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, 2003
[ ] 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; 8,041,388 shares outstanding as of May 14, 2003
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
ITEM 3. CONTROLS AND PROCEDURES............................................ 8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K .................................. 9
SIGNATURES................................................................. 9
CERTIFICATIONS............................................................. 9
PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2003 & JUNE 30, 2002
(unaudited) (audited)
March 31 June 30
2003 2002
----------- -----------
ASSETS
CURRENT ASSETS
Cash $ 35,390 $ 0
Accounts Receivable, less allowances
of $14,500 & $8,500, respectively 165,852 109,985
Prepaid Expenses 35,826 35,283
Inventories 85,445 57,303
----------- -----------
Total Current Assets 322,513 202,571
PROPERTY AND EQUIPMENT
Office Equipment 59,794 59,794
Furniture and Fixtures 15,164 14,666
Production Equipment 14,235 14,236
----------- -----------
89,193 88,696
Accumulated Depreciation (58,496) (49,355)
----------- -----------
Total Property & Equipment 30,697 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 $ 371,168 $ 259,870
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Excess of checks issued over bank balance 0 24,168
Current portion of Long Term Debt 6,104 5,499
Accounts Payable 287,099 $ 249,370
Accrued Liabilities 25,823 29,774
Notes Payable 291,488 258,487
----------- -----------
Total Current Liabilities 610,514 567,298
Long Term Liabilities
Note Payable 11,582 16,238
----------- -----------
Total Long Term Liabilities 11,582 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;
186,950 shares issued and outstanding 186,950 244,450
Common stock, no par value,
80,000,000 shares authorized
8,006,388 shares issued & outstanding 4,363,677 4,262,414
Accumulated deficit (4,801,555) (4,830,530)
----------- -----------
Total Stockholders' Deficiency (250,928) (323,666)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 371,168 $ 259,870
=========== ===========
See accompaning notes
3
PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2003 & 2002
NINE MONTHS ENDED MARCH 31, 2003 & 2002
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
March 31, 2003 March 31, 2002 March 31, 2003 March 31, 2002
-------------- -------------- -------------- --------------
(unaudited) (unaudited)
Net Sales $ 392,679 $ 371,072 $ 1,212,427 $ 996,981
Cost of Sales 88,534 62,270 263,131 184,468
----------- ----------- ----------- -----------
Gross Profit 304,145 308,802 949,296 812,513
Operating Expenses:
Salaries and Benefits 136,492 107,741 410,400 337,642
Selling, General and Administrative 162,245 197,415 481,346 545,868
----------- ----------- ----------- -----------
Total Operating Expenses 298,737 305,156 891,746 883,510
----------- ----------- ----------- -----------
Profit (loss) from Operations 5,408 3,646 57,550 (70,997)
Other Income (Expense):
Interest Expense (9,915) (6,757) (28,966) (30,908)
Interest Income 89 0 336 30
Other Income 0 4,557 50 4,717
----------- ----------- ----------- -----------
Total Other Income (expense) (9,826) (2,200) (28,580) (26,161)
----------- ----------- ----------- -----------
Net Profit (loss) (4,418) 1,446 28,970 (97,158)
Dividend requirements on preferred stock (18,972) 7,215 11,918 21,645
----------- ----------- ----------- -----------
Loss applicable to common stock $ 14,554 ($ 5,769) $ 17,052 ($ 118,803)
=========== =========== =========== ===========
Basic Gain (Loss) per common share $ 0.00 $ 0.00 $ 0.00 ($ 0.02)
Weighted average number of
common shares outstanding 7,984,397 7,861,338 7,893,822 7,861,338
=========== =========== =========== ===========
See accompaning notes
4
PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 2003 & 2002
Nine Months Nine Months
Ended Ended
March 31, March 31,
2003 2002
------------ ----------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Profit (Loss) $ 28,970 ($ 97,158)
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation 9,141 9,885
Allowance for doubtful accounts 6,000 0
Common stock issued for services 6,863 0
Decrease (increase) in:
Accounts Receivable (trade) (61,867) (51,619)
Inventories (28,142) 2,226
Other Assets 0 476
Prepaid Expenses (543) (4,158)
Increase (decrease) in:
Accounts Payable 37,735 (33,493)
Excess of checks issued
over bank balance (24,168) 0
Accrued Expenses (3,951) (6,563)
--------- ---------
Cash Used in Operating Activities (29,962) (180,404)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property & Equipment (497) (7,390)
--------- ---------
Cash Used in Investing Activities (497) (7,390)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Short Term Loan 0 155,500
Payments on Short Term Loan 0 (500)
Proceeds from Long Term Loan 0 25,000
Payments on Long Term Loan (4,051) (2,419)
Proceeds from Stockholder Loan 33,000 0
Proceeds from Issuance of Common Stock 36,900 0
--------- ---------
Cash provided by financing activities 65,849 177,581
Net Increase (decrease) in cash and cash equivalents 35,390 (10,213)
Cash and Cash Equivalents, beginning of period 0 19,099
--------- ---------
Cash and Cash Equivalents, end of period $ 35,390 $ 8,886
========= =========
SUPPLEMENTAL DISCLOSURES
Interest Paid $ 28,966 $ 31,172
Taxes Paid 0 0
NONCASH TRANSACTION DISCLOSURE
Preferred Shares converted to Common Shares $ 57,500 0
See accompaning notes
5
NOTE A - SUMMARY OF ACCOUNTING POLICIES
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.
STOCK-BASED COMPENSATION
The Company has adopted SFAS No. 148, "Accounting for Stock-Based
Compensation, Transition and Disclosure." The Company accounts for stock-based
employee compensation arrangements in accordance with the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25") and has elected to follow the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS No. 123"). Under the provisions of APB 25,
the Company recognizes compensation expense only to the extent that the exercise
price of the Company's employee stock options is less than the market price of
the underlying stock on the date of grant. SFAS No. 123 requires the
presentation of pro forma information as if the Company has accounted for its
employee stock options granted under the fair value method.
NOTE B - INVENTORIES
Inventories consisted of the following:
March 31, June 30,
2003 2002
---- ----
Finished Goods $14,117 $ 4,563
Raw Materials $61,940 $42,235
Diabetic Products $ 9,388 $10,505
------- -------
$85,445 $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 March 31, 2003,
no dividends have been declared. Dividends in arrears on the outstanding
preferred shares total $135,734 as of March 31, 2003. 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 March 31, 2003, the Company's principal sources of liquid assets
included cash and cash equivalents of $35,390, inventories of $85,445, and
net accounts receivable of $165,852. The Company had negative working
capital of $288,001, and long-term debt of $11,582 at March 31, 2002.
During the nine months ended March 31, 2003, cash and cash equivalents
increased from $0 as of June 30, 2002 to $35,390. Operating activities used
cash of $29,962 during the period, consisting primarily of a increase in
Accounts Receivable of $61,867. Cash provided by financing activities was
$65,849 as compared to $177,581 for the corresponding period in 2002.
At March 31, 2003, the Company had no commitments for capital expenditures.
The Company has deferred tax assets with a 100% valuation allowance at
March 31, 2003. Management is not able to determine if it is more likely
than not that the deferred tax assets will be realized.
Results of Operations
Comparison of Three, and Nine Months ended March 31, 2003 and 2002.
Net sales during the quarter ended March 31, 2003 were $392,679, as
compared to $371,072 in the quarter ended March 31, 2002, an increase of
$21,607, or 6%. Net sales during the nine months ended March 31, 2003 were
$1,212,427, as compared to $996,981 in the nine months ended March 31,
2002, an increase of $215,446, or 22%. Increases in sales continue for the
Company as market share increases, and marketing plans continue to reach
their target market.
7
Gross profit during the quarter ended March 31, 2003 was $304,145, as
compared to $308,802 during the quarter ended March 31, 2002, a decrease of
$4,657, or 2%. Gross profit during the nine months ended March 31, 2003 was
$949,296, as compared to $812,513 during the nine months ended March 31,
2002, an increase of $136,783, or 17%. As a percentage of net sales, gross
profit was 77% in the quarter ended March 31, 2003, as compared to 83% in
the corresponding quarter in 2002. As a percentage of net sales, gross
profit was 78% in the nine months ended March 31, 2003, as compared to 81%
in the corresponding nine months in 2002. Gross profit increased for the
nine months based on increased sales, however as a percentage of net sales
gross profit decreased based on increased manufacturing cost, and an
increase in the Sirius subsidiary sales for the period as well.
Operating expenses during the quarter ended March 31, 2003, were $298,737,
consisting of $136,492 in salaries and benefits, and $162,245 in selling,
general and administrative expenses. This compares to operating expenses
during the quarter ended March 31, 2002 of $305,156, consisting of $107,741
in salaries and benefits, and $197,415 in selling, general and
administrative expenses. Operating expenses during the nine months ended
March 31, 2003, were $891,746, consisting of $410,400 in salaries and
benefits, and $481,346 in selling, general and administrative expenses.
This compares to operating expenses during the nine months ended March 31,
2002 of $883,510, consisting of $337,642 in salaries and benefits, and
$545,868 in selling, general and administrative expenses. Expense for the
period have remained consistent overall, but have seen a shift towards
salaries & benefits as the Company has increased it's personel.
The Company had an operating profit of $5,408 in the quarter ended March
31, 2003, as compared to an operating profit of $3,646 in the corresponding
quarter in 2002. Net Loss (before dividend requirements for Preferred
Shares) was $4,418 during the quarter ended March 31, 2003, as compared to
a net profit of $1,446 during the quarter ended March 31, 2002. The Company
had an operating profit of $57,550 in the nine months ended March 31, 2003,
as compared to an operating loss of $70,997 in the corresponding period in
2002. Net profit (before dividend requirements for Preferred Shares) was
$28,970 during the nine months ended March 31, 2003, as compared to a net
loss of $97,158 during the nine months ended March 31, 2002. The Company
believes it has turned the corner towards profitability after surviving the
financial difficulties faced in the past. The Company continues to improve
it's cash position and profitability.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
The management of the Company, including the Chief Executive Officer /
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 / 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 - None
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, thereunto duly
authorized.
PROCYON CORPORATION
May 14, 2002 By: /s/ John C. Anderson
------------ ------------------------
Date John C. Anderson, President
and Chief Financial Officer
9
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-Q 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;
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: May 14, 2003
/s/ JOHN C. ANDERSON
--------------------
John C. Anderson
Chief Executive Officer and Chief Financial Officer
10