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U.S. SECURITIES and EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
PRO TECH COMMUNICATIONS, INC.
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(Exact name of small business issuer in its charter)
Florida 59-3281593
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
3311 INDUSTRIAL 25TH STREET, FORT PIERCE, FLORIDA 34946
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(Address of principal executive offices)
(561)464-5100
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(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock,
par value $.001 per share
Transitional Small Business Disclosure Format (check One):
Yes No X
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.Yes [X] NO [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B 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 [ ]
The registrant's revenues for its most recent fiscal year: $(521)
As of January 24, 1997, the aggregate market value of shares of the registrant's
voting stock (based upon the average bid and asked prices of such stock as
reported by the NASD Electronic Bulletin Board of $5.125) held by non-affiliates
of the registrant was approximately $12,229,788. For the purposes of this
computation, all executive officers, directors and persons who beneficially own
more than five percent of the registrant's securities are deemed affiliates.
Such determination should not be an admission that such directors, officers or
beneficial owners are, in fact, affiliates of the registrant.
As of January 24, 1997 there were 3,964,000 shares of the registrant's common
stock outstanding.
Documents Incorporated by Reference: None
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TABLE OF CONTENTS
FORM 10-K
ITEM NUMBER AND CAPTION
PART I
1. Description of Business...................................................1
2. Description of Property...................................................7
3. Legal Proceedings.........................................................7
4. Submission of Matters to a Vote of Security Holders.......................7
PART II
5. Market for Common Equity and Related Stockholder Matters..................8
6. Management's Discussion and Analysis or Plan of Operation.................9
7. Financial Statements......................................................F-1
8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure .....................................................11
PART III
9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act ..................................12
10. Executive Compensation...................................................13
11. Security Ownership of Certain Beneficial Owners and Management...........15
12. Certain Relationships and Related Transactions ..........................16
13. Exhibits and Reports on Form 8-K ........................................19
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Pro Tech Communications, Inc. (the "Company") was incorporated in the
State of Florida on October 5, 1994. From August 30, 1991 to October 31, 1994,
the Company's business was conducted by Pro Tech Systems, a limited partnership
organized under the laws of the State of California. Keith Larkin, the
President, Treasurer and Chairman of the Board of the Company, was general
partner of Pro Tech Systems and there were 12 limited partners in the limited
partnership. From the formation of Pro Tech Systems in August 1991 until June
1993, the limited partnership was involved in engineering and designing
lightweight telecommunications headsets as well as preliminary marketing efforts
for the product. From June 1993 until October 1994, Pro Tech Systems was engaged
in limited manufacturing and marketing activities for its product. On November
1, 1994, all of the assets of Pro Tech Systems were transferred to the Company
as consideration for the issuance of 2,000,000 shares of the Company's common
stock, par value $.001 per share (the "Common Stock"), which were subsequently
distributed on a pro rata basis to each of the partners of the partnership. As
of December 13, 1994, Pro Tech Systems was formally dissolved.
The Company presently designs, develops, manufactures and markets
lightweight telecommunications headsets employing what the Company believes are
new concepts in advanced light weight design and marketing strategies involving
the sale of the Company's products directly to the commercial headset market as
replacements for its competitors' products. The Company presently manufacturers
and markets its first design for the commercial headset market comprised of fast
food companies and other large quantity users of headset systems, and is in the
process of completing development of a second for the telephone user market,
which includes telephone operating companies, government agencies, business
offices, and professional telephone centers. The Company delayed its product it
made in the final design and consequently will commence testing this product in
the first quarter of 1997. The Company's business strategy is to offer
lightweight headsets with design emphasis on performance and durability at a
cost below that of its competitors.
The Company intends to concentrate its efforts on the production of
that portion of the telephone headset that the user wears. There are two
components to a complete telephone headset. The first is the headset component
that the user wears, consisting of a speaker and a microphone. The second is the
electronic amplifier which is relatively more complex, time consuming and costly
to produce as it requires many variations to interface with the wide variety of
telephone systems in the market and generates higher labor and material costs.
The electronic amplifier also generally offers lower profit margins than the
headset component. As a result, the Company presently does not intend to produce
electronic amplifiers, but will concentrate its efforts on the production and
distribution of the headsets having the capability of connecting to and
interfacing with various electronic amplifiers and telephone systems currently
in use. The Company is continuing its own market study to determine whether it
would be financially viable for the Company to produce its own electronic
amplifier. The Company believes the study will be completed in the Spring of
1997. If it is determined to proceed with the production, marketing and sale of
an amplifier, the Company anticipates spending approximately $200,000 to
research and develop the product.
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INDUSTRY BACKGROUND
The lightweight telephone headset industry commenced in 1961 when
Plantronics, Inc.("Plantronics"), a company founded by Keith Larkin, the
Company's President, Treasurer and Chairman of the Board, began marketing and
selling the first lightweight telephone headset under a patent issued to Mr.
Larkin. Mr. Larkin remained with Plantronics until May 1967, at which time
Plantronics was the principal manufacturer of lightweight telephone headsets in
the world, and its products were standard on the National Aeronautics and Space
Administration's Mercury, Gemini, and Apollo moon flights. Plantronics
presently is the world's largest lightweight telephone headset manufacturer,
with approximately $170 million of net sales for the 1995 fiscal year.
The Company estimates that sales of lightweight telephone headsets
exceeded $200 million in 1995 with the market dominated by two companies -
Plantronics and ACS Wireless, Inc. ("ACS Wireless") - which were both founded by
Keith Larkin and which both produced headsets under patents. Product lines of
the Company's competitors generally share similar configurations, and are
marketed at higher prices than the headset offered by the Company.
Designed specifically for air traffic controllers and other aerospace
applications, the first headsets were intended as a replacement for the heavy,
bulky headsets in use. While lightweight telephone headsets continue to be used
for such purposes, today telephone headsets are predominantly used as a
substitute to telephone handsets by a wide variety of users, including telephone
operating companies and telephone operating companies and telephone call centers
(such as airline reservations, catalog sales and credit collection operations)
and to a lessor extent, by business persons and other professionals whose
occupations require extensive, though not constant, use of the telephone. In
comparison to speaker phones, telephone headsets provide greater communications
clarity and security. The Company believes that these advantages will lead to
increased demand for telephone headsets.
Telephone headsets also have commercial applications, primarily two-way
radio communication systems, such as those used by fast food attendants to
communicate with patrons and other personnel. Personal computer applications for
telephone headsets include audio input and output via voice command, voice
dictation and integrated voice telephone functions.
PRODUCTS
The ProCom. The Company's initial entry into the lightweight telephone
headset market is the "ProCom." Weighing less than 2 ounces, the ProCom is worn
by users over the head by means of a springsteel wire headband and a cushioned
earphone. Attached to the earphone, which may be worn over either ear, is an
adjustable boom which connects to the ProCom's microphone. The ProCom headset
connects to the electronic amplifier or telephone system by means of a tensile
cable at the end of which is attached an adapter capable of interfacing with the
particular electronic amplifier or telephone employed by the user. Through the
use of different adapters, the Company is currently able to equip the ProCom to
be compatible with all of the electronic amplifiers and telephone systems in
use. The ProCom will be offered in direct competition with all models offered by
Plantronics, ACS Communications, GN Netcom, Inc. and UNEX Corporation.
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See "DESCRIPTION OF BUSINESS - Competition." The Company presently is selling
the ProCom to distributors at prices ranging from $28.00 to $49.00 per headset,
and the product is sold by the Company to retailers for $54.00 per headset.
The Trinity. The Trinity has been designed for users in noisy
environments. The Company is currently in the process of developing the Trinity
for manufacture and sale. The Company anticipates completing the development
of the product by the first quarter of the 1997 calendar year. Unlike other
headsets currently available, the Trinity will employ a light (1/2 ounce)
"acoustical ear cup" which completely surrounds the user's ear. The perimeter of
this cup rests lightly in a broad area of contact around the ear, rather than
against or in the ear itself, which the Company believes will allow the user to
wear the Trinity in comfort for extended periods. Moreover, by enclosing the
ear, the acoustical ear cup reduces background noise, thereby significantly
improving the clarity and strength of reception from the earphone. The Trinity
has been designed as a comfortable and lightweight alternative to the bulky
commercial sound suppressant headsets which are presently the only headsets
available to users operating in noisy office environments. The Trinity can be
worn in one of two mounting methods: (i) over the ear (without a headband) by
means of a contoured ear piece inserted within the acoustical ear cup for
positioning on either the left or right ear; or (ii) over the head, by means of
a detachable headband which can support either one or two earcups. Like the
ProCom, the Trinity will be produced with a choice of adapters capable of
interfacing with the electronic amplifiers and telephone systems of most major
manufactures. The Company presently intends to sell the Trinity to distributors
at prices ranging from $46.00 to $54.00 per headset, and the product is expected
to be sold by the Company to retailers for $68.00 per headset.
The ConForm. The Company intends to introduce the ConForm headset for
sale in the first quarter of 1997. After conducting its own market research,
the Company determined that there is a demand for a headset which combines both
over-the-head and over-the-ear features. As a result, the Company designed the
ConForm to incorporate both of these features, which should enhance the
Company's ability to market the product to cellular, personal computer and
small office telephone users. The ConForm is a commercial adaptation of the
headset that the Company has designed for use by the National Aeronautics and
Space Administration ("NASA"). Boeing Defense and Space Group ("Boeing" is a
prime contractor for NASA, and as such has the responsibility to choose certain
components and products used in NASA's space program. The Company was chosen by
Boeing as a supplier of telephone headsets for NASA projects after the Company
provided Boeing with product specifications which met NASA's requirements for
the product. Boeing also subjected the Company's product to various tests in
order to ensure that the product would function under conditions for space
travel. See "DESCRIPTION OF BUSINESS - Marketing and Sales.
The ConForm is a smaller design of the Trinity, with some components
reduced by 20% in order to create a lightweight headset. The ear speaker and
microphone positioning can be adjusted by the user of the headset, thereby
allowing the product to fit numerous head and ear sizes. In addition, the
ConForm has a detachable headband allowing the users the choice of wearing the
headset over the head or over the ear. The Company presently intends to sell the
ConForm to distributors at prices ranging from $28.00 to $49.00 per headset, and
the product is expected to be sold by the Company to retailers for $54.00 per
headset.
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The disparity in price between the cost to distributors and retailers
for each product described in this section is primarily a result of a shifting
of direct selling expenses from the Company to distributors. These expenses,
which average approximately $10.26 of the individual unit retail price, have
been accepted by distributors in return for a lower average purchase price. The
Company offers lower prices for its products to distributors which purchase
certain quantities of products to increase sales and gain market share for the
Company's products.
MARKETING AND SALES
The Company presently intends to market its product primarily through
its officers and staff, utilizing industry contacts and calling upon potential
purchasers. The Company plans on supplementing the marketing efforts of its
employees by using independent sales representatives after all of the Company's
products have been introduced in the market.
The Company markets and will continue to market its headsets directly
to the commercial headset market as a replacement for its competitors' headsets.
Examples of such purchasers include fast food companies and franchisees and
other large quantity users of commercial headset systems. The Company has
entered into a non-binding business relationship agreement with McDonald
Corporation ("McDonald") which allows the Company to sell its products on a
non-exclusive basis to McDonald franchises and company-owned restaurants.
Initial test sales to McDonald and its franchisees by the Company and Pro Tech
Systems totaled $424,300 in 1994, which included sales of over 8,000 headsets to
more than 3,500 McDonald restaurants. These numbers increased to over 18,600
headset sales to more than 7,000 restaurants during fiscal year 1995 and 21,810
headset sales to more than 8,000 restaurants during fiscal year 1996. The sale
of the Company's products to McDonald-owned restaurants and franchisee
restaurants represented approximately 60% and 30% of the Company's net sales for
fiscal years 1995 and 1996, respectively.
As the Company expands, it will direct its marketing and sales efforts
at: (i) telephone operating companies; (ii) telephone system manufacturers;
(iii) personal computer manufacturers; and (iv) government agencies.
Manufacturers of new telephone systems and other telecommunication equipment
that utilize headsets have been targeted by the Company as a developing market
for telephone headsets. Although the Company presently intends to attempt to
sell its products to several large telephone users, there can be no assurance
that the Company will be successful in such efforts. Another potential large
volume purchaser of headsets are manufacturers of personal computers, especially
if and when headsets become a standard telephone accessory. In addition, the
Company plans to market its products to government agencies. The Company's
headset has been approved for sale to Boeing, a prime contractor of NASA, for
use by astronauts in outerspace. To date, the Company has had $5,310 of sales to
Boeing for two prototype headsets. While profits from government contracts are
anticipated to be minimal, such sales enhance the credibility and reputation of
the selected headset and manufacturer, especially within the telephone
industry.
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The Company's directed marketing and sales efforts will be supplemented
by the distribution of the Company's products through established channels of
distribution. These include: (i) specialized headset distributors that derive a
majority of their revenues from the sale of headsets to both end users, and, to
a lessor extent, resellers; and (i) large electronic wholesalers that offer
hundreds of products, including headsets. It is anticipated that a majority of
sales of the Company's headsets to commercial users such as credit card
companies and airlines will be through such distributors.
On June 26, 1996, the Company, in an effort to supplement its marketing
efforts, entered into two-year marketing agreements with each of Martin
Goldberg, Costas Takkas and Don Fraser, pursuant to which Mr. Goldberg was
granted the non-exclusive right to market the Company's products throughout the
United States, Mr. Takkas was granted the non-exclusive right to market such
products in Central and South America and the Caribbean, and Mr. Fraser was
granted the non-exclusive right to market all products in other parts of the
world. As consideration for the services to be rendered by each such persons,
the Company granted each of such persons a warrant to purchase up to 200,000
shares of common stock at an exercise price of $1.50 per share. The warrants are
excercisable commencing on September 26, 1996, and expire two years thereafter.
Under each of the agreements, the Company has also agreed to pay each of such
persons two percent of the sales of the Company's products resulting from the
efforts of Messrs. Goldberg, Takkas and Fraser. To date, the Company has not
sold any of its products through the efforts of Messrs. Goldberg, Takkas or
Fraser.
MANUFACTURING
The Company purchases the components for its headsets from four
suppliers in the Far East and 12 in the United States, who produce the
components to the Company's specification based upon the molds designed by the
Company. The firms that supply 90% of the component parts of the Company's
products are Whitney Blake Company of Vermont, Inc., Bellows Falls, Vermont;
Primo Microphones Inc., McKenny, Texas; Globe Electronic Plug Connector, Inc.,
Taiwan; Cchen Shing Spring Co., Ltd., Taiwan, and Fine Acoustics Company, Ltd.,
Korea. The Company does not have any contracts with such companies. An
interruption in the supply of a component for which the Company is unable to
readily procure a substitute source of supply could temporaily result in the
Company's inability to deliver products on a timely basis, which in turn could
adversely affect its operations. To date, the Company has not experienced any
shortages of supplies. In order to meet the requirements of its customers for
timely delivery of products, the Company manufacturers headsets to meet
forecasted customer requirements. Since such manufacturing occurs prior to the
receipt of purchase orders, the Company maintains an inventory of finished
headsets as well as components. At October 31, 1996 and 1995, the amount of the
Company's inventory was $176,447 and $90,061, respectively. The increase of
inventory is attributable to two factors. First, the Company benefited from an
individual headset component price reduction for larger purchases made from its
suppliers. Second, the additional component parts purchased will be
interchangeable on both of the new headsets planned for market introduction
later this fiscal year.
Production of the Company's headsets consists of assembly operations
conducted at the Company's principal offices in Fort Pierce, Florida. The
Company believes that the Fort Pierce office presently possesses sufficient
production capacity, or could easily be expanded to accommodate up to $4 million
of annual sales of the Company's products. See "DESCRIPTION OF PROPERTY." In the
event that purchase orders were to exceed the production capabilities of the
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Fort Pierce location, the Company would be required to enter into subcontracting
arrangements for the manufacture of the products by third parties. A delay in
establishing such arrangements, if necessary, could adversely affect the
Company's ability to deliver products on a timely basis to its customers, which
in turn could adversely affect the Company's operations. The Company, however,
believes that subcontracting the manufacture of the Company's products could be
accomplished on short notice given the simple design of the Company's products.
COMPETITION
The lightweight telephone headset industry is highly competitive and
characterized by a few dominant manufacturers. The Company is aware of several
companies which manufacture telephone headsets, each of which possess greater
financial, manufacturing, marketing and other resources than the Company.
Primary among the Company's competitors is Plantronics, the world's largest
manufacturer of lightweight telephone headset, which estimates its share of the
market to be 65% in North America and 60% worldwide and reported net sales from
all of its products (including electronic amplifiers and other headset
accessories and services) of approximately $170 million for the fiscal year
1995. Other competitors include ACS Wireless, GN Netcom, Inc. and Unex
Corporation. ACS Wireless was founded by Mr. Larkin, and the Company believes
ACS Wireless has a market share of approximately 15%.
The Company believes that in selecting telephone headsets, users
primarily consider price, product quality, reliability, product design and
features, and warranty terms. The Company believes that its headsets are
superior in design and construction and substantially lower in price than the
models currently available from the Company's competitors. No assurances can be
given, however, that the Company's products will be perceived by users and
distributors as providing a competitive advantage over competing headsets. In
addition, no assurance can be given that competing technologies will not become
available which are superior, less costly or marketed by better known companies.
Also, certain customers may prefer to do business with companies with
substantially greater resources than the Company.
In addition to direct competition from other companies offering
lightweight telephone headsets, the Company may additionally face indirect
competition in its industry from technological advances such as interactive
voice response systems which require no human operators for certain
applications such as account balance inquiries or airplane flight information.
The Company believes that this competition will be more than offset by
increased demand for headsets as voice telecommunication applications expand.
PROPRIETARY PROTECTION
The Company presently does not own any patents for any of its products
or technologies. Under the employment agreement of Keith Larkin, the Company's
President, Treasurer, and Chairman of the Board, Mr. Larkin has, however,
transferred to the Company any and all patentable rights he may have in the
ProCom, Trinity, and the ConForm, and any feature thereof, as well as all patent
rights Mr. Larkin may conceive in the course of his employment with the Company.
See "EXECUTIVE COMPENSATION - Employment Agreement." The Company intends to seek
patent protection on its inventions at the appropriate time in the future. The
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process of seeking patent protection can be lengthy and expensive, and there
can be no assurance that patents will issue from any applications filed by the
Company or that any patent issued will be of sufficient scope or strength or
provide meaningful protection or any commercial advantage to the Company. The
Company may be subjected to, or may initiate, litigation or patent office
interference proceedings, which may require significant financial and management
resources. The failure to obtain necessary rights or the advent of litigation
arising out of any such claims could have a material adverse effect on the
Company's operations.
Certain of the Company's employees involved in engineering and
technical programs will be required to enter into confidentially agreements as a
condition of employment. The Company does not currently own any registered
trademarks, although the Company intends to file trademark applications in the
future with respect to distinguishing marks.
EMPLOYEES
The Company currently has 11 full-time employees and 2 part-time
employees, including 3 persons in management, 3 persons in administration, 2
persons in marketing and 5 persons in assembly and production. The Company
intends to hire up to 8 additional employees within the next three months, 4 of
whom will work in production, 2 in marketing and 1 each in shipping and customer
service. None of the Company's employees is represented by a collective
bargaining unit, and the Company believes that its relationship with its
employees is good.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's executive, sales and manufacturing offices occupy
approximately 3,200 square feet of space located at 3309 and 3311 Industrial
25th Street, Fort Pierce, Florida 34946, pursuant to two leases expiring on
November 30, 1997. The Company also has the option of renewing the leases
expiring November 1997 for an additional two-year period on the same terms and
conditions, except the monthly rental rate will increase by approximately $20.00
per month. The Company's aggregate monthly rent under both leases is $1,425.67.
The Company considers its rental space adequate for its present operations, and
believes additional space is available near its present location, if needed.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this Report to a vote of security holders.
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PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER SHAREHOLDER MATTERS
The Company's common stock, par value $.001 per share (the "Common
Stock"), began trading on the National Association of Securities Dealers, Inc.
(the "NASD") Electronic Bulletin Board on March 22, 1996. The Common Stock is
currently being traded under the symbol "PCTU". The following table sets forth
the high and low bid prices of the Common Stock as reported by the NASD's
Electronic Bulletin Board for each of the fiscal quarters during which the
Common Stock has been traded.
Year Ended
October 31, 1996 High Low
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Second Quarter $0.75 $0.50
Third Quarter $3.75 $0.80
Fourth Quarter $3.625 $0.875
The market quotations reflects inter-dealer prices, without retail
mark-up, mark-down, or commission and may not represent an actual transaction.
As of January 24, 1997, there were 59 record holders of the Common Stock.
The Company has issued the following securities since its formation in
October 1994:
On November 1, 1994, all of the assets of Pro Tech Systems, a
California limited partnership, were transferred to the Company as consideration
for the issuance of 2,000,000 shares of Common Stock to 13 persons, including
Mr. Larkin and the 12 limited partners of the limited partnership. This
transaction was considered exempt from the registration requirements of the
Securities Act of 1933 (the "Securities Act") under Section 4(2) thereof and
Rule 506 of Regulation D promulgated under the Securities Act since this was
a transaction by an issuer not involving a public offering of securities to
persons who were familiar with the issuers business.
On November 3, 1994, the Company granted Westek Electronics, Inc.
("Westek"), a company controlled by Mr. Larkin's son, a two-year option to
purchase 40,000 shares of Common Stock at an exercise price $.50 per share. The
option is presently exercisable and expires on March 2, 1997. The option was
issued to Westek in consideration of a loan of $20,000 from Westek to the
Company. This transaction was considered exempt from the registration
requirements of the Securities Act under Section 4(2) thereof and Rule 506 of
Regulation D since this was a transaction by an issuer not involving a public
offering of securities to a person who was familiar with the issuer's
business.
From January 5, 1995 to November 15, 1995, the Company offered and
sold 864,000 shares of Common Stock at $.50 per share to 13 persons pursuant to
Rule 504 of Regulation D promulgated under the Securities Act. In connection
with such transaction, the company granted an option to Harris McLean Financial
Group, Ltd. ("Harris McLean") to purchase up to 200,000 shares of Common Stock.
The option was granted to Harris McLean pursuant to Regulation S promulgated
under the Securities Act.
From April 8, 1996 to May 15, 1996, the Company sold 1,100,000 shares
of Common Stock at $.50 per share to 56 persons pursuant to Rule 504 of
Regulation D promulgated under the Securities Act.
On April 15, 1996, options to purchase 25,000 shares under the 1996
Stock Option Plan were granted to each of Kenneth Campbell and Richard
Hennessey and options to purchase 540,000 shares under such plan were granted
to Keith Larkin. The grant of such options was exempt under Section 4(2) of
the Securities Act since the options were granted to persons familiar with the
issuer's business.
As of June 26, 1996, the Company granted to each of Martin Goldberg,
Costas Takkas and Don Fraser a warrant to purchase 200,000 shares of Common
Stock at an exercise price of $1.50 per share. These transactions were
considered exempt from the registration requirements of the Securities Act
under Section 4(2) of the Securities Act and Rule 506 of Regulation D
promulgated under the Securities Act since such transactions involved the
negotiation of the terms of the warrants with sophisticated persons. In
addition, the transactions with Messrs. Takkas and Fraser were exempt from such
registration requirements under Regulations S promulgated under the Securities
Act since the transactions with such persons complied with all of the
conditions in Regulation S.
As of December 19, 1996, the Company issued warrants to purchase
300,000 shares of Common Stock to Harvey M. Burstein and warrants to purchase
100,000 shares of Common Stock to James D. Loeffelbein. The exercise price of
the warrants is $1.50 per share. These transactions were considered exempt
from the registration requirements of the Securities Act under Section 4(2)
since such transactions involved the negotiation of the terms of the warrants
with sophisticated persons.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATION
YEAR ENDED OCTOBER 31, 1996 AS COMPARED TO THE YEAR ENDED OCTOBER 31, 1995.
For the year ended October 31, 1996, the Company realized a net loss of
$(521) compared to a net income of $43,959 for the year ended October 31, 1995.
This difference is attributed to the one-time Form 10 SEC registration filing
expense during fiscal 1996 of $79,072. The Company incurred this expense to
establish credibility with its investors. Management believes that this
investment in its new reporting position with the SEC will further attract
future investment in the Company.
Net sales for the year ended October 31, 1996 totaled $852,778,
representing an increase of $22,111 in net sales over the comparable prior
twelve-month period. The Company commenced the sale of its product through
distributors in the first quarter of fiscal 1996, and at the completion of
fiscal year 1996, the Company sold a total of 20,810 headsets, as compared to
17,599 headsets in the previous fiscal year. The difference represents an
increase in sales of 3,211 headsets or 18% more than the comparable twelve-month
period. The reason the Company did not achieve a comparable increase in net
sales is the result of the Company's decision to expand the sale of its product
through distributors in order to increase market share. This decision resulted
in a reduction of prices to the Company's distributors. The disparity in price
between the cost to distributors and retailers is primarily a result of shifting
a direct selling expense from the Company to distributors. See "Description of
Business--Products." All revenues are the result of sales of the ProCom headset
by the Company and its distributors. Distributors accounted for 62% of the net
revenues and 69% of unit volume versus 31% of net revenues and 34% of unit
volume in the comparable 1995 period. The Company, through its own research,
believes that the Company currently retains a 37% share of the fast-food headset
market in units, which is a 103% increase in market share in the comparable 1995
period. Further expansion of the Company's market share is expected due to a
formal agreement made by the Company and one of its principal customers to sell
and distribute the ProCom headset worldwide.
Gross profits improved by $99,024 or 21% over the previous comparable
year. This change is the result of a further refinement of implemented
accounting practices in regards to the reporting of inventory in relation to the
comparable 1995 fiscal year. Costs not associated with the production of
finished goods were moved to selling, general and administrative expenses
("SG&A"). Consequently, SG&A
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increased by the same offsetting amount. Management believes this change
correctly portrays the advantage the Company retains over its competitors in
manufacturing headsets. Actual SG&A increased approximately $8,000 in relation
to the 1995 comparable year. This minor increase resulted from savings gained
from the closure of a satellite sales office in California in July 1995 offset
by investments in market research and research and development. In regards to
the office closure, a total of four full-time employees, two sales
representatives, a manager and a secretary were released from employment with
the Company with no additional hiring required at the corporate office. The
results of this office closure caused a decrease of 23% or $27,791 in marketing
expenses from $149,373 in fiscal year 1995 to $121,582 in the comparable 1996
period. In addition, related office expenses were reduced by a total of $113,623
from $320,149 to $206,526. Market research and research and development
expenditures had a combined increase of $29,009 over fiscal year 1995. Combined
totals were $76,309 in fiscal year 1996 versus $47,300 in fiscal year 1995.
These investments were made in preparation for several product introductions
planned for fiscal year 1997. Accrued warranty expenses increased to $22,663 to
support normal repairs on over 50,000 headsets in use in the fast-food market.
In addition, gains were also made of $12,939 in allowances made for bad debt in
regards to the Company's outstanding accounts receivable. Currently the
Company's late pay customers are less than 5% of the total accounts receivable.
Additional improvements of $11,569 were seen in the reduction of outside
consulting expenses required to manage and implement a computer and
telecommunication equipment upgrade.
The Company generated interest income of $27,668 for fiscal 1996 as
compared to interest income of $2,160 for the comparable prior year. The
interest income resulted from the Company's investment of the net proceeds from
the private placement of securities during fiscal 1996. Offsetting the interest
income during fiscal year 1996 was an interest expense of $13,868 resulting from
a loan of $250,000 from a stockholder of the Company. Comparable interest
expense was $1,967 during fiscal year 1995. The loan was originally planned to
support the Company's research and development efforts and as a reserve for
unanticipated cash requirements. Because the Company decided that the proceeds
of the loan would not be needed, the principal amount of the loan and accrued
interest of $13,868 were repaid in April 1996. The principal amount of the loan
accrued interest at the rate of 14.3% per annum. See "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS."
FISCAL YEAR ENDED OCTOBER 31, 1995
For the fiscal year ended October 31, 1995, the Company realized net
sales of $830,667 on the sale of 17,599 headsets. Cost of goods sold for this
period was $358,595, which resulted in gross profits of $472,072. Net income
for the twelve-month period totaled $43,959, after non-recurring expenses in
excess of $50,000 related to the Company's sale in 1995 of 864,000 shares of
Common Stock and corporate start-up expenses.
10
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
The current ratio (current assets to current liabilities) of the
Company was 9.86 to 1.00 at October 31,1996 and working capital was $878,109,
as compared to 2.51 to 1.00 and working capital of $472,533 at October 31, 1995.
This was primarily the result of the Company's private placement of securities
during the period and the repayment of a loan of $250,000 from a stockholder
of the Company.
During the fiscal year ended October 31, 1995 and thereafter, the
Company has funded its working capital requirements with cash flow from
operations and the net proceeds of $846,432 from the private sale of 1,964,000
shares of Common Stock. The Company intends to use the cash it generates from
operations and the net proceeds from the private sale of Common Stock to
increase its market share in the fast-food headset market and to enter the
telephone user market. Management believes that the Company has sufficient funds
to meet the Company's anticipated working capital requirements for at least
twelve months. However, in order for the Company to maximize the potential of
the telephone user market and to enable the Company to expand into additional
markets, including government agencies and personal computers, the Company will
require additional capital. It is anticipated that the Company will seek to
raise such additional financing through a self-underwritten public offering of
equity and the receipt of $1,520,000 from the exercise of 1,040,000 stock
purchase warrants and options owned by six persons, who will be registering the
shares of Common Stocks underlying their warrants and options with the
Securities and Exchange Commission. The Company presently intends to register
approximately 1,000,000 shares of Common Stock on the same registration
statement covering the shares underlying such warrants and options. There can
be no assurance that the warrants and options will be exercised or that the
Company will be successful in selling all or any portion of the shares it
intends to register with the Securities and Exchange Commission. The Company
presently intends to file the registration statement with the Securities and
Exchange Commission in February 1997. The Company presently does not expect to
finance, to any significant extent, its growth through debt financing.
Effective December 9, 1994, the Company entered into an amended and
restated employment agreement with Keith Larkin, the President, Chairman of the
Board and Treasurer of the Company. Under the agreement, Mr. Larkin will be
entitled to receive an annual salary of a maximum of $90,000 ( as adjusted each
year by at least the percentage increase in the Consumer Price Index). The
Company, however, is only required to pay Mr. Larkin such a maximum annual
salary if the Company generates annual sales for a fiscal year of at least $2
million and has pre-tax income equal to at least 20% of the Company's annual
sales. In all other cases, the board of directors sets Mr. Larkin's salary,
taking into account the Company's projected financial performance and cash
required to satisfy the Company's anticipated operating expenditures. See
"EXECUTIVE COMPENSATION--Employment Agreements."
ITEM 7. FINANCIAL STATEMENTS
The financial statements and notes thereto are included herein
beginning at page 20.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
11
<PAGE> 14
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of the Company:
NAME AGE POSITION WITH THE COMPANY
Keith Larkin 73 Chairman of the Board, President and
Treasurer
Kenneth Campbell 55 Director, Secretary and Vice President
Operations
Richard Hennessey 37 Vice President - Marketing
Keith Larkin is the founder, Chairman of the Board, President and
Treasurer of the Company. Mr Larkin's 30 year professional career has been
devoted to designing, manufacturing and marketing his new designs in
lightweight telephone headsets. In 1961, Mr. Larkin founded Plantronics, the
current industry leader in lightweight telephone headsets with annual sales of
all its products (including the electronic amplifier) in 1995 of approximately
$170 million. From 1961 until he sold his equity interest in 1967, Mr. Larkin
served as the President and Chairman of Plantronics, during which Plantronics
established itself as the main source of lightweight telephone headsets to the
telephone industry and provided the headsets for NASA Mercury, Gemini and
Apollo moon flights. In the late 1970's, Mr. Larkin conceived, developed and
patented a new design in headsets to compete against Plantronics' headsets.
With Mr. Larkin as its President, ACS Wireless attained $1 million monthly
sales figures to the telephone market within three years of operation and
replaced Plantronics' headsets on the NASA Space Shuttle. In 1986, he left ACS
Wireless to become involved in Christian children's relief programs in Haiti
and Honduras for a period of three years. From January 1989 to August 1991, Mr.
Larkin served as the President of Advanced Recreational Technology, Inc., an
engineering research and development company owned by Mr. Larkin. In August
1991, Mr. Larkin founded Pro Tech Systems, a California limited partnership
which he managed as general partner. Pro Tech Systems was formed to design,
manufacture and market lightweight telephone headsets. Upon the transfer of all
of the assets of Pro Tech Systems to the Company in November 1994, Mr. Larkin
became the Chairman of the Board, President and Treasurer of the Company.
Kenneth Campbell has held the positions of Vice President-Operations,
Secretary, and a Director of the Company since November 9, 1994. As Vice
President-Operations, Mr. Campbell is responsible for all aspects of
manufacturing including materials management, production, quality control, and
all related accounting. From 1967 through 1979, he served as the President of
the Boathouse of Lexington, Inc., a corporation dealing in a line of pleasure
boats manufactured by the SeaRay Corporation. From 1980 through 1989, Mr.
Campbell owned several retail businesses
12
<PAGE> 15
specializing in consumer product sales, including Campbell Distributors, Inc.
and Campbell & Associates of Fort Pierce, Florida. Mr. Campbell was employed
as a real estate broker for Prudential Real Estate in 1990 and 1991 and as a
sales manager for Pace Homes, Inc. and Versa Development, Inc. from 1992 to
1993.
Richard Hennessey joined the Company as Director of Marketing in August
1995 and was appointed Vice President - Marketing on June 10, 1996. From 1982
through 1984, Mr. Hennessey was a salesman with the computer sales division of
Lanier Business Products located in Boston, Massachusetts. From 1984 through
April 1994, Mr. Hennessey held various new venture sales and sales management
positions with Digital Equipment Corporation ("Digital"). From January 1995
until Mr. Hennessey joined the Company, he was engaged in voluntary missionary
work.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers and persons who own more than 10% of a
registered class of the Company's equity securities to file with the Securities
and Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership in the Common Stock. Executive officers, directors and
persons who own more than 10% of a registered class of the Company's equity
securities are required by SEC regulation to furnish the Company with copies of
all Section 16(a) forms they file with the SEC.
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company and representations that no other reports
were required, during the fiscal year ended October 31, 1996, all of such
executive officers, directors and persons who own more than 10% of a registered
class of the Company's equity securities complied with all Section 16(a) filing
requirements, with the exception of Keith Larkin, Kenneth Campbell and Richard
Hennessey, who filed their initial Form 3s eight days late.
ITEM 10. EXECUTIVE COMPENSATION
Set forth below is certain information concerning the compensation paid
to the Company's chief executive officer for the fiscal years ended October 31,
1996 and 1995. No other executive officer of the Company received compensation
in excess of $100,000 for such fiscal years.
SUMMARY COMPENSATION TABLE
The following table provides the cash and other compensation paid or
accrued by the Company to its chief executive officer for the fiscal year ended
October 31, 1996:
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
Securities
Restricted Underlying
Other Annual Stock Stock LTIP All Other
Name/Position Year Salary Bonus Compensation Awards Options Payouts Compensations
- ------------- ---- ------ ----- ------------ ---------- ---------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Keith Larkin 1996 $42,500 0 $0 0 540,000* 0 0
Chief Executive 1995 $22,500 0 0 0 0 0 0
Officer
</TABLE>
*For a description of such stock options, see "EXECUTIVE COMPENSATION-Stock
Option Plan."
EMPLOYMENT AGREEMENTS
Effective December 9, 1994, Keith Larkin entered into a five-year
amended and restated employment agreement with the Company, pursuant to which he
has the duties of President and Treasurer of the Company and has a right to
receive an annual salary of up to $90,000, which may increase each year by an
amount not less than the percentage increase in the United States Consumer Price
Index. Under the agreement, Mr. Larkin will only be entitled to receive an
annual salary of $90,000 if the Company generates annual sales for a fiscal year
of $2 million and has pre-tax income equal to at least 20% of the Company's
annual sales. In all cases, the board of directors sets Mr. Larkin's salary,
taking into account the Company's projected financial performance and cash
required to satisfy the Company's anticipated operating expenditures. As part of
the consideration Mr. Larkin provided to the Company in exchange for the
Company's obligations under the employment agreement, Mr. Larkin assigned all of
his rights, title and interest in and to any and all inventions, discoveries,
developments, improvements, processes,
13
<PAGE> 16
trade secrets, trademark, copyright and patent rights of which he conceived
during the five years prior to the date of the agreement. This provision covers
the patent rights, if any, associated with the ProCom, Trinity and ConForm
lightweight telephone headsets. For the fiscal years ended October 31, 1996 and
1995, the Company paid Mr. Larkin a salary of $42,500 and $22,500,
respectively.
The Company does not have written employment agreements with Kenneth
Campbell or Richard Hennessey. During each of the fiscal years ended October
31, 1996 and 1995, Mr. Campbell received a salary of $40,000, and Mr. Hennessey
received a salary of $31,733 and $7,500, respectively.
Messrs. Larkin and Campbell did not receive any additional
compensation for serving as the directors of the Company.
STOCK OPTION PLAN
In April 1996, the board of directors of the Company adopted the
Company's 1996 Stock Option Plan (the 'Plan"). The Plan provides for the grant
by the Company of options to purchase up to an aggregate of 590,000 of the
Company's authorized but unissued shares of Common Stock (subject to adjustment
in certain cases including stock splits, recapitalizations and reorganizations)
to officers, directors, consultants, and other persons rendering services to the
Company.
The purposes of the Plan are to provide incentive to employees,
including officers, directors and consultants of the Company, to encourage such
persons to remain in the employ of the Company and to attract to the Company
persons of experience and ability. The Plan terminates on April 15, 2006.
Options granted under the Plan may be either incentive stock options
within the meaning of the Internal Revenue Code of 1986, as amended ("incentive
options"), or options that do not qualify as incentive options ("nonqualified
options"). The exercise price of incentive options must be at least equal to the
fair market value of the shares of Common Stock on the date of grant; provided,
however, that the exercise price of any incentive option granted to any person
who, at the time of the grant of the option, owns stock aggregating 10% or more
of the total combined voting power of the Company or any parent or subsidiary of
the Company ("Ten Percent Shareholder"), must not be less than 110% of the fair
market value of such shares on the date of grant of the incentive option. No
incentive option may be granted under the plan to any individual if the
aggregate fair market value of the shares (determined as of the date the
option is granted) which vest (i.e. first become exercisable) during any
calendar year, under all incentive options held by such optionee exceeds
$100,000. There is no limitation on the amount of nonqualified stock options
which may be granted to any participant in the plan. Options may be granted
under the Plan for terms of up to ten years; provided, however, that the term of
any incentive option granted to any Ten Percent Shareholder, may not exceed five
years. Options granted under the Plan to officers, directors or employees of the
Company may be exercised only while the optionee is employed or retained by the
Company. However, options which are exercisable at the time of termination may
be exercised within three months of the date of termination, and twelve months
after termination of the employment relationship or directorship if such
termination was by reason of death or permanent disability of the optionee.
On April 15, 1996, options to purchase 25,000 shares were granted to
each of Kenneth Campbell and Richard Hennessey and options to purchase 540,000
shares were granted to Keith Larkin. All of such options are immediately
exercisable at the option price of $0.50 per share and expire on April 15, 1999.
The average bid price of the Common Stock on April 18, 1996, the closest date
to the grant of the options, was $.50, as reported by the NASD Electronic
Bulletin Board.
FISCAL YEAR 1996 OPTION EXERCISES AND HOLDINGS
The following table sets forth (i) the stock option exercises by the
chief executive officer of the Company during fiscal year 1996; (ii) the number
of shares underlying both exercisable and non-exercisable stock options as of
October 31, 1996; and (iii) the value for "in-the-money" options which
represents the positive spread between the exercise price of any such existing
stock options and the fiscal year-end price of the Common Stock:
<TABLE>
<CAPTION>
Number of Shares Underlying Value of In-the-Money
Outstanding Stock Options at Year End Outstanding Stock Options
Shares Acquired By Value ------------------------------------- ------------------------------
Name Exercises in Fiscal 1996 Realized Exercisable Not Exercisable Exercisable Not Exercisable
- ---- ------------------------ -------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Keith Larkin 0 0 540,000 0 $675,000 0
</TABLE>
14
<PAGE> 17
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Common
Stock, as of January 24, 1997, by:(i) each of the Company's officers and
directors; (ii) each person who is known by the Company to own beneficially more
than 5% of the outstanding shares of Common Stock; and (iii) all of the
Company's officers and directors as a group:
Name and Address of Shares Owned
Beneficial Owner Beneficially Percentage of Class
- ------------------- ------------ -------------------
Keith Larkin 1,577,700(1) 35.0%
c/o Pro Tech Communications, Inc.
3311 Industrial 25th Street
Fort Pierce, Florida 34946
Kenneth Campbell 25,000(2) 0.6%
c/o Pro Tech Communications, Inc.
3311 Industrial 25th Street
Fort Pierce, Florida 34946
Richard Hennessey 25,000(3) 0.6%
c/o Pro Tech Communications, Inc.
3311 Industrial 25th Street
Fort Pierce,, Florida 34946
Harvey M. Burstein* 300,000(4) 7.0%
Harris McLean Financial Group, Ltd. 220,000(5) 5.3%
P.O. Box 39758
Cayman Islands, B.W.I
All officers and directors as a group 1,627,700(1)(2)(3) 35.7%
(3 persons)
- ------------------
* The address for this stockholder is c/o ProTech Communications, Inc.
(1) Includes 540,000 shares of Common Stock underlying a stock option, which is
presently exercisable at $.50 per share and expires on April 15, 1999.
(2) Represents 25,000 shares of Common Stock underlying a stock option, which is
presently exercisable at $.50 per share and expires on April 15, 1999.
(3) Represents 25,000 shares of Common Stock underlying a stock option, which
is presently exercisable at $.50 per share and expires on April 15, 1999.
(4) Represents 300,000 shares of Common Stock underlying a stock purchase
warrant, which is presently exercisable at $1.50 per share and expires on
December 18, 1999.
(5) Includes 200,000 shares of Common Stock underlying a stock option, which is
presently exercisable at $.60 per share and expires on May 2, 1997.
15
<PAGE> 18
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On November 1, 1994, all of the assets of Pro Tech Systems, a
California limited partnership, were transferred to the Company. In exchange,
the Company issued 1,000,000 shares of Common Stock to Mr. Larkin (the general
partner of the partnership) and 1,000,000 shares to the 12 limited partners of
the partnership.
On September 12, 1995, Euro Investment Corporation, a corporation
organized under the laws of the Cayman Islands, loaned the Company $250,000.
Interest on the principal amount of the loan accrued at the rate of 14.3% and
all principal and accrued interest was payable upon demand. The loan was secured
by the Company's accounts receivable. In April 1996, the Company repaid the
principal amount of the loan and all accrued interest thereon ($13,868). At the
time such loan was made to the Company, Eurovest Securities Ltd. ("Eurovest"), a
corporation organized under the laws of the Cayman Islands, beneficially owned
approximately 5.2% of the Company's then-issued and outstanding Common Stock.
Don Fraser, an individual who has entered into a two-year marketing agreement
with the Company, controls Euro Investment Corporation which owns 50% of the
stock of Eurovest. See "DESCRIPTION OF BUSINESS - Marketing and Sales."
In connection with the Company's sale of 1,964,000 shares of Common
Stock during fiscal 1995 and 1996, Harris McLean Financial Group, Ltd. ("Harris
McLean") acted as sales agent for the Company with respect to the sale of shares
outside the United States. As consideration for the services of Harris McLean,
the Company paid such firm a commission of $40,950 and granted the firm an
option (without the payment of any cash consideration) to purchase 200,000
shares of Common Stock at an exercise price of $.60 per share. The option is
presently exercisable and expires on May 2, 1997.
As of December 19, 1996, the Company issued to Harvey M. Burstein a
stock purchase warrant (without the payment of any cash consideration) to
purchase 300,000 shares of Common Stock at a purchase price of $1.50 per share.
The warrant is presently exercisable and expires on December 18, 1999. The
terms of the warrant include, among other things, standard piggy-back and
demand registration rights.
16
<PAGE> 19
<PAGE> 20
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The financial statements and notes thereto are included herein
beginning at page 20.
(a) 1. Index to Financial Statements Page
Report of Independent Certified Public Accountants 20
Balance Sheets as of October 31, 1996 and 1995 21
Statements of Operations for the years
ended October 31, 1996 and 1995 22
Statements of Stockholders' Equity for the years
ended October 31, 1996 and 1995 23
Statements of Cash Flows for the years ended
October 31, 1996 and 1995 24
Notes to Financial Statements 25
2. Exhibit
3.1 Articles of Incorporation of the Company, dated October 5,
1994, and the Amendments thereto, dated January 31, 1995*.
3.2 By-Laws of the Company.*
10.1 Amended and Restated Employment Agreement, dated as of December
9, 1994, between the Company and Keith Larkin**(1)
10.2 Stock Option, dated March 3, 1995, issued by the Company to
Harris McLean Financial Group, Ltd.*
10.3 Stock Option, dated November 3, 1994, issued by the Company to
Westek Electronic, Inc.*
10.4 The Company's 1996 Stock Option Plan.*(1)
10.5 Stock Option, dated April 15, 1996, issued by the Company to
Keith Larkin.*(1)
10.6 Stock Option, dated April 15, 1996, issued by the Company to
Kenneth Campbell.*(1)
10.7 Stock Option, dated April 15, 1996, issued by the Company to
Richard Hennessey.*(1)
10.8 Lease, dated July 20, 1994, between the Company and Sid
Motel.**
10.9 Lease dated November 22, 1995, between the Company and
Sidney Motel.**
10.10 Marketing Agreement, dated as of June 26, 1996, between the
Company and Martin Goldberg.*
10.11 Amended and Restated Stock Purchase Warrant, dated as of June
26, 1996, issued by the Company to Martin Goldberg.**
10.12 Marketing Agreement, dated as of June 26, 1996, between the
Company and Costas Takkas.*
10.13 Amended and Restated Stock Purchase Warrant, dated as of June
26, 1996, issued by the Company to Costas Takkas.**
10.14 Marketing Agreement, dated as of June 26, 1996, between the
Company and Don Fraser.*
10.15 Amended and Restated Stock Purchase Warrant, dated as of June
26, 1996, issued by the Company to Don Fraser.**
10.16 Stock Purchase Warrant, dated as of December 19, 1996, issued
by the Company to Harvey M. Burstein.
10.17 Stock Purchase Warrant, dated as of December 19, 1996, issued
by the Company to James D. Loeffelbein.
27 Financial Data Schedule (for SEC use only).
- -------------
* Incorporated by reference to the initial filing with the Commission of
the Company's Form 10-SB on July 5, 1996.
** Incorporated by reference to Amendment No. 1 to the Company's Form
10-SB which was filed with the Commission on October 4, 1996.
(1) Denotes a management contract or compensatory plan or arrangement.
All exhibits which are incorporated herein from previously filed
documents with the Commission have the same exhibit number as the documents
listed hereinabove.
19
<PAGE> 21
INDEPENDENT AUDITORS' REPORT
--------------------------
The Board of Directors
Pro Tech Communications, Inc.:
We have audited the accompanying balance sheets of Pro Tech Communications, Inc.
as of October 31, 1996 and 1995 and the related statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Pro Tech Communications, Inc.
as of October 31, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
December 12, 1996
20
<PAGE> 22
ProTech Communications, Inc.
Balance Sheets
October 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
------ ---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents 596,705 571,270
Accounts receivable less allowance for doubtful
accounts of $9,141 and $22,080 in 1996 and 1995,
respectively 155,460 119,411
Inventory (note 2) 176,447 90,061
Due from officers and employees 34,656 3,662
Other current assets $ 13,994 1,122
---------- -------
Total current assets 977,262 785,526
Net property and equipment (note 3) 128,880 90,166
Other assets 4,366 ---
---------- -------
Total Assets $1,110,508 875,692
========== =======
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities:
Notes Payable (note 5) --- 250,226
Accounts payable 53,663 28,581
Accrued expenses 45,490 34,186
---------- -------
Total current liabilities 99,153 312,993
Stockholder's Equity: (note 6)
Common Stock, $.001 par value, authorized 10,000,000
shares, issued and outstanding 3,964,000 and
2,864,000 shares in 1996 and 1995, respectively 3,964 2,864
Additional Paid in Capital 963,953 515,876
Retained Earnings 43,438 43,959
---------- -------
Total Stockholders' Equity 1,011,355 562,699
--- ---
Commitments (note 8) ---------- -------
$1,110,508 875,692
========== =======
</TABLE>
See accompanying notes to financial statements
21
<PAGE> 23
ProTech Communications, Inc.
Statements of Operations
Years ended October 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net Sales (note 10) $ 852,778 830,667
Cost of Goods Sold 281,682 358,595
--------- ---------
Gross Profit 571,096 472,072
Selling, general and administrative expenses 513,398 406,210
Provision for doubtful accounts (8,661) 9,197
--------- ---------
Income from operations 66,359 56,665
Other income (expense):
Interest income 27,668 2,160
Interest expense (13,868) (1,967)
Miscellaneous income 107 1,033
Form 10 filing costs (note 11) (79,072) --
--------- ---------
Income before income taxes 1,194 57,891
Income taxes (note 9) 1,715 13,932
---------- ---------
Net Income(loss) $ (521) 43,959
========== =========
Income(loss) per common share $ 0.00 0.02
========== =========
Average common shares outstanding 3,414,000 2,462,417
========== =========
</TABLE>
See accompanying notes to financial statements.
22
<PAGE> 24
PRO TECH COMMUNICATIONS, INC.
Statements of Stockholders' Equity
Years ended October 31, 1996 and 1995
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings Total
----- ------- -------- -----
<S> <C> <C> <C> <C>
Balance, November 1, 1994 $ 2,000 119,485 -- 121,485
Issuance of 864,000 shares of 864 396,391 -- 397,255
common stock (note 6) (net of
issue costs of $32,000 and
subscribed stock for $2,000)
Net income -- -- 43,959 43,959
---------- ------- ------ ---------
Balance, October 31, 1995 2,864 515,876 43,959 562,699
Issuance of 1,100,000 shares of
common stock (note 6) (net of
issue costs of $98,824 and
subscribed stock for $2,000) 1,100 448,077 -- 449,177
Net loss -- -- (521) (521)
---------- ------- ------ ---------
Balance, October 31, 1996 $ 3,964 963,953 43,438 1,011,355
========== ======= ====== =========
</TABLE>
See accompanying notes to financial statements
23
<PAGE> 25
PRO TECH COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
Years ended October 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Cash received from sale of merchandise $ 885,952 723,566
Cash paid to vendors and employees (1,008,028) (738,295)
Interest paid (13,868) (1,967)
Interest received 27,668 2,160
----------- -------
Net cash used by operating activities (108,276) (14,536)
----------- -------
Cash flows from investing activities:
Purchase of property and equipment (65,840) (70,976)
Proceeds from the sale of property and equipment 600 3,275
----------- -------
Net cash used in investing activities (65,240) (67,701)
----------- -------
Cash flows from financing activities:
Principal payments on notes payable (250,226) (2,420)
Repayment of loan payable -- (5,721)
Proceeds from note payable -- 250,000
Proceeds from issuance of common stock 449,177 397,255
----------- -------
Net cash provided by financing activities 198,951 639,114
----------- -------
Net increase in cash and cash equivalents 25,435 556,877
Cash and cash equivalents at beginning of year 571,270 14,393
----------- -------
Cash and cash equivalents at end of year $ 596,705 571,270
=========== =======
Reconciliation of net income to net cash used by operating
activities:
Net income (loss) $ (521) 43,959
Adjustments to reconcile net income to net cash used
by operating activities:
Depreciation and amortization 26,712 20,619
Allowance for doubtful accounts (6,861) 8,779
(Gain loss on disposal of fixed assets 470 (829)
Increase in accounts receivable (29,188) (42,220)
Increase in inventory (86,386) (65,914)
Increase in receivables from officers and employees (30,994) --
Increase in other assets (17,894) (500)
Increase (decrease) in accounts payable 25,082 (2,607)
Increase in accrued expenses 11,304 27,007
Increase in other liabilities -- (2,830)
----------- -------
Total adjustments (107,755) (58,495)
----------- -------
Net cash used by operating activities $ (108,276) (58,495)
=========== =======
</TABLE>
See accompanying notes to financial statements
24
<PAGE> 26
PRO TECH COMUNICATIONS, INC.
Notes to Financial Statements
October 31, 1996 and 1995
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BUSINESS
Pro Tech Communications, Inc. (the"Company") was organized and
incorporated under the laws of the State of Florida for the purpose of
designing, developing, producing and marketing lightweight telephone
headsets. The Company presently manufactures and markets its first
headset design primarily for fast food companies and other large
quantity users of headset systems. The Company is in the process of
completing the development of a second design for the telephone user
market, which includes telephone operating companies, government
agencies and business offices. The Company's business strategy is to
offer lightweight headsets with design emphasis on performance and
durability at a cost below that of its competitors.
On November 1, 1994 all assets and liabilities of Pro Tech Systems (a
limited partnership) were transferred to Pro Tech Communications, Inc.
The former partners of Pro Tech Systems received 2,000,000 shares of
common stock in the Company in exchange for their respective interests
in the limited partnership.
Pro Tech Systems was formally dissolved as of December 13, 1994.
(b) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
(c) INVENTORY
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
(d) REVENUE AND COST RECOGNITION
The Company recognizes revenues as products are shipped. New customers
are extended a 30-day trial period during which the product may be
returned. Additionally, each headset carries a two year warranty. The
Company provides, by a current charge to income, an amount it estimates
will be needed to cover future warranty obligations for products sold
during the year. The accrued liability for warranty costs is included
in accrued expenses in the balance sheet.
25
<PAGE> 27
(e) PROPERTY AND EQUIPMENT
Property and equipment is carried at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the
assets which are generally 5-10 years. Repair and maintenance costs are
charged to expense when incurred.
(f) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets or liabilities of a
change in tax rates is recognized in income in the period that includes
the enactment date.
(g) FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's cash and cash equivalents,
accounts receivable and current liabilities approximate the carrying
amount due to the short-term nature of such financial instruments.
(h) RECLASSIFICATION
Certain amounts in the 1995 financial statements have been reclassified
to conform to the 1996 presentation.
(i) ADVERTISING
The costs of advertising, promotion and marketing programs are charged
to operations in the year incurred. Advertising costs approximated
$14,200 and $6,400 for the years ended October 31, 1996 and 1995,
respectively, and were included in selling, general and administrative
expenses in the accompanying statement of operations.
(j) RESEARCH AND DEVELOPMENT
Research and development costs are expensed when incurred and are
included in selling, general and administrative expenses. The amount
charged to expense during 1996 and 1995 was $44,600 and $31,300,
respectively.
26
<PAGE> 28
(k) USE OF ESTIMATES
The preparation of the Company's financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses and contingent assets and
liabilities. Actual results could differ from those estimates.
(l) STOCK OPTION PLAN
On October 23, 1995, the FASB issued Statement No. 123, Accounting for
Stock-Based Compensation (Statement 123). This Statement applies to all
transactions in which an entity acquires goods or services by issuing
equity instruments or by incurring liabilities where the payment
amounts are based on the entity's common stock price. The Statement
covers transactions with employees and non-employees and is applicable
to both public and nonpublic entities. Entities are allowed (1) to
continue to use the Accounting Principles Board Opinion No. 25 (APB 25)
method, or (2) to adopt the Statement 123 fair value based method. Once
the method is adopted, an entity cannot change the method and the
method selected applies to all of an entity's compensation plans and
transactions. For entities not adopting the Statement 123 fair value
based method, Statement 123 requires pro forma net income and earnings
per share information as if the fair value based method had been
adopted. For entities not adopting the fair value based method, the
disclosure requirements of Statement 123, including the pro forma
information, are effective for financial statements for fiscal years
beginning after December 15, 1995 (fiscal year ended October 31, 1997
for the Company). The pro forma disclosures are to include all awards
granted in fiscal years that begin after December 15, 1994 (fiscal year
ended October 31, 1996 for the Company). However, the disclosures
including the pro forma net income and earnings per share disclosures,
for the fiscal year beginning after December 15, 1994 (fiscal year
ended October 31, 1996 for the Company) will not be included in that
year's financial statements but will be included in the following year
end (fiscal year ended October 31, 1997 for the Company) financial
statements if the first fiscal year is presented for comparative
purposes. Management has determined that the Company will account for
stock-based compensation under the APB 25 method and will disclose the
pro forma impact of Statement 123 in future years' financial
statements.
27
<PAGE> 29
(m) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED
OF
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, on January 1, 1996. This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicated that
the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a 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 by which the
carrying amount of the assets exceed 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. Adoption of this Statement did
not have a material impact on the Company's financial position, results
of operations, or liquidity.
(n) TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF
LIABILITIES
In June 1996, the Financial Accounting Standards Board issued SFAS No.
125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. SFAS No. 125 is effective for transfers
and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996 and is to be applied prospectively.
This Statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of
liabilities based on consistent application of a financial-components
approach that focuses on control. It distinguishes transfers of
financial assets that are sales from transfers that are secured
borrowings. Management of the Company does not expect adoption of SFAS
No. 125 will have a material impact on the Company's financial
position, results of operations, or liquidity.
(2) INVENTORY
Inventory at October 31, 1996 and 1995 consists of the following:
1996 1995
---- ----
Raw materials $ 84,751 68,521
Work in process 54,645 1,000
Finished goods 37,051 20,540
---------- ------
$ 176,447 90,061
========== ======
28
<PAGE> 30
(3) NET PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at October 31,
1996 and 1995:
1996 1995
-------- --------
Production molds $ 98,124 52,999
Office equipment 50,156 40,091
Production equipment 8,217 8,217
Leasehold improvements 6,972 6,663
Vehicles 5,557 1,984
Marketing displays 5,430 --
------- -------
Total cost 174,456 109,954
Less: accumulated depreciation 45,576 19,788
------- -------
Total 128,880 90,166
======= =======
Total depreciation expense was $26,056 and $20,464 for the years ended
October 31, 1996 and 1995, respectively.
(4) NOTES PAYABLE
Notes payable consisted of the following at October 31, 1996
and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Note payable to GMAC bearing fixed interest at 18.5%;
interest and principal payable in sixty equal
monthly installments of $143, final payment
due November 1995; secured by vehicle. $ - 226
Note payable to Euro Investment Corporation bearing
annual interest at 14.3%, payable on demand - 250,000
------- -------
Total notes payable $ - 250,226
======= =======
</TABLE>
(5) ACCRUED EXPENSES
Accrued expenses consisted of the following at
October 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Accrued warranty expense $22,663 4,825
Accrued professional fees 11,155 --
Other accrued expenses 11,672 29,361
------- ------
$45,490 34,186
======= ======
</TABLE>
29
<PAGE> 31
(6) CAPITAL STOCK
During fiscal year 1996, the Company underwent a stock offering under
Rule 504 of Regulation D promulgated under the Securities Act of 1933.
The offering sold 1,100,000 shares of common stock at $.50 per share,
yielding net cash proceeds of $451,177. During fiscal year 1995, the
Company underwent a stock offering under Rule 504 of Regulation D
promulgated under the Securities Act of 1933. The offering sold 864,000
shares of common stock at $.50 per share yielding net cash proceeds of
$399,255. At October 31, 1996, $4,000 was held in escrow for the
benefit of the Company pending completion of the subscription
agreements by two investors for 4,000 shares each. These receivables
are netted against additional paid-in capital.
The Company, in conjunction with the stock offering of March 3, 1995,
issued warrants for 200,000 shares of common stock to the sales agent
responsible for sales outside the United States. In June 1996, the
Company issued warrants for 200,000 shares of Common Stock to each of
three individuals as consideration for services to be rendered in
marketing the Company's products throughout the world. As of October
31, 1996, a summary of the warrants to purchase common stock, currently
exercisable, are as follows:
Expiration Date Shares Exercise Price Per Warrant
----------------- ------- --------------------------
September 3, 1997 200,000 $ .60
September 26, 1998 600,000 $1.50
(7) STOCK OPTION PLAN
On April 15, 1996, the Board of Directors adopted The 1996 Stock Option
Plan (the Plan), for the benefit of directors, officers, employees and
consultants to the Company. The Plan authorizes the issuance of up to
590,000 shares of common stock, all of which were granted during fiscal
year 1996.
On April 15, 1996, 540,000 and 50,000 shares were granted to the
Company's President and officers, respectively, at an option price of
$.50 per share. The stock option exercise price was the fair value at
the date of the grant, which was determined from the price paid per
share during the Company's stock offering carried out from April 8,
1996 to May 15, 1996, (note 5). The stock options are exercisable upon
the grant date, extending over a period of three years. At October 31,
1996, no stock options had been exercised.
(8) OPERATING LEASES
The Company leases office and production facilities under operating
leases. Future minimum lease payments for such noncancelable leases as
of October 31, 1996 are as follows:
1997 16,870
1998 1,406
---- -------
Total $18,276
=======
Rent expense under lease agreements totaled $15,395 and $15,319 for
fiscal year 1996 and 1995, respectively.
30
<PAGE> 32
(9) INCOME TAXES
Income tax expense (benefit) consist of:
Current Deferred Total
------- -------- -----
1996:
Federal $ 4,255 (2,800) 1,455
State 1,360 (1,100) 260
------- ------ ------
5,615 (3,900) 1,715
======= ====== ======
1995
Federal 12,179 - 12,179
State 1,753 - 1,753
------- ------ ------
$13,932 - 13,932
======= ====== ======
The actual expense differs from the "expected" amount computed by
applying the U.S. Federal corporate income tax rate of 34% to income
before income taxes as follows:
1996 1995
---- ----
Computed "expected" tax expense $ 406 19,683
Increase (reduction) in income taxes
resulting from:
State income tax, net of federal tax
benefits
170 1,200
Effect of graduated tax rates (5,400) (11,200)
Nondeductible costs for SEC Form
10-SB filing 11,000 --
Other, net (4,461) 4,249
------- ------
$ 1,715 13,932
======= ======
31
<PAGE> 33
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax assets
and liabilities are as follows:
Accounts receivable principally due to
allowance for doubtful accounts $1,800
Accrued warranty expense 4,500
------
Total deferred tax assets 6,300
Plant and equipment principally due to
differences in depreciation 2,400
------
Total deferred tax liabilities 2,400
------
Net deferred tax assets $3,900
======
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the period in which those temporary
differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment. Taxable income
for the years ended October 31, 1996 and 1995, respectively, was $1,194
and $57,891. Based upon the level of historical taxable income and
projections for future taxable income over the periods which the
deferred tax assets are deductible, management believes it is more
likely than not the Company will realize the benefits of these
deductible differences. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of
future taxable income during the carryforward period are reduced.
(10) RELATED PARTY TRANSACTIONS
During fiscal year 1996, the Company loaned $28,882 to its' President.
The loan bears interest at 15% per annum, with principal and interest
due August 2, 1997. The Company also loaned its' Vice President $3,500
during 1996. This loan bears interest at 15% per annum, with principal
and interest due July 9, 1997.
The Company has entered into an employment agreement with its'
President expiring December 9, 1999. The agreement provides for a
maximum annual salary of $90,000 with additional amounts added using
the consumer price index as a minimum. The President is eligible for
the maximum annual salary during a given year only if the Company
generates annual sales of at least $2,000,000 and pre-tax income equal
to at least 20% of the Company's annual sales. If at any time during
the Company's fiscal year the Board of Directors determines the Company
will not meet minimum requirements noted above, the Board shall
determine the President's compensation for that year, taking into
account the Company's projected financial performance and needs for
that year.
32
<PAGE> 34
(11) SEC FORM 10-SB FILING COSTS
Subsequent to the April 8, 1996 stock offering (note 5), the Company
filed Form 10-SB, (general form for registration of securities of small
business issuers), under Section 12(g) of the Securities Exchange Act
of 1934. The company voluntarily registered its securities in hopes of
demonstrating the Company's integrity to potential investors. Due to
the registration taking place subsequent to the current year stock
offering, registration costs of $79,072 incurred by the Company were
included in other expenses in the accompanying statement of operations.
(12) MAJOR CUSTOMERS
For 1996 and 1995, approximately 30% and 60%, respectively, of all
sales were to McDonald's restaurant franchises.
33
<PAGE> 35
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on January 28, 1997.
PRO TECH COMMUNICATIONS, INC.
(Registrant)
By: /s/ Keith Larkin
---------------------------
Keith Larkin, President
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Keith Larkin President, Treasurer January 28, 1997
- ---------------- and Chairman of the Board
Keith Larkin (Principal Executive, Financial
and Accounting Officer)
/s/ Kenneth Campbell Director, Secretary January 28, 1997
- --------------------- and Vice President of
Kenneth Campbell Operations
</TABLE>
<PAGE> 1
EXHIBIT 10.16
THIS STOCK PURCHASE WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, NOR UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR AN OPINION SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
FT. PIERCE, FLORIDA
GRANTED: AS OF DECEMBER 19, 1996
THIS STOCK PURCHASE WARRANT EXPIRES
IF NOT EXERCISED ON OR BEFORE
5:00 P.M., MIAMI TIME, DECEMBER 18, 1999
Stock Purchase Warrant
To Purchase 300,000 Shares of Common Stock
par value $.001 per share
of
PRO TECH COMMUNICATIONS, INC.
THIS IS TO CERTIFY that Harvey M. Burstein ("Burstein") is entitled
upon the due exercise hereof at any time during the Exercise Period (as
hereinafter defined) to purchase from PRO TECH COMMUNICATIONS, INC. (the
"Company"), up to three hundred thousand (300,000) duly authorized, validly
issued, fully paid and non-assessable shares of common stock, par value $.001
per share, at a price of One Dollar and Fifty Cents ($1.50) (the "Exercise
Price") (subject to adjustment as provided herein) for each share of such
common stock so purchased and to exercise the other rights, powers and
privileges hereinafter provided, all on the terms and conditions and pursuant
to the provisions hereinafter set forth.
ARTICLE I
DEFINITIONS
The terms defined in this Article I, whenever used in this Stock
Purchase Warrant, shall have the respective meanings hereinafter specified.
Whenever used in this Stock Purchase Warrant, any noun or pronoun shall be
deemed to include both the singular and plural and to cover all genders.
"Common Stock" means the Company's authorized common stock, par value
$.001 per share.
"Company" means Pro Tech Communications, Inc., and any successor
corporation.
<PAGE> 2
"Exercise Period" means the period commencing on December 19, 1996 and
terminating at 5:00 p.m., Miami time, on December 18, 1999, or such time as
otherwise provided herein.
"Exercise Price" means One Dollar and Fifty Cents ($1.50) per share,
as such price may be adjusted from time to time pursuant to Article V.
"Burstein" means Harvey M. Burstein.
"Person" means an individual, a corporation, a joint venture, a
general or limited partnership, a trust, an unincorporated organization or a
government or any agency or political subdivision thereof.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Securities and
Exchange Commission promulgated thereunder, all as the same shall be in effect
from time to time.
"Stock Purchase Warrant(s)" means this Stock Purchase Warrant.
"Warrant Shares" means shares of Common Stock issued upon the exercise
of this Stock Purchase Warrant.
ARTICLE II
NUMBER OF SHARES; EXERCISE OF STOCK PURCHASE WARRANT
2.1. Number of Shares. This Stock Purchase Warrant shall
entitle Burstein to subscribe to and purchase up to three hundred thousand
(300,000) shares of Common Stock.
2.2. Right to Exercise. Subject to the provisions contained in
this Stock Purchase Warrant and upon compliance with the conditions of this
Article II, Burstein shall have the right at any time and from time to time
during the Exercise Period to exercise this Stock Purchase Warrant in whole or
in portions.
2.3. Notice of Exercise; Issuance of Common Stock. To exercise
this Stock Purchase Warrant, Burstein shall deliver to the Company (a) a Notice
of Exercise substantially in the form attached hereto, duly executed by
Burstein, (b) an amount equal to the aggregate Exercise Price for the shares of
Common Stock purchased upon due exercise of this Stock Purchase Warrant, (c)
this Stock Purchase Warrant and (d) a certificate executed by Burstein
certifying that attached thereto is a true and correct copy of the resolutions
or authorizations of the appropriate directors, owners or otherwise, approving
and authorizing the exercise of this Stock Purchase Warrant and the purchase of
the Warrant Shares.
Payment of the Exercise Price shall be made, at the option
of Burstein, (i) by wire transfer of immediately available funds to an account
in a bank located in the United States designated in writing for such purpose
by the Company or (ii) by certified or official bank check payable to the order
of the Company and drawn on a member of the Chicago or
2
<PAGE> 3
New York Clearing House. Upon receipt thereof, the Company shall, as promptly
as practicable, and in any event within seven (7) business days thereafter,
cause to be issued and delivered to Burstein, a certificate representing the
aggregate number of duly authorized, validly issued, fully paid and
non-assessable shares of Common Stock purchased pursuant to the exercise of
this Stock Purchase Warrant registered in the name of Burstein. The
certificates representing such Warrant Shares shall bear the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
WITHOUT REGISTRATION UNDER SUCH ACT OR AN OPINION OF COUNSEL,
REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT
REQUIRED.
Notwithstanding anything contained herein to the contrary,
this Stock Purchase Warrant may not be exercised if the issuance of the shares
of Common Stock upon such exercise would constitute a violation of any
applicable federal or state securities or other applicable laws or regulations.
As a condition to the exercise of this Stock Purchase Warrant, the Company may
require Burstein to make such representations and agree to such covenants as
may be required by any applicable law or regulation.
This Stock Purchase Warrant shall be deemed to have been
exercised and such certificate shall be deemed to have been issued, and
Burstein shall be deemed to have become the holder of record of such Warrant
Shares for all purposes as of the close of business on the date the Notice of
Exercise, together with payment and a certificate as herein provided and this
Stock Purchase Warrant, are received by the Company.
2.4. Balance of Stock Purchase Warrant Certificate. Upon
exercise of this Stock Purchase Warrant in part rather than in whole, the
Company shall execute and deliver to Burstein a new Stock Purchase Warrant
certificate of like tenor evidencing the unexercised portion of the Stock
Purchase Warrant and otherwise in all respects identical with this Stock
Purchase Warrant.
ARTICLE III
REGISTRATION
3.1. Registration; Ownership. The Company will keep a register
in which, subject to such reasonable regulations as it may prescribe, the
Company will provide for the registration of ownership of this Stock Purchase
Warrant. The Company will not at any time, except upon the dissolution,
liquidation or winding up of the Company, close such register so as to result
in preventing or delaying the exercise of this Stock Purchase Warrant.
3.2. Replacement of Stock Purchase Warrant. Upon receipt by the
Company of evidence satisfactory to it, in the exercise of reasonable
discretion, of the ownership of and the loss, theft, destruction or mutilation
of any Stock Purchase Warrant and, in case of loss, theft
3
<PAGE> 4
or destruction, the written agreement of Burstein to indemnify the Company
against any resulting loss or expense or in case of mutilation upon surrender
and cancellation of such Stock Purchase Warrant, the Company will execute and
deliver in lieu thereof, a new Stock Purchase Warrant of like tenor.
ARTICLE IV
NO ASSIGNMENT OR TRANSFER
Burstein shall not assign or transfer any of its rights under this
Stock Purchase Warrant. Any purported assignment or transfer of this Stock
Purchase Warrant in violation of this Article IV shall be void.
ARTICLE V
ADJUSTMENT OF SHARES
In the event of any increase or decrease in the number of shares of
Common Stock outstanding by reason of a stock split or reverse stock split, the
number of shares of Common Stock issuable upon the exercise of this Stock
Purchase Warrant and the Exercise Price shall be appropriately adjusted. The
number of shares of Common Stock issuable upon the exercise of this Stock
Purchase Warrant after such stock split or reverse stock split shall be equal
to an amount that Burstein would have been entitled to, had the Stock Purchase
Warrant been exercised immediately prior to the stock split or reverse stock
split.
In the event that the Company shall at any time increase its
outstanding shares of Common Stock into a greater number of shares of Common
Stock by reason of a stock split, the Exercise Price in effect immediately
prior to such increase shall be proportionately reduced, and, conversely, in
case the outstanding shares of Common Stock shall be reduced into a smaller
number of shares of Common Stock by reason of a reverse stock split, the
Exercise Price in effect immediately prior to such reduction shall be
proportionately increased, calculated by dividing (i) the product of the total
number of shares of Common Stock outstanding prior to the stock split or
reverse stock split, multiplied by the Exercise Price, by (ii) the total number
of shares of Common Stock outstanding after the stock split or reverse stock
split.
4
<PAGE> 5
ARTICLE VI
REGISTRATION RIGHTS
The Company grants Burstein the following rights to have the Warrant
Shares registered under the Securities Act:
6.1 Piggy-back Registration Rights. If, at any time during the
Exercise Period, the Company proposes to register any class of equity security
on any form for the general registration of securities under the Securities Act
(other than a registration form relating to a registration of a stock option,
stock purchase or compensation or incentive plan or of stock issued or issuable
pursuant to any such plan, or a dividend investment plan, a registration of
stock proposed to be issued in exchange for securities or assets of, or in
connection with the merger or consolidation with, another corporation or a
registration of stock proposed to be issued in exchange for other securities of
the Company), then the Company shall give prompt written notice thereof to
Burstein and, upon the written request of Burstein made within ten (10) days
after the receipt of such notice, the Company shall use its best efforts to
effect as part of such registration the registration under the Securities Act
of that number of the Warrant Shares which Burstein requests the Company to
register, provided that the managing underwriter of the Company's public
offering, if any, shall be of the opinion that the inclusion in such
registration of such number of Warrant Shares will not interfere with the
successful marketing of all of the Company's securities being registered. If a
managing underwriting requests Burstein to reduce in whole or in part the
number of Warrant Shares, if any, sought to be registered by Burstein, Burstein
shall comply with the request of the managing underwriter. In connection with
any registration pursuant to this Section 6.1, Burstein shall provide the
Company with such information regarding himself and the distribution of the
Warrant Shares as the Company and the managing underwriter, if any, shall
reasonably request. The Company shall pay all costs and expenses incident to
the Company's registration of Burstein's Warrant Shares pursuant to this
Section 6.1, except the attorneys' fees and expenses of Burstein. The Company
shall not be obligated to effect registration under the Securities Act pursuant
to this Section 6.1 on more than one occasion. Within five (5) business days
after the Securities and Exchange Commission (the "Commission") declares the
Company's registration statement to be effective, Burstein shall exercise this
Stock Purchase Warrant in full and shall pay to the Company the full Exercise
Price therefor.
6.2 Demand Registration Rights. During the Exercise Period,
Burstein shall have the following demand registration rights, subject to the
conditions contained in this Section 6.2:
(a) Registration Request. At any time during the
Exercise Period and as soon as reasonably practicable upon the written request
of Burstein, the Company shall proceed to file with the Commission a
registration statement under the Securities Act on any appropriate form as the
Company shall select covering the Warrant Shares. The Company shall use its
best efforts to cause such registration statement to become effective as soon
as reasonably practicable following such request; provided, however, that the
Company shall not be required (i) to file a registration statement on more than
one occasion or (ii) to file any
5
<PAGE> 6
registration statement during any period of time (not to exceed 180 days) when
the Company is contemplating an underwritten offering of its shares of equity
securities and, in the judgment of the managing underwriter thereof, such
filing would have a material adverse effect on the contemplated offering.
(b) Information and Costs. Burstein shall provide the
Company with such information with respect to the Warrant Shares to be sold,
the plans for the proposed distribution thereof, and such other information as
shall in the opinion of counsel for the Company be necessary to enable the
Company to include in such registration statement (or any amendment or
supplement thereto) all material facts required to be disclosed with respect to
Burstein. The Company shall bear the costs of such registration, including,
but not limited to, all registration and filing fees, and printing expenses.
Notwithstanding the foregoing, Burstein shall pay the fees and disbursements of
his own counsel and any underwriting fees and selling commissions applicable to
the Warrant Shares sold by Burstein.
(c) Financial Statements. The Company shall not be
required to furnish any audited financial statements at the request of Burstein
other than those statements customarily prepared at the end of its fiscal year,
unless (i) Burstein shall agree to reimburse the Company for the out-of-pocket
expenses incurred by the Company in the preparation of such other audited
financial statements or (ii) such other audited financial statements are to be
required by the Commission as a condition to ordering a registration statement
effective under the Securities Act.
(d) The Company's Obligation to Maintain the
Registration Statement Current. The Company shall be required to maintain the
registration statement covering the Warrant Shares current until the earlier to
occur of (i) the sale of all of the Warrant Shares or (ii) twelve (12) months
from the date that the registration statement covering the Warrant Shares was
declared effective by the Commission.
(e) Exercise of Warrant Shares. Within five (5)
business days after the registration statement covering the Warrant Shares is
declared effective by the Commission, Burstein shall exercise this Stock
Purchase Warrant in full and shall pay the full Exercise Price to the Company
therefor.
ARTICLE VII
MISCELLANEOUS
7.1. Nonwaiver. No course of dealing or any delay or failure to
exercise any right hereunder on the part of Burstein or the Company shall
operate as a waiver of such right or otherwise prejudice the rights, powers or
remedies of Burstein or the Company.
7.2. Notice Generally. Any notice, demand or delivery to be
made pursuant to or in connection with this Stock Purchase Warrant shall be
sufficiently given or made if sent by first class mail, postage prepaid,
addressed to (a) Burstein at its last known address appearing on the books or
register of the Company maintained for such purpose or (b) the Company
6
<PAGE> 7
at 3311 Industrial 25th Street, Ft. Pierce, Florida 34946. Burstein and the
Company may each designate a different address by written notice to the other
pursuant to this Section 7.2.
7.3. Payment of Certain Expenses. Except as otherwise provided
in this Stock Purchase Warrant, the Company and Burstein shall each pay their
respective expenses in connection with, and all taxes and other governmental
charges that may be imposed in respect of, the issue, sale and delivery of the
shares of Common Stock issuable upon the exercise of this Stock Purchase
Warrant.
7.4. Amendment. This Stock Purchase Warrant may not be modified
or amended except by written agreement duly executed by the Company and
Burstein.
7.5. Headings. The headings of the Articles and Sections of
this Stock Purchase Warrant are for the convenience of reference only and shall
not, for any purpose, be deemed a part of this Stock Purchase Warrant.
7.6 Governing Law. This Stock Purchase Warrant shall be
governed by the laws of the State of Florida without reference to the conflict
of laws principles thereof.
Date of Grant: As of December 19, 1996
Pro Tech Communications, Inc.
By:/s/ Keith Larkin
-------------------------------------
Name: Keith Larkin
Title: Chief Executive Officer
The undersigned agrees to comply with the terms and conditions contained
herein.
/s/ Harvey M. Burstein
----------------------------------------
Harvey M. Burstein
7
<PAGE> 8
-----------------
Date
Pro Tech Communications, Inc.
3311 Industrial 25th Street
Ft. Pierce, Florida 34946
Re: Exercise of Stock Purchase Warrant
Dear Sir:
Please be advised that pursuant to the Stock Purchase Warrant
Agreement ("Agreement"), granted as of December 19, 1996, by Pro Tech
Communications, Inc. (the "Company") to the undersigned, the undersigned hereby
exercises the Stock Purchase Warrant in the amount of ______________ shares of
common stock of the Company and herewith tenders its cashier's check or
certified check to the Company in the amount of ______________________________
($__________) in payment for such shares of common stock. Capitalized terms
not otherwise defined herein are defined as set forth in the Agreement.
The undersigned requests _______ stock certificates for such shares
issued in the name of ______________________ whose address is _________________
and whose social security number is __________________.
The undersigned hereby acknowledges, warrants and represents the
following:
(1) The undersigned's acknowledgements, representations,
warranties and agreements contained in the Agreement are true, complete and
accurate as of the date of this letter.
(2) The Stock Purchase Warrant is presently exercisable and as
such, has vested and has not expired.
(3) The undersigned is presently and has been in full
compliance with all the terms, conditions and provisions of the Agreement.
Sincerely,
-------------------------
8
<PAGE> 1
EXHIBIT 10.17
THIS STOCK PURCHASE WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, NOR UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR AN OPINION SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
FT. PIERCE, FLORIDA
GRANTED: AS OF DECEMBER 19, 1996
THIS STOCK PURCHASE WARRANT EXPIRES
IF NOT EXERCISED ON OR BEFORE
5:00 P.M., MIAMI TIME, DECEMBER 18, 1999
Stock Purchase Warrant
To Purchase 100,000 Shares of Common Stock
par value $.001 per share
of
PRO TECH COMMUNICATIONS, INC.
THIS IS TO CERTIFY that James D. Loeffelbein ("Loeffelbein") is
entitled upon the due exercise hereof at any time during the Exercise Period
(as hereinafter defined) to purchase from PRO TECH COMMUNICATIONS, INC. (the
"Company"), up to one hundred thousand (100,000) duly authorized, validly
issued, fully paid and non-assessable shares of common stock, par value $.001
per share, at a price of One Dollar and Fifty Cents ($1.50) (the "Exercise
Price") (subject to adjustment as provided herein) for each share of such
common stock so purchased and to exercise the other rights, powers and
privileges hereinafter provided, all on the terms and conditions and pursuant
to the provisions hereinafter set forth.
ARTICLE I
DEFINITIONS
The terms defined in this Article I, whenever used in this Stock
Purchase Warrant, shall have the respective meanings hereinafter specified.
Whenever used in this Stock Purchase Warrant, any noun or pronoun shall be
deemed to include both the singular and plural and to cover all genders.
"Common Stock" means the Company's authorized common stock, par value
$.001 per share.
"Company" means Pro Tech Communications, Inc., and any successor
corporation.
<PAGE> 2
"Exercise Period" means the period commencing on December 19, 1996 and
terminating at 5:00 p.m., Miami time, on December 18, 1999, or such time as
otherwise provided herein.
"Exercise Price" means One Dollar and Fifty Cents ($1.50) per share,
as such price may be adjusted from time to time pursuant to Article V.
"Loeffelbein" means James D. Loeffelbein.
"Person" means an individual, a corporation, a joint venture, a
general or limited partnership, a trust, an unincorporated organization or a
government or any agency or political subdivision thereof.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Securities and
Exchange Commission promulgated thereunder, all as the same shall be in effect
from time to time.
"Stock Purchase Warrant(s)" means this Stock Purchase Warrant.
"Warrant Shares" means shares of Common Stock issued upon the exercise
of this Stock Purchase Warrant.
ARTICLE II
NUMBER OF SHARES; EXERCISE OF STOCK PURCHASE WARRANT
2.1. Number of Shares. This Stock Purchase Warrant shall
entitle Loeffelbein to subscribe to and purchase up to one hundred thousand
(100,000) shares of Common Stock.
2.2. Right to Exercise. Subject to the provisions contained in
this Stock Purchase Warrant and upon compliance with the conditions of this
Article II, Loeffelbein shall have the right at any time and from time to time
during the Exercise Period to exercise this Stock Purchase Warrant in whole or
in portions.
2.3. Notice of Exercise; Issuance of Common Stock. To exercise
this Stock Purchase Warrant, Loeffelbein shall deliver to the Company (a) a
Notice of Exercise substantially in the form attached hereto, duly executed by
Loeffelbein, (b) an amount equal to the aggregate Exercise Price for the shares
of Common Stock purchased upon due exercise of this Stock Purchase Warrant, (c)
this Stock Purchase Warrant and (d) a certificate executed by Loeffelbein
certifying that attached thereto is a true and correct copy of the resolutions
or authorizations of the appropriate directors, owners or otherwise, approving
and authorizing the exercise of this Stock Purchase Warrant and the purchase of
the Warrant Shares.
Payment of the Exercise Price shall be made, at the option
of Loeffelbein, (i) by wire transfer of immediately available funds to an
account in a bank located in the United States designated in writing for such
purpose by the Company or (ii) by certified or official bank check payable to
the order of the Company and drawn on a member of the Chicago or
2
<PAGE> 3
New York Clearing House. Upon receipt thereof, the Company shall, as promptly
as practicable, and in any event within seven (7) business days thereafter,
cause to be issued and delivered to Loeffelbein, a certificate representing the
aggregate number of duly authorized, validly issued, fully paid and
non-assessable shares of Common Stock purchased pursuant to the exercise of
this Stock Purchase Warrant registered in the name of Loeffelbein. The
certificates representing such Warrant Shares shall bear the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
WITHOUT REGISTRATION UNDER SUCH ACT OR AN OPINION OF COUNSEL,
REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT
REQUIRED.
Notwithstanding anything contained herein to the contrary,
this Stock Purchase Warrant may not be exercised if the issuance of the shares
of Common Stock upon such exercise would constitute a violation of any
applicable federal or state securities or other applicable laws or regulations.
As a condition to the exercise of this Stock Purchase Warrant, the Company may
require Loeffelbein to make such representations and agree to such covenants as
may be required by any applicable law or regulation.
This Stock Purchase Warrant shall be deemed to have been
exercised and such certificate shall be deemed to have been issued, and
Loeffelbein shall be deemed to have become the holder of record of such Warrant
Shares for all purposes as of the close of business on the date the Notice of
Exercise, together with payment and a certificate as herein provided and this
Stock Purchase Warrant, are received by the Company.
2.4. Balance of Stock Purchase Warrant Certificate. Upon
exercise of this Stock Purchase Warrant in part rather than in whole, the
Company shall execute and deliver to Loeffelbein a new Stock Purchase Warrant
certificate of like tenor evidencing the unexercised portion of the Stock
Purchase Warrant and otherwise in all respects identical with this Stock
Purchase Warrant.
ARTICLE III
REGISTRATION
3.1. Registration; Ownership. The Company will keep a register
in which, subject to such reasonable regulations as it may prescribe, the
Company will provide for the registration of ownership of this Stock Purchase
Warrant. The Company will not at any time, except upon the dissolution,
liquidation or winding up of the Company, close such register so as to result
in preventing or delaying the exercise of this Stock Purchase Warrant.
3.2. Replacement of Stock Purchase Warrant. Upon receipt by the
Company of evidence satisfactory to it, in the exercise of reasonable
discretion, of the ownership of and the loss, theft, destruction or mutilation
of any Stock Purchase Warrant and, in case of loss, theft
3
<PAGE> 4
or destruction, the written agreement of Loeffelbein to indemnify the Company
against any resulting loss or expense or in case of mutilation upon surrender
and cancellation of such Stock Purchase Warrant, the Company will execute and
deliver in lieu thereof, a new Stock Purchase Warrant of like tenor.
ARTICLE IV
NO ASSIGNMENT OR TRANSFER
Loeffelbein shall not assign or transfer any of its rights under this
Stock Purchase Warrant. Any purported assignment or transfer of this Stock
Purchase Warrant in violation of this Article IV shall be void.
ARTICLE V
ADJUSTMENT OF SHARES
In the event of any increase or decrease in the number of shares of
Common Stock outstanding by reason of a stock split or reverse stock split, the
number of shares of Common Stock issuable upon the exercise of this Stock
Purchase Warrant and the Exercise Price shall be appropriately adjusted. The
number of shares of Common Stock issuable upon the exercise of this Stock
Purchase Warrant after such stock split or reverse stock split shall be equal
to an amount that Loeffelbein would have been entitled to, had the Stock
Purchase Warrant been exercised immediately prior to the stock split or reverse
stock split.
In the event that the Company shall at any time increase its
outstanding shares of Common Stock into a greater number of shares of Common
Stock by reason of a stock split, the Exercise Price in effect immediately
prior to such increase shall be proportionately reduced, and, conversely, in
case the outstanding shares of Common Stock shall be reduced into a smaller
number of shares of Common Stock by reason of a reverse stock split, the
Exercise Price in effect immediately prior to such reduction shall be
proportionately increased, calculated by dividing (i) the product of the total
number of shares of Common Stock outstanding prior to the stock split or
reverse stock split, multiplied by the Exercise Price, by (ii) the total number
of shares of Common Stock outstanding after the stock split or reverse stock
split.
4
<PAGE> 5
ARTICLE VI
REGISTRATION RIGHTS
The Company grants Loeffelbein the following rights to have the
Warrant Shares registered under the Securities Act:
6.1 Piggy-back Registration Rights. If, at any time during the
Exercise Period, the Company proposes to register any class of equity security
on any form for the general registration of securities under the Securities Act
(other than a registration form relating to a registration of a stock option,
stock purchase or compensation or incentive plan or of stock issued or issuable
pursuant to any such plan, or a dividend investment plan, a registration of
stock proposed to be issued in exchange for securities or assets of, or in
connection with the merger or consolidation with, another corporation or a
registration of stock proposed to be issued in exchange for other securities of
the Company), then the Company shall give prompt written notice thereof to
Loeffelbein and, upon the written request of Loeffelbein made within ten (10)
days after the receipt of such notice, the Company shall use its best efforts
to effect as part of such registration the registration under the Securities
Act of that number of the Warrant Shares which Loeffelbein requests the Company
to register, provided that the managing underwriter of the Company's public
offering, if any, shall be of the opinion that the inclusion in such
registration of such number of Warrant Shares will not interfere with the
successful marketing of all of the Company's securities being registered. If a
managing underwriting requests Loeffelbein to reduce in whole or in part the
number of Warrant Shares, if any, sought to be registered by Loeffelbein,
Loeffelbein shall comply with the request of the managing underwriter. In
connection with any registration pursuant to this Section 6.1, Loeffelbein
shall provide the Company with such information regarding himself and the
distribution of the Warrant Shares as the Company and the managing underwriter,
if any, shall reasonably request. The Company shall pay all costs and expenses
incident to the Company's registration of Loeffelbein's Warrant Shares pursuant
to this Section 6.1, except the attorneys' fees and expenses of Loeffelbein.
The Company shall not be obligated to effect registration under the Securities
Act pursuant to this Section 6.1 on more than one occasion. Within five (5)
business days after the Securities and Exchange Commission (the "Commission")
declares the Company's registration statement to be effective, Loeffelbein
shall exercise this Stock Purchase Warrant in full and shall pay to the Company
the full Exercise Price therefor.
6.2 Demand Registration Rights. During the Exercise Period,
Loeffelbein shall have the following demand registration rights, subject to the
conditions contained in this Section 6.2:
(a) Registration Request. At any time during the
Exercise Period and as soon as reasonably practicable upon the written request
of Loeffelbein, the Company shall proceed to file with the Commission a
registration statement under the Securities Act on any appropriate form as the
Company shall select covering the Warrant Shares. The Company shall use its
best efforts to cause such registration statement to become effective as soon
as reasonably practicable following such request; provided, however, that the
Company shall not be required (i) to file a registration statement on more than
one occasion or (ii) to file any
5
<PAGE> 6
registration statement during any period of time (not to exceed 180 days) when
the Company is contemplating an underwritten offering of its shares of equity
securities and, in the judgment of the managing underwriter thereof, such
filing would have a material adverse effect on the contemplated offering.
(b) Information and Costs. Loeffelbein shall provide
the Company with such information with respect to the Warrant Shares to be
sold, the plans for the proposed distribution thereof, and such other
information as shall in the opinion of counsel for the Company be necessary to
enable the Company to include in such registration statement (or any amendment
or supplement thereto) all material facts required to be disclosed with respect
to Loeffelbein. The Company shall bear the costs of such registration,
including, but not limited to, all registration and filing fees, and printing
expenses. Notwithstanding the foregoing, Loeffelbein shall pay the fees and
disbursements of his own counsel and any underwriting fees and selling
commissions applicable to the Warrant Shares sold by Loeffelbein.
(c) Financial Statements. The Company shall not be
required to furnish any audited financial statements at the request of
Loeffelbein other than those statements customarily prepared at the end of its
fiscal year, unless (i) Loeffelbein shall agree to reimburse the Company for
the out-of-pocket expenses incurred by the Company in the preparation of such
other audited financial statements or (ii) such other audited financial
statements are to be required by the Commission as a condition to ordering a
registration statement effective under the Securities Act.
(d) The Company's Obligation to Maintain the
Registration Statement Current. The Company shall be
required to maintain the registration statement covering the Warrant Shares
current until the earlier to occur of (i) the sale of all of the Warrant Shares
or (ii) twelve (12) months from the date that the registration statement
covering the Warrant Shares was declared effective by the Commission.
(e) Exercise of Warrant Shares. Within five (5)
business days after the registration statement covering the Warrant Shares is
declared effective by the Commission, Loeffelbein shall exercise this Stock
Purchase Warrant in full and shall pay the full Exercise Price to the Company
therefor.
ARTICLE VII
MISCELLANEOUS
7.1. Nonwaiver. No course of dealing or any delay or failure to
exercise any right hereunder on the part of Loeffelbein or the Company shall
operate as a waiver of such right or otherwise prejudice the rights, powers or
remedies of Loeffelbein or the Company.
7.2. Notice Generally. Any notice, demand or delivery to be
made pursuant to or in connection with this Stock Purchase Warrant shall be
sufficiently given or made if sent by first class mail, postage prepaid,
addressed to (a) Loeffelbein at its last known address appearing on the books
or register of the Company maintained for such purpose or (b) the
6
<PAGE> 7
Company at 3311 Industrial 25th Street, Ft. Pierce, Florida 34946. Loeffelbein
and the Company may each designate a different address by written notice to the
other pursuant to this Section 7.2.
7.3. Payment of Certain Expenses. Except as otherwise provided
in this Stock Purchase Warrant, the Company and Loeffelbein shall each pay
their respective expenses in connection with, and all taxes and other
governmental charges that may be imposed in respect of, the issue, sale and
delivery of the shares of Common Stock issuable upon the exercise of this Stock
Purchase Warrant.
7.4. Amendment. This Stock Purchase Warrant may not be modified
or amended except by written agreement duly executed by the Company and
Loeffelbein.
7.5. Headings. The headings of the Articles and Sections of
this Stock Purchase Warrant are for the convenience of reference only and shall
not, for any purpose, be deemed a part of this Stock Purchase Warrant.
7.6 Governing Law. This Stock Purchase Warrant shall be
governed by the laws of the State of Florida without reference to the conflict
of laws principles thereof.
Date of Grant: As of December 19, 1996
Pro Tech Communications, Inc.
By:/s/ Keith Larkin
-------------------------------------
Name: Keith Larkin
Title: Chief Executive Officer
The undersigned agrees to comply with the terms and conditions contained
herein.
/s/ James D. Loeffelbein
----------------------------------------
James D. Loeffelbein
7
<PAGE> 8
--------------------
Date
Pro Tech Communications, Inc.
3311 Industrial 25th Street
Ft. Pierce, Florida 34946
Re: Exercise of Stock Purchase Warrant
Dear Sir:
Please be advised that pursuant to the Stock Purchase Warrant
Agreement ("Agreement"), granted as of December 19, 1996, by Pro Tech
Communications, Inc. (the "Company") to the undersigned, the undersigned hereby
exercises the Stock Purchase Warrant in the amount of ______________ shares of
common stock of the Company and herewith tenders its cashier's check or
certified check to the Company in the amount of _______________________________
($__________) in payment for such shares of common stock. Capitalized terms
not otherwise defined herein are defined as set forth in the Agreement.
The undersigned requests _______ stock certificates for such shares
issued in the name of ______________________ whose address is _________________
and whose social security number is __________________.
The undersigned hereby acknowledges, warrants and represents the
following:
(1) The undersigned's acknowledgements, representations,
warranties and agreements contained in the Agreement are true, complete and
accurate as of the date of this letter.
(2) The Stock Purchase Warrant is presently exercisable and as
such, has vested and has not expired.
(3) The undersigned is presently and has been in full
compliance with all the terms, conditions and provisions of the Agreement.
Sincerely,
----------------------
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PRO TECH COMMUNICATIONS, INC. FOR THE YEAR ENDED OCTOBER
31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<CASH> $596,705
<SECURITIES> 0
<RECEIVABLES> 164,601
<ALLOWANCES> 9,141
<INVENTORY> 176,447
<CURRENT-ASSETS> 977,262
<PP&E> 128,880
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,110,508
<CURRENT-LIABILITIES> 99,153
<BONDS> 0
0
0
<COMMON> 3,964
<OTHER-SE> 1,011,355
<TOTAL-LIABILITY-AND-EQUITY> 1,110,508
<SALES> 852,778
<TOTAL-REVENUES> 0
<CGS> 281,682
<TOTAL-COSTS> 513,398
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 8,661
<INTEREST-EXPENSE> 13,868
<INCOME-PRETAX> 1,194
<INCOME-TAX> 1,715
<INCOME-CONTINUING> (521)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (521)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
