<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, 1999
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 last predictable date:
Number of Shares Outstanding
Class on March 15, 1999
----- ----------------------------
Common stack, Par Value $.001 Per Share 4,254,000
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PRO TECH COMMUNICATIONS, INC.
Index
<TABLE>
<CAPTION>
Page
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<S> <C> <C> <C>
Part I Financial Information
Item 1 Financial Statements
Balance Sheets at January 31, 1999
and 1998 (Unaudited) 3
Statements of Operations
for the Three months ended January 31,
1999 and 1998 (Unaudited) 4
Statements of Cash Flows
for the Three months ended January 31,
1999 and 1998 (Unaudited) 5
Notes to Financial Statements
(Unaudited) 6
Item 2 Management's Discussion and Analysis or
Plan of Operation 8
Part II OTHER INFORMATION
Exhibit 27 Financial Data Schedule
(for SEC use only) 9
SIGNATURES 11
</TABLE>
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ProTech Communications, Inc.
Balance Sheets
January 31, 1999 and January 31, 1998
(unaudited)
<TABLE>
<CAPTION>
(unaudited) (unaudited)
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 292,564 237,311
Short-term Investments -- 257,936
Accounts receivable less allowance for doubtful
accounts of $14,868 and $12,095 in 1999 and 1998,
respectively 227,745 266,169
Inventory(Note 2) 308,751 266,577
Due from officers and employees 42,860 35,418
Other current assets 46,408 7,104
---------- ----------
Total current assets 918,328 1,070,515
Net property and equipment 177,441 180,745
Total Assets $1,095,769 1,251,260
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 20,427 23,765
Accrued expenses (Note 3) 177,368 79,303
---------- ----------
Total current liabilities 197,795 103,068
Stockholder's Equity:
Common Stock, $.001 par value, authorized 10,000,000
shares, issued and outstanding 4,254,000 4,254 4,254
Additional Paid in Capital 1,137,018 1,122,018
Retained Earnings (243,298) 21,920
---------- ----------
Total Stockholders' Equity 897,974 1,148,192
---------- ----------
$1,095,769 1,251,260
========== ==========
</TABLE>
See accompanying notes to financial statements
3
<PAGE> 4
ProTech Communications, Inc.
Statements of Operations
Three months ended January 31, 1999 and January 31, 1998
(unaudited)
(unaudited) (unaudited)
1999 1998
---- ----
Net Sales $ 227,745 246,728
Cost of Goods Sold 84,249 71,448
---------- ---------
Gross Profit 143,496 175,280
Selling, general and administrative expenses 198,948 192,826
---------- ---------
Loss from operations (55,452) (17,546)
Other income (expense):
Interest income 4,373 8,269
---------- ---------
Loss before income taxes (51,079) (9,277)
Income taxes 0 0
Net loss $ (51,079) (9,277)
========== =========
Loss per common share:
Basic $ (0.01) 0.00
Average common shares outstanding 4,254,000 4,254,000
========== =========
4
<PAGE> 5
Pro Tech Communications, Inc.
Statements of Cash Flows
For the Three months ended January 31, 1999 and January 31, 1998
(unaudited)
<TABLE>
<CAPTION>
(unaudited) (unaudited)
1999 1998
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<S> <C> <C>
Cash Flows from operating activities:
Cash received from the sale of merchandise $ 213,366 247,755
Cash paid to vendors and employees (378,517) (340,735)
Interest received 4,373 8,269
--------- ---------
Net cash used by operating activities (160,778) (84,711)
--------- ---------
Cash flows from investing activities
Purchase of short-term investments -- --
Proceeds on maturity of short-term investments -- --
Purchase of property and equipment -- (34,305)
Net cash used in investing activities -- (34,305)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock -- --
Net cash provided by financing activities 0 0
Net (decrease) in cash and cash equivalents (160,778) (119,016)
Cash and cash equivalents at the beginning of period 453,342 356,327
--------- ---------
Cash and cash equivalents at the end of period 292,564 237,311
========= =========
Reconciliation of net income (loss) to net cash used
by operating activities:
Net income (loss) $ (51,079) (9,277)
--------- ---------
Adjustments to reconcile net income (loss) to net cash used
by operating activities:
Depreciation and amortization 8,950 8,960
Increase in accounts receivable (12,919) (35,415)
Decrease of employee accounts receivable -- --
Increase in inventory (63,141) (105,968)
(Decrease) increase in accounts payable (15,953) 1,026
Increase (decrease) in accrued expenses 3,903 20,368
Decrease (increase) in other assets (30,539) 35,595
--------- ---------
Total adjustments (109,699) (75,434)
--------- ---------
Net cash used by operating activities $(160,778) (84,711)
========= =========
</TABLE>
See accompanying notes to financial statements
5
<PAGE> 6
PRO TECH COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
(UNAUDITED)
(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 headsets 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.
(B) ACCOUNTING POLICIES
In the opinion of management, the unaudited financial statements
contain all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the Company's financial
position as of January 31, 1999 and the results of operations
and cash flows for the three months ended January 31, 1999. The
accompanying interum financial statements should be read in
conjunction with the Company's Form 10-KSB filing for the year
ended October 31, 1998.
(C) LOSS PER SHARE
Earnings per share is accounted for by using the basic and
diluted earnings per share method prescribed by SFAS No. 128,
which became effective for years ending after December 15,
1997. Basic loss per share is based on the weighted average
number of shares of common stock outstanding during the year.
Diluted loss per share is based on shares of common stock and
dilutive potential common stock (Stock Options and Stock
Warrants) outstanding during the year. Diluted loss per share
was antidilutive due to the net loss generated by the Company
during 1999 and 1998 and is therefore not reported.
(D) COMPREHENSIVE INCOME
In June 1997, the FASB issued Statement No. 130, reporting
comprehensive income (Statement 130), which establishes
standards for reporting and display of comprehensive income and
its components in a financial statement having the same
prominence as other financial statements. Statement 130 is
effective for years beginning after December 15, 1997 (Fiscal
Year 1999 for the Company). During the three months ended
January 31, 1999 and 1998, the Company had no components
considered to be other comprehensive income.
6
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(2) INVENTORY
Inventory at January 31, 1999 and 1998 consists of the
following:
1999 1998
---- ----
Raw materials $ 147,017 110,490
Work in process 66,249 90,910
Finished goods 95,485 65,177
-------- --------
$308,751 $266,577
======== ========
(3) ACCRUED EXPENSES
Accrued expenses consisted of the following at January 31, 1999
and 1998:
1999 1998
---- ----
Accrued warranty expense $ 156,406 55,000
Accrued executive compensation 0 22,500
Accrued professional fees 0 25,000
Other accrued expenses 20,962 9,620
-------- --------
$177,368 79,303
======== ========
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
===============================================================================
RESULTS OF OPERATION
Three months Ended January 31, 1999 Compared to three Months Ended January 31,
1998
For the quarter ended January 31, 1999, the Company realized a net loss of
$(51,079) compared to a net loss of $(9,277) for the quarter ended January 31,
1998. This difference is attributed to the fact that in the 1999 period, the
Company has increased its investment in engineering in preparation for several
new product introductions planned in the second quarter of this fiscal year. The
Company is near complete in its preparation and transition of resources to
support these introductions.
Net sales for the current fiscal year 1999 period were $18,983 or 7.7% lower
than last year's comparable period, $227,745 in the current period versus
$246,728 in the comparable 1998 period. This decrease is the result of continued
competition on the price of each unit causing a reduction in the selling price
in addition to a delay in expected purchases from two large customers. The
current performance still represents an improvement of 5% in total units shipped
over the same comparable period. All revenues for the period November 1, 1998
through January 31, 1999 period are the result of direct and distribution sales
of the ProCom IV, ConForm and Freedom headsets. In addition, the Company's
distribution net revenues and unit volumes continue to increase as percent to
total net sales to 3% and 7% respectively over the comparable period. This
change is the result of the Company's continued efforts to move all sales in the
fast-food market to distributors in preparation to beginning its market focus to
other targeted markets.
Gross profit decreased to approximately 63% in the current period versus 71% in
the comparable 1998 period. This decrease is the result of the Company's hiring
of short-term production personnel to insure maximum quality control with the
Company's first run of new products. The Company expects to move all future
production off-shore in order to take advantage of the cost savings. Inventories
have also increased to $308,751 versus $266,577 in the comparable 1998 period in
preparation for the shift of production to the newer headsets planned for
introduction in the 3rd quarter of this fiscal year. This increase allows for
the Company to support the current and planned demand for the ProCom IV, Freedom
and ConForm headsets and to begin preparations to produce the Company's new
products. SG&A expenses increased 3.2% or $6,122 over the comparable period,
$198,948 versus $192,526 in the comparable 1998 period. This increase is the
result of the Company's decision to maintain current spending levels except R&D
investments until the Company's new products are introduced into the market.
8
<PAGE> 9
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 4.64 to
1.00 at January 31, 1999 as compared to 10.39 to 1.00 at January 31, 1998. At
January 31, 1999, the Company's current assets exceeded its current liabilities
by approximately $720,533.
The Company intends to use the cash it generates from operations and the net
proceeds from the prior private sales of common stock to increase it 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 expand 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 private offering of equity, although there are presently no
agreements, understandings or arrangements with respect to any additional
financing and no assurances can be given that the Company will be able to obtain
such additional financing. The Company presently does not intend to finance, to
any significant extent, its growth through debt financing.
Effective December 9, 1994, the Company entered into an amended and restated
employment agreement with Keith Larkin, 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.
PART II - OTHER INFORMATION
(a) Exhibits
27 Financial Data Schedule (for SEC use only)
9
<PAGE> 10
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on March 15, 1999.
PRO TECH COMMUNICATIONS, INC.
(REGISTRANT)
By: /s/ Richard Hennessey
-----------------------------
Richard Hennessey, President
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Keith Larkin Treasurer and Chairman of the Board March 15, 1999
- ---------------------
Keith Larkin
/s/ Richard Hennessey President, Secretary March 15, 1999
- --------------------- (Principal Executive Financial
Richard Hennessey and Accounting Officer)
</TABLE>
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 292,564
<SECURITIES> 0
<RECEIVABLES> 285,473
<ALLOWANCES> 14,868
<INVENTORY> 308,751
<CURRENT-ASSETS> 918,328
<PP&E> 186,391
<DEPRECIATION> 8,950
<TOTAL-ASSETS> 1,095,769
<CURRENT-LIABILITIES> 197,795
<BONDS> 0
0
0
<COMMON> 4,254
<OTHER-SE> 893,720
<TOTAL-LIABILITY-AND-EQUITY> 1,095,769
<SALES> 227,745
<TOTAL-REVENUES> 232,118
<CGS> 84,249
<TOTAL-COSTS> 198,948
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (51,079)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> 0
</TABLE>
