-----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, B1hfVvOwSMJy6TaxizYrIDwgspK5adzKFG1zrvRQAgRjykfkXwDPknUL+M72qSVE nmFvrPDYg8wdLricO/dJ5A== /in/edgar/work/0000057538-00-000014/0000057538-00-000014.txt : 20001016 0000057538-00-000014.hdr.sgml : 20001016 ACCESSION NUMBER: 0000057538-00-000014 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000831 FILED AS OF DATE: 20001013 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LANCER ORTHODONTICS INC /CA/ CENTRAL INDEX KEY: 0000057538 STANDARD INDUSTRIAL CLASSIFICATION: [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: 739955 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 0001.txt 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 August 31, 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: 2,098,618 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) 8/31/00 ASSETS CURRENT ASSETS: Cash $ 136,358 Accounts Receivable, less allowances for sales returns and doubtful receivables of $157,581 1,302,915 Inventories, net of reserve of $119,167 1,982,706 Prepaid Expenses 27,601 Total Current Assets 3,449,580 PROPERTY AND EQUIPMENT, at cost 2,406,129 Less: Accumulated depreciation (2,298,352) 107,777 INTANGIBLE ASSETS: Marketing and Distribution Rights, net 103,750 Technology Use Rights, net 113,599 217,349 OTHER ASSETS 6,560 Total Assets $3,781,266 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts Payable and Accrued Liabilities $ 610,013 Line of Credit 200,000 Total Current Liabilities 810,013 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; $.50 par value: Authorized 500,000 shares; 0 shares issued and outstanding ($.50 liquidation preference) -- Common Stock, no par value: Authorized 50,000,000 shares; issued and outstanding 2,098,618 4,815,074 Accumulated Deficit (1,843,821) Total Stockholders' Equity 2,971,253 Total Liabilities and Stockholders' Equity $3,781,266 LANCER ORTHODONTICS, INC. CONDENSED STATEMENTS OF OPERATIONS AND CONDENSED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED) FOR THE THREE MONTHS ENDED 8/31/00 8/31/99 NET SALES $1,331,099 $1,271,545 COST OF SALES 925,582 901,083 Gross Profit 405,517 370,462 OPERATING EXPENSES: Selling, General & Administrative 467,325 538,549 Product Development 36,240 56,665 TOTAL OPERATING EXPENSES 503,565 595,214 LOSS FROM OPERATIONS ( 98,048) ( 224,752) OTHER INCOME (EXPENSE): Interest Expense ( 5,207) ( 3,705) Other Income (Expense), net 474 170,403 TOTAL OTHER INCOME (EXPENSE) ( 4,733) 166,698 LOSS BEFORE INCOME TAXES ( 102,781) ( 58,054) INCOME TAXES 0 800 NET LOSS ( 102,781) ( 58,854) OTHER COMPREHENSIVE INCOME -- -- COMPREHENSIVE LOSS $( 102,781 $( 58,854) NET LOSS PER WEIGHTED AVERAGE OF COMMON SHARES Weighted average number of common shares 2,098,618 2,075,799 BASIC $( .05) $( .03) Weighted average number of shares used in calculation of diluted earnings per share 2,098,618 2,075,799 DILUTED $( .05) $( .03) LANCER ORTHODONTICS, INC. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED 8/31/00 8/31/99 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(102,781) $( 58,854) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization 30,192 37,705 Provision for losses on accounts receivable -- ( 6,386) Provision for losses on inventory 9,000 12,000 Common stock issued for services to directors -- 23,170 Net change in operating assets and liabilities: Accounts receivable, net ( 70,145) 156,329 Inventories 21,539 ( 89,508) Prepaid expenses 19,099 18,208 Insurance claim receivable -- 110,000 Accounts payable and accrued liabilities 88,647 ( 33,181) Net cash (used in) provided by operating activities ( 4,449) 169,483 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment ( 2,400) ( 2,983) Net cash used in investing activities ( 2,400) ( 2,983) CASH FLOWS FROM FINANCING ACTIVITIES: Repurchase of common stock -- ( 58,710) Increase in line of credit 40,000 -- Cash flows provided by (used in) by financing activities 40,000 ( 58,710) NET CHANGE IN CASH 33,151 107,790 Cash, beginning of period 103,207 106,292 Cash, end of period $136,358 $214,082 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 F). 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) LINE OF CREDIT At August 31, 2000, the Company has a $500,000 line of credit with a bank. Borrowings are made at prime plus 1.25% (10.75% at August 31, 2000) and are limited to specified percentages of eligible accounts receivable. The unused portion available under the line of credit at August 31, 2000 was $110,089. 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. The Company was in violation of certain of its debt covenants at August 31, 2000. A waiver has been requested but not yet received as of the date of filing. (F) 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 August 31, 2000, this obligation was approximately $329,000. 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 (F) COMMITMENTS AND CONTINGENCIES _ continued LEASES _ Lancer conducts its operations in leased facilities located in San Marcos, California and Mexicali, Mexico. The San Marcos facility consists of a 9,240 square foot manufacturing and office building. The term of the initial lease was for five years commencing January 1, 1994 and ending December 31, 1998. In 1998, Lancer renegotiated the lease and extended the terms to December 31, 2003. The Mexicali facility consists of a 16,000 square foot manufacturing and office building. The term of the lease is for sixty months commencing November 1, 1998 and ending October 31, 2003. Management believes that the properties are currently suitable and adequate for Lancer's operations. Future aggregate minimum annual cash lease payments are as follows: Years ending May 31, 2001 $142,808 May 31, 2002 145,547 May 31, 2003 148,401 Thereafter 75,651 Total $512,407 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 August 31, 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. (G) INCOME TAXES At May 31, 2000, the Company had net tax operating loss carryforwards of approximately $2,101,000 and business tax credits of approximately $114,735 available to offset future Federal taxable income and tax liabilities, respectively. The Federal carryforwards expire in varying amounts from 2000 to 2019. As of May 31, 2000, the Company had net tax operating loss carryforwards of approximately $250,000 and business tax credits of approximately $23,000 available to offset future state income tax liabilities. (H) STOCKHOLDERS' EQUITY The Company has incentive stock option and non-qualified stock option plans for directors, officers, and key employees. The plans provide for the granting of options for common shares at exercise prices equal to or exceeding the fair market value at the date of grant, as determined by the Board of Directors. Options may become exercisable over a period of up to four years from the date of grant and may be exercised over a period of three to seven years from the date of the grant, as determined by the Board of Directors. The Company's shareholders have authorized a total of 357,143 shares to be available for grant under the Company's stock option plan. Options granted prior to May 31, 1995, generally vested on the date of grant and expired through August 1999. LANCER ORTHODONTICS, INC. NOTES TO FINANCIAL STATEMENTS - continued (H) STOCKHOLDERS' EQUITY - continued During the quarter ended August 31, 2000, the Company granted 157,000 options to purchase shares of the Company's common stock at an exercise price of $.875 to certain employees of the Company, with one half vested immediately and the other half vesting one year from the grant date. The options have a term of five years. (I) NET LOSS 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 MONTHS ENDED 8/31/00 8/31/99 BASIC LOSS PER SHARE: Net loss $( 102,781) $( 58,854) Net loss applicable to common shareholders $( 102,781) $( 58,854) Weighted average number of common shares 2,098,618 2,075,799 Basic loss per Share $( .05) $( .03) DILUTED LOSS PER SHARE: Net loss from primary income per common share $( 102,781) $( 58,854) Net loss for diluted earnings per share $( 102,781) $( 58,854) Weighted average number of shares used in Calculation of diluted earnings per share 2,098,618 2,075,799 Diluted loss per share $( .05) $( .03) LANCER ORTHODONTICS, INC. NOTES TO FINANCIAL STATEMENTS - continued (J) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES FOR THE THREE MONTHS ENDED 8/31/00 8/31/99 Sales to unaffiliated customers: United States $ 684,591 $ 836,392 Europe 394,817 224,799 South America 106,434 98,150 Other Foreign 145,257 112,204 $1,331,099 $1,271,545 No other geographic concentrations exist where net sales exceed 10% of total net sales. Sales or transfers between geographic areas none none Operating loss: United States $( 96,531) $(144,749) Europe ( 926) ( 41,329) South America ( 250) ( 18,045) Other Foreign ( 341) ( 20,629) $( 98,048) $(224,752) 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 three months ended August 31, 2000, net loss increased $43,927 as compared to the year earlier period. The increase in net loss is primarily attributable to the 1999 other income of insurance claim proceeds. For the three months ended August 31, 2000, net sales increased $59,554 (4.7%) as compared to the year earlier period. International net sales increased $211,355 primarily in Europe and South America. The decrease in domestic net sales of $151,801 is attributable to increased discounting due to competition pressures. For the three months ended August 31, 2000, cost of sales as a percentage of sales totaled 69.5%, a decrease of 1.4% as compared to the year earlier period which totaled 70.9%. This decrease is attributable to a decrease in production costs and royalty expense. For the three months ended August 31, 2000, selling and general and administrative expenses decreased $71,224 (13.2%) as compared to the year earlier period. The decrease is primarily attributable to a decrease in labor costs and commissions. For the three months ended August 31, 2000, product development expenses decreased $20,425 (36.1%) as compared to the year earlier period. The decrease is primarily attributable to the discontinuance of dental amalgam development. For the three months ended August 31, 2000, interest expense increased $1,502 (40.5%) as compared to the year earlier period. The increase is primarily attributable to an increase in the interest rate. For the three months ended August 31, 1999, 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. LANCER ORTHODONTICS, INC. FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES The Company's financial condition at August 31, 2000 and its previous two fiscal year ends was as follows: 8/31/00 05/31/00 05/31/99 Current Assets $3,449,580 $3,395,922 $3,827,011 Current Liabilities 810,013 681,367 888,820 Working Capital 2,639,567 2,714,555 2,938,191 Bank Debt 200,000 160,000 180,000 Shareholder Equity 2,971,253 3,074,033 3,438,301 Total Assets 3,781,266 3,755,400 4,327,121 Cash increased $33,151 during the three months ended August 31, 2000. Working capital decreased $74,988 during the three months ended August 31, 2000, primarily attributable to a decrease in inventories and an increase in accounts payable and accrued liabilities, partially offset by an increase in receivables. The Company expects to meet all of its cash requirements for the foreseeable future out of its cash reserves, cash flow, and line of credit. PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS Not Applicable Item 2. CHANGES IN SECURITIES During the three months ended August 31, 2000, the Company granted 157,000 options to purchase shares of the Company's common stock at an exercise price of $.875 to certain employees of the Company, which vest ratably over a term of two years and have a term of five years. 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 October 13, 2000 By /s/ Douglas D. Miller Douglas D. Miller, President and Chief Operating Officer EX-27 2 0002.txt
5 This schedule contains summary financial information extracted from Lancer Orthodontics, Inc.'s first quarter 10-Q and is qualified in its entirety by reference to such 10-Q. 3-MOS MAY-31-2001 AUG-31-2000 136,358 0 1,460,496 (157,581) 1,982,706 3,449,580 2,406,129 (2,298,352) 3,781,266 810,013 0 0 0 4,815,074 (1,843,821) 3,781,266 1,331,099 1,331,099 925,582 925,582 0 0 5,207 (102,781) 0 (102,781) 0 0 0 (102,781) (.05) (.05)
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