SENTEX SENSING TECHNOLOGY, INC. 10QSB/A
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-QSB/A

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, 2005

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 þ No o

Number of shares of Common Shares (No Par Value) of SENTEX SENSING TECHNOLOGY, Inc., issued and outstanding as of the latest practicable date is 101,764,911

 
 

 


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SIGNATURE
EX-31.1 CERT
EX-31.2 CERT
EX-32.1 CERT
EX-32.2 CERT


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SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
NOVEMBER 30, 2004 AND FEBRUARY 28, 2005

                 
    November 30,     February  
    2004     2005  
    (Audited)     (Unaudited)  
ASSETS
               
CURRENT ASSETS
               
Cash
  $ 12,872     $ 11,574  
Accounts receivable - trade, net of allowance for doubtful accounts of $55,000
    98,206       184,481  
Inventory
    103,550       95,459  
 
           
 
               
TOTAL CURRENT ASSETS
    214,628       291,514  
 
               
FIXED ASSETS
               
Computer equipment
    4,009       4,009  
Less accumulated depreciation
    4,009       4,009  
 
           
 
           
 
               
OTHER ASSETS
               
Goodwill
    36,042       36,042  
Deposits
    990       990  
 
           
 
    37,032       37,032  
 
           
 
               
TOTAL ASSETS
  $ 251,660     $ 328,546  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
 
               
CURRENT LIABILITIES
               
Notes payable:
               
Related party
  $ 6,203,340     $ 6,241,847  
Trade and other accounts payable ($913,174 and $967,507 to related parties)
    1,171,122       1,267,405  
Accrued liabilities
    160,476       185,834  
Consulting contracts payable
    21,249       21,249  
Convertible subordinated notes payable
    12,423       12,423  
 
           
 
               
TOTAL CURRENT LIABILITIES
    7,568,610       7,728,758  
 
               
STOCKHOLDERS’ EQUITY
               
Common stock, no par value Authorized - 200,000,000 shares Issued - 109,460,911 shares Outstanding - 101,764,911 shares
    2,867,579       2,867,579  
Accumulated deficit
    (9,915,061 )     (9,998,323 )
Treasury shares at cost, 7,696,000 shares
    (269,468 )     (269,468 )
 
           
 
               
TOTAL STOCKHOLDERS’ EQUITY
    (7,316,950 )     (7,400,212 )
 
               
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 251,660     $ 328,546  
 
           

See Notes to Consolidated Financial Statements

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SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2005 (UNAUDITED)

                 
    Three Months Ended  
    Feb 29,     Feb 28,  
    2004     2005  
REVENUES
               
Sales
  $ 591,095     $ 752,146  
Interest and other income
    12,267       5,228  
 
           
Total Revenues
    603,362       757,374  
 
               
COST OF GOODS SOLD
    601,034       353,285  
 
           
 
               
GROSS PROFIT
    2,328       404,089  
 
               
OPERATING EXPENSES
               
Administration
    369,507       408,517  
 
           
 
               
Total expenses
    369,507       408,517  
 
           
 
               
PROFIT(LOSS) FROM OPERATIONS
    (367,179 )     (4,428 )
 
               
OTHER EXPENSE
               
Interest Expense
    54,443       78,834  
 
           
 
               
PROFIT(LOSS) BEFORE PROVISION FOR INCOME TAX EXPENSE
    (421,622 )     (83,262 )
 
               
PROVISION FOR INCOME TAX EXPENSE
           
 
           
 
               
NET PROFIT(LOSS)
    (421,622 )     (83,262 )
 
               
NET PROFIT(LOSS) PER SHARE (BASIC AND DILUTED)
  $ (0.00 )   $ (0.00 )
 
               
WEIGHTED NUMBER OF SHARES OUTSTANDING
    101,764,911       101,764,911  

See Notes to Consolidated Financial Statements

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SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE THREE MONTHS
ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2005 (UNAUDITED)

                 
    Three Months Ended  
    Feb 29,     Feb 28,  
    2004     2005  
OPERATING ACTIVITIES:
               
Net loss
  $ (421,622 )   $ (83,262 )
Adjustment to reconcile net loss to net cash used by operating activities:
               
Depreciation and amortization
           
Noncash interest expense
    41,079       78,834  
Accounts receivable
    88,712       (86,275 )
Inventories
    262,321       8,091  
Other assets
           
Accounts payable
    (133,764 )     96,283  
Accrued liabilities
    30,290       (53,476 )
 
           
 
               
Total Adjustments
    288,638       43,457  
 
           
 
               
Net cash used by operating activities
    (132,984 )     (39,805 )
 
               
CASH FLOWS FROM FINANCING ACTIVITIES
               
Proceeds on notes and accounts payable - related party
    107,392       38,507  
Payments on note payable - related party
    (14,500 )      
 
           
 
               
Net cash provided by financing activities
    92,892       38,507  
 
           
 
               
NET INCREASE (DECREASE) IN CASH
    (40,092 )     (1,298 )
 
               
CASH - BEGINNING OF PERIOD
    45,330       12,872  
 
           
 
               
CASH - END OF PERIOD
  $ 5,238     $ 11,574  
 
           
 
               
Supplemental disclosure of cash flow information:
               
Cash paid during the quarter for:
               
Interest
  $ 13,364     $  
 
           

See Notes to Consolidated Financial Statements

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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, 2005 and the results of operations and cash flows for the three months ended February 29, 2004 and February 28, 2005.

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, 2004 (Commission File No. 2-13328).

(2) The results of operations for the three months ended February 29, 2004 and February 28, 2005 are not necessarily indicative of the results to be expected for the full year.

(3) PROFIT(LOSS) PER SHARE

Profit(loss) per share is calculated using the weighted average number of common shares outstanding. Potentially dilutive securities are insignificant.

(4) PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Sentex Sensing Technology, Inc. and its wholly-owned subsidiaries (the “Company”). All material inter-company accounts and transactions have been eliminated in consolidation.

(5) LEGAL PROCEEDINGS

State of Ohio, Department of Administrative Services v. IQ Solutions, LLC, et al.; Case No. 03-CVH05-6054; Franklin County Common Pleas Court, Ohio.

During October 2004, the Company was dismissed without prejudice from the above-caption and previously disclosed matter.

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SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

On July 2, 2001, the Company purchased Regency Technologies, LLC from Regency Steel, LLC and other members.

Regency Technologies specializes in the buying, selling, and trading of information technology equipment (primarily computer equipment). The primary focus of our business revolves around acquiring unneeded, older computer equipment and reselling that equipment to certain consumers on a global basis.

FINANCIAL CONDITION

Working Capital and Liquidity

During the last several fiscal years, the Company has incurred losses from operations. In addition, the 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, 2003 and November 30, 2004, 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 years 2003 and 2004, the Company sustained losses of approximately $531,000 and $781,000, respectively. These losses have had a substantial adverse effect on the working capital of the Company.

In June of 2004, the Company restructured its $2,500,000 in bank financing. This financing has subsequently been taken over by CPS, which now holds much of the working capital debt that has been used in the business during 2004. As of February 28, 2005, there was an outstanding balance of $6,242,000 on the loans from CPS. We believe these loans have been secured under terms no less favorable than we could have obtained pursuant to an arms-length transaction.

In addition to the CPS loans, from time to time, Mr. Julius L. Hess, the Company’s Vice President, Secretary and a Director, has provided the Company with cash investments to help fund certain specified transactions. From December 1, 2004 through February 28, 2005, Mr. Hess has invested a total of $147,770 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 14, 2004 through February 28, 2005, Mr. Hess will have received total proceeds of $177,987. 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 February 28, 2005, there was an outstanding balance of $146,270 on these loans.

In addition to the above-noted investments, Mr. Hess has, from time to time, provided loans to the Company to cover certain working capital expenses such as payroll. Mr. Hess does not receive any remuneration for these loans, other than the return of principal. These loans are typically paid back within a short period of time. From December 1, 2004 through February 28, 2005, Mr. Hess provided $65,000 in loans of this kind to the Company. As of February 28, 2005, there was an outstanding balance of $50,000 on these loans.

Net Tax Operating Loss Carryforwards

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SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

As of February 28, 2005 the Company has approximately $15,864,000 in net tax operating loss carryforwards which will expire at various dates through the year 2024 that are mainly attributable to losses incurred by Monitek. Federal tax law imposes restrictions on the use of net operating loss carryforwards in the event of a change in ownership, such as a merger. Due to the merger with Monitek, approximately $6,265,000 of the $15,864,000 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

Three Months ended February 29, 2004 compared to Three Months Ended February 28, 2005.

First quarter 2005 results were significantly improved of the first quarter 2004. Sales increased by $154,000 or 25.5%. Gross profit went from near zero to $404,000 which resulted in a 53.7% margin on sales. This favorable performance was largely due to first quarter sales being generated from asset recovery products that typically produce larger than normal margins.

Operating expenses of $408,000 were in line with the increased sales.

Interest expense is higher for 2005 primarily due to the increases in the prime rate.

Losses for the first quarter amounted to $83,000.

CURRENT OUTLOOK

Volume is now accelerating at a rapid pace and the second quarter revenue should be up substantially from the second quarter of 2004.

The Company continues to actively pursue various capital sources and strategic partners in an effort to recapitalize and restructure the Company so that it may move forward with its new and expanded business model. Although there can be no assurances, the Company believes that it will have its funding requirements fulfilled in the very near future. This is the key to the substantial growth that can be achieved within our platform.

CHANGES IN ACCOUNTING STANDARDS

New Accounting Standards – In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123, “Share Based Payment”. SFAS No. 123R, which amends SFAS No. 123, “Accounting or Stock Based Compensation,” and SFAS No. 95, “Statement of Cash Flows.” SFAS 123R requires all companies to measure compensation cost for all share-based payments at fair value, and will be effective for public companies for interim and annual periods beginning after June 15, 2005. This new standard may be adopted in one of two ways – the modified prospective transition method of the modified retrospective transition method. The Company currently has no stock-based compensation plans.

In December 2003, the FASB issued Interpretation No. 46 (revised December 2003) (“FIN 46”), “Consolidation of Variable Interest Entities”, an interpretation of Accounting Research Bulletin No. 51. FIN 46R requires certain variable interest entities, or VIEs, to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46R is effective for all VIEs created or acquired after January 31, 2003. For VIEs created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after March 15, 2004. The Company currently has no contractual relationship or other business relationship with a variable interest entity.

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SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

The adoption of the new standards did not, or is not expected to, materially affect the Company’s financial position and results of operations

CAUTIONARY STATEMENT FOR PURPOSES OF THE “SAFE HARBOUR” OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.

Certain statements in the 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.

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SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

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.

There were not 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.

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SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this amended report to be signed on its behalf by the undersigned, thereunto duly authorized:

             
Date: June 20, 2005   SENTEX SENSING TECHNOLOGY, INC.
 
           
  By:   /s/ Robert S. Kendall    
      Robert S. Kendall, Chief Executive Officer    
 
           
      /s/ Julius L. Hess    
      Julius L. Hess, Secretary and Director    
 
 
      /s/ William R. Sprow    
      William R. Sprow, Chief Financial Officer    
 
           
      /s/ William R. Sprow    
      William R. Sprow, Controller    

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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.

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