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, 1998 .
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 May 12,
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
March 31, December 31,
1998 1997
----------- -----------
Assets (unaudited)
Current assets:
Cash and cash equivalents $ 192,011 297,485
Short-term investments 446,756 441,833
Trade receivables, less allowance for doubtful 1,021,505 833,344
accounts of $44,568 in 1998 and $41,003
in 1997
Notes receivable 40,471 39,422
Inventories 1,035,761 797,546
Prepaid expenses 179,278 138,210
Deferred income taxes 299,172 299,172
----------- -----------
Total current assets 3,214,954 2,847,012
Property and equipment, net 157,174 137,914
Other assets 40,644 47,562
----------- -----------
$ 3,412,772 3,032,488
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 413,817 153,916
Accrued compensation expenses 214,677 224,762
Other current liabilities 64,145 54,804
Income taxes payable 50,660 43,855
----------- -----------
Total current liabilities 743,299 477,337
Shareholders' equity:
Common stock 2,937,035 2,937,035
Accumulated deficit (244,737) (357,497)
Note receivable from shareholders (22,825) (24,387)
----------- -----------
Total shareholders' equity 2,669,473 2,555,151
----------- -----------
$ 3,412,772 3,032,488
=========== ===========
See accompanying notes to financial statements.
Page 2 of 9
<PAGE>
SIERRA MONITOR CORPORATION
Statements of Operations
(Unaudited)
For the three months ended
-------------------------
March 31, March 31,
1998 1997
----------- -----------
Net sales $ 1,533,424 1,146,157
Cost of goods sold 568,976 460,303
----------- -----------
Gross profit 964,448 685,854
----------- -----------
Operating expenses
Research and development 124,333 96,923
Selling and marketing 452,387 415,222
General and administrative 273,201 228,454
----------- -----------
849,921 740,599
----------- -----------
Income (loss) from operations 114,527 (54,745)
Other income 38,349 --
Interest income 10,544 5,202
----------- -----------
Income (loss) before income taxes 163,420 (49,543)
Income taxes 50,660 --
----------- -----------
Net income (loss) $ 112,760 (49,543)
=========== ===========
Net income (loss) per share - basic $ 0.01 (0.00)
=========== ===========
Net income (loss) per share - diluted $ 0.01 (0.00)
=========== ===========
Weighted-average number of shares used in
per share computations:
Basic 10,566,263 10,332,513
=========== ===========
Diluted 10,848,584 10,332,513
=========== ===========
See accompanying notes to financial statements.
Page 3 of 9
<PAGE>
<TABLE>
SIERRA MONITOR CORPORATION
Statements of Cash Flows
(Unaudited)
<CAPTION>
For the three months ended
----------------------
March 31, March 31,
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 112,760 (49,543)
Adjustments to reconcile net income (loss) to net cash
provided
by (used in) operating activities:
Depreciation and amortization 22,396 26,603
Allowance for doubtful accounts 3,565 2,250
Change in items affecting operations
Trade and notes receivables (192,775) 150,000
Inventories (238,215) (5,591)
Prepaid expenses (41,068) (933)
Accounts payable 259,901 (60,938)
Accrued compensation expenses (10,085) 19,077
Other current liabilities 9,341 (3,072)
Income taxes payable 6,805 (11,269)
--------- ---------
Net cash provided by (used in) operating
activities (67,375) 66,584
--------- ---------
Cash flows from investment activities:
Capital expenditures (34,738) (42,609)
Short term investments (4,923) (1,907)
--------- ---------
Net cash used in investing activities (39,661) (44,516)
--------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock options
net of notes receivable 1,562 1,556
--------- ---------
Net cash provided by financing activities 1,562 1,556
--------- ---------
Net increase (decrease) in cash and cash equivalents (105,474) 23,624
Cash and cash equivalents at beginning of period 297,485 478,910
--------- ---------
Cash and cash equivalents at end of period $ 192,011 502,534
========= =========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
Page 4 of 9
<PAGE>
SIERRA MONITOR CORPORATION
Notes to the Financial Statements
March 31, 1998
Basis of Presentation
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, 1997
which was filed March 30, 1998. 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, 1998 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, 1998, except as discussed below:
Effective January, 1 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards (FASB) No. 130, Reporting of Comprehensive
Income. FASB No. 130 establishes standards for the display of comprehensive
income and its components in a full set of financial statements. Comprehensive
income includes all changes in equity during a period except those resulting
from the issuance of shares of stock and distributions to stockholders
(shareholders, as applicable). There were no differences between net income (net
loss) and comprehensive income (loss) during the quarters ended March 21, 1998
and 1997.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131 establishes standards for the
way public business enterprises report information about operating segments in
annual financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports issued to
stockholders. SFAS No. 131 is effective for financial statements for periods
beginning after December 31, 1997. The Company does not anticipate it will
change its reporting methodology as a result of this pronouncement.
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.
Page 5 of 9
<PAGE>
Inventories
A summary of inventories follows:
March 31, December 31,
1998 1997
---------- ----------
Raw Materials $ 403,717 323,237
Work-in-process 422,496 338,631
Finished goods 209,548 135,678
---------- ----------
$1,035,761 797,546
========== ==========
Net Income per share
<TABLE>
In 1997, the Company adopted SFAS No. 128, Earnings per Share. In accordance
with SFAS No. 128, basic EPS is computed using the weighted average number of
common shares outstanding during the period. Diluted EPS is computed using the
weighted-average number of common and dilutive common equivalent shares
outstanding during the period. Dilutive common equivalent shares consist of
common stock issuable upon exercise of stock options using the treasury stock
method. No adjustments to earnings / (loss) were made for purposes of per share
calculations. The following is a reconciliation of the shares using in the
computation of basic and diluted EPS for the periods ending March 31, 1998 and
1997 respectively:
<CAPTION>
1998 1997
<S> <C> <C>
Basic EPS - weighted-average number
of common shares outstanding 10,566,263 10,332,513
Effect of dilutive common equivalent
shares - stock options outstanding 282,321 See note
---------- ----------
Diluted EPS - weighted-average of common shares
and common equivalent shares outstanding 10,848,584 10,332,514
========== ==========
<FN>
Note: Common stock equivalents of 317,660 were excluded from the net loss per
share computations due to the antidilutive effect.
</FN>
</TABLE>
Page 6 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 March 31, 1998 Sierra Monitor Corporation (the
"Company") reported net sales of $1,533,424 compared to $1,146,157 for the three
months ended March 31, 1997. The results for the first quarter of 1998 represent
a 33.8% increase from the same period in the prior year. Sales increased in each
of the Company's product groups including a 44% increase in Sentry systems. The
level of sales of Sentry systems, the Company's primary product group, can be
influenced by release of orders for construction projects. In the first quarter
of 1998 there were two construction projects released, compared to none in the
first quarter of 1997.
Gross profit for the three month period ended March 31, 1998 was $964,448 or
62.9% of net sales, compared to $685,854 or 59.8% of net sales, in the same
period in the previous year. Labor efficiencies due to the higher sales level
contributed to the improved gross margin.
Expenses for research and development, which include new product development and
engineering to sustain existing products, were $124,333 for the three month
period ended March 31, 1998, compared with $96,923 in the comparable period in
1997. Product development costs in the first quarter of 1998 include outside
consulting fees for ongoing development of new products and expanded features of
existing products. During the first quarter of 1997, there were no significant
new product development projects.
Selling and marketing expenses for the three month period ended March 31, 1998
were $452,387, or 29.5% of net sales, compared to $415,222, or 36.2% of net
sales, in the same period in the prior year. As a result of the higher sales
level in first quarter of 1998, commissions to independent sales representatives
increased by $38,530 over those paid in the first quarter of 1997. There were no
other significant changes in selling and marketing expenses.
General and administrative expenses for the first quarter of 1998 were $273,201
or 17.8% of net sales compared to $228,454 or 19.9% in the same period in the
prior year. Increases in salary and benefit expenses, depreciation of capital
equipment, and professional fees contributed to the higher general and
administrative expenses.
Net income for the three month period ended March 31, 1998 was $112,760 or 7.4%
of net sales, compared with a net loss of $49,543 or 4.3% of net sales for the
same period in the prior year. The higher income is the result of a significant
increase in sales combined with improvement in gross margin and lower fixed
costs as a percent of sales.
Since the Company generally ships its products in the same month that it
receives a purchase order, the Company believes that its backlog at any time is
generally not indicative of its level of future business. However, during the
three month period ending March 31, 1998 the Company received orders totaling
$2,674,165 compared to orders of $1,087,678 in the three month period ending
March 31, 1997. As a result of the significant increase in orders in the first
quarter, the backlog at the end of the period was $1,612,838, compared to the
backlog of $454,296 at December 31, 1997. The Company has increased its
inventory and, temporarily, increased its workforce to meet the higher level of
demand.
Liquidity and Capital Resources:
During the period ended March 31, 1998, the Company's working capital increased
by $101,980 compared to December 31, 1997. At March 31, 1998, cash and cash
equivalents and short term investments, totaled $638,767. The short term
investments consist of certain Federal Agency Securities
Page 7 of 9
<PAGE>
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 8 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 - N/A
Item 5. Other Information - N/A
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
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 9 of 9
<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-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Mar-31-1998
<PERIOD-TYPE> 3-MOS
<CASH> 192
<SECURITIES> 447
<RECEIVABLES> 1107
<ALLOWANCES> 45
<INVENTORY> 1036
<CURRENT-ASSETS> 3215
<PP&E> 1047
<DEPRECIATION> 890
<TOTAL-ASSETS> 3413
<CURRENT-LIABILITIES> 743
<BONDS> 0
0
0
<COMMON> 2937
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3413
<SALES> 1533
<TOTAL-REVENUES> 1533
<CGS> 569
<TOTAL-COSTS> 569
<OTHER-EXPENSES> 850
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (11)
<INCOME-PRETAX> 163
<INCOME-TAX> 50
<INCOME-CONTINUING> 113
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 113
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
