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 August 31, 2012

 

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 [  ] No [ X ]

 

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 October 15, 2012 was 2,223,438.

 

__________________________________________________________________

 

Westbridge Research Group

 

FORM 10-Q

 

FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 2012

 

Table of Contents

___________________________________________________________________

 

PART I	FINANCIAL INFORMATION	3
Item 1.	Financial Statements	3
	Consolidated Condensed Balance Sheets as of August 31, 2012 (unaudited) and November 30, 2011 (audited)	3
	Consolidated Condensed Statements of Operations for the three and nine months ended August 31, 2012 and August 31, 2011 (unaudited)	5
	Consolidated Condensed Statements of Cash Flows for the nine months ended August 31, 2012 and August 31, 2011 (unaudited)	6
	Notes to Consolidated Condensed Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14
Item 4.	Controls and Procedures	14
PART II	OTHER INFORMATION	14
Item 1.	Legal Proceedings	14
Item 1A.	Risk Factors	14
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	14
Item 3.	Defaults Upon Senior Securities	14
Item 4.	Mine Safety Disclosures	15
Item 5.	Other Information	15
Item 6.	Exhibits	15
SIGNATURES		16

 

PART I - FINANCIAL INFORMATION

 

ITEM 1 - FINANCIAL STATEMENTS

 

WESTBRIDGE RESEARCH GROUP AND SUBSIDIARY

CONSOLIDATED CONDENSED BALANCE SHEETS

 

 

		AUGUST 31,				NOVEMBER 30,
		2012				2011
		(unaudited)				(audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	1,998,619			$	1,319,648
Short term investments			1,000				1,000
Trade accounts receivable, less allowance for doubtful accounts of $13,600 and $3,600, respectively			449,648				194,785
Inventories			1,091,730				970,085
Deferred tax asset			76,000				76,000
Prepaid expenses and other current assets			406,659				232,261
TOTAL CURRENT ASSETS			4,023,656				2,793,779
PROPERTY AND EQUIPMENT, net			500,777				484,503
INTANGIBLE ASSET			151,600				151,600
DEFERRED TAX ASSET, net of current portion			75,000				75,000
TOTAL ASSETS		$	4,751,033			$	3,504,882

 

 

 

See accompanying notes to consolidated

condensed financial statements.

 

WESTBRIDGE RESEARCH GROUP AND SUBSIDIARY

CONSOLIDATED CONDENSED BALANCE SHEETS

(continued)

 

 

		AUGUST 31,				NOVEMBER 30,
		2012				2011
		(unaudited)				(audited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable		$	110,495			$	59,364
Accrued expenses			442,952				420,975
Current portion of note payable			4,178				–
Current portion of capital leases			–				11,899
TOTAL CURRENT LIABILITIES			557,625				492,238
Note payable			20,322				–
TOTAL LIABILITIES			577,947				492,238
Commitments (Note 6)
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 2,223,438 shares at August 31, 2012  and 2,148,438 at November 30, 2011;			8,509,854				8,491,104
Paid in capital			247,902				243,769
Accumulated deficit			(4,584,670	)			(5,722,229	)
TOTAL SHAREHOLDERS' EQUITY			4,173,086				3,012,644
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		$	4,751,033			$	3,504,882

 

 

See accompanying notes to consolidated

condensed financial statements.

WESTBRIDGE RESEARCH GROUP AND SUBSIDIARY

 

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(unaudited)

 

		THREE MONTHS ENDED AUGUST 31,								NINE MONTHS ENDED AUGUST 31,
		2012				2011				2012				2011
NET SALES		$	1,554,193			$	1,171,058			$	6,005,221			$	4,190,721
COST OF SALES			681,909				562,585				2,503,661				1,740,998
GROSS PROFIT			872,284				608,473				3,501,560				2,449,723
OPERATING EXPENSES
Research and development			128,775				64,342				318,172				186,612
Selling			401,341				291,987				1,318,917				916,447
General and administration			233,072				211,493				671,173				661,074
TOTAL OPERATING EXPENSES			763,188				567,822				2,308,262				1,764,133
Operating income			109,096				40,651				1,193,298				685,590
OTHER INCOME (EXPENSE)
Interest expense			[22]				[84]				[2,224]				[7,714]
Interest income			423				249				1,013				707
Other income			40,059				15,896				64,159				117,631
Income before income taxes			149,556				56,712				1,256,246				796,214
Provision for income taxes			18,687				–				118,687				51,600
Net income		$	130,869			$	56,712			$	1,137,559			$	744,614
Basic earnings per common share		$	0.06			$	0.03			$	0.52			$	0.35
Basic weighted average shares outstanding			2,206,771				2,148,438				2,173,438				2,143,438
Diluted earnings per common share		$	0.06			$	0.03			$	0.51			$	0.33
Diluted weighted average shares outstanding			2,264,256				2,246,735				2,230,492				2,241,735

 

 

 

See accompanying notes to consolidated

condensed financial statements.

 

 

WESTBRIDGE RESEARCH GROUP AND SUBSIDIARY

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)

 

		NINE MONTHS ENDED
		AUGUST 31,				AUGUST 31,
		2012				2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	1,137,559			$	744,614
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			106,866				106,878
Stock compensation expense			4,133				13,478
Increase in allowance for doubtful accounts			10,000				3,600
Changes in Operating Assets and Liabilities:
Increase in trade accounts receivable			(264,863	)			(104,929	)
Increase in inventories			(121,645	)			(300,726	)
Increase in prepaid expenses			(174,398	)			(46,469	)
Increase in accounts payable			51,131				28,348
Increase (decrease) in accrued expenses			21,977				(124,087	)
Net cash provided by operating activities			770,760				320,707
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment			(123,140	)			(104,274	)
Net cash used in investing activities			(123,140	)			(104,274	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations			(11,899	)			(15,031	)
Proceeds from issuance of common stock			18,750				11,250
Proceeds from note payable			24,500				–
Payments on long-term debt			–				(3,974	)
Net cash provided by (used in) financing activities			31,351				(7,755	)
INCREASE IN CASH AND CASH EQUIVALENTS			678,971				208,678
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			1,319,648				1,493,142
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	1,998,619			$	1,701,820
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest		$	2,224			$	7,714
Taxes		$	68,067			$	1,600

 

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 2011 Annual Report on Form 10-K, filed March 14, 2012. The results of operations for the quarter and nine months ended August 31, 2012, 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.

 

Revenue Recognition

 

The Company recognizes revenues from the sale of its products to customers at the time of shipping. Products are shipped from the Company’s facility to customers with FOB Vista, CA shipping 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 in “Net Sales”. The Company classifies shipping and handling costs in “Cost of Sales”.

 

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

 

 

Concentrations

 

A majority of the Company’s domestic sales are concentrated in Washington, California and Minnesota. The majority of the Company’s foreign sales are concentrated in Peru and South Korea. As of August 31, 2012, one customer represented 49% of accounts receivable and as of August 31, 2011, three customers represented 70% of accounts receivable. The Company’s two largest customers had combined purchases amounting to 25% of the Company’s net sales for the nine months ended August 31, 2012. The Company’s three largest customers had combined purchases amounting to 35% of the Company’s net sales for the nine months ended August 31, 2011. Total international sales represent 9% and 14% of total sales for the nine months ended August 31, 2012 and August 31, 2011, respectively. 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.

 

Advertising

 

Advertising expense is comprised of media, agency and promotion costs. Advertising expenses are charged to expense as incurred.

 

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 August 31, 2012 and 2011 excludes the dilutive effect of approximately 147,500 and 192,500, respectively, of stock options 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:

 

		Three Months Ended								Nine Months Ended
		August 31,								August 31,
		2012				2011				2012				2011
Net income		$	130,869			$	56,712			$	1,137,559			$	744,614
Denominator for basic earnings per common share			2,206,771				2,148,438				2,173,438				2,143,438
Effect of dilutive securities			57,485				98,297				57,054				98,297
Denominator for diluted earnings per common share			2,264,256				2,246,735				2,230,492				2,241,735
Net income per common share:
Basic		$	0.06			$	0.03			$	0.52			$	0.35
Diluted		$	0.06			$	0.03			$	0.51			$	0.33

 

 

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

 

Income Taxes

 

The Company accounts for income taxes under the asset and liability approach.  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.

 

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.  The Company also makes a determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. 

 

The Company’s policy is to record interest and penalties on uncertain tax positions as income tax expense. As of August 31, 2012 and November 30, 2011, the Company has no accrued interest or penalties related to uncertain tax positions.  

 

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.

 

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.

 

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 2011, 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.

 

 

 

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

 

 

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 – MEXICO PROPERTY

 

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, and the balance of payment expected on December 15, 2008. There have been amendments to the agreement as the buyers needed additional time to complete the purchase.

 

In response to concerns raised by the buyers that there was a potential for claims to be brought against the Company and the property in Mexican courts, in January 2010 the Company and buyers entered into a new agreement whereby the Company transferred to buyers the right to the property in exchange for a promissory note in the amount of $550,000, which was the amount still owing under the August 15, 2008 agreement. This new agreement allows for the foreclosure of the property if the note is not paid in accordance with the scheduled payment terms. Because buyers continued to be late in making payments, in November 2010, the parties agreed to a new payment schedule. The buyers are continuing to make payments under this new agreement, although payments are usually delayed. There are penalties associated with late payments.

 

As of August 31, 2012, the Company has received payments from the buyers totaling $1,160,000 and $4,000 in interest. Buyers have requested that the final payment be delayed further in exchange for favorable terms for the extended financing. As of August 31, 2012, there is a principal balance due of $90,000 plus penalties and interest of an additional $10,000. During September and October 2012, the Company has received the balance of $100,000. The Company records the payments to other income in the accompanying consolidated condensed statements of operations as they are received, as collection is uncertain.

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. As of August 31, 2012, the Company has paid $332,508 and accrued $19,500 under the arrangements for the payments collected.

 

 

NOTE 3 – INVENTORIES

 

Inventories, consisting of agricultural products, is stated at the lower of cost (determined on a first-in, first-out basis) or market. Inventories consist of the following at:

 

		August 31,				November 30,
		2012				2011
Raw materials		$	555,643			$	548,882
Finished goods			536,087				421,203
Total inventories		$	1,091,730			$	970,085

 

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

 

NOTE 4 – 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:

 

		August 31,				November 30,
		2012				2011
Machinery & equipment		$	847,782			$	779,304
Furniture & fixtures			184,728				173,779
Vehicles			89,941				55,442
Leasehold improvements			381,702				372,488
Total Property and Equipment			1,504,153				1,381,013
Less accumulated depreciation and amortization			(1,003,376	)			(896,510	)
Property and Equipment, net		$	500,777			$	484,503

 

NOTE 5 – ACCRUED EXPENSES

 

Accrued expenses consist of the following at:

 

		August 31,				November 30,
		2012				2011
Sales commissions		$	100,527			$	111,972
Deferred rent			91,902				88,330
Warranty			25,000				20,000
Accrued vacation			94,326				94,326
Accrued state income tax			71,520				20,900
Accrued payroll			54,000				37,500
Other			5,677				47,947
Total accrued expenses		$	442,952			$	420,975

 

 

NOTE 6 – 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 August 31, 2012, the Company has drawn $0 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 August 31, 2012 is 5%. Interest is payable monthly.

 

The Company purchased a new truck during the quarter ended August 31, 2012 at a total cost of $34,500. The Company made a cash down payment of $10,000 and financed the remaining balance of $24,500 for a total of five years at an annual interest rate of 3.19%.

 

 

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.

 

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

 

Net sales for the three month period ended August 31, 2012 were $1,554,193, representing an increase of 33%, or $383,135, from the same period in the prior year. For the nine month period ended August 31, 2012, sales were $6,005,221 which represents an increase of 43%, or $1,814,500, from the prior year’s sales of $4,190,721. 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 region of the United States. In addition, the three and nine 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 decreased to 44% for the quarter ended August 31, 2012 as compared with 48% for the same period in the prior year. For the nine month period ended August 31, 2012, cost of sales as a percentage of net sales remained at 42% when compared with the same period in the prior year. The decrease for the quarter ended August 31, 2012 is primarily due to 76% of the sales increase being derived from the Company’s high and mid margin products as well as the increase in sales without an increase in fixed production costs.

 

Research and development expenses for the three and nine month periods ended August 31, 2012 increased 100%, or $64,433, and 70%, or $131,560, respectively, compared with the same periods in the prior year. These increases are primarily due to the addition of research and development staff and increased trials of prospective products.

 

Selling expenses for the three and nine month periods ended August 31, 2012 increased 37%, or $109,354, to $401,341 and increased 44%, or $402,470, to $1,318,917, respectively compared with the same periods in the prior year. These increases are primarily due to the hiring of 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 nine month periods ended August 31, 2012 increased $21,579 or 10% and increased $10,099 or 2%, respectively, when compared with the same periods in the prior year. These increases are primarily due to an increase in salaries and related benefits.

 

Other income for the three and nine month periods ended August 31, 2012 increased $24,163 and decreased $53,472, respectively, compared to the same periods in the prior year. These decreases and increases in other income primarily represent the net proceeds of installment payments from the sale of the Mexico property as discussed in Note 2 to the financial statements.

 

Net income for the quarter ended August 31, 2012 was $130,869 as compared with net income of $56,712, for the same period in the prior year. Net income for the nine month period ended August 31, 2012 was $1,137,559 as compared with net income of $744,614 in the prior year. As a result, basic earnings per share increased to $0.52 for the nine months ended August 31, 2012 compared with $0.35 per share for the nine months ended August 31, 2011.

 

Federal 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 has approximately $704,000 of federal net operating loss carryforwards at November 30, 2011, which it is currently utilizing as offsets against current earnings to reduce or eliminate its income taxes. Management has provided for California state income taxes. In addition, management has assessed the recoverable value of its deferred tax assets at $151,000 as the Company has been able to achieve its budgeted targets and the Company expects to utilize these benefits over the next three years.

 

Results of Operations for the Three and Nine Month Periods Ending August 31, 2011 Compared to the Three and Nine Month Periods Ending August 31, 2010

 

Net sales for the three month period ended August 31, 2011 were $1,171,058, representing an increase of 28%, or $256,206, from the same period in the prior year. For the nine month period ended August 31, 2011, sales were $4,190,721 which represents an increase of 8%, or $301,058, from the prior year’s sales of $3,889,663. These increases are primarily due to greater sales in the mid-west and to growers of vine crops on the west coast. Additionally, in management’s view, the Company’s sales and educational efforts over a number of years have resulted in its products gaining acceptance with growers and distributors.

 

Cost of sales as a percentage of net sales decreased to 48% for the quarter ended August 31, 2011 as compared with 50% for the same period in the prior year. For the nine month period ended August 31, 2011, cost of sales as a percentage of net sales increased to 42% as compared with 41% for the same period in the prior year. These changes are primarily due to the product mix.

 

Research and development expenses for the three and nine month periods ended August 31, 2011 decreased 5%, or $3,702, and 1%, or $1,144, respectively, compared with the same periods in the prior year. These decreases are primarily due to decreased travel and product trial expenses.

 

Selling expenses for the three and nine month periods ended August 31, 2011 increased 3%, or $7,436, to $291,987 and decreased 4%, or $41,596, to $916,447, respectively compared with the same periods in the prior year. The three month increase is primarily due to an increase in salaries related to the addition of sales and marketing staff. The nine month decrease is primarily due to a reduction in advertising expenses as well as a reduction in commission expense associated with the customer mix.

 

General and administrative expenses for the three and nine month periods ended August 31, 2011 decreased $4,707 or 2% and increased $90,450 or 16%, respectively, when compared with the same periods in the prior year. The three month decrease is primarily due to a timing difference in business personal property taxes and a reduction in stock compensation expense related to no issuance of stock options to the Director’s in 2011. The nine month increase is primarily due to the addition of a financial consultant in the third quarter of 2010 and a timing difference in expensing certain services performed.

 

Other income for the three and nine month periods ended August 31, 2011 decreased $18,979 and increased $2,444, respectively, compared to the same periods in the prior year. These decreases and increases in other income primarily represent the net proceeds of installment payments from the sale of the Mexico property as discussed in Note 2 to the financial statements.

 

Net income for the quarter ended August 31, 2011 was $56,712 as compared with net loss of $59,629, for the same period in the prior year. Net income for the nine month period ended August 31, 2011 was $744,614 as compared with net income of $649,735 in the prior year. As a result, basic earnings per share increased to $0.35 for the nine months ended August 31, 2011 compared with $0.31 per share for the nine months ended August 31, 2010.

 

Federal 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 approximately $959,000 of federal net operating loss carryforwards at November 30, 2010, which it is currently utilizing as offsets against current earnings to reduce or eliminate its income taxes. Management has provided for California state income taxes. In addition, management has assessed the recoverable value of its deferred tax assets at $142,000 as the Company has been able to achieve its budgeted targets and the Company expects to utilize these benefits over the next three years.

 

Liquidity and Capital Resources:

 

Working capital was $3,466,031 at August 31, 2012, an increase of $1,164,490, from $2,301,541 at November 30, 2011. Working capital was $2,715,816 at August 31, 2011, an increase of $760,047, from $1,955,769 at November 30, 2010. These increases as of August 31, 2012 and 2011 are primarily due to increased trade receivables and collections, resulting in higher cash balances, as the second and third quarter’s are consistently the Company’s busiest time of the year. 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 August 31, 2012, the Company had cash provided by operating activities of approximately $771,000 as opposed to approximately $321,000 for the period ended August 31, 2011 which is primarily the result of the increase in net income for 2012 over 2011. Cash used in investing activities was approximately $123,000 and $104,000 for the periods ended August 31, 2012 and 2011, respectively. Cash provided by financing activities was approximately $31,000 for the period ended August 31, 2012 and cash used in financing activities was approximately $8,000 for the period ended August 31, 2011 which is primarily the result of proceeds from a note payable to purchase a truck.

 

The Company has secured a $500,000 line of credit available to be drawn down if required, of which, $0 has been drawn as of August 31, 2012. 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 with the participation of the Company's principal executive and principal financial officers, 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 August 31, 2012, the end of the quarterly fiscal period covered by this quarterly report. Based on this evaluation, the Company's principal executive and principal financial officers 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 August 31, 2012, 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, 2011, 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.

 

B. REPORTS ON FORM 8-K

Form 8-K was filed on July 16, 2012 regarding vote results of annual shareholder meeting.

 

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: October 15, 2012	/s/ Christine Koenemann
	Christine Koenemann, President
	Principal Executive Officer
Dated: October 15, 2012	/s/ Richard Forsyth
	Richard Forsyth, Chief Financial Officer
	Principal Financial Officer