##### **UnitedStates**

**Securities and Exchange Commission**

#### **Washington, D.C.  20549**

** **

### **FORM10-QSB**

#### ** **

 

#### 

| **ý**                                    |   | **Quarterly Report pursuant to  Section 13 or 15(d) of the Securities Exchange Act of 1934**  |
|-----------------------------------------------|--------|-----------------------------------------------------------------------------------------------|
|                                          |   |                                                                                          |
| **For the Quarter  Ended September 29, 2001** |
|                                          |   |                                                                                          |
| **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

 

**808 East Utah Valley Drive**

**American Fork, Utah 84003**

(Address of Principal Executive Offices) | ** **
(I.R.S. Employer

Identification No.) |

# ** **

Issuer’s telephone number, including area code:  **(801)492-2000**

 

Indicateby check mark whether the issuer (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the issuer was required tofile such reports), and (2) has been subject to such filing requirements forthe 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:

 
|                  |   | **Outstanding at**   |
|-----------------------|--------|----------------------|
| **Class**             |   | **October 31, 2001** |
| Common  capital stock |   | 8,372,773            |
| $.25 par  value       |   |                 |

 

 

Transitional Small BusinessDisclosure Format (check one):

 
|   | Yes              o                         | No           ý |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------|

 

 

 

**SENTO CORPORATION**

Quarterly Report on Form 10-QSB

Quarter ended September 29, 2001

 

 

TABLE OF CONTENTS

 
| PART I   | FINANCIAL  INFORMATION                                                                      |   |   |
|----------|---------------------------------------------------------------------------------------------|--------|--------|
|     |                                                                                        |   |   |
| Item 1.  | Financial Statements                                                                        |   |   |
|     |                                                                                        |   |   |
|     | Condensed  Consolidated Balance Sheets                                                      |   |   |
|     | September 29, 2001 and March 31, 2001                                                       |   |   |
|     |                                                                                        |   |   |
|     | Condensed Consolidated Income Statements                                                    |   |   |
|     | Three months and six months ended September  29, 2001 and September 30, 2000                |   |   |
|     |                                                                                        |   |   |
|     | Condensed  Consolidated Statements of  Cash Flows                                           |   |   |
|     | Six  months ended September 29, 2001 and September 30, 2000                                 |   |   |
|     |                                                                                        |   |   |
|     | 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                                                                                  |   |   |

# ** **PARTI   - FINANCIAL INFORMATION

## Item 1.    Financial Statements

 

#### **SENTO CORPORATION**

**AND SUBSIDIARIES**

 

### **CondensedConsolidated Balance Sheets**

** **

** **

**ASSETS**

** **
|                          |   | **September 29, 2001** |       | **March 31, 2001** |   |
|-------------------------------|--------|------------------------|------------|--------------------|--------|
|                          |   | **(Unaudited)**        |       |               |   |
| Current  assets:              |   |                   |       |               |   |
| Cash                          |   | $                      | 1,683,154  |               | $      | 3,575,740 |   |
| Accounts  receivable (net)    |   | 3,922,180              |       | 4,392,911          |   |
| Other  current assets         |   | 332,001                |       | 211,855            |   |
| Total  current assets         |   | 5,937,335              |       | 8,180,506          |   |
|                          |   |                   |       |               |   |
| Property  and equipment (net) |   | 5,343,082              |       | 3,887,782          |   |
| Other  assets                 |   | 191,086                |       | 73,795             |   |
| Total  Assets                 |   | $                      | 11,471,503 |               | $      | 12,142,083 |   |

 

 

**LIABILITIES ANDSTOCKHOLDERS’ EQUITY**

** **
| Current  liabilities:                            |   |       |       |       |   |
|--------------------------------------------------|--------|------------|------------|------------|--------|
| Current  portion of long-term debt               |   | $          | 1,015,875  |       | $      | 714,371 |   |
| Accounts  payable                                |   | 1,175,094  |       | 1,417,148  |   |
| Accrued  liabilities                             |   | 1,044,673  |       | 1,477,541  |   |
| Accrued  loss from discontinued operations       |   | 27,681     |       | 424,270    |   |
| Customer  deposits and other current liabilities |   | 189,724    |       | 219,758    |   |
| Total  current liabilities                       |   | 3,453,047  |       | 4,253,088  |   |
| Long-term  liabilities:                          |   |       |       |       |   |
| Convertible  debt                                |   | 1,143,904  |       | 1,092,824  |   |
| Long-term  debt, net of current portion          |   | 1,751,289  |       | 1,478,264  |   |
| Total  long-term liabilities                     |   | 2,895,193  |       | 2,571,088  |   |
| Stockholders'  equity:                           |   |       |       |       |   |
| Common  stock                                    |   | 2,132,270  |       | 2,131,072  |   |
| Additional  paid-in capital                      |   | 10,676,266 |       | 10,682,056 |   |
| Deferred  compensation                           |   | (2,032     | )          | (31,165    | )      |
| Treasury  stock                                  |   | (417,299   | )          | -          |   |
| Accumulated  deficit                             |   | (7,265,942 | )          | (7,464,056 | )      |
| Total  stockholders' equity                      |   | 5,123,263  |       | 5,317,907  |   |
| Total  Liabilities and Stockholders' Equity      |   | $          | 11,471,503 |       | $      | 12,142,083 |   |

**SENTO CORPORATION**

**AND SUBSIDIARIES**

 

### **CondensedConsolidated Income Statements**

**(Unaudited)**

 
|                                              |   | **Three Months  Ended** |          | **Six Months  Ended** |          |
|---------------------------------------------------|--------|-------------------------|---------------|-----------------------|---------------|
|                                              |   | **September 29,**       |          | **September 30,**     |          | **September 29,** |   | **September 30,** |   |
|                                              |   | **2001**                |          | **2000**              |          | **2001** |   | **2000** |   |
|                                              |   |                    |          |                  |          |   |   |   |   |
| Revenue                                           |   | $                       | 5,082,742     |                  | $             | 5,394,214 |   | $ | 11,274,459 |   | $ | 10,250,259 |   |
|                                              |   |                    |          |                  |          |   |   |   |   |
| Cost  of sales                                    |   | 4,563,077               |          | 4,674,295             |          | 10,155,362 |   | 8,822,084 |   |
|                                              |   |                    |          |                  |          |   |   |   |   |
| Gross  profit                                     |   | 519,665                 |          | 719,919               |          | 1,119,097 |   | 1,428,175 |   |
|                                              |   |                    |          |                  |          |   |   |   |   |
| Selling,  general and administrative expenses     |   | 429,519                 |          | 508,311               |          | 872,582 |   | 929,699 |   |
| Operating  income                            |   | 90,146                  |          | 211,608               |          | 246,515 |   | 498,476 |   |
|                                              |   |                    |          |                  |          |   |   |   |   |
| Equity  loss on investment in EchoPassCorporation |   | -                       |     | -                     |     | - |     | (149,795 | ) |
| Other  expense, net                               |   | (85,617                 | )             | (32,397               | )             | (151,187 | ) | (44,610 | ) |
| Income  from continuing operations                |   | 4,529                   |          | 179,211               |          | 95,328 |   | 304,071 |   |
| Income  from discontinued operations              |   | -                       |          | 49,901                |          | - |   | 200,065 |   |
| Gain  on disposal of discontinued operations      |   | 102,786                 |          | -                     |          | 102,786 |   | - |   |
| Net  income                                       |   | $                       | 107,315       |                  | $             | 229,112 |   | $ | 198,114 |   | $ | 504,136 |   |
| Basic  income  per share:                    |   |                    |          |                  |          |   |   |   |   |
| Income  from continuing operations                |   | $                       | 0.00          |                  | $             | 0.02 |   | $ | 0.01 |   | $ | 0.04 |   |
| Income  from discontinued operations              |   | 0.01                    |          | 0.01                  |          | 0.01 |   | 0.02 |   |
| Net  income per common share                      |   | $                       | 0.01          |                  | $             | 0.03 |   | $ | 0.02 |   | $ | 0.06 |   |
|                                              |   |                    |          |                  |          |   |   |   |   |
| Diluted  income per share:                        |   |                    |          |                  |          |   |   |   |   |
| Income  from continuing operations                |   | $                       | 0.00          |                  | $             | 0.02 |   | $ | 0.01 |   | $ | 0.03 |   |
| Income  from discontinued operations              |   | 0.01                    |          | 0.01                  |          | 0.01 |   | 0.02 |   |
| Net  income per common share                      |   | $                       | 0.01          |                  | $             | 0.03 |   | $ | 0.02 |   | $ | 0.05 |   |
|                                              |   |                    |          |                  |          |   |   |   |   |
| Weighted  average common shares outstanding:      |   |                    |          |                  |          |   |   |   |   |
| Basic                                             |   | 8,359,529               |          | 8,499,367             |          | 8,415,266 |   | 8,408,873 |   |
| Diluted                                           |   | 8,367,336               |          | 9,070,165             |          | 8,481,359 |   | 9,230,324 |   |

 

 

**SENTO CORPORATION**

**AND SUBSIDIARIES**

 

### **CondensedConsolidated Statements of Cash Flows**

**(Unaudited)**

 
|                                                                                      |   | **Six Months  Ended** |          |
|-------------------------------------------------------------------------------------------|--------|-----------------------|---------------|
|                                                                                      |   | **September 29,**     |          | **September 30,** |   |
|                                                                                      |   | **2001**              |          | **2000** |   |
| Cash  flows from operating activities:                                                    |   |                  |          |   |   |
| Net  income                                                                               |   | $                     | 198,114       |   | $ | 504,136 |   |
| Adjustments  to reconcile net income  to net cash  provided by operating activities: |   |                  |     |   |     |
| Depreciation  and amortization                                                            |   | 938,428               |          | 582,810 |   |
| Gain  on disposal of assets                                                               |   | (407                  | )             | - |   |
| Equity  loss on investment in EchoPass Corporation                                        |   | -                     |          | 149,795 |   |
| Changes  in operating assets and liabilities:                                             |   |                  |          |   |   |
| Accounts  receivable                                                                      |   | 470,731               |          | (719,158 | ) |
| Other  assets                                                                             |   | (199,498              | )             | (45,428 | ) |
| Accounts  payable                                                                         |   | (242,054              | )             | 1,070,001 |   |
| Accrued  liabilities                                                                      |   | (827,218              | )             | (54,890 | ) |
| Customer  deposits                                                                        |   | (30,034               | )             | (143,943 | ) |
| Net  cash provided by  operating activities                                          |   | 308,062               |          | 1,343,323 |   |
| Cash  flows from investing activities:                                                    |   |                  |          |   |   |
| Proceeds  from sale of equipment                                                          |   | 29,765                |          | - |   |
| Purchase  of property and equipment                                                       |   | (2,271,029            | )             | (1,499,294 | ) |
| Net  cash used in investing activities                                                    |   | (2,241,264            | )             | (1,499,294 | ) |
| Cash  flows from financing activities:                                                    |   |                  |          |   |   |
| Principal  payments of long term debt                                                     |   | (437,246              | )             | (47,319 | ) |
| Issuance  of long-term debt                                                               |   | 886,777               |          | 690,533 |   |
| Purchase  of treasury stock                                                               |   | (417,299              | )             | - |   |
| Proceeds  from stock issued through employee stock purchase plan                          |   | -                     |          | 139,349 |   |
| Proceeds  from stock options exercised                                                    |   | 8,384                 |          | 492,274 |   |
| Net  cash provided by financing activities                                                |   | 40,616                |          | 1,274,837 |   |
| Net  (decrease) increase in cash                                                          |   | (1,892,586            | )             | 1,118,866 |   |
| Cash  at beginning of period                                                              |   | 3,575,740             |          | 2 ,382,321 |   |
| Cash  at end of period                                                                    |   | $                     | 1,683,154     |   | $ | 3,501,187 |   |
|                                                                                      |   |                  |          |   |   |
| Supplemental disclosures of cash flow  information                                        |   |                  |          |   |   |
| Cash  paid for:                                                                           |   |                  |          |   |   |
| Interest                                                                                  |   | $                     | 158,364       |   | $ | 63,866 |   |

#### ** **

#### **SENTO CORPORATION**

**AND SUBSIDIARIES**

 

### **Notesto Condensed Consolidated Financial Statements**

**September 29, 2001**

**(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 and six months ended September 29, 2001 are not  necessarily indicative of the results that may be expected for the full  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 31, 2001.                                                                                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| B.     |   | COMMON STOCK                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | Six  months ended September 29, 2001During the six months ended September  29, 2001, options to purchase 4,791 shares of common stock were exercised.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | There  were 178,200 shares of common stock repurchased by the Company during the  six-month period at a total cost of   $417,299 pursuant to a stock repurchase program approved by the Board  of Directors in September 2000.  The  repurchase program authorizes the repurchase of up to $1,000,000 of the  Company’s common stock.  The  repurchase is 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  September 29, 2001, the Company has repurchased a cumulative total of 289,695  shares of the Company’s common stock under this program for $702,342.                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | Six  months ended September 30, 2000During the six months ended September  30, 2000, options to purchase 241,991 shares of common stock were exercised  and 40,985 shares of common stock were sold to employees under the Company’s  Employee Stock Purchase Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| C.     |   | INCOME  PER SHARE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | Income  per share is computed in accordance with Financial Accounting Standards Board  Standard 128, “Earnings Per Share.”   Basic income per share is computed by dividing net income by the  weighted average number of shares of common stock outstanding for the  period.  Diluted income 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.  Shares issuable pursuant to  convertible debentures (257,400 shares) have not been included in the  calculations of diluted common stock outstanding for the three and six months  ended September 29, 2001 and September 30, 2000, because to do so would be  anti-dilutive. |

 

 

The following tables setsforth the computation of basic and diluted earnings per share for the three andsix months ended September 29, 2001 and September 30 2000:

 
|                                                                         |   | **Three Months Ended** |    |
|------------------------------------------------------------------------------|--------|------------------------|---------|
|                                                                         |   | **September 29,**      |    | **September 30,** |   |
|                                                                         |   | **2001**               |    | **2000** |   |
|                                                                         |   |                   |    |   |   |
| Net  income                                                                  |   | $                      | 107,315 |   | $ | 229,112 |   |
|                                                                         |   |                   |    |   |   |
| Denominator  for basic net income per share – weighted average shares   |   | 8,359,529              |    | 8,499,367 |   |
| Dilutive  common stock options and warrants                                  |   | 7,807                  |    | 570,798 |   |
| Denominator  for diluted net income per share – weighted average shares |   | 8,367,336              |    | 9,070,165 |   |
| Basic  net income per share:                                                 |   |                   |    |   |   |
| Continuing  operations                                                       |   | $                      | 0.00    |   | $ | 0.02 |   |
| Discontinuing  operations                                                    |   | 0.01                   |    | 0.01 |   |
| Net  income                                                                  |   | $                      | 0.01    |   | $ | 0.03 |   |
|                                                                         |   |                   |    |   |   |
| Diluted  net income per share:                                               |   |                   |    |   |   |
| Continuing  operations                                                       |   | $                      | 0.00    |   | $ | 0.02 |   |
| Discontinuing  operations                                                    |   | 0.01                   |    | 0.01 |   |
| Net  income                                                                  |   | $                      | 0.01    |   | $ | 0.03 |   |

 

 
|                                                                         |   | **Six Months Ended** |       |
|------------------------------------------------------------------------------|--------|----------------------|------------|
|                                                                         |   | **September 29,**    |       | **September 30,** |   |
|                                                                         |   | **2001**             | ** ** | **2000** | ** ** |
|                                                                         |   |                 |       |   |   |
| Net  income                                                                  |   | $                    | 198,113    |   | $ | 504,136 |   |
|                                                                         |   |                 |       |   |   |
| Denominator  for basic net income per share – weighted average shares   |   | 8,415,266            |       | 8,408,873 |   |
| Dilutive  common stock options and warrants                                  |   | 66,093               |       | 821,451 |   |
| Denominator  for diluted net income per share – weighted average shares |   | 8,481,359            |       | 9,230,324 |   |
| Basic  net income per share:                                                 |   |                 |       |   |   |
| Continuing  operations                                                       |   | $                    | 0.01       |   | $ | 0.04 |   |
| Discontinuing  operations                                                    |   | 0.01                 |       | 0.02 |   |
| Net  income                                                                  |   | $                    | 0.02       |   | $ | 0.06 |   |
|                                                                         |   |                 |       |   |   |
| Diluted  net income per share:                                               |   |                 |       |   |   |
| Continuing  operations                                                       |   | $                    | 0.01       |   | $ | 0.03 |   |
| Discontinuing  operations                                                    |   | 0.01                 |       | 0.02 |   |
| Net  income                                                                  |   | $                    | 0.02       |   | $ | 0.05 |   |

 

 

 
| D.     |   | DISCONTINUED  OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   | On May 23,  2001, the Company reached a decision to discontinue the operations of its  Training Division, which had historically been presented as a separate  business segment.  Revenues, operating  costs and expenses, other income and expenses, and income taxes of this  business have been recorded against the accrued loss from discontinued  operations for the six months ended September 29, 2001 and reclassified as  discontinued operations for the six months ended September 30, 2000.  In July of 2001, the Company sold  substantially all of the assets held for sale from this business for $10,000  in cash and a $50,000 note receivable.   The anticipated loss from the disposal of the Training Division was  expensed as of March 31, 2001.  During  September of 2001, it became apparent that the Company’s loss from the  disposal would be less than the amount accrued at March 31, 2001.  Accordingly, a gain on disposal of  discontinued operations of $103,000 has been recorded in the Company’s income  statement for the three and six months ended September 29, 2001 to reflect  the Company’s realized loss from the disposal of this segment. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| E.     |   | ECHOPASS  CORPORATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   | Pursuant  to a shareholder vote at a special shareholder meeting in December 1999, the  Company consummated the sale of certain technology to EchoPass Corporation  (“EchoPass”) in exchange for 4,000,000 shares of EchoPass’ Series A Preferred  Stock in March 2000.  Sento recorded  its investment in EchoPass at the historical carrying value of the underlying  technology that was transferred to EchoPass.   At that time Sento recorded its pro-rata share of EchoPass losses  under the equity method of accounting.   As of June 30, 2000, the investment in EchoPass had been written down  to a zero balance as the result of recording Sento’s pro-rata share of  EchoPass losses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   | On  November 2, 2001, EchoPass entered into a new financing arrangement with some  of its investors that substantially diluted Sento’s ownership to less than  one-half of one percent of EchoPass.   As a result, Sento no longer accounts for its investment in EchoPass  under the equity method of accounting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

 

 

## Item2.  Management’s Discussion and Analysisof Financial Condition and Results of Operations.

 

**General**

 

SentoCorporation provides the latest in CRM (Customer Relations Management) servicesolutions for a diversified portfolio of organizations including leadingdomestic and international computer hardware and software companies.  Through its state-of-the-art CustomerContact Solutions Centers, Sento’s services include telephone, e-mail, Web textchat, Web callbacks, browser collaboration, voicemail, and fax.  These solutions are designed to directincoming interactions to the right client company’s agent at the right timewith skills-based routing and customer data screen pops, enabling immediate andaccurate customer care.

 

**Results of Operations**

 

**Three Months EndedSeptember 29, 2001 Compared to Three Months Ended September 30, 2000**

 

*Revenues.*  Revenues decreased ($311,000 or 6%)  from $5,394,000 for the three months endedSeptember 30, 2000 to $5,083,000 for the three months ended September 29,2001.  The decrease was primarily due topricing pressure and lower call volumes from larger existing customerstriggered by the slowing economy. Pricing pressure and lower call volumes accounted for a decrease inrevenue of approximately 15%, which was offset, in part, by business from newclients.  Currently, the Company hasexcess capacity available to service additional call volume.  This excess capacity was built inanticipation of higher demand for the Company’s services.  However, with the economic downturn andrecent terrorist attacks, it is difficult to predict the Company’s ability tofill this excess capacity with new business in the near future.  Revenues by quarter for the thirteenquarters ended September 29, 2001 were as follows:

 

 
| **Three Months  Ended** |   | **Revenues** |      | **Increase (decrease)**

**from prior quarter** |   |
|-------------------------|--------|--------------|-----------|-------------------------------------------------|--------|
| September 30, 1998      |   | $            | 294,468   |                                            | $      | 7,014 |   |
| December 31,  1998      |   | $            | 685,881   |                                            | $      | 391,413 |   |
| March 31, 1999          |   | $            | 1,575,429 |                                            | $      | 889,548 |   |
| June 30, 1999           |   | $            | 2,128,492 |                                            | $      | 553,063 |   |
| September 30, 1999      |   | $            | 2,318,631 |                                            | $      | 190,139 |   |
| December 31, 1999       |   | $            | 4,264,383 |                                            | $      | 1,945,752 |   |
| March 31, 2000          |   | $            | 5,267,371 |                                            | $      | 1,002,988 |   |
| June 30, 2000           |   | $            | 4,856,045 |                                            | $      | (411,326 | ) |
| September 30, 2000      |   | $            | 5,394,214 |                                            | $      | 538,169 |   |
| December 31, 2000       |   | $            | 7,760,778 |                                            | $      | 2,366,564 |   |
| March 31, 2001          |   | $            | 8,092,588 |                                            | $      | 331,810 |   |
| June 30, 2001           |   | $            | 6,191,717 |                                            | $      | (1,900,871 | ) |
| September 29, 2001      |   | $            | 5,082,742 |                                            | $      | (1,108,975 | ) |

 

*Cost of Sales.*  Cost of sales decreased 2%, or $111,000,from $4,674,000 for the three months ended September 30, 2000 to $4,563,000 forthe three months ended September 29, 2001 and gross profit as a percentage ofrevenues decreased by 3 percentage points, from 13% of revenues during thethree months ended September 30, 2000, to 10% of revenues for the three monthsended September 29, 2001.  During thethree months ended September 29, 2001, management focused its efforts onkeeping labor and other variable costs in line with decreased revenues.  Gross margins have been and managementbelieves they are likely to continue to be positively influenced by increasedagent productivity and Sento’s increasing ability to direct more clients’customers from phone interactions to more cost-effective Web solutions, such asself-help tools, live chat with co-browse, email express, and other live Webservices.  However, the economicdownturn has resulted in lower call volumes from Sento’s clients, which,coupled with pricing pressures and Sento’s available capacity to service morethan two times the call volume it is currently receiving, adversely impactedthe Company’s gross margin for the three months ended September 29, 2001.  The Company anticipates increased call volumesfrom new clients in the December 2001 and March 2002 quarters; however, actualcall volumes will be subject to a number of factors beyond Sento’s control,including the extent and duration of the current economic downturn.  An increase in call volume, if achieved,would  result in higher absorption ofoverhead and fixed costs, which would likely result in improved gross marginpercentages.

 

*Selling, General and Administrative Expenses.*  Selling, general and administrative expensesdecreased by 15% or $78,000 from $508,000 for the three months ended September30, 2000 to $430,000 for the three months ended September 29, 2001.  This decrease was due, in part, tomanagement’s cost reduction efforts.  Inaddition, the Company recovered $35,000 from a previously written-offreceivable, which resulted in a reduction in bad debt expense for the threemonths ended September 29, 2001. Management anticipates that selling, general and administrative expenseswill increase in future periods if revenues increase.  These expenses are expected to increase due,in part, to sales commissions and additional personnel expenses that would berequired to administer increased revenues, if achieved.

 

*Other Expense (net).*  During the three months ended September 29,2001, the Company recorded other expense (net) of $86,000, as compared to$32,000 during the three months ended September 30, 2000.  The net increase in expense of $54,000 wasprimarily due to increased interest expense incurred from additionalborrowings.

 

*Discontinued Operations*.As a result of management’s decision to discontinue the Company’s TrainingDivision,  the anticipated loss ondisposal of the training operations was expensed as of March 31, 2001.  In July 2001, the Company sold substantiallyall of the assets of this business, and in September 2001 it became apparent tomanagement that the Company’s loss from the disposal would be less than theamount accrued at March 31, 2001. Accordingly, a gain on disposal of discontinued operations of $103,000was recorded in the accompanying income statement for the three months endedSeptember 29, 2001 to adjust the Company’s realized loss from the disposal ofthis segment.  The revenues and expensesrelating to the Training Division for the three months ended September 30, 2000have been reclassified as income from discontinued operations.

 

**Six Months EndedSeptember 29, 2001 Compared to Six Months Ended September 30, 2000**

 

*Revenues.*  Revenues increased 10% or $1,024,000 from$10,250,000 for the six months ended September 30, 2000 to $11,274,000 for thesix months ended September 29, 2001. The increase was primarily due to the addition of new customers.   The increase would likely have been largerhad it not been for pricing pressures and lower call volumes from largerexisting customers during the six months ended September 29, 2001.  The Company has excess capacity available toservice additional call volumes. However, with the economic downturn and recent terrorist attacks, it isdifficult to predict the Company’s ability to fill this excess capacity withnew business in the near future.

 

*Cost of Sales.*  Cost of sales increased 15%, or $1,333,000,from $8,822,000 for the six months ended September 30, 2000 to $10,155,000 forthe six months ended September 29, 2001. The increase was due in part to an overall increase in callvolumes.  Additionally, the Companyincreased its capacity in anticipation of call volumes higher than that whichhas been achieved.  Gross profit as apercentage of revenues decreased by 4 percentage points, from 14% of revenuesduring the six months ended September 30, 2000, to 10% of revenues for the sixmonths ended September 29, 2001.  Duringthe six months ended September 29, 2001, management focused its efforts onkeeping labor and other variable costs in line with revenue.  Gross margins have been and managementbelieves they are likely to continue to be positively influenced by increasedagent productivity, and Sento’s increasing ability to direct more clients’customers from phone interactions to more cost-effective Web solutions, such asself-help tools, live chat with co-browse, email express, and other live Webservices.  However, the economicdownturn has resulted in lower call volumes from Sento’s clients, which coupledwith pricing pressures and Sento’s available capacity to service more than twotimes the call volume it is currently receiving, adversely impacted theCompany’s gross margin for the six months ended September 29, 2001.  The Company anticipates increased callvolume from new clients in the December 2001 and March 2002 quarters; however,actual call volumes will be subject to a number of factors beyond Sento’scontrol, including the extent and duration of the current economicdownturn.  An increase in call volume,if achieved, would result in higher absorption of overhead and fixed costs,which would likely result in improved gross margin percentages.

 

*Selling,General and Administrative Expenses.*  Selling, general and administrative expensesdecreased by 6% or $57,000 from $930,000 for the six months ended September 30,2000 to $873,000 for the six months ended September 29, 2001. This decrease wasdue, in part, to the Company’s recovering $35,000 from a previously written-offreceivable, which resulted in a reduction in bad debt expense for the sixmonths ended September 29, 2001. Management anticipates that selling, general and administrative expenseswill increase in future periods if revenues increase.  These expenses are expected to increase due, in part, to sales commissionsand additional personnel expenses that would be required by management’sdecision to increase the Company’s selling efforts and to administeranticipated increased revenues, if any, resulting from this increased saleseffort.

 

*EquityLoss on Investment in EchoPass Corporation.*  The Company has historically accounted forits investment in EchoPass Corporation under the equity method ofaccounting.  Therefore, the Company hashistorically recorded its pro-rata share of EchoPass’ losses.  As of June 30, 2000, the investment inEchoPass had been written down to zero. On November 2, 2001, EchoPass entered into a new financing arrangementwith some of its investors that  substantiallydiluted Sento’s ownership to less than one-half of one percent of EchoPass.  As a result, Sento no longer accounts forits investment in EchoPass under the equity method of accounting.

 

*Other Expense (net).*  During the six months ended September 29,2001, the Company recorded other expense (net) of $151,000, as compared to$45,000 during the six months ended September 30, 2000.  The net increase in expense of $106,000 wasprimarily due to increased interest expense incurred from additionalborrowings.

** **

*Discontinued Operations*.As a result of management’s decision to discontinue the Company’s TrainingDivision,  the anticipated loss ondisposal of the training operations was expensed as of March 31, 2001.  In July 2001, the Company sold substantiallyall of the assets of this business, and in September 2001 it became apparent tomanagement that the Company’s loss from the disposal would be less than theamount accrued at March 31, 2001. Accordingly, a gain on disposal of discontinued operations of $103,000was recorded in the accompanying income statement for the three months endedSeptember 29, 2001 to adjust the Company’s realized loss from the disposal ofthis segment.  The revenues and expensesrelating to the Training Division for the three months ended September 30, 2000have been reclassified to income from discontinued operations.

** **

**Liquidity and Capital Resources**

 

Although the Company had cashflow from operations of $308,000 during the six months ended September 29,2001, cash balances decreased 53%, or $1,893,000, from $3,576,000 at March 31,2001 to $1,683,000 at September 29, 2001. Working capital decreased to $2,484,000 at September 29, 2001 from$3,927,000 at March 31, 2001.  Thisdecrease in cash was due in part to purchases of equipment with cash, asopposed to acquiring such equipment through long-term financing.  Sento intends to seek financing of  approximately $1,000,000 of this equipmentthrough long-term leases.  In addition,a large client paid its $600,000 invoice late, which further adversely affectedcash and cash flow from operations.  TheCompany had unused lines of credit in the amount of approximately $3.9 millionas of September 29, 2001.

 

On September 13, 2000, the Board of Directors approved the repurchaseof up to $1,000,000 of the Company’s common stock.  The repurchase program is conditioned upon the Company’shaving cash balances of at least $3,500,000 plus an unused bank line of creditof $3,000,000 immediately prior to any buyback of shares. As of September 29,2001 the Company had repurchased a total of 289,695 shares of common stock at atotal cost of  $702,000 under thisbuyback program.

 

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 eighteen months ended September 29, 2001, liquidity and cash were also providedby positive cash flow from operations. In addition, the Company has financed some of the equipment utilized inits business through long-term leasing arrangements.  However, leasing and other financing companies have become muchmore conservative in providing financing because of the economic downturn,making it more difficult for the Company to obtain equipment financing.  The growth of the Company has consumedsubstantial amounts of cash, and the Company will be required to obtainadditional financing  to fund futuregrowth.  In the event the Company is notable to find additional sources of funding and enter into financingtransactions on reasonable terms, its ability to pursue its planned businessgrowth strategy may be limited.  Therecan be no assurance that the Company will be able to obtain necessary capitalfunding on terms favorable to the Company, if at all.

 

*Thestatements contained in this Quarterly Report on Form 10-QSB that arenot purely historical are "forward-looking statements" within themeaning of Section 27A of the Securities Act of 1933, as amended, and Section21E of the Securities Exchange Act of 1934, as amended.  All forward-looking statements involvevarious risks and uncertainties. Forward-looking statements contained in this Report include statementsregarding the Company's plans to develop and deliver integrated informationtechnology services, market opportunities and acceptance, expectations, goals,revenues, financial performance, strategies, mission and intentions for thefuture.  Such forward-looking statementsare included under. "Management's Discussion and Analysis of FinancialCondition and Results of Operations" and encompass Sento’s beliefs,expectations, hopes and intentions regarding future events.  Words such as “expects,” “believes,”“anticipates,” and “likely” also identify forward-looking statements. Allforward-looking statements included in this Report are made as of the datehereof, based on information available to the Company as of such date, and theCompany assumes no obligation to update any forward-looking statement.  It is important to note that such statementsmay not prove to be accurate and that the Company's actual results and futureevents could differ materially from those anticipated in such statements.  Among the factors that could cause actualresults to differ materially from the Company's expectations are thosedescribed under “Management’s Discussion and Analysis of Financial Conditionand 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.*

* *

**Risks Related to Existing and ProposedOperations**

 

In addition to otherinformation in this Report, the following are important factors that should beconsidered carefully in evaluating the Company and its business.

 

*Volatile Economic Conditions Have Affectedand Will Likely**Continue to Affect Sento’s Operations and FinancialResults*.  Volatile economicconditions have negatively affected Sento’s operations and financialresults.  The slowing economy hasresulted in increased pricing pressures and lower call volumes from existingcustomers, and may have limited Sento’s ability to attract new customers.  These factors have contributed to a declinein Sento’s revenues and net income and have resulted in Sento’s excess capacityto service call volumes.  A substantialpercentage of Sento’s expenses is attributable to labor costs associated withstaffing Customer Contact Solutions Centers, which Sento may not be able toreduce on short notice in order to compensate for unexpected shortfalls in callvolumes.  Sento cannot forecast futurefluctuations in economic conditions, and its operations and financial resultsmay be materially and adversely effected by continued economic volatility.

 

*Dependence on Key Clients*.  Two clients accounted for approximately 62%of the Company’s revenues for the year ended March 31, 2001, and for the sixmonths ended September 29, 2001 three clients accounted for approximately 61%of the revenues of the Company. Consistent with industry standards, Sento’s contracts are generallycancelable by the client on short-term notice. Sento’s loss of a significant amount of business with any of its keyclients could have, and the loss of a substantial amount of business with anyof its largest existing clients would have, a material adverse effect onSento’s business, financial condition, and results of operations.  In addition, Sento’s future revenue growth isdependent upon its ability to attract and retain new clients.

 

*Risks of Growth Strategy*.  Sento’s business strategy is premised, inpart, upon expansion of its operations by opening, acquiring or partnering withother customer support facilities. Substantial risks accompany Sento’s growthplans. For example, Sento’s growth plans are dependent upon its ability toattract 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 alsosubject to fluctuations in technology and industry standards, changes incustomer requirements and preferences and general economic conditions, amongother factors.  Many of these factorsare beyond Sento’s control.  If Sento isincorrect in its assessment of the feasibility of its growth plans, or ifcircumstances change in a way that Sento did not foresee or anticipate, Sentomay not be able to grow as planned or its growth strategy may have an adverseeffect on its business operations and financial condition.

 

*Reliance on EchoPass for Outsourced Services*.  Sento contracts with EchoPass for some ofthe technical support functions related to Sento’s Customer Contact SolutionsCenters.  If EchoPass fails in itsbusiness efforts, Sento may be required to identify and retain one or morealternate third-party providers of such services and could experience servicedelays, interruptions or cancellations.

 

*Changing Needs of the Customer ContactService Market*. The customer contact service industry is characterized by rapidtechnological change, changes in customer requirements and preferences, and theemergence of new industry standards and practices that could render Sento’sexisting and proposed products, services, technology and systems obsolete.  To remain competitive, Sento mustcontinually improve the performance, features, and reliability of its productsand services, including its existing customer contact service applications, anddevelop new products and services that address the increasingly sophisticatedand varied needs of its prospective customers. If Sento cannot adapt or respond in a cost-effective and timely mannerto changing industry standards, market conditions, or customer requirements,its business and operating results would suffer and could negatively impactSento’s business and/or financial condition.

 

Sento’s success may also depend in part on the ability of Sentoand/or EchoPass to develop solutions that keep pace with the continuing changesin information technology, evolving industry standards, and changing clientrequirements.  There can be no assurancethat Sento will be successful in adequately addressing these developments on atimely basis or that, if these developments are addressed, Sento will besuccessful in the marketplace.  Inaddition, there can be no assurance that products or technologies developed byothers will not render Sento’s services non-competitive or obsolete.  Sento’s or EchoPass’ failure to addressthese developments could have a material adverse effect on Sento’s business andfinancial condition.

 

*Dilution of Sento’s Ownership in EchoPass*.  EchoPass’ success in developing andlicensing its technology will depend to a significant extent on EchoPass’ability to obtain financing required to develop, market and sell itstechnology.  As a result, EchoPass hasissued, and may continue to issue additional capital stock to sources of suchfinancing.  Since the completion of theEchoPass transactions, EchoPass has issued additional shares of capital stock,incurred debt, which may be converted or exchanged for shares of capital stock,and issued derivative securities, which can be exercised for shares of capitalstock.  The issuance of such additionalcapital stock has resulted in substantial dilution of Sento’s ownership of theEchoPass capital stock and has virtually eliminated Sento’s ability toinfluence the management and policies of EchoPass.  Furthermore, the substantial dilution of Sento’s ownershipinterest in EchoPass has significantly reduced the prospect that Sento willrealize any financial benefit from its ownership interest in EchoPass.

 

*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 major companies provide their own in-house customer care support andcustomer training.  However, suchcompanies are within the potential customer base for customer contact serviceproviders and have the capability of outsourcing those services to Sento’sexisting and prospective customers.

 

Sento cannot provide anyassurance that better and more efficient services will not be provided by newor existing customer contact service providers in competition with Sento.  The services provided by such competitorsmay be more effective or less expensive than those provided by Sento.  There can be no assurance that Sento willimprove, refine or enhance the services it provides.

 

*Competition in Customer Contact ServicesMarket*.  The customercontact services market is new and intensely competitive.  There are no substantial barriers to entry,and established or new entities may enter this market in the near future.  Furthermore, established enterprise softwarecompanies, including IBM, Hewlett-Packard Company, Microsoft Corporation, andsimilar companies, may leverage their existing relationships and capabilitiesto offer customer service applications. Any delays in the general market acceptance of the customer contactservice applications and Sento’s proposed products and services would likelyharm Sento’s competitive position. Delays would allow Sento’s competitors additional time to improve theirservice or product offerings, and also provide time for new competitors todevelop e-business customer service applications and solicit prospectivecustomers within Sento’s target markets. Increased competition could result inpricing pressures, reduced operating margins and loss of market share.

 

*Risk of Emergency Interruption of Customer ContactSolutions Center Operations*.  Sento’s business depends to a large extent on computer andtelecommunications equipment and software systems (both equipment and systemsmaintained by Sento and equipment and systems maintained by third parties, includingEchoPass).  Sento cannot provide anyassurance 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*.  The customer contact services market suffersfrom a significant labor shortage. Sento’s success will depend, in large part, on its ability to attract,retain and train highly-qualified technical, managerial and marketing personnelwith the required expertise.  Sento hasnot entered into employment agreements that require the services of any of itskey managerial or technical personnel to remain with Sento for any specifiedperiod of time.  Competition for suchpersonnel is intense.  There can be noassurance that Sento will be able to attract and maintain the personnel necessaryfor the development and operation of its business nor that it will be able totrain its current employees on new developments in technology.  Specifically, the loss of any key personnelor an inability to attract, retain, train and motivate qualified personnelcould have a material adverse effect on the business, financial condition andresults of operations of Sento.

 

In addition, Sento’s totalemployee count has fluctuated from approximately 585 as of March 31, 2000 toapproximately 953 as of December 31, 2000, and has decreased to approximately455 as of October 31, 2001.  The supportrequired for two of the Company’s largest clients is seasonal.  There is, therefore, a necessity for veryrapid increases in employees and subsequent decreases in the number ofemployees as the requirements for support change.  The Company cannot provide any assurance that its currentmanagement team can successfully manage Sento’s rapidly evolving business, andany failure to do so could have a material adverse effect upon Sento’soperating results.

 

*Liquidity and Capital Resources*.  At September 29, 2001, Sento had workingcapital of $2,484,000 and a cash balance of $1,683,000.  Future growth, particularly growth in excessof planned growth, will depend on the Company’s ability to obtain financing.  The historic growth rate of Sento’s CustomerContact Solutions operations has consumed substantial amounts of cash and willcontinue to require significant capital investment.  The Company may be required to pursue additional fundingopportunities to fund future growth should it accelerate in excess ofhistorical and planned future growth. In the event the Company is not able to find such alternate sources offunding, its ability to pursue its planned business strategy may be limited.  There can be no assurance that the Companywill be able to obtain necessary capital funding on terms favorable to theCompany, if at all.

 

*Dependence on Industry Trend to OutsourceServices*. Sento’s business depends in large part on the trend within the ITindustry to outsource certain services. Sento cannot provide any assurance thatthis trend will continue or that, if the trend continues, it will continue atthe same rate of growth.  The failure ofthis trend to continue could have a material adverse effect on the business,financial condition, 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 beconsummated.  Sento also may choose toreduce prices or to increase spending in response to competition or to pursuenew market opportunities, which may adversely affect its operating results.

 

In particular, Sento’squarterly revenues from its Customer Contact Solutions Center operations arepotentially volatile.  Such revenues areprincipally a function of the number of support requests received by Sento, andthe time spent on such requests.** **Consequently,Sento’s profitability may be adversely affected if Sento receives fewer supportrequests than anticipated or the time spent in resolving inquiries is greaterthan anticipated.

 

For the reasons identifiedabove, management believes that period-to-period comparisons of Sento’s resultsof operations may not be meaningful and that no one should rely upon them as anindication of future performance.  Furthermore,Sento cannot provide any assurance that it will be able to achieve or sustainprofitability on a quarterly basis.

 

*Possible Volatility of Stock Price*.  The trading price of  Sento’s common stock has fluctuated widelyin response to variations in quarterly operating results, announcements bySento or its competitors, industry trends, general economic conditions or otherevents or factors.  Such fluctuations,as well as fluctuations in the trading volume of the common stock, may continuein the future.  Regardless of thegeneral outlook for Sento’s business, the announcement of quarterly operatingresults below analyst and investor expectations could have a material andadverse effect on the market price of the common stock.

 

*Anti-Takeover Considerations.*  Sento’s Articles of Incorporation andBylaws, the Utah Revised Business Corporation Act, and the Utah Control SharesAcquisition Act each contain certain provisions that may have the effect ofinhibiting a non-negotiated merger or other business combination.  Sento’s Articles of Incorporation grant tothe Board of Directors the authority, without further action by Sento’sshareholders, to fix the rights and preferences of, and issue shares ofpreferred stock.  These provisions maydeter hostile takeovers or delay or prevent changes in control of Sento orchanges in Sento’s management, including transactions in which shareholdersmight otherwise receive a premium for their shares over the then-current marketprices. In addition, these provisions may limit the ability of shareholders toapprove transactions that they may deem to be in their best interests.

 

*Dividends.*   Dividends are payable on Sento’s commonstock only when, as, and if declared by Sento’s Board of Directors.  At present Sento intends to retain anyfuture earnings for use in its business and therefore does not anticipatepaying any dividends on the common stock in the foreseeable future.

 

 

PART II.                OTHERINFORMATION

 

Item 6.    Exhibitsand Reports on Form 8-K

 

a)     No CurrentReports on Form 8-K have been filed by the Company during the three monthsended September 29, 2001.

b)    See exhibitindex attached hereto.

 

 

 

 

# **SIGNATURES**

 

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

 
|   |   |   |   |   | SENTO  CORPORATION |
|--------|--------|--------|--------|--------|--------------------|
|   |   |   |   |   | (Registrant)       |
|   |   |   |   |   |               |   |
|   |   |   |   |   |               |   |
|   |   |   |   |   |               |   |
|   |   |   |   |   | By:                | /s/ DENNIS  L. HERRICK |
|   |   |   |   |   |               | Dennis L.  Herrick |
|   |   |   |   |   |               | President  and Chief Executive Officer |
|   |   |   |   |   |               |   |
|   |   |   |   |   |               |   |
|   |   |   |   |   |               |   |
|   |   |   |   |   | By:                | /s/ STANLEY  J. CUTLER |
|   |   |   |   |   |               | Stanley J.  Cutler |
|   |   |   |   |   |               | Vice  President of Finance and Secretary |

 

 

 

Dated November 6, 2001.

**ExhibitIndex**

 

 
|                         | Exhibit 10.1 | Loan  agreement between Sento Corporation and Wyoming Industrial                                                           |
|--------------------------------------------------------------------------------------------------------------------------------------------|--------------|----------------------------------------------------------------------------------------------------------------------------|
|                         |         | Development  Corporation dated January 12, 2000.                                                                           |
|                         |         |                                                                                                                       |
|                         | Exhibit 10.2 | Modification  of promissory note with a blended rate (USDA Loan Identification No.  59-021-087028497) dated April 9, 2001. |
|                         |         |                                                                                                                       |
|                         | Exhibit 10.3 | U.S. Small  Business Administration Note (SBA loan # GP-452368 40 08-CAS) dated June 4,  2001.                             |