UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30,1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-17020
Larson Davis Incorporated
(Exact name of registrant as specified in its charter)
Nevada 87-0429944
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1681 West 820 North
Provo, Utah 84601
(Address of principal executive offices) (Zip Code)
(801) 375-0177
(Registrant's telephone number, including area code)
N/A
(Former name, former address, and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
As of August 12, 1997, the Issuer had 11,652,714 shares of its common
stock, par value $0.001 per share, issued and outstanding.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Larson Davis Incorporated (the "Company") has included the consolidated
balance sheets of the Company and its subsidiaries as of June 30, 1997
(unaudited), and December 31, 1996 (the end of the Company's transition period),
and unaudited consolidated statements of operations for the three and six months
ended June 30, 1997 and 1996, and unaudited consolidated statements of cash
flows for the six months ended June 30, 1997 and 1996, together with unaudited
condensed notes thereto. In the opinion of management of the Company, the
financial statements reflect all adjustments, all of which are normal recurring
adjustments, necessary to fairly present the financial condition, results of
operations, and cash flows of the Company for the interim periods presented.
The financial statements included in this report on Form 10-Q should be read in
conjunction with the audited financial statements of the Company and the notes
thereto included in the annual report of the Company on Form 10-KSB for the year
ended June 30, 1996, and the report of the Company on Form 10-K for the
six month transition period ended December 31, 1996.
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------------- --------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,191,467 $ 2,696,542
Trade accounts receivable, net of
allowance for doubtful accounts 2,534,431 2,598,582
Inventories 4,008,291 4,096,445
Other current assets 98,884 130,096
-------------- --------------
Total current assets 9,833,073 9,521,665
Property and equipment, net of
accumulated depreciation
and amortization 2,277,817 1,815,455
Assets under capital lease obligations,
net of accumulated amortization 828,614 613,675
Long-term contractual arrangement, net
of accumulated cost recoveries 2,756,784 2,872,014
Intangible assets, net of accumulated
amortization 4,960,255 5,083,712
Note receivable from officer 69,375 -
-------------- --------------
$ 20,725,918 $ 19,906,521
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited)
<S> <C> <C>
Current liabilities:
Line of credit $ 805,904 $ 1,033,018
Accounts payable 468,135 902,926
Accrued liabilities 693,418 764,393
Current maturities of long-term debt 49,025 91,902
Current maturities of capital lease obligations 215,679 159,515
-------------- --------------
Total current liabilities 2,232,161 2,951,754
Long-term debt, less current maturities 741,368 759,709
Capital lease obligations, less current maturities 702,687 523,185
-------------- --------------
Total liabilities 3,676,216 4,234,648
-------------- --------------
Commitments and contingencies - -
Stockholders' equity:
Preferred stock, $0.001 par value; authorized
10,000,000 shares; issued and outstanding
zero shares at June 30, 1997, and 200,000
shares at December 31, 1996 - 200
Common stock, $0.001 par value; authorized
290,000,000 shares; issued and outstanding
11,520,116 shares at June 30, 1997, and
10,717,790 shares at December 31, 1996 11,520 10,718
Additional paid-in capital 24,228,725 19,999,375
Accumulated deficit (7,256,327) (4,418,780)
Cumulative foreign currency translation
adjustment 65,784 80,360
-------------- --------------
Total stockholders' equity 17,049,702 15,671,873
-------------- --------------
$ 20,725,918 $ 19,906,521
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
------------------------------ -----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 2,147,647 $ 1,785,904 $ 4,352,345 $ 4,103,334
------------ ------------ ------------ ------------
Costs and operating expenses:
Cost of sales 1,158,085 1,186,457 2,366,452 2,292,048
Research and development 953,541 739,187 1,900,752 1,320,794
Selling, general, and administrative 1,500,499 1,201,906 2,862,524 2,109,078
------------ ------------ ------------ ------------
3,612,125 3,127,550 7,129,728 5,721,920
------------ ------------ ------------ ------------
Operating loss (1,464,478) (1,341,646) (2,777,383) (1,618,586)
------------ ------------ ------------ ------------
Other income (expense):
Interest income 48,814 12,320 92,813 12,320
Interest expense (67,705) (152,279) (142,437) (254,045)
Other, net 3,901 (53,727) 4,460 (65,868)
------------ ------------ ------------ ------------
(14,990) (193,686) (45,164) (307,593)
------------ ------------ ------------ ------------
Loss before income taxes (1,479,468) (1,535,332) (2,822,547) (1,926,179)
Income tax expense - - - -
------------ ------------ ------------ ------------
Net loss $ (1,479,468) $ (1,535,332) $ (2,822,547) $ (1,926,179)
============ ============ ============ ============
Loss per common share:
Primary $ (0.13) $ (0.17) $ (0.25) $ (0.23)
Fully diluted (0.13) (0.17) (0.25) (0.23)
Weighted average common and common
equivalent shares:
Primary 11,418,781 9,257,953 11,267,295 8,649,572
Fully diluted 11,418,781 9,257,953 11,267,295 8,649,572
</TABLE>
The accompanying notes are an integral part of these financial statements.
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
1997 1996
-------------- --------------
<S> <C> <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities
Net loss $ (2,822,547) $ (1,926,179)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation 258,351 275,560
Amortization 307,017 164,835
Stock issued in payment of compensation 43,698 59,640
Loss (gain) on sale of property and equipment (4,460) 37,604
Changes in assets and liabilities:
Trade accounts receivable 64,151 168,096
Inventories 88,154 14,629
Other current assets 31,212 (345,556)
Accounts payable (434,791) (39,925)
Accrued liabilities (70,975) 374,195
-------------- --------------
Net cash used in operating activities (2,540,190) (1,217,101)
-------------- --------------
Cash flows from investing activities
Purchase of property and equipment (759,513) (424,904)
Proceeds from sale of assets 43,260 17,700
Payments for intangible assets (51,475) (365,791)
Collection of loans to officers - 81,000
Proceeds from long-term contractual arrangement 115,230 195,648
-------------- --------------
Net cash used in investing activities (652,498) (496,347)
-------------- --------------
Cash flows from financing activities
Net change in lines of credit (227,114) (368,341)
NetProceeds from long-term obligations 25,486 -
Principal payments of long-term debt (86,704) (790,843)
Net proceeds from issuances of common stock and
exercise of options and warrants 4,116,879 6,548,086
Principal payments on capital lease obligations (111,358) (69,197)
Preferred dividends (15,000) (22,500)
-------------- --------------
Net cash provided by financing activities 3,702,189 5,297,205
-------------- --------------
Effect of exchange rates on cash (14,576) 9,659
-------------- --------------
Net increase in cash and cash equivalents 494,925 3,593,416
Cash and cash equivalents at beginning of period 2,696,542 329,244
-------------- --------------
Cash and cash equivalents at end of period $ 3,191,467 $ 3,922,660
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(A) Basis of Presentation
The accompanying unaudited consolidated financial statements of LarsonoDavis
Incorporated and Subsidiaries (the Company) have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, these financial statements do not include all of the information
and footnote disclosures required by generally accepted accounting principles
for complete financial statements. These financial statements and footnote
disclosures should be read in conjunction with the audited consolidated
financial statements and the notes thereto included in the Company's annual
report on Form 10-KSB for the year ended June 30, 1996, and report on Form 10-K
for the six month transition period ended December 31, 1996. In the opinion of
management, the accompanying unaudited consolidated financial statements contain
all adjustments (consisting of only normal recurring adjustments) necessary to
fairly present the Company's consolidated financial position as of June 30,
1997, its consolidated results of operations for the three months ended June 30,
1997 and 1996, and its consolidated results of operations and cash flows for the
six months ended June 30, 1997 and 1996. The results of operations for the
three months and six months ended June 30, 1997, may not be indicative of the
results that may be expected for the year ending December 31, 1997.
(B) Earnings (Loss) Per Common Share
Earnings (loss) per common share is computed by dividing net income (loss) by
the weighted average common shares outstanding during the period, including
common equivalent shares (if dilutive). Common equivalent shares include stock
options and warrants. Net income used in this calculation is decreased (net
loss is increased) by the dividends paid to preferred stockholders during the
periods the preferred stock was outstanding.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings per Share" (SFAS No. 128).
SFAS No. 128 establishes new standards for computing and presenting earnings per
share (EPS). SFAS No. 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods; earlier
application is not permitted. Upon adoption of SFAS No. 128, restatement of all
prior period EPS data will be required. SFAS No. 128 replaces the presentation
of primary and fully diluted EPS with a presentation of basic and diluted EPS,
respectively. Basic EPS excludes dilution and is computed by dividing earnings
available to common shareholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects potential dilution and is
calculated similarly to fully diluted EPS under current accounting standards.
Under SFAS No. 128, basic and diluted loss per share for the Company for the
three months and the six months ended June 30, 1997 and 1996, would have been
the same as primary and fully diluted loss per share presented in the
accompanying financial statements.
(C) Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
<S> <C> <C>
Raw materials $ 1,239,758 $ 1,276,413
Work in process 1,177,147 1,398,229
Finished goods 1,591,386 1,421,803
------------- -------------
$ 4,008,291 $ 4,096,445
============= =============
</TABLE>
(D) Stock Warrants
In conjunction with a private placement in May 1995, the Company issued warrants
to acquire additional common stock of the Company to a group of investors.
Since that time, the Company has issued additional warrants to this group as the
previously outstanding warrants were exercised. As of December 31, 1996,
warrants to purchase 2,100,167 shares of common stock at $6.25 per share were
outstanding.
In January 1997, the board of directors approved a reduction in the exercise
price, from $6.25 to $5.30 per share, of certain of these warrants related to
1,715,832 shares of common stock. In consideration of this reduction, the
holders of the warrants agreed to the early exercise of the warrants which
were otherwise permitted to be exercised until November 1, 1998. The holders
agreed to exercise a portion of the warrants on or before January 31, 1997,
which exercise occurred and resulted in the issuance of 651,103 shares and gross
proceeds to the Company of approximately $4,069,000. This initial issuance was
priced at $6.25 per share because the reduced pricing is contingent upon the
timely exercise of the warrants related to all 1,715,832 shares.
Initially, the remaining portion of the warrants were to be exercised by April
16, 1997, but the agreement has been amended to allow the exercise of the
remaining warrants until the date which is 90 days after the effective date of a
registration statement filed with the Securities and Exchange Commission to
permit the resale of the common stock issued on the exercise of the warrants.
That registration statement has been filed, is in the process of review by the
Staff of the Securities and Exchange Commission, and consequently is not yet
effective. If the remaining exercise occurs, it will result in the issuance of
an additional 1,064,729 shares of common stock and additional gross proceeds to
the Company of approximately $5,025,000. If these remaining warrants are
exercised, an aggregate of 1,715,832 shares will have been issued for aggregate
gross proceeds of approximately $9,094,000, resulting in an average exercise
price of $5.30 per share. In addition, under the terms of the agreement, the
Company will issue replacement warrants to acquire up to 1,715,832 shares of
common stock at an exercise price of $8.75 per share.
(E) Building Lease
In April 1997, the Company entered into a new lease agreement covering existing
and additional office and manufacturing space. The lease covers approximately
18,300 square feet of space, has an initial term through March 31, 1999, and
contains options to extend the lease for five additional one-year periods
thereafter. The rental payment under the lease is $13,730 per month and
increases by 2% on April 1, 1998, and, if extended, by 4% on April 1, 1999, and
each year thereafter.
(F) Preferred Stock
At December 31, 1996, the Company had 200,000 shares of preferred stock
outstanding. This preferred stock was converted, in accordance with the
governing provisions of the designation, into 58,842 shares of common stock
effective April 30, 1997.
(G) Stock Option Plan
In May 1997, the board of directors approved the 1997 Stock Option and Award
Plan (the "1997 Plan") that was subsequently approved by the shareholders in
June 1997. Under the 1997 Plan, the Company may grant options to acquire or
award up to 750,000 shares of common stock. The exercise prices and vesting
periods of options granted under the 1997 Plan are determined by the board of
directors at the time of grant.
(H) Subsequent Event
Effective July 1, 1997, the Company has entered into a Technical Information
Agreement and a Patent License Agreement with Lucent Technologies, Inc. (the
"Agreement"). Under the Agreement, the Company holds the sole rights, subject
to certain overall technology sharing agreements amongst Lucent Technologies,
AT&T, and NCR, to technologies related to the manufacture of particle analysis
systems and related rights to market such systems. Using the technology
licensed under the Agreements, coupled with other technology already owned or
licensed, the Company intends to develop and, if successful, to manufacture and
market a particle analysis mass spectrometer.
Under the Agreements, the Company is obligated to make an initial payment of
$200,000 for the rights granted thereunder. Additionally, the Company is
obligated to pay royalties equal to a percentage of the market value of items
sold pursuant to the Agreements, subject to a minimum annual royalty ranging
from $250,000 for the year ended June 30, 1999, to $600,000 for the year ended
June 30, 2003. The Agreements have an initial term of six years, although the
Company may effectively extend the Agreements thereafter by continuing to pay
the percentage royalties, subject to a minimum annual royalty of $600,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the unaudited
consolidated financial statements and related notes contained herein and in
conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" and the audited consolidated financial statements
included in the Company's report on Form 10-KSB for the year ended June 30,
1996, and on Form 10-K for the six-month transition period ended December 31,
1996.
This report and other information made publicly available by the Company
from time to time may contain certain forward looking statements and other
information relating to the Company and its business that are based on the
beliefs of management of the Company and assumptions made concerning information
then currently available to management. Such statements reflect the views of
management of the Company at the time they are made and are not intended to be
accurate descriptions of the future. The discussion of the future business
prospects of the Company is subject to a number of risks and assumptions,
including the completion of commercial products within projected time frames,
the market acceptance of products to be developed, the ability of the Company to
successfully address technical and manufacturing problems in producing new
products, the ability of the Company to enter into strategic alliances, joint
ventures, or other collaborative arrangements with established industry
partners, the success of the marketing efforts of the Company and the entities
with which it has agreements, the ability of the Company to successfully protect
and defend its intellectual rights, and the ability of the Company to obtain the
necessary financing to successfully complete its goals. Should one or more of
these or other risks materialize or if the underlying assumptions of management
prove incorrect, actual results of the Company may vary materially from those
described in the forward looking statements. The Company does not intend to
update these forward looking statements, except as may occur in the regular
course of its periodic reporting obligations.
Over the course of the last three years, the Company has acquired the
rights to a number of technologies from Brigham Young University ("BYU"), either
directly from BYU or indirectly through its acquisition of Sensar Corporation.
These technologies have placed the Company in a position to develop a number of
sophisticated analytical instruments in addition to its historical acoustic
and vibration business. The Company has also recently entered into a license
agreement with Lucent Technologies, Inc. (formerly Bell Labs) in which it
acquired the sole rights to technology developed by Lucent. (See discussion
under "RECENT DEVELOPMENTS," below.) The Company believes that it will be
able to develop a range of instruments based on the patented technology
acquired by it that will be technically superior to those currently being
offered, that will be on the cutting edge of certain emerging markets, or that
will address needs in certain industries in a more cost efficient manner.
In order to accomplish its goals, the Company initiated a research and
development plan designed to convert the underlying technologies into commercial
products. The Company currently has one commercial product based on these
acquisitions available, its time of flight mass spectrometer ("TOF 2000").
The Company has also made significant advances toward additional products, but
there have been unanticipated delays in finalization of these products. The
Company does not currently expect to introduce additional new products until
late in 1997 or early 1998. The Company does not anticipate that there will be
a significant impact on its revenues until after these products have been
introduced and have established market acceptance. While management of the
Company continues to believe that it can develop a range of superior products
designed to meet the needs in significant markets, the products currently being
developed by the Company are designed for sophisticated applications, and there
can be no assurance that the Company will be successful in its development
efforts or that alternative technologies may not be developed by some other
entity that provide a more advantageous solution to the needs of the various
industries targeted by the Company.
Sales of the Company's TOF 2000 have been increasing, resulting in
approximately $850,000 in revenues in the first six months of this year. The
Company current markets this product to the semi-conductor industry through SAES
Getters S.p.A. ("SAES"). Under the terms of the agreement, SAES is obligated to
sell a minimum of nine units in 1997 in order to maintain its exclusive rights,
a target that it may not meet this year. The Company currently anticipates that
revenues from this product will be in the range of $1,000,000 for the last six
months of the year. There can be no assurance that this goal will be met.
The Company is unable to fund its increased research, development, and
other activities from operations and has sought and obtained equity financing,
primarily from private placements to a small number of private investors, in
order to meet these costs. This capital has been and is currently being used
for various purposes, including increased research and development activities
and general operations. It is anticipated the Company will continue to
experience operating losses until new products are brought to market and begin
to generate significantly large enough sales to substantially increase the
Company's revenue. While the Company currently has adequate resources to
continue its development plans through the end of the fiscal year, it will
continue to be reliant on obtaining outside financing in 1998. There can be no
assurance as to the Company's ability to obtain such financing on terms
favorable to it, or on the timing of significant sales or as to the success of
the products that may ultimately permit the Company to meet its obligations from
operations. If the planned products prove unsuccessful, the Company may not be
able to recover its associated research and development costs, which could have
a significant material, adverse impact on the business and activities of the
Company.
RECENT DEVELOPMENTS
The Company has recently entered into a Technical Information Agreement and
a Patent License Agreement with Lucent Technologies, Inc. (the "Agreement").
Under the Agreement, the Company was granted certain rights to technologies
related to the manufacture of particle analysis systems and related rights to
market such systems. The Agreement has a term of six years, although the
Company is obligated to introduce a commercial particle analysis system which
incorporates the licensed technical information by August 1, 1998. Using the
technology licensed under the Agreement, coupled with other technology already
owned or licensed, the Company intends to develop and, if successful, to
manufacture and market a particle analysis mass spectrometer. This new market
for the Company is expected to include sales to entities involved in
pharmaceuticals, semiconductor, inorganic/organic chemicals, plastics,
glass/ceramics, process control, environmental testing, medical, military,
manufacturing, and quality assurance.
RESULTS OF OPERATIONS
Comparison of Three Months ended June 30, 1997, and 1996
Net Sales
Net sales for the three months ended June 30, 1997, and 1996, were
$2,147,647 and $1,785,904, respectively. This represents an overall increase of
$361,743, or 20.3%, for 1997 as compared to 1996. The increase is due to higher
unit sales for both the core acoustical product families and for the newer
Sensar chemical analysis products. The Company continues to experience
fluctuations in the sales of its chemical analysis products because revenues
from this source results from the sale of a relatively small number of high-
priced systems. As a result, the timing of the sale of a single system can have
a significant impact on the Company's quarterly revenue. The failure to receive
anticipated orders or delays in shipments in a particular quarter may cause
revenue to fall below the Company's expectations. At June 30, 1997, the Company
had orders for three chemical analysis systems, two of which were substantially
completed and awaiting final testing, customer training, and product acceptance
prior to shipment in the next quarter.
Cost of Sales
Cost of sales for the three months ended June 30, 1997, were $1,158,085, or
53.9% of net sales, compared to $1,186,457, or 66.4% of net sales for the three
months ended June 30, 1996. The decreased level in cost of sales as a
percentage of net sales is principally the result of the following factors.
First, the cost of materials, initial production costs and other related
manufacturing costs associated with production of the initial Sensar products
has decreased in 1997 compared to 1996. Management expects the cost of sales
as a percentage of net sales to further decline as product demand is achieved
and standard production processes are established; although this result cannot
yet be assured because the Company continues to have limited production
experience with these products to date.
Second, cost of sales as a percentage of net sales for the quarter ended
June 30, 1996, was higher due to the absorption of fixed costs by lower
than normal sales levels. Finally, in the quarter ended June 30, 1996,
the carrying cost of certain inventories was adjusted downward by
approximately $100,000 to better reflect the lower of cost or market.
This adjustment was charged to, and thereby increased, cost of sales in 1996.
Selling, General, and Administrative
Selling, general, and administrative expenses increased to $1,500,499, or
69.9% of net sales, for the three months ended June 30, 1997, compared to
$1,201,906, or 67.3% of net sales, for the three months ended June 30, 1996.
The increase in the dollar amount of selling, general, and administrative
expenses was principally due to several factors, including increased consulting,
travel, legal, and administrative costs associated with the pursuit of strategic
marketing and research alliances; training and implementation costs associated
with a new electronic data processing system; costs associated with holding the
shareholders' meeting (there was no shareholders' meeting in 1996), including
the preparation of the annual report and the solicitation of proxies; and
increased costs associated with other corporate and marketing activities. In
addition, the Company has incurred costs necessary to establish the
infrastructure to support its potential growth as new products are
commercialized. As product demand is achieved for products currently in
development, selling, general, and administrative expenses as a percentage of
net sales should decline, although no assurance can be made that the Company
will be successful in accomplishing such reduction. The Company does not
currently anticipate that revenues will increase significantly in the last six
months of 1997.
Research and Development
For the three months ended June 30, 1997, research and development costs
were $953,541, or 44.4% of net sales, compared to $739,187, or 41.4% of net
sales, for the three months ended June 30, 1996. The increase in the amount of
research and development over the prior period, as well as over historical
levels, is due to the Company's continuing commitment to the research and
development of new products from technologies acquired in recent years. The
increased expenses principally relate to the employment of additional scientists
and engineers with pertinent experience and education in chemistry, electrical
engineering, software development, and manufacturing production. The increased
costs also include higher expenses associated with materials and supplies used
in the development process and consultation with outside experts. It is
anticipated that research and development costs will continue to exceed
historical levels as a percentage of net sales at least until the development of
new products is completed and significant sales levels of the new products are
achieved.
Comparison of Six Months ended June 30, 1997, and 1996
Net Sales
Net sales for the six months ended June 30, 1997, and 1996, were $4,352,345
and $4,103,334, respectively. This represents an overall increase of $249,011,
or 6.1%, for 1997 as compared to 1996. The overall increase is the net
difference between a decrease in sales of approximately $122,000 in the
acoustical and vibration product families and an increase of approximately
$371,000 in revenue from the Sensar products. Sales of acoustical and vibration
products for the six months ended June 30, 1997, reflect decreases from last
year primarily due to the delayed introduction of certain new products. The
Company originally anticipated that these new acoustical products would be
available at the beginning of 1997. The introduction of the Company's Model 814
and DSP 80 Series products have only recently begun shipping and the
introduction of the Model 824 and associated options have been delayed and are
currently targeted for the fourth quarter of 1997. In the interim, sales of
the Company's prior products declined. Management expects that these recent
introductions and the introduction later this year, will cause acoustical
and vibration products sales to return to and exceed historical levels,
although no assurance can be made that such expectation will be realized.
As mentioned above, the sales attributed to the Company's Sensar products
have increased over last year comparative periods, although not to the levels
originally anticipated by the Company. Sales from this source were
approximately $850,000 for the six months ended June 30, 1997, and the Company
anticipates a slight increase in this amount for the second six months of fiscal
1997. Based on the foregoing, the Company does not currently believe its
revenues for the third and fourth quarter of 1997 will show a substantial
increase over the revenues of the first half of the year.
Cost of Sales
Cost of sales for the six months ended June 30, 1997, were $2,366,452, or
54.4% of net sales, compared to $2,292,048, or 55.9% of net sales for the six
months ended June 30, 1996. The decreased level in costs of sales as a
percentage of net sales is principally the result of two factors, as discussed
above. These factors are decreasing manufacturing costs associated with
production of the initial Sensar products and an inventory adjustment in 1996 to
better reflect the lower of cost or market.
Selling, General, and Administrative
Selling, general, and administrative expenses increased to $2,862,524, or
65.8% of net sales, for the six months ended June 30, 1997, compared to
$2,109,078, or 51.4% of net sales, for the six months ended June 30, 1996. As
discussed above, the increase in the dollar amount of selling, general, and
administrative expenses was principally due to several factors, including
increased costs associated with the pursuit of strategic marketing and research
alliances; costs associated with the implementation of a new electronic data
processing system; costs associated with holding the stockholders' meeting,
including the preparation of the annual report and proxies; and increased costs
associated with other corporate and marketing activities. In addition, the
Company has incurred costs necessary to establish the infrastructure to support
its potential growth as new products are commercialized. As product demand is
achieved for products currently in development, selling, general, and
administrative expenses as a percentage of net sales should decline in the
future, although no assurance can be made that the Company will be successful in
accomplishing such reduction.
Research and Development
For the six months ended June 30, 1997, research and development costs were
$1,900,752, or 43.7% of net sales, compared to $1,320,794, or 32.2% of net
sales, for the six months ended June 30, 1996. As described above, the increase
in the amount of research and development over the prior period, as well as over
historical levels, is due to the Company's continuing commitment to the research
and development of new products from technologies acquired in recent years. The
increased expenses principally relate to the employment of additional scientists
and engineers, costs associated with materials and supplies used in the
development process, and consultation with outside experts. It is anticipated
that research and development costs will continue to exceed historical levels as
a percentage of net sales at least until the development of new products is
completed and significant sales levels of the new products are achieved.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had total current assets of $9,833,073,
including cash and cash equivalents of $3,191,467. The Company had total
current liabilities of $2,232,161, resulting in working capital of $7,600,912
and a working capital ratio of 4.4 to 1. At June 30, 1997, the Company had
drawn $805,904 on its line of credit. The maximum limit on this line of credit
is $3,000,000, although the actual amount that the Company can borrow is
adjusted from time to time based on the amount of eligible accounts receivable
and inventories that secure the line of credit. The line of credit contains
certain covenants including, but not limited to, provisions that the Company
maintain certain levels of net worth, achieve certain results of operations,
meet certain financial ratios, and restrict the amount of capital expenditures.
At times, the Company has been in violation of certain of these covenants. The
lender has waived all violations of these covenants through June 30, 1997.
The Company has significant long-term assets, including intangible assets
totaling $4,960,255 related to product technology acquisition costs, license
rights, software development costs, and goodwill, as well as a long-term
contractual arrangement with a carrying value of $2,756,784. The intangible
assets are being amortized over estimated useful lives ranging from five to
fifteen years. The long-term contractual arrangement is being accounted for on
the cost-recovery method. On an ongoing basis, management reviews the valuation
and amortization periods of these assets to determine possible impairment or
changes in useful lives. Although management believes its estimates of useful
lives and realizability of long-term assets are reasonable, there is no
assurance that actual future results will not differ from current expectations.
In the event of such a change in expectation, the carrying value or amortization
period of the long-term assets would be adjusted which would affect the
Company's results of operations in the period in which such adjustment
occurred.
The Company's primary source of cash for the six months ended June 30,
1997, was the issuance of common stock, principally resulting from the exercise
of stock warrants. The Company has relied on the sale of common stock as a
method to fund increases in working capital, operational losses, and research
and development efforts. During the six months ended June 30, 1997, net
proceeds from the issuance of common stock were $4,116,879. There are currently
issued and outstanding warrants with respect to 1,449,064 shares of common
stock. If all of these warrants were exercised, the Company would receive
additional gross proceeds of $7,426,610. On the satisfaction of certain
conditions, the Company has agreed to issue additional warrants to acquire up to
an aggregate of 1,715,832 shares of common stock at an exercise price of $8.75
per share. There is no obligation on the part of the holders of these rights to
exercise them, and the exercise will largely depend on the price of the
Company's common stock in the public trading market, as to which no assurance
can be given.
The Company's primary uses of cash for the six months ended June 30, 1997,
were funds used in operations of $2,540,190 and the purchase of property and
equipment of $759,513. Management expects that in the short-term, the primary
uses of cash will continue to be operations and the purchase of property and
equipment due to the continued research and development activities.
Additionally, the Company has recently entered into a Technical Information
Agreement and a Patent License Agreement requiring the payment of royalties and
fees over the next six years. Under this Agreement, the Company is obligated to
make an initial payment of $200,000 before August 31, 1997, for the rights
granted thereunder. Additionally, the Company is obligated to pay royalties
equal to a percentage of the market value of items sold pursuant to the
Agreements, subject to a minimum annual royalties ranging from $250,000 for the
year ended June 30, 1999, to $600,000 for the year ended June 30, 2003. The
Agreement have an initial term of six years, although the Company may
effectively extend the Agreements thereafter by continuing to pay the percentage
royalties, subject to a minimum annual royalty of $600,000.
Management believes that existing cash balances and borrowings available
under the line of credit will be adequate to meet the Company's estimated cash
requirements through the end of 1997. The Company intends to continue to fund
its short-term operating and capital requirements through equity financing,
principally through the exercise of stock warrants. As newly developed
products are commercialized and product demand is achieved, management believes
that its long-term operating and capital requirements will be funded
principally through cash generated from operations, supplemented as necessary
from equity or long-term debt financing.
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held an annual meeting of its shareholders on June 25, 1997, at
which management's nominees were elected to serve as directors of the Company
and the 1997 Stock Option and Award Plan, the 1997 Employee Stock Purchase Plan,
and the 1996 Director Stock Option Plan were approved. The specific results are
as follows:
Election of Directors
<TABLE>
<CAPTION>
Nominee Number of Votes For Number of Votes Withheld
- ----------------- ------------------- ------------------------
<S> <C> <C>
Brian G. Larson 9,593,820 65,053
Larry J. Davis 9,593,620 65,253
Dan J. Johnson 9,555,954 102,919
William E. Hosker 9,593,920 64,953
Gerard L. Seelig 9,591,020 67,853
</TABLE>
1997 Stock Option and Award Plan
For 5,031,664 Against 514,881 Abstain 79,763 Non-Votes 4,032,565
1997 Employee Stock Purchase Plan
For 5,363,286 Against 187,587 Abstain 75,435 Non-Votes 4,032,565
1996 Director Stock Option Plan
For 4,870,018 Against 678,859 Abstain 77,431 Non-Votes 4,032,565
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
The following exhibits are included as part of this report:
<TABLE>
<CAPTION>
SEC
Exhibit Reference
Number Number Title of Document
<S> <C> <C>
1 (10) Technical Information Agreement and Patent License
Agreement between Lucent Technologies, Inc., and
Larson Davis Incorporated, effective as of July 1, 1997
2 (27) Financial Data Schedule
</TABLE>
REPORTS ON FORM 8-K
During the quarter ended June 30, 1997, the Company did not file a report
on Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Larson Davis Incorporated
Dated: August 13, 1997 By /s/ Brian G. Larson
Brian G. Larson, President
(Duly Authorized Officer)
Dated: August 13, 1997 By /s/ Craig E. Allen
Craig E. Allen
(Principal Financial and
Accounting Officer)
TECHNICAL INFORMATION AGREEMENT
and
PATENT LICENSE AGREEMENT
between
LUCENT TECHNOLOGIES INC.
and
LARSON-DAVIS, INC.
Effective as of July 1, 1997
Relating to PARTICLE ANALYSIS SYSTEMS
TECHNICAL INFORMATION AGREEMENT
and
PATENT LICENSE AGREEMENT
TABLE OF CONTENTS
ARTICLE I - TRANSFER AND USE OF TECHNICAL INFORMATION
1.01 Furnishing of Information
1.02 Non-Transmission
1.03 U.S. Export Control
1.04 Grants
1.05 Support Services
ARTICLE II - FEES AND PAYMENTS
2.01 Initial Fee
2.02 Fees on Articles
2.03 When Payable
2.04 Records and Adjustments
2.05 Reports and Payments
2.06 Taxes
ARTICLE III - TERMINATION
3.01 Termination for Breach
3.02 Survival
ARTICLE IV - MISCELLANEOUS PROVISIONS
4.01 Agreement Prevails
4.02 Accuracy
4.03 Nothing Construed
4.04 Disclaimer
4.05 LICENSEE's Duties
4.06 Addresses
4.07 Integration
4.08 Nonassignability
4.09 Dispute Resolution
APPENDIX A - DEFINITIONS
APPENDIX B - TECHNICAL INFORMATION
TECHNICAL INFORMATION AGREEMENT
and
PATENT LICENSE AGREEMENT
Effective as of July 1, 1997, LUCENT TECHNOLOGIES, INC., a Delaware corporation
("LUCENT"), having an office at 600 Mountain Avenue, Murray Hill, New Jersey
07974, United States of America and LARSON-DAVIS, INC., a Nevada corporation
("LICENSEE"), having an office at 1681 West 820 North, Provo, Utah 84601, agree
as follows*:
ARTICLE I
TRANSFER AND USE OF TECHNICAL INFORMATION
1.01 Furnishing of Information
(a) Subject to prior receipt by LUCENT of the payment specified in Section
2.01, TECHNICAL INFORMATION shall be furnished to LICENSEE. With the delivery
of TECHNICAL INFORMATION, LICENSEE shall also be furnished a list which
identifies the TECHNICAL INFORMATION delivered. LUCENT and LICENSEE shall
promptly notify each other of any inaccuracies believed present in the list.
All information specified on said list shall be deemed to be a part of the
TECHNICAL INFORMATION with the following qualification: if, within thirty (23)
days after receipt of the list, LICENSEE shall give LUCENT written notice
specifying particular information identified therein which was not actually
received, such specified information shall be deemed deleted from the list until
such information is actually received by LICENSEE.
(b) Section 1.01(a) does not apply to any TECHNICAL INFORMATION previously
furnished for limited use to LICENSEE. Any and all such previously furnished
information shall be deemed also furnished hereunder to LICENSEE as of the
effective date hereof and shall be subject to all requirements hereof as if
furnished solely hereunder.
1.02 Non-Transmission
LICENSEE agrees that it will not, without the prior written consent of LUCENT,
transmit, directly or indirectly, the TECHNICAL INFORMATION or any portion
thereof outside of the United States of America.
*Any term in capital letters which is defined in APPENDIX A - DEFINITIONS shall
have the meaning specified therein.
1.03 U.S. Export Control
LICENSEE hereby assures LUCENT that it will not without a license or license
exception authorized by the Bureau of Export Administration of the U.S.
Department of Commerce, Washington, D.C. 20230, United States of America, if
required:
(i) export or release the information or software (including source code)
obtained pursuant to this Agreement to a national of Country Groups
D:1 or E:2 (15 C.F.R. Part 740, Supp. 1), or Iran, Iraq, Sudan, or
Syria;
(ii) export to Country Groups D:1 or E:2, or to Iran, Iraq, Sudan, or
Syria, the direct product (including processes and services) of the
information or software; or
(iii)if the direct product of the information is a complete plant or
any major component of a plant, export to Country Groups D:1 or E:2,
or to Iran, Iraq, Sudan, or Syria, the di8rect product of the plant or
major component.
This assurance will be honored even after the expiration date of this Agreement.
1.04 Grants
(a) LUCENT grants to LICENSEE a personal, sole (subject to the provisions
of Section 2.02(c)) and non-transferable right, subject to any existing rights
of AT&T Corp. and NCR Corporation, to use the TECHNICAL INFORMATION solely for
the manufacture in LICENSEE's factories in the United States, of PARTICLE
ANALYSIS SYSTEMS, and of maintenance parts therefor.
(b) LUCENT grants to LICENSEE, a personal, non-exclusive and non-
transferable world-wide license to make, use, lease, offer to sell, sell and
import PARTICLE ANALYSIS SYSTEMS under LUCENT's PATENTS. Nothing contained
herein shall be construed as conferring, either by implication, estoppel or
otherwise, any other license or right under any other patent, whether or not the
exercise of any right herein granted necessarily employs an invention of any
other existing or later issued patent.
(c) The licenses granted in Section 1.04(b) herein are not to be construed
either (i) as consent by LUCENT to any act which may be performed by LICENSEE,
except to the extent claimed by LUCENT's PATENTS, or (ii) to include licenses to
contributorily infringe or induce infringement under U.S. law or a foreign
equivalent thereof.
(d) LICENSEE shall promptly notify LUCENT of any improvement, updates or
modifications made by LICENSEE to the TECHNICAL INFORMATION or to inventions
disclosed in LUCENT PATENTS. Upon LUCENT's request, LICENSEE shall furnish
LUCENT with the details of such improvements, updates and modifications. LUCENT
and its RELATED COMPANIES shall have a royalty-free worldwide license to sue
such improvements, updates and modification for internal purposes. In the event
that LICENSEE obtains a patent on any such improvements, updates or
modifications, then LICENSEE agrees to grant LUCENT and its RELATED COMPANIES, a
royalty-free worldwide, non-exclusive license under any such patent to make,
have made, use, lease, offer to sell and sell products and offer services. This
patent license shall continue for the entire term of any such patent. This
Section 1.04(d) shall not apply to improvements, updates or modifications to
technical information or other intellectual property owned by LICENSEE as of
July 1, 1997 and incorporated in the PARTICLE ANALYSIS SYTEMS.
1.05 Support Services
(a) LUCENT will provide support to LICENSEE by committing the services of
one individual for up to twenty (20) days through the period ending August 1,
1999. For such services, LICENSEE will pay LUCENT's out-of-pocket expenses
incurred in providing the services such as travel, lodging and meal
reimbursements.
(b) In addition to the services committed in Section 1.05(a), LUCENT will
provide support to LICENSEE by committing the services of one individual for up
to ten (10) days, for the one year period after PARTICLE ANALYSIS SYTEMS are
generally available in the marketplace. For such services, LICENSEE will pay
LUCENT at a rate of two thousand dollars (U.S. $2,000.00) per day, plus expenses
incurred in providing the services.
(c) If technology is created jointly by employees of LUCENT and LICENSEE,
this technology is created jointly by employees of LUCENT and LICENSEE, this
technology, and any resulting patents and copyrights shall be jointly owned by
the Parties, and may be freely licensed by either Party without an accounting to
the other Party. Technology created separately by the employees of either Party
shall be solely owned by the Party subject to any preexisting intellectual
property rights.
ARTICLE II
FEES AND PAYMENTS
2.01 Initial Fee
In part payment for the rights granted hereunder by LUCENT to LICENSEE, LICENSEE
shall pay to LUCENT the sum of two hundred thousand United States dollars (U.S.
$200,000.00) within sixty (60) days after the execution of this Agreement by
both Parties.
In no event shall the sums paid under this Section 2.01 (or any portion thereof)
be refunded to LICENSEE or be credited toward any other fees due hereunder.
2.02 Fees on Articles
(a) In addition to the fees specified in Section 2.01, LICENSEE shall pay
to LUCENT a fee on ITEMS SUBJECT TO FEE. Such fee shall be equal to a
percentage of the FAIR MARKET VALUE of ITEMS SUBJECT TO FEE, as specified below:
5% of the initial $5 Million of FAIR MARKET VALUE of ITEMS SUBJECT TO FEE
in each successive twelve month period beginning with the twelve month
period starting July 1, 1997, and
8% of all FAIR MARKET VALUE of ITEMS SUBJECT TO FEE in excess of $5 Million
in each successive twelve month period beginning with the twelve month
period starting July 1, 1997.
Upon the expiration of LUCENT's PATENTS, and upon LICENSEE's request, LUCENT
shall consider renegotiating the rates set out in this Section 2.02(a).
(b) Notwithstanding the royalty rate set out in Section 2.02(a), LICENSEE
agrees to pay LUCENT the sum of 2.05 million United States dollars (U.S.
$2,050,000.00). For the convenience of LICENSEE and LUCENT, LICENSEE shall pay
the sum in installments in accordance with the following schedule:
<TABLE>
<CAPTION>
Amount Due
Payment (U.S. Dollars)
<S> <C> <C>
1 $125,000.00 60 days after July 1, 1998
2 $125,000.00 60 days after January 1, 1999
3 $150,000.00 60 days after July 1, 1999
4 $150,000.00 60 days after January 1, 2000
5 $200,000.00 60 days after July 1, 2000
6 $200,000.00 60 days after January 1, 2001
7 $250,000.00 60 days after July 1, 2001
8 $250,000.00 60 days after January 1, 2002
9 $300,000.00 60 days after July 1, 2002
10 $300,000.00 60 days after January 1, 2003
</TABLE>
The obligation of LICENSEE to pay such sum of 2.05 million United States dollars
(U.S. $2,050,000.00) shall survive any termination of this Agreement.
The royalties due pursuant to Section 2.02(a) for each twelve month period will
be credited to the installment payments due for the twelve month period. Also,
to the extent that the sum of the first four installment payments exceed the
royalties due pursuant to Section 2.02(a), this amount will be creditable
against royalties due pursuant to Section 2.02(a) which are in excess of the
installment payments due in payments five through ten.
(c) LUCENT agrees not to license the TECHNICAL INFORMATION to any third
party for the manufacture of PARTICLE ANALYSIS SYSTEMS, for the six year period
following the effective date of this Agreement, if LICENSEE introduces a
commercial PARTICLE ANALYSIS SYSTEM which incorporates the TECHNICAL INFORMATION
by August 1, 1998. After July 1, 2003, LUCENT agrees not to license the
TECHNICAL INFORMATION to any third party for the manufacture of PARTICLE
ANALYSIS SYSTEMS, if, within sixty days after the en of each semiannual period
starting on January 1st or July 1st, commencing with the semiannual period
starting on July 1, 2003, LICENSEE makes a payment of three hundred thousand
United States dollars ($300,000.00). LUCENT retains all rights (i) to use
TECHNICAL INFORMATION for its own business purposes, and (ii) to have others use
TECHNICAL INFORMATION for LUCENT's own business purposes.
The payments due pursuant to this Section 2.02(c) during each twelve month
period, beginning with the twelve month period starting July 1, 2003, will be
credited against royalties due pursuant to Section 2.02(b) during such twelve
month period.
(d) In further compensation for the licenses granted herein by LUCENT,
LICENSEE will furnish to LUCENT one complete commercial stand-alone PARTICLE
ANALYSIS SYSTEM. LUCENT shall have title to such PARTICLE ANALYSIS SYSTEM. In
further compensation for the licenses granted herein by LUCENT, LICENSEE will
furnish to LUCENT (i) a data system and detector and (ii) a gas handling and
purification system for the testing of PARTICLE ANALYSIS SYSTEMS. LICENSEE shall
furnish the aforementioned equipment within thirty days from the date that all
of the equipment is available. LUCENT may retain the data system detector and
gas handling and purification system equipment for one year from receipt of the
equipment. LICENSEE agrees to sell or lease to LUCENT PARTICLE ANALYSIS SYSTEMS
on terms at least as favorable as those provided to any third party.
2.03 When Payable
The fee specified in Section 2.02(a) shall accrue in respect to any ITEM SUBJECT
TO FEE upon the first sale, lease or putting into use of such ITEM SUBJECT TO
FEE.
2.04 Records and Adjustments
(a) LICENSEE shall keep full, clear and accurate records with respect to
all ITEMS SUBJECT TO FEE and shall furnish any information with LUCENT may
reasonably prescribe from time to time to enable LUCENT to ascertain (i) which
articles (and maintenance parts therefor) sold, leased or put into use by
LICENSEE are subject to the payment of fees to LUCENT, and (ii) the proper fee
amounts due hereunder on account of the selling, leasing or putting into use of
ITEMS SUBJECT TO FEE. LICENSEE shall retain such records with respect to each
ITEM SUBJECT TO FEE for at least seven (7) years from the sale, lease or putting
into use of such ITEM SUBJECT TO FEE. LUCENT shall have the right through its
accredited auditors to make examinations, during normal business hours, of all
records and accounts bearing upon the amounts of fees payable to it under this
Agreement. Prompt adjustment shall be made by the proper Party to compensate
for any errors or omissions disclosed by any such examination.
(b) Independent of any such examination, LUCENT will credit to LICENSEE
the amount of any overpayment made in error which is identified and fully
explained in a written notice to LUCENT delivered within twelve (12) months
after the due date of the payment which included such alleged overpayment,
provided that LUCENT is able to verify, to its own satisfaction, the existence
and extent of the overpayment.
(c) No refund, credit or other adjustment of fee payments shall be made by
LUCENT except as provided in Sections 2.02(b) and (c) and 2.04. Rights
conferred by this Section 2.04 shall not be affected by any statement appearing
on any check or other document, except to the extent that any such right is
expressly waived or surrendered by a Party having such right and signing such
statement.
2.05 Reports and Payments
(a) Within sixty-one (61) days after the end of each semiannual period
ending on June 30th or December 31st, commencing with the semiannual period
during which this Agreement becomes effective, LICENSEE shall furnish to LUCENT
a statement, in form acceptable to LUCENT, certified by a responsible official
of LICENSEE, showing all ITEMS SUBJECT TO FEE, by classes of articles, which
were sold, leased or put into use during such semiannual period, the FAIR MARKET
VALUES of such ITEMS SUBJECT TO FEE and the amounts of fees payable thereon. If
no ITEM SUBJECT TO FEE has been so sold, leased or put into use, that fact shall
be shown on such statement.
(b) Within such sixty-one (61) days, LICENSEE shall, irrespective of its
own business and accounting methods, pay in United States dollars to LUCENT the
fees payable for such semiannual period as shown in the statement required by
Section 2.05(a). Such statement, together with the payment for the fees shown
therein, shall be sent to LUCENT at its address specified by Section 4.07. Any
conversion to United States dollars shall be at the prevailing rate for bank
cable transfers in New York City as quoted for the last day of such semiannual
period by leading United States banks in New York City dealing in the foreign
exchange market.
(c) Overdue payments hereunder shall be subject to a late payment charge
calculated at an annual rate of three percentage points (3%) over the prime rate
(as posted in new York City) during delinquency. If the amount of such charge
exceeds the maximum permitted by law, such charge shall be reduced to such
maximum.
2.06 Taxes
LICENSEE shall pay any tax, duty, levy, customs fee, or similar charge
("taxes"), including interest and penalties thereon, however designated, imposed
as a result of the operation or existence of this Agreement, including taxes
which LICENSEE is required to withhold or deduct from payments to LUCENT, except
income taxes imposed upon LUCENT by any governmental entity.
ARTICLE III
TERMINATION
3.01 Termination for Breach
(a) If LICENSEE shall breach this Agreement, LUCENT may, in addition to
any other remedies that it may have, at any time terminate all the rights
granted by LUCENT to LICENSEE. LUCENT shall provide LICENSEE with not less than
two (2) months' written notice specifying any such breach, unless within the
period of such notice all breaches specified therein shall have been remedied.
(b) In the event of any breach of this Agreement by LUCENT or its
SUBSIDIARIES, or of any loss or injury to LICENSEE arising out of this
Agreement, for which LUCENT or its SUBSIDIARIES is liable to LICENSEE, LUCENT's
and its SUBSIDIARIES' total cumulative liability to LICENSEE for all such
breaches, losses and injuries shall be the lesser of (i) the actual value of the
injury or loss to LICENSEE or (ii) the total fees paid to LUCENT under this
Agreement.
3.02 Survival
Any termination pursuant to Section 3.01 shall not affect LICENSEE's rights and
obligations with respect to any article made with the use of any of the
TECHNICAL INFORMATION prior to such termination. In the event of such
termination, LUCENT shall have no obligation to make any refund. LICENSEE's
obligations under Sections 1.02, 1.03, 2.02(b) and 4.05(ii) shall survive and
continue after any termination of rights under this Agreement.
ARTICLE IV
MISCELLANEOUS PROVISIONS
4.01 Agreement Prevails
This Agreement shall prevail in the event of any conflicting terms or legends
which may appear on the TECHNICAL INFORMATION.
4.02 Accuracy
LUCENT believes that the TECHNICAL INFORMATION is true and accurate, but LUCENT
and its SUBSIDIARIES shall not be held to any liability for errors or omissions
therein.
4.03 Nothing Construed
Neither the execution of this Agreement nor anything in it or in the TECHNICAL
INFORMATION shall be construed as:
(i) an obligation upon LUCENT or its SUBSIDIARIES to furnish any person,
including LICENSEE, any assistance of any kind whatsoever, or any
information other than: (a) the TECHNICAL INFORMATION; (b) any
revision, supplement or elaboration upon the TECHNICAL INFORMATION;
(c) support under Section 1.05; or
(ii) providing or implying any arrangement or understanding that LUCENT or
its SUBSIDIARIES will make any purchase, lease, examination or test or
give any approval.
4.04 Disclaimer
LUCENT represents that it has all rights necessary to grant the rights and
licenses to LICENSEE as set forth in this Agreement. Except as expressly
provided in this Section 4.04, LUCENT and its SUBSIDIARIES make no
representations or warranties, expressly or impliedly. By way of example but
not of limitation, LUCENT and its SUBSIDIARIES make no representations or
warranties of merchantability or fitness for any particular purpose, or that the
use of the TECHNICAL INFORMATION or any of its will not infringe any patent or
other intellectual property right. LUCENT and its SUBSIDIARIES shall not be
held to any liability with respect to any claim by LICENSEE or any third party
on account of, or arising from, the use of the TECHNICAL INFORMATION or any of
it.
4.05 LICENSEE's Duties
(i) that LICENSEE will not use any TECHNICAL INFORMATION except as
authorized herein;
(ii) that LICENSEE shall hold all of the TECHNIAL INFORMATION in confidence
for LUCENT and shall not make any disclosure of any or all of such
TECHNICAL INFORMATION to anyone, except to employees of LICENSEE who
have a need to known and to any others to whom such disclosure may be
expressly authorized hereunder and is necessary to implement the use
for which rights are granted hereunder, and the LICENSEE shall
appropriately notify each person to whom any such disclosure is made
that such disclosure is made in confidence and shall be kept in
confidence by such person; provided that LICENSEE shall not be
required so to do in respect of portions of the TECHNICAL INFORMATION,
if any, (a) which were previously known to LICENSEE free of any
obligations to keep confidential, or (b) which have become generally
known to the public, provided that such public knowledge was not the
result of any act attributable to LICENSEE, or (c) which LUCENT
otherwise explicitly agrees in writing need not be kept confidential;
(iii)that, unless otherwise agreed to in writing by LUCENT, LICENSEE
will continue to pay fees and perform record-keeping and reporting
obligations, in accordance with Article II, with respect to ITEMS
SUBJECT TO FEE, notwithstanding any applicability of any exception of
Section 4.05(ii) to any or all of the TECHNICAL INFORMATION.
(iv) that LICENSEE will not, without LUCENT's express written permission,
make or have made, or permit to be made, more copies of any of the
furnished TECHNICAL INFORMATION than are necessary for its use
hereunder, and that each such copy shall contain the same proprietary
notices or legends which appear on the furnished TECHNICAL
INFORMATION;
(v) that no right is granted herein to use any identification (such as,
but not limited to, trade names, trademarks, trade devices, service
marks or symbols, and abbreviations, contractions or simulations
thereof) owned by or used in identify LUCENT or any of its
SUBSIDIARIES or any of its or their products, services or
organizations, and that LICENSEE agrees it will not, without the prior
written permission of LUCENT, (i) use any such identification in
advertising, publicity, packaging, labeling or in any other manner to
identify itself or any of its products, services or organizations or
(ii) represent directly or indirectly that any product, service or
organization of LICENSEE is a product, service or organization of
LUCENT or any of its SUBSIDIARIES, or that any product or service of
LICENSEE is made in accordance with or utilizes any information of
LUCENT or any of its SUBSIDIARIES provided that LICENSEE shall be
entitled to identify PARTICLE ANALYSIS SYSTEMS incorporating TECHNICAL
INFORMATION are based on technology developed by Lucent Technologies
Inc., Bell Laboratories; and
(vi) that all TECHNICAL INFORMATION shall be deemed the property of
LUCENT, and upon any termination of all rights granted to LICENSEE
hereunder pursuant to Article III hereof, LICENSEE shall immediately
cease all use of the TECHNICAL INFORMATION and shall, as directed by
LUCENT, promptly destroy or deliver to LUCENT each and every part
specified by LUCENT of the TECHNICAL INFORMATION then under LICENSEE's
control.
(vii) that LICENSEE will not, without written permission from
LUCENT, upon any sale, lease or other transfer of any manufacturing
facility (including any testing facility) or part thereof, made with
the use of any of the TECHNICAL INFORMATION, make any of the TECHNICAL
INFORMATION (including but not limited to information relating to
reassembly, installation, operation, maintenance or repair) available
to the vendee, lessee or other transferee, and that, upon the original
sale, lease or other transfer of each such manufacturing facility or
part thereof, LICENSEE will give notice in writing to LUCENT of the
fact of such transfer, identifying the vendee, lessee or other
transferee of such manufacturing facility or part thereof, and will
give to such transferee the following notice in a written advice
appropriately relating such equipment to such notice.
The transfer of this equipment shall not convey to any transferee any
license or right, express or implied, under any patent issued in any
country of the world. This is true whether or not the patented
invention is directed to the structure or any portion of the structure
of the equipment, and whether or not the sue of the equipment
necessarily requires the sue of the patented invention or necessary
produces an article that embodies the patented invention.
LUCENT TECHNOLOGIES INC. may be contacted with respect to the
availability, if any, of licenses under relevant patents.
Upon any transfer of the equipment, the transferor shall give this
notice (including this paragraph) to the transferee in writing,
appropriately relating this notice to the equipment.
4.06 Addresses
(a) Any notice or other communication hereunder shall be sufficiently
given to the LICENSEE when sent by certified mail addressed to 1681 West 820
North, Provo, Utah 84601, Attn: Brian Larson, President, or to LUCENT when sent
by certified mail addressed to Contract Administrator, Intellectual Property
Division, Lucent Technologies inc., 2333 Ponce de Leon Boulevard - Suite 511,
Coral Gables, Florida 33134, United States of America. Changes in such
addresses may be specified by written notice.
(b) Payments by the LICENSEE shall be made to LUCENT at Sun Trust, P. O.
Box 913021, Orlando, Florida, 32891-3021, United States of America.
Alternatively, payments to LUCENT may be made by bank wire transfers to LUCENT's
account: Lucent Technologies Licensing, Account No. 910-2-568475, at Chase
Manhattan Bank, N.A., 55 Water Street, New York, New York 10041,k 11245, United
States of America, Swift Code: CHASUS33, ABA Code: 021000021. Changes in such
address or account may be specified by written notice.
4.07 Integration
This Agreement sets forth the entire agreement and understanding between the
Parties as to the subject matter hereof and merges all prior discussions between
them. Neither of the Parties shall be bound by any warranties, understandings
or representations with respect to such subject matter other than as expressly
provided herein, in prior written agreements, or in a writing signed with or
subsequent to the execution hereof by an authorized representative of the Party
to be bound thereby.
4.08 Nonassignability
The Parties hereto have entered into this Agreement in contemplation of personal
performance by LICENSEE and intend that the rights granted to LICENSEE hereunder
not extend to other entities without LUCENT's express written consent.
Accordingly, neither this Agreement nor any of LICENSEE's rights hereunder shall
be assignable or transferable (in insolvency proceedings or otherwise) without
such consent. LUCENT, however, may assign rights under this Agreement without
the consent of LICENSEE.
4.09 Dispute Resolution
(a) If a dispute arises out of or relates to this Agreement, or the
breach, termination or validity thereof, the Parties agree to submit the dispute
to a sole mediator selected by the Parties or, at any time at the option of a
Party, to mediation by the American Arbitration Association ("AAA"). If not
thus resolved, it shall be referred to a sole arbitrator selected by the Parties
within thirty (30) days of the mediation, or in the absence of such selection,
to AAA arbitration which shall be governed by the United States Arbitration Act.
(b) Any award made (i) shall be a bare award limited to a holding for or
against a Party and affording such remedy as is deemed equitable, just and
within the scope of the Agreement; (ii) shall be without findings as to issues
(including but not limited to patent validity and/or infringement) or a
statement of the reasoning on which the award rests; (iii) may in appropriate
circumstances (other than patent disputes) including injunctive relief; (iv)
shall be made within four (4) months of the appointment of the arbitrator; and
(v) may be entered in any court.
(c) The requirement for mediation and arbitration shall not be deemed a
waiver of any right of termination under this Agreement and the arbitrator is
not empowered to act or make any award other than based solely on the rights and
obligations of the Parties prior to any such termination.
(d) The arbitrator shall be knowledgeable in the legal and technical
aspects of this Agreement and shall determine issues of arbitrability but may
not limit, expand or otherwise modify the terms of the Agreement.
(e) The Agreement shall be interpreted in accordance with the laws of the
State of New York exclusive of its conflict of laws provisions and the place of
mediation and arbitration shall be New York City.
(f) Each Party shall bear its own expenses but those related to the
compensation and expenses of the mediator and arbitrator shall be borne equally.
(g) A request by a Party to a court for interim measures shall not be
deemed a waiver of the obligation to mediate and arbitrate.
(h) The arbitrator shall not have authority to award punitive or other
damages in excess of compensatory damages and each Party irrevocably waives any
claim thereto.
(i) The Parties, their representatives, other participants and the
mediator and arbitrator shall hold the existence, content and result of
mediation and arbitration in confidence.
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed
in duplicate originals by its duly authorized representative on the respective
dates entered below.
LUCENT TECHNOLOGIES INC.
By /s/ M.R. Greene
M.R. Greene
Vice President - Intellectual Property
Date June 24, 1997
LARSON-DAVIS, INC.
By /s/ Brian G. Larson
Title President
Date June 23, 1997
APPENDIX A - DEFINITIONS
PARTICLE ANALYSIS SYSTEMS means an instrumentality or aggregate of
instrumentalities of a design primarily adapted for determining in real time,
the size and/or composition of sub-micron aerosol particles.
LUCENT'S PATENTS means U.S. Patent No. 5,382,794 entitled "Laser Induced Mass
Spectrometry" and U.S. Patent No. 5,631,462 entitled "Laser-Assisted Particle
Analysis", to be issued in mide-1997, as well as any continuation, division, and
any foreign equivalents of the foregoing.
FAIR MARKET VALUE means, with respect to any ITEM SUBJECT TO FEE sold, leased or
put into use, the greater of:
(i) the selling price which a seller would realize from an unaffiliated
buyer in an arm's length sale of an identical item in the same
quantity and condition and at the same time and place as such sale,
lease or putting into use; or
(ii) the selling price actually obtained for such item in the form in which
it was sold;
whether or not such item is then assembled, and without excluding the value of
any components or subassemblies which are included in such item. FAIR MARKET
VALUE shall not include any taxes, handling and shipping charges, or credits for
returns or adjustments.
ITEM SUBJECT TO FEE means PARTICLE ANALYSIS SYSTEMS, and any maintenance parts
therefor, (i) which are manufactured under Section 1.04 with the use of any of
the TECHNICAL INFORMATION (including any such article, and any maintenance part
therefor, manufactured under Section 1.04 with manufacturing facilities made
with the use of any of the TECHNICAL INFORMATION), or (ii) which practices the
inventions as claimed in LUCENT's PATENTS.
SUBSIDIARY of a company means a corporation or other legal entity (i) the
majority of whose shares or other securities entitled to vote for election of
directors (or other managing authority) is now or hereafter controlled by such
company either directly or indirectly; or (ii) which does not have outstanding
shares or securities but the majority of whose ownership interest representing
the right to manage such corporation or other legal entity is now or hereafter
owned and controlled by such company either directly or indirectly; but any such
corporation or other legal entity shall be deemed to be a SUBSIDIARY of such
company only as long as such control or ownership and control exists.
TECHNICAL INFORMATION means all informative material furnished and demonstrated
to LICENSEE pursuant to this Agreement (including all copies of material
furnished hereunder) relating to PARTICLE ANALYSIS SYSTEMS and the term also
means the information contained in the material, such material being more fully
identified in APPENDIX B.
RELATED COMPANIES means SUBSIDIARIES of the company and any other company so
designated in writing signed by LUCENT and LICENSEE.
APPENDIX B - TECHNICAL INFORMATION
Table of Contents
I Overview Document "Ultra-Sensitive Particle Analysis System" 1-21
II. Particle Introduction System 22-25
III. Laser Power and Alignment 26-30
IV. Formula for Calculating Particle Size Based on detected Ion Signal 31
V. Detailed Description of Miniaturized Particle Analysis System 32-51
Capable of Detecting, Characterizing, and Sizing Sub-Micro
Particles
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE BALANCE SHEET AS OF JUNE 30, 1997, AND STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1997, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,191,467
<SECURITIES> 0
<RECEIVABLES> 2,534,431
<ALLOWANCES> 40,000
<INVENTORY> 4,008,291
<CURRENT-ASSETS> 9,833,073
<PP&E> 4,609,625
<DEPRECIATION> 2,331,808
<TOTAL-ASSETS> 20,725,918
<CURRENT-LIABILITIES> 2,232,161
<BONDS> 0
<COMMON> 11,520
0
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<OTHER-SE> 17,038,182
<TOTAL-LIABILITY-AND-EQUITY> 20,725,918
<SALES> 2,147,647
<TOTAL-REVENUES> 2,147,647
<CGS> 1,158,085
<TOTAL-COSTS> 1,158,085
<OTHER-EXPENSES> 2,454,040
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67,705
<INCOME-PRETAX> (1,479,468)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,479,468)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<EPS-PRIMARY> (0.13)
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