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 June 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 0-744
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 _____
-----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock: 10,332,513 shares outstanding as of June 30, 1996.
Page 1 of 9
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
SIERRA MONITOR CORPORATION
Balance Sheets
<CAPTION>
June 30, December 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 437,363 310,554
Short-term investments 245,767 577,124
Trade receivables, less allowance for doubtful
accounts of $64,551 in 1996 and $61,156 in 1995 985,968 898,496
Inventories 682,461 605,480
Prepaid expenses 114,927 40,200
Deferred income taxes 188,000 188,000
---------- ---------
Total current assets 2,654,486 2,619,854
Property and equipment, net 81,972 101,463
Other assets 62,688 78,934
---------- ---------
$2,799,146 2,800,251
========== =========
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 265,861 305,693
Accrued expenses 261,458 265,565
Other current liabilities 48,962 23,342
Income taxes payable - 11,115
---------- ---------
Total current liabilities 576,281 605,715
---------- ---------
Shareholders' equity
Common stock 2,912,493 2,903,270
Accumulated deficit (676,245) (696,131)
Notes receivable from shareholders (13,383) (12,603)
---------- ---------
Total shareholders' equity 2,222,865 2,194,536
---------- ---------
$2,799,146 2,800,251
========== =========
<FN>
The accompanying notes are an integral part of these financial statements
</FN>
</TABLE>
Page 2 of 9
<PAGE>
<TABLE>
SIERRA MONITOR CORPORATION
Statements of Operations
(Unaudited)
<CAPTION>
Three months ended June 30, Six months ended June 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $1,361,930 1,217,591 2,458,556 2,211,796
Cost of goods sold 522,759 458,691 950,321 838,802
---------- ---------- ---------- ----------
Gross profit 839,171 758,900 1,508,235 1,372,994
---------- ---------- ---------- ----------
Operating expenses
Research and development 117,925 113,981 227,976 204,088
Selling and marketing 418,689 446,164 821,161 811,182
General and administrative 219,953 199,308 448,813 390,433
---------- ---------- ---------- ----------
756,567 759,453 1,497,950 1,405,703
---------- ---------- ---------- ----------
Income (loss) from operations 82,604 (553) 10,285 (32,709)
Interest income 7,583 7,862 11,640 16,229
---------- ---------- ---------- ----------
Income (loss) before income taxes 90,187 7,309 21,925 (16,480)
Income taxes 2,039 -- 2,039 --
---------- ---------- ---------- ----------
Net income (loss) $ 88,148 7,309 19,886 (16,480)
========== ========== ========== ==========
Net income (loss) per share $ 0.01 0.00 0.00 0.00
========== ========== ========== ==========
Weighted average common
shares outstanding 10,737,102 10,587,013 10,686,270 10,580,763
========== ========== ========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
Page 3 of 9
<PAGE>
<TABLE>
SIERRA MONITOR CORPORATION
Statements of Cash Flows
(Unaudited)
<CAPTION>
Three months ended Six months ended
June 30, June 30
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 88,148 7,309 19,886 (16,480)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation & amortization 31,995 33,136 66,961 66,865
Allowance for doubtful accounts 2,250 (514) 3,395 1,736
Changes in items affecting operations:
Trade receivables (118,344) (196,859) (90,867) (315,010)
Inventories (2,881) 69,941 (76,981) 89,084
Prepaid expenses (34,602) (76,356) (74,727) (111,344)
Accounts payable 15,842 55,296 (39,832) 33,910
Accrued expenses (21,607) 52,924 (4,107) 100,166
Other current liabilities (7,294) -- 25,620 (16,624)
Income taxes payable -- -- (11,115) --
--------- --------- --------- ---------
Net cash used in
operating activities (46,493) (55,123) (181,767) (167,697)
--------- --------- --------- ---------
Cash flows from investing activities:
Capital expenditures (5,070) (37,210) (31,224) (52,988)
Short term investments 150 -- 331,357 --
--------- --------- --------- ---------
Net cash provided by (used in)
investing activities (4,920) (37,210) 300,133 (52,988)
--------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock options,
net of notes receivable 2,370 1,195 8,443 2,061
--------- --------- --------- ---------
Net cash provided by financing activities 2,370 1,195 8,443 2,061
--------- --------- --------- ---------
Net increase (decrease) in
cash and cash equivalents (49,043) (91,138) 126,809 (218,624)
Cash and cash equivalents at beginning of period 486,406 863,422 310,554 990,908
--------- --------- --------- ---------
Cash and cash equivalents at end of period $ 437,363 772,284 437,363 772,284
========= ========= ========= =========
<FN>
See accompanying notes.
</FN>
</TABLE>
Page 4 of 9
<PAGE>
SIERRA MONITOR CORPORATION
Notes to the Financial Statements
June 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 June 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 June 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:
June 30, December 31,
1996 1995
---- ----
Raw materials $308,594 $264,754
Work-in-process 281,317 244,959
Finished goods 92,550 95,767
-------- --------
$682,461 $605,480
======== ========
Page 5 of 9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
For the three months ended June 30, 1996, Sierra Monitor Corporation (the
"Company") reported net sales of $1,361,930 compared to $1,217,591 for the three
months ended June 30, 1995. For the six month period ended June 30, 1996, net
sales were $2,458,556 compared with $2,211,796 in the prior year six month
period.
The results for the second quarter of 1996 represent a 12% increase from the
same period in the prior year. The results for the first half of 1996 represent
an 11% increase from the same period in the prior year. In both periods, sales
of systems based on the Sentry controller for larger installations, and sales of
gas monitors to telephone companies, improved as compared to the same period in
the prior year.
Gross profit of $839,171 for the three month period ended June 30, 1996 was
61.6% of sales compared to $758,900, or 62.3% of sales, in the same period in
the previous year. The gross profit for the six month period ended June 30, 1995
was $1,508,235, or 61.3% of sales, compared to $1,372,994, or 62.1% of sales, in
the same period in the previous year. The general level of the margins are
consistent with historical results. List prices for all the Company's products
were increased five percent in the quarter ended June 30, 1996 reflecting the
general trend in increased material and labor costs.
Expenses for research and development, which include new product development and
engineering to sustain existing products, were $117,925, or 8.6% of sales, for
the three month period ending June 30, 1996 compared to $113,981, or 9.4% of
sales, in the comparable period in 1995. In the six month periods ending June
30, 1996 and June 30, 1995, research and development expenses were $227,976, or
9.3% of sales, and $204,088, or 9.2% of sales, respectively. There were no
significant changes in research and development activities.
Selling and marketing costs for the three-month period ended June 30, 1996
decreased to $418,689, or 30.7% of sales, from $446,164, or 36.6% of sales, in
the prior year period. For the six month periods ending June 30, 1996 and June
30, 1995, selling and marketing costs were $821,161, or 33.4% of sales, and
$811,182, or 36.7% of sales, respectively. Selling and marketing costs were
higher in the first half of 1995, compared to the same period in 1996, primarily
due to the design and publication of several items of sales literature.
General and administrative costs increased to $219,953, or 16.2% of sales, for
the three month period ended June 30, 1996 from $199,308, or 16.4% percent of
sales, in the three month period ended June 30, 1995. General and administrative
costs increased to $448,813, or 18.3% of sales, for the six month period ended
June 30, 1996 from $390,433, or 17.7% of sales, in the six month period ended
June 30, 1995. While there are no significant changes in the costs for the
second quarter, the general and administrative expenses for the six month period
include approximately $25,000 of new employee training expenses which were
incurred in the first quarter.
Net income, after interest and provision for income taxes, for the three months
ended June 30, 1996 was $88,148, or 6.5% of net sales, compared with $7,309 or
0.6% of net sales, in the three months ended June 30, 1995. Net income for the
six month period ended June 30, 1996 was $19,886 compared with a net loss of
$16,480 in the same period in the prior year. The increase in net income for the
second quarter is a result of the increase in net sales without correspondingly
higher expenses. The net income for the
Page 6 of 9
<PAGE>
year to date period is lower than the net income for the second quarter due to
the net loss reported for first quarter of 1996. The income per share for the
second quarter of 1996 was $0.01.
Liquidity and Capital Resources
Working capital at June 30, 1996 was $2,078,205 compared to $2,014,139 at
December 31, 1995. The total of cash and cash equivalents and short term
investments at June 30, 1996 was $683,130 compared to $887,678 at December 31,
1995. The change in cash and short term investments is primarily due to
increases in accounts receivable, $87,472, inventories, $76,981 which are the
result of higher level of sales. Prepaid expenses increased by $74,727 primarily
due to prepayment of the Company's annual product liability insurance policy.
Short term investments consist of certain certificates of deposit 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 its current capital
resources 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 9
<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
The Annual Meeting of Shareholders was held on May 9, 1996. At the
meeting the following directors were elected:
Number of Common Shares Voted
-----------------------------
Directors For Withheld
--------- --- --------
Gordon R. Arnold 6,688,189 0
C. Richard Kramlich 6,688,189 0
Jay T. Last 6,688,189 0
In addition, the shareholders approved the following proposals
Number of Common Shares Voted
-----------------------------
Proposal For Against Abstain
-------- --- ------- -------
Adopt the 1996 Stock Plan and reserve 6,688,189 0 0
600,000 shares of Common Stock for
issuance thereunder.
Ratify the appointment of KPMG Peat 6,688,189 0 0
Marwick LLP as independent auditors
of the Company for the fiscal year
ending December 31, 1996.
There were no broker non-votes for any of the proposals
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
Page 8 of 9
<PAGE>
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: August 14, 1996 By:
----------------------------
Gordon R. Arnold
President
Chief Financial Officer
Page 9 of 9
EXHIBIT 11.1
<TABLE>
SIERRA MONITOR CORPORATION
NET EARNINGS PER SHARE COMPUTATIONS
(unaudited)
<CAPTION>
(All amounts in thousands except per share data)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
-------- -------- -------- --------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Weighted average shares outstanding
Common Stock 10,322 10,271 10,300 10,259
Common Stock equivalents -
options 415 316 386 (note)
------ ------ ------ ------
Total weighted average shares
outstanding 10,737 10,587 10,686 10,259
====== ====== ====== ======
Net income (loss) $ 88 $ 7 $ 20 $ (16)
====== ====== ====== ======
Net income (loss) per share $0.01 $0.00 $ 0.00 $ 0.00
====== ====== ====== ======
<FN>
Note: Common stock equivalents were excluded from the net loss per share
computations due to the antidilutive effect.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 437
<SECURITIES> 246
<RECEIVABLES> 1,050
<ALLOWANCES> 65
<INVENTORY> 682
<CURRENT-ASSETS> 2,654
<PP&E> 944
<DEPRECIATION> 862
<TOTAL-ASSETS> 2,799
<CURRENT-LIABILITIES> 576
<BONDS> 0
<COMMON> 2,912
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,799
<SALES> 2,458
<TOTAL-REVENUES> 2,458
<CGS> 950
<TOTAL-COSTS> 950
<OTHER-EXPENSES> 1,498
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (12)
<INCOME-PRETAX> 22
<INCOME-TAX> 2
<INCOME-CONTINUING> 20
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
