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 For the fiscal year ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] for the transition period
from _______________ to __________________
Commission file number 0-17449
PROCYON CORPORATION
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(Name of small business issuer in its charter)
Colorado 36-0732690
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1150 Cleveland Street, Suite 410
Clearwater, Florida 34615
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(Address of principal executive offices) (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
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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: $371,198
The aggregate market value of the 1,176,455 shares of Common Stock held by
non-affiliates was $735,284 on September 30, 1998 based on the average bid and
asked price of $.625 on such date. As of September 30, 1998, 4,526,455 shares of
the issuer's Common Stock were outstanding.
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
Commission on or before October 28, 1998. If such proxy statement is not filed
by such date, the information required by Part III of this annual report will be
filed with the Commission as an amendment to this Form 10-KSB under cover of
Form 10-KSB/A, not later than October 28, 1998.
Transitional Small Business Disclosure Format: Yes No X
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INDEX
Title Page
ITEM 1. DESCRIPTION OF BUSINESS................................ 3
ITEM 2. DESCRIPTION OF PROPERTY................................ 6
ITEM 3. LEGAL PROCEEDINGS...................................... 6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.... 6
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS................................................ 7
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION................................... 8
ITEM 7. FINANCIAL STATEMENTS................................... 12
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.................... 13
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT ................................................... 14
ITEM 10. EXECUTIVE COMPENSATION................................. 14
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT............................................. 14
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......... 14
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K....................... 14
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Part I
ITEM 1. BUSINESS
History and Organization
Procyon Corporation (the "Company"), a Colorado corporation, was
incorporated on March 19, 1987 and was deemed a development stage company until
May 1996 when it acquired Amerx Health Care Corp. ("Amerx"), a corporation based
in Clearwater, Florida ("Amerx") which was wholly-owned by John C. Anderson. The
Company acquired Amerx pursuant to an Agreement and Plan of Exchange (the
"Agreement") in which all of the issued and outstanding shares of Common Stock
of Amerx were acquired by the Company for 3,000,000 (post-split) shares of the
Company's Common Stock (the "Exchange"). As a condition to the Exchange, the
Company was required to effect a five for one reverse split of its issued and
outstanding shares of Common Stock. The reverse stock split was approved by the
Company's shareholders on April 15, 1996 and became effective as of May 8, 1996.
The Exchange was completed as of May 9, 1996.
As a result of completing the Exchange, the Company's business operations
are conducted through its wholly-owned subsidiary, Amerx, which was formed as a
Florida corporation in 1993 to develop and market proprietary medical products
used in the treatment of pressure ulcers, dermatitis, inflammation, and various
other skin problems. Such problems are most common among diabetics and the
elderly, particularly residents of long term healthcare facilities. If not
treated promptly and effectively, such skin problems can result, in worst case
scenarios, in amputations, particularly of lower extremities. The Company's
products are generally sold through distributors to health care institutions,
such as nursing homes and home health care agencies, and to retailers, including
national and regional chain stores and pharmacies.
Products
Amerx's products currently consist of Amerigel(TM) Ointment Wound Dressing,
Amerigel(TM) Preventive Care Lotion and Amerigel(TM) Preventive Barrier Lotion.
The Amerigel(TM) Ointment Wound Dressing is formulated to be used to manage
pressure ulcers stages I-IV, stasis ulcers, diabetic skin ulcers, skin
irritations, cuts and abrasions. The Amerigel(TM) 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
Amerigel(TM) Barrier Lotion provides barrier protection to reduce the harmful
effects of urine and feces in incontinent patients. The Company also intends to
introduce a new product consisting of two-inch and four-inch square gauze
sponges saturated with the Amerigel(TM) Ointment Wound Dressing. The sponges
have been developed for packing deep wounds, and are expected to improve healing
and keep the wound moist and clean. The Company had planned to introduce these
sponges during the fiscal year ended June 30, 1998 ("fiscal 1998"), but
postponed the introduction until the fiscal year ending June 30, 1999 ("fiscal
1999").
Management believes that each Amerx product is 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. In September 1998, the Company was granted a
Medicare Part B HCPCS Reimbursement Code ("Reimbursement Code") for its
Amerigel(TM) Ointment Wound Dressing. Products which carry a Reimbursement Code
qualify for Medicare payments. The Reimbursement Code granted to the Company's
product does not designate a specific reimbursement fee but allows for
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reimbursement under the general wound care category. Medicare reimburses
providers up to 80% of a regionally defined amount for certain wound care
products which have been granted a Reimbursement Code. Management believes that
the grant of the Reimbursement Code, even though it does not specify the amount
to be reimbursed, will enhance institutional sales to such entities as nursing
homes and home health care agencies. The Company is considering a petition to
HCFA for an exception to the standard wound care listing and a request for a new
code specific to the Company's product. The Amerigel(TM) Preventive Care Lotion
and the Amerigel(TM) Barrier Lotion are not eligible for Medicare Part B
reimbursement as they are formulated for preventive maintenance care and as skin
protectants.
Market for Skin Treatment Products
Amerx products are generally sold to an institutional market and a retail
market. The institutional market is comprised of hospitals, nursing homes, home
health care agencies and other health care institutions which provide wound care
to a large number of patients. Based on a study of the clinical and economic
impact of diabetic neuropathy published by the Health Science Institute,
management believes that approximately one out of five nursing home patients
suffers from chronic pressure ulcers, and that an estimated 5,000 amputations
per month are performed due to chronic skin wounds. Management believes that
Amerigel(TM) products represent an inexpensive, yet effective, treatment and
prevention program for chronic pressure ulcers and other skin problems which are
treated in health care institutions. The retail market for Amerx's products is
comprised of mass merchandise stores and pharmacies that sell wound care
products to individuals for their own personal use outside of health care
facilities. The Company plans to actively develop visibility for its products
with the American Diabetes Association in fiscal 1999.
Sales and Marketing
The Company's sales strategy is to contract with national and regional
distributors capable of selling to the retail market and the institutional
market. The Company added Cardinal Health as a distributor during fiscal 1998,
but it was not able to significantly broaden its distributor base, particularly
to distributors in the institutional market. Sales to the institutional market
depend more heavily on the availability of a Reimbursement Code than do sales to
the retail market. Management expects to gain additional distributors in fiscal
1999, particularly institutional distributors, as a result of obtaining a
Reimbursement Code for its Amerigel(TM) Ointment Wound Dressing in September
1998.
The Company's principal distributors to the institutional market in fiscal
1998 included Gulf South, Cardinal Health, General Medical and Southland Medical
Supply. Distributors sell the Company's products in the institutional market to
nursing homes, hospitals, and home health care organizations.
The Company's principal retail distributors during fiscal 1998 were
McKesson Drug, Amerisource and Bergen Brunswig. To date, products have been
distributed for sale primarily in the southeastern United States. In particular,
the Company's products are presently carried in certain Wal- Mart stores and
independent pharmacies, primarily in Florida.
During fiscal 1998, retail and institutional sales represented
approximately 79% and 21%, respectively, of total net sales as compared to 54%
and 44%, respectively, during fiscal 1997. The increase in retail sales was
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principally a result of sales to one distributor for resale to a large retail
chain. Management expects that retail sales will continue to account for a
significant percentage of total net sales, although it expects the recent grant
of a Reimbursement Code for its Amerigel(TM) Ointment Wound Dressing will
improve institutional sales.
Distributors purchase products from the Company on standard credit terms.
Product returns by distributors are generally permitted only on dated products
based upon a two year expiration date. The Company supports its distributors
through product literature, selected and limited advertising and limited
participation at industry trade shows. All existing distributors sell Amerx
products on a non-exclusive basis. The Company has one direct sales employee who
engages in direct selling activities and supports the efforts of distributors in
his territory. The Company also engages a limited number of independent
representatives.
Significant Customers
During fiscal 1998, McKesson Drug, Amerisource, Gulf South and Bergen
Brunswig accounted for 60.5%, 9.88%, 5.37% and 4.96%, respectively, of Amerx's
net sales. McKesson Drug, Gulf South and DMC (a distributor from approximately
December 1996 through April 1997) accounted for 14%, 13% and 40%, respectively,
of Amerx's net sales during fiscal 1997. The Company expects that certain of its
principal distributors, such as McKesson, may continue to account for a
significant portion of net sales. Because the loss of any significant
distributor could have an adverse affect on the Company's future operating
results and financial condition, the Company is attempting to reduce its
dependence on a limited number of distributors by establishing relationships
with additional distributors who are capable of introducing and selling Amerx
products in new geographic markets and to additional retail chains.
Manufacturing
All manufacturing and packaging activities are performed pursuant to
current good manufacturing practices ("cGMP") as defined under the United States
Federal Food, Drug and Cosmetic Act, as amended, and the regulations promulgated
under such Act. All manufacturing activities are required to comply with the
product specifications, supplies and test methods developed by Amerx
specifically for its products, as well as the cGMP which apply to all activities
conducted by the manufacturer in the facility.
In November 1997, Amerx negotiated an exclusive manufacturing contract with
Bausch & Lomb Pharmaceuticals, Inc., a nationally-recognized pharmaceuticals
manufacturer that operates an FDA approved production facility in Tampa,
Florida. The five-year contract commenced in January 1998. The Company had
anticipated that its new manufacturing arrangements would provide greater
assurance of product availability, enhance quality control, and eventually
reduce production costs and agreed to certain annual and quarterly minimum order
requirements in anticipation of increased sales to one distributor that supplies
a national retail chain. The Company has not met all of the quarterly minimum
purchase requirements during the 1998 calendar year and does not anticipate
meeting the annual minimum purchase requirements specified in the contract. The
manufacturer has the right to impose a 10% or 20% price adjustment if the
annualized volume is less than certain specified minimum annual order amounts.
The Company intends to negotiate with the manufacturer regarding the minimums
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required and the price adjustment, but there is no assurance that the
manufacturer will agree to concessions as to the minimum annual order amounts or
the implementation of price adjustments.
One ingredient contained in all of the Company's products is purchased and
shipped to the manufacturing facility by Amerx, but all other raw materials are
provided by the manufacturer. Amerx does not have a written contract with this
supplier and believes that an alternative supplier could be secured if
necessary.
Research and Development
In September 1997, the Company entered into a one year contract with a
research laboratory to provide services ranging from improvement of existing
products to development of new products. The Company paid the research
laboratory a monthly fee of $4,800 during the term of the agreement. The
contract provided that the Company would issue an amount of shares of Common
Stock equal to $3,000 for any new product developed and marketed commercially as
a result of the research conducted by the laboratory. Management did not renew
the contract upon its expiration, but believes that the research and development
effort was successful in suggesting both improvements to existing products and
innovations which may lead to new product introductions in fiscal 1999.
Proprietary Rights
The Company has filed a trademark application for the Amerigel(TM) mark
with the United States Patent and Trademark Office. The mark will be published
in October 1998 and if no opposition is filed by any person who believes he will
be damaged by the registration of the mark, a certificate of registration may be
issued. The Company relies on a combination of trademark and trade secret
protection to establish and protect its proprietary rights.
Employees
As of September 30, 1998, the Company had six full-time employees,
consisting of one sales representative, three management employees (two of whom
also devote a portion of their time to sales related activities) and two
administrative employees.
ITEM 2. PROPERTIES
The Company currently maintains its offices at 1150 Cleveland Street, Suite
410, Clearwater, Florida 33755. The Company's offices consist of approximately
2,400 square feet of space which is leased from an unrelated party. The annually
renewable 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.
No matter was submitted to a vote of security holders during the quarter
ended June 30, 1998.
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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, from approximately June 1990 through September 1996, NQB did not
publish a quotation for the Company's securities and to the Company's knowledge,
there was extremely limited, if any, public trading in its securities.
Since October 1996, the Company's Common Stock has traded on the OTC
Bulletin Board, an electronic quotation system used by members of the National
Association of Securities Dealers, Inc. The following table sets forth for each
period indicated the high and low closing bid prices for the Common Stock, as
reported by National Quotation Bureau, LLC. Bid quotations reflect interdealer
quotations, without retail markups, markdowns or commissions, and do not
necessarily reflect actual transactions.
Fiscal 1997 High Low
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Second Quarter............................ $ 2.25 $ 2.25
Third Quarter............................. $ 2.50 $ .75
Fourth Quarter............................ $ 3.50 $ 1.875
Fiscal 1998 High Low
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First Quarter............................. $ 3.75 $ 2.00
Second Quarter............................ $ 2.125 $ .875
Third Quarter............................. $ 1.125 $ .5625
Fourth Quarter............................ $ 1.125 $ .5625
As of September 30, 1998 there were approximately 130 record holders of the
Company's Common Shares. The closing bid price of the Common Shares on September
30, 1998 was $.625.
Holders of Common Stock are entitled to receive such dividends as may be
declared by the Company's Board of Directors. No dividends on the Common Stock
have been paid by the Company, nor does the Company anticipate that dividends
will be paid in the foreseeable future.
As reflected in the price quotations above, there have been significant
price fluctuations in the Company's Common Stock. Factors that may have caused
or can cause market prices to fluctuate include any purchase or sale of a
significant number of shares during a relatively short time period, quarterly
fluctuations in results of operations, issuance of additional securities,
entrance of such securities into the public float, market conditions specific to
the Company's industry and market conditions in general. In addition, in recent
years the stock market in general has experienced significant price and volume
fluctuations. These fluctuations, which may be unrelated to the operating
performance of specific companies, have had a substantial effect on the market
price for many small capitalization companies such as the Company. Factors such
as those cited above, as well as other factors that may be unrelated to the
operating performance of the Company, may adversely affect the price of the
Common Stock.
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Recent Sales of Unregistered Securities
The Company sold 100,100, 678,000 and 594,000 shares of its Series A
Preferred Stock during fiscal 1998, 1997 and 1996, respectively, at a purchase
price of $1 per share. The Company relied on Section 4(2) of the Securities Act
of 1933, as amended (the "1933 Act") for the exemption from the registration
requirements of the1933 Act. Consequently, these securities were were not
registered under the 1933 Act . All of the foregoing sales were made to officers
and directors, or to individuals or entities which had access to information
enabling them to evaluate the merits and risks of the investment by virtue of
their relationship to officers and directors of the Company or their economic
bargaining power. Each investor was furnished with information concerning the
operations of the Company and each had the opportunity to verify the information
supplied. Additionally, the Company obtained a signed representation from each
of the foregoing persons or entities of his or its intent to acquire the shares
for the purpose of investment only, and not with a view toward the subsequent
distribution thereof.
Holders of the Preferred Stock are entitled to receive, as and if declared
by the Board of Directors, quarterly dividends at an annual rate of $.10 per
share. Dividends accrue without interest, are cumulative from the date of
issuance and are payable in arrears in cash or common stock, when and if
declared by the Board of Directors. No dividends had been declared or paid at
June 30, 1998 and dividends in arrears at such date total $257,875.
Holders of the Preferred Stock have the right to convert their shares of
Preferred Stock into an equal number of shares of Common Stock of the Company.
Such shares will mandatorily convert into one share of Common Stock at the close
of a public offering of Common Stock by the Company provided the Company
receives gross proceeds of at least $1,000,000, and the initial offering price
of the Common Stock sold in such offering is equal to or in excess of $1 per
share. During fiscal 1998, holders of 832,200 shares of Preferred Stock
converted their shares to Common Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
General
The continuing operations and revenues of the Company consist primarily of
the operations of, and revenues generated by, Amerx, the Company's wholly owned
subsidiary. Amerx's wound care and skin care products, marketed under the
trademark Amerigel(TM), are formulated to enhance the quality of skin and wound
care and to lower the treatment cost of those who suffer from wound and skin
care problems.
The Company markets Amerigel(TM) products to institutional customers such
as nursing homes, hospitals and home health agencies and to retail customers.
Institutional sales are made either directly to the end user or through medical
supply distributors. Many institutional customers will not purchase directly
from the manufacturer; they will purchase products only through a national
distributor who warehouses the products and supplies the products directly to
the customer. Accordingly, the Company's products must be in the distributor's
warehouse in order for the Company to compete with other manufacturers. As of
June 30, 1998, Amerx products were available through McKesson Drug, Bergen
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Brunswig, Cardinal Health, Amerisource, Gulf South and a number of smaller local
and regional distributors. Amerx reaches the retail consumer through some of the
same distributors or, in some cases, through direct sales to the retail store
chain.
Results of Operations
Comparison of Fiscal 1998 to 1997. Net sales during fiscal 1998 were
$371,000 as compared to $216,000 in fiscal 1997, an increase of $155,637 or 72%.
The increase was primarily due to a fourth quarter sales to McKesson
distribution centers to support a sales expansion in a major chain store. During
fiscal 1997, Amerx implemented certain changes to its distribution and marketing
strategy. Prior to fiscal 1997, Amerx relied primarily on small distributors
which were granted the exclusive right to sell products in specified
territories. Such distributors focused largely on the institutional market. For
various reasons, including the lack of a Reimbursement Code, the exclusive
distributors were not able to achieve the sales levels desired by Amerx. During
fiscal 1997, Amerx terminated its relationship with substantially all of such
distributors and shifted its focus to national and regional distributors which
are capable of selling to the retail market as well as the institutional market.
As a result of these changes and in anticipation of the grant of a Reimbursement
Code for its Amerigel(TM) Ointment Wound Dressing in early fiscal 1998,
management projected a significant increase in sales in fiscal 1998 in both the
retail market and the institutional market.
The Company did not attain the revenues for fiscal 1998 that it had sought
to attain for several reasons. First, the Company did not foresee the extensive
lead time required to obtain appointments with buyers in the large retail chains
and accordingly, planned expansion into the large retail chains was slower than
forecasted. Second, buyers for large retail chains generally identify new
products and authorize new products to be placed on the shelves of their
respective stores only one time each year and the Company was not successful in
obtaining shelf space commitments for its products. Third, the Company lacked
the necessary funds to sustain local advertising campaigns to increase sales
more rapidly. Management believes that the experience it gained in fiscal 1997
and fiscal 1998 has set the stage for a more successful effort in retail sales
in fiscal 1999.
The Company's institutional sales were relatively flat in fiscal 1998 due
in large part to the extensive time required to obtain a Medicare Part B
Reimbursement Code. Medicare reimburses providers up to 80% of a regionally
defined amount for certain wound care products which have been granted a
Reimbursement Code. Medical supply distributors not only supply wound care
products to a care-giving facility, such as a nursing home, but also submit
reimbursement requests for the allowable amount on that given product. The
Company has been at a severe competitive disadvantage in marketing its
Amerigel(TM) Ointment Wound Dressing because it had not been granted a
Reimbursement Code. Generally, medical supply distributors will not sell and
distribute wound care products for treating hard to heal wounds unless they have
been granted a Reimbursement Code. Amerigel(TM) Ointment Wound Dressing
currently represents approximately 64% of sales by the Company, while
Amerigel(TM) Preventive Care Lotion and Amerigel(TM) Preventive Barrier Lotion
represent 21% and 15%, respectively.
During fiscal 1998, management employed five new direct sales people to
call on physicians, pharmacists, nurses and institutional facilities. Four of
these sales people were located in Florida and one was located in Georgia. These
sales people were largely ineffective in selling product to their targeted
market, primarily due to the lack of a Reimbursement Code and lack of broad
based retail distribution. This direct sales strategy also increased the
Company's expenses, further impacting the Company's cash flow. As one component
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of the Company's effort to implement cost reductions, the direct sales people in
Florida were terminated and sales expense were reduced. The results of these
reductions will be reflected in fiscal 1999.
Gross profit during fiscal 1998 was $190,000 as compared to $119,000 during
fiscal 1997, an increase of $71,000 or 60%. As a percentage of sales, gross
profit was 51% in fiscal 1998 vs. 55% in fiscal 1997. The decrease in margin
reflects increased costs in production from the new manufacturer, increased
costs in raw materials and some write-offs of expired inventory.
Operating expenses during fiscal 1998 were $1,043,000 consisting of
$535,000 in salaries and benefits, $460,000 in selling, general and
administrative expenses and $48,000 in research and development expenses. This
represents an increase in expenses of $223,000 over expenses in fiscal 1997.
However, as a percentage of net sales, operating expenses during fiscal 1998
decreased to 281% as compared to 380% during fiscal 1997. The majority of the
increase in expenses was due to increased marketing personnel and an increase in
selling and marketing expenses as discussed above. The Company did not expend
any funds for research and development in fiscal 1997 as compared to research
and development costs of $48,000 in fiscal 1998. Management believes that the
research and development effort was successful in suggesting both improvements
to existing products and innovations which may lead to new product introductions
in fiscal 1999.
The Company incurred a loss from operations of $855,000 compared to
$696,000 in fiscal 1997. The increase in operating loss was due primarily to
increased operating expenses and lower margins. Net loss (after dividend
requirements for Preferred Shares) was $841,000 during fiscal 1997 as compared
to $899,000 during fiscal 1998.
As of June 30, 1998, the Company had a deferred tax asset of approximately
$942,000 consisting primarily of net operating losses. The Company recorded a
valuation allowance equal to 100 percent of the deferred tax asset as the
Company was unable to determine that it more likely than not that the deferred
tax asset will be realized. The valuation allowance increased approximately
$382,000 from fiscal 1997 to 1998.
Liquidity and Capital Resources
As of June 30, 1998, the Company's principal sources of liquidity included
cash and cash equivalents of approximately $53,000, inventories of $24,000 and
net accounts receivable of $20,000. The Company had also prepaid $94,000 under
its manufacturing agreement for finished products which were not received until
fiscal 1999. The Company had negative working capital of $266,000 and no long
term debt at June 30, 1998.
During fiscal 1998, cash and cash equivalents decreased $282,000, from
$335,000 to $53,000, whereas in fiscal 1997 cash and cash equivalents had
increased by $45,000. Operating activities used cash of $625,000 during fiscal
1998 and $647,000 during fiscal 1997, consisting primarily of net losses of
$855,000 and $697,000 respectively. Cash used in investing activities during
fiscal 1998 and 1997 was $5,000 and $24,000, respectively. Cash provided by
financing activities during fiscal 1998 and 1997 was $348,000 and $716,000,
respectively, consisting of $100,000 and $716,000, respectively, in proceeds
from the sale of Preferred Stock.
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At June 30, 1998 the Company had no commitments for capital expenditures.
During fiscal 1998, holders of 832,000 shares of Preferred Stock converted
their shares to Common Stock.
The Company had deferred tax assets with a 100% valuation allowance at June
30, 1998. Management is not able to determine if it is more likely than not that
the deferred tax assets will be realized.
The Company's financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has incurred losses since
its inception and has been dependent upon equity financing and shareholder loans
to fund working capital needs. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. The accompanying financial
statements do not include any adjustments that might result from the outcome of
this uncertainty. Management's plans for increasing revenues and reducing losses
include continuing activities to recruit new distributors in order to
aggressively sell products into the retail and institutional markets and
developing complementary new products. Management also believes that the grant
of a Reimbursement Code for Amerigel(TM) Wound Dressing will significantly
enhance sales to the institutional market. There can be no assurance that the
Company will be able to increase its revenues or achieve a profitable level of
operations.
Year 2000 Compliance
The Company is cognizant of the issues associated with the programming code
in existing computer systems as the year 2000 approaches. The "Year 2000" issues
are the result of computer programs being written to use two digits, rather than
four, to define the applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. Systems that do not properly recognize date sensitive
information could generate erroneous data or fail.
The Company has conducted a comprehensive review of its computer systems to
identify systems that could be affected by the "Year 2000" issue and has
developed an implementation plan to resolve issues discovered in its review. The
Company has also confirmed with its primary vendors that such vendors are or
will be Year 2000 compliant in sufficient time to allow for testing and system
implementation before December 31, 1999.
The Company presently believes that, with modifications to its existing
software and by converting to certain new software, the Year 2000 problem will
not pose significant operational problems for the Company's computer systems.
The Company expect that such modifications and conversions can be implemented
for approximately $5,000 and that the Company will be fully Year 2000 compliant
by June 1999. The Company does not anticipate that any other material
expenditures will be necessary to achieve Year 2000 compliance.
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Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995
This Report on Form 10-KSB, including Management's Discussion and Analysis
or Plan of Operation, contains forward-looking statements. When used in this
report, the words "may," "will," "expect," "anticipate," "continue," "estimate,"
"project," "intend," "believe" and similar expressions, variations of these
words or the negative of those word are intended to identify forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 regarding events, conditions
and financial trends including, without limitation, business conditions in the
skin and wound care market and the general economy, competitive factors, changes
in product mix, production delays, manufacturing capabilities, and other risks
or uncertainties detailed in other of the Company's Securities and Exchange
Commission filings. Such statements are based on management's current
expectations and are subject to risks, uncertainties and assumptions. Should one
or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, the Company's actual plan of operations, business
strategy, operating results and financial position could differ materially from
those expressed in, or implied by, such forward-looking statements.
Recent Accounting Pronouncements
Please refer to the Summary of Accounting Policies - Recent Accounting
Pronouncements in Note A in the accompanying financial statements.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements as of June 30, 1998 and for the year
ended June 30, 1998 were audited by Giunta, Ferlita & Walsh, P.A., the Company's
independent auditors, as indicated in their report included appearing at page
F-1. Consolidated Financial Statements as of June 30, 1997 and for the year
ended June 30, 1997 were audited by BDO Seidman, LLP, the Company's independent
auditors during such year, as indicated in their report included herein
appearing at page F-2.
INDEX TO FINANCIAL STATEMENTS
-----------------------
Page
Report of Independent Certified Public Accountant...................... F-1
Report of Independent Certified Public Accountant...................... F-2
Balance Sheet - June 30, 1998.......................................... F-3
Statements of Operations - For the years ended
June 30, 1998 and 1997................................................. F-4
Statements of Stockholders' Equity - For the years ended
June 30, 1998 and 1997................................................. F-5
Statements of Cash Flows - For the years ended June 30, 1998 and 1997.. F-6
Notes to Financial Statements.......................................... F-7
-12-
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Procyon Corporation
Clearwater, Florida
We have audited the accompanying consolidated balance sheet of Procyon
Corporation and subsidiary as of June 30, 1998 and the related statements of
operations, stockholders' equity, and cash flows for the year 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 financial statements referred to above present fairly, in
all material respects, the financial position of Procyon Corporation and
subsidiary as of June 30, 1998 and the results of its operations and its cash
flows for the year 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 B, the
Company has incurred significant operating losses and is dependent of
stockholder loans and 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 are described in Note B. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
GIUNTA, FERLITA & WALSH, P.A.
Certified Public Accountants
September 24, 1998
F-1
<PAGE>
Report of Independent Certified Public Accountants
To the Directors and Stockholders
Procyon Corporation
Clearwater, Florida
We have audited the consolidated balance sheet (not included herein) of Procyon
Corporation and Subsidiary (the "Company") as of June 30, 1997, and the
accompanying related consolidated statements of operations, stockholders' equity
and cash flows for the year 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 audit.
We conducted our audit 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 audit provides 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, 1997, and the results of its operations and its cash
flows for the year 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.
BDO SEIDMAN, LLP
Denver, Colorado
September 11, 1997
F-2
<PAGE>
PROCYON CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
June 30, 1998
ASSETS
CURRENT ASSETS
Cash $ 53,080
Accounts receivable, less allowance
of $34,252 for doubtful accounts 19,828
Deposit on inventory 93,913
Inventories 24,180
-----------
TOTAL CURRENT ASSETS 191,001
PROPERTY AND EQUIPMENT, less accumulated
depreciation of $15,959 15,786
OTHER ASSETS 2,056
-----------
$ 208,843
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 133,759
Accrued salaries 109,446
Note payable to stockholder 213,316
-----------
TOTAL CURRENT LIABILITIES 456,521
STOCKHOLDERS' EQUITY
Preferred stock, 496,000,000 shares authorized;
none issued
Series A cumulative convertible preferred stock
no par value; 4,000,000 shares authorized;
1,341,000 shares issued and outstanding 1,296,850
Common stock, no par value, 80,000,000 shares
authorized; 4,470,120 shares issued and outstanding 1,556,396
Accumulated deficit (3,100,924)
-----------
(247,678)
-----------
$ 208,843
===========
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
PROCYON CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
Years Ended June 30,
1998 1997
----------- -----------
NET SALES $ 371,198 $ 215,561
COST OF SALES 181,250 96,951
----------- -----------
GROSS PROFIT 189,948 118,610
OPERATING EXPENSES
Salaries and benefits 535,213 457,084
Selling, general and administrative 460,049 362,804
Research and development 48,122 0
----------- -----------
1,043,384 819,888
----------- -----------
LOSS FROM OPERATIONS (853,436) (701,278)
OTHER INCOME (EXPENSE)
Interest income 4,770 8,401
Interest expense (2,570) (4,434)
Loss on sale of property and equipment (4,223) 0
----------- -----------
(2,023) 3,967
----------- -----------
NET LOSS (855,459) (697,311)
Dividend requirements on preferred stock 43,120 144,009
----------- -----------
Loss applicable to common stock $ (898,579) $ (841,320)
=========== ===========
Net loss per common share $ (0.22) $ (0.23)
=========== ===========
Weighted average number of common
shares outstanding 4,167,761 3,637,920
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
PROCYON CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------------ ----------------------- Accumulated
Shares Amount Shares Amount Deficit Total
--------- ----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1996 1,355,000 $ 1,328,700 3,637,920 $ 724,196 $(1,548,154) $ 504,742
Stock issued in connection with
private placements, net of
stock issuance costs 678,000 660,150 0 0 0 660,150
Stock issued for services 9,000 9,000 0 0 0 9,000
Net loss 0 0 0 0 (697,311) (697,311)
----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 1997 2,042,000 1,997,850 3,637,920 724,196 (2,245,465) 476,581
Stock issued in connection with
private placements, net of
stock issuance costs 100,100 100,100 0 0 0 100,100
Stock issued for services 31,100 31,100 0 0 0 31,100
Conversion of preferred stock
to common stock (832,200) (832,200) 832,200 832,200 0 0
Net loss 0 0 0 0 (855,459) (855,459)
----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 1998 1,341,000 $ 1,296,850 4,470,120 $ 1,556,396 $(3,100,924 $ (247,678)
=========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PROCYON CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30,
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss $(855,459) $(697,311)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 6,011 9,620
Stock issued for services 31,100 9,000
Loss (gain) on sale of property and equipment 4,223 (1,500)
Decrease (increase) in:
Accounts receivable 35,727 (37,665)
Inventory 48,177 36,290
Prepaid expenses (48,535) (4,378)
Other assets (789) 0
Increase (decrease) in:
Accounts payable, trade 83,747 1,819
Accrued salaries 70,974 37,337
--------- ---------
NET CASH USED BY
OPERATING ACTIVITIES (624,824) (646,788)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (7,133) (5,948)
Proceeds from disposal of property and equipment 2,000 0
Advances to employees and stockholder 0 (18,000)
--------- ---------
NET CASH USED BY
INVESTING ACTIVITIES (5,133) (23,948)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of preferred stock 100,100 715,850
Proceeds from loan from stockholder 266,316 0
Repayments on loan from stockholder (53,000) 0
Repayment of advances to employees and stockholder 34,500 0
--------- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 347,916 715,850
--------- ---------
NET INCREASE (DECREASE) IN CASH (282,041) 45,114
CASH AT BEGINNING OF PERIOD 335,121 290,007
--------- ---------
CASH AT END OF PERIOD $ 53,080 $ 335,121
========= =========
The accompanying notes are an integral part of these financial statements.
F-6
</TABLE>
<PAGE>
PROCYON CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF ACCOUNTING
Business Activity
- -----------------
Procyon Corporation and its wholly owned subsidiary, Amerx Health Care Corp.
("Amerx") manufacturer and market wound care and skin care products primarily in
the United States and is actively seeking foreign market distribution.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of Procyon
Corporation and its wholly owned subsidiary, Amerx. All material intercompany
accounts and transactions are eliminated.
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, the 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 Credit Risk
- -----------------------------
Financial instruments which potentially subject the Company 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 an original maturity of three months or less to be cash equivalents.
Inventories
- -----------
Inventories are valued at the lower of weighted average cost or market.
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Depreciation is computed on a
straight-line basis over the estimated useful lives of the assets of five years.
Revenue Recognition
- -------------------
Revenue is recognized upon the shipment of finished merchandise to customers.
Advertising and Promotion
- -------------------------
All costs associated with advertising and promoting products are expensed in the
year incurred. Advertising and promotion expense was $100,146 in 1998 and
$34,011 in 1997.
F-7
<PAGE>
PROCYON CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
Research and Development
- ------------------------
Research and development costs consist of expenditures incurred aimed at
discovery of new knowledge which will be useful in developing new products or
enhancing existing products. The Company expenses all research and development
costs as they are incurred. Research and development cost was $48,122 in 1998.
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.
Net Loss Per Share
- ------------------
Net loss per share is based on the weighted average number of shares outstanding
during each period presented. Outstanding stock rights are included as common
stock equivalents, when dilutive.
Fair Value of Financial Instruments
- -----------------------------------
The carrying value of cash, accounts receivable, deposits, inventory, accounts
payable, and accrued expenses approximate fair value. Note payable to related
party is discussed in Note E.
Considerable judgement is necessarily required in interpreting market data to
develop the estimates of fair value, and, accordingly, the estimates are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange.
Recent Accounting Pronouncements
- --------------------------------
In June 1997, "FASB" issued Statement of Financial Accounting Standard No 130
'Reporting Comprehensive Income (SFAS.-130)and Statement of Financial Accounting
Standard No. 131 'Disclosure about Segments of an Enterprise and Related
Information ('SFAS 131'). SFAS 130 establishes standards for reporting and
display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners. Among other
disclosures, SFAS 130 requires that all items that are required to be recognized
under current accounting standards as components of comprehensive income be
reported in a financial statement that displays with the same prominence as
other financial statements. SFAS 131 supersedes Statement of Financial
Accounting Standard No. 14 'Financial Reporting for Segments of a Business
Enterprise.' SFAS 131 establishes standards of the way that public companies
report information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS 131 defines operating segments as components of a company about
which separate financial information is available that is evaluated, regularly
by the chief operating decision maker in deciding how to allocate resources and
in assessing performance.
F-8
<PAGE>
PROCYON CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
SFAS 130 and SFAS 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Because of the recent issuance of these standards,
management has been unable to fully evaluate the impact, if any, the standards
may have on future financial statement disclosures. Results of operations and
financial position, however, will be unaffected by implementation of these
standards.
NOTE B - GOING CONCERN
As reflected in the accompanying financial statements, the Company has a deficit
in stockholders' equity of $247,678 at June 30, 1998 and has incurred net losses
of $855,459 and $697,311 for the years ended June 30, 1998 and 1997. In
addition, net cash used in operations was $624,824 and $646,788 for the years
ended June 30, 1998 and 1997. 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 and loans from the major stockholder, the continuance of which is
uncertain.
Management plans to meet its operating cash requirements by increasing sales
volume. When the Company has significant losses over the past few years - it has
met its obligations and has established good working relationships with its
vendors. The ultimate results of these efforts cannot be determined at the
present tune. The financial statements do not include any adjustments that might
be necessary if the Company is unable to continue as a going concern.
NOTE C - INVENTORIES
Inventories consisted of the following:
June 30,
1998
--------------
Finished Goods $ 7,097
Raw Materials 17,083
--------------
$ 24,180
==============
NOTE D - RELATED PARTY TRANSACTIONS
At June 30, 1998, the majority stockholder of the Company was owed $213,316 on a
non-interest bearing note due June 30, 1999, collateralized by all the assets of
the Company. Advances on this note during fiscal year ended June 30, 1998
totaled $266,316 which was used to fund operations.
NOTE E - COMMITMENTS AND CONTINGENCIES
Operating Leases
- ----------------
The Company leases office space and certain equipment under operating leases
expiring at various dates through 2001. Rent expense under these agreements was
approximately $36,000 and $34,900 for the years ended June 30, 1998 and 1997.
Future minimum rentals under the operating leases for the years ending June 30,
are as follows:
1999 $ 22,920
2000 4,041
2001 4,041
------------
$ 31,002
============
F-9
<PAGE>
PROCYON CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
Research Contract
- -----------------
In September 1997, the Company entered into a contract with a research
laboratory to provide services ranging from revision of existing products to
development of new products. The contract is for one year with monthly payments
of $4,800. The contract also provides for stock incentives for each new product
developed and taken to market.
NOTE F - STOCKHOLDER'S EQUITY
During January 1995, the Company's Board of Directors authorized the issuance of
up to 4,000,000 shares of Series A Cumulative Convertible Preferred Stock Series
A ("Preferred Stock"). 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, 1998, no dividends have been declared. Dividends in arrears on the
outstanding preferred shares total $257,875 as of June 30, 1998. 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.
NOTE G - INCOME TAXES AND AVAILABLE CARRYFORWARDS
The Company's deferred tax asset at June 30, 1998 consists primarily of net
operating loss carryforwards which, after the tax effect, amount to
approximately $942,000. 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.
The valuation allowance increased approximately $382,000 from June 30, 1997 to
1998. At June 30, 1998, for income tax purposes, the Company had net operating
loss carryforwards of approximately $2,380,000 which expire through 2013.
NOTE H - MAJOR CUSTOMERS AND SUPPLIER
During the year ended June 30, 1998, two individual customers accounted for 61%,
and 10% of the Company's net sales. During the year ended June 30, 1997, three
individual customers accounted for 42%, 15% and 14% of the Company's net sales.
The Company's manufacturing and packaging activities are performed at a
production facility owned and operated by a nonaffiliated pharmaceutical
manufacturer. The Company does not have written contracts with the suppliers of
raw materials.
F-10
<PAGE>
PROCYON CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE I - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest for the years ended June 30, 1998 and 1997 was $2,570 and
$4,434.
Non-cash investing and financing activities consisted of the following:
Years Ended June 30, 1998 1997
- -------------------- ------------- -------------
Preferred stock issued for
subscription receivable $ - $ 41,000
Preferred stock issued for services $ 31,100 $ -
Conversion of Series A Preferred Stock
to Common Stock $ 832,200 $ -
Reduction of trade accounts payable as
consideration for sale of equipment $ 10,281 $ -
F-11
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The Company has not reported any disagreement with its auditors on any
matter of accounting principles or practices or financial statement disclosure.
BDO Seidman, LLP reported on the financial statements of the Company for the
fiscal year ended June 30, 1997. The report of BDO Seidman, LLP on the financial
statements for such year contained no adverse opinion, disclaimer of opinion and
was not modified as to uncertainty, audit scope or accounting principles,
however, the report for such year contained an explanatory paragraph related to
the Company's ability to continue as a going concern. On August 21, 1998, the
Company engaged Giunta, Ferlita & Walsh, P.A. as the principal accountants to
audit the Company's financial statements for the fiscal year ended June 30,
1998.
-13-
<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 Items
9 through 12 above will be included in such definitive Proxy Statement, 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 required by such items will be
filed as an amendment to this report before the end of such 120-day period.
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:
Reg. S-B
Exhibit No. Document Item No.
- ----------- -------- --------
* 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
+ 10.4 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
-14-
<PAGE>
o 10.4 Agreement and Plan of Exchange, dated
January 31, 1996, by and
between the Company and Amerx. 10
x 10.5 Agreement, dated November 21, 1998, by and
between Amerx and Bausch
& Lomb Pharmaceuticals, Inc. 10
x 27.1 Financial Data Schedule 27
- ------------------
* 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.
x Filed herewith.
- ------------------
(b) Reports on Form 8-K
-------------------
The Company did not file any reports on Form 8-K during the quarter
ended June 30, 1998.
-15-
<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 12, 1998
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.
Signature Title Date
--------- ----- ----
President and Acting
Principal Executive, Financial
/s/ John C. Anderson and Accounting Officer October 12, 1998
- --------------------------
John C. Anderson
/s/ Chester L. Wallack Director October 12, 1998
- --------------------------
Chester L. Wallack
/s/ Fred W. Suggs, Jr. Director October 12, 1998
- --------------------------
Fred W. Suggs, Jr.
/s/ Alan B. Crane Director October 12, 1998
- --------------------------
Alan B. Crane
-16-
<PAGE>
EXHIBIT INDEX
Exhibit No. Document Item No.
----------- -------- --------
* 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
+ 10.4 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
x 10.5 Agreement, dated November 21, 1998, by and
between Amerx and Bausch
& Lomb Pharmaceuticals, Inc. 10
x 27.1 Financial Data Schedule 27
* 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 orm 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.
x Filed herewith.
BAUSCH & LOMB PHARMACEUTICALS, INC.
CONTRACT MANUFACTURING SUPPLY AGREEMENT
THIS AGREEMENT, made this 21st, day of November, 1997, ("Effective Date")
by and between BAUSCH & LOMB PHARMACEUTICALS, INC., a Delaware corporation,
having its principal office located at 8500 Hidden River Parkway, Tampa, Florida
33637 ("BLP"), and AMERX HEALTH CARE CORPORATION ("AHC") , having its principal
office located at 1150 Cleveland Street, Suite 410, Clearwater, Florida 34615.
WHEREAS, AHC desires that BLP be appointed the exclusive contract
manufacturer for certain Product(s);
WHEREAS, AHC and BLP are parties to an exclusive supply agreement which
commenced on January 1st, 1998, and which will expire on December 31st, 2002,
AHC desires to appoint BLP as its exclusive manufacturer of such Product(s)
under the terms and conditions of this Agreement;
NOW, THEREFORE, the parties hereby agree as follows:
DEFINITION OF TERMS
AHC and BLP, therefore agree the terms defined in this section shall have the
meanings stated as follows:
1.1 "ACT" means the United States Federal Food, Drug and Cosmetic Act, as
amended, and the regulation promulgated thereunder.
1.2 "FDA" means the United States Food and Drug Administration or any
successor entity thereto.
1.3 "cGMP" means current good manufacturing practices, as defined in the
ACT.
1.4 "Label" or "Labeling" means all labels and other written, printed or
graphic matter any container or packaging utilized with the Product(s) or any
written material accompanying the Product(s).
AMERXSA.DOC 11/21/97 -1-
<PAGE>
1.5 "Facility" shall mean BLP' facility located in Tampa, Florida.
1. Product(s)
----------
The term Product(s) shall mean those Product(s) listed on Appendix A.
2. Term.
----
Within ninety (90) days following the effective date, AHC agrees to order
exclusively from BLP all Product(s) it requires during the term of this
Agreement. This Agreement shall become effective on the Effective Date and
shall remain in effect for five (5) years from such date, subject to
Section 16. Thereafter, this Agreement shall automatically renew for
additional successive one (1) year renewal periods, subject to Section 16.
For purposes of this Agreement, references to Term shall include any
renewal periods hereunder.
3. Price
-----
A. Prices. The purchase price per unit of Product(s) to be paid by AHC to
BLP shall be in accordance with the terms of the price schedule set forth
in Appendix A, which is attached hereto and incorporated herein by
reference. Prices for Product(s) sold to AHC during the Tenn are F.O.B,
BLP, Tampa, freight collect.
B. Price Increase. Notwithstanding the terms of Section 3A hereof, no more
than once during each calendar year of the Term, BLP may increase the
prices for any of the Product(s), upon sixty (60) days prior written notice
by an amount which equals the increase in BLP's verifiable cost of
manufacturing the Product(s). If the purchased cost of raw materials and
components dedicated for the manufacture of the Product(s) listed on
Appendix A decreases and this decrease is sustained prospectively, BLP
agrees to reduce the cost of the final product accordingly, no more than
once during each calendar year of the Term.
C. Payment. BLP will invoice AHC for each order at its principal address
upon shipment of the products. Invoices shall be due and payable within
thirty (30) days of the date of the invoice. In the event that any invoice
is not paid when due, AHC agrees to pay a "late charge" on the unpaid
delinquent balance at an interest rate of 10% per annum. AHC agrees not to
AMERXSA.DOC 11/21/97 -2-
<PAGE>
make any deductions of any kind from any payment becoming due to BLP unless
AHC has received an official credit memorandum from BLP authorizing such
deduction.
4. Product Manufacture and Supply
------------------------------
A. Manufacture and Supply BLP agrees to manufacture at its facility located
at 8500 Hidden River Parkway, Tampa, Florida the products in Appendix A, in
accordance with cGMPs, and to meet the mutually agreed upon product
specifications, supplies and test methods, respectively.
B. Ingredients. Supplies and Packaging Materials BLP agrees to supply at
its expense all of the raw material ingredients with the exception of the
oak bark extract which AHC will supply to BLP at AHC's expense, and to meet
the mutually agreed upon specifications for supplies, test methods, and
packaging materials necessary to manufacture and supply the Product(s) as
set forth in A.
C. Testing and Inspection of Materials BLP shall analyze and evaluate all
materials to confirm that they satisfy the mutually agreed upon material
product specifications. The cost of all such analyses and evaluations shall
be bome by BLP. AHC is liable for all obsolete materials due to forecasting
errors or FDA changes required by the customer.
D. Testing and Inspection of Product BLP shall conduct all quality control
and other tests required to ensure that the Product(s) as manufactured meet
the mutually agreed upon product specifications. The cost of all such
analyses and evaluations shall be borne by BLP.
5. Product Changes
---------------
A. New Packaging Configurations. AHC may submit new package configurations
to BLP for pri ce quotes. On acceptance of such quotes by AHC, the package
configuration and pricing terms set forth in Appendix A will be adjusted to
reflect additional or reduced costs to BLP.
B. Changes by AHC. If AHC at any time requests a change to a Product and
BLP agrees such change is reasonable with regard to the manufacture of a
Product, (i) such change shall be incorporated into the Product
Specifications, (ii) BLP shall adjust, at its sole discretion, the price of
the Product, if necessary, to reflect increased costs of such change, and
(iii) AHC shall pay BLP the costs associated with such change, including,
AMERXSA.DOC 11/21/97 -3-
<PAGE>
for any additional development work, a reasonable charge based upon BLP's
then-prevailing research and development rates. (iv) AHC is liable for all
obsolete material resulting from the implementation of this change.
C. Changes by BLP. BLP agrees that any changes developed by BLP which may
be incorporated into the manufacture of a Product shall require the written
approval of AHC prior to such incorporation. At the time of such
incorporation and FDA approval, if required, such changes shall become part
of the Product Specifications.
D. Changes by Regulatory Authorities. If BLP is required by a regulatory
authority to perform validation studies for purposes of validating new
manufacturing procedures or new raw material and finished product assay
procedures with respect to a Product in order to continue to engage in the
manufacture of the Product for AHC (and AHC, after notice that such
validation studies are required, and upon notice to AHC of an estimate of
all related validation study expenses, desires BLP to continue
manufacturing the Product), all direct expenses borne by BLP in the conduct
of any such validation study shall be reimbursed to BLP by AHC as incurred.
6. Inspections and Manufacturing Compliance
A. Inspections by AHC. Representatives from AHC shall be permitted access,
at reasonable times during BLP's normal business hours and upon reasonable
advance notice to BLP, to visit, in the company of a BLP representative,
the manufacturing and/or packaging facility or facilities where AHC's
Product will be or are being manufactured and/or packaged for the purposes
of auditing BLP's processes to ensure that AHC's Product are being
manufactured, packaged, stored and handled in accordance with the mutually
agreed upon product specifications, cGMP's and applicable laws, rules and
regulations.
B. Inspection by Regulatory Agencies. Duly authorized representative(s)
from the FDA or other applicable regulatory agencies shall be permitted
access, at reasonable times during BLP's normal business hours, to visit,
in the company of a BLP representative, the manufacturing and/or packaging
facility or facilities where the Product will be or are being manufactured
and/or packaged for the purposes of auditing BLP's processes to ensure that
the Product are being manufactured, packaged, stored and handled in
accordance with the Product Specifications, cGMP's and applicable laws,
rules and regulations. BLP shall, at its own expense, promptly respond to
AMERXSA.DOC 11/21/97 -4-
<PAGE>
all inquiries and questions resulting from such visits and inspections and,
at its own expense, promptly correct any deficiencies reported as a result
of such inspections. BLP shall immediately notify AHC if an authorized
agent of the FDA or other governmental agency visits BLP's manufacturing
facility for the purposes of inspecting the manufacturing and testing of
Amerx. Health Care Corporation's Products.
7. Ordering and Rolling Forecasts
A. Ordering Through Submittal of Rolling Forecast. At least (90) days
before the last day of each calendar year throughout the term of this
Agreement, AHC, shall submit to BLP a non binding forecast of its
requirements for the products for that year. Subject to BLP's acceptance,
AHC agrees to order from BLP both "Minimum Annual Quantity" and "Minimum
Quarterly Quantity" of units of Product(s) as described in Appendix B,
which is attached hereto and incorporated herein by reference for a period
commencing each January 1st, and ending December 31st. Should the volumes
fall below minimum quantities, customer will be invoiced for the difference
between the outlined prices and the adjusted prices as noted in Appendix B.
Order quantities should be submitted in ftill batch size, understanding
that there may be a small yield gainiloss during manufacturing processing,
(Full batch sizes and the theoretical unit yield is specified on Appendix
C). AEC will provide BLP with a twelve month rolling forecast of its
Product(s) requirements, by month, delivered to BLP by the first day of
each calendar quarter. The first three months of each twelve month rolling
forecast shall be binding on AHC and shall be for no less than the minimum
quarterly quantities as described on Appendix B, and shall constitute a
firm purchase order for the Product(s) indicated for such months. AHC shall
also issue individual purchase orders for such firm three month orders by
the first day of each calendar quarter. AHC's initial twelve month rolling
forecast shall be provided within 30 days of the date of this Agreement.
B. Orders Other Than Through Rolling Forecasts. Subject to the provisions
of 7.A. above, AHC may submit additional purchase orders for Product(s) in
excess of the quantities specified in the rolling forecasts. BLP shall use
its commercially reasonable efforts to accept and fill such orders
consistent with efforts used by BLP to fill excess orders for other
customers of contract manufactured Product(s). Acceptance of such
AMERXSA.DOC 11/21/97 -5-
<PAGE>
additional purchase orders shall be by written order acknowledgment given
to AHC.
C. Acceptance by Order Acknowledgment. BLP will deliver to AHC a written
order acknowledgment form within 30 days of BLP's receipt of each rolling
forecast, confirming the quantities of which BLP shall exercise
commercially reasonable efforts to fill. Only those quantities of AHC's
firm three-month purchase order confirmed by BLP in its written order
acknowledgment shall be binding on BLP.
8. Inventory & Delivery
--------------------
Unless otherwise agreed in writing by the parties, one (1) month's
requirement of each Firm Purchase Order shall be delivered to AHC, F.O.B.
BLP's loading dock at its facility in Tampa, Florida (the "F.O.B. Point"),
commencing within ninety (90) days of the date a Firm Purchase Order is
received by BLP, and continuing each month thereafter. At the request and
expense of AHC, BLP shall ship the Product ordered by AHC by such carrier
or carriers as AHC may designate. Such shipping instructions shall be
submitted by AHC to BLP. Unless otherwise agreed by the parties hereto, all
risk of loss or damage to the Product from any cause whatsoever shall be
borne by AHC after delivery to AHC or AHC's carrier at the F.O.B. Point.
BLP shall not be obligated to maintain an inventory of the Product(s).
9. Packaging and Labgling
During the term of this Agreement, BLP agrees to manufacture, and package
the Product(s) in accordance with mutually agreed upon component
specifications, and approved or mutually agreed upon material suppliers
incorporating any necessary approvals in accordance with Section I I.B.,
and will take into account cGMPs and regulatory requirements. Thereafter,
upon reasonable written notice, BLP will make, at AHC's expense, any
improvements or alterations to packaging or labeling as requested by AHC
and approved by BLP, and shall implement such alterations or improvements
at the earliest opportunity. Should any components be rendered o bsolete by
artwork changes, AHC shall reimburse BLP at actual procurement cost for any
components affected by such changes purchased against AHC's requirements
because of the long lead time to obtain certain components from suppliers.
BLP may have to purchase, or commit to purchase certain components further
AMERXSA.DOC 11/21/97 -6-
<PAGE>
in advance than the period of time covered by the purchase order, and in
such case AHC agrees to reimburse BLP at actual procurement cost for such
components, so long as the quantity of such components BLP purchases, or
commits to purchase, is based on AHC's written estimate of requirements.
10. Warranties: Acceptance and Claims
---------------------------------
A. Limited Product Warrmiy. BLP represents and warrants to AHC that at the
time of delivery, the Product manufactured and supplied hereunder will
conform to the cGMPs and the FFDC Act, and other applicable laws and
regulations. THE FOREGOING WARRANTY IS EXCLUSIVE AND IN LIEU OF ALL OTHER
WARRANTIES EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. EXCEPT
WHERE BLP COMMITS A WILLFUL, INTENTIONAL BREACH OF ANY MATERIAL PROVISION
UNDER THIS AGREEMENT, BLP SHALL NOT BE RESPONSIBLE OR LIABLE UNDER ANY
PROVISION OF THIS AGREEMENT OR UNDER ANY CONTRACT, NEGLIGENCE, STRICT
LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR ANY RESULTANT INDIRECT,
INCIDENTAL, OR CONSEQUENTIAL DAMAGES INCLUDING, BUT NOT LIMITED TO LOSS OF
REVENUES AND LOSS OF PROFITS FROM BLP'S FAILURE TO PROVIDE THE PRODUCT TO
AHC OR OTHERWISE.
B. Notification of Defects. All Product shall be received subject to AHC's
inspection and may be rejected if any such Product fails to be in the
condition warranted hereunder. AHC shall be deemed to have accepted each
order of Product if BLP does not receive written notice to the contrary as
set forth in this Paragraph I O.B. AHC shall notify BLP in writing within
15 days after delivery to AHC or its customers of any non-conforming
Product containing obvious defects discoverable without affecting the
integrity of the Product's packaging and within 30 days of its discovery of
any latent defects, or AHC's rights as to such obvious or latent non
conformance shall be waived by AHC. At BLP's request, AHC shall promptly
supply either some of the Product which are allegedly defective or some
other evidence of deficiency which BLP shall specify. In the event of any
dispute between BLP and AHC as to whether any of the Product conform to the
warranties hereunder, a sample of the units in dispute shall be sent by
AMERMADOC 11/21/97 -7-
<PAGE>
AHC and BLP to a testing laboratory mutually agreed to by BLP and AHC whose
findings will be binding on the parties except in cases of gross and
manifest error. The cost of such testing and Product shall be borne by the
losing party.
C. Warranty Limited to AHC. AHC shall deliver to its customers its own
warranty concerning the Product. AHC's warranty to its customers shall
state conspicuously that the same is the sole and exclusive warranty to
customers.
D. Returns. BLP shall accept for return and replacement any Product
manufactured and supplied to AHC under this Agreement which at the time of
delivery does not conform with the warranty set forth above and for which
proper notice has been given, provided AHC obtains prior shipping
authorization from BLP. All returns of Product with obvious defects shall
be in the original manufactured condition. BLP will pay reasonable return
freight and shipping charges, but AHC shall assume the risk of loss in
transit associated with such returns.
E. Indemnification of AHC. BLP shall indemnify, defend, save and hold AHC
and each of its Affiliates, officers, directors, employees and agents
harmless from and against Loss or Losses resulting from, or arising out of
(a) any material breach of any warranty hereunder or material
non-fulfillment or non-performance by BLP of any agreement, covenant or
obligation of BLP under this Agreement; (b) any actual or alleged defect in
any Product manufactured and delivered to AHC hereunder arising out of
BLP's failure to manufacture Product in accordance with the terms of this
Agreement; (c) any actual or alleged infringement or violation of any
patent, trade secret or proprietary rights used by BLP in manufacturing
Product; and (d) FDA enforcement action, inspection or Product recalls or
market withdrawals resulting from BLP's failure to manufacture the Product
in accordance with the terms of this Agreement.
F. Exclusivi1y. In consideration of AHC's continued development of a market
for the Product, AHC appoints BLP during the term of this Agreement as it
exclusive manufacturer of the Product and grants AHC the exclusive right to
purchase the Product from BLP for resale. Additionally, BLP will have the
first right of refusal to manufacture Amerx New products.
G. Insurance Each of the parties shall maintain Commercial Liability
Insurance, during the term of this agreement, including contractual and
product liability, in amounts of not less than $1,000,000.00 per occurrence
and $3,000,000 annual aggregate naming the other party as an additional
insured. The parties shall exert their best efforts to obtain such
insurance on a date of occurrence basis (not a date of claim basis) and all
AMERXSA.DOC 11/21/97 -8-
<PAGE>
insurance companies providing such insurance shall have an A.M. Best rating
of A- or better. Upon request, either party shall submit a certificate of
insurance evidencing such insurance to the other party, and providing that
it may not be canceled or reduced in amount without thirty (30) days prior
notification to the other party.
11. AHC's Warranties and Obligations
--------------------------------
A. Indemnification of BLP. AHC shall indemnify, defend, save and hold BLP
and each of its Affiliates, officers, directors, employees and agents
harmless from and against Loss or Losses resulting from, or arising out of
(a) any material breach of any warranty hereunder or material
non-fulfillment or non-performance by AHC of any agreement, covenant or
obligation of AHC under this Agreement; (b) any bodily injury arising as a
result of a negligent act or omission of AHC; (c) FDA enforcement action,
inspections or Product recalls or market withdrawals except where arising
out of or resulting from BLP's failure to manufacture Product in accordance
with the terms of this Agreement; (d) AHC's acts relating to the promotion,
marketing and/or distribution of Product, except where arising out of or
resulting from BLP's failure to manufacture Product in accordance with the
terms of this Agreement; and (e) any actual or alleged infringement or
violation of any patent, trade secret or proprietary right governing the
Product.
B. Registration. Any FDA or governmental approvals necessary for sale of
the Product(s) shall be the responsibility of AHC. AHC shall use its best
efforts to maintain all necessary FDA or governmental approvals for sale of
the Product(s)and that the packaging and labeling of such Product(s) shall
comply with all applicable FDA or governmental and rules and regulations.
C. Insurance Each of the parties shall maintain Commercial Liability
Insurance, during the term of this agreement, including contractual and
product liability, in amounts of not less than $1,000,000.00 per occurrence
and $3,000,000 annual aggregate naming the other party as an additional
insured. The parties shall exert their best efforts to obtain such
insurance on a date of occurrence basis (not a date of claim basis) and all
insurance companies providing such insurance shall have an A.M. Best rating
of A- or better. Upon request, either party shall submit a certificate of
AMERXSA.DOC 11/21/97 -9-
<PAGE>
insurance evidencing such insurance to the other party, and providing that
it may not be canceled or reduced in amount without thirty (30) days prior
notification to the other party.
12. Indemnification Procedures
--------------------------
A. Upon the occurrence of an event which requires indemnification under
this Agreement, the Indemnified Party shall give prompt written notice to
the Indemnifying Party providing reasonable details of the nature of the
event and basis of the indemnity claim. The Indemnifying Party shall then
have the right, at its expense and with counsel of its choice, to defend,
contest, or otherwise protect against any such Action. The Indemnified
Party shall also have the right, but not the obligation, to participate at
its own expense in the defense thereof with counsel of its choice. The
Indemnified Party shall cooperate to the extent reasonably necessary to
assist the Indemnifying Party in defending, contesting or otherwise
protesting against any such Action provided that the reasonable cost in
doing so shall be paid by the Indemnifying Party. If the Indemnifying Party
fails within thirty (30) days after receipt of such notice (a) to notify
the Indemnified Party of its intent to defend, or (b) to defend, contest,
or otherwise protect against such suit, action, investigation, claim or
proceeding, or fails to diligently continue to provide such defense after
undertaking to do so, the Indemnified Party shall have the right, upon ten
(10) days' prior written notice to the Indemnifying party, to defend,
settle and satisfy any such suit, action, claim, investigation or
proceeding and recover the costs of the same from the Indemnifying Party.
B. Survival. The indemnification contained herein shall survive any
termination of this Agreement.
13. Product Recalls
If BLP meets all mutually agreed upon release specifications it will have
no liability for recall expenses. In the event that such recall results
from the breach by BLP of its warranties under this Agreement, defective
manufacture by BLP or other actions of BLP, BLP shall be responsible for
the reasonable expenses of the recall to which BLP will reimburse AHC
either by AHC's product price or replacement of product as agreed and
reasonable administrative fees. In the event the recall results from the
AMERXSA.DOC 11/21/97 -10-
<PAGE>
actions of AHC (not including the recall order), AHC shall be responsible
for the expenses of the recall and any costs associated with the
distribution of replacement Product(s).
14. Product Complaints
------------------
Product complaints to be received by AHC and at its own expense, AHC will
promptly respond to all reasonable inquires from customers pertaining to
Product complaints.
15. Confidentialty.
--------------
For five years from the termination of this Agreement, each party hereto
agrees to keep any proprietary information furnished under this Agreement
confidential within its respective company and agrees not to disclose same
to third parties without the prior written consent of the other party
hereto, except as required by law or to the extent such information (i) was
already in the rightful possession of a party prior to its receipt from the
other party, (ii) becomes generally known to the public otherwise than as a
result of the breach of this Section, (iii) is disclosed by a third party
having no obligation to keep such information confidential, or (iv) was
independently developed by such party or its agent(s). During the Tenn, of
this Agreement, both AHC and BLP agree to keep the subject matter of this
Agreement confidential and not disclose it to any third party except as
required by law, in which instance timely notice shall be given to the
party not making the disclosure, or except as necessary under this
Agreement or as mutually agreed to.
16. Patents and Trademarks
----------------------
AHC further warrants that manufacture or sale of the Product(s) to AHC will
not infringe any third party's patent or other proprietary rights and that
AHC will indemnify, defend and hold BLP harmless from any damage from any
and all infringement claims relating to the Product(s) and any trademarks,
trade names, patent, proprietary right, trade name, trademark, service mark
or copyright used by AHC in connection with the Product(s).
17. Termination.
------------
A. For Default. Without prejudice to any other legal or equitable remedy or
remedies either party may have, this Agreement may be canceled by either
party for breach of any material provision of this Agreement, or for a
AMERXSA.DOC 11/21/97 -11-
<PAGE>
pattern or practice of repeated non-material breaches of provisions of this
Agreement, if such cause remains after the giving of not less than thirty
(30) days prior written notice (ninety (90) days in the case of BLP's
failure to deliver) to the breaching party of the existence of such cause
to terminate this Agreement. BLP will have the right to terminate if
volumes fall below the minimum annual volumes and AHC will pay for all
existing inventory to components to cover Purchase Orders consistent with
the AHC forecast.
B. For Insolvency. Without prejudice to any legal or equitable remedy or
remedies either party may have, this Agreement may be immediately
terminated at the option of a party, immediately upon written notice, in
the event of the insolvency of the other party, however such insolvency may
be evidenced.
C. Effect of Termination. Within 30 days following the effective date of
termination of this Agreement, BLP will provide AHC with a detailed
accounting of (i) the amount of raw materials, components and printed
materials held by BLP for manufacturing into Product under this Agreement,
(ii) the amount of Product in the process of being manufactured by BLP for
AHC under this Agreement and (iii) the amount of finished Product then held
in inventory by BLP (including Product which has not be subjected to BLP's
quality assurance testing procedures) under this Agreement. Unless
otherwise mutually agreed by the parties prior to the effective date of
termination or as otherwise set forth in this Agreement, BLP shall deliver
to AHC or to such other person or place as AEC shall direct in writing, at
AHC's sole cost and expense (except at BLP's sole cost and expense, if AHC
terminated the Agreement for cause), all raw materials and Product
described above and AHC shall pay BLP, within 30 days of such delivery, the
Product Price owing to BLP for finished Product, Manufacturing Costs for
work in process, and BLP's verifiable out-of-pocket costs incurred in
connection with unused inventories of packaging components and raw
materials. No termination of this Agreement shall have any effect on, or
relieve either party from, the obligation to make any payment or perform
any act arising prior to the effective date of termination.
18. Force Majeure and Allocation.
-----------------------------
The obligations of either party hereunder are contingent upon, and BLP
shall not be liable for, acts of God, war, riots, floods, fires, storms,
strikes, catastrophes or any other acts of force maieure FDA or
oovernmental restrictions prohibitions regulations and reauisitions the
AMERXSA.DOC 11/21/97 -12-
<PAGE>
acts of suppliers or common carriers, or other interferences beyond the
reasonable control of such party to the extent that the same prevent or
delay the performance of the obligations herein contained, always provided
that such party shall use its best efforts to fulfill the obligations under
this Agreement and provide the other party with prompt notice of the
occurrence of any such event of force majeure.
19. Assignment or Transfer of Rights.
--------------------------------
AHC and BLP shall not assign, license, or otherwise transfer their rights
and obligations under this Agreement without the prior written consent of
the other, which consent shall not be withheld longer than 30 days, party's
absolute discretion, and any assignment or transfer without such consent
shall be deemed void.
20. Notices.
-------
All notices or communications required or permitted hereby shall be sent to
the respective addresses set forth below by overnight delivery, telegram,
telex, telefax, or registered or certified mail, return receipt requested
and shall be effective upon delivery.
As to BLP: Bausch & Lomb Pharmaceuticals, Inc.
8500 Hidden River Parkway
Tampa, Florida 33637
Attention: Vice President Marketing & Trade Sales
Fax: 813-975-7701
Contract Manufacturing Facsimile: (813) 975-7788
With a copy to: Bausch & Lomb Incorporated
One Bausch & Lomb Place
Rochester, New York 14604-2701
Attention: General Counsel
As to AHC: Ron Maddix
President and CEO
Amerx Health Care Corporation
1150 Cleveland Street, Suite 410
Clearwater, FL 34615
AMERXSA.DOC 11/21/97 -13-
<PAGE>
The address to which notice to either party shall be sent may be changed by
such party by written notice to the other party.
21. Order of Preference.
--------------------
All sales by BLP to AHC of Product(s) shall be subject to the provisions of
this Agreement and any provision of any purchase order placed by AHC or
order acknowledgment sent by BLP which is inconsistent herewith or in
addition hereto shall be null and void unless accepted by the receiving
party in writing and signed by one of its authorized representatives.
22. Applicable Law.
--------------
This Agreement shall be governed and construed in accordance with the laws
of the State of Florida, without reference to its choice-of-law rules.
23. Survival.
---------
Those provisions which, by their meaning and intent, have applicability
beyond the term of this Agreement shall survive the termination of this
Agreement.
24. Entire Agreement.
----------------
This is the entire Agreement between the parties hereto regarding the
Product(s) and supersedes any prior agreements made between the parties
regarding the Product(s). No prior statement, representation, promise or
agreement, written or verbal, shall be of any force to vary, expand or
diminish the provisions hereof. The Agreement may be modified or amended
only by an instrument in writing, executed by both parties.
AMERXSA.DOC 11/21/97 -14-
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto set forth their signatures
set forth above.
BAUSCH & LOMB AMERX HEALTH CARE
PHARMACEUTICALS, INC. CORPORATION
By: /s/ By: /s/ Ronald L. Maddix
--------------------------- -------------------------------
Title: V.P. Marketing & Trade Sales Title: President & CEO
---------------------------- ----------------------------
AMERXSA.DOC 11/21/97 -15-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 53,080
<SECURITIES> 0
<RECEIVABLES> 54,080
<ALLOWANCES> 34,252
<INVENTORY> 24,180
<CURRENT-ASSETS> 191,001
<PP&E> 31,745
<DEPRECIATION> 15,959
<TOTAL-ASSETS> 208,843
<CURRENT-LIABILITIES> 456,521
<BONDS> 0
0
1,296,850
<COMMON> 1,556,396
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 208,843
<SALES> 371,198
<TOTAL-REVENUES> 371,198
<CGS> 181,250
<TOTAL-COSTS> 181,250
<OTHER-EXPENSES> 4,223
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,570
<INCOME-PRETAX> (855,459)
<INCOME-TAX> 0
<INCOME-CONTINUING> (855,459)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (855,459)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> (.22)
</TABLE>
