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 December 31, 1999
[ ] 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 5,813,655 shares outstanding as of February 8, 2000
Transitional Small Business Disclosure Format (check one) Yes [ ] No [x]
<PAGE>
PART I. FINANCIAL INFORMATION
Item Page
- ---- ----
ITEM 1. FINANCIAL STATEMENTS............................................ 3
Index to Financial Statements
-----------------------------
Financial Statements:
Consolidated Balance Sheets................................... 3
Statement of Operations....................................... 4
Statement 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.............................................. 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 .............................. 9
SIGNATURES............................................................. 9
<PAGE>
<TABLE>
PROCYON CORP & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 & JUNE 30, 1999
ASSETS
December 31, June 30,
1999 1999
------------ ----------
Current Assets (unadited) (audited)
<S> <C> <C>
Cash & Cash Equivalents ($ 3,364) $ 90,150
Accounts Receivable, less allowances
of $500 12,835 2,619
Inventories 81,648 64,414
Deposit on Inventory 11,625 0
Prepaid Expenses 30,336 0
----------- -----------
TOTAL CURRENT ASSETS 133,081 157,183
Machinery and Equipment less accumulated
depreciation of $26,172 and $20,216 13,749 13,119
Other Assets:
Deposits 4,454 3,066
----------- -----------
$ 151,284 $ 173,368
=========== ===========
LIABILITIES AND STOCK HOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 96,316 $ 54,806
Accrued Salaries 32,887 95,502
Loan Payable 316,000 214,127
----------- -----------
Total Current Liabilities 445,203 364,435
Advanced Deposit on Common Stock to be issued 0 642,000
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;
787,283 shares issued and outstanding 764,633 767,133
Common stock, no par value, 80,000,000 shares
authorized; 5,772,155 shares issued and
outstanding 2,732,231 2,087,731
Accumulated deficit (3,790,783) (3,687,931)
----------- -----------
Total Stockholders' Equity (293,919) (833,067)
----------- -----------
$ 151,284 $ 173,368
=========== ===========
Note: Taken from the audited balance sheet at that date
-3-
<PAGE>
PROCYON CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
ThreeMonths Ended December 31, 1999 and 1998
Six Months Ended December 31, 1999 and 1998
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
Net Sales $ 105,232 $ 43,952 $ 254,868 $ 74,369
Cost of Sales 14,531 11,429 34,632 21,034
----------- ----------- ----------- -----------
Gross Profit 90,702 32,523 220,236 53,335
Operating Expenses:
Salaries and Benefits 41,339 96,757 84,300 194,552
Selling, General and Administrative 146,839 76,783 232,119 130,584
----------- ----------- ----------- -----------
Total Operating Expenses 188,178 173,540 316,419 325,136
----------- ----------- ----------- -----------
Loss from Operations (97,477) (141,017) (96,183) (271,802)
Other Income (Expense):
Interest Expense (3,703) (4,310) (6,925) (8,223)
Interest Income 9 99 262 188
Total Other Income (expense) (3,693) (4,212) (6,663) (8,035)
Net Loss (101,170) (145,229) (102,8460 (279,836)
Dividend requirements on preferred stock 20,220 32,117 40,439 58,683
Loss applicable to common stock ($ 121,390) ($ 177,346) ($ 143,285) ($ 338,519)
=========== =========== =========== ===========
Basic Loss per common share ($ 0.02) ($ 0.04) ($ 0.03) ($ 0.08)
Diluted Loss per comon share ($ 0.02) ($ 0.03) ($ 0.03) ($ 0.05)
Weighted average number of
common shares outstanding 5,772,155 4,474,242 5,360,822 4,474,242
=========== =========== =========== ===========
-4-
<PAGE>
PROCYON CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended December 31, 1999 and 1998
(Increase / Decrease), in Cash Equivalents
Six Months Six Months
Ended Ended
December 31, December 31,
1999 1998
----------- -----------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss ($102,853) ($279,836)
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation 5,956 2,325
Changes in operating assets and liabilities
Accounts Receivable, trade (10,216) 19,752
Inventories (17,234) (101,481)
Prepaid Expenses (30,336) (2,200)
Deposits (1,388) 38
Deposit on Inventory (11,625) 93,913
Accounts payable and accrued expenses (21,105) (50,354)
--------- ---------
Cash used in Operating Activities (188,801) (317,843)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property & Equipment (6,586) 0
Cash used in investing activities (6,586) 0
CASH FLOWS FROM FINANCING ACTIVITIES
Long Term Loans 101,873 75,000
Proceeds from subscriptions receivable 0 250,000
Cumulative Convertible Preferred Stock 0 0
--------- ---------
Cash provided by financing activities 101,873 325,000
--------- ---------
Net Increase (decrease) in cash and cash equivalents (93,514) 7,157
Cash and Cash Equivalents, beginning of period 90,150 53,080
--------- ---------
Cash and Cash Equivalents, end of period ($ 3,364) $ 60,237
========= =========
NON - CASH TRANSACTIONS
Proceeds from advance deposit to be
converted into common stock (642,000)
Proceeds from issuance of common stock 642,000
-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 for the year ended 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 implemented 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, contain
all adjustments ( including normal recurring adjustments ) necessary to present
fairly the operations and cash flows for the periods presented and to make the
financial statements not misleading.
NOTE B - INVENTORIES
Inventories consisted of the following:
December 31, June 30,
1999 1999
-------- --------
Finished Goods $ 40,081 $ 7,097
Raw Materials $ 41,567 $ 17,083
-------- --------
$ 81,648 $ 24,180
======== ========
NOTE C - RELATED PARTY TRANSACTIONS
At December 31, 1999, the president of the Company who is the majority
stockholder of the Company, was owed $105,373 on a non-interest bearing note due
June 30, 2000, collateralized by all the assets of the Company. He was also owed
$200,627 on a line of credit, with interest at 8% per annum, collateralized by
the stockholder's personal residence.
NOTE D - 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 are as
follows:
Year Ending June 30,
2000 7,456
2001 8,082
---------
$ 15,538
=========
NOTE E - 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,
-6-
<PAGE>
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 December
31, 1999, no dividends had been declared. Dividends in arrears on the
outstanding preferred shares total $260,827 as of December 31, 1999. 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 voting rights equal to 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 shares
of its common stock adequate 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
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 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 February 14, 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 20000 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.
-7-
<PAGE>
Liquidity and Capital Resources
As of December 31, 1999, the Company's principal sources of liquidity
included inventories of $81,648, and net accounts receivable of $12,835.
The Company had negative working capital of $402,845 and no long term debt
at December 31, 1999.
Cash and cash equivalents decreased from $90,150 as of June 30, 1999 to
$(3,364) for the six months ended December 31, 1999. Operating activities
used cash of $188,801 during the period, consisting primarily of prepaid
expenses and reduction of accrued salaries of $51,441. Cash provided by
financing activities was $101,873 as compared to $325,000 for the
corresponding period in 1998. During the period, holders of 2,500 shares of
Preferred Stock converted their shares to Common Stock.
At December 31, 1999 the Company had no commitments for capital
expenditures.
The Company has deferred tax assets with a 100% valuation allowance at
December 31, 1999. Management is not able to determine if it is more likely
than not that the deferred tax assets will be realized.
The Company has incurred losses since its inception and has been dependent
upon equity financing and shareholder loans to fund working capital needs.
The Company has made significant progress this past quarter with respect to
sales of its products and management is attempting to raise capital through
private equity placement so that it can increase spending on marketing and
take advantage of the sales opportunities that have been created.
Results of Operations
Comparison of Three Months Ended December 31, 1999 and 1998.
Net sales during the quarter ended December 31, 1999 were $ 105,232 as
compared to $ 43,952 in the quarter ended December 31, 1998 a increase of $
61,280, or 139%. Sales for the quarter increased compared to the
corresponding quarter as a result of increased direct advertising.
Gross profit during the quarter ended December 31, 1999, was $ 90,702, as
compared to $32,523 during the quarter ended December 31, 1998, an increase
of $58,179, or 178%. As a percentage of net sales, gross profit was 86% in
the quarter ended December 31, 1999, as compared to 74% for the
corresponding quarter in 1998. Increase in gross profit and improved
margins for the quarter was due in part to the change in the contract
manufacture used for the manufacturing of the Amerigel product line.
Operating expenses during the quarter ended December 31, 1999 were
$188,178, consisting of $41,339 in salaries and benefits and $146,839 in
selling, general and administrative expenses. This compares to operating
expenses during the quarter ended December 31, 1998 of $173,540 consisting
of $96,757 in salaries and benefits, and $76,783 in selling, general and
administrative expenses. The Company expects expenses to rise somewhat and
sales to increase over the remainder of the fiscal year as the company
intends to continue its direct advertising campaign.
The Company had an operating loss of $ 97,477 for the quarter ended
December 31, 1999 as compared to $141,017 for the corresponding quarter in
1998. Net loss (before dividend requirements for Preferred Shares) was $
101,170 during the quarter ended December 31, 1999 as compared to a net
loss of $145,229 during the quarter ended December 31, 1998.
The Company did obtain a commitment from a drug store chain to begin
stocking its Amerigel(R) Ointment Wound Dressing in all 3,000 stores of the
chain. Initial stocking began during the fourth quarter of fiscal 1999, and
was completed in August 1999. No significant sales from restocking, in
these chain stores occurred in the current quarter.
-8-
<PAGE>
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.
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
February 15, 2000 By: /s/ John C. Anderson
- ----------------- -------------------------------------
Date John C. Anderson, President an
Chief Financial Officer
-9-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1999
<CASH> (3,364)
<SECURITIES> 0
<RECEIVABLES> 13,335
<ALLOWANCES> 500
<INVENTORY> 81,648
<CURRENT-ASSETS> 46,415
<PP&E> 13,749
<DEPRECIATION> 26,172
<TOTAL-ASSETS> 151,284
<CURRENT-LIABILITIES> 445,203
<BONDS> 0
0
764,633
<COMMON> 2,732,231
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 151,284
<SALES> 105,232
<TOTAL-REVENUES> 105,232
<CGS> 14,531
<TOTAL-COSTS> 188,178
<OTHER-EXPENSES> (3,693)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,703)
<INCOME-PRETAX> (101,170)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (101,170)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
