General
You should read the following discussion and analysis in conjunction with the
unaudited Condensed Financial Statements and Notes thereto appearing elsewhere
in this report.
This Report on Form 10-Q, including Management's Discussion and Analysis of
Financial Condition and Results of Operations, contains forward-looking
statements. When used in this report, the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend," "hope," "believe" and
similar expressions, variations of these words or the negative of those words,
and, any statement regarding possible or assumed future results of operations of
the Company's business, the markets for its products, anticipated expenditures,
regulatory developments or competition, or other statements regarding matters
that are not historical facts, are intended to identify forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 regarding events, conditions
and financial trends including, without limitation, business conditions in the
skin and wound care market and the general economy, competitive factors, changes
in product mix, production delays, product recalls, manufacturing capabilities,
the 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.
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Recent Developments
In fiscal 2021 and 2022 to date, management has expanded on the services and
options the Company provides for its customers. A new website for the
Extremit-Ease product was created and is operational (www.extremitease.com).
Management is also working on new Business to Customer (B to C) channels to
provide retail customers better opportunities to purchase our products. The
Company also expanded its facilities in January 2021, moving into approximately
18,000 square feet of office and warehouse space. This move brought the Company
back under a single roof. This has already proven to be very beneficial to our
operations. In fiscal 2020, AMERX's Extremit-Ease Compression Garment line
expanded with the introduction of a Tan version of the garment and matching
liner.
Impact of COVID-19 on Our Business
The financial effects of the COVID-19 pandemic 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.
Updating the effects of COVID-19 on our business, currently we have seen
fluctuations in our market due to the latest Omicron variant of the COVID-19
virus. The virius's presence has caused patients to continue to cancel
appointments and the medical market to restrict access to elective surgeries. We
continue to monitor operations, and are still implementing policies and
procedures to keep all our employees as safe as possible. Management does not
believe it will truly be able to assess the affects of COVID-19 at this time or
in the future, with any certainty.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's condensed consolidated financial statements have been prepared in
accordance with standards of the Public Company Accounting Oversight Board
(United States), which require the Company to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
the related disclosures. A summary of those significant accounting policies can
be found in the Notes to the Consolidated Financial Statements included in the
Company's annual report on Form 10-K, for the year ended June 30, 2021, which
was filed with the Securities and Exchange Commission on October 8, 2021, and as
contained in the amendment of the Company's annual report on Form 10-K/A, as
filed with the Securities and Exchange Commission on November 12, 2021, which
contain certain restatements to the June 30, 2021 financial statements. 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.
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Accounts Receivable Allowance
Accounts receivable allowance reflects a reserve that reduces our customer
accounts and receivable to the net amount estimated to be collectible. The
valuation of accounts receivable is based upon the credit-worthiness of
customers and third-party payers as well as historical collection experience.
Allowances for doubtful accounts are recorded as a selling, general and
administrative expense for estimated amounts expected to be uncollectible from
third-party payers and customers. The Company bases its estimates on its
historical collection experience, current trends, credit policy and on the
analysis of accounts by aging category. At March 31, 2022, and June 30, 2021,
our allowance for doubtful accounts totaled $13,569 and $9,408, respectively.
Advertising and Marketing
The Company uses several forms of advertising, including sponsorships to
agencies who represent the professionals in their respective fields. The Company
expenses these sponsorships over the term of the advertising arrangements on a
straight line basis. Other forms of advertising used by the Company include
professional journal advertisements, distributor catalogs, website and mailing
campaigns. These forms of advertising are expensed when incurred.
Deferred Income Taxes
Deferred income taxes are recognized for the expected tax consequences in future
years for differences between the tax bases of assets and liabilities and their
financial reporting amounts, based upon enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to affect
taxable income. The Company accounts for income taxes under Topic 740 - Income
Tax in the Accounting Standards Codification. A valuation allowance is used to
reduce deferred tax assets to the net amount expected to be recovered in future
periods. The estimates for deferred tax assets and the corresponding valuation
allowance require us to exercise complex judgments. We periodically review and
adjust those estimates based upon the most current information available. The
Company had a valuation allowance of $31,960 as of March 31, 2022 and $0 as of
June 30, 2021, respectively. Because the recoverability of deferred tax assets
is directly dependent upon future operating results, actual recoverability of
deferred tax assets may differ materially from our estimates.
Revenue Recognition
The Company recognizes revenue in accordance with the Financial Accounting
Standards Board's (FASB) release of Accounting Standards Update (ASU) 2014-09,
Revenue from Contracts with Customers (Topic 606) which requires that five basic
criteria must be met before revenue can be recognized: (1) identify the contract
with a customer; (2) identify the performance obligations in the contract; (3)
determine the transaction price; (4) allocate the transaction price to the
performance obligations in the contract, and (5) recognize revenue when (or as)
the entity satisfies a performance obligation.
Stock Based Compensation
Stock based compensation is accounted for in accordance with Topic 718 -
Compensation - Stock Compensation in the Accounting Standards Codification. All
share-based payments to employees, including grants of employee stock options,
are to be recognized in the statement of operations based upon their fair
values. Topic 718 rescinds the acceptance of pro forma disclosure.
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FINANCIAL CONDITION
As of March 31, 2021 the Company's principal sources of liquid assets included
cash of $809,985, inventories of $883,708, and net accounts receivable of
$378,294. The Company also has $281,041 in Certificate of Deposits. The Company
had net working capital of $2,047,771, and long-term lease liability of
$530,918, at March 31, 2022.
During the nine months ended March 31, 2022 cash decreased from $1,226,522 as of
June 30, 2021, to $809,985. Operating activities used cash of $239,924 during
the period. Investing activities used cash of $60,029. Financing activities used
cash of $116,584.
The Company reflected a net non-current deferred tax asset of $119,150, at March
31, 2022. Because the recoverability of deferred tax assets is directly
dependent upon future operating results, actual recoverability of deferred tax
assets may differ materially from our estimates.
RESULTS OF OPERATIONS
Comparison of the three and nine months ended March 31, 2022 and 2021.
Net sales during the quarter ended March 31, 2022, were $1,112,498 as compared
to the previous year's quarter net sales of $1,033,498, an increase of $79,000,
or approximately 8%. We believe increased sales were driven by increases in our
customer base, as well as current customers taking advantage of new program
offerings. Net sales during the nine months ended March 31, 2022, were
$3,633,111 as compared to the previous year's period net sales of $3,454,147, an
increase of $178,964, or approximately 5%. We believe increased sales were
driven by increases in our customer base, as well as current customers taking
advantage of new program offerings.
Gross profit during the quarter ended March 31, 2022, was $828,210 as compared
to $746,890 during the quarter ended March 31, 2021, an increase of $81,320 or
11%. As a percentage of net sales, gross profit was approximately 74% in the
quarter ended March 31, 2022, and approximately 72% in the corresponding quarter
in 2021. The increase in gross profit as a percentage of sales was a result, of
shifting of sales in our different channels. Gross profit during the nine months
ended March 31, 2022, was $2,608,706 as compared to $2,504,648 during the nine
months ended March 31, 2021, an increase of $104,058 or 4%. As a percentage of
net sales, gross profit was approximately 72% in the nine months ended March 31,
2022, and approximately 73% in the corresponding period in 2021.
Operating expenses during the quarter ended March 31, 2022 were $970,847,
consisting of $550,017 in salaries and benefits and $420,830 in selling, general
and administrative expenses. This compares to operating expenses during the
quarter ended March 31, 2021 of $742,748, consisting of $407,290 in salaries and
benefits; and $335,458 in selling, general and administrative expenses. Expenses
for the quarter ended March 31, 2022, increased by $228,099 or approximately 31%
compared to the corresponding quarter in 2021. Salaries and Benefits increased
as a result of hiring additional sales staff and operations staff, as well as
increased salaries driven by the current economies of the available workforce.
Operating expenses increased primarily due to increases in marketing expenses
and distribution fees associated with a new customer. Operating expenses during
the nine months ended March 31, 2022 were $2,739,319, consisting of $1,486,738
in salaries and benefits and $1,252,581 in selling, general and administrative
expenses. This compares to operating expenses during the nine months ended March
31, 2021 of $2,179,082, consisting of $1,234,012 in salaries and benefits; and
$945,070 in selling, general and administrative expenses. Expenses for the nine
months ended March 31, 2022, increased by $560,237 or approximately 26% compared
to the corresponding period in 2021. Salaries and Benefits increased as a result
of hiring additional sales staff and operations staff, as well as increased
salaries driven by the current economies of the available workforce. Operating
expenses increased primarily due to increases in marketing expenses,
distribution fees associated with a new customer, and rent expense from our new
offices.
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Operating profit decreased by $146,729 to an operating loss of $142,587 for the
quarter ended March 31, 2022, as compared to an operating profit of $4,142 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, marketing expenses
and rent associated with our new offices. Operating profit decreased by $456,179
to an operating loss of $130,613 for the nine months ended March 31, 2022, as
compared to an operating profit of $325,566 in the comparable nine months of the
prior year. The decrease in net income for the nine month period, of the
comparable nine month's of the prior year before income taxes was primarily
attributable to the increase in salaries, marketing expenses and rent associated
with our new offices.
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PROCYON CORPORATION 
