Nine months ended August 31, 2009 compared to nine months
ended August 31, 2008.
Revenue decreased
approximately 51.17% for the quarter ended August 31, 2009 ($5,739,593) for the
nine months ended August 31, 2009 compared to $11,754,7700 for the nine months
ended August 31, 2008 due to a general slowdown in retail sales and our
customers having inventory overstock. Our gross margin increased to 28.65%
for the nine months ended August 31, 2009 compared to the nine months ended
August 31, 2008 of only 26.21%. Selling expenses decreased to $298,855 (5.20%
of revenue) for the nine months ended August 31, 2009 from $750,005 (6.38%
of revenue) for the nine months ended August 31, 2008. General and administrative
expenses for the nine months ended August 31, 2009 decreased to $2,088,959
(36.40% of revenue) from $2,609,456 (22.20% of revenue) for the nine months
ended August 31, 2008.
Interest
expense was $291,484 and $295,575 for the nine months ended August 31, 2009 and
for the nine months ended August 31, 2008, respectively.
Liquidity and Capital Resources.
For the Nine
months ended August 31, 2009 the Company had cash flow used in operations of
$(467,948).
Liquidity is sustained principally through funds provided from
operations, the factoring facility and loans from related party.
Inventories
are up as a percentage of our current assets as of the close of the quarter
(approximately 52.15% as of August 31, 2009 versus approximately 30.32% as of
November 30, 2008), and accounts receivable are down as a percentage of current
assets as of that date (approximately 18.70% as of August 31, 2009 versus approximately
41.75% as of November 30, 2008), due to our seasonal sales which increased our
accounts receivable in the fourth quarter of 2008.
Cash plus
accounts receivable and inventory exceeded our current liabilities. We believe
we will be able to meet our cash requirements for the next 12 months without
additional financing based on current projected sales.
The Company
has arranged for a factoring facility of up to $5,000,000. The Company agreed
to offer for sale to the factor certain of its accounts. The factor has the
absolute right in its sole discretion to reject any or all offered accounts.
The factor may advance up to 85% of the face value of the invoices. The
remaining 15% of balance is received when the customer pays the invoice to the
factor.
Each account
is purchased by the factor without recourse against the Company. All losses
incurred by the factor from the financial inability of the applicable account
debtor to pay such account over and above any and all residual payments and
reserve amounts offset shall be borne solely by the factor.
As of November
30, 2008 and August 31, 2009, the factor charges the Company 1% of the invoice
amount if the customer repays the invoice within 60 days and 1.25% for up to 90
days.
The factor has
a security interest in all of our accounts receivable, inventory, deposit
accounts, and general intangibles. We find that this arrangement is a
convenient and cost efficient way to turn our accounts receivable into cash on
an as needed basis.
12
Critical Accounting Policies and Estimates
Use of Estimates.
In
preparing our financial statements, we must make a number of estimates and
judgments that affect the reported amounts of assets, liabilities, revenue, and
expenses, and related disclosure of contingent assets and liabilities. On an
ongoing basis, we evaluate our estimates. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances. Actual results could differ from these estimates under
different assumptions or conditions, and these differences may be material. We
believe the following critical accounting policies affect our more significant
judgments and estimates used in preparing our financial statements.
Allowance for Doubtful Accounts
We reserve for bad debts and create our allowance by identifying specific
accounts receivable by customer based upon age and collectibility. When we
determined that an account is uncollectible, we remove it from the accounts
receivable and reduce the related allowance. Our estimates of collectibility
are based on a number of subjective factors including our appraisal of the
particular customers history with us into any identifiable factors that may
particularly affect that customers segment of the market. If our estimates as
to collectibility are incorrect the amount of our reserve may be too small,
resulting in greater future charges to income if and when the uncollectibility
of that account becomes clear. If we were to apply another method of determining
our allowance for doubtful accounts, such as applying historical percentages to
the aggregate dollar amount of accounts outstanding, the result in any
particular period could be very different.
Inventories
Inventories which consist of mostly finished goods are stated at the lower of
cost or market, with cost being determined by the weighted average first-in,
first-out method. The effect of this policy is to reduce the cost of goods sold
when cost of inventory are rising as compared to the cost of goods sold that
would apply if we were to determine cost on a last in first-out basis.
Conversely, our policy would result in a reduction in the cost of goods sold
during periods of falling inventory prices.
Property and Equipment
We compute depreciation of property and equipment by the straight-line method
at rates calculated to amortize cost over the estimated useful lives which
approximate 39 years for buildings and building improvements and 5 to 10 years
for machinery and equipment, computer equipment and furniture and fixtures. We
charge maintenance and repairs to operations as incurred, while we capitalize
the cost of betterments and improvements. The cost and related accumulated
depreciation of assets sold or otherwise disposed of are eliminated from the
accounts and any resulting gain or loss is reflected in operations. If we were
to apply shorter useful lives in estimating the applicable depreciation,
depreciation expense would be higher. In addition, we must apply judgment in
determining whether particular work should properly be regarded as maintenance
and repairers, and not a long-term increase in the value of the underlying
asset. To the extent that we classify work on an asset as a cost of that asset
rather than an expense to be deducted currently, our stated earnings for the
applicable period would be increased.
Long-Lived Assets
We follow Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. This
statement requires us to review certain long-lived assets and identifiable
intangibles for impairment or disposal whenever events or changes in
circumstances indicated the carrying amount may not be recoverable. We address
recoverability based upon estimated non-discounted cash flow forecasts.
Technological changes and other changes in the marketplace may result in a
particular assets becoming recoverable in a shorter period of time than we
have estimated. If that were to occur, our earnings would be reduced at such
time as we determined that our initial estimate was too long. We have
determined that we do not need to recognize an impairment loss for applicable
assets through August 31, 2009 and 2008.
13
Revenue Recognition
We recognize revenues in accordance with Securities and Exchange Commission
Staff Accounting Bulletin No. 104, Revenue Recognition (SAB 104). Under SAB
104, we record revenues from merchandise sales when all four of the following
criteria are met: persuasive evidence of an arrangement exists; delivery has
occurred or services have been rendered; the Companys price to the buyer is
fixed or determinable; and collectibility is reasonably assured. We report our
sales levels on a net revenue basis, with net revenues being computed by
deducting from gross revenues the amount of actual sales returns and discounts.
The determination of whether collectibility is reasonably assured is in
substantial part subjective. If we are too optimistic in estimating
collectibility, revenues would be overstated for the period prior to our
becoming aware that an account has become uncollectible.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Smaller
reporting companies are not required to provide the information required by
this Item.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation
of disclosure controls and procedures.
Under the
supervision and with the participation of our management, including our
Chairman, Chief Executive Officer and Chief Financial Officer, we have
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the period covered by this quarterly
report, and based on their evaluation, our Executive Chairman, Chief Executive
Officer and Chief Financial Officer have concluded that these disclosure
controls and procedures are effective.
Disclosure
controls and procedures are the controls and other procedures that are designed
to ensure that information required to be disclosed by us in the reports we
file or submit under the Exchange Act is recorded, processed, summarized, and
reported, within the time periods specified in the Securities and Exchange
Commissions rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by us in the reports that we file under the Exchange
Act is accumulated and communicated to our management, including our Executive
Chairman, Chief Executive Officer and Chief Financial Officer, as appropriate,
to allow timely decisions regarding required disclosure.
(b) Changes in
internal controls.
There were no
significant changes in our internal controls or in other factors that could
significantly affect our internal control over financial reporting.
14
PART II
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
Smaller
reporting companies are not required to provided the information required by
this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The exhibits
required by this Item are set forth in the Exhibit Index attached hereto.
15
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
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LASER MASTER
INTERNATIONAL, INC.
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Date:
October 20, 2009
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By:
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/s/ Mendel
Klein
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Name:
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Mendel Klein
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Title:
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Chief
Executive Officer and
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Chief
Financial Officer
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16
EXHIBIT INDEX
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Exhibit
No.
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Description
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31.1
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Certification
of Chief Executive Officer and Chief Financial Officer pursuant to Rules
13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended.
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32.1
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Certification
of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
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17
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