<PAGE>
As Filed: June 5, 1995 SEC File No. ________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Registration Statement on Form SB-2
Under the Securities Act of 1933
LARSON DAVIS INCORPORATED
(Name of Small Business Issuer in its Charter)
Nevada 3674 87-0429944
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Classification Code Identification
organization) Number No.
1681 West 820 North, Provo, Utah 84601 (801) 375-0177
(Address and telephone number of principal executive offices)
Dan J. Johnson, 1681 West 820 North, Provo, Utah 84601 (801) 375-0177
(Name, address, and telephone number of agent for service)
Copies to:
Keith L. Pope, Esq.
Kruse, Landa & Maycock, L.L.C.
Eighth Floor, Bank One Tower
50 West Broadway
Salt Lake City, Utah 84101-2006
Telephone: (801) 531-7090
Telecopy: (801) 359-3954
This registration statement relates to the sale of securities by
selling shareholders of the Registrant.
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this registration
statement.
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Title of Each Maximum Maximum
Class of Offering Aggregate Amount of
Securities to Amount Being Price Per Offering Registration
be Registered Registered(1) Unit(2) Price Fee
<S> <C> <C> <C> <C>
Common Stock(3) 1,555,000 $3.75 $5,831,250 $2,011
<PAGE>
<FN>
(1) There are also registered pursuant to rule 416 such additional
number of securities as may be issuable under the antidilution
provisions of the Company's issued and outstanding preferred stock and
its warrants to purchase common stock.
(2) Estimated solely for purposes of calculating the registration
fee.
(3) The price of the Common Stock is based on the average of the
closing bid and the asked price for the Common Stock of $3.75 as
reported by Nasdaq on May 30, 1995 (rule 457(c)).
</TABLE>
The Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states
that this registration statement shall thereafter become effective in
accordance with section 8(a) of the Securities Act of 1933, as
amended, or until the registration statement shall become effective on
such date as the Commission, acting pursuant to said section 8(a), may
determine.
<PAGE>
LARSON DAVIS INCORPORATED
Cross-Reference Sheet Pursuant to Item 501(b) of Regulation S-B
Cross-reference between items of part I of form SB-2 and the
Prospectus filed by Larson Davis Incorporated as part of the
registration statement.
REGISTRATION STATEMENT ITEM NUMBER PROSPECTUS
AND HEADING HEADING
1. Front of Registration Statement and Front Cover
Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Inside Front Cover and
Pages of Prospectus Outside Back Cover
3. Summary Information and Risk Factors PROSPECTUS SUMMARY
and RISK FACTORS
4. Use of Proceeds USE OF PROCEEDS
5. Determination of Offering Price PLAN OF DISTRIBUTION
6. Dilution DILUTION
7. Selling Security Holders SELLING SHAREHOLDERS
8. Plan of Distribution PLAN OF DISTRIBUTION
9. Legal Proceedings BUSINESS AND PROPERTIES:
Legal Proceedings
10. Directors, Executive Officers, MANAGEMENT
Promoters, and Control Persons
11. Security Ownership of Certain PRINCIPAL STOCKHOLDERS
Beneficial Owners and Management
12. Description of Securities DESCRIPTION OF SECURITIES
13. Interests of Named Experts and Counsel EXPERTS and LEGAL MATTERS
14. Disclosure of Commission Position on MANAGEMENT
Indemnification for Securities
Act Liability
<PAGE>
REGISTRATION STATEMENT ITEM NUMBER PROSPECTUS
AND HEADING HEADING
15. Organization Within Last Five Years N/A
16. Description of Business BUSINESS AND PROPERTIES
17. Management's Discussion and Analysis MANAGEMENT'S DISCUSSION
or Plan of Operations AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS
18. Description of Property BUSINESS AND PROPERTIES
19. Certain Relationships and Related CERTAIN TRANSACTIONS
Transactions
20. Market for Common Equity and Related MARKET FOR COMMON EQUITY
Stockholder Matters AND RELATED STOCKHOLDER
MATTERS
21. Executive Compensation MANAGEMENT: Executive
Compensation and
Benefits
22. Financial Statements FINANCIAL STATEMENTS
23. Changes in and Disagreements With MANAGEMENT'S DISCUSSION
Accountants on Accounting and AND ANALYSIS OF
Financial Disclosure FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed
with the Securities and Exchange Commission. These securities may not
be sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. This Prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any state in which such
offer, solicitation, or sale would be unlawful prior to registration
or qualification under the securities laws of any such state.
Preliminary Prospectus
1,555,000 Shares
LARSON DAVIS INCORPORATED
Common Stock
This Prospectus relates to the public offering by certain shareholders
(the "Selling Shareholders") of an aggregate of 1,555,000 shares of
common stock, par value $0.001 per share (the "Common Stock"), of
Larson Davis Incorporated (the "Company") as follows: (i) 395,000
shares of Common Stock now outstanding; (ii) 500,000 shares of Common
Stock issuable on the exercise of outstanding warrants to purchase
Common Stock at a purchase price of $2.50 per share of Common Stock
(the "$2.50 Warrants"); (iii) 500,000 shares of Common Stock issuable
on the exercise of outstanding warrants to purchase Common Stock at a
purchase price of $3.50 per share of Common Stock (the "$3.50
Warrants"); and (iv) 160,000 [$3.00 divided by fair market value of a
share of Common Stock multiplied by 200,000] shares issuable on the
conversion of outstanding shares of 1995 preferred stock, par value
$0.001 per share (the "1995 Preferred Stock"). (See "SELLING
SHAREHOLDERS" and "DESCRIPTION OF SECURITIES.")
The Common Stock is quoted on the Nasdaq Small Cap Market ("Nasdaq")
under the trading symbol "LDII" and the Boston Stock Exchange under
the symbol "LDI." The last price for the Common Stock as of May 30,
1995, as reported by Nasdaq was $3.75.
This Offering Involves Certain Risks. (See "RISK FACTORS.")
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE OR OTHER
REGULATORY AUTHORITY, NOR HAS THE COMMISSION OR ANY
STATE OR OTHER REGULATORY AUTHORITY PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting Proceeds
Price to Discounts and to Selling
Public(1) Commissions(2) Stockholders(3)
<S> <C> <C> <C>
Per Share $ 3.75 - $ 3.75
Total $5,831,250 - $5,831,250
<PAGE>
<FN>
_________________________
(1) The price per share for the securities offered by the Selling
Shareholders is estimated at the last price for the Common Stock of
$3.75 per share as reported by Nasdaq on May 30, 1995.
(2) It is anticipated that the securities being sold by the Selling
Shareholders will be sold in private transactions or through broker-
dealers in individual transactions in which the normal commissions and
other charges will be made by the broker-dealer. There is no
agreement with any broker-dealer and the Company with respect to such
sales.
(3) All amounts received on the sale of the Common Stock will be
received by the Selling Shareholders, and there will be no proceeds to
the Company. The Company anticipates that it will incur costs related
to this offering of approximately $40,000. (See "PLAN OF
DISTRIBUTION.")
</TABLE>
The date of this Prospectus is __________, 1995.
<PAGE>
The Selling Shareholders will offer the Common Stock through or to
securities brokers or dealers designated by them in the over-the-
counter market or in other transactions negotiated by the Selling
Shareholders. Any such sale of Common Stock by Selling Shareholders
must be accompanied by, or follow the delivery of, a Prospectus filed
with a current registration statement relating to the Common Stock
being offered. The Selling Shareholders and any broker, dealer, or
agent that participates with the Selling Shareholders in the sale of
the Common Stock offered hereby may be deemed "underwriters" within
the meaning of the Securities Act of 1933, as amended (the "Securities
Act"), and any commissions or discounts received by them and any
profit on the resale of the Common Stock purchased by them may be
deemed to be underwriting commissions under the Securities Act. (See
"SELLING SHAREHOLDERS" and "PLAN OF DISTRIBUTION.")
The Company will not receive any proceeds from the sale of Common
Stock by the Selling Shareholders. In connection with this offering,
the Company estimates that it will incur costs of approximately
$40,000 for legal, accounting, printing, and other costs. Any
separate costs of the Selling Shareholders will be borne by them.
Commissions or discounts paid in connection with the sale of
securities by the Selling Shareholders will be determined by
negotiations between them and the broker-dealer through or to which
the securities are to be sold and may vary depending on the broker-
dealers' commission or mark up schedule, the size of the transaction,
and other factors. (See "PLAN OF DISTRIBUTION.")
The Company is subject to the periodic reporting requirements of the
Securities Exchange Act of 1934, as amended, and in accordance
therewith files reports and other information with the Securities and
Exchange Commission (the "Commission"). Such material can be
inspected and copied at the public reference facilities of the
Commission in Washington, D.C., and certain regional offices and
copies can be obtained from the Public Reference Section of the
Commission, Washington, D.C. 20549, at the prescribed rates. (See
"ADDITIONAL INFORMATION.") Reports and other information regarding
the Company can also be inspected at the facilities of the Boston
Stock Exchange, where the Common Stock of the Company is listed under
the trading symbol "LDI."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed
information and financial statements appearing elsewhere in this
Prospectus.
The Company
Larson Davis Incorporated (the "Company") is primarily engaged in the
development, manufacture, and marketing of precision measuring
instrumentation, including accompanying computer hardware and software
technology, and the design and installation of airport noise
monitoring systems. The Company installs its measurement instruments
in its own airports business and also sells such instruments to
private industry and governmental agencies for both industrial and
military applications.
The Company has four wholly-owned subsidiaries, of which two are
engaged in ongoing business activities: Larson Davis Laboratories
("LDL"), LD Info, Inc. ("LD Info"), Advantage Software, Inc. ("ASI"),
and Larson Davis, Ltd. ("LTD."). Unless the context otherwise
requires, when used herein, the term "Company" refers to Larson Davis
Incorporated and its operating subsidiaries.
The Company also holds rights to technology permitting real time
assessment of the properties of polymers (the "CrossCheck
Technology"). The Company acquired the exclusive right to develop and
market this technology from Brigham Young University in February 1994
and has been funding certain ongoing development and application
studies since that time. This technology has not been reduced to
marketable products.
The Company's principal executive offices are located at 1681 West 820
North, Provo, Utah 84601. The company's telephone number at that
location is (801) 375-0177. (See "BUSINESS OF THE COMPANY.")
The Offering
This offering relates to the sale of (i) 395,000 shares of currently
issued and outstanding Common Stock; (ii) 500,000 shares of Common
Stock issuable on the exercise of the $2.50 Warrants; (iii) 500,000
shares of Common Stock issuable on the exercise of the $3.50 Warrants;
and (iv) 160,000 shares of Common Stock issuable on the conversion of
200,000 shares of issued and outstanding shares of 1995 Preferred
Stock.
<PAGE>
The 1995 Preferred Stock is held by Summit Enterprises, Inc., of
Virginia ("Summit"), and was issued to Summit in satisfaction of a
$500,000 short-term obligation of the Company to Summit. Summit is
the controlling shareholder of Technology Integration Incorporated
("TII"), and the obligation to Summit arose in connection with the
acquisition of the airport noise monitoring business of TII by the
Company. (See "BUSINESS OF THE COMPANY" and "DESCRIPTION OF
SECURITIES.")
The 395,000 shares of Common Stock and the $2.50 and $3.50 Warrants
were issued in connection with a private placement (the "Private
Placement") to eight investors (the "Private Placement Investors"),
who are Selling Shareholders in this offering, in exchange for gross
cash proceeds to the Company of $601,250. The Private Placement was
conducted pursuant to exemptions from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"), and, as
such, the shares of Common Stock and the $2.50 and $3.50 Warrants
issued in the Private Placement are restricted securities and are not
transferable, except pursuant to a registration statement or an
available exemption from registration.
This Prospectus is part of a registration statement filed to permit
the sale of the currently issued and outstanding Common Stock held by
the Selling Shareholders and the Common Stock to be issued on
conversion of the Preferred Stock and the exercise of the $2.50 and
$3.50 Warrants. (See "PLAN OF DISTRIBUTION.")
<TABLE>
<CAPTION>
<S> <C>
Securities offered by the Selling Shareholders 395,000 shares of
Common Stock,
1,000,000 shares of
Common Stock
issuable on the
exercise of Warrants,
and 160,000 shares
of Common Stock
issuable on the
conversion of
Preferred Stock.
(See "DESCRIPTION OF
SECURITIES.")
Common Stock outstanding before offering 6,569,354 shares(1)
Common Stock outstanding after offering 7,729,354 shares
<PAGE>
Preferred Stock outstanding before offering 200,000 shares
Preferred Stock outstanding after offering 0 shares
Use of Proceeds The Company will not
receive any proceeds
from the sale of the
Common Stock by the
Selling Shareholders.
(See "USE OF
PROCEEDS.")
Nasdaq Symbol LDII
Boston Stock Exchange Symbol LDI
<FN>
_________________________
(1) Does not include (i) options to purchase 772,800 shares of Common
Stock at exercise prices ranging from $2.26875 to $3.85 per share;
(ii) warrants to purchase 500,000 shares of Common Stock at an
exercise price of $2.50 per share of Common Stock; (iii) warrants to
purchase 500,000 shares of Common Stock at an exercise price of $3.50
per share; and (iv) 160,000 shares of Common Stock issuable on the
conversion of outstanding shares of Preferred Stock with a cost of
$3.125 per equivalent share of Common Stock. (See "PRINCIPAL
SHAREHOLDERS" and "DESCRIPTION OF SECURITIES--Preferred Stock,
Warrants, and Options Outstanding.")
</TABLE>
Use of Proceeds
The Company will not receive any proceeds from the sale of Common
Stock by the Selling Shareholders. If the Selling Shareholders elect
to exercise the $2.50 and $3.50 Warrants, the Company would receive
gross proceeds of $3,000,000. (See "USE OF PROCEEDS.")
<PAGE>
<TABLE>
<CAPTION>
Summary Financial Information
Nine Months Ended
March 31, Year Ended June 30,
1995 1994 1994 1993
Statement of
Operations Data:
<S> <C> <C> <C> <C>
Revenues $6,979,066 $4,392,735 $ 6,412,585 $6,180,082
Net income (loss) $ 342,316 $ 38,483 $(1,868,151) $ 303,809
Net income (loss)
per share $ 0.06 $ 0.01 $ (0.34) $ 0.05
Weighted average
number of shares
outstanding 6,148,469 5,446,127 5,483,397 5,374,885
</TABLE>
<TABLE>
<CAPTION>
March 31, 1995 June 30,
1994 1993
Balance Sheet Data:
<S> <C> <C> <C>
Working capital $ 710,392 $ 553,214 $ 1,899,234
Total assets $12,570,579 $11,011,199 $10,300,253
Stockholders' equity $ 5,868,610 $ 4,987,145 $ 5,907,083
</TABLE>
<PAGE>
RISK FACTORS
The acquisition of the Common Stock involves certain risks. The
following factors, in addition to the other information and financial
data set forth elsewhere in this Prospectus, should be considered
carefully in evaluating the Company and its business before making an
investment in the Common Stock offered hereby.
The Company's Activities
Need for Additional Funds. The extent of the Company's additional
funding needs for development of its technology and expansion of its
business cannot currently be estimated, but it is likely that the
interest of the Company's shareholders in the Company continue to be
diluted as the Company seeks funding through the sale of additional
securities or through joint venture or industry partnering
arrangements. There can be no assurance that the necessary funds will
be available to the Company when required or, if available, that such
funds can be obtained on terms acceptable or favorable to the Company.
(See "Financial Statements" and "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.")
Shortages of Working Capital and Significant Losses. The Company's
independent auditor's report on the financial statements for the year
ended June 30, 1994, contains an explanatory paragraph as to the
Company's ability to continue as a going concern based on the
Company's net loss for the year of $1,868,151. This loss was the
result of a write down of discontinued operations that eliminated a
significant amortization expense. However, if the Company were to
experience ongoing losses with respect to its operations, it would
adversely affect the Company's ability to obtain any additional
financing it may need in the future and may adversely affect the
Company's ability to continue as a going concern. (See Footnote 17 to
the Financial Statements for the year ended June 30, 1994, included
herein.)
Dependence on Key Employees. The business of the Company is to some
extent dependent on its management and technical team and their
substantial experience. The loss of one or more of these individuals
could result in adverse effects on the Company's proposed activities.
The Company does not have and does not intend to acquire key man life
insurance on any of its executives. (See "MANAGEMENT.")
<PAGE>
Additional Expenses Related to Capitalized Costs. Included in "Other
Assets" on the Company's balance sheets are product technology
acquisition costs, license rights, software development costs, and
goodwill. Such costs are capitalized and amortized over the
anticipated useful life of the associated asset, ranging from 10 to 17
years. As of March 31, 1995, the Company had capitalized costs with
respect to these items of $4,640,603. This amount will be expensed
over the relevant amortization periods and will consequently reduce
earnings in future periods. (See "Financial Statements.")
Intense Competition. The development and marketing of precision
measurement instrumentation is highly competitive. Many of the
Company's competitors have greater financial resources, broader
development programs, and a greater number of managerial and technical
personnel. Because the Company's resources are limited, there can be
no assurance that it will be able to compete effectively. (See
"BUSINESS: Competition.")
General Risks Relating to Offering
Market Impact of Offering. This Prospectus relates to the sale of up
to 1,555,000 shares of Common Stock by the Selling Shareholders. The
Company will not receive any proceeds from this offering and has
prepared this Prospectus in order to meet its contractual obligations
to the Selling Shareholders. The shares to be sold by the Selling
Shareholders represent approximately 24% of the currently issued and
outstanding Common Stock. The sale of such a significant block of
stock, or even the possibility of its sale may adversely effect the
trading market for the Common Stock and reduce the prices available in
that market.
Substantial Options and Warrants Outstanding. The Company has issued
and outstanding the $2.50 and $3.50 Warrants and, in addition, options
to purchase up to 772,800 shares of Common Stock. Of this amount,
702,800 shares of Common Stock are subject to options held by
executive officers and directors with exercise prices ranging from
$2.26875 to $3.85 per share. The existence of such options and
Warrants may prove to be a hindrance to future financing by the
Company and the exercise of options and Warrants may dilute the
interests of the stockholders of the Company. The sale of the Common
Stock pursuant to this Prospectus and the possible future sale of
Common Stock issuable on the exercise of outstanding options could
adversely affect the prevailing market price of the Company's Common
Stock. Further, the holders of the $2.50 and $3.50 Warrants and the
options may exercise them at a time when the Company would otherwise
be able to obtain additional equity capital on terms more favorable to
the Company. (See "DESCRIPTION OF SECURITIES" AND "PRINCIPAL
SHAREHOLDERS.")
<PAGE>
Lack of Due Diligence Review. The Selling Shareholders reviewed
certain information concerning the Company, its business, and its
proposed activities in connection with their acquisition of Common and
Preferred Stock. However, no securities broker-dealer or other person
has been engaged to perform any due diligence or similar review of
this offering or the Company on behalf of the Selling Shareholders,
persons who may purchase Common Stock in this offering, or any other
person.
Issuance of Additional Common Stock. The Company has authorized
290,000,000 shares of Common Stock, par value $0.001 per share, and
10,000,000 shares of Preferred Stock. As of May 30, 1995, 6,569,354
shares of Common Stock and 200,000 shares of 1995 Preferred Stock were
issued and outstanding, with an additional 1,932,800 shares of Common
Stock reserved for issuance on the exercise or conversion of options,
warrants, and Preferred Stock. The Company's board of directors has
authority, without action or vote of the shareholders, to issue all or
part of the authorized but unissued shares. Any such issuance will
dilute the percentage ownership of shareholders and may dilute the
book value of the Company's Common Stock.
Preferential Rights of Preferred Stock Outstanding. The Company has
200,000 shares of 1995 Preferred Stock issued and outstanding. The
1995 Preferred Stock has a liquidation preference of $2.50 per share.
On liquidation or termination of the Company, an aggregate of $500,000
in assets would be distributed to the holders of the currently issued
and outstanding 1995 Preferred Stock, after payment of all of the
Company's obligations prior to any distribution to the holders of
Common Stock. The Preferred Stock votes as a single class with the
Common Stock, except as otherwise required by the corporate statutes
of Nevada. If the Company seeks to amend its certificate of
incorporation to change the provisions relating to the 1995 Preferred
Stock or to approve a merger containing provisions that would require
a class vote if they were contained in an amendment to the certificate
of incorporation, the approval of each class of Preferred Stock
affected thereby, voting as a separate class, will be required.
Consequently, the holders of a relatively minor number of shares of
1995 Preferred Stock may be able to block such proposals, even in
circumstances where they would be in the best interests of the holders
of Common Stock. (See "DESCRIPTION OF SECURITIES: Preferred Stock,
Warrants, and Options Outstanding.")
<PAGE>
Lack of Recent Shareholder Meetings. The Company has not held a
meeting of its shareholders for the purpose of electing directors or
for any other purpose since 1992. Under Nevada law, the Company has
been required since inception to have an annual shareholders' meeting
for the election of directors, but has not done so recently because of
the costs involved in the preparation and mailing of required proxy
materials and holding meetings. In any year in which the Company has
not held or does not hold a shareholders' meeting, a shareholder may
force the Company to call such a meeting for the election of directors
and such other purposes as may come before the shareholders for
consideration. This could result in a change in management.
Determination of Purchase and Exercise Price. The purchase price for
the Common Stock sold in the Private Placement and the exercise price
of the $2.50 and $3.50 Warrants and the terms under which they can be
exercised to acquire Common Stock were determined by negotiations
between the Company and the Private Placement Investors. The terms of
the 1995 Preferred Stock and the conditions of its issuance were fixed
in negotiations between the Company and Summit. These negotiations
took into account the history of, and recent prices for, the Common
Stock as quoted on Nasdaq, the business history and prospects of the
Company, an assessment of the Company's management, the number of
securities to be offered, and the general condition of the securities
market. The prices at which the selling Shareholders may sell shares
of Common Stock in this offering will be individually negotiated or
based on the market price for the Common Stock at the time of the
transactions. Such prices do not necessarily bear a relationship to
the assets, earnings, or net tangible book value of the Company or any
other traditional criteria of value. (See "DESCRIPTION OF
SECURITIES.")
No Dividends. The Company has not paid, and does not plan to pay,
dividends in the foreseeable future, even if it were profitable, other
than the required dividend payments to the holders of the 1995
Preferred Stock. (See "DESCRIPTION OF SECURITIES."). Earnings, if
any, are expected to be used to advance the Company's activities and
for general corporate purposes, rather than to make distributions to
shareholders.
<PAGE>
Finder's Fee. The Company has issued 25,000 shares of Common Stock to
Neil C. Sullivan and Michael Cunniff and will pay a fee equal to 6% of
gross amounts received by the Company on the exercise of the $2.50 and
$3.50 Warrants. These amounts were issued and agreed to be paid for
the introduction of the Company to the Private Placement Investors.
Messrs. Sullivan and Cunniff will be given the opportunity to profit
from a rise in the market price for the securities of the Company
without assuming the risk of investing their funds, with a resulting
dilution in the interest of other security holders.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Common
Stock by the Selling Shareholders. The Company anticipates that it
will incur costs of approximately $40,000 in connection with this
Prospectus, including filing fees, transfer agent costs, listing fees,
and legal and accounting fees. If all of the $2.50 and $3.50
Warrants are exercised, of which there is no assurance, the Company
would receive gross proceeds of $1,250,000 and $1,750,000,
respectively. In the event the Warrants are exercised, the Company
would owe a finder's fee equal to 6% of the gross proceeds received by
the Company, or up to $180,000, to Neil C. Sullivan and Michael
Cunniff. To the extent that net proceeds from the exercise of the
$2.50 and $3.50 Warrants are received by the Company, such proceeds
will be used to fund the expansion of the business of the Company, the
development of the CrossCheck Technology, and general and
administrative expenses.
The Company will receive no proceeds from the conversion of the
Preferred Stock.
DIVIDENDS
The Company has not paid dividends on its Common or Preferred Stock
and does not anticipate that it will pay dividends on its Common Stock
in the foreseeable future. The Company's issued and outstanding 1995
Preferred Stock has a dividend requirement of $3,750 per month in the
aggregate which will be paid until conversion of the Preferred Stock
to Common Stock.
<PAGE>
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market
and is quoted on Nasdaq under the symbol "LDII" and on the Boston
Stock Exchange under the symbol "LDI." The following table sets forth
the high and low closing bid quotations for the Company's Common Stock
as quoted by Nasdaq for the periods indicated, based on interdealer
bid quotations, without markup, markdown, commissions, or adjustments
(which may not reflect actual transactions).
<TABLE>
<CAPTION>
Common Stock
High Low
<S> <C> <C>
1993
First Quarter $2.5625 $2.00
Second Quarter $2.375 $1.9375
Third Quarter $2.1875 $1.75
Fourth Quarter $3.125 $1.75
1994
First Quarter $4.75 $2.375
Second Quarter $4.50 $3.625
Third Quarter $7.50 $3.875
Fourth Quarter $5.875 $3.375
1995
First Quarter $4.25 $3.375
Second Quarter $2.875 $2.0625
Third Quarter $2.6875 $4.25
</TABLE>
On May 30, 1995, the last price of the Company's Common Stock as
reported by Nasdaq was $3.75. As reflected by the high and low bids
on the foregoing table, the trading volume of the Common Stock is
limited, creating significant changes in the trading price as a result
of relatively minor changes in the supply and demand. Consequently,
potential investors should be aware that the price of the Common Stock
in the trading market can change dramatically over short periods as a
result of factors unrelated to the earnings and business activities of
the Company. On May 30, 1995, the Company had 273 Common Stock
shareholders of record.
<PAGE>
The Company has not paid dividends with respect to its Common Stock
and does not anticipate doing so in the foreseeable future. The 1995
Series Preferred Stock bears an annual dividend of $0.225 per share,
payable monthly, which the Company anticipates paying until the
Preferred Stock is converted to Common Stock. The terms of the 1995
Series Preferred Stock prohibit the payment of any dividends on the
Common Stock until and unless all the required dividends with respect
to the Preferred Stock have been paid. Other than this provision,
there are no restrictions on the payment of dividends by the Company.
However, the Company anticipates retaining any future earnings or
working capital for investment in the growth and expansion of the
business of the Company.
DILUTION
Giving effect to (i) the issuance of 200,000 shares of 1995 Preferred
Stock and 370,000 shares of Common Stock in the Private Placement;
(ii) the reduction of the Company's short-term liabilities by $500,000
as a result of the issuance of the 1995 Preferred Stock; (iii) the
liquidation preference of the 1995 Preferred Stock of $2.50 per share;
and (iv) the receipt by the Company of net proceeds of $583,483 from
the Private Placement, but without giving effect to any other change
since March 31, 1995, the net tangible book value of the Company as of
March 31, 1995, was $1,811,490, or approximately $0.28 per share of
Common Stock issued and outstanding. "Net tangible book value" per
share represents the total tangible assets of the Company less total
liabilities and the liquidation preference of outstanding Preferred
Stock, divided by the number of shares of Common Stock outstanding.
If all 1,555,000 shares of Common Stock offered by this Prospectus
were issued on the conversion of the Preferred Stock and the exercise
of the $2.50 and $3.50 Warrants, the Company's net tangible book
value, without giving effect to any other changes since March 31,
1995, including potential expenses of the Company in connection with
the exercise of the $2.50 and $3.50 Warrants, would be $4,811,490, or
approximately $0.62 per share, for the 7,729,354 shares of Common
Stock then issued and outstanding. As such, anyone exercising the
$2.50 and $3.50 Warrants, converting the Preferred Stock, or
purchasing Common Stock at a price in excess of such amount, would
suffer substantial and immediate dilution.
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data of the Company is not covered by
an opinion of independent certified public accountants and should be
read in conjunction with the financial statements and related notes of
the Company for the periods indicated included elsewhere herein.
<TABLE>
<CAPTION>
Statement of Operations Data
Nine Months Ended Year Ended
March 31, June 30,
1995 1994 1994(1) 1993
<S> <C> <C> <C> <C>
Revenues $ 6,979,066 $ 4,392,735 $ 6,412,585 $ 6,180,082
Net income from
continuing
activities $ 342,316 $ 241,584 $ 202,044 $ 130,819
Income from
continuing
operations
per common
share $ 0.06 $ 0.05 $ 0.04 $ 0.02
(Loss) from
discontinued
operations
per common
share $ - $ 0.04 $ (0.08) $ (0.07)
(Loss) on
disposal of
discontinued
operations $ - $ - $ (0.39) $ -
Gain from
extraordinary
item per
common share $ - $ - $ - $ 0.10
<PAGE>
Cumulative
effect of
accounting
changes-
application
of FAS No.
109 $ - $ - $ 0.09 $ -
Net income or
(loss) per
common share $ 0.06 $ 0.01 $ (0.34) $ 0.05
<CAPTION>
Balance Sheet Data
Nine Months Ended Year Ended
March 31, June 30,
1995 1994 1994(1) 1993
<S> <C> <C> <C> <C>
Total Assets $12,570,579 $10,199,344 $11,011,199 $10,300,253
Long-term debt $ 664,763 $ 883,619 $1,142,766 $ 827,623
Dividends
declared $ 0 $ 0 $ 0 $ 0
<FN>
_________________________
(1) Includes the operations of TII from March 18, 1994 (the date of
the acquisition agreement was signed), through the fiscal year end,
June 30, 1994.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIGNIFICANT FINANCIAL CHANGES-STATEMENTS OF INCOME
Total Revenue
Total revenue for the two fiscal years ended June 30, 1994, was
$6,412,585 and $6,180,082, respectively. Through the nine months
ended March 31, 1994, total revenue was $6,979,066. This increase in
the current year is the result of increased contract sales associated
with the acquisition of the airport noise monitoring business from TII
and a general increase in demand in the acoustics and vibration
industry. Due in part to a general economic recovery, foreign sales
have recently been recovering, while sales to the United States
government (as a result of military cut backs initially and, more
recently, general reductions in governmental spending) have been
declining. The following table illustrates the recovery in foreign
sales and the ongoing reduced governmental sales.
<TABLE>
<CAPTION>
Nine Months Ended June 30,
March 31, 1995 1994 1993
<S> <C> <C> <C>
Domestic Sales $4,186,306 $4,123,709 $3,403,951
Foreign Sales 2,792,760 2,288,876 2,776,131
$6,979,066 $6,412,585 $6,180,082
Approximate Governmental
Sales $ 290,500 $ 257,000 $ 865,000
</TABLE>
Government sales showed a dramatic decrease of approximately $608,000
between 1993 and 1994. Foreign sales also experienced a decrease of
$487,255. However, even with these two categories contributing a
combined decrease of $1,095,255, total revenues were up $232,503.
This indicates that domestic commercial sales for 1994 were up from
1993 approximately $719,758, with revenues associated with the airport
noise monitoring contracts acquired from TII contributing
approximately $1,100,000. The overall decrease in the acoustic
instrumentation business over the period is reflective of the reduced
size of the market for such products.
<PAGE>
During the nine months ended March 31, 1995, the Company has
experienced increased demand, especially from foreign markets. Export
sales during the quarter ended March 31, 1995, increased to
$1,435,700, representing 50% of total revenues for that period. Even
though the Company does not anticipate renewed government spending, it
does anticipate increasing domestic demand for its products.
Costs of Sales and Operating Expenses
The Company's cost of sales and operating expenses as a percentage of
total revenue for the years ended June 30, 1994 and 1993, were 39% and
41%, respectively. Costs of sales for the nine months ended March 31,
1995, was 48% of total revenue, reflecting in part the increased
percentage of foreign sales. The Company provides a 25% discount on
offshore sales to accommodate increased shipping costs and
import/export taxes and tariffs on these products, resulting in costs
of sales being a higher percentage of these sales.
The 39% cost of sales in 1994 was unusually low for the Company, in
part a reflection of the increased contribution to sales of airport
noise monitoring contract revenue. The revenues from contracts
acquired from TII had much of the material costs associated with those
contracts expended prior to the Company assuming the contracts. The
costs associated with the completion of these contracts are weighted
more heavily to other categories such as direct labor or general and
administrative costs. The Company expects the future trend for cost
of sales to maintain a level somewhere between 40% to 45%.
Research and Development
The increase in research and development expenditures between 1994 and
1993 was partially the result of the application of FASB No. 86,
"Accounting for the Costs of Computer Software Sold, Leased, or
Otherwise Marketed." Under this pronouncement, certain costs are
capitalized and later amortized. The Company (in a basic development
effort) has expended a relatively constantly increasing dollar amount
as total revenue has grown. The net difference between the costs
capitalized and the amortization costs expensed comprises
approximately one-half of the difference in reported research and
development costs from the 1993 to the 1994 year.
<PAGE>
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Research and Development $1,101,352 $ 868,957
Capitalized Cost 276,423 242,515
Less Amortization (464,951) (319,405)
Basic Effort $ 912,824 $ 792,067
</TABLE>
The balance of the increase between these two years is a reflection of
development expenses associated with new product development. During
the nine months ended March 31, 1995, the Company spent essentially
the same amount as during the year ended June 30, 1994, with
substantially similar revenues. Research and development costs for
both these periods represented approximately 17% of revenues.
However, this level of spending has in part been due to efforts in
connection with the recent introduction of several new products and
the Company anticipates that its research and development costs will
decrease somewhat to the range of 10% to 15% of total revenues over
time.
SIGNIFICANT FINANCIAL CHANGES-BALANCE SHEETS
Trade Accounts Receivable
The Company's accounts receivable decreased $1,062,112 from 1993 to
1994. Part of the decrease was due to a decrease in foreign sales
during this period. Traditionally, foreign billings take longer to
collect. Management also made an effort to improve its domestic
collections. On June 30, 1993, the $2,673,427 in accounts receivable
represented a receivable age of 158 days, as compared to 90 days on
June 30, 1994, with $1,611,315 in receivables.
Since June 30, 1994, trade account receivables have again increased to
$2,837,062 at March 31, 1995. This increase is due in part to the
increased volume of business by the Company and in part to the
increase in foreign sales as a percentage of overall revenues, again
increasing the collection cycle. The accounts receivable at March 31,
1995, represented a receivable age of approximately 130 days.
<PAGE>
Inventories
Inventories as a percentage of total revenue as of June 30, 1994 and
1993, are 34% and 29%, respectively. Inventories as a percentage of
total revenue as of March 31, 1995, are 35%. The Company increased
its finished goods inventory by $147,243 between June 30, 1993, and
June 30, 1994, and by an additional $279,857 through March 31, 1995.
This increase is due to management's decision to stock finished goods
to reduce the delivery lead time for its standard instrumentation
products. The Company plans on maintaining inventories in this
approximate range consistent with the normal manufacturing cycle of
the Company.
Unbilled Contract Receivables
The Company recognizes income on long-term contracts on a percentage-
of-completion method while billings to the customer are made based on
milestones specified in the relevant agreement. As stated in Note 3-
"Contracts in Progress" of the audited financial statements, this
results in an unbilled contract receivable representing amounts of
contract revenues accrued and recognized by the Company that have not
yet been billed to the customer. The increase in 1994 is due to an
increase from one long-term contract in progress on June 30, 1993, to
thirteen on June 30, 1994, as a result of the TII transaction. The
reduction in this account at March 31, 1995, reflects the meeting of
the billing milestones by the Company and invoicing the customers for
work completed and previously recognized.
Other Assets
As described in Note 6-"Product Technology, License Rights and
Software Development Costs," and Note 18-"Acquisition" of the audited
financial statements, the Company acquired substantial intangible
assets related to the airport noise monitoring technology owned by TII
consisting in large part of its proprietary software. These assets
were recorded at a capital value of $2,508,541 (net of costs to
acquire).
Note 16- "Discontinued Operations" details the affect of the
discontinuation of the business of LD Info and ASI on the balance
sheet as of June 30, 1994. The net total is $2,156,987.
<PAGE>
Short-Term Notes Payable
The Company maintains a revolving line of credit with a commercial
lending institution. On June 30, 1994 and 1993, the outstanding
balances of that line were $1,490,000 and $1,451,000, respectively,
and on March 31, 1995, the outstanding balance was $1,790,000.
As part of the acquisition of assets described in Note 18-
"Acquisitions" of the audited financial statements, the Company
borrowed $301,500 from a commercial lending institution and assumed a
$950,000 liability from TII, payable to one of TII's major
shareholders. These liabilities were classified as short-term in the
financial statements included in this Prospectus, based on the demand
dates of the notes being within less than one year from the financial
statement date. The $950,000 note payable had been reduced to
approximately $800,000 as of March 31, 1995. It was this note that
was the subject of the negotiations between the Company and Summit in
which the Company was granted a $500,000 credit in exchange for the
issuance of the 200,000 shares of 1995 Preferred Stock to Summit and
the balance of $300,000 was converted into a long-term note, amortized
over a two-year period. As a result of this transaction, the
liabilities of the Company will be reduced by $500,000 and the short-
term liabilities by $800,000.
CAPITAL AND LIQUIDITY
At June 30, 1994, the Company had total current assets of $5,499,195
and total current liabilities of $4,945,981, resulting in a working
capital ratio of 1.1:1. Both current assets and current liabilities
increased at March 31, 1995, to $6,430,392 and $5,729,664,
respectively, with the working capital ratio remaining constant at
1.1:1. Included in total current liabilities as of June 30, 1994, is
approximately $1,490,000 representing the Company's revolving line of
credit and at March 31, 1995, approximately $1,790,000. The limit on
this line of credit is currently $2,100,000 and is adjusted from time
to time based on ratios of inventories and accounts receivable levels.
This line of credit is reviewed annually, but the Company anticipates
that it will continue to remain available to it. As discussed above,
the Company's current liabilities have been reduced by $800,000 as a
result of the transaction with Summit.
The cash portion of the acquisition of assets from TII was funded in
part by a loan from a commercial financial institution in the
principal amount of $301,500. This note is secured by 300,000 shares
of common stock of the Company owned by two of the directors of the
Company and is due September 1995.
<PAGE>
The cash needs of the Company for the year ended June 30, 1994, were
provided by the sale of tangible assets, the sale of common stock, and
the collection of accounts receivable. During the fiscal year ended
June 30, 1994, the Company received capital funds from the equity
stock sales in the amount of $944,800, net of related offering costs
and during the nine months ended March 31, 1995, of approximately
$393,000. Subsequent to March 31, 1995, the Company completed the
Private Placement with aggregate net proceeds to the Company of
approximately $583,483.
The Company has previously entered into third-party leasing
arrangements with respect to capital equipment and anticipates that
its capital requirements for the purchase of equipment in the
immediate future will be met by similar arrangements or short-term
borrowings.
BUSINESS
GENERAL
The Company is primarily engaged in the development, manufacture, and
marketing of precision measuring instrumentation and accompanying
computer hardware and software technology. The Company sells its
measurement instruments to private industry and governmental agencies
for both industrial and military applications.
During the fiscal year ended June 30, 1994, the Company acquired the
airport noise monitoring business of Technology Integration
Incorporated ("TII"). TII had an installed base of approximately
twelve airport noise monitoring systems and twelve ongoing contracts
for the installation of additional airport noise monitoring systems
that the Company assumed. This acquisition provided the Company with
an established presence in the market and a base of installed
equipment and software that will require ongoing maintenance and
service.
The Company is comprised of four wholly-owned subsidiaries: Larson
Davis Laboratories ("LDL"), LD Info, Inc. ("LD Info"), Advantage
Software, Inc. ("ASI"), and Larson Davis, Ltd. ("LTD."), although the
businesses of LD Info and ASI have been discontinued. Unless the
context otherwise requires, when used herein, the term "Company"
refers to Larson Davis Incorporated and its operating subsidiaries.
<PAGE>
SIGNIFICANT EVENTS
During the fiscal year ended June 30, 1994, two significant events
occurred; the acquisition of a wholly-owned subsidiary in Great
Britain and the acquisition of airport noise monitoring contract
assets from TII.
With the importance of international sales to the Company, management
deemed it important to establish a presence in Europe and especially
in the newly forming European Economic Community. The Company
purchased IMA, Ltd., a sales organization which predominately sold the
Company's hardware. The Company retained the former employees of IMA
and renamed the company Larson Davis, Ltd. By completing this
acquisition, the Company gained its desired presence and also the
services of experienced salespeople in Europe. It is the intent of
the Company to further develop its business in Europe using this
company as a foundation.
The Company also acquired the airport noise monitoring business of
TII, a competitor of the Company. The Company's newly acquired
operating group is based in Boston and operates as Larson Davis
Systems ("Systems"). The Company acquired the intangible airport
assets of TII, consisting primarily of its proprietary software
system, ANOMS, along with the rights to all completed, in-process or
pending airport contracts.
During the year ended June 30, 1993, the Company classified the assets
of two of its subsidiaries, LD Info and ASI, as "assets held for sale"
on the balance sheet. Management made the decision to discontinue
operations of LD Info and ASI as of June 30, 1994. With the
uncertainty of a sale or the amount that might be realized on any
sale, it was decided the appropriate treatment for the assets was a
write down on the financial statements to a booking of zero.
MEASUREMENT INSTRUMENTATION BUSINESS
The hardware products of the Company are focused on precision
measuring instruments for use in the acoustics and vibration industry.
Subdivisions of this market in which the Company's instrumentation is
currently being utilized are:
<PAGE>
Environmental Monitoring provides data used to monitor, control, or
avoid noise (unwanted and/or irritable sound which has a detrimental
effect on living organisms). It includes such applications as
community noise ordinance compliance surveys, airport noise
monitoring, vehicle passby surveys, industrial complex perimeter
monitoring, environmental impact studies, OSHA (noise in the work
place) mandated surveys, military aircraft sonic boom monitoring, and
others.
Product Design and Improvement encompasses the use by manufacturers to
optimize utilization and minimize acoustic output. For example, the
auto and aircraft industries determine noise dampening properties of
materials used in insulation; a yacht manufacturer studied acoustic
spectrums as an aid in selecting efficient hull designs; and other
manufacturers of items such as lawn mowers, computer printers, office
equipment, and kitchen appliances employ instruments to alter
encasement designs to minimize sound emission.
Structural Dynamics is the study of the motion of materials to
determine characteristics such as fatigue, resonance, material
density, and bonding strengths. A consultant used the Company's
instrumentation to determine the resonant frequency of the vibrations
in the Statue of Liberty's arm holding the torch. Braces were
designed and installed which resulted in doubling the torch bulb life.
Medical Applications include hardware and software used in automatic
calibration systems for medical equipment. The analysis and treatment
of both hearing and speech problems can be accomplished utilizing the
Company's instrumentation.
Predictive Maintenance is an emerging industry in which
characteristics of rotating or moving machinery are analyzed to
predict failure points. Based on information obtained, planned
service can be performed. Currently, the Company's instrumentation is
being used by helicopter manufacturers, power plant turbine operators,
paper producers, and others.
Professional Sound includes both manufacturers and consultants. The
Company provides equipment used to certify sound products' (such as
amplifiers, mixers, equalizers, speakers, and microphones) compliance
with published specifications. Field engineers rely on portable
instrumentation to evaluate the acoustic characteristics of a room or
building.
<PAGE>
Defense and Government markets typically comprise approximately 5% to
10% of total instrumentation sales. Applications range from
ship/vehicle identification based on spectrum analysis to artillery
blast noise studies.
ENVIRONMENTAL NOISE MONITORING BUSINESS
The Company utilizes its hardware products, its acquired ANOMS
software, and its internally developed proprietary software ENOMS in
the design, bid, installation, and maintenance of integrated
environmental noise monitoring systems. One market for these systems
is the airport noise monitoring systems industry.
On June 30, 1994, LDL completed the acquisition of the airport noise
monitoring assets of TII, a privately-held Massachusetts corporation.
The Company acquired TII's rights and obligations under existing
contracts for the installation, maintenance, and support of airport
noise monitoring systems. In addition, the Company acquired all
rights to the ANOMS Software developed by TII for use in airport noise
monitoring systems, the principal competitor of the Company's own
proprietary software. The Company also hired 10 former employees of
TII who were an integral part of TII's airport noise monitoring
business.
The Company's airport system has the capability to correlate noise
events of departing and arriving aircraft flights with radar flight
track data, aircraft type and identification, runway use, point of
closest approach, OAG scheduling, time, duration of event, weather
conditions, aircraft ownership, and citizen complaint information.
The user can determine such things as community noise exposure,
concentration of complaints, development plans for expansion,
violations of noise ordinances by flight number and aircraft
ownership, and runway landing fees based on flight and ownership.
The Company's systems are not limited to airports, but have been used
by manufacturing plants as parameter monitors, governmental test labs
for blast noise monitoring and analysis, and other environmental and
community noise applications.
<PAGE>
MANUFACTURING AND ASSEMBLY
The Company is involved in the manufacture of both its hardware and
software products. It utilizes the service of certain subcontractors
to manufacture component parts for its products to minimize the amount
of its capital investment and increase its flexibility in dealing with
changes in the manufacturing processes. Approximately 30% of
manufacturing is performed by subcontractors. However, all final
assembly is done by the Company's employees as part of its quality
control program. Manufacturing activities occupy approximately 12,000
square feet of the Company's facilities.
PRODUCT COMPONENTS
The Company utilizes a large number of individual electronic
components in connection with the manufacture of its precision
instrumentation. The Company has developed and sells its own line of
high quality transducers so that it is no longer dependent on
suppliers for these component parts. Most of the other electronic
components utilized by the Company are available from a number of
manufacturers and the Company's decisions with respect to suppliers
are based on availability of the necessary component, the reliability
of the supplier in meeting its commitments, and pricing.
The Company purchases certain supplies from third-parties for
installation in environmental noise monitoring systems. Generally,
these supplies consist of "brand name" computers, printers, and other
peripherals, and are readily available from a variety of
manufacturers.
MARKETING AND DISTRIBUTION
Instrumentation
The Company markets and distributes its hardware products primarily
through independent manufacturer's representatives. The efforts of
these contracted representatives are supported by an in-house staff of
marketing and technical personnel.
The Company invests in both image building and direct product
advertising. This exposure takes many forms, including participation
on industry standards boards, exhibitions at trade shows, company
sponsored training classes, direct technical demonstrations, and
industry publication ads. The Company has budgeted resources to
support its belief that effective and continued exposure is required
to establish greater name recognition and overall positive market
perception.
<PAGE>
The total market size of the acoustics and vibration industry
decreased in the past few years, although it has begun to increase
again since June 30, 1994. Management believes this is due in part to
general global economic conditions. The timing of the purchase of
acoustical noise monitoring equipment is often discretionary and both
companies and governments have made alternative applications of their
limited funds. Since June 30, 1995, the Company has seen signs of a
change in these conditions. Revenues are up over last year, product
backlog has increased, and inquiries about instrumentation have
strengthened significantly. As resources allow, the Company plans to
increase its marketing efforts as a stimulus to sales efforts. The
Company has no current plans to change its basic approach to
distribution.
Environmental Monitoring
The major thrust in this market is airport noise monitoring contracts.
These are normally awarded after a competitive bid process. Such bids
are typically awarded based on the price, specifications of the
proposed system, reputation of the contractor, and recommendations
from current users.
The Company, by virtue of the number of completed and in-process
airport noise monitoring system contracts in which it is involved, is
a known participant in the industry. Technical sales people are in
contact with airport administrators through referrals from existing
users, unsolicited contact by bidding airports who are investigating
existing installations, and contact initiated by the Company's staff
as a result of industry notification of proposed bids. The Company
has also compiled a list of airports which meet a set of requirements
identifying them as a potential customer (i.e., the right size,
location, population density around the airport, flights per year,
etc.). The administrators of these airports are systematically
contacted to introduce the Company and its capabilities. There are
over 1,000 airports in North and South America and Europe on the
Company's list. Direct sales calls are made and demonstrations are
given when appropriate.
The Company does not currently anticipate a change in its distribution
philosophy for its environmental monitoring systems. As its product
becomes more well known, the effort should evolve to more follow-up
and demonstration and less prospecting.
<PAGE>
CURRENT ORDERS
As of May 30, 1995, the Company had an instrumentation manufacturing
backlog of orders believed to be firm of approximately $1,528,000 that
are not reflected on the financial statements included elsewhere
herein. The Company anticipates filling all of these backlog orders
within 60 to 90 days. This compares to a backlog in October of 1994
of approximately $850,000 which was filled in 45 to 60 days. As of
June 30, 1994, the Company had long-term contracts with approximately
$1,700,000 remaining and at March 31, 1995, the Company's long-term
contracts had approximately $2,050,000 remaining to be completed.
RESEARCH AND DEVELOPMENT
General
Due to the technical nature of the business of the Company, it is
important to re-invest a significant portion of the operating capital
into research and development. The Company has been committed to this
practice since its inception. The previous three-year average of the
percentage of research and development spending as compared to
revenues has been 13% with a high in 1994 and the nine months since
then of 17%. During the fiscal year ended June 30, 1994, research and
development expenses were $1,101,352. It is planned that in future
years the commitment to research and development spending will
continue to be a material portion of the Company's budget.
CrossCheck Technology
In March 1994, the Company acquired the exclusive rights to a
technology known as "CrossCheck," a patent pending hardware and
process used to determine, in real time, the in situ characteristics
of polymer substances. The technology was developed at Brigham Young
University, and the Company gained its rights through an exclusive
licensing agreement with the University's Technology Transfer Office.
<PAGE>
Originally developed and tested as a means to quantify the cure and
shelf life characteristics of resins used in pre-impregnated
composites (graphite, fiberglass, and boron fibers), CrossCheck has
broad potential application. The list of polymers is large, including
such materials as oils, resins, plastics, concretes, paints, and
adhesives. Under traditional methods for testing the characteristics
of such materials, a sample portion is used in destructive testing. A
real time, in situ method to determine material quality would
potentially save a great deal of time and money in those industries in
which the chemical composition of polymers is important. It is
expected the CrossCheck technology will be able to provide such
information economically.
Some examples of possible uses of CrossCheck would be to monitor motor
oils and transmission fluids in critical applications such as
helicopter engines and transfer gear boxes, monitoring the oils found
in electrical transformers, and evaluating characteristics of wet
cement at the point of delivery to a construction site (such as a
highway or highrise building) and "watching" the cure over time as the
cement hardens.
The Company believes this technology can be developed on a commercial
basis to provide low cost instrumentation and minimally priced
transducers to a host of industries and applications. The Company is
currently seeking to further development of this technology.
PATENTS AND TRADEMARKS
The technology owned by the Company is proprietary in nature. In
connection with the design and construction of its precision
measurement instrumentation and its proprietary software, the Company
primarily relies on confidentiality and nondisclosure agreements with
is employees, appropriate security measures, copyrights, and the
encoding of its software in order to protect the proprietary nature of
its technology rather than patents which are difficult to obtain in
the computer software area, require public disclosure, and can be
successfully avoided by sophisticated computer programmers. The
CrossCheck technology held by the Company is the subject of both
United States and international patent applications. The Company has
also registered "NOISEBADGE" to use as a trademark in the marketing of
noise level meters with the United States Office of Patents and
Trademarks.
<PAGE>
COMPETITION
Instrumentation
The hardware products are positioned in a niche market which caters to
a technically sophisticated user base. For a number of years this
market was dominated by a single competitor, Bruel & Kjaer ("B&K").
B&K has traditionally been the largest supplier of acoustics and
vibration instrumentation in the world. B&K was purchased by a German
company which had no previous ties to the acoustics and vibration
industry in 1992, and currently has a reduced presence in the market.
In addition to B&K, there are several smaller companies in direct
competition with the Company. None of these competitors has available
the full line of products offered by the Company. There are also a
small number of large companies which produce, in most cases, a single
product which can be adapted to certain applications in the acoustics
industry.
While many of the companies which compete with the Company have
greater financial and managerial resources, management believes the
Company can compete effectively based on its ability to: (1) adapt
rapidly to technology changes, (2) technically market to specialized
users, and (3) offer a complete line of solutions to users' needs.
Environmental Monitoring
The environmental noise monitoring market has several smaller
consulting or value-added companies which compete indirectly with the
Company's current ANOMS and ENOMS systems. There are no completed
noise monitoring systems which compare with all the features and
capabilities of the software provided by the Company.
In the past, a large company, TRACOR, offered and installed a number
of large systems in airports. The noise monitoring systems installed
by TRACOR are based on dated technology, but TRACOR has been
moderately active in bidding "upgrades" to the systems it originally
installed. The Company does not consider this "upgrade" approach as
significant competition to its airport products.
B&K manufactures instrumentation used in noise monitoring systems.
Many of the competitors to the Company use B&K's equipment in systems.
For a time, B&K entertained the idea of permanently linking their
hardware to one of the smaller competitor's software. Eventually, B&K
announced they would supply hardware only, and not get involved with
software elements of the airport systems.
<PAGE>
MAJOR CUSTOMERS AND FOREIGN SALES
There were no customers which represented more than 10% of the total
revenues for the Company during the year ended June 30, 1994, or the
nine months ended March 31, 1995. Spectra of Italy purchased
$1,221,893, or approximately 20% of revenues from continuing
activities, in the year ended June 30, 1993. The government sector
accounted for approximately 4% of revenues from continuing activities
for the year ended June 30, 1994, and approximately 4% for the nine
months ended March 31, 1995, spread over a number of agencies and
purchasers. Government sales compare with 14% for the fiscal year
ending in 1993.
Export sales of the Company for the periods ended June 30, 1994 and
1993, are 36% and 45% of revenues from continuing activities,
respectively. Export sales recovered to 40% of total revenues for the
nine months ended March 31, 1995. The Company exported its products
into a number of geographical markets that are more specifically
identified in the notes to the financial statements of the Company.
(See "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.")
PERSONNEL
The Company currently has 84 employees, 30 of which are involved in
professional or technical development of products, 35 in
manufacturing, 12 in marketing and sales, and 7 in administrative and
clerical. None of the employees of the Company are represented by a
union or subject to a collective bargaining agreement, and the Company
considers its relations with its employees to be favorable.
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is the name and age of each executive officer and
director of the Company, together with all positions and offices of
the Company held by each and the term of office and the period during
which each has served:
<PAGE>
<TABLE>
<CAPTION>
Director and/or
Executive Officer
Name Age Position and Office Held Since
<S> <C> <C> <C>
Brian G. Larson 52 President and Chairman of
the Board September 30, 1987
Larry J. Davis 43 Vice-President and Director September 30, 1987
Dan J. Johnson 44 Secretary/Treasurer, Vice-
President, and Director September 30, 1987
Nathan H. West 35 Principal Accounting
Officer, LDL August 10, 1994
Rick Clayton 44 Principal Accounting
Officer, Larson Davis, Ltd. January 1, 1991
</TABLE>
A director's regular term is for a period of three years or until his
successor is duly elected and qualified. The terms of the board are
staggered so that one-third of the board is subject to election at
each annual shareholders' meeting. The current term of Brian G.
Larson expires at the 1996 annual meeting, the current term of Larry
J. Davis expires at the 1994 annual meeting, and the current term of
Dan J. Johnson expires at the 1995 annual meeting.
There is no family relationship among the current directors and
executive officers. The following sets forth brief biographical
information for each director and executive officer of the Company.
Brian G. Larson, was a founder of the Company and has been an
executive officer, director, and principal shareholder of the Company
since its inception in 1981. Mr. Larson earned his masters of
business administration from Brigham Young University in 1972 and a
bachelor's degree in electrical engineering from the same institution
in 1971. During the time he was attending Brigham Young University,
Mr. Larson worked as a design engineer in the medical research
laboratory of Brigham Young University.
Larry J. Davis, was a founder of the Company and has been an officer,
director, and principal shareholder of the Company since its inception
in 1981. Mr. Davis earned his electrical engineering degree from
Brigham Young University in 1974, where he graduated Magna Cum Laude.
<PAGE>
Dan J. Johnson, has served as the vice-president in charge of
administration and financial strategy, asset control, and fiscal
operations of the Company since 1984. Prior to that time, he was a
director of finance for Fiber Technology Corporation. Mr. Johnson has
also been previously employed with a public accounting firm.
Nathan H. West, has served as the principal accounting officer of
Larson Davis Laboratories since August 1994. Immediately prior to his
employment by the Company, he was assistant controller for Savage
Industries, Inc., a privately-held company, from 1987 through 1994.
Mr. West received a bachelor of science degree in accounting from the
University of Utah in 1985.
Rick Clayton, has been an employee of the Company since February 1988
and the principal accounting officer of LD Info., Inc., and Larson
Davis, Ltd., since January 1991. Prior to his employment by the
Company, Mr. Clayton was an assistant controller for Zions Mortgage
Company. Mr. Clayton received a bachelor of science in accounting
from Brigham Young University in 1976.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the
Company and its subsidiaries for the fiscal years ended June 30, 1994,
1993, and 1992 to the chief executive officer of the Company and the
other officers of the Company who received compensation in excess of
$100,000.
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
Other Annual
Name and Compensation
Principal Position Year Salary($) Bonus($) ($)
<S> <C> <C> <C> <C>
Brian G. Larson, 1994 $181,116 $0 $4,500
President and 1993 $157,542 $0 $4,400
Chariman of the 1992 $152,820 $0 $3,960
Board
Larry J. Davis 1994 $181,116 $0 $4,500
Vice-President 1993 $157,542 $0 $4,400
1992 $152,820 $0 $3,960
Dan J. Johnson 1994 $129,566 $0 $4,500
Vice-President and 1993 $111,782 $0 $4,400
Chief Financial 1992 $106,332 $0 $3,960
Officer
<CAPTION>
Long Term Compensation
Awards Payoffs
Restricted LTIP All Other
Name and Stock Options/ Payouts Compensation
Principal Position Awards SARs(#) ($) ($)
<S> <C> <C> <C> <C>
Brian G. Larson, $0 30,000 $0 $0
President and $0 30,000 $0 $0
Chariman of the $0 30,000 $0 $0
Board
Larry J. Davis $0 30,000 $0 $0
Vice-President $0 30,000 $0 $0
$0 30,000 $0 $0
Dan J. Johnson $0 30,000 $0 $0
Vice-President and $0 30,000 $0 $0
Chief Financial $0 30,000 $0 $0
Officer
</TABLE>
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
(a) (b) (c) (d) (e)
% of Total
Options/
SARs
Options/ Granted to Exercise
SARs Employees or Base
Granted in Fiscal Price Expiration
Name (#) Year ($/Sh) Date
<S> <C> <C> <C> <C>
Brian G. Larson 30,000 33% $3.85 6/30/99
Larry J. Davis 30,000 33% $3.85 6/30/99
Dan J. Johnson 30,000 33% $3.50 6/30/99
<CAPTION>
Potential
Realized Value at Alternative
Assumed Annual to (f) and
Rates of Stock Price (g):
Appreciation Grant Date
for Option Term Value
(a) (f) (g) (f)
Name
<S> <C> <C> <C>
Brian G. Larson -- -- --
Larry J. Davis -- -- --
Dan J. Johnson -- -- --
</TABLE>
No outstanding options were exercised during the year ended June 30,
1994. Dan J. Johnson exercised options to acquire 4,200 shares of
Common Stock, at an option exercise price of $1.60 per share, in
December, 1994.
Since June 30, 1994, options to acquire 540,000 shares of Common Stock
held by the three directors, with option exercise prices of $1.60 to
$1.77 expired. Each of the directors was granted a new option for the
same amount of shares, or an aggregate of 540,000 shares, at option
exercise prices of $2.0625 to $2.26875 per share, the fair market
value of the underlying stock as of the date of grant.
<PAGE>
COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The articles of incorporation of the Company provide for the
indemnification of the officers and directors to the full extent
permitted by Nevada corporate law. Such indemnification extends to
the advancement of costs and expenses in all matters, except those in
which there has been criminal conduct or gross malfeasance by the
indemnified person and could include indemnification for liabilities
under the provisions of the Securities Act of 1933, as amended.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and
controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the
opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by
a director, officer, or controlling person of the Company in the
successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with the
securities subject to this offering, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of May 30, 1995, the number of
shares of the Company's common stock, par value $0.001, held of record
or beneficially by each person who held of record or was known by the
Company to own beneficially, more than 5% of the Company's common
stock, and the name and shareholdings of each officer and director and
of all officers and directors as a group.
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature of Ownership
Sole Voting
and Investment Percent of
Name of Person or Group Power(1)(2) Class(3)(4)
Principal Shareholders:
<S> <C> <C> <C>
Brian G. Larson(5) Common Stock 851,019 13.0%
1681 West 1820 North Options 220,000 3.2%
Provo, UT 84601 Total 1,071,019 15.8%
Larry J. Davis(6) Common Stock 833,420 12.7%
10455 North Edinburgh Options 220,000 3.2%
Highland, UT 84003 Total 1,053,420 15.5%
Questar Development Common Stock 550,000 8.4%
Corporation Options 0 0.0%
180 East 100 South Total 550,000 8.4%
Salt Lake City, UT 84147
Summit Enterprises, Inc. Common Stock 10,760 0.0%
of Virginia(7) Preferred Stock 160,000 2.4%
1308 Devils Reach Road Total 170,760 2.5%
Suite 302
Woodbridge, VA 22192
Laura Huberfeld Common Stock 148,077 2.3%
250 Longwood Crossing $2.50 Warrants 200,104 3.0%
Lawrence, NY 11559 $3.50 Warrants 200,104 3.0%
Total 548,285 7.9%
Naomi Bodner Common Stock 148,077 2.3%
16 Grosser Lane $2.50 Warrants 200,104 3.0%
Munsey, NY 10952 $3.50 Warrants 200,104 3.0%
Total 548,285 7.9%
<PAGE>
<CAPTION>
Officers and Directors:
<S> <C> <C> <C>
Brian G. Larson ----------------see above----------------
Larry J. Davis ----------------see above----------------
Dan J. Johnson Common Stock 0 0.0%
Options 262,800 3.8%
Total 262,800 3.8%
Nathan H. West Common Stock 0 0.0%
Rick Clayton Common Stock 805 0.0%
All Officers and Common Stock 1,684,439 25.6%
Directors as a Group Options 702,800 9.7%
(5 Persons) Total 2,387,239 32.8%
<FN>
_________________________
(1) Except as otherwise indicated, to the best knowledge of the
Company, all stock is owned beneficially and of record, and each
shareholder has sole voting and investment power.
(2) The options shown have been issued to the executive officers and
directors pursuant to the 1987 Stock Option Plan and the Director
Stock Option Plan. Options to acquire 130,000 shares each issued to
Messrs. Larson and Davis have an exercise price of $2.26875 per share;
options to acquire 30,000 shares each have an exercise price of
$2.54375 per share; options to acquire 30,000 shares have an exercise
price of $3.30 per share, and options to acquire 30,000 shares have an
exercise price of $3.85 per share. The options held by Mr. Johnson to
acquire 172,800 shares have an exercise price of $2.0625 per share;
options to acquire 30,000 shares have an exercise price of $2.3125 per
share; options to acquire 30,000 shares have an exercise price of
$3.00 per share, and options to acquire 30,000 shares have an exercise
price of $3.50. The exercise price is equal to the fair market value,
in the case of Mr. Johnson, and 110% of fair market value, in the case
of Messrs. Larson and Davis, of the common stock of the Company as of
the date of grant as determined by the board of directors based on the
trading price of the common stock of the Company in the over-the-
counter market. The options are exercisable for a period of five
years from the date of grant. Each of the directors is restricted
from first exercising options with respect to more than $100,000 worth
of stock during the initial years of the term of the options.
<PAGE>
(3) The percentages shown are based on 6,569,354 shares of Common
Stock of the Company issued and outstanding as of May 30, 1995.
Summit holds all of the issued and outstanding Preferred Stock which
is convertible into 160,000 shares of Common Stock based on the last
price for the Common Stock of $3.75 as of May 30, 1995. Ms. Huberfeld
and Ms. Bodner each hold 40% of the issued and outstanding $2.50
Warrants and $3.50 Warrants.
(4) The figures for the $2.50 Warrants, the $3.50 Warrants, the
Preferred Stock, and the options assume the exercise or conversion of
such securities, resulting in an adjusted total of issued and
outstanding shares giving effect only to the exercise or conversion of
each individual's securities.
(5) The number of shares indicated for Mr. Larson includes 745,498
shares owned jointly with his wife over which he exercises joint
investment and voting control and 47,400 shares which are held of
record by Mr. Larson for the benefit of his minor children and in
which he disclaims direct economic interest.
(6) The number of shares owned by Mr. Davis includes 760,498 shares
held jointly with his wife over which he exercises joint investment
and voting control and 75,000 shares which are held of record by Mr.
Davis for the benefit of his minor children and in which he disclaims
direct economic interest.
(7) The Common Stock indicated as held by Summit reflects the shares
subject to warrants to purchase such Common Stock at a warrant
exercise price of $0.001 per share currently held by Summit. The
number of shares of Preferred Stock reflects the 160,000 shares of
Common Stock that the 1995 Preferred Stock is currently convertible
into based on the closing bid price for the Common Stock on May 30,
1995, of $3.75 per share.
</TABLE>
<PAGE>
CERTAIN TRANSACTIONS
TRANSACTION WITH TII
On June 30, 1994, the Company completed the acquisition of the airport
noise monitoring business of TII, of which Summit was the controlling
shareholder. The Company acquired these assets in consideration of
$367,380 in cash, the assumption of a $950,000 note held by Summit,
the assumption of approximately $500,000 in trade accounts payable,
and $250,000 in other obligations to Summit, amortized over an 18
month period. Under the terms of the $950,000 promissory note, the
Company agreed to issue warrants to purchase shares of Common Stock,
at $0.001 per share, for each month subsequent to September 30, 1994,
the promissory note was not paid. Such warrants give Summit the right
to purchase that number of shares determined by multiplying the
outstanding principal balance of the loan at the end of the relevant
month by 1% and dividing the resulting amount by the fair market value
of the Common Stock based on the ten trading days preceding the date
of determination. Summit currently holds warrants to purchase
[10,760] shares of Common Stock pursuant to this agreement.
The Company also paid $20,000 to Summit as reimbursement of its
expenses in assuming the $950,000 promissory note from the financial
institution that had advanced such amount to TII.
As a result of monthly payments, the $950,000 note to Summit had been
reduced to approximately $800,000. Under the terms of the current
agreement between TII and the Company, the Company issued 200,000
shares of 1995 Preferred Stock in satisfaction of $500,000 of the
obligation and converted the remaining balance of $300,000 into a term
note amortized over two years.
GUARANTEES FROM PRINCIPALS
The two founders and principal shareholders of the Company have
guaranteed the obligation of the Company on its revolving line of
credit that had an outstanding balance of approximately $1,790,000 at
March 31, 1995, and on a short-term obligation in the principal amount
of $301,500. In addition, these principals have guaranteed the
performance of the Company with respect to certain equipment leases
and other financial commitments of the Company in the amount of
approximately $450,000.
<PAGE>
DESCRIPTION OF SECURITIES
The Company's authorized capital consists of 290,000,000 shares of
Common Stock, par value $0.001 per share and 10,000,000 shares of
Preferred Stock, par value $0.001 per share. The following
description of the Company's securities is qualified in its entirety
by the provisions of the Company's articles of incorporation, bylaws,
and Warrant agreements, copies of which are filed as exhibits to the
registration statement of which this Prospectus forms a part.
Common Stock
The holders of the Common Stock are entitled to one vote per share on
each matter submitted to a vote at any meeting of shareholders.
Shares of Common Stock do not carry cumulative voting rights and,
therefore, a majority of the shares of outstanding Common Stock (and
voting Preferred Stock) will be able to elect the entire board of
directors and, if they do so, minority shareholders would not be able
to elect any persons to the board of directors. The Company's bylaws
provide that one-third of the issued and outstanding shares of the
Company shall constitute a quorum for shareholders' meetings, except
with respect to certain matters for which a greater percentage quorum
is required by statute or the bylaws.
Shareholders of the Company have no preemptive rights to acquire
additional shares of Common Stock or other securities. The Common
Stock is not subject to redemption and carries no subscription or
conversion rights. In the event of liquidation of the Company, the
shares of Common Stock are entitled to share equally in corporate
assets after satisfaction of all liabilities and the payment of any
liquidation preference to the holders of the Preferred Stock.
Holders of Common Stock are entitled to receive such dividends as the
board of directors may from time to time declare out of funds legally
available for the payment of dividends. The Company seeks growth and
expansion of its business through the reinvestment of profits, if any,
and does not anticipate that it will pay dividends in the foreseeable
future.
The board of directors has the authority to issue the authorized but
unissued shares of Common Stock without action by the shareholders.
The issuance of such shares would reduce the percentage ownership held
by persons purchasing Securities in this offering and may dilute the
book value of the then existing shareholders.
<PAGE>
Preferred Stock
The Company has 10,000,000 shares of Preferred Stock, par value $0.001
per share authorized. The Company's articles of incorporation provide
that the board of directors of the Company has authority, without
action by the shareholders, to issue the authorized but unissued
Preferred Stock in one or more series, and to determine the voting
rights, preferences as to dividends and liquidation, conversion
rights, and other rights of such series. Pursuant to this authority,
the board authorized the issuance of the 1995 Series Preferred Stock,
of which 200,000 shares are issued and outstanding. The Company has
no current plans to issue any additional Preferred Stock.
The 1995 Preferred Stock is convertible, at any time after May 31,
1995, at the election of the holder, into the Company's Common Stock
at the rate that is equal to $3.00 divided by the average of the
closing bid prices for the Common Stock for the 20 trading days
preceding notice of conversion as reported by Nasdaq. If not
previously converted, the Company may convert the Preferred Stock into
shares of Common Stock, on the same basis as stated above, at any time
subsequent to August 30, 1995, by giving 30 days written notice to the
holder of the Preferred Stock; provided that, the Company has an
effective registration statement concerning the sale of the Common
Stock at the time of giving notice and at the time of conversion. The
1995 Preferred Stock carries a preference of $2.50 per share on
dissolution and liquidation of the Company and an annual dividend of
$0.225 per share, payable in monthly installments commencing June 1,
1995. The Preferred Stock votes as a single class with the Common
Stock, except as otherwise provided by the corporate laws of the state
of Nevada, and holders are entitled to one vote per share.
The 1995 Preferred Stock is redeemable at $2.50 per share, plus any
accrued but unpaid dividends, at any time subsequent to six months
after the effective date of a registration statement with respect to
the Common Stock issuable on conversion. The Preferred Stock can be
converted prior to the redemption date fixed in the notice.
Warrants
The Company has authorized and issued 500,000 $2.50 Warrants and
500,000 $3.50 Warrants. The Warrants are governed by a warrant
agreement (the "Warrant Agreement") between the Company and the
Private Placement Investors. The following statements are subject to
the detailed provisions of the Warrant Agreement.
<PAGE>
The $2.50 Warrants entitle the holder to purchase, at any time prior
to April 7, 1996, at an exercise price of $2.50 per share, one share
of Common Stock. The $3.50 Warrants entitle the holder to purchase,
at any time prior to April 7, 1997, at an exercise price of $3.50 per
share, one share of Common Stock. Subsequently, each Warrant that has
not been exercised will expire. The Warrant exercise period may be
extended by action of the board of directors of the Company.
Amendments to the Warrants are permissible at the election of the
board of directors so long as the amendments do not adversely affect
the warrant holders. Unless exercised, holders of the Warrants will
not possess any rights as a shareholder of the Company solely by
reason of holding such Warrants.
The Warrants were issued in a Private Placement and, as such, are
restricted securities. The Warrants may not be transferred in the
absence of registration or the availability of an applicable exemption
from the registration requirements. The Warrants may not be exercised
or redeemed in the absence of an effective registration statement
under the Securities Act and registration or qualification under
applicable state securities laws or an available exemption from such
registration pertaining to the shares of Common Stock issuable on
exercise of the Warrants.
The Warrants contain provisions that protect the holders thereof
against dilution by adjustment of the numbers of shares of Common
Stock purchasable on exercise of the Warrants in certain events. In
the event that the number of warrant shares purchasable is increased
through the operation of the antidilution provisions, the exercise
price will be reduced proportionately. Conversely, if the number of
warrant shares purchasable is decreased, the exercise price will be
increased proportionately.
Registrar and Transfer Agent
The registrar and transfer agent of the Company's securities is
Progressive Transfer Company, 1981 East 4800 South (Murray-Holladay
Road), Suite 100, Salt Lake City, Utah 84117, telephone (801) 277-
3147.
Shares Eligible for Future Sale; Registration Rights
All of the Company's issued and outstanding shares of Common Stock
have either been issued pursuant to a registration statement, are the
subject to this registration agreement, or have been held for the
requisite period and are, therefore, currently available for immediate
sale, subject to compliance with Rule 144 by executive officers and
directors of the Company.
<PAGE>
PLAN OF DISTRIBUTION
Conversion of Preferred Stock
Each share of Preferred Stock may be converted into the applicable
number of shares of Common Stock at any time at the election of the
holder of the Preferred Stock by delivery to the Company at its
principal executive offices at 1681 West 820 North, Provo, Utah 84601,
of the certificate for the Preferred Stock to be converted, together
with a written election to convert, indicating the number of shares to
be converted, signed by the holder thereof. Certificates representing
the Preferred Stock to be converted need not be endorsed for transfer
unless the certificate for the Common Stock to be issued is to be
issued in a name different from that in which the certificate for the
Preferred Stock is registered. If less than the total number of
shares represented by an individual certificate is to be converted, a
new certificate of like tenor will be issued to the holder for the
shares of Preferred Stock not converted. In the event that the
Preferred Stock is not converted prior to August 31, 1995, the Company
can, at its election and on 30 days notice to the holder thereof,
require the conversion of the Preferred Stock to Common Stock.
Certificates for the shares of Common Stock issued on any such
conversion will be issued promptly following the conversion and the
receipt of the certificates representing the Preferred Stock by the
Company.
Exercise of Warrants
The $2.50 and $3.50 Warrants may be exercised, at the discretion of
the warrant holder, by the delivery to the Company at its principal
executive offices at 1681 West 820 North, Provo, Utah 84601, of the
warrant accompanied by an election of exercise and payment of the
purchase price for each share of Common Stock purchased in accordance
with the terms of such warrant. Payment to the Company on the
exercise of warrants must be made in the form of cash or check payable
to the order of the Company.
On exercise and the receipt of good funds, the Company will pay to
Neil C. Sullivan and Michael Cunniff a finder's fee of 6% of the
exercise price received by the Company.
<PAGE>
Sale of Common Stock by Selling Shareholders
The Common Stock to be sold by the Selling Shareholders may be sold by
them from time to time directly to purchasers in privately negotiated
transactions. Alternatively, the Selling Shareholders may, from time
to time, offer the Common Stock for sale in the over-the-counter
market through or to securities brokers or dealers that may receive
compensation in the form of discounts, concessions, or commissions
from the Selling Shareholders and/or the purchasers of the Common
Stock for whom they may act as agent. The Selling Shareholders, and
any dealers or brokers that participate in the distribution of the
Common Stock, may be deemed to be "underwriters" as that term is
defined in the Securities Act, and any profit on the sale of Common
Stock by them and any discounts, commissions, or concessions received
by any such dealers or brokers, may be deemed to be underwriting
discounts and commissions under the Securities Act.
The Common Stock may be sold by the Selling Shareholders from time to
time in one or more transactions at a fixed price, which may be
changed, or at varying prices determined at the time of sale, or at
negotiated prices. The Company will pay the expenses of this offering
incident to the registration of the offer and sale of the Common Stock
to the public, other than commissions and discounts of broker-dealers
through whom such Common Stock is sold. The Company does not intend
to enter into any agreement with any securities dealer concerning
solicitation of offers to purchase the Common Stock.
Determination of Conversion and Exercise Prices
The rate of conversion of the 1995 Preferred Stock and the exercise
prices of the $2.50 and $3.50 Warrants were determined in private
negotiations between the Company and, in the case of the 1995
Preferred Stock, Summit, and in the case of the $2.50 and $3.50
Warrants, the Private Placement Investors, based on historical and
anticipated future trading prices for the Common Stock of the Company
in the over-the-counter market, the historical results of operations
of the Company, the possible future results of operations of the
Company, and the Company's anticipated need for additional capital.
The conversion rate and exercise prices as so determined are not
necessarily related to the assets, earnings, or book value of the
Company or any other recognized criteria of value.
<PAGE>
Determination of Offering Price
With respect to the shares of Common Stock offered for sale by the
Selling Shareholders, such shares shall be sold from time to time as
such prices as the Selling Shareholders shall determine may be in
their best interests and at which a willing buyer can be found. Such
prices may not be related to the assets, earnings, or book value of
the Company or any other recognized criteria of value.
SELLING SHAREHOLDERS
The following table sets forth certain information, as of the date of
this Prospectus, with respect to the Selling Shareholders and the
shares of Common Stock to be sold by them. The total for each Selling
Shareholder gives effect to the purchase of Common Stock on the
exercise of all $2.50 and $3.50 Warrants held by the Selling
Shareholders and the issuance of Common Stock on the conversion of the
Preferred Stock. None of the Selling Shareholders hold any securities
of the Company that are not being sold pursuant to this Prospectus,
other than warrants to acquire 10,760 shares of Common Stock at $0.001
per share held by Summit.
<PAGE>
<TABLE>
<CAPTION>
Securities
Now Owned After Offering
Percent To Be Percent
Selling Shareholders Number (1) Sold Number (1)
<S> <C> <C> <C> <C> <C>
Summit Enterprises,
Inc., of Virginia
Common Stock
Issuable on
Conversion of
Preferred Stock 160,000 2.4% 160,000 0 0.0%
Robert Cohen
Common Stock 30,769 0.5% 30,769 0 0.0%
$2.50 Warrants 41,580 0.6% 41,580 0 0.0%
$3.50 Warrants 41,580 0.6% 41,580 0 0.0%
Total 113,929 1.7% 113,929 0 0.0%
Lenore Katz
Common Stock 6,154 0.1% 6,154 0 0.0%
$2.50 Warrants 8,316 0.1% 8,316 0 0.0%
$3.50 Warrants 8,316 0.1% 8,316 0 0.0%
Total 22,786 0.4% 22,786 0 0.0%
Jeffrey Rubin
Common Stock 18,461 0.3% 18,461 0 0.0%
$2.50 Warrants 24,948 0.4% 24,948 0 0.0%
$3.50 Warrants 24,948 0.4% 24,948 0 0.0%
Total 68,357 1.0% 68,357 0 0.0%
Shawn Zimberg
Common Stock 6,154 0.1% 6,154 0 0.0%
$2.50 Warrants 8,316 0.1% 8,316 0 0.0%
$3.50 Warrants 8,316 0.1% 8,316 0 0.0%
Total 22,786 0.4% 22,786 0 0.0%
Laura Huberfeld
Common Stock 148,077 2.3% 148,077 0 0.0%
$2.50 Warrants 200,104 3.0% 200,104 0 0.0%
$3.50 Warrants 200,104 3.0% 200,104 0 0.0%
Total 548,285 7.9% 548,285 0 0.0%
<PAGE>
<S> <C> <C> <C> <C> <C>
Naomi Bodner
Common Stock 148,077 2.3% 148,077 0 0.0%
$2.50 Warrants 200,104 3.0% 200,104 0 0.0%
$3.50 Warrants 200,104 3.0% 200,104 0 0.0%
Total 548,285 7.9% 548,285 0 0.0%
Jeffrey Cohen
Common Stock 6,154 0.1% 6,154 0 0.0%
$2.50 Warrants 8,316 0.1% 8,316 0 0.0%
$3.50 Warrants 8,316 0.1% 8,316 0 0.0%
Total 22,786 0.4% 22,786 0 0.0%
Allyson Cohen
Common Stock 6,154 0.1% 6,154 0 0.0%
$2.50 Warrants 8,316 0.1% 8,316 0 0.0%
$3.50 Warrants 8,316 0.1% 8,316 0 0.0%
Total 22,786 0.4% 22,786 0 0.0%
</TABLE>
LEGAL MATTERS
The law firm of Kruse, Landa & Maycock, L.L.C., Salt Lake City, Utah,
counsel to the Company, has rendered an opinion that the shares of
currently issued and outstanding Common Stock subject to this
registration statement are legally issued, fully paid, and
nonassessable under the Nevada corporation laws and that the Common
Stock issuable on exercise of the Warrants or the conversion of the
Preferred Stock will be, when issued in accordance with the terms of
the Warrant Agreements and the terms of the Preferred Stock, legally
issued, fully paid, and nonassessable under the Nevada corporation
laws.
EXPERTS
The consolidated financial statements of the Company as of June 30,
1994 and 1993, and the years then ended included in this Prospectus
have been audited by Peterson, Siler & Stevenson, certified public
accountants, as stated in their report, and have been so included in
reliance on the authority of such firm as experts in accounting and
auditing.
<PAGE>
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and in accordance
therewith files reports and other information with the Securities and
Exchange Commission (the "Commission"). Such reports and other
information can be inspected and copied at the public reference
facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549; Room 1204, Everett McKinley Dirksen Building,
219 South Dearborn Street, Chicago, Illinois 60604; and Room 1100,
Jacob K. Javits Federal Building, 26 Federal Plaza, New York, New York
10278. Copies of such materials can be obtained from the public
reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
Additional information regarding the Company and the Securities
offered hereby is contained in the registration statement and exhibits
thereto, of which this Prospectus forms a part, filed with the
Commission under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus omits certain information
contained in the registration statement. For further information,
reference is made to the registration statement and to the exhibits
and other schedules filed therewith. Statements contained in this
Prospectus as to the contents of any contract or other document
referred to are not necessarily complete, and where such contract or
other document is an exhibit to the registration statement, each such
statement is deemed to be qualified and amplified in all respects by
the provisions of the exhibit. Copies of the complete registration
statement, including exhibits, may be examined at, or copies obtained
from the offices of, the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, on the payment of prescribed fees for
reproduction.
<PAGE>
LARSON DAVIS INCORPORATED
<TABLE>
<CAPTION>
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, June 30,
1995 1994
CURRENT ASSETS
<S> <C> <C>
Cash $ 92,790 $ 432,261
Trade accounts receivable, net 2,837,062 1,611,315
Inventories 2,453,353 2,155,232
Other current assets 234,559 52,920
Due from related parties - 29,817
Unbilled contract receivables 812,628 1,217,650
Total Current Assets 6,430,392 5,499,195
PROPERTY, PLANT AND EQUIPMENT
Net of accumulated depreciation 1,073,270 1,171,113
ASSETS UNDER CAPITAL LEASE
Net of accumulated amortization 365,988 225,271
DEFERRED INCOME TAXES 60,326 60,326
OTHER ASSETS
Product technology and license
costs net of amortization 4,501,882 3,916,573
Goodwill 138,721 138,721
$12,570,579 $11,011,199
<FN>
The accompanying notes are an integral part of these
financial statements.
</TABLE>
<PAGE>
LARSON DAVIS INCORPORATED
<TABLE>
<CAPTION>
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, June 30,
1995 1994
CURRENT LIABILITIES
<S> <C> <C>
Short-term notes payable $ 3,162,383 $ 2,782,019
Accounts payable 1,776,147 1,289,466
Accrued liabilities 426,822 528,208
Current maturities of long-term debt 226,419 208,395
Current maturities of capital lease
obligation 77,567 77,567
Current deferred income taxes 60,326 60,326
Total Current Liabilities 5,729,664 4,945,981
LONG-TERM DEBT
less current maturities 664,763 929,902
CAPITAL LEASE OBLIGATIONS
less current maturities 307,542 148,171
Total Liabilities 6,701,969 6,024,054
STOCKHOLDERS' EQUITY
Common stock 6,148 5,827
Additional paid-in capital 6,229,692 5,663,650
Retained earnings (343,429) (685,745)
Foreign currency translation (23,801) 3,413
Total Stockholders' Equity 5,868,610 4,987,145
$12,570,579 $11,011,199
<FN>
The accompanying notes are an integral part of these
financial statements.
</TABLE>
<PAGE>
LARSON DAVIS INCORPORATED
<TABLE>
<CAPTION>
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the 3 Months Ended For the 9 Months Ended
March 31, March 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
SALES, net $2,852,301 $1,945,108 $6,979,066 $4,392,735
COSTS AND OPERATING EXPENSES:
Costs of sales and
operating expenses 1,693,836 550,331 3,346,840 1,827,787
Research and development 412,177 239,540 1,165,964 596,040
Selling, general and
administrative 594,908 526,475 1,857,280 1,478,797
Total costs and
operating expenses 2,700,921 1,316,346 6,370,084 3,902,624
OPERATING INCOME (LOSS) 151,380 628,762 608,982 490,111
OTHER INCOME (EXPENSE) (100,852) (58,780) (264,907) (86,527)
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE PROVISION
FOR TAXES 50,528 569,982 344,075 403,584
PROVISION (BENEFIT) FOR
INCOME TAXES - 130,000 1,759 162,000
NET INCOME FROM CONTINUING
OPERATIONS 50,528 439,982 342,316 241,584
NET (LOSS) FROM OPERATIONS
HELD FOR SALE, net - (41,287) - (203,101)
NET INCOME (LOSS) $ 50,528 $ 398,695 $ 342,316 $ 38,483
NET INCOME (LOSS) PER COMMON
SHARE:
Continuing operations $ 0.01 $ 0.08 $ 0.06 $ 0.05
Operations held for sale $ - $ (0.01) $ - $ (0.04)
$ 0.01 $ 0.07 $ 0.06 $ 0.01
<FN>
The accompanying notes are an integral part of these
financial statements.
</TABLE>
<PAGE>
LARSON DAVIS INCORPORATED
<TABLE>
<CAPTION>
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the 9 Months Ended
March 31,
1995 1994
<S> <C> <C>
CASH FLOWS FROM (TO) OPERATIONS:
Net Income (Loss) $ 342,316 $ 38,483
Adjustments to reconcile net income to
net cash provided by operations:
Depreciation 216,941 213,609
Amortization 338,197 228,940
Cost of sales - real estate - 161,540
Changes in assets and liabilities:
Accounts receivable (1,225,747) 888,694
Inventories (298,121) (195,969)
Prepaid expenses and other (181,639) (13,125)
Due from related parties 29,817 7,818
Other current receivable 405,022 (736,956)
Reserve for estimated loss
Accounts payable 486,681 (288,623)
Accrued liabilities (101,386) 73,058
Income taxes payable - 17,500
Current deferred taxes - -
Total Adjustments (330,235) 356,486
Net Cash Provided (Used) by Operations 12,081 394,969
CASH FLOWS TO INVESTING:
Payments for software development
costs and technology (923,506) (168,943)
Purchase of instruments and equipment (259,815) (216,488)
Goodwill in subsidiary - (142,277)
Net Cash (Used) in Investing Activities (1,183,321) (527,708)
<FN>
The accompanying notes are an integral part of these
financial statements.
</TABLE>
<PAGE>
LARSON DAVIS INCORPORATED
<TABLE>
<CAPTION>
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
For the 9 Months Ended
March 31,
1995 1994
<S> <C> <C>
CASH FLOWS FROM (TO) FINANCING:
Net borrowings (repayments) under
short-term debt 380,364 (87,303)
Increases (decreases) in capital lease
obligation 159,371 (39,981)
Borrowings (repayments) on long-term
debt (247,115) (697,596)
Foreign currency translation (27,214) 81
Proceeds from capital stock 566,363 947,797
Increase (decrease) in deferred taxes - (64,325)
Net Cash Provided (Used) by Financing 831,769 58,673
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (339,471 (74,066)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 432,261 104,330
CASH EQUIVALENT AT END OF PERIOD $ 92,790 $ 30,264
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the current quarter for:
Interest $ 271,316 $ 188,935
Income taxes $ - $ 2,443
<FN>
The accompanying notes are an integral part of these
financial statements
</TABLE>
<PAGE>
LARSON DAVIS INCORPORATED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared by the
Registrant without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of
operations, and changes in financial position at March 31, 1995
and for all periods presented have been made.
Certain information and footnote disclosure normally included in
financial statements prepared in accordance with generally accepted
accounting principles has been condensed or omitted. It is suggested
that these condensed financial statements be read in conjunction with
the Registrant's June 30, 1994 audited financial statements and the
notes thereto. The results of the operations for the periods ended
March 31, 1995 may not necessarily be indicative of the operating
results for the full year.
Business Presentation. The accompanying consolidated financial
statements of Larson-Davis Incorporated include the accounts of the
Registrant and its wholly-owned subsidiaries Larson-Davis
Laboratories, Advantage Software, Inc., LD Info, Inc. and Larson-Davis
Limited (a UK Corporation). All significant intercompany transactions
and accounts have been eliminated in consolidation.
Inventories. Inventories are valued at the lower of cost (using
average cost method) or market.
Plant and Equipment. Equipment is carried at cost less related
accumulated depreciation. Depreciation, including amortization of
capitalized leases, is computed using the straight-line method over
useful lives ranging from 3 to 5 years. Real estate is being
depreciated over a useful life of 25 years using the straight-line
method.
Earnings Per Share. The computation of earnings per share of common
stock is based on the weighted average number of shares and common
stock equivalents outstanding during the period. The weighted average
number of shares outstanding for the periods ended March, 1995 and
1994, is 6,148,469 and 5,446,127, respectively.
<PAGE>
LARSON DAVIS INCORPORATED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition. The Registrant recognizes revenues on the bulk
of its product sales and services at the time of product delivery or
the rendering of services. With respect to recognizing long-term
contract revenues and charging expenses to operations, the Registrant
has adopted a "percentage-of-completion" method of accruing revenues
related to long-term contracts. Revenues are accrued and a current,
non-trade receivable is created based on "progress toward completion"
of the particular contract. Progress is determined by comparing
actual time incurred and materials used with expected estimates of
total contract costs. In short, revenues are accrued as services are
performed by the Registrant. Losses on long-term contracts are
recognized when they become apparent. Billings to the customer are
made according to the payment terms of the contract. When a billing
is created, the amount of the billing is transferred into the regular
trade receivable account to await receipt of payment.
Software Development Costs. Pursuant to FAS No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed", the Registrant capitalizes all costs incurred to develop
software after technological feasibility has been established.
Amortization of these development costs is computed using the
straight-line method over estimated useful lives ranging from 10 to 17
years.
Product Technology and License Rights. The Registrant capitalizes
costs incurred to acquire product technology and license rights.
These costs are being amortized over estimated useful lives ranging
from 10 to 17 years by the straight-line method.
Cash and Cash Equivalents. For purpose of the statement of cash
flows, the Registrant considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
<PAGE>
LARSON DAVIS INCORPORATED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - INVENTORIES
The composition of inventories at March 31, 1995 and June 30, 1994
consists of the following:
<TABLE>
<CAPTION>
March 31, 1995 June 30, 1994
<S> <C> <C>
Raw materials $1,038,355 $1,259,720
Work in process 635,294 395,665
Finished goods 779,704 499,847
$2,453,353 $2,155,232
</TABLE>
NOTE 3 - CONTRACTS IN PROGRESS
The unbilled contract receivable represents amounts of contract
revenues accrued and recognized that have not yet been billed to the
customer. Billings on the contracts are made according to payment
terms and do not necessarily coincide with the "earning" process.
<TABLE>
<CAPTION>
March 31, 1995 June 30, 1994
<S> <C> <C>
Total costs incurred to date $1,819,590 $ 886,861
Estimated contribution to date 42,123 306,457
Revenues recognized to date 2,240,713 1,193,318
Progress billings to date (1,526,835) (289,168)
713,878 904,150
Massport balance 98,750 313,500
Unbilled contracts receivable $ 812,628 $1,217,650
</TABLE>
<PAGE>
LARSON DAVIS INCORPORATED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - EXPORT SALES
During the quarters ended March 31, 1995 and 1994, the Registrant had
export sales totaling approximately $1,435,700 and $ 450,700
respectively.
<PAGE>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
FINANCIAL STATEMENTS
JUNE 30, 1994 AND 1993
PETERSON, SILER & STEVENSON, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
FINANCIAL STATEMENTS
CONTENTS
Independent Auditors' Report
Balance Sheets, June 30, 1994 and 1993
Statements of Operations, for the years
ended June 30, 1994, 1993 and 1992
Statement of Stockholders' Equity for the
years ended June 30, 1994, 1993 and 1992
Statements of Cash Flows, for the years
ended June 30, 1994, 1993, and 1992
Notes to Financial Statements
<PAGE>
PETERSON, SILER & STEVENSON, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
A PROFESSIONAL CORPORATION
430 EAST 400 SOUTH
SALT LAKE CITY, UTAH 84111
(801) 328-2727
INDEPENDENT AUDITORS' REPORT
Board of Directors
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
Provo, Utah
We have audited the accompanying consolidated balance sheets of
Larson Davis Incorporated and Subsidiaries at June 30, 1994 and 1993,
and the related consolidated statements of operations, stockholders'
equity and cash flows for the years ended June 30, 1994, 1993 and
1992. 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 did not audit the
financial statements of Larson Davis, Ltd., a wholly-owned subsidiary,
which statements reflect total assets and revenues constituting
approximately 6% of the related consolidated totals. Those statements
were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for
Larson Davis, Ltd., is based solely on the report of the other
auditors.
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 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 audits provide a reasonable basis for our opinion.
<PAGE>
In our opinion, the consolidated financial statements audited by us
present fairly, in all material respects, the consolidated financial
position of Larson Davis Incorporated and Subsidiaries as of June 30,
1994 and 1993 and the results of their operations and their cash flows
for the years ended June 30, 1994, 1993, and 1992, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 17 to
the consolidated financial statements, the Company has suffered a
significant loss from operations and is currently discontinuing
certain of its operations. Management's plans in regard to these
matters is also contained in Note 17.
/s/ PETERSON, SILER & STEVENSON, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
October 5, 1994
<PAGE>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30,
1994 1993
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 432,261 $ 104,330
Trade accounts receivable, net of
allowance for doubtful accounts of
$15,000 and $20,688, respectively 1,611,315 2,673,427
Inventories 2,155,232 1,799,725
Other current assets 52,920 11,956
Due from related parties 29,817 77,625
Costs and estimated earnings in excess
of related billings 1,217,650 364,718
Total Current Assets 5,499,195 5,031,781
NET ASSETS HELD FOR SALE - 2,428,233
PROPERTY, PLANT, AND EQUIPMENT,
net of accumulated depreciation 1,171,113 1,346,479
ASSETS UNDER CAPITAL LEASE OBLIGATIONS,
net of accumulated amortization 225,271 193,049
DEFERRED INCOME TAXES 60,326 -
OTHER ASSETS:
Product technology, license rights
and software development costs
net of amortization 3,916,573 1,300,711
Goodwill 138,721 -
Total Other Assets 5,512,004 5,268,472
$11,011,199 $10,300,253
<FN>
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30,
1994 1993
CURRENT LIABILITIES:
<S> <C> <C>
Short-term notes payable $ 2,782,019 $ 1,490,303
Accounts payable 1,289,466 829,568
Accrued liabilities:
Salaries and commissions 357,951 476,617
Payroll taxes 73,909 53,309
Other 96,348 57,468
Income taxes payable - 48,185
Current maturities of long-term debt 208,395 35,840
Current maturities of capital lease
obligations 77,567 59,257
Current deferred income taxes 60,326 82,000
Total Current Liabilities 4,945,981 3,132,547
DEFERRED INCOME TAXES - 433,000
LONG - TERM DEBT, less current maturities 929,902 683,218
CAPITAL LEASE OBLIGATIONS, less current
maturities 148,171 144,405
Total Liabilities 6,024,054 4,393,170
STOCKHOLDERS' EQUITY:
Preferred stock; $.001 par value, 10,000,000
shares authorized, no shares issued - -
Common stock; $.001 par value, 290,000,000
shares authorized, 5,827,249 and 5,413,127
shares issued and outstanding respectively 5,827 5,413
Additional paid-in capital 5,663,650 4,719,264
Retained earnings (685,745) 1,182,406
Equity adjustment from translation of
foreign currency 3,413 -
Total Stockholders' Equity 4,987,145 5,907,083
$11,011,199 $10,300,253
<FN>
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years Ended
June 30,
1994 1993 1992
<S> <C> <C> <C>
NET SALES $ 6,412,585 $ 6,180,082 $ 7,054,164
COST AND OPERATING EXPENSES:
Costs of sales and operating
expenses 2,504,649 2,553,105 3,168,814
Research and development 1,101,352 868,957 562,830
Selling, general and
administrative 2,442,029 2,374,707 2,386,005
Total costs and
operating expenses 6,048,030 5,796,769 6,117,649
INCOME FROM CONTINUING
OPERATIONS 364,555 383,313 936,515
OTHER INCOME (EXPENSE):
Interest income 5,625 5,568 7,409
Interest expense (270,383) (249,487) (260,852)
Other 102,247 (2,575) 3,788
Total Other Income
(Expense) (162,511) (246,494) (249,655)
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES AND MINORITY INTEREST 202,044 136,819 686,860
CURRENT TAX EXPENSE - 6,000 75,140
DEFERRED TAX EXPENSE - - -
INCOME FROM CONTINUING
OPERATIONS BEFORE
DISCONTINUED OPERATIONS AND
EXTRAORDINARY ITEMS 202,044 130,819 611,720
<PAGE>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS [Continued]
For the years Ended
June 30,
1994 1993 1992
<S> <C> <C> <C>
DISCONTINUED OPERATIONS:
Income (loss) from operations
of Larson Davis, Info. Inc.
and Advantage Software,
Inc., to be disposed of
(net of income taxes) (400,200) (458,887) (412,418)
Estimated income (loss) on
disposal of the operations
of Larson Davis Info., Inc.
and Advantage Software Inc.
(net of income taxes) (2,156,987) - -
INCOME (LOSS) FROM
DISCONTINUED OPERATIONS (2,557,187) (458,887) (412,418)
MINORITY INTEREST IN LOSS OF
OPERATIONS HELD FOR SALE - 83,889 131,873
EXTRAORDINARY ITEM, NET
OPERATIONS HELD FOR SALE - 547,988 -
CHANGE IN ACCOUNTING PRINCIPLE
Cumulative effect on years
prior to June 30, 1994, of
application of Statement of
Financial Accounting
Standards No. 109,
"Accounting for Income
Taxes" 486,992 - -
NET INCOME (LOSS) $(1,868,151) $ 303,809 $ 331,175
<PAGE>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS [Continued]
For the years Ended
June 30,
1994 1993 1992
<S> <C> <C> <C>
NET INCOME PER COMMON SHARE:
Income from continuing
operations $ .04 $ .02 $ .11
Loss from discontinued
operations (.08) (.07) (.05)
Estimated gain (loss) on
disposal of Larson-Davis
Info., Inc. and Advantage
Software Inc. (.39) - -
Extraordinary item - .10 -
Cumulative effect of change
in accounting principle .09 - -
EARNINGS (LOSS) PER COMMON
SHARE $ (.34) $ .05 $ .06
<FN>
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1994 1993 AND 1992
Equity
Adjustment
Additional Retained From Foreign
Common Stock Paid-in Earnings Currency
Shares Amount Capital (Deficit) Translation Total
<S> <C> <C> <C> <C> <C> <C>
BALANCE, June 30, 1991 5,001,813 $ 5,002 $ 4,368,825 $ 547,422 $ - $ 4,921,249
Shares issued to purchase
technology from Scan
Development during August
1991 at $1.28 per share 305,139 305 389,695 - - 390,000
Shares issued to employees
in lieu of compensation
at $1.10 per share during
January 1992 64,450 64 70,831 - - 70,895
Net income for the year
ended June 30, 1992 - - - 331,175 - 331,175
BALANCE, June 30, 1992 5,371,402 5,371 4,829,351 878,597 - 5,713,319
Effect of restructuring of
agreement with CCH, Inc.
and return of minority
interest shares in
subsidiary - - (203,926) - - (203,926)
Shares issued to employees
in lieu of compensation
at $2.25 per share
June 1993 41,725 42 93,839 - - 93,881
Net income for the year
ended June 30, 1993 - - - 303,809 - 303,809
BALANCE, June 30, 1993 5,413,127 5,413 4,719,264 1,182,406 - 5,907,083
<PAGE>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
<CAPTION>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1994 1993 AND 1992 [Continued]
Equity
Adjustment
Additional Retained From Foreign
Common Stock Paid-in Earnings Currency
Shares Amount Capital (Deficit) Translation Total
<S> <C> <C> <C> <C> <C> <C>
Shares issued upon exercise
of options, at $1.50 and
$1.60 per share 33,000 33 49,767 - - 49,800
Shares issued in various
private placements from
$2.15 to $3.32 per share,
net of offering costs of
$175,000 381,122 381 894,619 - - 895,000
Equity adjustment for
translation of foreign
currency - - - - 3,413 3,413
Net loss for the year
ended June 30, 1994 - - - (1,868,151) - (1,868,151)
BALANCE, June 30, 1994 5,827,249 $ 5,827 $ 5,663,650 $ (685,745) $ 3,413 $ 4,987,145
<FN>
The accompanying notes are an integral part of this financial
statement.
</TABLE>
<PAGE>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
For the years Ended
June 30,
1994 1993 1992
<S> <C> <C> <C>
Cash Flows From (To)
Operating Activities:
Net income (loss) $(1,868,151) $ 303,809 $ 331,175
Adjustments to reconcile
net income (loss) to net
cash used by operating
activities:
Depreciation 222,020 307,332 297,331
Amortization 550,635 319,405 253,031
Minority interest in
loss of consolidated
subsidiary - (83,889) (131,873)
Provision for losses on
accounts receivable 2,000 3,093 17,595
Stock issued in lieu of
compensation - 93,881 70,895
Gain on sale of assets 102,247) - (3,506)
Estimated loss on
disposition 2,156,986 - -
Restructure of CCH, Inc.
minority interest - (873,988) -
Changes in assets and
liabilities:
Accounts receivable 1,060,112 (210,004) (754,758)
Inventories (355,507) (208,733) (166,602)
Other current assets (40,964) 245 57,139
Due from related party 47,808 3,088 (4,677)
Unbilled contract
receivable (852,932) 269,661 219,366
Accounts payable 459,898 89,887 72,881
Accrued liabilities (59,186) 154,037 231,484
Deferred taxes (515,000) 293,000 52,776
Income taxes payable (48,185) 47,785 (34,600)
Total Adjustments 2,525,438 204,800 176,482
Net Cash Provided
(Used) by Operating
Activities 657,287 508,609 507,657
<PAGE>
<CAPTION>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents [Continued]
For the years Ended
June 30,
1994 1993 1992
<S> <C> <C> <C>
Cash Flows To Investing
Activities:
Purchase of property,
plant and equipment,
net of retirements (208,194) (150,250) (124,918)
Proceeds from sale of
assets 263,787 - -
Payments for software
development costs (2,826,496) 242,514) (362,931)
Purchase of capital
lease assets (100,976) - -
Purchase of goodwill (138,721) - -
Foreign currency
translation 3,413 - -
Net Cash Used in
Investing Activities 3,007,187 (392,764) (487,849)
Cash Flows From (To)
Financing Activities:
Net borrowings under short
term debt 1,291,716 (52,175) 119,400
Proceeds from issuance of
common stock 1,119,800 - -
Common stock offering costs (175,000) - -
Proceeds from long-term
borrowings 1,115,950 50,105 -
Principal payments on
long-term debt (696,711) (40,611) (33,514)
Principal payments on
capital lease obligations (57,905) (66,705) (58,641)
Proceeds from sale of
subsidiary securities,
net of offering costs - - -
Proceeds from capital leases 79,981 - -
Net Cash Provided by
Financing Activities 2,677,831 (109,386) 27,245
<PAGE>
<CAPTION>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents [Continued]
For the years Ended
June 30,
1994 1993 1992
<S> <C> <C> <C>
Net Increase in Cash and
Cash Equivalents 327,931 6,459 47,053
Cash and Cash Equivalents at
Beginning of Year 104,330 106,611 59,558
Cash and Cash Equivalents at
End of Year $ 432,261 $ 113,070 $ 106,611
Supplemental Disclosures of
Cash Flow Information:
Cash paid during the year
for:
Interest $ 270,383 $ 250,185 $ 268,211
Income taxes $ 78,980 $ 10,213 $ 400
</TABLE>
Supplemental Disclosures of Non-Cash Investing and Financing
Activities:
For the year ended June 30, 1994:
The Company acquired certain software and technology by issuing
and assuming various liabilities, valued at $2,029,047.
For the year ended June 30, 1993:
The Company issued 41,725 shares of common stock to employees in
lieu of compensation with a computed value of $93,881.
For the year ended June 30, 1992:
The Company purchased equipment through capital lease obligations
with an equipment cost of $115,608. Additionally, debt was reduced by
$57,189 on capital lease assets traded in, resulting in a gain of
$3,506.
The Company issued 305,139 shares of common stock for technology
acquired valued at $390,000 and issued 64,450 shares of common stock
to employees in lieu of compensation with a computed value of $70,895.
The accompanying notes are an integral part of this financial
statement.
<PAGE>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The accompanying consolidated financial
statements of Larson-Davis Incorporated include the accounts of the
Company and its wholly-owned subsidiaries, Larson-Davis Laboratories,
Advantage Software, Inc., LD Info., Inc. and Larson Davis Limited (a
Foreign Corporation). All significant intercompany transactions and
accounts have been eliminated in consolidation.
Inventories - Inventories are valued at the lower of cost (using
average
cost method) or market.
Plant and Equipment - Equipment is carried at cost less related
accumulated depreciation. Depreciation, including amortization of
capitalized leases, is computed using the straight-line method over
useful lives ranging from 3 to 7 years. Real estate is being
depreciated over a useful life of 25 years using the straight-line
method.
Earnings Per Share - The computation of earnings per share of common
stock is based on the weighted average number of shares and common
stock equivalents outstanding during the period. The weighted
average number of shares outstanding for 1994, 1993 and 1992 is
5,483,397, 5,374,885 and 5,262,892, respectively.
Revenue Recognition - The Company recognizes revenue on product sales
and services at the time of product delivery or rendering services.
However, with respect to long-term contracts, the Company's earning
process extends over a much longer time period. The Company has
adopted a "percentage-of-completion" method for accruing revenues
and expenses related to long term contracts. Revenues are accrued
and a current, non-trade receivable is created based on "progress
toward completion" of the particular contract. Progress is
determined by comparing actual time incurred and materials used
with expected estimates of total contract costs. In short,
revenues are accrued as they are earned by the Company. Billings
to the customer are made according to payment terms of the
contract. When a billing is created, the amount of the billing is
transferred into the regular trade receivable account to await
receipt of payment [See Note 3]. Losses on long-term contracts
are recognized when they become apparent.
<PAGE>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Cash and Cash Equivalents - For purposes of the statement of cash
flows, the Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
Software Development Costs - Pursuant to FASB No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed", the Company capitalizes all costs incurred to develop
software after technological feasibility has been established.
Amortization of these development costs is computed either based
on the number of installation contracts successfully negotiated
and initiated during the current year relative to the anticipated
total number of contracts for that period, or the straight line
method over the expected useful life of 10 years, whichever is
greater.
Sales of Securities by Subsidiaries - The Company records the excess
(deficiency) of proceeds received from the sale of a subsidiary's
securities over (under) the net book value as increases (decreases)
in additional paid in capital.
Product Technology and License Rights - The Company capitalizes costs
incurred to acquire product technology and license rights. These
costs are being amortized over estimated useful lives ranging from
10 to 17 years by the straight line method.
Advertising Costs - The Company defers as prepaid expenses the cost
of artwork used to create advertising, brochures, and printed ad
layouts. Prepaid expenses are amortized on a straight line basis
over their individual estimated useful lives. All other costs of
advertising are expensed as incurred. Advertising expense for the
years ended June 30, 1994, 1993, and 1992 was $105,404, $129,254
and $257,758, respectively.
Income Taxes - Effective for the year ended June 30, 1994, the
Company adopted FASB Statement No. 109, " Accounting for Income
Taxes." There was a cumulative effect benefit for the change in
accounting principle of $486,992 [See Note 7]. The Company
previously calculated its tax provision according to FASB Statement
No. 96.
<PAGE>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Foreign Currency Translation/Remeasurement - For foreign subsidiaries
whose functional currency is the local foreign currency, balance
sheet accounts are translated at exchange rates in effect at the
end of the year and income statement accounts are translated at
average exchange rates for the year. Translation gains and losses
are included as a separate component of stockholders' equity.
NOTE 2 - INVENTORIES
The composition of inventories at June 30, 1994 and 1993, consists
of the following:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Raw materials $1,259,720 $1,094,078
Work in progress 395,665 353,043
Finished goods 499,847 352,604
$2,155,232 $1,799,725
</TABLE>
NOTE 3 - CONTRACTS IN PROGRESS
The Company has accrued and recognized revenues on the contract based
on a "percentage-of completion" method [See Note 1], which attempts
to recognize the income as it is being earned. The unbilled contract
receivable represents amounts of contract revenues accrued and
recognized that have not yet been billed to the customer. Billings
on the contracts are being made according to payment term
stipulations which do not necessarily coincide with the "earning"
process. At June 30, 1994 and 1993, the balances of $313,500 and
$364,718 consist of revenue recognized on the Massport contract.
<PAGE>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - CONTRACTS IN PROGRESS [Continued]
Costs to date, estimated earnings, and the related progress billings
to date on other airport contracts in progress are as follows as of:
<TABLE>
<CAPTION>
June 30,
1994
<S> <C>
Total costs incurred to date $ 886,861
Estimated earnings to date 306,457
Revenue Recognized to date 1,193,318
Progress billings to date 289,168
Costs and estimated earnings in
excess of related billings on
uncompleted contracts $ 904,150
</TABLE>
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
June 30,
1994 1993
<S> <C> <C>
Land $ 25,000 $ 186,540
Building and improvements 946,153 946,153
Machinery and equipment 1,607,218 1,318,880
Furniture and fixtures 106,613 94,902
2,684,984 2,546,475
Less: accumulated depreciation (1,513,871) (1,199,996)
$ 1,171,113 $ 1,346,479
</TABLE>
Total depreciation expense related to property and equipment was
$222,020, $233,439 and $225,787 for the years ended June 30, 1994,
1993 and 1992 respectively.
<PAGE>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - ASSETS UNDER CAPITAL LEASE OBLIGATIONS
The Company leases certain equipment on 36 to 60 month capital
leases. The leases contain provisions for the Company to acquire
the equipment at the end of the lease term through either payment
of a nominal amount or in other cases the greater of fair market
value or 10% of the original equipment cost.
Equipment under capital lease obligations is as follows:
<TABLE>
<CAPTION>
June 30,
1994 1993
<S> <C> <C>
Equipment $ 436,042 $ 335,067
Accumulated amortization (210,771) (142,018)
$ 225,271 $ 193,049
</TABLE>
Total amortization on equipment under capital lease obligation was
$68,755, $73,893 and $71,544 for the years ended June 30, 1994, 1993
and 1992 respectively.
Total future minimum lease payments, executory costs and current
portion of capital lease obligations is as follows:
Future minimum lease payments for the years ended June 30,
<TABLE>
<CAPTION>
Year ending June 30, Lease Payments
<S> <C>
1995 $ 95,829
1996 85,434
1997 41,977
1998 19,703
1999 17,281
Total future minimum lease payments $260,224
Less amounts representing interest
and executory costs (34,486)
Present value of the future minimum
lease payments 225,738
Lease current portion (77,567)
Capital lease obligations - long term $148,171
</TABLE>
<PAGE>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - ASSETS UNDER CAPITAL LEASE OBLIGATIONS [Continued]
The Company leases an automobile under an operating lease expiring in
1995, and office equipment under an operating lease expiring in 1997.
Minimum future rental payments under these non-cancelable operating
leases as of June 30, 1994 are as follows:
<TABLE>
<CAPTION>
Year ending June 30, Amount
<S> <C>
1995 $12,864
1996 3,912
1997 2,608
Total Minimum Future Rental Payments $19,384
</TABLE>
NOTE 6 - PRODUCT TECHNOLOGY, LICENSE RIGHTS AND SOFTWARE DEVELOPMENT
COSTS
The intangible asset balance at June 30, 1994 and 1993 of $3,666,573
and $1,300,711, respectively, consists of product technology, license
rights, and software development costs, broken down as follows:
Larson Davis Laboratories (LDL)
The intangible assets carried by LDL consist of the costs of acquired
technology and capitalized cost pursuant to FASB No. 86, "Accounting
for the Costs of Computer Software Sold, Leased, or Otherwise
Marketed". Some of the technology was purchased from the founders of
the Company, but the largest portion of these rights and technologies
were purchased from unrelated third party entities and by entering
into royalty contracts. Royalty expenses included in the statement
of income for the years ended June 30, 1994, 1993, and 1992 was
$69,536, $80,070 and $179,172, respectively.
Sales of sound and vibration instrumentation products account for
approximately 80% of the gross revenues of the Company. Management
believes the technology costs will be fully realized by the
continuing instrumentation sales in subsequent fiscal years. These
technologies are being amortized by the straight line method over
useful lives of 10-17 years.
<PAGE>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - PRODUCT TECHNOLOGY, LICENSE RIGHTS AND SOFTWARE DEVELOPMENT
COSTS [Continued]
Larson Davis Information Systems, Inc. (Info)
In March of 1988, Info acquired, from a non-related party, certain
rights to technology associated with high speed information and text
retrieval software. During subsequent periods capital costs were
accumulated pursuant to FASB No. 86.
Advantage Software, Inc. (Advantage)
The Company purchased, from an unrelated third party, certain
software technology associated with complex manufacturing
environments for operational and strategic planning and decision
making.
In the fiscal year ended June 30, 1993, the Company reclassified the
net capital assets of Info. and Advantage as "Assets held for sale".
The Company is continuing to explore opportunities to sell these
assets. As of June 30, 1994 the Company has not received any
bonafide offers for the purchase of the technologies. Consequently,
as of June 30, 1994, management has decided to write the carrying
value of the assets included in discontinued operations down to zero.
The following is a summary of product technology, license rights and
software development costs:
<TABLE>
<CAPTION>
June 30,
1994 1993
<S> <C> <C>
CONTINUING OPERATIONS:
LDL:
Technologies $ 482,457 $ 457,457
ANOMS 2,508,541 -
Capitalized software 1,258,244 981,821
Accumulated amortization (353,042) (138,567)
3,896,200 1,300,711
LTD:
Capitalized software 46,302 -
Accumulated amortization (25,929) -
20,373 -
<PAGE>
<CAPTION>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - PRODUCT TECHNOLOGY, LICENSE RIGHTS AND SOFTWARE DEVELOPMENT
COSTS [Continued]
CONTINUING OPERATIONS [Continued]: [See Note 16]
June 30,
1994 1993
<S> <C> <C>
Net product technology, license rights
and software development costs from
continuing operations 3,916,573 1,300,711
DISCONTINUED OPERATIONS:[See Note 16]
Info:
Technologies $2,297,902 $2,297,902
Capitalized software 380,176 380,176
Accumulated amortization (916,989) (705,378)
1,761,087 1,972,700
Advantage:
Technologies 522,206 525,206
Accumulated amortization (183,071) (153,206)
342,135 372,000
Write down of technology, license
rights and software development
costs held for resale (2,103,222) -
Net product technology, license rights
and software development costs held
for sale - 2,344,700
Total Carrying Value $3,916,573 $3,645,411
</TABLE>
Total amortization expense on intangible assets was $464,951,
$319,405 and $253,031, for the years ended June 30, 1994, 1993 and
1992.
Realization
The long term value of these assets is connected to the application
of these technologies and software costs to viable products which
can be successfully marketed by the Company. As stated above,
management believes current and projected sales levels of sound and
vibration instrumentation will support the carrying costs of related
technologies.
<PAGE>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - PRODUCT TECHNOLOGY, LICENSE RIGHTS AND SOFTWARE DEVELOPMENT
COSTS [Continued]
Also as explained in Note 16, the Company has been involved in
attempting to sell or license the technologies and software costs
held by Advantage and Info. Due to the uncertainty of eventual
realization, as of June 30, 1994 the carrying costs were reduced to
zero.
NOTE 7 - INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No.
109 Accounting for Income Taxes [FASB 109] during Fiscal 1994.
FASB 109 requires the Company to provide a net deferred tax asset or
liability equal to the expected future tax benefit or expense of
temporary reporting differences between book and tax accounting and
any available operating loss or tax credit carryforwards. The
financial statements for years prior to 1994 have not been restated
and there was a cumulative effect benefit for the change in accounting
principle of $486,992. At June 30, 1994, the total of all deferred
tax assets was $1,044,239 and the total of the deferred tax
liabilities was $407,332. The amount of and ultimate realization of
the benefits from the deferred tax assets for income tax purposes is
dependent, in part, upon the tax laws in effect, the Company's future
earnings, and other future events, the effects of which cannot be
determined. Because of the uncertainty surrounding the realization
of the deferred tax assets, the Company has established a valuation
allowance of $636,906 as of June 30, 1994, which has been offset
against the deferred tax assets. The net change in the valuation
allowance during the year ended June 30, 1994, was $840,698.
The Company has available at June 30, 1994, unused operating loss
carryforwards of approximately $450,000, which may be applied against
future taxable income and which expire in various years through 2009.
<PAGE>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - INCOME TAXES [Continued]
The components of income tax expense from continuing operations for
the
years ended June 30, 1994, 1993 and 1992 consist of the following:
<TABLE>
<CAPTION>
For the years Ended
June 30,
1994 1993 1992
<S> <C> <C> <C>
Current income tax expense:
Federal $ - $ 40,000 $ (26,700)
State - 8,000 (6,954)
Net current tax
expense - 48,000 (33,654)
Deferred tax expense (benefit)
arising from:
Excess of tax over financial
accounting depreciation $ (6,613) $ 88,000 $ (1,730)
Amortization - technology (827,382) (3,000) (3,049)
Software development 55,722 78,000 59,859
Other 3,817) (2,000) (2,286)
Application for NOL (58,608) 123,000 -
Valuation allowance 840,698 - -
Net deferred tax
expense $ - $ 284,000 $ 52,794
</TABLE>
Deferred income tax expense results primarily from the reversal of
temporary timing differences between tax and financial statement
income.
<PAGE>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - INCOME TAXES [Continued]
A reconciliation of income tax expense at the federal statutory rate
to income tax expense at the Company's effective rate is as follows:
<TABLE>
<CAPTION>
For the years Ended
June 30,
1994 1993 1992
<S> <C> <C> <C>
Computed tax at the expected
federal statutory rate 34.00% 34.00% 34.00%
Excess of tax over financial
accounting depreciation (.31) .35 .82
State income taxes, net of
federal income tax benefits 3.00 3.00 3.00
Amortization of software and
technology (36.06) (2.10) (27.05)
Net operation loss carry
forward (2.74) - (29.91)
Other items 2.11 3.41 24.59
Effective income tax rates 0.00% 38.66% 5.45%
</TABLE>
The following temporary differences gave rise to the deferred tax
asset (liability) at June 30, 1994:
<TABLE>
<CAPTION>
Year Ended
June 30,
1994
<S> <C>
Excess of book over tax accounting
depreciation $ 108,018
Amortization - technology 2,164,919
Software development (1,063,679)
Allowance for doubtful accounts 15,000
Accrued vacations 49,662
NOL carryforwards 447,449
</TABLE>
<PAGE>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - INCOME TAXES [Continued]
The deferred taxes are reflected in the consolidated balance sheet
as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
1994 1993
<S> <C> <C>
Short term asset (liability) $ (60,326) $ (82,000)
Long term asset (liability) $ 60,326 $ (433,000)
</TABLE>
NOTE 8 - LONG-TERM NOTES PAYABLE
At June 30, 1994 and 1993, the Company is indebted for the following
notes payable:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Various installment loans payable to
financial institutions with interest
rates ranging from 2.9% to 8.9%.
Monthly principal and interest
payments of $1,120; secured by
transportation equipment costing
$50,729; due in fiscal 1997. $ 35,937 $ 62,979
8% obligation incurred through
acquisition of a business segment.
Monthly principal and interest
payments of $14,785.07 for 18 months.
Matures December 15, 1995. 250,000 -
8.25% note payable to bank, payable
in monthly installments of principal
and interest of $8,246.19 secured
by real estate; due January 1, 1999. 836,409 -
10.5% mortgage payable to bank, payable
in monthly installments of principal
and interest of $6,496; secured by
real estate; due January 1, 1999. - 656,079
<PAGE>
<CAPTION>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - LONG-TERM NOTES PAYABLE [Continued]
1994 1993
<S> <C> <C>
11.56% note payable, payable in monthly
installments of principal and interest
of $204.60 due November 24, 1996. 5,191 -
10.19% note payable, payable in monthly
installments of principal and interest
of $291.00, followed by one balloon
payment of $5,183, due August 14, 1996. 10,760 -
Total long-term debt 1,138,297 719,058
Less: current maturities (208,395) (35,840)
Long-term debt, excluding current
portion $ 929,902 $ 683,218
</TABLE>
Aggregate maturities of long-term debt for the succeeding five years
are as follows:
<TABLE>
<CAPTION>
Year ending June 30, Amount
<S> <C>
1995 $ 208,394
1996 140,681
1997 47,635
1998 37,352
1999 40,654
Thereafter 663,581
$1,138,297
</TABLE>
<PAGE>
LARSON-DAVIS INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - SHORT-TERM NOTES PAYABLE
At June 30, 1994 and 1993, the Company is indebted for the following
short-term notes payable:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Prime plus 2.75% revolving line-of-
credit arrangement with a bank
available to a maximum of $1,500,000;
interest payable monthly; principal
due November 1, 1994; secured by
accounts receivable and inventory $1,490,000 $1,451,000
9.25% revolving line-of-credit due to
a bank upon demand, or if no demand
is made, in one payment of all
outstanding principal plus all accrued
unpaid interest on September 25, 1994;
secured by 300,000 shares of
Larson Davis, Inc. stock 301,500 -
9.0% note payable to an individual
requiring monthly payments of $30,210
based on a 36 month amortization, and
payment made in full by September 30,
1994; secured by stock warrants 950,000 -
9.5% note payable to a bank requiring
monthly payments of $992, including
interest; final balloon payment due
December 5, 1993 - 34,254
14% note payable to bank, final payment
due July, 1993 - 5,049
Note payable to an unrelated corporation,
principal and interest currently due 11,079 -
Other short-term notes payable 29,440 -
$2,782,019 $1,490,303
</TABLE>
<PAGE>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - SHORT-TERM NOTES PAYABLE [Continued]
The amount available under the revolving line of credit is
calculated based upon a formula of eligible accounts receivable and
inventories. At June 30, 1994 the maximum allowed calculated exceeded
draws against the revolving line by $10,000.
The following table presents the average borrowing, the maximum
amount outstanding, and the weighted average interest rate on short
term borrowings:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Average short term borrowing 1,992,331 1,451,951 1,373,931
Maximum amount outstanding 2,741,500 1,487,567 1,546,673
Weighted average interest rate -
monthly calculation 10% 10% 10%
</TABLE>
NOTE 10 - COMMON STOCK
During the year ended June 30, 1994, the Company issued 33,000 shares
of common stock to certain officers, directors and shareholders upon
exercise of common stock options at $1.50 and $1.60 per share.
During the year ended June 30, 1994 the Company issued 381,122 shares
of common stock in various private placements overseas at prices
ranging from $2.15 to $3.32 per share.
During June 1993, the Company issued, pursuant to a discretionary
stock award plan, 41,725 shares of previously unissued common stock
to its employees, valued at $2.25 per share, the market price on the
date the Board of Directors passed the resolution. This transaction
resulted in taxable compensation to the employees and a corresponding
deduction to the Company in the amount of $93,881.
During February 1992, the Company issued, pursuant to a discretionary
stock award plan, 64,450 shares of previously unissued common stock
to its employees, valued at $1.10 per share, the market price on the
date the Board of Directors passed the resolution. This transaction
resulted in taxable compensation to the employees and a corresponding
deduction to the Company in the amount of $70,895.
<PAGE>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - RELATED PARTY TRANSACTIONS
During 1994, two officers, directors and shareholders exercised
certain options to acquire shares of common stock [See Note 10].
During December 1987, the Company loaned an aggregate of $55,000 to
three of its officers and directors. In the fiscal year ended
June 30, 1993, one of the loans was eliminated by a compensation
charge to the related individual for the amount of principal and
interest then outstanding. The transaction resulted in compensation
to the officer and a corresponding deduction to the Company in the
amount of $7,763. During the fiscal year ended June 30, 1994 the two
remaining notes were reduced through a charge to compensation to the
related individuals amounting to $19,308. One of the note was
eliminated through the transfer of 6,000 shares, of the Company's
stock held by the individual, in payment $33,750 of the Company's
obligations. The remaining note are payable on demand and bear
interest at 8 1/2 percent payable quarterly. Interest accrued on the
loans amounted to $5,250, $27,625 and $25,713 at June 30, 1994, 1993
and 1992, respectively. The unpaid balance at June 30, 1994 was
$29,817.
NOTE 12 - STOCK OPTIONS
In July 1991, the board of directors adopted the Employee Stock Award
Plan, which was later approved by shareholders at the annual meeting
in June 1993. Under the provisions of the plan, the board can award
up to 225,000 shares of common stock over the three year life of the
plan to employees of the Larson-Davis who are not also directors of
the Company. A total of 8,900 shares have been awarded to officers
who are not also directors of the Company.
In July 1991, the board of directors also adopted the Director Stock
Option Plan which was approved by the shareholders in June 1992.
Under the terms of the plan, options are automatically awarded on
June 30 of each year during the term of the plan, to the three
individuals who are currently directors of the Company. The options
have an exercise price equal to the closing bid price as reported by
NASDAQ for the common stock on June 30, or an exercise price equal to
110% of that price, if the director is also a 10% shareholder of the
Company. Awards under the plan are automatic as long as the
individual is a director of the Company as of each June 30 during
the term of the plan, which expires July 1, 1996. A maximum of
<PAGE>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 12 - STOCK OPTIONS [Continued]
450,000 shares can be optioned under this plan. Effective June 30,
1992, two directors each received options to acquire 30,000 shares at
an exercise price of $2.54 per share. The other director received an
option to acquire 30,000 shares with an exercise price of $2.31 per
share. Effective June 30, 1993, two directors each received options
to acquire 30,000 shares at an exercise price of $3.30 per share and
the remaining director received an option to acquire 30,000 shares
with an exercise price of $3.00 per share. Effective June 30, 1994
two directors received options to acquire 30,000 shares each at an
exercise price of $3.85 per share. The other director received an
option to acquire 30,000 shares with an exercise price of $3.50 per
share.
On November 9, 1987, the board of directors of the Company authorized
a stock option plan pursuant to which options to acquire common stock
of the Company can be issued to employees of the Company. The issued
options are intended to qualify as incentive stock options under the
provisions of the Internal Revenue Code. Two directors hold options
under this plan to acquire 130,000 shares each at $1.76 per share.
The third director holds options to acquire 177,000 shares at $1.60
per share.
Effective June 1989, a former employee was granted options outside
of the plan. 20,000 options were granted, bearing exercise prices of
$2.75 for 15,000 options and $5.00 per share for 5,000 options.
During the year ended June 30, 1994 these options were extended for
an additional five years and an option for an additional 6,000 shares
was granted to the individual.
During the year ended June 30, 1994, options for 33,000 shares of
stock were exercised; 3,000 were exercised by a director and 30,000
by an non-related party.
NOTE 13 - LEGAL MATTERS
During October 1992, the Company initiated legal proceedings against
Technology Integration, Inc. (TII) of Bedford, Massachusetts. The
litigation was subsequently dropped in June ,1994 upon the closing
of an asset purchase agreement between the Company and TII [See Note
18].
<PAGE>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 13 - LEGAL MATTERS [Continued]
The Company is from time to time involved in litigation as a normal
part of its ongoing operations. At June 30, 1994, there were no
litigation's which in management's estimate would have any material
impact on the financial condition of the Company.
NOTE 14 - MAJOR CUSTOMER AND EXPORT SALES
For the fiscal year ended June 30, 1994, the Company has no customer
whose sales exceed 10% of the continuing sales of the Company. Also
during 1994, aggregate sales to agencies of the U.S. Government
totaled approximately 4%. During the fiscal year ended June 30, 1993,
the Company had just one major customer, Spectra of Italy
(approximately 20% of continuing revenues) whose sales exceed 10% of
the continuing sales of the Company. Also during 1993, aggregate
sales to agencies of the U.S. Government totalled approximately 14%.
During the fiscal year ended June 30, 1992 there were two major
customers, Spectra of Italy and Technology Integration of
Massachusetts whose sales totalled approximately 18% and 14%,
respectively, of continuing revenues. During 1994 the Company
acquired certain assets and business contracts from Technology
Integration of Massachusetts [See Note 18 ].
Export sales for the three fiscal years ending June 30, 1994, 1993,
and 1992 are broken down as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Asia $ 218,537 $ 543,792 $ 809,631
Australia 156,728 143,147 80,608
Canada 140,386 203,087 227,184
Western Europe 1,332,727 1,744,649 2,173,115
India - 5,575 -
Middle East 51,315 - -
Scandinavia 51,119 122,748 46,073
Eastern Europe 330,885 13,133 -
South America 7,179 - -
TOTALS $2,288,876 $2,776,131 $3,336,611
</TABLE>
<PAGE>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 15 - EXTRAORDINARY ITEM
In October, 1990 Larson-Davis Info, Inc. ("Info"), a consolidated
subsidiary of the Company, entered into a stock purchase agreement,
pursuant to which Info issued 563 previously unissued, common shares
to Commerce Clearing House, Inc. ("CCH"). The shares represented 36%
of the outstanding voting common stock and Info received a cash
payment of $1,150,000. A Shareholders' Agreement was also signed
which provided for some involvement by CCH in the continuing
management of Info. Consistent with the investment, financial
statements issued subsequent to the agreement have provided for
"minority interest" accounting in accordance with APB-16.
Pursuant to an agreement effective June 30, 1992, CCH returned the
shares to Info, along with a cash payment of $150,000 in exchange
for continuing rights to utilize certain Info software technologies.
This transaction has been accounted for as the sale of rights to
software technologies to CCH for specified periods of time and
cancellation of the outstanding stock previously owned by CCH.
Therefore, included in the financial statements for the year ended
June 30, 1993, is an extraordinary item relating to the December
agreement recognizing the cash payment of $1,150,000 as income from
the sale of technology rights, less amounts already recognized
previously as exclusions of "minority interest" losses.
Corresponding adjustments to the equity accounts of Info have also
been recorded.
NOTE 16 - DISCONTINUED OPERATIONS
With the return of the minority interest shares in Larson-Davis Info,
Inc. ("Info"), a consolidated subsidiary of the Company, the Board
of Directors decided, pursuant to a plan effective June 30, 1993, to
pursue the sale or licensing of the software technologies currently
owned by Info and Advantage Software, Inc., another wholly-owned
subsidiary of the Company.
<PAGE>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 16 - DISCONTINUED OPERATIONS [Continued]
This decision to discontinue the development of wholesale and retail
markets by the Company dictates a reclassification in the
presentation of the net assets and operating results surrounding
these technologies according to generally accepted accounting
principles (GAAP) and more particularly, APB Opinion #30. As a
result, the balance sheets and statements of income presented in
these financial statements reflect a separation of the net assets of
these subsidiaries as of June 30, 1994 and operating results for the
fiscal year then ended, net of an extraordinary item (See Note 16),
with similar reclassifications for fiscal years ended June 30, 1993
and 1992 to conform with the current year's presentation.
Management has attempted throughout the fiscal year ended June 30,
1994 to locate a buyer for the technologies. The technology has
been reviewed by potentially interested parties. There are currently
no written agreements with respect to these assets. Consequently,
management has elected to reduce the carrying value the associated
assets in the financial statements to zero.
<PAGE>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 16 - DISCONTINUED OPERATIONS [Continued]
The following is a condensed, pro forma statement of operations that
reflects what the presentation would have been without the
reclassifications required by "discontinued operations" accounting
principles:
<TABLE>
<CAPTION>
Year Ended June 30,
1994 1993 1992
<S> <C> <C> <C>
Net Sales: $6,410,155 $7,292,546 $7,290,884
Cost of Goods Sold: (2,453,709) (2,745,837) (3,302,850)
Other Operating Expenses: (3,928,167) (3,747,597) (3,519,050)
Other Income (Expense): (162,672) 247,192) (250,542)
Minority Interest in Loss of
Subsidiary: - 83,889 131,873
Provision for Taxes: - (332,000) (19,140)
Net Income (loss): (134,393) 303,809 331,175
Earnings (loss) per Share: $ (.02) $ .05 $ .06
</TABLE>
Net sales related to these technologies for 1994, 1993 and 1992 were
$(2,430), $1,117,135 and $236,720, respectively. These amounts are
not included in net sales in the accompanying income statements.
Assets to be disposed of consisted of the following at June 30:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Cash and Receivables $ 105 $ 15,432
Inventories 33,593 37,798
Equipment 20,066 30,303
Product Technology and License Costs 2,103,223 2,344,700
Totals $2,156,987 $2,428,233
</TABLE>
Assets are shown at their book values.
<PAGE>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 17 - CONTINUING OPERATIONS
As shown in the financial statements, the Company incurred a net loss
of $1,868,151 for the year ended June 30, 1994. The loss is a result
of a one time write down of assets related to discontinued operations.
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles, which
contemplates continuation of the Company as a going concern.
The nature of the assets devalued in the discontinued operations had
not contributed significantly to the revenues or profitability of the
Company for the years presented in the financial statements. As
highlighted in the statements of income, the discontinued operations,
(prior to management's decision to discontinue) produced losses of
$(400,200), $(458,887) and $(412,418) for years 1994, 1993 and 1992,
respectively. The one time write down of capitalized assets
eliminates substantial amortization expense (a non-cash expense).
This linked with management's plan and subsequent actions to halt
labor expenditures should favorably affect future reporting years.
The Company has used minimal amounts of its working capital in the
past three years in the discontinued operations.
The Company as of June 30, 1994 had a current ratio of 1.1:1
indicating sufficient current assets to operate; and, there were long
term contracts (reported on the percentage-of-completion method) with
approximately $1,700,000 of revenues remaining to be recognized.
Order backlog for the Company's instrumentation subsequent to the
financial statement date was approximately $850,000, its highest
level in the past twelve months. Neither borrowing capabilities nor
dependence on revenues to meet current obligations rely on the assets
or business activities of the discontinued operations. In view of
these factors management believes the Company's operating and
financial requirements provide the opportunity for the Company to
maintain continue operations.
<PAGE>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 18 - ACQUISITION
On June 30, 1994, the Company completed the acquisition of
substantially all of the intangible assets of Technology Integration
Incorporated, a privately-held Massachusetts Corporation ["TII"] as
a purchase. The Company acquired TII's rights and obligations to
approximately 25 contracts for the installation, maintenance, and
support of airport noise monitoring systems. In addition, the
Company acquired all rights to the ANOMS Software developed by TII
for use in airport noise monitoring systems, a principal competitor
of the Company's own proprietary software. The Company also hired
10 former employees of TII who were an integral part of TII's airport
noise monitoring business. The Company intends to complete existing
contracts with ANOMS and then combine ANOMS and its own proprietary
software to produce an enhanced product.
Under the terms of the Acquisition Agreement, as amended, the cost
of the acquired assets were $2,508,541. The Company paid $100,000 to
reduce TII's obligation to its principal bank, delivered $267,380 in
cash to TII at closing, and assumed the obligation of TII with
respect to a promissory note (the "Note") in the principal amount of
$950,000. The Note bears interest at 9% per annum, requires monthly
principal and interest payments of $30,210, and is due and payable
on or before September 30, 1994. The note was acquired by the
majority shareholder of TII from TII's principal bank and represents
the remainder of the obligation of TII to such bank. The company
paid this shareholder $20,000 to cover his expenses in connection
with the acquisition of the Note and granted the shareholder a
warrant to purchase, at a purchase price of $0.001 per share, shares
of common stock of the Company having a fair market value equal to
1% of the unpaid principal balance of the Note for each month the
Note remains outstanding subsequent to September 30, 1994. In
addition, the Company assumed $471,675 of the accounts payable
$28,771 of other payables, $22,424 of accrued liabilities of TII,
forgave receivables from TII of $306,177 and issued a note payable
of $250,000 to TII bearing interest of 8% that is payable over an
18 month period. The Company is currently seeking to arrange
financing to retire the Notes, to pay off these liabilities assumed
from TII, and to provide working capital for the acquired business.
The Company has also capitalized $92,114 of costs related to the
acquisition. There was no "goodwill" recorded on the purchase.
<PAGE>
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 18 - ACQUISITION [Continued]
During the quarter ended March 31, 1994, the Company purchased all
of the outstanding common shares of Industrial & Marine Acoustics,
Ltd. [IMA], a corporation chartered in England, for a cash payment
of 6,000 British pounds (approximately $9,300). IMA was formerly
an independent sales representative of the Company for Great Britain.
The purchase was effective March 8, 1994. As of that date, IMA had
negative net assets of approximately $(133,000), giving rise to the
"goodwill" recorded on the company's balance sheet at March 31, 1994.
The "goodwill" is amortized over 10 years. The balance sheet as of
March 31, 1994 for this subsidiary has been consolidated with the
rest of the Company, and operations for the month of March 1994 have
been reflected in the consolidated statement of operations.
Subsequently, management renamed the British subsidiary Larson-Davis,
Ltd. and plans to develop an expanded service and repair center to
serve the European Community.
The following are the [Unaudited] Condensed Combined Pro forma
Statement of Operations that reflects what the presentation would
have been if the purchase of the acquired assets of TII and the
purchase of IMA had occurred at the beginning of the respective
periods.
<TABLE>
<CAPTION>
For the Year For the Year
Ended Ended
June 30, June 30,
1994 1993
<S> <C> <C>
Revenue $8,178,002 $11,437,316
Income from Operations
Before Extraordinary Items (1,546,500) (785,852)
Net Income (3,616,695) (612,862)
Earnings Per Share (.66) (.11)
</TABLE>
<PAGE>
TABLE OF CONTENTS
Section Page LARSON DAVIS
INCORPORATED
Prospectus Summary 3
Risk Factors 5
Use of Proceeds 7
Dividends 7
Market for Common Equity and Related
Stockholder Matters 8
Dilution 9
Selected Financial Data 10 1,555,000 Shares
Management's Discussion and Analysis of Common Stock
of Financial Condition and Results
of Operations 11
Business 14
Directors and Executive Officers 20
Commission Position of
Indemnification for Securities
Act Liabilities 22
Principal Shareholders 23
Certain Transactions 25
Description of Securities 25
Plan of Distribution 27
Selling Shareholders 29
Legal Matters 30 PROSPECTUS
Experts 30
Additional Information 30
Index to Financial Statements F-1 ___________, 1995
No dealer, salesman, or other person has been authorized in connection
with this offering to give any information or to make any
representation other than as contained in this Prospectus and, if
made, such information or representation must not be relied on as
having been authorized by the Company. This Prospectus does not
constitute an offer to sell or the solicitation of an offer to buy any
securities covered by this Prospectus in any state or other
jurisdiction to any person to whom it is unlawful to make such offer
or solicitation in such state or jurisdiction.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 78.037 of the Nevada corporations law and "ARTICLE VII.
INDEMNIFICATION OF DIRECTORS AND OFFICERS" of the Registrant's
articles of incorporation provide for indemnification of the
Registrant's directors and officers in a variety of circumstances,
which may include liabilities under the Securities Act of 1933, as
amended.
Insofar as indemnification for liabilities arising under the
Securities Act of 1993 may be permitted to directors, officers, and
controlling persons pursuant to the foregoing provisions, the
Registrant has been informed that in the opinion of the Securities and
Exchange Commission such indemnification is contrary to public policy
as expressed in the Securities Act and, therefore, is unenforceable.
(See "ITEM 28. UNDERTAKINGS.")
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the estimated expenses in connection with the
distribution of the securities being registered:
Securities and Exchange Commission registration fee $ 2,011
Legal fees 17,500
State "blue sky" fees and expenses
(including attorneys' fees) 2,000
Accounting fees and expenses 7,500
Printing expenses 2,000
Listing fees 8,750
Total $39,761
<PAGE>
All expenses, except the SEC fees, are estimates.
The Selling Shareholders will not bear any portion of the foregoing
expenses, but will pay fees in connection with the sale of the Common
Stock offered hereby in those transactions completed to or through
securities broker and/or dealers in the form of markups, markdowns, or
commissions.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Securities Transactions
During the three years last preceding the filing of this registration
statement, the Registrant issued the following securities without
registration under the Securities Act of 1933:
In April, May, and June of 1994, the Registrant sold 381,122 shares of
its Common Stock to three investors, Chapul Limited, Newsun Limited,
and Capital International Fund Limited for aggregate gross proceeds of
$1,070,000, with associated offering costs of $175,381.
In October and November 1994, the Registrant sold an additional
244,000 shares of its Common Stock to three purchasers, Capital
International Fund Limited, Liam Development, and Giuseppe Gugliotta,
for aggregate gross proceeds of $427,000, less associated costs of
approximately $34,000. These issuances were not underwritten.
The foregoing transactions were completed in reliance on Regulation S
adopted pursuant to the Securities Act. Each investor was provided
with business and financial information respecting the Registrant and
was provided with the opportunity to obtain additional information in
order to verify the information provided or to further inform
themselves regarding the Registrant.
<PAGE>
Each of the entities and individuals involved in the transactions
provided assurances to the Company that he or it was a non-United
States person, was not organized under the laws of the United States
or for the purpose of investing in Regulation S securities, was
outside the United States at the time the buy order was originated,
had not received an offer to purchase the shares while in the United
States, had not been the subject of any selling efforts in the United
States, was acquiring the shares for his or its own account for
investment purposes and not with a view toward distribution, and would
make all subsequent offers and sales of the shares in compliance with
Regulation S, pursuant to a registration under the Securities Act, or
pursuant to an available exemption from such registration
requirements. The certificates representing these shares bore a
legend indicating that they had been sold pursuant to Regulation S and
prohibiting the transfer to a United States person for a minimum of 40
days subsequent to the sale.
In May 1995, the Registrant sold 370,000 shares of Common Stock,
warrants to acquire 500,000 shares of Common Stock at any time prior
to April 7, 1996, at an exercise price of $2.50 per share, and
warrants to acquire 500,000 shares of Common Stock at any time prior
to April 7, 1997, at an exercise price of $3.50 per share. These
securities were sold to the Private Placement Investors identified as
Selling Shareholders in this registration statement, for aggregate
gross proceeds of $601,250.
The Registrant issued 200,000 shares of its 1995 Series Preferred
Stock to Summit Enterprises, Inc., of Virginia, in May 1995 in
exchange for the satisfaction of $500,000 in principal obligation of a
promissory note due to Summit from the Registrant.
The Registrant issued 30,500 shares of its Common Stock to Brigham
Young University in February 1995 in satisfaction of a contractual
obligation.
The securities issued in the three foregoing transactions were issued
in reliance on the exemptions from the registration and prospectus
delivery requirements of the Securities Act provided in section 4(2) and
4(6) thereof and/or Regulation D promulgated thereunder.
Each purchaser was provided with business and financial information
respecting the Registrant and was provided with the opportunity to
obtain additional information in order to verify the information
provided or to further inform themselves respecting the Registrant.
<PAGE>
Each of the persons acquiring such securities acknowledged in writing
that he, she, or it was obtaining "restricted securities" as defined
in rule 144 under the Securities Act; that such shares could not be
transferred without registration or an available exemption therefrom;
that he, she, or it must bear the economic risk of the investment for
an indefinite period; and that the Registrant would restrict the
transfer of the securities in accordance with such representations.
Such persons also agreed that any certificates representing such
shares would be stamped with a restrictive legend covering the
transfer of such shares. The certificates representing the foregoing
shares bear an appropriate restrictive legend conspicuously on their
face, and stop transfer instructions are noted on the Registrant's
stock transfer records.
A notice on form D was filed with the Securities and Exchange
Commission with respect to the issuances to the Private Placement
Investors and Summit Enterprises, Inc.
ITEM 27. EXHIBITS
Copies of the following documents are included as exhibits to this
Registration Statement, pursuant to item 601 of regulation S-K. The
index to exhibits required by such item appears at page ___.
SEC
Exhibit Reference
No. No. Title of Document Location
1 (3) Articles of Incorporation, Exhibit to report
as amended on form 10-K for
November 3, 1987 the year ended
June 30, 1988*
2 (3) Certificate of Amendment Exhibit to report
Articles of Incorporation on form 10-K for
the year ended
June 30, 1989*
3 (3) Designation of Rights, This Filing
Privileges, and Preferences
of 1995 Series Preferred
Stock
<PAGE>
SEC
Exhibit Reference
No. No. Title of Document Location
4 (3) Bylaws Registration
Statement filed
on form S-18,
Exhibit 5, SEC
File No.
33-3365-D*
5 (4) Form of $2.50 Warrant This Filing
Agreement with list of
investors
6 (4) Form of $3.50 Warrant This Filing
Agreement with list of
investors
7 (5) Opinion of Kruse, Landa & This Filing
Maycock, L.L.C. regarding
legality of Common Stock
Agreements relating to
research and development
work performed by the
Company in 1983 for two
unrelated funding entities
8 (10) (a) Purchase Option Exhibit to report
Agreement between on form 10-K for
Larson Davis, the year ended
Laboratories and LDL June 30, 1988*
Research and Development,
dated August 31, 1983
9 (10) (b) License Option Exhibit to report
Agreement between on form 10-K for
Larson Davis the year ended
Laboratories and LDL June 30, 1988*
Research and Development,
Ltd., dated August 31,
1983
<PAGE>
SEC
Exhibit Reference
No. No. Title of Document Location
10 (10) (c) Cross License Option Exhibit to report
between Larson Davis on form 10-K for
Laboratories and LDL the year ended
Research and June 30, 1988*
Development II, Ltd.,
dated November 21, 1983
11 (10) (d) Purchase Option between Exhibit to report
Larson Davis on form 10-K for
Laboratories and LDL the year ended
Research and Development June 30, 1988*
II, Ltd., dated
November 21, 1983
12 (10) 1987 Stock Option Plan Exhibit to report
of Larson Davis on form 10-K for
the year ended
June 30, 1988*
13 (10) Exclusive License Exhibit to report
Agreement between ASI on from 10-Q for
and MRP.PAX, Inc. dated quarter ended
November 27, 1989 December 31, 1989*
14 (10) Amendment to Technology Exhibit to report
License Agreement and on form 10-Q for
Termination of Stock the quarter ended
Purchase Agreement March 31, 1993*
between LD Info, Inc.,
Larson Davis
Incorporated, and
Commerce Clearing
House, Inc., dated
December 31, 1992
15 (10) 1991 Employee Stock Exhibit to report
Award Plan of Larson on form 10-K for
Davis Incorporated the year ended
June 30, 1992*
<PAGE>
SEC
Exhibit Reference
No. No. Title of Document Location
16 (10) 1991 Director Stock Exhibit to report
Option and Stock on form 10-K for
Award Plan of Larson the year ended
Davis Incorporated June 30, 1992*
17 (10) Acquisition Agreement Incorporated by
by and between Larson Reference from
Davis Laboratories and report on form
Technology Integration 8-K dated
Incorporated, dated March 18, 1994*
March 18, 1994
18 (10) First Amendment to Incorporated by
Acquisition Agreement Reference from
dated March 28, 1994 report on form
8-K dated
June 30, 1994*
19 (10) Second Amendment to Incorporated by
Acquisition Agreement Reference from
dated June 16, 1994 report on form
8-K dated
June 30, 1994*
20 (10) Agreement between This Filing
Larson Davis
Laboratories and Summit
Enterprises, Inc.,
of Virginia dated
May 24, 1995
21 (21) Subsidiaries of Larson This Filing
Davis Incorporated
22 (23) Consent of Peterson, This Filing
Siler & Stevenson
23 (23) Consent of Kruse, Landa
& Maycock, L.L.C. See Exhibit No. 7
_____________________
*Incorporated by reference
<PAGE>
ITEM 28. UNDERTAKINGS
Post-Effective Amendments. [Regulation S-B, Item 512(a)]
The undersigned Registrant will:
(1) File, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement to:
(a) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(b) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the Registration Statement; and
(c) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new Registration Statement of the
securities offered, and the offering of the securities at that time to
be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
Indemnification. [Regulation S-B, Item 512(e)]
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers, and controlling persons of the small business issuer
pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
<PAGE>
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses
incurred or paid by a director, officer, or controlling person of the
small business issuer in the successful defense of any action, suit,
or proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, the small
business issuer will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
Rule 430. [Regulation S-B, Item 512(f)]
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part
of this preliminary prospectus in reliance on rule 430A and contained
in the form of prospectus filed by the Registrant pursuant to rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this preliminary prospectus of the time it was declared
effective.
(2) For the purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on form SB-2
and has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of
Provo, state of Utah, on the 5th day of June, 1995.
LARSON DAVIS INCORPORATED
(Registrant)
By /s/ Brian G. Larson
Brian G. Larson, President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Brian G. Larson and Dan J.
Johnson, and each of them, with power of substitution, as his or her
attorney-in-fact for him or her, in all capacities, to sign any
amendments to this Registration Statement and to file the same with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming
all that said attorney-in-fact or his substitutes may do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the
capacities indicated and on the 5th day of June, 1995.
/s/ Brian G. Larson
Brian G. Larson, Director and President
(Principal Executive Officer)
/s/ Larry J. Davis
Larry J. Davis, Director and Vice-President
/s/ Dan J. Johnson
Dan J. Johnson, Director and Vice-President, Secretary,
and Treasurer (Principal Financial and Accounting Officer)
<PAGE>
Date Filed: June 5, 1995 SEC File No. __________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
THE
REGISTRATION STATEMENT
ON FORM SB-2
UNDER
THE SECURITIES ACT OF 1933
LARSON DAVIS INCORPORATED
<PAGE>
EXHIBIT INDEX
The following are exhibits to the registration statement on form
SB-2 of Larson Davis Incorporated:
SEC
Exhibit Reference
No. No. Title of Document Location
1 (3) Articles of Incorporation, Exhibit to report
as amended on form 10-K for
November 3, 1987 the year ended
June 30, 1988*
2 (3) Certificate of Amendment Exhibit to report
Articles of Incorporation on form 10-K for
the year ended
June 30, 1989*
3 (3) Designation of Rights, This Filing
Privileges, and Preferences
of 1995 Series Preferred
Stock
4 (3) Bylaws Registration
Statement filed
on form S-18,
Exhibit 5, SEC
File No.
33-3365-D*
5 (4) Form of $2.50 Warrant This Filing
Agreement with list of
investors
6 (4) Form of $3.50 Warrant This Filing
Agreement with list of
investors
7 (5) Opinion of Kruse, Landa & This Filing
Maycock, L.L.C. regarding
legality of Common Stock
<PAGE>
SEC
Exhibit Reference
No. No. Title of Document Location
Agreements relating to
research and development
work performed by the
Company in 1983 for two
unrelated funding entities
8 (10) (a) Purchase Option Exhibit to report
Agreement between on form 10-K for
Larson Davis, the year ended
Laboratories and LDL June 30, 1988*
Research and Development,
dated August 31, 1983
9 (10) (b) License Option Exhibit to report
Agreement between on form 10-K for
Larson Davis the year ended
Laboratories and LDL June 30, 1988*
Research and Development,
Ltd., dated August 31,
1983
10 (10) (c) Cross License Option Exhibit to report
between Larson Davis on form 10-K for
Laboratories and LDL the year ended
Research and June 30, 1988*
Development II, Ltd.,
dated November 21, 1983
11 (10) (d) Purchase Option between Exhibit to report
Larson Davis on form 10-K for
Laboratories and LDL the year ended
Research and Development June 30, 1988*
II, Ltd., dated
November 21, 1983
12 (10) 1987 Stock Option Plan Exhibit to report
of Larson Davis on form 10-K for
the year ended
June 30, 1988*
<PAGE>
SEC
Exhibit Reference
No. No. Title of Document Location
13 (10) Exclusive License Exhibit to report
Agreement between ASI on from 10-Q for
and MRP.PAX, Inc. dated quarter ended
November 27, 1989 December 31, 1989*
14 (10) Amendment to Technology Exhibit to report
License Agreement and on form 10-Q for
Termination of Stock the quarter ended
Purchase Agreement March 31, 1993*
between LD Info, Inc.,
Larson Davis
Incorporated, and
Commerce Clearing
House, Inc., dated
December 31, 1992
15 (10) 1991 Employee Stock Exhibit to report
Award Plan of Larson on form 10-K for
Davis Incorporated the year ended
June 30, 1992*
16 (10) 1991 Director Stock Exhibit to report
Option and Stock on form 10-K for
Award Plan of Larson the year ended
Davis Incorporated June 30, 1992*
17 (10) Acquisition Agreement Incorporated by
by and between Larson Reference from
Davis Laboratories and report on form
Technology Integration 8-K dated
Incorporated, dated March 18, 1994*
March 18, 1994
18 (10) First Amendment to Incorporated by
Acquisition Agreement Reference from
dated March 28, 1994 report on form
8-K dated
June 30, 1994*
<PAGE>
SEC
Exhibit Reference
No. No. Title of Document Location
19 (10) Second Amendment to Incorporated by
Acquisition Agreement Reference from
dated June 16, 1994 report on form
8-K dated
June 30, 1994*
20 (10) Agreement between This Filing
Larson Davis
Laboratories and Summit
Enterprises, Inc.,
of Virginia dated
May 24, 1995
21 (21) Subsidiaries of Larson This Filing
Davis Incorporated
22 (23) Consent of Peterson, This Filing
Siler & Stevenson
23 (23) Consent of Kruse, Landa
& Maycock, L.L.C. See Exhibit No. 7
_____________________
*Incorporated by reference
LARSON DAVIS INCORPORATED
DESIGNATION OF RIGHTS, PRIVILEGES, AND PREFERENCES OF
1995 SERIES PREFERRED STOCK
Pursuant to the provisions of Nevada Revised Statutes, section 78.195,
of the corporation laws of the state of Nevada, the undersigned
corporation hereby adopts the following Designation of Rights,
Privileges, and Preferences of 1995 Series Preferred Stock (the
"Designation"):
FIRST: The name of the Corporation is Larson Davis Incorporated.
SECOND: The following resolution establishing a series of preferred
stock designated as the "1995 Series Preferred Stock" consisting of
200,000 shares, par value $0.001, was duly adopted by the board of
directors of the Corporation on May 26, 1995, in accordance with the
articles of incorporation of the Corporation and the corporation laws
of the state of Nevada:
RESOLVED, there is hereby created a series of preferred stock of the
Corporation to be designated as the "1995 Series Preferred Stock"
consisting of 200,000 shares, par value $0.001, with the following
powers, preferences, rights, qualifications, limitations, and
restrictions:
1. Liquidation.
1.01 In the event of any voluntary or involuntary liquidation
(whether complete or partial), dissolution, or winding up of the
Corporation, the holders of the 1995 Series Preferred Stock shall be
entitled to be paid out of the assets of the Corporation available for
distribution to its shareholders, whether from capital, surplus, or
earnings, an amount in cash equal to $2.50 per share plus all unpaid
dividends, whether or not previously declared, accrued thereon to the
date of final distribution. No distribution shall be made on any
common stock of the Corporation, par value $0.001 (the "Common
Stock"), or other subsequently authorized series of preferred stock of
the Corporation by reason of any voluntary or involuntary liquidation
(whether complete or partial), dissolution, or winding up of the
<PAGE>
Corporation unless each holder of any 1995 Series Preferred Stock
shall have received all amounts to which such holder shall be entitled
under this subsection 1.01.
1.02 If on any liquidation (whether complete or partial),
dissolution, or winding up of the Corporation, the assets of the
Corporation available for distribution to holders of 1995 Series
Preferred Stock shall be insufficient to pay the holders of
outstanding 1995 Series Preferred Stock the full amounts to which they
otherwise would be entitled under subsection 1.01, the assets of the
Corporation available for distribution to holders of 1995 Series
Preferred Stock shall be distributed to them pro rata on the basis of
the number of shares of 1995 Series Preferred Stock held by each such
holder.
2. Voting Rights. The 1995 Series Preferred Stock shall be voted
with the Common Stock as a single class and shall not be entitled to
vote as a separate class, except to the extent that the consent of the
holders of the 1995 Series Preferred Stock, voting as a class, is
specifically required by the provisions of the corporation laws of the
state of Nevada, as now existing or as hereafter amended. Each holder
of 1995 Series Preferred Stock shall be entitled to one vote for each
share of such stock held by him or her.
3. Dividends.
3.01 The Corporation shall pay to the holders of the 1995 Series
Preferred Stock out of the assets of the Corporation dividends at the
times and in the amounts provided for in this section 3.
3.02 The cumulative annual dividend rate for each share of 1995
Series Preferred Stock shall be $0.225, payable in monthly
installments with the first such installment due payable on June 1,
1995. All dividends shall be paid in cash. Dividends not paid when
due shall cumulate but shall not bear interest.
3.03 Any payment of dividends declared and due under this
section 3 with respect to any shares of 1995 Series Preferred Stock
shall be made by means of a check drawn on funds immediately available
for the payment thereof to the order of the record holder of such
shares at the address for such record holder shown on the stock
records maintained by or for the Corporation, which check shall be
mailed by United States first class mail, postage prepaid. Any such
payment shall be deemed to have been paid by the Corporation on the
date that such payment is deposited in the United States mail as
provided above;
<PAGE>
provided, that in the event the check by which any payment shall be
made shall prove not to be immediately collectible on the date of
payment, such payment shall not be deemed to have been made until cash
in the amount of such payment shall actually be received by the person
entitled to receive such payment.
3.04 No dividend or other distribution shall be declared or paid
or set apart for payment on any stock ranking, as to dividends or upon
liquidation, junior to the 1995 Series Preferred Stock, including,
without limitation, the shares of the Common Stock, for any period
unless the holders of the 1995 Series Preferred Stock shall have then
been or contemporaneously are paid (or declared and a sum sufficient
for the payment thereof set apart for such payment) all dividends for
all periods terminating on or prior to the date of payment of the
distribution on such junior stock.
3.05 Registration of transfer of any shares of 1995 Series
Preferred Stock on the stock records maintained by or for the
Corporation to a person other than the transferor shall constitute a
transfer of any right which the transferor may have had to receive any
accrued but unpaid dividends as of the date of transfer, whether
declared or undeclared, and the Corporation shall have no further
obligation to the transferor with respect to such accrued and unpaid
dividends. Any shares of 1995 Series Preferred Stock represented by a
new certificate issued to a new holder shall continue to accrue
dividends as provided in this section 3.
4. Conversion.
4.01 Each share of 1995 Series Preferred Stock is convertible
into Common Stock at the times, in the manner, and subject to the
conditions provided in this section 4.
4.02 Each share of 1995 Series Preferred Stock may be converted
at any time after May 31, 1995, at the election of the holder on the
presentation and surrender of the certificate representing the share,
duly endorsed, with written instructions specifying the number of
shares of 1995 Series Preferred Stock to be converted and the name and
address of the person to whom certificate(s) representing the Common
Stock issuable on conversion are to be issued at the principal office
of the Corporation.
<PAGE>
4.03 Each share of 1995 Series Preferred Stock shall be
convertible into Common Stock of the Corporation at the rate of that
number of shares of Common Stock that is equal to $3.00 divided by an
amount equal to the average of the closing bid prices for the Common
Stock for the twenty (20) consecutive trading days immediately prior
to the date that the holder provides notice of such conversion to the
Corporation pursuant to subsection 4.02, as reported on the Nasdaq
Stock Market or, if not quoted on Nasdaq or listed on an exchange, as
reported on the electronic bulletin board maintained by the NASD, or
if not on the electronic bulletin board, on any other reliable medium
of quotation (the "Conversion Rate").
4.04 The Corporation covenants and agrees that:
(a) The shares of Common Stock issuable on any conversion of any
shares of 1995 Series Preferred Stock shall have been deemed to have
been issued to the person on the Conversion Date, and on the
Conversion Date, such person shall be deemed for all purposes to have
become the record holder of such Common Stock.
(b) All shares of Common Stock which may be issued on any
conversion of the 1995 Series Preferred Stock will, on issuance, be
fully paid and nonassessable and free from all taxes, liens, and
charges with respect to the issuance thereof.
(c) The issuance of certificates for Common Stock on conversion
of the 1995 Series Preferred Stock shall be made without charge to the
registered holder thereof for any issuance tax in respect thereof or
other costs incurred by the Corporation in connection with the
conversion of the 1995 Series Preferred Stock and the related issuance
of Common Stock or other securities.
5. Redemption.
5.01 Subject to the requirements and limitations of the
corporation laws of the state of Nevada, the Corporation shall have
the right to redeem shares of 1995 Series Preferred Stock on the
following terms and conditions.
<PAGE>
5.02 Shares of 1995 Series Preferred Stock are subject to
redemption by the Corporation at any time subsequent to the six month
anniversary of the effective date of a registration statement covering
the resale of Common Stock issued or issuable on conversion of the
1995 Series Preferred Stock, as referred to below in section 6,
pursuant to written notice of redemption given to the holders thereof
not less than 30 days' prior to the redemption, specifying the date on
which the 1995 Series Preferred Stock shall be redeemed (the
"Redemption Date"). Subsequent to notice of redemption and prior to
the Redemption Date, shares of 1995 Series Preferred Stock may still
be converted to Common Stock pursuant to section 4. The Corporation
may redeem a portion or all of the issued and outstanding shares of
1995 Series Preferred Stock; provided that, in the event that less
than all of the outstanding shares of 1995 Series Preferred Stock are
redeemed, such redemption shall be pro rata determined on the basis of
the number of shares of 1995 Series Preferred Stock held by each
holder reflected on the stock records and the total number of shares
of 1995 Series Preferred Stock outstanding.
5.03 The redemption price for each share of 1995 Series
Preferred Stock shall be $2.50 per share plus any accrued but unpaid
dividends, if applicable, on such share as of the Redemption Date (the
"Redemption Price"). The Redemption Price shall be paid in cash.
5.04 Redemption of the 1995 Series Preferred Stock shall be made
in the following manner:
(a) The Corporation shall notify the transfer agent of the
Corporation's Common Stock (the "Transfer Agent"), of its intention to
redeem the 1995 Series Preferred Stock. Such notice shall include a
list of all holders of 1995 Series Preferred Stock outstanding as of
the most recent practicable date and a statement of the number of
shares of 1995 Series Preferred Stock to be redeemed and the manner in
which the Redemption Price is to be paid. At least ten days prior to
the date that written notice of redemption is given to the holders of
the 1995 Series Preferred Stock, the Corporation shall make
appropriate arrangements with the Transfer Agent for the delivery of
funds necessary to make payment of the Redemption Price for all shares
of 1995 Series Preferred Stock redeemed by the Corporation.
<PAGE>
(b) On the Redemption Date, all shares of 1995 Series Preferred
Stock subject to redemption shall be automatically redeemed unless
earlier converted pursuant to section 4. The holder of any shares of
1995 Series Preferred Stock so redeemed shall be required to tender
the certificates representing such shares, duly endorsed, to the
Transfer Agent in exchange for payment of the Redemption Price. On
such surrender, the Transfer Agent shall cause to be issued and
delivered a check with all reasonable dispatch to the holder and in
such name or names as the holder may designate.
(c) The Transfer Agent shall periodically, but not less
frequently than monthly, provide to the Corporation an accounting of
the 1995 Series Preferred Stock tendered for redemption and the funds
disbursed pursuant thereto. Following the expiration of a period of
120 days following the Redemption Date, the Transfer Agent shall
provide to the Corporation a complete accounting of the 1995 Series
Preferred Stock redeemed and a list of all shares of 1995 Series
Preferred Stock remaining unconverted and not returned to the
Corporation for redemption. Any certificates representing 1995 Series
Preferred Stock received by the Transfer Agent subsequent to the
return of funds to the Corporation will be promptly delivered to the
Corporation. The Corporation shall pay all costs associated with
establishing and maintaining any bank accounts for funds deposited
with the Transfer Agent, including the costs of issuing any check.
6. Registration Rights. The Corporation shall immediately proceed
to file a registration statement with the Securities and Exchange
Commission registering the resale of the Common Stock issuable or
issued on conversion of the 1995 Series Preferred Stock (the
"Conversion Stock") (but not the 1995 Series Preferred Stock itself)
and shall thereafter diligently use its commercially reasonable best
efforts to seek the effectiveness of such registration statement and
to keep such registration statement effective for a period of two
years. The holder shall furnish to the Corporation in writing such
information, and enter into such agreements as the Corporation may
reasonably request from such holder, all as may be required in
connection with the registration described in this section or in
compliance with applicable state securities laws. All expenses of
such registration, other than commissions or fees paid on the resale
of the Common Stock by the holder, shall be paid by the Corporation.
<PAGE>
7. Put Rights. In the event that the Corporation has not obtained
the effectiveness of the registration statement as set forth in
section 6 on or before August 30, 1995, the holder shall have the
right to require the Corporation, on 30 days prior written notice to
the Corporation, to purchase all, but not less than all, of the shares
of the 1995 Series Preferred Stock on the terms set forth in that
certain Agreement between the Corporation and Summit Enterprises,
Inc., of Virginia, dated May 24, 1995.
8. Mandatory Conversion. At any time subsequent to August 30,
1995, the Corporation can convert the shares of 1995 Series Preferred
Stock into shares of Common Stock, at the conversion rate set forth in
section 4, by providing 30 days prior written notice to the holder;
provided that, the registration statement described in section 6 is
current and effective both at the date of the notice and the date on
which the 1995 Series Preferred Stock is converted.
9. Additional Provisions.
9.01 No change in the provisions of the 1995 Series Preferred
Stock set forth in this Designation affecting any interests of the
holders of any shares of 1995 Series Preferred Stock shall be binding
or effective unless such change shall have been approved or consented
to by the holders of a majority of the 1995 Series Preferred Stock in
the manner provided in the corporation laws of the state of Nevada, as
the same may be amended from time to time.
9.02 The 1995 Series Preferred Stock is a "restricted security"
and, consequently, will be subject to the restrictions on transfer set
forth in the Securities Act and the rules and regulations promulgated
thereunder. In addition, the 1995 Series Preferred Stock will be
subject to restrictions on transfer under applicable state securities
laws under which such securities are sold in reliance on certain
exemptions or under the provisions of certain qualifications. In the
event that a Holder wishes to transfer the 1995 Series Preferred
Stock, such holder must establish prior to transfer, to the
satisfaction of the Corporation and its counsel, that all of the
requirements necessary to effect such a transfer have been satisfied.
A share of 1995 Series Preferred Stock shall be transferable only on
the books of the Corporation by delivery of the original certificate
representing such shares duly endorsed by the holder or by his duly
authorized attorney or representative or accompanied by proper
evidence of succession, assignment, or authority to transfer. In all
cases of transfer by an attorney, the original letter of attorney,
duly approved, or an official copy thereof, duly certified, shall be
<PAGE>
deposited and remain with the Corporation. In case of transfer by
executors, administrators, guardians, or other legal representatives,
duly authenticated evidence of their authority shall be produced and
may be required to be deposited and remain with the Corporation in its
discretion. On any registration or transfer, the Corporation shall
deliver a new certificate representing the share of 1995 Series
Preferred Stock so transferred to the person entitled thereto.
9.03 The Corporation shall not be required to issue any
fractional shares of Common Stock on the conversion of any share of
1995 Series Preferred Stock. If any fraction of a share of Common
Stock would, except for the provisions of this subsection 7.03, be
issuable on the conversion of any shares of 1995 Series Preferred
Stock, the Corporation shall round the number of shares of Common
Stock issuable on the conversion to the nearest whole share.
9.04 Any notice required or permitted to be given to the holders
of the 1995 Series Preferred Stock under this Designation shall be
deemed to have been duly given if mailed by first class mail, postage
prepaid, to such holders at their respective addresses appearing on
the stock records maintained by or for the Corporation and shall be
deemed to have been given as of the date deposited in the United
States mail.
IN WITNESS WHEREOF, the foregoing Designation of Rights, Privileges,
and Preferences of 1995 Series Preferred Stock of the Corporation has
been executed this 26th day of May, 1995.
ATTEST: LARSON DAVIS INCORPORATED
By /s/ Dan J. Johnson By /s/ Brian G. Larson
Dan J. Johnson, Secretary Brian G. Larson, President
<PAGE>
STATE OF UTAH )
:ss
COUNTY OF SALT LAKE )
On May 26, 1995, before me, the undersigned, a notary public in and
for the above county and state, personally appeared Brian G. Larson
and Dan J. Johnson, who being by me duly sworn, did state, each for
themselves, that he, Brian G. Larson is the president, and that he,
Dan J. Johnson is the secretary, of Larson Davis Incorporated, a
Nevada corporation, and that the foregoing Designation of Rights,
Privileges, and Preferences of 1995 Series Preferred Stock of Larson
Davis Incorporated was signed on behalf of such corporation by
authority of a resolution of its board of directors, and that the
statements contained therein are true.
WITNESS MY HAND AND OFFICIAL SEAL.
/s/
Notary Public
LARSON DAVIS INCORPORATED
(a Nevada corporation)
Warrant for the Purchase of
________ Shares of Common Stock, Par Value $0.001
THIS WARRANT WILL BE VOID
AFTER 11:59 P.M. MOUNTAIN TIME ON APRIL 7, 1996
This Warrant has not been registered under the Securities Act of 1933,
as amended (the "Securities Act"), and is a "restricted security"
within the meaning of Rule 144 promulgated under the Securities Act.
This Warrant has been acquired for investment and may not be sold or
transferred without complying with Rule 144 in the absence of an
effective registration or other compliance under the Securities Act.
This certifies that, for value received, __________________ (the
"Holder"), is entitled to subscribe for, purchase, and receive
____________ fully paid and nonassessable shares of common stock, par
value $0.001 (the "Warrant Shares"), of Larson Davis Incorporated, a
Nevada corporation (the "Company"), at the price of $2.50 per Warrant
Share (the "Exercise Price"), at any time or from time to time on or
before 11:59 p.m. mountain time on April 7, 1996 (the "Exercise
Period"), on presentation and surrender of this Warrant with the
purchase form attached hereto, duly executed, at the principal office
of the Company at 1681 West 820 North, Provo, Utah 84601, and by
paying in full and in lawful money of the United States of America by
cash or cashier's check, the Exercise Price for the Warrant Shares as
to which this Warrant is exercised, on all the terms and conditions
hereinafter set forth. The number of Warrant Shares to be received on
exercise of this Warrant and the Exercise Price may be adjusted on the
occurrence of such events as described herein. If the subscription
rights represented hereby are not exercised by 11:59 p.m. mountain
time on April 7, 1996, this Warrant shall automatically become void
and of no further force or effect, and all rights represented hereby
shall cease and expire.
Subject to the terms set forth herein, this Warrant may be exercised
by the Holder in whole or in part by execution of the form of exercise
attached hereto and payment of the Exercise Price in the manner
described above.
<PAGE>
1. Exercise of Warrants. On the exercise of all or any portion of
this Warrant in the manner provided above, the Holder exercising the
same shall be deemed to have become a holder of record of the Warrant
Shares for all purposes, and certificates for the securities so
purchased shall be delivered to the Holder within a reasonable time,
but in no event longer than ten days after this Warrant shall have
been exercised as set forth above. If this Warrant shall be exercised
in respect to only a part of the Warrant Shares covered hereby, the
Holder shall be entitled to receive a similar Warrant of like tenor
and date covering the number of Warrant Shares with respect to which
this Warrant shall not have been exercised. On the exercise of all or
any portion of this Warrant, at the instruction of the Holder, the
Company shall offset any amounts due by it to Holder against payment
of the exercise price for the Warrants.
2. Limitation on Transfer. Subject to the restrictions set forth in
paragraph 7 hereof, this Warrant is transferable at the offices of the
Company. In the event this Warrant is assigned in the manner provided
herein, the Company, upon request and upon surrender of this Warrant
by the Holder at the principal office of the Company accompanied by
payment of all transfer taxes, if any, payable in connection
therewith, shall transfer this Warrant on the books of the Company.
If the assignment is in whole, the Company shall execute and deliver a
new Warrant or Warrants of like tenor to this Warrant to the
appropriate assignee expressly evidencing the right to purchase the
aggregate number of shares of common stock purchasable hereunder; and
if the assignment is in part, the Company shall execute and deliver to
the appropriate assignee a new Warrant or Warrants of like tenor
expressly evidencing the right to purchase the portion of the
aggregate number of Warrant Shares as shall be contemplated by any
such transfer, and shall concurrently execute and deliver to the
Holder a new Warrant of like tenor to this Warrant evidencing the
right to purchase the remaining portion of the Warrant Shares
purchasable hereunder which have not been transferred to the assignee.
3. Exchange of Warrants. This Warrant is exchangeable, on the
presentation and surrender hereof by the Holder at the office of the
Company, for a new Warrant or Warrants of like tenor representing in
the aggregate the right to subscribe for and purchase the number of
Warrant Shares which may be subscribed for and purchased hereunder.
<PAGE>
4. Fully Paid Shares. The Company covenants and agrees that the
Warrant Shares which may be issued on the exercise of the rights
represented by this Warrant will be, when issued, fully paid and
nonassessable and free from all taxes, liens, and charges with respect
to the issue thereof. The Company further covenants and agrees that
during the period within which the rights represented by this Warrant
may be exercised, the Company will have authorized and reserved a
sufficient number of shares of common stock to provide for the
exercise of the rights represented by this Warrant.
5. Antidilution Provisions. The Warrant Price and number of Warrant
Shares purchasable pursuant to this Warrant may be subject to
adjustment from time to time as follows:
(a) If the Company shall take a record of the holders of its
common stock for the purpose of entitling them to receive a dividend
in shares, the Warrant Price in effect immediately prior to such
record date shall be proportionately decreased, such adjustment to
become effective immediately after the opening of business on the day
following such record date.
(b) If the Company shall subdivide the outstanding shares of
common stock into a greater number of shares, combine the outstanding
shares of common stock into a smaller number of shares, or issue by
reclassification any of its shares, the Warrant Price in effect
immediately prior thereto shall be adjusted so that the Holder of this
Warrant thereafter surrendered for exercise shall be entitled to
receive, after the occurrence of any of the events described, the
number of Warrant Shares to which the Holder would have been entitled
had such Warrant been exercised immediately prior to the occurrence of
such event. Such adjustment shall become effective immediately after
the opening of business on the day following the date on which such
subdivision, combination, or reclassification, as the case may be,
becomes effective.
(c) If any capital reorganization or reclassification of the
Company's common stock, or consolidation or merger of the Company with
another corporation or the sale of all or substantially all of its
assets to another corporation shall be effected in such a way that
holders of common stock shall be entitled to receive stock,
securities, or assets with respect to or in exchange for common stock,
then, as a condition of such reorganization, reclassification,
consolidation, merger, or sale, lawful adequate provisions shall be
made whereby the Holder of this Warrant shall thereafter have the
right to acquire and receive on exercise hereof such shares of stock,
securities, or
<PAGE>
assets as would have been issuable or payable (as part of the
reorganization, reclassification, consolidation, merger, or sale) with
respect to or in exchange for such number of outstanding common shares
of the Company as would have been received on exercise of this Warrant
immediately before such reorganization, reclassification,
consolidation, merger, or sale.
In any such case, appropriate provision shall be made with
respect to the rights and interests of the Holder of this Warrant to
the end that the provisions hereof shall thereafter be applicable in
relation to any shares of stock, securities, or assets thereafter
deliverable on the exercise of this Warrant. In the event of a merger
or consolidation of the Company with or into another corporation or
the sale of all or substantially all of its assets which results in
the issuance of a number of shares of common stock of the surviving or
purchasing corporation greater or less than the number of shares of
common stock of the Company outstanding immediately prior to such
merger, consolidation, or purchase are issuable to holders of common
stock of the Company, then the Warrant Price in effect immediately
prior to such merger, consolidation, or purchase shall be adjusted in
the same manner as though there was a subdivision or combination of
the outstanding shares of common stock of the Company. The Company
will not effect any such consolidation, merger, or sale unless prior
to the consummation thereof the successor corporation resulting from
such consolidation or merger or the corporation purchasing such assets
shall assume by written instrument mailed or delivered to the Holder
hereof at its last address appearing on the books of the Company, the
obligation to deliver to such Holder such shares of stock, securities,
or assets as, in accordance with the foregoing provisions, such Holder
may be entitled to acquire on exercise of this Warrant.
(d) If: (i) the Company shall take a record of the holders of
its shares of common stock for the purpose of entitling them to
receive a dividend payable otherwise than in cash, or any other
distribution in respect of the shares of common stock (including
cash), pursuant to, without limitation, any spin-off, split-off, or
distribution of the Company's assets; or (ii) the Company shall take a
record of the holders of its shares of common stock for the purpose of
entitling them to subscribe for or purchase any shares of any class or
to receive any other rights; or (iii) in the event of any
classification, reclassification, or other reorganization of the
shares which the Company is authorized to issue, consolidation or
merger of the Company with or into another corporation, or conveyance
of all or
<PAGE>
substantially all of the assets of the Company; or (iv) in the event
of the voluntary or involuntary dissolution, liquidation, or winding
up of the Company; then, and in any such case, the Company shall mail
to the Holder of this Warrant, at least 30 days prior thereto, a
notice stating the date or expected date on which a record is to be
taken for the purpose of such dividend, distribution or rights, or the
date on which such classification, reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation, or
winding up, as the case may be. Such notice shall also specify the
date or expected date, if any is to be fixed, as of which holders of
shares of common stock of record shall be entitled to participate in
such dividend, distribution, or rights, or shall be entitled to
exchange their shares of common stock for securities or other property
deliverable upon such classification, reclassification,
reorganization, consolidation, merger, conveyance, dissolution,
liquidation, or winding up, as the case may be.
(e) If the Company, at any time while this Warrant shall remain
unexpired and unexercised, sells shares of common stock to an
affiliate of the Company, excluding shares issued on the exercise of
options issued and outstanding as of the date hereof and shares issued
to officers and directors under stock option plans of the Company
existing as of the date hereof, at a price lower than the Exercise
Price provided herein, as the same may from time to time be adjusted
pursuant to this section 5, then the Exercise Price of these Warrants
shall be reduced automatically to such lower price at which the
Company has sold common stock.
(f) No fraction of a share shall be issued on exercise, but, in
lieu thereof, the Company, notwithstanding any other provision hereof,
may pay therefor in cash at the fair value of any such fractional
share at the time of exercise.
6. Disposition of Warrants or Warrant Shares. The registered owner
of this Warrant, by acceptance hereof, agrees for himself and any
subsequent owner(s) that, before any disposition is made of any
Warrant Shares, the owner(s) shall give written notice to the Company
describing briefly the manner of any such proposed disposition. No
such disposition shall be made unless and until:
(a) the Company has received an opinion from counsel for the
owner(s) of the Warrant Shares stating that no registration under the
Securities Act is required with respect to such disposition; or
<PAGE>
(b) a registration statement or post-effective amendment to a
registration statement under the Securities Act has been filed by the
Company and made effective by the Commission covering such proposed
disposition.
7. Registration of Warrant Shares. The Company shall use its best
efforts to file a registration statement under the Securities Act
within 20 days after the date hereof, but in any event shall file such
a registration statement within 40 days after the date hereof, to
register the Warrant Shares issuable on the exercise of this Warrant,
shall utilize its best efforts to cause such registration statement to
become effective as soon as is practicably possible, and shall
maintain the effectiveness of such registration statement for a period
of two years, unless the Company's legal counsel is of the reasonable
opinion that registration is not required in order to dispose of the
Warrant Shares. The Holder(s) shall cooperate with the Company and
shall furnish such information as the Company may request in
connection with any such registration statement hereunder, on which
the Company shall be entitled to rely.
8. Governing Law. This agreement shall be construed under and be
governed by the laws of the state of Nevada.
9. Notices. All notices, demands, requests, or other communications
required or authorized hereunder shall be deemed given sufficiently if
in writing and if personally delivered; if sent by facsimile
transmission, confirmed with a written copy thereof sent by second day
express delivery or registered mail, return receipt requested and
postage prepaid; if sent by registered mail or certified mail, return
receipt requested and postage prepaid; or if sent by second day
express delivery:
If to the Company, to: Larson Davis Incorporated
Attn: Brian G. Larson, President
1681 West 820 North
Provo, Utah 84601
Facsimile Transmission: (801) 375-0182
Confirmation: (801) 375-0177
If to the Holder: ___________________
___________________
___________________
Facsimile Transmission: __________
Confirmation: __________
<PAGE>
or other such addresses and facsimile numbers as shall be furnished by
any party in the manner for giving notices hereunder, and any such
notice, demand, request, or other communication shall be deemed to
have been given as of the date so delivered or sent by facsimile
transmission, three days after the date so mailed, or two days after
the date so sent by second day delivery.
10. Loss, Theft, Destruction, or Mutilation. Upon receipt by the
Company of reasonable evidence of the ownership of and the loss,
theft, destruction, or mutilation of this Warrant, the Company will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
11. Taxes. The Company will pay all taxes in respect of the issue of
this Warrant or the Warrant Shares issuable upon exercise thereof.
DATED this ______ day of April, 1995.
LARSON DAVIS INCORPORATED
By
Brian G. Larson, President
<PAGE>
Form of Assignment
(to be signed only upon assignment of Warrant)
TO: Larson Davis Incorporated
Attn: President
1681 West 820 North
Provo, Utah 84601
FOR VALUE RECEIVED, _________________ does hereby sell, assign, and
transfer unto ____________________ the right to purchase ___________
shares of common stock of LARSON DAVIS INCORPORATED (the "Company"),
evidenced by the attached Warrant, and does hereby irrevocably
constitute and appoint _________________ attorney to transfer such
right on the books of the Company with full power of substitution in
the premises.
DATED this _____ day of __________, 19___.
Signature:
Signature Guaranteed:
NOTICE: The signature to the form of assignment must correspond with
the name as written upon the face of the within Warrant in every
particular without alteration or enlargement or any change whatsoever,
and must be guaranteed by a bank, other than a savings bank, or by a
trust company or by a firm having membership on a registered national
securities exchange.
<PAGE>
Form Of Purchase
(to be signed only upon exercise of Warrant)
TO: Larson Davis Incorporated
Attn: President
1681 West 820 North
Provo, Utah 84601
The undersigned, the owner of the attached Warrant, hereby
irrevocably elects to exercise the purchase rights represented by the
Warrant for, and to purchase thereunder, ___________ shares of the
common stock of LARSON DAVIS INCORPORATED and herewith makes payment
of $___________ therefor (at the rate of $2.50 per share of common
stock). Please issue the shares of common stock as to which this
Warrant is exercised in accordance with the enclosed instructions and,
if the Warrant is being exercised with respect to less than all of the
shares to which it pertains, prepare and deliver a new Warrant of like
tenor for the balance of the shares of common stock purchasable under
the attached Warrant.
DATED this _____ day of __________, 19___.
Signature:
Signature Guaranteed:
<PAGE>
Exhibit A
<TABLE>
<CAPTION>
Allocation of Shares and Warrants among Purchasers
Number of Number of
Warrants Warrants
Number Expiring Expiring
Name of Shares Purchase April 7 April 7,
Purchased Price 1996 1997
<S> <C> <C> <C> <C>
Robert Cohen 30,769 $ 49,999.62 41,580 41,580
Lenore Katz 6,154 $ 10,000.25 8,316 8,316
Jeffrey Rubin 18,461 $ 29,999.12 24,948 24,948
Shawn Zimberg 6,154 $ 10,000.25 8,316 8,316
Laura Huberfeld 148,077 $240,625.13 200,104 200,104
Naiomi Bodner 148,077 $240,625.13 200,104 200,104
Jeffrey Cohen 6,154 $ 10,000.25 8,316 8,316
Allyson Cohen 6,154 $ 10,000.25 8,316 8,316
Total 370,000 $601,250.00 500,000 500,000
</TABLE>
LARSON DAVIS INCORPORATED
(a Nevada corporation)
Warrant for the Purchase of
________ Shares of Common Stock, Par Value $0.001
THIS WARRANT WILL BE VOID
AFTER 11:59 P.M. MOUNTAIN TIME ON APRIL 7, 1997
This Warrant has not been registered under the Securities Act of 1933,
as amended (the "Securities Act"), and is a "restricted security"
within the meaning of Rule 144 promulgated under the Securities Act.
This Warrant has been acquired for investment and may not be sold or
transferred without complying with Rule 144 in the absence of an
effective registration or other compliance under the Securities Act.
This certifies that, for value received, __________________ (the
"Holder"), is entitled to subscribe for, purchase, and receive
____________ fully paid and nonassessable shares of common stock, par
value $0.001 (the "Warrant Shares"), of Larson Davis Incorporated, a
Nevada corporation (the "Company"), at the price of $3.50 per Warrant
Share (the "Exercise Price"), at any time or from time to time on or
before 11:59 p.m. mountain time on April 7, 1997 (the "Exercise
Period"), on presentation and surrender of this Warrant with the
purchase form attached hereto, duly executed, at the principal office
of the Company at 1681 West 820 North, Provo, Utah 84601, and by
paying in full and in lawful money of the United States of America by
cash or cashier's check, the Exercise Price for the Warrant Shares as
to which this Warrant is exercised, on all the terms and conditions
hereinafter set forth. The number of Warrant Shares to be received on
exercise of this Warrant and the Exercise Price may be adjusted on the
occurrence of such events as described herein. If the subscription
rights represented hereby are not exercised by 11:59 p.m. mountain
time on April 7, 1997, this Warrant shall automatically become void
and of no further force or effect, and all rights represented hereby
shall cease and expire.
Subject to the terms set forth herein, this Warrant may be exercised
by the Holder in whole or in part by execution of the form of exercise
attached hereto and payment of the Exercise Price in the manner
described above.
<PAGE>
1. Exercise of Warrants. On the exercise of all or any portion of
this Warrant in the manner provided above, the Holder exercising the
same shall be deemed to have become a holder of record of the Warrant
Shares for all purposes, and certificates for the securities so
purchased shall be delivered to the Holder within a reasonable time,
but in no event longer than ten days after this Warrant shall have
been exercised as set forth above. If this Warrant shall be exercised
in respect to only a part of the Warrant Shares covered hereby, the
Holder shall be entitled to receive a similar Warrant of like tenor
and date covering the number of Warrant Shares with respect to which
this Warrant shall not have been exercised. On the exercise of all or
any portion of this Warrant, at the instruction of the Holder, the
Company shall offset any amounts due by it to Holder against payment
of the exercise price for the Warrants.
2. Limitation on Transfer. Subject to the restrictions set forth in
paragraph 7 hereof, this Warrant is transferable at the offices of the
Company. In the event this Warrant is assigned in the manner provided
herein, the Company, upon request and upon surrender of this Warrant
by the Holder at the principal office of the Company accompanied by
payment of all transfer taxes, if any, payable in connection
therewith, shall transfer this Warrant on the books of the Company.
If the assignment is in whole, the Company shall execute and deliver a
new Warrant or Warrants of like tenor to this Warrant to the
appropriate assignee expressly evidencing the right to purchase the
aggregate number of shares of common stock purchasable hereunder; and
if the assignment is in part, the Company shall execute and deliver to
the appropriate assignee a new Warrant or Warrants of like tenor
expressly evidencing the right to purchase the portion of the
aggregate number of Warrant Shares as shall be contemplated by any
such transfer, and shall concurrently execute and deliver to the
Holder a new Warrant of like tenor to this Warrant evidencing the
right to purchase the remaining portion of the Warrant Shares
purchasable hereunder which have not been transferred to the assignee.
3. Exchange of Warrants. This Warrant is exchangeable, on the
presentation and surrender hereof by the Holder at the office of the
Company, for a new Warrant or Warrants of like tenor representing in
the aggregate the right to subscribe for and purchase the number of
Warrant Shares which may be subscribed for and purchased hereunder.
<PAGE>
4. Fully Paid Shares. The Company covenants and agrees that the
Warrant Shares which may be issued on the exercise of the rights
represented by this Warrant will be, when issued, fully paid and
nonassessable and free from all taxes, liens, and charges with respect
to the issue thereof. The Company further covenants and agrees that
during the period within which the rights represented by this Warrant
may be exercised, the Company will have authorized and reserved a
sufficient number of shares of common stock to provide for the
exercise of the rights represented by this Warrant.
5. Antidilution Provisions. The Warrant Price and number of Warrant
Shares purchasable pursuant to this Warrant may be subject to
adjustment from time to time as follows:
(a) If the Company shall take a record of the holders of its
common stock for the purpose of entitling them to receive a dividend
in shares, the Warrant Price in effect immediately prior to such
record date shall be proportionately decreased, such adjustment to
become effective immediately after the opening of business on the day
following such record date.
(b) If the Company shall subdivide the outstanding shares of
common stock into a greater number of shares, combine the outstanding
shares of common stock into a smaller number of shares, or issue by
reclassification any of its shares, the Warrant Price in effect
immediately prior thereto shall be adjusted so that the Holder of this
Warrant thereafter surrendered for exercise shall be entitled to
receive, after the occurrence of any of the events described, the
number of Warrant Shares to which the Holder would have been entitled
had such Warrant been exercised immediately prior to the occurrence of
such event. Such adjustment shall become effective immediately after
the opening of business on the day following the date on which such
subdivision, combination, or reclassification, as the case may be,
becomes effective.
(c) If any capital reorganization or reclassification of the
Company's common stock, or consolidation or merger of the Company with
another corporation or the sale of all or substantially all of its
assets to another corporation shall be effected in such a way that
holders of common stock shall be entitled to receive stock,
securities, or assets with respect to or in exchange for common stock,
then, as a condition of such reorganization, reclassification,
consolidation, merger, or sale, lawful adequate provisions shall be
made whereby the Holder of this Warrant shall thereafter have the
right to acquire and receive on exercise hereof such shares of stock,
securities, or assets as would have been issuable or payable (as part
<PAGE>
of the reorganization, reclassification, consolidation, merger, or
sale) with respect to or in exchange for such number of outstanding
common shares of the Company as would have been received on exercise
of this Warrant immediately before such reorganization,
reclassification, consolidation, merger, or sale.
In any such case, appropriate provision shall be made with
respect to the rights and interests of the Holder of this Warrant to
the end that the provisions hereof shall thereafter be applicable in
relation to any shares of stock, securities, or assets thereafter
deliverable on the exercise of this Warrant. In the event of a merger
or consolidation of the Company with or into another corporation or
the sale of all or substantially all of its assets which results in
the issuance of a number of shares of common stock of the surviving or
purchasing corporation greater or less than the number of shares of
common stock of the Company outstanding immediately prior to such
merger, consolidation, or purchase are issuable to holders of common
stock of the Company, then the Warrant Price in effect immediately
prior to such merger, consolidation, or purchase shall be adjusted in
the same manner as though there was a subdivision or combination of
the outstanding shares of common stock of the Company. The Company
will not effect any such consolidation, merger, or sale unless prior
to the consummation thereof the successor corporation resulting from
such consolidation or merger or the corporation purchasing such assets
shall assume by written instrument mailed or delivered to the Holder
hereof at its last address appearing on the books of the Company, the
obligation to deliver to such Holder such shares of stock, securities,
or assets as, in accordance with the foregoing provisions, such Holder
may be entitled to acquire on exercise of this Warrant.
(d) If: (i) the Company shall take a record of the holders of
its shares of common stock for the purpose of entitling them to
receive a dividend payable otherwise than in cash, or any other
distribution in respect of the shares of common stock (including
cash), pursuant to, without limitation, any spin-off, split-off, or
distribution of the Company's assets; or (ii) the Company shall take a
record of the holders of its shares of common stock for the purpose of
entitling them to subscribe for or purchase any shares of any class or
to receive any other rights; or (iii) in the event of any
classification, reclassification, or other reorganization of the
shares which the Company is authorized to issue, consolidation or
merger of the Company with or into another corporation, or conveyance
of all or substantially all of the assets of the Company; or (iv) in
the event of the voluntary or involuntary dissolution, liquidation,
<PAGE>
or winding up of the Company; then, and in any such case, the Company
shall mail to the Holder of this Warrant, at least 30 days prior
thereto, a notice stating the date or expected date on which a record
is to be taken for the purpose of such dividend, distribution or
rights, or the date on which such classification, reclassification,
reorganization, consolidation, merger, conveyance, dissolution,
liquidation, or winding up, as the case may be. Such notice shall
also specify the date or expected date, if any is to be fixed, as of
which holders of shares of common stock of record shall be entitled to
participate in such dividend, distribution, or rights, or shall be
entitled to exchange their shares of common stock for securities or
other property deliverable upon such classification, reclassification,
reorganization, consolidation, merger, conveyance, dissolution,
liquidation, or winding up, as the case may be.
(e) If the Company, at any time while this Warrant shall remain
unexpired and unexercised, sells shares of common stock to an
affiliate of the Company, excluding shares issued on the exercise of
options issued and outstanding as of the date hereof and shares issued
to officers and directors under stock option plans of the Company
existing as of the date hereof, at a price lower than the Exercise
Price provided herein, as the same may from time to time be adjusted
pursuant to this section 5, then the Exercise Price of these Warrants
shall be reduced automatically to such lower price at which the
Company has sold common stock.
(f) No fraction of a share shall be issued on exercise, but, in
lieu thereof, the Company, notwithstanding any other provision hereof,
may pay therefor in cash at the fair value of any such fractional
share at the time of exercise.
6. Disposition of Warrants or Warrant Shares. The registered owner
of this Warrant, by acceptance hereof, agrees for himself and any
subsequent owner(s) that, before any disposition is made of any
Warrant Shares, the owner(s) shall give written notice to the Company
describing briefly the manner of any such proposed disposition. No
such disposition shall be made unless and until:
(a) the Company has received an opinion from counsel for the
owner(s) of the Warrant Shares stating that no registration under the
Securities Act is required with respect to such disposition; or
(b) a registration statement or post-effective amendment to a
registration statement under the Securities Act has been filed by the
Company and made effective by the Commission covering such proposed
disposition.
<PAGE>
7. Registration of Warrant Shares. The Company shall use its best
efforts to file a registration statement under the Securities Act
within 20 days after the date hereof, but in any event shall file such
a registration statement within 40 days after the date hereof, to
register the Warrant Shares issuable on the exercise of this Warrant,
shall utilize its best efforts to cause such registration statement to
become effective as soon as is practicably possible, and shall
maintain the effectiveness of such registration statement for a period
of two years, unless the Company's legal counsel is of the reasonable
opinion that registration is not required in order to dispose of the
Warrant Shares. The Holder(s) shall cooperate with the Company and
shall furnish such information as the Company may request in
connection with any such registration statement hereunder, on which
the Company shall be entitled to rely.
8. Governing Law. This agreement shall be construed under and be
governed by the laws of the state of Nevada.
9. Notices. All notices, demands, requests, or other communications
required or authorized hereunder shall be deemed given sufficiently if
in writing and if personally delivered; if sent by facsimile
transmission, confirmed with a written copy thereof sent by second day
express delivery or registered mail, return receipt requested and
postage prepaid; if sent by registered mail or certified mail, return
receipt requested and postage prepaid; or if sent by second day
express delivery:
If to the Company, to: Larson Davis Incorporated
Attn: Brian G. Larson, President
1681 West 820 North
Provo, Utah 84601
Facsimile Transmission: (801) 375-0182
Confirmation: (801) 375-0177
If to the Holder: ___________________
___________________
___________________
Facsimile Transmission: __________
Confirmation: __________
<PAGE>
or other such addresses and facsimile numbers as shall be furnished by
any party in the manner for giving notices hereunder, and any such
notice, demand, request, or other communication shall be deemed to
have been given as of the date so delivered or sent by facsimile
transmission, three days after the date so mailed, or two days after
the date so sent by second day delivery.
10. Loss, Theft, Destruction, or Mutilation. Upon receipt by the
Company of reasonable evidence of the ownership of and the loss,
theft, destruction, or mutilation of this Warrant, the Company will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
11. Taxes. The Company will pay all taxes in respect of the issue of
this Warrant or the Warrant Shares issuable upon exercise thereof.
DATED this ______ day of April, 1995.
LARSON DAVIS INCORPORATED
By
Brian G. Larson, President
<PAGE>
Form of Assignment
(to be signed only upon assignment of Warrant)
TO: Larson Davis Incorporated
Attn: President
1681 West 820 North
Provo, Utah 84601
FOR VALUE RECEIVED, _________________ does hereby sell, assign, and
transfer unto ____________________ the right to purchase ___________
shares of common stock of LARSON DAVIS INCORPORATED (the "Company"),
evidenced by the attached Warrant, and does hereby irrevocably
constitute and appoint _________________ attorney to transfer such
right on the books of the Company with full power of substitution in
the premises.
DATED this _____ day of __________, 19___.
Signature:
Signature Guaranteed:
NOTICE: The signature to the form of assignment must correspond with
the name as written upon the face of the within Warrant in every
particular without alteration or enlargement or any change whatsoever,
and must be guaranteed by a bank, other than a savings bank, or by a
trust company or by a firm having membership on a registered national
securities exchange.
<PAGE>
Form Of Purchase
(to be signed only upon exercise of Warrant)
TO: Larson Davis Incorporated
Attn: President
1681 West 820 North
Provo, Utah 84601
The undersigned, the owner of the attached Warrant, hereby irrevocably
elects to exercise the purchase rights represented by the Warrant for,
and to purchase thereunder, ___________ shares of the common stock of
LARSON DAVIS INCORPORATED and herewith makes payment of $___________
therefor (at the rate of $3.50 per share of common stock). Please
issue the shares of common stock as to which this Warrant is exercised
in accordance with the enclosed instructions and, if the Warrant is
being exercised with respect to less than all of the shares to which
it pertains, prepare and deliver a new Warrant of like tenor for the
balance of the shares of common stock purchasable under the attached
Warrant.
DATED this _____ day of __________, 19___.
Signature:
Signature Guaranteed:
<PAGE>
Exhibit A
<TABLE>
<CAPTION>
Allocation of Shares and Warrants among Purchasers
Number of Number of
Warrants Warrants
Number Expiring Expiring
Name of Shares Purchase April 7 April 7,
Purchased Price 1996 1997
<S> <C> <C> <C> <C>
Robert Cohen 30,769 $ 49,999.62 41,580 41,580
Lenore Katz 6,154 $ 10,000.25 8,316 8,316
Jeffrey Rubin 18,461 $ 29,999.12 24,948 24,948
Shawn Zimberg 6,154 $ 10,000.25 8,316 8,316
Laura Huberfeld 148,077 $240,625.13 200,104 200,104
Naiomi Bodner 148,077 $240,625.13 200,104 200,104
Jeffrey Cohen 6,154 $ 10,000.25 8,316 8,316
Allyson Cohen 6,154 $ 10,000.25 8,316 8,316
Total 370,000 $601,250.00 500,000 500,000
</TABLE>
KRUSE, LANDA & MAYCOCK, L.L.C.
ATTORNEYS AT LAW
EIGHTH FLOOR, BANK ONE TOWER
50 WEST BROADWAY (300 SOUTH)
SALT LAKE CITY, UTAH 84101-2034
TELEPHONE: (801) 531-7090
TELECOPY: (801) 359-3954
(801) 531-9892
June 2, 1995
Board of Directors
Larson Davis Incorporated
1681 West 820 North
Provo, Utah 84601
Re: Larson Davis Incorporated; Registration Statement on Form SB-2
Gentlemen:
We have been engaged by Larson Davis Incorporated (the "Company") to
render our opinion respecting the legality of certain securities to be
offered and sold pursuant to the registration statement on form SB-2
being filed by the Company with the Securities and Exchange Commission
(the "Registration Statement"). Capitalized terms used but not
defined herein have the same meanings as set forth in the Registration
Statement.
In connection with this engagement, we have examined the following:
1. Articles of incorporation of the Company;
2. Bylaws of the Company;
3. The Registration Statement; and
4. Unanimous consents of the Company's board of directors.
We have examined such other corporate records and documents and have
made such other examination as we deemed relevant.
<PAGE>
Based upon the above examination, we are of the opinion that the
Common Stock to be sold pursuant to the Registration Statement will
be, when sold in accordance with the terms set forth in the
Registration Statement, legally issued, fully paid, and nonassessable
under the Nevada Revised Statutes, as amended.
This firm consents to being named in the Prospectus included in the
Registration Statement as having rendered the foregoing opinion and as
having represented the Company in connection with the Registration
Statement.
Sincerely yours,
/s/ KRUSE, LANDA & MAYCOCK, L.L.C.
KRUSE, LANDA & MAYCOCK, L.L.C.
KL&M/KLP:pjc
AGREEMENT
THIS AGREEMENT (this "Agreement") is made and entered into this 24th
day of May, 1995, by and between LARSON DAVIS LABORATORIES, a Utah
corporation ("Larson Davis"), and SUMMIT ENTERPRISES, INC., OF
VIRGINIA ("Summit"), based on the following:
Premises
A. Larson Davis, Summit, and Technology Integration Incorporated, a
Massachusetts corporation ("TII"), are parties to that certain
Acquisition Agreement dated March 18, 1994, as amended March 28, 1994,
and June 16, 1994 (the "Acquisition Agreement").
B. Under the terms of the Acquisition Agreement, Larson Davis assumed
the obligation of TII to Summit under the terms of a Promissory Note
(the "Note") acquired by Summit from Silicon Valley Bank, N.A.
("Silicon Bank"). Under the Acquisition Agreement, the terms of the
Note were amended to provide for interest at 9% per annum with monthly
payments of $30,210.
C. The parties wish to further amend the terms of the Note and have
entered into this Agreement for such purposes.
Agreement
NOW, THEREFORE, based on the stated premises, which are incorporated
herein by reference, and for and in consideration of the mutual
covenants and agreements hereinafter set forth and the mutual benefit
to the parties to be derived herefrom, it is hereby agreed as follows:
1. The Note. The parties hereby agree that the outstanding principal
balance of the Note as of the date of this Agreement is $808,868. On
execution of this Agreement, Larson Davis shall pay to Summit $8,868
thereby reducing the principal balance to $800,000. The $800,000 then
due to Summit under the terms of the Note shall be paid as follows:
$500,000 to be paid by the issuance of 200,000 shares of restricted
preferred stock of Larson Davis, the receipt and adequacy of which is
hereby acknowledged; and $300,000 of which shall continue to bear
interest at 9% per annum and shall be payable in 21 equal payments of
$15,845 commencing July 1, 1995.
<PAGE>
2. Preferred Stock. The preferred stock shall have the following
rights and privileges and be subject to the following conditions:
(a) The preferred stock shall bear an annual dividend of $0.225
per share, payable monthly in 12 equal installments.
(b) The preferred stock shall not be convertible at any time
prior to May 31, 1995. Thereafter, the preferred stock shall be
convertible, at the option of Summit, into that number of shares of
common stock determined by dividing $600,000 by the average of the
closing bid price for the common stock of Larson Davis as reported on
Nasdaq for the 20 trading days preceding the date of the notice of
election to convert.
(c) The preferred stock shall be entitled to vote as a single
class with the common stock of Larson Davis, and shall have one vote
for each share of preferred stock.
(d) The preferred stock shall have a liquidation preference
equal to $2.50 per share.
(e) Any shares of preferred stock that have not been converted
shall be redeemable by Larson Davis at a price equal to $2.50 per
share at any time subsequent to the six-month anniversary of the
effective date of the registration statement described in paragraph 3
of this Agreement.
3. Mandatory Conversion. At any time subsequent to August 30, 1995,
Larson Davis can convert the shares of Preferred Stock, on the same
terms as set forth above, into shares of its Common Stock by providing
30 days written notice to Summit or its assignees; provided that,
there is then a current registration statement in effect as provided
in paragraph 4 of this Agreement.
4. Registration Agreement. On execution of this Agreement, Larson
Davis shall immediately precede to file a registration statement with
the Securities and Exchange Commission registering the issuance of
common stock on the conversion of the preferred stock, or the resale
of such common stock by Summit, and shall thereafter diligently use
its commercially reasonable best efforts to seek the effectiveness of
the registration statement and to keep such registration statement
effective for a period of two years. Summit shall furnish to Larson
Davis in writing such information, and enter into such agreements as
Larson Davis may reasonably request from Summit, all as may be
required in connection with the registration of the common stock or
compliance with blue sky obligations with respect
<PAGE>
to the registration of the common stock. All expenses of the
registration statement, other than any commissions or fees paid on the
sale of the common stock by Summit, shall be paid by Larson Davis.
5. Right to Reinstate Note. In the event that the registration
statement described in paragraph 4 of this Agreement has not been
declared effective on or before August 30, 1995, Summit shall have the
right, on 30 days written notice to Larson Davis, to return all of the
shares of Preferred Stock received under this Agreement to Larson
Davis for cancellation and to reinstate the $500,000 obligation on the
same terms and conditions as existed under the Note immediately prior
to this Agreement. In the event of such reinstatement, it is the
intent of Larson Davis that Summit shall be returned to the same
position as a creditor as it now has, including its security interest
in the assets of Larson Davis as it now exists. To this end, Larson
Davis agrees not to grant or permit to be placed any additional
security interest on the assets securing the Note immediately prior to
the date of this Agreement until such time as the registration
statement has been declared effective. In addition, the parties agree
that in the event the Note is reinstated, all principal payments made
under the Note shall first be used to reduce the $500,000 balance that
would otherwise be paid pursuant to the issuance of the preferred
stock.
6. Restricted Nature of Preferred Stock. Summit understands that the
shares of preferred stock to be delivered pursuant to this Agreement
(the "Shares") have not been registered, but are being acquired by
reason of a specific exemption under the Securities Act of 1933, as
amended (the "Securities Act"), as well as under certain state
statutes for transactions by an issuer not involving any public
offering and that any disposition of the subject Shares may, under
certain circumstances, be inconsistent with this exemption and may
make Summit an "underwriter" within the meaning of the Securities Act.
It is understood that the definition of an "underwriter" focuses on
the concept of "distribution" and that any subsequent disposition of
the Shares can only be effected in transactions which are not
considered distributions. After two years from the later of the date
the Shares are acquired from the Company or an affiliate of the
Company and the full purchase price or other consideration is paid,
all as calculated in accordance with rule 144(d), sales of the Shares
in reliance on rule 144 can only be made in limited amounts in
accordance with the terms and conditions of that rule. After three
years from the date the Shares are fully paid for, as calculated in
accordance with rule 144(d), they can generally be sold without
meeting these conditions provided the holder is not (and has not been
for the preceding three months) an affiliate of the Company.
<PAGE>
Summit acknowledges that the Shares must be held and may not be sold,
transferred, or otherwise disposed of for value unless they are
subsequently registered under the Securities Act or an exemption from
such registration is available; the Company is under no obligation to
register the Shares under the Securities Act or under section 12 of
the Securities Exchange Act of 1934, as amended, except as may be
expressly agreed to by it in writing; if rule 144 is available, and no
assurance is given that it will be, initially only routine sales of
such Shares in limited amounts can be made in reliance on rule 144 in
accordance with the terms and conditions of that rule; the Company is
under no obligation to Summit to make rule 144 available, except as
may be expressly agreed to by it in writing; in the event rule 144 is
not available, compliance with regulation A or some other exemption
may be required before Summit can sell, transfer, or otherwise dispose
of such Shares without registration under the Securities Act; and the
certificate representing the Shares will bear a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND ARE "RESTRICTED SECURITIES" WITHIN THE MEANING
OF RULE 144 PROMULGATED UNDER THE SECURITIES ACT. THE SECURITIES HAVE
BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED
WITHOUT COMPLYING WITH RULE 144 IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION OR OTHER COMPLIANCE UNDER THE SECURITIES ACT.
The Company may refuse to register transfer of the Shares in the
absence of compliance with rule 144 unless Summit furnishes the
Company with a "no-action" or interpretative letter from the
Securities and Exchange Commission or an opinion of counsel reasonably
acceptable to the Company stating that the transfer is proper;
further, unless such letter or opinion states that the Shares are free
of any restrictions under the Securities Act, the Company may refuse
to transfer the Shares to any transferee who does not furnish in
writing to the Company the same representations and agree to the same
conditions with respect to such Shares as are set forth herein. The
Company may also refuse to transfer the Shares if any circumstances
are present reasonably indicating that the transferee's
representations are not accurate.
7. Restriction on Transfer. Neither the preferred stock or the
rights under this Agreement can be transferred by Summit without the
specific written consent of Larson Davis.
8. Effect on Note. Except as expressly provided herein, the terms of
the Note shall remain in full force and effect.
<PAGE>
9. Governing Law. This Agreement shall be governed by, enforced, and
construed under in accordance with the laws of the United States of
America and, with respect to matters of state law, the laws of the
state of Utah.
10. Notice. All notices, demands, requests, or other communications
required or authorized hereunder shall be deemed given sufficiently if
in writing and if personally delivered; if sent by facsimile
transmission, confirmed with a written copy thereof sent by overnight
express delivery; if sent by registered mail or certified mail, return
receipt requested and postage prepaid; or if sent by overnight express
delivery:
If to Larson Davis, to: Larson Davis Laboratories
Attn: Dan J. Johnson
1681 West 820 North
Provo, Utah 84601
Fax: (801) 375-0182
Confirmation: (801) 375-0177
With a copy to: Keith L. Pope, Esq.
Kruse, Landa & Maycock, L.L.C.
Eighth Floor, Bank One Tower
50 West Broadway
Salt Lake City, Utah 84101
Fax: (801) 359-3954
Confirmation: (801) 531-7090
If to Summit, to: Alan M. Vorhees
c/o Summit Enterprises, Inc.,
of Virginia
1308 Devils Reach Road, Suite 302
Woodbridge, Virginia 22192
Fax: (703) 490-3970
Confirmation: (703) 490-5355
With a copy to: Carr L. Kinder, Esq.
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, Virginia 23219-4074
Fax: (804) 788-8218
Confirmation: (804) 788-8200
11. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of
which taken together shall be but a single instrument.
<PAGE>
12. Amendment or Waiver. Every right and remedy provided herein
shall be cumulative with every other right and remedy, whether
conferred herein, at law, or in equity, and may be enforced
concurrently herewith, and no waiver by any party of the performance
of any obligation by the other shall be construed as a waiver of the
same or any other default then, theretofore, or thereafter occurring
or existing. This Agreement may only be amended by a writing signed
by all parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
Larson Davis:
LARSON DAVIS LABORATORIES
By /s/ Brian G. Larson
Brian G. Larson, President
Summit:
SUMMIT ENTERPRISES, INC.,
OF VIRGINIA
By /s/ Alan M. Vorhees
Alan M. Vorhees
<TABLE>
<CAPTION>
Schedule of Subsidiaries
Name State of Incorporation
<S> <C>
Larson Davis Laboratories Utah
LD Info, Inc. Nevada
Advantage Software, Inc. Utah
Larson Davis, Ltd. an entity formed under the
laws of Great Britain
</TABLE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of
this Registration Statement on Form SB-2 for Larson Davis
Incorporated, of our report dated October 5, 1994, relating to the
June 30, 1994 and 1993 financial statements of Larson Davis
Incorporated, which appears in such Prospectus. We also consent to
the reference to us under the heading "Experts."
/s/ Peterson, Siler & Stevenson
PETERSON, SILER & STEVENSON
Salt Lake City, Utah
June 1, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE BALANCE SHEETS AS OF MARCH 31, 1995, AND STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1995 JUN-30-1994 JUN-30-1993
<PERIOD-START> JAN-01-1995 JUL-01-1993 JUL-01-1992
<PERIOD-END> MAR-31-1995 JUN-30-1994 JUN-30-1993
<CASH> 92,790 432,261 104,330
<SECURITIES> 0 0 0
<RECEIVABLES> 2,852,887 1,626,315 2,694,115
<ALLOWANCES> (15,825) (15,000) (20,688)
<INVENTORY> 2,453,353 2,155,232 1,799,725
<CURRENT-ASSETS> 6,430,392 5,499,195 5,031,781
<PP&E> 2,755,399 2,684,984 2,546,475
<DEPRECIATION> (1,682,129) (1,513,871) (1,199,996)
<TOTAL-ASSETS> 12,570,579 11,011,199 10,300,253
<CURRENT-LIABILITIES> (5,729,664) (4,945,981) (3,132,547)
<BONDS> (972,305) (1,078,073) (827,623)
<COMMON> (6,148) (5,827) (5,413)
0 0 0
0 0 0
<OTHER-SE> (5,862,462) (4,981,318) (5,901,670)
<TOTAL-LIABILITY-AND-EQUITY> (12,570,579) (11,011,199) (10,300,253)
<SALES> (2,852,301) (6,412,585) (6,180,082)
<TOTAL-REVENUES> (2,852,301) (6,412,585) (6,180,082)
<CGS> 1,693,836 2,504,649 2,553,105
<TOTAL-COSTS> 2,801,773 6,048,030 5,796,769
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 271,316 270,383 250,185
<INCOME-PRETAX> 50,508 202,044 136,819
<INCOME-TAX> 0 0 6,000
<INCOME-CONTINUING> 50,528 202,044 130,819
<DISCONTINUED> 0 (2,557,187) (374,998)
<EXTRAORDINARY> 0 0 547,988
<CHANGES> 0 486,992 0
<NET-INCOME> 50,528 (1,868,151) 303,809
<EPS-PRIMARY> 0.01 (0.34) 0.05
<EPS-DILUTED> 0.01 (0.34) 0.05
</TABLE>
