shares
issued: 14,935,511 shares at October 31, 2018 and 660,988 660,988
Notes
to Financial Statements
Six
Months Ended October 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 six months ended October 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 90.84%
of the sales during the six months ending October 31, 2018 and 91.78% during the six months ending October 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
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
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
are valued at the lower of cost or market using the FIFO (first-in, first-out) method.
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 $4,177 and $5,067 for the six month periods ending October 31, 2018 and 2017, respectively.
BIOSYNERGY,
INC.
Notes
to Financial Statements
Six
Months Ended October 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 Accounting Standards Update (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 six month period ending October 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.
BIOSYNERGY,
INC.
Notes
to Financial Statements
Six
Months Ended October 31, 2018 and 2017
Note 2 - Summary of Significant
Accounting Policies (Cont’d)
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 for income taxes consists of the following components for the six month periods ended October 31:
2018 2017
Current
Federal $9,673 $4,431
State
4,834 1,454
Provision
for Income Taxes $
14,507 $5,885
The
differences between the U.S. federal statutory tax rate and the Company’s effective tax rate are as follows:
|
|
Period ended October 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
|
|
|
—
|
(7.64)
|
Effective Tax Rate
|
|
|
28.51 %
31.36%
|
|
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.
Patent
amortization expense for the six months ended October 31, 2018 and 2017 were $5,583 and $4,343 respectively.
Patents
relate to products that have been developed and are being marketed by the Company. Patents pending relate to products under development.
BIOSYNERGY,
INC.
Notes
to Financial Statements
Six
Months Ended October 31, 2018 and 2017
Note 2 - Summary of Significant
Accounting Policies (Cont’d)
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.
Basic and diluted net income per common share is the same for the six months ended October 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 six month periods ending October 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 October 31, 2018 and April 30, 2018, approximates their carrying value.
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
Six
Months Ended October 31, 2018 and 2017
Note 3 – Inventories
|
October 31,
2018
|
|
|
|
April 30,
2018
|
|
Components
of inventories are as follows:
Raw materials
|
|
$
|
104,694
|
|
|
$
|
97,319
|
|
Work-in-process
|
|
|
24,610
|
|
|
|
24,624
|
|
Finished goods
|
|
|
14,050
|
|
|
|
19,102
|
|
|
|
$
|
143,354
|
|
|
$
|
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 October 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
Six
Months Ended October 31, 2018 and 2017
Note 5 - Related Party Transactions
(Cont’d)
As
of October 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 $14,811 and $19,421 for the six months ended October 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 six months ending October 31, 2018 is $44,550. The corresponding
expense, recorded as rent expense, for the six months ending October 31, 2017 is $44,000. 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 October 31, 2018 are presented in the following table:
Year Ending
April 30:
BIOSYNERGY,
INC.
Notes
to Financial Statements
Six
Months Ended October 31, 2018 and 2017
Note 7 – Customer Concentrations
Shipments
to one customer amounted to 30.53% of sales during the first six months of Fiscal 2019 compared to 29.58% during the comparative
Fiscal 2018 period. As of October 31, 2018, there were outstanding accounts receivable from this customer of $55,423 compared to
$66,320 at October 31, 2017. Shipments to another customer amounted to 35.66% of sales during the first six months of Fiscal 2019
and 35.53% of sales during the first six months of Fiscal 2018. As of October 31, 2018, there were outstanding accounts receivable
from this customer of $127,278 compared to $130,456 at October 31, 2017.
The
Company had export sales of $32,865 during the 2
nd
Quarter of Fiscal 2019, and export sales of $16,310 during the first
2
nd
Quarter of Fiscal 2018. For the six months ending October 31, 2018 export sales were $43,655 and $24,960 for the
same period ending October 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.