##### 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 September 30, 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
(State or other jurisdiction of incorporation or organization)
    
    91-1432133
(I.R.S. Employer Identification No.)16220 Wood-Red Road, N.E., Woodinville, Washington
(Address of principal executive offices)
    
    98072
(Zip Code)
 (425) 487-4333
 N/A
 þ o
  Large accelerated filer oAccelerated filer oNon-accelerated filer þ(Do not check if a smaller reporting company)Smaller reporting company o o þ




---



##### 



LOUD TECHNOLOGIES INC.
 FORM 10-Q
For the quarter ended September 30, 2008
 INDEX
 PART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited)Condensed Consolidated Balance Sheets as of September 30, 2008 and December 31, 2007
    
    
    2Condensed Consolidated Statements of Operations and Comprehensive Loss for the three
and nine months ended September 30, 2008 and September 30, 2007
    
    
    3Condensed Consolidated Statements of Cash Flows for the nine months ended September
30, 2008 and September 30, 2007
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    27Item 4T.
    
    Controls and Procedures
    
    
    27PART II.
    
    OTHER INFORMATION
    
    
    30Item 1.
    
    Legal Proceedings
    
    
    30Item 1A.
    
    Risk Factors
    
    
    30Item 6.
    
    Exhibits
    
    
    32SIGNATURES
    
    
    
    
    33EX-10.1EX-31.1EX-31.2EX-32.1




---



##### Table of Contents



LOUD TECHNOLOGIES INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except for share amounts)
 September 30,
    
    
    December 31,2008
    
    
    2007AssetsCurrent assets:Cash and cash equivalents
    
    $
    2,231
    
    
    $
    3,589Accounts receivable, net of allowances of $3,824 and $3,537, respectively
    
    
    23,849
    
    
    
    25,204Inventories
    
    
    40,355
    
    
    
    56,804Prepaid expenses and other current assets
    
    
    4,219
    
    
    
    1,915Total current assets
    
    
    70,654
    
    
    
    87,512Property, plant and equipment, net
    
    
    4,598
    
    
    
    5,744Goodwill
    
    
    4,152
    
    
    
    19,726Other intangible assets, net
    
    
    23,605
    
    
    
    27,975Deferred financing costs, net
    
    
    2,514
    
    
    
    2,621Total assets
    
    $
    105,523
    
    
    $
    143,578Liabilities and Shareholders (Deficit)Current liabilities:Short-term borrowings
    
    $
    1,834
    
    
    $
    1,318Accounts payable
    
    
    16,181
    
    
    
    25,830Accrued liabilities
    
    
    9,740
    
    
    
    11,020Current deferred tax liabilities
    
    
    209
    
    
    
    299Taxes payable
    
    
    290
    
    
    
    318Current portion of long-term debt
    
    
    3,000
    
    
    
    8,000Long-term debt, classified as current
    
    
    90,443
    
    
    
    Total current liabilities
    
    
    121,697
    
    
    
    46,785Deferred tax liability
    
    
    5,617
    
    
    
    6,152Long-term debt, excluding current portion
    
    
    
    
    
    
    92,358Convertible debt, net of discount
    
    
    2,110
    
    
    
    Total liabilities
    
    
    129,424
    
    
    
    145,295Shareholders (deficit):Preferred stock, no par value. Authorized 5,000,000 shares, no shares issued and outstanding
    
    
    
    
    
    
    Common stock, no par value. Authorized 12,000,000 shares, issued and outstanding 4,858,941
and 4,618,942 shares at September 30, 2008 and December 31, 2007, respectively
    
    
    42,000
    
    
    
    41,810Additional paid in capital
    
    
    6,693
    
    
    
    Accumulated deficit
    
    
    (70,632
    )
    
    
    (43,662
    )Accumulated other comprehensive income (loss)
    
    
    (1,962
    )
    
    
    135Total shareholders (deficit)
    
    
    (23,901
    )
    
    
    (1,717
    )Total liabilities and shareholders (deficit)
    
    $
    105,523
    
    
    $
    143,578
  2




---



##### Table of Contents



LOUD TECHNOLOGIES INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(In thousands, except per share data)
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net sales
    
    $
    46,857
    
    
    $
    53,094
    
    
    $
    155,986
    
    
    $
    154,630Cost of sales
    
    
    34,961
    
    
    
    37,954
    
    
    
    111,163
    
    
    
    111,351Gross profit
    
    
    11,896
    
    
    
    15,140
    
    
    
    44,823
    
    
    
    43,279Operating expenses:Selling, general and administrative
    
    
    11,759
    
    
    
    11,442
    
    
    
    35,282
    
    
    
    33,975Research and development
    
    
    2,777
    
    
    
    2,826
    
    
    
    8,392
    
    
    
    8,457Restructuring costs
    
    
    86
    
    
    
    158
    
    
    
    382
    
    
    
    1,712Impairment of Goodwill
    
    
    15,510
    
    
    
    
    
    
    
    15,510
    
    
    
    Impairment of Intangibles
    
    
    1,358
    
    
    
    
    
    
    
    1,358
    
    
    
    Total operating expenses
    
    
    31,490
    
    
    
    14,426
    
    
    
    60,924
    
    
    
    44,144Operating income (loss)
    
    
    (19,594
    )
    
    
    714
    
    
    
    (16,101
    )
    
    
    (865
    )Other income (expense):Interest income
    
    
    63
    
    
    
    
    
    
    
    91
    
    
    
    22Interest expense
    
    
    (3,410
    )
    
    
    (3,052
    )
    
    
    (9,649
    )
    
    
    (7,660
    )Management fee
    
    
    (172
    )
    
    
    (192
    )
    
    
    (694
    )
    
    
    (677
    )Foreign Exchange gain (loss)
    
    
    (238
    )
    
    
    165
    
    
    
    (345
    )
    
    
    104Other
    
    
    16
    
    
    
    8
    
    
    
    30
    
    
    
    (1,986
    )Total other expenses
    
    
    (3,741
    )
    
    
    (3,071
    )
    
    
    (10,567
    )
    
    
    (10,197
    )Loss before income taxes
    
    
    (23,335
    )
    
    
    (2,357
    )
    
    
    (26,668
    )
    
    
    (11,062
    )Income tax expense (benefit)
    
    
    73
    
    
    
    (446
    )
    
    
    302
    
    
    
    (451
    )Net loss
    
    $
    (23,408
    )
    
    $
    (1,911
    )
    
    $
    (26,970
    )
    
    $
    (10,611
    )Per share dataBasic and diluted net loss per share
    
    $
    (4.82
    )
    
    $
    (0.39
    )
    
    $
    (5.55
    )
    
    $
    (2.19
    )Shares used in computing basic and diluted net loss per share
    
    
    4,859
    
    
    
    4,859
    
    
    
    4,859
    
    
    
    4,847Comprehensive loss:Net loss
    
    $
    (23,408
    )
    
    $
    (1,911
    )
    
    $
    (26,970
    )
    
    $
    (10,611
    )Foreign currency translation gain (loss)
    
    
    (2,060
    )
    
    
    919
    
    
    
    (2,097
    )
    
    
    1,006Comprehensive loss
    
    $
    (25,468
    )
    
    $
    (992
    )
    
    $
    (29,067
    )
    
    $
    (9,605
    )
  3




---



##### Table of Contents



LOUD TECHNOLOGIES INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
 Nine months endedSeptember 30,2008
    
    
    2007Operating activities:Net loss
    
    $
    (26,970
    )
    
    $
    (10,611
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    3,974
    
    
    
    3,632Amortization and write-offs of deferred financing costs
    
    
    444
    
    
    
    2,946Changes in deferred income taxes
    
    
    (202
    )
    
    
    (969
    )Write down of intangibles related to sale of distribution business
    
    
    1,358
    
    
    
    Write down of inventories related to sale of distribution business
    
    
    1,749
    
    
    
    Write down for impairment of goodwill
    
    
    15,510
    
    
    
    Gain on asset dispositions
    
    
    
    
    
    
    (526
    )Stock-based compensation
    
    
    189
    
    
    
    229Non-cash interest expense
    
    
    1,635
    
    
    
    214Changes in operating assets and liabilities:Account receivable
    
    
    1,000
    
    
    
    3,319Inventories
    
    
    14,247
    
    
    
    10,223Prepaid expenses and other current assets
    
    
    (2,364
    )
    
    
    (130
    )Accounts payable, accrued liabilities and payable to former Italian subsidiary
    
    
    (10,547
    )
    
    
    (7,660
    )Taxes payable
    
    
    93
    
    
    
    (172
    )Other liabilities
    
    
    
    
    
    
    19Net cash provided by operating activities
    
    
    116
    
    
    
    514Investment activities:Proceeds from sales of property, plant and equipment
    
    
    
    
    
    
    1,239Purchases of property, plant and equipment
    
    
    (1,344
    )
    
    
    (1,757
    )Acquisition of St. Louis Music, Inc., including transaction fees paid
    
    
    
    
    
    
    (3,181
    )Acquisition of Martin Audio, Ltd., net of cash acquired of $3,696
    
    
    
    
    
    
    (31,977
    )Net cash used in investing activities
    
    
    (1,344
    )
    
    
    (35,676
    )Financing activities:Payments on previous credit facility
    
    
    
    
    
    
    (41,605
    )Payments on long-term debt
    
    
    (7,250
    )
    
    
    (1,214
    )Issuance of long-term debt
    
    
    
    
    
    
    102,000Proceeds from issuance of convertible debt
    
    
    7,500
    
    
    
    Net proceeds (payments) on line of credit and short-term borrowings
    
    
    516
    
    
    
    (14,210
    )Net payment on debt and credit facility acquired in acquisition of Martin Audio, Ltd.
    
    
    
    
    
    
    (3,030
    )Financing costs associated with debt issuance
    
    
    (336
    )
    
    
    (2,946
    )Net proceeds from stock sales and exercise of stock options and warrants
    
    
    1
    
    
    
    224Cash provided by financing activities
    
    
    431
    
    
    
    39,219Effect of exchange rate changes on cash
    
    
    (561
    )
    
    
    (198
    )Increase (decrease) in cash and cash equivalents
    
    
    (1,358
    )
    
    
    3,859Cash at beginning of period
    
    
    3,589
    
    
    
    311Cash at end of period
    
    $
    2,231
    
    
    $
    4,170Supplemental disclosure of cash flow informationCash paid for interest
    
    $
    7,517
    
    
    $
    6,008Cash paid for income taxes
    
    $
    533
    
    
    $
    817Accrued acquisition-related expenses
    
    $
    
    
    
    $
    551Cash paid for acquisition-related expenses
    
    $
    
    
    
    $
    1,518
  4




---



##### Table of Contents



LOUD TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
(Unaudited)
 1. Description of Business
    2. Summary of Significant Accounting Policies
 Basis of Presentation
  Use of Estimates
  Liquidity
  5




---



##### Table of Contents



Revenue Recognition
   6




---



##### Table of Contents



Foreign Currency
   Income Taxes
      Balance at December 31, 2007
    
    $
    1,513Decreases related to prior year tax positions
    
    
    (84
    )Increases related to current year tax positions
    
    
    90Balance at September 30, 2008
    
    $
    1,519
 7




---



##### Table of Contents



Concentration of Credit and Supply Risk
    Stock Based Compensation
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Cost of sales
    
    $
    0
    
    
    $
    1
    
    
    $
    0
    
    
    $
    5Selling, general and administrative
    
    
    47
    
    
    
    61
    
    
    
    182
    
    
    
    214Research and development
    
    
    2
    
    
    
    3
    
    
    
    7
    
    
    
    10Total stock-based compensation
    
    $
    49
    
    
    $
    65
    
    
    $
    189
    
    
    $
    229
  Recently Adopted Accounting Principles
  8




---



##### Table of Contents




    
    Level 1: Observable inputs such as quoted prices in active markets for identical assets
or liabilities
    
    Level 2: Inputs other than quoted prices that are observable for the asset or liability,
either directly or indirectly; these include quoted prices for similar assets or
liabilities in active markets and quoted prices for identical or similar assets or
liabilities in markets that are not active
    
    Level 3: Unobservable inputs that reflect the reporting entitys own assumptions
  Balance as of September 30, 2008Level I
    
    Level II
    
    Level IIIShort-term investment
    
    $
    76
    
    
    $
    
    
    
    $
    
  New Accounting Pronouncements
    9




---



##### Table of Contents



3. Net Loss Per Share
   4. Restructuring Costs
  Balance at December 31, 2007
    
    $
    462New charges
    
    
    382Cash payments
    
    
    (458
    )Balance at September 30, 2008
    
    $
    386
  5. Inventories
  September 30,
    
    
    December 31,2008
    
    
    2007Raw materials
    
    $
    3,880
    
    
    $
    7,580Work in process
    
    
    79
    
    
    
    65Finished goods
    
    
    36,396
    
    
    
    49,159$
    40,355
    
    
    $
    56,804
  6. Other Intangible Assets
  Gross
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    NetCustomer and distributor relationships
    
    $
    12,282
    
    
    $
    1,553
    
    
    $
    10,729Trademark
    
    
    11,040
    
    
    
    1,665
    
    
    
    9,375Developed technology
    
    
    6,038
    
    
    
    2,549
    
    
    
    3,489Non-compete agreement
    
    
    45
    
    
    
    33
    
    
    
    12Total intangible assets, September 30, 2008
    
    $
    29,405
    
    
    $
    5,800
    
    
    $
    23,605Total intangible assets, December 31, 2007
    
    $
    32,785
    
    
    $
    4,810
    
    
    $
    27,975
 10




---



##### Table of Contents



Gross
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    NetCustomer and distributor relationships
    
    $
    612
    
    
    $
    146
    
    
    $
    466Trademark
    
    
    1,070
    
    
    
    192
    
    
    
    878Developed technology
    
    
    50
    
    
    
    36
    
    
    
    14Total write-off of intangible assets, September 30, 2008
    
    $
    1,732
    
    
    $
    374
    
    
    $
    1,358
 7. Goodwill
   Balance, December 31, 2007
    
    $
    19,726Impairment of goodwill
    
    
    (15,510
    )Effects of foreign currency translation
    
    
    (64
    )Balance, September 30, 2008
    
    $
    4,152
     8. Financing
  11




---



##### Table of Contents



(a) Short-term borrowings
  (b) Long-term debt
  September 30,
    
    
    December 31,2008
    
    
    2007Ableco Term Loan A
    
    $
    17,703
    
    
    $
    19,203Ableco US Term Loan B
    
    
    34,333
    
    
    
    39,333Ableco UK Term Loan B
    
    
    28,750
    
    
    
    29,500Ableco Term Loan C
    
    
    12,657
    
    
    
    12,32293,443
    
    
    
    100,358Convertible debt, net of discount
    
    
    2,110
    
    
    
    95,553
    
    
    
    100,358Less: current portion of long-term debt
    
    
    (3,000
    )
    
    
    (8,000
    )Less: long-term debt portion classified as current
    
    
    (90,443
    )
    
    
    Long-term debt
    
    $
    2,110
    
    
    $
    92,358
   12




---



##### Table of Contents



Face value of convertible debt(s)
    
    $
    7,500Less: unamortized debt discounts
    
    
    (6,017
    )Add: accreted interest
    
    
    627Total carrying value, net of debt discount September 30, 2008
    
    $
    2,110
  9. Guarantees
 "
  13




---



##### Table of Contents



2008
    
    
    2007Balance at December 31, 2007 and 2006
    
    $
    1,065
    
    
    $
    1,160Acquisition of Martin Audio
    
    
    
    
    
    
    46Charged to cost of sales
    
    
    1,456
    
    
    
    1,586Applied to liability
    
    
    (1,426
    )
    
    
    (1,733
    )Foreign currency adjustment
    
    
    (6
    )
    
    
    2Balance at September 30, 2008 and 2007
    
    $
    1,089
    
    
    $
    1,061
 10. Commitments and Contingencies
   11. Subsequent Events
    14




---



##### Table of Contents



15




---



##### Table of Contents



16




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 This Quarterly Report on Form 10-Q contains forward-looking statements relating to LOUD
Technologies Inc. Except for historical information, the following discussion contains
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995. All statements other than statements of historical fact, including future results of
operations or financial position, made in this Quarterly Report on Form 10-Q are forward looking.
The words believe, expect, intend, anticipate, will, may, variations of such words, and
similar expressions identify forward-looking statements, but their absence does not mean that the
statement is not forward-looking. These forward-looking statements reflect managements current
expectations and involve risks and uncertainties. Our actual results could differ materially from
results that may be anticipated by such forward-looking statements due to various uncertainties.
 The principal factors that could cause or contribute to such differences include, but are not
limited to, the factors discussed in the section entitled Risk Factors in Part 1  Item 1A of
our Annual Report on Form 10-K for the year ended December 31, 2007 and those discussed elsewhere
in this report. Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this report. We undertake no obligation to revise
any forward-looking statements to reflect events or circumstances that may subsequently arise.
Readers are urged to review and consider carefully the various disclosures made in this report and
in our other filings made with the SEC that disclose and describe the risks and factors that may
affect our business, prospects and results of operations.
  Overview
     17




---



##### Table of Contents



Critical Accounting Policies and Judgments
     18




---



##### Table of Contents



Results of Operations (in thousands)
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net sales
    
    $
    46,857
    
    
    $
    53,094
    
    
    $
    155,986
    
    
    $
    154,630Gross profit
    
    
    11,896
    
    
    
    15,140
    
    
    
    44,823
    
    
    
    43,279Selling, general and administrative
    
    
    11,759
    
    
    
    11,442
    
    
    
    35,282
    
    
    
    33,975Research and development
    
    
    2,777
    
    
    
    2,826
    
    
    
    8,392
    
    
    
    8,457Restructuring costs
    
    
    86
    
    
    
    158
    
    
    
    382
    
    
    
    1,712Impairment of goodwill
    
    
    15,510
    
    
    
    
    
    
    
    15,510
    
    
    
    Impairment of intangibles
    
    
    1,358
    
    
    
    
    
    
    
    1,358
    
    
    
    Total operating expenses
    
    $
    31,490
    
    
    $
    14,426
    
    
    $
    60,924
    
    
    $
    44,144Operating income (loss)
    
    
    (19,594
    )
    
    
    714
    
    
    
    (16,101
    )
    
    
    (865
    )Interest and other expense
    
    
    (3,741
    )
    
    
    (3,071
    )
    
    
    (10,567
    )
    
    
    (10,197
    )Provision for income taxes
    
    
    73
    
    
    
    (446
    )
    
    
    302
    
    
    
    (451
    )Net income (loss)
    
    $
    (23,408
    )
    
    $
    (1,911
    )
    
    $
    (26,970
    )
    
    $
    (10,611
    )
 Three Months Ended September 30, 2008 vs. Three Months Ended September 30, 2007
 19




---



##### Table of Contents



Net Loss
  Net Sales
  Gross Profit
  Selling, General and Administrative
  Research and Development
  Restructuring Costs
   20




---



##### Table of Contents



Impairment of Goodwill
  Impairment of Intangibles
  Other Expense
   Income Taxes
  Nine Months Ended September 30, 2008 vs. Nine Months Ended September 30, 2007
 21




---



##### Table of Contents



Net Sales
  Gross Profit
  Selling, General and Administrative
  Research and Development
  Restructuring Costs
   Impairment of Goodwill
  Impairment of Intangibles
  Other Expense
  22




---



##### Table of Contents



Income Taxes
  Liquidity and Capital Resources
  Net Cash Provided by Operating Activities
  Net Cash Used in Investing Activities
  Net Cash Provided by Financing Activities
  Liquidity and Ability to Stay in Compliance With Debt Covenants
 23




---



##### Table of Contents



24




---



##### Table of Contents



Commitments
  Payments due by PeriodLess thanTotal
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5+ yearsOperating leases
    
    $
    6,086
    
    
    $
    2,378
    
    
    $
    3,479
    
    
    $
    229
    
    
    $
    Convertible debt, including interest
    
    
    14,240
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,240Short-term and long-term debt, including interest
    
    
    127,146
    
    
    
    12,183
    
    
    
    23,666
    
    
    
    91,297
    
    
    
    Total
    
    $
    147,472
    
    
    $
    14,561
    
    
    $
    27,145
    
    
    $
    91,526
    
    
    $
    14,240
   Other Considerations
    25




---



##### Table of Contents



26




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
     
 Item 4T. Controls and Procedures
 Background
  
    
    During the quarter ended September 30, 2008, the Company received a comment letter from
the staff of the SEC which brought to the Companys attention its failure to include in the
Form 10-K managements report on the effectiveness of the Companys internal control over
financial reporting, as required under Rules 13a-15 and 15(d)-15 under the Exchange Act.
    
    As a result of the SEC comment letter, the Company filed Amendment No. 2 to Form 10-K
which included managements report on the effectiveness of the Companys internal control
over financial reporting.
    
    After the filing of Amendment No. 2 to Form 10-K, the Company received a second comment
letter from the staff of the SEC which questioned the conclusion of Company management set
forth in Amendment No. 2 to Form 10-K that the Companys disclosure controls and procedures
were effective as of the end of the 2007 fiscal year, in light of the Companys failure to
include managements report on internal control over financial reporting in the Form 10-K.
    
    As a result of an internal review after the Company filed Amendment No. 2 to Form 10-K,
the Companys management and board of directors determined that appropriate procedures were
not followed to ensure adequate internal review of Amendment No. 2 to Form 10-K before it
was filed. In addition, such review raised questions about whether the steps previously
taken to document and test the Companys internal control over financial reporting had been
sufficient to support a conclusion that such internal control over financial reporting was
effective as of the end of 2007.
 27




---



##### Table of Contents




    
    The Companys Quarterly Report on Form 10-Q for the period ended June 30, 2008
erroneously included a report from management on the effectiveness of internal control over
financial reporting as of June 30, 2008, which was not required under the SECs rules.
Moreover, the conclusions therein that the Companys internal control over financial
reporting was effective lacked an adequate basis because management had not actually
conducted an evaluation of the effectiveness of the Companys internal control over
financial reporting as of such date.
 Audit Committee Investigation
   
    
    former management of the Company, and in particular the Companys former Chief Financial
Officer, apparently misunderstood the application of the SECs rules relating to management
evaluation of the effectiveness of internal control over financial reporting to registrants
that, like the Company, are neither large accelerated filers nor accelerated filers;
    
    as a consequence, the Companys former management did not complete its evaluation of the
Companys internal control over financial reporting and failed to include the required
report on the effectiveness of internal control over financial reporting in the Form 10-K;
    
    after the Company received the SEC comment letter that identified the Companys failure
to include the required management report on internal control in the Form 10-K, the
Companys former Chief Financial Officer caused Amendment No. 2 to Form 10-K to be prepared
and filed, without involving the Companys former Chief Executive Officer, the Companys
board of directors, the audit committee of the Companys board of directors or the
Companys independent registered public accounting firm in the preparation or review of
that filing;
    
    the conclusions of former management that the Companys internal control over financial
reporting was effective as of December 31, 2007, as disclosed in Amendment No. 2 to Form
10-K, lacked an adequate basis due to the failure of former management to complete the
review and testing necessary to fully evaluate the effectiveness of the Companys internal
control over financial reporting; and
    
    the statements in Amendment No. 2 to Form 10-K and the Prior 10-Qs that management had
concluded the Companys disclosure controls and procedures were effective as of the end of
the periods covered by such reports are not supported in light of the substantive and
procedural deficiencies relating to the Form 10-K and Amendment No. 2 to Form 10-K
described above.
   
    
    develop a plan for completion of managements evaluation of the Companys internal
control over financial
 28




---



##### Table of Contents




    
    make corrective filings amending the Form 10-K and the Prior 10-Qs;
    
    to the extent the Company is legally required to do so in light of its decision to
deregister its common stock under the Exchange Act, implement procedures to remedy the
deficiencies in its disclosure controls and procedures; and
    
    to the extent such obligations remain relevant in light of the Companys decision to
deregister its common stock under the Exchange Act, institute training for the Companys
financial managers regarding the Companys reporting obligations under the Exchange Act.
   
    
    ensuring that the CEO and CFO review all documents to be filed with the SEC prior to
submitting such documents to the audit committee for its review;
    
    ensuring that the Companys independent registered public accounting firm is provided
any such documents that contain financial statements or report events that may require
financial statement disclosure prior to their filing with the SEC,;
    
    ensuring that the Companys outside counsel review such documents prior to review by the
board of directors or the audit committee, as applicable; and
    
    ensuring that the audit committee or the audit committee chair reviews any such
documents that contain financial statements or report events that may require financial
statement disclosure prior to their filing with the SEC.
 Disclosure Controls and Procedures
  Internal Control Over Financial Reporting
  29




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Our operating performance, financial condition and liquidity may be adversely impacted by
deteriorating economic conditions.
  Our operating performance will be adversely affected by difficulties we are experiencing with a
major contract supplier.
    30




---



##### Table of Contents




    
    There is a material risk that the Company may be unable to comply with the terms and
conditions of its senior credit facility, including but not limited to certain
financial ratios, unless the Company obtains necessary waivers or enters into an
amendment to the related Financing Agreement that address such potential noncompliance.
Breaches of the terms and conditions of the Financing Agreement may lead to an event of
default, which would prevent the Company from borrowing under the senior credit
facility and would allow the lenders to accelerate all amounts outstanding under the
Financing Agreement and exercise other remedies including foreclosure of their security
interests relating to the senior credit facility.
    
    The Company may not have sufficient cash flow from operations or borrowings under
its credit facilities to meet its cash requirements, particularly if the supply
disruption results in an event of default under the Companys senior credit facility
that is not cured or waived, which could result in the Companys inability to continue
as a going concern.
    
    Potential customers may decide to purchase competing products rather than wait until
the Companys products are available again, which may lead to permanent loss of market
share.
    
    The Company may encounter difficulties in managing new contract manufacturer
relationships, such as lack of control over the manufacturing process, delivery times,
sourcing of parts, and product quality, and imposition of unfavorable payment terms.
 Our business may be adversely affected by recent restructurings.
  The liquidity of our shares of common stock will be adversely affected by our delisting from the
NASDAQ Stock Market and the plan to deregister.
  31




---



##### Table of Contents



Item 6. Exhibits
 ExhibitNumber
    
    Description of Exhibits3.1
    
    Second Articles of Amendment To Restated Articles of Incorporation of LOUD Technologies Inc. (1)3.2
    
    Third Articles of Amendment to Restated Articles of Incorporation of LOUD Technologies Inc (1)10.1
    
    Form of Amendment No. 4 to Financing Agreement, Waiver and Consent by and among LOUD Technologies
Inc., Grace Acquisition Co Limited, as the borrowers, each subsidiary of the Parent listed on the
signature pages thereto, the lenders from time to time party thereto, Ableco Finance LLC, as
collateral agent for the lenders, and GMAC Commercial Finance LLC, as administrative agent for the
lenders, dated as of November 5, 2008.31.1
    
    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.
 
 (1)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K filed on July 7,
2008 32




---



##### Table of Contents



SIGNATURES
  LOUD Technologies Inc.
(Registrant)Dated: March 26, 2009
    By:
    /s/ RODNEY E. OLSONRodney E. OlsonChairman, President and Chief Executive
OfficerDated: March 26, 2009
    By:
    /s/ DAVID E. OLSONDavid E. OlsonChief Financial Officer, Senior Vice
President, Secretary and Treasurer
(Principal Financial and
Accounting Officer) 33




---



##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description of Exhibits3.1
    
    Second Articles of Amendment To Restated Articles of Incorporation of LOUD Technologies Inc. (1)3.2
    
    Third Articles of Amendment to Restated Articles of Incorporation of LOUD Technologies Inc (1)10.1
    
    Form of Amendment No. 4 to Financing Agreement, Waiver and Consent by and among LOUD Technologies
Inc., Grace Acquisition Co Limited, as the borrowers, each subsidiary of the Parent listed on the
signature pages thereto, the lenders from time to time party thereto, Ableco Finance LLC, as
collateral agent for the lenders, and GMAC Commercial Finance LLC, as administrative agent for the
lenders, dated as of November 5, 2008.31.1
    
    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.
 
 (1)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K filed on July 7,
2008 34