<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, 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
incorporation or organization) Identification 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 September 14, 1999
----- ----------------------------
Common stock, Par Value $.001 Per Share 4,254,000
<PAGE> 2
PRO TECH COMMUNICATIONS, INC.
Index
Page
Part I Financial Information
Item 1 Financial Statements
Balance Sheets at July 31, 1999
and 1998 (Unaudited) 3
Statements of Operations
for the Three months ended July 31,
1999 and 1998 (Unaudited) 4
Statements of Operations
for the Nine months ended July 31,
1999 and 1998 (Unaudited) 5
Statements of Cash Flows
for the Nine months ended July 31,
1999 and 1998 (Unaudited) 6
Notes to Financial Statements
(Unaudited) 7
Item 2 Management's Discussion and Analysis or
Plan of Operation 9
Part II OTHER INFORMATION
Exhibit 27 Financial Data Schedule
(for SEC use only)
SIGNATURES 11
2
<PAGE> 3
ProTech Communications, Inc.
Balance Sheets
July 31, 1999 and July 31, 1998
<TABLE>
<CAPTION>
(unaudited) (unaudited)
1999 1998
--------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 49,513 175,562
Short-term Investments 147,652 257,936
Accounts receivable less allowance for doubtful
accounts of $14,868 and $12,095 in 1999 and 1998 150,716 306,196
Inventory (note 2) 378,715 308,795
Due from officers and employees -- --
Other current assets 64,474 7,103
---------- ---------
Total current assets 791,070 1,055,592
Net property and equipment 202,771 189,952
Due from officer 42,860 33,815
---------- ---------
Total Assets $1,036,701 1,279,359
========== =========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 72,155 30,177
Accrued expenses (note 3) 201,904 112,120
---------- ---------
Total current liabilities 274,059 142,297
Stockholder's Equity:
Common Stock, $.001 par value, authorized 10,000,000
shares, issued and outstanding 4,254,000 and 4,254 4,254
Additional Paid in Capital 1,137,018 1,122,018
Retained Earnings (deficit) (378,630) 10,790
---------- ---------
Total Stockholders' Equity 762,642 1,137,062
---------- ---------
$1,036,701 1,279,359
========== =========
</TABLE>
See accompanying notes to financial statements
3
<PAGE> 4
ProTech Communications, Inc.
Statements of Operations
Three months ended July 31, 1999 and July 31, 1998
(unaudited)
<TABLE>
<CAPTION>
(unaudited) (unaudited)
1999 1998
----------- -----------
<S> <C> <C>
Net Sales $ 269,379 320,721
Cost of Goods Sold 95,345 112,891
----------- -----------
Gross Profit 174,034 207,830
Selling, general and administrative expenses 240,364 206,275
----------- -----------
(Loss) from operations (66,330) 1,555
Other income (expense):
Interest income 1,699 3,632
----------- -----------
(Loss) before income taxes (64,631) 5,187
Income taxes 0 0
----------- -----------
Net (Loss) $ (64,631) 5,187
=========== ===========
Loss per common share:
Basic $ (0.02) (0.00)
Average common shares outstanding 4,254,000 4,254,000
=========== ===========
</TABLE>
4
<PAGE> 5
ProTech Communications, Inc.
Statements of Operations
Nine months ended July 31, 1999 and July 31,1998
(unaudited)
<TABLE>
<CAPTION>
(unaudited) (unaudited)
1999 1998
----------- -----------
<S> <C> <C>
Net Sales $ 769,624 $ 812,680
Cost of Goods Sold 288,420 261,271
----------- -----------
Gross Profit 481,204 551,409
Selling, general and administrative expenses 676,383 586,327
----------- -----------
Loss from operations (195,179) (34,918)
Other income (expense):
Interest income 8,768 14,511
----------- -----------
Loss before income taxes (186,411) (20,407)
Income taxes 0 0
----------- -----------
Net loss $ (186,411) $ (20,407)
=========== ===========
Loss per common share:
Basic $ (0.04) $ (0.00)
Average common shares outstanding 4,254,000 4,254,000
=========== ===========
</TABLE>
5
<PAGE> 6
PRO TECH COMMUNICATIONS, INC.
Statements of Cash Flows
For the Nine months ended July 31, 1999 and July 31, 1998
(unaudited)
<TABLE>
<CAPTION>
(unaudited) (unaudited)
1999 1998
----------- --------
<S> <C> <C>
Cash Flows from operating activities:
Cash received from the sale of merchandise $ 830,714 556,870
Cash paid to vendors and employees (1,045,982) (689,904)
Interest received 8,768 14,510
----------- --------
Net cash used by operating activities (206,500) (118,524)
----------- --------
Cash flows from investing activities:
Purchase of short-term investments -- --
Proceeds on maturity of short-term investments -- --
Purchase of property and equipment (49,677) (62,241)
Net cash used in investing activities (49,677) (62,241)
----------- --------
Cash flows from financing activities:
Net cash provided by financing activities 0 0
----------- --------
Net (decrease) in cash and cash equivalents (256,177) (180,765)
Cash and cash equivalents at the beginning of period 198,797 356,327
----------- --------
Cash and cash equivalents at the end of period 49,514 175,562
=========== ========
Reconciliation of net income (loss) to net cash used by operating activities:
Net income (loss) $ (186,411) (20,407)
----------- --------
Adjustments to reconcile net income(loss) to net cash used by operating
activities:
Depreciation and amortization 28,175 27,689
Decrease (increase) in accounts receivable 64,110 (75,442)
Decrease of employee accounts receivable -- 1,603
Increase in inventory (133,105) (148,186)
Increase in accounts payable 35,775 7,438
Increase in accrued expenses 28,439 53,185
(Increase) decrease in other assets (43,483) 35,596
----------- --------
Total adjustments (20,089) (98,117)
----------- --------
Net cash used by operating activities $ (206,500) (118,524)
=========== ========
</TABLE>
See accompanying notes to financial statements
6
<PAGE> 7
PRO TECH COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 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 July 31, 1999 and the
results of operations and cashflows for the nine months ended
July 31, 1999. The accompanying interim 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 perscribed 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 the 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 nine months ended July
31, 1999 and 1998, the Company had no components considered to
be other comprehensive income.
7
<PAGE> 8
(2) INVENTORY
Inventory at July 31, 1999 and 1998 consists of the following:
1999 1998
-------- --------
Raw materials $131,358 169,942
Work in process 116,313 68,006
Finished goods 130,906 70,847
-------- --------
$378,715 $308,795
======== ========
(3) ACCRUED EXPENSES
Accrued expenses consisted of the following at July 31, 1999 and 1998:
1999 1998
-------- --------
Accrued warranty expense $174,246 55,000
Accrued executive compensation 0 22,500
Accrued professional fees 0 25,000
Other accrued expenses 27,658 9,620
-------- --------
$201,904 $112,120
======== ========
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
===============================================================================
RESULTS OF OPERATION
Three months ended July 31, 1999 compared to three Months Ended July 31, 1998
For the quarter ended July 31, 1999, the Company realized a net loss of
$(64,631) compared to a net profit of $5,187 for the quarter ended July 31,
1998. This difference is attributed to the fact that in the 1999 period, the
Company has increased its investment in engineering and marketing in preparation
for several new product introductions that occurred in the current fiscal
quarter. The Company has completed its transition of its marketing resources
to support these introductions.
Net sales for the current fiscal year 1999 period were $51,342 or 16% lower than
last year's comparable period, $269,379 in the current period versus $320,721 in
the comparable 1998 period. Sales are lower as a result of the discontinuing of
the freedom headset to the fast-food market and replacing it with the lower
price manager's headset. To offset this reduction the Company has entered into
several resale agreements to resell two separate wireless headsets. The majority
of revenues for the period May 1, 1999 through July 31, 1999 period are the
result of direct and distribution sales of the ProCom IV, ProCom V and manager's
headsets. The company believes that sales will increase as a result of its
direct marketing efforts. The Company's distribution net revenues and unit
volumes remained equal with the comparable period at 10%.
Gross profit was 65% in the current period, equal to the comparable 1998 period.
This occurred as a result of a reduction in production expenses offset with a
decrease in net sales in the current period. The Company increased its
inventories to $378,715 versus $308,795 in the comparable 1998 period in
preparation for the shift of production to the newer headsets planned for
introduction in the 4th quarter of this fiscal year. This increase allows for
the Company to support the current and planned demand for the existing fast-food
headsets provided by the Company and to begin preparations to produce the
Company's new products. SG&A expenses increased 24% or $34,089 over the
comparable period, $240,364 versus $206,275 in the comparable 1998 period. The
increase is primarily due to an increase in expenditures in marketing for new
product introductions. The remainder of the increase is from additional
investments in Research and Development.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
================================================================================
RESULTS OF OPERATION
Nine months ended July 31, 1999 compared to nine months ended July 31, 1998
For the nine month period ended July 31, 1999, the Company realized a net loss
of $(186,411) compared to a net loss of $(20,407) in the same comparable period
ended July 31, 1998. This difference is attributed to the fact that in the 1999
period, the Company has increased its investment in engineering and marketing in
preparation for several new product introductions which in the current
fiscal quarter. The Company has completed its transition of its marketing
resources to support these introductions.
Net sales for the current fiscal year 1999 period were $43,056 or 5% lower than
last year's comparable period, $769,624 in the current period versus $812,680 in
the comparable 1998 period. Sales are lower as a result of the discontinuing of
the Freedom headset to the fast-food market and replacing it with the lower
price manager's headset. Total unit volume has increased 2% for the same
comparable period. The Company had also introduced its new telephone products,
the APEX headset and A-10 amplifier, late in this fiscal period and therefore
realized very little sales results in this period. The Company expects the
result of these introductions to occur in the next reporting period. The
majority of revenues for the period November 1, 1999 through July 31, 1999
period are the result of direct and distribution sales of the ProCom IV, ProCom
V and manager's headsets. The company expects telephone headset sales to
increase dramatically as the impact from direct marketing occurs. The Company's
distribution net revenues and unit volumes continue to remain the same as a
percent to total net sales at 12% 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 and move its market focus to other emerging
markets.
Gross profit decreased to approximately 63% in the current period versus 68% in
the comparable 1998 period. This decrease is the result of the reduction in net
sales in comparison to the 1998 period. However, the Company has completed all
of its production offshore in order to take advantage of the cost savings. The
Company expects to have significant gains on its per unit production costs as a
result of this transition. Inventories have increased $69,920, $378,715 in the
current period versus $308,795 in the comparable 1998 period in preparation for
the shift of production to the newer headsets planned for introduction in the
4th quarter of this fiscal year. This increase allows for the Company to support
the current and planned demand for the existing fast-food headsets provided by
the Company and to begin preparations to produce the Company's new products.
SG&A expenses increased 15% or $90,056 over the comparable period, $676,383
versus $586,317 in the comparable 1998 period. The increase is primarily due to
marketing expenses for new product introductions. The remainder of the increase
is from additional investments in Research and Development.
10
<PAGE> 11
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 2.89 to
1.00 at July 31, 1999 as compared to 7.42 to 1.00 at July 31, 1998. At July 31,
1999, the Company's current assets exceeded its current liabilities by
approximately $517,011.
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 or public offering of equity, therefore has retained an
investment-banking firm to source additional capital. However 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, the President, and 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)
11
<PAGE> 12
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 September 14, 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 September 14, 1999
- ------------------------- and Chairman of the Board
Keith Larkin (Principal Executive, Financial
and Accounting Officer)
/s/ Richard Hennessey Director, Secretary September 14, 1999
- ------------------------- and President
Richard Hennessey
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PRO TECH COMMUNICATIONS, INC. FOR THE PERIOD ENDED JULY
31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JUL-31-1999
<CASH> 49,513
<SECURITIES> 147,652
<RECEIVABLES> 150,716
<ALLOWANCES> 14,868
<INVENTORY> 378,715
<CURRENT-ASSETS> 791,070
<PP&E> 202,771
<DEPRECIATION> 28,175
<TOTAL-ASSETS> 1,036,701
<CURRENT-LIABILITIES> 274,059
<BONDS> 0
0
0
<COMMON> 4,254
<OTHER-SE> 762,642
<TOTAL-LIABILITY-AND-EQUITY> 1,036,701
<SALES> 769,624
<TOTAL-REVENUES> 778,392
<CGS> 288,420
<TOTAL-COSTS> 676,383
<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> (186,411)
<EPS-BASIC> (.04)
<EPS-DILUTED> 0
</TABLE>
