Washington, D.C. 20549
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
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 __
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data file required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files. Yes X No __
Indicate by check mark whether the registrant
is a large accelerated filing, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes __ No X
State the number of shares outstanding of each of the issuer’s
classes of common equity, as of January 31, 2018: 14,935,511
PART 1 – FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
Balance Sheets
ASSETS
|
January 31, 2018
Unaudited
|
April 30, 2017
Audited
|
Current Assets
|
|
|
Cash
|
$ 1,132,692
|
$ 1,040,582
|
Accounts receivable, trade (net of allowance for doubtful accounts of $500 at January 31, 2018 and April 30, 2017
|
230,274
|
267,545
|
Inventories
|
133,939
|
186,312
|
Prepaid expenses
|
52,233
|
32,165
|
Total Current Assets
|
1,549,138
|
1,526,604
|
|
|
|
Equipment and leasehold improvements
|
|
|
Equipment
|
201,764
|
201,764
|
Leasehold improvements
|
23,447
|
23,447
|
|
225,211
|
225,211
|
Less accumulated depreciation and amortization
|
(212,882)
|
(205,326)
|
Total Equipment and Leasehold
Improvements Net
|
12,329
|
19,885
|
|
|
|
Other Assets
|
|
|
Patents less accumulated amortization
|
63,858
|
70,372
|
Pending patents
|
69,420
|
69,420
|
Deposits
|
5,937
|
5,937
|
Total Other Assets
|
139,215
|
145,729
|
|
|
|
|
$ 1,700,682
|
$ 1,692,218
|
The accompanying notes are an integral part
of the financial statements.
BIOSYNERGY, INC.
PART 1 – FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS EQUITY
|
January 31, 2018
Unaudited
|
April 30, 2017
Audited
|
Current Liabilities
|
|
|
Accounts payable
|
$ 12,835
|
$ 3,842
|
Accrued compensation and payroll taxes
|
18,903
|
42,472
|
Other accrued liabilities
|
1,369
|
3,589
|
Accrued Vacation
|
18,656
|
21,795
|
Total Current Liabilities
|
51,763
|
71,698
|
|
|
|
Deferred Income Taxes
|
34,800
|
34,800
|
|
|
|
Shareholder's Equity
|
|
|
Common stock, no par value: 20,000,000 authorized shares issued: 14,935,511 shares at January 31, 2018 and April 30, 2017
|
660,988
|
660,988
|
Receivable from affiliate
|
(19,699)
|
(19,699)
|
Retained earnings
|
972,830
|
944,431
|
Total Shareholders' Equity
|
1,614,119
|
1,585,720
|
|
|
|
|
$ 1,700,682
|
$ 1,692,218
|
|
|
|
The accompanying notes are an integral part
of the financial statements.
BIOSYNERGY, INC.
PART 1 – FINANCIAL INFORMATION
ITEM 1 – FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
STATEMENTS OF INCOME
(unaudited)
|
Three Months Ended
|
Nine Months Ended
|
|
January 31
|
January 31
|
|
2018
|
2017
|
2018
|
2017
|
|
|
|
|
|
Net sales
|
$ 309,653
|
$ 342,320
|
$ 933,072
|
$ 982,713
|
Cost of sales
|
115,861
|
89,898
|
303,072
|
277,075
|
Gross profit
|
193,792
|
252,422
|
630,000
|
705,638
|
Operating expenses
|
|
|
|
|
Marketing
|
47,820
|
45,821
|
141,355
|
139,400
|
General and administrative
|
96,472
|
92,325
|
320,568
|
305,799
|
Research and development
|
43,038
|
41,856
|
133,603
|
121,747
|
Total Operating Expenses
|
187,330
|
180,002
|
595,526
|
566,946
|
|
|
|
|
|
Income from operations
|
6,462
|
72,420
|
34,474
|
138,692
|
Other income
|
|
|
|
|
Interest income
|
89
|
98
|
304
|
313
|
Other income
|
480
|
480
|
1,440
|
1,440
|
Total Other Income
|
569
|
578
|
1,744
|
1,753
|
|
|
|
|
|
Net income before income taxes
|
7,031
|
72,998
|
36,218
|
140,445
|
|
|
|
|
|
Provision for income taxes
|
1,934
|
23,392
|
7,819
|
44,381
|
Net income
|
$ 5,097
|
$ 49,606
|
$ 28,399
|
$ 96,064
|
|
|
|
|
|
Net income per common share - basic and diluted
|
$ .000
|
$ .003
|
$ .002
|
$ .006
|
Weighted-Average Shares of Common Stock Outstanding - Basic and Diluted
|
14,935,511
|
14,935,511
|
14,935,511
|
14,935,511
|
The accompanying notes are an integral part
of the financial statements.
BIOSYNERGY, INC.
STATEMENT OF SHAREHOLDERS EQUITY
Nine Months Ended January 31, 2018
(Unaudited)
|
Common Stock
|
|
|
|
|
Shares
|
Amount
|
Other and Related
Receivable
|
Retained
Earnings
|
Total
|
Balance,
May 1, 2017
|
14,935,511
|
$ 660,988
|
$ (19,699)
|
$ 944,431
|
$ 1,585,720
|
|
|
|
|
|
|
Net income
|
-
|
-
|
-
|
28,399
|
28,399
|
|
|
|
|
|
|
Balance,
January 31, 2018
|
14,935,511
|
$ 660,988
|
$ (19,699)
|
$ 972,830
|
$ 1,614,119
|
The accompanying notes are an integral part
of the financial statements.
BIOSYNERGY, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
|
Nine Months Ended January 31
|
|
2018
|
2017
|
Cash flows from operating activities
|
|
|
Net income
|
$ 28,399
|
$ 96,064
|
Adjustments to reconcile net income to cash (used in) provided by operating activities
|
|
|
Depreciation and amortization
|
14,070
|
12,894
|
Changes in assets and liabilities
|
|
|
Accounts receivable
|
37,271
|
(80,048)
|
Inventories
|
52,373
|
(76,193)
|
Prepaid expenses and other
|
(20,068)
|
(6,733)
|
Accounts payable and accrued expenses
|
(19,935)
|
(756)
|
Total adjustments
|
63,711
|
(150,836)
|
|
|
|
Net cash (used in) provided by operating activities
|
92,110
|
(54,772)
|
|
|
|
Cash flow from investing activities
|
|
|
Patents and patents pending
|
---
|
(8,632)
|
Purchase of equipment
|
---
|
(6,737)
|
|
|
|
Net cash used in investing activities
|
---
|
(15,369)
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
92,110
|
(70,141)
|
Cash beginning period
|
1,040,582
|
1,091,649
|
Cash ending period
|
$ 1,132,692
|
$ 1,021,508
|
|
|
|
Supplemental cash flow information
|
|
|
Interest paid
|
$ -
|
$ -
|
Income taxes paid
|
$ 21,300
|
$ 29,400
|
The accompanying notes are an integral part
of the financial statements.
Note 1 - Company Organization and Description
In the opinion of management, the accompanying
unaudited condensed financial statements contain all adjustments, consisting of normal recurring adjustments which are necessary
for a fair presentation of the financial position and results of operations for the periods presented. The unaudited condensed
financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all the information
and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally
accepted in the United States of America. These condensed financial statements should be read in conjunction with the audited financial
statements and notes included in the Company’s April 30, 2017 Annual Report on Form 10-K. The results of operations for the
nine months ended January 31, 2018 are not necessarily indicative of the operating results for the full year.
Biosynergy, Inc. (the Company) was incorporated
under the laws of the State of Illinois on February 9, 1976. It is primarily engaged in the development and marketing of medical,
consumer and industrial thermometric and thermographic products that utilize cholesteric liquid crystals. The Company’s primary
product, the HemoTemp
R
II Blood Monitoring Device, accounted for approximately 91.03% of the sales during the quarter
ending January 31, 2018 and 92.18% during the nine month period ending January 31, 2018. The products are sold to hospitals, clinical
end-users, laboratories and product dealers located throughout the United States.
Note 2 - Summary of Significant Accounting Policies
Cash
The Company maintains all of its cash in bank
deposit accounts, which at times may exceed federally insured limits. No losses have been experienced on such accounts.
Receivables
Receivables are carried at original invoice
less estimates made for doubtful receivables. Management determines the allowances for doubtful accounts by reviewing and identifying
troubled accounts on a periodic basis and by using historical experience applied to an aging of accounts. A receivable is considered
to be past due if any portion of the receivable balance is outstanding beyond the stipulated due date. Receivables are written
off when deemed uncollectible. Recoveries of receivables previously written off are recorded when received.
Inventories
Inventories are valued at the lower of cost or market using the
FIFO (first-in, first-out) method.
Depreciation
Equipment and leasehold improvements are stated
at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. Repairs
and maintenance are charged to expense as incurred; renewals and betterments which significantly extend the useful lives of existing
equipment are capitalized. Significant leasehold improvements are capitalized and amortized over the term of the lease; equipment
is depreciated over three to ten years. Depreciation expense was $7,556 and $6,380 for the nine month periods ending January 31,
2018 and 2017, respectively.
Note 2 – Summary of Significant Accounting
Policies (Continued)
Prepaid Expenses
Certain expenses, primarily insurance and income
taxes, have been prepaid and will be used within one year.
Revenue Recognition
The Company recognizes net sales revenue upon
the shipment of product to customers.
Research and Development and Patents
Research and development expenditures are charged
to operations as incurred. The costs of obtaining patents, primarily legal fees, are capitalized and once obtained, amortized over
the life of the respective patent on the straight-line method.
Patent amortization expense for both the nine
months ended January 31, 2018 and 2017 was $6,514. Patents related to products that have been developed by the Company. Patents
pending relate to products under development.
Use of Estimates
The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Income Per Common Share
Income per common share is computed by dividing
net income by the weighted-average number of common shares outstanding during the period. When dilutive, stock options are included
as share equivalents using the treasury stock method in the calculation of diluted earnings per share. The Company has no outstanding
options or other rights to acquire its unissued common shares.
Comprehensive Income
Components of comprehensive income include
amounts that are included in the comprehensive income but are excluded from net income. During the three and nine month periods
ending January 31, 2018 and 2017, there were no differences between the Company’s net income and comprehensive income.
Note 2 – Summary of Significant Accounting
Policies (Continued)
Income Taxes
Income taxes are provided for the tax effects
of transactions reported in the financial statements and consist of taxes currently due and deferred taxes related primarily to
differences in the methods of accounting for patents, inventories, certain accrued expenses and bad debt expenses for financial
and income tax reporting purposes. The deferred income taxes represent the future tax consequences of those differences, which
will be taxable in the future. The Company implemented ASU 2015-17 during the quarter ended October 31, 2017 on a retrospective
basis, and has classified its net deferred tax liabilities as non-current.
The Company files tax returns in the U.S. federal
jurisdiction and with the state of Illinois. Various tax years remain open to examinations, generally for three years after filed,
although there are currently no ongoing tax examinations. Management’s policy is to recognize interest and penalties related
to uncertain tax positions in income tax expense.
On December 22, 2017, the Tax Cuts and Jobs
Act (the “Act”) was signed into law. Among other provisions, the Act reduces the Federal statutory corporate income
tax rate from 35% to 21%. This rate reduction has been applied in the provision for income tax calculation below and did not result
in a material change to the deferred tax liability for the quarter ended January 31 2018.
The provision for income taxes consists of the following components
for the nine months ended January 31:
|
2018
|
2017
|
Current
|
|
|
Federal
|
$ 5,012
|
$ 33,496
|
State
|
2,807
|
10,885
|
Provision for Income Taxes
|
$ 7,819
|
$ 44,381
|
The differences between the U.S. federal statutory tax rate and
the Company’s effective tax rate are as follows:
|
Nine Months ended January 31,
|
|
2018
|
2017
|
U.S. federal statutory tax rate
|
29.7%
|
34.0%
|
State income tax expense, net of
Federal tax benefit
|
5.0
|
5.0
|
Effect of graduated federal tax rates
and other
|
(13.1)
|
(7.4)
|
Effective Tax Rate
|
21.6%
|
31.6%
|
Note 2 – Summary of Significant Accounting Policies (Continued)
Recent Accounting Pronouncements
The FASB issues ASUs to amend the authoritative
literature in Accounting Standards Certification (ASC). There have been a number of ASUs to date that amend the original text of
ASCs. Those ASUs issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable
to the Company or (iv) are not expected to have a significant impact on the Company.
On February 25, 2016, the FASB issued Topic
842, its highly-anticipated leasing standard for both lessees and lessors. Under its core principle, a lessee will recognize lease
assets and liabilities on the balance sheet for all arrangements with terms longer than 12 months. Lessor accounting remains largely
consistent with existing U.S. GAAP. The amendments are effective for public companies for fiscal years beginning after December
15, 2018, including interim periods within those fiscal years. At inception, a lessee must classify all leases as either finance
or operating. The Company intends to adopt Topic 842 upon extension of the current lease for its facilities in Elk Grove Village
or upon entering into a new lease agreement for alternative facilities on or about May 1, 2018. The Company is investigating the
effect of adoption of Topic 842 on its results of operations and financial condition. However, it is not anticipated that adoption
of Topic 842 will have a material impact on the results of operations or financial condition of the Company.
In May 2014, the Financial Accounting Standard
Board (FASB) issued ASU 2014-09, Revenue from Contract with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 and
subsequent amendments supersede the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific
guidance. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods
or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for
those goods or services. The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein,
using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard
in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the
cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures).
We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our financial statements and have not yet determined
the method by which we will adopt the standards as of May 1, 2018.
Note 3 – Inventories
Components of inventories are as follows:
|
January 31,
2018
|
April 30,
2017
|
|
|
|
Raw materials
|
$106,194
|
$142,713
|
Work-in-process
|
15,742
|
16,752
|
Finished goods
|
12,003
|
26,847
|
|
$133,939
|
$186,312
|
Note 4 – Common Stock
The Company’s common stock is traded
in the over-the-counter market. However, there is no established public trading market due to limited and sporadic trades. The
Company’s common stock is not listed on a recognized market or stock exchange.
Note 5 - Related Party Transactions
The Company and its affiliates are related through common stock
ownership as follows as of January 31, 2018:
|
Stock of Affiliates
|
|
Biosynergy, Inc.
|
F.K. Suzuki International, Inc.
|
Medlab, Inc.
|
F.K. Suzuki International, Inc
|
30.0%
|
- %
|
100.0%
|
Fred K. Suzuki, Officer
|
4.1
|
30.0
|
-
|
Lauane C. Addis, Officer
|
-
|
-
|
-
|
Jeanne S. Addis, Trustee
|
-
|
28.1
|
-
|
Mary K. Friske, Officer
|
.3
|
.7
|
-
|
Laurence C. Mead, Officer
|
.4
|
10.0
|
-
|
Beverly K. Suzuki, Officer
|
2.7
|
-
|
-
|
As of January 31, 2018, $19,699 was due from
F. K. Suzuki International, Inc. These balances result from an allocation of common expenses charged to FKSI prior to April 30,
2006 offset by advances received from time to time. No interest income is received or accrued by the Company. The financial condition
of FKSI is such that it will unlikely be able to repay the Company during the next year without liquidating a portion of its assets,
including a portion of its ownership in the Company. As a result, the receivable balance has been reclassified as a contra equity
account since April 30, 2006.
A board member provided a variety of legal
services to the Company in his capacity as a partner in a law firm. Fees for such legal services were approximately $21,988 and
$15,848 for the nine months ended January 31, 2018 and 2017, respectively.
Note 6 – Lease Commitments
In January 2015, the Company entered into a
three-year lease agreement for its current facilities, which expires on April 30, 2018. The base rent under the lease escalates
over the life of the lease. However, rent expense is recorded on a straight-line basis as required by accounting principles generally
accepted in the United States of America. As of January 31, 2018, the Company’s approximate total future minimum lease payments
are as follows:
Year Ending April 30:
|
|
|
|
2018
|
22,319
|
Also included
in the lease agreement are escalation clauses for the lessor’s increases in property taxes and other operating expenses.
The Company is currently
in negotiations to extend the lease agreement.
Note 7 – Customer Concentrations
Shipments to one customer amounted to 28.24%
of sales during the first nine months of Fiscal 2018 compared to 27.1% during the comparative Fiscal 2017 period. As of January
31, 2018, there were outstanding accounts receivable from this customer of $54,732 compared to $67,535 at January 31, 2017. Shipments
to another customer amounted to 36.67% of sales during the first nine months of Fiscal 2018 and 36.7% of sales during the first
nine months of Fiscal 2017. As of January 31, 2018, there were outstanding accounts receivable from this customer of $136,466 compared
to $152,440 at January 31, 2017.
The Company had export sales of $32,120 during
the first nine months of Fiscal 2018, and export sales of $7,160 during the Quarter ending January 31, 2018. The Company had export
sales of $46,595 during the first nine months of Fiscal 2017, and export sales of $16,505 during the Quarter ending January 31,
2017. The Company also believes that some of its medical devices were sold to distributors within the United States who resold
the devices in foreign markets. However, the Company does not have any information regarding such sales and such sales are not
considered to be material.
Item 2.
Management’s Discussion of Financial Condition
and Results of Operations
Net Sales/Revenues
For the three month period ending January 31,
2018 (“3
rd
Quarter”), the net sales decreased 9.54%, or $32,667, and decreased 5.05%, or $49,641, during
the nine month period ending January 31, 2018, as compared to net sales for the comparative periods ending in 2017. The decrease
in sales during the three and nine month periods ending January 31, 2018 is primarily the result of lower HemoTemp
R
II and TempTrend sales. At January 31, 2018 there were no back orders.
In addition, during the 3
rd
Quarter
the Company had $569 of miscellaneous revenues primarily from interest income and leasing a portion of its storage space to an
unrelated party.
Costs and Expenses
General
The operating expenses of the Company during
the 3
rd
Quarter increased overall by 4.07%, or $7,328, as compared to the 3
rd
quarter in 2017 primarily due
to an increase in employee wages, FDA user fees and legal fees. The operating expenses of the Company increased by 5.04% or $28,580
for the nine month period ending January 31, 2018, as compared to the nine month period ending January 31, 2017 primarily due to
an increase in legal fees, general insurance and chemical waste disposal fees.
Cost of Sales
The cost of sales during the 3
rd
Quarter increased by $25,963, and also increased by $25,997 during the nine month period ending January 31, 2018 as compared to
these expenses during the same periods ending in 2017. The increase in the cost of sales during the 3
rd
Quarter was
primarily due to the addition of a full-time employee and an increase in the cost of health insurance and certain raw materials.
As a percentage of sales, the cost of sales were 37.42% during the 3
rd
Quarter, 26.26% for the comparative quarter ending
in 2017, and 32.48% during the nine month period ending January 31, 2018 compared to 28.19% in 2017. Subject to unanticipated changes
in the price of raw materials or extraordinary occurrences, it is not anticipated that the cost of sales as a percentage of sales
will materially change in the near future.
Research and Development Expenses
Research and Development costs increased $1,182,
or 2.82%, during the 3
rd
Quarter as compared to the same quarter in 2017. These costs increased by $11,856, or 9.74%,
during the nine month period ending January 31, 2018 as compared to the same period in 2017. The overall cost in research and development
expense increased during the nine months due to chemical waste disposal fees, consulting fees and higher FDA user fees. The Company
is continuing its investigation and development of certain products intended to improve and expand its current product line. The
Company does not have sufficient information to determine the extent to which its resources will be required to complete the development
of such products.
Marketing Expenses
Marketing expenses for the 3rd Quarter increased
by $1,999, or 4.36%, as compared to the quarter ending January 31, 2017. These costs increased by $1,955, or 1.40%, during the
nine month period ending January 31, 2018 as compared to the same period in 2017. The increase is primarily due to higher employee
costs.
General and Administrative Expenses
General and administrative costs for the 3
rd
Quarter increased by $4,147, or 4.49%, as compared to the 3
rd
quarter ending January 31, 2017, primarily due to higher
legal fees and employee expenses. General and administrative costs have increased overall by $14,769, or 4.83%, during the nine
month period ending January 31, 2018, as compared to the same periods in 2018, primarily due to higher legal fees, general insurance
and employee expenses.
Net Income
The Company realized a net income of $5,097
during the 3
rd
Quarter as compared to a net income of $49,606 for the comparative quarter in the prior year primarily
due to lower sales during the 3
rd
quarter. The Company also realized a net income of $28,399 for the nine month period
ending January 31, 2018 as compared to a net income of $96,064 during the same period in 2017. This decrease in net income is due
to an overall decrease in sales.
Assets/Liabilities
General
Since April 30, 2017, the Company's assets
have increased by $8,464 and liabilities have decreased by $19,935. The increase in assets, such as cash and prepaid expenses,
is a result of the Company’s continued profitability and cash generated from operations.
Related Party Transactions
The Company was owed $19,699 by F.K. Suzuki
International, Inc. ("FKSI"), an affiliate, at January 31, 2018 and April 30, 2017. This account primarily represents
common expenses which were previously charged by the Company to FKSI for reimbursement. No interest is received or accrued by the
Company. Collectability of the amounts due from FKSI since April 30, 2006 could not be assured without the liquidation of all or
a portion of its assets, including a portion of its common stock of the Company. As a result, as of April 30, 2006, all of the
amount owed by FKSI to the Company was reclassified as a reduction of FKSI’s capital in the Company.
Current Assets/Liabilities Ratio
The ratio of current assets to current liabilities,
29.93 to 1, has increased compared to 21.29 to 1 at April 30, 2017. This increase in ratio of current assets to current liabilities
is a result of increased cash and prepaid expenses and a reduction in accrued expenses. In order to maintain or improve the Company’s
asset/liabilities ratio, the Company’s operations must remain profitable.
Liquidity and Capital Resources
During the nine month period ending January
31, 2018, the Company experienced an increase in working capital of $42,469. This is primarily due to the Company’s increase
in cash and prepaid expenses and a reduction in accrued expenses.
The Company has attempted to conserve working
capital whenever possible. To this end, the Company attempts to keep inventory at minimum levels. The Company believes that it
will be able to maintain adequate inventory to supply its customers on a timely basis by careful planning and forecasting demand
for its products. However, the Company is nevertheless required to carry a minimum amount of finished inventory and raw materials
to meet the delivery requirements of customers and thus, inventory represents a material portion of the Company’s investment
in current assets.
The Company presently grants payment terms
to customers and dealers. Although the Company experiences varying collection periods of its accounts receivable, based on past
experience, the Company believes that uncollectable accounts receivable will not have a significant effect on future liquidity.
Cash provided by operating activities was $92,110
during the nine month period ending January 31, 2018. Nothing was used for equipment purchases or patent application expenditures
during this same period. Except for its operating working capital, limited equipment purchases and patent expenses, management
is not aware of any other material capital requirements or material contingencies for which it must provide. There were no cash
flows from financing activities during the nine month periods ending January 31, 2018 or 2017.
As of January 31, 2018, the Company had $1,549,138
of current assets available. Of this amount, $52,233 was prepaid expenses, $133,939 was inventory, $230,274 was net trade receivables
and $1,132,692 was cash. The Company’s available cash and cash flow from operations is considered adequate to fund the short-term
operating capital needs of the Company. The Company does not have a working line of credit, and does not anticipate obtaining a
working line of credit in the near future. There is a risk financing may be necessary to fund long-term capital needs of the Company.
Effects of Inflation
. With the exception
of inventory and labor costs increasing with inflation, inflation has not had a material effect on the Company’s revenues
and income from continuing operations in the past three years. Inflation is not expected to have a material effect in the foreseeable
future.
Critical Accounting Policies and Estimates
.
On December 12, 2001, the SEC issued FR-60 “Cautionary Advice Regarding Disclosure About Critical Accounting Policies.”
FR-60 is an intermediate step to alert companies to the need for greater investor awareness of the sensitivity of financial statements
to the methods, assumptions, and estimates underlying their preparation, including the judgments and uncertainties affecting the
application of those policies and the likelihood that materially different amounts would be reported under different conditions
or using different assumptions.
The Company’s significant accounting
policies are disclosed in Note 2 to the Financial Statements for the 3rd Quarter. See “Financial Statements.” Except
as noted below, the impact on the Company’s financial position or results of operation would not have been materially different
had the Company reported under different conditions or used different assumptions. The policies which may have materially affected
the financial position and results of operations of the Company if such information had been reported under different circumstances
or assumptions are:
Use of Estimates
- preparation of financial
statements and conformity with accounting principles generally accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities as of the date of the Financial Statements and the reported amounts of revenues and expenses during the reporting period.
The financial condition of the Company and results of operations may differ from the estimates and assumptions made by management
in preparation of the Financial Statements accompanying this report.
Allowance for Bad Debts
- The Company
periodically performs credit evaluations of its customers and generally does not require collateral to support amounts due from
the sale of its products. The Company maintains an allowance for doubtful accounts based on its best estimate of collectability
of accounts receivable.
Forward-Looking Statements
This report may contain statements which, to
the extent they are not recitations of historical fact, constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking statements involve risks
and uncertainties. Actual results may differ materially from such forward-looking statements for reasons including, but not limited
to, changes to and developments in the legislative and regulatory environments effecting the Company’s business, the impact
of competitive products and services, changes in the medical and laboratory industries caused by various factors, risks inherit
in marketing new products, as well as other factors as set forth in this report. Thus, such forward-looking statements should not
be relied upon to indicate the actual results which might be obtained by the Company. No representation or warranty of any kind
is given with respect to the accuracy of such forward-looking information. The forward-looking information has been prepared by
the management of the Company and has not been reviewed or compiled by independent public accountants.
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
.
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Market risk is the risk of loss arising from
adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Historically,
the Company’s primary exposure to market risk has been interest rate risk associated with its short term money market investments.
The Company currently does not have any money market investments. The Company does not have any financial instruments held for
trading or other speculative purposes and does not invest in derivative financial instruments, interest rate swaps or other investments
that alter interest rate exposure. Thus, the Company does not have any credit facilities with variable interest rates. The Company’s
operations are not exposed to financial risk that will have a material impact on its financial position and results of operation.
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Item 4.
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Controls and Procedures
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Disclosure Controls and Procedures
The Company has established and maintains disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) which are controls and other procedures
of the Company that are designed to ensure that information required to be disclosed by the Company in the reports that it files
or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s
rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated
and communicated to the Company’s management, including its Chief Executive Officer and Chief Accounting Officer, or persons
performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company’s Chief
Executive Officer and Chief Accounting Officer have evaluated the effectiveness of the Company’s disclosure controls and
procedures (as defined in
Rules 13a-15(e) and 15d-15(e) of the Exchange
Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer
and its Chief Accounting Officer have concluded that the Company’s disclosure controls and procedures are effective. There
have been no changes in the Company’s internal control over financial reporting during the Company’s Fiscal Quarter
ending January 31, 2018 that have materially affected or are likely to materially affect the Company’s internal control over
financial reporting.