FORM 10-QSB
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 September 30, 2007
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 small business issuer as specified in its charter)
Delaware 96-11-3231714
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1881 Lakeland Avenue, Ronkonkoma, NY 11779
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(Address of principal executive offices) (Zip Code)
631-739-2000
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(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Check 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
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Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes No X
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As of November 13, 2007, there were 120,743,804 shares of Common Stock
outstanding.
Transitional Small Business Disclosure Format (check one)
Yes No X
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SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets --
September 30, 2007 (Unaudited) and December 31, 2006 3
Consolidated Statements of Operations --
Three Months Ended September 30, 2007 and 2006 (Unaudited)
And Nine Months Ended September 30, 2007 and 2006 (Unaudited) 4
Consolidated Statements of Cash Flows --
Nine Months Ended September 30, 2007 and 2006 (Unaudited) 5
Notes to Condensed Consolidated Financial
Statements - September 30, 2007 6 - 13
Item 2. Management's Discussion and Analysis of Plan of Operation 14 -18
Item 3. Controls and Procedures 19
PART II. OTHER INFORMATION
Item 6. Exhibits 19
Signature 20
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Par Value Amounts)
September 30, December 31,
2007 2006
---- ----
(Unaudited) (Audited)
ASSETS
- --------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 361 $ 360
Short-term investments 200 259
Accounts receivable, less allowance for doubtful
accounts of $199 and $160, respectively 2,662 2,251
Inventory 3,114 3,005
Prepaid expenses and other current assets 805 306
---------- ---------
Total current assets 7,142 6,181
PROPERTY AND EQUIPMENT, net 638 609
GOODWILL 1,564 1,564
OTHER ASSETS 302 480
---------- ---------
TOTAL ASSETS $ 9,646 $ 8,834
========== =========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
- --------------------------------------------------------
Current Liabilities:
Bank indebtedness, demand loan and revolving line of credit $ 3,796 $ 3,030
Accounts payable 1,289 609
Accrued liabilities 1,478 1,078
Obligations under capital leases - current portion 2 3
Deferred income 183 185
---------- ---------
Total current liabilities 6,748 4,905
OBLIGATIONS UNDER CAPITAL LEASES - less current portion 8 8
DEFFERED TAX LIABILITY 106 91
CONVERTIBLE DEBENTURE 1,976 1,945
---------- ---------
Total liabilities 8,838 6,949
MINORITY INTEREST 1,199 1,237
STOCKHOLDERS' (DEFICIT) EQUITY
Preferred stock, $0.001 par value; authorized 10,000
(2006 - 10,000) shares; none issued and outstanding
Common stock, $0.001 par value; authorized 190,000
(2006 - 160,000) shares; issued and outstanding 120,744
(2006 - 120,744) shares 121 121
Additional paid-in capital 49,413 49,037
Accumulated deficit (50,502) (48,712)
Accumulated other comprehensive income 577 202
---------- ---------
Total stockholders' (deficit) equity (391) 648
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
(DEFICIT) EQUITY $ 9,646 $ 8,834
========== =========
The accompanying notes are an integral part of these condensed consolidated
financial statements
SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------------------------
2007 2006 2007 2006
(Unaudited) (Unaudited)
REVENUES
Sales $ 3,222 $ 2,231 $ 7,542 $ 7,042
Service, installation and other revenues 839 512 1,615 1,341
--------- --------- --------- ---------
4,061 2,743 9,157 8,383
COST OF SALES AND EXPENSES:
Cost of sales 1,799 1,217 4,175 3,775
Customer service expenses 692 520 1,632 1,601
Selling, general and administrative expenses 1,403 1,287 3,995 3,964
Research and development 165 210 556 614
--------- --------- --------- ---------
4,059 3,234 10,358 9,954
--------- --------- --------- ---------
OPERATING INCOME (LOSS) 2 (491) (1,201) (1,571)
INTEREST AND FINANCING EXPENSE, net 221 141 627 309
--------- --------- --------- ---------
LOSS BEFORE INCOME TAXES
AND MINORITY INTEREST (219) (632) (1,828) (1,880)
INCOME TAX (RECOVERY) EXPENSE (7) 30 --- 70
--------- --------- --------- ---------
LOSS BEFORE MINORITY INTEREST (212) (662) (1,828) (1,950)
MINORITY INTEREST 44 (21) 38 (61)
--------- --------- --------- ---------
NET LOSS $ (168) $ (683) $ (1,790) $ (2,011)
========= ========= ========= =========
LOSS PER SHARE
Basic and diluted $ (0.00) $ (0.01) $ (0.01) $ (0.02)
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
Basic and diluted 120,744 120,744 120,744 120,707
========= ========= ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements
SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Nine Months Ended
September 30,
------------------
2007 2006
----------- ------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,790) $ (2,011)
Adjustments to reconcile net loss
to net cash provided by (used in) operating activities:
Depreciation 93 116
Amortization of intangibles and other assets 92 118
Deferred income taxes 15 2
Non-cash consideration 267 108
Minority interest in net income of consolidated subsidiary (38) 107
Changes in operating assets and liabilities:
Accounts receivable (411) 640
Inventory (109) (568)
Prepaid expenses and other assets (359) (104)
Accounts payable 680 214
Accrued liabilities 400 618
Deferred income (2) 6
---------- ----------
Net cash used in operating activities (1,162) (754)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Changes in short-term investments 59 131
Purchase of property and equipment (122) (91)
Intangibles 86 (26)
---------- ----------
Net cash provided by investing activities 23 14
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on the demand loan and revolving line of credit 766 377
Repayment of obligations under capital leases (1) (4)
Proceeds from exercise of stock options --- 7
---------- ----------
Net cash provided by financing activities 765 380
---------- ----------
EFFECT OF EXCHANGE RATE CHANGES 375 46
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1 (314)
CASH AND CASH EQUIVALENTS, at beginning of period 360 445
---------- ----------
CASH AND CASH EQUIVALENTS, at end of period $ 361 $ 131
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 310 $ 239
========== ==========
Income taxes $ 87 $ 8
========== ==========
Non-cash financing activities:
Issuance of warrants relating to bank guarantees $ 375 $ 211
========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements
SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2007 and 2006
NOTE 1 -- Basis of Presentation
- ------------------------------------
The unaudited consolidated financial statements include the accounts of Sentry
Technology Corporation ("Sentry") and its majority-owned subsidiaries (the
"Company"). All intercompany accounts and transactions have been eliminated in
consolidation.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America for interim financial information and the requirement of item 310(b)
of Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Interim results are not
necessarily indicative of the results that may be expected for a full year.
These unaudited consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto included in
the Company's Annual Report on Form 10-KSB for the fiscal year ended December
31, 2006, as filed with the Securities and Exchange Commission ("SEC").
Certain prior period amounts have been reclassified to conform to current period
presentation.
NOTE 2 -- Going Concern
- ---------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America with the assumption that the Company will be able to realize its
assets and discharge its liabilities in the normal course of business.
While the Company has shown increased levels of revenue, it still has incurred
operating losses and decreased financial position as a result of not meeting its
business plan. The Company had losses of $1.8 million for the nine month period
ended September 30, 2007 (September 30, 2006 - losses of $2.0 million) and as at
September 30, 2007, the Company had an accumulated deficit of $50.5 million
(December 31, 2006 - accumulated deficit of $48.7 million). The Company's
continuation as a going concern is uncertain. Management's plan is to continue
raising additional funds through future equity or debt financing until it
achieves profitable operations. However, there can be no assurance that the
Company will be able to secure financing when needed or obtain such on terms
satisfactory to the Company, if at all. The Company's continuation as a going
concern depends upon its ability to raise funds and achieve and sustain
profitable operations.
The accompanying unaudited consolidated financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the inability of the Company to continue as a going concern.
NOTE 3 -- Recent Accounting Pronouncements
- -----------------------------------------------
On September 5, 2007, the Financial Accounting Standards Board ("FASB")
published Proposed FASB Staff Position ("FSP") No. APB 14-a, "Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion." The
proposed FSP applies to convertible debt instruments that, by their stated
terms, may be settled in cash (or other assets) upon conversion, including
partial cash settlement, unless the embedded conversion option is required to be
separately accounted for as a
SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2007 and 2006
derivative under Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities." Convertible
debt instruments within the scope of the proposed FSP are not addressed by APB
Opinion No. 14, "Accounting for Convertible Debt and Debt Issued with Stock
Purchase Warrants." Therefore, the liability and equity components of
convertible debt instruments within the scope of the proposed FSP shall be
separately accounted for in a manner that will reflect the entity's
nonconvertible debt borrowing rate. This will require an allocation of the
convertible debt proceeds between the liability component and the embedded
conversion option (i.e., the equity component). The difference between the
principal amount of the debt and the amount of the proceeds allocated to the
liability component would be reported as a debt discount and subsequently
amortized to earnings over the instrument's expected life using the effective
interest method. The Company is currently reviewing the effect, if any, if the
proposed FSP were to be adopted.
In June 2007, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position ("SOP") No. 07-1, ''Clarification of the Scope of
the Audit and Accounting Guide Investment Companies and Accounting by Parent
Companies and Equity Method Investors for Investments in Investment Companies''
("SOP No. 07-1"). SOP No. 07-1 clarifies when an entity may apply the
provisions of the Audit and Accounting Guide for Investment Companies (the
"Guide"). Investment companies that are within the scope of the Guide report
investments at fair value; consolidation or use of the equity method for
investments is generally not appropriate. SOP No. 07-1 also addresses the
retention of specialized investment company accounting by a parent company in
consolidation or by an equity method investor. SOP No. 07-1 is effective for
fiscal years beginning on or after December 15, 2007 with early adoption
encouraged. The Company has assessed the effect of adopting this guidance and
has determined that there will be no impact on the Company's unaudited condensed
consolidated financial statements.
On May 2, 2007 the FASB issued FASB Interpretation ("FIN") No. 48-1, "Definition
of Settlement in FASB Interpretation 48" ("FIN 48-1"). FIN 48-1 amends FIN 48,
"Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement
No. 109", to provide guidance on how an enterprise should determine whether a
tax position is effectively settled for the purpose of recognizing previously
unrecognized tax benefits. The guidance in FIN 48-1 shall be applied upon the
initial adoption of FIN 48. The Company is currently assessing the potential
impacts of implementing this standard.
In May 2007, the FASB issued a FSP on FIN 46(R)-7, "Application of FASB
Interpretation No. 46(R) to Investment Companies" ("FSP FIN 46 (R)-7"). FSP FIN
46(R)-7 addresses the application of FASB Interpretation No. 46 (revised
December 2003), "Consolidation of Variable Interest Entities", by an entity that
accounts for its investments in accordance with the specialized accounting
guidance in the Guide. The Company has assessed the effect of adopting this
guidance and has determined that there will be no impact on the Company's
unaudited condensed consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value of Option for
Financial Assets and Liabilities" ("SFAS No. 159"), which permits entities to
measure many financial instruments and certain other items at fair value that
are not currently required to be measured at fair value. An entity would report
unrealized gains and losses on items for which the fair value option has been
elected in earnings at each subsequent reporting date. The objective is to
improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. The decision about whether to elect the fair value option is applied
instrument by instrument, with a few exceptions; the
SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2007 and 2006
decision is irrevocable; and it is applied only to entire instruments and not to
portions of instruments. The statement requires disclosures that facilitate
comparisons (a) between entities that choose different measurement attributes
for similar assets and liabilities and (b) between assets and liabilities in the
financial statements of an entity that selects different measurement attributes
for similar assets and liabilities. SFAS No. 159 is effective for financial
statements issued for fiscal years beginning after November 15, 2007. Early
adoption is permitted as of the beginning of a fiscal year that begins on or
before November 15, 2007, provided the entity also elects to apply the
provisions of SFAS No. 157, "Fair Value Measurement". Upon implementation, an
entity shall report the effect of the first remeasurement to fair value as a
cumulative-effect adjustment to the opening balance of retained earnings. Since
the provisions of SFAS No. 159 are applied prospectively, any potential impact
will depend on the instruments selected for fair value measurement at the time
of implementation. The Company is currently assessing the potential impacts of
implementing this standard.
NOTE 4 -- Inventory
- -------------------
Inventory consists of the following:
SEPTEMBER 30, December 31,
2007 2006
-------------------------------------
(In thousands)
Raw materials $ 1,225 $ 938
Work-in-process 214 233
Finished goods 1,675 1,834
--------- ---------
$ 3,114 $ 3,005
========= =========
Reserves for excess and obsolete inventory totaled $1,251,000 and $1,285,000 as
of September 30, 2007 and December 31, 2006, respectively and have been included
as a component of the above amounts.
NOTE 5 - Bank Indebtedness, Demand Loan and Revolving Line of Credit
- --------------------------------------------------------------------
SEPTEMBER 30, December 31,
2007 2006
------------------------------------
(In thousands)
Royal Bank of Canada - Bank indebtedness $ 24 $ 36
Royal Bank of Canada - Demand loan 2,722 2,519
Tradition Capital Bank -
Revolving line of credit 1,050 475
---------- ---------
$ 3,796 $ 3,030
========== =========
a) Royal Bank of Canada
--------------------
In November 2006, the Company amended their secured credit facility with Royal
Bank of Canada ("RBC") by converting the facility to a demand loan, increasing
the interest rate and eliminating financial covenants. In addition, during
2006, the maximum borrowings under the demand loan were reduced to Canadian $3.6
million (U.S. $3.8 million). However, RBC increased the borrowing base formula
by Canadian $1.0 million (U.S. $1,055,000) in exchange for additional security
provided by two of the Company's directors in the second quarter of 2006.
Borrowings under the demand loan are subject to certain limitations based on a
percentage of eligible accounts receivable and inventory as defined in the
SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2007 and 2006
agreement. Interest is payable at a rate of RBC's prime rate (6.25% at
September 30, 2007), plus 2.75% per annum. Borrowings under this demand loan
are secured by substantially all of the Company's assets. As of September 30,
2007, the Company had borrowings of $2.7 million, which exceeded the maximum
available (subject to above limitations) under the demand loan. RBC has agreed
to temporarily increase the availability to the Company by Canadian $300,000
(U.S. $317,000) until March 31, 2008 in consideration of a further guarantee by
certain directors.
At the end of the second quarter of 2006, Mr. Murdoch, Sentry's Chief Executive
Officer and Director, and Mr. Furst, a Sentry Director, agreed to provide a
personal guarantee to RBC, the Company's lender, in the amount of Canadian $1.0
million (U.S. $1,055,000) in exchange for RBC providing increased availability
under its credit facility to the Company by the same amount. In consideration of
these guarantees, Mr. Murdoch and Mr. Furst received a fee of $43,000, shared
between them, paid in twelve equal monthly installments. As additional
consideration, they received fully vested, two year warrants to purchase
approximately 2.9 million common shares of the Company at an exercise price of
$0.10 per share. The fair value of these warrants of $120,000 was determined in
accordance with SFAS No. 123R "Share-Based Payment" and beginning in June 2006
was taken into income over the period of the guarantee, which was one year.
These guarantees expired in June 2007 and were subsequently renewed in July 2007
until April 30, 2008. In consideration of these guarantee renewals, Mr. Murdoch
and Mr. Furst will receive a fee of $40,000 shared between them paid in ten
equal monthly installments. As additional consideration, they received fully
vested, two year warrants to purchase approximately 7.4 million common shares of
the Company at an exercise price of $0.065 per share. The fair value of these
warrants of $164,000 was determined in accordance with SFAS No. 123R and
beginning in July is being taken into income over the period of the guarantee,
which is ten months. Interest and financing expense recorded was $50,000 for the
three month period ended September 30, 2007 and $100,000 for the nine months
ended September 30, 2007. During the three and nine month periods ended
September 30, 2006, $30,000 and $40,000, respectively, has been recorded in
interest and financing expense.
b) Tradition Capital Bank
------------------------
In December 2006, the Company entered into a secured revolving credit agreement
with Tradition Capital ("TC") Bank. From December 15, 2006 through the
expiration of the facility on June 15, 2007, the Company may draw up to a
maximum of $550,000 under the facility. Interest is payable at TC Bank's prime
rate (7.75% at September 30, 2007), plus 1% per annum. Borrowings under this
facility are secured by substantially all of the Company's assets in a second
position to RBC. In addition, the facility is fully secured by the personal
guarantees of Mr. Murdoch and Mr. Furst. In consideration of these guarantees,
Mr. Murdoch and Mr. Furst received a fee of $14,000, shared between them, paid
in six equal monthly installments beginning in December 2006. As additional
consideration, they received fully vested, two year warrants to purchase
approximately 5.2 million shares of the Company's common stock, at an exercise
price of $0.053 per share. The fair value of these warrants of $91,000 was
determined in accordance with SFAS No. 123R "Share-Based Payment" and beginning
in December 2006 was taken into income over the period of the guarantee, which
was six months. The credit facility and related guarantees expired in June 2007
and were subsequently renewed in July 2007 until April 30, 2008. In
consideration of the guarantee renewals, Mr. Murdoch and Mr. Furst will receive
a fee of $23,000 shared between them paid in ten equal monthly installments. As
additional consideration, they received fully vested, two year warrants to
purchase approximately 4.2 million common shares of the Company at an
SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2007 and 2006
exercise price of $0.065 per share. The fair value of these warrants of $94,000
was determined in accordance with SFAS No. 123R "Share-Based Payment" and
beginning in July is being taken into income over the period of the guarantee,
which is ten months. Interest and financing expense recorded was $28,000 for
the three month period ended September 30, 2007 and $111,000 for the nine months
ended September 30, 2007.
On September 25, 2007, Mr. Murdoch and Mr. Furst agreed to provide additional
personal guarantees totaling $500,000, which increased the maximum the Company
can draw up to $1,050,000, under this facility with the same terms and
conditions as listed above until April 30, 2008. As of September 30, 2007
borrowings were at the maximum amount available. In consideration of the
guarantees Mr. Murdoch and Mr. Furst will receive a fee of $15,000 shared
between them paid in seven equal monthly installments. As additional
consideration, they received fully vested, two year warrants to purchase
approximately 2.5 million common shares of the Company at an exercise price of
$0.10 per share. The fair value of these warrants of $89,000 was determined in
accordance with SFAS No. 123R "Share-Based Payment" and beginning in October
will be taken into income over the period of the guarantee, which is seven
months.
c) Letter of Credit
------------------
In August 2007, Mr. Murdoch, Sentry's Chief Executive Officer and Director,
agreed to provide a personal guarantee for a Letter of Credit that the Company
was unable to obtain on its own for $49,350 to the Palm Beach Public Library for
a period of one year. In consideration of this guarantee Mr. Murdoch will
receive a fee of $2,000 paid in twelve equal monthly installments. As
additional consideration, he received fully vested, two year warrants to
purchase approximately 0.2 million common shares of the Company at an exercise
price of $0.10 per share. The fair value of these warrants of $10,000 was
determined in accordance with SFAS No. 123R "Share-Based Payment" and beginning
in August is being taken into income over the period of the guarantee, which is
twelve months. Interest and financing expense recorded was $2,000 in both the
three and nine month periods ended September 30, 2007.
NOTE 6 -- Accrued Liabilities
- -----------------------------
Accrued liabilities consist of the following: SEPTEMBER 30, December 31,
2007 2006
---------------------------------------
(In thousands)
Accrued salaries, employee benefits and payroll taxes $ 294 $ 297
Customer deposit payables 555 116
Other accrued liabilities 629 665
---------- ---------
$ 1,478 $ 1,078
========== =========
SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2007 and 2006
NOTE 7 - Comprehensive Loss
- ---------------------------
Comprehensive loss is as follows: Three Months Ended Nine Months Ended
September 30, September 30,
2007 2006 2007 2006
---- ---- ---- ----
(in thousands)
Net loss: $ (168) $ (683) $(1,790) $(2,011)
Other comprehensive income (loss):
Foreign currency translation adjustments 165 (3) 375 46
------- ------- -------- --------
Comprehensive loss $ (3) $ (686) $(1,415) $(1,965)
======= ======= ======== ========
NOTE 8 -- Related Party Transactions
- -----------------------------------------
Related parties include directors and officers and companies controlled by the
directors and officers of the Company.
Transactions between related parties are in the normal course of operations and
are measured at the exchange amount, which is the amount of consideration
established and agreed to by the related parties.
See Note 5 for Related Party Transactions in regard to director's guarantees.
NOTE 9 -- Stock Based Compensation
- ----------------------------------
a) Stock Options
--------------
The Company's 1997 Stock Incentive Plan of Sentry (the "1997 Plan"), which is
shareholder approved, permits the granting of common share options and shares to
its employees for up to 6,369,365 shares of common stock as stock-based
compensation. This plan expired as of January 14, 2007 and as such, there were
no remaining shares available for grant under this plan at September 30, 2007.
The plan was renewed on May 18, 2007 (the "2007 Plan"), is shareholder approved
and permits the granting of common share options and shares to its employees for
up to 5,000,000 shares of common stock as stock-based compensation. The stock
option committee may grant awards to eligible employees in the form of stock
options, restricted stock awards, phantom stock awards or stock appreciation
rights. Stock options may be granted as incentive stock options or non-qualified
stock options. Such options normally become exercisable at a rate of 20% per
year over a five-year period and expire ten years from the date of grant. The
purchase of stock by Saburah Investments Inc. constituted a change in control
under the 1997 Plan, resulting in the immediate vesting of all shares issued
prior to May 1, 2004. All outstanding stock options are issued at not less than
the fair value of the related common stock at the date of grant. At September
30, 2007, under the 1997 Plan, 1,550,500 common shares were reserved for
issuance in connection with the exercise of stock options. Under the 2007 Plan,
511,500 common shares were reserved for issuance in connection with the exercise
of stock options.
Effective January 1, 2006, the Company's Plan is accounted for in accordance
with the recognition and measurement provisions of SFAS No. 123R, which replaces
SFAS No. 123, "Accounting for Stock-Based Compensation," and supersedes
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued
to Employees," and related interpretations. SFAS 123R requires compensation
costs related to share-based payment transactions, including employee stock
options, to be
SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2007 and 2006
recognized in the financial statements. In addition, the Company adheres to the
guidance set forth within SEC Staff Accounting Bulletin No. 107 ("SAB 107"),
which provides the staff's views regarding the interaction between SFAS No. 123R
and certain SEC rules and regulations and provides interpretations with respect
to the valuation of share-based payments for public companies.
There was no cash received from exercise of options during the three and nine
month periods ended September 30, 2007.
The assumptions used for the specified reporting periods and resulting estimates
of weighted average fair value per share of options granted during those periods
were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2007 2006 2007 2006
---- ---- ---- ----
Risk-free interest rate --- --- 4.82% 4.46%
Expected dividend yield --- --- 0% 0%
Expected lives --- --- 2-5 YEARS 2-3 years
Expected volatility --- --- 80% 100%
No options were granted in the third quarter ended September 30, 2007.
The following table represents the Company's stock options granted, forfeited or
expired and exercised during the nine months ended September 30, 2007:
Weighted
Number of Weighted Average Aggregate
Shares Average Remaining Intrinsic
Subject to Exercise Contractual Value
Issuance Price Term ($000)
----------- --------- ----------- ----------
Outstanding at January 1, 2007 2,145,500 $ 0.16
Granted 511,500 0.06
Exercised --- ---
Forfeited or expired (595,000) 0.29
----------- ---------
OUTSTANDING AT SEPTEMBER 30, 2007 2,062,000 $ 0.10 7.7 YEARS 20
=========== ========= ========= =========
EXERCISABLE AT SEPTEMBER 30, 2007 1,227,000 $ 0.11 7.2 YEARS 1
=========== ========= ========= =========
The aggregate intrinsic value of options represents the excess of the period end
market price of the Company's common stock over the exercise price of the
outstanding and exercisable option shares.
The compensation cost recognized in income for stock-based compensation was
$6,000 and $20,000 for the three and nine month periods ended September 30, 2007
and was $9,000 and $26,000 for the three and nine month periods ended September
30, 2006, respectively.
As of September 30, 2007, there was $58,000 of the total unrecognized
compensation cost, net of estimated forfeitures, related to all unvested stock
options, which is expected to be recognized over a weighted average period of
approximately 3.1 years.
SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2007 and 2006
There were 511,500 options issued during the nine month period ended September
30, 2007 with a weighted average estimated fair value of $0.06. There were
650,000 options issued during the nine month period ended September 30, 2006
with a weighted average estimated fair value of $0.10.
On January 14, 2007, the 1997 Plan expired; there were no common shares
available for future grant under this plan. Under the 2007 Plan there were
4,488,500 options available for grant as of September 30, 2007.
b) Warrants
--------
As of September 30, 2007, Sentry has outstanding warrants for 27,718,123
(September 30, 2006 - 8,600,000) common shares issued in connection with various
financing arrangements. The warrants have exercise prices ranging from $0.05 to
$0.17 (September 30, 2006 - $0.10 to $0.20) and expire from April 28, 2008
through to September 25, 2009.
SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
September 30, 2007 and 2006
Item 2. Management's Discussion and Analysis of Plan of Operation.
- -------------------------------------------------------------------
Certain Factors That May Affect Future Results
- ----------------------------------------------
Information contained or incorporated by reference in this periodic report on
Form 10-QSB 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-KSB. 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 48% higher in the quarter ended September 30, 2007 as
compared to the quarter ended September 30, 2006. For the nine month period
ended September 30, 2007 consolidated revenues were 9% higher than in the same
period of last year. Our backlog of orders, which we expect to deliver within
the next twelve months, was $4.5 million at September 30, 2007, an increase of
61% as compared to $2.8 million at September 30, 2006, and a 221% increase as
compared to $1.4 million at December 31, 2006. Total revenues for the periods
presented are broken out as follows:
Q-3 Q-3 % 9 Mos. 9 Mos. %
2007 2006 Change 2007 2006 Change
---- ---- ------ ------ ------ ------
(in thousands) (in thousands)
EAS $ 1,726 $ 1,417 22 $ 4,626 $ 4,793 (3)
CCTV 156 47 232 305 422 (28)
SentryVision 1,341 767 75 2,612 1,827 43
-------- -------- ------- -------- -------- -----
Total sales 3,223 2,231 44 7,543 7,042 7
Service, installation and other 838 512 64 1,614 1,341 20
-------- -------- ------- -------- -------- -----
Total revenues $ 4,061 $ 2,743 48 $ 9,157 $ 8,383 9
======== ======== ======= ======== ======== =====
Sales in the third quarter of 2007 were strong across all product lines. Both
domestic and international sales rose during the third quarter of 2007 versus
the same period last year. Installation revenues were higher due to higher
related sales revenue, offset slightly by lower service and maintenance income.
Sales in the first nine month of 2007 had lower EAS and CCTV domestic sales
offset slightly by increased international sales. SentryVision sales increased
due to the Company obtaining a new large domestic customer. Installation
revenues were higher in the nine month period versus the same period last year
due to higher related sales revenue, offset somewhat by lower service and
maintenance income.
SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
September 30, 2007 and 2006
Cost of sales were 56% and 55% of total sales in the three and nine month
periods ended September 30, 2007 compared to 55% and 54% in the three and nine
month periods ended September, 30, 2006. We continue to have slightly lower
margins due to an increase in the percentage of total sales to foreign dealers.
The 33% increase in customer service expenses in the third quarter of 2007
compared to the third quarter of 2006 is primarily due to the increase in
subcontractor labor, tools and supplies and the rental of lifts due to the
increase in installation revenue. The 2% increase in customer service expenses
in the nine months ended September 30, 2007 compared to the nine months ended
September 30, 2006 is primarily due to an increase in installation of material,
subcontractor labor and tools and supplies due to increased installation revenue
partially offset by a decrease in headcount. The Company is continuing to use
outside service contractors to supplement our field service employees in order
to better manage total customer service costs during fluctuations in activity
levels between periods.
Selling, general and administrative expenses were 9% higher and 1% higher in the
three and nine month periods ended September 30, 2007 when compared to the same
periods of the previous year. An increase in the three month period compared to
the same period last year was principally the result of foreign exchange losses
of $255,000 and an increase in warranty expense, which were partially offset by
lower headcount and travel costs. The increase in the nine month period
compared to the same period last year was primarily a result of foreign exchange
losses of $592,000 and an increase in warranty expense, which was partially
offset by lower headcount, travel, professional fees and promotional costs.
Foreign exchange losses resulted from the decline in the U.S. dollar valuation
of the Company's Canadian dollar bank loan as well as receivables denominated in
U.S. dollars from our Canadian subsidiary.
The decrease in research and development costs of 21% in the third quarter and
9% in the first nine months of 2007 when compared to the third quarter and first
nine months of 2006 is primarily a result of a reduced headcount and consulting
fees. The Company continues to develop both hardware and software products.
Total interest and financing costs increased in the three and nine month periods
ended September 30, 2007 primarily as a result of financing costs (including the
non-cash amortization of warrants issued of $80,000 and $213,000 in the three
and nine month periods ended September 30, 2007 and $30,000 and $40,000 in the
three and nine month periods ended September 30, 2006) related to the loan
guarantees provided by the Company's directors as well as increased interest
expenses on a higher average outstanding debt.
The income tax benefit in the three month period ended September 30, 2007 is a
result of a reduction in the estimated tax rate of the Canadian subsidiary for
the year ended 2007. The income tax expense in the 2006 periods is principally
a result of the taxable income of one of our Canadian subsidiaries, which cannot
be offset by Sentry's net operating loss carryforwards.
As a result of the foregoing, Sentry had losses of $168,000 and $1,790,000 in
the quarter and nine months ended September 30, 2007 as compared to losses of
$683,000 and $2,011,000 in the quarter and nine months ended September 30, 2006.
SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
September 30, 2007 and 2006
Liquidity and Capital Resources as of September 30, 2007
At September 30, 2007, we had cash and short-term investments of $561,000,
working capital of $394,000 and total assets of $9,646,000. Cash used in
operating activities was $1,162,000 for the nine month period ended September
30, 2007. Cash was principally used by the increase in accounts receivables and
to finance increases in inventory levels purchased in anticipation of our
expected higher sales levels. Cash was generated mostly from an increase in
accounts payable.
Cash provided by investing activities was $23,000 during the first nine months
of 2007 due to use of short term investments, partially offset by the purchase
of manufacturing equipment at our 51% owned labeling plant. There are no
significant projected capital expenditure requirements anticipated through the
remainder of the year, however, the level of spending will be dependent upon
various factors, including growth of the business and general economic
conditions.
Cash provided by financing activities was $765,000 during the first nine months
of 2007 primarily due to increased borrowings under our credit facilities.
Borrowing availability under the credit facilities has principally been based
upon the combined levels of receivables and inventory, which was slightly higher
in the first nine months of 2007. The extra availability under the credit
facility was principally related to the loan guarantees provided by our
directors as well as the temporary increase in availability allowed by RBC.
In November 2006, the Company amended their secured credit facility with Royal
Bank of Canada ("RBC") by converting the facility to a demand loan, increasing
the interest rate and eliminating financial covenants. In addition, during
2006, the maximum borrowings under the demand loan were reduced to Canadian $3.6
million (U.S. $3.8 million). However, RBC increased the borrowing base formula
by Canadian $1.0 million (U.S. $1,055,000) in exchange for additional security
provided by two of the Company's directors in the second quarter of 2006.
Borrowings under the demand loan are subject to certain limitations based on a
percentage of eligible accounts receivable and inventory as defined in the
agreement. Interest is payable at a rate of RBC's prime rate (6.25% at
September 30, 2007), plus 2.75% per annum. Borrowings under this demand loan
are secured by substantially all of the Company's assets. As of September 30,
2007, the Company had borrowings of $2.7 million, which exceeded the maximum
available (subject to above limitations) under the demand loan. RBC has agreed
to temporarily increase the availability to the Company by Canadian $300,000
until March 31, 2008 in consideration of a further guarantee by certain
directors.
At the end of the second quarter of 2006, Mr. Murdoch, Sentry's Chief Executive
Officer and Director, and Mr. Furst, a Sentry Director, agreed to provide a
personal guarantee to RBC, the Company's lender, in the amount of Canadian $1.0
million (U.S. $1,055,000) in exchange for RBC providing increased availability
under its credit facility to the Company by the same amount. In consideration of
these guarantees, Mr. Murdoch and Mr. Furst received a fee of $43,000, shared
between them, paid in twelve equal monthly installments. As additional
consideration, they received fully vested, two year warrants to purchase
approximately 2.9 million common shares of the Company at an exercise price of
$0.10 per share. The fair value of these warrants of $120,000 was determined in
accordance with SFAS No. 123R "Share-Based Payment" and beginning in June 2006
was taken into income over the period of the guarantee, which was one year.
These guarantees expired in June 2007 and were subsequently renewed in July 2007
until April 30, 2008. In consideration of these guarantee renewals, Mr. Murdoch
SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
September 30, 2007 and 2006
and Mr. Furst will receive a fee of $40,000 shared between them paid in ten
equal monthly installments. As additional consideration, they received fully
vested, two year warrants to purchase approximately 7.4 million common shares of
the Company at an exercise price of $0.065 per share. The fair value of these
warrants of $164,000 was determined in accordance with SFAS No. 123R
"Share-Based Payment" and beginning in July is being taken into income over the
period of the guarantee, which is ten months. Interest and financing expense
recorded was $50,000 for the three month period ended September 30, 2007 and
$100,000 for the nine months ended September 30, 2007. During the three and nine
month periods ended September 30, 2006, $30,000 and $40,000, respectively, has
been recorded in interest and financing expense.
In December 2006, the Company entered into a secured revolving credit agreement
with Tradition Capital ("TC") Bank. From December 15, 2006 through the
expiration of the facility on June 15, 2007, the Company may draw up to a
maximum of $550,000 under the facility. Interest is payable at TC Bank's prime
rate (7.75% at September 30, 2007), plus 1% per annum. Borrowings under this
facility are secured by substantially all of the Company's assets in a second
position to RBC. In addition, the facility is fully secured by the personal
guarantees of Mr. Murdoch and Mr. Furst. In consideration of these guarantees,
Mr. Murdoch and Mr. Furst received a fee of $14,000, shared between them, paid
in six equal monthly installments beginning in December 2006. As additional
consideration, they received fully vested, two year warrants to purchase
approximately 5.2 million shares of the Company's common stock, at an exercise
price of $0.053 per share. The fair value of these warrants of $91,000 was
determined in accordance with SFAS No. 123R "Share-Based Payment" and beginning
in December 2006 was taken into income over the period of the guarantee, which
was six months. The credit facility and related guarantees expired in June 2007
and were subsequently renewed in July 2007 until April 30, 2008. In
consideration of the guarantee renewals, Mr. Murdoch and Mr. Furst will receive
a fee of $23,000 shared between them paid in ten equal monthly installments. As
additional consideration, they received fully vested, two year warrants to
purchase approximately 4.2 million common shares of the Company at an exercise
price of $0.065 per share. The fair value of these warrants of $94,000 was
determined in accordance with SFAS No. 123R "Share-Based Payment" and beginning
in July is being taken into income over the period of the guarantee, which is
ten months. Interest and financing expense recorded was $28,000 for the three
month period ended September 30, 2007 and $111,000 for the nine months ended
September 30, 2007.
On September 25, 2007, Mr. Murdoch and Mr. Furst agreed to provide additional
personal guarantees totaling $500,000, which increased the maximum the Company
can draw up to $1,050,000, under this facility with the same terms and
conditions as listed above until April 30, 2008. As of September 30, 2007,
borrowings were at the maximum amount available. In consideration of the
guarantees Mr. Murdoch and Mr. Furst will receive a fee of $15,000 shared
between them paid in seven equal monthly installments. As additional
consideration, they received fully vested, two year warrants to purchase
approximately 2.5 million common shares of the Company at an exercise price of
$0.10 per share. The fair value of these warrants of $89,000 was determined in
accordance with SFAS No. 123R "Share-Based Payment" and beginning in October
will be taken into income over the period of the guarantee, which is seven
months.
SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
September 30, 2007 and 2006
In August 2007, Mr. Murdoch, Sentry's Chief Executive Officer and Director,
agreed to provide a personal guarantee for a Letter of Credit that the Company
was unable to obtain on its own for $49,350 to the Palm Beach Public Library for
a period of one year. In consideration of this guarantee Mr. Murdoch will
receive a fee of $2,000 paid in twelve equal monthly installments. As
additional consideration, he received fully vested, two year warrants to
purchase approximately .2 million common shares of the Company at an exercise
price of $0.10 per share. The fair value of these warrants of $10,000 was
determined in accordance with SFAS No. 123R "Share-Based Payment" and beginning
in August is being taken into income over the period of the guarantee, which is
twelve months. Interest and financing expense recorded was $2,000 in both the
three and nine month periods ended September 30, 2007.
We will require positive cash flows from operations to meet our working capital
needs over the next twelve months. While the Company has shown increased levels
of revenues, it still has incurred operating losses through the first nine
months of 2007. This has substantially reduced the Company's available cash
reserves and limited our ability to secure additional bank financing. A
majority of the Company's cash is held at the 51% owned subsidiary. The Company
has instituted certain plans to increase its revenue base as well as preserve
its cash.
During the third quarter of 2007, the Company completed the successful
installation of its new OperationalVideo system in 16 locations of Steve and
Barry's, a leading casual apparel retailer that offers high-quality merchandise
at low prices for men, women and children. OperationalVideo uses our patented
SmartTrack traveling system to manage safety and security as well as retail
business operations such as sign placement, product merchandising and employee
procedure compliance over the internet. Seventeen additional Steve and Barry's
stores will have equipment installed in the fourth quarter. Also,
OperationalVideo was installed in one of America's largest retailers in August
and has resulted in an order for a second location to be installed in November.
Management believes that OperationalVideo will contribute a significant new
revenue stream in the future.
We anticipate revenue growth in new and existing markets. We are striving to
continue to improve our gross margins and control our selling expenses and our
general and administrative expenses. There can be no assurance, however, that
changes in our plans or other events affecting our operations will not result in
accelerated or unexpected cash requirements, or that we will be successful in
achieving positive cash flow from operations or obtaining adequate financing
through our credit facility. Our future cash requirements are expected to depend
on numerous factors, including, but not limited to: (i) the ability to generate
positive cash flow from operations; (ii) the ability to raise additional capital
or obtain additional financing; and (iii) economic conditions. In the event that
sufficient positive cash flow from operations is not generated, we will seek
additional financing to satisfy current operating cash flow deficiencies. There
can be no assurance, however, that additional financing will be available on
terms that are satisfactory to the Company, or that any such financing will be
sufficient to provide the full amount of funding necessary.
Related Party Transactions
- ----------------------------
Details of related party transactions are included in Note 8 of this Form
10-QSB.
SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
September 30, 2007 and 2006
Item 3. Controls and Procedures
As of the end of the period covered by this report, Sentry Technology
Corporation carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's Principal
Executive Officer and Principal Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures
pursuant to Rule 13a-15 of the Securities and Exchange Act of 1934. Based upon
that evaluation, the Principal Executive Officer and Principal Financial Officer
concluded that the Company's disclosure controls and procedures are effective in
timely alerting them to material information related to the Company that is
required to be included in Sentry Technology Corporation's periodic SEC filings.
There has been no change in the Company's internal control over financial
reporting during the period covered by this report that has materially affected,
or is reasonable likely to materially affect, the Company's internal control
over financial reporting.
PART II - OTHER INFORMATION
Item 6 - Exhibits
(a) Exhibits:
31.1 - Certification by the Principal Executive Officer Pursuant to
Rule 13a-14(a)/15d-14(a).
31.2 - Certification by the Principal Financial Officer Pursuant to
Rule 13a-14(a)/15d-14(a).
32.1 - Certification by the Principal Executive Officer Pursuant to 18
U.S.C. Section 1350 Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.***
32.2 - Certification by the Principal Financial Officer Pursuant to
18 U.S.C. Section 1350 Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.***
*** In accordance with Item 601(b)(32)(ii) of Regulation S-K, this
exhibit shall not be deemed "filed" for the purposes of Section
18 of the Securities and Exchange Act of 1934 or otherwise
subject to the liability of that section, nor shall it be deemed
incorporated by reference in any filing under the Securities
Act of 1933 or the Securities Exchange Act of 1934.
SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
September 30, 2007 and 2006
SIGNATURE
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: November 13, 2007 By: /s/JOAN E. MILLER
------------------------------------
Joan E. Miller, Vice President -
Finance and Treasurer
(Principal Financial and Accounting Officer)
SECTION 302 CERTIFICATION:
EXHIBIT 31.1
CERTIFICATION PURSUANT TO RULE 13(A) OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, PETER L. MURDOCH, CERTIFY THAT:
1. I have reviewed this Quarterly Report on Form 10-QSB of Sentry Technology
Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
small business issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer and I are
responsible for establishing and maintaining disclosure controls and
procedures [as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)], and
internal control over financial reporting [as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)] for the small business issuer and we have:
A. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure the material information relating to the small business issuer,
including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being
prepared;
B. Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principals;
C. Evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
D. Disclosed in this report any change in the small business
issuer's internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter that materially affected,
or is reasonably likely to materially affect, the small business issuer's
internal control over financial reporting.
5. The small business issuer's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the small business issuer's auditors and the Audit Committee of
the small business issuer's Board of Directors (or persons performing the
equivalent function):
A. All significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the small business issuer's ability to record,
process, summarize and report financial information; and
B. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer's internal
control over financial reporting.
DATED: November 13, 2007
BY: /s/ Peter L. Murdoch
------------------------------------------
NAME: Peter L. Murdoch
TITLE: President and Principal Executive Officer
SECTION 302 CERTIFICATION:
EXHIBIT 31.2
CERTIFICATION PURSUANT TO RULE 13(A) OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 202
I, JOAN E. MILLER, CERTIFY THAT:
1. I have reviewed this Quarterly Report on Form 10-QSB of Sentry Technology
Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
small business issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer and I are
responsible for establishing and maintaining disclosure controls and
procedures [as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)], and
internal control over financial reporting [as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)] for the small business issuer and we have:
A. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure the material information relating to the small business issuer,
including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being
prepared;
B. Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principals;
C. Evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
D. Disclosed in this report any change in the small business
issuer's internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter that materially affected,
or is reasonably likely to materially affect, the small business issuer's
internal control over financial reporting.
5. The small business issuer's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the small business issuer's auditors and the Audit Committee of
the small business issuer's Board of Directors (or persons performing the
equivalent function):
A. All significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the small business issuer's ability to record,
process, summarize and report financial information; and
B. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer's internal
control over financial reporting.
Dated: November 13, 2007
By: /s/ Joan E. Miller
--------------------------------------------
Name: Joan E. Miller
Vice President - Finance and Treasurer
Title: (Principal Financial and Accounting Officer)
SECTION 906 CERTIFICATION:
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Certification of CEO
In connection with the Quarterly Report of Sentry Technology Corporation (the
"Company") on Form 10-QSB for the period ended September 30, 2007 as filed with
the Securities and Exchange Commission on the date hereof (the Report"), I,
Peter L. Murdoch, Principal Executive Officer of the Company, certify,
pursuant to Section 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) and
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ PETER L. MURDOCH
-------------------------------------------------
Peter L. Murdoch
President and Principal Executive Officer
November 13, 2007
A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written
statement required by Section 906, has been provided to the Company and will be
retained by the Company and furnished to the Securities and Exchange Commission
or its staff upon request.
This certification accompanies this Report on Form 10-QSB pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent
required by such Act, be deemed filed by the Company for purposes of Section 18
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such
certification will not be deemed to be incorporated by reference into any filing
under the Securities Act of 1933, as amended, or the Exchange Act, except to the
extent that the Company specifically incorporates it by reference.
SECTION 906 CERTIFICATION:
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Certification of Principal Financial Officer
In connection with the Quarterly Report of Sentry Technology Corporation (the
"Company") on Form 10-QSB for the period ended September 30, 2007 as filed with
the Securities and Exchange Commission on the date hereof (the Report"), I, Joan
E. Miller, Principal Financial Officer of the Company, certify, pursuant to
Section 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that, to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) and
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ JOAN E. MILLER
-------------------------------------------------
Joan E. Miller
Vice President -Finance and Treasurer
(Principal Financial and Accounting Officer)
November 13, 2007
A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written
statement required by Section 906, has been provided to the Company and will be
retained by the Company and furnished to the Securities and Exchange Commission
or its staff upon request.
This certification accompanies this Report on Form 10-QSB pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent
required by such Act, be deemed filed by the Company for purposes of Section 18
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such
certification will not be deemed to be incorporated by reference into any filing
under the Securities Act of 1933, as amended, or the Exchange Act, except to the
extent that the Company specifically incorporates it by reference.