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, 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 May
12, 2000 was 10,967,588.
Transitional Small Business Disclosure Format: Yes ; No X
---- ----
Page 1 of 9
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SIERRA MONITOR CORPORATION
<TABLE>
Balance Sheets
<CAPTION>
March 31, December 31,
2000 1999
----------- -----------
Assets (Unaudited)
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 465,436 606,939
Trade receivables, less allowance for doubtful 1,224,099 801,593
accounts of $140,071 in 2000 and $138,572
in 1999
Notes receivable 24,863 27,084
Inventories 1,240,636 1,166,648
Prepaid expenses 70,397 103,849
Deferred income taxes 212,311 212,311
----------- -----------
Total current assets 3,237,742 2,918,424
Property and equipment, net 193,769 198,657
Deferred income taxes 97,850 97,850
Other assets 402,781 418,752
----------- -----------
Total assets $ 3,932,142 3,633,683
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 484,913 411,540
Accrued compensation expenses 326,717 273,733
Other current liabilities 31,990 43,812
Income taxes payable 55,897 --
----------- -----------
Total current liabilities 899,517 729,085
Commitments
Shareholders' equity:
Common stock; 20,000,000 shares authorized 3,159,944 3,159,944
10,967,588 shares issued and outstanding
Accumulated deficit (90,010) (214,440)
Notes receivable from shareholders (37,309) (40,906)
----------- -----------
Total shareholders' equity 3,032,625 2,904,598
----------- -----------
Total liabilities and shareholders' equity $ 3,932,142 3,633,683
=========== ===========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
Page 2 of 9
<PAGE>
SIERRA MONITOR CORPORATION
Statements of Operations
(Unaudited)
For the three months ended
-------------------------
March 31, March 31,
2000 1999
----------- -----------
Net sales $ 2,185,451 1,659,288
Cost of goods sold 825,019 633,074
----------- -----------
Gross profit 1,360,431 1,026,214
----------- -----------
Operating expenses
Research and development 249,683 214,308
Selling and marketing 577,467 573,438
General and administrative 354,795 309,400
----------- -----------
1,181,945 1,097,146
----------- -----------
Income (loss) from operations 178,486 (70,932)
Other income -- 34
Interest income 1,841 8,793
----------- -----------
Income (loss) before income tax
expense 180,327 (62,105)
Income tax expense 55,897 --
----------- -----------
Net income (loss) $ 124,430 (62,105)
=========== ===========
Net income (loss) per share - basic $ 0.01 (0.01)
=========== ===========
Net income (loss) per share - diluted $ 0.01 (0.01)
=========== ===========
Weighted-average number of shares used in per
share computations:
Basic 10,967,588 10,967,588
=========== ===========
Diluted 11,347,344 10,967,588
=========== ===========
See accompanying notes to financial statements.
Page 3 of 9
<PAGE>
<TABLE>
SIERRA MONITOR CORPORATION
Statements of Cash Flows
(Unaudited)
<CAPTION>
For the three months ended
----------------------
March 31, March 31,
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 124,430 (62,105)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 53,404 57,429
Allowance for doubtful accounts 1,500 2,250
Change in operating assets and liabilities:
Trade receivables (424,006) 1,265
Notes receivable 2,221 2,082
Inventories (73,988) (17,547)
Prepaid expenses 33,452 5,260
Accounts payable 73,373 47,151
Accrued compensation expenses 52,984 23,414
Other current liabilities (11,822) 26,670
Income taxes payable 55,897 (105,051)
--------- ---------
Net cash (used in) operating activities (112,554) (19,182)
--------- ---------
Cash flows from investing activities:
Capital expenditures (32,546) (42,376)
Short term investments -- 221,456
Acquisition of business assets -- (171,828)
Other assets -- 1,916
--------- ---------
Net cash provided by (used in) investing
activities (32,546) 9,168
--------- ---------
Cash flows from financing activities:
Proceeds from bank borrowings, net -- 100,000
Proceeds from exercise of stock options,
net of notes receivable 3,597 3,415
--------- ---------
Net cash provided by financing activities 3,597 103,415
--------- ---------
Net increase (decrease) in cash and cash equivalents (141,503) 93,400
Cash and cash equivalents at beginning of period 606,939 393,667
--------- ---------
Cash and cash equivalents at end of period $ 465,436 487,067
========= =========
<FN>
See accompanying notes to financial statements.`
</FN>
</TABLE>
Page 4 of 9
<PAGE>
SIERRA MONITOR CORPORATION
Notes to the Financial Statements
March 31, 2000
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,
1999 which was filed March 30, 2000. 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, 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 March 31, 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.
Inventories
A summary of inventories follows:
March 31, December 31,
2000 1999
---------- ----------
Raw Materials $ 431,739 403,338
Work-in-process 262,407 520,220
Finished goods 546,490 243,090
---------- ----------
$1,240,636 1,166,648
========== ==========
Page 5 of 9
<PAGE>
Net Income (loss) per share
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, 2000 and
1999 respectively:
2000 1999
Basic EPS - weighted-average number of common
shares outstanding 10,967,588 10,967,588
Effect of dilutive common equivalent
shares - stock options outstanding 379,756 0
---------- ----------
Diluted EPS - weighted-average of common
shares and common
equivalent shares outstanding 11,347,344 10,967,588
========== ==========
Diluted EPS as of 3/31/99 does not include 273,203 stock options because the
inclusion of such stock options would be antidilutive due to the loss incurred
by the Company in that quarter.
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 9
<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 March 31, 2000 Sierra Monitor Corporation (the
"Company") reported net sales of $2,185,451 compared to $1,659,288 for the three
months ended March 31, 1999. The results for the first quarter of fiscal 2000
represent a 32% increase from the same period in the prior year.
The primary reason for the increase in sales is an increase in shipments
of environment controllers, which are used in telephone company applications.
Major telephone companies are investing in infrastructure expansion to meet
rapidly growing demand for Internet related broadband services. Broadband
expansion requires that small buildings and underground vaults must be located
within 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 the quarter ended March 31, 2000 compared to the
same quarter of 1999. Sales of gas detection systems were marginally lower than
the first quarter of 1999 primarily due to less shipments of large systems.
Gross profit for the three month period ended March 31, 2000 was
$1,360,431 compared to $1,026,214 in the same period in the previous year. In
both periods the gross margin was approximately 62% of net sales. 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 quarter of 2000 the
product mix varied from the first quarter of the prior year due to the increase
in shipments of environment controllers. Although these products generally have
higher materials content than other products sold by the Company, volume
purchasing economies offset the impact on gross margin. There were no other
abnormal changes in material and labor costs.
Expenses for research and development, which include new product
development and engineering to sustain existing products, were $249,683, or 11%
of net sales, for the three month period ended March 31, 2000, compared with
$214,308, or 13% of net sales, in the comparable period in 1999. The higher
research and develop expenses continue to reflect the Company's investment in
development of software programs and 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 March 31,
2000 were $577,467 or 26% of net sales, compared to $573,438, or 35% of net
sales, in the same period in the prior year. Selling and marketing costs include
commissions, which vary by product mix, paid to independent sales
Page 7 of 9
<PAGE>
representatives. Commissions costs for environment controllers are generally
lower than for other products because most environment controllers are sold
directly without representative involvement.
General and administrative expenses for the first quarter of 2000 were
$354,795 or 16% of net sales compared to $309,400 or 19% in the same period in
the prior year. 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 operation for the
full period of the first quarter of 1999.
Net income, after provision for income tax expense, for the three month
period ended March 31, 2000 was $124,430 or approximately 6% of net sales,
compared with a net loss of $62,105 or approximately 4% of net sales for the
same period in the prior year. The improvement in income is due to the higher
sales level which was achieved without significant impact on gross margin and
lower selling and administrative costs as a percent of sales.
Liquidity and Capital Resources:
During the period ended March 31, 2000, the Company's working capital
increased by $148,886 compared to December 31, 1999. The increase in working
capital is primarily due to the net income generated in the quarter. At March
31, 2000, cash and cash equivalents, totaled $465,436. Trade receivables, a
component of working capital, increased by $424,006 compared to December 31,
1999. Trade receivable generally reflect the sales level of the prior sixty
days, so a higher level is expected when sales have increased. 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 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 Preparation and Results.
As a result of its planning and preparation, the Company experienced no
adverse impact of the year 2000 roll-over. The Company does not anticipate any
further expense related to this event.
Future Results:
The Company's future operating results may be affected by a number of
factors, including general economic conditions in both foreign and domestic
markets, cyclical factors affecting the Company's industry, lack of growth in
the Company's end-markets, and the Company's ability to develop, manufacture,
and sell both new and existing products at a profitable but competitive price.
Page 8 of 9
<PAGE>
PART II: OTHER INFORMATION
Item 1. Legal Proceedings - N/A
Item 2. Changes in Securities - N/A
Item 3. Defaults Upon Senior Securities - N/A
Item 4. Submission of Matters to a Vote of Security Holders - N/A
Item 5. Other Information - N/A
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27.0 Financial Data Schedule
(b) Reports on Form 8-K.
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SIERRA MONITOR CORPORATION
--------------------------
Registrant
Date: May 12, 2000 By: /s/ Gordon R. Arnold
--------------------------
Gordon R. Arnold
President
Chief Financial Officer
Page 9 of 9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-2000
<PERIOD-START> Jan-01-1999
<PERIOD-END> Mar-31-1999
<CASH> 465
<SECURITIES> 0
<RECEIVABLES> 1364
<ALLOWANCES> 140
<INVENTORY> 1241
<CURRENT-ASSETS> 3237
<PP&E> 923
<DEPRECIATION> 730
<TOTAL-ASSETS> 3932
<CURRENT-LIABILITIES> 899
<BONDS> 0
0
0
<COMMON> 3160
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3932
<SALES> 2185
<TOTAL-REVENUES> 2185
<CGS> 825
<TOTAL-COSTS> 825
<OTHER-EXPENSES> 1182
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2)
<INCOME-PRETAX> 180
<INCOME-TAX> 56
<INCOME-CONTINUING> 124
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 124
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
