UNITED STATES
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 ended March 31, 2005
[_] Transition Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from to
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Commission file number: 000-31883
PROTON LABORATORIES, INC.
(Name of small business issuer in its charter)
Washington 91-2022700
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1135 Atlantic Avenue, Suite 101
Alameda, CA 94501
(Address of principal executive offices)
(510) 865-6412
Issuer's telephone number
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities 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
On May 9, 2005, the registrant had outstanding 13,022,500 shares of
Common Stock, $0.0001 par value per share. However, 424,000 of those shares
have not been certificated as of May 9, 2005.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
PROTON LABORATORIES, INC.
TABLE OF CONTENTS
PAGE
Condensed Consolidated Balance Sheets - March 31, 2005 and
December 31, 2004 (Unaudited) F-1
Condensed Consolidated Statements of Operations for the three
months ended March 31, 2005 and 2004 (Unaudited) F-2
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 2005 and 2004 (Unaudited) F-3
Notes to Condensed Consolidated Financial Statements (Unaudited) F-4
PROTON LABORATORIES, INC
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 31, DECEMBER 31,
2005 2004
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ASSETS
CURRENT ASSETS
Cash $ 32,033 $ 14,412
Accounts receivable, less allowance for doubtful accounts of $16,522 25,689 10,633
Inventory 108,507 34,097
Deposit - 69,500
Loan costs, net accumulated amortization of $9,025 18,050 -
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TOTAL CURRENT ASSETS 184,279 128,642
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PROPERTY AND EQUIPMENT
Furniture and fixtures 18,438 18,438
Equipment and machinery 159,357 95,039
Leasehold improvements 11,323 10,995
Less: accumulated depreciation (24,559) (19,160)
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NET PROPERTY AND EQUIPMENT 164,559 105,312
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TOTAL ASSETS $ 348,838 $ 233,954
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LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 100,114 $ 134,780
Accrued expenses 141,230 110,562
Preferred dividends payable 4,800 3,200
Note payable 164,000 -
Stockholder loans, current portion 209,000 84,000
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TOTAL CURRENT LIABILITIES 619,144 332,542
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STOCKHOLDER LOANS, NET OF CURRENT PORTION 93,000 178,000
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STOCKHOLDERS' DEFICIT
Series A convertible preferred stock, 400,000 shares authorized
with a par value of $0.0001; 8,000 shares issued and outstanding;
liquidation preference of $80,000 80,000 80,000
Undesignated preferred stock, 19,600,000 shares authorized with a
par value of $0.0001; no shares issued or outstanding - -
Common stock, 100,000,000 common shares authorized with a par
value of $0.0001; 13,022,500 and 12,975,000 shares issued and
outstanding, respectively 1,304 1,299
Additional paid in capital 1,377,686 1,350,616
Accumulated deficit (1,822,296) (1,708,503)
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TOTAL STOCKHOLDERS' DEFICIT (363,306) (276,588)
-----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 348,838 $ 233,954
-----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-1
PROTON LABORATORIES, INC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2005 2004
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SALES $ 94,189 $ 76,020
COST OF GOODS SOLD 67,363 47,595
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GROSS PROFIT 26,826 28,425
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 115,494 65,643
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LOSS FROM OPERATIONS (88,668) (37,218)
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OTHER INCOME AND (EXPENSE)
Loss on disposal of property and equipment - -
Interest income 59 -
Interest expense (23,584) (1,835)
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NET OTHER EXPENSE (23,525) (1,835)
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NET LOSS (112,193) (39,053)
PREFERRED STOCK DIVIDEND (1,600) -
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LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (113,793) $ (39,053)
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BASIC AND DILUTED LOSS PER
COMMON SHARE $ (0.01) $ (0.00)
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BASIC AND DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING 12,985,674 11,250,000
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-2
PROTON LABORATORIES, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2005 2004
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(112,193) $ (39,053)
Adjustments to reconcile net loss to cash used
in operating activities:
Depreciation 5,399 2,393
Amortization of loan costs 9,025 -
Loss on disposal of property and equipment 181 -
Changes in operating assets and liabilities
Accounts receivable (15,056) (21,421)
Inventory (74,410) (67,757)
Deposits 5,000 -
Accounts payable (34,666) (7,315)
Accrued expenses 30,668 17,721
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NET CASH FROM OPERATING ACTIVITIES (186,052) (115,432)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (327) (5,811)
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NET CASH FROM INVESTING ACTIVITIES (327) (5,811)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 164,000 -
Proceeds from stockholder loans 40,000 125,000
Proceeds from sale of preferred stock - -
Proceeds from sale of common stock - -
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NET CASH FROM FINANCING ACTIVITIES 204,000 125,000
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NET INCREASE IN CASH 17,621 3,757
CASH AT BEGINNING OF PERIOD 14,412 4,423
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CASH AT END OF PERIOD $ 32,033 $ 8,180
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NON-CASH INVESTING AND FINANCING ACTIVITIES:
Transfer of deposit to property and equipment $ 64,500 $ -
Issuance of common stock for loan costs $ 27,075 $ -
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-3
PROTON LABORATORIES, INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION AND NATURE OF OPERATIONS
BASIS OF PRESENTATION - The condensed consolidated financial statements include
the accounts of Proton Laboratories, Inc., and its wholly owned subsidiary
("Proton" or the "Company"). All significant intercompany transactions and
balances have been eliminated in consolidation.
In April 2004, the Company changed its name from BentleyCapitalCorp.com, Inc. to
Proton Laboratories, Inc. The Company's subsidiary also changed its name from
Proton Laboratorie-s, Inc. to Water Science, Inc.
CONDENSED FINANCIAL STATEMENTS - The accompanying unaudited condensed
consolidated financial statements are condensed and, therefore, do not include
all disclosures normally required by accounting principles generally accepted in
the United States of America. These statements should be read in conjunction
with the Company's annual financial statements included in the Company's
December 31, 2004 Annual Report on Form 10-KSB. In particular, the Company's
significant accounting principles were presented as Note 1 to the consolidated
financial statements in that report. In the opinion of management, all
adjustments necessary for a fair presentation have been included in the
accompanying condensed consolidated financial statements and consist of only
normal recurring adjustments. The results of operations presented in the
accompanying condensed consolidated financial statements for the three months
ended March 31, 2005 are not necessarily indicative of the results that may be
expected for the full year ending December 31, 2005.
NATURE OF OPERATIONS - The Company's operations are located in Alameda,
California. The core business of the Company consists of the sales and
marketing of the Company's industrial, environmental and residential systems
throughout the United States of America which alter the properties of water to
produce functional water. The Company acts as an exclusive importer and master
distributor of these products to various companies. Additionally, the Company
formulates intellectual properties under licensing agreements, supplies consumer
products, consults on projects utilizing functional water, facilitates between
manufacturer and industry and acts as educators on the benefits of functional
water.
BASIC AND DILUTED LOSS PER COMMON SHARE - Basic loss per common share is
calculated by dividing net loss by the weighted-average number of common shares
outstanding. Diluted loss per common share is calculated by dividing net loss by
the weighted-average number of Series A convertible preferred shares and common
shares outstanding to give effect to potentially issuable common shares except
during loss periods when those potentially issuable shares are anti-dilutive.
Potential common shares from convertible preferred stock have not been included
as they are anti-dilutive.
NOTE 2 - BUSINESS CONDITION
The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America, which contemplate continuation of the Company as a going concern. The
company has incurred losses applicable to common shareholders of $112,193 for
the three months ended March 31, 2005. The Company had a working capital deficit
of $434,865 and $203,900 at March 31, 2005 and December 31, 2004, respectively.
Loans were required to fund operations.
F-4
The Company is working towards raising public funds to expand its marketing and
revenues. The Company has spent considerable time in contracting with several
major overseas corporations for the co-development of enhanced antioxidant
beverages for distribution into the overseas markets. In addition, the Company
is working with its Canadian business associates to identify institutional
businesses to market various disinfection applications based upon functional
water, pending government approval.
The Company's ability to continue as a going concern is dependent upon its
ability to generate sufficient cash flows to meet its obligations on a timely
basis, to obtain additional financing as may be required, and ultimately to
attain profitable operations. However, there is no assurance that profitable
operations or sufficient cash flows will occur in the future.
NOTE 3 - RELATED PARTY TRANSACTIONS
During January 2005, a shareholder advanced the Company $40,000. This advance
bears interest at 7% with principal and accrued interest due January 2007. At
March 31, 2005 and December 31, 2004, the balance in the loans from two
shareholders was $302,000 and $262,000, respectively. Of these loans, $262,000
is from the Company's president. These advances bear interest at 7% with
principal and accrued interest due between November 2005 and January 2007. At
March 31, 2005 and December 31, 2004, the accrued interest was $30,505 and
$15,946, respectively.
During the three months ended March 31, 2005, the Company accrued $15,000 as
salaries payable to the president resulting in $90,000 of salaries payable at
March 31, 2005.
NOTE 4 - NOTES PAYABLE
In March 2005 the Company issued a note payable in the amount of $164,000. The
note is due in May 2005 and is secured by inventory. The Company has also
agreed to pay $28,500, or approximately 106% per annum in interest. At March
31, 2005 $9,500 of interest had been accrued. In addition, the Company issued
the lender 47,500 shares of common stock, which was recorded as a $27,075 loan
costs and is being amortized over the term of the note.
F-5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.
FORWARD-LOOKING STATEMENT
Certain statements contained in this report, including, without limitation,
statements containing the words, "believes," "anticipates," "expects," and other
words of similar meaning, constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause our actual results, performance or achievements, to be
materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. Given these
uncertainties, readers are cautioned not to place undue reliance on such
forward-looking statements. We disclaim any obligation to update any such
factors or to announce publicly the results of any revision of the
forward-looking statements contained or incorporated by reference herein to
reflect future events or developments. In addition to the forward-looking
statements contained in this Form 10-QSB, the following forward-looking factors
could cause our future results to differ materially from our forward-looking
statements: competition, funding, government compliance and market acceptance of
our products.
INTRODUCTION
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the audited financial
statements and accompanying notes and the other financial information appearing
in our annual report on Form 10-KSB for the year ended December 31, 2004. The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the U.S.A., which contemplate
our continuation as a going concern.
Our independent auditors made a going concern qualification in their report
dated March 7, 2005 (contained in our annual report on Form 10-KSB for the year
ended December 31, 2004), which raises substantial doubt about our ability to
continue as a going concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should we be unable to
continue in existence. Our ability to continue as a going concern is dependent
upon our ability to generate sufficient cash flows to meet our obligations on a
timely basis, to obtain additional financing as may be required, and ultimately
to attain profitable operations. However, there is no assurance that profitable
operations or sufficient cash flows will occur in the future.
We have incurred a net loss $112,193 during the three months ended March
31, 2005. We have incurred net losses of $965,840 in 2004 and $217,333 in 2003.
We had an accumulated working capital deficit of $434,865 at March 31, 2005.
This condition raises a substantial doubt about our ability to continue as a
going concern.
Our operations are located in Alameda, California. Our business consists of
the sales and marketing of the industrial, environmental and residential systems
throughout the U.S.A. which alter the properties of water to produce functional
water. We act as an exclusive importer and master distributor of these products
to various companies in which uses for the product range from food processing to
retail water sales.
We formulate intellectual properties under licensing agreements; supply
consumer products; consult on projects utilizing functional water; facilitate
usage, uses and users of functional water between manufacturer and industry; and
act as educators on the benefits of functional water. Our business has been
focused on marketing functional water equipment and systems.
Alkaline-concentrated functional water may have health-beneficial properties and
may be used for drinking and cooking purposes. Acidic-concentrated functional
water may be used as a topical, astringent medium
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenue and
expenses, and related disclosure of contingent assets and liabilities. On an
ongoing basis, we evaluate our estimates. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances. These estimates and assumptions provide a basis for us
to make judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Our actual results may differ from
these estimates under different assumptions or conditions, and these differences
may be material.
We recognize revenue when all four of the following criteria are met: (i)
persuasive evidence that an arrangement exists; (ii) delivery of the products
and/or services has occurred; (iii) the selling price is both fixed and
determinable and; (iv) collectibility is reasonably probable. Our revenues are
derived from sales of our industrial, environmental and residential systems
which alter the properties of water to produce functional water. We believe that
this critical accounting policy affects our more significant judgments and
estimates used in the preparation of our consolidated financial statements.
Our fiscal year end is December 31.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2005 and 2004
We had revenue of $94,189 for the three months ended March 31, 2005
compared to revenue of $76,020 for the three months ended March 31, 2004. This
increase in revenue was due primarily to our hiring a sales manager in 2004.
We had a net loss $112,193 for the three months ended March 31, 2005
compared to a net loss of $39,053 for the three months ended March 31, 2004.
This increase in net loss was due primarily to our increase marketing and
payroll costs.
Cash used by operating activities was $186,052 for the three months ended
March 31, 2005 compared to cash used by operating activities of $115,432 for the
three months ended March 31, 2004. This increase in cash used by operating
activities was due primarily to increased marketing and payroll costs.
LIQUIDITY
As of March 31, 2005, we had cash on hand of $32,033. Our growth is
dependent on attaining profit from our operations, or our raising additional
capital either through the sale of stock or borrowing. There is no assurance
that we will be able to raise any equity financing or sell any our products at a
profit.
During the three months ended March 31, 2005, a shareholder advanced us
$40,000. This advance bears interest at 7% with principal and accrued interest
due January 2007. At March 31, 2005 and December 31, 2004, the balance in the
shareholder loans was $302,000 and $262,000, respectively. These advances bear
interest at 7% with principal and accrued interest due between November 2005 and
January 2007. At March 31, 2005 and December 31, 2004, the accrued interest was
$30,505 and $15,946, respectively. These loans are due on dates November 2005
through January 2007.
During the three months ended March 31, 2005, we issued a note payable in
the amount of $164,000. We use these loans to fund our operations. The note is
due in May 2005 and is secured by inventory. We have also agreed to pay $28,500,
or approximately 106% per annum in interest. At March 31, 2005, $9,500 of
interest had been accrued. In addition, we issued the lender 47,500 shares of
common stock, which was recorded as a $27,075 loan cost and is being amortized
over the term of the note.
During the three months ended March 31, 2005, we accrued $15,000 as
salaries payable to the president resulting in $90,000 of salaries payable at
March 31, 2005.
FUTURE CAPITAL REQUIREMENTS
Our growth is dependent on attaining profit from our operations, or our
raising additional capital either through the sale of stock or borrowing. There
is no assurance that we will be able to raise any equity financing or sell any
of our products at a profit.
Our future capital requirements will depend upon many factors, including:
- The cost to acquire equipment to resell.
- The cost of sales and marketing our products.
- The rate at which we expand our operations.
- The results of our consulting business.
- The response of competitors.
ITEM 3. CONTROLS AND PROCEDURES.
(a) Evaluation of disclosure controls and procedures.
Based on their evaluation of our disclosure controls and procedures (as
defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the
"Exchange Act")), our principal executive officer and principal financial
officer have concluded that as of the end of the period covered by this
quarterly report on Form 10-QSB such disclosure controls and procedures are
effective to ensure that information required to be disclosed by us in reports
that we file or submit under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in Securities and Exchange
Commission rules and forms.
(b) Changes in internal control over financial reporting.
During the quarter under report, there was no change in our internal
control over financial reporting that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
The evaluation of our disclosure controls included a review of whether
there were any significant deficiencies in the design or operation of such
controls and procedures, material weaknesses in such controls and procedures,
any corrective actions taken with regard to such deficiencies and weaknesses and
any fraud involving management or other employees with a significant role in
such controls and procedures.
There have been no changes in our internal control over financial
reporting.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
Exhibit Exhibit
Number Name
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31.1 Certification pursuant to Section 13a-14 of CEO
31.2 Certification pursuant to Section 13a-14 of CFO
32.1 Certification pursuant to Section 1350 of CEO
32.2 Certification pursuant to Section 1350 of CFO
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized in Alameda, California.
PROTON LABORATORIES, INC.
May 23, 2005
By: /s/ Edward Alexander
Edward Alexander
Director, Chief Executive Officer, President and
Chief Financial Officer
EXHIBIT INDEX
Exhibit Exhibit
Number Name
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31.1 Certification pursuant to Section 13a-14 of CEO
31.2 Certification pursuant to Section 13a-14 of CFO
32.1 Certification pursuant to Section 1350 of CEO
32.2 Certification pursuant to Section 1350 of CFO