LCAR.. $0.0268 Earnings..
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations--Three months ended August 31, 2010 compared to August 31, 2009
The Company resumed shipments of Catrix wound dressing to its European distributor during the previous fiscal year upon completion of the regulatory recertification of the Alcan Pharmaceutical packaging facility in Pennsylvania. In June 2010, the Company received notice from Alcan that the packaging facility was scheduled to close in less than six months which will necessitate the selection of a new facility to package the Company’s products and regulatory recertification of the new packager.
The Company is evaluating alternative packaging facilities and believes that inventory on-hand is sufficient to meet demand until the packaging process can be transferred to a new facility. The transfer of our packaging process to a new facility will require a notice of significant change to be submitted to, and approved by, the European regulated body in accordance with the reporting requirements of the Company’s CE Mark. Based on recent experience, the Company believes that the non-recurring costs associated with this transfer of our packaging process are minimal.
The Company’s revenues increased in the fiscal quarter ended August 31, 2010 compared to August 31, 2009 by 31% or $25,189 due to increased sales of $25,823 to its Korean distributor, and increases of $11,600, $4,575 and $3,027 to its UK, Spanish and Taiwanese distributors, respectively, offset by a decrease in deferred license fee income brought about by a change in estimate regarding the amortization of license fees. Cost of sales decreased by $8,587 due to the non-recurring costs associated with the transfer of its packaging process to a new facility incurred during the quarter ended August 31, 2009. The cost of sales as a percent of sales for the three months ended August 31, 2010 was 22%, which is consistent with historical levels during periods that do not involve the non-recurring costs associated with significant changes to the production packaging process.
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Total costs and expenses during the three months ended August 31, 2010 were 5% or $6,336 higher than those of the comparative prior-year period. Increased payroll expenses of $7,075 reflect improved liquidity and the desire of the board of directors to begin reducing the salary reductions necessitated by the Company’s financial difficulties. Increased insurance expenses of $6,048 are attributable to increases in both health insurance and products liability premiums. Increased professional fees of $5,605 include an increase in quality assurance services of $1,784 and increased accounting and reporting costs of $3,821. Rent and office expense decreased by $3,687 or 11% due to a reduction in the real estate tax and operating expense adjustment for the Company’s office lease.
Liquidity and Capital Resources
The Company had a net loss of $34,785 for the three months ended August 31, 2010. An increase in accounts receivable of $50,610, a decrease in accounts payable of $11,839, a decrease in deferred revenue of $29,059, a decrease of $1,500 in deferred license fees offset by decreases in prepaid expense and inventory of $6,800 and $5,652 respectively resulted in a use of $115,341 for operating activities. The Company has reached an agreement with its Chairman of the Board to convert the aggregate shareholder loans aggregating $274,000 at August 31, 2010 into common stock through the issuance of common stock in exchange for cancellation of indebtedness at prevailing market prices during the second fiscal quarter.
As of August 31, 2010, the Company’s accounts payable and accrued expenses exceeded its current assets by $13,315. The Company’s cash and cash equivalents balance decreased by $115,341 in the quarter ended August 31, 2010 to $22,587.
The Company has no material commitments for capital expenditures at August 31, 2010.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
Not required for a 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 10Q.
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.
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