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PCYN Procyon

Filed: 8 Oct 21, 3:15pm
 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the fiscal year ended June 30, 2021
   
 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 0-17449

                                                                        

PROCYON CORPORATION

(Exact name of registrant as specified in its charter)

 

 Colorado59-3280822 
 (State of incorporation)(I.R.S. Employer ID No.) 

 

1300 South Highland Avenue, Clearwater, Florida 33756

(Address of principal executive offices)(Zip Code)

Issuer’s telephone number, including area code: (727) 447-2998

 

 Securities registered pursuant to Section 12(b) of the Act:      None
 Securities registered pursuant to Section 12(g) of the Act:      Common Stock

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No

 

Indicate by checkmark 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 past 12 months (or for such 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 ☒ No ☐

 

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). Yes ☒ No ☐

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,”“accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 ☐ Large accelerated filer☐ Accelerated filer
 ☒ Non-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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepare or issued its audit report. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter:

 

The aggregate market value of the 3,916,652 shares of Common Stock held by non-affiliates was $2,830,586 on October 4, 2021, the date of the last sale of common stock, based on the average bid and asked price of $.35 on such date.

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:

 

As of October 4, 2021, there were 8,087,388 shares of the issuers Common Stock outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE:

 

None.

 

 

 
 
 

 

INDEX

 

 

 TitlePage
   
ITEM 1.BUSINESS3
   
ITEM 2.PROPERTIES6
   
ITEM 3.LEGAL PROCEEDINGS7
   
ITEM 5.MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND PURCHASES OF EQUITY SECURITIES7
   
ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS9
   
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA15
   
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE15
   
ITEM 9A.CONTROLS AND PROCEDURES15
   
ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE17
   
ITEM 11.EXECUTIVE COMPENSATION21
   
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND RELATED STOCKHOLDER MATTERS24
   
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE25
   
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES25
   
ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES25

 

 

 

 

PART I

ITEM 1.         BUSINESS

 

History and Organization

 

Procyon Corporation ("Procyon" or the "Company") consolidates the operations of Procyon with AMERX® Health Care Corporation("AMERX") and Sirius Medical Supply, Inc. ("Sirius"), its wholly-owned subsidiaries, for financial purposes. Collectively throughout this report, Procyon, Amerx and Sirius may be referred to as the "Company," "us," or "we" or "our."

 

Procyon, a Colorado corporation, was incorporated on March 19, 1987, and was deemed a development stage company until May 1996, when we acquired Amerx, a corporation based in Clearwater, Florida, which was wholly owned by John C. Anderson, our deceased Chief Executive Officer. AMERX® develops and markets proprietary medical products used in the treatment of pressure ulcers, stasis ulcers, wounds, dermatitis, inflammation and other skin problems. Historically, AMERX's products are sold through distributors to healthcare institutions including hospitals, wound care clinics, nursing homes and home health care agencies and to retailers including national and regional chain stores and pharmacies and to healthcare practitioners who treat wounds. Sirius no longer has any material operations.

 

Products

 

Major product lines - AMERX®, AMERIGEL® , HELIX3 Bioactive Collagen®, EXTREMIT-EASE® Compression Garment

 

AMERX markets a proprietary line of AMERIGEL® advanced skin and wound care products made with Oakin®, proven to promote healing in wound and problematic skin conditions, including the AMERIGEL® Hydrogel Wound Dressing, AMERIGEL® Post Op Surgical Kits, AMERIGEL® Saline Wound Wash, AMERIGEL® Care Lotion and AMERIGEL® Barrier Lotion. These products have become the core foundation for AMERX’s growth. In the second half of fiscal 2015, AMERX expanded its product brands by introducing the HELIX3 Bioactive Collagen®. HELIX3® is available in two forms: Collagen Powder (HELIX3 CP®) and Collagen Matrix (HELIX3 CM®), developed to address market segments previously unavailable to AMERX. In fiscal 2016, AMERX continued its brand expansion by introducing the AMERX branded wound care product line. The line consists of: AMERX Calcium Alginate Dressing, AMERX Foam Dressing, AMERX Gauze Dressing, AMERX Hyrdocolloid Dressing, and AMERX Wound Care Kits, including AMERX Calcium Alginate Wound Care Kit, AMERX Collagen Matrix Wound Care Kit, AMERX Collagen Powder Wound Care Kit, AMERX Foam Wound Care Kit and AMERX Hydrogel Wound Care Kit. In fiscal 2017, AMERX expanded its product line to include a new segment of the wound care market by introducing the EXTREMIT-EASE® Compression Garment line, a patent-pending product. These new products have demonstrated early success and product expansion has made it possible for AMERX to provide treatments outside its historical niche. In fiscal 2021, AMERX introduced AMERIGEL® Hand Sanitizer, a premium product contain 70% alcohol to be effective against germs and moisturizers to keep the skin from drying out from heavy use. AMERX looks to introduce more new products in fiscal 2022.

 

AMERX® wound care products sold under the brand names AMERIGEL®, HELIX3®, AMERX® and EXTREMIT-EASE® have received approval for Medicare reimbursement, assigned by the Pricing, Data Analysis and Coding contractor for Medicare and Medicaid ("PDAC"). We believe this reimbursement code is beneficial to AMERX's business, allowing customers on Medicare to seek coverage for use of these products.

 

AMERX spent approximately $31,000 towards research and development efforts over the past fiscal year. These efforts were directed towards new product offerings.

 

3

 

The AMERIGEL® product line with OAKIN® is based on proprietary formulations which are protected as trade secret information and with registered trademarks. AMERX filed for patent protection on the Extremit-Ease Compression Garment in 2017. The patent is still pending, awaiting a final determination by the US Patent and Trademark office. HELIX3®, HELIX3 CP®, HELIX3 CM® and HELIX3 Bioactive Collagen®, OAKIN® and EXTREMIT-EASE® are registered trademarks of AMERX Health Care. All products are registered with the Food and Drug Administration ("FDA").

 

AMERX product lines continue to gain acceptance within the health care community. AMERX owns and operates four different websites. The sites can be viewed at www.amerigel.com, www.amerxhc.com, www.extremitease.com and www.amerxstore.com. These websites provide viewer-focused information about AMERX's products to consumers (amerigel.com and extremitease.com) and health care providers (amerxhc.com). Amerxstore.com, amerigel.com and extremitease.com are equipped to handle direct sales to the public.

 

Market for Products

 

We have expanded our product line over the last five fiscal years to address a broader range of wound applications. Our core AMERIGEL® product line containing Oakin® established our presence in the physician market to address skin and wound care treatment needs. HELIX3® Bioactive Collagen was added to our product line in fiscal 2015 and AMERX® Kits, dressings and bandages in fiscal 2016 to address the broader wound care market needs for an increasing number of people with diabetes and obesity. This market is primarily comprised of hospitals, wound care centers, nursing homes, home health care agencies and health care practioners. The EXTREMIT-EASE® Compression Garment, introduced in 2017, enables AMERX Health Care to compete in the global compression therapy market, a multi-billion market that is projected to escalate as a result of aging populations, rising prevalence of diabetes, lymphatic diseases, cancer surgeries, venous diseases and sports injuries. In fiscal 2019, the Company continued expanding its sales channel designed to reduce inventory costs while increasing access to AMERX full line of products, through existing markets. Amerx grew its Wound Care product line with the addition of Retention Tape, additional Bordered Foam sizes and additional sizes of Calcium Alginate products. The Helix® Collagen line grew with the addition of a 1" x 1", 4" x 4" and 7" x 7" Matrix pad. In fiscal 2021, AMERX added a 1" x 6" and 1" x 10" matrix pad to Helix® Collagen lline. In fiscal 2020, AMERX’s Extremit-Ease Compression Garment line expanded with the introduction of a Tan version of the garment and matching liner. Extremit-Ease continues to gain momentum in the wound care, edema and lymphedema markets with plans to further expand the line in Fiscal 2022.

 

We believe AMERX Health Care's products offer quality, efficacious treatment options for acute and chronic wounds, ulcers and recurring skin conditions, and therapy options for edema most often treated by health care professionals. The retail market for AMERX products is comprised of national and regional chain stores, independent retail pharmacies and medical supply stores.

 

Distribution and Sales

 

AMERX's traditional method of distribution has been through retail and institutional distributors. We expect to continue increasing our distributor base, particularly with distributors capable of introducing AMERX's products in new medical specialty markets, in new geographical areas and to new retail chains. Distributors typically purchase products from AMERX on standard credit terms (2%10, Net 30). AMERX supports its distributors through product literature, advertising and participation at industry trade shows. All existing distributors sell AMERX products on a non-exclusive basis.

 

4

 

We periodically receive inquiries about international market distribution for the AMERIGEL® product line. These inquiries have been generated by our advertising, market presence and web sites (www.amerxhc.com, www.amerigel.com and www.extremitease.com). We respond to and pursue all such inquiries, while complying with applicable international regulatory guidelines.

 

In fiscal 2021, AMERX generated all of our net sales of approximately $4,720,000.

 

Significant Customer(s)

 

During the year ended June 30, 2021 sales from one customer accounted for approximately 10% of AMERX’s sales. In fiscal 2020 no customers accounted for more then 10% of AMERX’s sales.

 

Manufacturing

 

During fiscal 2021, the majority of manufacturing of AMERX's products was completed by non-affiliated manufacturing facilities. AMERX has written contracts with its manufacturers (and there are no minimum purchase requirements). The agreements / arrangements made with multiple manufacturers reduces the potential risk associated with relying on a single manufacturer. AMERX believes there are additional companies that could manufacture AMERX products according to specifications, if necessary.

 

AMERX's manufacturing and packaging activities are performed pursuant to Current Good Manufacturing Practices ("CGMP") as defined under the United States Federal Food, Drug and Cosmetic Act, as amended (the "FFDC Act") and the regulations promulgated under the FFDC Act. All manufacturing activities are required to comply with the product specifications, supplies and test methods developed by AMERX specifically for its products, as well as the CGMP.

 

A single source currently furnishes a proprietary ingredient contained in the AMERIGEL® products. AMERX does not have a written contract with this supplier; however, management believes that, if necessary, an alternative supplier could be secured within a reasonable period of time. The manufacturer generally provides other raw materials and ingredients and we believe there are numerous other sources for these materials and ingredients. However, there can be no assurance that AMERX would be able to timely secure an alternative supplier and the failure to replace this supplier in a timely manner could materially harm AMERX's results of operations.

 

Proprietary Rights

 

The United States Patent and Trademark Office registered the Company's AMERIGEL® trademark in January 1999. OAKIN®, the principal proprietary ingredient used in AMERIGEL® products, became a registered trademark in 2007. In fiscal 2016, AMERX received registered trademarks for the OAKIN® logo, HELIX3®, HELIX3 CM®, HELIX3 CP® and the HELIX3® logo. In fiscal 2017, AMERX received registered trademark approval for the EXTREMIT-EASE® Compression Garment name, logo and mark "WHERE COMPRESSION MEETS COMPLIANCE". All registered trademarks have been periodically renewed, when required, and are currently in effect. In 2017 AMERX Health Care filed a patent application related to our EXTREMIT-EASE® compression product. AMERX relies on a combination of trademarks, patents, trade secret protection and confidentiality agreements to establish and protect its proprietary rights.

 

5

 

Competition

 

The market for skin and wound care treatment products in which AMERX operates is highly competitive. Competition is based on product efficacy, brand recognition, loyalty, quality, price and availability of shelf space in the retail market. AMERX competes against several well-capitalized companies offering a range of skin treatment products as well as small competitors having a limited number of products. AMERX has successfully established its products efficacy and value within specialized health care markets and expects to continue to expand this marketplace.

 

Order Placement and Backlog

 

There were no back orders as of June 30, 2021 and June 30, 2020, respectively.

 

Governmental Approvals and Regulations

 

The production and marketing of our products are subject to regulation for safety, efficacy and quality by numerous governmental authorities in the United States. AMERX's advertising and sales practices are subject to regulation by the Federal Trade Commission (the "FTC"), the FDA and state agencies. The FFDC Act, as amended, the regulations promulgated thereunder, and other federal and state statutes and regulations govern, among other things, the testing, manufacture, safety, effectiveness, labeling, storage, record keeping, approval, advertising and promotion of AMERX's products. The FDA regulates the contents, labeling and advertising of AMERX's products. AMERX may be required to obtain FDA approval for proposed nonprescription products. This procedure involves extensive clinical research, and separate FDA approvals are required at various stages of product development. The approval process requires, among other things, presentation of substantial evidence to the FDA, based on clinical studies, as to the safety and efficacy of the proposed product. After approval, manufacturers must continue to expend time, money and effort in production and quality control to assure continual compliance with the Current Good Manufacturing Practices (CGMP) regulations.

 

We believe that, as of June 30, 2021, we are in compliance with all applicable laws and regulations relating to our operations in all material respects. Compliance with the various provisions of national, state and local laws and regulations has had a material adverse effect upon the capital expenditures, earnings, financial position, liquidity and competitive position of the Company. We have incurred and will continue to incur costs in order to remain compliant with the latest regulations of the US Securities and Exchange Commission (“SEC”) and the FDA.

 

Employees

 

As of September 1, 2021, the Company and its subsidiary employ a total of 20 full time and 1 part time employees, consisting of 7 management employees, 3 sales-related employees and 11 administrative employees. One employee works under Procyon and twenty employees work under the AMERX subsidiary.

 

ITEM 2.         PROPERTIES                                                               

 

We currently maintain our corporate office, and those of AMERX and Sirius, at 164 Douglas Road East, Suite 164, Oldsmar, Florida 34677. Our office consists of approximately 18,000 square feet of space. We are leasing the building for the next five years as of January 2021.

 

On May 29, 2015 the Company entered into a lease agreement to lease 3,200 square feet of warehouse space in Clearwater, FL. The lease was a sixty-three month lease starting July 1, 2015 and ending September 30, 2020. This lease was amended on February 1, 2018 to increase the square footage of the new premises to 4,892 square feet and the lease term to April 2021. The amended lease payments begin at $2,752 per month (plus applicable sales tax) and increase 3% per year starting May 2019 and May 2020, respectively. This lease expired and we moved to our new offices in lieu of renewing this lease.

         

6

 

On January 13, 2021 the Company entered into a lease agreement to lease 18,000 square feet of warehouse space in Clearwater, FL. The lease is is for a five year term starting May 1, 2021 and ending April 30, 2026. The lease payment begin at $14,165 per month and will increase annually based on the Consumer Price Index, and will be no less then 2% or exceed 5% per year.

 

ITEM 3.          LEGAL PROCEEDINGS

 

The Company and its subsidiaries are not a party to any pending material legal proceedings nor is our property the subject of a pending legal proceeding.

 

PART II

 

ITEM 5.          MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND PURCHASES OF EQUITY SECURITIES.

 

The Company’s Common Stock is quoted on the OTCQB electronic quotations system run by OTC Markets Group, Inc. Any over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark down or commission and may not necessarily represent actual transactions.                                             

 

As of September 23, 2021, there were approximately 110 record holders of the Company’s Common Stock.

 

Holders of Common Stock are entitled to receive such dividends if declared by the Company’s Board of Directors. We have not declared any dividends on our Common Stock and have no current plans to declare a dividend in the immediate future.

 

Holders of the Series A Cumulative Convertible Preferred Stock (the “Preferred Stock”) are entitled to receive, if declared by the Board of Directors, quarterly dividends at an annual rate of $.10 per share. Dividends accrue without interest, from the date of issuance, and are payable in arrears in cash or common stock, when and if declared by the Board of Directors. No dividends had been declared or paid at June 30, 2021, and dividends, if ever declared, in arrears at such date total $404,516.

 

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, every holder of preferred stock is entitled to that number of votes equal to the number of shares of common stock into which the preferred stock is convertible. Such preferred shares will automatically convert into one 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 $1,000,000, and the initial offering price of the Common Stock sold in such offering is equal to or in excess of $1 per share. No shares were converted during fiscal 2021 or 2020. So long as any shares of Series A Preferred Stock are outstanding, the Company is prohibited from declaring dividends or other distributions related to its Common Stock or purchasing, redeeming or otherwise acquiring any of the Common Stock.

 

There have been price fluctuations in the Company’s Common Stock during the period covered by this report. Factors that may have caused or can cause market prices to fluctuate include the number of shares available in the public float, any purchase or sale of a significant number of shares during a relatively short time period, quarterly fluctuations in results of operations, issuance of additional securities, entrance of such securities into the public float, market conditions specific to the Company’s industry and market conditions in general, and the willingness of broker-dealers to effect transactions in low priced securities. In addition, the stock market in general has experienced significant price and volume fluctuations in recent years. These fluctuations, may have had a substantial effect on the market price for many small capitalization companies such as the Company. Factors such as those cited above, as well as other factors that may be unrelated to the operating performance of the Company, may significantly affect the price of the Common Stock.

 

7

 

Equity Compensation Plan Information

 

The following table contains information regarding Procyon’s equity compensation plans as of June 30, 2021. The Company maintained the Procyon Corporation 2009 Stock Option Plan (the "2009 Option Plan"), which expired by its terms on December 8, 2019. In November 2020, our shareholders approved the Procyon Corporation 2020 Stock Option and Incentive Plan (the “2020 Option Plan”).

 

Equity Compensation Plan Information

 

Plan category

 

Number of securities to

be issued upon exercise

of outstanding options,

warrants and rights

 

 

Weighted-average

exercise price of

outstanding options,

warrants and rights

 

Number of securities remaining

available for future issuance under

equity compensation plans

(excluding securities reflected in

column (a))

 

 

(a)

(b)

(c)

 

Equity compensation

plans approved by

security holders:

 

 

 

 

 

 

2009 Option Plan65,000.17

500,000 shares of Common Stock

for Non-Qualified Stock Options

(250,000 of which have been

issued) and Stock Appreciation

Rights and 500,000 shares of

Common Stock for Incentive Stock

Options.

    
2020 Option Plan50,000.373

2,000,000 shares of Common Stock

for Stock Options, Registered

Stock or Restricted Stock Units and

Other Stock-Based Awards.

 

8

 

 

Equity compensation

plans not approved

by security holders

 

 

-

 

-

 

 

2009 Option Plan

 

 

 

65,000

 

.17

 

435,000 shares of Common Stock

for Non-Qualified Stock Options

(250,000 of which have been

issued) and Stock Appreciation

Rights and 500,000 shares of

Common Stock for Incentive Stock

Options

    
2020 Option Plan50,000.373

1,950,000 shares of Common Stock

for Stock Options, Registered

Stock or Restricted Stock Units and

Other Stock-Based Awards.

    
Total115,000  

 

Effective June 30, 2021, the Company granted 25,000 non-qualified stock options to Justice W. Anderson and 25,000 non-qualified stock options to James B. Anderson for exceeding certain performance standards in fiscal 2021, pursuant to the terms of their respective Restated and Amended Executive Employment Agreements dated July 1, 2020. Each of the options were dated September 24, 2021, but were granted and effective as of June 30, 2021 for a ten year term and have an exercise price of .373 per share.

 

ITEM 7.         MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

 

This Report on Form 10-K, including Management’s Discussion and Analysis or Plan of Operation, contains forward-looking statements. When used in this report, the words “may”, “will”‚ “expect”‚ “anticipate”‚ “continue”‚ “estimate”‚ “project”‚ “intend”‚ “seek”, “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 and its subsidiaries’ 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, manufacturing capabilities, new and unanticipated governmental regulations, 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.

 

Our business in general is subject to certain risks including but not limited to the following:

 

 

-

we may not be able to produce or obtain, or may have to obtain at excessive prices, the raw materials and finished goods we need;

 

-

the vendors on whom we rely for manufacturing certain products may go out of business, fail to meet demand or provide shipments on an untimely basis;

 

9

 

 

-

competitive pressures may require us to lower our prices on certain products, thereby adversely affecting operational results;

 

-

we may not be able to obtain, or obtain at uneconomic expense and protracted time, the regulatory approval of new products;

 

-

no assurance can be given that we will remain in compliance with applicable FDA and other regulatory requirements once clearance or approval has been obtained for a product. We must incur expense and spend time and effort to ensure compliance with these complex regulations. Possible regulatory actions could include warning letters, fines, damages, injunctions, civil penalties, recalls, seizures of our products, and criminal prosecution;

 

-

consumers or distributors may not favorably receive our new or existing products;

 

-

we may not be able to obtain adequate financing to fund our operations or expansion;

 

-

a relatively small group of products may represent a significant portion of our net revenues or net earnings from time to time; if the volume or pricing of any of these products declines, it could have a material adverse effect on our business, financial position and results of operations;

 

-

we could experience reduced revenues and profits if Medicare or other government programs change, delay or deny reimbursement claims;

 

-

we are subject to various federal, state, and international laws and regulations pertaining to government benefit program reimbursement, price reporting and regulation, and health care fraud and abuse, including anti-kickback and false claims laws, the Medicaid Rebate Statute, the Veterans Health Care Act, and individual state laws relating to pricing and sales and marketing practices; violations of these laws may be punishable by criminal and/or civil sanctions, including, in some instances, substantial fines, imprisonment, and exclusion from participation in federal and state health care programs, including Medicare, Medicaid, and Veterans Administration health programs; violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our revenues, profitability, and financial condition;

 

-

the loss of senior management or other key personnel, or our inability to attract and retain additional senior management or other key personnel, could adversely affect our ability to execute our business plan;

 

-

we could become subject to new unanticipated governmental regulations or fail to comply with regulations applicable to our products, which could materially and adversely affect our business, financial position and results of operations; and

 

-

legislative or regulatory programs that may influence prices of medical devices could have a material adverse effect on our business;

 

-

the demand for our products may decrease because of various factors, such as adverse business conditions and a sluggish U.S. economy;

 

-

our product supply and related patient access to products could be negatively impacted by, among other things: (i) seizure or recalls of products or forced closings of manufacturing plants, (ii) supply chain continuity including from natural or man-made disasters at one of our facilities or at a critical supplier or vendor, as well as our failure or the failure of any of our vendors or suppliers to comply with Current Good Manufacturing Practices and other applicable regulations and quality assurance guidelines that could lead to manufacturing shutdowns, product shortages and delays in product manufacturing, (iii) manufacturing, quality assurance/quality control, supply problems or governmental approval delays, (iv) the failure of a sole source or single source supplier to provide us with necessary raw materials, supplies or finished goods for an extended period of time, (v) the failure of a third-party manufacturer to supply us with finished product on time, (vi) construction or regulatory approval delays related to new facilities or the expansion of existing facilities (vii) the failure to meet new and emerging regulations requiring products to be tracked throughout the distribution channels using unique identifiers and (viii) other manufacturing or distribution issues including limits to manufacturing capacity due to regulatory requirements; changes in the types of products produced; physical limitations or other business interruptions;

 

10

 

 

-

we may experience an increase in the number and magnitude of delinquent or uncollectible customer accounts during periods of economic downturn.

 

-

The economic impact of the COVID-19 pandemic could adversely affect our financial condition and results of operations. The outbreak of COVID-19 is believed to have originated in December 2019 and has since spread to multiple countries around the world, including the United States. On March 11, 2020, the World Health Organization declared the outbreak a pandemic. The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments have ordered non-essential businesses to close and residents to shelter in place at home. This has resulted in an unprecedented slow-down in economic activity, a related increase in unemployment and a significant decline in the value of the stock market and many non-essential and elective medical procedures to be delayed or canceled. The COVID-19 pandemic is affecting the United States and global economies and may affect our operations and those of third parties on which we rely, including by causing disruptions in the supply for our products. In addition, the COVID-19 pandemic may affect our operations due to users of our products delaying or canceling medical treatments and the closure of doctors offices and other medical health facilities which administer our products. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, financing or on healthcare systems or the global economy as a whole. However, these effects could have a material impact on our results from operations and business and those of the third parties on which we rely.

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

Our financial statements have been prepared in accordance with standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), which require us 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 this annual report. The estimates used by management are based upon our historical experiences combined with management’s understanding of current facts and circumstances. Certain of our accounting policies are considered critical as they are both important to the portrayal of our 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 financial statements.

 

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 exacted 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. We had a valuation allowance of $144,619 as of June 30, 2020. We had no valuation allowance as of June 30, 2021.

 

11

 

Revenue Recognition

 

The Company recognizes revenue in accordance with Securities and Exchange Commission Staff Accounting Bulletin Topic 13, “Revenue Recognition”, which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller’s price to the buyer is fixed or determinable; and, (4) collectibility is reasonably assured. We recognize revenue related to product sales upon the shipment of such orders to customers.

 

Revenue from Contracts with Customers (Topic 606)

 

In May 2014, the FASB issued a new standard related to revenue recognition. Under the new standard, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new standard became effective for the Company beginning after December 15, 2017, including interim reporting periods within that reporting period. There has been no material effect to our financial results of operations based on this new standard.

 

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 and rescinds the acceptance of pro forma disclosure.

 

General

 

Our continuing operations and revenues consist of the operations of and revenues generated by AMERX, our wholly-owned subsidiary. AMERX skin and wound care products, marketed under the trademark AMERIGEL® and containing the proprietary ingredient OAKIN®, promote wound healing and healthy skin through moderately priced products for treatment of problematic skin and wound conditions.

 

AMERX markets AMERIGEL®, HELIX3®, AMERX® wound care products and EXTREMIT-EASE® compression garments to institutional customers such as hospitals, wound care clinics, skilled nursing facilities, home health agencies and to physicians and other health care practitioners. AMERIGEL® and EXTREMIT-EASE® products are also marketed to retail customers through direct sales, internet sales and through independent and retail chain drug stores and to physicians and other health care practitioners.

 

AMERX’s products are distributed to institutions and to retail stores through national, regional and local distributors as well as through direct sales and internet sales.

 

Future Expectations

 

AMERX expects to further penetrate the health care market through its participation in industry trade shows, advertisements in trade journals, development of additional distributor relationships and by opening new geographical territories (including international markets). These efforts have been limited due to availability secondary to the COVID-19 pandemic and the restrictions enforced on its behalf. AMERX management is trying new methods of Marketing to support its multiple product lines. AMERX management seeks to develop new markets as the AMERIGEL®, HELIX3®, AMERX® and EXTREMIT-EASE® product lines gain broader acceptance. AMERX management also seeks to develop new products to be released as soon as practicable, with expansion of the HELIX3® line expected in fiscal 2022.

 

12

 

Impact of COVID-19 on Our Business

 

The financial effects of COVID-19 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.

 

The effects were most severely seen in April 2020. 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. Currently, the Company is restricted in its marketing efforts as Tradeshows for the most part are not available in their traditional in person form. Most available tradeshows have chosen the virtual route, which has not proven successful from a vendor sales relationship perspective. Operationally, the pandemic has made it increasingly difficult to hire new or replacement personnel to support the Company’s growth. It has also caused wages to increase dramatically.

 

Results of Operations

 

Comparison of Fiscal 2021 and 2020.

 

During fiscal 2021 and 2020, our results of operations related solely to the operations of AMERX. Net sales during fiscal 2021 were approximately $4,720,000 as compared to approximately $4,334,000 in fiscal 2020, an increase of approximately $386,000 or 9%. Sales grew through continued sales of core brands combined with growth in new product brand sales.

 

Cost of sales were approximately $1,331,000 in fiscal 2021, as compared to approximately $1,135,000 in fiscal 2020, an increase of approximately $196,000 or 17%. Cost of sales in fiscal 2021, as a percentage of net sales, increased to 28%, from 26% in the previous fiscal year ending 2020.

 

Gross profit increased to approximately $3,389,000 during fiscal 2021, as compared to approximately $3,199,000 during fiscal 2020, an increase of about $189,000, or 6%. As a percentage of net sales, gross profit was approximately 72% in fiscal 2021 as compared to 74% in fiscal 2020.

 

Operating expenses during fiscal 2021 were approximately $3,064,000, consisting of approximately $1,734,000 in salaries and benefits and $1,330,000 in selling, general and administrative expenses. Operating expenses in fiscal 2020 were approximately $3,046,000 and consisted of approximately $1,730,000 in salaries and benefits and approximately $1,317,000 in selling, general and administrative expenses. This represents an increase in expenses of approximately $18,000 in fiscal 2021 over the operating expenses in fiscal 2020. As a percentage of net sales, operating expenses during fiscal 2021 were 65% as compared to 70% during fiscal 2020; as gross profit increased approximately $189,000 for the year on an approximately $18,000 increase in operating expenses. Salaries and Benefits increased slightly. Selling, General and Administrative expenses increased primarily due to shipping expense increases from increased sales.

 

13

 

Income from operations finished at approximately $325,000 in 2021, as compared to approximately $153,000 in fiscal 2020. Income before income taxes finished at approximately $832,000 in 2021, as compared to income of approximately $160,000 in 2020. Net income (after dividend requirements for Preferred Shares) was approximately $751,000 during fiscal 2021, compared to approximately $95,000 of net income during fiscal 2020. The Company recorded approximately $64,000 of income tax expense when determining the net income available to common shares in fiscal 2021, compared to $48,000 in fiscal 2020.

 

Management believes it is more likely than not that the tax benefit of approximately $446,000 of NOL carryforwards will be realized. Therefore, management did not provided valuation allowance. Management will continue to evaluate its operating results each reporting period and assess whether it will be able to utilize all available NOL carryforwards before expiration.

 

Liquidity and Capital Resources

 

Historically, we have financed our operations through revenues from operations. As of June 30, 2021, our principal sources of liquidity included inventories of approximately $591,000, net accounts receivable of approximately $497,000, cash of approximately $1,227,000, and certificates of deposit of approximately $280,000. We had net working capital of approximately $2,234,000 at June 30, 2021.

 

Operating activities provided cash of approximately $280,000 during fiscal 2021, and approximately $199,000 during fiscal 2020, consisting primarily of an increase in net income of approximately $768,000, in fiscal 2021 and an decrease in inventory, in fiscal 2020. Cash provided by investing activities during fiscal 2021 was approximately $480,000 as compared to cash used by investing activities in fiscal 2020 of approximately $24,000, respectively. Cash used in financing activities during fiscal 2021 was $199,000 compared cash provided by financing activities of $201,000 during fiscal 2020, respectively.

 

During fiscal 2021, no holder of shares of Preferred Stock converted its shares to Common Stock.

 

Commitments of Capital Expenditures

 

At June 30, 2021, the Company had no commitments for capital expenditures.

 

Off-Balance Sheet Arrangements

 

During fiscal years 2021 and 2020, we did not have any relationships or arrangements with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

 

14

 

ITEM 8.          FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Consolidated financial statements as of June 30, 2021, and 2020 were audited by Ferlita, Walsh, Gonzalez and Rodriguez, P.A., the Company’s independent auditors, as indicated in their report included appearing at page F-1.

 

INDEX TO FINANCIAL STATEMENTS

 

 Page
  
Report of Independent Registered Public Accounting FirmF-1
  
Consolidated Balance SheetsF-2
  
Consolidated Statements of OperationsF-3
  
Consolidated Statements of Stockholders’ EquityF-4
  
Consolidated Statements of Cash FlowsF-5
  
Notes to Consolidated Financial StatementsF-6

 

ITEM 9.          CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

None.

 

ITEM 9A.       CONTROLS AND PROCEDURES.

 

Management of the Company, with the participation of the Chief Executive Officer and the 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 Officer and Chief Financial Officer, concluded that, as of the date of 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 certain material weakness in our internal controls over financial reporting which is identified below, which we view as an integral part of our disclosure controls and procedures.

 

Our management, including our Chief Executive Officer and our Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls over financial reporting will, in all instances, prevent all errors and all fraud. A control system, no matter how well conceived or operated, can only provide reasonable, not absolute, assurance that the objectives of the control system are met. While our control systems provide a reasonable assurance level, the design of our control systems reflects the fact that there are resource constraints, and the benefits of such controls were considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the financial reports of the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Additionally, a control can be circumvented by the individual act of some person, by collusion of two or more persons, or by management’s override of a specific control. The design of any system of controls is also based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

15

 

(a) Managements annual report on internal control over financial reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. The Company’s internal controls system was designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements.

 

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

 

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2021. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework, Guidance for Smaller Public Companies. Our assessment based on those criteria concludes that, as of June 30, 2021, the Company’s internal control over financial reporting was not effective 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 (“GAAP”) rules as more fully described below. This was due to a deficiency that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be a material weakness. The matter involving internal controls and procedures that the Company’s management considers to be a material weakness under the standards of the Public Company Accounting Oversight Board in fiscal 2020 is inadequate segregation of duties consistent with control objectives. Management believes that this material weakness did not have an adverse effect on the Company’s financial results reported herein. We believe that this material weakness will be remedied with growth of the Company in the future and hiring of additional personnel.         

 

The Company is committed to continuous improvement of our internal control environment and financial organization. As part of this commitment, we intend to increase our personnel resources and technical accounting expertise within the accounting function through outside assistance from accounting experts and increase our segregation of duties within the company within the limits of our existing personnel. In addition, we intend to continually evaluate our policies and procedures to keep up with and expand our internal controls and quality of financial reporting within our personnel as our company grows. We expect to involve the board of directors more during the year regarding Company operations, including annual and quarterly risk assessments, strategic planning, and financial oversight and reporting. We expect to strengthen the expertise of the board by adding future members that have financial and business expertise in our industry. We intend to add additional members to the audit committee and require the audit committee members to further their understanding of applicable rules and requirements and continue their oversight responsibility of implementing necessary and effective internal control policies and procedures. We intend to monitor and evaluate the effectiveness of our internal controls and procedures over financial reporting on an ongoing basis and are committed to taking further action and implementing additional improvements as necessary and as resources allow.

 

(b) Attestation report of the independent registered public accounting firm. This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to Item 308(b) of Regulation S-K.

 

16

 

(c) Changes in internal control over financial reporting. The Company has eliminated all material weaknesses with the exception of the segregation of duties weakness noted above. The Company will not be able to eliminate this material weakness until such time as growth in the numbers of employees permits. As the Company grows this will be addressed.

 

PART III

 

ITEM 10.          DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

 

Directors and Executive Officers  
  Capacities inDirector
NAMEAgeWhich ServedSince
Regina W. Anderson74Chairwoman of the Board2005
Fred W. Suggs, Jr.74Director1995
James B. Anderson51

Director, Chief Financial Officer; Procyon

Vice President - Operations, AMERX

Health Care Corp.

2006
Justice W. Anderson44

Director, Chief Executive Officer;

Procyon, President; AMERX Health

Care Corp.

2006
Joseph R. Treshler68Director2013
Dr. Paul E. Kudelko, Sr81Director2013*
Monica L. McCullough50Director2019
Steven McComas 54Director2021**
George O. Borak 60

Vice President - Sales, AMERX Health Care

Corp.

 

 

*

Dr. Kudelko resigned effective July 6, 2021.

**

Mr. McComas was appointed to fill the Board vacancy caused by Dr. Kudelko’s resignation on July 6, 2021.

 

Regina Anderson. Ms. Anderson has served as Chairwoman of the Board of Directors since September 2005, and as our Chief Executive Officer from November 2005 through December 2017. Ms. Anderson has 38 years experience in the medical field and 31 years of management experience. Ms. Anderson worked at Health South Rehabilitation Hospital for ten years as Outpatient Director, in charge of the main outpatient center plus four satellite offices. Prior to her work at HealthSouth, Regina was Vice-President of Operations at Stuffit Direct Marketing Company from 1980 through 1989. Regina received her Masters Degree from Kansas State University in 1970.

 

Fred W. Suggs, Jr. Mr. Suggs has served on our Board of Directors since 1995. He is a member of the Compensation committee and Chairman of the Ethics committee. He has been a practicing attorney since 1975. He is a partner in the Greenville, South Carolina office of Ogletree, Deakins, Nash, Smoak & Stewart, specializing in labor and employment law. He has been certified as a specialist in labor and unemployment law by the South Carolina Supreme Court and is a frequent lecturer on labor and employment law issues. Mr. Suggs graduated from Kansas State University with a B.S. degree and he received his J.D. degree from the University of Alabama.

 

James B. Anderson. Mr. Anderson, a Director since 2006, has served as our Chief Financial Officer since June 2005. In addition, from September 22, 2005, until that position was filled by Regina Anderson on November 1, 2005, Mr. Anderson served as Interim Chief Executive Officer. On June 28, 2005, Mr. Anderson was appointed to serve as the President of Sirius Medical Supply, Inc. Since 1993, Mr. Anderson has been involved with AMERX Health Care Corporation as its Chief Information Officer until 2005, when he was appointed VP of Operations. In 1996, Mr. Anderson became involved with Procyon Corporation after its merger and has since performed the duties of Vice President of Operations. Prior to Mr. Anderson’s work with the Company, he was involved with importing and exporting to Russia and Direct Mail Marketing. He received a B.S. from the University of South Florida. Mr. Anderson is the son of John C. Anderson, our late President, Chief Executive Officer and Chairman of the Board, the son of Regina Anderson, the Company’s Chairwoman of the Board and former Chief Executive Officer of Procyon, and the brother of Justice W. Anderson, our Chief Executive Officer/President of Procyon and Vice President of Marketing and the President of AMERX Health Care Corporation.

 

17

 

Justice W. Anderson. Mr. Anderson currently serves as the Chief Executive Officer/ President for Procyon and President and V.P. of Marketing for AMERX Health Care Corporation. He has served on Procyon's Board of Directors since 2006. Mr. Anderson served as the Vice President of Sales for AMERX from January of 2001 until June of 2012 when the new V.P. of Sales was hired. Mr. Anderson has served on the Corporate Advisory Board of the American Academy of Podiatric Practice Management. Mr. Anderson joined AMERX in 2000 after receiving his B.A. degree from the University of Florida. Mr. Anderson is the son of John C. Anderson, our late President, Chief Executive Officer and Chairman of the Board, son of Regina Anderson, the Company's Chairwoman of the Board and former Chief Executive Officer/President of Procyon and the brother of James B. Anderson, our Chief Financial Officer.

 

Joseph R. Treshler. Mr. Treshler has served on the Board of Director’s since January 2013 and is a member of the Audit and Compensation Committees. Mr. Treshler served for over 25 years (until June of 2018) as the Vice President of Business Management & Development of Covanta Energy Corporation, responsible for Covanta’s asset management, business development, project implementation, client community relations, community affairs and Clean World Initiative efforts in Florida. Mr. Treshler currently serves as President & CEO of JRT Consulting Services, LLC providing consulting services to public & private clients in the Waste -to-Energy Industry. Mr. Treshler earned his B.S. degree in Chemical Engineering in 1974 from Iowa State University of Science and Technology. He is a Professional Engineer registered to practice in the State of Florida. Mr. Treshler was appointed by the Company’s Board of Directors to serve on the Audit Committee on January 8, 2013 and to serve on the Ethics Committee on June 7, 2013.

 

Dr. Paul E. Kudelko, Sr. Dr. Kudelko has served as a Director of the Company since December 2013 and as a member of the Ethics Committee. Dr. Kudelko resigned from the Board of Directors and the Ethics Committee on July 6, 2021. Dr. Kudelko is a retired cardiovascular physician. At the time of his retirement in 2010, Dr. Kudelko had practiced with the Clearwater Cardiovascular and Interventional Consultants for the past seven years. Dr. Kudelko attended Duquesne University, graduated from the Kirksville College of Osteopathic Medicine, and was a resident in medicine at Detroit Osteopathic Hospital and Riverside Hospital, Trenton, MI. Dr. Kudelko acted as Affiliate Assistant Professor, Department of Family Medicine, and Department of Internal Medicine, at the University of South Florida College of Medicine in Tampa, FL for a total of approximately eleven years.         

 

Monica L. McCullough. Ms. McCullough serves as Chairman of the Audit Committee. Ms. McCullough has 25 years of accounting experience in various capacities. Her experience includes the management of several accounting functions, implementation and maintenance of Sarbanes-Oxley policies and procedures, SEC reporting, coordination of quarterly and annual audits, as well as implementing and maintaining accounting systems. She has spent the last 8 years as Facility Controller in the waste to energy industry. Ms. McCullough graduated from the University of South Florida with a B.S. degree in Accounting and is a Certified Public Accountant.

 

Steven McComas. Mr. McComas was appointed to the Board of Directors by a unanimous vote of the Board on July 17, 2021. He was also appointed to serve on the Ethics Committee. Mr. McComas brings to the Company’s Board significant experience acting as an executive officer of several companies. Mr. McComas is an executive with thirty years of global experience in a variety of financial management, business leadership and corporate strategy. Currently, Mr. McComas is the Chief Executive Officer for Responsive Technology Partners, Inc. a managed information technology consulting and services firm operating throughout the Southeastern United States with offices in Metter, Vidalia, Atlanta, Athens, and Milledgeville Georgia, Raleigh, North Carolina and Tampa, Florida. Under Mr. McComas’ leadership, Responsive Technology Partners, Inc. has quickly grown to a ranking by Inc. Magazines’ 5000 as the 630 fastest-growing private companies in America in 2020. Mr. McComas also serves as the Chief Financial Officer for Pineland Telephone Cooperative, Inc., a rural telephone, and broadband cooperative based in Metter, Georgia and is responsible for all the company’s financial functions. Before Pineland, Mr. McComas had served as a Vice President of Finance for an operating subsidiary of the world’s largest publicly traded Thailand-based company engaged in the manufacturing and exporting of pet foods in the world. He was also the North American Director of Indirect Purchasing for a publicly traded world leader in outdoor power products for forestry, lawn and garden care headquartered in Stockholm, Sweden. Mr. McComas also was the Chief Financial Officer in commercial banking and private equity.

 

18

 

George O. Borak. George O. Borak Mr. Borak joined AMERX Health Care as Vice President of Sales in June of 2012. Mr. Borak has 34 years of experience in the medical field and 23 years in sales management. Most recently, he was Vice President of Sales and Marketing for Darco International where his duties included managing Sales, Marketing, Customer Service, OEM and International Sales. Prior to that he was in sales and sales management for several orthopedic companies. Mr. Borak earned his Bachelors of Science degree in Marketing Management from Youngstown State University in 1983, while working as a clinician in the Emergency and Orthopedic Departments of a local hospital.

 

Compliance with Section 16(a) of the Exchange Act

 

Under the securities laws of the United States, our directors, executive officers, and any persons holding more than ten percent of our Common Stock are required to report their initial ownership of the Company’s Common Stock and any subsequent changes in that ownership to the Securities and Exchange Commission and the Company. Specific due dates for these reports have been established and we are required to disclose any failure to file, or late filing, of such reports. Based solely on our review of the reports and amendments thereto furnished to the Company and written representations that all reports that were required to be filed in fiscal 2021, our officers, directors and beneficial owners of more than ten percent of its Common Stock complied with all Section 16(a) filing requirements.

 

Committees of the Board

 

The Board of Directors has delegated certain of its authority to an Audit Committee, Compensation Committee and an Ethics Committee.

 

The Compensation Committee is composed of Messrs. Suggs (Chairman) and Treshler. No member of the Compensation Committee is a former or current officer or employee of the Company. The primary function of the Compensation Committee is to review and make recommendations to the Board with respect to the compensation, including bonuses, of the Company's officers and to administer the Company’s Option Plan. The Board of Directors adopted a Compensation Committee Charter during the 2008 fiscal year. The charter for the compensation committee may be viewed on the company website (www.procyoncorp.com).

 

The Company formed an Audit Committee in July 2004. In January 2013, the Board appointed Joseph R. Treshler as director and a member of the Audit Committee. In November 2019, the Board appointed Monica L. McCullough Audit Committee member and Chair. The Board believes that Ms. McCullough and Mr. Treshler are independent pursuant to The NASDAQ Stock Market, Inc. (“NASDAQ”) rules and both Ms. McCullough and Treshler also meet the requirements of an audit committee financial expert. In addition, we have determined that Ms. McCullouh and Mr. Treshler are also independent within the meaning of SEC Rule 10A-3(b)(1). The function of the Audit Committee is to review and approve the scope of audit procedures employed and to review and approve the audit reports rendered by the Company's independent auditors and to approve the audit fees charged by the independent auditors. In addition, pursuant to the Sarbanes-Oxley Act of 2002 and rules promulgated thereunder, the Audit Committee is responsible for, among other things, pre-approving all audit and non-audit services performed by the independent auditors, approving the engagement of the auditors and receiving certain reports from the independent auditors prior to the filing of the audit report. The Audit Committee reports to the Board of Directors with respect to such matters and recommends the selection of independent auditors. The Audit Committee adopted a charter in October 2006, which may be viewed on the Company website (www.procyoncorp.com).

 

19

 

The Company also formed an Ethics Committee of the board members in 2004. The members are Messrs. Suggs (Chairman) and Kudelko, through his resignation on July 6, 2021. The charter for the ethics committee may be viewed on the company website (www.procyoncorp.com). The function of the Ethics Committee is to oversee officers, directors and employees in conducting business on behalf of the Company in an honest and ethical manner. The Ethics Committee is responsible for monitoring and reporting any possible violations of the Code of Ethics to the Board of Directors. With the resignation of Dr. Kudelko, Mr. McComas will assume the role vacated by Dr. Kudelko on the ethics committee in fiscal 2022.

 

The Company does not have a Nominating Committee. However, the entire board of directors, which is comprised of a majority of independent directors, performs the function of a nominating committee. There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.

 

In fiscal 2021, the Board of Directors held four formal meetings. A majority of directors attended each meeting in person or by telephone. The Compensation Committee held five meetings during fiscal 2021. The Audit Committee held five meetings during fiscal 2020. The Ethics Committee held two meeting during fiscal 2021.

 

Code of Ethics for Senior Financial Officers

 

The Company has adopted a Code of Ethics for Senior Financial Officers. The Code of Ethics applies to all senior financial officers of the Company, including the Chief Executive Officer, the Chief Financial Officer, the Treasurer and any other person performing similar functions. A copy of the Code of Ethics may be viewed on our website, at www.procyoncorp.com.

 

20

 

ITEM 11.          EXECUTIVE COMPENSATION.

 

Summary Compensation Table. The following table sets forth compensation information for the two fiscal years ended June 30, 2021 and 2020 of the Company’s Chief Executive Officer, Chief Financial Officer, the President and Vice President of Sales of our subsidiary, AMERX Health Care Corp. (the “Named Executive Officers”). Elements of compensation for our Named Executive Officers include salary, discretionary cash bonuses, stock option awards and other prerequisites and benefits. We do not have a pension plan and do not offer non-qualified deferred compensation arrangements.   

      

Name and Principal Position

Year

 

Salary($)

  

Bonus($)

  

Option

Awards

($)

  

Non-equity

incentive plan

compensation

($)(2)

  

All Other

Compensation

($)

  

Total($)

 

Justice W. Anderson,

2021

 $246,600  $0  $9,840(1) $31,131  $0  $287,571 

President (AMERX )

CEO & President

(Procyon) as of January 2018

2020

 $242,116  $0  $0  $27,465  $0  $269,581 

James B. Anderson,

2021

 $190,000  $0   9,840(1) $20,883  $0  $220,723 

Chief Financial Officer,

Vice Pres. of

Operations (AMERX )

2020

 $166,924  $0   0  $15,926  $0  $182,850 

George O Borak,

2021

 $182,513  $0   0  $16,021  $0  $198,534 

Vice Pres. Of Sales

(AMERX )

2020

 $172,243  $0   0  $19,718  $0  $191,961 

 

 

1.

Aggregate grant date fair value. 25,000 options granted with $0.373 exercise price.

 

2.

Profit sharing earned in fiscal 2020/2021 respectively, but paid on or about October 1, 2020/2021 respectively.

 

Narrative Disclosure to Summary Compensation Table

 

Named Executive Officer's Employment Contracts

 

Justice W. Anderson's Restated and Amended Executive Employment Agreement, which is effective July 1, 2021, provides for a base annual salary of $257,000 and other benefits, including certain incentive bonus compensation based upon Amerx achieving certain financial goals for sales and net profit and at the discretion of the Board of Directors. Mr. Anderson's Agreement calls for a term of one year, but may be terminated by either party, with or without cause, upon thirty day's written notice.

 

James B. Anderson's Restated and Amended Executive Employment Agreement, which is effective July 1, 2021, provides for a base annual salary of $187,200 and other benefits, including short-term and long-term incentive bonus compensation based upon Amerx achieving certain operational and financial goals and at the discretion of the Board of Directors. Mr. Anderson's Agreement calls for a term of one year, but may be terminated by either party, with or without cause, upon thirty day's written notice.

 

George Borak's Restated and Amended Executive Employment Agreement, which is effective July 1, 2021, provides for a base annual salary of $187,200 and other benefits, including certain incentive bonus compensation based upon Amerx achieving certain financial goals for sales and net profit and at the discretion of the Board of Directors. Mr. Borak's Agreement calls for a term of one year, but may be terminated by either party, with or without cause, upon thirty day's written notice.

 

21

 

An Agreement to grant 25,000 options to purchase common stock was executed and delivered to Justice Anderson, pursuant to his Restated and Amended Executive Employment Agreement dated July 1, 2020 on September 24, 2021, but was granted and effective on June 30, 2021.

 

An Agreement to grant 25,000 options to purchase common stock was executed and delivered to James Anderson, pursuant to his Restated and Amended Executive Employment Agreement dated July 1, 2020 on September 24, 2021, but was granted and effective on June 30, 2021.

 

Outstanding Equity Awards

 

An Agreement to grant 40,000 Options to purchase common stock was executed and delivered to Justice Anderson, pursuant to his executive employment agreement, on September 27, 2016, but with a grant date of June 30, 2016.

 

An Agreement to grant 25,000 Options to purchase common stock was executed and delivered to Justice Anderson, pursuant to his executive employment agreement, on August 23, 2017, but with a grant date of June 30, 2017.

 

Compensation of Directors

 

No employee of the Company receives any additional compensation for his services as a director. No non-employee director receives any compensation for his service; however, the Board of Directors has authorized payment of reasonable travel or other out-of-pocket expenses incurred by non-management directors in attending meetings of the Board of Directors. The Board of Directors may consider alternative director compensation arrangements from time to time.

 

Stock Option Plan

 

The Company maintains the Procyon Corporation 2009 Stock Option Plan for Option grants prior to the Plan’s expiration in December 2019. Our shareholders approved the Procyon Corporation 2020 Stock Option and Incentive Plan (the “2020 Option Plan”) in November 2020.

 

The Procyon Corporation 2009 Stock Option Plan (the "2009 Option Plan") was approved by our shareholders on December 8, 2009. Pursuant to the terms of the 2009 Option Plan, the plan expired on December 8, 2019.

 

No further options or other awards may be granted under the 2009 Option Plan.

 

As of June 30, 2021, 65,000 Options to purchase common stock have been awarded to Justice Anderson under the 2009 Option Plan, pursuant to the terms of his employment agreements, effective October 1, 2015 and July 1, 2016, respectively. These options expire on October 1, 2025 and July 1, 2026, respectively. The 1,000,000 shares of common stock that have been reserved for the 2009 Option Plan (250,000 recently issued for Non-Qualified Stock Options) have not been registered under the Securities Act of 1933. We have no present plans to register such shares.

 

22

 

On September 22, 2020, our Board of Directors and Compensation Committee approved a new Procyon Corporation 2020 Stock Option and Incentive Plan (the "2020 Option Plan"), and recommended that the shareholders approve the plan in the annual meeting of shareholders in November, 2020. The plan was approved during the Annual meeting in November, 2020.

 

The purpose of the 2020 Option Plan is to advance the interests of the Company’s stockholders by enhancing the Company’s ability to attract and retain employees (including officers), directors and independent contractors of the Company, and to furnish additional incentives to such persons to enhance the value of the Company over the long term by encouraging them to acquire a proprietary interest in the Company. Employees, Consultants and Directors of the Company are eligible to be granted Awards under the 2020 Option Plan, subject to the limitations described in the Plan.

 

The 2020 Option Plan is to be administered by the Compensation Committee (the “Administrator”).

 

The 2020 Option Plan provides for the granting of Incentive Stock Options, meeting the requirements of 422 of the Internal Revenue Code (the “Code”), Non-Qualified Stock Options, which do not qualify as Incentive Stock Options, Stock Appreciation Rights (“SARs”), Restricted Stock, Restricted Stock Units, or Other Stock-Based Awards (together, an “Award”). An SAR is an Award entitling the recipient to receive shares of Common Stock having a value equal to the excess of the Fair Market Value of the Stock on the date of exercise over the exercise price of the Stock Appreciation Right multiplied by the number of shares of Stock with respect to which the Stock Appreciation Right shall have been exercised. “Restricted Stock Unit” means an unfunded, unsecured right to receive, on the applicable settlement date, one Share or an amount in cash or other consideration determined by the Administrator equal to the value thereof as of such payment date, which right may be subject to certain vesting conditions and other restrictions. “Other Stock-Based Awards” means other Awards of Shares, and other Awards that are valued in whole or in part by reference to, or are otherwise based on, Shares or other property.

 

The Board of Directors has authorized the issuance of 2,000,000 shares of Common Stock to underlie the granting of Awards under the 2020 Option Plan. The 2,000,000 shares of Common Stock that have been reserved for the 2020 Option Plan have not been registered under the Securities Act of 1933. We have no present plans to register such shares.

 

Effective June 30, 2021, the Company granted 25,000 non-qualified stock options to Justice W. Anderson and 25,000 non-qualified stock options to James B. Anderson for exceeding certain performance standards in fiscal 2021, pursuant to the terms of their respective Restated and Amended Executive Employment Agreements dated July 1, 2020. Each of the options were dated September 24, 2021, but were granted and effective as of June 30, 2021 for a ten year term and have an exercise price of .373 per share.

 

Incentive Stock Options may only be granted to employees of the Company or its Subsidiaries and shall be subject to and shall be construed consistently with the requirements of Section 422 of the Code. Incentive Stock Options can be granted for a term not exceeding ten years, except for Ten Percent Owners of our Common Stock, for whom the maximum option term is five years. Incentive Stock Options are granted with an exercise price of not less than 100% of the Fair Market Value of the underlying Common Stock on the date of grant. However, for Ten Percent Owners, the exercise price must be 110% of the Fair Market Value of the underlying Stock on the date of grant. Further, the aggregate Fair Market Value (determined as of the time of grant) of the shares of Stock with respect to which Incentive Stock Options granted under the Plan and any other plan of the Company or its parent and subsidiary corporations become exercisable for the first time by a Participant during any calendar year shall not exceed

$100,000.

 

23

 

Non-Qualified Stock Options are Options that is not intended to be or otherwise do not qualify as an Incentive Stock Option. Non-Qualified Stock Options shall be granted and have a term of not more than ten years from the date of grant. The exercise price must be not less than 100% of the Fair Market Value of the underlying Common Stock on the date of grant. Non-Qualified Stock Option can be awarded to employees, officers, directors or consultants.

 

ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

 

The following table sets forth certain information regarding beneficial ownership of our Common Stock as of September 21, 2020 by (i) each person known by the Company to own beneficially more than 5% of the outstanding Common Stock, (ii) each director or director nominee, and (iii) all executive officers and directors as a group. Each person has sole voting and sole investment or dispositive power with respect to the shares shown except as noted. As to the Company's preferred stock, as of September 21, 2020 no officer or director of the company owned any preferred shares. In addition, no individual shareholder beneficially owned more than 5% of the Company's preferred shares.

 

Common Shareholdings on October 4, 2021         

    

Number of

  

Percent of

Name and Address

 

(3)

 

Shares

 

 

Class (%)

Justice W. Anderson

   

3,515,500

 

(4)

 42.9

George O. Borak

   

100,092

  

1.2

Fred W. Suggs

 

(l)

 

100,000

  

1.2

James B. Anderson

   

106,000

 

(5)

 1.3

Regina W. Anderson

   

     78,060

  

 1.0

Joseph R. Treshler

 

(1) (2)         

 

17,000

  

 *

Paul E. Kudelko

   

-

  

0

Monica L. McCullough

 

(2)

 

-

  

0

Steven McComas

   

-

  

0

All directors and officers as a group (nine persons)

 

3,916,652

  

47.8

Speer Foundation, 2535 Success Dr., Odessa, FL 33556

 

1,540,000

  

18.8

* Less than 1%

 

(1)

Member of the Compensation Committee.

(2)

Member of the Audit Committee.

(3)

Except as noted above, the address for all persons listed is 1300 S. Highland Ave, Clearwater, Florida 33756

(4)

Mr. Anderson beneficially owns 3,350,500 shares of common stock as Trustee of the John C. Anderson Trust in accordance with Mr. Anderson's will. He also owns of record 75,000 shares of common stock and options to purchase 90,000 shares of Common Stock.

(5)

Includes 10,000 shares in joint name with his wife and options to purchase 25,000 shares of Common Stock.

 

24

 

ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

 

Other than transactions described below, since July 1, 2020, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we were or will be a party:

 

in which the amount involved exceeds $120,000; and,

 

in which any director, nominee for director, executive officer, shareholder which beneficially owns five percent or more of our common stock or any member of their immediate family members, had or will have a direct or indirect material interest.

 

Justice W. Anderson, our Chief Executive Officer, personally guaranteed a new $250,000 line of credit on behalf of the Company of which $0 was drawn out as of June 30, 2021.

 

Director Independence

 

We have determined that the following directors are independent within applicable NASDAQ rules: Ms.McCullough and Messrs. Suggs, Treshler, Kudelko and McComas. Regina, James and Justice Anderson are not independent as they are executive officers of the Company and its subsidiaries. Accordingly, our Board of Directors is composed of a majority of independent directors. Our Compensation Committee, Audit Committee and Ethics Committee are each composed entirely of independent directors pursuant to applicable NASDAQ rules. In addition, Ms. McCullough and Mr. Treshler, also meet the definition of independence under SEC Rule 10A-3.

 

ITEM 14.          PRINCIPAL ACCOUNTING FEES AND SERVICES

 

Audit Fees. In fiscal 2021, the Company paid to its independent accountants $62,250 in fees related directly to the audit and review of the Company’s financial statements. In fiscal 2020, the Company paid to its independent accountants $58,750 in fees related directly to the audit and review of the Company’s financial statements.

 

Audit-Related Fees. The Company’s independent accountants performed no other audit-related services for the Company during fiscal 2021 and 2020, other than the audit services described above.

 

Tax Fees: In fiscal 2021, the Company paid to its independent accountants $2,000 in fees related directly to tax preparations. In fiscal 2020, the Company paid to its independent accountants $2,000 in fees related directly to tax preparations.

 

25

 

 

ITEM 15.          EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

 

(a)

Exhibits

 

 

1.

The financial statements filed herewith are listed in the Index to Financial Statements included in Item 7.

 

Exhibit No.

 

Document                  

*

 

3.1

 

Articles of Incorporation

     

+

 

3.1.1

 

Articles of Amendment to Articles of Incorporation

     

*

 

3.2

 

Bylaws

     

+

 

4.1

 

Designation of Series A Preferred Stock                  

     

&

 

10.1

 

Procyon Corporation 2009 Stock Option Plan

     

/

 

10.2

 

Procyon Corporation 2020 Stock Option Plan

     

x

 

10.5

 

Business Line of Credit - Loan Agreement dated June 10, 2021.                  

     
x 10.6 Business Line of Credit - Promissory Note, effective January 13, 2021
     

**

 

10.7

 

Lease agreement, effective January 13, 2021.          

     

//

 

10.9

 

Restated and Amended Executive Employment Agreement effective July 1, 2020 - Justice W. Anderson

     

//

 

10.10

 

Restated and Amended Executive Employment Agreement effective July 1, 2020 - James B. Anderson

     

//

 

10.12

 

Restated and Amended Executive Employment Agreement effective July 1, 2020 - George Borak

     

++

 

14.1

 

Code of Ethics for Senior Financial Officers.

     

x

 

31.1

 

Certification of Justice W. Anderson pursuant to Exchange Act Rule 13a-14(a)/15d-14(a)

     

x

 

31.2

 

Certification of James B. Anderson pursuant to Exchange Act Rule 13a-14(a)/15d-14(a)

     

x

 

32.1

 

Certification Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to Section906 of the Sarbanes-Oxley Act Of 2002

     

&&

 

101.1

 

The following materials from the Company's Annual Report on Form 10-K for the period ended June 30, 2020, formatted in XBRL (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 Statement          

     

*

   

Incorporated by reference to the Company’s Registration Statement on Form S-1, S.E.C. File No.33-13273.

     

+

   

Incorporated by reference to the Company’s Form 10-KSB for the fiscal year ended June 30, 1995.

     

++

   

Incorporated by reference to the Company’s Schedule 14A filed on or about October 15, 2004.

     

**

   

Incorporated by reference to the Company’s Form 8-K filed on or about March 14, 2018.

     

x

   

Filed herewith.

     

/

   

Incorporated by reference to the Company’s Schedule 14A filed on or about October 9, 2020.

     

&

   

Incorporated by reference to the Company’s Schedule 14A filed on or about November 9, 2009.

 

.//

  

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 8-K filed on or about March 14, 2018

    

&&

  

Furnished, not filed

 

26

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.

 

  PROCYON CORPORATION 
    
  By: /s/ Justice W. Anderson 
  Justice W. Anderson, 
  Chief Executive Officer/President 

 

Date: October 8, 2021

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the following persons on behalf of the registrant and in the capacities and on the dates indicated have signed this report below.

 

Signature

TitleDate
   

/s/ Regina W. Anderson

Chairwoman of the Board

October 8, 2021

Regina W. Anderson

  
   

/s/ James B. Anderson

Chief Financial Officer,

October 8, 2021

James B. Anderson

President (Sirius) and Director 
   

/s/ Justice W. Anderson

President (AMERX) and Director,

October 8, 2021

Justice W. Anderson

Chief Executive Officer and 
 President(Procyon) 
   

/s/ Monica L. McCullough

Director

October 8, 2021

Monica L. McCullough

  
   

/s/ Fred W. Suggs, Jr.

DirectorOctober 8, 2021

Fred W. Suggs, Jr.

  
   

/s/ Joseph R. Treshler

DirectorOctober 8, 2021

Joseph R. Treshler

  
   

/s/ Steven McComas

DirectorOctober 8, 2021

Steven McComas

  

 

27

 

 

EXHIBIT INDEX

 

Exhibit No.  Document        Item No.
* 3.1 Articles of Incorporation 3
+ 3.1.1 Articles of Amendment to Articles of Incorporation3
* 3.2 Bylaws3
+ 4.1 Designation of Series A Preferred Stock4
&10.1 Procyon Corporation 2009 Stock Option Plan 
/ 10.2 Procyon Corporation 2020 Stock Option Plan 
x 10.5 Business Line of Credit - Loan Agreement dated June 10, 2021. 
x 10.6 Business Line of Credit - Promissory Note, effective January 13, 2021 
** 10.7 Lease agreement, effective January 13, 2021. 
//10.9 Restated and Amended Executive Employment Agreement effective July 1, 2021 - Justice W. Anderson 
//10.10 Restated and Amended Executive Employment Agreement effective July 1, 2021 - James B. Anderson 
// 10.12 Restated and Amended Executive Employment Agreement effective July 1, 2021 - George Borak 
++14.1 Code of Ethics for Senior Financial Officers. 
x 31.1 

Certification of Justice W. Anderson pursuant to Exchange Act Rule 13a-14(a)/15d-14(a) 

31
x 31.2 

Certification of James B. Anderson pursuant to Exchange Act Rule 13a-14(a)/15d-14(a) 

31
x 32.1 Certification Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act Of 200232
&&101.1 The following materials from the Company's Annual Report on Form 10-K for the period ended June 30, 2020, formatted in XBRL (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 

 

*

Incorporated by reference to the Company’s Registration Statement on Form S-1, S.E.C. File No. 33-13273.

+

Incorporated by reference to the Company’s Form 10-KSB for the fiscal year ended June 30, 1995.

++

Incorporated by reference to the Company’s Schedule 14A filed on or about October 15, 2004

**

Incorporated by reference to the Company’s Form 8-K filed on or about January 12, 2021

x

Filed herewith.

&

Incorporated by reference to the Company’s Schedule 14A filed on or about November 9, 2009.

//

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 8-K filed on or about March 14, 2018.

&&

Furnished, not filed.

/

Incorporated by reference to the Company’s Schedule 14A filed on or about October 9, 2020

 

28

 

 

 

PROCYON CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Years Ended June 30, 2021 and 2020

 

 

 

 

 

TABLE OF CONTENTS

 

 Page No.
  
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMF-1
  
  
FINANCIAL STATEMENTS 
  
  
Consolidated Balance SheetsF-2
  
Consolidated Statements of OperationsF-3
  
Consolidated Statements of Stockholders’ EquityF-4
  
Consolidated Statements of Cash FlowsF-5
  
Notes to Financial StatementsF-6

 

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Shareholders of

Procyon Corporation and Subsidiaries

Oldsmar, Florida

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Procyon Corporation and subsidiaries (the "Company") as of June 30, 2021 and 2020, the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the two-year period ended June 30, 2021 and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended June 30, 2021, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: ( 1) relate to accounts or disclosures that are material to the financial statements and (2) involve our especially challenging, subjective, or complex judgements. We determined that there are no critical audit matters.

 

 

/s/ Ferlita, Walsh, Gonzalez & Rodriguez, P. A.

We have served as the Company's auditor since 1998.

 

 

Tampa, Florida

September 29, 2021

 

F-1 

 

 

 

PROCYON CORPORATION & SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

June 30, 2021 and 2020

 

  

2021

  

2020

 

ASSETS

        
         

CURRENT ASSETS

        

Cash

 $1,226,522  $665,834 

Certificates of Deposit, plus accrued interest

  280,438   155,132 

Accounts Receivable, less allowance for doubtful accounts of $9,408 and $9,408 respectively

  497,358   311,043 

Inventories

  591,058   758,516 

Prepaid Expenses

  276,251   183,138 

TOTAL CURRENT ASSETS

  2,871,627   2,073,663 
         

PROPERTY AND EQUIPMENT, NET

  109,275   452,855 
         

OTHER ASSETS

        

Deposits

  3,235   4,192 

Inventories

  263,280   83,812 

Intangible Asset

  17,000   17,000 

ROU Assets - Operating Leases

  882,344   30,245 

Deferred Tax Asset, Net of Valuation Allowance of $0 and $144,619, respectively

  95,568   159,874 
   1,261,427   295,123 
         

TOTAL ASSETS

 $4,242,329  $2,821,641 
         
         

LIABILITIES AND STOCKHOLDERS' EQUITY

        
         

CURRENT LIABILITIES

        

Accounts Payable

 $167,588  $167,459 

PPP Loan Payable

  -   57,028 

Accrued Expenses

  315,881   289,466 

Short Term Lease Liabilities

  154,022   - 

TOTAL CURRENT LIABILITIES

  637,491   513,953 
         

LONG TERM LIABILITIES

        

PPP Loan Payable

  -   143,972 

Long Term Lease Liabilities

  653,860   - 

TOTAL LONG TERM LIABILITIES

  653,860   143,972 
         

TOTAL LIABILITIES

  1,291,351   657,925 
         

COMMITMENTS AND CONTINGENCIES (NOTE G)

  -   - 
         

STOCKHOLDERS' EQUITY

        

Preferred Stock, 496,000,000 shares authorized, none issued.

  -   - 

Series A Cumulative Convertible Preferred Stock, no par value; 4,000,000 shares authorized; 167,100 and 167,100 shares issued and outstanding, respectively.

  126,860   126,860 

Common Stock, no par value, 80,000,000 shares authorized; 8,087,388 and 8,087,388 shares issued and outstanding, respectively

  4,444,766   4,444,766 

Paid-in Capital

  35,564   15,885 

Accumulated Deficit

  (1,656,212)  (2,423,795)

TOTAL STOCKHOLDERS' EQUITY

  2,950,978   2,163,716 
         

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 $4,242,329  $2,821,641 

 

The accompanying notes are an integral part of these financial statements.

 

F-2

 

 

PROCYON CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended June 30, 2021 and 2020

 

  

2021

  

2020

 
         

NET SALES

 $4,719,672  $4,334,088 
         

COST OF SALES

  1,330,979   1,134,675 
         

GROSS PROFIT

  3,388,693   3,199,413 
         

OPERATING EXPENSES

        

Salaries and Benefits

  1,733,708   1,729,688 

Selling, General and Administrative

  1,330,215   1,316,709 
   3,063,923   3,046,397 
         

INCOME FROM OPERATIONS

  324,770   153,016 
         

OTHER INCOME

        

(Loss) on Disposal of Assets

  304,887   (4,697)

Other Income / Gain on Extinguishment of Debt

  203,172   10,000 

Interest Income

  1,232   1,746 

Interest Expense

  (2,172)  - 
   507,119   7,049 
         

INCOME BEFORE INCOME TAXES

  831,889   160,065 
         

INCOME TAX EXPENSE

  (64,306)  (48,407)
         

NET INCOME

  767,583   111,658 
         

Dividend requirements on preferred stock

  (16,710)  (16,710)
         

Basic net income available to common shares

 $750,873  $94,948 
         

Basic net income per common share

 $0.09  $0.01 
         

Weighted average number of common shares outstanding

  8,087,388   8,087,388 
         

Diluted net income per common share

 $0.09  $0.01 
         

Weighted average number of common shares outstanding, diluted

  8,319,624   8,319,488 

 

The accompanying notes are an integral part of these financial statements.

 

F-3

 

 

PROCYON CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

For the Twelve Months Ended June 30, 2021 and 2020

 

Twelve Months Ended June 30, 2021

 

Preferred Stock

  

Common Stock

  

Paid-In

  

Accumulated

  

Total Stockholders'

 
  

Shares

  

Amount

  

Shares

  

Amount

  

Capital

  

Deficit

  

Equtiy

 

Balance, June 30, 2020

  167,100   126,860   8,087,388   4,444,766   15,885   (2,423,795)  2,163,716 
                             

Net Income (Loss)

  -   -   -   -   -   219,096   219,096 
                             

Balance, September 30, 2020

  167,100   126,860   8,087,388   4,444,766   15,885   (2,204,699) $2,382,812 
                             

Net Income (Loss)

  -   -   -   -   -   74,313   74,313 
                             

Balance, December 31, 2020

  167,100   126,860   8,087,388   4,444,766   15,885   (2,130,386)  2,457,125 
                             

Stock Options Issued

  -   -   -   -   -   -   - 
                             

Net Income (Loss)

  -   -   -   -   -   21,714   21,714 
                             

Balance, March 31, 2021

  167,100   126,860   8,087,388   4,444,766   15,885   (2,108,672) $2,478,839 
                             

Stock Options Issued

                  19,679      $19,679 
                             

Net Income (Loss)

  -   -   -   -   -   452,460   452,460 
                             

Balance, June 30, 2021

  167,100  $126,860   8,087,388  $4,444,766  $35,564  $(1,656,212) $2,950,978 

 

Twelve Months Ended June 30, 2020

 

Preferred Stock

  Common Stock  

Paid-In

  

Accumulated

  

Total Stockholders'

 
  

Shares

  

Amount

  

Shares

  

Amount

  

Capital

  

Deficit

  

Equtiy

 

Balance, June 30, 2019

  167,100  $126,860   8,087,388  $4,444,766  $15,885  $(2,528,514) $2,058,997 
                             

Cumulative Adjustment from Adoption of ASC 842

  -   -   -   -   -   (6,939)  (6,939)
                             

Net Income (Loss)

  -   -   -   -   -   83,840   83,840 
                             

Balance, September 30, 2019

  167,100   126,860   8,087,388   4,444,766   15,885   (2,451,613)  2,135,898 
                             

Net Income (Loss)

  -   -   -   -   -   (204)  (204)
                             

Balance, December 31, 2019

  167,100   126,860   8,087,388   4,444,766   15,885   (2,451,817)  2,135,694 
                             

Net Income (Loss)

  -   -   -   -   -   55,929   55,929 
                             

Balance, March 31, 2020

  167,100   126,860   8,087,388   4,444,766   15,885   (2,395,888)  2,191,623 
                             

Net Income (Loss)

  -   -   -   -   -   (27,907)  (27,907)
                             

Balance, June 30, 2020

  167,100  $126,860   8,087,388  $4,444,766  $15,885  $(2,423,795) $2,163,716 

 

The accompanying notes are an integral part of these financial statements.

 

F-4

 

 

PROCYON CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended June 30, 2021 and 2010

 

  

2021

  

2020

 
         

CASH FLOWS FROM OPERATING ACTIVITIES

        
         

Net Income

 $767,583  $111,658 

Adjustments to reconcile net income to net cash provided by operating activities:

        

Depreciation

  43,331   53,952 

Increase in Allowance for Doubtful Accounts

  -   2,689 

Right of Use Asset Amortization

  120,981   (30,245)

Adoption of ASC 842

  -   (6,939)

Accrued Interest on Certificate of Deposit

  (306)  - 

Deferred Income Taxes

  208,925   48,407 

Valuation Allowance

  (144,619)  - 

(Gain)/Loss on Sale of Assets

  (304,887)  4,697 

Gain on Extinguishment of Debt

  (203,172)  - 

Stock Based Compensation

  19,679   - 

Decrease (increase) in:

        

Accounts Receivable

  (186,315)  105,898 

Deposits

  957   - 

Inventory

  (12,010)  (233,691)

Prepaid Expenses

  (93,113)  61,356 

Increase (decrease) in:

        

Accounts Payable

  129   20,014 

Accrued Interest Payable

  2,172   - 

Accrued Expenses

  60,165   60,976 

NET CASH PROVIDED BY OPERATING ACTIVITIES

  279,500   198,772 
         

CASH FLOW FROM INVESTING ACTIVITIES

        

Purchase of Certificate of Deposit

  (125,000)  - 

Redemption of Certificate of Deposit

  -   (1,181)

Purchase of Property & Equipment

  (65,166)  (23,044)

Proceeds on disposal of property and equipment

  670,303   - 

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

  480,137   (24,225)
         

CASH FLOW FROM FINANCING ACTIVITIES

        

Payments on Operating Lease Liability

  (198,949)  - 

Proceeds from PPP Loan

  -   201,000 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

  (198,949)  201,000 
         

NET CHANGE IN CASH

  560,688   375,547 
         

CASH AT BEGINNING OF THE YEAR

  665,834   290,287 
         

CASH AT END OF THE YEAR

 $1,226,522  $665,834 
         

SUPPLEMENTAL DISCLOSURES

        

Interest Paid

 $-  $- 

Taxes Paid

 $-  $- 
         

NONCASH TRANSACTION DISCLOSURES

        
         

During the current year, the Company recorded a right of use asset for $973,081 and recorded a related right of use liability of $973,081.

        

 

The accompanying notes are an integral part of these financial statements.

 

F-5

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Business Activity                           

 

Procyon Corporation has two wholly-owned subsidiaries, AMERX Health Care Corp. (AMERX) and Sirius Medical Supply, Inc. (Sirius). AMERX manufactures and markets wound and skin care products primarily in the United States whereas Sirius previously marketed diabetic supplies primarily to Medicare patients in the United States. As previously reported, in July 2009, we sold substantially all of the assets of Sirius to a third party, such that, as of July 31, 2009, Sirius no longer has any material operations. Management is considering various options for the future direction of Sirius.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Procyon Corporation and its wholly-owned subsidiaries, AMERX and Sirius. All material inter-company accounts and transactions are eliminated.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

For the purpose of the Statements of Cash Flows, the Company considers cash-on-hand, demand deposits in banks and highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

 

Concentration of Credit Risk

 

The Company maintains its cash at various financial institutions. All noninterest-bearing transaction accounts are fully insured by the Federal Deposit Insurance Corporation, regardless of the balance of the account, at all insured institutions. At June 30, 2021 and 2020, our uninsured cash balance was $30 and $334,265 respectively.

 

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 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.

 

F-6

 

Accounts Receivable and Concentration of Credit Risk

 

AMERX grants credit to customers, most of whom are national pharmaceutical distributors, drug stores nationwide and physicians. AMERX wholesales its products to national pharmaceutical distributors and drug stores at a sales term of 2/10, net 30 days. AMERX has a written return policy with its customers. Each return request is reviewed by management for approval. Sales to physicians are at contracted rates and standard payment term is 2/10 net 30 days.

 

The valuation of accounts receivable is based upon the credit-worthiness of customers as well as historical collection experience. Estimating the credit worthiness of customers and recoverability of customer accounts requires us to exercise considerable judgment. 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 and write-off experience, current trends, credit policy, and on analysis of accounts receivable by aging category. As of June 30, 2021 and 2020, accounts receivable allowance was approximately $9,400 and $9,400, or less than 2% and 3% respectively of gross accounts receivable.

 

Inventories

 

Inventories are valued at the lower of average cost or net realized value determined by the first-in, first-out method. A portion of inventory is included in non-current inventory. The non-current balance represents product that will most likely not be used within the next 12 months. A majority of this inventory comes from minimum economic level orders necessary to produce product at a reasonable cost.

 

Property and Equipment

 

Property and equipment are stated at cost. Depreciation is computed on a straight-line basis over their estimated useful lives. Leased equipment is recorded at it’s fair market value at the beginning of the lease term and is depreciated over the life of the equipment. Depreciation on leased equipment is included in depreciation expense.

 

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 exacted 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. We have no valuation allowance as of June 30, 2021. We had a valuation allowance of $144,619 as of June 30, 2020.

 

F-7

 

Fair Value of Financial Instruments

 

The carrying value of cash, accounts receivable, prepaid expenses, deposits, inventory, accounts payable and accrued expenses approximate fair value.

 

Considerable judgement is required in interpreting market data to develop the estimates of fair value, and accordingly, the estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange.

 

Shipping and Handling Costs

 

Shipping and handling costs incurred were approximately $221,000 and $157,000 for the years ended June 30, 2021, and 2020, respectively, and were included in selling, general and administrative expenses.

 

Advertising and Marketing

 

The Company records advertising and marketing expenses in the periods in which they are incurred. During the years ended June 30, 2021 and 2020, approximately $240,000 and $400,000, of advertising and marketing costs were included in selling, general and administrative expenses for each respective year.

 

Stock Based Compensation

 

In November 2020, our shareholders approved the Procyon Corporation 2020 Stock Option and Incentive Plan (the “2020 Option Plan”).

 

The Company maintained the Procyon Corporation 2009 Stock Option Plan (the "2009 Option Plan"), which expired on December 8, 2019. The 2009 Option Plan was approved by the Company's shareholders on December 8, 2009. No further stock options or other awards may be granted under the 2009 Option Plan.

 

The 2009 Option Plan provided for the granting of incentive stock options, non-qualified stock options, and stock appreciation rights ("SARs") to eligible officers, directors, employees and consultants of the Company and its subsidiaries. The 2009 Option Plan is administered by the Compensation Committee. The Board of Directors has authorized the issuance of 500,000 shares of common stock to underlie the granting of incentive stock options and 500,000 shares of common stock to underlie the granting of non-qualified stock options and SARs under the 2009 Option Plan. The Board issued 250,000 shares of common stock to underlie Non-Qualified Stock Options, on September 27, 2016, effective June 30, 2016. However, 40,000 Options to purchase common stock were awarded to Justice Anderson pursuant to his employment agreement effective July 1, 2016 and 25,000 Options to purchase common stock were awarded to Justice Anderson pursuant to his employment agreement effective July 1, 2017. These Options will expire ten years after their respective grant dates. As of June 30, 2021, no other stock options or other awards have been granted under the 2009 Option Plan. The 1,000,000 shares of common stock that have been reserved for the 2009 Option Plan (250,000 recently issued for Non-Qualified Stock Options) have not been registered under the Securities Act of 1933.

 

F-8

 

Eligible participants under the 2009 Option Plan must be such full or part-time officers and other employees, non-employee directors and key persons (including consultants and prospective employees) of the Company and its Subsidiaries as are selected from time to time by the Compensation Committee in its sole discretion. Only employees may receive incentive stock options. Employees, non-employee directors and consultants may receive non-qualified stock options or SARs.

 

Non-Qualified Stock Options granted under the 2009 Option Plan many have a term of not more than ten years from the date of grant. The exercise price must be not less than 100% of the fair market value of the underlying common stock on the date of grant. Incentive Stock Options can be granted under the 2009 Option Plan for a term not exceeding ten years, except for Ten Percent Owners of our common stock, as defined in the Plan, for whom the maximum option term is five years. Incentive Stock Options are granted with an exercise price of not less than 100% of the fair market value of the underlying common stock on the date of grant. However, for Incentive Stock Options owned by Ten Percent Owners, the exercise price must be 110% of the Fair Market Value of the underlying stock on the date of grant.

 

The 2020 Option Plan provides for the granting of Incentive Stock Options, meeting the requirements of 422 of the Internal Revenue Code (the “Code”), Non-Qualified Stock Options, which do not qualify as Incentive Stock Options, Stock Appreciation Rights (“SARs”), Restricted Stock, Restricted Stock Units, or Other Stock-Based Awards (together, an “Award”). An SAR is an Award entitling the recipient to receive shares of Common Stock having a value equal to the excess of the Fair Market Value of the Stock on the date of exercise over the exercise price of the Stock Appreciation Right multiplied by the number of shares of Stock with respect to which the Stock Appreciation Right shall have been exercised. “Restricted Stock Unit” means an unfunded, unsecured right to receive, on the applicable settlement date, one Share or an amount in cash or other consideration determined by the Administrator equal to the value thereof as of such payment date, which right may be subject to certain vesting conditions and other restrictions. “Other Stock-Based Awards” means other Awards of Shares, and other Awards that are valued in whole or in part by reference to, or are otherwise based on, Shares or other property.

 

The Board of Directors has authorized the issuance of 2,000,000 shares of Common Stock to underlie the granting of Awards under the 2020 Option Plan. The 2,000,000 shares of Common Stock that have been reserved for the 2020 Option Plan have not been registered under the Securities Act of 1933. We have no present plans to register such shares. Incentive Stock Options may only be granted to employees of the Company or its Subsidiaries and shall be subject to and shall be construed consistently with the requirements of Section 422 of the Code. Incentive Stock Options can be granted for a term not exceeding ten years, except for Ten Percent Owners of our Common Stock, for whom the maximum option term is five years. Incentive Stock Options are granted with an exercise price of not less than 100% of the Fair Market Value of the underlying Common Stock on the date of grant. However, for Ten Percent Owners, the exercise price must be 110% of the Fair Market Value of the underlying Stock on the date of grant. Further, the aggregate Fair Market Value (determined as of the time of grant) of the shares of Stock with respect to which Incentive Stock Options granted under the Plan and any other plan of the Company or its parent and subsidiary corporations become exercisable for the first time by a Participant during any calendar year shall not exceed $100,000.

 

F-9

 

Non-Qualified Stock Options are Options that is not intended to be or otherwise do not qualify as an Incentive Stock Option. Non-Qualified Stock Options shall be granted and have a term of not more than ten years from the date of grant. The exercise price must be not less than 100% of the Fair Market Value of the underlying Common Stock on the date of grant. Non-Qualified Stock Option can be awarded to employees, officers, directors or consultants.

 

Effective June 30, 2021, the Company granted 25,000 non-qualified stock options to Justice W. Anderson and 25,000 non-qualified stock options to James B. Anderson for exceeding certain performance standards in fiscal 2021, pursuant to the terms of their respective Restated and Amended Executive Employment Agreements dated July 1, 2020. Each of the options were dated September 24, 2021, but were granted and effective as of June 30, 2021 for a ten year term and have an exercise price of .373 per share.

 

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.

 

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.

 

Agreements to grant 40,000 and 25,000 Options to purchase common stock were executed and delivered to Justice Anderson, pursuant to his executive employment agreements, on September 27, 2016 and August 23, 2017, respectively, but with grant dates of June 30, 2016 and June 30, 2017, respectively. Equity instruments issued to non-employees in exchange for goods, fees and services are accounted for under the fair value-based method of Accounting Standards Codification Topic 718 - Compensation - Stock Compensation (“Topic 718").

 

Effective as of June 30, 2021, the Company granted 25,000 non-qualified stock options to Justice W. Anderson and 25,000 non-qualified stock options to James B. Anderson for exceeding certain performance standards in fiscal 2021, pursuant to the terms of their respective Restated and Amended Executive Employment Agreements dated July 1, 2020. Each of the options were granted on June 30, 2021 with a ten year term and have an exercise price of .373 per option.

 

F-10

 

Additional information with respect to stock option activity is as follows:

 

  

Number of

Shares

  

Weighted Average

Exercise Price

 

Outstanding at June 30, 2019

  65,000  $0.17 

Granted

  -  $- 

Exercised

  -  $- 

Cancelled

  -  $- 

Outstanding at June 30, 2020

  65,000  $0.17 

Granted

  50,000  $0.37 

Exercised

  -  $- 

Cancelled

  -  $- 

Outstanding at June 30, 2021

  115,000  $0.26 

Options exercisable at June 30, 2020

  65,000  $0.17 

Options exercisable at June 30, 2021

  115,000  $0.26 

 

Net Income Per Common Share

 

The Company computes net income per share in accordance with Accounting Standards Codification Topic 260 - Earnings per Share (Topic 260). Topic 260 requires presentation of both basic and diluted earnings per shares (EPS) on the face of the income statement. Basic EPS is computed by dividing net income available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options, using the treasury stock method, and convertible preferred stock, using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive.

 

Subsequent Events

 

We have evaluated subsequent events through September 29, 2021, which is the date the financial statements were available to be issued.

 

 

NOTE B - INVENTORIES

 

Inventories consisted of the following:

 

  

June 30, 2021

  

June 30, 2020

 

Finished Goods

 $683,771  $645,039 

Raw Materials

  170,567   160,242 
  $854,338  $805,281 

 

At June 30, 2021 and 2020, respectively, $263,280 and $83,812 of our inventory was considered non-current as it will not be used within a one year period.

 

F-11

 

 

 

NOTE C - PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following:

 

As of June 30, 2021

 

Owned

  

Capitalized Leases

  

Total

 

Office Equipment

 $223,018  $0  $223,018 

Furniture and Fixtures

  45,082       45,082 

Software

  26,021       26,021 

Leasehold improvements

  26,301       26,301 

Production Equipment

  26,249       26,249 

Building

  18,392       18,392 

Land

  0   0   0 
   365,063   0   365,063 

Less accumulated depreciation

  (255,788)  0   (255,788)
  $109,275  $0  $109,275 

 

Depreciation expense was $43,331 for the year ended June 30, 2021.

 

As of June 30, 2020

 

Owned

  

Capitalized Leases

  

Total

 

Office Equipment

 $178,404  $11,364  $189,768 

Furniture and Fixtures

  40,304       40,304 

Software

  26,021       26,021 

Leasehold Improvements

  95,329       95,329 

Production Equipment

  25,452       25,452 

Building

  492,559       492,559 

Land

  64,547       64,547 
   922,616   11,364   933,980 

Less accumulated depreciation

  (469,761)  (11,364)  (481,125)
  $452,855  $0  $452,855 

 

Depreciation expense was $53,942 for the year ended June 30, 2020.

 

F-12

 

 

NOTE D - INTANGIBLE ASSETS

 

On June 30, 2017, the Company acquired the formulation of its care lotion from its manufacturer for $17,000. The Company has determined that this asset has an indefinite useful life and therefore is not being amortized, but instead will be tested for impairment at least annually in accordance with the provisions of FASB ASC 350, Intangibles - Goodwill and Other.

 

 

NOTE E - ACCRUED EXPENSES

 

Accrued expenses consist of the following at June 30, 2021 and 2020.

 

  

2021

  

2020

 

Accrued Payroll

 $131,187  $119,756 

Accrued Paid Time Off

  29,899   31,094 

Accrued Professional Fees

  50,916   49,278 

Accrued Incentive Plan

  55,398   51,746 

Accrued Lease Liabiity

  38,620   33,750 

Other

  9,861   3,842 

Total

 $315,881  $289,466 

 

 

NOTE F - LINE OF CREDIT

 

In fiscal 2019, the Company entered into a new line of credit with a limit of $250,000 from a financial institution. At June 30, 2021 and June 30, 2020, the Company owed $0 on this line of credit. This line of credit was not renewed.

 

A new line of credit was procured in June 2021, with a new bank. The limit for this line of credit is $250,000 as well. Terms of the Line of credit include and an interest rate that fluctuates at prime plus a half of point, interest only. The line of credit matures on June 30, 2022.

 

Interest expense for the years ended June 30, 2021 and 2020 was $0 and $0, respectively.

 

The line of credit is guaranteed by Justice W. Anderson, President and Chief Executive Officer.

 

 

NOTE G - 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 $201,000 (the "Loan"). The Loan was funded on April 13, 2020. The Company used the proceeds of the Loan for covered payroll costs, rent and utilities in accordance with the relevant terms and conditions of the CARES Act.

 

F-13

 

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 in May of 2021.

 

 

NOTE H - COMMITMENTS AND CONTINGENCIES

 

The Company leases warehouse office space under operating leases expiring through year 2021. Lease expenses for the fiscal years ended June 30, 2021 and 2020 were $31,091 and $29,193, respectively. During the current fiscal year, the Company entered into a new lease for its office space, warehouse space and certain equipment. The minimum lease payments due under the lease agreements for fiscal years ended June 30, are as follows:

 

2022

 $177,915 

2023

  181,326 

2024

  184,805 

2025

  188,353 

2026

  141,062 
  $873,461 

 

 

NOTE I - 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. The preferred stockholders are entitled to receive, if declared by the board of directors, quarterly dividends at an annual rate of $.10 per share of Series A Cumulative Convertible Preferred Stock per annum. Dividends accrue without interest and are cumulative from the date of issuance of the Series A Cumulative Convertible Preferred Stock and are payable quarterly in arrears in cash or publicly traded common stock when and if declared by the board of directors. As of June 30, 2021, no dividends have been declared. Dividends in arrears on the outstanding preferred shares total $404,516 or approximately $2.42 per share as of June 30, 2021. So long as any shares of Series A Preferred Stock are outstanding, the Company is prohibited from declaring dividends or other distributions related to its Common Stock or purchasing, redeeming or otherwise acquiring any of the Common Stock.

 

F-14

 

The preferred stockholders have the right to convert each share of Series A Cumulative Convertible Preferred Stock into one share of the Company's common stock at any time without additional consideration. Each share of Series A Cumulative Convertible 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 Cumulative Convertible Preferred Stock have voting rights equal to the common stockholders based upon the number of shares of common stock into which the Series A Cumulative Convertible 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 of the outstanding Series A Cumulative Convertible Preferred stock.

 

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 June 30, 2021 and 2020 was $19,679 and $0 respectively.

 

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 for the year ended June 30, 2021.

 

Stock Price at Date of Grant $.373 
Risk-free interest rate  1.41%
Expected volatility of common stock  183.81%
Dividend yield  0%
Expected life of options (years)  10 

 

 

NOTE J - EARNINGS PER SHARE

 

As required by Accounting Standards Codification Topic 260 - Earnings per Share (“Topic 260"), the following table sets forth the computation of basic and diluted earnings per share:

 

  

Years Ended June 30,

 
  

2021

  

2020

 

Numerator:

        
         

Net Income (Loss)

 $767,583  $111,658 

Adjustment for basic earnings per share:

        

Dividend requirements on preferred stock

  (16,710)  (16,710)

Numerator for basic earnings per share- Net income available to common stockholders

 $750,873  $94,948 
         

Effect of dilutive securities:

        

Numerator for diluted earnings per share-Net income available to common stockholder

 $750,873  $94,948 
         

Denominator:

        
         

Denominator for basic earnings per share-Weighted-average common shares

  8,087,388   8,087,388 

Effect of dilutive securities: Stock options

  65,136   65,000 

Weighted-average Dilutive potential common shares

  167,100   167,100 

Denominator for dilutive earnings per share-Adjusted weighted-average shares and assumed conversions

  8,319,624   8,319,488 

Basic Net Income per share

 $0.09  $0.01 

Diluted Net Income per share

 $0.09  $0.01 

 

F-15

 

 

NOTE K - INCOME TAXES AND AVAILABLE CARRYFORWARD                  

 

As of June 30, 2021, the Company had consolidated income tax net operating loss ("NOL") carryforward for federal income tax purposes of approximately $446,000. The NOL will expire in various years ending through the year 2035.The utilization of certain of the loss carryforwards are limited under Section 382 of the Internal Revenue Code.

 

The components of the provision for income taxes expenses are attributable to continuing operations as follows:

 

  

Year ended

June 30, 2021

  

Year ended

June 30, 2020

 

Current

        

Federal

 $-  $- 

State

  -   - 
   -   - 

Deferred

        

Federal

 $(53,281) $(40,109)

State

  (11,025)  (8,298)
  $(64,306) $(48,407)

 

F-16

 

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

 $112,934 

Share based payments

  4,988 

Lease Liabilities - operating leases

  204,758 

Accrued compensated absences

  7,578 

Accrued bonus

  14,041 

Allowance for doubtful accounts

  2,384 
   346,683 

Deferred tax (liabilities):

    

Right of use assets - operating leases

  (223,630)

Excess of tax over book depreciation

  (27,485)

Total deferred tax (liabilities)

  (251,115)

Net deferred tax asset (liability)

  95,568 

Valuation Allowance

  - 

Net deferred tax asset

 $95,568 
     

The change in the valuation allowance is as follows:

    

June 30, 2021

 $- 

June 30, 2020

  (144,619)
  $144,619 

 

Income taxes for the years ended June 30, 2021 and 2020 differ from the amounts computed by applying the effective income tax rates of 25.35% to income before income taxes as a result of the following:

 

  

2021

  

2020

 

Expected benefit (provision) at US statutory rate

 $(174,963) $(33,613)

State income tax net of federal benefit (provision)

  (36,201)  (6,955)

Nondeductible expense

  (3,450)  (6,412)

Non Taxable Income

  51,494   - 

Change in estimates of losses carryforward

  (45,805)  (29,328)

Change in valuation allowance

  144,619   26,761 

Other

  -   1,140 
         

Income tax benefit (expense)

 $(64,306) $(48,407)

 

F-17

 

The earliest tax year still subject to examination by taxing jurisdictions is fiscal year 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.

 

During the year ended June 30, 2020, the Company obtained a $201,000 loan from the Small Business Administration (“SBA”) Paycheck Protection Program as a result of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") enacted by Congress in response to the COVID-19 pandemic. Under the program, any loan forgiveness would be excluded from the borrower's taxable income.

 

 

NOTE L - CONCENTRATION OF SUPPLY RISK

 

The Company's manufacturing and packaging activities are performed at a production facility owned and operated by a non-affiliated pharmaceutical manufacturer. At the present time, the manufacturer is the major source of the Company’s wound care products. The sudden loss or failure of this manufacturer could significantly impair AMERX’s ability to fulfill customer orders on a short-term basis and therefore, could materially and adversely affect the Company’s operations. However, the Company has maintained a long-term relationship with this manufacturer and does not expect a discontinuance of its wound care products from the manufacturer in the near term. The Company has also opened relationships with other manufactures to address supply risk.

 

There were no back orders as of June 30, 2021 and 2020, respectively, due to the timely receipt of product from the manufacturer.

 

 

NOTE M - MAJOR CUSTOMER         

 

During the year ended June 30, 2021 sales from one customer accounted for approximately 10% of AMERX’s sales. In fiscal 2020 no customers accounted for more then 10% of AMERX’s sales.

 

F-18

 

 

NOTE N - RESEARCH AND DEVELOPMENT

 

AMERX incurred $30,900 and $23,093 during the years ended June 30, 2021 and 2020, respectively, towards research and development efforts. These efforts were directed towards additional studies aimed at expanding existing markets, correcting issues with FDA compliance and manufacturing.

 

 

NOTE O - PANDEMIC HEALTH ISSUE

 

At the time of release of these financial statements, the United States continues to experience a National Emergency related to persistent health issues caused by the COVID-19 pandemic. Management is unable to quantify the potential duration and economic impact of mandated closures by our National, State or Local governments.

 

 

NOTE P - 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 63 months. The lease contains a renewal option to extend the term for successive one year periods. The Company is not reasonably certain that it will renew the lease when it expires. Initial rent amount was $1,079 per month, with increases each year no more than 3%. In applying ASC 842, the Company uses a lease term of 63 months and an incremental borrowing rate of 5.5% which was the borrowing rate on the Company’s line of credit with a financial institution with all accounts and general intangibles. This lease expired in September 2020. As such, the right-of-use asset has been fully amortized and its related lease liability extinguished at September 30, 2020.

 

In February 2018, the Company entered in a lease agreement to lease warehouse space with a lease term of 39 months. The Company pays no rent for the first three months of the lease, pays $2,936 per month for the next 12 months, $3,024 per month for the next 8 months, $3,019 per month for the next 4 months, and $3,109 for the last 12 months. In applying ASC 842, the Company uses a lease term of 39 months and an incremental borrowing rate of 5.5% which was the borrowing rate on the Company’s line of credit with a financial institution.                                             

 

In August 2020, the Company entered into a lease agreement to lease certain office equipment with a lease term of 63 months. The lease renews on a month-to-month basis and contains an option to purchase the equipment at fair market value or return the equipment. Historically, the Company has not exercised the option to purchase at the end of the initial lease term for similar leases and simply returned the equipment at the end of the initial lease term. Initial rent amount was $574 per month. In applying ASC 842, the Company uses a lease term of 63 months and an incremental borrowing rate of 4.25% which was the borrowing rate on the Company’s line of credit with a financial institution.

 

In January 2021, the Company entered in a lease agreement to lease warehouse space with a lease term of 64 months. The Company pays no rent for the first four months of the lease and pays $4,792.50 per month beginning the 5th month of the lease. Rent will increase each succeeding year by no less than 2% but not more than 5%. The rent amount includes common area maintenance charges which are considered nonlease components. In applying ASC 842, the Company is electing to account for nonlease components as being related to the lease component. In addition, the Company uses a lease term of 64 months and an incremental borrowing rate at prime rate of 3.25% which was the borrowing rate on the Company’s recent line of credit with a financial institution.                                             

                                                                                                                                                 

F-19

 

In January 2021, the Company entered in a lease agreement to lease office space with a lease term of 64 months. The Company pays no rent for the first four months of the lease and pays $9,372 per month beginning the 5th month of the lease. Rent will increase each succeeding year by no less than 2% but not more than 5%. The rent amount includes common area maintenance charges which are considered nonlease components. In applying ASC 842, the Company is electing to account for nonlease components as being related to the lease component. The Company also incurred initial direct cost of $114,083 related to existing improvements in the leased space. This initial direct cost has been included in determining the initial ROU asset and liability amounts. In addition, the Company uses a lease term of 64 months and an incremental borrowing rate at prime rate of 3.25% which was the borrowing rate on the Company’s recent line of credit with a financial institution.

 

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

 $1,046,800 

Amortization of ROU assets since lease inception

  (164,455)

ROU assets - operating leases at June 30, 2021

 $882,344 
     

Lease liabilities - operating leases on adoption date

 $1,053,740 

Payments on lease liabilities

  (245,858)

Lease liabilities - operating leases on June 30, 2021

  807,882 

Lease liabilities - operating leases due in the 12 months ending June 30, 2022

  154,022 

Lease liabilities - operating leases due after June 30, 2022

 $653,860 

 

Variable lease expense was $133,531 and $46,666 for the years ended June 30, 2021 and 2020, respectively.                 

                                                       

Weighted average remaining lease term was 4.74 years and weighted average discount rate was 3.29% at June 30, 2021.                   

                                                                       

 

NOTE Q - RECENT ACCOUNTING PRONOUNCEMENTS

 

In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting/or Income Taxes {44ASU 2019-12"), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 will be effective for interim and annual periods beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the potential impact of the adoption of the new standard on its consolidated statements of financial conditionand results of operations.

 

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.

 

 

F-20