Edgar Filing: LESCARDEN INC

form10q.htm

U.S. Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q - Quarterly or Transitional Report

(Added by 34-30968, eff. 8/13/93, as amended)

(Mark One)

x Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934

For the quarterly period ended February 28, 2009

¨ Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission file number 0-10035

LESCARDEN INC.

(Exact name of small business issuer as specified in its charter)

New York		13-2538207
(State or other jurisdiction of incorporation or organization)		(I.R.S Employer Identification No.)

420 Lexington Ave. Ste 212, New York		10170
(Address of principle executive office)		(Zip Code)

Issuer’s telephone number		212-687-1050

(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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.

Class		Outstanding April 10, 2009
Common Stock $.001 par value		30,943,450

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

Smaller reporting company x

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.

Yes o No x

LESCARDEN INC.

CONDENSED BALANCE SHEETS

	February 28, 2009			May 31, 2008
	(UNAUDITED)			(AUDITED)
ASSETS

Current assets:
Cash and cash equivalents	$	17,928		$	38,867
Accounts receivable		20,439			82,490
Inventory		197,456			219,637
Total current assets		235,823			340,994

Deferred income tax asset, net of valuation allowance of $1,470,000 and $1,435,000 at February 28, 2009 and May 31, 2008 respectively

Total assets	$	235,823		$	340,994

LIABILITIES AND STOCKHOLDERS' EQUITY

Currents liabilities:
Accounts payable and accrued expenses	$	188,332		$	173,506
Shareholder loan		129,000			7,000
Deferred revenue		26,065			42,722
Deferred license fees		147,220			264,477
Total liabilities		490,617			487,705


Stockholders' deficit
Convertible preferred stock		1,840			1,840
Common stock		30,943			30,943
Additional paid-in capital		16,617,615			16,617,615
Accumulated deficit		(16,905,192	)		(16,797,109	)
Stockholders' deficit		(254,794	)		(146,711	)
Total liabilities and stockholders' deficit	$	235,823		$	340,994

See notes to financial statements

LESCARDEN INC.

CONDENSED STATEMENTS OF OPERATIONS

	(UNAUDITED) For the three months ended					(UNAUDITED) For the nine months ended

	February 28,		February 29,			February 28,			February 29,
	2009		2008			2009			2008

Total revenues		137,536	$	89,882			357,600		$	500,208

Costs and expenses:
Cost of sales		20,395		94,577			50,562			151,234
Salaries		18,769		71,030			135,189			204,213
Professional fees and consulting		17,237		58,462			117,154			146,163
Rent and office expense		22,936		31,335			81,632			99,943
Travel and meetings		8,306		16,644			14,378			82,942
Insurance		2,426		14,401			49,669			52,573
Other administrative expenses		5,341		3,193			17,099			8,437
Total costs and expenses		95,410		289,642			465,683			745,505

Net income (loss)	$	42,126	$	(199,760	)	$	(108,083	)	$	(245,297	)

Net income (loss) per share – basic and diluted	$	0.00	$	(0.01	)	$	(0.00	)	$	(0.01	)

Weighted average number of common Shares outstanding – basic and diluted		30,943,450		30,943,450			30,943,450			30,943,450

See notes to financial statements

LESCARDEN INC.

CONDENSED STATEMENTS OF CASH FLOWS

	(UNAUDITED) For the nine months Ended
	February 28,			February 29,
	2009			2008

Cash flows from operating activities:
Net loss	$	(108,083	)	$	(245,297	)
Adjustments to reconcile net loss to net cash used in operating activities:
Changes in operating assets and liabilities
Decrease (increase) in accounts receivable		62,051			(82,372	)
Decrease in inventory		22,181			28,657
Increase in accounts payable and accrued expenses		14,826			53,374
Decrease in deferred revenue		(16,657	)		-
Decrease in deferred license fees		(117,257	)		(157,808	)
Net cash flows used in operating activities		(142,939	)		(403,446	)

Cash flows from financing activities:
Increase in shareholder loan		122,000			-
Cash provided by financing activities		122,000			-

Decrease in cash		(20,939	)		(403,446	)

Cash - beginning of period		38,867			413,569

Cash – end of period	$	17,928		$	10,123

See notes to financial statements

LESCARDEN INC.

(UNAUDITED) NOTES TO FINANCIAL STATEMENTS

February 28, 2009

Note 1 - General:

The accompanying unaudited financial statements include all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods. The statements have been prepared in accordance with the requirements for Form 10-Q and, therefore, do not include all disclosures or financial details required by generally accepted accounting principles. These condensed financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's annual report on Form 10-KSB for the year ended May 31, 2008.

The results of operations for the interim periods are not necessarily indicative of results to be expected for a full year's operations. As shown in the financial statements, the Company incurred a year to date loss from operations and has stockholder’s deficiency. The Company’s major stockholder has committed to provide loans to the company as needed to fund operations. All loans from such stockholder will be due or payable no earlier than June 1, 2009 or until the company returns to profitability. The Company’s major stockholder provided additional non-interest bearing loans totaling $122,000 to the Company during the nine month period ended February 28, 2009.

Effective June 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes—An Interpretation of FASB Statement No. 109." FIN 48 provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements in accordance with SFAS No. 109. Tax positions must meet a "more-likely-than-not" recognition threshold at the effective date to be recognized upon the adoption of FIN 48 and in subsequent periods. Upon the adoption of FIN 48, the Company had no unrecognized tax benefits.

Income taxes are computed using the asset and liability method of accounting. Under the asset and liability method, a deferred tax asset or liability is recognized for estimated future tax effects attributable to temporary differences and carryforwards. The measurement of deferred income tax assets is adjusted by a valuation allowance, if necessary, to recognize future tax benefits only to the extent, based on available evidence; it is more likely than not such benefits will be realized. The Company recognizes interest and penalties, if any, related to uncertain tax positions in selling, general and administrative expenses. No interest or penalties related to uncertain tax positions were accrued at February 28, 2009.

The tax years 2004 through 2008 remain open to examination by the major taxing jurisdictions in which the Company operates. The Company expects no material changes to unrecognized tax positions within the next twelve months. The results of operations for the interim periods are not necessarily indicative of results to be expected for a full year's operations.

Certain prior period amounts have been reclassified to conform to current period presentation.

LESCARDEN INC.

Management's Discussion and Analysis of Financial Condition

and Results of Operations

February 28, 2009

Results of Operations:

The results of operations for the nine months ended February 28, 2009 reflect a transitional period for the Company brought about by a strategic refocusing on licensing opportunities and production cost efficiencies. Despite the global economic slowdown, demand for the Company’s products in the European and Asian markets remained strong. Our licensees in Europe and Asia are well positioned to pursue promotional opportunities and grow brand awareness in the targeted markets.

The launch of Caty-S in the Korean market reflects an effort to identify the unique needs of that market and offer a formulation of the Company’s core product to meet those needs. The Company’s investment in product development production costs is expected to provide a sustainable competitive advantage in the Korean market but has resulted in lower gross margins with respect to current period sales. The 30% increase in the Korean won/U.S. dollar exchange rate during the past year has resulted in reduced sales volume and delayed payment of outstanding accounts receivable. The Company is currently negotiating a discounted unit cost in exchange for more favorable payment terms with its major customer in Korea but does not anticipate a significant change in gross margin due to improved production cost efficiencies.

The Company has reached an agreement with Alcan Packaging and reconfigured its regulatory oversight of the production process in an effort to reduce the direct product costs of production. The decision by the Company’s former packager to discontinue involvement with animal source product necessitated this change and caused a delay in the Company’s ability to fulfill a $225,000 purchase order from its European licensee. The Company reached an agreement with its former packager in November 2007 to accept non-recurring payments of $30,000 during the second quarter and an additional payment of $50,000 paid during the third quarter in full settlement of the business interruption and resulting product fulfillment delay brought about by its decision to discontinue packaging the Company’s products. The evaluation of regulatory compliance at the new packaging facilities is expected to be completed during the fourth fiscal quarter.

Nine months ended February 28, 2009 compared to February 28, 2008

The Company’s revenues decreased 29% or $142,608 during the nine months ended February 28, 2009 compared to February 28, 2008 due to decreased sales of Bio-Cartilage and Catrix skincare to its licensees in Asia offset by an increase in other income and sales of Poly-Nag to emerging markets in the Philippines. Other income of $80,183 representing a payment from the Company’s former packager of Catrix products was included in revenue for the period pursuant to a settlement agreement and release signed by the Company in November, 2008.

Total costs and expenses during the nine months ended February 28, 2009 were 38% or $279,822 lower than those of the comparative prior year period. The decrease was due to decreases in cost of sales, salaries, professional fees, rent and office and travel and meeting expenses brought about by the Company’s strategic refocusing on licensing opportunities offset by an increase in other administrative expense of $8,662 attributable to increased shipping costs pertaining to the launch of reformulated Caty-S in the Korean market.

Three months ended February 28, 2009 compared to February 28, 2008

The Company’s revenues increased in the fiscal quarter ended February 28, 2009 compared to February 28, 2008 by 53% or $47,654 due to the return of $73,726 of Catrix skin care products by the Korean licensee during the third quarter of fiscal 2008 and an increase in other income of $50,000 representing the final payment from the Company’s former packager pursuant the settlement agreement and release signed in November, 2008.

Total costs and expenses during the three months ended February 28, 2009 were 67% or $194,232 lower than those of the comparative prior-year period. The decrease was principally due to decreases in cost of sales, salaries and professional fees. With the completion of the Korean product reformulation and approval, gross margins have returned to and are expected to remain at historic levels.

Liquidity and Capital Resources

As of February 28, 2009, the Company’s current assets exceeded its accounts payable and accrued expenses by $47,491. The Company’s cash and cash equivalents balance decreased by $20,939 during the nine months ended February 28, 2009 to $17,928. The company’s major shareholder provided loans totaling $122,000 during the nine-month period ended February 28, 2009 and has committed to provide loans to the Company as needed to fund operations until the company returns to profitability.

The Company has no material commitments for capital expenditures at February 28, 2009.

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such information is accumulated and communicated to the Company’s management, including its Chief Executive and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company’s management, including the Chief Executive and Chief Financial Officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

The Company has carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on such evaluation, the Company’s Chief Executive and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this quarterly report on Form 10-Q.

There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect the internal controls subsequent to the date of their evaluation in connection with the preparation of this quarterly report on Form 10-Q.

LESCARDEN INC.

Part II - Other Information

Item 6. Exhibits and Reports on Form 8-K

(A) Reports on Form 8-K: There were no reports on Form 8-K filed for the three months ended February 28, 2009.

INDEX TO EXHIBITS

Certification pursuant to Exchange Act Rule 13a – 14 (a)/15d-14(a)

Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to section 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.

	LESCARDEN INC.
	(Registrant)


Date: April 10, 2009

	S/William E. Luther
	William E. Luther
	Chief Executive and
	Chief Financial Officer