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, 2001
[ ] 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 59-3280822
---------------------- ----------------------------------
(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; 7,861,338 shares outstanding as of January 21, 2002
Transitional Small Business Disclosure Format (check one) Yes [ ] No [x]
PART I. FINANCIAL INFORMATION
Item
Page
ITEM 1. FINANCIAL STATEMENTS............................................... 3
Index to Financial Statements
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
PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND JUNE 30, 2001
(unaudited) (audited)
December 31 June 30
2001 2001
----------- ----------
ASSETS
Current Assets
Cash $ 9,891 $ 19,099
Certificates of deposit
plus accrued interest, restricted 17,573 17,573
Accounts Receivable, less allowances of $500 98,028 69,815
Prepaid Expenses 14,569 19,141
Inventories 35,773 44,733
----------- -----------
Total Current Assets 175,834 170,361
PROPERTY AND EQUIPMENT
Office Equipment 57,468 52,782
Furniture and Fixtures 14,666 14,666
Production Equipment 14,236 14,236
----------- -----------
86,370 81,684
Accumulated Depreciation (42,752) (36,185)
----------- -----------
43,618 45,499
OTHER ASSETS 3,520 1,520
----------- -----------
TOTAL ASSETS $ 222,972 $ 217,380
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts Payable $ 273,653 $ 255,466
Accrued Liabilities 12,471 72,672
Note Payable 197,000 75,000
----------- -----------
Total Current Liabilities 483,124 403,138
Long Term Liabilities
Note Payable 23,812 0
----------- -----------
Total Long Term Liabilities 23,812 0
Stockholders' deficiency (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;
288,600 shares issued and outstanding 244,450 244,450
Common stock, no par value, 80,000,000 shares
authorized; 7,840,338 shares issued and
outstanding 4,262,414 4,262,414
Accumulated deficit (4,790,828) (4,692,622)
----------- -----------
Total Stockholders' Deficiency (283,964) (185,758)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 222,972 $ 217,380
=========== ===========
See accompaning notes
-3-
PROCYON CORPORATION & SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended December 31, 2001 and 2000
Six Months Ended December 31, 2001 and 2000
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
Dec. 31, 2001 Dec. 31, 2000 Dec. 31, 2001 Dec. 31, 2000
------------- ------------- ------------- ------------
(unaudited) (unaudited) (unaudited) (unaudited)
Net Sales $ 317,032 $ 221,157 $ 615,849 $ 424,506
Cost of Sales 54,824 34,934 111,601 70,434
----------- ----------- ----------- -----------
Gross Profit 262,208 186,223 504,248 354,072
Operating Expenses:
Salaries and Benefits 96,684 96,150 229,901 180,432
Selling, General and Administrative 143,314 250,804 348,435 442,647
----------- ----------- ----------- -----------
Total Operating Expenses 239,998 346,954 578,336 623,079
----------- ----------- ----------- -----------
Profit (loss) from Operations 22,210 (160,731) (74,088) (269,007)
Other Income (Expense):
Interest Expense (15,565) (243) (24,151) (527)
Interest Income 0 2,990 30 8,036
----------- ----------- ----------- -----------
Total Other Income (expense) (15,565) 2,747 (24,121) 7,509
----------- ----------- ----------- -----------
Net Profit (loss) 6,645 (157,984) (98,209) (261,498)
Dividend requirements on preferred stock 7,215 (6,452) 14,430 1,315
----------- ----------- ----------- -----------
Loss applicable to common stock ($ 570) ($ 151,532) ($ 112,639) ($ 262,813)
=========== =========== =========== ===========
Basic Loss per common share 0.000 (0.019) (0.014) (0.034)
Weighted average number of
common shares outstanding 7,861,338 7,829,679 7,861,338 7,799,147
=========== =========== =========== ===========
See accompaning notes
-4-
PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended December 31, 2001 and 2000
(unaudited) (unaudited)
December 31, December 31,
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss ($ 98,209) ($261,498)
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation 6,567 4,615
Changes in operating assets and liabilities
Accounts Receivable, trade (28,212) 15,970
Inventories 8,960 (24,407)
Other Assets (2,000) (206)
Prepaid Expenses 4,572 (22,891)
Accounts Payable 3,159 26,815
Accrued Expenses (45,171) (19,126)
--------- ---------
Cash Used in Operating Activities (150,334) (280,728)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property & Equipment (4,686) (20,155)
--------- ---------
Cash Used in Investing Activities (4,686) (20,155)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Short Term Loan 122,000 6,116
Proceeds from Long Term Loan 25,000 0
Payments on Long Term Loan (1,188) 0
--------- ---------
Cash provided by financing activities 145,812 6,116
Net Increase (decrease) in cash and cash equivalents (9,208) (294,767)
Cash and Cash Equivalents, beginning of period 19,099 479,334
--------- ---------
Cash and Cash Equivalents, end of period $ 9,891 $ 184,567
========= =========
SUPPLEMENTARY DISCLOSURE
Taxes Paid $ 0 $ 0
Interest Paid $ 24,151 $ 527
NONCASH TRANSACTION DISCLOSURE
Conversion of Series A Preferred shares to common shares $ 0 $ 71,200
See accompaning notes
-5-
NOTE A - SUMMARY OF ACCOUNTING
The December 2001, 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, 2001. 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:
December 31, June 30,
2001 2001
---- ----
Finished Goods $ 5,313 $ 5,073
Raw Materials $ 24,362 $ 30,335
Diabetic Products $ 6,098 $ 9,325
--------- ---------
$ 35,773 $ 44,733
========= =========
NOTE C - 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 December 31,
2001, no dividends have been declared. Dividends in arrears on the
outstanding preferred shares total $133,221 as of December 31, 2001. 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 the outstanding Series A Preferred Stock.
-6-
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.
Liquidity and Capital Resources
As of December 31, 2001, the Company's principal sources of liquid assets
included cash and cash equivalents of $9,891, inventories of $35,773, and
net accounts receivable of $98,028. The Company had negative working
capital of $307,290, and long-term debt of $23,812 at December 31, 2001.
During the six months ended December 31, 2001, cash and cash equivalents
decreased from $19,099 as of June 30, 2001 to $9,981. Operating activities
used cash of $150,344 during the period, consisting primarily of a net loss
of $98,209. Cash provided by financing activities was $145,812 as compared
to $6,116 for the corresponding period in 2000.
At December 31, 2001, the Company had no commitments for capital
expenditures.
The Company has deferred tax assets with a 100% valuation allowance at
December 31, 2001. Management is not able to determine if it is more likely
than not that the deferred tax assets will be realized.
The Company also has secured a $250,000 line of credit with its bank, for
operational purposes. The Company also secured a long loan from one of its
officers, for $25,000 during the quarter. Management is continuing its
efforts to raise additional funding through a private equity placement. The
funds will be used to support advertising and operations. The ability of
the Company to continue as a going concern maybe dependent upon the success
of these actions.
-7-
Results of Operations
Comparison of Three, and Six Months ended December 31, 2001 and 2000.
Net sales during the quarter ended December 31, 2001 were $317,032, as
compared to $221,157 in the quarter ended December 31, 2000, an increase of
$95,875, or 43%. Net sales during the six months ended December 31, 2001
were $615,849, as compared to $424,506 in the six months ended December 31,
2000, an increase of $191,343, or 45%.
Gross profit during the quarter ended December 31, 2001 was $262,208, as
compared to $186,223 during the quarter ended December 31, 2000, an
increase of $75,985, or 41%. Gross profit during the six months ended
December 31, 2001 was $504,248, as compared to $354,072 during the six
months ended December 31, 2000, an increase of $150,176, or 42%. As a
percentage of net sales, gross profit was 83% in the quarter ended December
31, 2001, as compared to 84% in the corresponding quarter in 2000. As a
percentage of net sales, gross profit was 82% in the six months ended
December 31, 2001, as compared to 83% in the corresponding six months in
2000.
Operating expenses during the quarter ended December 31, 2001, were
$239,998, consisting of $96,684 in salaries and benefits, and $143,314 in
selling, general and administrative expenses. This compares to operating
expenses during the quarter ended December 31, 2000 of $346,954, consisting
of $96,150 in salaries and benefits, and $250,804 in selling, general and
administrative expenses. Operating expenses during the six months ended
December 31, 2001, were $578,336, consisting of $229,901 in salaries and
benefits, and $348,435 in selling, general and administrative expenses.
This compares to operating expenses during the six months ended December
31, 2000 of $623,079, consisting of $180,432 in salaries and benefits, and
$442,647 in selling, general and administrative expenses. The Company
expects expenses to rise somewhat as sales increase over the remainder of
the fiscal year. Increased operating expenses were due to increased sales.
The Company had an operating profit of $22,210 in the quarter ended
December 31, 2001, as compared to an operating loss of $160,731 in the
corresponding quarter in 2000. The decrease in operating loss was primarily
due to higher sales and a reduction of Selling, General and Administrative
expenses. Net profit (before dividend requirements for Preferred Shares)
was $6,645 during the quarter ended December 31, 2001, as compared to a net
loss of $157,984 during the quarter ended December 31, 2000. The Company
incurred an operating loss of $74,088 in the six months ended December 31,
2001, as compared to an operating loss of $269,007 in the corresponding
period in 2000. Net loss (before dividend requirements for Preferred
Shares) was $98,209 during the six months ended December 31, 2001, as
compared to a net loss of $261,498 during the six months ended December 31,
2000.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(1) Not Applicable.
(2) Not Applicable.
(c) Not Applicable.
-8-
(4) 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
(2) 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
January 24, 2002 By: /s/ John C. Anderson
---------------- ------------------------------
Date John C. Anderson, President
and Chief Financial Officer
-9-