Attached files
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Amendment No. 2)
(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, 2008
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
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(Name of Small Business Issuer in its Charter)
California 95-3769474
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1260 Avenida Chelsea, Vista, California 92081
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(Address of principal executive office and zip code)
(760) 599-8855
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(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 is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act [ ]
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 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]
Indicate by check mark whether registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
State issuer's revenues for its most recent fiscal year: $3,998,293.
The aggregate market value of the voting and non-voting equity held by
nonaffiliates of the registrant as of February 28, 2009, (computed by reference
to the price at which the Common Stock was most recently sold) was approximately
$1,934,773. THE SHARES OF THE COMPANY STOCK HAVE NEVER BEEN ACTIVELY TRADED.
This computation excludes a total of 3,375 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.
1
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 28, 2009, 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]
EXPLANATORY NOTE: THIS AMENDMENT NO. 2 IS FILED IN RESPONSE TO COMMENTS FROM THE
U.S. SECURITIES AND EXCHANGE COMMISSION TO THE COMPANY'S AMENDMENT NO. 1 TO THE
FORM 10-KSB ORIGINALLY FILED FOR THE PERIOD ENDING NOVEMBER 30, 2008. THOSE
COMMENTS CONCERNED THE COMPANY'S CONTROLS AND PROCEDURES (ITEM 8A), MANAGEMENT'S
ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING, THE INCLUSION OF A
FULL SET OF THE FINANCIAL STATEMENTS, INCLUDING THE RESTATED STATEMENT OF CASH
FLOWS, AND THE REVISION OF THE CERTIFICATION BY THE PRINCIPLE EXECUTIVE AND
FINANCIAL OFFICER (SECTION 302 CERTIFICATION). THE FORM 10-KSB IS NOT LONGER
AVAILABLE FOR USE AND REPORTING COMPANIES WHO PREVIOUSLY WERE ELIGIBLE TO USE
FORM 10-KSB MUST NOW USE FORM 10-K, WHICH ACCOUNTS FOR CHANGES IN SOME OF THE
REFERENCES IN THIS FORM.
2
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
----------------------------------------------------
Certain statements contained in this report that are not historical
facts are forward-looking statements (within the meaning of Section 21E of the
Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933)
that are subject to certain risks and uncertainties that could cause actual
results to differ materially from those set forth in the forward-looking
statements. When we use the words "anticipates", "plans", "expects", "believes",
"should", "could", "may", and similar expressions, we are identifying
forward-looking statements. These risks and uncertainties include, but are not
limited to, a slow-down in the domestic or international markets for the
Company's products; greater competition for customers from businesses who are
larger and better capitalized; local, state, federal or international regulatory
changes which adversely impact the Company's ability to manufacture or sell its
products, particularly its organic products; the reliance of the Company on
limited sources of raw materials; an increase in the Company's costs of raw
materials.
Except as may be required by applicable law, we do not undertake or
intend to update or revise our forward-looking statements, and we assume no
obligation to update any forward looking statements contained in this Annual
Report on Form 10-K/A as a result of new information or future events or
developments. You should not assume that our silence over time means that actual
events are bearing out as expressed or implied in such forward looking
statements. You should carefully review and consider the various disclosures we
make in this report and our other reports filed with the Securities and Exchange
Commission that attempt to advise interested parties of the risks, uncertainties
and other factors that may affect our business.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
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Westbridge Research Group was incorporated in California in 1982. From
inception, Westbridge Research Group and its wholly-owned subsidiary, Westbridge
Agricultural Products (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 industrial bioremediation.
During the past several years, the Company has placed an emphasis on the sale of
agricultural inputs that meet the organic requirements as defined under the USDA
National Organic Program.
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.
3
CONVENTIONAL PRODUCT LINE
The Company's conventional products are marketed under the trademarked
brandnames TRIGGRR(R) and SunBurst(R) .
Two of the Company's important products are Soil TRIGGRR(R) and Foliar
TRIGGRR(R). These formulations are registered with the United States
Environmental Protection Agency (EPA) as plant growth regulators. The active
components of these two formulas are "cytokinins" that affect rates of cell
division and growth.
o Soil TRIGGRR(R), 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.
o Foliar TRIGGRR(R), 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.
Soil TRIGGRR(R) and Foliar TRIGGRR(R) 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 in many crops produce yield increases sufficient to
provide substantial increases in profits to the user.
SunBurst specialty fertilizers are micronutrient blends containing
primary and complex secondary nutrients, as well as additional natural humates
and natural substances with growth promoting activity.
The Company also manufactures and markets a nematode suppressant called
SUPPRESS(R). SUPPRESS(R) does not kill the parasitic nematode directly; instead
it interferes with the ability of the nematode to penetrate the plant roots.
SUPPRESS(R) is composed of nontoxic naturally occurring plant growth regulators
that activate the plants natural defenses.
ORGANIC PRODUCT LINE
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The Company's organic products are marketed under the trademarked
brandnames TRIGGRR(R) and BioLink(R). The product line includes NPK blends that
can be used on most plants including fruits and vegetables, trees, vines,
shrubs, flowering ornamentals and containerized plants. These NPK blends are
designed to correct nitrogen, phosphorus, and potassium deficiencies through
drip irrigation, but in some cases can also be used as foliar applications.
Other products in the organic product line include a liquid
garlic-based insect repellant for use on most plants and non-ionic type
spreaders, adjuvants, which provide quick wetting, more uniform distribution,
and increase retention of pesticide sprays by reducing surface tension of the
spray droplets. These products meet current United States Department of
Agriculture National Organic Program (USDA NOP) guidelines for organic food and
fiber production.
4
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. 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. TRIGGRR Cellulose
Digester is designed to accelerate breakdown of stubble in low- or no-till
farming operations.
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 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 fiscal years 2008 and 2007,
respectively, were $257,304 and $220,386.
GOVERNMENT REGULATIONS
----------------------
The Company's activities are subject to regulation under various
federal 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 often 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(R) and Foliar TRIGGRR(R) 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.
The Company has its organic products reviewed and approved for use on
organically grown crops by either state certifiers accredited under the USDA
National Organic Program (NOP), or by the Organic Materials Review Institute
(OMRI).
The National Organic Program (NOP) under the direction of the
Agricultural Marketing Service (AMS), is an arm of the United States Department
of Agriculture (USDA). This national program facilitates domestic and
international marketing of fresh and processed food that is organically produced
and assures consumers that such products meet consistent, uniform standards.
5
The Organic Materials Review Institute (OMRI) is a national nonprofit
organization that determines which input products are allowed for use in organic
production and processing. OMRI Listed--or approved--products may be used on
operations that are certified organic under the USDA National Organic Program.
The NOP has recently announced a set of regulations effective in
October 2009 meant to more strictly control those manufacturers of organic farm
inputs which also produce conventional farm inputs. The new rules will require
dual manufacturers, like the Company, to have a USDA NOP accredited third-party
expert certify that (i) there is no fraud in the formulation of the organic
fertilizer, (ii) the manufacturer has the appropriate infrastructure to produce
the organic farm inputs, (iii) a successful audit was conducted comparing
incoming materials with outgoing finished product, and (iv) no synthetic
equipment, tanks or supplies were within 100 yards of the facility that produces
organic inputs. The Company supports the implementation of these regulations,
except as to the last requirement mandating a 100 yard separation between the
organic and conventional materials. The Company will incur substantial expenses
in complying with this distance standard and has registered its strong
opposition to that new regulation. The Company's position is that the new
distance rule is arbitrary and without scientific significance, and that
malfeasers wishing to violate the NOP regulation will do so regardless of
whether the synthetic material is 101 yards or 101 miles away In the Company's
view, the only certainty that organic products will be correctly produced is
through adoption by each manufacturer of strict standard operating procedures
and inspection by third-parties to assure compliance. The Company is working
with government officials and industry groups to determine if the 100 yard rule
can be reversed or allow for exemptions.
MARKETING
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The Company uses a key regional and national distributors and dealers
for reaching the 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 has three
large customers whose combined purchases amounted to 34% of the Company's
agricultural product sales in 2008. Sales to these customers amounted to 19% in
2007.
MANUFACTURING
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All of the Company's proprietary formulations and finished products are
manufactured at its Vista, California facility.
LICENSES
--------
The Company had 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-KSB 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 were due the
Partnership. Accordingly, the forgiven note balance was recorded as prepaid
royalties and was initially amortized on a straight-line basis over the term of
the amended licensing agreement.
6
Under the amended licensing agreement, the Company was 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.
Effective December 1, 1998 the Company and the Partnership agreed to remove the
Company as a limited partner of the Partnership in exchange for a reduced
royalty payment of 2% and a change in the buyout provision. Effective April 1,
2002, the Company exercised its buyout option under the provisions of the
Development Agreement and the Licensing Agreement for a payment of $64,000. The
execution of this buyout option terminates and completes all obligations and
rights between the two parties. The Company has capitalized this amount along
with its remaining unamortized prepaid royalties as intangible assets not
subject to amortization under the guidance of Statement of Financial Accounting
Standards No. 142 "Goodwill and Other Intangible Assets."
SEASONALITY
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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 typically produces sales in January, February and March of each
year.
COMPETITION
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The Company's agricultural products compete with chemical products 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
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At November 30, 2008, the Company had 17 employees, 13 full-time, 4
part time. None of these employees are covered by a collective bargaining
agreement. The Company believes that its employee relations are satisfactory.
RISK FACTORS
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Investing in our common stock involves a high degree of risk. Any
potential investor should carefully consider the risks and uncertainties
described below before purchasing any shares of our common stock The risks
described below are those we currently believe may materially affect us. If any
of them occur, our business, financial condition, operating results or cash flow
could be materially harmed.
7
RISKS RELATED TO OUR BUSINESS.
------------------------------
WE ARE IN A HEAVILY REGULATED INDUSTRY.
---------------------------------------
The production of pesticides is regulated by the U.S. Environmental
Protection Agency and by state governments. Those regulations require the
registration of many of our products. Should the registration of one or more of
our products be lost because of a change in the laws or for any other reason, it
will have an adverse effect on the Company and its profitability. That
consequence could be minor to severe depending on the product. Similarly, the
Company could be required to make changes to its product formulations to comply
with any newly enacted regulations, which changes could be costly both in terms
of raw material changes but also changes in the manufacturing process.
The production of organic fertilizers is regulated by the federal
government and often by state governments. California is particularly becoming
involved in the regulation of organic fertilizers. As discussed earlier, new
USDA's NOP regulations have been promulgated, one of which would cause a
significant burden to the Company. Even if the distance requirement is removed
from the new regulations, the Company believes that the organics industry as a
whole will come under increasing scrutiny and growing regulation. New
regulations and changes to existing regulations may have a number of adverse
consequences to the Company and its profitability. The Company may find its cost
of goods or manufacturing processes more expensive. Or, the Company may
determine that under some circumstances it is unable to produce its organic
fertilizers because of restrictive measures taken by the government or industry
groups.
THE COMPANY'S SALES ARE IMPACTED BY WEATHER CONDITIONS AND THE AVAILABILITY OF
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WATER.
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The Company sells most of its products though distributors and dealers
both nationally and internationally. A large number of end-users are located in
the Pacific Northwest of the United States and California. The Pacific Northwest
is a prime growing region in the United States for many of the crops that
benefit from the Company's products. However, that region is well-known for
unpredictability in its weather. In 2008, the Pacific Northwest experienced
severe winter weather that postponed and shortened the growing season. As a
result, the Company's sales of products into that region were less than
historically typical. The unpredictability of weather makes it difficult for the
Company to forecast sales with any significant degree of certainty.
California is currently experiencing a three year drought. The state
government has indicated that it will limit water availability to growers in
certain parts of California. Additionally, water restrictions may occur as a
result of a court decision on endanger species, the Delta smelt. If water
distribution is curtailed for these or any other reasons, the Company
anticipates its sales in California will decrease, perhaps substantially. At
this time, it is anticipated that some restrictions on water availability to
California farmers and growers is likely, but the full extent of this
restriction is not known.
8
THE COMPANY MAY NOT BE ABLE TO OBTAIN ALL RAW MATERIALS NECESSARY FOR ITS
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PRODUCTS.
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The Company is reliant on suppliers of raw materials in order to
manufacturer its products. Those raw materials are bought from both domestic and
international suppliers. In 2007 and early 2008 there was significant
competition for those materials making availability uncertain. Additionally,
with greater competition the price of some raw materials were increasing rapidly
and not all of that additional expense could be passed onto customers. While in
late 2008 and 2009, the world economy has weakened and the demand for raw
materials has lessened, the Company believes it is likely that in the near
future, as the world's economy recovers, raw materials will once again become
more difficult to obtain and more expensive. Related to this, the value of the
United States dollar decreased in 2008 vis-a-vis most currencies. This made the
cost of foreign raw materials more expensive than in previous periods. Such
currency fluctuations may occur again in the future.
WE MAY NOT BE SUCCESSFUL IN ACQUIRING OR DEVELOPING NEW PRODUCTS.
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The Company is attempting to expand its product offerings through
licensing and by developing products in-house. There is no assurance that these
attempts will be successful. Licensing of products requires identification of
new products or determination of new applications for existing products and a
willingness on the product owner to license the product. Additionally, all
products need to be proven efficacious, which requires costly testing and a
favorable result is not assured. Because many of the products that may be sold
by the Company must be registered with one or more government agencies, the
registration process can be time consuming and expensive, and there is no
guarantee that the product will obtain all needed registrations. The Company has
obtained registration in some jurisdictions and not in others. In the Company's
view, the state of California has one of the most stringent regulations and
occasionally the Company may have federal registration but will be unable to
sell a product in California.
WE CAN EXPECT FLUCTUATIONS IN REVENUE FROM QUARTER TO QUARTER.
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The Company's revenues vary from period to period for a number of
factors. We sell products during growing seasons. Although the Company has had
some success in selling into the southern hemisphere to capture another growing
season, the large majority of its sales are in the United States, and most crops
that benefit from our products are grown in spring and summer. Therefore, most
of the Company's revenues are realized in a six month period beginning in April.
WE HAVE NO PATENTS ON OUR PRODUCT FORMULATIONS OR MANUFACTURING PROCESS.
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The Company's product formulations are carefully protected trade
secrets, but we have no patents on our formulations. The Company believes that
its formulations are still valuable proprietary information, but there is no
assurance that they will not be copied. The manufacturing processes for many of
its products is also confidential and maintained as a trade secret, but there is
no assurance that a competitor cannot duplicate our processes. The Company has
not decided if it will patent future products or processes.
9
WE ARE RELIANT UPON KEY SENIOR MANAGEMENT AND ANY DISCONTINUATION OF EMPLOYMENT
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WILL CAUSE DISRUPTIONS IN THE COMPANY'S PROSPECTS.
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We are highly dependent on our management and scientific team and the
loss of our President, Christine Koenemann or our chief scientist, Dr. Lawrence
Parker, could adversely impact sales and significantly impede the efforts of the
Company to acquire additional products or develop new products internally. Ms.
Koenemann and Dr. Parker have entered into employment agreements with the
Company, but there is no assurance they will not breach such agreements.
RISKS RELATED TO OWNING OUR COMMON STOCK
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OUR STOCK IS NOT TRADED.
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There is no existing market for our stock. It is not currently traded,
and therefore it is difficult to liquidate our stock. The price for our common
stock, if it were traded, would be affected by a number of factors, including:
product availability, weather and regulatory affairs.
OUR PRINCIPAL SHAREHOLDERS HAVE SIGNIFICANT VOTING POWER.
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Our officers, directors and principal shareholders own approximately
25% of the voting stock on a fully diluted basis (if all options are exercised).
Although there is no voting agreement among them, this concentration of
ownership may have an impact on the management and direction of the Company.
WE INCUR SUBSTANTIAL COSTS AS A RESULT OF BEING A PUBLIC COMPANY.
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As a public company, we incur significant legal, accounting and other
expenses. In addition, the Sarbanes-Oxley Act of 2002, as well as rules
subsequently implemented by the SEC, have required changes in corporate
governance practices of public companies. We expect these rules and regulations
to increase our legal and financial compliance costs and to make some activities
more time-consuming and costly. We cannot predict or estimate the amount of
additional costs we may incur or the timing of such costs.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company's principal executive office is located at 1260 Avenida
Chelsea, Vista, California, 92081. This facility consists of 19,504 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 January, 2015. Rent is being expensed on a straight-line
basis over the term of the lease. The lease commenced on January 1, 2007 and has
a term of eight (8) years. The Company has an option to extend the term for an
additional three (3) years at the fair market rate at the time of extension. The
rent under the lease for the initial year is approximately $13,650 per month,
with increases by three percent (3%) each year. The Company must also pay
certain other customary expenses under the lease. The Company installed
improvements to the facility totaling approximately $350,000 and new equipment
totaling approximately $230,000.
The Company remained under lease at the Joshua Way location until March
31, 2008. The Company continued to lease the Joshua Way location as a storage
facility on a month to month basis through November, 2008. The Company
terminated the Joshua Way lease in November 2008 and entered into a
month-to-month lease of a new building with 3,883 square feet of storage space
on October 30, 2008. Monthly base rent is $2,000 and the lease commenced on
December 1, 2008.
10
Rent expense on the Avenida Chelsea facility for the years ending
November 30, 2008 and 2007 was $174,294 and $159,769, respectively. Rent expense
on the Joshua Way facility under the original lease for the years ending
November 30, 2008 and 2007 was $60,558 and $95,337, respectively. Rent expense
on the storage facilities rented by the Company on a month to month basis for
the years ending November 30, 2008 and 2007 was $13,130 and $22,980,
respectively.
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
No matter was submitted to a vote of the Company's shareholders during the
fourth quarter of the fiscal year ended November 30, 2008.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL
BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
(a) PRINCIPAL MARKET. There is no established public trading market for the
Company's single class of common stock.
(b) APPROXIMATE NUMBER OF HOLDERS FOR COMMON STOCK. Many holders of the
common stock hold their shares in "street name" accounts and are not
individually shareholders of record. The approximate number of record
holders of Company's Common Stock as of November 30, 2008, was 623.
(c) REPURCHASES; DIVIDENDS. The Company has not repurchased any of its
stock for the fiscal year ending November 30, 2008. The Company has
paid no dividends during that same period. 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 OR PLAN OF OPERATION
FORWARD LOOKING STATEMENTS
--------------------------
The following discussion and analysis provides information that we
believe is relevant to an assessment and understanding of our results of
operations and financial condition. You should read this analysis in conjunction
with our audited consolidated financial statements and related footnotes. This
discussion and analysis contains forward-looking statements relating to future
events and our future financial performance. The statements involve known and
unknown risks, uncertainties and other factors that may cause our actual results
to be materially different from those results expressed or implied by these
forward-looking statements, including those set forth in this Annual Report.
11
General
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We maintain a strategy for growth through stressing expansion of sales
of our organic products and the continued development of our product offerings.
The Company is also seeking to acquire biological products for the control of
damaging insects or plant pathogens, which can be organically certified for use
in organic fruit and crop production. These potential biological products may be
acquired through either purchase or distribution agreement arrangements. It is
highly likely that any new technology will be required to be registered with the
United States Environmental Protection Agency.
While the demand for organic farm inputs increases, there remains a
limited supply of allowed organic raw materials for the formulation of the
Company's finished products due to increased competition. The Company is also
facing an increase in freight and packaging material costs.
Fiscal Year 2008 Compared to Fiscal Year 2007
---------------------------------------------
Total product sales were $3,998,293 in fiscal 2008 compared with
$6,285,977 in fiscal 2007, a decrease of approximately 36%. Prices for the
Company's existing products remained stable during fiscal 2008. Production by
gallons was 220,756 in 2008 and 398,806 in 2007, a decrease of approximately
45%. The sales decrease was almost solely due to the loss of an organic nitrogen
product, which the company (sourced) purchased from another manufacturer. The
product was out of compliance and was delisted as an approved input under USDA
NOP in November of 2007.
Cost of sales as a percentage of total product sales decreased to
approximately 46% or $1,856,587 in fiscal 2008 as compared with 50% or
$3,168,533 in fiscal 2007. This decrease is primarily due to the majority of
products sold during fiscal 2008 were lower margin products. The high nitrogen
product discontinued in 2007 provided the company a lower margin and decreased
overall profit margins in fiscal 2007.
Research and development expenses increased approximately 17%, or
$36,918, to $257,304 in fiscal 2008 from $220,386 in fiscal 2007. This increase
is primarily due to travel and increased contract research associated with
potential new products.
Selling expenses increased to approximately 27% of product sales for
fiscal 2008 from approximately 20% of product sales for fiscal year 2007. This
increase is primarily due to the decrease in sales during fiscal 2008. Selling
expenses decreased by $181,041 in fiscal 2008 from $1,250,445 in fiscal 2007.
This decrease in expenses is primarily due to the reduction in warranty expense
and adjustment in bad debt allowance due to Mexico agreement.
General and administrative expenses increased by $84,829 in fiscal 2008
from $696,703 in fiscal 2007. This increase is primarily due to increased staff
expenses, corporate legal expenses, and employee and director stock option
expense.
Interest expense decreased by $4,965 in fiscal 2008 from $14,051 for
fiscal 2007. This decrease is primarily due to the reduction of the notes
payable.
12
Net loss for fiscal 2008 was $83,935 compared with net income of
$983,663 in fiscal 2007. The decrease in net income is primarily due to
decreased sales during fiscal 2008 and a reduction in the deferred tax asset.
Fiscal Year 2007 Compared to Fiscal Year 2006
---------------------------------------------
Total product sales were $6,285,977 in fiscal 2007 compared with
$3,389,116 in fiscal 2006, an increase of approximately 86%. Prices for the
Company's existing products remained stable during fiscal 2007. Production by
gallons was 398,806 in 2007 and 165,846 in 2006, an increase of approximately
141%. The sales increase was primarily due to increased sales to several
domestic customers and the addition of a new product to the Company's organic
line of products.
Cost of sales as a percentage of total product sales increased to
approximately 50% or $3,168,533 in fiscal 2007 as compared with 47% or
$1,589,229 in fiscal 2006. This increase is primarily due to the increased sales
of products with a lower gross margin.
Research and development expenses increased approximately 33%, or
$54,119, to $220,386 in fiscal 2007 from $166,267 in fiscal 2006. This increase
is primarily due to the increased expenses associated with two facilities and
increased outside research services.
Selling expenses decreased to approximately 20% of product sales for
fiscal 2007 from approximately 23% of product sales for fiscal year 2006. This
decrease is primarily due to the increase in sales during fiscal 2007. Selling
expenses increased by $458,654 in fiscal 2007 from $791,791 in fiscal 2006. This
increase is primarily due to increased commission expenses, increased expenses
associated with two facilities, warranty expenses and an increase in the
accounts receivable allowance.
General and administrative expenses increased by $260,327 in fiscal
2007 from $436,376 in fiscal 2006. This increase is primarily due to increased
staff expenses, corporate legal expenses, and increased expenses associated with
two facilities.
Interest expense decreased by $457 in fiscal 2007 from $14,508 for
fiscal 2006. This minimal decrease is primarily due to the net reduction in
interest expense on the notes payable due to principal payments made during the
year and the increased interest expense on equipment leases.
Net income for fiscal 2007 was $983,663 compared with net income of
$483,202 in fiscal 2006. The increase in net income is primarily due to
increased sales during fiscal 2007.
Liquidity and Capital Resources
-------------------------------
Net working capital decreased to $1,361,046 in fiscal year 2008
compared to $1,362,331 in fiscal year 2007. At November 30, 2008, we had
approximately $574,000 in cash and cash equivalents. Our primary sources of cash
and cash equivalents are cash flows from operations and borrowings on our line
of credit. Our primary uses of cash are to fund working capital needs, capital
expenditures and repayments on borrowings against our line of credit. The
Company anticipates that cash flows from operations and borrowings available
under our line of credit will be sufficient to meet the ongoing needs of our
business.
13
Off-balance Sheet Arrangements
------------------------------
None.
Critical Accounting Policies and Estimates
------------------------------------------
The financial statements included herein have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. Management
believes the disclosures made are adequate to make the information not
misleading. The financial statements and accompanying notes are prepared in
accordance with generally accepted accounting principles. Preparing financial
statements 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. These estimates and
assumptions are affected by Management's application of accounting policies.
Share-Based Payment
-------------------
Effective December 1, 2006, we adopted the provisions of SFAS No. 123R,
"SHARE-BASED PAYMENT," which establishes accounting for stock-based awards
exchanged for employee and non-employee services. Accordingly, equity classified
stock-based compensation cost is measured at grant date, based on the fair value
of the award and is recognized as expense over the requisite service period.
Liability classified stock-based compensation cost is re-measured at each
reporting date and is recognized over the requisite service period. Consistent
with our practices prior to adopting SFAS 123(R), we calculate the fair value of
our employee stock options and non-employee options and warrants using the
Black-Scholes option pricing model. Compensation expense for awards with graded
vesting provisions is recognized on a straight-line basis over the requisite
service period of each separately vesting portion of the award.
ITEM 7. FINANCIAL STATEMENTS
Exhibit A, "Consolidated Financial Statements and Report of Independent
Registered Public Accounting Firm" is incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in or disagreements with accountants on accounting and
financial disclosure for the fiscal year ended November 30, 2008.
14
ITEM 8A. ACCOUNTING CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Based on her evaluation, the Company's principal executive officer and
principal financial officer, who are the same individual, evaluated the
effectiveness of the Company's disclosure controls and procedures as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the
Exchange Act). Based upon that evaluation, the Chief Executive Officer/Chief
Financial Officer concluded that, as of the end of the period covered by the
Annual Report on Form 10-KSB, our disclosure controls and procedures were not
effective, and these deficiencies in internal controls constituted a material
weakness as discussed below. Specifically, the Company failed to include on its
original Annual Report the Management's Report on Internal Control Over
Financial Reporting. The Company's financial statements filed with this Form
10-K/A have been restated to address this material weakness.
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The financial statements, financial analyses and all other information
included in this Annual Report on Form 10-K/A was prepared by the Company's
management, which is responsible for establishing and maintaining adequate
internal control over financial reporting. Internal control over financial
reporting is defined in Rule 132-15(f) or 15d-15(f) promulgated under the
Exchange Act as a process designed by, or under the supervision of, the
Company's principal executive and principal financial officer and effected by
the Company's Board of Directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles accepted in the United States of
America and includes those policies an procedures that:
(i) Pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and disposition of the
assets of the Company;
(ii) Provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles accepted in the United
States of America, and that receipts and expenditures of the Company are being
made only in accordance with authorizations of management and directors of the
Company; and
(iii) Provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition and use or disposition of the
Company's assets that could have a material effect on the Company's financial
statements.
15
Because of its inherent limitations, internal control over financial
reporting, may not prevent or detect misstatements. Projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate. All
internal control systems, no matter how well designed, have inherent limitations
Therefore, even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement preparation and
presentation. Because of the inherent limitations of internal control, there is
a risk that material misstatements may not be prevented or detected on a timely
basis by internal control over financial reporting. However, these inherent
limitations are known features of the financial reporting process, Therefore, it
is possible to design into the process safeguards to reduce, through not
eliminate, this risk.
The Company's management assessed the effectiveness of the Company's
internal control over financial reporting as of the end of the Company's most
recent fiscal year based on the framework in INTERNAL CONTROL - INTEGRATED
FRAMEWORK (1992) and INTERNAL CONTROL OVER FINANCIAL REPORTING - GUIDANCE FOR
SMALL PUBLIC COMPANIES (2006), issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, the
Company's management concluded that there is a material weakness in the
Company's internal control over financial reporting. That material weakness was
the failure to include a Management's Report on Internal Control over Financial
Report in its original Form 10-KSB filed for the year ended November 30, 2008,
as required by Item 308 of Regulation S-B (now Item 8T of Regulation S-K). A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting such that there is a reasonable possibility
that a material misstatement of the Company's annual or interim financial
statements will not be prevented or detected on a timely basis.
The matter involving internal controls and procedures that our
principal executive officer and principal financial officer, who is the same
person, considered to be material weaknesses under the standards of the Public
Company Accounting Oversight Board was ineffective controls over period end
financial disclosure and reporting processes. Our principal executive officer
and principal financial officer, who are the same person, believes that the
material weakness set forth above did not have an effect on our financial
results.
This Annual Report does not include an attestation report of the
Company's independent registered public accounting firm regarding internal
control over financial reporting. Management's report was not subject to
attestation by the Company's independent registered public accounting firm
pursuant to temporary rules of the Securities and Exchange Commission that
permit the Company to provide only management's report in this Annual Report.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no significant changes in the Company's internal controls or
in other factors that could significantly affect these controls subsequent to
the date of their evaluation and up to the filing date of this Annual Report.
16
It should be noted that any system of controls, however well designed
and operated, can provide only reasonable, and not absolute, assurance that the
objectives of the system are met. In addition, the design of any control system
is based in part upon certain assumptions about the likelihood of future events.
Because of these and other inherent limitations of control systems, there can be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions, regardless of how remote.
ITEM 8B. OTHER INFORMATION
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 California,
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 on the property. On February 8,
2007, the real property was to be sold through a public auction. As there were
no bids placed, the Company obtained the right to take title to the land. The
Company is subject to certain ownership restrictions based on Mexican law and
has therefore formed a Mexican legal entity in order to take title to the
property. A third party has filed a lien against the property in connection with
a obligation allegedly owed by the foreign distributor. The Company believes the
basis of this claim is without merit.
On August 15, 2008, the Company entered into an agreement to sell its
rights to the property for a purchase price of $1,250,000 with a $300,000
deposit, refundable in part, and the balance of payment at the time of closing
which was expected to be on December 15, 2008. The potential buyer of the
property was made aware of the above described lien. As of November 30, 2008,
$95,000 of the $300,000 deposit was non-refundable to the buyer. Due to
unforeseen circumstances, at the request of the buyer, the Company and buyers
amended the agreement on December 15, 2008. Upon execution of the amendment, the
entire $300,000 deposit paid by the buyer became non-refundable. The amendment
extends the buyer time to complete the purchase to November 30, 2010, with
required additional payments over that period and provides for a purchase
discount of 5% if completed on or before November 30, 2009.
The Company is applying the non-refundable portion of the deposit,
first against its long-term receivable with the remainder being eventually
recognized as other income. As part of the arrangement with its Mexican legal
counsel, the Company is obligated to pay them a portion of any collection
received on its long-term receivable. The Company has accrued $4,500 to date
based on the non-refundable portion collected. Based upon the agreement the
Company has entered into, the valuation allowance on the long-term account
receivable has been adjusted to more accurately reflect future collections.
17
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE
GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth certain information regarding the
current executive officers and directors of the Company as of November 30, 2008:
EXPIRATION OF
NAME AGE POSITION DIRECTOR SINCE TERM
---- --- -------- -------------- ----
Christine Koenemann 55 Director, President,
Chief Financial Officer & Secretary 1995 2009
William Fruehling (1)(2) 68 Director 1997 2009
Mark Cole (1)(2) 45 Director 2005 2009
--------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
DIRECTORS
Christine Koenemann was elected President and appointed as a Director
of the Company on March 2, 1995. She has worked for the Company for the past 25
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 prior to
joining the Company. Ms. Koenemann serves also as the Company's Chief Financial
Officer and Secretary.
William Fruehling was appointed to the Board of Directors 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.
Mark Cole received his Bachelors Degree in Business Administration
(Accounting) from San Diego State University in 1990. After receiving his
degree, Mr. Cole spent 8 years as an audit professional with Big 4 public
accounting firms and later served as Managing Director for the CPA firm of Cole
and Company. He currently serves as the Corporate Controller for Crocs, Inc., a
rapidly growing designer and manufacturer of footwear and has served in similar
financial capacities for Salient Networks and Ashworth, Inc. He was appointed as
a Director of the Company April 7, 2005.
18
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.
AUDIT COMMITTEE
The Audit Committee of our Board of Directors is composed of two
non-employee directors who meet the independence standards of the SEC. The
members of the Audit Committee are Mark Cole, chair and William Fruehling. Our
Board has determined that Mr. Cole qualifies as an audit committee financial
expert under federal securities laws, by virtue of his education and relevant
experience, and is independent under the applicable requirements of the
Securities Exchange Act of 1934.
FAMILY RELATIONSHIPS
There are no family relationships between or among the directors,
executive officers or person's nominated or chosen to become directors or
executive officers.
DIRECTOR COMPENSATION
Each non-employee director receives a payment of $500 for each meeting
of the Board of Directors they attend and a payment of $250 for each meeting of
a Board Committee they attend, unless that meeting occurs the same day as a
meeting of the board of Directors, in which case the director is not paid for
attending the Committee meeting. During fiscal 2008, the Company also granted
non-qualified stock options to acquire 5,000 shares at $1.53 per share to each
non-employee member of the Board of Directors.
The following Director Compensation Table summaries the compensation of
our non-employee directors for services rendered during the year ended November
30, 2008.
Director Compensation
---------------------
Fees Non-Qualified
Earned Non-Equity Deferred
Or Paid Stock Options Incentive Plan Compensation All Other
Name In Cash Award Award (1) Compensation Earnings Compensation Total
---- ------- ----- --------- ------------ -------- ------------ -----
Bill Fruehling $3,000 0 $3,751 0 0 0 $6,751
Mark Cole $3,000 0 $3,751 0 0 0 $6,751
((1)) Represents fair market value of options granted during the year ended
November 30, 2008, calculated using the Black-Scholes option pricing model and
related assumptions as disclosed in our consolidated financial statements. At
November 30, 2008, Mr. Fruehling owned options to acquire up to 42,000 shares
and Mr. Cole owned options to acquire up to 15,000 shares.
In addition to the compensation mentioned above, we reimburse the
directors for their travel expenses incurred in attending meetings of the Board
and its Committees.
19
CODE OF ETHICS
Our board of directors adopted a code of ethics meeting the
requirements of Section 406 of the Sarbanes-Oxley Act of 2002. We will provide
to any person without charge, upon request, a copy of our code of ethics.
Persons wishing to make such a request should contact Westbridge Agricultural
Products, 1260 Avenida Chelsea, Vista, CA 92081.
INDEMNIFICATION OF DIRECTORS
The Company's Bylaws provide for the indemnification of Directors to
the fullest extent provided by applicable law when they are carrying out their
duties in good faith.
EMPLOYMENT AGREEMENTS
On December 1, 2008, we entered into an employment contract with
Christine Koenemann for the positions of President, Secretary and Chief
Financial Officer. The agreement is for a term commencing December 1, 2008 and
ending November 30, 2011. Prior to that time, Ms. Koenemann had an employment
agreement with the Company which would expire February 7, 2009. Under the
agreement Ms. Koenemann is entitled to receive a salary and receive a bonus
based on the financial performance of the Company and other factors determined
by the Board of Directors. Ms. Koenemann's base salary will be $135,000 per year
with annual reviews which may result in an increase or decrease of the base
salary, but any decrease cannot be for more than ten percent of the prior year's
base salary without the written agreement of Ms. Koenemann. The new agreement
allows for her to receive a lump sum payment in the event her agreement is
terminated in a take over of the Company which results in her employment being
terminated. Ms. Koenemann was not granted stock options in connection with this
employment agreement, however in 2008 she received an option to purchase up to
50,000 shares of the Company's common stock under the Company's Stock Option
Plan at $1.53 per share. She is entitled to participate in the Company's
employee benefit plans, such as health insurance.
On October 1, 2008, we entered into an employment contract with
Lawrence Parker, Ph.D. for the positions of Vice President and Director of
Research and Development. The agreement is for a term ending November 30, 2011.
Under the agreement Dr. Parker is entitled to receive a salary and receive a
bonus based on the financial performance of the Company and other factors
determined by the Company's President at the President's sole discretion. Dr.
Parker's base salary will be $85,000 per year with annual reviews which may
result in an increase or decrease of the base salary, but any decrease cannot be
for more than ten percent of the prior year's base salary without the written
agreement of Dr. Parker. Dr. Parker was not granted stock options in connection
with this employment agreement, however in 2008 he received an option to
purchase up to 40,000 shares of the Company's common stock under the Company's
Stock Option Plan at $1.53 per share. Dr. Parker will receive commissions with
rates and terms to be reviewed and approved annually by the Company's President.
During fiscal 2008, Dr. Parker earned approximately $15,000 in commission
income. He is entitled to participate in the Company's employee benefit plans,
such as health insurance.
20
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires officers
and directors, and persons who own more than ten percent of a registered class
of our equity securities, to file reports of ownership and changes in ownership
with the Commission. Officers, directors and greater than ten percent beneficial
owners are required by Commission regulations to furnish us with copies of all
forms they file pursuant to Section 16(a). No such forms have been submitted to
us and we know of no trading activity that has occurred in our equity securities
for the fiscal year 2006.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information relating to the annual and
long-term compensation for the fiscal years ended November 30, 2008, 2007 and
2006 for the Chief Executive Officer and Vice President of the Company.
Summary Compensation Table
--------------------------
Non-qualified
Non-Equity Deferral
Fiscal Stock Option Incentive Plan Compensation All Other
Name and Principal Position Year Salary Bonus Awards Awards Compensation Earnings Compensation Total
--------------------------- ----- ------ ----- ------ ------ ------------ ------------ ------------ -----
Christine Koenemann 2008 $125,000 $ 0 0 $12,998 0 0 $3,125 $141,123
President 2007 $100,000 $60,000 0 0 0 0 0 $160,000
2006 $ 90,000 $45,000 0 0 0 0 0 $135,000
Larry Parker, PhD 2008 $ 80,500 $ 4,468 0 $10,398 0 0 $20,146 $115,512
Vice President & 2007 $ 71,500 $33,800 0 0 0 0 $20,236 $125,536
Director of R&D 2006 $ 70,000 $21,450 0 0 0 0 $12,772 $104,222
Outstanding Equity Awards at Fiscal Year-End
--------------------------------------------
Equity
Incentive
Equity Plan
Incentive Awards:
Plan Market
Equity Awards: or Payout
Incentive Number of Value of
Plan Unearned Unearned
Awards Market Shares, Shares,
Number of Number of Number of Number Value Units Units
Securities Securities Securities of Shares of Shares or Other or Other
Underlying Underlying Underlying or Units of or Units of Rights Rights
Unexercised Unexercised Unexercised Option Option Stock That Stock That That That
Options Options Unearned Exercise Expiration Have Not Have Not Have Not Have Not
Name Exercisable Unexercisable Options Price Date Vested Vested Vested Vested
----------------------------------------------------------------------------------------------------------------------------------
Christine 100,000 $0.25 07/29/2012 0
Koenemann 50,000 $1.53 04/15/2018 33,334
Larry 20,000 $0.25 07/29/2012 0
Parker, PhD 40,000 $1.53 04/15/2018 26,666
Option Grants in Last Fiscal Year (Individual Grants)
-----------------------------------------------------
During fiscal 2008, the Company granted stock options to acquire
137,500 shares at $1.53 per share to several employees, including the Company's
President.
21
Aggregated Option Exercises in Last Fiscal year and Fiscal Year-End Option Value
--------------------------------------------------------------------------------
There were no option exercises during the last fiscal year for the
individuals named in the summary compensation table.
During fiscal 2001, the Company established an employee stock option
plan ("the 2001 Plan") under which options to purchase an aggregate of 400,000
shares of the Company's common stock may be granted to directors, officers,
employees and certain persons rendering service to the Company as either
incentive options or non-qualified options. Under the 2001 Plan, incentive stock
options may be granted at an exercise price greater than or equal to the market
value at the date of the grant, for owners of 10% or more of the voting shares,
at an exercise price of not less than 110% of the market value at the date of
grant and non-qualified options may be granted at an exercise price greater than
or equal to 85% of the market value at the date of the grant. Options vest over
varying terms designated by the 2001 Plan's administrative committee and expire
at the earlier of ten years from the date of grant or 90 days after termination
of employment. There are 319,500 options granted under the 2001 plan of which
223,875 are fully vested as of November 30, 2008.
The Company granted no options during fiscal 2007.
During fiscal 2008, the Company granted non-qualified stock options to
acquire 5,000 shares at $1.53 per share to two members of the Board of Directors
for services rendered during fiscal year 2007. The 10,000 options immediately
vest upon grant and expire in April, 2018. All of these options remain
outstanding and exercisable at November 30, 2008.
In addition, during fiscal 2008, the Company granted stock options to
acquire 137,500 shares at $1.53 per share to several employees. The future stock
compensation expense on unvested options is $75,007. Of the remaining 95,625
options, 41,875 vest in April 2009, 41,875 vest in April 2010, and 11,875 vest
in April 2011.
At November 30, 2008 and 2007, a total of 80,500 and 228,000 shares
remain reserved and available for future stock option grants under the 2001
Plan.
EMPLOYMENT AGREEMENTS.
Ms. Koenemann and Dr. Parker have entered into employment agreements
with the Company. See Item 9, above, for a discussion of the terms of those
agreements.
22
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table sets forth certain information as of November 30,
2008, 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.
W/O Exercise
Amount and Nature of Percent of Percent of
Name of Beneficial Owner Beneficial Ownership Class (5) Class (6)
------------------------ -------------------- --------- ---------
Christine Koenemann 152,700 (1) * 6.8
1260 Avenida Chelsea
Vista, CA 92081
Lawrence Parker 60,675 (2) * 2.8
1260 Avenida Chelsea
Vista, CA 92081
Albert L. Good 182,300 8.7 8.7
14550 Castle Rock Road
Salinas, CA 93908
Kenneth P. Miles 119,867 5.7 5.7
8 Avenida Andra
Palm Desert, CA 92260
William Fruehling 42,000 (3) * 2.0
5416 Renaissance Avenue
San Diego, CA 92122
Mark Cole 15,000 (4) * *
P.O. Box 685
Lyons, CO 80540
All Directors & Officers 267,000 * 11.4
as a Group (4 persons)
* less than 1%
(1) Consists in part of exercisable options to purchase 100,000 shares at $0.25
per share and 50,000 at $1.53 per share.
(2) Consists in part of exercisable options to purchase 20,000 shares at $0.25
per share and 40,000 at $1.53 per share.
23
(3) Consists of exercisable options to purchase 37,000 shares at $0.25 per share
and 5,000 at $1.53 per share.
(4) Consists of exercisable options to purchase 10,000 shares at $0.25 per share
and 5,000 at $1.53 per share.
(5) Calculated as if no options were exercised and 2,103,438 shares outstanding.
(6) 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, AND DIRECTOR
INDEPENDENCE
The Company will enter into indemnification agreements with each of its
executive officers and directors. The Company will agree to indemnify each such
person for all expenses and liabilities, including criminal monetary judgments,
penalties and fines, incurred by such person in connection with any criminal or
civil action brought or threatened against such person by reason of such person
being or having been a Company officer, director or employee. In order to be
entitled to indemnification, such person must have acted in good faith and in a
manner such person believed to be in the Company's best interests. With respect
to criminal actions, such person must have had no reasonable cause to believe
his or her conduct was unlawful. Insofar as there is a claim by an officer or
director for indemnification for liabilities arising under the Securities Act of
1933, the claim may be unenforceable under the regulations of the Securities and
Exchange Commission.
ITEM 13. EXHIBITS
(a) 1. The following financial statements of the Company are included in
Item 7:
Consolidated Balance Sheets at November 30, 2008 and 2007
Consolidated Statements of Operations for each of the two years ended
November 30, 2008
Consolidated Statements of Shareholders' Equity for each of the two
years ended November 30, 2008
Consolidated Statements of Cash Flows for each of the two years ended
November 30, 2008
Notes to Consolidated Financial Statements.
24
(b) Form 8-K was filed on October 10, 2008 disclosing the employment
agreement between Company and Dr. Lawrence Parker, Vice-President and
Director of Research and Development.
Form 8-K was filed on January 22, 2009 disclosing the employment
agreement between Company and Christine Koenemann, President.
(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.
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.
25
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.
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.
26
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.
10(x) Westbridge Research Group 2001 Stock Option Plan
filed herewith.
10(y) Form 8-K, filed on November 5, 2004, disclosing the
resignation of two members of the Board of Directors.
10(z) Form 8-K, filed on March 15, 2006, disclosing the
Employment Agreement by and between Company and
Christine Koenemann.
10(aa) Form 8-K, filed on December 7, 2006, disclosing the
new building facilities lease agreement.
10(bb) Amendment to Employment Agreement between Company and
Christine Koenemann dated December 1, 2007.
10(cc) Assignment Agreement between Company and buyer of
Mexico property dated August 15, 2008, and Amendment
No. 1 dated December 15, 2008.
31.1* Section 302 Certification of Principal Executive
Officer and Principal Financial Officer
32.1* Section 906 Certification of Principal Executive
Officer and Principal Financial Officer
* filed herewith
27
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The following are the fees billed us by our auditors, PKF, for services
rendered thereby during 2008 and 2007:
2008 2007
---- ----
Audit Fees $42,559 $39,350
Audit Related Fees -- --
Tax Fees 5,005 4,263
All Other Fees -- --
AUDIT FEES consist of the aggregate fees billed for professional
services rendered for the audit of our annual financial statements and the
reviews of the financial information included in our Forms 10-QSB and for any
other services that are normally provided by PKF in connection with our
statutory and regulatory filings or engagements.
AUDIT RELATED FEES consist of the aggregate fees billed for
professional services rendered for assurance and related services that were
reasonably related to the performance of the audit or review of our financial
statements and were not otherwise included in Audit Fees.
TAX FEES consist of the aggregate fees billed for professional fees
rendered for tax compliance, tax advice, and tax planning. Included in such Tax
Fees were the fees for preparation of our tax returns, consultancy and advice on
domestic tax structures.
ALL OTHER FEES consists of the aggregate fees billed for products and
services provided by PKF and not otherwise included in Audit Fees, Audit Related
Fees or Tax Fees.
Our Audit Committee has considered whether the provision of the
non-audit services described above is compatible with maintaining PKF's
independence and determined that such services are appropriate.
Before the auditors are engaged to provide us audit services, such
engagement is approved by the Audit Committee of our Board of Directors.
28
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on November 25, 2009.
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
registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Christine Koenemann Director November 25, 2009
-----------------------
Christine Koenemann
/s/ William Fruehling Director November 25, 2009
-----------------------
William Fruehling
/s/ Mark Cole Director November 25, 2009
-----------------------
Mark Cole
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 on this form.
29
WESTBRIDGE RESEARCH GROUP
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
For The Years Ended November 30, 2008 and 2007
30
WESTBRIDGE RESEARCH GROUP
AND SUBSIDIARY
TABLE OF CONTENTS
-----------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM....................32
FINANCIAL STATEMENTS
Consolidated Balance Sheets........................................33-34
Consolidated Statements of Operations ................................35
Consolidated Statements of Shareholders' Equity.......................36
Consolidated Statements of Cash Flows.................................37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..............................38-51
31
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2008 and 2007, 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 have conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal controls over financial reporting. Our audits included consideration of
internal controls over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstance, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated 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, 2008 and 2007, and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States of America.
/S/ PKF
-----------------------------
San Diego, California PKF
August 28, 2009 Certified Public Accountants
A Professional Corporation
32
WESTBRIDGE RESEARCH GROUP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
November 30, 2008 and 2007
ASSETS
------
2008 2007
------------------- -------------------
Current assets:
Cash and cash equivalents $ 574,444 $ 766,277
Investments 301,000 505,367
Accounts receivable, less allowance of $37,416
and $55,000 at November 30, 2008 and 2007 164,485 200,293
Inventories, net 798,247 426,630
Deferred tax assets 75,000 225,000
Prepaid expenses and other current assets 156,943 121,457
------------------- -------------------
Total current assets 2,070,119 2,245,024
------------------- -------------------
Property and equipment, at cost:
Machinery and equipment 531,012 532,438
Office furniture and fixtures 113,945 365,835
Leasehold Improvements 359,244 364,999
Vehicles 59,171 59,171
------------------- -------------------
1,063,372 1,322,443
Less: accumulated depreciation (488,547) (665,913)
------------------- -------------------
Net property and equipment 574,825 656,530
------------------- -------------------
Long-term account receivable, net 134,500 130,000
Intangible assets, net 151,600 151,600
------------------- -------------------
Total assets $ 2,931,044 $ 3,183,154
=================== ===================
The accompanying notes are an integral part of the consolidated
financial statements.
33
WESTBRIDGE RESEARCH GROUP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
November 30, 2008 and 2007
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
2008 2007
------------------- -------------------
Current Liabilities:
Accounts payable $ 150,980 $ 169,193
Accrued expenses 522,706 602,655
Notes payable to related parties - 66,372
Current portion of long-term debt 8,038 8,038
Current portion of capital leases 27,349 36,435
------------------- -------------------
Total current liabilities 709,073 882,693
Long-term debt, net of current portion 10,182 18,220
Capital leases, net of current portion 57,856 84,617
------------------- -------------------
Total liabilities 777,111 985,530
------------------- -------------------
Commitments and contingencies (Note 11)
Shareholders' equity:
Preferred stock, 5,000,000 shares authorized,
no shares outstanding - -
Common stock, no par value, 37,500,000 shares
authorized, 2,103,438 shares issued and outstanding at
November 30, 2008 and 2007 8,479,854 8,479,854
Paid-in capital 140,244 100,000
Accumulated deficit (6,466,165) (6,382,230)
------------------- -------------------
Total shareholders' equity 2,153,933 2,197,624
------------------- -------------------
Total liabilities and shareholders' equity $ 2,931,044 $ 3,183,154
=================== ===================
The accompanying notes are an integral part of the consolidated
financial statements.
34
WESTBRIDGE RESEARCH GROUP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended November 30, 2008 and 2007
2008 2007
----------- -----------
Revenues:
Agricultural product sales $ 3,998,293 $ 6,285,977
----------- -----------
Costs and expenses:
Cost of sales 1,856,587 3,168,533
Research and development 257,304 220,386
Selling 1,069,404 1,250,445
General and administrative 781,532 696,703
----------- -----------
Total costs and expenses 3,964,827 5,336,067
----------- -----------
Income from operations 33,466 949,910
Other income (expense)
Interest expense (9,086) (14,051)
Interest income 18,426 31,391
Other income 10,284 73
----------- -----------
Income before income taxes 53,090 967,323
Income tax (expense) benefit (137,025) 16,340
----------- -----------
Net (loss) income $ (83,935) $ 983,663
=========== ===========
Basic (loss) earnings per common share $ (0.04) $ 0.47
=========== ===========
Weighted average shares outstanding 2,103,438 2,103,438
----------- -----------
Diluted earnings per common share N/A $ 0.43
=========== ===========
Weighted average shares and options outstanding N/A 2,275,856
----------- -----------
The accompanying notes are an integral part of the consolidated
financial statements.
35
WESTBRIDGE RESEARCH GROUP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended November 30, 2008 and 2007
Common Stock
------------------------------ Paid-in Accumulated
Shares Amount Capital Deficit Total
----------- ----------- ----------- ----------- -----------
Balance, November 30, 2006 2,103,438 $ 8,479,854 $ 100,000 $(7,365,893) $ 1,213,961
Net income -- -- -- 983,663 983,663
----------- ----------- ----------- ----------- -----------
Balance, November 30, 2007 2,103,438 $ 8,479,854 $ 100,000 $(6,382,230) $ 2,197,624
Stock compensation
expense -- -- 40,244 -- 40,244
Net loss -- -- -- (83,935) (83,935)
----------- ----------- ----------- ----------- -----------
Balance, November 30, 2008 2,103,438 $ 8,479,854 $ 140,244 $(6,466,165) $ 2,153,933
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
36
WESTBRIDGE RESEARCH GROUP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended November 30, 2008 and 2007
2008 2007
------------------ ------------------
Cash flows from operating activities:
Net (loss) income $ (83,935) $ 983,663
Adjustments to reconcile net (loss) income to net
cash flows (used in) provided by operating activities:
Depreciation and amortization 123,901 69,740
Stock compensation expense 40,244 --
Loss on disposal of fixed assets 4,073
(Decrease) increase in bad debt allowance (112,584) 46,130
Decrease (increase) in deferred tax asset 150,000 (105,000)
Changes in operating assets and liabilities:
Decrease in accounts receivable 53,392 2,144
Receipts of long-term account receivable 90,500 --
Increase in inventories (371,617) (202,030)
Increase in prepaid expenses
and other current assets (35,486) (35,367)
(Decrease) increase in accounts payable (18,213) 126,963
(Decrease) increase in accrued expenses (79,949) 349,419
------------------ ------------------
Net cash flows (used in) provided
by operating activities (239,674) 1,235,662
------------------ ------------------
Cash flows from investing activities:
Proceeds from investments 504,367 --
Purchase of investments (300,000) (505,367)
Purchase of property and equipment (46,269) (487,123)
------------------ -------------------
Net cash flows provided by (used in)
investing activities 158,098 (992,490)
----------------- ------------------
Cash flows from financing activities:
Payments of notes payable to related
parties and long-term debt (74,410) (113,777)
Payments on capital lease obligations (35,847) (30,314)
------------------ -------------------
Net cash flows used in financing activities (110,257) (144,091)
------------------- -------------------
Net (decrease) increase in cash and cash equivalents (191,833) 99,081
Cash and cash equivalents at beginning of year 766,277 667,196
----------------- ------------------
Cash and cash equivalents at end of year $ 574,444 $ 766,277
================= ==================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
2008 2007
------------------ ------------------
Cash paid during the year for:
Interest $ 9,086 $ 14,051
================= ==================
Income taxes $ 108,125 $ 25,000
================= ==================
Non-cash investing activities:
Capital leases $ -- $ 142,348
================= ==================
The accompanying notes are an integral part of the consolidated
financial statements.
37
WESTBRIDGE RESEARCH GROUP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended November 30, 2008 and 2007
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------------
Organization and Business
-------------------------
Westbridge Research Group and Subsidiary (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.
Disclosure Regarding Segments
-----------------------------
The Company has determined that it operates in one segment.
Principles of Consolidation
---------------------------
The accompanying financial statements consolidate the accounts of the Company
and its wholly-owned subsidiary Westbridge Agricultural Products. All
significant inter-company 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 bank accounts with two financial institutions located
in California. As of November 30, 2008, the accounts were insured by the Federal
Deposit Insurance Corporation (FDIC) up to $250,000 on interest bearing funds
and unlimited coverage on non-interest bearing transaction accounts. The Company
has an insurance policy effective for 2008, which covers all interest bearing
funds located at one of the financial institutions in excess of $250,000. The
Company had no uninsured cash balances as of November 30, 2008 and 2007. 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
-----------
Inventories, consisting of material, material overhead, labor, and manufacturing
overhead, are stated at the lower of cost (first-in, first-out) or market. Any
write-down of inventory to market is reflected in cost of goods sold, unless the
amount is unusually material, in which case the loss would be identified
separately in the income statement.
Advertising
-----------
Advertising expense is comprised of media, agency and promotion costs.
Advertising expenses are charged to operations as incurred. Advertising expenses
charged to operations totaled $81,555 and $68,637 at November 30, 2008 and 2007,
respectively.
Accounts Receivable and Allowances for Uncollectible Accounts
-------------------------------------------------------------
Accounts receivable are stated at the historical carrying amount net of
write-offs and allowances for uncollectible accounts. The Company establishes an
allowance for uncollectible accounts based on historical experience and any
specific customer collection issues that the Company has identified.
Uncollectible accounts receivable are written off when a settlement is reached
for an amount that is less than the outstanding balance or when the Company has
determined that balance will not be collected.
38
WESTBRIDGE RESEARCH GROUP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended November 30, 2008 and 2007
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
---------------------------------------------------------------------
Investments
-----------
The Company from time-to-time purchases Certificates of Deposit (CD's) or other
liquid investments when cash is available. Currently the Company has purchased
approximately $301,000 of CD's of which $1,000 matures in August, 2009 and
$300,000 matures in September, 2009.
Intangible Assets
-----------------
In 2001, the Company recorded formulas and processes as intangible assets,
reporting them at amortized cost, and amortizing them on a straight-line basis
over the lesser of ten years or their estimated useful lives. In 2002, the
Company adopted Statement of Financial Accounting Standards No. 142 (SFAS142),
"Goodwill and Other Intangible Assets". (See Note 5)
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.
Machinery and equipment is depreciated over a five to ten year period, depending
on the type of equipment. Office furniture and fixtures are depreciated over a
five-year period and vehicles are depreciated over a three-year period.
Leasehold improvements are amortized over the life of the lease and included in
depreciation expenses. Capital leases are amortized using the straight-line
method over the estimated useful life or the remaining term of the related
lease, whichever is less. Depreciation and amortization totaled $123,901 and
$69,740 at November 30, 2008 and 2007, respectively.
Shipping and Handling Costs
---------------------------
The consolidated financial statements reflect, for all periods presented, the
adoption of the classification or disclosure requirements pursuant to Emerging
Issues Task Force ("EITF") 00-10, "Accounting for Shipping and Handling Fees and
Costs," which was effective in the fourth quarter of fiscal 2000. Consistent
with EITF 00-10, the Company has historically classified income from freight
charges to customers as "Agricultural product sales." The Company classifies
shipping and handling costs in "Cost of sales". Such costs amounted to
approximately $174,200 and $221,000 in November 30, 2008 and 2007, respectively.
Revenue Recognition
-------------------
The Company recognizes revenues from the sale of its products to customers at
the time of shipping. Products are shipped from our facility to our customers
FOB shipping point terms at which time revenues are considered earned. The
Company will replace product that is considered "substandard", however this
occurs infrequently and the Company records a warranty accrual for these
anticipated replacements.
Products Warranty
-----------------
The Company warrants its products against defects in workmanship. The warranty
accrual at November 30, 2008 and 2007 was $64,934 and $96,000, respectively. The
accrual is based on an estimate of the cost to be incurred based on the claims
received and historical experience. During fiscal year 2008, the Company
accepted returned product due to the loss of its organic certification of one of
its nitrogen products as well as issues relating to a customer's specifications
on other products. These returns were offset against the warranty accrual for
approximately $31,000.
39
WESTBRIDGE RESEARCH GROUP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended November 30, 2008 and 2007
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
---------------------------------------------------------------------
Sales to Major Customers
------------------------
A majority of the Company's domestic sales are concentrated in Washington,
California, Arizona and Texas. The majority of the Company's foreign sales are
concentrated in Peru and South Korea. For the year ended November 30, 2008 four
customers represented 82% of accounts receivable. The Company has three large
customers whose combined purchases amounted to 34% of the Company's agricultural
product sales in 2008. Sales to these customers amounted to 19% in 2007. For the
year ended November 30, 2007, three customers represented 62% of accounts
receivable. Total international sales have been 19% of total sales in 2008 and
11% of total sales in 2007. The Company has no assets located in foreign
countries.
(Loss) Earnings Per Share
-------------------------
Basic (loss) 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 dilutive stock options using the treasury
stock method. The weighted average number of common shares, options, and
warrants outstanding were 2,247,334 for November 30, 2008 of which 143,896 were
anti-dilutive.
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations for the periods presented
below:
Year Ended November 30,
2008 2007
---------- -----------
Numerator for (loss) earnings per common share $ (83,935) $ 983,663
---------- -----------
Denominator for basic (loss) earnings per common share 2,103,438 2,103,438
---------- -----------
Effect of dilutive securities N/A 172,418
---------- -----------
Denominator for diluted earnings per common share N/A 2,275,856
---------- -----------
Net (loss) income per common share:
Basic $ (0.04) $ 0.47
========== ===========
Diluted $ N/A $ 0.43
========== ===========
40
WESTBRIDGE RESEARCH GROUP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended November 30, 2008 and 2007
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
---------------------------------------------------------------------
Fair Value of Financial Instruments
-----------------------------------
The Company believes that the recorded value of its financial instruments
approximates their fair value at November 30, 2008.
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. During the years ended November 30, 2008 and 2007, the Company
expensed $257,304 and $220,386, respectively, of research and development costs.
Stock Based Compensation
------------------------
Prior to January 1, 2006, the Company accounted for stock-based compensation to
employees in accordance with Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations. Under
this method, no compensation expense was recognized as long as the exercise
price equaled or exceeded the market price of the underlying stock on the
measurement date of the grant. The Company also followed the disclosure
requirements of Statement of Financial Accounting Standards (SFAS) No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION. As of January 1, 2006, the Company
adopted SFAS No. 123(R), SHARE-BASED PAYMENT. During fiscal 2008, the Company
expensed stock options based on a calculation using the minimum value method as
prescribed by SFAS No. 123(R), otherwise known as the Black-Scholes method.
Under this method, the Company used a risk-free interest rate at the date of
grant, an expected volatility, an expected dividend yield and an expected life
of the options to determine the fair value of options granted. The risk-free
interest rate ranged from 2.82% to 3.21%, expected volatility ranged from 49.1%
to 53.7% at the time all options were granted, the dividend yield was assumed to
be zero, and the expected life of the options was assumed to be five, six, and
six and one half years based on the average vesting period of options granted.
For the year ended November 30, 2008 the Company expensed approximately $40,000
of stock option expense due to SFAS No. 123(R) in its financial statements. The
Company has applied the provisions of SAB 107, SHARE-BASED PAYMENTS (SAB 107) in
its adoption of SFAS 123(R) due to the Company's shares and options not being
regularly traded or exercised.
41
WESTBRIDGE RESEARCH GROUP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended November 30, 2008 and 2007
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
---------------------------------------------------------------------
Long Lived Assets
-----------------
The Company investigates potential impairments of their long-lived assets on an
individual basis when evidence exists that events or changes in circumstances
may have made recovery of an asset's carrying value unlikely. An impairment loss
is recognized when the sum of the expected undiscounted future net cash flows is
less than the carrying amount of the asset. No such losses have been identified.
Use of Estimates
----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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.
Recent Accounting Standards
---------------------------
In July 2006, the FASB issued FIN 48, entitled Accounting for Uncertainty in
Income Taxes. FIN 48 interprets the guidance in SFAS No. 109, entitled
Accounting for Income Taxes. Through the interpretive guidance, the FASB
clarifies the accounting for uncertainty in income taxes, provides recognition
and measurement guidance related to accounting for income taxes, and provides
guidance related to classification and disclosure of income tax-related
financial statement components. The Company does not believe that the adoption
of FIN 48 has had a material impact, if any, on its consolidated financial
statements.
In September 2006, the FASB issued SFAS No. 157, Defining Fair Value
Measurement. The purpose of SFAS No. 157 is to eliminate the diversity in
practice that exists due to the different definitions of fair value and the
limited guidance for applying those definitions in GAAP that are dispersed among
the many accounting pronouncements that require fair value measurements. SFAS
No. 157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years. The
Company does not believe that adoption of SFAS No. 157 will have a material
impact on its consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities - including an amendment of FASB
Statement No. 115 (SFAS No. 159). SFAS No. 159 expands opportunities to use fair
value measurements in financial reporting and permits entities to choose to
measure many financial instruments and certain other items at fair value. Upon
adoption of SFAS No. 159, an entity may elect the fair value option for eligible
items that exist at the adoption date. Subsequent to the initial adoption, the
election of the fair value option should only be made at initial recognition of
the asset or liability or upon a re-measurement event that gives rise to
new-basis accounting. SFAS No. 159 does not affect any existing accounting
literature that requires certain assets and liabilities to be carried at fair
value nor does it eliminate disclosure requirements included in other accounting
standards. This Statement is effective as of the beginning of an entity's first
fiscal year that begins after November 15, 2007. Early adoption is permitted as
of the beginning of a fiscal year that begins on or before November 15, 2007,
provided the entity also elects to apply the provisions of FASB Statement No.
157, Fair Value Measurements. The Company does not believe that the adoption of
SFAS No. 159 will have a material impact on its consolidated financial
statements.
42
WESTBRIDGE RESEARCH GROUP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended November 30, 2008 and 2007
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
---------------------------------------------------------------------
In December 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141(R), "Business Combinations" (hereafter
"SFAS No. 141(R)"). This statement is to improve the relevance, representational
faithfulness, and comparability of the information that a reporting entity
provides in its financial reports about a business combination and its effects.
It is effective for business combinations for which the acquisition date is on
or after the beginning of the first annual reporting period beginning on or
after December 15, 2008. The Company does not believe that adoption of SFAS No.
141(R) will have a material impact on its consolidated financial statements.
In December 2007, the FASB issued FASB Statement No. 160 "Non-controlling
Interests in Consolidated Financial Statements - an amendment of ARB No. 51"
("SFAS No. 160"), which causes non-controlling interests in subsidiaries to be
included in the equity section of the balance sheet. SFAS No. 160 applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008, except for the presentation and disclosure requirements,
which shall be applied retrospectively for all periods presented. The Company
does not believe that adoption of SFAS No. 160 will have a material impact on
its consolidated financial statements.
In December 2007, the FASB issued FASB Statement No. 161 "Disclosures about
Derivative Instruments and Hedging Activities-an amendment of FASB Statement No.
133" ("SFAS No. 161"), changes the disclosure requirements for derivative
instruments and hedging activities. Entities are required to provide enhanced
disclosures about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under
Statement 133 and its related interpretations, and (c) how derivative
instruments and related hedged items affect an entity's financial position,
financial performance, and cash flows. SFAS No. 160 is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008, with early application encouraged. This Statement encourages, but does
not require, comparative disclosures for earlier periods at initial adoption.
The Company does not believe that adoption of SFAS No. 161 will have a material
impact on its consolidated financial statements.
Restatement
-----------
The Company's Statement of Cash Flows for the year ended November 30, 2008 has
been restated to reflect the cash proceeds from the sale of the Company's land
rights in Mexico, which have been reclassified from financing activities to
operating activities, increasing the cash flows used in financing activities
from $(19,757) to $(110,257) and reducing the cash flows used in operating
activities from $(330,174) to $(239,674).
43
WESTBRIDGE RESEARCH GROUP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended November 30, 2008 and 2007
NOTE 2 - FAIR VALUE OF FINANCIAL INSTRUMENTS
--------------------------------------------
The following table summarizes the Company's investment in a certificate of
deposits that is classified under investments, and is carried at fair market
value on the balance sheet at November 30, 2008:
Fair Value Measurements
At Reporting Date Using
Quoted Prices in
Active Markets for
Identical Assets
November 30, 2008 (Level 1)
-------------------------------------------------
Certificate of Deposits $ 301,000 $ 301,000
---------------- -------------------
Total $ 301,000 $ 301.000
================ ===================
Effective for financial statements issued for fiscal years beginning after
November 15, 2007, SFAS NO. 157, FAIR VALUE MEASUREMENTS, defines fair value,
establishes a framework for measuring fair value, and expands disclosures about
fair value measurements. SFAS No. 157 clarifies the definition of fair value as
an exit price, i.e., a price that would be received to sell, as opposed to
acquire, an asset or transfer a liability. SFAS No. 157 emphasizes that fair
value is a market-based measurement. It establishes a fair value hierarchy that
distinguishes between assumptions developed based on market data obtained from
independent external sources and the reporting entity's own assumptions.
Further, SFAS No. 157 specifies that fair value measurements should consider
adjustments for risk, such as the risk inherent in a valuation technique or its
inputs.
NOTE 3 - INVENTORIES
--------------------
Inventories consist of the following at November 30:
2008 2007
---------- ----------
Raw materials $ 509,090 $ 170,922
Finished goods 292,687 259,238
---------- ----------
801,777 430,160
Reserve for obsolescence (3,530) (3,530)
---------- ----------
Total inventories $ 798,247 $ 426,630
========== ==========
Certain of the Company's raw materials are obtained from a limited number of
suppliers.
44
WESTBRIDGE RESEARCH GROUP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended November 30, 2008 and 2007
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 California, 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 on the property. On February 8, 2007, the real
property was to be sold through a public auction. As there were no bids placed,
the Company obtained the right to take title to the land. The Company is subject
to certain ownership restrictions based on Mexican law and therefore formed a
Mexican legal entity in order to take title to the property.
On August 15, 2008, the Company entered into an agreement to sell its rights to
the property for a purchase price of $1,250,000 with a $300,000 deposit,
refundable in part, and the balance of payment at the time of closing which was
expected to be on December 15, 2008. As of November 30, 2008, $95,000 of the
$300,000 deposit was non-refundable to the buyer. Due to unforeseen
circumstances, at the request of the buyer, the Company and buyers amended the
agreement on December 15, 2008. Upon execution of the amendment, the entire
$300,000 deposit paid by the buyer became non-refundable. The amendment extends
the buyer time to complete the purchase to November 30, 2010, with required
additional payments over that period and provides for a purchase discount of 5%
if completed on or before November 30, 2009.
The Company is applying the non-refundable portion of the deposit, first against
its long-term receivable with the remainder being eventually recognized as other
income. As part of the arrangement with its Mexican legal counsel, the Company
is obligated to pay them a portion of any collection received on its long-term
receivable. The Company has accrued $4,500 to date based on the non-refundable
portion collected. Based upon the aforementioned agreement, the Company has
re-valued its allowance on the long-term account receivable to more accurately
reflect the future collections anticipated, based on the future non-refundable
portion of the deposits.
The long term account receivable and related allowance for doubtful accounts at
November 30 is as follows:
2008 2007
---------- ----------
Long-term account receivable $ 451,270 $ 451,270
Deposit applied after expenses accrued (90,500) --
Allowance for doubtful long-term account (226,270) (321,270)
---------- ----------
Long-term account receivable, net $ 134,500 $ 130,000
========== ==========
45
WESTBRIDGE RESEARCH GROUP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended November 30, 2008 and 2007
NOTE 5 - INTANGIBLE ASSETS
--------------------------
For the year ended November 30, 2001, the Company reported net purchased
formulas and prepaid royalties of $97,176. During 2002, the Company exercised
its right to purchase the formula, for which the royalty fee was based upon for
$64,000. In 2002 the Company adopted SFAS 142. The adoption of SFAS 142 allowed
the Company to discontinue amortizing its intangible assets and annually review
them for impairment. Management believes the assets have an indefinite life. The
value of the unamortized intangibles as of November 30, 2008 and 2007 is for
each item at least its book value. In accordance with SFAS 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets," (SFAS 144) if indicators of
impairment exist, we assess the recoverability of the affected long-lived assets
by determining whether the carrying value of such assets can be recovered
through undiscounted future operating cash flows. If impairment is indicated, we
measure the amount of such impairment by comparing the carrying value of the
asset to the estimated fair value of the related asset, which is generally
determined based on the present value of the expected future cash flows. As of
November 30, 2008, there is no impairment of this asset.
NOTE 6 - LINE OF CREDIT
-----------------------
As of November 30, 2008, the Company has a $500,000 line of credit with a bank,
which represents an increase of $300,000 in 2008, secured by all the Company's
assets. As of November 30, 2008 and 2007, there were no outstanding borrowings
against the line. Borrowings under the line of credit bear interest at the
bank's prime rate plus 0.5% and interest is payable monthly.
NOTE 7 - ACCRUED EXPENSES
-------------------------
Accrued expenses consist of the following at November 30:
2008 2007
---------- ----------
Deposit - Mexico property $ 205,000 $ -
Accrued payroll - 146,600
Accrued vacation 55,109 47,909
State taxes payable - 94,900
Auditing fees 21,936 22,000
Deferred Rent 77,595 57,373
Warranty 64,934 96,000
Sales commissions 57,813 85,702
Other 40,319 52,171
---------- ----------
Total accrued expenses $ 522,706 $ 602,655
========== ==========
46
WESTBRIDGE RESEARCH GROUP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended November 30, 2008 and 2007
NOTE 8 - LONG-TERM DEBT
-----------------------
Long-term debt consists of the following at November 30:
2008 2007
-------------- ---------------
Note payable to Ford Credit $ 18,220 $ 26,258
Less: Current portion 8,038 8,038
-------------- ---------------
Long-term portion $ 10,182 $ 18,220
============== ===============
NOTE 9 - NOTES PAYABLE TO RELATED PARTIES
At November 30, 2007 notes payable to related parties were as follows:
2007
--------------
Notes payable to related parties, with simple interest at 8%, collateralized by
a subordinated security interest in substantially all the assets of the Company.
Principal and accrued interest was initially due September 1, 2006, however
during 2006, these notes were extended through September 1, 2008. Amount
includes accrued interest of $0 at November 30, 2007. $ 38,240
Notes payable to a related party, with simple interest compounded annually at
prime plus 1%, which at November 30, 2007 and 2006 was 8.5% and 9.25%,
respectively. Collateralized by a subordinated security interest in
substantially all the assets of the Company. Principal and accrued interest was
initially due at maturity in June 1995. During 2004 and 2006, the due date was
extended through September 1, 2006 and 2008, respectively. Amount includes
accrued interest of $0 at November 30, 2007. 28,132
--------------
Total notes payable to related parties 66,372
Less: Current portion (66,372)
--------------
Notes payable to related parties, long-term $ -
==============
47
WESTBRIDGE RESEARCH GROUP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended November 30, 2008 and 2007
NOTE 10 - STOCK OPTIONS
-----------------------
During fiscal 2001, the Company established an employee stock option plan ("the
2001 Plan") under which options to purchase an aggregate of 400,000 shares of
the Company's common stock may be granted to directors, officers, employees and
certain persons rendering service to the Company as either incentive options or
non-qualified options. Under the 2001 Plan, incentive stock options may be
granted at an exercise price greater than or equal to the market value at the
date of the grant, for owners of 10% or more of the voting shares, at an
exercise price of not less than 110% of the market value at the date of grant
and non-qualified options may be granted at an exercise price greater than or
equal to 85% of the market value at the date of the grant. Options vest over
varying terms designated by the 2001 Plan's administration committee and expire
at the earlier of ten years from the date of grant or 90 days after termination
of employment. There are 319,500 options granted under the 2001 plan of which
223,876 are fully vested as of November 30, 2008.
During fiscal 2008, the Company granted non-qualified stock options to acquire
5,000 shares at $1.53 per share to two members of the Board of Directors. The
10,000 options immediately vest upon grant and expire in April 2018. All of
these options remain outstanding and exercisable at November 30, 2008.
During fiscal 2008, the Company granted stock options to acquire 137,500 shares
at $1.53 per share to several employees, including the Company's President. The
future stock compensation expense on unvested options is $75,007. Of the
remaining 95,625 options, 41,875 vest in April 2009, 41,875 vest in April 2010,
and 11,875 vest in April 2011.
At November 30, 2008 and 2007, a total of 80,500 and 228,000 shares remain
reserved and available for future stock option grants under the 2001 Plan.
A summary of the stock option activity under the 2001 Plan is as follows:
Weighted
Exercise Average
Stock Price Per Price Per
Options Share Share
---------------- ---------------- -------------
Outstanding at November 30, 2006 177,000 $0.25 - 1.00 $ 0.27
Granted - - -
Expired or canceled (5,000) 1.00 1.00
----------------- --------------- -------------
Outstanding at November 30, 2007 172,000 0.25 0.25
Granted 147,500 1.53 1.53
Expired or canceled - - -
---------------- --------------- -------------
Outstanding at November 30, 2008 319,500 $0.25 - 1.53 $ 0.55
================ =============== =============
Vested stock options at November 30, 2008 223,876
================
Weighted average remaining contractual life 4 years
================
48
WESTBRIDGE RESEARCH GROUP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended November 30, 2008 and 2007
NOTE 11 - COMMITMENTS AND CONTINGENCIES
---------------------------------------
The Company entered into a lease of a freestanding industrial building with
19,504 square feet of office, storage and production space on December 5, 2006.
The lease commenced on February 1, 2007 with early possession on January 1,
2007. The lease expires January 31, 2015. Monthly base rent is $13,653 with
annual increases. Rent is being expensed on a straight line basis over the term
of the lease.
The Company also entered into a month-to-month lease of a building with 3,883
square feet of storage space on October 30, 2008. Monthly base rent is $2,000
and the lease commenced on December 1, 2008.
The Company remained under lease at the Joshua Way location until March 31,
2008. The Company continued to lease the Joshua Way location as a storage
facility on a month to month basis through November, 2008. Rent at the Joshua
Way location was approximately $7,800 through April, 2008 and was then reduced
to $4,200 for May, 2008 through November, 2008. In addition, the Company also
leased certain of its property and equipment through capital leases, which have
either expired or expire through 2012. Capitalized leases included in property
and equipment amounted to approximately $191,013, before accumulated
depreciation of $80,886 and $49,541 as of November 30, 2008 and 2007,
respectively. Minimum future obligations under the operating and capital leases
as of November 30, 2008 are as follows:
Year ending Operating Capital
November 30, Leases Leases
------------ ------ ------
2009 $ 172,967 $ 27,349
2010 178,156 25,739
2011 183,501 23,602
2012 189,006 8,515
2013 194,676 --
Thereafter 234,099 --
---------- --------
Total minimum lease payments $1,152,405 $ 85,205
========== ========
Less: Current Portion $(27,349)
--------
Long Term Portion $ 57,856
========
The USDA's National Organic Program recently announced new regulations, which,
if implemented, would result in the Company maintaining 100 yards distance
between the organic fertilizers facilities and facilities used for the
production of conventional fertilizers.
Rent expense was $247,982 and $275,542 for the years ended November 30, 2008 and
2007, respectively.
49
WESTBRIDGE RESEARCH GROUP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended November 30, 2008 and 2007
NOTE 12 - INCOME TAXES
----------------------
The provision (benefit) for income taxes consisted of the following as of
-------------------------------------------------------------------------
November 30:
------------
2008 2007
-------------- -------------
Current provision:
Federal $ -- $ --
State 1,600 93,800
------------- -------------
1,600 93,800
------------- -------------
Deferred expense (benefit):
Federal 123,425 (112,340)
State 12,000 2,200
------------- -------------
135,425 (110,140)
------------- --------------
Total income tax provision (benefit) $ 137,025 $ (16,340)
============= ==============
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:
2008 2007
--------------- ---------------
Deferred tax assets
Net operating loss carryforwards $ 455,600 $ 363,200
Other 108,000 52,800
--------------- ---------------
Gross deferred tax assets 563,600 416,000
Less valuation allowance (488,600) (191,000)
--------------- ---------------
Net deferred tax assets $ 75,000 $ 225,000
=============== ===============
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 increased by $297,600 from 2007
and decreased by $476,000 from 2006.
At November 30, 2008, the Company has a federal income tax net operating loss
carryforward of approximately $1,277,000. The federal net operating loss carry
forwards began expiring in 2008 and continue to expire through the year 2023. At
November 30, 2008 the Company has approximately $97,000 of California net
operating loss carry forward that begins to expire in 2018.
During 2008, the State of California enacted legislation which limits the use of
operating loss and tax credit carryforwards to offset income for years 2008 and
2009.
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.
50
WESTBRIDGE RESEARCH GROUP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended November 30, 2008 and 2007
NOTE 12 - INCOME TAXES (CONTINUED)
----------------------------------
A reconciliation of the effective tax with the federal statutory rate is as
follows as of November 30:
2008 2007
--------------- ---------------
Expected income tax expense
at 35% statutory rate $ (14,600) $ 340,700
Change in valuation allowance 297,600 (476,000)
Nondeductible expenses 6,200 5,000
State income taxes (3,700) 88,600
True up of tax basis in fixed assets (151,700) --
Other 3,225 25,360
--------------- ---------------
Tax expense (benefit) $ 137,025 $ (16,340)
=============== ================
5
