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, 1998
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
LarsonoDavis 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 5, 1998, the Issuer had 12,779,610 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, 1998
(unaudited), and December 31, 1997 (the end of the Company's most recently
completed fiscal year), and unaudited consolidated statements of operations for
the three and six months ended June 30, 1998 and 1997, and unaudited
consolidated statements of cash flows for the six months ended June 30, 1998 and
1997, 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-K for the year ended December 31, 1997.
LARSON DAVIS INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------------- --------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,764,043 $ 1,212,473
Trade accounts receivable, net of
allowance for doubtful accounts 1,493,760 2,215,945
Inventories 2,776,804 2,631,562
Other current assets 283,409 100,460
-------------- --------------
Total current assets 6,318,016 6,160,440
Property and equipment, net of
accumulated depreciation
and amortization 2,001,923 2,165,467
Assets under capital lease obligations,
net of accumulated amortization 538,958 681,576
Long-term contractual arrangement, net
of accumulated cost recoveries 12,500 87,500
Intangible assets, net of accumulated
amortization 2,901,172 3,100,447
-------------- --------------
$ 11,772,569 $ 12,195,430
============== ==============
</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,
1998 1997
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited)
<S> <C> <C>
Current liabilities:
Line of credit $ - $ 1,198,766
Accounts payable 627,212 1,080,624
Accrued liabilities 883,132 1,518,147
Current maturities of long-term debt 720,196 50,729
Current maturities of capital lease obligations 209,006 218,649
-------------- --------------
Total current liabilities 2,439,546 4,066,915
Long-term debt, less current maturities 20,838 716,697
Capital lease obligations, less current maturities 425,885 558,815
-------------- --------------
Total liabilities 2,886,269 5,342,427
-------------- --------------
Commitments and contingencies - -
Stockholders' equity:
Preferred stock, $0.001 par value; authorized
10,000,000 shares; issued and outstanding
3,500 shares at June 30, 1998, and zero
shares at December 31, 1997 4 -
Common stock, $0.001 par value; authorized
290,000,000 shares; issued and outstanding
12,550,556 shares at June 30, 1998, and
12,125,393 shares at December 31, 1997 12,551 12,125
Additional paid-in capital 30,682,837 26,097,332
Accumulated deficit (21,100,392) (19,251,591)
Notes receivable from exercise of options (774,684) (69,375)
Cumulative foreign currency translation
adjustment 65,984 64,512
-------------- --------------
Total stockholders' equity 8,886,300 6,853,003
-------------- --------------
$ 11,772,569 $ 12,195,430
============== ==============
</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,
--------------------------------- ---------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 2,421,203 $ 2,147,647 $ 4,777,341 $ 4,352 345
------------ ------------ ------------ ------------
Costs and operating expenses:
Cost of sales 1,358,581 1,158,085 2,679,579 2,366,452
Research and development 739,036 953,541 1,597,815 1,900,752
Selling, general, and administrative 1,100,059 1,500,499 2,228,596 2,862,524
------------ ------------ ------------ ------------
3,197,676 3,612,125 6,505,990 7,129,728
------------ ------------ ------------ ------------
Operating loss (776,473) (1,464,478) (1,728,649) (2,777,383)
------------ ------------ ------------ ------------
Other income (expense):
Interest income 43,187 48,814 77,287 92,813
Interest expense (21,314) (67,705) (87,966) (142,437)
Other, net 4,717 3,901 (56,552) 4,460
------------ ------------ ------------ ------------
26,590 (14,990) (67,231) (45,164)
------------ ------------ ------------ ------------
Loss before income taxes (749,883) (1,479,468) (1,795,880) (2,822,547)
Income tax expense - - - -
------------ ------------ ------------ ------------
Net loss $ (749,883) $ (1,479,468) $ (1,795,880) $ (2,822,547)
============ ============ ============ ============
Loss per common share:
Primary $ (0.06) $ (0.13) $ (0.15) $ (0.25)
Fully diluted (0.06) (0.13) (0.15) (0.25)
Weighted average common and common
equivalent shares:
Primary 12,546,044 11,418,781 12,449,273 11,267,295
Fully diluted 12,546,044 11,418,781 12,449,273 11,267,295
</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,
--------------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities
Net loss $ (1,795,880) $ (2,822,547)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation 275,233 258,351
Amortization 300,618 307,017
Stock issued in payment of compensation 148,313 43,698
Gain on sale of property and equipment (2,858) (4,460)
Changes in assets and liabilities:
Trade accounts receivable 722,185 64,151
Inventories (145,242) 88,154
Other current assets (182,949) 31,212
Accounts payable (453,412) (434,791)
Accrued liabilities (687,305) (70,975)
-------------- --------------
Net cash used in operating activities (1,821,297) (2,540,190)
-------------- --------------
Cash flows from investing activities
Purchase of property and equipment (130,040) (759,513)
Proceeds from sale of property and equipment 61,851 43,260
Payments for intangible assets - (51,475)
Collection of loans to officers - -
Proceeds from long-term contractual arrangement 75,000 115,230
-------------- --------------
Net cash used in investing activities 6,811 (652,498)
-------------- --------------
Cash flows from financing activities
Net change in line of credit (1,198,766) (227,114)
Proceeds from long-term obligations - 25,486
Principal payments of long-term debt (26,392) (86,704)
Net proceeds from issuances of common stock and
exercise of options and warrants 3,732,314 4,116,879
Principal payments on capital lease obligations (142,573) (111,358)
Preferred dividends - (15,000)
-------------- --------------
Net cash provided by financing activities 2,364,583 3,702,189
-------------- --------------
Effect of exchange rates on cash 1,473 (14,576)
-------------- --------------
Net increase in cash and cash equivalents 551,570 494,925
Cash and cash equivalents at beginning of period 1,212,473 2,696,542
-------------- --------------
Cash and cash equivalents at end of period $ 1,764,043 $ 3,191,467
============== ==============
</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-K for the year ended December 31 1997. 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,
1998, its consolidated results of operations for the three months ended June 30,
1998 and 1997, and its consolidated results of operations and cash flows for the
six months ended June 30, 1998 and 1997. The results of operations for the
three months and six months ended June 30, 1998, may not be indicative of the
results that may be expected for the year ending December 31, 1998.
(B) Earnings (Loss) Per Common Share
Basic earnings (loss) per common share is computed by dividing net earnings
(loss) available to common shareholders by the weighted average number of common
shares outstanding during each period. Diluted earnings (loss) per common share
are similarly calculated, except that the weighted average number of common
shares outstanding includes common shares that may be issued subject to existing
rights with dilutive potential.
(C) Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Raw materials $ 1,161,506 $ 1,127,335
Work in process 825,434 700,055
Finished goods 789,864 804,172
------------- -------------
$ 2,776,804 $ 2,631,562
============= =============
</TABLE>
(D) Subsequent Event
On July 1, 1997, the Company entered into a Technical Information Agreement and
a Patent License Agreement with Lucent Technologies, Inc. (the "Agreement").
Under the Agreement, the Company held 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
intended to develop and, if successful, to manufacture and market a particle
analysis mass spectrometer.
Under the Agreements, the Company was 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.
The Company has been working closely with Lucent over the past two quarters to
substantiate the performance specification of the technology and to assess the
market potential of this technology in light of the final specification. The
Company has concluded, that based on the market size for the product, the
difficulties facing the semiconductor market currently, the required investment
to bring the product to market, and the overall risk associated with the
technology, not to proceed with this development project. Lucent has been
apprised of the situation and negotiations have commenced to release the Company
in full from its obligations due to the material change in circumstances since
the original Agreement was signed.
In October 1995, the Company acquired all of the outstanding stock of Sensar
Corporation ("Sensar"). At the time, the business contained within Sensar
consisted of its Time of Flight technology as applied to its TOF 2000
instrumentation. The TOF 2000 has been distributed on an exclusive basis over
the past three years by SAES Getters S.p.A., a global supplier of "Getter"
filters. Unfortunately, this product has failed to meet its full potential in
the market place and negotiations commenced in July, 1998, with SAES Getters,
which may lead to the termination of the exclusive distribution arrangement.
The Company is now evaluating the future of the product and will make a decision
concerning its long-term viability in the third quarter. Should the Company
decide not to continue marketing the product, this would cause the Company to
reevaluate the carrying value of certain of its assets.
In February 1998, the Company completed the private placement of 100 Units, each
Unit consisting of 35 shares of 1998 Series A Preferred Stock (the "Preferred
Stock") and 7,000 Warrants to purchase common stock, at a purchase price of
$35,000 per unit. The Preferred Stock is now convertible at the election of the
holder into that number of shares of common stock calculated by dividing $1,000
plus any accrued but unpaid dividends, by the lower of (i) $3.60 or (ii) 85% of
the average closing price of the common stock for the ten trading days preceding
the conversion.
On July 20,1998, the Company received notice of the intention of holders of
306.25 Units to convert. In accordance with the formula laid out above, the
Company duly issued 229,054 shares of common stock. This represented
approximately 1.8% of the total issued common stock of the Company prior to the
conversion.
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-K for the year ended December 31,
1997.
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, the
market acceptance of products, 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 generate sufficient
revenue such that it can support its current cost structure without which the
Company would need to obtain 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 four 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 now been developed into a number of sophisticated
analytical instruments in addition to its historical acoustic and vibration
business.
The Company has recently launched three products into the market from these
technology rights, the "Jaguar" mass spectrometer, the series 3000 "SFC," and
the high-end electrical resistance monitor called "Crosscheck." Marketing of all
these products commenced in the second quarter of this year and the Company is
now generating revenue from each of them. As such, Sensar's research and
development activity is currently focused towards applications of specific
projects to support the Company's sales and marketing activity. Only limited
new product development activity is anticipated for the remainder of this year.
On the acoustics side, the Company continues to invest aggressively in new
product development with the intention of upgrading the product line over the
coming 18 months and improving its technical competitiveness. Several new
products are planned for launch later this year and early 1999. The Company
believes that this will help restore the Company's growth profile and improve
its financial performance.
The Company believes that the combination of the cost cutting initiatives
which it introduced at the beginning of this year combined with revenue
generation from the Sensar technologies will enable the Company to reduce its
lossmaking performance to date, with the overall goal of bringing the Company to
a profitable run rate towards the end of this year.
While management of the Company continues to believe that it has developed
a range of products designed to meet the needs of end users in several
significant markets, the products currently being launched by the Company are
designed for sophisticated applications which require significant after market
attention, and there can be no assurance that the Company will be successful in
its sales and marketing efforts due to the relative size of the Company in
comparison to some of its competitors, 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 disappointing in 1998. This has
been as a result of several factors, including the severe slow down in the
semiconductor market affecting capital purchases, some product performance
issues arising from shipments in 1997, and from structural changes within the
market itself. The Company currently markets this product to the semi-conductor
industry through SAES Getters S.p.A. ("SAES"). The Company has an exclusive
agreement with SAES requiring certain minimum purchases of instruments. SAES
did not meet its commitments in 1997 and is unlikely to do so in 1998. The
Company has, therefore, entered into negotiations with SAES, which may lead to
the termination of this exclusive agreement.
The Company has recently terminated its marketing agreement with Weidemann.
This agreement was terminated by mutual consent due to the lack of progress in
commercializing the Company's Crosscheck technology for the utilities market.
Specifically, the Company had hoped to be selling the Crosscheck technology for
applications in the oil transformer market where the Crosscheck sensor can
accurately indicate deterioration in oils over time. Since the termination of
this agreement, the Company has approached several utility companies directly
and has begun the process of product evaluation directly with the end user. In
addition, the Company is continuing to work with a major pipeline company to
develop a product for detecting the transition of oil within pipelines. These
projects are at an early stage, however preliminary results appear promising.
However, the successful commercialization of Crosscheck for this application is
subject to a number of risks and unknowns, including final technical
feasibility, market acceptance, and acceptable commercial terms.
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 research and development activities and general
operations. It is anticipated the Company will continue to experience operating
losses until the new products which have been brought to market begin to
generate significantly large enough sales to substantially increase the
Company's revenue. The Company currently has adequate resources to continue its
development plans through the end of the fiscal year 1998, provided it continues
to meet its forecast for revenues in the third and fourth quarters of 1998.
Should the Company fail to meet its revenue generation goals, it would be unable
to sustain its current level of overhead and would either need to reduce its
commitment to certain projects or to raise additional financing. 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.
RESULTS OF OPERATIONS
Comparison of Three Months Ended June 30, 1998 and 1997
Net Sales
Net sales for the three months ended June 30, 1998 and 1997, were
$2,421,203 and $2,147,647, respectively. This represents an overall increase of
$273,556, or 12.7%, for 1998 as compared to 1997. The increase is due to higher
unit sales for both the core acoustical product families and for the Sensar
technologies, including the TOF 2000. No significant revenue was obtained from
the Jaguar and SFC lines in this quarter. At June 30, 1998, the Company had an
order backlog of $405,000.
Cost of Sales
Cost of sales for the three months ended June 30, 1998, were $1,358,581, or
56.1% of net sales, compared to $1,158,085, or 53.9% of net sales, for the three
months ended June 30, 1997. The increase in the cost of sales is attributable
to the Sensar sales where additional costs have been expensed due to product
upgrades for the TOF 2000. The acoustics division continues to see improved
cost of sales due to the impact of cost reduction programs and efficiency gains.
As the volume of products shipped from Sensar increases, it is anticipated
that the cost of sales percentage will decrease as the impact of learning curve
inefficiencies are worked through and more aggressive procurement activities can
be introduced. In addition, the absorption of fixed overhead costs over a
larger unit volume will also improve operating performance. These improvements
are entirely dependent on the increased product demand from the launch of the
new products outlined above.
Selling, General, and Administrative
Selling, general, and administrative expenses decreased to $1,100,059, or
45.4% of net sales, for the three months ended June 30, 1998, compared to
$1,500,499, or 69.9% of net sales, for the three months ended June 30, 1997.
The decrease in the dollar amount of selling, general, and administrative
expenses was principally due to several factors, including headcount reduction,
cost control, and more aggressive procurement practices. As product demand is
achieved for products recently launched, selling, general, and administrative
expenses as a percentage of net sales should decline. The Company will continue
to invest in start-up marketing costs for the remaining six months of 1998 as it
launches its new products.
Research and Development
For the three months ended June 30, 1998, research and development costs
were $739,036, or 30.5% of net sales, compared to $953,541, or 44.4% of net
sales, for the three months ended June 30, 1997. The decrease in the amount of
research and development over the prior period, as well as over recent
historical levels, is due to several factors, including headcount reduction,
cost control, and more aggressive procurement practices, as well as improved
prototype management. It is anticipated that research and development costs
will continue to decrease as a percentage of net sales, provided that the new
products gain market acceptance and generate the revenue stream outlined above.
Comparison of Six Months Ended June 30, 1998 and 1997
Net Sales
Net sales for the six months ended June 30, 1998 and 1997, were $4,777,341
and $4,352,345, respectively. This represents an overall increase of $424,996,
or 9.8%, for 1998 as compared to 1997. The overall increase is the combination
of a slight increase in sales of approximately $20,000 in the acoustical and
vibration product families and an increase of approximately $405,000 in revenue
from the Sensar products. Sales of acoustical and vibration products for the
six months ended June 30, 1998, reflect the impact of the loss of business in
the Asian market place offset by a strong performance in Europe and the impact
of the successful launch of the 824 product.
As mentioned above, the sales attributed to the Company's Sensar products
have increased over last year comparative periods by approximately 46%. This
increase is due to the placement of beta systems for the recently launched
Jaguar and SFC products at discounted prices, as well as some additional income
from the sale of Crosscheck units, SFC columns, and service related activity.
The revenue from the Company's TOF 2000 products declined for the six months
ended June 30, 1998, as compared to the same period to June 30, 1997.
Cost of Sales
Cost of sales for the six months ended June 30, 1997, were $2,679,579, or
56.1% of net sales, compared to $2,366,452, or 54.4% of net sales, for the six
months ended June 30, 1997. The increased level in costs of sales as a
percentage of net sales is principally the result of the factors as discussed
above.
Selling, General, and Administrative
Selling, general, and administrative expenses decreased to $2,228,596, or
46.6% of net sales, for the six months ended June 30, 1998, compared to
$2,862,524, or 65.8% of net sales, for the six months ended June 30, 1997. As
discussed above, the decrease in the dollar amount of selling, general, and
administrative expenses was principally due to several factors, including
headcount reduction, cost control, and more aggressive procurement practices.
As product demand is achieved for products recently launched, 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, 1998, research and development costs were
$1,597,815, or 33.4% of net sales, compared to $1,900,752, or 43.7% of net
sales, for the six months ended June 30, 1997. As described above, the decrease
in the amount of research and development over the prior period, as well as over
recent historical levels, is due to several factors, including headcount
reduction cost control, more aggressive procurement practices, and greater
discipline over prototype activity. The Company anticipates that research and
development costs will decline as a percentage of sales in the future as revenue
is generated from the recently launched new products.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had total current assets of $6,318,016,
including cash and cash equivalents of $1,764,043. The Company had total
current liabilities of $2,449,532 resulting in working capital of $3,868,484 and
a working capital ratio of 2.6 to 1. In early April, 1998, the Company repaid
its line of credit which, immediately prior to such payoff, had a balance of
$802,252 outstanding.
The Company has significant long-term assets, including intangible assets
totaling $2,901,172 principally related to product technology acquisition costs,
license rights, software development costs, and goodwill. The intangible assets
are being amortized over estimated useful lives ranging from five to fifteen
years. 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,
1998, was the gross proceeds from the exercise of warrants of approximately
$400,000 and gross proceeds of $3,500,000 from the private placement of
preferred stock and warrants.
The Company's primary uses of cash for the six months ended June 30, 1998,
were funds used in operations of $1,821,297 and the termination of the line of
credit of $1,198,766. Management expects that in the short-term, the primary
uses of cash will continue to be operations until such time as the Company moves
to a trading level generating sufficient revenue to cause a breakeven level of
operations.
In 1993, the Company entered into a mortgage arrangement when it purchased
its current plant. The terms of the mortgage involved a five-year balloon
payment at the end of 1998. Included in Current Liabilities on the Balance
Sheet is an amount of $720,196 representing current maturities of long-term
debt. It is the current intention of management to renegotiate this payment
into a longer term obligation and avoid the immediate cash flow drain.
Management believes that the current market value of the land and property is
substantially in excess of this amount and that a renegotiation should be
possible. However, no assurance can be given that this renegotiation will be
completed. In the absence of such renegotiation, the Company would need to
raise additional financing to meet its short-term obligations.
Management's goal is for the current cash balances to provide the Company
with sufficient capital to fund its operations and development plans for the
1998 calendar year. However, the Company's ability to meet this goal depends on
the successful generation of revenue in the third quarter and the fourth quarter
of this year. As 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 26, 1998, at
which management's nominees were elected to serve as directors of the Company.
The specific results are as follows:
<TABLE>
<CAPTION>
Number of Votes Number of Votes
Nominee For Withheld
- -------------------- --------------- ---------------
<S> <C> <C>
Andrew C. Bebbington 10,995,332 5,188
Jeffrey S. Cohen 10,996,632 3,888
Sir Colin Dollery 10,988,120 7,183
Stanley Friedman 10,992,968 5,733
</TABLE>
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 (27) Financial Data Schedule
</TABLE>
REPORTS ON FORM 8-K
During the quarter ended June 30, 1998, the Company filed a report on Form
8-K dated May 1, 1998, reporting the appointment of non-executive directors.
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 6, 1998 By /s/ Andrew C. Bebbington
Andrew C. Bebbington, President
(Chief Executive Officer and
Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998, AND CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,764,043
<SECURITIES> 0
<RECEIVABLES> 1,493,760
<ALLOWANCES> 81,163
<INVENTORY> 2,776,804
<CURRENT-ASSETS> 6,318,016
<PP&E> 3,438,936
<DEPRECIATION> 1,437,013
<TOTAL-ASSETS> 11,772,569
<CURRENT-LIABILITIES> 2,439,546
<BONDS> 0
<COMMON> 12,551
0
4
<OTHER-SE> 8,873,745
<TOTAL-LIABILITY-AND-EQUITY> 11,772,569
<SALES> 2,421,203
<TOTAL-REVENUES> 2,421,203
<CGS> 1,358,581
<TOTAL-COSTS> 1,358,581
<OTHER-EXPENSES> 1,839,095
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,314
<INCOME-PRETAX> (749,883)
<INCOME-TAX> 0
<INCOME-CONTINUING> (749,883)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (749,883)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
