PROCYON CORPORATION Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
This Report on Form 10-K, including Management's Discussion and Analysis or Plan
of Operation, contains forward-looking statements. When used in this report, the
words "may", "will"‚ "expect"‚ "anticipate"‚ "continue"‚ "estimate"‚ "project"‚
"intend"‚ "seek", "hope"‚ "believe" and similar expressions, variations of these
words or the negative of those words, and, any statement regarding possible or
assumed future results of operations of the Company's and its subsidiaries'
business, the markets for its products, anticipated expenditures, regulatory
developments or competition, or other statements regarding matters that are not
historical facts, are intended to identify forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 regarding events, conditions and financial
trends including, without limitation, business conditions in the skin and wound
care market and the general economy, competitive factors, changes in product
mix, production delays, manufacturing capabilities, the loss of any significant
customers or suppliers, general supply chain delays, new and unanticipated
governmental regulations, the impact of the COVID-19 pandemic on the Company's
sales, operations and supply chain and other risks or uncertainties detailed in
other of the Company's
Our business in general is subject to certain risks including but not limited to the following:
- we may not be able to produce or obtain, or may have to obtain at excessive
prices, the raw materials and finished goods we need;
- the vendors on whom we rely for manufacturing certain products may go out of
business, fail to meet demand or provide shipments on an untimely basis;
- competitive pressures may require us to lower our prices on certain products,
thereby adversely affecting operational results;
- we may not be able to obtain, or obtain at uneconomic expense and protracted
time, the regulatory approval of new products;
- no assurance can be given that we will remain in compliance with applicable
FDA and other regulatory requirements once clearance or approval has been
obtained for a product. We must incur expense and spend time and effort to
ensure compliance with these complex regulations. Possible regulatory actions
could include warning letters, fines, damages, injunctions, civil penalties,
recalls, seizures of our products, and criminal prosecution;
- consumers or distributors may not favorably receive our new or existing
products;
- we may not be able to obtain adequate financing to fund our operations or
expansion;
- a relatively small group of products may represent a significant portion of
our net revenues or net earnings from time to time; if the volume or pricing
of any of these products declines, it could have a material adverse effect on
our business, financial position and results of operations;
- we could experience reduced revenues and profits if Medicare or other
government programs change, delay or deny reimbursement claims;
- we are subject to various federal, state, and international laws and
regulations pertaining to government benefit program reimbursement, price
reporting and regulation, and health care fraud and abuse, including
anti-kickback and false claims laws, the Medicaid Rebate Statute, the Veterans
Health Care Act, and individual state laws relating to pricing and sales and
marketing practices; violations of these laws may be punishable by criminal
and/or civil sanctions, including, in some instances, substantial fines,
imprisonment, and exclusion from participation in federal and state health
care programs, including Medicare, Medicaid, and Veterans Administration
health programs; violations of these laws, or allegations of such violations,
could disrupt our business and result in a material adverse effect on our
revenues, profitability, and financial condition;
- the loss of senior management or other key personnel, or our inability to
attract and retain additional senior management or other key personnel, could
adversely affect our ability to execute our business plan;
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- we could become subject to new unanticipated governmental regulations or fail
to comply with regulations applicable to our products, which could materially
and adversely affect our business, financial position and results of
operations; and
- legislative or regulatory programs that may influence prices of medical
devices could have a material adverse effect on our business;
- the demand for our products may decrease because of various factors, such as
adverse business conditions and a sluggish U.S. economy;
- our product supply and related patient access to products could be negatively
impacted by, among other things: (i) seizure or recalls of products or forced
closings of manufacturing plants, (ii) supply chain continuity including from
natural or man-made disasters at one of our facilities or at a critical
supplier or vendor, as well as our failure or the failure of any of our
vendors or suppliers to comply with Current Good Manufacturing Practices and
other applicable regulations and quality assurance guidelines that could lead
to manufacturing shutdowns, product shortages and delays in product
manufacturing, (iii) manufacturing, quality assurance/quality control, supply
problems or governmental approval delays, (iv) the failure of a sole source or
single source supplier to provide us with necessary raw materials, supplies or
finished goods for an extended period of time, (v) the failure of a
third-party manufacturer to supply us with finished product on time, (vi)
construction or regulatory approval delays related to new facilities or the
expansion of existing facilities (vii) the failure to meet new and emerging
regulations requiring products to be tracked throughout the distribution
channels using unique identifiers and (viii) other manufacturing or
distribution issues including limits to manufacturing capacity due to
regulatory requirements; changes in the types of products produced; physical
limitations or other business interruptions;
- we may experience an increase in the number and magnitude of delinquent or
uncollectible customer accounts during periods of economic downturn.
- The economic impact of the COVID-19 pandemic could adversely affect our
financial condition and results of operations. The pandemic resulted in an
unprecedented slow-down in economic activity, a related increase in
unemployment and a significant decline in the value of the stock market and
many non-essential and elective medical procedures to be delayed or canceled.
The COVID-19 pandemic is affecting the United States and global economies and
may affect our operations and those of third parties on which we rely,
including by causing disruptions in the supply for our products. In addition,
the COVID-19 pandemic may affect our operations due to users of our products
delaying or canceling medical treatments and the closure of doctors offices
and other medical health facilities which administer our products. The
ultimate impact of the COVID-19 pandemic is highly uncertain and subject to
change. We do not yet know the full extent of potential delays or impacts on
our business, financing or on healthcare systems or the global economy as a
whole. However, these effects could have a material impact on our results from
operations and business and those of the third parties on which we rely.
- Security breaches and other disruptions could compromise our information and
expose us to liability, which would cause our business and reputation to
suffer.
- We or the third parties upon whom we depend may be adversely affected by
natural disasters and our business continuity and disaster recovery plans may
not adequately protect us from a serious disaster.
- Our cost to manufacture our products could be adversly affected by rising
inflation and the increase in interest rates.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our financial statements have been prepared in accordance with standards of the
Deferred Income Taxes
Deferred income taxes are recognized for the expected tax consequences in future
years for differences between the tax bases of assets and liabilities and their
financial reporting amounts, based upon exacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to affect
taxable income. The Company accounts for income taxes under Topic 740 - Income
Tax in the Accounting Standards Codification. A valuation allowance is used to
reduce deferred tax assets to the net amount expected to be recovered in future
periods. The estimates for deferred tax assets and the corresponding valuation
allowance require us to exercise complex judgments. We periodically review and
adjust those estimates based upon the most current information available.
Valuation allowances for periods ending
Revenue Recognition
The Company recognizes revenue in accordance with
Revenue from Contracts with Customers (Topic 606)
In
Stock Based Compensation
Stock based compensation is accounted for in accordance with Topic 718 - Compensation - Stock Compensation in the Accounting Standards Codification. All share-based payments to employees, including grants of employee stock options, are to be recognized in the statement of operations based upon their fair values and rescinds the acceptance of pro forma disclosure.
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General
Our continuing operations and revenues consist of the operations of and revenues generated by AMERX, our wholly-owned subsidiary. AMERX skin and wound care products, marketed under the trademark AMERIGEL® and containing the proprietary ingredient OAKIN®, promote wound healing and healthy skin through moderately priced products for treatment of problematic skin and wound conditions.
AMERX markets AMERIGEL®, HELIX3®, AMERX® wound care products and EXTREMIT-EASE® compression garments to institutional customers such as hospitals, wound care clinics, skilled nursing facilities, home health agencies and to physicians and other health care practitioners. AMERIGEL® and EXTREMIT-EASE® products are also marketed to retail customers through direct sales, internet sales and through independent and retail chain drug stores and to physicians and other health care practitioners.
AMERX's products are distributed to institutions and to retail stores through national, regional and local distributors as well as through direct sales and internet sales.
Future Expectations
AMERX expects to further penetrate the health care market through its participation in industry trade shows, advertisements in trade journals, development of additional distributor relationships and by opening new geographical territories (including international markets). AMERX management is trying new methods of marketing to support its multiple product lines, with multiple channels. AMERX management seeks to develop new markets as the AMERIGEL, HELIX3, AMERX and EXTREMIT-EASE product lines gain broader acceptance. AMERX management also seeks to develop new products to be released as soon as practicable, with expansion of the HELIX3 line expected in fiscal 2023.
Impact of COVID-19 on Our Business
The financial effects of COVID-19 started showing their impact on our Company in March of 2020. Due to the timing of these events, the full effect of COVID-19 on our business cannot yet be fully quantified. We have felt the effects of the COVID-19 pandemic in our operations, as management continues to dedicate time and effort researching, discussing and implementing policies and procedures necessary to navigate through the ever changing landscape the COVID-19 pandemic has and continues to provide. As an essential business, management was tasked with remaining open, while keeping our employees safe, and providing our customers, who were still able to actively provide healthcare services, with the products they need.
The effects were most severely seen in
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Results of Operations
Comparison of Fiscal 2022 and 2021.
During fiscal 2022 and 2021, our results of operations related solely to the
operations of AMERX. Net sales during fiscal 2022 were approximately
Cost of sales were approximately
Gross profit increased to approximately
Operating expenses during fiscal 2022 were approximately
Losses from operations finished at approximately
Management believes it is more likely than not that the tax benefit of
approximately
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Liquidity and Capital Resources
Historically, we have financed our operations through revenues from operations.
As of
Operating activities used cash of approximately
During fiscal year 2022, we had no material cash requirements, including commitments for capital expenditures. In the 2023 fiscal year, the Company does not anticipate having any external cash needs. The Company has adequate funds to cover any planned capital expenditures. The Company also believes that it will continue to generate enough funds through its operations in the short and long term future to meet its capital needs. The Company plans to leave cash balances in Iinsured bank accounts that have no risk of loss.
During fiscal 2022, no holder of shares of Preferred Stock converted its shares to Common Stock.
Commitments of Capital Expenditures
At
Off-Balance Sheet Arrangements
During fiscal years 2022 and 2021, 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.
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