-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EXHRKKZgqCz/glFSyB1IC6CHAktWWD6xNGRycI66R/g+p4bWeF3RktRMAYfZPr6R 6MMDyK0QKXTrj+LlxzW94Q== 0000057538-96-000004.txt : 19960412 0000057538-96-000004.hdr.sgml : 19960412 ACCESSION NUMBER: 0000057538-96-000004 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960229 FILED AS OF DATE: 19960411 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LANCER ORTHODONTICS INC /CA/ CENTRAL INDEX KEY: 0000057538 STANDARD INDUSTRIAL CLASSIFICATION: DENTAL EQUIPMENT & SUPPLIES [3843] IRS NUMBER: 952497155 STATE OF INCORPORATION: CA FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-05920 FILM NUMBER: 96546186 BUSINESS ADDRESS: STREET 1: 253 PAWNEE STREET CITY: SAN MARCOS STATE: CA ZIP: 92069-2437 BUSINESS PHONE: 6197445585 MAIL ADDRESS: STREET 1: 253 PAWNEE ST CITY: SAN MARCOS STATE: CA ZIP: 92069-2437 FORMER COMPANY: FORMER CONFORMED NAME: LANCER PACIFIC INC DATE OF NAME CHANGE: 19870412 10QSB 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-QSB Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter ended February 29, 1996 Commission File No. 0-5920 - ----------------------------------- -------------------------- LANCER ORTHODONTICS, INC. ------------------------- (Exact Name of Small Business Issuer as Specified in its Charter) CALIFORNIA 95-2497155 - -------------------------------- --------------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 253 Pawnee Street, San Marcos, California 92069 ----------------------------------------------- (Address of Principal Executive Offices) Issuer's telephone number, including area code: (619)744-5585 Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 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 ---------- ----------- State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 14, 812,817 ----------- Traditional small business disclosure format (check one): Yes X No ---------- ----------- PART I FINANCIAL INFORMATION --------------------- Item 1.SUMMARIZED FINANCIAL INFORMATION See Exhibit A -------------------------------- Item 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS ----------------------------------------------------------------------- OF OPERATIONS ------------- RESULTS OF OPERATIONS - --------------------- For the nine months ended February 29, 1996, net income decreased $54,967 (38.9%) as compared to the year earlier period. In addition, for the three months ended February 29, 1996, net income decreased $143,271 (345.1%) as compared to the year earlier period. The decrease in net income is primarily attributable to the reduction in sales, which was caused by manufacturing and other problems and costs incurred to resolve those problems. 2 Net sales decreased $483,669 (9.1%) compared to the year earlier period. In addition, for the three months ended February 29, 1996, net sales decreased $342,855 (20.2%) compared to the year earlier period. The decrease is attributable to manufacturing and other problems which have resulted in approximately $635,000 in lost sales and delayed deliveries. To improve manufacturing performance, the Registrant has reorganized its manufacturing operations, streamlined its lines of reporting, increased production capacity, and improved production planning. The Registrant continues to search for and add new distributors, private label customers, and sales representatives. The Registrant remains very active in adding new products to its growing product line, believing that a larger and more varied product line will appeal to a wider range of customers. Cost of sales as a percentage of sales increased from 58.1% to 59.9% as compared to the year earlier period. The decline in gross margin is attributable to manufacturing problems experienced in the third quarter. The Registrant has identified the manufacturing problems and has taken aggressive action to correct the problems. Selling and general and administrative expenses decreased $187,523 (10.2%) compared to the year earlier period. The decrease is attributable to organizational changes made, a decrease in professional fees, samples, and shipping costs, partially offset by an increase in trade show costs. Product development expenses decreased $5,693 (4.9%) compared to the year earlier period. The Registrant continues to invest time and money in product development to develop new products, to identify products for purchase and resale, and to improve manufacturing procedures. 3 Interest expense decreased $42,398 (32.9%) compared to the year earlier period, reflecting reduced debt and interest rates. FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES - ----------------------------------------------------- The Registrant's financial condition at February 29, 1996 and its previous two year ends was as follows: 2/29/96 5/31/95 5/31/94 ---------- ---------- ---------- Current Assets $3,010,371 $3,383,867 $3,451,897 Current Liabilities 896,556 971,283 2,296.618 Working Capital 2,113,815 2,412,584 1,154,979 Bank Debt & Capitalized Leases 716,536 1,243,902 1,602,921 Shareholder Equity 2,673,085 2,527,489 2,335,594 Total Assets 3,902,865 4,389,267 4,632,512 Effective October 10, 1995, the Registrant arranged for a restructuring of its $1,045,000 bank debt. The debt was divided into a term loan, with an original balance of $645,000 and a line of credit with an original balance of $400,000., The Registrant also arranged for a reduction in interest rate from prime plus 3% to prime plus 1%. Immediately after the restructuring, the Registrant paid down the line of credit by $225,000. The new bank term loan requires 24 monthly principal and interest payments of $18,890. All unpaid principal and accrued interest is due and payable on November 1, 1997. 4 Under the line of credit, the Registrant can borrow up to $500,000. Borrowings are secured by specific percentages of eligible accounts receivable. At February 29, 1996, the unused portion available under the line of credit was $180,000. Working capital decreased $298,769 during the nine months, primarily because of the restructuring of its bank debt, partially offset by profitability and non- cash expenses. The Registrant expects to meet its cash requirements out of its cash reserves, cash flow, and line of credit. Item 6.EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- There were no Form 8-k reports filed during the quarter. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LANCER ORTHODONTICS, INC. ------------------------- Registrant Date April 15, 1996 By /s/ Douglas D. Miller -------------- ----------------------------- Douglas D. Miller, President and Chief Operating Officer By /s/ Scott R. Striblen ----------------------------- 5 Scott R. Striblen, Vice President, Finance EXHIBIT A SUMMARIZED FINANCIAL INFORMATION -------------------------------- LANCER ORTHODONTICS, INC. ------------------------- CONDENSED STATEMENT OF OPERATIONS (UNAUDITED) --------------------------------------------- FOR THE THREE FOR THE NINE MONTHS ENDED MONTHS ENDED 2/29/96 2/28/95 2/29/96 2/28/95 ----------------------- ----------------------- NET SALES $1,353,305 $1,696,160 $4,826,207 $5,309,876 COST OF SALES 955,008 1,021,587 2,892,627 3,084,969 --------- --------- --------- --------- Gross Profit 398,297 674,573 1,933,580 2,224,907 OPERATING EXPENSES: Selling, General & Administrative 456,897 548,069 1,657,085 1,844,608 Product Development 25,342 37,732 110,899 116,592 --------- --------- --------- --------- TOTAL OPERATING EXPENSES 482,239 585,801 1,767,984 1,961,200 --------- --------- --------- --------- 6 INCOME (LOSS) FROM OPERATIONS ( 83,942) 88,772 165,596 263,707 OTHER INCOME (EXPENSE): Interest Expense ( 18,516) ( 9,775) ( 86,370) ( 128,768) Other Income (Expense), Net 713 2,529 7,906 6,360 --------- --------- --------- --------- TOTAL OTHER INCOME (EXPENSE) ( 17,803) ( 47,246) ( 78,464) ( 122,408) --------- --------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES ( 101,745) 41,526 87,132 141,299 INCOME TAXES (NOTE E) -- -- 800 -- --------- --------- --------- --------- NET INCOME (LOSS) ($ 101,745) $ 41,526 $ 86,332 $ 141,299 ========= ========= ========= ========= NET INCOME (LOSS) PER COMMON SHARE (NOTE D) ($ .007) $ .003 $ .006 $ .009 ========= ========= ========= ========= LANCER ORTHODONTICS, INC. ------------------------- 7 CONDENSED BALANCE SHEETS (UNAUDITED) ------------------------------------ 2/29/96 ------- ASSETS (NOTE B) --------------- CURRENT ASSETS: Cash $ 124,776 Accounts Receivable, less Allowances of $99,251 1,185,516 Inventories 1,662,322 Prepaid Expenses 37,757 --------- Total Current Assets 3,010,371 --------- PROPERTY AND EQUIPMENT, at cost 2,517,884 Less: Accumulated Depreciation (2,178,320) --------- 339,564 --------- INTANGIBLE ASSETS: Marketing and Distribution Rights, net 215,800 Technology Use Rights, net 332,730 --------- 548,530 OTHER ASSETS 4,400 --------- Total Assets $3,902,865 ========= 8 LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts Payable and Accrued Liabilities $ 513,244 Line of Credit (Note B) 174,000 Current Portion of Note Payable to Bank (Note B) 188,266 Capital Lease Obligations 21,046 --------- Total Current Liabilities 896,556 --------- LONG TERM PORTION OF NOTE PAYABLE TO BANK (Note B) 311,734 LONG TERM PORTION OF CAPITAL LEASES 21,490 COMMITMENTS AND CONTINGENCIES (Note G) -- STOCKHOLDERS' EQUITY (Note C): Redeemable Convertible Preferred Stock, Series C, $.06 noncumulative annual dividend; $.75 par value: Authorized 250,000 shares; no shares issued and outstanding ($.75 liquidation preference) -- Redeemable Convertible Preferred Stock, Series D, $.04 noncumulative annual dividend; $.50 par value: Authorized 500,000 shares; issued and outstanding 370,483 shares ($.50 liquidation preference) 185,242 Common Stock, no par value: Authorized 50,000,000 shares; issued and outstanding 14,812,817 4,689,380 Accumulated Deficit (2,201,537) --------- Total Stockholders' Equity 2,673,085 --------- 9 Total Liabilities and Stockholders' Equity $3,902,865 ========= LANCER ORTHODONTICS INC. ------------------------ CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) ---------------------------------------------- FOR THE NINE MONTHS ENDED 2/29/96 2/28/95 ----------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 86,332 $141,299 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 211,222 267,759 Provision for losses on accounts receivable 30,000 39,000 Changes in assets and liabilities: (Increase) in accounts receivable, net 152,795 (125,230) (Increase) decrease in inventory (240,369) 139,031 (Increase) decrease in prepaid expenses 1,242 44,930 Decrease in accounts payable and 10 accrued liabilities ( 65,618) (277,853) ------- ------- CASH FLOWS USED BY OPERATING ACTIVITIES 175,604 228,936 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment ( 98,316) ( 91,908) ------- ------- CASH FLOWS USED IN INVESTING ACTIVITIES ( 98,316) ( 91,908) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net payments under line of credit agreement (226,000) -- Principal payments on note payable to bank (285,000) (295,000) Principal payments of long-term debt and capital leases ( 16,366) ( 17,328) Proceeds from sale of stock 20,250 -- ------- ------- CASH FLOWS USED IN FINANCING ACTIVITIES (507,116) (312,328) ------- ------- DECREASE IN CASH (429,828) (175,300) CASH AT BEGINNING OF PERIOD 554,604 739,894 ------- ------- CASH AT END OF PERIOD $124,776 $564,594 ======= ======= In fiscal 1996, the Registrant issued 155,700 shares of its common stock in satisfaction of $39,014 in accrued royalties. 11 LANCER ORTHODONTICS, INC. ------------------------- Notes to Financial Statements ----------------------------- NOTE A - BASIS OF PRESENTATION - ------------------------------ The accompanying unaudited condensed financial statements have been prepared in accordance with the instructions to Form 10-QSB and therefore do not include all information and notes necessary for a fair presentation of financial position, results of operations, and cash flow in conformity with generally accepted accounting principles. The unaudited condensed financial statements include the accounts of Lancer Orthodontics, Inc. (The Registrant). The operating results for interim periods are unaudited and are not necessarily an indication of the results to be expected for the full fiscal year. In the opinion of management, the results of operations as reported for the interim period reflect all adjustments which are necessary for a fair presentation of operating results. NOTE B - NOTE PAYABLE TO BANK - ----------------------------- Effective October 10, 1995, the Registrant arranged for a restructuring of its $1,045,000 bank debt. The debt was divided into a line of credit and a term loan. 12 At February 29, 1996, the Registrant had a $500,000 line of credit with the bank. Borrowings are made at prime (8.25% at February 29, 1996) plus 1% and are limited to specific percentages of eligible accounts receivable. The unused portion available under the line of credit at February 29, 1996 was $180,000. The line of credit expires on November 1, 1996. The new bank term loan requires 24 monthly principal and interest payments of $18,890. Interest is at prime plus 1%. All unpaid principal and accrued interest is due and payable on November 1, 1997. The loan is secured by virtually all the assets of the Registrant. The lending agreement requires the Registrant to maintain minimum tangible net worth of $1,800,000, a debt to tangible net worth of no more than 1.25 to 1.0 and a current ratio of at least 1.5 to 1.0 The Registrant is not required to maintain compensating balances. NOTE C - STOCKHOLDER'S EQUITY - ----------------------------- Common Stock Reserved - --------------------- Shares of the Registrant's common stock reserved for issuance at February 29, 1996 and May 31, 1995, were as follows: 2/29/96 5/31/95 ---------- ---------- Stock Options: Outstanding 1,440,000 1,546,000 Future Issuance 988,000 954,000 Warrants issued in conjunction with loans and convertible debt 1,404,167 1,404,167 13 For conversion of preferred stock 370,483 370,483 --------- --------- 4,202,650 4,274,650 ========= ========= NOTE D - EARNINGS PER COMMON SHARE - ---------------------------------- Net income per common share is computed based on the weighted average number of common shares and common equivalent shares outstanding (15,447,474 and 14,970,017 for the nine months ended February 29, 1996 and February 28, 1995 respectively). Outstanding stock options, warrants, and convertible preferred stock are considered in the determination of common stock equivalents and, where appropriate, they have been included in the weighted average number of shares outstanding for the nine months ended February 29, 1996 and February 28, 1995. NOTE E - INCOME TAXES - --------------------- At May 31, 1995, the Registrant had net tax operating loss carryforwards of approximately $3,051,000 and business tax credits of approximately $179,000 available to offset future Federal taxable income and tax liabilities, respectively, expiring at varying dates between 1996 and 2007. The Registrant also had net tax operating loss carryforwards of approximately $1,251,000 and business tax credits of approximately $23,000 available to offset future California taxable income and tax liabilities, expiring at varying dates between 1996 and 1998. NOTE F - MANUFACTURING AGREEMENT - -------------------------------- 14 In May, 1990, the Registrant entered into a manufacturing subcontractor agreement whereby, the subcontractor agreed to provide manufacturing services to the Registrant through its affiliated entities located in Mexicali, B.C., Mexico. The Registrant has moved the majority of its manufacturing operations to Mexico. Under the terms of the original agreement, the subcontractor manufactured the Registrant's products based on an hourly rate per employee based on the number of employees in the subcontractor's workforce. As the number of employees increased, the hourly rate decreased. In December, 1992, the Registrant renegotiated the agreement changing from an hourly rate per employee to a pass through of actual costs, plus a weekly administrative fee. The amended agreement gives the Registrant greater control over all costs associated with the manufacturing operation. In July, 1994, the Registrant again renegotiated the agreement, reducing the administrative fee and extending the agreement through June 30, 1998. After June 30, 1996, either party may terminate the agreement with three months written notice. The Registrant has retained the option to convert the manufacturing operation to a wholly-owned subsidiary at any time. Should the Registrant discontinue operations in Mexico, it is responsible for the accumulated employee seniority obligation as prescribed by Mexican law. NOTE G - LEASES - --------------- The Registrant leases its main facility under an operating lease expiring December 31, 1998, which requires monthly rental payments that increase annually. As of May 31, 1995, future minimum annual cash rental payments under the Registrant's facility lease are as follows: Fiscal Year Amount 1996 $45,000 1997 $48,300 15 1998 $51,400 1999 $30,800 EX-27 2
5 This schedule contains summary financial information extracted from Lancer Orthodontics, Inc. Third quarter 1996 10-QSB and is qualified in its entirety to such 10-QSB. 9-MOS MAY-31-1996 FEB-29-1996 124,776 0 1,284,767 99,251 1,662,322 3,010,371 2,517,884 (2,178,320) 3,902,865 896,556 333,224 0 185,242 4,689,380 (2,201,537) 3,902,865 4,826,207 4,826,207 2,892,627 2,892,627 0 0 86,370 87,132 800 86,336 0 0 0 86,336 .006 .006
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