FORM 10-KSB

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                     For the fiscal year ended June 30, 2005
                         Commission file number 0-17449

                               PROCYON CORPORATION
                  --------------------------------------------
                 (Name of small business issuer in its charter)

        Colorado                                                59-3280822
(State of incorporation)                                (I.R.S. Employer ID No.)

              1300 South Highland Avenue, Clearwater, Florida 33756
              -----------------------------------------------------
               (Address of principal executive offices)(Zip Code)

         Issuer's telephone number, including area code: (727) 447-2998

           Securities registered pursuant to Section 12(b) of the Act:
                                      None

           Securities registered pursuant to section 12(g) of the Act:
                                  Common Stock

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 such 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 [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [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]

Revenues for the fiscal year ended June 30, 2005:  $2,198,260.

The aggregate market value of the 3,726,188 shares of Common Stock held by
non-affiliates was $1,304,166 on September 19, 2005 based on the average bid and
asked price of $.35 on such date. As of September 20, 2005, 8,057,588 shares of
the issuers Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:
The information required by Part III of this annual report is incorporated by
reference from the registrants' definitive proxy statement to be filed with the
Commission on or before October 28, 2005. If such proxy statement is not filed
by such date, the information required by Part III of this annual report will be
filed with the Commission as an amendment to this Form 10-KSB under cover of
Form 10-KSB/A, not later than October 28, 2005.

Transitional Small Business Disclosure Format: Yes [  ]  No [X]

<PAGE>


                                      INDEX


Title

                                                                          Page


ITEM     1.   DESCRIPTION OF
              BUSINESS.......................................................3

ITEM     2.   DESCRIPTION OF
              PROPERTY.......................................................7

ITEM     3.   LEGAL
              PROCEEDINGS....................................................8

ITEM     4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............8

ITEM     5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......8

ITEM     6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
              AND RESULTS OF OPERATIONS.....................................10

ITEM     7.   FINANCIAL STATEMENTS..........................................15

ITEM     8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
              ACCOUNTING AND FINANCIAL DISCLOSURE...........................15

ITEM     8A.  CONTROLS AND PROCEDURES.......................................15

ITEM     8B.  OTHER INFORMATION.............................................16

ITEM     9.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ...........16

ITEM     10.  EXECUTIVE COMPENSATION........................................17

ITEM     11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
              MANAGEMENT AND RELATED STOCKHOLDER MATTERS....................17

ITEM     12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................17

ITEM     13.  EXHIBITS......................................................17

ITEM     14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES........................18


                                      -2-
<PAGE>


                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

History and Organization

     Procyon Corporation (the "Company" or "Procyon"), a Colorado corporation,
was incorporated on March 19, 1987 and was deemed a development stage company
until May 1996 when we acquired Amerx Health Care Corp. ("Amerx"), a corporation
based in Clearwater, Florida, which was wholly owned by John C. Anderson, our
now deceased Chief Executive Officer. Amerx develops and markets proprietary
medical products used in the treatment of pressure ulcers, dermatitis,
inflammation and other skin problems. We formed Sirius Medical Supply, Inc.
("Sirius"), a Florida corporation, in 2000 to operate as a full service mail
order medical supply company, selling primarily to Medicare customers. Amerx and
Sirius are wholly owned subsidiaries of Procyon. Historically, Amerx's products
have been sold through distributors to health care institutions, such as
physicians, nursing homes and home health care agencies, and to retailers,
including national and regional chain stores and pharmacies, while Sirius's
products are sold directly to Medicare and Medicaid patients.

Products

     Amerx Health Care Corp.

     Amerx's principal products consist of AmeriGel(R) Hydrogel Wound Dressing,
Amerigel(R) Hydrogel Saturated Gauze Dressing, AmeriGel(R) Preventive Care
Lotion, AmeriGel(R) Preventive Barrier Lotion, and AmeriGel(R) Saline Wound
Wash. The AmeriGel(R) Hydrogel Wound Dressing and Amerigel(R) Hydrogel Saturated
Gauze Dressing are formulated to be used as a wound dressing to manage pressure
ulcers in stages I-IV, stasis ulcers, diabetic skin ulcers, post surgical
incisions, cuts, abrasions, first and second degree burns, and skin irritations.
The AmeriGel(R) Preventive Care Lotion contains emollients, which restore
moisture to fragile skin, protect the skin against tears and chafing, and assist
in prevention of chronic pressure ulcers. The AmeriGel(R) Barrier Lotion
provides barrier protection to reduce the harmful effects to the skin of urine
and feces in incontinent patients. The AmeriGel(R) Saline Wound Wash was
introduced as a wound cleanser that contains saline and Oakin. The industry
standard for wound cleansing has been saline, since tap water has chemicals and
additives that can potentially be harmful to a chronic wound.

     Amerx introduced one new product to the market in the year ended June 30,
2005 ("fiscal 2005"). Amerigel(R) Hydrogel Saturated Gauze Dressing was
introduced in August of 2004. The saturated gauze dressing provides a new
vehicle for delivery of Amerigel(R) wound dressing, in single dose pre-measured
units. The Saturated Gauze Dressing is also reimbursed by Medicare, for use on a
variety of wounds and post surgical incisions. Amerx also concentrated efforts
on market penetration of the current product line specifically geared towards
achieving further market penetration of the Amerigel(R) Care Lotion.

     Amerx now holds two Medicare reimbursement codes, covering both wound care
products. The first reimbursement code is for the Amerigel Wound Dressing,
reimbursed at 3 ounces per month. The second reimbursement code is for the new
saturated gauze, and is reimbursed on a per pad or per use basis. Amerx believes
that these reimbursement codes are beneficial to its business, providing the
ability for customers to charge Medicare for the use of the product. To date,
sales in the institutional market paid by Medicare reimbursements have not been
significant. However, we believe that the reimbursement codes have aided sales
in the professional market, and opened doors in other markets. Further, we
believe that the addition of the new reimbursement code has positively impacted
sales in professional market.

                                      -3-

<PAGE>


     We are exploring whether a market may exist for our Amerx formulations in
the dermatology field. We have had preliminary discussions with certain
dermatologists, and we have received specific interest from dermatologists in
the current and future formulations of the Amerigel Lotion product line.
However, during fiscal 2005, Amerx suspended these actions to focus on the
introduction of its new saturated gauze dressing. We expect to resume our
efforts to develop the dermatology market for our Amerx products in fiscal 2006.
We did not spend any funds towards research and development efforts during
fiscal years 2004 and 2005, but believe this will change in fiscal 2006, as more
studies are anticipated to develop new markets.

     Each Amerx product is based on proprietary formulations, which we protect
as trade secret information. Each product is also registered with the Food and
Drug Administration and receives a National Drug Code.

     Amerx sells it products primarily to distributors, pharmacies, doctors, and
end-users. The introduction of the Amerigel(R) Saturated Gauze Wound Dressing
and further market penetration of the Amerigel(R) Care Lotion primarily
accounted for the increase in sales for fiscal 2005.

     Sirius Medical Supply

     Sirius's products consist primarily of diabetic supplies, glucose monitors,
heating pads, lancets, test strips and syringes. Sirius added erectile aids to
its product line at the end of fiscal year 2005. Sirius also started selling and
billing Medicare for the Amerigel(R) and other wound care products. Sirius
expects to continue to develop successful products for sale in the Medicare
arena to different specialties. The addition of these specialties would help
Sirius to reach its goal of becoming a full service mail order medical supply
company. Sirius continues to build its customer base with advertisements and
referrals and continually tests new methods for reaching new customers. Sirius
also has a website (www.siriusmedical.com) to serve new and existing customers.
Sirius did not spend any funds on research and development over the past three
fiscal years.

Market for Products

     The institutional market for Amerx's skin and wound care treatment products
is primarily comprised of hospitals, nursing homes, home health care agencies
and other health care institutions. We believe that AmeriGel(R) products
represent an inexpensive, yet effective, treatment and prevention program for
chronic pressure ulcers and other skin problems, which are treated in health
care institutions. To date we have not realized the market penetration we had
hoped for in the institutional market. However, we will continue to explore
various strategies to pursue this market.

     The retail market for Amerx's skin care and wound care products is
comprised mainly of national and regional chain stores as well as independent
retail pharmacies that sell such products to individuals. We believe that Amerx
made progress in this market in fiscal 2005, including exploring new test
markets in our local market with a national pharmacy chain.

     The professional market for Amerx's skin care and wound care products is
comprised of physicians who dispense our products to their patients. These
products are presently sold directly to physicians as well as to distributors
who specialize in servicing these physicians.

                                      -4-


<PAGE>


     The market for Sirius's products is primarily comprised of diabetic
patients who receive benefits from Medicare or Medicaid, or from their insurance
companies. Sirius attracts these customers through advertising and direct
marketing.

Distribution and Sales

     Amerx's traditional method of distribution has been through retail and
institutional distributors. We expect to continue increasing our distributor
base, particularly with distributors with an ability to introduce Amerx's
products in new geographical areas and to new retail chains. Distributors
typically purchase products from Amerx on standard credit terms. Amerx supports
its distributors through product literature, advertising and limited
participation at industry trade shows. All existing distributors sell Amerx
products on a non-exclusive basis.

     Sirius's channel of distribution is direct to consumers by mail order. We
have attracted and retained customers through our marketing efforts which
include trade shows and physician education. Sirius intends to test new
marketing channels in fiscal 2006. Sirius's customer base is growing after a
slight decrease earlier in the fiscal year. The Company believes it has
substantial potential for increased sales as the diabetic market contains over
17 million diabetics in the United States, and is growing, according to the
American Diabetes Association.

     We periodically receive inquiries about foreign market distribution. These
inquiries have been generated by our advertising, market presence and web sites
(www.amerxhc.com and www.amerigel.com). We intend to respond to and pursue all
such inquiries.

     In fiscal 2005, Amerx generated gross revenues of $1,857,000 and Sirius,
$342,000, which constituted 84% and 16%, respectively, of our total gross
revenues.

Significant Customers

     Amerx's customer base has become more diversified over the past fiscal
years. We believe that, while any customer loss would have some harmful effect
on our revenues, no single customer accounted for over five percent of our
annual gross sales. Thus, we do not believe that the loss of any single customer
would have a material adverse effect on our financial condition or the results
of our operations. The Company has been able to maintain relationships with its
distributors and has been able to establish relationships with a few new
distributors each year. Sirius has no significant customers as it sells only to
end users.

Manufacturing

     During fiscal 2005, manufacturing of all of Amerx's products was completed
by a small family owned manufacturing facility. This company also performed
research and development in the past, and we expect that it will continue to
perform research and development activities for Amerx in the future, when
needed. Amerx does not have a written contract with this manufacturer and there
are no minimum purchase requirements. We believe there are other companies that
could manufacture Amerx's products according to its specifications, if
necessary. The Company's manufacturing and packaging activities are performed at
a production facility owned and operated by a non-affiliated pharmaceutical
manufacturer. At the present time, the manufacturer is the sole source of our
wound care products. The sudden loss or failure of this manufacturer could
significantly impair Amerx's ability to fulfill customer orders on a short-term
basis and therfore, could materially and adversely affect the Company's
operations. However, we have maintained a long-term relationship with this
manufacturer and do not expect a discontinuance of its wound care products from
the manufacturer in the near term.

                                      -5-

<PAGE>


     Amerx's manufacturing and packaging activities are performed pursuant to
current good manufacturing practices ("CGMP") as defined under the United States
Federal Food, Drug and Cosmetic Act, as amended (the "FFDC Act"), and the
regulations promulgated under the FFDC Act. All manufacturing activities are
required to comply with the product specifications, supplies and test methods
developed by Amerx specifically for its products, as well as the CGMP.

     A single manufacturer furnishes one proprietary ingredient contained in all
of Amerx's products. Amerx does not have a written contract with this supplier
and management believes that an alternative supplier could be secured within a
reasonable period of time. The manufacturer generally provides other raw
materials and ingredients and we believe there are numerous other sources for
these materials and ingredients. However, there can be no assurance that Amerx
would be able to timely secure an alternative supplier and the failure to
replace this supplier in a timely manner could materially harm Amerx's
operations. We believe that we have a good working relationship with this
supplier and do not anticipate any disruption of supplies.

     Sirius purchases its products from several different medical companies
either on a direct basis, or through medical distributors. Sirius carries most
every major brand of diabetic testing products as well as some off brand
diabetic testing products. Management believes that if it lost one or more of
its suppliers, this would not have an adverse material impact on Sirius, as
there are other suitable suppliers, as well as an assortment of products that
achieve similar results.

Proprietary Rights

     In January 1999, the United States Patent and Trademark Office registered
the Company's AmeriGel(R) trademark. Amerx has made a trademark application for
the principal proprietary ingredient used in all of its currently available
products. Amerx relies on a combination of trademark and trade secret protection
and confidentiality agreements to establish and protect its proprietary rights.

Competition

     The market for skin and wound care treatment products in which Amerx
operates is highly competitive and fragmented. Competition is intense and is
based primarily on product efficacy, brand recognition, loyalty, quality, price
and availability of shelf space in the retail market. Amerx competes against
several large well-capitalized companies offering a broad range of skin
treatment products as well as numerous small competitors having a limited number
of products. Many of these competitors have longer operating histories, better
name recognition and greater financial, marketing and other resources than
Amerx.

     The market for diabetic supplies is also highly competitive, and Sirius
competes with several large companies for market share. Sirius can compete on
the same level as these other companies as to product offerings. However, until
Sirius's customer base grows, larger companies will benefit from volume
discounts on purchases from suppliers that Sirius does not yet receive. We
believe Sirius's success will hinge on customer service rather than product
margin.

                                      -6-
<PAGE>


Order Placement and Backlog

     The Company has not experienced any material backlog in orders placed in
the past two fiscal years. Orders are only shipped when they are 100% complete.

Governmental Approvals and Regulations

     The production and marketing of our products are subject to regulation for
safety, efficacy and quality by numerous governmental authorities in the United
States. Amerx's advertising and sales practices are subject to regulation by the
Federal Trade Commission (the "FTC"), the FDA and state agencies. The FFDC Act,
as amended, the regulations promulgated thereunder, and other federal and state
statutes and regulations govern, among other things, the testing, manufacture,
safety, effectiveness, labeling, storage, record keeping, approval, advertising
and promotion of Amerx's products. The FDA regulates the contents, labeling and
advertising of many of Amerx's products. Amerx may be required to obtain FDA
approval for proposed nonprescription products. This procedure involves
extensive clinical research, and separate FDA approvals are required at various
stages of product development. The approval process requires, among other
things, presentation of substantial evidence to the FDA, based on clinical
studies, as to the safety and efficacy of the proposed product. After approval,
manufacturers must continue to expend time, money and effort in production and
quality control to assure continual compliance with the current Good
Manufacturing Practices regulations.

     Certain of Amerx's wound and skin care products are registered with the FDA
as "devices" pursuant to the regulations under Section 510(k) of the FFDC Act. A
device is a product used for a particular medical purpose, such as to cover a
wound, with respect to which no pharmacological claim can be made. A device
which is "substantially equivalent" to another device existing in the market
prior to May 1976 can be registered with the FDA under Section 510(k) and
marketed without further testing. Amerx currently markets two products which
qualify as a medical devices, the Amerigel(R) Hydrogel Wound Dressing, and the
Amerigel(R) Hydrogel Saturated Gauze Dressing.

     Sirius's advertising and sales practices are subject to regulation by the
FTC, Medicare, and state Medicaid agencies. FDA approvals for its products are
obtained by the respective manufacturer. Medicare and Medicaid regulate
advertising, sales pricing, and the guidelines under which Sirius operates.

     We believe that we and our subsidiaries are in compliance with all
applicable laws and regulations relating to our and their operations. We believe
that compliance with the various provisions of national, state and local
environmental laws and regulations has not had a material adverse effect upon
the capital expenditures, earnings, financial position, liquidity or competitive
position of the Company.

Employees

     As of September 1, 2005, the Company and its subsidiaries employ a total of
10 employees, nine of which are full-time employees, consisting of 2 management
employees, 5 sales-related employees and 3 administrative employees. Seven
employees work under the Amerx subsidiary, and three employees under Sirius.

                                      -7-


<PAGE>


ITEM 2.  PROPERTIES

     We currently maintain our offices, and those of Amerx and Sirius, at 1300
South Highland Ave, Clearwater, Florida 33756. Our offices consist of
approximately 3,800 square feet of space, which is leased from an unrelated
party. We believe the facility is adequate for our current needs.

ITEM 3.  LEGAL PROCEEDINGS

     The Company and its subsidiaries are not a party to any pending material
legal proceedings nor is our property the subject of a pending legal proceeding.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     None.

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     Since October 1996, the Company's Common Stock has been traded on the OTC
Bulletin Board, an electronic quotation system used by members of the National
Association of Securities Dealers, Inc. The following table sets forth for each
period indicated the high and low closing bid prices for the Common Stock, as
reported by National Quotation Bureau, LLC. Bid quotations reflect inter-dealer
quotations, without retail markups, markdowns or commissions, and do not
necessarily reflect actual transactions.


Fiscal 2004                                                    HIGH      LOW
First Quarter.....................................          $ .5500   $ .2200
Second Quarter....................................            .5500     .3500
Third Quarter.....................................            .4500     .3500
Fourth Quarter....................................            .3500     .1500

Fiscal 2005                                                   HIGH       LOW
First Quarter.....................................          $ .3000   $ .1500
Second Quarter....................................            .5100     .1500
Third Quarter.....................................            .8500     .4300
Fourth Quarter....................................            .5000     .1600

     As of September 20, 2005, there were approximately 161 record holders of
the Company's Common Stock. On September 20, 2005, the closing bid price of the
Company's common stock was $.35 and the closing ask price was $.35. On September
9, 2005, the last date on which a sale occurred, the last reported sale price
was $.35.

     Holders of Common Stock are entitled to receive such dividends if declared
by the Company's Board of Directors. The Company has declared no dividends on
the Common Stock.

                                      -8-
<PAGE>


     Holders of the Series A Cumulative Convertible Preferred Stock (the
"Preferred Stock") are entitled to receive, if declared by the Board of
Directors, quarterly dividends at an annual rate of $.10 per share. Dividends
accrue without interest, from the date of issuance, and are payable in arrears
in cash or common stock, when and if declared by the Board of Directors. No
dividends had been declared or paid at June 30, 2005, and dividends, if ever
declared, in arrears at such date total approximately $174,371.

     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.
During fiscal 2005, holders of 12,200 shares of Preferred Stock voluntarily
converted their Preferred shares into 12,200 shares of Common Stock.

     As reflected in the price quotations above, there have been significant
price fluctuations in the Company's Common Stock. Factors that may have caused
or can cause market prices to fluctuate include the number of shares available
in the public float, any purchase or sale of a significant number of shares
during a relatively short time period, quarterly fluctuations in results of
operations, issuance of additional securities, entrance of such securities into
the public float, market conditions specific to the Company's industry and
market conditions in general, and the willingness of broker-dealers to effect
transactions in low priced securities. In addition, the stock market in general
has experienced significant price and volume fluctuations in recent years. These
fluctuations, which may be unrelated to a Company's operating performance, have
had a substantial effect on the market price for many small capitalization
companies such as the Company. Factors such as those cited above, as well as
other factors that may be unrelated to the operating performance of the Company,
may significantly affect the price of the Common Stock.

Equity Compensation Plan Information

     The following table contains information regarding Procyon's equity
compensation plan as of June 30, 2005. The only equity compensation plan
maintained by Procyon is the company's Omnibus Stock Option plan (the "Option
Plan"). The Option Plan was approved by the shareholders of Procyon in 1998.

<TABLE>
<CAPTION>

         Plan Category                  Number of Securities to     Weighted-average exercise   Number of securities
                                        be issued upon exercise     price of outstanding        remaining available for
                                        of outstanding options,     options, warrants and       future issuance under
                                        warrants and rights         rights                      equity compensation plans
                                                                                                (excluding securities
                                                                                                reflected in column (a))
                                                  ( a )
                                                                              ( b )                        ( c )

<S>                                              <C>                          <C>                         <C>
         Equity compensation plans               300,000                      $0.20                       603,500
         approved by security holders

         Equity compensation plans
         not approved by security                       0                         0                             0
         holders
                                        --------------------------- --------------------------- ----------------------------
         Total                                   300,000                      $0.20                       603,500
                                        =========================== =========================== ============================
</TABLE>


                                                               -9-

<PAGE>


1.   The total number of securities to be issued upon exercise of outstanding
     options, warrants and rights consists of options for the purchase of
     Procyon common stock issued pursuant to the Option Plan to employees,
     officers, directors and consultants. The total number of securities to be
     issued upon exercise of the options is stated, regardless of whether the
     options are currently vested.

2.   The outstanding options issued under the Option Plan range in exercise
     price from $0.15 to $0.25 per share.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

     This Report on Form 10-KSB, 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 and its subsidiaries' 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.

         Our business in general is subject to certain risks including but not
limited to the following:

     -    we may not be able to produce or obtain, or may have to obtain at
          excessive prices, the raw materials and finished goods we need;
     -    we may not be able to use any tax loss carry forwards before they
          expire;
     -    the vendors on whom we rely for manufacturing certain products may go
          out of business, fail to meet demand or provide shipments on an
          untimely basis;
     -    competitive pressures may require us to lower our prices on certain
          products, thereby adversely affecting operational results;

                                      -10-
<PAGE>



     -    we may not be able to obtain, or obtain at uneconomic expense and
          protracted time, the regulatory approval of new products;
     -    consumers or distributors may not favorably receive our new or
          existing products;
     -    we may not be able to obtain adequate financing to fund our operations
          or expansion;
     -    a relatively small group of products may represent a significant
          portion of our net revenues or net earnings from time to time; if the
          volume or pricing of any of these products declines, it could have a
          material adverse effect on our business, financial position and
          results of operations;
     -    we could experience significantly reduced revenues and profits if
          Medicare or other government programs change, delay or deny
          reimbursement claims;
     -    the loss of senior management or other key personnel, or our inability
          to attract and retain additional senior management or other key
          personnel, could adversely affect our ability to execute our business
          plan;
     -    we could fail to comply with regulations applicable to our products,
          which could materially and adversely affect our business, financial
          position and results of operations;
     -    legislative or regulatory programs that may influence prices of
          prescription drugs could have a material adverse effect on our
          business.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     Our condensed financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America, which
require us 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 this annual report. The
estimates used by management are based upon our historical experiences combined
with management's understanding of current facts and circumstances. Certain of
our accounting policies are considered critical as they are both important to
the portrayal of our financial condition and the results of its operations and
require significant or complex judgments on the part of management. We believe
that the following represent the critical accounting policies of the Company.

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. We base our estimates on
our historical collection experience, current trends, credit policy and on the
analysis of accounts by aging category.

                                      -11-
<PAGE>


Income Tax

     We account for income taxes under Statement of Financial Accounting
Standards No. 109, "Accounting for Income taxes" ("SAS 109"). SAS 109 requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financial statements
or tax returns. Under this method, deferred tax assets and liabilities are
determined based on the differences between the financial statement and the tax
basis of assets and liabilities using enacted tax provisions currently in effect
and rates applicable to the periods in which the differences are expected to
affect taxable income.

Revenue Recognition

     We recognize 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 we have received and verified any written documentation required to bill
Medicare, other third-party payers and customers. We record revenue at the
amounts expected to be collected from Medicare, other third-party payers and
directly from customers. We delay recognizing revenue for shipments where the
Company has not received the required documentation, until the period when such
documentation is received.

     We calculate Medicare reimbursements based upon government-established
reimbursement prices. The reimbursements that Medicare pays us is subject to
review by government regulators. Medicare reimburses at 80% of the
government-determined reimbursement prices and we bill the remaining balance to
either third-party payers, such as insurance companies, or directly to the
customers.

Stock Based Compensation

     We have elected to follow APB Opinion No. 25, "Accounting for Stock Issued
to Employees," in accounting for our employee stock options and have adopted the
disclosure provisions of Statement of Financial Accounting Standards No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure, an
amendment of FASB Statement No. 123." Under APB No. 25, when the exercise price
of the employee stock options equal or exceeds the market price of the
underlying stock on the date of the grant, no compensation expense is
recognized. Accordingly, no compensation expense has been recognized in the
consolidated financial statements in connection with employee stock option
grants.

General

     Our continuing operations and revenues consist of the operations of and
revenues generated by Amerx and Sirius, our two wholly owned subsidiaries.
Amerx's wound care and skin care products, marketed under the trademark
AmeriGel,(R) are formulated to enhance the quality of skin and wound care and to
lower the treatment cost for those who suffer from various skin conditions and
wounds. Sirius markets and distributes diabetic supplies via mail order.

     Amerx markets AmeriGel(R) products to institutional customers such as
nursing homes, hospitals and home health agencies and to retail customers.
Institutional sales are made either directly to the end user or through medical
supply distributors or physicians. Many institutional customers will not
purchase directly from the manufacturer; they will purchase products only
through a national distributor who warehouses the products and supplies the
products directly to the customer. Accordingly, Amerx must supply its
distributors with adequate inventory in order to successfully compete with other

                                      -12-

<PAGE>


manufacturers. Amerx reaches the retail consumer primarily through distributors,
but in some cases, through sales to retail store chains. Amerx's skin care
products are distributed to institutions and to retail stores through McKesson
Drug, AmeriSource/Bergen Brunswig, Cardinal Health, Bindley Western Drug and a
number of smaller local and regional distributors.

Future Developments

     Amerx expects to further penetrate the podiatric market through its
participation in industry trade shows, advertisements in trade journals,
development of additional distributor relationships, opening new geographical
territories (including foreign markets), and coordinating with physicians and
educational institutions to provide training to the wound care and podiatric
professional. Amerx management seeks to develop new products for the podiatric
market as new needs become known through its association with health care
professionals.

     Amerx intends to pursue potential product developments in other medical
disciplines including dermatology, veterinary care and other wound care
applications. Preliminary investigations of these markets are ongoing.
Management anticipates further pursuing increased marketing efforts in its
primary institutional wound care market as a result of the Amerigel Saturated
Gauze Dressing being granted a Medicare HCPCS Reimbursement Code in 2004.

     Sirius intends to aggressively attempt to add to its current customer base
through the use of advertising, direct physician contact, referrals and possible
acquisition of similar business entities. Management believes that product lines
will be increased as customer needs dictate and economics allow.

Results of Operations

     Comparison of Fiscal 2005 and 2004.

     Net sales during fiscal 2005 were approximately $2,198,000 as compared to
approximately $2,025,000 in fiscal 2004, an increase of approximately $173,000,
or 9%. We believe that this increase is primarily attributable to our continuing
marketing efforts and growth of our customer base. Sales growth in Sirius
stumbled to a 18% reduction in sales, while Amerx increased sales by 15%,
respectively, over the previous year. Amerx is encouraged by the sales increase
since its emphasis shifted to the physician market. Amerx hopes to capture more
of the physician market in fiscal 2006, as well as penetrate new markets.
Sirius's customer base is expanding with marketing efforts, and the Company
continues such expansion with marketing efforts as well as product line
expansion.

     Cost of sales increased to approximately $532,000 in fiscal 2005 as
compared to approximately $465,000 in fiscal 2004, or approximately 13%. Cost of
sales in fiscal 2005, as a percentage of net sales, increased by approximately
1% over the previous year . Sirius has realized the benefit of some volume
discounts in fiscal 2005, and hopes to lower its costs by continuing that trend
in 2006. Amerx's costs have remained consistent over the past year with only a
slight increase in some of its raw materials and packaging. We expect cost
associated with packaging and ingredients to rise slightly in 2006, as petroleum
prices continue to increase.

                                      -13-
<PAGE>


     Gross profit increased to approximately $1,667,000 during fiscal 2005 as
compared to approximately $1,560,000 during fiscal 2004, an increase of about
$107,000, or 7%. As a percentage of net sales, gross profit was 76% in fiscal
2005, as compared to 77% in fiscal 2004.

     Operating expenses during fiscal 2005 were approximately $1,416,000,
consisting of approximately $695,000 in salaries and benefits and $721,000 in
selling, general and administrative expenses. This represents an increase in
expenses of approximately $78,000 in fiscal 2005 as compared to expenses in
fiscal 2004. Operating expenses in fiscal 2004 consisted of $645,000 in salaries
and benefits and $693,000 in selling, general and administrative expenses.
During fiscal 2005, the substantial increase in salaries and benefits was caused
primarily by the Company's emphasis on commission-based compensation. A
substantial portion of the increased selling, general and administrative
expenses was attributable to an increase in marketing. As a percentage of net
sales, operating expenses during fiscal 2005 decreased to 64%, as compared to
66% during fiscal 2004, as net sales increased $174,000 for the year on an
$78,000 increase in expenses.

     Profit from operations increased to approximately $250,000 in 2005, as
compared to approximately $222,000 in fiscal 2004. Net Profit (after dividend
requirements for Preferred Shares) was approximately $302,000 during fiscal
2005, compared to a net profit of approximately $238,000 during fiscal 2004. The
Company also recorded approximately $77,000 of income tax benefit in arriving at
net income available to common shares.

     As of June 30, 2005, the Company had deferred tax asset of $151,461,
consisting primarily of the tax benefit of net operating loss carryforward, and
$11,275 of deferred tax liability, consisting primarily of the difference
between book and tax basis of fixed assets. The valuation allowance decreased by
$6,861. The decrease in the valuation allowance is due to an increase in
expected utilization of net operating loss carry-forwards. A valuation allowance
of approximately $1,492,000 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 carry forwards.

Liquidity and Capital Resources

     Historically, we have financed our operations through a combination of
revenues from operations, shareholder loans, and the public sales of equity. As
of June 30, 2005, our principal sources of liquidity included inventories of
approximately $146,000, and net accounts receivable of approximately $146,000.
We had working capital of approximately $349,323 and long-term debt of
approximately $101,275 at June 30, 2005.

     Operating activities provided cash of approximately $211,000 during fiscal
2005 and approximately $88,000 during fiscal 2004, consisting primarily of net
profit of approximately $314,840 in fiscal 2005 and $258,000 in 2004. Cash used
in investing activities during fiscal 2005 and 2004 was approximately $10,000
and $69,000, respectively. Cash used by financing activities during fiscal 2005
was approximately $190,000, and $46,000 during fiscal 2004.

     During fiscal 2005, holders of 12,200 shares of Preferred Stock converted
their shares to Common Stock.

                                      -14-
<PAGE>


Commitments of Capital Expenditures

     At June 30, 2005 the Company had no commitments for capital expenditures.

ITEM 7.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Consolidated financial statements as of June 30, 2005, and 2004 were
audited by Ferlita, Walsh & Gonzalez P.A., the Company's independent auditors,
as indicated in their report included appearing at page F-1.

                          INDEX TO FINANCIAL STATEMENTS
                             -----------------------

Page

Report of Independent Registered Public Accounting Firm................... F-1

Consolidated Balance Sheet June 30, 2005.................................. F-2

Consolidated Statements of Operations For the Years Ended
 June 30, 2005 and 2004................................................... F-3

Consolidated Statements of Stockholders' Equity For the Years
 Ended June 30, 2005 and 2004............................................. F-4

Consolidated Statements of Cash Flows For the Years Ended
 June 30, 2005 and 2004................................................... F-5

Notes to Consolidated Financial Statements................................ F-6


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
         AND FINANCIAL DISCLOSURE.

     None.

ITEM 8A. CONTROLS AND PROCEDURES.

     Management of the Company, with the participation of the President and
acting Principal Executive, Financial and Accounting Officer, has conducted an
evaluation of the effectiveness of the Company's disclosure controls and
procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as
of the end of the period covered by this report. Based on that evaluation,
management, including the President and acting Principal Executive, Financial
and Accounting Officer, concluded that, as of the date of 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.

                                      -15-
<PAGE>



     During the last quarter of fiscal 2005, the Company did not institute any
significant changes in its internal control over financial reporting that
materially affected or is reasonably likely to materially affect, the Company's
internal control over financial reporting.

ITEM 8B. OTHER INFORMATION.

     On August 27, 2005, John C. Anderson, the Company's President, Chief
Executive Officer, Chairman of the Board and Director, died.

     On September 22, 2005, the Board of Directors voted to fill the board
vacancy and Chairman of the Board vacancy caused by the death of John C.
Anderson, by appointing Regina W. Anderson, our former Chairman and Chief
Executive Officer's wife, to these positions. Further, the Board of Directors
voted to fill the vacancy in the Chief Executive Officer position by appointing
Ms. Anderson to fill that position, but to commence on November 1, 2005. As of
September 22, 2005 through November 1, 2005, the Board of Directors appointed
James B. Anderson, our Chief Financial Officer, to act as Interim Chief
Executive Officer until Ms. Anderson commences her duties on November 1, 2005.

Regina W. Anderson

     Regina Anderson comes to Procyon Corporation with 24 years experience in
the medical field and 18 years of management experience. She worked at
HealthSouth Rehabilitation Hospital for the past ten years as Outpatient
Director, in charge of the main outpatient center plus four satellite offices.
As Outpatient Director, she was responsible for budgets involving over thirty
thousand outpatient visits per year; marketing of multiple outpatient specialty
programs; and staffing with thirty employees reporting directly to her. Prior to
her work at HealthSouth, she worked as the lead clinician at Clearwater
Rehabilitation Center. Regina was Vice-President of Operations at Stuffit Direct
Marketing Company from 1980 through 1989. She was in charge of franchise sales
and training; coupon processing/production as well as coordination among
thirteen franchise offices. Regina was co-owner and President of Foxy's T-Shirt
Shops and Le Shirt Company from 1978-1980. Foxy's had five locations. She worked
also as a Speech Language Pathologist with Morton Plant Hospital from 1970
through 1976. Regina received her Masters Degree from Kansas State University in
1970.

                                    PART III

     Certain information required by Part III is omitted from this Report and is
incorporated by reference to information contained in the Company's proxy
statement pursuant to Regulation 14A (the "Proxy Statement") to be filed not
later than 120 days after the end of the fiscal year covered by this report.
Only those sections of the Proxy Statement that specifically address the items
set forth herein are incorporated by reference.

ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     The information required by this Item is incorporated by reference to the
information contained in the "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" sections of the Company's Proxy
Statement to be filed with the Securities and Exchange Commission within 120
days after the end of fiscal year ended June 30, 2005.

                                      -16-
<PAGE>


ITEM 10. EXECUTIVE COMPENSATION.

     The information required by this Item is incorporated by reference to the
information contained in the "Executive Compensation" section of the Company's
Proxy Statement to be filed with the Securities and Exchange Commission within
120 days after the end of fiscal year ended June 30, 2005.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
         AND RELATED STOCKHOLDER MATTERS.

     The information required by this Item is incorporated by reference to the
information contained in the "Security Ownership of Certain Beneficial Owners
and Management" section and the "Equity Compensation Plan" table of the
Company's Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days after the end of fiscal year ended June 30, 2005.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The information required by this Item is incorporated by reference to the
information contained in the "Certain Relationships And Related Transactions"
section of the Company's Proxy Statement to be filed with the Securities and
Exchange Commission within 120 days after the end of fiscal year ended June 30,
2005.

ITEM 13. EXHIBITS.

(a)  Exhibits

     1.   The financial statements filed herewith are listed in the Index to
          Financial Statements included in Item 7.

       Exhibit No.  Document

       *   3.1      Articles of Incorporation
       +   3.1.1    Articles of Amendment to Articles of Incorporation
       *   3.2      Bylaws
       +   4.1      Designation of Series A Preferred Stock
       #   10.1     1998 Omnibus Stock Option Plan
       +   10.4     Loan and  Security  Agreement,  dated as of January 1, 1995,
                    by and between the Company and Amerx Health Care Corp.,
                    including Promissory Notes issued there under.
       o   10.4     Agreement and Plan of Exchange, dated January 31, 1996, by
                    and between the Company and Amerx.
       x   31.1     Certification of James B. Anderson pursuant to Exchange Act
                    Rule 13a-14(a)/15d-14(a)
       x   32.1     Certification  Pursuant to 18 U.S.C. ss. 1350, as Adopted
                    Pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002

                                      -17-
<PAGE>


*    Incorporated by reference to the Company's Registration Statement on Form
     S-1, S.E.C. File No. 33-13273.
+    Incorporated by reference to the Company's Form 10-KSB for the fiscal year
     ended June 30, 1995.
o    Incorporated by reference to the Company's Form 8-K filed on or about
     February 2, 1996.
#    Incorporated by reference to the Company's Schedule 14A filed on or about
     November 17, 1998.
x    Filed herewith.



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

     Audit Fees. In fiscal 2005, the Company paid to its independent accountants
$30,730 in fees related directly to the audit and review of the Company's
financial statements. In fiscal 2004, the Company paid to its independent
accountants $25,410 in fees related directly to the audit and review of the
Company's financial statements.

     Audit-Related Fees. The Company's independent accountants performed no
other audit-related services for the Company during fiscal 2004 and 2005 other
than the audit services described above.

     Tax Fees: In fiscal 2005, the Company paid to its independent accountants
$1,000 in fees related directly to tax preparations. In fiscal 2004, the Company
paid to its independent accountants $1,000 in fees related directly to tax
preparations.

     All Other Fees: The Company's independent accountants performed no other
services for the Company during fiscal 2004 and 2005 other than the audit and
tax services described above.

                                      -18-
<PAGE>


                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, there unto duly authorized.

                                  PROCYON CORPORATION

                                  By: /s/ James B. Anderson
                                      ------------------------------------------
                                  James  B.  Anderson, Chief Financial Officer
                                  and Interim Chief Executive Officer

Date: September 28, 2005

Pursuant to the requirements of the Securities Exchange Act of 1934, the
following persons on behalf of the registrant and in the capacities and on the
dates indicated have signed this report below.

Signature                            Title                         Date
---------                            -----                         ----

/s/ James B. Anderson        Chief Financial Officer,             9/28/2005
---------------------        Interim Chief Executive Officer
James B. Anderson


/s/ Chester L. Wallack       Director                             9/27/2005
----------------------
Chester L. Wallack


/s/ Fred W. Suggs, Jr.       Director                             9/27/2005
-----------------------
Fred W. Suggs, Jr.


/s/ Alan B. Crane            Director                             9/27/2005
------------------
Alan B. Crane


/s/ Richard T. Thompson      Director                             9/28/2005
------------------------
Richard T. Thompson


/s/ Jeffery S. Slowgrove     Director                             9/27/2005
-------------------------
Jeffery S. Slowgrove


                                      -19-
<PAGE>


                                  EXHIBIT INDEX


Exhibit No.                      Document                               Item No.


  *   3.1     Articles of Incorporation                                     3

  +   3.1.1   Articles of Amendment to Articles of Incorporation            3

  *   3.2     Bylaws                                                        3

  +   4.1     Designation of Series A Preferred Stock                       4

  #   10.1     1998 Omnibus Stock Option Plan

  +   10.4    Loan and Security Agreement, dated as of
              January 1, 1995, by and between the Company and
              Amerx Health Care Corp., including
              Promissory Notes issued there under.                         10

  o           10.4 Agreement and Plan of Exchange, dated January
              31, 1996, by and between the Company and Amerx.

  x   31.1    Certification of James B. Anderson pursuant to
              Exchange Act Rule 13a-4(a)/15d-14(a)

  x   32.1    Certification Pursuant to 18 U.S.C. ss. 1350, as
              Adopted Pursuant to Section 906 of the Sarbanes-Oxley
              Act Of 2002

*    Incorporated by reference to the Company's Registration Statement on Form
     S-1, S.E.C. File No. 33-13273.

+    Incorporated by reference to the Company's Form 10-KSB for the fiscal year
     ended June 30, 1995.

o    Incorporated by reference to the Company's Form 8-K filed on or about
     February 2, 1996.

#    Incorporated by reference to the Company's Schedule 14A filed on or about
     November 17, 1998.

x    Filed herewith.

                                      -20-

<PAGE>








                      PROCYON CORPORATION AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                       Years Ended June 30, 2005 and 2004





<PAGE>


TABLE OF CONTENTS




Page No.


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM....................F-1



FINANCIAL STATEMENTS


  Consolidated Balance Sheet...............................................F-2

  Consolidated Statements of Operations....................................F-3

  Consolidated Statements of Stockholders' Equity..........................F-4

  Consolidated Statements of Cash Flows....................................F-5

  Notes to Financial Statements............................................F-6



<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Board of Directors
Procyon Corporation and Subsidiaries
Clearwater, Florida


We have audited the accompanying consolidated balance sheet of Procyon
Corporation and Subsidiaries as of June 30, 2005 and the related statements of
operations, stockholders' equity, and cash flows for the years ended June 30,
2005 and 2004. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Procyon Corporation and
Subsidiaries as of June 30, 2005 and the results of its operations and its cash
flows for the years ended June 30, 2005 and 2004, in conformity with accounting
principles generally accepted in the United States of America.






/s/ Ferlita, Walsh & Gonzalez, P.A.
FERLITA, WALSH & GONZALEZ, P.A.
Certified Public Accountants
Tampa, Florida

September 13, 2005

                                      F-1

<PAGE>


PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 2005


ASSETS

CURRENT ASSETS

             Cash                                                   $    26,580
             Accounts receivable, less allowance of $2,500              145,973
                  for doubtful accounts
             Prepaid expenses                                            54,606
             Inventories                                                146,323
             Deferred tax asset                                         151,461
                                                                    -----------
                  TOTAL CURRENT ASSETS                                  524,943

PROPERTY AND EQUIPMENT, NET                                              77,501

OTHER ASSETS
             Certificates of deposit, restricted                         17,114
             Deposits                                                     9,335
                                                                    -----------
                  TOTAL OTHER ASSETS                                     26,449
                                                                    -----------

TOTAL ASSETS                                                        $   628,893
                                                                    ===========


LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
             Current portion of capital lease obligations           $     2,360
             Accounts payable                                           100,499
             Accrued expenses                                            72,760
                                                                    -----------
                  TOTAL CURRENT LIABILITIES                             175,619

LONG-TERM LIABILITIES
             Note payable to related party                               90,000
             Deferred tax liability                                      11,275
                                                                    -----------
                  TOTAL LONG TERM LIABILITIES                           101,275

STOCKHOLDERS' EQUITY
             Preferred stock, 496,000,000 shares
                  authorized; none issued
             Series A Cumulative Convertible Preferred stock,
                  no par value; 4,000,000 shares authorized;
                  214,900 shares issued and outstanding                 170,750
             Common stock, no par value, 80,000,000 shares
                  authorized; 8,057,588 shares issued and
                  outstanding                                         4,400,876
             Paid-in capital                                              6,000
             Accumulated deficit                                     (4,225,627)
                                                                    -----------
                  TOTAL STOCKHOLDERS' EQUITY                            351,999

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                          $   628,893
                                                                    ===========


The accompanying notes are an integral part of these financial statements

                                            F-2

<PAGE>
<TABLE>
<CAPTION>


PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended June 30, 2005 and 2004

                                                                    2005                     2004
                                                                -----------               -----------

<S>                                                             <C>                       <C>
NET SALES                                                       $ 2,198,261               $ 2,024,776

COST OF SALES                                                       531,500                   464,756
                                                                -----------               -----------

GROSS PROFIT                                                      1,666,761                 1,560,020

OPERATING EXPENSES
              Salaries and Benefits                                 694,770                   644,884
              Selling, General and Administrative                   721,674                   693,369
                                                                -----------               -----------
                                                                  1,416,444                 1,338,253

INCOME FROM OPERATIONS                                              250,317                   221,767

OTHER INCOME (EXPENSE)
              Interest Expense                                      (13,394)                  (34,128)
              Interest Income                                           299                       264
              Other Income                                              431                     7,155
                                                                -----------               -----------
                                                                    (12,664)                  (26,709)
                                                                -----------               -----------

INCOME BEFORE INCOME TAXES                                          237,653                   195,058

INCOME TAX BENEFIT                                                   77,186                    63,000
                                                                -----------               -----------

NET INCOME                                                          314,839                   258,058

Dividend requirements on preferred stock                            (12,950)                  (19,910)
                                                                -----------               -----------

Basic net income available to common shares                     $   301,889               $   238,148
                                                                ===========               ===========

Basic net income per common share                               $      0.04               $      0.03
                                                                ===========               ===========

Weighted average number of common
              shares outstanding                                  8,047,667                 8,042,547
                                                                ===========               ===========

Diluted net income per common share                             $      0.04               $      0.03
                                                                ===========               ===========

Weighted average number of common
              shares outstanding, basic and diluted               8,356,792                 8,407,447
                                                                ===========               ===========


The accompanying notes are an integral part of these financial statements

                                                   F-3

<PAGE>


PROCYON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended June 30, 2005 and 2004

                                      Preferred Stock                Common Stock
                                 --------------------------    -------------------------   Paid-in      Accumulated
                                    Shares         Amount        Shares        Amount       Capital       Deficit          Total
                                 -----------     ----------    -----------   -----------   -----------  ------------    -----------

Balance, June 30, 2003               231,100        186,950      8,020,388     4,384,676         6,000    (4,798,524)      (220,898)

  Conversion of preferred
    stock to common stock             (4,000)        (4,000)         4,000         4,000          --            --             --

  Net income                            --             --             --            --            --         258,058        258,058
                                 -----------    -----------    -----------   -----------   -----------   -----------    -----------

Balance, June 30, 2004               227,100    $   182,950      8,024,388   $ 4,388,676   $     6,000   $(4,540,466)   $    37,160

  Conversion of preferred
    stock to common stock            (12,200)       (12,200)        12,200        12,200          --            --             --

  Net income                            --             --             --            --            --         314,839        314,839
                                 -----------    -----------    -----------   -----------   -----------   -----------    -----------

Balance, June 30, 2005               214,900    $   170,750      8,036,588   $ 4,400,876   $     6,000   $(4,225,627)   $   351,999
                                 ===========    ===========    ===========   ===========   ===========   ===========    ===========







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

                                                               F-4

<PAGE>


PROCYON CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 2005 and 2004



                                                                                               2005              2004
                                                                                           ---------       ----------

CASH FLOWS FROM OPERATING ACTIVITIES

Net income                                                                                 $ 314,839       $ 258,058
Adjustments to reconcile net income to net cash used in operating activities:
      Depreciation                                                                            27,617          24,025
      Allowance for doubtful accounts                                                         (6,500)        (11,500)
      Deferred Income Taxes                                                                  (77,186)        (63,000)
      Decrease (increase) in:
          Accounts receivable                                                                 15,175           4,904
          Inventory                                                                          (41,599)         (8,202)
          Prepaid expenses                                                                   (17,942)         (8,400)
          Other assets                                                                        (4,121)         (4,370)
      Increase (decrease) in:
          Accounts payable                                                                     1,678        (109,290)
          Accrued expenses                                                                        37           5,320
                                                                                           ---------       ---------
                                             NET CASH PROVIDED
                                             BY OPERATING ACTIVITIES                         211,998          87,545

CASH FLOWS FROM INVESTING ACTIVITIES

      Purchase of property & equipment                                                        (9,718)        (68,731)
                                                                                           ---------       ---------
                                             NET CASH USED
                                             BY INVESTING ACTIVITIES                          (9,718)        (68,731)

CASH FLOWS FROM FINANCING ACTIVITIES

      Payments on note payable related party                                                (191,506)        (36,870)
      Borrowings on note payable related party                                                20,000            --
      Payment of capital lease obligations                                                    (8,046)         (8,727)
      Payments on long term note payable - trade                                             (10,756)           (158)
                                                                                           ---------       ---------
                                             NET CASH USED
                                             BY FINANCING ACTIVITIES                        (190,308)        (45,755)

                                             NET CHANGE IN CASH                               11,972         (26,941)

CASH AT BEGINNING OF PERIOD                                                                   14,608          41,549
                                                                                           ---------       ---------

                                             CASH AT END OF PERIOD                         $  26,580       $  14,608
                                                                                           =========       =========
SUPPLEMENTAL DISCLOSURES

Interest Paid                                                                              $  13,394       $  34,128
Taxes Paid                                                                                 $    --         $    --


NONCASH TRANSACTION DISCLOSURE:
Conversion of Series A cumulative convertible preferred stock to common stock              $  12,200       $   4,000
Financing of property & equipment through long term loan                                   $    --         $   1,563



The accompanying notes are an integral part of these financial statements


                                                          F-5
</TABLE>

<PAGE>


PROCYON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business Activity
-----------------

Procyon Corporation has two wholly-owned subsidiaries, Amerx Health Care Corp.
(Amerx) and Sirius Medical Supplies, Inc. (Sirius). Amerx manufactures and
markets wound and skin care products primarily in the United States whereas
Sirius markets diabetic supplies primarily to Medicare patients in the United
States.

Principles of Consolidation
---------------------------

The consolidated financial statements include the accounts of Procyon
Corporation and its wholly-owned subsidiaries, Amerx and Sirius. All material
intercompany accounts and transactions are eliminated.

Use of Estimates
----------------

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Revenue Recognition
-------------------

The Company recognizes revenue in accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition
in Financial Statements," as amended by SAB 101A and SAB 101B. SAB 101 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 fee is determinable and fixed; and (4)
collectibility is reasonably assured.

The Company recognizes revenue related to product sales to customers who have
placed orders upon shipment of such orders, provided that 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. Revenue
recognition is delayed for product shipments for which the Company has not yet
received the required written forms, until the period in which those documents
are collected and verified.

Revenue related to Medicare reimbursement is calculated based on
government-determined reimbursement prices for Medicare-covered items. The
reimbursements that Medicare pays the Company are subject to review by
appropriate government regulators. Medicare reimburses at 80% of the
government-determined reimbursement prices for reimbursable supplies, and the
Company bills the remaining balance to either third-party payers or directly to
customers.

Accounts Receivable and Concentration of Credit Risk
----------------------------------------------------

Amerx grants credit to customers most of whom are national pharmaceutical
companies, nationwide drug stores and physicians. Amerx wholesales its products
to national pharmaceutical companies and nationwide drug stores at a sales term
of 2/10, net 30. Amerx does not have a written return policy with its customers.
Each return request is reviewed by management for approval. Sales to physicians
and patients are at retail and standard payment term is 30 days.

Sirius grants credit to physicians and patients who are eligible for Medicare
coverage. Sales are at standard payment term of 30 days.

Accounts receivable are generally due from Medicare, private insurance
companies, and customers. The collection process is time consuming, complex and
typically involves the submission of claims to multiple payers whose payment of
claims may be contingent upon the payment of another payer. In accordance with
applicable regulatory requirements, the Company makes reasonable and appropriate
efforts to collect accounts receivable, including deductible and copayment
amounts, in a consistent manner for all payer classes. 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

                                      F-6

<PAGE>


PROCYON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS

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 and
write-off experience, current trends, credit policy, and on analysis of accounts
receivable by aging category. As of June 30, 2005, accounts receivable allowance
was $2,500, or approximately 2% of gross accounts receivable.

Inventories
-----------

Inventories are valued at the lower of average cost or market determined by the
first-in, first-out method.

Property and Equipment
----------------------

Property and equipment are stated at cost. Depreciation is computed on a
straight-line basis over their estimated useful lives. Leased equipment are
recorded at their fair market value at the beginning of the lease term and are
depreciated over the life of the equipment. Depreciation on leased equipment is
included in depreciation expense.

Cash and Cash Equivalents
-------------------------

For the purpose of the Statements of Cash Flows, the Company considers
cash-on-hand, demand deposits in banks and highly liquid investments purchased
with an original maturity of three months or less to be cash equivalents.

The Company has classified the certificates of deposits as restricted assets.
These certificates of deposits are collateral on a letter of credit issued at
the request of a vendor and therefore are not available for operations.

Shipping and Handling Costs
---------------------------

Shipping and handling costs incurred were approximately $74,000 and $76,000 for
the years ended June 30, 2005 and 2004, respectively, and were included in
selling, general and administrative expenses.

Advertising and Marketing
-------------------------

The company records advertising and marketing expenses in the periods in which
they are incurred. During the years ended June 30, 2005 and 2004, approximately
$291,000 and $259,000, respect ively, of advertising and marketing costs were
included in selling, general and administrative expenses.

Income Taxes
------------

The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financial statements
or tax returns. Under this method, deferred tax assets and liabilities are
determined based on the differences between the financial statement and the tax
basis of assets and liabilities using enacted tax provisions currently in effect
and rates applicable to the periods in which the differences are expected to
affect taxable income.

Net Income Per Share
--------------------

The Company computes net income per share in accordance with SFAS No. 128,
"Earnings per Share" (SFAS 128). SFAS 128 requires presentation of both basic
and diluted earnings per shares (EPS) on the face of the income statement. Basic
EPS is computed by dividing net income available to common shareholders
(numerator) by the weighted average number of common shares outstanding
(denominator) during the period. Diluted EPS gives effect to all dilutive
potential common shares outstanding during the period including stock options,
using the treasury stock method, and convertible preferred stock, using the
if-converted method. In computing diluted EPS, the average stock price for the
period is used in determining the number of shares assumed to be purchased from
the exercise of stock options. Diluted EPS excludes all dilutive potential
common shares if their effect is anti-dilutive.

                                      F-7

<PAGE>


PROCYON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS

Fair Value of Financial Instruments
-----------------------------------

The carrying value of cash, accounts receivable, prepaid expenses, deposits,
inventory, accounts payable, accrued expenses and notes payable approximate fair
value. Note payable to related party is discussed in Note D.

Considerable judgement is required in interpreting market data to develop the
estimates of fair value, and accordingly, the estimates are not necessarily
indicative of the amounts that the Company could realize in a current market
exchange.

Stock Based Compensation
------------------------

In December 1998, the Company adopted a 1998 Omnibus Stock Option Plan that
provides for the granting of equity-based incentive and other awards to
employees and directors of the Company, its subsidiaries and selected
consultants. The Plan is administered by the Compensation Committee of the Board
of Directors. Any employee, directors who are not employees of the Corporation
or a subsidiary, and consultants who are not employees or directors of the
Corporation are eligible to participate in the Plan. The maximum number of
shares of common stock issuable on exercise of options or other awards granted
under the Plan is 1,000,000. Non-qualified options granted must have an exercise
price not less than 85% of the fair market value of the underlying shares of
common stock. Incentive options must have an exercise price not less than 100%
of the fair market value of the underlying shares of common stock. The term of
the options cannot be more than ten years. Awards may be granted in the form of
restricted stock. Awards can also be granted in the form of stock appreciation
rights. A stock appreciation right entitles the participant to receive from the
Company an amount equal to the positive difference between the fair market value
of common stock on the date of exercise of the stock appreciation right and the
grant price. No stock appreciation rights have been issued to date.

Additional information with respect to the Plan's stock option activity is as
follows:
                                                               Weighted
                                          Number of             Average
                                            Shares          Exercise Price
                                        -------------      ---------------
Outstanding at June 30, 2003                300,000             $0.20
 Granted                                       --                 --
 Exercised                                     --                 --
 Expired                                       --                 --
                                            -------
Outstanding at June 30, 2004                300,000             $0.20
                                                                =====
 Granted                                       --                 --
 Exercised                                     --                 --
 Expired                                       --                 --
                                            -------
Outstanding at June 30, 2005                300,000             $0.20
                                            =======             =====


Options exercisable at June 30, 2004        300,000             $0.20
                                            =======             =====


Options exercisable at June 30, 2005        300,000             $0.20
                                            =======             =====

The following table summarizes information about stock options outstanding at
June 30, 2005:

                                   Stock Options Outstanding
                  ------------------------------------------------------------
                                       Weighted Average
                       Number of           Remaining             Weighted
     Range of            Shares        Contractual Life          Average
 Exercise Prices      Outstanding          In Years           Exercise Price
-------------------  --------------- ----------------------  -----------------
  $0.15 - $0.20          65,000              5.39                 $0.16

  $0.20 - $0.25         235,000              4.51                 $0.21
                     ----------
                        300,000              4.70                 $0.20
                     ==========

                                      F-8

<PAGE>


PROCYON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS


The Company has elected to follow APB Opinion No. 25 "Accounting for Stock
Issued to Employees" in accounting for its employee stock options and has
adopted the disclosure provisions of Statement of Financial Accounting Standards
No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure,
an amendment of FASB Statement No. 123." Under APB No. 25, when the exercise
price of the employee stock options equals or exceeds the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Accordingly, no compensation expense has been recognized in the consolidated
financial statements in connection with employee stock option grants.

The following table illustrates the effect on net income and earnings per share
had the Company applied the fair value recognition provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," to stock-based employee compensation.

                                                              2005         2004
                                                        ----------    ---------
Net income applicable to common stock:
  As reported                                           $  314,839    $ 238,148
  Pro forma adjustment for compensation                         -            -
                                                        ----------    ---------
  Pro forma                                             $  314,839    $ 238,148
                                                        ==========    =========

Income per common share:
  Basic - As reported                                   $     0.04     $   0.03
  Basic - Pro forma                                     $     0.04     $   0.03
  Diluted - As reported                                 $     0.04     $   0.03
  Diluted - Pro forma                                   $     0.04     $   0.03

There were no options granted during fiscal years ended June 30, 2005 and 2004.
Had there been options issued during the fiscal years ended June 30, 2005 and
2004, the fair value of the options would have been determined using the
Black-Scholes option-pricing model, which values options based on the stock
price at the grant date, the expected dividend payments, and the risk-free
interest rate over the life of the option.

The Black-Scholes option valuation model was developed for estimating the fair
value of traded options that have no vesting restrictions and are fully
transferable. Because option valuation models require the use of subjective
assumptions, changes in these assumptions can materially affect the fair value
of the options. The Company's 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 its options.

Equity instruments issued to non-employees in exchange for goods, fees and
services are accounted for under the fair value-based method of SFAS No. 123.


                                      F-9

<PAGE>


PROCYON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS


NOTE B - INVENTORIES

Inventories consisted of the following:

                  Finished Goods        $    79,358
                  Raw Materials              66,965
                                        -----------
                                        $   146,323
                                        ===========


NOTE C - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

                                          Owned         Leased          Total
                                        ---------      --------       ---------
Office equipment                        $ 105,380      $  25,365      $ 130,745
Furniture and fixtures                     20,726           --           20,726
Leasehold improvements                     13,589           --           13,589
Production equipment                       30,236           --           30,236
                                        ---------      ---------      ---------
                                          169,931         25,365        195,296
Less accumulated depreciation            (100,182)       (17,613)      (117,795)
                                        ---------      ---------      ---------
                                        $  69,749      $   7,752      $  77,501
                                        =========      =========      =========

NOTE D - RELATED PARTY TRANSACTIONS

The Company has a note payable with its majority stockholder at 8% interest per
annum. The note payable is due on July 31, 2006. At June 30, 2005, the majority
shareholder was owed $90,000 on the note. Interest expense for the years ended
June 30, 2005 and 2004 were $11,090 and $34,128, respectively.


NOTE E - COMMITMENTS AND CONTINGENCIES

Leases
------

In September 2003, the Company entered into a lease for office space for a term
of three years. Monthly rent is approximately $4,100 plus sales tax. The Company
has the option, but not the obligation, to purchase the building and its
property after the first anniversary from the date of the execution of the
contract at a predetermined price. Rent expense for the years ended June 30,
2005 and 2004 were approximately $49,000 and $41,000, respectively.

In addition, the Company also leases certain equipment under various operating
leases expiring through year 2008.

The minimum lease payments due under the equipment lease agreements as well as
the office lease for fiscal years ended June 30 is as follow:

                            2006            $        59,262
                            2007                     22,641
                            2008                        379
                                           ----------------
                                            $        82,282
                                           ================


                                      F-10

<PAGE>


PROCYON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS

Purchase Commitments
--------------------

Sirius entered into a two-year contract with one of its suppliers in June 2004
to purchase a minimum quantity of various diabetic supplies at a discounted
price each year. In accordance with the terms of the contract, the supplier
could retroactively adjust the purchase price based on actual quantities
purchased. In accordance with the Statement of Position 94-6, Disclosure of
Certain Significant Risks and Uncertainties ("SOP 94-6"), Sirius believes that
while there is concentration of products purchased from this vendor, the
concentration did not make the Company vulnerable to the risk of a near-term
severe impact, as defined in SOP 94-6. Sirius also has the ability to purchase
the same product from third party vendors at a slightly higher price. Further,
management believes that it is not reasonably possible that this event could
cause severe near-term impact to the Company.

Open Letter of Credit
---------------------

The Company has a letter of credit of $17,000 outstanding at June 30, 2005. The
letter of credit is collateralized by the certificates of deposits. The letter
of credit was issued at the request of a vendor.

NOTE F - LONG-TERM DEBT

The Company has a note payable with its majority stockholder at 8% interest per
annum. The note payable is due on July 31, 2006. At June 30, 2005, the majority
shareholder was owed $90,000 on the note.

The Company leases certain equipment under various capital leases expiring
through year 2006. Certain capital leases contain bargain purchase options at
the end of the lease terms. The minimum lease payment due under the lease
agreements for fiscal year ended June 30, 2006 is $2,360.

NOTE G - 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. The
preferred stockholders are entitled to receive, if declared by the board of
directors, quarterly dividends at an annual rate of $.10 per share of Series A
Cumulative Convertible Preferred Stock per annum. Dividends accrue without
interest and are cumulative from the date of issuance of the Series A Cumulative
Convertible Preferred Stock and are payable quarterly in arrears in cash or
publicly traded common stock when and if declared by the board of directors. As
of June 30, 2005, no dividends have been declared. Dividends in arrears on the
outstanding preferred shares total $174,371 or approximately $0.81 per share as
of June 30, 2005. The preferred stockholders have the right to convert each
share of Series A Cumulative Convertible Preferred Stock into one share of the
Company's common stock at any time without additional consideration. Each share
of Series A Cumulative Convertible Preferred Stock is subject to mandatory
conversion into one share of common stock of the Company, effective as of the
close of a public offering of the Company's common stock provided, however, that
the offering must provide a minimum of $1 million in gross proceeds to the
Company and the initial offering price of such common stock must be at least $1
per share. In addition to the rights described above, the holders of the Series
A Cumulative Convertible Preferred Stock have voting rights equal to the common
stockholders based upon the number of shares of common stock into which the
Series A Cumulative Convertible Preferred Stock is convertible. The Company is
obligated to reserve an adequate number of shares of its common stock to satisfy
the conversion of all of the outstanding Series A Cumulative Convertible
Preferred Stock.


                                      F-11

<PAGE>


PROCYON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS

NOTE H - EARNINGS PER SHARE

As required by FASB Statement No. 128, the following table sets forth the
computation of basic and diluted earnings per share:

                                                       Years Ended June 30,
                                                     --------------------------
                                                        2005            2004
                                                     -----------    -----------
     Numerator:
     ----------
     Net income                                      $   314,839    $   258,058
     Adjustment for basic earnings per share:
      Dividend requirements on preferred stock           (12,950)       (19,910)
                                                     -----------    -----------
     Numerator for basic earnings per share-
      Net income available to common stockholders
                                                     $   301,889    $   238,148

     Effect of dilutive securities:
     Numerator for diluted earnings per share-
      Net income available to common
     stockholder                                     $   301,889    $   238,148
                                                     ===========    ===========

     Denominator:
     ------------
     Denominator for basic earnings per share-
      Weighted-average common shares                   8,047,667      8,042,547
      Effect of dilutive securities:
       Stock options                                     128,454        136,079
       Dilutive potential common shares                  180,671        228,821
                                                     -----------    -----------
     Denominator for dilutive earnings per share-
      Adjusted weighted-average shares and
     assumed conversions                               8,356,792      8,407,447
                                                     ===========    ===========

     Basic income per share                          $      0.04    $      0.03
                                                     ===========    ===========

     Diluted income per share                        $      0.04    $      0.03
                                                     ===========    ===========


NOTE I - INCOME TAXES AND AVAILABLE CARRYFORWARD

As of June 30, 2005, the Company had consolidated income tax net operating loss
("NOL") carryforward for federal income tax purposes of approximately
$4,359,000. The NOL will expire in various years ending through the year 2022.

The components of the provision for income taxes (benefits) are attributable to
continuing operations as follows:

                                                     2005                2004
                                                   --------            --------
Current
  Federal                                          $   --              $   --
  State                                                --                  --
                                                   --------            --------

Deferred
  Federal                                           (69,740)            (52,920)
  State                                              (7,446)            (10,080)
                                                   --------            --------
                                                    (77,186)            (63,000)
                                                   --------            --------

Income tax (benefit)                               $(77,186)           $(63,000)
                                                   ========            ========

                                      F-12

<PAGE>


PROCYON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS

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                  $   150,520   $ 1,492,017
  Allowance for doubtful accounts                             941          --
                                                      -----------   -----------
                                                          151,461     1,492,017

Deferred tax (liabilities):
  Excess of tax over book depreciation                       --         (11,275)
                                                      -----------   -----------
                                                          151,461     1,480,742
Valuation allowance for deferred tax assets                  --      (1,492,017)
                                                      -----------   -----------
Net deferred tax asset (liability)                        151,461       (11,275)
  Less: current net deferred tax asset (liability)    $   151,461          --
                                                      -----------   -----------
  Net non-current deferred tax asset (liability)      $      --     $   (11,275)
                                                      ===========   ===========

The change in the valuation allowance is as follow:

            June 30, 2004             $(1,498,878)
            June 30, 2005              (1,492,017)
                                      -----------
Decrease in valuation allowance       $    (6,861)
                                      ===========

The decrease in the valuation allowance is due to an increase in the expected
utilization of net operating loss carryforwards. A valuation allowance of
approximately $1,492,000 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 years ended June 30, 2005 and 2004 differ from the amounts
computed by applying the effective income tax rates of 37.63% and 34.34%,
respectively, to income before income taxes as a result of the following:

                                                          2005           2004
                                                       ---------      ---------

Expected provision at US statutory rate                $  80,802      $  66,320
State income tax net of federal benefit                    8,627          6,917
Nondeductibles                                             1,547            462
Change in valuation allowance, change in
  expected rate and utilization                         (168,162)      (136,699)
                                                       ---------      ---------
Income tax benefit                                     $ (77,186)     $ (63,000)
                                                       =========      =========

NOTE J - CONCENTRATION OF SUPPLY RISK

The Company's manufacturing and packaging activities are performed at a
production facility owned and operated by a nonaffiliated pharmaceutical
manufacturer. At the present time, the manufacturer is the sole source of the
Company's wound care products. The sudden loss or failure of this manufacturer
could significantly impair Amerx's ability to fulfill customer orders on a
short-term basis and therefore, could materially and adversely affect the
Company's operations. However, the Company has maintained a long-term
relationship with this manufacturer and does not expect a discontinuance of its
wound care products from the manufacturer in the near term.

During the year, Sirius purchased approximately 47% of its diabetic supplies
from a non-affiliated supplier. Sirius entered into a contract with this
supplier to purchase a minimum quantity of products at a discount. (See NOTE E -
COMMITMENTS AND CONTINGENCIES for disclosure) The Company does not anticipate
supply from this vendor will be lost in the near future. In the event the
contract is not renewed upon its expiration, the Company could still purchase
such products at a higher cost from this supplier or negotiate with other
suppliers.

                                      F-13

<PAGE>


PROCYON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS

NOTE K - SEGMENT INFORMATION

The Company operates in the following two business segments:

1.   Sale of skin and wound care products - Amerx operates in the skin and wound
     care products segment. The marketing of these products is targeted
     primarily to diabetic patients who have difficulties providing proper care
     and treatment of wounds due to their diabetic condition and podiatrists who
     recommend the products to their patients.

2.   Sale of diabetic supplies - Sirius provides meters, test strips, monitors,
     syringes, etc. primarily to diabetic patients. The Company is then
     reimbursed by Medicare and/or patients' secondary insurance.

Each separately managed segment offers different products requiring different
marketing and distribution strategies.

Segments Information

<TABLE>
<CAPTION>

                                                 Wound Care          Diabetic
                                  June 30,        Products           Products            Other          Consolidated
                                 ---------      -----------         -----------        ----------       ------------

<S>                                 <C>          <C>                <C>                <C>                <C>
Revenues                            2005         $1,856,529         $  341,732         $     --           $2,198,261
                                    2004          1,609,379            415,397         $     --            2,024,776

Gross Profit                        2005          1,507,334            159,427               --            1,666,761
                                    2004          1,358,416            201,604               --            1,560,020

Identifiable Assets                 2005            334,167             66,303            228,421            628,891
                                    2004            308,513             68,189            126,669            503,371

Property and Equipment
Additions                           2005              9,718               --                 --                9,718
                                    2004             28,586                752             40,956             70,294

Depreciation                        2005             19,295              6,116              2,204             27,615
                                    2004             16,362              3,725              3,938             24,025
</TABLE>

Geographical Information

The Company operates and sells its products to its customers primarily within
the United States. All assets are located within the United States.


NOTE L - RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the FASB issued SFAS No. 123R which requires companies to
recognize in the income statement the grant-date fair value of stock options and
other equity-based compensation issued to employees, but expressed no preference
for the valuation model. SFAS No. 123R is effective for small business issuers
as of the beginning of annual reporting periods that begin after December 15,
2005. The impact of the SFAS No. 123R has not been determined by the Company.


                                      F-14