SECURITIES & EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[x] Quarterly Report Under Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For Quarterly Period Ended September 30, 2000
[ ] Transition Report Under Section 13 or 18(d) of the Exchange Act
Commission File Number: 0-17449
PROCYON CORPORATION
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(Exact Name of Small Business Issuer as specified in its charter)
COLORADO 59-3280822
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(State of Incorporation) (IRS Employer
Identification Number)
1150 Cleveland Street, Suite 410
Clearwater, FL 33755
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(Address of Principal Offices)
(727) 447-2998
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(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for 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 [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common stock, no par value; 7,813,005 shares outstanding as of November 3, 2000
Transitional Small Business Disclosure Format (check one) Yes [ ] No [x]
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PART I. FINANCIAL INFORMATION
Item Page
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ITEM 1. FINANCIAL STATEMENTS.............................................. 3
Index to Financial Statements
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Financial Statements:
Consolidated Balance Sheets...................................... 3
Consolidated Statements of Operations............................ 4
Consolidated Statements of Cash Flows ........................... 5
Notes to Financial Statements ................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................. 7
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................. 8
ITEM 2. CHANGES IN SECURITIES ............................................ 8
ITEM 3. DEFAULTS UPON SENIOR SECURITIES .................................. 8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............... 8
ITEM 5. OTHER INFORMATION ................................................ 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ................................. 9
SIGNATURES................................................................ 9
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ITEM 1. FINANCIAL STATEMENTS
PROCYON CORP & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 & JUNE 30, 2000
ASSETS
(Unaudited)
September 30, June 30,
2000 2000
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CURRENT ASSETS
<S> <C> <C>
Cash & Cash Equivalents $ 326,697 $ 479,334
Accounts Receivable less allowances of $500 5,315 16,689
Inventories 60,821 59,066
Prepaid Expenses 47,182 21,574
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TOTAL CURRENT ASSETS 440,015 576,663
PROPERTY AND EQUIPMENT
Machinery and Equipment less accumulated
depreciation of $28,439 and $26,323 35,614 22,706
OTHER ASSETS
Deposits 8,276 11,173
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$ 483,905 $ 610,542
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 70,753 $ 77,283
Accrued Expenses 15,742 32,331
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TOTAL CURRENT LIABILITIES 86,495 109,614
STOCKHOLDERS EQUITY
Preferred stock, 496,000,000 shares
authorized; none issued
Series A Cumulative Convertive Preferred stock,
no par value; 4,000,000 shares authorized;
336,933 shares issued and outstanding 292,783 323,983
Common stock, no par value, 80,000,000 shares
authorized; 7,792,005 shares issued and
outstanding 4,214,081 4,182,881
Accumulated deficit (4,109,454) (4,005,936)
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397,410 500,928
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$ 483,905 $ 610,542
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The accompanying notes are an integral part of these financial statements.
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PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - (Unaudited)
For The Three Months Ended September 30, 2000 and 1999
Three Months Three Months
Ended Ended
September 30, September 30,
2000 1999
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NET SALES $ 203,349 $ 149,419
COST OF SALES 35,499 20,101
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GROSS PROFIT 167,850 129,318
OPERATING EXPENSES
Salaries and Benefits 70,167 40,068
Selling, General and Administrative 205,960 85,365
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276,127 125,433
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INCOME (LOSS) FROM OPERATIONS (108,277) 3,885
OTHER INCOME (EXPENSE)
Interest Expense (285) (3,222)
Interest Income 5,046 470
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4,761 (2,752)
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NET INCOME (LOSS) (103,516) 1,133
Dividend requirements on preferred stock 113,354 20,200
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Loss applicable to common stock $ (216,870) $ (19,067)
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Net Loss per common share $ (0.028) $ (0.04)
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Weighted average number of
common shares outstanding 7,783,982 5,055,955
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The accompanying notes are an integral part of these financial statements.
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PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Unaudited)
For The Three Months Ended September 30, 2000 and 1999
Three Months Three Months
Ended Ended
September 30, September 30,
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income (Loss) $(103,516) $ 1,133
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation 2,117 2,527
Decrease (increase) in:
Accounts Receivable, trade 11,373 (9,902)
Inventories (1,755) 14,172
Prepaid Expenses (25,608) (27,721)
Other Assets 2,897 (1,276)
Increase (decrease) in:
Accounts payable (6,530) 8,412
Accrued Expenses (16,589) (26,885)
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NET CASH (USED) BY
OPERATING ACTIVITIES (137,612) (39,540)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of machinery and equipment (15,025) (4,932)
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NET CASH (USED) BY
INVESTING ACTIVITIES (15,025) (4,932)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loan from Stockholder 0 (28,127)
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NET CASH (USED) BY
FINANCING ACTIVITIES 0 (28,127)
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NET INCREASE (DECREASE) IN CASH (152,637) (72,599)
CASH AT BEGINNING OF PERIOD 479,334 90,150
CASH AT END OF PERIOD $ 326,697 $ 17,551
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SUPPLEMENTAL DISCLOSURES
Taxes Paid $ 0 $ 0
Interest Paid $ 285 $ 3,222
NONCASH TRANSACTIONS DISCLOSURE
Conversion of Series A preferred stock to common stock $ 31,200 $ 9,500
The accompanying notes are an integral part of these financial statements.
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NOTE A - SUMMARY OF ACCOUNTING
The September 2000 financial statements included herein have been prepared
by the Company without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in the financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted as
allowed by such rules and regulations. The Company believes that the disclosures
are adequate to make the information presented not misleading. It is suggested
that these financial statements be read in conjunction with the Company's
audited financial statements dated June 30, 2000. While management believes the
procedures followed in preparing these financial statements are reasonable, the
accuracy of the amounts are, in some respects, dependent upon the facts that
will exist, and procedures that will be accomplished by the Company later in the
year.
Management of the Company is of the opinion that the accompanying unaudited
condensed financial statements prepared in conformity with generally accepted
accounting principles, which require the use of management estimates, containing
all adjustments ( including normal recurring adjustments ) necessary to present
fairly the operations and cash flows for the period presented and to make the
financial statements not misleading.
NOTE B - INVENTORIES
Inventories consisted of the following:
September 30, June 30,
2000 2000
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Finished Goods $ 15,543 $ 19,999
Raw Materials $ 45,278 $ 39,067
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$60,821 $ 59,066
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NOTE C - COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office space and certain equipment under operating
leases expiring at various dates through 2001. Future minimum rentals
under the operating leases are as follows:
Year Ending June 30,
2001 4,325
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$ 4,325
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NOTE D - STOCKHOLDERS' 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 September 30, 2000, no dividends have been
declared. Dividends in arrears on the outstanding preferred shares
total $113,354 as of September 30, 2000. 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
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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 the outstanding Series A Preferred
Stock.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
The following discussion and analysis should be read in conjunction
with the unaudited Condensed Financial Statements and Notes thereto
appearing elsewhere in this report.
"Safe Harbor" Statement under the Private Securities Litigation reform
Act of 1995
This Report on Form 10-QSB, including Management's Discussion and
Analysis, 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 otherwise 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.
To date, as of November 2, 2000, the Company had not experienced,
nor does it expect to experience, any disruption related to Year 2000
problems in the operation of its systems. Accounting records of the
Company, none of the material vendors and financial institutions with
which the Company has a relationship experienced any failures or
disruptions in their computer systems caused by the Year 2000.
Liquidity and Capital Resources
As of September 30, 2000, the Company's principal sources of liquidity
included cash and cash equivalents of approximately $326,697,
inventories of $60,821, and net accounts receivable of $5,315. The
Company had net working capital of $353,520, and no long-term debt at
September 30, 2000.
During the three months ended September 30, 2000, cash and cash
equivalents decreased from $479,334 as of June 30, 2000 to $326,697,
largely in part to increased efforts in marketing campaigns, and the
startup of a new subsidiary, Sirius Medical Supply Co. Operating
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activities used cash of $137,612 during the period, consisting
primarily of a net loss of $103,516. Cash provided by financing
activities was $0 as compared to $28,127 for the corresponding period
in 1999. During the period, holders of 31,200 shares of Preferred
Stock converted their shares to Common Stock.
At September 30, 2000, the Company had no commitments for capital
expenditures.
The Company has deferred tax assets with a 100% valuation allowance at
September 30, 2000. Management is not able to determine if it is more
likely than not that the deferred tax assets will be realized.
Results of Operations
Comparison of Three Months Ended September 30, 2000 and 1999.
Net sales during the quarter ended September 30, 2000 were $203,349,
as compared to $149,419 in the quarter ended September 30, 1999, an
increase of $53,930, or 36%.
Gross profit during the quarter ended September 30, 2000 was $167,850,
as compared to $129,318 during the quarter ended September 30, 1999,
an increase of $38,532, or 30%. As a percentage of net sales, gross
profit was 83% in the quarter ended September 30, 2000, as compared to
87% in the corresponding quarter in 1999.
Operating expenses during the quarter ended September 30, 2000, were
$276,127, consisting of $70,167 in salaries and benefits and $205,960
in selling, general and administrative expenses. This compares to
operating expenses during the quarter ended September 30, 1999 of
$125,433, consisting of $40,068 in salaries and benefits, and $85,365
in selling, general and administrative expenses. The Company expects
expenses to rise somewhat as sales increase over the remainder of the
fiscal year.
The Company incurred an operating loss of $108,277 in the quarter
ended September 30, 2000, as compared to an operating profit of $3,885
in the corresponding quarter in 1999. The increase in operating loss
was primarily due to high investment in marketing campaigns, reducing
the overall margin in sales. Net loss (before dividend requirements
for Preferred Shares) was $103,516 during the quarter ended September
30, 2000, as compared to net profit of $1,133 during the quarter ended
September 30, 1999.
Management is continuing its efforts to raise additional funding
through a private equity placement. The funds will be used to support
advertising and it is hoped that the funding effort will be concluded
during the quarter.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not Applicable.
(b) Not Applicable.
(c) Not Applicable.
(d) Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
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ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27- Financial Data Schedule
(b) None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, there unto duly
authorized.
PROCYON CORPORATION
November 6, 2000 By: /s/ John C. Anderson
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Date John C. Anderson, President
and Chief Financial Officer
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