<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended November 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 2-92261
WESTBRIDGE RESEARCH GROUP
-------------------------
(Name of Small Business Issuer in its Charter)
California 95-3769474
---------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1150 Joshua Way, Vista, California 92083
-----------------------------------------
(Address of principal executive office and zip code)
(760) 599-8855
--------------
(Issuer's Telephone number)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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
--- ---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $1,607,647.
The aggregate market value of the voting and non-voting equity held by
nonaffiliates of the registrant as of February 26, 1999, (computed by reference
to the price at which the Common Stock was most recently sold) was approximately
$1,914,091. This computation excludes a total of 189,347 shares held by certain
executive officers and directors of Issuer who may be deemed to be affiliates of
Issuer under applicable rules of the Securities and Exchange Commission.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date.
As of February 26, 1999, there were 2,103,438 shares of the Issuer's Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure
Format Yes No X
--- ---
1
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Westbridge Research Group was incorporated in California in 1982. From
inception, Westbridge Research Group and its wholly-owned subsidiary
(hereinafter referred to collectively as the "Company") have been engaged in
the development, manufacture and marketing of environmentally compatible
products for the agriculture industry. The Company also produces a line of
products that are used in the bioremediation of hazardous waste.
AGRICULTURE PRODUCTS
The Company's environmentally sensitive products include proprietary
formulations based primarily on the use of microbial fermentations and plant
extracts, micronutrient blends containing primary and complex secondary
nutrients, as well as additional natural humates and natural substances with
growth promoting activity.
PLANT GROWTH REGULATORS
TRIGGRR-Registered Trademark- formulations are registered with the
Environmental Protection Agency (EPA) as plant growth regulators. The active
components of TRIGGRR-Registered Trademark- are "cytokinins" that affect
rates of cell division and growth. TRIGGRR-Registered Trademark- is
available in several product formulations including:
- Soil TRIGGRR-Registered Trademark-, a liquid product that is applied
to the soil at the time of planting or as a side dress to stimulate
early seedling vigor, improve root development, and improve stand.
- Foliar TRIGGRR-Registered Trademark-, which is applied as a liquid
directly to plant foliage. The product has its primary use in
stimulating root growth, promoting earlier and fuller flowering, and
increasing seed set.
TRIGGRR products may be used with conventional farming practices and in
combination with other agricultural chemicals, rendering them easy to apply and
facilitating distribution. These products are inexpensive to use and produce
yield increases sufficient to provide substantial increases in profits to the
user.
The Company also manufactures and markets a nematode suppressant called
SUPPRESS-Registered Trademark-. SUPPRESS-Registered Trademark- does not kill
the parasitic nematode directly; instead it interferes with the ability of the
nematode to penetrate the plant roots. SUPPRESS-Registered Trademark- is
composed of safe, nontoxic naturally occurring plant growth regulators that
activate the plants natural defenses.
2
<PAGE>
FERTILIZERS
Foliar SUNBURST-Registered Trademark- and Soil SUNBURST-Registered
Trademark- are specialty micronutrient fertilizers manufactured and marketed
by Westbridge. These products contain a non-plant growth regulator organic
base and humic acids. The products are formulated for use on crops which
benefit from foliar micronutrient sprays, where a particular crop is not
included on the current TRIGGRR-Registered Trademark- label, or in cases
where the use of TRIGGRR-Registered Trademark- is not appropriate. In
addition, Westbridge has developed and markets a line of organic fertilizers
under the name BioLink-Registered Trademark-. These products meet current
guidelines for fertilizers used in organic food and fiber production.
BIOREMEDIATION PRODUCTS
Westbridge environmental products include H4-502 and Sewage Treatment
(ST-12), which are organic products formulated to control ammonia, alcohol
and hydrogen sulfide odors safely and naturally. Bioremediation Nutrient
Blends (the BNB product line) are bionutrient products that enhance compost
maturity as well as accelerate the remediation of petroleum hydrocarbon
contaminated sites. Cellulose Digester is designed to accelerate breakdown of
stubble in low- or no-till farming operations.
FEED ADDITIVES
Animal feed additives include products derived from microbial
fermentation and proteinated and chelated trace minerals that stimulate
beneficial gastrointestinal microorganisms, thereby improving the animals'
digestion and conversion of feed to weight gain.
PRODUCT DEVELOPMENT
The Company uses an intern program and contracts with universities and
private government laboratories to conduct the majority of its research and
development work in environmentally sensitive agriculture products. These
programs and contacts generate the field trials and data necessary to obtain
the requisite government approvals and establish efficacy under commercial
conditions.
The Company concentrates its product development efforts on formulation
modifications designed to further increase the efficacy of the Company's
agricultural products and on studies to develop precise application rates and
timing for additional crops.
The Company has developed environmentally sensitive products for the
home lawn and garden industry. Only a small portion of Company resources are
currently being devoted to these projects, but, as funds become available,
these and other applications will be pursued.
Research and development expenses for continuing operations for fiscal
years 1998 and 1997, respectively, were $144,013 and $126,025.
3
<PAGE>
GOVERNMENT REGULATIONS
The Company's activities are, or may be, subject to regulation under
various laws and regulations including, among others, the Occupational Safety
and Health Act, the Toxic Substances Control Act, the National Environmental
Policy Act, other water, air and environmental quality statutes, and export
control legislation. The Company believes it has met its current obligations
under the aforementioned regulations.
In addition to the foregoing requirements, the Company's agricultural
products must be approved by state authorities before distribution in a
state. In some cases, this necessitates having to conduct field tests in the
particular state to accumulate the necessary test data for registration.
Soil TRIGGRR-Registered Trademark- and Foliar TRIGGRR-Registered Trademark-
have been federally registered with the EPA. In addition, the Company has
registered its products with certain appropriate state agencies and is
pursuing registration in other states.
MARKETING
The Company uses a small number of key regional and national
distributors for its U.S. market. Internationally, the Company has executed
distribution agreements with in-place ag-chemical distributors to represent
the Company's products in specified regions or countries. The Company is
dependent on two domestic customers whose purchases amounted to 51% of the
Company's agricultural product sales in fiscal 1998. Sales to major domestic
customers amounted to 41% in 1997.
MANUFACTURING
All of the Company's proprietary formulations and finished products are
manufactured at its Vista, CA facility.
The Company has improved its production capabilities which has allowed it
to seek new opportunities in manufacturing liquid specialty and fertilizer
products for other companies.
LICENSES
The Company has a license agreement with Westbridge Biosystems Ltd., a
California limited partnership (the "Partnership"), for the base technology used
in many of its products. Refer to Exhibit 10(o) Biosystems License Agreement,
incorporated by reference to Exhibit 10(s) to the Company's Annual Report on
Form 10-K for the fiscal year ended November 30, 1989. On September 30, 1996,
the Company and the Partnership amended the terms of the agreement. Under the
terms of the amended agreement, the Company forgave its entire remaining note
receivable balance of $195,942 from the Partnership in exchange for a
restructuring of royalty fees and the term over which royalities are due the
Partnership. Accordingly, the forgiven note balance has been recorded as
prepaid royalties and is being amortized on a straight-line basis over the term
of the amended licensing agreement, through December 31, 2006. Under the
amended
4
<PAGE>
licensing agreement, the Company is required to pay the Partnership royalties
equal to $1,000 per month plus 2.5% of Gross Sales. Refer to exhibit 10(u),
amended Biosystems License Agreement, of the Company's Annual Report or Form
10-KSB for the fiscal year ended November 30, 1996.
SEASONALITY
Agricultural product sales are typically seasonal in nature with heavier
sales in the spring months. The Company is seeking to temper the seasonality
of its agronomic sales by marketing its products in Latin American countries
which produces sales in January, February and March.
COMPETITION
The Company's agricultural products compete with chemicals of major
specialty suppliers to the agricultural industry. Some of the advantages
these companies have in supplying chemical products to the agricultural
industry include well-established distribution networks, well-known products,
experience in satisfying the needs of farmers and extensive capital
resources. A number of other existing companies are engaged in research in
the area of biotechnology relating to agriculture. The Company expects the
biotechnology industry in agriculture to be very competitive in the future.
Unlike chemical products, biotechnology products do not cause soil erosion,
do not adversely affect the environment, are not dependent on petroleum
products and do not present safety hazards to humans. Most of the Company's
existing and potential competitors in agri-chemicals and biotechnology have
more experience in operations, more extensive facilities and greater
financial and other resources.
EMPLOYEES
At November 30, 1998, the Company had 10 employees, 9 full-time, 1 part
time. None of these employees are covered by a collective bargaining
agreement. The Company believes that its employee relations are satisfactory.
ITEM 2. PROPERTIES
The Company's principal executive office is located at 1150 Joshua Way,
Vista, California 92083. This facility consists of 9,515 square feet and is
used for offices, a laboratory and the production and storage of agricultural
products and materials. The Company leases these facilities under a lease
that expires in March 1999. During February, 1999, the Company exercised
its option to extend this lease through March, 2000. Rent is being expensed
on a straight-line basis over the term of the lease.
Rent expense for the years ending November 30, 1998 and 1997, net of
sub-lease income, was $77,020 and $74,800, respectively.
The Company believes that its current facilities are adequate for its
operations for the foreseeable future.
5
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to, and its property is not the subject of, any
pending legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 17, 1997 the shareholders of the Company voted to execute a
one-for-four reverse stock split. The reverse stock split was effective for
shareholders of record on February 6, 1998. Per share amounts in this Form
10-KSB and the accompanying financial statements have been restated to give
effect for the reverse stock split as if it occurred on December 1, 1996.
PART II
ITEM 5. MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
(a) PRINCIPAL MARKET. There is no established public trading market for the
single class of common equity outstanding.
(b) APPROXIMATE NUMBER OF HOLDERS FOR COMMON STOCK. The approximate number of
record holders of Common Stock as of November 30, 1998, were 852.
(c) DIVIDENDS. The Company has paid no dividends. There are no contractual
restrictions that materially limit the Company's present or future ability
to pay dividends. The Company does not expect to pay dividends in the
foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997
Total product sales were $1,607,647 in fiscal 1998 compared with $1,333,878
in fiscal 1997, an increase of 21%. The increase is attributable to an increase
in environmental product sales and new products being manufactured for an
existing domestic customer. Prices for the Company's existing products remained
stable during fiscal 1998. Production by gallons were 98,112 in 1998 and 67,858
in 1997, an increase of 45%.
Cost of sales as a percentage of total product sales amounted to 38% or
$603,459 in fiscal 1998, as compared with 35% or $461,710 in fiscal 1997. The
increase was primarily the result of increased raw material and labor costs.
6
<PAGE>
Research and development expenses increased by $17,988, or 14% in fiscal
1998 from $126,025 in fiscal 1997. This increase is due to an increase in
salaries and wages attributable to the research and development function.
Selling expenses increased in relation to product sales for fiscal year
1998, representing 25% of product sales in fiscal 1998 versus 21% of product
sales in fiscal 1997. The increased expenditures are a result of new sales
personnel and expanded advertising.
General and administrative expenses increased by 17% to $244,293 in
fiscal 1998 from $208,762 in fiscal 1997. The increase was due primarily to
increased legal expenses associated with the reverse stock split and stock
transfer agent fees.
Royalty expense increased to $71,016 in fiscal 1998 from $64,369 in
fiscal 1997. This increase is due to increased sales in 1998.
Interest expense increased to $28,671 for fiscal 1998, from $26,206 for
fiscal 1997. This increase is primarily due to increases in accrued interest
to related parties and capital lease obligations.
The net income for fiscal 1998 was $53,595 compared with net income of
$94,796 in fiscal 1997. The decrease in net income is primarily related to
higher expenses associated with additional staffing and sales of products
with lower margins.
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
Total product sales were $1,333,878 in fiscal 1997 compared with
$866,972 in fiscal 1996, an increase of 54%. The increase is attributable to
an increase in foreign sales and new products being manufactured for an
existing domestic customer. Prices for the Company's existing products
remained stable during fiscal 1997. Production by gallons were 67,858 in 1997
and 42,166 in 1996, an increase of 61%.
Cost of sales as a percentage of total product sales amounted to 35% or
$461,710 in fiscal 1997, as compared with 31% or $271,305 in fiscal 1996. The
slight increase was primarily the result of increased raw material and labor
costs.
Research and development expenses decreased by $15,560, or 11% in fiscal
1997 from $141,585 in fiscal 1996. This reduction is due to a decrease in
salaries and wages attributable to the research and development function.
Selling expenses increased in relation to product sales for fiscal year
1997, representing 21% of product sales in fiscal 1997 versus 18% of product
sales in fiscal 1996. The increased expenditures are a result of new sales
personnel and expanded advertising.
General and administrative expenses decreased by 25% to $208,762 in
fiscal 1997 from $276,307 in fiscal 1996, and decreased as a percentage of
total product sales to 16%
7
<PAGE>
from 32% in fiscal 1996. The decrease was due primarily to a reduction in
consulting fees, lease expenses and a reduction in moving expenses which were
incurred in fiscal 1996.
Royalty expense decreased to $64,369 in fiscal 1997 from $574,821 in
fiscal 1996. This decrease is due to the restructuring of the royalty
arrangement in the amended license agreement dated September 30, 1996.
Interest expense increased to $26,206 for fiscal 1997, from $21,834 for
fiscal 1996. This increase is primarily due to increases in accrued interest
to related parties and capital lease obligations.
The net income for fiscal 1997 was $94,796 compared with a net loss of
$924,133 in fiscal 1996. The increase in net income is primarily related to
increased sales, a reduction in royalty expenses and a provision for bad debt
and forgiveness of notes receivable recorded during fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
Net working capital increased to $369,566 at November 30, 1998, due
primarily to the extension of notes payable to related parties making them
non-current .
Based on current cash flow projections management expects that the
Company can continue operations for the current year without infusions of
additional cash.
YEAR 2000
The Company has completed its Year 2000 assessment and believes that it
is Year 2000 compliant on internal hardware and software. The Company is
still in the process of contacting major customers and vendors to assess
their status as to Year 2000 compliance. The Company expects that this
process will be completed in the first half of fiscal 1999. As of November,
1998, it was anticipated that additional hardware, software, and consulting
costs to become Y2K compliant would be $20,000. Once this process is
completed, however, there is no assurance that service interruptions will not
occur from vendors, suppliers or service providers, including financial
institutions or governments. The Company believes that alternative suppliers
exist and, therefore, if services are interrupted from suppliers, the
situation should be temporary.
ITEM 7. FINANCIAL STATEMENTS
Exhibit A, "Consolidated Financial Statements and Independent Auditor's
Report" is incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
During January 1998, the Company filed Form 8-K notifying a change in
its independent auditors from Peterson & Company to Pannell Kerr Forster.
8
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT
The executive officers and directors of the Company, as of November 30,
1997, were as follows:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION AND BUSINESS YEAR FIRST
---- --- EXPERIENCE DURING THE PAST FIVE YEARS BECAME DIRECTOR
-------------------------------------- ---------------
<S> <C> <C> <C>
Christine Koenemann 45 Christine Koenemann was elected President 1995
and appointed as a Director of the Company on
March 2, 1995. She has worked for the Company
for the past 14 years in varying positions including
Operations Manager, Shareholder Relations Liaison,
Director of Administration, and Assistant Treasurer.
She attended Indiana University School of Business
and worked in retail management for five years.
William J. Dale 65 Mr. Dale, appointed a director of the Company in 1995
March 1995, is President of Silverado Capital, Inc., a
San Diego based company engaged in international
Licensing and merchant banking activities. Since
1990 Silverado has been engaged in international
marketing of products for the Company. Prior to
that, from 1980-1989, he was a partner in a San
Diego law firm where his area of practice emphasized
corporate and securities law matters. Prior to that
he had been a sole practitioner for two years, and
for the eight years prior to that he was general
counsel for an agricultural management company
with cattle, ranches and orchards under management.
Mr. Dale received a B.A. degree in Economics from
Allegheny College in 1955 and a LL.B. degree from
the University of Pennsylvania in 1962. From 1955
to 1959 he was an U.S. Naval Aviator.
William M. Witherspoon 57 Mr. Witherspoon was appointed to the Board of 1995
Directors in August 1995, and he was elected
Chairman at that time. Mr. Witherspoon was a founder
of Westbridge Research Group. From 1982 until
1989 he served as Chairman of the Board of
Directors. Prior to and after founding Westbridge,
he was a principal of Witherspoon and Town, a firm
that engaged in starting and providing capital for
real estate, agricultural and marketing businesses.
For the past nine years, he worked as the owner of
Firstlight Productions, an art production and marketing
company. Mr. Witherspoon holds a B.A. degree from
Reed College and an M.A. from MERU.
9
<PAGE>
William Fruehling 58 Mr. Fruehling was appointed to the Board of Directors 1997
in April 1997. Mr. Fruehling is the founder and President
of Fruehling Communications, a San Diego based
advertising and public relations company which focuses
on Western and Sunbelt agriculture. Prior to starting
Fruehling Communications, Mr. Fruehling worked
extensively in the Advertising industry with regard to
agribusiness. He managed The Elanco Products Crop
Protection Chemical account in the Southern and Western
United States, as well as the Monsanto Account with
regard to Hybrid Seed Corn, for Creswell, Munsell,
Fultz & Zirbel in Cedar Rapids, Iowa.
</TABLE>
Directors are elected to serve until the next annual meeting of
shareholders and until their successors have been elected and have qualified.
Officers are appointed to serve until the meeting of the Board of Directors
following the next annual meeting of shareholders and until their successors
have been elected and qualified.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the aggregate remuneration paid in fiscal
1998:
<TABLE>
<CAPTION>
Name of Individual Capacities in which Aggregate
or Identity of Group Remuneration is Received Remuneration
-------------------- ------------------------ ------------
<S> <C> <C>
Christine Koenemann President $ 60,000
All Executive Officers $ 60,000
as a group (1 person)
</TABLE>
For each year of service, each independent director receives stock
options, with exercise prices equal to the fair market value on the date of
grant, in an amount such that the aggregate exercise price of the options
equals $5,000.00 for their services as directors.
During fiscal 1997 and 1998 the Company granted non-qualified stock
options to acquire 20,000 and 13,750 shares, respectively at $0.50 and $1.00
per share, respectively, to members of the Board of Directors. The options
immediately vest upon grant and expire December 2001 and 2002, respectively.
All of these options remain outstanding and exercisable at November 30, 1998.
EMPLOYEE INCENTIVE STOCK OPTION PLAN
On April 25, 1983, the Company adopted an employee incentive stock
option plan (the "Option Plan") to provide to participating employees added
incentive to achieve high levels of performance for the Company. The Option
Plan was approved by the Company's stockholders on May 31, 1984. The Option
Plan terminated May 31,
10
<PAGE>
1994 and options granted under this plan will expire if not exercised on or
before November 5, 2000.
The Option Plan provided for the granting of options to full-time
salaried officers and employees to purchase shares of Common Stock at prices
per share which must not be less than 100% of the fair market value of the
Common Stock subject thereto at the time each option is granted. Options
granted under the Option Plan expire not later than five (5) years from the
date of grant. The selection of individuals and the setting of the terms and
provisions of the options received by them are determined by the Board of
Directors (the "Board") or the Executive Committee. No option can be granted
to an individual who will, immediately prior or immediately after the option
is granted, own directly or indirectly more than 10% of the Company's
outstanding Common Stock. Options are non-transferable by the optionee.
Under this plan, an aggregate of 100,000 shares of Common Stock may be
issued. As of November 30, 1998, 175 shares have been issued under the plan,
and 8,500 options are outstanding at $6.00 per share.
During 1994, the Company established an employee incentive stock option
plan ("the 1994 Plan") under which options to purchase an aggregate of
100,000 common shares may be granted at fair market value. During fiscal
1997 the Company granted options to acquire 50,000 shares at $0.50 per share
to its President. At November 30, 1998, no shares had been issued under the
1994 Plan and 81,250 options at an exercise price between $0.50 and $1.00 per
share were outstanding, of which 48,700 were exercisable. No options were
exercised during the fiscal year ended November 30, 1998. These options
expire through the fiscal year ended November 30, 2008.
During 1995, the Company granted nonqualified stock options to acquire
50,000 shares at $0.50 per share to its current President. The options
expire September 2000. These options are currently exercisable.
During fiscal 1996 and 1997 the Company granted non-qualified stock
options to acquire 40,000 shares at $0.50 per share to a consultant. The
options immediately vest upon grant and expire as follows:
<TABLE>
<CAPTION>
Stock Exercise Expiration
Options Price Date
------- -------- ----------
<S> <C> <C>
8,000 $ .50 March 31, 2001
8,000 .50 June 30, 2001
8,000 .50 September 30, 2001
8,000 .50 December 31, 2001
8,000 .50 March 31, 2002
</TABLE>
All of these options remain outstanding and exercisable at November 30, 1998.
11
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information as of November 30, 1998,
with respect to the beneficial ownership of the Company's Common Stock (a) by
each person who is known to the Company to own beneficially or of record more
than 5% of the outstanding shares of Common Stock, (b) each present director and
nominee for election as a director of the Company, and (c) all officers and
directors of the Company as a group.
<TABLE>
<CAPTION>
W/O Exercise
Amount and Nature of Percent of Percent of
Name of Beneficial Owner Beneficial Ownership Class(4) Class (5)
------------------------ -------------------- ------------ ----------
<S> <C> <C> <C>
Christine Koenemann 108,750 (1) * 3.8
1150 Joshua Way
Vista, CA 92083
Albert L. Good 182,300 8.7 8.7
14550 Castle Rock Road
Salinas, CA 93908
Kenneth P. Miles 117,867 5.6 5.6
8 Avenida Andra
Palm Desert, CA 92260
William M. Witherspoon (2) 194,297 8.5 9.1
PO Box 1735
Fairfield, IA 52556
Peter L. Salk 79,167 3.8 3.8
7459 High Avenue
La Jolla, CA 92037
William J. Dale (3) 24,375 * 1.1
1150 Joshua Way
Vista, CA 92083
All Directors & Officers 331,172 9.0 13.8
as a Group (4 persons)
</TABLE>
* less than 1%
(1) Consists of exercisable options to purchase 2,500 shares at $6.00 per share
and 81,500 at $0.50 per share.
12
<PAGE>
(2) Consists of exercisable options to purchase 10,000 shares at $0.50 per
shares and 5,000 shares at $1.00 per share.
(3) Consists of exercisable options to purchase 10,000 shares at $0.50 per
shares and 5,000 shares at $1.00 per share.
(4) Calculated as if no options were exercised and 2,103,438 shares
outstanding.
(5) Calculated as if only that (those) shareholder's(s') options/warrants
exercisable within 60 days were exercised and no other options/warrants
were exercised.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K.
(a) 1. The following financial statements of the Company are included in
Item 7:
Consolidated Balance Sheets at November 30, 1998 and 1997
Consolidated Statements of Operations for the
two years in the period ended November 30, 1998
Consolidated Statements of Shareholders' Equity for the
two years in the period ended November 30, 1998
Consolidated Statements of Cash Flows for the
two years in the period ended November 30, 1998
Notes to Consolidated Financial Statements.
(b) No Form 8-K was filed during the last quarter of the period covered by this
report.
(c) Exhibit filed herewith:
3(a) Articles of Incorporation and amendments thereto, incorporated
by reference to Exhibit 3(a) to Registration Statement number
2-92261 on Form S-18 filed July 18, 1984.
3(b) Amendment to Articles of Incorporation as filed with the
California Secretary of State on September 24, 1997.
13
<PAGE>
3(c) Bylaws, incorporated by reference to Exhibit 3(b) to
Registration Statement number 2-92261 on Form S-18 filed
July 18, 1984
10(a) Biosystems R & D Agreement, incorporated by reference to
Exhibit 10(a) to Registration Statement number 2-92261 on Form
S-18 filed July 18, 1984.
10(b) Biosystems Technology Transfer Agreement, incorporated by
reference to Exhibit 10(b) to Registration Statement number
2-92261 on Form S-18 filed July 18, 1984.
10(c) Biolink Acquisition Agreement, incorporated by reference to
Exhibit 10(c) to Registration Statement number 2-92261 on Form
S-18 filed July 18, 1984.
10(d) Employee Incentive Stock Option Plan, incorporated by
reference to Exhibit 10(d) to Registration Statement number
2-92261 on Form S-18 filed July 18, 1984.
10(e) Employee Stock Purchase Plan, incorporated by reference to
Exhibit 10(e) to Registration Statement number 2-92261 on Form
S-18 filed July 18, 1984.
10(f) Nonqualified Stock Option of Dr. Jonas Salk, incorporated by
reference to Exhibit 10(f) filed with Form 8-K dated
November 10, 1987.
10(g) Nonqualified Stock Option of Stephen C. Hall, incorporated
by reference to Exhibit 10(g) filed with Form 8-K dated
November 10, 1987.
10(h) Nonqualified Stock Option of Michael A. Spivak, incorporated
by reference to Exhibit 10(h) filed with Form 8-K dated November
10, 1987.
10(i) Nonqualified Stock Option of Dr. Peter L. Salk, incorporated
by reference to Exhibit 10(i) filed with Form 8-K dated November
10, 1987.
10(j) Nonqualified Stock Option of Gerald R. Haddock, incorporated
by reference to Exhibit 10(j) filed with Form 8-K dated November
10, 1987.
10(k) Nonqualified Stock Option of Peter Dine, incorporated by
reference to Exhibit 10(m) filed with the Annual Report on Form
10-K for the fiscal year ended November 30, 1988.
14
<PAGE>
10(l) Nonqualified Stock Option of Stanley L. Woodward,
incorporated by reference to Exhibit 10(n) filed with the Annual
Report on Form 10-K for the fiscal year ended November 30, 1988.
10(m) Westbridge Agrosystems Limited Exchange Agreement,
incorporated by reference to Exhibit 10(o) filed with Post
Effective Amendment Number 1 to the Registration Statement
number 2-92261 on Form S-18 filed December 26, 1989.
10(n) Nonqualified Stock Option of Noel R. Schaefer incorporated
by reference to Exhibit 10(q) to the Company's Annual Report on
Form 10-K for the fiscal year ended November 30, 1989.
10(o) Biosystems License Agreement incorporated by reference to
Exhibit 10(s) to the Company's Annual Report on Form 10-K for
the fiscal year ended November 30, 1989.
10(p) Warrant Agency Agreement, incorporated by reference to
Exhibit 4(b) to Registration Statement number 2-92261 on
Form S-18 filed July 18, 1984.
10(q) Agriculture Products Marketing, Sales, License and
Distribution Agreement by and between Haddock & Schaefer and the
Company, dated November 15, 1991, incorporated by reference to
Exhibit 10(q) filed with The Annual Report on Form 10-KSB for
the fiscal year ended November 30, 1992.
10(r) Oil Products Marketing, Sales, License and Distribution
Agreement by and between Haddock & Schaefer and the Company,
dated November 15, 1991, incorporated by reference to Exhibit
10(r) filed with The Annual Report on Form 10-KSB for the fiscal
year ended November 30, 1992.
10(s) Employment Agreement by and between Company and Warren
Currier III, dated December 1, 1991, by reference to Exhibit
10(s) filed with 10-KSB for the fiscal year ended November 30,
1992.
10(t) Property lease by and between Mitsui Fudosan (USA), Inc. and
the Company, dated December 1, 1995, filed with the Annual
Report on Form 10-KSB for the fiscal year ended
November 30, 1995.
10(u) Agreement dated as of October 1, 1996, by and between Westbridge
Research Group and Westbridge Biosystems Limited filed with the
Annual Report on Form 10-KSB for the fiscal year ended
November 30, 1996.
15
<PAGE>
10(v) Westbridge Research Group 1994 Incentive Stock Option Plan
filed with the Annual Report on Form 10-KSB for the fiscal year
ended November 30, 1996.
10(w) Nonqualified Stock Option of Christine Koenemann,
incorporated by reference to Exhibit 10(w) filed with the Annual
Report on Form 10-KSB for the fiscal year ended November 30,
1996.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the Issuer has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 12,1999.
WESTBRIDGE RESEARCH GROUP
By /s/ Christine Koenemann
---------------------------------
Christine Koenemann, President
Principal Executive Officer
Principal Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Issuer and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ William M. Witherspoon
- -------------------------------- Director March 12, 1999
William M. Witherspoon
/s/ Christine Koenemann
- -------------------------------- President March 12, 1999
Christine Koenemann
/s/ William J. Dale
- -------------------------------- Director March 12, 1999
William J. Dale
/s/ William Fruehling
- -------------------------------- Director March 12, 1999
William Fruehling
</TABLE>
Supplemental information to be furnished with reports filed pursuant to
Section 15(d) of the Act by Issuers which have not registered Securities
pursuant to Section 12 of the Act.
No annual report covering the Issuer's last fiscal year or proxy
material has been sent to security holders. An annual report is to be
furnished to security holders subsequent to the filing of the annual report
of this form.
17
<PAGE>
WESTBRIDGE RESEARCH GROUP
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AND INDEPENDENT AUDITOR'S REPORT
For The Years Ended November 30, 1998 and 1997
<PAGE>
WESTBRIDGE RESEARCH GROUP
AND SUBSIDIARY
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
INDEPENDENT AUDITOR'S REPORT . . . . . . . . . . . . . . . . . . . . . . . F-1
FINANCIAL STATEMENTS
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . F-2 - F-3
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Shareholders' Equity . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . F-6 - F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . F-8 - F-21
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
Westbridge Research Group and Subsidiary
Vista, California
We have audited the consolidated balance sheets of Westbridge Research Group
and Subsidiary (the "Company") as of November 30, 1998 and 1997, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Westbridge Research Group and Subsidiary at November 30, 1998 and 1997,
and the consolidated results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting
principles.
San Diego, California PANNELL KERR FORSTER
January 29, 1999 Certified Public Accountants
A Professional Corporation
F-1
<PAGE>
WESTBRIDGE RESEARCH GROUP
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
November 30, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS
------
1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 249,729 $ 251,781
Accounts receivable, less allowance for doubtful
accounts of $206 in 1998 and 1997 296,312 191,036
Inventories 101,952 82,059
Prepaid expenses and other current assets 15,651 14,391
----------- -----------
Total current assets 663,644 539,267
----------- -----------
Property and equipment, at cost:
Machinery and equipment 184,528 164,890
Office furniture and fixtures 258,240 251,627
----------- -----------
442,768 416,517
Less accumulated depreciation (370,515) (341,117)
----------- -----------
Net property and equipment 72,253 75,400
----------- -----------
Long-term account receivable, net 130,000 130,000
Intangible assets, net 201,387 300,840
----------- -----------
$ 1,067,284 $ 1,045,507
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
WESTBRIDGE RESEARCH GROUP
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Continued)
November 30, 1998 and 1997
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Current liabilities:
Accounts payable $ 69,791 $ 57,396
Accrued expenses 65,406 95,190
Current portion of long term debt 48,203 68,581
Current portion of capital lease obligations 5,844 3,845
Notes payable to related parties 104,834 236,914
----------- -----------
Total current liabilities 294,078 461,926
Long-term debt 8,979 26,067
Notes payable to related parties 149,366 -
Deferred rent - 1,284
Capital lease obligations, net of current portion 16,686 11,650
----------- -----------
Total liabilities 469,109 500,927
Commitments and contingencies (Notes 9 and 12)
Shareholders' equity:
Preferred stock, 5,000,000 shares authorized,
no shares outstanding in 1998 and 1997 - -
Common stock, no par value, 9,375,000 shares
authorized, 2,103,438 shares issued and
outstanding in 1998 and 1997 8,479,854 8,479,854
Paid-in capital - warrants 95,000 95,000
Accumulated deficit (7,976,679) (8,030,274)
----------- -----------
Total shareholders' equity 598,175 544,580
----------- -----------
$ 1,067,284 $ 1,045,507
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
WESTBRIDGE RESEARCH GROUP
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended November 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Revenues:
Agricultural product sales $ 1,607,647 $ 1,333,878
Other revenue - 6,050
----------- -----------
1,607,647 1,339,928
----------- -----------
Costs and expenses:
Cost of sales 603,459 461,710
Research and development 144,013 126,025
Selling 395,231 284,003
General and administrative 244,293 208,762
Royalties 71,016 64,369
Amortization of processes and formulas 80,338 80,338
----------- -----------
Total costs and expenses 1,538,350 1,225,207
----------- -----------
Income from operations 69,297 114,721
Other income (expense):
Interest expense (28,671) (26,206)
Interest income 8,239 8,587
Other income 6,330 94
----------- -----------
Income before income taxes 55,195 97,196
Provision for income taxes 1,600 2,400
----------- -----------
Net income $ 53,595 $ 94,796
----------- -----------
----------- -----------
Basic earnings per common share $ .03 $ .05
----------- -----------
Weighted average shares outstanding 2,103,438 2,103,438
----------- -----------
----------- -----------
Diluted earnings per common share $ .02 $ .05
----------- -----------
Weighted average shares, options and warrants outstanding 2,303,946 2,103,438
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
WESTBRIDGE RESEARCH GROUP
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For The Years Ended November 30, 1998 and 1997
<TABLE>
<CAPTION>
Paid-in
Common Capital Accumulated
Stock Amount Warrants Deficit Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, November 30, 1996 2,103,438 $ 8,479,854 $ 95,000 $(8,125,070) $ 449,784
Net income - - - 94,796 94,796
----------- ----------- ----------- ----------- -----------
Balance, November 30, 1997 2,103,438 8,479,854 95,000 (8,030,274) 544,580
Net income - - - 53,595 53,595
----------- ----------- ----------- ----------- -----------
Balance, November 30, 1998 2,103,438 $ 8,479,854 $ 95,000 $(7,976,679) $ 598,175
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
WESTBRIDGE RESEARCH GROUP
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended November 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 53,595 $ 94,796
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 29,397 17,709
Amortization 99,454 99,454
Interest on notes payable to related parties
and long term debt 18,984 18,189
Changes in operating assets and liabilities:
Increase in accounts receivable (105,276) (62,594)
Increase in inventories (19,893) (7,690)
Increase in prepaid expenses and
other current assets (1,260) (4,154)
Increase in accounts payable 12,395 39,552
(Decrease) increase in accrued expenses (29,784) 16,723
Decrease in deferred rent (1,284) (3,853)
--------- ---------
Net cash flows provided by
operating activities 56,328 208,132
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment (15,636) (24,357)
--------- ---------
Net cash flows used in
investing activities (15,636) (24,357)
--------- ---------
Cash flows from financing activities:
Payments on long-term debt (39,164) (40,493)
Payments on capital lease obligations (3,580) (7,220)
--------- ---------
Net cash flows used in
financing activities (42,744) (47,713)
--------- ---------
Net (decrease) increase in cash and cash equivalents (2,052) 136,062
Cash and cash equivalents at beginning of year 251,781 115,719
--------- ---------
Cash and cash equivalents at end of year $ 249,729 $ 251,781
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
WESTBRIDGE RESEARCH GROUP
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For The Years Ended November 30, 1998 and 1997
<TABLE>
<CAPTION>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
1998 1997
-------- --------
<S> <C> <C>
Cash paid during the year for:
Interest $ 9,686 $ 8,017
-------- --------
-------- --------
Income taxes $ 1,600 $ 2,400
-------- --------
-------- --------
Supplemental disclosure of noncash investing and financing activities:
Borrowing on long-term debt for machinery and
equipment $ - $ 13,585
-------- --------
-------- --------
Borrowing on capital lease obligation for
machinery and equipment $ 10,615 $ 15,100
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
WESTBRIDGE RESEARCH GROUP
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998 and 1997
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Westbridge Research Group (the "Company") was incorporated in California on
April 12, 1982 for the acquisition, research, development, manufacturing
and marketing of biotechnological products in the agricultural and energy
industries.
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) recently issued Statement
of Financial Accounting Standards (SFAS) No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This new Statement,
effective for financial statements for periods beginning after December 15,
1997, requires that public business enterprises report certain information
about operating segments in complete sets of financial statements of the
enterprise and in condensed financial statements of interim periods issued
to shareholders. It also requires the reporting of certain information
about their products and services, the geographic areas in which they
operate, and their major customers. The Company is required to adopt SFAS
131 beginning December 1, 1998.
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements consolidate the accounts of the
Company and its wholly-owned subsidiary Westbridge Agricultural Products.
All significant intercompany transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
The Company maintains its cash in bank deposit accounts which, at times,
may exceed the federally insured limits. The Company has not experienced
any losses in such accounts and management believes it places its cash on
deposit with financial institutions which are financially stable.
INVENTORIES
Inventory, consisting of agricultural products, is stated at the lower of
cost (determined on a first-in, first-out basis) or market.
F-8
<PAGE>
WESTBRIDGE RESEARCH GROUP
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998 and 1997
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
PROCESSES AND FORMULAS
Processes and formulas are recorded at amortized cost, and amortized on a
straight-line basis over the lesser of ten years or their estimated useful
lives.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is calculated on
a straight-line basis over the estimated useful lives of the depreciable
assets, or related lease life, if shorter, which range from three to ten
years.
REVENUE RECOGNITION
Revenues are recognized when a product is shipped or a service is
performed.
SALES TO MAJOR CUSTOMERS
Sales to major agricultural domestic customers were 51% and 41% of fiscal
1998 and 1997 net agricultural product sales, respectively. During fiscal
1998, 11% of total sales were derived from aggregate foreign sales compared
to 22% in 1997. A majority of the Company's domestic sales are concentrated
in Washington, California, Arizona and Texas.
NET INCOME PER SHARE
During June 1997 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 128, "Earnings Per
Share." This statement specifies the computation, presentation, and
disclosure requirements for earnings per share for entities with publicly
held common stock. SFAS No. 128 supersedes the provisions of APB No. 15,
and requires the presentation of basic earnings per share and diluted
earnings per share.
The Company adopted the provisions of SFAS No. 128 during fiscal year 1998.
Prior period amounts have been restated to conform to SFAS No. 128.
Basic earnings per common share is based upon the weighted average number
of common shares outstanding during the period. Diluted earnings per
common share is based upon the weighted average number of common shares
outstanding adjusted for the assumed conversion of diluted stock options
and warrants using the treasury stock method. The weighted average number
of common shares and options outstanding were 2,303,946 and 2,103,438 for
1998 and 1997, respectively. The effects of warrants and stock options were
not considered in the 1997 diluted earnings per share calculation, as they
were anti-dilutive.
F-9
<PAGE>
WESTBRIDGE RESEARCH GROUP
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998 and 1997
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations for the periods presented
below:
<TABLE>
<CAPTION>
Years Ended November 30,
1998 1997
---------- ----------
<S> <C> <C>
Numerator for earnings per common share - net income $ 53,595 $ 94,796
---------- ----------
Denominator for basic earnings per common share 2,103,438 2,103,438
---------- ----------
Effect of dilutive securities 200,508 -
---------- ----------
Denominator for diluted earnings per common share 2,303,946 2,103,438
---------- ----------
Net income per common share:
Basic $ .03 $ .05
---------- ----------
---------- ----------
Diluted $ .05 $ .05
---------- ----------
---------- ----------
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes that the recorded values of its financial instruments
approximates their fair value at the balance sheet date.
INCOME TAXES
The Company accounts for income taxes using the asset and liability method.
Under the asset and liability method, deferred income taxes are recognized
for the tax consequences of "temporary differences" by applying enacted
statutory tax rates applicable to future years to differences between the
financial statement carrying amounts and the tax bases of existing assets
and liabilities.
RESEARCH AND DEVELOPMENT
It is the Company's policy to expense research and development costs when
incurred.
F-10
<PAGE>
WESTBRIDGE RESEARCH GROUP
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998 and 1997
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
STOCK BASED COMPENSATION
During October 1995, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." This
standard encourages, but does not require, companies to recognize
compensation expense for grants of stock, stock options, and other equity
instruments based on a fair-value method of accounting.
Companies that do not choose to adopt new expense recognition rules of SFAS
No. 123 will continue to apply the existing accounting rules contained in
Accounting Principles Board Opinion (APBO) No. 25, but will be required to
provide pro forma disclosures of the compensation expense determined under
the fair-value provisions of SFAS No. 123, if material. APBO No. 25
requires no recognition of compensation expense for most of the stock-based
compensation arrangements provided by the Company, namely, broad-based
employee stock purchase plans and option grants where the exercise price is
equal to the market price at the date of the grant.
The Company has adopted the disclosure provisions of SFAS No. 123 effective
December 1, 1996. The Company has opted to follow the accounting
provisions of APBO No. 25 for stock-based compensation and to furnish the
pro forma disclosures required under SFAS No. 123. See Note 11.
LONG LIVED ASSETS
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of the impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. SFAS121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company adopted
SFAS 121 in the first quarter of fiscal 1997. This adoption did not have a
material effect on the financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
F-11
<PAGE>
WESTBRIDGE RESEARCH GROUP
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998 and 1997
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
YEAR 2000 ISSUE (UNAUDITED)
The Company's accounting software and other applications used in its
operations were purchased from outside vendors. Management believes that
these applications are Year 2000 compliant. As a result, management of the
Company does not believe that the Year 2000 Issue will have an impact on
its financial statements or on its operations.
NOTE 2 - RESEARCH AND DEVELOPMENT AGREEMENTS
In December 1982, the Company entered into a research and development
agreement (the "First Agreement") with Westbridge Biosystems, Ltd. (the
"Partnership") to develop biologically compatible products to decrease
the cost of crop production, increase crop yields and improve soil
quality through the use of naturally occurring microorganisms and
synthesized and extracted organic polymers. In addition, the Company
was to develop a family of drilling and completion fluids based on
synthesized and extracted organic polymers.
Under the terms of the agreement the Partnership was required to fund
research and development costs as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash $ 2,444,625
1 year note, collected in prior years 2,423,375
12 year note, due December 31, 1994 11,826,515
------------
$ 16,694,515
------------
------------
</TABLE>
The 12 year note is full recourse to the Partnership and the limited
partners on a pro rata basis.
In exchange for funding the research and development, the Partnership
obtained title to all technologies developed under the agreement.
Concurrent with the execution of the Development Agreement, the Company and
the Partnership entered into a technology transfer agreement (the
"Technology Agreement") under which the Company obtained the right to
acquire an option to license the developed technology, on a non-exclusive
basis for a thirteen month period, in order to review the technology and,
upon such review, to have the option to acquire a license on an exclusive,
world-wide basis to such technology.
In October of 1985 the Company and the Partnership entered into a licensing
agreement (the "Licensing Agreement") under which the Company acquired, on
an exclusive world-wide basis, licensing of certain technologies in
exchange for royalties as follows:
F-12
<PAGE>
WESTBRIDGE RESEARCH GROUP
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998 and 1997
NOTE 2 - RESEARCH AND DEVELOPMENT AGREEMENTS (Continued)
1. An amount equal to ninety percent (90%) of applicable gross sales
generated by the Company until all principal and interest has been
paid by the Partnership on the 12-year note.
2. Thereafter, an amount equal to ten percent (10%) of applicable gross
sales generated by the Company until the aggregate of such payments is
equal to the total of the limited partners' cash contributions during
the two year period ended December 31, 1984. Subsequently, the
Partnership will be entitled to a five percent (5%) royalty on
applicable gross sales generated by the Company. This royalty
obligation will remain in force as long as there remains a patent
covering the formula or, if no patent is in effect, for 17 years.
The balance of the 12 year note was entirely offset by deferred revenue
until its maturity at December 31, 1994 at which time the Company
recognized revenue of $3,424,430 representing the unpaid balance of
$4,229,676 net of forgiven receivables of $805,246. Prior to that time
revenue was recognized concurrent with cash collections or the payment of
royalties under the Licensing Agreement. At November 30, 1995 the
Partnership was in default on the note balance which totaled $948,077.
During 1996 the Company applied royalties due to the Partnership totaling
$571,635 to the note. Additionally, the Company received payments on the
note totaling $99,552 and forgave $80,948 of the remaining balance. On
September 30, 1996 the Company and the Partnership amended the terms of the
Development Agreement and the Licensing Agreement. Under the terms of the
amended agreements the Company forgave the entire remaining note receivable
balance of $195,942 in exchange for a restructuring of the royalty fees and
terms. Accordingly, the forgiven note balance has been recorded as prepaid
royalties and is being amortized straight line over the term of the amended
licensing agreement, through December 31, 2006 (see Note 5). Under the
amended licensing agreement the Company is required to pay the Partnership
royalties equal to $1,000 per month plus 2.5% of gross sales of products
utilizing the licensed technologies.
NOTE 3 - INVENTORIES
Inventories consist of the following at November 30:
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Raw materials $ 44,217 $ 61,320
Finished goods 57,735 20,739
--------- --------
$ 101,952 $ 82,059
--------- --------
--------- --------
</TABLE>
Certain of the Company's raw materials are obtained from a limited number
of suppliers.
F-13
<PAGE>
WESTBRIDGE RESEARCH GROUP
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998 and 1997
NOTE 4 - LONG-TERM ACCOUNT RECEIVABLE
At November 30, 1989, the Company had an account receivable totaling
$451,270 due from a foreign distributor. The account was collateralized by
a perfected security interest in unimproved real property in Baja, Mexico.
The Company was unsuccessful in its efforts to collect the amounts due on
this account and, accordingly, during fiscal 1993, retained Mexican legal
counsel to initiate foreclosure proceedings. At November 30, 1998, the
land is subject to a Mexican court pending foreclosure sale.
The long term account receivable and related allowance for bad debt at
November 30 is as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Long-term account receivable $ 451,270 $ 451,270
Allowance for doubtful long-term account (321,270) (321,270)
---------- ---------
$ 130,000 $ 130,000
---------- ---------
---------- ---------
</TABLE>
NOTE 5 - INTANGIBLE ASSETS
Intangible assets are as follows as of November 30:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Purchased processes and formulas $ 3,097,369 $ 3,097,369
Prepaid royalties 195,942 195,942
----------- -----------
3,293,311 3,293,311
Accumulated amortization (3,091,924) (2,992,471)
----------- -----------
$ 201,387 $ 300,840
----------- -----------
----------- -----------
</TABLE>
NOTE 6 - ACCRUED EXPENSES
Accrued expenses consist of the following at November 30:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Royalties - related party $ 2,422 $ 1,051
Accounting fees 17,706 18,606
Accrued vacation 15,345 15,345
Accrued bonuses - 21,705
Warranty 18,705 18,705
Sales commissions 9,800 13,365
Cooperator and scientific advisory fees - 2,500
Deferred rent, current portion 1,284 3,853
Other 144 60
-------- --------
$ 65,406 $ 95,190
-------- --------
-------- --------
</TABLE>
F-14
<PAGE>
WESTBRIDGE RESEARCH GROUP
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998 and 1997
NOTE 7 - LONG-TERM DEBT
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Note payable to SBA bearing interest at 10%,
principal and interest payable monthly at
$3,400 for 60 months, maturing April 1, 1999.
This note is collateralized by all assets of
the Company. $ 15,010 $ 52,260
Note payable to a bank bearing interest at 11.85%,
principal and interest payable in monthly
installments of $303 for 60 months, maturing
December 1, 2002. This note is collateralized
by a vehicle. 11,368 13,282
Notes payable to an individual, with simple interest
at 8%. Principal and accrued interest are due
on demand. The Company is negotiating the
extension of the maturity date. Amount includes
accrued interest of $9,576 and $7,878 at
November 30, 1998 and 1997, respectively. 30,804 29,106
-------- --------
Total long term debt 57,182 94,648
Less: Current portion 48,203 68,581
-------- --------
Long term debt $ 8,979 $ 26,067
-------- --------
-------- --------
Aggregate maturities of long term debt at November 30 are as follows:
Year Ended Amount
---------- --------
1999 $ 48,203
2000 2,694
2001 3,038
2002 3,247
--------
$ 57,182
--------
--------
</TABLE>
F-15
<PAGE>
WESTBRIDGE RESEARCH GROUP
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998 and 1997
NOTE 8 - NOTES PAYABLE TO RELATED PARTIES
At November 30, notes payable to related parties were as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Notes payable to various related parties with simple
interest at 8% collateralized by a subordinated
security interest in substantially all assets of the
Company. Principal and accrued interest originally
due at maturity in June 1995. During January 1999
the maturity of these obligations was extended to
September 1, 2000 (see note 14). Amounts include
accrued interest of $46,281 and $38,036 at
November 30, 1998 and 1997, respectively. $ 149,366 $ 141,121
Note payable to related party with simple interest
compounded annually at prime plus 1% which
at November 30, 1998 and 1997 was 9% and 9.5%
respectively. Collateralized by a subordinated
security interest in substantially all assets of the
Company. Principal and accrued interest originally due
at maturity in June 1995. The note is due on demand.
The Company is negotiating the extension of the
maturity date. Amounts include accrued interest of
$54,834 and $45,793 at November 30, 1998 and
1997, respectively. 104,834 95,793
--------- ---------
Total notes payable to related parties 254,200 236,914
Less: Current portion 104,834 236,914
--------- ---------
Notes payable to related parties, long-term $ 149,366 $ -
--------- ---------
--------- ---------
</TABLE>
F-16
<PAGE>
WESTBRIDGE RESEARCH GROUP
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998 and 1997
NOTE 9 - CAPITAL LEASE OBLIGATIONS
At November 30, 1998, future minimum lease payments under capitalized
lease obligations were as follows:
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- --------
<S> <C>
1999 $ 9,398
2000 9,398
2001 8,485
2002 2,940
--------
Total minimum lease payments 30,221
Less: Amount representing interest (7,691)
--------
Present value of net minimum lease payments 22,530
Less: Current portion (5,844)
--------
Long-term portion $ 16,686
--------
--------
</TABLE>
NOTE 10 - COMMON STOCK
On July 17, 1997 the shareholders of the Company voted to execute a
one-for-four reverse stock split. The reverse stock split was effective
for shareholders of record on February 6, 1998. Common share and per
share amounts in the accompanying financial statements have been
restated to give effect for the reverse stock split as if it occurred on
December 1, 1996.
NOTE 11 - STOCK OPTIONS AND WARRANTS
During fiscal 1983 the Company established an employee incentive stock
option plan ("the 1983 Plan") under which options to purchase an aggregate
of 100,000 common shares may be granted to key employees of the Company.
Stock options granted under the plan expire at the earlier of ten years
from the date of grant or termination of employment. During 1994, the 1983
Plan was terminated and, accordingly, no further stock options can be
granted under this plan. Stock options for the purchase of 8,500 shares at
an exercise price of $6.00 per share remain outstanding and exercisable at
November 30, 1998. These stock options expire if not exercised on or
before November 5, 2000.
During fiscal 1994 the Company established an employee incentive stock
option plan ("the 1994 Plan") under which options to purchase an aggregate
of 100,000 shares of the Company's common stock may be granted to key
employees and officers of the Company. Under the 1994 Plan, stock options
may be granted at an exercise price greater than or equal to the market
value at the date of the grant. Options vest 40% upon grant and 12% each
grant date anniversary until fully vested and expire at the earlier of ten
years from that date of grant or 90 days after termination of employment.
At November 30, 1998, a total of 18,750 shares remain reserved and
available for future stock option grants under the 1994 Plan.
F-17
<PAGE>
WESTBRIDGE RESEARCH GROUP
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998 and 1997
NOTE 11 - STOCK OPTIONS AND WARRANTS (Continued)
A summary of the stock option activity under the 1983 and 1994 Plans is as
follows:
<TABLE>
<CAPTION>
Weighted
Exercise Average
Stock Price Per Price Per
Options Share Share
------- --------- -------
<S> <C> <C> <C>
Outstanding at November 30, 1996 51,750 $.50-6.00 $ 2.94
Granted 50,000 .50 .50
Expired or canceled 17,750 .50-6.00 3.68
Exercised - - -
------- --------- -------
Outstanding at November 30, 1997 84,000 .50-6.00 1.33
Granted 10,000 1.00 1.00
Expired or canceled 4,250 6.00 6.00
Exercised - - -
------- --------- -------
Outstanding at November 30, 1998 89,750 $.50-6.00 $ 1.08
------- --------- -------
------- --------- -------
Vested stock options at November 30, 1998 57,200
-------
-------
</TABLE>
During fiscal 1995 the Company granted non-qualified stock options to
acquire 50,000 shares at $.50 per share to its President. The options
immediately vest upon grant and expire in September 2000. All of these
options remain outstanding and exercisable at November 30, 1998.
During fiscal 1997 the Company granted non-qualified stock options to
acquire 20,000 shares at $.50 per share to members of the Board of
Directors. The options immediately vest upon grant and expire in December
2001. All of these options remain outstanding and exercisable at November
30, 1998.
During fiscal 1998 the Company granted non-qualified stock options to
acquire 13,750 shares at $1.00 per share to members of the Board of
Directors. The options immediately vest upon grant and expire in December
2002. All of these options remain outstanding and exercisable at November
30, 1998.
During fiscal 1996 and 1997 the Company granted non-qualified stock options
to acquire a total of 40,000 shares at $.50 per share, the then fair value
of the shares, to a consultant. The options immediately vest upon grant
and are outstanding and exercisable at November 30, 1998. A summary of
these stock options is as follows:
F-18
<PAGE>
WESTBRIDGE RESEARCH GROUP
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998 and 1997
NOTE 11 - STOCK OPTIONS AND WARRANTS (Continued)
<TABLE>
<CAPTION>
Stock Exercise Price Expiration
Options Per Share Date
------- -------------- ------------------
<S> <C> <C>
8,000 $ .50 March 31, 2001
8,000 .50 June 30, 2001
8,000 .50 September 30, 2001
8,000 .50 December 31, 2001
8,000 .50 March 31, 2002
</TABLE>
At November 30, 1998 the Company has warrants outstanding to purchase
shares of its stock as follows:
<TABLE>
<CAPTION>
Number of Exercise Price Expiration
Shares per Share Date
--------- -------------- ----------
<S> <C> <C>
45,000 $ .40 January 2001
37,500 6.00 April 1999
</TABLE>
At November 30, 1998 all of the warrants are fully vested and exercisable.
The Company has elected to account for nonqualified grants and grants under
its 1994 Plan following APB No. 25 and related interpretations.
Accordingly, no compensation costs have been recognized for nonqualified
options for the years ended November 30, 1998 and 1997. Under SFAS 123, the
fair value of each option granted during the years ended November 30, 1998
and 1997 was estimated on the measurement date utilizing the then current
fair value of the underlying shares less the exercise price discounted over
the average expected life of the options of five to ten years, with an
average risk free interest rate of 5.07% to 5.12%, price volatility of .5
and no dividends. Had compensation cost for all awards been determined
based on the fair value method as prescribed by SFAS 123, reported net
income and earnings per common share would have been as follows:
<TABLE>
<CAPTION>
November 30, November 30,
1998 1997
------------ ------------
<S> <C> <C>
Net income:
As reported $ 53,595 $ 94,796
Proforma $ 35,096 $ 63,754
Basic and diluted earnings per share:
Basic--as reported $ .03 $ .05
Basic--Proforma $ .02 $ .03
Diluted--as reported $ .02 $ .05
Diluted--Proforma $ .02 $ .03
</TABLE>
F-19
<PAGE>
WESTBRIDGE RESEARCH GROUP
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998 and 1997
NOTE 12 - COMMITMENTS
The Company leases its facilities under a non-cancelable operating lease
that expires March 31, 1999. The lease agreement contains a two year
renewal option and it is management's intention to exercise this option.
Rent is being expensed on a straight line basis over the term of the lease.
Minimum future obligations for non-cancelable operating leases as of
November 30, 1998 are as follows:
1999 $ 25,800
--------
--------
Rent expense for the years ended November 30, 1998 and 1997, net of
sub-lease income, was $77,020 and $74,800, respectively.
NOTE 13 - INCOME TAXES
Deferred income taxes reflect the net tax effects of the temporary
differences between the carrying amounts of assets and liabilities for
financial reporting and the amounts used for income tax purposes. The tax
effect of temporary differences consisted of the following as of November
30:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards $ 1,695,000 $ 1,760,000
Tax credit carryforwards 72,000 72,000
Other 10,000 10,000
----------- -----------
Gross deferred tax assets 1,777,000 1,842,000
Less valuation allowance (1,777,000) (1,842,000)
----------- -----------
Net deferred tax assets $ - $ -
----------- -----------
----------- -----------
</TABLE>
Realization of deferred tax assets is dependant upon sufficient future
taxable income during the period that deductible temporary differences and
carryforwards are expected to be available to reduce taxable income. A
valuation allowance is recorded when, in the opinion of management, it is
more likely than not that some portion or all of the deferred tax assets
will not be realized. As the achievement of required future taxable income
is uncertain, the Company recorded a valuation allowance. The valuation
allowance decreased by $65,000 from 1997.
At November 30, 1998, the Company has a federal income tax net operating
loss carryforward of approximately $4,446,000 and a California tax net
operating loss carryforward of approximately $1,941,000. The net operating
loss carryforwards expire through the year 2011.
F-20
<PAGE>
WESTBRIDGE RESEARCH GROUP
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998 and 1997
NOTE 13 - INCOME TAXES (Continued)
At November 30, 1998, the Company has investment and research and
development tax credit carryforwards of approximately $72,000 for federal
income tax and financial reporting purposes. These credits expire through
the year 2000. The Company accounts for its tax credits under the flow
through method.
Pursuant to the Tax Reform Act of 1986, use of the Company's net operating
loss carryforwards may be limited if a cumulative change in ownership of
more than 50% occurs within any three year period. Management has not
completed an analysis in order to determine whether a cumulative change in
ownership of more than 50% has occurred within any three year period.
A reconciliation of the effective tax rates with the federal statutory rate
is as follows as of November 30:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Income tax benefit at 35% statutory rate $ 19,000 $ 34,000
Change in valuation allowance (65,000) (50,600)
Nondeductible expenses 30,000 30,000
Other 25,600 -
State income taxes, net (8,000) (11,000)
-------- --------
$ 1,600 $ 2,400
-------- --------
-------- --------
</TABLE>
NOTE 14 - SUBSEQUENT EVENT
On January 20, 1999 the Company extended the payment date of certain notes
payables with related parties to September 1, 2000. Accordingly, the notes
have been classified as long term obligations at November 30,1998.
NOTE 15 - RECLASSIFICATION
Certain amounts in the 1997 statement of cash flows have been reclassified
in order to conform to the current year presentation.
F-21
<PAGE>
CONSENT OF
INDEPENDENT PUBLIC ACCOUNTANT
We consent to the use in the Form 10-KSB of Westbridge Research Group and
Subsidiary of our report dated January 29, 1999 relating to the consolidated
financial statements of Westbridge Research Group and Subsidiary, appearing
in the Form 10-KSB of Westbridge Research Group and Subsidiary.
San Diego, California PANNELL KERR FORSTER
March 11, 1998 Certified Public Accountants
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> NOV-30-1998
<CASH> 249,729
<SECURITIES> 0
<RECEIVABLES> 296,312
<ALLOWANCES> 206
<INVENTORY> 101,952
<CURRENT-ASSETS> 663,644
<PP&E> 442,768
<DEPRECIATION> 370,515
<TOTAL-ASSETS> 1,067,284
<CURRENT-LIABILITIES> 294,078
<BONDS> 175,031
0
0
<COMMON> 8,479,854
<OTHER-SE> 95,000
<TOTAL-LIABILITY-AND-EQUITY> 1,067,284
<SALES> 1,607,647
<TOTAL-REVENUES> 1,607,647
<CGS> 603,459
<TOTAL-COSTS> 1,538,350
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,671
<INCOME-PRETAX> 55,195
<INCOME-TAX> 1,600
<INCOME-CONTINUING> 53,595
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53,595
<EPS-PRIMARY> .03
<EPS-DILUTED> .02
</TABLE>
