Premier Laser’s Outside Auditor Quits
In another setback for Premier Laser Systems Inc., the Irvine-based maker of dental and medical lasers said its outside auditor quit and withdrew its financial report for the company’s fiscal year ended March 31, 1997.
The resignation of Ernst & Young is the latest blow to Premier, which a year ago was riding high on the promise of a breakthrough dental laser that was being touted as a harbinger of painless sessions in the dental chair.
Last month, the company said a dispute with a major distributor could force it to lower its revenue for the second half of fiscal 1998 by $7 million. Premier has also been slapped with a shareholder lawsuit.
Now, Ernst & Young’s resignation leaves Premier with the task of finding a new accountant to audit the company’s financial results for its fiscal year ended March 31, 1998--the year in which the disputed sales occurred.
Trading of Premier’s shares was halted Tuesday morning. Since mid-March, the company’s Nasdaq-traded stock has tumbled more than 60%, closing Friday at $4.19 a share.
Colette Cozean, Premier’s chief executive, said in a prepared statement that she was “extremely disappointed with Ernst & Young’s decision.”
At Ernst & Young’s urging, she said, Premier had formed a special committee of independent directors, assisted by lawyers and another accounting firm, to review the company’s accounting issues and its dispute with distributor Henry Schein Inc.
But Don Howarth, an Ernst & Young partner in New York, said his firm had “serious disagreements” with Premier. “We specifically disagreed with the limited scope and breadth of the internal investigation,” he said.
He would not elaborate but said that a more detailed account will be filed later with the Securities and Exchange Commission.
A year ago, Premier became the first company to receive federal approval to sell a dental laser that could be used to treat tooth decay. In December, Premier entered a marketing agreement with Schein, a large health-care products distributor based in Melville, N.Y.
But last month, Premier said its revenue for its third quarter would be restated and that its fourth-quarter revenue would be lower than expected, after subtracting about $7 million that Premier had booked as sales to Schein. The distributor says it never ordered the lasers in question.
Dan Caruso, Premier’s executive vice president, said the company is continuing to negotiate with Schein and is hopeful a resolution will be reached soon. Premier is also talking with other distributors and is continuing to sell lasers through its internal sales force and through manufacturers’ representatives, he said.
Premier also sells ophthalmic lasers, which have not been affected by the dispute with Schein, Caruso said.
Meanwhile, Premier faces a shareholder lawsuit filed this month in U.S. District Court in Santa Ana. The suit, which seeks class-action status, accuses the company of violating securities laws by issuing misleading information about its laser sales to Schein in an attempt to inflate its stock. Premier has denied the allegations and says it will fight the complaint.
Analyst John R. Doss at the investment firm Dominick & Dominick in New York said he was puzzled by Premier’s troubles. “This all seems like a terrible mess,” he said.
But analyst Bill Relyea at Josephthal & Co. in New York remained optimistic that Premier’s problems could be resolved.
