SECURITIES & EXCHANGE COMMISSION
WASHINGTON, DC 20549

 

FORM 10-Q

 

[x] Quarterly Report Under Section 13 or 15 (d) of
the Securities Exchange Act of 1934

 

For Quarterly Period Ended September 30, 2011

[ ] 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)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ____ No ____

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer _____		Accelerated filer _____
Non-accelerated filer (Do not check if a smaller reporting company)__		Smaller reporting company X

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [ X ]

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common stock, no par value; 8,055,388 shares outstanding as of October 24, 2011.

 

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	12
ITEM 4. CONTROLS AND PROCEDURES	15
PART II. - OTHER INFORMATION
ITEM 5. OTHER INFORMATION	16
ITEM 6. EXHIBITS	16
SIGNATURES	17

 

 

 

PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2011 and June 30, 2011
		(unaudited)				(audited)
ASSETS		September 30,				June 30,
		2011				2011
CURRENT ASSETS
Cash		$	765,554			$	721,054
Certificates of Deposit, plus accrued interest			155,380				155,142
Accounts Receivable, less allowance for doubtful			179,476				311,493
accounts of $1,000
Inventories			302,724				204,733
Prepaid Expenses			89,545				147,449
Other Receivable			—				8,762
Deferred Tax Asset			116,790				140,577
TOTAL CURRENT ASSETS			1,609,469				1,689,210
PROPERTY AND EQUIPMENT, NET			527,481				535,040
OTHER ASSETS
Deposits			792				792
Deferred Tax Asset			743,081				724,681
			743,873				725,473
TOTAL ASSETS		$	2,880,823			$	2,949,723
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable		$	140,905			$	130,453
Accrued Expenses			126,873				146,753
Current Portion of Mortgage Payable			36,320				32,211
TOTAL CURRENT LIABILITIES			304,098				309,417
LONG TERM LIABILITIES
Mortgage Payable			251,764				314,173
TOTAL LONG TERM LIABILITIES			251,764				314,173
STOCKHOLDERS' EQUITY
Preferred Stock, 496,000,000 shares			—				—
authorized, none issued
Series A Cumulative Convertible Preferred Stock,			154,950				154,950
no par value; 4,000,000 shares authorized;
199,100 shares issued and outstanding
Common Stock, no par value, 80,000,000 shares			4,416,676				4,416,676
authorized; 8,055,388 shares issued and
outstanding
Paid-in Capital			6,000				6,000
Accumulated Deficit			(2,252,665	)			(2,251,493	)
TOTAL STOCKHOLDERS' EQUITY		$	2,324,961				2,326,133
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	2,880,823			$	2,949,723

 

 

 The accompanying notes are an integral part of these financial statements.

 

3

 

 

 

 

 

 

PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30, 2011 and 2010
		(unaudited)				(unaudited)
		Three Months				Three Months
		Ended				Ended
		Sep. 30, 2011				Sep. 30, 2010
NET SALES		$	589,447			$	654,245
COST OF SALES			127,771				138,646
GROSS PROFIT			461,676				515,599
OPERATING EXPENSES
Salaries and Benefits			232,911				215,875
Selling, General and Administrative			220,124				173,222
			453,035				389,097
INCOME FROM OPERATIONS			8,641				126,502
OTHER INCOME (EXPENSE)
Interest Expense			(5,336	)			(7,734	)
Interest Income			910				954
			(4,426	)			(6,780	)
INCOME BEFORE INCOME TAXES			4,215				119,722
INCOME TAX EXPENSE			(5,387	)			(48,654	)
NET INCOME(LOSS)			(1,172	)			71,068
Dividend requirements on preferred stock			(4,978	)			(4,978	)
Basic net income(loss) available to common shares		$	(6,150	)		$	66,090
Basic net income(loss) per common share		$	(0.00	)		$	0.01
Weighted average number of common shares outstanding			8,055,388				8,055,388
Diluted net income(loss) per common share		$	(0.00	)		$	0.01
Weighted average number of common shares outstanding, diluted			8,254,488				8,254,488

 

 

 The accompanying notes are an integral part of these financial statements.

 

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PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ending September 30, 2011 and 2010
		(unaudited)				(unaudited)
		September 30,				September 30,
		2011				2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss)		$	(1,172	)		$	71,068
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation			9,152				7,293
Deferred Income Taxes			5,387				48,654
Accrued Interest on Certificates of Deposit			(237	)			(310	)
Decrease (increase) in:
Accounts Receivable			132,017				6,184
Other Receivables			8,762
Inventory			(97,991	)			(16,719	)
Prepaid Expenses			57,903				12,745
Other Assets			—				1,062
Increase (decrease) in:
Accounts Payable			10,452				(43,797	)
Accrued Expenses			(19,880	)			(21,289	)
NET CASH PROVIDED BY OPERATING ACTIVITIES			104,393				64,891
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of Certificate of Deposit			—				(50,000	)
Purchase of property & equipment			(1,593	)			(18,445	)
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES			(1,593	)			(68,445	)
CASH FLOW FROM FINANCING ACTIVITIES
Payments on Mortgage Payable			(58,300	)			(6,132	)
NET CASH USED BY FINANCING ACTIVITIES			(58,300	)			(6,132	)
NET CHANGE IN CASH			44,500				(9,686	)
CASH AT BEGINNING OF PERIOD			721,054				827,512
CASH AT END OF PERIOD		$	765,554			$	817,826
SUPPLEMENTAL DISCLOSURES
Interest Paid		$	5,436			$	7,783
Taxes Paid		$	—			$	—

 

 

 The accompanying notes are an integral part of these financial statements.

 

5 

 

 

 

 

 

 

Notes to Financial Statements

 

NOTE A - SUMMARY OF ACCOUNTING POLICIES

 

The interim financial statements included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) 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, 2011. 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

 

Stock based compensation is accounted for in accordance with Topic 718 - Compensation -Stock Compensation in the Accounting Standards Codification. Pursuant to Topic 718, all share-based payments to employees, including grants of employee stock options, are to be recognized in the statement of operations based upon their fair values. Topic 718 rescinds the acceptance of pro forma disclosure. In December 2009, our shareholders approved the adoption of a new stock option plan, providing the Company a continued means of offering stock-based compensation.

 

On September 30, 2011, there were no outstanding options to purchase shares of our common stock. The previously reported 65,000 options outstanding, expired in November 2010. Therefore, the adoption of Topic 718 does not have a material impact on our statement of operations for period ending September 30, 2011.

 

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 September 30, 2011 and 2010.

 

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.

 

EARNINGS PER SHARE

 

Basic earnings per share (EPS) is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that would occur if dilutive securities such as stock options and other contracts to issue Common Stock were exercised or converted into Common Stock or resulted in the issuance of Common Stock that then shared in earnings. We use the treasury stock method to compute potential common shares from stock options and the as-if-converted method to compute potential common shares from Preferred Stock.

 

For the three months ended September 30, 2011, in which net losses occurred, all potential common shares were excluded from diluted EPS because the effect of including such shares would be anti-dilutive.

 

SUBSEQUENT EVENTS

 

We have evaluated subsequent events through November 1, 2011, which is the date the financial statements were available to be issued.

 

NOTE B - INVENTORIES

 

Inventories consisted of the following:
		September 30,				June 30,
		2011				2011
Finished Goods		$	200,283			$	116,576
Raw Materials		$	102,441			$	88,157
		$	302,724			$	204,733

 

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 September 30, 2011, no dividends have been declared. Dividends in arrears on the outstanding preferred shares total $286,169 as of September 30, 2011.

 

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. There were no shares converted during the reporting period.

 

 The Board of Directors of the Company approved a plan on December 8, 2007 to repurchase shares of Procyon Corporation's outstanding common stock. The repurchase plan authorizes management to repurchase from time to time up to 10% of the total outstanding shares of common stock as of December 8, 2007, subject to applicable SEC regulations and compliance with the Company's trading window policies. The Board's authorization is based on its belief that Procyon's common stock is underpriced at times given the Company's working capital, liquidity, assets, book value and future prospects. The shares may be repurchased from time to time in the open market, through block purchases or in privately negotiated transactions depending upon market conditions and other factors, in accordance with SEC Rule 10b-18. Procyon has no commitment or obligation to purchase all or any portion of the authorized shares. All shares purchased are canceled and returned to the status of authorized but unissued common stock. The plan does not have an expiration date. As of September 30, 2011, no shares of common stock had been repurchased by the Company pursuant to its repurchase plan.

 

NOTE D - INCOME TAXES AND AVAILABLE CARRYFORWARD

 

As of September 30, 2011, the Company had consolidated income tax net operating loss ("NOL") carryforward for federal income tax purposes of approximately $2,319,000. The NOL will expire in various years ending through the year 2022. The utilization of certain of the loss carryforwards are limited under Section 382 of the Internal Revenue Code.

 

The components of the provision for income tax expense (benefits) attributable to continuing and discontinued operations are as follows: 

 

		Three  Months 9/30/2011				Three Months 9/30/2010
Current
Federal		$	0			$	0
State			0				0
		$	0			$	0
Deferred
Federal		$	4,600			$	41,543
State			787				7,111
		$	5,387			$	48,654
Total Income Tax Expense		$	5,387			$	48,654

 

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 and contribution carryforwards		$	117,166			$	755,399
Allowance for doubtful accounts			(376	)			—
			116,790				755,399
Deferred tax (liabilities)
Excess of tax over book depreciation			—				(12,319	)
			116,790				743,081
Net deferred tax asset (liability)		$	116,790			$	743,081

 

 The Change in valuation allowance is as follows:

 

June 30, 2011		$	—
September 30, 2011		$	—
Change in valuation allowance		$	—

 

Management believes it is more likely than not that it will realize the benefit of the NOL carryforward, because of its continuing trend of earnings. Therefore, a valuation allowance in not considered necessary.

 

Income taxes for the periods ended September 30, 2011 and 2010 differ from the amounts computed by applying the effective income tax rates of 37.63%, to income taxes as a result of the following:

 

		Three Months Sep. 30, 2011				Three Months Sep. 30, 2010
Expected provision at US statutory rate		$	1,433			$	41,215
State income tax net of federal benefit			153				4,400
Nondeductible Expense			858				512
Change in estimates in available NOL carryforwards			2,943				2,527
Income Tax Expense		$	5,387			$	48,654

 

The earliest tax year still subject to examination by a major taxing jurisdiction is fiscal year end June 30, 2007.

 

9

 

 

 

NOTE E - MORTGAGE PAYABLE

 

On July 21, 2006, we entered into a mortgage loan, guaranteed by our C.E.O. Regina W. Anderson, for $508,000 with the Bank of America for the purchase of our corporate office building which has a net book value of approximately $475,000. The mortgage loan is due in July 2021 and interest is fixed at 7.25%. Interest expense was $5,336 for the three months ended September 30, 2011. As of September 21, 2010, the interest rate on the mortgage was adjusted to 6.85% for the remainder of the term of the loan.

 

Maturities of long-term debt associated with the mortgage payable are as follows:

 

Year Ending June 30,
9 months 2012		$	27,006
2013			38,229
2014			40,932
2015			43,825
2016			46,924
2017 and thereafter			91,168
			288,084
Less current portion			36,320
		$	251,764

 

NOTE F - LINE OF CREDIT

 

The Company has a $250,000, due-on-demand line of credit with a financial institution, collateralized by the Company’s inventory of $302,724 and accounts receivable assets of $179,476. The line of credit is renewable annually in April. The C.E.O. of the Company personally guaranteed the line of credit to the Company. At September 30, 2011, the Company owed $0 on the line of credit. The line of credit extends terms of cash advances at a variable rate set equal to the prime rate at the time of advance. The interest rate can fluctuate according to the changes in its published prime rate.

 

NOTE G - RELATED PARTY TRANSACTIONS

 

Our Chief Executive Officer, Regina W. Anderson, guaranteed a loan for the Company in the amount of $508,000, issued in connection with our purchase of our office building in July 2006, as well as the $250,000 line of credit.

 

10

 

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.

 

This Report on Form 10-Q, 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 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 standards of the Public Company Accounting Oversight Board (United States), 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 form 10-K, for the year ended June 30, 2011, which was filed with the Securities and Exchange Commission on September 28, 2011. 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.

 

11

 

Accounts Receivable Allowance

 

Accounts receivable allowance reflects a reserve that reduces our customer accounts and receivable to the net amount estimated to be collectible. 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. At September 30, 2011 our allowance for doubtful accounts totaled $1,000.

 

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.

 

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 enacted 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 Topic 740 - Income Tax in the Accounting Standards Codification. A valuation allowance is used 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 judgments. We periodically review and adjust those estimates based upon the most current information available. We did not have a valuation allowance as of September 30, 2011. Because the recover ability of deferred tax assets is directly dependent upon future operating results, actual recover ability of deferred tax assets may differ materially from our estimates.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 104, "Revenue Recognition, corrected copy," which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller's price to the buyer is fixed or determinable; and, (4) collectibility is reasonably assured.

 

Stock Based Compensation

 

Stock based compensation is accounted for in accordance with Topic 718 - Compensation - Stock Compensation in the Accounting Standards Codification. All share-based payments to employees, including grants of employee stock options, are to be recognized in the statement of operations based upon their fair values. Topic 718 rescinds the acceptance of pro forma disclosure.

 

FINANCIAL CONDITION

 

As of September 30, 2011 the Company's principal sources of liquid assets included cash of $765,554, inventories of $302,724, and net accounts receivable of $179,476. The company also has $155,380 in short term Certificate of Deposits. The Company had net working capital of $1,305,371, and long-term debt of $251,764 at September 30, 2011.

 

 

12

 

 

During the three months ended September 30, 2011, cash increased from $721,054 as of June 30, 2011, to $765,554. Operating activities provided cash of $104,393 during the period, consisting primarily of collection of accounts receivable of $132,017. Cash used by investing activities was $1,593 as compared to $68,445 for the corresponding period in 2010.

 

The Company recorded a current deferred tax asset of $116,790, and non-current deferred tax asset of $743,081, at September 30, 2011. 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 ended September 30, 2011 and 2010.

 

Net sales during the quarter ended September 30, 2011, were $589,447, as compared to $654,245 in the quarter ended September 30, 2010, a decrease of $64,798, or approximately 10%. We believe that sales for the current three month period decreased when compared to the previous year, primarily due to timing differences with large distributor orders.

 

Gross profit during the quarter ended September 30, 2011, was $461,676, as compared to $515,599 during the quarter ended September 30, 2010, a decrease of $53,923, or approximately 10%. As a percentage of net sales, gross profit was approximately 78% in the quarter ended September 30, 2011, and approximately 79% in the corresponding quarter in 2010.

 

Operating expenses during the quarter ended September 30, 2011, were $453,035, consisting of $232,911 in salaries and benefits, and $220,124 in selling, general and administrative expenses. This compares to operating expenses during the quarter ended September 30, 2010, of $389,097, consisting of $215,875 in salaries and benefits, and $173,222 in selling, general and administrative expenses. Expenses for the quarter ended September 30, 2011, increased by $63,938, or approximately 16% compared to the corresponding quarter in 2010. The increase in expenses were directly attributable to two areas. In salaries and benefits increases were seen this year over last, as last year’s numbers did not include a sales manager for Amerx, as the position was vacant. Also increasing this year’s expenses was a significant increase in marketing expenses including but not limited to trade show expenses.

 

Operating profit decreased by $117,861 to a $8,641 for the quarter ended September 30, 2011, as compared to a profit of $126,502 in the comparable quarter of the prior year. Net Income from operations before income taxes was $4,215 during the quarter ended September 30, 2011, as compared to net income before income taxes of $119,722 during the quarter ended September 30, 2010. We believe that the decrease in net income before income taxes in the three month period was primarily attributable to the reduction of first quarter sales effected by timing differences with our large distributors.

 

13

 

 

 

ITEM 4. 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 not 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, because of the identification of certain material weaknesses in our internal control over financial reporting which are identified below, which we view as an integral part of our disclosure controls and procedures.

 

(b) Changes in Internal Controls Over Financial Reporting

 

As previously reported, our annual assessment of the internal controls over financial reporting as of June 30, 2011 revealed several deficiencies that we consider to be material weaknesses: (1) inadequate segregation of duties consistent with control objectives; (2) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of GAAP and SEC disclosure requirements; (3) ineffective controls over period end financial disclosure and reporting processes and (4) insufficient board and audit committee composition to provide oversight of the financial statement process.

 

During fiscal 2012, the Company has continued to address changes needed to improve board oversight of the financial statement process and the deferred tax asset calculation. We have also instituted some changes in segregation of duties as current staffing permits. We feel we have remedied our previously reported deficiency in the calculation of the deferred tax asset such that it no longer is a material weakness. We expect to further address the continuing material weaknesses on an on-going basis.

 

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.§1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002
101.1*	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Balance Sheets, (ii) the Condensed Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) the Notes to Condensed Consolidated Financial Statements
	* Furnished, not filed

 

 

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SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, there unto duly authorized.

	PROCYON CORPORATION
November 14, 2011	By:/s/ REGINA W. ANDERSON
Date	Regina W. Anderson, Chief Executive Officer

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