form10q.htm

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

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

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.

	November 30, 2008			May 31, 2008
	(UNAUDITED)			(AUDITED)

Current assets:
Cash and cash equivalents	$	4,701		$	38,867
Accounts receivable		24,778			82,490
Inventory		212,088			219,637
Total current assets		241,567			340,994

Deferred income tax asset, net of valuation allowance of $1,485,000 and $1,435,000 at November 30, 2008 and May 31, 2008

Total assets	$	241,567		$	340,994

LIABILITIES AND STOCKHOLDERS' EQUITY

Currents liabilities:
Accounts payable and accrued expenses	$	224,497		$	173,506
Shareholder loan		119,000			7,000
Deferred revenue		8,685			42,722
Deferred license fees		186,305			264,477
Total liabilities		538,487			487,705



Stockholders' deficit
Convertible preferred stock		1,840			1,840
Common stock		30,943			30,943
Additional paid-in capital		16,617,615			16,617,615
Accumulated deficit		(16,947,318	)		(16,797,109	)
Stockholders' deficit		(296,920	)		(146,711	)
Total liabilities and stockholders' deficit	$	241,567		$	340,994

	(UNAUDITED) For the three months Ended November 30,						(UNAUDITED) For the six months Ended November 30,

	2008			2007			2008			2007

Total revenues		99,677			188,093			220,064			410,326

Costs and expenses:
Cost of sales		12,168			27,749			30,167			56,656
Salaries		48,542			65,446			116,420			133,183
Professional fees and consulting		55,610			40,758			99,917			87,701
Rent and office expense		26,953			36,145			58,696			68,609
Travel and meetings		1,345			38,084			6,073			66,298
Insurance		39,965			29,733			47,243			38,172
Other administrative expenses		4,655			2,256			11,757			5,244
Total costs and expenses		189,238			240,171			370,273			455,863

Net loss	$	(89,561	)	$	(52,078	)	$	(150,209	)	$	(45,537	)

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

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

	(UNAUDITED) For the six months Ended November 30,

	2008			2007

Cash flows from operating activities:
Net loss	$	(150,209	)	$	(45,537	)
Adjustments to reconcile net loss to net cash used in operating activities:
Changes in operating assets and liabilities
Decrease (increase) in accounts receivable		57,712			(189,084	)
Decrease in inventory		7,549			18,308
Increase (decrease) in accounts payable and accrued expenses		50,991			(6,091	)
Decrease in deferred revenue		(34,037	)		-
Decrease in deferred license fees		(78,172	)		(105,205	)
Net cash flows used in operating activities		(146,166	)		(327,609	)

Cash flows from financing activities:
Increase in shareholder loan		112,000			-
Cash provided by financing activities		112,000			-

Decrease in cash		(34,166	)		(327,609	)

Cash - Beginning of Period		38,867			413,569

Cash – End of Period	$	4,701		$	85,960

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

The results of operations for the interim periods are not necessarily indicative of results to be expected for a full year's operations. As shown in the financial statements, the Company incurred a loss from operations during the quarter and has stockholder’s deficiency. The Company’s major stockholder has committed to provide loans to the company as needed to fund operations. All loans from such stockholder will be due or payable no earlier than June 1, 2009 or until the company returns to profitability. The Company’s major stockholder provided a non-interest bearing loan of $112,000 to the Company during the six-month period ended November 30, 2008.

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

Income taxes are computed using the asset and liability method of accounting. Under the asset and liability method, a deferred tax asset or liability is recognized for estimated future tax effects attributable to temporary differences and carryforwards. The measurement of deferred income tax assets is adjusted by a valuation allowance, if necessary, to recognize future tax benefits only to the extent, based on available evidence; it is more likely than not such benefits will be realized. The Company recognizes interest and penalties, if any, related to uncertain tax positions in selling, general and administrative expenses. No interest or penalties related to uncertain tax positions were accrued at November 30, 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. The results of operations for the interim periods are not necessarily indicative of results to be expected for a full year's operations.

The results of operations for the six months ended November 30, 2008 reflect a transitional period for the Company brought about by a strategic refocusing on licensing opportunities and production cost efficiencies. Despite the global economic slowdown, demand for the Company’s products in the European and Asian markets remained strong. Our licensees in Europe and Asia are well positioned to pursue promotional opportunities and grow brand awareness in the targeted markets. With regard to existing license agreements, license fees are amortized on a straight line basis over the term of the license. The Company is obligated to deliver products to licensees during the terms of the respective license agreements.

The launch of Caty-S in the Korean market reflects an effort to identify the unique needs of that market and offer a formulation of the Company’s core product to meet those needs. The Company’s investment in product development production costs is expected to provide a sustainable competitive advantage in the Korean market but has resulted in lower gross margins with respect to current period sales. The initial formulation of Caty-S experienced quality control exceptions due to product separation, however, the reformulated product is in the final stages of stability testing and will be available for shipment during the third quarter.

The Company has reached an agreement with Alcan Packaging that will significantly reduce the direct product costs of production. The decision by the Company’s former packager to discontinue involvement with animal source product necessitated this change and caused a delay in the Company’s ability to fulfill a $225,000 purchase order from its European licensee. The Company has selected an alternative packaging services company and expects to fulfill the outstanding purchase order during the fourth quarter. The Company reached an agreement with its former packager to accept non-recurring payments of $30,000 during the second quarter and an additional payment of $50,000 payable during the third quarter in full settlement of the business interruption and resulting product fulfillment delay brought about by its decision to discontinue packaging the Company’s products.

The Company’s revenues decreased 46% or $190,262 during the six months ended November 30, 2008 compared to November 30, 2007 due to decreased sales of Catrix® skincare to its licensees in Asia. The Company is in the final stages of testing the reformulated Caty-S which experienced quality control exceptions due to product separation. Other income of $30,183 representing a payment from the Company’s former packager of Catrix products was included in revenue for the period.

Total costs and expenses during the six months ended November 30, 2008 were 19% or $85,590 lower than those of the comparative prior year period. The decrease was principally due to a decrease in travel and meeting expenses of $60,225, and decreases in salaries of $16,763 and cost of sales of $26,489 offset by increases in insurance expense of $9,071 and professional fees of $12,216.

The Company’s revenues decreased in the fiscal quarter ended November 30, 2008 compared to November 30, 2007 by 47% or $88,316 due to decreased sales of Catrix ® skincare to its licensees in Asia. The Company is in the final stages of testing the reformulated Caty-S which experienced quality control exceptions due to product separation. Upon approval by the Korean licensee, gross margins are expected to return to historical levels. Other income of $30,183 representing a payment from the Company’s former packager of Catrix products was included in revenue for the period.

Total costs and expenses during the three months ended November 30, 2007 were 21% or $50,934 lower than those of the comparative prior year period. The decrease was principally due to decreases in travel and meeting expenses and salaries offset by increases in professional fees and other administrative expenses, which included the additional shipping costs pertaining to the launch of reformulated Caty-S in the Korean market.

As of November 30, 2008, the Company’s current assets exceeded its accounts payable and accrued expenses by $17,070. The Company’s cash and cash equivalents balance decreased by $34,166 in the quarter ended November 30, 2008 to $4,701. The company’s major shareholder has committed to provide loans to the Company as needed to fund operations until the company returns to profitability. The Company has no material commitments for capital expenditures at November 30, 2008.

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.

Class		Outstanding January 7, 2009
Common Stock $.001 par value		30,943,450

	LESCARDEN INC.
	(Registrant)


Date: January 14, 2009

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