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 March 31, 2006
[ ] 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 May 10, 2006
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
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................. 10
ITEM 3. CONTROLS AND PROCEDURES........................................... 13
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS.......................................................... 13
SIGNATURES................................................................ 13
PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2006 & June 30, 2005
(unaudited) (audited)
March 31 June 30
2006 2005
----------- -----------
ASSETS
CURRENT ASSETS
Cash $ 210,745 $ 26,580
Accounts receivable, less allowance of $2,500
for doubtful accounts 166,054 145,973
Prepaid expenses 79,930 54,606
Inventories 126,857 146,323
Deferred tax asset 160,685 151,461
----------- -----------
TOTAL CURRENT ASSETS 744,271 524,943
PROPERTY AND EQUIPMENT, NET 67,871 77,501
OTHER ASSETS
Certificates of deposit plus accrued interest, restricted 0 17,114
Deposits 7,740 9,335
----------- -----------
TOTAL OTHER ASSETS 7,740 26,449
TOTAL ASSETS $ 819,882 $ 628,893
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of capital lease obligations $ -- $ 2,360
Accounts payable 94,005 100,499
Accrued expenses 70,468 72,760
----------- -----------
TOTAL CURRENT LIABILITIES 164,473 175,619
LONG-TERM LIABILITIES
Note payable to related party $ -- 90,000
Deferred tax liability 9,538 11,275
----------- -----------
TOTAL LONG-TERM LIABILITIES 9,538 101,275
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 4,400,877 4,400,876
Paid-in capital 6,000 6,000
Accumulated deficit (3,931,756) (4,225,627)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 645,871 351,999
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 819,882 $ 628,893
=========== ===========
The accompanying notes are an integral part of these financial statements
3
PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2006 and 2005
Nine Months Ended March 31, 2006 and 2005
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
March 31, 2006 March 31, 2005 March 31, 2006 March 31, 2005
-------------- -------------- -------------- --------------
(unaudited) (unaudited) (unaudited) (unaudited)
NET SALES $ 622,596 $ 555,712 $ 1,699,941 $ 1,649,231
COST OF SALES 133,330 139,300 385,855 391,859
----------- ----------- ----------- -----------
GROSS PROFIT 489,266 416,412 1,314,086 1,257,372
OPERATING EXPENSES
Salaries and Benefits 180,421 176,021 494,635 519,887
Selling, General and Administrative 196,047 199,635 534,918 527,897
----------- ----------- ----------- -----------
376,468 375,656 1,029,553 1,047,784
INCOME FROM OPERATIONS 112,798 40,756 284,533 209,588
OTHER INCOME (EXPENSE)
Interest Expense (327) (3,038) (3,283) (10,468)
Interest Income 636 76 1,132 221
Other Income 530 0 530 431
----------- ----------- ----------- -----------
839 (2,962) (1,621) (9,816)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 113,637 37,794 282,912 199,772
INCOME TAX (EXPENSE) BENEFIT 13,398 7,134 10,961 53,431
----------- ----------- ----------- -----------
NET INCOME 127,035 44,928 293,873 253,203
Dividend requirements on preferred stock (5,373) (3,973) (16,118) (15,329)
----------- ----------- ----------- -----------
Basic net income available to common shares $ 121,662 $ 40,955 $ 277,755 $ 237,874
=========== =========== =========== ===========
Basic net income per common share $ 0.02 $ 0.01 $ 0.03 $ 0.03
Weighted average number of common
shares outstanding 8,039,588 8,045,412 8,045,041 8,045,396
=========== =========== =========== ===========
Diluted net income per common share $ 0.01 $ 0.00 $ 0.03 $ 0.03
Weighted average number of common shares
outstanding diluted 8,361,964 8,400,991 8,367,417 8,400,991
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements
4
PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended March 31, 2006 and 2005
Nine Months Nine Months
Ended Ended
March 31, March 31,
2006 2005
--------- ---------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 293,873 $ 253,203
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 18,681 20,476
Allowance for doubtful accounts 0 (6,500)
Deferred Income Taxes (10,961) (53,431)
Decrease (increase) in:
Accounts Receivable (20,081) (2,898)
Inventories 19,466 (46,046)
Prepaid Expenses (25,324) (5,095)
Other assets 18,709 (2,205)
Increase (decrease) in:
Accounts Payable (6,494) 3,300
Accrued Expenses (2,292) (1,687)
--------- ---------
Cash Provided by Operating Activities 285,577 159,117
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property & equipment (9,052) (8,355)
--------- ---------
Cash Used in Investing Activities (9,052) (8,355)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Long Term Note Payable - related party 0 20,000
Payments on Long Term Note Payable - related party (90,000) (111,506)
Payments on Capital Lease Obligations (2,360) (7,224)
Payments on Long Term Note Payable 0 (10,756)
--------- ---------
Cash used in Financing Activities (92,360) (109,486)
Net Increase in Cash 184,165 41,276
Cash, beginning of period 26,580 14,608
--------- ---------
Cash, end of period $ 210,745 $ 55,884
========= =========
SUPPLEMENTAL DISCLOSURES
Interest Paid $ 3,283 $ 10,468
Taxes Paid $ -- $ --
NONCASH TRANSACTION DISCLOSURE
Preferred Shares converted to Common Shares $ -- $ 2,200
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
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 Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation." SFAS 123R is
effective for small business publicly traded companies, for interim or
annual periods beginning after December 15, 2005. It 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 statement of operations based upon their fair values and rescinds the
acceptance of pro forma disclosure. SFAS 123R permits two methods of
adoption, a "modified prospective" method and a "modified retrospective"
method. Under the modified prospective method, stock-based compensation
cost is recognized, beginning with the effective date, based on the
requirements of SFAS 123R for all share-based payments granted after the
effective date and for all awards granted prior to the effective date that
remain unvested on the effective date. The modified retrospective method
includes the requirements of the modified prospective method and also
permits restatement of prior periods based on amounts previously reported
in pro forma disclosures pursuant to SFAS 123 for either all periods
presented or for only prior interim periods of the year of adoption. We
adopted the modified prospective method prescribed in SFAS 123R, effective
January 1, 2006.
On December 31, 2005, there were outstanding options to purchase 300,000
shares of our common stock at exercise prices ranging from $0.16 to $0.21
per share and expiration dates between December 2009 and November 2010.
These options were vested at the time of grant. During the quarter ended
March 31, 2006, no options were granted. Therefore, the adoption of SFAS
123R does not have an impact on the statement of operations for period
ending March 31, 2006.
Previously, we accounted for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations and
elected to apply the disclosure-only provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." Under the intrinsic value
method, compensation expense for stock options was recognized over the
vesting period of the grant based on the excess, if any, of the market
price of our common stock at the date of grant over the stock option
exercise price. As governed by the Plan, stock options were generally
granted at or near fair market value on the date of grant.
6
If we had previously accounted for stock-based compensation in interim
periods using the fair value method rather than the intrinsic value method,
the pro forma amounts of our net income and income per common share would
have been reported as follows:
3 months 9 months
ending ending
2005 2005
-------- --------
Net income applicable to common stock:
As reported $ 40,955 $237,874
Pro forma adjustment for compensation -- --
-------- --------
Pro forma $ 40,955 $237,874
======== ========
Income per common share:
Basic - as reported $ .01 $ .03
Basic - pro forma $ .01 $ .03
Diluted - as reported $ .00 $ .03
Diluted - pro forma $ .00 $ .03
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.
NOTE B - INVENTORIES
Inventories consisted of the following:
March 31, June 30,
2006 2005
-------- --------
Finished Goods $ 46,459 $ 79,358
Raw Materials $ 80,398 $ 66,965
-------- --------
$126,857 $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 March 31, 2006,
no dividends have been declared. Dividends in arrears on the outstanding
preferred shares total $190,489 as of March 31, 2006.
7
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.
NOTE D - INCOME TAXES AND AVAILABLE CARRYFORWARD
As of March 31, 2006, the Company had consolidated income tax net operating
loss ("NOL") carryforward for federal income tax purposes of approximately
$4,065,000. The NOL will expire in various years ending through the year
2025.
The components of the provision for income taxes (benefits) are
attributable to continuing operations as follows:
March 31, March 31,
2006 2005
-------- --------
Current
Federal $ -- $ --
State -- --
-------- --------
Deferred
Federal (10,058) (48,277)
State (903) (5,154)
-------- --------
(10,961) (53,431)
-------- --------
Income tax expense (benefit) $(10,961) $(53,431)
======== ========
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:
8
Current Non-Current
----------- -----------
Deferred tax assets:
NOL carryforward $ 159,744 $ 1,369,767
Contribution carryforward -- 3,436
Allowance for doubtful accounts 941 --
----------- -----------
160,685 1,373,203
Deferred tax (liabilities):
Excess of tax over book depreciation -- (9,538)
----------- -----------
-- (9,538)
Valuation allowance for deferred tax asset -- (1,373,203)
----------- -----------
Net deferred tax asset (liability) $ 160,685 $ (9,538)
=========== ===========
The change in the valuation allowance is as follows:
March 31, 2006 $ 1,373,203
June 30 , 2005 $ 1,492,017
-----------
Decrease in valuation allowance $ (118,814)
===========
The decrease in the valuation allowance is due to a decrease in the
expected Net Operating Loss carryforward utilization. A valuation allowance
of approximately $1,373,000 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.
NOTE E - RECENT ACCOUNTING PRONOUNCEMENT
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 Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation." SFAS 123R is
effective for small business publicly traded companies, for interim or
annual periods beginning after December 15, 2005. It 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 statement of operations based upon their fair values and rescinds the
acceptance of pro forma disclosure. SFAS 123R permits two methods of
adoption, a "modified prospective" method and a "modified retrospective"
method. Under the modified prospective method, stock-based compensation
cost is recognized, beginning with the effective date, based on the
requirements of SFAS 123R for all share-based payments granted after the
effective date and for all awards granted prior to the effective date that
remain unvested on the effective date. The modified retrospective method
includes the requirements of the modified prospective method and also
permits restatement of prior periods based on amounts previously reported
in pro forma disclosures pursuant to SFAS 123 for either all periods
presented or for only prior interim periods of the year of adoption. We
adopted the modified prospective method prescribed in SFAS 123R, effective
January 1, 2006.
9
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
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, diabetic 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.
10
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
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
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 Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation." SFAS 123R is
effective for small business publicly traded companies, for interim or
annual periods beginning after December 15, 2005. It 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 statement of operations based upon their fair values and rescinds the
acceptance of pro forma disclosure. SFAS 123R permits two methods of
adoption, a "modified prospective" method and a "modified retrospective"
method. Under the modified prospective method, stock-based compensation
cost is recognized, beginning with the effective date, based on the
requirements of SFAS 123R for all share-based payments granted after the
effective date and for all awards granted prior to the effective date that
remain unvested on the effective date. The modified retrospective method
includes the requirements of the modified prospective method and also
permits restatement of prior periods based on amounts previously reported
in pro forma disclosures pursuant to SFAS 123 for either all periods
presented or for only prior interim periods of the year of adoption. We
adopted the modified prospective method prescribed in SFAS 123R, effective
January 1, 2006.
11
Financial Condition
As of March 31, 2006, the Company's principal sources of liquid assets
included cash of $210,745, inventories of $126,857, and net accounts
receivable of $166,054. The Company had net working capital of $579,797,
and long-term debt of $9,538 at March 31, 2006.
During the nine months ended March 31, 2006, cash increased from $26,580 as
of June 30, 2005 to $210,745. Operating activities provided cash of
$285,577 during the period, consisting primarily of net income of $293,873.
Cash used in financing activities was $92,360 as compared to cash used by
financing activities of $109,486 for the corresponding period in 2005.
The Company recorded deferred tax assets of $160,685, and deferred tax
liability of $9,538, at March 31, 2006. A valuation allowance of
approximately $1,373,000 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 nine months ended March 31, 2006 and
2005.
Net sales during the quarter ended March 31, 2006 were $622,596, as
compared to $555,712 in the quarter ended March 31, 2005, an increase of
$66,884, or 12%. The increase in sales was mainly attributable to increased
sales to distributors. Sales from the Sirius subsidiary have 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 nine months ended
March 31, 2006 were $1,699,941 as compared to $1,649,231 in the nine months
ended March 31, 2005, an increase of $50,710, or 3%.
Gross profit during the quarter ended March 31, 2006 was $489,266, as
compared to $416,412 during the quarter ended March 31, 2005, an increase
of 72,854, or 17%. Gross profit during the nine months ended March 31, 2006
was $1,314,086, as compared to $1,257,372 during the nine months ended
March 31, 2005, an increase of $56,714 or 5%. As a percentage of net sales,
gross profit was 79% in the quarter ended March 31, 2006 and 75% in the
corresponding quarter in 2005. As a percentage of net sales, gross profit
was 77% in the nine months ending March 31, 2006 and 76% in the
corresponding nine months in 2005.
Operating expenses during the quarter ended March 31, 2006, were $376,468,
consisting of $180,421 in salaries and benefits, and $196,047 in selling,
general and administrative expenses. This compares to operating expenses
during the quarter ended March 31, 2005 of $375,656, consisting of $176,021
in salaries and benefits, and $199,635 in selling, general and
administrative expenses. Expenses for the quarter ended March 31, 2006
increased compared to the corresponding quarter in 2005 by less than 1%.
Salaries increased slightly based on performance based compensation.
Selling, general and administrative cost decreased slightly for the quarter
ended March 31, 2006 compared to the quarter ended March 31, 2005.
Operating expenses during the nine months ended March 31, 2006, were
$1,029,553, consisting of $494,635 in salaries and benefits, and $534,918
in selling, general and administrative expenses. This compares to operating
expenses during the nine months ended March 31, 2005 of $1,047,784,
consisting of $519,887 in salaries and benefits, and $527,897 in selling,
general and administrative expenses. Expenses for the nine months ended
March 31, 2006 decreased compared to the corresponding nine months in 2005
by 2%, mainly attributable to the decrease in compensation of the CEO
position while it was vacant.
Operating profit increased by $72,042 (176%) to $112,798 for the quarter
ended March 31, 2006, from $40,756 in the comparable quarter of the prior
year. Operating profit increased by $74,945 (36%) to $284,533 for the nine
months ended March 31, 2005, from $209,588 in the comparable nine months of
the prior year. Net Profit (before dividend requirements for Preferred
Shares) was $127,035 during the quarter ended March 31, 2006, as compared
to $44,928 during the quarter ended March 31, 2005. Net Profit (before
dividend requirements for Preferred Shares) was $293,873 during the nine
12
months ended March 31, 2005, as compared to $253,203 during the nine months
ended March 31, 2005. The increase in profit comes largely from an increase
in gross profits while keeping cost steady. We have improved 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 if 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 third 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.
PART II. OTHER INFORMATION
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
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
May 15, 2006 By: /s/ REGINA W. ANDERSON
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Date Regina W. Anderson, Chief Executive
Officer
13