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 March 31, 2000
[ ] Transition Report Under Section 13 or 18(d) of the Exchange Act
Commission File Number: 0-17449
PROCYON CORPORATION
---------------------------------------------------------------
(Exact Name of Small Business Issuer as specified in its charter)
COLORADO 36-0732690
----------------------- ----------------------------------
(State of Incorporation) (IRS Employer Identification Number)
1150 Cleveland Street, Suite 410
Clearwater, Fl 33755
--------------------------------
(Address of Principal Offices)
(727) 447-2998
-------------------------
(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; 7,446,155 shares outstanding as of May 10, 2000
Transitional Small Business Disclosure Format (check one) Yes [ ] No [x]
<PAGE>
PART I. FINANCIAL INFORMATION
Item Page
- ---- ----
ITEM 1. FINANCIAL STATEMENTS....................................... 2
Index to Financial Statements
-----------------------------
Financial Statements:
Independent Auditor's Report ............................. 2
Consolidated Balance Sheets............................... 3
Statements of Operations.................................. 4
Statements of Cash Flows.................................. 5
Notes to Financial Statements............................. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......... 8
PART II.OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.......................................... 9
ITEM 2. CHANGES IN SECURITIES ..................................... 9
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ........................... 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........ 9
ITEM 5. OTHER INFORMATION ......................................... 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K .......................... 10
SIGNATURES......................................................... 10
<PAGE>
PART I. FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS
Board of Directors
Procyon Corporation and Subsidiary
Clearwater, Florida
We have reviewed the accompanying consolidated balance sheet of Procyon
Corporation and Subsidiary as of March 31, 2000, and the related statements of
income and cash flows for the three-month periods ended March 31, 2000 and 1999.
These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modification that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
We previously audited, in accordance with generally accepted auditing standards,
the consolidated balance sheet as of June 30, 1999, and the related consolidated
statements of income and cash flows for the year then ended (not presented
herein), and in our report dated September 21, 1999, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of June
30, 1999, is fairly stated in all material respects in relation to the
consolidated balance sheet from which it has been derived.
GIUNTA, FERLITA & WALSH, P.A.
Certified Public Accountants
May 10, 2000
2
<PAGE>
<TABLE>
<CAPTION>
PROCYON CORPORATION & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 & JUNE 30, 1999
ASSETS
March 31, June 30,
2000 1999
---------- ----------
Current Assets (unaudited) (audited)
<S> <C> <C>
Cash & Cash Equivalents $ 554,557 $ 90,150
Accounts Receivable, less allowances
of $500 6,235 2,619
Inventories 100,494 64,414
----------- -----------
Total Current Assets 661,286 157,183
Machinery and Equipment less accumulated
depreciation of $26,280 and $20,216 13,457 13,119
OTHER ASSETS 55,014 3,066
----------- -----------
$ 729,757 $ 173,368
=========== ===========
LIABILITIES AND STOCK HOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 72,240 $ 54,806
Accrued Salaries 17,545 95,502
Loan Payable -- 214,127
----------- -----------
Total Current Liabilities 89,785 364,435
Advanced Deposit on Stock -- 642,000
Stockholders' equity (Notes 2 & 6)
Preferred stock, 496,000,000 shares
authorized; none issued
Series A Cumulative Convertible Preferred stock,
no par value; 4,000,000 shares authorized;
734,783 shares issued and outstanding 690,633 767,133
Common stock, no par value, 80,000,000 shares
authorized; 7,394,155 shares issued and
outstanding 3,816,231 2,087,731
Accumulated deficit (3,866,892) (3,687,931)
Total Stockholders' Equity 639,972 (833,067)
----------- -----------
$ 729,757 $ 173,368
=========== ===========
See accompaning notes
3
<PAGE>
PROCYON CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2000 and 1999
Nine Months Ended March 31, 2000 and 1999
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
---------- ---------- ---------- ----------
(unaudited) (unaudited) (unaudited) (unaudited)
Net Sales $ 212,152 $ 68,795 $ 466,803 $ 143,163
Cost of Sales 24,123 12,656 68,424 33,690
----------- ----------- ----------- -----------
Gross Profit 188,029 56,139 398,379 109,473
Operating Expenses:
Salaries and Benefits 51,646 78,810 148,285 273,362
Selling, General and Administrative 176,083 103,345 413,709 233,929
----------- ----------- ----------- -----------
Total Operating Expenses 227,729 182,155 561,994 507,291
----------- ----------- ----------- -----------
Loss from Operations (39,700) (126,016) (163,615) (397,818)
Other Income (Expense):
Interest Expense (8,880) (4,013) (15,828) (12,235)
Interest Income 3 483 482 671
----------- ----------- ----------- -----------
Total Other Income (expense) (8,877) (3,530) (15,346) (11,564)
----------- ----------- ----------- -----------
Net Loss (48,577) (129,546) (178,961) (409,382)
Dividend requirements on preferred stock (6,755) (36,144) (94,827) (36,144)
----------- ----------- ----------- -----------
Loss applicable to common stock ($ 55,333) ($ 165,690) ($ 273,788) ($ 445,526)
=========== =========== =========== ===========
Basic Loss per common share ($ 0.01) ($ 0.05) ($ 0.05) ($ 0.12)
Diluted Loss per common share ($ 0.01) ($ 0.05) ($ 0.05) ($ 0.12)
Weighted average number of
common shares outstanding 5,757,385 3,637,920 5,244,077 3,637,920
=========== =========== =========== ===========
See accompaning notes
4
<PAGE>
PROCYON CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended March 31, 2000 and 1999
(Increase / Decrease), in Cash Equivalents
Nine Months Nine Months
Ended Ended
March 31, March 31,
2000 1999
---------- ------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss ($ 178,961) ($ 409,382)
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation 6,063 6,284
Common Stock Issued for Services 10,000
Changes in operating assets and liabilities
Accounts Receivable, trade (3,616) (16,352)
Inventories (36,080) (90,050)
Other Assets (6,888) (3,794)
Deposit on Inventory -- 93,913
Prepaid Expenses (45,060) --
Accounts Payable 17,434 (70,943)
Accrued Expenses (77,957) --
----------- -----------
Cash used in Operating Activities (315,065) (490,324)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property & Equipment (6,401) --
----------- -----------
Cash used in investing activities (6,401) --
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Long Term Loans 251,000
Repayment on Long Term Loans (465,127) 188,311
Proceeds from Subscriptions Receivable -- 250,000
Proceeds from Issuance of Common Stock 1,000,000 --
----------- -----------
Cash provided by financing activities 785,873 438,311
----------- -----------
Net Increase (decrease) in cash and cash equivalents 464,407 (52,013)
Cash and Cash Equivalents, beginning of period 90,150 53,080
----------- -----------
Cash and Cash Equivalents, end of period $ 554,557 $ 1,067
=========== ===========
Non Cash Transactions
Preferred Shares converted to Common Shares $ 76,500
Advanced Deposits converted to Common Shares $ 642,000
See accompaning notes
5
</TABLE>
<PAGE>
NOTE A - SUMMARY OF ACCOUNTING
The 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, 1999. 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:
March 31 June 30,
2000 1999
-------- --------
Finished Goods $ 42,544 $ 52,836
Raw Materials $ 57,950 $ 11,578
-------- --------
$100,494 $ 64,414
======== ========
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,
2000 4,425
2001 4,325
---------
$ 8,750
=========
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 March 31, 2000,
no dividends have been declared. Dividends in arrears on the outstanding
preferred shares total $254,071 as of March 31, 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
-6-
<PAGE>
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 the outstanding
Series A Preferred Stock.
-7-
<PAGE>
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.
Year 2000 Compliance. The Company was cognizant of the Year 2000 issues
associated with the programming code in computer system. In preparation for
the Year 2000, the Company conducted a review of its systems that could be
affected by the Year 2000 problems and implemented all changes necessary to
make those systems Year 2000 compliant. As of May 10, 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. To the best
knowledge 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.
Although most Year 2000 related problems should have become evident on
January 1, 2000 some problems may arise later. For example, some software
programs may have difficulty resolving the so-called "century leap year"
algorithm which will also occur during the Year 2000. The Company does not
expect any material adverse effects from any remaining Year 2000 issues
which could arise nor does it anticipate expending any additional funds on
Year 2000 compliance issues.
Liquidity and Capital Resources
As of March 31, 2000, the Company's principal sources of liquidity included
cash and cash equivalents of approximately $554,557, inventories of
$100,494 and net accounts receivable of $6,235. The Company had net working
capital of $571,501, and no long term debt at March 31, 2000.
During the nine months ended March 31, 2000, cash and cash equivalents
increased from $90,150 as of June 30, 1999 to $554,557. Largely in part to
increased sales and investment into the company through sale of the
Company's Common Stock. Operating activities used cash of $315,065 during
the period, consisting primarily of a net loss of $178,961. Cash provided
by financing activities was $785,873 as compared to $438,311 for the
corresponding period in 1999. During the period, holders of 76,500 shares
of Preferred Stock converted their shares to Common Stock.
At March 31, 2000 the Company had no commitments for capital expenditures.
The Company has deferred tax assets with a 100% valuation allowance at
March 31, 2000. Management is not able to determine if it is more likely
than not that the deferred tax assets will be realized.
-8-
<PAGE>
Results of Operations
Comparison of Three Months Ended March 31, 2000 and 1999.
Net sales during the quarter ended March 31, 2000 were $212,152 as compared
to $68,795 in the quarter ended March 31,1999 an increase of $143,357, or
208%.
Gross profit during the quarter ended March 31, 2000, was $188,029 as
compared to $56,139 during the quarter ended March 31, 1999, an increase of
$131,890, or 235%. As a percentage of net sales, gross profit was 89% in
the quarter ended March 31, 2000, as compared to 82% in the corresponding
quarter in 1999.
Operating expenses during the quarter ended March 31, 2000 were $227,729,
consisting of $51,646 in salaries and benefits and $176,083 in selling,
general and administrative expenses. This compares to operating expenses
during the quarter ended March 31, 1999 of $182,155 consisting of $78,810
in salaries and benefits, and $103,345 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 $39,700 in the quarter ended
March 31, 2000 as compared to an operating loss of $126,016 in the
corresponding quarter in 1999. The decrease in operating loss was primarily
due to increased sales. Net loss (before dividend requirements for
Preferred Shares) was $48,577 during the quarter ended March 31, 2000 as
compared to $129,546 during the quarter ended March 31, 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.
(a) 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.
ITEM 5. OTHER INFORMATION
Not Applicable.
-9-
<PAGE>
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
May 12, 1999 By: /s/ John C. Anderson
- ------------ ------------------------------------------------------
Date John C. Anderson, President and Chief Financial Officer
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 554,557
<SECURITIES> 0
<RECEIVABLES> 6,735
<ALLOWANCES> 500
<INVENTORY> 100,494
<CURRENT-ASSETS> 661,286
<PP&E> 13,457
<DEPRECIATION> 26,280
<TOTAL-ASSETS> 720,757
<CURRENT-LIABILITIES> 89,785
<BONDS> 0
0
600,633
<COMMON> 3,816,231
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 729,757
<SALES> 466,803
<TOTAL-REVENUES> 466,803
<CGS> 68,424
<TOTAL-COSTS> 561,994
<OTHER-EXPENSES> 15,346
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,828
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (178,961)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
