U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
Commission File Number 0-9478
Spectrum Laboratories, Inc.
(Exact name of small business issuer as
specified in its charter)
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 March 31, 1996: 12,956,769
1
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Spectrum Laboratories, Inc.
Part I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Balance Sheet 3
Statement of Income, Three Months Ended March 31, 1996 4
Statement of Cash Flows 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3. Defaults Upon Senior Securities 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8
Signature 9
2
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Spectrum Laboratories, Inc.
Consolidated Balance Sheets
March 31, 1996 and 1995
(Unaudited)
3/31/96 3/31/95
Assets
Current Assets
Cash 754,837 361,582
Accounts Receivable, Trade 1,135,274 721,600
Accounts Receivable, Related Parties 178,641
Inventories 1,107,382 572,212
Prepaid Expenses and Other Current Assets 26,881 43,360
Deferred Taxes 378,935 71,015
---------- ----------
Total Current Assets 3,403,309 1,948,410
Non Current Assets
Equipment and Leasehold Improvements, Net 941,609 169,946
Investment, at Fair Value 16,250
Loan receivable, Related Party 112,000
Deferred Income Taxes 295,866
Goodwill 2,596,449
Other Assets 24,945 10,487
---------- ----------
Total Non Current Assets 3,563,003 604,549
Total Assets 6,966,312 2,552,959
========== ==========
Liabilities and Shareholder's Equity
Current Liabilities
Accounts Payable, Trade 207,243 137,600
Accrued Liabilities 469,256 129,244
Current Portion, Long Term Debt 424,118
Due to Related Parties 154,112
Income Tax Payable 64,224
---------- ----------
Total Current Liabilities 1,318,953 266,844
Other Liabilities
Note Payable 3,712,122
---------- ----------
Total Liabilities 5,031,075 266,844
Shareholders' Equity
Common Stock, no par value:
10,000,000 shares authorized,
2,200,000 issued and outstanding 22,000 4,713,220
Additional Paid in Capital 4,712,000
Retained Earnings, Accumulated Deficit (2,798,763) (2,432,879)
Unrealized Gain on Investment Securities 5,774
Total Shareholders' Equity 1,935,237 2,286,115
---------- ----------
Total Liabilities and Shareholders' Equity 6,966,312 2,552,959
========== ==========
3
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Spectrum Laboratories, Inc.
Consolidated Statements of Income
Three Months Ended March 31, 1996 and 1995
(Unaudited)
Three Months Ended, March 31,
1996 1995
Sales $ 2,182,530 $ 834,288
Costs and Expenses
Cost of Sales $ 1,252,441 $ 643,669
Selling Expenses 357355 69,085
General and Administrative Expenses 312776 85,499
Research and Development Expenses 92124 12,352
Interest Expense, Net of Interest Income 78399 (8,895)
----------- -----------
Total Costs and Expenses $ 2,093,095 $ 801,710
----------- -----------
Income before Income Taxes $ 89,435 $ 32,578
Provision for Income Taxes 46654 12,053
----------- -----------
Net Income $ 42,781 $ 20,525
=========== ===========
Net Income per Share $ 0.02 $ 0.01
=========== ===========
Average number of common and
common equivalent shares 2,200,000 2,200,000
See accompanying notes
4
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Spectrum Laboratories, Inc.
Consolidated Statement of Cash Flows
For the Three Months Ended March 31, 1996 and 1995
Three Months Ended, March 31,
1996 1995
Cash Flows from Operating Activities
Net Income $ 42,781 $ 20,525
Adjustments to reconcile net income to
net cash used in operating activities
Depreciation and amortization 113,137 11,822
Deferred income Taxes 26,138 12,053
Changes in Assets and Liabilities
(Increase) in accounts receivable (119,741) (348,385)
Decrease in inventories 273,061 60,461
(Increase) in prepaid expenses
and other current assets (7,682) (1,811)
(Increase) Decrease in other assets (3,239) 1,501
Increase in accounts payable (22,581) 13,398
Increase in accrued liabilities (10,867) 79,114
--------- ---------
Net cash used in operating activities 291,007 (151,322)
Cash flows from investing activities
Acquisition of equipment and
leasehold improvements (133,745) (62,723)
Investments 44,704
--------- ---------
Net cash used in investing activities (89,041) (62,723)
---------
Cash flows from financing activities
Increase in Notes Payable 470,399
---------
Net Increase (Decrease) in cash 672,365 (214,045)
Cash at beginning of year 82,472 575,627
--------- ---------
Cash at end of three months 754,837 361,582
========= =========
5
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Spectrum Laboratories, Inc.
Notes to Consolidated Financial Statements
March 31, 1996
(Unaudited)
1. Basis for Presentation
The accompanying unaudited interim financial statements consolidate the accounts
of Spectrum Laboratories, Inc. ("Spectrum") and its wholly owned subsidiaries,
Hydro-Med Products, Inc. (Hydro-Med) and Microgon, Inc., 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 March 31, 1996 and the results of their
operations and their cash flows for the three months ended March 31, 1996 and
1995. The results of operations for the three months ended March 31, 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:
March 31, 1996 December 31, 1995
Raw Materials 881,390 704,740
Work In Progress 79,171 82,117
Finished Goods 334,901 787,115
---------- ----------
1,295,462 1,573,972
Reserve for Obsolescence (188,080) (193,529)
---------- ----------
Total 1,107,382 1,380,443
---------- ----------
6
<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") and its wholly owned subsidiaries, Hydro-Med Products, Inc.
("Hydro-Med") and Microgon, Inc. which are referred to collectively as the
"Company".
Results of Operations
During the three months ended March 31, 1996 and 1995 consolidated sales were
$2,182,530 and $834,288, respectively. Hydro-Med's sales were $588,538 in 1996
compared to $568,000 in 1995, the increase is primarily due to normal sales
growth. Spectrum's sales were $256,076 for the quarter ending March 31, 1996
compared to $266,000 for the same period of 1995. The decrease in sales is
attributed to succumbing to competitive pricing to maintain market share.
Microgon's sales were $1,337,916 for the three months ended March 31, 1996.
Microgon was acquired in August of 1995 and therefore had no sales in the first
quarter of 1995.
Spectrum's gross margin was 28% for the three months of 1996 compared to 23% for
the same period of 1995. Margin improvement is attributed to improvement in
material purchasing efficiencies.
Hydro-Med's gross margin was 33% compared to 22% for the three months ended
March 31, 1996 and 1995 respectively. The increase is due to increased operating
efficiencies due to the relocating to Dallas. Microgon's gross margin was
$666,304 or 50% in the three months ended March 31, 1996. Microgon was acquired
in August of 1995 and therefor had no contributing gross margin in the first
quarter of 1995.
Selling expenses were $357,355 compared to $69,025 for the three months ended
March 31, 1996 and 1995 respectively. Spectrum's selling expense was $10,265
compared to $21,085 for the periods ended March 31, 1996 and 1995, respectively.
The decrease was due to the reallocation of marketing resources to Hydro-Med and
Microgon. Hydro-Med's selling expenses were $53,396 and $48,000 for the quarters
ending March 31, 1996 and 1995 respectively. Microgon's selling expenses were
$293,694 for the three months ended March 31, 1996.
General and administrative expenses were $312,775 compared to $85,499 for the
first quarter of 1996 and 1995 respectively. The addition of Microgon expenses
are responsible for this increase. Spectrum's general and administration
expenses were $43,650 in 1996 compared to $49,897 in 1995 for the three months
ended March 31. Hydro-Med's expenses were $351,602 and $72,875 for the three
months ended March 31, 1996 and 1995 respectively. These decreases were due to a
reallocation of administration shared across all business units.
Research and development expenses were $92,125 compared to $12,352 for the first
three months of 1996 and 1995. Microgon R & D accounts for most of this
increase, with $79,705 spent for three months ending March 31, 1996. Hydro-Med R
& D expenses for the three months ended is $12,352 for 1996, and $12,412 for
1995.
Liquidity and Capital Resources
On March 31, 1996, the Company had cash of $754,837. 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 1996.
7
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Capital Commitments
The Company owes $2,500,000 to the Bank of California related to the acquisition
of Microgon, Inc.
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
March 31, 1996
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter
ended March 31, 1996
8
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Spectrum Laboratories, Inc.
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)
- - -------------------------------
Signature
Bruce Peasland
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
BALANCE SHEET OF 3/31/96 INCOME STATEMENT FOR THE THREE MONTHS
ENDED 3/31/96
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 754,837
<SECURITIES> 0
<RECEIVABLES> 1,135,274
<ALLOWANCES> 0
<INVENTORY> 1,107,382
<CURRENT-ASSETS> 3,403,309
<PP&E> 941,609
<DEPRECIATION> 79,435
<TOTAL-ASSETS> 6,966,312
<CURRENT-LIABILITIES> 1,318,953
<BONDS> 0
<COMMON> 22,000
0
0
<OTHER-SE> 1,935,237
<TOTAL-LIABILITY-AND-EQUITY> 6,966,312
<SALES> 2,182,530
<TOTAL-REVENUES> 2,182,530
<CGS> 1,252,441
<TOTAL-COSTS> 2,093,095
<OTHER-EXPENSES> 840,654
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78,399
<INCOME-PRETAX> 89,435
<INCOME-TAX> 46,654
<INCOME-CONTINUING> 42,781
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,781
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
