<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 January 31, 1997
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
PRO TECH 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 March 14, 1997
Common stock, Par Value $.001 Per Share 4,014,000
Transitional Small Business Disclosure Format: Yes No X
--- ----
<PAGE> 2
PRO TECH COMMUNICATIONS, INC.
Index
<TABLE>
<CAPTION>
PART 1 FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1 Financial Statements
Balance Sheet at January 31,1997 3
(unaudited)
Income Statement 4
for the Three months ended January 31
1997 and 1996 (Unaudited)
Statement of Cash Flows 5
for the Three months ended January 31
1997 and 1996 (Unaudited)
Statement of Stockholder's Equity 6
for the Three months ended January 31
1997 (Unaudited)
Notes to Financial Statements 7
(Unaudited)
Item 2
Management's Discussion and Analysis 18
or Plan of Operation for the period
Nov 1, 1996 - January 31, 1997
SIGNATURES 20
Item 3 Exhibits
Exhibit 27 Financial Data Schedule
(for SEC use only)
</TABLE>
<PAGE> 3
ProTech Communications, Inc.
Balance Sheet and Statement of Equity
January 31, 1997 and January 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Assets 1997 1996
------ ---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 522,354 562,012
Accounts receivable less allowance for doubtful
accounts of $9,141 and $22,080 in 1997 and 1996,
respectively 122,055 119,894
Inventory (note 2) 191,809 98,304
Deposits being held 4,898 500
Due from officers and employees 34,437 15,000
Other current assets 17,509 777
---------- -------
Total current assets 893,062 796,487
Net property and equipment (note 3) 139,424 100,551
========== =======
Total Assets $1,032,486 897,038
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable 23,189 8,054
Accrued expenses (note 5) 26,044 11,677
Total current liabilities 49,233 19,731
Long Term Liabilities
Notes Payable (note 4) 0 251,887
Stockholder's Equity: (note 6)
Common Stock, $.001 par value, authorized 10,000,000
shares, issued and outstanding 3,964,000 and
2,864,000 shares in 1997 and 1996, respectively 3,964 2,864
Additional Paid in Capital 963,953 550,877
Retained Earnings 43,458 43,959
Current Period Profit (loss) (28,102) 27,820
---------- -------
Total Stockholders' Equity 983,253 625,420
========== =======
$1,032,486 897,038
</TABLE>
See accompanying notes to financial statements
3
<PAGE> 4
ProTech Communications, Inc.
Statement of Operations
1st Quarter ended January 31, 1997 and 1996
(unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net Sales (note 11) $ 183,514 196,586
Cost of Goods Sold 57,883 66,297
----------- ---------
Gross Profit 125,631 130,289
Selling, general and administrative expenses 159,662 93,362
Provision for doubtful accounts 0 0
----------- ---------
Income from operations (34,051) 36,927
Other income (expense):
Interest income 5,929 5,784
Interest expense 0 (1,887)
Miscellaneous income 0 828
----------- ---------
Income before income taxes (28,102) 41,652
Income taxes (note 9) 0 13,932
----------- ---------
Net Income(loss) $ (28,102) 27,720
=========== =========
Income(loss) per common share $ 0.00 0.01
=========== =========
Average common shares outstanding 3,964,000 2,864,000
=========== =========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 5
PRO TECH COMMUNICATIONS, INC.
Statement of Cash Flows
1st Quarter ended January 31,1997 and January 31, 1996
(unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Cash received from sale of merchandise $ 140,982 154,378
Cash paid to vendors and employees (203,465) (193,573)
Interest paid -- (2)
Interest received 5,929 5,784
--------- -------
Net cash used by operating activities (56,554) (33,413)
--------- -------
Cash flows from investing activities:
Purchase of property and equipment (17,797) (10,845)
Proceeds from the sale of property and equipment -0- -0-
Net cash used in investing activities (17,797) (10,845)
--------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock -- 35,000
Net cash provided by financing activities 0 35,000
--------- -------
Net decrease in cash and cash equivalents (74,351) (9,258)
Cash and cash equivalents at beginning of period 596,705 571,270
Cash and cash equivalents at end of period $ 522,354 562,012
========= =======
Reconciliation of net income to net cash used by operating activities:
Net income $ (28,102) 27,720
Adjustments to reconcile net income to net cash used by operating
activities:
Depreciation and amortization 445 271
Allowance for doubtful accounts 0 0
Increase in accounts receivable 33,405 (573)
Increase in receivables from officers and employees -- (15,000)
Increase in Inventory (15,362) (8,243)
Decrease in accounts payable (23,116) (20,527)
Decrease in accrued expenses (19,416) (22,509)
Increase (decrease) in other liabilities 4,408 5,719
--------- -------
Total adjustments (28,452) 61,113
Net cash used by operating activities $ (56,554) (33,413)
========= =======
</TABLE>
See accompanying notes to financial statements
5
<PAGE> 6
PRO TECH COMMUNICATIONS, INC.
Statement of Stockholders' Equity
1st Quarter ended January 31, 1997 and 1996
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings Total
----- ------- -------- -----
<S> <C> <C> <C> <C>
Balance, November 1, 1994 $ 2,000 119,485 -- 121,485
Issuance of 864,000 shares of 864 396,391 -- 397,255
common stock (note 5) (net costs
of $32,000 and subscribed stock for
$2,000)
Net income -- -- 43,959 43,959
-------- ------- ------ -------
Balance, October 31, 1995 2,864 515,876 43,959 562,699
Net profit, 3 month period
November 1, 1995 - January 31, 1996 27,720
Issuance of 1,100,000 shares of
common stock (note 6) (net of
issue costs of $98,824 and
subscribed stock for $2,000) 1,100 448,077 -- 449,177
Net loss -- -- (521) (521)
-------- ------- ------ -------
Balance, October 31, 1996 3,964 963,953 43,438 1,011,355
-------- ------- ------ -------
Net loss - 3 month period (28,102) (28,102)
------ -------
November 1, - January 31,1997
Balance, January 31, 1997 $ 3.964 963,953 15,336 983,253
</TABLE>
See accompanying notes to financial statements
6
<PAGE> 7
PRO TECH COMMUNICATIONS, INC.
Notes to Financial Statements
January 31, 1997 and 1996
(1) Description of Business and Summary of Significant Accounting Policies
(a) Business
Pro Tech 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 Company presently
manufactures and markets its first headset design primarily for
fast food companies and other large quantity users of headset
systems. The Company is in the process of completing the
development of a second design for the telephone user market,
which includes telephone operating companies, government
agencies and business offices. The Company's business strategy
is to offer lightweight headsets with design emphasis on
performance and durability at a cost below that of its
competitors.
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.
Pro Tech Systems was formally dissolved as of December 13, 1994.
(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.
7
<PAGE> 8
(d) Revenue and Cost Recognition
The Company recognizes revenues as products are shipped. 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 accrued
expenses in the balance sheet.
(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 taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities 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. The effect
on deferred tax assets or liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date.
(g) Fair Value of Financial Instruments
The estimated fair values of the Company's cash and cash
equivalents, accounts receivable and current liabilities
approximate the carrying amount due to the short-term nature of
such financial instruments.
(h) Reclassification
Certain amounts in the 1996 financial statements have been
reclassified to conform to the 1997 presentation.
8
<PAGE> 9
(i) Advertising
The costs of advertising, promotion and marketing programs are
charged to operations in the year incurred. Advertising costs
approximated $1,492 and $325 for the periods ended January 31,
1997 and 1996, respectively, and were included in selling,
general and administrative expenses in the accompanying
statement of operations.
(j) 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 in the period ending January 31,
1997 and 1996 was $4,750 and $685, respectively.
(k) Use of Estimates
The preparation of the Company's financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and
expenses and contingent assets and liabilities. Actual results
could differ from those estimates.
9
<PAGE> 10
(l) Stock Option Plan
On October 23, 1995, the FASB issued Statement No. 123,
Accounting for Stock-Based Compensation (Statement 123). This
Statement applies to all transactions in which an entity
acquires goods or services by issuing equity instruments or by
incurring liabilities where the payment amounts are based on the
entity's common stock price. The Statement covers transactions
with employees and non-employees and is applicable to both
public and nonpublic entities. Entities are allowed (1) to
continue to use the Accounting Principles Board Opinion No. 25
(APB 25) method, or (2) to adopt the Statement 123 fair value
based method. Once the method is adopted, an entity cannot
change the method and the method selected applies to all of an
entity's compensation plans and transactions. For entities not
adopting the Statement 123 fair value based method, Statement
123 requires pro forma net income and earnings per share
information as if the fair value based method had been adopted.
For entities not adopting the fair value based method, the
disclosure requirements of Statement 123, including the pro
forma information, are effective for financial statements for
fiscal years beginning after December 15, 1995 (fiscal year
ended October 31, 1997 for the Company). The pro forma
disclosures are to include all awards granted in fiscal years
that begin after December 15, 1994 (fiscal year ended October
31, 1996 for the Company). However, the disclosures including
the pro forma net income and earnings per share disclosures, for
the fiscal year beginning after December 15, 1994 (fiscal year
ended October 31, 1996 for the Company) will not be included in
that year's financial statements but will be included in the
following year end (fiscal year ended October 31, 1997 for the
Company) financial statements if the first fiscal year is
presented for comparative purposes. Management has determined
that the Company will account for stock-based compensation under
the APB 25 method and will disclose the pro forma impact of
Statement 123 in future years' financial statements.
10
<PAGE> 11
(m) Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, on January 1, 1996. This Statement
requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or
changes in circumstances indicated that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount
of an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the
assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. Adoption
of this Statement did not have a material impact on the
Company's financial position, results of operations, or
liquidity.
(n) Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
In June 1996, the Financial Accounting Standards Board issued
SFAS No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. SFAS No.
125 is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31,
1996 and is to be applied prospectively. This Statement provides
accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that
focuses on control. It distinguishes transfers of financial
assets that are sales from transfers that are secured
borrowings. Management of the Company does not expect adoption
of SFAS No. 125 will have a material impact on the Company's
financial position, results of operations, or liquidity.
(2) Inventory
Inventory at January 31, 1997 and 1996 consists of the following:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Raw materials $ 45,400 53,781
Work in process 58,287 9,243
Finished goods 88,122 35,280
-------- ------
$191,809 98,304
======== ======
</TABLE>
11
<PAGE> 12
(3) Net Property and Equipment
The following is a summary of property and equipment at January 31, 1997
and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Production molds $109,774 62,774
Office equipment 53,309 41,648
Production equipment 8,217 8,217
Leasehold improvements 9,574 6,663
Vehicles 5,557 1,984
Marketing display 5,430 --
-------- -------
Total cost 191,861 121,286
Less: accumulated depreciation 52,437 20,735
-------- -------
TOTAL $139,424 100,551
======== =======
</TABLE>
Total depreciation expense was $445 and $271 for the periods ended
January 31, 1997 and 1996, respectively.
(4) Notes Payable
Notes payable consisted of the following at January 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------ -------
<S> <C> <C>
Note payable to Euro Investment Corporation bearing
annual interest at 14.3%, payable on demand -- 250,000
Accrued interest on Euro Invstment Corporation note -- 1,887
TOTAL NOTES PAYABLE $ -- 251,887
===== =======
</TABLE>
12
<PAGE> 13
(5) Accrued Expenses
Accrued expense consisted of the following at January 31, 1997
and 1996:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Accrued warranty expense $ 13,863 4,825
Accrued professional fees 5,500 --
Other accrued expenses 6,681 6,852
----------- ------
$ 26,044 11,677
=========== ======
</TABLE>
(6) Capital Stock
During fiscal year 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 $.50 per share,
yielding net cash proceeds of $451,177. During fiscal year 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 $.50 per share yielding net cash proceeds of
$399,255. At January 31, 1997 $4,000 was held in escrow for the benefit
of the Company pending completion of the subscription agreements by two
investors for 4,000 shares each. These receivables are netted against
additional paid-in capital.
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 January 31, 1997,
a summary of the warrants to purchase common stock, currently
exercisable, are as follows:
<TABLE>
<CAPTION>
Expiration Date Shares Exercise Price Per Warrant
--------------- ------ --------------------------
<S> <C> <C>
September 3, 1997 200,000 $ .60
September 26, 1998 600,000 $ 1.50
</TABLE>
13
<PAGE> 14
(7) Stock Option Plan
On April 15, 1996, the Board of Directors adopted The 1996 Stock Option
Plan (the Plan), for the benefit of directors, officers, employees and
consultants to the Company. The Plan authorizes the issuance of up to
590,000 shares of common stock, all of which were granted during fiscal
year 1996.
On April 15, 1996, 540,000 and 50,000 shares were granted to the
Company's President and officers, respectively, at an option price of
$.50 per share. The stock option exercise price was the fair value at the
date of the grant, which was determined from the price paid per share
during the Company's stock offering carried out from April 8, 1996 to May
15, 1996, (note 5). The stock options are exercisable upon the grant
date, extending over a period of three years. At January 31, 1997, no
stock options had been exercised.
(8) Operating Leases
The Company leases office and production facilities under operating
leases. Future minimum lease payments for such noncancelable leases as of
January 31, 1997 are as follows:
<TABLE>
<S> <C>
1997 12,653
1998 1,406
-------
Total $14,059
-------
</TABLE>
Rent expense under lease agreements totaled $4,217 and $2,792 for the period
ending January 31, 1997 and 1996, respectively.
14
<PAGE> 15
9) Income Taxes
No income taxes were paid during the current reporting period.
Income tax expense (benefit) consist of:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
1996:
Federal $ 4,255 (2,800) 1,455
State 1,360 (1,100) 260
-------- ------ -----
5,615 (3,900) 1,715
-------- ------ -----
1995
Federal 12,179 -- 12,179
State 1,753 -- 1,753
-------- ------ -----
$ 13,932 -- 13,932
-------- ------ -----
</TABLE>
The actual expense differs from the "expected" amount computed by
applying the U.S. Federal corporate income tax rate of 34% to income
before income taxes as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Computed "expected" tax expense $ 406 19,683
Increase (reduction) in income taxes resulting
from:
State income tax, net of federal tax
benefits 170 1,200
Effect of graduated tax rates (5,400) (11,200)
Nondeductible costs for SEC Form
10-SB filing 11,000 --
Other, net (4,461) 4,249
-------- ------
$ 1,715 13,932
======== ======
</TABLE>
15
<PAGE> 16
Deferred income taxes reflect the net tax effects of 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:
<TABLE>
<S> <C>
Accounts receivable principally due to allowance for
doubtful accounts $1,800
Accrued warranty expense 4,500
------
Total deferred tax assets 6,300
Plant and equipment principally due to differences in
depreciation 2,400
------
Total deferred tax liabilities 2,400
------
Net deferred tax assets $3,900
------
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the period in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning strategies
in making this assessment. Taxable income for the years ended October 31,
1996 and 1995, respectively, was $1,194 and $57,891. Based upon the level
of historical taxable income and projections for future taxable income
over the periods which the deferred tax assets are deductible, management
believes it is more likely than not the Company will realize the benefits
of these deductible differences. The amount of the deferred tax asset
considered realizable, however, could be reduced in the near term if
estimates of future taxable income during the carryforward period are
reduced.
16
<PAGE> 17
(10) Related Party Transactions
During fiscal year 1996, the Company loaned $28,882 to its' President.
The loan bears interest at 15% per annum, with principal and interest due
August 2, 1997. The Company also loaned its' Vice President $3,500 during
1996. This loan bears interest at 15% per annum, with principal and
interest due July 9, 1997.
The Company has entered into an employment agreement with its' 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 annual sales of
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) Major Customers
For 1997 and 1996, approximately 30% and 60%, respectively, of all sales
were to McDonald's Restaurant franchises.
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
================================================================================
Results of Operations
Three Months Ended January 31, 1997 Compared to Three Months Ended January 31,
1996
For the quarter ended January 31, 1997, the Company realized a net loss of
$(28,102) compared to a net profit of $27,720 for the quarter ended January 31,
1996. This difference is attributed to the following changes. First, net sales
for the current period decreased $13,072 with the comparable 1996 period as a
result of delays in planned product introductions originally scheduled for the
current quarter. The Company expects to introduce one of these products, the
Conform headset, in the 2nd quarter of fiscal year 1997. The remaining two
headsets, the Trinity and the NASA headset are scheduled for market
introduction in the 3rd quarter of fiscal year 1997. All revenues for the
period November 1, 1996 through January 31, 1997 period are the result of
direct and distribution sales of the ProCom II headset. Actual unit shipments
have increased 6% over the same quarter ended January 31, 1995. The Company's
distributors accounted for 61% of the net revenues and 73% of unit volumes
versus 45% of net revenues and 52% of unit volumes in the comparable 1996
period. This change is the result of the Company's efforts to move all sales in
the fast-food market to distributors in preparation to beginning its marketing
focus to the much larger telephone market. The Company believes, through its
own market research, that the Company continues to retain a 37% share of the
fast-food market in units.
The Company improved its gross profit by 2%, 68% in the current period versus
66% in the comparable 1996 period. This gain is the result of the Company's
continued commitment to keep production costs at a minimum and yet still improve
its quality and durability of its products. Consequently, the Company has made
investments in improving the production process and production capacity prior to
the market introductions of its three new headsets. First, investments of
$11,650 were made with an alternative source of production molds for all of its
new headsets. Second was the introduction of sonic welding, an initial
investment of $4,898, to the production of the existing Procom II headset. All
future headsets will employ this process in order for the Company to further
improve the durability and reliability of its products. Thirdly, the Company has
sourced an alternative cable used in all of its current and planned headsets.
This new cable maintains similar strength and durability but yet has a lighter
weight than the current cable used in production.
SG&A expenses increased $66,300 in the current period ending January 31,
1997 versus the comparable 1996 period. This increase is attributed to
investments in the operation in preparation for planned expansion of $21,427,
along with year-end auditing expenses of $30,000 and investments of $10,023 in
public relations in order to improve investor relations. Finally, additional
investments of $4,750 were made in Research & Development in the potential
creation of the Company's first wireless product.
18
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION (CONTINUED)
================================================================================
LIQUIDITY AND CAPITAL RESOURCES
The Company's current ratio (current assets to current liabilities) was 18.14
to 1.00 at January 31, 1997 as compared to 40.37 to 1.00 at January 31, 1996.
At January 31, 1997, the Company's current assets exceeded its current
liabilities by approximately $843,829.
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 $846,432 from the private sale of 1,964,000 shares of common
stock. The Company intends to use the cash it generates from operations and the
net proceeds from the private sale of common stock to increase its share of the
fast-food headset market and to enter the telephone user market. Management
believes that the Company has sufficient funds to meet the Company's
anticipated working capital requirements for at least 12 months. However, in
order for the Company to maximize the potential of the telephone user market,
to enable the Company to maximize the potential of the telephone user
market and to facilitate the Company's expansion into additional markets,
including government agencies and personal computers, the Company will require
additional capital. It is anticipated that the Company will seek to raise such
additional financing through a self-underwritten public offering of equity and
the receipt of $1,640,000 from the exercise of 1,240,000 stock purchase
warrants and options owned by seven persons, who will be registering the
shares of Common Stocks underlying such warrants and options with the
Securities and Exchange Commission. The Company presently intends to register
approximately 1,000,000 shares of Common stock on the same registration
statement covering the shares underlying such warrants and options. There can
be no assurance that the warrants and options will be exercised of that the
Company will be successful in selling all or portion of its shares it intends
to register with the Securities and Exchange Commission. It is anticipated by
management that such registration statement will be declared effective by the
Securities and Exchange Commission in March 1997.
Effective December 9, 1994, the Company entered into an amended and restated
employment agreement with Keith Larkin, the President, Chairman of the Board
and Treasurer of the Company. Under the agreement, Mr. Larkin will be entitled
to receive the annual salary of a maximum of $90,000 (as adjusted each year by
at least the percentage increase in the Consumer Price Index). The Company,
however, is only required to pay Mr. Larkin such a maximum annual salary if the
Company generates annual sales for a fiscal year of at least $2 million and has
pretax income equal to at least 20% of the Company's annual sales. In all other
cases, the board of directors sets Mr. Larkin's salary, taking into account the
Company's projected financial performance and cash required to satisfy the
Company's anticipated operating expenditures.
19
<PAGE> 20
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.
PRO TECH COMMUNICATIONS, INC.
(REGISTRANT)
Date: March 17 ,1997 By: /s/ Keith Larkin
-------------------------------
Keith Larkin
President and Chief Executive Officer
(Chief Executive and Principal
Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PRO TECH COMMUNICATIONS, INC. FOR THE QUARTER ENDED
JANUARY 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-1-1996
<PERIOD-END> OCT-31-1997
<CASH> 522,354
<SECURITIES> 0
<RECEIVABLES> 156,492
<ALLOWANCES> 9,141
<INVENTORY> 191,809
<CURRENT-ASSETS> 893,062
<PP&E> 139,424
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,032,486
<CURRENT-LIABILITIES> 49,233
<BONDS> 0
0
0
<COMMON> 3,964
<OTHER-SE> 983,253
<TOTAL-LIABILITY-AND-EQUITY> 1,032,486
<SALES> 183,514
<TOTAL-REVENUES> 0
<CGS> 57,883
<TOTAL-COSTS> 159,662
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (28,102)
<INCOME-PRETAX> 0
<INCOME-TAX> (28,102)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (28,102)
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
