<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 April 30, 2000
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
PRO TECH COMMUNICATIONS, INC.
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(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
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(Address of principal executive offices)
(561)464-5100
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(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:
Class Number of Shares Outstanding
on June 14, 2000
Common stack, Par Value $.001 Per Share 4,266,000
<PAGE> 2
PRO TECH COMMUNICATIONS, INC.
Index
Page
----
Part I Financial Information
Item 1 Financial Statements
Balance Sheets at April 30, 2000
and 1999 (Unaudited) 3
Statements of Operations
for the Three months ended April 30,
2000 and 1999 (Unaudited) 4
Statements of Operations
for the Six months ended April 30,
2000 and 1999 (Unaudited) 5
Statements of Cash Flows
for the Six months ended April 30,
2000 and 1999 (Unaudited) 6
Notes to Financial Statements
(Unaudited) 7
Item 2 Management's Discussion and Analysis or
Plan of Operation 10
Part II OTHER INFORMATION
Exhibit 27 Financial Data Schedule
(for SEC use only)
SIGNATURES 16
2
<PAGE> 3
PRO TECH COMMUNICATIONS, INC.
Balance Sheets
April 30, 2000 and April 30, 1999
<TABLE>
<CAPTION>
(unaudited) (unaudited)
2000 1999
----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents 114,295 42,025
Short-term Investments -- 145,083
Deposits being held 45,815 --
Accounts receivable less allowance for doubtful
accounts of $18,661 and $14,868 in 2000 and 1999 165,018 263,507
Inventory (note 2) 401,006 363,657
Other current assets 78,338 21,614
----------- -----------
Total current assets 804,472 835,886
Net property and equipment 267,444 177,027
Due from officer 43,743 42,860
----------- -----------
$ 1,115,659 $ 1,055,773
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current short-term borrowings (note 4) 109,267
Current portion of capital lease obligations 8,808 --
Note payable (note 5) 150,000 --
Accounts Payable 98,845 34,969
Accrued Expenses (note 3) 140,483 176,249
----------- -----------
Total current liabilities 507,403 211,218
Capital Lease Obligations 3,552 --
----------- -----------
Total liabilities 510,955 211,218
Stockholder's Equity:
Common Stock, $.001 par value, authorized 10,000,000
shares, issued and outstanding 4,266,000 in the
current fiscal year and 4,254,000 for the comparable
period (Note 7) 4,266 4,254
Additional Paid in Capital 1,141,566 1,137,018
Retained Earnings(deficit) (541,128) (296,717)
----------- -----------
Total Stockholders' Equity 604,704 844,555
----------- -----------
$ 1,115,659 $ 1,055,773
=========== ===========
</TABLE>
See accompanying notes to financial statements
3
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PRO TECH COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
Three months ended April 30, 2000 and April 30, 1999
(unaudited)
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
2000 1999
----------- -----------
<S> <C> <C>
Net Sales $ 310,135 265,994
Cost of Goods Sold 112,472 99,337
----------- -----------
Gross Profit 197,663 166,657
Selling, general and administrative expenses 222,362 222,772
----------- -----------
(Loss) from operations (24,699) (56,115)
Other income (expense):
Interest income -- 2,696
Interest expense (10,869) --
----------- -----------
(Loss) before income taxes (35,568) (53,419)
Income taxes 0 0
----------- -----------
Net (Loss) $ (35,568) (53,419)
=========== ===========
Loss per common share:
Basic $ (0.01) (0.01)
Average common shares outstanding 4,258,000 4,254,000
=========== ===========
</TABLE>
4
<PAGE> 5
PRO TECH COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
Six months ended April 30, 2000 and April 30, 1999
(unaudited)
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
2000 1999
----------- -----------
<S> <C> <C>
Net Sales $ 517,602 497,155
Cost of Goods Sold 124,644 193,076
----------- -----------
Gross Profit 392,958 304,079
Selling, general and administrative expenses 509,392 415,646
----------- -----------
(Loss) from operations (116,434) (111,567)
Other income (expense):
Interest income 1,522 7,069
Interest expense (12,932) --
----------- -----------
(Loss) before income taxes (127,844) (104,498)
Income taxes 0 0
----------- -----------
Net (Loss) $ (127,844) (104,498)
=========== ===========
Loss per common share:
Basic $ (0.03) (0.02)
Average common shares outstanding 4,256,000 4,254,000
=========== ===========
</TABLE>
5
<PAGE> 6
PRO TECH COMMUNICATIONS, INC.
Statements of Cash Flows
For the Six months ended April 30, 2000 and
April 30, 1999
(unaudited)
<TABLE>
<CAPTION>
(unaudited) (unaudited)
2000 1999
--------- ---------
<S> <C> <C>
Cash Flows from operating activities:
Cash received from the sale of merchandise $ 558,517 504,224
Cash paid to vendors and employees (773,305) (763,537)
Interest received 1,512 7,049
Interest paid (944) --
--------- ---------
Net cash used by operating activities (214,220) (252,244)
--------- ---------
Cash flows from investing activities
Proceeds on maturity of short-term investments -- 109,462
Purchase of property and equipment (91,203) (13,990)
Net cash used in investing activities (91,203) 95,472
--------- ---------
Cash flows from financing activities:
Proceeds from short-term borrowings 109,267 --
Proceeds from long-term borrowings 150,000 --
Payments of capital lease obligations (4,537) --
Proceeds from exercised stock options 4,560 --
--------- ---------
Net cash provided by financing activities 259,290 0
--------- ---------
Net (decrease) in cash and cash equivalents (46,133) (156,772)
Cash and cash equivalents at the beginning of period 160,428 198,797
--------- ---------
Cash and cash equivalents at the end of period 114,295 42,025
========= =========
Reconciliation of net income(loss) to net cash used by
operating activities:
Net income (loss) $(127,844) (104,498)
--------- ---------
Adjustments to reconcile net income (loss) to net cash used
by operating activities:
Depreciation and amortization 20,506 18,232
(Decreaes) Increase in accounts receivable 40,905 (63,272)
Increase of employee accounts receivable -- (12,841)
Increase in inventory (115,123) (118,047)
Decrease in accounts payable (1,259) (1,411)
Increase in accrued expenses 90,095 2,784
(Increase)decrease in other assets (71,500) 1,127
--------- ---------
Total adjustments (86,376) (147,746)
--------- ---------
Net cash used by operating activities $(214,220) (252,244)
========= =========
</TABLE>
See accompanying notes to financial statements
6
<PAGE> 7
PRO TECH COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2000 AND 1999
(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 April 30, 2000 and the results of operations and
cash flows for the six months ended April 30, 2000. The
accompanying interim financial statements should be read in
conjunction with the Company's Form 10-KSB filing for the year
ended October 31, 1999.
(C) RECEIVABLES
Certain customer receivables accounts are factored with
recourse under a short-term financing arrangement, which has
been accounted for as a secured borrowing under the provisions
of SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities."
(D) 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 2000 and 1999 and is therefore not reported.
7
<PAGE> 8
(E) 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 six months ended April
30, 2000 and 1999, the Company had no components considered to
be other comprehensive income.
(2) INVENTORY
Inventory at April 30, 2000 and 1999 consists of the following:
2000 1999
-------- --------
Raw materials $ 91,280 102,827
Work in process 146,177 165,308
Finished goods 163,549 95,522
-------- --------
$401,006 $363,657
(3) ACCRUED EXPENSES
Accrued expenses consisted of the following at April 30, 2000
and 1999:
2000 1999
-------- --------
Accrued warranty expense $ 78,038 156,406
Other accrued expenses 62,445 19,843
-------- --------
$140,483 $176,249
-------- --------
(4) SHORT-TERM BORROWINGS
On December 22, 1999 the Company entered into a short-term factoring
arrangement providing for advances of up to $300,000 based on 80% of
selected accounts receivable factored under the agreement on a recourse
basis. The Company is charged a factoring fee of 1% on each advance,
plus 2% per month on advances outstanding. In addition, the minimum fee
charged per month is 1% of the factoring plan, or $3,000, during the
life of the agreement, which is for six months and automatically
renewable for additional six month terms, unless terminated by the
Company with a 30-day notice. The Company's obligations are
collateralized by all of the Company's accounts receivable, inventory,
and equipment.
(5) NOTES PAYABLE
On March 27, 2000, Pro Tech Communications, Inc. received a loan of
$150,000 from Westek Communications, a shareholder of the Company. The
loan has an 8.5% interest rate payable when the loan is due. The term
of this loan is for one year and due March 27, 2001.
8
<PAGE> 9
(6) SUBSEQUENT EVENT
On June 1, 2000, Pro Tech Communications, Inc. received two separate
loans from Balmore, S.A. and Austost Anstalt Schaan for the amounts of
$100,000 each at an interest rate of 10% for a total of $200,000. Each
loan matures on September 1, 2000. The President personally guarantees
the loans.
(7) STOCKHOLDERS EQUITY
In accordance with the 1998 Employee Stock Option Plan, 12,000 option
shares were exercised in the reporting period at a price of $0.38
providing $4,560 to the Company.
9
<PAGE> 10
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
------------------------------------------------------------------------
QUARTER ENDED APRIL 30, 2000 AS COMPARED TO THE YEAR ENDED APRIL 30, 1999:
For the quarter ended April 30, 2000, the Company realized a net loss of
$(35,568) compared to a net loss of $(53,419) for the quarter ended April
30,1999. The current reporting year loss improved as result of an increase of
sales of the Company's new telephone products along with maintaining the current
spending levels to the operation.
Net sales for the current period were 16.5% above the comparable 1999 period,
$310,135 versus $265,994 respectively. These sales were as a result of the
market introduction of the Company's telephone headsets products targeted for
the telephone headset user. Sales were to several small office and call-center
environments. The Company hopes to continue to expand the penetration of this
market through its existing direct and distributor channels. In addition, the
Company signed a marketing agreement with Hello-Direct, a large manufacturer and
distributor of telephone headsets and telephony equipment, to market and sell
Pro Tech's Trinity headset. The agreement provides the market and distribution
of headsets through Hello-Directs's large catalog distribution channel. In
addition the Company has begun the sale on its own of this new telephone
headset, the Trinity, to several customers. Several of these customers responded
positively to this headset. The Company expects sales to dramatically increase
in the 3rd and 4th quarter of the current fiscal year. Although this is the
Company's intention there is no assurances that they will occur in the future.
The Company continued the sale of its fast food products through distributors
augmenting these sales with direct sales from the Company's own outbound
telemarketing operation. The Company announced on March 17, 2000, that it had
received very positive results from the introduction of colored headsets at the
International McDonald's Convention. Later in the quarter, the Company expanded
its offering of colored headsets to all of its customers.
Gross margin percent increased 1.08% to 63.73% versus 62.65% in the comparable
1999 period as result of the cost savings from the transition of all production
offshore to the Far East. This action showed a major reduction in cost of goods
produced through the Company's now established Far East manufacturing partners.
The Company plans to keep this same supply-chain in place for all existing and
new products planned for market introduction in the 3rd quarter of the current
fiscal year. These gains were offset by short-term in-house production expenses
required to support increased sales of the Company's fast-food product line.
Selling, general and administrative expenses (SG&A) for the fiscal year were
$222,362 or 72% of revenues versus $222,772 or 84% in revenues in the comparable
1999 period. The Company maintained the same level of expenditures to reduce
short-term losses. Management believes that these spending levels can be
maintained and still support a planned increase in sales in the 2nd half of this
fiscal year.
10
<PAGE> 11
The Company maintained its total marketing and advertising expenses at $71,771
with $72,072 in the comparable 1999 period to reduce the Company's net loss
while supporting several telephone trade shows attended by the Companies
marketing staff. These trade shows allowed the Company the opportunity to
successfully present the new products planned for market introduction in the 2nd
quarter of the current fiscal year along with the opportunity to perform needed
market research necessary to have successful product introductions in the
future.
The Company has continued its investment in Research and Development and new
product development accounting for investments in mold designs and component
testing. The company is also reviewing several possible alliances with companies
that have complimentary products which could provide access into several key
accounts in the telephone market. Although this is the Company's intention there
is no formal agreements in place and no assurances that they will occur in the
future. The Company has also applied for one new patent and trademark with the
U.S. Patent Office. Net depreciation expenses were $10,371 or 3.3% of revenues
in the current fiscal year versus $9,282 or 3.4% of revenues in the comparable
1999 period. This increase was as a result of an increased investment in
production molding associated with new product development.
11
<PAGE> 12
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
------------------------------------------------------------------------
SIX MONTHS ENDED APRIL 30, 2000 AS COMPARED TO THE YEAR ENDED APRIL 30, 1999:
For the six months ended April 30, 2000, the Company realized a net loss of
$(117,378) compared to a net loss of $(104,498) for the six months ended April
30,1999. The current reporting year loss increased as result of a delay of
one quarter in the market introduction of several products for the telephone
industry.
Net sales for the current period were 4% above the comparable 1999 period,
$517,602 versus $497,155 respectively. These sales were as a result of the
market introduction of the Company's telephone headsets products in the second
quarter targeted for the telephone headset user. Sales were to several small
office and call-center environments. The Company hopes to continue to expand the
penetration of this market through its existing direct and distributor channels.
In addition, the Company signed a marketing agreement with Hello-Direct, a large
manufacturer and distributor of telephone headsets and telephony equipment, to
market and sell Pro Tech's Trinity headset. The agreement provides the market
and distribution of headsets through Hello-Directs's large catalog distribution
channel. In addition the Company has begun the sale on its own of this new
telephone headset, the Trinity, to several customers. Several of these customers
responded positively to this headset. The Company expects sales to dramatically
increase upon the market introduction planned in the 3rd quarter of the current
fiscal year. Although this is the Company's intention there is no assurances
that they will occur in the future.
Gross margin percent increased 29.23% to 75.92% versus 61.16% in the comparable
1999 period primarily as a result of an adjusting entry of cost of good expenses
accrued in the previous year. This action showed a major reduction in cost of
goods produced through the Company's now established Far East manufacturing
partners. The Company plans to keep this same supply-chain in place for all
existing and new products planned for market introduction in the 3rd quarter of
the current fiscal year. Selling, general and administrative expenses (SG&A) for
the fiscal year were $509,392 or 98% of revenues versus $415,646 or 84% in
revenues in the comparable 1999 period. This increase is attributed to continued
investments in new product development along increased investments in the
operation in the 1st quarter to gain productivity improvements in the operation.
The remaining expenditures were for expensed anti-virus software to insure no
disruption in the operation from any virus attacks in the Company's enterprise
systems.
12
<PAGE> 13
The Company increased its total marketing and advertising expenses at $129,856
with $112,614 in the comparable 1999 period to support several telephone trade
shows attended by the Companies marketing staff. These trade shows allowed the
Company the opportunity to successfully present the new products planned for
market introduction in the 2nd quarter of the current fiscal year along with the
opportunity to perform needed market research necessary to have successful
product introductions in the future.
The Company has continued its investment in Research and Development and new
product development accounting for investments mold designs and component
testing. The company is also reviewing several possible alliances with companies
that have complimentary products which could provide access into several key
accounts in the telephone market. Although this is the Company's intention there
is no formal agreements in place and no assurances that they will occur in the
future. The Company has also applied for one assigned patent and one trademark
with the U.S. Patent Office. Net depreciation expenses increased to $20,506 or
6.6% of revenues in the current fiscal year versus $18,332 or 6.8% of revenues
in the comparable 1999 period. This increase was as a result of an increased
investment in production molding associated with new product development.
13
<PAGE> 14
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 1.59 to
1.00 at April 30, 2000 as compared to 3.95 to 1.00 at January 31, 2000. At April
30, 2000, the Company's current assets exceeded its current liabilities by
approximately $297,069.
During the current fiscal year, the Company has funded its working capital
requirements with cash flow from operations and short-term borrowings.
Management does not believe that the Company has sufficient funds to meet the
Company's anticipated working capital requirements for the next 12 months and
therefore on December 22, 1999, the Company entered into a short-term factoring
arrangement providing for advances of up $300,000, based on 80% of selected
accounts receivable factored under the agreement on a recourse basis. The
Company is charged a factoring fee of 1% of each advance, plus 2% per month on
advances outstanding. In addition, the minimum fee charged per month is 1% of
the total factoring plan, or $3,000, during the life of the agreement, which is
for six months and automatically renewable for an additional six month terms,
unless terminated by the Company with 30 days notice. The Company's obligations
are collateralized by all of the Company's account receivable, inventory, and
equipment.
In addition, in order for the Company to maximize the potential of the telephone
user market and to enable the Company to expand into additional markets,
including government agencies and personal computers, the Company, on March 27,
2000, obtained a loan from Westek Communications Inc. for amount of $150,000
payable in one year with an interest rate of 8.5%. This capital will fund
existing product development along with the associated market introduction and
promotion of these new products. It is anticipated that the Company will seek to
raise such additional financing through a private or public offering of equity
and/or through its potential relationship with the NCT Group, Inc. On March 8,
2000 the Company has entered in to an agreement with The NCT Group, Inc. to
purchase 60% of the shares of the Company for $3,000,000 pending shareholder
approval. Related but separate to this transaction the Company, on June 1, 2000,
obtained bridge financing through The NCT Group, Inc. of $200,000 to support
existing product development and working capital requirements from the expansion
of sales into targeted markets.
PART II - OTHER INFORMATION
(a) Exhibits
27 Financial Data Schedule (for SEC use only)
14
<PAGE> 15
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 June 14, 2000.
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 June 14, 2000
------------------------------ and Chairman of the Board
Keith Larkin (Principal Executive, Financial
and Accounting Officer)
/s/ Richard Hennessey Director, Secretary June 14, 2000
------------------------------ and President
Richard Hennessey
</TABLE>
15
