U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - QSB
(Mark One)
( X ) Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended March 31, 1997.
--------------
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 small business issuer as specified in its charter)
California 95-24819414
(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 of the issuer's common stock outstanding, as of May 9, 1997
was 10,332,513.
Traditional Small Business Disclosure Format: Yes ; No X
---- ----
Page 1 of 8
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SIERRA MONITOR CORPORATION
Balance Sheets
March 31, December 31,
1997 1996
-------------- ------------
Assets (unaudited)
Current assets:
Cash and cash equivalents $ 502,534 478,910
Short-term investments 248,688 246,781
Trade receivables, less allowance for doubtful
accounts of $46,743 in 1997 and $45,598
in 1996, respectively 888,739 1,040,989
Inventories 723,456 717,865
Prepaid expenses 52,489 51,556
Deferred income taxes 211,000 211,000
----------- -----------
Total current assets 2,626,906 2,747,101
Property and equipment, net 107,559 84,653
Other assets 85,478 92,378
----------- -----------
$ 2,819,943 2,924,132
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 230,433 291,371
Accrued compensation expenses 233,485 214,408
Other current liabilities 35,669 38,741
Income taxes payable 12,278 23,547
----------- -----------
Total current liabilities 511,865 568,067
Shareholders' equity:
Common stock 2,912,493 2,912,493
Accumulated deficit (596,244) (546,701)
Note receivable from shareholders (8,171) (9,727)
----------- -----------
Total shareholders' equity 2,308,078 2,356,065
----------- -----------
$ 2,819,943 2,924,132
=========== ===========
See the accompanying notes to the financial statements.
Page 2 of 8
<PAGE>
SIERRA MONITOR CORPORATION
Statements of Operations
(unaudited)
For the three months ended
----------------------------
March 31, March 31,
1997 1996
------------ -----------
Net sales $ 1,146,157 1,096,626
Cost of goods sold 460,303 427,562
----------- -----------
Gross profit 685,854 669,064
----------- -----------
Operating expenses
Research and development 96,923 110,051
Selling and marketing 415,222 402,472
General and administrative 228,454 228,860
----------- -----------
740,599 741,383
----------- -----------
Loss from operations 54,745 72,319
Interest income 5,202 4,057
----------- -----------
Net loss $ 49,543 68,262
=========== ===========
Net loss per share $ 0.00 0.01
=========== ===========
Weighted average common shares outstanding 10,332,513 10,276,888
=========== ===========
See the accompanying notes to the financial statements.
Page 3 of 8
<PAGE>
<TABLE>
SIERRA MONITOR CORPORATION
Statements of Cash Flows
(Unaudited)
<CAPTION>
For the three months ended
--------------------------
March 31, March 31,
1997 1996
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (49,543) (68,262)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 26,603 34,967
Allowance for doubtful accounts 2,250 1,145
Change in items affecting operations
Trade receivables 150,000 27,477
Inventories (5,591) (74,100)
Prepaid expenses (933) (40,127)
Accounts payable (60,938) (55,674)
Accrued compensation expenses 19,077 17,501
Other current liabilities (3,072) 32,914
Income taxes payable (11,269) (11,115)
--------- ---------
Net cash provided by (used in) operating
activities 66,584 (135,274)
--------- ---------
Cash flows from investment activities:
Capital expenditures (42,609) (26,154)
Short term investments (1,907) 331,207
--------- ---------
Net cash provided by (used in) investing (44,516) 305,053
activities --------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock options
net of notes receivable 1,556 6,073
--------- ---------
Net cash provided by financing activities 1,556 6,073
--------- ---------
Net increase decrease in cash and cash equivalents 23,624 175,852
Cash and cash equivalents at beginning of period 478,910 310,554
--------- ---------
Cash and cash equivalents at end of period $ 502,534 486,406
========= =========
<FN>
See the accompanying notes to the financial statements.
</FN>
</TABLE>
Page 4 of 8
<PAGE>
SIERRA MONITOR CORPORATION
Notes to the Financial Statements
March 31, 1997
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-KSB for the year ended December 31, 1996
which was filed March 31, 1997. 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 March 31, 1997 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 March 31, 1997.
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:
March 31, December 31,
1997 1996
---- ----
Raw Materials $ 299,366 275,024
Work-in-process 295,388 324,042
Finished goods 128,702 118,799
------- ---------
$ 723,456 717,865
======= =======
New Accounting Standard
The Financial Accounting Standards Board issued its Statement of Accounting
Standards No. 128, "Earnings Per Share." SFAS No. 128 requires the presentation
of basic earnings per share ("EPS") and, for companies with complex capital
structures, diluted EPS. SFAS No. 128 is effective for annual and interim
periods ending after December 15, 1997. The Company expects that EPS will not
differ materially from earnings per share as presented in the accompanying
financial statements.
Page 5 of 8
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
For the three months ended March 31, 1997 Sierra Monitor Corporation (the
"Company") reported net sales of $1,146,157 compared to $1,096,626 for the three
months ended March 31, 1996. The results for the first quarter of 1997 represent
a 4.5% increase from the same period in the prior year. The revenue for the
first quarter of 1997 includes $68,600 of net sales of the Company's new
environment controller for telephone company applications. There were no sales
of the environment controller in the prior year period.
Gross profit for the three month period ended March 31, 1997 was $685,854 or
59.8% of net sales, compared to $669,064 or 61.0% of net sales, in the same
period in the previous year. The lower margin in the current quarter is due, in
part, to higher material costs related to the start up of the manufacture and
production of the environment controller.
Expenses for research and development, which include new product development and
engineering to sustain existing products, were $96,923 for the three month
period ended March 31, 1997, compared with $110,051 in the comparable period in
1996. In the first quarter of 1997 there were less outside consulting expenses
related to new product development than in the same period in the prior year.
Selling and marketing costs for the three month period ended March 31, 1997 were
$415,222, or 36.2% of net sales, compared to $402,472, or 36.7% of net sales, in
the same period in the prior year. Commissions to independent sales
representatives decreased by 2.0% of net sales in the first quarter of 1997
compared to the same period in 1996. Commission costs vary based on the product
mix, regional mix, and discount level of sales. The lower commission costs were
offset by the cost of development and printing of new product brochures,
resulting in no significant change in total selling and marketing costs.
General and administrative costs for the first quarter of 1997 were $228,454 or
19.9% of net sales compared to $228,860 or 20.9% in the same period in the prior
year. There were no significant changes in general and administrative expenses.
Net loss for the three month period ended March 31, 1997 was $49,543 or 4.3% of
net sales, compared with a net loss of $68,262 or 6.2% of net sales for the same
period in the prior year. Although sales increased and total fixed costs
remained constant as compared with the first quarter of 1996, the lower gross
margin, due to higher costs of goods sold, contributed to the net loss.
During the first quarter of 1997 collection of accounts receivable, combined
with lower sales than the fourth quarter of 1996, resulted in a decrease in
trade receivables of $150,000. The current level of trade receivables is
consistent with the Company's collection experience. Cash generated by the
collections in the first quarter contributed to a $60,938 reduction in accounts
payable.
Liquidity and Capital Resources:
During the period ended March 31, 1997, the Company's working capital decreased
by $63,993 compared to December 31, 1996. Capital expenditures related to
upgrading of the telephone system to provide voice mail capabilities, and
purchase of laptop computers for regional sales offices contributed to the
decrease.
At March 31, 1997, cash and cash equivalents and short term investments, totaled
$751,222. The short term investments consist of certain certificates of deposit
with original maturities greater than 90 days.
Page 6 of 8
<PAGE>
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 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: May 13, 1997 By: /s/ Gordon R. Arnold
---------------------------------
Gordon R. Arnold
President
Chief Financial Officer
Page 8 of 8
EXHIBIT 11.1
<TABLE>
SIERRA MONITOR CORPORATION
NET INCOME (LOSS) PER SHARE COMPUTATIONS
QUARTERS ENDED MARCH 31, 1997 AND 1996
(unaudited)
<CAPTION>
(All amounts in thousands except per share amounts)
For the three month period ended March 31,
------------------------------------------
1997 1996
---- ----
<S> <C> <C>
Weighted average shares outstanding
Common Stock 10,333 10,277
====== ======
Total weighted average shares
outstanding 10,333 10,277
====== ======
Net loss $50 $68
====== ======
Net loss per share $0.00 $0.01
====== ======
<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
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE NOTE THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Mar-31-1997
<PERIOD-TYPE> 3-MOS
<CASH> 503
<SECURITIES> 249
<RECEIVABLES> 935
<ALLOWANCES> 47
<INVENTORY> 889
<CURRENT-ASSETS> 2627
<PP&E> 1027
<DEPRECIATION> 920
<TOTAL-ASSETS> 2820
<CURRENT-LIABILITIES> 512
<BONDS> 0
0
0
<COMMON> 2912
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2820
<SALES> 1146
<TOTAL-REVENUES> 1146
<CGS> 460
<TOTAL-COSTS> 460
<OTHER-EXPENSES> 741
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (5)
<INCOME-PRETAX> (49)
<INCOME-TAX> 0
<INCOME-CONTINUING> (49)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (49)
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
