-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LV7Qq8fIV+lXr2dPO2ln2ejDaYF43Cu+GxSvGFQSTgAOkhU2G393r7jkSppPsZLB +/iId3cibhW1LBdZjAgprA== 0001019687-97-000079.txt : 19970820 0001019687-97-000079.hdr.sgml : 19970820 ACCESSION NUMBER: 0001019687-97-000079 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970819 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPECTRUM LABORATORIES INC /CA CENTRAL INDEX KEY: 0000319013 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 953557539 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-09478 FILM NUMBER: 97666382 BUSINESS ADDRESS: STREET 1: 23022 LA CADENA DR CITY: LAGUANA HILLS STATE: CA ZIP: 92653 BUSINESS PHONE: 7145813880 MAIL ADDRESS: STREET 1: 23022 LA CADENA DRIVE CITY: LAGUNA HILLS STATE: CA ZIP: 92653-1362 FORMER COMPANY: FORMER CONFORMED NAME: IMMUTRON INC DATE OF NAME CHANGE: 19830109 10QSB 1 FOR THE QTR ENDED JUN-30-1997 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, 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 Issuer's 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 August 15,1997: 12,834,394 Spectrum Laboratories, Inc. Page ---- Part I - FINANCIAL INFORMATION Item 1. Financial Statements 3 Consolidated Balance Sheet as of June 30, 1997 3 Consolidated Statements of Income for the Three and Six Months Ended June 30, 1997 and June 30, 1996 4 Consolidated Statements of Cash Flows for the Six Months ended June 30, 1997 and June 30, 1996 5 Notes to Consolidated Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition 7 Part II - OTHER INFORMATION Item 1. Legal Proceedings 9 Item 2. Changes in Securities 9 Item 3. Defaults Upon Senior Securities 9 Item 4. Submission of Matters to a Vote of Security Holders 9 Item 5. Other Information 9 Item 6. Exhibits and Reports on Form 8-K 9 Signature 10 2 Spectrum Laboratories, Inc. Consolidated Balance Sheet As of June 30, 1997 (Dollars in thousands, except par value) (Unaudited) 30-Jun-97 ----------- (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 790 Accounts receivable 1,538 Due from affiliates 1,180 Inventories 1,234 Prepaid expenses and other current assets 80 ----------- Total currents assets 4,822 Property and equipment, net 943 Deferred income taxes 377 Goodwill 2,982 Other assets 155 ----------- TOTAL ASSETS $ 9,279 =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 565 Accrued liabilities 803 Current portion of long-term debt 842 Due to affiliates 206 Income taxes payable 94 ----------- Total current liabilities 2,510 LONG-TERM LIABILITIES Long-term debt 2,748 Long-term debt, affiliates 553 ----------- Total liabilities 5,811 MINORITY INTEREST 2,057 SHAREHOLDERS' EQUITY Common stock, par value $.01: 25,000,000 shares authorized, 12,834,394 issued and outstanding 128 Additional paid in capital 5,238 Retained earnings, accumulated deficit (3,910) Unrealized loss on foreign currency translation (45) ----------- TOTAL SHAREHOLDERS' EQUITY 1,411 ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 9,279 =========== 3 Spectrum Laboratories, Inc. Consolidated Statements of Income (In thousands, except for per share amounts) (Unaudited)
Three Months Six Months Ended June 30, Ended June 30, -------------------------- -------------------------- 1997 1996 1997 1996 ---------- ---------- ---------- ---------- NET SALES $ 2,306 $ 2,279 $ 4,356 $ 4,461 COSTS AND EXPENSES Cost of sales 1,330 1,380 2,487 2,633 Selling 364 340 728 697 General and administrative 231 259 744 560 Research and development 195 88 326 180 Other expense, primarily interest 92 81 193 159 ---------- ---------- ---------- ---------- TOTAL COSTS AND EXPENSES 2,212 2,148 4,478 4,229 ---------- ---------- ---------- ---------- GAIN (LOSS) ON SALE OF PRODUCT LINE (39) 768 ---------- ---------- ---------- ---------- INCOME BEFORE MINORITY INTEREST IN INCOME OF SUBSIDIARY AND PROVISION FOR INCOME TAXES 55 131 646 232 MINORITY INTEREST IN INCOME OF SUBSIDIARY 10 9 10 20 ---------- ---------- ---------- ---------- INCOME BEFORE PROVISION FOR INCOME TAXES 45 122 636 212 PROVISION FOR INCOME TAXES 12 53 27 100 ---------- ---------- ---------- ---------- NET INCOME $ 33 $ 69 $ 609 $ 112 ========== ========== ========== ========== BASIC NET INCOME PER COMMON SHARE $ - $ .01 $ .05 $ .01 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 12,834 12,834 12,834 12,834 4
Spectrum Laboratories, Inc. Consolidated Statements of Cash Flows (In thousands) (Unaudited) Six Months Ended June 30, ------------------------------- 1997 1996 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 609 $ 112 Adjustments to reconcile net income to net cash used for operating activities: Depreciation and amortization 261 196 Minority interest in income of subsidiary 10 Deferred income taxes (2) Gain on sale of product line (768) Change in assets and liabilities: Increase in trade receivables, net (355) (234) Increase in due from affiliates (848) Decrease in inventories, net 52 151 (Increase) decrease in prepaid expenses and other current assets 25 (1) (Increase) decrease in other assets 10 (9) Increase (decrease) in accounts payable and accrued and other liabilities (200) 117 Increase in income taxes payable 23 39 Decrease in due to affiliates (59) (559) Other (8) ------------- ------------- Net cash used for operating activities (1,248) (190) ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of product line 969 Acquisitions of property and equipment (18) (88) Decrease in investments 44 ------------- ------------- Net cash provided by (used for) investing activities 951 (44) ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt (3,105) Proceeds relating to advances from affiliates and issuances of long-term debt 3,600 1,046 ------------- ------------- Net cash provided by financing activities 495 1,046 ------------- ------------- - - NET INCREASE IN CASH AND CASH EQUIVALENTS 198 812 CASH AND CASH EQUIVALENTS, beginning of year 592 83 ------------- ------------- CASH AND CASH EQUIVALENTS, end of year $ 790 $ 895 ============= ============= 5 NOTES TO CONSOLIDATED STATEMENTS Note 1 - Basis of Presentation The accompanying unaudited 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 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 of the Company as of June 30, 1997 and the results of their operations and their cash flows for the three and six months ended June 30, 1997 and 1996. Certain information and footnote disclosures normally included in the financial statements have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission, although the Company believes that the disclosures in the unaudited interim financial statements are adequate to make the information presented not misleading. Note 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: Raw materials $ 665,126 Work in progress 46,901 Finished goods 711,963 ------------- $ 1,423,990 Reserve for obsolescence (190,087) ------------- $ 1,233,903 ============= Note 3 - Earnings per Share In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). The Company is required to adopt SFAS 128 in the second quarter of 1997 and accordingly, the Company has applied this standard when computing earnings per share. SFAS 128 replaces current EPS reporting requirements and requires a dual presentation of basic and diluted EPS. Basic EPS excludes dilution and is computed by dividing net income, available to common shareholders, by the weighted average of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. The increase in weighted average shares outstanding that would result from the assumed exercise of stock options, using the treasury stock method, would not change the earnings per share amounts presented for any period. Note 4 - Income Taxes In the first six months of 1997, the Company provided $27,000 for income taxes. This tax provision primarily relates to federal alternative minimum tax and state taxes. As of December 31, 1996, the Company had net operating loss carryforwards for federal income tax purposes of $9,693,261 ($8,100,000 available to offset income of Microgon only), which expire at various dates from 1998 through 2009. The utilization of Microgon's $8,100,000 federal net operating loss is limited to approximately $230,000 of Microgon income annually. Any unused net operating loss is carried forward. As a result of the limitation, it is possible that more than $5,000,000 of the Microgon loss may expire without utilization. The Company has an approximate $3,500,000 state net operating loss carryforward, which expires at various dates beginning in 1998. 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion relates to the Company, its wholly owned subsidiaries, SLI Acquisition Corporation ("SLI AC"), Hydro-Med Products ("Hydro-Med") and Microgon, Inc. ("Microgon") and its partially owned subsidiary, Spectrum Europe B.V. During 1995, the Company acquired Microgon, Inc. under a transaction accounted for as a step acquisition. During 1996, SLI AC acquired the assets and liabilities of Cellco Inc. under a transaction accounted for as a purchase. The Company has consolidated the financial position and operations of Spectrum B.V. for all periods presented. The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained elsewhere within this Report on Form 10-QSB. Except for the historical information contained herein, the following discussion may contain forward-looking statements that involve risks and uncertainties. The actual future results of the Company could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this report and those factors discussed in the Company's Form 10-KSB for the year ended December 31, 1996. Results of Operations Net sales for the three months ended June 30, 1997 of $2,306,000 were relatively flat compared to net sales of $2,279,000 for the three months ended June 30, 1996. The Company incurred decreases in net sales from Spectrum B.V. and its medical disposable product line due to the sale of its microbiological sampling and transport products business on March 31, 1997, offset by net sales from its cell culture product line. Net sales for the six months ended June 30, 1997 of $4,356,000, a decrease of 2%, compared to net sales of $4,461,000 reported for the six months ended June 30, 1996. The decrease in net sales can be attributed to decreases in net sales from Spectrum B.V. and the Company's medical disposable product line due to the sale of its microbiological sampling and transport products business. The decrease in net sales is offset by net sales from its cell culture product line. Management expects net sales to decrease slightly over the next six months due to the divestiture of its microbiological sampling and transport products business. Management does not expect net sales from its cell culture product line to offset the loss of net sales from its microbiological sampling and transport products business. Gross margin as a percentage of net sales for the three months ended June 30, 1997 was 42.3% compared to 39.4% for the three months ended June 30, 1996. Gross margin as a percentage of net sales for the six months ended June 30, 1997 was 42.9% compared to 41% for the six months ended June 30, 1996. The increase in gross margin can be attributable to an improved product mix mainly due to net sales related to the cell culture product line that has higher gross margins than the medical disposable product line. Selling and marketing expenses were 15.8% of net sales for the three months ended June 30, 1997 compared to 14.9% of net sales for the three months ended June 30, 1996. For the six months ended June 30, 1997, selling and marketing expenses were 16.7% of net sales compared to 15.6% of net sales for the six months ended June 30, 1996. The increase in selling and marketing expenses can be attributable to the acquisition of Cellco. General and administrative was 10% of net sales for the three months ended June 30, 1997 compared to 11.4% of net sales for the three months ended June 30, 1996. The decrease was due to better expense controls by the Company. General and administrative was 17.1% of net sales for the six months ended June 30, 1997, compared to 12.6% of net sales for the six months ended June 30, 1996. The increase can be attributable to the acquisition of Cellco and the retaining of certain essential personnel from that acquisition. 7 Research and development expenses increased 122% to 8.5% of net sales for the three months ended June 30, 1997 from 3.9% for the three months ended June 30, 1996. For the six months ended June 30, 1997, research and development expenses increased 81% to 7.5% of net sales compared to 4% reported for the six months ended June 30, 1996. The increase in research and development expenses for the three and six months, can be attributable to product development costs related to the Company's cell culture product line and the retention of certain essential research personnel from the Cellco acquisition. Other expense, mainly interest, increased 14% to 4.0% of net sales for the three months ended June 30, 1997 compared to 3.6% of net sales for the three months ended June 30, 1996. For the six months ended June 30, 1997, other expense, mainly interest, increased 22% to 4.4% on net sales compared to 3.6% of net sales for the six months ended June 30, 1996. The increase for the three and six months in other expense can be attributable to interest expense related to a higher bank loan, mainly, the $3,600,000 term loan with City National Bank. On March 31, 1997, the Company sold its microbiological sampling and transport business for approximately $969,000 resulting in a gain of $768,000. Proceeds from the sale were received on April 11, 1997. Factors That May Affect Future Results The Company's future operating results may be adversely affected by a number of factors, including general economic conditions, dependence on constant development of new products and technologies, the rapid technological change in the biomedical field, dependence on major customers, dependence on relationships with third parties concerning research activities, the ability to protect its patents and proprietary information, and regulation by United States governmental authorities. The laboratory life science markets in which the Company competes are highly competitive. The Company has a significant number of competitors, some of which are larger and have greater financial and other resources than the Company. The Company competes with many domestic and international companies in its global markets. There can be no assurance that the Company's products will continue to compete successfully with the products of its competitors. The principal methods of competition in the markets in which the Company competes are product specifications, performance, quality, knowledge, reputation, technology, distribution capabilities, service and price. Liquidity and Capital Resources During the first six months of 1997, cash was generated by a net increase in borrowings of $495,000 and $969,000 from the sale of a product line. These increases in cash were essentially offset by cash used for operating activities of $1,248,000 which was primarily attributable to increases in trade receivables and receivables from an affiliate, Spectrum Medical Industries, Inc. On June 30, 1997, the Company had cash and cash equivalents of $790,000 and a current ratio of 1.9. The Company has no material capital commitment except for monthly term loan payments of $87,000 including approximately $27,000 of interest to City National Bank and approximately $100,000 committed to the production and mailing of product line catalogs. Total amount owed to City National Bank at June 30, 1997 is $3,420,000. The Company has no other sources of financing. Management expects that cash generated from operations will be sufficient to fund operations for the next six months provided there is no material change to revenues or expenses. 8 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, 1997 (b) Reports on Form 8-K The Company filed no reports on Form 8-K during the quarter ended June 30, 1997 9 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/ Michael S. Shimada - ------------------------- Signature Michael S. Shimada Chief Financial Officer /s/ F. Jesus Martinez - ----------------------- Signature F. Jesus Martinez President 10 EX-27 2 FINANCIAL DATA SCHEDULE
5 1000 6-MOS DEC-31-1997 JUN-30-1997 790 0 1631 93 1234 4822 4311 3368 9279 2510 0 0 0 128 1283 9279 4356 4356 2487 4478 0 0 207 636 27 609 0 0 0 609 .05 .05
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