Item 1.
Financial
Statements and Supplementary Data
BALANCE
SHEETS
Assets
|
|
July 31, 2018 Unaudited
|
|
April 30, 2018 Audited
|
Current Assets
Cash
Accounts receivable. Trade (net of allowance for
|
|
$
|
1,163,643
|
|
|
$
|
1,140,428
|
|
doubtful accounts of $500 at July 31, 2018 and April 30, 2018
|
|
|
228,167
|
|
|
|
230,701
|
|
Inventories
|
|
|
136,104
|
|
|
|
141,045
|
|
Prepaid expenses
|
|
|
49,227
|
|
|
|
55,845
|
|
Total Current Assets
|
|
|
1,577,141
|
|
|
|
1,568,019
|
|
Property, Plant and Equipment
Equipment
|
|
|
201,764
|
|
|
|
201,764
|
|
Leasehold improvements
|
|
|
23,447
|
|
|
|
23,447
|
|
Operating lease right of use asset
|
|
|
178,200
|
|
|
|
—
|
|
|
|
|
403,411
|
|
|
|
225,211
|
|
Less accumulated depreciation and amortization
|
|
|
(239,569
|
)
|
|
|
(215,371
|
)
|
Total Property, Plant and Equipment Net
|
|
|
163,847
|
|
|
|
9,840_
|
|
Other Assets
Patents less accumulated amortization
|
|
|
59,516
|
|
|
|
61,687
|
|
Pending patents
|
|
|
69,420
|
|
|
|
69,420
|
|
Deposits
|
|
|
5,937
|
|
|
|
5,937
|
|
Total Other Assets
|
|
|
134,873
|
|
|
|
137,044
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,875,861
|
|
|
$
|
1,714,903
|
|
The accompanying
notes are an integral part of the financial statements.
B
IOSYNERGY,
INC.
PART
1 - FINANCIAL INFORMATION
BALANCE
SHEETS
Liabilities
and Shareholders’ Equity
|
|
July 31, 2018 Unaudited
|
|
April 30, 2018 Audited
|
Current Liabilities
Accounts payable
|
|
$
|
19,738
|
|
|
$
|
9,373
|
|
Accrued compensation and payroll taxes
|
|
|
16,153
|
|
|
|
25,992
|
|
Accrued vacation
|
|
|
28,486
|
|
|
|
24,271
|
|
Other accrued liabilities
|
|
|
634
|
|
|
|
10,996
|
|
Operating lease liability
|
|
|
66,000
|
|
|
|
—
|
|
Total Current Liabilities
|
|
|
131,011
|
|
|
|
70,632
|
|
|
|
|
|
|
|
|
|
|
Long Term Liabilities
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
25,440
|
|
|
|
25,440
|
|
Operating lease liability
|
|
|
90,200
|
|
|
|
—
|
|
Total Long Term Liabilities
|
|
|
115,640
|
|
|
|
25,440
|
|
Shareholder's Equity
Common stock, no par value: 20,000,000 authorized
|
|
|
|
|
|
|
|
|
shares issued: 14,935,511 shares at July 31, 2018 and April 30, 2018
|
|
|
660,988
|
|
|
|
660,988
|
|
Receivable from affiliate
|
|
|
(19,699
|
)
|
|
|
(19,699
|
)
|
Retained earnings
|
|
|
987,921
|
|
|
|
977,542
|
|
Total Shareholders' Equity
|
|
|
1,629,210
|
|
|
|
1,618,831
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,875,861
|
|
|
$
|
1,714,903
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the financial statements.
BIOSYNERGY,
INC.
STATEMENTS
OF OPERATIONS
(Unaudited)
Three
Months Ended
July
31
|
|
2018
|
|
2017
|
Net sales
|
|
$
|
317,829
|
|
|
$
|
302,904
|
|
Cost of sales
|
|
|
103,914
|
|
|
|
98,236
|
|
Gross profit
|
|
|
213,915
|
|
|
|
204,668
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Marketing
|
|
|
45,709
|
|
|
|
45,574
|
|
General and administrative
|
|
|
117,340
|
|
|
|
129,443
|
|
Research and development
|
|
|
36,920
|
|
|
|
40,667
|
|
Total Operating Expenses
|
|
|
199,969
|
|
|
|
215,684
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from operations
|
|
|
13,946
|
|
|
|
(11,016
|
)
|
Other income
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
92
|
|
|
|
108
|
|
Other income
|
|
|
480
|
|
|
|
480
|
|
Total Other Income
|
|
|
572
|
|
|
|
588
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss) before income taxes
|
|
|
14,518
|
|
|
|
(10,428
|
)
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
|
|
4,139
|
|
|
|
(3,268
|
)
|
Net Income (Loss)
|
|
$
|
10,379
|
|
|
$
|
(7,160
|
)
|
Net income (loss) per common share - basic and diluted
|
|
$
|
.0007
|
|
|
$
|
(.0005
|
)
|
Weighted-Average Shares of Common Stock Outstanding - Basic and Diluted
|
|
|
14,935,511
|
|
|
|
14,935,511
|
|
The
accompanying notes are an integral part of the financial statements.
BIOSYNERGY,
INC.
STATEMENT
OF SHAREHOLDERS' EQUITY
THREE
MONTHS ENDED JULY 31, 2018
Unaudited
Common Stock
|
|
Shares
|
|
Amounts
|
|
Receivable from Affiliate
|
|
Retained
Earnings
|
|
Total
|
|
Balance, May 1, 2018
|
|
|
|
14,935,511
|
|
|
$
|
660,988
|
|
|
$
|
(19,699
|
)
|
|
$
|
977,542
|
|
|
$
|
1,618,831
|
|
|
Net Income
Balance, July 31, 2018
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
10,379
|
|
|
$
|
10,379
|
|
|
|
|
|
|
14,935,511
|
|
|
$
|
660,988
|
|
|
$
|
(19,699
|
)
|
|
$
|
987,921
|
|
|
$
|
1,629,210
|
|
The
accompanying notes are an integral part of the financial statements.
BIOSYNERGY,
INC.
STATEMENTS
OF CASH FLOWS
Unaudited
Cash flows from operating activities
|
Three Months Ended July 31
|
2018
|
2017
|
Net income
(loss)
Adjustments to reconcile
net loss to cash provided by operating activities
|
$ 10,379
|
$ (7,160)
|
Depreciation and amortization Changes in assets and liabilities
|
26,364
|
4,750
|
Accounts receivable
|
2,534
|
54,264
|
Inventories
|
4,941
|
30,841
|
Prepaid expenses and other
|
6,618
|
(3,584)
|
Accounts payable and accrued expenses
|
(5,621)
|
(7,233)
|
|
Building lease liability for right of use asset
|
(22,000)
|
-
|
Total adjustments
|
12,836
|
79,038
|
Net cash provided by operating activities
|
23,215
|
71,878
|
Increase in cash and cash equivalents
|
23,215
|
71,878
|
Cash and cash equivalents beginning period
|
1,140,428
|
1,040,582
|
Cash and cash
equivalents ending period
Supplemental
cash flow information
|
$ 1,163,643
|
$
1,112,460
|
Interest paid
|
$ -
|
$ -
|
Income taxes paid
|
$ -
|
$ -
|
Non-Cash Transactions
Recording of right of
use asset-building lease
|
$
178,200
|
$
-
|
The accompanying notes
are an integral part of the financial statements.
BIOSYNERGY, INC.
Notes to Financial Statements
Three Months Ended July
31, 2018 and 2017
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, 2018 Annual Report on Form 10-K. The results of
operations for the three months ended July 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 II Blood Monitoring Device, accounted for approximately 91.34%
of the sales during the quarter ending July 31, 2018 and 91.02% during the quarter ending July 31, 2017. 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 various 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 $1,918 and $2,579 for the
three month periods ending July 31, 2018 and 2017, respectively.
BIOSYNERGY, INC.
Notes to Financial Statements
Three Months Ended July
31, 2018 and 2017
Note 2 - Summary of Significant Accounting
Policies (Cont’d)
Prepaid
Expenses
Certain expenses,
primarily insurance and income taxes, have been prepaid and will be used within one year.
Revenue Recognition
In
May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)", which supersedes the revenue
recognition requirements in Accounting Standards Codification (ASC) 605,
Revenue Recognition
. Several additional ASUs have
subsequently been issued amending and clarifying the standard. The core principle of ASU 2014-09 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 guidance provides a five-step process to achieve
that core principle and to determine when and how revenue is recognized. The updates may be applied retrospectively for each period
presented or as a cumulative-effect adjustment at the date of adoption.
The
Company adopted this standard on May 1, 2018, using the modified retrospective approach. The impact of the adoption of ASU 2014-09
on the Company’s condensed consolidated financial statements is as follows:
|
|
•
|
The Company’s revenue is primarily generated from the sales of products directly to customers or through distribution channels, based on purchase orders and not supply contracts providing for additional goods or services once the products are transferred to the customer. The Company’s performance obligations underlying such sales, and the timing of revenue recognition related thereto, remain substantially unchanged following the adoption of this ASU.
|
|
|
•
|
The adoption of ASU No. 2014-09 requires that the Company recognize its sales return allowance on a gross basis rather than as a net liability. As such, the Company now recognizes a return asset for the right to recover the goods returned by the customer, measured at the former carrying amount of the products, less any expected recovery costs (recorded as an increase to prepaid expenses and other current assets), and a return liability for the amount of expected returns (recorded as an increase to other current liabilities). The Company’s analysis of sales returns over the past several years noted that sales returns are nominal and therefore no sales return allowance is deemed necessary.
|
There
was no adjustment necessary for fiscal year ending April 30, 2018 or prior in relation to the change in the revenue recognition
policy and no significant effects on the first quarter ending July 31, 2018.
Shipping
and Handling
Shipping
and handling fees billed to customer, if any, are netted against the related costs which are included in cost of sales. The net
cost is not material.
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
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 filing, 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.
The provision
(benefit) for income taxes consists of the following components for the three month periods ended July 31:
Current
Federal $ 2,760 $(2,460)
State
1,379
(808)
Provision
(Benefit) for Income Taxes
4,139 $(3,268)
The differences
between the U.S. federal statutory tax rate and the Company’s effective tax rate are as follows:
|
|
Period ended July 31,
|
|
|
2018
|
|
2017
|
U.S. federal statutory tax rate
|
|
|
21.0
|
%
|
|
|
34.0
|
%
|
State income tax expense, net of Federal tax benefit
|
|
|
7.51
|
|
|
|
5.0
|
|
Effect of graduated federal tax rates
|
|
|
—
|
|
|
|
(7.66
|
)
|
Effective Tax Rate
|
|
|
28.51
|
%
|
|
|
31.34
|
%
|
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, are amortized over the life of the respective patent on the straight-line method.
Patents relate
to products that have been developed and are being marketed 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.
BIOSYNERGY, INC.
Notes to Financial Statements
Three Months Ended July
31, 2018 and 2017
Note 2 - Summary of Significant Accounting
Policies (Cont’d)
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.
Basic and diluted net income per common share is the same for the 1
st
quarter ended July 31, 2018 and 2017 as there
are no common stock equivalents.
Comprehensive Income
Components
of comprehensive income include amounts that are included in the comprehensive income but are excluded from net income. During
the three month periods ending July 31, 2018 and 2017, there were no differences between the Company’s net income and comprehensive
income.
Fair Value of Financial
Instruments
The Company
evaluates its financial instruments based on current market interest rates relative to stated interest rates, length to maturity
and the existence of readily determinable market prices. Based on the Company’s analysis, the fair value of financial instruments
recorded on the balances sheets as of April 30, 2018 and 2017, approximates their carrying value.
Segments
Accounting
standards have established annual reporting standards for an enterprise’s operating segments and related disclosures about
its products, services, geographic areas and major customers. The Company’s operations were a single reportable segment and
an international segment. The international segment operations are immaterial. See Note 7.
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 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.
BIOSYNERGY, INC.
Notes to Financial Statements
Three Months Ended July
31, 2018 and 2017
Note 3 – Inventories
Components
of inventories are as follows:
|
|
July 31, 2018
|
|
April 30,
2018
|
|
|
|
|
|
Raw materials
|
|
$
|
84,860
|
|
|
$
|
97,319
|
|
Work-in-process
|
|
|
26,166
|
|
|
|
24,624
|
|
Finished goods
|
|
|
25,078
|
|
|
|
19,102
|
|
|
|
$
|
136,104
|
|
|
$
|
141,045
|
|
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 July 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
|
|
|
2.7
|
|
|
|
—
|
|
|
|
—
|
|
Malcolm MacCoun, Director
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
BIOSYNERGY, INC.
Notes to Financial Statements
Three Months Ended July
31, 2018 and 2017
Note 5 - Related Party Transactions
(Cont’d)
As of July
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 $8,706 and $13,485 for the three months ended July 31, 2018 and 2017 respectively.
Note 6 – Lease Commitments
On
February 25, 2016, the FASB issued Topic 842, Leases. 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. In February
2018, the Company entered into a two-year lease agreement for its current facilities, which started May 1, 2018 and expires on
April 30, 2020. Under the new lease standard, which was early-adopted by the Company as of May 1, 2018, the Company’s lease
was accounted for as an operating lease. As a result, the Company measured the lease liability using the two year term and rates
per the lease agreement and recognized a lease liability, with a corresponding right-of-use asset. A discount was not calculated
due to the lease agreement only having a two year term.
The operating lease
expense, recorded as depreciation expense, for the three months ending July 31, 2018 is $22,275. The corresponding expense, recorded
as rent expense, for the three months ending July 31, 2017 is $21,675. Retrospective application of the new standard did
not render any adjustments since all of the Company’s operating leases were less than one year.
Maturities
of lease liabilities as of July 31, 2018 are presented in the following table:
Year
Ending April 30:
2019 $ 66,000
2020 $ 90,200
Note 7 – Customer Concentrations
Shipments
to one customer amounted to 31.87% of sales during the first three months of Fiscal 2019 compared to 28.65% during the comparative
Fiscal 2018 period. As of July 31, 2018, there were outstanding accounts receivable from this customer of $66,518 compared to $59,526
at July 31, 2017. Shipments to another customer amounted to 36.42% of sales during the first three months of Fiscal 2019 and 33.85%
of sales during the first three months of Fiscal 2018. As of July 31, 2018, there were outstanding accounts receivable from this
customer of $123,166 compared to $109,008 at July 31, 2017.
The Company
had export sales of $10,790 during the first three months of Fiscal 2019, and export sales of $8,650 during the first three months
of Fiscal 2018. 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.
BIOSYNERGY, INC.
Three Months Ended July
31, 2018 and 2017
Item 2.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Net Sales/Revenues
For the three
month period ending July 31, 2018 (“1
st
Quarter”), the net sales increased 4.92%, or $14,925, as compared
to net sales for the comparative three month period ending in 2017. The increase in net sales during the 1
st
Quarter
was primarily due to an increase in sales of HemoTemp
®
II
and HemoTemp
®
II Activator. During the 1
st
Quarter, sales of HemoTemp
®
II increased by $14,620
resulting in higher net sales overall. As of July 31, 2018, the Company had no back orders.
In addition
to the above, during the 1
st
Quarter the Company had $480 of other miscellaneous revenues primarily from leasing a portion
of its storage space to a third party and interest income of $92.
Costs and Expenses
General
The operating
expenses of the Company during the 1
st
Quarter decreased overall by 7.85%, or $15,715, as compared to the three month
period ending July 31, 2017, primarily due to a decrease in general and administrative expenses and research and development costs.
Cost of Sales
The cost
of sales during the 1
st
Quarter increased by $5,678 as compared to these expenses during the three month period ending
July 31, 2017. This increase was due primarily due to higher salaries and related employee expenses. As a percentage of sales,
the cost of sales was 32.69% during the 1
st
Quarter and 32.43% for the three month period ending July 31, 2017. Subject
to unanticipated increases in 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 for the 1
st
Quarter decreased by $3,747, or 10.15%, as compared to the same quarter in fiscal
2017. The decrease was mainly due to reduced prototype expenses for the 1
st
Quarter compared to the three month period
ending July 31, 2017. The Company is continuing research intended to improve and expand the Company’s current product line.
The Company does not have sufficient information to determine the extent to which the Company will be required to allocate its
resources to the continued development of these products.
Marketing
Expenses
Marketing
expenses for the 1
st
Quarter increased by $135 as compared to the quarter ending July 31, 2017.
BIOSYNERGY, INC.
Three Months Ended July
31, 2018 and 2017
General and
Administrative Expenses
General and
administrative costs for the 1
st
Quarter decreased by $12,103, or 10.31%, as compared to the 3 month period ending July
31, 2017. This decrease was primarily the result of a decrease in legal fees and the timing of accounting fees. Except for unforeseen
expenses and normal increases in employee costs, it is unlikely general and administrative expenses will materially change during
Fiscal 2019.
Net Income (Loss)
The Company
realized a net income of $10,379 during the 1
st
Quarter as compared to a net loss of $7,160 for the comparative quarter
of the prior year. The net income during the first quarter was primarily due to higher sales and reduced accounting fees due to
the timing of billing.
Assets/Liabilities
General
Since April
30, 2018, the Company’s assets have increased by $160,958 and liabilities have increased by $150,579. The increase in assets
is due to an increase in cash offset by decreases in accounts receivables, inventories, and prepaid expenses. Also, the implementation
of FASB Topic 842 related to changes in the accounting treatment for leases (“FASB Topic 842”) increased assets by
$155,925 and increased liabilities by $156,200, offset by a decrease of $5,621 in other current liabilities.
Related Party
Transactions
The Company
was owed $19,699 by F.K. Suzuki International, Inc. ("FKSI"), an affiliate, at July 31, 2018 and April 30, 2018. 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.
A board member
provides 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 $8,706 and $13,485 at July 31, 2018 and 2017, respectively.
Current Assets/Liabilities
Ratio
The ratio
of current assets to current liabilities, 12.04 to 1, has decreased compared to 22.2 to 1 at April 30, 2018, primarily due to the
adoption of FASB Topic 842. This decrease is not indicative of a material change in the financial condition of the Company, but
rather the result of a change in accounting reporting method for the Company’s facilities lease. The Company anticipates
the ratio of current assets to current liabilities will remain substantially at its current level as a result of the change in
accounting methods, subject to other normal fluctuations. In order to maintain or improve the Company’s asset/liabilities
ratio, the Company’s operations must remain profitable.
BIOSYNERGY, INC.
Three Months Ended July
31, 2018 and 2017
Liquidity and Capital
Resources
During the
1
st
Quarter, the Company experienced a decrease in working capital of $51,257. This was primarily due to the adoption
of FASB Topic 842. Without the adoption of FASB Topic 842, working capital would have increased by $14,743.
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 substantial portion of the Company’s
current assets.
The Company
presently grants payment terms to customers and dealers. Although the Company experiences varying collection periods of its accounts
receivable, the Company believes that uncollectable accounts receivable will not have a significant effect on future liquidity.
Cash provided
by operating activities was $23,215 during the three month period ending July 31, 2018. There was no cash used in investing activities.
Except for operating capital and 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 three month period ending July 31, 2018 or 2017.
As of July
31, 2018, the Company had $1,577,141 of current assets available. Of this amount, $49,227 was prepaid expenses, $136,104 was inventory,
$228,167 was net trade receivables and $1,163,643 was cash. The Company’s available cash and cash flow are considered adequate
to fund the short-term 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. Thus there is a risk additional financing may be necessary to fund long-term
capital needs of the Company, although there is no such currently known long-term capital needs other than operations.
Effects
of Inflation
. With the exception of raw material 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 1
st
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 using 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:
BIOSYNERGY, INC.
Three Months Ended July
31, 2018 and 2017
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 the collectability accounts receivable.
Forward-Looking Statements
This report
may contain statements which, to the extent they are not recitations of historical fact, constitute "forwardlooking 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 forwardlooking 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.