2016, respectively. Fluctuations in interest income are impacted by the levels of our average cash and investment balances and changes in interest rates. Interest expense, which is primarily
related to the capital lease of a piece of manufacturing equipment, was $2,982 and $2,988 in Fiscal 2017 and 2016, respectively. Foreign currency exchange loss was $63,744 and $57,406 in Fiscal 2017 and 2016, respectively. The foreign currency
exchange loss fluctuated with the strength of foreign currencies against the U.S. dollar during the respective periods.
Provision for income taxes
The effective tax rate in Fiscal 2017 was 2.7%. The effective tax rate on consolidated net loss in Fiscal 2017 differed from the federal statutory tax rate primarily due to changes in the deferred tax valuation allowance. The
effective tax rate in Fiscal 2016 was 1.3%. The effective tax rate on consolidated net loss in Fiscal 2016 differed from the federal statutory tax rate primarily due to changes in the deferred tax valuation allowance.
Net income (loss) Net loss was $1,073,364, or $(0.36) per fully diluted share, for the year ended May 31, 2017 as compared to net
loss of $1,515,189, or $(0.51) per fully diluted share, for the year ended May 31, 2016. Net loss for Fiscal 2017 was the result of the combination of lower sales in the North America Balancer in the first half of the fiscal year, lower overall
margins and decreases in sales associated with our SMS and Lasercheck product lines.
LIQUIDITY AND CAPITAL RESOURCES
The Companys working capital increased $2,737,161 to $8,247,973 as of May 31, 2018 compared to $5,510,812 as of May 31, 2017. Cash, cash
equivalents and restricted cash increased $1,243,926 from $867,607 as of May 31, 2017 to $2,111,533 as of May 31, 2018.
On December 20,
2017, the Company completed its Subscription Rights Offering (the Rights Offering) in which 998,635 common shares were issued, resulting in proceeds to the Company, net of expenses, of $2,386,029 which is reflected in net cash provided
by financing activities for the year ended May 31, 2018. Pursuant to the Rights Offering, the Company issued one right for each common share to shareholders of record as of November 27, 2017. Holders of the rights were entitled to purchase
common shares by submitting three rights and $2.50 for each share to be purchased. The new shares were issued on December 27, 2017.
Cash used in
operating activities was $1,002,849 in Fiscal 2018 as compared to cash used in operating activities of $148,288 in Fiscal 2017 and cash used in operations of $819,808 in Fiscal 2016. With the successful completion of the Rights Offering in December
2017, the Company was able to invest in inventory, which represents the most significant component of the cash used in operating activities for Fiscal 2018. In addition, net income for the year, the timing of collections of accounts receivable and
the timing of payments of accounts payable also impacted the cash used in operating activities for Fiscal 2018. The amount of cash used in operating activities in Fiscal 2017 and 2016 was primarily impacted by the amount of the net loss in each of
the fiscal years, the timing of collections of accounts receivable, shifts in the level of inventories, and the timing of payments of accounts payable.
At May 31, 2018, accounts receivable decreased $297,341 to $2,047,032 compared to $2,344,373 as of May 31, 2017. The decrease in accounts receivable
was due to the timing of collections. Inventories increased $1,506,165 to $5,710,888 as of May 31, 2018 as compared to $4,204,723 as of May 31, 2017 as a result of the increase in purchases in the second half of the fiscal year. At
May 31, 2018, total current liabilities decreased $258,553 to $1,770,404 as compared to $2,028,957 at May 31, 2017 as a result of timing of payments.
During Fiscal 2018, net cash used in investing activities of $6,967 consists of purchases of computers and other office-related equipment offset by the sale
of one computer. In Fiscal 2017, net cash used in investing activities of $98 is the net result of the purchase of one vehicle, the proceeds from the disposition of two vehicles, and the purchase of computer equipment. During Fiscal 2016, net cash
provided by investing activities of $11,430 consisted primarily of the proceeds from the disposition of some office equipment, offset by the purchase of computer equipment.