-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Hhds01pGkYyVLCu8gqYnni1pZrt9sg0KYWgTzcM50+eJrUBkZ3hbjlUB2VL9M3/a uxuEHa0XSuiexDAYtgqS/g== 0001137403-05-000010.txt : 20050516 0001137403-05-000010.hdr.sgml : 20050516 20050516170110 ACCESSION NUMBER: 0001137403-05-000010 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20050331 FILED AS OF DATE: 20050516 DATE AS OF CHANGE: 20050516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SENTRY TECHNOLOGY CORP CENTRAL INDEX KEY: 0001030708 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 113349733 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-12727 FILM NUMBER: 05835601 BUSINESS ADDRESS: STREET 1: 350 WIRELESS BLVD CITY: HAUPPAUGE STATE: NY ZIP: 11788 BUSINESS PHONE: 5142322100 MAIL ADDRESS: STREET 1: 350 WIRELESS BLVD CITY: HAUPPAUGE STATE: NY ZIP: 11788 10QSB 1 doc1.txt 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 March 31, 2005 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 96-11-3349733 ---------- ------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1881 Lakeland Avenue, Ronkonkoma, NY 11779 - ------------------------------------------------- ----- (Address of principal executive offices) (Zip Code) 631-739-2000 ------------ (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No - As of May 13, 2005, there were 120,558,804 shares of Common Stock outstanding. SENTRY TECHNOLOGY CORPORATION ----------------------------- INDEX ----- Page No. --------- PART I. FINANCIAL INFORMATION - --------------------------------- Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets -- March 31, 2005 and December 31, 2004 3 Consolidated Statements of Operations -- Three Months Ended March 31, 2005 and 2004 4 Consolidated Statements of Cash Flows -- Three Months Ended March 31, 2005 and 2004 5 Notes to Condensed Consolidated Financial Statements - March 31, 2005 6 - 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 - 12 Item 3. Controls and Procedures 12 PART II. OTHER INFORMATION - ------------------------------ Item 6. Exhibits and Reports on Form 8-K 12 - 13 Signatures 13 PART I. FINANCIAL INFORMATION - --------------------------------- Item 1. Financial Statements (Unaudited) SENTRY TECHNOLOGY CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands)
March 31, December 31, 2005 2004 ----------- -------------- ASSETS - ------------------------------------------------------------- CURRENT ASSETS Cash and cash equivalents . . . . . . . . . . . . . . . . . $ 1,211 $ 1,965 Accounts receivable, less allowance for doubtful accounts of $200 and $338, respectively. . . . . . . . . 2,018 3,500 Inventories . . . . . . . . . . . . . . . . . . . . . . . . 3,736 3,314 Prepaid expenses and other current assets . . . . . . . . . 489 525 ----------- -------------- Total current assets. . . . . . . . . . . . . . . . . . . 7,454 9,304 PROPERTY, PLANT AND EQUIPMENT, net. . . . . . . . . . . . . . 659 689 GOODWILL. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,564 1,564 OTHER ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . 646 690 ----------- -------------- $ 10,323 $ 12,247 =========== ============== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------------------------------- CURRENT LIABILITIES Revolving line of credit and term loan. . . . . . . . . . . $ 1,875 $ 2,640 Accounts payable. . . . . . . . . . . . . . . . . . . . . . 629 799 Accrued liabilities . . . . . . . . . . . . . . . . . . . . 1,177 1,146 Obligations under capital leases - current portion. . . . . 6 5 Deferred income . . . . . . . . . . . . . . . . . . . . . . 85 169 ----------- -------------- Total current liabilities . . . . . . . . . . . . . . . . 3,772 4,759 NOTES PAYABLE . . . . . . . . . . . . . . . . . . . . . . . . 36 189 OBLIGATIONS UNDER CAPITAL LEASES - non-current portion . . . . . . . . . . . . . . . . . . . . 6 8 DEFFERED TAX LIABILITY. . . . . . . . . . . . . . . . . . . . 33 39 CONVERTIBLE DEBENTURES. . . . . . . . . . . . . . . . . . . . 1,873 1,862 MINORITY INTEREST . . . . . . . . . . . . . . . . . . . . . . 1,031 1,045 ----------- -------------- Total liabilities . . . . . . . . . . . . . . . . . . . . 6,751 7,902 SHAREHOLDERS' EQUITY Common stock. . . . . . . . . . . . . . . . . . . . . . . . 121 121 Additional paid-in capital. . . . . . . . . . . . . . . . . 48,780 48,779 Accumulated deficit . . . . . . . . . . . . . . . . . . . . (45,478) (44,718) Equity adjustment from foreign currency translation . . . . 149 163 ----------- -------------- Total shareholders' equity. . . . . . . . . . . . . . . . . 3,572 4,345 ----------- -------------- $ 10,323 $ 12,247 =========== ============== See notes to the condensed consolidated financial statements.
SENTRY TECHNOLOGY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
Three Months Ended March 31, ------------------------------ 2005 2004 -------------------- -------- REVENUES Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,913 $ 1,846 Service, installation and other. . . . . . . . . . . . . . . 580 1,128 -------------------- -------- 2,493 2,974 COSTS AND EXPENSES: Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . 980 941 Customer service expenses. . . . . . . . . . . . . . . . . . 749 1,015 Selling, general and administrative expenses . . . . . . . . 1,221 925 Research and development . . . . . . . . . . . . . . . . . . 233 160 -------------------- -------- 3,183 3,041 -------------------- -------- OPERATING LOSS . . . . . . . . . . . . . . . . . . . . . . . . (690) (67) INTEREST AND FINANCING EXPENSES. . . . . . . . . . . . . . . . 91 125 -------------------- -------- LOSS BEFORE INCOME TAXES AND MINORITY INTEREST . . . . . . . . (781) (192) INCOME TAX (BENEFIT) (17) --- -------------------- -------- LOSS BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . (764) (192) MINORITY INTEREST (4) --- -------------------- -------- NET LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (760) $ (192) ==================== ======== NET LOSS PER SHARE Basic and diluted. . . . . . . . . . . . . . . . . . $ (0.01) $ (0.00) ==================== ======== WEIGHTED AVERAGE SHARES Basic and diluted. . . . . . . . . . . . . . . . . . 120,551 85,756 ==================== ======== See notes to the condensed consolidated financial statements.
SENTRY TECHNOLOGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Three Months Ended March 31, ---------------------------- 2005 2004 -------------------- ------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . $ (760) $(192) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization . . . . . . . . . . . . . . 80 47 Provision for bad debts . . . . . . . . . . . . . . . . . 3 10 Non cash consideration 16 --- Minority interest in net loss of consolidated subsidiary (14) --- Changes in operating assets and liabilities: Accounts receivable . . . . . . . . . . . . . . . . . . . 1,479 (291) Inventories . . . . . . . . . . . . . . . . . . . . . . . (422) (121) Accounts payable and other current assets and liabilities (347) 3 -------------------- ------ Net cash provided by (used in) operating activities. . . . 35 (544) -------------------- ------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (9) --- Intangibles. . . . . . . . . . . . . . . . . . . . . . . . . (1) (3) -------------------- ------ Net cash used in investing activities. . . . . . . . . . . (10) (3) -------------------- ------ CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (payments) under the revolving line of credit and term loan . . . . . . . . . . . . . . . . . (765) 419 Proceeds from bridge loan --- 100 Repayment of obligations under capital leases. . . . . . . . (1) (1) Proceeds from sale of stock, net 1 --- -------------------- ------ Net cash (used in) provided by financing activities. . . . (765) 518 -------------------- ------ EFFECTS OF EXCHANGE RATES ON CASH (14) --- -------------------- ------ DECREASE IN CASH AND CASH EQUIVALENTS. . . . . . . . . . . . . (754) (29) CASH AND CASH EQUIVALENTS, at beginning of period. . . . . . . 1,965 210 -------------------- ------ CASH AND CASH EQUIVALENTS, at end of period. . . . . . . . . . $ 1,211 $ 181 ==================== ====== See notes to the condensed consolidated financial statements.
SENTRY TECHNOLOGY CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 NOTE A -- Basis of Presentation - ------------------------------------ The consolidated financial statements include the accounts of Sentry and its majority-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-QSB. 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 financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Sentry's Annual Report to Stockholders on Form 10-KSB for the fiscal year ended December 31, 2004, as filed with the Securities and Exchange Commission. Certain prior period amounts have been reclassified to conform to current period presentation. NOTE B -- ID Systems Acquisition - ------------------------------------- On April 30, 2004, Sentry purchased from Saburah Investments, Inc., an Ontario corporation, all of the outstanding common shares and Series "A" preference shares of ID Security Systems Canada Inc., an Ontario corporation, and all of the outstanding capital stock of ID Systems USA, Inc., a Pennsylvania corporation (collectively, "ID Systems"). Mr. Peter Murdoch, President, CEO and Director of Sentry, is the owner of Saburah. Effective January 1, 2005, the names of the acquired subsidiaries were changed to Sentry Technology Canada Inc. and Sentry Technology USA Inc. Our condensed consolidated statements of operations include the revenues and expenses of ID Systems in the three month period ending March 31, 2005, but not for the corresponding three month period ended March 31, 2004. The following supplemental pro forma information is presented to illustrate the effects of the acquisition on the historical operating results for the three month period ended March 31, 2004 as if the acquisition had occurred as of January 1, 2004: Three Months Ended March 31, 2004 (in thousands, except per share data) Revenues $ 4,154 Income (loss) before extraordinary item $ (113) Net income (loss) $ (113) Net income (loss) per share $ (0.00) NOTE C -- Inventories - ------------------------ Inventories consist of the following: March 31, 2005 December 31, 2004 ---------------- ------------------- (in thousands) Raw materials $ 1,323 $ 1,206 Work-in-process 298 292 Finished goods 2,115 1,816 ----- ----- $ 3,736 $ 3,314 = ===== = ===== Reserves for excess and obsolete inventory totaled $1,527,000 and $1,528,000 as of March 31, 2005 and December 31, 2004, respectively and have been included as a component of the above amounts. NOTE D -- Credit Facilities - ------------------------------- Balances under credit facilities consist of the following: March 31, 2005 December 31, 2004 ---------------- ------------------- (in thousands) The CIT Group/Business Credit Inc. revolving credit $ 1,051 $ 1,769 Bank of Montreal overdraft lending 675 734 Bank of Montreal non-revolving demand 149 137 --- --- $ 1,875 $ 2,640 = ===== = ===== The Company is currently in the final negotiations with a Canadian commercial bank to replace the facilities listed above with a single global line of credit under terms and conditions substantially in line with the existing facilities. NOTE E -- Related Party Transactions - ----------------------------------------- On January 22, 2004, Robert Furst, a Sentry Director, made a bridge loan to the Company in the amount of $100,000. The interest rate on the loan was 15% per annum and the loan was due on or before April 30, 2004. As additional consideration for the loan, Mr. Furst received a warrant to purchase 300,000 shares of Sentry common stock at a price of $0.17 per share, which was the market price on the date of the grant (valued at $3,000 and charged to interest and financing expenses). The warrant expires on January 21, 2009. The note was repaid in full on April 30, 2004. NOTE F -- Earnings Per Share - --------------------------------- The earnings per share calculations (basic and diluted) at March 31, 2005 and 2004 are based upon the weighted average number of common shares outstanding during each period. There are no reconciling items in the numerator or denominator of the earnings per share calculations in either of the periods presented. Options to purchase 1,299,512 and 1,581,924 shares of common stock with a weighted average exercise price of $0.58 and $0.57 were outstanding at March 31, 2005 and 2004, but were not included in the computation of diluted net loss per share because their effect would be antidilutive. The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123, Accounting for Stock-Based Compensation, requires the disclosure of pro forma net income and earnings per share had the Company adopted the fair value method as of the beginning of fiscal 1995. Under SFAS No. 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Company's stock options awards. These models also require subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model. In 2005, 150,000 options were granted at market price on of the date of the grant. The weighted average fair value of the options granted for the year ended December 31, 2005 is estimated at $0.08, using the Black-Scholes option pricing model with the following weighted average assumptions: expected life of two years; stock volatility, 94% in 2005; risk free interest rates, 4.0% in 2005, and no dividends during the expected term. The Company's calculations are based on a multiple option valuation approach and forfeitures are recognized as they occur. No options were granted in the three month period ended March 31, 2004. If the computed fair values of the post 1995 awards had been amortized to expense over the vesting period of the awards, pro forma net income attributed to common shareholders would have been as follows: Three Months Ended ------------------ March 31, --------- 2005 2004 ---- ---- (In thousands, except per share data) Net loss: As reported $ (760) $ (192) Less stock based compensation expense determined under the fair value method for all awards, net of related tax effects (6) (6) --------- --------- Pro forma $ (766) $ (198) ========= ========= Net loss per share: As reported $ (0.01) $ (0.00) ========= ========= Pro forma $ (0.01) $ (0.00) ========= ========= Note G -- Recent Accounting Pronouncements - ----------------------------------------------- In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment." SFAS No. 123R revises SFAS No. 123 and supersedes Accounting Principles Based Opinion No. 25, "Accounting for Stock Issued to Employees." In April 2005, the SEC announced SFAS 123R would be effective no later than the beginning of the first fiscal year beginning after June 15, 2005. We will adopt the provisions of SFAS No. 123R effective January 1, 2006. SFAS No. 123R requires all share-based payments to employees to be recognized in the financial statements based on fair value. We currently account for share-based payments to employees using APB No. 25's intrinsic value method. Under SFAS No. 123R we will be required to follow a fair value approach, such as the Black-Scholes or lattice option valuation models, at the date of a stock-based award grant. SFAS No. 123R permits one of two methods of adoption: (1) modified prospective method or (2) modified retrospective method. We plan to adopt SFAS No. 123R using the modified prospective method. This method requires that we recognize compensation expense for all share- based payments granted on or after January 1, 2006 and for all awards granted to employees prior to January 1, 2006 that remain unvested on January 1, 2006. The adoption of SFAS No. 123R is not expected to have a material impact the Company's financial position or results of operations. Item 2. Management's Discussion and Analysis of Financial Condition and Results - -------------------------------------------------------------------------------- of Operations. - --------------- Certain Factors That May Affect Future Results - ---------------------------------------------------- Information contained or incorporated by reference in this periodic report on Form 10-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: - ------------------------ On April 30, 2004, Sentry purchased from Saburah Investments, Inc. all of the outstanding common shares and Series "A" preference shares of ID Security Systems Canada Inc., and all of the outstanding capital stock of ID Systems USA, Inc. (collectively, "ID Systems"). ID Systems is a Toronto based company engaged in anti-shoplifting technology, security labeling, radio frequency identification (RFID), access control and library security. Our condensed consolidated statements of operations include the revenues and expenses of ID Systems in the three month period ending March 31, 2005, but not for the corresponding three month period ended March 31, 2004. Effective January 1, 2005, the names of the acquired subsidiaries were changed to Sentry Technology Canada Inc. and Sentry Technology USA Inc. Consolidated revenues were 16% lower in the quarter ended March 31, 2005 than in the quarter ended March 31, 2004. ID Systems' revenues represented $0.9 million of the total revenues for the first quarter ended March 31, 2005. Our backlog of orders, which we expect to deliver within the next twelve months, increased to $2.9 million at March 31, 2005 as compared to $2.2 million at December 31, 2004. The backlog was $3.0 million at March 31, 2004. Total revenues for the periods presented are broken out as follows: Q-1 Q-1 % Change 2005 2004 Incr (Decr) ---- ---- ------------ (in thousands) EAS $ 1,050 $ 494 113 CCTV 313 607 (48) SentryVision 550 745 (26) --- --- ---- Total sales 1,913 1,846 4 Service, installation and other revenues 580 1,128 (49) ------- ------ ----- Total revenues $ 2,493 $2,974 (16) ======= ====== ===== Sentry's comparable historical sales were lower across all product lines. ID Systems sales of $0.9 million represented the majority of the total EAS sales. The prior year historical EAS sales included a higher number of systems as well as a large sale of reusable tags to a domestic customer. In January 2005, we were notified by Lowe's Home Center, our largest customer, that they would not be renewing their maintenance contract for 2005. While the annual value of the maintenance contract was approximately $0.9 million, it contributed towards the selection of vendors for replacement and add-on CCTV business in new and existing Lowe's locations. As a result, revenues from Lowe's decreased from $1.1 million in the first quarter of 2004 to $0.5 million in the first quarter of 2005. We anticipate that this decision may result in a substantial decrease in future revenues from Lowe's on a comparative basis. International sales of SentryVision continued to improve in 2005, but were offset by lower domestic sales to several other customers. Our sales of SentryVision products to our international dealers and distributors are denominated in U.S. dollars, therefore the strengthening of the Euro and other foreign currencies against the U.S. dollar had no significant impact on revenues. While service revenues were approximately the same in 2005 and 2004, installation revenues were significantly lower in the first quarter of 2005 as compared to the first quarter of 2004, due to lower domestic sales of CCTV and SentryVision systems. Even though EAS sales increased substantially, the installation revenues associated with EAS systems are lower than for CCTV and SentryVision sales. Maintenance revenues were lower primarily as a result of cancellation of the Lowe's maintenance contract. Cost of sales were 51% of total sales in the each of the three month periods ended March 31, 2005 and 2004. We continue to see margin improvements in 2005 on Sentry's historical costs as a result of the outsourcing of all significant manufacturing operations. However, as a percentage of sales, the ID Systems cost of sales were higher than Sentry's historical costs as a higher portion of its sales are made through dealers and distributors that carry lower margins than sales made direct to end users. In addition, lower sales volume at our 51% owned labeling subsidiary resulted in underabsorbed overhead resulting in a higher than normal cost of sales percentage. The decrease in customer service expenses in the first quarter of 2005 as compared to the first quarter of 2004 is primarily a result of a decrease in the number of customer service employees and increased the use of outside service contractors in order to better manage our total net customer service costs during fluctuations in activity levels from quarter to quarter. As a result of the loss of the Lowe's maintenance agreement, we terminated an additional twelve customer service employees as of the end of March 2005. Selling, general and administrative expenses increased 32% in the three month period ended March 31, 2005 when compared to the same period of the previous year. ID System expenses represent $389,000 of the total current year expenses. We have made certain administrative expense reductions to help compensate for the expected reduction in Lowe's business. At the same time, we have increased funding of sales and marketing programs, which we expect will increase our business with new and existing customers. The increase in research and development in the first quarter of 2005 when compared to the first quarter of 2004 includes the research efforts of ID Systems and increased prototype costs associated with the development of our new EAS antenna. Total interest and financing costs decreased in the first quarter of 2005 as compared to the first quarter of 2004. The reduction in total costs in the first quarter of 2005 was a result of the convertible debt facility entered into with the Brascan Technology Fund on April 30, 2004, which eliminated the costly financing associated with purchase order financing. The income tax benefit recorded in the first quarter of 2005 is a result of investment tax credits and the utilization of net operating loss carryforwards at one of the Company's subsidiaries. As a result of the foregoing, Sentry had a loss of $760,000 in the quarter ended March 31, 2005 as compared to a loss of $192,000 in the quarter ended March 31, 2004. Liquidity and Capital Resources as of March 31, 2005 At March 31, 2005, we had cash of $1.2 million, working capital of $3.7 million, total assets of $10.3 million and shareholders' equity of $3.6 million. We have eliminated the use of expensive purchase order financing to fund inventory purchases and we are continuing to reestablish credit with new and existing vendors. While we had a loss of $0.8 million in the first quarter of 2005, we generated cash from operating activities in the first quarter of 2005 of $35,000. This was principally due to a reduction of $1.5 million in accounts receivable resulting from lower sales, which was used to fund the purchase of inventory for $0.4 million and payments to creditors of $0.3 million in addition to funding the loss. We utilized $0.8 million in financing activities through a pay down of balances under our credit facilities. Availability under the credit facilities is principally based on the level of our receivables, which declined in the first quarter. As of March 31, 2005, we had borrowings of approximately $1.1 million with CIT, the maximum amount available under the revolving credit facility and $0.8 million with the Bank of Montreal. We are in the final stages of documentation with a Canadian commercial bank to replace the facilities listed above with a single global line of credit under terms and conditions substantially in line with the existing facilities. We are encouraged by the recent increase in orders as well as the increase in backlog at the end of March 2005. Sales reps and international distributors have been added to the sales group plus new print ads and trade show attendance will assist in improving our sales results. We anticipate a return to profitability with the combination of increased sales volume and additional cost cuts in the near term future. We will require liquidity and working capital to finance increases in receivables and inventory associated with sales growth and, to a lesser extent, for capital expenditures. We had no material capital expenditure or purchase commitments as of March 31, 2005. We believe that our anticipated cash needs for the foreseeable future can be funded from cash and cash equivalents on hand, availability under our current and future credit facilities and cash generated from future operations On March 28, 2005, our Board of Directors and a majority of the outstanding shareholders approved an increase in the authorized number of Sentry's common shares from 140,000,000 to 160,000,000, principally in order to meet the requirements of the Brascan Technology Fund investment. Related Party Transactions - ---------------------------- Details of related party transactions are included in Note E of this Form 10-QSB. 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 Chief Executive Officer and Chief 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 Chief Executive Officer and Chief 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. SENTRY TECHNOLOGY CORPORATION PART II - OTHER INFORMATION Item 6 - Exhibits (a) Exhibits: 31.1 - Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 - Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 - Certification by the Chief 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 Chief 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. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant had duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SENTRY TECHNOLOGY CORPORATION ------------------------------- Date: May 13, 2005 By: /s/PETER J. MUNDY -------------- --------------------------------- Peter J. Mundy, Vice President Finance and Chief Financial Officer (Principal Financial and Accounting Officer) SECTION 302 CERTIFICATION: Exhibit 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 Certification of CEO 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 quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant'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)) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant'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 c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant'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 registrant'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 registrant's internal controls over financial reporting. /s/ PETER L. MURDOCH ------------------------------------------------- Peter L. Murdoch President and Chief Executive Officer May 13, 2005 SECTION 302 CERTIFICATION: Exhibit 31.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 Certification of CFO I, Peter J. Mundy, certify that 1. I have reviewed this quarterly report on Form 10-QSB of Sentry Technology Corporation; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant'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)) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant'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 c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant'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 registrant'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 registrant's internal controls over financial reporting. /s/ PETER J. MUNDY ------------------------------------------------- Peter J. Mundy Vice President and Chief Financial Officer May 13, 2005 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 March 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the Report"), I, Peter L. Murdoch, Chief 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: (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 Chief Executive Officer May 13, 2005 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 CFO In connection with the Quarterly Report of Sentry Technology Corporation (the "Company") on Form 10-QSB for the period ended March 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the Report"), I, Peter J. Mundy, Chief 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: (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 J. MUNDY ------------------------------------------------- Peter J. Mundy Vice President and Chief Financial Officer May 13, 2005 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. -----END PRIVACY-ENHANCED MESSAGE-----