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Traded OTC BB .56/.75...filings avail at Edgar...things are looking up here...more later. 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, shotgun sequencing and shotgun library construction services. 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 strain's 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 ARRAY SERVICES. Lark uses automated PCR techniques to produce molecular materials used in the construction of biochip arrays. 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 RESULTS OF OPERATIONS GROSS REVENUES. Gross revenues increased .3% from $998,244 to $1,001,089 for the three-month periods ended June 30, 1998 and 1999, respectively. Gross revenue decreased 5.6% from $2,376,591 to $2,243,939 for the six-month periods ended June 30, 1998 and 1999 respectively. The increase in revenues for the quarter was mainly due to the additional sales by the UK lab. The decrease in revenues for the year to date was mainly attributable to the absence of ongoing project work for a single large customer that was present in 1998 but not in 1999. That customer accounted for 40% of the revenues for the first half of 1998. COSTS OF SERVICES. Costs of services consist primarily of labor and laboratory supplies. Costs of services increased 5.4% from $471,163 to $496,727 for the three-month periods ended June 30, 1998 and 1999, respectively. Costs of services increased 26.6% from $1,012,834 to $1,282,162 for the six-month periods ended June 30, 1998 and 1999 respectively. Changes in the mix of projects performed for customers at Lark's 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 47.2% and 49.6% for the three-month and 42.6% and 57.1% for the six-month periods ended June 30, 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 9.3% from $495,173 to $541,252 for the three-month periods ended June 30, 1998 and 1999, respectively. Sales, general and administrative expenses increased 7.6% from $1,089,409 to $1,172,159 for the six-month period ended June 30, 1998 and 1999, respectively. These increases were mainly due to the addition of employee sales representatives located on both US coasts to gain more consistent sales coverage in those important markets. Sales, general and administrative expenses as a percentage of revenue were 49.6% and 54% for the three-month and 45.8% and 52.2% for the six-month periods ended June 30, 1998 and 1999, respectively. RESEARCH AND DEVELOPMENT. Research and development costs decreased 143% from $20,374 to ($8,811) for the three-month periods ended June 30, 1998 and 1999, respectively. Research and development costs decreased 100.7% from $50,742 to ($395) for the six months ended June 30, 1998 and 1999, respectively. The decrease in research and development costs was attributable to the cancellation of the sponsored research agreement project. The credit in the second quarter 1999 resulted when prior period costs originally charged to R&D were correctly reclassified to Sales expenses. The costs were for the rework of the Company's web site. Research and development costs as a percentage of revenue were 2% and -.9% for the three-month and 2.1% and -.02% for the six-month periods ended June 30, 1998 and 1999, respectively. VARIABILITY OF FUTURE OPERATING RESULTS. For the first half of 1999, the Company continued the trend it started in 1998 toward a broader base of services. The Company experienced a slight revenue increase and increased costs during the quarter ended June 30, 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 have been historically achieved. The company continues to seek large contracts and diversify its customer base. LIQUIDITY AND CAPITAL RESOURCES. Operating cash flow was $226,025 and ($235,066) for the six-month periods ended June 30, 1998 and 1999, respectively. The negative operating cash flows for the quarter ending June 30, 1999 occurred primarily as a result to the net loss reported for the period. This negative operating cash flow was partially 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. On June 30, 1999, the Company renewed its revolving loan facility through December 31, 1999, and may now borrow up to $450,000 under the terms of the new credit line. See note 3 8 to financial statements for further details of the companies borrowing facilities. | ||||||||||||
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