U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10 - QSB
(Mark One)
( X ) Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended June 30, 2000.
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 August 7,
2000 was: 10,967,588
Transitional Small Business Disclosure Format: Yes____; No __x__
Page 1 of 11
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SIERRA MONITOR CORPORATION
<TABLE>
Condensed Balance Sheets
(Unaudited)
<CAPTION>
June 30, December 31,
Assets 2000 1999
----------------- -----------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 399,529 606,939
Trade receivables, less allowance for doubtful accounts 1,494,949 801,593
of $139,297 in 2000 and $138,572 in 1999
Notes receivable 22,929 27,084
Inventories 1,412,551 1,166,648
Prepaid expenses 108,542 103,849
Deferred income taxes 212,311 212,311
----------------- -----------------
Total current assets 3,650,811 2,918,424
Property and equipment, net 182,773 198,657
Deferred income taxes 97,851 97,850
Other assets 380,486 418,752
----------------- -----------------
Total assets $ 4,311,921 3,633,683
================= =================
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 516,809 411,540
Accrued expenses 413,602 273,733
Other current liabilities 59,433 43,812
Income taxes payable 134,105 -
----------------- -----------------
Total current liabilities 1,123,949 729,085
----------------- -----------------
Shareholders' equity
Common stock; 20,000,000 authorized, 10,967,588 3,159,944 3,159,944
share issued and outstanding
Retained earnings (accumulated deficit) 61,781 (214,440)
Notes receivable from shareholders (33,753) (40,906)
----------------- -----------------
Total shareholders' equity 3,187,972 2,904,598
----------------- -----------------
Total liabilities and shareholders' equity $ 4,311,921 3,633,683
================= =================
<FN>
See the accompanying notes to the condensed financial statements.
</FN>
Page 2 of 11
</TABLE>
<PAGE>
SIERRA MONITOR CORPORATION
<TABLE>
Condensed Statements of Operations
(Unaudited)
<CAPTION>
Three months ended June 30, Six months ended June 30,
2000 1999 2000 1999
---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 2,337,059 1,511,452 4,522,510 3,170,740
Cost of goods sold 858,315 589,719 1,683,335 1,222,793
---------------- --------------- --------------- ---------------
Gross profit 1,478,744 921,733 2,839,175 1,947,947
---------------- --------------- --------------- ---------------
Operating expenses
Research and development 254,664 188,971 504,347 403,279
Selling and marketing 629,653 565,666 1,207,120 1,139,101
General and administrative 358,003 311,287 712,797 620,687
---------------- --------------- --------------- ---------------
1,242,320 1,065,924 2,424,264 2,163,067
---------------- --------------- --------------- ---------------
Income (loss) from operations 236,424 (144,191) 414,911 (215,120)
Other income - - - 34
Interest income 1,682 3,820 3,522 12,613
---------------- --------------- --------------- ---------------
Income (loss) before income taxes 238,106 (140,371) 418,433 (202,473)
Income tax (benefit) expense 86,315 (43,989) 142,212 (43,989)
---------------- --------------- --------------- ---------------
Net income (loss) $ 151,791 (96,382) 276,221 (158,484)
================ =============== =============== ===============
Net income (loss) per share - basic $ 0.01 (0.01) 0.03 (0.01)
================ =============== =============== ===============
Net income (loss) per share - diluted $ 0.01 (0.01) 0.02 (0.01)
================ =============== =============== ===============
Weighted average number of shares used in per
share computations
Basic: 10,967,588 10,967,588 10,967,588 10,967,588
================ =============== =============== ===============
Diluted: 11,406,243 10,967,588 11,400,823 10,967,588
================ =============== =============== ===============
<FN>
See the accompanying notes to the condensed financial statements.
</FN>
Page 3 of 11
</TABLE>
<PAGE>
SIERRA MONITOR CORPORATION
<TABLE>
Condensed Statements of Cash Flows
(Unaudited)
<CAPTION>
Three months ended Six months ended
June 30, June 30
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 151,791 (96,382) 276,221 (158,484)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation & amortization 62,349 68,461 115,754 125,890
Allowance for doubtful accounts (775) 2,288 725 4,538
Deferred income taxes (1) (25,317) (1) (25,317)
Changes in operating assets and liabilities:
Trade receivables and note receivables (268,140) 142,538 (689,927) 145,885
Inventories (171,916) (46,220) (245,903) (63,766)
Prepaid expenses (38,146) (37,769) (4,693) (32,510)
Accounts payable 31,896 (68,015) 105,269 (20,864)
Accrued compensation expenses 86,885 11,006 139,869 34,419
Other current liabilities 27,443 (57,174) 15,621 (30,504)
Income taxes payable 78,208 - 134,105 (105,052)
------------- ------------- ------------- -------------
Net cash used in
operating activities (40,406) (106,584) (152,959) (125,765)
------------- ------------- ------------- -------------
Cash flows from investing activities:
Capital expenditures (29,056) (22,376) (61,604) (64,753)
Short term investments - 24,066 - 245,522
Acquisition of business assets - - - (171,828)
Other assets (2,205) - (290)
------------- ------------- ------------- -------------
Net cash provided by (used in)
investing activities (29,056) (515) (61,604) 8,651
------------- ------------- ------------- -------------
Cash flows from financing activities:
Repayment of bank borrowings, net - (100,000) - -
Repayment of shareholder notes receivable 3,555 2,972 7,153 6,387
------------- ------------- ------------- -------------
Net cash provided by (used in)
financing activities 3,555 (97,028) 7,153 6,387
------------- ------------- ------------- -------------
Net decrease in
cash and cash equivalents (65,907) (204,127) (207,410) (110,727)
Cash and cash equivalents at beginning of period 465,436 487,067 606,939 393,667
------------- ------------- ------------- -------------
Cash and cash equivalents at end of period $ 399,529 282,940 399,529 282,940
============= ============= ============= =============
<FN>
See the accompanying notes to the condensed financial statements.
</FN>
Page 4 of 11
</TABLE>
<PAGE>
SIERRA MONITOR CORPORATION
Notes to the Financial Statements
June 30, 2000
Basis of Presentation
The unaudited condensed 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 condensed 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, 1999 which was filed March 30, 2000. In the opinion of
the Company, all adjustments, consisting of normal recurring adjustments
necessary to present fairly the financial position of Sierra Monitor Corporation
as of June 30, 2000 and the results of its operations and cash flows for the
quarter then ended, have been included. The results of operations for the
interim period are not necessarily indicative of the results for the full year.
Accounting Policies
There have been no changes in accounting policies used by the Company
during the quarter ended June 30, 2000.
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.
Page 5 of 11
<PAGE>
Inventories
A summary of inventories follows:
June 30, December 31,
2000 1999
----------------- ----------------
Raw Materials $ 506,080 403,338
Work-in-process 288,785 520,220
Finished goods 617,686 243,090
----------------- ----------------
$ 1,412,551 1,166,648
================= ================
Net Income (loss) per share
Basic Earnings Per Share (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 Company reported a net loss for both the three month period
ended June 30, 1999 and the six month period ended June 30, 1999. As a result
97,656 and 101,040 shares were excluded from the calculation of diluted loss per
share for the three month period ended June 30, 1999 and the six month period
ended June 30, 1999, respectively. In the six month period ended June 30, 2000
options to purchase 56,000 shares of common stock were outstanding but not
included in the computation of diluted EPS because the exercise price was
greater than the average market price of common shares. The following is a
reconciliation of the shares used in the computation of basic and diluted EPS
for the three and six month periods ending June 30, 2000 and 1999, respectively:
<TABLE>
<CAPTION>
3 months 6 months 3 months 6 months
ended ended ended ended
6/30/00 6/30/00 6/30/99 6/30/99
<S> <C> <C> <C> <C>
Basic EPS - weighted-average number of common
shares outstanding 10,967,588 10,967,588 10,967,588 10,967,588
Dilutive stock options 438,655 433,235 - -
----------------- ---------------- ----------------- -----------------
Diluted EPS - dilutive potential common shares 11,406,243 11,400,823 10,967,588 10,967,588
================= ================ ================= =================
Page 6 of 11
</TABLE>
<PAGE>
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 in this
report, the Company's Annual Report on Form 10-KSB and other reports and
documents that the Company files with the Securities and Exchange Commission.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
For the three months ended June 30, 2000, Sierra Monitor Corporation
("Sierra Monitor" or the "Company") reported net sales of $2,337,059 compared to
$1,511,452 for the three months ended June 30, 1999. For the six-month period
ended June 30, 2000, net sales were $4,522,510 compared with $3,170,740 in the
prior year six-month period. The results for the second quarter of fiscal 2000
represent a 55% increase from the same period in the prior year. The results for
the first six months of fiscal 2000 represent a 43% increase from the same
period the prior year.
The primary reason for the increase in sales is an increase in shipments
of environment controllers, which are used in telephone and cable company
applications. Major telephone and cable companies continue expansion of
infrastructure to meet rapidly growing demand for Internet related broadband
services. Broadband expansion requires that small buildings and underground
vaults must be located within approximately two miles of each home to be
serviced. For each small structure Sierra Monitor has an opportunity to supply
an environment controller. Bandwidth expansion is an ongoing activity for
telephone companies and the Company intends to vigorously pursue further
participation in this market.
In addition to products for the telephone industry, sales of protocol
conversion devices increased in both the three and six month periods ended June
30, 2000 compared to the same periods of 1999. Sales of gas detection systems
remained at approximately the same level in the first six months of fiscal 2000
compared to the same period in 1999.
Gross profit of $1,478,744 for the three-month period ended June 30, 2000
was 63% of sales compared to $921,733, or 61% of sales, in the same period in
the previous year. The gross profit for the six-month period ended June 30, 2000
was $2,839,175, or 63% of sales, compared to $1,947,947, or 61% of sales, in the
same period in the previous year. Gross profit can vary due to the mix of
products shipped in a given period and the discounts which may be applied to
those shipments. In the first six months of fiscal 2000 the product mix varied
from the first six months of the prior year due to the increase in shipments of
environment controllers, as described above. Although these products generally
have higher materials content than other products sold by the Company, volume
purchasing economies offset the impact on gross margin.
Page 7 of 11
<PAGE>
Expenses for research and development, which include new product
development and engineering to sustain existing products, were $254,664, or 11%
of sales, for the three-month period ending June 30, 2000 compared to $188,971,
or 13% of sales, in the comparable period in 1999. In the six-month periods
ending June 30, 2000 and June 30, 1999, research and development expenses were
$504,347, or 11% of sales, and $403,279, or 13% of sales, respectively. The
higher research and develop expenses continue to reflect the Company's
investment in the development of software programs and the improvement of
hardware designs necessary to grow sales of the Company's Communications Bridge.
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 June 30,
2000 were $629,653, or 27% of sales, compared to $565,666, or 37% of sales, in
the comparable period in the prior year. For the six-month periods ending June
30, 2000 and June 30, 1999, selling and marketing expenses were $1,207,120, or
27% of sales, and $1,139,101, or 36% of sales, respectively. The higher overall
selling and marketing expenses in fiscal 2000 are due, primarily, to salary and
commission costs directly related to the increased sales. Other selling and
marketing expenses remained relatively stable resulting in a substantial
reduction in costs as a percentage of net sales.
General and administrative expenses were $358,003, or 15% of sales, for
the three-month period ended June 30, 2000 compared to $311,287, or 21% percent
of sales, in the three-month period ended June 30, 1999. For the six-month
periods ending June 30, 2000 and June 30, 1999, general and administrative
expenses were $712,797, or 16% of sales, and $620,687, or 20% of sales,
respectively. Increases in salary and benefit expenses, related to support of
the higher level of sales, and expenses for the Company's manufacturing plant in
Fort Myers, Florida contributed to the higher general and administrative
expenses. The Company's Florida manufacturing plant was not in full operation
during the first half of 1999.
Net income, after interest and provision for income taxes, for the three
months ended June 30, 2000 was $151,791, compared with a net loss of $96,382 in
the three months ended June 30, 1999. Net income, for the six-month period ended
June 30, 2000 was $276,221 compared with net loss of $158,484 in the same period
in the prior year. The improvement in income is due to the higher sales level
and improved gross margin and lower selling and administrative costs as a
percent of sales. In the first six months of fiscal 2000 compared to the first
six months of fiscal 1999 net sales increased by $1,351,770 and income from
operations improved by $680,033.
Liquidity and Capital Resources
During the six-month period ended June 30, 2000, the Company's working
capital increased by $337,523 from December 31, 1999. The increase in working
capital is primarily due to the net income generated in the six month period. At
June 30, 2000, cash and cash equivalents totaled $399,529. Trade receivables, a
component of working capital, increased by $693,901 compared to December 31,
1999. Trade receivable generally reflect the sales level of the prior sixty
days. The current level of trade receivables is approximately equal to the last
sixty days sales. Inventories, also a component of working capital, have
increased $245,903 compared to December 31, 1999. The Company has increased
inventory to support the current sales levels of each of the product groups and,
in some cases, to protect against possible materials shortages in the supply of
semiconductor memory devices.
Page 8 of 11
<PAGE>
The Company believes the current level of receivables is acceptable and
that the level of reserves is appropriate. In the current fiscal year, the
Company has not utilized its $250,000 line of credit and no balance is currently
outstanding 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.
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 11
<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
The Company's Annual Meeting of Shareholders was held on May 16,
2000. At the meeting the following directors were elected:
Number of Common Shares Voted
-----------------------------
Directors For Withheld
--------- --- --------
Gordon R. Arnold 7,893,968 0
C. Richard Kramlich 7,893,968 0
Jay T. Last 7,893,968 0
Robert C. Marshall 7,893,968 0
In addition, the shareholders approved the following proposals:
Number of Common Shares Voted
-----------------------------
Proposal For Against Abstain
-------- --- ------- -------
Increase the number of shares 7,893,968 0 0
reserved for issuance under the
Company's 1996 Stock Option Plan
by 500,000 shares.
Ratify the appointment of KPMG LLP 7,893,968 0 0
as the Company's independent
public accountants for the fiscal
year ending December 31, 2000
There were no broker non-votes for any of the proposals.
Item 5. Other Information - N/A
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits.
27.0 Financial Data Schedule
b. Reports on Form 8-K.
None.
Page 10 of 11
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SIERRA MONITOR CORPORATION
Registrant
Date: August 10, 2000 By: /s/ Gordon R. Arnold
________________________________
Gordon R. Arnold
President
Chief Financial Officer
Page 11 of 11
