As of August 31, 2014 and May 31, 2014, the Company had cash and cash equivalents in the amount of $1,646,978 and $1,509,125 and working capital of $4,188,841 and $4,357,330, respectively.
During the three months ended August 31, 2014 the Companys operations provided cash of $143,641 compared to cash used of $376,271 in the same period of the prior fiscal year. Cash provided by operations in fiscal 2015 was a result of net loss of $219,268, an increase in inventory of $135,203, and pay down of accounts payables and accrued expenses of $207,546 which were offset by collections of accounts receivables of $675,047. Cash used in investing activities in the three months ended August 31, 2014 was $1,775 compared to the three months ended August 31, 2013 of $8,731. Both years the use of funds was for the purchase of property and equipment. Cash used in financing activities in the three months ended August 31, 2014 was $3,079 compared to cash provided by financing activities of $760 in the three months ended August 31, 2013. The decrease in fiscal 2015 was a result of $6,252 used for intangible assets which was offset by the exercise of stock options of $3,173.
In March 2014, the Company entered into a line of credit (the Line) with its bank which has a borrowing limit of $250,000. The line is secured by substantially all of the Companys assets, bears interest at 2.0% plus the Wall Street Journal Prime West Coast Edition prime rate. At August 31, 2014 the Company had not drawn any funds on the line.
Off Balance Sheet Arrangements None.
CRITICAL ACCOUNTING POLICIES
The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions affect the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances. We believe our estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions.
We believe that the estimates and assumptions that are most important to the portrayal of our financial condition and results of operations, in that they require subjective or complex judgments, form the basis for the accounting policies deemed to be most critical to us. These relate to revenue recognition, bad debts, inventory overhead application, and inventory reserve. We believe estimates and assumptions related to these critical accounting policies are appropriate under the circumstances; however, should future events or occurrences result in unanticipated consequences, there could be a material impact on our future financial conditions or results of operations. We suggest that our significant accounting policies be read in conjunction with this Managements Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Item 4. CONTROLS AND PROCEDURES
Our management evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of the end of the period covered by this report. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The disclosure controls and procedures have been designed to provide reasonable assurance of achieving their objectives and the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective at the "reasonable assurance" level. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that we file and submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms; and (2) accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
There have been no changes in our internal control over financial reporting identified in connection with the evaluation that occurred during our last fiscal quarter that has materially affected, or that is reasonably likely to materially affect, our internal control over financial reporting.