1
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 June 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
1
<PAGE>
Spectrum Laboratories, Inc.
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet
Statement of Income, Six Months Ended June 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
2
<PAGE>
Spectrum Laboratories, Inc.
Consolidated Balance Sheets
June 30, 1996 and 1995
June 30, 1996
(Unaudited) June 30, 1995
------------- --------------
Assets
- ------
Current Assets:
Cash $ 894,541 $ 255,235
Accounts receivable-trade 1,250,219 651,932
Accounts receivable-related parties 76,725 285,309
Inventories 1,161,778 692,419
Prepaid expenses and other current
assets 18,463 37,269
Deferred income taxes 377,185 71,015
---------- ----------
Total current assets $3,778,911 $1,993,179
Equipment and leasehold improvements, net 896,336 159,557
Goodwill 3,089,237
Investment, at fair value 19,874
Loan receivable-related party 168,155
Deferred income taxes 307,706
Other Assets 35,870 10,487
---------- ----------
Total Assets $7,800,354 $2,658,958
========== ==========
Liabilities and shareholder's equity
- ------------------------------------
Current liabilities:
Accounts payable-trade 336,444 198,267
Accrued liabilities 644,044 111,127
Current portion, long term debt 433,830
Minority Interest (9,523)
Income tax payable 77,640
---------- ----------
Total Current liabilities $1,482,435 $ 309,394
Other liabilities
Notes Payable 3,657,641
---------- ----------
Total Liabilities $5,140,076 $ 309,394
Shareholders' equity:
Common stock, no par value: 10,000,000
shares authorized, 2,200,000
issued and outstanding 128,344 4,713,220
Additional paid in capital 5,237,848
Retained earnings, accumulated deficit (2,705,913) (2,369,430)
Unrealized gain on investment securities 5,774
Minority Interest, last year
Year to date income
---------- ----------
Total shareholders' equity $2,660,279 $2,349,564
---------- ----------
Total liabilities and shareholders' equity $7,800,354 $2,658,958
========== ==========
3
<PAGE>
Spectrum Laboratories, Inc.
Consolidated Statements of Income
Six Months Ended June 30, 1996, and 1995
(Unaudited)
Six Months Ended
June 30, 1996 June 30, 1995
------------- -------------
Sales $4,826,367 $1,663,518
Costs and expenses:
Cost of sales 2,997,629 1,202,588
Selling expenses 697,086 133,184
General and administrative expenses 559,660 176,801
Research and development expenses 180,126 31,393
Interest income, net of interest expense 159,627 (17,270)
---------- ----------
Total costs and expenses $4,594,128 $1,526,696
---------- ----------
Income before income taxes $ 232,239 $ 136,822
Provisions for income taxes 100,048 52,848
---------- ----------
Net income $ 132,191 $ 83,974
========== ==========
Net income per share $ 0.06 $ 0.04
========== ==========
Average number of common and common
equivalent shares 2,200,000 2,200,000
========== ==========
See accompanying notes.
4
<PAGE>
Spectrum Laboratories, Inc.
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1996, and 1995
(Unaudited)
Six Months Ended
June 30, 1996 June 30, 1995
------------- -------------
Cash flows from operating activities
Net income $ 132,191 $ 83,974
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 196,345 24,157
Deferred income taxes 213
Change in assets and liabilities:
(Increase) in accounts receivable (234,686) (429,212)
(Increase), decrease in inventories 150,951 (74,244)
(Increase), decrease in prepaid expenses and
other current assets (736) 4,280
(Increase) in other assets (11,621) (4,678)
Increase, (decrease) in accounts payable (200,799) 56,544
Increase in accrued liabilities 337,489 83,241
(Decrease) in due to related parties (559,723)
Increase in long term debt 1,046,427
---------- ----------
Net cash used in operating activities $ 855,838 $ (255,722)
Cash flows from investing activities:
Acquisition of equipment and leasehold
improvements (88,473) (64,670)
Investments 44,704
---------- ----------
Net cash used in investing activities $ (43,769) $ (64,670)
---------- ----------
Net increase (decrease) in cash $ 812,069 $ (320,392)
Cash at beginning of year $ 82,472 $ 575,627
---------- ----------
Cash at end of six months $ 894,541 $ 255,234
========== ==========
See accompanying notes.
5
<PAGE>
Spectrum Laboratories, Inc.
Notes to Consolidated Financial Statements
June 30, 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 June 30, 1996, and the results of their
operations and their cash flows for the six months ended June 30, 1996 and 1995.
The results of operations for the six months ended June 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:
June 30, 1996 June 30, 1995
------------- -------------
Raw materials $ 859,824 $ 331,186
Work in progess 77,234 55,759
Finished goods 412,800 362,071
---------- ----------
$1,349,858 $ 749,016
Reserve for obsolescence (188,080) (56,596)
---------- ----------
Total $1,161,778 $ 692,420
========== ==========
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"), its medical disposables for hospitals division and medical
disposables for laboratories divisions, and its partially owned subsidiary,
Spectrum Europe B.V. (Spectrum B.V.), referred to collectively as the "Company".
Results of Operations
During the six months ended June 30, 1996 and 1995 consolidated sales were
$4,826,367 and $1,664,000, respectively. Medical disposables for hospitals sales
were $1,152,168 in 1996 compared to $1,150,000 in 1995, the increase is
primarily due to normal sales growth. Spectrum's sales were $466,027 for the six
months ending June 30, 1996 compared to $514,000 for the same period of 1995.
The decrease in sales is attributed to succumbing to competitive pricing to
maintain market share. Medical disposables for laboratories sales were
$2,219,972 in the six months ended June 30, 1996. The medical disposables for
laboratories division was acquired in August of 1995 and therefore had no sales
in the first six months of 1995.
Spectrum's gross margin was 27% for the first six months of 1996 compared to 30%
for the same period of 1995. Margin improvement is attributed to improvement in
material purchasing efficiencies.
The medical disposables for hospitals division's gross margin was 33% compared
to 29% for the six months ended June 30, 1996 and 1995 respectively. The
increase is due to increased operating efficiencies due to the relocating to
Dallas. The medical disposables for laboratories division's gross margin was
$1,121,825 or 51% in the six months ended June 30, 1996. The medical disposables
for laboratories division was acquired in August of 1995 and therefor had no
contributing gross margin in the first six months of 1995.
Selling expenses were $697,086 compared to $134,000 for the six months ended
June 30, 1996 and 1995 respectively. Spectrum's selling expense was $21,875
compared to $38,000 for the periods ended June, 1996 and 1995, respectively. The
decrease was due to the reallocation of marketing resources to medical
disposables for hospitals and laboratories divisions. Medical disposables for
hospitals division's selling expenses were $96,769 and $48,000 for the six
months ending June, 1996 and 1995 respectively. Medical disposables for
laboratories division's selling expenses were $334,242 for the six months ended
June 30, 1996.
General and administrative expenses were $559,660 compared to $177,000 for the
first six months of 1996 and 1995 respectively. The addition of medical
disposables for laboratories expenses are responsible for this increase.
Spectrum's general and administration expenses were $90,414 in 1996 compared to
$104,000 in 1995 for the six months ended June 30. These decreases were due to a
reallocation of administration shared across all business units. Medical
disposables for hospitals division's expenses were $138,820 and $74,000 for the
six months ended June 30, 1996 and 1995 respectively.
Research and development expenses were $180,126 compared to $32,000 for the
first six months of 1996 and 1995. Medical disposables for laboratories R & D
accounts for most of this increase, with $155,002 spent for six months ending
June 30, 1996. Medical disposables for hospitals R & D expenses for the six
months ended is $25,116 for 1996.
7
<PAGE>
Liquidity and Capital Resources
On June 30, 1996, the Company had cash of $894,541. 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.
Capital Commitments
The Company owes $2,151,191 to the Bank of California related to the acquisition
of medical disposables for laboratories division.
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 June 30,
1996
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended
June 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)
- -------------------------------
Signature
Bruce Peasland
Chief Financial Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
6/30/96 Balance Sheet
6/30/96 Year to Date Income Statement
</LEGEND>
<CIK> 0000319013
<NAME> Spectrian Laboratories, Inc.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 894,541
<SECURITIES> 0
<RECEIVABLES> 1,326,944
<ALLOWANCES> 0
<INVENTORY> 1,161,778
<CURRENT-ASSETS> 3,778,911
<PP&E> 896,336
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,800,354
<CURRENT-LIABILITIES> 1,482,435
<BONDS> 0
<COMMON> 128,344
0
0
<OTHER-SE> 2,531,935
<TOTAL-LIABILITY-AND-EQUITY> 7,800,354
<SALES> 4,826,367
<TOTAL-REVENUES> 0
<CGS> 2,997,629
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,436,872
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 159,627
<INCOME-PRETAX> 232,239
<INCOME-TAX> 100,048
<INCOME-CONTINUING> 132,191
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 132,191
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
