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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
PRO TECH COMMUNICATIONS, INC.
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(Exact name of small business issuer as specified in its charter)
FLORIDA 59-3281593
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3311 INDUSTRIAL 25TH STREET, FORT PIERCE, FLORIDA 34946
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(Address of principal executive offices, including zip code)
(561)464-5100
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(ISSUER'S TELEPHONE NUMBER)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock, par
value $.001 per share
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X NO
--- ---
Check if there is no disclosure of delinquent filers in response to item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
The registrant's revenues for its most recent fiscal year: $996,993
As of January 26 , 1998, the aggregate market value of shares of the
registrant's voting stock (based upon the closing sale price of such stock as
reported by the OTC Bulletin Board of $4.25) held by non-affiliates of the
registrant was approximately $13,656,525. For the purposes of this computation,
all executive officers, directors and persons who beneficially own more than
five percent of the registrant's securities are deemed affiliates. Such
determination should not be an admission that such directors, officers or
beneficial owners are, in fact, affiliates of the registrant.
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
YES NO NOT APPLICABLE X
--- --- ---
As of January 26, 1998, there were 4,254,000 shares of the registrant's common
stock outstanding.
Documents Incorporated by Reference: None
Transitional Small Business Disclosure Format (check one): YES NO X
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TABLE OF CONTENTS
FORM 10-K
ITEM NUMBER AND CAPTION
<TABLE>
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PAGE
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PART I
1. Description of Business ....................................................... 1
2. Description of Property ....................................................... 6
3. Legal Proceedings ............................................................. 6
4. Submission of Matters to a Vote of Security Holders ........................... 7
PART II
5. Market for Common Equity and
Related Stockholder Matters ..................................................... 7
6. Management's Discussion and
Analysis or Plan of Operation ................................................... 8
7. Financial Statements ............................................................. 9
8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure .......................................... 9
PART III
9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with Section
16(a) of the Exchange Act ...................................................... 10
10. Executive Compensation .......................................................... 11
11. Security Ownership of Certain Beneficial Owners
and Management ................................................................ 14
12. Certain Relationships and Related Transactions................................... 14
13. Exhibits and Reports on Form 8-K ................................................ 15
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Pro Tech Communications, Inc. (the "Company") was incorporated in the
State of Florida on October 5, 1994. From August 30, 1991 to October 31, 1994,
the Company's business was conducted by Pro Tech Systems, a limited partnership
organized under the laws of the State of California. Keith Larkin, the
President, Treasurer and Chairman of the Board of the Company, was general
partner of Pro Tech Systems and there were 12 limited partners in the limited
partnership. From the formation of Pro Tech Systems in August 1991 until June
1993, the limited partnership was involved in engineering and designing
lightweight telecommunications headsets as well as preliminary marketing efforts
for the product. From June 1993 until October 1994, Pro Tech Systems was engaged
in limited manufacturing and marketing activities for its product. On November
1, 1994, all of the assets of Pro Tech Systems were transferred to the Company
as consideration for the issuance of 2,000,000 shares of the Company's common
stock, par value $.001 per share (the "Common Stock"), which were subsequently
distributed on a pro rata basis to each of the partners of the partnership. As
of December 13, 1994, Pro Tech Systems was formally dissolved.
The Company presently designs, develops, manufactures and markets
lightweight telecommunications headsets employing what the Company believes are
new concepts in advanced light weight design and marketing strategies involving
the sale of the Company's product directly to the commercial headset market as a
replacement for its competitors' products. The Company presently manufacturers
and markets its first three designs 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 delayed its
second product introduction one year due to changes in the final design and
consequently will commence testing this product in the second quarter of 1998.
The Company's business strategy is to offer lightweight headsets with design
emphasis on performance and durability at a cost below that of its competitors.
The Company intends to concentrate its efforts on the production of
that portion of the telephone headset that the user wears. There are two
components to a complete telephone headset. The first is the headset component
that the user wears, consisting of a speaker and a microphone. The second, the
electronic amplifier, is relatively more complex, time consuming and costly to
produce as its requires many variations to interface with the wide variety of
telephone systems in the market and generates higher labor and material costs.
The electronic amplifier also generally offers lower profit margins than the
headset component. As a result, the Company presently does not intend to produce
electronic amplifiers, but will concentrate its efforts on the production and
distribution of the headsets having the capability of connecting to and
interfacing with various electronic amplifiers and telephone systems currently
in use. The Company is continuing its own market study to determine whether it
would be financially viable for the Company to produce its own electronic
amplifier. The Company believes the study will be completed in the Spring of
1998. If it is determined to proceed with the production, marketing and sale of
an amplifier, the Company anticipates spending approximately $250,000 to
research and develop the product.
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INDUSTRY BACKGROUND
The lightweight telephone headset industry commenced in 1961 when
Plantronics, Inc.("Plantronics"), a company founded by Keith Larkin, the
Company's President, Treasurer and Chairman of the Board, began marketing and
selling the first lightweight telephone headset under a patent issued to Mr.
Larkin. Mr. Larkin remained with Plantronics until May 1967, at which time
Plantronics was the principal manufacturer of lightweight telephone headsets in
the world, and its products were standard on the National Aeronautics and Space
Administration's Mercury, Gemini, and Apollo moon flights. See "DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS." Today, Plantronics is the
world's largest lightweight telephone headset manufacturer, with approximately
$195 million of net sales for the 1997 fiscal year.
The Company estimates that sales of lightweight telephone headsets
exceeded $300 million in 1997 with the market dominated by two companies -
Plantronics and ACS Wireless, Inc. ("ACS Wireless") - which were both founded by
Keith Larkin and which both produced headsets under patents. Product lines of
the Company's competitors generally share similar configurations, and are
marketed at higher prices than the headsets offered by the Company.
Designed specifically for air traffic controllers and other aerospace
applications, the first headsets were intended as a replacement for the heavy,
bulky headsets in use. While lightweight telephone headsets continue to be used
for such purposes, today telephone headsets are predominantly used as a
substitute to telephone handsets by a wide variety of users, including telephone
operating companies and telephone call centers (such as airline reservations,
catalog sales and credit collection operations) and to a lessor extent, by
business persons and other professionals whose occupations require extensive,
though not constant, use of the telephone. In comparison to speaker phones,
telephone headsets provide greater communications clarity and security. The
Company believes that these advantages will lead to increased demand for
telephone headsets.
Telephone headsets also have commercial applications, primarily two-way
radio communication systems, such as those used by fast food attendants to
communicate with patrons and other personnel. Personal computer applications for
telephone headsets include audio input and output via voice command, voice
dictation and integrated voice telephone functions.
PRODUCTS
THE PROCOM. The Company's initial entry into the lightweight telephone
headset market is the "ProCom." Weighing less than 2 ounces, the ProCom is worn
by users over the head by means of a springsteel wire headband and a cushioned
earphone. Attached to the earphone, which may be worn over either ear, is an
adjustable boom which connects to the ProCom's microphone. The ProCom headset
connects to the electronic amplifier or telephone system by means of a tensile
cable at the end of which is attached an adapter capable of interfacing with the
particular electronic amplifier or telephone employed by the user. Through the
use of different adapters, the Company is currently able to equip the ProCom to
be compatible with all of the electronic amplifiers and telephone systems in
use. The ProCom is offered in direct competition with all models offered by
Plantronics, ACS Communications, GN Netcom, Inc. and UNEX Corporation. See
"DESCRIPTION OF BUSINESS - Competition." The Company is presently 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.
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THE TRINITY. The Trinity has been designed for users in noisy
environments. The Company is currently in the process of developing the Trinity
for manufacture and sale. The Company anticipates completing the development of
the product by the first quarter of the 1998 calendar 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 periods. Moreover, by enclosing the
ear, the acoustical ear cup reduces background noise, thereby significantly
improving the clarity and strength of reception from the earphone. The Trinity
has been designed as a comfortable and lightweight alternative to the bulky
commercial sound suppressant headsets which are presently the only headsets
available to users operating in noisy office environments. The Trinity can be
worn in one of two mounting methods: (i) over the ear (without a headband) by
means of a contoured ear piece inserted within the acoustical ear cup for
positioning on either the left or right ear; or (ii) over the head, by means of
a detachable headband which can support either one or two earcups. Like the
ProCom, the Trinity will be produced with a choice of adapters capable of
interfacing with the electronic amplifiers and telephone systems of most major
manufactures. The Company presently intends to sell the Trinity to distributors
at prices ranging from $35.00 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 ConForm headset was introduced in the third quarter of
fiscal year 1997. After conducting its own market research, the Company
determined that there is a demand for a headset which combines both the
durability of the ProCom and over-the-ear features of the ConForm. 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 in addition to its initial
introduction in the fast-food market. The ConForm is a commercial adaptation of
the headset that the Company has designed for use by the National Aeronautics
and Space Administration ("NASA"). Boeing Defense and Space Group ("Boeing") is
a prime contractor for NASA, and as such has the responsibility to choose
certain components and products used in NASA's space program. The Company was
chosen by Boeing as a supplier of telephone headsets for NASA projects after the
Company provided Boeing with product specifications which met NASA's
requirements for the product. Boeing also subjected the Company's product to
various tests in order to ensure that the product would function under
conditions for space travel. See "DESCRIPTION OF BUSINESS - Marketing and Sales.
THE ASTRA 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 sizes. The Company plans to begin
selling in the second fiscal quarter of 1998 the Astra 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 $69.00 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 $10.26 of the individual unit retail price, have
been accepted by distributors in return for a lower average purchase price. The
Company offers lower prices for its products to distributors which purchase
certain quantities of products to increase sales and gain market share for the
Company's products.
Research and development costs are expensed when incurred and are
included in selling, general and administrative expenses. The amount charged
to expense during 1997 and 1996 was $21,400 and $44,600, respectively.
Investments in fiscal year 1997 were made in two unnamed products, a telephone
amplifier and a wireless product, which have a targeted market introduction of
the fourth quarter in fiscal year 1998.
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MARKETING AND SALES
The Company presently intends to market its product primarily through
its officers and staff, utilizing industry contacts and calling upon potential
purchasers. The Company plans on supplementing the marketing efforts of its
employees by using independent sales representatives after all of the Company's
products have been introduced in the market.
The Company markets and will continue to market its headsets directly
to the commercial headset market as a replacement for its competitors' headsets.
Examples of such purchasers include fast food companies and franchisees and
other large quantity users of commercial headset systems. The Company has
entered into a non-binding business relationship agreement with McDonald
Corporation ("McDonald") which allows the Company to sell its products on a
non-exclusive basis to McDonald franchises and company-owned restaurants.
Initial test sales to McDonald and its franchisees by the Company and Pro Tech
Systems totaled $424,300 in 1994, which included sales over 8,000 headsets to
more than 3,500 McDonald restaurants. These numbers increased to over 18,600
headset sales to more than 7,000 restaurants during fiscal year 1995 and 21,810
headset sales to more than 8,000 restaurants during fiscal year 1996. Fiscal
year 1997 sales were 24,779 headsets to over 8,500 restaurants. The sale of the
Company's products to McDonald-owned restaurants and franchisee restaurants
represented approximately 30% and 21% of the Company's net sales for the fiscal
year 1996 and fiscal 1997, respectively. This increase is the result of targeted
market introduction of the ConForm headset to the McDonald's franchise system.
As the Company expands, it will direct its marketing and sales efforts
at: (i) telephone operating companies; (ii) telephone system manufacturers;
(iii) personal computer manufacturers; and (iv) government agencies.
Manufacturers of new telephone systems and other telecommunication equipment
that utilize headsets have been targeted by the Company as a developing market
for telephone headsets. Although the Company presently intends to attempt to
sell its products to several large telephone users, there can be no assurance
that the Company will be successful in such efforts. Another potential large
volume purchaser of headset are manufacturers of personal computers, especially
if and when headsets become a standard telephone accessory. In addition, the
Company plans to market its products to government agencies. The Company's
headset has been approved for sale to Boeing, a prime contractor of NASA, for
use by astronauts in outerspace. To date, the Company has had $5,251 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 directed marketing and sales efforts will be supplemented
by the distribution of the Company's products through established channels of
distribution. These include: (i) specialized headset distributors that derive a
majority of their revenues from the sale of headsets to both end users, and, to
a lessor extent, resellers; and (i) large electronic wholesalers that offer
hundreds of products, including headsets. It is anticipated that a majority of
sales of the Company's headsets to commercial users such as credit card
companies and airlines will be through such distributors.
MANUFACTURING
The Company purchases the components for its headsets from four
suppliers in the Far East and 12 in the United States, who produce the
components to the Company's specification based upon the molds designed by the
Company. The firms that supply 90% of the component parts of the Company's
products are Whitney Blake Company of Vermont, Inc., Bellows Falls, Vermont;
Primo Microphones
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Inc., McKenny, Texas; Globe Electronic Plug Connector, Inc., Taiwan; Cchen Shing
Spring Co., Ltd., Taiwan, and Fine Acoustics Company, Ltd., Korea. 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 manufacturers headsets to meet
forecasted customer requirements. Since such manufacturing occurs prior to the
receipt of purchase orders, the Company maintains an inventory of finished
headsets as well as components. At October 31, 1997, the amount of the Company's
inventory was $160,609 versus $176,447 for the same period ended October 31,
1996. The decrease in inventory is attributed to two factors. First a surge in
sales occurred in the fourth quarter due to special year-end pricing incentives
to the Company's distributors. Second, in fiscal year 1996, the Company
benefitted from an individual headset component price reduction for larger
purchases made from its suppliers.
Production of the Company's headsets consists of assembly operations
conducted at the Company's principal offices in Fort Pierce, Florida. The
Company believes that the Fort Pierce office presently possesses sufficient
production capacity, or could easily be expanded to accommodate up to $4 million
of annual sales of the Company's products. See "DESCRIPTION OF PROPERTY." In the
event that purchase orders were to exceed the production capabilities of the
Fort Pierce location, the Company would be required to enter into subcontracting
arrangements for the manufacturer of the products by third parties. A delay in
establishing such arrangements, if necessary, could adversely affect the
Company's ability to deliver products on a timely basis to its customers, which
in turn could adversely affect the Company's operations. The Company, however,
believes that subcontracting the manufacture of the Company's products could be
accomplished on short notice given the simple design of the Company's products.
COMPETITION
The lightweight telephone headset industry is highly competitive and
characterized by a few dominant manufacturers. The Company is aware of several
companies which manufacture telephone headsets, each of which 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 headset, which estimates its share of the
market to be 65% in North America and 60% worldwide and reported net sales from
all of its products (including electronic amplifiers and other headset
accessories and services) of approximately $195 million for the fiscal year
1997. 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 "DIRECTORS, EXECUTIVE
OFFICERS, PROMOTERS AND CONTROL PERSONS."
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.
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In addition to direct competition from other companies offering
lightweight telephone headsets, the Company may face indirect competition in its
industry from technological advances such as interactive voice response systems
which require no human operators for certain applications, including account
balance inquiries or airplane flight information. The Company believes that this
competition will be more than offset by increased demand for headsets as voice
telecommunication applications expand.
PROPRIETARY PROTECTION
The Company does not presently own any patents for any of its products
or technologies. Under the employment agreement of Keith Larkin, the Company's
President, Treasurer, and Chairman of the Board, Mr. Larkin has, however,
transferred to the Company any and all patentable rights he may have in the
ProCom, Trinity, and the ConForm, and any feature thereof, as well as all patent
rights Mr. larkin may conceive in the course of his employment with the Company.
See "EXECUTIVE COMPENSATION - Employment Agreement." The Company intends to seek
patent protection on its inventions at the appropriate time in the future. The
process of seeking patent protection can be lengthy and expensive, and there can
be no assurance that patents will issue from any applications filed by the
Company or that any patent issued will be of sufficient scope or strength or
provide meaningful protection or any commercial advantage to the Company. The
Company may be subjected to, or may initiate, litigation or patent office
interference proceedings, which may require significant financial and management
resources. The failure to obtain necessary rights or the advent of litigation
arising out of any such claims could have a material adverse effect on the
Company's operations.
Certain of the Company's employees involved in engineering and
technical programs will be required to enter into confidentially agreements as a
condition of employment. The Company does not currently own any registered
trademarks, although the Company intends to file trademark applications in the
future with respect to distinguishing marks.
EMPLOYEES
The Company currently has 13 full-time employees and 5 part-time
employees, including 3 persons in management, 7 persons in administration, 3
persons in marketing and 5 persons in assembly and production. The Company
intends to hire up to 3 additional employees within the next six months, 1 of
whom will work in production, 1 in marketing and 1 in shipping and customer
service. None of the Company's employees are represented by a collective
bargaining unit, and the Company believes that its relationship with its
employees is good.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's executive, sales and manufacturing offices occupy
approximately 3,200 square feet of space located at 3309 and 3311 Industrial
25th Street, Fort Pierce, Florida 34946, pursuant to a lease expiring on
November 30, 1998. The Company's aggregate monthly rent under the lease
is $1,544. The Company considers its rental space adequate for its present
operations, and believes additional space is available near its present
location, if needed.
ITEM 3. LEGAL PROCEEDINGS
Not Applicable
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER SHAREHOLDER MATTERS
The Common stock began trading on the OTC Bulletin Board on March 22,
1996. The Common Stock is currently being traded under the symbol "PCTU." The
following table set forth the high and low bid prices of the Common Stock for
each quarter for the fiscal years ended October 31, 1997 and 1996, as reported
by the OTC Bulletin Board for each of the last two fiscal quarters.
YEAR ENDED
OCTOBER 31, 1997 HIGH LOW
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First Quarter $5.75 $0.875
Second Quarter $6.375 $3.50
Third Quarter $5.50 $2.875
Fourth Quarter $6.6875 $2.875
YEAR ENDED
OCTOBER 31, 1996 HIGH LOW
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First Quarter $ -- $ --
Second Quarter $0.75 $0.50
Third Quarter $3.75 $0.80
Fourth Quarter $3.75 $0.875
The market quotation reflects inter-dealer prices, without retail
mark-up, mark-down, or commission and may not represent an actual transaction.
As of January 26, 1998, there were 30 record holders of the Common
stock.
The Company has not declared a cash dividend on its outstanding Common
Stock since its incorporation in October 1994 and does not anticipate declaring
a cash dividend in the reasonably foreseeable future.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
YEAR ENDED OCTOBER 31, 1997 AS COMPARED TO THE YEAR ENDED OCTOBER 31, 1996.
For the year ended October 31, 1997, the Company realized a net profit
of $20,274 compared to a net loss of $(521) for the year ended October 31, 1996.
This difference is attributed to additional profit margin gained from the
ConForm market introduction.
Net sales for the year ended October 31, 1997 totaled $996,993,
representing an increase of $144,215 in net sales for the comparable prior
twelve-month period. The Company continued the sale of its products through
distributors augmenting these sales with direct sales from the Company's own
outbound telemarketing operation. At the completion of fiscal year 1997, the
Company sold a total of 24,779 headsets, as compared to 20,810 headsets in the
previous fiscal year. The difference represents an increase in sales of 3,969
headsets or 19% more than the comparable twelve-month period. Net unit sales of
the ProCom headset increased 7% primarily from the expansion of sales into
international markets. Sales from the ConForm headset totalled 2,500 units
through October 31, 1997. The indirect distribution channel accounted for 63% of
the net revenues and 70% of unit volumes versus 62% of net revenues and 69% of
unit volumes in the comparable 1996 period. The Company, through its own
research, believes that the Company currently retains a 27% share of the
fast-food headset market in units. Although there can be no assurance, the
Company expects further expansion of the Company's market share in the fast food
headset market from the ConForm's market acceptance.
Gross margin percent remained constant over the previous comparable
year. Actual SG&A expenses increased $145,387 in relation to the 1996 comparable
year. This increase in expenses resulted from several factors. First, in fiscal
year 1997, an unaffiliated investment banking firm was retained in order to
proceed with the structuring of a potential purchase of another business.
However, the acquisition did not occur because the parties could not agree to
terms. Expenses incurred due to the completion of a fairness opinion relating to
the discontinued acquisition totalled $13,938. Second, expenses related to the
Company's stock promotion increased to $19,556 from $3,101 in the comparable
period. This increase of $16,455 was invested to improve the Company's
perception with the investment community. Marketing payroll increased $25,237
from $43,663 in fiscal year 1996 to $68,900 in the 1997 comparable period. This
increase was the result of the addition of one employee along with related
commissions for the Company's telemarketing operation. This addition was made to
support the new ConForm market introduction. In addition, advertising and other
related marketing expenses decreased from $28,646 in fiscal year 1996 to $51,263
for the comparable 1997 period as a result of such new product introduction.
Research and development expenditures decreased by $23,200 as compared to fiscal
year 1996. The decrease was the result of a decision to delay investments until
fiscal year 1998, in order to maximize short-term profit margins. Additional
accrued warranty expenses increased to $55,000 to support normal repairs on over
70,000 headsets in use in the fast-food market. This increase was the result of
changes in the Company's warranty policies in support of its account base. This
represents an increase of $32,337 over the comparable 1996 period from $22,663
to $55,000 respectively. Additional expenses of $11,206 were incurred in the
current fiscal period as of the result of a decision to offer health insurance
to its full-time employees along with an increase in professional fees of
$35,555 in the current fiscal year from $25,000 due to the Company's reporting
obligations under the federal securities laws.
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The Company generated interest income of $28,688 for fiscal 1997 as
compared to interest income of $27,668 for the comparable prior 1996 year. The
interest income resulted from the Company's investment of the net proceeds from
the private placement of securities into short-term certificates of deposits.
LIQUIDITY AND CAPITAL RESOURCES
The current ratio (current assets to current liabilities) of the
Company was 12.09 to 1.00 at October 31, 1997 as compared to 9.86 to 1.00 at
October 31, 1996. At October 31, 1997, the Company's current assets exceeded its
current liabilities by approximately $988,973.
For the fiscal year ended October 31, 1997, the Company funded its
working capital requirements primarily with cash flow from operations and
proceeds of $165,000 from the exercise of outstanding stock options.
Management believes that the Company has sufficient funds to meet the
Company's anticipated working capital requirements for at least 12 months.
However, in order for the Company to maximize the potential of the telephone
user market and to enable the Company to expand into additional markets,
including government agencies and personal computers, the Company will require
additional capital. It is anticipated that the Company will seek to raise such
additional financing through a private or public offering of equity, although
there are presently no agreements, understandings or arrangements with respect
to any additional financing and no assurances can be given that the Company will
be able to obtain such additional financing. The Company presently does not
intend to finance, to any significant extent, its growth through debt financing.
Effective December 9, 1994, the Company entered into an amended and
restated employment agreement with Keith Larkin, the President, Chairman of the
Board and Treasurer of the Company. Under the agreement, Mr. Larkin is entitled
to receive an annual salary of at least $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. For the fiscal year ended October
31, 1997, the Company paid Mr. Larkin a salary of $2,500. See "EXECUTIVE
COMPENSATION- Employment Agreement."
ITEM 7. FINANCIAL STATEMENTS
The financial statements and notes thereto are included herein
beginning at page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Not Applicable.
9
<PAGE> 12
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth certain information with respect to the
executive officers and directors of the Company:
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
Keith Larkin 74 Chairman of the Board, President and
Treasurer
Kenneth Campbell 56 Director, Secretary and Vice
President Operations
Richard Hennessey 38 Vice President - Marketing
Keith Larkin is the founder, Chairman of the Board, President and
treasurer of the Company. Mr Larkin's 30 year professional career has been
devoted to designing, manufacturing and marketing his new designs in lightweight
telephone headsets. In 1961, Mr. Larkin founded Plantronics, the current
industry leader in lightweight telephone headsets with annual sales of all its
products (including the electronic amplifier) in 1997 of approximately $195
million. From 1961 until he sold his interest in 1967, Mr. Larkin served as the
President and Chairman of Plantronics, during which Plantronics established
itself as the main source of lightweight telephone headsets to the telephone
industry and provided the headsets for NASA Mercury, Gemini and Apollo moon
flights. In the late 1970's, Mr. Larkin conceived, developed and patented a new
design in headsets to compete against Plantronics' headsets. With Mr. Larkin as
its President, ACS Wireless attained $1 million monthly sales figures to the
telephone market within three years of operation and replaced Plantronics'
headsets on the NASA Space Shuttle. In 1986, he left ACS Wireless to become
involved in Christian children's relief programs in Haiti and Honduras for a
period of three years. From January 1989 to August 1991, Mr. Larkin served as
the President of Advanced Recreational Technology, Inc., an engineering research
and development company owned by Mr. Larkin. In August 1991, Mr. Larkin founded
Pro Tech Systems, a California limited partnership which he managed as general
partner. Pro Tech Systems was formed to design, manufacture and market
lightweight telephone headsets. Upon the transfer of all of the assets of Pro
Tech Systems to the Company in November 1994, Mr. Larkin became the Chairman of
the Board, President and Treasurer of the Company, positions which he has held
until this time.
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.
10
<PAGE> 13
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. From April 1994 until Mr.
Hennessey joined the Company, he was engaged in voluntary missionary work.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers and persons who own more than 10% of a
registered class of the Company's equity securities to file with the Securities
and Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership in the Common Stock. Executive officers, directors and
persons who own more than 10% of a registered class of the Company's equity
securities are required by SEC regulation to furnish the Company with copies of
all Section 16(a) forms they file with the SEC.
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company and representations that no other reports
were required, during the fiscal year ended October 31, 1997, all of such
executive officers, directors and persons who own more than 10% of a registered
class of the Company's equity securities complied with all Section 16(a) filing
requirements, with the exception of Keith Larkin, who filed one Form 4 two
months late.
ITEM 10. EXECUTIVE COMPENSATION
Set forth below is certain information concerning the compensation paid
to the Company's chief executive officer for the fiscal years ended October 31,
1997, 1996 and 1995. No other executive officer of the Company received
compensation in excess of $100,000 for such fiscal years.
SUMMARY COMPENSATION TABLE
The following table provides the cash and other compensation paid or
accrued by the Company to its chief executive officer for the fiscal years ended
October 31, 1997, 1996 and 1995:
<TABLE>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
NAME/POSITION YEAR SALARY BONUS STOCK OPTIONS COMPENSATION
- ------------- ---- ------ ----- ------------- ------------
<S> <C> <C> <C> <C> <C>
Keith Larkin 1997 $ 2,500 0 0 0
1996 $42,500 0 540,000* 0
1995 $22,500 0 0 0
</TABLE>
- ----------
* For a description of such stock options, see "EXECUTIVE COMPENSATION-Stock
Option Plan."
11
<PAGE> 14
EMPLOYMENT AGREEMENTS
Effective December 9, 1994, Keith Larkin entered into a five-year
amended and restated employment agreement with the Company, pursuant to which he
has the duties of President and Treasurer of the Company and has a right to
receive an annual salary of up to $90,000, which may increase each year by an
amount not less than the percentage increase in the United States Consumer Price
Index. Under the agreement, Mr. Larkin will only be entitled to receive an
annual salary of $90,000 if the Company generates annual sales for a fiscal year
of $2 million and has pre-tax income equal to at least 20% of the Company's
annual sales. In all cases, the Board of directors sets Mr. Larkin's salary,
taking into account the Company's projected financial performance and cash
required to satisfy the Company's anticipated operating expenditures. As part of
the consideration Mr. Larkin provided to the Company in exchange for the
Company's obligations under the employment agreement, Mr. Larkin assigned all of
his rights, title and interest in and to any and all inventions, discoveries,
developments, improvements, processes, 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 Freedom lightweight telephone headsets. For the fiscal
year ended October 31, 1997, the Company paid Mr. Larkin a salary of $2,500.
The Company does not have written employment agreements with Kenneth
Campbell or Richard Hennessey. During each of the fiscal years ended October 31,
1997, 1996 and 1995, Mr. Campbell received a salary of $40,000 and Mr. Hennessey
received a salary of $40,000, $31,733 and $7,500, respectively.
STOCK OPTION PLAN
In April 1996, the Board of Directors of the Company adopted the
Company's 1996 Stock Option Plan (the 'Plan"). The Plan provides for the grant
by the Company of options to purchase up to an aggregate of 590,000 of the
Company's authorized but unissued shares of Common Stock (subject to adjustment
in certain cases including stock splits, recapitalizations and reorganizations)
to officers, directors, consultants, and other persons rendering services to the
Company.
The purposes of the Plan are to provide incentive to employees,
including officers, directors and consultants of the Company, to encourage such
persons to remain in the employ of the Company and to attract to the Company
persons of experience and ability. The Plan terminates on April 15, 2006.
Options granted under the Plan may be either incentive stock options
within the meaning of the Internal Revenue Code of 1986, as amended ("incentive
options"), or options that do not qualify as incentive options ("nonqualified
options"). The exercise price of incentive options must be at least equal to the
fair market value of the shares of Common Stock on the date of grant; provided,
however, that the exercise price of any incentive option granted to any person
who, at the time of the grant of the option, owns stock aggregating 10% or more
of the total combined voting power of the Company or any parent or subsidiary of
the Company ("Ten Percent Shareholder"), must not be less 110% of the fair
market value
12
<PAGE> 15
of such shares on the date of grant of 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 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.
During 1997, the Company received $25,000 upon the issuance of 50,000 shares of
Common Stock upon the exercise of 50,000 options by Messrs. Campbell and
Hennessey.
FISCAL YEAR 1997 OPTION EXERCISES AND HOLDINGS
The following table sets forth (i) the stock option exercises by the
chief executive officer of the Company during fiscal year 1997; (ii) the number
of shares underlying both exercisable and non-exercisable stock options as of
October 31, 1997; 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
OUTSTANDING STOCK OPTIONS AT VALUE OF IN-THE-MONEY
SHARES ACQUIRED BY VALUE YEAR END OUTSTANDING STOCK OPTIONS
NAME EXERCISES IN FISCAL 1997 REALIZED EXERCISABLE NOT EXERCISABLE EXERCISABLE NOT EXERCISABLE
- ---- ------------------------ -------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Keith Larkin 0 0 540,000 0 $1,957,500 0
</TABLE>
13
<PAGE> 16
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the beneficial ownership of the Common
Stock as of January 26, 1998 by:(i) each of the Company's officers and
directors; (ii) each person who is known by the Company to own beneficially more
than 5% of the outstanding shares of Common Stock; and (iii) all of the
Company's officers and directors as a group:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF SHARES OWNED
BENEFICIAL OWNER BENEFICIALLY PERCENTAGE OF CLASS
- ------------------- ------------ -------------------
<S> <C> <C>
Keith Larkin 1,577,700(1) 37.1%
c/o Pro Tech Communications, Inc.
3311 Industrial 25th Street
Fort Pierce, Florida 34946
Richard Hennessey 3,000 0.5%
c/o Pro Tech Communications, Inc.
3311 Industrial 25th Street
Fort Pierce,, Florida 34946
Kenneth Campbell 0 0
c/o Pro Tech Communications, Inc.
3311 Industrial 25th Street
Fort Pierce, Florida 34946
All officers and directors as a group 1,580,700(1) 37.1%
(3 persons)
</TABLE>
- ------------------
(1) Includes 540,000 shares of Common Stock underlying a stock option, which is
presently exercisable at $.50 per share and expires on April 15, 1999, and
40,000 shares of Common Stock owned by The Seek Foundation, an organization
described in Section 501(c)(3) of the Internal Revenue Code of 1954, as amended.
The directors of such organization are Keith Larkin and his wife, Cynthia
Larkin.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In July 1996, the Company loaned $3,500 to Richard Hennessey, the
Company's Vice President-Marketing. This loan accrued interest at the rate of
15% per annum, with principal and interest due in July 1997. The loan was repaid
in February 1997.
In August 1996, the Company loaned $28,882 to Keith Larkin, the
President of the Company. The loan bears interest at 15% per annum, with
principal and interest due August 2, 1998. As of October 31, 1997, the
outstanding principal and interest amounted to $34,282.
14
<PAGE> 17
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The financial statements and notes thereto are included herein
beginning at page F-1.
<TABLE>
<CAPTION>
Page
<S> <C>
(a) 1. Index to Financial Statements
Report of Independent Certified Public Accountants F-1
Balance Sheets for the years
ended October 31, 1997 and 1996 F-2
Statements of Operations for the years
ended October 31, 1997 and 1996 F-3
Statements of Stockholders' Equity for the years
ended October 31, 1997 and 1996 F-4
Statements of Cash Flows for the years
October 31, 1997 and 1996 F-5
Notes to Financial Statements F-6
(a) 2. Exhibits
3.1 Articles of Incorporation of the Company, dated October 5, 1994, and the
Amendments thereto, dated January 31, 1995.*
3.2 By-laws of the Company.*
10.1 Amended and Restated Employment Agreement, dated as of December 9, 1994,
between the Company and Keith Larkin.**(1)
10.2 The Company's 1996 Stock Option Plan.*(1)
10.3 Stock Option, dated April 15, 1996, issued by the Company to Keith
Larkin.*(1)
10.4 Lease, dated December 1, 1997, between the Company and Karen Development
Co.
10.5 Promissory Note, dated August 2, 1998, in favor of the Company.
27 Financial Data Schedule (for SEC use only).
(b) No reports on Form 8-K were filed by the Company during the last
quarter of the period covered by this Report.
</TABLE>
* Incorporated by reference to the initial filing with the SEC of the
Company's Form 10-SB on July 5, 1996.
** Incorporated by reference to Amendment No. 1 to the Company's Form 10-SB
which was filed with the Commission on October 4, 1996.
(1) Denotes a management contract or compensatory plan or arrangement.
15
<PAGE> 18
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Pro Tech Communications, Inc.:
We have audited the accompanying balance sheet of Pro Tech Communications, Inc.
as of October 31, 1997 and the related statements of operations, stockholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit. The accompanying
financial statements of Pro Tech Communications, Inc. as of October 31, 1996,
were audited by other auditors whose report thereon dated December 12, 1996,
expressed an unqualified opinion on those statements.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1997 financial statements referred to above present fairly,
in all material respects, the financial position of Pro Tech Communications,
Inc. as of October 31, 1997, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
December 16, 1997
/s/ Morgan, Jacoby, Thurn & Associates, P.A.
F-1
<PAGE> 19
PRO TECH COMMUNICATIONS, INC.
Balance Sheets
October 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 356,327 299,430
Short-term investments 257,936 297,275
Accounts receivable less allowance for doubtful accounts of $12,095
and $9,141 in 1997 and 1996, respectively 230,754 155,460
Inventory (note 2) 160,609 176,447
Due from officers and employees 35,418 34,656
Other current assets 37,088 13,994
---------- ----------
Total current assets 1,078,132 977,262
Net property and equipment (note 3) 155,400 128,880
Other assets 5,611 4,366
---------- ----------
$1,239,143 1,110,508
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 22,739 53,663
Accrued expenses (note 4) 66,420 45,490
---------- ----------
Total current liabilities 89,159 99,153
Stockholders' equity (note 5):
Common stock, $.001 par value, authorized 10,000,000 shares, issued and
outstanding 4,254,000 and 3,964,000 shares in 1997 and 1996,
respectively 4,254 3,964
Additional paid-in capital 1,082,018 963,953
Retained earnings 63,712 43,438
---------- ----------
Total stockholders' equity 1,149,984 1,011,355
Commitments (note 7)
---------- ----------
$1,239,143 1,110,508
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 20
PRO TECH COMMUNICATIONS, INC.
Statements of Operations
Years ended October 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Net sales $ 996,993 852,778
Cost of goods sold 333,755 281,682
----------- -----------
Gross profit 663,238 571,096
Selling, general and administrative expenses 658,785 513,398
Provision for doubtful accounts 3,924 (8,661)
----------- -----------
Income from operations 529 66,359
Other income (expense):
Interest income 28,688 27,668
Interest expense -- (13,868)
Miscellaneous income 58 107
Loss on disposal of fixed assets (1,116) --
Form 10-SB filing costs (note 5) -- (79,072)
----------- -----------
Income before income taxes 28,159 1,194
Income taxes (note 8) 7,885 1,715
----------- -----------
Net income (loss) $ 20,274 (521)
=========== ===========
Income (loss) per common share - primary $ 0.00 (0.00)
=========== ===========
Average common shares outstanding 4,122,795 3,414,000
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 21
PRO TECH COMMUNICATIONS, INC.
Statements of Stockholders' Equity
Years ended October 31, 1997 and 1996
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
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
Issuance of 290,000 shares of common stock
(notes 5 and 6) (net of issue costs
of $46,645) 290 118,065 -- 118,355
Net income -- -- 20,274 20,274
---------- ---------- ---------- ----------
Balance, October 31, 1997 $ 4,254 1,082,018 63,712 1,149,984
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 22
PRO TECH COMMUNICATIONS, INC.
Statements of Cash Flows
Years ended October 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Cash received from sale of merchandise $ 907,839 885,952
Cash paid to employees and vendors (980,148) (1,008,028)
Interest paid -- (13,868)
Interest received 28,688 27,668
---------- ----------
Net cash used by operating activities (43,621) (108,276)
---------- ----------
Cash flows from investing activities:
Purchase of short-term investments (260,764) (502,181)
Proceeds on maturity of short-term investments 300,103 657,066
Purchase of property and equipment (57,176) (65,840)
Proceeds from sale of property and equipment -- 600
---------- ----------
Net cash provided (used) by investing activities (17,837) 89,645
---------- ----------
Cash flows from financing activities:
Principal payments on notes payable -- (250,226)
Proceeds from issuance of common stock 118,355 449,177
---------- ----------
Net cash provided by financing activities 118,355 198,951
---------- ----------
Net increase in cash and cash equivalents 56,897 180,320
Cash and cash equivalents at beginning of year 299,430 119,110
---------- ----------
Cash and cash equivalents at end of year $ 356,327 299,430
========== ==========
Reconciliation of net income (loss) to net cash used by operating activities:
Net income (loss) 20,274 (521)
Adjustments to reconcile net income (loss) to net cash used by operating
activities:
Depreciation and amortization 29,695 26,712
Allowance for doubtful accounts 2,954 (6,861)
Loss on disposal of fixed assets 1,116 470
Increase in accounts receivable (78,248) (29,188)
Decrease (increase) in inventory 15,838 (86,386)
Increase in receivables from officers and employees (762) (30,994)
Increase in other assets (24,494) (17,894)
(Decrease) increase in accounts payable (30,924) 25,082
Increase in accrued expenses 20,930 11,304
---------- ----------
Total adjustments (63,895) (107,755)
---------- ----------
Net cash used by operating activities $ (43,621) (108,276)
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 23
PRO TECH COMMUNICATIONS, INC.
Notes to Financial Statements
October 31, 1997 and 1996
(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 headsets 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.
(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) SHORT-TERM INVESTMENTS
Short-term investments consist of certificates of deposits with
maturities in excess of three months. In accordance with
Statement of Financial Accounting Standards (SFAS) No. 115, such
investments are classified as held-to-maturity and are recorded
at amortized cost, which approximates fair value. All
certificates of deposit mature during fiscal year 1998.
(d) INVENTORY
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
(e) 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
one to 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) 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.
(Continued)
F-6
<PAGE> 24
PRO TECH COMMUNICATIONS, INC.
Notes to Financial Statements
(g) INCOME TAXES
Income taxes are accounted for under the asset and liability
method prescribed by SFAS No. 109. 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.
(h) ADVERTISING
The costs of advertising, promotion and marketing programs are
charged to operations in the year incurred. Advertising costs
approximated $20,817 and $14,200 for the years ended October 31,
1997 and 1996, respectively, and were included in selling,
general and administrative expenses in the accompanying
statement of operations.
(i) 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 1997 and 1996 was $21,400
and $44,600, respectively.
(j) FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's cash and cash
equivalents, short-term investments, accounts receivable and
current liabilities approximate the carrying amount due to the
short-term nature of such financial instruments.
(k) RECLASSIFICATION
Certain amounts in the 1996 financial statements have been
reclassified to conform with the 1997 presentation.
(l) 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.
(m) INCOME (LOSS) PER SHARE
Primary income (loss) per share is based on the weighted average
number of shares of common stock and common stock equivalents
(stock options and stock warrants) outstanding during the year.
Fully diluted income (loss) per share was antidilutive during
1997 and 1996 and is therefore not reported.
(Continued)
F-7
<PAGE> 25
(n) STOCK OPTIONS
On October 23, 1995, the Financial Accounting Standards Board
(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. Effective November 1, 1996, the Company adopted
Statement 123, which permits entities (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. 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.
(o) LONG-LIVED ASSETS
The Company accounts for long-lived assets in accordance with
the provisions of SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.
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. There were no such impairments for the years ending
October 31, 1997 and 1996.
(p) NEW PRONOUNCEMENTS
In February 1997, the FASB issued Statement No. 128, EARNINGS
PER SHARE (Statement 128), which establishes two new methods for
computing earnings per share: basic and diluted. Basic and
diluted earnings per share replaces primary and fully-diluted
earnings per share prescribed by APB No. 15. Statement 128 is
effective for years ending after December 15, 1997 (fiscal year
1998 for the Company) and earlier application is not permitted.
In June 1997, the FASB issued Statement No. 130, REPORTING
COMPREHENSIVE INCOME (Statement 130), which establishes
standards for reporting and display of comprehensive income and
its components in a financial statement having the same
prominence as other financial statements. Statement 130 is
effective for years beginning after December 15, 1997 (fiscal
year 1999 for the Company).
F-8
<PAGE> 26
In June 1997, the FASB issued Statement No. 131, DISCLOSURES
ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
(Statement 131), which establishes new standards for the way
enterprises disclose information about operating segments.
The Company does not expect these new pronouncements will have a
significant impact on the reporting of its financial results.
(2) INVENTORY
Inventory at October 31, 1997 and 1996 consists of the following:
1997 1996
-------- -------
Raw materials $ 63,802 84,751
Work in process 25,451 54,645
Finished goods 71,356 37,051
-------- -------
$160,609 176,447
======== =======
(3) NET PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at October 31, 1997
and 1996:
1997 1996
-------- -------
Production molds $121,845 98,124
Office equipment 56,158 50,156
Production equipment 29,611 8,217
Leasehold improvements 10,174 6,972
Vehicles 5,557 5,557
Marketing displays 5,430 5,430
-------- -------
Total cost 228,775 174,456
Less accumulated depreciation 73,375 45,576
-------- -------
Total $155,400 128,880
======== =======
Total depreciation expense was $29,540 and $26,056 for the years ended
October 31, 1997 and 1996, respectively.
(4) ACCRUED EXPENSES
Accrued expenses consisted of the following at October 31, 1997 and 1996:
1997 1996
-------- -------
Accrued warranty expense $ 55,000 22,663
Accrued professional fees - 11,155
Other accrued expenses 11,420 11,672
-------- -------
$ 66,420 45,490
======== =======
(Continued)
F-9
<PAGE> 27
PRO TECH COMMUNICATIONS, INC.
Notes to Financial Statements
(5) 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, 1997 and 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.
Subsequent to the 1996 stock offering, 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 1996 stock offering, registration costs of
$79,072 incurred by the Company were included in other expenses in the
accompanying statement of operations.
The Company, in conjunction with the 1995 stock offering, issued options
to purchase 200,000 shares of common stock at $0.60 per share to the
sales agent responsible for sales outside the United States. In June
1996, the Company issued warrants to purchase 200,000 shares of common
stock at $1.50 per share to each of three individuals, as consideration
for services to be rendered in marketing the Company's products
throughout the world. In December 1996, the Company issued warrants to
purchase 400,000 shares of common stock at $1.50 per share.
During fiscal year 1997, the Company filed Form SB-2 which allowed the
Company to sell an additional 1,000,000 shares of common stock at $5.25
per share. The filing also registered the common stock underlying the
1,000,000 outstanding warrants and 830,000 outstanding stock options
(note 6). As of October 31, 1997 no additional shares were sold as a
result of the offering. However, 200,000 options were exercised at a
price of $0.60 per share and 90,000 options were exercised at a price of
$0.50 per share. Total proceeds generated, net of related issue costs of
$46,645, were $118,355.
The following table summarizes warrants to purchase common stock:
<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
--------- -------- --------- --------
<S> <C> <C> <C>
Warrants outstanding, beginning of
year 600,000 $ 1.50 -- $ --
Warrants granted 400,000 1.50 600,000 1.50
Warrants exercised -- -- -- --
--------- -------- --------- --------
Warrants outstanding and
exercisable, end of year 1,000,000 $ 1.50 600,000 $ 1.50
========= ======== ========= ========
</TABLE>
F-10
<PAGE> 28
PRO TECH COMMUNICATIONS, INC.
Notes to Financial Statements
Subsequent to October 31, 1997, and in accordance with the 1997
registration statement, all outstanding warrants were terminated.
(6) 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 authorized the issuance of up to
590,000 shares of common stock. 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.
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
1997 1996
----------------------- ---------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Options outstanding, beginning of
year 830,000 $ 0.52 240,000 $ 0.58
Options granted -- -- 590,000 0.50
Options exercised (290,000) (0.57) -- --
-------- -------- ------- --------
Options outstanding and
exercisable, end of year 540,000 $ 0.50 830,000 $ 0.52
======== ======== ======= ========
</TABLE>
During 1997, the Company received $25,000 upon issuance of 50,000 shares
of common stock upon the exercise of 50,000 options by the Company's
officers and $140,000 upon the issuance of 240,000 shares of common stock
to others. The remaining 540,000 stock options expire on April 15, 1999.
No compensation expense was recorded during 1996 for the options issued
to the Company's President and officers, in accordance with APB 25. Had
compensation expense been determined on the fair value at the date of
grant in accordance with the provisions of Statement 123, the Company's
net income (loss) and income (loss) per share would have been adjusted to
the pro forma amounts indicated below:
1997 1996
---- ----
Net income (loss):
As reported $ 20,274 (521)
======== =======
Pro forma $ 20,274 (74,083)
======== =======
Income (loss) per share:
As reported $ 0.00 (0.00)
======== ========
Pro forma $ 0.00 (0.02)
======== ========
(Continued)
F-11
<PAGE> 29
PRO TECH COMMUNICATIONS, INC.
Notes to Financial Statements
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1996: dividend yield of
0%; expected volatility of 25%; risk-free interest rate of 6.00%; and,
expected lives of three years.
(7) OPERATING LEASES
The Company leases office and production facilities under operating
leases expiring November 30, 1997. On December 1, 1997, the Company
extended those leases to November 30, 1998. The Company also leases
office equipment under operating leases expiring at various dates. On
December 15, 1997, the Company extended one of these leases to July 15,
2001. Future minimum lease payments for such noncancelable leases,
considering the subsequent extensions of the lease terms, are as follows:
1998 $ 23,162
1999 6,307
2000 4,763
2001 2,656
--------
Total $ 36,888
========
Rent expense under lease agreements totaled $21,979 and $15,395 for
fiscal year 1997 and 1996 respectively.
(8) INCOME TAXES
Income tax expense (benefit) consist of:
CURRENT DEFERRED TOTAL
------- -------- -------
1997:
Federal $ 6,899 (1,000) 5,899
State 2,386 (400) 1,986
------- ------- -------
$ 9,285 (1,400) 7,885
======= ======== =======
1996:
Federal 4,255 (2,800) 1,455
State 1,360 (1,100) 260
------- ------- -------
$ 5,615 (3,900) 1,715
======= ======= =======
(Continued)
F-12
<PAGE> 30
PRO TECH COMMUNICATIONS, INC.
Notes to Financial Statements
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:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Computed "expected" tax expense $ 9,570 406
Increase (reduction) in income taxes resulting from:
State income tax, net of federal tax benefits 1,310 170
Effect of graduated tax rates (8,740) (5,400)
Nondeductible costs of potential acquisition 4,740 --
Nondeductible costs for SEC Form 10-SB filing -- 11,000
Other, net 1,005 (4,461)
-------- --------
$ 7,885 1,715
======== =====
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Accounts receivable principally due to allowance for
doubtful accounts $ 2,400 1,800
Accrued warranty expense 10,800 4,500
------- -------
Total deferred tax assets 13,200 6,300
Plant and equipment principally due to differences
in depreciation 7,900 2,400
------- -------
Total deferred tax liabilities 7,900 2,400
------- -------
Net deferred tax assets $ 5,300 3,900
======= =======
</TABLE>
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,
1997 and 1996 was $45,990 and $28,364, respectively. 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.
(Continued)
F-13
<PAGE> 31
PRO TECH COMMUNICATIONS, INC.
Notes to Financial Statements
(9) 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, 1998. As of October 31, 1997, outstanding principal and
interest amounted to $34,282.
The Company also loaned to its Vice President $3,500 during 1996. This
loan bears interest at 15% per annum, with principal and interest due
July 9, 1997. This loan was repaid during 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.
(10) MAJOR CUSTOMERS
For 1997 and 1996, approximately 21% and 30%, respectively, of all sales
were to McDonald's Restaurant franchises.
F-14
<PAGE> 32
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on January 28, 1998.
PRO TECH COMMUNICATIONS, INC.
(Registrant)
By: /s/ Keith Larkin
--------------------------------
Keith Larkin, President
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Keith Larkin President, Treasurer and January 28, 1998
- ------------------------------ Chairman of the Board
Keith Larkin (Principal Executive, Financial
and Accounting Officer)
/s/ Kenneth Campbell Director, Secretary January 28, 1998
- ------------------------------ and Vice President of
Kenneth Campbell Operations
</TABLE>
<PAGE> 1
Exhibit 10.4
BUSINESS LEASE
THIS AGREEMENT, entered into this 1st day of December, 1997 between
Karen Development Co., hereinafter called the lessor, party of the first part,
and Pro Tech Communications of the County of St. Lucie and State of Florida
hereinafter called the lessee or tenant, party of the second part:
WITNESSETH, That the said lessor does this day lease unto said lessee,
and said lessee does hereby hire and take as tenant under said lessor Room or
Space No.
3309 Industrial 25th
3311 Industrial 25th
situate in State of Florida, to be used and occupied by the lessee as assembly
work and for no other purposes or uses whatsoever, for the term of 1 year,
subject and conditioned on the provisions of clause ten of this lease beginning
the 1st day of December, 1997, and ending the 30th day of November, 1998, at and
for the agreed total rental of Dollars, payable as follows:
3309 Industrial 25th 750.00 per month
3311 Industrial 25th 700.00 per month
Total 1450.00 per month
Plus state sales tax 94.25
-------
1544.25
all payments to be made to the lessor on the first day of each and every month
in advance without demand at the office of Karen Development Co. in the City of
3307 Industrial 25th or at such other place and to such other person, as the
lessor may from time to time designate in writing.
The following express stipulations and conditions are made a part of
this lease and are hereby assented to by the lessee:
FIRST: The lessee shall not assign this lease, nor sub-let the
premises, or any part thereof nor use the same, or any part thereof, nor permit
the same, or any part thereof, to be used for any other purpose than as above
stipulated, nor make any alterations therein, and all additions thereto, without
the written consent of the lessor, and all additions, fixtures or improvements
which may be made by lessee, except movable office furniture, shall become the
property of the lessor and remain upon the premises as a part thereof, and be
surrendered with the premises at the termination of this lease.
SECOND: All personal property placed or moved in the premises above
described shall be at the risk of the lessee or owner thereof, and lessor shall
not be liable for any damage to said personal property, or to the lessee arising
from the bursting or leaking of water pipes, or from any act of negligence of
any co-tenant or occupants of the building or any other person whomsoever.
<PAGE> 2
THIRD: That the tenant ____________ shall promptly execute and comply
with all statutes, ordinances, rules, orders, regulations and requirements of
the Federal, State and City Government and of any and all their Departments and
Bureaus applicable to said premises, for the correction, prevention, and
abatement of nuisances or other grievances, in, upon, or connected with said
premises during said term; and shall also promptly comply with and execute all
rules, orders and regulations of the applicable fire prevention codes for the
prevention of fires, at _______________ own cost and expense.
FOURTH: In the event the premises shall be destroyed or so damaged or
injured by fire or other casualty during the life of this agreement, whereby the
same shall be rendered untenantable, then the lessor shall have the right to
render said premises tenantable by repairs within ninety days therefrom. If said
premises are not rendered tenantable within said time, it shall be optional with
either party hereto to cancel this lease, and in the event of such cancellation
the rent shall be paid only to the date of such fire or casualty. The
cancellation herein mentioned shall be evidenced in writing.
FIFTH: The prompt payment of the rent for said premises upon the dates
named, and the faithful observance of the rules and regulations printed upon
this lease, and which are hereby made a part of this covenant, and of such other
and further rules or regulations as may be hereafter made by the lessor, are the
conditions upon which the lease is made and accepted and any failure on the part
of the lessee to comply with the terms of said lease, or any of said rules and
regulations now in existence, or which may be hereafter prescribed by the
lessor, shall at the option of the lessor, work a forfeiture of this contract,
and all of the rights of the lessee hereunder.
IN WITNESS WHEREOF, the parties hereto have hereunto executed this
instrument for the purpose herein expressed, the day and year above written.
Signed, sealed and delivered in the presence of:
Karen Development Co. (Seal
- ------------------------------- ------------------------------------
/s/ Sidney B. Motel (Seal
- ------------------------------- ------------------------------------
As to Lessor Lessor
Pro Tech Communications (Seal
- ------------------------------- ------------------------------------
/S/ Keith Larkin (Seal
- ------------------------------- ------------------------------------
As to Lessee Lessee
<PAGE> 3
STATE OF )
)
County of __________________)
Before me, a Notary Public in and for said State and County, personal came
_____________________________________________________________ to me well known
and known to be the person ______________ named in the foregoing lease, and
_____________________ acknowledged that _______________________ executed the
same for the purpose therein expressed.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the ____________ day of ________________________, 19___.
------------------------------------
------------------------------------
Notary Public
My commission expires ______________
This Instrument prepared by:
Address
<PAGE> 1
Exhibit 10.5
No. 3 $ 28,881.99 (City) Fort Pierce (State) Florida , 1997 Keith Larkin, after
date, for value received, $28,881.99 promises to pay to the order of Pro Tech
Communications, Inc. twenty eight thousand eight hundred and eighty one 99/00
DOLLARS, at (City) Fort Pierce, (State) Florida, with interest thereon at the
rate of 15 per cent per annum from 8/2/97 until fully paid. Interest payable
semiannually. The maker and endorser of this note further agree to waive demand,
notice of non-payment and protest; and in case suit shall be brought for the
collection hereof, or the same has to be collected upon demand of an attorney,
to pay reasonable attorney's fees for making such collection. Deferred interest
payments to bear interest from maturity at 15 per cent per anum, payable at
anniversary.
(Seal)
------------------------------
Due August 2, 1998 /s/ Keith Larkin (Seal)
------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PRO TECH COMMUNICATIONS, INC. FOR THE YEAR ENDED OCTOBER
31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<CASH> 356,327
<SECURITIES> 257,936
<RECEIVABLES> 266,172
<ALLOWANCES> 12,095
<INVENTORY> 160,609
<CURRENT-ASSETS> 1,078,132
<PP&E> 155,400
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,239,143
<CURRENT-LIABILITIES> 89,159
<BONDS> 0
0
0
<COMMON> 4,254
<OTHER-SE> 1,149,984
<TOTAL-LIABILITY-AND-EQUITY> 1,239,143
<SALES> 996,993
<TOTAL-REVENUES> 1,025,681
<CGS> 333,755
<TOTAL-COSTS> 658,785
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,924
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 28,159
<INCOME-TAX> 7,885
<INCOME-CONTINUING> 20,274
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,274
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
