FORM 10-KSB

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
(Mark One)
[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934     For the fiscal year ended June 30, 1998

                                       OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934  [NO FEE REQUIRED] for the transition period
      from _______________ to __________________

                         Commission file number 0-17449

                               PROCYON CORPORATION
                               -------------------
                 (Name of small business issuer in its charter)

               Colorado                                      36-0732690
               --------                                      ----------
     (State or other jurisdiction of                      (I.R.S. Employer
      incorporation or organization)                    Identification Number)


              1150 Cleveland Street, Suite 410
                    Clearwater, Florida                         34615
           --------------------------------------             ---------
          (Address of principal executive offices)           (Zip Code)


          Issuer's telephone number, including area code (813) 447-2998


           Securities registered pursuant to Section 12(b) of the Act:
                                      None

           Securities registered pursuant to section 12(g) of the Act:
                                  Common Stock

Check  whether  the  registrant  (1) filed all  reports  required to be filed by
Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports),  and (2) has been subject to such filing  requirements for the past 90
days. Yes   X     No 
          -----      -----

Check if disclosure  of delinquent  filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure  will be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB [ ]

State Issuer's revenues for its most recent fiscal year: $371,198

The  aggregate  market  value of the  1,176,455  shares of Common  Stock held by
non-affiliates  was $735,284 on September  30, 1998 based on the average bid and
asked price of $.625 on such date. As of September 30, 1998, 4,526,455 shares of
the issuer's Common Stock were outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE:

The  information  required by Part III of this annual report is  incorporated by
reference  to the  registrant's  definitive  proxy  statement  if filed with the
Commission on or before  October 28, 1998. If such proxy  statement is not filed
by such date, the information required by Part III of this annual report will be
filed with the  Commission  as an  amendment  to this Form 10-KSB under cover of
Form 10-KSB/A, not later than October 28, 1998.

Transitional Small Business Disclosure Format: Yes       No   X
                                                   -----    -----


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                                      INDEX


Title                                                                     Page


ITEM   1.    DESCRIPTION OF BUSINESS................................       3

ITEM   2.    DESCRIPTION OF PROPERTY................................       6

ITEM   3.    LEGAL PROCEEDINGS......................................       6

ITEM   4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....       6

ITEM   5.    MARKET FOR COMMON EQUITY AND  RELATED STOCKHOLDER
             MATTERS................................................       7

ITEM   6.    MANAGEMENT'S DISCUSSION AND ANALYSIS
             OR PLAN OF OPERATION...................................       8

ITEM   7.    FINANCIAL STATEMENTS...................................      12

ITEM   8.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
             ACCOUNTING AND FINANCIAL DISCLOSURE....................      13

ITEM   9.    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
             PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
             ACT ...................................................      14

ITEM 10.     EXECUTIVE COMPENSATION.................................      14

ITEM 11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
             MANAGEMENT.............................................      14

ITEM 12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.........      14

ITEM 13.     EXHIBITS AND REPORTS ON FORM 8-K.......................      14




<PAGE>



                                     Part I

ITEM     1.   BUSINESS

History and Organization

     Procyon   Corporation  (the  "Company"),   a  Colorado   corporation,   was
incorporated on March 19, 1987 and was deemed a development  stage company until
May 1996 when it acquired Amerx Health Care Corp. ("Amerx"), a corporation based
in Clearwater, Florida ("Amerx") which was wholly-owned by John C. Anderson. The
Company  acquired  Amerx  pursuant to an  Agreement  and Plan of  Exchange  (the
"Agreement") in which all of the issued and  outstanding  shares of Common Stock
of Amerx were acquired by the Company for 3,000,000  (post-split)  shares of the
Company's  Common Stock (the  "Exchange").  As a condition to the Exchange,  the
Company was  required  to effect a five for one reverse  split of its issued and
outstanding  shares of Common Stock. The reverse stock split was approved by the
Company's shareholders on April 15, 1996 and became effective as of May 8, 1996.
The Exchange was completed as of May 9, 1996.

     As a result of completing the Exchange,  the Company's business  operations
are conducted through its wholly-owned subsidiary,  Amerx, which was formed as a
Florida  corporation in 1993 to develop and market proprietary  medical products
used in the treatment of pressure ulcers, dermatitis,  inflammation, and various
other skin  problems.  Such  problems  are most common among  diabetics  and the
elderly,  particularly  residents  of long term  healthcare  facilities.  If not
treated promptly and effectively,  such skin problems can result,  in worst case
scenarios,  in  amputations,  particularly of lower  extremities.  The Company's
products are generally sold through  distributors  to health care  institutions,
such as nursing homes and home health care agencies, and to retailers, including
national and regional chain stores and pharmacies.

Products

     Amerx's products currently consist of Amerigel(TM) Ointment Wound Dressing,
Amerigel(TM)  Preventive Care Lotion and Amerigel(TM) Preventive Barrier Lotion.
The  Amerigel(TM)  Ointment  Wound  Dressing is  formulated to be used to manage
pressure  ulcers  stages  I-IV,  stasis  ulcers,   diabetic  skin  ulcers,  skin
irritations,  cuts and abrasions.  The  Amerigel(TM)  Preventive Care Lotion has
emollients  which  restore  moisture to fragile  skin;  protect the skin against
tears and chafing;  and assist in prevention  of chronic  pressure  ulcers.  The
Amerigel(TM)  Barrier Lotion provides  barrier  protection to reduce the harmful
effects of urine and feces in incontinent patients.  The Company also intends to
introduce a new  product  consisting  of two-inch  and  four-inch  square  gauze
sponges  saturated with the  Amerigel(TM)  Ointment Wound Dressing.  The sponges
have been developed for packing deep wounds, and are expected to improve healing
and keep the wound moist and clean.  The Company had planned to introduce  these
sponges  during  the  fiscal  year  ended June 30,  1998  ("fiscal  1998"),  but
postponed the  introduction  until the fiscal year ending June 30, 1999 ("fiscal
1999").

     Management  believes  that  each  Amerx  product  is based  on  proprietary
formulations which the Company attempts to protect as trade secret  information.
Each product is registered  with the Food and Drug  Administration  and has been
granted a National  Drug Code.  In  September  1998,  the  Company was granted a
Medicare  Part  B  HCPCS  Reimbursement  Code  ("Reimbursement  Code")  for  its
Amerigel(TM) Ointment Wound Dressing.  Products which carry a Reimbursement Code
qualify for Medicare  payments.  The Reimbursement Code granted to the Company's
product  does  not  designate  a  specific  reimbursement  fee  but  allows  for


                                       -3-

<PAGE>


reimbursement  under  the  general  wound  care  category.  Medicare  reimburses
providers  up to 80% of a  regionally  defined  amount  for  certain  wound care
products which have been granted a Reimbursement Code.  Management believes that
the grant of the Reimbursement  Code, even though it does not specify the amount
to be reimbursed,  will enhance  institutional sales to such entities as nursing
homes and home health care  agencies.  The Company is  considering a petition to
HCFA for an exception to the standard wound care listing and a request for a new
code specific to the Company's product. The Amerigel(TM)  Preventive Care Lotion
and the  Amerigel(TM)  Barrier  Lotion  are not  eligible  for  Medicare  Part B
reimbursement as they are formulated for preventive maintenance care and as skin
protectants.

Market for Skin Treatment Products

     Amerx products are generally sold to an  institutional  market and a retail
market. The institutional market is comprised of hospitals,  nursing homes, home
health care agencies and other health care institutions which provide wound care
to a large  number of  patients.  Based on a study of the  clinical and economic
impact  of  diabetic  neuropathy  published  by the  Health  Science  Institute,
management  believes  that  approximately  one out of five nursing home patients
suffers from chronic  pressure ulcers,  and that an estimated 5,000  amputations
per month are  performed  due to chronic skin wounds.  Management  believes that
Amerigel(TM)  products  represent an inexpensive,  yet effective,  treatment and
prevention program for chronic pressure ulcers and other skin problems which are
treated in health care  institutions.  The retail market for Amerx's products is
comprised  of mass  merchandise  stores  and  pharmacies  that sell  wound  care
products  to  individuals  for their own  personal  use  outside of health  care
facilities.  The Company plans to actively  develop  visibility for its products
with the American Diabetes Association in fiscal 1999.

Sales and Marketing

     The  Company's  sales  strategy is to contract  with  national and regional
distributors  capable  of selling  to the  retail  market and the  institutional
market.  The Company added Cardinal Health as a distributor  during fiscal 1998,
but it was not able to significantly broaden its distributor base,  particularly
to distributors in the institutional  market.  Sales to the institutional market
depend more heavily on the availability of a Reimbursement Code than do sales to
the retail market.  Management expects to gain additional distributors in fiscal
1999,  particularly  institutional  distributors,  as a result  of  obtaining  a
Reimbursement  Code for its  Amerigel(TM)  Ointment  Wound Dressing in September
1998.

     The Company's principal  distributors to the institutional market in fiscal
1998 included Gulf South, Cardinal Health, General Medical and Southland Medical
Supply.  Distributors sell the Company's products in the institutional market to
nursing homes, hospitals, and home health care organizations.

     The  Company's  principal  retail  distributors  during  fiscal  1998  were
McKesson Drug,  Amerisource  and Bergen  Brunswig.  To date,  products have been
distributed for sale primarily in the southeastern United States. In particular,
the  Company's  products are  presently  carried in certain Wal- Mart stores and
independent pharmacies, primarily in Florida.

     During   fiscal   1998,   retail  and   institutional   sales   represented
approximately 79% and 21%,  respectively,  of total net sales as compared to 54%
and 44%,  respectively,  during  fiscal  1997.  The increase in retail sales was


                                       -4-

<PAGE>


principally  a result of sales to one  distributor  for resale to a large retail
chain.  Management  expects  that  retail  sales will  continue to account for a
significant  percentage of total net sales, although it expects the recent grant
of a  Reimbursement  Code for its  Amerigel(TM)  Ointment  Wound  Dressing  will
improve institutional sales.

     Distributors  purchase  products from the Company on standard credit terms.
Product returns by distributors  are generally  permitted only on dated products
based upon a two year  expiration  date. The Company  supports its  distributors
through  product  literature,  selected  and  limited  advertising  and  limited
participation  at industry  trade shows.  All existing  distributors  sell Amerx
products on a non-exclusive basis. The Company has one direct sales employee who
engages in direct selling activities and supports the efforts of distributors in
his  territory.  The  Company  also  engages  a limited  number  of  independent
representatives.

Significant Customers

     During  fiscal  1998,  McKesson  Drug,  Amerisource,  Gulf South and Bergen
Brunswig accounted for 60.5%, 9.88%, 5.37% and 4.96%,  respectively,  of Amerx's
net sales.  McKesson Drug, Gulf South and DMC (a distributor from  approximately
December 1996 through April 1997) accounted for 14%, 13% and 40%,  respectively,
of Amerx's net sales during fiscal 1997. The Company expects that certain of its
principal  distributors,  such  as  McKesson,  may  continue  to  account  for a
significant  portion  of  net  sales.   Because  the  loss  of  any  significant
distributor  could  have an adverse  affect on the  Company's  future  operating
results  and  financial  condition,  the  Company  is  attempting  to reduce its
dependence on a limited number of  distributors  by  establishing  relationships
with  additional  distributors  who are capable of introducing and selling Amerx
products in new geographic markets and to additional retail chains.

Manufacturing

     All  manufacturing  and  packaging  activities  are  performed  pursuant to
current good manufacturing practices ("cGMP") as defined under the United States
Federal Food, Drug and Cosmetic Act, as amended, and the regulations promulgated
under such Act.  All  manufacturing  activities  are required to comply with the
product   specifications,   supplies  and  test   methods   developed  by  Amerx
specifically for its products, as well as the cGMP which apply to all activities
conducted by the manufacturer in the facility.

     In November 1997, Amerx negotiated an exclusive manufacturing contract with
Bausch & Lomb  Pharmaceuticals,  Inc., a  nationally-recognized  pharmaceuticals
manufacturer  that  operates  an FDA  approved  production  facility  in  Tampa,
Florida.  The  five-year  contract  commenced in January  1998.  The Company had
anticipated  that  its new  manufacturing  arrangements  would  provide  greater
assurance of product  availability,  enhance  quality  control,  and  eventually
reduce production costs and agreed to certain annual and quarterly minimum order
requirements in anticipation of increased sales to one distributor that supplies
a national  retail chain.  The Company has not met all of the quarterly  minimum
purchase  requirements  during the 1998  calendar  year and does not  anticipate
meeting the annual minimum purchase requirements  specified in the contract. The
manufacturer  has the  right to  impose  a 10% or 20%  price  adjustment  if the
annualized  volume is less than certain  specified minimum annual order amounts.
The Company intends to negotiate with the manufacturer  regarding  the  minimums

                                       -5-

<PAGE>



required  and  the  price  adjustment,  but  there  is  no  assurance  that  the
manufacturer will agree to concessions as to the minimum annual order amounts or
the implementation of price adjustments.

     One ingredient  contained in all of the Company's products is purchased and
shipped to the manufacturing  facility by Amerx, but all other raw materials are
provided by the  manufacturer.  Amerx does not have a written contract with this
supplier  and  believes  that  an  alternative  supplier  could  be  secured  if
necessary.

Research and Development

     In September  1997,  the Company  entered into a one year  contract  with a
research  laboratory to provide  services  ranging from  improvement of existing
products  to  development  of  new  products.  The  Company  paid  the  research
laboratory  a  monthly  fee of  $4,800  during  the term of the  agreement.  The
contract  provided  that the  Company  would issue an amount of shares of Common
Stock equal to $3,000 for any new product developed and marketed commercially as
a result of the research  conducted by the laboratory.  Management did not renew
the contract upon its expiration, but believes that the research and development
effort was successful in suggesting both  improvements to existing  products and
innovations which may lead to new product introductions in fiscal 1999.

Proprietary Rights

     The Company has filed a trademark  application  for the  Amerigel(TM)  mark
with the United States Patent and Trademark  Office.  The mark will be published
in October 1998 and if no opposition is filed by any person who believes he will
be damaged by the registration of the mark, a certificate of registration may be
issued.  The Company  relies on a  combination  of  trademark  and trade  secret
protection to establish and protect its proprietary rights.

Employees

     As of  September  30,  1998,  the  Company  had  six  full-time  employees,
consisting of one sales representative,  three management employees (two of whom
also  devote a  portion  of  their  time to sales  related  activities)  and two
administrative employees.

ITEM 2.  PROPERTIES

     The Company currently maintains its offices at 1150 Cleveland Street, Suite
410,  Clearwater,  Florida 33755. The Company's offices consist of approximately
2,400 square feet of space which is leased from an unrelated party. The annually
renewable  office  lease  requires  monthly  payments of  approximately  $2,100.
Management believes the facility is adequate for the Company's current needs.

ITEM 3.  LEGAL PROCEEDINGS

     No  material  legal  proceedings  to which the Company is party or to which
property of the Company is subject is pending and no such material proceeding is
known by management of the Company to be contemplated.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     No matter was  submitted to a vote of security  holders  during the quarter
ended June 30, 1998.

                                       -6-

<PAGE>



                                     Part II

ITEM 5.  MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCK MATTERS.

     The Company's  securities  were traded in the  over-the-counter  market and
were listed in the "pink  sheets"  published  by the National  Quotation  Bureau
Incorporated ("NQB") following the Company's public offering in December,  1988.
However,  from  approximately  June 1990  through  September  1996,  NQB did not
publish a quotation for the Company's securities and to the Company's knowledge,
there was extremely limited, if any, public trading in its securities.

     Since  October  1996,  the  Company's  Common  Stock has  traded on the OTC
Bulletin Board, an electronic  quotation  system used by members of the National
Association of Securities Dealers,  Inc. The following table sets forth for each
period  indicated the high and low closing bid prices for the Common  Stock,  as
reported by National Quotation Bureau,  LLC. Bid quotations reflect  interdealer
quotations,  without  retail  markups,  markdowns  or  commissions,  and  do not
necessarily reflect actual transactions.

         Fiscal 1997                                     High            Low
         -----------                                     ----            ---

         Second Quarter............................    $   2.25        $  2.25
         Third Quarter.............................    $   2.50        $   .75
         Fourth Quarter............................    $   3.50        $  1.875

         Fiscal 1998                                     High            Low
         -----------                                     ----            ---

         First Quarter.............................    $   3.75        $  2.00
         Second Quarter............................    $   2.125       $   .875
         Third Quarter.............................    $   1.125       $   .5625
         Fourth Quarter............................    $   1.125       $   .5625

     As of September 30, 1998 there were approximately 130 record holders of the
Company's Common Shares. The closing bid price of the Common Shares on September
30, 1998 was $.625.

     Holders of Common Stock are  entitled to receive  such  dividends as may be
declared by the Company's  Board of Directors.  No dividends on the Common Stock
have been paid by the Company,  nor does the Company  anticipate  that dividends
will be paid in the foreseeable future.

     As reflected in the price  quotations  above,  there have been  significant
price  fluctuations in the Company's Common Stock.  Factors that may have caused
or can cause  market  prices to  fluctuate  include  any  purchase  or sale of a
significant  number of shares during a relatively  short time period,  quarterly
fluctuations  in results  of  operations,  issuance  of  additional  securities,
entrance of such securities into the public float, market conditions specific to
the Company's industry and market conditions in general. In addition,  in recent
years the stock market in general has experienced  significant  price and volume
fluctuations.  These  fluctuations,  which  may be  unrelated  to the  operating
performance of specific  companies,  have had a substantial effect on the market
price for many small capitalization  companies such as the Company. Factors such
as those cited  above,  as well as other  factors  that may be  unrelated to the
operating  performance  of the Company,  may  adversely  affect the price of the
Common Stock.

                                       -7-

<PAGE>

Recent Sales of Unregistered Securities

     The  Company  sold  100,100,  678,000  and  594,000  shares of its Series A
Preferred Stock during fiscal 1998, 1997 and 1996,  respectively,  at a purchase
price of $1 per share.  The Company relied on Section 4(2) of the Securities Act
of 1933,  as amended (the "1933 Act") for the  exemption  from the  registration
requirements  of  the1933  Act.  Consequently,  these  securities  were were not
registered under the 1933 Act . All of the foregoing sales were made to officers
and  directors,  or to  individuals  or entities which had access to information
enabling  them to evaluate the merits and risks of the  investment  by virtue of
their  relationship  to officers and directors of the Company or their  economic
bargaining  power.  Each investor was furnished with information  concerning the
operations of the Company and each had the opportunity to verify the information
supplied.  Additionally,  the Company obtained a signed representation from each
of the foregoing  persons or entities of his or its intent to acquire the shares
for the purpose of investment  only,  and not with a view toward the  subsequent
distribution thereof.

     Holders of the Preferred Stock are entitled to receive,  as and if declared
by the Board of  Directors,  quarterly  dividends  at an annual rate of $.10 per
share.  Dividends  accrue  without  interest,  are  cumulative  from the date of
issuance  and are  payable  in  arrears  in cash or  common  stock,  when and if
declared by the Board of  Directors.  No dividends  had been declared or paid at
June 30, 1998 and dividends in arrears at such date total $257,875.

     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.
Such shares will mandatorily convert into one share of Common Stock at the close
of a public  offering  of  Common  Stock by the  Company  provided  the  Company
receives gross proceeds of at least  $1,000,000,  and the initial offering price
of the  Common  Stock sold in such  offering  is equal to or in excess of $1 per
share.  During  fiscal  1998,  holders  of  832,200  shares of  Preferred  Stock
converted their shares to Common Stock.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

General

     The continuing  operations and revenues of the Company consist primarily of
the operations of, and revenues  generated by, Amerx, the Company's wholly owned
subsidiary.  Amerx's  wound  care and skin  care  products,  marketed  under the
trademark Amerigel(TM),  are formulated to enhance the quality of skin and wound
care and to lower the  treatment  cost of those who  suffer  from wound and skin
care problems.

     The Company markets Amerigel(TM)  products to institutional  customers such
as nursing homes,  hospitals and home health  agencies and to retail  customers.
Institutional  sales are made either directly to the end user or through medical
supply  distributors.  Many  institutional  customers will not purchase directly
from the  manufacturer;  they will  purchase  products  only  through a national
distributor  who warehouses  the products and supplies the products  directly to
the customer.  Accordingly,  the Company's products must be in the distributor's
warehouse  in order for the Company to compete with other  manufacturers.  As of
June 30, 1998,  Amerx products were  available  through  McKesson  Drug,  Bergen


                                       -8-

<PAGE>



Brunswig, Cardinal Health, Amerisource, Gulf South and a number of smaller local
and regional distributors. Amerx reaches the retail consumer through some of the
same  distributors  or, in some cases,  through direct sales to the retail store
chain.

Results of Operations

     Comparison  of Fiscal  1998 to 1997.  Net  sales  during  fiscal  1998 were
$371,000 as compared to $216,000 in fiscal 1997, an increase of $155,637 or 72%.
The  increase  was  primarily  due  to  a  fourth   quarter  sales  to  McKesson
distribution centers to support a sales expansion in a major chain store. During
fiscal 1997, Amerx implemented certain changes to its distribution and marketing
strategy.  Prior to fiscal 1997,  Amerx relied  primarily on small  distributors
which  were  granted  the   exclusive   right  to  sell  products  in  specified
territories.  Such distributors focused largely on the institutional market. For
various  reasons,  including  the lack of a  Reimbursement  Code,  the exclusive
distributors were not able to achieve the sales levels desired by Amerx.  During
fiscal 1997, Amerx terminated its relationship  with  substantially  all of such
distributors and shifted its focus to national and regional  distributors  which
are capable of selling to the retail market as well as the institutional market.
As a result of these changes and in anticipation of the grant of a Reimbursement
Code  for its  Amerigel(TM)  Ointment  Wound  Dressing  in  early  fiscal  1998,
management  projected a significant increase in sales in fiscal 1998 in both the
retail market and the institutional market.

     The Company did not attain the  revenues for fiscal 1998 that it had sought
to attain for several reasons.  First, the Company did not foresee the extensive
lead time required to obtain appointments with buyers in the large retail chains
and accordingly,  planned expansion into the large retail chains was slower than
forecasted.  Second,  buyers for large  retail  chains  generally  identify  new
products  and  authorize  new  products  to be  placed on the  shelves  of their
respective  stores only one time each year and the Company was not successful in
obtaining shelf space  commitments for its products.  Third,  the Company lacked
the necessary  funds to sustain local  advertising  campaigns to increase  sales
more rapidly.  Management  believes that the experience it gained in fiscal 1997
and fiscal 1998 has set the stage for a more  successful  effort in retail sales
in fiscal 1999.

     The Company's  institutional  sales were relatively flat in fiscal 1998 due
in large  part to the  extensive  time  required  to  obtain a  Medicare  Part B
Reimbursement  Code.  Medicare  reimburses  providers  up to 80% of a regionally
defined  amount for  certain  wound  care  products  which  have been  granted a
Reimbursement  Code.  Medical  supply  distributors  not only supply  wound care
products to a  care-giving  facility,  such as a nursing  home,  but also submit
reimbursement  requests  for the  allowable  amount on that given  product.  The
Company  has  been  at  a  severe  competitive  disadvantage  in  marketing  its
Amerigel(TM)  Ointment  Wound  Dressing  because  it  had  not  been  granted  a
Reimbursement  Code.  Generally,  medical supply  distributors will not sell and
distribute wound care products for treating hard to heal wounds unless they have
been  granted  a  Reimbursement  Code.   Amerigel(TM)  Ointment  Wound  Dressing
currently  represents   approximately  64%  of  sales  by  the  Company,   while
Amerigel(TM)  Preventive Care Lotion and Amerigel(TM)  Preventive Barrier Lotion
represent 21% and 15%, respectively.

     During  fiscal 1998,  management  employed  five new direct sales people to
call on physicians,  pharmacists,  nurses and institutional facilities.  Four of
these sales people were located in Florida and one was located in Georgia. These
sales  people were  largely  ineffective  in selling  product to their  targeted
market,  primarily  due to the  lack of a  Reimbursement  Code and lack of broad
based  retail  distribution.  This direct  sales  strategy  also  increased  the
Company's expenses,  further impacting the Company's cash flow. As one component


                                       -9-

<PAGE>


of the Company's effort to implement cost reductions, the direct sales people in
Florida were  terminated  and sales expense were  reduced.  The results of these
reductions will be reflected in fiscal 1999.

     Gross profit during fiscal 1998 was $190,000 as compared to $119,000 during
fiscal  1997,  an increase of $71,000 or 60%. As a  percentage  of sales,  gross
profit was 51% in fiscal  1998 vs. 55% in fiscal  1997.  The  decrease in margin
reflects  increased  costs in production  from the new  manufacturer,  increased
costs in raw materials and some write-offs of expired inventory.

     Operating  expenses  during  fiscal  1998  were  $1,043,000  consisting  of
$535,000  in  salaries   and   benefits,   $460,000  in  selling,   general  and
administrative  expenses and $48,000 in research and development expenses.  This
represents  an increase in expenses of $223,000  over  expenses in fiscal  1997.
However,  as a percentage of net sales,  operating  expenses  during fiscal 1998
decreased to 281% as compared to 380% during  fiscal  1997.  The majority of the
increase in expenses was due to increased marketing personnel and an increase in
selling and marketing  expenses as discussed  above.  The Company did not expend
any funds for  research and  development  in fiscal 1997 as compared to research
and development  costs of $48,000 in fiscal 1998.  Management  believes that the
research and development  effort was successful in suggesting both  improvements
to existing products and innovations which may lead to new product introductions
in fiscal 1999.

     The  Company  incurred  a loss from  operations  of  $855,000  compared  to
$696,000 in fiscal 1997.  The increase in  operating  loss was due  primarily to
increased  operating  expenses  and  lower  margins.  Net loss  (after  dividend
requirements  for Preferred  Shares) was $841,000 during fiscal 1997 as compared
to $899,000 during fiscal 1998.

     As of June 30, 1998, the Company had a deferred tax asset of  approximately
$942,000  consisting  primarily of net operating losses.  The Company recorded a
valuation  allowance  equal to 100  percent  of the  deferred  tax  asset as the
Company was unable to  determine  that it more likely than not that the deferred
tax asset will be realized.  The  valuation  allowance  increased  approximately
$382,000 from fiscal 1997 to 1998.

Liquidity and Capital Resources

     As of June 30, 1998, the Company's  principal sources of liquidity included
cash and cash equivalents of approximately  $53,000,  inventories of $24,000 and
net accounts  receivable of $20,000.  The Company had also prepaid $94,000 under
its manufacturing  agreement for finished products which were not received until
fiscal 1999.  The Company had negative  working  capital of $266,000 and no long
term debt at June 30, 1998.

     During fiscal 1998,  cash and cash  equivalents  decreased  $282,000,  from
$335,000  to  $53,000,  whereas  in fiscal  1997 cash and cash  equivalents  had
increased by $45,000.  Operating  activities used cash of $625,000 during fiscal
1998 and  $647,000  during  fiscal 1997,  consisting  primarily of net losses of
$855,000 and $697,000  respectively.  Cash used in investing  activities  during
fiscal  1998 and 1997 was $5,000 and  $24,000,  respectively.  Cash  provided by
financing  activities  during  fiscal 1998 and 1997 was $348,000  and  $716,000,
respectively,  consisting  of $100,000 and $716,000,  respectively,  in proceeds
from the sale of Preferred Stock.


                                      -10-

<PAGE>



     At June 30, 1998 the Company had no commitments for capital expenditures.

     During fiscal 1998,  holders of 832,000 shares of Preferred Stock converted
their shares to Common Stock.

     The Company had deferred tax assets with a 100% valuation allowance at June
30, 1998. Management is not able to determine if it is more likely than not that
the deferred tax assets will be realized.

     The Company's  financial  statements  have been prepared  assuming that the
Company will continue as a going concern.  The Company has incurred losses since
its inception and has been dependent upon equity financing and shareholder loans
to fund working capital needs.  These conditions raise  substantial  doubt about
the Company's ability to continue as a going concern. The accompanying financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty. Management's plans for increasing revenues and reducing losses
include   continuing   activities  to  recruit  new  distributors  in  order  to
aggressively  sell  products  into the  retail  and  institutional  markets  and
developing  complementary new products.  Management also believes that the grant
of a  Reimbursement  Code for  Amerigel(TM)  Wound  Dressing will  significantly
enhance sales to the  institutional  market.  There can be no assurance that the
Company will be able to increase  its revenues or achieve a profitable  level of
operations.

Year 2000 Compliance

     The Company is cognizant of the issues associated with the programming code
in existing computer systems as the year 2000 approaches. The "Year 2000" issues
are the result of computer programs being written to use two digits, rather than
four, to define the  applicable  year.  Any of the Company's  programs that have
time-sensitive  software may recognize a date using "00" as the year 1900 rather
than the year  2000.  Systems  that do not  properly  recognize  date  sensitive
information could generate erroneous data or fail.

     The Company has conducted a comprehensive review of its computer systems to
identify  systems  that  could be  affected  by the  "Year  2000"  issue and has
developed an implementation plan to resolve issues discovered in its review. The
Company has also  confirmed  with its primary  vendors  that such vendors are or
will be Year 2000  compliant in sufficient  time to allow for testing and system
implementation before December 31, 1999.

     The Company  presently  believes that, with  modifications  to its existing
software and by converting  to certain new software,  the Year 2000 problem will
not pose significant  operational  problems for the Company's  computer systems.
The Company expect that such  modifications  and  conversions can be implemented
for approximately  $5,000 and that the Company will be fully Year 2000 compliant
by  June  1999.  The  Company  does  not  anticipate  that  any  other  material
expenditures will be necessary to achieve Year 2000 compliance.



                                      -11-

<PAGE>



Safe Harbor"  Statement under the Private  Securities  Litigation  Reform Act of
1995

     This Report on Form 10-KSB,  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,"  "believe"  and similar  expressions,  variations of these
words or the  negative of those word 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,  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.

Recent Accounting Pronouncements

     Please  refer to the  Summary of  Accounting  Policies - Recent  Accounting
Pronouncements in Note A in the accompanying financial statements.

ITEM 7.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Consolidated  Financial  Statements  as of June  30,  1998 and for the year
ended June 30, 1998 were audited by Giunta, Ferlita & Walsh, P.A., the Company's
independent  auditors,  as indicated in their report included  appearing at page
F-1.  Consolidated  Financial  Statements  as of June 30,  1997 and for the year
ended June 30, 1997 were audited by BDO Seidman,  LLP, the Company's independent
auditors  during  such  year,  as  indicated  in their  report  included  herein
appearing at page F-2.

                          INDEX TO FINANCIAL STATEMENTS
                             -----------------------
                                                                          Page

Report of Independent Certified Public Accountant......................   F-1

Report of Independent Certified Public Accountant......................   F-2

Balance Sheet - June 30, 1998..........................................   F-3

Statements of Operations - For the years ended
June 30, 1998 and 1997.................................................   F-4

Statements of Stockholders' Equity - For the years ended
June 30, 1998 and 1997.................................................   F-5

Statements of Cash Flows - For the years ended June 30, 1998 and 1997..   F-6

Notes to Financial Statements..........................................   F-7



                                      -12-

<PAGE>


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors
Procyon Corporation
Clearwater, Florida


We  have  audited  the  accompanying   consolidated  balance  sheet  of  Procyon
Corporation  and  subsidiary  as of June 30, 1998 and the related  statements of
operations,  stockholders' equity, and cash flows for the year then ended. These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position  of Procyon  Corporation  and
subsidiary  as of June 30, 1998 and the results of its  operations  and its cash
flows for the year then ended, in conformity with generally accepted  accounting
principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company will continue as a going concern. As more fully described in Note B, the
Company  has  incurred   significant   operating  losses  and  is  dependent  of
stockholder  loans and equity  financing to fund working  capital  needs.  These
conditions raise  substantial doubt about the Company's ability to continue as a
going  concern.  Management's  plans  are  described  in Note B.  The  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.




GIUNTA, FERLITA & WALSH, P.A.
Certified Public Accountants

September 24, 1998

                                      F-1


<PAGE>


               Report of Independent Certified Public Accountants



To the Directors and Stockholders
Procyon Corporation
Clearwater, Florida

We have audited the consolidated  balance sheet (not included herein) of Procyon
Corporation  and  Subsidiary  (the  "Company")  as of  June  30,  1997,  and the
accompanying related consolidated statements of operations, stockholders' equity
and cash  flows for the year then  ended.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of Procyon Corporation
and  subsidiary at June 30, 1997, and the results of its operations and its cash
flows for the year then ended in conformity with generally  accepted  accounting
principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company will continue as a going concern. As more fully described in Note 1, the
Company has incurred  significant  operating losses and is dependent upon equity
financing to fund working  capital needs.  These  conditions  raise  substantial
doubt about the Company's  ability to continue as a going concern.  Management's
plans in  regard  to  these  matters  are  described  in Note 1.  The  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.


                                                     BDO SEIDMAN, LLP


Denver, Colorado
September 11, 1997


                                      F-2



<PAGE>



PROCYON CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
June 30, 1998

ASSETS

CURRENT ASSETS
  Cash                                                              $    53,080
  Accounts receivable, less allowance
    of $34,252 for doubtful accounts                                     19,828
  Deposit on inventory                                                   93,913
  Inventories                                                            24,180
                                                                    -----------

            TOTAL CURRENT ASSETS                                        191,001

PROPERTY AND EQUIPMENT, less accumulated
    depreciation of $15,959                                              15,786

OTHER ASSETS                                                              2,056
                                                                    -----------

                                                                    $   208,843
                                                                    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable                                                  $   133,759
  Accrued salaries                                                      109,446
  Note payable to stockholder                                           213,316
                                                                    -----------

            TOTAL CURRENT LIABILITIES                                   456,521

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;
    1,341,000 shares issued and outstanding                           1,296,850
  Common stock, no par value, 80,000,000 shares
    authorized; 4,470,120 shares issued and outstanding               1,556,396
  Accumulated deficit                                                (3,100,924)
                                                                    -----------

                                                                       (247,678)
                                                                    -----------

                                                                    $   208,843
                                                                    ===========












The accompanying notes are an integral part of these financial statements.

                                       F-3


<PAGE>
PROCYON CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
Years Ended June 30,

                                                      1998             1997
                                                   -----------      -----------

NET SALES                                          $   371,198      $   215,561

COST OF SALES                                          181,250           96,951
                                                   -----------      -----------

GROSS PROFIT                                           189,948          118,610

OPERATING EXPENSES
  Salaries and benefits                                535,213          457,084
  Selling, general and administrative                  460,049          362,804
  Research and development                              48,122                0
                                                   -----------      -----------
                                                     1,043,384          819,888
                                                   -----------      -----------

LOSS FROM OPERATIONS                                  (853,436)        (701,278)

OTHER INCOME (EXPENSE)
  Interest income                                        4,770            8,401
  Interest expense                                      (2,570)          (4,434)
  Loss on sale of property and equipment                (4,223)               0
                                                   -----------      -----------
                                                        (2,023)           3,967
                                                   -----------      -----------

NET LOSS                                              (855,459)        (697,311)

Dividend requirements on preferred stock                43,120          144,009
                                                   -----------      -----------

Loss applicable to common stock                    $  (898,579)     $  (841,320)
                                                   ===========      ===========

Net loss per common share                          $     (0.22)     $     (0.23)
                                                   ===========      ===========

Weighted average number of common
  shares outstanding                                 4,167,761        3,637,920
                                                   ===========      ===========













The accompanying notes are an integral part of these financial statements.

                                       F-4


<PAGE>
PROCYON CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>

                                                    Preferred Stock                Common Stock              
                                                 ------------------------      -----------------------   Accumulated
                                                  Shares        Amount           Shares      Amount        Deficit         Total
                                                 ---------    -----------      ---------   -----------   -----------    -----------

<S>                                              <C>          <C>              <C>         <C>           <C>            <C>        
Balance, July 1, 1996                            1,355,000    $ 1,328,700      3,637,920   $   724,196   $(1,548,154)   $   504,742

  Stock issued in connection with
    private placements, net of
    stock issuance costs                           678,000        660,150              0             0             0        660,150

  Stock issued for services                          9,000          9,000              0             0             0          9,000

  Net loss                                               0              0              0             0      (697,311)      (697,311)
                                               -----------    -----------    -----------   -----------   -----------    -----------

Balance, June 30, 1997                           2,042,000      1,997,850      3,637,920       724,196    (2,245,465)       476,581

  Stock issued in connection with
    private placements, net of
    stock issuance costs                           100,100        100,100              0             0             0        100,100

  Stock issued for services                         31,100         31,100              0             0             0         31,100

  Conversion of preferred stock
    to common stock                               (832,200)      (832,200)       832,200       832,200             0              0

  Net loss                                               0              0              0             0      (855,459)      (855,459)
                                               -----------    -----------    -----------   -----------   -----------    -----------

Balance, June 30, 1998                           1,341,000    $ 1,296,850      4,470,120   $ 1,556,396   $(3,100,924    $  (247,678)
                                               ===========    ===========    ===========   ===========   ===========    ===========










The accompanying notes are an integral part of these financial statements.

                                                                 F-5
</TABLE>






<PAGE>
<TABLE>
<CAPTION>

PROCYON CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30,
                                                                                          1998               1997
                                                                                       ---------          ---------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                                    <C>                <C>       
  Net loss                                                                             $(855,459)         $(697,311)
  Adjustments to reconcile net loss to
    net cash used by operating activities:

    Depreciation                                                                           6,011              9,620
    Stock issued for services                                                             31,100              9,000
    Loss (gain) on sale of property and equipment                                          4,223             (1,500)
    Decrease (increase) in:
      Accounts receivable                                                                 35,727            (37,665)
      Inventory                                                                           48,177             36,290
      Prepaid expenses                                                                   (48,535)            (4,378)
      Other assets                                                                          (789)                 0
    Increase (decrease) in:
      Accounts payable, trade                                                             83,747              1,819
      Accrued salaries                                                                    70,974             37,337
                                                                                       ---------          ---------
                                                             NET CASH USED BY
                                                         OPERATING ACTIVITIES           (624,824)          (646,788)

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of property and equipment                                                      (7,133)            (5,948)
  Proceeds from disposal of property and equipment                                         2,000                  0
  Advances to employees and stockholder                                                        0            (18,000)
                                                                                       ---------          ---------
                                                             NET CASH USED BY
                                                         INVESTING ACTIVITIES             (5,133)           (23,948)

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from issuance of preferred stock                                              100,100            715,850
  Proceeds from loan from stockholder                                                    266,316                  0
  Repayments on loan from stockholder                                                    (53,000)                 0
  Repayment of advances to employees and stockholder                                      34,500                  0
                                                                                       ---------          ---------
                                                         NET CASH PROVIDED BY
                                                         FINANCING ACTIVITIES            347,916            715,850
                                                                                       ---------          ---------

                                              NET INCREASE (DECREASE) IN CASH           (282,041)            45,114

CASH AT BEGINNING OF PERIOD                                                              335,121            290,007
                                                                                       ---------          ---------

                                                        CASH AT END OF PERIOD          $  53,080          $ 335,121
                                                                                       =========          =========












The accompanying notes are an integral part of these financial statements.

                                                       F-6
</TABLE>


 
<PAGE>


PROCYON CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS

NOTE A - SUMMARY OF ACCOUNTING

Business Activity
-----------------

Procyon  Corporation  and its wholly owned  subsidiary,  Amerx Health Care Corp.
("Amerx") manufacturer and market wound care and skin care products primarily in
the United States and is actively seeking foreign market distribution.

Principles of Consolidation
---------------------------

The  consolidated   financial   statements   include  the  accounts  of  Procyon
Corporation and its wholly owned  subsidiary,  Amerx. All material  intercompany
accounts and transactions are eliminated.

Use of Estimates
----------------

The preparation of financial  statements in conformity  with generally  accepted
accounting principles 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.

Concentrations of Credit Risk
-----------------------------

Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of cash, cash equivalents and accounts receivable.
The Company  places its cash and cash  equivalents  in what it  considers  to be
highly-rated  financial  institutions and while at times such amounts may exceed
federally  insured limits,  the Company has not experienced any losses from such
amounts.  Concentrations of credit risk with respect to accounts  receivable are
limited due to a broad customer base and generally short payment terms.

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.

Inventories
-----------

Inventories are valued at the lower of weighted average cost or market.

Property and Equipment
----------------------

Property  and  equipment  are  stated at cost.  Depreciation  is  computed  on a
straight-line basis over the estimated useful lives of the assets of five years.

Revenue Recognition
-------------------

Revenue is recognized upon the shipment of finished merchandise to customers.


Advertising and Promotion
-------------------------

All costs associated with advertising and promoting products are expensed in the
year  incurred.  Advertising  and  promotion  expense  was  $100,146 in 1998 and
$34,011 in 1997.


                                       F-7

<PAGE>


PROCYON CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS


Research and Development
------------------------

Research  and  development  costs  consist  of  expenditures  incurred  aimed at
discovery of new knowledge  which will be useful in  developing  new products or
enhancing existing  products.  The Company expenses all research and development
costs as they are incurred. Research and development cost was $48,122 in 1998.

Income Taxes
------------

The Company  accounts for income taxes under  Statement of Financial  Accounting
Standards  No. 109 ("SFAS  No.  109").  Temporary  differences  are  differences
between the tax basis of assets and  liabilities  and their reported  amounts in
the financial  statements  that will result in taxable or deductible  amounts in
future years.

Net Loss Per Share
------------------

Net loss per share is based on the weighted average number of shares outstanding
during each period  presented.  Outstanding  stock rights are included as common
stock equivalents, when dilutive.

Fair Value of Financial Instruments
-----------------------------------

The carrying value of cash, accounts receivable,  deposits,  inventory, accounts
payable,  and accrued expenses  approximate fair value.  Note payable to related
party is discussed in Note E.

Considerable  judgement is necessarily  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.

Recent Accounting Pronouncements
--------------------------------

In June 1997,  "FASB" issued Statement of Financial  Accounting  Standard No 130
'Reporting Comprehensive Income (SFAS.-130)and Statement of Financial Accounting
Standard  No. 131  'Disclosure  about  Segments  of an  Enterprise  and  Related
Information  ('SFAS  131').  SFAS 130  establishes  standards  for reporting and
display of  comprehensive  income,  its  components  and  accumulated  balances.
Comprehensive  income is defined to include all changes in equity  except  those
resulting from investments by owners and  distributions  to owners.  Among other
disclosures, SFAS 130 requires that all items that are required to be recognized
under current  accounting  standards as components  of  comprehensive  income be
reported in a financial  statement  that  displays  with the same  prominence as
other  financial   statements.   SFAS  131  supersedes  Statement  of  Financial
Accounting  Standard  No. 14  'Financial  Reporting  for  Segments of a Business
Enterprise.'  SFAS 131  establishes  standards of the way that public  companies
report information about operating  segments in annual financial  statements and
requires  reporting of selected  information about operating segments in interim
financial  statements  issued to the public.  It also establishes  standards for
disclosures  regarding  products  and  services,   geographic  areas  and  major
customers.  SFAS 131 defines operating segments as components of a company about
which separate financial  information is available that is evaluated,  regularly
by the chief operating  decision maker in deciding how to allocate resources and
in assessing performance.


                                       F-8

<PAGE>


PROCYON CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS

SFAS  130 and  SFAS 131 are  effective  for  financial  statements  for  periods
beginning  after  December  15, 1997 and  require  comparative  information  for
earlier years to be restated. Because of the recent issuance of these standards,
management has been unable to fully  evaluate the impact,  if any, the standards
may have on future financial  statement  disclosures.  Results of operations and
financial  position,  however,  will be  unaffected by  implementation  of these
standards.


NOTE B - GOING CONCERN

As reflected in the accompanying financial statements, the Company has a deficit
in stockholders' equity of $247,678 at June 30, 1998 and has incurred net losses
of  $855,459  and  $697,311  for the years  ended  June 30,  1998 and  1997.  In
addition,  net cash used in  operations  was $624,824 and $646,788 for the years
ended June 30, 1998 and 1997. These conditions raise substantial doubt about the
Company's  ability  to  continue  as  a  going  concern.   Such  operating  cash
deficiency,  has been funded  through  proceeds  from  private  preferred  stock
offerings  and loans from the major  stockholder,  the  continuance  of which is
uncertain.

Management  plans to meet its operating cash  requirements  by increasing  sales
volume. When the Company has significant losses over the past few years - it has
met its  obligations  and has established  good working  relationships  with its
vendors.  The ultimate  results of these  efforts  cannot be  determined  at the
present tune. The financial statements do not include any adjustments that might
be necessary if the Company is unable to continue as a going concern.


NOTE C - INVENTORIES

Inventories consisted of the following:

                                                       June 30,
                                                         1998
                                                    --------------
          Finished Goods                             $       7,097
          Raw Materials                                     17,083
                                                    --------------
                                                     $      24,180
                                                    ==============


NOTE D - RELATED PARTY TRANSACTIONS

At June 30, 1998, the majority stockholder of the Company was owed $213,316 on a
non-interest bearing note due June 30, 1999, collateralized by all the assets of
the  Company.  Advances  on this note  during  fiscal  year ended June 30,  1998
totaled $266,316 which was used to fund operations.


NOTE E - COMMITMENTS AND CONTINGENCIES

Operating Leases
----------------

The Company leases office space and certain  equipment  under  operating  leases
expiring at various dates through 2001. Rent expense under these  agreements was
approximately  $36,000  and  $34,900 for the years ended June 30, 1998 and 1997.
Future minimum rentals under the operating  leases for the years ending June 30,
are as follows:


           1999                              $     22,920
           2000                                     4,041
           2001                                     4,041
                                             ------------
                                             $     31,002
                                             ============



                                       F-9

<PAGE>


PROCYON CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS

Research Contract
-----------------

In  September  1997,  the  Company  entered  into a  contract  with  a  research
laboratory to provide  services  ranging from  revision of existing  products to
development of new products.  The contract is for one year with monthly payments
of $4,800.  The contract also provides for stock incentives for each new product
developed and taken to market.


NOTE F - STOCKHOLDER'S 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 June
30,  1998,  no  dividends  have  been  declared.  Dividends  in  arrears  on the
outstanding  preferred  shares total $257,875 as of June 30, 1998. The preferred
stockholders  have the right to convert  each share of Series A Preferred  Stock
into one share of the  Company's  common  stock at any time  without  additional
consideration.  However,  each share of Series A  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  Preferred  Stock will have  equal  voting  rights as the common
stockholders  based  upon the  number of shares of common  stock  into which the
Series A 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 Preferred Stock.


NOTE G - INCOME TAXES AND AVAILABLE CARRYFORWARDS

The  Company's  deferred  tax asset at June 30, 1998  consists  primarily of net
operating  loss   carryforwards   which,   after  the  tax  effect,   amount  to
approximately  $942,000. The Company has recorded a valuation allowance equal to
100 percent of the  deferred  tax asset as the  Company was unable to  determine
that it is more likely than not that the  deferred  tax asset will be  realized.
The valuation allowance increased  approximately  $382,000 from June 30, 1997 to
1998. At June 30, 1998,  for income tax purposes,  the Company had net operating
loss carryforwards of approximately $2,380,000 which expire through 2013.


NOTE H - MAJOR CUSTOMERS AND SUPPLIER

During the year ended June 30, 1998, two individual customers accounted for 61%,
and 10% of the Company's net sales.  During the year ended June 30, 1997,  three
individual customers accounted for 42%, 15% and 14% of the Company's net sales.

The  Company's  manufacturing  and  packaging  activities  are  performed  at  a
production  facility  owned  and  operated  by  a  nonaffiliated  pharmaceutical
manufacturer.  The Company does not have written contracts with the suppliers of
raw materials.



                                      F-10

<PAGE>


PROCYON CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS


NOTE I - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid for interest for the years ended June 30, 1998 and 1997 was $2,570 and
$4,434.

Non-cash investing and financing activities consisted of the following:


Years Ended June 30,                                1998                1997
--------------------                            -------------      -------------
                                 
Preferred stock issued for
 subscription receivable                        $         -        $    41,000
Preferred stock issued for services             $      31,100      $       -
Conversion of Series A Preferred Stock
 to Common Stock                                $     832,200      $       -
Reduction of trade accounts payable as
 consideration for sale of equipment            $      10,281      $       -


                                      F-11

<PAGE>



ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON  ACCOUNTING AND
         FINANCIAL DISCLOSURE.

     The Company has not  reported  any  disagreement  with its  auditors on any
matter of accounting  principles or practices or financial statement disclosure.
BDO Seidman,  LLP reported on the  financial  statements  of the Company for the
fiscal year ended June 30, 1997. The report of BDO Seidman, LLP on the financial
statements for such year contained no adverse opinion, disclaimer of opinion and
was not  modified  as to  uncertainty,  audit  scope or  accounting  principles,
however, the report for such year contained an explanatory  paragraph related to
the Company's  ability to continue as a going  concern.  On August 21, 1998, the
Company engaged Giunta,  Ferlita & Walsh,  P.A. as the principal  accountants to
audit the  Company's  financial  statements  for the fiscal  year ended June 30,
1998.




                                      -13-

<PAGE>



                                    PART III

ITEM  9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
           PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT OF
           THE REGISTRANT.

ITEM 10.   EXECUTIVE COMPENSATION.

ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The Company will file a definitive  Proxy Statement  pursuant to Regulation
14A for its annual meeting of shareholders.  The information called for by Items
9 through 12 above will be included in such definitive Proxy Statement, which is
incorporated  herein by reference.  If such  definitive  Proxy  Statement is not
filed with the  Commission  within  120 days  after the end of the  fiscal  year
covered by this  report,  then the  information  required  by such items will be
filed as an amendment to this report before the end of such 120-day period.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits
    --------

     1. The  financial  statements  filed  herewith  are  listed in the Index to
Financial Statements included in Item 7.

     2. The Financial Data Schedule is filed herewith.  The remaining  documents
set forth below have been  included as  exhibits  to previous  filings  with the
Securities  and  Exchange   Commission  and  are  incorporated  herein  by  this
reference:

                                                                       Reg. S-B
Exhibit No.             Document                                       Item No.
-----------             --------                                       --------


     *   3.1      Articles of Incorporation                                3

     +   3.1.1    Articles of Amendment to Articles of Incorporation       3

     *   3.2      Bylaws                                                   3

     +   4.1      Designation of Series A Preferred Stock                  4

     +   10.4     Loan and Security Agreement, dated as of
                  January 1, 1995, by and between the Company and
                  Amerx Health Care Corp., including
                  Promissory Notes issued thereunder.                     10



                                      -14-

<PAGE>



     o   10.4     Agreement and Plan of Exchange, dated
                  January 31, 1996, by and
                  between the Company and Amerx.                          10

     x   10.5     Agreement, dated November 21, 1998, by and
                  between Amerx and Bausch
                  & Lomb Pharmaceuticals, Inc.                            10

     x   27.1     Financial Data Schedule                                 27

------------------

*    Incorporated by reference to the Company's Registration Statement on
     Form S-1, S.E.C. File No. 33-13273.

**   Incorporated  by reference to the Company's  Form 10-KSB for the fiscal
     year ended June 30, 1989.

+    Incorporated  by reference to the  Company's  Form 10-KSB for the fiscal
     year ended June 30, 1995.

o    Incorporated by reference to the Company's Form 8-K filed on or about
     February 2, 1996.

x    Filed herewith.

------------------

(b)  Reports on Form 8-K
     -------------------

     The  Company  did not file any  reports on Form 8-K during the  quarter
     ended June 30, 1998.

                                      -15-



<PAGE>




                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                               PROCYON CORPORATION


                           By:   /s/ John C. Anderson
                               -------------------------------------------------
                               John C. Anderson, President and acting Principal
                               Executive, Financial and Accounting Officer

Date:    October 12, 1998

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.

      Signature                   Title                              Date
      ---------                   -----                              ----

                              President and Acting
                              Principal Executive, Financial
  /s/ John C. Anderson        and Accounting Officer            October 12, 1998
--------------------------
John C. Anderson


  /s/ Chester L. Wallack      Director                          October 12, 1998
--------------------------
Chester L. Wallack


  /s/ Fred W. Suggs, Jr.      Director                          October 12, 1998
--------------------------
Fred W. Suggs, Jr.


   /s/ Alan B. Crane          Director                          October 12, 1998
--------------------------
Alan B. Crane





                                      -16-

<PAGE>

                                  EXHIBIT INDEX




     Exhibit No.             Document                                  Item No.
     -----------             --------                                 --------


     *   3.1      Articles of Incorporation                               3

     +   3.1.1    Articles of Amendment to Articles of Incorporation      3

     *   3.2      Bylaws                                                  3

     +   4.1      Designation of Series A Preferred Stock                 4

     +   10.4     Loan and Security Agreement, dated as of
                  January 1, 1995, by and between
                  the Company and Amerx Health Care Corp.,
                  including Promissory Notes issued thereunder.          10

     o   10.4     Agreement and Plan of Exchange, dated
                  January 31, 1996, by and between the
                  Company and Amerx.                                     10

     x   10.5     Agreement, dated November 21, 1998, by and
                  between Amerx and Bausch
                  & Lomb Pharmaceuticals, Inc.                           10

     x   27.1     Financial Data Schedule                                27

*    Incorporated by reference to the Company's Registration Statement on
     Form S-1, S.E.C. File No.33-13273.

**   Incorporated  by reference to the Company's Form 10-KSB for the fiscal year
     ended June 30, 1989.

+    Incorporated  by reference to the Company's  orm 10-KSB for the fiscal year
     ended June 30, 1995.

o    Incorporated by reference to the Company's Form 8-K filed on or about
     February 2, 1996.

x    Filed herewith.