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EX-32.1 - CERTIFICATION - WESTBRIDGE RESEARCH GROUP | westbridge_10q-ex3201.htm |
EX-31.1 - CERTIFICATION - WESTBRIDGE RESEARCH GROUP | westbridge_10q-ex3101.htm |
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 February 28, 2010
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
of
incorporation or organization)
|
(I.R.S.
Employer
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
[ ] 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 April
14, 2010 was 2,103,438.
Westbridge
Research Group
FORM
10-Q
FOR
THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2010
Table
of Contents
PART
I
|
FINANCIAL
INFORMATION
|
|
Item
1.
|
Financial
Statements
|
|
Consolidated
Condensed Balance Sheets as of February 28, 2010 (unaudited)
and November 30, 2009 (audited)
|
3 | |
Consolidated
Condensed Statements of Operations for the three months ended February 28,
2010 (unaudited) and February 28, 2009 (unaudited)
|
5 | |
Consolidated
Condensed Statements of Cash Flow for the three months ended February 28,
2010 (unaudited) and February 28, 2009 (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.
|
17 |
Item
4.
|
Controls
and Procedures.
|
17 |
PART
II
|
OTHER
INFORMATION
|
|
Item
1.
|
Legal
Proceedings
|
18 |
Item
1A.
|
Risk
Factors
|
18 |
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
18 |
Item
3.
|
Defaults
Upon Senior Securities
|
18 |
Item
4.
|
(Removed and
Reserved)
|
18 |
Item
5.
|
Other
Information
|
18 |
Item
6.
|
Exhibits
|
18 |
SIGNATURES
|
19 | |
EXHIBIT
INDEX
|
PART
I - FINANCIAL INFORMATION
ITEM
1 - FINANCIAL STATEMENTS
WESTBRIDGE
RESEARCH GROUP AND SUBSIDIARY
CONSOLIDATED
CONDENSED BALANCE SHEETS
FEBRUARY
28,
|
NOVEMBER
30,
|
|||||||
2010
|
2009
|
|||||||
(unaudited)
|
(audited)
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 752,750 | $ | 1,267,254 | ||||
Short
term investments
|
1,000 | 1,000 | ||||||
Trade
accounts receivable, less allowance for doubtful accounts of $24,000 and
$6,416 respectively
|
465,545 | 210,858 | ||||||
Inventories,
net
|
833,901 | 620,476 | ||||||
Deferred
tax asset
|
25,000 | 25,000 | ||||||
Prepaid
expenses and other current assets
|
103,126 | 160,606 | ||||||
TOTAL
CURRENT ASSETS
|
2,181,322 | 2,285,194 | ||||||
PROPERTY
AND EQUIPMENT
|
1,225,251 | 1,175,148 | ||||||
Less
accumulated depreciation
|
[642,715 | ] | [604,063 | ] | ||||
Net
Property and Equipment
|
582,536 | 571,085 | ||||||
INTANGIBLE
ASSET
|
151,600 | 151,600 | ||||||
DEFERRED
TAX ASSET, net of current portion
|
80,000 | 80,000 | ||||||
TOTAL
ASSETS
|
$ | 2,995,458 | $ | 3,087,879 |
See
accompanying notes to consolidated
condensed
financial statements.
3
WESTBRIDGE
RESEARCH GROUP AND SUBSIDIARY
CONSOLIDATED
CONDENSED BALANCE SHEETS
(continued)
FEBRUARY
28,
|
NOVEMBER
30,
|
|||||||
2010
|
2009
|
|||||||
(unaudited)
|
(audited)
|
|||||||
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Accounts
payable
|
$ | 172,050 | $ | 79,471 | ||||
Accrued
expenses
|
262,916 | 446,656 | ||||||
Line
of credit
|
70,000 | 120,000 | ||||||
Current
portion of capital leases
|
20,088 | 19,381 | ||||||
Current
portion of long-term debt
|
7,794 | 7,719 | ||||||
TOTAL
CURRENT LIABILITIES
|
532,848 | 673,227 | ||||||
Capital
leases, net of current portion
|
26,419 | 31,714 | ||||||
Long-term
debt, net of current portion
|
1,997 | 3,974 | ||||||
TOTAL
LIABILITIES
|
561,264 | 708,915 | ||||||
SHAREHOLDERS'
EQUITY
|
||||||||
Preferred
stock:
|
||||||||
Authorized
5,000,000 shares
|
||||||||
No
shares issued and outstanding
|
-- | -- | ||||||
Common
stock, no par value:
|
||||||||
Authorized
37,500,000 shares
|
||||||||
Issued
and outstanding 2,103,438 shares
|
8,479,854 | 8,479,854 | ||||||
Paid
in capital
|
181,402 | 181,402 | ||||||
Accumulated
deficit
|
[6,227,062 | ] | [6,282,292 | ] | ||||
TOTAL
SHAREHOLDERS' EQUITY
|
2,434,194 | 2,378,964 | ||||||
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
$ | 2,995,458 | $ | 3,087,879 |
See
accompanying notes to consolidated
condensed
financial statements.
4
WESTBRIDGE
RESEARCH GROUP AND SUBSIDIARY
CONSOLIDATED
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
|
THREE
MONTHS ENDED
|
|||||||
|
FEBRUARY 28, | FEBRUARY 28, | ||||||
2010
|
2009
|
|||||||
|
||||||||
NET
SALES
|
$ | 786,662 | $ | 697,222 | ||||
COST
OF SALES
|
328,983 | 334,030 | ||||||
GROSS
PROFIT
|
457,679 | 363,192 | ||||||
OPERATING
EXPENSES
|
||||||||
Research
and development
|
56,532 | 41,106 | ||||||
Selling
|
234,010 | 36,756 | ||||||
General
and administration
|
153,025 | 176,762 | ||||||
TOTAL
OPERATING EXPENSES
|
443,567 | 254,624 | ||||||
Operating
income
|
14,112 | 108,568 | ||||||
OTHER
INCOME [EXPENSE]
|
||||||||
Other
income
|
45,858 | 6,750 | ||||||
Interest
expense
|
[3,759 | ] | [263 | ] | ||||
Interest
income
|
619 | 5,463 | ||||||
Income
before income taxes
|
56,830 | 120,518 | ||||||
Provision
for income taxes
|
1,600 | 1,600 | ||||||
Net
income
|
$ | 55,230 | $ | 118,918 | ||||
Basic
earnings per common share
|
$ | 0.03 | $ | 0.06 | ||||
Weighted
average shares outstanding
|
2,103,438 | 2,103,438 | ||||||
Diluted
earnings per common share
|
$ | 0.03 | $ | 0.05 | ||||
Weighted
average shares and options outstanding
|
2,183,949 | 2,181,609 |
See
accompanying notes to consolidated
condensed
financial statements.
5
WESTBRIDGE
RESEARCH GROUP AND SUBSIDIARY
CONSOLIDATED
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
THREE
MONTHS ENDED
|
||||||||
FEBRUARY
28,
|
FEBRUARY
28,
|
|||||||
2010
|
2009
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
income
|
$ | 55,230 | $ | 118,918 | ||||
Adjustments
to reconcile net income
|
||||||||
to
net cash used in operating activities:
|
||||||||
Depreciation
and amortization
|
38,652 | 32,355 | ||||||
Stock
compensation expense
|
-- | 4,601 | ||||||
Increase
in allowance for doubtful accounts
|
17,584 | |||||||
Decrease
in allowance for doubtful long-term account
receivable
|
-- | [205,000 | ] | |||||
Changes
in Operating Assets and Liabilities:
|
||||||||
Increase
in trade accounts receivable
|
[430,037 | ] | [402,131 | ] | ||||
Receipts
of long-term account receivable
|
157,766 | 133,801 | ||||||
Increase
in inventories
|
[213,425 | ] | [24,418 | ] | ||||
Decrease
in prepaid expenses
|
57,480 | 14,047 | ||||||
Increase
[decrease] in accounts payable
|
92,579 | [48,636 | ] | |||||
Decrease
in accrued liabilities
|
[183,740 | ] | [232,459 | ] | ||||
Net
cash used in operating activities
|
[407,911 | ] | [608,922 | ] | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Cash
proceeds from sale of short term investment
|
-- | 300,000 | ||||||
Purchase
of property and equipment
|
[50,103 | ] | [172 | ] | ||||
Net
cash [used in] provided by investing activities
|
[50,103 | ] | 299,828 | |||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Payments
on capital lease obligations
|
[4,588 | ] | [7,400 | ] | ||||
[Payments]
Borrowings on line of credit
|
[50,000 | ] | 100,000 | |||||
Payments
on long-term debt
|
[1,902 | ] | [2,010 | ] | ||||
Net
cash [used in] provided by financing activities
|
[56,490 | ] | 90,590 | |||||
DECREASE
IN CASH
|
[514,504 | ] | [218,504 | ] | ||||
|
||||||||
CASH
AT BEGINNING OF PERIOD
|
1,267,254 | 574,444 | ||||||
CASH
AT END OF PERIOD
|
$ | 752,750 | $ | 355,940 | ||||
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
||||||||
Cash
paid during the year for:
|
||||||||
Interest
|
$ | 3,759 | $ | 263 | ||||
Taxes
|
$ | 1,600 | $ | -- |
See accompanying notes to consolidated
condensed financial
statements.
6
WESTBRIDGE
RESEARCH GROUP AND SUBSIDIARY
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Basis of
Presentation
The
accompanying unaudited 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 financial statements be read in conjunction
with the financial statements and notes thereto included in the 2009 Annual
Report on Form 10-K, filed March 15, 2010. The results of operations
for the quarter ended February 28, 2010, are not necessarily indicative of the
operating results for the full year.
Fair Value Of Financial
Instruments
The
Company determines fair value based on the exchange price that would be received
for an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction
between market participants. Market or observable inputs are the
preferred source of values, followed by unobservable inputs or assumptions based
on hypothetical transactions in the absence of market inputs. The Company
applies the following hierarchy in determining fair value:
·
|
Level
1, defined as observable inputs being quoted prices in active markets for
identical assets (at February 28, 2010 and 2009, the Company’s $1,000 of
short-term investments were valued using level 1 pricing
inputs);
|
·
|
Level
2, defined as observable inputs including quoted prices for similar assets
in active markets; quoted prices for identical or similar instruments in
markets that are not active; and model-derived valuations in which
significant inputs and significant value drivers are observable in active
markets; and
|
·
|
Level
3, defined as unobservable inputs in which little or no market data
exists, therefore requiring assumptions based on the best information
available.
|
7
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, and at the request of the buyers, 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 extended the buyer time to complete the
purchase to November 30, 2010, with required additional payments over that
period and provided for a purchase discount of 5% if completed on or before
November 30, 2009. As of November 30, 2009, the buyers did not
complete the purchase. The Company has received non-refundable
payments from the buyers totaling $400,000 as of November 30, 2009 and received
an additional $300,000 on December 10, 2009 for the installment payment which
was originally due on November 30, 2009.
The
Company is applying the deposits, first against its long-term receivable with
the remainder, if any, recognized as other income. As part of the
arrangement with its Mexican legal counsel and American broker, the Company is
obligated to pay them a portion of any collection received on its long-term
receivable. As of February 28, 2010, the Company has paid $254,353
under these arrangements from the deposits collected. Through February 28, 2010,
the Company received all of the amounts owed under the original account
receivable balance, and recorded approximately $46,000 of other income in
conjunction with its receipt of the December 10, 2009
payment.
During
the quarter ended February 28, 2010, the Company agreed to assign to the buyer
its legal rights to the property in order to reduce the likelihood of
third-party claims against the property. In turn, the Company
initiated a debt collection proceeding in Mexico which was granted in favor of
the Company on January 29, 2010. This judgement gives the Company
recourse to place a lien on the property against the buyer if the buyer defaults
on the remaining portion due, approximately $550,000, under the original
agreement.
8
Inventories
Inventory,
consisting of agricultural products, is stated at the lower of cost (determined
on a first-in, first-out basis) or market. The Company’s inventories
increased as of the end of the quarter ended February 28, 2010 in preparation
for the second quarter which is the Company’s busiest time of the
year.
Inventories
consist of the following at:
February
28,
|
November
30,
|
|||||||
2010
|
2009
|
|||||||
Raw
materials
|
$ | 486,711 | $ | 399,787 | ||||
Finished
goods
|
350,720 | 224,219 | ||||||
837,431 | 624,006 | |||||||
Reserve
for obsolescence
|
[3530 | ] | [3530 | ] | ||||
Total
inventories
|
$ | 833,901 | $ | 620,476 |
Certain
of the Company’s raw materials are obtained from a limited number of
suppliers.
Reclassifications
Certain
financial statement amounts related to the prior quarter presentation have been
reclassified in order to conform to the current quarter
presentation.
Property and
Equipment
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.
9
Intangible
Assets
The
Company does not amortize indefinite lived intangible assets, but test 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 are generally authorized by the US EPA
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 2009, 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.
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 with FOB shipping point terms at which time revenues are
considered earned. The Company will replace product which is
considered “substandard”, however this occurs infrequently and the Company
records a warranty accrual for these anticipated replacements.
Shipping and Handling
Costs
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 $13,000 and approximately $13,800 for the three month periods
ended February 28, 2010 and February 28, 2009, respectively.
Research and
Development
It is the
Company’s policy to expense research and development costs when
incurred.
Advertising
Advertising
expense is comprised of media, agency and promotion
costs. Advertising expenses are charged to expense as
incurred.
10
Net Income Per
Share
Basic
income 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 diluted shares outstanding for the
periods ended February 28, 2010 and February 28, 2009 excludes the dilutive
effect of approximately 172,500 and 172,500 stock options, respectively, since
such options have an exercise price in excess of the average market value of the
Company’s common stock during the respective periods.
The
following is a reconciliation of the numerators and denominators of the basic
and diluted earnings per share computations for the periods presented
below:
Period
Ended
|
||||||||
February
28,
|
February
28,
|
|||||||
2010
|
2009
|
|||||||
Numerator
for earnings per common share
|
$ | 55,230 | $ | 118,918 | ||||
Denominator
for basic earnings per common share
|
2,103,438 | 2,103,438 | ||||||
Effect
of dilutive securities
|
80,511 | 78,171 | ||||||
Denominator
for diluted earnings per common share
|
2,183,949 | 2,181,609 | ||||||
Net
income per common share:
|
||||||||
Basic
|
$ | 0.03 | $ | 0.06 | ||||
Diluted
|
$ | 0.03 | $ | 0.05 |
Long Lived
Assets
The
Company investigates potential impairments of its 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.
11
Stock Based
Compensation
For stock
options issued under the Company’s stock-based compensation plans, 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. For restricted
stock awards and units issued under the Company’s stock-based compensation
plans, the fair value of each grant is calculated based on the Company’s stock
price on the date of grant and an estimated forfeiture rate 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.
The
benefits of tax deductions in excess of recognized stock-based compensation are
reported as a financing activity rather than an operating activity in the
statements of cash flows. This requirement reduces net operating cash flows and
increases net financing cash flows in certain periods.
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 as prescribed by
the SEC’s Staff Accounting Bulletin No. 107, Share-Based Payment. 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.
The
risk-free interest rate ranged from 1.9% to 3.2%, expected volatility ranged
from 49% to 92% 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
between five and six and one half years based on the average vesting period of
options granted. For the periods ended February 28, 2010 and 2009,
the Company expensed $0 and $4,601 of stock option expense.
Income
Taxes
The
Company accounts for income taxes under FASB ACS 740-10, “Income
Taxes.” Deferred income tax assets and liabilities are
determined based upon differences between the financial reporting and tax bases
of assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when 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 assets 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. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in the statements of operations in the period that includes the
enactment date.
FASB ASC
740-10 also addresses the determination of whether tax benefits claimed or
expected to be claimed on a tax return should be recorded in the financial
statements. 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 taxing authorities, based on the
technical merits of the position.
12
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. Westbridge Agricultural
Products (WAP) 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. WAP must also pay certain other customary expenses under
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.
Recent Accounting
Pronouncements
In June 2009, the FASB issued ASC 105,
The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles—a
replacement of FASB Statement No. 162 (“ASC 105”). ASC 105 will
become the source of authoritative U.S. GAAP recognized by the FASB to be
applied by non-governmental entities. Rules and interpretive releases of the
SEC, under the authority of federal securities laws, are also sources of
authoritative U.S. GAAP for SEC registrants. On the effective date of this
statement, the codification will supersede all then-existing non-SEC accounting
and reporting standards. All other non-grandfathered non-SEC accounting
literature not included in the codification will become non-authoritative. This
statement is effective for financial statements issued for interim and annual
reporting periods ending after September 15, 2009. The Company’s adoption
of ASC 105, effective September 30, 2009, impacted the consolidated
financial statements and related disclosures as all references to authoritative
accounting literature reflect the newly adopted codification.
In
February 2010, the FASB issued ASU No. 2010-09, Amendments to Certain Recognition
and Disclosure Requirements (“ASU No. 2010-09”). ASU
No. 2010-09 establishes that an entity that is an SEC filer is required to
evaluate subsequent events through the date that the financial statements are
issued. An entity that is an SEC filer is not required to disclose the date
through which subsequent events have been evaluated. The amendments in ASU
No. 2010-09 are effective upon issuance of the final update, except for the
use of the issued date for conduit debt obligors. That amendment is effective
for interim or annual periods ending after June 15, 2010. Effective with
the adoption of ASU No. 2010-09 on December 31, 2009, the Company no
longer discloses the date though which subsequent events have been evaluated, as
the Company evaluated subsequent events through the date the financial
statements were issued.
In
January 2010, the FASB issued Accounting Standards Update (“ASU”)
No. 2010-06, Fair Value
Measurements and Disclosures (“ASU No. 2010-06”). ASU
No. 2010-06 provides guidance on improving disclosures on fair value
measurements, such as the transfers between Level 1, Level 2 and Level 3 inputs
and the disaggregated activity in the rollforward for Level 3 fair value
measurements. ASU No. 2010-06 is effective for interim and annual reporting
periods beginning after December 15, 2009, except for the disclosures about
the disaggregated activity in the rollforward for Level 3 fair value
measurements. Those disclosures are effective for fiscal years beginning after
December 15, 2010 and for interim periods within those fiscal periods. The
Company is currently evaluating the impact of ASU No. 2010-06 on its
consolidated financial statements.
13
In
October 2009, the FASB issued ASU No. 2009-13, Multiple-Deliverable Revenue
Arrangements (“ASU No. 2009-13”). ASU No. 2009-13 establishes
the accounting and reporting guidance for arrangements under which the vendor
will perform multiple revenue-generating activities. Specifically, ASU
No. 2009-13 addresses how to separate deliverables and how to measure and
allocate arrangement consideration to one or more units of accounting. ASU No.
2009-13 is effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010.
Early adoption is permitted. The Company has elected not to early adopt and is
currently evaluating the impact of ASU No. 2009-13 on its consolidated
financial statements.
In
June 2009, the FASB issued ASC 810-10-50, Amendments to FASB Interpretation
No. 46(R) (“ASC 810-10-50”). ASC 810-10-50 was issued to address the
effects on certain provisions of FASB Interpretation No. 46 (revised
December 2003), Consolidation of Variable Interest
Entities (“FIN No. 46(R)”), as a result of the elimination of the
qualifying special-purpose entity concept in ASC 860-10-50 and constituent
concerns about the application of certain key provisions of FIN No. 46(R),
including those in which the accounting and disclosures under the interpretation
do not always provide timely and useful information about an enterprise’s
involvement in a variable interest entity. ASC 810-10-50 is effective for an
entity’s first annual reporting period that begins after November 15, 2009.
The adoption of ASC 810-10-50 is not expected to have a significant effect on
the consolidated financial statements.
14
WESTBRIDGE
RESEARCH GROUP AND SUBSIDIARY
MANAGEMENT'S
DISCUSSION AND ANALYSIS
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. 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.
Results
of Operations:
Net sales
for the three month period ended February 28, 2010 were $786,662, representing a
13% increase from the same period in the prior year. This increase is
primarily associated with an increase in sales to two of our
distributors.
Cost of
sales as a percentage of net sales decreased to 42% for the quarter ended
February 28, 2010 as compared with 48% for the same period in the prior
year. This decrease is primarily due to more sales of the Company’s
higher margin products during the quarter ended February 28, 2010 as compared
with the same period in the prior year.
15
Research
and development expenses for the three month period ended February 28, 2010
increased 38% to $56,532 compared with the same period in the prior
year. This increase is primarily due to increases in salaries and
outside lab analysis costs.
Selling
expenses for the three month period ended February 28, 2010 increased $197,254,
or 537%, compared with the same period in the prior year. This
increase is primarily due to an adjustment to the allowance for doubtful
long-term account receivable in the amount of $205,000 in the prior
year. The Company reassessed the allowance account in light of the
proceedings on the sale of the Mexico property discussed in the notes to the
financial statements. Based upon the aforementioned agreement, the
Company re-valued its allowance on the long-term account receivable by $205,000
during the quarter ended February 28, 2009 to more accurately reflect
collections on the long-term account receivable. Selling expenses,
without the aforementioned adjustment, would have been $241,756 for the quarter
ended February 28, 2009. Selling expenses would have decreased 3% or
$7,746 for the quarter ended February 28, 2010 if the allowance adjustment had
not been included. This decrease is primarily due to reduced salaries
and travel expenses associated with reduction in the sales staff.
General
and administrative expenses for the three month period ended February 28, 2010
decreased $23,737 or 13%, when compared with the same period in the prior
year. This decrease is primarily due to decreased corporate legal
expenses and reduced staff.
Net
income for the quarter ended February 28, 2010 was $55,230 as compared with net
income of $118,918, for the same period in the prior year. As a
result, basic earnings per share decreased to $.03 per share for the three
months ended February 28, 2010 compared with $.06 per share for the three months
ended February 28, 2009. Net income as of February 28, 2010 decreased
when compared to net income for the same period in the prior
year. This decrease is primarily due to the re-valuation of the
allowance for doubtful long-term account receivable as noted within the Selling
expenses.
Income
taxes have not been provided for in the accompanying consolidated condensed
statements of operations due to the net operating loss carryforwards generated
in prior years that are available for carryforward against current year income.
The Company had over $1 million of federal net operating loss carryforwards at
November 30, 2009, which it is currently utilizing to reduce its income tax
exposure. Management has provided for the annual minimum California
Franchise Tax. In addition, management has assessed the recoverable
value of its current deferred tax asset at $105,000 as the Company has been
able to achieve its budgeted targets and the Company expects to utilize these
benefits over the next three years. The Company has limited its deferred tax
asset to its expected rolling two year utilization rate taking into
consideration its expected expansion of both sales and costs associated with
increased production and sales force, or until utilized, whichever occurs
first.
16
Liquidity
and Capital Resources:
Working
capital was $1,648,474 at February 28, 2010, an increase of $36,507, from
$1,611,967 at November 30, 2009. This increase is primarily due to
cash collected from the proceedings on the sale of the Mexico
property.
The
Company has a $500,000 line of credit available to be drawn down if required, of
which, $70,000 has been drawn through February 28, 2010. This line of
credit is secured by all the assets of the Company.
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 evaluated,
with the participation of the Company's principal executive and principal
financial officer, 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 February 28, 2010.
Based on this evaluation, the Company's principal executive and principal
financial officer concluded that the Company's disclosure controls and
procedures were effective as of February 28, 2010. During
the three months ended February 28, 2010 and through the date of this report,
the Company improved the internal control over financial reporting to address
the material weaknesses identified in its Form 10-KSB and subsequent amendments
filed for the year ended November 30, 2009 by obtaining the most recent
documentation pertaining to the disclosure requirements and standards
established to ensure proper reporting and disclosure requirements are
met.
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 February 28, 2010, that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
17
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, 2009, 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. Additionally 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.
|
(Removed and
Reserved)
|
ITEM 5.
|
OTHER
INFORMATION
|
None
ITEM 6.
|
EXHIBITS
|
A.
|
EXHIBITS
|
31.1
|
Certification
of the Principal Executive Officer and 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.
|
31.2
|
Certification
of Principal Executive Officer and Principal Financial Officer Pursuant to
18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
B.
|
REPORTS
ON FORM 8-K
|
|
None.
|
18
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
(Registrant)
Dated:
April 14,
2010 /s/ Christine
Koenemann
Christine Koenemann,
President
Principal Executive
Officer
Principal Financial
Officer
19