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EX-31.1 - CERTIFICATION - PROCYON CORPmarciaprocyon3312015exh311.htm
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EX-32.1 - CERTIFICATION - PROCYON CORPmarciaprocyon3312015exh321.htm

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 March 31, 2015


[ ] 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 ☒ 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 ☒

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

 

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; 8,060,388 shares outstanding as of May 12, 2015.

 

 

 

 

 
 

 

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 Consolidated Financial Statements 6
   
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL  
CONDITION AND RESULTS OF OPERATIONS 10
   
ITEM 4. CONTROLS AND PROCEDURES 14
   
PART II. - OTHER INFORMATION
   
ITEM 5. OTHER INFORMATION 14
   
ITEM 6. EXHIBITS 15
   
SIGNATURES 15
   

 

 

 

 

 

 

 
 

 

PROCYON CORPORATION & SUBSIDIARIES      
CONSOLIDATED BALANCE SHEETS      
March 31, 2015 and June 30, 2014      
       
    (unaudited)    (audited) 
ASSETS   March 31,    June 30, 
    2015    2014 
CURRENT ASSETS          
Cash  $196,757   $582,776 
Certificates of Deposit, plus accrued interest   157,539    157,145 
Accounts Receivable, less allowance for doubtful   203,368    301,243 
accounts of $1,000.          
Inventories   506,703    276,750 
Prepaid Expenses   212,000    203,616 
Deferred Tax Asset   6,641    83,373 
TOTAL CURRENT ASSETS   1,283,008    1,604,903 
           
PROPERTY AND EQUIPMENT, NET   486,467    466,214 
           
OTHER ASSETS          
Deposits   792    792 
Deferred Tax Asset   705,818    556,359 
    706,610    557,151 
           
TOTAL ASSETS  $2,476,085   $2,628,268 
           
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
           
CURRENT LIABILITIES          
Accounts Payable  $90,822   $112,075 
Accrued Expenses   145,326    142,254 
TOTAL CURRENT LIABILITIES   236,148    254,329 
           
STOCKHOLDERS' EQUITY          
Preferred Stock, 496,000,000 shares   —      —   
authorized, none issued.          
Series A Cumulative Convertible Preferred Stock,   149,950    149,950 
no par value; 4,000,000 shares authorized;          
194,100 shares issued and outstanding.          
Common Stock, no par value, 80,000,000 shares   4,421,676    4,421,676 
authorized; 8,060,388 shares issued and          
outstanding.          
Paid-in Capital   6,000    6,000 
Accumulated Deficit   (2,337,689)   (2,203,687)
TOTAL STOCKHOLDERS' EQUITY   2,239,937    2,373,939 
           
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $2,476,085   $2,628,268 
           
           
           
The accompanying notes are an integral part of these financial statements.
           
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PROCYON CORPORATION & SUBSIDIARIES            
CONSOLIDATED STATEMENTS OF OPERATIONS            
Three  and Nine Months Ended March 31, 2015 and 2014            
             
   (unaudited)  (unaudited)  (unaudited)  (unaudited)
   Three Months  Three Months  Nine Months  Nine Months
   Ended  Ended  Ended  Ended
   Mar. 31, 2015  Mar. 31, 2014  Mar. 31, 2015  Mar. 31, 2014
             
NET SALES  $656,328   $666,700   $2,011,152   $2,190,713 
                     
COST OF SALES   212,274    174,905    545,165    543,434 
                     
GROSS PROFIT   444,054    491,795    1,465,987    1,647,279 
                     
OPERATING EXPENSES                    
Salaries and Benefits   318,705    287,529    912,998    846,038 
Selling, General and Administrative   260,250    259,568    761,534    664,111 
    578,955    547,097    1,674,532    1,510,149 
                     
(LOSS) / INCOME FROM OPERATIONS   (134,901)   (55,302)   (208,545)   137,130 
                     
OTHER INCOME (EXPENSE)                    
Interest Expense   —      —      —      —   
Interest Income   410    896    1,815    2,711 
    410    896    1,815    2,711 
                     
 (LOSS) / INCOME BEFORE INCOME TAXES   (134,491)   (54,406)   (206,730)   139,841 
                     
INCOME TAX BENEFIT / (EXPENSE)   49,195    5,257    72,728    (69,770)
                     
NET  (LOSS) / INCOME   (85,296)   (49,149)   (134,002)   70,071 
                     
Dividend requirements on preferred stock   (4,853)   (4,853)   (14,558)   (14,558)
                     
Basic net income (loss) available to common shares  $(90,149)  $(54,002)  $(148,560)  $55,513 
                     
Basic net income (loss) per common share  $(0.01)  $(0.01)  $(0.02)  $0.01 
                     
Weighted average number of common shares outstanding   8,060,388    8,060,388    8,060,388    8,060,388 
                     
Diluted net income (loss) per common share  $(0.01)  $(0.01)  $(0.02)  $0.01 
                     
Weighted average number of common shares outstanding, diluted   8,060,388    8,060,388    8,060,388    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 Nine Months Ending March 31, 2015 and 2014      
       
   (unaudited)  (unaudited)
   March 31,  March 31,
   2015  2014
       
CASH FLOWS FROM OPERATING ACTIVITIES          
           
Net  (Loss) Income  $(134,002)  $70,071 
Adjustments to reconcile net (loss) income to net cash (used in) operating activities:          
Depreciation   25,884    24,800 
Deferred Income Taxes   (72,728)   69,770 
Accrued Interest on Certificates of Deposit   57    5 
Decrease (increase) in:          
Accounts Receivable   97,875    6,014 
Inventory   (229,953)   (66,569)
Prepaid Expenses   (8,384)   (51,069)
Increase (decrease) in:          
Accounts Payable   (21,252)   (18,527)
Accrued Expenses   3,072    (34,515)
NET CASH (USED) IN OPERATING ACTIVITIES   (339,431)   (20)
           
CASH FLOW FROM INVESTING ACTIVITIES          
           
Purchase of Certificate of Deposit   (451)   (487)
Purchase of Property & Equipment   (46,137)   (2,628)
NET CASH (USED) IN INVESTING ACTIVITIES   (46,588)   (3,115)
           
CASH FLOW FROM FINANCING ACTIVITIES   —      —   
           
NET CHANGE IN CASH   (386,019)   (3,135)
           
CASH AT BEGINNING OF PERIOD   582,776    772,728 
           
CASH AT END OF PERIOD  $196,757   $769,593 
           
SUPPLEMENTAL DISCLOSURES          
           
Interest Paid  $—     $—   
Taxes Paid  $—     $—   
           
           
The accompanying notes are an integral part of these financial statements.
           
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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, 2014. 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 March 31, 2015, there were no outstanding options to purchase shares of our common stock. Therefore, the adoption of Topic 718 does not have a material impact on our statement of operations for period ending March 31, 2015.

 

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, 2015 and 2014.

 

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 and nine months ended March 31, 2015, the potential dilutive effects of the preferred stock was excluded from the weighted-average shares outstanding as the shares would have an antidilutive effect on the loss from continuing operations.

 

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NOTE B - INVENTORIES

 

Inventories consisted of the following:        
    March 31,   June 30,
    2015   2014
Finished Goods   $ 248,749     $ 87,185  
Raw Materials     257,954       189,565  
    $ 506,703     $ 276,750  

 

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, 2015, no dividends have been declared. Dividends in arrears on the outstanding preferred shares total $346,479 as of March 31, 2015.

 

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. So long as any share of Series A Preferred Stock is outstanding, the Company is prohibited from declaring dividends or other distributions related to its Common Stock or purchasing, redeeming or otherwise acquiring any of the Common Stock.

 

The Board of Directors of the Company approved a plan on December 8, 2007 to repurchase shares of Procyon Corporation's outstanding common stock. Effective May 1, 2014, the Board of Directors approved the termination of the repurchase plan. No shares of common stock were repurchased by the Company pursuant to its repurchase plan.

 

NOTE D - INCOME TAXES AND AVAILABLE CARRYFORWARD

 

As of March 31, 2015, the Company had consolidated income tax net operating loss ("NOL") carryforward for federal income tax purposes of approximately $1,877,000. The NOL will expire in various years ending through the year 2035. The utilization of certain of the loss carryforwards are limited under Section 382 of the Internal Revenue Code.

 

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

 

    Nine Months 3/31/2015   Nine Months 3/31/2014
Current                
Federal   $ 0     $ 0  
State     0       0  
    $ 0     $ 0  
                 
Deferred                
Federal   $ 62,098     $ (59,572 )
State     10,630       (10,198 )
    $ 72,728     $ (69,770 )
                 
Total Income Tax Benefit (Expense)   $ 72,728     $ (69,770 )

 

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  $—     $706,213 
PTO Accounts   6,265    —   
Allowance for doubtful accounts   376    —   
    6,6416    706,213 
Deferred tax (liabilities)          
Excess of tax over book depreciation   —      (395)
Net deferred tax asset  $6,641   $705,818 

 

 

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The Change in valuation allowance is as follows:

 

June 30, 2014   $ —    
March 31, 2015   $ —    
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 previous trend of earnings. Therefore, a valuation allowance is not considered necessary at this time.

 

Income taxes for the periods ended March 31, 2015 and 2014 differ from the amounts computed by applying the effective income tax rates of 37.63%, to income taxes as a result of the following:

 

   

Nine Months

Mar. 31, 2015

 

Nine Months

Mar. 31, 2014

Expected benefit (provision) at US statutory rate   $ 70,288     $ (47,546 )
State income tax net of federal benefit (provision)     7,504       (5,076 )
Nondeductible Expense     (3,665 )     (2,661 )
Change in estimates in available NOL carryforwards     (1,399 )     (14,487 )
Income Tax Benefit (Expense)   $ 72,728     $ (69,770 )

 

The earliest tax year still subject to examination by a major taxing jurisdiction is fiscal year end June 30, 2010.

 

The Company made a review of its uncertain tax positions in accordance with applicable standards of the Financial Accounting Standards Board ("FASB"). In this regard, an uncertain tax position represents the Company's expected treatment of a tax position taken in a filed tax return, or planned to be taken in a future tax return, that has not been reflected in measuring income tax expense for financial reporting purposes. As a result of this review, the Company concluded that at this time there are no uncertain tax positions, and there has been no cumulative effect on retained earnings.

 

NOTE E - 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 $506,703 and net accounts receivable assets of $203,368. The line of credit is renewable annually in April. Our Chief Executive Officer personally guaranteed the line of credit to the Company. At March 31, 2015 and June 30, 2014, 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.

 

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NOTE F - RELATED PARTY TRANSACTIONS

 

Our Chief Executive Officer, Regina W. Anderson, guarantees a $250,000 line of credit for the Company.

 

NOTE G - CONTINGENCIES

 

The Company is currently involved with three voluntary product recalls initiated July 21, 2014; November 10, 2014; and March 9, 2015 respectively. Total recall costs incurred through March 31, 2015 were $121,144. Future recall costs are expected, but cannot be accrued at this point because they are not able to be reasonably estimated.

 

NOTE H - SUBSEQUENT EVENTS

 

We have evaluated subsequent events through May 12, 2015, which is the date the financial statements were available to be issued.

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

General

 

You should read the following discussion and analysis 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 Operations, 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, product recalls, 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.

 

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Recent Developments

 

The Company is currently involved with three voluntary product recalls initiated July 21, 2014; November 10, 2014; and March 9, 2015 respectively. In March, Amerx issued a voluntarily recall for its Amerigel Hydrogel Gauze Dressing. The most recent voluntary recall involves concerns surrounding claims made on the labeling. The Company is currently resolving these issues. The Company is unable to determine at this time whether or not there will be a long term adverse material effect to our financial operations from the voluntary recalls. The short term effects of the voluntary recalls can be seen in this quarterly report showing increased legal fees, research and development fees, postage, delivery costs, back ordered product and increased cost of goods from replacement of recalled products. The cost of the recalls as of March 31, 2015 was $121,144. An accrual was made to account for actual expenses incurred following the March 31, 2015 period end in the amount of $19,068, however, no accrual can be made for future expenses as these expenses cannot be reasonably calculated. Amerx is actively addressing all concerns surrounding the recalls and is working directly with the FDA to ensure full compliance moving forward.

 

Amerx recently expanded into the biological dressing segment of the wound care market with the launch of HELIX3 Bioactive Collagen products in January. This new line of advanced wound care products further extends Amerx reach into one of the fastest growing segments of the wound care market. HELIX3 Bioactive Collagen is available in Collagen Matrix (HELIX3-CM) and Particle (HELIX3-CP) dressing forms to promote moist healing of moderate to heavy draining wounds. Amerx believes this new product complements the Amerigel brand and better positions the company for expanded growth opportunities.

 

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, 2014, which was filed with the Securities and Exchange Commission on September 29, 2014. 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 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 March 31, 2015, and June 30, 2014, our allowance for doubtful accounts totaled $1,000.

 

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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, distributor catalogs, website 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 March 31, 2015. 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 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 March 31, 2015 the Company's principal sources of liquid assets included cash of $196,757, inventories of $506,703, and net accounts receivable of $203,368. The Company also has $157,539 in short term Certificate of Deposits. The Company had net working capital of $1,046,860, and no long-term debt at March 31, 2015.

 

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During the nine months ended March 31, 2015 cash decreased from $582,776 as of June 30, 2014, to $196,757. Operating activities used cash of $339,431 during the period. The change is primarily the result of increased inventories due to the new product launch and repackaging of our Amerigel brand. Other contributing factors to the reduction of cash used by operating activities include the one time cost associated with the recalls that currently stands at approximately $121,000.

 

The Company reflected a current deferred tax asset of $6,641, and non-current deferred tax asset of $705,818, at March 31, 2015. 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 and nine months ended March 31, 2015 and 2014.

 

Gross Sales during the quarter ended March 31, 2015, were $722,706 as compared to the previous year's gross sales of $676,013, an increase of $46,693. However, net sales during the quarter ended March 31, 2015, were $656,328, as compared to $666,700 in the quarter ended March 31, 2014, a decrease of $10,372, or approximately 2%. The one time cost effects of the recalls caused the net sales figures to show a reduction in sales for the quarter. Net sales during the nine months ended March 31, 2015, were $2,011,152, as compared to $2,190,713 in the nine months ended March 31, 2014, a decrease of $179,561 or approximately 8%. We believe that sales for the current nine month period decreased when compared to the previous year primarily due to the effects of the recalls.

 

Gross profit during the quarter ended March 31, 2015, was $444,054 as compared to $491,795 during the quarter ended March 31, 2014, a decrease of $47,741 or 10%. As a percentage of net sales, gross profit was approximately 68% in the quarter ended March 31, 2015, and approximately 74% in the corresponding quarter in 2014. Gross profit during the nine months ended March 31, 2015, was $1,465,987 as compared to $1,647,279 during the nine months ended March 31, 2014, a decrease of $181,292 or 11%. As a percentage of net sales, gross profit was approximately 73% in the nine months ended March 31, 2015, and approximately 75% in the corresponding nine months in 2014.

 

Operating expenses during the quarter ended March 31, 2015, were $578,955 consisting of $318,705 in salaries and benefits and $260,250 in selling, general and administrative expenses. This compares to operating expenses during the quarter ended March 31, 2014, of $547,097 consisting of $287,529 in salaries and benefits; and $259,568 in selling, general and administrative expenses. Expenses for the quarter ended March 31, 2015, increased by $31,858 or approximately 6% compared to the corresponding quarter in 2014. Salaries and benefit expenses increased for the quarter primarily due to the hiring of inside and outside sales representatives. Selling, general and administrative expenses remained relatively constant between corresponding periods as increases in marketing efforts, and recall costs were offset by reductions in professional fees and R & D cost. Operating expenses during the nine months ended March 31, 2015, were $1,674,532 consisting of $912,998 in salaries and benefits; and $761,534 in selling, general and administrative expenses. This compares to operating expenses during the nine months ended March 31, 2014, of $1,510,149 consisting of $846,038 in salaries and benefits; and $664,111 in selling, general and administrative expenses. Expenses for the nine months ended March 31, 2015, increased by $164,383 or approximately 11% compared to the corresponding nine months in 2014. Salaries and benefit expenses increased for the nine months primarily due to the hiring of inside and outside sales representatives. Selling, general and administrative expenses increased primarily due to increases in legal fees, research and development cost and costs associated with the recalls.

 

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Operating profit decreased by $79,599 to an operating loss of $134,901 for the quarter ended March 31, 2015, as compared to an operating loss of $55,302 in the comparable quarter of the prior year. Loss before income taxes was $134,491 during the quarter ended March 31, 2015, as compared to net loss of $54,406 during the quarter ended March 31, 2014. We believe that the decrease in net income before income taxes was primarily attributable to the combination of the decrease in net sales from the recalls combined with increased salaries and benefits. Operating profit decreased by $345,675 to an operating loss of $208,545 for the nine months ended March 31, 2015, as compared to an operating profit of $137,130 in the comparable nine months of the prior year. Loss before income taxes was $206,730 during the nine months ended March 31, 2015, as compared to net income of $139,841 during the nine months ended March 31, 2014. We believe that the decrease in income before income taxes was primarily attributable to the combination of the decrease in sales from the effects of the recalls combined with higher than usual expenses for legal fees and Research & Development expenses.

 

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 a certain material weakness in our internal controls 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, 2014 revealed a deficiency that we consider to be a material weakness: inadequate segregation of duties consistent with control objectives.

 

During fiscal 2015, the Company will continue to address changes needed to improve segregation of duties consistent with control objectives. We have added staff to grow sales. We expect that increased sales will enable us to add support staff, specifically in the accounting and shipping departments. A secondary effect of adding more staff will address needed improvements in segregation of duties consistent with control objectives.

 

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PART II. OTHER INFORMATION

 

ITEM 5. OTHER INFORMATION

 

The matters reported in "Recent Developments" in Item 2 of Part 1 are incorporated herein by this reference.

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 December 31, 2013, formatted in XBRL (Extensible Business Reporting Language): (I) the Condensed Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) the Notes to Condensed Consolidated Financial Statements

 

* Furnished, not filed

 

 

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, 2015 By: /s/ REGINA W. ANDERSON
Date Regina W. Anderson, Chief Executive Officer