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 September 30, 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 95-2481914
(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 of the issuer's common stock outstanding, as of September
30, 1997 was: 10,566,263.
Transitional Small Business Disclosure Format: Yes____ No __ x ___
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
SIERRA MONITOR CORPORATION
Balance Sheets
<CAPTION>
September 30, December 31,
1997 1996
----------------- ------------------
Assets (Unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 259,602 478,910
Short-term investments 540,230 246,781
Trade receivables, less allowance for doubtful accounts
of $46,337 in 1997 and $45,598 in 1996 1,027,310 1,040,989
Inventories 823,854 717,865
Prepaid expenses 110,375 51,556
Deferred income taxes 211,000 211,000
----------------- ------------------
Total current assets 2,972,371 2,747,101
Property and equipment, net 108,457 84,653
Other assets 62,274 92,378
----------------- ------------------
$ 3,143,102 2,924,132
================= ==================
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 289,176 291,371
Accrued expenses 250,621 214,408
Other current liabilities 52,075 38,741
Income taxes payable 28,438 23,547
----------------- ------------------
Total current liabilities 620,310 568,067
----------------- ------------------
Shareholders' equity
Common stock 2,937,035 2,912,493
Accumulated deficit (388,321) (546,701)
Notes receivable from shareholders (25,922) (9,727)
----------------- ------------------
Total shareholders' equity 2,522,792 2,356,065
----------------- ------------------
$ 3,143,102 2,924,132
================= ==================
<FN>
See the accompanying notes to the financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
SIERRA MONITOR CORPORATION
Statements of Operations
(Unaudited)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
--------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net sales $ 1,474,040 1,303,581 3,805,016 3,762,137
Cost of goods sold 521,627 499,687 1,404,488 1,450,008
--------------- ---------------- ---------------- ----------------
Gross profit 952,413 803,894 2,400,528 2,312,129
--------------- ---------------- ---------------- ----------------
Operating expenses
Research and development 115,625 105,720 296,446 333,696
Selling and marketing 424,587 417,390 1,262,372 1,238,550
General and administrative 217,204 207,932 688,049 656,746
--------------- ---------------- ---------------- ----------------
757,416 731,042 2,246,867 2,228,992
--------------- ---------------- ---------------- ----------------
Income from operations 194,997 72,852 153,661 83,137
Interest income 9,331 5,702 20,958 17,342
--------------- ---------------- ---------------- ----------------
Income before income taxes 204,328 78,554 174,619 100,479
Income tax expense (benefit) 16,239 (2,039) 16,239 -
--------------- ---------------- ---------------- ----------------
Net income $ 188,089 80,593 158,380 100,479
=============== ================ ================ ================
Net income per share $ 0.02 0.01 0.01 0.01
=============== ================ ================ ================
Weighted average common
shares outstanding 10,745,878 10,710,304 10,721,562 10,689,935
=============== ================ ================ ================
<FN>
See the accompanying notes to the financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
SIERRA MONITOR CORPORATION
<CAPTION>
Statements of Cash Flows
(Unaudited)
Three months ended Nine months ended
September 30, September 30
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 188,089 80,593 158,380 100,479
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation & amortization 29,754 29,726 86,937 96,687
Allowance for doubtful accounts (1,476) (11,186) 1,844 (7,791)
Changes in items affecting operations:
Trade receivables (252,919) 96,219 11,835 5,352
Inventories (4,928) (57,529) (105,988) (134,510)
Prepaid expenses (43,582) (40,172) (58,819) (114,899)
Accounts payable 24,497 39,960 (2,195) 128
Accrued expenses 43,792 215 36,213 (3,892)
Other current liabilities 23,232 35,822 13,334 61,442
Income taxes payable 16,160 - 4,891 (11,115)
------------- ------------- ------------- -------------
Net cash provided by (used in)
operating activities 22,619 173,648 146,432 (8,119)
------------- ------------- ------------- -------------
Cash flows from investing activities:
Capital expenditures (27,208) (27,056) (80,637) (58,280)
Short term investments (293,962) (245,284) (293,449) 86,073
Other assets - (23,184) - (23,184)
------------- ------------- ------------- -------------
Net cash provided by (used in)
investing activities (321,170) (295,524) (374,086) 4,609
------------- ------------- ------------- -------------
Cash flows from financing activities:
Proceeds from exercise of stock options,
net of notes receivable 1,968 1,855 8,346 10,298
------------- ------------- ------------- -------------
Net cash provided by financing
activities 1,968 1,855 8,346 10,298
------------- ------------- ------------- -------------
Net increase (decrease) in
cash and cash equivalents (296,583) (120,021) (219,308) 6,788
Cash and cash equivalents at beginning of period 556,185 437,363 478,910 310,554
------------- ------------- ------------- -------------
Cash and cash equivalents at end of period $ 259,602 317,342 259,602 317,342
============= ============= ============= =============
<FN>
See the accompanying notes to the financial statements.
</FN>
</TABLE>
<PAGE>
SIERRA MONITOR CORPORATION
Notes to the Financial Statements
September 30, 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 September 30, 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 September 30, 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:
September 30, December 31,
1997 1996
-------- --------
Raw materials $348,187 $275,024
Work-in-process 339,797 324,042
Finished goods 135,870 118,799
-------- --------
$823,854 $717,865
======== ========
<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, 1997 Sierra Monitor Corporation (the
"Company") reported net sales of $1,474,040 compared to $1,303,581 for the three
months ended September 30, 1996. For the nine month period ended September 30,
1997 net sales were $3,805,016 compared with $3,762,137 in the prior year nine
month period. The results for the third quarter represent a 13% increase from
the same period in the prior year. The results for the nine month period
represent a 1% increase from the same period in the prior year. Sales of
products for telephone company applications and sales to the Navy improved
during the third quarter of 1997 compared to the results for the same quarter in
1996. Sales of the same two product groups are higher for the nine month period
in 1997 compared to the prior year. Sales of multi-point gas monitoring systems,
which were lower in the second quarter of 1997 improved during the third
quarter, but remain below the sales levels achieved in 1996.
Gross profit of $952,413 for the three month period ended September 30, 1997 was
65% of sales compared to $803,894 or 62% of sales in the same period in the
previous year. The gross profit for the nine month period ended September 30,
1997 was $2,400,528 or 63% of sales compared to $2,312,129 or 61% in the same
period in the previous year. The higher gross profit in the third quarter of
1997 is due to the changes in product mix of goods sold and the efficiencies of
higher volume. The Company anticipates that price discounting on large projects
will cause the gross profit margin to return to historical levels in future
reporting periods.
Expenses for research and development, which include new product development and
engineering to sustain existing products, were $115,625 for the three month
period ending September 30, 1997 compared to $105,720 in the comparable period
in 1996. In the nine month periods ending September 30, 1997 and September 30,
1996, research and development expenses were $296,446 and $333,696 respectively.
Research and development expenses were low during the first six months of 1997
due to a temporary reduction in new product development and corresponding
reductions in consultant and labor costs. During the third quarter ending
September 30, 1997 product development activity, and corresponding expenses,
returned to normal levels.
Selling and marketing expenses for the three month period ended September 30,
1997 were $424,587, or 29% of sales compared to $417,390, or 32% of sales, in
the prior year period. The lower selling expenses as a percentage of sales is
due to the efficiency of increased volume. For the nine month periods ending
September 30, 1997 and September 30, 1996, selling and marketing expenses were
$1,262,372, and $1,238,550, respectively. Selling expenses in both nine month
periods were 33% of sales.
<PAGE>
General and administrative costs were $217,204 for the three month period ended
September 30, 1997 compared to $207,932 in the three month period ended
September 30, 1996. Higher salary and professional service costs were partially
offset by lower product liability insurance and capital equipment depreciation
expenses for the three month period ended September 30, 1997, compared to the
same period in 1996. General and administrative costs increased to $688,049 for
the nine month period ended September 30, 1997 from $656,746 in the nine month
period ended September 30, 1996. The year to date increase in general and
administrative costs is due to higher salary, labor and benefit costs.
Net income for the three months ended September 30, 1997 was $188,089 or 13% of
net sales, compared with $80,593 or 6% of net sales, in the three months ended
September 30, 1996. Net income for the nine month period ended September 30,
1997 was $158,380 compared with net income of $100,479 in the same period in the
prior year. The higher income is the result of improved results in the third
quarter including higher sales and lower cost of goods sold without significant
increases in fixed expenses.
Liquidity and Capital Resources
Working capital at September 30, 1997 increased to $2,352,061 compared to
$2,179,034 at December 31, 1996. The increase is due, in part, to increased
operating income, offset by changes in inventory levels and prepaid expenses. At
September 30, 1997, cash and cash equivalents plus short term investments
totaled $799,832 compared to $725,691 at December 31, 1996. Short term
investments consist of certain certificates of deposits with original Federal
Agency Securities with maturities greater than 90 days.
Inventory levels at September 30, 1997 were approximately 15% higher compared to
December 31, 1996. Inventory levels increased during the second quarter of 1997
when anticipated sales failed to materialize. During the third quarter, ended
September 30, 1997, inventory levels remained approximately flat.
Prepaid expenses increased to $110,375 at September 30, 1997 compared to $51,556
at December 31, 1996. Prepaid expenses vary throughout the year due to
prepayments of insurance, which are amortized on a monthly basis, and third
party approval service deposits.
The Company has not drawn on its line of credit with its commercial bank and
believes that the current capital resources, including cash, cash equivalents,
short term investments, and its line of credit, 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>
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 10, 1997 By: /S/ GORDON R. ARNOLD
------------------------------
Gordon R. Arnold
President
Chief Financial Officer
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 Nine Months Ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
------------- ------------- ------------- --------
<S> <C> <C> <C> <C>
Weighted average shares outstanding
Common Stock 10,556 10,332 10,436 10,311
Common Stock equivalents -
options 190 378 285 379
------------- ------------- ------------ --------
Total weighted average shares
outstanding 10,746 10,710 10,722 10,690
============= ============= ============ ========
Net income $ 188.1 $ 80.6 $158.4 $ 100.5
============= ============= ============ ========
Net income per share $ 0.02 $ 0.01 $ 0.01 $ 0.01
============= ============= ============ ========
</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 NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<PERIOD-TYPE> 9-MOS
<CASH> 260
<SECURITIES> 540
<RECEIVABLES> 1074
<ALLOWANCES> 46
<INVENTORY> 824
<CURRENT-ASSETS> 2972
<PP&E> 1064
<DEPRECIATION> 955
<TOTAL-ASSETS> 3143
<CURRENT-LIABILITIES> 620
<BONDS> 0
0
0
<COMMON> 2937
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3143
<SALES> 3805
<TOTAL-REVENUES> 3805
<CGS> 1404
<TOTAL-COSTS> 1404
<OTHER-EXPENSES> 2247
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (21)
<INCOME-PRETAX> 175
<INCOME-TAX> 16
<INCOME-CONTINUING> 158
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 158
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
