UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2001
Commission File Number 0-12459
Biosynergy, Inc.
(Exact name of registrant as specified in its charter)
Illinois
(State or other jurisdiction of incorporation or organization)
36-2880990
(I.R.S. Employer Identification No.)
1940 East Devon Avenue, Elk Grove Village, Illinois 60007
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 956-0471
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
--------
Number of shares outstanding of common stock as of the close of the
period covered by this report: 14,075,511
------------
Page 1 of the 16 pages contained in the sequential numbering system.
BIOSYNERGY, INC.
PART 1 - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Board of Directors and Shareholders
Biosynergy, Inc.
Elk Grove Village, Illinois
The accompanying Balance Sheet of BIOSYNERGY, INC. as at July
31, 2001 and the related Statements of Operations, Shareholders'
Equity (Deficit) and Statements of Cash Flows for the three month
periods ended July 31, 2001 and 2000 were not audited; however, the
financial statements for the three month periods ending July 31,
2001 and 2000 reflect all adjustments (consisting only of normal
reoccurring adjustments) which are, in the opinion of management,
necessary to provide a fair statement of the results of operations
for the interim periods presented.
The financial statements for the fiscal year ended April 30,
2001, were not audited due to the Company's lack of available cash
to pay for such audit; however, the financial statements for the
fiscal year ending April 30, 2001 reflect all adjustments
(consisting only of normal reoccurring adjustments) which are, in
opinion of management, necessary to provide a fair statement of the
results of operations for the period presented.
BIOSYNERGY, INC.
September 14, 2001
BIOSYNERGY, INC.
BALANCE SHEET
ASSETS
July 31, 2001 April 30,2001
Unaudited Unaudited
CURRENT ASSETS -------------- ------------
Cash 76,717 64,828
Short-Term Investments (Note 4) 271,925 271,925
Accounts Receivable, Trade, Net of 87,693 105,421
Allowance for Uncollectible Accounts
of $500 at July 31, 2001 and $500 at
April 30, 2001
Inventories (Notes 1 and 5) 56,469 52,637
Prepaid Expenses 9,375 11,194
Interest Receivable (Note 4) 11,346 7,412
------- -------
Total Current Assets 513,525 513,417
------- -------
DUE FROM AFFILIATES (Note 3) 19,163 19,083
------- -------
PROPERTY AND EQUIPMENT
Equipment (Note 1) 129,349 129,349
Leasehold Improvements 15,140 15,140
------- -------
144,489 144,489
Less: Accumulated Depreciation and
Amortization (115,841) (114,010)
------- -------
28,648 30,479
OTHER ASSETS ------- -------
Pending Patents, Net of Accumulated
Amortization (Note 1) 5,795 5,545
Deposits 6,015 6,015
------- -------
573,146 574,539
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable 6,213 7,700
Other Accrued Compensation 2,092 5,887
Accrued Payroll Taxes 174 498
Deferred Rent (Note 8) 1,320 660
Other Accrued Expenses 2,233 2,432
------- -------
Total Current Liabilities 12,032 17,177
------- -------
COMMITMENTS AND CONTINGENCIES (Note 8) - -
------- -------
SHAREHOLDERS' EQUITY (Note 6)
Common Stock, No Par Value; 20,000,000 Shares
Authorized, Issued: 13,806,511 Shares
at July 31, 2001 and at April 30, 2001 639,388 632,663
Additional paid-in capital 100 100
Accumulated Deficit ( 78,374) (
75,401)
------- -------
561,114 557,362
------- -------
573,146 574,539
======= =======
BIOSYNERGY, INC.
STATEMENT OF OPERATIONS
Unaudited
Three Months Ended July 31
2001 2000
REVENUES ------- -------
Sales 141,489 145,767
Computer Rentals and Services - -
Other Income 744 435
Interest Income (Notes 4) 3,934 4,181
------- -------
146,167 150,383
COST AND EXPENSES ------- -------
Cost of Sales and Other
Operating Charges 50,827 43,303
Research and Development 29,747 24,742
Marketing 15,673 13,931
General and Administrative 52,893 47,514
------- -------
149,140 129,490
------- -------
NET INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEMS (2,973) 20,893
INCOME TAXES - 4,638
------- -------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS (2,973) 16,255
EXTRAORDINARY ITEMS
Reduction of Income Taxes
arising from utilization of prior
years' Net Operating Losses (Note 9) - 4,638
-------- -------
NET INCOME (LOSS) (2,973) 20,893
======== =======
NET INCOME (LOSS) PER COMMON SHARE (Note 7):
Before Extraordinary Items (.001) .002
-------- -------
Extraordinary Items .000 .000
-------- -------
NET INCOME (LOSS) PER COMMON SHARE (.001) .002
======== =======
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING (Note 7) 14,075,511 13,806,511
========== ==========
BIOSYNERGY, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
THREE MONTHS ENDED JULY 31, 2001
Unaudited
Additional
Common Stock Paid-in
Shares Amount Capital Deficit Total
---------- ------- --------- ------- ---------
Balance, May 1,
2001 13,806,511 632,663 100 (75,401) 557,362
Net Profit (Loss) 269,000 6,725 - (2,973) (2,973)
Balance, July 31,
2001 14,075,511 639,388 100 (78,374) 561,114
----------- ------- ---- -------- -------
BIOSYNERGY, INC.
STATEMENTS OF CASH FLOWS
Unaudited
THREE MONTHS ENDED JULY 31,
2000 2001
-------- --------
OPERATING ACTIVITIES:
Net Income (Loss) 20,893 (2,973)
Adjustments to Reconcile Net Cash Used for
Operating Activities:
Depreciation and Amortization 2,054 1,831
Changes in Operating Assets and Liabilities:
(Increase) Decrease in Accounts Receivable (21,951) 17,728
(Increase) Decrease in Inventories ( 7,137) (3,832)
(Increase) Decrease in Prepaid Expenses 1,469 1,819
Increase (Decrease) in Accounts Payable
and Accrued Expenses 19,873 (5,145)
------- --------
Net Cash Provided (Used) by Operating
Activities 15,201 9,428
------- --------
INVESTING ACTIVITIES:
Advance to Affiliated Companies - (80)
Patents Pending - (250)
Increase (Decrease) in Interest
Receivable(Note 4) ( 4,181) ( 3,934)
-------- --------
Net Cash Provided by (Used In) Investing
Activities ( 4,181) ( 4,264)
FINANCING ACTIVITIES:
Exercise of Stock Option by Officer (Note 6) - 6,725
Net Cash Provided (Used) by Financing
Activities - 6,725
Increase (Decrease) in Cash and Cash
Equivalents 11,020 11,889
Cash and Cash Equivalents at Beginning ------- -------
of Period 53,517 64,828
------- -------
Cash and Cash Equivalents at End of Period 64,537 76,717
======= =======
The accompanying notes are an integral part of the financial
statements.
BIOSYNERGY, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Inventories - Inventories are valued at the lower of cost using the
FIFO (first-in, first-out) method or market (using net realizable
value).
Equipment and Leasehold Improvements - Equipment and leasehold
improvements are stated at cost. Depreciation is computed primarily
on 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.
Research and Development, and Patents - Research and development
expenditures are charged to operations as incurred. The cost of
obtaining patents, primarily legal fees, are capitalized and
amortized over the life of the respective patent on the
straight-line method.
2. Company Organization and Description:
Biosynergy, Inc. (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.
3. Related Party Transactions:
The Company and its affiliates are related through common stock
ownership as follows as of July 31, 2001:
S T O C K O F A F F I L I A T
E S
F.K. Suzuki
Biosynergy International
Medlab
Stock Owner Inc. Inc.
Inc.
------------------------------- ---------- -------------
------
F.K. Suzuki International, Inc. 31.9% -
100%
Fred K. Suzuki, Officer 2.1% 35.6%
-
Lauane C. Addis, Officer .1% 32.7%
-
James F. Schembri, Director 12.8% -
-
Mary K. Friske, Officer .1% .2%
-
Laurence C. Mead, Officer .1% 4.0%
-
BIOSYNERGY, INC.
NOTES TO FINANCIAL STATEMENTS
The following balances were due from F.K. Suzuki International,
Inc., an affiliate, at July 31, 2001:
April 30, 2001 - $19,082
July 31, 2001 - $19,163
The balances result from an allocation of common expenses offset by
advances received from time to time. At July 31, 2001, the
financial condition of F.K. Suzuki International, Inc. is such that
it is unlikely to be able to repay Biosynergy during the next year
without liquidating a portion of its assets.
4. Short-Term Investments:
In April, 1999, the Company invested $250,000 in a 270-day
Certificate of Deposit, pending their use. These funds have
reinvested in additional 270-day Certificates of Deposit. The
Company is not registered under the Investment Company Act of 1940
and therefore is limited to the types of investments which the
Company may make. The funds invested in the Certificate of Deposit
have not been allocated or earmarked for any specific use.
5. Inventories:
Components of inventories are as follows:
April 30, 2001 July 31, 2001
-------------- -------------
Raw Materials $31,543 $39,055
Work-in process 12,622 6,896
Finished Goods 8,472 10,518
------- -------
$52,637 $56,469
======= =======
6. Common Stock:
The Company's 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.
On November 12, 1998, the Company granted an option to its
President, Fred K. Suzuki, to purchase all or a portion of 3,000,000
shares of the Company's common stock at a purchase price of $.025
per share. The option is subject to several contingencies
including, but not limited to, shareholder approval. On May 9,
2001, this option was exercised to the extent of 290,000 shares
resulting in additional paid-in-capital of $6,725. This option will
expire on November 12, 2001.
BIOSYNERGY, INC.
NOTES TO FINANCIAL STATEMENTS
7. Income or (Loss) Per Shares:
Net income or (loss) per common share is computed using the weighted
average number of common shares outstanding during the period, after
giving effect to stock splits, and also computed using the average
number of common shares outstanding during the period after giving
effect to the number of shares of common stock equivalents which
would have been outstanding after exercise of stock options to
officers. The calculation of net income (loss) per common share and
common share equivalent is as follows:
Quarter Ending July 31
2001
2000
----------- ---------
Net Income (Loss) (2,973) 20,893
Weighted Average Shares Outstanding
Shares of Common Stock Outstanding 14,075,511 13,806,511
Common Share Equivalents -
Options to Officers 2,731,000 3,000,000
---------- ----------
Total Weighted Shares 16,806,511 16,806,511
Net Income (Loss) per Common share
and Common Share Equivalent (.0002) $.0012
The weighted average number of common shares outstanding were
14,075,511 at July 31, 2001 and 13,806,511 at April 30, 2001. The
effect of conversion of stock options has not been presented as
conversion would be anti-dilutive.
8. Lease Commitments:
In January, 2001, the Company entered a five year extension of the
lease agreement for its current facilities which expires January 31,
2006. The base rent under the lease escalates over the life of the
lease. Total rent payments for each fiscal year are as follows:
Year ending April 30 Total Base Rent
--------------------- ---------------
2001 17,875
2002 72,000
2003 73,500
2004 74,100
2005 75,900
2006 56,925
Also included in the lease agreement are escalation clauses for the
lessor's increases in property taxes and other operating expenses.
The lease can be extended for an additional five year term.
9. Income Taxes:
At April 30, 2001, net operating loss carryforwards were available
and expire, if not used, as follows:
Year Ending Net Operating
April 30, Losses
----------- -------------
2002 132,470
2003 85,822
2004 41,176
2006 160
2007 28,253
--------- ----------
$ 287,881
----------
The Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes" as required by SFAS
No. 109. The effect, if any, of adopting Statement No. 109 on
pretax income from continuing operations is not material. The
Company has elected not to retroactively adopt the provisions
allowed in SFAS No. 109, however all provisions of the document have
been applied since the beginning of fiscal year 1994.
10. Major Customers:
Shipments to one customer amounted to approximately 43.15% of sales
during the first quarter of Fiscal 2002. At July 31, 2001 there was
an outstanding account receivable from this customer of
approximately $47,412.00.
11. Management's Plans:
Management of the Company recognizes the Company's ability to
continue as a going concern is subject to continuing sales
performance and the ability of the Company to raise money, when
needed. To this extent, management has endeavored to introduce the
Company's products in new markets, expand its marketing efforts in
the traditional medical market and introduce new products. Finally,
management intends to continue pursuing financing opportunities, if
necessary.
12. 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,
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.
Item 2. MANAGEMENT ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SALES/REVENUES
--------------
For the three month period ending July 31, 2001 ("1st Quarter"), the
net sales decreased 2.9%, or $4,278, as compared to net sales for
the comparative quarter ending in 2000. This decrease in sales is
primarily the result of a slight decrease in sales of HemoTempR II
and TempTRENDR. As of July 31, 2001, the Company had no back orders.
In addition to the above, during the 1st Quarter the Company
realized $3,934 of interest income as the result of an investment of
$259,656 in a 270-day Certificate of Deposit. The Company also had
$744 of other miscellaneous revenues primarily from leasing a
portion of its storage space to a third party.
INCOME/LOSS
-----------
The Company realized a net loss of $2,973 during the 1st Quarter as
compared to a net profit of $20,892 for the comparative quarter of
the prior year. The net loss is primarily a result of increased
costs and expenses during the 1st Quarter.
As of April 30, 2001, the Company has net operating losses
carryovers aggregating $287,881. As a result of net operating loss
carryovers, no income taxes were due for Fiscal 2001 and will
unlikely be due for Fiscal 2002. See "FINANCIAL STATEMENTS" for the
effect of the net operating loss carryforwards on the Company's
income tax position. The Tax Reform Act of 1986 will not alter the
Company's net operating loss carryforward position, and the net
operating loss carryforwards will be available and expire, if not
used, as set forth in Footnote 9 of the "FINANCIAL STATEMENTS."
EXPENSES
---------
GENERAL
The operating expenses of the Company during the 1st Quarter
increased overall by 15.18%, or $19,650, as compared to the 1st
quarter in 2000, primarily due to an increase in substantially all
expense categories.
COST OF SALES AND OTHER OPERATING CHARGES
The cost of sales and other operating charges during the 1st Quarter
increased by $7,524 as compared to these expenses during the same
quarter ending in 2000. As a percentage of sales, the cost of sales
and other operating charges were 35.93% during the 1st Quarter and
29.71% for the comparative quarter ending in 2000, which affected
the results of operations of the Company. The increased expenses
were primarily due to higher raw material costs and a write off of
outdated supplies.
RESEARCH AND DEVELOPMENT
Research and Development costs increased $5,005, or 20.23%, as
compared to the same quarter in 2000. This increase is due to the
Company's investigation of certain compounds for use as bacteria
growth retardant agents for use in food and other products. These
expenses include travel, laboratory supplies, legal and technical
consulting expenses related to these compounds, and increased
salaries for research personnel. Historically, the Company's
research and development activities were limited to improvement of
the current product line and development of products which were
natural extensions thereof. Recently the Company has been
investigating other products and accessories complimentary to its
current product line and entirely new technologies.
MARKETING
Marketing costs for the 1st Quarter increased by $1,742 or 12.5%, as
compared to the quarter ending July 31, 2000. This increase was
primarily due to an increase in salaries.
GENERAL AND ADMINISTRATIVE
General and administrative costs increased by $5,379, or 11.32%, as
compared to the 1st quarter ending in 2000. This increase was
primarily the result of an increase in salaries and related employee
expenses.
ASSETS/LIABILITIES
------------------
GENERAL
Since April 30, 2001, the Company's assets have decreased by $1,343
and liabilities have decreased by $5,145. The decrease in assets,
primarily accounts receivable, and liabilities, primarily accounts
payable and accrued expenses, is due to normal fluctuations, and is
not indicative of any material change in the operations of the Company.
RELATED PARTY TRANSACTIONS
The Company was owed $19,163 by F.K. Suzuki International, Inc.
("FKSI"), an affiliate, at July 31, 2001. FKSI owed $19,082 at
April 30, 2001. This account primarily represents common expenses
which are charged by the Company to FKSI for reimbursement. These
expenses include general operating expenses. See "Financial
Statements." These expenses are incurred in the ordinary course of
business. Although management believes it is cost effective to
share common expenses with FKSI, the Company has reduced the amount
of advances and common expenses charged to FKSI until FKSI is in a
position to reimburse the Company. Collectability of the amounts
due from FKSI cannot be assured without the liquidation of all or a
portion of its assets, and thus such receivable has been classified
as a non-current asset.
On November 12, 1998, the Company entered into a stock option
agreement with Fred K. Suzuki, President, granting Mr. Suzuki an
option to purchase 3,000,000 shares of the Company's common stock at
an option price of $.025 per share. The option is subject to
several contingencies, including, but not limited to, shareholder
approval. Management believes the option has no value in excess of
the fair market value of the Company's common stock, however, there
was no independent analysis of this transaction. The option
contains anti-dilutive provisions in the event of corporate capital
reorganizations. Mr. Suzuki exercised this option to the extent of
269,000 shares on May 9, 2001.
CURRENT ASSETS/CURRENT LIABILITY RATIO
--------------------------------------
The ratio of current assets to current liabilities, 42.68 to 1, has
increased compared to 29.89 to 1 at April 30, 2001. Management
believes it has sufficient current assets for its operations during
the ensuing year provided there is no adverse material changes.
WORKING CAPITAL/LIQUIDITY
-------------------------
During the 1st Quarter, the Company experienced an increase in
working capital of $5,253. This is due to the exercise of stock
options by an officer of the Company. See "RELATED PARTY
TRANSACTIONS" above.
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, as is customary in
the medical and laboratory markets, to carry inventory 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
of 30 days. The Company will not accept returns of products from
its dealers except for exchange, but does guarantee the quality of
its products to the end user.
As of July 31, 2001, the Company had $513,525 of current assets
available. Of this amount, $56,469 was inventory, $87,693 was net
trade receivables, and $348,642 was cash or short-term investments.
Management of the Company believes that it has sufficient working
capital to continue operations for the fiscal year ending April 30,
2002 provided the Company's sales and ability to collect accounts
receivable are not adversely affected. In the event the Company's
sales decrease or the receivables of the Company are impaired for
any reason, it may be necessary to obtain additional financing to
cover working capital items and keep current trade accounts payable,
of which there can be no assurance.
Except for its operating working capital needs, the Company has no
material contingencies for which it must provide.
PART II - OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8K.
--------------------------------
(a) The following exhibits are filed as a part of this report:
(2) Plan of Acquisition, reorganization, arrangement,
liquidation or succession - none
(3) Articles of Incorporation and By-laws (i)
(4) Instruments defining rights of security holders,
including indentures - none.
(10) Material Contracts
(a) Stock Option Agreement, dated November 12,
1998, between the Company and Fred K. Suzuki (ii)
(11) Statement regarding computation of per share earnings- none.
(15) Letter dated September 14, 2001, regarding interim financial
information. (iii)
(18) Letter regarding change in accounting principals - none.
(19) Reports furnished to security holders - none.
(22) Published report regarding matters submitted to vote of
security holders - none.
(23) Consents of experts and counsel - none.
(24) Power of Attorney - none.
(27) Financial Data Schedule - none.
(b) No Current Reports on Form 8K were filed during the
period covered by this Report.
(i) Incorporated by reference to a
Registration Statement filed on Form S-18 with the
Securities and Exchange Commission, 1933 Act Registration
Number 2-38015C, under the Securities Act of 1933, as
amended, and Incorporated by reference, with regard to
Amended By-Laws, to the Company's Annual Report on Form
10K for fiscal year ending April 30, 1986 filed with the
Securities and Exchange Commission.
(ii) Incorporated by reference to the Company's
Quarterly Report on Form 10Q for quarter ending January
31, 1999 filed with the Securities and Exchange Commission.
(iii) This exhibit is included in this report as
a part of the Financial Statements, and is incorporated
by reference herein.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
Biosynergy, Inc.
Date September 14, 2001 /s/ Fred K. Suzuki /s/
------------------
--------------------------------------
Fred K. Suzuki
President, Chairman of the
Board and
and Treasurer
Date September 14, 2001 /s/ Laurence C. Mead /s/
------------------
-------------------------------------
Laurence C. Mead
Vice
President/Manufacturing and
Development, and Chief
Accounting
Officer
Date September 14, 2001 /s/ Lauane C. Addis /s/
------------------
--------------------------------------
Lauane C. Addis
Secretary, Corporate
Counsel and
Director