SECURITIES & EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[x] Quarterly Report Under Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For Quarterly Period Ended December 31, 2005
[ ] Transition Report Under Section 13 or 18(d) of the Exchange Act
Commission File Number: 0-17449
PROCYON CORPORATION
-------------------
(Exact Name of Small Business Issuer as specified in its charter)
COLORADO 59-3280822
-------- ----------
(State of Incorporation) (IRS Employer Identification Number)
1300 S. Highland Ave.
Clearwater, FL 33756
--------------------
(Address of Principal Offices)
(727) 447-2998
--------------
(Issuer's Telephone Number)
Check whether the issuer (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 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 [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common stock, no par value; 8,039,588 shares outstanding as of February 13, 2006
Transitional Small Business Disclosure Format (check one) Yes [ ] No [x]
PART I. FINANCIAL INFORMATION
Item Page
----
ITEM 1. FINANCIAL STATEMENTS................................................. 3
Index to Financial Statements
-----------------------------
Financial Statements:
Consolidated Balance Sheets.................................................. 3
Consolidated Statements of Operations........................................ 4
Consolidated Statements of Cash Flows........................................ 5
Notes to Financial Statements................................................ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................... 9
ITEM 3. CONTROLS AND PROCEDURES ............................................. 12
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................. 13
ITEM 5. OTHER INFORMATION.................................................... 13
ITEM 6. EXHIBITS............................................................. 13
SIGNATURES................................................................... 14
PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2005 & June 30, 2005
(unaudited) (audited)
December 31 June 30
2005 2005
----------- -----------
ASSETS
CURRENT ASSETS
Cash $ 117,614 $ 26,580
Accounts receivable, less allowance of $2,500
for doubtful accounts 140,550 145,973
Prepaid expenses 64,212 54,606
Inventories 150,502 146,323
Deferred tax asset 147,698 151,461
----------- -----------
TOTAL CURRENT ASSETS 620,576 524,943
PROPERTY AND EQUIPMENT, NET 72,048 77,501
OTHER ASSETS
Certificates of deposit
plus accrued interest, restricted -- 17,114
Deposits 7,740 9,335
----------- -----------
TOTAL OTHER ASSETS 7,740 26,449
TOTAL ASSETS $ 700,364 $ 628,893
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of capital lease obligations $ 614 $ 2,360
Accounts payable 111,338 100,499
Accrued expenses 59,627 72,760
----------- -----------
TOTAL CURRENT LIABILITIES 171,579 175,619
LONG-TERM LIABILITIES
Note payable to related party -- 90,000
Deferred tax liability 9,949 11,275
----------- -----------
TOTAL LONG-TERM LIABILITIES 9,949 101,275
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;
214,900 shares issued and outstanding 170,750 170,750
Common stock, no par value, 80,000,000 shares
authorized; 8,039,588 shares issued and
outstanding 4,400,876 4,400,876
Paid-in capital 6,000 6,000
Accumulated deficit (4,058,790) (4,225,627)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 518,836 351,999
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 700,364 $ 628,893
=========== ===========
The accompanying notes are an integral part of these financial statements
3
PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended December 31, 2005 and 2004
Six Months Ended December 31, 2005 and 2004
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
Dec. 31, 2005 Dec. 31, 2004 Dec. 31, 2005 Dec. 31, 2004
------------- ------------- ------------- -------------
(unaudited) (unaudited) (unaudited) (unaudited)
NET SALES $ 527,242 $ 548,151 $ 1,077,345 $ 1,093,520
COST OF SALES 118,531 119,608 252,525 252,560
----------- ----------- ----------- -----------
GROSS PROFIT 408,711 428,543 824,820 840,960
OPERATING EXPENSES
Salaries and Benefits 160,909 187,835 314,214 343,867
Selling, General and Administrative 175,601 179,270 338,870 328,260
----------- ----------- ----------- -----------
336,510 367,105 653,084 672,127
INCOME FROM OPERATIONS 72,201 61,438 171,736 168,833
OTHER INCOME (EXPENSE)
Interest Expense (309) (3,216) (2,956) (7,430)
Interest Income 156 79 496 146
Other Income 0 411 0 431
----------- ----------- ----------- -----------
(153) (2,726) (2,460) (6,853)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 72,048 58,712 169,276 161,980
INCOME TAX (EXPENSE) BENEFIT (16,488) 24,167 (2,437) 46,297
----------- ----------- ----------- -----------
NET INCOME 55,560 82,879 166,839 208,277
Dividend requirements on preferred stock (5,373) (5,678) (10,745) (11,356)
----------- ----------- ----------- -----------
Basic net income available to common shares $ 50,187 $ 77,201 $ 156,094 $ 196,921
=========== =========== =========== ===========
Basic net income per common share 0.01 $ 0.01 $ 0.02 $ 0.02
Weighted average number of common
shares outstanding 8,039,588 8,045,388 8,047,708 8,045,388
=========== =========== =========== ===========
Diluted net income per common share $ 0.01 $ 0.01 $ 0.02 $ 0.02
Weighted average number of common shares
outstanding, basic and diluted 8,377,139 8,383,257 8,385,259 8,383,257
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial atatements
4
PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended December 31, 2005 and 2004
Six Months Six Months
Ended Ended
Dec. 31 Dec. 31
2005 2004
--------- ---------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 166,839 $ 208,277
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 12,506 13,586
Allowance for doubtful accounts 0 (5,000)
Deferred Income Taxes 2,437 (46,298)
Decrease (increase) in:
Accounts Receivable 5,423 5,637
Inventories (4,180) (21,537)
Prepaid Expenses (9,606) 2,554
Other assets 18,709 (4,095)
Increase (decrease) in:
Accounts Payable 10,839 (21,520)
Accrued Expenses (13,133) (2,134)
--------- ---------
Cash Provided by Operating Activities 189,834 129,470
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property & equipment (7,054) 0
--------- ---------
Cash Used in Investing Activities (7,054) 0
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Long Term Note Payable - related party 0 10,000
Payments on Long Term Note Payable - related party (90,000) (111,506)
Payments on Capital Lease Obligations (1,746) (4,732)
Payments on Long Term Note Payable 0 (10,756)
--------- ---------
Cash used in Financing Activities (91,746) (116,994)
Net Increase in Cash 91,034 12,476
Cash, beginning of period 26,580 14,608
--------- ---------
Cash, end of period $ 117,614 $ 27,084
========= =========
SUPPLEMENTAL DISCLOSURES
Interest Paid $ 2,956 $ 7,430
Taxes Paid $ -- $ --
The accompanying notes are an integral part of these financial statements.
5
Notes to Financial Statements
NOTE A - SUMMARY OF ACCOUNTING POLICIES
The interim financial statements included herein have been prepared by the
Company without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted as allowed by such rules and regulations. The Company
believes that the disclosures are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the Company's audited financial statements dated June 30,
2005. The results for interim periods are not necessarily indicative of
results that may be expected for any other interim period or for the full
year.
Management of the Company has prepared the accompanying unaudited condensed
financial statements prepared in conformity with generally accepted
accounting principles, which require the use of management estimates,
contain all adjustments (including normal recurring adjustments) necessary
to present fairly the operations and cash flows for the period presented
and to make the financial statements not misleading.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements
using the intrinsic value method in accordance with the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25") and has elected to follow the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), as amended by
SFAS 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure. Under the intrinsic value method, the Company recognizes
compensation expense only to the extent that the exercise price of the
Company's employee stock options is less than the market price of the
underlying stock on the date of grant. SFAS No. 123 requires the
presentation of pro forma information as if the Company has accounted for
its employee stock options granted under the fair value method. There were
no options granted during the quarters ended December 31, 2005 and 2004.
The following table illustrates the effect on net income and earnings per
share for the three and six months ended December 31, 2005, and 2004 had
the Company applied the fair value recognition provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," to stock-based employee compensation.
3 months 6 months 3 months 6 months
ending ending ending ending
2005 2005 2004 2004
---------- ----------- ---------- -----------
Net income applicable to common stock:
As reported $ 50,187 $ 156,094 $ 77,201 $ 196,921
Pro forma adjustment for compensation -- -- -- --
---------- ----------- ---------- -----------
Pro forma $ 50,187 $ 156,094 $ 77,201 $ 196,921
========== =========== ========== ===========
Income per common share:
Basic - as reported $ .01 $ .02 $ .01 $ .02
Basic - pro forma $ .01 $ .02 $ .01 $ .02
Diluted - as reported $ .01 $ .02 $ .01 $ .02
Diluted - pro forma $ .01 $ .02 $ .01 $ .02
6
The fair value of a stock option is determined using the Black-Scholes
option-pricing model, which values options based on the stock price at the
grant date, the expected life of the option, the estimated volatility of
the stock, the expected dividend payments, and the risk-free interest rate
over the life of the option.
The Black-Scholes option valuation model was developed for estimating the
fair value of traded options that have no vesting restrictions and are
fully transferable. Because option valuation models require the use of
subjective assumptions, changes in these assumptions can materially affect
the fair value of the options. Our options do not have the characteristics
of traded options, therefore, the option valuation models do not
necessarily provide a reliable measure of the fair value of our options.
Equity instruments issued, if any, to non-employees in exchange for goods,
fees and services are accounted for under the fair value based method of
SFAS No. 123.
In December 2004, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123(R) ("SFAS 123R"), "Share-Based
Payment," which is a revision of SFAS No. 123. SFAS 123R is effective for
small business publicly-traded companies for interim or annual periods
beginning after December 15, 2005, supersedes Accounting Principles Board
Opinion no. 25, "Accounting for Stock Issued to Employees," and amends
Statement of Financial Accounting Standards No. 95, "Statement of Cash
Flows."
SFAS 123R requires all share-based payments to employees, including grants
of employee stock options, to be recognized in the income statement based
on their fair values and will rescind the acceptance of pro forma
disclosure. SFAS 123R will be effective for small public companies with the
first interim or annual reporting period of the first fiscal year beginning
on or after December 15, 2005. The Company has not yet determined the
impact in adopting SFAS 123R.
NOTE B - INVENTORIES
Inventories consisted of the following:
December 31, June 30,
2005 2005
-------- --------
Finished Goods $ 66,823 $ 79,358
Raw Materials $ 83,679 $ 66,965
-------- --------
$150,502 $146,323
======== ========
NOTE C - STOCKHOLDERS' EQUITY
During January 1995, the Company's Board of Directors authorized the
issuance of up to 4,000,000 shares of Series A Cumulative Convertible
Preferred Stock ("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 December 31,
2005, no dividends have been declared. Dividends in arrears on the
outstanding preferred shares total $185,116 as of December 31, 2005.
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. In addition, Preferred Stock holders have the right to vote the
number of shares into which their shares are convertible into Common Stock.
Such preferred shares will automatically 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. The Company is obligated to reserve
an adequate number of shares of its common stock to satisfy the conversion
of all the outstanding Series A Preferred Stock.
7
NOTE D - INCOME TAXES AND AVAILABLE CARRYFORWARD
As of December 31, 2005, the Company had consolidated income tax net
operating loss ("NOL") carryforward for federal income tax purposes of
approximately $4,183,000. The NOL will expire in various years ending
through the year 2022.
The components of the provision for income tax expense (benefits) are
attributable to continuing operations as follows:
December 31, December 31,
2005 2004
-------- --------
Current
Federal $ -- $ --
State -- --
-------- --------
Deferred
Federal 2,081 (41,831)
State 356 (4,466)
-------- --------
2,437 (46,297)
-------- --------
Income tax expense (benefit) $ 2,437 $(46,297)
======== ========
Deferred income taxes reflect the net tax effects of the temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities
are as follows:
Current Non-Current
----------- -----------
Deferred tax assets:
NOL carryforward $ 146,757 $ 1,427,456
Contribution carryforward -- 2,951
Allowance for doubtful accounts 941 --
----------- -----------
147,698 1,430,407
Deferred tax (liabilities):
Excess of tax over book depreciation -- (9,949)
----------- -----------
-- (9,949)
Valuation allowance for deferred tax asset -- (1,430,407)
----------- -----------
Net deferred tax asset (liability) $ 147,698 $ (9,949)
=========== ===========
8
The change in the valuation allowance is as follows:
December 31, 2005 $ 1,430,407
June 30 , 2005 $ 1,492,017
-----------
Decrease in valuation allowance $ (61,610)
===========
The decrease in the valuation allowance is due to a decrease in the
expected Net Operating Loss carryforward utilization. A valuation allowance
of approximately $1,430,000 has been provided to reduce the asset to the
net amount of tax benefit management believes it will more likely than not
realize. As time passes, management will be able to better assess the
amount of tax benefit the Company expects to realize from using the
carryforward.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
The following discussion and analysis should be read in conjunction with
the unaudited Condensed Financial Statements and Notes thereto appearing
elsewhere in this report.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995
This Report on Form 10-QSB, including Management's Discussion and Analysis
of Financial Condition and Results of Operation, contains forward-looking
statements. When used in this report, the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend," "hope,"
"believe" and similar expressions, variations of these words or the
negative of those words, and, any statement regarding possible or assumed
future results of operations of the Company's business, the markets for its
products, anticipated expenditures, regulatory developments or competition,
or other statements regarding matters that are not historical facts, are
intended to identify forward-looking statements within the meaning of
9
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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America, which require the Company to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and the related disclosures. A summary of those significant
accounting policies can be found in the Notes to the Consolidated Financial
Statements included in the Company's annual report on 10-KSB, for the year
ended June 30, 2005, which was filed with the Securities and Exchange
Commission on September 28, 2005. The estimates used by management are
based upon the Company's historical experiences combined with management's
understanding of current facts and circumstances. Certain of the Company's
accounting policies are considered critical as they are both important to
the portrayal of the Company's financial condition and the results of its
operations and require significant or complex judgments on the part of
management.
Accounts receivable allowance
Accounts receivable allowance consists of an allowance for doubtful
accounts. The valuation of accounts receivable is based upon the
credit-worthiness of customers and third-party payers as well as historical
collection experience. Allowances for doubtful accounts are recorded as a
selling, general and administrative expense for estimated amounts expected
to be uncollectible from third-party payers and customers. The Company
bases its estimates on its historical collection experience, current
trends, credit policy and on the analysis of accounts by aging category.
Advertising and Marketing
The Company uses several forms of advertising, including sponsorships to
agencies who represent the professionals in their respective fields. The
Company expenses these sponsorships over the term of the advertising
arrangements, on a straight line basis. Other forms of advertising used by
the Company include professional journal advertisements, and mailing
campaigns. These forms of advertising are expensed when incurred.
Income Tax
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109").
SFAS 109 requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included
in the financial statements or tax returns. Under this method, deferred tax
assets and liabilities are determined based on the differences between the
financial statement and the tax basis of assets and liabilities using
enacted tax provisions currently in effect and rates applicable to the
periods in which the differences are expected to affect taxable income.
Revenue Recognition
The Company recognizes revenue related to product sales upon the shipment
of such orders to customers, provided that the risk of loss has passed to
the customer and the Company has received and verified any written
documentation required to bill Medicare, other third-party payers and
customers. The Company records revenue at the amounts expected to be
10
collected from Medicare, other third-party payers and directly from
customers. The Company delays recognizing revenue for shipments where the
Company has not received the required documentation, until the period when
such documentation is received.
The Company calculates Medicare reimbursements based upon
government-established reimbursement prices. The reimbursements that
Medicare pays the Company are subject to review by government regulators.
Medicare reimburses at 80% of the government-determined reimbursement
prices and the Company bills the remaining balance to either third-party
payers, such as insurance companies, or directly to the customers.
Stock Based Compensation
The Company accounts for stock-based employee compensation arrangements
using the intrinsic value method in accordance with the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25") and has elected to follow the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), as amended by
SFAS 148, "Accounting for Stock - Based Compensation - Transition and
Disclosure." Under the intrinsic value method, the Company recognizes
compensation expense only to the extent that the exercise price of the
Company's employee stock options is less than the market price of the
underlying stock on the date of grant. SFAS No. 123 requires the
presentation of pro forma information as if the Company has accounted for
its employee stock options granted under the fair value method. There were
no options granted during the quarters ended December 31, 2005 and 2004.
Financial Condition
As of December 31, 2005, the Company's principal sources of liquid assets
included cash of $117,614, inventories of $150,502, and net accounts
receivable of $140,550. The Company had net working capital of $448,997,
and long-term debt of $9,949 at December 31, 2005.
During the six months ended December 31, 2005, cash increased from $26,580
as of June 30, 2005 to $117,614. Operating activities provided cash of
$189,834 during the period, consisting primarily of net income of $166,839.
Cash used in financing activities was $91,746 as compared to cash used by
financing activities of $116,994 for the corresponding period in 2004.
The Company recorded deferred tax assets of $147,698, and deferred tax
liability of $9,949, at December 31, 2005. A valuation allowance of
approximately $1,430,000 has been recorded to reduce the asset to the net
amount of expected tax benefit management believes it will more likely than
not realize. As time passes, management will be able to better assess the
amount of tax benefit the Company expects to realize.
Results of Operations
Comparison of the three months and six months ended December 31, 2005 and
2004.
Net sales during the quarter ended December 31, 2005 were $527,242, as
compared to $548,151 in the quarter ended December 31, 2004, a decrease of
$20,909, or 4%. The decrease in sales was mainly attributable to the
hurricane season in which trade shows Amerx was to attend were cancelled
and the anticipated sales were not obtained. We believe that the adverse
financial effect on some of our Amerx customers caused by the recent
hurricanes may have negatively impacted our sales this quarter. Amerx feels
the decrease is short term and directly related to the trade show
attendance. Sales from the Sirius subsidiary leveled off, as management
continues to find ways to reach its intended market. We continue to believe
there is great potential for Sirius as the number of diagnosed diabetics
increases each day. Net sales for the six months ended December 31, 2005
were 1,077,345 as compared to $1,093,520 in the six months ended December
31, 2004, a decrease $16,175, or 1%.
11
Gross profit during the quarter ended December 31, 2005 was $408,711, as
compared to $428,543 during the quarter ended December 31, 2004, a decrease
of 19,832, or 5%. Gross profit during the six months ended December 31,
2005 was $824,820, as compared to $840,960 during the six months ended
December 31, 2004, a decrease of $16,140 or 2%. As a percentage of net
sales, gross profit was 78% in the quarter ended December 31, 2005 and the
corresponding quarter in 2004. As a percentage of net sales, gross profit
was 77% in the six months ending December 31, 2005 and the corresponding
six months in 2004.
Operating expenses during the quarter ended December 31, 2005, were
$336,510, consisting of $160,909 in salaries and benefits, and $175,601 in
selling, general and administrative expenses. This compares to operating
expenses during the quarter ended December 31, 2004 of $367,105, consisting
of $187,835 in salaries and benefits, and $179,270 in selling, general and
administrative expenses. Expenses for the quarter ended December 31, 2005
decreased compared to the corresponding quarter in 2004 by 8%. Salaries
decreased due to the compensation missing that would have been paid to the
former Chief Executive Officer John C. Anderson in October. In November
2005, Regina W. Anderson was hired to fulfill this position. In fiscal
2004, Amerx also retained an outside sales representative, who was no
longer working for the company in fiscal 2005. Selling, general and
administrative cost decreased slightly for the quarter ended December 31,
2005 compared to the quarter ended December 31, 2004. Operating expenses
during the six months ended December 31, 2005, were $653,084, consisting of
$314,214 in salaries and benefits, and $338,870 in selling, general and
administrative expenses. This compares to operating expenses during the six
months ended December 31, 2004 of $672,127, consisting of $343,867 in
salaries and benefits, and $328,260 in selling, general and administrative
expenses. Expenses for the six months ended December 31, 2005 decreased
compared to the corresponding six months in 2004 by 3%, mainly attributable
to the decrease in compensation of the CEO position while it was vacant.
Operating profit increased by $10,763 (18%) to $72,201 for the quarter
ended December 31, 2005, from $61,438 in the comparable quarter of the
prior year. Operating profit increased by $2,903 (2%) to $171,736 for the
six months ended December 31, 2004, from $168,833 in the comparable six
months of the prior year. Net Profit (before dividend requirements for
Preferred Shares) was $55,560 during the quarter ended December 31, 2005,
as compared to $82,879 during the quarter ended December 31, 2004. Net
Profit (before dividend requirements for Preferred Shares) was $166,839
during the six months ended December 31, 2005, as compared to $208,277
during the six months ended December 31, 2004. The decrease in profit comes
largely from an adjustment in the income tax benefit that was adjusted due
to reduced sales in the quarter. We continue to try to improve our cash
position. Amerx continues efforts to increase market share for its
products. Sirius continues efforts to penetrate the aging Diabetic market.
We also believe that sales will continue to increase as the Company finds
new markets for both its products and services.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Management of the Company, with the participation of the President and
Principal Executive, Financial and Accounting Officer, has conducted an
evaluation of the effectiveness of the Company's disclosure controls and
procedures pursuant to Rule 13a-15 under the Securities Exchange Act of
1934 as of the end of the period covered by this report. Based on that
evaluation, management, including the President and Principal Executive,
Financial and Accounting Officer, has concluded that, as of the end of the
period covered by this report, the Company's disclosure controls and
procedures were effective in ensuring that all material information
relating to the Company required to be disclosed in this report has been
made known to management in a timely manner and ensuring that this
information is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and regulations.
(b) Changes in Internal Controls Over Financial Reporting
During the second fiscal quarter of 2006, the Company did not institute any
significant changes in its internal control over financial reporting that
materially affected or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
12
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Procyon Corporation held its annual meeting of shareholders on December 5,
2005. The following matters were considered and approved by the shareholders:
A. The following six directors were elected to hold office for one-year
terms or until their successors are elected and qualified:
Votes
Votes Against Total
For or Withheld Voted
Regina W. Anderson 5,487,023 3,494 5,490,517
Alan B. Crane 5,487,023 3,494 5,490,517
Jeffrey S. Slowgrove 5,487,023 3,494 5,490,517
Fred W. Suggs 5,487,023 3,494 5,490,517
Richard T. Thompson 5,487,023 3,494 5,490,517
Chester A. Wallack 5,487,023 3,494 5,490,517
B. To ratify appointment of Ferlita, Walsh & Gonzalez, P.A. as the
independent certified public accountants for Procyon Corporation.
Votes For 5,476,423
Votes Against 4,094
Votes Abstaining 0
---------
Total Voted 5,480,517
ITEM 5. OTHER INFORMATION.
On August 27, 2005, John C. Anderson, the Company's President, Chief
Executive Officer, Chairman of the Board and Director died.
On September 22, 2005, the Board of Directors voted to fill the board
vacancy and Chairman of the Board vacancy caused by the death of John C.
Anderson, by appointing Regina W. Anderson, to these positions. Further,
the Board of Directors voted to fill the vacancy in the Chief Executive
Officer position by appointing Ms. Anderson to fill that position, but to
commence on November 1, 2005. As of September 22, 2005 through November 1,
2005, the Board of Directors appointed James B. Anderson, our Chief
Financial Officer, to act as Interim Chief Executive Officer. Ms Anderson
commenced her duties as Chief Executive Officer on November 1, 2005.
ITEM 6. EXHIBITS
(A) EXHIBITS
31.1 Certification of Regina W. Anderson pursuant to Exchange Act Rule
13a-14(a)/15d-14(a)
31.2 Certification of James B. Anderson pursuant to Exchange Act Rule
13a-14(a)/15d-14(a)
32.1 Certification Pursuant to 18 U.S.C.ss.1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act Of 2002
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, there unto duly
authorized.
PROCYON CORPORATION
February 14, 2006 By: /s/ REGINA W. ANDERSON
----------------- --------------------------
Date Regina W. Anderson, Chief Executive
Officer
14