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, 2004 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 April 12, 2004: 2,746,945
Transitional small business disclosure format (check one):
Yes X No
LANCER ORTHODONTICS, INC.
FORM 10-QSB
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)
02/29/04
ASSETS
CURRENT ASSETS:
Cash $170,471
Accounts receivable, less allowances for sales
returns and doubtful receivables of $134,918 1,232,258
Inventories, net of reserve of $212,225 1,745,068
Related party receivables 9,028
Prepaid expenses 54,494
Other receivables 50,772
Total current assets 3,262,091
PROPERTY AND EQUIPMENT, at cost 2,925,626
Less: Accumulated depreciation (2,416,842)
508,784
INTANGIBLE ASSETS:
Marketing and distribution rights, net 16,600
OTHER ASSETS 49,485
Total assets $3,836,960
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $416,629
Accrued payroll and related benefits 164,528
Accrued professional fees 39,468
Accrued royalties 18,779
Other current liabilities 42,508
Current portion term loan 25,004
Total current liabilities 706,916
LONG TERM PORTION TERM LOAN 72,927
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, 97,596 shares subscribed 31,500
Accumulated deficit (1,818,728)
Total stockholders' equity 3,057,117
Total liabilities and stockholders' equity $3,836,960
LANCER ORTHODONTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
02/29/04 02/28/03 02/29/04 02/28/03
NET SALES $1,638,962 $1,507,626 $4,522,721 $4,298,029
COST OF SALES 1,149,066 1,084,096 3,225,683 3,062,278
Gross Profit 489,896 423,530 1,297,038 1,235,751
OPERATING EXPENSES:
Sales & Marketing 303,749 251,182 991,619 831,412
General & Administrative 102,965 115,875 309,680 337,063
Product Development 27,377 34,842 87,238 66,024
TOTAL OPERATING EXPENSES 434,091 401,899 1,388,537 1,234,499
INCOME (LOSS) FROM OPERATIONS 55,805 21,631 (91,499) 1,252
OTHER INCOME (EXPENSE):
Interest Expense (625) (37) (886) (3,625)
Other Income, net 11,266 (991) 22,624 49,102
TOTAL OTHER INCOME (LOSS) 10,641 (1,028) 21,738 45,477
INCOME (LOSS) BEFORE INC TAXES 66,446 20,603 (69,761) 46,729
INCOME TAXES 26 1,224 26 1,418
NET INCOME (LOSS) $66,420 $19,379 $(69,787) $45,311
NET INCOME (LOSS) PER WEIGHTED AVERAGE OF COMMON SHARES
Weighted average number of
common shares 2,290,695 2,196,233 2,281,320 2,196,233
BASIC $.03 $.01 $(.03) $.02
Weighted average number of shares
used in calculation of diluted
earnings per share 2,409,026 2,196,233 2,399,651 2,196,233
DILUTED $.03 $.01 $(.03) $.02
LANCER ORTHODONTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED
02/29/04 02/28/03
Cash flows from operating activities:
Net (loss) income $(69,787) $45,311
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Depreciation and amortization 47,645 64,210
Provision for losses on accounts receivable 29,918 (553)
Provision for losses on inventory 75,000 45,000
Common stock issued in lieu of salary 11,250 26,250
Net change in operating assets and liabilities:
Accounts receivable (162,736) (5,065)
Inventories (71,052) 396,353
Related party receivables 4,862 --
Prepaid expenses 992 16,195
Insurance claim receivable -- 81,758
Other receivables (31,241) --
Accounts payable 19,767 (143,162)
Accrued payroll and related benefits 23,377 8,331
Other current liabilities 4,096 48,756
Net cash (used in) provided by operating activities (117,909) 583,384
Cash flows from investing activities:
Purchases of property and equipment (314,447) (74,666)
Other assets (6,085) (3,651)
Net cash used in investing activities (320,532) (78,317)
Cash flows from financing activities:
Net decrease in line of credit (426) (65,191)
Proceeds from term loan 97,931 --
Cash flows (used in) provided by financing activities 97,505 (65,191)
Net change in cash (340,936) 439,876
Cash, beginning of period 511,407 128,585
Cash, end of period $170,471 $568,461
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $886 $3,625
Shares of common stock
issued for services to be rendered $11,250 $14,000
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 February 29, 2004.
(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 nine months ended February 29, 2004 as follows:
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
02/29/04 02/28/03 02/29/04 02/28/03
Net income (loss), as reported $66,420 $19,379 $(69,787) $45,311
Add: Stock-based employee compensation
expense recorded -- -- -- --
Less: Stock-based employee compensation
expense determined under fair value
calculations (5,597) (2,410) (32,303) (11,701)
Net income (loss) pro forma 60,823 16,969 (102,090) 33,610
Basic income (loss) per share, as
reported: $.03 $.01 $(.03) $.02
Add: Stock-based employee compensation
expense recorded -- -- -- --
Less: Stock-based employee compensation
determined under fair value
calculations .00 .00 (.01) (.01)
Proforma $0.03 $0.01 $(0.04) $0.01
Diluted income (loss) per share, as
reported: $0.00 $0.01 $(0.03) $.02
Add: Stock-based employee compensation
expense recorded -- -- -- --
Less: Stock-based employee compensation
determined under fair value
calculations .00 .00 (.01) (.01)
Pro forma $0.00 $0.01 $(0.04) $0.01
(E) Property and Equipment
Costs in construction in progress consist of six projects; a new information
system, two for new product lines, two for existing equipment replacements,
and one for new trade show equipment. Costs capitalized into the new
information system at February 29, 2004 are $43,682, with approximately
$27,000 in additional costs to complete the project. Costs capitalized for
the product lines are $321,818, with approximately $33,000 required for
completion. Costs capitalized for replacement equipment are $14,210, with
approximately $30,000 required for completion. Costs capitalized for trade
show equipment are $17,167, with approximately $17,000 required for
completion.
(F) Financing
At February 29, 2004, Lancer has a $400,000 line of credit with Cuyamaca Bank,
which expires January 8, 2005. Borrowings are made at prime plus 2.0%, (6% at
February 29, 2004) and are limited to 80% of accounts receivable less than 90
days old. The outstanding balance at February 29, 2004, is $0 and the unused
portion available is approximately $400,000. Lancer is in compliance with its
debt covenants at February 29, 2004.
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 net worth of $2,700,000 and that a zero outstanding balance be
maintained for 30 consecutive days during the term.
Lancer also has a term loan for $100,000 with Cuyamaca Bank that matures
January 8, 2008. This loan requires 48 monthly payments of approximately
$2,300 (principal and interest) at an interest rate of prime plus 2% (6% at
February 29, 2004). The outstanding balance at February 29, 2004 is
approximately $98,000, with approximately $25,000 classified as a current
liability. The term loan is collateralized by substantially all of the
assets of the corporation.
(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.
LANCER ORTHODONTICS, INC.
Notes to Condensed Consolidated Financial Statements - continued
(G) Commitments and Contingencies - continued
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 February 29,
2004, this obligation was approximately $313,000. 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 April 30, 2004, as extended, which requires monthly
rentals that increase annually, from $2,900 per month in 1994 to $7,527 per
month in 2009, with no payment required February through April 2004.
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 $6,763 at February 29, 2004, and is included in accrued
liabilities in the accompanying consolidated balance sheet. Total rental
expense for this facility for the nine months ended February 29, 2004, was
approximately $55,000.
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 nine months ended
February 29, 2004, was approximately $77,000.
The new Lancer Orthodontics de Mexico lease also required 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 February 29, 2004, other assets on the consolidated
balance sheet includes approximately $45,000 for security deposit paid on
the Mexico location and approximately $4,400 paid on the San Marcos location
previously.
LANCER ORTHODONTICS, INC.
Notes to Condensed Consolidated Financial Statements - continued
(G) Commitments and Contingencies - continued
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 and
extended through December 2004, 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 nine months ended February 29, 2004 was $3,096.
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.
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.
LANCER ORTHODONTICS, INC.
Notes to Condensed Consolidated Financial Statements - continued
(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.
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.
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.
LANCER ORTHODONTICS, INC.
Notes to Condensed Consolidated Financial Statements - continued
(I) Stockholders' Equity (continued)
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 February 29, 2004:
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 $0.94
Outstanding, February 29, 2004 582,000 0 582,000 $0.44
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 antidilutive. 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 NINE
MONTHS ENDED MONTHS ENDED
02/29/04 02/28/03 02/29/04 02/28/03
Sales to unaffiliated customers:
United States $832,763 $756,081 $2,350,406 $2,322,982
Europe 540,339 480,378 1,325,805 1,276,767
Central and South America 69,040 82,727 243,354 162,903
Middle East 79,656 86,611 210,172 189,305
Other Foreign 117,164 101,829 392,984 346,072
$1,638,962 $1,507,626 $4,522,721 $4,298,029
No other geographic concentrations exist where net sales exceed 10% of
total net sales.
Sales or transfers between geographic areas none none
02/29/04 05/31/03
Long-lived Assets:
United States $387,476 $164,000
Mexico 121,308 59,000
$508,784 $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 $9,000
due from Biomerica at February 29, 2004 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 February 29, 2004. 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 February 29, 2004.
(N) Subsequent - Private Offering
The Lancer Board of Directors approved a private offering of Common Stock,
effective March 23, 2004, and ending April 12, 2004. The offering, to
officers, board members, and key employees resulted in the sale of 450,000
new shares at $.60 per share with total proceeds of $270,000. In addition,
one warrant exercisable for each share purchased (450,000 warrants) will
be issued at $.85 per share. These warrants shall be exercisable until
April 12, 2009. (Exhibits 1 and 2).
LANCER ORTHODONTICS, INC.
Notes to Condensed Consolidated Financial Statements - continued
(O) Subsequent - CEO
The Board of Directors also voted that effective April 12, 2004, Allen
Barbieri will become Chief Executive Officer on a part time basis. Mr.
Barbieri will receive no cash compensation, but will instead be paid 31,250
shares of restricted Common Stock per quarter, beginning in the 4th quarter
of 2004. In addition, Mr. Barbieri has been appointed to the Board of
Directors and will be given 17,500 options to purchase Common Stock at $.60
per share, exercisable 50% immediately and 50% at April 12, 2005. The
options expire in five years. (Exhibit 3).
(P) Recent Accounting Pronouncements
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.
(Q) 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.
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.
LANCER ORTHODONTICS, INC.
Notes to Condensed Consolidated Financial Statements - continued
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
Certain information contained herein (as well as information included in oral
statements or other written statements made or to be made by Lancer) contains
statements that are forward-looking, such as statements relating to
anticipated future revenues of the Company and success or current product
offerings. Such forward-looking information involves important risks and
uncertainties that could significantly affect anticipated results in the
future, and accordingly, such results may differ materially from those
expressed in any forward-looking statements made by or on behalf of Lancer.
The potential risks and uncertainties include, among others, fluctuations in
the Company's operating results. These risks and uncertainties also include
the success of the Company in raising needed capital, the continual demand
for the Company's products, competitive and economic factors of the
marketplace, availability of raw materials, and the state of the economy.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof, and the Company
undertakes no obligation to update these forward-looking statements.
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
February 29, 2004, 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.
For the nine months ended February 29, 2004, net income decreased from net
income of $45,311 at February 28, 2003 to a net loss of $69,787 at February
29, 2004. For the three months ended February 29, 2004, net income increased
from net income of $19,379 at February 28, 2003 to net income of $66,420 at
February 29, 2004. The nine month decrease is primarily due to the increase
in sales and marketing expense. The three month increase is primarily due to
an increase in selling prices.
For the nine months ended February 29, 2004, net sales increased $224,692
(5.2%) as compared to the nine months ended February 28, 2003. For the three
months ended February 29, 2004, net sales increased $131,336 (8.7%) as
compared to the three months ended February 28, 2003. These increases are
primarily due to an increase in prices. International net sales increased
$197,268 (10.0%) and $54,654 (7.3%), respectively, for the nine months and
three months ended February 29, 2004, as compared to the nine months and
three months ended February 28, 2003. The nine month increase in sales was
primarily in Europe and South America. The three month increase was
primarily in Europe. 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, although not in the current quarter. Domestic net sales
increased $27,424 (1.2%) and $76,682 (10.1%), respectively, for the nine
months and three months ended February 29, 2004, as compared to the nine
months and three months ended February 28, 2003. For the nine months ended
February 29, 2004 cost of sales as a percentage of sales (71.3%) was
consistent with the percentage for the nine months ended February 28, 2003.
For the three months ended February 29, 2004 cost of sales as a percentage of
sales (70.1%) decreased 1.8% as compared to the three months ended February
28, 2003, which totaled 71.9%. The decrease is primarily attributable to an
increase in selling prices.
For the nine months and three months ended February 29, 2004, selling and
marketing expenses increased $160,207 (19.3%) and $52,567 (20.9%),
respectively, as compared to the same periods ended February 28, 2003. The
increase is primarily due to increased labor and advertising costs, offset by
a decrease in trade show costs. In previous years the costs of the annual
trade show held in May were accrued for over the course of the year. For the
current year, all costs will be reflected in the month of the show.
For the nine months and three months ended February 29, 2004, general and
administrative expenses decreased $27,383 (8.1%) and $12,910 (11.1%)
respectively, as compared to the nine months and three months ended February
28, 2003. The decreases are primarily due to a decrease in labor costs and
professional fees. For the nine months ended February 29, 2004, $11,250
represents the period expense resulting from the 28,125 shares of common
stock to be issued to the Chief Executive Officer for partial compensation
of services amortized over calendar years 2003 and 2004.
For the nine months ended February 29, 2004, product development expense
increased $21,214 (32.1%) as compared to the same period ended February 28,
2003, attributable to the development of a new product line. For the three
months ended February 29, 2004, product development decreased $7,465 (21.4%)
as compared to the same period ended February 28, 2003. Since sales of the
new product line occurred in the quarter ended February 29, 2004, current
manufacturing costs are being classified as costs of sales, causing the
comparison decrease of product development costs.
For the nine months ended February 29, 2004, interest expense decreased
$2,739 (75.6%) as compared to the same period ended February 28, 2003,
primarily attributable to the use of available cash instead of the line of
credit for product development and equipment purchases. For the three months
ended February 29, 2004, interest expense increased $588 (1,589%) as compared
to the same period ended February 28, 2003, primarily attributable to the
$100,000 term loan acquired for the purchase of equipment (Notes E & F).
For the nine months ended February 29, 2004, other income decreased $26,478
(53.9%) as compared to the same period ended February 28, 2003, primarily
attributable to the insurance proceeds received in 2003. For the three
months ended February 29, 2004, other income increased $12,257 (1,237%) as
compared to the same period ended February 28, 2003, primarily attributable
to Lancer de Mexico services provided to Biomerica (note L) and rental
income (note G).
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
Lancer's financial condition at February 29, 2004 (unaudited) and its
previous two fiscal year ends was as follows:
02/28/04 05/31/03 05/31/02
Current Assets $3,262,091 $3,448,770 $3,474,312
Current Liabilities 706,916 635,098 634,021
Working Capital 2,555,175 2,813,672 2,840,291
Line of Credit 0 426 65,669
Term Loan 97,931 0 0
Shareholder Equity 3,057,117 3,115,654 3,011,979
Total Assets 3,836,960 3,750,752 3,646,000
Cash decreased $340,936 during the nine months ended February 29, 2004,
primarily due to the development of two new product lines and the purchase
of new equipment.
Working capital decreased $258,497 during the nine months ended February 29,
2004, primarily attributable to the decrease in cash. Lancer's management
believes that it will be able to finance Lancer's operations through cash
flow and available borrowings through the current fiscal year and ensuing
fiscal years. This assumption is based upon a reasonable level of demand
for our products.
At February 29, 2004, Lancer has a $400,000 line of credit with Cuyamaca
Bank, which expires January 8, 2005. Borrowings are made at prime plus 2.0%,
(6% at February 29, 2004) and are limited to 80% of accounts receivable less
than 90 days old. The outstanding balance at February 29, 2004, is $0 and
the unused portion available is approximately $400,000. Lancer is in
compliance with its debt covenants at February 29, 2004.
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 net worth of $2,700,000 and that a zero outstanding balance be
maintained for 30 consecutive days during the term.
Lancer also has a term loan for $100,000 with Cuyamaca Bank that matures
January 8, 2008. This loan requires 48 monthly payments of approximately
$2,300 (principal and interest) at an interest rate of prime plus 2% (6% at
February 29, 2004). The outstanding balance at February 29, 2004 is
approximately $98,000, with approximately $25,000 classified as a current
liability. The term loan is collateralized by substantially all of the
assets of the corporation.
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 AND USE OF PROCEEDS. The following shares
of restricted common stock were issued after the nine months ended
February 29, 2004, as a subsequent event.
Class or Persons Price
Date Title Amount Sold to per share Total
4/12/04 Common 450,000 qualified investors $.60 $270,000
The exemption relied upon for the issuance of the unregistered shares was
that the shares were issued to qualified investors within the meaning of
Securities and Exchange Commission Rule 501, Regulation D.
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, 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 February 29,2004 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: April 13, 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: April 13, 2004
/s/Zackary Irani
Chief Executive Officer
CERTIFICATION OF DIRECTOR OF FINANCIAL PLANNING
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 February 29,2004 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: April 13, 2004
CERTIFICATION OF DIRECTOR OF FINANCIAL PLANNING
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: April 13, 2004
/s/John Dodge
Director of Financial Planning