UNITED STATES
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For quarterly period ended September 30, 2002
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 18(d) OF THE EXCHANGE ACT
For the transition period from ______ to _______
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 or other jurisdiction of (IRS Employer
incorporation or organization) 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)
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12,13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. YES [ ] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
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; 7,910,338 shares outstanding as of November 6, 2002
Transitional Small Business Disclosure Format (check one) Yes [ ] No [x]
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 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 1. LEGAL PROCEEDINGS.................................................. 8
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K .................................. 9
SIGNATURES................................................................. 9
PART 1 FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2002 & JUNE 30, 2002
(unaudited) (audited)
September 30 June 30
2002 2002
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ASSETS
CURRENT ASSETS
Cash $ 15,361 $ 0
Accounts Receivable, less allowances of $8,500 129,447 109,985
Prepaid Expenses 35,539 35,283
Inventories 67,034 57,303
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Total Current Assets 247,381 202,571
PROPERTY AND EQUIPMENT
Office Equipment 59,794 59,794
Furniture and Fixtures 15,164 14,666
Production Equipment 14,236 14,236
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89,194 88,696
Accumulated Depreciation (52,403) (49,355)
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Total Property & Equipment 36,791 39,341
OTHER ASSETS
Certificates of deposit
plus accrued interest, restricted 17,114 17,114
Deposits 844 844
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Total Other Assets 17,958 17,958
TOTAL ASSETS $ 302,130 $ 259,870
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LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Excess of checks issued over bank balance $ -- $ 24,168
Accounts Payable 241,635 249,370
Current Portion Long Term Debt 5,693 5,499
Accrued Liabilities 25,236 29,774
Note Payable - Related Party 282,988 258,487
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Total Current Liabilities 555,552 567,298
Long Term Liability
Note Payable Related Party 14,739 16,238
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Total Long Term Liability 14,739 16,238
Stockholders' deficiency
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; 7,894,338 shares issued and
outstanding 4,287,214 4,262,414
Common stock subscribed 3,000 0
Accumulated deficit (4,790,325) (4,830,530)
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Total Stockholders' Deficiency (268,161) (323,666)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 302,130 $ 259,870
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See accompaning notes
3
PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30, 2002 and 2001
(unaudited) (unaudited)
Three Months Three Months
Ended Ended
Sept. 30, Sept. 30,
2002 2001
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Net Sales $ 410,139 $ 298,598
Cost of Sales 82,819 56,461
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Gross Profit 327,320 242,137
Operating Expenses:
Salaries and Benefits 131,001 133,216
Selling, General and Administrative 146,609 205,121
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Total Operating Expenses 277,610 338,337
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Income (Loss) from Operations 49,710 (96,200)
Other Income (Expense):
Interest Expense (9,713) (8,586)
Interest Income 157 63
Other Income 50 0
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Total Other Income (Expense) (9,506) (8,523)
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Net Income (Loss) 40,204 (104,723)
Dividend requirements on preferred stock (153) (7,215)
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Income(Loss) applicable to common stock $ 40,051 ($ 111,938)
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Basic Income (Loss) per common share 0.01 (0.01)
Weighted average number of
common shares outstanding 7,866,930 7,861,338
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See accompaning notes
4
PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended September 30, 2002 and 2001
(unaudited) (unaudited)
Three Months Three Months
Ended Ended
Sept. 30 Sept. 30
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ 40,204 ($104,723)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation 3,048 3,284
Decrease (Increase) in:
Accounts Receivable (19,461) (8,627)
Inventories (9,730) (1,288)
Prepaid Expenses (255) 6,993
Increase (decrease) in:
Excess of checks issued
over bank balance (24,168) 0
Accounts Payable (7,738) 39,939
Accrued Expenses (4,538) (39,207)
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Cash Used in Operating Activities (22,638) (103,629)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property & Equipment (498) (4,686)
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Cash Used in Investing Activities (498) (4,686)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Long Term Loan 0 95,000
Payments on Long Term Loan (1,303) 0
Proceeds from Stockholder Loan 24,500 0
Proceeds from Issuance of Common Stock 12,300 0
Proceeds from Common Stock Subscribed 3,000 0
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Cash provided by financing activities 38,497 95,000
Net Increase (decrease) in cash and cash equivalents 15,361 (13,315)
Cash and Cash Equivalents, beginning of period 0 19,099
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Cash and Cash Equivalents, end of period $ 15,361 $ 5,784
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SUPPLEMENTAL DISCLOSURES
Interest Paid $ 9,713 $ 8,586
Taxes Paid 0 0
NONCASH TRANSACTION DISCLOSURE
Preferred Shares converted to Common Shares $ 12,500 $ 0
See accompaning notes
5
PROCYON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF ACCOUNTING
The financial statements for the period ended September 30, 2002 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, 2002. 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,
2002 2002
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Finished Goods $ 5,393 $ 4,563
Raw Materials $ 48,180 $ 42,235
Diabetic Products $ 13,461 $ 10,505
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$ 67,034 $ 57,303
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NOTE C - STOCKHOLDERS' DEFICENCY
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,
2002, no dividends have been declared. Dividends in arrears on the
outstanding preferred shares total $147,804 as of September 30, 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.
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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 September 30, 2002, the Company's principal sources of liquid
assets included cash and cash equivalents of $15,361, inventories of
$67,034, and net accounts receivable of $129,447. The Company had
negative working capital of $308,171, and long-term debt of $14,739 at
September 30, 2002.
During the three months ended September 30, 2002, cash and cash
equivalents increased from $0 as of June 30, 2002 to $15,361.
Operating activities used cash of $22,638 during the period,
consisting primarily of decrease on excess of checks issued over bank
balance of $24,168 as compared to $103,629 for the quarter ended
September 30, 2001. Cash provided by financing activities was $38,497,
as compared to $95,000 for the quarter September 30, 2001.
At September 30, 2002, the Company had no commitments for capital
expenditures.
The Company has deferred tax assets with a 100% valuation allowance at
September 30, 2002. 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 $300,000 line of credit from the
principal shareholder, an increase from the original $250,000, for
operational purposes. The Company also holds a long-term note with
another principal of the Company for $25,000, at a rate of 14%.
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.
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Results of Operations
Comparison of Three Months ended September 30, 2002 and 2001.
Net sales during the quarter ended September 30, 2002 were $410,139,
as compared to $298,598 in the quarter ended September 30, 2001, an
increase of $111,541, or 37%. Management believes the reason for the
increase is due to the increasing sales from the current calendar
year, from it's growing customer base, as well as the relatively low
numbers produced in the previous year corresponding to the events of
September 11, 2001.
Gross profit during the quarter ended September 30, 2002 was $327,320,
as compared to $242,137 during the quarter ended September 30, 2001,
an increase of $85,183, or 35%. As a percentage of net sales, gross
profit was 80% in the quarter ended September 30, 2002, as compared to
81% in the corresponding quarter in 2001.
Operating expenses during the quarter ended September 30, 2002 were
$277,610, consisting of $131,001 in salaries and benefits, and
$146,609 in selling, general and administrative expenses. This
compares to operating expenses during the quarter ended September 30,
2001 of $338,337, consisting of $133,216 in salaries and benefits, and
$205,121 in selling, general and administrative expenses, a reduction
of 19%. The Company has continued to operate on less staff than the
previous year, as well as a more conservative marketing plan. The
Company expects expenses to rise somewhat as sales increase over the
remainder of the fiscal year. The reduction in expenses for September
2002 is accounted for mostly by the reduction in high cost
advertising. The Company still performs a significant amount of
advertising; however, this process has become more streamlined over
the year.
The Company had an operating profit of $49,710 in the quarter ended
September 30, 2002, as compared to an operating loss of $96,200 in the
corresponding quarter in 2001. The decrease in operating loss was
primarily due to higher sales and a reduction of selling, general and
administrative expenses. Net income (before dividend requirements for
Preferred Shares) was $40,204 during the quarter ended September 30,
2002, as compared to a net loss of $104,723 during the quarter ended
September 30, 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
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE.
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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
November 7, 2002 By: /s/ John C. Anderson
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Date John C. Anderson,
Chief Executive Officer
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;
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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: November 7, 2002
/s/ JOHN C. ANDERSON
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John C. Anderson
Chief Executive Officer and Chief Financial Officer
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