FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF1934 [NO FEE REQUIRED]
for the transition period from _______________ to __________________
Commission file number 0-17449
PROCYON CORPORATION
(Exact name of registrant as specified in its charter)
Colorado 36-0732690
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1150 Cleveland Street, Suite 410
Clearwater, Florida 34615
(Address of principal executive offices, including Zip Code)
Issuer's telephone number, including area code (813) 447-2998
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to section 12(g) of the Act:
Common Stock
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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
--- ---
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will 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-KSB or any amendment to
this Form 10-KSB [ ]
State Issuer's revenues for its most recent fiscal year: $308,668
As of September 1, 1996, 3,637,920 shares of the registrant's Common Stock were
outstanding and the aggregate market value of the 287,920 shares held by
non-affiliates was $-0-. (Price quotations for the Common Stock were not
published at any time during the 60 days prior to the filing of this report.)
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING
DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No X
--- ---
DOCUMENTS INCORPORATED BY REFERENCE:
The information required by Part III of this annual report is incorporated by
reference to the registrant's definitive proxy statement if filed with the with
the Commission on or before October 28, 1996 or, if such proxy statement is not
filed, will be filed with the Commission as an amendment to this Form 10-K under
cover of Form 10-K/A, not later than October 28, 1996.
Transitional Small Business Disclosure Format: Yes No X
--- ---
<PAGE>
INDEX
Title Page
ITEM I BUSINESS............................................. 3
ITEM 2 PROPERTIES............................................ 5
ITEM 3 LEGAL PROCEEDINGS..................................... 5
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS................................... 5
ITEM 5 MARKET FOR COMPANY'S COMMON EQUITY AND
RELATED STOCK MATTERS.............................. 6
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION.................................. 6
ITEM 7 FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA............................................... 8
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ACCOUNTING AND FINANCIAL DISCLOSURE................ 8
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT OF
THE REGISTRANT.................................... 9
ITEM 10 EXECUTIVE COMPENSATION................................. 9
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.............................. 9
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS....................................... 9
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K....................... 10
<PAGE>
Part I
ITEM 1. BUSINESS
History and Organization
Procyon Corporation (the "Company") was incorporated under the laws of the
State of Colorado on March 19, 1987. The Company was formed in order to identify
and evaluate merger or acquisition candidates, and to structure and consummate a
merger with or acquisition of a selected candidate. Following such a merger or
acquisition, it was intended that the shareholders of the Company would have an
opportunity to share in the potential growth and profitability of the
acquisition target.
Upon its inception, the Company issued and sold an aggregate of 350,000
(post-split) Common Shares in a private offering for total cash consideration of
$1,750. On December 9, 1988, the Company commenced its initial public offering
pursuant to a Registration Statement on Form S-1. The offering covered a total
of 350,000 (post-split) Units, each Unit consisting of one Common Share, no par
value, one series A Warrant to purchase one Common Share and one series AA
Warrant to purchase one Common Share. The Units were offered at a price of $2.50
per Unit, and the offering closed in February 1989 upon the sale of 287,920
Units and receipt by the Company of approximately $720,000 in gross offering
proceeds. Each Series A Warrant was exercisable until June 9, 1990 and each
Series AA Warrant was exercisable until December 9, 1990. All Warrants expired
without being exercised.
DHA Transaction
After completing its public offering, the Company's activities focused on
the identification and evaluation of merger or acquisition candidates. In July
1989, the Company and Dental Health of America, Inc. ("DHA") entered into an
agreement in principle which contemplated the acquisition of all of the
outstanding capital stock of the Company by DHA. In August 1989, the Company and
DHA executed an Agreement and Plan of Reorganization which provided, among other
things, for the acquisition of all of the Company's outstanding stock through
the merger (the "Merger") of the Company with and into a newly-formed and
wholly-owned subsidiary of DHA. Concurrently with the execution of the Agreement
and Plan of Reorganization, the Company loaned $525,000 to DHA pursuant to the
terms and conditions of a Promissory Note, Guarantee and Stock Pledge Agreement.
The note bore interest at 12% per annum and was payable on demand by the Company
at any time on or after February 18, 1990. The note was secured by the personal
guarantees of the officers, directors and principal shareholders of DHA. The
guarantees were in turn secured by a security interest in all of the Common
Shares of DHA owned by the guarantors. Beginning in late 1989, DHA began to
experience financial and operating difficulties. These difficulties ultimately
caused DHA to default on many of its financial obligations, including its
obligations under the note. In April 1990, DHA filed a voluntary bankruptcy
petition under Chapter 11 of the United States Bankruptcy Code. The case was
later converted to a liquidation case under Chapter 7 of the Bankruptcy Code. As
a result of the DHA bankruptcy, the Company established a reserve for bad debt
in the amount of $566,032, representing all principal and accrued interest under
the note.
Change in Control
In November 1994, the Company's three principal shareholders sold a total
of 350,000 (post-split) Common Shares to John C. Anderson. Mr. Anderson is
currently a director and the President of the Company as well as its majority
shareholder.
Private Placement
During the fiscal years 1995 and 1996, the Company raised $1,328,700
through the sale of 1,355,000 shares of Series A Preferred Stock (the "Preferred
Stock"). The shares of Preferred Stock were offered and sold in reliance on
exemptions from the registration requirements under state and federal securities
laws. The Preferred Stock (i) is entitled to receive, when, as, and if declared
by the Board of Directors, dividends at a rate equal to $.10 per share of
Preferred Stock per annum, (ii) is not subject to redemption, (iii) carries
voting rights, with the number of votes equal to the number of Common Shares
into which such Preferred Stock is convertible, (iv) has a liquidation value of
$1.00 per share payable before any distribution to the shareholders of the
Common Shares or any other class of capital stock ranking junior as to
liquidation preferences, (v) is convertible, at the option of the holder, into
an equal number of Common Shares, (vi) will convert automatically into one
-3-
<PAGE>
Common Share effective as of the close of a public offering which provides the
Company with gross proceeds of at least $1,000,000 and provides for an offering
price equal to or in excess of $1 per Common Share, (vii) carries piggy-back
rights to register the Common Shares into which the Preferred Stock is
convertible on any registration statement or notification pursuant to Regulation
A for any offering of any debt or equity security issued by the Company,
including an offering of Common Shares which would effectuate the mandatory
conversion provisions, and (viii) has anti-dilution provisions which could
change the number of Common Shares into which the Preferred Stock is
convertible.
Acquisition of Amerx
On January 31, 1996, the Company entered into an Agreement and Plan of
Exchange (the "Agreement") with Amerx Health Care Corp., a corporation based in
Clearwater, Florida which was wholly-owned by John C. Anderson ("Amerx"). The
Agreement provided that the Company would acquire Amerx through a share exchange
in which all of the issued and outstanding Common Shares of Amerx would be
acquired by the Company for 3,000,000 (post-split) shares of Common Stock (the
"Exchange"). The Agreement provided that as a condition to the Exchange, the
Company would complete a five for one reverse split of its issued and
outstanding Common Shares. The reverse stock split was approved by the Company's
shareholders on April 15, 1996. The reverse stock split became effective as of
May 8, 1996 and the Exchange was completed as of May 9, 1996. As a result, the
Company now has a total of 3,637,920 Common Shares and 1,355,000 Preferred
Shares issued and outstanding.
As a result of completing the Exchange, the Company's business operations
are conducted through its wholly-owned subsidiary, Amerx. Amerx was formed as a
Florida corporation in 1993 to develop and market proprietary medical products
which are used in the treatment of pressure ulcers, dermatitis, inflammation,
and various other skin problems. Such problems are most common among the
elderly, particularly residents of long term healthcare facilities and
diabetics. If not treated promptly and effectively, such problems can result in
amputations, particularly of lower extremities.
Products
Amerx's products currently consist of Amerigel Preventive Care Lotion,
Amerigel Topical Ointment and Amerigel Preventive Barrier Lotion. The Preventive
Care Lotion has emollients which restore moisture to fragile skin; protect the
skin against tears and chafing; and assist in prevention of chronic pressure
ulcers. The Topical Ointment is more concentrated than the Preventive Lotion,
and it is typically used as an adjunct in the treatment of ulcers or torn, cut
or macerated skin. The Barrier Lotion provides barrier protection to reduce the
harmful effects of urine and feces in incontinent patients.
Management believes that Amerx's products are based on proprietary
formulations which the Company attempts to protect as trade secret information.
Each product is registered with the Food and Drug Administration and has been
granted a National Drug Code. The Company believes that patients using Amerx
products are generally able to obtain reimbursement under private health
insurance policies, as well as Medicare reimbursement upon review and approval
of claims.
Market for Skin Treatment Products
The market for Amerx's products consists principally of hospitals, nursing
homes, and other health care institutions which provide wound care to a large
number of patients. For example, management believes that based on a study of
the clinical and economic impact of diabetic neuropathy published by the Health
Science Institute, approximately one out of five nursing home patients suffers
from chronic pressure ulcers, that an estimated 5,000 amputations per month are
performed due to chronic skin wounds. The Company believes that the Amerx
products represent an inexpensive, yet effective, treatment and prevention
program for chronic pressure ulcers and other skin problems.
Sales and Marketing
Amerx markets its products to nursing homes, hospitals, home health care
providers, physicians and pharmacies. Sales and marketing activities are
conducted by Company employees and a small number of independent sales
representatives and distributors. Amerx's sales and marketing activities are
supported by product literature, advertising, limited participation in industry
trade shows, a full-time pharmacist and a full-time M.D. who serves as the
Company's Medical Director.
-4-
<PAGE>
To date, Amerx's sales have been made primarily in the Southeastern United
States. During the year ended June 30, 1996, sales to Diabetic Metabolic
Corporation, Gulf South Medical Supply and Beverly Enterprises, Inc. represented
approximately 16%, 11% and 10% of the Company's total revenues, respectively.
Manufacturing
All manufacturing and packaging activities are performed pursuant to Good
Manufacturing Practices ("GMPs") at an FDA approved production facility operated
by an unrelated pharmaceuticals manufacturer located near Clearwater, Florida.
All manufacturing activities are required to comply with the manufacturing
practices developed by Amerx specifically for its products, as well as the GMPs
which apply to all activities conducted by the manufacturer in the facility. An
independent lab performs tests on product samples in order to confirm quality
and performance of the products.
Except for certain mixing kettles owned by the Company, substantially all
manufacturing equipment used to produce Amerx's products is owned by the
manufacturer. An Amerx employee oversees quality control and ensures compliance
with Amerx's manufacturing practices, while all other manufacturing personnel
are provided by the manufacturer. Raw materials are purchased by Amerx from
various sources and are maintained at the manufacturing facility.
Amerx does not have a written production contract with its manufacturing
contractor or written purchase contracts with the suppliers of raw materials.
Management believes that alternative manufacturers and suppliers could be
secured if necessary. However, the Company would likely incur certain delays and
start-up costs in the event it becomes necessary to secure an alternative
manufacturing contractor.
Employees
As of September 15, 1996, the Company had six full-time employees and one
part-time employee, including one sales manager, two management employees, one
administrative employee, a medical doctor who serves as the Company's Medical
Director, and a pharmacist.
ITEM 2. PROPERTIES
The Company currently maintains its offices at 1150 Cleveland Street, Suite
410, Clearwater, Florida 34615. The Company's offices consist of approximately
2,400 square feet of space which is leased from an unrelated party and is
renewable annually. The office lease requires monthly payments of approximately
$2,100. Management believes the facility is adequate for the Company's current
needs.
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings to which the Company is party or to which
property of the Company is subject is pending and no such material proceeding is
known by management of the Company to be contemplated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
A special meeting of shareholders was held on April 15, 1996, at which time
the reverse stock split described above was approved. See "Item I -- Business."
Of the Company's 3,189,600 (pre-split) Common Shares entitled to vote at the
meeting, approximately 1,750,000 shares voted in favor of the stock split, 0
shares voted against the stock split, and 0 shares abstained.
-5-
<PAGE>
Part II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCK MATTERS.
The Company's securities were traded in the over-the-counter market and
were listed in the "pink sheets" published by the National Quotation Bureau
Incorporated ("NQB") following the Company's public offering in December, 1988.
However, since approximately June 1990, NQB has not published a quotation for
the Company's securities and to the Company's knowledge, there is extremely
limited, if any, public trading in its securities.
As of June 30, 1996 there were approximately 53 record holders of the
Company's Common Shares.
Holders of Common Shares are entitled to receive such dividends as may be
declared by the Company's Board of Directors. No dividends on the Common Shares
have been paid by the Company, nor does the Company anticipate that dividends
will be paid in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
General
From 1990 through May 1996, the Company had minimal operations and was
considered to be a development stage company. During such time, the Company
incurred nominal expenses and its revenues consisted entirely of interest
income. In May 1996, the Company completed its acquisition of Amerx. The
acquisition was accounted for in a manner similar to a pooling-of-interest since
both companies were under common control and, accordingly, the Company's
financial statements include the Amerx operating results as though the
acquisition was completed on July 1, 1994. The Company's financial statements
for fiscal years 1995 and 1996 therefore reflect the operating results and
financial condition of Amerx.
Liquidity and Capital Resources
As of June 30, 1996, the Company's principal sources of liquidity included
cash and cash equivalents of approximately $290,000 and net accounts receivable
of $14,679. Also at June 30, 1996, the Company had subscription receivables of
$96,700, which have since been received by the Company. The Company had net
working capital of $450,424 and no long term debt at June 30, 1996.
During fiscal 1996, cash and cash equivalents decreased from $314,355 as of
June 30, 1995 to $290,007 as of June 30, 1996. Operating activities used cash of
$483,530 during fiscal 1996, consisting primarily of a net loss of $519,393.
Cash used in investing activities during fiscal 1996 was $14,211. Cash provided
by financing activities during 1996 was $473,393, consisting of $471,000 in
proceeds from the sale of Preferred Stock, and $232,255 in liquidation of a
certificate of deposit, which amounts were partially offset by repayment of
stockholder advances of $229,862.
During fiscal 1995, cash and cash equivalents increased from $2,937 as of
June 30, 1994 to $314,355 as of June 30, 1995. Operating activities used cash of
$492,421 during fiscal 1995, consisting primarily of a net loss of $441,503 and
an increase in inventories of $91,554. Cash used in investing activities during
fiscal 1995 was $68,269, which consisted primarily of the purchase of machinery
and equipment in the amount of $46,335. Cash provided by financing activities
during fiscal 1995 was $872,108, consisting primarily of proceeds from the sale
of Preferred Stock in the amount of $755,000 and an advance from John C.
Anderson in the amount of $348,363, which amounts were partially offset by the
purchase of a certificate of deposit for $232,255.
At June 30, 1996 the Company had no commitments for capital expenditures.
The Company has deferred tax assets with a 100% valuation allowance at June
30, 1996. Management is not able to determine if it is more likely than not that
the deferred tax assets will be realized.
-6-
<PAGE>
The Company has incurred losses since its inception and is dependent upon
equity financing to fund working capital needs that raises substantial doubt
about its ability to continue as a going concern. Management's plans include
continuing to attempt to increase sales volumes and related production
efficiencies to meet its overhead and cash flow requirements as well as working
with vendors to maintain their continued support. The ultimate results of these
efforts cannot be determined at the present time.
Results of Operations
Comparison of Fiscal 1996 and 1995. Net sales during fiscal 1996 were
$308,668 as compared to $61,751 in fiscal 1995, an increase of $246,917, or
400%. The increase reflects broader product distribution and the general growth
of Amerx's business operations, which commenced in fiscal 1994.
Gross profit during fiscal 1996 was $218,070 as compared to $38,268 during
fiscal 1995, an increase of $179,802, or 475%. As a percentage of net sales,
gross profit was 71% in fiscal 1996 as compared to 62% in fiscal 1995. The
increase reflects certain manufacturing efficiencies achieved during fiscal
1996.
Operating expenses during fiscal 1996 were $740,625, consisting of $315,415
in salaries and benefits and $425,210 in selling, general and administrative
expenses. This compares to operating expenses during fiscal 1995 of $475,786,
consisting of $255,291 in salaries and benefits and $220,495 in selling, general
and administrative expenses. The increase in these expenses is consistent with
the overall growth in Amerx's operations, including the expansion of Amerx's
sales and marketing activities and the addition of one full-time employee. As a
percentage of net sales, operating expenses during fiscal 1996 were 240% as
compared to 770% during fiscal 1995. The improvement is due to the increase in
net sales.
The Company incurred an operating loss of $522,555 in fiscal 1996 as
compared to an operating loss of $437,518 in fiscal 1995. The increase in
operating loss was primarily due to the higher operating expense level
experienced during fiscal 1996 which more than offset the increase in net sales
achieved during fiscal 1996. Net loss (after dividend requirements for Preferred
Shares) was $590,139 during fiscal 1996 as compared to $441,503 during fiscal
1995.
Management anticipates that the Company will continue to incur losses
during at least the first six months of fiscal 1997 as the Company continues to
develop and implement its product sales and distribution strategies.
Recent Accounting Pronouncements
The Financial Standards Board has recently issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets" and SFAS No. 123, "Accounting for Stock-Based Compensation."
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles be reported at the lower of the carrying amount or their estimated
recoverable amount and the adoption of this statement by the Company is not
expected to have an impact on the financial statements. SFAS No. 123 encourages
the accounting for stock-based employee compensation programs to be reported
within the financial statements on a fair-value based method. If the fair-value
based method is not adopted, then the statement requires proforma disclosure of
net income and earnings per share as if the fair value based method had been
adopted. The Company has not yet determined how SFAS No. 123 will be adopted nor
its impact on the financial statements. Both statements are effective for fiscal
years beginning after December 15, 1995.
-7-
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements as of June 30, 1996 and for the years
ended June 30, 1996 and 1995 appear at page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The Company had a change of its independent auditors during the two most
recent fiscal years or subsequent interim period. On January 1, 1996, the
Company's auditors, Mitchell (Diamond) Finley and Company, P.C., combined their
practice with BDO Seidman, LLP. Thereafter, BDO Seidman, LLP became the
Company's independent auditors. The Company has not reported disagreement with
its auditors on any matter of accounting principles or practices or financial
statement disclosure.
-8-
<PAGE>
Procyon Corporation
and Subsidiary
Consolidated Financial Statements
Years Ended June 30, 1996 and 1995
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheet F-3 - F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-7
Summary of Accounting Policies F-8 - F-10
Notes to Consolidated Financial Statements F-11 - F-14
F-1
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders
Procyon Corporation
Clearwater, Florida
We have audited the accompanying consolidated balance sheet of Procyon
Corporation and subsidiary (the "Company") as of June 30, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the two years then ended. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Procyon Corporation
and subsidiary at June 30, 1996, and the results of their operations and their
cash flows for each of the two years then ended in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 1, the
Company has incurred significant operating losses and is dependent upon equity
financing to fund working capital needs. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ BDO SEIDMAN, LLP
------------------------------------
BDO Seidman, LLP
Denver, Colorado
August 21, 1996
F-2
<PAGE>
Procyon Corporation
and Subsidiary
Consolidated Balance Sheet
===============================================================================
June 30, 1996
- --------------------------------------------------------------------------
Assets
Current:
Cash and cash equivalents $ 290,007
Accounts receivable, less allowance
of $500 for doubtful accounts 14,679
Inventories (Note 3) 108,646
Subscriptions receivable (Note 6) 96,700
- --------------------------------------------------------------------------
Total current assets 510,032
- --------------------------------------------------------------------------
Machinery and equipment, less accumulated
depreciation of $11,548 36,551
- --------------------------------------------------------------------------
Other assets:
Deposits 1,267
Employee advances 16,500
- --------------------------------------------------------------------------
Total other assets 17,767
- --------------------------------------------------------------------------
$ 564,350
==========================================================================
See accompanying report of independent certied public accountants,
summary of accounting policies and notes to consolidated financial statements.
F-3
<PAGE>
Procyon Corporation
and Subsidiary
Consolidated Balance Sheet
(continued)
===============================================================================
June 30, 1996
- --------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities -
Accounts payable and accrued expenses $ 59,608
- --------------------------------------------------------------------------
Commitments and contingencies (Notes 1 and 5)
Stockholders' equity (Notes 2, 4, 6 and 8):
Preferred stock, 496,000,000 shares authorized;
none issued -
Series A Cumulative Convertible Preferred stock,
no par value; 4,000,000 shares authorized;
1,355,000 shares issued and outstanding 1,328,700
Common stock, no par value, 80,000,000 shares
authorized; 3,637,920 shares issued and outstanding 724,196
Accumulated deficit (1,548,154)
- --------------------------------------------------------------------------
Total stockholders' equity 504,742
- --------------------------------------------------------------------------
$ 564,350
==========================================================================
See accompanying report of independent certified public accountants,
summary of accounting policies and notes to consolidated financial statements.
F-4
<PAGE>
Procyon Corporation
and Subsidiary
Consolidated Statements of Operations
===============================================================================
Years Ended June 30, 1996 1995
- -------------------------------------------------------------------------------
Net sales (Note 8) $ 308,668 $ 61,751
Cost of sales 90,598 23,483
- -------------------------------------------------------------------------------
Gross profit 218,070 38,268
- -------------------------------------------------------------------------------
Operating expenses:
Salaries and benefits 315,415 255,291
Selling, general and administrative 425,210 220,495
- -------------------------------------------------------------------------------
Total operating expenses 740,625 475,786
- -------------------------------------------------------------------------------
Loss from operations (522,555) (437,518)
- -------------------------------------------------------------------------------
Other income (expense):
Interest expense (3,469) -
Interest expense, stockholder - (15,500)
Interest income 6,631 11,515
- -------------------------------------------------------------------------------
Total other income (expense) 3,162 (3,985)
- -------------------------------------------------------------------------------
Net loss (519,393) (441,503)
Dividend requirements on preferred stock 70,746 -
- -------------------------------------------------------------------------------
Loss applicable to common stock $ (590,139) $(441,503
================================================================================
Net loss per common share $ (.16) $ (.12)
================================================================================
Weighted average number of
common shares outstanding 3,637,920 3,637,920
================================================================================
See accompanying report of independent certified public accountants,
summary of accounting policies and notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
Procyon Corporation
and Subsidiary
Consolidated Statements of Stockholders' Equity
===================================================================================================================================
Preferred Stock Common Stock
Years Ended June 30, ---------------------- ----------------------- Accumulated
1996 and 1995 Shares Amount Shares Amount Deficit Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1994 as previously
reported - $ - 637,920 $ 590,196 $ (587,258) $ 2,938
Acquisition of commonly
controlled company (Note 2) - - 3,000,000 134,000 - 134,000
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, July 1, 1994 as restated - - 3,637,920 724,196 (587,258) 136,938
Stock issued in connection with
private placements 755,000 755,000 - - - 755,000
Net loss - - - - (441,503) (441,503)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1995 755,000 755,000 3,637,920 724,196 (1,028,761) 450,435
Stock issued in connection with
private placements, net of
stock issuance costs 594,000 567,700 - - - 567,700
Stock issued for services 6,000 6,000 - - - 6,000
Net loss - - - - (519,393) (519,393)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1996 1,355,000 $1,328,700 3,637,920 $ 724,196 $(1,548,154) $ 504,742
====================================================================================================================================
See accompanying report of independent certified public accountants,
summary of accounting policies and notes to consolidated financial statements.
F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Procyon Corporation
and Subsidiary
Consolidated Statements of Cash Flows
======================================================================================
Increase (Decrease) in Cash and Cash Equivalents
Years Ended June 30, 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities:
Net loss $ (519,393) $ (441,503)
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation 9,399 2,149
Stock issued for services 6,000 -
Write-off of stockholder and
employee advances 16,614 -
Changes in operating assets and liabilies
Accounts receivable, trade 9,475 (24,154)
Inventories (17,092) (91,554)
Prepaid expenses 5,000 (5,000)
Accounts payable and accrued expenses 6,467 67,641
- --------------------------------------------------------------------------------------
Cash used in operating activities (483,530) (492,421)
- --------------------------------------------------------------------------------------
Investing activities:
Purchase of machinery and equipment (1,764) (46,335)
Advances to employees and stockholder (18,328) (21,500)
Repayments of advances to employees 6,714 -
Payment for deposit (833) (434)
- --------------------------------------------------------------------------------------
Cash used in investing activities (14,211) (68,269)
- ---------------------------------------------------------------------------------------
Financing activities:
Proceeds from issuance of preferred stock 471,000 755,000
Liquidation (purchase) of certificate of deposit 232,255 (232,255)
Proceeds from (repayment of) advances
from stockholder (229,862) 348,363
Proceeds from issuance of common stock in
subsidiary - 1,000
- ---------------------------------------------------------------------------------------
Cash provided by financing activities 473,393 872,108
- ---------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents (24,348) 311,418
Cash and cash equivalents, beginning of year 314,355 2,937
- ---------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 290,007 $ 314,355
=======================================================================================
See accompanying report of independent certified public accountants,
summary of accounting policies and notes to consolidated financial statements.
F-7
</TABLE>
<PAGE>
Procyon Corporation
and Subsidiary
Summary of Accounting Policies
================================================================================
Organization Procyon Corporation (the "Company"), a Colorado corporation,
and Business was incorporated on March 19, 1987. Through May 9, 1996, the
Company had been considered a development stage company as
it continued to identify and evaluate merger or acquisition
candidates for purposes of engaging in its business
activity. As a result of the acquisition of Amerx Health
Care Corp. ("Amerx") discussed in Note 2, the Company is no
longer considered to be in the development stage.
As described in Note 2, effective May 9, 1996, the Company
acquired 100 percent of the issued and outstanding common
stock of Amerx, a commonly-controlled company. The
acquisition was accounted for in a manner similar to a
pooling-of-interest and, accordingly, the Company's
financial statements have been presented to include the
results of Amerx as though the acquisition occurred as of
July 1, 1994.
The Company manufacturers and distributes a topical cream
and a preventative lotion primarily in the United States
which assists in healing and preventing certain wounds on
humans.
Basis of The consolidated financial statements include the accounts
Presentation and of Procyon Corporation and its wholly owned subsidiary,
Principles of Amerx, acquired during 1996 as discussed in Note 2. All
Consolidation material intercompany accounts and transactions are
eliminated.
Effective May 9, 1996, the Company effected a five for one
reverse split of its then issued and outstanding common
stock in anticipation of its acquisition of Amerx. All share
and per share information in the accompanying financial
statements has been retroactively restated to reflect the
reverse stock split.
F-8
<PAGE>
Procyon Corporation
and Subsidiary
Summary of Accounting Policies
================================================================================
Use of Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make 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 and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
Concentrations of Financial instruments which potentially subject the Company
Credit Risk to concentrations of credit risk consist primarily of cash,
cash equivalents and accounts receivable. The Company places
its cash and cash equivalents in what it considers to be
highly-rated financial institutions and while at times such
amounts may exceed federally insured limits, the Company has
not experienced any losses from such amounts. Concentrations
of credit risk with respect to accounts receivable are
limited due to a broad customer base and generally short
payment terms.
Cash Equivalents For the purpose of the Statements of Cash Flows, the Company
considers cash-on-hand, demand deposits in banks and highly
liquid investments purchased with original maturity of three
months or less to be cash equivalents.
Inventories Inventories are valued at lower of average cost or market.
Machinery and Machinery and equipment are stated at cost. Depreciation is
Equipment computed on a straight-line basis over the estimated useful
lives of the assets of five years.
Revenue Revenue is recognized upon the shipment of finished
Recognition merchandise to customers.
Income Taxes The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109 ("SFAS No. 109").
Temporary differences are differences between the tax basis
of assets and liabilities and their reported amounts in the
financial statements that will result in taxable or
deductible amounts in future years.
F-9
<PAGE>
Procyon Corporation
and Subsidiary
Summary of Accounting Policies
================================================================================
Net Loss Net loss per share is based on the weighted average number
Per Share of shares outstanding during each period presented.
Outstanding stock rights are included as common stock
equivalents, when dilutive.
Recent The Financial Standards Board has recently issued Statement
Accounting of Financial Accounting Standards ("SFAS") No. 121,
Pronouncements "Accounting for the Impairment of Long-Lived Assets" and
SFAS No. 123, "Accounting for Stock-Based Compensation."
SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles be reported at the lower of the
carrying amount or their estimated recoverable amount and
the adoption of this statement by the Company is not
expected to have an impact on the financial statements. SFAS
No. 123 encourages the accounting for stock-based employee
compensation programs to be reported within the financial
statements on a fair-value based method. If the fair-value
based method is not adopted, then the statement requires
proforma disclosure of net income and earnings per share as
if the fair value based method had been adopted. The Company
has not yet determined how SFAS No. 123 will be adopted nor
its impact on the financial statements. Both statements are
effective for fiscal years beginning after December 15,
1995.
F-10
<PAGE>
Procyon Corporation
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
1. Going Concern As reflected in the accompanying financial statements, the
Company incurred net losses of $519,393 and $441,503 for the
years ended June 30, 1996 and 1995. In addition, net cash
used in operations has exceeded $450,000 in each of the last
two years. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. Such
operating cash deficiency has been funded through proceeds
from private preferred stock offerings, the continuance of
which is uncertain.
Managements's plans include continuing to attempt to
increase sales volumes and related production efficiencies
to meet its overhead and cash flow requirements as well as
working with vendors to maintain their continued support.
Additionally, the Company is intending to file a
registration statement with the Securities and Exchange
Commission for a public offering of its securities. The
ultimate results of these efforts cannot be determined at
the present time.
2. Acquisition On January 31, 1996, the Company entered into an Agreement
and Plan of Exchange (the "Agreement") with Amerx. The
Agreement provides that the Company acquire Amerx through a
share exchange in which all of the issued and outstanding
common stock of Amerx was exchanged for 3,000,000
(post-split) shares of common stock of the Company (the
"Exchange"). The Agreement provides, as a condition of the
Exchange, that the Company complete a five for one reverse
split of its issued and outstanding shares of common stock.
The president and majority stockholder of the Company was
the sole stockholder of Amerx prior to the Exchange which
was completed effective May 9, 1996.
Considering the nature of the relationship between the
Company and Amerx, the transaction is considered to be an
exchange between enterprises under common control and
accordingly, it has been accounted for at historical cost in
a manner similar to that in pooling-of-interests accounting
with the accompanying financial statements presented to
include the accounts and operations of the acquired company
as though the acquisition had occurred as of July 1, 1994.
F-11
<PAGE>
Procyon Corporation
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
3. Inventories Inventories consisted of the following:
December 31, 1996
-----------------------------------------------------------
Finished goods $ 42,216
Raw materials 66,430
------------------------------------------------------------
$ 108,646
============================================================
4. Related Party During fiscal 1995, the majority stockholder of the Company
Transactions advanced $348,363 to the Company which was used to fund
operations and an investment in a certificate of deposit.
Effective July 1, 1995, the stockholder contributed $117,500
of the advance plus accrued interest of $15,500 into capital
which was accounted for as part of the Exchange discussed in
Note 2. The remainder of the advances were repaid during
fiscal 1996.
5. Commitments Operating Leases
and
Contingencies The Company leases office space and certain equipment under
operating leases expiring at various dates through 2001.
Rent expense under these agreements was approximately
$32,600 and $22,500 for the years ended June 30, 1996 and
1995. Future minimum rentals under the operating leases are
as follows:
Year Ending June 30,
------------------------------------------------------------
1997 $ 34,500
1998 9,100
1999 4,700
2000 4,300
2001 4,300
------------------------------------------------------------
$ 56,900
===========================================================
F-12
<PAGE>
Procyon Corporation
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
Product Liability Insurance
The Company does not maintain general product liability
insurance coverage, however, the Company is in the process
of acquiring such. The Company has not received notice of
any claim and has not experienced any losses as a result of
not having such insurance coverage.
6. Stockholder's During January 1995, the Company's Board of Directors
Equity authorized the issuance of up to 4,000,000 shares of Series
A Cumulative Convertible Preferred Stock ("Series A
Preferred Stock"). As of June 30, 1996, the Company had
raised a total of $1,328,700 in proceeds at $1 per share of
which $96,700 was received by the Company in July 1996. In
addition, the Company issued 26,300 shares of Series A
Preferred Stock valued at $1 per share for commissions
relating to the offering. The preferred stockholders are
entitled to receive, as and if declared by the board of
directors, quarterly dividends at an annual rate of $.10 per
share of Series A Preferred Stock per annum. Dividends will
accrue without interest and will be cumulative from the date
of issuance of the Series A Preferred Stock and will be
payable quarterly in arrears in cash or publicly traded
common stock when and if declared by the board of directors.
As of June 30, 1996, no dividends have been declared.
Dividends in arrears on the outstanding preferred shares
total $70,746 as of June 30, 1996. The preferred
stockholders have the right to convert each share of Series
A Preferred Stock into one share of the company's common
stock at any time without additional consideration. However,
each share of Series A Preferred Stock is subject to
mandatory conversion into one share of common stock of the
Company, effective as of the close of a public offering of
the Company's common stock provided, however, that the
offering must provide a minimum of $1 million in gross
proceeds to the Company and the initial offering price of
such common stock must be at least $1 per share. In addition
to the rights described above, the holders of the Series A
Preferred Stock will have equal voting rights as the common
stockholders based upon the number of shares of common stock
into which the Series A Preferred Stock is convertible. The
Company is obligated to reserve an adequate number of shares
of its common stock to satisfy the conversion of all of the
outstanding Series A Preferred Stock.
F-13
<PAGE>
Procyon Corporation
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
7. Income Taxes The Company's deferred tax asset at June 30, 1996 consists
and Available of net operating loss carryforwards which after the tax
Carryforwards effect amount to approximately $190,000. The Company has
recorded a valuation allowance equal to 100 percent of the
deferred tax asset as the Company was unable to determine
that it is more likely than not that the deferred tax asset
will be realized.
At June 30, 1996, for income tax purposes, the Company had
net operating loss carryforwards of approximately $950,000
which expire through 2011. The utilization of certain of the
loss carryforwards are limited under Section 382 of the
Internal Revenue Code.
8. Major During the year ended June 30, 1996, three individual
Customers customers accounted for 16%, 11% and 10% of the Company's
and Supplier net sales. During the year ended June 30, 1995, two
individual customers accounted for 11% and 10% of the
Company's net sales.
The Company's manufacturing and packaging activities are
performed at a production facility owned and operated by a
non-affiliated pharmaceutical manufacturer under the
supervision of Company personnel. The Company does not have
written contracts with the manufacturer or with suppliers of
raw materials. Management believes that alternative
manufacturers and suppliers could be obtained if necessary.
9. Supplemental Cash paid for interest for the years ended June 30, 1996 and
Disclosures of 1995 was $3,469 and $0.
Cash Flow
Information Non-cash investing and financing activities consisted of the
following:
Years Ended June 30, 1996 1995
------------------------------------------------------------
Preferred stock issued for
subscription receivable $ 96,700 -
Preferred stock issued for
commissions relating to
offering $ 26,300 -
F-14
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT OF THE REGISTRANT.
ITEM 10. EXECUTIVE COMPENSATION.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company will file a definitive Proxy Statement pursuant to Regulation
14A for its annual meeting of shareholders. The information called for by the
above Items 9 through 12 will be included in such definitive Proxy Statement
under "Election of Directors," "Management and Directors," "Executive
Compensation and Other Remuneration," "Security Ownership of Certain Beneficial
Owners and Management" and "Certain Relationships and Related Transactions,"
which is incorporated herein by reference. If such definitive Proxy Statement is
not filed with the Commission within 120 days after the end of the fiscal year
covered by this report, then the information described above will be filed as an
amendment to this report before the end of such 120-day period.
-9-
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
1. The financial statements filed herewith are listed in the Index to
Financial Statements included in Item 7.
2. The Financial Data Schedule is filed herewith. The remaining documents
set forth below have been included as exhibits to previous filings with the
Securities and Exchange Commission and are incorporated herein by this
reference:
<TABLE>
<CAPTION>
Reg. S-K
Exhibit No. Document Item No.
- ----------- -------- --------
<S> <C> <C> <C>
* 3.1 Articles of Incorporation 3
+ 3.1.1 Articles of Amendment to Articles of Incorporation 3
* 3.2 Bylaws 3
+ 4.1 Designation of Series A Preferred Stock 4
* 10.1 Incentive Stock Option Plan, authorizing 1,000,000 Common Shares for
issuance pursuant to the Plan 10
** 10.2 Agreement and Plan of Merger, dated July 19, 1989, by and between
the Company and Dental Health of America, Inc. ("DHA"). 10
** 10.3 Promissory Note, Guarantee and Stock Pledge Agreement, dated July 19,
1989, by and between the Company, DHA and certain affiliates of DHA. 10
+ 10.4 Loan and Security Agreement, dated as of January 1, 1995, by and between
the Company and Amerx Health Care Corp., including Promissory Notes
issued thereunder. 10
o 10.4 Agreement and Plan of Exchange, dated January 31, 1996, by and
between the Company and Amerx. 10
27.1 Financial Data Schedule 27
</TABLE>
- ----------
* Incorporated by reference to the Company's Registration Statement on Form
S-1, S.E.C. File No. 33-13273.
** Incorporated by reference to the Company's Form 10-KSB for the fiscal year
ended June 30, 1989.
+ Incorporated by reference to the Company's Form 10-KSB for the fiscal year
ended June 30, 1995.
o Incorporated by reference to the Company's Form 8-K filed on or about
February 2, 1996.
- ----------
(b) Reports on Form 8-K
The Company filed Form 8-K on or about May 21, 1996 to disclose the
acquisition of Amerx pursuant to Item 2 of Form 8-K.
-10-
<PAGE>
SIGNATURES
Pursuant to the requirements 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, thereunto duly authorized.
PROCYON CORPORATION
By: /s/ John C. Anderson
------------------------------------------------
John C. Anderson, President and acting Principal
Executive, Financial and Accounting Officer
Date: October 11, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
President and Acting
Principal Executive, Financial
/s/ John C. Anderson and Accounting Officer October 11, 1996
- -------------------------------
John C. Anderson
/s/ Chester L. Wallack Director October 11, 1996
- -------------------------------
Chester L. Wallack
/s/ Fred W. Suggs, Jr. Director October 11, 1996
- -------------------------------
Fred W. Suggs, Jr.
/s/ Alan B. Crane Director October 11, 1996
- -------------------------------
Alan B. Crane
</TABLE>
-11-
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Document Item No.
- ----------- -------- --------
<S> <C> <C> <C>
* 3.1 Articles of Incorporation 3
+ 3.1.1 Articles of Amendment to Articles of Incorporation 3
* 3.2 Bylaws 3
+ 4.1 Designation of Series A Preferred Stock 4
* 10.1 Incentive Stock Option Plan, authorizing 1,000,000 Common Shares for
issuance pursuant to the Plan 10
** 10.2 Agreement and Plan of Merger, dated July 19, 1989, by and between
the Company and Dental Health of America, Inc. ("DHA"). 10
** 10.3 Promissory Note, Guarantee and Stock Pledge Agreement, dated July 19,
1989, by and between the Company, DHA and certain affiliates of DHA. 10
+ 10.4 Loan and Security Agreement, dated as of January 1, 1995, by and between
the Company and Amerx Health Care Corp., including Promissory Notes
issued thereunder. 10
o 10.4 Agreement and Plan of Exchange, dated January 31, 1996, by and
between the Company and Amerx. 10
27.1 Financial Data Schedule 27
</TABLE>
----------
* Incorporated by reference to the Company's Registration Statement on Form
S-1, S.E.C. File No. 33-13273.
** Incorporated by reference to the Company's Form 10-KSB for the fiscal year
ended June 30, 1989.
+ Incorporated by reference to the Company's Form 10-KSB for the fiscal year
ended June 30, 1995.
o Incorporated by reference to the Company's Form 8-K filed on or about
February 2, 1996.
- ----------
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) The
financial statements contained in the Registrant's Form 10-KSB for the year
ended June 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) Financial Statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 290,007
<SECURITIES> 0
<RECEIVABLES> 15,179
<ALLOWANCES> 500
<INVENTORY> 108,646
<CURRENT-ASSETS> 510,032
<PP&E> 48,099
<DEPRECIATION> 11,548
<TOTAL-ASSETS> 564,350
<CURRENT-LIABILITIES> 59,608
<BONDS> 0
0
1,328,700
<COMMON> 724,196
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 564,350
<SALES> 308,668
<TOTAL-REVENUES> 308,668
<CGS> 90,598
<TOTAL-COSTS> 90,598
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,162
<INCOME-PRETAX> (519,393)
<INCOME-TAX> 0
<INCOME-CONTINUING> (519,393)
<DISCONTINUED> 0
<EXTRAORDINARY> 70,746
<CHANGES> 0
<NET-INCOME> (590,139)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.10)
</TABLE>
