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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
———————
FORM 10-Q
———————

þ
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended: November 30, 2012
or
   
o
 TRANSITION REPORT PURSUANT TO 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 registrant as specified in its charter)
———————

New York
 
13-2538207
(State or other jurisdiction
 
(I.R.S. Employer
of incorporation or organization)
 
Identification No.)
 
420 Lexington Ave. Ste 212, New York 10170
(Address of Principal Executive Office) (Zip Code)
 
(212) 687-1050
(Registrant’s telephone number, including area code)
———————
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 þ   No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o   No o
 
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
 þ
(Do not check if a smaller reporting company)
       
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No þ
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class
 
Outstanding January 11, 2013
Common Stock $.001 par value
 
48,722,316
 
 



 
 

 
 
 
TABLE OF CONTENTS
 
    Page
PART I – FINANCIAL INFORMATION
Item 1.
Financial Statements.
 1
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 5
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
 6
Item 4.
Controls and Procedures.  6
     
PART II – OTHER INFORMATION
Item 1.
Legal Proceedings.
 7
Item 1A.
Risk Factors.
 7
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
 7
Item 3.
Defaults Upon Senior Securities.
 7
Item 4.
Submission of Matters to a Vote of Security Holders.
 7
Item 5.
Other Information.
 7
Item 6.
Exhibits.
 7
 
 
 

 
 
PART I - FINANCIAL INFORMATION

 
Item 1.         Financial Statements.
 
LESCARDEN INC.
CONDENSED BALANCE SHEETS

 
   
November 30,
2012
   
May 31,
2012
 
   
(UNAUDITED)
   
(AUDITED)
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 85,911     $ 42,617  
Accounts receivable
    250,291       54,707  
Inventory
    211,898       104,666  
Total current assets
    548,100       201,990  
Deferred income tax asset, net of valuation allowance of $1,798,000 and $1,784,000 at November 30, 2012 and May 31, 2012 respectively
               
                 
Total assets
  $ 548,100     $ 201,990  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
Current liabilities:
               
Accounts payable and accrued expenses
  $ 335,829     $ 256,996  
Shareholder loan
    347,000       232,000  
Deferred revenue
    4,782       8,857  
Deferred license fees
    13,500       16,500  
Total liabilities
    701,111       514,353  
                 
Stockholders' deficit
               
Convertible preferred stock - $.02 par value, authorized 2,000,000 shares, issued and outstanding 92,000 shares
    1,840       1,840  
Common stock - $.001 par value, authorized 200,000,000 shares, 48,722,316 and 40,076,783 shares issued and outstanding at November 30, 2012 and May 31, 2012 respectively
    48,722       40,077  
Additional paid-in capital
    17,073,836       16,882,481  
Accumulated deficit
    (17,277,409 )     (17,236,761 )
Stockholders' deficit
    (153,011 )     (312,363 )
Total liabilities and stockholders' deficit
  $ 548,100     $ 201,990  

See notes to financial statements
 
 
1

 
 
LESCARDEN INC.
CONDENSED STATEMENTS OF OPERATIONS
 

   
(UNAUDITED)
For the three months
Ended November 30,
   
(UNAUDITED)
For the six months
Ended November 30,
 
   
2012
   
2011
   
2012
   
2011
 
Revenues:
                       
Product sales
  $ 269,641     $ 19,264     $ 284,141     $ 45,478  
License fees
    1,500       1,500       3,000       3,000  
Total revenues
    271,141       20,764       287,141       48,478  
                                 
Costs and expenses:
                               
Cost of sales
    94,237       10,070       98,777       18,801  
Salaries
    20,519       6,900       41,012       34,250  
Professional fees and consulting
    31,243       43,806       77,646       95,527  
Rent and office expense
    25,057       26,064       54,503       55,571  
Insurance
    13,643       20,618       27,783       33,275  
Commission
    12,849             12,849        
Other administrative expenses
    10,898       6,318       15,219       10,230  
Total costs and expenses
    208,446       113,776       327,789       247,654  
                                 
Net income (loss)
  $ 62,695     $ (93,012 )   $ (40,648 )   $ (199,176 )
                                 
Net income (loss) per share – basic and diluted
  $ 0.00     $ (0.00 )   $ (0.00 )   $ (0.00 )
                                 
Weighted average number of common
shares outstanding – basic and diluted
    46,512,902       40,076,783       43,259,479       40,076,783  

See notes to financial statements
 
 
2

 
 
LESCARDEN INC.
CONDENSED STATEMENTS OF CASH FLOWS

   
(UNAUDITED)
For the six months
Ended November 30,
 
   
2012
   
2011
 
             
Cash flows from operating activities:
           
Net loss
  $ (40,648 )   $ (199,176 )
Adjustments to reconcile net loss to net cash
used in operating activities:
               
Changes in operating assets and liabilities
               
(Decrease) increase in accounts receivable
    (195,584 )     39,349  
Increase in inventory
    (107,232 )     (25,265 )
Increase in accounts payable and accrued expenses
    78,833       30,478  
(Decrease) increase in deferred revenue
    (4,075 )     26,976  
Decrease in deferred license fees
    (3,000 )     (3,000 )
Net cash used in operating activities
    (271,706 )     (130,638 )
                 
Cash flows from financing activities:
               
Increase in shareholder loan
    115,000       125,000  
Issuance of common stock
    200,000       -  
Cash provided by financing activities
    315,000       125,000  
                 
                 
Increase (decrease) in cash
    43,294       (5,638 )
                 
Cash - beginning of period
    42,617       10,780  
                 
Cash – end of period
  $ 85,911     $ 5,142  

See notes to financial statements
 

 
3

 
LESCARDEN INC .
(UNAUDITED) NOTES TO FINANCIAL STATEMENTS
 
November 30, 2012
 
Note 1 - General:
 
The accompanying condensed financial statements include all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods. All such adjustments are of a normal recurring nature. 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-K for the year ended May 31, 2012. The results of operations for the interim periods are not necessarily indicative of results to be expected for a full year's operations.
 
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability of assets and the satisfaction of liabilities that might be necessary should the Company be unable to continue as a going concern. As shown in the financial statements, the Company incurred a loss from operations for the six months ended November 30, 2012, has a stockholders’ deficiency and a working capital deficiency. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
 
The Company’s plan and ability to continue as a going concern is primarily dependent upon its ability to maintain consistent production volumes to fulfill existing sales orders.  Production lead time has increased at the Company’s primary raw material supplier and alternative sources of supply are being evaluated so that manufacturing and production disruptions can be minimized. There can be no assurance that the Company will be able to establish an alternative source of supply and maintain consistent production volumes to meet demand.  The financial statements do not include any potential contingent liabilities associated with the establishment of an alternative source of supply given the uncertainties associated with the regulatory, logistic and financial issues involved but it is likely that mill construction, testing and regulatory certification will necessitate at least six months before production commences.
 
At November 30, 2012, inventory of $211,898 consisted of $58,570 of finished goods and $153,328 of raw materials.
 
Pursuant to a stock purchase agreement dated August 10, 2012, the Company agreed to sell and issue 8,645,533 shares of common stock for an aggregate purchase price of $200,000 to its Chairman of the Board. The sale was completed on September 24, 2012.

 
4

 

 
Item 2.         Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Results of Operations:
 
Raw material production delays have resulted in order fulfillment lead times of greater than six-months and increasing backorders in both new and existing markets. The results of operations for the six months ended November 30, 2012 reflect partial fulfillment of purchase orders to European markets but production delays caused backorders equal to 100% of revenues for the three months ended November 30, 2012.  Preliminary estimates from potential alternative suppliers of raw material supply indicate significant increases in the unit cost of raw material and there is ongoing uncertainty as to the fulfillment of outstanding purchase orders for raw materials.
 
Three months ended November 30, 2012 compared to November 30, 2011
 
The Company’s revenues increased in the fiscal quarter ended November 30, 2012 compared to November 30, 2011 by 1,300% or $250,377 due to the resumption of production operations at the Company’s sole raw material supplier and the fulfillment of outstanding purchase orders to European distributors. Revenues during the quarter ended November 30, 2011 were limited to sales of skin care products as delays associated with lab testing and regulatory recertification of the Company’s new packager prevented commencement of packaging operations until November 2011.  Cost of sales as a percent of sales was 34.95% for the three months ended November 30, 2012 reflecting higher raw material cost than historical averages.  Cost of sales for the three months ended November 30, 2011 included non-recurring setup and testing costs associated with the transfer of the Company’s packaging operations which departed from historical averages during the transition to the new facility.
 
Non-direct costs and expenses during the three months ended August 31, 2012 were 10% or $10,505 higher than those of the comparative prior-year period due to increases salaries and commissions of $13,619 and $12,849 offset by decreased professional fees of $12,563 associated with the re-audit of the year ended May 31, 2011 during the previous comparative period.
 
Six months ended November 30, 2012 compared to November 30, 2011
 
The Company’s revenues increased in the fiscal quarter ended November 30, 2012 compared to November 30, 2011 by 525% or $238,663 due to the resumption of production operations at the Company’s sole raw material supplier. Revenues during the six months ended November 30, 2011 were limited to sales of skin care products as delays associated with lab testing and regulatory recertification of the Company’s new packager delayed fulfillment of Catrix orders until February 2012.  Cost of sales as a percent of sales was 34.76% for the six months ended November 30, 2012 reflecting higher raw material cost.  Cost of sales for the six months ended November 30, 2011 included non-recurring set-up and testing costs associated with the transfer of the Company’s packaging operations to a new packager, which departed from historical averages during the transition to the new facility.
 
Non-direct costs and expenses during the three months ended August 31, 2012 were 0.07% or $160 higher than those of the comparative prior-year period due to increases in salaries, shipping and commissions of $6,762, $4,990 and $12,849 respectively.  Professional fees associated with the re-audit of the year ended May 31, 2011 during the previous comparative period caused a decrease of $17,881 for the six months ended November 30, 2012 and the Company relocated warehoused inventory to more cost effective facilities and implemented tax favored high deductible health insurance benefit plan yielding decreases in insurance and rent expenses of $5,492 and $1,068 respectively.
 
Liquidity and Capital Resources
 
As of November 30, 2012, the Company’s current assets exceeded its accounts payable and accrued expenses by $212,271. The Company’s cash and cash equivalents balance increased by $43,294 in the six months ended November 30, 2012 to $85,911. On September 24, 2012 the Company sold 8,645,533 shares common stock to its Chairman of the Board for $200,000 pursuant to the Stock Purchase agreement for the unregistered issuance of securities dated August 10, 2012.
 
The Company has no material commitments for capital expenditures at November 30, 2012.
 
 
5

 
 
Item 3.         Quantitative and Qualitative Disclosures About Market Risk.
 
Not required for smaller reporting company.
 
 
Item 4.         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.
 
 
6

 

PART II - OTHER INFORMATION
 

 
 
Item 1.         Legal Proceedings.
 
None.
 
 
Item 1A.      Risk Factors.
 
None.
 
 
Item 2.         Unregistered Sales of Equity Securities and Use of Proceeds.
 
See Stock Purchase Agreement with Charles T. Maxwell (incorporated by reference from our Current Report on Form 8-K filed on September 24, 2012).
 
 
Item 3.         Defaults Upon Senior Securities.
 
None.
 
 
Item 4.         Submission of Matters to a Vote of Security Holders.
 
None.
 
 
Item 5.         Other Information.
 
None.
 
 
Item 6.         Exhibits.
 
Exhibit No.
     
Description
 
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

 
7

 
 
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: January 11, 2013
By:
/s/ William E. Luther  
    Name: William E. Luther  
    Title; Chief Executive and Chief Financial Officer  
       
 

8