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, 2005
[ ] Transition Report Under Section 13 or 18(d) of the Exchange Act
Commission File Number: 0-17449
PROCYON CORPORATION
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(Exact Name of Small Business Issuer as specified in its charter)
COLORADO 59-3280822
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(State of Incorporation) (IRS Employer Identification Number)
1300 S. Highland Ave.
Clearwater, FL 33756
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(Address of Principal Offices)
(727) 447-2998
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(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; 8,057,588 shares outstanding as of May 13, 2005
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 6. EXHIBITS ................................................... 12
SIGNATURES.......................................................... 12
2
PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2005 & June 30, 2004
(unaudited) (audited)
March 31 June 30
2005 2004
ASSETS
CURRENT ASSETS
Cash $ 55,884 $ 14,608
Accounts Receivable, less allowance for doubtful
accounts in the amounts of $2,500 and $9,000 164,046 154,648
Prepaid Expenses 38,870 36,665
Inventories 150,770 104,724
Deferred tax asset 128,191 75,000
----------- -----------
TOTAL CURRENT ASSETS 537,761 385,645
PROPERTY AND EQUIPMENT, NET 83,278 95,398
OTHER ASSETS
Certificates of deposit
plus accrued interest, restricted 17,114 17,114
Deposits 10,309 5,214
----------- -----------
TOTAL OTHER ASSETS 27,423 22,328
TOTAL ASSETS $ 648,462 $ 503,371
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term notes payable 0 7,704
Current portion of capital lease obligations 3,182 8,046
Accounts Payable 102,121 98,821
Accrued Expenses 71,038 72,722
----------- -----------
TOTAL CURRENT LIABILITIES 176,341 187,293
LONG TERM LIABILITIES
Notes payable 0 3,052
Note payable to related party 170,000 261,506
Capital lease obligations 0 2,360
Deferred tax liability 11,760 12,000
----------- -----------
TOTAL LONG TERM LIABILITIES 181,760 278,918
TOTAL LIABILITIES 358,101 466,211
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;
224,900 shares issued and outstanding 180,750 182,950
Common stock, no par value, 80,000,000 shares
authorized; 8,047,588 shares issued and
outstanding 4,390,876 4,388,676
Paid-in capital 6,000 6,000
Accumulated deficit (4,287,265) (4,540,466)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 290,361 37,160
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 648,462 $ 503,371
=========== ===========
The accompanying notes are an integral part of these financial statements
3
PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2005 and 2004
Nine Months Ended March 31, 2005 and 2004
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
March 31, 2005 March 31, 2004 March 31, 2005 March 31, 2004
----------- ----------- ----------- ----------
(unaudited) (unaudited) (unaudited) (unaudited)
NET SALES $ 555,712 $ 510,344 $ 1,649,231 $ 1,496,104
COST OF SALES 139,300 101,492 391,859 329,193
----------- ----------- ----------- -----------
GROSS PROFIT 416,412 408,852 1,257,372 1,166,911
OPERATING EXPENSES
Salaries and Benefits 176,021 164,029 $ 519,887 466,118
Selling, General and Administrative 199,635 170,858 527,897 511,750
----------- ----------- ----------- -----------
375,656 334,887 1,047,784 977,868
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 40,756 73,965 209,588 189,043
Other Income (Expense):
Interest Expense (3,038) (8,205) (10,468) (28,901)
Interest Income 76 57 221 204
Other Income 0 569 431 7,155
----------- ----------- ----------- -----------
(2,962) (7,579) (9,816) (21,542)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 37,794 66,386 199,772 167,501
INCOME TAX BENEFIT 7,134 0 53,431 0
----------- ----------- ----------- -----------
NET INCOME 44,928 66,386 253,203 167,501
Dividend requirements on preferred stock (3,973) (3,428) (15,329) (14,233)
----------- ----------- ----------- -----------
Net Profit applicable to common stock $ 40,955 $ 62,958 $ 237,874 $ 153,268
=========== =========== =========== ===========
Basic net income per common share 0.01 0.01 0.03 0.02
Diluted earnings per common share 0.00 0.01 0.03 0.02
Weighted average number of
common shares outstanding 8,045,412 8,043,742 8,045,396 8,042,302
=========== =========== =========== ===========
Diluted weighted average number of
common shares outstanding 8,400,991 8,570,842 8,400,991 8,569,402
=========== =========== =========== ===========
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, 2005 and 2004
Nine Months Nine Months
Ended Ended
March 31 March 31
2005 2004
------------ -----------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Profit $ 253,203 $ 167,501
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation 20,476 15,792
Allowance for doubtful accounts (6,500) (3,800)
Deferred income taxes (53,431) 0
Decrease (increase) in:
Accounts Receivable (2,898) (3,534)
Inventories (46,046) 13,303
Other Assets (5,095) (4,479)
Prepaid Expenses (2,205) (19,387)
Increase (decrease) in:
Accounts Payable 3,300 (53,836)
Accrued Expenses (1,687) (2,933)
--------- ---------
Cash Provided by Operating Activities 159,117 108,627
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property & Equipment (8,355) (57,021)
--------- ---------
Cash Used in Investing Activities (8,355) (57,021)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Long Term Note Payable - related party 20,000 0
Payments on Long Term Note Payable - related party (111,506) (4,657)
Payments on Capital Lease Obligations (7,224) (5,872)
Payments on Long Term Note Payable (10,756) (55)
--------- ---------
Cash Used in Financing Activities (109,486) (10,584)
Net Change in Cash and Cash Equivalents 41,276 41,022
Cash and Cash Equivalents, beginning of period 14,608 41,549
--------- ---------
Cash and Cash Equivalents, end of period $ 55,884 $ 82,571
========= =========
SUPPLEMENTAL DISCLOSURES
Interest Paid $ 10,468 $ 28,901
Taxes Paid $ 0 $ 0
NONCASH TRANSACTION DISCLOSURE
Preferred Shares converted to Common Shares $ 2,200 $ 4,000
Purchase of property & equipment through long term loan $ 0 $ 1,563
Financing of property & equipment through accrued expenses $ 0 $ 6,509
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,
2004. 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 March 31, 2005 and 2004.
The following table illustrates the effect on net income and earnings per
share for three months and nine months ended March 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 3 months 9 months 9 months
ending ending ending ending
2005 2004 2005 2004
---------- ---------- ----------- -----------
Net income applicable to common stock:
As reported $ 40,955 $ 62,958 $ 237,874 $ 153,268
Pro forma adjustment for compensation -- -- -- --
---------- ---------- ----------- -----------
Pro forma $ 40,955 $ 62,958 $ 237,874 $ 153,268
========== ========== =========== ===========
Income per common share:
Basic - as reported $ 0.01 $ .01 $ 0.03 $ 0.02
Basic - pro forma $ 0.01 $ .01 $ 0.03 $ 0.02
Diluted - as reported $ 0.00 $ .01 $ 0.03 $ 0.02
Diluted - pro forma $ 0.00 $ .01 $ 0.03 $ 0.02
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 the Company beginning with the
quarter ended December 31, 2005. The Company has not yet determined the
impact in adopting SFAS 123R.
NOTE B - INVENTORIES
Inventories consisted of the following:
March 31, June 30,
2005 2004
---- ----
Finished Goods $ 43,145 $ 39,751
Raw Materials $ 107,625 $ 64,973
--------- --------
$ 150,770 $ 104,724
========= =========
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, 2005,
no dividends have been declared. Dividends in arrears on the outstanding
preferred shares total $176,749 as of March 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 March 31, 2005, the Company had consolidated income tax net operating
loss ("NOL") carryforward for federal income tax purposes of approximately
$4,400,000. The NOL will expire in various years ending through the year
2024.
The components of the provision for income taxes (benefits) are
attributable to continuing operations as follows:
March 31, March 31,
2005 2004
-------- -------
Current
Federal $ -- $ --
State -- --
-------- ------
Deferred
Federal (48,277) --
State (5,154) --
-------- ------
(53,431) --
-------- ------
Income tax (benefit) $(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:
Current Non-Current
----------- ------------
Deferred tax assets:
NOL carryforward $ 127,250 $ 1,608,959
Allowance for doubtful accounts 941 --
----------- -----------
128,191 1,608,959
Deferred tax (liabilities):
Excess of tax over book depreciation -- (11,760)
----------- -----------
-- (11,760)
Valuation allowance for deferred tax asset -- (1,608,959)
----------- -----------
Net deferred tax asset (liability) $ 128,191 $ (11,760)
=========== ===========
8
The change in the valuation allowance is as follows:
March 31, 2005 $ 1,608,959
June 30, 2004 $ 1,498,878
-----------
Increase in valuation allowance $ 110,081
===========
The increase in the valuation allowance is due to an increase in the
expected tax rate used to compute the expected NOL utilization. A valuation
allowance of approximately $1,609,000 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 FASB issued SFAS No. 123 (revised 2004), "Share -
Based Payment" SFAS 123 (Revised) addresses the accounting for share-based
payment transactions in which an enterprise receives employee services in
exchange for (a) equity instruments of the enterprise or (b) liabilities
that are based on the fair value of the enterprise's equity instruments or
that may be settled by the issuance of such equity instruments. SFAS 123
(Revised) requires an entity to recognize the grant-date fair-value of
stock options and other equity-based compensation issued to employees in
the income statement. The revised statement generally requires that an
entity account for those transactions using the fair-value-based method,
and eliminates the intrinsic value method of accounting in APB 25, which
was permitted under SFAS No. 123, as originally issued. The revised
statement requires entities to disclose information about the nature of the
share-based payment transactions and the effects of those transactions on
the financial statements.
SFAS No. 123 (Revised) is effective for small business issuers' financial
statements for the first annual reporting period that begins after December
15, 2005, with early adoption encouraged.
The Company is currently evaluating the impact that this statement will
have on its financial condition or results of operations.
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
or Plan 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 and the
general economy, competitive factors, changes in product mix, production
9
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, 2004, which was filed with the Securities and Exchange
Commission on September 28, 2004. 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 ads, 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.
10
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 March 31, 2005 and 2004.
Financial Condition
As of March 31, 2005, the Company's principal sources of liquid assets
included cash of $55,884, inventories of $150,770, and net accounts
receivable of $164,046. The Company had net working capital of $361,420,
and long-term debt of $181,760 at March 31, 2005.
During the nine months ended March 31, 2005, cash increased from $14,608 as
of June 30, 2004 to $55,884. Operating activities provided cash of $159,117
during the period, consisting primarily of net income of $253,203. Cash
used in financing activities was $109,486 as compared to cash used by
financing activities of $10,584 for the corresponding period in 2004.
The Company recorded deferred tax assets of $128,191, and deferred tax
liability of $11,760, at March 31, 2005. A valuation allowance of
approximately $1,609,000 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, 2005 and
2004.
Net sales during the quarter ended March 31, 2005 were $555,712, as
compared to $510,344 in the quarter ended March 31, 2004, an increase of
$45,368, or 9%. Increases in sales continue for the Company as sales grow
from Amerx's newest product, the Amerigel impregnated gauze. Sales from the
Sirius subsidiary continue to grow as the customer base for diabetics
continues to grow. Net sales for the nine months ended March 31, 2005 were
$1,649,231, as compared to $1,496,104 in the corresponding previous year
period, an increase of $153,127, or 10%.
Gross profit during the quarter ended March 31, 2005 was $416,412, as
compared to $408,852 during the quarter ended March 31, 2004, an increase
of $7,560, or 2%. As a percentage of net sales, gross profit was 75% in the
quarter ended March 31, 2005, as compared to 80% in the corresponding
quarter in 2004. Gross profit increased for the three months overall.
However profit margins decreased as sales for the Amerx product line
shifted to higher volume, lower margin distributor sales. Gross profit for
the nine months ended March 31, 2005 was $1,257,372, as compared to
$1,166,911 in the corresponding previous year period, an increase of
$90,461, or 8%.
11
Operating expenses during the quarter ended March 31, 2005, were $375,656,
consisting of $176,021 in salaries and benefits, and $199,635 in selling,
general and administrative expenses. This compares to operating expenses
during the quarter ended March 31, 2004 of $334,887, consisting of $164,029
in salaries and benefits, and $170,858 in selling, general and
administrative expenses. Expenses for the quarter ended March 31, 2005
increased compared to the corresponding quarter in 2004 by 12%. Salaries
continue to increase based on incentive based compensation. Selling,
general and administrative cost rose slightly as Amerx has increased
advertising and sponsorships for different groups within the professional
market.
Operating profit decreased by $33,209 (45%) to $40,756 for the quarter
ended March 31, 2005, from $73,965 in the comparable quarter of the prior
year. Net Profit (before dividend requirements for Preferred Shares) was
$44,928 during the quarter ended March 31, 2005, as compared to $66,386
during the quarter ended March 31, 2004. Operating profit increased by
$20,545 (11%) to $209,588 for the nine months ended March 31, 2005, from
$189,043 in the comparable period of the prior year. Net Profit (before
dividend requirements for Preferred Shares) for the nine months ended March
31, 2005 was $253,203, an increase of $85,702 or 51%. The Company continues
to try to improve its cash position. In the third fiscal quarter, Amerx
focused part of it's marketing efforts on funding long term oriented
marketing plans that would not yield immediate sales results in the current
quarter. This included marketing to further brand the Amerigel name in the
market place. Management believes that these marketing efforts will assist
the Company in reaching its long term goals. The Company also believes that
sales will continue to increase as the Company finds new markets for both
its products and services. The Company also believes that sales will
continue to increase as the Company finds new markets for both its products
and services. The Amerigel Products overall acceptance has grown steadily
in the Podiatric Market. This has also made for a favorable introduction of
Amerx's newest product the Amerigel impregnated gauze.
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 2005, 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 John C. 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
12
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 16, 2005 By: /s/ John C. Anderson
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Date John C. Anderson
President and Chief Financial Officer
13