Procyon Corp 10-Q for FY2022 Q1
Procyon Corp (PCYN)
About this 10-Q
Procyon Corp filed this 10-Q on November 19, 2021, covering the quarter ended September 30, 2021 (FY2022 Q1).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.19M
- down 4.5% from $1.25M a year earlier
- Net income
- $42.48K
- down 80.6% from net income of $219.1K a year earlier
- Diluted EPS
- $0.00
- compared with $0.03 a year earlier
UNITED STATES SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For Quarterly Period Ended
or
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
PROCYON CORPORATION
(Exact Name of Registrant as specified in its charter)
| (State of Incorporation) | (I.R.S. Employer Identification Number) |
(Address of Principal Executive Offices)
(
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| None | None | None |
Indicate by check mark whether the registrant (1) has 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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common stock, no par value;
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 Changes in Stockholders’ Equity | 5 | |
| Consolidated Statements of Cash Flows | 6 | |
| Notes to Consolidated Financial Statements | 7 | |
| ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 13 |
| ITEM 4. | CONTROLS AND PROCEDURES | 16 |
| PART II. - OTHER INFORMATION | ||
| ITEM 5. OTHER INFORMATION | 17 | |
| ITEM 6. EXHIBITS | 17 | |
| SIGNATURES | 18 | |
| PROCYON CORPORATION & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS |
| September 30, 2021 and June 30, 2021 (as restated) |
| (unaudited) | (audited) | |||||||
|
| September 30, | June 30, | ||||||
| 2021 | 2021 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Certificates of Deposit, plus accrued interest | ||||||||
| Accounts Receivable, less allowance for doubtfull accounts of $ and $ respectively. | ||||||||
| Inventories | ||||||||
| Prepaid Expenses | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| PROPERTY AND EQUIPMENT, NET | ||||||||
| OTHER ASSETS | ||||||||
| Deposits | ||||||||
| Inventories | ||||||||
| Intangible Asset | ||||||||
| ROU Assets - Operating Leases | ||||||||
| Deferred Tax Asset, Net of Valuation Allowance of $ and $, respectively | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts Payable | $ | $ | ||||||
| Accrued Expenses | ||||||||
| Lease Liability, Current | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| LONG TERM LIABILITIES | ||||||||
| Lease Liability - Long Term | ||||||||
| TOTAL LONG TERM LIABILITIES | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES | - | - | ||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Preferred Stock, shares authorized, issued. | - | - | ||||||
| Series A Cumulative Convertible Preferred Stock, par value; shares authorized; shares issued and outstanding. | ||||||||
| Common Stock, par value, shares authorized; shares issued and outstanding. | ||||||||
| Paid-in Capital | ||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS' EQUITY | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these financial statements.
| PROCYON CORPORATION & SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS |
| Three Months Ended September 30, 2021 and 2020 |
| (unaudited) | (unaudited) | |||||||
| Three Months | Three Months | |||||||
| Ended | Ended | |||||||
| Sep. 30, 2021 | Sep. 30, 2020 | |||||||
| NET SALES | $ | $ | ||||||
| COST OF SALES | ||||||||
| GROSS PROFIT | ||||||||
| OPERATING EXPENSES | ||||||||
| Salaries and Benefits | ||||||||
| Selling, General and Administrative | ||||||||
| INCOME FROM OPERATIONS | ||||||||
| OTHER INCOME | ||||||||
| Interest Income | ||||||||
| INCOME BEFORE INCOME TAXES | ||||||||
| INCOME TAX (EXPENSE) | ( | ) | ||||||
| NET INCOME | ||||||||
| Dividend requirements on preferred stock | ( | ) | ( | ) | ||||
| Basic net income available to common shares | $ | $ | ||||||
| Basic net income per common share | $ | $ | ||||||
| Weighted average number of common shares outstanding | ||||||||
| Diluted net income per common share | $ | $ | ||||||
| Weighted average number of common shares outstanding, diluted | ||||||||
The accompanying notes are an integral part of these financial statements.
| PROCYON CORPORATION & SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY |
| For the Three Months Ended September 30, 2021 and 2020 |
| Three Months Ended September 30, 2020 | Preferred Stock | Common Stock | Paid-In | Accumulated | Total Stockholders' | |||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equtiy | ||||||||||||||||||||||
| Balance, June 30, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Net Income | - | - | ||||||||||||||||||||||||||
| Balance, September 30, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Three Months Ended September 30, 2021 | Preferred Stock | Common Stock | Paid-In | Accumulated | Total Stockholders' | |||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equtiy | ||||||||||||||||||||||
| Balance, June 30, 2021 (As restated) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Net Income | - | - | ||||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
| PROCYON CORPORATION & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS |
| For the Three Months Ending September 30, 2021 and 2020 |
| (unaudited) | (unaudited) | |||||||
| September 30, | September 30, | |||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation | ||||||||
| Right of Use Asset Amortization | ||||||||
| Deferred Income Taxes | ||||||||
| Valuation Allowance | ( | ) | ||||||
| Accrued Interest on Certificates of Deposit | ( | ) | ||||||
| Decrease (increase) in: | ||||||||
| Accounts Receivable | ( | ) | ( | ) | ||||
| Deposits | ||||||||
| Inventory | ( | ) | ||||||
| Prepaid Expenses | ( | ) | ( | ) | ||||
| ROU Asset | ( | ) | ||||||
| Increase (decrease) in: | ||||||||
| Accounts Payable | ( | ) | ||||||
| Accrued Expenses | ( | ) | ( | ) | ||||
| NET CASH (USED IN) / PROVIDED BY OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOW FROM INVESTING ACTIVITIES | ||||||||
| Purchase of property & equipment | ( | ) | ( | ) | ||||
| NET CASH (USED IN) INVESTING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOW FROM FINANCING ACTIVITIES | ||||||||
| Increase in Operating Lease Liability | ( | ) | ||||||
| NET CASH PROVIDED BY /(USED IN) FINANCING ACTIVITIES | ( | ) | ||||||
| NET CHANGE IN CASH | ( | ) | ||||||
| CASH AT BEGINNING OF PERIOD | ||||||||
| CASH AT END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES | ||||||||
| Interest Paid | $ | $ | ||||||
| Taxes Paid | $ | $ | ||||||
NONCASH DISCLOSURE
During the quarter ended September 30, 2020, we increased a Right of Use Asset and corresponding lease liability in the amount of $34,798
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
NOTE A - SUMMARY OF ACCOUNTING POLICIES
The interim consolidated 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 ("GAAP") 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 consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements dated June 30, 2021, and as contained in the amendment of the Company's annual report on Form 10-K/A, as filed with the Securities and Exchange Commission on November 12, 2021, and which contain certain restatements to the June 30, 2021 financial statements. 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 consolidated 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
Stock based compensation is accounted for in accordance with Topic 718 - Compensation - Stock Compensation in the Accounting Standards Codification. Pursuant to Topic 718, all share-based payments to employees, including grants of employee stock options, are to be recognized in the statement of operations based upon their fair values. Topic 718 rescinds the acceptance of pro forma disclosure. In December 2009, our shareholders approved the adoption of a new stock option plan, providing the Company a continued means of offering stock-based compensation.
On September 30, 2021, there were
The fair value of a stock option is determined using the Black-Scholes option-pricing model, which values options based on the stock price at the grant date, the expected life of the option, the estimated volatility of the stock, the expected dividend payments, and the risk-free interest rate over the life of the option. There were
The Black-Scholes option valuation model was developed for estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Because option valuation models require the use of subjective assumptions, changes in these assumptions can materially affect the fair value of the options. Our options do not have the characteristics of traded options, therefore, the option valuation models do not necessarily provide a reliable measure of the fair value of our options.
EARNINGS PER SHARE
Basic earnings per share (EPS) is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that would occur if dilutive securities such as stock options and other contracts to issue Common Stock were exercised or converted into Common Stock or resulted in the issuance of Common Stock that then shared in earnings. We use the treasury stock method to compute potential common shares from stock options and the as-if-converted method to compute potential common shares from Preferred Stock.
For the three months ended September 30, 2021, and 2020, the potential dilutive effects of the preferred stock and stock options were included in the weighted-average shares outstanding.
NOTE B - INVENTORIES
Inventories consisted of the following:
| September 30, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Finished Goods | $ | $ | ||||||
| Raw Materials | ||||||||
| $ | $ | |||||||
At September 30, 2021 and June 30, 2021, respectively, $
NOTE C - STOCKHOLDERS' EQUITY
During January 1995, the Company's Board of Directors authorized the issuance of up to
Holders of the Preferred Stock have the right to convert their shares of Preferred Stock into an equal number of shares of Common Stock of the Company. In addition, Preferred Stock holders have the right to vote the number of shares into which their shares are convertible into Common Stock. Such preferred shares will automatically convert into share of Common Stock at the close of a public offering of Common Stock by the Company provided the Company receives gross proceeds of at least $
NOTE D - INCOME TAXES AND AVAILABLE CARRYFORWARD
As of September 30, 2021, the Company had consolidated income tax net operating loss ("NOL") carryforwards for federal income tax purposes of approximately $
The components of the provision for income tax (expense) attributable to continuing operations are as follows:
| Three Months 9/30/2021 | Three Months 9/30/2020 | |||||||
| Current | ||||||||
| Federal | $ | $ | ||||||
| State | ||||||||
| $ | $ | |||||||
| Deferred | ||||||||
| Federal | $ | ( | ) | $ | ||||
| State | ( | ) | ||||||
| $ | ( | ) | $ | |||||
| Total Income Tax Benefit / (Expense) | $ | ( | ) | $ | ||||
Deferred income taxes reflect the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:
| Non-Current | ||||
| Deferred tax assets | ||||
| NOL and contribution carryforwards | $ | |||
| Share based payments | ||||
| Lease liabilities - operating leases | ||||
| Accrued compensated absences | ||||
| Accrued bonus | ||||
| Allowance for doubtful accounts | ||||
| Total deferred tax assets | ||||
| Deferred tax (liabilities) | ||||
| Right-of-use-assets - operating leases | ( | ) | ||
| Excess of tax over book depreciation | ( | ) | ||
| Total deferred tax (liabilities) | ( | ) | ||
| Total deferred tax asset | ||||
| Valuation Allowance | ( | ) | ||
| Net Deferred Tax Asset | $ | |||
| The change in the valuation allowance is as follows: | ||||
| June 30, 2021 | $ | |||
| September 30, 2021 | $ | |||
| $ | ||||
Income taxes for the three months ended September 30, 2021 and 2020 differ from the amounts computed by applying the effective income tax rate of to income before income taxes as a result of the following:
| Three Months | Three Months | |||||||
| September 30, 2021 | September 30, 2020 | |||||||
| Expected (provision) at US statutory rate | $ | ( | ) | $ | ( | ) | ||
| State income tax net of federal (provision) | ( | ) | ( | ) | ||||
| Nondeductible Expense | ( | ) | ( | ) | ||||
| Change in estimates of loss carryforward | ||||||||
| Change in valuation allowance | ( | ) | $ | |||||
| Income Tax (Expense) | $ | ( | ) | $ | ||||
The earliest tax year still subject to examination by a major taxing jurisdiction is fiscal year end June 30, 2018.
The Company performed a review of its uncertain tax positions in accordance with Accounting Standards Codification ASC 740-10 "Uncertainty in Income Taxes". In this regard, an uncertain tax position represents the Company's expected treatment of a tax position taken in a filed tax return, or planned to be taken in a future tax return, that has not been reflected in measuring income tax expense for financial reporting purposes. As a result of this review, the Company concluded that at this time there are
NOTE E - LINE OF CREDIT
A new line of credit was procured in June 2021, with a new bank. The limit for this line of credit is $
Interest expense for the years ended June 30, 2021 and the period ending September 30, 2021, was $
The line of credit is guaranteed by Justice W. Anderson, President and Chief Executive Officer.
NOTE F - PAYCHECK PROTECTION PROGRAM LOAN
The Company applied for a loan with the Small Business Administration (the "SBA") Paycheck Protection Program ("PPP") of the Coronavirus Aid, Relief and Economic Security Act of 2020 (the "CARES Act") in the amount of $
The Loan, which is evidenced by a promissory note (the "Note"), has a two-year term, matures on April 13, 2022, and bear interests at a rate of 1.00% per annum. Monthly principal and interest payments, less the amount of any potential forgiveness (discussed below), will commence seven months from the date the Note was signed and funded. The Company did not provide any collateral or guarantees for the Loan, nor did they pay any facility charge to obtain the Loan. The Note provides for customary events of default, including, among others, those relating to failure to make payment, bankruptcy, breaches of representations and material adverse effects. The Company may prepay the principal of the Loan at any time without incurring any prepayment charges.
The Loan may be forgiven partially or fully if the Loan proceeds are used for covered payroll costs, rent and utilities, provided that such amounts are incurred during the eight-week period that commenced on April 13, 2020. Any forgiveness of the Loan will be subject to approval by the SBA and will require the Companies to apply for such treatment.
The loan was forgiven by the SBA in May of 2021.
NOTE G - RECENT ACCOUNTING PRONOUNCEMENTS
In June 2016, the F ASB issued Accounting Standards Update No. 2016-13, Financial Instruments - Credit Loss (Topic 326) {44ASU 2016-13"), which updates the guidance on recognition and measurement of credit losses for financial assets. The new requirements, known as the current expected credit loss model ("CECL ") will require entities to adopt an impairment model based on expected losses rather than incurred losses. ASU 2016-13 must be adopted on a modified-retrospective approach. This update was effective for fiscal years beginning after December 15, 2020 including interim periods within those fiscal years. In October 2019, the F ASB approved an extension for all non-SEC filers, including small reporting companies, to extend the effective date to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Therefore, the effective date for this update will be July 1, 2023. The Company is currently evaluating the potential impact of the adoption of the new standard on its consolidated statements of financial condition and results of operations.
NOTE H - RIGHT-OF-USE ASSETS AND LEASE LIABILITIES
Operating leases
In June 2015, the Company entered into a lease agreement to lease certain office equipment with a lease term of
In February 2018, the Company entered in a lease agreement to lease warehouse space with a lease term of
In August 2020, the Company entered into a lease agreement to lease certain office equipment with a lease term of
In January 2021, the Company entered in a lease agreement to lease warehouse space with a lease term of
In January 2021, the Company entered in a lease agreement to lease office space with a lease term of
The following is information related to the Company’s right-of-use assets and liabilities for its operating leases:
| ROU assets - operating leases obtained in exchange for lease liabilities - operating leases | $ | |||
| Amortization of ROU assets since lease inception | $ | ( | ) | |
| ROU assets - operating leases at September 30, 2021 | $ | |||
| Lease liabilities - operating leases on adoption date and increase in lease liabilities | $ | |||
| Payments on lease liabilities | ( | ) | ||
| Lease liabilities - operating leases on September 30, 2021 | ||||
| Lease liabilities - operating leases due in the 12 months ending September 30, 2022 | ||||
| Lease liabilities - operating leases due after September 30, 2022 | $ |
Variable lease expense was $
Weighted average remaining lease term was
NOTE I - CONTINGENCY
At the time of release of these financial statements, the United States is experiencing a National Emergency related to persistent health issues. Management is unable to quantify the potential duration and economic impact of mandated closures by our National, State or Local governments.
NOTE J - SUBSEQUENT EVENTS
We have evaluated subsequent events through November 17, 2021, which is the date the financial statements were available to be issued.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
General
You should read the following discussion and analysis in conjunction with the unaudited Condensed Financial Statements and Notes thereto appearing elsewhere in this report.
This Report on Form 10-Q, including Management's Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements. When used in this report, the words "may," "will," "expect," "anticipate," "continue," "estimate," "project," "intend," "hope," "believe" and similar expressions, variations of these words or the negative of those words, and, any statement regarding possible or assumed future results of operations of the Company's business, the markets for its products, anticipated expenditures, regulatory developments or competition, or other statements regarding matters that are not historical facts, 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, product recalls, manufacturing capabilities, the impact of the COVID-19 pandemic on the Company’s sales, operations and supply chain and other risks 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.
Recent Developments
In fiscal 2021 to date, management has expanded on the services and options the Company provides for its customers. A new website for the Extremit-Ease product was created and is operational (www.extremitease.com). Management is also working on new Business to Customer (B to C) channels to provide Retail customers better opportunity to purchase our products. The Company also expanded its facilities in January, moving into approximately 18,000 square feet of office and warehouse space. This move brought the Company back under a single roof. This has already proven to be very beneficial to our operations. In fiscal 2020, AMERX’s Extremit-Ease Compression Garment line expanded with the introduction of a Tan version of the garment and matching liner. The Amerx Wound Care line was boosted by the introduction of Retention Tape to its’ line up. The Company also expanded the Helix 3 Collagen line with new sizes, made available for certain customers.
Impact of COVID-19 on Our Business
The financial effects of the COVID-19 pandemic started showing their impact on our Company in March of 2020. Due to the timing of these events, the full effect of COVID-19 on our business cannot yet be fully quantified. We have felt the effects of the COVID-19 pandemic in our operations, as management continues to dedicate time and effort researching, discussing and implementing policies and procedures necessary to navigate through the ever changing landscape the COVID-19 pandemic has and continues to provide. As an essential business, management was tasked with remaining open, while keeping our employees safe, and providing our customers, who were still able to actively provide healthcare services, with the products they need.
Updating the effects of COVID-19 on our business, currently the effects of the pandemic on our business were most severely seen in April 2020; however, this could change with news of expected spikes and potential shut down in the future. This was a direct result of the inability for customers to have elective surgery. Once elective surgeries were permitted again we have seen a steady increase in volume. We continue to monitor operations, and are still implementing procedures to keep all our employees as safe as possible. Management does not believe it will truly be able to assess the affects of COVID-19 until the pandemic is deemed to be under control, with no foreseen future impact.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's condensed consolidated financial statements have been prepared in accordance with standards of the Public Company Accounting Oversight Board (United States), which require the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosures. A summary of those significant accounting policies can be found in the Notes to the Consolidated Financial Statements included in the Company's annual report on form 10-K, for the year ended June 30, 2021, which was filed with the Securities and Exchange Commission on October 8, 2021, and as contained in the amendment of the Company's annual report on Form 10-K/A, as filed with the Securities and Exchange Commission on November 12, 2021, and which contain certain restatements to the June 30, 2021 financial statements. The estimates used by management are based upon the Company's historical experiences combined with management's understanding of current facts and circumstances. Certain of the Company's accounting policies are considered critical as they are both important to the portrayal of the Company's financial condition and the results of its operations and require significant or complex judgments on the part of management. We believe that the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements.
Accounts Receivable Allowance
Accounts receivable allowance reflects a reserve that reduces our customer accounts and receivable to the net amount estimated to be collectible. The valuation of accounts receivable is based upon the credit-worthiness of customers and third-party payers as well as historical collection experience. Allowances for doubtful accounts are recorded as a selling, general and administrative expense for estimated amounts expected to be uncollectible from third-party payers and customers. The Company bases its estimates on its historical collection experience, current trends, credit policy and on the analysis of accounts by aging category. At September 30, 2021, and June 30, 2021, our allowance for doubtful accounts totaled $9,408 and $9,408, respectively.
Advertising and Marketing
The Company uses several forms of advertising, including sponsorships to agencies who represent the professionals in their respective fields. The Company expenses these sponsorships over the term of the advertising arrangements on a straight line basis. Other forms of advertising used by the Company include professional journal advertisements, distributor catalogs, website and mailing campaigns. These forms of advertising are expensed when incurred.
Deferred Income Taxes
Deferred income taxes are recognized for the expected tax consequences in future years for differences between the tax bases of assets and liabilities and their financial reporting amounts, based upon enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. The Company accounts for income taxes under Topic 740 - Income Tax in the Accounting Standards Codification. A valuation allowance is used to reduce deferred tax assets to the net amount expected to be recovered in future periods. The estimates for deferred tax assets and the corresponding valuation allowance require us to exercise complex judgments. We periodically review and adjust those estimates based upon the most current information available. The Company had a valuation allowance of $6,288 as of September 30, 2021 and $0 as of June 30, 2021, respectively. Because the recoverability of deferred tax assets is directly dependent upon future operating results, actual recoverability of deferred tax assets may differ materially from our estimates.
Revenue Recognition
The Company recognizes revenue in accordance with the Financial Accounting Standards Board's (FASB) release of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606) which requires that five basic criteria must be met before revenue can be recognized: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation.
Stock Based Compensation
Stock based compensation is accounted for in accordance with Topic 718 - Compensation - Stock Compensation in the Accounting Standards Codification. All share-based payments to employees, including grants of employee stock options, are to be recognized in the statement of operations based upon their fair values. Topic 718 rescinds the acceptance of pro forma disclosure.
FINANCIAL CONDITION
As of September 30, 2021 the Company's principal sources of liquid assets included cash of $1,015,495, inventories of $712,800, and net accounts receivable of $640,054. The Company also has $280,438 in Certificate of Deposits. The Company had net working capital of $2,193,916, and long-term lease of $613,856, at September 30, 2021.
During the three months ended September 30, 2021 cash decreased from $1,226,522 as of June 30, 2021, to $1,015,495. Operating activities used cash of $152,653 during the period. Investing and Financing activities used cash of $20,474 and $37,900, respectively during the period.
The Company reflected a net non-current deferred tax asset of $96,657, at September 30, 2021. Because the recoverability of deferred tax assets is directly dependent upon future operating results, actual recoverability of deferred tax assets may differ materially from our estimates.
RESULTS OF OPERATIONS
Comparison of the three months ended September 30, 2021 and 2020.
Net sales during the quarter ended September 30, 2021, were $1,189,978 as compared to the previous year's quarter net sales of $1,246,243, a decrease of $56,265, or approximately 5%. We believe decreased sales were driven by fluctuations in customer buying patterns.
Gross profit during the quarter ended September 30, 2021, was $861,725 as compared to $911,923 during the quarter ended September 30, 2020, a decrease of $50,198 or 6%. As a percentage of net sales, gross profit was approximately 72% in the quarter ended September 30, 2021, and approximately 73% in the corresponding quarter in 2020.
Operating expenses during the quarter ended September 30, 2021 were $795,841, consisting of $439,459 in salaries and benefits and $356,382 in selling, general and administrative expenses. This compares to operating expenses during the quarter ended September 30, 2020 of $695,374, consisting of $412,254 in salaries and benefits; and $283,120 in selling, general and administrative expenses. Expenses for the quarter ended September 30, 2021, increased by $100,467 or approximately 14% compared to the corresponding quarter in 2020. Salaries and Benefits increased as a result of hiring additional sales support staff and warehouse support, as well as increased salaries driven by the current economies of the available workforce. Operating expenses increased primarily due to increases in marketing expenses and expenses asscociated with tradeshows, as some shows have begun to open back up, and rent expense from our new offices.
Operating profit decreased by $150,665 to an operating profit of $65,884 for the quarter ended September 30, 2021, as compared to an operating profit of $216,549 in the comparable quarter of the prior year. The decrease in net income for the three month period, of the comparable quarter of the prior year before income taxes was primarily attributable to the increase in marketing expenses and rent associated with our new offices.
ITEM 4. CONTROLS AND PROCEDURES
| (a) |
Evaluation of Disclosure Controls and Procedures |
Management of the Company, with the participation of the Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of the Company's disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as of the end of the period covered by this report. Based on that evaluation, management, including the Chief Executive and Chief Financial Officer, has concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were not effective in ensuring that all material information relating to the Company required to be disclosed in this report has been made known to management in a timely manner and ensuring that this information is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and regulations, because of the identification of a material weakness in our internal controls over financial reporting, identified below, which we view as an integral part of our disclosure controls and procedures.
| (b) |
Changes in Internal Controls Over Financial Reporting |
As previously reported, our annual assessment of the internal controls over financial reporting as of June 30, 2021 revealed a deficiency that we consider to be a material weakness: inadequate segregation of duties consistent with control objectives.
During fiscal 2022, the Company will continue to address changes needed to improve segregation of duties consistent with control objectives. We have added staff to grow sales. We expect that increased sales will enable us to add support staff, specifically in the accounting and shipping departments. A secondary effect of adding more staff will address needed improvements in segregation of duties consistent with control objectives.
PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION ITEM 6. EXHIBITS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS
| (A) |
EXHIBITS |
| // |
10.1 |
||
| // |
10.2 |
||
| // |
10.3 |
||
| ++ |
10.5 |
Business Line of Credit - Loan Agreement dated June 10, 2021 |
|
| ++ |
10.6 |
Business Line of Credit - Promissory Note dated June 10, 2021 |
|
| ** |
10.7 |
||
| 31.1 |
Certification of Justice W. Anderson pursuant to Exchange Act Rule 13a-14(a)/15d-14(a) |
||
| 31.2 |
Certification of James B. Anderson pursuant to Exchange Act Rule 13a-14(a)/15d-14(a) |
||
| 32.1 |
|||
| 101.1 | * | The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in iXBRL (Inline Extensible Business Reporting Language): (I) the Condensed Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) the Notes to Condensed Consolidated Financial Statements | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101) | ||
| * | Furnished, not filed | ||
| // | Incorporated by reference to the Company’s form 8-K filed on or about July 28, 2021. | ||
| ++ | Incorporated by reference to the Company’s form 10-K filed on or about October 28, 2021. | ||
| ** | Incorporated by reference to the Company’s form 8-K filed on or about February 28, 2021. |
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 19, 2021 | By:/s/ JUSTICE W. ANDERSON |
| Date | Justice W. Anderson, Chief Executive Officer |
Exhibit 31.1
CERTIFICATION
I, Justice W. Anderson, Chief Executive 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 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 report; and |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this 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 report. |
|
4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant issuer and have: |
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
|
5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
|
(a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
(b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: November 19, 2021
/s/ JUSTICE W. ANDERSON
Justice W. Anderson, Chief Executive Officer
Exhibit 31.2
CERTIFICATION
I, James B. Anderson, 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 report does not contain any untrue statement of a material fact or omit to stated 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 report; and |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this 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 report. |
|
4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant issuer and have: |
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
|
5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
|
(a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
(b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: November 19, 2021
/s/ JAMES B. ANDERSON
James B. Anderson, Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. §1350,
AS ADOPTED PURSUANT TO SECTION 906OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Procyon Corporation (the "Company") on Form 10-Q for the period ended September 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, the undersigned Chief Executive Officer and Chief Financial Officer of the Company, do each certify, to our knowledge, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
|
(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
Dated: November 19, 2021
| /s/ JUSTICE W. ANDERSON | /s/ JAMES B. ANDERSON |
| Justice W. Anderson Chief Executive Officer | James B. Anderson, Chief Financial Officer |