NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity
Procyon Corporation has two wholly-owned subsidiaries, AMERX Health Care Corp. (AMERX) and Sirius Medical Supply, Inc. (Sirius). AMERX manufactures and markets wound and skin care products primarily in the United States whereas Sirius previously marketed diabetic supplies primarily to Medicare patients in the United States. As previously reported, in July 2009, we sold substantially all of the assets of Sirius to a third party, such that, as of July 31, 2009, Sirius no longer has any material operations. Management is considering various options for the future direction of Sirius.
Principles of Consolidation
The consolidated financial statements include the accounts of Procyon Corporation and its wholly-owned subsidiaries, AMERX and Sirius. All material inter-company accounts and transactions are eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For the purpose of the Statements of Cash Flows, the Company considers cash-on-hand, demand deposits in banks and highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Concentration of Credit Risk
The Company maintains its cash at various financial institutions. All noninterest-bearing transaction accounts are fully insured by the Federal Deposit Insurance Corporation, regardless of the balance of the account, at all insured institutions. At June 30, 2020 and 2019, our uninsured cash balance was $334,265 and $0, respectively.
Revenue Recognition
The Company recognizes revenue in accordance with the Financial Accounting Standards Board's (FASB) release of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606) which requires that five basic criteria must be met before revenue can be recognized: (1) identify the contract with customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation.
Accounts Receivable and Concentration of Credit Risk
AMERX grants credit to customers, most of whom are national pharmaceutical distributors, drug stores nationwide and physicians. AMERX wholesales its products to national pharmaceutical distributors and drug stores at a sales term of 2/10, net 30 days. AMERX has a written return policy with its customers. Each return request is reviewed by management for approval. Sales to physicians are at contracted rates and standard payment term is 2/10 net 30 days.
The valuation of accounts receivable is based upon the credit-worthiness of customers as well as historical collection experience. Estimating the credit worthiness of customers and recoverability of customer accounts requires us to exercise considerable judgment. Allowances for doubtful accounts are recorded as a selling, general and administrative expense for estimated amounts expected to be uncollectible from third-party payers and customers. The Company bases its estimates on its historical collection and write-off experience, current trends, credit policy, and on analysis of accounts receivable by aging category. As of June 30, 2020 and 2019, accounts receivable allowance was approximately $9,400 and $6,700, or less than 3% and 2% respectively of gross accounts receivable.
Inventories
Inventories are valued at the lower of average cost or market determined by the first-in, first-out method. A portion of inventory is included in non-current inventory. The non-current balance represents product that will most likely not be used within the next 12 months. A majority of this inventory comes from minimum economic level orders necessary to produce product at a reasonable cost.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed on a straight-line basis over their estimated useful lives. Leased equipment is recorded at it’s fair market value at the beginning of the lease term and is depreciated over the life of the equipment. Depreciation on leased equipment is included in depreciation expense.
Deferred Income Taxes
Deferred income taxes are recognized for the expected tax consequences in future years for differences between the tax bases of assets and liabilities and their financial reporting amounts, based upon exacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. The Company accounts for income taxes under Topic 740 - Income Tax in the Accounting Standards Codification. A valuation allowance is used to reduce deferred tax assets to the net amount expected to be recovered in future periods. The estimates for deferred tax assets and the corresponding valuation allowance require us to exercise complex judgments. We periodically review and adjust those estimates based upon the most current information available. We have a valuation allowance of $144,619 as of June 30, 2020. We had a valuation allowance of $171,381 as of June 30, 2019.
Fair Value of Financial Instruments
The carrying value of cash, accounts receivable, prepaid expenses, deposits, inventory, accounts payable and accrued expenses approximate fair value.
Considerable judgement is required in interpreting market data to develop the estimates of fair value, and accordingly, the estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange.
Shipping and Handling Costs
Shipping and handling costs incurred were approximately $157,000 and $128,000 for the years ended June 30, 2020, and 2019, 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, 2020 and 2019, approximately $400,000 and $576,000, of advertising and marketing costs were included in selling, general and administrative expenses for each respective year.
Stock Based Compensation
The Company maintained the Procyon Corporation 2009 Stock Option Plan (the "2009 Option Plan"), which expired on December 8, 2019. The 2009 Option Plan was approved by the Company's shareholders on December 8, 2009.
The 2009 Option Plan provided for the granting of incentive stock options, non-qualified stock options, and stock appreciation rights ("SARs") to eligible officers, directors, employees and consultants of the Company and its subsidiaries. The 2009 Option Plan is administered by the Compensation Committee. The Board of Directors has authorized the issuance of 500,000 shares of common stock to underlie the granting of incentive stock options and 500,000 shares of common stock to underlie the granting of non-qualified stock options and SARs under the 2009 Option Plan. The Board issued 250,000 shares of common stock to underlie Non-Qualified Stock Options, on September 27, 2016, effective June 30, 2016. However, 40,000 Options to purchase common stock were awarded to Justice Anderson pursuant to his employment agreement effective July 1, 2016 and 25,000 Options to purchase common stock were awarded to Justice Anderson pursuant to his employment agreement effective July 1, 2017. These Options will expire ten years after their respective grant dates. As of June 30, 2020, no other stock options or other awards have been granted under the 2009 Option Plan. The 1,000,000 shares of common stock that have been reserved for the 2009 Option Plan (250,000 recently issued for Non-Qualified Stock Options) have not been registered under the Securities Act of 1933.
Eligible participants under the 2009 Option Plan must be such full or part-time officers and other employees, non-employee directors and key persons (including consultants and prospective employees) of the Company and its Subsidiaries as are selected from time to time by the Compensation Committee in its sole discretion. Only employees may receive incentive stock options. Employees, non-employee directors and consultants may receive non-qualified stock options or SARs. No stock options or SARs have been granted under the 2009 Option Plan.
Non-Qualified Stock Options granted under the 2009 Option Plan many have a term of not more than ten years from the date of grant. The exercise price must be not less than 100% of the fair market value of the underlying common stock on the date of grant. Incentive Stock Options can be granted under the 2009 Option Plan for a term not exceeding ten years, except for Ten Percent Owners of our common stock, as defined in the Plan, for whom the maximum option term is five years. Incentive Stock Options are granted with an exercise price of not less than 100% of the fair market value of the underlying common stock on the date of grant. However, for Incentive Stock Options owned by Ten Percent Owners, the exercise price must be 110% of the Fair Market Value of the underlying stock on the date of grant.
The fair value of a stock option is determined using the Black-Scholes option-pricing model, which values options based on the stock price at the grant date, the expected life of the option, the estimated volatility of the stock, the expected dividend payments, and the risk-free interest rate over the life of the option.
The Black-Scholes option valuation model was developed for estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Because option valuation models require the use of subjective assumptions, changes in these assumptions can materially affect the fair value of the options. Our options do not have the characteristics of traded options, therefore, the option valuation models do not necessarily provide a reliable measure of the fair value of our options.
Agreements to grant 40,000 and 25,000 Options to purchase common stock were executed and delivered to Justice Anderson, pursuant to his executive employment agreements, on September 27, 2016 and August 23, 2017, respectively, but with grant dates of June 30, 2016 and June 30, 2017, respectively. Equity instruments issued to non-employees in exchange for goods, fees and services are accounted for under the fair value-based method of Accounting Standards Codification Topic 718 - Compensation - Stock Compensation (“Topic 718").
Additional information with respect to stock option activity is as follows:
|
|
Number of
Shares
|
|
|
Weighted Average
Exercise Price
|
|
Outstanding at June 30, 2018
|
|
|
65,000
|
|
|
$
|
0.15
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Cancelled
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding at June 30, 2019
|
|
|
65,000
|
|
|
$
|
0.15
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Cancelled
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding at June 30, 2020
|
|
|
65,000
|
|
|
$
|
0.15
|
|
Options exercisable at June 30, 2019
|
|
|
65,000
|
|
|
$
|
0.17
|
|
Options exercisable at June 30, 2020
|
|
|
65,000
|
|
|
$
|
0.17
|
|
Net Income Per Common Share
The Company computes net income per share in accordance with Accounting Standards Codification Topic 260 - Earnings per Share (Topic 260). Topic 260 requires presentation of both basic and diluted earnings per shares (EPS) on the face of the income statement. Basic EPS is computed by dividing net income available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options, using the treasury stock method, and convertible preferred stock, using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive.
Subsequent Events
We have evaluated subsequent events through October 1, 2020, which is the date the financial statements were available to be issued.
NOTE B - INVENTORIES
Inventories consisted of the following:
|
|
|
June 30, 2020
|
|
|
|
June 30, 2019
|
|
Finished Goods
|
|
$
|
645,039
|
|
|
$
|
448,395
|
|
Raw Materials
|
|
|
197,289
|
|
|
|
160,242
|
|
|
|
$
|
842,328
|
|
|
$
|
608,637
|
|
At June 30, 2020 and 2019, respectively, $83,812 and $123,204 of our inventory was considered non-current as it will not be used within a one year period.
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
As of June 30, 2020
|
|
|
Owned
|
|
|
|
Capitalized Leases
|
|
|
|
Total
|
|
Office Equipment
|
|
$
|
178,404
|
|
|
$
|
11,364
|
|
|
$
|
189,768
|
|
Furniture and Fixtures
|
|
|
40,304
|
|
|
|
|
|
|
|
40,304
|
|
Software
|
|
|
26,021
|
|
|
|
|
|
|
|
26,021
|
|
Leasehold improvements
|
|
|
95,329
|
|
|
|
|
|
|
|
95,329
|
|
Production Equipment
|
|
|
25,452
|
|
|
|
|
|
|
|
25,452
|
|
Building
|
|
|
492,559
|
|
|
|
|
|
|
|
492,559
|
|
Land
|
|
|
64,547
|
|
|
|
|
|
|
|
64,547
|
|
|
|
|
922,616
|
|
|
|
11,364
|
|
|
|
933,980
|
|
Less accumulated depreciation
|
|
|
(469,761
|
)
|
|
|
(11,364
|
)
|
|
|
(481,125
|
)
|
|
|
$
|
452,855
|
|
|
$
|
0
|
|
|
$
|
452,855
|
|
Depreciation expense was $53,942 for the year ended June 30, 2020.
As of June 30, 2019
|
|
Owned
|
|
|
Capitalized Leases
|
|
|
Total
|
|
Office Equipment
|
|
$
|
163,288
|
|
|
$
|
11,364
|
|
|
$
|
174,652
|
|
Furniture and Fixtures
|
|
|
33,347
|
|
|
|
|
|
|
|
33,347
|
|
Software
|
|
|
60,754
|
|
|
|
|
|
|
|
60,754
|
|
Leasehold Improvements
|
|
|
95,329
|
|
|
|
|
|
|
|
95,329
|
|
Production Equipment
|
|
|
24,577
|
|
|
|
|
|
|
|
24,577
|
|
Building
|
|
|
492,559
|
|
|
|
|
|
|
|
492,559
|
|
Land
|
|
|
64,547
|
|
|
|
|
|
|
|
64,547
|
|
|
|
|
934,401
|
|
|
|
11,364
|
|
|
|
945,765
|
|
Less accumulated depreciation
|
|
|
(445,941
|
)
|
|
|
(11,364
|
)
|
|
|
(457,305
|
)
|
|
|
$
|
488,460
|
|
|
$
|
0
|
|
|
$
|
488,460
|
|
Depreciation expense was $52,646 for the year ended June 30, 2019.
In 2016, the Company leased certain equipment under agreements classified as a capital lease through January 31, 2019. The annual rent is $3,788. The asset and liability under the capital lease is recorded at the lower of the present value of the minimum lease payments or the fair market value of the asset. The equipment is depreciated over the lower of its related lease terms or its estimated productive life. Depreciation of the equipment under the capital lease is included in depreciation expense for the years ended June 30, 2020 and 2019.
NOTE D - INTANGIBLE ASSETS
On June 30, 2017, the Company acquired the formulation of its care lotion from its manufacturer for $17,000. The Company has determined that this asset has an indefinite useful life and therefore is not being amortized, but instead will be tested for impairment at least annually in accordance with the provisions of FASB ASC 350, Intangibles - Goodwill and Other.
NOTE E - ACCRUED EXPENSES
Accrued expenses consist of the following at June 30, 2020 and 2019.
|
|
2020
|
|
|
2019
|
|
Accrued Payroll
|
|
$
|
119,756
|
|
|
$
|
116,282
|
|
Accrued Paid Time Off
|
|
|
31,094
|
|
|
|
29,923
|
|
Accrued Professional Fees
|
|
|
49,278
|
|
|
|
44,901
|
|
Accrued Incentive Plan
|
|
|
51,746
|
|
|
|
27,660
|
|
Accrued Lease Liabiity
|
|
|
33,750
|
|
|
|
-
|
|
Other
|
|
|
3,842
|
|
|
|
9,724
|
|
Total
|
|
$
|
289,466
|
|
|
$
|
228,490
|
|
NOTE F - LINE OF CREDIT
In fiscal 2019, the Company entered into a new line of credit with a limit of $250,000 from a different financial institution. At June 30, 2020 and June 30, 2019, the Company owed $0 on this line of credit.
Interest expense for the years ended June 30, 2020 and 2019 was $0 and $0, respectively.
The line of credit is guaranteed by Justice W. Anderson, President and Chief Executive Officer.
NOTE G - PAYCHECK PROTECTION PROGRAM LOAN
The Company applied for a loan with the Small Business Administration (the "SBA") Paycheck Protection Program ("PPP") of the Coronavirus Aid, Relief and Economic Security Act of 2020 (the "CARES Act") in the amount of $201,000 (the "Loan"). The Loan was funded on April 13, 2020. The Company 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 a promissory note (the "Note"), has a two-year term, matures on April 13, 2022, and bear interests at a rate of 1.00% per annum. Monthly principal and interest payments, less the amount of any potential forgiveness (discussed below), will commence seven months from the date the Note was signed and funded. The Company did not provide any collateral or guarantees for the Loan, nor did they pay any facility charge to obtain the Loan. The Note provides for customary events of default, including, among others, those relating to failure to make payment, bankruptcy, breaches of representations and material adverse effects. The Company may prepay the principal of the Loan at any time without incurring any prepayment charges.
The Loan may be forgiven partially or fully if the Loan proceeds are used for covered payroll costs, rent and utilities, provided that such amounts are incurred during the eight-week period that commenced on April 13, 2020. Any forgiveness of the Loan will be subject to approval by the SBA and will require the Companies to apply for such treatment.
Principal payments of $57,028 and $143,972 are due during the year ended June 30, 2021 and 2022, respectively.
NOTE H - COMMITMENTS AND CONTINGENCIES
The Company leases warehouse office space under operating leases expiring through year 2021. Lease expenses for the fiscal years ended June 30, 2020 and 2019 were $29,193 and $54,259, respectively. The minimum lease payments due under the lease agreements for fiscal years ended June 30, are as follows:
NOTE I - STOCKHOLDERS’ EQUITY
During January 1995, the Company's Board of Directors authorized the issuance of up to 4,000,000 shares of Series A Cumulative Convertible Preferred Stock. The preferred stockholders are entitled to receive, if declared by the board of directors, quarterly dividends at an annual rate of $.10 per share of Series A Cumulative Convertible Preferred Stock per annum. Dividends accrue without interest and are cumulative from the date of issuance of the Series A Cumulative Convertible Preferred Stock and are payable quarterly in arrears in cash or publicly traded common stock when and if declared by the board of directors. As of June 30, 2020, no dividends have been declared. Dividends in arrears on the outstanding preferred shares total $387,306 or approximately $2.32 per share as of June 30, 2020. So long as any shares of Series A Preferred Stock are outstanding, the Company is prohibited from declaring dividends or other distributions related to its Common Stock or purchasing, redeeming or otherwise acquiring any of the Common Stock.
The preferred stockholders have the right to convert each share of Series A Cumulative Convertible Preferred Stock into one share of the Company's common stock at any time without additional consideration. Each share of Series A Cumulative Convertible Preferred Stock is subject to mandatory conversion into one share of common stock of the Company, effective as of the close of a public offering of the Company's common stock provided, however, that the offering must provide a minimum of $1 million in gross proceeds to the Company and the initial offering price of such common stock must be at least $1 per share. In addition to the rights described above, the holders of the Series A Cumulative Convertible Preferred Stock have voting rights equal to the common stockholders based upon the number of shares of common stock into which the Series A Cumulative Convertible Preferred Stock is convertible. The Company is obligated to reserve an adequate number of shares of its common stock to satisfy the conversion of all of the outstanding Series A Cumulative Convertible Preferred stock.
Share-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest. As share-based compensation expense recognized in the statement of operations is based on awards ultimately expected to vest, it can be reduced for estimated forfeitures. The ASC topic Stock Compensation requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The share based compensation charged against income for the periods ended June 30, 2020 and 2019 was $0 and $0 respectively.
NOTE J - EARNINGS PER SHARE
As required by Accounting Standards Codification Topic 260 - Earnings per Share (“Topic 260"), the following table sets forth the computation of basic and diluted earnings per share:
|
|
Years Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
111,658
|
|
|
$
|
27,224
|
|
Adjustment for basic earnings per share:
|
|
|
|
|
|
|
|
|
Dividend requirements on preferred stock
|
|
|
(16,710
|
)
|
|
|
(16,960
|
)
|
Numerator for basic earnings per share- Net income available to common stockholders
|
|
$
|
94,948
|
|
|
$
|
10,264
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Numerator for diluted earnings per share- Net income available to common stockholder
|
|
$
|
94,948
|
|
|
$
|
10,264
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share- Weighted-average common shares
|
|
|
8,087,388
|
|
|
|
8,087,388
|
|
Effect of dilutive securities: Stock options
|
|
|
65,000
|
|
|
|
65,000
|
|
Weighted-average Dilutive potential common shares
|
|
|
167,100
|
|
|
|
167,100
|
|
Denominator for dilutive earnings per share- Adjusted weighted-average shares and assumed conversions
|
|
|
8,319,488
|
|
|
|
8,319,488
|
|
Basic Net Income per share
|
|
$
|
0.01
|
|
|
$
|
0.00
|
|
Diluted Net Income per share
|
|
$
|
0.01
|
|
|
$
|
0.00
|
|
NOTE K - INCOME TAXES AND AVAILABLE CARRYFORWARD
As of June 30, 2020, the Company had consolidated income tax net operating loss ("NOL") carryforward for federal income tax purposes of approximately $1,132,000. The NOL will expire in various years ending through the year 2035.The utilization of certain of the loss carryforwards are limited under Section 382 of the Internal Revenue Code.
The components of the provision for income taxes expenses are attributable to continuing operations as follows:
|
|
Year ended June
30, 2020
|
|
|
Year ended June
30, 2019
|
|
Current
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
Deferred
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(40,109
|
)
|
|
$
|
(59,730
|
)
|
State
|
|
|
(8,298
|
)
|
|
|
(12,359
|
)
|
|
|
$
|
(48,407
|
)
|
|
$
|
(72,089
|
)
|
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
|
|
$
|
286,965
|
|
Accrued compensated absences
|
|
|
7,881
|
|
Accrued bonus
|
|
|
13,115
|
|
Allowance for doubtful accounts
|
|
|
2,384
|
|
|
|
|
310,345
|
|
Deferred tax (liabilities):
|
|
|
|
|
Excess of tax over book depreciation
|
|
|
(5,852
|
)
|
Total deferred tax (liabilities)
|
|
|
(5,852
|
)
|
Net deferred tax asset (liability)
|
|
|
304,493
|
|
Valuation Allowance
|
|
|
(144,619
|
)
|
Net deferred tax asset
|
|
$
|
159,874
|
|
The change in the valuation allowance is as follows:
June 30, 2020
|
|
$
|
(144,619
|
)
|
June 30, 2019
|
|
|
(171,381
|
)
|
|
|
$
|
26,761
|
|
The Company has approximately $106,000 of net operating losses that permanently expired on June 30, 2020. As a result, the Company reduced its deferred tax asstes and valuation allowance by $26,761. In addition, management believes it is more likely than not that the tax benefit of approximately $529,000 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 $144,619 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.
Income taxes for the years ended June 30, 2020 and 2019 differ from the amounts computed by applying the effective income tax rates of 25.35% to income before income taxes as a result of the following:
|
|
2020
|
|
|
2019
|
|
Expected benefit (provision) at US statutory rate
|
|
$
|
(33,613
|
)
|
|
$
|
(20,856
|
)
|
State income tax net of federal benefit (provision)
|
|
|
(6,955
|
)
|
|
|
(4,315
|
)
|
Nondeductible expense
|
|
|
(6,412
|
)
|
|
|
(5,827
|
)
|
Change in estimates of losses carryforward
|
|
|
(29,328
|
)
|
|
|
(563
|
)
|
Change in valuation allowance
|
|
|
26,761
|
|
|
|
(37,513
|
)
|
Other
|
|
|
1,140
|
|
|
|
(3,015
|
)
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense)
|
|
$
|
(48,407
|
)
|
|
$
|
(72,089
|
)
|
The earliest tax year still subject to examination by taxing jurisdictions is fiscal year June 30, 2017.
The Company performed a review of its uncertain tax positions in accordance with Accounting Standards Codification ASC 740-10 "Uncertainty in Income Taxes". In this regard, an uncertain tax position represents the Company's expected treatment of a tax position taken in a filed tax return, or planned to be taken in a future tax return, that has not been reflected in measuring income tax expense for financial reporting purposes.
During the year ended June 30, 2020, the Company obtained a $201,000 loan from the Small Business Administration (“SBA”) Paycheck Protection Program as a result of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") enacted by Congress in response to the COVID-19 pandemic. Under the program, any loan forgiveness would be excluded from the borrower's taxable income. The Internal Revenue Service published IRS Notice 2020-32, denying a borrower's ability to deduct the same expenses that qualify for the loan forgiveness. Since Congress intended for the loan forgiveness under the program to be tax-free. This IRS Notice reverses that position and eliminates any benefit intended from the program. The American Institute of Certified Public Accountants and other industry groups have written a letter to Congress to urge Congress to reverse the IRS Notice because it goes against the intention of the CARES Act.
In addition, the Small Business Administration continues to revise its rules under the program in consultation with the Department of Treasury. Lenders also have urged Congress to take additional actions regarding the program to allow for additional funding and streamlining the forgiveness process for loans under certain amount.
As a result of the opposition from businesses on the IRS Notice and the continually changing landscape of the program, the Company considered the expenses that qualify for loan forgiveness as deductible expenses when accounting for its tax provision for the year ended June 30, 2020.
NOTE L - CONCENTRATION OF SUPPLY RISK
The Company's manufacturing and packaging activities are performed at a production facility owned and operated by a non-affiliated pharmaceutical manufacturer. At the present time, the manufacturer is the major source of the Company’s wound care products. The sudden loss or failure of this manufacturer could significantly impair AMERX’s ability to fulfill customer orders on a short-term basis and therefore, could materially and adversely affect the Company’s operations. However, the Company has maintained a long-term relationship with this manufacturer and does not expect a discontinuance of its wound care products from the manufacturer in the near term. The Company has also opened relationships with other manufactures to address supply risk.
There were no back orders as of June 30, 2020 and 2019, respectively, due to the timely receipt of product from the manufacturer.
NOTE M - MAJOR CUSTOMER
During the year ended June 30, 2020 or 2019, no sales from customers accounted for more then 10% of AMERX’s sales.
NOTE N - RESEARCH AND DEVELOPMENT
AMERX incurred $23,093 and $33,140 during the years ended June 30, 2020 and 2019, respectively, towards research and development efforts. These efforts were directed towards additional studies aimed at expanding existing markets, correcting issues with FDA compliance and manufacturing.
NOTE O - PANDEMIC HEALTH ISSUE
At the time of release of these financial statements, the United States 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.
NOTE P - RECENT ACCOUNTING PRONOUNCEMENTS
In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting, which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. It is effective prospectively for the annual period ending June 30, 2019 and interim periods within that annual period. Early adoption is permitted. The Company is currently evaluating the effect that ASU No. 2017-09 will have on its consolidated financial statements and related disclosures.
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. The Company is currently evaluating the effect that ASU No. 2016-13 will have on its consolidated financial statements and related disclosures.