UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30,2007
[ ] 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.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
Washington 91-2022700
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Alameda, CA 94501
(Address of principal executive offices)
(510) 865-6412
Issuer's telephone number
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] [ ] No
Indicate by check whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] [X] No
On August 17, 2007, the registrant had outstanding 29,070,523 Common Stock,
$0.0001 par value per share.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
CONTENTS
PAGE NO.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet (unaudited)
Condensed Consolidated Statements of Operations (unaudited)
Condensed Consolidated Statement of Stockholders' Deficit (unaudited)
Condensed Consolidated Statements of Cash Flows (unaudited)
Notes to Condensed Consolidated Financial Statements (unaudited)
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
ITEM 3. Controls and Procedures
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
ITEM 2. Changes in Securities
ITEM 3. Defaults Upon Senior Securities
ITEM 4. Submission of Matters to a Vote of Security Holders
ITEM 5. Other information
ITEM 6. Exhibits and Reports on Form 8-K
Signatures
Certifications
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PROTON LABORATORIES, INC.
TABLE OF CONTENTS
PAGE
Condensed Consolidated Balance Sheets - June 30, 2007 and
December 31, 2006 (Unaudited) F-1
Condensed Consolidated Statements of Operations for the three
and six months ended June 30, 2007 and 2006 (Unaudited) F-2
Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 2007 and 2006 (Unaudited) F-3
Notes to Condensed Consolidated Financial Statements (Unaudited) F-4
PROTON LABORATORIES, INC
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 30, DECEMBER 31,
2007 2006
=================================================================================================
ASSETS
CURRENT ASSETS
Cash $ 1,710 $ 9,768
Accounts receivable, less allowance for doubtful accounts of
$24,586 and $30,419, respectively 360 794
Inventory 100,764 143,865
-------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 102,834 154,427
-------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Furniture and fixtures 23,316 23,316
Equipment and machinery 242,330 238,776
Leasehold improvements 11,323 11,323
Accumulated depreciation (90,566) (69,550)
-------------------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 186,403 203,865
-------------------------------------------------------------------------------------------------
DEPOSITS 6,131 6,131
=================================================================================================
TOTAL ASSETS $ 295,368 $ 364,423
=================================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 154,892 $ 71,314
Accrued expenses 307,554 266,079
Deferred revenue 52,506 52,506
Preferred dividends payable 19,200 16,000
-------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 534,152 405,899
-------------------------------------------------------------------------------------------------
STOCKHOLDER LOANS, NET OF CURRENT PORTION 307,642 270,642
-------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 841,794 $ 676,541
=================================================================================================
STOCKHOLDERS' DEFICIT
Series A convertible preferred stock, 400,000 shares authorized
with a par value of $0.0001; 8,000 shares issued and outstanding;
liquidation preference of $80,000 and $0, respectively 80,000 80,000
Undesignated preferred stock, 19,600,000 shares authorized with a
par value of $0.0001; no shares issued or outstanding - -
Common stock, 100,000,000 common shares authorized with a par
value of $0.0001; 26,470,523 and 21,658,223 shares issued and
outstanding, respectively 2,649 2,168
Additional paid in capital 5,515,442 4,045,371
Stock subscription receivable (20,000) (20,000)
Accumulated deficit (6,124,517) (4,419,657)
-------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' DEFICIT (546,426) (312,118)
-------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 295,368 $ 364,423
=================================================================================================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-1
PROTON LABORATORIES, INC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
========================== ==========================
2007 2006 2007 2006
========================================================================================================================
SALES $ 27,298 $ 33,639 $ 79,039 $ 84,561
COST OF GOODS SOLD 18,455 26,187 48,255 70,479
------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 8,843 7,452 30,784 14,082
------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Selling, general and administrative expenses (including
equity-based expenses of $0, $0, $0 and $40,526, respectively) 163,701 124,011 251,239 252,041
Product development costs (including equity-based
expenses of $0, $0, $1,470,551 and $0, respectively) - - 1,470,551 -
------------------------------------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS (154,858) (116,559) (1,691,006) (237,959)
------------------------------------------------------------------------------------------------------------------------
OTHER INCOME AND (EXPENSE)
Interest income 59 175 112 200
Interest expense (5,382) (15,044) (10,766) (32,781)
------------------------------------------------------------------------------------------------------------------------
NET OTHER EXPENSE (5,323) (14,869) (10,654) (32,581)
------------------------------------------------------------------------------------------------------------------------
NET LOSS (160,181) (131,428) (1,701,660) (270,540)
PREFERRED STOCK DIVIDEND (1,600) (1,600) (3,200) (3,200)
------------------------------------------------------------------------------------------------------------------------
LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (161,781) $ (136,228) $(1,704,860) $ (273,740)
========================================================================================================================
BASIC AND DILUTED LOSS PER
COMMON SHARE $ (0.01) $ (0.01) $ (0.07) $ (0.02)
========================================================================================================================
BASIC AND DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING 26,470,523 15,483,316 24,616,797 14,914,666
========================================================================================================================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-2
PROTON LABORATORIES, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2007 2006
========================================================================
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,701,660) $(270,540)
Adjustments to reconcile net loss to cash used
in operating activities:
Depreciation 21,016 15,603
Common stock issued for services 1,470,551 40,526
Changes in operating assets and liabilities
Accounts receivable 434 6,906
Inventory 43,102 (3,688)
Accounts payable 83,578 (33,151)
Accrued expenses 41,475 64,271
------------------------------------------------------------------------
NET CASH FROM OPERATING ACTIVITIES (41,504) (180,073)
------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (3,554) -
------------------------------------------------------------------------
NET CASH FROM INVESTING ACTIVITIES (3,554) -
------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, net - 401,959
Proceeds from stockholder loans 37,000 73,852
Payment on note payable - (267,852)
------------------------------------------------------------------------
NET CASH FROM FINANCING ACTIVITIES 37,000 207,959
------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (8,058) 27,886
CASH AT BEGINNING OF PERIOD 9,768 1,384
------------------------------------------------------------------------
CASH AT END OF PERIOD $ 1,710 $ 29,270
========================================================================
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Stock issued for accrued legal services $ - $ 40,526
Accrual of preferred stock dividends $ 3,200 $ 3,200
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-3
PROTON LABORATORIES, INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION AND NATURE OF OPERATIONS
BASIS OF PRESENTATION - The condensed consolidated financial statements include
the accounts of Proton Laboratories, Inc., and its wholly owned subsidiary
("Proton" or the "Company"). All significant intercompany transactions and
balances have been eliminated in consolidation.
In April 2004, the Company changed its name from BentleyCapitalCorp.com, Inc. to
Proton Laboratories, Inc. The Company's subsidiary also changed its name from
Proton Laboratories, Inc. to Water Science, Inc.
CONDENSED FINANCIAL STATEMENTS - The accompanying unaudited condensed
consolidated financial statements are condensed and, therefore, do not include
all disclosures normally required by accounting principles generally accepted in
the United States of America. These statements should be read in conjunction
with the Company's annual financial statements included in the Company's
December 31, 2006 Annual Report on Form 10-KSB. In particular, the Company's
significant accounting principles were presented as Note 1 to the consolidated
financial statements in that report. In the opinion of management, all
adjustments necessary for a fair presentation have been included in the
accompanying condensed consolidated financial statements and consist of only
normal recurring adjustments. The results of operations presented in the
accompanying condensed consolidated financial statements for the six months
ended June 30, 2007 are not necessarily indicative of the results that may be
expected for the full year ending December 31, 2007.
NATURE OF OPERATIONS - The Company's operations are located in Alameda,
California. The core business of the Company consists of the sales and
marketing of the Company's industrial, environmental and residential systems
throughout the United States of America which alter the properties of water to
produce functional water. The Company acts as an exclusive importer and master
distributor of these products to various companies. Additionally, the Company
formulates intellectual properties under licensing agreements, supplies consumer
products, consults on projects utilizing functional water, facilitates between
manufacturer and industry and acts as educators on the benefits of functional
water.
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.
BASIC AND DILUTED LOSS PER COMMON SHARE - Basic loss per common share is
calculated by dividing net loss by the weighted-average number of common shares
outstanding. Diluted loss per common share is calculated by dividing net loss by
the weighted-average number of Series A convertible preferred shares and common
shares outstanding to give effect to potentially issuable common shares except
during loss periods when those potentially issuable shares are anti-dilutive.
Potential common shares from convertible preferred stock have not been included
as they are anti-dilutive.
F-4
PROTON LABORATORIES, INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 2 - BUSINESS CONDITION
The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America, which contemplate continuation of the Company as a going concern. The
company has incurred losses applicable to common shareholders of $1,704,860 for
the six months ended June 30, 2007. For June 30, 2007 and December 31, 2006 the
Company had working capital deficits of $431,318 and $251,472, respectively.
Loans and equity funding were required to fund operations.
The Company is working towards raising additional 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.
On February 20, 2007, the Board of Directors of Proton Laboratories, Inc. (the
"Company") ratified an exclusive Marketing, Distribution and Sales Agreement
("Marketing Agreement") and a Manufacturing and Packaging Agreement
("Manufacturing Agreement"), each made with Aqua Thirst, Inc. Through the
enactment of these agreements, the Company has been able to acquire what is
views as key components necessary to strengthen its infrastructure for the
manufacturing, marketing and sales of its products and applications.
The Company's ability to continue as a going concern is dependent upon its
ability to generate sufficient cash flows to meet its obligations on a timely
basis, to obtain additional financing as may be required, and ultimately to
attain profitable operations. However, there is no assurance that profitable
operations or sufficient cash flows will occur in the future.
NOTE 3 - RELATED PARTY TRANSACTIONS
Stockholder loans as of June 30, 2007 and December 31, 2006 consist of the
following:
2007 2006
==========================================================================================
Note payable to CEO and majority shareholder; principal and
interest due December 2009; interest is accrued at 7% per annum;
unsecured. $287,642 $270,642
Note payable to shareholder; principal and interest due
December 2009; interest is accrued at 7% per annum; unsecured. 20,000 -
------------------------------------------------------------------------------------------
TOTAL STOCKHOLDER LOAN 307,642 270,642
Less: Current Portion - -
------------------------------------------------------------------------------------------
TOTAL STOCKHOLDER LOAN - LONG TERM $307,642 $270,642
==========================================================================================
During the six months ended June 30, 2007, two shareholders advanced the Company
$37,000. The Company did not make any payments on notes during the six months
ended June 30, 2007.
At June 30, 2007, the Company had accrued interest relating to shareholder loans
of $62,321.
F-5
PROTON LABORATORIES, INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
During the six months ended June 30, 2007, the Company accrued $30,000 as
salaries payable to the company's CEO, resulting in $225,091 of salaries payable
at June 30, 2007.
NOTE 4 - COMMON STOCK
During January through June 30, 2007 the Company issued 4,812,300 shares of
common stock for various services and agreements. The value of the shares was
$1,470,551 based on market prices ranging from $0.30 to $0.37 per share which
was the market price of the Company's common stock on the dates of issuances.
NOTE 5 - COMMITMENTS
PRODUCTION AGREEMENT - In June 2005, the Company entered into an agreement with
Mitachi, a Japanese electronics component manufacturer, to aid in the production
of enhanced drinking water generators. Pursuant to this agreement, Mitachi
agreed to pay the Company 25,000,000 Yen for engineering design, molding,
tooling and preparation costs, and the exclusive product distribution rights for
China, Taiwan, and Japan. As of June 30, 2007, Mitachi had paid 6,000,000 Yen,
or $52,506, for the above mentioned distribution rights. Since the project is
not yet completed and no units have been sold, this amount is classified as
deferred revenue.
EQUITY LINE - In June 2007, the Company terminated an equity line of credit
agreement with a private investment fund. No funds were drawn down on this
equity line, and no shares of stock were sold to the investment fund.
NOTE 6 - SUBSEQUENT EVENTS
On July 1, 2007, the Company entered into a lease agreement to pay monthly lease
payments of $3,852 until June 30, 2008 and $3,966 from July 1, 2009 through June
30, 2009.
Future minimum lease payments under operating lease obligations as of June 30,
2007 were as follows:
Year Ending December 31,
2007 $23,109
2008 46,903
2009 23,794
--------------------------------------------------------
Total $93,806
--------------------------------------------------------
During July 2007, the Company entered into an agreement with Legacy Media,
LLC in connection with the agreement Legacy Media, LLC has been granted 2.6
million shares of the Company's restricted common stock to provide investor
relations services. Legacy Media, LLC has also been issued a convertible
note by the Company in the amount of $250,000 repayable at 8% interest by
January 2007. If payment is not received by the due date Legacy Media, LLC
has the option to convert this note into restricted voting common stock of
the Company, at the lesser of (i) 50% of the lowest closing bid price
during 15 days prior to conversion or (ii) 100% of the average of the five
lowest closing bid prices for 30 Trading Days immediately following any
reverse split in the stock price. All of Legacy Media, LLC's shares may be
registered in an SB-2 filing at its request.
F-6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD-LOOKING STATEMENT
Certain statements contained herein, including, without limitation,
statements containing the words, "believes," "anticipates," "expects," and other
words of similar meaning, constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause our actual results, performance or achievements, to be
materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. Given these
uncertainties, readers are cautioned not to place undue reliance on such
forward-looking statements. In addition to the forward-looking statements
contained herein, 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 our audited financial statements
and the accompanying notes thereto for the year ended December 31, 2006 which
appear in our Form 10-KSB for the year then ended, and our unaudited financial
statements for the three and six months ended June 30, 2007 and the accompanying
notes thereto and the other financial information appearing elsewhere herein.
The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the USA, which
contemplates our continuation as a going concern. We have incurred losses
applicable to common shareholders of $1,704,860 for the six months ended June
30, 2007. We had working capital deficit of $431,318 at June 30, 2007. Loans and
equity funding were required to fund operations. We had a stockholder
deficit of $546,426 at June 30,2007 and a stockholders deficit of $312,118 at
December 31, 2006.
Our independent auditors made a going concern qualification in their report
dated April 13, 2007, which raises substantial doubt about our ability to
continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or amounts and classification of liabilities that might be necessary
should the Company be unable to continue in existence. Our ability to continue
as a going concern is dependent upon our ability to generate sufficient cash
flows to meet our obligations on a timely basis, to obtain additional financing
as may be required, and ultimately to attain profitable operations. However,
there is no assurance that profitable operations or sufficient cash flows will
occur in the future. We have our primary office located in Alameda, California.
During 2006 we created a presence in Quincy, Washington and Portland, Oregon by
aligning ourselves with office spaces that were made available to us. These
offices are used primarily for marketing and sales generation.
Our business consists of the development, marketing and sales of the industrial,
environmental, and residential systems through the United States which alter the
properties of water to produce functional water. During 2006, we continued to
import and resell systems manufactured by various Japanese companies; however,
during the same time period the company started design, engineering, parts
sourcing and assembly identification for developing its own brand labeled
products. In Management's view, the company has successfully designed,
engineered and developed five commercial systems and one residential unit. We
need to raise more funds to bring our residential counter top unit to market,
and there is no assurance that such funds can be raised. The Company believes
the food safety commercial unit will be ready for market introduction during the
third quarter of 2007,following certification by an independent underwriters
laboratory. We are prioritizing the marketing and distribution of our food
safety commercial unit which can also have applications in the medical, dental
and sports facility industries.
We formulate intellectual properties under licensing agreements; supply consumer
products; consult on projects utilizing functional water; facilitate usage, uses
and users of functional water between manufacturer and industry; and act as
educators on the benefits of functional water. Our business has been focused on
marketing functional water equipment and systems. Alkaline-concentrated
functional water may have health-beneficial properties and may be used for
drinking and cooking purposes. Acidic-concentrated functional water may be used
as a topical, astringent medium.
In February, 2007, the Company entered into an exclusive Marketing, Distribution
and Sales Agreement and a Manufacturing and Packaging Agreement with Aqua
Thirst, Inc. These agreements effectively provide that the Company will have
access to Aquathirst's product distribution channels in domestic and
international markets. These distribution channels will cover residential,
cosmetic, medical, agricultural, food processing and consumer product areas.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations
is based upon our consolidated financial statements, which have been prepared in
accordance with generally accepted accounting principles.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenue and
expenses, and related disclosure of contingent assets and liabilities. On an
ongoing basis, we evaluate our estimates. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances. These estimates and assumptions provide a basis for us
to make judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Our actual results may differ from
these estimates under different assumptions or conditions, and these differences
may be material.
We recognize revenue when all four of the following criteria are met: (i)
persuasive evidence that an arrangement exists; (ii) delivery of the products
and/or services has occurred; (iii) the selling price is both fixed and
determinable and; (iv) collectibility is reasonably probable.
Our revenues are derived from sales of our industrial, environmental and
residential systems, which alter the properties of water to produce functional
water. We believe that this critical accounting policy affects our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.
Our fiscal year end is December 31.
At June 30, 2007, we had accrued interest relating to shareholder loans of
$62,321 and outstanding principal due to shareholder loans of $307,642. During
the six months ended June 30, 2007 we accrued $30,000 as salaries payable to our
CEO, resulting in $225,091 of salaries payable at June 30, 2007.
RESULTS OF OPERATIONS-Six Months ended June 30, 2007 and 2006.
We had revenue of $79,039 for the six months ended June 30, 2007 compared to
revenue of $84,561 for the six months ended June 30, 2006. During the period
that the company is developing its new line of products, the revenue base will
remain fairly consistent.
We incurred a net loss of $1,701,660 for the six months ended June 30, 2007 and
a net loss of $270,540 for the six months ended June 30, 2006. This was an
increase in net loss attributable to in-kind consultant compensation expenses
incurred in the sourcing of manufacturing, marketing and sales infrastructure
necessary for the company.
Cash used by operating activities was $41,504 for the six months ended June 30,
2007 compared to cash used by operating activities of $180,073 for the six
months ended June 30, 2006.
We had total assets at June 30, 2007 of $295,368, compared to $364,423 at
December 31, 2006. During the period that the company is developing its new line
of products, the total asset base will remain fairly consistent.
LIQUIDITY At June 30, 2007, we had cash on hand of $1,710. Our growth is
dependent on our attaining profit from our operations and our raising of
additional capital either through the sale of stock or borrowing funds. There is
no assurance that we will be able to raise any equity financing or sell any of
our products to generate a profit.
At June 30, 2007, we owed stockholder loans of $307,642. In March 2007, we
entered into an equity line of credit with a private investor. As of June 30,
2007 we terminated this equity line without draw down.
FUTURE CAPITAL REQUIREMENTS
Our growth is dependent on attaining profit from our operations, or our raising
additional capital either through the sale of stock or borrowing. There is no
assurance that we will be able to raise any equity financing or sell any of our
products at a profit.
Our future capital requirements will depend upon many factors, including:
- The cost to acquire equipment that we then would resell.
- The cost of sales and marketing.
- The rate at which we expand our operations.
- The results of our consulting business.
- The response of competitors.
Item 3T. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
As of the end of the period covered by this report, the Company conducted
an evaluation, under the supervision and with the participation of the Chief
Executive Officer and Chief Financial Officer, of the Company's disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
1934 Act. The evaluation was prompted by the following communication from the
Company's registered public accounting firm.
In connection with its review of the Company's consolidated financial
statements for the quarter ended June 30, 2007, Hansen, Barnett & Maxwell
("HB&M"), the Company's registered public accounting firm, advised the Audit
Committee and management of internal control matters with respect to certain
financial reporting controls that they considered to be a material weakness,
which is described below. A material weakness is a control deficiency, or a
combination of control deficiencies, that results in there being more than a
remote likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected. The material weakness
identified at June 30, 2007 was as follows:
A material weakness existed in our control environment relating to
inadequate staffing of our technical accounting function, including a lack of
sufficient personnel with skills, training and familiarity with certain complex
technical accounting pronouncements that have or may affect our financial
statements and disclosures.
In response to the observations made by HB&M, we are in the process
of implementing enhancements to our internal controls, accounting staff and
procedures, which we believe address the matters raised by HB&M, including the
retaining of additional outside consultants and employees who will have the
skills, training and familiarity with certain complex technical accounting
pronouncements appropriate to preparing our financial statements and
disclosures.
PART II -OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES.
No securities were issued for the quarter ended June 30,2007.
Subsequent to June 30, 2007,during July 2007, the Company entered into an
agreement with Legacy Media, LLC in connection with the agreement Legacy Media,
LLC has been granted 2.6 million shares of the Company's restricted common stock
to provide investor relations services. Legacy Media, LLC has also been issued a
convertible note by the Company in the amount of $250,000 repayable at 8%
interest by January 2008. If payment is not received by the due date Legacy
Media, LLC has the option to convert this note into restricted voting common
stock of the Company, at the lesser of (i) 50% of the lowest closing bid price
during 15 days prior to conversion or (ii) 100% of the average of the five
lowest closing bid prices for 30 Trading Days immediately following any reverse
split in the common stock. All of Legacy Media, LLC's shares may be registered
in an SB-2 filing at its request.
These securities were issued in private transactions, in reliance on the
exemption available under Section 4(2) of the 1933 Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter ended
June, 30, 2007.
Pursuant to Section RCW 23B.07.040 (b) of the Revised Code of Washington, a
majority of the shareholders of Proton Laboratories, Inc. acting by a
Shareholder Consent in Lieu of Annual Meeting have appointed a new Board of
Directors as follows: Ed Alexander, Don Gallego, Gregory Darragh, Jed A. Astin,
Gary Taylor and Steven Perry. Mr. Miceal Ledwith has stepped down from the Board
following good service. The majority shareholders also consented to the
amendment of the articles of incorporation to increase the number of Board
Members to nine. They have also consented to the appointment of Dr. Kochiki
Hanoaka to the Board as soon as the amendment has been properly filed with the
state of Washington.
The effective date of the consent is June 6, 2007. Majority shareholder consents
were received as of July 27, 2007. The total number of shareholder votes in
favor of the consent was 16,279,308. Proton's total outstanding number of shares
on the effective date of the consent was 29,185,673. A 14-C Statement will be
filed with the Commission promptly.
ITEM 5. OTHER INFORMATION
N/A
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
NONE
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PROTON LABORATORIES, INC.
(REGISTRANT)
Date: August 21, 2007 By: /s/ Ed Alexander
-----------------------------------
ED ALEXANDER,
Chief Executive Officer and
President