-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Dnj85U+xUr/FulavD3iVdOnmVrpne2KL1zCf9a/WAAUvIRuqte4gsIsZnneUqB7Q J9g9EvHUd6HxWVUs4oCd1Q== 0000715812-03-000002.txt : 20030730 0000715812-03-000002.hdr.sgml : 20030730 20030729175747 ACCESSION NUMBER: 0000715812-03-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030430 FILED AS OF DATE: 20030730 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIOSYNERGY INC CENTRAL INDEX KEY: 0000715812 STANDARD INDUSTRIAL CLASSIFICATION: MEASURING & CONTROLLING DEVICES, NEC [3829] IRS NUMBER: 362880990 STATE OF INCORPORATION: IL FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-12459 FILM NUMBER: 03809631 BUSINESS ADDRESS: STREET 1: 180 NORTH LASALLE ST STREET 2: STE 3001 CITY: CHICAGO STATE: IL ZIP: 60601 BUSINESS PHONE: 8479560471 MAIL ADDRESS: STREET 1: 180 NORTH LASALLE ST STREET 2: STE 3001 CITY: CHICAGO STATE: IL ZIP: 60601 10-K 1 bio10ka3.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended 4/30/03 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-12459 Biosynergy, Inc. (Exact name of registrant as specified in its charter) Illinois 36-2880990 (State or other jurisdiction of I.R.S. Employer Identification No.) incorporation or organization) 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 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registrant NONE NONE Securities registered pursuant to section 12(g) of the Act: Common Stock, No Par Value (Title of class) 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[ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes[ ] No[X] The aggregate market value of the voting stock and non-voting stock held by non-affiliates of the registrant on April 30, 2003 cannot be ascertained with any certainty because there is no established trading market for the common stock of the Company. The number of shares of common stock outstanding on April 30, 2003 was 14,215,511. No documents have been incorporated by reference in this report except for certain exhibits and schedules listed in Item 15. Part I ------ Item 1. Description of Business ----------------------- General Development of Business - ------------------------------- Biosynergy, Inc. (the "Company") was incorporated as an Illinois corporation on February 9, 1976. The Company was formed primarily for the purpose of developing, manufacturing, and marketing products utilizing cholesteric liquid crystals. The Company presently manufactures and markets disposable medical, laboratory and industrial thermometric and thermographic cholesteric liquid crystal devices. The Company also distributes certain blood bank and laboratory products manufactured by third parties to specifications of the Company. Although the Company did not enter into any agreements materially affecting its operations during Fiscal 2003, the Company experienced an increase in sales. The Company's sales of $675,413 were the highest since Fiscal 1982. However, the Company realized a loss of $5,516 for the fiscal year ending April 30, 2003 compared to a loss of $11,373 for Fiscal 2002 and a profit of $44,671 for Fiscal 2001. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company did not introduce any new products in Fiscal 2003. The Company, however, continued its development and review of the proposed products described in "Thermographic and Thermometric Devices and Accessories" below. The Company continued to introduce its products directly to industrial customers during Fiscal 2003. However, the Company did not make any material sales to customers in the industrial markets. Although the ultimate results of these activities are not known, Management believes there is a need for its products and technology in the industrial markets. Except as stated above, there were no other significant contracts or developments with regard to the Company's business during the past fiscal year. Financial Information About Industry Segments - --------------------------------------------- The Company generated revenues from sales of the medical and laboratory products listed below in the medical and laboratory industry segment during the fiscal year ended April 30, 2003, 2002 and 2001. For a description of these products, see "Narrative Description of Business." Below is a schedule which presents the sales for each product and the percentage of the Company's total sales attributable to each product for the fiscal years ending April 30, 2003, 2002 and 2001. Fiscal Year Ending April 30, 2003 -------------------- Medical and Percentage Laboratory Sales of of Total Products Product Sales - ------------------------- ------------ ---------- HemoTempR II BMD $585,503.00 86.7% TempTrendR TI 34,645.00 5.1% HemoTempR BMD 15,617.00 2.3% HemoTempR II Activator 15,526.00 2.3% TempTrendR II TTD 8,396.00 1.2% Hemo-CoolTM JR & Accessories 5,601.00 .8% Hemo-CoolTM Jr II & Accessories 3,865.00 .6% LabTempR 40 ST 2,795.00 .4% StaFreezR FTI 1,841.00 .3% LabTempR 20 ST 1,624.00 .3% --------------- ------- $675,413.00(2) 100.0%
Fiscal Year Ending April 30,2002 ------------------- Medical and Percentage Laboratory Sales of of Total Products Product Sales - ----------------------- ----------- ----------- HemoTempR II BMD $525,736.00 87.3% TempTrendR TI 31,253.00 5.2% HemoTempR BMD 16,929.40 2.8% HemoTempR II Activator 8,903.00 1.5% TempTrendR II TTD 7,649.50 1.3% Hemo-CoolTM JR & Accessories 4,459.70 0.7% LabTempR 40 ST 3,196.00 0.5% LabTempR 20 ST 2,732.50 0.4% StaFreezR FTI 1,373.50 0.2% Miscellaneous (1) 72.00 0.1% ------------ -------- $602,304.60(2) 100.0%
Fiscal Year Ending April 30, 2001 ------------------- Medical and Percentage Laboratory Sales of of Total Products Products Sales - ------------------------ ------------- ---------- HemoTempR II BMD $514,684.80 87.3% TempTrendR TI 26,349.50 4.5% HemoTempR BMD 15,880.00 2.7% TempTrendR II TTD 9,700.50 1.6% HemoTempR II Activator 7,937.00 1.4% LabTempR 40 ST 4,690.00 .8% LabTempR 20 ST 3,051.50 .5% Miscellaneous (1) 3,042.00 .5% Hemo-CoolTM JR + Accessories 1,794.00 .3% Vena-VueR VAD 1,330.00 .2% StaFreezR FTI 957.50 .2% --------------- ----------- $589,416.80(2) 100.0%
- -------------------------------- (1) Includes sales of LabTempR 60, L.C. Sheets, Tempa.SlideTM, and special order thermometric and thermographic consumer and laboratory products. (2) Includes discounts and returns. See "Information About Foreign and Domestic Operations and Export Sales". See also "Selected Financial Data" and "Financial Statements and Supplementary Data" for the operating profit and loss and identifiable assets related to the Company's operations in its industry segment. Narrative Description of Business. - ---------------------------------- As described in "General Development of Business", the Company is presently engaged in the business of developing, manufacturing, and marketing disposable thermometric and thermographic temperature indicators and accessories, and distributing and marketing certain non-disposable thermometric and blood transportation products for the medical, laboratory and industrial markets. The Company is also developing bacteria growth retardant agents. Further information about the business and proposed products of the Company are described below. Thermographic and Thermometric Devices and Other Products. - ---------------------------------------------------------- During the fiscal year ending April 30, 2003 the Company manufactured and marketed various medical, laboratory and consumer thermometric and thermographic devices and accessories. These products were sold to hospitals, clinical end-users, laboratories and product dealers. 1. The HemoTempR Blood Monitoring Device ("BMD") is designed to be a human blood bag temperature indicator. Human blood must be maintained, optimally, at 1-6o C., and not allowed to exceed 10o C. Since human blood is always in short supply, it is critical that blood be maintained within these specifications to avoid loss. HemoTempR BMD monitors the core temperature of a blood bag from 1-12o C., and replaces the impractical mercury thermometer susceptible to breakage. HemoTempR BMD once attached to the blood bag is usable throughout the life of the blood. 2. HemoTempR II BMD is designed to warn blood bank personnel whenever the internal temperature of the blood bag has exceeded approximately 10-11o C. HemoTempR II BMD has an irreversible indicator that is activated when the tag is applied to the blood bag at approximately 4o C. After being activated, the irreversible indicator remains blue colored for 72 hours unless the blood is warmed to a temperature of 10o C. or above, in which case the indicator loses its blue color. The irreversible indicator will not return to blue even if the blood is subsequently recooled, indicating that the blood has been warmed. The reversible portion of the indicator reversibly monitors temperatures from 1-9o C. HemoTempR II BMD is non-reusable and must be replaced each time the blood bag is returned to the blood bank and reissued. 3. HemoTempR II Activator, is an electronic, portable block model heater developed to provide a reliable source of heat necessary to activate the Company's HemoTempR II BMD. The HemoTempR II Activator has a thermostatic control to permit precise setting and continuous control of temperatures in the range for activation of the Company's HemoTempR II BMD. This device is intended by the Company to be used with HemoTempR II BMD as a system for blood monitoring. This device is manufactured by another company to specifications set by the Company. 4. TempTrendR Temperature Indicator ("TI") is primarily used to monitor the temperature of urine specimens collected for drug testing to detect fraudulent urine specimens. Most common forms of drug testing require a urine specimen. However, the test is valid only if a legitimate urine specimen is collected which has not been altered by the subject to mask a drug abuse problem. In order to eliminate altered or fraudulent urine specimens in tests on federal employees, federal government guidelines require that urine temperature be measured within four minutes of sample collection, and that the temperature be 90.5-98.9o F. Temperature measurements taken with TempTrendR TI are simply a matter of observing the color illuminated number and recording the temperature. TempTrendR TI also provides a non-invasive method of monitoring the actual surface temperature trends of any body surface where temperature measurement is important, such as near joints in rheumatoid arthritis and to assess blood circulation. 5. TempTrendR II Temperature Trend Device ("TTD") is a second generation temperature trend device which is correlated to internal body temperature and provides a non-invasive, readily visible means of monitoring changes in body temperature. TempTrendR II TTD will reflect oral temperatures such as those taken by glass thermometers. TempTrendR II TTD is used intraoperatively to warn of developing hyper or hypothermic conditions. The indicator is also excellent for monitoring a patient's temperature during any type of transfusion procedure. 6. LabTempR 20, LabTempR 40 and LabTempR 60 Surface Temperature Indicators ("STI") are designed to reversibly indicate the temperature of laboratory materials which require specific storage or use temperatures. LabTempR 20 STI indicates temperatures between 0-21o C., LabTempR 40 STI monitors temperatures between 19-21 and 24-41o C., while LabTempR 60 STI measures temperatures between 41-61o C. These thermometers are designed to monitor the temperature and changes in temperature of hundreds of laboratory chemicals and supplies which require specific temperature conditions; however, these thermometers are suitable for temperature measurement of any surface. 7. Tempa.SlideTM Temperature Indicator ("SLTI") is amicroscope glass slide temperature indicator. The SLTI helps the viewer read the optimum temperature of a slide by indicating in large visible colors when the desired slide temperature is reached. Tempa.SlideTM can be mounted on a glass microscope slide and can be used continuously for over one year. These thermometers are suitable for temperature monitoring of glass slides during antibody/antigen tests when an optimum temperature of the cells and protein must be maintained for accurate test results. 8. StaFreezR Freeze-Thaw Indicator ("FTI") is a freeze-thaw indicator which will irreversibly indicate whether frozen material is warmed to greater than - -20o C. Once the frozen product exceeds -20o C., the liquid crystal film will turn from blue to gray to black, and refreezing the product at a lower temperature will not bring back the original frozen state color. 9. The Vena-VueR Vein Assessment Device ("VAD") is designed to locate good veins by assessing blood flow, and to assess vein depth, and size. It is used primarily to minimize complications and reduce discomfort for geriatric patients, obese patients, diabetic patients, burn patients, drug addicts with sclerosed veins, shock patients with collapsed veins and long-term hospitalized or cancer chemotherapy patients with severely damaged and traumatized veins. However, Vena-VueR VAD is also useful in helping to select the most patent and least traumatized veins for the purpose of any venipuncture. This product was discontinued as of May 1, 2001. 10. Hemo-CoolTM Jr. and Hemo-CoolTM Jr. II Thermoelectric Blood Cooling/Storage Systems ("TBCSS") are self-contained, portable blood storage and shipping devices for use in shipping whole blood from the blood bank to surgery, in the hospital setting, or to other destinations outside the hospital. The devices operate similar to a portable refrigerator with a DC power supply, and are designed to maintain a constant temperature suitable for human blood. The cooling devices are portable and can be used for storage and shipping of various other biologicals that have to be maintained at a constant refrigerated temperature. 11. Temp-D-TekTM - Infrared temperature monitor ("ITM") is a hand held infrared temperature detecting device offering non-contact surface temperature monitoring in milliseconds to a tenth of a degree accuracy. The Temp-D-Tek ITM provides quality central temperature monitoring of lab equipment up to 26 times faster than a traditional electronic thermometer and 46 times faster than a ASTM mercury thermometer. The Temp-D-Tek ITM is ideal for use in laboratories or any setting where non-invasive or non-contact temperature monitoring is desirable. 12. Specialty products include devices manufactured to the specification and design of the customer, such as time/ temperature shipping labels for food products under the tradename FoodGardeTM Time/Temperature Indicators and liquid crystal thermometers for general purpose thermometry. The Company anticipates continued manufacturing of these and additional specialty products in the future. The Company is also developing these other products. 1. The Company is developing certain compounds intended for use as bacteria growth retardant agents for use in food and other products. Although these antibacterial compounds are subject to Food and Drug Administration Regulation, they are historically designated as generally recognized as safe. Since the development of these compounds is in its initial stages, and there are several unknown factors regarding efficacy, supply and regulatory requirements, the completion of this project cannot be predicted with any certainty at this time. 2. The Company intends to market new irreversible time/ temperature indicators which will be used as shipping labels, and in other forms, for the frozen food packaging industry (under the tradename FoodGardeTM), the pharmaceutical industry, and for other industries requiring careful monitoring of refrigerated or frozen materials. The devices will have irreversible color changes at various temperatures determined to be critical by the end-user. Therefore, a purchaser, whether an individual consumer or a merchant, will be able to instantaneously determine the temperature history of the material. Although the liquid crystal formulations are substantially completed, the Company is uncertain at this time when these products will be sold. 3. The Company has recognized a need exists for a simple, inexpensive indicator to determine if sensitive materials have been subjected to freezing temperatures. The Company is continuing its investigation of the feasibility of such an indicator. 4. The Company is investigating the feasibility of additional products to systematize the use of its thermometric and thermographic liquid crystal devices as well as alternative technologies to supplement its current product line. The results of such investigations are not predictable at this time. 5. The Company is investigating alternative thermometric and thermographic technologies for use in applications where the Company's current products are not suitable. Since the investigation of these alternative technologies is not complete, there can be no assurance the Company will be able to develop any commercial products as a result of this activity. MANUFACTURING. The Company manufactures all of its products except for the HemoTempR II Activator, Hemo-Cool Jr. and Jr. II TBCSS and Temp-D-TekTM ITM. These products are manufactured for the Company by unrelated companies on an as needed basis. Raw materials for the Company's other products are purchased, but all manufacturing of these products is performed at the Company's production facility. All outside manufacturing is done to specifications set by the Company. There are no commitments or firm agreements for outside manufacturers to provide products for the Company, and the Company does not anticipate it will enter into any such agreements in the foreseeable future. The Company has twenty-seven years of experience working with various liquid crystal formulations, thermometric and thermographic application methods and the effect of temperature and other factors on degradable materials. The Company maintains complete records of manufacturing and quality assurance testing of all of its products in compliance with Food and Drug Administration ("FDA") regulations. All products are manufactured according to "good manufacturing practices" ("GMP") for medical devices. MARKETING AND DISTRIBUTION. The Company has traditionally targeted the medical and laboratory markets. While novel products, such as the Company's products, enjoy the advantage of no initial competition, they also initially lack a demonstrated market and acceptance. Furthermore, cost savings programs and awareness have slowed down the introduction of new products, particularly in the medical market. As a result, the time required to achieve acceptance of the Company's medical products is significantly increased, in Management's opinion. Because of these conditions, the Company has been forced to rely heavily on its own marketing and distribution efforts, rather than the use of the traditional product distributors, for a large portion of its sales. Nevertheless, the Company's primary distributor in the United States medical market, Fisher Scientific Company ("Fisher"), and the Company's other product distributors have increased their sales of the Company's products throughout the United States over the past few years. During Fiscal 2003, Fisher accounted for 44.15% of the Company's sales. Although it is difficult to predict the ultimate success of Fisher and other distributors in selling the Company's products, management believes this trend will continue. The Company continues to negotiate with various medical and laboratory product companies for the distribution of its products under private labels and to introduce its products in the industrial, pharmaceutical and laboratory markets, the success of which cannot be assured. The Company is attempting to introduce new products to supplement its current product line. The Company is also researching products outside the traditional medical and laboratory markets, the results of which cannot be predicted at this time. At the present time, two employees are engaged on a part-time basis in marketing the Company's products. The Company uses the services of an in-house sales representative for telemarketing. The Company does not have an outside sales force. Since the Company markets its products to approximately 7,000 hospitals in the United States, hundreds of laboratories and industrial end-users in the United States, and thousands of hospitals and laboratories in foreign countries, it will continue to rely upon the marketing efforts of independent dealers and sales representatives for the medical and laboratory markets. The Company directly markets and sells to industrial customers. The Company is unaware of its current market share for its medical and laboratory products. SOURCES AND AVAILABILITY OF RAW MATERIALS. In general, the Company believes its sources and availability of raw materials and finished products to be satisfactory. Presently, there are a limited number of domestic manufacturers of liquid crystal chemicals. Although it is expected that these domestic manufacturers will continue to supply the raw liquid crystals needed for the production of the Company's products, which cannot be assured, if industrial quantities of raw liquid crystals are unavailable from domestic sources, the Company will need to import these materials from foreign suppliers, or, as an alternative, manufacture such materials itself. Other materials and products are currently available from a variety of suppliers. PATENTS AND TRADEMARKS. The Company was previously granted or assigned five United States and four foreign patents relating to liquid crystal technology. All of these patents have expired. Although these patents are no longer in effect, management does not believe this will have an adverse material impact on the Company's operations, revenues or properties. The Company is also investigating the patentability of certain inventions related to bacteria growth retardant agents under development and other products. See "Thermographic and Termometric Devices and Other Products" above. The Company has received registered trademark protection on all product names to date excepting Temp-D-TekTM, Tempa.SlideTM, FoodGardeTM, LaproVueTM and Hemo-CoolTM. The Company has retained, however, all the common law rights to the Temp-D-TekTM, Temp.SlideTM, FoodGardeTM, LaproVueTM and Hemo-CoolTM trademarks. Additional trademark registrations will be applied for as needed. Although patent and trademark protection is important, the Company believes no material adverse effects to the Company's operations will result in the event additional patents and/or trademarks are not obtained, or, if obtained, such patents and/or trademarks are held to be invalid. Certain processes and chemical formulas will be maintained only as trade secrets. Management feels that it will be difficult for potential competition to analyze or reproduce the secret processes and formulas without substantial expenditure of capital and resources. SEASONAL ASPECT OF BUSINESS. The business of the Company is not seasonal. WORKING CAPITAL ITEMS. 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 April 30, 2003, the Company had $504,675 of current assets available. Of this amount, $66,447 was inventory, $111,620 was net trade receivables, and $309,512 represented cash and short-term cash investments. Management of the Company believes that it has sufficient working capital to continue operations for the fiscal year ending April 30, 2004 provided the Company's sales and ability to collect accounts receivable are not adversely affected. In the event the Company's sales decrease, the receivables of the Company are impaired for any reason or the Company needs additional capital for its development projects, 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. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." MAJOR CUSTOMERS. Fisher, the Company's primary independent product distributor, was directly responsible for 44.15% of the Company's net sales during the fiscal year ending April 30, 2003. No other customer or distributor accounted for 10% or more of the Company's net sales during the past fiscal year. At April 30, 2003, Fisher owed the Company $78,822. Management believes the loss of this distributor would materially reduce the revenues of the Company until the Company could retain the services of another major product distributor or the end users serviced by Fisher begin ordering directly from the Company. BACKLOGS. The Company had $8,890 in backorders at April 30, 2003 compared to $1,495 at April 30, 2003. GOVERNMENT CONTRACTS. The Company does not have a material portion of its business that may be subject to renegotiation of profits or termination of contracts or subcontracts at the election of any government entity. COMPETITION. The Company has no known commercial competitors of its disposable vein assessment device or blood monitoring devices using liquid crystal technology. Because of the Company's employment agreements with former employees and processing trade secrets, it does not anticipate competition in these areas in the near future. In the area of laboratory temperature monitoring, there are no other competitors who market an infinitely thin liquid crystal temperature indicator. In the area of a frozen food or drink safety indicator, there is no competition known to the Company that utilizes liquid crystal technology. The Company believes that the frozen food industry presently uses primarily physical and organoleptic evaluation (e.g., evaluation of softness, texture, aroma, taste and the like), as well as mercury thermometers and temperature sensitive inks to monitor freshness. Labels containing wax encapsulated dyes with specific low melting points and capillary action products produced by 3M under the tradename MonitorMarkR and DeltaTrak, Inc. under the tradename WarmMarkTM, and polymer/monomer indicators from Lifeline are also available. The Company's HEMOTEMPR II BMD (blood bag temperature monitor) competes in the medical market against Safe-T-VueTM (Williams Laboratory), MonitorMarkTM (3M) and WarmMarkTM (DeltaTrak). Management of the Company believes that the MonoTech and 3M products are technically inferior to HEMOTEMPR II BMD in that they provide only an irreversible monitor with nothing to warn the user that blood is approaching an unsafe temperature. In addition, the MonoTech product must be refrigerated prior to use, and, because of their design, both products can readily be dislodged from the blood bag. There are no known commercial competitors of the Company's HemoTempR II Activator or Hemo-CoolTM Blood Cooling/Storage Systems. Other manufacturers and distributors of portable coolers are not marketing their products for use in storing and transporting blood. Most portable coolers utilize ice for cooling, where the Company's Hemo-CoolTM Blood Cooling/Storage Systems use an electric cooling system. Management of the Company believes its product provides a superior and more reliable method of keeping blood and other biologicals at desired cold temperatures. The Company competes with several other infrared device manufacturers and distributers in general temperature monitoring, but no other company has stressed quality control as a primary reason for use of an infrared thermometric device such as the Temp-D-TekTM ITM. The Company's Temp-D-TekTM ITM has been designed with a lower accuracy variance than other hand held infrared thermometric devices. As a result, it is more suitable for certain quality control and precision thermometric procedures. The Company's TempTrendR II competes in the medical market against Temp-A-Strip (Johnson & Johnson), Stick-Temp (Trademark Sales) and Temp-A-Dot (PyMaH Corp). Stick-Temp is distributed on a limited basis and there is little information available concerning it. Management of the Company believes that the Johnson & Johnson product is less technically advanced than the Company's TempTrendR TTD and is primarily distributed in the Consumer market. Temp-A-Dot is a wax impregnated strip of paper inserted into the mouth to monitor core temperature. Although it is reported to cost less than TempTrendR II thermometers, it has the disadvantage of single reading, invasive methodology and cannot be used to monitor temperature trends. Recently, a few private label indicators have been introduced to the market. These are manufactured by Dijinni Industries, PyMaH Corporation, Hallcrest Products and American Thermometer, who compete with the Company in the consumer market for forehead temperature indicators and in the drug testing market for urine thermometers. Other companies, such as Eurand American, are only involved in the manufacture of liquid crystal raw materials and do not directly compete with the Company for sale of medical, industrial or consumer products. Mercury and electronic thermometers are used in several competitive applications. They are generally more costly, non-disposable or not usable in most applications where liquid crystal thermometry and temperature indicators are utilized. RESEARCH AND DEVELOPMENT. During Fiscal 2003 and 2002, the Company spent $128,221, $129,067, and $109,864, respectively, on Company-sponsored research and development activities. All expenditures for research and development are expensed currently with the exception of significant equipment and set-up charges which are capitalized and depreciated or amortized over their estimated useful life. The Company is conducting research and development of products, which are discussed under "Thermographic and Thermometric Devices and Accessories." In this regard, the Company may require financing to complete the development of these products. The success of the Company in obtaining financing for research and development may largely determine whether the Company will continue the research and development for such products or expand its research and development to other products. Management believes the Company has sufficient working capital for anticipated research and development for the ensuing year. GOVERNMENT REGULATIONS. The Company does not currently plan to market diagnostic or therapeutic products which are subject to stringent United States Food and Drug Administration (FDA) review and pre-market approval in the near future, although some of the products under review, such as the bacteria growth retarding compound, may require pre-clearance by the FDA or other government agencies. Present medical products of the Company are classified by the FDA as Class I or Class II. These are subject only to general regulations requiring that manufacturers adhere to certain guidelines to provide reasonable assurance of utility, safety, and effectiveness. These guidelines include labeling requirements, registration with the FDA as a manufacturer, listing of devices in commercial distribution with the FDA, notification to FDA of devices proposed to be marketed, conformance to specified current good manufacturing practices in the manufacture of the devices, conformance to certain record-keeping requirements, and, in the case of Class II devices, conformance to certain performance standards. At the present time, the Company believes that it is in compliance with regulations set forth by the FDA. INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES. The Company had export sales of $13,290 during the last fiscal year, and export sales of $10,944 and $12,812 during the fiscal years ending in 2002 and 2001, respectively. The Company also believes that some of its medical devices were sold to distributors within the United States who resold the devices in foreign markets. However, the Company does not have any information regarding such sales, and such sales are not considered to be material. The Company does not rely on any foreign operations other than its dealers and marketing representatives in their respective marketing areas. See "Marketing and Distribution." It is not anticipated export sales will be material to operating revenues or income of the Company. Foreign sales are contingent upon, among other factors, foreign trade regulations, value of the United States Dollar and, where required, government approval of the Company's products including CE Marketing requirements. ENVIRONMENTAL PROTECTION EXPENDITURES. The Company's operations are not subject to any federal, state or local laws regulating the discharge of materials into the environment which materially affect earnings or the competitive position of the Company, although the Company is subject to such laws. There were no material capital expenditures made during the last fiscal year to comply with such laws, nor are any such expenditures anticipated for Fiscal 2004. EMPLOYEES. The Company presently has four full-time employees comprised of the President (who also presently serves as the Director of Marketing and Technical Operations), two Vice Presidents, and a secretary/receptionist. The Company also has one part-time employee in the Research and Development Department. Item 2. Properties ---------- The Company's production facilities, research facilities, and administrative offices are located at 1940 East Devon, Elk Grove Village, Illinois 60007, in a 10,400 square foot facility leased from an unaffiliated third party. The lease for these facilities expires on January 31, 2006. See Footnote 9 of the "Financial Statements." A majority of the Company's Elk Grove Village facility is currently in use; however, Management believes this facility is adequate for its needs in the foreseeable future. Located at the Company's facility is equipment utilized for research, development, and manufacturing of the Company's products. Item 3. Legal Proceedings ----------------- There is no material litigation threatened or pending against the Company or any of its properties. Item 4. Submission of Matters to a Vote of Security Holders. --------------------------------------------------- None PART II ------- Item 5. Market for Registrant's Common Stock and Related Shareholder Matters. -------------------------------------------------------------------- MARKET INFORMATION. Although the common stock of the Company is traded in the over-the-counter market, there is no established public trading market due to limited and sporadic trades. Information regarding these trades is compiled by the Stock Section of the National Daily Quotation Service ("Pink Sheets") and selected broker-dealers trading such common stock. During Fiscal 2000, trades of the common stock of the Company were also reported on the OTC Bulletin Board ("OTCBB"). The Company's common stock was deleted from the OTCBB on April 4, 2000 because the Company did not have current audited financial information on file with the Securities and Exchange Commission. Trading and pricing information for Fiscal 2001, 2002 and 2003 is not available to the Company. HOLDERS. As of April 30, 2003, there were approximately 851 shareholders of record of the Company's common stock. DIVIDENDS. The Company has never declared any dividends and does not intend to do so until such time as the Company sustains a profitable status and has provided for all of its capital requirements. COMMON STOCK FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS. The Company entered into a Stock Option Agreement with Fred K. Suzuki, President and Chief Executive Officer of the Company. See "Item 11. Executive Compensation." The following table sets forth the aggregate number of shares to be issued upon exercise of the option, the weighted average exercise price and the number of additional shares remaining for future issuance: Plan Category Number of shares to be Weighed average exercise Number of shares issued upon exercise price of outstanding remaining available of outstanding options, warrants and for future issuance options, warrants and rights rights (a) (b) (c) Equity compensation plans approved by security holders none none none Equity compensation plans not approved by security 2,591,000 $.025 none holders (1) Total 2,591,200 $.025 none
(1) The Company granted this stock option to Mr. Suzuki to purchase $2,731,000 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. As of April 30, 2003, this option had been exercised to the extent of 140,000 shares. This option will terminate on November 12, 2004. Item 6. Selected Financial Data -----------------------
Fiscal Years Ending ------------------- 2003 2002 2001 2000 1999 --------- --------- --------- -------- --------- Net Sales $ 675,413 $ 602,305 $ 589,417 $558,729 $ 548,800 Other Revenues 6,571 10,914 19,855 15,964 3,812 Net Income/(Loss) (5,516) (11,373) 44,671 25,457 19,488 Net Income/(Loss) (.0004) (.0008) .0032 .0018 .0014 per Share Total Assets 581,849 576,560 574,539 527,227 507,396 Long Term Debt - - - - - Stockholder Equity/ (Deficit) 535,695 537,711 542,359 497,688 487,234 Cash Dividends per Share - - - - -
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -------------------------------------------------- NET SALES. Net sales for the fiscal year ending April 30, 2003 were $73,108, or 12.14%, higher than the previous fiscal year, and $85,996, or 14.59%, higher than the fiscal year ending in 2001. The increase in sales during Fiscal 2003 was primarily due to increased sales of the Company's HemoTempR II blood temperature indicators. The Company experienced an increase of $59,767, or 11.37%, in sales of its HemoTempR II product in Fiscal 2003 as compared to Fiscal 2002, and an increase of $11,051 as compared to Fiscal 2001. OTHER REVENUES. During Fiscal 2003, the Company realized $4,573 of interest income derived from the investment of available cash in short term certificates of deposit. Interest income for Fiscal 2003 was $4,317 less than fiscal 2002 due to a decrease in interest rates on available investments. The Company also realized $1,998 in miscellaneous income from subleasing a portion of the Company's storage space. The Company did not reinvest in any certificates of deposit after February 24, 2003, the date the last certificate of deposit matured. COSTS AND EXPENSES. Overall costs and expenses for the fiscal year ending April 30, 2003 increased by $62,998 compared to the fiscal year ending in 2002, and increased by $122,899 compared to the fiscal year ending in 2001. The increase in operating costs and expenses for Fiscal 2003 was generally related to increased production expenses, increased salaries and employee expenses, and increased legal fees and accounting fees. Generally, with the exception of the above expenses, the overhead of the Company has remained constant. In order for the Company to continue without materially altering its present operations, the overall operating costs and expenses for the ensuing fiscal year are expected to be similar to than those of the last fiscal year. COST OF SALES. As a percentage of net sales, the cost of sales was 31.47% for the fiscal year ending April 30, 2003, 31.73% for the fiscal year ending in 2002 and 32.42% for the fiscal year ending in 2001. The Company expects that the cost of sales as a percentage of net sales will remain substantially the same over the next fiscal year in the absence of a material decrease in sales or increase in raw material cost. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses decreased during the fiscal year ending in 2003 by $846 or .66%, as compared to the fiscal year ending in 2002, and increased by $18,357, or 16.71%, as compared to the fiscal year ending in 2001. The Company is investigating certain compounds for use in food and other products as antibacterial agents and research intended to improve the Company's current product line. These expenses have remained constant for the past two years. There is insufficient information available to determine the extent to which the Company will be required to allocate its resources to the continued development of these products. See "Narrative Description of Business - Thermographic and Thermometric Devices and Accessories." MARKETING EXPENSES. The Company's marketing expenses were $79,198 in 2003 and $77,850 in 2002, as compared to $59,603 for the fiscal year ending in 2001. The increase for fiscal 2003 was primarily due to increased employee health insurance costs, printing and advertising materials. The Company will continue to increase its marketing activities as resources became available which management believes is necessary to continue the Company's growth. Included in marketing expenses for Fiscal 2003 are commissions related to an in-house salesperson. GENERAL AND ADMINISTRATIVE EXPENSES. The Company's general and administrative costs increased by $41,013 as compared to the 2002 fiscal year, and increased by $63,545 as compared to the fiscal year ending in 2001. The increase was primarily the result of increases in salaries, related employment expenses, including health insurance, and increased legal and accounting fees related to new securities regulations. The Company is also currently amortizing the cost of an automobile used primarily for marketing and research purposes. The Company's annual amortized rental expense has increased by approximately $4,000 since the Company extended the lease for its Elk Grove Village, Illinois facilities in January 2001. See "Financial Statements." Except for unforeseen extraordinary items and legal and accounting fees, it is unlikely general and administrative expenses will materially change during Fiscal 2004. NET INCOME/LOSS. The Company experienced a net loss of $5,516 as compared to a net loss of $11,373 for Fiscal 2002 and income of $44,671 for Fiscal 2001. Although the Company experienced increased revenues during Fiscal 2003, the Company's expenses increased. In addition to the above items, the Company wrote down obsolete inventory of $9,683. See "Net Sales and Costs and Expenses" above. As of April 30, 2003, the Company had net operating loss carryovers aggregating approximately 81,000. 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 did 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 5 to the Financial Statements for the year ending April 30, 2003. See "Financial Statements." ASSETS. Since April 30, 2002, the Company's assets have increased by $5,289. This is primarily due to increased accounts receivable offset by a decrease in cash resulting from the Company's loss position and use of cash for increased expenses. Other minor changes in specific items do not reflect transactions outside the ordinary course of business. Effective November 12, 2001, but approved by the Board of Directors on March 21, 2002, the Company entered into a stock option agreement with Fred K. Suzuki, President, granting Mr. Suzuki an option to purchase 2,731,000 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 140,000 shares on September 30, 2002 for option price of $.025 per share, resulting in additional paid-in-capital of $3,500. This option will expire on November 12, 2004. The Company was owed $19,699 by F.K. Suzuki International, Inc. ("FKSI"), an affiliate, at April 30, 2003 and $19,432 at April 30, 2002. This account primarily represents common expenses which are charged by the Company to FKSI for reimbursement. These expenses include certain office expenses, general operating expenses and legal fees. 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. LIABILITIES. The Company's overall liabilities have increased by $7,305 since April 30, 2002. This increase represents ordinary fluctuations in operations and does not represent any material change in the financial status or operations of the Company. See also "Assets" and "Liquidity and Capital Resources." CURRENT ASSETS/LIABILITIES RATIO. The ratio of current assets to current liabilities, 10.94 to 1, has decreased from 13.09 to 1 at April 30, 2002. The decrease in ratio of current assets to current liabilities does not represent a material change in the financial condition or operations of the Company, although it is reflective of an increase of $7,305 in current liabilities. In order to maintain the Company's asset/liability ratio, the Company's operations must return to profitability. LIQUIDITY AND CAPITAL RESOURCES. During the fiscal year ending April 30, 2003, the Company had a decrease in net working capital of $10,986. The decrease in net working capital is primarily due to the Company's operating losses sustained in fiscal 2003 and the use of cash assets for patent expenses. Cash provided by operating activities was $11,725 during Fiscal 2003. Cash used in operating activities was $20,588 during Fiscal 2002 and cash provided by operating activities was $29,647 during Fiscal 2001. Although the Company experiences varying collection periods of its accounts receivable, the Company believes that uncollectible accounts receivable will not have a significant effect on future liquidity. The Company's cash flows from operations are considered adequate to fund the short term capital needs of the Company. However, the Company does not have a working line of credit, and does not anticipate obtaining a working line of credit in the near future. There is therefore 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. Except for its operating capital needs, the Company does not have any other material contingencies for which it must provide. EFFECTS OF INFLATION. With the exception of inventory 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 year ending April 30, 2003. See "Financial Statements." Except as noted below, the impact on the Company's financial position or results of operation would not have been materially different had the Company reported under different conditions or using different assumptions. The policies which may have materially affected the financial position and results of operations of the Company if such information had been reported under different circumstances or assumptions are: Use of Estimates - preparation of financial statements and conformity with accounting principals 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. Stock Options - The Company uses the intrinsic value method as allowed by SFAS No. 123, "Accounting for Stock-Based Compensation," to account for stock options granted to employees. No compensation expense is recognized for stock options because the exercise price of the options is estimated to be at least equal to the market price of the underlying stock on the grant date. 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 the Company's independent public accountants. Item 7A. Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- The Company has not entered into any transactions using derivative financial instruments, nor has the Company invested in any instruments or securities which are subject to market fluctuations which could adversely affect the financial condition or operations of the Company. Item 8. Financial Statements and Supplementary Data. ------------------------------------------- The information required by this item is filed as a part of this report as described in Item 15. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. ---------------------------------------------------------------- The Company retained the services of Blackman Kallick Bartelstein, LLP to audit the Company's annual Financial Statements as of April 30, 2003 and 2002, and to review the Company's quarterly statements. No accountants of the Company were dismissed or resigned during the past two years. There have been no disagreements with the Company's accountants regarding accounting matters or financial disclosure. Part III --------- The information contained in items 10, 11, 12, and 13 is the same information to be included in the Registrant's definitive proxy statement, if any, to be filed with the Commission, and is included herein for convenience only. Item 10. Directors and Executive Officers of the Registrant. -------------------------------------------------- The executive officers and directors of the Company are: Positions Served in Name Age with Company Office Since - -------------- ---- --------------------- ------------------ Fred K. Suzuki 73 President, Treasurer, February,1976 (1) Director of Research and Development, Director of Marketing and Sales, and Chairman of the Board of Directors Mary K. Friske 43 Vice President - September, 1993 Administration, Manager of Sales Laurence Mead 41 Vice President - April, 1994 Manufacturing, Manager of Financial and Product Development Lauane C. Addis 47 Corporate Counsel, February, 1984 Secretary and December, 1985 Director February, 1987 James F. Schembri 68 Director November, 1990 - ------------------------------ (1) Mr. Suzuki did not serve as President from August 1982 through February 1983. Prior to October, 1984, Mr. Suzuki served as Treasurer of the Company, and was once again appointed Treasurer on June 30, 1991. As an incentive for his investment in the Company, the Board of Directors agreed to nominate James F. Schembri as a candidate for election to the Board of Directors of the Company. Other than the foregoing, there are no arrangements or understandings between any of the directors or officers of the Company and any other person pursuant to which any director or officer was or is to be selected as a director or officer. The term of office for the members of the Board of Directors extends to the next regular meeting of shareholders or until they resign, and until their successors are duly elected. The term of office for the officers of the Company extends until they resign, are not re-elected by the Board of Directors, or are otherwise replaced by the Board of Directors of the Company. Family Relationships. - -------------------- Lauane C. Addis is the son-in-law of Fred K. Suzuki. Otherwise, there is no family relationship between any director, executive officer, or person nominated or chosen by the Company to become a director or executive officer. Involvement in Certain Legal Proceedings. - ---------------------------------------- None of the officers or directors are or have been involved in any legal proceedings which are material to an evaluation of the ability or integrity of same. Business Experience. - ------------------- Certain information regarding the business experience of the directors, officers, significant employees and consultants of the Company are set forth below: FRED K. SUZUKI, Jr., Chairman of the Board, President, Treasurer, Director of Research and Development and Director of Marketing and Sales. Mr. Suzuki is founder of the Company and has served as President of the Company since its inception in 1976 to August 1982 and from February 1983 to the present. He has served as Chairman of the Board of Directors of the Company since its inception to the present, and as Treasurer from its inception to October, 1984 and from July, 1991 to the present. Mr. Suzuki is also President and Chairman of the Board of Directors of F.K. Suzuki International, Inc. ("FKSI"), and President and Chairman of the Board of Directors of Medlab Products, Inc. ("Medlab"), affiliates of the Company. Mr. Suzuki is the sole owner, President and Director of Suzuki International, Inc. ("SI"). Mr. Suzuki also served as President and Chairman of the Board of Directors of Stevia Company, Inc. ("Stevia") until is dissolution on April 16, 1999. FKSI is a holding company of Medlab and the Company, and was a holder of a majority of the common stock of Stevia until its dissolution. As such, it has no other business operations. See "Security Ownership of Certain Beneficial Owners and Management." Medlab is a dormant company, organized to develop, manufacture, and market scientific products. Stevia was a development company in the business of developing, manufacturing, and marketing natural sweeteners and other products derived from Stevia rebaudiana plant. SI is in the business of marketing various products. Mr. Suzuki has developed several patents or patents pending for clinical instruments and has licensed them to unaffiliated corporations. These patents do not inure to the benefit of the Company. Mr. Suzuki has developed several patents in the area of Diterpene glycosides chemistry derived from the Stevia rebaudiana plant. Mr. Suzuki also holds patents in the area of liquid crystal chemistry. Mr. Suzuki attended Roosevelt University from 1951 to 1954, where he studied Chemistry and Biology. MARY K. FRISKE, Vice President - Administration and Manager of Sales. Ms. Friske joined the office staff in July, 1983. Ms. Friske served as an Executive Secretary for several years and was promoted to Office Manager in 1989. In September, 1993, Ms. Friske was appointed Vice President - Administration and Manager of Sales. Ms. Friske received her Bachelor of Science degree in May, 1981 from Eastern Illinois University where she majored in Personnel Management. LAURENCE MEAD, Vice President - Manufacturing and Manager of Financial and Product Development. Mr. Mead joined the production department of the Company in 1980, and has served as the Company's Production Manager since 1984. In April, 1994, Mr. Mead was appointed Vice President - Manufacturing and Manager of Financial and Product Development. Mr. Mead received his Bachelor of Science degree in August, 1992 from Roosevelt University where he majored in Accounting. LAUANE C. ADDIS, Secretary and Director. Mr. Addis is currently a member of the law firm Stahl Cowen Crowley LLC, Chicago, Illinois. Mr. Addis served the Company from February, 1984 to December, 1985 as its Vice President - Finance and Chief Financial Officer on a part-time basis and was employed in the equivalent capacity on a part-time basis by Stevia. From December, 1985 thru June, 1991, Mr. Addis also served as Executive Vice President, Chief Operating Officer, Chief Financial Officer, and Treasurer of the Company and as President of Stevia. In July, 1991, Mr. Addis resigned from these positions to return to the full-time private practice of law. Mr. Addis is also an officer and director of FKSI, an affiliate of the Company, and served as the Secretary and a director of Stevia until its dissolution on April 16, 1999. Mr. Addis graduated from Andrews University with a B.A. in History and Business Administration in June, 1978. He received his Doctor of Jurisprudence from Baylor University in 1981 and his Master of Laws in Taxation from the University of Denver in 1982. Mr. Addis is a member of the Colorado, Illinois and Texas Bar Associations. JAMES F. SCHEMBRI, Director. Mr. Schembri was elected to the Board of Directors on November 15, 1990. Mr. Schembri is the founder and President of Schembri & Associates (formerly Automatic Controls Company). This company was a manufacturer's representative with offices in Michigan, Ohio and Kentucky. It currently is involved in specialized lending situations with Equity Funding, Inc. of West Bloomfield, Michigan. Mr. Schembri is one of the founders and President of Fenton Systems, Inc., Burton, Michigan. In addition to these activities, Mr. Schembri is founder and President of Wickfield Leasing Company, which leases automobiles and office equipment. Mr. Schembri also served as a director of Stevia until its dissolution on April 16, 1999. Mr. Schembri received his Bachelor of Science Degree in Mechanical Engineering from the University of Detroit in June, 1957. Item 11. Executive Compensation. ---------------------- The following summary compensation table sets forth a summary of compensation for services in all capacities to the Company during the fiscal years ended April 30, 2003, 2002 and 2001 paid to the Chief Executive Officer. None of the Company's other executive officers received annual salaries and bonuses for such fiscal years exceeding $100,000.
Summary Compensation Table ------------------------------------------- Annual Compensation Long Term Compensation/Awards -------------------------------------- ----------------------------------------------- Name and Other Restricted Securities Principal Annual Stock Underlying LTIP All Other Position Year Salary Bonus Compensation(1) Awards Options/SARS Payouts Compensation - --------------------- ---- ------- ------ --------------- ---------- ------------ ------- ------------ Fred K. Suzuki 2003 $80,000 $5,000 - - - - - President, 2002 $80,000 $5,000 - - - - - Chairman of 2001 $76,608 - - - - - - the Board and Chief Executive Officer
- ------------------------------ (1) No executive officer received perquisites in excess of the lesser of $50,000 or 10% of the aggregate of such officer's salary and bonus. (2) See "Stock Options" below. All officers and directors are reimbursed for out-of-pocket expenses incurred in connection with the Company's business. Messrs. Suzuki, Addis and Schembri are not remunerated in their capacities as directors. See, however, "Certain Relationships and Related Party Transactions." The Company does not have any pension or profit sharing plans in effect for the benefit of its employees, including its officers and directors. Such plans may be adopted in the future if deemed in the best interests of the Company by its Board of Directors. Stock Options - ------------- On November 12, 1998, the Company entered into a Stock Option Agreement ("Stock Option I"), described below, with Fred K. Suzuki, President of the Company. Stock Option I terminated by its terms on November 12, 2001. Effective November 12, 2001, but approved by the Board of Directors on March 21, 2002, another Stock Option ("Stock Option II"), described below, was granted to Fred K. Suzuki. No other stock options were granted to the Chief Executive Officer or the Company's four other most highly compensated executive officers (other than the Chief Executive Officer) whose total annual salary and bonus for fiscal year 2003 exceeded $100,000. Mr. Suzuki exercised this option to the extent of 140,000 shares on September 30, 2002 resulting in additional paid-in-capital of $3,500. This option will expire on November 12, 2004. The following table sets forth the aggregate value as of April 30, 2003 of unexercised options held by such individuals. Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values ---------------------------------------------------- Number of Value of Shares underlying Unexercised Unexercised In-the-Money Options at Options/SARS Shares Fiscal Year At Fiscal Acquired End (#) Year-End On Value Exercisable/ Exercisable/ Name Exercise (#) Realized ($) Unexercisable Unexercisable - -------------- ------------ ------------ ------------------ -------------- Fred K. Suzuki President and Chairman of the Board Stock Option I(1) 140,000 0 2,591,000/0 $0/0 - ------------------- (1) Effective November 12, 2001, but approved by the Board of Directors on March 21, 2002, the Company entered into a Stock Option Agreement with Fred K. Suzuki, President, granting Mr. Suzuki an option to purchase 2,731,000 shares of the Company's common stock at an option price of $0.025 per share. The option is subject to several contingencies, including, but not limited to Shareholder approval. Management believes this 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 a corporate capital reorganization. As of April 30, 2003, this option had been exercised to the extent of 140,000 Shares. This option will terminate on November 12, 2004. COMPENSATION COMMITTEE. The Company does not have a Compensation Committee of its Board of Directors. The Board of Directors makes all decisions concerning the President's compensation including, but not limited to, the granting of options to acquire common stock of the Company. The President of the Company, Fred K. Suzuki, has the sole authority, as granted by the Board of Directors, to make compensation decisions for other employees of the Company other than the granting of Options to acquire securities of the Company. The directors of the Company received no compensation for service to the Company in such capacity, but are reimbursed for their out of pocket costs and expenses. Item 12. Security Ownership of Certain Beneficial Owners and Management. --------------------------------------------------------------- The following table sets forth information as of April 30, 2003, as to the voting securities of the Company owned by the officers and directors of the Company and by each person who owns of record, or is known by the Company to own beneficially, more than 5% of any class of voting securities. Amount and Nature Name and Address of Beneficial Percent of Title of Class of Beneficial Owner Ownership Class - -------------- -------------------- ----------------- ----------- Common Stock Fred K. Suzuki 4,906,146 shares 34.51% 710 S. Kennicott of record and Arlington Heights, beneficial (1) Illinois 60005 Common Stock F.K. Suzuki Inter- 4,497,146 shares 31.63% national, Inc. of record and 1940 E. Devon Ave. beneficial Elk Grove Village, IL 60007 Common Stock Lauane C. Addis 4,506,146 shares 31.70% 1819 Orleans Circle of record and Elk Grove Village, IL beneficial (2) 60007 Common Stock James F. Schembri 1,799,500 shares 12.66% 19115 W. Eight Mile Rd. of record and Detroit, MI 48219 beneficial (3) Common Stock Mary K. Friske (4) 1,000 shares of .01% 940 Bradley Court record and Palatine, IL 60074 beneficial Common Stock Laurence C. Mead (5) 1,250 shares of .01% 1151 Warwick Cir. North record and Hoffman Estates IL beneficial 60194 Common Stock All directors and 6,716,896 47.25% officers as a group (5 members) - ---------------------- (1) Fred K. Suzuki is President of F.K. Suzuki International, Inc. ("FKSI") and owns 35.6% of the outstanding common stock of FKSI. Mr. Suzuki personally holds of record 409,000 shares of the company's common stock; however he is deemed to be beneficial owner by reason of voting and disposition control 4,497,146 shares which are owned by FKSI. The above table does not include an option granted to Mr. Suzuki to acquire 2,591,000 shares of the Company's common stock at $0.025 per share. See "Executive Compensation" and "Certain Relationships and Related Party Transactions." (2) Mr. Addis personally owns 9,000 shares of the outstanding Common Stock of the Company. In addition, Mr. Addis owns 32.7% of the outstanding Common Stock of FKSI, which owns 31.63% of the Common Stock of the Company. Mr. Addis is therefore deemed to be beneficial owner by reason of voting and disposition control of 4,497,146 shares owned by FKSI. (3) Included in the shares owned beneficially by Mr. Schembri are 35,000 shares held in Auto Controls Profit Sharing Plan for the benefit of Mr. Schembri and 508,000 shares owned in joint tenancy with Mr. Schembri's son. (4) In addition to the Shares of outstanding common stock of the Company owned by Mary K. Friske, she also owns 200 shares, or approximately .2%, of the outstanding common stock of FKSI, which owns 32.57% of the common stock of the Company. (5) In addition to the common stock of the Company owned by Laurence C. Mead, he also owns 4,000 shares, or approximately 4%, of the outstanding common stock of FKSI, which owns 32.57% of the common stock of the Company. Changes in Control - ------------------ The Company does not know of any arrangements, the operation of which may at a subsequent date result in a change in control in the Company nor has a change in the control of the Company occurred during the last fiscal year. Item 13. Certain Relationships and Related Party Transactions. ---------------------------------------------------- During the fiscal year ending April 30, 2003, the Company shared common office expenses, including legal fees, with F.K. Suzuki International, Inc. ("FKSI"). It is believed by management that by sharing these common expenses with FKSI, they will be reduced and kept at minimum levels. As of April 30, 2003, FKSI owed $19,699 to the Company in connection with the shared common expenses. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Effective November 12, 2001, the Company granted an option to Mr. Suzuki to purchase all or a portion of 2,731,000 shares of the Company' common stock at a purchase price of $0.025 per share. This option is subject to several contingencies including, but not limited to, shareholder approval. As of April 30, 2003, this option was exercised to the extent of 140,000 shares on September 30, 2002. See "Executive Compensation." Lauane C. Addis, Secretary and Director, a member of the law firm of Stahl Cowen Crowley LLC, has represented the Company with respect to the preparation and filing of this Report. Mr. Addis, and other Members and associates of Stahl Cowen Crowley LLC, perform other legal services for the Company from time to time, and it is anticipated such services will be performed by Mr. Addis and other members and associates of Stahl Cowen Crowley LLC, in the future. During Fiscal 2003, the Company paid $24,624.89 in legal fees to the law firm, some of which inured to the benefit of Mr. Addis in the form of distributions. Mr. Addis is an officer, director and shareholder of the Company, and is also the son-in-law of Fred K. Suzuki, President and Chairman of the Board of Directors. See "Directors and Executive Officers of the Registrant" and "Security Ownership of Certain Beneficial Owners and Management." Except with regard to the above, there were no other material transactions involving management of the Company or any third party during the last fiscal year which accrued to the benefit of officers or directors of the Company. Item 14. Controls and Procedures ----------------------- (a) The management of the Company has prepared and is responsible for the integrity of the information presented in this Annual Report for the period ending April 30, 2003, including the Company's financial statements. These statements have been prepared in conformity with generally accepted accounting principals and include, where necessary, informed estimates and judgments by management. (b) Within the 90 days prior to the date of filing this Form 10-K, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer along with the Company's Chief Accounting Officer, of the effectiveness of the design and operation fo the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Company's Chief Executive Officer along with the Company's Chief Accounting Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information related to the Company required to be included in the Company's periodic SEC filings. (c) The Company maintains systems of accounting and internal controls, policies and procedures designed to provide assurance that assets are property 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 or in other factors that could significantly affect internal controls subsequent to the date the Company carried out its evaluation. (d) 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 to ensure that material information regarding the Company is presented in this Annual Report. PART IV -------------- Item 15. Exhibits, Financial Statements Schedules and Reports on Form 8-K ---------------------------------------------------------------- The following financial statements, schedules and exhibits are filed as a part of this report: (a) (1) Financial Statements. Balance sheets for the fiscal years ending April 30, 2002 and 2003. Statements of operations for the fiscal years ending April 30, 2001, 2002 and 2003. Statements of Shareholders' Equity (Deficit) for the fiscal years April 30, 2001, 2002 and 2003. Statements of Cash Flows of the Company for fiscal years ending April 30, 2001, 2002 and 2003. Notes to financial statements. (a) (2) List of Financial Statement Schedules: No financial schedules for the fiscal years ending April 30, 2003, 2002 and 2001 are submitted. Except as listed above, there are no financial statement schedules required to be filed by Item 8 of this Form 10-K except for those otherwise shown on the financial statements or notes thereto contained in this report. (b) Reports on Form 8K. No current reports on Form 8K were filed during the last quarter covered by this report. (c) The Following Exhibits are Filed as a Part of this Report: 2. Plan of Acquisition, reorganization, arrangement, liquidation or accession - none. 3a. Articles of Incorporation and By-Laws (1) 4. Instruments Defining the Rights of Security Holders, Including Indentures - none. 9. Voting Trust Agreements - none. 10. Material Contracts (a) Stock Option Agreement, dated November 12, 2001, between the Company and Fred K. Suzuki (2) 11. Statement Regarding Computation of Earnings Per Share - none. 12. Statements Regarding Computation of Ratios - none. 13. Annual Report to Security Holders - none. 16. Letter Regarding Change in Certifying Accountants - none. 18. Letter Regarding Change in Accounting Principles - none. 19. Previously Unfiled Documents - none. 22. Subsidiaries of Registrant - none. 23. Published Report Regarding Matters Submitted to Vote of Security Holders - none. 24. Consent of Experts and Counsel - none. 25. Power of Attorney - none. (99) Additional Exhibits (a) Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 filed herewith (b) Certification of Chief Accounting Officer pursuant to 18 U.S.C. Section 1350 filed herewith - --------------------------- (1) Incorporated by reference to a Registration Statement filed on Form S-18 with the Securities and Exchange Commission, 1933 Act Registration Number 2-83015C, 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. (2) Incorporated by reference to the Company's Annual Report on Form 10K for fiscal ending April 30, 2002 filed with the Securities and Exchange Commission. SIGNATURES Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, duly authorized. REGISTRANT: BIOSYNERGY, INC. /s/ Fred K. Suzuki July 28, 2003 - ----------------------------------- -------------------- Fred K. Suzuki, Chairman of the Date Board of Directors and President Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant in the capacities on the dates indicated. /s/ Fred K. Suzuki July 28, 2003 - --------------------------------- --------------------- Fred K. Suzuki, Chairman of the Date Board of Directors, President, Treasurer and Chief Accounting Officer /s/ Lauane C. Addis July 28, 2003 - -------------------------------- --------------------- Lauane C. Addis, Secretary Date and Director CERTIFICATION OF CHIEF EXECUTIVE OFFICER I, Fred K. Suzuki, certify that: 1. I have reviewed this quarterly report on Form 10-K of Biosynergy, Inc., registrant; 2. Based on my knowledge, this annual 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 annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c. Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: July 28, 2003 /s/ Fred K. Suzuki -------------------------------------- Fred K. Suzuki Chairman of the Board, Chief Executive Officer, President and Treasurer CERTIFICATION OF CHIEF ACCOUNTING OFFICER I, Laurence C. Mead, certify that: 1. I have reviewed this annual report on Form 10-Q of Biosynergy, Inc., registrant; 2. Based on my knowledge, this annual 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 annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c. Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: July 28, 2003 /s/ Laurence C. Mead ----------------------------------------- Laurence C. Mead Vice President/Manufacturing and Development, and Chief Accounting Officer Biosynergy, Inc. Years Ended April 30, 2003, 2002 and 2001 C o n t e n t s --------------- Reference Page --------- ---- Independent Auditor's Report 1 Balance Sheets Exhibit A 2-3 Statements of Operations Exhibit B 4 Statements of Stockholders' Equity Exhibit C 5 Statements of Cash Flows Exhibit D 6 Notes to Financial Statements 7-14 Independent Auditor's Report ---------------------------- Board of Directors and Stockholders Biosynergy, Inc. Elk Grove Village, Illinois We have audited the accompanying balance sheets of Biosynergy, Inc. as of April 30, 2003 and 2002, and the related statements of operations, stockholders' equity and cash flows for the year ended April 30, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Biosynergy, Inc. as of April 30, 2003 and 2002, and the results of its operations and its cash flows for the year ended April 30, 2003, in conformity with accounting principles generally accepted in the United States of America. The accompanying statements of operations, stockholders' equity and cash flows of Biosynergy, Inc. for the years ended April 30, 2002 and 2001 were not audited by us and, accordingly, we do not express an opinion on them. S/Blackman Kallick Bartelstein, LLP May 22, 2003 Chicago, Illinois Biosynergy, Inc. Balance Sheets April 30, 2003 and 2002
Assets ------ 2003 2002 -------- -------- Current Assets Cash $309,512 $ 37,874 Short-term investment - 275,016 Accounts receivable - Trade (Net of allowance for doubtful accounts of $500 in 2003 and 2002) 111,62 121,254 Inventories 66,447 59,629 Prepaid expenses 17,09 13,768 Interest receivable - 815 -------- -------- Total Current Assets 504,67 508,356 -------- -------- Due from Affiliates 19,699 19,432 -------- -------- Equipment and Leasehold Improvements Equipment 133,872 132,556 Leasehold improvements 15,140 15,140 -------- -------- 149,012 147,696 Less accumulated depreciation and amortization 126,561 116,928 -------- -------- Total Equipment and Leasehold Improvements, Net 22,451 30,768 -------- -------- Other Assets Patents pending 29,009 11,989 Deposits 6,015 6,015 -------- -------- Total Other Assets 35,024 18,004 -------- -------- $581,849 $576,560 ======== ========
The accompanying notes are an integral part of the financial statements. -2- Exhibit A
Liabilities and Stockholders' Equity ------------------------------------ 2003 2002 -------- -------- Current Liabilities Accounts payable $ 15,455 $ 9,658 Accrued compensation and payroll taxes 9,546 8,152 Deferred rent 3,190 2,750 Other accrued expenses 2,338 3,286 Accrued vacation 15,625 15,003 -------- -------- Total Current Liabilities 46,154 38,849 -------- -------- Stockholders' Equity (Deficit) Common stock - No par value; 20,000,000 authorized, issued 14,215,511 shares as of April 30, 2003 and 14,075,511 shares as of April 30, 2002 642,888 639,388 Additional paid-in capital 100 100 Accumulated deficit (107,293) (101,777) -------- -------- Total Stockholders' Equity 535,695 537,711 -------- -------- $581,849 $576,560 ======== ========
-3- Exhibit B Biosynergy, Inc. Statements of Operations Years Ended April 30, 2003, 2002 and 2001
2003 2002 2001 Audited Unaudited Unaudited ---------- ---------- ---------- Net Sales $675,413 $602,305 $589,417 Cost of Sales 212,492 191,099 191,090 ---------- ---------- ---------- Gross Profit 462,921 411,206 398,327 ---------- ---------- ---------- Operating Expenses Marketing 79,198 77,850 59,603 General and administrative 267,589 226,576 204,044 Research and development 128,221 129,067 109,864 ---------- ---------- ---------- Total Operating Expenses 475,008 433,493 373,511 ---------- ---------- ---------- Loss (Income) from Operations (12,087) (22,287) 24,816 ---------- ---------- ---------- Other Income Interest income 4,573 8,890 16,182 Other income 1,998 2,024 3,673 ---------- ---------- ---------- Total Other Income 6,571 10,914 19,855 ---------- ---------- ---------- Net (Loss) Income $ (5,516) $ (11,373) $ 44,671 ========== ========== ========== Net (Loss) Income Per Common Stock - Basic and Diluted $ - $ - $ - ========== ========== ========== Weighted-Average Common Stock Outstanding 14,156,856 14,068,878 13,806,511 ========== ========== ==========
The accompanying notes are an integral part of the financial statements. -4- Exhibit C Biosynergy, Inc. Statements of Stockholders' Equity Years Ended April 30, 2003, 2002 and 2001
Common Stock Additional -------------------- Paid-In Accumulated Shares Amount Capital Deficit Total --------- --------- --------- ---------- -------- Balance, April 30, 2000 (Unaudited) 13,806,511 $632,663 $ 100 $(135,075) $497,688 Net Income - - - 44,671 44,671 ---------- -------- --------- -------- -------- Balance, April 30, 2001 (Unaudited) 13,806,511 632,663 100 (90,404) 542,359 Stock Option Exercise 269,000 6,725 - - 6,725 Net Loss - - - (11,373) (11,373) ---------- -------- --------- -------- -------- Balance, April 30, 2002 (Audited) 14,075,511 639,388 100 (101,777) 537,711 Stock Option Exercise 140,000 3,500 - - 3,500 Net Loss - - - (5,516) (5,516) ---------- ------- -------- -------- -------- Balance, April 30, 2003 (Audited) 14,215,511 $642,888 $ 100 $(107,293) $535,695 ========== ======== ======== ========= ========
The accompanying notes are an integral part of the financial statements. -5- Exhibit D Biosynergy, Inc. Statements of Cash Flows Years Ended April 30, 2003, 2002 and 2001
2003 2002 2001 Audited Unaudited Unaudited --------- --------- --------- Cash Flows from Operating Activities Net (loss) income $ (5,516) $ (11,373) $ 44,671 --------- --------- --------- Adjustments to reconcile net (loss) income to cash provided by (used in) operating activities - Depreciation and amortization 9,633 2,918 8,002 Changes in assets and liabilities Accounts receivable 9,634 (15,833) (27,304) Interest receivable 815 6,597 (3,913) Inventories and prepaid expenses (10,146) (9,566) 5,570 Accounts payable and accrued expenses 7,305 6,669 2,621 --------- --------- --------- Total Adjustments 17,241 (9,215) (15,024) Net Cash Provided by (Used in) Operating Activities 11,725 (20,588) 29,647 --------- --------- --------- Cash Flows from Investing Activities Advances to affiliated companies (267) (349) (218) Purchase of equipment (1,316) (3,207) (304) Patents pending (17,020) (6,444) (5,545) Proceeds from sale (purchase) of short-term investments 275,016 (3,091) (12,269) --------- --------- --------- Net Cash Provided by (Used in) Investing Activities 256,413 (13,091) (18,336) --------- --------- --------- Net Cash Provided by Financing Activities - Proceeds from exercise of stock option by officer 3,500 6,725 - --------- --------- --------- Increase (Decrease) in Cash 271,638 (26,954) 11,311 Cash, Beginning of Year 37,874 64,828 53,517 --------- --------- --------- Cash, End of Year $ 309,512 $ 37,874 $ 64,828 ========= ========= ========= Supplemental Disclosure: Cash paid for interest $ - $ - $ - ========= ========= =========
The accompanying notes are an integral part of the financial statements. -6- Biosynergy, Inc. Notes to Financial Statements Years Ended April 30, 2003, 2002 and 2001 Note 1 - Company Organization and Description 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 Hemo Temp II Blood Monitoring Device, accounted for approximately 87% of the sales in each of the three years ending April 30, 2003. 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 Inventories ----------- Inventories are valued at the lower of cost using the FIFO (first-in, first-out) method or market. 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 10 years or the term of the lease, if less; equipment is depreciated over 5 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. -7- Note 2 - Summary of Significant Accounting Policies (Continued) Stock Options ------------- The Company uses the intrinsic value method, as allowed by SFAS No. 123, "Accounting for Stock-Based Compensation," to account for stock options granted to employees. No compensation expense is recognized for stock options because the exercise price of the options is estimated to be at least equal to the market price of the underlying stock on the grant date. 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. Basic and diluted net loss per common share is the same for the years ended April 30, 2003 and 2002, as the common stock equivalents of the Company were anti-dilutive. 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 April 30, 2003, 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. -8- Note 2 - Summary of Significant Accounting Policies (Continued) Income Taxes ------------ Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Under the Tax Reform Act of 1986, the benefits from net operating losses carried forward may be impaired or limited in certain circumstances. In addition, a valuation allowance can be provided for deferred tax assets when it is more likely than not that all or some portion of the deferred tax assets will not be realized. The Company has established a full valuation allowance on the aforementioned deferred tax assets due to the uncertainty of realization. (See Note 5.) Recent Accounting Pronouncements --------------------------------- The Company adopted Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets," effective for fiscal years beginning after December 15, 2001. SFAS No. 142 requires, among other things, the discontinuance of goodwill amortization. In addition, SFAS No. 142 includes provisions for the reclassification of certain existing recognized intangible assets as goodwill, reassessment of the useful lives of existing recognized intangible assets, reclassification of certain intangible assets out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. The adoption of SFAS No. 141 and 142 did not have an impact on the Company's financial position or results of operations, as the Company does not currently hold any goodwill and only has other intangibles consisting of unamortized patent pending costs. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," effective for years beginning after December 15, 2001. The new rules for long-lived assets to be disposed by sale excludes the allocation of goodwill to be tested for impairment of such assets, establishes a primary asset approach to be used for the estimation of future cash flows and allows for probability-weighted future cash flows estimation for impairment testing. The adoption of SFAS No. 144 did not have an impact on the Company's financial position or results of operations. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement addresses financial accounting and reporting for costs associated with exit or disposal activities. SFAS No. 146 became effective in the quarter ending January 31, 2003. The adoption of SFAS No. 146 did not have a material impact on the Company's cash flows, financial position or results of operations. -9- Note 2 - Summary of Significant Accounting Policies Recent Accounting Pronouncements (Continued) -------------------------------------------- In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." Interpretation 45 requires a guarantor to include disclosure of certain obligations and, if applicable, at the inception of the guarantee, to recognize a liability for the fair value of other certain obligations undertaken in issuing a guarantee. The recognition requirement is effective for guarantees issued or modified after December 31, 2002 and did not have a material impact on the Company. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." This statement, which is effective for years beginning after December 15, 2002, amends Statement No. 123, "Accounting for Stock-Based Compensation," and provides alternative methods of transition for a voluntary change to the fair value-based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of Statement No. 123 regardless of the accounting method used to account for stock-based compensation. The adoption of the disclosure-only provisions of SFAS No. 148 did not have a material impact upon the Company. The Company has elected to continue to account for stock-based compensation using the intrinsic value method. In January 2003, the FASB issued FASB Interpretation No. 46 (FIN No. 46), "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51." FIN No. 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN No. 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The Company does not expect FIN No. 46 to have a material effect on its results of operations, financial condition or cash flows. Reclassification ----------------- Certain items in prior year financial statements have been reclassified to conform to the presentation used in fiscal 2003. -10- Note 3 - Short-Term Investment In November 2001, the Company invested $275,016 in a 90-day certificate of deposit, pending its use. This certificate of deposit provided for interest at 1.85%. The certificate of deposit was renewed in February 2002 at an interest rate of 1.75%. In May 2002, the Company invested $250,000 in a 270-day certificate of deposit at an interest rate of 2.2%. This certificate of deposit matured on February 24, 2003 and was not renewed. Note 4 - Inventories Components of inventories are as follows:
2003 2002 --------- --------- Raw materials $ 31,078 $ 35,953 Work-in-progress 14,038 5,429 Finished goods 21,331 18,247 -------- -------- $ 66,447 $ 59,629 ======== ========
Note 5 - Income Taxes The components of deferred income taxes are as follows as of April 30, 2003:
2003 2002 --------- ---------- Deferred Tax Assets (Liabilities) Net operating loss carryforwards $ 12,144 $ 10,438 Other 3,182 - Less: Valuation allowance (15,326) (10,438) --------- --------- Net Deferred Tax Assets $ - $ - ========= =========
-11- Note 5 - Income Taxes (Continued) The differences between the U.S. federal statutory tax rate and the Company's effective tax rate are as follows:
Year Ended April 30, 2003 2002 2001 -------- --------- -------- U.S. federal statutory tax rate (34.0)% (3.0)% 34.0% Utilization of net operating loss carryforwards- - (34.0) Change in valuation allowance 34.0 34.0 - ------- ------- ------- Consolidated Effective Tax Rate - % - % - % ======= ======= =======
As of April 30, 2003, the Company has approximately $81,000 of net operating loss carryforwards expiring between 2004 and 2017 for U.S. federal income tax purposes. A valuation allowance has been established as of April 30, 2003 and 2002 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 the benefit will not be realized. Note 6 - Stock Options 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, stockholder approval. On May 9, 2001, this option was exercised to the extent of 269,000 shares resulting in additional paid-in capital of $6,725. This option was to expire on November 12, 2001; however, upon the expiration date, the Company extended the option to Mr. Suzuki to purchase all or a portion of the remaining 2,731,000 shares of the Company's common stock at a purchase price of $.025 per share to November 12, 2004. The extended option remains subject to several contingencies, including, but not limited to, stockholder approval. On September 30, 2002, this option was exercised to the extent of 140,000 shares resulting in additional paid-in capital of $3,500. 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. The Company estimates the price at which the option was granted to the President, was at or above market value per share of common stock on the date of grant, based on the limited historical trade activity. -12- Note 6 - Stock Options (Continued) The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting and Disclosure of Stock-Based Compensation." Accordingly, no employee compensation expenses had been recognized for the above grant. Had employee compensation expense for the grant been recorded in the financial statements, consistent with provisions of SFAS No. 123, net (loss) income for fiscal years 2003, 2002 and 2001 would have been the same. Using the Black-Scholes option pricing model, The option extended grant on November 12, 2001 did not result in any intrinsic value using the Black-Scholes option pricing model. Therefore, no pro forma net loss or loss per share is applicable. In order to arrive at this determination, using the Black-Scholes option pricing model, the following weighted average assumptions were used for the period ended April 30, 2002:
Risk-Free Options Exercise Expected Dividend Interest Date of Issuance Issued Price (Years) Yield Rate Volatility - ------------------- --------- -------- -------- -------- -------- ---------- November 12, 2001 2,731,000 $.025 3 0.00% .0% .001
Note 7 - Related Party Transactions The Company and its affiliates are related through common stock ownership as follows as of April 30, 2003:
Stock of Affiliates ---------------------------------- F.K. Suzuki Biosynergy, International, Medlab, Inc. Inc. Inc. ----------- -------------- ------- F.K. Suzuki International, Inc. 31.6% - % 100.0% Fred K. Suzuki, Officer 2.9 35.6 - Lauane C. Addis, Officer .1 32.7 - James F. Schembri, Director 12.6 - - Mary K. Friske, Officer .1 .2 - Laurence C. Mead, Officer .1 4.0 -
As of April 30, 2003 and 2002, $19,699 and $19,432, respectively, 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. As of April 30, 2003, the financial condition of FKSI was 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. -13- Note 8 - Lease Commitments In 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 extended lease escalates over the life of the lease. Total rent payments for each fiscal year are as follows: Total Base Rent --------------- Year ending April 30: 2004 $ 74,250 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. Rent expense was $73,700, $72,050 and $69,833 for the fiscal years ending April 30, 2003, 2002 and 2001, respectively. The lease can be extended for an additional five-year term. Note 9 - Major Customers Shipments to one customer amounted to approximately 44%, 42% and 43% of sales in fiscal years 2003, 2002 and 2001, respectively. As of April 30, 2003 and 2002, there were outstanding accounts receivable from this customer of approximately $78,122 and $70,037, respectively. Note 10 - Correction of Accounting Error The Company did not accrue for vacation expenses covered by employees during fiscal years 2003 and 2002. Beginning retained earnings as of April 30, 2000 was decreased by $15,003 and accrued vacation has been established by a like amount to account for this oversight. Accrued vacation has been adjusted to the actual amount due to employees as of April 30, 2003 with the expense charged to current operations. -4- -----END PRIVACY-ENHANCED MESSAGE-----