's share of future losses in this
investment will be suspended for book purposes. Furthermore the Company's share
in future income will not be recognized until the aggregate of such income
equals the aggregate of their suspended losses.
7
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
The following table sets forth certain summarized financial information of
JJJ-RT, LLC, the Company's only investment, based upon the applicable financial
statements, adjusted for accounting principles generally accepted in the United
States of America. This information is for the quarter ended March 31, 2006 and
has not been audited or reviewed.
BALANCE SHEET DATA 2006
----
Current assets $ 361,426
Leasehold improvements 14,774
Other assets 990
---------
Total Assets 377,190
=========
Current Liabilities 344,206
Partners' Equity 32,984
---------
Total liabilities and partners' equity $ 377,190
=========
STATEMENT OF INCOME DATA
Revenues $ 995,157
=========
Net income $ (61,522)
=========
CURRENT OUTLOOK
The Company is in the midst of discussions that may lead to a major breakthrough
insofar as a deal is concerned. There are still hurdles to get by, but we
believe a deal can get done, and quickly.
CHANGES IN ACCOUNTING STANDARDS
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.
8
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (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.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOUR" OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.
Certain statements in the Management's 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 Company's 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 Company's plans and objectives will be achieved.
CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Principal Accounting Officer, after
evaluating the effectiveness of the Company's 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 Company's disclosure controls and
procedures were effective.
9
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
There were no changes in the Company's internal controls over financial
reporting that occurred during the Company's last fiscal quarter to which this
report relates that have materially affected, or are reasonably likely to
materially affect, the Company's internal controls over financial reporting.
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:
Date: April 21, 2006 SENTEX SENSING TECHNOLOGY, INC.
By: /s/ Robert S. Kendall
------------------------------------------
Robert S. Kendall, Chief Executive Officer
/s/ William R. Sprow
------------------------------------------
William R. Sprow, Chief Financial Officer
/s/ William R. Sprow
------------------------------------------
William R. Sprow, Controller
10
EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 31.1 302 Certification of Chief Executive Officer
Exhibit 31.2 302 Certification of Chief Financial Officer
Exhibit 32.1 Certification Pursuant To 18 U. S. C. Section 1350, As
Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act
of 2002
Exhibit 32.2 Certification Pursuant To 18 U. S. C. Section 1350, As
Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act
of 2002
b) No reports on Form 8-K were filed with the Commission during the small
business issuer's first quarter.
11