pcyn20200331

UNITED STATES SECURITIES & EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

	☒	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For Quarterly Period Ended March 31, 2020
or
	☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

Commission File Number: 0-17449

PROCYON CORPORATION

(Exact Name of Registrant as specified in its charter)

COLORADO		59-3280822
(State of Incorporation)		(I.R.S. Employer Identification Number)

1300 S. Highland Ave. Clearwater, FL 33756

(Address of Principal Executive Offices)

(727) 447-2998

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	None	None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ☒ NO ☐

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

	Large accelerated filer ☐		Accelerated filer ☐
	Non-accelerated filer ☐		Smaller reporting company ☒
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common stock, no par value; 8,087,388 shares outstanding as of June 18, 2020.

Explanatory Note

As previously reported by the Registrant in the Form 8-k filed with Securities and Exchange Commission (the “SEC”) May 15, 2020, the registrant has relied on the SEC’s Order under Section 36 of the Securities Exchange Act of 1934, as amended, dated March 4, 2020 Order (Release No. 34-88318), as modified on March 25, 2020 (Release No. 34-88465), to delay the filing of this Quarterly Report on Form 10-Q.

PART I. - FINANCIAL INFORMATION

Item	Page

ITEM 1. FINANCIAL STATEMENTS	3

Index to Financial Statements Financial Statements:

Consolidated Balance Sheets	3
Consolidated Statements of Operations	4
Consolidated Statements of Changes in Stockholders’ Equity	5
Consolidated Statements of Cash Flows	6

Notes to Consolidated Financial Statements	7

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	13

ITEM 4. CONTROLS AND PROCEDURES	17

PART II. - OTHER INFORMATION

ITEM 5. OTHER INFORMATION	17

ITEM 6. EXHIBITS	17

SIGNATURES	18

	(unaudited)			(audited)
	March 31,			June 30,
	2020			2019
ASSETS

CURRENT ASSETS
Cash	$	121,528		$	290,287
Certificates of Deposit, plus accrued interest		155,132			153,951
Accounts Receivable, less allowance for doubtful accounts of $9,408 and $6,719, respectively.		538,588			419,630
Inventories		665,716			485,433
Prepaid Expenses		302,337			244,494
TOTAL CURRENT ASSETS		1,783,301			1,593,795

PROPERTY AND EQUIPMENT, NET		469,828			488,460

OTHER ASSETS
Deposits		4,192			4,192
Inventories		138,781			123,204
Intangible Asset		17,000			17,000
ROU Assets - Operating Leases		41,350			-
Deferred Tax Asset, net valuation allowance of $171,381 and $171,381, respectively.		151,417			208,281
		352,740			352,677

TOTAL ASSETS	$	2,605,869		$	2,434,932


LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts Payable	$	163,711		$	147,445
Accrued Expenses		204,728			228,490
Lease Liabilities - Operating Leases, Current Portion		42,711			-
TOTAL CURRENT LIABILITIES		411,150			375,935

LONG TERM LIABILITIES
Lease Liability - Operating Leases		3,095			-
TOTAL LONG TERM LIABILITIES		3,095			-

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
Preferred Stock, 496,000,000 shares authorized, none issued.		-			-
Series A Cumulative Convertible Preferred Stock, no par value; 4,000,000 shares authorized; 167,100 shares issued and outstanding.		126,860			126,860
Common Stock, no par value, 80,000,000 shares authorized; 8,087,388 shares issued and outstanding.		4,444,766			4,444,766
Paid-in Capital		15,885			15,885
Accumulated Deficit		(2,395,887	)		(2,528,514	)
TOTAL STOCKHOLDERS' EQUITY		2,191,624			2,058,997

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	2,605,869		$	2,434,932

	(unaudited)			(unaudited)			(unaudited)			(unaudited)
	Three Months			Three Months			Nine Months			Nine Months
	Ended			Ended			Ended			Ended
	Mar. 31, 2020			Mar. 31, 2019			Mar. 31, 2020			Mar. 31, 2019

NET SALES	$	1,139,115		$	1,070,830		$	3,450,107		$	3,075,918

COST OF SALES		288,501			288,684			934,068			832,876

GROSS PROFIT		850,614			782,146			2,516,039			2,243,042

OPERATING EXPENSES
Salaries and Benefits		457,153			379,399			1,267,860			1,112,133
Selling, General and Administrative		326,682			315,554			1,063,419			995,170
		783,835			694,953			2,331,279			2,107,303

INCOME FROM OPERATIONS		66,779			87,193			184,760			135,739

OTHER INCOME
Other Income		10,000			-			10,000			-
Interest Income		93			587			1,669			1,737
		10,093			587			11,669			1,737

INCOME BEFORE INCOME TAXES		76,872			87,780			196,429			137,476

INCOME TAX (EXPENSE)		(20,942	)		(22,759	)		(56,864	)		(53,245	)

NET INCOME		55,930			65,021			139,565			84,231

Dividend requirements on preferred stock		(4,179	)		(4,178	)		(12,533	)		(12,783	)

Basic net income available to common shares	$	51,751		$	60,843		$	127,032		$	71,448

Basic net income per common share	$	0.01		$	0.01		$	0.02		$	0.01

Weighted average number of common shares outstanding		8,087,388			8,087,388			8,087,388			8,087,388

Diluted net income per common share	$	0.01		$	0.01		$	0.02		$	0.01

Weighted average number of common shares outstanding, diluted		8,319,488			8,319,488			8,319,488			8,319,488

														Total
Nine Months Ended March 31, 2020	Preferred Stock				Common Stock				Paid-In		Accumulated			Stockholders'
	Shares		Amount		Shares		Amount		Capital		Deficit			Equtiy
Balance, June 30, 2019		167,100	$	126,860		8,087,388	$	4,444,766	$	15,885	$	(2,528,514	)	$	2,058,997

Cumulative Adjustment from adoption of ASC 842		-		-		-		-		-		(6,938	)		(6,938	)

Net Income		-		-		-		-		-		83,840			83,840

Balance, September 30, 2019		167,100		126,860		8,087,388		4,444,766		15,885		(2,451,612	)		2,135,899

Net Income (Loss)		-		-		-		-		-		(204	)		(204	)

Balance, December 31, 2019		167,100		126,860		8,087,388		4,444,766		15,885		(2,451,816	)		2,135,695

Net Income (Loss)		-		-		-		-		-		55,929			55,929

Balance, March 31, 2020		167,100	$	126,860		8,087,388	$	4,444,766	$	15,885	$	(2,395,887	)	$	2,191,624

																Total
Nine Months Ended March 31, 2019	Preferred Stock						Common Stock				Paid-In		Accumulated			Stockholders'
	Shares			Amount			Shares		Amount		Capital		Deficit			Equtiy
Balance, June 30, 2018		177,100		$	136,860			8,077,388	$	4,434,766	$	15,885	$	(2,555,738	)	$	2,031,773

Net Income		-			-			-		-		-		87,280			87,280

Balance, September 30, 2018		177,100			136,860			8,077,388		4,434,766		15,885		(2,468,458	)		2,119,053

Preferred Stock Converted to Common		(10,000	)		(10,000	)		10,000		10,000		-		-			-

Net Income (Loss)		-			-			-		-		-		(68,067	)		(68,067	)

Balance, December 31, 2018		167,100			126,860			8,087,388		4,444,766		15,885		(2,536,525	)		2,050,986

Net Income (Loss)		-			-			-		-		-		65,021			65,021

Balance, March 31, 2019		167,100		$	126,860		$	8,087,388	$	4,444,766	$	15,885	$	(2,471,504	)	$	2,116,007

	(unaudited)			(unaudited)
	March 31,			March 31,
	2020			2019

CASH FLOWS FROM OPERATING ACTIVITIES

Net Income	$	139,565		$	84,231
Adjustments to reconcile net income to net cash (used in) operating activities:
Depreciation		40,943			39,375
Allowance for Doubtful Accounts		2,689			3,915
Right of Use Asset Amortization		32,369			-
Deferred Income Taxes		56,864			53,245
Accrued Interest on Certificates of Deposit		-			(416	)
Decrease (increase) in:
Accounts Receivable		(121,646	)		(47,138	)
Inventory		(195,860	)		(4,654	)
Prepaid Expenses		(57,843	)		(171,836	)
Increase (decrease) in:
Accounts Payable		16,266			73,649
Accrued Expenses		(23,762	)		(35,634	)
NET CASH (USED IN) OPERATING ACTIVITIES		(110,415	)		(5,263	)

CASH FLOW FROM INVESTING ACTIVITIES

Purchase of property & equipment		(22,370	)		(9,506	)
NET CASH (USED IN) INVESTING ACTIVITIES		(22,370	)		(9,506	)

CASH FLOW FROM FINANCING ACTIVITIES

Purchase of CD		(1,181	)		-
Capital Lease Liability payments		-			(2,110	)
Operating Lease Liability Reduction		(34,793	)		-
NET CASH (USED IN) FINANCING ACTIVITIES		(35,974	)		(2,110	)

NET CHANGE IN CASH		(168,759	)		(16,879	)

CASH AT BEGINNING OF PERIOD		290,287			270,313

CASH AT END OF PERIOD	$	121,528		$	253,434

SUPPLEMENTAL DISCLOSURES

Interest Paid	$	-		$	-
Taxes Paid	$	-		$	-

NOTE A - SUMMARY OF ACCOUNTING POLICIES

The interim consolidated financial statements included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles ("GAAP") have been condensed or omitted as allowed by such rules and regulations. The Company believes that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements dated June 30, 2019. The results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year.

Management of the Company has prepared the accompanying unaudited condensed consolidated financial statements prepared in conformity with generally accepted accounting principles, which require the use of management estimates, contain all adjustments (including normal recurring adjustments) necessary to present fairly the operations and cash flows for the period presented and to make the financial statements not misleading.

STOCK-BASED COMPENSATION

Stock based compensation is accounted for in accordance with Topic 718 - Compensation - Stock Compensation in the Accounting Standards Codification. Pursuant to Topic 718, all share-based payments to employees, including grants of employee stock options, are to be recognized in the statement of operations based upon their fair values. Topic 718 rescinds the acceptance of pro forma disclosure. In December 2009, our shareholders approved the adoption of a new stock option plan, providing the Company a continued means of offering stock-based compensation. Our 2009 Stock Option Plan expired on December 8, 2019.

On March 31, 2020, there were 65,000 outstanding options to purchase shares of our common stock.

The fair value of a stock option is determined using the Black-Scholes option-pricing model, which values options based on the stock price at the grant date, the expected life of the option, the estimated volatility of the stock, the expected dividend payments, and the risk-free interest rate over the life of the option. There were no options granted during the quarter ended March 31, 2020.

The Black-Scholes option valuation model was developed for estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Because option valuation models require the use of subjective assumptions, changes in these assumptions can materially affect the fair value of the options. Our options do not have the characteristics of traded options, therefore, the option valuation models do not necessarily provide a reliable measure of the fair value of our options.

EARNINGS PER SHARE

Basic earnings per share (EPS) is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that would occur if dilutive securities such as stock options and other contracts to issue Common Stock were exercised or converted into Common Stock or resulted in the issuance of Common Stock that then shared in earnings. We use the treasury stock method to compute potential common shares from stock options and the as-if-converted method to compute potential common shares from Preferred Stock.

For the three and nine months ended March 31, 2020, and 2019, the potential dilutive effects of the preferred stock and stock options were included in the weighted-average diluted shares outstanding.

NOTE C - 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 ("Series A Preferred Stock"). The preferred stockholders are entitled to receive, as and if declared by the board of directors, quarterly dividends at an annual rate of $.10 per share of Series A Preferred Stock per annum. Dividends will accrue without interest and will be cumulative from the date of issuance of the Series A Preferred Stock and will be payable quarterly in arrears in cash or publicly traded common stock when and if declared by the Board of Directors. As of March 31, 2020, no dividends have been declared. Dividends in arrears on the outstanding preferred shares total $383,131 as of March 31, 2020.

Holders of the Preferred Stock have the right to convert their shares of Preferred Stock into an equal number of shares of Common Stock of the Company. In addition, Preferred Stock holders have the right to vote the number of shares into which their shares are convertible into Common Stock. Such preferred shares will automatically convert into 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. The Company is obligated to reserve an adequate number of shares of its common stock to satisfy the conversion of all the outstanding Series A Preferred Stock. There were no shares converted during the reporting period. So long as any share of Series A Preferred Stock is outstanding, the Company is prohibited from declaring dividends or other distributions related to its Common Stock or purchasing, redeeming or otherwise acquiring any of the Common Stock.

NOTE D - INCOME TAXES AND AVAILABLE CARRYFORWARD

As of March 31, 2020, the Company had consolidated income tax net operating loss ("NOL") carryforwards for federal income tax purposes of approximately $1,267,000. The NOL will expire in various years ending through the year 2035. The utilization of certain loss carryforwards are limited under Section 382 of the Internal Revenue Code.

-8-

The components of the provision for income tax (expense) attributable to continuing operations are as follows:

	Nine Months 3/31/2020			Nine Months 3/31/2019

Current	$	0		$	0
Federal		0			0
State		0			0


Deferred		(47,116	)		(44,117	)
Federal		(9,748	)		(9,128	)
State		(56,864	)		(53,245	)

Total Income Tax (Expense)	$	(56,864	)	$	(53,245	)

Deferred income taxes reflect the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:

	Non-Current
Deferred tax assets
NOL and contribution carryforwards	$	321,233
Accrued compensated absences		8,204
Accrued bonus		-
Allowance for doubtful accounts		2,384
Total deferred tax assets		331,821

Deferred tax (liabilities)		(9,023	)
Excess of tax over book depreciation		(9,023	)
Total deferred tax (liabilities)		322,798

Total deferred tax asset
Valuation Allowance		(171,381	)
Net Deferred Tax Asset	$	151,417

The change in the valuation allowance is as follows:

June 30, 2019	$	(171,381	)
March 31, 2020		(171,381	)
	$	-

-9-

Management believes it is more likely than not that the tax benefit of approximately $560,000 of NOL carryforwards will not be realized because management estimates that they will expire prior to their utilization. Therefore, management provided a valuation allowance of $171,381 against its deferred tax asset. Management will continue to evaluate its operating results each reporting period and assess whether it will be able to utilize all available NOL carryforwards before expiration.

The accounting for the effects of the rate change on deferred tax balances is complete and no provisional amounts were recorded for this item.

Income taxes for the three months ended March 31, 2020 and 2019 differ from the amounts computed by applying the effective income tax rate of 25.35%, to income before income taxes as a result of the following:

	Nine Months			Nine Months
	March 31, 2020			March 31, 2019
Expected (provision) at US statutory rate	$	(41,250	)	$	(28,870	)
State income tax net of federal (provision)		(8,535	)		(5,973	)
Nondeductible Expense		(4,512	)		(4,344	)
Change in estimates of loss carryforward		(2,567	)		(563	)
Change in valuation allowance		-			(10,481	)
Other		-			(3,014	)
Income Tax (Expense)	$	(56,864	)	$	(53,245	)

The earliest tax year still subject to examination by a major taxing jurisdiction is fiscal year end June 30, 2017.

The Company performed a review for uncertain tax positions in accordance with Accounting Standards Codification ASC 740-10 "Uncertainty in Income Taxes". In this regard, an uncertain tax position represents the Company's expected treatment of a tax position taken in a filed tax return, or planned to be taken in a future tax return, that has not been reflected in measuring income tax expense for financial reporting purposes. As a result of this review, the Company concluded that at this time there are no uncertain tax positions, and there has been no cumulative effect on retained earnings.

NOTE F - SUBSEQUENT EVENTS

Management evaluated all activities of the Company through June 22,2020 which is the date the financial statements were available to be issued and concluded that no subsequent events have occurred that would require recognition in the financial statements or disclosure to the notes to the statements as of March 31, 2020 except as follows:

Pandemic Health Issue

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

Coronavirus Aid, Relief and Economic Security Act of 2020

The Company applied for a loan with the Small Business Administration (the “SBA”) Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief and Economic Security Act of 2020 (the “CARES Act”) in the amount of $201,000 (the “Loan”). The Loan was funded on April 13, 2020. The Company intends to use the proceeds of the Loan for covered payroll costs, rent and utilities in accordance with the relevant terms and conditions of the CARES Act.

The Loan, which is evidenced by promissory note (the “Promissory Note”), has a two-year term, matures on April 12, 2022, and bears interest at a rate of 1.00% per annum. Monthly principal and interest payments, less the amount of any potential forgiveness (discussed below), will commence seven months from the month this Note is dated. The Company did not provide any collateral or guarantees for the Loan, nor did it pay any facility charge to obtain the Loan. The Promissory Note provides for customary events of default, including, among others, those relating to failure to make payment, bankruptcy, breaches of representations and material adverse effects. The Company may prepay the principal of the Loan at any time without incurring any prepayment charges.

The Loan may be forgiven partially or fully if the Loan proceeds are used for covered payroll costs, rent and utilities, provided that such amounts are incurred during the eight-week(original, subsequently extended to 24 week) period that commenced on April 13, 2020. Any forgiveness of the Loan will be subject to approval by the SBA and will require the Company to apply for such treatment.

NOTE G - RECENT ACCOUNTING PRONOUNCEMENTS

On June 16, 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326) (the "ASU"), which introduces new guidance for the accounting for credit losses on instruments within its scope. Given the breadth of that scope, the new ASU will impact both financial services and non-financial services entities. The guidance in this ASU is effective for public entities that meet the definition of an SEC filer for fiscal years beginning after December 15, 2019, and interim periods within those years. Early adoption is permitted in annual periods beginning after December 15, 2018. Based on management's current understanding of this standard along with the underlying substance of our operations, management believes it will not have a material impact on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases, which aims to make leasing activities more transparent and comparable and requires substantially all leases be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases. The new guidelines are contained in Accounting Standards Codification ASC Topic 842 - Leases ("ASC 842"). This ASU is effective for all interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company applied this standard retrospectively on July 1, 2019 through a cumulative effect adjustment recognized as of July 1, 2019. In applying this standard, the Company elects to apply all practical expedients to not reassess the following:

Whether a pre-existing contract is or contain a lease

Whether a pre-existing lease should be classified as an operating or finance lease, and

Whether the initial direct costs capitalized for a pre-existing lease under the previously lease accounting standard ASC Topic 840 qualify for capitalization

As a result, the Company recorded its right-of-use assets and corresponding lease liabilities on its balance sheet beginning July 1, 2019.

Other recent accounting pronouncements issued by the FASB, the AICPA and the SEC did not or are not believed by management to have a material effect, if any, on the Company's financial statements.

NOTE H - RIGHT-OF-USE ASSETS AND LEASE LIABILITIES

Operating leases

In June 2015, the Company entered into a lease agreement to lease certain office equipment with a lease term of 63 months. The lease contains a renewal option to extend the term for successive one year periods. The Company is not reasonably certain that it will renew the lease when it expires. Initial rent amount was $1,079 per month, with increases each year no more than 3%. In applying ASC 842, the Company uses a lease term of 63 months and an incremental borrowing rate of 5.5% which was the borrowing rate on the Company’s line of credit with a financial institution with all accounts and general intangibles.

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

-12-

The following is information related to the Company’s right-of-use assets and liabilities for its operating leases:

ROU assets - operating leases obtained in exchange for lease liabilities - operating leases	$	73,719
Amortization of ROU assets for the 6 months ending March 31, 2020		(32,369	)
ROU assets - operating leases at March 31, 2020	$	41,350


Lease liabilities - operating leases on adoption date	$	80,659
Payments on lease liabilities		(34,793	)
Lease liabilities - operating leases on March 31, 2020		45,866
Lease liabilities - operating leases due in the 12 months ending March 31, 2021		42,771
Lease liabilities - operating leases due in the 12 months ending March 31, 2022	$	3,095

Variable lease expense was $11,666, for the three months ended March 31, 2020, respectively.

Weighted average remaining lease term was 1.23 years and weighted average discount rate was 5.5% at March 31, 2020.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

You should read the following discussion and analysis in conjunction with the unaudited Condensed Financial Statements and Notes thereto appearing elsewhere in this report.

This Report on Form 10-Q, including Management's Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements. When used in this report, the words "may," "will," "expect," "anticipate," "continue," "estimate," "project," "intend," "hope," "believe" and similar expressions, variations of these words or the negative of those words, and, any statement regarding possible or assumed future results of operations of the Company's business, the markets for its products, anticipated expenditures, regulatory developments or competition, or other statements regarding matters that are not historical facts, are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 regarding events, conditions and financial trends including, without limitation, business conditions in the skin and wound care market and the general economy, competitive factors, changes in product mix, production delays, product recalls, manufacturing capabilities, the impact of the COVID-19 pandemic on the Company’s sales, operations and supply chain, and other risks or uncertainties detailed in other of the Company's Securities and Exchange Commission filings. Such statements are based on management's current expectations and are subject to risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, the Company's actual plan of operations, business strategy, operating results and financial position could differ materially from those expressed in, or implied by, such forward-looking statements.

In fiscal 2019, the Company continued expanding its sales channel designed to reduce inventory costs while increasing access to AMERX full line of products, through existing markets. Amerx grew its Wound Care product line with the addition of Retention Tape and additional Bordered Foam sizes. The Helix Collagen line grew with the addition of a 7" x 7" Matrix pad.

In fiscal 2020, AMERX’s Extremit-Ease Compression Garment line expand with the introduction of a Tan version of the garment and matching liner. Extremit-Ease continues to gain momentum in the wound care, edema and lymphedema markets with plans to further expand the line in Fiscal 2020. The Amerx brand of wound care products expanded in Fiscal 2020 with new offerings in sizes available, for both the Amerx Foam and Calcium Alginate products.

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 but will be better known in the Quarter ending June 30th, 2020 and consequently in our Annual Report. We also felt the effects of the COVID-19 pandemic in our operations, as management dedicated substantial 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 Company's condensed consolidated financial statements have been prepared in accordance with standards of the Public Company Accounting Oversight Board (United States), which require the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosures. A summary of those significant accounting policies can be found in the Notes to the Consolidated Financial Statements included in the Company's annual report on form 10-K, for the year ended June 30, 2019, which was filed with the Securities and Exchange Commission on September 30, 2019. The estimates used by management are based upon the Company's historical experiences combined with management's understanding of current facts and circumstances. Certain of the Company's accounting policies are considered critical as they are both important to the portrayal of the Company's financial condition and the results of its operations and require significant or complex judgments on the part of management. We believe that the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements.

Accounts receivable allowance reflects a reserve that reduces our customer accounts and receivable to the net amount estimated to be collectible. The valuation of accounts receivable is based upon the credit-worthiness of customers and third-party payers as well as historical collection experience. Allowances for doubtful accounts are recorded as a selling, general and administrative expense for estimated amounts expected to be uncollectible from third-party payers and customers. The Company bases its estimates on its historical collection experience, current trends, credit policy and on the analysis of accounts by aging category. At March 31, 2020, and June 30, 2019, our allowance for doubtful accounts totaled $9,408 and $6,719, respectively.

The Company uses several forms of advertising, including sponsorships to agencies who represent the professionals in their respective fields. The Company expenses these sponsorships over the term of the advertising arrangements on a straight line basis. Other forms of advertising used by the Company include professional journal advertisements, distributor catalogs, website and mailing campaigns. These forms of advertising are expensed when incurred.

Deferred income taxes are recognized for the expected tax consequences in future years for differences between the tax bases of assets and liabilities and their financial reporting amounts, based upon enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. The Company accounts for income taxes under Topic 740 - Income Tax in the Accounting Standards Codification. A valuation allowance is used to reduce deferred tax assets to the net amount expected to be recovered in future periods. The estimates for deferred tax assets and the corresponding valuation allowance require us to exercise complex judgments. We periodically review and adjust those estimates based upon the most current information available. The Company had a valuation allowance of $171,381 and $171,381, respectively, as of March 31, 2020 and June 30, 2019 and a gross deferred tax asset of $322,798 and $379,662, respectively, for the same corresponding periods. Because the recoverability of deferred tax assets is directly dependent upon future operating results, actual recoverability of deferred tax assets may differ materially from our estimates.

The Company recognizes revenue in accordance with the Financial Accounting Standards Board's (FASB) release of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606) which requires that five basic criteria must be met before revenue can be recognized: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation.

Stock based compensation is accounted for in accordance with Topic 718 - Compensation - Stock Compensation in the Accounting Standards Codification. All share-based payments to employees, including grants of employee stock options, are to be recognized in the statement of operations based upon their fair values. Topic 718 rescinds the acceptance of pro forma disclosure.

As of March 31, 2020 the Company's principal sources of liquid assets included cash of $121,528, current inventories of $665,716, and net accounts receivable of $538,588. The Company also has $155,132 in Certificate of Deposits. The Company had net working capital of $1,372,151, and long-term debt of $3,095, at March 31, 2020.

During the nine months ended March 31, 2020 cash decreased from $290,287 as of June 30, 2019, to $121,528. Operating activities used cash of $110,415 during the period. Investing and Financing activities used cash of $22,370 and $35,974, respectively during the period.

The Company reflected a net non-current deferred tax asset of $151,417, at March 31, 2020. Because the recoverability of deferred tax assets is directly dependent upon future operating results, actual recoverability of deferred tax assets may differ materially from our estimates.

Net sales during the quarter ended March 31, 2020, were $1,139,115 as compared to the previous year's quarter net sales of $1,070,830, an increase of $68,285, or approximately 6%. We believe increased sales were driven by expansion of our distribution network partners, expansion into new markets and new customer sales of both existing and new products. Net sales during the nine months ended March 31, 2020, were $3,450,107 as compared to the previous year's period net sales of $3,075,918, an increase of $374,189, or approximately 12%. We believe increased sales were driven by expansion of our distribution network partners, expansion into new markets and new customer sales of both existing and new products.

Gross profit during the quarter ended March 31, 2020, was $850,614 as compared to $782,146 during the quarter ended March 31, 2019, an increase of $68,468 or 8%. As a percentage of net sales, gross profit was approximately 75% in the quarter ended March 31, 2020, and approximately 73% in the corresponding quarter in 2019. Gross profit during the nine months ended March 31, 2020, was $2,516,039 as compared to $2,243,042 during the nine months ended March 31, 2019, an increase of $272,997 or 12%. As a percentage of net sales, gross profit was approximately 73% in the nine months ended March 31, 2020, and approximately 73% in the corresponding period in 2019.

Operating expenses during the quarter ended March 31, 2020 were $783,835, consisting of $457,153 in salaries and benefits and $326,682 in selling, general and administrative expenses. This compares to operating expenses during the quarter ended March 31, 2019 of $694,953, consisting of $379,399 in salaries and benefits; and $315,554 in selling, general and administrative expenses. Expenses for the quarter ended March 31, 2020, increased by $88,882 or approximately 13% compared to the corresponding quarter in 2019. Salaries and Benefits increased as a result of new hires, increased salaries and commissions based on higher sales. Operating expenses also increased due to increases in marketing expenses and implementation costs associated with installing our new Enterprise Resource Planning (ERP) system software. Operating expenses during the nine months ended March 31, 2020 were $2,331,279, consisting of $1,267,860 in salaries and benefits and $1,063,419 in selling, general and administrative expenses. This compares to operating expenses during the nine months ended March 31, 2019 of $2,107,303, consisting of $1,112,133 in salaries and benefits; and $995,170 in selling, general and administrative expenses. Expenses for the nine months ended March 31, 2020, increased by $223,976 or approximately 10% compared to the corresponding period in 2019. Salaries and Benefits increased as a result of new hires, increased salaries and commissions based on higher sales. Operating expenses also increased due to increases in marketing expenses and implementation costs associated with installing our new ERP system software.

Operating profit decreased by $20,414 to an operating profit of $66,779 for the quarter ended March 31, 2020, as compared to an operating profit of $87,193 in the comparable quarter of the prior year. The decrease in net income for the three month period, of the comparable quarter of the prior year before income taxes was primarily attributable to the increase in salaries and benefits, attributed to the addition of two new employees, one in December (Sales) and one in January (Operations). Operating profit increased by $49,020 to an operating profit of $184,760 for the nine months ended March 31, 2020, as compared to an operating profit of $135,739 in the comparable period of the prior year. The increase in net income for the nine month period, of the comparable period of the prior year before income taxes was primarily attributable to the increases in sales.

Management of the Company, with the participation of the Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of the Company's disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as of the end of the period covered by this report. Based on that evaluation, management, including the Chief Executive and Chief Financial Officer, has concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were not effective in ensuring that all material information relating to the Company required to be disclosed in this report has been made known to management in a timely manner and ensuring that this information is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and regulations, because of the identification of a material weakness in our internal controls over financial reporting, identified below, which we view as an integral part of our disclosure controls and procedures.

As previously reported, our annual assessment of the internal controls over financial reporting as of June 30, 2019 revealed a deficiency that we consider to be a material weakness: inadequate segregation of duties consistent with control objectives.

During fiscal 2020, the Company will continue to address changes needed to improve segregation of duties consistent with control objectives. We have added staff to grow sales. We expect that increased sales will enable us to add support staff, specifically in the accounting and shipping departments. A secondary effect of adding more staff will address needed improvements in segregation of duties consistent with control objectives.

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, there unto duly authorized.

Inventories consisted of the following:	March 31, 2020		June 30, 2019

Finished Goods	$	613,719	$	448,395
Raw Materials		190,778		160,242
	$	804,497	$	608,637

//	10.1	Restated and Amended Executive Employment Agreement dated July1, between Justice W. Anderson, Procyon Corporation and AMERX Health Care Corporation.
//	10.2	Restated and Amended Executive Employment Agreement dated July1, between James B. Anderson, Procyon Corporation and AMERX Health Care Corporation.
//	10.3	Restated and Amended Executive Employment Agreement dated July1, between George O. Borak, Procyon Corporation and AMERX Health Care Corporation.
##	10.4	Restated and Amended Executive Employment Agreement dated January 9, between Regina W. Anderson, Procyon Corporation.
++	10.5	Business Line of Credit - Loan Agreement dated October 9, 2018.
##	10.6	Lease Agreement - Lease agreement dated may 29, 2015.
##	10.7	Addendum to Lease - Lease agreement effective February 1, 2018.
	31.1	Certification of Justice W. Anderson pursuant to Exchange Act Rule 13a-14(a)/15d-14(a)
	31.2	Certification of James B. Anderson pursuant to Exchange Act Rule 13a-14(a)/15d-14(a)
	32.1	Certification Pursuant to 18 U.S.C.§1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002
	101.1*	The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, formatted in XBRL (Extensible Business Reporting Language): (I) the Condensed Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) the Notes to Condensed Consolidated Financial Statements

	*	Furnished, not filed
	//	Incorporated by reference to the Company’s form 8-K filed on or about September 16, 2019.
	##	Incorporated by reference to the Company’s form 8-K filed on or about March 14, 2018.
	++	Incorporated by reference to the Company’s form 8-K filed on or about November 14, 2018.

	PROCYON CORPORATION
June 24, 2020	By:	/s/ JUSTICE W. ANDERSON
Date		Justice W. Anderson, Chief Executive Officer