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 June 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 June 30,
1997 was: 10,566,263.
Transitional Small Business Disclosure Format: Yes____; No ___X__
Page 1 of 9
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SIERRA MONITOR CORPORATION
Balance Sheets
June 30, December 31,
1997 1996
---------- -----------
Assets (Unaudited)
Current assets
Cash and cash equivalents $ 556,185 478,910
Short-term investments 246,267 246,781
Trade receivables, less allowance for
doubtful accounts of $47,813 in
1997 and $45,598 in 1996 772,915 1,040,989
Inventories 818,925 717,865
Prepaid expenses 66,793 51,556
Deferred income taxes 211,000 211,000
----------- -----------
Total current assets 2,672,085 2,747,101
Property and equipment, net 98,588 84,653
Other assets 74,690 92,378
----------- -----------
$ 2,845,363 2,924,132
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 264,679 291,371
Accrued expenses 206,829 214,408
Other current liabilities 28,842 38,741
Income taxes payable 12,278 23,547
----------- -----------
Total current liabilities 512,628 568,067
----------- -----------
Shareholders' equity
Common stock 2,937,035 2,912,493
Accumulated deficit (576,410) (546,701)
Notes receivable from shareholders (27,890) (9,727)
----------- -----------
Total shareholders' equity 2,332,735 2,356,065
----------- -----------
$ 2,845,363 2,924,132
=========== ===========
See the accompanying notes to the financial statements.
Page 2 of 9
<PAGE>
<TABLE>
SIERRA MONITOR CORPORATION
Statements of Operations
(Unaudited)
<CAPTION>
Three months ended June 30, Six months ended June 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 1,184,819 1,361,930 2,330,976 2,458,556
Cost of goods sold 422,558 522,759 882,861 950,321
----------- ----------- ----------- -----------
Gross profit 762,261 839,171 1,448,115 1,508,235
----------- ----------- ----------- -----------
Operating expenses
Research and development 83,898 117,925 180,821 227,976
Selling and marketing 422,563 418,689 837,785 821,161
General and administrative 242,391 219,953 470,845 448,813
----------- ----------- ----------- -----------
748,852 756,567 1,489,451 1,497,950
----------- ----------- ----------- -----------
Income (loss) from operations 13,409 82,604 (41,336) 10,285
Interest income 6,425 7,583 11,627 11,640
----------- ----------- ----------- -----------
Income (loss) before income taxes 19,834 90,187 (29,709) 21,925
Income taxes -- 2,039 -- 2,039
----------- ----------- ----------- -----------
Net income (loss) $ 19,834 88,148 (29,709) 19,886
=========== =========== =========== ===========
Net income (loss) per share $ 0.00 0.01 0.00 0.00
=========== =========== =========== ===========
Weighted average common
shares outstanding 10,820,397 10,737,102 10,566,263 10,686,270
=========== =========== =========== ===========
<FN>
See the accompanying notes to the financial statements.
</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
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 19,834 88,148 (29,709) 19,886
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation & amortization 30,580 31,995 57,183 66,961
Allowance for doubtful accounts 1,070 2,250 3,320 3,395
Changes in items affecting operations:
Trade receivables 114,754 (118,344) 264,754 (90,867)
Inventories (95,469) (2,881) (101,060) (76,981)
Prepaid expenses (14,304) (34,602) (15,237) (74,727)
Accounts payable 34,246 15,842 (26,692) (39,832)
Accrued expenses (26,656) (21,607) (7,579) (4,107)
Other current liabilities (6,827) (7,294) (9,898) 25,620
Income taxes payable -- -- (11,269) (11,115)
--------- --------- --------- ---------
Net cash provided by (used in)
operating activities 57,228 (46,493) 123,813 (181,767)
--------- --------- --------- ---------
Cash flows from investing activities:
Capital expenditures (10,820) (5,070) (53,429) (31,224)
Short term investments 2,419 150 513 331,357
--------- --------- --------- ---------
Net cash provided by (used in)
investing activities (8,401) (4,920) (52,916) 300,133
--------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock options,
net of notes receivable 4,824 2,370 6,378 8,443
--------- --------- --------- ---------
Net cash provided by financing activities 4,824 2,370 6,378 8,443
--------- --------- --------- ---------
Net increase (decrease) in
cash and cash equivalents 53,651 (49,043) 77,275 126,809
Cash and cash equivalents at beginning of period 502,534 486,406 478,910 310,554
--------- --------- --------- ---------
Cash and cash equivalents at end of period $ 556,185 437,363 556,185 437,363
========= ========= ========= =========
<FN>
See the accompanying notes to the financial statements
</FN>
</TABLE>
Page 4 of 9
<PAGE>
SIERRA MONITOR CORPORATION
Notes to the Financial Statements
June 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 June 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 June 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:
June 30, December 31,
1997 1996
-------- --------
Raw materials $328,991 $275,024
Work-in-process 353,623 324,042
Finished goods 136,311 118,799
-------- --------
$818,925 $717,865
======== ========
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, 1997, Sierra Monitor Corporation (the
"Company") reported net sales of $1,184,819 compared to $1,361,930 for the three
months ended June 30, 1996. For the six month period ended June 30, 1997, net
sales were $2,330,976 compared with $2,458,556 in the prior year six month
period. The results for the second quarter of 1997 represent a 13% decrease from
the same period in the prior year. The results for the first half of 1997
represent a 5% decrease from the same period in the prior year. During the first
two months of the second quarter, bookings and sales improved compared to the
levels in the first quarter, but the trend did not continue in the final month
and the results fell short of the Company's expectations. Lower sales of both
multi-point gas monitoring systems and products for telephone company
applications were slightly offset by higher sales of military products single
point monitoring devices.
Gross profit of $762,261 for the three month period ended June 30, 1997 was
64.3% of sales compared to $839,171 or 61.6% of sales, in the same period in the
previous year. The gross profit for the six month period ended June 30, 1997 was
$1,448,115, or 62.1% of sales, compared to $1,508,235 or 61.3% of sales, in the
same period in the previous year. The higher margins in the second quarter are
primarily due to the change in the mix of products sold. The margins in the six
month year to date period are consistent with historical results.
Expenses for research and development, which include new product development and
engineering to sustain existing products, were $83,898, or 7.1% of sales, for
the three month period ending June 30, 1997 compared to $117,925, or 8.7% of
sales, in the comparable period in 1996. In the six month periods ending June
30, 1997 and June 30, 1996, research and development expenses were $180,821, or
7.8% of sales, and $227,976, or 9.3% of sales, respectively. In the first and
second quarters of 1997 there were less consulting expenses related to new
product development than in the same periods in the prior year.
Selling and marketing costs for the three month period ended June 30, 1997 were
$422,563, or 35.7% of sales, compared to $418,689, or 30.7% of sales, in the
comparable period in the prior year. For the six month periods ending June 30,
1997 and June 30, 1996, selling and marketing costs were $837,785, or 35.9% of
sales, and $821,161, or 33.4% of sales, respectively. Although there are no
significant changes in total selling and marketing costs, lower sales
commissions paid to representatives have been offset by increased travel,
advertising and sales materials expenses incurred by Company employees in their
efforts to improve the overall level of sales.
General and administrative costs increased to $242,391, or 20.5% of sales, for
the three month period ended June 30, 1997 from $219,953, or 16.2% percent of
sales, in the three month period ended June 30, 1996. General and administrative
costs increased to $470,845, or 20.2% of sales, for the six month period ended
June 30, 1997 from $448,813, or 18.3% of sales, in the six month period ended
June 30, 1996. The increase in general and administrative costs is due to higher
salary, labor and benefit costs.
Page 6 of 9
<PAGE>
Net income, after interest and provision for income taxes, for the three months
ended June 30, 1997 was $19,834 or 1.7% of net sales, compared with $88,148 or
6.5% of net sales, in the three months ended June 30, 1996. Net loss for the six
month period ended June 30, 1997 was $29,709 compared with net income of $19,886
in the same period in the prior year. Although the gross margin as a percent of
sales improved in the second quarter, compared to the prior year period, the
gross profit was lower due to lower revenue. Fixed expenses remained at
approximately the same level resulting in lower income from operations and lower
net income.
Liquidity and Capital Resources
Working capital at June 30, 1997 was $2,159,457 compared to $2,179,034 at
December 31, 1996. The total of cash and cash equivalents and short term
investments at June 30, 1997 was $802,452 compared to $725,691 at December 31,
1996. The increase in cash and short term investments is due to improved
collections of accounts receivable, including resolution of several accounts
which were delinquent in excess of 120 days. The resolution of the delinquent
accounts was achieved without any write offs. The improvement in cash on hand
due to collection of accounts receivable was partially offset by an increase in
materials inventory. Purchases of materials, for the second quarter, were
planned at a higher level due to anticipated sales increases which failed to
materialize.
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
<TABLE>
The Annual Meeting of Shareholders was held on May 28, 1997. At the
meeting the following directors were elected:
<CAPTION>
Number of Common Shares Voted
-----------------------------
Directors For Withheld
--------- --- --------
<S> <C> <C>
Gordon R. Arnold 6,823,114 0
C. Richard Kramlich 6,823,114 0
Jay T. Last 6,823,114 0
</TABLE>
<TABLE>
In addition, the shareholders approved the following proposal
<CAPTION>
Number of Common Shares Voted
-----------------------------
Proposal For Against Abstain
-------- --- ------- -------
<S> <C> <C> <C>
Ratify the appointment of KPMG Peat 6,823,114 0 0
Marwick LLP as the Company's independent
public accountants for the fiscal year
ending December 31, 1997.
</TABLE>
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, 1997 By: /S/ Gordon R. Arnold
----------------------------------
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,
-------- -------- -------- --------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares outstanding
Common Stock 10,410 10,322 10,410 10,300
Common Stock equivalents -
options 409 415 -- 386
-------- -------- -------- --------
Total weighted average shares
outstanding 10,819 10,737 10,410 10,686
======== ======== ======== ========
Net income (loss) $ 20 $ 88 $ (30) $ 20
======== ======== ======== ========
Net income (loss) per share $ 0.00 $ 0.01 $ 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>
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1997
<PERIOD-END> Jun-30-1997
<PERIOD-TYPE> 6-MOS
<CASH> 446
<SECURITIES> 246
<RECEIVABLES> 820
<ALLOWANCES> 48
<INVENTORY> 818
<CURRENT-ASSETS> 2672
<PP&E> 1036
<DEPRECIATION> 938
<TOTAL-ASSETS> 2845
<CURRENT-LIABILITIES> 512
<BONDS> 0
0
0
<COMMON> 2937
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2845
<SALES> 2331
<TOTAL-REVENUES> 2331
<CGS> 883
<TOTAL-COSTS> 883
<OTHER-EXPENSES> 1489
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (41)
<INCOME-PRETAX> (30)
<INCOME-TAX> 0
<INCOME-CONTINUING> (30)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20)
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
