10QSB/A 1 qsb083102b.txt SECURITIES AND EXCHANGE COMMISSION Washington DC 20549 FORM 10-QSB Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended August 31, 2002 Commission File No. 0-5920 LANCER ORTHODONTICS, INC. (Exact Name of Small Business Issuer as Specified in its Charter) CALIFORNIA 95-2497155 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 253 Pawnee Street, San Marcos, California 92069 (Address of Principal Executive Offices) Issuer's telephone number, including area code: (760) 744-5585 Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports, and (2) has been subject to such filing requirements for the past 90 days. Yes X No State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 2,196,233 Traditional small business disclosure format (check one): Yes X No PART I. FINANCIAL INFORMATION Item 1. SUMMARIZED FINANCIAL INFORMATION LANCER ORTHODONTICS, INC. CONDENSED BALANCE SHEET (UNAUDITED) 8/31/02 ASSETS CURRENT ASSETS: Cash $ 208,428 Accounts receivable, less allowances for sales returns and doubtful receivables of $181,136 1,040,222 Inventories, net of reserve of $203,608 2,019,779 Prepaid expenses 49,231 Total current assets 3,317,660 PROPERTY AND EQUIPMENT, at cost 2,412,486 Less: Accumulated depreciation (2,368,554) 43,932 INTANGIBLE ASSETS: Marketing and distribution rights, net 53,950 Technology use rights, net 16,207 70,157 OTHER ASSETS 35,546 Total assets $3,467,295 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 280,103 Accrued payroll and related benefits 108,845 Other current liabilities 62,840 Line of credit 1,208 Total current liabilities 452,996 Mandatorily redeemable convertible preferred stock Series C, $.06 noncumulative annual dividend, $.75 par value, 250,000 shares authorized; 0 shares issued and outstanding in 2001 ($.75 liquidation preference) -- COMMITMENTS AND CONTINGENCIES -- STOCKHOLDERS' EQUITY: Redeemable convertible preferred stock, Series D, $.04 noncumulative annual dividend; $.50 par value: Authorized 500,000 shares; 0 shares issued and outstanding ($.50 liquidation preference per share) -- Common stock, no par value: authorized 50,000,000 shares; issued and outstanding 2,196,233 4,844,345 Prepaid expense ( 7,000) Accumulated deficit (1,823,046) Total stockholders' equity 3,014,299 Total liabilities and stockholders' equity $3,467,295 LANCER ORTHODONTICS, INC. CONDENSED STATEMENTS OF OPERATIONS AND CONDENSED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED) FOR THE THREE MONTHS ENDED 8/31/02 8/31/01 NET SALES $1,285,499 $1,434,788 COST OF SALES 923,580 1,077,398 --------- --------- Gross Profit 361,919 357,390 OPERATING EXPENSES: Selling 282,101 377,447 General & Administrative 110,263 105,818 Product Development 15,186 -- ------- ------- TOTAL OPERATING EXPENSES 407,550 483,265 ------- ------- LOSS FROM OPERATIONS ( 45,631) (125,875) OTHER INCOME (EXPENSE): Interest Expense ( 3,572) ( 3,222) Other Income (Expense), net 46,272 760 ------ ------ TOTAL OTHER INCOME (EXPENSE) 42,700 ( 2,462) ------ ------- LOSS BEFORE INCOME TAXES ( 2,931) (128,337) INCOME TAXES -- -- ------ ------- NET LOSS ( 2,931) (128,337) OTHER COMPREHENSIVE INCOME -- -- ------- ------- COMPREHENSIVE LOSS $( 2,931) $(128,337) ======= ======= NET LOSS PER WEIGHTED AVERAGE OF COMMON SHARES Weighted average number of common shares 2,196,233 2,098,620 BASIC $( .00) $( .06) Weighted average number of shares used in calculation of diluted earnings per share 2,196,233 2,098,620 DILUTED $( .00) $( .06) LANCER ORTHODONTICS, INC. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED 8/31/02 8/31/01 Cash flows from operating activities: Net loss $( 2,931) $(128,337) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization 24,117 26,856 Provision for losses on accounts receivable 1,136 ( 2,059) Provision for losses on inventory 15,000 9,000 Common stock issued for services 5,250 -- Net change in operating assets and liabilities: Accounts receivable 80,577 ( 56,726) Inventories 52,980 (150,427) Prepaid expenses 5,044 24,244 Insurance claim receivable 81,758 -- Accounts payable (139,250) 263,750 Accrued payroll 13,852 ( 23,954) Other current liabilities 8,835 6,108 ------- ------- Net cash provided by (used in) operating activities 146,368 ( 31,545) Cash flows from investing activities: Purchases of property and equipment ( 2,064) -- Other assets -- ( 7,786) ------- ------- Net cash used in investing activities ( 2,064) ( 7,786) Cash flows from financing activities: Increase (decrease) in line of credit ( 64,461) 20,000 ------- ------- Cash flows provided by (used in) financing activities ( 64,461) 20,000 ------- ------- Net change in cash 79,843 ( 19,331) Cash, beginning of period 128,585 131,550 ------- ------- Cash, end of period $208,428 $112,219 ======= ======= Supplemental disclosure of cash flow information: Cash paid for: Interest $ 3,572 $ 3,222 The Company issued 20,000 shares of common stock valued at $7,000 for services to be rendered $ 7,000 $ -- LANCER ORTHODONTICS, INC. Notes to Financial Statements (A) Basis of Presentation The accompanying unaudited condensed financial statements have been prepared in accordance with the instructions to Form 10-QSB and therefore do not include all information and notes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles. The unaudited condensed financial statements include the accounts of Lancer Orthodontics, Inc. (the "Company"). The operating results for interim periods are unaudited and are not necessarily an indication of the results to be expected for the full fiscal year. In the opinion of management, the results of operations as reported for the interim periods reflect all adjustments which are necessary for a fair presentation of operating results. Reference is made to Note 2 of the Notes to Financial Statements contained in the Company's Annual Report on Form 10-KSB for the fiscal year ended May 31, 2002, for a summary of significant accounting policies utilized by the Company. (B) Organization The Company was incorporated on August 25, 1967, in the state of California, for the purpose of engaging in the design, manufacture, and distribution of orthodontic products. The Company has a manufacturing facility in Mexico where a majority of its inventory is manufactured (Note F). The facility is incorporated and is a wholly-owned and consolidated subsidiary of the Company. This subsidiary now also administers services previously provided by an independent manufacturing contractor. The conversion had no material effect on manufacturing operations. The Company also purchases certain orthodontic and dental products for purposes of resale. Sales are made directly to orthodontists world-wide through Company representatives and independent distributors. The Company also sells certain of its products on a private label basis. (C) Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with 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 financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates made by the Company's management include, but are not limited to, allowances for doubtful accounts, allowances for sales returns, the valuation of inventories, and the realizeability of property and equipment through future operations. Actual results could materially differ from those estimates. (D) Stock Based Compensation The Company accounts for stock based compensation under Statement of Financial Accounting Standards No. 123 ("SFAS 123"). SFAS 123 defines a fair value based method of accounting for stock based compensation. However, SFAS 123 allows an entity to continue to measure compensation cost related to stock and stock options issued to employees using the intrinsic method of accounting prescribed by Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees". Entities electing to remain with the accounting method of APB 25 must make pro forma disclosures of net income and earnings per share, as if the fair value method of accounting defined in SFAS 123 had been applied. The Company has elected to account for its stock based compensation to employees under APB 25. (E) Line of Credit At August 31, 2002, the Company has a $400,000 line of credit with a financial institution, through October 24, 2003. Borrowings are made at prime plus 2.0%, however not less than 8.0%, (8.0% at August 31, 2002) and are limited to specified percentages of eligible accounts receivable. The outstanding balance at August 31, 2002 was $1,208 and the unused portion available was approximately $312,000. The Company was in compliance with its debt covenants at August 31, 2002. The line of credit is collateralized by substantially all the assets of the Company, including inventories, receivables, and equipment. The lending agreement for the line of credit requires, among other things, that the Company maintain a tangible net worth of $2,100,000 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. The Company is not required to maintain compensating balances in connection with this lending agreement. (F) 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. Since October 2000, the manufacturing agreement was operated on a month to month basis. During fiscal 2002, the facility in Mexico was incorporated as Lancer Orthodontics de Mexico, ("Lancer de Mexico"), a wholly-owned and consolidated 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. The potential impact for the use of our own facility, in terms of a corporate entity with legal standing in Mexico, is that over a fiscal year Lancer would save approximately $100,000 in service fees over a Mexican contracted corporate entity. Should Lancer discontinue operations in Mexico, it is responsible for accumulated employee seniority obligations as prescribed by Mexican law. At August 31, 2002, this obligation was approximately $246,000. Such obligation is contingent in nature and accordingly has not been accrued in Lancer's financial statements. Leases - The Company 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 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 $7,951 at August 31, 2002, and is included in accrued liabilities in the accompanying balance sheet. Total rental expense for this facility for the three months ended August 31, 2002 was approximately $17,000. The Company has entered into a non-cancelable operating lease for its Mexico facility which expires in March 2006 and requires average monthly rentals of approximately $6,000. Total expense for this facility for the three months ended August 31, 2002 was approximately $18,000. At May 31, 2002, future aggregate minimum lease payments are as follows: Years ending May 31, 2003 $144,545 2004 114,659 2005 70,440 2006 58,700 ------- Total $388,344 Common Stock - The Company's stock is now traded on the OTC Bulletin Board. (G) Income Taxes At May 31, 2002, the Company had net tax operating loss carryforwards of approximately $2,037,000 and business tax credits of approximately $80,000 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, 2002, the Company had net tax operating loss carryforwards of approximately $185,000 and business tax credits of approximately $24,000 available to offset future state income tax liabilities. The state carryforwards expire through the year 2011. (H) Stockholders' Equity The Company has incentive stock option and non-qualified stock option plans for directors, officers, and key employees. The plans provide for the granting of options for common shares at exercise prices equal to or exceeding the fair market value at the date of grant, as determined by the Board of Directors. Options may become exercisable over a period of up to four years from the date of grant and may be exercised over a period of three to seven years from the date of the grant, as determined by the Board of Directors. The Company's shareholders have authorized a total of 357,143 shares to be available for grant under the Company's stock option plan. Options granted prior to May 31, 1995, generally vested on the date of grant and expired through August 1999. During the quarter ended August 31, 2002, 35,000 shares of common stock valued at $12,250 were issued to the Company's Chief Executive Officer for certain management services. The Board of Directors authorized this stock issuance as partial compensation to Mr Irani for services as CEO and Chairman of the Board for the calendar year 2002. General and administrative expense of $5,250 was recognized for the quarter ended August 31, 2002 and $7,000 is shown as prepaid expense in the stockholders equity section of the balance sheet. The Company issued non-qualified options granted to the Chief Executive Officer to purchase 113,000 shares of Common Stock at $.30. These options were granted on December 1, 2001 and are exercisable at the rate of one-third per year and have a term of five years. (I) Net Loss per Common Share and Dividends The Company calculates earnings per share in accordance with Statement of Financial Accounting Standards ("SFAS 128"). SFAS 128 replaces the presentation of primary and fully diluted earnings per share with the presentation of basic and diluted earnings per share. Basic earnings per share excludes dilution and is calculated by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. For all periods presented, no common stock equivalents have been included in the computation of diluted earnings per share as they were determined to be anti-dilutive. EARNINGS PER SHARE (UNAUDITED) FOR THE THREE MONTHS ENDED 8/31/02 8/31/01 Basic Loss per Share: Net loss $( 2,931) $(128,337) Net loss applicable to common shareholders $( 2,931) $(128,337) Weighted average number of common shares 2,196,233 2,098,620 Basic loss per Share $( .00) $( .06) Diluted Loss per Share: Net loss from primary income per common share $( 2,931) $(128,337) Net loss for diluted earnings per share $( 2,931) $(128,337) Weighted average number of shares used in Calculation of diluted earnings per share 2,196,233 2,098,620 Diluted loss per share $( .00) $( .06) The computation of diluted loss per share excludes the effect of incremental common shares attributable to the exercise or outstanding common stock options and warrants because their effect was anti- dilutive due to losses incurred by the Company. As of August 31, 2002, there was a total of 344,000 potential dilutive shares of common stock. (J) Financial Information About Foreign and Domestic Operations and Export Sales FOR THE THREE MONTHS ENDED 8/31/02 8/31/01 Sales to unaffiliated customers: United States $754,597 $742,271 Europe 288,435 439,879 Central and South America 59,240 91,889 Middle East 72,163 48,372 Other Foreign 111,064 112,377 --------- --------- $1,285,499 $1,434,788 No other geographic concentrations exist where net sales exceed 10% of total net sales. Sales or transfers between geographic areas none none (K) Insurance Claim Receivable Management of the Company completed an assessment of two occurrences of theft of inventory located at its wholly-owned and consolidated subsidiary, Lancer de Mexico, in January and April of 2002. The carrying value of the inventory stolen approximated $81,758, valued at standard cost, which was reflected in the May 31, 2002 financial statements as a reduction in inventories and an addition to insurance claim receivable. During the three months ended August 31, 2002, the Company received $134,413 from the insurance carrier; the estimated value of the stolen inventory at net average selling price, less commissions and royalties. The Company recorded other income of $52,655 from the proceeds received in excess of standard cost. In order to deter future thefts, a new security company has been hired and a new security system installed. (L) Recent Accounting Pronouncements In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations", which eliminates the pooling method of accounting for business combinations initiated after June 30, 2001. In addition, SFAS 141 addresses the accounting for intangible assets and goodwill acquired in a business combination. This portion of SFAS 141 is effective for business combinations completed after June 30, 2001. The Company does not expect SFAS 141 will have a material impact on the Company's financial position or results of operations. In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Intangible Assets", which revises the accounting for purchased goodwill and intangible assets. Under SFAS 142, goodwill and intangible assets with indefinite lives will no longer be amortized and will be tested for impairment annually. SFAS 142 is effective for fiscal years beginning after December 15, 2001, with earlier adoption permitted. The adoption of SFAS 142 did not have a material impact on the Company's financial position or results of operations. In August 2001, the FASB issued FAS No. 143, "Accounting for Asset Retirement Obligations." This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to all entities and legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or normal operation of long-lived assets, except for certain obligations of lessees. This statement amends FAS No. 19, "Financial Accounting and Reporting by Oil and Gas Producing Company," and is effective for financial statements issued for fiscal years beginning after June 15, 2002. Management has not yet determined the impact of the adoption of FAS No. 143 on the Company's financial position or results of operations. In October 2001, the FASB issued FASB Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," or SFAS 144. SFAS No. 144 requires that those long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. Therefore, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001 and, generally, is to be applied prospectively. The adoption of SFAS 144 did not have a material impact on the Company's financial position or results of operations. In April 2002, the Financial Accounting Standards Board ("FASB") issued FASB Statement No. 145, "Rescission of FASB Statements No. 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections," to update, clarify and simplify existing accounting pronouncements. FASB Statement No. 4, which required all gains and losses from debt extinguishment to be aggregated and, if material, classified as an extraordinary item, net of related tax effect, was rescinded. Consequently, FASB Statement No. 64, which amended FASB Statement No. 4, was rescinded because it was no longer necessary. The adoption of SFAS 145 did not have a material impact on the Company's financial position or results of operations. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS 146 addresses accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for a cost associated with a exit or disposal activity be recognized and measured initially at fair value when the liability is incurred. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. We do not expect the adoption of this statement to have a material effect on our financial statements. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS For the three months ended August 31, 2002, net loss decreased $125,406 as compared to the three months ended August 31, 2001. The decrease in net loss is primarily attributable to higher gross margins, lower selling expenses, and other income from insurance proceeds. For the three months ended August 31, 2002, net sales decreased $149,289 (10.4%) as compared to the three months ended August 31, 2001. International net sales decreased $161,615, primarily in Europe. European sales are generally lower in the first fiscal quarter because of office closings for the summer months. The backlog of international orders at May 31, 2001 was approximately $109,230 so some of these orders were shipped in the quarter ended August 31, 2001, which made sales for that quarter (the first fiscal quarter of 2002) higher than usual. The backlog at May 31, 2002 was approximately $57,485 so the sales for the quarter ended August 31, 2002 were lower in comparison. The general economic conditions in Europe during the quarter ended August 31, 2002 also contributed to the decrease. Domestic net sales increased $12,326. For the three months ended August 31, 2002, cost of sales as a percentage of sales totaled 71.9%, a decrease of 3.2% as compared to the three months ended August 31, 2001, which totaled 75.1%. This decrease is attributable to a reduction in scrap and other manufacturing efficiencies. For the three months ended August 31, 2002, selling expenses decreased $95,346 (25.3%) as compared to the three months ended August 31, 2001. The decrease is primarily attributable to a decrease in labor and travel costs. For the three months ended August 31, 2002, general and administrative expenses increased $4,445 (4.2%) as compared to the three months ended August 31, 2001. The increase is primarily attributable to an increase in labor and insurance costs. Of the labor costs increase, $5,250 represents the period expense attributable to 60,000 shares of common stock to be issued to the Chief Executive officer for partial compensation of services, amortized over calendar year 2002, (see Note H in Results of Operations), offset by a decrease in labor costs of other employees. For the three months ended August 31, 2002, product development expenses increased $15,186 from no expense in the three months ended August 31, 2001. The increase is attributable to the resumption of product development. For the three months ended August 31, 2002, interest expense increased $350 (10.9%) as compared to the three months ended August 31, 2001. The increase is primarily attributable to the method of computing interest by the financing company using "float" days. For the three months ended August 31, 2002, other income of $52,655 was realized from the insurance claim settlement of $134,413 for the theft of inventory at the Company's Mexicali facility, less $81,758 insurance claim receivable valued at cost. FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES The Company's financial condition at August 31, 2002 and its previous two fiscal year ends was as follows: 08/31/02 05/31/02 05/31/01 Current Assets $3,317,660 $3,474,312 $3,476,962 Current Liabilities 452,996 634,021 779,462 Working Capital 2,864,664 2,840,291 2,697,500 Line of Credit 1,208 65,669 140,000 Shareholder Equity 3,014,299 3,011,979 2,957,174 Total Assets 3,467,295 3,646,000 3,736,636 Cash increased $79,843 during the three months ended August 31, 2002. Working capital increased $24,373 during the three months ended August 31, 2002, primarily attributable to a decrease in accounts payable. 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. We may face interruption of production and services due to increased security measures in response to terrorism. Our business depends on the free flow of products and services through the channels of commerce. Recently, in response to terrorists' activities and threats aimed at the United States, transportation, mail, financial and other services have been slowed or stopped altogether. Further delays or stoppages in transportation, mail, financial or other services could have a material adverse effect on our business, results of operations and financial condition. Furthermore, we may experience an increase in operating costs, such as costs for transportation, insurance and security as a result of the activities and potential activities. We may also experience delays in receiving payments from payers that have been affected by the terrorist activities and potential activities. The U. S. economy in general is being adversely affected by the terrorist activities and potential activities and any economic downturn could adversely impact our results of operations, impair our ability to raise capital or otherwise adversely affect our ability to grow our business. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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 successful 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 affect 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, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Director of Financial Planning, of the effectiveness of the design and operation of the Company'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 the Company's disclosure controls and procedures are effective. There were no significant changes in the Company'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. (a) Exhibits 99.1 Certifications of Chief Executive Officer and Director of Financial Planning pursuant to 18 U.S. Section 135D is adopted pursuant to Section 302 and 906 of the Sarbanes-Oxley Act of 2002. 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 May 16, 2003 By /s/ Zackary Irani Zackary Irani, Chief Executive Officer CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Statement Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Principal Executive Officer and Principal Financial Officer Regarding Facts and Circumstances Relating to Exchange Act Filings 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 quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this quarterly 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-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures 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 quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and; c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 16, 2003 /s/Zackary Irani Chief Executive Officer CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Statement Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Principal Executive Officer and Principal Financial Officer Regarding Facts and Circumstances Relating to Exchange Act Filings 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 quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this quarterly 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-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures 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 quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and; c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 16, 2003 /s/John Dodge Director of Financial Planning CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-QSB of Lancer Orthodontics, Inc. for the annual period ended May 31, 2002 (the Report) as filed with the Securities and Exchange Commission on the date hereof, I, Zackary Irani, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Zackary Irani Zackary Irani Chief Executive Officer CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-QSB of Lancer Orthodontics, Inc. for the annual period ended May 31, 2002 (the Report) as filed with the Securities and Exchange Commission on the date hereof, I, John Dodge, Director of Financial Planning, of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ John Dodge John Dodge Director of Financial Planning