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, 2002
[ ] 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; 7,934,338 shares outstanding as of February 13,
2003
Transitional Small Business Disclosure Format (check one) Yes [ ] No [x]
PART I. FINANCIAL INFORMATION
Item
Page
----
ITEM 1. FINANCIAL STATEMENTS.............................................. 3
Consolidated Balance Sheets...................................... 3
Consolidated Statements of Operations ........................... 4
Consolidated Statements of Cash Flows ........................... 5
Notes to Consolidated Financial Statements....................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................. 7
ITEM 3. CONTROLS AND PROCEDURES........................................... 8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ................................. 9
SIGNATURES................................................................ 9
PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND JUNE 30, 2002
(unaudited)
December 31 June 30 ***
2002 2002
----------- -----------
ASSETS
Current Assets
Cash $ 12,048 $ 0
Accounts Receivable, less allowances of $6,500, &
$8,500 respectively $ 159,654 109,985
Prepaid Expenses 34,105 35,283
Inventories 76,701 57,303
----------- -----------
Total Current Assets 282,508 202,571
PROPERTY AND EQUIPMENT
Office Equipment 38,101 59,794
Furniture and Fixtures 36,858 14,666
Production Equipment 14,236 14,236
----------- -----------
89,195 88,696
Accumulated Depreciation (55,450) (49,355)
----------- -----------
Total Property & Equipment 33,745 39,341
OTHER ASSETS
Certificates of deposit
plus accrued interest, restricted 17,114 17,114
Deposits 844 844
----------- -----------
Total Other Assets 17,958 17,958
TOTAL ASSETS $ 334,211 $ 259,870
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Excess of checks issued over bank balance 0 $ 24,168
Current Portion of Long Term Debt 5,895 5,499
Accounts Payable $ 271,093 249,370
Accrued Liabilities 13,659 29,774
Note Payable- Related Party 286,488 258,487
----------- -----------
Total Current Liabilities 577,135 567,298
Long Term Liability
Note Payable- Related Party 13,188 16,238
----------- -----------
Total Long Term Liability 13,188 16,238
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;
276,100 shares issued and outstanding 231,950 244,450
Common stock, no par value, 80,000,000 shares
authorized; 7,934,338 shares issued and
outstanding 4,309,115 4,262,414
Accumulated deficit (4,797,177) (4,830,530)
----------- -----------
Total Stockholders' Deficiency (256,112) (323,666)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 334,211 $ 259,870
=========== ===========
*** Taken from the audited balance sheet at that date
See accompanying notes
-3-
PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended December 31, 2002 and 2001
Six Months Ended December 31, 2002 and 2001
Three Months Three Months Six Months
Ended Ended Ended
Dec. 31, 2002 Dec. 31, 2001 Dec. 31, 2002
------------- ------------- -------------
(unaudited) (unaudited) (unaudited)
Net Sales $ 409,430 $ 317,032 $ 819,569
Cost of Sales 91,468 54,824 174,459
----------- ----------- -----------
Gross Profit 317,962 262,208 645,110
Operating Expenses:
Salaries and Benefits 142,908 96,684 273,909
Selling, General and Administrative 172,601 143,314 319,099
----------- ----------- -----------
Total Operating Expenses 315,509 239,998 593,008
----------- ----------- -----------
Profit (loss) from Operations 2,453 22,210 52,102
Other Income (Expense):
Interest Expense (9,344) (15,565) (19,053)
Interest Income 91 0 249
Miscellaneous Income 0 0 50
----------- ----------- -----------
Total Other Income (Expense) (9,253) (15,565) (18,754)
----------- ----------- -----------
Net Profit (Loss) (6,800) 6,645 33,348
Dividend requirements on preferred stock 6,903 7,215 7,055
----------- ----------- -----------
Loss applicable to common stock ($ 13,703) ($ 570) $ 26,293
=========== =========== ===========
Basic Profit (Loss) per common share (0.00) 0.00 0.00
Weighted average number of
common shares outstanding 7,907,986 7,861,338 7,881,551
=========== =========== ===========
See accompanying notes
-4-
PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended December 31, 2002 and 2001
(unaudited) (unaudited)
December 31, December 31,
2002 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ 33,348 $ (98,209)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation 6,096 6,567
Allowance for doubtful accounts (2,000) 0
Common Stock issued for services 2,100 0
Decrease (Increase) in:
Accounts Receivable, trade (47,669) (28,212)
Inventories (19,398) 8,960
Other Assets 0 (2,000)
Prepaid Expenses 1,178 4,572
Increase (decrease) in:
Excess of checks issued over bank balance (24,168) 0
Accounts Payable 21,725 3,159
Accrued Expenses (16,111) (45,171)
--------- ---------
Cash Used in Operating Activities (44,899) (150,334)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property & Equipment (499) (4,686)
--------- ---------
Cash Used in Investing Activities (499) (4,686)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Long Term Loan 0 25,000
Payments on Long Term Loan (2,654) (1,188)
Proceeds from Stockholder Loan 28,000 122,000
Proceeds from Issuance of Common Stock 32,100 0
--------- ---------
Cash provided by financing activities 57,446 145,812
Net Increase (decrease) in cash and cash equivalents 12,048 (9,208)
Cash and Cash Equivalents, beginning of period 0 19,099
--------- ---------
Cash and Cash Equivalents, end of period $ 12,048 $ 9,891
========= =========
SUPPLEMENTARY DISCLOSURE
Taxes Paid $ 0 $ 0
Interest Paid $ 19,053 $ 24,151
NONCASH TRANSACTION DISCLOSURE
Conversion of Series A Preferred shares to common shares $ 12,500 $ 0
See accompanying notes
-5-
Notes to Financial Statements
NOTE A - Consolidated Financial Statements
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. These financial statements should
be read in conjunction with the Company's audited financial statements dated
June 30, 2002. The results for interim periods are not necessarily indicative of
results that may be expected for any other interim period or for the full year.
Management of the Company has prepared 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 period presented and to make the financial
statements not misleading.
NOTE B - INVENTORIES
Inventories consisted of the following:
December 31, June 30,
2002 2002
---- ----
Finished Goods $ 8,458 $ 4,563
Raw Materials $ 56,371 $ 42,235
Diabetic Products $ 11,872 $ 10,505
-------- --------
$ 76,701 $ 57,303
======== ========
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, 2002, no dividends have been declared. Dividends in arrears on
the outstanding preferred shares total $154,706 as of December 31, 2002. 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.
Financial Condition
As of December 31, 2002, the Company's principal sources of liquid assets
included cash and cash equivalents of $12,048, inventories of $76,701, and
net accounts receivable of $159,654. The Company had negative working
capital of $294,627, and long-term debt of $13,188 at December 31, 2002.
During the six months ended December 31, 2002, cash and cash equivalents
increased from $0 as of June 30, 2002 to $12,048. Operating activities used
cash of $44,899 during the period, consisting primarily of a increase in
accounts receivable and inventory. Cash provided by financing activities
was $57,446 as compared to $145,812 for the corresponding period in 2001.
At December 31, 2002, the Company had no commitments for capital
expenditures.
The Company has deferred tax assets with a 100% valuation allowance at
December 31, 2002. Management is not able to determine if it is more likely
than not that the deferred tax assets will be realized.
Management is continuing its efforts to raise additional funding through a
private equity placement. The funds will be used to support advertising and
operations.
Results of Operations
Comparison of the fiscal quarter and Six Months ended December 31, 2002 and
2001.
Net sales during the quarter ended December 31, 2002 were $409,430, as
compared to $317,032 in the quarter ended December 31, 2001, an increase of
$92,398, or 29%. Net sales during the six months ended December 31, 2002
were $819,569, as compared to $615,849 in the six months ended December 31,
2001, an increase of $203,720, or 33%. The increase in net sales for the
fiscal quarter and six months ended December 31, 2002 over the same periods
in the previous fiscal year are primarily attributable to increased
marketing efforts, which management believes has caused an increase in the
customer base for both of the Company's subsidiaries.
-7-
Gross profit during the quarter ended December 31, 2002 was $317,962, as
compared to $262,208 during the quarter ended December 31, 2001, an
increase of $55,754, or 21%. Gross profit during the six months ended
December 31, 2002 was $645,110, as compared to $504,248 during the six
months ended December 31, 2001, an increase of $140,862, or 28%. As a
percentage of net sales, gross profit was 78% in the quarter ended December
31, 2002, as compared to 83% in the corresponding quarter in 2001. As a
percentage of net sales, gross profit was 79% in the six months ended
December 31, 2002, as compared to 82% in the corresponding six months in
2001. Management anticipates gross profit will continue to decrease
gradually as sales for the Sirius subsidiary grow. Sirius being a
distributor works on thinner margins than its affiliate Amerx, as a
manufacturer. Amerx has seen a slight decrease in margins as cost of
ingredients and packaging, have increased over the year.
Operating expenses during the quarter ended December 31, 2002, were
$315,509, consisting of $142,908 in salaries and benefits, and $172,601 in
selling, general and administrative expenses. This compares to operating
expenses during the quarter ended December 31, 2001 of $239,998, consisting
of $96,684 in salaries and benefits, and $143,314 in selling, general and
administrative expenses. Operating expenses during the six months ended
December 31, 2002, were $593,008, consisting of $273,909 in salaries and
benefits, and $319,099 in selling, general and administrative expenses.
This compares to operating expenses during the six months ended December
31, 2001 of $578,336, consisting of $229,901 in salaries and benefits, and
$348,435 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 primarily due to
increased cost of marketing efforts, and increased rates in insurance
premiums.
The Company had an operating profit of $2,453 in the quarter ended December
31, 2002, as compared to an operating profit of $22,210 in the
corresponding quarter in 2001. The decrease in operating profit was
primarily due to higher selling, general and administrative expenses, and
increased personnel related cost. Net loss (before dividend requirements
for Preferred Shares) was $6,800 during the quarter ended December 31,
2002, as compared to a net profit of $6,645 during the quarter ended
December 31, 2001. The Company had an operating profit of $52,102 in the
six months ended December 31, 2002, as compared to an operating loss of
$74,088 in the corresponding period in 2001. Net profit (before dividend
requirements for Preferred Shares) was $33,348 during the six months ended
December 31, 2002, as compared to a net loss of $98,209 during the six
months ended December 31, 2001.
ITEM 3 CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
The management of the Company, including the Chief Executive Officer and
the Chief Financial Officer, have conducted an evaluation of the
effectiveness of the Company's disclosure controls and procedures pursuant
to Rule 13a-14 under the Securities Exchange Act of 1934 as of a date (the
"Evaluation Date") within 90 days prior to the filing date of this report.
Based on that evaluation, the Chief Executive Officer and the Chief
Financial Officer concluded that, as of the Evaluation Date, the Company's
disclosure controls and procedures were effective in ensuring that all
material information relating to the Company, including our consolidated
subsidiaries, required to be filed in this quarterly report has been made
known to them in a timely manner.
(b) Changes in Internal Controls
There have been no significant changes made in the Company's internal
controls or in other factors that could significantly affect internal
controls subsequent to the Evaluation Date
-8-
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS - Exhibit 99.1 - Certification Pursuant to18 U.S.C. ss. 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
REPORTS ON FORM 8-K - 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 14, 2003 By: /s/ John C. Anderson
Date John C. Anderson, President and Chief
Financial Officer
CERTIFICATION
I, John C. Anderson, Chief Executive Officer and Chief Financial Officer of
Procyon Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Procyon Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
-9-
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
(a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 14, 2003
/s/ JOHN C. ANDERSON
--------------------
John C. Anderson
Chief Executive Officer and Chief Financial Officer