Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Lazarus who wrote (42540)	5/5/2011 8:06:51 PM
From: E_K_S	Read Replies (2) \| Respond to of 78758

Re: PROCYON CORP NEW(Other OTC: PCYN.PK ) Web Site: procyoncorp.com Procyon Corporation (PCYN:OB) is a holding company for its subsidiary Amerx HealthCare Corporation which was acquired in 1996. Amerx develops and markets advanced proprietary skin and wound care products used in the treatment of wounds, ulcers, burns, surgical incisions, cuts, scrapes, abrasions, dermatitis, inflammation and other skin problems. Amerx provides skin and wound care products through its proprietary brand, Amerigel®. Amerigel® contains the proprietary antimicrobial agent, Oakin®, proven effective against bacteria commonly found in wounds including MRSA. ------------------------------------------------------------------ Hi Lazarus, I have looked at the recent 10K for PCYN. I have compared PROCYON CORP NEW(Other OTC: PCYN.PK ) to Electronic Control Security Inc. (EKCS.OB) and the difference that caught my attention. The first thing I saw that raised a red flag to me is that PCYN is a Florida shell company. Previous experience w/ these shell companies has taught me to be very skeptical of their on-going business and many that I have followed ended in BK. Barriers to Entry - There are really no barriers to entry into PCYN's market as evidenced by their entry into the market through the acquisition of Amerx HealthCare in 1996. Their "branded" bandaged products have no patents and are manufactured through several out source vendors that follow FDA approved processes. EKCS must follow DOD guidelines, prepare proposals that incorporate many of their patents and proprietary technologies and as a result become a sole source vendor to their customers. Over $13M in potential sales are already in the pipeline waiting for approval. No extensive costly sales force (and expenses) are needed at least for 2011-2012. Different Cost of Sales Structure: PCYN vs EKCS PCYN has a rising Cost of Goods Sold problem. In their 10K they blame the 20% increase due to inflationary factors. From their 10K:"...While Procyon experienced increased sales (4.9% and 7.7% respectively), a 20% increase in Cost of Sales was disproportionately large. Cost of sales increased secondary to significant price increases from two primary manufacturers passing on increases in raw material and labor costs...." (pg- F-3 procyoncorp.com ) What surprised me more about PCYN is that their annual operating costs increased too. This was due to expanding their marketing and sales staff which resulted in higher expenses and lower overall profit margins. Their GS&A is quite high at 90% of their gross profit. EKCS was the opposite. Their margins are actually increasing and several of their new products to be introduced in 2011 have margins as high as 53%. Basically every incremental sale that EKCS brings in is more profitable that that for PCYN. Diminishing line of Businesses for PCYN vs Growing line of new products for EKCS: In July 2009 PCYN exited their Diabetic product business and sold their assets in Sirius Medical Supply, Inc to Priority Diabetes. They claim they could not be profitable from smaller medicare reimbursements. What if potential medicare reimbursements are reduced for their advanced proprietary skin and wound care products? This is just another unknown factor that could impact future sales. EKCS is growing their product lines adding Water Purification Monitors and even Anti-Piracy technologies to their lines. ecsiinternational.com --------------------------------------------------------------------------- Therefore, although both companies have PE's less than 10 and seem like extremely undervalued companies, they are quite different. To recognize their value each must grow their sales. EKCS seems to have set their table w/ new high margin products, proposals in the pipeline and orders on their way. However, PCYN must continue to expand their sales force, solicit more direct sales (to hospitals) and obtain medicare reimbursement approval for their line of bandages. This comes at the burden of higher operating expenses and increasing manufacturing costs. I believe PCYN has a more difficult job in growing more profitable sales. One or two large accounts could turn it around. They already have one that accounts for 16% of their sales. I will pass on PCYN for now. I believe that EKCS has the best risk/reward profile but it all hinges on them being awarded (& funded) at least 30% of their submitted ($13M total value) proposals. EKS Disclaimer: I have been wrong in the past and could very well be wrong now. Both companies could be loosers if sales do not grow and many factors work into this equation. It does appear that both companies have sufficient cash (or lines to capital) but this will run out too over time.