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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, 1998
|_| 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 March 31, 1998, there were 3,324,046 shares of Common Stock, par value
$0.001 per share, outstanding.
Transitional Small Business Disclosure Format (Check one): Yes |_| No |X|
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<PAGE>
LARK TECHNOLOGIES, INC.
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 1998.
<TABLE>
<S> <C>
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
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LARK TECHNOLOGIES, INC.
BALANCE SHEET
March 31,
1998
-----------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents ................................ $ 874,502
Accounts receivable ...................................... 923,597
Due from related parties ................................. 1,525
Work-in-process .......................................... 14,610
Prepaid expenses ......................................... 61,902
-----------
Total current assets ......................................... 1,876,136
Property and equipment, net .................................. 695,331
Other assets, net ............................................ 16,750
-----------
Total assets ................................................. $ 2,588,217
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable ............................................ 203,630
Capital lease obligation, current portion ................ 77,224
Accounts payable ......................................... 230,348
Accrued expenses ......................................... 210,454
Customer deposits ........................................ 173,519
Deposits from related parties ............................ 94,159
-----------
Total current liabilities .................................... 989,334
Capital lease obligation, less current portion ............... 124,358
-----------
Total Liabilities ............................................ 1,113,692
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 - 3,324,046 ........... 3,324
Additional paid-in capital ............................... 2,450,754
Amounts due from shareholders ............................ (15,045)
Accumulated deficit ...................................... (964,508)
-----------
Total stockholders' equity ................................... 1,474,525
-----------
Total liabilities and stockholders' equity ................... $ 2,588,217
===========
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,
----------------------------
1997 1998
----------- -----------
Revenue:
Laboratory services ...................... $ 1,109,671 $ 1,378,347
Costs and expenses:
Costs of services ........................ 436,269 541,671
Sales, general and administrative ........ 461,401 594,236
Research and development ................. 62,685 30,368
----------- -----------
Total costs and expenses ..................... 960,355 1,166,276
----------- -----------
Operating income ............................. 149,316 212,071
Other income and (expense):
Interest expense ......................... (7,894) (7,724)
Interest income .......................... 7,610 5,849
----------- -----------
Total other expense, net ..................... (284) (1,875)
----------- -----------
Income before income taxes ................... 149,032 210,196
Income taxes ................................. 0 9,000
----------- -----------
Net income ................................... $ 149,032 $ 201,196
=========== ===========
Basic & diluted earnings per common share .... $ 0.04 $ 0.06
=========== ===========
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,
----------------------
1997 1998
--------- ---------
(Unaudited)
OPERATING ACTIVITIES
Net income ........................................... $ 149,032 $ 201,196
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation and amortization .................... 40,179 50,583
Changes in operating assets and liabilities:
Accounts receivable ......................... (166,145) 54,304
Work-in-process ............................. 35,827 9,397
Prepaid expenses ............................ 13,214 (3,387)
Other assets ................................ (7,930) 0
Due to/from related parties ................. (11,902) 55,369
Accounts payable ............................ 46,060 10,454
Accrued expenses ............................ 5,907 (21,305)
Deposits .................................... (24,473) (78,980)
--------- ---------
Net cash provided by operating activities ............ 79,769 277,631
INVESTING ACTIVITIES
Purchases of property and equipment .................. (70,696) (2,019)
--------- ---------
Net cash used in investing activities ................ (70,696) (2,019)
FINANCING ACTIVITIES
Principal payments on notes payable .................. (21,625) (27,114)
Repayment of debentures payable ...................... (35,000) 0
--------- ---------
Net cash used in financing activities ................ (56,625) (27,114)
--------- ---------
Net (decrease) increase in cash and cash equivalents.. (47,552) 248,499
Cash and cash equivalents at beginning of period ..... 734,247 626,003
--------- ---------
Cash and cash equivalents at end of period ........... $ 686,695 $ 874,502
========= =========
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.
3. DEBENTURES AND NOTES PAYABLE
On March 13, 1998, the Company refinanced its revolving line of credit
with another bank and extended the maturity to May 31, 1999. Under the terms of
its revolving line, the company may borrow up to $600,000 at the bank's prime
rate (8.5% at March 31, 1998) plus 1%. The borrowing base of this line of credit
is equal to 85% of certain accounts receivable that are no more than 90 days
old. On March 31, 1998 the Company had a borrowing base of $549,899 against
which $199,000 was outstanding. Under the terms of the revolving line of credit
agreement, the Company is required to maintain certain financial ratios and a
specific level of net worth.
On March 13, 1998, the Company arranged an advised discretionary credit
line for the financing of equipment with the same bank used for the new
revolving credit line. Under the terms of this discretionary credit, the Company
may borrow up to $300,000 secured by the equipment purchased with the proceeds
of the borrowings. This discretionary credit line provides for borrowings of up
to 75% of the purchase price of equipment at the bank's prime plus 1.5%. This
credit line provides for repayment terms up to 36 months and matures on May 31,
1999.
4
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4. EARNINGS PER SHARE
The following table sets forth the weighted average shares outstanding for
the computation of basic and diluted earnings per share:
For the year
ending March 31,
-----------------------
1997 1998
--------- ---------
Weighted average common shares outstanding ......... 3,326,511 3,324,046
Dilutive securities - employee stock options ....... 22,440 20,238
--------- ---------
Weighted average common shares outstanding
assuming full dilution ........................... 3,348,951 3,344,374
========= =========
Options to purchase 210,000 shares of common stock at $2.00 per share were
outstanding during 1997 and 1998 but were not included in the computation of
diluted earnings per share because the options' exercise price was greater than
the average market price of the common shares and, therefore, the effect would
be antidilutive.
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.
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 expired on July 31, 1997, and required 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, and is currently in the process of
renewal.
The Company entered into a related consulting agreement with the Principal
Investigator at Baylor. This agreement expired on August 1, 1997, and required
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, and is currently in the process of renewal.
5
<PAGE>
LITIGATION AND CLAIMS.
The Company is involved in litigation arising in the ordinary course of
business, which in the opinion of management, will not have a material adverse
effect on the Company's financial position or results of operations.
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 QUANTITATIVE PCR SERVICES. Lark uses Quantitative PCR techniques to
measure the distribution and expression of target DNA or RNA in a
customer's sample from cultured cells, microorganisms, or tissues such as
brain, lung, liver and kidneys.
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 MOLECULAR BIOLOGY SERVICES. Lark offers a variety of molecular biology
services including library screening, library prescreening, southern blot
analysis, subcloning, plasmid preparation and PCR amplification. Lark
consults with its customers to customize a broad range of molecular
biology projects.
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 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.
7
<PAGE>
RESULTS OF OPERATIONS
GROSS REVENUES. Gross revenues increased by 24% from $1,109,671 to
$1,378,347 for the three month periods ended March 31, 1997 and 1998,
respectively. This increase in revenues was attributable to an ongoing project
work for a single large customer. This customer accounted for 53% of the
revenues for the first quarter of 1998.
COSTS OF SERVICES. Costs of services consist primarily of labor and
laboratory supplies. Costs of services increased 24% from $436,269 to $541,671
for the three month periods ended March 31, 1997 and 1998, respectively. Changes
in the mix of projects performed for customers accounted for the increase. Costs
of services as a percentage of revenue were 39% for the three month periods
ended March 31, 1997 and 1998.
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 increased 29% from
$461,401 to $594,236 for the three month periods ended March 31, 1997 and 1998,
respectively. The increase in expenses was primarily attributable to the bonus
paid to employees. Sales, general and administrative expenses as a percentage of
revenue were 42% and 43% for the three month periods ended March 31, 1997 and
1998, respectively.
RESEARCH AND DEVELOPMENT. Research and development costs decreased 52% from
$62,685 to $30,368 for the three month periods ended March 31, 1997 and 1998,
respectively. The decrease in research and development costs was attributable to
decreased spending on the sponcered research agreement. Research and development
costs as a percentage of revenue were 6% and 2% for the three month periods
ended March 31, 1997 and 1998, respectively.
VARIABILITY OF FUTURE OPERATING RESULTS. For the first quarter of 1998, the
Company continued the trend it started in 1997. The company continues to seek
large contracts and diversify its customer base. The Company is continuing to
add new services to ensure the financial growth of the Company.
LIQUIDITY AND CAPITAL RESOURCES. Operating cash flow was $79,769 and
$277,631 for the three month periods ended March 31, 1997 and 1998,
respectively. During the first quarter of 1998, the Company paid off its
equipment loan.
On March 13, 1998, the Company refinanced its revolving line of credit with
another bank and extended the maturity to May 31, 1999. Under the terms of its
revolving line, the company may borrow up to $600,000 at the bank's prime rate
(8.5% at March 31, 1998) plus 1%. The borrowing base of this line of credit is
equal to 85% of certain accounts receivable that are no more than 90 days old.
On March 31, 1998 the Company had a borrowing base of $549,899 against which
$199,000 was outstanding. Under the terms of the revolving line of credit
agreement the Company is required to maintain certain financial ratios and a
specific level of net worth.
On March 13, 1998 the Company arranged an advised discretionary credit line
of the financing of equipment with the same bank used for the new revolving
credit line. Under the terms of this discretionary credit, the company may
borrow up to $300,000 secured by the equipment purchased with the proceeds of
the borrowings. This discretionary credit line provides for borrowings of up to
75% of the purchase price of equipment at the bank's prime plus 1.5%. This
credit line provides for repayment terms up to 36 months and matures on May 31,
1999.
MATERIAL COMMITMENTS. The Company currently has no outstanding material
commitments.
8
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The company is involved in litigation arising in the ordinary course of
business, which in the opinion of management, will not have a material adverse
effect on the Company's financial position or results of operations.
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,
1998.
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 11, 1998 /s/ VINCENT P. KAZMER
Vincent P. Kazmer
President and Chief Executive Officer
Date MAY 11, 1998 /s/ DOUGLAS B. WHEELER
Douglas B. Wheeler
Vice President, Finance
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 874,502
<SECURITIES> 0
<RECEIVABLES> 925,122
<ALLOWANCES> 0
<INVENTORY> 14,610
<CURRENT-ASSETS> 1,876,136
<PP&E> 1,634,256
<DEPRECIATION> 938,925
<TOTAL-ASSETS> 2,588,217
<CURRENT-LIABILITIES> 989,334
<BONDS> 0
0
0
<COMMON> 3,324
<OTHER-SE> 1,471,201
<TOTAL-LIABILITY-AND-EQUITY> 2,588,217
<SALES> 1,378,347
<TOTAL-REVENUES> 1,378,347
<CGS> 541,671
<TOTAL-COSTS> 1,166,276
<OTHER-EXPENSES> (1,875)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,724
<INCOME-PRETAX> 210,196
<INCOME-TAX> 9,000
<INCOME-CONTINUING> 201,196
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 201,196
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
