FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-12727
----------------------------------------------------------
SENTRY TECHNOLOGY CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 96-11-3349733
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
350 Wireless Boulevard, Hauppauge, New York 11788
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
631-232-2100
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 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
------------ -------------
As of May 14, 2001, there were 61,467,872 shares of Common Stock outstanding.
SENTRY TECHNOLOGY CORPORATION
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets --
March 31, 2001 and December 31, 2000 3
Condensed Consolidated Statements of Operations --
Three Months Ended March 31, 2001 and 2000 4
Condensed Consolidated Statement of Shareholders' Equity
Three Months Ended March 31, 2001 5
Condensed Consolidated Statements of Cash Flows --
Three Months Ended March 31, 2001 and 2000 6
Notes to Condensed Consolidated Financial
Statements -- March 31, 2001 7 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 13
2
SENTRY TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, December 31,
2001 2000
---- ----
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 550 $ 927
Accounts receivable, less allowance for doubtful
accounts of $896 and $890, respectively 3,277 3,178
Net investment in sales-type leases -
current portion 80 84
Inventories 4,562 5,274
Prepaid expenses and other current assets 288 202
-------- --------
Total current assets 8,757 9,665
NET INVESTMENT IN SALES-TYPE LEASES -
non-current portion 80 100
SECURITY DEVICES ON LEASE, net 31 36
PROPERTY, PLANT AND EQUIPMENT, net 3,203 3,324
OTHER ASSETS 273 720
-------- --------
$ 12,344 $ 13,845
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving line of credit $ 2,792 $ 2,920
Accounts payable 1,256 1,463
Accrued liabilities 1,888 2,633
Obligations under capital leases -
current portion 128 124
Deferred income 300 352
-------- --------
Total current liabilities 6,364 7,492
OBLIGATIONS UNDER CAPITAL LEASES -
non-current portion 2,735 2,768
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 183 199
-------- --------
Total liabilities 9,282 10,459
REDEEMABLE CUMULATIVE PREFERRED STOCK -- 29,180
COMMON SHAREHOLDERS' EQUITY (DEFICIT)
Common stock 61 10
Additional paid-in capital 44,358 12,859
Accumulated deficit (39,357) (38,663)
Receivable from stock sale (2,000) --
-------- --------
Total common shareholders' equity 3,062 (25,794)
-------- --------
$ 12,344 $ 13,845
======== ========
See notes to the condensed consolidated financial statements.
3
SENTRY TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Ended
March 31,
------------------
2001 2000
---- ----
REVENUES $ 4,670 $ 4,872
COSTS AND EXPENSES:
Cost of sales 2,391 2,659
Customer service expenses 1,129 1,157
Selling, general and administrative expenses 1,522 1,773
Research and development 175 226
------- -------
5,217 5,815
------- -------
OPERATING LOSS (547) (943)
INTEREST EXPENSE 147 158
------- -------
LOSS BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (694) (1,101)
INCOME TAXES -- --
------- -------
NET LOSS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE (694) (1,101)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE -- 301
------- -------
NET LOSS (694) (1,402)
PREFERRED STOCK DIVIDENDS (25) (332)
RETURN TO COMMON SHAREHOLDERS FROM
REDEMPTION OF PREFERRED STOCK 27,198 --
------- -------
NET INCOME (LOSS) ATTRIBUTED TO
COMMON SHAREHOLDERS $26,479 $(1,734)
======= =======
NET INCOME (LOSS) PER COMMON SHARE BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE:
Basic and diluted $ 0.46 $ (0.15)
======== =======
NET INCOME (LOSS) PER COMMON SHARE
Basic and diluted $ 0.46 $ (0.18)
======== =======
WEIGHTED AVERAGE COMMON SHARES
Basic and diluted 57,445 9,751
======== =======
See notes to the condensed consolidated financial statements.
4
SENTRY TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
Total
Retained Common Redeemable
Common Additional Earnings Receivable Shareholders' Cumulative
Stock Paid-In (Accumulated From Equity Preferred
Shares Amount Capital Deficit) Stock Sale (Deficit) Stock
------ ------ ------- -------- ---------- --------- -----
BALANCE, DECEMBER 31, 2000 9,751 $10 $12,859 $(38,663) $ -- $(25,794) $ 29,180
Net loss and comprehensive loss -- -- -- (694) -- (694)
Preferred stock dividends -- -- (25) -- -- (25) 25
Common shares issued in connection
with redemption of Class A
Preferred Stock 28,667 28 29,177 -- -- 29,205 (29,205)
Common Stock issued to
Dutch A&A net of
Expenses 23,050 23 2,347 -- (2,000) 370 --
-------- --- ------- -------- ------- -------- --------
BALANCE, MARCH 31, 2001 61,468 $61 $44,358 $(39,357) $(2,000) $ 3,062 $ --
======== === ======= ======== ======= ======== ========
See notes to the condensed consolidated financial statements.
5
SENTRY TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended
March 31,
------------------
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (694) $(1,402)
Adjustments to reconcile net loss
to net cash provided by (used in) operating
activities:
Depreciation and amortization of security
devices and property, plant and equipment 131 157
Amortization of intangibles and other assets 7 249
Provision for bad debts 13 11
Changes in operating assets and liabilities:
Accounts receivable (112) 2,029
Net investment in sales-type leases 24 149
Inventories 712 (679)
Accounts payable and accrued liabilities (952) (212)
Other, net 289 (251)
------- -------
Net cash provided by (used in) operating
activities (582) 51
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment, net (4) (13)
Security devices on lease (1) (13)
Intangibles (3) (2)
------- -------
Net cash used in investing activities (8) (28)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under the revolving line of credit (128) 71
Repayment of obligations under capital leases (29) (55)
Proceeds from sale of stock, net 2,370 --
Receivable from stock sale (2,000) --
------- -------
Net cash provided by financing activities 213 16
------- -------
INCREASE (DECREASE) IN CASH (377) 39
CASH, at beginning of period 927 951
------- -------
CASH, at end of period $ 550 $ 990
======= =======
See notes to the condensed consolidated financial statements.
6
SENTRY TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE A -- Basis of Presentation - Knogo North America Inc. and Video Sentry
Corporation Merger
Sentry Technology Corporation ("Sentry"), a Delaware Corporation, was
established to effect the merger of Knogo North America Inc. ("Knogo N.A.") and
Video Sentry Corporation ("Video Sentry") which was consummated on February 12,
1997 (the "Effective Date"). The merger resulted in Knogo N.A. and Video Sentry
becoming wholly owned subsidiaries of Sentry. The consolidated financial
statements include the accounts of Sentry and its majority-owned subsidiaries.
All intercompany accounts and transactions have been eliminated in
consolidation.
The consolidated financial statements are unaudited. In the opinion of
management, all adjustments, consisting of normal recurring adjustments
necessary for a fair presentation of the financial information for the periods
indicated, have been included. Interim results are not necessarily indicative of
results for a full year. These financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in Sentry's Annual Report to Stockholders on Form 10-K for the fiscal
year ended December 31, 2000, as filed with the Securities and Exchange
Commission.
NOTE B -- Investment by Dutch A&A
On January 8, 2001, Dutch A&A Holding, B.V. ("Dutch A&A) acquired 23,050,452
shares of our common stock for $3 million, of which $1 million was paid in
January 2001, $1 million was paid on April 30, 2001 and the remaining balance of
$1 million is due on July 31, 2001. Dutch A&A is a Netherlands company which,
through its subsidiaries, is in the business of development, manufacture, sale
and distribution of various kinds of identification, access control and
anti-theft electronic article surveillance systems and accessories.
As of January 8, 2001, Dutch A&A owns 37.5% of our outstanding common stock. At
any time prior to January 8, 2002, Dutch A&A may increase its ownership of our
common stock to a total of 51% of the shares of common stock then outstanding.
If the average market value of our common stock, measured over any 10-day
trading period during the one year period following January 8, 2001, is at least
$15.0 million, the purchase price for the additional shares shall be determined
by multiplying the actual number of shares to be purchased by $.001; otherwise,
the purchase price will be $1.5 million. At any time prior to January 8, 2003,
Dutch A&A may increase its ownership of our common stock to a total of 60% of
the shares of common stock then outstanding. The purchase price for the
additional shares shall be determined as follows: If the average market value of
the common stock, measured over a 10-day period during the two years preceding
January 8, 2003, is at least $25 million, the purchase price shall be determined
by multiplying the actual number of shares to be purchased by $.001. If Dutch
A&A previously exercised its right to acquire shares increasing its investment
to 51% of our common stock, but the average market value test was not met at the
time of the second purchase, then the purchase price shall be $3.5 million;
otherwise the purchase price shall be $5.0 million. As a condition to the
investment by Dutch A&A, our stockholders elected three nominees of Dutch A&A to
the Board of Directors at a Special Meeting of Stockholders on December 8, 2000.
If Dutch A&A has not acquired 51% of our common stock by January 8, 2003, one of
the three nominees of Dutch A&A will resign and be replaced, with the consent of
Dutch A&A, by a nominee of our directors who are not nominated by Dutch A&A.
In addition to the election of three nominees of Dutch A&A to the Board of
Directors, other matters which were approved at the December 8, 2000 Special
Meeting of Stockholders and became effective on January 8, 2001 were amendments
to the Company's certificate of incorporation to: (i) permit the payment of a
dividend of additional shares of Class A Preferred Stock at the rate of 0.075
shares of Class A Preferred Stock for each share of Class A Preferred Stock
held; (ii) to reclassify Class A Preferred Stock into shares of common stock on
a ratio of five shares of common stock for each share of Class A Preferred Stock
outstanding; and (iii) to increase the number of the Company's authorized shares
of common stock to 140,000,000. As a result of the dividend and
reclassification, 28,666,660 common shares were issued to former Class A
Preferred shareholders.
Also, on December 28, 2000, the Board of Directors increased the number of
directors from five to seven effective upon the closing of the Dutch A&A
investment.
The reclassification of the Class A Preferred Shares resulted in a return to the
common shareholders of $27.2 million, which was recorded in the first quarter of
2001. This amount represents the difference between the fair market value of the
common stock issued and the carrying amount of the preferred stock redeemed.
7
SENTRY TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE C -- Financial Condition and Liquidity
We have incurred reduced revenue levels, decreased financial position and
recurring operating losses over the past several years. To strengthen our
financial position, a number of activities have been initiated including:
o Investment of $3 million in newly issued shares of the Company's
common stock by Dutch A&A. The transaction with Dutch A&A will allow
us to introduce new products, share resources and simplify our
capital structure.
o Improvements in existing products and service capabilities.
o Various cost cutting and cost saving initiatives.
As a result of these activities, we anticipate that current cash reserves, cash
obtained pursuant to the Dutch A&A transaction, existing lines of credit and
cash generated by operations should be sufficient to meet our working capital
requirements, as well as future capital expenditure requirements, over the next
twelve months.
NOTE D -- Net Investment in Sales-Type Leases
We are the lessor of security devices under agreements expiring in various years
through 2003. The net investment in sales-type leases consists of:
March 31, 2001 December 31, 2000
-------------- -----------------
(in thousands)
Minimum lease payments receivable $ 185 $ 215
Allowance for uncollectible minimum
lease payments (9) (10)
Unearned income (16) (21)
----- -----
Net investment 160 184
Less current portion 80 84
----- -----
Non-current portion $ 80 $ 100
===== =====
NOTE E -- Inventories
Inventories consist of the following:
March 31, 2001 December 31, 2000
-------------- -----------------
(in thousands)
Raw materials $1,268 $1,479
Work-in-process 1,985 2,259
Finished goods 1,309 1,536
------ ------
$4,562 $5,274
====== ======
Reserves for excess and obsolete inventory totaled $3,264,000 and $3,354,000 as
of March 31, 2001 and December 31, 2000, respectively and have been included as
a component of the above amounts.
NOTE F -- Related Party Transactions
As a result of the Dutch A&A investment, Sentry entered into a distribution
agreement with Dutch A&A which contemplates a two-way distribution relationship
between the companies. Under the agreement, Sentry has the rights to sell Dutch
A&A's EAS, access control and RFID products and accessories and Sentry gives
Dutch A&A the rights to sell its EAS and CCTV products and accessories. Pricing
for products under the agreements are at the lowest prices charged to
affiliates. In addition, Dutch A&A will receive management fees for product
marketing and product engineering management from Sentry in the amount of
$100,000 per year. Also, Peter Murdoch, a principal of Dutch A&A, will receive
$150,000 in the capacity of President of Sentry. Purchases from Dutch A&A were
$60,000 in the quarter ended March 31, 2001. The amount payable to Dutch A&A for
purchases, fees and services as of March 31, 2001 is $78,000.
8
SENTRY TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE G -- Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, which established standards for accounting
and reporting for derivative instruments and hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. In
June 1999, the FASB issued SFAS No. 138, which deferred the effective date of
SFAS No. 133 to fiscal years beginning after June 15, 2000. We adopted SFAS No.
133 on January 31, 2001 and the implementation did not have a material impact on
our consolidated financial statements.
NOTE H -- Change in Accounting Principle
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements. The SAB
summarizes certain of the staff's views in applying generally accepted
accounting principles to revenue recognition in the financial statements.
In accordance with SAB 101, we have changed our accounting method for
recognizing revenue on the sale of equipment where post-shipment obligations
exist. Previously, we recognized revenue for equipment when title transferred,
generally upon shipment. Beginning with the first quarter of year 2000, we began
recognizing revenue when installation is complete or other post-shipment
obligations have been satisfied. The cumulative effect of the change in
accounting method is a non-cash reduction in net earnings of $301,000, or $0.03
per share.
NOTE I -- Earnings Per Share
Basic earnings per share is determined by using the weighted average number of
common shares outstanding during each period. Diluted earnings per share further
assumes the issuance of common shares for all dilutive potential common shares
outstanding. The calculations for earnings per share are as follows:
2001 2000
---- ----
(in thousands, except
per share amounts)
Net income (loss):
Income (loss) before cumulative effect of
accounting change $26,504 $(1,101)
Effect of preferred stock dividends (25) (332)
------- -------
26,479 (1,433)
Cumulative effect of accounting change -- (301)
------- -------
Net income (loss) attributed to common shareholders $26,479 $(1,734)
======= =======
Weighted Average Common Shares 57,445 9,751
======= =======
Basic and Diluted Earnings per Common Share:
Before cumulative effect of accounting change $ 0.46 $ (0.15)
Cumulative effect of accounting change -- (0.03)
------- -------
Basic and Diluted earnings per Common Share $ 0.46 $ (0.18)
======= =======
We did not include common stock options and warrants in the computation of
diluted earnings per share because the effect was antidilutive.
9
SENTRY TECHNOLOGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain Factors That May Affect Future Results
Information contained or incorporated by reference in this periodic report on
Form 10-Q and in other SEC filings by Sentry contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 which can be identified by the use of forward-looking terminology such
as "believes," "expects," "may," "will," "should" or "anticipates" or the
negative thereof, other variations thereon or comparable terminology, or by
discussions of strategy. These forward-looking statements involve certain
significant risks and uncertainties, and actual results may differ materially
from the forward-looking statements. For further details and discussion of these
risks and uncertainties see Sentry Technology Corporation's SEC filings
including, but not limited to, its annual report on Form 10-K. No assurance can
be given that future results covered by the forward-looking statements will be
achieved, and other factors could also cause actual results to vary materially
from the future results covered in such forward-looking statements. We do not
undertake to publicly update or revise any of our forward-looking statements
even if experience or future changes show that the indicated results or events
will not be realized.
Results of Operations:
Consolidated revenues were 4% lower in the quarter ended March 31, 2001 than in
the quarter ended March 31, 2000. The backlog of orders at March 31, 2001 was
approximately $5.2 million as compared to approximately $6.4 million at March
31, 2000. Substantially all of the first quarter revenues in 2001 were from
third party customers other than Sensormatic, as compared to $4.3 million or 88%
of total revenues in the first quarter of 2000. Total revenues for the periods
presented are broken out as follows:
Q-1 Q-1 % Change
2001 2000 Incr (Decr)
---- ---- -----------
(in thousands)
EAS $1,335 $2,165 (38)
CCTV 2,112 1,427 48
SentryVision(R) 385 287 34
3M library products 126 373 (66)
------ ------ ---
Total sales 3,958 4,252 (7)
Service revenues and other 712 620 15
------ ------ ---
Total revenues $4,670 $4,872 (4)
====== ====== ===
EAS revenues were primarily impacted by $0.6 million lower OEM sales to
Sensormatic. The increase in CCTV revenues is primarily related to the
completion of a large internet data center installation. SentryVision(R) sales
increased slightly over the 2000 quarter and included the first SmartTrack
system sale. Sales of 3M library products were lower primarily as a result of a
reduced marketing campaign. Service revenues increased as a result of the
increase in the installed base of systems
Cost of sales were 51% of total revenues in the three month period ended March
31, 2001 compared to 55% in the same periods in the previous year. The decrease
in the percentage in the current year periods is primarily due to lower scrap
and rework costs relating to the SentryVision(R) product line and better
production efficiencies in our manufacturing operations.
Customer service expenses were 2% lower in the first quarter of 2001 than in the
first quarter of 2000 due to a reduction in the number of customer service
representatives and the continuation of our Service Partner program.
Selling, general and administrative expenses were 12% lower in the three month
period ended March 31, 2001 when compared to the same periods of the previous
year primarily as a result of lower goodwill amortization.
Research and development costs were 23% lower when compared to the previous year
periods due to a reduction in headcount and a concentration on development of
the SmartTrack system.
10
SENTRY TECHNOLOGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Net interest expense for the first quarter of 2001 decreased due to lower
average borrowings under our revolving credit agreement and lower interest
rates.
Due to net operating losses, we have not provided for income taxes in any of the
periods presented.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements. The SAB
summarizes certain of the staff's views in applying generally accepted
accounting principles to revenue recognition in the financial statements. In
accordance with SAB 101, we have changed our accounting method for recognizing
revenue on the sale of equipment where post-shipment obligations exist.
Previously, we recognized revenue for equipment when title transferred,
generally upon shipment. Beginning with the first quarter of year 2000, we began
recognizing revenue when installation is complete or other post-shipment
obligations have been satisfied. The cumulative effect of the change in
accounting method is a non-cash reduction in net earnings of $0.3 million, or
$0.03 per share.
As a result of the foregoing, Sentry had a net loss of $0.7 million in the
quarter ended March 31, 2001 as compared to a net loss of $1.4 million in the
quarter ended March 31, 2000.
We recorded preferred stock dividends of $25,000 through January 8, 2001 as
compared to $0.3 million in the first quarter of 2000.
Effective January 8, 2001, and just prior to the Dutch A&A investment, there was
a payment of a dividend of additional shares of Class A Preferred Stock at the
rate of 0.075 shares of Class A Preferred Stock for each share of Class A
Preferred Stock held and immediately thereafter a reclassification of the Class
A Preferred Stock into common stock at a ratio of five shares of common stock
for each share of Class A Preferred Stock outstanding. The reclassification of
the Class A Preferred Shares resulted in a return to the common shareholders of
$27.2 million, which was recorded in the first quarter of 2001. This amount
represents the difference between the fair market value of the common stock
issued and the carrying amount of the preferred stock redeemed.
Liquidity and Capital Resources as of March 31, 2001
The Company has incurred reduced revenue levels, decreased financial position
and recurring operating losses over the past several years. To strengthen the
Company's financial position, a number of activities have been initiated
including:
o Investment of $3 million in newly issued shares of the Company's
common stock by Dutch A&A. The transaction with Dutch A&A will allow
the Company to introduce new products, share resources and simplify
the Company's capital structure.
o Improvements in existing products and service capabilities.
o Various cost cutting and cost saving initiatives.
As a result of these activities, the Company anticipates that current cash
reserves, cash obtained pursuant to the Dutch A&A transaction, existing lines of
credit and cash generated by operations should be sufficient to meet the
Company's working capital requirements, as well as future capital expenditure
requirements, over the next twelve months.
On January 8, 2001, Dutch A&A Holding, B.V. ("Dutch A&A) acquired 23,050,452
shares of the Company's common stock for $3 million, of which $1 million was
paid in January 2001, $1 million was paid on April 30, 2001 and the remaining
balance of $1 million is due on July 31, 2001. Dutch A&A is a Netherlands
company which, through its subsidiaries, is in the business of development,
manufacture, sale and distribution of various kinds of identification, access
control and anti-theft electronic article surveillance systems and accessories.
11
SENTRY TECHNOLOGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
As of January 8, 2001, Dutch A&A owns 37.5% of the outstanding common stock of
the Company. At any time prior to January 8, 2002, Dutch A&A may increase its
ownership of the Company's common stock to a total of 51% of the shares of
common stock then outstanding. If the average market value of the Company's
common stock, measured over any 10-day trading period during the one year period
following January 8, 2001, is at least $15.0 million, the purchase price for the
additional shares shall be determined by multiplying the actual number of shares
to be purchased by $.001; otherwise, the purchase price will be $1.5 million. At
any time prior to January 8, 2003, Dutch A&A may increase its ownership of the
Company's common stock to a total of 60% of the shares of common stock then
outstanding. The purchase price for the additional shares shall be determined as
follows: If the average market value of the common stock, measured over a 10-day
period during the two years preceding January 8, 2003, is at least $25 million,
the purchase price shall be determined by multiplying the actual number of
shares to be purchased by $.001. If Dutch A&A previously exercised its right to
acquire shares increasing its investment to 51% of the Company's common stock,
but the average market value test was not met at the time of the second
purchase, then the purchase price shall be $3.5 million; otherwise the purchase
price shall be $5.0 million. As a condition to the investment by Dutch A&A, the
stockholders of the Company elected three nominees of Dutch A&A to the Board of
Directors at a Special Meeting of Stockholders on December 8, 2000. If Dutch A&A
has not acquired 51% of the Company's common stock by January 8, 2003, one of
the three nominees of Dutch A&A will resign and be replaced, with the consent of
Dutch A&A, by a nominee of the directors of the Company who are not nominated by
Dutch A&A.
In addition to the election of three nominees of Dutch A&A to the Board of
Directors, other matters which were approved at the December 8, 2000 Special
Meeting of Stockholders and became effective on January 8, 2001 were amendments
to the Company's certificate of incorporation to: (i) permit the payment of a
dividend of additional shares of Class A Preferred Stock at the rate of 0.075
shares of Class A Preferred Stock for each share of Class A Preferred Stock
held; (ii) to reclassify Class A Preferred Stock into shares of common stock on
a ratio of five shares of common stock for each share of Class A Preferred Stock
outstanding; and (iii) to increase the number of the Company's authorized shares
of common stock to 140,000,000.
Also, on December 28, 2000, the Board of Directors increased the number of
directors from five to seven effective upon the closing of the Dutch A&A
investment.
12
SENTRY TECHNOLOGY CORPORATION
PART II - OTHER INFORMATION & SIGNATURES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) None:
(b) Reports on Form 8-K - On January 22, 2001, the Company filed a
current report on Form 8-K with respect to the purchase by Dutch A&A
of 23,050,452 shares of the Company's common stock.
On March 8, 2001, the Company filed a current report on Form 8-K
with respect to the resignation of Anthony H.N. Schnelling as a
Director of the Company.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SENTRY TECHNOLOGY CORPORATION
Date: May 15, 2001 By: /S/ PETER J. MUNDY
------------ --------------------------------------------
Peter J. Mundy, Vice President - Finance and
Chief Financial Officer
(Principal Financial and Accounting Officer)
13