SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1996 Commission File Number 33-14201
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MONITEK TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 94-1689129
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1495 Zephyr Avenue, Hayward, CA 94544
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (510) 471-8300
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NONE
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(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 and 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 last 90 days.
YES X NO
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Outstanding at
CLASS September 30, 1996
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COMMON STOCK - $.01 PAR VALUE 1,690,424
CLASS A COMMON STOCK - $.01 PAR VALUE 1,252,676
1
MONITEK TECHNOLOGIES, INC.
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TABLE OF CONTENTS
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ITEM DESCRIPTION PAGE
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PART I - FINANCIAL INFORMATION
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1. Financial Statements
Consolidated Balance Sheets as of March 31,1996
(audited) and September 30, 1996 (unaudited)...........3
Consolidated Statements of Operations (unaudited)
for the Three Months and Six Months Ended September
30, 1995 and September 30, 1996........................5
Consolidated Statements of Cash Flows (unaudited)
for the Six Months Ended September 30, 1995
and September 30, 1996.................................6
Notes to Consolidated Financial Statements.............7
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................9
PART II - OTHER INFORMATION
---------------------------
6. Exhibits and Reports on Form 8-K......................13
SIGNATURE.............................................13
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2
MONITEK TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND SEPTEMBER 30, 1996
March 31, September 30,
1996 1996
(Audited) (Unaudited)
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ASSETS
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Current Assets:
Cash and equivalents.......................... $ 51,235 $ 30,374
Accounts receivable, less allowance for
doubtful accounts of $35,111 and $37,013..... 859,810 840,794
Inventories................................... 1,382,433 1,364,847
Other current assets.......................... 167,596 282,996
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Total Current Assets..................... 2,461,074 2,519,011
Property and equipment, less accumulated
depreciation and amortization of
$976,151 and $991,352......................... 103,171 102,324
Product line acquisition costs, less
accumulated amortization of
$86,158 and $91,381........................... 42,469 37,247
Other assets................................... 1,486 1,486
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Total Assets............................. $2,608,200 $2,660,068
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See accompanying notes to unaudited consolidated financial statements
3
MONITEK TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (CONT,D)
MARCH 31, 1996 AND SEPTEMBER 30, 1996
March 31, September 30,
1996 1996
(Audited) (Unaudited)
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current Liabilities:
Liability for factored receivables............ $ 157,219 $ 171,349
Notes payable to related parties.............. 300,000 676,940
Trade accounts payable........................ 504,886 532,090
Accrued liabilities........................... 621,909 561,748
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Total Current Liabilities................. 1,584,014 1,942,127
Stockholders' Equity:
Common stock - $.01 par value, authorized
10,000,000 shares with 1,690,424 shares
issued and outstanding...................... 16,904 16,904
Class A common stock - $.01 par value,
authorized 2,000,000 shares, 1,252,676
shares issued and outstanding;
convertible into common stock............... 12,527 12,527
Paid-in capital............................... 6,117,176 6,117,176
Accumulated deficit........................... (5,164,429) (5,468,066)
Cumulative translation adjustment............. 42,008 39,400
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Total Stockholders' Equity................ 1,024,186 717,941
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Total Liabilities and
Stockholders' Equity.................... $ 2,608,200 $ 2,660,068
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See accompanying notes to unaudited consolidated financial statements
4
MONITEK TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED
SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1996
(UNAUDITED)
Three Months Ended Six Months Ended
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September 30, September 30,
1995 1996 1995 1996
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Net sales $1,897,662 $1,742,893 $3,661,457 $3,286,677
Cost of sales 886,071 825,298 1,691,322 1,554,328
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Gross profit 1,011,591 917,595 1,970,135 1,732,349
Selling, general and
administrative expenses 1,001,412 964,680 1,957,072 1,867,836
Research, development and
product engineering 168,497 71,887 309,793 171,000
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Operating profit (loss) (158,318) (118,972) (296,730) (306,487)
Other income (expense):
Interest expense (24,394) (29,912) (31,410) (51,326)
Foreign currency trans-
action gain (loss) (19,963) 5,112 (23,462) (14,701)
Other income 2,111 66,863 3,784 68,877
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Loss before
income tax expense (200,564) (76,909) (347,818) (303,637)
Income tax expense - - - -
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Net loss $ (200,564) $ (76,909) $ (347,818) $ (303,637)
========== ========== ========== ==========
Net loss per share $ (.07) $ (.03) $ (.12) $ (.10)
========== ========== ========== ==========
Weighted average number of
common shares outstanding 2,943,100 2,943,100 2,943,100 2,943,100
========== ========== ========== ==========
See accompanying notes to unaudited consolidated financial statements
5
MONITEK TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX
MONTHS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1996
(UNAUDITED)
Six Months Ended
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September 30,
1995 1996
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Cash flows from operating activities:
Cash received from customers $ 3,523,505 $ 3,306,507
Cash paid to suppliers and employees (3,545,603) (3,740,548)
Interest paid (31,410) (51,326)
Income taxes paid - -
Other miscellaneous cash
receipts (disbursements) (26,160) 87,789
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Net cash used in operations (79,668) (397,578)
Cash flows from investing activities:
Capital expenditures (6,853) (14,353)
Cash flows from financing activities:
Increase in borrowings against
trade receivables - 14,130
Net borrowings from related parties 100,000 376,940
Capital lease obligation payments (2,399) -
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Net cash used in
financing activities 97,601 391,070
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Net increase (decrease) in cash
and equivalents 11,080 (20,861)
Cash and equivalents at beginning of period 59,908 51,235
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Cash and equivalents at end of period $ 70,988 $ 30,374
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See accompanying notes to unaudited consolidated financial statements
6
MONITEK TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements include the accounts of
Monitek Technologies, Inc. and its wholly owned subsidiary collectively the
"Company"). All significant intercompany balances and transactions have been
eliminated in consolidation.
The consolidated financial statements reflect all adjustments (which include
only normal, recurring adjustments) which, in the opinion of management, are
necessary for the fair presentation of the results of the Company at the
dates of the balance sheets.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission.
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-K for the fiscal year ended March 31, 1996 (Commission
File No. 0-16544).
Results of operations for the six months ended September 30, 1996 are not
necessarily indicative of the results to be achieved for the full fiscal
year.
2. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market (net realizable value).
Inventories consist of the following:
March 31, September 30,
1996 1996
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Raw Materials $ 174,160 $ 181,070
Component parts and
work in progress 521,716 501,367
Finished goods 817,589 831,442
Less: Reserve for obsolescence (131,032) (149,032)
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$1,382,433 $1,364,847
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MONITEK TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONT'D)
3. Income (Loss) Per Share
The computation of net income (loss) per share is based on the
weighted average number of common shares outstanding. No effect is
given to outstanding stock options or warrants in the computation of
income (loss) per share since they are deemed to be anti-dilutive.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS
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LIQUIDITY AND CAPITAL RESOURCES
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Net working capital decreased from $877,000 on March 31, 1996 to $577,000 on
September 30, 1996. This decrease was the result of the loss for the period and
various minor changes in non-current assets.
The Company's unused sources of liquidity, consisting of unrestricted cash,
decreased from $51,000 on March 31, 1996 to $30,000 on September 30, 1996. As
set forth in the notes to audited financial statements (Note 17) included in the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1996,
the Company's recurring losses from operations and the resulting effect on cash
flow raise substantial doubt about its ability to continue as a going concern
without additional sources of external financing. On June 24, 1996, the
Company's Board of Directors approved an Agreement and Plan of Merger (the
"Merger Agreement") with Sentex Sensing Technology, Inc. ("Sentex") and a Sentex
subsidiary. On the same date, the Merger Agreement was approved by the Boards
of Directors of Sentex and its subsidiary. Sentex develops and manufactures
automated devices designed to identify and measure the concentrations of certain
chemicals and its stock is traded on the NASDAQ Small Cap stock market. The
Merger Agreement will be submitted to the Company's shareholders and the Sentex
share-holders at special meetings expected to be held later in the year. The
Merger Agreement provides for the merger (the "Merger") of the Sentex subsidiary
into the Company. Consummation of the Merger is subject to a variety of
customary conditions and, accordingly, there can be no assurance that the Merger
will take place. The Company believes that Sentex has a sufficiently strong
cash position to satisfy the intermediate term needs of the Company for working
capital. During the three months ended September 30, 1996, the Company obtained
working capital loans in the aggregate amount of $140,000 from its major
shareholder, Clarion Capital Corporation ("Clarion") and also obtained working
capital loans in the aggregate amount of $60,000 from Sentex. The Company
expects to seek additional working capital loans from Clarion and Sentex pending
completion of the Merger. However, there can be no assurance that Clarion or
9
Sentex will loan additional funds to the Company. It is a condition of the
consummation of the Merger that any such loans by Clarion be repaid by the time
of the closing of the Merger. In the event that the Merger does not take place,
the Company's management will continue to seek other sources of financing
including, but not limited to, loans collateralized by assets of the Company and
a sale of equity securities, to fund its operating and working capital
requirements. There is no assurance that such financing, if available, can be
obtained on terms satisfactory to the Company.
At September 30, 1996, the Company had available net operating loss
carryforwards of approximately $5,405,000 and $1,700,000 to offset future
Federal and California taxable income, respectively. The Tax Reform Act of 1986
imposes certain restrictions on the amount of net operating loss carryforwards
which can be used in any one year by the Company for losses prior to July 31,
1987, the date of the Company's initial public offering, which is deemed to be a
change in ownership for Federal tax purposes. The Company's utilization of
Federal net operating loss carryforwards from years prior to Fiscal 1988,
totaling $1,640,000, is limited to approximately $620,000 per year. Deductions
available for net operating losses generated in years subsequent to the change
in ownership are unlimited. If the Company's income were to exceed the
permissible net operating loss carryforward deduction, as to which there can be
no assurance, the Company would incur liability for Federal income taxes on the
excess earnings, even though net operating loss carryforwards would be available
for future years. In the event that the Merger takes place, another change in
ownership for Federal tax purposes would occur.
RESULTS OF OPERATIONS
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Net sales decreased by 8% for the three months and 10% for the six months ended
September 30, 1996 ("Fiscal 1997 Three Months") and ("Fiscal 1997 Six Months")
compared with the three months and six months ended September 30, 1995 ("Fiscal
1996 Three Months") and ("Fiscal 1996 Six Months"). Domestic sales increased by
18% for the Fiscal 1997 Three Months and decreased by 6% for the Fiscal 1997 Six
Months, while export sales from the United States increased by 18% and 7 % for
the Fiscal 1997 Three Months and Six Months, respectively, compared with the
comparable prior year periods. Sales to Continental Europe by Monitek GmbH
decreased by 14% for the Fiscal 1997 Three Months and 10% for the Fiscal 1997
Six Months compared with the Fiscal 1996 periods. Sales by
10
Monitek GmbH during the Fiscal 1996 Three Months and Six months were inflated by
a $162,000 shipment of goods which had a final destination in the Far East. Such
large orders are quite rare and, when they occur, they have a significant impact
on the comparative analysis of year-to-year sales.
Cost of sales, as a percentage of net sales, varied from 47% and 46% for the
Fiscal 1996 Three Months and Fiscal 1996 Six Months to 47% and 47%,
respectively, for the Fiscal 1997 Three Months and Six Months. Material costs,
as a percentage of net sales, varied from 37% and 36%, respectively, for the
Fiscal 1996 Three Months and Six Months to 37% for both of the comparable Fiscal
1997 periods, primarily as a result of a change in product mix. Direct labor
and factory overhead remained constant, at 10% of net sales, for the Fiscal 1996
and Fiscal 1997 periods.
Selling, general and administrative expenses, as a percentage of net sales,
increased from 53% for both the Fiscal 1996 Three Months and Fiscal 1996 Six
Months to 55% and 57% for the comparable Fiscal 1997 periods. Actual expenses
were lower during Fiscal 1997 but the percentage of decline was not as great as
the decrease in sales.
Research, development and engineering expenses, as a percentage of net sales,
increased from 8.9% and 8.5% for the Fiscal 1996 Three Months and Six Months
compared to 4.1% and 5.2% for the comparable Fiscal 1997 periods. Spending
during the Fiscal 1996 periods increased sharply as a result of product
redesigns to meet new European electrical specifications that went into effect
on January 1, 1996.
Operating losses varied from $158,000 and $297,000 for the Fiscal 1996 Three
Months and Fiscal 1996 Six Months, respectively, to $119,000 and $306,000 for
the comparable Fiscal 1997 periods.
Interest expense increased from $24,000 and $31,000 for the Fiscal 1996 Three
Months and Six Months, respectively, to $30,000 and $51,000 for the comparable
Fiscal 1997 periods as a result of increased borrowings from Clarion and Sentex
and the factoring of certain accounts receivable.
Foreign currency transactions resulted in losses of $20,000 and $23,000 for the
Fiscal 1996 Three Months and Six Months compared with a gain of $5,000 for the
Fiscal 1997 Three Months and a loss of $15,000 for the Fiscal 1997 Six Months as
a result of fluctuations in the value of the U.S. Dollar relative to the German
Deutsche Mark.
11
Other income increased from $2,000 and $4,000 for the Fiscal 1996 Three Months
and Six Months to $67,000 and $69,000 for the Fiscal 1997 periods. In September
1996, Monitek GmbH received in excess of $60,000 at the conclusion of a patent
dispute in Germany.
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OTHER INFORMATION
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Exhibits and Reports on Form 8-K.
(a) Exhibit 27 -- Financial Data Schedule.
(b) A report on Form 8-K was filed on July 1, 1996 to disclose the
Agreement and Plan of Merger that was entered into by the Registrant and Sentex
Sensing Technology on June 24, 1996. No other reports were filed by the
Registrant during the quarter ended September 30, 1996.
SIGNATURE
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Pursuant to the requirements 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.
MONITEK TECHNOLOGIES, INC.
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(Registrant)
DATED: November 13, 1996
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/s/ Frank J. Vetrovec
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Frank J. Vetrovec
President and Chief
Operating Officer
/s/ James S. O'Leary
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James S. O'Leary
Executive Vice President
and Chief Financial Officer
13