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, 1999

                                       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                                      33755
          -------------------                                      -----
(Address of principal executive offices)                         (Zip Code)

          Issuer's telephone number, including area code (727) 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: $292,685

The aggregate market value of the 1,705,955 shares of Common Stock held by
non-affiliates was $852,978 on September 30, 1999 based on the average bid and
asked price of $.50 on such date. As of September 30, 1999, 5,762,155 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, 1999. 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, 1999.

Transitional Small Business Disclosure Format: Yes   No X

<PAGE>


                                      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



                                       2
<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 which was wholly-owned by John C. Anderson. Since that
acquisition, the Company's business operations have been conducted solely
through Amerx, a Florida corporation formed 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. Historically, the Company's products have been 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(R) Ointment Wound Dressing,
Amerigel(R) Preventive Care Lotion and Amerigel(R) Preventive Barrier Lotion.
The Amerigel(R) 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(R) 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(R) Barrier Lotion provides barrier protection to reduce the harmful
effects of urine and feces in incontinent patients. The Company also expects to
introduce new products in fiscal 2000 provided the funds necessary to
manufacture and advertise these new products becomes available. One of proposed
products consists of two-inch and four-inch square gauze sponges saturated with
the Amerigel(R) 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 other currently proposed new products are an acne cream and
a facial scrub. The Company intends to commence product testing on those
products during the first half of fiscal 2000.

     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 receives a
National Drug Code. In September 1998, the Company was granted a Medicare Part B
HCPCS Reimbursement Code ("Reimbursement Code") for its Amerigel(R) Ointment
Wound Dressing, which allows it to qualify for Medicare reimbursements. The
Amerigel(R) Preventive Care Lotion and the Amerigel(R) Barrier Lotion are not
eligible for Medicare Part B reimbursement as they are formulated for preventive
maintenance care and as skin protectants. Amerigel(R) Ointment Wound Dressing
currently represents approximately 79% of sales by the Company, while
Amerigel(R) Preventive Care Lotion and Amerigel(R) Preventive Barrier Lotion
represent 16% and 5%, respectively.

                                       3
<PAGE>


Market for Skin Treatment Products

     The institutional market for skin treatment products 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(R) 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 Company
sought a Medicare Reimbursement Code for its Amerigel(R) Ointment Wound Dressing
because 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 obtaining the Reimbursement Code, even though it does
not specify the amount to be reimbursed and requires case by case approval,
enhances the offering of Amerigel(R) Ointment Wound Dressing to institutional
entities such as nursing homes and home health care agencies.

     The retail market for skin care products is comprised mainly of mass
merchandise stores and pharmacies that sell such products to individuals for
their own personal use outside of health care facilities. The Company's products
are presently sold retail in certain Wal-Mart stores primarily in the
southeastern United States, certain independent pharmacies, primarily in
Florida, and in Eckerd Drug stores nationally. Recently, the Company initiated a
direct response program and is now making direct retail sales to individual
consumers.

Sales and Marketing

     The Company's principal channel of distribution has been through
distributors. The Company's principal distributors to the institutional market
in fiscal 1999 included Bindley Western Drug, Gulf South, Cardinal Health,
General Medical and Southland Medical Supply. The Company's principal retail
distributors during fiscal 1999 were McKesson Drug, Amerisource and Bergen
Brunswig. During fiscal 1999, retail and institutional sales represented
approximately 76% and 24%, respectively, of total net sales as compared to 79%
and 21%, respectively, during fiscal 1998. Management expects that retail sales
will continue to account for a significant percentage of total net sales,
although it is currently seeking an institutional sales manager to develop and
implement a new marketing plan to increase sales in the institutional market.

     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, advertising and limited participation at industry
trade shows. All existing distributors sell Amerx products on a non-exclusive
basis.

     As indicated above, the Company recently initiated a direct response
program for retail consumer sales which gives individual consumers the
opportunity to purchase the Company's skin care products directly from the
Company.

     The Company has also periodically received inquiries about foreign market
distribution. These inquiries have been generated by the Company's advertising,
market presence and web sites (www.amerxch.com and www.amerigel.com). The
Company responds to and pursues all such inquiries.

                                       4
<PAGE>


Significant Customers

     During fiscal 1999, McKesson Drug, Eckerd Drug, Gulf South and Bergen
Brunswig accounted for approximately 44%, 10%, 7% and 5%, respectively, of
Amerx's net sales. In fiscal 1998, McKesson Drug, Amerisource, Gulf South and
Bergen Brunswig accounted for approximately 61%, 10%, 5% and 5%, respectively,
of Amerx's net sales. The Company expects that certain of its principal
distributors, such as McKesson Drug, or individual customers, such as Eckerd
Drug, may continue to account for a significant portion of net sales, so the
loss of any significant distributor or customer could have an adverse affect on
the Company's future operating results and financial condition. The Company has
been able to maintain relationships with its distributors and has been able to
establish relationships with one or two new distributors each year. Management
will continue to attempt to increase its distributor base, particularly with
distributors who can introduce the Company's products in new geographical areas
and to new retail chains. An increase in the number of distributors may enable
the Company to reduce its dependence on a limited number of principal
distributors.

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 (the "Act"), and the regulations
promulgated under the 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.

     During part of fiscal 1998 and all of fiscal 1999, manufacturing was done
pursuant to an exclusive five-year manufacturing contract with a
nationally-recognized pharmaceuticals manufacturer which operates a production
facility in Tampa, Florida. The contract specified annual and quarterly minimum
order requirements which the Company did not meet. The Company was unable to
negotiate a change in the minimum annual order amounts and the manufacturer has
canceled the contract. The Company has currently arranged for manufacturing by a
small regional firm which has in the past performed, and will in the coming year
perform, research and development for the Company. The Company does not have a
written contract with this manufacturer and there are no minimum purchase
agreements. Management believes there are a number of companies which could
manufacture the Company's products if necessary.

     One proprietary ingredient contained in all of the Company's products is
purchased and shipped to the manufacturing facility by the Company. The Company
does not have a written contract with the supplier of this ingredient and
management believes that an alternative supplier could be secured. Other raw
materials and ingredients are generally provided by the manufacturer and the
Company believes there are multiple suppliers of these materials and
ingredients.

                                       5
<PAGE>

Research and Development

     In September 1997, the Company entered into a one year contract with a
research laboratory to provide research and development services. Management did
not renew the contract upon its expiration in September 1998, but has utilized
some of the research to improve existing products and to develop an acne creme
and facial scrub which are proposed new products. In October 1999, the Company
entered into a new one year contract with the same research laboratory pursuant
to which the Company will pay a monthly fee of $4,000 for specified research and
development services.

Proprietary Rights

     In January 1999, the United States Patent and Trademark Office registered
the Company's Amerigel(R) trademark. The Company has applied for a trademark
application for the principal proprietary ingredient used in all of its
currently available products. The Company relies on a combination of trademark
and trade secret protection and confidentiality agreements to establish and
protect its proprietary rights.

Competition

     The market for skin treatment products is highly competitive and
fragmented. Competition is intense and is based primarily on product efficacy,
brand recognition and loyalty, quality, price and availability of shelf space in
the retail market. The Company competes against several large well-capitalized
companies offering a broad range of skin treatment products and numerous small
competitors having a limited number of products. Many of these competitors have
longer operating histories, better name recognition and greater financial,
marketing and other resources than the Company. Because of the intense
competition and the Company's financial condition, there can be no assurance
that it will be able to increase its market share.

Employees

     As of September 30, 1999, the Company had five full-time employees,
consisting of 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

     The Company is not a party to any pending material legal proceedings nor is
its property the subject of a pending legal proceeding.

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, 1999.

                                       6
<PAGE>

                                     Part II

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

     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 1998
         -----------
         First Quarter....................   $3.7500         $2.0000
         Second Quarter...................    2.1250           .8750
         Third Quarter....................    1.1250           .5625
         Fourth Quarter...................    1.1250           .5625

         Fiscal 1999
         -----------
         First Quarter....................   $1.2500         $ .3124
         Second Quarter...................     .3125           .0625
         Third Quarter....................     .5313           .0625
         Fourth Quarter...................     .4375           .1875

     As of September 30, 1999, there were approximately 150 record holders of
the Company's Common Stock. On September 30, 1999, the closing bid price of the
Company's common stock was $.25 and the closing ask price was $.75. On September
23, 1999, the last date on which a sale occurred, the last reported sale price
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 on
its Common Stock 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 the number of shares available
in the public float, 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, and the willingness of broker-dealers to effect
transactions in low priced securities. In addition, in recent years the stock
market in general has experienced significant price and volume fluctuations.
These fluctuations, which may be unrelated to a company's operating performance,
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.

Recent Sales of Unregistered Securities

     The Company did not sell any securities during fiscal 1999, but sold
100,100, and 678,000 shares of its Series A Preferred Stock (the "Preferred
Stock") in fiscal 1998 and 1997, respectively, at a purchase price of $1 per

                                       7
<PAGE>


share. The Company relied on Section 4(2) of the Securities Act of 1933, as
amended (the "1933 Act") for exemption from the registration requirements of
the1933 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, 1999 and dividends in arrears at such date total approximately
$201,000.

     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 1999, holders of 531,335 shares of Preferred Stock
converted their shares to Common Stock.

     Subsequent to the end of fiscal 1999, one individual converted his
investment into common stock. His total investment of $642,000 was converted
into 706,200 shares of common stock.

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

General

     The continuing operations and revenues of the Company consist solely 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(R), 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(R) 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. Amerx
reaches the retail consumer primarily through distributors, but, in some cases,
through direct sales to a retail store chain, such as Eckerd Drug. As of June
30, 1999, the Company's skin care products were being distributed to
institutions and to retail stores through McKesson Drug, Bergen Brunswig,
Cardinal Health, Amerisource, Gulf South, General Medical, Southland Medical
Supply, Bindley Western Drug and a number of smaller local and regional
distributors.

                                       8
<PAGE>


Results of Operations

     Comparison of Fiscal 1999 to 1998. Net sales during fiscal 1999 were
approximately $293,000 as compared to approximately $371,000 in fiscal 1998, a
decrease of approximately $78,000, or 21%. During fiscal 1998, the Company
retained five direct sales people to call on physicians, pharmacists, nurses and
institutional facilities located primarily in Florida. These institutional sales
people were largely ineffective in selling product to their targeted market,
partially due to the lack of a Reimbursement Code and the absence of broad-based
retail distribution. The implementation of this direct sales strategy also
increased the Company's expenses, further effecting the Company's cash flow.
Accordingly, management decided to terminate the direct sales program and the
decrease in sales in fiscal 1999 was caused primarily by the termination of the
Company's direct institutional sales force in late fiscal 1998. Management
believed that, even without these direct sales people, institutional sales
though distributors would increase after the Company obtained a Reimbursement
Code for its Amerigel(R) Ointment Wound Dressing in September 1998. The Medicare
Part B Reimbursement Code is required in order for Medicare to reimburse
care-giving providers for a portion of the cost of wound care products.
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. However, obtaining the Reimbursement Code for Amerigel(R)
Ointment Wound Dressing has not enhanced sales to distributors as significantly
as had been anticipated by the Company's management. The Company is actively
seeking a sales manager to develop and implement a new marketing plan to
increase institutional sales.

     To increase retail sales, the Company shifted its focus during 1997 from
small distributors which were granted the exclusive right to sell products in
specified territories and which sold products primarily in the institutional
market, to national and regional distributors which were capable of selling to
the retail market as well as the institutional market. Management believes there
are several reasons that this marketing plan has not resulted in any significant
increase in retail sales since its implementation. The principal reason is the
extensive amount of time, from two to three years in some cases, required to get
large retail chains to place new products in their stores. An additional
impediment to retail sales has been the lack of funds necessary to sustain local
advertising campaigns to increase sales more rapidly once a product is available
in retail stores. Management believes that the recently implemented direct
response program will assist in increasing retail sales in fiscal 2000, not only
to individual customers, but to retail chains and independent pharmacies as
well.

     Although net sales in 1999 were less than in 1998, the cost of sales was
reduced significantly, to approximately $65,000 in 1999 as compared to
approximately $181,000 in 1998. The principal reason for the reduction was the
absence in 1999 of any initial manufacturing set-up costs, which costs were
incurred in the prior year.

     Accordingly, although sales decreased, the cost of sales decreased more
significantly, resulting in gross profit of approximately $228,000 during fiscal
1999 as compared to approximately $190,000 during fiscal 1998, an increase of
about $38,000, or 20%. As a percentage of sales, gross profit was 78% in fiscal
1999, as compared to 51% in fiscal 1998.

     Operating expenses during fiscal 1999 were approximately $805,000
consisting of approximately $354,000 in salaries and benefits, $441,000 in
selling, general and administrative expenses and $10,000 in research and
development expenses. This represents a significant decrease in expenses of
approximately $238,000 as compared to expenses in fiscal 1998. However, as a
percentage of net sales, operating expenses during fiscal 1999 increased
slightly to 275% as compared to 281% during fiscal 1998. The principal
components of the decrease in expenses were a reduction in the direct marketing
personnel which decreased salaries and related benefits by approximately
$181,000 and a reduction in research and development expenses of approximately
$38,000 when the Company did not renew its contract with an independent
laboratory.

                                       9
<PAGE>


     Although net sales decreased, implementation of its cost reduction policies
enabled the Company to reduce its loss from operations to approximately $587,000
in 1999, as compared to approximately $855,000 in fiscal 1998. Net loss (after
dividend requirements for Preferred Shares) was approximately $644,000 during
fiscal 1999, compared to approximately $899,000 during fiscal 1998.

     As of June 30, 1999, the Company had a deferred tax asset of approximately
$1,140,000, 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 was more likely than not the deferred
tax asset will be realized. The valuation allowance increased approximately
$198,000 from fiscal 1998 to 1999.

Liquidity and Capital Resources

     As of June 30, 1999, the Company's principal sources of liquidity included
cash and cash equivalents of approximately $90,000, inventories of approximately
$64,000, and net accounts receivable of approximately $2,000. The Company had
negative working capital of approximately $237,000 and no long term debt at June
30, 1999. Subsequent to the end of fiscal 1999, one individual converted his
investment into common stock. His total investment of $642,000 was converted
into 706,200 shares of common stock.

     Operating activities used cash of approximately $602,000 during fiscal 1999
and approximately $625,000 during fiscal 1998, consisting primarily of net
losses of approximately $587,000 and $855,000, respectively. Cash used in
investing activities during fiscal 1999 and 1998 was approximately $3,700 and
$5,000, respectively. Cash provided by financing activities during fiscal 1999
and 1998 was approximately $643,000 and $348,000, respectively. There were no
sales of Preferred Stock in fiscal 1999, compared to sales of approximately
$100,000 in fiscal 1998.

     At June 30, 1999 the Company had no commitments for capital expenditures.

     During fiscal 1999, holders of 531,335 shares of Preferred Stock converted
their shares to Common Stock.

     The Company had deferred tax assets with a 100% valuation allowance at June
30, 1999. 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 controlling
expenses have been described elsewhere in this Report on Form 10-KSB but 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.

                                       10
<PAGE>


     The Company conducted a review of its computer systems and internal systems
in its facility to identify any systems that could be affected by the "Year
2000" issue and implemented all changes necessary to make those systems Year
2000 compliant. Accordingly, the Company believes that the Year 2000 problem
will not pose significant operational problems for the Company's computer
systems or any other internal system. The Company has also confirmed with its
primary vendors that they are or will be Year 2000 compliant before December 31,
1999.

     The Company does not anticipate that any material additional expenditures
will be incurred with regard to any Year 2000 issues.

"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.



                                       11
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ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Consolidated Financial Statements as of June 30, 1999 and 1998 and for the
years ended June 30, 1999 and 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.

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

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

Balance Sheet -June 30, 1999.............................................   F-2

Statements of Operations - For the years ended June 30, 1999 and 1998....   F-3

Statements of Stockholders' Equity - For the years ended
  June 30, 1999 and 1998.................................................   F-4

Statements of Cash Flows - For the years ended June 30, 1999 and 1998....   F-5

Notes to Financial Statements............................................   F-6




                                       12
<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.







                                       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

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

   #   10.5    Manufacturing Agreement, dated November 21, 1998.           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.

#    Incorporated by reference to the Company's Form 10-KSB for the fiscal year
     ended June 30, 1998

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, 1999.

                                       14
<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 8, 1999

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

/s/ John C. Anderson            President and Acting            October 8, 1999
------------------------        Principal Executive, Financial
John C. Anderson                and Accounting Officer


/s/ Chester L. Wallack          Director                        October 12, 1999
-------------------------
Chester L. Wallack


                                Director                        October __, 1999
-------------------------
Fred W. Suggs, Jr.


                                Director                        October __, 1999
----------------------
Alan B. Crane


/s/ Richard T. Thompson         Director                        October 8, 1999
--------------------------
Richard T. Thompson


                                       15
<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 as of June 30, 1999 and the related statements of operations,
stockholders' equity, and cash flows for the years ended June 30, 1999 and 1998.
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 as of June
30, 1999 and the results of its operations and its cash flows for the years
ended June 30, 1999 and 1998, 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 21, 1999

                                      F-1
<PAGE>



PROCYON CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
June 30, 1999

ASSETS

CURRENT ASSETS
  Cash                                                              $    90,150
  Accounts receivable, less allowance
    of $500 for doubtful accounts                                         2,619
  Inventories                                                            64,414
                                                                    -----------

                                      TOTAL CURRENT ASSETS              157,183

PROPERTY AND EQUIPMENT, less accumulated
  depreciation of $20,216                                                13,119

OTHER ASSETS                                                              3,066
                                                                    -----------

                                                                    $   173,368
                                                                    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable                                                  $    54,806
  Accrued salaries                                                       95,502
  Note payable to stockholder                                           214,127
                                                                    -----------

                                 TOTAL CURRENT LIABILITIES              364,435

ADVANCE DEPOSIT ON COMMON STOCK TO BE ISSUED                            642,000

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;
    811,283 shares issued and outstanding                               767,133
  Common stock, no par value, 80,000,000 shares
    authorized;5,001,455 shares issued and outstanding                2,087,731
  Accumulated deficit                                                (3,687,931)
                                                                    -----------

                                                                       (833,067)
                                                                    -----------

                                                                    $   173,368
                                                                    ===========


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

                                       F-2

<PAGE>

PROCYON CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended June 30, 1999 and 1998

                                                       1999             1998
                                                       ----             ----

NET SALES                                          $   292,685      $   371,198

COST OF SALES                                           65,032          181,250
                                                   -----------      -----------

GROSS PROFIT                                           227,653          189,948

OPERATING EXPENSES
  Salaries and benefits                                354,146          535,213
  Selling, general and administrative                  440,898          460,049
  Research and development                              10,118           48,122
                                                   -----------      -----------
                                                       805,162        1,043,384
                                                   -----------      -----------

LOSS FROM OPERATIONS                                  (577,509)        (853,436)

OTHER INCOME (EXPENSE)
  Interest income                                          834            4,770
  Interest expense                                     (10,332)          (2,570)
  Loss on sale of property and equipment                  --             (4,223)
                                                   -----------      -----------
                                                        (9,498)          (2,023)
                                                   -----------      -----------

NET LOSS                                              (587,007)        (855,459)

Dividend requirements on preferred stock               (57,269)         (43,120)
                                                   -----------      -----------

Loss applicable to common stock                    $  (644,276)     $  (898,579)
                                                   ===========      ===========

Net loss per common share                          $     (0.13)     $     (0.22)
                                                   ===========      ===========

Weighted average number of common
  shares outstanding                                 4,639,939        4,167,761
                                                   ===========      ===========


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

                                       F-3
<PAGE>
<TABLE>
<CAPTION>


PROCYON CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended June 30, 1999 and 1998

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

<S>                                   <C>          <C>              <C>         <C>           <C>            <C>
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           --            --            --          100,100

  Stock issued for services              31,100         31,100           --            --            --           31,100

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

  Net loss                                 --             --             --            --        (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)

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

  Stock issued for services               1,618          1,618           --            --           --            1,618

  Conversion of preferred stock
    to common stock                    (531,335)      (531,335)       531,335       531,335         --             --

  Net loss                                 --             --             --            --       (587,007)      (587,007)
                                    -----------    -----------    -----------   -----------   -----------    -----------

Balance, June 30, 1999                  811,283    $   767,133      5,001,455   $ 2,087,731   $(3,687,931)   $  (833,067)
                                    ===========    ===========    ===========   ===========   ===========    ===========




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

                                      F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>


PROCYON CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 1999 and 1998

                                                                          1999         1998
                                                                          ----         ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                    <C>          <C>
  Net loss                                                             $(587,007)   $(855,459)
  Adjustments to reconcile net loss to
    net cash used by operating activities:

    Depreciation                                                           6,392        6,011
    Stock issued for services                                              1,618       31,100
    Loss on sale of property and equipment                                  --          4,223
    Decrease (increase) in:
      Accounts receivable                                                 17,209       35,727
      Inventory                                                          (40,234)      48,177
      Prepaid inventory                                                   93,913         --
      Prepaid expenses                                                      --        (48,535)
      Other assets                                                        (1,010)        (789)
    Increase (decrease) in:
      Accounts payable                                                   (78,953)      83,747
      Accrued salaries                                                   (13,944)      70,974
                                                                       ---------    ---------
                                                  NET CASH (USED) BY
                                                OPERATING ACTIVITIES    (602,016)    (624,824)

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of property and equipment                                      (3,725)      (7,133)
  Proceeds from disposal of property and equipment                          --          2,000
                                                                       ---------    ---------
                                                  NET CASH (USED) BY
                                                INVESTING ACTIVITIES      (3,725)      (5,133)

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from issuance of preferred stock                                 --        100,100
  Proceeds from loan from stockholder                                     53,311      266,316
  Repayment of loan from stockholder                                     (52,500)     (53,000)
  Proceeds from advance deposit to be converted into common stock        642,000         --
  Repayment of advances to employees and stockholder                        --         34,500
                                                                       ---------    ---------
                                                NET CASH PROVIDED BY
                                                FINANCING ACTIVITIES     642,911      347,916
                                                                       ---------    ---------

                                     NET INCREASE (DECREASE) IN CASH      37,070     (282,041)

CASH AT BEGINNING OF PERIOD                                               53,080      335,121
                                                                       ---------    ---------

                                               CASH AT END OF PERIOD   $  90,150    $  53,080
                                                                       =========    =========


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

                                       F-5
</TABLE>
<PAGE>

PROCYON CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Procyon Corporation and its wholly owned subsidiary, Amerx Health Care Corp.
("Amerx") manufacture and market wound care and skin care products primarily in
the United States.

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. The consolidation was accounted for as
a pooling of interest.

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 and cash equivalents. 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.

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 Marketing
-------------------------

All costs associated with advertising and marketing products are expensed in the
year incurred. Advertising and marketing expense was $267,984 in 1999 and
$100,146 in 1998.

                                      F-6
<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 $10,118 in 1999
and $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 D.

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.


NOTE B - GOING CONCERN

As reflected in the accompanying financial statements, the Company has a deficit
in stockholders' equity of $833,067 at June 30, 1999 and has incurred net losses
of $587,007 and $855,459 for the years ended June 30, 1999 and 1998. In
addition, net cash used in operations was $602,016 and $624,824 for the years
ended June 30, 1999 and 1998. 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, loans
from the major stockholder and advance deposit on common stock to be issued, the
continuance of which is uncertain.

Management plans to meet its operating cash requirements by increasing sales
volume. The Company plans to increase sales by increasing its exposure in a
greater number of stores and marketing through direct response advertising. The
Company recently started its direct response advertising and management is
satisfied with the initial results. The ultimate results of these plans cannot
be determined at the present time. 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,
                                                                  1999
                                                                  ----
          Finished Goods                                       $  52,836
          Raw Materials                                           11,578
                                                               ---------
                                                               $  64,414
                                                               ==========
                                      F-7
<PAGE>

PROCYON CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS


NOTE D - RELATED PARTY TRANSACTIONS

At June 30, 1999, the majority stockholder of the Company was owed $110,500 on a
non-interest bearing note due June 30, 2000, collateralized by all the assets of
the Company. In addition, the majority stockholder of the Company was also owed
$103,627 on a line of credit, with interest at 8% per annum, collateralized by
the stockholder's personal residence.

NOTE E - COMMITMENTS AND CONTINGENCIES

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

The Company leases its warehouse and certain equipment under operating leases
expiring at various dates through 2001. Rent expense under these agreements was
approximately $31,000 and $36,000 for the years ended June 30, 1999 and 1998.
Future minimum rentals under the operating leases for the years ending June 30,
are as follows:

                  2000                         $   7,456
                  2001                             8,082
                                               ---------
                                               $  15,538
                                               =========

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 was for one year with monthly payments
of $4,800. The contract also provided for stock incentives for each new product
developed and taken to market. The contract was terminated in August, 1998.


NOTE F - ADVANCE DEPOSIT ON COMMON STOCK TO BE ISSUED

In September 1999, an investor converted his investment into common stock. A
total investment of $642,000 was converted into 706,200 shares of common stock.


NOTE G - 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 accrue
without interest and are cumulative from the date of issuance of the Series A
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,
1999, no dividends have been declared. Dividends in arrears on the outstanding
preferred shares total $200,656 as of June 30, 1999. 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. 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 have
voting rights equal to 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.

                                      F-8
<PAGE>

PROCYON CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS


NOTE H - INCOME TAXES AND AVAILABLE CARRYFORWARDS

The Company's deferred tax asset at June 30, 1999 consists primarily of net
operating loss carryforwards which, after the tax effect, amount to
approximately $1,140,000. 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 $198,000 from June 30, 1998 to
1999. At June 30, 1999, for income tax purposes, the Company had net operating
loss carryforwards of approximately $2,922,000 which expire through 2019.


NOTE I - MAJOR CUSTOMERS AND SUPPLIER

During the year ended June 30, 1999, two individual customers accounted for 44%,
and 10% of the Company's net sales. During the year ended June 30, 1998, two
individual customers accounted for 61%, and 10% 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.


NOTE J - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid for interest for the years ended June 30, 1999 and 1998 was $10,332
and $2,570.

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


          Years Ended June 30,                       1999       1998
          --------------------                       ----       ----
          Preferred stock issued for services      $  1,618   $ 33,100
          Conversion of Series A Preferred Stock
           to Common Stock                         $531,335   $ 32,200
          Reduction of trade accounts payable as
           consideration for sale of equipment     $   --     $ 10,281


NOTE K - EMPLOYEE INCENTIVE PLAN

In December, 1998, the Company adopted a 1998 Omnibus Stock Option Plan that
provides for the granting of equity-based incentive and other awards to
employees and directors of the Company, its subsidiary and selected consultants.
The Plan is administered by the Compensation Committee of the Board of
Directors. Any employee, directors who are not employees of the Corporation or a
subsidiary, and consultants who are not employees or directors of the
Corporation are eligible to participate in the Plan. The maximum number of
shares of common stock issuable on exercise of options or other awards granted
under the Plan is 1,000,000. Non-qualified options granted must have an exercise
price not less than 85% of the fair market value of the underlying shares of
common stock. Incentive options must have an exercise price not less than 100%
of the fair market value of the underlying shares of common stock. The term of
the options cannot be more than ten years. Awards may be granted in the form of
restricted stock. Awards can also be granted in the form of stock appreciation
rights. A stock appreciation right entitles the participant to receive from the
Company an amount equal to the positive difference between the fair market value
of common stock on the date of exercise of the stock appreciation right and the
grant price. None have been issued to date pending a resolution by the Board of
Directors on earning requirements.

                                      F-9

<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

   #   10.5    Manufacturing Agreement, dated November 21, 1998.           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.

#    Incorporated by reference to the Company's Form 10-KSB for the fiscal year
     ended June 30, 1998

x    Filed herewith.