UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ______________
Commission File Number 0-12459
Biosynergy, Inc.
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(Exact name of registrant as specified in its charter)
Illinois 36-2880990
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1940 East Devon Avenue, Elk Grove Village, Illinois 60007
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(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
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Number of shares outstanding of common stock as of the close of the
period covered by this report: 13,806,511
Page 1 of the 20 pages contained in the sequential numbering system.
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, 1998
and the related Statements of Operations, Shareholders' Equity (Deficit) and
Statements of Cash Flows for the three month periods ended July 31, 1998 and
1997 were not audited; however, the financial statements for the three month
periods ending July 31, 1998 and 1997 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, 1998, 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, 1998
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 10, 1998
BALANCE SHEET
ASSETS
July 31, 1998 April 30,1998
Unaudited Unaudited
-------------- --------------
CURRENT ASSETS
Cash 56,299 31,150
Accounts Receivable, Trade, Net of
Allowance for Uncollectible Accounts
of $500 at July 31, 1998 and $500 at
April 30, 1998 73,228 75,955
Inventories (Notes 1 and 4) 49,167 40,148
Prepaid Expenses 3,903 3,792
Total Current Assets 182,597 161,045
DUE FROM AFFILIATES (Note 3) 318,718 311,556
PROPERTY AND EQUIPMENT
Equipment 170,670 170,670
Leasehold Improvements 15,140 15,140
185,810 185,810
Less: Accumulated Depreciation and
Amortization ( 167,011) ( 165,897)
18,799 19,913
OTHER ASSETS
Patents, Net of Accumulated
Amortization (Note 1) 21,715 22,553
Deposits 5,995 5,995
Investment in Affiliated Company (Note 3) - -
27,710 28,548
547,824 521,062
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable 9,440 9,875
Accrued Executive Compensation 24,616 37,355
Other Accrued Compensation 7,836
Accrued Payroll Taxes 599 254
Deferred Rent 1,791 1,783
Other Accrued Expenses 2,372 1,949
Total Current Liabilities 46,654 53,276
COMMITMENTS AND CONTINGENCIES (Note 7) - -
SHAREHOLDERS' EQUITY (Note 5)
Common Stock, No Par Value; 20,000,000
Shares Authorized, Issued: 13,806,511
Shares at July 31, 1998 and at
April 30, 1998 632,663 632,663
Additional paid-in capital 100 100
Accumulated Deficit (131,593) (164,977)
501,170 467,786
547,824 521,062
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<FN>
The accompanying notes are an integral part of the financial statements.
STATEMENT OF OPERATIONS
Unaudited
Three Months Ended
July 31, 1998 1997
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REVENUES
Sales 146,703 142,361
Computer Rentals and Services 150 150
Other Income 711 800
147,564 147,311
COST AND EXPENSES
Cost of Sales and Other
Operating Charges 49,325 46,912
Research and Development 9,325 8,471
Marketing 15,431 12,269
General and Administrative 40,008 38,036
Interest Expense 91 121
114,180 105,809
NET INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEMS 33,384 37,502
INCOME TAXES 7,411 5,625
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEMS 25,973 31,877
EXTRAORDINARY ITEMS
Reduction of Income Taxes
arising from utilization of prior
years' Net Operating Losses
(Note 8) 7,411 5,625
NET INCOME (LOSS) 33,384 37,502
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NET INCOME (LOSS) PER COMMON SHARE
(Note 6):
Before Extraordinary Items .002 .002
Extraordinary Items .001 .001
NET INCOME (LOSS) PER COMMON SHARE .003 .003
--------------- ---------------
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING (Note 6) 13,806,511 13,806,511
<FN>
The accompanying notes are an integral part of the financial statements.
STATEMENT OF SHAREHOLDERS' EQUITY
THREE MONTHS ENDED JULY 31, 1998
Unaudited
Additional
Common Stock Paid-in
Shares Amount Capital Deficit Total
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Balance, May 1,
1998 13,806,511 632,663 100 (164,977) 467,786
Net Profit (Loss) - - - 33,384 33,384
Sale of Common
Stock - - - - -
Balance, July 31,
1998 13,806,511 632,663 100 (131,593) 501,170
<FN>
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF CASH FLOWS
Unaudited
THREE MONTHS ENDED JULY 31,
1998 1997
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OPERATING ACTIVITIES:
Net Income (Loss) 33,384 37,502
Adjustments to Reconcile Net Cash Used for
Operating Activities:
Depreciation and Amortization 1,952 1,419
Changes in Operating Assets and Liabilities:
(Increase) Decrease in Accounts Receivable 2,727 (17,227)
(Increase) Decrease in Inventories 981 ( 1,157)
(Increase) Decrease in Prepaid Expenses ( 111) ( 994)
(Increase) Decrease in Deposits - 20
Increase (Decrease) in Accounts Payable
and Accrued Expenses ( 6,622) 552
Net Cash Provided (Used) by Operating
Activities 32,311 20,115
INVESTING ACTIVITIES:
(Increase) Decrease in Due From Affiliate ( 7,162) ( 9,705)
Net Cash Provided (Used) by Investing
Activities ( 7,162) ( 9,705)
FINANCING ACTIVITIES:
Net Cash Provided (Used) by Financing
Activities - -
Increase (Decrease) in Cash and Cash
Equivalents 25,149 10,410
Cash and Cash Equivalents at Beginning
of Period 31,150 12,420
Cash and Cash Equivalents at End of Period 56,299 22,830
<FN>
The accompanying notes are an integral part of the 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, 1998:
S T O C K O F A F F I L I A T E S
------------------------------------
F.K. Suzuki
Stevia Biosynergy International Medlab
Stock Owner Company Inc. Inc. Inc.
- ---------------- ---------- ------------ ------------- --------
Stevia Company, Inc. - 13.8% - -
Biosynergy, Inc. .4% - - -
F.K. Suzuki
International, Inc. 55.8% 18.8% - 100%
Fred K. Suzuki,
Officer - - 35.6% -
Lauane C. Addis,
Officer .1% .1% 32.7% -
James F. Schembri,
Director - 12.9% - -
Mary K. Friske, Officer - .1% .2% -
Laurence C. Mead,
Officer .1% .1% 2.9% -
Upon the completion of the Company's public offering on July 7, 1983, the
Company issued 2,000,000 shares of its no par value common stock, representing
19% of the outstanding common stock of the Company, in exchange for 1,058,181
shares of the common stock of Stevia Company, Inc., which was approximately
4.4% of the then outstanding common stock of Stevia Company, Inc. The common
stock of Stevia Company, Inc. had no book value at the time of the exchange
and, as a consequence, the Company recorded the exchange at zero dollar value.
Biosynergy owned 130,403 shares of Stevia Company, Inc. Common Stock at July
31, 1998, representing a .4% interest in Stevia. Although the Common Stock of
Stevia Company, Inc. is traded in the over-the-counter market, there is no
established public trading market for such Common Stock due to limited and
sporadic trades. As of July 31, 1998, the bid price of the common stock of
Stevia Company, Inc. was estimated to be less than $.01 per share.
Common offices are shared with Stevia Company, Inc. Intercompany charges for
shared expenses are made by whichever company incurs such changes. Such
intercompany charges, together with funds advanced by Stevia in prior years,
have resulted in the following balances:
April 30, 1998 - $298,335
July 31, 1998 - $305,497
At July 31, 1998, the financial condition of Stevia Company, Inc. is such that
it is unlikely to be able to repay Biosynergy during the next year without
liquidating a portion of its assets.
The following balances were due from F.K. Suzuki International, Inc. at April
30:
April 30, 1998 - $13,221
July 31, 1998 - $13,221
The balances result from an allocation of common expenses offset by advances
received from time to time. At July 31, 1998, 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. Inventories:
Components of inventories are as follows:
April 30, 1998 July 31, 1997
Raw Materials $31,789 $30,048
Work-in process 16,049 15,496
Finished Goods 2,310 3,623
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$50,148 $49,167
5. 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.
Effective January 31, 1990, the Company entered into an agreement with its
President, Fred K. Suzuki, pursuant to which the Company granted an option to
convert all or a portion of his accrued but unpaid compensation into shares of
the Company's no par value common stock at a conversion rate of $.05 per
share. The balance of Mr. Suzuki's deferred compensation was paid on May 7,
1998, and the option agreement expired by its terms.
On August 1, 1993, 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 $0.025 per share.
This Stock Option Agreement was granted to Mr. Suzuki in consideration of his
loaning money to the Company on an unsecured basis from time to time. No
portion of this Option was exercised, and it has expired by its terms.
6. 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. The weighted average number of common shares outstanding were
13,806,511 at July 31, 1998 and April 30, 1998. The affect of conversion of
stock options has not been presented as conversion would be anti-dilutive.
7. Lease Commitments:
In 1996 the Company entered a new lease agreement for its current facilities
which expires January 31, 2001. The base rent under the lease, of which 15%
is allocated to Stevia Company, Inc., escalates over the life of the lease.
Total rent payments for each fiscal year are as follows:
Year ending April 30 Total Base Rent
1996 11,000
1997 66,733
1998 68,200
1999 68,567
2000 69,300
2001 51,975
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.
8. Income Taxes:
At April 30, 1998, net operating loss carryforwards were available and expire,
if not used, as follows:
Year Ending Net Operating
April 30, Losses
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1999 $ 677,671
2000 455,166
2001 449,142
2002 132,470
2003 85,822
2004 41,176
2006 160
2007 28,253
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$ 1,869,860
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.
9. Major Customers:
Shipments to one customer amounted to approximately 34.3% of sales during the
first quarter of Fiscal 1999. At July 31, 1998 there was an outstanding
account receivable from this customer of approximately $34,401.
10. 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 and expand its
marketing efforts in the traditional medical market. Finally, management
intends to continue pursuing financing opportunities, if necessary.
11.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, 1998 ("1st Quarter"), the net sales
increased 3.05%, or $4,342, as compared to net sales for the comparative
quarter ending in 1997. This increase in sales is the result of an increase
in sales of HemoTempR II as compared to the same quarter in 1997. As of July
31, 1998, the Company had no back orders.
In addition to the above, during the 1st Quarter the Company realized $150 of
income as a result of leasing a portion of its computer time to Stevia
Company, Inc., an affiliate, and $711 of miscellaneous revenues.
INCOME/LOSS
The Company realized a net profit of $33,384 during the 1st Quarter as
compared to a net profit of $35,476 for the comparative quarter of the prior
year. The decrease in net profit is a result of higher operating costs
discussed below.
As of April 30, 1998, the Company has net operating losses carryovers
aggregating $1,869,860. As a result of net operating loss carryovers, no
income taxes were due for Fiscal 1998 and will unlikely be due for Fiscal
1999. 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 8 of the "FINANCIAL STATEMENTS."
EXPENSES
- ----------
GENERAL
---------
The operating expenses of the Company during the 1st Quarter increased overall
by 7.91%, or $8,371, as compared to the 1st Quarter in 1997, primarily due to
an increase in salaries and raw materials.
COST OF SALES AND OTHER OPERATING CHARGES
-----------------------------------------
The cost of sales and other operating charges during the 1st Quarter increased
by $2,413 as compared to these expenses during the same quarter ending in
1997. As a percentage of sales, the cost of sales and other operating charges
were 33.62% during the 1st Quarter and 32.95% for the comparative quarter
ending in 1997, which did not materially affect the results of operations of
the Company. The overall increase in cost of sales and operating charges was
due primarily to an increase in salaries and raw materials.
RESEARCH AND DEVELOPMENT
- -------------------------
Research and Development costs increased $854, or 10.08%, as compared to the
same quarter in 1997. This increase, due to an increase in salaries, was not
material to the operations of the Company. The Company intends to direct
future research and development to the improvement of its current product line
and to those new products, the development of which has already commenced, or
those products which are natural expansions of the current product line. The
Company may also increase its research and development activities to fulfill
research and development contracts for the development of products for
customers, which will be offset by research revenues.
MARKETING
- ----------
Marketing costs for the 1st Quarter increased by $3,162 or 25.77%, as compared
to the quarter ending July 31, 1997. This increase is a result of an increase
in salaries, higher commissions and new marketing materials. As financial
resources become available, the Company intends to expand its marketing
budget.
GENERAL AND ADMINISTRATIVE
- ---------------------------
General and administrative costs increased by $3,928, or 11.52%, as compared
to the 1st quarter ending in 1997. This increase was primarily the result of
an increase in salaries.
ASSETS/LIABILITIES
- ------------------
GENERAL
-------
Since April 30, 1998, the Company's assets and liabilities have not materially
changed. The increase in current assets, primarily cash and accounts
receivable, is due to normal fluctuations, and is not indicative of any trend
in the operations of the Company.
DUE FROM AFFILIATES
--------------------
The Company was owed $305,497 by Stevia Company, Inc. ("Stevia"), an
affiliate, and $13,221 by F.K. Suzuki International, Inc. ("FKSI"), an
affiliate, at July 31, 1998. These affiliates owed $298,335 and $13,221 at
April 30, 1998, respectively. These accounts primarily represent common
expenses which are charged by one company to the other for reimbursement.
These expenses include rent, salaries and benefits for common employees,
insurance and and legal fees. These expenses are reviewed from time to time
to determine if reallocation is appropriate. See "Financial Statements."
These expenses are incurred in the ordinary course of business. As a result
of the increase in amounts due from affiliates, the Company has reduced its
own liquid resources. The Company intends to reverse this trend by
restricting the advances to and common expenses incurred on behalf of Stevia
and FKSI until these affiliates are in a position to reimburse the Company.
CURRENT ASSETS/CURRENT LIABILITY RATIO
- ----------------------------------------
The ratio of current assets to current liabilities, 3.91 to 1, has improved
compared to 3.02 to 1 at April 30, 1998. Although the Company realized income
for the 1st Quarter, the Company used $7,162 of its cash to pay expenses
incurred by the Company on behalf of Stevia and FKSI, which was not
reimbursed. To this extent, the Company's current assets were converted to
long-term receivables thereby reducing its current assets/liabilities ratio.
In order to continue to improve the current asset/liability ratio, the
Company's operations must remain profitable and the Company must curtail the
use of its current assets for the benefit of Stevia and FKSI.
WORKING CAPITAL/LIQUIDITY
- --------------------------
During the 1st Quarter, the Company experienced an increase in working capital
of $28,174. This is due to the continuing profitable operations of the
Company during the 1st Quarter.
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, 1998, the Company had $182,597 of current assets available. Of
this amount, $49,167 was inventory and $73,228 was net trade receivables.
Management of the Company believes that it has sufficient working capital to
continue operations for the fiscal year ending April 30, 1999 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) Deferred Compensation Option Agreement, dated January 31, 1990,
between the Company and Fred K. Suzuki (ii)
(b) Stock Option Agreement, dated August 1, 1993, between the Company
and Fred K. Suzuki (iii)
(11) Statement regarding computation of per share earnings- none.
(15) Letter dated September 10, 1998, regarding interim financial
information. (iv)
(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 - P. E-1
(b) No Current Reports on Form 8K were filed during the period covered by this
Report.
- ------------------
[FN]
(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 Annual Report on Form 10K
for fiscal year ending April 30, 1990 filed with the Securities and Exchange
Commission.
(iii) Incorporated by reference to the Company's Annual Report on Form 10K
for fiscal year ending April 30, 1994 filed with the Securities and Exchange
Commission.
(iv) 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 10, 1998 /s/ FRED K. SUZUKI /s/
--------------------------------------
Fred K. Suzuki
President, Chairman of the Board,
Chief Accounting Officer and Treasurer
Date September 10, 1998 /s/ LAUANE C. ADDIS /s/
-------------------------------------
Lauane C. Addis
Secretary, Corporate Counsel and
Director
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q
Quarterly Report Pursuant to Section 13 or 15 (d) of
THE SECURITIES AND EXCHANGE ACT OF 1934
For the period ending July 31, 1998
Commission File Number: 0-12459
BIOSYNERGY, INC.
(Exact name of registrant as specified in charter)
1940 East Devon Avenue, Elk Grove Village, IL 60007
(847) 956-0471
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(Address and telephone number of registrant's principal
executive office on a principal place of business)
EXHIBITS
EXHIBIT INDEX
Page Number
Pursuant to
Sequential
Exhibit Numbering
Number Exhibit System
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27 Financial Data Schedule E-1