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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, 1999
[ ] 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, 1999, there were 3,319,546 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, 1999.
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, 1999
---------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents ..................... $ 331,587
Accounts receivable (net) ..................... 703,757
Due from related parties ...................... 14,180
Work-in-process ............................... 26,828
Prepaid expenses .............................. 72,656
-----------
Total current assets .................................... 1,149,008
Property and equipment, net ............................. 1,071,547
Other assets, net ....................................... 16,749
-----------
Total assets ............................................ $ 2,237,303
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................. $ 642,268
Notes payable ................................. 373,049
Capital lease obligations-current portion ..... 249,395
Accrued expenses .............................. 118,019
Customer deposits ............................. 130,697
Deposits from related parties ................. 86,889
-----------
Total current liabilities ............................... 1,600,317
Capital lease obligations-long term portion ............. 90,599
-----------
Total Liabilities: ...................................... 1,690,916
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 shares:3,324,046 and
outstanding shares:3,319,546 ........... 3,324
Additional paid-in capital .................... 2,450,754
Treasury Stock at cost ........................ (4,946)
Amounts due from shareholders ................. (15,045)
Accumulated deficit ........................... (1,887,701)
-----------
Total stockholders' equity .............................. 546,387
-----------
Total liabilities and stockholders' equity .............. $ 2,237,303
===========
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,
------------------------------
1998 1999
------------------------------
(Unaudited)
Revenue:
Laboratory Services ................ $ 1,378,347 $ 1,242,849
Costs and expenses:
Costs of services .................. 541,671 785,435
Sales, general and administrative .. 594,236 630,906
Research and development ........... 30,369 8,415
----------- -----------
Total costs and expenses ..................... 1,166,276 1,424,756
----------- -----------
Operating income (loss) ...................... 212,071 (181,907)
Other income and (expense):
Interest expense ................... (7,724) (17,258)
Interest income .................... 5,849 2,746
----------- -----------
Total other income (expense) ................. (1,875) (14,512)
----------- -----------
Income (Loss) before income taxes ............ 210,196 (196,419)
Provision for income taxes ................... 9,000 0
----------- -----------
Net income (loss) ............................ $ 201,196 ($ 196,419)
=========== ===========
Basic and diluted earnings (loss) per
common share ............................... $ 0.06 ($ 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
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
1998 1999
--------- ---------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) ....................................... $ 201,196 ($196,419)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities
Depreciation and amortization ................. 50,583 73,688
Changes in operating assets and liabilities:
Accounts receivable ...................... 54,304 (104,962)
Work-in-process .......................... 9,397 112,951
Prepaid expenses ......................... (3,387) 7,468
Due from related parties ................. 55,369 0
Accounts payable ......................... 10,454 11,794
Accrued expenses ......................... (21,305) (12,774)
Deposits ................................. (78,980) (61,291)
--------- ---------
Net cash provided by (used in) operating activities ..... 277,631 (169,545)
INVESTING ACTIVITIES
Purchases of property and equipment ..................... (2,019) (67,747)
--------- ---------
Net cash used in investing activities ................... (2,019) (67,747)
FINANCING ACTIVITIES
Proceeds from issuance of notes payable ................. -- 150,000
Principal payments on notes payable ..................... (27,114) (46,627)
--------- ---------
Net cash provided by (used in) financing activities ..... (27,114) 103,373
--------- ---------
Net increase (decrease) in cash and cash equivalents .... 248,498 (133,919)
Cash and cash equivalents at beginning of period ........ 626,003 465,506
--------- ---------
Cash and cash equivalents at end of period .............. $ 874,501 $ 331,587
========= =========
</TABLE>
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. 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 (7.75% at March 31, 1999) plus 1%. The borrowing base of this line of
credit is equal to 80% of certain accounts receivable that are no more than 90
days old. At March 31, 1999 the Company had $349,763 outstanding under this
line. 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.
During April 1999, the Company renegotiated the financial ratio terms of this
credit with the bank through its maturity on May 31, 1999 and, at March 31,1999,
the Company was in compliance with those requirements.
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 $600,000 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. On January 5, 1999, the Company borrowed $22,000 against this line of
credit for the purchase of lab equipment.
The Company is currently negotiating the renewal of both lines of credit.
4
<PAGE>
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 THREE MONTHS
ENDING MARCH 31,
-----------------------
1998 1999
-----------------------
Weighted average common shares outstanding ...... 3,324,046 3,319,546
Dilutive securities - employee stock options .... 20,238 --
-----------------------
Weighted average common shares outstanding
Assuming full dilution ........................ 3,344,374 3,319,546
=======================
Options to purchase 163,000 and 248,000 shares of common stock were
outstanding during 1998 and 1999 respectively, but were not included in the
computation of diluted earnings per share because 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 were to be sold on an
exclusive basis by the third party and its distributor, but Lark was allowed to
sell the DD services through its own sales force worldwide. The third party was
obligated to pay the Company an agreed upon transfer price for DD services that
the third party or its distributor sells. The Company was to pay the third party
an agreed upon royalty for DD services that the Company sells. This agreement
expired December 31, 1998 and the Company continues to offer DD services for its
own account.
On October 22, 1998 the Company announced the initiation of a sales
agreement with Sanbio b.v. of The Netherlands. The Agreement establishes Sanbio
as sales representative for The Netherlands, Belgium and Luxembourg on an
exclusive basis and Germany on a non-exclusive basis. Sanbio will represent all
of the Company's molecular biology services in these territories.
6. COMMITMENTS AND CONTINGENCIES
STOCK OPTIONS
On January 22, 1999, the Company issued 28,125 stock options to
non-management employees under the company's Incentive Stock Option Plan with an
exercise price of $0.71 per share.
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 Company may also terminate the agreement with 60 days written notice to the
third party.
5
<PAGE>
On October 6, 1998, the Company announced the restructuring of its
senescence technology development program. Sennes Drug Innovations, Inc., the
Company's licensor for the senescence technology, which originated with a third
party, recently appointed a new president. This appointment was allowed by the
settlement of various technology transfer issues between the third party and
Sennes. This new president will represent the Sennes technologies, including the
senescence gene technology licensed to the Company, to third parties. The
Company's license for senescence technologies remains intact.
The senescence technology includes genes involved in regulating the four
senescence gene pathways. Senescence is the normal physiological process that
controls cellular immortality. Immortal cells are closely related to cancer and
can add insights into aging and abnormal development.
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 leading molecular biology Contract Research Organization (CRO)
providing 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 PostProduction Cell Samples from bacterial, yeast and cell
cultures. Genetic stability testing is used to analyze 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 POLYMERASE CHAIN REACTION 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.
In 1995 Lark undertook a senescence gene discovery program for its own
account. Although several genes were discovered in this program, lack of gene
functionality coupled with license issues caused Lark to reduce its funding for
this program. Lark continues to work towards license issue resolution and
eventual potential sublicense agreements.
7
<PAGE>
RESULTS OF OPERATIONS
GROSS REVENUES. Gross revenues decreased by 10% from $1,378,347 to
$1,242,849 for the three-month periods ended March 31, 1998 and 1999,
respectively. This decrease in revenues was partially attributable the absence
of ongoing project work for a single large customer that was present in 1998 but
not in 1999. That 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 45% from $541,671 to $785,435
for the three-month periods ended March 31, 1998 and 1999, respectively. Changes
in the mix of new services performed for customers at our Houston facility
combined with the costs of our new, fully staffed lab in the UK accounted for
the increase. Costs of services as a percentage of revenue were 39% and 63% for
the three-month periods ended March 31, 1998 and 1999, 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 increased 6% from
$594,236 to $630,906 for the three-month periods ended March 31, 1998 and 1999,
respectively. The increase was mainly due to the addition of employee sales
representatives located on both US coasts to gain more consistent sales coverage
in those most important markets. Sales, general and administrative expenses as a
percentage of revenue were 43% and 51% for the three-month periods ended March
31, 1998 and 1999, respectively.
RESEARCH AND DEVELOPMENT. Research and development costs decreased 72%
from $30,369 to $8,415 for the three month periods ended March 31, 1998 and
1999, respectively. The decrease in research and development costs was
attributable to the cancellation of sponsored research agreement project.
Research and development costs as a percentage of revenue were 2% and 1% for the
three-month periods ended March 31, 1998 and 1999, respectively.
VARIABILITY OF FUTURE OPERATING RESULTS. For the first quarter of 1999,
the Company continued the trend it started in 1998 toward a broader base of
services. The Company experienced a significant revenue decrease and increased
costs during the quarter ended March 31, 1999 due in large part to its
concentration of selling and marketing efforts on the new services now offered
and the establishment of the new lab now operating in the UK. The Company added
these new services and the new lab in order to broaden the Company's revenue
base and to participate more actively in the European markets. As the Company
completes the transition to it's new format, somewhat lower revenues and net
losses will be experienced until the new programs being implemented become fully
effective. Once these changes are fully in place, the Company's revenue and net
income have the potential for much higher levels than any historically achieved.
The company continues to seek large contracts and diversify its customer base.
LIQUIDITY AND CAPITAL RESOURCES. Operating cash flow was $277,631 and
($169,545) for the three-month periods ended March 31, 1998 and 1999,
respectively. The negative operating cash flows for the quarter ending March 31,
1999 occurred primarily as a result to the net loss reported for the period.
This negative operating cash flow was largely offset by the $150,000 borrowed by
the Company under the terms of the revolving line of credit.
During the first quarter of 1999, the Company borrowed $22,000 from its
current bank under the terms of its advised discretionary credit line. See note
3 to financial statements for further details of the companies borrowing
facilities. The Company is in negotiations to renew its credit lines described
in note 3.
MATERIAL COMMITMENTS. The Company currently has no outstanding material
commitments.
8
<PAGE>
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,
1999.
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, 1999 /s/ VINCENT P. KAZMER
Vincent P. Kazmer
President and Chief Executive Officer
Date MAY 13, 1999 /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-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 331,587
<SECURITIES> 0
<RECEIVABLES> 767,877
<ALLOWANCES> (49,940)
<INVENTORY> 26,828
<CURRENT-ASSETS> 1,149,008
<PP&E> 2,247,930
<DEPRECIATION> (1,176,383)
<TOTAL-ASSETS> 2,237,303
<CURRENT-LIABILITIES> 1,600,317
<BONDS> 0
0
0
<COMMON> 3,324
<OTHER-SE> 543,063
<TOTAL-LIABILITY-AND-EQUITY> 2,237,303
<SALES> 1,242,849
<TOTAL-REVENUES> 1,242,849
<CGS> 785,435
<TOTAL-COSTS> 1,424,756
<OTHER-EXPENSES> (14,512)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,258
<INCOME-PRETAX> (196,419)
<INCOME-TAX> 0
<INCOME-CONTINUING> (196,419)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (196,419)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
