<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period July 31, 1996
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
PROTECH COMMUNICATIONS, INC.
===============================================================================
(Exact name of small business issuer as specified in its charter)
FLORIDA 59-3281593
(State or other jurisdiction of I.R.S. Employer Identification
incorporation or organization) Number)
3311 INDUSTRIAL 25TH STREET, FORT PIERCE, FLORIDA 34946
===============================================================================
(Address of principal executive offices)
(561)464-5100
===============================================================================
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act 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
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Class Number of Shares Outstanding
on July 31, 1996
Common stock, Par Value $.001 Per Share 3,964,000
Transitional Small Business Disclosure Format: Yes No X
---- ----
<PAGE> 2
PROTECH COMMUNICATIONS, INC.
<TABLE>
<CAPTION>
INDEX
PART 1 FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1 Financial Statements
Balance Sheet at July 31, 1996 3
(unaudited)
Income Statement 4
for the Three months ended July 31
1996 and 1995 (Unaudited)
Income Statement 5
for the Nine months ended July 31
1996 and 1995 (Unaudited)
Statement of Cash Flows 6
for the Three months ended July 31
1996 and 1995 (Unaudited)
Statement of Cash Flows 7
for the Nine months ended July 31
1996 and 1995 (Unaudited)
Statement of Stockholder's Equity 8
for the Nine months ended July 31
1996 (Unaudited)
Notes to Financial Statements 9
(Unaudited)
Item 2 Management's Discussion and 15
Plan of Operation for the period
November 1, 1995 - July 31, 1996
Management's Discussion and 16
Plan of Operation for the period
May 1, 1996 - July 31, 1996
SIGNATURES 18
Item 3 Exhibits
Exhibit 27 Financial Data Schedule
(for SEC use only)
</TABLE>
<PAGE> 3
ProTech Communications, Inc.
Balance Sheet and Statement of Equity
as of July 31, 1996 and July 31, 1995
(unaudited)
<TABLE>
<CAPTION>
ASSETS FY96 FY95
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 636,166 311,565
Accounts Receivable less bad debt allowance
(19,382 in FY96 vs 13,301 in FY95) 147,301 159,782
Deposits being Held 500 500
Inventory (note 2) 149,393 69,987
------------- --------
Total current assets 933,360 541,834
Net property and equipment (note 3) 157,251 97,737
------------- --------
Total Assets $ 1,090,611 639,571
Liabilities and Stockholders' Equity
Current Liabilities: (note 4)
Accounts Payable 29,635 0
Accrued expenses (note 8) 3,380 7,953
------------- --------
Total Current Liabilities 33,015 7,953
Long Term Liabilities 0 4,174
Stockholder's Equity: (note 5)
Common Stock, $.001 par value, authorized 10,000,000
shares issued and outstanding 3,964,000 3,964 2,864
Additional Paid in Capital 972,727 490,761
Retained Earnings 78,676 121,390
Current Period Profit 2,229 12,429
------------- --------
Total Stockholders' Equity 1,057,596 627,444
Commitments (note 7) ------------- --------
Total Liabilities and Equity $ 1,090,611 639,571
</TABLE>
See accompanying notes to financial statements
Page 3
<PAGE> 4
ProTech Communications, Inc.
Statement of Income
For the 3 months ended July 31, 1996 and July 31, 1995
(unaudited)
<TABLE>
<CAPTION>
FY96 FY95
---- ----
<S> <C> <C>
Net Sales (note 9) $ 222,687 231,413
Cost of Goods Sold 88,774 85,450
--------- -------
Gross Profit 133,913 145,963
Selling, general and administrative expenses 86,123 133,522
--------- -------
Income from operations 47,790 12,441
Other income (expense):
Interest income 7,075 0
Interest expense 0 (27)
Miscellaneous income 0 15
SEC registration expense (note 11) (49,591) 0
--------- -------
Income before income taxes 5,274 12,429
Income taxes (note 8) 3,045 0
Net Income $ 2,229 12,429
========= =======
Net income per common share $ 0.01 0.02
</TABLE>
See accompanying notes to financial statements.
Page 4
<PAGE> 5
ProTech Communications, Inc.
Statement of Income
For the 9 months ended July 31, 1996 and July 31, 1995
(unaudited)
<TABLE>
<CAPTION>
FY96 FY95
---- ----
<S> <C> <C>
Net Sales (note 9) $ 626,492 639,720
Cost of Goods Sold 251,681 223,885
--------- -------
Gross Profit 374,811 415,834
Selling, general and administrative expenses 282,854 322,276
--------- -------
Income from operations 91,957 93,558
Other income (expense):
Interest income 19,983 1,003
Interest expense (13,868) (84)
Miscellaneous income (250) 15
SEC registration expense (note 11) (49,591) 0
--------- -------
Income before income taxes 48,231 94,492
Income taxes (note 8) 10,427 0
Net Income $ 37,804 94,492
========= =======
Net income per common share $ 0.01 0.02
</TABLE>
See accompanying notes to financial statements.
Page 5
<PAGE> 6
PRO TECH COMMUNICATIONS, INC.
STATEMENT OF CASH FLOWS
For the three months ended July 31,1996 and July 31, 1995
(unaudited)
<TABLE>
<CAPTION>
FY96 FY95
---- ----
<S> <C> <C>
Cash flows from operating activities:
Cash received from sale of merchandise $ 222,686 231,413
Cash paid to vendors and employees (264,347) (234,590)
Interest paid -- (27)
Interest received 7,075 --
--------- -------
Net cash used by operating activities (34,586) (3,204)
--------- -------
Cash flows from investing activities:
Purchase of property and equipment (23,968) (45,565)
Proceeds from the sale of property and equipment -0- -0-
--------- -------
Net cash used in investing activities (23,968) (45,565)
Cash flows from financing activities: --------- -------
Payable to employee -- (5,351)
Note payable: GMAC -- (657)
Principal payments on notes payable --
(20,000)
Proceeds from issuance of common stock 1,000 130,250
--------- -------
Net cash provided by financing activities 1,000 104,242
--------- -------
Cash and cash equivalents at beginning of period 693,720 256,092
Cash and cash equivalents at end of period $ 636,166 311,565
========= =======
Reconciliation of net income to net cash used by operating activities:
Net income $ 2,229 12,429
Adjustments to reconcile net income to net cash used by operating
activities:
Depreciation and amortization 28,974 29,006
Allowance for doubtful accounts 19,382 13,301
Increase in accounts receivable (6,576) (14,704)
Increase in Inventory (51,369) (10,596)
Decrease in accounts payable (17,142) (24,831)
Increase in accrued expenses (3,045) (4,639)
Increase in other liabilities (7,039) (3,170)
--------- -------
Total adjustments (36,815) (15,633)
Net cash used by operating activities $ (34,586) (3,204)
</TABLE>
See accompanying notes to financial statements Page 6
<PAGE> 7
PRO TECH COMMUNICATIONS, INC.
STATEMENT OF CASH FLOWS
For the 9 months ended July 31, 1996 and July 31, 1995
(unaudited)
<TABLE>
<CAPTION>
FY96 FY95
---- ----
<S> <C> <C>
Cash flows from operating activities:
Cash received from sale of merchandise $ 622,680 586,047
Cash paid to vendors and employees (671,529) (619,158)
Interest paid (13,868) (84)
Interest received 19,983 1,003
--------- --------
Net cash used by operating activities (42,734) (32,192)
--------- --------
Cash flows from investing activities:
Purchase of property and equipment (66,060) (75,080)
Proceeds from the sale of property and equipment -0- -0-
--------- --------
Net cash used in investing activities (66,060) (75,080)
--------- --------
Cash flows from financing activities:
Proceeds from Notes payable -- (20,000)
Payable to employee -- (5,721)
Note payable: GMAC -- (1,301)
Principal payments on notes payable (252,113) (20,000)
Proceeds from issuance of common stock 425,803 386,532
--------- --------
Net cash provided by financing activities 173,690 379,510
--------- --------
Cash and cash equivalents at beginning of period 571,270 39,327
Cash and cash equivalents at end of period $ 636,166 311,565
========= ========
Reconciliation of net income to net cash used by operating
activities:
Net income $ 37,804 94,492
Adjustments to reconcile net income to net cash used by operating
activities:
Depreciation and amortization 28,974 29,006
Allowance for doubtful accounts 19,382 13,301
Increase in accounts receivable (20,908) (65,112)
Increase in Inventory (59,332) (34,243)
Decrease in accounts payable (554) (56,019)
Increase in accrued expenses (29,515) (7,475)
Increase in other liabilities (18,585) (6,142)
--------- --------
Total adjustments (80,538) (126,684)
Net cash used by operating activities $ (42,734) (32,192)
</TABLE>
See accompanying notes to financial statements Page 7
<PAGE> 8
PRO TECH COMMUNICATIONS, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
For the 9 months ended July 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings Total
--------- ------- -------- -------
<S> <C> <C> <C> <C>
Balance, November 1, 1994 $ 2,000 119,485 39,327 160,812
Issuance of 864,000 shares of 864 371,276 -- 372,140
common stock (note 5) (net costs
of $32,000) March 3, 1995
Net earnings - 6 month period -- -- 82,063 82,063
Nov 1, 1994 - April 30, 1995
Net earnings - 3 month period -- -- 12,429 12,429
May 1, - July 31, 1995 --------- ------- ------ ---------
Balance at July 31, 1995 2,864 490,761 133,819 627,444
Balance at October 31, 1995 2,864 515,876 43,101 561,861
========= ======= ======= =========
Issuance of 1,100,000 shares of 1,100 455,851 -- 456,951
common stock (note 5) (net costs
of $90,050) April 8, 1996
Net earnings - 6 month period -- -- 35,575 35,575
Nov 1, 1995 - April 30, 1996
Payment received for 2,000 shares -- 1,000 -- 1,000
for stock issued April 8, 1996
Net earnings - 3 month period -- -- 2,229 2,229
May 1 - July 31 1996 --------- ------- ------ ---------
Balance, July 31, 1996 $ 3,964 972,727 80,905 1,057,596
========= ======= ====== =========
</TABLE>
See accompanying notes to financial statements
Page 8
<PAGE> 9
PROTECH COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
Combined for July 31,1996 and July 31, 1995
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BUSINESS
ProTech Communications, Inc. (the "Company") was organized and
incorporated under the laws of the State of Florida for the
purpose of designing, developing, producing and marketing
lightweight telephone headsets. The current year market consists
of fast-food franchises who use the headsets in drive-thru
services, but the product has potential in other industries.
On November 1, 1994 all assets and liabilities of Pro Tech Systems
(a limited partnership) were transferred to Pro Tech
Communications, Inc. The former partners of Pro Tech Systems
received 2,000,000 shares of common stock in the Company in
exchange for their respective interests in the limited
partnership.
(B) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased
with a maturity of three months or less to be cash equivalents.
(C) INVENTORY
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
(D) REVENUE AND COST RECOGNITION
The Company recognizes revenues as products are shipped. A portion
of sales is made to distributors, who purchase the product with no
right of return. New customers are extended a 30-day trial period
during which the product may be returned. Additionally, each
headset carries a two year warranty. The Company provides, by a
current charge to income, an amount it estimates will be needed
to cover future warranty obligations for products sold during
the year. The accrued liability for warranty costs is included
in the caption "accrued expenses" in the balance sheet.
Page 9
<PAGE> 10
PRO TECH COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
(E) PROPERTY AND EQUIPMENT
Property and equipment is carried at cost. Depreciation is
computed using the straight-line method over the estimated
useful lives of the assets which are generally 5-10 years.
Repair and maintenance costs are charged to expense when
incurred.
(F) INCOME TAXES
Income Tax calculations have not changed from the previously
audited statements dated October 31, 1995 and the comparable
period. Payments in 1996 have been based on the estimated
audited amounts.
Income taxes are calculated in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Statement
for Income Taxes". Under the asset and liability method of
Statement 109, deferred income taxes are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences
are expected to be recovered or settled. Under Statement 109,
the effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment
date.
(2) INVENTORY
Inventory at July 31, 1996 vs July 31, 1995 consists of the following:
<TABLE>
<CAPTION>
FY95 FY96
--------- --------
<S> <C> <C>
Raw Materials $ 119,313 33,707
Work in Progress 1,000 1,000
Finished Goods 29,080 35,280
--------- --------
$ 149,393 69,987
</TABLE>
Page 10
<PAGE> 11
PRO TECH COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
(3) NET PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at July 31, 1996 and
July 31, 1995:
<TABLE>
<CAPTION>
FY96 FY95
------ --------
<S> <C> <C>
Production molds $ 89,299 51,047
Office equipment 47,612 30,149
Production equipment 22,835 12,787
Leasehold improvements 6,972 12,599
Vehicles 18,730 19,384
Research and development -0- -0-
Incorporation fees 777 777
------ --------
Total Cost 186,225 126,743
Less: accumulated depreciation 28,974 29,006
------ --------
Total $ 157,251 97,737
</TABLE>
(4) LIABILITIES - NOTES PAYABLE
The Company has $ 0 in notes payable as of July 31, 1996. Listed notes
payable below for fiscal year 1995 were paid in full during the current
period.
FY96:
Note payable to GMAC bearing fixed interest at 18.5%; interest and
principal payable in sixty equal monthly installments of $ 143, final
payment was due November 1995; secured by vehicle. Paid in full.
Note payable to Euro Investment Corporation, $250,000., bearing annual
interest at 14.3%, payable on demand, $13,868. Paid in full.
FY95:
Note payable to GMAC bearing fixed interest at 18.5%; interest and
principal payable to sixty equal monthly installments of $143, outstanding
balance $4,174.
Note payable to Westek Electronics, Inc.; $20,000 bearing 0%; payable in
monthly installments. Paid in full May 1,1995.
Page 11
<PAGE> 12
PRO TECH COMMUNICATIONS, INC
NOTES TO FINANCIAL STATEMENTS
(unaudited)
(5) CAPITAL STOCK
April 8, 1996, the Company underwent a stock offering under Rule 504 of
Regulation D promulgated under the Securities Act of 1933. The offering
sold 1,100,000 shares of common stock at $0.50 per share yielding net cash
proceeds of $424,803.
March 3, 1995, the Company underwent a stock offering under Rule 504 of
Regulation D promulgated under the Securities Act of 1933. The offering
sold 864,000 shares of common stock at $0.50 per share, yielding net cash
proceeds of $396,391.
The Company, in conjunction with the stock offering of March 3, 1995,
issued warrants for 200,000 shares of common stock to the sales agent
responsible for sales outside the United States. As of July 31,1996, a
summary of the warrants to purchase common stock, currently excercisable,
are as follows:
<TABLE>
<CAPTION>
Expiration Date Shares Exercise Price Per Warrant
--------------- ------ --------------------------
<S> <C> <C>
September 3, 1997 200,000 $0.60
</TABLE>
(6) RESEARCH AND DEVELOPMENT
Research and development costs are expensed when incurred and are included
in selling, general and administrative expenses. The amount charged to
expense during the current 1996 period was $4,462 vs $7,354 in the
comparable 1995 period.
(7) OPERATING LEASES
The Company leases office and production facilities under operating
leases. Future minimum lease payments for such noncancelable leases as of
July 31, 1996 are as follows:
<TABLE>
<S> <C>
1996 $13,958
1997 8,592
1998 1,372
-------
Total $23,922
</TABLE>
Rent expensed under lease agreements totaled $2,802 for the 3 months
ending July 31, 1996. $7,624 was paid in the comparable 1995 period.
Page 12
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PRO TECH COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
(8) INCOME TAXES
There were no income taxes paid for the comparable 1995 period. Total 1995
fiscal state and federal taxes were paid at year-end. The total fiscal year 1995
federal tax payment was $12,179. The total fiscal year 1995 state tax payment
was $1,753.
Estimated 1996 income taxes consist of the following:
<TABLE>
<S> <C>
Current:
Federal $ 12,180
State 2,005
-----
$ 14,185
Actual income taxes paid through July 31, 1996:
Federal $ 9,135
</TABLE>
(9) MAJOR CUSTOMERS
For the first six months of fiscal year 1996, approximately 35% of sales
were to McDonald's Restaurant franchises. With sales now expanded to new
customers sold through distributors to reach a total of 65% of sales.
For the first six months of fiscal year 1995, approximately 60% of sales
were to McDonald's Restaurant franchises.
Page 13
<PAGE> 14
(10) EMPLOYMENT AGREEMENT
The Company has entered into an employment agreement with it's President
expiring December 9, 1999. The agreement provides for a maximum annual
salary of $90,000 with additional amounts added using the consumer price
index as a minimum. The President is eligible for the maximum annual
salary during a given year only if the Company generates at least
$2,000,000 and pre-tax income equal to at least 20% of the Company's
annual sales. If at any time during the Company's fiscal year the Board of
Directors determines the Company will not meet minimum requirements noted
above, the Board shall determine the President's compensation for that
year, taking into account the Company's projected financial performance
and needs for that year.
(11) SEC REGISTRATION EXPENSE
To improve the Company's position with the investment community the
Company completed its registration under the classification of Form 10-SB
with the Securities Exchange Commission. The total expenses incurred by
the Company for the registration during the period May 1, 1996 and July
31, 1996:
<TABLE>
<S> <C>
- Legal Expense $17,091
- Public Relations $32,500
-------
Total $49,591
</TABLE>
Page 14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
================================================================================
RESULTS OF OPERATION (CONTINUED)
NINE MONTH PERIOD ENDED JULY 31, 1996 AS COMPARED TO THE SAME PERIOD ENDED
JULY 31, 1995.
Net sales for the nine-month period ended July 31, 1996 totaled $262,492,
representing a decrease of $13,228 in net sales for the comparable prior
nine-month period. The Company commenced the sale of its product through
distributors during the nine-months of fiscal 1996. Previously, the Company
sold its product directly to the end user, with nearly 65% of sales coming from
one customer. The decision to expand its indirect distribution selling efforts
is based on the quickness at which the Company can expand its market share to
other large customers in the previous nine month period versus using a direct
sales force in the previous nine month period in fiscal year 1995. Based on
the Company's own research, the Company has achieved its goal by doubling its
marketshare for its product. From a 17% total share in the nine month period
fiscal year 1995 to 37% share for the same nine month period in fiscal year
1996 in addition to increasing its total unit volume 11% when comparing the
previous nine month period and the same comparable period in 1995. As a result
of this short-term decision to establish a long-term distribution sales base;
the Company reduced it product retail price to offset the selling expense each
distributor incurs for distributing the product. Accordingly, the Company's
gross profit for the nine-month period ended July 31, 1996 decreased by
$27,796 from the comparable prior nine-month period. Selling, general and
administrative expenses for the first nine months of fiscal 1996 decreased by
12% over the comparable nine-month period. This reduction was a result of the
closing of a satellite sales office in July 1995. A total of four full-time
employees (two sales reps, a manager and a secretary) with no additional
hiring required at the corporate office). Consequently, the difference in net
income from operations for the previous nine-month period with the comparable
nine-month period in 1995 was only $1,601. The Company generated interest
income of $19,983 for the first nine months of fiscal 1996 as compared to
interest income of $1,003 for the comparable prior six-month period. The
interest income resulted from the Company's investment of the net proceeds from
the private placement of securities during the six-month period ended April 30,
1996. Offsetting the interest income during the first six months of fiscal 1996
was an interest expense of $13,868 resulting from a loan of $250,000 from a
stockholder of the Company. The loan was repaid in April 1996. No comparable
interest expense was incurred during the first nine months of fiscal 1995.
The Company generated net income of $37,804 for the nine months of fiscal 1996
as compared to net income of $94,492. The principal reasons for the decrease in
net income between the periods were first; the Company's investment in
marketing research of $29,631 in the previous nine-month period versus zero in
the same comparable period in 1995. Second, was a non-recurring expense of
$32,500 to a Public Relations firm involved in the promotion of the Company
with potential investors in the previous nine-month period November 1, 1995 to
July 31, 1996 versus zero dollars spent in the same category for the comparable
1995 period. This cost was associated with the registration with the Securities
and Exchange Commission registration under the classification of Form 10-SB.
Page 15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
================================================================================
RESULTS OF OPERATION (CONTINUED)
THREE MONTHS ENDED JULY 31, 1996 AS COMPARED TO THE THREE MONTHS ENDED JULY 31,
1995
For the quarter ended July 31, 1996, the Company realized a net profit of $2,229
compared to a net profit of $12,429 for the quarter ended July 31, 1995. This
difference is attributed to the following changes. First, net sales for the
current period decreased as a result of delays in planned product introductions
originally scheduled for the current quarter. The Company expects to introduce
these products in the 1st quarter of fiscal year 1997. All revenues for the
period May 1, 1996 through July 31, 1996 period are the result of direct and
indirect distribution sales of the ProCom II headset. Actual unit shipments have
increased 11% over the same quarter ended July 31, 1995. This indirect
distribution channel accounted for 62% of the net revenues and 69% of unit
volumes versus 31% of net revenues and 34% of unit volumes in the comparable
1995 period. The Company, through its own research, believes that the Company
currently retains a 37% share of the fast-food headset market in units which is
a 103% increase in market share in the comparable 1995 period. Further expansion
of the Company's market share is expected due to a formal agreement made by the
Company and one of its principal customers to sell and distribute the ProCom II
headset worldwide. Second, an increase of $6,081 allowance for doubtful accounts
had been applied by our independent auditors at the end of the previous fiscal
year ended October 31, 1995. A reduction of this allowance will be applied to
net revenues in the next fiscal quarter as a result of aggressive management of
outstanding accounts receivable. Thirdly, to improve the Company's position with
the investment community, the Company completed its registration under the
classification of Form 10SB with the Securities and Exchange Commission. The
total expenses incurred by the Company for the registration during the period
May 1, 1996 and July 31, 1996 was $49,591. The Company expects to have a
dramatic improvement in investor relations in order to fund future planned
business expansion.
The Company reduced its expenses for the Operation in several areas. First, the
cost to produce each unit has been decreased 20% as a result of implementing an
aggressive materials management program. A strict evaluation of sources of
component parts and assemblies was implemented with a goal of reducing material
costs by 15%. In addition, operational efficiencies were introduced to the
production cycle in the second quarter of the current fiscal year. The result
of this improvement has impacted the current quarter resulting in a reduction in
the direct labor needed to produce each unit. Secondly selling, general and
administrative expenses for the three month period decreased $47,399 for the
period May 1, 1996 to July 31, 1996 when comparing this amount to the same 1995
period. The improvements were gained as a result of the closure of a satellite
sales office in California in July 1995. A total of four full-time employees,
two sales reps, a manager and a secretary were terminated employment with the
Company with no additional hiring required at the corporate office. The results
of this closure showed a reduction of $14,097 in marketing expenses. $40,218
from May 1, 1995 to July 31, 1995 versus $26,121 in the comparable 1996 period.
In addition, total office expenses were reduced a total of $23,752; from
$88,275 to $64,523 respectively. Further gains of $3,423 were seen in the
reduction of outside consulting expenses required to manage and implement a
computer upgrade.
Page 16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
================================================================================
RESULTS OF OPERATION (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The Company's current ratio (current assets to current liabilities) was 28.53 to
1.00 at July 31, 1996 as compared to 66.81 to 1.00 at July 31, 1995. At July 31,
1996, the Company's current assets exceeded its current liabilities by
approximately $750,452.
During the fiscal year ended October 31, 1995 and thereafter, the Company has
funded its working capital requirements with cash flow from operations and the
net proceeds of $853,226 from the private sale 1,964,000 shares. The Company
intends to use the cash it generates from operations and the net proceeds from
the private sale of common stock: (i) to research and develop several new
headset designs;(ii) to research and prepare sales and distribution channels;
(iii) to advertise, market and promote the Company's new product offering; (iv)
to fund working capital. The Company has used a small share of the funds to
begin prototyping using production molds in order to finalize market testing of
both the ProCom IV and Trinity headset designs. Additional planned investments
were made in marketing research in the preparation for a planned Q1 1997 product
introduction of both headsets. The Company is planning to use additional funding
to hire additional direct sales reps to augment current selling efforts. An
advertising campaign will also begin in the 1st quarter of fiscal year 1997. The
total amount of MARCOM expenses required to the above mentioned product
introductions are currently being determined. A future product introduction, the
Freedom headset, is planned for the second quarter of fiscal year 1997. Although
there can no assurances, management believes that market acceptance for each of
these products will be dramatic providing an immediate cashflow to the Company.
Page 17
<PAGE> 18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PROTECH COMMUNICATIONS, INC.
(REGISTRANT)
Date: October 15, 1996 By: /s/ Keith Larkin
-------------------------
Keith Larkin
President and Chief Executive Officer
Date: October 15, 1996 By: /s/ Richard Hennessey
---------------------------
Richard Hennessey
Vice President
Page 18
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