U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31, 1997.
[ ] 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
(Name of small business issuer in its charter)
California 95-2481914
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1991 Tarob Court
Milpitas, California 95035
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 262-6611
- --------------------------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of class)
- --------------------------------------------------------------------------------
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 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The Registrant's revenues for the fiscal year ended December 31, 1997 were
$5,130,597. The aggregate market value of the voting stock held by
non-affiliates of the Registrant as of March 10, 1998 was approximately $772,214
based upon the last reported sale. For purposes of this disclosure, Common Stock
held by persons who hold more than 5% of the outstanding voting shares and
Common Stock held by officers and directors of the Registrant have been excluded
in that such persons may be deemed to be "affiliates" as that term is defined
under the rules and regulations promulgated under the Securities Act of 1933.
This determination is not necessarily conclusive.
The number of shares of the Registrant's Common Stock outstanding as of March
15, 1998 was 10,566,263.
DOCUMENTS INCORPORATED BY REFERENCE
Items 9, 10 & 11 of Part III of this Annual Report on Form 10-KSB incorporate
information by reference from the Registrant's Information Statement for the
Annual Shareholders' Meeting to be held on May 19, 1998.
Transitional Small Business Disclosure Format Yes ; No X
----- -----
<PAGE>
PART I
Item 1. Description of Business.
Sierra Monitor Corporation ("SMC" or the "Company") was founded in 1978 to
design and develop hazardous gas monitoring devices for the 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.
Because all of the Company's products are marketed to all such industries,
the Company considers that these are one business segment. Substantially all of
the revenues reported in part II Item 6 are attributable to sales to that
segment.
The Company designs, manufactures and markets products which detect
combustible and toxic gases for the protection of personnel and facilities.
Gases which create a hazard to people and facilities are those manufactured or
that occur naturally in a wide variety of locations in the workplace, commercial
areas and homes. Although the need to monitor gases at very low concentrations
has been recognized for many years in industries such as mining, the need for
monitoring devices continues to expand as more hazards are identified and as
more stringent government regulations have been passed. The motivation for
installation of gas detection devices is driven by Occupational Safety and
Health Administration (OSHA), state and local governing bodies, insurance
companies and industry safety professionals.
Gas monitoring instruments are usually categorized for fixed or portable
applications. Most manufacturers tend to specialize in only one of these
categories because manufacturing methods are different and the channels of
distribution are different. The Company participates primarily in the fixed
installation market which characteristically requires higher levels of technical
capability to develop and sell the products.
The Company capitalizes on its expertise in microprocessor based control
hardware to develop products which incorporate functions not found in many
competitive instruments. In this respect, the Company markets products under the
concept of "Gas Risk Management". Gas Risk Management utilizes features such as
recorded event information, and graphical displays on central computers, to
allow users to identify hazards and problems before they evolve into incidents
which, at a minimum, could cause production delays, evacuation of personnel and
potentially even damage and injury.
In addition to gas detection devices, the Company manufacturers a line of
products known as Industrial Communication Bridges (Bridges). Many industrial
instruments, such as programmable logic controllers and various analytical
systems, communicate in different, non-standard, protocols. Bridges provide a
means for reading and writing data into these devices using a common, standard
protocol. In 1998, revenue from Bridge products was less than 5% of the
Company's sales.
The Company maintains research and development programs to enhance
existing products and to develop new products. During the last three fiscal
years, the research and development expenses, which include costs for sustaining
engineering, have averaged approximately 8% of sales. In 1997, research and
development expenses totaled $423,058 compared to $439,017 in 1996 and $406,278
in 1995.
The Company's products are sold through a network of sales representatives
managed by regional managers. There are currently 30 authorized representatives
with a total of 38 sales offices in the United States. The majority of the
Company's representatives have exclusive territories and the sales agreements
1
<PAGE>
with each representative restricts them from representing competing lines. The
Company's internal sales organization includes a Sales Manager, four Regional
Sales Managers, an Inside Sales Manager and support personnel. In addition to
its primary factory and office facility in California, the Company maintains
regional sales offices in Illinois, Pennsylvania and Texas.
At December 31, 1997, the Company had 34 employees, of whom 5 were in
research and development; 10 were in marketing, sales and service; 3 were in
general administration; and 16 were in operations and manufacturing. At that
date, 31 of the Company's employees were located in Milpitas, California, 1 was
located in Chicago, Illinois, 1 was located in Philadelphia, Pennsylvania, and 1
was located in Houston, Texas. None of the Company's employees are represented
by a labor union. The Company believes that its relationship with its employees
is satisfactory.
The demand for gas monitoring instruments is not seasonal and there are no
customers to whom sales exceed 10% of total annual sales. Within the market
sector, the telecommunications industry and the petrochemical industry each
account for up to approximately 20% of the Company's sales and, as such,
economic factors or labor problems in those industries could affect Company
sales to those industries.
The commercial order backlog for the Company's products at December 31,
1997 was $454,296 compared with $539,694 at December 31, 1996. The backlog
includes orders for which the Company has not yet received engineering release
from the customer. Since the Company generally ships its products within the
same month that it receives a purchase order and engineering release from the
customer for such products, the Company believes that its backlog at any
particular time is generally not indicative of the level of future sales.
Representatives in foreign countries have various agreements to promote
the Company's products but no formal international marketing program exists. In
both 1996 and 1997, sales to international customers were less than 10% of total
sales in each year. The Company has no assets in any foreign countries.
The gas detection and monitoring industry is highly competitive. Most of
the Company's competitors have far greater financial, marketing and
manufacturing resources than the Company by virtue of their relationships with
larger companies as divisions or subsidiaries. The principal competitive factors
in the industry are reliability, ease of use, product support, and price. The
Company's products compete with systems offered by Bacharach Inc., Detector
Electronics Corporation, National Draeger Inc., Gastech Inc., General Monitors
Inc., Mine Safety Appliance Company, Seiger, Ltd., and Sensidyne Inc.
Selected Financial Data (Not covered by Independent Auditors' Report).
<TABLE>
The following table sets forth the required financial data for each of the
last five fiscal periods ended December 31, 1993 through 1997:
<CAPTION>
Years Ended December 31
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net sales $5,130,597 $5,040,177 $4,773,464 $5,831,324 $4,921,271
Net income $189,204 $149,430 $18,024 $516,463 $749,628
Net income per share - basic $0.02 $0.01 $0.00 $0.05 $0.08
Net income per share - diluted $0.02 $0.01 $0.00 $0.05 $0.08
Total assets $3,032,488 $2,924,132 $2,800,251 $2,665,097 $2,137,065
Long term liabilities $ - $ - $ - $ - $ -
Cash distributions per common share none none none none none
</TABLE>
2
<PAGE>
Certain Factors That May Affect Future Results
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results could differ materially from those
projected in the forward-looking statements as a result of the risk factors set
forth below and elsewhere in this report. 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
yet competitive price.
The industry in which the Company competes is highly competitive and the
Company expects such competition to continue in the future. Most of the
Company's competitors are larger than the Company and have substantially greater
financial, technical, marketing and manufacturing resources. While the Company
has invested in new products, there can be no assurance that it can continue to
introduce new products on a timely basis or that certain of its products will
not be rendered non competitive or obsolete by its competitors.
Item 2. Description of Property.
The Company's principal executive, administrative, manufacturing and
engineering operations are located in a 15,000 square foot leased facility in
Milpitas, California. This facility is occupied under a lease expiring March 31,
2001. Management considers that the current facility is adequate for the present
level of operations and that additional office and factory space is available in
the immediate vicinity. The Company also leases sales offices near Chicago,
Illinois; Philadelphia, Pennsylvania; and Houston, Texas.
Item 3. Legal Proceedings.
To the knowledge of the Company's management, there are no legal
proceedings pending to which the Company is a party or to which the Company's
property is subject.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company did not submit any matters to a vote of security holders
during the fourth quarter of the fiscal year ended December 31, 1997.
3
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
(a) There is not an active market for the Company's stock and the
Company's stock is currently traded solely on the NASDAQ over-the-counter
Bulletin Board. To the Company's knowledge, there is only infrequent trading in
limited volume. The Company understands that trades in Common Stock from
September 1997 to December 1997 have been effected at prices ranging from $0.19
to $0.20 per share. Because trading of the Company's stock is so infrequent, the
Company is unable to provide historic price information.
(b) As of March 15, 1998 there were approximately 359 holders of record
of the Company's Common Stock.
(c) The Company has never paid cash dividends on its Common Stock. The
Company presently intends to retain any future earning to finance operations and
the further development of the Company's business and does not presently intend
to disperse any cash dividends in the foreseeable future.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Fiscal 1997 vs. Fiscal 1996
For the year ended December 31, 1997, the Company reported net sales of
$5,130,597 compared to net sales of $5,040,177 in the prior year. Income before
income taxes was $141,065 in 1997 compared to $139,930 in the previous year. Net
income in 1997 was $189,204 due to the effect of a net income tax benefit of
$48,139. Net income in 1996 was $149,430 due to the effect of a net income tax
benefit of $9,500. The components of the income tax benefit are described in
note 7 to the financial statements incorporated in this report as Part IV, Item
13 (a).
Sales increased by 1.8% over the prior year. There were no significant
changes in selling prices. The increase in net sales is primarily the result of
the improved volume of sales of gas detection products used by telephone
companies including the company's new Environment Controller. Lower sales of the
Company's primary gas detection product, Sentry, were partially offset by
improved sales of other industrial gas detection products and higher sales to
the United States Navy.
Gross profit as a percent of sales was 63.0% compared to 61.6% in the
prior year. Manufacturing labor costs and materials costs, as a percent of
sales, remained constant compared with the previous year's commercial sales.
Research and development expenses, which include sustaining engineering
for existing products, were $423,058, or 8.2% of net sales, in the year ended
December 31, 1997 compared to $439,017, or 8.7% of sales, in the year ended
December 31, 1996. Research and development expenses in 1997 and 1996, include
costs of approximately $21,578 and $75,300, respectively, for outside
consultants and other purchased services used in the development of new products
including the Environment Controller which was released for sale in telephone
company applications late in the second half of 1996.
4
<PAGE>
Selling and marketing expenses increased in 1997 to $1,705,671 or 33.2% of
net sales, from $1,662,602, or 33.0% of net sales, in the prior year. There were
no significant changes in selling and marketing expenses in 1997 compared to
1996 except that commissions paid to independent representatives were 7.6% of
sales compared to 8.5% in the prior year. Commissions to independent
representatives vary as a percent of sales due to product mix and channels of
distibution used to sell products.
General and administrative expenses increased to $992,529 in 1997 from
$891,197 in 1996. The higher general and administrative expenses are the result
of higher labor expenses, due to employee additions and temporary workers, and
higher professional services expenses.
Net interest income in 1997 was $28,050 compared with net interest income
of $28,417 in 1996. Due to the fact that the Company did not have any
outstanding long-term debt during 1997, the Company did not incur any interest
expense for the year.
An income tax benefit of $48,139 in 1997 resulted from changes in deferred
tax assets and liabilities and a change in the valuation allowance, compared to
a benefit of $9,500 in 1996.
Fiscal 1996 vs. Fiscal 1995
For the year ended December 31, 1996, the Company reported net sales of
$5,040,177 compared to net sales of $4,773,464 in the prior year. Income before
income taxes was $139,930 in 1996 compared to $30,524 in the previous year. Net
income in 1996 was $149,430 due to the effect of an income tax benefit of
$9,500. The increase in net income was primarily due to the higher level of
sales without substantial increases in fixed costs.
Sales increased by 5.6% over the prior year. There were no significant
changes in selling prices. The increase in net sales was primarily the result of
the improved volume of sales of gas detection products used by telephone
companies, although there were no significant sales of the company's new
Environment Controller for telephone company applications. Sales of other gas
detection products remained approximately the same as the prior year.
Gross profit as a percent of sales was 61.6% compared to 61.2% in the
prior year. Manufacturing labor costs and materials costs, as a percent of
sales, remained constant compared with the previous year's commercial sales.
Research and development expenses, which include sustaining engineering
for existing products, were $439,017, or 8.7% of net sales, in the year ended
December 31, 1996 compared to $406,278, or 8.5% of sales, in the year ended
December 31, 1995. Research and development expenses in, 1996 and 1995, included
costs of approximately $75,300 and $48,400, respectively, for outside
consultants and other purchased services used in the development of a new
product which was released for sale in telephone company applications late in
the second half of 1996.
Selling and marketing expenses decreased in 1996 to $1,662,602 or 33.0% of
net sales, from $1,668,079, or 34.9% of net sales, in the prior year. There were
no significant changes in selling and marketing expenses in 1996 compared to
1995 except that commissions paid to independent representatives were 8.5% of
sales compared to 9.1% in the prior year. Commissions to independent
representatives vary as a percent of sales due to product mix and channels of
distibution used to sell products.
5
<PAGE>
General and administrative expenses increased to $891,197 in 1996 from
$844,929 in 1995. The increase was primarily due to higher salary, wage and
benefit expenses which were incurred to support increased material control and
accounting activities.
Net interest income in 1996 was $28,417 compared with net interest income
of $30,479 in 1995. Due to the fact that the Company did not have any
outstanding long-term debt during 1996, the Company did not incur any interest
expense for the year.
An income tax benefit of $9,500 in 1996 resulted from changes in deferred
tax assets and liabilities and a change in the valuation allowance, compared to
a tax expense of $12,500 in 1995.
Liquidity and Capital Resources
The Company's working capital increased an additional $190,641 in 1997
over the increase of $164,895 in 1996. Working capital was $2,369,675 at
December 31, 1997 compared to $2,179,034 at December 31, 1996.
Inventory levels increased 11.1% during 1997. Inventory on hand was
$797,546 at December 31, 1997. Inventories were increased during the second half
of 1997 to insure the Company's ability to provide quick delivery of customer
orders. The Company believes that its ability to deliver product with short lead
times provides a competitive advantage.
The Company had no long term liabilities and no bank borrowings at
December 31, 1997.
The Company maintains a $250,000 line of credit, secured by accounts
receivable, with its commercial bank. There were no borrowings against the line
of credit in 1997. The Company is in full compliance with the terms of the line
of credit and currently anticipates that it will be renewed on similar terms
upon its expiration in June 1998.
At December 31, 1997 the balance sheet reflected $297,485 of cash and cash
equivalents, $441,833 of short term investments and $833,344 of net accounts
receivable. Total cash, cash equivalents and short term investments of $739,318
at the end of 1997 were approximately the same as the end of 1996. The short
term investments consist of certain Federal Agency Securities with original
maturities greater than 90 days. Management believes that its present resources,
including cash, cash equivalents, bank line of credit and accounts receivable,
are sufficient to fund its anticipated level of operations through December 31,
1998.
Year 2000 Planning
Management has initiated an enterprise-wide program to prepare the Company's
computer based systems and microprocessor based products for the year 2000. The
Company expects to incur internal staff costs as well as consulting and other
expenses related to testing and procedure enhancements necessary to prepare the
systems for the year 2000. The total cost of the preparation and implementation
is estimated to be less tan $100,000 and is being funded through operating cash
flows. A significant proportion of these costs are not likely to be incremental
costs to the Company, but rather will represent the redeployment of existing
technical and personnel resources.
6
<PAGE>
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.
Item 7. Financial Statements and Supplementary Data.
Reference is made to the financial statements and supplementary data set
forth in this Form 10-KSB report, as indexed in Item 13, in Part IV, and by such
reference such information is incorporated herein.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
Item 9. Recent Account Pronouncements.
On July 1, 1996, the FASB issued SFAS No. 130, Reporting Comprehensive
Income. This statement establishes standards for reporting and display of
comprehensive income and its components (including revenues, expenses, gains,
and losses) in a full set of general purpose financial statements. This
statement is effective for fiscal years beginning after December 15, 1997.
The FASB also recently issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. SFAS No. 131 requires certain financial
and supplementary information to be disclosed on an annual and interim basis for
each reportable segment of an enterprise. SFAS No. 131 is effective for fiscal
years beginning after December 31, 1997. The statement's interim reporting
disclosures would not be required until the first quarter immediately subsequent
to the fiscal year in which SFAS No. 131 is effective. The Company is currently
evaluating the impact of these statements on its financial statements.
7
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
<TABLE>
The following table sets forth certain information with respect to the
directors and executive officers of the Company as of December 31, 1997, based
upon information furnished by such persons:
<CAPTION>
Director or
Name Principal Occupation or Employment Age Officer Since
- --- --------------------------------- --- -------------
<S> <C> <C> <C>
Gordon R. Arnold Director of the Company; 52 1984
President, Chief Executive Officer and Secretary
Michael C. Farr Vice President of Operations 40 1986
Stephen R. Ferree Vice President of Marketing 50 1992
Edward K. Hague Vice President of Engineering 36 1997
C. Richard Kramlich Director of the Company; 62 1980
General Partner of New Enterprise Associates
a venture capital firm.
Jay T. Last Director of the Company; 68 1977
President, Hillcrest Press (Publisher).
Business and technical consultant for more than the
last five years.
</TABLE>
All officers of the Company serve at the discretion of the Board of
Directors. There are no family relationships between any of the directors and
officers of the Company.
Gordon R. Arnold joined Sierra Monitor Corporation, a California
corporation ("Old Sierra") in December 1979 as Operations Manager and Vice
President. He became President in 1984 and Chief Executive Officer in 1985. In
September 1989, Old Sierra merged into UMF Systems, Inc., a California
corporation ("UMF"), and UMF changed its name to "Sierra Monitor Corporation."
Mr. Arnold has served as the Company's President and Chief Financial Officer
since the merger and as the Company's Secretary since February 1993. Mr. Arnold
was also a director of Old Sierra from 1984 until the merger with UMF.
Michael C. Farr joined Old Sierra in December 1983 as Operations Manager.
He became Vice President, Operations in May, 1986. Since the merger Mr. Farr has
served as Vice President, Operations of the Company.
Stephen R. Ferree joined the Company as Marketing Manager in January 1990.
He became Vice President, Marketing in May, 1992.
Edward K. Hague joined the Company as Engineering Manager in July, 1997.
He became Vice President, Engineering, in October 1997. Mr. Hague has consulted
in the field of industrial communications for more than 10 years, initially
consulting to Intellution, Inc., a leading process control software company,
then to various companies, working on communication architecture design for IBM,
Marin Municipal Water District, U.S. Postal Service, PG&E, Boeing and the US
Navy.
8
<PAGE>
With respect to the other information required by this item, the sections
entitled "Election of Directors Nominees" and "Section 16(a) Beneficial
Ownership Reporting Compliance" of the Company's Information Statement pursuant
to Section 14(c) of the Securities Exchange Act of 1934 ("Information
Statement") for the Company's Annual Meeting of Shareholders to be held on May
19, 1998 and to be filed with the SEC within 120 days of December 31, 1997 are
incorporated by reference herein.
Item 10. Executive Compensation.
The sections entitled "Compensation of Executive Officers" and
"Compensation of Directors" in the Company's Information Statement are
incorporated by reference herein.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Company's Information Statement is incorporated by reference
herein.
Item 12. Certain Relationships and Related Transactions.
None.
Item 13. Exhibits, Financial Statements, Schedules and Reports on Form 8-K.
(a) Financial Statements and Schedule. The following documents are
filed as part of this report:
Independent Auditors' Report.
Financial Statements and Schedules:
Balance Sheets at December 31, 1997 and 1996.
Statements of Operations for the years ended December 31,
1997, 1996, and 1995.
Statements of Shareholders' Equity for the years ended
December 31, 1997, 1996, and 1995.
Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995.
Notes to Financial Statements.
Schedule II - Valuation and Qualifying Accounts.
All schedules omitted are not applicable, not required or the
required information is included in the financial statements or
notes thereto.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during the
fourth quarter ended December 31, 1997.
<TABLE>
(c) Exhibits.
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
3.0 Articles of Incorporation of the Registrant. (Incorporated by reference to Exhibit 3
of Registrant's annual report on Form 10-K for the fiscal year ended December 31,
1989 (the "1989 Form 10-K"))
3.1 Bylaws of Registrant. (Incorporated by reference to Exhibit 3.1 of the 1989 Form
10-K)
9
<PAGE>
10.1 1986 Stock Option Plan of Registrant as amended December 1, 1987. (Incorporated by
reference to Exhibit 10.1 of the 1989 Form 10-K)
10.2 1996 Stock Option Plan of Registrant. (Incorporated by reference to Exhibit 4.1 of
Registrant's Registration Statement on S-8 (File No. 333-18241) filed with the SEC on
December 19, 1996)
10.3 Standard Industrial Lease dated January 29, 1986, by and between Geomax and
Registrant, with amendment thereto dated 3/30/90. (Incorporated by reference to
Exhibit 10.3 of the 1990 Form 10-K)
23.1 Report on Financial Statement Schedule and Consent of Independent Auditors.
27.0 Financial Data Schedule.
</TABLE>
10
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized, on March 26, 1998.
SIERRA MONITOR CORPORATION
(Registrant)
By /s/ Gordon R. Arnold
---------------------------
Gordon R. Arnold
Chief Executive Officer
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<CAPTION>
Date Title Signature
---- ----- ---------
<S> <C> <C>
March 26, 1998 Chief Executive Officer, Chief
Financial Officer and Director
(Principal Executive, Financial
and Accounting Officer) By /s/ Gordon R. Arnold
-----------------------
Gordon R. Arnold
March 26, 1998 Director By /s/ C. Richard Kramlich
------------------------
C. Richard Kramlich
March 26, 1998 Director By /s/ Jay T. Last
-----------------------
Jay T. Last
</TABLE>
11
<PAGE>
PART IV
SIERRA MONITOR CORPORATION
Financial Statements
December 31, 1997, 1996, and 1995
(With Independent Auditors' Report Thereon)
12
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Sierra Monitor Corporation:
We have audited the accompanying balance sheets of Sierra Monitor Corporation as
of December 31, 1997 and 1996, and the related statements of operations,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sierra Monitor Corporation as
of December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
February 20, 1998
13
<PAGE>
<TABLE>
SIERRA MONITOR CORPORATION
Balance Sheets
December 31, 1997 and 1996
<CAPTION>
Assets 1997 1996
------------------- -------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 297,485 478,910
Short-term investments 441,833 246,781
Trade receivables, less allowance for doubtful accounts of $41,003 and
$45,598 in 1997 and 1996, respectively 833,344 1,040,989
Notes receivable 39,422 --
Inventories 797,546 717,865
Prepaid expenses 138,210 51,556
Deferred income taxes 299,172 211,000
------------------- -------------------
Total current assets 2,847,012 2,747,101
Property and equipment, net 137,914 84,653
Other assets 47,562 92,378
------------------- -------------------
$ 3,032,488 2,924,132
=================== ===================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 153,916 291,371
Accrued compensation expenses 224,762 214,408
Other current liabilities 54,804 38,741
Income taxes payable 43,855 23,547
------------------- -------------------
Total current liabilities 477,337 568,067
Commitments
Shareholders' equity:
Common stock; 20,000,000 shares authorized; 10,566,263 and 10,332,513 shares
issued and outstanding in 1997 and 1996, respectively
2,937,035 2,912,493
Accumulated deficit (357,497) (546,701)
Notes receivable from shareholders (24,387) (9,727)
------------------- -------------------
Total shareholders' equity 2,555,151 2,356,065
------------------- -------------------
$ 3,032,488 2,924,132
=================== ===================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
14
<PAGE>
<TABLE>
SIERRA MONITOR CORPORATION
Statements of Operations
Years ended December 31, 1997, 1996, and 1995
<CAPTION>
1997 1996 1995
-------------------- ----------------- --------------------
<S> <C> <C> <C>
Net sales $ 5,130,597 5,040,177 4,773,464
Cost of goods sold 1,896,324 1,935,848 1,854,133
-------------------- ------------------- -------------------
Gross profit 3,234,273 3,104,329 2,919,331
-------------------- ------------------- -------------------
Operating expenses:
Research and development 423,058 439,017 406,278
Selling and marketing 1,705,671 1,662,602 1,668,079
General and administrative 992,529 891,197 844,929
-------------------- ------------------- -------------------
3,121,258 2,992,816 2,919,286
-------------------- ------------------- -------------------
Income from operations 113,015 111,513 45
Interest income 28,050 28,417 30,479
-------------------- ------------------- -------------------
Income before income tax (benefit) expense 141,065 139,930 30,524
Income tax (benefit) expense (48,139) (9,500) 12,500
-------------------- ------------------- -------------------
Net income $ 189,204 149,430 18,024
==================== =================== ===================
Net income per share - basic $ 0.02 0.01 0.00
==================== =================== ===================
Net income per share - diluted $ 0.02 0.01 0.00
==================== =================== ===================
Weighted-average number of shares used in
per share computations:
Basic 10,466,919 10,313,044 10,266,159
==================== ==================== ====================
Diluted 10,728,834 10,731,161 10,498,260
==================== ==================== ====================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
15
<PAGE>
<TABLE>
SIERRA MONITOR CORPORATION
Statements of Shareholders' Equity
Years ended December 31, 1997, 1996, and 1995
<CAPTION>
Notes
Common stock receivable Total
----------------------------------- Accumulated from shareholders'
Shares Amount deficit shareholders equity
----------------- ---------------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Balances as of December
31, 1994 10,246,388 $ 2,897,570 (714,155) (12,061) 2,171,354
Exercise of stock
options 30,500 5,700 -- (5,000) 700
Proceeds from notes
receivable -- -- -- 4,458 4,458
Net income -- -- 18,024 -- 18,024
----------------- ---------------- ------------------- ------------------ -------------------
Balances as of December
31, 1995 10,276,888 2,903,270 (696,131) (12,603) 2,194,536
Exercise of stock
options 55,625 9,223 -- -- 9,223
Proceeds from notes
receivable -- -- -- 2,876 2,876
Net income -- -- 149,430 -- 149,430
----------------- ---------------- ------------------- ------------------ -------------------
Balances as of December
31, 1996 10,332,513 2,912,493 (546,701) (9,727) 2,356,065
Exercise of stock
options 233,750 24,542 -- (21,946) 2,596
Proceeds from notes
receivable -- -- -- 7,286 7,286
Net income -- -- 189,204 -- 189,204
----------------- ---------------- ------------------- ------------------ -------------------
Balances as of December
31, 1997 10,566,263 $ 2,937,035 (357,497) (24,387) 2,555,151
================= ================ =================== ================== ===================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
16
<PAGE>
<TABLE>
SIERRA MONITOR CORPORATION
Statements of Cash Flows
Years ended December 31, 1997, 1996, and 1995
<CAPTION>
1997 1996 1995
-------------------- ----------------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 189,204 149,430 18,024
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 122,024 127,014 130,673
Loss on disposal of fixed assets -- 334 --
Allowance for doubtful accounts (4,595) (15,558) 10,283
Deferred income taxes (88,172) (23,000) 10,000
Changes in operating assets and liabilities:
Trade receivables 212,240 (126,935) (310,220)
Notes receivable (39,422) -- --
Inventories (79,681) (112,385) 48,572
Prepaid expenses (86,654) (11,356) (6,001)
Accounts payable (137,455) (14,322) 80,151
Accrued compensation expenses 10,354 (51,157) 94,143
Other current liabilities 16,063 15,399 (32,320)
Income taxes payable 20,308 12,432 (30,002)
-------------------- ------------------- -------------------
Net cash provided by (used in)
operating activities 134,214 (50,104) 13,303
-------------------- ------------------- -------------------
Cash flows from investing activities:
Capital expenditures (125,340) (77,189) (77,618)
Short-term investments, net (195,052) 330,343 (577,124)
Other assets (5,129) (46,793) (44,073)
-------------------- ------------------- -------------------
Net cash (used in) provided by
investing activities (325,521) 206,361 (698,815)
-------------------- ------------------- -------------------
Cash flows from financing activities:
Proceeds from notes receivable 7,286 2,876 4,458
Proceeds from exercise of stock options and
warrant, net of notes receivable 2,596 9,223 700
-------------------- ------------------- -------------------
Net cash provided by financing
activities 9,882 12,099 5,158
-------------------- ------------------- -------------------
Net (decrease) increase in cash and cash equivalents (181,425) 168,356 (680,354)
Cash and cash equivalents at beginning of year 478,910 310,554 990,908
-------------------- ------------------- -------------------
Cash and cash equivalents at end of year $ 297,485 478,910 310,554
==================== =================== ===================
Supplemental disclosures of cash flow information:
Cash paid during the year - income taxes $ 19,800 -- 36,361
==================== =================== ===================
Noncash financing activity - common stock issued in
exchange for notes from shareholders $ 21,946 -- 5,000
==================== =================== ===================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
17
<PAGE>
SIERRA MONITOR CORPORATION
Notes to Financial Statements
December 31, 1997, 1996, and 1995
(1) Summary of the Company and Significant Accounting Policies
The Company
Sierra Monitor Corporation (the Company) was incorporated in September
1989 to effect the merger of UMF Systems, Inc. (UMF) and Sierra Holdings
Corporation (SHC), which was originally incorporated as Sierra Monitor
Corporation in 1978. The Company's principal line of business is the
design, manufacture, and marketing of instruments that detect and monitor
hazardous gases. The Company conducts its business within one industry
segment.
Use of Estimates
The Company's management has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements
in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
Revenue Recognition
Generally, sales are recorded when products are shipped or services are
rendered. Revenues from government contracts are recognized utilizing the
percentage-of-completion method. Contract revenues are recorded as the
related costs (including certain general and administrative costs), which
contribute to contract performance, are incurred.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on deposit with banks and
highly liquid money market instruments with original maturities of 90
days or less. Certain certificates of deposits with original maturities
greater than 90 days are classified as short-term investments.
Inventories
Inventories are stated at the lower of cost (first in, first out) or
market.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation is provided on the straight-line method
over the estimated useful lives of the respective assets, generally two
to three years. Leasehold improvements are amortized using the
straight-line method over the shorter of the lease term or the useful
life of the related asset.
18
<PAGE>
SIERRA MONITOR CORPORATION
Notes to Financial Statements, Continued
The Company reviews property and equipment for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of property and equipment is
measured by comparison of its carrying amount, including the unamortized
portion of any goodwill allocated to the property and equipment to future
undiscounted operating cash flows the property and equipment are expected
to generate. If such assets are considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying amount
of the property and equipment exceeds its fair market value. To date, the
Company has made no adjustments to the carrying values of its long-lived
assets.
Stock Option Plan
Prior to January 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock
exceeded the exercise price.
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, which
permits entities to recognize as expense over the vesting period the fair
value of all stock-based awards on the date of grant. Alternatively, SFAS
No. 123 also allows entities to continue to apply the provisions of APB
Opinion No. 25 and provide pro forma net income and pro forma net income
per share disclosures for employee stock option grants made in 1995 and
future years as if the fair value-based method defined in SFAS No. 123
had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
19
<PAGE>
SIERRA MONITOR CORPORATION
Notes to Financial Statements, Continued
<TABLE>
Net Income Per Share
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. The following is a
reconciliation of the shares used in the computation of basic and diluted
EPS for the years ended December 31, 1997, 1996, and 1995, respectively:
<CAPTION>
1997 1996 1995
------------------ -------------------- ------------------
<S> <C> <C> <C>
Basic EPS -- weighted-average number of
common shares outstanding 10,466,919 10,313,044 10,266,159
Effect of dilutive common equivalent shares
-- stock option outstanding 261,915 418,117 232,101
------------------ -------------------- ------------------
Diluted EPS -- weighted-average of common
shares and common equivalent shares
outstanding 10,728,834 10,731,161 10,498,260
================== ==================== ==================
</TABLE>
For purposes of calculating diluted EPS, there were no adjustments to net
income.
Options to purchase 120,000 shares of common stock at an average price
of $0.38 per share were granted during the year but were not included in
the computation of diluted EPS because the options' exercise price was
greater than the average market price of the shares. Such options
remained outstanding as of December 31, 1997.
(2) Inventories
A summary of inventories as of December 31, 1997 and 1996, follows:
1997 1996
------------------- -------------------
Raw materials $ 323,237 275,024
Work in process 338,631 324,042
Finished goods 135,678 118,799
------------------- -------------------
$ 797,546 717,865
=================== ===================
20
<PAGE>
SIERRA MONITOR CORPORATION
Notes to Financial Statements, Continued
(3) Property and Equipment
<TABLE>
A summary of property and equipment as of December 31, 1997 and 1996,
follows:
<CAPTION>
1997 1996
------------------- --------------------
<S> <C> <C>
Machinery and equipment $ 278,708 272,821
Furniture, fixtures, and leasehold improvements 591,443 567,597
------------------- -------------------
870,151 840,418
Less accumulated depreciation and amortization 732,237 755,765
------------------- -------------------
$ 137,914 84,653
=================== ===================
</TABLE>
(4) Common Stock
During 1996, the Company's 1986 Incentive Stock Option Plan expired.
Subsequently, the shareholders adopted the 1996 Stock Plan and reserved
600,000 shares of common stock for issuance. Under this plan, options may
be granted at the fair market value of the Company's common stock at the
grant date, vest ratably over 4 years, and expire 10 years from the grant
date.
Stock options granted were 120,000, -0-, and 215,000 during 1997, 1996,
and 1995, respectively. The per share weighted-average fair value of
stock options granted during 1997 and 1995 was $0.20 and $0.13,
respectively, on the date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions for 1997 and 1995:
expected dividend yield of 0.0% for each year; volatility of 50% for each
year; risk-free interest rate of 5.83% and 6.63%, respectively; and an
expected life of 10 years.
<TABLE>
The Company applies APB Opinion No. 25 in accounting for its plan, and,
accordingly, no compensation cost has been recognized for its stock
options in the financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net income would have been
reduced to the pro forma amounts indicated below:
<CAPTION>
1997 1996
------------------- ------------------
<S> <C> <C>
Net income:
As reported $ 189,204 149,430
Pro forma 187,683 142,443
Net income per share:
As reported (basic and diluted) 0.02 0.01
Pro forma (basic and diluted) 0.02 0.01
</TABLE>
Pro forma net income reflects only options granted in 1997 and 1995.
Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net income
amounts presented above because compensation cost is reflected over the
options' vesting period of four years and compensation cost for options
granted prior to January 1, 1995, is not considered.
21
<PAGE>
SIERRA MONITOR CORPORATION
Notes to Financial Statements, Continued
<TABLE>
A summary of stock option transactions as of December 31, 1997 and 1996, follows:
<CAPTION>
Weighted-average
Weighted-average remaining
Options Range of prices exercise price contractual life
---------------- ------------------ ----------------- ------------------
<S> <C> <C> <C> <C>
Balance as of December 31, 1995 705,000 $ 0.10 - 0.22 0.17 4.3 years
Exercised (55,625) 0.10 - 0.22 0.17
Canceled (6,875) 0.10 - 0.22 0.20
---------------
Balance as of December 31, 1996 642,500 0.10 - 0.22 0.17 3.6 years
Granted 120,000 0.34 - 0.38 0.38 9.7 years
Exercised (233,750) 0.10 - 0.22 0.10
Canceled (3,750) 0.20 - 0.22 0.22
---------------
Balance as of December 31, 1997
(323,854 exercisable) 525,000 0.10 - 0.38 0.25 5.5 years
===============
</TABLE>
(5) Lease Commitments
The Company leases its facilities under a noncancelable operating lease.
As of December 31, 1996, future minimum payments are as follows:
Year ending
December 31,
-------------
1998 $ 138,000
1999 133,000
2000 133,000
2001 33,000
-------------------
$ 437,000
===================
Rent expense was approximately $143,000, $136,000, and $134,000, in 1997,
1996, and 1995, respectively.
22
<PAGE>
SIERRA MONITOR CORPORATION
Notes to Financial Statements, Continued
(6) Bank Borrowings
As of December 31, 1997, the Company had a $250,000 bank line of credit
agreement, secured by eligible accounts receivable, that bears interest
at the prime rate (8.5% as of December 31, 1997) plus 1/2%. The line of
credit agreement expires June 4, 1998, and contains certain financial
covenants with which the Company was in compliance as of December 31,
1997. No amounts were outstanding under the credit facility as of
December 31, 1997.
(7) Income Taxes
<TABLE>
The components of income taxes (benefit) were as follows:
<CAPTION>
1997 1996 1995
-------------------- ------------------ -------------------
<S> <C> <C> <C>
Current:
Federal $ 23,533 -- --
State 16,500 13,500 2,500
-------------------- ------------------- -------------------
Total current 40,033 13,500 2,500
-------------------- ------------------- -------------------
Deferred:
Federal (79,972) 8,000 9,000
State (8,200) (31,000) 1,000
-------------------- ------------------- -------------------
Total deferred (88,172) (23,000) 10,000
-------------------- ------------------- -------------------
$ (48,139) (9,500) 12,500
==================== =================== ===================
</TABLE>
<TABLE>
The provision for income taxes differs from the amounts computed by
applying the statutory federal income tax rate of 34% as follows:
<CAPTION>
1997 1996 1995
-------------------- ----------------- -------------------
<S> <C> <C> <C>
Computed tax expense $ 48,000 48,000 10,000
State taxes, net of federal benefit 5,300 8,900 2,300
Decrease in valuation allowance (100,000) (48,000) --
Benefit of utilization of net operating loss
carryforward -- -- --
Other (1,439) (18,400) 200
-------------------- ------------------- -------------------
$ (48,139) (9,500) 12,500
==================== =================== ===================
</TABLE>
23
<PAGE>
SIERRA MONITOR CORPORATION
Notes to Financial Statements, Continued
<TABLE>
The tax effects of temporary differences that gave rise to significant
portions of deferred tax assets are as follows:
<CAPTION>
1997 1996
------------------- -------------------
Deferred tax assets:
<S> <C> <C>
Accounts receivable, principally due to allowance for doubtful
accounts $ 18,000 20,000
Inventories, principally due to additional costs inventoried
for tax purposes 72,000 76,000
State tax expense on temporary differences (9,000) (8,000)
Accruals for financial statement purposes not currently
deductible 32,000 35,000
Federal net operating loss carryforward -- 61,000
Property and equipment, principally due to differences in
depreciation 80,000 41,000
Tax credit carryforwards 106,000 87,000
Other 172 (1,000)
------------------- -------------------
Total gross deferred tax assets 299,172 311,000
Less valuation allowance -- 100,000
------------------- -------------------
Net deferred tax assets $ 299,172 211,000
=================== ===================
</TABLE>
In assessing the reliability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Management considers the projected future taxable income and
tax planning strategies in making this assessment. Based upon the level
of historical taxable income and projections for future taxable income
over the periods which the deferred tax assets are deductible, management
believes it is more likely than not the Company will realize the benefits
of these deductible differences.
The Company has federal tax credit carryforwards of approximately
$106,000, which can be used to offset against future income taxes. The
credit carryforwards will expire in 1998 through 2010.
(8) Fair Value of Financial Instruments
The Financial Accounting Standards Board's (FASB) SFAS No. 107,
Disclosures about Fair Value of Financial Instruments, defines the fair
value of a financial instrument as the amount at which the instrument
could be exchanged in a current transaction between willing parties. All
financial instruments included in the accompanying financial statements
approximate fair value because of the short maturity of those
instruments.
24
<PAGE>
SIERRA MONITOR CORPORATION
Notes to Financial Statements, Continued
(9) Recent Accounting Pronouncements
On July 1, 1996, the FASB issued SFAS No. 130, Reporting Comprehensive
Income. This statement establishes standards for reporting and display of
comprehensive income and its components (including revenues, expenses,
gains, and losses) in a full set of general purpose financial statements.
This statement is effective for fiscal years beginning after December 15,
1997.
The FASB also recently issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. SFAS No. 131 requires certain
financial and supplementary information to be disclosed on an annual and
interim basis for each reportable segment of an enterprise. SFAS No. 131
is effective for fiscal years beginning after December 31, 1997. The
statement's interim reporting disclosures would not be required until the
first quarter immediately subsequent to the fiscal year in which SFAS No.
131 is effective. The Company is currently evaluating the impact of these
statements on its financial statements.
25
Exhibit 23.1
REPORT ON FINANCIAL STATEMENT SCHEDULE
AND CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Sierra Monitor Corporation:
The audits referred to in our report dated February 20, 1998, included the
related financial statement schedule for each of the years in the three-year
period ended December 31, 1997, included in the annual report on Form 10-KSB.
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.
We consent to incorporation by reference in the registration statement on Form
S-8 (No. 333-18241) of Sierra Monitor Corporation of our report dated February
20, 1998, relating to the balance sheets of Sierra Monitor Corporation as of
December 31, 1997 and 1996, and the related statements of operations,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1997, and the related financial statement schedule,
which reports appear in this December 31, 1997, annual report on Form 10-KSB of
Sierra Monitor Corporation.
/s/ KPMG Peat Marwick LLP
Mountain View, California
March 23, 1998
<PAGE>
<TABLE>
Schedule II
SIERRA MONITOR CORPORATION
Valuation and Qualifying Accounts
<CAPTION>
Additions
Balance at charged to Deductions Balance
beginning costs and from at end
Description of year expenses reserves of year
----------- -------------------- -------------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1997,
allowance for doubtful
accounts $ 45,598 11,603 (16,198) 41,003
==================== ==================== ================= ====================
Year ended December 31, 1996,
allowance for doubtful
accounts $ 61,156 7,000 (22,558) 45,598
==================== ==================== ================= ====================
Year ended December 31, 1995,
allowance for doubtful
accounts $ 50,873 23,000 (12,717) 61,156
==================== ==================== ================ ====================
</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> Dec-31-1997
<PERIOD-TYPE> 12-MOS
<CASH> 297
<SECURITIES> 442
<RECEIVABLES> 874
<ALLOWANCES> 41
<INVENTORY> 798
<CURRENT-ASSETS> 2847
<PP&E> 870
<DEPRECIATION> 732
<TOTAL-ASSETS> 3032
<CURRENT-LIABILITIES> 477
<BONDS> 0
<COMMON> 2937
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3032
<SALES> 5131
<TOTAL-REVENUES> 5131
<CGS> 1896
<TOTAL-COSTS> 1896
<OTHER-EXPENSES> 3121
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (28)
<INCOME-PRETAX> 141
<INCOME-TAX> (48)
<INCOME-CONTINUING> 189
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 189
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
