UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____ to _____
LARK TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 73-1461841
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
9545 KATY FREEWAY, SUITE 465
HOUSTON, TX 77024
(Address of principal executive offices)
(713) 464-7488
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 ISSUER INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
As of April 30, 1997, there were 3,326,900 shares of Common Stock, par value
$0.001 per share, outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
<PAGE>
LARK TECHNOLOGIES, INC.
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 1997.
Part I Financial Information (unaudited)
PAGE
Item 1. Financial Statements
Balance Sheet ............................................ 1
Statements of Income ..................................... 2
Statements of Cash Flows ................................. 3
Notes to Financial Statements ............................ 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .................. 7
Part II Other Information .............................................. 9
Item 1. Legal Proceedings .............................................. 9
Item 2. Changes in Securities .......................................... 9
Item 3. Defaults Upon Senior Securities ................................ 9
Item 4. Submission of Matters to a Vote of Security Holders ............ 9
Item 5. Other Information .............................................. 9
Item 6. Exhibits and Reports on Form 8-K ............................... 9
Signatures ................................................................. 10
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LARK TECHNOLOGIES, INC.
BALANCE SHEET
March 31,
1997
-----------
Assets (Unaudited)
Current assets:
Cash and cash equivalents .................................. $ 686,695
Accounts receivable ........................................ 970,504
Due from related parties ................................... 1,525
Work-in-process ............................................ 51,388
Prepaid expenses ........................................... 32,791
-----------
Total current assets ........................................... 1,742,903
Property and equipment, net .................................... 453,541
Other assets, net .............................................. 35,686
===========
Total assets ................................................... $ 2,232,130
===========
Liabilities and stockholders' equity Current liabilities:
Notes payable .............................................. $ 240,813
Debentures payable ......................................... 10,000
Accounts payable ........................................... 359,792
Accrued expenses ........................................... 173,101
Customer deposits .......................................... 188,257
Deposits from related parties .............................. 92,809
-----------
Total current liabilities ...................................... 1,064,772
Commitments and contingencies
Stockholders' equity Preferred stock, $0.001 par value:
Authorized shares - 2,000,000
None issued and outstanding
Common stock, $0.001 par value:
Authorized shares - 8,000,000
Issued and outstanding shares - 3,326,900 ............. 3,326
Additional paid-in capital ................................. 2,468,316
Amounts due from shareholders .............................. (45,045)
Accumulated deficit ........................................ (1,259,239)
-----------
Total stockholders' equity ..................................... 1,167,358
-----------
Total liabilities and stockholders' equity ..................... $ 2,232,130
===========
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LARK TECHNOLOGIES, INC.
STATEMENTS OF INCOME
Three months ended
March 31,
------------------------------
1996 1997
------------------------------
(Unaudited)
Revenue:
Laboratory Services ...................... $ 1,206,795 $ 1,109,671
Costs and expenses:
Costs of services ........................ 423,445 436,269
Sales, general and administrative ........ 518,529 461,401
Research and Development ................. 34,994 62,685
----------- -----------
Total costs and expenses ..................... 976,968 960,355
----------- -----------
Operating income ............................. 229,827 149,316
Other income and (expense):
Interest expense ......................... (10,528) (7,894)
Interest income .......................... 989 7,610
----------- -----------
Total other (expense), net ................... (9,539) (284)
----------- -----------
Income before income taxes ................... 220,288 149,032
Income taxes ................................. 0 0
----------- -----------
Net income ................................... $ 220,288 $ 149,032
=========== ===========
Net income per share ......................... $ 0.10 $ 0.04
=========== ===========
Weighted average number of common
or equivalent shares outstanding ......... 2,144,950 3,346,279
=========== ===========
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LARK TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
Three months ended
March 31,
----------------------
1996 1997
----------------------
(Unaudited)
OPERATING ACTIVITIES
Net income ............................................. $ 220,288 $ 149,032
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation and amortization ...................... 44,145 40,179
Changes in operating assets and liabilities:
Accounts receivable ........................... (329,846) (166,145)
Work-in-process ............................... (40,001) 35,827
Prepaid expenses .............................. 8,451 13,214
Other assets .................................. (4,943) (7,930)
Due to/from related parties ................... 25,891 (11,902)
Accounts payable .............................. 35,772 46,060
Accrued expenses .............................. 74,474 5,907
Deposits ...................................... 18,634 (24,473)
--------- ---------
Net cash provided by operating activities .............. 52,865 79,769
INVESTING ACTIVITIES
Purchases of property and equipment .................... (92,183) (70,696)
--------- ---------
Net cash used in investing activities .................. (92,183) (70,696)
FINANCING ACTIVITIES
Proceeds from issuance of notes payable ................ 29,521 0
Principal payments on notes payable .................... (14,197) (21,625)
Repayment of debentures payable ........................ 0 (35,000)
--------- ---------
Net cash provided by (used in) financing activities .... 15,324 (56,625)
--------- ---------
Net decrease in cash and cash equivalents .............. (23,994) (47,552)
Cash and cash equivalents at beginning of period ....... 75,996 734,247
========= =========
Cash and cash equivalents at end of period ............. $ 52,002 $ 686,695
========= =========
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.
3
<PAGE>
LARK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
Lark Technologies, Inc., a Delaware corporation (the "Company"), was
formed on November 16, 1994, as a wholly-owned subsidiary of SuperCorp Inc.
("SuperCorp"), for the purpose of merging with Lark Sequencing Technologies,
Inc., a Delaware corporation ("Sequencing"), as outlined in a merger agreement
("Merger Agreement") entered into by SuperCorp and Sequencing on October 28,
1994. The Merger Agreement was approved by SuperCorp on September 5, 1995, and
by the stockholders of Sequencing on September 12, 1995. As a consequence of the
merger, all of the shares of common and preferred stock of Sequencing were
exchanged for 1,800,000 shares of Common Stock of the Company with a par value
of $0.001 per share and the 200,000 shares of Common Stock of the Company held
by SuperCorp were distributed to the shareholders of SuperCorp. The Company has
succeeded to all of the business previously undertaken by Sequencing. Lark
provides specialized laboratory services for DNA sequencing to biotechnology
researchers.
2. BASIS OF PRESENTATION
The accompanying unaudited interim financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information in footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to these rules and regulations. The
accompanying unaudited interim financial statements reflect all adjustments
which the Company considers necessary for a fair presentation of the results of
operations for the interim periods covered and for the financial condition of
the Company at the date of the interim balance sheet. All such adjustments are
of a recurring nature. Results for the interim periods are not necessarily
indicative of results for the year.
For financial reporting purposes, the merger of the Company and Sequencing
has been accounted for as a recapitalization of Sequencing, and the historical
financial statements of Sequencing prior to the merger became the financial
statements of the Company. The financial statements of Sequencing have been
retroactively restated to give effect to the merger transaction as if it had
occurred on January 1, 1994.
3. DEBENTURES AND NOTES PAYABLE
At March 31, 1997, the Company had one note payable to a bank with
interest of prime (8.50% at March 31, 1997) plus 2% and collateralized by
accounts receivable, property, and equipment. The note is due on demand and if
no demand is made, the note is payable in monthly installments of $3,799 plus
interest. This note which was due at March 31, 1997, was renewed on March 26,
1997. As a result of that renewal, any unpaid principal on the note is due at
maturity on January 30, 1998. The amount outstanding under this note was
$32,135.12 at March 31, 1997.
At March 31, 1997, the Company had a revolving line of credit with the
same bank which expired on March 31, 1997. On March 26, 1997, the revolving line
of credit was renewed until March 31, 1998. The terms of the line of credit
provided for maximum borrowings of $200,000 of which $199,000 was outstanding at
March 31, 1997. Borrowings bear interest at the bank's prime rate plus 2% and
are secured by qualified accounts receivable of the Company.
4
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At March 31, 1997, the Company had a subordinated redeemable debenture
payable of $10,000 that matured on March 31, 1997, with interest at 8% per year,
payable quarterly. The Company has offered to renew the subordinated debenture.
As of March 28, 1997, the Company has not received a renewal agreement from the
holder of the $10,000 debenture or a demanded payment.
4. EARNINGS PER SHARE
Net income per share was calculated by dividing the Company's net income
for the period by the weighted average number of common stock and dilutive
common stock equivalents (stock options and warrants) outstanding.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, EARNINGS PER SHARE, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact of Statement
128 on the calculation of primary and fully diluted earnings per share for the
quarter is not expected to be material.
5. DISTRIBUTION AGREEMENT
Effective January 1, 1996, the Company announced a new service,
Differential Display ("DD"). The Company entered into a distribution agreement
with a third party which provided the Company with a significant amount of
specialized training and scientific know-how relating to the DD services. The
Company agreed to purchase supplies and equipment related to this service
exclusively from the third party. The DD services will be sold on an exclusive
basis by the third party and its distributor, but Lark can sell the DD services
through its own sales force worldwide. The third party will pay the Company an
agreed upon transfer price for DD services that the third party or its
distributor sells. The Company will pay the third party an agreed upon royalty
for DD services that the Company sells.
6. COMMITMENTS AND CONTINGENCIES
PATENT LICENSE AGREEMENT
Effective June 15, 1995, the Company entered into an exclusive patent
sub-license agreement with another biotech company. The agreement grants to the
Company an exclusive license to certain "Licensed Patent Rights" of this third
party and requires the Company to perform research and development efforts as
defined in the agreement. The Company is required to pay the third party a
royalty of 25% to 50% of all consideration the Company receives as a result of
sales of licensed products and licensed processes or a sub-license or assignment
of the Company's rights under the agreement. If the Company does not meet the
research and development milestones as defined in the agreement, or is unable to
successfully commercialize the results of the research and development efforts,
the agreement will terminate. Otherwise, the agreement will terminate upon the
dissolution of the Company or the expiration of the "Licensed Patent Rights".
The agreement may also be terminated by the Company with 60 days written notice
to the third party.
5
<PAGE>
SPONSORED RESEARCH CONTRACT AND CONSULTING AGREEMENT
The Company entered into a sponsored research contract on August 1, 1995,
whereby the Company is required to fund certain research and development efforts
being performed by Baylor College of Medicine ("Baylor"). The research and
development is being performed pursuant to the Patent License Agreement
described in this Note. The agreement expires on July 31, 1997, and requires the
Company to pay Baylor a total of $53,739 annually in monthly installments of
$4,478 over the term of the contract. The agreement may be extended for an
additional term by mutual written consent. As of March 31, 1997, the remaining
obligation under the terms of the contract was $17,912.
The Company entered into a related consulting agreement with the Principal
Investigator at Baylor. This agreement expires on August 1, 1997, and requires
the Company to pay the researcher a total of $24,000 in monthly installments
over the term of the contract. The agreement may be extended for an additional
term by mutual written consent. As of March 31, 1997, the remaining obligation
under the terms of the contract was $8,000.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Financial Statements and the accompanying Notes herein, and is qualified
entirely by the foregoing and by other more detailed financial information
appearing elsewhere.
GENERAL
Lark Technologies, Inc. ("Lark" or "the Company") is a successor in
interest, through a merger effected in September 1995, to Lark Sequencing
Technologies, Inc., which was incorporated under the business corporation laws
of the State of Delaware on May 4, 1990.
Lark is a leader in providing contract DNA sequencing and research
services to the pharmaceutical and biotechnology industries worldwide. Lark's
service portfolio consists of various DNA sequencing and molecular biology
services as follows:
o AUTOMATED DNA SEQUENCING SERVICES. Lark applies automated sequencing
techniques to generate high throughput DNA sequence and fast turnaround
screening information, including genome sequencing projects.
o GENETIC STABILITY TESTING SERVICES. Lark's genetic stability testing
services are used to characterize Master Cell Banks, Manufacturers Working
Cell Banks and Post Production Cell Samples from bacterial, yeast and cell
cultures. Genetic stability testing is used to analyze a production
strains stability and demonstrate that the expression system has not
undergone any mutations or rearrangements that would affect the integrity
of the product. This service assists companies producing genetically
manufactured products to optimize production yields, determine product
purity, and support regulatory submissions. This service was introduced in
late 1996.
o MANUAL DNA SEQUENCING SERVICES. Lark uses manual sequencing techniques for
projects that require greater than 99.9% accuracy. These techniques are
useful for DNA sequence information that is used for patent applications,
FDA submissions or the identification of genetic mutations.
o LIBRARY SCREENING SERVICES. During the gene discovery process, customers
may find only a portion of a gene of interest. As a service, Lark will use
a customer's gene fragment to probe a genetic library to identify a full
length gene. Identification of full length genes is necessary for
determining a gene's function, developing novel drugs, and securing patent
rights.
o DIFFERENTIAL DISPLAY SERVICE. Lark uses differential display techniques
for analyzing differences in gene expression caused by the introduction of
various drug compounds, viruses or stimulatory factors. Differential
display can be useful in identifying novel genes and gene functions. By
understanding how and when a gene is expressed or repressed, targeted
interventions can be developed to maximize results and minimize harmful
side effects. This service is used to discover novel genes as well as to
characterize pharmaceutical effects.
Lark has also undertaken a senescence gene discovery program for its own
account. In 1995, the Company obtained exclusive rights to senescence gene
technology developed at Baylor College of Medicine, subject to third party
royalty rights and development obligations. Senescence is the final stage of
cellular aging when a cell ceases to divide but remains viable. The genes which
control this process regulate cell immortality. The major disease target for
this gene technology is cancer. Animal studies have demonstrated the ability of
this technology to reduce tumor growth at statistically significant levels. Lark
is actively pursuing the discovery of these novel genes and intends to exploit
the diagnostic and therapeutic applications of the technology by forging
appropriate corporate
7
<PAGE>
relationships. The Company considers this to be a highly speculative project.
Although the Company would benefit from the success of this project, this
project is not essential to the success of the Company.
RESULTS OF OPERATIONS
GROSS REVENUES. Gross revenues decreased 8% from $1,206,795 to $1,109,671
for the three month periods ended March 31, 1996 and 1997, respectively. This
decrease in revenues was attributable to a decrease in project work for a single
large customer. This customer accounted for 66% of the revenues for the 1996
period. Increases in project work for other customers for automated sequencing,
molecular biology and differential display services largely offset the impact of
the single large customer.
COSTS OF SERVICES. Costs of services consist primarily of labor and
laboratory supplies. Costs of services increased 3% from $423,445 to $436,269
for the three month periods ended March 31, 1996 and 1997, respectively. Changes
in the mix of projects performed for customers accounted for the increase. Costs
of services as a percentage of revenue were 35% and 39% for the three month
periods ended March 31, 1996 and 1997, respectively.
SALES, GENERAL AND ADMINISTRATIVE EXPENSES. Sales, general and
administrative expenses consist primarily of salaries and related costs,
depreciation, amortization, legal and professional costs, rent, travel, and
advertising. Sales, general and administrative expenses decreased 11% from
$518,529 to $461,401 for the three month periods ended March 31, 1996 and 1997,
respectively. The decrease in expenses was primarily attributable to a decrease
in commission expenses related to a distribution agreement. Sales, general and
administrative expenses as a percentage of revenue were 43% and 42% for the
three month periods ended March 31, 1996 and 1997, respectively.
RESEARCH AND DEVELOPMENT. Research and development costs increased 79%
from $34,994 to $62,685 for the three month periods ended March 31, 1996 and
1997, respectively. The increase in research and development costs was
attributable to increases in expenditures for the gene senescence project and
increased product development activities. Research and development costs as a
percentage of revenue were 3% and 6% for the three month periods ended March 31,
1996 and 1997, respectively.
VARIABILITY OF FUTURE OPERATING RESULTS. The Company experienced a
significant shift in sources of revenue during the first quarter of 1997 when
compared to the first quarter of 1996. In 1996 a large portion of the Company's
revenue was generated from a single customer. In 1997 the decline in revenue
from this customer was largely offset by revenue from a diverse group of
customers. The Company continues to seek large contracts and diversify its
customer base. The addition or completion of any single large contract may have
a material impact on the Company's revenues.
LIQUIDITY AND CAPITAL RESOURCES. Operating cash flow was $52,865 and
$79,769 for the three month periods ended March 31, 1996 and 1997, respectively.
During the first quarter of 1997 the Company repaid $35,000 of subordinated
debentures. The Company plans to offer repayment of the remaining $10,000 of
this debt.
The Company's bank debt totaling approximately $240,813 at March 31, 1997,
matured March 31, 1997. On March 26, 1997, the Company renewed its $200,000 line
of credit until March 31, 1998, and extended the maturity of its note payable to
January 30, 1998. Management anticipates that additional capital expenditures
necessary to support the Company's operating growth can be funded through a
combination of existing or proposed credit facilities and future operating
results.
The Company has committed to certain minimum expenditures related to its
senescence research and development efforts as outlined in Note 9 to the
Financial Statements "Patent License Agreement" and "Sponsored Research Contract
and Consulting Agreement". Lark will need additional capital in order expand its
research and development efforts beyond the levels required by these agreements.
8
<PAGE>
MATERIAL COMMITMENTS. The Company currently has no outstanding material
commitments.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ending March 31,
1997.
INDEX OF EXHIBITS
2.1(1) The Agreement of Merger of November 18, 1994, between Lark
Technologies, Inc. and Lark Sequencing Technologies, Inc. providing for
the merger of Lark Sequencing Technologies, Inc. into the Company.
3.1(1) Bylaws of Lark Technologies, Inc., as amended.
3.2(1) The Certificate of Incorporation of Lark Technologies, Inc., as
amended.
10.1(1) 1990 Stock Option Plan adopted by the Company.
10.13(2) Agreement entered into by and between the Company and Genomyx
Corporation.
10.14(2) The portion of the Minutes of the Executive Session of the Meeting of
the Board of Directors of the Company held December 8, 1995,
establishing and defining the bonus plan for 1996 under which the chief
executive officer, chief financial officer, and other employees may
receive cash bonuses as part of their compensation.
(1) Incorporated by reference from the Company's Registration Statement on Form
S-4 dated August 14, 1995, Commission File No. 33-90424. The exhibit numbering
system used in Form S-4 differed from that used in this Form 10-QSB (8a, 2d, 2c,
6b, 6c, 6d-1, and 6f, respectively).
(2) Incorporated by reference from the Company's Form 10-QSB for the quarterly
period ended March 31, 1996.
9
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Lark Technologies, Inc.
(Registrant)
Date MAY 13, 1996 /S/ VINCENT P. KAZMER
Vincent P. Kazmer
President and Chief Executive Officer
Date MAY 13, 1996 /S/ DOUGLAS B. WHEELER
Douglas B. Wheeler
Vice President, Finance
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM BALANCE SHEET AT MARCH 31, 1997, STATEMENTS OF INCOME FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1997 AND STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 686,695
<SECURITIES> 0
<RECEIVABLES> 972,029
<ALLOWANCES> 0
<INVENTORY> 51,388
<CURRENT-ASSETS> 1,742,903
<PP&E> 1,200,690
<DEPRECIATION> 747,149
<TOTAL-ASSETS> 2,232,130
<CURRENT-LIABILITIES> 1,064,772
<BONDS> 0
0
0
<COMMON> 3,326
<OTHER-SE> 1,164,032
<TOTAL-LIABILITY-AND-EQUITY> 2,232,130
<SALES> 1,109,671
<TOTAL-REVENUES> 1,109,671
<CGS> 436,269
<TOTAL-COSTS> 960,355
<OTHER-EXPENSES> 284
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,894
<INCOME-PRETAX> 149,032
<INCOME-TAX> 0
<INCOME-CONTINUING> 149,032
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 149,032
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
