U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
Commission File Number 0-9478
Spectrum Laboratories, Inc.
Incorporated pursuant to the laws of the State of California
Internal Revenue Service - Employer Identification Number 95-3557539
23022 La Cadena Drive, Laguna Hills, California 92653
Address of principal executive offices
Issuers Telephone Number (714) 581-3500
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
--- ---
Number of shares of Common Stock outstanding as of January 31, 1996: 12,956,769
<PAGE>
Spectrum Laboratories, Inc.
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet
Statement of Income, Nine Months Ended September 30, 1996
Statement of Cash Flows
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signature
1
<PAGE>
<TABLE>
Spectrum Laboratories, Inc.
Consolidated Balance Sheets
September 30, 1996 and 1995
<CAPTION>
September 30, 1996
(Unaudited) September 30, 1995
----------- ------------------
<S> <C> <C>
Assets
Current Assets:
Cash $ 908,536 $ 223,553
Accounts receivable-trade 1,213,702 1,051,105
Accounts receivable-related parties 184,870 466,113
Inventories 1,157,370 1,340,558
Prepaid expenses and other current
assets 35,192 294,406
Deferred income taxes 377,185 66,313
------------ -------------
Total current assets $ 3,876,855 $ 3,442,048
Equipment and leasehold improvements, net 898,157 755,140
Goodwill 3,052,971 2,581,272
Loan receivable-related party -- 121,333
Deferred income taxes -- 270,304
Other Assets 24,813 26,549
------------ -------------
Total Assets $ 7,852,796 $ 7,196,646
============ =============
Liabilities and shareholder's equity
Current liabilities:
Accounts payable-trade 402,873 332,123
Accrued liabilities 362,032 294,323
Current portion, long term debt 357,144 --
Current Notes Payable 486,574 375,000
Due to Related Party 138,871 --
Income tax payable 30,379 --
Other Current Liabilities 134,973 --
------------ -------------
Total Current liabilities $ 1,912,846 $ 1,001,446
Other liabilities
Minority Interest 16,368 --
Long Term Obligations Related Parties 1,305,500 --
Other Long Term Liabilities 192,449 --
Long Term Obligations 1,704,760 3,917,074
------------ -------------
Total Liabilities $ 5,131,923 $ 4,918,520
Shareholders' equity:
Common stock, no par value: 25,000,000
shares authorized, 12,900,000
issued and outstanding 125,124 4,713,220
Additional paid in capital 5,237,848 --
Retained earnings, accumulated deficit (2,848,596) (2,447,629)
Unrealized gain on investment securities (7,145) 12,511
Year to date income 213,642 24
------------ -------------
Total shareholders' equity $ 2,720,873 $ 2,278,126
------------ -------------
Total liabilities and shareholders' equity $ 7,852,796 $ 7,196,646
============ =============
</TABLE>
2
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<TABLE>
Spectrum Laboratories, Inc.
Consolidated Statements of Income
For the Quarters Ended September 30, 1996 &1995
(Unaudited)
<CAPTION>
Nine Months Ended Quarter Ended
September 30, 1996 September 30, 1995 September 30, 1996 September 30, 1995
------------------ ------------------ ------------------ -------------------
<S> <C> <C> <C> <C>
Sales $ 6,509,014 $ 3,416,662 $ 2,047,897 $ 1,753,144
Costs and expenses:
Cost of sales 3,874,671 2,466,630 1,242,292 1,264,042
Selling expenses 1,028,918 253,463 331,832 120,279
General and administrative expenses 874,635 586,041 314,975 409,240
Research and development expenses 258,673 96,738 78,547 65,345
Interest expense, net of interest income 259,444 34,054 99,816 51,324
Minority Interest 25,891 -- 5,378 --
Other Income/Expense (26,860) -- (26,860) --
------------ ------------ ------------ ------------
Total costs and expenses $ 6,295,372 $ 3,436,926 $ 2,045,980 $ 1,910,230
------------ ------------ ------------ ------------
Income before income taxes $ 213,642 $ (20,264) $ 1,917 $ (157,086)
NOL Tax Recapture 88,093 -- 805 --
Provision for income taxes (88,093) (8,511) (805) (61,359)
------------ ------------ ------------ ------------
Net income $ 213,642 $ (11,753) $ 1,917 $ (95,727)
============ ============ ============ ============
Net income per share $ 0.02 $ (0.00) $ 0.00 $ (0.01)
============ ============ ============ ============
Average number of common and common
equivalent shares 12,900,000 12,900,000 12,900,000 12,900,000
============ ============ ============ ============
<FN>
See accompanying notes.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
Spectrum Laboratories, Inc.
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1996, and 1995
(Unaudited)
<CAPTION>
Nine Months Ended
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 213,642 $ (11,753)
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 272,801 137,122
Deferred income taxes -- 25,562
Change in assets and liabilities:
(Increase) in accounts receivable (198,169) (222,440)
(Increase), decrease in inventories 328,891 (3,203)
(Increase) in prepaid expenses and other
current assets (14,243) (177,736)
(Increase) in other assets (6,837) (14,561)
Increase in accounts payable 173,049 120,652
Increase, (decrease) in accrued liabilities (79,682) 85,747
Increase in other liabilities 134,973 --
Increase in due to related parties 575,326 --
Decrease in long term debt (438,096) --
----------- -----------
Net cash used in operating activities $ 961,655 $ (60,610)
Cash flows from investing activities:
Acquisition of equipment and leasehold
improvements (180,295) (68,204)
Investments 44,704 6,917
Acquisition of Microgon, Inc. -- (4,022,251)
----------- -----------
Net cash used in investing activities $ (135,591) $(4,083,538)
Cash flows from financing activities:
Increase in notes payable -- 3,792,074
----------- -----------
Net increase (decrease) in cash $ 826,064 $ (352,074)
Cash at beginning of year $ 82,472 575,627
----------- -----------
Cash at end of nine months $ 908,536 $ 223,553
=========== ===========
<FN>
See accompanying notes
</FN>
</TABLE>
4
<PAGE>
Spectrum Laboratories, Inc.
Notes to Consolidated Financial Statements
September 30, 1996
(Unaudited)
1. Basis for Presentation
The accompanying unaudited interim financial statements consolidate the accounts
of Spectrum Laboratories, Inc. ("Spectrum") and its partially owned subsidiary,
Spectrum Europe B.V. (Spectrum B.V.), which are collectively referred to as the
"Company". All significant intercompany transactions and balances have been
eliminated in consolidation. In the opinion of management, the accompanying
unaudited interim consolidated financial statements contain all adjustments
(consisting only of normal recurring accruals) necessary to present fairly the
financial position as of September 30, 1996, and the results of their operations
and their cash flows for the nine months ended September 30, 1996 and 1995. The
results of operations for the nine months ended September 30, 1996 are not
necessarily indicative of the results to be expected for the full year. These
statements should be read in conjunction with the Company's annual report on
Form 10-KSB for the year ended December 31, 1995.
2. Inventories
Inventories are stated at the lower of cost, determined using the first-in,
first-out method, or net realizable value and are composed of the following:
September 30, 1996 September 30, 1995
------------------- -------------------
Raw materials $ 702,788 $ 614,748
Work in progress 63,128 97,800
Finished goods 579,534 684,606
---------------- -----------------
$ 1,345,450 $ 1,397,154
Reserve for obsolescence (188,080) (56,596)
---------------- -----------------
Total $ 1,157,370 $ 1,340,558
================ =================
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
The following discussion and analysis covers Spectrum Laboratories, Inc.
("Spectrum"), referred to as the "Company".
Results of Operations
Sales for the third quarter were $2,047,897 vs. $1,753,144 for the third quarter
of 1995. During the nine months ended September 30,1996, consolidated sales were
$6,509,014 as compared to sales of $3,416,662 for the same period of 1995. The
1996 sales figures include sales from Microgon, a privately held company, which
was purchased by the Company on August 1, 1995. Microgon sales are also
reflected in the 1995 numbers beginning August 1995.
Gross margins were 39.3% for the third quarter vs. 27.9% for the same period in
1995 and were 41.9% for the first nine months of 1996 compared to 39.6% for
1995. The improvement in margins is largely attributed to the changing mix of
products as sales from Microgon begin to be reflected in the 1996 sales figures.
Selling expenses for the third quarter were $331,832 vs. $120,279 for the third
quarter of 1995. During the nine months ended September 30,1996, selling
expenses were $1,028,918 as compared to $253,463 for the same period in 1995.
General and administrative expenses were $314,975 for the third quarter of 1996
vs. $409,240 for the same period in 1995. Expenses in the third quarter of 1995
were higher than the current quarter, due to a one time reorganization charge
associated with the acquisition of Microgon. For the first nine months of 1996
G&A expenses were $874,635 as compared to $586,041 for the same period in 1995.
Research and Development expenses were $78,547 for the third quarter 1996 vs.
$65,345 for the third quarter of 1995. R&D expenses were $258,673 for the first
nine months of 1996 as compared to $96,738 for the same period in 1995.
The increases in spending in selling expenses, general and administrative
expenses, and research and development expenses are attributed to the
acquisition of Microgon whose expenses are only partially reflected in 1995, but
are included for the entire 1996 reporting period.
Interest expense net of income is $99,816 for the third quarter of 1996 vs.
$51,324 for the third quarter of 1995. Interest expense net of income is
$259,444 for the first nine months of 1996 vs. $34,054 as compared to the same
period of 1995. This is a result of notes and loans outstanding related to the
acquisition of Microgon. Prior to the acquisition of Microgon, interest expense
net of income was positive.
After the close of the reporting period, the Company entered into an agreement
to purchase Cellco Inc., a privately held cell and gene therapy company located
in Germantown, MD. The Company believes that Cellco's technology and products
are very synergistic with its existing high tech membrane business. The Company
plans to move Cellco's manufacturing activities into its California plant, while
maintaining the scientific and sales staff at Cellco's current location in
Maryland. The transition of the manufacturing operations to California will be
completed before the end of the year. Action has already been taken to reduce
the size of Cellco's facility in Maryland commensurate with the reduced level of
activity and personnel.
7
<PAGE>
The Company manufactures a wide variety of medical, laboratory and life science
products at its facilities in Texas and California. The company's products are
sold through a combination of direct sales and distributors in the US and
through its partially owned subsidiary, Spectrum Europe B.V., for sales to the
rest of the world.
Liquidity and Capital Resources
On September 30, 1996, the Company had cash of $908,536. At present the Company
has no other material unused sources of liquidity. Management expects that cash
generated from operations will be sufficient to fund operations for the
remainder of the year and into 1997.
Capital Commitments
As of September 30,1996, the Company owes $2,061,904 to the Union Bank of
California related to the acquisition of Microgon in August of 1995.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Change in Securities
None
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and reports on Form 8-K
(a) The Company filed no exhibits during the quarter ended
September 30, 1996
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended
September 30, 1996
8
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized
SPECTRUM LABORATORIES, INC.
(Registrant)
/s/ Bruce R. Peasland
- -------------------------------
Signature
Bruce R. Peasland
Chief Financial Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
9/30/96 Balance Sheet
9/30/96 Year to Date Income Statement
</LEGEND>
<CIK> 0000319013
<NAME> Spectrum Laboratories, Inc.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 908,536
<SECURITIES> 0
<RECEIVABLES> 1,398,572
<ALLOWANCES> 0
<INVENTORY> 1,157,370
<CURRENT-ASSETS> 3,876,855
<PP&E> 898,157
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,852,796
<CURRENT-LIABILITIES> 1,912,846
<BONDS> 0
<COMMON> 125,124
0
0
<OTHER-SE> 2,595,749
<TOTAL-LIABILITY-AND-EQUITY> 7,852,796
<SALES> 6,509,014
<TOTAL-REVENUES> 0
<CGS> 3,874,671
<TOTAL-COSTS> 6,295,372
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 259,444
<INCOME-PRETAX> 213,642
<INCOME-TAX> 88,093
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 213,642
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
