<PAGE>
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 March 31, 1997
[ ] 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 December 31, 1996:
12,834,394
1
<PAGE>
Spectrum Laboratories, Inc.
Page
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements 3
Balance Sheet 3
Statement of Income, Three Months Ended March 31, 1997 4
Statement of Cash Flows 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition 7
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
<PAGE>
Spectrum Laboratories, Inc.
Consolidated Balance Sheets
March 31, 1997 and 1996
(Unaudited)
3/31/97 3/31/96
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 175,562 $ 754,837
Accounts receivable, trade 1,685,265 1,135,274
Accounts receivable, related parties 651,297 44,443
Accounts receivable, sale of business 819,131
Inventories 1,352,833 1,107,382
Prepaid expenses and other current assets 95,382 26,881
Deferred taxes 377,185 378,935
------------ ------------
Total current assets 5,156,655 3,447,752
OTHER ASSETS
Property and equipment, net 1,094,062 941,609
Goodwill 3,152,652 2,596,449
Other assets 36,533 24,945
------------ ------------
Total other assets 4,283,247 3,563,003
TOTAL ASSETS $ 9,439,902 $ 7,010,755
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, trade $ 610,062 $ 207,243
Accrued liabilities 757,658 469,256
Current portion of long term debt 790,248 424,118
Due to related parties 225,809 198,555
Income tax payable 85,491 64,224
------------ ------------
Total current liabilities 2,469,268 1,363,396
OTHER LIABILITIES
Notes payable 3,543,304 3,712,122
------------ ------------
Total liabilities 6,012,572 5,075,518
MINORITY INTEREST 2,046,989
SHAREHOLDERS' EQUITY
Common stock, no par value: 25,000,000 shares
authorized, 12,900,000 issued and outstanding 128,344 22,000
Additional paid in capital 5,237,848 4,712,000
Retained earnings, accumulated deficit (3,942,633) (2,798,763)
Unrealized loss on foreign currency translation (43,218)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 1,380,341 1,935,237
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 9,439,902 $ 7,010,755
============ ============
3
<PAGE>
Spectrum Laboratories, Inc.
Consolidated Statements of Income
Three Months Ended March 31, 1997 and 1996
(Unaudited)
Three Months Ended, March 31,
1997 1996
SALES $ 2,049,984 $ 2,182,530
COSTS AND EXPENSES
Cost of sales 1,157,413 1,252,441
Selling expenses 364,082 357,355
General and administrative expenses 512,497 312,776
Research and development expenses 131,495 92,124
Interest expense 100,616 78,399
------------ ------------
Total costs and expenses 2,266,103 2,093,095
------------ ------------
INCOME FROM OPERATIONS (216,119) 89,435
INCOME FROM SALE OF BUSINESS 806,796
------------ ------------
INCOME BEFORE TAXES 590,677 89,435
PROVISION FOR INCOME TAXES 15,000 46,654
------------ ------------
NET INCOME $ 575,677 $ 42,781
============ ============
NET INCOME PER SHARE $ 0.045 $ 0.003
============ ============
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES 12,900,000 12,900,000
See accompanying notes
4
<PAGE>
Spectrum Laboratories, Inc.
Consolidated Statement of Cash Flows
For the Three Months Ended March 31, 1997 and 1996
(Unaudited)
Three Months Ended, March 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME $ 575,677 $ 42,781
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH USED IN OPERATING ACTIVITIES
Depreciation and amortization 118,661 113,137
Deferred income taxes 26,138
CHANGES IN ASSETS AND LIABILITIES
(Increase) in accounts receivable (822,111) (119,741)
(Increase) in accounts receivable - sale
of business (819,131)
Decrease in inventories 78,269 273,061
Decrease(increase) in prepaid expenses and
other current assets 10,116 (7,682)
(Increase) in other assets (4,456) (3,239)
(Decrease) in accounts payable (381,740) (22,581)
Increase (decrease) in accrued liabilities 196,015 (10,867)
(Decrease) in due to related parties (800,015) (626,648)
Increase in long term debt 1,446,141 1,097,047
----------- -----------
Net cash (used in) provided by operating
activities $ (402,574) $ 761,406
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment and leasehold
improvements (13,718) (133,745)
Investments 44,704
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (13,718) (89,041)
----------- -----------
NET (DECREASE ) INCREASE IN CASH (416,292) 672,365
CASH AT BEGINNING OF YEAR 519,854 82,472
----------- -----------
CASH AT END OF THREE MONTHS $ 175,562 $ 754,837
=========== ===========
5
<PAGE>
Spectrum Laboratories, Inc.
Notes to Consolidated Financial Statements
March 31, 1997
(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
March 31, 1997, and the results of their operations and their cash flows for
the three months ended March 31, 1997 and 1996. The results of operations
for the three months ended March 31, 1997 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, 1996.
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, 1997 December 31, 1996
-------------- -----------------
Raw materials $ 669,685 $ 525,934
Work in progress 108,195 72,507
Finished goods 765,040 1,035,897
-------------- ----------------
$ 1,542,920 $ 1,634,338
Reserve for obsolescence (190,087) (203,236)
-------------- ----------------
Total $ 1,352,833 $ 1,431,102
============== ================
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"), referred to as the "Company".
Results of Operations
Sales for the first quarter were $2,049,984 vs. $2,182,530 for the first
quarter of 1996. In 1997, sales decreased $132,546 compared to the first
quarter of 1996. Cell expansion sales added $216,197, while medical
disposable sales decreased due to price competition in the market place.
Gross margins were 43.5% for the first quarter vs. 42.6% for the same period
in 1996. The improvement in margins is largely attributed to the changing
mix of products as sales for hollow fiber membrane products become a larger
part of the mix.
Selling expenses for the first quarter were $364,082 vs. $357,355 for the
first quarter of 1996. Selling expenses as a percentage of total revenue
were 17.8% in 1997 and 16.4% in 1996.
General and administrative expenses were $512,497 for the first quarter of
1997 vs. $312,776 for the same period in 1996. General and administrative
expenses as a percentage of total revenue were 25.0% in 1997 and 14.3% in
1996. $141,679 of the increase is due to cell expansion expenses. The
remainder of the increase results from changes to the infrastructure for
management information systems.
Research and Development expenses were $131,495 for the first quarter of
1997 and $92,124 for the first quarter of 1996, or an increase of 42.7%.
All of the increase is due to cell expansion products.
Interest expense is $100,616 for the first quarter of 1997 vs. $78,399 for
the first quarter of 1996. This is a result of notes and loans outstanding.
On March 31, 1997, the company sold its microbiological sampling and
transport products business for $800,000.00 plus the value of inventory.
The $806,796 income from the sale of business in 1997 is primarily the gain
on the sale. Proceeds on the sale were received in April, 1997.
7
<PAGE>
The Company is a developer, manufacturer and marketer of a comprehensive
line of tubular membrane products used by research laboratories and
biotechnology and pharmaceutical companies. The Company's products, derived
from a platform technology of mass transfer membranes ("MTMs"), are used for
existing and emerging life sciences applications such as
molecular/biological separations, fluid purification and cell expansion.
The Company's platform technology allows it to created MTMs to meet a wide
range of performance criteria and to integrate the MTMs into systems for
life science applications.
Liquidity and Capital Resources
On March 31, 1997, the Company had cash of $175,562. 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 1997.
Capital Commitments
As of March 31, 1997, the Company owes $3,600,000 to City National Bank.
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, 1997
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter
ended March 31, 1997
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
9
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 175502
<SECURITIES> 0
<RECEIVABLES> 3206569
<ALLOWANCES> 50876
<INVENTORY> 1352833
<CURRENT-ASSETS> 5156655
<PP&E> 1094062
<DEPRECIATION> 0
<TOTAL-ASSETS> 9439902
<CURRENT-LIABILITIES> 3022018
<BONDS> 0
0
0
<COMMON> 128344
<OTHER-SE> 1251997
<TOTAL-LIABILITY-AND-EQUITY> 9439902
<SALES> 2049984
<TOTAL-REVENUES> 2049984
<CGS> 1157413
<TOTAL-COSTS> 1521495
<OTHER-EXPENSES> 643992
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 100616
<INCOME-PRETAX> 590677
<INCOME-TAX> 15000
<INCOME-CONTINUING> 575677
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 575677
<EPS-PRIMARY> .045
<EPS-DILUTED> .045
</TABLE>
