Washington, D.C. 20549
LESCARDEN INC.
420 Lexington Ave. Ste 212, New York 10170
LESCARDEN INC.
LESCARDEN INC.
LESCARDEN INC .
(UNAUDITED) NOTES TO FINANCIAL STATEMENTS
February 28,August 31, 2014
The accompanying condensedunaudited 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-Q10–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-K10–K for the year ended May 31, 2013. The results of operations for the interim periods are not necessarily indicative of results to be expected for a full year's operations.2014.
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 nine months ended February 28, 2014, 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.
concern as there can be no assurance that the Company will be able to restore production operations, grow revenues or secure sufficient additional financing to meet future obligations. The Company’s plan and ability to continue as a going concern is primarily dependent upon itsthe majority shareholder’s ability to maintain consistentfund operating losses until production volumesoperations are restored. The results of operations for the interim periods are not necessarily indicative of results 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 due to the uncertainties associated with the regulatory, logistic and financial issues, but it is likely that mill construction, testing and regulatory certification will necessitate at least six months before production commences.expected for a full year's operations.
At February 28,August 31, 2014, inventory of $117,113$112,342 consisted of $41,640$37,449 of finished goods and $75,473$74,893 of raw materialsmaterials.
Note 4 –- Related Party Transactions:Transaction:
In August 2013, theThe Company received an additional loan of $100,000loans totaling $75,000 from its’ Chairman. Pursuant to an agreement with a director of the Company, sales commission expense of $20,689 for services rendered in connection with the sale of Citrix in Europe was paidmajority shareholder during the ninethree months ended February 28,August 31, 2014.
Item 2. Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
Results of Operations:
Ongoing 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 Company has been unable to reach an agreement with its existing supplier to continue production until an alternative means of supply is established and prospective suppliers have provided estimates of a year or more before an alternative means of production is operational and significant increases in the unit cost of raw material.
ThreeOperations--Three months ended February 28,August 31, 2014 compared to February 29,August 31, 2013
The Company’s inability to reestablish production operations resulted in a 97% decrease in revenues decreasedand a decrease of $153,800 in cost of sales and commission expenses in the fiscal quarter ended February 28, 2014 compared to February 28, 2013August 31, 2014. Professional fees increased by 51% or $63,759. . Cost of sales as a percent of sales was 55%% for the three months ended February 28, 2014 reflecting non-recurring set-up costs of $7,989 associated with the Company’s efforts to secure alternative sources of raw material supply.
Non-direct costs and expenses during the three months ended February 28, 2014 were 37% or $51,815 lower than those of the comparative prior-year period21% due to a $49,864 decrease in quality control expenses associated with a viral clearance study and a decrease in commissions expense of $6,632 offset by an increase in insurance expense of $5,266.
Nine months ended February 28, 2014 compared to February 29, 2013
The Company’s revenues decreased by $29,973 or 7% for the nine months ended February 28, 2014 due to ongoing production delays. Cost of sales as a percent of sales was 44.9% for the nine months ended February 28, 2014 reflecting the increased cost of raw materials.
Non-direct costs and expenses during the nine months ended February 28, 2014 were 14.7% or $54,427 lower than those of the comparative prior-year period due to decreases in professional fees and other administrative expenses of $78,267 and $6,852 respectively offset by increased payroll and insurances expenses of $16,343 and $8,108 respectively.legal expenses.
Liquidity and Capital Resources
The increase in shareholder loans of $75,000 funded the use of cash in operating activities and increase of $2,591in cash for the period to $13,023 at August 31, 2014.
As of February 28,August 31, 2014, the Company’s accounts payable and accrued expensesliabilities exceeded its current assets by $18,191. The Company’s cash and cash equivalents balance decreased by $70,996 in the nine months ended February 28, 2014 to $13,566.$199,484.
The Company has no material commitments for capital expenditures at February 28,August 31, 2014.
Item 3. Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
Not required for a smaller reporting company.
Item 4. Controls and Procedures.
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.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.10–Q.