**UnitedStatesSecurities and Exchange Commission**

**Washington, D.C.  20549**

 

**FORM 10-QSB**

 

| **ý**                              | **Quarterly Report pursuant to Section 13 or 15(d) of  the Securities Exchange Act of 1934**  |
|-----------------------------------------|-----------------------------------------------------------------------------------------------|
|                                    |
| **For the Quarter Ended June 29, 2002** |
|                                    |
| **o**                                   | **Transition report pursuant to Section 13 or 15(d) of  the Securities Exchange Act of 1934** |
|                                    |
| **Commission  File Number 06425**       |
|                                         |                                                                                               |  |

 

| **Utah**                                                                        |   | **SENTO  CORPORATION**                                            |   | **87-0284979**                        |
|---------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  Jurisdiction of Incorporation or Organization)                 |   | Exact Name of  Small Business Issuer as  Specified in its Charter |   | (I.R.S. Employer  Identification No.) |
|                                                                            |   |                                                              |   |                                  |
|                                                                            |   | **808 East Utah Valley DriveAmerican Fork, Utah 84003**           |   |                                  |
|                                                                            |   | (Address of  Principal Executive Offices)                         |   |                                  |
|                                                                            |   |                                                              |   |                                  |
| Issuer’s  telephone number, including area code:   **(801) 772-1100** |

 

Indicate by check markwhether the issuer (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months(or for such shorter period that the issuer was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days.

 

Yes ý     No o

 

State the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date:

 

| **Class**                             |   | **Outstanding  at July 31, 2002** |
|---------------------------------------|--------|-----------------------------------|
| Common capital  stock  $.25 par value |   | 8,395,766                         |

 

Transitional SmallBusiness Disclosure Format (check one):

 

Yes   o    No   ý

 

 

----

 

**SENTTOCORPORATION**

Quarterly Reporton Form 10-QSB

Quarter ended June29, 2002

 

 

TABLE OF CONTENTS

 
| PART I   | FINANCIAL INFORMATION                                                                                                  |
|----------|------------------------------------------------------------------------------------------------------------------------|
|     |                                                                                                                   |
| Item 1.  | Financial Statements                                                                                                   |
|     |                                                                                                                   |
|     | Condensed Consolidated Balance Sheets (unaudited)  June 29, 2002 and March 30, 2002                                    |
|     |                                                                                                                   |
|     | Condensed Consolidated Statements of Operations (unaudited)  Three months  ended June 29, 2002 and  June 30, 2001 |
|     |                                                                                                                   |
|     | Condensed  Consolidated Statements of  Cash Flows (unaudited)  Three months ended June 29, 2002 and June 30, 2001      |
|     |                                                                                                                   |
|     | Notes  to Condensed Consolidated Financial Statements                                                                  |
|     |                                                                                                                   |
| Item  2. | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                            |
|     |                                                                                                                   |
| PART II. | OTHER INFORMATION                                                                                                      |
|     |                                                                                                                   |
| Item 6.  | Exhibits and  Reports on Form 8-K                                                                                      |
|     |                                                                                                                   |
|     | SIGNATURES                                                                                                             |

 

i

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PART I - FINANCIALINFORMATION

Item 1. Financial Statements

 

**SENTOCORPORATION****AND SUBSIDIARIES**

 

**CondensedConsolidated Balance Sheets**

 
|                                                       |   | **June 29,  2002** |       | **March 30, 2002** |   |
|------------------------------------------------------------|--------|--------------------|------------|--------------------|--------|
|                                                       |   | **(Unaudited)**    |       |               |   |
| **ASSETS**                                                 |   |               |       |               |   |
|                                                       |   |               |       |               |   |
| Current assets:                                            |   |               |       |               |   |
| Cash                                                       |   | $                  | 2,707,737  |               | $      | 1,047,731 |   |
| Short-term investments                                     |   | 818,892            |       | 928,522            |   |
| Accounts receivable (net)                                  |   | 1,279,492          |       | 3,514,487          |   |
| Other current assets                                       |   | 660,388            |       | 790,752            |   |
| Total current assets                                       |   | 5,466,509          |       | 6,281,492          |   |
|                                                       |   |               |       |               |   |
| Property and equipment (net)                               |   | 4,977,648          |       | 5,226,257          |   |
| Other assets                                               |   | 149,056            |       | 124,293            |   |
| Total Assets                                               |   | $                  | 10,593,213 |               | $      | 11,632,042 |   |
|                                                       |   |               |       |               |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**             |   |               |       |               |   |
|                                                       |   |               |       |               |   |
| Current liabilities:                                       |   |               |       |               |   |
| Current portion of long-term debt and capital leases       |   | $                  | 1,618,691  |               | $      | 1,117,838 |   |
| Accounts payable                                           |   | 1,212,921          |       | 1,230,108          |   |
| Accrued liabilities                                        |   | 786,378            |       | 847,292            |   |
| Deferred revenue and other current liabilities             |   | 126,269            |       | 250,668            |   |
| Convertible debt                                           |   | 1,225,185          |       | 1,197,442          |   |
| Total current liabilities                                  |   | 4,969,444          |       | 4,643,348          |   |
|                                                       |   |               |       |               |   |
| Long-term debt and capital leases, net of current  portion |   | 864,718            |       | 1,504,839          |   |
|                                                       |   |               |       |               |   |
| Stockholders’ equity:                                 |   |               |       |               |   |
| Common stock                                               |   | 2,098,943          |       | 2,093,195          |   |
| Additional paid-in capital                                 |   | 10,344,118         |       | 10,322,732         |   |
| Accumulated other comprehensive loss                       |   | (5,010             | )          | (28,772            | )      |
| Accumulated deficit                                        |   | (7,679,000         | )          | (6,903,300         | )      |
| Total stockholders’ equity                            |   | 4,759,051          |       | 5,483,855          |   |
| Total Liabilities and Stockholders’ Equity            |   | $                  | 10,593,213 |               | $      | 11,632,042 |   |

 

1

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**SENTOCORPORATION**

**AND SUBSIDIARIES**

 

**CondensedConsolidated Statements of Operations**

**(Unaudited)**

 
|                                         |   | **Three Months Ended** |      |
|----------------------------------------------|--------|------------------------|-----------|
|                                         |   | **June 29,  2002**     |      | **June 30,  2001** |   |
|                                         |   |                   |      |   |   |
| Revenue                                      |   | $                      | 4,222,734 |   | $ | 6,191,717 |   |
|                                         |   |                   |      |   |   |
| Cost of sales                                |   | 4,310,420              |      | 5,592,285 |   |
|                                         |   |                   |      |   |   |
| Gross profit (loss)                          |   | (87,686                | )         | 599,432 |   |
|                                         |   |                   |      |   |   |
| Selling, general and administrative expenses |   | 587,988                |      | 443,063 |   |
| Operating income (loss)                      |   | (675,674               | )         | 156,369 |   |
|                                         |   |                   |      |   |   |
| Other expense, net                           |   | (100,026               | )         | (65,570 | ) |
|                                         |   |                   |      |   |   |
| Net income (loss)                            |   | $                      | (775,700  | ) | $ | 90,799 |   |
|                                         |   |                   |      |   |   |
| Basic income (loss) per share                |   | $                      | (0.09     | ) | $ | 0.01 |   |
|                                         |   |                   |      |   |   |
| Diluted income (loss) per share              |   | $                      | (0.09     | ) | $ | 0.01 |   |
|                                         |   |                   |      |   |   |
| Weighted average common shares outstanding:  |   |                   |      |   |   |
| Basic                                        |   | 8,395,513              |      | 8,471,004 |   |
| Diluted                                      |   | 8,395,513              |      | 8,595,382 |   |

 

2

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**SENTOCORPORATION**

**AND SUBSIDIARIES**

 

**CondensedConsolidated Statements of Cash Flows**

**(Unaudited)**

 
|                                                                                      |   | **Three Months Ended** |      |
|-------------------------------------------------------------------------------------------|--------|------------------------|-----------|
|                                                                                      |   | **June 29,  2002**     |      | **June 30,  2001** |   |
| Cash flows from operating activities:                                                     |   |                   |      |   |   |
| Net income (loss)                                                                         |   | $                      | (775,700  | ) | $ | 90,799 |   |
| Adjustments to reconcile net income (loss) to net cash  provided by operating activities: |   |                   |      |   |   |
| Depreciation and amortization                                                             |   | 440,978                |      | 434,009 |   |
| Loss (gain) on disposal of assets                                                         |   | 686                    |      | (407 | ) |
| Revaluation of warrants issued for services                                               |   | 7,131                  |      | — |   |
| Accretion on debenture for warrant                                                        |   | 20,642                 |      | 18,016 |   |
| Realized loss on sale of short-term investments                                           |   | 8,806                  |      | — |   |
| Changes in operating assets and liabilities:                                              |   |                   |      |   |   |
| Accounts receivable                                                                       |   | 2,234,995              |      | 1,250,041 |   |
| Other assets                                                                              |   | 99,153                 |      | (145,515 | ) |
| Accounts payable                                                                          |   | (17,187                | )         | (428,901 | ) |
| Accrued liabilities                                                                       |   | (60,914                | )         | (369,557 | ) |
| Deferred revenue and other current liabilities                                            |   | (124,399               | )         | 1,927 |   |
| Net cash provided by operating activities                                                 |   | 1,834,191              |      | 850,412 |   |
| Cash flows from investing activities:                                                     |   |                   |      |   |   |
| Proceeds from sale of short-term investments                                              |   | 132,090                |      | — |   |
| Purchase of short-term investments                                                        |   | (7,504                 | )         | — |   |
| Proceeds from sale of equipment                                                           |   | —                 |      | 13,440 |   |
| Purchase of property and equipment                                                        |   | (18,968                | )         | (874,900 | ) |
| Net cash provided by (used in) investing activities                                       |   | 105,618                |      | (861,460 | ) |
| Cash flows from financing activities:                                                     |   |                   |      |   |   |
| Principal payments on long term debt                                                      |   | (299,806               | )         | (196,001 | ) |
| Issuance of long-term debt                                                                |   | —                 |      | 799,377 |   |
| Purchase of treasury stock                                                                |   | —                 |      | (347,572 | ) |
| Proceeds from stock issued through employee stock  purchase plan                          |   | 20,003                 |      | — |   |
| Proceeds from stock options exercised                                                     |   | —                 |      | 8,384 |   |
| Net cash provided by (used in) financing activities                                       |   | (279,803               | )         | 264,188 |   |
| Net increase in cash                                                                      |   | 1,660,006              |      | 253,140 |   |
| Cash at beginning of period                                                               |   | 1,047,731              |      | 3,575,740 |   |
| Cash at end of period                                                                     |   | $                      | 2,707,737 |   | $ | 3,828,880 |   |
|                                                                                      |   |                   |      |   |   |
| Supplemental  disclosures of cash flow information                                        |   |                   |      |   |   |
| Cash paid for:                                                                            |   |                   |      |   |   |
| Interest                                                                                  |   | $                      | 96,637    |   | $ | 96,556 |   |

 

Non-cashinvesting and financing activities:

 

During the three monthsended June 29, 2002, equipment totaling $160,538 was purchased through acapital lease.

 

3

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**SENTOCORPORATION**

**AND SUBSIDIARIES**

 

**Notesto Condensed Consolidated Financial Statements**

**June 29, 2002**

**(Unaudited)**

 
| A.     |   | BASIS OF PRESENTATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |
|   |   | The accompanying  unaudited condensed consolidated financial statements are stated in  accordance with the instructions to Form 10-QSB and do not include all of the  information and footnotes required by generally accepted accounting  principles 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.                                                                                                                                                                                                                                                                       |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |
|   |   | Operating results for  the three months ended June 29, 2002 are not necessarily indicative of the  results that may be expected for the full fiscal year.  The unaudited condensed consolidated  financial statements should be read in conjunction with the audited  consolidated financial statements and footnotes thereto included in the  Company’s Annual Report on Form 10-KSB for the year ended March 30, 2002.                                                                                                                                                                                                                                                                                              |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |
| B.     |   | SHORT TERM INVESTMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |
|   |   | The Company’s  short-term investments are classified as available-for-sale securities and  are recorded at market value. As of June 29, 2002, the Company had unrealized  losses on these short-term investments of $5,010, recorded as other  comprehensive loss in stockholders’ equity.   As of June 29, 2002, the Company’s short-term investments were  comprised of mutual funds.                                                                                                                                                                                                                                                                                                                     |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |
| C.     |   | EQUPIMENT FINANCING                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |
|   |   | In April 2002, the  Company purchased $160,538 of equipment under a capital lease.  The lease calls for monthly payments of  $4,174 over four years and has one-dollar purchase option at the end of the  lease term.  The net present value of  future lease obligations is included in long-term debt and capital leases on  the Company’s balance sheet.                                                                                                                                                                                                                                                                                                                                                      |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |
| D.     |   | COMMON STOCK                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |
|   |   | Three months ended June 29, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
|   |   | A total of 22,993  shares of common stock were sold to employees under the Company’s Employee  Stock Purchase Plan during the three months ended June 29, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |
|   |   | Three months ended June 30, 2001                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
|   |   | During the three months  ended June 30, 2001, options to purchase 4,791 shares of common stock were  exercised.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |
|   |   | There were 143,200  shares of common stock repurchased during the three-month period ended June  30, 2001 at a total cost of  $347,572  pursuant to a stock repurchase program approved by the Board of Directors in  September 2000.  The repurchase  program authorized the repurchase of up to $1,000,000 of the Company’s common  stock.  The repurchase was conditioned  upon the Company’s having cash balances of at least $3,500,000 and $3,000,000  of unused bank line of credit immediately prior to the purchase of  stock.  Through June 29, 2002, the  Company has repurchased a cumulative total of 289,695 shares of the Company's  common stock under this program for $702,000. |   | Through June 29, 2002, the Company has repurchased a  cumulative total of 289,695 shares of the Company’s common stock under this  program for $702,000. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |
|   |   | As of October  16, 2001, the Board of Directors unanimously called for the cessation of the  common stock buyback program, as it was determined the Company’s resources  would be better used on selling and marketing efforts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |

 

4

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| **E.** |   | **INCOME  (LOSS) PER SHARE**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   | Income (loss) per share  is computed in accordance with Financial Accounting Standards Board Standard  128, “Earnings Per Share.”  Basic  income (loss) per share is computed by dividing net income (loss) by the  weighted average number of shares of common stock outstanding for the period.  Diluted income (loss) per share reflects  the potential dilution that could occur from shares of common stock issuable  through stock options, warrants and other convertible securities, if  dilutive.  Options and warrants to  purchase 65,565 shares of common stock have not been included in the calculation  of diluted common stock outstanding for the three months ended June 29, 2002,  because to do so would be anti-dilutive.   Shares issuable pursuant to convertible debentures (257,400 shares)  have not been included in the calculations of diluted common stock  outstanding for the three months ended June 29, 2002 and June 30, 2001 as to  do so would be anti-dilutive. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   | The following tables  set forth the computation of basic and diluted income (loss) per share for  the three months ended June 29, 2002 and June 30, 2001:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

 
|                                                                                                  |   | **Three  Months Ended** |     |
|-------------------------------------------------------------------------------------------------------|--------|-------------------------|----------|
|                                                                                                  |   | **June 29,  2002**      |     | **June 30,  2001** |   |
|                                                                                                  |   |                    |     |   |   |
| Net  income (loss)                                                                                    |   | $                       | (775,700 | ) | $ | 90,799 |   |
| Denominator  for basic income per share – weighted average shares                                |   | 8,395,513               |     | 8,471,004 |   |
| Dilutive  common stock options and warrants                                                           |   | —                  |     | 124,378 |   |
| Denominator  for diluted income per share– weighted average common and common  equivalent shares |   | 8,395,513               |     | 8,595,382 |   |
|                                                                                                  |   |                    |     |   |   |
| Basic  income (loss) per share                                                                        |   | $                       | (0.09    | ) | $ | 0.01 |   |
|                                                                                                  |   |                    |     |   |   |
| Diluted  income (loss) per share                                                                      |   | $                       | (0.09    | ) | $ | 0.01 |   |

 
| **F.** |   | **LINE  OF CREDIT AND LONG-TERM DEBT**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   | The Company has a  revolving line-of-credit agreement with a bank.  The Company can draw up to $3,000,000 under the agreement,  subject to eligible receivable balances and reduced by the net balances of term  loans outstanding with the bank (as of June 29, 2002, the Company had  $1,134,000 of outstanding term loans with the bank and had insufficient  accounts receivable to allow any borrowings under the revolving line of  credit).  The Company also maintains term  loans related to the purchase of equipment with the same bank.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   | The line of credit and  the term loan agreements subject the Company to certain restrictive  covenants, including minimum liquidity and debt service positions and monthly  net income.  The Company was in  compliance with its covenants at June 29, 2002; however, if the Company: 1)  is unsuccessful in its efforts to refinance or replace its current debentures  with other long-term financing or is unable to generate net income for the  month of August; and 2) is unable to obtain a waiver related to its  covenants, the Company will be in default on its debt covenants.  Upon a default, pursuant to the terms of  the credit agreement, the Company would not be able to draw amounts on its  line of credit and any outstanding balances on its line of credit and term  loans would become callable and due upon demand, at the option of the  bank.  The default would also trigger  cross default provisions on certain other debt issued by the Company.  However, the bank has not given the  Company any indication that it intends to call the loans if the Company  becomes in default on its covenants.   Based on the probability of a default on its covenants in the second  quarter of fiscal 2003, the Company has reclassified the term loans and other  certain debt as current liabilities as of June 29, 2002. |

 

5

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Item 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations.

 

**General**

 

Using state-of-the-art Portal Services and CustomerContact Solutions Centers, Sento provides domestic and international supportservices to Fortune 1000 companies, multinational companies, productmanufacturers and software publishing companies.  By allowing companies to focus on their core business, Sentohelps its clients reduce headcount, eliminate unnecessary capital expenditures,and improve the experience for the customer.

 

**CriticalAccounting Policies**

 

Sento’s significant accounting policies are describedin Note 2 to Sento’s Consolidated Financial Statements for the year ended March30, 2002. These financial statements were prepared in accordance withaccounting principles generally accepted in the United States and are includedin Sento’s Form 10-KSB which has been filed with the Securities and ExchangeCommission.  Included within thesepolicies are the Company’s “critical accounting policies.”  Critical accounting policies are those policiesthat are most important to the preparation of the Company’s consolidated financialstatements and require management’s subjective and complex judgments due to theneed to make estimates about the effect of matters that are inherentlyuncertain.  The Company’s criticalaccounting policies relate to revenue recognition, credit risk and stock-basedcompensation.  The application of theseaccounting policies involves the exercise of judgment and the use ofassumptions as to future uncertainties and, as a result, actual results coulddiffer materially from these estimates.

 

The development and selection of these criticalaccounting policies have been discussed with the Audit Committee.  Such policies are reviewed periodicallyduring each year by the Audit Committee.

 

*RevenueRecognition.* Revenue is generally recognized when persuasive evidenceof an arrangement exists, delivery of services has occurred, the fee is fixedor determinable, and collection of the resulting receivable is reasonablyassured.  Certain of the Company’scustomer support services are delivered over a period of time.  Revenue associated with these services isdeferred until the customer support is completed and Sento has no remainingobligation to provide further support services.

 

*CreditRisk.*In the normal course of business, the Company providesunsecured credit terms to its customers. Accordingly, the Company performs ongoing credit evaluations of itscustomers and maintains allowances for possible losses.  Except for the significant losses incurredduring the fourth quarter of fiscal 2001, the Company’s credit losses havegenerally been within management’s expectations.  However, there can be no assurance that the Company’s futurecredit losses will be within management’s expectations.  In addition, the Company’s revenues andaccounts receivable are concentrated in a relatively few number ofcustomers.  A significant change in theliquidity or financial position of any one of these customers or a furtherdeterioration in the economic environment, in general, could have an adverseimpact on the collectability of the Company’s accounts receivable and theCompany’s future operating results.

 

*Stock– Based Compensation.* Statement of Financial AccountingStandards No. 123, *Accounting for Stock Based Compensation*(SFAS 123) encourages entities to adopt a fair value based method of accountingfor stock options or similar equity instruments.  However, it also allows an entity to continue measuringcompensation cost for stock based compensation using the intrinsic-value methodof accounting prescribed by Accounting Principles Board Opinion No. 25, *Accountingfor Stock Issued to Employees* (APB 25).  The Company has elected to continue to apply the provisions ofAPB 25 and provide pro forma disclosures required by SFAS 123 in the footnotesto the consolidated financial statements. Sento also issues equity-based incentive compensation to non-employeesfrom time to time.  Pursuant to EmergingIssues Task Force (EITF) 96-18, *Accounting for Equity Instruments that are Issued toOther than Employees for Acquiring or in Conjunction with Selling Goods orServices*, Sento accounts for these arrangements based on the fairvalue of the equity instrument issued. The fair value of such instruments is measured each quarter as therelated goods or services are provided. The resulting change in value of the instrument is either charged orcredited to income.

 

6

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**Results of Operations**

 

**Three Months Ended June 29,2002 Compared to Three MonthsEnded June 30, 2001**

 

*Revenues.*  Revenues decreased $1,969,000, or 32%, from$6,192,000 for the three months ended June 30, 2001 to $4,223,000 for the threemonths ended June 29, 2002.  The primarycontributor to the reduction in revenue is the loss of the Company’s largestrevenue generating client, a major computer OEM, which asked Sento toward theend of calendar 2001 for a reduction in rates of more than 30%.  This client accounted for $1,873,000, or30%, of revenues for the three months ended June 30, 2001 and only $141,000, or3%, of revenues during the three months ended June 29, 2002.  Sento declined the client’s requested ratereduction, as did eight other outsource centers of competitors of Sento, whoalso were supplying outsorced call center services to this client.  To accept the lower rate would have put theCompany into a loss position with this client, although the revenue would havecovered some fixed overhead costs.  Theloss of this large customer will likely continue to have a significant adverseimpact on Sento’s revenues and operating results if the business is notreplaced.

 

Currently, the Company has excess capacity availableto service additional call volume.  Thiscapacity was built in anticipation of higher demand for the Company’sservices.  However, with the currenteconomic recession, it is difficult to predict the Company’s ability to fillthis excess capacity with new business in the near future or at all.

 

*Costof Sales.*  Cost ofsales decreased 23%, or $1,282,000, from $5,592,000 for the three months endedJune 30, 2001 to $4,310,000 for the three months ended June 29, 2002.  This decrease in cost of sales wasprincipally attributable to decreased customer support call volume and a shiftfrom traditional call center support to Portal Services support, which has alower cost.  Gross profit as apercentage of revenues decreased by twelve percentage points, from 10% ofrevenues during the three months ended June 30, 2001 to a minus 2% of revenuesfor the three months ended June 29, 2002. The decrease in gross margin was primarily due to the Company’s excesscapacity and the failure to generate sufficient revenue to cover the Company’sfixed costs.

 

The June quarter has traditionally been the Company’sslowest quarter and, with the loss of the major customer discussed above, theCompany anticipated a net loss slightly higher than the actual net loss for thequarter.  The Company anticipates low,though improving, call volume during the quarter ending September 28, 2002.  However, actual call volumes will be subjectto a number of factors beyond Sento’s control, including general economic andindustry conditions.  An increase incall volumes, if achieved, would result in higher absorption of overhead andfixed costs, which would likely result in improved gross margin percentages.

 

*Selling,General and Administrative Expenses.*  Selling, general and administrative expensesincreased by 33%, or $145,000, from $443,000 for the three months ended June30, 2001 to $588,000 for the three months ended June 29, 2002.  This increase was primarily due to increasedmarketing efforts.  Managementanticipates that selling, general and administrative expenses will increase infuture periods as a result of increased selling efforts to improve revenues.

 

*OtherExpense (net).*  Duringthe three months ended June 29, 2002, the Company recorded other expense (net)of $100,000, as compared to $66,000 during the three months ended June 30,2001.  The net increase in expense of$34,000 was primarily due to increased interest expense incurred fromadditional borrowings.

 

**Liquidity and Capital Resources**

 

Cash and short-term investment balances increased 79%,or $1,551,000, from $1,976,000 at March 30, 2002 to $3,527,000 at June 29,2002. The primary cause for the increase in cash and short-term investments wasthe collection of accounts receivable. **  **Due,in part, to the accelerated collection of accounts receivable, as well as thedecline in revenues for the three months ended June 29, 2002, accountsreceivable declined $2,235,000 from March 30, 2002 to June 29, 2002. Workingcapital decreased 70%, or $1,141,000, to $497,000 at June 29, 2002 from$1,638,000 at March 30, 2002.

 

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The Company has contractual obligations, includingdebt agreements and leases that will require the use of substantial amounts ofcash over time.  The following tablesets forth the Company’s contractual obligations as of June 29, 2002:

 
| **Contractual Obligations:**                      |   | **Payments  Due by Period** |       |
|---------------------------------------------------|--------|-----------------------------|------------|
|                                              |   | **Under 1  Year**           | ** ** | **1–3 Years** | ** ** | **4–5 Years** | ** ** | **After 5  Years** | ** ** | **Total** | ** ** |
| Long  Term Debt (principal only) (1)              |   | $                           | 1,454,000  |   | $ | 430,000 |   | $ | — |   | $ | — |   | $ | 1,884,000 |   |
| Convertible  Debentures (2)  (including interest) |   | 1,353,000                   |       | — |   | — |   | — |   | 1,353,000 |   |
| Capital  Leases                                   |   | 225,000                     |       | 419,000 |   | 77,000 |   | — |   | 721,000 |   |
| Operating  Leases                                 |   | 910,000                     |       | 1,846,000 |   | 496,000 |   | — |   | 3,252,000 |   |
| Unconditional  Purchase Obligations               |   | 70,000                      |       | — |   | — |   | — |   | 70,000 |   |
| Total Contractual Cash  Obligations               |   | $                           | 4,012,000  |   | $ | 2,695,000 |   | $ | 573,000 |   | $ | — |   | $ | 7,280,000 |   |

 

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(1)             A substantial portionof the Company’s long-term debt carries a variable interest rate that is tiedto the bank’s treasury rate.  Theremaining debt carries interest rates ranging from 6.7% to 10.9%.

 

(2)             Assumes debentureswill not be converted into shares Sento’s of common stock.

 

In addition to the above contractual obligations, theCompany is contingently liable for an equipment lease that was assumed byEchopass Corporation.  The total amountdue under this lease through June 2003 is $182,000.  The total amount due thereafter under this lease is $74,000.

 

At present, management believesthe Company is able to meet its current obligations (including the currentportion of its long-term obligations) as they come due; however, as discussedabove, the Company has experienced a significant decrease in revenues, and,unless the Company is successful in its efforts to replace the lost revenues,it may be unable to meet its obligations as they become due.

 

The Company has an unused $3 million revolving line ofcredit.  Effective April 15, 2002 thiscredit line was renewed through the execution of a loan modificationagreement.  This credit line is limitedto eligible receivable balances and by the net balance of the Company’s termloans outstanding with the bank (as of June 29, 2002, the Company had$1,134,000 of outstanding term loans with the bank and had insufficientaccounts receivable balances to allow any borrowing under the revolving line ofcredit).  The Company also maintainsterm loans related to the purchase of equipment with the same bank.  The line of credit and term loan agreementscall for the Company to maintain certain financial covenants.  If the Company; 1) is unsuccessful in itsefforts to refinance or replace its current debentures with other long-termfinancing or is unable to generate net income for the month of August; and 2)is unable to obtain a waiver related to its covenants, the Company will be indefault on its debt covenants.  Upon adefault, pursuant to the terms of the credit agreement, the Company would notbe able to draw amounts on its line of credit and any outstanding balances onits line of credit and term loans would become callable and due upon demand, atthe option of the bank.  The defaultwould also trigger cross default provisions on certain other debt issued by theCompany.  However, the bank has notgiven the Company any indication that it intends to call the loan if theCompany becomes in default on its covenants. Based on the probability of a default on its covenants in the secondquarter of fiscal 2003, the Company has reclassified the term loans and othercertain debt as current liabilities as of June 29, 2002.  The Company is engaged in negotiations witha company that proposes to purchase a new issue of convertible subordinateddebentures with a June 30, 2005 maturity date. Proceeds from the new debentures, if realized, would be used to retirethe current outstanding debentures. Management hopes to complete the sale of the new debentures by September30, 2002; however, the Company has not entered into a binding agreementrelating to the sale of such debentures, and there can be no assurance that thetransaction will be completed by such date or at all.

 

Historically the Company’s primary sources ofliquidity have been cash received from sales of assets and cash providedthrough private sales of equity and debt, as well as borrowings under a bankline of credit. During the two years ended March 30, 2002 and the quarter endedJune 29, 2002, liquidity and cash were also provided by positive cash flow fromoperations.  In addition, the Companyhas financed some of the equipment utilized in its business through long-termleasing and loan arrangements.  However,leasing and other financing companies have

 

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become much more restrictive in providing financing because of theeconomic recession, making it more difficult for the Company to obtainequipment financing.  The growth of theCompany has consumed substantial amounts of cash, and the Company will be requiredto obtain additional financing to sustain current operations and to fund futureanticipated growth.  In the event theCompany is not able to find additional sources of funding and enter intofinancing transactions on reasonable terms, its ability to sustain currentoperations and to pursue its planned business growth strategy may belimited.  There can be no assurance thatthe Company will be able to obtain necessary capital funding on terms favorableto the Company, if at all.

 

*The statements contained in thisQuarterly Report on Form 10-QSB that are not purely historical are“forward-looking statements” within the meaning of Section 27A of theSecurities Act of 1933, as amended, and Section 21E of the Securities ExchangeAct of 1934, as amended.  All forward-lookingstatements involve various risks and uncertainties.  Forward-looking statements contained in this Report includestatements regarding the Company’s plans to develop and deliver integratedinformation technology services, market opportunities and acceptance,expectations, goals, revenues, financial performance, strategies, mission andintentions for the future.  Suchforward-looking statements are included under. “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” and encompassSento’s beliefs, expectations, hopes or intentions regarding futureevents.  Words such as “expects,”“believes,” “anticipates,” “should,” and “likely” also identify forward-lookingstatements. All forward-looking statements included in this Report are made asof the date hereof, based on information available to the Company as of suchdate, and the Company assumes no obligation to update any forward-lookingstatement.  It is important to note thatsuch statements may not prove to be accurate and that the Company’s actualresults and future events could differ materially from those anticipated insuch statements.  Among the factors thatcould cause actual results to differ materially from the Company’s expectationsare those described under “Management’s Discussion and Analysis of FinancialCondition and Results of Operations---Risks Related to Existing and ProposedOperations.”  All subsequent written andoral forward-looking statements attributable to the Company or persons actingon its behalf are expressly qualified in their entirety by this section andother factors included elsewhere in this Report.*

 

**RisksRelated to Existing and Proposed Operations**

 

In addition to other information in this Report, thefollowing are important factors that should be considered carefully inevaluating the Company and its business.

 

*VolatileEconomic Conditions Have Affected and Will Likely**Continue toAffect Sento’s Operations and Financial Results*.  Volatile economic conditions have adverselyaffected Sento’s operations and financial results.  The slowing economy has resulted in increased pricing pressuresand lower call volumes from existing clients, and may have limited Sento’sability to attract new clients.  Thesefactors have contributed to a decline in Sento’s revenues and net income andhave resulted in Sento’s excess capacity to service call volumes.  A substantial percentage of Sento’s expensesis attributable to labor costs associated with staffing Customer ContactSolutions Centers, which Sento may not be able to reduce on short notice inorder to compensate for unexpected shortfalls in call volumes.  Sento cannot forecast future fluctuations ineconomic conditions, and its operations and financial results may be materiallyand adversely affected by continued economic volatility.

 

*Dependenceon Key Clients.*  Fourclients accounted for approximately 72% of the Company’s revenues for the threemonths ended June 29, 2002. These four clients accounted for approximately 36%,13%, 12%, and 11%, respectively of revenues for the first quarter of fiscal2003. The Company’s largest client during fiscal 2002 terminated itsrelationship with Sento in April 2002. The loss of this client has had a significant adverse impact on Sento’soperations and will likely have a significant adverse impact on Sento’srevenues and net income during the remainder of fiscal 2003, if the business isnot replaced.

 

Consistent with industry standards, Sento’s contractsare generally cancelable by the client on short-term notice.  Sento’s loss of a significant amount ofbusiness with any of its key clients could have, and the loss of a substantialamount of business with any of its largest existing technical support clientswould have, a material adverse effect on Sento’s business, financial condition,and results of operations.  In addition,Sento’s future revenue growth is dependent upon its ability to attract andretain new clients.

 

*CreditRisk.*  In the normalcourse of business, the Company provides unsecured credit terms to itscustomers.  Accordingly, the Companyperforms ongoing credit evaluations of its customers and maintains allowancesfor possible losses.  Except for thesignificant losses incurred during the fourth quarter of fiscal 2001, theCompany’s credit losses have generally been within management’sexpectations.  However, there can be noassurance that the Company’s future credit losses will be within management’sexpectations.  In addition, the 

 

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Company’s revenues and accounts receivable are concentrated in arelatively few number of customers.  Asignificant change in the liquidity or financial position of any one of thesecustomers or a further deterioration in the economic environment, in general,could have an adverse impact on the collectability of the Company’s accountsreceivable and the Company’s future operating results.

 

*Risksof Growth Strategy*. Sento’s business strategy is premised, in part, upon expansion of itsoperations by opening customer contact facilities, or partnering or developingstrategic alliances with other customer contact providers in strategiclocations throughout the U.S. and foreign countries.  Substantial risks accompany Sento’s growth plans.  For example, Sento’s growth plans aredependent upon its ability to attract and retain new clients.  Sento’s failure to attract and retain newclients will not only prevent the implementation of its business strategy, butmay leave Sento with excess personnel and physical facilities, which would havea negative impact on Sento’s results of operations and financial condition.

 

Sento’s growth plans are also subject to fluctuationsin technology and industry standards, changes in customer requirements andpreferences and general economic conditions, among other factors.  Many of these factors are beyond Sento’scontrol.  If Sento is incorrect in itsassessment of the feasibility of its growth plans, or if circumstances changein a way that Sento did not foresee or anticipate, Sento may not be able togrow as planned or its growth strategy may have an adverse effect on itsbusiness operations and financial condition.

 

*Relianceon a Software Company for Chat and Email applications*.  Sento contracts with a software company toprovide chat and email tools used with Sento’s CRM software, reporting andmanagement services.  If this softwarecompany fails in its business efforts, Sento may be required to identify andretain one or more alternate third-party providers of such services and couldexperience service delays, interruptions or cancellations.

 

*ChangingNeeds of the Customer Contact Service Market*.  The customer contact service industry ischaracterized by rapid technological change, changes in customer requirementsand preferences, and the emergence of new industry standards and practices thatcould render Sento’s existing and proposed products, services, technology andsystems obsolete.  To remaincompetitive, Sento must continually improve the performance, features, andreliability of its products and services, including its existing customercontact service applications, and develop new products and services thataddress the increasingly sophisticated and varied needs of its prospectivecustomers.  If Sento cannot adapt orrespond in a cost-effective and timely manner to changing industry standards,market conditions, or customer requirements, its business and operating resultswould suffer and could negatively impact Sento’s financial condition.

 

Sento’s success may also depend in part on its abilityto develop solutions that keep pace with continuing changes in informationtechnology, evolving industry standards, and changing client requirements.  There can be no assurance that Sento will besuccessful in adequately addressing these developments on a timely basis orthat, if these developments are addressed, Sento will be successful in themarketplace.  In addition, there can beno assurance that products or technologies developed by others will not render Sento’sservices non-competitive or obsolete. Sento’s failure to address these developments could have a materialadverse effect on its business and financial condition.

 

*Competition*.  The market for customer contact services ishighly fragmented and very competitive. The customer contact services industry, however, has begun to experiencea degree of consolidation, and the existence of major customer contact centercompanies has resulted in an additional level of competition from serviceproviders that have greater name recognition, larger installed customer bases,and significantly greater financial, technical, and marketing resources thanSento.  Over the past several years, anumber of existing companies have enjoyed increasing success and rapid internalgrowth.  Several of these companies havebeen active in acquiring smaller regional customer contact services companiesand are becoming major competitors with a measurable share of this rapidlyexpanding market.  Also, many majorcompanies provide their own in-house customer care support and customertraining.

 

Sento cannot provide any assurance that better andmore efficient services will not be provided by new or existing customercontact service providers in competition with Sento.  The services provided by such competitors may be more effectiveor less expensive than those provided by Sento.  There can be no assurance that Sento will improve, refine orenhance the services it provides.

 

*Competitionin Customer Contact Services Market*.  The customer contact services market isrelatively new and intensely competitive. There are no substantial barriers to entry, and established or newentities may enter this market in the near future.  Furthermore, established enterprise software companies, includingIBM, Hewlett-Packard

 

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Company, Microsoft Corporation, and similar companies, may leveragetheir existing relationships and capabilities to offer customer serviceapplications.  Although Sento was arelatively early entrant in the customer contact services market, any delays inmarket acceptance of customer contact service applications in general, orSento’s proposed products and services in particular, would likely harm Sento’scompetitive position.  Delays wouldallow Sento’s competitors additional time to improve their service or productofferings, and also provide time for new competitors to develop e-businesscustomer service applications and solicit prospective clients within Sento’starget markets. Increased competition could result in pricing pressures,reduced operating margins and loss of market share.

 

*Riskof Emergency Interruption of Customer Contact Solutions Center Operations*.  Sento’s business depends to a large extenton computer and telecommunications equipment and software systems (bothequipment and systems maintained by Sento and equipment and systems maintainedby third parties).  Sento cannot provideany assurance that natural disaster, human error, equipment malfunction orinadequacy, or other events would not result in a prolonged interruption inSento’s ability to provide support services to its clients.  The temporary or permanent loss of computeror telephone equipment or systems, through casualty, operating malfunction orotherwise, could have a material adverse effect on Sento.  Property and business interruption insurancemay not be adequate to compensate Sento for all losses that it may incur.

 

*Attracting,Training, and Retaining Quality Management and Employees*.  Sento’s success will depend, in large part,on its ability to attract, retain and train highly qualified technical,managerial and marketing personnel with the required expertise.  Sento has not entered into employmentagreements that require the services of any of its key managerial or technicalpersonnel to remain with Sento for any specified period of time.  There can be no assurance that Sento will beable to attract and maintain the personnel necessary for the development andoperation of its business or that it will be able to train its currentemployees on new developments in technology. Specifically, the loss of any key personnel or an inability to attract,retain, train or motivate qualified personnel could have a material adverseeffect on the business, financial condition and results of operations of Sento.

 

In addition, Sento’s total employee count hasfluctuated from approximately 585 as of March 31, 2000 to approximately 953 asof December 31, 2000, and has decreased to approximately 210 as of July 31,2002.  The support required for one ofthe Company’s largest clients is seasonal. There is, therefore, a necessity for very rapid increases in employeesand subsequent decreases in the number of employees as the requirements forsupport change.  The Company cannotprovide any assurance that its current management team can successfully manageSento’s rapidly evolving business, and any failure to do so could have amaterial adverse effect upon Sento’s operating results.

 

*Liquidityand Capital Resources*. At June 29, 2002, Sento had working capital of $497,000 (representing adecline of 70% from March 30, 2002) while cash and short term investmentbalances increased $1,551,000, or 79%, from $1,976,000 as of March 30, 2002 to$3,527,000 as of Jun 29, 2002.  Futuregrowth, particularly growth in excess of planned growth, will depend on theCompany’s ability to obtain financing. The historic growth rate of Sento’s Customer Contact Solutionsoperations has consumed substantial amounts of cash and will continue torequire significant capital investment. The Company may be required to pursue additional funding opportunitiesto fund future growth should it accelerate in excess of historical and plannedfuture growth.  In the event the Companyis not able to find such alternate sources of funding, its ability to pursueits planned business strategy may be limited. There can be no assurance that the Company will be able to obtainnecessary capital funding on terms favorable to the Company, if at all.

 

Furthermore, the terms of the Company’s line of creditand term loan agreements are subject to certain restrictive covenants,including minimum liquidity, debt service positions and monthly netincome.  As of June 29, 2002, theCompany had insufficient accounts receivable balances to allow any borrowingsunder the revolving line of credit.  Ifthe Company; 1) is unsuccessful in its efforts to refinance or replace itscurrent debentures with other long-term financing or is unable to generate netincome for the month of August; and 2) is unable to obtain a waiver related to itscovenants, the Company will be in default on its debt covenants.  Upon a default, pursuant to the terms of thecredit agreement, the Company would not be able to draw amounts on its line ofcredit and any outstanding balances on its line of credit and term loans wouldbecome callable and due upon demand, at the option of the bank.  The default would also trigger cross defaultprovisions on certain other debt issued by the Company.  However, the bank has not given the Companyany indication that it intends to call the loan if the Company becomes indefault on its covenants.

 

*Dependenceon Industry Trend to Outsource Services*.  Sento’s business depends in large part onthe trend within the IT industry to outsource certain services. Sento cannotprovide any assurance that this trend will continue

 

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or that, if the trend continues, it will continue at the same rate ofgrowth.  The failure of this trend tocontinue could have a material adverse effect on the business, financialcondition, and results of operations of Sento.

 

*PotentialSignificant Fluctuations in Quarterly Results*.  The value of individual transactions canconstitute a substantial percentage of Sento’s quarterly revenue, andparticular transactions may generate a substantial portion of the operatingprofits for a quarter.  Because Sento’sstaffing and other operating expenses are based on anticipated revenue levels,and a high percentage of its expenses are fixed, delays in the receipt oforders can cause significant variations in operating results from quarter toquarter.  In addition, Sento may expendsignificant resources pursuing potential sales that will not be consummated.  Sento also may choose to reduce prices or toincrease spending in response to competition or to pursue new marketopportunities, which may adversely affect its operating results.

 

In particular, Sento’s quarterly revenues from itsCustomer Contact Solutions Center operations are potentially volatile.  Such revenues are principally a function ofthe number of support requests received by Sento, and the time spent on suchrequests.** **Consequently, Sento’sprofitability may be adversely affected if Sento receives fewer supportrequests than anticipated or the time spent in resolving inquiries is greaterthan anticipated.

 

For the reasons identified above, management believesthat period-to-period comparisons of Sento’s results of operations may not bemeaningful and that no one should rely upon them as an indication of future performance.  Furthermore, Sento cannot provide anyassurance that it will be able to achieve or sustain profitability on aquarterly basis.

 

*Volatilityof Stock Price*.  Thetrading price of Sento’s common stock has fluctuated widely in response tovariations in quarterly operating results, announcements by Sento or itscompetitors, industry trends, general economic conditions or other events orfactors.  Such fluctuations, as well asfluctuations in the trading volume of the common stock, may continue in thefuture.  Regardless of the generaloutlook for Sento’s business, the announcement of quarterly operating resultsbelow analyst and investor expectations could have a material and adverseeffect on the market price of the common stock.

 

Furthermore, the bid for Sento’scommon stock was below $1.00, the minimum bid price for continued listing onthe Nasdaq Small Cap Market, throughout most of the three months ended June 29,2002.  If the bid price for the commonstock does not rise above $1.00 and remain above that level on a consistentbasis, the Company may lose its listing privileges on the Nasdaq Small CapMarket, and may be forced to find another forum for trading of its commonstock.  The Company values its listingon the Small Cap Market, and will seek to remain in compliance with theapplicable listing qualification standards; however, the price of the commonstock is determined by a number of factors, including general economic andmarket conditions, industry trends and public perception, many of which arebeyond the Company’s control.

 

*Anti-TakeoverConsiderations.* Sento’s Articles of Incorporation and Bylaws, the Utah Revised BusinessCorporation Act, and the Utah Control Shares Acquisition Act each containcertain provisions that may have the effect of inhibiting a non-negotiatedmerger or other business combination. Sento’s Articles of Incorporation grant to the Board of Directors theauthority, without further action by Sento’s shareholders, to fix the rightsand preferences of, and issue shares of preferred stock.  These provisions may deter hostile takeoversor delay or prevent changes in control of Sento or changes in Sento’smanagement, including transactions in which shareholders might otherwise receivea premium for their shares over the then-current market prices. In addition,these provisions may limit the ability of shareholders to approve transactionsthat they may deem to be in their best interests.

 

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PART II.                OTHER INFORMATION

 

Item 6.    Exhibits and Reports on Form 8-K

 

 

a)              Exhibits attached tothe 10-QSB are as follows:

 

Exhibit 10.1            Loan modification agreement withSilicon Valley Bank dated April 15, 2002

Exhibit 10.2            Loan modification agreement withSilicon Valley Bank dated June 27, 2002

Exhibit 99.1            Certification of the Company’s ChiefExecutive Officer

Exhibit 99.2            Certification of the Company’s ChiefFinancial Officer

 

b)             No Current Reports onForm 8-K have been filed by the Company during the three months ended June 29,2002.

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

 
|                   | SENTO CORPORATION |
|------------------------|-------------------|
|                   | (Registrant)      |
|                   |
|                   | By:               | /s/ PATRICK F. O’ NEAL |   |
|                   |              | Patrick F. O’ Neal |
|                   |              | President and Chief  Executive Officer  (Principal executive officer) |
|                   |              |   |
|                   | By:               | /s/ STANLEY J. CUTLER |   |
|                   |              | Stanley J. Cutler |
|                   |              | Senior Vice President  of Finance and Secretary  (Principal financial and accounting officer) |
|                   |              |   |
| Dated August 13, 2002. |              |   |

 

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