SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10 - Q
(Mark One)
( X ) Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended September 30, 1996.
------------------
or
( ) Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the Transition period from ______ to _____
Commission file number 0-7441
SIERRA MONITOR CORPORATION
(Exact name of registrant as specified in its charter)
California 95-2481914
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
Number)
1991 Tarob Court
Milpitas, California 95035
(address and zip code of principal executive offices)
(408) 262-6611
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
----- -----
The number of shares outstanding of each of the issuer's classes of common
stock, as of the close of September 30, 1996:
Common Stock: 10,332,513
Page 1 of 8
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
SIERRA MONITOR CORPORATION
Balance Sheets
<CAPTION>
September 30, December 31,
1996 1995
----------- -----------
Assets (Unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 317,342 310,554
Short-term investments 491,051 577,124
Trade receivables, less allowance for doubtful accounts
of $63,365 in 1996 and $61,156 in 1995 900,935 898,496
Inventories 739,990 605,480
Prepaid expenses 155,099 40,200
Deferred income taxes 188,000 188,000
----------- -----------
Total current assets 2,792,417 2,619,854
Property and equipment, net 87,565 101,463
Other assets 77,609 78,934
----------- -----------
$ 2,957,591 2,800,251
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 305,821 305,693
Accrued expenses 261,672 265,565
Other current liabilities 84,785 23,342
Income taxes payable -- 11,115
----------- -----------
Total current liabilities 652,278 605,715
----------- -----------
Shareholders' equity
Common stock 2,912,493 2,903,270
Accumulated deficit (595,652) (696,131)
Notes receivable from shareholders (11,528) (12,603)
----------- -----------
Total shareholders' equity 2,305,313 2,194,536
----------- -----------
$ 2,957,591 2,800,251
=========== ===========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
Page 2 of 8
<PAGE>
<TABLE>
SIERRA MONITOR CORPORATION
Statements of Operations
(Unaudited)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 1,303,581 1,347,256 3,762,137 3,559,052
Cost of goods sold 499,687 540,042 1,450,008 1,378,844
------------ ------------ ------------ ------------
Gross profit 803,894 807,214 2,312,129 2,180,208
------------ ------------ ------------ ------------
Operating expenses
Research and development 105,720 100,657 333,696 304,745
Selling and marketing 417,390 413,514 1,238,550 1,224,696
General and administrative 207,932 204,977 656,746 595,410
------------ ------------ ------------ ------------
731,042 719,148 2,228,992 2,124,851
------------ ------------ ------------ ------------
Income from operations 72,852 88,066 83,137 55,357
Interest income 5,702 7,074 17,342 23,303
------------ ------------ ------------ ------------
Income before income taxes 78,554 95,140 100,479 78,660
Income tax expense (benefit) (2,039) 9,514 -- 9,514
------------ ------------ ------------ ------------
Net income $ 80,592 85,626 100,479 69,146
============ ============ ============ ============
Net income per share $ 0.01 0.01 0.01 0.01
============ ============ ============ ============
Weighted average common
shares outstanding 10,710,304 10,436,718 10,689,935 10,464,067
============ ============ ============ ============
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
Page 3 of 8
<PAGE>
<TABLE>
SIERRA MONITOR CORPORATION
Statements of Cash Flows
(Unaudited)
<CAPTION>
Three months ended Nine months ended
September 30, September 30
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 80,593 85,626 100,479 69,146
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation & amortization 29,726 32,727 96,687 99,592
Allowance for doubtful accounts (11,186) (7,403) (7,791) (5,667)
Changes in items affecting operations:
Trade receivables 96,219 11,973 5,352 (303,037)
Inventories (57,529) 25,779 (134,510) 114,863
Prepaid expenses (40,172) 16,757 (114,899) (94,587)
Accounts payable 39,960 (67,523) 128 (33,613)
Accrued expenses 215 16,078 (3,892) (24,380)
Other current liabilities 35,822 -- 61,442 --
Income taxes payable -- -- (11,115) 124,000
--------- --------- --------- ---------
Net cash provided by (used in)
operating activities 173,648 114,014 (8,119) (53,683)
--------- --------- --------- ---------
Cash flows from investing activities:
Capital expenditures (27,056) (9,615) (58,280) (62,603)
Short term investments (245,284) -- 86,073 --
Other assets (23,184) -- (23,184) --
--------- --------- --------- ---------
Net cash provided by (used in)
investing activities (295,524) (9,615) 4,609 (62,603)
--------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock options,
net of notes receivable 1,855 1,798 10,298 3,859
--------- --------- --------- ---------
Net cash provided by financing
activities 1,855 1,798 10,298 3,859
--------- --------- --------- ---------
Net increase (decrease) in
cash and cash equivalents (120,021) 106,197 6,788 (112,427)
Cash and cash equivalents at beginning of period 437,363 772,284 310,554 990,908
--------- --------- --------- ---------
Cash and cash equivalents at end of period $ 317,342 878,481 317,342 878,481
========= ========= ========= =========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
Page 4 of 8
<PAGE>
SIERRA MONITOR CORPORATION
Notes to the Financial Statements
September 30, 1996
The unaudited financial statements have been prepared by the Company pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to such SEC rules and regulations; nevertheless, the Company
believes that the disclosures are adequate to make the information presented not
misleading. These financial statements and the notes hereto should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995 which
was filed March 28, 1996. In the opinion of the Company, all adjustments,
including normal recurring adjustments necessary to present fairly the financial
position of Sierra Monitor Corporation as of September 30, 1996 and the results
of its operations and cash flows for the quarter then ended, have been included.
The results of operations for the interim period are not necessarily indicative
of the results for the full year.
Accounting Policies
There have been no changes in accounting policies used by the Company during the
quarter ended September 30, 1996.
Summary of Business
Sierra Monitor Corporation ("SMC" or the Company") was founded in 1978 to design
and develop hazardous gas monitoring devices for protection of personnel and
facilities in industrial work places.
Products manufactured by the Company are sold primarily to oil and gas drilling
and refining companies, chemical plants, waste water treatment plants,
telecommunications companies, parking garages and landfill rehabilitation
projects.
Inventories
A summary of inventories follows:
September 30, December 31,
1996 1995
---- ----
Raw materials $313,319 $264,754
Work-in-process 336,841 244,959
Finished goods 89,830 95,767
-------- --------
$739,990 $605,480
======== ========
Page 5 of 8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the Financial
Statements and related notes thereto included in this report. The following
discussion contains forward-looking statements and the Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of numerous factors, including those set forth in the
following discussion and elsewhere in this report.
Results of Operations
For the three months ended September 30, 1996 Sierra Monitor Corporation (the
"Company") reported net sales of $1,303,581 compared to $1,347,256 for the three
months ended September 30, 1995. For the nine month period ended September 30,
1996 net sales were $3,762,137 compared with $3,559,052 in the prior year nine
month period.
The results for the third quarter of 1996 represent a 3.2% decline from the same
period in the prior year. The results for the first nine months of 1996
represent a 5.7% increase from the same period in the prior year. Although the
mix of product sales is approximately the same in each of the reported periods,
there were less shipments of large projects in the third quarter of 1996
compared with the third quarter of 1995. The higher sales for the year to date
period are due to the higher sales, previously reported, in the first six months
of the year.
Gross profit for the three month period ended September 30, 1996 was 61.7% of
sales compared to 59.9% in the same period in the previous year. The gross
profit for the nine month period ended September 30, 1996 was 61.5% compared to
61.3% in the same period in the previous year. The general level of profit
margins is consistent with historical results.
Expenses for research and development, which include new product development and
engineering to sustain existing products, were $105,720 for the three month
period ending September 30, 1996 compared to $100,657 in the comparable period
in 1995. In the nine month periods ending September 30, 1996 and September 30,
1995, research and development expenses were $333,696 and $304,745 respectively.
The higher expenses in both the three month and nine month periods ending
September 30, 1996 are due to outside consulting expenses related to new product
development.
Selling and marketing costs for the three month period ended September 30, 1996
increased to $417,390, or 32.0% of net sales, from $413,514, or 30.7% of net
sales, in the prior year period. For the nine month periods ending September 30,
1996 and September 30, 1995, selling and marketing costs were $1,238,550, or
32.9% of net sales, and $1,224,696, or 34.4% of net sales, respectively. The
higher selling and marketing expenses in both the three month and nine month
periods ending September 30, 1996 are due, primarily, to higher salary costs.
Page 6 of 8
<PAGE>
General and administrative costs increased to $207,932 for the three month
period ended September 30, 1996 from $204,977 in the three month period ended
September 30, 1995. General and administrative costs increased to $656,746 for
the nine month period ended September 30, 1996 from $595,410 in the nine month
period ended September 30, 1995. While there were no significant changes in
general and administrative costs for the third quarter, the costs for the nine
month period ended September 30, 1996 include approximately $25,000 of one time
expenses for new employee training. A reclassification of field service income
contributed approximately $28,000 of additional general and administrative in
expenses in the 1996 period.
Net income, after interest and taxes, for the three months ended September 30,
1996 was $80,592, or 6.2% of net sales, compared with $85,626 or 6.4% of net
sales, in the three months ended September 30, 1996. Net income for the nine
month period ended September 30, 1996 was $100,479 compared with income of
$69,146 in the same period in the prior year.
The lower income for the three month period is due to the lower sales level
combined with higher fixed costs in each expense category. The higher income for
the year to date period is due to higher overall sales levels in the first six
months of 1996, somewhat offset by higher fixed expenses in the same period.
Liquidity and Capital Resources
Working capital at September 30, 1996 was $2,140,139 compared to $2,274,536 at
December 31, 1995.
Inventory levels at September 30, 1996 were approximately 20% higher compared to
December 31, 1995. The increases are due to higher production levels in the
third quarter of 1996 compared to the fourth quarter of 1995. In addition,
inventories have been increased in anticipation of future sales of the Company's
new product for telephone company applications.
Prepaid expenses increase to $155,099 at September 30, 1996 compared to $40,200
at December 31, 1995. The increases include prepaid product liability insurance
which is amortized on a monthly basis, and prepayment of various costs
associated with third party approval programs. Third party approvals are an
investment in future marketability of the Company's products and are capitalized
at the time the approvals are received.
At September 30, 1996, cash and cash equivalents and short term investments,
totaled $808,393 compared to $887,678 at December 31, 1995. The reduction is due
, in part, to the changes in inventory levels and prepaid expenses, offset by
operating income. The short term investments consist of certain certificates of
deposits with original maturities greater than 90 days. The Company has not
drawn on its line of credit with its commercial bank. The Company believes that
the current capital resources, including cash and cash equivalents and its line
of credit with a commercial bank, are sufficient to support existing and
anticipated levels of business.
Future Results:
The Company's future operating results may be affected by a number of factors,
including general economic conditions in both foreign and domestic markets,
cyclical factors affecting the Company's industry, lack of growth in the
Company's end-markets, and the Company's ability to develop, manufacture, and
sell both new and existing products at a profitable but competitive price.
Page 7 of 8
<PAGE>
PART II: OTHER INFORMATION
Item 1. Legal Proceedings - N/A
Item 2. Changes in Securities - N/A
Item 3. Defaults Upon Senior Securities - N/A
Item 4. Submission of Matters to a Vote of Security Holders - N/A
Item 5. Other Information - N/A
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits.
11.1 Computation of earnings per share
27.0 Financial Data Schedule
b. Reports on Form 8-K - None
SIGNATURE
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 the
undersigned thereunto duly authorized.
SIERRA MONITOR CORPORATION
Registrant
Date: November 14, 1996 By: /S/ GORDON R. ARNOLD
------------------------------------
Gordon R. Arnold
President
Chief Financial Officer
Page 8 of 8
EXHIBIT 11.1
SIERRA MONITOR CORPORATION
<TABLE>
NET EARNINGS PER SHARE COMPUTATIONS
(unaudited)
<CAPTION>
(All amounts in thousands except per share data)
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
------------- ------------- ------------- -------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Weighted average shares outstanding
Common Stock 10,332 10,277 10,311 10,262
Common Stock equivalents -
options and warrants 378 160 379 202
------ ------ ------ ------
Total weighted average shares
outstanding 10,710 10,437 10,690 10,464
====== ====== ====== ======
Net income $ 80.6 $ 85.6 $100.5 $ 69.1
====== ====== ====== ======
Net income per share $ 0.01 $ 0.01 $ 0.01 $ 0.01
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 317
<SECURITIES> 491
<RECEIVABLES> 964
<ALLOWANCES> 63
<INVENTORY> 740
<CURRENT-ASSETS> 2792
<PP&E> 971
<DEPRECIATION> 884
<TOTAL-ASSETS> 2958
<CURRENT-LIABILITIES> 652
<BONDS> 0
<COMMON> 2912
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2958
<SALES> 3762
<TOTAL-REVENUES> 3762
<CGS> 1450
<TOTAL-COSTS> 1450
<OTHER-EXPENSES> 2229
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (17)
<INCOME-PRETAX> 100
<INCOME-TAX> 0
<INCOME-CONTINUING> 100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 100
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
