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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, 1998
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 Identification
incorporation or organization) Number)
3311 INDUSTRIAL 25TH STREET, FORT PIERCE, FLORIDA 34946
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(Address of principal executive offices)
(561) 464-5100
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(Issuer's telephone number)
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: NONE
Securities registered under Section 12(g) of the Exchange Act: Common Stock, par
value $.001 per share
Transitional Small Business Disclosure Format (check One): Yes [ ] No [X]
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 [X]
The registrant's revenues for its most recent fiscal year: $1,142,482
As of January 29, 1999, the aggregate market value of shares of the registrant's
voting stock (based upon the average bid and asked price of such stock as
reported by the NASDAQ System of $0.50) held by non-affiliates of the registrant
was approximately $2,127,000. For the purposes of this computation, all
executive officers, directors and persons who beneficially own more than five
percent of the registrant's securities are deemed affiliates. Such determination
should not be an admission that such directors, officers or beneficial owners
are, in fact, affiliates of the registrant.
As of January 29, 1999, there were 4,254,000 shares of the registrant's common
stock outstanding.
Documents Incorporated by Reference: Yes
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TABLE OF CONTENTS
Form 10-K
Item Number
<TABLE>
PART I
<S> <C>
1. Description of Business ..................................................... 1
2. Description of Property ..................................................... 5
3. Legal Proceedings ........................................................... 5
4. Submission of Matters to a Vote of Security Holders ......................... 5
PART II
5. Market for Common Equity and
Related Stockholder Matters ................................................. 6
6. Management's Discussion and
Analysis or Plan of Operation ............................................... 7
7. Financial Statements ........................................................ F-1
8. Changes in and Disagreements with Accountants................................ F-1
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 .............................................................. 12
12. Certain Relationships and Related Transactions .............................. 12
13. Exhibits and Reports on Form 8-K ............................................ 13
</TABLE>
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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 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 two other headsets for the telephone user
market, which includes telephone operating companies, government agencies,
business offices, and professional telephone centers. The Company delayed its
product introduction six months due to changes made in the final design and
consequently will commence testing on the Trinity (PRODUCTS) and will introduce
the APEX in the second quarter of 1998. The Company plans to introduce several
versions of these telephone headsets in the second quarter of this fiscal year.
In addition, the Company plans on introducing several new products this fiscal
year through marketing agreements and joint ventures with certain strategic
partners. The Company's business strategy is to continually offer lightweight
headsets and telephony products that employ cutting edge sound technologies with
an emphasis on price/performance.
In addition, the Company will continue 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 Component variations to interface with
the wide variety of telephone systems in the market. The electronic amplifier
also generally offers lower profit margins than the headset component. As a
result, the Company presently has out-sourced the first of several amplifiers
engineered to the Company's specifications.
The Company will also continue to concentrate its efforts on the production and
distribution of new headset designs having the capability of connecting to and
interfacing with various electronic amplifiers and telephone systems currently
in use. In addition, the Company has adopted a co-engineering product
development strategy through the use of joint engineering agreements with
companies with complimentary engineering patents. The Company projects that this
change strategy will greatly increase the product development cycle while
offering far superior products to its customers. At the current date there are
no signed agreements in place.
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The Company has continued to make substantial investments in technology and had
incurred development costs with respect to engineering prototypes,
pre-production models and field testing of several new products. Management
believes that the Company's investment in technology will result in the
improvement of the functionality, speed and cost of components products.
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,
PROMOTORS AND CONTROL PERSONS." Today, Plantronics is the world's largest
lightweight telephone headset manufacturer, with approximately $230 million of
net sales for the 1998 fiscal year.
The Company estimates that sales of lightweight telephone headsets exceeded $500
million in 1998 as per an Internal Marketing Study, with the market dominated by
two companies - Plantronics and GN Netcom. The product lines of these companies,
generally share similar configurations and are marketed at higher prices than
the products 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 used 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
speakerphones, 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 fast-food 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 wireless belt-pack system with the use of several various plug types offered
by the wireless belt-pack providers sold in many fast-food franchises around the
world. 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.
THE FREEDOM. The Freedom is an adaptation of the ProCom headset to allow for it
to be worn without a headband. Through the use of a Company engineered clip,
this headset attaches to the standard hat or visor being worn in the fast-food
franchise. The electronics in the Freedom are virtually the same as the ProCom
headset providing the same market acceptance. Through its own research, the
Company found the need for user comfort from the use of headsets over very long
time periods. The Company introduced this product in April 1998.
THE APEX. The Company has renamed the ASTRA headset and intends to introduce the
APEX headset for sale in the second quarter of 1999. After conducting its own
market research, the Company determined that there is a demand for a headset
which combines both over-the-head and over-the-ear features. As a result, the
Company designed the APEX 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 Company plans to offer the
headset version first with the interchangeable version later in the current
fiscal year. The APEX is a commercial adaptation of the headset that the Company
has designed for use by the National Aeronautics and Space Administration
("NASA"). The Boeing Company ("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 APEX is a smaller design of the Trinity, with components reduced by 20% in
order to create a lightweight headset. The speaker and microphone positioning
can be easily adjusted by the user for the headset thereby allowing the product
to fit numerous head and ear sizes. In addition, the APEX has a detachable
headband allowing the users the choice of wearing the headset over the head or
over the ear. The Company presently intends to sell the APEX to distributors at
prices ranging from $28.00 to $49.00 per headset, and this product is planned to
be sold by the Company to retailers for $54.00 per headset.
THE A-10 AMPLIFIER. The A-10 amplifier is the first in a series of multi-line
amplifiers being offered with each of the Company's headsets. It is designed for
the SOHO market (small office/home office) and has been engineered to work with
over 90% of all existing phone systems in the world. The size is very small and
engineered to plug and play with most phone systems.
THE TRINITY. The Trinity has been designed for users in noisy environments. The
Company is currently in the process
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of developing the Trinity for manufacture and sale. The Company anticipates
completing the development of the product by the first quarter of the 1999
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 headset 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 $40.00 to $54.00 per
headset, and the product is planned to be sold by the Company to retailers for
$68.00 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 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 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 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 electronic commerce from the Company's web site along with
independent sales representatives and strategic marketing agreements.
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 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 29,736 headset sales to
more than 8,000 restaurants during fiscal year 1998. The sale of the Company's
products to McDonald-owned restaurants and franchisee restaurants represented
approximately 21% and 17% of the Company's net sales for the fiscal year 1997
and fiscal 1998, 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. In addition;
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. The Company will also supplement the above strategies
with joint ventures and marketing agreements with Companies with complimentary
technologies. Although the Company presently intends to attempt to sell its
products to several large telephone users, there can be no assurance that the
Company will be successful in such efforts. Another potential large volume
purchaser of headsets are manufacturers of personal computers, especially 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 space travel. To date, the Company has had $5,515 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 with in the telephone industry.
Finally, 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 (ii) 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.
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MANUFACTURING
The Company purchases the components for its headsets from four suppliers in the
Far East and 12 in the United States, who produce the components to the
Company's specification based upon the molds designed by the Company. The firms
that supply 90% of the component parts of the Company's products are Whitney
Blake Company of Vermont, Inc., Bellows Falls, Vermont; Primo Microphones Inc.,
McKenny, Texas; Globe Electronic Plug Connector, Inc., Taiwan; Chen 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.
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, 1998 and 1997, the amount of the Company's inventory was $245,610
and $160,609 respectively. The increase in inventory is attributed to two
factors. First; the Company benefited from an individual headset component price
reduction for larger purchases made from its suppliers. Second, the additional
component parts purchased will be interchangeable on both of the new headsets
planned for market introduction later in fiscal year 1999.
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 who 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. The Company estimates Plantronics
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 $200 million for the fiscal
year 1997. Other competitors include GN Netcom, Inc. and Hello Direct. This past
year, GN NetCom, Inc. purchased both UNEX Corporation and ACS Wireless in an
attempt to grow its market share through acquisitions. ACS Wireless was founded
by Mr. Larkin and the Company believes ACS Wireless previously retained a market
share of approximately 15%. See "DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND
CONTROL PERSONS."
The Company believes that in selecting telephone headsets, user primarily
consider price, product quality, reliability, product design and features, and
warranty terms. The Company believes that its headsets are superior in design
and construction and substantially lower in price than the models currently
available from the Company's competitors. No assurances can be given, however,
that the Company's products will be perceived by users and distributors as
providing a competitive advantage over competing headsets. In addition, no
assurance can be given that competing technologies will not become available
which are superior, less costly or marketed by better known companies. Also,
certain customers may prefer to do business with companies with substantially
greater resources than the Company.
In addition to direct competition from other companies offering lightweight
telephone headsets, the Company may additionally face indirect competition in
its industry from technological advances such as interactive voice response
systems which require no human operators for certain applications such as
account balance inquiries or airplane flight information. The Company believes
that this competition will be more than offset by increased demand for headsets
as voice telecommunication applications expand.
PROPRIETARY PROTECTION
The Company 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, Freedom and the APEX, 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 lengthly 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.
Research and development costs are expensed when incurred and are included in
selling, general and administrative expenses. The amount charged to expense
during 1998 and 1997 was $40,815 and $21,400, respectively.
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EMPLOYEES
The Company currently has 13 full-time employees and 3 part-time employees,
including 3 persons in management, 4 persons in administration, 4 persons in
marketing and 5 persons in assembly and production. The Company intends to hire
up to 3 additional employees within calendar year 1999, 1 of whom will work in
production, 2 in marketing. 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 two leases expiring on November 30, 1998. The
Company also has the option of renewing the leases expiring November 1999 for an
additional one-year period on the same terms and conditions. The monthly rental
rate will increase by approximately $100.00 per month. The Company's aggregate
monthly rent under both leases is $1,644.25. The Company considers its rental
space adequate for its present operations, and believes additional space is
available near its present location, if needed.
ITEM 3. LEGAL PROCEEDINGS
The Company is not party to any legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year covered by
this Report to a vote of security holders.
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PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER SHAREHOLDER MATTERS
The Common stock began trading on the National Association of Securities
Dealers, Inc. Electronic Bulletin Board on March 22, 1996. The Company's stock
is currently being traded under the symbol "PCTU". The following table sets
forth the average high and low bid prices of the Common Stock as reported by the
NASD's Electronic Bulletin Board for each of the fiscal quarters during which
the common stock has been traded.
Year ended
OCTOBER 31, 1998 HIGH LOW
---------------- ---- ---
First Quarter $4.49 $4.20
Second Quarter $2.86 $2.60
Third Quarter $0.97 $0.94
Fourth Quarter $0.36 $0.26
Year ended
OCTOBER 31, 1997 HIGH LOW
---------------- ---- ---
First Quarter $5.75 $0.875
Second Quarter $6.375 $3.50
Third Quarter $5.50 $2.875
Fourth Quarter $6.6875 $2.875
Source of information, Dreyfus Brokerage Services, Inc.
The market quotation reflects inter-dealer prices, without retail
mark-up, markdown, or commission and may not represent an actual transaction.
As of January 25, 1999, there were 47 record holders of the Common
stock.
On March 5, 1998, the Board of Directors adopted the 1998 Stock Option
Plan for the benefit of Directors, Officers, Employees and Consultants to the
Company. This plan authorized the issuance of up to 500,000 shares of common
stock. On August 4, 1998, 200,000 were granted to its officers, of which 150,000
were offered to Mr. Richard Hennessey, Director, Secretary and Vice President of
Marketing of which 50,000 options can be immediately exercised at an exercised
price of $.375 per share. The remainder would be vested over a two-year period.
Mr. Kenneth Campbell, Vice President of Operations options can be immediately
exercised at an exercise price of $.375 per share. An additional 100,000 option
shares were offered to the Company's 13 full time employees at an exercise price
of $.375 per share. These shares are immediately exerciseable. The stock option
exercise price was the fair market value of a share of common stock at the date
of the grant.
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 reasonable foreseeable future.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
YEAR ENDED OCTOBER 31, 1998 AS COMPARED TO THE YEAR ENDED OCTOBER 31, 1997:
For the year ended October 31, 1998, the Company realized a net loss of
$(223,416) compared to a net loss of $(12,241) for the year ended October 31,
1997. This difference is attributed to the following adjustments: (1) an
additional accrued warranty expense of approximately $97,000, (2) the write-off
of $36,062 owed to the Company from the closing of the Company's investment
banker firm under retainer, (3) a one time charge of approximately $50,000 to
the Company's production dept. as a result of a product re-call (4) the payment
of $25,000 due to the result of a mediated settlement with the Company's public
relations firm.
Net sales for the year ended October 31, 1998 totaled $1,142,482 versus
$996,993 representing an increase of $145,489 or 14.6% over last year. 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 1998, the Company sold a total of 29,673
headsets, as compared to 24,779 headsets in the previous year. This difference
represents an increase in sales of 4,894 headsets or 19.7% more than the
comparable twelve month period. Net unit sales of the ProCom headset increased
8% primarily from the expansion of sales into international markets. Consistent
with the Company's objectives, the indirect distribution channel accounted for
64% of net revenues and 74% unit volumes versus 63% of net revenues and 70% of
unit volumes in the comparable 1997 period. Sales from the Freedom headset, an
adaptation of the ProCom headset, increased to 10% of sales as the fast-food
market as this headset begins to receive market acceptance.
Gross margin percent decreased 8% to 58% versus 66% in comparable 1997
period partially as a result of the above mentioned non-recurring recall expense
of approximately $50,000. The Company has since received customer assurances of
the acceptance of the changes made in the product recall. Selling, general and
administrative expenses for the fiscal year were $882,385 versus $698,785 in the
comparable 1997 period. This increase was the result of several factors.
First, the Company incurred a $97,000 charge in accrued warranty expense to
support the continual increase in sales of its products and warranty activity.
Second, the Company has continued its investment in Research and Development and
new product development accounting for investments mold designs and component
testing. The Company intends to and is currently reviewing the feasibility of
adapting new sound technologies into its current and all future products. The
adaptation may result in several alliances with companies that have these
patented technologies. Although this is the Company's intention there is no
formal agreements in place and no assurances that that they will occur in the
future. Finally, the Company has increased its investment in marketing and
advertising expenses to support the introduction of several new products in
fiscal year 1999. In addition, 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. The acquisition did not occur therefore
requiring the balance of the retainer, $36,062 to be repaid to the Company. The
firm did not honor its agreement and in fiscal year 1998 announced that it
closed its business. The Company, consequently assumed this loss.
The Company generated interest income of $24,719 for fiscal year 1998
as compared to $28,688 for the comparable 1997 year. The interest income
resulted from the Company's investment of the net proceeds from the 1996 private
placement of securities into short-term certificates of deposits.
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YEAR 2000 COMPLIANCE
Many existing electronic systems, including computer systems, use only
the last two digits to refer to a year. Therefore, these systems may recognize a
date using "00" as 1900 rather than the year 2000. If not corrected, many
computers and other electronic applications and systems could fail or create
erroneous results when addressing dates on and after January 1, 2000. The
Company's products do not address or utilize dates in their operation, and,
accordingly, the Company's products should not fail due to the year 2000
problem. However, the Company uses and depends on information technology systems
(including business information computer systems and design and manufacturing
computer systems) and other machinery and equipment that includes embedded date
sensitive technology. The Company also depends on the proper functioning of date
sensitive electronic systems of third parties, such as customers and suppliers.
The failure of any of these systems to appropriately interpret the year 2000
could have a material adverse effect on our business, financial condition and
results of operations. The Company is undertaking efforts to ensure that its
business systems and those of our suppliers and customers are compliant with the
requirements of the year 2000. However, the Company's year 2000 program may not
be effective or the Company may not be able to implement it in a timely and
cost-effective manner. Our year 2000 efforts may not, therefore, ensure against
disruptions caused by the approach or advent of the year 2000. The year 2000
problem is potentially very widespread, and it is not possible to determine all
the potential risks that the Company may face. The Company's inability to remedy
its own year 2000 problems or the failure of third parties to do so may cause
business interruptions or shutdowns, financial loss, regulatory actions, harm to
the Company's reputation and exposure to liability.
The Company believes the cost of administering its Year 2000 Compliance
program will not have a material adverse impact on future earnings. However,
potential costs and uncertainties associated with any Year 2000 Compliance
program depend on a number of factors, including software, hardware and the
nature of the industry in which the Company and its suppliers operate. In
addition, companies must coordinate with other entities with which they
electronically interact, such as customers, suppliers, financial institutions,
etc. The Company estimates that potential costs will not exceed $100,000. The
Company has incurred $2,000 in fiscal year 1998 costs in administering year 2000
compliance.
Although the Company's evaluation of its systems is still in process,
there has been no indication that the Year 2000 Compliance issue, as it relates
to internal systems, will have a material impact on future earnings. After a
survey of its suppliers, the Company has determined that there are no material
Year 2000 Compliance supplier issues. The Company is currently implementing a
survey to its customers to determine if material Year 2000 Compliance issues
exist. Although unlikely, such potential problems remain a possibility and could
have a material adverse impact on the Company's future results. The Company
estimates completion of the evaluation process by June 30, 1999.
8
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
The current ratio (current assets to current liabilities) of the
Company was 4.45 to 1.00 at October 31,1998, as compared to 13.20 to 1.00 for
the same comparable 1997 fiscal year. At October 31, 1998, the Company's current
assets exceeded its current liabilities by approximately $724,769.
During the fiscal year ended October 31, 1998 and thereafter, the
Company has funded its working capital requirements with cash flow from
operations. 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 offering of equity, or a joint venture
with a strategic partner although there are 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 will be entitled to
receive an annual salary of a maximum of $90,000 (as adjusted each year by at
least the percentage increase in the Consumer Price Index). The Company,
however, is only required to pay Mr. Larkin such a maximum annual salary if the
Company generates annual sales for a fiscal year of at least $2 million and has
pre-tax income equal to at least 20% of the Company's annual sales. In all other
cases, the Board of Directors sets Mr. Larkin's salary, taking into account the
Company's projected financial performance and cash required to satisfy the
Company's anticipated operating expenditures. See "EXECUTIVE COMPENSATION-
Employment 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, PROMOTORS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the executive
officers and directors of the Company:
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
Keith Larkin 75 Chairman of the Board, President and
Treasurer
Rich Hennessey 39 Director, Secretary and Vice President
Kenneth Campbell 57 Vice President of Operations
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 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.
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. On August 4, 1998 Mr.
Hennessey was appointed to Secretary and Director of the Company. 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.
Kenneth Campbell has held the position of Vice President-Operations, Secretary,
and a director of the Company since November 9, 1994. On August 4, 1998, Mr.
Campbell resigned as Secretary and Director to the Company. 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 Sea-Ray 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 1990/1991 and as a sales manager for Pace Homes, Inc. and Versa
Development, Inc. from 1992 to 1993.
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 Company's 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, 1998, 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.
ITEM 10. EXECUTIVE COMPENSATION
Set forth below is certain information concerning the compensation paid to the
Company's chief executive officer for the fiscal year ended October 31, 1998. No
other executive officer of the Company received compensation in excess of
$100,000 for such fiscal year.
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, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
SECURITIES
RESTRICTED UNDERLYING
OTHER ANNUAL STOCK STOCK LTIP ALL OTHER
NAME/POSITION YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATIONS
- ------------- ---- ------ ----- ------------ ---------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
KEITH LARKIN 1998 $45,000 0 0 0 0 0 0
1997 $42,500
1996 $42,500 540,000
</TABLE>
*For a description of such stock options, see "EXECUTIVE COMPENSATION - Stock
Option Plan."
EMPLOYMENT AGREEMENT
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. During the year
ended October 31, 1998, the Company's President was paid a salary in cash of
$30,000. In addition the Company recorded compensation expense of $15,000, with
a corresponding credit to additional paid-in capital, to reflect the estimated
fair value of the unpaid services provided by the President to the Company.
The Company does not have written employment agreements with Kenneth Campbell or
Richard Hennessey. During each of the fiscal years ended October 31, 1998, 1997
and 1996 Mr. Campbell received a salary of $45,000, $40,000 and $40,000
respectively and Mr. Hennessey received a salary of $51,000 and $45,000 and
$31,733 respectively.
11
<PAGE> 14
Messrs. Larkin and Hennessey did not receive any additional compensation for
serving as the directors of the Company.
STOCK OPTION PLAN
On April 15, 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.
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 in 1996. The stock options are exercisable upon the grant date,
extending over a period of three years. Prior to November 1, 1997, the Company
had issued options to purchase 200,000 shares of common stock at $0.60 per
share.
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.
On March 5, 1998, the Board of Directors adopted the 1998 Stock Option Plan for
the benefit of directors, officers, employees and consultants to the Company.
The plan authorized the issuance of up to 500,000 shares of common stock. On
August 4, 1998, 200,000 were granted to its officers, of which 150,000 were
offered to Mr. Richard Hennessey, Director, Secretary and Vice President of
Marketing, of which 50,000 options shares can be immediately exercised at an
exercised price of $.375 per share. The remainder would be vested over a
two-year period. The options granted to Mr. Kenneth Campbell, Vice President of
Operations, can be immediately exercised at an exercise price of $.375 per
share. An additional 100,000 option shares were granted to the Company's 13 full
time employees at an exercise price of $.375 per share. These shares are
immediately exercisable. The stock option exercise price was the fair market
value of a share of common stock at the date of the grant.
12
<PAGE> 15
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The financial statements and notes thereto are included herein beginning at
page F-1.
(a) 1. Index to Financial Statements Page
Report of Independent Certified Public Accountants F-1
Balance Sheets for the years
ended October 31, 1998 and 1997 F-2
Statements of Operations for the years
ended October 31, 1998 and 1997 F-3
Statements of Stockholder's Equity for the years
ended October 31, 1998 and 1997 F-4
Statements of Cash Flows for the years
October 31, 1998 and 1997 F-5
Notes to Financial Statements F-6
(a) 2. Exhibit
3.1 Articles of Incorporation of the Company, dated October 5,
1994, and the Amendments thereto, dated January 31, 1995*.
3.2 By-Laws of the Company.*
10.1 Amended and Restated Employment Agreement, dated as of
December 9, 1994, between the Company and Keith Larkin**(1)
10.2 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, 1998, between the Company and Karen
Development Co.*(1)
10.5 Promissory Note, dated August 2, 1998, in favor of the
Company.(1)
10.6 The Company's 1998 Stock Option Plan.*(1)
10.7 Stock Option, dated August 4, 1998, issued by the Company
to Richard Hennessey.*(1)
10.8 Stock Option, dated August 4, 1998, issued by the Company to
Kenneth Campbell.*(1)
27 Financial Data Schedule (for SEC use only)
(b) No reports on From 8-k were filed by the Company during the last
quarter of the period covered by this Report.
* 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.
13
<PAGE> 16
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, 1998 and 1997 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 statements 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, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ Morgan, Jacoby, Thurn & Associates, P.A.
--------------------------------------------
Vero Beach, Florida
December 16, 1998
F-1
<PAGE> 17
PRO TECH COMMUNICATIONS, INC.
BALANCE SHEETS
OCTOBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 198,797 356,327
Short-term investments 254,545 257,936
Accounts receivable less allowance for doubtful accounts of $14,868
in 1998 and $12,095 in 1997 200,235 230,754
Inventory (note 2) 245,610 160,609
Due from officers and employees (note 9) 14,591 35,418
Other current assets 20,836 37,088
----------- -----------
Total current assets 934,614 1,078,132
Net property and equipment (note 3) 181,269 155,400
Due from officer (note 9) 42,860 --
Other assets 155 5,611
----------- -----------
$ 1,158,898 1,239,143
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 36,380 22,739
Accrued expenses (note 4) 173,465 58,935
----------- -----------
Total current liabilities 209,845 81,674
Stockholders' equity (notes 5 and 6):
Common stock, $.001 par value, authorized 10,000,000 shares, issued
and outstanding 4,254,000 4,254 4,254
Additional paid-in capital 1,137,018 1,122,018
Retained earnings (deficit) (192,219) 31,197
----------- -----------
Total stockholders' equity 949,053 1,157,469
Commitments (note 7)
----------- -----------
$ 1,158,898 1,239,143
----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 18
PRO TECH COMMUNICATIONS, INC.
STATEMENT OF OPERATIONS
YEARS ENDED OCTOBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Net sales $ 1,142,482 996,993
Cost of goods sold 470,450 333,755
----------- -----------
Gross profit 672,032 663,238
Selling, general and administrative expenses 882,385 698,785
Provision for doubtful accounts 38,835 3,924
----------- -----------
Loss from operations (249,188) (39,471)
Other income (expense):
Interest income 24,719 28,688
Miscellaneous income 89 58
Loss on disposal of fixed assets -- (1,116)
----------- -----------
Loss before income taxes (224,380) (11,841)
Income tax expense (benefit) (note 8) (964) 400
----------- -----------
Net loss $ (223,416) (12,241)
----------- -----------
Basic loss per common share $ (0.05) (0.00)
----------- -----------
Weighted average shares outstanding 4,254,000 4,122,795
----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 19
PRO TECH COMMUNICATIONS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
PAID-IN EARNINGS
COMMON STOCK CAPITAL (DEFICIT) TOTAL
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
Executive compensation contributed by an officer
(note 5) -- 40,000 -- 40,000
Net loss -- -- (12,241) (12,241)
---------- ---------- ---------- ----------
Balance, October 31, 1997 4,254 1,122,018 31,197 1,157,469
Executive compensation contributed by an officer
(note 5) -- 15,000 -- 15,000
Net loss -- -- (223,416) (223,416)
---------- ---------- ---------- ----------
Balance, October 31, 1998 $ 4,254 1,137,018 (192,219) 949,053
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 20
PRO TECH COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Cash received from sale of merchandise $ 1,219,426 907,839
Cash paid to employees and vendors (1,340,569) (980,148)
Interest received 24,719 28,688
----------- -----------
Net cash used by operating activities (96,424) (43,621)
----------- -----------
Cash flows from investing activities:
Purchase of short-term investments (523,905) (260,764)
Proceeds on maturity of short-term investments 527,296 300,103
Purchase of property and equipment (64,497) (57,176)
----------- -----------
Net cash used by investing activities (61,106) (17,837)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock -- 118,355
----------- -----------
Net cash provided by financing activities -- 118,355
----------- -----------
Net increase (decrease) in cash and cash equivalents
(157,530) 56,897
Cash and cash equivalents at beginning of year 356,327 299,430
----------- -----------
Cash and cash equivalents at end of year $ 198,797 356,327
=========== ===========
Reconciliation of net loss to net cash used by operating activities:
Net loss (223,416) (12,241)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization 38,783 29,695
Allowance for doubtful accounts 2,773 2,954
Loss on disposal of fixed assets -- 1,116
Executive compensation contributed by an officer 15,000 40,000
(Increase) decrease in accounts receivable 27,746 (78,248)
(Increase) decrease in inventory (85,001) 15,838
Increase in receivables from officers and employees (22,033) (762)
(Increase) decrease in other assets 21,553 (24,494)
Increase (decrease) in accounts payable 13,641 (30,924)
Increase in accrued expenses 114,530 13,445
----------- -----------
Total adjustments 126,992 (31,380)
----------- -----------
Net cash used by operating activities $ (96,424) (43,621)
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 21
(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 deposit 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.
(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.
(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 $43,143 and $20,817 for the years ended October 31,
1998 and 1997, respectively, and were included in selling,
general and administrative expenses in the accompanying
statements 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 1998 and 1997 was $40,815
and $21,400, 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) 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) LOSS PER SHARE
Earnings per share is accounted for by using the basic and
diluted earnings per share method prescribed by SFAS No 128,
which became effective for years ending after December 15, 1997.
Basic loss per share is based on the weighted average number of
shares of common stock outstanding during the year. Diluted loss
per share is based on shares of common stock and dilutive
potential common stock (stock options and stock warrants)
outstanding during the year. Diluted loss per share was
F-6
<PAGE> 22
antidilutive due to the net loss generated by the Company during
1998 and 1997 and is therefore not reported.
(m) 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.
(n) 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 indicate 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, 1998 and 1997.
(o) NEW PRONOUNCEMENTS
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). As of October 31, 1998, the Company
had no components considered to be other comprehensive income.
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.
Statement 131 is effective for years beginning after December
15, 1997 (fiscal year 1999 for the Company).
In February 1998, the FASB issued Statement No. 132, EMPLOYERS'
DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS
(Statement 132), which revises and standardizes certain
disclosures regarding pension and postretirement benefit plans.
Statement 132 does not modify the measurement or recognition of
those plans. Statement 132 is effective for years beginning
after December 15, 1997 (fiscal year 1999 for the Company). As
of October 31, 1998, the Company had no such plans.
In June 1998, the FASB issued Statement No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Statement 133),
which establishes accounting and reporting standards for
derivative instruments and hedging activities. Statement 133
requires recognizing derivatives as assets or liabilities at
fair value and defines certain conditions when such derivatives
may be considered hedges. Statement 133 is effective for fiscal
years beginning after June 15, 1999 (fiscal year 2000 for the
Company). As of October 31, 1998, the Company had no such
derivatives.
The Company does not expect these new pronouncements will have a
significant impact on the reporting of its financial results.
F-7
<PAGE> 23
(2) INVENTORY
Inventory at October 31, 1998 and 1997 consists of the following:
1998 1997
-------- --------
Raw materials $150,627 63,802
Work in process 54,133 25,451
Finished goods 40,850 71,356
-------- --------
$245,610 160,609
======== ========
(3) NET PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at October 31, 1998
and 1997:
1998 1997
-------- --------
Production molds $176,553 121,845
Office equipment 60,509 56,158
Production equipment 35,049 29,611
Leasehold improvements 10,174 10,174
Vehicles 5,557 5,557
Marketing displays 5,430 5,430
-------- --------
Total cost 293,272 228,775
Less accumulated depreciation 112,003 73,375
-------- --------
Total $181,269 155,400
======== ========
Total depreciation expense was $38,628 and $29,540 for the years ended
October 31, 1998 and 1997, respectively.
(4) ACCRUED EXPENSES
Accrued expenses consisted of the following at October 31, 1998 and 1997:
1998 1997
-------- --------
Accrued warranty expense $152,503 55,000
Other accrued expenses 20,962 3,935
-------- --------
$173,465 58,935
======== ========
(5) CAPITAL STOCK
At October 31, 1998 and 1997, $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.
Prior to November 1997, the Company had issued warrants to purchase
600,000 shares of common stock at $1.50 per share. 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, 1998 no additional shares were sold as a
result of the offering. However, during the year ended 1997, 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. During November
1997, in accordance with the 1997 registration statement, all outstanding
warrants were terminated.
The following table summarizes warrants to purchase common stock:
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Warrants outstanding, beginning of year 1,000,000 $ 1.50 600,000 $ 1.50
Warrants granted -- -- 400,000 1.50
Warrants terminated 1,000,000 1.50 -- --
--------- -------- --------- --------
Warrants outstanding and exercisable,
end of year -- $ -- 1,000,000 $ 1.50
========= ======= ========= ========
</TABLE>
F-8
<PAGE> 24
During the year ended October 31, 1998, the Company's president was paid
a salary in cash of $30,000. In addition, the Company recorded
compensation expense of $15,000, with a corresponding credit to
additional paid-in capital, to reflect the estimated fair value of the
unpaid services provided by the president to the Company.
During the year ended October 31, 1997, the Company's president was paid
a salary in cash of $2,500. In addition, the Company recorded
compensation expense of $40,000, with a corresponding credit to
additional paid-in capital, to reflect the estimated fair value of the
unpaid services provided by the president to the Company.
(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 in 1996. The stock options are exercisable upon the
grant date, extending over a period of three years.
Prior to November 1, 1997, the Company had issued options to purchase
200,000 shares of common stock at $0.60 per share.
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.
On March 5, 1998, the Board of Directors adopted the 1998 Stock Option
Plan for the benefit of directors, officers, employees and consultants to
the Company. This plan authorized the issuance of up to 500,000 shares of
common stock. On August 4, 1998, 200,000 and 100,000 shares were granted
to the Company's officers and employees, respectively, at an option price
of $.375 per share. The stock option exercise price was the fair market
value of a share of common stock at the date of the grant. Options to
purchase 150,000 shares of common stock vest and are exercisable as
follows: 50,000 immediately; 50,000 on August 4, 1999; and 50,000 on
August 4, 2000. The remaining options vested immediately. All options are
exercisable over a three year period from the date of vesting.
F-9
<PAGE> 25
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------- ---------- -------- --------
<S> <C> <C> <C> <C>
Options outstanding, beginning of
year 540,000 $ 0.500 830,000 $ 0.52
Options granted 300,000 0.375 -- --
Options exercised -- -- (290,000) (0.57)
-------- ---------- -------- --------
Options outstanding, end of year 840,000 $ 0.455 540,000 $ 0.50
======== ========== ======== ========
Options exercisable, end of year 740,000 $ 0.466 540,000 $ 0.50
======== ========== ======== ========
</TABLE>
As of October 31, 1998, the Company's outstanding stock options have
exercise prices ranging from $0.375 to $0.50 and a weighted average
remaining contractual life of approximately 1.4 years.
No compensation expense was recorded during 1998 for the options issued
to the Company's officers and employees, 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 loss and loss per share would have been adjusted to the pro forma
amounts indicated below:
1998 1997
------------- ------------
Net loss:
As reported $ (223,416) (12,241)
============= ============
Pro forma $ (278,280) (12,241)
============= ============
Loss per share:
As reported $ (0.05) (0.00)
============= ============
Pro forma $ (0.06) (0.00)
============= ============
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 1998: dividend yield of
0%; expected volatility of 150%; risk-free interest rate of 5.45%; and,
expected lives of three years.
F-10
<PAGE> 26
(7) OPERATING LEASES
The Company leases office and production facilities under operating
leases expiring November 30, 1998. On December 1, 1998, the Company
extended those leases to November 30, 1999. The Company also leases
office equipment under operating leases expiring through the year 2001.
Future minimum lease payments for such noncancelable leases, considering
the subsequent extensions of the lease terms, are as follows:
1999 $ 24,465
2000 6,413
2001 2,656
--------
Total $ 33,534
========
Rent expense under lease agreements totaled $24,637 and $21,979 for
fiscal year 1998 and 1997, respectively.
(8) INCOME TAXES
Income tax expense (benefit) consist of:
CURRENT DEFERRED TOTAL
------- -------- -------
1998:
Federal $(6,264) 3,800 (2,464)
State -- 1,500 1,500
------- ------- -------
$(6,264) 5,300 (964)
======= ======= =======
1997:
Federal $ 1,500 (1,000) 500
State 300 (400) (100)
------- ------- -------
$ 1,800 (1,400) 400
======= ======= =======
The actual expense (benefit) differs from the "expected" amount computed
by applying the U.S. Federal corporate income tax rate of 34% to loss
before income taxes as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Computed "expected" tax benefit $(75,961) (4,030)
Increase (reduction) in income taxes resulting from:
Effect of graduated tax rates 19,411 (700)
Increase in valuation reserve 35,700 --
Net operating loss not currently utilizable 14,890 --
Nondeductible expenses 4,996
Nondeductible costs of potential acquisition -- 4,740
Other, net -- 390
-------- --------
$ (964) 400
======== ========
</TABLE>
The exercise of stock options which have been granted under the Company's
1996 Stock Option Plan (see note 6) gave rise to compensation totaling
$225,000 which is includable in the taxable income of the employees and
deductible by the Company for federal and state income tax purposes. Such
compensation resulted from increases in the fair market value of the
Company's common stock subsequent to the date of grant of the applicable
exercised stock options and, accordingly, in accordance with APB 25, such
compensation is not recognized as an expense for financial reporting
purposes. The related tax benefits will be reflected as contributions to
additional paid-in capital in the periods in which the compensation
deduction is utilized by the Company and, in accordance with APB 25 and
Statement 109, such compensation deductions are not considered to be
temporary differences. Such deductions have not been utilized by the
Company due to the net operating loss generated in 1998.
F-11
<PAGE> 27
The Company has a net operating loss carryforward for federal and state
income tax purposes amounting to $265,000 and $340,000, respectively,
which expire in the year 2018.
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>
1998 1997
------- -------
<S> <C> <C>
Accounts receivable principally due to allowance for doubtful accounts $ 2,900 2,400
Accrued warranty expense 30,000 10,800
Net operating loss carryforwards 11,800 --
------- -------
44,700 13,200
Less valuation allowance 35,700 --
------- -------
Total deferred tax assets 9,000 13,200
Plant and equipment principally due to differences in depreciation 9,000 7,900
------- -------
Total deferred tax liabilities 9,000 7,900
------- -------
Net deferred taxes $ -- 5,300
======= =======
</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.
F-12
<PAGE> 28
(9) RELATED PARTY TRANSACTIONS
During fiscal year 1996, the Company loaned $28,882 to its President.
Outstanding principal and interest, at 15% per annum, were due August 2,
1998. During fiscal year 1998, the Company loaned an additional $3,650 to
its President, which is due October 31, 2000, with interest at 5% per
annum. The Company also modified the first note to bear interest at 5%
after August 2, 1998 and extended the due date to August 2, 2003.
Outstanding principal and interest amounted to $42,860 and $34,282 as of
October 31, 1998 and 1997, respectively.
The Company also loaned to its Vice President $3,500 during 1996, with
interest at 15% per annum. 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. (See note 5.)
(10) MAJOR CUSTOMERS
For 1998 and 1997, approximately 17% and 21%, respectively, of all sales
were to McDonald's Restaurant franchises.
F-13
<PAGE> 29
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 29, 1999.
PRO TECH COMMUNICATIONS, INC.
(REGISTRANT)
By: /s/ Keith Larkin
-------------------------
Keith Larkin, President
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Keith Larkin President, Treasurer January 29, 1999
- --------------------------- and Chairman of the Board
Keith Larkin (Principal Executive, Financial
and Accounting Officer)
/s/ Rich Hennessey Director, Secretary January 29, 1999
- --------------------------- and Vice President
Rich Hennessey
</TABLE>
<PAGE> 1
EXHIBIT 10.4
BUSINESS LEASE
THIS AGREEMENT, entered into this 1st day of December 1998 between Karen
Development Co., hereinafter called the lessor, party of the first part, and Pro
Tech Communications of the County of St. Lucie 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
3309 Industrial 25th
3311 Industrial 25th
No.
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, 1998, and ending the 30th day of November, 1999,
at and for the agreed total rental of _________ Dollars, payable as follows:
3309 Industrial 25th 800.00 per month
3311 Industrial 25th 750.00 per month
-------
Total $1,550.00 per month
Plus state sales tax 94.25
---------
1644.25
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 of any other person whomsoever.
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 in 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.
<PAGE> 2
SIXTH: If the lessee shall abandon or vacate said premises before the end
of the term of this lease, or shall suffer the rent to be in arrears, the lessor
may, at his option, forthwith cancel this lease or he may enter said premises as
the agent of the lessee, without being liable in any way therefor, and relet the
premises with or without any furniture that may be therein, as the agent of the
lessee, at such price and upon such terms and for such duration of time as the
lessor may determine, and receive the rent therefor, applying the same to the
payment of the rent due by these presents, and if the full rental herein
provided shall not be realized by lessor over and above the expenses to lessor
in such re-letting, the said lessee shall pay any deficiency, and if more than
the full rental is realized lessor will pay over to said lessee the excess of
demand.
SEVENTH: Lessee agrees to pay the cost of collection and ten per cent
attorney's fee on any part of said rental that may be collected by suit or by
attorney, after the same is past due.
EIGHTH: The lessee agrees that he will pay all charges for rent, gas,
electricity or other illumination, and for all water used on said premises, and
should said charges for rent, light or water herein provided for at any time
remain due and unpaid for the space of five days after the same shall have
become due, the lessor may at its option consider the said lessee tenant at
sufferance and the entire rent for the rental period then next ensuing shall at
once be due and payable and may forthwith be collected by distress or otherwise.
NINTH: The said lessee hereby pledges and assigns to the lessor all the
furniture, fixtures, goods and chattels of said lessee, which shall or may be
brought or put on said premises as security for the payment of the rent herein
reserved, and the lessee agrees that the said lien may be enforced by distress
foreclosure or otherwise at the election of the said lessor, and does hereby
agree to pay attorney's fees of ten percent of the amount so collected or found
to be due, together with all costs and charges therefore incurred or paid by the
lessor.
TENTH: It is hereby agreed and understood between lessor and lessee that in
the event the lessor decides to remodel, alter or demolish all or any part of
the premises leased hereunder, or in the event of the sale or long term lease of
all or any part of the ; requiring this space, the lessee hereby agrees to
vacate same upon receipt of sixty (60) days' written notice and the return of
any advance rental paid on account of this lease.
ELEVENTH: The lessor, or any of his agents, shall have the right to enter
said premises during all reasonable hours, to examine the same to make such
repairs, additions or alterations as may be deemed necessary for the safety,
comfort, or preservation thereof, or of said building, or to exhibit said
premises, and to put or keep upon the doors or windows thereof a notice "FOR
RENT" at any time within thirty (30) days before the expiration of this lease.
The right of entry shall likewise exist for the purpose of removing placards,
signs, fixtures, alterations, or additions, which do not conform to this
agreement, or to the rules and regulations of the building.
TWELFTH: Lessee hereby accepts the premises in the condition they are in at
the beginning of this lease and agrees to maintain said premises in the same
condition, order and repair as they are at the commencement of said term,
excepting only reasonable wear and tear arising from the use thereof under this
agreement, and to make good to said lessor immediately upon demand, any damage
to water apparatus, or electric lights or any fixture, appliances or
appurtenances of said premises, or of the building, caused by any act or neglect
of lessee, or of any person or persons in the employ or under the control of the
lessee.
THIRTEENTH: It is expressly agreed and understood by and between the
parties to this agreement, that the landlord shall not be liable for any damage
or injury by water, which may be sustained by the said tenant or other person or
for any other damage or injury resulting from the carelessness, negligence, or
improper conduct on the part of any other tenant or agents, or employees, or by
reason of the breakage, leakage, or obstruction of the water, sewer or soil
pipes, or other leakage in or about the said building.
FOURTEENTH: If the lessee shall become insolvent or if bankruptcy
proceedings shall be begun by or against the lessee, before the end of said term
the lessor is hereby irrevocably authorized at its option, to forthwith cancel
this lease, as for a default. Lessor may elect to accept rent from such in their
receiver, trustee, or other judicial officer during the term of their occupancy
in their fiduciary capacity without affecting lessor's rights as contained in
this contract, but no receiver, trustee or other judicial officer shall ever
have any right, title or interest in or to the above described property by
virtue of this contract.
FIFTEENTH: Lessee hereby waives and renounces for himself and family any
and all homestead and exemption rights he may have now, or hereafter, under or
by virtue of the constitution and laws of the State of Florida, or of any other
State, or of the United States, as against the payment of said rental or any
portion hereof, or any other obligation or damage that may accrue under the
terms of this agreement.
SIXTEENTH: This contract shall bind the lessor and its assigns or
successors, and the heirs, assigns, personal representatives, or successors as
the case may be, of the lessee.
SEVENTEENTH: It is understood and agreed between the parties hereto that
time is of the essence of this contract and this applies to all terms and
conditions contained herein.
EIGHTEENTH: It is understood and agreed between the parties hereto that
written notice mailed or delivered to the premises leased hereunder shall
constitute sufficient notice to the lessee and written notice mailed or
delivered to the office of the lessor shall constitute sufficient notice to the
Lessor, to comply with the terms of this contract.
NINETEENTH: The rights of the lessor under the foregoing shall be
cumulative, and failure on the part of the lessor to exercise promptly any
rights given hereunder shall not operate to forfeit any of the said rights.
TWENTIETH: It is further understood and agreed between the parties hereto
that any charges against the lessee by the lessor for services or for work done
on the premises by order of the lessee or otherwise accruing under this contract
shall be considered as rent due and shall be included in any lien for rent due
and unpaid.
TWENTY-FIRST: It is hereby understood and agreed that any signs or
advertising to be used, including awnings, in connection with the premises
leased hereunder shall be first submitted to the lessor for approval before
installation of same.
<PAGE> 3
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:
Renewal /s/ Sidney B. Motel, 1999
- --------------------------------- ---------------------------------
Karen Development Co. (Seal
- --------------------------------- ---------------------------------
/s/ Sidney B. Motel (Seal
- --------------------------------- ---------------------------------
As to Lessor Lessor
Pro Tech Communications (Seal
- --------------------------------- ---------------------------------
/s/ [ILLEGIBLE] (Seal
- --------------------------------- ---------------------------------
As to Lessee
Renewal /s/ [ILLEGIBLE]
- --------------------------------- --------------------------------- 1999
STATE OF )
)
County of __________ )
Before me, a Notary Public in and for said State and County, personally
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
- ---------------------------PRO TECH
COMMUNICATIONS, INC.-----------------------------------
August 2, 1998
Re: Promissory Note for Keith Larkin
Keith Larkin promises to pay $28,881.99 to Pro Tech Communications, Inc. in Fort
Pierce, Florida the full amount plus interest of 5% per annum from August 2,
1996 due at its anniversary August 2, 2001. Interest and principal due at
anniversary. 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.
Due: August 2, 2001 /s/ Keith Larkin
---------------------------
Keith Larkin
<PAGE> 1
EXHIBIT 10.6
PRO TECH COMMUNICATIONS, INC.
1998 STOCK OPTION PLAN
1. Purpose. The purpose of the 1998 Stock Option Plan of PRO TECH
COMMUNICATIONS, INC. is to provide incentive to employees, including officers,
directors and consultants of the Corporation, as defined below, to encourage
such individuals proprietary interest in the Corporation, to encourage such
individuals to remain in the employ of the Corporation, and to attract to the
Corporation individuals of experience and ability.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Committee" shall mean the Committee appointed by the Board
in accordance with Section 4 of the Plan.
(d) "Common Stock" shall mean Company's common stock, par value
$.001 per share.
(e) "Company" shall mean Pro Tech Communications, Inc., a
Florida corporation.
(f) "Corporation" shall mean and include the Company and any
parent or subsidiary corporation thereof, within the meaning of Section 425 of
the Code.
(g) "Disability" shall mean the condition of an Employee who
is unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected to
result in death or which has lasted or can be expected to last for a continuous
period of not less than twelve (12) months, all within the meaning of Section
22(e)(3) of the Code.
(h) "Employee" shall mean any individual (including an officer
or a director) who is an employee of the Corporation (within the meaning of
Section 422A(a)(2) of the Code and the regulations thereunder).
(i) "Exercise Price" shall mean the price per Share of Common
Stock, determined by the Board or Committee, at which an Option may be
exercised.
(j) "Fair Market Value" of a Share of Common Stock as of a
specified date shall mean the closing price of a Share on the principal
securities exchange on which such Shares are traded on the day immediately
preceding the date as of which Fair Market Value is being determined, or on the
next preceding date on which such Shares are traded if no Shares were traded on
such immediately preceding day, or if the Shares are not traded on a securities
exchange, Fair Market Value shall be
<PAGE> 2
deemed to be the average of the high bid and low asked prices of the Shares in
the over-the-counter market on the day immediately preceding the date as of
which Fair Market Value is being determined or on the next preceding date on
which such high bid and low asked prices were recorded. If the Shares are not
publicly traded, Fair Market Value shall be determined by the Board or
Committee. In no case shall Fair Market Value be less than the par value of a
Share of the Common Stock, and in no event shall Fair Market Value be determined
with regard to restrictions other than restrictions which, by their terms, will
never lapse.
(k) "Incentive Stock Option" shall mean an Option described in
Code section 422A(b).
(l) "Nonstatutory Stock Option" shall mean an Option which is
not an Incentive Stock Option.
(m) "Option" shall mean a stock option granted pursuant to the
Plan.
(n) "Optionee" shall mean a person to whom an Option has been
granted.
(o) "Plan" shall mean this Pro Tech Communications, Inc. 1998
Stock Option Plan.
(p) "Purchase Price" shall mean the Exercise Price times the
number of whole Shares with respect to which an Option is exercised.
(q) "Share" shall mean one share of Common Stock.
(r) "Ten Percent Shareholder" shall mean any Employee who, at
the time of the grant of an Option, owns (or is deemed to own, under Sections
422A(b)(6) and 425(d) of the Code) more than ten percent of the total combined
voting power of all classes of outstanding stock of the Corporation.
3. Effective Date. This Plan was adopted by the Board on March 5,
1998. In order for an Option under the Plan to be accorded Incentive Stock
Option treatment under the Code, this Plan must be approved by the Company's
stockholders at a duly-held meeting of the Company's stockholders within 12
months after the date the Plan was adopted by the Board. All Incentive Stock
Options granted under the Plan are made contingent upon such stockholder
approval of the Plan. If stockholder approval is not obtained within such
period, all Incentive Stock Options previously granted under the Plan shall be
deemed to be, and treated under the Code as, a Nonstatutory Stock Option.
4. Administration. The Plan shall be administered by the Board or a
Committee appointed by the Board consisting of not less than two members. The
Board may from time to time remove members from, or add members to, the
Committee. Vacancies on the Committee, however caused, shall be filled by the
Board. The Board or Committee shall from time to time at its discretion shall
determine who shall be granted Options, the number of Shares to be optioned to
each and the
-2-
<PAGE> 3
designation of such Options as Incentive Stock Options or Nonstatutory Stock
Options. The interpretation and construction by the Board or the Committee of
any provisions of the Plan or of any Option granted thereunder shall be binding
and conclusive on all Optionees and their legal representatives and
beneficiaries.
5. Eligibility. Any Employee may be granted Incentive Stock Options
under the Plan and any Employee or officer, director, consultant of or other
person rendering services to, the Corporation may be granted Nonstatutory Stock
Options under the Plan if, in each instance, the Board or Committee determines
that such person performs services of special importance to the management,
operation and development of the business of the Corporation.
6. Stock. The stock subject to Options granted under the Plan shall
be Shares of authorized but unissued or reacquired Common Stock. The aggregate
number of Shares which may be issued under Options exercised under this Plan
shall not exceed 500,000. The number of Shares subject to Options outstanding
under the Plan at any time may not exceed the number of Shares remaining
available for issuance under the Plan. In the event that any Option outstanding
under the Plan expires for any reason or is terminated, the Shares allocable to
the unexercised portion of such Option shall again be available for grant of
Options under the Plan.
The limitations established by this Section 6 shall be subject to
adjustment upon the occurrence of the events specified and in the manner
provided in Section 9 hereof.
7. Terms and Conditions of Options. Options granted pursuant to the
Plan shall be evidenced by written agreements in such form as the Board or the
Committee shall from time to time determine, which agreements shall comply with
and be subject to the following terms and conditions:
(a) Date of Grant. Each Option shall specify its effective date
(the "date of grant"), which shall be the date specified by the Board or
Committee in its action relating to the grant of the Option, but which date
shall not be earlier than the date of the determination by the Board or
Committee to grant such Option nor more than thirty days after such date.
(b) Number of Shares. Each Option shall state the number of
Shares to which it pertains and shall provide for the adjustment thereof in
accordance with the provisions of Section 9 hereof.
(c) Exercise Price. Each Option shall state the Exercise Price,
which price shall be determined by the Board or Committee, provided however,
that the Exercise Price (i) in the case of an Incentive Stock Option granted to
an Employee who is not a Ten Percent Shareholder, shall not be less than the par
value nor less than the Fair Market Value of the Shares to which the Option
relates on the date of grant, (ii) in the case of an Incentive Stock Option
granted to an Employee who is a Ten Percent Shareholder, shall not be less than
the par value nor less than 110% of the Fair Market Value of the Shares to which
the Option relates on the date of grant, and (iii) in the case of a Nonstatutory
Stock Option granted to any Employee or officer or director of the Corporation,
shall not be less than the par value of the Shares to which the Option relates.
The Exercise Price of an
-3-
<PAGE> 4
Option shall be subject to adjustment in accordance with Section 9 hereof. The
Company may, at its discretion, permit the cashless exercise of Options in
accordance with the procedures and restrictions established by the Board or the
Committee.
(d) Exercise of Options and Medium and Time of Payment. To
exercise an Option, the Optionee shall give written notice to the Company
specifying the number of Shares to be purchased and accompanied by payment in
cash or by certified check of the full Purchase Price therefor and the amount of
any withholding tax obligation of the Corporation as described in Section 14(a)
hereof. No Share shall be issued until full payment therefor has been made.
(e) Term and Exercise of Options; Non-Transferability of
Incentive Stock Options. Subject to Section 10 hereof, Options may be exercised
as determined by the Board or Committee and as stated in the written agreement
evidencing the Option, provided, however, that no Incentive Stock Option granted
to an Employee who is not a Ten Percent Shareholder shall be exercisable after
the expiration of ten (10) years from the date it is granted, and no Incentive
Stock Option granted to an Employee who is a Ten Percent Shareholder shall be
exercisable after the expiration of five (5) years from the date it is granted.
In addition, the aggregate fair market value (determined at the time an
Incentive Stock Option is granted) of Shares with respect to which Incentive
Stock Options are exercisable for the first time by an Optionee during any
calendar year (under this Plan and all other plans maintained by the
Corporation) shall not exceed $100,000. During the lifetime of the Optionee, an
Incentive Stock Option shall be exercisable only by the Optionee and shall not
be assignable or transferable. In the event of the Optionee's death, no
Incentive Stock Option shall be transferable by the Optionee otherwise than by
will or by the laws of descent and distribution. Restrictions on the transfer of
Nonstatutory Stock Options, if any, shall be determined by the Board and set
forth in each Nonstatutory Stock Option Agreement.
(f) Termination of Employment. In the event that an Optionee
shall cease to be employed by the Corporation for any reason, such Optionee (or
the heirs or legatees of such Optionee, if applicable) shall have the right,
subject to the restrictions of Subsection (e) hereof, to exercise the Option at
any time within three (3) months after such termination of employment (twelve
(12) months if the termination was due to the death or Disability of the
Optionee or, in the case of a Nonstatutory Stock Option, retirement) to the
extent that, on the day preceding the date of termination of employment, the
Optionee's right to exercise such Option had accrued pursuant to the terms of
the option agreement pursuant to which such Option was granted, and had not
previously been exercised.
For this purpose, the employment relationship will be treated as
continuing intact while the Optionee is on military leave, sick leave or other
bona fide leave of absence (to be determined in the sole discretion of the Board
and, in the case of an Optionee who has received an Incentive Stock Option, only
to the extent permitted under Section 422A of the Code and the regulations
promulgated thereunder). Moreover, in the case of an Optionee who has been
granted an Incentive Stock Option, employment shall, in no event, be deemed to
continue beyond the ninetieth (90th) day after the Optionee ceased active
employment, unless the Optionee's reemployment rights are guaranteed by statute
or by contract.
-4-
<PAGE> 5
(g) Rights as a Shareholder. An Optionee or, in the case of
an Incentive Stock Option, a transferee of a deceased Optionee or, in the case
of a Nonstatutory Stock Option, a permitted transferee shall have no rights as a
shareholder with respect to any Shares covered by his or her Option until the
date of the issuance of a stock certificate for such Shares. No adjustment shall
be made for dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distributions or other rights for which the record date is
prior to the date such stock certificate is issued, except as provided in
Section 9.
(h) Modification, Extension and Renewal of Options. Subject
to the terms and conditions and within the limitations of the Plan, the Board or
Committee may modify, extend or renew outstanding Options granted under the
Plan, or accept the exchange of outstanding Options (to the extent not
theretofore exercised) for the granting of new Options in substitution therefor.
Notwithstanding the foregoing, however, no modification of an Option shall,
without the consent of the Optionee, alter or impair any rights or obligations
under any Option theretofore granted under the Plan. Moreover, in the case of
any modification, extension or renewal of an Incentive Stock Option, all of the
requirements set forth herein shall apply in the same manner as though a new
Incentive Stock Option had been granted to the Optionee on the date of such
modification, extension or renewal, but only if such modification, extension or
renewal is treated, under Section 425(h) of the Code, as the granting of a new
option.
(i) Identification of Option. Each Option granted under the
Plan shall clearly identify its status as an Incentive Stock Option or
Nonstatutory Stock Option.
(j) Other Provisions. The option agreements authorized under
the Plan shall contain, in addition to those provisions provided in Section 7(e)
hereof, such other provisions not inconsistent with the terms of the Plan,
including, without I limitation, restrictions upon the exercise of any Option,
and restrictions upon the transfer of Shares received upon exercise of Options,
as the Board or Committee shall deem advisable.
8. Term of Plan. Options may be granted pursuant to the Plan ten
years from the date the Plan is approved by the Company's stockholders pursuant
to Section 3 hereof.
9. Recapitalization. Subject to any required action by the
shareholders and the last sentence of subsection 7(h) hereof, the number of
Shares covered by this Plan as provided in Section 6, the number of Shares
covered by each outstanding Option, and the Exercise Price thereof shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares resulting from a subdivision or consolidation of Shares, stock split, or
the payment of a stock dividend.
Subject to any required action by the shareholders of the Company and
the last sentence of Subsection 7(h) hereof, if the Company shall be the
surviving corporation in any merger or consolidation, each outstanding Option
shall pertain and apply to the securities to which a holder of the number of
Shares subject to the Option would have been entitled. A dissolution or
liquidation of the Company or a merger or consolidation in which the Company is
not the surviving corporation shall cause each outstanding Option to terminate,
unless the agreement of merger or consolidation shall
-5-
<PAGE> 6
otherwise provide, provided that each Optionee shall, in such event, have the
right immediately prior to such dissolution or liquidation, or merger or
consolidation in which the Company is not the surviving corporation to exercise
the Option in whole or in part, subject to limitations on exercisability of
Options under Sections 7(e) and (f) hereof.
In the event of a change in the Common Stock as presently constituted,
which is limited to a change of all of its authorized shares with par value into
the same number of shares with a different par value or without par value, the
shares resulting from any such change shall be deemed to be Shares of Common
Stock within the meaning of the Plan.
To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Board or
Committee, whose determination in that respect shall be final, binding and
conclusive.
Except as hereinbefore expressly provided in this Section 9, the
Optionee shall have no rights by reason of any subdivision or consolidation of
shares of stock of any class, stock split, or the payment of any stock dividend
or any other increase or decrease in the number of shares of stock of any class
or by reason of any dissolution, liquidation, merger, or consolidation or
spin-off of assets or stock of another corporation, and any issue by the Company
of shares of stock of any class or securities convertible into shares of stock
of any class, shall not affect, and no adjustment by reason thereof shall be
made with respect to, the number or price of Shares subject to the Option.
The grant of an Option pursuant to the Plan shall not affect in any way
the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
consolidate or to dissolve, liquidate, sell or transfer all or any part of its
business or assets.
10. Securities Law Requirements. No Shares shall be issued upon the
exercise of any Option unless and until the Company has determined that: (i) it
and the Optionee have taken all actions required to register the Shares under
the Securities Act of 1933 or perfect an exemption from the registration
requirements thereof (including the furnishing by the Optionee of an appropriate
investment letter); (ii) any applicable listing requirement of any stock
exchange on which the Common Stock is listed has been satisfied; and (iii) any
other applicable provision of state or Federal law has been satisfied.
11. Amendment of the Plan. The Board or Committee may, insofar as
permitted by law, from time to time, with respect to any Shares at the time not
subject to Options, suspend or discontinue the Plan or revise or amend it in any
respect whatsoever except that, without approval of the shareholders of the
Company, no such revision or amendment shall:
(a) Increase the number of Shares subject to the Plan; or
(b) Change the designation in Section 5 of the Plan of the
class of Employees eligible to receive options.
-6-
<PAGE> 7
(c) Amend this Section 11 to defeat its purpose.
12. Application of Funds. The proceeds received by the Company from
the sale of Common Stock pursuant to the exercise of an Option will be used for
general corporate purposes or as otherwise determined by the Board.
13. No Obligation to Exercise Option. The granting of an Option shall
impose no obligation upon the Optionee to exercise such Option.
14. Withholding.
(a) Nonstatutory Options. Whenever Shares are to be delivered
upon exercise of a Nonstatutory Option, the Corporation shall be entitled to
require as a condition of delivery that the Optionee remit to the Corporation an
amount sufficient to satisfy the Corporation's federal, state and local
withholding tax obligations with respect to the exercise of the Option.
(b) Incentive Stock Options. The acceptance of Shares upon
exercise of an Incentive Stock Option shall constitute an agreement by the
Optionee (unless and until the Corporation shall notify the Optionee that it is
relieved, in whole or in part, of its obligations under this Section 14(b)) (i)
to notify the Corporation if any or all of such Shares are disposed of by the
Optionee within two years from the date the Option was granted or within one
year from the date the Shares were transferred to the Optionee pursuant to this
exercise of the Option, and (ii) to remit to the Corporation, at the time of and
in the case of any such disposition, an amount sufficient to satisfy the
Corporation's federal, state and local withholding tax obligations with respect
to such disposition, whether or not, as to both (i) and (ii), the Optionee is in
the employ of the Corporation at the time of such disposition.
15. Governing Law. The Plan shall be governed by the laws of the
State of Florida.
-7-
<PAGE> 1
Exhibit 10.7
Optionee: Richard Hennessey
Grant: 150,000 shares
PRO TECH COMMUNICATIONS, INC.
1998 STOCK OPTION PLAN
NONSTATUTORY
STOCK OPTION AGREEMENT
OPTION AGREEMENT dated as of August 4, 1998 between Pro Tech
Communications, Inc., a Florida corporation (the "Company"), having its
principal executive office at 3311 Industrial 25th Street, Ft. Pierce, Florida
34946 and Richard Hennessey (the "Optionee"), having his address at 2829c
Stoneway Lane, Ft. Pierce, FL.
The Company has adopted the 1998 Stock Option Plan (the "Plan"), a copy
of which is attached hereto, and desires to grant to the Optionee the
Nonstatutory Stock Option provided for herein, all subject to the terms and
conditions of the Plan. Capitalized terms used herein and not defined have the
same meanings as set forth in the Plan.
IT IS AGREED as follows:
1. Grant of Option. The Company hereby grants to the Optionee on the
date hereof a Nonstatutory Stock Option (the "Option") to purchase (subject to
adjustment pursuant to Section 9 of the Plan) an aggregate of 150,000 of its
shares of Common Stock (the "Shares") at an option price per Share of $.375.
2. Option Period.
A. The Option shall vest as follows:
i. The Optionee may immediately exercise up to 50,000
Shares;
ii. The Optionee may exercise up to an additional 50,000
Shares after August 3, 1999; and
iii. The Optionee may exercise up to an additional 50,000
Shares after August 3, 2000.
B. The Optionee's right to exercise vested Options shall
expire three years after the date that such Options first become available to be
exercised.
3. Exercise of Option. The Optionee may exercise the Option, or any
portion thereof, by delivering to the Company a written notice duly signed by
the Optionee in the form attached hereto as Exhibit A stating the number of
Shares that the Optionee has elected to purchase, and accompanied by payment (in
cash or by certified check) of an amount equal to the sum of (i) the full
purchase price for the Shares to be purchased, plus (ii) any withholding tax
required to be paid pursuant to Section 14(a) of the Plan. After receipt by the
Company of such notice and payment, the Company shall (subject to Section 10 of
the Plan) issue the Shares in the name of the Optionee and deliver the
certificate therefor to the Optionee. No Shares shall be issued until full
payment therefor and any withholding tax has been made, and the Optionee shall
have none of the rights of a shareholder in respect of such Shares until they
are issued.
<PAGE> 2
4. Employment. Nothing contained in this Option Agreement shall
confer upon the Optionee any right to be employed by the Company nor prevent the
Company from terminating its current relationship with the Optionee at any time,
with or without cause. If the Optionee's current relationship with the Company
is terminated for any reason, the Option shall be exercisable only as to those
Shares immediately purchasable by the Optionee at the date of termination and,
subject to Section 2 hereof, thereafter as provided in the Plan.
5. Transferability of Option. This Option may not be transferred
other than by laws of descent and distribution, provided, however, that if Form
S-8 under the Securities Act of 1933 is hereafter amended to permit the transfer
of an option to family members by gift or otherwise, then this Option may be so
transferred to family members in accordance with and to the full extent
permitted by Form S-8.
6. Tax Status. The Company makes no representation or warranty
whatsoever to the Optionee as to the tax consequences of the grant or exercise
of the Option or of the disposition of Shares acquired thereunder.
7. Incorporation of Plan. The Option granted hereby is subject to,
and governed by, all the terms and conditions of the Plan, which are hereby
incorporated by reference. This Agreement, including the Plan incorporated by
reference herein, is the entire agreement among the parties hereto with respect
to the subject matter hereof and supersedes all prior agreements and
understandings. In the case of any conflict between the terms of this Agreement
and the Plan, the provisions of the Plan shall control.
8. Purchase for Investment. As a condition to the exercise in whole
or in part of the Option hereby granted, each written notice of election shall
include a representation by the Optionee that the Shares are being purchased for
investment and not distribution or resale.
9. Notices. Any notice to be given by the Optionee hereunder shall
be sent to the Company at its principal executive offices, and any notice from
the Company to the Optionee shall be sent to the Optionee at his address set
forth above; all such notices shall be in writing and shall be delivered in
person or by registered or certified mail. Either party may change the address
to which notices are to be sent by notice in writing given to the other in
accordance with the terms hereof.
10. Governing Law. This Option Agreement shall be governed by the
laws of the State of Florida.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year above written.
PRO TECH COMMUNICATIONS, INC.
By: /s/ RICHARD HENNESSEY
-----------------------------------------------
Richard Hennessey (Name) its Vice President (Title)
------------------------- ----------------------
OPTIONEE:
/s/ RICHARD HENNESSEY
---------------------------------------------------
Richard Hennessey
2
<PAGE> 3
EXHIBIT A
PURCHASE FORM
(To be signed and delivered to
Pro Tech Communications, Inc. upon exercise of the Option)
The undersigned, the holder of the foregoing Nonstatutory Stock Option, hereby
irrevocably elects to exercise the purchase rights represented by such Option,
and to purchase thereunder ____________________ shares of common stock, par
value of $.001 of Pro Tech Communications, Inc. ("Shares") and herewith makes
payment of $ __________ ($ ________per share) therefor, plus $ _________
($ ________ per share) for withholding tax, if any, required pursuant to Section
14(a) of the Plan and requests that the Certificates for the Shares be issued in
the name(s) of, and delivered to ____________________ whose address(es) is/are
________________________.
The undersigned hereby represents that the Shares being purchased by
the exercise of this Option are being purchased for investment only and not with
a view towards the sale, transfer, or distribution thereof.
The undersigned hereby agrees to notify Pro Tech Communications, Inc.
of any early disposition of the Shares, and agrees to pay any additional
withholding tax due in connection therewith, all in accordance with Section
14(b) of the Plan.
-------------------------------
-------------------------------
-------------------------------
-------------------------------
Dated: ,19__
-------------------
-------------------------------
3
<PAGE> 1
Exhibit 10.8
Optionee: Ken Campbell
Grant: 50,000 shares
PRO TECH COMMUNICATIONS, INC.
1998 STOCK OPTION PLAN
NONSTATUTORY
STOCK OPTION AGREEMENT
OPTION AGREEMENT dated as of August 4, 1998 between Pro Tech
Communications, Inc., a Florida corporation (the "Company"), having its
principal executive office at 3311 Industrial 25th Street, Ft. Pierce, Florida
34946 and Ken Campbell (the "Optionee"), having his/her address at 1796
Walden Pond Drive, Ft Pierce FL 34945-2418.
The Company has adopted the 1998 Stock Option Plan (the "Plan"), a copy
of which is attached hereto, and desires to grant to the Optionee the
Nonstatutory Stock Option provided for herein, all subject to the terms and
conditions of the Plan. Capitalized terms used herein and not defined have the
same meanings as set forth in the Plan.
IT IS AGREED as follows:
1. Grant of Option. The Company hereby grants to the Optionee on the
date hereof a Nonstatutory Stock Option (the "Option") to purchase (subject to
adjustment pursuant to Section 9 of the Plan) an aggregate of 50,000 of its
shares of Common Stock (the "Shares") at an option price per Share of $.375.
2. Option Period. The Option granted hereby all expire on August 4,
2001 subject to earlier termination as provided in the Plan.
3. Exercise of Option.
A. The Optionee may immediately exercise the Option, or any
portion thereof, until August 3, 2001.
B. The Optionee may exercise the Option, or any portion
thereof, by delivering to the Company a written notice duly signed by the
Optionee in the form attached hereto as Exhibit A stating the number of
Shares that the Optionee has elected to purchase, and accompanied by payment (in
cash or by certified check) of an amount equal to the sum of (i) the full
purchase price for the Shares to be purchased, plus (ii) any withholding tax
required to be paid pursuant to Section 14(a) of the Plan. After receipt by the
Company of such notice and payment, the Company shall (subject to Section 10 of
the Plan) issue the Shares in the name of the Optionee and deliver the
certificate therefor to the Optionee. No Shares shall be issued until full
payment therefor and any withholding tax has been made, and the Optionee shall
have none of the rights of a shareholder in respect of such Shares until they
are issued.
4. Employment. Nothing contained in this Option Agreement shall
confer upon the Optionee any right to be employed by the Company nor prevent the
Company from terminating its current relationship with the Optionee at any time,
with or without cause. If the Optionee's current relationship with the Company
is terminated for any reason (including by resignation), the Option shall
<PAGE> 2
be exercisable only as to those Shares immediately purchasable by the Optionee
at the date of termination and, subject to Section 2 hereof, thereafter as
provided in the Plan.
5. Transferability of Option. The Option may not be transferred
other than by laws of descent and distribution, provided, however, that if Form
S-8 under the Securities Act of 1933 is hereafter amended to permit the transfer
of an option to family members by gift or otherwise, then this Option may be so
transferred to family members in accordance with and to the full extent
permitted by Form S-8.
6. Tax Status. The company makes no representation or warranty
whatsoever to the Optionee as to the tax consequences of the grant or exercise
of the Option or of the disposition of Shares acquired thereunder.
7. Incorporation of Plan. The Option granted hereby is subject to,
and governed by, all the terms and conditions of the Plan, which are hereby
incorporated by reference. This Agreement, including the Plan incorporated by
reference herein, is the entire agreement among the parties hereto with respect
to the subject matter hereof and supersedes all prior agreements and
understandings. In the case of any conflict between the terms of this Agreement
and the Plan, the provisions of the Plan shall control.
8. Purchase for Investment. As a condition to the exercise in whole
or in part of the Option hereby granted, each written notice of election shall
include a representation by the Optionee that the Shares are being purchased for
investment and not for distribution or resale.
9. Notices. Any notice to be given by the Optionee hereunder shall
be sent to the Company at its principal executive offices, and any notice from
the Company to the Optionee shall be sent to the Optionee at his address set
forth above; all such notices shall be in writing and shall be delivered in
person or by registered or certified mail. Either party may change the address
to which notices are to be sent by notice in writing given to the other in
accordance with the terms hereof.
10. Governing Law. This Option Agreement shall be governed by the
laws of the State of Florida.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
PRO TECH COMMUNICATIONS, INC.
By: /s/ KENNETH R. CAMPBELL
-------------------------------------
(Name) its (Title)
------------------ ---------------
Optionee:
KENNETH R. CAMPBELL
-------------------------------------
Print Name:
2
<PAGE> 3
EXHIBIT A
PURCHASE FORM
(To be signed and delivered to
Pro Tech Communications, Inc. upon exercise of the Option)
The undersigned, the holder of the foregoing Nonstatutory Stock Option,
hereby irrevocably elects to exercise the purchase rights represented by such
Option, and to purchase thereunder ________ shares of common stock, par value of
$.001 of Pro Tech Communications, Inc. ("Shares") and herewith makes payment of
$ ___________ ($_____ per share) therefor, plus $ __________________ ($ ____ per
share) for withholding tax, if any, required pursuant to Section 14(a) of the
Plan and requests that the Certificates for the Shares be issued in the name(s)
of, and delivered to _____________ whose address(es)
is/are_________________________________ _____________________________________.
The undersigned hereby represents that the Shares being purchased by
the exercise of this Option are being purchased for investment only and not with
a view towards the sale, transfer, or distribution thereof.
The undersigned hereby agrees to notify Pro Tech Communications, Inc.
of any early disposition of the Shares, and agrees to pay any additional
withholding tax due in connection therewith, all in accordance with Section
14(b) of the Plan.
-------------------------------
-------------------------------
-------------------------------
-------------------------------
Dated: ,19
------------------- --
-------------------------------
3
<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, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<CASH> 198,797
<SECURITIES> 254,545
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<PP&E> 181,269
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<TOTAL-ASSETS> 1,158,898
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0
0
<COMMON> 4,254
<OTHER-SE> 1,137,018
<TOTAL-LIABILITY-AND-EQUITY> 1,158,898
<SALES> 1,142,482
<TOTAL-REVENUES> 1,167,201
<CGS> 470,450
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<INCOME-PRETAX> (224,380)
<INCOME-TAX> (964)
<INCOME-CONTINUING> (223,416)
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<NET-INCOME> (223,416)
<EPS-PRIMARY> 0
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</TABLE>
