U.S.
Securities and Exchange Commission
Washington,
D.C. 20549
Form
10-KSB
(Mark
One)
|
x
|
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
[Fee
required]
|
For the
fiscal year ended
May
31, 2008
|
¨
|
TRANSITION REPORT UNDER SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[No fee
required]
|
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 Avenue
,
New
York
,
NY
10170
(Address
of principle executive offices) (Zip
Code)
Issuer's
telephone number
(212)
687-1050
Securities
registered under Section 12(b) of the Act:
None
Securities
registered under Section 12(g) of the Act:
Common
Stock $.001 par value
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
¨
Check if
there is no disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B contained in this form, and no disclosure will be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.
x
Issuers
revenues for its most recent fiscal year were $ 431,669.
The
aggregate market value of the registrant’s Common Stock held by non-affiliates
of the registrant on July 17, 2008 was approximately $1,559,594.
The number
of shares of registrant’s Common Stock outstanding as of July 12, 2008 was
30,943,450.
Transitional
Small Business Disclosure Format (Check one): Yes
¨
No
x
Forward
Looking Statements
This
annual report on Form 10-KSB contains predictions projections and other
statements about the future that are intended to be forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended (collectively “forward-looking statements”). Forward-looking
statements involve risks and uncertainties. A number of important
factors could cause actual results to differ materially from those in the
forward-looking statements. In assessing forward-looking statements,
readers are urged to read carefully all cautionary statements including those
contained in other sections of this annual report on Form 10-KSB.
PART I
Since its
inception in 1960, Lescarden has devoted its resources to fund research and
development of proprietary biologic materials with a focus on wound healing,
clinical skin care, osteoarthritis and cancer applications. In
the ensuing years, significant studies substantiated the ability of Catrix®,
Lescarden's proprietary cartilage powder, to function as a biological response
modifier by stimulating the body's immune system. This response has significant,
demonstrated benefits for chronic wound management, and has been investigated as
a potential treatment for certain types of cancer. Further studies indicated
that Catrix has potent anti-inflammatory properties that could also be effective
against diseases such as arthritis, scleroderma and psoriasis.
With a
solid clinical platform, the Company in recent years has focused its strategy
toward pursuing marketing and licensing opportunities for fully developed
products that have received patents and are ready for
commercialization.
The
Company's product line is led by CATRIX® Wound Dressing, a powder derived from
bovine cartilage that has been shown to be effective in the management of
chronic lesions and burns, and especially helpful when applied to non-healing
wounds such as decubitus ulcers, venous stasis ulcers, and diabetic
ulcers. The product has been approved for sale by the FDA and the
Spanish Health Ministry for distribution throughout the European Union with
additional registration activities proceeding in Asia.
Lescarden
also derives revenue from a line of Catrix-based skin care products targeting
the Plastic Surgery, Dermatology and Medical Spa markets. Sales of
two nutritional supplements, BIO-CARTILAGE® and POLY-Nag®, a patented
glucosamine polymer, also contribute to the Company's overall
sales.
Catrix Wound
Care
Background
In the
early 1950's, the Company's founders discovered that cartilage powder
significantly hastened the healing of surgical wounds in animals. Early clinical
studies by the Company, supported by extensive product testing and refinement,
led to the creation of a proprietary process for purifying bovine cartilage to
produce a sterile white powder that could be used to optimize healing. The
resulting product was given the brand name Catrix®.
The
Company believes there is persuasive evidence that Catrix® functions in the body
as a biological response modifier, regulating the components of the immune
system. Some observed effects of Catrix
®
on the
body include:
|
|
·
|
acceleration
of wound healing;
|
|
|
·
|
inhibition
of excessive vascularization of certain
tissues;
|
|
|
·
|
inhibition
of proliferation of malignant cells;
|
|
|
·
|
moderation
of excessive collagen synthesis by fibroblast
cells
|
Chronic Wound
Market
It is
estimated that the global market for wound care products is approximately $ 10
billion. This is likely to increase due to several factors:
|
|
·
|
Demographic
trends confirm that the world’s population is living longer, a significant
plus factor for the Company’s Wound Dressing since it is the elderly who
are especially at risk for the various ulcers and non-healing lesions for
which the product provides therapy.
|
|
|
·
|
There
is also a steady worldwide increase in the incidences of diabetes, which
affects a wide range of age groups who are at increase risk of developing
non-healing wounds.
|
|
|
·
|
There
is at present no effective treatment for non-healing wounds. This
represents a growing problem for hospitals, out- patient centers and
long-term care facilities. The best treatment protocols generally focus on
proper wound cleaning and preparation (removal of dead tissue around the
wound) and maintaining an environment that is conducive to proper
healing.
|
Human Clinical Trial
Conducted With Catrix
Decubitus
Ulcers
In 2004,
the senior nursing professionals associated with the Spanish Ulcer and Chronic
Wound Advisory Panel performed a clinical study in Spain. The purpose of the
study was to demonstrate that Catrix® Wound Dressing could achieve a significant
healing effect on pressure ulcers (bed sores) and other chronic wounds that had
failed to respond after months of standard wound healing treatment. The 101
lesions included in the study had resisted healing for an average treatment time
of 155 days. 51 of the lesions were Stage III, or serious, while 32 lesions were
deemed to be Stage IV, very serious (total loss of the skin thickness with
extensive destructions, necrosis of tissue in muscle, bone or support
structure.)
The
conclusions of the study were emphatically positive for Catrix® Wound Dressing:
after 49 days of treatment with the Dressing, 38.4% of all lesions had healed
completely. Another 34.7% showed significant improvement. Of the 32
most serious Stage IV lesions, 7 had healed completely, while another 11 had
improved to Stage II condition (partial loss of the skin thickness in the
epidermis, dermis, or both.)
In their
Summary, the administrators of the Study stated:
“…treatment
with Catrix is effective in the treatment of pressure ulcers that did not heal
after the application of one of several standard treatments…”
“…these
results prove that the treatment with Catrix significantly reduces the treatment
length, and therefore leads to a reduction in the sanitary cost in this kind of
patient.”
“…it
is difficult to state the reasons why Catrix was so effective in this study.
Although this study does not compare Catrix with other scarring products, we
must take into account that all the included pressure ulcers were previously
treated with other products, vastly used and considered necessary for the
treatment of pressure ulcers at the centres where the patients came from. The
cures with these other products were proven to be inefficient, and sometimes to
even cause wound deterioration. In all the cases, the only change from the
previous treatment was the application of Catrix. We can therefore conclude that
the obtained results were due to Catrix.”
In
comparing the estimated cost of treating the wounds that healed, including the
nursing time and materials, the investigators determined that Catrix® reduced
the average cost by 40%.
Nine
additional studies have been undertaken in Italy, Germany, Spain, Hungary and
Poland to further establish the credibility of Catrix to heal chronic
ulcerations.
Radiation
Dermatitis
In
May 2004 a study was undertaken to compare the efficacy of Catrix with that of
hydrocolloid dressings, the standard therapy used on cancer patients treated
with radiation therapy. Skin injuries caused by repeated exposure to radiation
are a frequent side effect in oncology treatments. If wounds persist they not
only bring discomfort and risk of infection to the patient, but can even force
suspension of the radiation treatments.
Results of
the study demonstrated that Catrix® is more effective than hydrocolloid
dressings in the treatment of wounds caused by radiodermatitis (average healing
time with Catrix: 4.9 days, vs. an average of 9.0 days with hydrocolloid
dressings). Both the nursing staff and patient groups gave Catrix® a higher
evaluation in the study.
Diabetic
and Venous Ulcers
This
observational study, was published in November 2004, examined the effectiveness
and safety of Catrix in the treatment of diabetic and venous ulcers compared to
standard treatments. 54.8% of the wounds healed in the 20 week timeframe with
the average healing time being 9.3 weeks. The conclusion was that Catrix was
well tolerated and effective in treating these types of lower extremity
wounds.
Burns
In
February 2007 a pilot study was presented in Korea demonstrating the benefits of
utilizing Catrix Wound Dressing with pediatric patients suffering from 2
nd
and 3
rd
degree burns. The purpose was to evaluate whether Catrix could provide
caregivers with a viable alternative to skin grafting, the standard treatment
for these severe burns.
The
results will be published soon. They indicate that Catrix Wound Dressing can
indeed provide a healing option comparable to graft surgery without the
complications and expense associated with grafting. This approach will receive
further study, but it appears to offer a new, non-invasive method for treating
severe burns that is safer and more cost-effective.
Many
plastic surgeons that provide primary care for burn patients are already
familiar with the Catrix skin care line, which they utilize to aid in healing
cosmetic surgical procedures. Since these surgeons are already part of
Lescarden’s customer base, they would appear to be excellent prospects to
purchase the Catrix Wound Dressing to treat burn patients. Lescarden intends to
capitalize on this opportunity.
Catrix Skin
Care
Catrix®
powder is formulated into a line of skin care products designed to meet the
needs of plastic surgeons, cosmetic dermatologists and their patients. The
demonstrated ability of Catrix to expedite healing, reduce inflammation and
enhance patient comfort following aesthetic procedures fills a unique niche in
the rapidly growing market for cosmetic and anti-aging procedures.
These
Catrix-based products are especially valued for their ability to provide
anti-inflammatory benefits without the use of steroids which can adversely
affect the skin when used for extended periods of time. According to The
American Society of Aesthetic Plastic Surgery the market for cosmetic procedures
in the US totaled $12.4 billion in 2005.
In April
2002, Lescarden announced that another study, published in The Journal of The
American Academy of Dermatologic Surgery, had concluded that Lescarden’s Catrix
10 Ointment facilitates faster healing than conventional treatments following
cosmetic surgery procedures. The study was conducted by a team headed
by Maritza Perez, M.D., director of cosmetic dermatology as St. Lukes-Roosevelt
Hospital Center in New York.
The Perez
study focused on patients who, after completing laser resurfacing treatments on
their faces, were randomly assigned to receive Catrix 10 Ointment on one side of
their faces and a widely utilized over-the-counter ointment on the other side
for eight consecutive days. At the completion of the test period
researchers evaluated their data and were able to confirm that facial areas
treated with Catrix 10 Ointment healed much faster.
“Since the
Catrix 10 Ointment facilitates quicker healing, in theory patients treated with
it were at less risk for the complications that open wounds imply,” said Dr.
Perez. “Although the mechanism by which bovine cartilage accelerates
wound healing is not completely understood, we think it may enhance and
accelerate the skin’s own healing process.”
The
Company has also developed a 5% Catrix® Rejuvenation Cream and a 5% Catrix
®
Lip
Balm. The Cream is intended for daily use as a rejuvenating
moisturizer while it is also effective in relieving symptoms associated with
psoriasis, dermatitis and other skin anomalies. Domestically, sales of these
products have occurred principally through dispensing physicians, skin care
professionals, independent representatives, specialty retailers and via the
internet.
Poly-NAG
Derived
from specially processed crustacean shells, Poly-NAG is a polymeric form of
glucosamine (Poly-N-Acetyl-D-Glucosamine) that is marketed by Lescarden in the
anti-arthritic market as a treatment for osteoarthritis. The product has
demonstrable advantages over the numerous products that compete in the
glucosamine marketplace because it remains active in the body longer than
competitive products.
In
clinical trials at the University of North Texas Health Science Center, orally
administered Poly-NAG was shown to be absorbed by the body and metabolized into
glucosamine, which was measurably present in subjects’ blood serum. In addition,
the tests confirmed that serum levels of glucosamine remained higher for a
longer time in subjects receiving Poly-NAG, compared to subjects receiving plain
NAG.
In effect,
Poly-NAG offers the arthritis sufferer a form of glucosamine that has “staying
power” in the bloodstream. Based on these results, the Company was awarded a US
Patent for Poly-NAG in September, 2000. A European patent was awarded in April,
2005.
Lescarden
recently engaged in two clinical studies of Poly-NAG’s effect in
animals. The purpose was to better define the marketability of
Poly-NAG for veterinary applications, a market where North American sales of
anti-arthritic remedies are over $400 million annually. The results of these
laboratory animal studies were similar to those of the human tests, confirming
that Poly NAG’s activity in the organism lasts longer than the effects with
standard glucosamine. This important point of differentiation should
provide a meaningful market advantage when Poly-NAG is introduced into the
veterinary marketplace
The
Company is currently in discussions about Poly-NAG with several domestic and
foreign distribution partners in both the human and animal health
markets.
Distribution
Europe
In January
2007 the Company completed the termination of the license, originally signed in
August 2004, with Valeant Pharmaceuticals Switzerland GmbH to market Catrix
Wound Dressing in Europe. This decision was made due to Valeant shifting its
focus away from the core market for Catrix, hospitals and primary care
physicians, toward specialty markets such as immunology. Under the termination
agreement, Valeant will continue to distribute its existing inventory of Catrix
Wound Dressing in the markets it serves. By terminating the license, the Company
is now free to pursue new license and distribution deals with partners better
able to penetrate the wound care market.
In July 2006 the Company took the first
step toward rebuilding its European distribution when it approved a sub-license
agreement between Valeant and Smith & Nephew for distribution of Catrix
Wound Dressing in
Spain
. Smith & Nephew, a global leader in
the development and distribution of wound care products, will take over the
distribution of Catrix to the hospital and acute care markets and will add
significantly to field sales representation of Catrix in
Spain
.
New orders from Smith and Nephew are
expected in
the
upcoming fiscal
year.
Korea
In
December 2004, Lescarden entered into a definitive license agreement with
Daewoong Pharmaceuticals, headquartered in Seoul, South Korea to market Catrix
Wound Dressing. This company is the largest producer and marketer of over-the
counter and ethical pharmaceutical products in Korea. For the fiscal year ended
2006 Daewoong's total revenues exceeded $400 million.
Daewoong
is well established in the diabetic foot ulcer segment of the Korean wound care
market. Catrix Wound Dressing will provide Daewoong with a broader range of
product indications to serve that market. Daewoong is finalizing
their submission to the Korean FDA and expects to receive marketing approval for
Catrix Wound Dressing Powder by the end of 2008. With this approval, Daewoong
hopes to commence the marketing of Catrix to the hospital and clinical market in
early 2009.
Philippines
In
December 2005, Lescarden announced that it had signed a distribution agreement
with Pascual Laboratories, a leading distributor of prescription and
non-prescription products in the Philippines. Under the terms of the agreement,
Altermed, a subsidiary of Pascual, will commercialize Lescarden's patented
anti-arthritic product, Poly-NAG in the Philippines.
Pascual
Laboratories Inc. is a privately held pharmaceutical company with headquarters
in Quezon City, Philippines. Pascual Labs, including its subsidiaries and
affiliates, is the 2nd largest Filipino pharmaceutical conglomerate and ranks
12th largest among all pharmaceutical companies operating in the Philippines.
Altermed's presence as a leader in the commercialization of over the counter
products will provide marketing and distribution efficiencies with respect to
the introduction of Poly-NAG.
Government
Regulation
Since the
1996 FDA approval of the Company's 510(k) application for the use of Catrix® in
the management of a variety of skin ulcerations, wounds and burns, the Company
has focused on the development of a distribution network for its family of
proprietary, market-ready products. This strategy envisions a network
of licensing and distribution agreements in addition to Lescarden's own direct
marketing efforts. The plan includes a complete marketing program for
Catrix(R) powder, as well as for Catrix® Skin Care Products, which are being
offered to cosmetic dermatologists, plastic surgeons and skin care
specialists. Looking to the future, the Company believes that the
observed effects of Catrix® (including acceleration of wound healing, tumor
inhibition and reduction, inhibition of excessive vascularization and modulation
of immune system functions) coupled with an absence of toxicity, present
additional promising avenues of investigation
The
production and marketing of the Company's products and its research and
development activities are subject to comprehensive regulation by various
federal, state and local authorities in the United States and governmental
authorities of other countries in which we conduct business. Among
others, the FDA, HPB (Health Canada) and the SHM (Spanish Ministry of Health)
exercise regulatory authority over the development, testing, formulation,
manufacture, labeling, storage, record keeping, quality control, advertising and
promotion of the Company's products.
A new drug
or device may not be marketed in the United States until it has satisfied
rigorous testing procedures established and approved by the FDA. The
drug may then be marketed only for the specific indications, uses, formulation,
dosage, forms, and strengths approved by the FDA. Similar
requirements are imposed by foreign regulators upon the marketing of a new drug
in their respective countries.
All of the
Company's contract manufacturing facilities are subject to periodic inspections
by the FDA and comparable agencies from other countries. If
violations of applicable regulations are discovered during these inspections,
the Company may be restrained from continued marketing of the manufactured
products. Such facilities are also subject to regulation regarding,
among other things, occupational safety, laboratory practices, the use and
handling of radio-isotopes and hazardous chemicals, prevention of illness and
injury, environmental protection and hazardous substance control.
The
Company also is subject to foreign regulatory authorities with respect to
clinical trials and pharmaceutical sales. Whether or not FDA approval
has been obtained, approval of a product by the comparable regulatory
authorities of foreign countries must be obtained prior to commencement of
marketing of the product in those countries. The approval process
varies from country to country and the time required may be longer or shorter
than that required for FDA approval.
Raw Materials and
Manufacturing
Catrix® is
manufactured for the Company by contract manufacturers. These manufacturers must
be FDA-approved pharmaceutical manufacturing facilities. Likewise, foreign
government agencies, in countries where marketing approval is sought, must also
approve all such manufacturers. The Company's food supplement
cartilage material, BIO-CARTILAGE®, and its Poly-NAG® are manufactured in the
United States and Iceland. An additional manufacturer is being developed in the
Western Pacific Area.
Catrix
®
is prepared
from animal cartilage tissue. The most accessible and easily processed source is
bovine tracheas collected from normal healthy beef cattle subsequent to
slaughter. Tracheas are cleaned, flash frozen and delivered to
qualified pharmaceutical manufacturing facilities. The cattle from
which the tracheas are harvested are certified free of BSE (Bovine Spongiform
Encephalitis) and the only cattle herds used as source material are located in
New Zealand.
All
Catrix® and production procedures have been submitted in extensive detail to the
FDA, the HPB in Canada, and the Spanish Health Ministry in Spain, and accepted
as part of the review of the Company's official submissions with respect to
studying Catrix® in patients.
Intellectual
Property
The
Company was granted and owns, by assignment, several United States patents.
There are similar patents or pending patents in various foreign countries. We
also rely on trade secrets, know-how and continuing technological innovation to
maintain our competitive position. We use other methods to protect our
proprietary rights, including confidentiality agreements and proprietary
information agreements with vendors, employees, consultants and others that may
have access to proprietary information.
Competition
Competition
in the wound healing and clinical skin care markets is based primarily
on: product performance, including efficacy, safety, ease of use and
adaptability to various modes of administration; patient compliance; price;
acceptance by physicians; marketing; and distribution. The
availability of patent protection and the ability to obtain government approval
for testing, manufacturing and marketing are also critical
factors. See "Business-Government Regulation."
Our
markets are highly segmented with multi-national and regional companies
competing in both the wound and skin care markets. Lescarden’s focus is to align
ourselves with organizations that have established distribution networks and
solid reputations in their particular specialty.
A key
factor to our success will be our ability to expand our distribution network and
production capabilities while we continue to enhance our existing products and
technologies. Where possible we intend to pursue patent and trademark protection
for our products and processes we design and develop.
Human
Resources
At August
12, 2008, the Company had three full time employees. We retain several
consultants to assist in the administration of the Company and coordinate
ongoing research and clinical trials.
The
Company owns no real property. Its executive offices in New York
City, occupying approximately 2,200 square feet, are currently leased under a
seven year lease ending January 31, 2011. Management considers that
its leased premises are well maintained and sufficient for its present
operations.
|
ITEM
3.
|
LEGAL
PROCEEDINGS
|
NONE
|
ITEM
4.
|
SUBMISSION OF MATTERS
TO A VOTE OF SECURITY
HOLDERS
|
NONE
PART II
|
ITEM
5.
|
MARKET FOR COMMON
EQUITY AND RELATED STOCKHOLDER
MATTERS
|
The Common
Stock of the Company is traded in the over-the counter market under the symbol
"LCAR". The following table sets forth, for the periods indicated,
the high and low bid quotations for the Common Stock as reported by the National
Quotation Bureau.
|
Fiscal
Year Ending May 31, 2008
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
Fourth
Quarter
|
|
$
|
0.12
|
|
|
$
|
0.07
|
|
|
Third
Quarter
|
|
|
0.12
|
|
|
|
0.08
|
|
|
Second
Quarter
|
|
|
0.19
|
|
|
|
0.09
|
|
|
First
Quarter
|
|
$
|
0.20
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ending May 31, 2007
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth
Quarter
|
|
$
|
0.20
|
|
|
$
|
0.13
|
|
|
Third
Quarter
|
|
|
0.25
|
|
|
|
0.13
|
|
|
Second
Quarter
|
|
|
0.28
|
|
|
|
0.15
|
|
|
First
Quarter
|
|
$
|
0.40
|
|
|
$
|
0.26
|
|
On July
17, 2008 the closing bid price per share of Common Stock, as reported by the
National Quotation Bureau, was $0.10. As of May 31, 2008 there were
416 holders of record of the Company's Common stock.
|
ITEM
6.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
OPERATIONS
|
Since its
inception in 1960, Lescarden has devoted its resources to
fund the development of proprietary biologic materials with a
focus on wound healing, skin care, osteoarthritis and cancer
applications. Since that time, significant studies
substantiated the ability of Catrix®, Lescarden's proprietary cartilage powder,
to function as a biological response modifier, by stimulating the body's immune
system. This response has significant demonstrated benefits for
chronic wound management and has been investigated as a potential treatment for
certain types of cancer. Further studies have indicated that Catrix has potent
anti-inflammatory properties that could also be effective against diseases such
as arthritis, scleroderma and psoriasis.
Lescarden
also derives revenue from a line of Catrix-based skin care products that are
useful for a variety of plastic surgery, dermatology and medical-spa
applications. Sales of two nutritional supplements, BIO-CARTILAGE®
and a patented glucosamine polymer, Poly-Nag®, also contribute to the Company's
overall sales.
Review
The
results of operations for fiscal year ending May 31, 2008 were affected by an
unforeseen delay in the commencement of sales to our European sub-licensee and
the need to reformulate a product introduced in Korea to rectify a product
separation issue that resulted in the return of $73,000 of product purchased
during the year. Both of these events had a significant impact on
2008 net loss from operations but have little effect on the strength of the
Catrix brand in emerging markets. The Company has continued to focus
its resources on long-term licensing and distribution agreements in growth
markets and remains optimistic that the setbacks encountered during the current
fiscal year are not predictive of future profit potential in the European and
Korean markets.
Trends
and Opportunities
The
Company is expanding its focus in both Asia and Europe to include new geographic
territories that offer easy access to targeted market segments and reliable
distribution partners that are well positioned to strengthen brand awareness and
increase demand for the Company’s products in growth markets. We believe the
market for wound and burn treatment will continue to grow worldwide, driven by
an aging population, an increase in obesity which is a cause of a higher
incidence of diabetes, as well as the proven clinical benefits of Catrix to
address the challenge of healing wounds that otherwise have proven difficult
using standard treatment modalities.
In
addition, the global community is demonstrating greater appreciation for the
value of biologic products by the medical community; especially in the area of
tissue regeneration and orthopedics. At the same time world-wide use of
nutritional supplements and natural products is also expanding with a greater
acceptance of non-traditional treatments and the wider availability of
information supporting the potential benefits to patients We feel these trends,
combined with the market opportunities already present, bodes well for the
future of the Company.
Europe
In
February 2007 the Company announced that it had terminated its license agreement
with Valeant Pharmaceuticals Switzerland GmbH as their exclusive European
distributor of Catrix Wound Dressing. Despite the termination, we are continuing
our presence the European market and promoting the value of the Wound Dressing
as a valuable healing asset in the treatment of burns and chronic wounds through
a sub-licensing agreement with Smith & Nephew signed in July
2007.
The
arrangement with Smith & Nephew will help increase Spanish sales of the
Wound Dressing and enhance the product’s reputation as an exceptional wound and
burn healing product. The Company is pursuing several other distribution
partnerships with established companies in the UK and Greece that, if finalized,
will broaden the market size and sales growth potential for the Company’s
products in Europe.
Korea
Catrix
based skin care products in our largest customer in Korea showed an increase of
over 50% to approximately $192,000 in the fiscal year ended May 31,
2008. The Company continues to evaluate new line extensions in Korea
targeting the anti-aging market and is in the process of reformulating its
existing products to better address customer priorities.
In
December 2004, Lescarden entered into a definitive license agreement with
Daewoong Pharmaceuticals, headquartered in Seoul, South Korea. Daewoong is the
largest producer and marketer of over-the counter and ethical pharmaceutical
products in Korea, with annual sales over $400 million. Already established in
the diabetic foot ulcer segment of the market, Daewoong is enlarging its product
line to cover all aspects of wound treatment. The addition of Catrix Wound
Dressing enables Daewoong to target a broader range of clinical
indications.
Obtaining
marketing approvals from the Korean Food and Drug Administration (KFDA) has
taken longer than expected. The delay has resulted from the KFDA designating
Catrix as a class IV medical device. Once approved, this designation - which
requires more extensive documentation and testing – should yield a higher level
of reimbursement from the local authorities.
Philippines
In
December 2005, Lescarden announced that it has signed a distribution agreement
with Pascual Laboratories, a leading marketer of prescription and
non-prescription products in the Philippines. Under the terms of the agreement,
Altermed, a subsidiary of Pascual, will commercialize Lescarden's patented
anti-arthritic product, Poly-NAG the Philippines. Sales to Pascual
commenced in the current fiscal year and are expected to increase brand
awareness and sales growth potential in that market during to upcoming fiscal
year.
Pascual
Laboratories Inc. is a privately held pharmaceutical company with headquarters
in Quezon City, Philippines. Pascual Labs, including its subsidiaries and
affiliates, is the 2nd largest Filipino pharmaceutical conglomerate and ranks
12th largest among all pharmaceutical companies operating in the Philippines.
Altermed's experience as a leader in the sales of over the counter products
should provide marketing and distribution efficiencies as Poly-NAG enters the
market.
The
application for Poly-NAG’s marketing approval has been submitted the Bureau of
Food and Drug. It is anticipated that the product will receive full approval by
the end of 2008; with product launch anticipated shortly
thereafter.
Significant
accounting policies
Our
discussion and analysis of our financial condition are based upon our financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses and related
disclosure of contingent liabilities. On an on going basis, we evaluate our
estimates, including those related to inventories and deferred income taxes. We
based our estimates on our historical experience, knowledge of current
conditions and our beliefs of what could occur in the future considering
available information. Actual results may differ from these estimates under
different assumptions or conditions. The Company believes the following critical
accounting policies affect its more significant judgments and estimates used in
the preparation of its financial statements.
Revenue
recognition
Revenue
from product sales is recognized upon shipment of the product when title to the
property transfers to the buyer as does the risk of loss and collectibility of
the sales price is reasonably assured. Deferred license fees relate
to license fees received from the company’s licenses which are amortized over
the term of the license agreements.
Inventory
valuation
Inventories
are valued at lower of cost, using first in first out method, or market. We
routinely evaluate the composition of our inventory and identify slow-moving,
excess, obsolete or otherwise impaired inventories. Inventories identified as
impaired are evaluated to determine if reserves are required. Our evaluation is
primarily based upon forecasted short-term demand for the product.
Deferred
taxes
The
Company records a valuation allowance to reduce its deferred tax assets to the
amount that is more likely than not to be realized. While we consider historical
levels of income, expectations and risks associated with estimates of future
taxable income and ongoing prudent and feasible tax planning strategies in
assessing the need for the valuation allowance, in the event that we determine
that we would be able to realize deferred tax assets in the future an adjustment
to the deferred tax asset would increase income in the period such determination
was made
Results of
Operations
Fiscal year ended May 31,
2008 compared to May 31, 2007
The
decrease of $631,137 in revenues during the year ended May 31, 2008 compared to
May 31, 2007 was attributable to a decrease in deferred license fees, which
totaled $156,344 for the year ended May 31, 2008 compared with $722,679 during
the year ended May 31, 2007. The Company continues to pursue
licensing and distribution agreements in other Asian countries and estimates
that an increasing amount of sales growth for our products will come from this
region in coming years.
The cost
of product sales during the year ended May 31, 2008 declined by $34,509 or 34%
due to a reduction in the cost of packaging and design in the emerging
Asian markets.
Total expenses
excluding cost of sales during the year ended May 31, 2008 were 6.6% or $54,544
lower than those of the prior year. The decrease was principally due to lower
travel expenses of $26,247 and commissions of $29,100 due to lower commissioned
sales and travel to Far East.
Liquidity and Capital
Resources
The
Company incurred a net loss of $403,815 for the year ended May 31,
2008. Net cash decreased by $374,702 for the fiscal year ended May
31, 2008. As of May 31, 2008, as a result of the loss, the Company’s current
assets exceeded its accounts payable and accrued expenses by
$167,488.
The
Company has no material commitments for capital expenditures at May 31,
2008.
|
ITEM
7.
|
FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
|
See page
F-1 for Lescarden Inc. Index to Financial Statements.
|
ITEM
8.
|
CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
None.
|
ITEM
8a
|
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 Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure. The Company’s management, including the Chief Executive Officer
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 Officer 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 Officer 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 annual report on Form
10KSB.
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 annual
report on Form 10-KSB.
Management's
report on internal control over financial reporting.
Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting. The Company's internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external reporting purposes in accordance with U.S. generally accepted
accounting principles.
Our
internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect transactions and dispositions of assets; (ii)
provide reasonable assurances that transactions are recorded as necessary to
permit preparation of financial statements in accordance with U.S. generally
accepted accounting principles, and that receipts and expenditures are being
made only in accordance with authorizations of management and the directors of
the Company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of the
Company's assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements.
Management
assessed the effectiveness of the Company's internal control over financial
reporting as of May 31, 2008 based on the framework established in
Internal Control—Integrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Based on that assessment, management concluded that,
as of May 31, 2008, the Company's internal control over financial reporting was
effective based on the criteria established in
Internal Control—Integrated
Framework
.
This
Annual Report on Form 10-KSB does not include an attestation report of the
Company's registered public accounting firm regarding internal control over
financial reporting since temporary rules of the SEC permit the Company to
provide only management's report on this Annual Report on Form
10-KSB.
(c)
Changes in internal control over
financial reporting.
As of the
end of the period covered by this report, there have been no changes in our
internal controls over financial reporting (as defined in Rule 13a-15(f) under
the Exchange Act) during the quarter ended May 31, 2008 that materially
affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.
Part III
|
ITEM
9.
|
DIRECTORS, EXECUTIVE
OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE WITH SECTION 16(A) OF
THE EXCHANGE ACT
|
The
executive officers and directors of the Company are as follows:
|
Name
|
Position
|
|
|
|
|
William
E. Luther
|
President
and Chief Executive Officer, Chief Financial Officer,
Director.
|
|
|
|
|
George
E. Ehrlich, M.D.
|
Director.
|
|
|
|
|
Charles
T. Maxwell
|
Director.
|
|
|
|
|
Russell
O. Wiese
|
Director.
|
|
|
|
|
Xavier
Gras Balaguer
|
Director.
|
Mr. Luther
(age 48) came to Lescarden in 1997, serving as Marketing Director for the CATRIX
®
Wound Care and Skin Care lines. He was promoted to Vice President of
Marketing in 1998 and then promoted to President and Chief Executive in October
2002. Mr. Luther was elected to the Board in April 2003. Mr. Luther is a
graduate of the Boston University School of Management.
Dr.
Ehrlich (age 79) is the President of George E. Ehrlich Associates, International
Consultant Firm, a position he has held for more than the past five
years. He became a Director of the Company on March 2, 1995. Dr.
Ehrlich is a graduate of Harvard University and received his medical degree
from Chicago Medical School.
Mr.
Maxwell (age 76) was the Vice Chairman and Senior Energy Strategist of C.J.
Lawrence Inc., a member firm of the New York Stock Exchange, for more than
twenty-five years, until his retirement in 1997. Mr. Maxwell has
acted as a consultant to various oil companies and the United States Government
on oil policy matters. He became a Director and Executive Vice
President of the Company in July 1997 and in April 2000 Mr. Maxwell became
Senior Energy Analyst with Weeden & Co., Greenwich,
Connecticut. Mr. Maxwell is a graduate of Princeton University
and Oxford University.
Mr. Wiese
(age 42) is the Chief Marketing Officer of Davis Advisors, L.P., an Investment
Advisor that manages over $65 billion. He has held this position since 1994.
Prior to joining Davis Advisors, L.P., Mr. Wiese worked for Merck & Co.,
Inc. where he held positions in sales, sales management, and product management.
Mr. Wiese is a graduate of the University of California, Berkley and the Stern
School of Business, New York University.
Mr.
Balaguer (age 55) has for more than the past five years owned a company devoted
to giving advice on strategy and project development to pharmaceutical
companies. Since 1998 he has been a representative of the Company in Europe. Mr.
Balaguer received his license in Medicine from the Autonomous University of
Barcelona, Spain and his MD at the School of Medicine from the University of
Barcelona.
|
ITEM
10.
|
EXECUTIVE
COMPENSATION
|
|
|
|
|
|
Annual
Compensation
|
|
Long-Term
Compensation Awards
|
|
|
|
|
|
|
|
|
|
Name
and principle position
|
|
Fiscal
Year Ended May 31,
|
|
Salary
$
|
|
Warrants(#)
|
|
|
|
|
|
|
|
|
|
William
E. Luther
|
|
2008
|
|
$150,000
|
|
-
|
|
|
|
2007
|
|
$150,000
|
|
-
|
|
|
|
2006
|
|
$138,542
|
|
-
|
Aggregated Option and
Warrant Exercises in Last Fiscal Year and FY End Option and Warrant
Values
|
|
|
Shares
Acquired on Exercise
|
|
Value
Realized
|
|
Number
of Unexercised Options/ Warrants at FY End (#)
|
|
Value
of Unexercised In-the-money Options Warrants at FY End
($)
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
(#)
|
|
($)
|
|
Exercisable
|
|
Exercisable
|
|
W.E.
Luther
|
|
|
|
|
|
Warrants
|
|
Warrants
|
|
|
|
|
|
|
|
210,000
|
|
-
|
|
ITEM
11.
|
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
|
The
following table sets forth, as of May 31, 2008 the ownership of the Company's
Common Stock by each person who is known by the Company to own Shares of record
or beneficially, more that (5%) of the Company's Common Stock, as well as each
of the Company’s directors and executive officers and all directors and
executive officers as a group. Except as otherwise indicated, the
stockholders listed in the table have sole voting and investment powers with
respect to the shares indicated.
|
Title
of Class (1)
|
|
Name
and Address of Beneficial Owner
|
|
Number
of Shares beneficially Owned
|
|
Percent
of Class
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
Charles
T. Maxwell
420
Lexington Ave.
Suite
212
New
York, NY 10170
|
|
12,733,512
|
|
41.15%
|
|
|
|
|
|
|
|
|
|
|
|
George
Ehrlich
420
Lexington Ave.
Suite
212
New
York, NY 10170
|
|
150,000
|
|
0.48%
|
|
|
|
|
|
|
|
|
|
|
|
William
Luther
420
Lexington Ave.
Suite
212
New
York, NY 10170
|
|
310,000
|
|
1.00%
|
|
|
|
|
|
|
|
|
|
|
|
Russel
O. Wiese
420
Lexington Ave.
Suite
212
New
York, NY 10170
|
|
2,000,000
|
|
6.46%
|
|
|
|
|
|
|
|
|
|
|
|
Xavier
Gras Balaguer
420
Lexington Ave.
Suite
212
New
York, NY 10170
|
|
150,000
|
|
0.48%
|
|
|
|
|
|
|
|
|
|
|
|
Directors
and Officers as a Group
5
persons
|
|
15,343,512
|
|
49.59%
|
(1) The
percentages are calculated on the basis of 30,943,450 shares of Common Stock
outstanding. For the purpose of calculating the percentage of shares
of the Company's Common Stock owned by any person, the shares issuable upon the
exercise of rights to acquire owned by such a person if exercisable within 60
days of May 31, 2008 are included in the number of shares beneficially owned,
but such shares are not included in the calculation of the percent of
class. All share ownership is direct unless otherwise
indicated.
|
Item
12.
|
Certain Relationships
and Related Transactions.
|
None.
|
Exhibit
Number
|
Description
of Exhibit
|
|
|
|
|
2.1
|
Plan
of Reorganization dated. January 15, 1997 (and Amended Disclosure
Statement dated. March 12, 1997).**
|
|
|
|
|
3.1
|
Certificate
of Incorporation of Registrant, as amended.*
|
|
|
|
|
3.2
|
By-Laws
of Registrant, as amended.*
|
|
|
|
|
22.1
|
Subsidiaries
of the Registrant.*
|
|
|
|
|
31
|
Certification
pursuant to Exchange Act
Rule 13a-14(a)/15d-14(a)
|
|
|
|
|
32
|
Certification
pursuant to 18 U.S.C. Section 1350 as adopted pursuant to section 906 of
the Sarbanes-Oxley Act of 2002
|
|
|
|
|
*
|
Incorporated
by reference to Registrant's Form S-1 (Registration no. 33-50743) filed
August 12, 1992.
|
|
|
|
|
**
|
Incorporated
by reference to Registrant’s Form 10-KSB for the fiscal year ended May 31,
1998.
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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.
|
|
|
|
|
|
|
By:
|
S/William E.
Luther
|
|
|
|
William
E. Luther, President
|
|
|
|
September
8, 2008
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
By:
|
S/ William E.
Luther
William
E. Luther
September
8, 2008
|
President,
Principal Executive O
fficer,
Principal
Financial
Officer,
Principal
Accounting
Officer
and Director
|
|
|
|
|
|
By:
|
S/George E.
Ehrlich
George
E. Ehrlich
September
8, 2008
|
Director
|
|
|
|
|
|
By:
|
S/ Charles T.
Maxwell
Charles
T. Maxwell
September
8,, 2008
|
Director
|
|
|
|
|
|
By:
|
S/ Russell O.
Wiese
Russell
O. Wiese
September
8, 2008
|
Director
|
|
|
|
|
|
By:
|
S/ Xavier Gras
Balaguer
|
Director
|
|
|
Xavier
Gras Balaguer
September
8, 2008
|
|
LESCARDEN
INC.
NOTES
TO FINANCIAL STATEMENTS
|
LESCARDEN
INC
|
INDEX
TO FINANCIAL STATEMENTS
|
|
|
F-2
– F-3
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6
|
|
|
F-7
|
|
|
F-8
– F-12
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Board of Directors and Shareholders
Lescarden
Inc.
We have
audited the accompanying balance sheet of Lescarden Inc. (the “Company”) as of
May 31, 2008, and the related statements of operations, stockholders’ deficit
and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our
opinion, the 2008 financial statements referred to above present fairly, in all
material respects, the financial position of Lescarden, Inc. as of May 31, 2008,
and the results of its operations and its cash flows for the year then ended in
conformity with United States generally accepted accounting
principles.
We were
not engaged to examine management’s assertion about the effectiveness Lescarden
Inc. internal control over financial reporting as of May 31, 2008 included in
the accompanying Management’s Annual Report on Internal Control over Financial
Reporting and, accordingly, we do not express an opinion thereon.
/s/
MCGLADREY & PULLEN,
LLP
New York, New
York
September
8, 2008
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders
Lescarden
Inc.
We have
audited the accompanying statements of income, stockholders’ equity, and cash
flows of Lescarden Inc. for the year ended May 31, 2007. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the results of operations and cash flows of Lescarden, Inc.
for the year ended May 31, 2007 in conformity with United States generally
accepted accounting principles.
/s/
GOLDSTEIN GOLUB KESSLER LLP
New York,
New York
August
23, 2007
LESCARDEN
INC.
|
BALANCE SHEET
|
|
May
31, 2008
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
38,867
|
|
|
Accounts
receivable
|
|
|
82,490
|
|
|
Inventory
|
|
|
219,637
|
|
|
Total
current assets
|
|
|
340,994
|
|
|
|
|
|
|
|
|
Deferred
income tax asset, net of valuation allowance of $1,435,000
|
|
|
|
|
|
Total
Assets
|
|
$
|
340,994
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
173,506
|
|
|
Shareholder
loan
|
|
|
7,000
|
|
|
Deferred
revenue
|
|
|
42,722
|
|
|
Deferred
license fees
|
|
|
264,477
|
|
|
Total
Liabilities
|
|
|
487,705
|
|
|
|
|
|
|
|
|
Stockholders'
deficit:
|
|
|
|
|
|
Convertible
preferred stock - $.02 par value; $1.50 liquidation value
(aggregating
$138,000); authorized 2,000,000 shares, issued
and
outstanding 92,000 shares
|
|
|
1,840
|
|
|
Common
stock - $.001 par value; authorized 200,000,000 issued and outstanding
30,943,450 shares
|
|
|
30,943
|
|
|
Additional
paid-in capital
|
|
|
16,617,615
|
|
|
Accumulated
deficit
|
|
|
(16,797,109
|
)
|
|
Stockholders'
Deficit
|
|
|
(146,711
|
)
|
|
Total
Liabilities and Stockholders' Deficit
|
|
$
|
340,994
|
|
See Notes
to Financial Statements
LESCARDEN
INC.
|
STATEMENTS OF (OPERATIONS) INCOME
|
|
Year
ended May 31,
|
|
2008
|
|
|
2007
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Product
sales
|
|
$
|
272,874
|
|
|
$
|
325,723
|
|
|
License
fees
|
|
|
156,344
|
|
|
|
722,679
|
|
|
Interest
income
|
|
|
2,451
|
|
|
|
14,404
|
|
|
Total
revenues
|
|
|
431,669
|
|
|
|
1,062,806
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
Cost
of product sales
|
|
|
68,302
|
|
|
|
102,811
|
|
|
Salaries
and wages
|
|
|
271,935
|
|
|
|
271,833
|
|
|
Professional
fees and consulting
|
|
|
186,714
|
|
|
|
194,822
|
|
|
Commissions
|
|
|
-
|
|
|
|
29,100
|
|
|
Rent
and office expenses
|
|
|
115,638
|
|
|
|
107,812
|
|
|
Travel
and meetings
|
|
|
118,112
|
|
|
|
144,359
|
|
|
Insurance
|
|
|
62,786
|
|
|
|
56,000
|
|
|
Other
administrative expenses
|
|
|
11,997
|
|
|
|
17,800
|
|
|
Total
costs and expenses
|
|
|
835,484
|
|
|
|
924,537
|
|
|
Net
(loss) income
|
|
$
|
(403,815
|
)
|
|
$
|
138,269
|
|
|
Net
(loss) income per common share - basic and diluted
|
|
$
|
(.01
|
)
|
|
$
|
.00
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
30,943,450
|
|
|
|
31,038,423
|
|
|
Diluted
|
|
|
30,943,450
|
|
|
|
31,038,423
|
|
See Notes
to Financial Statements
LESCARDEN
INC.
|
|
|
|
|
|
STATEMENTS OF STOCKHOLDERS’ EQUITY
(DEFICIT)
|
|
|
|
|
Convertible
Preferred
|
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
Shares
|
|
|
Par
Value
Amount
|
|
|
Number
of
Shares
|
|
|
Par
Value
Amount
|
|
|
Additional
Paid-in
Capital
|
|
|
Accumulated
Deficit
|
|
|
Stockholders’
Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at May 31,
2006
|
|
|
92,000
|
|
|
$
|
1,840
|
|
|
|
31,057,418
|
|
|
$
|
31,057
|
|
|
$
|
16,634,596
|
|
|
$
|
(16,531,563
|
)
|
|
$
|
135,930
|
|
|
Repurchase
of common
stock
|
|
|
|
|
|
|
|
|
|
|
(113,968
|
)
|
|
|
(114
|
)
|
|
|
(16,981
|
)
|
|
|
|
|
|
|
(17,095
|
)
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
138,269
|
|
|
|
138,269
|
|
|
Balance
at May 31,
2007
|
|
|
92,000
|
|
|
|
1,840
|
|
|
|
30,943,450
|
|
|
|
30,943
|
|
|
|
16,617,615
|
|
|
|
(16,393,294
|
)
|
|
|
257,104
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(403,815
|
)
|
|
|
(403,815
|
)
|
|
Balance
at May 31,
2008
|
|
|
92,000
|
|
|
$
|
1,840
|
|
|
|
30,943,450
|
|
|
$
|
30,943
|
|
|
$
|
16,617,615
|
|
|
$
|
(16,797,109
|
)
|
|
$
|
(146,711
|
)
|
See Notes
to Financial Statements
LESCARDEN
INC.
|
STATEMENTS OF CASH
FLOWS
|
|
Year
ended May 31,
|
|
2008
|
|
|
2007
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$
|
(403,815
|
)
|
|
$
|
138,269
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net (loss) income to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Decrease
(increase) in accounts receivable
|
|
|
3,884
|
)
|
|
|
(17,551
|
)
|
|
Decrease
(increase) in inventory
|
|
|
4,529
|
|
|
|
(21,700
|
)
|
|
Increase
(decrease) in accounts payable and accrued expenses
|
|
|
127,322
|
)
|
|
|
(40,352
|
)
|
|
Increase
in deferred revenue
|
|
|
42,722
|
|
|
|
-
|
|
|
Decrease
in deferred license fees
|
|
|
(156,344
|
)
|
|
|
(722,679
|
)
|
|
Net
cash used in operating activities
|
|
|
(381,702
|
)
|
|
|
(664,013
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Repurchase
of common stock
|
|
|
-
|
|
|
|
(17,095
|
)
|
|
Increase
in shareholder loan
|
|
|
7,000
|
|
|
|
-
|
|
|
Cash
provided by (used in) financing activities
|
|
|
7,000
|
|
|
|
(17,095
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash
|
|
|
(374,702
|
)
|
|
|
(681,108
|
)
|
|
Cash
and cash equivalents at beginning of year
|
|
|
413,569
|
|
|
|
1,094,677
|
|
|
Cash
and cash equivalents at end of year
|
|
$
|
38,867
|
|
|
$
|
413,569
|
|
See Notes
to Financial Statements
LESCARDEN
INC.
NOTES TO FINANCIAL STATEMENTS
|
1.
|
OPERATIONS
AND SIGNIFICANT ACCOUNTING
POLICIES:
|
Lescarden
Inc. (the "Company") is engaged in the development of medications for the
control and cure of various diseases and the licensing of its technologies for
commercialization by other companies. In its research and testing to
date, the Company has discovered and is primarily investigating Catrix
®
, a
complex of mucopolysaccharides derived from bovine cartilage. The Company is
currently selling products using CATRIX
®
materials and is licensing its technologies in Canada, Europe and
Korea.
As shown
in the financial statements, the Company has suffered a loss from operations for
the year ended May 31, 2008, has a stockholders’ deficiency and a working
capital deficiency.
In
addition, the Company’s major stockholder has committed to provide loan to the
Company as needed to fund operating expenses. All loans or advances will be due
and payable no earlier than June 1, 2009 or until the Company returns to
profitability.
Revenue
from product sales is recognized upon shipment of the product when title to the
property and risk of loss transfers to the buyer, and collectibility of the
sales price is reasonably assured.
The
deferred license fees of $264,477 stated on the balance sheet relate to license
fees received from the Company's licensees in Canada, Europe and Korea which are
being amortized straight-line over the term of the license
agreements.
The
Company believes it has one business segment for financial reporting purposes
since it operates in the medical products industry.
Accounts
receivable are reported at their outstanding unpaid principal balances reduced
by an allowance for doubtful accounts. The Company estimates doubtful
accounts based on historical bad debt, factors related to specific customers'
ability to pay and current economic trends. The Company writes off
accounts receivable against the allowance when a balance is determined to be
uncollectible. No allowance was needed at May 31, 2008.
For
purposes of the statement of cash flows, the Company considers all highly liquid
debt instruments purchased with an original maturity of three months or less to
be cash equivalents.
The
Company maintains cash in bank deposit accounts which, at times, exceed
federally insured limits. The Company has not experienced any losses
on these accounts.
Basic
earnings (loss) per share is computed by dividing net income (loss) per common
share by the weighted-average number of common shares outstanding during the
year. Diluted earnings per share has not been presented in the accompanying
statements of (operations) income since the Company has no dilutive warrants nor
other potential common stock outstanding during the year based on the stock
price as of the end of the year. Warrants to purchase 538,783 and
488,783 shares of the Company’s common stock , were not included in the
calculation, due to the fact that these warrants were anti-dilutive for the
years ended May 31, 2008 and 2007.
Inventory,
consisting principally of Catrix
®
and
BIO-CARTILAGE
®
supplies
and Catrix
®
topical
wound treatment creams and solutions, is stated at the lower of cost, determined
by the first-in, first-out method, or market.
LESCARDEN
INC.
NOTES
TO FINANCIAL STATEMENTS
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the use of estimates
by management. Actual results could differ from those
estimates.
Income
taxes
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 and penalties related to uncertain tax positions were accrued at May
31, 2008.
The tax
years 2004 through 2007 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.
Recent
accounting pronouncements.
The
Company does not believe that any other recently issued, but not yet effective
accounting standards will have a material effect on the Company’s consolidated
financial position, results of operations or cash flows.
Certain
prior year amounts have been reclassified to conform to current year
presentation.
|
Inventory
at May 31, 2008 consists of the following:
|
|
|
Finished
goods
|
|
$
|
83,198
|
|
|
Raw
materials
|
|
|
136,439
|
|
|
|
|
$
|
219,637
|
|
|
3.
|
STOCK
OPTIONS AND WARRANTS:
|
In the
year ended May 31, 1993, the Company approved the 1992 Employee Incentive Stock
Plan (the "1992 Plan"). The 1992 Plan authorized the issuance of
stock options, restricted shares of stock and stock bonus awards to eligible
participants. The 1992 Plan provides for the reservation and
availability of 2,000,000 shares of common stock, subject to adjustment for
future stock splits, dividends, reorganizations and other similar events, at
exercise prices not less than the fair market value at the date of
grant. Options are exercisable from 12 months after the date of grant
and expire 10 years from the date of grant. At May 31, 2008, no
options were granted under the 1992 Plan.
LESCARDEN
INC.
NOTES
TO FINANCIAL STATEMENTS
Note
3 (continued)
The
following is a summary of transactions relating to warrants which are granted at
the discretion of the board of directors:
|
|
|
Number
of
Warrants
Exercisable
|
|
|
Weighted-average
Excise
Price
per
Share
|
|
|
Balance
at June 1, 2006
|
|
|
852,766
|
|
|
$
|
.24
|
|
|
Expired
|
|
|
(313,983
|
)
|
|
|
.16
|
|
|
Balance
at May 31, 2007
|
|
|
538,783
|
|
|
|
.28
|
|
|
Expired
|
|
|
(50,000
|
)
|
|
|
.34
|
|
|
Balance
at May 31, 2008
|
|
|
488,783
|
|
|
$
|
.28
|
|
The
following table summarizes the information about warrants outstanding at May 31,
2008:
|
Warrants
Outstanding and Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range
of Excise Price
|
|
|
Number
Outstanding
|
|
|
Weighted-average
Remaining
Contractual
life
(years)
|
|
|
Weighted
–Average
Excise
Price
|
|
|
$
|
.15
|
|
|
|
100,000
|
|
|
|
2.83
|
|
|
$
|
.15
|
|
|
|
.25
-.29
|
|
|
|
48,783
|
|
|
|
1.89
|
|
|
|
.25
|
|
|
$
|
.30
- $.34
|
|
|
|
340,000
|
|
|
|
2.25
|
|
|
|
.32
|
|
|
$
|
.15
- $.34
|
|
|
|
488,783
|
|
|
|
2.32
|
|
|
$
|
.28
|
|
|
4.
|
MAJOR
CUSTOMERS AND SUPPLIER:
|
During the
year ended May 31, 2008 and May 31 2007, sales to two and three customers
accounted for approximately 53% and 79% of net product sales,
respectively.
Substantially
all of the Company's purchases of its primary raw material for the Company's
principal merchandise inventory for the year ended May 31, 2008 were from one
vendor.
|
5.
|
COMMITMENTS
AND CONTINGENCIES:
|
The
Company has a non-cancelable lease with an unrelated third party to rent office
space. The lease, which expires on January 31, 2011, is subject
to escalations based on real estate taxes and utilities. The
aggregate minimum rental payments under this lease are as follows:
|
Year
ending May 31,
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
68,182
|
|
|
|
|
|
|
|
|
2010
|
|
|
72,435
|
|
|
|
|
|
|
|
|
2011
|
|
|
48,930
|
|
|
|
|
$
|
189,547
|
|
LESCARDEN
INC.
NOTES
TO FINANCIAL STATEMENTS
Note 5
(continued)
Rent
expense charged to operations for the years ended May 31, 2008 and 2007 amounted
to approximately $83,000 and $74,000, respectively.
On June 4,
2002, the Company announced that it had entered into a license agreement with
another entity related to ICN granting this entity a 10-year exclusive license
to market the Product in Canada. All of the license fees were paid in the fiscal
year ended May 31, 2003, upon the Company having secured registration and
marketing approval for the Product from the Canadian Health Authorities and are
being amortized over the life of the license. In the accompanying May
31, 2008 balance sheet, $90,000 is included in deferred license
fees.
On
September 16, 2004, the Company announced that it had entered into a license
agreement with Valeant Pharmaceuticals International (formerly ICN Iberica)
granting Valeant a 10-year exclusive license to market Lescarden's proprietary
product, Catrix
®
Wound
Dressing throughout Europe. This agreement expanded the existing relationship
between the two companies. In July 2006, the company approved a sub-license
agreement between Valent and Smith and Nephew for distribution of Catrix
®
wound
dressing in Spain through June 15, 2009. The company terminated its agreements
with Valent except for distribution in Spain which expires on June 15, 2009. In
the accompanying May 31, 2008 balance sheet, $135,477 of license fees received
from this agreement is included in deferred license fees.
On
December 22, 2004, the Company announced that it had entered into a license
agreement with Daewoong Pharmaceutical Co. Ltd. of Seoul, Korea granting
Daewoong a 10-year exclusive license to market Lescarden's proprietary product
Catrix
®
Wound Dressing in South Korea. Daewoong is the fourth largest
pharmaceutical manufacturer and distributor in Korea. In the accompanying May
31, 2008 balance sheet, $39,000 of license fees received from this agreement is
included in deferred license fees.
|
6.
|
STOCKHOLDERS'
DEFICIT:
|
The
convertible preferred stock has a preference upon liquidation of $1.50 per
share; is convertible, at the option of the holder, into one share of the
Company's common stock for each share of preferred stock; and is callable, at
the option of the Company at such time as its net worth exceeds $3,000,000, for
$1.50 per share. Additionally, holders of preferred stock are
entitled to vote for directors of the Company on a one-share/one-vote
basis.
The
Company has net operating loss carry forwards of approximately $4,222,000
available to reduce future taxable income which expire in various years through
2028.
The
utilization of net operating loss carryforwards may be limited as a result of
cumulative changes in the Company's stock ownership.
Deferred
income taxes reflect the impact of net operating loss
carryforwards. In recognition of the uncertainty regarding the
ultimate amount of income tax benefits to be derived from the Company's net
operating loss carryforwards, the Company has recorded a valuation allowance for
the entire deferred tax asset.
The
deferred income tax asset is comprised of the following at May 31,
2008:
LESCARDEN
INC.
NOTES
TO FINANCIAL STATEMENTS
Note 7
(continued)
|
Gross
deferred tax assets
|
|
$
|
1,435,000
|
|
|
Valuation
allowance
|
|
|
(1,435,000
|
)
|
|
Net
deferred income tax asset
|
|
$
|
-0-
|
|
A
reconciliation of the effective income tax rate to the statutory rate
is as follows:
|
|
|
|
|
|
|
|
|
Year
ended May 31,
|
|
2008
|
|
|
2007
|
|
|
Tax
benefit at federal statutory rate
|
|
|
(34)%
|
|
|
|
(34)%
|
|
|
Increase
in valuation allowance
|
|
|
34
|
|
|
|
34
|
|
|
|
|
|
-0-%
|
|
|
|
-0-%
|
|
|
8.
|
RELATED
PARTY TRANSACTIONS:
|
During the
year ended May 31, 2008 the a major stockholder of the Company
provided a loan to the Company in the amount of $7,000. This loan is
non-interest bearing and is not due to be paid back no earlier than June 1,
2009.
Subsequent
to the May 31, 2008 year end, the major stockholder of the Company provided a
loan to the Company in the amount of $92,000. This loan is non-interest bearing
and not due to be paid back no earlier than June 1, 2009.
F-12
Lescarden (CE) (USOTC:LCAR)
Graphique Historique de l'Action
De Mai 2024 à Juin 2024
Lescarden (CE) (USOTC:LCAR)
Graphique Historique de l'Action
De Juin 2023 à Juin 2024
