UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________
Commission File No. 0-11359
LARCAN-TTC INC.
(Exact name of registrant as specified in its charter)
DELAWARE 52-0854061
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
650 South Taylor Avenue, Louisville, Colorado 80027
State or other jurisdiction of (Zip Code)
incorporation or organization
Registrant's telephone number, including area code (303) 665-8000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None. None.
Securities registered pursuant to section 12(g) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $0.04 par value NASDAQ - Over the Counter
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 fm 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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of
the registrants as of June 30, 1996 was $661,500 (based on the average of
the closing bid and asked prices on June 30, 1996)
The number of shares outstanding of the registrant's Common Stock, par
value $0.04, as of June 30, 1996 was 11,543,934 shares.
This Form 10-K consists of 43 pages
.
INDEX
PART I
Page
Item 1 Business 3
Item 2 Properties 12
Item 3 Legal Proceedings 13
Item 4 Submission of Matters to a Vote of Security Holders 13
PART II
Item 5 Market for Registrant's Common Stock and
Related Stockholder Matters 13
Item 6 Selected Financial Data 14
Item 7 Management's Discussion and Analysis
of Financial Condition and Results of Operations 15
Item 8 Financial Statements and Supplementary Data 17
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 17
PART III
Item 10 Directors and Executive Officers of the Registrant 18
Item 11 Executive Compensation 20
Item 12 Security Ownership of Certain Beneficial
Owners and Management 22
Item 13 Certain Relationships and Related Transactions 24
PART IV
Item 14 Exhibits, Financial Statement Schedules,
f and Reports on Form 8-K 25
PART I
ITEM 1. BUSINESS
INTRODUCTION
LARCAN-TTC INC. (the Company) is a Delaware Corporation whose executive
offices and manufacturing plant are located at 650 South Taylor Avenue,
Louisville, Colorado 80027. The Company's principal telephone number is
(303) 665-8000, and its fax number is (303) 673-9900. The Company has been
in existence continuously since 1967 when it was incorporated as a Maryland
corporation. It was reincorporated in 1983 under the laws of the State of
Delaware.
On October 15, 1993, Television Technology Corporation (TTC) sold to LARCAN
INC. (LARCAN) of Mississauga, Ontario, Canada, 3,636,364 shares of the
Company's authorized but previously unissued common stock for $1,000,000.
In addition, LARCAN acquired an additional 416,831 shares of the Company's
common stock from existing shareholders. As a condition of this purchase and
by vote of the shareholders of the Corporation at their annual meeting on
February 3, 1994, the TTC name was changed to LARCAN-TTC INC.
During June, 1995 LARCAN INC. subscribed for an additional 5,000,000 common
shares for $500,000 and for 500,000, 5% cumulative convertible, preferred
shares for $500,000. The subscribed shares were issued in October 1995.
LARCAN controls approximately 78 percent of the company's outstanding common
stock as of June 30, 1996.
LARCAN was established in 1981 when the employees of Canadian General
Electric (CGE), in association with LeBlanc & Royle Enterprises Inc.,
purchased CGE's broadcast operation. LARCAN and its predecessor have been a
major supplier of VHF (Channels 2-13) television transmitters for over 35
years. LARCAN designs, manufactures, sells, and services VHF solid state
television transmitters with powers from 10 watts to 60,000 watts and has
recently manufactured and delivered (newly developed) 10,000 watt solid
state UHF transmitters. It is believed by the Company's management that
,with the LARCAN investment,the Company will be in a much better position to
serve the broadcast industry worldwide, as both companies now have a complete
product line to meet the users' needs.
The Company is a fully integrated producer of television (TV) and FM radio
transmission equipment. At its Louisville, Colorado facility, the Company
designs, develops, and manufactures a variety of FM and television broadcast
transmitters/translators including low power television (LPTV) equipment and
high power UHF television equipment. The Company also provides system design
services, sells accessory items manufactured by the Company and others, and
performs installation as requested by its customers.
ITEM 1. BUSINESS (Continued)
The Company operates in one market segment both internationally and
domestically. The ratio of international and domestic sales to the Company's
total sales for each of the last three fiscal years is shown in Table 1.
Table 1. Percent of Sales by Market
Fiscal Years Ended June
1996 1995 1994
International 37% 21% 47%
Domestic 63% 79% 53%
The Company's major products and markets are described below.
TRANSLATORS AND LOW POWER TELEVISION (LPTV)
Translators (sometimes known as transposers in the international marketplace)
function to rebroadcast the signal of a regular (primary) radio or TV
station automatically. They operate unattended, and retransmit the signal of
the primary station on a different (translated) channel. They are commonly
financed as a public service by local organizations or governmental entities.
They may also be owned and operated by primary stations to extend their
signal into areas which are not able to receive a clean signal.
In contrast, LPTV stations have Federal Communication Commission (FCC)
authority to originate programs. Some of these stations operate a small
general purpose studio, while others maintain no studio, but continuously
transmit programs obtained from external sources. These purchased programs
may be delivered directly to the transmitter by satellite. While the low
transmitter power restricts the coverage area, LPTV stations operate under
much more flexible and less complex rules than traditional "full servce TV
stations.LPTV stations typically have much smaller start-up costs and
operating budgets. As a result, they are feasible as either commercial or
non-profit stations serving a small community or a specialized audience with
an interest in a particular programming format. The state of the Low Power
and translator market is shown in Table 2.
Table 2. State of Low Power TV Industry
Construction
Permits Issued
Licensed (Pre-Licensed)
Translators 5,622 550
Low Power TV 1,877 1,512
Source: Television & Cable Action Update (August 19, 1996)
ITEM 1. BUSINESS (Continued)
The Company believes that there may be pent-up demand in this market since
holders of Construction Permits (CP's) risk losing their right to build and
license the station if the station is not built and licensed within 18
months of the issuance date of the CP. The Company believes that its
continued commitment to the domestic LPTV/Translator market has allowed the
Company to maintain its market share. In addition the introduction in fiscal
1997 of the RMS1000 will generate market penetration at the 1kW level. In the
international market, more and more countries are looking at LPTV/Transposers
as a methos of extending television service into small villages and rural
communities. The Company continues to actively pursue this market.
One watt to 1kW television products are normally considered by the Company to
be in the low power transmitter/translator class. The range of list prices
for the Company's line of translators and LPTV transmitters is $4,195 to
$42,500. This price is dependent primarily on the power level of the
transmitter, with special features, if any, also having an impact.
The percentage of net sales that this product group accounted for is shown on
line 1 of Table 3.
Table 3. Percent of Net Sales by Product Category
Fiscal Year Ended June
1996 1995 1994
LPTV/Translators 40% 56% 50%
High Power TV 40% 16% 30%
FM Radio 18% 23% 18%
Other 2% 5% 2%
UHF HIGH POWER TELEVISION
Around the world, television broadcasting exists primarily in two bands,
Very High Frequency (VHF) and Ultra High Frequency (UHF). The VHF band
which came into use first, consists in the U.S. of Channels 2-13.
The Company does not manufacture VHF high power transmitters, however our
parent company, LARCAN INC. does. The Company does manufacture UHF High
Power transmitters. The UHF band consists, in the U.S., of Channels 14 - 69.
The current state of the U.S. television industry can be seen in Table 4.
Table 4. State of TV Industry
VHF UHF TOTAL
Stations Operating 684 879 1,563
Construction Permits 12 86 98
Applications on File 66 323 389
Source: Television & Cable Action Update (August 26, 1996)
ITEM 1. BUSINESS (Continued)
The Company believes those agencies responsible for telecommunications around
the world will continue to authorize a steady expansion of the number of UHF
television stations.
Transmitters rated at greater than 1kW constitute the Company's UHF high
power television broadcasting line. In major metropolitan areas, UHF
transmitters may be rated as high as 280kW.
In fiscal 1991 the Company completed the development of an "Inductive Output
Tube" (IOT) UHF transmitter. This transmitter uses an "IOT/Klystrode type"
tube to deliver RF energy to the antenna. Much of the engineering effort
during fiscal 1996 has gone into refining the second generation of the
IOT/Klystrode transmitter, known as the HDR Series. One of the primary
advantages of the "IOT/Klystrode type" is that power consumption is reduced
by approximately 60 percent over the more conventional "klystron type"
transmiter. The Company currently markets "IOT/Klystrode type" tranmitters
ranging in power from 10kW to 240kW.
In addition, during fiscal 1996 the Company continued to devote substantial
resources and talent to the development of product for the High Definition
Television (HDTV) Standard that will be adopted for the next generation of
U.S. television service. Company employees participated as members of the
FCC subcommittees which are supervising both the laboratory and field testing
of the various proposed HDTV systems. During fiscal 1993, the FCC delayed
the HDTV development schedule in order to create a standardized digital format
that could be used in the HDTV system that will eventually be adopted by the
FCC.During fiscal 1994, this standardization was accomplished. Testing was
reinstituted with the first stage of field test completed in June 1994. The
Company believes its low power solid-state products will successfully pass a
digital HDTV signal and that the "IOT/Klystrode type" transmitter will be an
ideal originating transmitter for higher power primary stations broadcasting
digital HDTV signal.
Under proposed FCC HDTV rules, each primary broadcaster in the U.S. will be
offered a second channel to be used for a simultaneous broadcast of HDTV
while continuing to broadcast in NTSC (National Television Systems Committee)
, the current broadcast standard, on their present channel. Virtually, all
of these channel allocations will be in the UHF band. Broadcasters would
have three years to apply for the HDTV channel and three years to construct
the new broadcast facility (including the purchase of a new transmitter and
begin broadcasting. The Company believes the potential demand created by
most of the current 1,563 broadcasters (Table 4) purchasing a second
transmitter for simulcast broadcast of HDTV signals offers a unique market
opportunity to increase Company sales of its high power UHF products over the
next several years. Accordingly, the Company continues in the development
and advancement of products that are intended to position the Company to take
full advantage of High Definition Television.
The current high power product line of the Company starts with a 10kW
IOT/Klystrode; and extends to 60kW cabinets which can be combined to make
transmitters of 240kW or more using IOT/ Klystrode tubes.
ITEM 1. BUSINESS (Continued)
This range of products enables the Company to position itself in the
marketplace to capture significant high power business. The range of list
prices for the Company's line of UHF high power transmitters ranges from
$250,000 to $2,000,000. The price is based primarily on the power level of
the equipment with special features and design configurations also having an
impact.
The percentage of the Company's net sales that this product group accounts
for is shown on Line 2 of Table 3.
FM RADIO TRANSMITTERS
The Company offers a full range of solid-state FM radio
transmitters/transposers. This product line satisfies the technical
requirements of the broadcast regulatory authorities of most countries and
sales are made throughout the world.
The FM transmitter generates the necessary power to carry the station's
program to the listening public on the assigned frequency. These
transmitters range in power from 30 watts to 12kW. Customers include
commercial and non-commercial broadcast organizations and governmental
entities worldwide.
The range of list prices for the Company's FM radio transmitters/transposers
is from $4,700 to $103,000. These prices are based primarily on the power
level of the equipment.
The Company's radio product line includes a power line surge protector
offered for use in all types of electronic installations. It also includes
an FM broadcast exciter which can be sold as a stand-alone 30-watt
transmitter or as an upgrade for older FM transmitters, regardless of
manufacturer. The current sales volume in these products continues to be
small but consistent.
The percentage of net sales that this product group accounted for is shown on
Line 3 of Table 3.
SUPPLEMENTARY PRODUCTS AND ACCESSORIES
A number of products purchased by the Company from other manufacturers are
offered to complement the Company's own products. Typical items are
pre-amplifiers, filters, antennas, transmission line, studio equipment, and
test equipment. These products are obtained from a number of different
sources and no one supplier is considered critical. The Company estimates
that less than 10 percent of its sales for the fiscal year ended June 1996
was derived from the resale of these products, exclusive of products sold
as components of the Company's products or as part of an installed broadcast
system.
ITEM 1. BUSINESS (Continued)
From time to time, at the specific request of the customer, the Company will
perform system design and/or coverage design services. The Company has
in-house expertise, or can obtain the necessary expertise, to perform these
services. Additionally, the Company acts as its own installer when
contracted to do so and has the equipment, knowledge, and personnel to
complete these installations. These system and coverage design services
generally contribute less than ten percent of sales.
GOVERNMENTAL REGULATION
Suppliers of broadcast transmitters intended for use in the more developed
countries are generally required to obtain approval of the technical
characteristics of their transmitters from the appropriate regulatory
authority in their country. In the U.S., the Company must have FCC Type
Acceptance/Notice of its transmitters. FCC requirements are generally less
stringent than those imposed by competitive forces and, accordingly, the
Company generally does not experience difficulties obtaining Type Acceptance
rable acceptances in Canada for products sold in that country.
Customers of the Company constructing new broadcast stations of any class in
the U.S. generally must obtain a permit from the FCC. Such a permit is
granted to an applicant for an available channel based on an application
showing that the proposed station would meet the technical, legal, and
financial requirements of the FCC.
MARKETING
During fiscal 1996, the Company continued to refine its internal Sales and
Marketing Department and its technical service and support capabilities,
with the goal of exceeding industry standards. The Company continues to
investigate new ways to enhance its marketing effort and maximize its market
penetration.
Domestic
The Company's rural translator business depends heavily on a network of
dealers who buy the Company's products, related supplementary products and
accessories at a discount and resell the equipment to an end user. This is
usually done as part of an installed system. In some instances, business
relationships between these dealers and employees of the Company have
continued for more than 20 years. The Company acts as its own installer when
contracted to do so and has the equipment, knowledge, and personnel to
complete these installations.
ITEM 1. BUSINESS (Continued)
In the LPTV sector, equipment is sold both directly to an end user and
through distributors, some of whom focus on certain areas of interest
(i.e. religious, educational, etc.), rather than strictly on geographic
areas. The Company's internal sales/marketing staff coordinates, motivates,
and assists dealers/distributors as necessary, and makes direct sales to the
Company's end user customers when appropriate.
Beginning in fiscal 1994, the Company primarily focused its sales efforts for
high power transmitters in the United States through the efforts of LDL
Communications, Inc. (LDL) an affiliate company of LARCAN. LDL functions as
a dealer, and buys and resells LARCAN-TTC UHF high power transmitters for
resale in a stand-alone configuration or as a part of larger systems
containing materials from other manufacturers.
The Company's FM radio products are sold through a network of dealers and
representatives, and when appropriate, directly to end users.
International
On a regular basis the Company receives requests for quotations and proposals
from many parts of the world. There continues to be an upward trend in the
number of such requests which the Company believes is due to the increasing
breadth of the Company's product line and its increasing reputation in the
world market.
The Company exports directly to both end users and to dealers or agents.
Some of these dealers/agents are based in the destination country and others
concentrate on particular countries from a business location in the United
States. Internationally, the Company sells its high power transmitters to
end users directly paying a commission to independent manufacturers'
representatives where appropriate.
One of the major goals of the Company has been to achieve significant
penetration of the international low power and high power television markets
by making major sales to customers in developing countries. The company
will continue to emphasize quality and customer satisfaction in expanding its
market share.
The Company's export sales for each of the last three fiscal years are shown
in Note 10 of the Notes to Financial Statements. The Company's export sales
by significant geographic region as a percentage of total sales for each of
the last three fiscal years are shown in Table 5.
ITEM 1. BUSINESS (Continued)
Table 5. Export Sales by Significant Geographic Region
Fiscal Years Ended June 30
1996 1995 1994
Middle East 25% 12% 0%
Far East 2% 0% 0%
Africa 0% 0% 25%
Other 10% 9% 22%
Total 37% 21% 47%
Backlog
The Company's backlog of unfilled orders for its major product lines is
shown in Table 6.
Table 6. Order Backlog
Order Backlog at June 30
1996 1995
LPTV/ Translators $639,000 $914,000
High Power TV 667,000 89,000
FM Radio 42,000 96,000
Total $1,348,000 $1,099,000
Substantially all of these orders are expected to be filled. Under the
Company's sales terms and industry practice, some orders may be subject
to cancellation by the customer. However the Company does not expect that a
significant portion of the orders shown in the above table will be cancelled.
SEASONAL VARIATION The Company believes that there is a nominal seasonal
variation in the demand for its products (see Table 7).
Table 7. Percent of Sales per Quarter
Fiscal Quarter Ending
September December March June
Fiscal 1996 14% 27% 30% 29%
Fiscal 1995 27% 28% 19% 26%
Fiscal 1994 19% 31% 27% 23%
ITEM 1. BUSINESS (Continued) COMPETITION The Company's products compete
in the marketplace on the basis of their performance characteristics, price,
and the Company's reputation for the quality of its products and service to
its customers. In the translator and LPTV market, the Company and its three
domestic competitors ( Acrodyne, ADC/ITS, and EMCEE ) account for most of
the sales of television tranlators and LPTV transmitters in the United States.
In the UHF high power transmitter market, the Company competes against two
domestic manufacturers (Harris and Comark). The Company believes these
domestic competitors each have greater sales volume than the Company.
Additionally, there are other minor manufacturers of directly competing
equipment which the Company believes account for less than 5 percent of the
domestic market.
In the international market, large companies such as NEC, Thomcast, Marconi,
and Rohde & Schwarz dominate in most developed countries due to their
long-standing and well-established direct sales organizations. Developing
countries currently offer the greatest potential for the Company's products.
The growing emergence of non-state controlled broadcast stations, both FM
and TV, continues to represent new and growing opportunities for the
Company's products.
The Company estimates there are more than 25 FM radio transmitter
manufacturers worldwide, several of which are substantially larger than the
Company. Almost half of these firms actively compete with the Company. The
Company believes several competitors have significantly greater sales volume
of these products than the Company.
PRODUCT DEVELOPMENT
The Company's engineering and support group pursues product development
efforts aimed at improving current products and developing new products.
Only a small effort is made toward applied research and none towards
fundamental research. The Company expended $898,000, $615,000, and $623,000
respectively, for research and development during fiscal 1996, 1995, and 1994.
Research and development on High Definition Television continues to be an on
going expenditure commitment.
SINGLE SUPPLIER
Most materials and equipment used in manufacturing the Company's products are
available from more than one supplier and many are available from numerous
suppliers. Some materials and equipment are available from single source
suppliers, however, the Company strives to maintain good relationships with
these suppliers and is not aware of any plans that any of these suppliers
have to discontinue supplying these materials and equipment.
ITEM 1. BUSINESS (Continued)
CUSTOMERS
With the exception of Saudi Arabia and Canada, no individual region accounted
for more than 10% of the company's sales in fiscal 1996. Sales in
Saudi Arabia accounted for $1,800,000 or 25% of total sales in fiscal 1996
while sales to Canada through an affiliate company, LARCAN, were $792,000 or
11% of sales.
Sales to foreign customers are subject to unique risks which are not present
in sales to domestic customers. The Company attempts to mitigate these risks
by carefully considering the political and economic conditions in a foreign
country along with the financial viability of its customer before doing
business there. Generally, sales to foreign customers are priced in U.S.
dollars to avoid currency fluctuations and are sold under irrevocable letters
of credit, confirmed by a major U.S. bank, when the political, economic, or
fiancial viability is uncertain.
EMPLOYEES
The comparison of the labor force for fiscal years 1996, 1995, and 1994 is
shown in Table 7.
Table 7. Employee Mix
Fiscal Years Ended June
1996 1995 1994
Executive & Administrative 8 6 13
Manufacturing & Manufacturing Support 35 37 48
Sales & Marketing 7 7 5
Engineering & Support 12 12 9
Customer Service 4 5 6
Total 66 67 81
ITEM 2. PROPERTIES
The Company occupies a 43,000 square foot facility in Louisville, Colorado
under a five-year non-cancelable operating lease, expiring on April 30, 1998.
The lease on the primary facility currently carries an annual lease cost of
$334,000, subject to an annual increase based on the Consumer Price Index.
In addition, the lease is on a triple-net basis whereby the Company also
reimburses the landlord for property taxes, property insurance, and property
maintenance. The current facility will be sufficient for the Company's
operation for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The litigation reported in prior year's 10K has been settled with no
financial consequence to the company. There are no other legal issues
outstanding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended June 30, 1996, the following matters were submitted
for a vote of the shareholders at their annual meeting:
NONE
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on The OTC Bulletin Board under the
trading symbol LTTC.
The high and low bid price for the Company's common stock for each quarter of
the last two fiscal years is shown in Table 9.
Table 9. Market Value of Common Stock
Quarter Ending High Low
September 30, 1994 4/16 4/16
December 31, 1994 4/16 4/16
March 31, 1995 3/16 3/16
June 30, 1995 3/16 3/16
September 30, 1995 3/16 3/16
December 31, 1995 3/16 3/16
March 31, 1996 4/16 3/16
June 30, 1996 4/16 3/16
Source: Monthly Statistical Reports, NASD (June 30, 1996)
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS (Continued)
The prices in Table 9 represent quotations between dealers and do not include
retail mark-ups, mark-downs, or commissions and do not necessarily represent
actual transactions.
At June 30, 1996, the approximate number of holders of the Company's common
stock was 480, including both record and beneficial shareholders in security
position listings.
The Company has never declared or paid any cash dividends on its common stock
and has no present intention of declaring such dividend in the future. The
Company intends to retain all earnings, if any, for use in development and
expansion of its business.
ITEM 6. SELECTED FINANCIAL DATA
Table 10, which has been derived from the Company's audited financial
statements, shows selected financial data for the Company over the last five
fiscal years. The financial statements of the Company for each of the three
years in the periods ended June 30, 1996 are included at Item 8 of this
document. The selected financial data as of the fiscal years ended June
1996, 1995, and 1994 should be read in conjunction with the Company's
financial statements and related notes included elsewhere in this document
Table 10. Five Year Summary Data
(000's, except per share amounts)
Fiscal Year Ended June
1996 1995 1994 1993 1992
Sales $7,474 $6,228 $8,649 $6,526 $9,645
Net (Loss) Income (2,326) (1,562) (1,451) (1,198) 78
Net (Loss) Income Per Common Share (.23) (.24) (.27) (.41) .03
Total Assets 3,339 2,248 3,105 2,871 3,707
Net Working Capital (Deficiency) (3,717) (1,331) (845) (409) 606
Long Term Obligations 0 0 2 6 21
Cash Dividends Per Common Share None None None None None
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
For the fiscal year ended June 30, 1996 the Company reported a net loss of
$2,326,000. This compares to net loss of $1,562,000 and a
net loss of $1,451,000 for the fiscal years ended June 30, 1995 and June 30,
1994, respectively. Overall sales increased 20% from 1995. The increase was
due to domestic shipments of high power television. Sales of high power
products became the company's largest product line for the first time. It is
expected that this trend will continue as the company expands its market
presence in this area.
Gross margin, as a percentage of sales, decreased in fiscal 1996 to 2 percent
from 13 percent in fiscal 1995, which decreased from 18 percent in fiscal
1994. The decrease for fiscal 1996 was primarily due to insufficient sales
volume to overcome fixed overhead costs, caused by (1) increased competition,
(2) the Company's product mix . Because the ratio of material cost to labor
cost and its contribution to margin varies from product to product, changes
in product mix can have a significant impact on the gross margin. This was
especially apparent in fiscal 1996 as the Company continues to penetrate the
power market arena where price competition is stiff. However this situation
should change in the near future as market acceptance of the high power
product line broadens. In the meantime the Company continues its efforts to
reduce its manufacturing costs and improve its margins in all product lines.
Selling, general, and administrative (SG & A) expenses decreased to 21
percent of net sales as compared to 27 percent in both fiscal 1995 and
fiscal 1994. The budgeting process that the Company instituted in fiscal
1996 helped to reduce costs an additional $122,000 or 7% from prior year
spending in spite of increased sales. The Company is continuing to refine
its budgeting process to ensure that future sales increases do not lead to
higher overhead in this area.
Research and product development costs for the fiscal year ended June 30,
1996 were 12 percent of sales compared to 10 percent for fiscal 1995 and 7
percent for fiscal 1994. The percentage increase from 1995 was due to
increased expenditures for new product development. In addition to efforts
in high power products the Rocky Mountain Series of low power products
continues to be aggressively funded. In actual dollars spending levels
increased 46% from prior year. An energetic research and development program
is considered by management to be the future foundation upon which revenue
growth will be based. Continued efforts in high definition television and
improved documentation will be management priorities requiring an on going
commitment in expenditures.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Interest expense as a percentage of sales remained at 1 percent as it has in
each of the three preceding fiscal years. There was a decrease in actual
dollars, however, for the third straight year. The decrease in 1996 was due
to the continuing payoff of the bank line of credit. As in fiscal 1995 the
Company received non-interest bearing advances from LARCAN (see Note 6 of the
Company's audited financial statements included else-where in the document).
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity continues to be adversely impacted by low sales
volumes and constrained margins. The sales volumes in fiscal 1996 as in
1995 were not adequate to improve the Company's margins. However, several
factors will contribute to an improving outlook for the Company's operational
performance in fiscal 1997:
(1) The continued emphasis on the Company's high powered transmitter product
line along with a sharper focus on higher margin products in all product lines.
(2) The introduction in fiscal 1997 of the RMS1000 will generate market
excitement at the 1kW level for the Company's RMS series line.
(3) A continued emphasis on cost containment especially in overhead areas is
expected to have a positive impact on operating margins.
At June 30, 1996 the Company had approximately $2,108,000 in trade accounts
payable, compared to $735,000 on June 30, 1995. This represents a 187
percent increase in fiscal 1996. A large portion of the increase ($600,000)
was due to intercompany advances for inventory purchases from LARCAN. The
remainder was due to inventory purchases for high power projects and are
current payables.
The deficiency in working capital grew to $3,717,000 from $1,331,000 in
fiscal 1995 primarily due to the Company's net loss from operations of
$2,326,000. This deficit continues to be financed primarily with loans from
LARCAN.
Subsequent to fiscal 1996 the Company renegotiated its bank line of credit
reducing the outstanding balance to $150,000 with an additional $50,000 term
note. This represents a $50,000 decrease in current liabilities from June
30, 1996.
The Company's current ratio (current assets divided by current liabilities)
at June 30, 1996, was .46, compared to .61 at June 30, 1995, and its quick
ratio (cash and cash equivalent plus trade accounts receivable divided by
current liabilities) was .19 at June 30, 1996 as compared to .14 at June 30,
1995. The Company's debt to equity ratio was (1.97) at June 30, 1996 as
compared to (3.00) at June 30, 1995.
Due to the Company's current cash flow constraints, there are no current
plans for significant capital expenditures. In addition, until the Company's
operations provide adequate working capital, the Company will be dependent on
its affiliates for its cash needs.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
This prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act which are intended to be covered by the safe harbors created thereby.
These statements include the plans and objectives of management for future
operations based on current expectations that involve numerous risks and
uncertainties. These plans involve judgments with respect to, among other
things, future economic, competitive and market conditions and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company.
Although the Company believes that the assumptions underlying the
forward-looking staements are reasonable, any of the assumptions could be
inaccurate and, therefore, there can be no assurance that the forward-looking
staements included in this prospectus will prove to be accurate. In light
of the significant uncertainties inherent in the forward-looking statements
included herein, the inclusion of such information should not be regarded
as a representation by the Company or any other person that the objectives
and plans of the Company will be acheived.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are included in Part IV of
this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
There are no changes in nor disagreements with accountants on any matters
of accounting and financial disclosure.
PART III
On October 15, 1993, LARCAN purchased 3,636,364 shares of
previously-authorized but unissued shares of the Company's voting common
stock. In addition, LARCAN purchased 416,831 shares of the Company's voting
common stock from existing stockholders.
On May 18, 1995 the shareholders voted in favor of issuing 5,000,000
common shares to LARCAN INC. at a price of $.10 each for a cash consideration
of $500,000. On this same date, the shareholders also voted in favor of
issuing 500,000, 5% cumulative, convertible preferred shares at a price of
$1.00 each to LARCAN INC. also for a cash consideration.
The cumulative number of shares of voting common stock purchased and
subscribed by LARCAN is 9,053,195. The effect of these transactions is that
LARCAN became the registrant's major stockholder.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following are the six members of the Company's Board of Directors. The
Directors listed herein with the exception of James Adamson became the
Company's Directors effective October 15, 1993. James Adamson was appointed
a Director on May 9, 1996 to replace P. Clyde Turner who retired March 30,
1996.
MEMBERS OF THE BOARD OF DIRECTORS
Paul A. Dickie, age 54, has been a Director of the Company since October
15, 1993. He joined LeBlanc & Royle Telcom Inc. as Controller in 1972.
During his years at LeBlanc & Royle, he rose steadily through the corporate
ranks to his current position as President of LeBlanc & Royle Enterprises
Inc. He oversees the operations of several of the companies in the LeBlanc
Group and is a member of the Board of Directors of LeBlanc & Royle
Enterprises Inc. and a number of its subsidiaries. Prior to joining LeBlanc
& Royale, Mr. Dickie was employed by Touche Ross & Co., Chartered Accountants.
While at Touche Ross, he received his CA designation.
Dirk B. Freeman, age 61, has been a Director of the Company since March
31, 1990. He has a 36-year engineering and management history in the
broadcast industry. During the period from March 1987 to October 1988, he
was the Vice President of Marketing at the Company. Mr. Freeman started as a
Broadcast Engineer in the U.S. Army. After the service, he spent a four-year
period on the staff of the University of Michigan. In 1961, Mr. Freeman
joined the Broadcast Division of RCA. In the next 21 years, he held a number
of increasingly responsible engineering,sales,operations and marketing
positions at RCA. In 1982, Mr. Freeman left RCA to form Blair Media, Inc., a
management consulting firm. After founding Blair Media, Mr. Freeman was
engaged in a number of successful projects in broadcast management. In March
1990 Mr. Freeman was elected to the Board of Directors. From March 1990 to
October 1994 he served as President of the Company. In October of 1995
Mr. Freeman resumed his activities with Blair Media. Mr. Freeman attended
Virginia Polytechnic Institute majoring in Business Administration. He is
also a graduate of the U.S. Army War College and a retired Colonel in the
U.S.Army Reserve.
Nancy E. McGee, age 44, has been a Director of the Company since October
15, 1993. She joined LeBlanc & Royle in 1978 as Controller. Since that
time, as the company grew and invested in various other businesses, she
assumed the role of Senior Vice President. She is actively involved in the
finance and management areas of several companies in the LeBlanc group.
Before joining LeBlanc & Royle, Mrs. McGee was employed by Touche Ross & Co.
where she received her designation as a chartered accountant. Mrs. McGee
serves on the Boards ofLeBlanc & Royle Enterprises Inc. and a number of its
subsidiaries.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (Continued)
Byron W. St. Clair, Ph.D., age 71, has been a Director of the Company since
its inception in 1967, Chairman of the Board since March 1986 and,
additionally, serves as Secretary. Dr. St. Clair was Chief Executive Officer
from the inception of the Company to March 1988 and from January 1990 to
March 1990. Since March 1988, he has been active full-time in the Company's
sales and engineering areas. He was one of the founders and, from 1960 to
1965, the first President of Electronics, Missiles and Communications, Inc.
From 1957 to 1960, he was the Director of Research and Development for Adler
Electronics, Inc. In thes respective time periods, these two companies
were the dominant manufaturers of translators. From 1965 to 1967, he was
General Manager of Hammarlund Mfg. Company and from 1967 to 1970,
Vice-president of Racal Communications, Inc. Dr. St. Clair received his B.S.
and M.A. degrees from Columbia University and a PH.D in physics from
Saracuse University.
James D. Adamson, age 50, has been a Director of the company since May 9,
1996. He joined LARCAN INC. in 1982 after serving in various capacities
within Canadian General Electric. In April 1993 he became Vice President of
Marketing for LARCAN INC. and in April 1996 he succeeded P. Clyde Turner as
President. Also in April 1996 he was appointed to the Board of Directors of
LARCAN INC..
G. James Wilson, age 62, was appointed President and CEO in late fiscal
year 1995 and has been a Director of the Company since October 15, 1993. He
has been associated with the Broadcast Industry since 1962. Prior to
joining the LeBlanc Organization, he was with Andrew Corporation in the
position of Canadian sales manager. He joined LeBlanc and Royle in 1977 as
Sales Manager. As the company grew, his responsibilities increased, and he
assumed the role of Vice President, Sales and Marketing. In 1984, a decision
was made to form a U.S. sales and marketing organization to focus on the
U.S. broadcast market. LDL Communications was formed, and Mr. Wilson was
appointed to the position of President. LDL is responsible for the sales
and marketing of the products manufactured by LARCAN, LeBlanc, the Alan
Dick Company, and LARCAN-TTC. Mr. Wilson serves on the board of LeBlanc
& Royale Enterprises Inc., and other boards within the organization.
OFFICERS AND SIGNIFICANT EMPLOYEES OF THE CORPORATION WHO ARE NOT ALSO
MEMBERS OF THE BOARD OF DIRECTORS
None.
ITEM 11. EXECUTIVE COMPENSATION
The following table provides information concerning compensation for the
fiscal years 1995 and 1994, paid to Mr. Dirk B. Freeman, the Chief Executive
Officer of the Company. No corporate officers or employees received
compensation exceeding $100,000 during any of these fiscal years.
ANNUAL COMPENSATION LONG-TERM COMPENSATION
AWARDS PAYOUTS
NAME AND Fiscal Salary Bonus Other Restricted Options LTIP All Other
PRINCIPAL Year Stock Awards /SARS Payouts
POSITION ($) ($) ($) ($) ($) ($) ($)
Dirk B.
Freeman
(CEO) 1995
(through April 15) 65,500 -0- - 0- - 0- -0- -0- - 0-
1994 80,000 -0- -0- -0- -0- -0- -0-
At June 30, 1996, Mr. Freeman did not hold any options to purchase any
securities of the Company, he was not granted any such options during the
fiscal year, and he did not exercise any options during the fiscal year.
During late fiscal 1995 and all of fiscal 1996, James Wilson was compensated
through an affiliated entity. Compensation expense allocated from the
affiliate was deemed immaterial to the Company.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
There were no options granted to executive officers in fiscal 1996.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
There are no aggregated options or options exercised by executive officers as
of and during the year ended June 30, 1996.
LONG-TERM INCENTIVE PLAN AWARDS
None.
ITEM 11. EXECUTIVE COMPENSATION (Continued)
PENSION PLAN BENEFITS
None.
COMPENSATION OF DIRECTORS
The Company paid no compensation to non-employee directors during the
fiscal year ended June 30, 1996.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
None.
REPORT ON REPRICING OF OPTIONS/SARs
None in 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
(1) Compensation Committee
Name Position Held
Paul A. Dickie Director
G. James Wilson Director
(2) Not applicable.
(3) Not applicable.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Not applicable.
PERFORMANCE GRAPH
Not applicable.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table displays certain information, as of June 30, 1996 with
respect to (a) each person who is known by the Company to be the beneficial
owner of more than five percent of the Company's Common Stock (voting
securities) and/or Preferred shares, (b) each director of the Company and
all nominees for director, and (c) all officers and directors of the Company
as a group. All stock ownership shown below is direct unless otherwise
indicated.
Number of Shares Percent
Name and Address Owned Beneficially of Class
LARCAN INC. 1) 9,053,195 78.42
228 Ambassador Drive
Mississauga, Ontario
Canada L5T 2J2
Paul A. Dickie None -----
Director
650 South Taylor Avenue
Louisville, CO 80027
Dirk B. Freeman 905,803 7.85
Director/President
650 South Taylor Avenue
Louisville, CO 80027
Nancy E. McGee None ------
Director
650 South Taylor Avenue
Louisville, CO 80027
James Adamson None ------
Director
650 South Taylor Avenue
Louisville, CO 80027
Dr. Byron W. St. Clair 517,379 4.48
Chairman of the Board/Officer
650 South Taylor Avenue
Louisville, CO 80027
G. James Wilson None ------
Director
650 South Taylor Avenue
Louisville, CO 80027 _____________ ____________
Total officers and Directors 10,476,377 90.75
All Others 1,067,557 9.25
Total Outstanding Shares 11,543,934 100.00
All Officers and Directors
as a Group 10,476,377 90.75
Series A, 5% Cumulative, Convertible Preferred shares
Number of Shares Percent
Owned Beneficially of Class
LARCAN INC. 2) 500,000 100.00
228 Ambassador Drive
Missauga, Ontario
Canada L5T 2J2
1) On May 18, 1995 the shareholders voted in favor of issuing an additional
5,000,000 Common Stock to LARCAN INC. for $500,000. The proceeds were then
used for the purpose of repaying some of the Company's indebtedness to
LARCAN INC. for advances made to cover operating expenses during
last year.
2) On May 18, 1995, the shareholders voted in favor of issuing preferred
shares to LARCAN INC. also for the purpose of repaying debt to LARCAN INC.
as described above.
In June 1995, the board of Directors created Series A, 5% cumulative
(Convertible Preferred) stock value at $1.00 per share. The maximum issuable
shares under the series is 500,000 shares. The Convertible Preferred stock is
redeemable at the sole discretion of the Company. Subsequent to January 1,
1997, each Convertible Preferred share is convertible into common stock by
multiplying the number of shares times the "liquidation value" divided by
$.10.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June of 1995, LARCAN subscribed for 500,000 shares of the Convertible
Preferred stock for $500,000 cash. Subsequent to January 1, 1997 should these
shares be converted, LARCAN INC. would own 84.94% of the outstanding common
stock.
On October 15, 1993, LARCAN acquired 3,636,364 of authorized but unissued
shares of the Company's common stock for $1,000,000 and 416,831 shares of
the Company's common stock from existing shareholders.
During June, 1995 LARCAN INC. subscribed for an additional 5,000,000 common
shares for $500,000 and for 500,000, 5% cumulative convertible, preferred
shares for $500,000.
The Company receives advances from LARCAN for working capital and other
purposes. The Company had total borrowings from LARCAN of $3,825,000
outstanding (after the issuance of common and preferred shares) as of
June 30, 1996. Subsequent to June 30, 1996, an additional $650,000 has been
received from LARCAN INC..
Sales to affiliated companies of LARCAN were approximately $792,000 for the
fiscal year ended June 30, 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K
(a) 1. The following documents are filed as part of this Form 10-K: Page
Independent Auditors' Report on Financial Statements ...............F-1,F-2
Balance Sheets as of June 30, 1996 and June 30, 1995 ...............F-3
Statements of Operations for each of the three years in the period
ended June 30, 1996 .................................................F-4
Statement of Stockholders' Deficit for each of the three years in the period
ended June 30, 1996 ..................................................F-5
Statements of Cash Flows for each of the three years in the period
ended June 30, 1996 ............................................F-6
Notes to Financial Statements .........................................F-7
2. The financial statement schedules required to be filed as part of this
Form 10-K are listed below:
NONE
3. Exhibits required to be filed are listed below and immediately follow the
signature page of this Form 10-K.
NONE
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.
Date: September 30, 1996 LARCAN-TTC INC.
(Registrant)
By: ss\ G.James Wilson
G. James Wilson
President and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Date
ss\ Paul A. Dickie 9/30/96
Paul A. Dickie
Chairman of the Board
ss\ Byron W. St. Clair 9/30/96
Byron W. St. Clair
Chairman of the Board Emeritus
ss/ James D. Adamson 9/30/96
James D. Adamson
Director
ss/ Dirk B. Freeman 9/30/96
Dirk B. Freeman
Director
ss/ Nancy McGee 9/30/96
Nancy McGee
Director
ss/ G. James Wilson 9/30/96
G. James Wilson
Director
Table of Contents
Page
Independent Auditors' Report F - 1
Financial Statements
Balance Sheets F - 3
Statements of Operations F - 4
Statement of Stockholders' Deficit F - 5
Statements of Cash Flows F - 6
Notes to Financial Statements F - 7
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
LARCAN-TTC, INC.
Louisville, Colorado
We have audited the balance sheets of LARCAN-TTC, INC. as of June 30, 1996
and 1995 and the related statements of operations, stockholders' deficit and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the oveall
financial staement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of LARCAN-TTC, INC. as of
June 30, 1996 and 1995 and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
Ehrhardt Keefe Steiner & Hottman PC
August 22, 1996
Denver, Colorado
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
LARCAN-TTC, INC.
Louisville, Colorado
We have audited the accompanying statements of operations, stockholders'
deficit and cash flows of LARCAN-TTC INC. (formerly Television Technology
Corporation) for the year ended June 30, 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the results of operations and cash flows of LARCAN-TTC INC. for the
year ended June 30, 1994 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Denver, Colorado
September 19, 1994
Balance Sheets
June 30,
1996 1995
Assets
Current assets
Cash and cash equivalents $ 98,000 $ 118,000
Accounts receivable - trade,
less allowance for doubtful accounts of
$154,000 (1996) and $203,000 (1995) (Note 5) 363,000 299,000
Accounts receivable - related party 792,000 51,000
Inventories, net (Notes 2 and 5) 1,797,000 1,564,000
Other 23,000 10,000
Total current assets 3,073,000 2,042,000
Equipment and improvements (Notes 4 and 5) 1,923,000 1,788,000
Less accumulated depreciation and amortization (1,695,000) (1,601,000)
228,000 187,000
Note receivable (Note 3) 19,000 -
Other assets 19,000 19,000
Total assets $ 3,339,000 $ 2,248,000
Liabilities and Stockholders' Deficit
Current liabilities
Line-of-credit (Note 5) $ 200,000 $ 200,000
Note payable (Note 5) - 70,000
Accounts payable-trade 1,410,000 650,000
Account's payable-related party 698,000 85,000
Salaries, wages and employee benefits 181,000 177,000
Accrued expenses and other liabilities 142,000 100,000
Accrued warranty and other reserves 32,000 34,000
Customer advances 302,000 482,000
Total current liabilities 2,965,000 1,798,000
Advances from stockholder (Note 6) 3,825,000 1,575,000
Commitments (Note 8)
Stockholders' deficit (Notes 6 and 9)
Preferred stock, $1.00 par value;
1,000,000 shares authorized
Series A 5% cumulative convertible,
500,000 (1996) shares issued and
outstanding, liquidation preference
$1.05 per share 500,000 -
Series A subscribed, 500,000 shares - 500,000
Common stock, $.04 par value;
30,000,000 shares authorized,
11,543,934 (1996) and 6,543,934 (1995)
shares issued 462,000 262,000
Common stock subscribed, 5,000,000 shares - 200,000
Additional paid-in capital 4,744,000 4,744,000
Accumulated deficit (9,147,000) (6,821,000)
Common stock held in treasury,
at cost; 1,796 shares (10,000) (10,000)
Total stockholders' deficit (3,451,000) (1,125,000)
Total liabilities and stockholders'deficit $3,339,000 $2,248,000
Statements of Operations
Fiscal Years Ended June
1996 1995 1994
Sales (Notes 6 and 10) $ 7,474,000 $ 6,228,000 $ 8,649,000
Operating expenses
Cost of sales 7,293,000 5,423,000 7,057,000
Selling, general and administrative 1,573,000 1,695,000 2,361,000
Research and development 898,000 615,000 623,000
Total operating expenses 9,764,000 7,733,000 10,041,000
Loss from operations (2,290,000) (1,505,000) (1,392,000)
Other expense
Interest (21,000) (36,000) (50,000)
Other (15,000) (21,000) ( 9,000)
Total other expense (36,000) (57,000) (59,000)
Net loss $(2,326,000) $(1,562,000) $(1,451,000)
Net loss per common share $ (.23) $ (.24) $ (.27)
Weighted average number of common
shares outstanding 10,293,561 6,543,561 5,450,229
Statement of Stockholders' Deficit
For the Years Ended June 1996, 1995, and 1994
Preferred Stock, Series A Common Stock
Subscribed Subscribed
Shares Amount Shares Amount Shares Amount Shares Amount
Year ended
June 25,
1993 - $ - - $- 2,906,570 117,000 - $-
Issuance of common
stock for cash
(Note 9 - - - - 3,636,364 145,000 - -
Net loss - - - - - - - -
Year ended
June 30,
1994 - - - - 6,542,934 262,000 - -
Issuance of common
stock for cash
(Note 9) - - - - 1,000 - - -
Subcription of
Series A Preferred
Stock
(note 9) - - 500,000 500,000 - - - -
Subscription of
Common Stock
(Note 9) - - - - - - 5,000,000 200,000
Net loss - - - - - - - -
Year Ended
June 30,
1995 - - 500,000 500,000 6,543,934 262,000 5,000,000 200,000
Issuance of
subscribed
common stock
(Note 9) - - - - 5,000,000 200,000(5,000,000)(200,00)
Issuance of
subscribed
preferred stock
for cash
(Note 9) 500,000 500,000 (500,000)(500,000) - - - - -
Net loss - - - - - - - - -
Year ended
December 30,
1996 500,000 $ 500,000 - $ - 11,543,934 $ 462,000 - $ -
Statement of Shareholders' Deficit
For the Years Ended June 1996, 1995, and 1994
Additional
Paid In Accumulated Treasury Stock
Capital Deficit Shares Amount
Year ended
June 25, 1993 $3,589,000 $(3,808,000) 1,796 $(10,000)
Issuance of Common
Stock for Cash
(Note 9) 855,000 - - -
Net Loss - (1,451,000) - -
Year Ended
June 30, 1994 4,444,000 (5,259,000) 1,796 (10,000)
Issuance of Common
Stock for Cash
(Note 9) - - - -
Subscription of
Series A Preferred
Stock (Note 9) - - - -
Subscription pf
Common Stock
(note 9) 300,000 - - -
Net Loss - (1,562,000) - -
Year Ended
June 30, 1995 4,744,000 (6,821,000) 1,796 (10,000)
Issuance of
Subscribed Common
Stock (Note 9) - - - -
Issuance of
subcribed preferred
stock for cash - - - -
Net Loss - (2,326,000) - -
Year Ended
June 30, 1996 $ 4,744,000 $(9,147,000) 1,796 $(10,000)
Statements of Cash Flows
Fiscal Years Ended June
1996 1995 1994
Cash flows from operating activities
Net loss $ (2,326,000) $ (1,562,000) $ (1,451,000)
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation and amortization 94,000 122,000 123,000
Provision for losses on
accounts receivable (49,000) 72,000 48,000
Provision for inventory
reserves 72,000 104,000 120,000
Change in assets and liabilities
Accounts Recievable-Trade (76,000) (40,000) 484,000
Inventories (305,000) 558,000 (834,000)
Other current assets (13,000) 8,000 55,000
Accounts payable - trade 1,373,000 (119,000) (445,000)
Salaries, wages and employee
benefits 4,000 (67,000) 17,000
Accrued expenses and other
liabilities 42,000 (164,000) 198,000
Accrued warranty and other
reserves (2,000) (100,000) 43,000
Customer advances (180,000) 137,000 (131,000)
280,000 511,000 (322,000)
Net cash used in operating
activities (2,046,000) (1,051,000) (1,773,000)
Cash flows from investing activities
Purchases of equipment
and improvements (135,000) (45,000) (91,000)
Issuance of note recievable (19,000) - -
Decrease (increase)
in other assets - 1,000 13,000
Net cash used in investing
activities (154,000) (44,000) (104,000)
Cash flows from financing activities
Borrowings on note payable
and line-of-credit - 70,000 3,360,000
Payments on note payable
and line-of-credit (70,000) (500,000) (3,478,000)
Borrowings from stockholder 2,250,000 1,450,000 2,275,000
Payments to stockholder - (1,000,000) (650,000)
Principal payments on capital
lease obligations - (2,000) (4,000)
Proceeds from issuance of
common stock and
preferred stock - 1,000,000 500,000
Net cash provided by
financing activities 2,180,000 1,018,000 2,003,000
Net (decrease) increase in
cash and cash equivalents (20,000) (77,000) 126,000
Cash and cash equivalents
at beginning of year 118,000 195,000 69,000
Cash and cash equivalents
at end of year 98,000 118,000 195,000
Supplemental disclosures of csh flow information:
Cash paid for interest was $21,000, $36,000, and $58,000 for 1996, 1995,
and 1994 respectively.
Notes to Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies
Organization
LARCAN-TTC, INC. (the Company), is a fully integrated producer of television
and FM radio transmission equipment. The Company designs, develops and
manufactures a variety of FM and television broadcast
transmitters/translators including low power television equipment and high
power UHF television equipment. The Company also provides system design
services, sells accessory items manufactured by the Company and others, and
performs installation as requested by its customers. LARCAN, INC> (a
Canadian Corporation) (LARCAN) controlls approximately 78 percent of the
Company's outstanding common stock as of June 30, 1996. The Company
continues to be partially dependent on continued funding from LARCAN.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with an original
maturity of three months or less at the time of purchase to be cash
equivalents. The Company, at times, maintains cash balances in depository
accounts in excess of FDIC insurable limits.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
Equipment and Improvements
Equipment and improvements are stated at cost. Depreciation and amortization
are provided using the straight line method over the estimated useful life of
the related assets, or the related lease term for leasehold improvements.
Revenue Recognition
Sales are recognized when the product is shipped, or pursuant to the terms of
sales contracts when manufacturing is completed. Revenues from services are
recognized when the services are rendered.
Warranty Costs
The Company generally provides a limited warranty for its products of one to
two years. Included in cost of sales are projected future costs of providing
such warranties on products which have been sold.
Research and Development
Research and product development expenditures are charged to operations as
incurred.
Note 1 - Organization and Summary of
Significant Accounting Policies (continued)
Net loss per common share
Loss per share of common stock was computed based on the weighted average
number of common shares outstanding during the period. Common stock
equivalents are not included as their effect would be antidilutive.
Reclassification
Certain amounts in the June 30, 1995 balance sheet have been reclassified to
conform with the June 30, 1996 presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles 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.
Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash and cash
equivalents, receivable, note receivable, accounts payable and accrued
expenses approximated fair value as of June 30, 1996 and 1995, because of the
relatively short maturity of these instruments.
It is not practicable to estimate the fair value of the advances from
stockholder due to the inability to estimate fair value with out incurring
excessive costs.
Due to rates currently available to the Company for debt which are similar to
terms on the remaining maturities, the fair value of existing debt
approximate carrying value.
Note 2- Inventories
Inventories consist of the following:
June 30,
1996 1995
Parts, raw materials and sub-assemblies $ 1,930,000 $ 1,676,000
Work in process 163,000 112,000
2,093,000 1,788,000
Less inventory reserves (296,000) (224,000)
$ 1,797,000 $ 1,564,000
Note 3 - Note Receivable
Note receivable consists of the following:
June 30,
1996 1995
Note receivable related to the conversion of
trade accounts receivable,interest at 7% monthly,
principal and interest payments of approximately
$618 through May 1999. Secured by equipment. $ 19,000 $ -
Note 4 - Equipment and Improvements
Equipment and improvements consist of the following:
June 30,
1996 1995
Manufacturing equipment $ 1,045,000 $ 993,000
Furniture and fixtures 714,000 666,000
Leasehold Improvements 123,000 88,000
Transportation Equipment 41,000 41,000
1,923,000 1,788,000
Less Accumulated Depreciation
and amortization (1,695,000)(1,601,000)
228,000 187,000
Note 5 - Note Payable and Line-of-Credit
Note payable and line-of credit consist of the following:
June 30
1996 1995
Bank revolving line-of-credit,
interest at prime plus 1.5%
(9.75% at June 30, 1996), matures June 1, 1997
collateralized by trade accounts receivable,
inventories,and equipment $200,000 $200,000
Bank term loan, paid in full during 1996 - 70,000
In August, 1996, the line-of-credit was restructured into a $150,000
line-of-credit with interest at prime plus 1.5% maturing July 1, 1997,
cross collateralized by trade accounts receivable, inventories and equipment
and a $50,000 term loan at prime plus 1.5%, monthly principal and interest
payments of approximately $4,000 through July 1, 1997.
Note 6 - Related Parties
The following is a summary of significant transactions with affiliated
companies:
Advances from Stockholder
The Company receives advances from its major stockholder, LARCAN, for working
capital and other purposes. These advances are subordinate to the bank debt
(Note 5), are non-interest-bearing, unsecured, and have no fixed terms of
repayment. The Company had total borrowings from LARCAN of $3,825,000 and
$1,575,000 at June 30, 1996 and 1995, respectively. In August 1996, LARCAN
formalized its advances into a $10,000,000 note payable ($6,175,000 unused at
June 30, 1996) with interest at 8%, collateralized by sunstantially all the
assets of the company, subject to the bank debt (Note 5). This note is due
August 1, 1998.
As further discussed in Note 9, during the year ended June 30, 1995, LARCAN
subscribed 500,000 shares of the Company's Series A preferred stock and
5,000,000 shares of the Company's common stock for $1,000,000. The proceeds
from the stock subscription were used to pay down the advances received from
LARCAN. All of the subscribed shares were issued in the current year.
Sales to Affiliates
Sales to an affiliate of the Company's major stockholder, LARCAN, were
approximately $792,000, $572,000, and $55,000 for the years ended
June 30, 1996, 1995 and 1994, respectively.
Note 7 - Income Taxes
Income Taxes
The Company recognizes deferred tax liabilities and assets based on the
difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which
differences are expected to reverse. The measurement of deferred tax assets
is reduced if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized.
Deferred income taxes at a tax rate of 37% are comprised of the following:
June 30
1996 1995
Deferred tax assets
Allowance for doubtful accounts $ 57,000 $ 75,000
Inventory 283,000 257,000
Accrued vacation and other liabilities 60,000 68,000
Accrued warranty and other reserves 12,000 12,000
Research and development 84,000 84,000
Net operating loss carryforwards 2,714,000 1,953,000
3,210,000 2,449,000
Valuation allowance on deferred tax assets (3,186,000) (2,434,000)
Net deferred tax asset 24,000 15,000
A valuation allowance of $3,186,000 and $2,434,000 as of June 30, 1996 and
1995, respectively, has been recognized to offset the related deferred
tax assets due to the uncertainty of realizing the benefit of these items.
The Company has avialable, for federal income tax purposes, net operating
loss carryforwards of approximately $7,900,000 which expire in varying amounts
through 2009. The Company's net operating loss carryforwards, computed under
the provisions of the alternative minimum tax, are not significantly different
from the Company's regular net operating loss carryforwards. In addition,
due to the change in control of stock ownership of the Company (Note 9),
the Company's utilization of its net operating losses, which were incurred
prior to the change in control may be limited due to the change in control.
The income tax benefit at the statutory rate wouls approximate $860,000 in
1996. The benefit is not recognized due to the valuation allowance described
above.
Note 8 - Commitments
Leases
The Company has a noncancelable operating lease for its office and
manufacturing facility. The lease, which expires April, 1998, provides for
an increase in rental payments based on increases in the Consumer Price
Index. In addition, the Company is required to pay property taxes,
insurance and maintenance costs relating to the leased facility. The Company
has also entered into certain other noncancelable operating leases extending
through 1998. As of June 30, 1996, the Company's future minimum rental
commitments under these operating leases are as follows:
Fiscal Years Ending June 30,
1997 $ 361,000
1998 276,000
Total minimum lease payments $ 637,000
Total rental expense under operating leases for the fiscal years ended
June 1996, 1995, and 1994 was $378,000, $356,000, and $360,000, respectively.
Note 9 - Stockholders' Deficit
Preferred Stock
During 1995, the Company amended its Articles of Incorporation to provide for
1,000,000 shares of preferred stock, $1.00 par value, with such rights,
preferences, designations and to be issued in such series as to be determined
by the Company's Board of Directors.
In June 1995, the Board of Directors created Series A, 5% cumulative
convertible preferred (Convertible Preferred) stock value at $1.00 per share.
The maximum issuable shares under the series is 500,000 shares. Holders of
the Convertible Preferred shares shall be entitled to dividends as declared
by the Board of Directors at $.05 per share. The non-declared cumulative
dividend was $25,000 at June 30, 1996.
he Convertible Preferred stockholders, in the event of liquidation of the
Company, will receive an amount equal to $1.00 per share plus declared and
unpaid dividends before any holder of common stock receives any amount. The
Convertible Preferred stock is redeemable at the sole discretion of the
Company. Subsequent to January 1, 1997, each Convertible Preferred share is
convertible into common stock by multiplying the number of shares times the
"liquidation value" divided by $.10. In June 1995, the Company's majority
stockholder subscribed 500,000 shares of the Converible Preferred stock for
$500,000 cash. The subscribed shares were issued in October 1995.
Issuance of Common Stock
In 1993, LARCAN acquired 3,636,364 of authorized but unissued shares of the
Company's common stock for $1,000,000 and 416,831 shares of the Company's
common stock from existing shareholders.
In June 1995, the Company's majority stockholder subscribed 5,000,000 shares
of the Company's common stock for $500,000. The subscribed shares were
issued in October 1995.
Stock Option Plan
The Company adopted an Incentive Stock Option Plan (the Plan) which, as
amended in February 1986, allowed the issuance of up to 687,500 shares of
both incentive stock options (ISOs), as amended, and non-qualified options
(NQOs), which are options that do not qualify as ISOs. Under the Plan, any
employee of the Company, including salaried officers and directors, could be
granted options to purchase common stock of the Company. The Plan expired in
June 1993. Stock options granted pursuant to the terms of the Plan continue
to be governed by the Plan's provisions.
Note 9 - Stockholders' Deficit (continued)
Stock Option Plan (continued)
The following is a summary of changes in the qualified options for the last
three years:
Number of Option Price
Shares Range Per Share
Outstanding at June 25, 1993 309,020 $ .44 - 2.50
Canceled (158,688) .28 - .64
Outstanding at June 30, 1994 150,332 .28
Canceled (38,566) .28
Exercised (1,000) .28
Outstanding at June 30, 1995 110,766 .28
Canceled (36,219) .28
Outstanding at June 30, 1996 74,547 $ .28
Total exercisable at June 30, 1996 74,547 $ .28
Effective October 15, 1993, the Board of Directors authorized a resolution
which reset all qualified options to $.28 per share.
Note 10 -Concentration of Credit Risk
The Company operates in one industry segment and sells some products in
foreign markets. Export sales totaled $2,699,000, $1,322,000, and $4,047,000
for the fiscal years ended June 30, 1996, 1995 and 1994 respectively. During
the year ended June 30, 1996 and 1995, 67 percent and 59 percent of export
sales were to Saudi Arabia, respectively. In fiscal 1994, 54 percent
of export sales were to Nigeria.
Sales to international customers are subject to unique risks which are not
present in sales to domestic customers. The Company attempts to mitigate
these risks by carefully considering the political and economic conditions in
a foreign country along with the financial viability of its customer before
doing business there. For international customers, sales are priced in U.S.
dollars to avoid currency fluctuations and are sold under irrevocable letters
of credit, which are usually confirmed by a major U.S. bank when the
political, economic, or financial viability is uncertain.
Note 10 - Concentration of Credit Risk (continued
Generally, it is the Company's policy to obtain a cash advance from its
domestic customers of approximately 35 percent of the sales price prior to
commencement of production. Subsequently, progress payments are received
during the production of the equipment.
The Company had individual customers whose sales accounted for 48, 12, and 25
percent of total sales during the years ended June 1996, 1995 and 1994,
respectively.
