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, 1999
--------------
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,
1999 was 10,967,588.
Transitional Small Business Disclosure Format: Yes ___; No X___
Page 1 of 10
<PAGE>
<TABLE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SIERRA MONITOR CORPORATION
Balance Sheets
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
Assets (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 487,068 393,667
Short-term investments 24,066 245,522
Trade receivables, less allowance for doubtful 1,119,558 1,123,073
accounts of $127,738 in 1999 and $125,488
in 1998
Notes receivable 32,920 35,002
Inventories 962,736 945,189
Prepaid expenses 88,847 94,107
Deferred income taxes 179,636 179,636
----------- -----------
Total current assets 2,894,831 3,016,196
Property and equipment, net 239,086 232,600
Deferred income taxes 113,635 113,635
Other assets 494,150 345,776
----------- -----------
$ 3,741,702 3,708,207
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 342,425 295,274
Accrued compensation expenses 304,840 281,426
Other current liabilities 83,192 56,522
Bank loan 100,000 --
Income taxes payable -- 105,052
----------- -----------
Total current liabilities 830,457 738,274
Shareholders' equity:
Common stock 3,159,944 3,159,944
Accumulated deficit (198,874) (136,771)
Note receivable from shareholders (49,825) (53,240)
----------- -----------
Total shareholders' equity 2,911,245 2,969,933
----------- -----------
$ 3,741,702 3,708,207
=========== ===========
<FN>
See accompanying notes to financial statements.
</FN>
Page 2 of 10
</TABLE>
<PAGE>
SIERRA MONITOR CORPORATION
Statements of Operations
(Unaudited)
For the three months ended
----------------------------
March 31, March 31,
1999 1998
------------ ------------
Net sales $ 1,659,288 1,533,424
Cost of goods sold 633,074 568,976
------------ ------------
Gross profit 1,026,214 964,448
------------ ------------
Operating expenses
Research and development 214,308 124,333
Selling and marketing 573,438 452,387
General and administrative 309,400 273,201
------------ ------------
1,097,146 849,921
------------ ------------
Income (loss) from operations (70,932) 114,527
Other income 34 38,349
Interest income 8,793 10,544
------------ ------------
Income (loss) before income taxes (62,105) 163,420
Income taxes -- 50,660
------------ ------------
Net income (loss) $ (62,105) 112,760
============ ============
Net income (loss) per share - basic $ (0.01) 0.01
============ ============
Net income (loss) per share - diluted $ -- 0.01
============ ============
Weighted-average number of shares used in per
share computations:
Basic 10,967,588 10,566,263
============ ============
Diluted -- 10,848,584
============ ============
See accompanying notes to financial statements.
Page 3 of 10
<PAGE>
<TABLE>
SIERRA MONITOR CORPORATION
Statements of Cash Flows
(Unaudited)
<CAPTION>
For the three months ended
-------------------------------
March 31, March 31,
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (62,105) 112,760
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation and amortization 57,429 22,396
Allowance for doubtful accounts 2,250 3,565
Change in items affecting operations
Trade and notes receivables 3,347 (192,775)
Inventories (17,547) (238,215)
Prepaid expenses 5,260 (41,068)
Accounts payable 47,151 259,901
Accrued compensation expenses 23,414 (10,085)
Other current liabilities 26,670 9,341
Income taxes payable (105,051) 6,805
--------- ---------
Net cash used in operating activities (19,182) (67,375)
--------- ---------
Cash flows from investment activities:
Capital expenditures (42,376) (34,738)
Short term investments 221,456 (4,923)
Acquisition of business assets (171,828) --
Other assets 1,916 --
--------- ---------
Net cash provided by (used in) investing
activities 9,168 (39,661)
--------- ---------
Cash flows from financing activities:
Proceeds from bank borrowings, net 100,000 --
Repayment of shareholder notes receivable 3,415 1,561
--------- ---------
Net cash provided by financing activities 103,415 1,561
--------- ---------
Net increase (decrease) in cash and cash equivalents 93,401 (105,474)
Cash and cash equivalents at beginning of period 393,667 297,485
--------- ---------
Cash and cash equivalents at end of period $ 487,068 192,011
========= =========
<FN>
See accompanying notes to financial statements.
</FN>
Page 4 of 10
</TABLE>
<PAGE>
SIERRA MONITOR CORPORATION
Notes to the Financial Statements
March 31, 1999
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,
1998 which was filed March 30, 1999. 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, 1999 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, 1999.
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. In addition to gas monitoring systems
the Company also manufactures microprocessor based systems used to monitor and
control environmental conditions in small, remote, structures used for cellular
and hard wire telephone equipment. The Company also manufactures a product known
as a Communications Bridge. The Communications Bridge enables electronic control
systems to communicate with each other, generally over Ethernet, even when the
systems use non compatible data storage and transfer protocols.
Products manufactured by the Company are sold primarily to oil and gas
drilling and refining companies, chemical plants, waste-water treatment plants,
telecommunications companies, building control systems, parking garages and
landfill rehabilitation projects.
Inventories
A summary of inventories follows:
March 31, December 31,
1999 1998
--------- -------
Raw Materials $ 397,290 348,032
Work-in-process 373,200 411,846
Finished goods 192,246 185,311
--------- -------
$ 962,736 945,189
========= =======
Page 5 of 10
<PAGE>
<TABLE>
Net Income (loss) 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. 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 ended March 31, 1999 and
1998 respectively:
<CAPTION>
1999 1998
<S> <C> <C>
Basic EPS - weighted-average number of common shares
outstanding 10,967,588 10,566,263
Effect of dilutive common equivalent shares - stock options
outstanding 0 282,321
---------- ----------
Diluted EPS - weighted-average of common shares and common
equivalent shares outstanding 10,967,588 10,848,584
========== ==========
</TABLE>
Diluted EPS as of 3/31/99 does not include 273,203 stock options because the
inclusion of such stock options would be antidilutive.
Comprehensive Income
The company has no significant components of other comprehensive income
and, accordingly, comprehensive income is the same as net income for all
periods.
Page 6 of 10
<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, 1999 Sierra Monitor Corporation (the
"Company") reported net sales of $1,659,288 compared to $1,533,424 for the three
months ended March 31, 1998. The results for the first quarter of fiscal 1999
represent an 8.2% increase from the same period in the prior year. Sales of
products for telephone company applications, and sales of protocol conversion
devices increased compared to the first quarter of 1998. Sales of gas detection
systems were lower than the first quarter of 1998 primarily due to lower orders
for large systems.
Gross profit for the three month period ended March 31, 1999 was
$1,026,214 or 61.8% of net sales, compared to $964,448 or 62.9% of net sales, in
the same period in the previous year. The lower gross margin is due to product
mix. There were no abnormal changes in material and labor costs.
Expenses for research and development, which include new product
development and engineering to sustain existing products, were $214,308, or
12.9% of net sales, for the three month period ended March 31, 1999, compared
with $124,333, or 8.1% of net sales, in the comparable period in 1998. The
higher research and development expenses were undertaken to continue development
of products and product options identified as key to future sales growth. The
new products included a master controller known as the Sentry Commander, and
specialized gas sensors to be sold to the semiconductor industry. The product
options are primarily software programs known as protocol drivers. Protocol
Drivers are software programs which enable the Company's Communications Bridge
to share data between instruments which communicate in non-compatible protocols.
The Company intends to continue development of an extensive library of Protocol
Drivers and therefore expects engineering expenses to remain, at least, at their
current levels.
Selling and marketing expenses for the three month period ended March 31,
1999 were $573,438 or 34.6% of net sales, compared to $452,387, or 29.5% of net
sales, in the same period in the prior year. The increase in selling costs is,
in part, due to the addition, since first quarter of 1998, of two sales
professionals to allow focused efforts in the telephone industry. Commissions
paid to independent sales representatives were also higher compared to the first
quarter of 1998. Commissions, as a percentage of sales, vary periodically based
on product mix, level of discounting and channels of distribution.
General and administrative expenses for the first quarter of 1999 were
$309,400 or 18.6% of net sales compared to $273,201 or 17.8% in the same period
in the prior year. Increases in salary and benefit expenses and depreciation
contributed to the higher general and administrative expenses.
Net loss for the three month period ended March 31, 1999 was $62,105 or
3.7% of net sales, compared with a net profit of $112,760 or 7.5% of net sales
for the same period in the prior year. The loss is due to lower margins combined
with higher operating expenses described above. The Company believes that it is
necessary to incur the higher operating costs to provide the infrastructure for
development and support of future sales increases.
Page 7 of 10
<PAGE>
On February 1, 1999 the Company acquired specified assets of Montech
Holdings Inc., ("Montech") a Florida Corporation. The acquired assets include
certain know how, manufacturing designs, customer lists and related
documentation related to a product originally known as the MC-25 Environment
Controller. The MC-25 has been assimilated into the Company's existing line of
Environmental Controllers which are sold for telephone company applications.
Montech and Sierra Monitor served generally the same customer base. Under the
agreement Montech has agreed not to compete for a period of three years. On the
effective date, February 1, 1999, two employees of Montech became employees of
the Company.
The total cost of the acquisition, including consideration paid to Montech
and related expenses, was $171,828. At March 31, 1999, approximately $150,000 of
the acquisition cost had been paid and the balance was payable within 30 days.
Liquidity and Capital Resources:
During the period ended March 31, 1999, the Company's working capital
decreased by $213,548 compared to December 31, 1998. The decrease in working
capital is primarily due to the acquisition described above. At March 31, 1999,
cash and cash equivalents and short term investments, totaled $511,134. The
short term investments consist of certain Federal Agency Securities with
original maturities greater than 90 days. The Company has borrowed $100,000
against its $250,000 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 for at least the next twelve months.
Year 2000 Planning.
Management implemented an enterprise-wide program in 1997 to prepare for
the year 2000 "date change". The program includes verification of the Company's
Information Technology (IT) systems, all microprocessor based products, vendor
capabilities and various internal systems.
The IT system was replaced in September 1998. Because the replacement of
the IT system was a planned event, and was not accelerated, the Company is not
considering that cost as a separate year 2000 expense. The cost of confirmation
of the new IT system, was a year 2000 expense.
Microprocessor based products manufactured by the Company are being tested
for operation through the data change period. Also, clock chips and related
circuits are being verified by design engineering. As a result of testing, the
Company anticipates that none of its products will cause a year 2000 problem for
users. Since the Company's products are frequently employed as components in
larger monitoring and control systems it is not possible for the Company to test
customer systems for compatibility. The Company has advised its customers that
system level testing is beyond the scope of the Company's verification and that
customers should perform independent verification testing.
All materials vendors are being surveyed for their ability to provide
materials and to continue their operations beyond the date change. Vendors
receive a questionnaire which is evaluated to determine if further action should
be taken by the Company. The company presently believes that all of its
materials and services vendors will be able to operate and supply materials
beyond the date change.
Internal systems generally include planning and tracking systems developed
using software packages supplied by third parties. All essential systems are
being tested to insure that they operate and calculate correctly beyond the date
change.
Page 8 of 10
<PAGE>
The total cost of the preparation and implementation of the verification
program and corrective actions is estimated to be less than $100,000 and is
being funded through operating cash flow. A significant proportion of these
costs are not likely to be incremental costs to the Company, but rather will
represent redeployment of existing technical and personnel resources.
Although there are presently no known year 2000 events which would have an
impact on the Company's ability to continue its current operations, there are
unknown factors, such as loss of utility supplies or banking problems, which
could have a broad impact on the Company and its customers. The Company
currently does not believe it practical to develop contingency plans related to
these risks.
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 9 of 10
<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.
10.5 Assignment of Intellectual Property,
Transfer of Rights and Asset
Purchase Agreement
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, 1998 By: /s/ Gordon R. Arnold
----------------------------------
Gordon R. Arnold
President
Chief Financial Officer
Page 10 of 10
Exhibit 10.5
ASSIGNMENT OF INTELLECTUAL PROPERTY, TRANSFER OF RIGHTS,
AND ASSET PURCHASE AGREEMENT
This Assignment of Intellectual Property, Transfer of Rights, and Asset Purchase
Agreement (this "Agreement") is made and entered into effective as of February
1, 1999 (the "Effective Date") by and between Sierra Monitor Corporation, a
California corporation with principal offices located at 1991 Tarob Court,
Milpitas, CA 95035 (the "Company") and Montech Holdings Inc. (d.b.a. Montech
International) a Florida corporation with principal offices located at 12155
Metro Parkway, Fort Myers, FL 33912 ("Seller") and Robert A. Swanson as an
individual and shareholder of the Seller who hereby signs this Agreement for
purposes of Section 5 and Section 6(b) only.
RECITALS:
WHEREAS, Seller has previously created and developed a proprietary line of
products known as the "MC-25 Environmental Controller", as more fully described
on the List of Assets attached hereto as Exhibit A (the "Assets");
WHEREAS, the Company now desires to purchase, and Seller desires to sell, all
the specified Assets in exchange for cash consideration, including payments made
directly to the Seller and in payments made in settlement of certain of Seller's
debts; and
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and
promises contained herein and for other good and valuable consideration, the
Company and Seller agree, as follows:
AGREEMENT:
1) Sale, Assignment and Transfer of the Assets.
a) Intellectual Property, Rights and Assets Transferred. Seller hereby
grants and irrevocably assigns all right, title and interest
whatsoever, throughout the world, in and to the Assets and works
specifically listed on Exhibit A hereto as well as all intellectual
property rights, including but not limited to, copyrights, patents,
trademarks and trade secrets associated with such Assets, to the
Company, its successors and assigns, for the full duration of all such
rights, and any renewals and extensions thereof. Seller agrees that
the Assets to be transferred shall include all related support
materials, work-in-progress and documentation developed by Seller in
connection with the Assets including notes, records, sketches,
drawings, specifications, and any other material related to the
Assets. Such transferred Assets, including all such support materials
and documentation, will remain the sole property of the Company.
Seller covenants and agrees that it will not keep in its possession,
recreate, reverse engineer or deliver to anyone else any reproductions
of any software or documentation relating to any of the aforementioned
Assets.
b) Computer Programs and Software Transferred. Seller agrees that such
computer programs and software transferred as part of the Assets
assigned to the Company shall include the underlying source code as
written in the programming language used by Seller in its original
development. In addition, the Company and the Seller agree that,
except for the representations, warranties, agreements and covenants
contained in this Agreement, Seller is providing such computer
programs and software to the Company on an "as is" basis with no
warranty that such programs are error-free and without any express or
implied warranty of merchantability or
Page 1 of 8
<PAGE>
Exhibit 10.5
fitness for a particular purpose and with no ongoing maintenance or
support obligations. Seller further agrees that the Company shall have
the right to alter, modify or combine the transferred computer
programs, software and other portions of the Assets with other works,
and hereby waives any claim that any new versions, developments or
derivative works involving the Assets constitutes a violation of any
"moral rights" or a distortion, mutilation or disparagement or
contains unauthorized variations of the same. As of the Effective
Date, the Company shall assume all costs of the further development
and support of the Assets, including those related, but not limited
to, salaries, consulting services and equipment; however, nothing
herein shall require or otherwise obligate the Company to assume any
obligations or liabilities of Seller, its employees and shareholders
or to continue the production, sales and/or development of the Assets.
c) Cooperation in Securing Rights. Seller hereby covenants and agrees
that it will assist and cooperate with the Company, or its designees,
in every proper way to further secure the Company's rights in the
Assets hereby assigned to the Company together with any copyrights,
patents, trademarks, trade secrets or other intellectual property
rights relating thereto in any and all countries. Such cooperation and
assistance of Seller shall include, but not be limited to, the giving
of testimony and the prompt execution of all applications,
specifications, oaths, assignments and all other instruments which the
Company deems necessary in order to apply for, perfect, obtain and
sustain such intellectual property rights and in order to assign and
convey to the Company, its successors, assigns, and nominees the sole
and exclusive right, title and interest in and to such transferred
Assets and any copyrights, patents, trademarks, trade secrets or other
intellectual property rights relating thereto, including the filing
and prosecution of substitute, divisional, continuing or additional
applications covering said intellectual property rights, including
without limitation, reissues and reexaminations, opposition
proceedings, cancellation proceedings, priority contests, public use
proceedings, infringement actions and court actions; provided,
however, that if requested on a timely basis, the Company shall
reimburse Seller for its reasonable costs and expenses, including for
the time of its employees on the basis of Seller's then current
standard consulting rates as determined by reference to the rates
actually charged by Seller to its then current clients, in connection
with providing such cooperation.
d) Validity of the Transfer of Assets. Seller represents and warrants (i)
that the Assets being assigned and transferred to the Company along
with all related materials being assigned and transferred to the
Company will not infringe any copyright, patent, trademark, trade
secret or other proprietary or intellectual property rights of any
third party; (ii) that Seller is the sole owner, without restriction
or encumbrance, of all rights (including, but not limited to, all
copyrights, patents, trademarks, trade secrets and other intellectual
property rights,) title and interest in and to the Assets; (iii) that
Seller has not previously granted any rights in the Assets to any
third party (which have not otherwise been reacquired in full by
Seller prior to the Effective Date); and (iv) that Seller currently
has the full power and authority to make and enter into this Agreement
and to make the present assignment of the Assets to the Company as
contemplated by this Agreement. Upon the Effective Date of this
Agreement and the transfer of the Assets to the Company, Seller
covenants and agrees not to use in the future and to discontinue any
current use of such Assets and associated materials and further not to
recreate such rights and materials in any manner whatsoever once such
rights are actually transferred to the Company.
Page 2 of 8
<PAGE>
Exhibit 10.5
2) Consideration. In consideration for entering into this agreement and the
transfer of Assets contemplated hereby, the Company has delivered to Seller
the aggregate consideration of One Hundred Fifty Thousand Dollars (U.S.
$150,000.00, the "Payment"), pursuant to the terms and conditions specified
by Seller. Such Payment shall be inclusive of all applicable taxes, fees or
other assessments, if any, involved with this transfer. In addition, such
Payment shall be inclusive of any expenses or fees of any nature
whatsoever, claimed or to be claimed by Seller in connection with the
preparation of this Agreement or involved with the transfer of such Assets
to the Company.
3) Tax Consequences. The Company makes no representations or warranties with
respect to the tax consequences of the payment or transfer of any
consideration to Seller under the terms of this Agreement. Seller agrees
and understands that it is solely responsible for the payment of federal,
state, and/or local taxes, if any, on the consideration received from the
Company under this Agreement and any penalties or assessments thereon.
Seller further agrees to indemnify and hold the Company harmless from any
and all claims, demands, deficiencies, penalties, assessments, executions,
judgments, or recoveries by any taxing authority against the Company for
any amounts claimed due on account of Seller's failure to pay any of such
taxes and from damages sustained by the Company by reason of any such
claims, including reasonable attorneys' fees and expenses.
4) Indemnification. Seller agrees to indemnify, defend and hold the Company
harmless from any loss, cost, liability or expense arising out of or
resulting from any breach or claimed breach of Seller's representations and
warranties contained herein, including, but not limited to, those arising
out of any third party claims that the Assets infringe any intellectual
property rights including, without limitation, copyrights, patents,
trademarks and trade secrets. In addition, so long as the Company is not in
material default under this Agreement, the Seller will defend the Company
against such claims at Seller's expense and pay all damages that a court
finally awards or settlements entered into, provided that the Company
promptly notifies Seller in writing of such claim, reasonably cooperates
with Seller in the defense or any related settlement negotiations;
provided, however, that Seller shall not fail to diligently protect the
Company from liability or consent to any entry of judgment or enter into
any settlement in the defense of such claim that does not include as an
unconditional term thereof the complete release of the Company from all
liability with respect to such claim without the Company's prior express
written consent.
a) Right to Cure. If such a claim of infringement is made or appears
possible, Seller may, at its option and expense, secure for the
Company the appropriate rights for the Company to be able to continue
to use the Assets, in the manner contemplated by this Agreement.
b) No Obligation. Seller shall have no obligation for any claim based
upon a modified version of the Assets or the combination, operation,
or use of the Assets with any product, data, or apparatus other than
as necessary to use such Assets as designed by Seller.
5) Confidential Information. The Seller and Robert A. Swanson hereby severally
agree that each will hold in strictest confidence and not use, except for
the benefit of the Company, or disclose to any person, firm or corporation
without written authorization of the Company any Confidential Information,
as defined herein below. For purposes of this Agreement, "Confidential
Information" shall mean any of the Company's proprietary information,
technical data, trade secrets or know-how, including, but not limited to,
research, product plans, products, services, customer lists and customers
(including, but not limited to, customers of the Company on whom the Seller
called or with whom the Seller became acquainted), markets, software,
developments, inventions, processes, formulas, technology, designs,
drawings, engineering, hardware configuration information,
Page 3 of 8
<PAGE>
Exhibit 10.5
marketing, finances or other business information directly or indirectly
disclosed to the Seller by the Company or by others under confidentiality
agreements executed by the Seller, in writing, orally, or by drawings or
observation of parts or equipment. Confidential Information does not
include any of the foregoing items which have become publicly known and
made generally available through no wrongful act of the Seller or of others
who were under confidentiality obligations as to the items involved.
6) Representations and Warranties.
a) The Seller hereby represents to the Company that:
i) the Seller is a corporation duly, organized, validly existing and
in good standing under the laws of the state of Florida;
ii) the Seller has the right, power and authority to enter into and
fully perform its obligations hereunder this Agreement;
iii) all corporate action on the part of the Seller, its officers,
directors and shareholders necessary for the authorization of
this Agreement and the performance of the Seller's obligations
hereunder have been taken prior to the Effective Date of this
Agreement;
iv) the undersigned officer has the authority to act on behalf of the
Seller and to bind the Seller and all who may claim through it to
the terms and conditions of this Agreement;
v) Robert A. Swanson is the duly elected and acting officer of the
Seller who has the full corporate authority and power to execute
this Agreement on behalf of the Seller;
vi) the making of this Agreement by the Seller does not breach or
otherwise violate and other agreement between the Seller and any
third party;
vii) the Seller has not entered into, and will not enter into, any
oral or written agreement in conflict with this Agreement;
viii)the Seller holds good and marketable right title and interest in
the Assets and such Assets are not subject to any mortgage,
pledge, lien, lease, charge or other encumbrance and are fit and
usable for the purposes for which they are intended to be used;
ix) there are no liens or claims of lien or assignments in law or
equity or otherwise against any of the Assets nor are there any
actions, suits, legal proceedings or investigations pending or
threatened lawsuits against the Seller which would impact the
Seller's ability to enter into and perform under this Agreement
and that the Seller is not aware of any basis for any of the
foregoing; and
x) the Seller has previously provided the Company with all due
diligence and documentation requested by Company in connection
with this Agreement, that exist and such documents do not contain
any untrue statement of a material fact.
b) Robert A. Swanson hereby represents to the Company that:
i) to his knowledge, he is the sole authorized director of Seller;
Page 4 of 8
<PAGE>
Exhibit 10.5
ii) to his knowledge, that he is the sole authorized, duly elected
and acting officer of Seller who has the full corporate authority
and power to execute this Agreement on behalf of the Seller;
iii) shareholders representing more than 50% of the outstanding stock
of the Seller which represents a controlling interest of the
Seller, have approved the Assignment of Intellectual Property,
Transfer of Rights and Asset Purchase transaction;
iv) to his knowledge, the making of this Agreement and the sale of
the Assets by the Seller does not breach or otherwise violate and
other agreement between the Seller and any third party;
v) he has not entered into, and will not enter into, any oral or
written agreement in conflict with this Agreement and that he has
not taken, and will not take in the future, any such actions on
behalf of the Seller which will result in the conflict with this
Agreement;
vi) to his knowledge, that there are no liens or claims of lien or
assignments in law or equity or otherwise against any of the
Assets nor are there any actions, suits, legal proceedings or
investigations pending or threatened lawsuits against the Seller
which would impact the Seller's ability to enter into and perform
under this Agreement and that there is no basis for the any of
the foregoing.
c) The Company hereby represents to Seller that:
i) the Company is a corporation duly, organized, validly existing
and in good standing under the laws of the state of California;
ii) the Company has the right, power and authority to enter into and
fully perform its obligations hereunder this Agreement;
iii) all corporate action on the part of the Company, its officers,
directors and shareholders necessary for the authorization of
this Agreement and the performance of the Company's obligations
hereunder have been taken prior to the Effective Date of this
Agreement;
iv) the undersigned officer has the authority to act on behalf of the
Company and to bind the Company and all who may claim through it
to the terms and conditions of this Agreement; and
v) the making of this Agreement by the Company does not breach or
otherwise violate and other agreement between the Company and any
third party.
7) Additional Cooperation. Seller agrees that it will execute any proper oath
or verify any proper document required to carry out the terms of this
Agreement. Seller hereby represents and warrants that its performance of
all the terms of this Agreement will not breach any other agreement to keep
in confidence proprietary information acquired by it in confidence or in
trust from an outside third party prior to the Effective Date of this
Agreement and agrees to notify the Company immediately in writing if Seller
is subsequently notified of such purported breach or otherwise becomes
aware of such a claim of such breach.
8) Noncompetition. The Seller agrees that it will not engage in any business
activity directly related to the business in which the Company is now
involved or becomes involved during the thirty six (36)
Page 5 of 8
<PAGE>
Exhibit 10.5
months following the effective date of this Agreement, or any other
activities that conflict with the Seller's obligations to the Company
hereunder.
9) Solicitation of Employees. The Seller agrees it will not, during the thirty
six (36) months immediately following the effective date of this Agreement,
either directly or indirectly solicit, induce, recruit or encourage any of
the Company's employees or consultants to leave their employment with the
Company, or take away any such employees or consultants, or otherwise
attempt to solicit, induce, recruit, encourage or take away employees or
consultants of the Company, either directly oh behalf of the Seller or for
any other person or entity.
10) Arbitration and Equitable Relief.
a) Arbitration. Except as otherwise provided in subsection 10(b) below,
any dispute or controversy arising out of or relating to any
interpretation, construction, performance or breach of this Agreement,
will be settled by binding arbitration held in Santa Clara County,
California, or at any other location mutually agreeable to the Company
and the Seller, in accordance with the rules of the American
Arbitration Association then in effect, as follows: In the event that
Company and Seller mutually agree on one arbitrator, the arbitration
shall be conducted by such single arbitrator. Otherwise, in the event
that the Company and Seller do not so agree on the same arbitrator,
the Company and the Seller will each select one arbitrator and these
two arbitrators shall select a third arbitrator. In addition, unless
the Company and the Seller mutually agree, none of such arbitrators
shall be employed by or affiliated with either party or an
organization which is a direct competitor of the Company. At the
request of either party, the arbitration proceedings will be conducted
in secrecy. In such case, all the documents, testimony, and records
shall be received, heard, and maintained by the arbitrators in secrecy
under seal, available for inspection only by the Company and the
Seller and their respective attorneys and their respective experts who
shall agree in advance and in writing to receive all such information
confidentially and to maintain such information in secrecy until such
information shall become generally known to the public. The Company
and the Seller will each state their respective positions in writing,
and verbally. Each of the parties shall then have an opportunity to
amend their written positions once after such verbal presentations.
The three arbitrators, acting by majority vote, will then make a
determination and such decision of the arbitrators will be binding on
all parties. Such arbitrators shall be able to decree any and all
relief of an equitable nature, including but not limited to such
relief as a temporary restraining order, a temporary or a permanent
injunction, or both, and shall also be able to award damages, with or
without an accounting, costs, and reasonable attorneys' fees. Such
arbitrators shall also allocate all other costs associated with such
proceeding in an equitable fashion. The decision of the arbitrators
will be final, conclusive and binding on the parties to the
arbitration. The decree or judgment of an award rendered by the
arbitrators may be entered in any court having jurisdiction thereof.
b) Equitable Remedies. If the Seller breaches subsections 1(a) or 1(b) or
Sections 5, 8 or 9 of this Agreement, the Company will have available,
in addition to any other right or remedy available, the right to
obtain an injunction from a court of competent jurisdiction
restraining such breach or threatened breach and to specific
performance of any such provision of this Agreement. No bond or other
security will be required in obtaining such equitable relief and the
Seller consents to the issuance of any such injunction and ordering of
specific performance.
Page 6 of 8
<PAGE>
Exhibit 10.5
11) General Provisions.
a) Entire Agreement. This Agreement represents the entire agreement and
understanding between the Company and Seller and supersedes, merges
and replaces any and all prior oral and written agreements and
understandings relating to the subject matter of this Agreement. Each
party to the Agreement represents such party has had the opportunity
to consult with an attorney and has carefully read and understands the
scope and effect of the provisions of this Agreement. There are no
representations, agreements, arrangements or understandings, oral or
written, among any of the parties to this Agreement relating to the
subject matter of this Agreement that are not fully expressed in this
Agreement and none of the parties has relied upon any representation
or statement made by one of the other parties in entering into this
Agreement that is not specifically set forth in this Agreement.
b) Modification. No modification of or amendment to this Agreement, nor
any waiver of any rights under this Agreement, shall be effective
unless in writing and signed by both the Company and Seller.
c) Waiver. No failure or delay by either of the parties in exercising any
right, power or privilege under this Agreement will operate as a
waiver thereof. The waiver by either of the parties of a breach of any
provision of this Agreement will not operate or be construed as a
waiver of any other or subsequent breach.
d) Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, the remaining provisions of this
Agreement shall continue in full force and effect without said
provision and the parties agree to amend this Agreement and to
substitute and replace such void or unenforceable provision with a new
enforceable provision negotiated in good faith which most nearly
effects the original intent of the parties upon entering into this
Agreement.
e) Assignment. Neither of the Seller nor the Company may assign its
rights or delegate its duties under this Agreement without the prior
written consent of the other party.
f) Successors and Assigns. This Agreement shall be binding upon, and
inure to the benefit of, the respective legal representatives,
successors and permitted assigns of the parties.
g) No Third Party Beneficiaries. Except as otherwise set forth in this
Agreement, the provisions of this Agreement are not intended to be for
the benefit of or enforceable by a third party.
h) Notices. Any notice required or permitted by this Agreement shall be
in writing and shall be deemed given upon actual receipt or (i) upon
delivery, if personally delivered, (ii) after three days upon deposit
in the mail if sent by prepaid registered or certified mail, return
receipt requested, or (iii) the next business day after delivery to a
commercial overnight courier service. All such notices shall be
addressed at to the appropriate using the address set forth below at
the end of this Agreement or at other such address for which such a
party has previously provided the other with notice under the terms of
notice hereunder.
i) Costs. Except as otherwise specifically provided herein, each of the
parties hereto shall each bear its own costs, attorneys' fees and
other fees incurred in connection with the preparation and execution
of this Agreement.
Page 7 of 8
<PAGE>
Exhibit 10.5
j) Disputes. In the event of a dispute between the parties arising from
or related to this Agreement, the parties agree that the prevailing
party in such dispute shall be entitled to reimbursement of reasonable
attorneys' fees and expenses, in addition to any other rights and
remedies that it may have.
k) Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of California, without regard to
the laws of conflicts.
l) Consent to Jurisdiction. Each of the parties hereto hereby expressly
agrees and consents that the California state courts located within
the County of Santa Clara, California shall be the exclusive
jurisdiction and venue in which to adjudicate any dispute arising from
or relating to this Agreement (unless, if there is exclusive federal
jurisdiction, then the United States District Court for the Northern
District of California shall be the exclusive jurisdiction and venue
for such matters.) Furthermore, each of the parties hereto hereby
expressly consents to (i) the personal jurisdiction of the federal and
state courts within California, (ii) service of process being effected
upon it by registered mail sent to the appropriate officer at the
address as set forth below at the end of this Agreement or at other
such address for which such party has previously provided under the
terms of notice hereunder, and (iii) the uncontested enforcement of a
final judgment from such court in any other jurisdiction wherein such
party or any of its assets are present.
m) Counterparts. This Agreement may be executed in counterparts, each of
which when so executed and delivered shall be deemed to be an
original, and all of which together shall constitute one and the same
instrument.
<TABLE>
<CAPTION>
IN WITNESS WHEREOF, each of the parties hereto have caused this Assignment of
Intellectual Property, Transfer of Rights, and Asset Purchase Agreement to be
executed and delivered as of the Effective Date first set forth above.
<S> <C>
COMPANY: SELLER:
SIERRA MONITOR CORPORATION MONTECH HOLDINGS INC.
d.b.a. Montech International
By: /s/ Gordon R. Arnold By: /s/ Robert A. Swanson
----------------------------- ------------------------------------
Gordon R. Arnold Robert A. Swanson
Title: President Title: President, Sole Director
Address: 1991 Tarob Court Address: 12155 Metro Parkway
Milpitas, California 95035 Fort Myers, Florida 33912
ROBERT A. SWANSON:
(For purposes of Sections 5 and 6(b) only.)
By: /s/ Robert A. Swanson
-------------------------------------
Robert A. Swanson
Address: ____________________
____________________
____________________
</TABLE>
Page 8 of 8
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 487
<SECURITIES> 24
<RECEIVABLES> 1247
<ALLOWANCES> 128
<INVENTORY> 963
<CURRENT-ASSETS> 2895
<PP&E> 855
<DEPRECIATION> 615
<TOTAL-ASSETS> 3742
<CURRENT-LIABILITIES> 830
<BONDS> 0
0
0
<COMMON> 3160
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3742
<SALES> 1659
<TOTAL-REVENUES> 1659
<CGS> 633
<TOTAL-COSTS> 633
<OTHER-EXPENSES> 1097
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (9)
<INCOME-PRETAX> (62)
<INCOME-TAX> 0
<INCOME-CONTINUING> (62)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (62)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
