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, 2007
[ ] 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
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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 [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]
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; 8,050,588
shares outstanding as of May 14, 2007
Transitional Small Business Disclosure Format (check one) Yes [ ] No [x]
PART I. - FINANCIAL INFORMATION
Item Page
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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
OR PLAN OF OPERATION 11
ITEM 3. CONTROLS AND PROCEDURES 16
PART II. - OTHER INFORMATION
ITEM 5. OTHER INFORMATION 17
ITEM 6. EXHIBITS 17
SIGNATURES 18
2
PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2007 and June 30, 2006
(unaudited) (audited)
March 31, June 30,
2007 2006
----------- -----------
ASSETS
CURRENT ASSETS
Cash $ 396,672 $ 288,377
Accounts receivable, net of $2,500
allowance for doubtful accounts 179,080 146,446
Prepaid expenses 123,182 120,516
Inventories 137,598 150,865
Deferred tax asset 179,461 133,245
----------- -----------
TOTAL CURRENT ASSETS 1,015,993 839,449
PROPERTY AND EQUIPMENT, NET 589,728 62,962
OTHER ASSETS
Deposits 4,152 8,748
Deferred tax asset 194,346 --
----------- -----------
198,498 8,748
TOTAL ASSETS $ 1,804,219 $ 911,159
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 107,871 $ 125,648
Accrued Expenses 87,814 82,220
Current Portion of Mortgage Payable 20,821 --
----------- -----------
TOTAL CURRENT LIABILITIES 216,506 207,868
LONG-TERM LIABILITIES
Deferred tax liability -- 9,063
Mortgage Payable 474,429 --
----------- -----------
TOTAL LONG TERM LIABILITIES 474,429 9,063
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; 204,900
shares issued and outstanding 160,750 160,750
Common stock, no par value, 80,000,000 shares
authorized; 8,046,588 shares issued and outstanding 4,410,876 4,410,876
Paid-in Capital 6,000 6,000
Accumulated deficit (3,464,342) (3,883,398)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 1,113,284 694,228
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,804,219 $ 911,159
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2007 and 2006
Nine Months Ended March 31, 2007 and 2006
(unaudited) (unaudited) (unaudited) (unaudited)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
Mar. 31, 2007 Mar. 31, 2006 Mar. 31, 2007 Mar. 31, 2006
------------- ------------- ------------- -------------
NET SALES $ 698,015 $ 622,596 $ 1,850,873 $ 1,699,941
COST OF SALES 149,873 133,330 422,645 385,855
----------- ----------- ----------- -----------
GROSS PROFIT 548,142 489,266 1,428,228 1,314,086
OPERATING EXPENSES
Salaries and Benefits 227,966 180,421 610,491 494,635
Selling, General and Administrative 193,597 196,047 632,005 534,918
----------- ----------- ----------- -----------
421,563 376,468 1,242,496 1,029,553
INCOME FROM OPERATIONS 126,579 112,798 185,732 284,533
OTHER INCOME (EXPENSE)
Interest Income 3,186 636 8,320 1,132
Interest Expense (9,060) (327) (24,619) (3,283)
Other Income 530 530
----------- ----------- ----------- -----------
(5,874) 839 (16,299) (1,621)
INCOME BEFORE INCOME TAXES 120,705 113,637 169,433 282,912
INCOME TAX (EXPENSE) BENEFIT 98,831 13,398 249,625 10,961
----------- ----------- ----------- -----------
NET INCOME 219,536 127,035 419,058 293,873
Dividend requirements on preferred stock (5,123) (5,373) (15,368) (16,118)
----------- ----------- ----------- -----------
Basic net income available to common shares $ 214,413 $ 121,662 $ 403,690 $ 277,755
=========== =========== =========== ===========
Basic net income per common share $ 0.03 $ 0.02 $ 0.05 $ 0.03
Weighted average number of common
shares outstanding 8,049,588 8,039,588 8,049,588 8,045,041
=========== =========== =========== ===========
Diluted net income per common share $ 0.03 $ 0.01 $ 0.05 $ 0.03
Weighted average number of common shares
outstanding, basic and diluted 8,322,571 8,361,964 8,322,571 8,367,417
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
4
PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine months Ending March 31, 2007 and 2006
(unaudited) (unaudited)
March 31, March 31,
2007 2006
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 419,058 $ 293,873
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation 27,221 18,681
Deferred Income Taxes (249,624) (10,961)
Decrease (increase) in:
Accounts Receivable (32,634) (20,081)
Inventory 13,267 19,466
Prepaid Expenses (2,666) (25,324)
Other Assets 4,596 18,709
Increase (decrease) in:
Accounts Payable (17,778) (6,494)
Accrued Expenses 5,594 (2,292)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 167,034 285,577
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property & equipment (45,990) (9,052)
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (45,990) (9,052)
CASH FLOW FROM FINANCING ACTIVITIES
Payments on note payable -related party -- (90,000)
Payments on Mortgage Payable (12,749) --
Payments on capital lease obligations -- (2,360)
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES (12,749) (92,360)
NET CHANGE IN CASH 108,295 184,165
CASH AT BEGINNING OF PERIOD 288,377 26,580
--------- ---------
CASH AT END OF PERIOD $ 396,672 $ 210,745
========= =========
SUPPLEMENTAL DISCLOSURES
Interest Paid $ 24,619 $ 3,283
Taxes Paid $ -- $ --
NONCASH TRANSACTION DISCLOSURE
Purchase of Office Building Financed by Mortgage $ 508,000 $ --
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,
2006. 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. 123R ("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 March 31, 2007, 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
6
March 31, 2007, no options were granted. Therefore, the adoption of SFAS
123R does not have an impact on our statement of operations for period
ending March 31, 2007.
Prior to January 1, 2006, 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.
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. There were no options granted during the
quarters ended March 31, 2007 and 2006.
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,
2007 2006
-------- --------
Finished Goods $ 42,161 $ 61,330
Raw Materials $ 95,437 $ 89,535
-------- --------
$137,598 $150,865
======== ========
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
7
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, 2007,
no dividends have been declared. Dividends in arrears on the outstanding
preferred shares total $202,229 as of March 31, 2007.
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, 2007, the Company had consolidated income tax net
operating loss ("NOL") carryforward for federal income tax purposes of
approximately $3,802,000. The federal NOL will expire in various years
ending through the year 2022.
For the nine months periods ended March 31, 2007 and 2006, the
components of the provision for income taxes (benefits) are attributable to
continuing operations as follows:
March 31, March 31,
2007 2006
--------- ---------
Current
Federal $ -- $ --
State -- --
--------- ---------
$ -- $ --
Deferred
Federal $(213,140) $ (10,058)
State (36,485) (903)
--------- ---------
$(249,625) $ (10,961)
========= =========
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:
Net operating loss & contribution carryforwards $ 178,520 $ 1,256,419
Allowance for doubtful accounts 941 --
Less: Valuation allowance -- (1,054,609)
----------- -----------
179,461 201,810
Deferred tax (liabilities):
Excess of tax over book depreciation -- (7,464)
----------- -----------
Net deferred tax asset (liability) $ 179,461 $ 194,346
=========== ===========
The change in the valuation allowance is as follows:
June 30, 2006 $ 1,373,049
March 31, 2007 1,054,609
-----------
Change in valuation allowance $ (318,440)
===========
The decrease in the valuation allowance is due to an increase in the
expected utilization of net operating loss carry forwards. A valuation
allowance of approximately $1,054,000 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 it will realize from using the carryforward.
Income taxes for the nine month periods ended March 31, 2007, and
March 31, 2006, differ from the amounts computed by applying the effective
income tax rates of 37.63% and 37.63%, respectively, to income before
income taxes as a result of the following:
March 31, March 31,
2007 2006
--------- ---------
Expected provision (benefit) $ 59,596 $ 96,190
State income taxes net of federal benefits 6,363 10,270
Nondeductible (income) expense 1,323 2,464
Change in valuation allowance (318,440) (118,814)
Other, net 1,533 (1,071)
--------- ---------
$(249,625) $ (10,961)
========= =========
9
NOTE E - MORTGAGE PAYABLE
On July 21, 2006, we entered into a mortgage loan for $508,000 with
the Bank of America for the purchase of our corporate office building. The
mortgage loan is due in 15 years and interest is fixed at 7.25%. Interest
expense was $24,599 for the nine months ended March 31, 2007.
Maturities of long-term debt associated with the mortgage payable are as
follows:
Year Ending June 30,
--------------------------------------------
3 months 2007 $ 5,064
2008 21,201
2009 22,790
2010 24,498
2011 26,335
2012 and thereafter 395,362
----------
495,250
Less current portion 20,821
----------
$ 474,429
==========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
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
10
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, 2006, which was filed with the Securities and Exchange
Commission on September 29, 2006. 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. We believe that the following critical accounting policies
affect the more significant judgments and estimates used in the preparation
of our financial statements.
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.
11
Deferred Income Taxes
Deferred income taxes are recognized for the expected tax consequences
in future years for differences between the tax bases of assets and
liabilities and their financial reporting amounts, based upon exacted tax
laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. The Company accounts for
income taxes under Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). We maintain a valuation
allowance to reduce deferred tax assets to the net amount expected to be
recovered in future periods. The estimates for deferred tax assets and the
corresponding valuation allowance require us to exercise complex
judgements. We periodically review and adjust those estimates based upon
the most current information available. In accordance with SFAS 109 and
based upon a review at March 31, 2007, of our utilization of deferred tax
assets, we maintained a valuation allowance of $1,054,609. Because the
recoverability of deferred tax assets is directly dependent upon future
operating results, actual recoverability of deferred tax assets may differ
materially from our estimates.
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. 123R ("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"
12
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.
Financial Condition
As of March 31, 2007, the Company's principal sources of liquid assets
included cash of $396,672, inventories of $137,598, and net accounts
receivable of $179,080. The Company had net working capital of $799,487,
and long-term debt of $474,429 at March 31, 2007.
During the nine months ended March 31, 2007, cash increased from
$288,377 as of June 30, 2006, to $396,672. Operating activities provided
cash of $167,034 during the period, consisting primarily of net income of
$419,058. Cash used by financing activities was $12,749 as compared to cash
used by financing activities of $92,360 for the corresponding period in
2006.
The Company recorded a current deferred tax asset of $179,461, and
non-current deferred tax asset of $194,346, at March 31, 2007. A valuation
allowance of approximately $1,054,000 has been recorded to reduce the asset
to the net amount of expected tax benefit management believes it will more
likely than not realize. Because the recoverability of deferred tax assets
is directly dependent upon future operating results, actual recoverability
of deferred tax assets may differ materially from our estimates.
Results of Operations
Comparison of the three months and nine months and ended March 31,
2007 and 2006.
Net sales during the quarter ended March 31, 2007 were $698,015, as
compared to $622,596 in the quarter ended March 31, 2006, an increase of
$75,419, or approximately 12%. Net sales for the nine months ended March
31, 2007 were $1,850,873, as compared to $1,699,941 in the nine months
ended March 31, 2006, an increase of $150,932, or approximately 9%. Sales
to distributors increased secondary to expanding our distributor base and
to the increased volumes produced by existing distributors. Sales from our
Sirius subsidiary have leveled off, as we continue to find ways to reach
Sirius' intended market. We believe there is great potential for Sirius as
the number of diagnosed diabetics continues to increase.
Gross profit during the quarter ended March 31, 2007 was $548,142, as
compared to $489,266 during the quarter ended March 31, 2006, an increase
of $58,876, or approximately 12%. Gross profit for the nine months ended
March 31, 2007, was $1,428,228 as compared to $1,314,086, an increase of
$114,142, or approximately 9%. As a percentage of net sales, gross profit
13
was approximately 79% in the quarter ended March 31, 2007, and
approximately 78% in the corresponding quarter in 2006. As a percentage of
net sales, gross profit was approximately 77% and 77% for the nine months
ended March 31, 2007 and 2006, respectively.
Operating expenses during the quarter ended March 31, 2007, were
$421,563, consisting of $227,966 in salaries and benefits, and $193,597 in
selling, general and administrative expenses. This compares to operating
expenses during the quarter ended March 31, 2006 of $376,468, consisting of
$180,421 in salaries and benefits, and $196,047 in selling, general and
administrative expenses. Expenses for the quarter ended March 31, 2007,
increased by approximately $45,095, or approximately 12% compared to the
corresponding quarter in 2006. Increases in the salaries and benefits for
the current period was due to an increase in personnel and increased
commissions in fiscal 2007. Selling, general and administrative cost
decreased for the quarter ended March 31, 2007, compared to the quarter
ended March 31, 2006 by $2,450. The Company has implemented a new
accounting software program that is more suitable for growth.
Operating profit increased by $13,781 (approximately 12%) to $126,579
for the quarter ended March 31, 2007, as compared to $112,798 in the
comparable quarter of the prior year. Net income (before dividend
requirements for Preferred Shares) was $219,536 during the three months
ended March 31, 2007, as compared to $127,035 during the three months ended
March 31, 2006. The increase in net income was primarily attributable to an
increase in the recoverability of deferred tax assets based on the
expectation of being able to use the Net Operating Loss carry-forward. The
current deferred tax asset calculation is based on a two year projection
verses the one year projection utilized in previously reported quarters.
The two year projection is currently utilized to reflect the Company's
increased fiscal stability as reported for the past fifteen quarters. 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 Chief
Executive Officer and Chief Financial 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 Chief Executive and Chief Financial 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.
14
(b) Changes in Internal Controls Over Financial Reporting
During the third fiscal quarter of 2007, 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 5. OTHER INFORMATION
None.
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 14, 2007 By: /s/ REGINA W. ANDERSON
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Date Regina W. Anderson,
Chief Executive Officer
15