Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
|X| Annual Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the Fiscal Year Ended December 31, 2003. or
| | Transition Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from _____________ to __________
Commission file number: 000-31883
PROTON LABORATORIES, INC.
(New Name of small business issuer in its charter)
BentleyCapitalCorp.com, Inc.
(Former Name of small business issuer)
Washington 91-2022700
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1150 Marina Village Parkway, Suite 103
Alameda, California 94501
(Address of principal executive offices) (Zip Code)
(510) 865-6412
Issuer's telephone number
Securities registered under Section 12(b) of the Act:
(Title of Class) Name of exchange on which registered
None. None.
Securities registered under Section 12(g) of the Act:
Common Stock, $0.0001 par value
(Title of class)
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
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |X|
Registrant's revenues for its most recent fiscal year: $238,805.
The aggregate market value of the common stock held by non-affiliates of
the registrant on April 2, 2004 based on the last price (which was $2.30 per
share on March 31, 2004) was $6,867,800. On April 2, 2004 the closing bid
price on our common stock on the OTCBB was $1.70 per share.
On April 2, 2004, the registrant had outstanding 11,250,000 shares of
Common Stock, $0.0001 par value per share.
Transitional Small Business Disclosure Format: Yes | | No |X|
TABLE OF CONTENTS
PART I PAGE
Item 1. Description of Business 1
Item 2. Description of Property 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for Common Equity and
Related Stockholder Matters 11
Item 6. Management's Discussion &Analysis of
Financial Condition and Results of Operations 13
Item 7. Financial Statements 16 and F-1
Item 8. Changes In and Disagreements with Accountants 16
Item 8A Controls and Procedures 16
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance With Section 16(a) of
the Exchange Act 17
Item 10. Executive Compensation 19
Item 11. Security Ownership of Certain Beneficial
Owners and Management 21
Item 12. Certain Relationships and Related Transactions 21
Item 13. Exhibits and Reports on Form 8-K 23
Item 14. Principal Accountant Fees and Services 23
SIGNATURES 25
FINANCIAL STATEMENTS F-1 and 16
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Our business is marketing functional water systems. Our Web site is
www.protonlabs.com. In March 2004 we filed an amendment our Articles of
Incorporation to change our name. Our new name is Proton Laboratories, Inc.
However, we have not received a certified copy of the amendment yet from the
Secretary of State of Washington yet. Our old name was BentleyCapitalCorp.com,
Inc. In this Form 10-KSB, we refer to ourselves as "Proton", "We", Us" and
"Our." References to us in this Form 10-KSB include our wholly-owned subsidiary
which also changed its name in April 2004. The new name of our subsidiary is
Water Science, Inc. The old name of our subsidiary was Proton Laboratorie-s,
Inc.
Our executive offices are located at: Proton Laboratories, Inc., 1150
Marina Village Parkway, Suite 103, Alameda, California 94501, tel. (510)
865-6412, fax: (510) 865-9385.
Our Board of Directors authorized a common stock dividend in November 2002
whereby each stockholder received an additional four shares for each one share
held. This had the same effect as a 5:1 forward stock split. All of the
information in this prospectus has been adjusted to reflect the stock dividend.
Prior to our November 2002 acquisition of Proton laboratories, LLC, we were
a development stage company. Our acquisition of Proton Laboratories, LLC brought
with it material revenues, expenses and losses. Our growth is dependent on
attaining profit from our operations and our raising capital through the sale of
stock or debt. There is no assurance that we will be able to raise any equity
financing or sell any of our products at a profit.
Our functional currency is the U.S. dollar. 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 only asset prior to the November 2002 acquisition of Proton
Laboratories, LLC was a license from a company named Vitamineralherb.com to
market vitamins, minerals, nutritional supplements and other health and fitness
products in the Province of British Columbia, Canada through the licensor's Web
site www.vitamineralherb.com. We will continue to attempt to establish a
business presence in the vitamin, mineral and herb market which consists of
medical practitioners, alternative health professionals, martial arts studios
and instructors, sports and fitness trainers, other health and fitness
practitioners, school and other fund raising programs and other similar types of
customers. The license was acquired in March 2000 for a term of three years
with renewal rights. The annual license fee was $500 for maintenance of the
licensor's Web site. The licensor retains 50% of the profits. The license was
written off to operations in fiscal 2000. We have not attempted to renew the
license yet.
In June 2002, Michael Kirsh ("Kirsh"), our former majority stockholder,
director and CEO entered into a Stock Purchase Agreement with Edward Alexander
pursuant to which Mr. Alexander acquired 7,500,000 shares owned by Kirsh. In
addition, Mr. Alexander acquired 1,250,000 shares owned by a former minority
stockholder, Brian Gruson ("Gruson"). The total consideration paid by Mr.
Alexander for the shares was $170,000. The $170,000 paid by Mr. Alexander
pursuant to the Stock Purchase Agreement has been reflected as a loss on the
acquisition of us in the accompanying financial statements (See page 16 and page
F-1). Mr. Alexander borrowed money from the following individuals to purchase
the shares from Messrs. Kirsh and Gruson:
Lender Name Amount Borrowed By Mr. Alexander
-------------------------------------------------------
Thomas Dizon $40,000
A. J. Moraes $40,000
Jean Wang $90,000
Each of these loans accrues interest at 7% per annum, and the maturity date
was extended to December 31, 2004. Mr. Alexander has not paid off any of these
loans. The current aggregate balance due on these loans is $181,900. These loans
are personal obligations of Mr. Alexander, and we are not responsible for
repaying these loans.
In November 2002, we entered into an Agreement and Plan of Reorganization
whereby Proton Laboratories, LLC, a California limited liability company merged
with and into VWO I Inc., our wholly owned subsidiary (the "Merger"). As a
result of the Merger, Proton Laboratories, LLC's sole owner, Edward Alexander,
exchanged 100% of his ownership of Proton Laboratories, LLC for 8,750,000 shares
of our common stock, and we cancelled the similar amount of 8,750,000 shares of
our common stock that Mr. Alexander had purchased from Michael Kirsh and Brian
Gruson in June 2002.
VWO I Inc. changed its name to Proton Laboratorie-s, Inc. as part of the
Merger, and we subsequently changed its name again to Water Science, Inc. in
April 2004. Proton Laboratories, LLC itself was incorporated in February 2000 in
the State of California. Proton Laboratories, LLC did not begin operations until
January 2001 when Mr. Alexander contributed inventory and property and equipment
to Proton Laboratories, LLC.
The consideration exchanged pursuant to the Merger was the result of
negotiations between us and Proton Laboratories, LLC. However, no appraisal was
done. In evaluating Proton Laboratories, LLC as a candidate for the proposed
Merger, we used criteria such as the value of the assets of Proton Laboratories,
LLC, Proton Laboratories, LLC's then current business operations and anticipated
operations, and Proton Laboratories, LLC's business name and reputation. We
determined that the consideration for the Merger was reasonable.
In August 2003, Mr. Alexander, in a personal transaction, paid off a
personal debt of his by making an in-kind payment of 486,000 of his shares in us
to his creditors.
Our executive offices are located at: Proton Laboratories, Inc., 1150
Marina Village Parkway, Suite 103, Alameda, California 94501, tel. (510)
865-6412, fax: (510) 865-9385. Our Web site is www.protonlabs.com.
OUR BUSINESS--THE BACKGROUND OF FUNCTIONAL WATER
Our business is the marketing of residential and commercial "functional
water systems." "Functional water" is water that has been processed through an
electrolytic ion separation process or electrolysis process and has a wide array
of functional properties due to its unique characteristics. Our functional
water systems restructure tap water into one type of water that is alkaline in
concentration and one type of water that is acidic in concentration. We believe
that the functional water systems that we market will have applications in a
large variety of industries, such as corporate agriculture, organic agriculture,
food processing, medicine and dentistry, dermatology, heavy industry, mining,
environmental clean-up, product formulations and beverages. We also intend to
build a vitamin distribution business through our relationship with
Vitamineralherb.com. We believe that vitamins and functional water are
complementary products that might be marketed or used in conjunction with each
another.
We are an exclusive importer and master distributor of functional water
systems that are manufactured by Matsushita Electric Corporation of America. We
utilize functional water intellectual property under licensing agreements. We
supply consumer products related to functional water. We consult on projects
utilizing functional water. We facilitate knowledge about functional water
between the manufacturer and industry, and we act as educators about the
benefits of functional water. We are a provider of systems that produce
functional water, also called "electrolyzed water" or "functional electrolyzed
water". Functional water is water that has been restructured through the
process of electrolysis. Electrolysis forces a separation to occur in the
electrolytes that are present in the water molecules. Through the process of
creating functional water, regular tap water can be restructured into two
separate types of water. For instance, tap water can be restructured into one
type of water that is alkaline in concentration and one type of water that is
acidic in concentration.
We believe that water with these unique functional properties is desirable
for a number of reasons. Water with smaller clusters of molecules has a lower
surface tension. With a lower surface tension, water may have improved
hydrating, permeating and solubility properties. These properties may enhance
the overall functional effectiveness of water. The separation of the alkaline
and acidic properties found in water provides the water with functional
abilities. For example, functional acidic water has disinfecting abilities to
meet a wide array of disinfecting requirements in food processing procedures.
Functional alkaline water makes an excellent drinking water due to improved
hydration.
OUR BUSINESS--SYSTEMS AND MARKETS
We market functional water systems to the residential and commercial
markets. For the residential market, we market functional water systems that
are used to produce a health-beneficial, alkaline-concentrated drinking water.
For the commercial market, we market commercial-grade functional water systems
that are used in applications ranging from food preparation to hospital
disinfection. Our goal is to take our functional water technology and market it
throughout North America.
Our business model envisions us as: a supplier of technology for functional
water applications; a supplier of hardware for functional water systems; a
provider of intellectual property for functional water systems under licensing
agreements; a supplier of consumer functional water products; consultants to
industries requiring functional water; facilitators between Japanese functional
water manufacturers and industrial users in the USA; and educators of academia,
government and industry on the benefits of functional water.
OUR BUSINESS--SCIENCE
"Functional water" is a term that has been assigned to a new category of
water. Functional has a wide array of functional properties due to its unique
characteristics. We believe the uses for this type of water are far reaching,
since we are identifying new applications and uses for functional water on an
ongoing basis. Functional water systems are capable of producing the following
types of functional water:
Ionic-Structured Water. Ionic-structured water is electrolyzed drinking
----------------------
water that is alkaline-concentrated and utilizes smaller molecular clusters than
regular water for improved hydration and solubility. Ionic structured water is
smooth to the palate.
Electro-Structured Water. Electro-structured water is water that is
------------------------
anti-microbial in nature and may be effective against virus, bacteria, fungus
and spores. This water may have a wide array of disinfectant uses.
Derma-Structured Water. Derma-structured water is electrolyzed low pH
----------------------
water that has astringent and disinfecting properties and may have a wide array
of cosmetic, dermatological and post-plastic surgery applications that may
minimize infections and scarring and expedite healing.
FUNCTIONAL WATER RESEARCH IN ACADEMIA
The process to produce functional water was developed by Scottish inventor
Michael Faraday in Boston, Massachusetts in 1834. In 1929, the value of
electrolytic water separation to produce water with functional properties was
realized in Japan. Japanese researchers have since taken this process, created
a wide array of functional waters and have introduced this technology to food
processing, hospital disinfection, wound care, agriculture, organic agriculture
and food safety in Japan. During recent years, functional water applications
have been studied by universities in the U.S.A. and Canada. For example, in a
University of Georgia study published in the Journal of Food Protection in 1999
entitled "Inactivation of Escherichia coli O157:H7 and Listeria monocytogenes on
Plastic Kitchen Cutting Boards by Electrolyzed Oxidizing Water," the immersion
of plastic kitchen cutting boards in electrolyzed oxidizing water was found to
be an effective method for inactivating food-borne pathogens such as E. coli.
Other studies at the University of Georgia have looked at the efficacy of
electrolyzed oxidizing water for inactivating E. coli, Salmonella and Listeria
and have determined that such water may be a useful disinfectant. A University
of Georgia study entitled "Antimicrobial effect of electrolyzed water for
inactivating Campylobacter jejuni during poultry washing" demonstrated that
electrolyzed water was not only effective in reducing the populations of C.
jejuni on chicken, but also may be effective in the prevention of
cross-contamination of processing environments.
OUR BUSINESS--FUNCTIONAL WATER SYSTEMS
Residential Systems. The residential countertop, functional water systems
-------------------
produce water that scientists believe contains more wellness and
health-beneficial properties than regular tap water (see, "Electrolyzed-Reduced
Water Scavenges Active Oxygen Species and Protects DNA from Oxidative Damage,"
Biochemical and Biophysical Research Communications, Vol. 234, No. 1, pp.
269-274 (1997); and, Hanaoka, K., "Antioxidant Effects Of Reduced Water Produced
By Electrolysis Of Sodium Chloride Solutions," 31 Journal of Applied
Electrochemistry 1307-1313 (2001)). Generally, the residential countertop system
sits next to the kitchen faucet, and through the use of a diverter, allows tap
water to be routed through the system. The water is then processed through a
charcoal filter where chlorine and sediments are removed. The filtered water
then proceeds to the electrolysis chamber that is made up of electrodes and
membranes. A positive and negative electrical charge is passed through the
electrodes. The minerals that are found in the filtered water are attracted to
opposite electrodes. For example, the alkaline minerals (minerals with positive
(+) properties that include calcium, magnesium, sodium, manganese, iron and
potassium) are attracted to the negatively charged (-) electrode. The acidic
minerals (minerals with negative (-) properties include nitric acid, sulfuric
acid and chlorine) are attracted to the positively-charged (+) electrode.
Through this mineral separation process, two separate types of water are formed,
which are water with alkaline-concentrated minerals, and water with
acidic-concentrated minerals. Each type of water is held in a separate chamber
in the residential countertop system. The alkaline-concentrated water may be
consumed for drinking and cooking purposes, while the acidic-concentrated water
may be used in a topical, astringent medium.
Commercial Systems. We are in preparation to market commercial functional
------------------
water systems to the food processing, medical and agricultural industries. The
system for the food processing industry includes: (1) a hand disinfectant system
for proper hand washing, and (2) an anti-microbial water production system for
general sterilization and disinfectant needs. We also intend to market similar
systems to the medical industry. For the agricultural industry, we intend to
sell functional water systems to organic food growers who desire to use
functional water to replace the use of pesticides, fungicides, herbicides and
chemical fertilizers. Our commercial functional water systems produce
approximately one gallon per minute of electrolyzed alkaline and acidic waters.
For the food processing industry, the alkaline water may be used as an effective
medium for removing pesticides from agricultural products, while the acidic
water may be used as anti-microbial water. For the hospital industry, the
alkaline water may be used as an effective medium in removing protein buildup
from surfaces, while the acidic water may be used as anti-microbial water. For
the organic agricultural industry, the alkaline water may be used for plant
growth and as a solid nutrient, while the acidic water may be used as a
substitute for fungicides, pesticides, herbicides and sporicides.
OUR BUSINESS--MARKETING STRATEGY
Our objectives are:
- To create a revenue stream through our marketing of residential systems.
These sales may be made through independent distributors, network
marketing, infomercials, mail order, retail sales and direct sales
generated through word-of-mouth referrals.
- To create a revenue stream through the sale of disinfectant systems to the
food processing industry.
- To create a revenue stream through licensing agreements based upon a wide
array of applications for functional water that will be targeted to
specific industries. For example, electrolyzed water may be used in the
beverage industry to extract flavors from their natural sources, such as
extracting tea from tea leaves for use in bottled iced tea. Electrolyzed
water may also be used in the formulation of nutraceutical-type dietary
supplement products in the health-food and dietary supplement industries.
- To continue the development of functional water applications for industries
that are currently dependent upon chemicals as a processing medium. In
addition to the food processing, medical and agricultural markets, we
intend to develop market-driven applications for functional water, provide
the science to these applications, publish the developments in scientific
and industrial circulars and perform consulting functions to industries
that can benefit from functional water. We intend to hire engineers from
Japan to design, engineer and assemble prototypes of functional water
systems that are built for specific industrial needs. We believe that by
performing these functions ourselves, we will have all of the necessary
tools to become a leading provider of functional water technology.
OUR BUSINESS--GOVERNMENT REGULATIONS
Our functional water systems are or may be subject to regulation by a
variety of federal, state and local agencies, including the Consumer Product
Safety Commission and the Food and Drug Administration ("FDA"). Some of our
functional water systems, such as our hand disinfectant water unit, may be
subject to pre-market approval by the FDA under Title 21 of the Code of Federal
Regulations. We would expect such an approval process to take approximately
30-60 days, although there is no assurance that we will be able to obtain
pre-market approval. We have not made any applications to the FDA yet.
Prior to submitting the hand disinfectant water unit to the FDA, however,
we intend to hire a company familiar with a modern food safety procedure known
as Hazard Analysis and Critical Control Point ("HACCP"). HACCP is a food safety
procedure that focuses on identifying and preventing hazards that could cause
food-borne illnesses. We believe that complying with the HACCP procedure may
assist us in getting FDA approval, since the FDA generally encourages retailers
to apply HACCP-based food safety principles, along with other recommended
practices.
OUR BUSINESS--MARKETING AND DISTRIBUTION
We intend to develop systems for the following markets:
- Hand disinfection for the food processing, fast food, medical, dental,
personal care and general health care industries.
- Residential, countertop electrolysis systems.
- Commercial functional water systems.
Hand Disinfection. After we obtain FDA approvals for the hand disinfection
-----------------
system, we plan to introduce the device and what we believe to be its
operational simplicity, user-friendliness, high efficacy and affordability,
through industrial circulars where hand disinfection is of a primary concern.
We also intend to arrange with a leasing company to lease the hand disinfectant
system to the fast food industry. A large part of our marketing efforts will be
directed to educating our target markets about functional water. We plan to
write and publish articles through industrial media, disinfection forums, trade
shows and documentary-type films that may be aired through CNN, PBS and Voice of
America introducing a new and novel method for hand disinfection. We intend to
handle all inquiries through a toll-free number.
We plan to hire a public relations company that provides the news media
with documentary videos for the purpose of educating the public on the
technology, processes and applications that we market. The videos will cover
the following subjects:
- The use of functional electrolyzed water for food safety.
- The use of functional electrolyzed water for effective disinfection in
hospitals and clinical settings.
- The use of functional electrolyzed water for agriculture and organic
agriculture.
- The use of functional electrolyzed water as a wellness medium.
Residential Countertop Units. The first step towards the marketing and
----------------------------
distribution of residential countertop units is to develop a national product
distribution program through network marketing, mail order catalogs sales,
infomercials, independent distributor channels and word of mouth sales. Since
we understand that the demographics in these sales channels is predominately
composed of females in the age groups of 35-60, we intend to concentrate on this
market segment. The second step in the marketing and distribution of
residential countertop units is to introduce a simplified, lower price-point
system that will be introduced through retail outlets under a series of private
labels.
Commercial Functional Water Systems. In addition to marketing the
-----------------------------------
residential countertop systems, we plan to develop marketing plans for
commercial systems. We may enter into agreements with companies to act as
distributors of our functional water systems. We may also grant exclusive rights
to companies to use our systems in specific industries for specific applications
in exchange for royalties.
OUR BUSINESS--COMPETITION
Our competitors include several entry-level importers of systems from Japan
and Korea. We believe that we have several distinctive advantages over
entry-level distributors:
- We and our consultants, who are scientists, business people and advisers,
are individuals who have helped pioneer the understanding, documentation,
representation and structuring of the technology and its relevance to the
U.S.A. during the past nine-year period through various companies and
organizations. These consultants are the leaders in the U.S.A. in the
knowledge and representation of functional water.
- We have been able to create a strong platform of specialists to advance
functional water technology in the U.S.A., which would be difficult for
others to replicate due to our high level of focused commitment and
dedication.
- We have close working relationships with our Japanese counterparts which
have been developed and nurtured over the past ten-year period. These
members are highly respected within the Japanese electrolysis community and
attend annual conferences as invited speakers.
- We have excellent working relationships with the Japanese manufacturers and
we are often relied upon to provide international perspectives to be used
in the refinement of their scientific, design and engineering thought
processes to create products that will be accepted on a global basis.
- With our knowledge, experience and foresight into the electrolyzed water
industry, we are well-positioned to branch out on our own without reliance
on Japanese manufacturing, if necessary.
- We have strategically positioned ourselves as the "go to" organization for
technology, hardware and informational support for the public.
Although the majority of competitors are small resellers, the one
significant competitor that we have is named Hoshizaki U.S.A., which is an
established U.S.A.-based Japanese company that has a substantial market presence
in refrigeration and icemakers. We expect that we may face additional
competition from new market entrants and current competitors as they expand
their business models, but we do not believe that any real strong competitors
are imminent for the foreseeable 3 to 4 year period, other than Hoshizaki U.S.A.
To be competitive, we must assemble a strategic marketing and sales
infrastructure. Our success will be dependent on our ability to become a
formidable marketing and sales entity based upon the technology we have and our
ability to aggressively introduce this technology and its far-reaching benefits
through documentary videos and other methods of public relations.
OUR BUSINESS--CUSTOMERS AND VENDORS
Major Customer. During 2003, sales to one customer accounted for 11% of
--------------
total sales, and during 2002, sales to another customer accounted for 14% of
total sales. As of December 31, 2003, no funds were due from this customer. We
believe that the loss of this customer would have a negative impact on us.
Major Vendor. During the year ended December 31, 2003, our purchases from
------------
two vendors accounted for 87% of our total inventory purchases. As of December
31, 2003, the amounts we owe to the two vendors accounted for 65% of accounts
payable.
INTELLECTUAL PROPERTY
We plan to file patent applications for various functional water
applications. We may also obtain licenses from others. There can be no
assurance that our intellectual property rights, if any, will not be challenged,
invalidated or circumvented, or that any rights granted under our intellectual
property will provide competitive advantages to us. There can be no assurance
that our patent claims allowed on any future patents would be sufficiently broad
to protect our products.
EMPLOYEES
We currently have 3 full-time employees, of whom 2 are in management. None
of our employees are subject to a collective bargaining agreement. We believe
that our employee relations are good.
RECENT DEVELOPMENTS
In June 2003, we acted as a consultant to an industrial company for the
purposes of evaluating industrial uses for functional water. We received
$20,000 as a consulting fee for this project.
We have done preliminary testing of functional water in the precious metals
refining industry.
We plan to file an FDA application for our hand disinfectant system and our
surface disinfectant system.
We have done preliminary testing in the wine industry with respect to the
control of mildew on wine grapes in vineyards. Mildew on wine grapes is a
serious grapevine fungal disease. The tendency for mildew to grow on wine grapes
occurs, for example, in areas of Napa Valley where foggy conditions prevail. If
mildew is found on the wine grapes, then spraying with dusty sulfur is done.
Spraying with dusty sulfur will generally eliminate and control the mildew on
grapes. If this fungus is ignored, the wine grapes may spoil. However, the long
term effects of sulfur exposure is unknown. The use of low pH functional water
may remove mildew on wine grapes in a safe and efficacious, large scale manner.
Our preliminary review of this use of functional water indicates a complete
elimination of mildew on wine grapes in vineyards and the continued growth of
healthy grapes. We plan to continue this preliminary test using an automated
functional water sprayer.
We presently have 15 distributors. We are presently seeking 100 additional
distributors.
Available Information About Us
Our filings with the SEC may be obtained in person or by writing to the
SEC's Public Reference Branch at 450 Fifth Street, N.W., Washington, D.C. 20549
or through SEC's e-mail address: publicinfo@sec.gov. In most cases, this
information is also available on the SEC's website: www.sec.gov.
ITEM 2. DESCRIPTION OF PROPERTY.
We lease approximately 1,000 square feet office and storage space located
at 1150 Marina Village Parkway, Suite 103, Alameda, CA 94501, for a lease
payment of approximately $370 per month, which will increase by 4% annually
until May 2005. Under this lease, we are required to pay a percentage of the
property taxes, insurance and maintenance. We believe that our office and
storage space is adequate for our current needs, and that additional space is
available to us at a reasonable cost, if needed.
ITEM 3. LEGAL PROCEEDINGS.
We are not a plaintiff or defendant in any litigation, nor is any
litigation threatened against us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On February 27, 2004, we had our annual meeting of shareholders. The
following matters were voted on and all were approved by the shareholders:
The shareholders elected our directors:
Name Votes For
Edward Alexander 9,120,000 shares
Dick Wullaert 9,120,000 shares
Michael Ledwith 9,120,000 shares
The shareholders voted to amend our Articles Of Incorporation to change our
name to
Proton Laboratories, Inc.:
Votes For 9,120,000 shares
Votes Against -0- shares
Abstentions 2,000 shares
The shareholders approved the 2004 Stock And Stock Option Plan:
Votes For 9,120,000 shares
Votes Against -0- shares
Abstentions 2,000 shares
The shareholders ratified the selection of Hansen, Barnett & Maxwell as our
independent accountant for the year ending December 31, 2004.
Votes For 9,122,000 shares
Votes Against -0- shares
Abstentions -0- shares
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
We will be applying for a new stock symbol in the near future to correspond
with our new name. Our stock is traded on the OTCBB. Our trading symbol is
currently "BCPC." Our trading symbol will change when we report our name change
to the OTCBB when we receive the certified copied of the Amendment to our
Articles of Incorporation from the Secretary of State of Washington. Our stock
was added to the OTCBB in late December 2003. The first reported trade in our
stock on the OTCBB occurred in January 2004. We are not aware of any trading
market for our stock prior to January 2004. The following table sets forth the
quarterly high and low bid price per share for our common stock. These bid and
asked price quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not represent actual prices. There were no
trades in our common stock until January 2004. Our fiscal year ends December
31.
COMMON STOCK PRICE RANGE
YEAR
AND
QUARTER HIGH LOW
------------------------------------------------------
2002:
-----
First Quarter (*) (*)
Second Quarter (*) (*)
Third Quarter (*) (*)
Fourth Quarter (*) (*)
2003:
-----
First Quarter (*) (*)
Second Quarter (*) (*)
Third Quarter (*) (*)
Fourth Quarter (*) (*)
2004:
-----
Year 2004 to date through
April 2, 2004 $2.60 $0.60
---------------
(*) There was no trading market for our stock until January 2004.
On April 2, 2004 the closing bid price on our common stock on the OTCBB was
$1.70 per share.
As of April 2, 2004, we had 11,250,000 shares of common stock
outstanding. As of April 2, 2004, we had approximately 120 shareholders of
record. We have not paid any cash dividends and we do not expect to declare or
pay any cash dividends in the foreseeable future. Payment of any cash dividends
will depend upon our future earnings, if any, our financial condition, and other
factors as deemed relevant by the Board of Directors. During the quarter ended
December 31, 2003, we had no sales of unregistered shares of our common stock.
We have no outstanding options, warrants, convertible securities or convertible
debt.
EQUITY COMPENSATION PLAN INFORMATION
Number of Weighted-average Number of securities
securities to exercise price of remaining available
be issued outstanding for future issuance
upon options, under equity
exercise of warrants and compensation
outstanding rights plans (excluding
options, securities reflected
warrants and in column (a))
rights
(a) (b) (c)
PLAN CATEGORY:
Equity compensation
Plans approved by
security holders -0- n/a 500,000 shares (1)
Equity compensation
plans not approved by
security holders -0- n/a -0- shares
---------------
(1) These shares are the maximum aggregate number of shares that may be granted
or optioned and sold under our 2004 Stock and Stock Option Plan (the
"Plan") that was approved by our Board of Directors in December 2003 and
approved by our shareholders at the annual meeting of shareholders in
February 2004.
ITEM 6. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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-KSB, 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 audited financial
statements and accompanying notes and the other financial information appearing
elsewhere in this Form 10-KSB. The accompanying 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 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 and capital
contributions were required from our president to fund operations. These
conditions raise 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.
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.
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 our wholly-owned subsidiary
and in April 2004 was renamed Water Science Corporation. 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. We may become active in marketing
Vitamineralherb.com products in the future. Vitamineralherb.com has a Web site
at www.Vitamineralherb.com.
Our fiscal year end is December 31.
RESULTS OF OPERATIONS-YEARS ENDED DECEMBER 31, 2003 AND 2002.
We had revenue of $238,805 for the year ended December 31, 2003, compared
to revenue of $303,734 for the year ended December 31, 2002.
We had a net loss of $217,333 for the year ended December 31, 2003,
compared to a net loss of $411,191 for the year ended December 31, 2002.
Cash used by operating activities was $80,587 for the year ended December
31, 2003, compared to cash used in operating activities $138,755 for the year
ended December 31, 2002.
We devoted a significant amount of time during year ended December 31, 2003
to obtaining our listing on the OTCBB. A substantial amount of legal and
accounting fees were incurred in that activity.
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. Since
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. We may become active in marketing Vitamineralherb.com products in the
future.
LIQUIDITY
As of December 31, 2003, we had cash on hand of $4,423. 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 year ended December 31, 2003, our president advanced to us the
amount of $84,000 in cash. This advance accrues interest at the rate of 7% per
annum and is due in November 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 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.
OUR CUSTOMERS AND VENDORS
Major Customer. During 2003, sales to one customer accounted for 11% of
--------------
total sales, and during 2002, sales to another customer accounted for 14% of
total sales. As of December 31, 2003, no funds were due from this customer. We
believe that the loss of this customer would have a negative impact on us.
Major Vendor. During the year ended December 31, 2003, our purchases from
------------
two vendors accounted for 87% of our total inventory purchases. As of December
31, 2003, the amounts we owe to the two vendors accounted for 65% of accounts
payable.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements required by this item are set forth beginning on
page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
None.
ITEM 8A. 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 annual report on Form 10-KSB 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 year under report, there was no change in the Company's internal
control over financial reporting that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.
PART III
ITEM 9. DIRECTORS and EXECUTIVE OFFICERS
EXECUTIVE OFFICERS AND DIRECTORS
NAME AGE POSITION
--------------------------------------------------------------------------
Edward Alexander 52 Director, Chief Executive Officer, Chief
Financial Officer, President and Secretary
Dick Wullaert 67 Director, Vice President and
Chief Technical Officer
Michael Fintan Ledwith 61 Director
Edward Alexander has been our Chairman, a Director, Chief Executive
Officer, Chief Financial Officer, President and Secretary since 2002. He had
been the owner and president of Proton Laboratories, LLC from January, 2001
until its merger with us. Proton Laboratories, LLC introduced an electrolytic
water separation technology that has many uses in industry, product formulations
and consumer products. From January 1997 to July 1998, Mr. Alexander served as
owner and president of Advanced H2O, LLC. In July 1998, Mr. Alexander formed
Advanced H2O, Inc. to specialize in bottled water production. Mr. Alexander
continues to serve as a consultant to Advanced H2O, Inc. Prior to 1997, Mr.
Alexander served as General Manager for Tomoe Incorporated and held various
positions with various divisions of the U.S. Navy Resale System. In February
2002, the Securities and Exchange Commission accepted a settlement offer from
Mr. Alexander and imposed a cease and desist order against Mr. Alexander from
committing or causing any violation or future violation of Section 10(b) of the
Exchange Act and Rule 10b-5 thereunder. This order was imposed in connection
with a press release that Mr. Alexander was persuaded to release about Proton
Laboratories, LLC by a business associate whom Mr. Alexander trusted at the
time.
Dick Wullaert has been our Director, Vice President and Chief Technical
Officer since 2002. He is currently the President of Bioguard Industries, Inc.,
a small technical service company specializing in water and materials science
research. Dr. Wullaert provides technical services for the production (system
design, electrode development), use (disinfection, food processing, beverages,
nutraceuticals, agriculture, organic agriculture, etc.) and testing
(conventional and new) of functional water. He has held this position since
1994. Since 1997, he has also served as President of the Functional Water
Society of North America (FWSNA), a non-profit corporation dedicated to
promoting the technology and applications of functional water. He has developed
an extensive database of functional water technology and applications, organized
conferences on functional water in the U.S.A., and participated in Functional
Water Foundation Symposiums in Japan. From March 2000 to June 2001, he served
as Chief Technology Officer of Advanced H2O, Inc., where he was responsible for
research and development programs and the laboratory. From 1991 to 1999, he
served as Senior Materials Engineer of SAIC. He managed several projects on the
electrochemical treatment of water, developed new business in water technology
and materials degradation, provided technical support to DOE-HQ on materials,
structural integrity and life extension issues, and he represented NRC and DOE
on national consensus committees. He received his Ph.D. in Materials Science
from Stanford in 1969.
Michael Ledwith has been our Director since 2002. He has been semi-retired
from daily business activities since 1998. He was Professor of Systematic
Theology at the Pontifical University of Maynooth in Ireland from 1976 to 1994.
He was later Dean of the Faculty, Head of Department and Editor of "The Irish
Theological Quarterly." He was later appointed as a Consulting Editor of the
renowned international review "Communio" and still serves in that capacity. He
was appointed Vice-President of the University in 1980, re-appointed in 1983,
and was appointed President in 1985. He served as Chairman of the Committee of
Heads of the Irish Universities and was a Member of the Governing Bureau of the
European University Presidents' Federation (CRE). He retired from his
Professorship on September 30, 1996 and has since continued to pursue his
interest in research, writing, and lecturing in the field of actualizing human
potential. Since November 2001 he has been a partner in World of Star Stuff,
which markets whole food products.
COMMITTEES OF THE BOARD OF DIRECTORS
We do not have any nominating, or compensation committees of the Board, or
committees performing similar functions.
In December 2003, our Board adopted our Audit Committee Charter (the
"Charter") which established our Audit Committee. Pursuant to the Charter, our
Audit Committee will commence its work on June 1, 2004. The Board of Directors
has selected Michael Ledwith, our only independent Director, to be on the Audit
Committee. Mr. Ledwith is not a financial expert. We have determined Mr.
Ledwith's independence using the definition of independence set forth in NASD
Rule 4200-(14). We have not yet been able to recruit an independent director
who is also a financial expert.
The primary purpose of the Audit Committee is to oversee our financial
reporting process on behalf of the Board of Directors. The Audit Committee will
meet privately with our Chief Accounting Officer and with our independent public
accountants and evaluate the responses by the Chief Accounting Officer both to
the facts presented and to the judgments made by our independent accountants.
The Charter establishes the independence of our Audit Committee and sets forth
the scope of the Audit Committee's duties. The Purpose of the Audit Committee
is to conduct continuing oversight of our financial affairs. The Audit
Committee conducts an ongoing review of our financial reports and other
financial information prior to filing it with the Securities and Exchange
Commission, or otherwise provided to the public. The Audit Committee also
reviews our systems, methods and procedures of internal controls in the areas
of: financial reporting, audits, treasury operations, corporate finance,
managerial, financial and SEC accounting, compliance with law, and ethical
conduct. A majority of the members of the Audit Committee will be independent
directors. The Audit Committee is objective, and reviews and assesses the work
of our independent accountants and our internal audit department. The Audit
Committee will review and discuss the matters required by SAS 61 and our audited
financial statements for the coming year ending December 31, 2004 with our
management and our independent auditors. The Audit Committee will receive the
written disclosures and the letter from our independent accountants required by
Independence Standards Board No. 1, and the Audit Committee will discuss with
the independent accountant the independent accountant's independence.
MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors did not hold meetings during the year ended December
31, 2003, but did act by consent on three occasions. There is no family
relationship between or among any of the directors and executive officers of the
Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our officers, directors and
persons who beneficially own more than 10% of the our common stock to file
reports of ownership and changes in ownership with the SEC. These reporting
persons also are required to furnish us with copies of all Section 16(a) forms
they file. To the best of our knowledge, all persons required to file reports
under Section 16(a) of the Exchange Act have done so.
CODE OF ETHICS
We have a Code of Ethics that applies to our principal executive officer
and our principal financial officer. We undertake to provide to any person,
without charge, upon request, a copy of our Code of Ethics. You may request a
copy of our Code of Ethics by mailing your a written request to us. Your
written request must contain the phrase "Request for a Copy of the Code of
Ethics of Proton Laboratories, Inc." Our address is: Proton Laboratories, Inc.,
1150 Marina Village Parkway, Suite 103, Alameda, California 94501.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain information as to our highest paid
officers and directors for our fiscal year ended December 31, 2003. No other
compensation was paid to any such officer or directors other than the
compensation set forth below.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
Pay-
Awards Outs
Other Securities All
Annual Restricted Under- Other
Name and Compen- Stock lying Comp-
Principal Year Salary Bonus sation Award(s) Options/ LTIP pen-
Position SARs Payouts sation
$ $ $ $ # $
Edward 2003 (1) 62,400 -0- -0- -0- -0- -0- -0-
Alexander 2002 (2) 60,000 -0- -0- -0- -0- -0- -0-
CEO, CFO 2001 (2) 60,000 -0- -0- -0- -0- -0- -0-
-----------------------
(1) Mr. Alexander received $2,400 as cash compensation. We determined that the
value of his services was $62,400, of which $45,000 was recorded as
additional paid-in capital. We have accrued $15,000 as a payable to Mr.
Alexander.
(2) Mr. Alexander did not receive any cash compensation. This amount was
determined to be the value of his services and was recorded as additional
paid in capital.
OUTSTANDING STOCK OPTIONS
We have not granted any options to purchase common stock and we do not have
any outstanding options to purchase common stock.
COMPENSATION OF DIRECTORS
Our directors do not receive cash compensation for their services as
directors or members of committees of the Board of Directors.
EMPLOYEE STOCK OPTION PLANS
We believe that our future success will depend in part on our continued
ability to attract and retain highly qualified personnel. We pay wages and
salaries that we believe are competitive. We also believe that equity ownership
is an important factor in our ability to attract and retain skilled personnel.
Our Board of Directors has adopted the 2004 Stock and Stock Option Plan (the
"Plan") which was approved by our shareholders in February 2004. The purpose of
the Plan is to further our interests, our subsidiaries and our stockholders by
providing incentives in the form of stock and stock options to our officers,
directors, employees, vendors, consultants, attorneys and subcontractors. A
total of 500,000 shares of our common stock may be granted or optioned under the
Plan.
NO EMPLOYMENT AGREEMENT
We do not have any employment agreements with any employees.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS MANAGEMENT.
As a result of the Merger, Mr. Alexander became the majority owner of our
common stock. The following table sets forth certain information concerning the
number of shares of common stock owned beneficially as of April 2, 2004, by:
(i) each person (including any group) known by us to own more than five percent
(5%) of any class of our voting securities, (ii) each of our directors and
executive officers, and (iii) and our officers and directors as a group. Unless
otherwise indicated, the shareholders listed possess sole voting and investment
power with respect to the shares shown.
Name Amount of Shares Class of Percentage
and Address Beneficially Owned Securities of Class
-------------------------------------------------------------------------------
Edward Alexander
1150 Marina Village Parkway,
Suite 103
Alameda, Ca 94501 8,264,000 Common Stock 73%
Dick Wullaert
340 Old Mill Rd. #2
Santa Barbara, Ca 93110 -0- Common Stock -0-%
Michael Fintan Ledwith
6610 Churchill Rd. SE
Tenino, WA 98589 -0- Common Stock -0-%
Executive Officers &Directors
As A Group(3 Persons) 8,264,000 Common Stock 73%
We are not aware of any arrangements that could result in a change in
control.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
We have a policy that our business affairs will be conducted in all
respects by standards applicable to publicly held corporations and that we will
not enter into any future transactions and/or loans between us and our officers,
directors and 5% shareholders unless the terms are: (a) no less favorable than
could be obtained from independent, third parties, and (b) will be approved by a
majority of our independent and disinterested directors. In our view, all of the
transactions described below meet this standard.
During the year ended December 31, 2003, Mr. Alexander advanced to us the
amount of $84,000 in cash. This advance accrues interest at the rate of 7% per
annum and is due in November 2005.
During the year ended December 31, 2002, Mr. Alexander advanced to us the
amount of $130,937 in cash. This advance was converted into additional paid in
capital at the time of our Merger with Proton Laboratories LLC.
During the year ended December 31, 2002, Mr. Alexander did not receive any
cash salary. In the year ended December 31, 2003, Mr. Alexander received $2,400
in cash as salary. We recorded a salary expense of $62,400 in 2003 and a salary
expense of $60,000 in 2002. We determine that the fair value of his contributed
services was $45,000 in 2003 and $60,000 in 2002 and we recorded these amounts
as additional paid-in capital with no additional shares being issued or owed. We
have accrued $15,000 of salary payable to Mr. Alexander at December 31, 2003.
We entered into an Agreement and Plan of Reorganization, finalized and
closed in November 2002 whereby Proton Laboratories, LLC, a California limited
liability company merged with and into VWO I Inc., our wholly-owned subsidiary
(the "Merger"). As a result of the Merger, Proton Laboratories, LLC's sole
owner, Edward Alexander, exchanged 100% of his ownership of Proton Laboratories,
LLC for 8,750,000 shares of our common stock. VWO I Inc. changed its name to
Proton Laboratorie-s, Inc. as part of the Merger. Proton Laboratories, LLC
itself was incorporated in February 2000 in the State of California. Proton
Laboratories, LLC did not begin operations until January 2001 when Mr. Alexander
contributed inventory and property and equipment to Proton Laboratories, LLC.
Prior to the Merger, Mr. Alexander entered into a Stock Purchase Agreement with
Michael Kirsh, our former control person, and Brian Gruson. Under the Stock
Purchase Agreement, Mr. Alexander purchased 8,750,000 shares of our common stock
from Kirsh and Gruson $170,000. The 8,750,000 shares Mr. Alexander acquired from
Kirsh and Gruson were canceled as part of the Merger. The Merger was accounted
for as the reorganization of Proton Laboratories, LLC and the acquisition of our
assets for $170,000 using the purchase method of accounting. We had no material
assets or liabilities the time of the Merger. The $170,000 paid by Mr. Alexander
has been reflected as a loss on the acquisition of us in the accompanying
financial statements.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit Exhibit
Number Description
--------------------------------------------------------------------------------
3.1 Amendment to Articles of Incorporation (to be filed when we receive a
certified copy of the amendment from the Secretary of State of
Washington.
14.1 Code of Ethics
21.1 Subsidiaries
31.1 Certification pursuant to Section 13a of CEO
31.2 Certification pursuant to Section 3a of CFO
32.1 Certification pursuant to Section 1350 of CEO
32.2 Certification pursuant Section 1350 of CFO
(b) Reports on Form 8-K
On December 29, 2003, we filed a form 8-K dated December 24, 2003 reporting
Item 5. Other Events and Item 9. Regulation FD Disclosure
ITEM 14. Principal Accountant Fees and Services
OUR INDEPENDENT ACCOUNTANT
In 2003, our Board of Directors selected as our independent accountant the
CPA firm of Hansen, Barnett & Maxwell, a Professional Corporation ("HBM") of
Salt Lake City, Utah. HBM audited our financial statements for the years ended
December 31, 2003 and 2002. Our Board of Directors approved 100% of the work of
HBM.
AUDIT FEES
For the two years ended December 31, 2003 and 2002, HBM billed us the
aggregate amount of $24,813 and $15,339, respectively, for professional services
rendered for their audits of our annual financial statements for those years and
their reviews of our quarterly financial statements for those years. We were
not billed for professional services from any other accounting firm for audits
or reviews done in 2003 and 2002.
AUDIT-RELATED FEES
For the two years ended December 31, 2003 and 2002, we were not billed by
HBM for any audit-related fees.
TAX FEES
For the two years ended December 31, 2003 and 2002, we were not billed by
HBM for any tax fees.
ALL OTHER FEES
For the two years ended December 31, 2003 and 2002, we were not billed by
HBM for any other professional services.
APPROVAL OF FEES
Since our Audit Committee will not commence its work until June 1, 2004,
the Audit Committee has not approved nor disapproved of any of HBM's past fees.
AUDITOR INDEPENDENCE
Our Audit Committee will commence its work on June 1, 2004. Our Board of
Directors considers that the work done for us by HBM is compatible with
maintaining HBM's independence.
AUDITOR'S TIME ON TASK
At least 50% of the work expended by HBM on our 2003 audit was attributed
to work performed by HBM's full-time, permanent employees.
PRE-APPROVAL POLICIES
When our Audit Committee commences its work on June 1, 2004, the Audit
Committee may establish pre-approval polices and procedures as contemplated by
17 CFR 210.2-01(c)(7)(i) that provide for the engagement of an independent
accountant using pre-approval policies and procedures established by our Audit
Committee that are detailed as to the particular service and whereby the Audit
Committee is informed of each service. Under the Securities Exchange Act of
1934, such policies and procedures do not include delegation of the Audit
Committee's responsibilities to management
SIGNATURES
In accordance with Section 13 or 15(d) 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.
(formerly, BENTLEYCAPITALCORPCAPITALCORP.COM, INC.)
April 8 2004 (signed)_____________________________
By: /s/ Edward Alexander
Edward Alexander
Director, Chief Executive Officer, President and
Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
April 8, 2004 (signed) __________________________
By: /s/ Edward Alexander
Edward Alexander
Director, Chief Executive Officer, President and
Chief Financial Officer
April 8, 2004 (signed) ___________________________
By: /s/ Dick Wullaert
Dick Wullaert
Director, Vice President and
Chief Technical Officer
April 8, 2004 (signed) __________________________
By: /s/ Michael Fintan Ledwith
Michael Fintan Ledwith
Director
PROTON LABORATORIES, INC.
(formerly, BENTLEYCAPITALCORPCAPITALCORP.COM, INC.)
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
AND
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 and 2002
HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
PROTON LABORATORIES, INC.
TABLE OF CONTENTS
PAGE
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets - December 31, 2003 and 2002 F-3
Consolidated Statements of Operations for the years ended
December 31, 2003 and 2002 F-4
Consolidated Statements of Stockholders' Deficit for the years ended
December 31, 2002 and 2003 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2003 and 2002 F-6
Notes to Consolidated Financial Statements F-7
F-1
HANSEN, BARNETT & MAXWELL
A Professional Corporation REGISTERED WITH THE PUBLIC COMPANY
CERTIFIED PUBLIC ACCOUNTANTS ACCOUNTING OVERSIGHT BOARD
5 Triad Center, Suite 750
Salt Lake City, UT 84180-1128 an independent member of
Phone: (801) 532-2200 BAKER TILLY
Fax: (801) 532-7944 INTERNATIONAL
www.hbmcpas.com
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and the Stockholders
Proton Laboratories, Inc. and subsidiaries
We have audited the consolidated balance sheets of Proton Laboratories, Inc. as
of December 31, 2003 and 2002, and the related consolidated statements of
operations, stockholders' deficit and cash flows for the years ended December
31, 2003 and 2002. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Proton
Laboratories as of December 31, 2003 and 2002, and the results of its
consolidated operations and its cash flows for the years ended December 31, 2003
and 2002, in conformity with accounting principles generally accepted in the
United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has an accumulated deficit, has
suffered reoccurring losses from operations, has negative working capital, and
has required loans from the Company's majority shareholder to fund operations.
These factors raise substantial doubt about its ability to continue as a going
concern. Management's plans in regards to these matters are also described in
Note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
March 12, 2004
F-2
PROTON LABORATORIES, INC
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
2003 2002
========================================================================
ASSETS
CURRENT ASSETS
Cash $ 4,423 $ 1,385
Accounts receivable, less allowance for doubtful
accounts of $10,092 and $2,442, respectively 24,583 32,755
Inventory, net of reserve for obsolescence of
of $0 and $5,572, respectively 27,800 20,661
------------------------------------------------ ---------- ----------
TOTAL CURRENT ASSETS 56,806 54,801
------------------------------------------------ ---------- ----------
PROPERTY AND EQUIPMENT
Furniture and fixtures 4,670 4,670
Equipment and machinery 43,724 42,784
Leasehold improvements 1,886 1,886
Less: accumulated depreciation (11,672) (5,884)
------------------------------------------------ ---------- ----------
NET PROPERTY AND EQUIPMENT 38,608 43,456
------------------------------------------------ ---------- ----------
TOTAL ASSETS $ 95,414 $ 98,257
================================================ ========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 197,576 $ 127,638
Accrued expenses 15,735 183
------------------------------------------------ ---------- ----------
TOTAL CURRENT LIABILITIES 213,311 127,821
------------------------------------------------ ---------- ----------
LONG TERM LIABILITIES- STOCKHOLDER LOAN 84,000 -
------------------------------------------------ ---------- ----------
STOCKHOLDERS' DEFICIT
Preferred stock, 20,000,000 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 536,440 491,440
Accumulated deficit (739,463) (522,130)
------------------------------------------------ ---------- ----------
TOTAL STOCKHOLDERS' DEFICIT (201,897) (29,564)
------------------------------------------------ ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 95,414 $ 98,257
================================================ ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
PROTON LABORATORIES, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
=========================================================================
SALES $ 238,805 $ 303,734
COST OF GOODS SOLD 175,505 222,716
---------------------------------------------- ------------ -----------
GROSS PROFIT 63,300 81,018
---------------------------------------------- ------------ -----------
OPERATING EXPENSES
Selling, general and administrative expenses 208,020 262,248
Officer salary 62,400 60,000
---------------------------------------------- ------------ -----------
TOTAL OPERATING EXPENSES 270,420 322,248
---------------------------------------------- ------------ -----------
LOSS FROM OPERATIONS (207,120) (241,230)
---------------------------------------------- ------------ -----------
OTHER INCOME AND (EXPENSE)
Loss on disposal of property and equipment (9,483) -
Loss on acquisition of BentleyCapitalCorp.com - (170,000)
Interest income 5 39
Interest expense (735) -
---------------------------------------------- ------------ -----------
NET OTHER EXPENSE (10,213) (169,961)
---------------------------------------------- ------------ -----------
NET LOSS $ (217,333) $ (411,191)
============================================== ============ ===========
BASIC AND DILUTED LOSS PER
COMMON SHARE $ (0.02) $ (0.09)
============================================== ============ ===========
BASIC AND DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING 11,250,000 4,647,953
============================================== ============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
PROTON LABORATORIES, INC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2003
PREFERRED STOCK COMMON STOCK ADDITIONAL
=============== =================== PAID IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
======================================================================================================================
BALANCE - DECEMBER 31, 2001 - $ - 2,338,273 $ 234 $131,395 $(110,939) $ 20,690
Cash contributions for stock - - 2,325,980 233 130,704 - 130,937
Issuance as compensation for officer services - - 1,065,847 107 59,893 - 60,000
Issuance for officer's acquisition of
BentleyCapitalCorp.com stock - - 3,019,900 302 169,698 - 170,000
Issuance of common stock for net assets of
BentleyCapitalCorp.com - - 2,500,000 250 (250) - -
Net loss for the period - - - - (411,191) (411,191)
--------------------------------------------- ------ ------- ---------- ------- --------- ---------- ----------
BALANCE - DECEMBER 31, 2002 - - 11,250,000 1,126 491,440 (522,130) (29,564)
Fair value of officer services, no additional
shares issued - - - - 45,000 - 45,000
Net loss for the period - - - - - (217,333) (217,333)
--------------------------------------------- ------ ------- ---------- ------- --------- ---------- ----------
BALANCE - DECEMBER 31, 2003 - $ - 11,250,000 $ 1,126 $536,440 $(739,463) $(201,897)
============================================= ====== ======= ========== ======= ========= ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
PROTON LABORATORIES, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
======================================================================
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(217,333) $(411,191)
Adjustments to reconcile net loss to cash used
in operating activities:
Depreciation 7,480 3,532
Loss on disposal of property and equipment 9,483 -
Loss on acquisition of BentleyCapitalCorp.com - 170,000
Fair value of officer services 45,000 60,000
Changes in operating assets and liabilities
Accounts receivable 8,172 (7,666)
Inventory (18,879) 16,923
Accounts payable 69,938 29,464
Accrued expenses 15,552 183
---------------------------------------------- ---------- ----------
NET CASH FROM OPERATING ACTIVITIES (80,587) (138,755)
---------------------------------------------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (375) (3,415)
---------------------------------------------- ---------- ----------
NET CASH FROM INVESTING ACTIVITIES (375) (3,415)
---------------------------------------------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stockholder loans 84,000 -
Capital contributions - 130,937
---------------------------------------------- ---------- ----------
NET CASH FROM FINANCING ACTIVITIES 84,000 130,937
---------------------------------------------- ---------- ----------
NET INCREASE (DECREASE) IN CASH 3,038 (11,233)
CASH AT BEGINNING OF PERIOD 1,385 12,618
---------------------------------------------- ---------- ----------
CASH AT END OF PERIOD $ 4,423 $ 1,385
============================================== ========== ==========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Transfer of inventory to equipment $ 11,740 $ 27,857
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
PROTON LABORATORIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATIONS
ORGANIZATION- Proton Laboratorie-s, LLC. (Proton) was incorporated on February
16, 2000 in the State of California. Proton did not begin its operations until
January 1, 2001. On January 1, 2001, Proton's sole owner contributed inventory
and property and equipment to the Company.
BentleyCapitalCorp.com Inc. (Bentley) was incorporated in the State of
Washington, U.S.A. on March 14, 2000. The Company acquired a license to market
and distribute vitamins, minerals, nutritional supplements, and other health and
fitness products in the Province of British Columbia, Canada. The Company was in
the development stage.
On November 15, 2002, Proton entered into an Agreement and Plan of
Reorganization with Bentley whereby the Company merged with and into VWO I Inc.
(VWO), a wholly owned subsidiary of Bentley (the "Merger"). As a result of the
Merger, the Proton's sole owner, Edward Alexander, exchanged 100% of his
ownership for 8,750,000 shares of Bentley common stock, par value $0.0001 per
share. Prior to the Merger, Proton's sole owner (Mr. Alexander) entered into a
Stock Purchase Agreement with certain shareholders of Bentley. Under the Stock
Purchase Agreement, Mr. Alexander purchased 8,750,000 shares of common stock of
Bentley from certain Bentley shareholders for $170,000. The 8,750,000 shares Mr.
Alexander acquired were canceled as part of the Merger. VWO I Inc. changed its
name to Proton Laboratorie-s, Inc. (Proton) as part of the Merger. In April 2004
Proton changed its name to Water Science, Inc.
In accordance with SFAS 141 Business Combinations and EITF 98-3, Determining
Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or of a
Business the Merger has been accounted for as the reorganization of Proton and
the acquisition of Bentley's assets for $170,000 using the purchase method of
accounting. There were no material assets or liabilities of Bentley at the time
of the Merger, accordingly, the $170,000 paid by Mr. Alexander has been
reflected as a loss on the acquisition of Bentley in the accompanying financial
statements. For financial statement purposes Proton is considered the parent
corporation and originally elected to maintain BentleyCapitalCorp, Inc as its
business name. In December 2003 the Company's board elected to change its name
to Proton Laboratories, Inc., and hereafter collectively referred to as the
"Company".
BASIS OF PRESENTATION - Proton was changed from an LLC to a corporation on
November 15, 2002. The effect of the corporate status of the Company has been
reflected in the accompanying consolidated financial statements. The common
stock reflected in the consolidated financial statements represents the pro rata
number of shares the Company would have been issued for each capital
contribution through the date of the Merger including the $170,000 to acquire
the interest in Bentley.
CONSOLIDATION POLICY - The accompanying consolidated financial statements
reflect the financial position of and operations for Proton as of and for the
years ended December 31, 2003 and 2002 and the operations of Bentley for the
period from November 15, 2002 through December 31, 2002. All significant
intercompany transactions have been eliminated in consolidation.
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 in which uses for the product
F-7
PROTON LABORATORIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
range from food processing to retail water sales. 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 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS -The Company is subject to concentration of credit risk
with respect to sales primarily in the functional water industry and sales to a
significant customer and purchases from a significant vendor. Accounts
receivable are generally unsecured. The Company normally obtains payments from
customers prior to delivery of the related products. Otherwise, the Company does
not require collateral for accounts receivable.
The carrying value of the note payable approximates fair value based on it
bearing interest at a rate which approximates market rates. The amount reported
as inventory is considered to be a reasonable approximation of its fair value.
The fair value estimates presented herein were based on market information
available to management at the time of the preparation of the financial
statements.
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 $217,333 and $411,191 for
the years ended December 31, 2003 and 2002, respectively. The Company had a
working capital deficit of $156,505 and $73,020 at December 31, 2003 and 2002,
respectively. The Company's revenues decreased during 2003 and 2002 and loans
from the Company's president were required to fund operations. These conditions
raise a substantial doubt about the Company's 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 the Company be
unable to continue in existence.
Management has devoted a significant amount of time during 2003 and 2002 to the
public filing process. Unexpected delays occurred while attempting to complete
this process, and a substantial amount of legal and accounting fees were
incurred getting the Company's stock relisted on the public markets and in the
acquisition of BentleyCapitalCorp.com.
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.
F-8
PROTON LABORATORIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid instruments
purchased with a maturity of less than three months to be cash equivalents.
INVENTORY - Inventory consists of purchased finished goods and is stated at the
lower of cost (using the first-in, first-out method) or market value.
PROPERTY AND EQUIPMENT - Equipment, and furniture and fixtures are stated at
cost. Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. Estimated useful lives range from 3 to 7 years.
Depreciation expense for the years ended December 31, 2003 and 2002, was $7,480
and $3,532, respectively. Expenditures for maintenance, repairs, and renewals
are charged to expense as incurred. Expenditures for major renewals and
betterments that extend the useful lives of existing equipment are capitalized
and depreciated. On retirement or disposition of property and equipment, the
cost and accumulated depreciation are removed and any resulting gain or loss is
recognized in the statement of operations.
Long-lived assets are reviewed for impairment yearly. Recoverability of assets
to be held and used is measured by comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount that the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. Based on the evaluation, no impairment
was considered necessary during the years ended December 31, 2003 or 2002.
INCOME TAXES - Prior to November 15, 2002, the Company was taxed as an LLC.
Beginning on November 15, 2002, the Company recognizes an asset or liability for
the deferred tax consequences of all temporary differences between the tax bases
of assets or liabilities and their reported amounts in the financial statements.
That will result in taxable or deductible amounts in future years when the
reported amounts of the assets or liabilities are recovered. These deferred tax
assets and or liabilities are measured using the enacted tax rates that will be
in effect when the differences are expected to reverse. Deferred tax assets are
reviewed periodically for recoverability and valuation allowances and
adjustments are provided as necessary.
ADVERTISING - The Company follows the policy of charging the cost of advertising
to expense as incurred. Advertising expense for the year ended December 31,
2003 and 2002 was $3,952 and $5,177, respectively.
CONCENTRATIONS OF RISK - Sales to major customers are defined as sales to any
one customer which exceeded 10% of total sales. The risk of loss of a major
customer subjects the Company to the possibility of decreased sales. Purchases
from major vendors are defined as inventory purchases from any one vendor which
exceeded 10% of total inventory purchases. The risk of loss of a major vendor
subjects the Company to the possibility of increased costs and not being able to
fulfill customer orders. See Note 5.
REVENUE RECOGNITION - The Company recognizes revenue when all four of the
following criteria are met: (i) persuasive evidence that 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. The Company's revenues are derived from sales of their industrial,
environmental and residential systems which alter the properties of water to
produce functional water.
F-9
PROTON LABORATORIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEW ACCOUNTING STANDARDS - In January 2003, the Financial Accounting Standards
Board ("FASB") issued FASB Interpretation No. 46, Consolidation of Variable
Interest Entities, an Interpretation of Accounting Research Bulletin No. 51
("FIN 46"). FIN 46 defined variable interest entities and modified the
requirements for their consolidation from ownership of a controlling voting
interest to holding a majority variable interest and being the primary
beneficiary of the variable interest entity. The Company adopted this standard
as of December 31, 2003 and had no effect on the Company's financial position or
results of its operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity" ("SFAS No.
150"). SFAS No. 150 requires certain financial instruments with characteristics
of both liabilities and equity to be classified as liabilities. The Company
adopted SFAS No. 150 effective July 1, 2003. The adoption of this standard has
no effect on the Company's financial position or results of its operations.
RECLASSIFICATIONS - Certain 2002 amounts have been reclassified to conform with
the 2003 presentation. These reclassifications had no effect on the previously
reported net loss.
NOTE 3 - RELATED PARTY TRANSACTIONS
During the year ended December 31, 2003, the Company's president and majority
shareholder advanced the Company $84,000. These advances bear interest at 7%
with principal and accrued interest due November 2005. At December 31, 2003, the
accrued interest was $735.
During the year ended December 31, 2002 this majority shareholder contributed
$130,937 in cash to the Company. As part of the merger and the Company becoming
a corporation, the Company reclassified these contributions to common stock and
additional paid-in capital. During the year ended December 31, 2002, the
president did not receive any amounts related to his salary. The Company
determined that the fair value of these services during 2003 and 2002 were
$62,400 and $60,000, respectively. Thus the Company recorded a salary expense
of $62,400 and $60,000 during the years ended December 31, 2003 and 2002 and
reflected $45,000 and $60,000 as contributed capital during the years ended
December 31, 2003 and 2002, respectively. During the year ended December 31,
2003, the Company paid $2,400 to the president as salary and $15,000 was accrued
as salaries payable at December 31, 2003.
NOTE 4 - INCOME TAXES
There was no provision for or benefit from income tax for any period. Prior to
November 15, 2002, the Company was taxed as an LLC. The components of the net
deferred tax asset at December 31, 2003 and 2002 are as follows:
2003 2002
=====================================================
Net operating loss carryforward $ 71,395 $ 11,624
Inventory reserve - 2,152
Bad debt reserve 3,898 943
Accrued salaries 5,793 -
Less: valuation allowance (81,086) (14,719)
------------------------------- --------- ---------
NET DEFERRED TAX ASSET $ - $ -
=============================== ========= =========
F-10
PROTON LABORATORIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For tax reporting purposes, the Company has net operating loss carry forwards in
the amount of $179,546 which will begin expiring in 2022.
The following is a reconciliation of the amount of tax benefit that would result
from applying the federal statutory rate to pretax loss with the benefit from
income taxes for the year ended December 31, 2003 and the period November 16,
2002 through December 31, 2003:
For the Period from
For the Year Ended November 16, 2002
December 31, through December 31,
2003 2002
===========================================================================================
Benefit as statutory rate (34%) $ (73,893) $ (73,308)
Non-deductible expenses 17,567 68,550
Change in valuation allowance 66,367 14,719
State tax benefit, net of federal tax effect (10,041) (9,961)
--------------------------------------------- -------------------- ----------------------
NET BENEFIT FROM INCOME TAXES $ - $ -
============================================= ==================== ======================
NOTE 5 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASES - The Company currently leases office and storage space from a
third party. On March 6, 2002, the Company entered into a new less agreement to
pay a monthly lease payment increasing by 4% annually until May 2005.
Additionally, under the lease the Company is required to pay a percentage of the
property taxes and maintenance expenses.
Future minimum lease payments under operating lease obligations as of December
31, 2003, were as follows:
Year Ending December 31,
2004 $ 28,441
2005 11,990
-------------------------------------------------------- ------------
Minimum lease payments $ 40,431
======================================================== ============
Rent expense for the years ended December 31, 2003 and 2002 was $27,097 and
$39,360, respectively.
MAJOR CUSTOMER - During the year ended December 31, 2003, sales to one customer
accounted for 11% of total sales. As of December 31, 2003, there were no
amounts due from this customer. During the year ended December 31, 2002, sales
to another customer accounted for 14% of total sales. As of December 31, 2002,
amounts due from this customer accounted for 23% of accounts receivable.
MAJOR VENDOR - During the year ended December 31, 2003, purchases from two
vendors accounted for 87% of total inventory purchases. As of December 31,
2003, amounts due to these vendors accounted for 65% of accounts payable.
During the year ended December 31, 2002, purchases from four vendors accounted
for 96% of total inventory purchases. As of December 31, 2002, amounts due to
four vendors accounted for the 95% of accounts payable.
F-11
PROTON LABORATORIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - STOCK OPTION PLAN
In December 2003, the Company's shareholders approved the 2004 Stock and Stock
Option Plan effective January 1, 2004 whereby up to 500,000 shares may be
granted, optioned or sold. The plan is for its key employees and directors who
contribute materially to the success and profitability of the Company as well as
attracting other key employees and directors. No options have yet been issued
under the plan.
F-12
EXHIBIT INDEX
Exhibit Exhibit
Number Description
--------------------------------------------------------------------------------
3.1 Amendment to Articles of Incorporation (to be filed when we receive a
certified copy of the amendment from the Secretary of State of
Washington.
14.1 Code of Ethics
21.1 Subsidiaries
31.1 Certification pursuant to Section 13a of CEO
31.2 Certification pursuant to Section 3a of CFO
32.1 Certification pursuant to Section 1350 of CEO
32.2 Certification pursuant Section 1350 of CFO