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 November 30, 2003 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
Indicate by check mark whether registrant is an accelerated filer, as
defined in Rule 12b-2 of the Exchange Act.
Yes No X
State the number of shares outstanding of each of the issuer's classes of
common equity, as of January 16, 2004: 2,284,445
Transitional small business disclosure format (check one):
Yes X No
LANCER ORTHODONTICS, INC.
FORM 10-Q
QUARTERLY REPORT
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page(s)
Item 1 Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6-17
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 17-19
Item 3 Quantitative and Qualitative Disclosures about Market Risk 19-20
Item 4 Procedures and Controls 20
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 20
Item 2 Changes in Securities and Use of Proceeds 20
Item 3 Defaults Upon Senior Securities 20
Item 4 Submission of Matters to a Vote of Security Holders 20
Item 5 Other Information 20
Item 6 Exhibits and Reports on Form 8-K 20
Signature 21
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS (UNAUDITED)
LANCER ORTHODONTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
11/30/03
ASSETS
CURRENT ASSETS:
Cash $ 224,237
Accounts receivable, less allowances for sales
returns and doubtful receivables of $111,008 1,029,989
Inventories, net of reserve of $182,225 1,745,152
Related party receivables 4,516
Prepaid expenses 76,850
Other receivables 30,847
Total current assets 3,111,591
PROPERTY AND EQUIPMENT, at cost 2,838,557
Less: Accumulated depreciation (2,400,933)
437,624
INTANGIBLE ASSETS:
Marketing and distribution rights, net 22,825
OTHER ASSETS 49,485
Total assets $3,621,525
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 341,686
Accrued payroll and related benefits 210,651
Accrued professional fees 47,234
Accrued royalties 22,460
Other current liabilities 12,547
Line of credit 0
Total current liabilities 634,578
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, various series; 750,000 shares authorized;
no shares issued and outstanding --
Common stock, no par value; 50,000,000 authorized;
2,196,224 shares issued and outstanding 4,844,345
Common stock subscribed, 88,221 shares subscribed 27,750
Accumulated deficit (1,885,148)
Total stockholders' equity 2,986,947
Total liabilities and stockholders' equity $3,621,525
LANCER ORTHODONTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
11/30/03 11/30/02 11/30/03 11/30/02
NET SALES $1,565,652 $1,504,904 $2,883,759 $2,790,403
COST OF SALES 1,101,351 1,054,601 2,076,618 1,978,181
Gross Profit 464,301 450,303 807,141 812,222
OPERATING EXPENSES:
Sales & Marketing 342,924 298,129 687,870 580,230
General & Administrative 95,696 110,926 206,714 221,189
Product Development 27,358 15,996 59,861 31,182
TOTAL OPERATING EXPENSES 465,978 425,051 954,445 832,601
INCOME (LOSS) FROM OPERATIONS (1,677) 25,252 (147,304) (20,379)
OTHER INCOME (EXPENSE):
Interest Expense (261) (16) (261) (3,588)
Other Income, net 5,946 3,821 11,358 50,093
TOTAL OTHER INCOME 5,685 3,805 11,097 46,505
INCOME (LOSS) BEFORE INC TAXES 4,008 29,057 (136,207) 26,126
INCOME TAXES -- 194 -- 194
NET INCOME (LOSS) $4,008 $28,863 $(136,207) $25,932
NET INCOME (LOSS) PER WEIGHTED AVERAGE OF COMMON SHARES
Weighted average number of
common shares 2,362,416 2,196,233 2,362,416 2,196,233
BASIC $.00 $.01 $(.06) $.01
Weighted average number of shares
used in calculation of diluted
earnings per share 2,362,416 2,196,233 2,362,416 2,196,233
DILUTED $.00 $.01 $(.06) $.01
LANCER ORTHODONTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED
11/30/03 11/30/02
Cash flows from operating activities:
Net (loss) income $(136,207) $25,932
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Depreciation and amortization 25,511 48,234
Provision for losses on accounts receivable 6,008 132
Provision for losses on inventory 45,000 30,000
Common stock issued in lieu of salary 7,500 10,500
Net change in operating assets and liabilities:
Accounts receivable 63,443 81,031
Inventories (41,136) 213,395
Related party receivables 9,374 --
Prepaid expenses (21,364) 263
Insurance claim receivable -- 81,758
Other receivables (11,316) --
Accounts payable (55,176) (178,340)
Accrued payroll and related benefits 69,500 53,815
Other current liabilities (14,418) 40,285
Net cash (used in) provided by operating activities (53,281) 407,005
Cash flows from investing activities:
Purchases of property and equipment (227,378) (35,609)
Other assets (6,085) --
Net cash used in investing activities (233,463) (35,609)
Cash flows from financing activities:
Net decrease in line of credit (426) (65,669)
Cash flows used in financing activities (426) (65,669)
Net change in cash (287,170) 305,727
Cash, beginning of period 511,407 128,585
Cash, end of period $224,237 $434,312
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $261 $16
Shares of common stock issued for services to be rendered $-- $1,750
LANCER ORTHODONTICS, INC.
Notes to Condensed Consolidated Financial Statements
(A) Basis of Presentation
The accompanying unaudited condensed consolidated 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 consolidated financial position, results of
operations, and cash flows in conformity with generally accepted accounting
principles. The unaudited condensed consolidated financial statements
include the accounts of Lancer Orthodontics, Inc. (the "Company" or
"Lancer") and its wholly-owned subsidiary Lancer Orthodontics de Mexico.
The consolidated 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.
Reference is made to Note 2 of the Notes to the Consolidated Financial
Statements contained in Lancer's Annual Report on Form 10-KSB for the fiscal
year ended May 31, 2003, for a summary of significant accounting policies
utilized by Lancer.
(B) Organization
Lancer Orthodontics, Inc. 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. Lancer has a manufacturing facility
in Mexico where a majority of its inventory is manufactured (Note G). The
facility is incorporated and is a wholly-owned and consolidated subsidiary
of Lancer. This subsidiary now also administers services previously provided
by an independent manufacturing contractor. The conversion had no material
effect on manufacturing operations. Lancer 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. Lancer also sells certain of its products on a
private label basis.
The Company is a partially owned and consolidated subsidiary of Biomerica,
Inc. ("Biomerica"). Biomerica's direct ownership percentage of Lancer is
31.12% and its direct and indirect (via agreements with certain shareholders)
voting control over Lancer is greater than 50% as of November 30, 2003.
(C) Use of Estimates in the Preparation of Financial Statements
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
("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 consolidated financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Significant estimates made by Lancer's management include,
but are not limited to, allowances for doubtful accounts, allowances for
sales returns, valuation of inventories, realizeability of property and
equipment through future operations, and realizeability of deferred tax
assets. Actual results could materially differ from those estimates.
LANCER ORTHODONTICS, INC.
Notes to Condensed Consolidated Financial Statements - continued
(D) Stock Based Compensation
In December 2002, the FASB issued FAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure," which amended FAS No. 123
"Accounting for Stock-Based Compensation." The new standard provides
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation.
Additionally, the statement amends the disclosure requirements of FAS No.
123 to require prominent disclosures in the annual and interim financial
statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. This
statement is effective for financial statements for fiscal years ending
after December 15, 2002. In compliance with FAS No. 148, the Company has
elected to continue to follow the intrinsic value method in accounting for
our stock-based employee compensation plan as defined by APB No. 25,
"Accounting for Stock Issued to Employees".
The Black Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options. For purposes of pro forma disclosure, the estimated
fair value of the options is amortized to expense over the options vesting
period. Adjustments are made for options forfeited prior to vesting. The
effect on compensation expense, net loss, and net loss per common share
had compensation costs for the Company's stock option plans been determined
based on a fair value at the date of grant consistent with the provisions of
SFAS 148, for the three and six months ended November 30, 2003 as follows:
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
11/30/02 11/30/01 11/30/02 11/30/01
Net income (loss), as reported $4,008 $28,863 $(136,207) $25,932
Add: Stock-based employee
compensation expense recorded -- -- -- --
Less: Stock-based employee compensation
expense determined under fair
value calculations (12,488) (9,291) (26,706) (9,291)
Net income (loss) pro forma 20,936 114,315 80,176 206,204
Basic income (loss) per share,
as reported: $.00 $.01 $(.06) $.01
Add: Stock-based employee
compensation expense recorded -- -- -- --
Less: Stock-based employee compensation
determined under fair
value calculations (.00) (.00) (.01) (.00)
Proforma $.00 $.01 $(.07) $.01
Diluted income (loss) per share,
as reported: $.00 $.01 $(.06) $.01
Add: Stock-based employee
compensation expense recorded -- -- -- --
Less: Stock-based employee compensation
determined under fair
value calculations (.00) (.00) (.01) (.00)
Pro forma $.00 $.01 $(.07) $.01
(E) Property and Equipment
Costs in construction in progress consist of two projects, a new product line
and a new information system. Costs capitalized into the new product line at
November 30, 2003 were $268,650, with approximately $52,000 in additional
costs estimated to complete the project. Costs capitalized into the new
information system are $41,158, with approximately $30,000 in additional
costs estimated to complete the project.
(F) Line of Credit
At November 30, 2003, Lancer has a $400,000 line of credit with GE Capital
Healthcare Financial Services, which expires January 24, 2004. Borrowings
are made at prime plus 2.0%, however not less than 8.0%, (8.0% at November
30, 2003), and are limited to 80% of accounts receivable less than 90 days
old with a liquidity factor of 94%. The outstanding balance at November 30,
2003, is $0 and the unused portion available is approximately $326,000.
Lancer is in compliance with its debt covenants at November 30, 2003.
The line of credit is collateralized by substantially all the assets of
Lancer, including inventories, receivables, and equipment. The lending
agreement for the line of credit requires, among other things, that Lancer
maintain a tangible net worth of $2,100,000 and that receivables payments be
sent to a controlled lockbox. In addition to interest, a management fee of
0.25% of the average monthly outstanding loan balance and an unused balance
fee of .0425% on the average monthly unused portion available are required.
Lancer is not required to maintain compensating balances in connection with
this lending agreement.
In October 2003 the line of credit was extended to January 24, 2004 by GE
Capital Healthcare Financial Services so that Lancer could explore other
financing options. An agreement with another financing institution is in the
process of being finalized.
LANCER ORTHODONTICS, INC.
Notes to Condensed Consolidated Financial Statements - continued
(G) Commitments and Contingencies
In May 1990, Lancer entered into a manufacturing subcontractor agreement
whereby the subcontractor agreed to provide manufacturing services to
Lancer through its affiliated entities located in Mexicali, B.C., Mexico.
Effective April 1, 1996, Lancer leased the Mexicali facility under a
separate agreement. In November 1998, Lancer extended the manufacturing
agreement through October 2000.
During fiscal 2002, the facility in Mexico was incorporated as Lancer
Orthodontics de Mexico, ("Lancer de Mexico"), a wholly-owned subsidiary of
the Company. This subsidiary now administers services previously provided
by an independent manufacturing contractor. A new lease was negotiated in
the name of Lancer de Mexico, effective April 1, 2001, for the 16,000
square foot facility already in use for the Mexican operations. Mexican
utilities and vendor obligations were also converted to the Lancer de Mexico
name. This conversion eliminated the expense of an administrative fee and is
expected to provide better control in meeting future obligations. The
conversion had no material effect on manufacturing operations. Should
Lancer discontinue operations in Mexico, it is responsible for accumulated
employee seniority obligations as prescribed by Mexican law. At November
30, 2003, this obligation was approximately $367,000. Such obligation is
contingent in nature and accordingly has not been accrued in Lancer's
consolidated financial statements.
Leases - Lancer leases its corporate facility under a non-cancelable
operating lease expiring December 31, 2003, as extended, which requires
monthly rentals that increase annually, from $2,900 per month in 1994 to
$6,317 per month in 2003. The lease expense is being recognized on a
straight-line basis over the term of the lease. The excess of the expense
recognized over the cash paid aggregates $561 at November 30, 2003, and is
included in accrued liabilities in the accompanying consolidated balance
sheet. Total rental expense for this facility for the six months ended
November 30, 2003, was approximately $35,000. The lease is extended on a
month-to-month basis at a rate of $7,900 per month starting in January,
2004 while a new lease is being negotiated for the current facility.
Effective December 1, 2002, Lancer Orthodontics de Mexico entered into a
non-cancelable operating lease for its Mexico facility through March 31, 2009.
The new lease encompasses the approximately 16,000 square feet of the
previous lease, plus additional square footage of approximately 10,000 feet,
for a total of approximately 26,000 square feet. Lancer Orthodontics
de Mexico will provide sub-contracted manufacturing services to Biomerica,
Inc., a related party, using a portion of the additional square footage.
The new lease requires four monthly lease payments of approximately $5,300
through March 2003, and seventy-two monthly payments of approximately $9,600
through March 2009. An agreement has been negotiated between Lancer
Orthodontics de Mexico and Biomerica for lease reimbursement of
approximately $2,000 per month. The remainder of approximately $7,600
monthly lease will be borne by Lancer. Total rental expense for this
facility for the six months ended November 30, 2003, was approximately
$51,000.
LANCER ORTHODONTICS, INC.
Notes to Condensed Consolidated Financial Statements - continued
(G) Commitments and Contingencies - continued
The new Lancer Orthodontics de Mexico lease also requires an additional
refundable security deposit of $26,550, payable over twelve months beginning
January 2003. Lancer Orthodontics, Inc. is paying half and Biomerica, Inc.
the other half. At November 30, 2003, other assets on the consolidated
balance sheet includes approximately $45,000 for security deposit paid on
the Mexico location.
At May 31, 2003, future aggregate minimum lease payments are as follows:
Years ending May 31,
2004 $173,950
2005 132,003
2006 131,148
2007 129,438
2008 127,767
2009 105,776
Total $800,082
A sub-lease agreement for approximately 459 square feet of Lancer's main
facility was entered into in April 2003, effective through November 2003
with an unrelated third party. The leased space is to be used for a machine
shop and requires monthly payments of $344. Rental income for the six
months ended November 30, 2003 was $2,064.
Employment Agreement - Pursuant to the terms of the employment agreement
between the Company and Dan Castner, the Vice President of Sales and
Marketing of the Company, dated as of May 20, 2003, the Company agreed to
pay Mr. Castner an annual base salary of $135,000. In addition, the Company
granted Mr. Castner stock options on June 2, 2003, to purchase an aggregate
of 120,000 shares of the Company's common stock at an exercise price of $0.43
per share. The stock options have a term of five years and will vest over
four years as follows: (i) 25% vesting on the first anniversary of the date
of the grant; (ii) 25% vesting on the second anniversary of the date of the
grant; (iii) the remaining 50% vesting as to one-twenty fourth (1/24th) per
month each month thereafter for the next two years. Should the Company be
purchased by an unaffiliated third party, the options shall vest 100%.
Common Stock - Lancer's stock is traded on the OTC Bulletin Board.
(H) Income Taxes
At May 31, 2003, Lancer had net tax operating loss carryforwards of
approximately $2,059,000 and business tax credits of approximately $64,000
available to offset future Federal taxable income and tax liabilities,
respectively. The Federal carryforwards expire in varying amounts
through the year 2021. As of May 31, 2003, Lancer had net tax operating
loss carryforwards of approximately $70,000 and business tax credits of
approximately $10,000 available to offset future state income tax
liabilities. The state carryforwards expire through the year 2011.
LANCER ORTHODONTICS, INC.
Notes to Condensed Consolidated Financial Statements - continued
(H) Income Taxes (continued)
The Company accounts for income taxes using the asset and liability approach
under Statement of Financial Accounting Standards No. 109, ("SFAS 109").
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under SFAS
109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
A valuation allowance is provided for certain deferred tax assets if it is
more likely than not that the Company will not realize tax assets through
future operations.
(I) Stockholders' Equity
Stock Option Agreements
Under the 2000 Stock Incentive Plan (the "Plan"), the Company is authorized
to grant stock options to key employees, officers, and directors of the
Company (or its parent corporation), non-employee members of the Board of
Directors of the Company (or its parent), and consultants who provide
valuable services to the Company. Any options outstanding at date of
plan termination will remain in effect. Under the plan, 450,000 shares have
been authorized for grant or issuance. Stock options granted under the Plan
shall be granted at an option price not less than 85% of the fair market
value for options granted to employees, or less than 100% of the fair market
value for options granted to non-employees. The fair market value of the
stock is as of the date the option is granted. Most options granted under
the Plan to date expire five (5) years from the date of their respective
grant and all were granted at fair market value at the date of grant.
Options granted prior to May 31, 1995, generally vested on the date of grant
and expired through August 1999.
During the year ended May 31, 2002, the Company granted 20,000 options to
purchase shares of the Company's common stock at an exercise price of $0.40
to an employee of the Company for services rendered. The options have a
term of one year. Management recorded $0 intrinsic value with respect to
these options.
During the year ended May 31, 2002, the Company granted 113,000 options to
purchase shares of the Company's common stock at an exercise price of $0.30
to its' Chief Executive Officer in lieu of salary. The options vest over
three years and have a term of five years. Management recorded $0 intrinsic
value with respect to these options.
During the year ended May 31, 2003, the Company granted 70,000 options to
purchase shares of the Company's common stock at an exercise price of $0.26
to certain employees of the Company for services rendered. The options vest
over four years and have a term of five years. Management recorded $0
intrinsic value with respect to these options.
LANCER ORTHODONTICS, INC.
Notes to Condensed Consolidated Financial Statements - continued
During the year ended May 31, 2003, the Company granted 40,000 options to
purchase shares of the Company's common stock at an exercise price of $0.28
to an employee of the Company for services rendered. The options vest over
four years and have a term of five years. Management recorded $0 intrinsic
value with respect to these options.
During the year ended May 31, 2003, the Company granted 30,000 options to
purchase shares of the Company's common stock at an exercise price of $0.28
to certain employees of the Company for services rendered. The options vest
over four years and have a term of five years. Management recorded $0
intrinsic value with respect to these options.
On June 2, 2003, the Company granted 120,000 stock options to purchase shares
of the Company's common stock at an exercise price of $0.43 per share as
pursuant to terms of the employment agreement between the Company and Dan
Castner, the Vice President of Sales and Marketing. The options vest over
four years and have a term of five years. Management recorded $0 intrinsic
value with respect to these options.
On June 2, 2003, the Company granted 52,500 stock options to purchase shares
of the Company's common stock at an exercise price of $0.43 per share to
directors of the Company for services rendered. The options vest over two
years and have a term of five years. Management recorded $0 intrinsic value
with respect to these options.
On June 2, 2003, the Company granted 75,000 stock options to purchase shares
of the Company's common stock at an exercise price of $0.43 per share to its
Chief Executive Officer in lieu of salary. The options vest over three
years and have a term of five years. Management recorded $0 intrinsic value
with respect to these options.
SFAS 148 Pro Forma Information
The following summary presents the options granted, exercised, expired, and
outstanding as of November 30, 2003:
Weighted
Average
Number of Shares Exercise
Employee Non-employee Total Price
Outstanding, May 31, 2003 428,500 2,000 430,500 $0.53
Granted 247,500 -- 247,500 $0.43
Exercised -- -- -- --
Expired 94,000 2,000 96,000 $0.95
Outstanding, November 30, 2003 582,000 0 582,000 $0.43
LANCER ORTHODONTICS, INC.
Notes to Condensed Consolidated Financial Statements - continued
(J) Net Loss per Common Share and Dividends
Lancer 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.
Basic and diluted net loss per share is computed using the weighted average
number of common shares outstanding during the period. Potentially dilutive
securities are excluded from the diluted net loss per share calculation, as
the effect would be anti-dilutive. Potentially dilutive shares not
included are 582,000 shares for outstanding employee stock options.
(K) Financial Information About Foreign and Domestic Operations and
Export Sales
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
11/30/03 11/30/02 11/30/03 11/30/02
Sales to unaffiliated customers:
United States $ 783,526 $812,304 $1,517,643 $1,566,901
Europe 476,838 507,954 785,466 796,389
Central and South America 75,418 20,936 174,314 80,176
Middle East 73,735 86,611 130,516 102,694
Other Foreign 156,135 77,099 275,820 244,243
$1,565,652 $1,504,904 $2,883,759 $2,790,403
No other geographic concentrations exist where net sales exceed 10% of
total net sales.
Sales or transfers between geographic areas none none
11/30/03 05/31/03
Long-lived Assets:
United States $317,323 $164,000
Mexico 120,301 59,000
$437,624 $223,000
LANCER ORTHODONTICS, INC.
Notes to Condensed Consolidated Financial Statements - continued
(L) Related Party Transactions
In April 2003, Lancer de Mexico entered into a manufacturing subcontractor
agreement with Biomerica, Inc., to provide manufacturing services in
Mexicali, Mexico. The agreement requires reimbursement from Biomerica for
discrete expenses such as payroll, shipping, and customs fees; lease and
security deposits of approximately $2,000 and $1,100 per month,
respectively; and service fees of approximately $2,900 per month. The
accompanying consolidated balance sheet includes a total receivable of
approximately $4,516 due from Biomerica at November 30, 2003 for other
expenses to be reimbursed.
(M) Directors and Officers Insurance
Under its bylaws, the Company has agreed to indemnify its officers and
directors for certain events or occurrences arising as a result of the
officer or director's serving in such capacity. The term of the
indemnification period is for the officer's or director's lifetime. The
maximum potential amount of future payments the Company could be required
to make under these indemnification agreements is unlimited. However, the
Company has a directors and officer liability insurance policy that limits
its exposure and enables it to recover a portion of any future amounts paid.
As a result of its insurance policy coverage, the Company believes the
estimated fair value of these indemnification agreements is minimal and has
no liabilities recorded for these agreements as of November 30, 2003. The
Company enters into indemnification provisions under (i) its agreements with
other companies in its ordinary course of business, typically with business
partners, contractors, and customers, landlords and (ii) its agreements with
investors. Under these provisions the Company generally indemnifies and hold
harmless the indemnified party for losses suffered or incurred by the
indemnified party as a result of the Company's activities or, in some cases,
as a result of the indemnified party's activities under the agreement. These
indemnification provisions often include indemnifications relating to
representations made by the Company with regard to intellectual property
rights. These indemnification provisions generally survive termination of
the underlying agreement. In addition, in some cases, the Company has agreed
to reimburse employees for certain expenses and to provide salary
continuation during short-term disability. The maximum potential amount of
future payments the Company could be required to make under these
indemnification provisions is unlimited. The Company has not incurred
material costs to defend lawsuits or settle claims related to these
indemnification agreements. As a result, the Company believes the estimated
fair value of these agreements is minimal. Accordingly, the Company has no
liabilities recorded for these agreements as of November 30, 2003.
LANCER ORTHODONTICS, INC.
Notes to Condensed Consolidated Financial Statements - continued
(N) Recent Accounting Pronouncements
In June 2001, the FASB issued SFAS No. 143, "ACCOUNTING FOR ASSET RETIREMENT
OBLIGATIONS", which requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred
with the associated asset retirement costs being capitalized as a part of
the carrying amount of the long-lived asset. SFAS No. 143 also includes
disclosure requirements that provide a description of asset retirement
obligations and reconciliation of changes in the components of those
obligations. The statement is effective for fiscal years beginning after
June 15, 2002. The Company does not expect the adoption of SFAS No. 143 to
have a material effect on the Company's consolidated financial position or
results of operations.
In June 2002, the FASB issued SFAS No. 146, "ACCOUNTING FOR COSTS ASSOCIATED
WITH EXIT OR DISPOSAL ACTIVITIES," which updates accounting and reporting
standards for personnel and operational restructurings. The Company was
required to adopt SFAS No. 146 for exit, disposal or other restructuring
activities that are initiated after December 31, 2002, with early
application encouraged. The Company adoption of SFAS No. 146 did not have a
material effect on the Company's consolidated financial position or results
of operations.
In November 2002, FIN No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness
of Others," was issued. FIN 45 requires that upon issuance of a guarantee,
a guarantor must recognize a liability for the fair value of an obligation
assumed under a guarantee. FIN 45 also requires additional disclosures by
a guarantor in its interim and annual financial statements about the
obligations associated with guarantees issued. The recognition provisions
of FIN 45 are effective for guarantees issued after December 31, 2002, while
the disclosure requirements were effective for financial statements for
periods ending after December 15, 2002. The adoption of FIN 45 did not have
a material impact on the Company's consolidated financial position or results
of operations.
In January 2003, FIN No. 46, "CONSOLIDATION OF VARIABLE INTEREST ENTITIES"
was issued. This interpretation clarifies the application of Accounting
Research Bulletin No. 51, " Financial Statements," relating to consolidation
of certain entities. FIN No. 46 will require identification of the Company's
participation in variable interests entities ("VIEs"), which are defined as
entities with a level of invested equity that is not sufficient to fund
future activities to permit them to operate on a stand-alone basis, or whose
equity holders lack certain characteristics of a controlling financial
interest. For entities identified as VIEs, FIN No. 46 sets forth a model to
evaluate potential consolidation based on an assessment of which party to
the VIE, if any, bears a majority of the exposure to its expected losses,
or stands to gain from a majority of its expected returns. FIN No. 46 also
sets forth certain disclosures regarding interests in VIE that are deemed
significant, even if consolidation is not required. The adoption of FIN
No. 46 did not have a material impact on the Company's financial position,
results of operations or cash flows.
LANCER ORTHODONTICS, INC.
Notes to Condensed Consolidated Financial Statements - continued
In April 2003, SFAS No. 149, "AMENDMENT OF STATEMENT 133 ON DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES" was issued. This statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement is effective for contracts entered into or
modified after June 30, 2003. The adoption of this statement did not have
a significant effect on the Company's consolidated financial position or
results of operations.
In May 2003, SFAS No. 150, "ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS
WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY" was issued. This
statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. This statement is effective for financial instruments entered into
or modified after May 31, 2003. The adoption of SFAS No. 150 did not have a
significant effect on the Company's consolidated financial position, results
of operations, or cash flows.
(O) Critical Accounting Policies
The discussion and analysis of our financial condition and results of
operations are based on the consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these consolidated financial
statements requires estimates and assumptions that affect the reported
amounts and disclosures.
We believe the following to be critical accounting policies as they require
more significant judgments and estimates used in the preparation of our
consolidated financial statements. Although we believe that our judgments
and estimates are appropriate and correct, actual future results may differ
from our estimates.
In general, the critical accounting policies that may require judgments or
estimates relate specifically to the recognition of revenue, the Allowance
for Doubtful Accounts, Inventory Reserves for Obsolescence and Declines in
Market Value, Impairment of Long-Lived Assets, Stock Based Compensation,
and Deferred Income Tax Valuation and Allowances.
We recognize product revenues when an arrangement exists, delivery has
occurred, the price is determinable and collection is reasonably assured.
The Allowance for Doubtful Accounts is established for estimated losses
resulting from the inability of our customers to make required payments.
The assessment of specific receivable balances and required reserves is
performed by management and discussed with the audit committee. We have
identified specific customers where collection is probable and have
established specific reserves, but to the extent collection is made, the
allowance will be released. Additionally, if the financial condition of
our customers were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances may be required. Reserves
are provided for excess and obsolete inventory, which are estimated based
on a comparison of the quantity and cost of inventory on hand to
management's forecast of customer demand. Customer demand is dependent on
many factors and requires us to use significant judgment in our forecasting
process. We must also make assumptions regarding the rate at which new
products will be accepted in the marketplace and at which customers will
transition from older products to newer products. Once a reserve is
established, it is maintained until the product to which it relates is sold
or otherwise disposed of, even if in subsequent periods we forecast
demand for the product.
In general, we are in a loss position for tax purposes, and have established
a valuation allowance against deferred tax assets, as we do not believe it
is likely that we will generate sufficient taxable income in future periods
to realize the benefit of our deferred tax assets. Predicting future
taxable income is difficult, and requires the use of significant judgment.
At November 30, 2003, all of our deferred tax assets were reserved.
Accruals are made for specific tax exposures and are generally not material
to our operating results or financial position, nor do we anticipate
material changes to these reserves in the near future.
We have adopted SFAS No. 123, "Accounting for Stock-Based Compensation,"
for disclosure purposes. Under SFAS No. 123, we measure compensation
expense for our stock-based employee compensation plan using the intrinsic
value method prescribed in Accounting Principles Board ("APB") No. 25,
"Accounting for Stock Issued to Employees" and its related interpretations.
We provide pro forma disclosure of the effect on net income or loss as if
the fair value based method prescribed in SFAS No. 123 has been applied in
measuring compensation expense.
We have provided a full valuation reserve related to our substantial deferred
tax assets. In the future, if sufficient evidence of our ability to generate
sufficient future taxable income in certain tax jurisdictions becomes
apparent, we may be required to reduce our valuation allowances, resulting in
income tax benefits in our consolidated statement of operations. We evaluate
the realizability of the deferred tax assets and assess the need for
valuation allowance quarterly. The utilization of the net operating loss
carryforwards could be substantially limited due to restrictions imposed
under federal and state laws upon a change in ownership.
(P) Risks and Uncertainties
License Agreements - Certain of the Company's sales of products are governed
by license agreements with outside third parties. All of such license
agreements to which the Company currently is a party, are for fixed terms
which will expire after ten years from the commencement of the agreement or
upon the expiration of the underlying patents. After the expiration of the
agreements or the patents, the Company is free to use the technology that
had been licensed. There can be no assurance that the Company will be able
to obtain future license agreements as deemed necessary by management. The
loss of some of the current licenses or the inability to obtain future
licenses could have an adverse affect on the Company's financial position
and operations. Historically, the Company has successfully obtained all the
licenses it believed necessary to conduct its business.
LANCER ORTHODONTICS, INC.
Notes to Condensed Consolidated Financial Statements - continued
Distribution - The Company has entered into various exclusive and non-
exclusive distribution agreements (the "Agreements") which generally specify
territories of distribution. The Agreements range in term from one to five
years. The Company may be dependent upon such distributors for the marketing
and selling of its products worldwide during the terms of these agreements.
Such distributors are generally not obligated to sell any specified minimum
quantities of the Company's product. There can be no assurance of the volume
of product sales that may be achieved by such distributors.
Government Regulations - The Company's products are subject to regulation
by the FDA under the Medical Device Amendments of 1976 (the "Amendments").
The Company has registered with the FDA as required by the Amendments. There
can be no assurance that the Company will be able to obtain regulatory
clearances for its current or any future products in the United States
or in foreign markets.
European Community - The Company is required to obtain certification in the
European community to sell products in those countries. The certification
requires the Company to maintain certain quality standards. The Company has
been granted certification. However, there is no assurance that the Company
will be able to retain its certification in the future.
Risk of Product Liability - Testing, manufacturing and marketing of the
Company's products entail risk of product liability. The Company currently
has product liability insurance. There can be no assurance, however, that
the Company will be able to maintain such insurance at a reasonable cost or
in sufficient amounts to protect the Company against losses due to product
liability. An inability could prevent or inhibit the commercialization of
the Company's products. In addition, a product liability claim or recall
could have a material adverse effect on the business or financial condition
of the Company.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
For the six months ended November 30, 2003, net loss increased from net
income of $25,932 at November 30, 2002 to a net loss of $136,207 at
November 30. 2003. For the three months ended November 30, 2003, net income
decreased from net income of $28,863 at November 30, 2002 to net income of
$4,008 at November 30, 2003. The decrease is primarily attributable to
increased marketing costs.
For the six months ended November 30, 2003, net sales increased $93,356
(3.3%) as compared to the six months ended November 30, 2002. For the three
months ended November 30, 2003, net sales increased $60,748 (4.0%) as
compared the three months ended November 30, 2002. International net sales
increased $142,614 (11.7%) and $89,526 (12.9%), respectively, for the six
months and three months ended November 30, 2003, as compared to the six
months and three months ended November 30, 2002. The increase in sales was
primarily in Central and South America. International sales can be affected
by fluctuations in the exchange rate of the host country to the U.S. dollar
and by other economic conditions. Domestic net sales decreased $49,258
(3.1%) and $28,778 (3.5%) respectively, for the six months and three months
ended November 30, 2003, as compared to the six months and three months
ended November 30, 2002.For the six months ended November 30, 2003, cost of
sales as a percentage of sales (72.0%), increased 1.1% as compared to the
six months ended November 30, 2002, which totaled 70.9%. For the three
months ended November 30, 2003, cost of sales as a percentage of sales
(70.3%), increased .2% as compared to the three months ended November 30,
2002. The increase is primarily attributable to increased production costs
and reserve for obsolete inventory.
For the six months and three months ended November 30, 2003, selling and
marketing expenses increased $107,640 (18.6%) and $44,795 (15.0%),
respectively, as compared to the same periods ended November 30, 2002.
The increase is primarily due to increased labor costs.
For the six months and three months ended November 30, 2003, general and
administrative expenses decreased $14,475 (6.5%) and $15,230 (13.7%),
respectively, as compared to the same periods ended November 30, 2002.
The decrease is primarily due to decreased labor costs and professional
fees. For the six months ended November 30, 2003, $7,500 represents the
period expense resulting from the 37,500 shares of common stock to be issued
to the Chief Executive Officer for partial compensation of services,
amortized over calendar year 2003.
For the six months and three months ended November 30, 2003, product
development expense increased $28,679 (92.0%) and $11,362 (71.0%),
respectively, as compared to the same periods ended November 30, 2002.
The increase is attributable to the development of a new product line.
For the six months ended November 30, 2003, interest expense decreased
$3,327 (92.7%) as compared to the same period ended November 30, 2002.
For the three months ended November 30, 2003, interest expense increased
$245 (1,531.3%) as compared to the same period ended November 30, 2002.
The six month decrease is attributable to use of available cash instead of
the line of credit in the early part of the period. The three month
increase is attributable to a decrease in cash.
For the six months ended November 30, 2003, other income decreased $38,735
(77.3%) as compared to the same period ended November 30, 2002. The decrease
is attributable to the insurance claim proceeds received in 2002. For the
three months ended November 30, 2003, other income increased $2,125 (55.6%)
as compared to the same period ended November 30, 2002. The increase is
attributable to services provided by Lancer de Mexico to Biomerica, Inc.,
offset by a decrease due to insurance proceeds received in 2002.
For the six months and three months ended November 30, 2003, rental income
of $2,064 and $1,032, respectively, was realized.
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
The Company's financial condition at November 30, 2003 and its previous two
fiscal year ends was as follows:
11/30/03 05/31/03 05/31/02
Current Assets $3,111,591 $3,448,770 $3,474,312
Current Liabilities 634,578 635,098 634,021
Working Capital 2,477,013 2,813,672 2,840,291
Line of Credit 0 426 65,669
Shareholder Equity 2,986,947 3,115,654 3,011,979
Total Assets 3,621,525 3,750,752 3,646,000
Cash decreased $287,170 during the six months ended November 30, 2003.
Working capital decreased $336,659 during the six months ended November 30,
2003, primarily attributable to a decrease in cash and 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.
At November 30, 2003, Lancer has a $400,000 line of credit with GE Capital
Healthcare Financial Services, which expires January 24, 2004. Borrowings
are made at prime plus 2.0%, however not less than 8.0%, (8.0% at November
30, 2003), and are limited to 80% of accounts receivable less than 90 days
old with a liquidity factor of 94%. At November 30, 2003 the outstanding
balance is $0 and the unused portion available is approximately $326,000.
Lancer is in compliance with its debt covenants at November 30, 2003.
The line of credit is collateralized by substantially all the assets of
Lancer, including inventories, receivables, and equipment. The lending
agreement for the line of credit requires, among other things, that Lancer
maintain a tangible net worth of $2,100,000 and that receivables payments be
sent to a controlled lockbox. In addition to interest, a management fee of
0.25% of the average monthly outstanding loan balance and an unused balance
fee of .0425% on the average monthly unused portion available are required.
Lancer is not required to maintain compensating balances in connection with
this lending agreement.
In October 2003 the line of credit was extended to January 24, 2004 by GE
Capital Healthcare Financial Services so that Lancer could explore other
financing options. An agreement with another financing institution is in the
process of being finalized.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Factors That May Affect Future Results
You should read the following factors in conjunction with the factors
discussed elsewhere in this and our other filings with the SEC and in
materials incorporated by reference in these filings. The following is
intended to highlight certain factors that may affect the financial
condition and results of operations of Lancer and are not meant to be an
exhaustive discussion of risks that apply to companies such as Lancer.
Like other businesses, Lancer is susceptible to macroeconomic downturns in
the United States or abroad, as were experienced in fiscal year 2002, that
may affect the general economic climate and performance of Lancer or its
customers. Aside from general macroeconomic downturns, the additional
material factors that could affect future financial results include, but
are not limited to: Terrorist attacks and the impact of such events;
diminished access to raw materials that directly enter into our
manufacturing process; shipping; labor disruption or other major degradation
of the ability to ship our products to end users; inability to successfully
control our margins which are affected by many factors including competition
and product mix; protracted shutdown of the US border due to an escalation
of terrorist or counter terrorist activity; the operating and financial
covenants contained in our credit line which could limit our operating
flexibility, any changes in our business relationships with international
distributors or the economic client they operate in; any event that has a
material adverse impact on our foreign manufacturing operations may
adversely affect our operations as a whole, failure to manage the future
expansion of our business could have a material adverse effect on our
revenues and profitability; possible costs in complying with government
regulations and the delays in receiving required regulatory approvals or the
enactment of new adverse regulations or regulatory requirements; numerous
competitors, some of which have substantially greater financial and other
resources than we do; potential claims and litigation brought by patients or
dental professionals alleging harm caused by the use of or exposure to our
products; quarterly variations in operating results caused by a number of
factors, including business and industry conditions and other factors beyond
our control. All these factors make it difficult to predict operating results
for any particular period.
Item 4. PROCEDURES AND CONTROLS
Within the 90 days prior to the date of this report, Lancer carried out an
evaluation, under the supervision and with the participation of Lancer's
management, including the Company's Chief Executive Officer and Director of
Financial Planning, of the effectiveness of the design and operation of
Lancer's disclosure controls and procedures pursuant to Exchange Act Rule
13a-14. Based upon that evaluation, the Chief Executive Officer and Director
of Financial Planning concluded that Lancer's disclosure controls and
procedures are effective. There were no significant changes in Lancer's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation.
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 January 20, 2004 By /s/ Zackary Irani
Zackary Irani,
Chief Executive Officer
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Zackary Irani, certify that the Quarterly Report on Form 10-QSB for the
quarter ended November 30, 2003, fully complies with the requirements in
Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, and that
the information contained in such Quarterly Report fairly presents, in all
material respects, the financial condition and results of operations of
Lancer Orthodontics, Inc. for the periods being presented.
/s/ Zackary Irani
Zackary Irani
Chief Executive Officer
Date: January 20, 2004
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Zackary Irani, certify that:
1. I have reviewed this Quarterly Report on Form 10-QSB of Lancer
Orthodontics, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects,
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of our internal control over financial reporting,
to the registrant's auditors and the audit committee of the registrant's
board of directors (or other persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: January 20, 2004
/s/Zackary Irani
Chief Executive Officer
CERTIFICATION OF ACCOUNTING MANAGER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, John Dodge, certify that the Quarterly Report on Form 10-QSB for
the quarter ended November 30, 2003, fully complies with the requirements
in Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, and
that the information contained in such Quarterly Report fairly presents, in
all material respects, the financial condition and results of operations
of Lancer Orthodontics, Inc. for the periods being presented.
/s/ John Dodge
John Dodge
Director of Financial Planning
Date: January 20, 2004
CERTIFICATION OF ACCOUNTING MANAGER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John Dodge, certify that:
1. I have reviewed this Quarterly Report on Form 10-QSB of Lancer
Orthodontics, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects,
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of our internal control over financial reporting,
to the registrant's auditors and the audit committee of the registrant's
board of directors (or other persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: January 20, 2004
/s/John Dodge
Director of Financial Planning