UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

Quarterly Report Under Section 13 or 15(d)

of the Securities Exchange Act of 1934

 

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended May 31, 2013

 

OR

 

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

 

 

Commission file number 2-92261

 

 

WESTBRIDGE RESEARCH GROUP

(Exact name of registrant as specified in its charter)

 

California	95-3769474
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)

 

1260 Avenida Chelsea

Vista, California 92081-8315

(Address of principal executive office) (Zip Code)

 

(760) 599-8855

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 [   ]

  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [   ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [   ]	Accelerated filer [   ]
Non-accelerated filer [   ]	Smaller reporting company [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [   ]  No [X]

 

The number of shares of issuer’s Common Stock, no par value, outstanding as of July 15, 2013 was 2,240,438.

  

 

 

Westbridge Research Group

 

FORM 10-Q

 

FOR THE QUARTERLY PERIOD ENDED MAY 31, 2013

 

Table of Contents

 

 

PART I	FINANCIAL INFORMATION	3
Item 1.	Financial Statements	3
	Consolidated Condensed Balance Sheets as of May 31, 2013 (unaudited) and November 30, 2012 (audited)	3
	Consolidated Condensed Statements of Operations for the three and six months ended May 31, 2013 and May 31, 2012 (unaudited)	5
	Consolidated Condensed Statements of Cash Flows for the three and six months ended May 31, 2013 and May 31, 2012 (unaudited)	6
	Notes to Consolidated Condensed Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18
Item 4.	Controls and Procedures	18
PART II	OTHER INFORMATION	19
Item 1.	Legal Proceedings	19
Item 1A.	Risk Factors	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3.	Defaults Upon Senior Securities	19
Item 4.	Mine Safety Disclosures	19
Item 5.	Other Information	19
Item 6.	Exhibits	19
SIGNATURES		20

 

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

WESTBRIDGE RESEARCH GROUP AND SUBSIDIARY

CONSOLIDATED CONDENSED BALANCE SHEETS

  

 

ASSETS

 

		MAY 31,				NOVEMBER 30,
		2013				2012
		(unaudited)				(audited)
CURRENT ASSETS
Cash and cash equivalents		$	2,720,106			$	1,531,686
Short term investments			1,000				1,000
Accounts receivable, less allowance for doubtful accounts of $15,000 and $3,600, respectively			781,579				155,693
Inventories			1,359,063				1,211,170
Deferred taxes			142,400				172,000
Prepaid expenses and other current assets			286,894				322,283
TOTAL CURRENT ASSETS			5,291,042				3,393,832
PROPERTY AND EQUIPMENT, net			511,502				545,439
INTANGIBLE ASSETS			151,600				151,600
TOTAL ASSETS		$	5,954,144			$	4,090,871

  

See accompanying notes to consolidated condensed financial statements.

 

 

WESTBRIDGE RESEARCH GROUP AND SUBSIDIARY

CONSOLIDATED CONDENSED BALANCE SHEETS

(continued)

  

 

LIABILITIES AND SHAREHOLDERS' EQUITY

  

		MAY 31,				NOVEMBER 30,
		2013				2012
		(unaudited)				(audited)
CURRENT LIABILITIES
Accounts payable		$	306,669			$	58,079
Accrued expenses			899,016				336,802
Line of credit			100,000				–
Current portion of note payable			4,697				4,623
TOTAL CURRENT LIABILITIES			1,310,382				399,504
Note payable, net of current portion			16,724				19,152
Deferred taxes			137,400				137,400
TOTAL LIABILITIES			1,464,506				556,056
Commitments (Note 5)
SHAREHOLDERS' EQUITY
Preferred stock, no par value:
Authorized 5,000,000 shares no shares issued and outstanding			–				–
Common stock, no par value:
Authorized 37,500,000 shares issued and outstanding 2,240,438 shares at May 31, 2013 and 2,223,438 at November 30, 2012			8,514,104				8,509,854
Paid-in capital			277,533				247,902
Accumulated deficit			(4,301,999	)			(5,222,941	)
TOTAL SHAREHOLDERS' EQUITY			4,489,638				3,534,815
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		$	5,954,144			$	4,090,871

  

See accompanying notes to consolidated condensed financial statements.

 

 

WESTBRIDGE RESEARCH GROUP AND SUBSIDIARY

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(unaudited)

 

 

		THREE MONTHS ENDED MAY 31,								SIX MONTHS ENDED MAY 31,
		2013				2012				2013				2012
NET SALES		$	3,845,401			$	3,242,949			$	5,180,718			$	4,451,028
COST OF SALES			1,503,270				1,310,611				2,002,934				1,821,752
GROSS PROFIT			2,342,131				1,932,338				3,177,784				2,629,276
OPERATING EXPENSES
Research and development			108,801				121,356				220,979				189,397
Selling			531,094				552,205				896,671				917,576
General and administration			287,235				218,860				523,641				438,101
TOTAL OPERATING EXPENSES			927,130				892,421				1,641,291				1,545,074
Income from operations			1,415,001				1,039,917				1,536,493				1,084,202
OTHER INCOME (EXPENSE)
Interest expense			[1,594]				[1,383]				[1,719]				[2,202]
Interest income			366				418				768				590
Other income			–				11,523				–				24,100
Income before income taxes			1,413,773				1,050,475				1,535,542				1,106,690
Provision for income taxes			[540,000]				[90,000]				[614,600]				[100,000]
Net income		$	873,773			$	960,475			$	920,942			$	1,006,690
Basic earnings per common share		$	0.39			$	0.44			$	0.41			$	0.47
Basic weighted average common shares outstanding			2,238,438				2,165,105				2,233,021				2,156,771
Diluted earnings per common share		$	0.37			$	0.43			$	0.39			$	0.45
Diluted weighted average common shares outstanding			2,361,522				2,259,149				2,356,105				2,250,170

  

See accompanying notes to consolidated condensed financial statements.

 

 

WESTBRIDGE RESEARCH GROUP AND SUBSIDIARY

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)

 

		SIX MONTHS ENDED
		MAY 31,				MAY 31,
		2013				2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	920,942			$	1,006,690
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			70,362				71,244
Deferred income tax			29,600				–
Stock compensation expense			29,631				4,133
Increase in allowance for doubtful accounts			11,400				10,000
Changes in Operating Assets and Liabilities:
Increase in accounts receivable			[637,286]				[637,327]
Increase in inventories			[147,893]				[51,693]
Decrease in prepaid expenses and other current assets			35,389				23,734
Increase in accounts payable			248,590				264,830
Increase in accrued expenses			562,214				157,725
Net cash provided by operating activities			1,122,949				849,336
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment			[36,425]				[48,123]
Net cash used in investing activities			[36,425]				[48,123]
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations			–				[8,367]
Proceeds from exercise of stock options			4,250				6,250
Borrowings on line of credit			100,000				–
Payments on long-term debt			[2,354]				–
Net cash provided by [used in] financing activities			101,896				[2,117]
INCREASE IN CASH AND CASH EQUIVALENTS			1,188,420				799,096
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			1,531,686				1,319,648
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	2,720,106			$	2,118,744
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest		$	1,719			$	2,202
Taxes		$	91,000			$	29,637

 

See accompanying notes to consolidated condensed financial statements.

 

 

WESTBRIDGE RESEARCH GROUP AND SUBSIDIARY

 

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

 

NOTE 1 – ORGANIZATION AND SUMMARY OF 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.

 

Basis of Presentation

 

The accompanying unaudited consolidated condensed interim financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission.  In the opinion of management, all adjustments (which include only normal recurring adjustments except as noted in management's discussion and analysis of financial condition and results of operations) necessary to present fairly the financial position, results of operations and changes in cash flows have been made.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these consolidated condensed financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the 2012 Annual Report on Form 10-K, filed March 6, 2013. The results of operations for the six months ended May 31, 2013, are not necessarily indicative of the operating results for the full year.

 

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.

 

Seasonality

 

Agricultural product sales are typically seasonal in nature with heavier sales in the spring months. The Company is seeking to temper the seasonality of its agronomic sales by marketing its products in Latin American countries which typically produces sales in December, January and February of each year.

 

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.

 

 

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Revenue Recognition

 

Revenues are recorded on the accrual basis of accounting when title transfers to the customer, which is typically at the shipping point. The Company records estimated reductions to revenue for return allowances and product performance, based upon a percentage of sales. The Company also allows for returns based upon pre-approval or for damaged goods. Such returns are estimated based on historical experience and an allowance is provided at the time of sale.

 

Shipping and Handling Costs

 

The Company incurs expenses for the shipment of goods to customers. These expenses are recognized in the period in which they occur and are classified as gross revenues if billed to the customer and cost of goods sold if incurred by the Company. Such costs amounted to approximately $86,000 and $109,000 for the three and six month periods ended May 31, 2013 and approximately $75,000 and $100,000 for the three and six month periods ended May 31, 2012.

 

Concentrations

 

A majority of the Company’s domestic sales are concentrated in states west of the Mississippi. The majority of the Company’s foreign sales are concentrated in South America and Asia. As of May 31, 2013, three customers represented 55% of accounts receivable and as of May 31, 2012, three customers represented 63% of accounts receivable. Four of the Company’s largest customers had combined purchases amounting to 48% of the Company’s net sales for the six months ended May 31, 2013. Three of the Company’s largest customers had combined purchases amounting to 35% of the Company’s net sales for the six months ended May 31, 2012. Total international sales represent 7% for each of the six month periods ended May 31, 2013 and 2012. The Company has no assets located in foreign countries.

 

Research and Development

 

It is the Company’s policy to expense research and development costs when incurred. During the three and six month periods ended May 31, 2013, the Company expensed $108,801 and $220,979, respectively, of research and development costs. During the three and six month periods ended May 31, 2012, the Company expensed $121,356 and $189,397, respectively, of research and development costs.

 

Advertising

 

Advertising expense is comprised of media, agency and promotion costs. Advertising expenses are charged to expense as incurred. Advertising expenses totaled $45,297 and $93,159 during the three and six month periods ended May 31, 2013 and $40,510 and $75,105 during the three and six month periods ended May 31, 2012.

 

 

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Earnings Per Share

 

Basic earnings per common share is based upon the weighted average number of common shares outstanding during the period. Diluted earnings per common share is based upon the weighted average number of common shares outstanding adjusted for the assumed conversion of dilutive stock options using the treasury stock method. The calculation of weighted average diluted shares outstanding excludes all anti-dilutive shares. During the periods ended May 31, 2013 and 2012, the Company excluded 0 and 147,500 stock options, respectively, from the calculation of diluted weighted-average shares outstanding as the stock options were considered 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:

 

		Three Months Ended								Six Months Ended
		May 31, 2013 and 2012								May 31, 2013 and 2012
Net income		$	873,773			$	960,475			$	920,942			$	1,006,690
Denominator for basic earnings per common share			2,238,438				2,165,105				2,233,021				2,156,771
Effect of dilutive securities			123,084				94,044				123,084				93,399
Denominator for diluted earnings per common share			2,361,522				2,259,149				2,356,105				2,250,170
Net income per common share:
Basic		$	0.39			$	0.44			$	0.41			$	0.47
Diluted		$	0.37			$	0.43			$	0.39			$	0.45

 

 

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Income Taxes

 

The Company follows ASC 740, Income Taxes (“ASC 740”), which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the asset will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

 

ASC 740 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.

 

ASC 740 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.

 

The Company’s policy is to record interest and penalties on uncertain tax positions as income tax expense. As of May 31, 2013 and May 31, 2012, the Company had no accrued interest or penalties related to uncertain tax positions.

 

The Company is subject to U.S. federal or state income tax examinations by tax authorities for years after 2008. During the periods open to examination, the Company has net operating loss and tax credit carry-forwards for U.S. federal and state tax purposes that have attributes from closed periods. Since these net operating losses and tax credit carry-forwards may be utilized in future periods, they remain subject to examination.

 

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.

 

Accounts Receivable and Allowances for Uncollectible Accounts

 

The Company extends unsecured credit to most of its customers. 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.

 

 

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Impairment of Long-Lived Assets and Intangibles

 

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

 

Intangible Assets

 

The Company does not amortize indefinite lived intangible assets, but tests these assets for impairment annually or whenever indicators of impairments arise.  Intangible assets that have finite lives are amortized over their estimated useful lives and tested for impairment as described above for long-lived assets.  The Company’s intangible assets with indefinite lives primarily consist of purchased formulas.  Generally, the Company has determined that its formulas have indefinite useful lives due to the following:

 

	·	Formulas and trade secret applications which are classified as pesticides or bio-pesticides are generally authorized by the United States Environmental Protection Agency subject to certain conditions, without substantial cost under a stable regulatory, legislative and legal environment;
	·	Maintenance expenditures to obtain future cash flows are not significant;
	·	The Soil TRIGGRR® and Foliar TRIGGRR® formulations are not technologically dependent; and
	·	The Company intends to use these assets indefinitely.

 

The Company combines all its indefinite lived formulas which mainly consist of Soil TRIGGRR^® and Foliar TRIGGRR^® into a single unit of accounting.  The analysis encompasses future cash flows from sales of Soil TRIGGRR^® and Foliar TRIGGRR^® product lines. In conducting the annual impairment test in 2012, the Company determined that the estimated fair value of the formulas, calculated using a discounted cash flow analysis, exceeded their carrying amounts. No changes have occurred since the impairment test that would require the Company to re-evaluate its formulas.

 

Recent Accounting Pronouncements

 

There are no recently issued accounting standards with pending adoptions that the Company’s management currently anticipates will have any material impact upon its financial statements.

 

 

NOTE 2 – INVENTORIES

 

Inventories, consisting of material, material overhead, labor, and manufacturing overhead, are stated at the lower of cost (determined on a first-in, first-out basis) or market. Inventories consist of the following at:

 

		May 31,				November 30,
		2013				2012
Raw materials		$	523,901			$	559,421
Finished goods			835,162				651,749
Total inventories		$	1,359,063			$	1,211,170

 

There are a limited number of suppliers for certain raw materials used by the Company in its products.

 

NOTE 3 – PROPERTY AND EQUIPMENT, NET

 

Property and equipment are recorded at cost. Depreciation is calculated on the 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 is 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 expense. 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. Property and equipment consists of the following at:

 

		May 31,				November 30,
		2013				2012
Machinery and equipment		$	954,561			$	923,929
Furniture and fixtures			190,005				186,787
Vehicles			71,080				71,080
Leasehold improvements			385,976				383,401
Total Property and Equipment			1,601,622				1,565,197
Less accumulated depreciation and amortization			(1,090,120	)			(1,019,758	)
Property and Equipment, net		$	511,502			$	545,439

  

 

NOTE 4 – ACCRUED EXPENSES

 

Accrued expenses consist of the following at:

 

		May 31,				November 30,
		2013				2012
Sales commissions		$	139,979			$	48,721
Deferred rent			92,638				92,938
Warranty			31,023				32,000
Accrued vacation			88,196				88,196
Accrued income taxes			497,488				3,488
Accrued payroll			48,000				–
Other			1,692				71,459
Total accrued expenses		$	899,016			$	336,802

 

NOTE 5 – COMMITMENTS

 

The Company has a $500,000 line of credit with a bank, secured by all the Company’s assets with usual banking covenants.  As of May 31, 2013, the Company has drawn $100,000 on the line of credit. Borrowings under the line of credit bear interest at the bank’s prime rate plus 1%, but not less than 5% per annum. The interest rate as of May 31, 2013 is 5%. Interest is payable monthly. The line of credit expires August 5, 2013.

 

In January 2013, the Company entered into a month to month agreement with a third party warehouse and distribution center. The monthly rent is dependent upon activity but no less than $250 per month. The Company expects to keep rent to a minimum and not to exceed $500 per month.

 

NOTE 6 – STOCK OPTIONS

 

In December 2012, Mr. Fruehling, the Company’s Chairman of the Board, exercised an option granted in 2002 and purchased 5,000 shares of the Company’s common stock for $0.25 per share. In addition, Mr. Fruehling exercised an option in March 2013 which was granted in 2003 and purchased 12,000 shares of the Company’s common stock for $0.25 per share.

 

In March 2013, the Company granted non-qualified stock options to acquire 7,500 shares to each of its two members of the Board of Directors at $0.93 per share. These options vest immediately and expire in March 2023. All of these options remain outstanding and exercisable at May 31, 2013.

 

In April 2013, the Company granted non-qualified stock options to acquire 7,500 shares to each of its two members of the Board of Directors at $1.62 per share. These options vest immediately and expire in April 2023. All of these options remain outstanding and exercisable at May 31, 2013.

 

 

 

NOTE 7 – GOING PRIVATE TRANSACTION

 

In May 2013, the Board of Directors determined that it is in the best interest of the Company and its shareholder’s to take the Company private. To “go private” means the Company will terminate the registration of its common stock under the Securities Exchange Act of 1934 (“Exchange Act”). Once private, the Company will no longer be required to file quarterly and annual reports, proxy material and other forms with the U.S. Securities and Exchange Commission (“SEC”). As a requirement to accomplish this going-private transaction, the Company must reduce the number of its record shareholders to 500 or fewer. The Company currently has approximately 577 shareholders of record.

 

To reduce the number of shareholders, the Board approved a reverse stock split of the Company’s common stock whereby 833 shares would be converted into one share and no fractional shares would be issued (“Reverse Stock Split”). As a result of the Reverse Stock Split, shareholders owning less than 833 shares would be cashed out at the rate of $1.93 per pre-split share. This Reverse Stock Split requires the approval of the Company’s shareholders holding a majority of the outstanding shares. The Reverse Stock Split will be voted upon at the Company’s Annual Meeting. If the Reverse Stock Split is approved by the Company’s shareholders, the Board, acting under its own authority, has authorized a forward stock split following the Reverse Stock Split so that each share of stock will become 833 shares. Many continuing shareholders will also receive cash for some of their shares at the same rate of $1.93 per pre-split share because the Company will not issue fractional shares in the Reverse Stock Split. The Company anticipates approximately $365,000 will be paid out to both the cashed-out shareholders as well as the continuing shareholders, as those terms are defined in the proxy materials, for the purchase of fractional shares. The Company believes that it will expend approximately $40,000 in direct costs related to this going private transaction, including printing costs, the stock transfer agent and the fee paid to the appraiser. The Reverse Stock Split and other aspects of the going-private transaction will be discussed more fully in the proxy materials distributed to all shareholders.

 

The Board believes that there are significant costs and burdens to the Company in remaining a public reporting company. To comply with its obligations under the Exchange Act, the Company incurs direct and indirect costs associated with compliance with the filing and reporting requirements imposed on public companies. Examples of direct cost savings from termination of registration of the common stock include: lower printing and mailing costs; reduced reporting and disclosure requirements due to the Company’s private status; and reduction of direct expenses such as preparing electronic filings in the EDGAR format required by the SEC. In addition, the Company has determined there will be a reduction in audit costs and legal fees once the Company is no longer subject to the reporting requirements of the Exchange Act. The Company also incurs indirect costs as a result of executive time expended to prepare and review such Exchange Act filings. Ceasing registration of the common stock is expected to substantially reduce many of these costs. The Company also expects the Reverse Stock Split to reduce the cost of servicing shareholder accounts. The costs of printing and mailing materials to shareholders increases for each shareholder account, regardless of the number of shares held by the shareholder. Many of the shareholders hold a relatively small number of shares, and the cost of servicing such accounts is disproportionate to the size of the holdings. The Board also believes that, following the Reverse Stock Split, the Company’s management will be able to better focus on the long-term business goals of growing the Company’s core business of manufacturing, selling or distributing high quality agricultural fertilizers, plant growth regulators and bio-control products for commercial growers throughout the United States and other countries.

 

NOTE 8 – STOCK BASED COMPENSATION

 

For stock options issued under the Company’s stock-based compensation plan, the fair value of each option grant is estimated on the date of grant using the Black-Scholes pricing model, and an estimated forfeiture rate is used when calculating stock-based compensation expense for the period. The Company recognizes the compensation cost of stock-based awards on a straight-line basis over the vesting period of the award.

 

As there is no public market for its common stock, the Company determined the volatility for options granted based on an analysis of reported data for a peer group of companies that issued options with substantially similar terms. The expected volatility of options granted has been determined using an average of the historical volatility measures of this peer group of companies as well as the historical volatility of the Company’s common stock. The expected life of options has been determined utilizing the “simplified” method. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the stock options. The Company has not paid and does not anticipate paying cash dividends on its common stock; therefore, the expected dividend yield is assumed to be zero. For the six month period ended May 31, 2013 and 2012, the Company expensed $29,631 and $4,133, respectively, of stock option expense.

 

 

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

  

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. Westbridge Research Group and its wholly-owned subsidiary, Westbridge Agricultural Products may hereinafter be referred to collectively as “Westbridge,” the “Company,” “we,” “our,” “us,” and “our company”. 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. For a discussion of factors that could cause our actual results to differ from forward-looking statements contained herein, please see the discussion under the heading “Risk Factors” of our most recent Annual Report filed on Form 10-K.

 

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 Quarterly Report on Form 10-Q 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. Results for any period should not be relied upon as being indicative of performance in future periods.

 

We are a manufacturer and seller of environmentally compatible products for the agricultural industry. Our products include, among others, both conventional and organic fertilizers and growth regulators. 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’s National Organic Program.

 

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.

 

Results of Operations for the Three and Six Month Periods Ending May 31, 2013 Compared to the Three and Six Month Periods Ending May 31, 2012

 

Net sales for the three month period ended May 31, 2012 were $3,845,401, representing an increase of 19%, or $602,452, from the same period in the prior year. For the six month period ended May 31, 2013, sales were $5,180,718 which represents an increase of 16%, or $729,690, from the prior year’s sales of $4,451,028. These increases are primarily due to increased sales in California, Arizona and parts of the Midwest. In addition, the increase is due to the Company’s increased sales of its biological product in the state of Washington.

 

Cost of sales as a percentage of net sales decreased to 39% for the quarter ended May 31, 2013 as compared with 40% for the same period in the prior year. For the six month period ended May 31, 2013, cost of sales as a percentage of net sales decreased to 39% as compared with 41% for the same period in the prior year. These decreases are primarily due to the product mix.

 

 

Research and development expenses for the three and six month periods ended May 31, 2013 decreased 10%, or $12,555, and increased 17%, or $31,582, respectively, compared with the same periods in the prior year. The three month decrease is primarily due to reduced salaries and the six month increase is primarily due to increased trials and costs related to prospective products.

 

Selling expenses for the three and six month periods ended May 31, 2013 decreased 4%, or $21,111, to $531,094 and 2%, or $20,905, to $896,671, respectively compared with the same periods in the prior year. These decreases are primarily due to decreased commission expenses related to a particular territory. Overall, the Company’s sales have increased as discussed above.

 

General and administrative expenses for the three and six month periods ended May 31, 2013 increased $68,375 or 31% and $85,540 or 20%, respectively, when compared with the same periods in the prior year. These increases are primarily related to increased salaries, timing of billing and payment for accounting services, increased director’s compensation due to additional meetings in 2013, and director’s stock compensation expense related to options issued in March and April 2013.

 

Other income for the three and six month periods ended May 31, 2013 decreased $11,523 and $24,100, respectively, compared to the same periods in the prior year. These decreases in other income primarily reflects that the installments from the sale of the Mexico property were completed in 2012. Please refer to the Company’s 2012 Form 10-K filed March 6, 2013 for a full discussion.

 

Net income for the quarter ended May 31, 2013 was $873,773 as compared with net income of $960,475, for the same period in the prior year. Net income for the six month period ended May 31, 2013 was $920,942 as compared with net income of $1,006,690 in the prior year. As a result, basic earnings per share decreased to $0.41 for the six months ended May 31, 2013 compared with $0.47 per share for the six months ended May 31, 2012.

 

Results of Operations for the Three and Six Month Periods Ending May 31, 2012 Compared to the Three and Six Month Periods Ending May 31, 2011

 

Net sales for the three month period ended May 31, 2012 were $3,242,949, representing an increase of 60%, or $1,219,955, from the same period in the prior year. For the six month period ended May 31, 2012, sales were $4,451,028 which represents an increase of 47%, or $1,431,365, from the prior year’s sales of $3,019,663. The increase in sales is primarily due to increased sales in parts of the Midwest, along with the introduction of a new biological control product in the Pacific Northwestern United States. In addition, the three and six month increases are due to the Company’s sales and educational efforts over a number of years resulting in its products gaining acceptance with growers and distributors.

 

Cost of sales as a percentage of net sales increased to 40% for the quarter ended May 31, 2012 as compared with 39% for the same period in the prior year. For the six month period ended May 31, 2012, cost of sales as a percentage of net sales increased to 41% as compared with 39% for the same period in the prior year. These increases are primarily due to the product mix.

 

Research and development expenses for the three and six month periods ended May 31, 2012 increased 87%, or $56,388, and 55%, or $67,127, respectively, compared with the same periods in the prior year. These increases are primarily due to the addition of research and development staff.

 

 

Selling expenses for the three and six month periods ended May 31, 2012 increased 57%, or $201,377, to $552,205 and increased 47%, or $293,116, to $917,576, respectively compared with the same periods in the prior year. These increases are primarily due to additional selling staff, increased commission expense due to increased sales, and increased advertising and trade show expenses.

 

General and administrative expenses for the three and six month periods ended May 31, 2012 decreased $8,726 or 4% and $11,480 or 3%, respectively, when compared with the same periods in the prior year. These decreases are primarily due to a reduction in outside financial consulting services.

 

Other income for the three and six month periods ended May 31, 2012 increased $11,308 and decreased $77,635, respectively, compared to the same periods in the prior year. This increase and decrease in other income primarily represent the net proceeds of installment payments from the sale of the Mexico property.

 

Net income for the quarter ended May 31, 2012 was $960,475 as compared with net income of $554,823, for the same period in the prior year. Net income for the six month period ended May 31, 2012 was $1,006,690 as compared with net income of $687,902 in the prior year. As a result, basic earnings per share increased to $0.47 for the six months ended May 31, 2012 compared with $0.32 per share for the six months ended May 31, 2011.

 

Liquidity and Capital Resources:

 

Working capital was $3,980,660 at May 31, 2013, an increase of $986,332, from $2,994,328 at November 30, 2012. Working capital was $2,994,328 at May 31, 2012, an increase of $692,787, from $2,301,541 at November 30, 2011. These increases are primarily due to increased cash and accounts receivable. Agricultural product sales are typically seasonal in nature with heavier sales in the spring months, resulting in increased cash flow during the spring and summer months while normally reducing cash flow significantly during the fall and winter months.

 

During the period ended May 31, 2013, the Company had cash flows provided from operating activities of approximately $1,123,000 compared with approximately $849,000 for the period ended May 31, 2012. This increase is primarily due to the accrual for income taxes based upon net income through May 31, 2013. Cash used in investing activities was approximately $36,000 and $48,000 for the periods ended May 31, 2013 and May 31, 2012, respectively. This decrease is primarily due to reduced purchases of production equipment during the three and six month periods ended May 31, 2013 as compared with the prior periods. Cash provided by financing activities was approximately $102,000 for the six month period ended May 31, 2013 and cash used by financing activities was $2,000 for the six month period ended May 31, 2012. This increase is primarily due to borrowings on the line of credit.

 

The Company has secured a $500,000 line of credit available to be drawn down if required, of which, $100,000 has been drawn as of May 31, 2013. This line of credit is secured by all the assets of the Company.

 

Off-Balance Sheet Arrangements

 

None.

 

 

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide this information under this item.

 

ITEM 4. Controls and Procedures

 

The Company's management with the participation of the Company's principal executive and principal financial officer, has 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, as amended (the "Exchange Act")), as of May 31, 2013, the end of the quarterly fiscal period covered by this quarterly report. Based on this evaluation, the Company's principal executive and principal financial officer concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

 

There has been no change in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the Company's fiscal quarter ended May 31, 2013, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

 

 

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

None.

 

ITEM 1A. RISK FACTORS

 

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended November 30, 2012, which could materially affect our business, financial condition or operating results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not Applicable

 

ITEM 5. OTHER INFORMATION

 

None

 

ITEM 6. EXHIBITS

 

A. EXHIBITS

 

31.1	Certification of the Principal Executive Officer Pursuant to Rule 13a-14 or 15d-14 of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2	Certification of the Principal Financial Officer Pursuant to Rule 13a-14 or 15d-14 of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

32.2	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101.INS

XBRL Instance Document

 

101.SCH

XBRL Taxonomy Extension Schema Document

 

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

 

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

 

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

 

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

B. REPORTS ON FORM 8-K

 

None.

 

 

WESTBRIDGE RESEARCH GROUP AND SUBSIDIARY

 

SIGNATURES

 

Pursuant to the requirements 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.

 

	WESTBRIDGE RESEARCH GROUP
Dated: July 15, 2013	By:	/s/ Christine Koenemann
		Christine Koenemann, President Principal Executive Officer
Dated: July 15, 2013	By:	/s/ Richard Forsyth
		Richard Forsyth, Chief Financial Officer
		Principal Financial Officer