<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION DATED FEBRUARY 20, 1997
Registration No. 333-_____________
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
PRO TECH COMMUNICATIONS, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
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<S> <C> <C>
FLORIDA 3470 59-3281593
(State or jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Number) Identification No.)
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3311 INDUSTRIAL 25TH STREET
FT. PIERCE, FLORIDA 34946
(561) 464-5100
(Address, including zip code, and telephone number of principal executive
offices)
KEITH LARKIN, PRESIDENT
PRO TECH COMMUNICATIONS, INC.
3311 INDUSTRIAL 25TH STREET
FT. PIERCE, FLORIDA 34946
(561) 464-5100
(Name, address, and telephone number of agent for service)
Copies to:
LESLIE J. CROLAND, ESQ.
LUCIO, MANDLER, CROLAND, BRONSTEIN, GARBETT, STIPHANY & MARTINEZ, P.A.
701 BRICKELL AVENUE, SUITE 2000
MIAMI, FLORIDA 33131
(305) 579-0012
Approximate date of commencement of proposed sale to public: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box [x]
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE> 2
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Title of each maximum maximum Amount of
class of securities Amount to be offering price aggregate offering registration
registered registered per share (1) price (1) fee
- ------------------------------------------------------------------------------------------------------------------
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Common Stock, par value
$.001 per share(2) 1,000,000 $5.05 $ 5,050,000.00 $1,530.30
- -------------------------------------------------------------------------------------------------------------------
Common Stock, par value
$.001 per share (3)(4) 1,040,000 $5.05 $ 5,252,000.00 $1,591.51
===================================================================================================================
TOTAL 2,040,000 $10,302,000.00 $3,121.81
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(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) and based upon the average of the bid and asked prices of
the Common Stock as reported on the NASD's electronic bulletin board on
February 18, 1997.
(2) Shares of Common Stock to be offered and sold by the Company.
(3) Shares of Common Stock underlying Stock Purchase Warrants (the "Warrants")
and a Stock Option (the "Option") registered on behalf of six selling
security holders.
(4) Pursuant to Rule 416, such number of additional shares of Common Stock as
may become issuable in accordance with the anti-dilution provisions of the
Warrants and the Option are being registered hereby.
<PAGE> 3
PRO TECH COMMUNICATIONS, INC.
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Item No. Caption in Form SB-2 Location or Caption in Prospectus
------------------------------ ---------------------------------
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1. Front of Registration Statement and Outside Front
Cover of Prospectus . . . . . . . . . . . . . Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus . . . . . . . . . . . . . . . . . . Inside Front and Outside Back Cover Pages
3. Summary Information and Risk Factors . . . . . . Prospectus Summary; Risk Factors
4. Use of Proceeds . . . . . . . . . . . . . . . . Use of Proceeds
5. Determination of Offering Price . . . . . . . . Outside Front Cover Page
6. Dilution . . . . . . . . . . . . . . . . . . . . Dilution
7. Selling Security Holders . . . . . . . . . . . . Principal and Selling Stockholders
8. Plan of Distribution . . . . . . . . . . . . . . Outside Front Cover Page; Plan of Distribution
9. Legal Proceedings . . . . . . . . . . . . . . . Business - Legal Proceedings
10. Directors, Executive Officers, Promoters and
Control Persons . . . . . . . . . . . . . . . Management
11. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . Principal and Selling Stockholders; Certain
Transactions
12. Description of Securities . . . . . . . . . . . Description of Securities
13. Interest of Named Experts and Counsel . . . . . Legal Matters; Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities Management - Indemnification
15. Organization Within Last Five Years . . . . . . Certain Transactions
16. Description of Business . . . . . . . . . . . . Prospectus Summary; Risk Factors; Management's
Discussion and Analysis of Financial Condition;
Business
17. Management's Discussion and Analysis or Plan of Management's Discussion and Analysis of Financial
Operation . . . . . . . . . . . . . . . . . . . Condition
18. Description of Property . . . . . . . . . . . . Business - Property
19. Certain Relationships and
Related Transactions . . . . . . . . . . . . Principal and Selling Stockholders; Certain
20. Market for Common Equity and Related Transactions
Stockholder Matters . . . . . . . . . . . . . Outside Front Cover Page; Risk Factors; Price Range of
Common Stock; Description of Securities
21. Executive Compensation . . . . . . . . . . . . . Management
22. Financial Statements . . . . . . . . . . . . . . Financial Statements
23. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure . . . . . Not Applicable
</TABLE>
(i)
<PAGE> 4
Subject to Completion, Dated February 20, 1997
PROSPECTUS
2,040,000 SHARES
PRO TECH COMMUNICATIONS, INC.
Common Stock
Pro Tech Communications, Inc. (the "Company") hereby offers for sale
1,000,000 shares of common stock, par value $.001 per share (the "Common
Stock"). This Prospectus also relates to 1,040,000 shares of Common Stock
underlying Stock Purchase Warrants (the "Warrants") and a Stock Option (the
"Option"), which may be sold by six stockholders (the "Selling Stockholders").
The Company and the Selling Stockholders may sell all or a portion of
the shares of Common Stock from time to time in one or more transactions on the
electronic bulletin board of the National Association of Securities Dealers,
Inc. (the "NASD"), or otherwise, at market prices prevailing at the time of
sale, at prices related to the then-current market price, or at negotiated
prices. In connection with sales by the Selling Stockholders, the Selling
Stockholders and any brokers participating in such sales may be deemed
underwriters within the meaning of the Securities Act of 1933 (the "1933 Act").
The Company will not receive any of the proceeds from the sale of such shares,
except for the proceeds which may be received as a result of the exercise of
the Warrants and the Option owned by the Selling Stockholders. See "Plan of
Distribution" and "Principal and Selling Stockholders."
This offering is being conducted on a "best efforts" basis by the
Company. No underwriting discounts or commissions will be paid in connection
with the sale of the shares of Common Stock to be sold by the Company. There
is no minimum number of shares which must be sold and there can be no
assurances that the Company will receive any proceeds pursuant to this
offering. The Company will not receive any of the proceeds from the sale of
shares of Common Stock by the Selling Stockholders, except for $1,520,000 which
is required to be paid to the Company by the Selling Stockholders as a result
of the exercise of the Warrants and the Option.
The Common Stock is traded on the over-the-counter market under the
symbol "PCTU." On February 18, 1997, the average of the bid and asked prices
of the Common Stock were $4.85 and $5.25, respectively.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN
INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Proceeds to
Price Proceeds Selling
to Public(1) to Company(2) Stockholders(3)
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<S> <C> <C> <C>
Per Share . . . . . . . . . . . . . . . . .
$__________ $__________ $_________
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Total . . . . . . . . . . . . . . . . . . . $___________ $_________ $_________
======================================================================================================================
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(1) The price of the shares of Common Stock is based upon the average of the
bid and asked prices of the Common Stock as reported on the NASD's
electronic bulletin board on ____________ ___, 1997.
(2) Before deducting expenses of this offering payable by the Company,
estimated at $50,000. Includes $1,520,000 of proceeds from the
exercise of the Warrants and the Option owned by the Selling Stockholders.
(3) Does not take into account any commissions payable by the Selling
Stockholders in brokers transactions.
<PAGE> 5
ADDITIONAL INFORMATION
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934 (the "1934 Act") and in accordance therewith files
periodic reports, proxy statements and other information with the Securities
and Exchange Commission (the "Commission"). Such periodic reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, NW, Washington, D.C. 20549, at its Chicago Regional
Office at Northwestern Atrium Center, 500 West Madison, Suite 1400, Chicago,
Illinois 60661-2511, and at its New York Regional Office at 7 World Trade
Center, Suite 1300, New York, New York 10007, and copies of such materials can
be obtained from the Public Reference Section at prescribed rates. The Company
intends to furnish its stockholders with annual reports containing financial
statements certified by independent auditors and quarterly reports for the
first three quarters of each fiscal year containing unaudited financial
statements. The Commission maintains a Web site that contains reports, proxy
and information statements and other information regarding issuers that file
electronically with the Commission and the address of such site is
http://www.sec.gov.
<PAGE> 6
PROSPECTUS SUMMARY
This summary is qualified in its entirety by reference to the detailed
information and financial statements and related notes appearing elsewhere in
this Prospectus. Each prospective investor is urged to read this Prospectus in
its entirety.
THE COMPANY
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 the 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 its headsets. 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 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 lightweight design and marketing strategies involving
the sale of the Company's product directly to the commercial headset market as
a replacement for its competitors' products. The Company presently
manufactures 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 design for
the telephone user market, which includes telephone operating companies,
government agencies, business offices, and professional telephone centers. The
Company will commence testing this product in the second quarter of the 1997
fiscal year. 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 receiver capsule and a voice tube. The second is
the electronic amplifier component which plugs into the telephone system to be
operated. Of the two components, the electronic amplifier 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 the various
electronic amplifiers and telephone systems currently in use. The Company,
however, conducted its own market study to determine whether it would be
financially viable for the Company to produce its own electronic amplifier.
Based on the study, the Company has determined to proceed with the production,
marketing and sale of an amplifier. The Company anticipates spending
approximately $250,000 of the proceeds from the exercise of the Warrants and
the Option to research and develop the product. See "Use of Proceeds."
The Company's principal executive offices are located at 3311 Industrial
25th Street, Fort Pierce, Florida 34946, and its telephone number is (561)
464-5100.
THE OFFERING
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Common Stock Offered by the Company . . . . . . . . . . . 1,000,000 shares
Common Stock Offered by Selling Stockholders . . . . . . 1,040,000 shares
Common Stock Outstanding Prior to Offering . . . . . . . 3,964,000 shares (1)
Common Stock Outstanding After Offering . . . . . . . . . 6,004,000 shares (1)
Use of Proceeds . . . . . . . . . . . . . . . . . . . Net proceeds estimated to be approximately $6,520,000
are intended to be used primarily to implement the
Company's business expansion strategy. See "Use of
Proceeds" and "Business-Growth Strategy."
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2
<PAGE> 7
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Risk Factors . . . . . . . . . . . . . . . . . . . . . . An investment in the shares of Common Stock offered hereby
involves a high degree of risk. Investors should consider the
information under the caption "Risk Factors."
NASD Electronic Bulletin Board Symbol . . . . . . . . . . PCTU
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__________________________
(1) Does not include 590,000 shares of Common Stock underlying stock options
granted to three executive officers of the Company. See "Management-Stock
Option Plan."
SUMMARY FINANCIAL DATA
The following table presents selected historical financial date of the
Company for each of the fiscal years in the two year period ended October 31,
1996. The summary financial data set forth below is derived from and should be
read in conjunction with the Company's financial statements and notes thereto
and the "Management's Discussion and Analysis of Financial Condition" section
contained elsewhere in this Prospectus.
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Year Ended October 31,
-------------------------
1996 1995
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STATEMENT OF INCOME DATA:
Net Sales . . . . . . . . . . . . . . . . . . $ 852,778 $ 830,667
Gross Profit . . . . . . . . . . . . . . . . . 571,096 472,072
Income from Operations . . . . . . . . . . . . 66,359 56,665
Other Income (Expenses), Net . . . . . . . . . (65,165) 1,226
--------- ---------
Income Before Income Taxes . . . . . . . . . . 1,194 57,891
Income Taxes . . . . . . . . . . . . . . . . . 1,715 13,392
--------- ---------
Net Income (Loss) . . . . . . . . . . . . . . $ (521) $ 43,959
========= =========
PER SHARE DATA:
Income (Loss) Per Share . . . . . . . . . . . $ 0.00 $ 0.02
========= =========
Average Shares Outstanding . . . . . . . . . . 3,414,000 2,462,417
========= =========
</TABLE>
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<CAPTION>
October 31, 1996
-----------------------------------
Actual As Adjusted(1)
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<S> <C> <C>
BALANCE SHEET DATA:
Cash and Cash Equivalents . . . . . . . . . . $ 596,705 $7,116,705
Accounts Receivable . . . . . . . . . . . . . 155,460 155,460
Inventory . . . . . . . . . . . . . . . . . . 176,447 176,447
Working Capital . . . . . . . . . . . . . . . 878,109 7,398,109
Total Assets . . . . . . . . . . . . . . . . 1,110,508 7,630,508
Total Current Liabilities . . . . . . . . . . 99,153 99,153
Stockholders' Equity . . . . . . . . . . . . 1,011,355 7,531,355
</TABLE>
__________________________
(1) Reflects the purchase of the Shares underlying the Warrants and the
Option and the sale of the 1,000,000 shares of Common Stock offered by
the Company.
3
<PAGE> 8
RISK FACTORS
Prospective investors should carefully consider, along with the other
information contained in this Prospectus, the following risk factors relating
to the Company, its business and the shares of Common Stock offered hereby.
RECENT FORMATION, LIMITED OPERATING HISTORY AND RECENT NET LOSS
The Company was incorporated in the State of Florida on October 5, 1994.
From August 1991 to October 1994, the Company's business was conducted by Pro
Tech Systems, a limited partnership organized under the laws of the State of
California. 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 its headsets. 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. See "Business-General." As of October 31, 1996, the Company's
total assets were $1,110,508, stockholders' equity was $1,011,355 and the
Company had a net loss of $(521). As a result, the Company faces numerous
risks associated with a relatively low-capitalized company. The Company's
business is and will continue to be subject to many factors beyond the
Company's control, including competition from more established and better
capitalized telephone headset manufacturers and economic downturns causing
decreases in capital expenditures by the Company's customers. The Company may
also encounter unanticipated problems, including development, manufacturing and
marketing difficulties, some of which may be beyond the Company's ability to
resolve. See "Business."
COMPETITION
The lightweight telephone headset industry is highly competitive and
characterized by a few dominant producers. The Company's competitors include
Plantronics, Inc. ("Plantronics"), the industry leader, and to a lesser extent,
ACS Wireless, Inc. ("ACS Wireless"), GN Netcom, Inc. and UNEX Corporation. All
of the Company's known competitors possess substantially greater financial,
manufacturing, marketing, distribution and other resources than the Company.
Such competition could adversely affect the Company's pricing and distribution
of its products and, as a result, its profit margins. Although the Company
believes that its business strategy based upon low overhead and cost of
production will give it a competitive advantage over its larger competitors, no
assurance can be given that competitive pressure from these companies will not
materially adversely affect the Company's business and financial condition. In
the event of price competition with respect to the Company's products,
competitive pressures could cause the Company to reduce the prices of its
products, which would result in reduced profit margins. Prolonged price
competition would have a material adverse effect on the Company's operating
results and financial condition. A variety of other potential actions by the
Company's competitors, including increased promotion and accelerated
introduction of new or enhanced products, could have a material adverse effect
on the Company's results of operations. There can be no assurance that the
Company will be able to compete successfully against its larger, more
established and better capitalized competitors. See "Business- Competition."
DEPENDENCE ON SIGNIFICANT CUSTOMERS
McDonald's Corporation and its franchises accounted for approximately 30%
of the Company's net sales for fiscal year 1996. No other customer of the
Company accounted for more than 10% of the Company's net sales for this period.
The loss of McDonald's Corporation and its franchisees as customers, or a
significant reduction in their purchases of the Company's products, could have
a material adverse effect on the Company's business and results of operations
if the Company is not able to quickly replace the net sales generated by these
customers.
RELIANCE ON KEY PERSONNEL
The Company is dependent on the personal efforts and skills of Keith
Larkin, age 73, the founder, Chairman of the Board President and Treasurer of
the Company. Among his many duties on behalf of the Company, Mr. Larkin is
primarily responsible for the design of the Company's products and the
oversight of the manufacturing process. See "Management." Although Mr. Larkin
has entered into a five-year employment agreement with the Company, there can
be no assurance that he will continue to work for the Company during the entire
term of his agreement, nor can there be any assurance that his efforts can
produce profits for the Company. The loss, incapacity or unavailability of Mr.
Larkin could have a material adverse affect on the Company's operations. The
Company does not have keyman life insurance on the life of Mr. Larkin.
4
<PAGE> 9
NEED TO SUCCESSFULLY DEVELOP NEW PRODUCTS AND MARKETS
The Company's net sales to date have been derived from the sale of
lightweight telephone headsets primarily to fast food companies and other large
quantity users of headset systems. Substantially all of the Company's sales
have been made directly to the end user and its product development efforts
have primarily been directed toward incremental enhancements of its existing
products. In the future, the Company intends to enhance both its existing
products and to develop new products that capitalize on its core technology and
expand the Company's product offerings to new user market segments, including,
but not limited to, telephone operating companies, government agencies,
business offices and professional telephone centers. The success of new
product introductions is dependent on several factors, including proper new
product selection, timely completion and introduction of new product designs,
quality of new products and market acceptance. Although the Company will
attempt to determine specific needs of these new markets, there can be no
assurance that the market identified by the Company will in fact materialize or
that the Company's future products designed for such market will gain
substantial market acceptance.
DEMANDS OF CHANGING TECHNOLOGIES
The technology of telephone headsets has traditionally evolved slowly.
Products have generally exhibited life cycles of five to ten years before
introduction of the next generation of products, which usually included
stylistic changes and quality improvements but were based on similar
technology. The Company believes that future changes in technology may come at
a faster pace, particularly in the intensive telephone user market. The
Company's future success will be dependent in part on its ability to develop
products that utilize new technologies and to introduce them in the marketplace
successfully. In addition, in order to avoid product obsolescence, the Company
will have to monitor technology changes in telephony, as well as users' demands
for new technologies. Failure by the Company to keep pace with future
technological changes could materially adversely affect the Company's revenues
and operating results. See "Business-Products."
NO CONTRACTS WITH SUPPLIERS
The Company purchases the components for its headsets from four suppliers
in the Far East and twelve in the United States, who produce the components to
the Company's specifications based upon molds designed by the Company. Five of
such companies supply 90% of the component parts of the Company's products.
The Company does not have any contracts with such companies. The Company
currently purchases such components on a purchase order basis and does not
intend to enter into master purchase agreements with any of its suppliers.
Although the Company has not experienced interruptions in the supply of
components, an interruption in such supply could temporarily result in the
Company's inability to deliver products on a timely basis, which in turn could
adversely affect its operations. See "Business-Manufacturing."
IMPORTANCE OF PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS
The extent of the Company's success could depend in part on its ability to
obtain patents and preserve other intellectual property rights covering the
design and operation of its products. The Company does not currently hold any
patents, although it intends to seek patents on its inventions at an
appropriate time in the future. The 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 licenses or other rights or the advent of litigation arising out of
any such claims could have a material adverse effect on the Company's
operations. See "Business-Proprietary Protections."
USE OF NET PROCEEDS NOT SPECIFIC
All of the net proceeds from the sale of the 1,000,000 shares of Common
Stock offered by the Company will be added to working capital and are intended
to be used to implement the Company's business expansion strategy, which could
include the application of all of such additional working capital to expand the
Company's existing operations by acquiring complementary businesses, assets or
product lines. Such strategy may require management to choose among several
expansion opportunities. Investors will therefore be relying on the judgment
of the Company's management in the selection of such opportunities after the
completion of this offering. Such opportunities may involve various risks
which could affect the Company's business and profitability. See "Use of
Proceeds" and "Business-Growth Strategy."
5
<PAGE> 10
GROWTH STRATEGY AND RISKS RELATING TO FUTURE ACQUISITIONS
The proceeds from the sale of the shares of Common Stock to be offered by
the Company and the proceeds from the purchase of the shares of Common Stock
underlying the Warrants and the Option are intended to be used to acquire other
companies, assets or product lines that would complement or expand the
Company's present business. The Company's ability to grow by acquisition is
dependent upon, and may be limited by, the availability of some suitable
acquisition candidates and capital. Acquisitions involve risks that could
adversely affect the Company's operating results including the assimilation of
the operations and personnel of acquired companies, the possible amortization
of acquired intangible assets and the potential loss of key employees of
acquired companies. There can be no assurances that the Company will be able
to consummate any acquisitions on suitable terms. No commitments, binding
agreements, arrangements or understandings have been entered into within any
third parties to date and there can be no assurance that any acquisitions will
be completed. See "Use of Proceeds" and "Business-Growth Strategy."
CONTROL BY PRINCIPAL STOCKHOLDER
As of the date of this Prospectus, Keith Larkin beneficially owns
1,577,700 shares of Common Stock, or 35% of the outstanding Common Stock. See
"Principal and Selling Stockholders." Upon completion of the sale of all of
the shares of Common Stock offered hereby, of which there can be no assurance,
Mr. Larkin will own 24.1% of the outstanding shares of Common Stock. Since
holders of Common Stock do not have cumulative voting rights under the
Company's Articles of Incorporation, Mr. Larkin will own the largest block of
Common Stock and, therefore, may be in a position to determine the outcome for
the election of directors and thereby control the Company.
NO LIABILITY INSURANCE
Based upon the design of headsets and their intended use, the Company
believes that its exposure to claims for injuries arising out of the Company's
products is minimal. As a result, the Company does not carry any liability
insurance coverage for such claims. Certain claims for injuries could have a
material adverse affect on the Company's financial condition and operations.
To date, however, there have not been any claims for injuries arising out of
the Company's products.
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchase price of the Common Stock substantially exceeds the tangible
book value of the Common Stock. Purchasers of the Common Stock will therefore
experience an immediate substantial dilution in the net tangible book value per
share of the Common Stock after this offering in the amount of $3.80 per
share.
NO DIVIDENDS
The Company has not paid any cash dividends since its inception, does not
anticipate paying any cash dividends in the foreseeable future and intends to
retain earnings, if any, to provide funds for general corporate purposes and
the proposed expansion of the Company's business. See "Business-Growth
Strategy." Any future dividends will be dependent upon the earnings of the
Company, its financial requirements and other relevant factors.
NO ASSURANCE OF LIQUID PUBLIC MARKET FOR COMMON STOCK; POTENTIAL VOLATILITY OF
STOCK PRICE
The Common Stock has been trading on the NASD electronic bulletin since
March 22, 1996. As compared to other markets, such as the NASDAQ SmallCap
Market, an investor may find it difficult to dispose of or to obtain accurate
quotations for the Common Stock. If and when the Company meets the NASD's
listing requirements, an event of which there can be no assurance, the Company
intends to file an application to list the Common Stock on the NASDAQ SmallCap
Market. Such market's present minimum listing requirements include minimum
total assets of $4 million, total stockholders' equity of $2 million, a market
value of public float of at least $1 million, and a minimum bid price for at
least thirty days of $3.00 per share. NASDAQ is proposing to increase the
listing standards to: (a) $4 million in net tangible assets or $500,000 in net
income in two of the last three years or a market capitalization of at least
$35 million, (b) a market value of public float of at least $5 million, and (c)
a minimum bid price for at least thirty days of $4.00 per share. There can be
no assurances that the Company will meet the NASDAQ's listing requirements in
the future. In addition, the market price of the Common Stock could be subject
to significant fluctuations in response to the Company's operating results and
other factors. The stock market generally may experience extreme price and
volume fluctuations that may be unrelated or disproportionate to the operating
performance of
6
<PAGE> 11
companies. Such fluctuations, in general economic and market conditions, may
adversely affect the market price of the Common Stock.
RISK OF COMMON STOCK TRADING AT BELOW $5.00 PER SHARE
If the trading price of the Common Stock is less than $5.00 per share,
trading in the Common Stock will be subject to certain rules promulgated under
the 1934 Act, which require additional disclosure by broker-dealers in
connection with any trades involving a stock defined as a penny stock
(generally, any non-NASDAQ equity security that has a market price of less than
$5.00 per share, subject to certain exceptions). Such rules require the
delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith, and
impose various sales practice requirements on broker-dealers who sell penny
stock to persons other than established customers and accredited investors.
For these types of transactions, the broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. The additional burdens
imposed upon broker-dealers by such requirements may discourage broker-dealers
from effecting transactions in the Common Stock, which could severely limit the
market liquidity of the Common Stock and the ability of persons to sell the
Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the sale of all of the shares of Common Stock offered
hereby, the Company will have outstanding 6,004,000 shares of Common Stock. Of
such shares, the 2,040,000 shares of Common Stock offered hereby will be freely
tradeable without restriction or further registration under the 1933 Act,
unless held or purchased by "affiliates" of the Company, as that term is
defined in Rule 144 under the 1933 Act. Subject to the volume limitations of
Rule 144 in the case of affiliates, the remaining 3,964,000 shares of Common
Stock are also available for sale in the public market. Sales of these shares
in the public market, or the availability of such for sale, could adversely
affect the market price for the Common Stock. See "Description of
Securities-Shares Eligible for Future Sale."
PLAN OF DISTRIBUTION
THE COMPANY
The 1,000,000 shares of Common Stock being offered by the Company hereby
will be sold from time to time in one or more transactions on the NASD's
electronic bulletin board, or otherwise, at market prices prevailing at the
time of sale, at prices related to the then-current market price, or at
negotiated prices. Any sales on behalf of the Company will be done pursuant to
Rule 3a4-1 of the 1934 Act.
SELLING STOCKHOLDERS
The Company has been advised by the Selling Stockholders that they may
sell all or a portion of their shares of Common Stock from time to time in one
or more transactions on the NASD's electronic bulletin board, or otherwise, at
market prices prevailing at the time of sale, at prices related to the
then-current market price, or at negotiated prices. See "Principal and Selling
Stockholders." In connection with such sales, the Selling Stockholders and any
brokers participating in such sales may be deemed underwriters within the
meaning of the 1933 Act.
In accordance with the terms of the Warrants issued to five of the Selling
Stockholders, such stockholders are required to purchase the shares of Common
Stock underlying the Warrants within five business days after the Registration
Statement of which this Prospectus forms a part is declared effective by the
Commission. As a result, the Company will receive $1.5 million from the
exercise of such Warrants. See "Use of Proceeds." The owner of the Option is
not obligated to exercise the Option within any given period of time.
7
<PAGE> 12
DILUTION
At October 31, 1996, the Company had a net tangible book value of
$1,011,355, or $.26 per share. Net tangible book value per share represents
the amount of the Company's tangible assets less the amount of its liabilities,
divided by the number of shares of Common Stock outstanding. After giving
effect of the sale of 1,000,000 shares of Common Stock offered by the Company
at an assumed price of $5.05 per share and the Company's receipt of the
proceeds from the exercise of the Warrants and Option owned by the Selling
Stockholders, the pro forma net tangible book value of the Company as adjusted
as of October 31, 1996 would be approximately $7,531,355 or $1.25 per share.
Accordingly, the cash investment by the public investors of $5.05 per share
will be diluted immediately by approximately $3.80 per share. The aggregate
increase in the net tangible book value to the present stockholders, at no
additional cost to them, will be approximately $.99 per share. The following
table illustrates per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share . . . . . . . . . . . . $5.05
Net tangible book value per share before offering . . . . . . . $.26
Increase per share attributable to payments by
new investors . . . . . . . . . . . . . . . . . . . . . . . .99
----
Adjusted pro forma net tangible book value
per share after offering . . . . . . . . . . . . . . . . . . 1.25
-----
Dilution of net tangible book value
per share to new investors . . . . . . . . . . . . . . . . . $3.80
=====
</TABLE>
PRICE RANGE OF COMMON STOCK
The following table sets forth for the quarters indicated, the high and
low bid prices of the Common Stock as reported by the NASD electronic bulletin
board for the period from March 22, 1996 through October 31, 1996. Prior to
March 22 1996, there was no market for the Common Stock. The bid prices as
reported represent prices between dealers and do not include retail mark-ups,
mark-downs or commissions and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
Year Ended Common Stock
October 31, 1996 High Low
---------------- ---- ---
<S> <C> <C>
Second Quarter (Commencing March 22, 1996) $0.75 $0.50
Third Quarter $3.75 $0.80
Fourth Quarter $3.625 $0.875
</TABLE>
The Common Stock is traded on the NASD's electronic bulletin board under
the symbol "PCTU." On February 18, 1997, the average of the bid and asked
prices of the Common Stock was $5.05. On January 24, 1997, there were
approximately 59 holders of record of the Common Stock. This number does not
include any adjustment for stockholders owning Common Stock in "street" name.
USE OF PROCEEDS
If all the shares of Common Stock are sold, and the Warrants and the
Option are exercised, of which there is no assurance, the maximum net proceeds
to the Company, based upon the average of the bid and asked prices of the
Common Stock as reported on the NASD's electronic bulletin board on February 18,
1997, are estimated to be approximately $6,520,000, after deducting
expenses of this offering (estimated at $50,000). Such net proceeds will
be used for the implementation of the Company's business expansion strategy.
See "Business-Growth Strategy." Because the shares of Common Stock are being
offered by the Company on a best efforts basis, there can be no assurances that
any of the shares of Common Stock can be sold, and, accordingly, the proceeds
hereof may be significantly less than that set forth herein.
8
<PAGE> 13
PROCEEDS FROM SALE OF COMMON STOCK
If the Company obtains at least $1,000,000 from the sale of shares of
Common Stock and if attractive opportunities are available to the Company, of
which there can be no assurance, the Company intends to expand its business by
the acquisition of other companies, assets or product lines that would
complement or expand the Company's existing business. The Company, however, is
not engaged in any discussions with third parties with respect to such methods
of expansion and there can be no assurance that the Company can successfully
expand its business at all or on terms favorable to the Company. If net
proceeds of less than $1 million are received by the Company from the sale of
Common Stock, such proceeds will be added to working capital and will be
available for, among other uses, the expansion of the Company's domestic and
international markets. See "Business-Growth Strategy."
PROCEEDS FROM EXERCISE OF WARRANTS AND OPTION
The net proceeds to the Company from the exercise of the Warrants and the
Option are estimated to be approximately $1,520,000. The Company intends to
use such net proceeds as follows:
<TABLE>
<CAPTION>
Approximate
Approximate Percentage of
Application of Proceeds Dollar Amount Dollar Amount
----------------------- ------------- -------------
<S> <C> <C>
Marketing and advertising(1) . . . . . . . . . $ 330,000 21.7%
Open international offices(2) . . . . . . . . . 260,000 17.1%
Increase sales force(3) . . . . . . . . . . . . 150,000 9.9%
Product design and development(4) . . . . . . . 400,000 26.3%
Increase inventory to support customer
requirements . . . . . . . . . . . . . . . . . 160,000 10.5%
Working capital(5) . . . . . . . . . . . . . . 220,000 14.5%
----------- ----
Total . . . . . . . . . . . . . . . . . . $ 1,520,000 100%
=========== ====
</TABLE>
- ----------------------------------
(1) The Company intends to invest $150,000 into existing U.S. targeted markets
and $180,000 in market research and introduction of products into targeted
international markets.
(2) The Company intends to open offices in Sidney, Australia and London,
England to support its international sales efforts.
(3) The Company intends to hire two additional marketing representatives to
support anticipated U.S. demand for products.
(4) The Company intends to increase the design and development for three
products. This investment is targeted in three areas: (i) amplifier
design and associated plastic moldmaking and sourcing of component parts
(approximately $250,000); (ii) moldmaking and final design for the Trinity
(approximately $100,000), and (iii) final design changes for the ConForm
(approximately $50,000).
(5) Working capital includes, but is not limited to, carrying additional
receivables associated with increased sales, costs to expand additional
warehouses, personnel costs for the expansion of the Company's existing
products and expenses for distribution, acquisition, and other general and
administrative expenses.
GENERAL
Although the Company does not intend to use any portion of the net
proceeds of this offering to pay officers' salaries, which are expected to be
funded from cash generated from operations, it may be necessary for the Company
to use from time to time a portion of the net proceeds for such purposes if
cash flow is not adequate to cover officers' salaries.
The foregoing represents the Company's best estimate of its allocation of
the net proceeds of this offering, based upon the Company's present financial
condition and present economic conditions. Future events, including the
problems, delays, expenses and complications frequently encountered by
companies of this size and the success or lack thereof of the Company's
expansion and marketing efforts, may make shifts in the allocation of funds
necessary or desirable. Pending use of the net proceeds of this offering, the
Company may temporarily invest such funds in interest-bearing accounts,
certificates of deposit, government obligations, short-term interest bearing
obligations and similar short- term investments.
9
<PAGE> 14
SELECTED FINANCIAL INFORMATION
The selected financial information presented below for, and as of the end
of, each of the fiscal years ended October 31, 1996 and 1995 is derived from
the financial statements of the Company. The financial statements for each of
the fiscal years ended October 31, 1996 and 1995 have been audited by KPMG Peat
Marwick LLP, independent certified public accountants. The following selected
financial information should be read in conjunction with the Company's
financial statements and related notes and with the "Management's Discussion
and Analysis of Financial Condition" section contained elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
Year Ended October 31,
-------------------------
1996 1995
-------- ---------
<S> <C> <C>
STATEMENT OF INCOME DATA:
Net Sales . . . . . . . . . . . . . . . . . . $ 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
Income from Operations . . . . . . . . . . . . 66,359 56,665
Other Income (Expenses), Net . . . . . . . . . (65,165) 1,226
Income Before Income Taxes . . . . . . . . . . 1,194 57,891
Income Taxes . . . . . . . . . . . . . . . . . 1,715 13,392
Net Income (Loss) . . . . . . . . . . . . . . . $ (521) $ 43,959
======== =========
PER SHARE DATA:
Income (Loss) Per Share . . . . . . . . . . . $ 0.00 $ 0.02
==== ====
Average Shares Outstanding . . . . . . . . . . 3,414,000 2,462,417
========= =========
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and Cash Equivalents . . . . . . . . . . $ 596,705 $ 571,270
Working Capital . . . . . . . . . . . . . . . 878,109 472,533
Accounts Receivable, net of allowance
for doubtful accounts . . . . . . . . . . . 155,460 119,411
Inventory . . . . . . . . . . . . . . . . . . 176,447 90,061
Net Property and Equipment . . . . . . . . . 128,880 90,166
Total Assets . . . . . . . . . . . . . . . . 1,110,508 875,692
Total Current Liabilities . . . . . . . . . . 99,153 312,993
Total Stockholders' Equity . . . . . . . . . . 1,011,355 562,699
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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. 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 products 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 "Business-Products." All
10
<PAGE> 15
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 volumes versus 31% of net revenues and 34% of unit volumes 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 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 reduction of
23% or $27,791 in marketing expenses from $149,373 in fiscal year 1995 to
$121,582 in 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 $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, reductions 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 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
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 and
auditing 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.
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 2.61 to 1.00 and working capital of $472,533 for the same
comparable 1995 fiscal year. These increases resulted primarily from 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 exercise of the Warrants and the
Option to increase its market share in the fast-food headset market, to enter
the telephone user market and to expand into the international market. See
"Use of Proceeds." However, even if the Warrants and the Option are not
exercised, management believes that the Company has sufficient funds to
maintain its current level of operations and meet the Company's anticipated
working capital requirements for at least twelve months.
11
<PAGE> 16
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 a maximum annual salary 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
"Management-Employment Agreements."
BUSINESS
GENERAL
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 the 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 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 lightweight 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 manufactures
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 design for the telephone
user market, which includes telephone operating companies, government agencies,
business offices, and professional telephone centers. The Company will
commence testing this product in the second quarter of the 1997 fiscal year.
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 receiver capsule and a voice tube. The
second is the electronic amplifier component which plugs into the telephone
system to be operated. Of the two components, the electronic amplifier 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 the
various electronic amplifiers and telephone systems currently in use. The
Company, however, conducted its own market study to determine whether it would
be financially viable for the Company to produce its own electronic amplifier.
Based on the study, the Company has determined to proceed with the production,
marketing and sale of an amplifier. The Company anticipates spending
approximately $250,000 of the proceeds from the exercise of the Warrants and
the Option to research and develop the product. See "Use of Proceeds."
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. See
"Management-Directors and Executive Officers." Plantronics presently is the
world's largest lightweight telephone headset manufacturer, with approximately
$170 million of net sales for the 1995 fiscal year.
12
<PAGE> 17
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 his 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 then 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 call centers (such as airline
reservations, catalog sales and credit collection operations) and to a lesser
extent, by business persons and other professionals whose occupations require
extensive, though not constant, use of the telephone. In comparison to
handsets standard on most telephones, telephone headsets provide users with the
ability to perform other tasks while communicating via telephone and as a
result are designed to allow users to work more effectively and efficiently.
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 adaptor capable of interfacing with
the particular electronic amplifier or telephone system 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 currently in use. The ProCom will be offered in direct competition
with all models offered by Plantronics, ACS Communications, GN Netcom, Inc. and
UNEX Corporation. See "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 office
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 second quarter of the 1997 fiscal year. Unlike other
headsets currently available, the Trinity will employ a light (1/2 ounce)
"acoustical ear cup" which completely surrounds the users' 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 time 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 manufacturers. 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 second quarter of the 1997 fiscal year. After conducting its own
market research, the Company determined that there is a demand for a headset
which combines both the 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 "Business - Marketing and Sales."
13
<PAGE> 18
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 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.
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 $10.00 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 who 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 products 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 into 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's Corporation ("McDonald's") which allows the Company to sell its
products on a non-exclusive basis to McDonald's franchisees and company-owned
restaurants. Initial test sales to McDonald's 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's restaurants. These numbers
have increased by over 18,600 headset sales to more than 7,000 restaurants
during the fiscal year ended October 31, 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's-owned restaurants and franchisee restaurants represented
approximately 30% and 60% of the Company's net sales for fiscal years 1996 and
1995, 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 Rockwell, Northern Telecom Teknetron, and other large
telephone headset 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 personal computer 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 $3,825 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.
The Company's direct 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 lesser extent, resellers; and (ii) larger 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.
As of June 26, 1996, the Company, in an effort to supplement its
marketing efforts, entered into two-year marketing agreements with three of the
Selling Stockholders, Don Fraser, Martin Goldberg and Costas Takkas. For the
terms of such agreements, see "Certain Transactions." To date, the Company has
not sold any products through the efforts of Messrs. Fraser, Goldberg or
Takkas.
14
<PAGE> 19
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 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; Chen 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 temporarily 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 manufactures 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
in inventory is attributable to two factors. First, the Company benefitted
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 sales of the Company's products. See "Business-Property." In the
event that purchase orders were to exceed the production capabilities of the
Fort Pierce location, the Company would be required to enter into
subcontracting arrangements for the manufacture of the Company's 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 possesses 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 headsets, 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%. See "Management-
Directors and Executive Officers."
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.
15
<PAGE> 20
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 other
patent rights Mr. Larkin may conceive in the course of his employment with the
Company. See "Management-Employment Agreement." The Company intends to seek
patent protection on its inventions at the appropriate time in the future. The
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 confidentiality 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 its distinguishing marks.
GROWTH STRATEGY
The Company's goals are to continue the steady growth rate which it has
experienced since incorporation, and to become a brand recognized leader in the
lightweight telecommunications headset industry. In order to achieve these two
goals, the Company's strategy is to increase its customer base through internal
growth and through growth by acquisition.
The Company plans to increase its net sales and income by increasing
its customer base in existing markets and expanding into new domestic and
international markets. In order to increase its customer base, the Company
intends to increase its product line and the size of its inventory as well as
to continue to expand its sales and marketing efforts by: (i) leveraging
existing relationships with current customers, (ii) establishing new
relationships with existing distributors serving each targeted market, (iii)
establishing new business relationships with large telecommunications headset
users, (iv) exploiting Mr. Larkin's past business and invention successes
through targeted sales appointments with potential customers, (v) employing
mass media advertising to key personnel with potential customers, and (vi)
submitting articles for reprint in trade publications to promote the Company
and its products.
Another element of the Company's strategy to achieve its goal, is to
expand its business through the acquisition of other companies, assets, or
product lines that would complement the Company's existing business. The
Company believes that there are other businesses which would be interested in
consolidating with the Company, allowing the Company to grow significantly.
The Company would consider acquiring other telecommunications headset
manufacturers or distributors and/or manufacturers of telephone products which
are complementary to the Company's products, and manufacturers of parts used in
the Company's products. The Company believes that acquisitions will enable it
to leverage its current level of operations and accelerate growth. The Company
has no present understanding, agreement or arrangement with respect to any
acquisition. The acquisitions of companies, assets and product lines will be
funded from the sale of the Common Stock offered by the Company hereby. See
"Use of Proceeds."
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.
16
<PAGE> 21
PROPERTIES
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 in 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
$1,426. The Company considers its rental space adequate for its present
operations, and believes additional space is available near its present
location, if needed.
LEGAL PROCEEDINGS
As of the date of this Prospectus, there are no material legal
proceedings to which the Company is a party.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
executive officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
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
</TABLE>
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 period
Plantronics established itself as the main source of lightweight telephone
headsets to the telephone industry and provided the headsets for NASA's
Mercury, Gemini and Apollo moon flights. In the late 1970s, Mr. Larkin
conceived, developed and patented a new design in headsets, and in 1980, he
founded ACS Wireless to manufacture a new line of headsets to compete against
the Plantronics' headsets. With Mr. Larkin as its President, ACS Wireless
attained $1 million monthly sales figures to the telephone market within 3
years of operations 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 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.
17
<PAGE> 22
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.
DIRECTOR COMPENSATION
The current members of the board of directors receive salaries in their
capacities as executive officers of the Company and received no additional
compensation for serving as directors of the Company. If and when non-employee
directors become members of the board of directors, such persons will be paid
fees for attending Board meetings and may receive grants of stock options.
There presently are no agreements, understandings or arrangements to add any
persons to the board of directors.
SUMMARY COMPENSATION TABLE
The following table shows remuneration paid or accrued by the Company
during each of the fiscal years ended October 31, 1995 and 1996 to the
Company's chief executive officer for services in all capacities while he was
employed by the Company. No other executive officer of the Company received
compensation in excess of $100,000 for each of the fiscal years included in the
table.
<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 Compensation
------------- ---- ------ ----- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Keith Larkin 1996 $42,500 0 0 0 540,000(1) 0 0
Chief Executive 1995 $22,500 0 0 0 0 0 0
Officer
</TABLE>
_______________________
(1) For a description of such stock options, see "Management-Stock Option
Plan" and "Fiscal Year 1996 Option Exercises and Holdings."
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 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. 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, 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.
The Company does not have written employment agreements with Kenneth
Campbell or Richard Hennessey. During 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.
18
<PAGE> 23
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 of 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.
FISCAL YEAR 1996 OPTION EXERCISES AND HOLDINGS
The following table sets forth (i) the sock 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>
INDEMNIFICATION
Pursuant to the Company's Articles of Incorporation, present and former
officers and directors of the Company will be indemnified by the Company to the
fullest extent allowed under Florida law for claims brought against them in
their capacities as officers and directors. Indemnification is allowed if the
officer or directors acts in good faith and, in the case of conduct in his
official capacity, in a manner reasonably believed to be in the best interest
of the Company, or in all other cases, with a reasonable belief that his
conduct was at least not opposed to the Company's best interest. In the case
of criminal proceedings, an officer or director should have no reasonable cause
to believe his conduct was unlawful. Accordingly, it is possible that
indemnification may occur for liabilities arising under the 1933 Act. Insofar
as indemnification for liabilities arising under the
19
<PAGE> 24
1933 Act may be permitted for officers and directors of the Company pursuant to
the foregoing provisions or otherwise, the Company has been advised that in the
opinion of the Commission, such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable.
PRINCIPAL AND SELLING STOCKHOLDERS
The table below sets forth the beneficial ownership of the Common Stock as
of January 24, 1997, as adjusted to give effect to the sale of 2,040,000 shares
of Common Stock offered by the Company and the Selling Stockholders, by: (i)
each of the Company's officers and directors, (ii) all of the Company's
officers and directors as a group, (iii) each person who is known by the
Company to own beneficially more than 5% of the outstanding shares of Common
Stock, and (iv) each of the Selling Stockholders.
<TABLE>
<CAPTION>
Shares Owned Beneficially Shares Owned Beneficially
Before Offering After Offering(2)
----------------------------- Shares Being -----------------------------
Name and Address(1) Number Percent Offered Number Percent
------------------- ------ ------- --------------- ------ -------
<S> <C> <C> <C> <C> <C>
Keith Larkin . . . . . . . . 1,577,700(3) 35% --- 1,577,700(3) 24.1%
Kenneth Campbell . . . . . . 25,000(4) * --- 25,000(4) *
Richard Hennessey . . . . . . 25,000(5) * --- 25,000(5) *
Harris McLean Financial
Group, Ltd. . . . . . . . . . 220,000(6) 5.3% --- 220,000 3.5%
--------- ------- ------- -------- -----------
All Officers and Directors
as a Group (3 persons) . . . 1,627,700(3)(4)(5) 35.7% --- 1,627,700(3)(4)(5) 24.7%
---------- ------- ------- --------- -----------
Harvey M. Burstein . . . . . 300,000(7) 7.0% 300,000 --- ---
Don Fraser . . . . . . . . . 200,000(8)(9) 4.8% 200,000 ---(8) ---
Martin Goldberg . . . . . . 200,000(9) 4.8% 200,000 --- ---
Costas Takkas . . . . . . . . 200,000(9) 4.8% 200,000 --- ---
James D. Loeffelbein . . . . 100,000(10) 2.5% 100,000 --- ---
Westek Electronics, Inc. . . 40,000(11) * 40,000 --- ---
---------- ------- --------- ----------
All Selling Stockholders . . 1,040,000(7)-(11) 24% 1,040,000 --- ---
---------- ------- --------- --------- ----------
Total . . . . . . . . . 2,667,700 59.7% 1,040,000 1,627,700 24.7%
========== ======= ========= ========= ==========
</TABLE>
___________________
* Represents less than one percent.
(1) The address for these stockholders is c/o the Company.
(2) Assumes the Company's sale of the 1,000,000 shares of Common Stock and
the full exercise of the Warrants and Option.
(3) 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.
(4) 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.
(5) 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.
(6) 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.
(7) 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.
(8) Does not include 45,000 shares owned by Eurovest Securities Ltd. See
"Certain Transactions." (9) Represents 200,000 shares of Common Stock
underlying a Stock Purchase Warrant, which is presently exercisable at
$1.50 per share and expires on September 26, 1998.
(10) Represents 100,000 shares of Common Stock underlying a Stock Purchase
Warrant, which is presently exercisable at $1.50 per share and expires
on December 18, 1999.
(11) Represents 40,000 shares of Common Stock underlying a Stock Option,
which is presently exercisable at $.50 per share and expires on March 2,
1997.
20
<PAGE> 25
Pursuant to the Warrants issued to five of the Selling Stockholders, such
Selling Stockholders are obligated to exercise their Warrants in full within
five business days after the Registration Statement of which this Prospectus
forms a part is declared effective by the Commission. Upon exercise of the
Warrants by the Selling Stockholders, the Company will receive $1,500,000. The
Company will receive an additional $20,000 from the exercise of the Option
owned by Westek Electronics, Inc. ("Westek"). See "Use of Proceeds." In
accordance with the terms of the Warrants, the Company, at its expense, has
agreed to keep the Registration Statement of which this Prospectus forms a part
current until the earlier to occur of: (a) the sale of all of the shares of
Common Stock offered by the Selling Stockholders, or (b) twelve months from the
date of this Prospectus. Although not obligated to do so, the Company is
registering the shares of Common Stock underlying the Option issued to Westek
and will keep the Registration Statement current for the same amount of time as
the Warrants.
CERTAIN 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 2,000,000 shares to the twelve 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 on 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 "Principal and
Selling Stockholders."
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 of 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 September 3, 1997.
As of June 26, 1996, the Company, in an effort to supplement its marketing
efforts, entered into two-year marketing agreements with each of Don Fraser,
Martin Goldberg and Costas Takkas, 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 such products in all other parts of the world.
As consideration for the services to be rendered by each of 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
presently exercisable and expire on September 26, 1998. 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. See "Business-Sales and Marketing" and "Principal
and Selling Stockholders."
As of December 19, 1996, the Company for no cash consideration issued
Stock Purchase Warrants to purchase 300,000 shares of Common Stock to Harvey M.
Burstein and Stock Purchase Warrants to purchase 100,000 shares of Common Stock
to James D. Loeffelbein. The exercise price of the Warrants is $1.50 per
share. The Warrants are presently exercisable and expire on December 18, 1999.
See "Principal and Selling Stockholders."
21
<PAGE> 26
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company has 10,000,000 shares of authorized Common Stock, par value
$.001 per share, of which 3,964,000 shares are issued and outstanding
(6,004,000 shares after the sale of all of the shares of Common Stock offered
hereby). Each outstanding share of Common Stock is entitled to one vote,
either in person or by proxy on all matters that may be voted upon by the
stockholders.
The holders of Common Stock: (a) have equal ratable rights to dividends
from funds legally available therefor, when, as and if declared by the Board of
Directors of the Company, (b) are entitled to share ratably in all assets of
the Company available for distribution to holders of Common Stock upon
liquidation, dissolution or winding up of the affairs of the Company, (c) do
not have preemptive, subscription or conversion rights, or redemption or
sinking fund provisions applicable thereto, and (d) are entitled to one
non-cumulative vote per share on all matters on which stockholders may vote.
The holders of shares of Common Stock do not have cumulative voting rights,
which means that the holders of more than 50% of such outstanding shares,
voting for the election of directors, can elect all of the directors of the
Company if they so choose and, in such event, the holders of the remaining
shares will not be able to elect any of the Company's directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Incorporation of the Company provide that present and
former directors and officers of the Company will be indemnified by the Company
to the fullest extent authorized by Florida law, as it now exists or may in the
future be amended, against all expenses and liabilities reasonably incurred in
connection with service for or on behalf of the Company. See
"Management-Indemnification."
CERTAIN FLORIDA LEGISLATION
Florida has an active legislation that may deter or frustrate takeovers of
Florida corporations. The Florida Control Shares Act generally provides that
shares acquired in excess of certain specified thresholds will not possess any
voting rights unless such voting rights are approved by a majority of a
corporation's disinterested stockholders. The Florida Affiliated Transactions
Act generally requires supermajority approval by disinterested stockholders of
certain specified transactions between a public corporation and holders of more
than 10% of the outstanding voting shares of the corporation (or their
affiliates). In addition, Florida law presently limits the personal liability
of corporate directors for monetary damages, except where the directors breach
their fiduciary duties and such breach constitutes or includes certain
violations of criminal law, a transaction from which the directors derived an
improper personal benefit, certain unlawful distributions or certain other
reckless, wanton or willful acts or misconduct.
SHARES ELIGIBLE FOR FUTURE SALE
After completion of the sale of all of the shares of Common Stock offered
hereby, the Company will have 6,004,000 shares of Common Stock outstanding.
All 2,040,000 shares of Common Stock offered hereby will be freely tradeable
without restriction or further registration under the 1933 Act, unless
purchased by "affiliates" of the Company, as that term is defined in Rule 144,
described below. Subject to the volume limitations of Rule 144 in the case of
affiliates, the remaining 3,964,000 shares of Common Stock are also available
for sale in the public market. In addition, all 590,000 shares of Common Stock
underlying the stock options issued to the executive officers of the Company
can be sold pursuant to the volume limits of Rule 144. See "Management-Stock
Option Plan."
In general, under Rule 144 under the 1933 Act as currently in effect, any
affiliate of the Company or any person (or persons whose shares are aggregated
in accordance with the Rule) who has beneficially owned restricted securities
for at least two years would be entitled to sell within any three-month period
a number of shares that does not exceed the greater of 1% of the outstanding
shares of Common Stock or the reported average weekly trading volume in the
over- the-counter market for the four weeks preceding the sale. Sales under
Rule 144 are also subject to certain manner of sale restrictions and notice
requirements and to the availability of current public information concerning
the Company. Persons who have not been affiliates of the
22
<PAGE> 27
Company for at least three months and who have held their shares for more than
three years are entitled to sell restricted securities without regard to the
volume, manner of sale, notice and public information requirements of Rule 144.
TRANSFER AGENT
The transfer agent for the Common Stock is American Stock Transfer & Trust
Company, New York, New York.
LEGAL MATTERS
Lucio, Mandler, Croland, Bronstein, Garbett, Stiphany & Martinez, 701
Brickell Avenue, Suite 2000, Miami, Florida 33131, has acted as counsel to the
Company with respect to certain matters of law in connection with the shares of
Common Stock offered hereby.
EXPERTS
The financial statements of the Company as of October 31, 1996 and 1995
included in this Prospectus have been so included in reliance on the report of
KPMG Peat Marwick LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
This Prospectus constitutes a part of a Registration Statement on Form
SB-2 filed by the Company with the Commission under the 1933 Act with respect
to the shares of Common Stock offered hereby. This Prospectus omits certain of
the information contained in the Registration Statement, and reference is
hereby made to the Registration Statement and related exhibits and schedules
for further information with respect to the Company and the Common Stock
offered hereby. Any statements contained herein concerning the provisions of
any document are not necessarily complete, and in each such instance reference
is made to the copy of such document filed as an exhibit to the Registration
Statement. Each such statement is qualified in its entirety by such reference.
The Registration Statement and the exhibits and schedules forming a part
thereof can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
NW, Washington, D.C. 20549, and should also be available for inspection and
copying at the following regional offices of the Commission: 7 World Trade
Center, Suite 1300, New York, New York 10007; and Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such material can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, NW, Washington, D.C. 10549, at prescribed rates.
Such information may also be obtained through the Commission's Internet Web
site at http://www.sec.gov.
23
<PAGE> 28
PRO TECH COMMUNICATIONS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Balance Sheets at October 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Statements of Operations for each of the two fiscal years
ended October 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Statements of Stockholders' Equity at
October 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Statements of Cash Flows for each of the two fiscal
years ended October 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
</TABLE>
F-1
<PAGE> 29
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
F-2
<PAGE> 30
Pro Tech 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
F-3
<PAGE> 31
Pro Tech 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.
F-4
<PAGE> 32
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
F-5
<PAGE> 33
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
Decrease in other liabilities -- (2,830)
----------- -------
Total adjustments (107,755) (58,495)
----------- -------
Net cash used by operating activities $ (108,276) (14,536)
=========== =======
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE> 34
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.
F-7
<PAGE> 35
(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.
F-8
<PAGE> 36
(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.
F-9
<PAGE> 37
(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
========== ======
F-10
<PAGE> 38
(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>
F-11
<PAGE> 39
(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.
F-12
<PAGE> 40
(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
======= ======
F-13
<PAGE> 41
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.
F-14
<PAGE> 42
(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.
F-15
<PAGE> 43
<TABLE>
<S> <C>
=========================================================== ===================================================
No dealer, salesman, or other person is
authorized to give any information or to make any
representation not contained in this Prospectus in
connection with this offering, and any information or
representation not contained herein must not be relied
upon as having been authorized by the Company or any
other person. This Prospectus does not constitute an 2,040,000 SHARES OF COMMON STOCK
offer to sell or a solicitation of an offer to buy any
securities other than the registered securities to
which it relates or an offer to sell or solicitation
of any person in any jurisdiction where such offer or
solicitation would be unlawful. Neither the delivery
of this Prospectus at any time nor any sale made
hereunder shall, under any circumstances, create any
implication that the information herein contained is PRO TECH COMMUNICATIONS, INC.
correct as of any time subsequent to the date of this
Prospectus.
---------------------------------
TABLE OF CONTENTS
-------------------------
Page
----
Prospectus Summary . . . . . . . . . . . . . . . . 2 PROSPECTUS
Risk Factors . . . . . . . . . . . . . . . . . . . 4
-------------------------
Plan of Distribution . . . . . . . . . . . . . . . 7
Dilution . . . . . . . . . . . . . . . . . . . . . 8
Price Range of Common Stock . . . . . . . . . . . . 8
Use of Proceeds . . . . . . . . . . . . . . . . . . 8
Selected Financial Information . . . . . . . . . . 10
Management's Discussion and Analysis of
Financial Condition . . . . . . . . . . . . . . . . 10
Business . . . . . . . . . . . . . . . . . . . . . 12
Management . . . . . . . . . . . . . . . . . . . . 17
Principal and Selling Stockholders . . . . . . . . 20
Certain Transactions . . . . . . . . . . . . . . . 21
Description of Securities . . . . . . . . . . . . . 22
Legal Matters . . . . . . . . . . . . . . . . . 23 February __, 1997
Experts . . . . . . . . . . . . . . . . . . . . . 23
Additional Information . . . . . . . . . . . . . . 23
Index to Financial Statements . . . . . . . . . . F-1
---------------------------------
Until __________________, 1997, all dealers
effecting transactions in the registered securities,
whether or not participating in this distribution, may
be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
=========================================================== ===================================================
</TABLE>
<PAGE> 44
PART II.
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Pursuant to the provisions of Section 607.0850(1) of the Florida Business
Corporation Act and the Company's Articles of Incorporation, the Company has
the power to indemnify any person who is or was a party to any proceeding
(other than an action by, or in the right of, the Company), because such person
is or was a director, officer, employee, or agent of the Company (or is or was
serving at the request of the Company under specified capacities) against
liability incurred in connection with such proceeding provided such person
acted in good faith and in a manner such person reasonably believed to be in,
or not opposed to, the best interest of the Company (and with respect to any
criminal action or proceeding, such person had no reasonable cause to believe
such person's conduct was unlawful).
With respect to a proceeding by or in the right of the Company to procure
a judgment in its favor, Section 607.0850(2) of the Florida Business
Corporation Act provides that the Company shall have the power to indemnify any
person who is or was a director, officer, employee, or agent of the Company (or
is or was serving at the request of the Company under specified capacities)
against expenses and amounts paid in settlement not exceeding, in the judgment
of the Board of Directors, the estimated expense of litigating the proceeding
to conclusion, actually and reasonably incurred in connection with the defense
or settlement of such proceeding provided such person acted in good faith and
in a manner such person reasonably believed to be in, or not opposed to, the
best interest of the Company, except that no indemnification shall be made in a
case in which such person shall have been adjudged to be liable to the Company
unless and only to the extent that the court in which the proceeding was
brought, shall determine upon application that, despite the adjudication of
liability but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses.
Indemnification as described above shall only be granted in a specific
case upon a determination that indemnification is proper under the
circumstances using the applicable standard of conduct which is made by (a) a
majority of a quorum of directors who were not paries to such proceeding, (b)
if such a quorum is not attainable or by majority vote of a committee
designated by the Board of Directors consisting of two or more directors not
parties to the proceeding, (c) by independent legal counsel selected by the
Board of Directors described in the foregoing parts (a) and (b), or if a quorum
cannot be obtained, then selected by a majority vote of a quorum consisting of
stockholders who are not parties to such proceeding.
Section 607.0850(12) of the Florida Business Corporation Act permits the
Company to purchase and maintain insurance on behalf of any director, officer,
employee or agent of the Company (or is or was serving at the request of the
Company in specified capacities) against any liability asserted against such
person or incurred by such person in any such capacity whether or not the
Company has the power to indemnify such person against such liability.
SECURITIES AND EXCHANGE COMMISSION POLICY
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers or persons controlling the Company, the
Company has been informed that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed by the
1933 Act and is therefore unenforceable.
II-1
<PAGE> 45
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the issuance and distribution of
the securities registered hereunder are as follows:
<TABLE>
<CAPTION>
To be paid
by the Company
--------------
<S> <C>
SEC Registration Fee . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,121.81*
Transfer Agent Fees and Expenses . . . . . . . . . . . . . . . . . . . . 3,000
Printing Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 30,000
Accounting Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . 3,000
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
----------
Total . . . . . . . . . . . . . . $49,121.81
----------
</TABLE>
- -----------------
* Actual fee.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
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 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 of the Securities Act.
On April 15, 1995, 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.
II-2
<PAGE> 46
In addition, the transaction with Messrs. Takkas and Fraser were exempt from
such registration requirements under Regulation 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.
ITEM 27. EXHIBITS.
<TABLE>
<S> <C>
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.*
5 Opinion and Consent of Lucio, Mandler, Croland, Bronstein, Garbett, Stiphany & Martinez, P.A. (to be filed
by amendment to this Registration Statement).
10.1 Amended and Restated Employment Agreement, dated as of December 9, 1994, between the Company and Keith
Larkin.**
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 Electronics, Inc.*
10.4 The Company's 1996 Stock Option Plan.*
10.5 Stock Option, dated April 15, 1996, issued by the Company to Keith Larkin.*
10.6 Stock Option, dated April 15, 1996, issued by the Company to Kenneth Campbell.*
10.7 Stock Option, dated April 15, 1996, issued by the Company to Richard Hennessey.*
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.***
</TABLE>
II-3
<PAGE> 47
<TABLE>
<S> <C>
10.17 Stock Purchase Warrant, dated as of December 19, 1996, issued by the Company to James D. Loeffelbein.***
23 Consent of KPMG Peat Marwick LLP.
27 Financial Data Schedule (for SEC use only).***
</TABLE>
___________________________
* 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.
*** Incorporated by reference to the Company's Form 10-KSB for the fiscal year
ended October 31, 1996.
ITEM 28. UNDERTAKINGS.
(a) The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
provided, however, that paragraphs (a) (1) (i) and (a) (1) (ii) hereof do not
apply if the Registration Statement is on Form S-3, Form S-8 or Form F-3, and
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in that Act and will be governed by the
final adjudication of such issue.
II-4
<PAGE> 48
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 49
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Fort Pierce, Florida, on
the 19th day of February 1997.
Registrant: PRO TECH COMMUNICATIONS, INC.
By: /s/ Keith Larkin
-----------------------
Keith Larkin, President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned officers and
directors of Pro Tech Communications, Inc., a Florida corporation, do hereby
constitute and appoint Keith Larkin, the lawful attorney and agent with full
power and authority to do any and all acts and things and to execute any and
all instruments which said attorney and agent determines may be necessary or
advisable or required to enable said corporation to comply with the Securities
Act of 1933, and any rules or regulations or requirements of the Securities and
Exchange Commission in connection with this Registration Statement. Without
limiting the generality of the foregoing power and authority, the powers
granted include the power and authority to sign the names of the undersigned
officers and directors in the capacities indicated below to this Registration
Statement, to any and all amendments, both pre-effective and post-effective,
and supplements to this Registration Statement, and to any and all instruments
or documents filed as part of or in conjunctions with this Registration
Statement or amendments or supplements thereof, and each of the undersigned
hereby ratifies and confirms that all said attorney and agent shall do or cause
to be done by virtue hereto. This Power of Attorney may be signed in several
counterparts.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the dates indicated.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities
and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Keith Larkin Chairman of the Board, February 19, 1997
- -------------------------------------------- President and Treasurer
Keith Larkin (Chief Executive Officer and
Chief Financial and Accounting Officer)
/s/ Kenneth Campbell Director, Secretary and February 19, 1997
- -------------------------------------------- Vice-President of Operations
Kenneth Campbell
</TABLE>
II-6
<PAGE> 1
EXHIBIT 23
[KPMG PEAT MARWICK LLP LETTERHEAD]
The Board of Directors
Pro Tech Communications, Inc.:
We consent to the use of our reports included and to the reference to our firm
under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Vero Beach, Florida
February 17, 1997
