United States
Securities and Exchange Commission
Washington, D. C. 20549
Form 10-QSB
(Mark One)
[X] Quarterly Report Under Section 13 or 15(d) Of The Securities Exchange
Act of 1934 for the Quarter Ended June 30, 2004.
[_] Transition Report Under Section 13 or 15(d) off the Securities Exchange
Act of 1934
For The Transition Period From _____ To ______
Commission File No. 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.)
1150 Marina Village Parkway, Suite 103
Alameda, Ca 94501
(510) 865-6412
(Address Of Principal Executive Offices, Telephone Number)
As of August 18, 2004, there were 11,250,000 shares of common stock
outstanding.
Transitional Small Business Disclosure Format |_| Yes |X| No
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
PROTON LABORATORIES, INC.
TABLE OF CONTENTS
Page
Condensed Consolidated Balance Sheets - June 30, 2004 and
December 31, 2003 (Unaudited) F-1
Condensed Consolidated Statements of Operations for the three and six
months ended June 30, 2004 and 2003 (Unaudited) F-2
Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 2004 and 2003 (Unaudited) F-3
Notes to Condensed Consolidated Financial Statements (Unaudited) F-4
PROTON LABORATORIES, INC
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 30, DECEMBER 31,
2004 2003
--------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 7,959 $ 4,423
Accounts receivable, less allowance for doubtful accounts
of $10,092 32,527 24,583
Inventory 93,865 27,800
--------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 134,351 56,806
--------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Furniture and fixtures 5,304 4,670
Equipment and machinery 58,150 43,724
Leasehold improvements 1,886 1,886
Less: accumulated depreciation (16,921) (11,672)
--------------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 48,419 38,608
--------------------------------------------------------------------------------------------
TOTAL ASSETS $ 182,770 $ 95,414
============================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 167,655 $ 197,576
Accrued expenses 51,206 15,735
--------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 218,861 213,311
--------------------------------------------------------------------------------------------
LONG TERM LIABILITIES - STOCKHOLDER LOAN 249,000 84,000
--------------------------------------------------------------------------------------------
STOCKHOLDERS' DEFICIT
Series A convertible preferred stock, 400,000 shares authorized
with a par value of $0.0001; no shares issued or outstanding - -
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; 11,250,000 shares issued and outstanding 1,126 1,126
Additional paid-in capital 536,440 536,440
Accumulated deficit (822,657) (739,463)
--------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' DEFICIT (285,091) (201,897)
--------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 182,770 $ 95,414
============================================================================================
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 FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- ------------------------------
2004 2003 2004 2003
----------------------------------------------------------------------------- ------------------------------
SALES $ 81,985 $ 63,674 $ 158,005 $ 127,400
COST OF GOODS SOLD 25,375 20,424 72,970 56,352
-------------------------------------------------------------------------------------------------------------
GROSS PROFIT 56,610 43,250 85,035 71,048
-------------------------------------------------------------------------------------------------------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 97,115 57,614 162,758 125,503
-------------------------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS (40,505) (14,364) (77,723) (54,455)
-------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE 3,636 - 5,471 -
-------------------------------------------------------------------------------------------------------------
NET LOSS $ (44,141) $ (14,364) $ (83,194) $ (54,455)
=============================================================================================================
BASIC AND DILUTED LOSS PER
COMMON SHARE $ (0.00) $ (0.00) $ (0.01) $ (0.00)
=============================================================================================================
BASIC AND DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING 11,250,000 11,250,000 11,250,000 11,250,000
=============================================================================================================
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 SIX MONTHS ENDED JUNE 30 2004 2003
----------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (83,194) $(54,455)
Adjustments to reconcile net loss to cash used
in operating activities:
Depreciation 5,249 3,756
Fair value of officer services - 30,000
Changes in operating assets and liabilities
Accounts receivable (7,944) 4,954
Inventory (66,065) 3,926
Accounts payable (29,921) 17,671
Accrued expenses 35,471 (183)
----------------------------------------------------------------------
Deferred revenue - -
----------------------------------------------------------------------
NET CASH FROM OPERATING ACTIVITIES (146,404) 5,669
----------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (15,060) -
----------------------------------------------------------------------
NET CASH FROM INVESTING ACTIVITIES (15,060) -
----------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stockholder loans 165,000 -
----------------------------------------------------------------------
Capital contributions - -
----------------------------------------------------------------------
NET CASH FROM FINANCING ACTIVITIES 165,000 -
----------------------------------------------------------------------
NET INCREASE IN CASH 3,536 5,669
CASH AT BEGINNING OF PERIOD 4,423 1,385
----------------------------------------------------------------------
CASH AT END OF PERIOD $ 7,959 $ 7,054
======================================================================
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, 2003 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 six months
ended June 30, 2004 are not necessarily indicative of the results that may be
expected for the full year ending December 31, 2004.
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.
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 net losses of $44,141 and $83,194 for the three and six
months ended June 30, 2004, respectively. The Company had a working capital
deficit of $84,510 and $156,505 at June 30, 2004 and December 31, 2003,
respectively. Loans from the Company's president 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 the six months ended June 30, 2004, the Company's president and majority
shareholder advanced the Company $165,000. At June 30, 2004 and December 31,
2003, the balance in the shareholder loans was $249,000 and $84,000,
respectively. These advances bear interest at 7% with principal and accrued
interest due November 2005. At June 30, 2004 and December 31, 2003, the accrued
interest was $6,206 and $735.
During the six months ended June 30, 2004, the Company accrued $30,000 as
salaries payable to the president resulting in $45,000 of salaries payable at
June 30, 2004. During the six months ended June 30, 2003, the president did not
receive any amounts related to his salary. The Company determined that the fair
value of these services was $30,000. Thus the Company recorded a salary expense
and contributed capital for the fair value of the president's services.
NOTE 4 - PREFERRED STOCK
During May 2004, the Company designated 400,000 shares of the preferred stock as
Series A convertible preferred stock.
The holders of Series A convertible preferred stock are entitled to a cumulative
dividend of 8% per year in cash payable in arrears.
The holders of Series A convertible preferred stock may convert any or all of
their shares plus all accrued dividends on the preferred stock into common stock
at any time. Each share of preferred stock may be converted into 5 shares of
common stock. The holder will receive one share of common stock for $2 of
accrued dividends.
Upon the liquidation, dissolution or winding up of the Company, holders of
Series A convertible preferred stock, are entitled to receive, out of legally
available assets, a liquidation preference of $10 per share, plus an amount
equal to any unpaid dividends through the payment date, before any payment or
distribution was made to holders of common stock. The holders of Series A
convertible preferred stock are not entitled to vote.
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, of 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 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 unaudited financial
statements and accompanying notes and the other financial information appearing
elsewhere in this Form 10-QSB. The accompanying unaudited consolidated
financial statements have been prepared in conformity with accounting principles
generally accepted in the United States of America, which contemplate our
continuation 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 United States of America 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 between manufacturer and
industry and act as educators on the benefits of functional water.
Our independent auditors made a going concern qualification in their report
dated March 12, 2004, which raises substantial doubt about our ability to
continue as a going concern. Our revenue decreased during 2003. During the
quarter ended June 30, 2004, our revenue increased compared to the quarter ended
June 30, 2003. During 2003 our president contributed funds to us to fund
operations. There is a 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 are working towards raising funds to expand our marketing and revenues.
We have spent considerable time in contracting with several major overseas
corporations for the co-development of enhanced antioxidant beverages for
distribution into the overseas markets. We are working with our Canadian
business associates to identify institutional businesses to market various
disinfection applications based upon functional water, pending government
approval.
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.
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.
During the period from March 14, 2000 through November 15, 2002, prior to
our acquisition of Proton Laboratories LLC in November 2002, we did not engage
in significant operations other than organizational activities, acquisition of
the rights to market the products of Vitamineralherb.com, the preparation for
registration of our securities under the Securities Act and capital raising. No
revenues were received by us during that period. However, Vitamineralherb.com
has ceased operating a Web site which makes it unlikely that we will ever do any
business with Vitamineralherb.com.
We operate through our own name, Proton Laboratories, Inc. and through the
name of our wholly-owned subsidiary Water Science, Inc. In November 2002, we
acquired Proton Laboratories, LLC, which is active in the functional water
business. This acquisition was reported in detail on our Form 8-K for the event
dated November 15, 2002 as filed with the Commission on November 25, 2002.
Proton Laboratories, LLC is now known as Water Science, Inc., our wholly-owned
subsidiary. Since our acquisition of Proton Laboratories LLC in November 2002,
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.
Our fiscal year end is December 31.
RESULTS OF OPERATIONS--Quarters ended June 30, 2004 and 2003.
We had revenue of $81,985 for the quarter ended June 30, 2004, compared to
revenue of $63,674 for the quarter ended June 30, 2003.
We had a net loss of $44,141 for the quarter ended June 30, 2004, compared
to a net loss of $14,364 for the quarter ended June 30, 2003.
Our SG&A expenses were $97,115 for the quarter ended June 30, 2004,
compared to $57,614 for the quarter ended June 30, 2003.
RESULTS OF OPERATIONS--Six months ended June 30, 2004 and 2003.
We had revenue of $158,005 for the six months ended June 30, 2004, compared
to revenue of $127,400 for the quarter ended June 30, 2003.
We had a net loss of $83,194 for the six months ended June 30, 2004,
compared to a net loss of $54,455 for the quarter ended June 30, 2003.
Net cash used by operating activities was $146,404 for the six months ended
June 30, 2004, compared to cash provided by operating activities of $5,669 for
the six months ended June 30, 2003.
Our SG&A expenses were $162,758 for the six months ended June 30, 2004,
compared to $125,503 for the six months ended June 30, 2003.
We are currently seeking funds to expand our marketing and revenues. We
have spent considerable time in contracting with several major overseas
corporations for the co-development of enhanced antioxidant beverages for
distribution into the overseas markets. We are working with Canadian business
associates to identify institutional businesses to market various disinfection
applications based upon functional water, pending government approval. Our
business is 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.
LIQUIDITY
As of June 30, 2004, we had cash on hand of $7,959. 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 six months ended June 30, 2004, our president advanced to us the
amount of $165,000 in cash. This advance accrues interest at the rate of 7% per
annum and is due in November 2005. At June 30, 2004, the aggregate balance we
owe on loans from shareholders is $ 249,000. These loans accrues interest at the
rate of 7% per annum and are due in November 2005.
During the six months ended June 30, 2004, we accrued $30,000 as salaries
payable to Mr. Alexander resulting in an aggregate of $45,000 of salaries
payable to Mr. Alexander at June 30, 2004. During the six months ended June 30,
2003, Mr. Alexander did not receive or accrue any amounts related to his salary.
We determined that the fair value of these services was $30,000. Thus we
recorded a salary expense and contributed capital for the fair value of the
president's services.
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 following:
- 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 the Company's disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934 (the "Exchange Act")), the Company's 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
the Company in reports that it files or submits 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.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
On May 19, 2004, our Board of Directors approved an amendment to our
articles of incorporation that created our new Series A Preferred Stock.
Shareholder action was not required. This amendment was then filed with the
Secretary of State of Washington on May 28, 2004. We received a file-stamped
copy of the amendment later in June 2004. We previously reported the details of
our Series A Preferred Stock in our Form 8-K file July 09, 2004 and dated May
28, 2004. As of the date of filing this Form 10-QSB, we have not sold or issued
any Series A Preferred Stock. We may sell shares of our Series A Preferred
Stock in the future.
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 and Reports on Form 8-K.
(a) Exhibits.
Exhibit 31.1 Certification.
Exhibit 31.2 Certification.
Exhibit 32.1 Certification.
Exhibit 32.2 Certification.
(b) Reports on Form 8-K.
On April 14, 2004 we filed a Form 8-K dated March 16, 2004 reporting Item
5. Other Events and Item 6. Financial Statements and Exhibits.
On April 15, 2004 we filed a Form 8-K dated April 15, 2004 reporting Item
5. Other Events and Item 7. Financial Statements and Exhibits.
On July 9, 2004 we filed a Form 8-K dated May 28, 2004 reporting Item 3.03.
Material Modification to Rights of Security Holders, Item 5.03. Amendments to
Articles of Incorporation or Bylaws and Item 7.01. Financial Statements And
Exhibits.
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.
Proton Laboratories, Inc.
Date August 18, 2004 (signed) ___________________________
By: /s/ Edward Alexander
Edward Alexander
Chief Executive Officer,
Director, President, and
Chief Accounting Officer