PCYN 10-Q
Procyon Corp (PCYN)
UNITED STATES SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For Quarterly Period Ended |
or
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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:
(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:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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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 |
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| 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 | F-2 | |
| Consolidated Statements of Operations | F-3 | |
| Consolidated Statements of Changes in Stockholders’ Equity | F-4 | |
| Consolidated Statements of Cash Flows | F-5 | |
| Notes to Consolidated Financial Statements | 6 | |
| 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 6. | EXHIBITS | 17 |
| SIGNATURES | 18 | |
PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2023, and June 30, 2023
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(unaudited) |
(audited) |
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December 31, |
June 30, |
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2023 |
2023 |
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ASSETS |
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CURRENT ASSETS |
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Cash |
$ | $ | ||||||
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Certificates of Deposit, plus accrued interest |
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Accounts Receivable, less allowance for doubtful accounts of $ |
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Inventories |
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Prepaid Expenses |
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TOTAL CURRENT ASSETS |
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PROPERTY AND EQUIPMENT, NET |
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OTHER ASSETS |
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Deposits |
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Inventories |
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Intangible Asset |
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ROU Assets - Operating Leases |
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Deferred Tax Asset, Net of Valuation Allowance of $ |
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TOTAL ASSETS |
$ | $ | ||||||
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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CURRENT LIABILITIES |
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Accounts Payable |
$ | $ | ||||||
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Accrued Expenses |
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Short Term Lease Liabilities |
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TOTAL CURRENT LIABILITIES |
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LONG TERM LIABILITIES |
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Long Term Lease Liabilities |
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TOTAL LONG TERM LIABILITIES |
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TOTAL LIABILITIES |
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COMMITMENTS AND CONTINGENCIES (NOTE G) |
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STOCKHOLDERS' EQUITY |
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Preferred Stock, |
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Series A Cumulative Convertible Preferred Stock, par value; |
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Common Stock, par value, |
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Paid-in Capital |
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Accumulated Deficit |
( |
) | ( |
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TOTAL STOCKHOLDERS' EQUITY |
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ | $ | ||||||
The accompanying notes are an integral part of these financial statements.
PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Six Months Ended December 31, 2023 and 2022
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(unaudited) |
(unaudited) |
(unaudited) |
(unaudited) |
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Three Months |
Three Months |
Six Months |
Six Months |
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Ended |
Ended |
Ended |
Ended |
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Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2023 |
Dec. 31, 2022 |
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NET SALES |
$ | $ | $ | $ | ||||||||||||
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COST OF SALES |
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GROSS PROFIT |
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OPERATING EXPENSES |
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Salaries and Benefits |
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Selling, General and Administrative |
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INCOME/(LOSS) FROM OPERATIONS |
( |
) | ( |
) | ( |
) | ( |
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OTHER INCOME |
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(Loss) on Disposal of Assets |
( |
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Other Income / Gain on Extinguishment of Debt |
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Rental income |
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Interest Income |
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INCOME/(LOSS) BEFORE INCOME TAXES |
( |
) | ( |
) | ( |
) | ( |
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INCOME TAX (EXPENSE)/ BENEFIT |
( |
) | ( |
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NET LOSS |
( |
) | ( |
) | ( |
) | ( |
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Dividend requirements on preferred stock |
( |
) | ( |
) | ( |
) | ( |
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Basic net loss available to common shares |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
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Basic net loss per common share |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
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Weighted average number of common shares outstanding |
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Diluted net loss per common share |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
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Weighted average number of common shares outstanding, diluted |
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The accompanying notes are an integral part of these financial statements.
PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Six Months Ended December 31, 2023 and 2022
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Total |
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Six Months Ended December 31, 2023 |
Preferred Stock |
Common Stock |
Paid-In |
Accumulated |
Stockholders' |
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Shares |
Amount |
Shares |
Amount |
Capital |
Deficit |
Equtiy |
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Balance, June 30, 2023 |
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( |
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Stock Based Compensation |
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Preferred Stock Converted to Common |
( |
) | ( |
) | - | - | - | |||||||||||||||||||||
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Net (Loss) |
- | (33,855 | ) | ( |
) | |||||||||||||||||||||||
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Balance, September 30, 2023 |
( |
) | $ | |||||||||||||||||||||||||
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Net (Loss) |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||
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Balance, December 31, 2023 |
( |
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Total |
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Six Months Ended December 31, 2022 |
Preferred Stock |
Common Stock |
Paid-In |
Accumulated |
Stockholders' |
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Shares |
Amount |
Shares |
Amount |
Capital |
Deficit |
Equtiy |
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Balance, June 30, 2022 |
$ | $ | $ | ( |
) | $ | ||||||||||||||||||||||
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Net Income |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||
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Balance, September 30, 2022 |
( |
) | ||||||||||||||||||||||||||
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Net (Loss) |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||
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Balance, December 31, 2022 |
( |
) | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Six Months Ending December 31, 2023 and 2022
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(unaudited) |
(unaudited) |
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December 31, |
December 31, |
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2023 |
2022 |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net Income/(Loss) |
$ | ( |
) | $ | ( |
) | ||
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation |
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Decrease in Allowance for Doubtful Accounts |
( |
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Right of Use Asset Amortization |
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Accrued Interest on Certificate of Deposit |
( |
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Deferred Income Taxes |
( |
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Valuation Allowance |
( |
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(Gain)/Loss on Sale of Assets |
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Payments on Operating Lease Liability |
( |
) | ( |
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| Decrease (increase) in: | ||||||||
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Accounts Receivable |
( |
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Deposits |
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Inventory |
( |
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Prepaid Expenses |
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| Increase (decrease) in: | ||||||||
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Accounts Payable |
( |
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Accrued Interest Payable |
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Accrued Expenses |
( |
) | ( |
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NET CASH (USED IN) OPERATING ACTIVITIES |
( |
) | ( |
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CASH FLOW FROM INVESTING ACTIVITIES |
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Purchase of Property & Equipment |
( |
) | ( |
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NET CASH RECEIEVED/(USED IN) INVESTING ACTIVITIES |
( |
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CASH FLOW FROM FINANCING ACTIVITIES |
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Payments on Operating Lease Liability |
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NET CASH (USED IN) FINANCING ACTIVITIES |
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NET CHANGE IN CASH |
( |
) | ( |
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CASH AT BEGINNING OF THE YEAR |
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CASH AT END OF THE YEAR |
$ | $ | ||||||
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SUPPLEMENTAL DISCLOSURES |
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Interest Paid |
$ | $ | ||||||
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Taxes Paid |
$ | $ | ||||||
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NONCASH TRANSACTION DISCLOSURES |
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During the period ended December 31, 2023, |
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During the period ended December 31, 2023, $ |
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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, 2023. 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 December 31, 2023, 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 options granted during the quarter ended December 31, 2023.
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.
Additional information with respect to stock option activity is as follows:
|
Number of Shares |
Weighted Average Exercise Price |
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Outstanding at December 31, 2021 |
$ | |||||||
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Granted |
$ | |||||||
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Exercised |
$ | |||||||
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Cancelled |
$ | |||||||
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Outstanding at December 31, 2022 |
$ | |||||||
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Granted |
$ | |||||||
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Exercised |
$ |
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Cancelled |
$ | |||||||
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Outstanding at December 31, 2023 |
$ | |||||||
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Options exercisable at December 31, 2022 |
$ | |||||||
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Options exercisable at December 31, 2023 |
$ | |||||||
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 six months ended December 31, 2023, the potential dilutive effects of the preferred stock and stock options were excluded in the weighted-average shares outstanding, as the shares would have an anti-dilutive effect on the loss from operations.
For the six months ended December 31, 2022, the potential dilutive effects of the preferred stock and stock options were excluded in the weighted-average shares outstanding, as the shares would have an anti-dilutive effect on the loss from operations.
NOTE B - INVENTORIES
| Inventories consisted of the following: | December 31,
2023 |
June 30, 2023 |
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Finished Goods |
$ | $ | ||||||
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Raw Materials |
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| $ | $ | |||||||
At December 31, 2023 and June 30, 2023, 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 $
Share-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest. As share-based compensation expense recognized in the statement of operations is based on awards ultimately expected to vest, it can be reduced for estimated forfeitures. The ASC topic Stock Compensation requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The share based compensation charged against income for the periods ended December 31, 2023 and 2022 was $
The Black-Scholes option-pricing model, which values options based on the stock price at grant date, the expected life of the options, the estimated volatility of the stock and the risk free interest rate over the life of the option. The assumption used in the Black-Scholes model were as follows for the stock options granted in July 2023.
|
Stock Price at Date of Grant |
$ | . |
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Risk-free interest rate |
% | |||
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Expected volatility of common stock |
% | |||
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Dividend yield |
% | |||
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Expected life of options |
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NOTE D - INCOME TAXES AND AVAILABLE CARRYFORWARD
As of December 31, 2023, 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:
|
Six Months December 31, 2023 |
Six Months December 31, 2022 |
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Current |
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Federal |
$ | $ | ||||||
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State |
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| $ | $ | |||||||
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Deferred |
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Federal |
$ | ( |
) | $ | ||||
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State |
( |
) | ||||||
| $ | ( |
) | $ | |||||
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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:
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Non-Current |
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Deferred tax assets |
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NOL and contribution carryforwards |
$ | |||
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Share based payments |
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Lease liabilities - operating leases |
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Accrued compensated absences |
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Accrued bonus |
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Allowance for doubtful accounts |
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Total deferred tax assets |
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Deferred tax (liabilities) |
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Right-of-use-assets - operating leases |
( |
) | ||
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Excess of tax over book depreciation |
( |
) | ||
|
Total deferred tax (liabilities) |
( |
) | ||
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Total deferred tax asset |
||||
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Valuation Allowance |
( |
) | ||
|
Net Deferred tax asset |
$ | |||
The change in the valuation allowance is as follows:
|
June 30, 2023 |
$ | |||
|
December 31, 2023 |
$ | ( |
) | |
| $ | ( |
) |
Income taxes for the six months ended December 31, 2023 and 2022 differ from the amounts computed by applying the effective income tax rate of
|
Six Months December 31, 2023 |
Six Months December 31, 2022 |
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Expected (provision) at US statutory rate |
$ | $ | ||||||
|
State income tax net of federal (provision) |
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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, 2021.
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.
NOTE E - LINE OF CREDIT
A line of credit was procured in June 2021, with a new bank. The limit for this line of credit is $
Interest expense for the year ended June 30, 2023 and the period ending December 31, 2023, was $
The line of credit is guaranteed by Justice W. Anderson, President and Chief Executive Officer.
NOTE F - RECENT ACCOUNTING PRONOUNCEMENTS
Adoption of new accounting standards
New accounting standards or accounting standards updates were assessed and determined to be either not applicable or not having a material impact on the Company’s consolidated financial statements or processes.
NOTE G - RIGHT-OF-USE ASSETS AND LEASE LIABILITIES
Operating leases
In August 2020, the Company entered into a lease agreement to lease certain office equipment with a lease term of
In May 2021, 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 December 31, 2023 |
$ | |||
|
Lease liabilities - operating leases on adoption date and increase in lease liabilities |
$ | |||
|
Payments on lease liabilities |
( |
) | ||
|
Lease liabilities - operating leases on December 31, 2023 |
||||
|
Lease liabilities - operating leases due in the 12 months ending December 31, 2024 |
||||
|
Lease liabilities - operating leases due after December 31, 2024 |
$ |
Variable lease expense was $
Variable lease expense was $
Weighted average remaining lease term was
Sublease to Third Party
The Company entered into a lease agreement with an unrelated party to sublease a portion of the warehouse space that it is leasing from its landlord, in November 2022. The contract conveys the right to control the use of the specified area of the warehouse for a period of time in exchange for consideration. Therefore, the sublease meets the definition of a lease pursuant to ASC 842. The Company classifies the sublease as an operating lease because it does not transfer ownership at the end of the lease term. The sublease is for a term of twelve months and it contains a renewal option of which the sublessee is not reasonably certain to exercise. The Company received sublease income of $
The following is the amount of sublease income the Company will receive over the next five years:
|
12 months ending December 31, |
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|
2024 |
$ | |||
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2025 |
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2026 |
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2027 |
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2028 |
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| $ |
NOTE H - SUBSEQUENT EVENTS
We have evaluated subsequent events through February 18, 2024, 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 loss of any significant customers or suppliers, general supply chain delays, the cost of rising inflation, cyber security breaches, natural disaster impacts, 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 2023 to date, management has expanded on the services and options the Company provides for its customers. We have introduced a new Rolled Gauze form of our Amerx Branded Collagen Wound Care Kits. We also introduced a gel form of our Collagen products.
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, 2023, which was filed with the Securities and Exchange Commission on September 28, 2023. 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 December 31, 2023, and June 30, 2023, our allowance for doubtful accounts totaled $15,000 and $11,625, 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 $176,532 as of December 31, 2023 and $0 as of June 30, 2023, 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 December 31, 2023 the Company's principal sources of liquid assets included cash of $267,804, inventories of $530,863, and net accounts receivable of $509,608. The Company also has $570,944 in Certificate of Deposits. The Company had net working capital of $1,524,127, and long-term lease of $230,576, at December 31, 2023.
During the six months ended December 31, 2023 cash decreased from $451,306 as of June 30, 2023, to $267,804. Operating activities used cash of $121,965 during the period. Investing activities used cash of $61,537 during the period.
The Company reflected a net non-current deferred tax asset of $15,512, at December 31, 2023. 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 and six months ended December 31, 2023 and 2022.
Net sales during the quarter ended December 31, 2023, were $1,200,053 as compared to the previous year's quarter net sales of $1,183,937, an increase of $16,116, or approximately 1%. Net sales during the six months ended December 31, 2023, were $2,373,160 as compared to the previous year's period net sales of $2,359,640, an increase of $13,520, or approximately 1%.
Gross profit during the quarter ended December 31, 2023, was $936,729 as compared to $890,482 during the quarter ended December 31, 2022, an increase of $46,447 or 5%. As a percentage of net sales, gross profit was approximately 78% in the quarter ended December 31, 2023, and approximately 75% in the corresponding quarter in 2022. We believe the increase in Gross Profit comes from a shift in sales channels to more sales coming from our highest margin channel of retail sales. Gross profit during the six months ended December 31, 2023, was $1,849,131 as compared to $1,771,281 during the six months ended December 31, 2022, an increase of $77,850 or 9%. As a percentage of net sales, gross profit was approximately 78% in the six months ended December 31, 2023, and approximately 75% in the corresponding quarter in 2022. We believe the increase in Gross Profit comes from a shift in sales channels to more sales coming from our highest margin channel of retail sales.
Operating expenses during the quarter ended December 31, 2023 were $1,038,144, consisting of $502,478 in salaries and benefits and $535,666 in selling, general and administrative expenses. This compares to operating expenses during the quarter ended December 31, 2022 of $922,027, consisting of $447,633 in salaries and benefits; and $474,394 in selling, general and administrative expenses. Expenses for the quarter ended December 31, 2023, increased by $116,117 or approximately 13% compared to the corresponding quarter in 2022. Salaries and Benefits increased as a result of shifts in personnel needs, along with continued economic competitive pressures on salaries for current employees. Operating expenses increased as channel fees, depreciation and software cost rose. Operating expenses during the six months ended December 31, 2023 were $2,007,937, consisting of $980,504 in salaries and benefits and $1,027,433 in selling, general and administrative expenses. This compares to operating expenses during the six months ended December 31, 2022 of $1,814,279, consisting of $915,790 in salaries and benefits; and $898,489 in selling, general and administrative expenses. Expenses for the six months ended December 31, 2023, increased by $193,658 or approximately 21% compared to the corresponding period in 2022. Salaries and Benefits increased as a result of shifts in personnel needs, along with continued economic competitive pressures on salaries for current employees. Operating expenses increased as channel fees, depreciation and software cost rose.
Operating loss increased by $69,870 to an operating loss of $101,415 for the quarter ended December 31, 2023, as compared to an operating loss of $31,545 in the comparable quarter of the prior year. The increase in net loss for the three month period, of the comparable quarter of the prior year before income taxes was primarily attributable to the increases in operating expenses. Operating loss increased by $115,808 to an operating loss of $158,806 for the six months ended December 31, 2023, as compared to an operating loss of $42,998 in the comparable period of the prior year. The increase in net loss for the six month period, of the comparable period of the prior year before income taxes was primarily attributable to the increases in operating expenses.
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, 2023 revealed a deficiency that we consider to be a material weakness: inadequate segregation of duties consistent with control objectives.
During fiscal 2024, 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 6. EXHIBITS
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 22, 2024 | By:/s/ JUSTICE W. ANDERSON |
| Date | Justice W. Anderson, Chief Executive Officer |