UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 2008
[ ] 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)
Colorado 59-3280822
-------- ----------
(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 [X] No [ ]
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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 [X] Smaller reporting company
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes[ ] No [X]
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 3,726,188 shares of Common Stock held by
non-affiliates was $1,490,475 on September 2, 2008 based on the average bid
and asked price of $.40 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 September 2, 2008, there were 8,055,388 shares of the issuers Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
INDEX
Title Page
ITEM 1. BUSINESS 3
ITEM 2. PROPERTIES 8
ITEM 3. LEGAL PROCEEDINGS 8
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 10
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON 17
ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES 17
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 19
ITEM 11. EXECUTIVE COMPENSATION 23
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, 26
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 28
AND DIRECTOR INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 29
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 29
2
PART I
ITEM 1. BUSINESS
History and Organization
Procyon Corporation (the "Company" or "Procyon"), a Colorado corporation,
was incorporated on March 19, 1987 and was deemed a development stage company
until May 1996, when we acquired Amerx Health Care Corp. ("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,
dermatitis, inflammation and other skin problems. We formed Sirius Medical
Supply, Inc. ("Sirius"), a Florida corporation, in 2000, to operate as a full
service mail order medical supply company selling primarily to Medicare
customers. Amerx and Sirius are wholly owned subsidiaries of Procyon.
Historically, Amerx's products are sold through distributors to healthcare
institutions, such as physicians, nursing homes and home health care agencies
and to retailers, including national and regional chain stores and pharmacies;
while Sirius' products are sold directly to Medicare and Medicaid patients.
Products
Amerx Health Care Corp.
Amerx sells various skin and wound care products , such as the AmeriGel(R)
Hydrogel Wound Dressing, Amerigel(R) Hydrogel Saturated Gauze Dressing,
AmeriGel(R) Premium Care Lotion, AmeriGel(R) Preventive Barrier Lotion,
AmeriGel(R) Saline Wound Wash, and Amerigel(R) Post Op Surgical Kit. The
AmeriGel(R) Hydrogel Wound Dressing and Amerigel(R) Hydrogel Saturated Gauze
Dressing are formulated to be used as a wound dressing to manage stages I-IV
pressure ulcers, stasis ulcers, diabetic skin ulcers, post surgical incisions,
cuts, abrasions, first and second degree burns, and skin irritations. The
AmeriGel(R) Premium Care Lotion is a therapeutic skin conditioner containing
emollients, which restore moisture to fragile skin, protect the skin against
tears and chafing and assist in prevention of chronic pressure ulcers. The
AmeriGel(R) Barrier Lotion provides barrier protection to shield the skin from
excess moisture and reduce the harmful effects to the skin from urine and feces
in incontinent patients. The AmeriGel(R) Saline Wound Wash is a non-sterile
wound cleanser that contains saline and Oakin. The industry standard for wound
cleansing is saline, since tap water contains chemicals and additives that can
potentially be harmful to a chronic wound.
Amerx holds two Medicare reimbursement codes covering both of our wound
care products. The first reimbursement code relates to the Amerigel(R) Hydrogel
Wound Dressing, reimbursed at 3 ounces per month. The second reimbursement code
is for the Amerigel(R) Hydrogel Saturated Gauze Dressing and is reimbursed on a
per pad or per use basis. We believe that these reimbursement codes are
beneficial to Amerx's business, allowing customers with Medicare coverage to
seek reimbursement for use of the product.
3
Amerx spent approximately $4,000 towards research and development efforts
over the past fiscal year. These efforts were directed towards additional
studies aimed at expanding existing markets.
Each Amerx product is based on proprietary formulations, which we protect
as trade secret information. Each product is also registered with the Food and
Drug Administration and receives a National Drug Code.
Amerx's slowed increase in sales during fiscal 2008 was primarily due to
the decrease in the general U.S. economy during the last two quarters of the
fiscal year. This year, Amerx made continued progress in sales distributed
across its entire product line with continued marketing focus on secondary
items. The Amerigel(R) product line continues to gain acceptance within the
health care community. Amerx's website, which can be viewed at www.amerigel.com,
provides general information about Amerx's products and is equipped to handle
direct sales to the public and medical professionals.
Sirius Medical Supply
Sirius' product offering is directed to the diabetic community and consists
primarily of diabetic supplies, glucose monitors, heating pads, lancets, test
strips, syringes and wound care products. Sirius expects to continue to sell
products in the Medicare arena. Sirius continues to sustain its customer base
with advertisements and referrals and continually tests new methods for reaching
new customers. Sirius has a website (www.siriusmedical.com) to serve new and
existing customers. Sirius has not spent any funds on research and development
over the past three fiscal years.
Market for Products
The institutional market for Amerx's skin and wound care treatment products
is primarily comprised of hospitals, nursing homes, home health care agencies
and other health care institutions. We believe that AmeriGel(R)products
represent a cost effective, efficacious treatment and prevention program for
chronic pressure ulcers and other skin problems, which are treated in health
care institutions. We are continuing to penetrate the health care market,
including sales to government agencies.
The retail market for Amerx's skin care and wound care products is
comprised mainly of national and regional chain stores as well as independent
retail pharmacies that sell such products to individuals. Amerx saw a 2%
increase in the retail market in fiscal 2008, due to national distributors
increasing sales of multiple products in our Amerx line.
The market for Sirius's products is primarily comprised of diabetic
patients who receive benefits from Medicare or Medicaid, or from their insurance
companies. Sirius attracts these customers through advertising, direct marketing
and referrals.
4
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. 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.
We periodically receive inquiries about foreign market distribution for the
AmeriGel(R) product line . These inquiries have been generated by our
advertising, market presence and web sites (www.amerxhc.com and
www.amerigel.com). We respond to and pursue all such inquiries, while complying
with applicable international regulatory guidelines.
Sirius distributes its products directly to consumers by mail order. We
have attracted and retained customers through our marketing efforts, which
include participating in trade shows, physician education, and customer
referral. Sirius developed a website in 2006, complete with an online shopping
cart to help develop other channels of product sales. We believe Sirius has
substantial potential for increased sales as the diabetic market contains over
23 million diabetics in the United States and will grow expotentially according
to the American Diabetes Association.
In fiscal 2008, Amerx generated gross revenues of approximately $2,255,000
and Sirius, $308,000, which constituted 88% and 12%, respectively, of our total
gross revenues.
Significant Customers
During the year ended June 30, 2008, sales from one customer accounted for
approximately 11% of Amerx's sales. The Company has been able to maintain
relationships with its distributors and has been able to establish relationships
with new distributors each year. Sirius has no significant single customers as
it sells only to end users.
Manufacturing
During fiscal 2008, manufacturing of most of Amerx's products was completed
by a non-affiliated manufacturing facility. This company also performed research
and development in the past, and we expect that it will perform research and
development activities for Amerx in the future, as needed. Amerx does not have a
written contract with this manufacturer and there are no minimum purchase
requirements. In fiscal 2008, Amerx used a second facility based in Dallas, TX,
to manufacture the AmeriGel(R) Saline Wound Wash. If circumstances deemed
necessary, this manufacturer could aid in manufacturing other AmeriGel(R)
products. Amerx believes there are other companies that could manufacture
Amerx's products according to its specifications, if necessary. The Company's
manufacturing and packaging activities are performed at a production facility
owned and operated by a non-affiliated pharmaceutical manufacturer. The sudden
loss or failure of our primary manufacturer could significantly impair Amerx's
5
ability to fulfill customer orders on a short-term basis and therefore, could
materially and adversely affect the Company's operations. However, we have
maintained a long-term relationship with this manufacturer and do not expect any
interruption in its production of wound care products in the near term. In
addition, the current and projected use of the second manufacturer would help
alleviate most short term delays.
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 manufacturer furnishes one proprietary ingredient contained in all
of Amerx's products. Amerx does not have a written contract with this supplier
and 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 operations. We believe that we have a good working relationship with
this supplier and do not anticipate any disruption of supplies.
During the year, Sirius purchased approximately 86% and 12% of its diabetic
supplies from two non-affiliated suppliers. Sirius does not anticipate supply
from these vendors will be lost in the near future. Sirius has a good long term
working relationship with these vendors. In the event of loss of these
suppliers, Sirius could still purchase such products from other suppliers in the
industry.
Proprietary Rights
In January 1999, the United States Patent and Trademark Office registered
the Company's AmeriGel(R)trademark. Amerx also holds a registered Trademark for
the principal proprietary ingredient used in all of its currently available
products, Oakin(R). Amerx relies on a combination of trademark and trade secret
protection and confidentiality agreements to establish and protect its
proprietary rights.
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 large well-capitalized companies
offering a broad range of skin treatment products as well as numerous small
competitors having a limited number of products. Amerx has established its
products efficacy and value within specialized professional markets and will
continue to expand this marketplace.
6
The market for diabetic supplies is also highly competitive. Sirius
competes with many large and small companies for market share. Sirius can
compete on the same level with these larger companies as to product offerings.
However, until Sirius' customer base grows, larger companies will benefit from
volume discounts on purchases from suppliers that Sirius does not yet receive.
We believe Sirius' success will hinge on customer service rather than product
margin.
Order Placement and Backlog
During fiscal 2008, the Company experienced temporary backlogs from time to
time in supplying the newest product in the AmeriGel(R) product line, however,
this situation improved over the same issue the previous year. There was no
material backlog in orders placed in the past two fiscal years. Orders are only
shipped when they are 100% complete.
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.
Sirius' advertising and sales practices are subject to regulation by the
FTC, Medicare, and state Medicaid agencies. FDA approvals for its products are
obtained by the respective manufacturer. Medicare and Medicaid regulate
advertising, sales pricing, and the guidelines under which Sirius operates.
We believe that we and our subsidiaries are in compliance with all
applicable laws and regulations relating to our and their 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 extra cost in order
to remain compliant with the latest regulations promulgated by the SEC,
including those regulations promulgated under the Sarbanes Oxley Act of 2002.
7
Employees
As of September 1, 2008, the Company and its subsidiaries employ a total of
13 full time employees and 1 part time employee, consisting of 3 management
employees, 5 sales-related employees and 6 administrative employees. One
employee works under Procyon, ten employees work under the Amerx subsidiary, and
three employees under Sirius.
ITEM 2. PROPERTIES
We currently maintain our offices, and those of Amerx and Sirius, at 1300
South Highland Ave, Clearwater, Florida 33756. Our offices consist of
approximately 3,800 square feet of space. We believe the facility is adequate
for our current needs. The Company leased this building until July 2006, when it
purchased the building from the lessor for $550,000. In addition, at the same
time, we closed on a loan provided by Bank of America, N.A. in the amount of
$508,000, evidenced by a promissory note. Further, the purchase and loan were
secured by a mortgage, also dated July 21, 2006, between the Company and Bank of
America. Our Chief Executive Officer personally guaranteed the loan.
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 AND RELATED STOCKHOLDER MATTERS.
Since October 1996, the Company's Common Stock has been traded on the OTC
Bulletin Board, an electronic quotation system used by members of the Financial
Industry Regulatory Authority ("FINRA"). The following table sets forth for each
period indicated the high and low closing bid prices for the Common Stock, as
reported by National Quotation Bureau, LLC. Bid quotations reflect inter-dealer
quotations, without retail markups, markdowns or commissions, and do not
necessarily reflect actual transactions.
Fiscal 2007 HIGH LOW
----------- ---- ---
First Quarter $ .40 $ .25
Second Quarter $ .34 $ .25
Third Quarter $ .32 $ .25
Fourth Quarter $ .55 $ .30
8
Fiscal 2008
-----------
First Quarter $ .70 $ .34
Second Quarter $ .50 $ .35
Third Quarter $ .51 $ .40
Fourth Quarter $ .55 $ .36
As of August 29, 2008, there were approximately 131 record holders of the
Company's Common Stock. On September 2, 2008, the closing bid price of the
Company's common stock was $.40 and the closing ask price was $.40. On August
28, 2008, the last date on which a sale occurred, the last reported sale price
was $.40.
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, 2008, and dividends, if ever
declared, in arrears at such date total $221,461.
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. During fiscal 2008, holders of 4,800 shares of
Preferred Stock voluntarily converted their Preferred shares into 4,800 shares
of Common Stock.
As reflected in the price quotations above, there have been significant
price fluctuations in the Company's Common Stock. 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, which may be unrelated to a Company's operating performance, 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.
9
ITEM 7. MANAGEMENT'S 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", "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 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;
- we may not be able to use any tax loss carryforwards before they
expire;
- 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;
- 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;
- 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;
10
- we could experience significantly reduced revenues and profits if
Medicare or other government programs change, delay or deny
reimbursement claims;
- 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
prescription drugs could have a material adverse effect on our
business.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our financial statements have been prepared in accordance with standards of
the Public Company Accounting Oversight Board (United States), 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.
Accounts receivable allowance
Accounts receivable allowance reflects a reserve that reduces our customer
accounts and receivable to the net amount estimated to be collectible. The
valuation of accounts receivable is based upon the credit-worthiness of
customers and third-party payers as well as historical collection experience.
Estimating the credit worthiness of customers and the 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. We base our estimates on our historical collection experience,
current trends, credit policy and on the analysis of accounts by aging category.
At June 30, 2008, our allowance for doubtful accounts totaled $2,500.
11
Advertising and Marketing
The Company uses several forms of advertising, including sponsorships to
agencies who represent the professionals in their respective fields. The Company
expenses these sponsorships over the term of the advertising arrangements, on a
straight line basis. Other forms of advertising used by the Company include
professional journal advertisements and mailing campaigns. These forms of
advertising are expensed when incurred.
Income Tax
Income taxes are accounted for using an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences attributable to differences between financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. A valuation allowance is provided when it is more likely than not that
some portion or all of the deferred tax asset will not be realized. The Company
adopted Financial Standards Board Interpretation No. 48, Accounting for Income
Taxes ("FIN 48"), an interpretation of SFAS 109, on January 1, 2007.
Revenue Recognition
The Company recognizes revenue in accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 104, "Revenue Recognition, corrected
copy." 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, provided that the risk of loss has passed to the customer and we have
received and verified any written documentation required to bill Medicare, other
third-party payers and customers. We record revenue at the amounts expected to
be collected from Medicare, other third-party payers and directly from
customers. We delay recognizing revenue for shipments where the Company has not
received the required documentation, until the period when such documentation is
received.
Medicare reimbursements are based upon government-established reimbursement
prices. The reimbursements that Medicare pays us is subject to review by
government regulators. Medicare reimburses at 80% of the government-determined
reimbursement prices and we bill the remaining balance to either third-party
payers, such as insurance companies, or directly to the customers.
Stock Based Compensation
Effective January 1, 2006, we adopted Statement of Financial Accounting
Standards No. 123(R) ("SFAS 123R"), "Share-Based Payment". SFAS 123R requires
all share-based payments to employees, including grants of employee stock
options, to be recognized in the statement of operations based upon their fair
values and rescinds the acceptance of pro forma disclosure. SFAS 123R permits
two methods of adoption, a "modified prospective" method and a "modified
12
retrospective" method. Under the modified prospective method, stock-based
compensation cost is recognized, beginning with the effective date, based on the
requirements of SFAS 123R for all share-based payments granted after the
effective date and for all awards granted prior to the effective date that
remain unvested on the effective date. The modified retrospective method
includes the requirements of the modified prospective method and also permits
restatement of prior periods based on amounts previously reported in pro forma
disclosures pursuant to SFAS 123 for either all periods presented or for only
prior interim periods of the year of adoption. We adopted the modified
prospective method prescribed in SFAS 123R, effective January 1, 2006.
General
Our continuing operations and revenues consist of the operations of and
revenues generated by Amerx and Sirius, our two wholly-owned subsidiaries.
Amerx's wound care and skin care products, marketed under the trademark
AmeriGel(R), are formulated to enhance the quality of skin and wound care and to
lower the treatment cost for those who suffer from various skin conditions and
wounds. Sirius markets and distributes diabetic supplies via mail order
primarily to Medicare patients.
Amerx markets AmeriGel(R) products to institutional customers such as
nursing homes, hospitals and home health agencies and to retail customers.
Institutional sales are made either directly to the end user or through medical
supply distributors or physicians. Many institutional customers will not
purchase directly from the manufacturer; they will purchase products only
through a national distributor who warehouses the products and supplies the
products directly to the customer. Accordingly, Amerx must supply its
distributors with adequate inventory in order to successfully compete with other
manufacturers.
Amerx reaches the retail consumer primarily through distributors, but in
some cases, through sales to retail store chains. Amerx's skin care products are
distributed to institutions and to retail stores through national, regional and
local distributors.
Recent Developments
On July 3, 2007, Sirius achieved accreditation with the Joint Commission.
The Joint Commission evaluates and accredits nearly 15,000 health care
organizations and programs in the United States. An independent, not-for-profit
organization, the Joint Commission is the nation's predominant standards-setting
and accrediting body in health care. Since 1951, the Joint Commission has
maintained state-of-the-art standards that focus on improving the quality and
safety of care provided by health care organizations. The Joint Commission's
comprehensive accreditation process evaluates an organizations compliance with
these standards and other accreditation requirements. Joint Commission
accreditation is recognized nationwide as a symbol of quality that reflects an
organization's commitment to meeting certain performance standards. To earn and
maintain the Joint Commission Gold Seal of Approval TM, an organization must
undergo an on-site survey by a Joint Commission survey team at least every three
years.
13
With accreditation in place, Sirius submitted bids for ten competitive
bidding areas (CBA's) in the first round of the new CMS Medicare Competitive
bidding system. The new system is being implemented in an initial ten region
test. The test areas being used are Miami, FL, Orlando, FL, Dallas, TX, Kansas
City, MO, San Juan, PR, Cleveland, OH, Cincinnati, OH, Pittsburgh, PA, San
Bernardino, CA, and Charlotte, NC. Sirius did not win a bid in these areas,
however, in July 2008, CMS placed the Competitive Bidding system on hold for a
minimum of 18 months.
On July 15, 2007, Amerx received a Government Services Administration(GSA)
contract number. This number will permit Amerx to sell its products to
government institutions including, but not limited to, the Veterans
Administration Hospitals, Department of Defense, Coast Guard, Indian Health
Services and Prison Systems.
Future Developments
Amerx expects to further penetrate the physician market through its
participation in industry trade shows, advertisements in trade journals,
development of additional distributor relationships, opening new geographical
territories (including foreign markets), and coordinating with physicians and
educational institutions to provide training to wound care professionals. Amerx
management seeks to develop additional products for the physician market as new
product needs become known through its association with health care
professionals.
Amerx intends to pursue potential product developments in other medical
specialties and other wound care applications. Preliminary investigations of
these markets are ongoing.
Sirius intends to expand its customer base through the use of advertising,
direct physician contact, referrals and possible acquisition of similar business
entities. We believe that product lines will increase as customer needs dictate
and economics allow.
Results of Operations
Comparison of Fiscal 2008 and 2007.
Net sales during fiscal 2008 were approximately $2,563,000 as compared to
approximately $2,537,000 in fiscal 2007, an increase of approximately $26,000,
or 1%. Sirius' net sales increased 5%, while Amerx increased sales by 0.5%,
respectively, over the previous year. Sirius sales are less impacted by economic
forces secondary to reimbursement. Amerx sales are impacted by general economic
conditions impacting the health care market. Increases were seen in quarterly
sales for six of the past eight quarters when compared to th same quarter of the
previous year until the second half of fiscal 2008. Deteriorating economic
conditions, as seen in the general economy, appear to have had a negative impact
on Amerx sales the last two quarters of fiscal 2008, resulting in flat overall
14
sales for the year. This, coupled with increased cost for manufacturing
materials, finished products and freight negatively impacted our net sales and
income from continuing operations. Amerx hopes to capture more of the physician
market in fiscal 2009, as well as increase the penetration of new markets, such
as government contracts. Sirius' customer base is expanding with marketing
efforts and product line expansion.
Cost of sales increased to approximately $630,000 in fiscal 2008, as
compared to approximately $600,000 in fiscal 2007, or approximately 5%. Cost of
sales in fiscal 2008, as a percentage of net sales, increased by approximately
1% over the previous year. Sirius has realized the benefit of some volume
discounts in its purchases from vendors in fiscal 2007 and 2008, and hopes to
lower its costs by continuing that trend in 2009. Amerx's costs have remained
relatively consistent over the past year with only a slight increase in some of
its ingredient and packaging costs.
Gross profit decreased to approximately $1,932,000 during fiscal 2008, as
compared to approximately $1,936,000 during fiscal 2007; a decrease of about
$4,000, or 1%. As a percentage of net sales, gross profit was 75% in fiscal
2008, as compared to 76% in fiscal 2007.
Operating expenses during fiscal 2008 were approximately $1,792,000,
consisting of approximately $951,000 in salaries and benefits and $841,000 in
selling, general and administrative expenses. This represents an increase in
expenses of approximately $99,000 in fiscal 2008, as compared to expenses in
fiscal 2007. Operating expenses in fiscal 2007 consisted of $842,000 in salaries
and benefits and $851,000 in selling, general and administrative expenses.
Selling, general and administrative expenses decreased slightly. Decreases were
seen in consulting fees, and software. As a percentage of net sales, operating
expenses during fiscal 2008 increased to 70%, as compared to 66% during fiscal
2007; as net sales increased $26,000 for the year on a $99,000 increase in
expenses.
Income from operations decreased to approximately $140,000 in 2008, as
compared to approximately $244,000 in fiscal 2007. Net income (after dividend
requirements for Preferred Shares) was approximately $778,000 during fiscal
2008, compared to a net income of approximately $479,000 during fiscal 2007. The
Company also recorded approximately $674,000 of income tax benefit in arriving
at net income available to common shares.
As of June 30, 2008, the Company had deferred tax asset of $1,075,222,
consisting primarily of the tax benefit of net operating loss carryforward. The
decrease in the valuation allowance is due to an increase in expected
utilization of net operating loss carryforwards. Management believes it is more
likely than not that it will realize the benefit of the NOL carryforward,
because of its continuing trend of earnings. Therefore, a valuation allowance is
not considered necessary.
Liquidity and Capital Resources
Historically, we have financed our operations through a combination of
revenues from operations, shareholder loans, and the public sales of equity. As
of June 30, 2008, our principal sources of liquidity included inventories of
approximately $184,000, net accounts receivable of approximately $171,000, cash
of approximately $279,000, and certificates of deposit of approximately
$240,000. We had working capital of approximately $933,000 at June 30, 2008.
15
Operating activities provided cash of approximately $118,000 during fiscal
2008, and approximately $206,000 during fiscal 2007, consisting primarily of net
profit of approximately $793,000 in fiscal 2008 and $498,000 in 2007. Cash used
in investing activities during fiscal 2008 and 2007 was approximately $242,000
and $54,000, respectively. This was primarily due to investing in Certificates
of Deposit in the amount of $239,698. Cash used by financing activities during
fiscal 2008 was approximately $21,000, and $18,000 during fiscal 2007.
During fiscal 2008, holders of 4,800 shares of Preferred Stock converted
their shares to Common Stock.
Commitments of Capital Expenditures
At June 30, 2008 the Company had no commitments for capital expenditures.
Off-Balance Sheet Arrangements
During fiscal years 2008 and 2007, 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements as of June 30, 2008, and 2007 were
audited by Ferlita, Walsh & Gonzalez, 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 Firm F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6
16
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
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.
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.
(a) Management's 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 control 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.
17
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, 2008. 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. Based on
our assessment based on those criteria we believe that, as of June 30, 2008, the
Company's internal control over financial reporting is not effective to detect
the inappropriate application of Generally Accepted Accounting Principles
"(GAAP") rules as more fully described below. This was due to deficiencies 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 material weaknesses.
The matters involving internal controls and procedures that the Company's
management considered to be material weaknesses under the standards of the
Public Company Accounting Oversight Board were: 1) inadequate segregation of
duties consistent with control objectives; (2) insufficient written policies and
procedures for accounting and financial reporting with respect to the
requirements and application of GAAP and SEC disclosure requirements; (3)
inadequate internal and external control over the calculation of deferred tax
assets and liabilities and requisite knowledge to properly compute the deferred
tax assets and liabilities; (4) ineffective controls over period end financial
disclosure and reporting processes and (5) insufficient board and audit
committee composition to provide oversight of the financial statement process.
Management believes that the material weaknesses set forth above did not
have an effect on the Company's financial results reported herein.
The Company is committed to improving our internal control environment and
financial organization. As part of this commitment, we will 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. We will also institute policies and procedures to increase our
internal controls and quality of financial reporting within our personnel. We
will have the board of directors more involved during the year regarding Company
operations, annual and quarterly risk assessments, strategic planning, and
financial oversight and reporting. We will strengthen the expertise of the board
by adding members that have financial and business expertise in our industry. We
will add more members to the audit committee and require the audit committee
members to understand the Sarbanes-Oxley rules and requirements and take
responsibility for implementing stronger internal control policies and
procedures.
We will 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 funds allow.
18
This annual report does not include an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the company's
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the Company to provide only management's
report in this annual report.
(b) Attestation report of the registered public accounting firm. Not
applicable.
(c) Changes in internal control. The Company has retained consultants to
assist the company in developing and documenting its internal controls
over financial reporting during the last fiscal quarter of the year
ending June 30, 2008. As part of that process, we have documented and
instituted a number of controls to benefit our financial reporting.
However, that process is not complete and has resulted in the above
identified material weaknesses. The Company is currently working on
remediating those control weaknesses as previously described and will
continue to do that during the subsequent fiscal year.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Directors and Executive Officers
Capacities in Director
NAME Age Which Served Since
---- --- ------------ -----
Regina W. Anderson 61 Chief Executive Officer, and 2005
Chairman of the Board
Chester L. Wallack 67 Director 1995
Fred W. Suggs, Jr. 61 Director 1995
Alan B. Crane 58 Director 1995
Jeffery S. Slowgrove 51 Director 1999
James B. Anderson 38 Chief Financial Officer; President, 2006
Sirius Medical Supply, Inc.
Justice W. Anderson 31 Vice President - Sales and Marketing; 2006
President, Amerx Health Care Corp.
Michael T. Foley 70 Director 2006
19
Regina Anderson. Ms. Anderson has served as Chairman of the Board of
Directors since September 2005, and as our Chief Executive Officer since
November 2005. Ms. Anderson has 27 years experience in the medical field and 21
years of management experience. Ms. Anderson worked at HealthSouth
Rehabilitation Hospital for ten years as Outpatient Director, in charge of the
main outpatient center plus four satellite offices. As Outpatient Director, she
was responsible for budgets involving over thirty thousand outpatient visits per
year; marketing of multiple outpatient specialty programs; and staffing with
thirty employees reporting directly to her. Prior to her work at HealthSouth,
she worked as the lead clinician at Clearwater Rehabilitation Center. Regina was
Vice-President of Operations at Stuffit Direct Marketing Company from 1980
through 1989. She was in charge of franchise sales and training; coupon
processing/production as well as coordination among thirteen franchise offices.
Regina was co-owner and President of Foxy's T-Shirt Shops and Le Shirt Company
from 1978-1980. Foxy's had five locations. She worked as a Speech Language
Pathologist with Morton Plant Hospital from 1970 through 1976. Regina received
her Masters Degree from Kansas State University in 1970.
Chester L. Wallack. Mr. Wallack has served as a director since 1995. He has
served as Chief Executive Officer of Felton West, Inc., a real estate
development and construction company in Dover, Delaware, since 1990. Mr. Wallack
is a retired United States Air Force officer having served as a pilot and in
various management capacities. He graduated from the University of Kansas with a
B.S. degree in Industrial Management and from Southern Illinois University with
an M.B.A. degree in Finance.
Fred W. Suggs, Jr. Mr. Suggs has served on our Board of Directors since
1995. 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.
Alan B. Crane. Mr. Crane has served on our board since 1995 and is a
partner in Crane Farms, a farming partnership in Larned, Kansas. In 1994, Mr.
Crane was appointed by the governor of Kansas to the Kansas Water Authority to
oversee project expenditures. He received a B.S. degree from Kansas State
University.
Jeffery Slowgrove. Mr Slowgrove has served as a director since 1999. Since
1998, Mr. Slowgrove has been the President of JSS Management Consulting, Inc., a
consulting firm in Palm Harbor, Florida, providing funding for start up
organizations and advice on the business and management issues facing companies
during early rapid growth and expansion phases. He co-founded IMR Global Corp.
in 1988 and has served as a director since its inception. From 1988 to 1998, he
also served as Treasurer of IMR Global Corp., which is a public company
providing applications software-outsourcing solutions for the information
technology departments of large businesses. He received a B.B.A. from the
University of Michigan.
20
James B. Anderson. Mr. Anderson 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. 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 Chairman of the Board and Chief Executive
Officer, and the brother of Justice W. Anderson, our Vice President of Sales &
Marketing and the President of Amerx Health Care Corporation. Mr. Anderson is
the son-in-law of our deceased former director, Richard T. Thompson.
Justice W. Anderson. Since June 28, 2005, Mr. Anderson has served as our
Vice President of Sales and Marketing and the President of Amerx Health Care
Corporation. Since January of 2001, Mr. Anderson has been Vice President of
Sales for Amerx Health Care Corp. He also serves on the board of the American
Academy of Podiatric Practice Management. From August 2000 to January 2001 he
served as Senior Sales Representative, and as a sales representative from May
2000 to August 2000. He received a 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, the son of Regina Anderson, the Company's
Chairman of the Board and Chief Executive Officer and the brother of James B.
Anderson, our Chief Financial Officer and the President of Sirius Medical
Supply, Inc.
Michael T. Foley. Mr. Foley is currently a Vice President and Director of
Suwannee Lumber Company, manufacturers of various lumber grades, garden mulch
and potting soil. From 1997 to 2003, Mr. Foley served as President and CEO of
Gypsum Products, Inc. of Largo, FL. From 1972 to 1996 Mr. Foley served in
various capacities at Florida Forest Products, Inc. including President,
Chairman and CEO. Prior to his association with these building material
suppliers, Mr. Foley worked for International Paper in pulp and newsprint sales.
Michael received his Bachelor of Business Administration degree from the
University of Notre Dame in 1960 and subsequently served on that university's
National Alumni Board. He obtained his MBA from the University of Florida in
1965. Mr. Foley has been a member of the Pinellas County Committee of 100 and
was appointed by Governor Lawton Chiles to the State of Florida Community Health
Purchasing Alliance (CHPA) Board. Mr. Foley is also a retired Captain in the
U.S. Naval Reserve.
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
21
reports. Based solely on our review of the reports and amendments thereto
furnished to the Company and written representations that no other reports were
required to be filed in fiscal 2008, 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 a
Compensation Committee. The Compensation Committee is composed of Messrs.
Wallack, Suggs and Foley. 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 Director's adopted a Compensation Committee Charter during the 2008
fiscal year.
The Company formed an Audit Committee in July 2004, composed solely of Mr.
Slowgrove. Richard T. Thompson joined the Audit Committee as its Chairman in
March, 2006. Mr. Slowgrove resigned from the Audit Committee effective March 31,
2006. In October 2006, we determined that our remaining Audit Committee member,
Mr. Thompson, did not meet the definition of independence for purposes of audit
committee service as contained in the applicable rules of The Nasdaq Stock
Market, Inc. ("Nasdaq"). In addition, Mr. Thompson had been unable to serve on
the Audit Committee because of health-related concerns. On October 19, 2006, Mr.
Thompson died. In December 2006, the Board nominated Michael T. Foley as
director and Audit Committee member and Chair. The Board believes that Mr. Foley
is independent pursuant to Nasdaq rules and also meets the requirements of an
audit committee financial expert. In addition, we have determined that Mr. Foley
is 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.
The Company also formed an ethics committee from the board members. The
members include Suggs, Crane and Foley.
22
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 2008, the Board of Directors held five formal meetings. A
majority of directors attended each meeting in person or by telephone. The
Compensation Committee held one meeting during fiscal 2008. The Audit Committee
held two meetings during fiscal 2008.
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 obtained, free of charge, by requesting the same from the
Company by contacting the Company by telephone, at the telephone number shown on
the cover of this report, or by writing to James B. Anderson, Chief Financial
Officer, Procyon Corporation, 1300 S. Highland Avenue, Clearwater, Florida
33756.
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table. The following table sets forth compensation
information for the two fiscal years ended June 30, 2008 and 2007 of the
Company's Chief Executive Officer and the President of our subsidiary, Amerx
Health Care Corp. (the "Named Executive Officers"). Elements of compensation for
our Named Executive Officers include salary, discretionary cash bonuses and
other prerequisites and benefits. We do not have a pension plan, do not pay
non-equity incentive plan based compensation and do not offer nonqualified
deferred compensation arrangements. We also did not grant stock awards in fiscal
year 2008. As a result, columns related to these items have been omitted from
the table below.
All Other
Name and Principal Position Year Salary($) Bonus($) Compensation($) Total($)
--------------------------- ---- --------- -------- --------------- --------
Regina W. Anderson, 2008 $152,165 $2,000 $ -0- $ 154,165
President, Chief Executive 2007 $156,317 $ 500 -0- $ 156,817
Justice W. Anderson, 2008 $ 38,717 $2,000 $105,072(1) $ 145,789
President (Amerx Health 2007 $ 36,200 $2,500 $112,437(1) $ 151,137
Care Corp.)
(1) Consists solely of commission on sales from Amerx Health Care Corp.
23
Outstanding Equity Awards at 2008 Fiscal Year End
The following table sets forth information regarding the outstanding equity
awards to our Named Executive Officers at June 30, 2008. We have not granted any
stock awards to our Named Executive Officers and, accordingly, we had no
outstanding stock awards during 2008. Thus, the columns related to stock awards
have been omitted from the following table.
Option Awards
Number of Number of
Securities Securities
Underlying Underlying
Unexercised Unexercised Option
Options Options Exercise Option
(#) (#) Price Expiration
Name Exercisable Unexercisable ($) Date
--------------------------------------------------------------------------------
Regina W. Anderson, - - - -
Chief Executive
Officer and
Chairman of the
Board of Directors
Justice W. Anderson, 50,000 (1) - $ .2125 12/2009
President, Amerx 10,000 (1) - $ .1594 11/2010
Health Care Corp.
(1) As trustee of the John C. Anderson Trust in accordance with Mr.
Anderson's will.
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's 1998 Omnibus Stock Option Plan (the "1998 Plan") is designed
as a comprehensive benefit plan that gives the Company the ability to offer a
variety of equity based incentives and awards to persons who are key to the
Company's growth, development and financial success. The 1998 Plan permits the
grant of awards to directors, employees and consultants of the Company and its
subsidiaries. The 1998 Plan provides for the grant of incentive stock options
("Incentive Stock Options") within the meaning of the Code, non-qualified stock
24
options, restricted shares, performance units, performance shares, dividend
equivalent, share appreciation rights ("SARs") and other forms of awards,
including deferrals of earned awards, (collectively, the "Awards"). Employees
and non-employees to whom an offer of employment has been extended, directors
and consultants of the Company are all eligible participants for all Awards,
except that Incentive Stock Options may be granted only to employees.
The 1998 Plan is administered by the Compensation Committee of the Board of
Directors, which construes and interprets the 1998 Plan, determines the terms
and conditions of the Awards granted under the 1998 Plan, including the
individuals who are to granted Awards, the exercise price, if any, the number of
shares subject to an Award and the vesting and duration of Awards, subject to
any restrictions contained in the 1998 Plan.
The maximum number of shares of Common Stock reserved and available for
Awards under the 1998 Plan is 1,000,000 and the Compensation Committee may limit
the number of shares that may be awarded in the form of restricted stock Awards.
The exercise price of Incentive Stock Options granted under the 1998 Plan
must be at least equal to the fair market value of the Common Stock of the
Company on the date of grant, and must be 110% of fair market value when granted
to an employee who owns shares representing more than 10% of the voting power of
all classes of stock of the Company. The exercise price of non-qualified stock
options granted under the 1998 Plan can not be less than 85% (100% as amended,
effective for options granted December 31, 2007) of the fair market value of the
Common Stock on the date of grant. The term of all options granted under the
1998 Plan may not exceed ten years, except the term of Incentive Stock Options
granted to a 10% or more stockholder, may not exceed five years. The 1998 Plan
may be amended or terminated by the Board of Directors, but no such action may
impair the rights of a participant under a previously granted option.
The 1998 Plan provides for the award of SARs and Performance Units and
Performance Shares. A SAR is an incentive Award that permits the holder to
receive (per share covered thereby) the amount by which the fair market value of
a share of Common Stock on the date of exercise exceeds the fair market value of
such share on the date the SAR was granted or at such date as the Compensation
Committee designates. The Compensation Committee may grant SARs independently,
in addition to, or in tandem (such that the exercise of the SAR or related stock
option will result in forfeiture of the right to exercise the related stock
option or SAR for an equivalent number of shares) with a stock option Award. A
Performance Unit or Performance Share is an incentive Award whereby the Company
commits to make a distribution depending on the attainment of a performance
objective and condition established by the Committee and the base value of the
Performance Unit or Performance Share.
Upon termination of services of a non-employee director or consultant, all
options issuable, but not yet granted, to such persons for services rendered
shall be granted and all options shall remain exercisable for the original
option term. Options granted to an employee are exercisable for specified
25
periods of time ranging from one month to one year following an employee's
termination depending on the circumstances of the termination, except that
options granted to an employee terminated for cause shall not be exercisable to
any extent after termination. An unexercised option is exercisable only to the
extent that it was exercisable on the date of termination.
The 1998 Plan provides that, in the event the Company enters into an
agreement providing for the merger of the Company into another corporation, an
exchange of shares with another corporation, the reorganization of the Company
or the sale of substantially all of the Company's assets, unvested stock options
become immediately vested and exercisable. Upon the consummation of the merger,
exchange, reorganization or sale of assets, the successor corporation must
assume all Awards or substitute another Award on substantially identical terms
to the outstanding Award. Effective December 31, 2007, the Company enacted
certain amendments to the plan to make it compliant with the recent regulations
that were issued concerning deferred compensation in Section 409A, IRC. These
amendments did not have any material effect on the finacial reporting of the
Company.
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 1, 2008 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 2, 2008, 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
September 2, 2008
Number of Percent of
Name and Address(5) Shares Class
------------------- ------ -----
Regina W. Anderson 72,500 *
Chester L. Wallack (l) 120,000(3) 1.5
Fred W. Suggs (l) 160,000(3) 2.0
Alan B. Crane 80,000(3) 1.0
Jeffery S. Slowgrove 606,200(4) 7.5
James B. Anderson 111,000(7) 1.4
Justice W. Anderson(6) 3,483,500(3) 43.3
Michael T. Foley(1)(2) 140,000(8) 1.7
All directors and officers
as a group (eight persons) 4,838,200 59.0%
RMS Limited Partnership, 50 W. Liberty St, 1,600,000 19.9%
Suite 650, Reno, NV 89501
26
*Less than 1%
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Includes 60,000 shares subject to currently exercisable options or options
which will become exercisable within 60 days.
(4) Includes 10,000 shares of subject to currently exercisable options or
options which will become exercisable within 60 days.
(5) Except as noted above, the address for all persons listed is 1300 S.
Highland Ave, Clearwater, Florida 33756
(6) Mr. Anderson beneficially owns 3,350,500 shares of common stock and 60,000
currently exercisable options to purchase shares of common stock as Trustee
of the John C. Anderson Trust in accordance with Mr. Anderson's will. He
also owns of record 73,000 shares of common stock.
(7) Includes 30,000 shares subject to currently exercisable options and 10,000
shares in joint name with his wife.
(8) Includes 5,000 shares in joint name with his wife.
Equity Compensation Plan Information
The following table contains information regarding Procyon's equity
compensation plan as of June 30, 2008. The only equity compensation plan
maintained by Procyon is the company's Omnibus Stock Option plan (the "Option
Plan"). The Option Plan was approved by the shareholders of Procyon in 1998.
Plan Category Number of Securities Weighted-average Number of securities
to be issued upon exercise price of remaining available for
exercise of outstanding options, future issuance under
outstanding options, warrants and rights equity compensation
warrants and rights plans (excluding
securities reflected in
column (a))
( a ) ( b ) ( c )
Equity compensation
plans approved by 300,000 $0.20 603,500
security holders
Equity compensation
plans not approved by 0 0 0
security holders
Total 300,000 $0.20 603,500
27
1. The total number of securities to be issued upon exercise of outstanding
options, warrants and rights consists of options for the purchase of
Procyon common stock issued pursuant to the Option Plan to employees,
officers, directors and consultants. The total number of securities to be
issued upon exercise of the options is stated, regardless of whether the
options are currently vested.
2. The outstanding options issued under the Option Plan range in exercise
price from $0.15 to $0.25 per share.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
Other than transactions described below, since July 1, 2007, 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:
o in which the amount involved exceeds $120,000; and,
o 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.
Messrs. Wallack, Suggs and Crane, have purchased a total of 196,000 shares
of Preferred Stock at a price of $1 per share. Such purchases were made on terms
and conditions, which were identical to the purchases made by all other private
investors who purchased Preferred Stock. Regina W. Anderson, our Chairman and
Chief Executive Officer, personally guaranteed the loan we secured from Bank of
America, N.A., in the amount of $508,000, to purchase our office building in
July 2006as well as the $250,000 line of credit. Mr. Slowgrove, a director,
acted as a consultant to the Company for portions of fiscal 2008, at a total
compensation to him of approximately $6,250.
Director Independence.
We have determined that the following directors are independent within
applicable Nasdaq rules: Messrs. Wallack, Suggs, Crane, Slowgrove and Foley. We
considered the fact that Mr. Slowgrove acted as a consultant to the Company for
portions of fiscal 2008, at a total compensation to him of approximately $6,250.
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 and Audit Committee are composed entirely of independent directors
pursuant to applicable Nasdaq rules. In addition, Mr. Foley, also meets the
definition of independence under SEC Rule 10A-3.
28
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Fees. In fiscal 2008, the Company paid to its independent accountants
$32,629 in fees related directly to the audit and review of the Company's
financial statements. In fiscal 2007, the Company paid to its independent
accountants $34,749 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 2007 and 2008, other
than the audit services described above.
Tax Fees: In fiscal 2008, the Company paid to its independent accountants
$2,490 in fees related directly to tax preparations. In fiscal 2007, the Company
paid to its independent accountants $1,350 in fees related directly to tax
preparations.
All Other Fees: The Company's independent accountants performed no other
services for the Company during fiscal 2007 and 2008, other than the audit and
tax services described above.
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 1998 Omnibus Stock Option Plan
- 10.1 Office Lease dated September 23, 2003
/ 10.2 Promissory Note dated July 21, 2006
/ 10.3 Mortgage dated July 21, 2006
+ 10.4 Loan and Security Agreement, dated as of January 1, 1995, by
and between the Company and Amerx Health Care Corp.,
including Promissory Notes issued there under.
o 10.5 Agreement and Plan of Exchange, dated January 31, 1996, by
and between the Company and Amerx.
29
++14.1 Code of Ethics for Senior Financial Officers.
x 31.1 Certification of Regina 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. ss. 1350, as Adopted
Pursuant to Section906 of the Sarbanes-Oxley Act Of 2002
----------
* 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.
o Incorporated by reference to the Company's Form 8-K filed on
or about February 2, 1996.
# Incorporated by reference to the Company's Schedule 14A
filed on or about November 17, 1998.
/ Incorporated by reference to the Company's Form 8-K filed on
or about August 8, 2006
- Incorporated by reference to the Company's Form 10-QSB for
the period ending September 30, 2003
++ Incorporated by reference to the Company's Schedule 14A
filed on or about October 15, 2004
x Filed herewith.
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/ Regina W. Anderson
--------------------------
Regina W. Anderson, Chief Executive
Officer
Date: September 9, 2008
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.
30
Signature Title Date
--------- ----- ----
/s/ Regina W. Anderson Chief Executive Officer, September 9, 2008
Regina W. Anderson President
/s/ James B. Anderson Chief Financial Officer, September 9, 2008
James B. Anderson President (Sirius) and Director
/s/ Justice W. Anderson President (Amerx) and Director September 9, 2008
Justice W. Anderson
/s/ Alan B. Crane Director September 9, 2008
Alan B. Crane
/s/ Michael T. Foley Director September 9, 2008
Michael T. Foley
/s/ Jeffery S. Slowgrove Director September 9, 2008
Jeffery S. Slowgrove
/s/ Fred W. Suggs, Jr. Director September 9, 2008
Fred W. Suggs, Jr.
/s/ Chester L. Wallack Director September 9, 2008
Chester L. Wallack
EXHIBIT INDEX
Exhibit No. Document Item No.
----------- -------- --------
* 3.1 Articles of Incorporation 3
+ 3.1.1 Articles of Amendment to Articles of Incorporation 3
* 3.2 Bylaws 3
+ 4.1 Designation of Series A Preferred Stock 4
# 10.1 1998 Omnibus Stock Option Plan
- 10.1 Office Lease dated September 23, 2003
/ 10.2 Promissory Note dated July 21, 2006
/ 10.3 Mortgage dated July 21, 2006
+ 10.4 Loan and Security Agreement, dated as of January 1, 1995, by 10
and between the Company and Amerx Health Care Corp.,
including Promissory Notes issued there under.
o 10.5 Agreement and Plan of Exchange, dated January 31, 1996, by
and between the Company and Amerx.
31
++14.1 Code of Ethics for Senior Financial Officers.
x 31.1 Certification of Regina W. Anderson pursuant to Exchange Act 31
Rule 13a-14(a)/15d-14(a)
x 31.2 Certification of James B. Anderson pursuant to Exchange Act 31
Rule 13a-14(a)/15d-14(a)
x 32.1 Certification Pursuant to 18 U.S.C. ss. 1350, as Adopted 32
Pursuant to Section906 of the Sarbanes-Oxley Act Of 2002
----------
* 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.
o Incorporated by reference to the Company's Form 8-K filed on
or about February 2, 1996.
# Incorporated by reference to the Company's Schedule 14A
filed on or about November 17, 1998.
/ Incorporated by reference to the Company's Form 8-K filed on
or about August 8, 2006
- Incorporated by reference to the Company's Form 10-QSB for
the period ending September 30, 2003
++ Incorporated by reference to the Company's Schedule 14A
filed on or about October 15, 2004
x Filed herewith.
32
Page No.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-1
FINANCIAL STATEMENTS
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Financial Statements F-6
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Procyon Corporation and Subsidiaries
Clearwater, Florida
We have audited the accompanying consolidated balance sheets of Procyon
Corporation and Subsidiaries as of June 30, 2008 and 2007 and the related
statements of operations, stockholder' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by Management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Procyon Corporation and
Subsidiaries as of June 30, 2008 and 2007 and the results of its operations and
its cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
/s/ Ferlita, Walsh & Gonzalez, P.A.
FERLITA, WALSH & CONZALEZ, P.A.
Certified Public Accountants
Tampa, Florida
August 26, 2008
PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2008 and 2007
ASSETS
2008 2007
----------- -----------
CURRENT ASSETS
Cash $ 278,878 $ 422,876
Certificates of Deposit 239,698 --
Accounts Receivable, less allowance of $2,500 171,494 224,460
for doubtful accounts
Inventories 184,158 133,892
Prepaid expenses 173,490 129,476
Deferred Tax Asset 132,484 169,758
----------- -----------
TOTAL CURRENT ASSETS 1,180,202 1,080,462
PROPERTY AND EQUIPMENT, NET 555,229 589,141
OTHER ASSETS
Deposits 1,513 1,515
Deferred Tax Asset 942,738 231,274
----------- -----------
944,251 232,789
TOTAL ASSETS $ 2,679,682 $ 1,902,392
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 105,314 $ 108,076
Accrued expenses 118,747 111,316
Current Portion of Mortgage Payable 22,790 21,201
----------- -----------
TOTAL CURRENT LIABILITIES 246,851 240,593
LONG TERM LIABILITIES
Mortgage Payable 447,042 469,191
----------- -----------
TOTAL LONG TERM LIABILITIES 447,042 469,191
STOCKHOLDERS' EQUITY
Preferred stock, 496,000,000 shares -- --
authorized, none issued.
Series A Cumulative Convertible Preferred stock, 154,950 159,750
no par value; 4,000,000 shares authorized;
199,100 and 203,900 shares issued and outstanding, respectively.
Common stock, no par value, 80,000,000 shares 4,416,676 4,411,876
authorized; 8,052,388 and 8,047,588 shares issued and
outstanding, respectively.
Paid-in Capital 6,000 6,000
Accumulated deficit (2,591,837) (3,385,018)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 1,985,789 1,192,608
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,679,682 $ 1,902,392
=========== ===========
The accompanying notes are an integral part of these financial statements
F - 2
PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended June 30, 2008 and 2007
2008 2007
----------- -----------
NET SALES $ 2,562,704 $ 2,536,577
COST OF SALES 630,463 600,175
----------- -----------
GROSS PROFIT 1,932,241 1,936,402
OPERATING EXPENSES
Salaries and Benefits 951,013 841,540
Selling , General and Administrative 840,750 851,070
----------- -----------
1,791,763 1,692,610
INCOME FROM OPERATIONS 140,478 243,792
OTHER INCOME (EXPENSE)
Interest Expense (35,704) (34,614)
Interest Income 14,239 12,059
Other Income (Expense) (23) 293
----------- -----------
(21,488) (22,262)
----------- -----------
INCOME BEFORE INCOME TAXES 118,990 221,530
INCOME TAX BENEFIT (EXPENSE) 674,191 276,850
----------- -----------
NET INCOME 793,181 498,380
Dividend requirements on preferred stock (15,1100 (19,490)
----------- -----------
Basic net income available to common shares $ 778,071 $ 478,890
=========== ===========
Basic net income per common share $ 0.10 $ 0.06
=========== ===========
Weighted average number of common
shares outstanding 8,053,719 8,049,832
=========== ===========
Diluted net income per common share $ 0.09 $ 0.06
=========== ===========
Weighted average number of common
shares outstanding, diluted 8,426,193 8,359,977
=========== ===========
The accompanying notes are an integral part of these financial statements.
F - 3
PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended June 30, 2008 and 2007
Preferred Stock Common Stock
-------------------------- ------------------------ Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 2006 204,900 $ 160,750 8,046,588 $ 4,410,876 $ 6,000 $(3,883,398) $ 694,228
Conversion of preferred stock
to common stock (1,000) (1,000) 1,000 1,000 -- -- --
Net Income -- -- -- -- 498,380 498,380
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 2007 203,900 $ 159,750 8,047,588 $ 4,411,876 $ 6,000 $(3,385,018) $ 1,192,608
Conversion of preferred stock (4,800) (4,800) 4,800 4,800 -- -- --
to common stock
Net income -- -- -- -- -- 793,181 793,181
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 2008 199,100 $ 154,950 8,052,388 $ 4,416,676 $ 6,000 $(2,591,837) $ 1,985,789
=========== =========== =========== =========== =========== =========== ===========
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, 2008 and 2007
2008 2007
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 793,181 $ 498,380
Adjustments to reconcile net income to net cash used in operating activities:
Loss on disposal of property and equipment 23 --
Depreciation 35,800 36,207
Deferred Income Taxes (674,191) (276,850)
Decrease (increase) in:
Accounts receivable 52,966 (78,014)
Inventory (50,266) 16,973
Prepaid expenses (44,014) (8,960)
Other assets -- 7,235
Increase (decrease) in:
Accounts payable (2,762) (17,572)
Accrued expenses 7,434 29,096
--------- ---------
NET CASH PROVIDED
BY OPERATING ACTIVITIES 118,171 206,495
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Certificates of Deposit (239,698) --
Purchase of property & equipment (1,911) (54,388)
--------- ---------
NET CASH USED
BY INVESTING ACTIVITIES (241,609) (54,388)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on Mortgage Payable (20,560) (17,608)
--------- ---------
NET CASH USED
BY FINANCING ACTIVITIES (20,560) (17,608)
--------- ---------
NET CHANGE IN CASH (143,998) 134,499
CASH AT BEGINNING OF PERIOD 422,876 288,377
--------- ---------
CASH AT END OF PERIOD $ 278,878 $ 422,876
========= =========
SUPPLEMENTAL DISCLOSURES
Interest Paid $ 35,461 $ 33,765
Taxes Paid $ -- $ --
NONCASH TRANSACTION DISCLOSURE:
Conversion of Series A cumulative convertible preferred stock to common stock $ 4,800 $ 1,000
Purchase of Office Building Financed by Mortgage $ -- $ 508,000
The accompanying notes are an integral part of these financial statements
F-5
PROCYON CORPORATION AND SUBSIDIARIES
NOTES TO 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
markets diabetic supplies primarily to Medicare patients in the United States.
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.
Revenue Recognition
The Company recognizes revenue in accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 104, "Revenue Recognition, corrected
copy," 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.
The Company recognizes revenue related to product sales to customers who have
placed orders upon shipment of such orders, provided that risk of loss has
passed to the customer and the Company has received and verified any written
documentation required to bill Medicare, other third-party payers, and
customers. The Company records revenue at the amounts expected to be collected
from Medicare, other third-party payers, and directly from customers. Revenue
recognition is delayed for product shipments for which the Company has not yet
received the required written forms, until the period in which those documents
are collected and verified.
F-6
Revenue related to Medicare reimbursement is calculated based on
government-determined reimbursement prices for Medicare-covered items. The
reimbursements that Medicare pays the Company are subject to review by
appropriate government regulators. Medicare reimburses at 80% of the
government-determined reimbursement prices for reimbursable supplies, and the
Company bills the remaining balance to either third-party payers or directly to
customers.
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. 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.
Sirius grants credit to patients who are eligible for Medicare coverage. Sales
are at standard payment term of 30 days.
Accounts receivable are generally due from Medicare, private insurance
companies, and customers. The collection process is time consuming, complex and
typically involves the submission of claims to multiple payers whose payment of
claims may be contingent upon the payment of another payer. In accordance with
applicable regulatory requirements, the Company makes reasonable and appropriate
efforts to collect accounts receivable, including deductible and copayment
amounts, in a consistent manner for all payer classes. The valuation of accounts
receivable is based upon the credit-worthiness of customers and third-party
payers 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, 2008, accounts receivable allowance was $2,500, or approximately 1% of
gross accounts receivable.
Inventories
Inventories are valued at the lower of average cost or market determined by the
first-in, first-out method.
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.
F-7
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 maintained its cash in three financial institutions. The Federal
Deposit Insurance Corporation insures up to $100,000 per legal entity per
financial institution. At June 30, 2008, our uninsured cash balance was
approximately $79,000.
Shipping and Handling Costs
Shipping and handling costs incurred were approximately $78,000 and $81,000 for
the years ended June 30, 2008, and 2007, 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, 2008 and 2007, approximately
$397,000 and $311,000, of advertising and marketing costs were included in
selling, general and administrative expenses for each respective year.
Income Taxes
Income taxes are accounted for using an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences attributable to differences between financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. A valuation allowance is provided when it is more likely than not that
some portion or all of the deferred tax asset will not be realized. The Company
adopted Financial Standards Board Interpretation No. 48, Accounting for Income
Taxes ("FIN 48"), an interpretation of SFAS 109, on January 1, 2007.
Net Income Per Share
The Company computes net income per share in accordance with SFAS No. 128,
"Earnings per Share" (SFAS 128). SFAS 128 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
F-8
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.
Fair Value of Financial Instruments
The carrying value of cash, accounts receivable, prepaid expenses, deposits,
inventory, accounts payable, accrued expenses and notes payable 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.
Stock Based Compensation
In December 1998, the Company adopted a 1998 Omnibus Stock Option Plan that
provides for the granting of equity-based incentive and other awards to
employees and directors of the Company, its subsidiaries and selected
consultants. The Plan is administered by the Compensation Committee of the Board
of Directors. Any employee, directors who are not employees of the Corporation
or a subsidiary, and consultants who are not employees or directors of the
Corporation are eligible to participate in the Plan. The maximum number of
shares of common stock issuable on exercise of options or other awards granted
under the Plan is 1,000,000. Non-qualified options granted must have an exercise
price not less than 85% (100% as amended, effective for options granted December
31, 2007) of the fair market value of the underlying shares of common stock.
Incentive options must have an exercise price not less than 100% of the fair
market value of the underlying shares of common stock. The term of the options
cannot be more than ten years. Awards may be granted in the form of restricted
stock. Awards can also be granted in the form of stock appreciation rights. A
stock appreciation right entitles the participant to receive from the Company an
amount equal to the positive difference between the fair market value of common
stock on the date of exercise of the stock appreciation right and the grant
price. No stock appreciation rights have been issued to date.
Additional information with respect to the Plan's stock option activity is as
follows:
Weighted
Number of Average
Shares Exercise Price
--------- --------------
Outstanding at June 30, 2006 300,000 $0.20
Granted - -
Exercised - -
Expired - -
------- -----
Outstanding at June 30, 2007 300,000 $0.20
Granted - -
Exercised - -
Expired - -
Outstanding at June 30, 2008 300,000 $0.20
======= =====
Options exercisable at June 30, 2007 300,000 $0.20
======= =====
Options exercisable at June 30, 2008 300,000 $0.20
======= =====
F-9
The following table summarizes information about stock options outstanding at
June 30, 2008:
Stock Options Outstanding
-----------------------------------
Weighted Average
Number of Remaining Weighted
Range of Shares Contractual Life Average
Exercise Prices Outstanding In Years Exercise Price
--------------- ----------- -------- --------------
$0.15 - $0.20 65,000 2.39 $0.16
$0.20 - $0.25 235,000 1.51 $0.21
-------
300,000 1.70 $0.20
=======
Effective January 1, 2006, we adopted Statement of Financial Accounting
Standards No. 123(R) ("SFAS 123R"), "Share-Based Payment". SFAS 123R requires
all share-based payments to employees, including grants of employee stock
options, to be recognized in the statement of operations based upon their fair
values and rescinds the acceptance of pro forma disclosure. SFAS 123R permits
two methods of adoption, a "modified prospective" method and a "modified
retrospective" method. Under the modified prospective method, stock-based
compensation cost is recognized, beginning with the effective date, based on the
requirements of SFAS 123R for all share-based payments granted after the
effective date and for all awards granted prior to the effective date that
remain unvested on the effective date. The modified retrospective method
includes the requirements of the modified prospective method and also permits
restatement of prior periods based on amounts previously reported in pro forma
disclosures pursuant to SFAS 123 for either all periods presented or for only
prior interim periods of the year of adoption. We adopted the modified
prospective method prescribed in SFAS 123R, effective January 1, 2006.
On June 30, 2008, there were outstanding options to purchase 300,000 shares of
our common stock at exercise prices ranging from $0.16 to $0.21 per share and
expiration dates between December 2009 and November 2010. These options were
vested at the time of grant. During the year ended June 30, 2008, no options
were granted. Therefore, the adoption of SFAS 123R does not have an impact on
the statement of operations for period ending June 30, 2008.
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.
F-10
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.
There were no options granted during fiscal years ended June 30, 2008 and 2007.
Had there been options issued during the fiscal years ended June 30, 2008 and
2007, the fair value of the options would have been determined using the
Black-Scholes option-pricing model, which values options based on the stock
price at the grant date, the expected dividend payments, and the risk-free
interest rate over the life of the option.
Equity instruments issued to non-employees in exchange for goods, fees and
services are accounted for under the fair value-based method of SFAS No. 123(R).
NOTE B - INVENTORIES
Inventories consisted of the following:
June 30, 2008 June 30, 2007
------------- -------------
Finished Goods $109,561 $ 36,509
Raw Materials 74,597 97,383
-------- --------
$184,158 $133,892
======== ========
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
As of June 30, 2008 Capitalized
Owned Leases Total
--------- --------- ---------
Office Equipment $ 83,426 $ 26,928 $ 110,354
Furniture and Fixtures 20,726 20,726
Software 19,471 19,471
Leasehold improvements 13,587 13,587
Production Equipment 34,118 34,118
Building 474,168 474,168
Land 64,547 64,547
--------- --------- ---------
710,043 26,928 736,971
Less accumulated depreciation (154,975) (26,767) (181,742)
--------- --------- ---------
$ 555,068 $ 161 $ 555,229
========= ========= =========
F-11
As of June 30, 2007 Capitalized
Owned Leases Total
--------- --------- ---------
Office Equipment $ 112,867 $ 26,928 $ 139,795
Furniture and Fixtures 20,726 20,726
Software 19,471 19,471
Leasehold Improvements 13,589 13,589
Production Equipment 34,436 34,436
Building 474,168 474,168
Land 64,547 64,547
--------- --------- ---------
739,804 26,928 766,732
Less accumulated depreciation (151,448) (26,143) (177,591)
--------- --------- ---------
$ 588,356 $ 785 $ 589,141
========= ========= =========
NOTE D - RELATED PARTY TRANSACTIONS
Mr. Slowgrove, a director, acted as a consultant to the Company for
portions of fiscal 2008, was paid a total compensation to him of approximately
$6,250. As compared to fiscal 2007 when Mr. Slowgrove was paid a total
compensation of approximately $27,500. Our Chief Executive Officer, Regina W.
Anderson, guaranteed a loan to us in the amount of $508,000, issued in
connection with our purchase of our office building in July 2006, as well as the
$250,000 line of credit.
NOTE E - MORTGAGE PAYABLE
On July 21, 2006, we entered into a mortgage loan, guaranteed by our C.E.O.
Regina W. Anderson, for $508,000 with the Bank of America for the purchase of
our corporate office building. The mortgage loan is due in 15 years and interest
is fixed at 7.25%. Interest expense was $ 35,599 for the fiscal year end June
30, 2008.
F-12
Maturities of long-term debt associated with the mortgage payable are as
follows:
Year Ending June 30,
----------------------------------------------------
2009 $ 22,790
2010 24,498
2011 26,335
2012 28,309
2013 30,431
2014 and thereafter 337,469
---------
469,832
Less current portion 22,790
---------
$ 447,042
=========
NOTE F - LINE OF CREDIT
The Company has a $250,000, due-on-demand line of credit with a financial
institution, collateralized by the Company's inventory of $184,158 and accounts
receivable assets of $171,494. The line of credit is renewable annually in
April. The C.E.O. of the Company personally guaranteed the line of credit to the
Company. At June 30, 2008, the Company owed $0 on the line of credit. Interest
expense for the years ended June 30, 2008 was $0. The line of credit extends
terms of cash advances at a variable rate set equal to the banks prime rate at
the time of advance. The interest rate can fluctuate according to the banks
changes in its published prime rate.
NOTE G - COMMITMENTS AND CONTINGENCIES
Leases
------
In September 2003, the Company entered into a lease for office space for a term
of three years. Monthly rent was approximately $4,100 plus sales tax. The
Company purchased the building and its property on July 21, 2006. Rent expense
for the years ended June 30, 2008 and 2007 were approximately $0 and $2,546,
respectively.
F-13
In addition, the Company also leases certain equipment under various operating
leases expiring through year 2011. The minimum lease payments due under the
equipment lease agreements for fiscal years ended June 30 is as follow:
2009 $ 11,458
2010 11,458
2011 9,447
---------
$ 32,363
NOTE H - 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, 2008, no dividends have been declared. Dividends in arrears on the
outstanding preferred shares total $221,461 or approximately $1.11 per share as
of June 30, 2008. 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.
F-14
NOTE I - EARNINGS PER SHARE
As required by FASB Statement No. 128, the following table sets forth the
computation of basic and diluted earnings per share:
Years Ended June 30,
2008 2007
----------- -----------
Numerator:
----------
Net income $ 793,181 $ 498,380
Adjustment for basic earnings per share:
Dividend requirements on preferred stock (15,110) (19,490)
----------- -----------
Numerator for basic earnings per share-
Net income available to common
stockholders $ 778,071 $ 478,890
Effect of dilutive securities:
Numerator for diluted earnings per share-
Net income available to common
stockholder $ 778,071 $ 478,890
----------- -----------
Denominator:
------------
Denominator for basic earnings per share-
Weighted-average common shares 8,053,719 8,049,832
Effect of dilutive securities:
Stock options 171,705 105,489
Dilutive potential common shares 200,769 204,656
----------- -----------
Denominator for dilutive earnings per share-
Adjusted weighted-average shares and
assumed conversions 8,426,193 8,359,977
=========== ===========
Basic income per share $ 0.10 $ 0.06
=========== ===========
Diluted income per share $ 0.09 $ 0.06
=========== ===========
NOTE J - INCOME TAXES AND AVAILABLE CARRYFORWARD
As of June 30, 2008, the Company had consolidated income tax net operating loss
("NOL") carryforward for federal income tax purposes of approximately
$2,873,000. The NOL will expire in various years ending through the year
2023.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 (benefits) are attributable to
continuing operations as follows:
F-15
2008 2007
--------- ---------
Current
Federal $ -- $ --
State -- --
Deferred
Federal (575,651) (236,386)
State (98,540) (40,464)
--------- ---------
$(674,191) $(276,850)
========= =========
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:
Current Non-Current
------- -----------
Deferred tax assets:
NOL and contribution carryforwards $ 131,543 $ 951,918
Allowance for doubtful accounts 941 --
--------- ---------
132,484 951,918
Deferred tax (liabilities):
Excess of tax over book depreciation -- (9,180)
--------- ---------
132,484 942,738
Net deferred tax asset (liability) $ 132,484 $ 942,738
========= =========
The change in the valuation allowance is as follow:
June 30, 2007 $ 737,284
June 30, 2008 --
---------
Decrease in valuation allowance $(737,284)
=========
The decrease in the valuation allowance is due to an increase in the expected
utilization of net operating loss carryforwards. Management believes it is more
likely than not that it will realize the benefit of the NOL carryforward,
because of its continuing trend of earnings. Therefore, a valuation allowance is
not considered necessary.
F-16
Income taxes for the years ended June 30, 2008 and 2007 differ from the amounts
computed by applying the effective income tax rates of 37.63% and 37.63%,
respectively, to income before income taxes as a result of the following:
2008 2007
--------- ---------
Expected provision at US statutory rate $ 40,465 $ 75,320
State income tax net of federal benefit 4,320 8,042
Nondeductibles 4,372 3,540
Change in estimates in available NOL carryforwards 13,936 272,013
Change in valuation allowance (737,284) (635,765)
--------- ---------
Income tax expense / (benefit) $(674,191) $(276,850)
========= =========
The Companies tax years 2004 through 2007 remain open to examination by taxing
jurisdictions.
NOTE K - 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.
During the year, Sirius purchased approximately 86% and 12% of its diabetic
supplies from two non-affiliated suppliers. Sirius does not anticipate supply
from these vendors will be lost in the near future. Sirius has a good long term
working relationship with these vendors. In the event of loss of these
suppliers, Sirius could still purchase such products from other suppliers in the
industry.
NOTE L - MAJOR CUSTOMERS
During the year ended June 30, 2008, sales from one customer accounted for
approximately 11% of Amerx's sales. The loss of this single customer would have
a material adverse effect on our financial condition or the results of our
operations. During the year ended June 30, 2007, one customer accounted for 12%
of Amerx's sales. Amerx's customer base has become more diversified compared to
previous fiscal years.
NOTE M - SEGMENT INFORMATION
The Company operates in the following two business segments:
F-17
1. Sale of skin and wound care products - Amerx operates in the skin and wound
care products segment. The marketing of these products is targeted
primarily to diabetic patients who have difficulties providing proper care
and treatment of wounds due to their diabetic condition and physicians who
recommend the products to their patients.
2. Sale of diabetic supplies - Sirius provides meters, test strips, monitors,
syringes, etc. primarily to diabetic patients. The Company is then
reimbursed by Medicare and/or patients' secondary insurance.
Each separately managed segment offers different products requiring different
marketing and distribution strategies. Segments Information
Wound Care Diabetic
June 30, Products Products Other Consolidated
-------- -------- -------- ----- ------------
Revenues 2008 $2,254,820 $307,884 $ - $2,562,704
2007 2,244,314 292,263 - 2,536,577
Gross Profit 2008 1,803,823 128,418 - 1,932,241
2007 1,805,827 130,574 - 1,936,402
Identifiable Assets 2008 624,682 192,844 1,862,156 2,679,682
2007 572,358 169,407 1,160,627 1,902,392
Property and Equipment
Additions 2008 1,260 - 650 1,910
2007 4,200 - 558,186 562,386
Depreciation 2008 9,706 538 25,556 35,800
2007 11,692 544 23,972 36,207
Geographical Information
The Company operates and sells its products to its customers primarily within
the United States. All assets are located within the United States.
NOTE N - RESEARCH AND DEVELOPMENT
Amerx spent approximately $4,000 towards research and development efforts over
the past fiscal year. These efforts were directed towards additional studies
aimed at expanding existing markets.
NOTE O - RECENT ACCOUNTING PRONOUNCEMENTS
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles, which provides a framework in which the company selects
principles used in the preparation of the financial statements that are
presented in conformity with GAAP. The statement is effective 60 days
following the SEC's approval of the Public Company Accounting Oversight Board
amendments to AU Section 411. Management does not feel this pronouncement will
have any material effect on the Company's financial reporting.
F-18