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 September 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 September
30, 2000 was: 10,967,588.
Transitional Small Business Disclosure Format: Yes____ No __ X ___
Page 1 of 9
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
SIERRA MONITOR CORPORATION
Condensed Balance Sheets
(Unaudited)
<CAPTION>
September 30, December 31,
Assets 2000 1999
----------- -----------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 861,908 $ 606,939
Trade receivables, less allowance for doubtful accounts 1,486,936 801,593
of $141,547 in 2000 and $138,752 in 1999
Notes receivable 20,634 27,084
Inventories 1,313,551 1,166,648
Prepaid expenses 121,361 103,849
Deferred income taxes 212,311 212,311
----------- -----------
Total current assets 4,016,701 2,918,424
Property and equipment, net 250,169 198,657
Deferred income taxes 97,851 97,850
Other assets 358,084 418,752
----------- -----------
$ 4,722,805 $ 3,633,683
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 552,829 $ 411,540
Accrued expenses 408,905 273,733
Other current liabilities 74,955 43,812
Income taxes payable 258,647 --
----------- -----------
Total current liabilities $ 1,295,335 $ 729,085
----------- -----------
Shareholders' equity
Common stock: 20,000,000 shares authorized;
10,467,588 shares issued and outstanding 3,159,944 3,159,944
Retained earnings (accumulated deficit) 297,935 (214,440)
Notes receivable from shareholders (30,408) (40,906)
----------- -----------
Total shareholders' equity 3,427,470 2,904,598
----------- -----------
$ 4,722,805 $ 3,633,683
=========== ===========
<FN>
See the accompanying notes to the condensed financial statements.
</FN>
</TABLE>
Page 2 of 9
<PAGE>
<TABLE>
SIERRA MONITOR CORPORATION
Condensed Statements of Operations
(Unaudited)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales 2,618,045 $ 1,814,432 $ 7,140,554 $ 4,985,171
Cost of goods sold 993,943 718,637 2,677,277 1,941,429
------------ ------------ ------------ ------------
Gross profit 1,624,102 1,095,795 4,463,277 3,043,742
------------ ------------ ------------ ------------
Operating expenses
Research and development 264,305 188,508 768,652 591,788
Selling and marketing 638,642 565,888 1,845,763 1,704,989
General and administrative 360,091 321,205 1,072,888 941,892
------------ ------------ ------------ ------------
1,263,038 1,075,601 3,687,303 3,238,669
------------ ------------ ------------ ------------
Income (loss) from operations 361,064 20,194 775,974 (194,927)
Interest income 2,249 2,641 5,772 15,289
------------ ------------ ------------ ------------
Income (loss) before income taxes 363,313 22,835 781,746 (179,638)
Income tax expense (benefit) 127,160 -- 269,371 (43,989)
------------ ------------ ------------ ------------
Net income (loss) 236,153 $ 22,835 $ 512,375 $ (135,649)
============ ============ ============ ============
Net income (loss) per share - basic 0.02 $ 0.00 $ 0.05 $ (0.01)
============ ============ ============ ============
Net income (loss) per share - diluted 0.02 $ 0.00 $ 0.04 $ (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: 11,612,435 11,025,475 11,590,115 10,967,588
============ ============ ============ ============
<FN>
See the accompanying notes to the condensed financial statements.
</FN>
</TABLE>
Page 3 of 9
<PAGE>
<TABLE>
SIERRA MONITOR CORPORATION
Condensed Statements of Cash Flows
(Unaudited)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 236,153 $ 22,835 $ 512,375 $(135,649)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation & amortization 64,327 63,380 180,079 189,269
Allowance for doubtful accounts 2,250 3,210 2,795 7,748
Deferred income taxes -- -- (1) (25,317)
Changes in operating assets and liabilities:
Trade receivables and notes receivables 8,058 (353,842) (681,688) (207,957)
Inventories 99,000 (99,509) (146,903) (163,274)
Prepaid expenses (12,819) 3,779 (17,512) (28,731)
Accounts payable 36,020 277,191 141,289 256,327
Accrued expenses (4,697) (14,031) 135,172 20,388
Other current liabilities 15,522 4,748 31,143 (25,756)
Income taxes payable 124,542 -- 258,647 (105,052)
--------- --------- --------- ---------
Net cash provided by (used in)
operating activities 568,356 (92,239) 415,396 (218,004)
--------- --------- --------- ---------
Cash flows from investing activities:
Capital expenditures (109,322) (15,519) (170,925) (80,252)
Short term investments -- -- -- 245,522
Acquisition of business assets -- -- -- (171,282)
Other assets -- (500) -- (789)
--------- --------- --------- ---------
Net cash used in investing activities (109,322) (16,019) (170,925) (7,367)
--------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from repayment of notes receivable
from shareholders 3,345 3,519 10,498 9,905
--------- --------- --------- ---------
Net cash provided by financing
activities 3,345 3,519 10,498 9,905
--------- --------- --------- ---------
Net increase (decrease) in
cash and cash equivalents 462,379 (104,739) 254,969 (215,466)
Cash and cash equivalents at beginning of period 399,529 282,940 606,939 393,667
--------- --------- --------- ---------
Cash and cash equivalents at end of period $ 861,908 $ 178,201 $ 861,908 $ 178,201
========= ========= ========= =========
<FN>
See the accompanying notes to the condensed financial statements.
</FN>
</TABLE>
Page 4 of 9
<PAGE>
SIERRA MONITOR CORPORATION
Notes to the Condensed Financial Statements
September 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 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 September 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.
Recent Accounting Pronouncements
In March 2000, the Financial Accounting Standards Board ("FSAB") issued FIN 44,
an interpretation of Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees. FIN 44 addresses inconsistencies in
accounting for stock-based compensation that arise from implementation of APB
Opinion No. 25. The Company adopted FIN 44 on July 1, 2000. The Company
determined that FIN 44 has had no material effect on its financial position or
results of operations.
In June 1998, the FASB issued Statement of Financial Accounting Standard (SFAS)
No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No.
133). SFAS No. 133 establishes accounting and reporting standards for derivative
financial instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. For a derivative not designated as a hedging
instrument, changes in the fair value of the derivative are recognized in
earnings in the period of change. The Company does not currently hold any
derivative financial instruments in the ordinary course of its operations and
does not engage in hedging activities. As a result, the Company has determined
that the adoption of SFAS No. 133 will not have a material effect on the
Company's consolidated financial position or results of operations.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements, as amended by SAB 101A and SAB 101B, which provides guidance on the
recognition, presentation, and disclosure of revenue in financial statements
filed with the SEC. SAB 101 outlines the basic criteria that must be met to
recognize revenue and provides guidance for disclosure related to revenue
recognition policies. The Company will adopt SAB 101 no later than the fourth
quarter of fiscal 2000. The Company does not expect that the adoption of SAB 101
will have a material impact on its financial statements or results of
operations.
Page 5 of 9
<PAGE>
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 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 integrators, parking
garages and landfill rehabilitation projects.
Inventories
A summary of inventories follows:
September 30, December 31,
2000 1999
------------------------- -----------------------
Raw Materials $ 490,908 $ 403,338
Work-in-process 282,409 520,220
Finished goods 540,234 243,090
------------------------- -----------------------
$ 1,313,551 $ 1,166,648
========================= =======================
Net Income (Loss) per share
<TABLE>
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 the nine month period ended
September 30, 1999. As a result 106,039 shares have been excluded from the
calculation of diluted loss per share for the nine month period ended September
30, 1999, as such shares would be antidilutive. For the three month period ended
September 30, 1999 options to purchase 300,000 shares of common stock were
outstanding but not included in the computation of diluted EPS because the
option 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 nine month periods ending September
30, 2000 and 1999, respectively:
<CAPTION>
3 months ended 9 months ended 3 months ended 9 months ended
9/30/2000 9/30/2000 9/30/1999 9/30/1999
<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 644,847 622,527 57,887 -
----------------- ----------------- ---------------- -----------------
Diluted EPS - dilutive potential common 11,612,435 11,590,115 11,025,475 10,967,588
shares
</TABLE>
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 September 30, 2000, Sierra Monitor Corporation
("Sierra Monitor" or the "Company") reported net sales of $2,618,045 compared to
$1,814,432 for the three months ended September 30, 1999. For the nine-month
period ended September 30, 2000, net sales were $7,140,554 compared with
$4,985,171 in the prior year nine-month period. The results for the third
quarter of 2000 represent a 44% increase from the same period in the prior year.
The results for the first nine 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. The Company is presently the sole supplier of
environment controllers for a bandwidth expansion project by a major telephone
company.
In addition to products for the telephone industry, sales of
Communications Bridges increased in both the three and nine month periods ended
September 30, 2000 compared to the same periods of 1999. Sales of gas detection
systems also increased in the same three month and nine month periods.
Gross profit of $1,624,102 for the three-month period ended September 30,
2000 was 62% of sales compared to $1,095,795 or 60% of sales, in the same period
in the previous year. The gross profit for the nine-month period ended September
30, 2000 was $4,463,277 or 62% of sales, compared to $3,043,742 or 61% of sales,
in the same period in the previous year. The gross margin, for the three and
nine month periods in both 2000 and 1999 are consistent with historical levels.
Expenses for research and development, which include new product
development and engineering to sustain existing products, were $264,305 or 10%
of sales, for the three-month period ending September 30, 2000 compared to
$188,508, also 10% of sales, in the comparable period in 1999. In the nine-month
periods ending September 30, 2000 and 1999, research and development expenses
were $768,652 or 11% of sales, and $591,788, or 12% of sales, respectively. The
Company has maintained a high level of investment in engineering activities in
support of the communications bridge including expansion of software libraries
and development of new hardware packages which have not yet been released to
market. During the remainder of fiscal year 2000, several new package versions
of the communications bridge will be released for sale in specific industry
applications. Engineering expenses also include various, customer-requested,
software modifications for environment controllers and minor changes to gas
detection products.
Page 7 of 9
<PAGE>
Selling and marketing expenses for the three-month period ended September
30, 2000 were $638,642 or 24% of sales, compared to $565,888, or 31% of sales,
in the comparable period in the prior year. For the nine-month periods ending
September 30, 2000 and 1999, selling and marketing expenses were $1,845,763 or
26% of sales, and $1,704,989, or 34% of sales, respectively. Selling costs
include commissions paid to independent sales representatives. Commissions, as a
percentage of sales, vary periodically based on product mix, level of
discounting and channels of distribution. In the three and nine month periods
ending September 30, 2000, total commission expense remained at approximately
the same level as the prior year, but result in approximately 2% lower
percentage of sales due to the higher volume of business in 2000. There have
been no other significant changes in selling expenses and the lower percentage
of sales in 2000 is, again, reflective of the leverage of higher sales levels
without a similar increase in commission expense.
General and administrative expenses increased to $360,091 or 14% of sales,
for the three-month period ended September 30, 2000 from $321,205, or 18% of
sales, in the three-month period ended September 30, 1999. General and
administrative expenses increased to $1,072,888 or 15% of sales, for the
nine-month period ended September 30, 2000 from $941,892, or 19% of sales, in
the nine-month period ended September 30, 1999. Increases in salary and benefit
expenses contributed to the higher general and administrative expenses.
Net income, after interest and provision for income taxes, for the three
months ended September 30, 2000 was $236,153, or 9% of net sales, compared with
$22,835, or 1% of net sales, in the three months ended September 30, 1999. Net
income for the nine-month period ended September 30, 2000 was $512,375 or 7% of
net sales, compared with net loss of $135,649, or 3% of net sales, in the same
period in the prior year.
Liquidity and Capital Resources
During the nine- month period ended September 30, 2000, the Company's
working capital increased by $532,027 from December 31, 1999. At September 30,
2000, cash and cash equivalents and short-term investments, totaled $861,908
compared to $606,939 at December 31, 1999. Net trade accounts receivable have
increased $685,343 since the beginning of the year, and inventories have
increased $146,903.
The Company currently has no current or long term balance due on its line
of credit with its commercial bank. The Company believes that its current
capital resources, which include cash, accounts receivable and the line of
credit are sufficient to support existing and anticipated levels of business for
at least the next twelve months.
Field Server Technologies
During the fourth quarter of 2000 the Company will release several new
communications products which utilize its Communications Bridge software
programs. The products, trademarked "FieldServer" are smaller and lower cost
than the Communications Bridge and are targeted toward embedded system
applications and original equipment manufacturer markets.
The markets and channels of distribution for the communications products
are now substantially different than those for gas detection products. To insure
that sales efforts are focused on those markets a new division of Sierra Monitor
Corporation named FieldServer Technologies will be created. The new division
will be responsible for ongoing design of new products and for the marketing and
sales of communications products. FieldServer Technologies' address will be the
same as Sierra Monitor Corporation but the division will function independently
and will operate its own web site; www.FieldServer.com.
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.
10.6 Standard Industrial Lease dated July 31,
2000, by and between GEOMAX and Registrant.
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: November 12, 2000 By: /S/ GORDON R. ARNOLD
------------------------------
Gordon R. Arnold
President
Chief Financial Officer
Page 9 of 9
