-----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, BIElqLS/Oy4cs5Kbui0vxpwcvuKz6McNIw6sYpWTuS83vXS0+SalUMHQaZIkRI4P 9omJPyIOr2G7a3+4LaeyfQ== 0000057538-99-000010.txt : 19990427 0000057538-99-000010.hdr.sgml : 19990427 ACCESSION NUMBER: 0000057538-99-000010 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980228 FILED AS OF DATE: 19990426 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/A SEC ACT: SEC FILE NUMBER: 000-05920 FILM NUMBER: 99601138 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/A 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 28, 1999 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: (760) 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: 2,119,140 Traditional small business disclosure format (check one): Yes X No PART I. FINANCIAL INFORMATION Item 1. SUMMARIZED FINANCIAL INFORMATION LANCER ORTHODONTICS, INC. CONDENSED BALANCE SHEET (UNAUDITED) 2/28/99 ASSETS CURRENT ASSETS: Cash $ 101,739 Accounts Receivable, less allowances for sales returns and doubtful receivables of $97,075 1,188,824 Insurance Claim Receivable 110,000 Inventories 2,174,319 Prepaid Expenses 5,501 Total Current Assets 3,580,383 PROPERTY AND EQUIPMENT, at cost 2,383,540 Less: Accumulated depreciation (2,178,005) 205,535 INTANGIBLE ASSETS: Marketing and Distribution Rights, net 141,100 Technology Use Rights, net 186,642 327,742 OTHER ASSETS 6,560 Total Assets $4,120,220 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts Payable and Accrued Liabilities $ 603,105 Line of Credit 200,000 Total Current Liabilities 803,105 COMMITMENTS AND CONTINGENCIES -- STOCKHOLDERS' EQUITY: 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; $.50 par value: Authorized 500,000 shares; 370,483 issued and outstanding ($.50 liquidation preference: aggregate liquidation preference of $185,242) 185,242 Common Stock, no par value: Authorized 50,000,000 shares; issued and outstanding 2,119,140 4,701,761 Accumulated Deficit (1,569,888) Total Stockholders' Equity 3,317,115 Total Liabilities and Stockholders' Equity $4,120,220 LANCER ORTHODONTICS, INC. CONDENSED STATEMENTS OF OPERATIONS AND CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) FOR THE THREE FOR THE NINE MONTHS ENDED MONTHS ENDED 2/28/99 2/28/98 2/28/99 2/28/98 NET SALES $1,329,076 $1,370,068 $4,403,596 $4,381,358 COST OF SALES 827,383 828,058 2,790,957 2,694,070 Gross Profit 501,693 542,010 1,612,639 1,687,288 OPERATING EXPENSES: Selling, General & Administrative 498,025 506,691 1,575,532 1,519,692 Product Development 43,512 49,266 112,066 135,441 TOTAL OPERATING EXPENSES 541,537 555,957 1,687,598 1,655,133 INCOME (LOSS) FROM OPERATIONS ( 39,844)( 13,947) ( 74,959) 32,155 OTHER INCOME (EXPENSE): Interest Expense ( 5,069)( 6,338) ( 9,677) ( 23,412) Other Income (Expense), net 848 342 1,636 759 TOTAL OTHER INCOME (EXP) ( 4,221)( 5,996) ( 8,041) ( 22,653) INCOME (LOSS) BEFORE INCOME TAXES ( 44,065) ( 19,943) ( 83,000) 9,502 INCOME TAXES -- 800 800 800 NET INCOME (LOSS) ( 44,065)( 20,743) ( 83,800) 8,702 OTHER COMPREHENSIVE INCOME -- -- -- -- COMPREHENSIVE INCOME (LOSS) $( 44,065)$( 20,743) $( 83,800) $ 8,702 NET INCOME (LOSS) PER WEIGHTED AVERAGE OF COMMON SHARES BASIC $ (.02)$ (.01) $ (.04) $ .00 DILUTED $ (.02)$ (.01) $ (.04) $ .00 LANCER ORTHODONTICS, INC. CONDENSED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED 2/28/99 2/28/98 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $( 83,800) $ 8,702 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 122,158 133,167 Provision for doubtful accounts ( 22,925) ( 4,694) Changes in assets and liabilities: Decrease in accounts receivable 136,951 30,591 Decrease (increase) in inventories (377,525) 194,843 Increase in insurance claim rec (110,000) -- Decrease in prepaid expenses 62,256 14,854 Increase (decrease) in accounts payable and accrued liabilities 18,883 ( 34,803) CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES (254,002) 342,660 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment ( 61,662) ( 36,490) CASH FLOWS FROM FINANCING ACTIVITIES: Net draws under line of credit agreement 100,000 -- Principal payments on note payable to bank -- (200,000) Principal payments of capital leases -- ( 15,848) Repurchase of common stock ( 3,633) -- CASH FLOWS USED IN FINANCING ACTIVITIES 96,367 (215,848) DECREASE IN CASH (219,297) 90,322 CASH AT BEGINNING OF PERIOD 321,036 154,761 CASH AT END OF PERIOD $101,739 $245,083 LANCER ORTHODONTICS, INC. NOTES TO FINANCIAL STATEMENTS (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 flows in conformity with generally accepted accounting principles. The unaudited condensed financial statements include the accounts of Lancer Orthodontics, Inc. (the "Company"). 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 periods reflect all adjustments which are necessary for a fair presentation of operating results. (B) ORGANIZATION The Company was incorporated on August 25, 1967, in the state of California, for the purpose of engaging in the design, manufacture, and distribution of orthodontic products. The Company has a manufacturing facility in Mexico where a majority of its inventory is manufactured (Note I). The Company also purchases certain orthodontic and dental products for purposes of resale. Sales are made directly to orthodontists world-wide through Company representatives and independent distributors. The Company also sells certain of its products on a private label basis. (C) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles ("GAAP"), requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates made by the Company's management include, but are not limited to, allowances for doubtful accounts, allowances for sales returns, the valuation of inventories, and the realizeability of property and equipment through future operations. Actual results could materially differ from those estimates. (D) STOCK BASED COMPENSATION The Company accounts for stock based compensation under Statement of Financial Accounting Standards No. 123 ("SFAS 123"). SFAS 123 defines a fair value based method of accounting for stock based compensation. However, SFAS 123 allows an entity to continue to measure compensation cost related to stock and stock options issued to employees using the intrinsic method of accounting prescribed by Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees". Entities electing to remain with the accounting method of APB 25 must make pro forma disclosures of net income and earnings per share, as if the fair value method of accounting defined in SFAS 123 had been applied. The Company has elected to account for its stock based compensation to employees under APB 25. LANCER ORTHODONTICS, INC. NOTES TO FINANCIAL STATEMENTS - continued (E) ONE-FOR-SEVEN REVERSE STOCK SPLIT On November 15, 1996, the Company effected a one-for-seven reverse stock split of its common stock. For all periods presented, that components of shareholders' equity have been adjusted to reflect the reverse stock split. (F) INSURANCE CLAIM Management of the Company completed an assessment of a theft of inventory located at its facility in Mexicali Mexico on April 6, 1999. A police report and claim with the Company's insurance carrier for the full amount have been filed and the Company is actively assessing its security measures. The estimated loss of $110,000, valued at standard cost, has been reflected in the accompanying financial statements as a reduction in inventories and an addition to insurance claim receivable. To date, Management has no information that would lead it to believe that it will not recover for the theft under its insurance policy, however, there can be no assurances given as to the amount that the Company will ultimately recover from its insurance carrier. (G) LINE OF CREDIT At February 28, 1999, the Company had a $1,000,000 line of credit with a bank. Borrowings are made at prime plus 0.75% (8.5% at February 28, 1999) and are limited to specified percentages of eligible accounts receivable. The unused portion available under the line of credit at February 28, 1999 was $129,627. The line of credit expires on November 3, 1999. The Company is not required to maintain compensating balances in connection with this borrowing arrangement. The line of credit is collateralized by substantially all the assets of the Company, including inventories, receivables, and equipment. The lending agreement for the line of credit requires, among other things, that the Company maintain a tangible net worth of $2,500,000 and a debt to tangible net worth ratio of no more than 1 to 1. The Company is not required to maintain compensating balances in connection with this lending agreement. (H) NOTE PAYABLE TO BANK At February 28, 1998, all unpaid principal and accrued interest on the note payable to a bank was paid. The note required monthly payments of $18,889 plus interest at prime plus 1% (9.5% at February 28, 1998). LANCER ORTHODONTICS, INC. NOTES TO FINANCIAL STATEMENTS - continued (I) CAPITAL LEASE The Company was the lessee of equipment under a capital lease which expired in January 1998. The assets and liabilities under the capital lease were recorded at the lower of the present value of the minimum lease payments or the fair market value of the asset. The asset was depreciated over its estimated useful life. Depreciation of the asset is included in depreciation expense for the period ended February 28, 1998. (J) COMMITMENTS AND CONTINGENCIES MANUFACTURING AGREEMENT - In May 1990, the Company entered into a manufacturing subcontractor agreement whereby, the subcontractor agreed to provide manufacturing services to the Company through its affiliated entities located in Mexicali, B.C., Mexico. The Company has moved the majority of its manufacturing operations to Mexico. Under the terms of the original agreement, the subcontractor manufactured the Company'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 Company 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 Company greater control over all costs associated with the manufacturing operation. In July 1994, the Company again renegotiated the agreement, reducing the administrative fee and extending the agreement through June 30, 1998. In March 1996, the Company agreed to extend the agreement through October 1998, to coincide with the building lease. A new agreement is currently being finalized to extend through October 2000. Effective April 1, 1996, the Company leased the Mexicali facility under a separate arrangement. The Company has retained the option to convert the manufacturing operation to a wholly-owned subsidiary at any time. Should the Company discontinue operations in Mexico, it is responsible for the accumulated employee seniority obligation as prescribed by Mexican law. At February 28, 1999, this obligation was approximately $235,000. Such obligation is contingent in nature and accordingly has not been accrued in the accompanying balance sheet. LEASES - The Company leases its main facility under a non-cancelable operating lease expiring December 31, 2003, which requires monthly rental payments that increase annually, from $2,900 per month in 1994 to $6,317 per month in 2003. The Company is negotiating to lease its Mexico facility under a non-cancelable operating lease expiring October 31, 2000, which requires average monthly rentals of approximately $6,000. The rentals are subject to annual increases based on the United States Consumer Price Index. Future aggregate minimum annual cash lease payments are as follows: Years ending May 31, 1999 $76,031 May 31, 2000 $65,880 May 31, 2001 $68,512 May 31, 2002 $71,252 May 31, 2003 $74,105 Thereafter $44,219 LANCER ORTHODONTICS, INC. NOTES TO FINANCIAL STATEMENTS _ continued (J) COMMITMENTS AND CONTINGENCIES - continued YEAR 2000 ISSUES _ Certain computerized systems use only two digits to record the year in date fields. Such systems may not be able to accurately process dates ending in the year 2000 and after. The effects of this issue will vary from system to system and may adversely affect an entity's operations as well as its ability to prepare financial statements. The accounting and MRP software for the Company's main frame computer system has been upgraded to be year 2000 compliant and is actively supported by the developer. The Company does not anticipate to incur significant additional costs to be completely year 2000 compliant. The Company does not place orders electronically nor does it make disbursements to vendors or employees in that medium. The Company has a broad base of customers and suppliers and therefore is not heavily reliant on any one outside company. However, the Company has no way of completely knowing how the year 2000 may affect its various vendors or customers if such conversions are not completed on a timely basis by them, and thus it cannot estimate with certainty the impact the year 2000 may have on the Company. (K) INCOME TAXES At May 31, 1998, the Company had net tax operating loss carryforwards of approximately $2,153,000 and business tax credits of approximately $161,000 available to offset future Federal taxable income and tax liabilities, respectively. The Federal carryforwards expire in varying amounts from 1998 to 2008. As of May 31, 1998, the Company had business tax credits of approximately $23,000 available to offset future state income tax liabilities. The Company's state net operating loss carryforward totaling approximately $354,000 expired during the year ended May 31, 1998. (L) NET INCOME PER COMMON SHARE AND DIVIDENDS The Company calculates earnings per share in accordance with Statement of Financial Accounting Standards ("SFAS 128"). SFAS 128 replaces the presentation of primary and fully diluted earnings per share with the presentation of basic and diluted earnings per share. Basic earnings per share excludes dilution and is calculated by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. LANCER ORTHODONTICS, INC. NOTES TO FINANCIAL STATEMENTS - continued (L) NET INCOME PER COMMON SHARE AND DIVIDENDS _ continued EARNINGS PER SHARE (UNAUDITED) FOR THE THREE FOR THE NINE MONTHS ENDED MONTHS ENDED 2/28/99 2/28/98 2/28/99 2/28/98 BASIC EARNINGS PER SHARE: Net income (loss) $( 44,065)$( 20,743)$( 83,800) $ 8,702 Net income (loss) applicable to common shareholders $( 44,065)$( 20,743)$( 83,800) $ 8,702 Weighted average number of common shares 2,116,668 2,125,712 2,117,335 2,125,712 Basic Earnings (loss) per Share$( .02$( .01)$( .04) $ .00 DILUTED EARNINGS PER SHARE: Net income (loss) from primary income per common share $( 44,065)$( 20,743)$( 83,800) $ 8,702 Net income (loss) for diluted earnings per share $( 44,065)$( 20,743)$( 83,800) $ 8,702 Weighted average number of shares used in calculating basis earnings per common share 2,116,668 2,125,712 2,117,335 2,125,712 Add: Common equivalent shares -- -- -- 52,926 Weighted average number of shares used in calculation of diluted earnings per share 2,116,668 2,125,712 2,117,335 2,178,638 Diluted earnings (loss) per share $( .02)$( .01) $( .04) $ .00 LANCER ORTHODONTICS, INC. NOTES TO FINANCIAL STATEMENTS - continued (M) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES FOR THE NINE MONTHS ENDED 2/28/99 2/28/98 Sales to unaffiliated customers: United States $2,519,106 $2,519,110 Europe 1,116,771 1,057,052 South America 340,742 355,156 Other Foreign 426,977 450,040 $4,403,596 $4,381,358 No other geographic concentrations exist where net sales exceed 10% of total net sales. Sales or transfers between geographic areas none none Operating profit: United States $(131,185) $( 148) Europe 33,342 18,348 South America 10,177 6,170 Other Foreign 12,707 7,785 $( 74,959) $32,155 (N) NEW DISCLOSURE STANDARDS In June 1997, SFAS No. 130 (SFAS 130"), "Comprehensive Income" was issued which is effective for fiscal years beginning after December 15, 1997, and requires reclassification of earlier financial statements for comparative purposes. SFAS 130 requires that changes in the amounts of certain items, including foreign currency translation adjustments and gains and losses on certain securities, be shown in the financial statements. SFAS 130 does not require a specific format for the financial statement in which comprehensive income is reported, but does require that an amount representing total comprehensive income be reported in that statement. The implementation of SFAS 130 did not have a material effect upon the Company's financial statements. In June 1997, SFAS No. 131 ("SFAS 131"), "Disclosure about Segments of an Enterprise and Related Information" was issued. This statement will change the way public companies report information about segments of their business in their annual financial statements and requires them to report selected segment information in their quarterly reports issued to shareholders. It also requires entity-wide disclosures about the product, services an entity provides, the material countries in which it holds assets and reports revenues, and its major customers. SFAS 131 is effective for fiscal years beginning after December 15, 1997. The implementation of SFAS 131 did not have a material effect upon the Company's disclosures in its financial statements. LANCER ORTHODONTICS, INC. NOTES TO FINANCIAL STATEMENTS - continued (O) ADMINISTRATIVE FEES For the nine months ended February 28, 1999, general and administrative support fees of $12,000 were accrued, payable to Biomerica, Inc. In January 1999, 5,000 shares of Lancer's common stock were issued and released to Biomerica in lieu of payment of $4,000. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Except for historical information contained herein, the statements in this Form 10-QSB are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward- looking statements involve known and unknown risks and uncertainties which may cause the Company's actual results in future periods to differ materially from forecasted results. These risks and uncertainties include, among other things, the continued demand for the Company's products, availability of raw materials and the state of the economy. These and other risks are described in the Company's Annual Report on Form 10-KSB and in the Company's other filings with the Securities and Exchange Commission. RESULTS OF OPERATIONS For the nine months ended February 28, 1999, net income decreased $92,502 as compared to the year earlier period. For the three months ended February 28, 1999, net income decreased $23,322 compared to the year earlier period. The decrease in net income is primarily attributable to the decrease in gross profit, resulting from pricing pressures, partially offset by a reduction in interest expenses. For the nine months ended February 28, 1999, net sales increased $22,238 (.5%) as compared to the year earlier period. For the three months ended February 28, 1999, net sales decreased $40,992 (3.0%) as compared to the year earlier period. The decrease is primarily attributable to economic conditions in international markets and an industry-wide slowdown in domestic markets. The Company continues to search for and add new distributors, private label customers, and sales representatives. The Company remains very active in investigating new products that will contribute strategically to its product line, believing that a larger and more diverse product line will appeal to a wider range of customers. For the nine months ended February 28, 1999, cost of sales as a percentage of sales (63.4%) increased 1.9% compared to the year earlier period. For the three months ended February 28, 1999, cost of sales as a percentage of sales (62.3%) increased 1.9% compared to the year earlier period. The increase is attributable to competitive pricing pressures in the industry. For the nine months ended February 28, 1999, selling and general and administrative expenses increased $55,840 (3.7%) compared to the year earlier period. For the three months ended February 28, 1999, selling and general and administrative expenses decreased $8,666 (1.7%) as compared to the year earlier period. The increase for the nine month period is attributable to an increase in marketing salaries and commissions and administrative fees. LANCER ORTHODONTICS, INC. For the nine months ended February 28, 1999, product development expenses decreased $23,375 (17.3%) as compared to the year earlier period. For the three months ended February 28, 1999, product development expenses decreased $5,754 (11.7%) compared to the year earlier period. The decrease is attributable to a decrease in wage costs. For the nine months ended February 28, 1999, interest expense decreased $13,735 (58.7%) compared to the year earlier period. For the three months ended February 28, 1999, interest expense decreased $1,269 (20.0%) as compared to the year earlier period. The decrease is attributable to reduced debt and interest rates. FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES The Company's financial condition at February 28, 1999 and its previous two fiscal year ends was as follows: 02/28/99 05/31/98 05/31/97 Current Assets $3,580,383 $3,488,437 $3,217,057 Current Liabilities 803,105 684,222 800,050 Working Capital 2,777,278 2,804,215 2,417,007 Bank Debt & Capitalized Leases 200,000 100,000 415,848 Shareholder Equity 3,317,115 3,404,548 3,150,283 Total Assets 4,120,220 4,088,770 3,950,333 Working capital decreased $26,937 during the nine months ended February 28, 1999, primarily attributable to the replacement of equipment and the development of new products. 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 LANCER ORTHODONTICS, INC. Item 5. OTHER INFORMATION CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANTS Effective April 13, 1999, the Company's Board of Directors approved the engagement of BDO Seidman, LLP to serve as the Company's independent public accountants and to conduct the audit of the Company's financial statements for the ensuing fiscal year end ending May 31, 1999. In connection with the engagement of BDO Seidman, LLP, the Company has discontinued its association with Corbin & Wertz, who had been engaged to audit the Company's financial statements for the prior fiscal years. The audit reports provided by Corbin & Wertz for the fiscal years ended May 31, 1998 and 1997 did not contain any adverse opinion or a disclaimer of opinion nor was any report modified as to uncertainty, audit scope, or accounting principles. Management of the Company knows of no past disagreements between the Company and Corbin & Wertz on any matter of accounting principles or practices, financial statement disclosure or auditing, scope, or procedure. INVENTORY THEFT Management of the Company completed an assessment of a theft of inventory located at its facility in Mexicali Mexico on April 6, 1999. A police report and claim with the Company's insurance carrier for the full amount have been filed and the Company is actively assessing its security measures. The estimated loss of $110,000, valued at standard cost, has been reflected in the accompanying financial statements as a reduction in inventories and an addition to insurance claim receivable. To date, Management has no information that would lead it to believe that it will not recover for the theft under its insurance policy, however, there can be no assurances given as to the amount that the Company will ultimately recover from its insurance carrier. Item 6. EXHIBITS AND REPORTS ON FORM 8-K EXHIBITS Exhibit 16.1. Letter on Change in Certifying Accountant from Corbin and Wertz. 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 26, 1999 By /s/ Douglas D. Miller Douglas D. Miller, President and Chief Operating Officer EXHIBIT 16.1 April 15, 1999 Office of the Chief Accountant SECPS Letter File Securities and Exchange Commission Mail Stop 9-5 450 Fifth Street, N.W. Washington DC 20549 RE: Quarterly Report on Form 10-Q for Lancer Orthodontics, Inc. We have read Item 5 included in the quarterly report on Form 10-Q for Lancer Orthodontics, Inc. (Commission File No. 0-5920) dated April 14, 1999, filed with the Securities and Exchange Commission and are in agreement with the statements contained therein. /S/ CORBIN & WERTZ Corbin & Wertz cc: Ms. Janet Moore EX-27 2
5 This schedule contains summary financial information extracted from Lancer Orthodontics, Inc.'s third quarter 10-Q and is qualified in its entirety by reference to such 10-Q. 9-MOS MAY-31-1999 FEB-28-1999 101,739 0 1,395,899 (97,075) 2,174,319 3,580,383 2,383,540 (2,178,005) 4,120,220 803,105 0 0 185,242 4,701,761 (1,569,888) 4,120,220 4,381,358 4,381,358 2,790,957 2,790,957 0 0 9,677 (83,000) 800 (83,800) 0 0 0 (83,800) (.04) (.04)
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