UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- -- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2008
----------------
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
- --- ACT
For the transition period from __________ to ___________
Commission file number 0 -12459
Biosynergy, Inc.
- -------------------------------------------------------------
(Exact name of small business issuer as specified in its
charter)
Illinois 36-2880990
- ------------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1940 East Devon Avenue, Elk Grove Village, Illinois 60007
- -----------------------------------------------------------------
(Address of principal executive offices)
847-956-0471
- -----------------------------------------------------------------
(Registrant's telephone number, including area code)
- -----------------------------------------------------------------
(Former name, former address and formal fiscal year, if changed
since last report)
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. X Yes 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.
Large accelerated filer Accelerated filer
---- ----
Non-accelerated filer
----
(Do not check if a smaller reporting company)
Smaller reporting company X
-----
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN A BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
SEC 1296 (02-08) Potential persons who are to respond to the collection of
information contained in this form are not required to respond unless the form
displays a currently valid OMB control number.
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 14,935,511
BIOSYNERGY, INC.
PART 1 - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
Balance Sheets
ASSETS
October 31, 2008 April 30,2008
Unaudited Audited
---------------- -------------
<c>
Current Assets
Cash $283,292 $281,123
Short-Term Investments 200,000 200,000
Accounts receivable, Trade (Net of 125,678 143,656
allowance for doubtful accounts of $500
at October 31, 2008 and April 30, 2008)
Inventories 83,338 60,906
Prepaid Expenses 26,278 19,013
Interest Receivable 1,301 1,634
-------- --------
Total Current Assets 719,887 706,332
-------- --------
Equipment and Leasehold Improvements
Equipment 203,137 201,576
Leasehold improvements 20,022 18,175
-------- --------
223,159 219,751
Less accumulated depreciation and amortization (179,535) (170,289)
-------- --------
Total Equipment and Leasehold Improvements, Net 43,624 49,462
-------- --------
Other Assets
Patents less Accumulated Amortization 16,467 16,995
Pending Patents 85,282 70,456
Deposits 5,947 5,947
-------- --------
Total Other Assets 107,696 93,398
-------- --------
$871,207 $849,192
======== ========
The accompanying notes are an integral part of the condensed financial
statements.
Liabilities and Stockholders' Equity
October 31, 2008 April 30,2008
Unaudited Audited
---------------- -------------
Current Liabilities
Accounts payable $23,710 $17,895
Accrued compensation and payroll taxes 7,521 15,620
Deferred rent 6,227 6,197
Other accrued expenses 275 182
Income Taxes Payable - 14,250
Accrued vacation 32,873 32,933
-------- --------
Total Current Liabilities 70,606 87,077
-------- --------
Deferred Income Taxes 12,265 12,265
-------- --------
Shareholders' Equity
Common stock, No par value; 20,000,000
authorized shares issued: 14,935,511
Shares at October 31, 2008
and at April 30, 2008 660,988 660,988
Receivable from Affiliate (19,699) (19,699)
Retained Earnings 147,047 108,561
-------- --------
Total Shareholders' Equity 788,336 749,850
-------- --------
$871,207 $849,192
======== ========
The accompanying notes are an integral part of the condensed financial
statements.
Biosynergy, Inc.
Statements of Operations
______________________________________________________________________________________
Three Months Ended Six Months Ended
October 31, October 31,
------------------- ----------------------
2008 2007 2008 2007
---------- ---------- ---------- ----------
Net Sales $229,173 $259,419 $508,604 $509,074
Cost of Sales 69,853 70,354 137,550 143,077
---------- ---------- ---------- ----------
Gross Profit 159,320 189,065 371,054 365,997
---------- ---------- ---------- ----------
Operating Expenses
Marketing 31,341 29,002 59,539 59,584
General and administrative 87,308 69,509 217,767 194,887
Research and development 22,365 22,623 42,991 43,938
---------- ---------- ---------- ----------
Total Operating Expenses 141,014 121,134 320,297 297,409
---------- ---------- ---------- ----------
Income from Operations 18,306 67,931 50,757 67,588
---------- ---------- ---------- ----------
Other Income
Interest Income 2,539 3,231 4,895 6,739
Other Income 480 480 960 960
---------- ---------- ---------- ----------
Total Other Income 3,019 3,711 5,855 7,699
---------- ---------- ---------- ----------
Net Income Before Income Taxes $21,325 $71,642 $56,612 $75,287
Provision for Income Taxes 4,985 19,897 18,126 20,553
---------- ---------- ---------- ----------
Net Income $16,340 $51,745 $38,486 $54,734
Net Income Per Common Stock -
Basic and Diluted - - - -
---------- ---------- ---------- ----------
Weighted-Average Common Stock
Outstanding-Basic 14,935,511 14,935,511 14,935,511 14,935,511
and Diluted
---------- ---------- ---------- ----------
The accompanying notes are an integral part of the condensed financial
statements.
BIOSYNERGY, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED OCTOBER 31, 2008
Unaudited
Common Stock Other and Related Retained
--------------------- Receivables Earnings
Shares Amount Total
---------- -------- ----------------- ----------- ------------
Balance,
May 1, 2008 14,935,511 $660,988 ($19,699) $108,561 $749,850
Net Income - - - 38,486 38,486
---------- --------- --------- -------- --------
Balance,
October 31, 2008 14,935,511 $660,988 ($19,699) $147,047 $697,698
========== ========= ========= ======== ========
The accompanying notes are an integral part of the condensed financial
statements.
BIOSYNERGY, INC.
STATEMENTS OF CASH FLOWS
Unaudited
SIX MONTHS ENDED OCTOBER 31,
----------------------------
2008 2007
----------- ------------
Cash Flows from Operating Activities
Net income $ 38,486 $ 54,734
Adjusted to reconcile net income to cash
provided by operating activities
Depreciation and amortization 9,774 10,619
Changes in assets and liabilities
Accounts receivable 17,978 (20,255)
Inventories (22,432) (16,911)
Prepaid expenses (7,265) 4,506
Interest receivable 333 464
Accounts payable and accrued expenses (16,471) (25,264)
---------- -----------
Total Adjustments (18,083) (46,841)
---------- -----------
Net Cash Provided By
Operating Activities 20,403 7,893
---------- -----------
Cash Flow from Investing Activities
Patents and patents pending (14,826) (12,671)
Equipment and leasehold improvements (3,408) (5,895)
---------- -----------
Net Cash Used in
Investing Activities (18,234) (18,566)
---------- -----------
Increase (Decrease) in Cash 2,169 (10,673)
---------- -----------
Cash Beginning Period 281,123 187,100
---------- -----------
Cash Ending Period $283,292 $176,427
========== ===========
The accompanying notes are an integral part of the condensed 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
principals 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, 2008 Annual Report or
Form 10-KSB. The results of operations for the six months ended October 31,
2008 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
92.82% of the sales during the quarter ending October 31, 2008. 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 deposits its cash in an account with a financial institution, which
at times may exceed federally and other insured limits. However, management
does not feel that that deposits exceeding federally and other insured limits
represents significant risk.
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 for more than 30 days. 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 using the FIFO (first-in,
first-out) method or market.
Note 2 - Summary of Significant Accounting Policies (continued)
Depreciation and Amortization
- -----------------------------
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; equipment is depreciated
over 3 to 10 years.
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.
Stock Options
- --------------
Effective May 1, 2006, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 123(R), "Share-based Payment" (SFAS 123R)
whereby stock option expense is calculated at fair value using Black Scholes
Valuation model and amortized on an even basis (net of estimated forfeitures)
over the requisite service period. The Company previously accounted for its
stock option awards under the intrinsic value based method of accounting
prescribe by Accounting Principals Board Opinion No. 25, "Accounting for Stock
Issued to Employees." Under the intrinsic value method, compensation cost is
the excess, if any, of the quoted market price of the stock at grant date or
other measurement date over the amount an employee must pay to acquire the
stock. The Company made pro forma disclosures of net income and earnings per
share as if the fair value based method of accounting had been applied as
required by Statement of Financial Accounting Standards No. 123 (SFAS 123),
"Accounting for Stock-Based Compensation" by using the Black-Scholes option-
pricing model. The Company has never granted options below market price on the
date of grant. No share-based compensation cost was recognized in the Company's
financial statements for the six month period ended October 31, 2008, as no
options were granted or outstanding during this time period.
The Company adopted the provisions of SFAS 123(R) effective May 1, 2006 using a
modified version of prospective application. This transition method provides
that the Company would recognize compensation cost after the effective date as
the requisite service is rendered for the portion of options outstanding at May
1, 2006, based on the grant-date fair value of those options calculated under
Statement 123 for pro forma disclosures. No share-based payments were granted
Note 2 - Summary of Significant Accounting Policies (Continued)
subsequent to the effective date. Under the modified version of prospective
application, prior period statements have not been restated.
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 (Loss) Per Common Share
- ------------------------------
The Company has adopted the provisions of FASB No. 128, "Earnings Per Share."
Income (loss) per common share is computed by dividing net income (loss) 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.
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 balance sheet as of October 31,
2008, approximates their carrying value.
Comprehensive Income (Loss)
- ---------------------------
The Company adopted the Statement of Financial Accounting Standards (SFAS) No.
130, "Reporting Comprehensive Income," which established standards for the
reporting and display of comprehensive income (loss) and its components in the
financial statements. Components of comprehensive income (loss) include amounts
that, under SFAS No. 130, are included in the comprehensive income (loss) but
are excluded from net income (loss). There were no significant differences
between the Company's net (loss) income and comprehensive (loss) income.
Note 2 - Summary of Significant Accounting Policies (Continued)
Income Taxes
- ------------
The components of the net deferred income tax liabilities as of April 30, 2008
and 2007 are as follows:
2008 2007
---------- ----------
Total deferred tax liabilities
Patents $12,040 $ -
Accrued vacation pay (10,614) -
Equipment and leaseholds 8,707 -
Prepaid insurance 5,208 -
Other (3,076) -
---------- ----------
Net deferred income tax liabilities $12,265 $ -
========== ==========
The components of the net deferred income tax assets as of April 30, 2008 and
2007 are as follows:
2008 2007
---------- ----------
Total deferred tax assets
Net operating loss carryforward $ - $ 6,583
Valuation allowance recognized - (6,583)
---------- ----------
Net deferred income tax assets $ - $ -
========== ==========
Deferred income tax liabilities result primarily from capitalized legal costs
associated with patents that are deducted immediately for income tax purposes
and from differences between depreciation expenses and prepaid insurance for
book and tax purposes. Deferred income tax assets result primarily from
accrued vacation pay which is not deducted unless paid within 2-1/2 months
of each year-end, net operating loss carryforwards, valuation allowances and
accounts receivable and expenses not deductible for tax purposes until paid.
Note 2 - Summary of Significant Accounting Policies (Continued)
The provision for income taxes consists of the following components as of
October 31:
2008 2007
-------- --------
Current
Federal $14,163 $15,283
State 3,963 5,270
-------- --------
Provision for Income Taxes $18,126 $20,553
======== ========
The differences between the U.S. federal statutory tax rate and the Company's
effective tax rate are as follows:
Year Ended October 31,
2008 2007
---------- ----------
U.S. federal statutory tax rate 34.0% 34.0%
State income tax expense, net of
Federal tax benefit 3.0 3.0
Effect of graduated federal tax rates (5.0) 0.2
---------- ----------
Consolidated Effective Tax Rate 32.0% 37.2%
========== ==========
The Company has utilized all of its net operating loss carryforwards. A
valuation allowance was established as of April 30, 2007 (no valuation allowance
was necessary as of April 30, 2008) for the deferred tax benefit related to
those loss carryforwards and other deferred tax assets for which it is
considered more likely than not that benefit will not be realized.
Note 2 - Summary of Significant Accounting Policies (Continued)
Recent Accounting Pronouncements
In May 2008, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 162, "The Hierarchy of Generally
Accepted Accounting Principles." SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements for nongovernmental entities that are
presented in conformity with generally accepted accounting principles. The
statement shall be effective 60 days following the SEC's approval of the Public
Company Accounting Oversight Board amendment to AU Section 411, "The Meaning of
'Present Fairly in Conformity with Generally Accepted Accounting Principles.'"
The Company does not expect this adoption will have a material impact on its
financial statements.
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities-an amendment of FASB Statement No. 133."
SFAS No. 161 changes the disclosure requirement for derivative instruments and
hedging activities. Entities are required to provide enhanced disclosures about
(a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under Statement 133 and
its related interpretations, and (c) how derivative instruments and related
hedged items affect an entity's financial position, financial performance, and
cash flows. The guidance in SFAS No. 161 is effective for financial statements
issued for fiscal years and interim periods beginning after November 15, 2008,
with early application encouraged. This Statement encourages, but does not
require, comparative disclosures for earlier periods at initial adoption. SFAS
No. 161 will be effective for the Company beginning in the 1st Quarter of fiscal
2010 (May 1, 2009). The Company is assessing the potential impact that the
adoption of SFAS No. 161 will have on its financial condition and results of
operations.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
Combinations." SFAS No. 141(R) significantly changes the accounting for
business combinations in a number of areas including the treatment of contingent
consideration, preacquisition contingencies, transaction costs, in-process
research and development and restructuring costs. In addition, under SFAS No.
141(R), changes in an acquired entity's deferred tax assets and uncertain tax
positions after the measurement period will impact income tax expense. SFAS No.
141(R) will be effective for the Company beginning in the first quarter of
fiscal 2010 (May 1, 2009). The Company is assessing the potential impact that
the adoption of this revision will have on its financial condition and results
of operations.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities - including an amendment to FASB
Statement No. 115." SFAS No. 159 permits entities to measure certain financial
instruments and certain other items at fair value that are not currently
required to be measured at fair value. The objective is to improve financial
reporting by providing entities with the opportunity to mitigate volatility in
reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions. SFAS No. 159 is
effective for the Company beginning in the first quarter of fiscal 2009 (May 1,
2008). The Company's adoption of SFAS No. 159 did not have a significant effect
on the company's financial position or results of operations.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements, and amendment of ARB No. 51." SFAS No. 160
changes the accounting and reporting for minority interests, which will be
recharacterized as noncontrolling interests and classified as a component of
equity. This new consolidation method significantly changes the accounting for
transactions with minority interest holders. SFAS No. 160 is effective for
fiscal years beginning after December 15, 2008. SFAS will be effective for the
Company beginning in the first quarter of fiscal 2010 (May 1, 2009). The
Company is assessing the potential impact that the adoption of SFAS No. 160 will
have on its financial position and results of operations.
In September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 157, "Fair Value Measurements." SFAS No. 157 defines fair value,
established a framework for measuring fair value and expands disclosures about
fair value measurements. SFAS No. 157 also establishes a fair value hierarchy
that prioritizes information used in developing assumptions when pricing an
asset of liability. SFAS No. 157 is effective for the Company beginning in
fiscal year 2009. The Company's adoption of SFAS No. 157 did not have a
significant effect on the Company's financial position or results of operations.
Short-Term Investments
- ----------------------
In September 2008, the Company reinvested $100,000 in a seven month certificate
of deposit at an interest rate of 3%. The maturity date is April 18, 2009. The
Company reinvested in an additional $100,000 certificate of deposit on July 25,
2008 for seven months at an interest rate of 3.51%. The maturity date is
February 23, 2009.
Note 3 - Inventories
Components of inventories are as follows:
April 30, October 31,
2008 2008
---------- -----------
Raw materials $46,820 $51,917
Work-in-process 13,939 23,150
Finished goods 147 8,271
------- -------
$60,906 $83,338
======= =======
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 April 30, 2008 and October 31, 2008:
Stock of Affiliates
------------------------------------
F.K. Suzuki
Biosynergy, International, Medlab,
Inc. Inc. Inc.
---------- ------------- --------
F.K. Suzuki International, Inc. 30.1% - % 100.0%
Fred K. Suzuki, Officer 4.1 35.6 -
Lauane C. Addis, Officer .1 32.7 -
James F. Schembri, Director 8.6 - -
Mary K. Friske, Officer .3 .2 -
Laurence C. Mead, Officer .4 4.0 -
Beverly K. Suzuki, Officer 2.7 - -
As of October 31, 2008 and April 30, 2008, $19,699 was due from F.K. Suzuki
International, Inc. (FKSI). These balances result from an allocation of common
expenses charged to FKSI 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, $19,699 of the total receivable
balance has been reclassified as a contra equity account.
Note 6 - Earnings per Share
The following tables set forth the computation of basic and diluted earnings per
share:
Six Months Ending
October 31,
2008 2007
----------- -----------
Numerator:
Net income (loss) attributable to
Common shareholders $38,486 $54,734
Denominator:
Weighted Average Outstanding
Shares-Basic 14,935,511 14,935,511
Earnings Per Share-Basic 0.00 0.00
---------- ----------
Effect of dilutive common equivalent
Shares-weighted average stock
Options outstanding 0.00 0.00
Weighted Average Outstanding
Shares Diluted 14,935,511 14,935,511
Earnings Per Share-Diluted 0.00 0.00
---------- ----------
Note 7 - Major Customers
Shipments to one customer amounted to 37.49% of sales during the first six
months of Fiscal 2009 compared to 37.88% of sales for the same customer during
the comparative period ending in 2007. As of October 31, 2008, there were
outstanding accounts receivable from this customer of $62,520 compared to
outstanding accounts receivable from such customer of $84,500 as of October 31,
2007. Shipments to another customer amounted to 19.09% of sales during the first
six months of Fiscal 2009 compared to 13.32% of sales for the same customer
during the comparative period ending in 2007. As of October 31, 2008, there
were outstanding accounts receivable from this customer of approximately $18,015
compared to outstanding accounts receivable from such customer of approximately
$12,665 as of October 31, 2007.
Item 2. Management's Discussion of Financial Condition and Results of
Operations
Net Sales/Revenues
- ------------------
For the three month period ending October 31, 2008 ("2nd Quarter"), the net
sales decreased 13.19%, or $30,246, and decreased .09%, or $470 during the six
month period ending October 31, 2008, as compared to net sales for the
comparative periods ending in 2007. This decrease in sales is primarily the
result of a decrease in unit sales of HemoTempR , StaFreez and Hemo-CoolerJr.
As of October, 31, 2008, the Company had no back orders.
In addition to the above, the Company had $3,019 and $5,855 of other
miscellaneous revenues primarily from interest income and leasing a portion of
its storage space to a third party during the 2nd Quarter and the six month
period ending October 31, 2008, respectively.
Costs and Expenses
- ------------------
General
The operating expenses of the Company during the 2nd Quarter increased overall
by 16.41%, or $19,880, and increased by 7.34%, or $21,888, for the six month
period ending October 31, 2008, as compared to the same periods ending in 2007.
These increases were primarily due to an increase in wages, as well as an
increase in income taxes, and accounting and legal fees.
Cost of Sales
The cost of sales during the 2nd Quarter decreased by $501 and decreased by
$5,527 during the six month period ending October 31, 2008 as compared to the
same periods ending in 2007. As a percentage of sales, the cost of sales were
30.48% during the 2nd Quarter and 27.12% for the comparative quarter ending in
2007; and 27.04% during the six month period ending October 31, 2008 compared to
28.11% in 2007. The decrease in cost of sales for the six month period ending
October 31, 2008, primarily related to a decrease in part time labor expenses.
Subject to unanticipated increases in raw materials or extraordinary expenses,
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 decreased $258, or 1.15%, during the 2nd Quarter
as compared to the same quarter in 2007. These costs decreased by $947, or
2.20%, during the six month period ending October 31, 2008 as compared to the
same period in 2007. This decrease is due to a decrease in travel and
entertainment expenses due to the curtailment in development activities during
the period. The Company is continuing its investigation and development of
certain compounds for use as bacteria retardant agents for use in food and other
products and research intended to improve its current product line. The Company
does not have sufficient information to determine the extent to which its
resources will be required to complete its investigation and development of the
bacteria retardant agents.
Marketing Expenses
Marketing expenses for the 2nd Quarter increased by $2,339, or 8.06%, as
compared to the quarter ending October 31, 2007 and decreased by $45, or .07%,
during the six month period ending October 31, 2008 compared to the six-month
period ending October 31, 2007. This overall decrease was due to decreases in
product brochure expenses and offset by increases in salaries, health insurance
premiums, employer 401(k) plan contributions during the six month period ending
October 31, 2008.
General and Administrative Expenses
General and administrative costs increased by $17,799, or 25.61%, in the 2nd
Quarter, and increased by $22,880, or 11.74%, during the six month period ending
October 31, 2008, as compared to the same periods in 2007. This overall
increase was due primarily to increases in salaries, employer 401(k) plan
contributions, health insurance premiums, income taxes, accounting fees and
legal expenses. Except for unforeseen extraordinary items, increases to employee
compensation associated with the Company's 401(k) plan and bonus plan, and
normal increases in employee compensation, it is unlikely general and
administrative expenses will materially change during Fiscal 2009.
Net Income
- ----------
The Company realized a net income of $16,340 during the 2nd Quarter as compared
to a net income of $51,745 for the comparative quarter in the prior year. The
Company also realized a net income of $38,486 for the six month period ending
October 31, 2008 as compared to a net income of $54,734 during the same period
in 2007. The decrease in net income is a direct result of an increase in
general and administrative costs as discussed above.
Assets/Liabilities
- -------------------
General
Since April 30, 2008, the Company's assets have increased by $22,015 and
liabilities have decreased by $16,471. The increase in assets, primarily prepaid
expenses, pending patents and inventory, and decrease in liabilities, primarily
accrued expenses, is due to the overall profitability of the Company since April
30, 2008.
Related Party Transactions
The Company was owed $19,699 by F.K. Suzuki International, Inc. ("FKSI"), an
affiliate, at October 31, 2008 and April 30, 2008. This account primarily
represents common expenses which were previously charged by the Company to FKSI
for reimbursement. These expenses include certain office expenses, general
operating expenses and legal fees incurred in the ordinary course of business.
See "Financial Statements." No interest is received or accrued by the Company.
Collectibility of the amounts due from FKSI cannot 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, $19,669 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, 10.20 to 1, has increased
compared to 8.11 to 1 at April 30, 2008 due to the overall profitability of the
Company. 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 six month period ending October 31, 2008, the Company experienced an
increase in working capital of $30,026. This is primarily due to the Company's
net income sustained during the six month period ending October 31, 2008.
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 inventory to meet the delivery requirements of customers and thus,
inventory represents a substantial portion of the Company's investment in
current assets.
The Company presently grants payment terms to customers and dealers of 30 days.
Although the Company experiences varying collection periods of its account
receivable, the Company believes that uncollectable accounts receivable will not
have a significant effect on future liquidity.
The cash provided by operating activities was $20,403 during the six month
period ending October 31, 2008. An aggregate of $18,234 was used for equipment
purchases and patent expenses 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 six month period ending October 31, 2008
As of October 31, 2008, the Company had $719,887 of current assets available.
Of this amount, $26,278 was prepaid expenses, $83,338 was inventory, $125,678
was net trade receivables, $283,292 was cash, and $200,000 was short-term
certificates of deposit. The Company's available cash and cash flow are
considered adequate to fund the short-term capital needs of the Company. Funds
invested by the Company in short-term certificates of deposit were believed by
management to not be necessary for the Company's working capital needs during
the fiscal period ending October 31, 2008. To date, the Company's investment in
short-term certificates of deposit has not had a material adverse effect on the
Company's working capital needs. However, to meet the long-term operating
capital needs of the Company, the Company must remain profitable. 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. In the event the Company needs additional working capital, it may
become necessary for the Company to liquidate any short-term certificates of
deposit it owns and use the proceeds thereof for working capital purposes.
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 accounting policies are disclosed in Note 1 to the Financial
Statements for the 2nd 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 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
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. The Company's primary exposure to market risk is interest rate risk
associated with its short term 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. 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.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. The management of the
Company is responsible for maintaining disclosure controls and procedures (as
defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934 as amended (the "Exchange Act"), that are designed to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized, and reported,
within the time periods specified in the Securities and Exchange Commission's
rules and forms, and that such information is accumulated and communicated to
our management, including our Chief Executive Officer and Chief Financial
Officer to allow timely decisions regarding required disclosure.
The Company has an Audit Committee that meets periodically with management to
review the manner in which they are performing their responsibilities and to
discuss auditing, internal accounting controls and financial reporting matters.
It is the opinion of the Audit Committee that such controls, policies and
procedures are effective in ensuring that material regarding the Company is
presented in this Quarterly Report.
The Company has evaluated the effectiveness of the design and operation of its
disclosure controls and procedures as of October 31, 2008 (the "Evaluation
Date"). Such evaluation was conducted under the supervision and with the
participation of the Company's Chief Executive Officer and Chief Financial
Officer. Based upon such evaluation, the Company's Chief Executive Officer and
Chief Financial Officer have concluded that, as of the Evaluation Date, the
Company's disclosure controls and procedures were effective in alerting them in
a timely fashion to all material information related to the Company required to
be included in the Company's periodic filings with the Securities and Exchange
Commission.
(b) Changes in Internal Controls Over Financial Reporting. The Company
maintains systems of accounting and internal controls, policies and procedures
designed to provide assurance that assets are properly accounted for, as well as
to ensure that the financial records are reliable for preparing financial
statements. The systems are augmented by qualified personnel and are reviewed
on a periodic basis. There have been no significant changes in the Company's
internal controls over financial reporting or in other factors during the last
quarterly period covered by this report that have materially affected, or are
reasonably likely to materially affect, the Company's internal controls over
financial reporting.
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 - none,
(11) Statement regarding computation of per share earnings- none.
(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.
(31.1) Certification of the Chief Executive Officer pursuant to
Rule 13a-14(a) under the Securities Exchange Act of 1934.
Filed herewith.
(31.2) Certification of the Chief Accounting Officer pursuant to
Rule 13a-14(a) under the Securities Exchange Act of 1934.
Filed herewith.
(32.1) Certification of the Chief Executive Officer pursuant to
Rule 13a-14(b) under the Securities Exchange Act of 1934 and
18 U.S.C. Sect. 1350. Filed herewith.
(32.2) Certification of the Chief Accounting Officer pursuant to
Rule 13a-14(b) under the Securities Exchange Act of 1934 and
18 U.S.C. Sect. 1350. Filed herewith.
(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.
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 December 12, 2008 /s/Fred K. Suzuki
----------------------------
Fred K. Suzuki
Chief Executive Officer,
Chairman of the Board,
President and Treasurer
Date December 12, 2008 /s/Laurence C. Mead
---------------------------------
Laurence C. Mead
Vice President/Manufacturing and
Development, Chief Financial
Officer, Chief Accounting Officer
and Director
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Fred K. Suzuki, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Biosynergy, Inc.,
small business issuer;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The small business issuer's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15f) and 15d-15f)
for the small business issuer and we have:
a. Designed such disclosure controls and procedures, or caused such controls and
procedures to be designed under our supervision, to ensure that material
information relating to the small business issuer, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c. Evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this quarterly report based on such evaluation; and
d. Disclosed in this quarterly report any change in the small business issuer's
internal control over financial reporting that occurred during the small
business issuer's most recent fiscal quarter (the small business issuer's fourth
fiscal quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the small business issuer's internal
control over financial reporting; and
5. The small business issuer's other certifying officers and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer's board of directors (or persons
performing the equivalent function):
a. All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the small business issuer's ability to record,
process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer's internal
control over financial reporting.
Dated: December 12, 2008
/s/ Fred K. Suzuki
--------------------------------------
Chairman of the Board, Chief Executive
Officer and President
EXHIBIT 31.2
CERTIFICATION OF CHIEF ACCOUNTING OFFICER
I, Laurence C. Mead, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Biosynergy, Inc.,
small business issuer;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The small business issuer's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15f) and 15d-15f)
for the small business issuer and we have:
a. Designed such disclosure controls and procedures, or caused such controls
and procedures to be designed under our supervision, to ensure that material
information relating to the small business issuer, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b. Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c. Evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this quarterly report based on such evaluation; and
d. Disclosed in this quarterly report any change in the small business
issuer's internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small business issuer's
fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the small business
issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officers and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer's board of directors (or persons
performing the equivalent function):
a. All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the small business issuer's ability to record,
process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer's internal
control over financial reporting.
Dated: December 12, 2008
/s/ Laurence C. Mead
-----------------------------------
Laurence C. Mead
Vice President/Manufacturing and
Development, Chief Financial Officer,
and Chief Accounting Officer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Biosynergy, Inc. (the "Company") on
Form 10-Q for the quarter ending October 31, 2008, as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), the undersigned
hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities and Exchange Act of 1934, as amended; and
(2) the information contained in the Report fairly represents, in all material
respects, the financial conditions and results of operations of the Company as
of October 31, 2008, and for the period then ended.
Biosynergy, Inc.
/s/ Fred K. Suzuki
--------------------------------------------
Fred K. Suzuki
Chairman of the Board, Chief Executive
Officer and President
Dated: December 12, 2008
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Biosynergy, Inc. (the "Company") on
Form 10-Q for the quarter ending October 31, 2008, as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), the undersigned
hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities and Exchange Act of 1934, as amended; and
(2) the information contained in the Report fairly represents, in all material
respects, the financial conditions and results of operations of the Company as
of October 31, 2008, and for the period then ended.
Biosynergy, Inc.
/s/ Laurence C. Mead
--------------------------------------------
Laurence C. Mead
Vice President/Manufacturing and Development,
Chief Financial Officer, and Chief Accounting Officer
Dated: December 12, 2008