-----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, TwLdx8gJEXAQ8ZQa4xxPY86CT5vrKhC2aZJrY68RCBEVXfoJMMJT6CFCgbiD/KkK PqVZr5VFkzMEaOUdSYT1dw== 0000057538-00-000007.txt : 20000417 0000057538-00-000007.hdr.sgml : 20000417 ACCESSION NUMBER: 0000057538-00-000007 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000229 FILED AS OF DATE: 20000414 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: SEC FILE NUMBER: 000-05920 FILM NUMBER: 601219 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, 2000 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: 2,018,262 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) 2/29/00 ASSETS CURRENT ASSETS: Cash $ 157,754 Accounts Receivable, less allowances for sales returns and doubtful receivables of $172,561 1,223,240 Inventories 2,170,085 Prepaid Expenses 28,402 Total Current Assets 3,579,481 PROPERTY AND EQUIPMENT, at cost 2,399,927 Less: Accumulated depreciation (2,266,953) 132,974 INTANGIBLE ASSETS: Marketing and Distribution Rights, net 116,200 Technology Use Rights, net 137,946 254,146 OTHER ASSETS 6,560 Total Assets $3,973,161 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts Payable and Accrued Liabilities $ 705,115 Line of Credit 220,000 Total Current Liabilities 925,115 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 2,018,262 4,602,402 Accumulated Deficit (1,739,598) Total Stockholders' Equity 3,048,046 Total Liabilities and Stockholders' Equity $3,973,161 LANCER ORTHODONTICS, INC. CONDENSED STATEMENTS OF OPERATIONS AND CONDENSED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED) FOR THE THREE FOR THE NINE MONTHS ENDED MONTHS ENDED 2/29/00 2/28/99 2/29/00 2/28/99 NET SALES $1,372,209 $1,329,076 $4,031,123 $4,403,596 COST OF SALES 967,936 827,383 2,733,605 2,790,957 Gross Profit 404,273 501,693 1,297,518 1,612,639 OPERATING EXPENSES: Selling, General & Admin 525,224 498,025 1,612,829 1,575,532 Product Development 32,032 43,512 138,368 112,066 TOTAL OPERATING EXPENSES 557,256 541,537 1,751,197 1,687,598 LOSS FROM OPERATIONS ( 152,983)( 39,844) ( 453,679) ( 74,959) OTHER INCOME (EXPENSE): Interest Expense ( 5,137)( 5,069)( 13,308)( 9,677) Other Income (Expense), net 4,660 848 172,245 1,636 TOTAL OTHER INCOME (EXP) ( 477)( 4,221) 158,937 ( 8,041) LOSS BEFORE INCOME TAXES ( 153,460)( 44,065)( 294,742)( 83,000) INCOME TAXES -- -- 800 800 NET LOSS ( 153,460)( 44,065)( 295,542)( 83,800) OTHER COMPREHENSIVE INCOME -- -- -- -- COMPREHENSIVE LOSS $( 153,460$( 44,065)$( 295,542) $( 83,800) NET LOSS PER WEIGHTED AVERAGE OF COMMON SHARES Weighted average number of common shares 2,018,262 2,116,668 2,047,809 2,117,335 BASIC $ (.08) $ (.02) $ (.14) $ (.04) Weighted average number of shares used in calculation of diluted earnings per share 2,018,262 2,116,668 2,047,809 2,117,335 DILUTED $ (.08) $ (.02) $ (.14) $ (.04) LANCER ORTHODONTICS, INC. CONDENSED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED 2/29/00 2/28/99 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(295,542) $( 83,800) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 113,113 122,158 Provision for losses on accounts rec ( 3,425) ( 22,925) Provision for losses on inventory 24,000 -- Common stock issued for services to directors 23,170 -- Net change in operating assets and liabilities: Accounts receivable 131,905 136,951 Inventories 13,069 (377,525) Prepaid expenses 23,443 62,256 Insurance claim receivable 110,000 (110,000) Accounts payable & accrued liabilities ( 3,705) 18,883 Net cash provided by (used in) operating activities 136,028 (254,002) CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment ( 6,683) ( 61,662) Net cash (used in) investing activities ( 6,683) ( 61,662) CASH FLOWS FROM FINANCING ACTIVITIES: Repurchase of common stock (117,883) ( 3,633) Line of credit 40,000 100,000 Cash flows (used in) provided by financing activities ( 77,883) 96,367 NET CHANGE IN CASH 51,462 (219,297) Cash, beginning of period 106,292 321,036 Cash, end of period $157,754 $101,739 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) 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. The carrying value of the inventory stolen approximated $110,000, valued at standard cost, which was reflected in the May 31, 1999 financial statements as a reduction in inventories and an addition to insurance claim receivable. In July 1999, the Company settled the claim with the insurance carrier and received $279,672; the value of the stolen inventory at net average selling price, less commissions and royalties. The Company recorded other income of $169,672 from the proceeds received in excess of standard cost. (F) LINE OF CREDIT At February 29, 2000, the Company had a $500,000 line of credit with a bank. Borrowings are made at prime plus 1.25% (10.0% at February 29, 2000) and are limited to specified percentages of eligible accounts receivable. The unused portion available under the line of credit at February 29, 2000 was $103,297. The line of credit expires on November 3, 2000. 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 $2,800,000 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. (G) COMMITMENTS AND CONTINGENCIES MANUFACTURING AGREEMENT - The Company has 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. 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. Effective April 1, 1996, the Company leased the Mexicali facility under a separate arrangement. In November 1998, the Company extended the Manufacturing Agreement through December 2003. 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 29, 2000, this obligation was approximately $201,000. Such obligation is contingent in nature and accordingly has not been accrued in the accompanying balance sheet. LANCER ORTHODONTICS, INC. NOTES TO FINANCIAL STATEMENTS - continued (G) COMMITMENTS AND CONTINGENCIES _ continued 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 also leases its Mexico facility under a non-cancelable operating lease expiring October 2003, which requires average monthly rentals of approximately $6,191. 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, 2000 $139,841 May 31, 2001 142,808 May 31, 2002 145,547 May 31, 2003 148,401 Thereafter 75,651 Total $652,248 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 has not experienced any problems with its systems related to year 2000 issues and no material costs were incurred related to this compliance. 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 were 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. LISTING REQUIREMENTS _ The Company must maintain a minimum bid price and certain capitalization levels as required by the NASD Marketplace Rule 4310(c). As of February 29, 2000, the Company was in compliance with these requirements. There can be no assurance that the Company will continue to comply with these requirements which could impair the Company's ability to be listed on the NASDAQ Stock Market. LANCER ORTHODONTICS, INC. NOTES TO FINANCIAL STATEMENTS - continued (H) INCOME TAXES At May 31, 1999, the Company had net tax operating loss carryforwards of approximately $1,850,000 and business tax credits of approximately $150,000 available to offset future Federal taxable income and tax liabilities, respectively. The Federal carryforwards expire in varying amounts from 1999 to 2012. As of May 31, 1999, 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 $255,000 expired during the year ended May 31, 1998. (I) NET (LOSS) 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. For all periods presented, no common stock equivalents have been included in the computation of diluted earnings per share as they were determined to be anti-dilutive. EARNINGS PER SHARE (UNAUDITED) FOR THE THREE FOR THE NINE MONTHS ENDED MONTHS ENDED 2/29/00 2/28/99 2/29/00 2/28/99 BASIC (LOSS) EARNINGS PER SHARE: Net loss $( 153,460) $( 44,065) $( 295,542) $( 83,800) Net loss applicable to common shareholders $( 153,460) $( 44,065) $( 295,542) $( 83,800) Weighted average number of common shares 2,018,262 2,116,668 2,047,809 2,117,335 Basic loss per share $( .08) $( .02) $( .14) $( .04) LANCER ORTHODONTICS, INC. NOTES TO FINANCIAL STATEMENTS - continued (I) NET (LOSS) INCOME PER COMMON SHARE AND DIVIDENDS (continued) EARNINGS PER SHARE (UNAUDITED) FOR THE THREE FOR THE NINE MONTHS ENDED MONTHS ENDED 2/29/00 2/28/99 2/29/00 2/28/99 DILUTED (LOSS) EARNINGS PER SHARE: Net loss from primary income per common share $( 153,460) $( 44,065) $( 295,542) $( 83,800) Net loss for diluted earnings per share $( 153,460) $( 44,065)$( 295,542) $( 83,800) Weighted average number of shares used in calculation of diluted earnings per share 2,018,262 2,116,668 2,047,809 2,117,335 Diluted loss per share $( .08) $( .02) $( .14) $( .04) (J) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES FOR THE NINE MONTHS ENDED 2/29/00 2/28/99 Sales to unaffiliated customers: United States $2,383,087 $2,519,106 Europe 996,214 1,116,771 South America 218,225 340,742 Other Foreign 433,597 426,977 $4,031,123 $4,403,596 No other geographic concentrations exist where net sales exceed 10% of total net sales. Sales or transfers between geographic areas none none Operating profit (loss): United States $(336,572) $(131,185) Europe ( 70,790) 33,342 South America ( 15,507) 10,177 Other Foreign ( 30,810) 12,707 $(453,679) $( 74,959) LANCER ORTHODONTICS, INC. NOTES TO FINANCIAL STATEMENTS - continued (K) STOCKHOLDERS' EQUITY In March 1998, the Company's Board of Directors approved the repurchase of the Company's outstanding common stock in the market place over twelve months. In June 1999, the repurchase was extended until May 2000. During the nine months ended February 29, 2000, the Company repurchased and retired 114,998 shares of its common stock for an aggregate consideration of $117,883. The Company issued 27,295 new shares of its common stock valued at $23,170 for directors fees previously outstanding and included in accrued liabilities as of May 31, 1999. LANCER ORTHODONTICS, INC. 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 29, 2000, net loss increased from a net loss of $83,800 at February 28, 1999, to a net loss of $295,542 at February 29, 2000. For the three months ended February 29, 2000, net loss increased from a net loss of $44,065 at February 28, 1999, to a net loss of $153,460 at February 29, 2000. The nine months increase in net loss is primarily attributable to the decrease in sales, offset by the insurance claim proceeds. The three months increase is primarily attributable to the increase in cost of goods sold. For the nine months ended February 29, 2000, net sales decreased $372,473 (8.5%) as compared to the year earlier period. For the three months ended February 29, 2000, net sales increased $43,133 (3.3%) as compared to the year earlier period. International net sales decreased $236,454 (12.5%) for the nine months ended February 29, 2000 and increased $98,471 (17.9%), for the three months ended February 29, 2000. The decrease was primarily attributable to economic conditions in Europe and South America that improved in the last three months, effecting the increase. Domestic net sales decreased $136,019 (5.4%) and $55,438 (7.1%), respectively, for the nine months and three months ended February 29, 2000, as compared to the year earlier period. This decrease is primarily attributable to increased discounting due to competition pressures. For the nine months ended February 29, 2000, cost of sales as a percentage of sales (67.8%) increased 4.4% compared to the year earlier period. For the three months ended February 29, 2000, cost of sales as a percentage of sales (70.5%) increased 8.2% compared to the year earlier period. The nine months and three months increase is primarily attributable to fixed costs of the Mexicali location not producing at full capacity. The Company is in the process of developing improved manufacturing processes to reduce unit costs. For the nine months ended February 29, 2000, selling and general and administrative expenses increased $37,297 (2.4%) compared to the year earlier period. For the three months ended February 29, 2000, selling and general and administrative expenses increased $27,199 (5.5%) as compared to the year earlier period. The increase is primarily attributable to an increase in financial personnel and professional fees. LANCER ORTHODONTICS, INC. For the nine months ended February 29, 2000, product development expenses increased $26,302 (23.5%) as compared to the year earlier period. For the three months ended February 29, 2000, product development expenses decreased $11,480 (26.4%) compared to the year earlier period. The nine months increase is primarily attributable to development costs of an innovative dental amalgam that went into production during the three months ended February 29, 2000, resulting in a decrease for the last three months. For the nine months ended February 29, 2000, interest expense increased $3,631 (37.5%) as compared to the year earlier period. For the three months ended February 29, 2000, interest expense increased $68 (1.3%) as compared to the year earlier period The increase is attributable to borrowings against the line of credit to finance development costs and an increase in the interest rate. For the nine months ended February 29, 2000, other income of $169,672 was realized from the insurance claim settlement of $279,672 for the theft of inventory at the Company's Mexicali facility, less $110,000 insurance claim receivable valued at cost at May 31, 1999. FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES The Company's financial condition at February 29, 2000 and its previous two fiscal year ends was as follows: 2/29/00 05/31/99 05/31/98 Current Assets $3,579,481 $3,827,011 $3,488,437 Current Liabilities 925,115 888,820 684,222 Working Capital 2,654,366 2,938,191 2,804,215 Bank Debt 220,000 180,000 100,000 Shareholder Equity 3,048,046 3,438,301 3,404,548 Total Assets 3,973,161 4,327,121 4,088,770 Cash increased $51,462 during the nine months ended February 29, 2000, primarily due to the insurance claim settlement. Working capital decreased $283,825 during the nine months ended February 29, 2000, primarily attributable to a decrease in sales, partially offset by an increase in inventories and cash. The Company is currently considering investing from $200,000 to $300,000 in replacement equipment. Funds for this investment will come from cash flow and new borrowings. The Company expects to meet the rest of its cash requirements out of its cash reserves, cash flow, and line of credit. LANCER ORTHODONTICS, INC. 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 Item 5. OTHER INFORMATION Not Applicable 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 14, 2000 By /s/ Douglas D. Miller Douglas D. Miller, President and Chief Operating Officer EX-27 2
5 This schedule contains summary financial information extracted from Lancer Orthodontics, Inc third quarter 10-Q and is qualified in its entirety by reference to such 10-Q. 9-MOS MAY-31-2000 FEB-29-2000 157,754 0 1,395,801 (172,561) 2,170,085 3,579,481 2,339,927 (2,266,953) 3,973,161 925,115 0 0 185,242 4,602,402 (1,739,598) 3,973,161 4,031,123 4,031,123 2,733,605 2,733,605 0 0 13,308 (294,742) 800 (295,542) 0 0 0 (295,542) (.14) (.14)
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