MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
FINANCIAL
CONDITION
Working
Capital and Liquidity
During
the last several fiscal years, the Company has incurred losses from operations.
In addition, the Company’s certified public accountants, Hausser + Taylor LLC,
have included in their auditors’ report, which covers the Company’s financial
statements for the years ended November 30, 2005 and November 30, 2006,
a
statement that the Company’s recurring losses from operations raised substantial
doubt about the Company’s ability to continue as a going concern. For the period
ended November 20, 2005 and Fiscal Year 2006, the Company sustained losses
of
approximately $377,000 and $579,000, respectively. These losses have had
a
substantial adverse effect on the working capital of the Company.
Net
Tax
Operating Loss Carryforwards
As
of
August 31, 2007 the Company has approximately $17,378,000 in net tax operating
loss carryforwards which will expire at various dates through the year
2027.
Federal tax law imposes restrictions on the use of net operating loss
carryforwards in the event of a change in ownership, such as a merger.
Due to
the merger with Monitek, approximately $6,265,000 of the $17,378,000 net
operating losses may be subject to these limitations and potentially may
not be
able to provide any economic benefit to the Company.
RESULTS
OF OPERATIONS
On
November 20, 2005, JJJ-RT, LLC assumed the operations of the former Regency
Technologies, Ltd.
The
Company currently has no active operation. Expenses shown on the Consolidated
Statement of Operations include corporate administrative overhead
only.
Investment
in Regency Technologies, Ltd.:
Due
to a
change in control, the Company now accounts for its investment in Regency
Technologies, Ltd. on the equity method. However, losses and distributions
have
exceeeded the Company’s investment in Regency Technologies, Ltd. Accordingly,
the Company has reflected such investments at zero. The Company’s share of
future losses in this investment will be suspended for book purposes.
Furthermore the Company’s share in future income will not be recognized until
the aggregate of such income equals the aggregate of their suspended
losses.
The
net
loss on disposal of subsidiary (Regency Technologies, Ltd.) is the result
of
recognizing the net investment deficit in Regency as of November 20, 2005
as
income to bring the value of the investment to zero and decreasing that
gain by
the forgiveness of inter-company debt as stated in the Contribution and
Investment Agreement.
SENTEX
SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (continued)
The
following table sets forth certain summarized financial information of
Regency
Technologies, Ltd., the Company’s only investment, based upon the applicable
financial statements, adjusted for accounting principles generally accepted
in
the United States of America. This information is for the five months ended
August 31, 2007 and has not been audited or reviewed.
BALANCE
SHEET DATA
|
|
|
|
Current
assets
|
|
$
|
869,846
|
|
Long
Term Assets
|
|
|
436,897
|
|
|
|
|
|
|
Total
Assets
|
|
|
1,306,743
|
|
|
|
|
|
|
Current
liabilities
|
|
|
272,642
|
|
|
|
|
|
|
Partners’
equity
|
|
|
1,034,101
|
|
|
|
|
|
|
Total
liabilities and partners’ equity
|
|
$
|
1,306,743
|
|
|
|
|
|
|
STATEMENT
OF INCOME DATA
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
4,531,791
|
|
|
|
|
|
|
Net
income(loss)
|
|
$
|
17,455
|
|
SUBSEQUENT
EVENTS
We
are
still in the midst of the capital raising process. We will keep you posted
on
events as they unfold.
We
have
moved forward with the non-cash ICOM acquisition after traveling to their
headquarters at Maidstone, Kent in the UK for due diligence. The finalization
of
the deal is subject to completion of their financial audit. This should
happen
very shortly and will provide Sentex with a revenue base in excess of $8,000,000
for 2008.
We
have
additional add-on business opportunities in the UK as a result of the ICOM
acquisition. However securing the capital is essential for the completion
of a
significant amount of the add-on business.
Sentex’s
President, Henrik Rubinstein will be leaving the Company to pursue other
interests. In conjunction with this, we have written off the $1,900,000
Distribution Agreement value as an impairment of contract value.
SENTEX
SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (continued)
CHANGES
IN ACCOUNTING STANDARDS
New
Accounting Standards - In September 2006, the Financial Accounting Standards
Board (“FASB”) issued Statement of Financial Accounting Standards No. 158 (“SFAS
158”), “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106, and
132(R)”, effective for the Company for the year ending December 31, 2006. This
statement requires the recognition of the overfunded or underfunded status
of a
defined benefit postretirement plan as an asset or liability on the balance
sheet, and the recognition of changes in that funded status through other
comprehensive income. The Company does not believe the adoption of this
standard
will have a material impact on the consolidated financial
statements.
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No.
157 (“SFAS 157”), “Fair Value Measurements”, effective for the Company beginning
on January 1, 2008. This Statement defines fair value, establishes a framework
for measuring fair value, and expands disclosures about fair value measurements.
This statement establishes a fair value hierarchy that distinguishes between
valuations obtained from sources independent of the entity and those from
the
entity’s own unobservable inputs that are not corroborated by observable market
data. SFAS 157 expands disclosures about the use of fair value to measure
assets
and liabilities in interim and annual periods subsequent to initial recognition.
The disclosures focus on the inputs used to measure fair value and for
recurring
fair value measurements using significant unobservable inputs, the effect
of the
measurements on earnings or changes in net assets for the period. The Company
does not believe the adoption of this standard will have a material impact
on
the consolidated financial statements.
In
June
2006, the FASB issued Interpretation No. 48 (“FIN 48”), “Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,
Accounting for Income Taxes,” effective for the Company beginning on January 1,
2007. FIN 48 clarifies the recognition threshold a tax position is required
to
meet before being recognized in the financial statements. FIN 48 also provides
guidance on disclosure and other matters. Currently, the Company does not
expect
this guidance to have a material impact on its financial
statements.
In
March
2006, the FASB issued Statement of Financial Accounting Standards No. 156,
“Accounting for Servicing of Financial Assets” (“SFAS 156”), which amends
accounting and reporting standards for servicing assets and liabilities
under
Statement of Financial Accounting Standards No. 140, “Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities”.
Specifically, SFAS 156 requires that all separately recognized servicing
assets
and servicing liabilities be initially measured at fair value, if practicable.
For subsequent measurement purposes, SFAS 156 permits an entity to choose
to
measure servicing assets and liabilities either based on fair value or
lower of
cost or market. The Company does not believe the adoption of this standard
will
have a material impact on the consolidated financial statements
In
February 2007, the FASB issued Statement of Financial Accounting Standards
No.
159 (“SFAS 159”), “The Fair Value Option for Financial Assets and Financial
Liabilities”, effective for the Company beginning on January 1, 2008. This
Statement provides entities with an option to report selected financial
assets
and liabilities at fair value, with the objective to reduce both the complexity
in accounting for financial instruments and the volatility in earnings
caused by
measuring related assets and liabilities differently. The Company does
not
believe the adoption of this standard will have a material impact on the
consolidated financial statements
SENTEX
SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (continued)
CAUTIONARY
STATEMENT FOR PURPOSES OF THE “SAFE HARBOUR” OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995.
Certain
statements in the Management’s Discussion and Analysis of Financial Condition
and Results of Operations and the Financial Statements included in this
Annual
Report on Form 10-KSB, in the Company’s press releases and in oral statements
made by or with the approval of an authorized executive officer of the
Company
constitute “forward-looking statements” as that term is defined under the
Private Securities Litigation Reform Act of 1995. These may include statements
projecting, forecasting or estimating Company performance and industry
trends.
The achievement of the projections, forecasts or estimates is subject to
certain
risks and uncertainties. Actual results and events may differ materially
from
those projected, forecasted or estimated. The applicable risks and uncertainties
include general economic and industry conditions that affect all business,
as
well as matters that are specific to the Company and the markets it serves.
Specific
risks to the Company include an inability of the Company to finance its
working
capital needs. In light of this and other uncertainties, the inclusion
of a
forward-looking statement herein should not be regarded as a representation
by
the Company that the Company’s plans and objectives will be
achieved.
CONTROLS
AND PROCEDURES
The
Company’s Chief Executive Officer and Principal Accounting Officer, after
evaluating the effectiveness of the Company’s disclosure controls and procedures
pursuant to Exchange Act Rule 13a-15(e) as of the end of the period covered
by
this report, have concluded that the Company’s disclosure controls and
procedures were effective.
There
were no changes in the Company’s internal controls over financial reporting that
occurred during the Company’s last fiscal quarter to which this report relates
that have materially affected, or are reasonably likely to materially affect,
the Company’s internal controls over financial reporting.