##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the quarterly period ended March 31, 2008
 Or
 o
    
    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: 0-26524
 LOUD TECHNOLOGIES INC.
  Washington
    
    91-1432133(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)16220 Wood-Red Road, N.E., Woodinville, Washington
    
    98072(Address of principal executive offices)
    
    (Zip Code)
 (425) 487-4333
 N/A
 o þ
 o þ
 þ o
  Large accelerated filer
o

  
  Accelerated filer
o

  
  Non-accelerated filer
þ
(Do not check if a smaller reporting company)

  
  Smaller reporting company
o
 o þ
  Common Stock, no par value
    
    4,858,941Class
    
    Number of Shares Outstanding
(as of April 24, 2008)




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##### 



LOUD TECHNOLOGIES INC.   FORM 10-Q
For the quarter ended March 31, 2008   INDEX
 PART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Condensed Consolidated Balance Sheets as of March 31, 2008 and December 31, 2007Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for
the three months ended March 31, 2008 and March 31, 2007Condensed Consolidated Statements of Cash Flows for the three months ended March 31,
2008 and March 31, 2007Condensed Consolidated Statements of Shareholders Equity (Deficit) for the three
months ended March 31, 2008Notes to Condensed Consolidated Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPART II. OTHER INFORMATIONItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 6. ExhibitsSIGNATURESEXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
  2




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LOUD TECHNOLOGIES INC.
AND SUBSIDIARIES
 
 Consolidated Balance
Sheets(Unaudited)
 (In thousands, except for share amounts)
 March
31, 2008
    
    

December
31,2007AssetsCurrent assets:Cash
    
    $
    4,830
    
    
    $
    3,589Accounts receivable, net of allowances of $3,683 and $3,537, respectively
    
    
    27,390
    
    
    
    25,204Inventories
    
    
    51,627
    
    
    
    56,804Prepaid expenses and other current assets
    
    
    2,059
    
    
    
    1,915Total current assets
    
    
    85,906
    
    
    
    87,512Property, plant and equipment, net
    
    
    5,343
    
    
    
    5,744Goodwill
    
    
    19,696
    
    
    
    19,726Other intangible assets, net
    
    
    27,448
    
    
    
    27,975Deferred financing costs, net
    
    
    2,637
    
    
    
    2,621Total assets
    
    $
    141,030
    
    
    $
    143,578Liabilities and Shareholders Equity (Deficit)Current liabilities:Short-term borrowings
    
    $
    2,569
    
    
    $
    1,318Accounts payable
    
    
    24,117
    
    
    
    25,830Accrued liabilities
    
    
    9,650
    
    
    
    11,020Current deferred tax liabilities
    
    
    299
    
    
    
    299Taxes payable
    
    
    1,735
    
    
    
    1,834Current portion of long-term debt
    
    
    3,000
    
    
    
    8,000Total current liabilities
    
    
    41,370
    
    
    
    48,301Long-term debt, excluding current portion
    
    
    91,717
    
    
    
    92,358Convertible debt, net of discount
    
    
    893
    
    
    
    Deferred tax liabilities
    
    
    4,556
    
    
    
    4,636Total liabilities
    
    
    138,536
    
    
    
    145,295Commitments and contingencies
    
    
    
    
    
    
    Shareholders equity (deficit):Preferred stock, no par value. Authorized 5,000,000 shares,
no shares issued and outstanding
    
    
    
    
    
    
    Common stock, no par value. Authorized 40,000,000 shares,
issued and outstanding 4,858,941 and 4,618,942
shares at March 31, 2008 and December 31, 2007, respectively
    
    
    41,881
    
    
    
    41,810Additional paid in capital
    
    
    6,693
    
    
    
    Accumulated deficit
    
    
    (46,174
    )
    
    
    (43,662
    )Accumulated other comprehensive income
    
    
    94
    
    
    
    135Total shareholders equity (deficit)
    
    
    2,494
    
    
    
    (1,717
    )Total liabilities and shareholders equity (deficit)
    
    $
    141,030
    
    
    $
    143,578
  3




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LOUD TECHNOLOGIES INC.
AND SUBSIDIARIES
 
 Consolidated
Statements of Operations and Comprehensive Loss(Unaudited)
 (In thousands, except per share data)
 Three Months endedMarch 31,2008
    
    
    2007Net sales
    
    $
    54,149
    
    
    $
    50,953Cost of sales
    
    
    38,333
    
    
    
    37,348Gross profit
    
    
    15,816
    
    
    
    13,605Operating expenses:Selling, general, and administrative
    
    
    11,990
    
    
    
    11,501Research and development
    
    
    3,032
    
    
    
    2,801Restructuring costs
    
    
    35
    
    
    
    1,018Total operating expenses
    
    
    15,057
    
    
    
    15,320Operating income (loss)
    
    
    759
    
    
    
    (1,715
    )Other income (expense):Interest income
    
    
    39
    
    
    
    Interest expense
    
    
    (2,904
    )
    
    
    (1,850
    )Management fee
    
    
    (153
    )
    
    
    (161
    )Other
    
    
    (181
    )
    
    
    (2,205
    )Total other expense
    
    
    (3,199
    )
    
    
    (4,216
    )Loss before income taxes
    
    
    (2,440
    )
    
    
    (5,931
    )Income tax expense
    
    
    72
    
    
    
    34Net loss
    
    $
    (2,512
    )
    
    $
    (5,965
    )Per share dataBasic and diluted net loss per share
    
    $
    (0.52
    )
    
    $
    (1.24
    )Shares used in computing basic and diluted net loss per share
    
    
    4,859
    
    
    
    4,827Comprehensive loss:Net loss
    
    $
    (2,512
    )
    
    $
    (5,965
    )Foreign currency translation loss
    
    
    (41
    )
    
    
    Comprehensive loss
    
    $
    (2,553
    )
    
    $
    (5,965
    )
  4




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LOUD TECHNOLOGIES INC.
AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
 (Unaudited)
(In thousands)
 Three Months endedMarch 31,2008
    
    
    2007Operating activities:Net loss
    
    $
    (2,512
    )
    
    $
    (5,965
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    1,321
    
    
    
    1,016Amortization and write-offs of deferred financing costs
    
    
    134
    
    
    
    2,692Gain on asset dispositions
    
    
    
    
    
    
    (464
    )Stock based compensation
    
    
    70
    
    
    
    90Non-cash interest expense
    
    
    194
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (2,190
    )
    
    
    (567
    )Inventories
    
    
    5,173
    
    
    
    8,163Prepaid expenses and other current assets
    
    
    (146
    )
    
    
    (2,196
    )Accounts payable, accrued liabilities and
payable to former Italian subsidiary
    
    
    (3,076
    )
    
    
    (9,116
    )Taxes payable
    
    
    (174
    )
    
    
    (159
    )Other liabilities
    
    
    
    
    
    
    19Net cash used in operating activities
    
    
    (1,206
    )
    
    
    (6,487
    )Investing activities:Proceeds from sales of property, plant and equipment
    
    
    
    
    
    
    1,138Purchases of property, plant and equipment
    
    
    (411
    )
    
    
    (604
    )Acquisition of St. Louis Music, Inc., including transaction fees paid
    
    
    
    
    
    
    (3,181
    )Net cash used in investing activities
    
    
    (411
    )
    
    
    (2,647
    )Financing activities:Payments on long-term debt
    
    
    (5,750
    )
    
    
    (41,605
    )Issuance of long-term debt
    
    
    
    
    
    
    72,000Proceeds from issuance of convertible debt
    
    
    7,500
    
    
    
    Net proceeds (payments) on line of credit and short term borrowings
    
    
    1,251
    
    
    
    (14,210
    )Financing costs associated with debt issuance
    
    
    (150
    )
    
    
    (2,946
    )Net proceeds from stock sales and exercise of stock options
    
    
    2
    
    
    
    122Cash provided by financing activities
    
    
    2,853
    
    
    
    13,361Effect of exchange rate changes on cash
    
    
    5
    
    
    
    Increase (decrease) in cash and cash equivalents
    
    
    1,241
    
    
    
    4,227Cash at beginning of period
    
    
    3,589
    
    
    
    311Cash at end of period
    
    $
    4,830
    
    
    $
    4,538Supplemental disclosure of cash flow informationCash paid for interest
    
    $
    2,527
    
    
    $
    944Cash paid for income taxes
    
    $
    229
    
    
    $
    188
  5




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LOUD TECHNOLOGIES INC.
AND SUBSIDIARIES
 
 Consolidated Statements of Shareholders Equity (Deficit)
 Three months ended March 31, 2008
 (Unaudited)
 (In thousands)
 Additional
    
    
    
    
    
    AccumulatedCommon stock
    
    Paid in
    
    Accumulated
    
    ComprehensiveShares
    
    Amount
    
    Capital
    
    Deficit
    
    Income (Loss)
    
    TotalBalance at December 31, 2007
    
    
    4,619
    
    
    
    41,810
    
    
    
    
    
    
    
    (43,662
    )
    
    
    135
    
    
    
    (1,717
    )Stock based compensation
    
    
    
    
    
    
    70
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70Exercise of warrants
    
    
    240
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Convertible debt beneficial
conversion
    
    
    
    
    
    
    
    
    
    
    6,693
    
    
    
    
    
    
    
    
    
    
    
    6,693Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,512
    )
    
    
    
    
    
    
    (2,512
    )Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (41
    )
    
    
    (41
    )Balance at March 31, 2008
    
    
    4,859
    
    
    
    41,881
    
    
    
    6,693
    
    
    
    (46,174
    )
    
    
    94
    
    
    
    2,494
  6




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##### Table of Contents



LOUD TECHNOLOGIES INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008
(Unaudited)
 1. Description of Business
 ® ® ® ® ® ® ® ® ®
  2. Summary of Significant Accounting Policies
 Basis of Presentation
  Stock Based Compensation
  Three months endedMarch 31, 2008Selling, general and administrative
    
    
    68Research and development
    
    
    2Total stock based compensation
    
    $
    70
  Use of Estimates
  7




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Revenue Recognition
  Foreign Currency
   Income Taxes
     8




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##### Table of Contents



Balance, December 31, 2007
    
    $
    1,513Decreases related to prior year tax positions
    
    
    (68
    )Increases related to current year tax positions
    
    
    31Balance, March 31,
2008
    
    $
    1,476
 Concentration of Credit and Supply Risk
    Recently Adopted Accounting Principles
  Effective Date of FASB
Statement No. 157
  9




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##### Table of Contents



New Accounting Pronouncements
  3. Net Loss Per Share
   4. Restructuring Costs
  Balance at December 31, 2007
    
    $
    462New charges
    
    
    35Cash payments
    
    
    (180
    )Balance at March 31, 2008
    
    $
    317
 10




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##### Table of Contents



5. Inventories
  March 31,
    
    
    December 31,2008
    
    
    2007Raw materials
    
    $
    7,285
    
    
    $
    7,580Work in process
    
    
    91
    
    
    
    65Finished goods
    
    
    44,251
    
    
    
    49,159$
    51,627
    
    
    $
    56,804
 6. Other Intangible Assets
  Gross
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    NetCustomer and distributor relationships
    
    $
    13,853
    
    
    $
    1,332
    
    
    $
    12,521Trademark
    
    
    12,713
    
    
    
    1,583
    
    
    
    11,130Developed technology
    
    
    6,149
    
    
    
    2,378
    
    
    
    3,771Non-compete agreement
    
    
    50
    
    
    
    24
    
    
    
    26Total intangible assets, March 31, 2008
    
    $
    32,765
    
    
    $
    5,317
    
    
    $
    27,448Total intangible assets, December 31, 2007
    
    $
    32,785
    
    
    $
    4,810
    
    
    $
    27,975
  7. Goodwill
  Balance, December 31, 2007
    
    $
    19,726Effects of foreign currency translation
    
    
    (30
    )Balance, March 31, 2008
    
    $
    19,696
 8. Financing
   11




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(a) Short-term borrowings
  (b) Long-term debt
  March 31,
    
    
    December 31,2008
    
    
    2007Convertible debt, net of discount
    
    
    893
    
    
    
    Ableco Term Loan A
    
    
    18,036
    
    
    
    19,203Ableco US Term Loan B
    
    
    35,000
    
    
    
    39,333Ableco UK Term Loan B
    
    
    29,250
    
    
    
    29,500Ableco Term Loan C
    
    
    12,431
    
    
    
    12,32295,610
    
    
    
    100,358Less: current portion
    
    
    (3,000
    )
    
    
    (8,000
    )Long-term portion of debt
    
    $
    92,610
    
    
    $
    92,358
    12




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Face value of convertible debt(s)
    
    $
    7,500Less: unamortized debt discounts
    
    
    (6,648
    )Add: accreted interest
    
    
    41Total carrying value, net of debt discount March 31, 2008
    
    $
    893
   9. Guarantees
 Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others
 
 Three months ended March 31,2008
    
    2007Balance, beginning of period
    
    $
    1,065
    
    
    $
    1,160Charged to cost of sales
    
    
    756
    
    
    
    660Applied to liability
    
    
    (756
    )
    
    
    (930
    )Balance, end of period
    
    $
    1,065
    
    
    $
    890
 10. Commitments and Contingencies
  11. Martin Acquisition
  13




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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 our financial statements
included in our Annual Report on Form 10-K for the year ended December 31, 2007. This discussion
contains certain forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended, which involve risks and uncertainties,
such as statements of our plans, objectives, expectations and intentions. Actual results may differ
materially from those discussed herein. The cautionary statements made in this Quarterly Report on
Form 10-Q and the Annual Report on Form 10-K may apply to all forward-looking statements wherever
they appear. We undertake no obligation to publicly release any revisions to these forward-looking
statements that may be required to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events. Forward-looking statements include, without
limitation, any statement that may predict, forecast, indicate, or imply future results,
performance, or achievements, and may contain the words believe, anticipate, expect,
estimate, project, will be, will continue, will likely result, or words or phrases of
similar meaning.
 Overview
 ® ® ® ® ® ® ® ® ®
    Critical Accounting Policies and Judgments
   Estimates and Assumptions Related to Financial Statements
  14




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Results of Operations (in thousands)
 Three months endedMarch 31,2008
    
    
    2007Net sales
    
    $
    54,149
    
    
    $
    50,953Gross profit
    
    
    15,816
    
    
    
    13,605Selling, general and administrative
    
    
    11,990
    
    
    
    11,501Research and development
    
    
    3,032
    
    
    
    2,801Restructuring costs
    
    
    35
    
    
    
    1,018Total operating expenses
    
    
    15,057
    
    
    
    15,320Operating income (loss)
    
    
    759
    
    
    
    (1,715
    )Other expense
    
    
    (3,199
    )
    
    
    (4,216
    )Provision for income taxes
    
    
    72
    
    
    
    34Net loss
    
    $
    (2,512
    )
    
    $
    (5,965
    )
 Three Months Ended March 31, 2008 vs. Three Months Ended March 31, 2007
 Net Loss
  Net Sales
  Gross Profit
  Selling, General and Administrative
  Research and Development
  15




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Restructuring Costs
  Other Expense
   Income Taxes
  Liquidity and Capital Resources
  Net Cash Used in Operating Activities
  Net Cash Used in Investing Activities
  16




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Net Cash Provided by Financing Activities
  Ability to Stay in Compliance With Debt Covenants
  Commitments
 
 Payments due by PeriodLess thanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5+ YearsOperating leases
    
    $
    7,333
    
    
    $
    2,476
    
    
    $
    4,010
    
    
    $
    847
    
    
    $
    Convertible
debt, including interest
    
    
    14,240
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,240Short-term
and long-term debt, including interest
    
    
    133,432
    
    
    
    10,969
    
    
    
    24,787
    
    
    
    97,676
    
    
    
    Total
    
    $
    155,005
    
    
    $
    13,445
    
    
    $
    28,797
    
    
    $
    98,523
    
    
    $
    14,240
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
 17




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Item 4. Controls and Procedures
   
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Item 3. Defaults Upon Senior Securities
  Item 4. Submission of Matters to a Vote of Security Holders
  Item 5. Other Information
  
 Item 6. Exhibits
 
 18




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SIGNATURES
  LOUD Technologies Inc.
(Registrant)Dated:  May 15, 2008
    By:
    /s/ James T. EngenJames T. EngenChairman, President and Chief Executive
OfficerDated:  May 15, 2008
    By:
    /s/ Gerald Y. NgGerald Y. NgChief Financial Officer, Senior Vice
President, Secretary and
Treasurer (Principal Financial and
Accounting Officer) 19




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EXHIBIT INDEX
 ExhibitNumber
    
    Document Description31.1
    
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    Certification Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
 20