UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                  -------------

                                    FORM 10-K

                                  -------------

/X/  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934
For the fiscal year ended December 31, 2005

                                       OR

/ /  TRANSITION  REPORT  PURSUANT  TO SECTION  13  OR  15(d) OF  THE  SECURITIES
     EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________

                         Commission file number: 0-28602

                          PRO TECH COMMUNICATIONS, INC.
             (Exact name of registrant as specified in its charter)

           Florida                                            59-3281593
 (State or other jurisdiction of                           (I.R.S. Employer
 incorporation or organization)                            Identification No.)

                4492 Okeechobee Road, Fort Pierce, Florida 34947
          (Address of principal executive offices, including Zip Code)

       Registrant's telephone number, including area code: (772) 464-5100

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:
                         Common Stock, $0.001 par value
                                (Title of class)

Indicate by check mark if the  registrant is a well-known  seasoned  issuer,  as
defined in Rule 405 of the Securities Act. /_/ Yes /X/ No

Indicate  by  check  mark if the  registrant  is not  required  to file  reports
pursuant to Section 13 or Section 15(d) of the Act. /_/ Yes /X/ No

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 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. /X/ Yes /_/ No

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not 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-K or any amendment to this
Form 10-K. /X/

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer, or a non-accelerated  filer (as defined in Rule 12b-2 of the
Exchange Act). Large Accelerated Filer / / Accelerated Filer / / Non-Accelerated
Filer /X/

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Act). /_/ Yes /X/ No

The aggregate  market value of the  outstanding  common stock of the  registrant
held by  non-affiliates  of the registrant as of June 30, 2005 was approximately
$0.3 million.

Number of shares of common stock outstanding as of March 15, 2006: 75,234,140

<PAGE>

                                Table of Contents

                                                                            Page
                                                                            ----
PART I

Item 1.    Business                                                            3
Item 1A.   Risk Factors                                                        7
Item 1B.   Unresolved Staff Comments                                          11
Item 2.    Properties                                                         11
Item 3.    Legal Proceedings                                                  11
Item 4.    Submission of Matters to a Vote of Security Holders                11

PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder
             Matters and Issuer Purchases of Equity Securities                12
Item 6.    Selected Financial Data                                            13
Item 7.    Management's Discussion and Analysis of Financial Condition
             and Results of Operations                                        14
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk         20
Item 8.    Financial Statements and Supplementary Data                        21
Item 9.    Changes in and Disagreements with Accountants on Accounting
             and Financial Disclosure                                         21
Item 9A.   Controls and Procedures                                            21
Item 9B.   Other Information                                                  21

PART III

Item 10.   Directors and Executive Officers of the Registrant                 22
Item 11.   Executive Compensation                                             23
Item 12.   Security Ownership of Certain Beneficial Owners and Management
             and Related Stockholder Matters                                  25
Item 13.   Certain Relationships and Related Transactions                     26
Item 14.   Principal Accounting Fees and Services                             27

PART IV

Item 15.   Exhibits, Financial Statement Schedules                            28

Signatures                                                                   S-1

                                       2
<PAGE>

                                     PART I

     This Annual Report on Form 10-K contains  forward-looking  statements  that
reflect our current  estimates,  expectations  and projections  about our future
results,  performance,  prospects and opportunities.  Forward-looking statements
include all statements that are not historical facts. These statements are often
identified  by  words  such as  "anticipate,"  "believe,"  "could,"  "estimate,"
"expect,"  "intend,"  "plan,"  "may,"  "should,"  "will,"  "would"  and  similar
expressions. These forward-looking statements are based on information currently
available to us and are subject to numerous risks and  uncertainties  that could
cause our actual  results,  performance,  prospects or  opportunities  to differ
materially  from  those  expressed  in,  or  implied  by,  the   forward-looking
statements we make in this Annual Report. We have included  important factors in
the cautionary  statements included in this Annual Report,  particularly in Item
1A. "Risk Factors" that could cause our actual results to differ materially from
the results referred to in the forward-looking statements we make in this Annual
Report. You should not place undue reliance on any  forward-looking  statements.
Except as  otherwise  required  by federal  securities  laws,  we  undertake  no
obligation to publicly update or revise any forward-looking statements,  whether
as a result of new  information,  future events,  changed  circumstances  or any
other reason after the date of this Annual Report.

     "Pro Tech"  (which may be referred  to as "we,"  "us," or "our")  means Pro
Tech Communications, Inc.

     All  trademarks,  service  marks or trade names  referred to in this Annual
Report are the property of their respective owners.

ITEM 1.   BUSINESS

General

     Pro Tech Communications,  Inc. engineers, designs and distributes audio and
communications solutions and other products for business users, industrial users
and consumers. Our products include:

     o    Apollo headsets and amplifiers for use in contact centers;

     o    ProCom headsets for use in quick-service restaurants;

     o    NoiseBuster noise canceling consumer audio headphones; and

     o    NoiseBuster  noise  canceling  safety  earmuffs  for use in
          high noise industrial environments.

     We were  incorporated in Florida in 1994. Our principal  executive  offices
are located at 4492 Okeechobee  Road, Fort Pierce,  Florida 34947, our telephone
number    is    (772)     464-5100     and    our     Internet     address    is
www.protechcommunications.com.  The  information on our Internet  website is not
incorporated  into  this  Annual  Report.  We  are  a  majority-owned,  indirect
subsidiary  of NCT Group,  Inc., a publicly  traded  company  that  develops and
licenses technologies based upon its portfolio of patents and related rights and
extensive technological know-how.

Operations

     Currently, we operate our business through our products division. Formerly,
we also operated a  telecommunications  systems  integration  business division.
Please see Note 15 to the Notes to Financial  Statements  contained elsewhere in
this Annual Report for additional  information regarding our business divisions.
All of our operations are predominantly within North America.

                                       3
<PAGE>

Products

     We develop,  manufacture and distribute audio and  communications  products
into the contact center, quick service restaurant, industrial and consumer audio
markets.  For the years ended  December  31, 2003,  2004 and 2005,  our sales of
quick  service  restaurant  products  represented  75%,  69% and  54% of  sales,
respectively.  For the year ended December 31, 2005, our sales of contact center
products  represented  27% of sales.  For the year ended  December 31, 2005, our
sales of audio products  represented 17% of sales. We also intend to continue to
pursue  new  product  development.  Under a license  agreement  with our  parent
company, NCT Hearing Products,  Inc., we have access to over 50 patents, patents
pending and  innovations  relating to electronic  noise  canceling and noise and
echo  cancellation.  We plan  to  address  additional  markets  of  opportunity,
including spectator racing, two-way radio communications and aviation. We intend
to enter many of these markets through the expansion of our NoiseBuster  line of
electronic  noise canceling  products as well as passive  products  designed for
higher noise settings.

Headsets

     Our  headsets include the following products:

     o    Apollo:  Advanced,  lightweight headsets designed for use by telephone
          users in contact centers and other dynamic business environments;

     o    Apollo  Freedom:  Headsets  designed to plug directly into phones with
          built-in amplifiers;

     o    Trinity:  Closed back headsets designed for use in loud  environments,
          such as very noisy contact centers; and

     o    ProCom:  Highly  durable,  lightweight  headsets  designed  for use in
          drive-through quick service restaurants.

Amplifiers

     Our  amplifiers include the following products:

     o    Apollo:  Multimedia  amplifier  engineered for simultaneous use of the
          telephone and multimedia  applications,  including  computer training,
          Voice over Internet Protocol and voice recognition programs;

     o    A-10:  Multi-line  amplifier designed for small office and home office
          use that has been  engineered  to work with  over 90% of all  existing
          phone systems in the world; and

     o    A-27:  Amplifier designed for automatic control  distributors or phone
          systems that use the standard PJ-237 2-prong plug as their interface.

Headphones

     Our  headphone   product  is  the  NoiseBuster   personal  noise  canceling
headphones  that  reduce  low  frequency   background   using  electronic  noise
cancellation technology, while leaving speech and music clearly audible.

Hearing Protection

     Our  hearing  protection  product  is  the  NoiseBuster   electronic  noise
canceling  safety  earmuff  that  is  designed  to  provide  industrial  hearing
protection  for use in high noise  environments  by  combining  passive  hearing
protection  with  electronic  noise  cancellation  technology.  This  technology
neutralizes  the low  frequency  noise of  motors,  compressors  and  fans  that
penetrates  conventional hearing protection products and allows speech, warnings
and other critical sounds to be heard more clearly.

                                       4
<PAGE>

Technology and Proprietary Information

     Under a license  agreement with our parent  company,  NCT Hearing,  we have
access  to  over  50  patents,  patents  pending  and  innovations  relating  to
electronic noise canceling and noise and echo cancellation. Our licensed patents
have  expiration  dates ranging from 2006 through 2019, with the majority of the
material  patents  upon  which  we rely  expiring  in  2011  and  beyond.  These
technologies  are instrumental in canceling  irritating and potentially  harmful
ambient  noise  before it  reaches  the ear and in  improving  the  clarity  and
intelligibility of sent and received voice communications.

     Electronic Noise Canceling. Electronic noise canceling technology minimizes
low  frequency   acoustical   noise,   or  rumbling   sounds.   This  technology
electronically  couples a sound wave with its exact  mirror  image wave,  called
anti-noise,  resulting in a significant  reduction of the offensive noise before
it reaches the user's ears. The technology is particularly effective against low
frequency  noise,  such as noise  generated by computer  fans,  HVAC systems and
motor or engine-driven equipment.  Reduction of this type of noise is especially
important for intelligible communications.

     Noise  and Echo  Cancellation.  Our  technology  license  from NCT  Hearing
includes the ClearSpeech suite of algorithms designed to remove background noise
and echo from a speech signal. This technology improves  communications  clarity
and  intelligibility.  The ClearSpeech Adaptive Speech Filter noise cancellation
algorithm  removes up to 95% of  stationary,  or  constant,  noise from a signal
containing noise and speech.  The ClearSpeech  Acoustic Echo  Cancellation is an
algorithm  designed to  continuously  and adaptively  remove  acoustic echo from
speech.  Acoustic echoes are produced by the open-air  acoustic path between the
loudspeaker and the microphone in hands-free full-duplex  communication systems.
By  continuously  tracking  changes in this  acoustic  path,  the acoustic  echo
cancellation  effectively  eliminates  the echo,  improving  the  clarity of the
communication system.

     We rely on a combination of patent,  trademark,  copyright and trade secret
laws  in the  U.S.  and  elsewhere  as well as  confidentiality  procedures  and
contractual  provisions  to  protect  our  proprietary  information,   including
information  licensed to us by NCT Hearing.  We also enter into  confidentiality
and invention  assignment  agreements  with our  employees  and  confidentiality
agreements with our consultants and other third parties.

Marketing and Sales

     We market and sell our  products  primarily  through  direct  sales.  These
efforts are  supplemented  through the use of electronic  commerce,  independent
sales  representatives  and strategic  marketing  agreements.  We sell our audio
headphones  and  hearing  protection   earmuffs  into  the  consumer  audio  and
industrial safety markets.  We sell our  communications  headset products to the
commercial  headset  market,  including quick service  restaurant  companies and
franchisees,  contact  centers  and other  large  quantity  users of  commercial
headset  systems.  For  example,  we  have  an  agreement  with  the  McDonald's
Corporation  that  allows us to sell our  products on a  non-exclusive  basis to
McDonald's franchisees and company-owned  restaurants.  Our net sales under this
agreement  for the year ended  December  31, 2005  exceeded 10% of our total net
sales. In addition,  net sales to Central Florida  Investments,  Inc.  /Westgate
Resorts,  Ltd., a contact  center,  also exceeded 10% of our total net sales for
the year ended  December 31, 2005.  As of December 31, 2005,  we had an internal
sales  and  marketing  force  of  five  employees,  in  addition  to some of our
executive  officers  and  directors  who also  participate  in our direct  sales
efforts.

Competition

     The industries in which we compete are highly  competitive and dominated by
a few  manufacturers.  The primary  competitors  for our  lightweight  telephone
headsets  are  Plantronics  and GN  Netcom.  In  addition,  in  the  lightweight
telephone  headset  market,  we may face  indirect  competition  from  companies
offering  interactive  voice response  systems that eliminate or reduce the need
for human operators for certain applications,  such as account balance inquiries
and airline flight  information.  The primary  competitors  for our  NoiseBuster
headphones  are Bose and Sony and the primary  competitors  for our  NoiseBuster
earmuffs are Aearo and Bacou.

                                       5
<PAGE>

     Our  current  competitors  and  many  of  our  potential   competitors  are
well-established companies that we believe have substantially greater financial,
technical,  production,  sales and marketing,  and product development resources
than we do. We believe  that the  competitive  advantages  for our  products and
services  include high  performance  resulting from our proprietary  technology,
superior  design  and  construction,  and low  cost,  but that  our  competitive
disadvantages   include  limited  name   recognition,   limited   marketing  and
distribution resources and long production lead times.

Manufacturing

     Our  manufacturing  operations  currently  consist of limited  assembly and
testing, all of which occurs at our Fort Pierce, Florida facilities. We purchase
the majority of our contractually  manufactured  products and components for our
products  from  several  suppliers  in Asia and North  America,  who build  each
product  and  component  based  on  our  specifications.  The  majority  of  our
components  and  subassemblies  used in our in-house and contract  manufacturing
operations  are obtained,  or are reasonably  available from multiple  suppliers
currently  under  contract.  We procure  materials to meet  forecasted  customer
requirements.  We  maintain  minimum  levels of  finished  goods based on market
demand  in  addition  to  inventories  of work in  progress,  subassemblies  and
components.  For  example,  we  currently  use  suppliers  located  in  Asia  to
manufacture our headphone,  hearing protection and manager headset products.  We
also intended to discontinue the majority of our assembly and testing operations
at our Fort Pierce,  Florida facilities during 2005. However, this did not occur
due to cash limitations.

Environmental Matters

     We are subject to various federal,  state and local  environmental laws and
regulations,  including  those  governing  the use,  discharge  and  disposal of
hazardous  substances in the ordinary course of our  manufacturing  process.  We
believe  that  our  current  manufacturing  operations  comply  in all  material
respects  with  applicable  environmental  laws  and  regulations  and  that our
compliance  with these laws and  regulations  does not have a material effect on
our capital expenditures, earnings or competitive position.

Backlog

     Our backlog of unfilled  orders was  approximately  $51,000 on December 31,
2005 and approximately  $44,000 on December 31, 2004. We do not believe that our
backlog as of any  particular  date is indicative of actual sales for any future
period, and therefore should not be used as an indication of future revenue.

Employees

     As of December 31, 2005, we had nine full-time and one part-time  employee,
including  three  employees in  administration  and shipping,  five in sales and
marketing and two in assembly and  production.  None of our employees is covered
by a collective bargaining agreement.  We believe our employee relationships are
good.

Available Information

     We file reports,  proxy  statements and other documents with the Securities
and Exchange Commission  ("SEC").  You may read and copy any document we file at
the SEC's public reference room at 100 F Street, N.E.,  Washington,  D.C. 20549.
You should call  1-800-SEC-0330  for more  information  on the public  reference
room.  Our SEC filings are also  available to you on the SEC's  Internet site at
http://www.sec.gov.

     We  maintain  an  Internet  website at  www.protechcommunications.com.  Our
periodic  reports  filed with the SEC  (including  annual  reports on Form 10-K,
quarterly  reports on Form  10-Q,  current  reports  on Form 8-K and  Section 16
reports) are  available  free of charge on our Investor  Information  website at
www.protechcommunications.com/ptcinvest  as soon as reasonably practicable after
these reports are  electronically  filed with the SEC. The information posted on
our website is not incorporated into this Annual Report.

                                       6
<PAGE>

ITEM 1A.  RISK FACTORS

     You  should  carefully  consider  the  following  information  about  risks
described below,  together with the other  information  contained in this Annual
Report  and in our  other  filings  with the SEC,  before  you  decide to buy or
maintain an investment in our common stock. We believe the risks described below
are the risks that are material to us as of the date of this Annual  Report.  If
any of the following risks actually occur,  our business,  financial  condition,
operating  results and future growth  prospects  would likely be materially  and
adversely affected. In these circumstances, the market price of our common stock
could  decline,  and you may lose all or part of the  money  you paid to buy our
common stock.

     We have incurred  substantial  losses since our inception and we are unsure
whether we will be able to generate  sufficient  funds to sustain our operations
through the next nine months.

     We have incurred  substantial losses since our inception,  including losses
of  approximately  $974,000,  $1,390,000  and  $2,062,000  for the  years  ended
December  31,  2003,  2004 and  2005,  respectively,  and we had an  accumulated
deficit of  approximately  $21,425,000  at December 31, 2005.  We expect that we
will continue at a loss until, at the earliest,  we generate  sufficient revenue
to offset the cost of our  operations.  Our future  revenue levels and potential
profitability  depend on many  factors,  including  the demand for our  existing
products and services, our ability to develop and sell new products and services
and  our  ability  to  control  costs.  We can  give no  assurance  that we will
experience  any  significant  revenue  growth  or  that  we  will  ever  achieve
profitability.  Even if we do achieve profitability for a fiscal year, we may be
unable to sustain profitability on a quarterly or annual basis in the future. It
is possible  that our revenues  will grow more slowly than we anticipate or that
operating expenses will exceed our expectations.

     Our  management  believes  that  currently  available  funds  will  not  be
sufficient  to sustain our  operations at current  levels  through the next nine
months.  At December 31,  2005,  we had  approximately  $85,000 in cash and cash
equivalents  and a working capital  deficiency of  approximately  $738,000.  Our
ability to  continue  to operate at current  levels  depends  upon,  among other
things, our ability to generate sufficient revenue from the sale of our products
and the receipt of continued funding from NCT Hearing.

     In the  long-term,  our ability to continue as a going concern is dependent
on generating  sufficient  revenue from product  sales.  Our ability to generate
significant  revenue  from  product  sales  is  uncertain.   Historically,   our
operations  have not  generated  sufficient  revenue to cover our costs.  In the
event that our operations do not generate  sufficient cash, we could be required
to reduce our level of operations while  attempting to raise additional  working
capital. We can give no assurance that additional  financing,  including funding
from NCT Hearing,  will be available  to us on  acceptable  terms or at all. The
failure  to obtain  any  necessary  additional  financing  would have a material
adverse  effect on us. If adequate  funds are not available or are not available
on acceptable terms, our ability to fund our planned  expansion,  take advantage
of business opportunities,  develop or enhance products or services or otherwise
respond to competitive  pressures would be significantly  limited,  and we might
need to significantly restrict or discontinue our operations.

     The report of our  independent  registered  public  accounting firm for the
year ended December 31, 2005 contains a qualification relating to our ability to
continue as a going concern.

     The report of our  independent  registered  public  accounting  firm on our
financial  statements  as of  December  31,  2005 and for the years  then  ended
contains an explanatory  paragraph stating that there is substantial doubt as to
our ability to continue as a going  concern.  Our  financial  statements  do not
include any adjustments that might result from the outcome of this  uncertainty.
This uncertainty may affect our ability to raise additional capital and may also
negatively  impact our  relationships  with current and potential  suppliers and
customers.

     We depend on the  development  of our  businesses in the consumer audio and
industrial safety markets and we could be materially adversely affected if these
businesses do not develop as we expect.

     While  the  contact  center  and  quick-service  restaurant  markets  still
represent  the majority of our  business,  we believe that our future  prospects
will depend in large part on the growth in demand for our  NoiseBuster  consumer
audio  headphones,  industrial  hearing  protection  earmuffs and related future
products.  We do not have extensive  experience in selling products to customers
in the  consumer  audio  and  industrial  safety  markets.  If we are

                                       7
<PAGE>

unable to  effectively  market our products to customers  in these  markets,  it
would have a material  adverse effect on the potential demand for these products
and on our business, financial condition, operating results and cash flows.

     If we are  unable  to match  production  to  demand,  we will be at risk of
losing business or our gross margins could be materially adversely affected.

     The demand for our products is dependent on many factors and this demand is
inherently difficult to forecast. We may experience sharp fluctuations in demand
for our products.  Significant unanticipated  fluctuations in demand could cause
the following operating problems, among others:

     o    If forecasted demand does not develop,  we could have excess inventory
          and excess  capacity.  Over  forecast of demand could result in higher
          inventories of finished products, components and subassemblies.  If we
          were unable to sell these inventories, we would have to write off some
          or all of our inventories of excess  products and unusable  components
          and subassemblies.  Excess manufacturing capacity could lead to higher
          production costs and lower margins.
     o    If demand increases  beyond that forecasted,  we would have to rapidly
          increase  production.  We depend on  suppliers  to provide  additional
          volumes  of   products,   components   and   subassemblies,   and  are
          experiencing   greater   dependencies  on  single  source   suppliers.
          Therefore,  we might not be able to increase production rapidly enough
          to  meet  unexpected  demand.  This  could  cause  us to  fail to meet
          customer expectations. There could be short-term losses of sales while
          we are trying to increase production. If customers turn to competitive
          sources  of supply to meet their  needs,  there  could be a  long-term
          impact on our revenues.
     o    Rapid  increases in  production  levels to meet  unanticipated  demand
          could   result  in  higher   costs  for   products,   components   and
          subassemblies, increased expenditures for freight to expedite delivery
          of required  materials and higher  overtime costs and other  expenses.
          These higher expenditures could lower our profit margins.  Further, if
          production is increased rapidly, there may be decreased  manufacturing
          yields, which may also lower our margins.

     Any of  the  foregoing  problems  could  materially  adversely  affect  our
business, financial condition and operating results.

     The failure of our suppliers to provide quality components or products in a
timely manner could adversely affect our results.

     Our  growth  and  ability to meet  customer  demands  depend in part on our
capability to obtain timely deliveries of components, subassemblies and products
from our  suppliers.  We buy  components  and  subassemblies  from a variety  of
suppliers and assemble them into finished products.  We also have certain of our
products  manufactured  for us by third party suppliers.  The cost,  quality and
availability of these goods are essential to the successful  production and sale
of our  products.  Obtaining  components,  subassemblies  and finished  products
entails various risks, including the following:

     o    We obtain certain  subassemblies,  components and products from single
          suppliers  and  alternate  sources  for these  items  are not  readily
          available.  An  interruption  in supply from any of our single  source
          suppliers  in  the  future  would  materially   adversely  affect  our
          business, financial condition and operating results.
     o    Prices of components, subassemblies and finished products may rise. If
          this  occurs  and we are not able to pass  these  increases  on to our
          customers or to achieve  operating  efficiencies that would offset the
          increases,  it would have a material  adverse  effect on our business,
          financial condition and operating results.
     o    Due to the  lead  times  required  to  obtain  certain  subassemblies,
          components and products from certain foreign suppliers,  we may not be
          able to react quickly to changes in demand,  potentially  resulting in
          either  excess   inventories   of  such  goods  or  shortages  of  the
          subassemblies, components and products. Failure in the future to match
          the timing of purchases of  subassemblies,  components and products to
          demand could increase our  inventories  and/or  decrease our revenues,
          consequently  materially  adversely affecting our business,  financial
          condition and operating results.

                                       8
<PAGE>

     o    Most of our suppliers are not obligated to continue to provide us with
          components  and  subassemblies.  Rather,  we buy most  components  and
          subassemblies  on a purchase order basis. If our suppliers  experience
          increased  demand or shortages,  it could affect  deliveries to us. In
          turn,  this would affect our ability to manufacture  and sell products
          that are dependent on those components and  subassemblies.  This would
          materially  adversely  affect our  business,  financial  condition and
          operating results.

     We face significant competition from well-established companies.

     We face formidable  competition in each of the markets in which we operate.
Many of  these  companies  have  substantially  greater  management,  technical,
financial,  marketing and product development resources than we do. In addition,
many of our competitors have substantially  greater name recognition and shorter
production and distribution lead times than we do. For example,  our lightweight
telephone headsets face substantial  competition from Plantronics and GN Netcom,
our NoiseBuster  headphones  compete with products  offered by Bose and Sony and
our NoiseBuster earmuffs compete with earmuffs offered by Aearo and Bacou. While
we believe that the quality of our products and services equals or exceeds those
of our  competitors,  we can give no assurance that our products will be able to
compete effectively against our competitors' products.

     Our success depends upon our ability to develop new products and to enhance
our existing products.

     The  markets  in  which  we   participate   are   characterized   by  rapid
technological advances, evolving standards, changing customer needs and frequent
new product  introductions  and  enhancements.  To keep pace with  technological
developments,  satisfy  increasingly  sophisticated  customer  requirements  and
achieve market  acceptance,  we must enhance and improve our existing  products,
and we must also continue to introduce new products. If we are unable to develop
new products or adapt our current  products to meet changes in the  marketplace,
if we are unable to enhance and improve our  products  successfully  in a timely
manner,  or if we fail to  position  and/or  price our  products  to meet market
demand,  customers  may not buy our  products  and our  business  and  operating
results will be adversely affected.  If our enhancements to existing products do
not deliver the  functionality  that our  customers  demand,  our  business  and
operating results will be adversely affected.  Accelerated product introductions
and short product life cycles require high levels of  expenditures  for research
and development that could adversely affect our operating results.  Further, any
new  products we develop may not be  introduced  in a timely  manner and may not
achieve the broad market acceptance necessary to generate significant revenues.

     We may not be able to protect our intellectual property.

     We  rely  on  a   combination   of  patent,   trademark,   trade   secrets,
confidentiality   procedures   and   contractual   commitments  to  protect  our
proprietary  information.  Despite our efforts,  these measures can only provide
limited  protection.  Unauthorized  third  parties  may try to  copy or  reverse
engineer  portions of our products or otherwise  obtain and use our intellectual
property.   Any  patents  owned  by  or  licensed  to  us  may  be  invalidated,
circumvented  or challenged.  Any of our pending or future patent  applications,
whether or not being currently  challenged,  may not be issued with the scope of
the claims we seek, if at all. If we cannot protect our  proprietary  technology
against unauthorized copying or use, we may not remain competitive.

     Our business may be harmed if we are found to have  infringed  intellectual
property rights of third parties.

     Third parties may assert claims  against us alleging that we have infringed
their intellectual property rights. If we do not succeed in any such litigation,
we could be required to expend  significant  resources to pay  damages,  develop
non-infringing  intellectual  property or to obtain licenses to the intellectual
property that is the subject of the  litigation.  However,  we cannot be certain
that  any  such  licenses,  if  available  at all,  will be  available  to us on
commercially reasonable terms. Also, defending these claims may be expensive and
divert the time and efforts of our management.

                                       9
<PAGE>

     Changes in  regulatory  requirements  may  adversely  impact our  operating
results or reduce our ability to generate revenues if we are unable to comply.

     Many  of  our  products  must  meet  the  requirements  set  by  regulatory
authorities in the numerous  jurisdictions in which we sell them. As regulations
and local laws  change,  we must modify our products to address  those  changes.
Regulatory  restrictions  may increase the costs to design and  manufacture  our
products, resulting in a decrease in our margins or a decrease in demand for our
products if the costs are passed along.  Compliance with regulatory restrictions
may impact the technical  quality and  capabilities  of our  products,  reducing
their marketability.

     While we believe that we currently  have  adequate  control  structures  in
place,  we are still  exposed  to  potential  risks from  legislation  requiring
companies to evaluate  controls under Section 404 of the  Sarbanes-Oxley  Act of
2002.

     We are working toward  evaluating our internal  control systems in order to
allow management to report on, and our independent registered public accountants
to attest to, our internal controls,  as required by the Sarbanes-Oxley  Act. We
are performing the system and process  evaluation and testing (and any necessary
remediation)  required in an effort to comply with the management  certification
and  public   accountant   attestation   requirements  of  Section  404  of  the
Sarbanes-Oxley  Act. As a result,  we expect to incur  additional  expenses  and
diversion  of  management's  time.  While  we  anticipate  being  able to  fully
implement the  requirements  relating to reporting on internal  controls and all
other aspects of Section 404 in a timely fashion, we cannot be certain as to the
timing of completion of our evaluation,  testing and remediation  actions or the
impact of the same on our  operations  since there is no precedent  available by
which  to  measure  compliance  adequacy.  If we are not able to  implement  the
requirements of Section 404 in a timely manner or with adequate  compliance,  we
might be subject to sanctions or investigation by the SEC. Any such action could
adversely affect our financial results.

     Our current  principal  stockholder  has control  over us, and could delay,
deter or prevent a change of control or other business  combination or otherwise
cause us to take action with which you may disagree.

     NCT Hearing owns 83.4% of our outstanding  common stock.  In addition,  the
majority of our board of directors are also directors and executive  officers of
NCT Group, of which NCT Hearing is a wholly owned subsidiary.  As a result,  NCT
Group has control over our  decisions to enter into any  corporate  transactions
and has the ability to prevent any transaction that requires the approval of our
stockholders  regardless of whether or not other stockholders  believe that such
transaction is in their own best interests.  Such  concentration of voting power
could have the effect of delaying,  deterring or  preventing a change of control
or  other  business  combination  that  might  otherwise  be  beneficial  to our
stockholders.

     Our stock price may be volatile and your investment could lose value.

     Historically,  the market price of our common stock has been volatile.  The
trading  price of our common  stock  could be subject  to wide  fluctuations  in
response to various factors, some of which are beyond our control. These factors
include:

     o    quarterly variations in our operating results;
     o    announcements  by us or our  competitors of new products,  significant
          contracts, commercial relationships or capital commitments;
     o    our  ability to develop  and market  new and  enhanced  products  on a
          timely basis;
     o    concerns  about our  liquidity;  and
     o    general  trends  involving  the economy or OTC  Bulletin  Board traded
          companies.

     In  addition,  the stock market in general,  and the market for  technology
companies in particular,  have experienced  price and volume  fluctuations  that
have often been unrelated or  disproportionate  to the operating  performance of
those  companies.  These market and industry  factors may  seriously  affect the
market price of our common stock regardless of our actual operating performance.

                                       10
<PAGE>

     Trading in our common stock is subject to the SEC's penny stock rules.

     Trading in our common stock is currently subject to the requirements of the
"penny  stock" rules of the SEC. The penny stock rules impose  additional  sales
practice  requirements  on  broker-dealers  who sell penny stock  securities  to
persons other than established customers or accredited  investors.  For example,
the broker must make a special  suitability  determination for the purchaser and
must have received the purchaser's  written consent to the transaction  prior to
the sale. The rules also require that the broker:

     o    deliver  to  purchasers,  prior  to any  penny  stock  transaction,  a
          disclosure  schedule  explaining  the penny stock market and the risks
          involved in investing in penny stocks;
     o    disclose the broker's commissions and current quotations for the penny
          stock;
     o    disclose  whether  the broker is the sole  market  maker for the penny
          stock and, if so, the broker's presumed control over the market; and
     o    send monthly  statements  disclosing  recent price information for the
          penny stocks held in the  customer's  account and  information  on the
          limited market in penny stocks.

     These additional burdens may discourage brokers from effecting transactions
in our common  stock,  which could  severely  limit the market  liquidity of our
common  stock and the ability of  stockholders  to sell our common  stock in the
market.

ITEM 1B.  UNRESOLVED STAFF COMMENTS

     Not applicable.

ITEM 2.   PROPERTIES

     Our principal executive,  sales and manufacturing facilities are located in
Fort Pierce,  Florida where we lease approximately 6,000 square feet pursuant to
a lease that expires in February 2009. These facilities provide us with adequate
space for the near term consistent with our current business plans.

ITEM 3. LEGAL PROCEEDINGS

     We are not a party to any legal proceeding.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No  matter  was  submitted  to a vote  of  our  stockholders,  through  the
solicitation of proxies or otherwise, during the fourth quarter of 2005.

                                       11
<PAGE>

                                     PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
          ISSUER PURCHASES OF EQUITY SECURITIES

     Our common stock currently  trades on the NASD OTC Bulletin Board under the
symbol "PCTU." The following table sets forth the high and low bid prices of our
common  stock,  as  reported  on the NASD OTC  Bulletin  Board,  for each of the
periods listed. The quotations shown reflect inter-dealer prices, without retail
mark-up,  mark-down  or  commission  and may not  necessarily  represent  actual
transactions.

                                  2004                      2005
                          ----------------------    ----------------------
                           High          Low          High         Low
                          --------     ---------    ---------    ---------
     1st Quarter          $0.030        $0.013       $0.070       $0.040
     2nd Quarter          $0.130        $0.021       $0.040       $0.022
     3rd Quarter          $0.045        $0.015       $0.025       $0.016
     4th Quarter          $0.090        $0.025       $0.020       $0.007

     As of February  28,  2006,  we had 66 holders of record of our common stock
representing approximately 500 beneficial owners.

Dividends

     We have never declared or paid any cash  dividends on our common stock.  We
currently   anticipate   that  we  will  retain  any  future  earnings  for  the
development,  operation and expansion of our  business.  Accordingly,  we do not
anticipate  declaring  or paying any cash  dividends  on our common stock in the
foreseeable  future.  Our board of directors will have discretion in determining
whether to declare  or pay  dividends,  which  will  depend  upon our  financial
condition, operating results, capital requirements and such other factors as the
board of  directors  deems  relevant.  In addition,  provisions  of our series B
convertible  preferred  stock  restrict our ability to pay cash dividends on our
common stock.

                                       12
<PAGE>

ITEM 6.   SELECTED FINANCIAL DATA

     The  following  selected  financial  data is  derived  from our  historical
financial  statements  and  should  be read in  conjunction  with our  financial
statements  and "Item 7.  Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations" that are included  elsewhere in this Annual
Report.

<TABLE>
<CAPTION>
                                                                               For the Years Ended December 31,
                                                           ------------------------------------------------------------------------
                                                               2001           2002           2003           2004           2005
                                                           ------------  -------------  -------------  -------------  -------------
<S>                                                        <C>           <C>            <C>            <C>            <C>
STATEMENT OF OPERATIONS AND
 LOSS PER SHARE DATA:

Net sales                                                  $ 2,075,968   $  1,517,571   $  1,068,402   $  1,075,633   $  1,260,978

Cost of goods sold                                             887,687        732,639        325,943        488,031        531,728
Selling, general and administrative (a)                      3,538,267      2,617,205      1,609,718      1,853,193      2,523,846
Impairment charge on intangible assets                             -       11,500,000            -              -              -
Provision for doubtful accounts                                  9,958         29,800          6,591         14,621         15,794
                                                           ------------  ------------   -------------  -------------  -------------

   Loss from operations                                     (2,359,944)   (13,362,073)      (873,850)    (1,280,212)    (1,810,390)
Other income (expense):
  Interest expense, net                                        (20,262)       (51,290)       (90,966)      (115,356)      (214,402)
  Miscellaneous income                                           4,305          5,004          3,352         10,396          4,816
  Gain (loss) on disposal of fixed assets                       (2,945)           -              -              -            6,585
                                                           ------------  -------------  -------------  -------------  -------------

      Net loss from continuing operations                   (2,378,846)   (13,408,359)      (961,464)    (1,385,172)    (2,013,391)

      Net income (loss) from discontinued operations           (50,546)         3,481        (12,982)        (4,983)       (48,596)
                                                           ------------  -------------  -------------  -------------  -------------
      Net loss                                              (2,429,392)   (13,404,878)      (974,446)    (1,390,155)    (2,061,987)

Less:
Preferred stock beneficial conversion                           79,190         45,810            -             -              -
Preferred stock embedded dividend                               62,661            -              -             -              -
Dividend accretion on preferred stock                           24,085         22,000         10,911           -              -
                                                           ------------  -------------  -------------  -------------  -------------

      Net loss attributable to common
           stockholders                                    $(2,595,328)  $(13,472,688)  $   (985,357)  $ (1,390,155)  $ (2,061,987)
                                                           ============  =============  =============  =============  =============

Loss per share attributable to common stockholders
  from continuing operations                               $     (0.08)  $      (0.41)  $      (0.03)  $      (0.02)  $      (0.03)
Loss per share from discontinued operations                      (0.00)         (0.00)         (0.00)         (0.00)         (0.00)
                                                           ------------  -------------  -------------  -------------  -------------
Basic and diluted net loss per share attributable
  to common stockholders                                   $     (0.08)  $      (0.41)  $      (0.03)  $      (0.02)  $      (0.03)
                                                           ============  =============  =============  =============  =============

 Weighted average number
       of common shares outstanding (b)                     32,281,034     33,200,311     33,200,311     62,377,398     74,779,453
                                                           ============  =============  =============  =============  =============



                                                                                      As of December 31,
                                                           ------------------------------------------------------------------------
                                                               2001           2002           2003           2004           2005
                                                           ------------  -------------  -------------  -------------  -------------
 BALANCE SHEET DATA:
 Total assets                                              $17,184,920   $  4,163,492   $  3,673,036   $  3,499,047   $  3,203,516
 Total current liabilities                                   1,541,386        866,537      1,334,879      1,212,614      1,301,491
 Long-term debt                                                 44,632      1,102,931      1,849,949      2,218,526      3,824,597
 Accumulated deficit                                        (3,593,336)   (16,998,214)   (17,972,660)   (19,362,815)   (21,424,802)
 Stockholders' equity (capital deficit) (c)                 14,965,464      1,540,586        488,208         67,907     (1,922,572)
 Working capital/(deficit)                                    (320,525)       (19,543)      (647,747)      (636,388)      (737,635)

</TABLE>

----------
(a)  Includes the following line items from our statements of operations on page
     F-3:  selling,  general  and  administrative  expenses,   depreciation  and
     amortization and NCT Hearing and affiliates charges.
(b)  Excludes  shares  issuable upon the exercise or  conversion of  outstanding
     stock options, warrants and convertible preferred stock, since their effect
     would be antidilutive.
(c)  We have never declared nor paid cash dividends on our common stock.

                                       13
<PAGE>

ITEM 7.   MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL  CONDITION  AND
          RESULTS OF OPERATIONS

Overview

     We engineer,  design and distribute audio and communications  solutions and
other products for business users, industrial users and consumers.  Our products
include:

     o    Apollo headsets and amplifiers for use in contact centers;

     o    ProCom headsets for use in quick-service restaurants;

     o    NoiseBuster noise canceling consumer audio headphones; and

     o    NoiseBuster  noise  canceling  safety  earmuffs  for use in high noise
          industrial environments.


     We intend to continue to pursue new  product  development.  Under a license
agreement  with our  parent  company,  NCT  Hearing,  we have  access to over 50
patents,  patents pending and innovations relating to electronic noise canceling
and noise and echo  cancellation.  Though an expansion of this license,  we have
the ability to address  additional  markets of opportunity  including  spectator
racing,  two-way radio  communications and aviation.  We intend to enter many of
these markets through the expansion of our NoiseBuster  line of electronic noise
canceling  products  as well as  passive  products  designed  for  higher  noise
settings.

Going Concern Risks

     Since inception,  we have experienced  recurring losses,  which amounted to
approximately  $21,425,000  on a  cumulative  basis  through  December 31, 2005.
Internally  generated funds from our revenue sources have not been sufficient to
cover  our  operating  costs.  The  ability  of our  product  sales to  generate
significant  cash for our  operations is critical to our long-term  success.  We
cannot predict whether we will be successful in obtaining  market  acceptance of
our new products. To the extent our internally generated funds are not adequate,
we believe that we will need to obtain additional working capital through equity
and/or debt  financings.  However,  we can give no assurance that any additional
financing will be available to us on acceptable terms or at all.

     Our  management  believes  that  currently  available  funds  will  not  be
sufficient  to sustain our  operations at current  levels  through the next nine
months.  These funds consist of available cash and the funding  derived from our
sales of products.  Cash and cash equivalents amounted to approximately  $85,000
at December 31, 2005 and our working capital deficit was approximately $738,000.
We have been dependent upon funding from NCT Hearing. In the event that external
financing  is not  available  or timely,  we will be required  to  substantially
reduce our level of operations in order to conserve cash. These reductions could
have an adverse  effect on our  relationships  with our customers and suppliers.
Reducing operating expenses and capital  expenditures alone may not be adequate,
and  continuation  as a going  concern  is  dependent  upon the level of funding
realized  from our  internal  and  external  funding  sources,  all of which are
currently uncertain.

     Our financial  statements have been prepared assuming that we will continue
as a going concern, which contemplates continuity of operations,  realization of
assets and  satisfaction of liabilities in the ordinary course of business.  Our
ability to continue as a going  concern is dependent  upon,  among other things,
the  achievement  of future  profitable  operations  and the ability to generate
sufficient cash from operations, equity and/or debt financings and other funding
sources to meet our obligations.  The  uncertainties  described in the preceding
paragraphs  raise  substantial  doubt at December  31, 2005 about our ability to
continue  as a going  concern.  Our  accompanying  financial  statements  do not
include any adjustments relating to the recoverability of the carrying amount of
recorded assets or the amount of liabilities  that might result from the outcome
of these uncertainties.

                                       14
<PAGE>

Critical Accounting Policies and Estimates

     The preparation of our financial statements requires our management to make
estimates  and  assumptions   that  affect  the  reported   amounts  of  assets,
liabilities,  revenue and expenses and related  disclosure of contingent  assets
and liabilities. We base these estimates on historical experience and on various
other  assumptions that are believed to be reasonable  under the  circumstances,
the  results  of which  form the basis of making  judgments  about the  carrying
values of assets  and  liabilities  that are not  readily  apparent  from  other
sources.  Actual  results  may  differ  from  these  estimates  under  different
assumptions or conditions.

     An accounting  policy is deemed to be critical if it requires an accounting
estimate  to be made  based  upon  assumptions  about  matters  that are  highly
uncertain  at the time the  estimate  is made and if  different  estimates  that
reasonably could have been used, or changes in the accounting estimates that are
reasonably likely to occur  periodically,  could materially impact the financial
statements.  The  methods,  estimates  and  judgments  we  use in  applying  our
accounting  policies may have a  significant  impact on the results we report in
our  financial  statements,  which we  discuss  under the  heading  "Results  of
Operations" below. Some of our accounting  policies require us to make difficult
and  subjective  judgments,  often as a result of the need to make  estimates of
matters that are inherently  uncertain.  Below, we discuss the critical policies
that  required us to make  difficult  or  subjective  assumptions  or  estimates
regarding our financial  statements included in this Annual Report. We also have
other policies that we consider key accounting policies; however, these policies
do not  require  us to  make  estimates  or  judgments  that  are  difficult  or
subjective.

Allowance for Doubtful Accounts

     We maintain allowances for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments.  If the financial
condition of our  customers  were to  deteriorate  resulting in an impairment of
their ability to make payments,  additional  allowances  might be required.  The
allowance for doubtful  accounts is the best estimate of probable  credit losses
in our existing  accounts  receivable.  We determine  the  allowance  based upon
historical  write-off  experience  and review the adequacy of our allowance on a
monthly basis.  Account balances are charged off against the allowance after all
means of  collection  have been  exhausted  and the  potential  for  recovery is
considered remote.

Impairment of Long-Lived Assets and Identifiable Intangible Assets

     We  record   impairment   losses  on  long-lived  assets  and  identifiable
intangible assets used in operations when events and circumstances  indicate the
assets  might be  impaired  or the  remaining  useful  life has  changed and the
undiscounted  cash flows estimated to be generated by those assets are less than
their  carrying  amounts.  The amount of the impairment  loss  recognized is the
amount by which the carrying  amounts of the assets  exceed the  estimated  fair
values.  In order to evaluate  potential  impairment as required by Statement of
Financial  Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment
or Disposal  of  Long-Lived  Assets,"  we estimate  future cash flows based upon
assumptions for projected  future  operating  results,  projected future capital
expenditures  and other  material  factors that may affect the continuity or the
usefulness of the asset. The  determination of what constitutes an indication of
possible  impairment,  the estimation of future cash flows and the determination
of estimated fair value are all significant judgments.  There were no impairment
losses for the years ended December 31, 2003, 2004 and 2005. The carrying amount
of intangible assets at December 31, 2004 and 2005 was approximately  $2,610,000
and $2,410,000, respectively.

Inventory Reserves

     We regularly review inventory  quantities on hand and record a provision to
write down inventory to its estimated net realizable  value,  if less than cost.
This estimate is based upon  management's  assumptions of future  material usage
and obsolescence,  which are a result of future demand and market conditions. If
actual  market   conditions  become  less  favorable  than  those  projected  by
management,  additional  inventory  provisions may be required.  If inventory is
written down to its net realizable value and subsequently  there is an increased
demand for the inventory at a higher value, the increased value of the inventory
is not  realized  until the  inventory  is sold,  which will  result in improved
margins in the period in which the  product is sold.  The  inventory  reserve at
December  31,  2004  and  2005  was   approximately   $119,000   and   $182,000,
respectively.

                                       15
<PAGE>

Accrual for Product Warranties

     Accruals for estimated  expenses related to warranties are made at the time
products are sold. These accruals are established  using historical  information
on the nature,  frequency  and average cost of warranty  claims and estimates of
future costs.  Management believes the warranty accruals are adequate;  however,
actual warranty expenses could differ from estimated amounts for any significant
increase in material and workmanship  defects rates,  which in turn could have a
material  adverse  impact on our  operating  results.  The  accrual  for product
warranties at December 31, 2004 and 2005 was approximately  $28,000 and $31,000,
respectively.

     A summary of our significant  accounting  policies can be found in Notes to
Financial  Statements:   Note  1  -  Organization  and  Summary  of  Significant
Accounting Policies.

Recently Issued Accounting Pronouncements

     We  have  not  yet  adopted  the  following   recently  issued   accounting
pronouncements.

     In November 2004, the Financial  Accounting Standards Board ("FASB") issued
SFAS No. 151, "Inventory Costs--an amendment of ARB No. 43," which is the result
of its  efforts to converge  U.S.  accounting  standards  for  inventories  with
International  Accounting  Standards.   SFAS  No.  151  requires  idle  facility
expenses,  freight,  handling cost and wasted  material  (spoilage)  costs to be
recognized as current-period  charges. It also requires that allocation of fixed
production  overhead to the costs of conversion be based on the normal  capacity
of the  production  facilities.  SFAS No. 151 will be effective for us beginning
January 1, 2006.  We do not  anticipate  that the  adoption of SFAS No. 151 will
have a material impact on our financial position,  results of operations or cash
flows.

     In December 2004, the FASB issued SFAS No. 123 (Revised 2004)  "Share-Based
Payment" that prescribes the accounting for share-based payment  transactions in
which  a  company  receives   employee  services  in  exchange  for  (a)  equity
instruments of the company or (b)  liabilities  that are based on the fair value
of the company's  equity  instruments  or that may be settled by the issuance of
such  equity  instruments.  SFAS No.  123R  addresses  all forms of  share-based
payment  awards,  including  shares issued under employee stock purchase  plans,
stock options,  restricted stock and stock  appreciation  rights.  SFAS No. 123R
eliminates  the ability to account  for  share-based  compensation  transactions
using APB Opinion No. 25,  "Accounting for Stock Issued to Employees,"  that was
previously allowed under SFAS No. 123 as originally issued. Under SFAS No. 123R,
companies  are  required  to record  compensation  expense  for all share  based
payment award transactions measured at fair value. In April 2005, the Securities
and Exchange  Commission  ("SEC")  delayed the effective  date of SFAS No. 123R.
Accordingly, this statement is effective for us beginning January 1, 2006. We do
not anticipate that the adoption of SFAS No. 123R will have a material impact on
our  financial  position,  results of  operations  or cash flows as there are no
outstanding unvested options at December 31, 2005. However,  future issuance, if
any, of share-based  employee  payment awards may have a material  impact on our
future financial position, results of operations or cash flows.

     In May 2005,  the FASB issued SFAS No. 154,  "Accounting  Changes and Error
Corrections--A Replacement of APB Opinion No. 20 and FASB Statement No. 3." SFAS
No.  154  requires   retrospective   application  to  prior  periods'  financial
statements for changes in accounting  principle,  unless it is  impracticable to
determine  either the  period-specific  effects or the cumulative  effect of the
change. SFAS No. 154 also requires that retrospective application of a change in
accounting  principle be limited to the direct  effects of the change.  Indirect
effects   of  a  change   in   accounting   principle,   such  as  a  change  in
non-discretionary  profit-sharing  payments resulting from an accounting change,
should be recognized in the period of the accounting  change.  SFAS No. 154 also
requires that a change in  depreciation,  amortization,  or depletion method for
long-lived  non-financial  assets be  accounted  for as a change  in  accounting
estimate affected by a change in accounting principle. SFAS No. 154 is effective
for accounting  changes and corrections of errors made in fiscal years beginning
after  December 15, 2005.  The provisions of this statement are effective for us
beginning  January 1, 2006. We do not  anticipate  that the adoption of SFAS No.
154 will have a material impact on our financial position, results of operations
or cash flows.

                                       16
<PAGE>

Results of Operations

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

     Net  loss.  Net  loss  for the  year  ended  December  31,  2005  increased
approximately  $672,000,  or 48%,  compared to the year ended December 31, 2004.
This increase was due to increases of approximately  $449,000 in NCT Hearing and
affiliates   charges,   approximately   $234,000   in   selling,   general   and
administrative  expenses,  approximately  $101,000  in  interest  expense  - NCT
Hearing and approximately $44,000 in discontinued  operations,  partially offset
by an increase of approximately $185,000 in net sales.

     Net  sales.  Net sales  for the year  ended  December  31,  2005  increased
approximately  $185,000,  or 17%,  compared to the year ended December 31, 2004.
This increase was  primarily  due to an increase in sales to our consumer  audio
and contact center markets, partially offset by reductions in sales to our quick
service restaurant market.

     Sales from our quick  service  restaurant  market  decreased  approximately
$50,000  for the year ended  December  31,  2005  compared to 2004 due mainly to
reduced headset sales.  This decrease was due to the continuing impact of market
competition  from Far  East  headset  manufacturers  and the  implementation  of
wireless  headsets  into this market,  which  reduces the  marketability  of our
headset solutions. We expect that sales from our quick service restaurant market
will continue to decline in future periods as a result of these factors.

     Sales from our contact center market increased  approximately  $110,000 for
the year ended  December  31,  2005  compared  to 2004 due  mainly to  increased
purchases by one of our major customers. The increase was due to increased sales
of our Apollo line of products.

     Sales from our consumer  audio and safety markets  increased  approximately
$129,000 for the year ended  December 31, 2005  compared to 2004. We entered the
consumer  audio market during the three months ended  September 30, 2004 and the
safety market during the three months ended December 31, 2005.

     Cost of goods sold.  For the year ended  December 31,  2005,  cost of goods
sold increased  approximately  $44,000,  or 9%,  compared to 2004. Cost of goods
sold for the year ended December 31, 2005 included  adjustments to the inventory
reserve and the write-down of obsolete inventory of approximately  $98,000. Cost
of goods sold for the year ended  December 31, 2004 included  adjustments to the
inventory  reserve  of  approximately  $114,000.  Excluding  the impact of these
adjustments from both years, for the year ended December 31, 2005, cost of goods
sold increased  approximately  $60,000,  or 16%, compared to 2004. This increase
was due mainly to the increase in net sales.

     Gross profit percentage.  Gross profit on net sales before depreciation and
amortization,  as a  percentage  of net sales,  increased  to 57.8% for the year
ended December 31, 2005 from 54.6% for the year ended  December 31, 2004.  Gross
profit on net sales before depreciation and amortization, as a percentage of net
sales,  excluding the inventory adjustments discussed above,  increased to 65.6%
for the year ended  December 31, 2005 from 65.2% for the year ended December 31,
2004.

     Selling,  general and administrative  expenses. For the year ended December
31, 2005, selling,  general and administrative  expenses increased approximately
$234,000,  or 25%,  compared to 2004.  This increase was due mainly to increases
of: (1)  $114,000 in payroll and related  expenses  (2) $37,000 in  professional
fees and (3) $77,000 in engineering of our Apollo amplifier,  NoiseBuster safety
earmuff  and  anticipated  new  products.  The  increase  in payroll and related
expenses for year ended  December 31, 2005  primarily  resulted  from  increased
sales support of our products and the fact that for the year ended  December 31,
2004,  an officer  voluntarily  accepted a reduction in salary of  approximately
$23,000.  The majority of the increase in  professional  fees was related to our
conversion to the same  accounting  software  system as NCT, our ultimate parent
company.

     NCT Hearing and affiliates  charges.  For the year ended December 31, 2005,
NCT Hearing and affiliates  charges increased  approximately  $449,000,  or 80%,
compared to 2004.  This increase was due mainly to the additional work performed
by their (1)  engineering  staff in connection  with the  re-engineering  of our
Apollo amplifier and product  development of the NoiseBuster  safety earmuff and
(2) marketing  staff in connection  with the  continued  support  related to our
NoiseBuster line of products.

                                       17
<PAGE>

     Interest  expense.  Interest  expense  - NCT  Hearing  for the  year  ended
December 31, 2005 increased  approximately  $101,000  compared to 2004, or 131%.
The increase was due to the increased amount of outstanding notes payable to NCT
Hearing, which represent amounts owed to NCT Hearing for services provided to us
by NCT  Hearing  and its  affiliated  companies,  and the  increase in the prime
interest rate during this period.  As of December 31, 2005, the balance of these
outstanding  notes  payable,  including  interest,  was  $3,812,229  compared to
$2,207,255 as of December 31, 2004.

     Discontinued  operations.  We  disposed of our  telecommunications  systems
integration  business  division (TSI) during the fourth quarter of 2005 in order
to focus on our core products.  This disposal meets the criteria established for
recognition as discontinued  operations under SFAS No. 144,  "Accounting for the
Impairment or Disposal of Long-Lived  Assets." TSI represents a component of our
business   comprised  of   operations   and  cash  flows  that  can  be  clearly
distinguished, operationally and for financial reporting purposes, from the rest
of the  entity.  At  December  31,  2005,  TSI was  classified  as  discontinued
operations and its results of operations are separately reported for all periods
presented. Net loss from discontinued operations for the year ended December 31,
2005 increased approximately $49,000 compared to 2004, or 678%.

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

     Net  loss.  Net  loss  for the  year  ended  December  31,  2004  increased
approximately  $416,000,  or 43%,  compared to the year ended December 31, 2003.
This increase was due to an increase of approximately  $162,000 in cost of goods
sold and an increase  of  approximately  $245,000 in NCT Hearing and  affiliates
charges.

     Net  sales.  Net sales  for the year  ended  December  31,  2004  increased
approximately  $7,000, or 1%, compared to the year ended December 31, 2003. This
increase  was  primarily  due to an increase  related to our  entrance  into the
consumer  audio  market,  partially  offset by  reductions in sales to our quick
service restaurant and contact center markets.

     Sales from our quick  service  restaurant  market  decreased  approximately
$57,000  for the year ended  December  31,  2004  compared to 2003 due mainly to
reduced purchases by one of our major  distributors of quick service  restaurant
parts.  The  number  of  units  sold in the  quick  service  restaurant  market,
including both headsets and parts,  decreased to approximately  29,000 units for
the year ended  December 31, 2004 from  approximately  36,000 units during 2003.
This  decrease was  primarily the result of continued  market  competition  from
Far-East  headset   manufacturers  and  increased   industry  use  of  equipment
maintenance   support  contractors  who  provide  a  wide  range  of  restaurant
equipment,  thereby  eliminating the need for owners and franchisees to purchase
headset products from individual manufacturers.

     Sales from our contact center market  decreased  approximately  $21,000 for
the year  ended  December  31,  2004  compared  to 2003 due  mainly  to  reduced
purchases by one of our major distributors.  Telephone headset purchases by this
distributor decreased approximately $27,000 for the year ended December 31, 2004
compared to 2003.

     For the year ended December 31, 2004, we generated  sales of  approximately
$87,000 from our entrance into the consumer audio market. We entered this market
in September  2004 with the  introduction  of our  NoiseBuster  noise  canceling
headphones.

     Cost of goods sold.  For the year ended  December 31,  2004,  cost of goods
sold increased  approximately  $162,000, or 50%, compared to 2003. This increase
was due mainly to an increase of $114,000 in the inventory  reserve for the year
ended December 31, 2004 as compared to 2003. We increased our inventory  reserve
in December 2004 as part of the  implementation of our strategy to reduce future
costs by using third parties to assemble our high volume products.

     Gross profit percentage.  Gross profit on net sales before depreciation and
amortization,  as a  percentage  of net sales,  decreased  to 54.6% for the year
ended  December 31, 2004 from 69.5% for the year ended  December  31,  2003.  In
December 2004, we increased our inventory  reserve by approximately  $114,000 as
discussed  above.  Without this  increase,  the gross profit on net sales before
depreciation and amortization,  as a percentage of net sales, for the year ended
December  31, 2004 would have been  65.2%.  During the year ended  December  31,
2003, we received a $15,000 credit from a vendor. Without this credit, the gross
profit margin for the year ended December 31, 2003 would have been 68.1%.

                                       18
<PAGE>

     Selling,  general and administrative  expenses. For the year ended December
31, 2004, selling,  general and administrative  expenses decreased approximately
$5,000,  or 1%,  compared to 2003.  This  decrease was due to: (1) a decrease of
approximately  $104,000  in payroll  and  related  expenses,  (2) a decrease  of
approximately  $36,000 in insurance  expenses and  miscellaneous  fees and (3) a
decrease of approximately $32,000 in health insurance and claims expenses. These
decreases   resulted  from  our  continued  costs  savings  through  work  force
reductions  and tighter  controls over  expenditures.  Substantially  offsetting
these  decreases  were: (1) an increase of  approximately  $52,000 in consulting
expenses  related  to  investor  communications  and  public  relations;  (2) an
increase of approximately  $47,000 in professional  services and (3) an increase
of  approximately  $68,000  in  marketing  expenses  primarily  related  to  the
introduction of our NoiseBuster headphones.

     NCT Hearing and affiliates  charges.  For the year ended December 31, 2004,
NCT Hearing and affiliates  charges increased  approximately  $245,000,  or 78%,
compared to 2003.  This increase was due mainly to the additional work performed
by their  engineering  staff in connection with our next generation  NoiseBuster
headphones and our NoiseBuster safety earmuff.

     Interest  expense.  Interest  expense for the year ended  December 31, 2004
increased approximately $22,000 compared to 2003. Interest expense - NCT Hearing
comprised  $20,000  of  the  increase.   These  charges  were  incurred  on  the
outstanding  notes payable to NCT Hearing,  which represent  amounts owed to NCT
Hearing for services provided to us by NCT Hearing and its affiliated companies,
as well as cash  advances.  As of  December  31,  2004,  the  balance  of  these
outstanding  notes  payable,  including  interest,  was  $2,207,255  compared to
$1,824,520 as of December 31, 2003.

Liquidity and Capital Resources

     We have experienced net losses since our inception.  These losses have been
funded primarily from product sales, the sale of convertible preferred stock and
advances from NCT Hearing and its affiliates. During the year ended December 31,
2005,  we  funded  working  capital  requirements  with  continued  use  of  our
short-term  factoring   arrangement  and  advances  from  NCT  Hearing  and  its
affiliates.  In addition,  NCT Hearing and its  affiliates  paid expenses on our
behalf,  which were allocated  and/or  transferred to us. We continue to closely
monitor all our  expenditures.  Management  believes that  internally  generated
funds are currently  insufficient to meet our short-term and long-term operating
and  capital   requirements.   These  funds  include  available  cash  and  cash
equivalents  and  revenues  derived from sales of our  products.  Our ability to
continue as a going  concern is  substantially  dependent  upon future levels of
funding  from our revenue  sources,  which are  currently  uncertain.  If we are
unable to generate sufficient revenue to sustain our current level of operations
and to execute our business plan, we will need to obtain additional financing to
maintain our current level of operations. We are attempting to obtain additional
working capital through debt and/or equity financings.  However,  we can give no
assurance that additional  financing will be available to us on acceptable terms
or at all.  The  failure to obtain any  needed  financing  could have a material
adverse effect on us, including causing a substantial  reduction in the level of
our operations.  These reductions, in turn, could have a material adverse effect
on  our  relationships  with  our  customers  and  suppliers.   The  uncertainty
surrounding   future  levels  of  funding  from  our  revenue  sources  and  the
availability of any necessary  additional  financing raises substantial doubt at
December 31, 2005 about our ability to continue as a going concern.

     On June 1, 2005,  we  refinanced  our $23,396  outstanding  note payable to
Westek Electronics, a stockholder,  into a note payable bearing interest at 8.5%
and payable in monthly  installments  of $3,500 through  November 30, 2005, with
the  remaining  balance  maturing on December  30, 2005.  On August 1, 2005,  we
refinanced the remaining $16,704 principal amount  outstanding under the June 1,
2005 note into a note  payable  bearing  interest  at 12% and payable in monthly
installments  of $1,500 from  November  2005 through  September  2006,  with the
remaining balance maturing on October 15, 2006.

     At December 31, 2005, cash and cash equivalents were $85,223.

     The current ratio (current assets to current  liabilities) was 0.43 to 1.00
at December 31, 2005, as compared to 0.48 to 1.00 at December 31, 2004. We had a
working capital deficit of approximately  $738,000 at December 31, 2005 compared
to a deficit of  approximately  $636,000 at December  31,  2004.  This  $102,000
increase  in  working  capital  deficit  was due  mainly to an  increase  in our
accounts payable and accrued expenses of approximately $128,000.

                                       19
<PAGE>

     Cash flows used in operating  activities were approximately  $40,000 during
the year ended December 31, 2005. This use of funds was driven  primarily by the
2005  generated  net  loss  of  approximately  $2,062,000  and the  increase  of
approximately  $155,000 in accounts payable.  These uses of funds were offset by
depreciation  and  amortization   expense  of  approximately   $330,000  and  an
approximate  $1,420,000  increase in notes payable for services  received and an
increase in provision for obsolete inventories of approximately $63,000.

     The net cash provided by financing  activities  was  approximately  $84,000
during the year ended December 31, 2005, due mainly to approximately $127,000 in
net cash received from NCT Hearing and its  affiliates,  offset by payments made
on notes payable and capital lease obligations.

     We have no lines of credit with banks or other lending institutions.

Capital Expenditures

     There were no material  commitments for capital expenditures as of December
31, 2005, and no material  commitments  are  anticipated in the near future.  In
connection with the introduction of our new NoiseBuster safety earmuff,  we have
incurred  25% of the  approximate  $110,000  in  tooling  costs  and  anticipate
incurring  the  remaining  tooling  costs (for the mold needed for the  product)
payable as follows: 25% with the first commercially produced shipment of product
and the 50% remainder based upon unit  production,  not to exceed 12 months.  We
expect to  finance  these  costs  from  working  capital.  In the event that our
working  capital is not  sufficient,  we will seek  additional  funding from NCT
Hearing.

Contractual Obligations

     The impact that our  contractual  obligations  as of December  31, 2005 are
expected to have on our liquidity and cash flow in future periods is as follows:

<TABLE>
<CAPTION>
                                                              Payments due by period
                                  ------------------------------------------------------------------------------
                                                                                                      More
                                                     Less than                                       than 5
Contractual Obligations                Total          1 year         1-3 years      3-5 years         years
                                  --------------  --------------  --------------  --------------  --------------
<S>                                     <C>              <C>             <C>             <C>             <C>
Long-Term Debt                      $    15,202     $     3,202     $    12,000     $       -       $       -
Related Party Long-Term Debt          3,812,229             -         3,812,229             -               -
Capital Leases                            9,841           9,473             368             -               -
Operating Leases                        222,596          71,834          68,450          82,312             -
Purchase Obligations                     83,000          83,000             -               -               -
                                  --------------  --------------  --------------  --------------  --------------
     Total                          $ 4,142,868     $   167,509     $ 3,893,047    $     82,312     $       -
                                  ==============  ==============  ==============  ==============  ==============

</TABLE>

Off-Balance Sheet Arrangements

     As  of  December  31,  2005,  we  did  not  have  any   off-balance   sheet
arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Our primary market risk exposures  include  fluctuations in interest rates.
We are exposed to short-term  interest rate risk on certain debt obligations and
trade accounts receivable sales. We do not use derivative financial  instruments
to hedge cash flows for these obligations.  In the normal course of business, we
employ established policies and procedures to manage these risks.

     Based upon a hypothetical 10% proportionate increase in interest rates from
the average level of interest  rates during the last twelve  months,  and taking
into  consideration  commissions paid to selling agents,  growth of new business
and the expected  borrowing level of variable-rate  debt, the expected effect on
net income related to our financial instruments would be immaterial.

                                       20
<PAGE>

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The response to this item is submitted as a separate section of this Annual
Report on Form 10-K. See Item 15.

ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING
          AND FINANCIAL DISCLOSURE

     Not applicable.

ITEM 9A.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

     Our management, with the participation of our President and Chief Financial
Officer,  evaluated the effectiveness of our disclosure  controls and procedures
(as defined in Rule  13a-15(e)  under the  Securities  Exchange Act of 1934,  as
amended) as of December 31, 2005.  Based on that  evaluation,  our President and
Chief Financial Officer concluded that our disclosure controls and procedures as
of December 31, 2005 were effective in ensuring that information  required to be
disclosed by us in reports that we file or submit under the Securities  Exchange
Act of 1934, as amended, is recorded, processed,  summarized and reported within
the time  periods  specified  in the SEC's  rules and forms.  We believe  that a
control  system,  no matter  how well  designed  and  operated,  cannot  provide
absolute  assurance  that the  objectives of the control  system are met, and no
evaluation of controls can provide  absolute  assurance  that all control issues
and instances of fraud, if any, could be detected within a company.

Changes in Internal Controls

     There were no changes in our internal control over financial reporting that
occurred  during  the  quarter  ended  December  31,  2005 that have  materially
affected,  or are reasonably likely to materially  affect,  our internal control
over financial reporting.

ITEM 9B.  OTHER INFORMATION

     Not applicable.

                                       21
<PAGE>

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The  following  table sets forth  certain  information  about our executive
officers and directors as of February 28, 2006.

  Name                           Age    Position
  ----                           ---    --------

  Richard Hennessey               46    President, Chief Operating Officer
                                        and Director
  Mary Christian-Hein             44    Senior Vice President, Chief Financial
                                        Officer and Treasurer
  Irene Lebovics                  53    Chairman of the Board
  Michael J. Parrella             58    Director
  Cy E. Hammond                   51    Director
  Michael J. Palmieri             39    Secretary

     No family  relationships  exist  among  any of our  executive  officers  or
directors.

     Richard  Hennessey has served as our President and Chief Operating  Officer
since  February 1999 and as a director  since August 1998. He also served as our
Secretary from August 1998 to January 2002. Mr. Hennessey  previously  served as
our Vice  President  of  Marketing  from June 1996 to  February  1999 and as our
Director of Marketing from August 1995 to June 1996.

     Mary  Christian-Hein  has  served  as  our  Senior  Vice  President,  Chief
Financial  Officer and Treasurer  since  September  2004. She has also served as
Assistant Controller of NCT Group, our ultimate parent company,  since May 2001.
From 1991 to 2001,  Ms.  Christian-Hein  held  various  accounting  and  finance
positions  with  Warrantech  Corporation,  an  independent  provider  of service
contracts  and  after-market  warranties,  including  Director of Reporting  and
Compliance, from 1996 to 2001.

     Irene  Lebovics has served as our Chairman of the Board since November 2003
and as a director  since  September  2000.  She has also  served as NCT  Group's
President since April 2000 and as a member of its board of directors since April
2001. Ms.  Lebovics  previously  served as NCT Group's  Executive Vice President
from  February  1999 to April  2000,  its  Secretary  from  February  1999 until
September  2001, a Senior Vice  President from January 1993 to February 1999 and
as a Vice President from July 1989 to January 1993.

     Michael J. Parrella has served as a director since  September  2000. He has
also served as NCT Group's  Chief  Executive  Officer  since August 1995, as its
Chairman of the Board since April 2000 and as a member of its board of directors
since 1986. Mr. Parrella  previously served as NCT Group's President from August
1995 to April 2000, its Executive Vice President from November 1994 to July 1995
and as its President and Chief Operating  Officer from February 1988 to November
1994.

     Cy E. Hammond has served as a director  since  September  2000. He has also
served as NCT  Group's  Senior  Vice  President,  Chief  Financial  Officer  and
Treasurer  since  January 1996 and as a member of its board of  directors  since
March 2004. Mr. Hammond  previously served as a Vice President of NCT Group from
February  1994 to January  1996 and as  Controller  from January 1990 to January
1994.

     Michael J. Palmieri has served as our Secretary  since  September  2005. He
has also served as Vice  President,  General  Counsel and Secretary of NCT Group
since  September 2005 and served as Senior Counsel and Assistant  Secretary from
July 2004 to August 2005.  Prior to joining NCT Group,  Mr. Palmieri was Special
Counsel  at the law firm of  Kelley,  Drye & Warren  LLP from July 2000 to April
2003 and an Associate and later Counsel at the law firm of Shipman & Goodwin LLP
from September 1991 to July 2000.

                                       22
<PAGE>

Audit Committee Functions

     Our board of directors  does not have a standing  audit  committee  and our
board as a whole performs all audit committee functions,  including oversight of
our independent registered public accountants and oversight of our management on
matters  relating to accounting,  financial  reporting and disclosure,  internal
controls and compliance with laws,  regulations and corporate policies.  None of
the members of the board of  directors  is  "independent"  as defined  under the
rules of the Nasdaq Stock Market. The board of directors has determined that Mr.
Hammond  qualifies as an "audit  committee  financial  expert" as defined by the
SEC.

Code of Ethics

     We have  adopted  a Code of Ethics  that  applies  to our  Chief  Executive
Officer (or persons  performing  similar functions) and all senior financial and
accounting   officers,   including  our  Chief  Financial  Officer  (or  persons
performing similar functions).

Section 16(a) Beneficial Ownership Reporting Compliance

     Section 16(a) of the Securities Exchange Act of 1934, as amended,  requires
our  directors  and  executive  officers  and persons who own more than 10% of a
registered class of our equity  securities to file reports of initial  ownership
of, and transactions in, our securities with the SEC. These directors, executive
officers  and  stockholders  are also  required to furnish us with copies of all
Section  16(a) forms they file.  Based solely on a review of the copies of forms
furnished to us, and written  representations from certain reporting persons, we
believe that our  directors,  executive  officers and 10%  stockholders  met all
applicable filing requirements during the year ended December 31, 2005.

ITEM 11.  EXECUTIVE COMPENSATION

Summary Compensation Table

     Set forth below is information for the three years ended December 31, 2005,
2004 and 2003 relating to  compensation  received by our President.  None of our
other  executive  officers'  total  annual  salary and bonus for the fiscal year
ended December 31, 2005 exceeded $100,000.

<TABLE>
<CAPTION>

                                                                                      Long-Term Compensation
                                                 Annual Compensation                          Awards
                                      ----------------------------------------------  -----------------------
                                                                                            Securities
    Name and Principal                                               Other Annual           Underlying
         Position             Year      Salary ($)     Bonus ($)    Compensation ($)        Options/SARs (#)
---------------------------- ------   -------------  -------------  ----------------  -----------------------
<S>                           <C>     <C>                  <C>            <C>                 <C>
Richard Hennessey             2005    $ 150,000            -              -                   200,000

       President and Chief    2004      127,083 (a)        -              -                   200,000

       Operating Officer      2003      149,000 (b)        -              -                      -


----------
(a)  Mr. Hennessey  voluntarily  accepted a reduction in salary of approximately
     $23,000 to lessen our cash flow requirements during the first half of 2004.
(b)  Includes  $87,500  accrued  salary,  of which $75,500  remains  accrued and
     unpaid as of December 31, 2005.

</TABLE>

                                       23
<PAGE>

Option Grants in 2005

     The following  table  summarizes  options  granted to our President  during
2005.

<TABLE>
<CAPTION>

                                          Individual Grants
                      ----------------------------------------------------------
                                                                                    Potential Realized Value
                      Number of         Percent of                                      at Assumed Annual
                      Securities      Total Options                                   Rates of Stock Price
                      Underlying        Granted to      Exercise                  Appreciation for Option Term (a)
      Name             Options          Employees        Price      Expiration    --------------------------------
                       Granted           in 2005       Per Share       Date               5%             10%
-------------------   -----------     ---------------  -----------  ------------  ----------------- --------------
<S>                    <C>                <C>            <C>         <C>   <C>          <C>           <C>
Richard Hennessey      200,000            38.0%          $0.008      12/28/2012         $ 651         $ 1,518

</TABLE>

----------
(a)  The dollar amounts in these columns are the result of  calculations  of the
     exercise price at the assumed 5% and 10% rates of  appreciation  compounded
     annually through the applicable expiration dates. Actual gains realized, if
     any, on stock option  exercises and common stock  holdings are dependent on
     the future performance of our common stock and overall market conditions.

2005 Option Exercises and Year-End Option Values

     The following table sets forth  information with respect to the exercise of
options  during 2005 and the  unexercised  options  held by our  President as of
December 31, 2005.

<TABLE>
<CAPTION>

                                                              Number of Shares
                           Number of                              Underlying                   Value of Unexercised
                            Shares                          Unexercised Options at           In-the-Money Options at
                           Acquired                           December 31, 2005                December 31, 2005
                              On           Value      -------------------------------------  ----------------------------
       Name              Exercise (#)     Realized    Exercisable (#)     Unexercisable (#)   Exercisable   Unexercisable
--------------------     -------------   -----------  ---------------   -------------------  -------------  -------------
<S>                                                       <C>                                  <C>
Richard Hennessey             -               -           650,000                 -            $ 1,600            -

</TABLE>

Compensation of Directors

     No  current   member  of  our  board  of  directors   receives   additional
compensation for serving as a director.

Compensation Committee Interlocks and Insider Participation

     Our board of directors does not have a standing compensation  committee and
our board as a whole performs all compensation committee functions. During 2005,
no  executive  officer  served  on the  compensation  committee  or the board of
directors  of another  entity  whose  executive  officer  served on our board of
directors.

                                       24
<PAGE>

ITEM 12.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS

     The following table sets forth information  regarding  beneficial ownership
of our common stock as of February 28, 2006 by:

     o    each  person  known  by us to  beneficially  own  more  than 5% of our
          outstanding common stock;

     o    each of our directors, including our President; and

     o    all of our executive officers and directors as a group.

     Beneficial ownership is determined in accordance with the rules of the SEC.
These rules generally  attribute  beneficial  ownership of securities to persons
who possess  sole or shared  voting  power or  investment  power with respect to
those  securities  and include shares of common stock issuable upon the exercise
or conversion of options, warrants,  convertible preferred stock and convertible
notes that are  immediately  exercisable or  convertible  or are  exercisable or
convertible  within 60 days.  Except as otherwise  indicated,  all of the shares
reflected in the table are shares of common  stock and all persons  listed below
have sole voting and  investment  power with respect to the shares  beneficially
owned by them, subject to applicable community property laws. The information is
not necessarily indicative of beneficial ownership for any other purpose.

<TABLE>
<CAPTION>
                                                Shares of Common
                                                      Stock
                                                   Beneficially             Percent of
              Beneficial Owner                        Owned                    Class
  ------------------------------------------    ------------------          ------------
  <S>                                                <C>                          <C>
  Executive Officers and Directors:
  Richard Hennessey                                   650,000       (a)           *
  Mary Christian-Hein                                 100,000       (a)           *
  Irene Lebovics                                         -          (b)           -
  Michael J. Parrella                                    -          (b)           -
  Cy E. Hammond                                          -          (b)           -
  All Current Executive Officers and
  Directors as a Group (six persons)                  750,000       (a)           *

  5% or Greater Stockholders:
  NCT Hearing Products, Inc.                       62,769,954       (c)         83.4%
  Alpha Capital Aktiengesellschaft                 64,384,427       (d)         47.0%

* Less than one percent.

</TABLE>

----------
(a)  Consists  entirely  of shares  issuable  pursuant  to  options  that may be
     exercised within 60 days of February 28, 2006.

(b)  Ms.  Lebovics and Messrs.  Parrella and Hammond are executive  officers and
     directors  of NCT Group.  NCT Hearing is a wholly owned  subsidiary  of NCT
     Group. Ms. Lebovics and Mr. Parrella are also directors of NCT Hearing. Ms.
     Lebovics and Messrs.  Parrella and Hammond disclaim beneficial ownership of
     the shares of our common stock held by NCT Hearing.

(c)  The address of NCT Hearing Products,  Inc. is 20 Ketchum Street,  Westport,
     Connecticut 06880.

(d)  Alpha Capital  Aktiengesellschaft's  business  address is Pradafant 7, 9490
     Furstentums,  Vaduz, Lichtenstein.  Konrad Ackermann,  Director, has voting
     and  dispositive  control  of these  shares  on  behalf  of Alpha  Capital.
     Includes  61,862,385  shares  issuable upon conversion of 460 shares of our
     series B convertible  preferred stock, along with accretion.  Pursuant to a
     contractual  restriction  between  Alpha  Capital and us, Alpha  Capital is
     prohibited from beneficially  owning more than 4.99% of our common stock at
     any given time, subject to certain  exceptions.  Alpha Capital also has the
     option to exchange their shares of our series B convertible preferred stock
     into NCT Group's common stock.

                                       25
<PAGE>

Equity Compensation Plan Information

     The following  table  summarizes  certain  information  with respect to our
equity compensation plans as of December 31, 2005.

<TABLE>
<CAPTION>


                                Number of securities         Weighted-average
                                 to be issued upon           exercise price of         Number of securities
              Plan             exercise of outstanding          outstanding           remaining available for
            Category             options and rights          options and rights          future issuance
      ---------------------    -----------------------    ------------------------    -----------------------
<S>                                  <C>                          <C>                       <C>
      Equity compensation
      plans approved by
      stockholders                   2,022,000                    $0.119                    27,966,000

      Equity compensation
      plans not approved
      by stockholders                     -                           -                           -
                                  ---------------                                        ---------------

          Total                      2,022,000                    $0.119                    27,966,000
                                  ===============                                        ===============

</TABLE>

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     On February 25, 2005, we issued a $30,000  secured  promissory  note to NCT
Hearing,  bearing  interest  at the  prime  rate and due on April  1,  2007,  in
exchange for cash advanced to us by NCT Hearing.

     On March  16,  2005,  we issued a $35,000  secured  promissory  note to NCT
Hearing,  bearing  interest  at the  prime  rate and due on April  1,  2007,  in
exchange for cash advanced to us by NCT Hearing.

     On March  22,  2005,  we issued a $50,000  secured  promissory  note to NCT
Hearing,  bearing  interest  at the  prime  rate and due on April  1,  2007,  in
exchange for cash advanced to us by NCT Hearing.

     On March 31,  2005,  we issued a $263,215  secured  promissory  note to NCT
Hearing,  bearing  interest  at the  prime  rate and due on April  1,  2007,  in
exchange for services provided to us by NCT Hearing and its affiliates.

     On June 30,  2005,  we  issued  secured  promissory  notes  to NCT  Hearing
totaling  $2,083,704,  bearing  interest at the prime rate and due on October 1,
2007, in exchange for services valued at $287,074  provided to us by NCT Hearing
and its affiliates and the  consolidation of $1,796,630  outstanding  (including
accrued interest) on our notes dated June 30, 2004 and September 17, 2004.

     On September 22, 2005, we issued a $70,272  secured  promissory note to NCT
Hearing,  bearing  interest  at the prime rate and due on  October  1, 2007,  in
exchange for cash advanced to us by NCT Hearing.

     On September 30, 2005, we issued a $848,167 secured  promissory note to NCT
Hearing,  bearing  interest  at the  prime  rate and due on April  1,  2008,  in
exchange for services  valued at $367,228  provided to us by NCT Hearing and its
affiliates   during  the  three  months  ended   September   30,  2005  and  the
consolidation of $480,939 outstanding  (including accrued interest) on our notes
dated September 30, 2004 and December 31, 2004.

     On December 31, 2005, we issued a $325,146  secured  promissory note to NCT
Hearing,  bearing  interest  at the  prime  rate and due on April  1,  2008,  in
exchange for services  provided to us by NCT Hearing and its  affiliates  during
the three months ended December 31, 2005.

     During the year ended December 31, 2005, NCT Hearing advanced cash to us in
anticipation of the receipt of funds from outstanding accounts receivable. These
advances are non-interest bearing and are payable within 35 days. As of December
31,  2005,  outstanding  cash  advances  to  us  from  NCT  Hearing  under  this
arrangement  were zero.  NCT Hearing is not obligated to provide any  additional
cash advances to us.

     As of  December  31,  2005,  we owed  $3,812,229,  to NCT  Hearing for cash
advances,  research,  administrative  and  accounting  services  provided  to us
classified as notes  payable due to  affiliates,  bearing  interest at the prime
rate (7.25% at December 31, 2005), on our balance sheet.

                                       26
<PAGE>

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

Audit and Non-Audit Fees

     The following  table sets forth the aggregate  fees billed or accrued by us
for the audit and other  services  provided  by Eisner  LLP for the years  ended
December 31, 2004 and 2005.

                                       Year Ended December 31,
                                    ------------------------------
                                        2004             2005
                                    --------------   -------------
     Audit Fees (a)                   $ 65,000         $ 76,264
     Audit-Related Fees                   -                -
     Tax Fees (b)                        3,250            3,250
     All Other Fees                       -                -
                                    --------------   -------------
          Total                       $ 68,250         $ 79,514
                                    ==============   =============
----------
(a)  Represents fees billed and accrued for  professional  services  rendered in
     connection  with the annual  audit and  quarterly  review of our  financial
     statements  included  in our  annual  reports  on Form  10-K and  quarterly
     reports on Form 10-Q.
(b)  Represents fees billed for  professional  services  rendered in conjunction
     with federal and state tax return preparation and other tax matters.

Board Policy on  Pre-Approval  of Audit and  Permissible  Non-Audit  Services of
Independent Registered Public Accountants

     Our board of directors has  pre-approved  all audit  services and permitted
non-audit services provided by our independent registered public accountants and
the  compensation,  fees and  terms  for  these  services.  The  board  has also
determined not to adopt any blanket  pre-approval  policy but instead to require
that the board  pre-approve  the  compensation  and terms of  service  for audit
services  provided by our  independent  registered  public  accountants  and any
changes in terms and compensation resulting from changes in audit scope, company
structure  or  other  matters.   The  board  has  also   determined  to  require
pre-approval  by the  board of the  compensation  and terms of  service  for any
permitted  non-audit  services  provided by our  independent  registered  public
accountants.  Any proposed non-audit  services in excess of pre-approved  levels
require further  pre-approval by the board. Our Chief Financial  Officer reports
regularly  to the  board on the  services  performed  and fees  incurred  by our
independent  registered  public  accountants  for audit and permitted  non-audit
services during the prior quarter.

                                       27
<PAGE>

                                     PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)(1)    Financial Statements

The following financial statements are filed as part of this Annual Report:

<TABLE>
<CAPTION>
                                                                                                        Page
                                                                                                        ----
<S>                                                                                                        <C>
      Report of Independent Registered Public Accounting Firm                                            F-1
      Balance Sheets as of December 31, 2004 and December 31, 2005                                       F-2
      Statements of Operations for the years ended December 31, 2003, 2004 and 2005                      F-3
      Statements of Changes in Stockholders' Equity (Capital Deficit) for the years ended
           December 31, 2003, 2004 and 2005                                                              F-4
      Statements of Cash Flows for the years ended December 31, 2003, 2004 and 2005                      F-5
      Notes to the Financial Statements                                                                  F-6

</TABLE>

(a)(2)    Financial Statement Schedules

The  following  financial  statement  schedule  is filed as part of this  Annual
Report:

<TABLE>
<CAPTION>
                                                                                                        Page
                                                                                                        ----
<S>                                                                                                       <C>
      Report of Independent Registered Public Accounting Firm on Schedule II                            F-21
      Schedule II.  Valuation and Qualifying Accounts                                                   F-22

</TABLE>

All  other  financial  statement  schedules  are  omitted  because  they are not
required or the required  information  is shown in the  financial  statements or
notes thereto.

(a)(3)    Exhibits

The following  exhibits are filed herewith or are  incorporated  by reference to
exhibits previously filed with the SEC.

Exhibit
Number    Description of Exhibit

3.1(a)    Amended  and   Restated   Articles  of   Incorporation   of  Pro  Tech
          Communications,  Inc.,  dated as of August 14, 2000  (incorporated  by
          reference to Exhibit 3(a) of the registrant's Quarterly Report on Form
          10-QSB for the quarter ended July 31, 2000 (File No. 0-28602)).

3.1(b)    Articles  of  Amendment  to  Articles  of  Incorporation  of Pro  Tech
          Communications,  Inc., dated as of September 29, 2000 (incorporated by
          reference to Exhibit 3(b) of the registrant's  Registration  Statement
          on Form S-1 (Registration No. 333-49318) filed on November 3, 2000).

3.1(c)    Articles  of  Amendment  to  Articles  of  Incorporation  of Pro  Tech
          Communications,  Inc.,  dated as of July  30,  2001  (incorporated  by
          reference to Exhibit 3(a) of the registrant's Quarterly Report on Form
          10-Q for the quarter ended June 30, 2001 (File No. 0-28602)).

3.1(d)    Articles  of  Amendment  to  Articles  of  Incorporation  of Pro  Tech
          Communications,  Inc.,  dated as of August 2,  2002  (incorporated  by
          reference to Exhibit 3(a) of the  registrant's  Annual  Report on Form
          10-K for the year ended December 31, 2003 (File No. 0-28602)).

3.1(e)    Articles  of  Amendment  to  Articles  of  Incorporation  of Pro  Tech
          Communications, Inc., dated as of March 23, 2006.

3.2       Bylaws of Pro Tech Communications,  Inc. (incorporated by reference to
          Exhibit 3(c) of the  registrant's  Registration  Statement on Form S-1
          (Registration No. 333-49318) filed on November 3, 2000).

                                       28
<PAGE>

*10.1     Pro Tech  Communications,  Inc. Amended and Restated Stock Option Plan
          (incorporated  by  reference  to  Exhibit  4(c)  of  the  registrant's
          Registration  Statement on Form S-8 (Registration No. 333-49488) filed
          on November 7, 2000).

10.2(a)   License Agreement,  dated as of September 12, 2000, by and between Pro
          Tech Communications, Inc. and NCT Hearing Products, Inc. (incorporated
          by reference to Exhibit 10.2(a) of the  registrant's  Annual Report on
          Form 10-K for the year ended December 31, 2004 (File No. 0-28602)).

10.2(b)   Amendment to License  Agreement,  dated as of April 21,  2004,  by and
          between Pro Tech Communications,  Inc. and NCT Hearing Products,  Inc.
          (incorporated  by  reference  to Exhibit  10.2(b) of the  registrant's
          Annual Report on Form 10-K for the year ended  December 31, 2004 (File
          No. 0-28602).

14        Pro Tech  Communications,  Inc.  Code of Ethics for the CEO and Senior
          Financial Officers  (incorporated herein by reference to Exhibit 14 to
          the  registrant's  Annual  Report  on Form  10-K  for the  year  ended
          December 31, 2003 (File No. 0-28602)).

23.1      Consent of Eisner LLP.

31.1      Certification  of  President  pursuant  to Rule  13a-14(a)  under  the
          Securities Act of 1934.

31.2      Certification  of Chief Financial  Officer  pursuant to Rule 13a-14(a)
          under the Securities Act of 1934.

32.1      Certification  of President and Chief  Financial  Officer  pursuant to
          Rule 13a-14(b) under the Securities Act of 1934 and 18 U.S.C.  Section
          1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of
          2002.
-----------------------
* Pertains to a management contract or compensation plan or arrangement.

                                       29
<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors and Stockholders
Pro Tech Communications, Inc.

We have audited the accompanying balance sheets of Pro Tech Communications, Inc.
as of  December  31,  2004 and 2005 and the related  statements  of  operations,
changes in stockholders' equity (capital deficit) and cash flows for each of the
years ended December 31, 2003, 2004 and 2005. 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  standards  of the Public  Company
Accounting Oversight Board (United States). 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 enumerated above present fairly, in all
material respects, the financial position of Pro Tech Communications, Inc. as of
December 31, 2004 and 2005 and the results of its  operations and its cash flows
for each of the years ended December 31, 2003,  2004 and 2005 in conformity with
accounting principles generally accepted in the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
financial statements, the Company has incurred net losses since inception, has a
working capital deficit and capital deficit, and has been dependent on financing
and support from its principal stockholder,  NCT Group, Inc. These factors raise
substantial  doubt about the Company's  ability to continue as a going  concern.
Management's  plans in regard to these matters are also described in Note 1. The
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.




/s/  Eisner LLP
---------------
Eisner LLP

New York, New York
March 3, 2006

With respect to Note 18
March 23, 2006

                                       F-1
<PAGE>

<TABLE>
<CAPTION>

PRO TECH COMMUNICATIONS, INC.
BALANCE SHEETS (Notes 7 and 10)

                                                                                             December 31,
                                                                                ------------------------------------
                                                                                     2004                 2005
                                                                                ---------------      ---------------
<S>                                                                                   <C>                  <C>
ASSETS
Current assets:
     Cash and cash equivalents                                                   $     59,097         $     85,223
     Accounts receivable, less allowance for doubtful accounts
        of $28,277 and $28,245, respectively                                          137,396              200,883
     Inventories, net of reserves                                                     343,847              239,214
     Other current assets                                                              35,886               38,536
                                                                                ---------------      ---------------
                     Total current assets                                             576,226              563,856

Property and equipment, net                                                           306,398              219,987

Intangible assets, net of accumulated amortization of $375,331
     and $576,052, respectively                                                     2,610,484            2,409,763

Other assets                                                                            5,939                9,910
                                                                                ---------------      ---------------
                                                                                 $  3,499,047         $  3,203,516
                                                                                ===============      ===============
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIT)
Current liabilities:
     Accounts payable                                                            $    158,698         $    313,950
     Accrued expenses                                                                 229,145              201,560
     Current portion of capital lease obligations                                      11,492                9,473
     Due to factor and other liabilities                                               61,864              102,444
     Current portion of note payable                                                    2,646                3,202
     Note payable to stockholder                                                       39,728               14,447
     Preferred stock, subject to mandatory conversion into
        a variable number of shares of common stock (Note 9)                          709,041              656,415
                                                                                ---------------      ---------------
                     Total current liabilities                                      1,212,614            1,301,491

Note payable                                                                            1,430               12,000
Notes payable due to affiliates                                                     2,207,255            3,812,229
Capital lease obligations                                                               9,841                  368
                                                                                ---------------      ---------------

                     Total liabilities                                              3,431,140            5,126,088
                                                                                ---------------      ---------------

Commitments

Stockholders' equity (capital deficit):
     Preferred stock, $.01 par value, 1,000,000 shares authorized
          Series A convertible preferred, 4% cumulative dividend,
            stated value $1,000 per share, issued and outstanding,
            50 shares and zero shares, respectively (Note 9)
          Series B convertible preferred, 4% cumulative dividend,
            stated value $1,000 per share, issued and outstanding,
            460 shares (Note 9)                                                           -                    -
     Common stock, $.001 par value, authorized 300,000,000 shares,
          issued and outstanding 73,390,133 and 75,234,140 shares, respectively        73,390               75,234
     Additional paid-in capital                                                    19,357,332           19,426,996
     Accumulated deficit                                                          (19,362,815)         (21,424,802)
                                                                                ---------------      ---------------
                     Total stockholders' equity (capital deficit)                      67,907           (1,922,572)
                                                                                ---------------      ---------------
                                                                                 $  3,499,047          $ 3,203,516
                                                                                ===============      ===============

The accompanying notes are an integral part of the financial statements.

</TABLE>

                                       F-2
<PAGE>

<TABLE>
<CAPTION>

PRO TECH COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS



                                                                                          For the Year Ended December 31,
                                                                                ---------------------------------------------------
                                                                                     2003              2004              2005
                                                                                ---------------   ---------------   ---------------
<S>                                                                               <C>               <C>               <C>
Net sales                                                                         $  1,068,402      $  1,075,633      $  1,260,978

Costs and expenses:
     Cost of goods sold, exclusive of depreciation
           and amortization below                                                      325,943           488,031           531,728
     Selling, general and administrative expenses                                      957,440           952,073         1,185,594
     Depreciation and amortization                                                     338,071           341,650           329,861
     NCT Hearing and affiliates charges (Note 16)                                      314,207           559,470         1,008,391
     Provision for doubtful accounts                                                     6,591            14,621            15,794
                                                                                ---------------   ---------------   ---------------

     Loss before other income (expense)                                               (873,850)       (1,280,212)       (1,810,390)

Other income (expense):
     Interest income                                                                     2,931               734               -
     Interest expense                                                                  (26,353)          (18,586)          (18,480)
     Interest expense - NCT Hearing                                                    (56,455)          (76,535)         (177,040)
     Interest expense - convertible preferred stock                                    (11,089)          (20,969)          (18,882)
     Miscellaneous income, net                                                           3,352            10,396            11,401
                                                                                ---------------   ---------------   ---------------

Net loss from continuing operations                                                   (961,464)       (1,385,172)       (2,013,391)

Net loss from discontinued operations (Note 15)                                        (12,982)           (4,983)          (48,596)
                                                                                ---------------   ---------------   ---------------
Net loss                                                                              (974,446)       (1,390,155)       (2,061,987)

Adjustments attributable to preferred stock:
   Preferred stock dividend                                                             10,911               -                 -
                                                                                ---------------   ---------------   ---------------

Net loss attributable to common stockholders                                     $    (985,357)     $ (1,390,155)     $  2,061,987)
                                                                                ===============   ===============   ===============

Loss per share attributable to common stockholders:
Loss per share attributable to common stockholders
   from continuing operations                                                    $       (0.03)     $      (0.02)     $      (0.03)
Loss per share from discontinued operations                                              (0.00)            (0.00)            (0.00)
                                                                                ---------------   ---------------   ---------------
Basic and diluted                                                                $       (0.03)     $      (0.02)     $      (0.03)
                                                                                ===============   ===============   ===============

Weighted average common shares outstanding - basic and diluted                      33,200,311        62,377,398        74,779,453
                                                                                ===============   ===============   ===============

The accompanying notes are an integral part of the financial statements.

</TABLE>

                                       F-3
<PAGE>

<TABLE>
<CAPTION>

PRO TECH COMMUNICATIONS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CAPITAL DEFICIT)



                                                Series A
                                             Preferred Stock         Common Stock        Additional
                                          -------------------  -----------------------    Paid-in       Accumulated
                                           Shares     Amount      Shares      Amount      Capital         Deficit         Total
                                          --------  ---------  ------------  ---------  -------------  --------------  -------------
<S>                 <C> <C>                    <C>  <C>         <C>          <C>        <C>            <C>             <C>
Balance at December 31, 2002                   50   $ 54,521    33,200,311   $ 33,200   $ 18,451,079   $ (16,998,214)  $  1,540,586

Dividend on preferred stock                   -          991           -          -          (10,911)            -           (9,920)

Waiver of registration rights on
   series B preferred stock                   -          -             -          -          125,000             -          125,000

Accounting change for adoption of
     SFAS No. 150:        series A            (50)   (55,512)          -          -          (12,500)            -          (68,012)
                          series B            -          -             -          -         (125,000)            -         (125,000)

Net loss                                      -          -             -          -               -         (974,446)      (974,446)

                                          --------  ---------  ------------  ---------  -------------   -------------  -------------
Balance at December 31, 2003                  -     $    -      33,200,311   $ 33,200   $ 18,427,668   $ (17,972,660)  $    488,208

Issuance of common stock:
   Conversion of notes payable                -          -      27,846,351     27,846        612,620             -          640,466
   License agreement amendment                -          -       9,821,429      9,822        265,178             -          275,000
   Conversion of preferred stock              -          -       2,522,042      2,522         41,866             -           44,388

Adjustment of monetary value on
     series B preferred stock converted       -          -             -          -           10,000             -           10,000

Net loss                                      -          -             -          -              -        (1,390,155)    (1,390,155)

                                          --------  ---------  ------------  ---------  -------------  --------------  -------------
Balance at December 31, 2004                  -     $    -      73,390,133   $ 73,390   $ 19,357,332   $ (19,362,815)  $     67,907

Issuance of common stock:
   Conversion of preferred stock              -          -       1,844,007      1,844         57,164             -           59,008

Adjustment of monetary value on
     series A preferred stock converted       -          -             -          -           12,500             -           12,500

Net loss                                      -          -             -          -              -        (2,061,987)    (2,061,987)

                                          --------  ---------  ------------  ---------  -------------  --------------  -------------
Balance at December 31, 2005                  -     $    -      75,234,140   $ 75,234   $ 19,426,996   $ (21,424,802)  $ (1,922,572)
                                          ========  =========  ============  =========  =============  ==============  =============


The accompanying notes are an integral part of the financial statements.

</TABLE>

                                       F-4
<PAGE>

<TABLE>
<CAPTION>

PRO TECH COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS


                                                                                         For the Year Ended December 31,
                                                                           --------------------------------------------------------
                                                                                 2003              2004                   2005
                                                                           ----------------    ----------------    ----------------
<S>                                                                         <C>                 <C>                 <C>
Cash flows from operating activities:
     Net loss                                                               $    (974,446)      $  (1,390,155)      $  (2,061,987)
     Adjustments to reconcile net loss to net
           cash used in operating activities:
        Notes payable issued to NCT Hearing for services received                 454,104             813,678           1,419,702
        Depreciation and amortization                                             338,071             341,650             329,861
        Gain on disposal of fixed assets                                              -                   -                (6,585)
        Provision for doubtful accounts                                             4,128              (3,160)                (32)
        Provision for obsolete inventory                                           (5,000)            113,531              63,262
        Preferred stock dividends as interest                                      11,089              20,969              18,882
        Changes in operating assets and liabilities:
           Decrease (increase) in accounts receivable                              68,064             (45,467)            (63,455)
           Decrease in inventories                                                103,981              36,177              41,371
           Increase in other assets                                                (6,845)            (18,847)             (6,621)
           (Decrease) increase in accounts payable                               (195,694)            (72,584)            155,252
           (Decrease) increase in accrued expenses                                (26,779)             34,332             (27,585)
           (Decrease) increase in other liabilities                               (23,048)             (7,100)             98,427
                                                                           ----------------    ----------------    ----------------
              Net cash used in operating activities                         $    (252,375)      $    (176,976)      $     (39,508)
                                                                           ----------------    ----------------    ----------------
Cash flows from investing activities:
     Capital expenditures                                                          (4,375)             (3,766)            (38,311)
     Proceeds from sale of assets                                                     -                   -                19,768
                                                                           ----------------    ----------------    ----------------
              Net cash used in investing activities                         $      (4,375)      $      (3,766)      $     (18,543)
                                                                           ----------------    ----------------    ----------------
Cash flows from financing activities:
     Proceeds from:
        Notes payable - NCT Hearing (Note 16)                                     341,114             766,013             492,178
     Payment made on:
        Notes payable                                                             (31,752)            (38,270)            (31,756)
        Notes payable - NCT Hearing (Note 16)                                     (35,381)           (498,663)           (364,753)
        Capital lease obligations                                                  (9,662)            (10,434)            (11,492)
                                                                           ----------------    ----------------    ----------------
              Net cash provided by financing activities                     $     264,319       $     218,646       $      84,177
                                                                           ----------------    ----------------    ----------------
Net increase in cash and cash equivalents                                   $       7,569       $      37,904       $      26,126
Cash and cash equivalents - beginning of period                                    13,624              21,193              59,097
                                                                           ----------------    ----------------    ----------------
Cash and cash equivalents - end of period                                   $      21,193       $      59,097       $      85,223
                                                                           ================    ================    ================


Supplemental disclosures of cash flow information:
   Cash paid during the period for interest                                 $      25,353       $      18,198       $      19,497
                                                                           ================    ================    ================

Supplemental disclosures of non-cash investing and financing activities:
   Asset acquired with note payable                                         $         -         $         -         $      17,601
                                                                           ================    ================   =================
   Issuance of common stock upon conversion of series A and B
      preferred stock and dividends                                         $         -         $      44,388       $      59,008
                                                                           ================    ================   =================
   Issuance of common stock for payment of notes payable                    $         -         $     640,466       $         -
                                                                           ================    ================   =================
   Issuance of common stock for intangible assets                           $         -         $     275,000       $         -
                                                                           ================    ================   =================
   Adjustment of monetary value on series A and B preferred stock
     upon adoption of SFAS No. 150 and conversion                           $     137,500       $      10,000       $      12,500
                                                                           ================    ================   =================
   Principal on notes payable refinanced                                    $   1,345,810       $   1,489,641       $   2,274,590
                                                                           ================    ================   =================
   Interest on notes payable refinanced                                     $      35,900       $      61,611       $     113,352
                                                                           ================    ================   =================
   Dividends accrued on series A and series B preferred stock               $      10,911       $         -         $         -
                                                                           ================    ================   =================
   Reversal of redemption penalty on series B preferred stock               $     125,000       $         -         $         -
                                                                           ================    ================   =================
   Note receivable from director offset with note payable from stockholder  $         -         $      66,775       $         -
                                                                           ================    ================   =================

The accompanying notes are an integral part of the financial statements.

</TABLE>

                                       F-5
<PAGE>

                          PRO TECH COMMUNICATIONS, INC.
                        NOTES TO THE FINANCIAL STATEMENTS

1.   Organization and Summary of Significant Accounting Policies

     Organization

          Pro Tech  Communications,  Inc.,  herein  referred  to as "we,"  "us,"
          "our," or "Pro Tech," is  incorporated  under the laws of the State of
          Florida.  We engineer,  design and distribute audio and communications
          solutions and other products for business users,  industrial users and
          consumers. Our current products include Apollo headsets and amplifiers
          for use in contact  centers,  ProCom headsets for use in quick-service
          restaurants,  Noisebuster  noise canceling  safety earmuffs for use in
          high noise  industrial  environments  and NoiseBuster  noise canceling
          consumer audio headphones.

          In September  2000,  we became a subsidiary  of NCT Hearing  Products,
          Inc.,  herein referred to as "NCT Hearing," a wholly-owned  subsidiary
          of NCT Group,  Inc.,  herein  referred to as "NCT." As of December 31,
          2005, NCT Hearing owned  approximately 83.4% of our outstanding common
          stock.

          We have experienced recurring net losses ($21,424,802 through December
          31, 2005) since our  inception.  These losses,  which include the cost
          for development of products and an impairment charge of $11,500,000 on
          our intangible  asset,  have been funded primarily from product sales,
          the sale of common stock and convertible preferred stock, and advances
          directly and indirectly from NCT (our ultimate parent company) and its
          affiliates.

          In  addition,  we had a working  capital  deficit  of  $737,635  and a
          capital  deficit of  $1,922,572  at  December  31,  2005.  We received
          approximately  $40,000  in  advances  from  January  1,  2006  through
          February 28, 2006 from NCT Hearing to assist us in funding our working
          capital needs during 2006.  Our  management  believes that  internally
          generated funds are currently  insufficient to meet our short-term and
          long-term  operating  and capital  requirements.  These funds  include
          available  cash and cash  equivalents  and sales of our products.  Our
          ability to continue as a going concern is substantially dependent upon
          our revenue sources and future levels of funding,  which are currently
          uncertain.  If we are unable to generate sufficient revenue to sustain
          our current level of operations  and to execute our business  plan, we
          will need to obtain additional financing to maintain our current level
          of operations.  We are attempting to obtain additional working capital
          through debt and equity financings.  However, we can give no assurance
          that additional  financing will be available to us on acceptable terms
          or at all. The failure to obtain any  necessary  additional  financing
          would  have a  material  adverse  effect  on us,  including  causing a
          substantial   reduction  in  the  level  of  our   operations.   These
          reductions,  in turn,  could  have a  material  adverse  effect on our
          relationships with our customers and suppliers.

          In the event that funding from internal  sources is  insufficient,  we
          would  have to  substantially  cut back our level of  spending,  which
          would result in substantially  curtailed operations.  These reductions
          would have an adverse  effect on our  relations  with our existing and
          prospective  customers  and  suppliers.  Uncertainty  exists about the
          adequacy of current  funds to support our  activities  until  positive
          cash flow from  operations  can be achieved,  and  uncertainty  exists
          about the availability of external  financing sources to fund any cash
          deficiencies.

          The accompanying financial statements have been prepared assuming that
          we will continue as a going concern, which contemplates  continuity of
          operations,  realization of assets and  satisfaction of liabilities in
          the ordinary  course of  business.  Our ability to continue as a going
          concern is dependent  upon,  among other things,  the  achievement  of
          future  profitable  operations and the ability to generate  sufficient
          cash from  operations,  equity and/or debt financing and other funding
          sources to meet our obligations.  The  uncertainties  described in the
          preceding  paragraphs  raise  substantial  doubt at December  31, 2005
          about our  ability to continue as a going  concern.  The  accompanying
          financial  statements do not include any  adjustments  relating to the
          recoverability  and  classification of the carrying amount of recorded
          assets or the  amount and  classification  of  liabilities  that might
          result should we be unable to continue as a going concern.

                                       F-6
<PAGE>

     Cash and Cash Equivalents

          Cash and cash equivalents  include all highly liquid  investments with
          original maturities at acquisition of three months or less.

     Inventory

          We value inventory at the lower of cost (first-in,  first-out  method)
          or market. We regularly review inventory quantities on hand and record
          a provision to write down  inventory to its estimated  net  realizable
          value,  if less than cost.  This  estimate is based upon  management's
          assumptions  of future  material usage and  obsolescence,  which are a
          result of future demand and market conditions.

     Revenue and Cost Recognition

          We recognize net sales from product sales upon shipment provided title
          and risk of loss have been  transferred  to the  customer,  persuasive
          evidence of an arrangement  exists, fees are fixed or determinable and
          collection is reasonably  assured. We generally have no obligations to
          customers  after the date  that  product  is  shipped  other  than for
          warranty obligations.  Returns and customer credits are infrequent and
          recorded  as a  reduction  to sales.  Discounts  from list  prices are
          recorded as a reduction to sales at the time of sale. Generally,  each
          product,  depending on the model, is sold with a warranty ranging from
          90 days to two  years.  Accruals  for  estimated  expenses  related to
          warranties are made at the time products are sold.  These accruals are
          established using historical information on the nature,  frequency and
          average cost of warranty  claims and  estimates of future  costs.  The
          accrued  liability for warranty costs is included in accrued  expenses
          in the  balance  sheet (see Note 6).  Freight  charges  are charged to
          expense  when  incurred.  Not all  customers  are billed for  shipping
          costs;  however, the amount of shipping costs collected from customers
          is netted against our incurred freight charges. The amount of shipping
          costs netted against our incurred  freight charges for the years ended
          December 31, 2003, 2004 and 2005 was  approximately  $26,000,  $32,000
          and  $47,000,  respectively.  The net  amount of  freight  charges  is
          included  in  selling,  general  and  administrative  expenses  on our
          statements of operations.

     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  (including  assets  held  under  capital  leases).   Leasehold
          improvements are amortized over the shorter of the useful life or term
          of the lease.  Asset lives are 3-10 years for  machinery and equipment
          and 5 years for leasehold  improvements.  Repair and maintenance costs
          are charged to expense when incurred.

     Long-Lived Assets and Certain Identifiable Intangibles

          Long-lived  assets and certain  identifiable  intangibles are 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  undiscounted  future
          net cash flows expected to be generated by the asset.  If these assets
          are  considered  to be impaired,  the  impairment  to be recognized is
          measured  by the  amount by which the  carrying  amount of the  assets
          exceeds  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. Our identifiable intangible assets consist of licensed rights
          to certain technologies acquired from NCT Hearing through the issuance
          of common  stock  (see Note 5).  Amortization  is  computed  using the
          straight-line method over the estimated useful lives of the assets.

     Income Taxes

          Income taxes are accounted  for under the asset and liability  method.
          Deferred tax assets and  liabilities are recognized for the future tax
          consequences   attributable  to  differences   between  the  financial
          statement  carrying  amounts of existing  assets and  liabilities  and
          their  respective tax bases.  Deferred tax assets and  liabilities are
          measured  using enacted tax rates  expected to apply to taxable income
          (loss) in the years in

                                       F-7
<PAGE>

          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  (loss)  in the  period  that
          includes the enactment date (see Note 14).

     Advertising

          The costs of advertising, promotion and marketing programs are charged
          to  operations  in the year  incurred  and are  included  in  selling,
          general and administrative  expenses in the accompanying statements of
          operations.  Advertising costs were approximately $13,000, $43,000 and
          $26,000  for the  years  ended  December  31,  2003,  2004  and  2005,
          respectively.

     Research and Development

          Research  and  development  costs are expensed  when  incurred and are
          included in selling,  general and administrative expenses. The amounts
          charged to expense were approximately  $28,000,  $276,000 and $742,000
          for the years ended December 31, 2003, 2004 and 2005, respectively.

     Fair Value of Financial Instruments

          The  estimated  fair  value  of our  notes  payable  approximates  the
          carrying amount.  The fair values of loans to or from stockholders and
          affiliates  are not  readily  determinable  due to the  related  party
          nature of those instruments.

     Use of Estimates

          The  preparation  of  our  financial  statements  in  conformity  with
          accounting  principles  generally  accepted  in the  United  States of
          America  requires  management to make estimates and  assumptions  that
          affect the reported and/or disclosed  amounts of assets,  liabilities,
          revenues  and  expenses  and  contingent  assets and  liabilities.  In
          particular,  judgment  is  used  in  areas  such  as  determining  the
          allowance for doubtful accounts,  adjustments to inventory valuations,
          asset  impairments  and the accrual for warranty  expense.  Management
          periodically  assesses and evaluates those estimates and  assumptions.
          Actual results could differ from those estimates.

     Loss Per Common Share

          We report  loss per  common  share in  accordance  with  Statement  of
          Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share."
          The  effect  of  potential   common   shares,   such  as   convertible
          instruments, options and warrants, has not been included as the effect
          would be antidilutive. The potential common shares are as follows:

<TABLE>
<CAPTION>

                                                     December 31,
                                  --------------------------------------------------
                                       2003              2004              2005
                                  --------------    --------------    --------------
<S>                                  <C>               <C>               <C>
     Convertible preferred stock     58,169,135        10,384,654        84,596,053
     Options                          1,285,000         1,495,000         2,022,000
     Warrants                         1,000,000               -                 -
                                  --------------    --------------    --------------
                                     60,454,135        11,879,654        86,618,053
                                  ==============    ==============    ==============

</TABLE>

     Stock Based Compensation

          We have elected to apply the  disclosure-only  provisions  of SFAS No.
          123, "Accounting for Stock-Based Compensation," as amended by SFAS No.
          148,  "Accounting  for  Stock-Based   Compensation  -  Transition  and
          Disclosure,  an amendment to FASB  Statement No. 123," and continue to
          apply  Accounting  Principles Board ("APB") Opinion No. 25 and related
          interpretations  in accounting for our stock-based  compensation plans
          through December 31, 2005. Under APB No. 25, no compensation costs are
          recognized  if the option  exercise  price is equal to or greater than
          the fair  market  price of the common  stock on the date of the grant.
          Under SFAS No. 123,  stock  options are valued at grant date using the
          Black-Scholes option pricing model

                                       F-8
<PAGE>

          and compensation costs are recognized ratably over the vesting period.
          No stock-based employee compensation cost is reflected in our net loss
          attributable  to common  stockholders,  as options  granted  under our
          plans have an exercise price equal to or greater than the market value
          of the underlying  common stock on the date of grant. Had compensation
          costs been  determined  as  prescribed  by SFAS No. 123,  our net loss
          attributable to common  stockholders and net loss per share would have
          been the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                 For the year ended December 31,
                                        --------------------------------------------------
                                             2003             2004              2005
                                        --------------    --------------    --------------
<S>                                            <C>              <C>                <C>
          Net loss attributable to
            common stockholders,
            as reported                  $   (985,357)    $  (1,390,155)     $ (2,061,987)
          Stock-based employee costs
            based on fair value method         (5,022)          (11,334)           (3,545)
                                        --------------    --------------    --------------
          Net loss attributable to
            common stockholders,
            pro forma                    $   (990,379)    $  (1,401,489)     $ (2,065,532)
                                        ==============    ==============    ==============
          Loss per common share:
               As reported               $      (0.03)    $       (0.02)     $      (0.03)
                                        ==============    ==============    ==============
               Pro forma                 $      (0.03)    $       (0.02)     $      (0.03)
                                        ==============    ==============    ==============

</TABLE>

          The fair value of each option grant on the date of grant was estimated
          using the Black-Scholes option-pricing model reflecting the following:


                                               For the year ended December 31,
                                            ------------------------------------
                                                  2004               2005
                                            -----------------  -----------------
          Volatility                                  100%               100%
          Expected life of options            4 to 7 years            7 years
          Risk free interest rate                    2.16%              4.33%
          Dividend yield                                0%                 0%



          There were no options  granted  during the fiscal year ended  December
          31, 2003.  The weighted  average fair value of options  granted during
          the years  ended  December  31,  2004 and 2005 was  $0.02 and  $0.007,
          respectively.

     Concentrations of Credit Risk

          Cash and cash equivalents and trade receivables potentially subject us
          to concentration of credit risk. We maintain cash and cash equivalents
          in accounts with one financial institution in amounts which, at times,
          may be in excess of the FDIC insurance limit. We do not believe we are
          exposed  to any  significant  risk  with  respect  to  cash  and  cash
          equivalents.

          We sell  our  products  to  distributors  and  end  users  in  various
          industries.   We  regularly  assess  the   realizability  of  accounts
          receivable  and  take  into   consideration  the  value  of  past  due
          receivables  and the  collectibility  of such  receivables,  based  on
          credit  worthiness.  We do not require collateral or other security to
          support customer receivables.

          We  are  currently  outsourcing  the  majority  of  our  products  and
          components  from  several Far East and North  American  suppliers  who
          build each product or component to our specifications. An interruption
          in the  supply of a product  or  component  for which we are unable to
          readily procure a substitute source of supply could temporarily result
          in our inability to deliver products on a timely basis,  which in turn
          could  adversely  affect our  operations.  We have not experienced any
          such shortages.

                                       F-9
<PAGE>

     Significant Customers

          In each of the years ended December 31, 2003, 2004 and 2005, net sales
          derived  from  certain  customers  comprised  more than 10% of our net
          sales.  Two  customers  accounted for  approximately  29% of net sales
          generated  during the year  ended  December  31,  2003.  One  customer
          accounted  for  11% of net  sales  generated  during  the  year  ended
          December 31, 2004. Two customers  accounted for  approximately  26% of
          net sales  generated  during  the year  ended  December  31,  2005 and
          represented  approximately  48% of the gross  accounts  receivable  at
          December 31, 2005.

     Recent Accounting Pronouncements

          In November 2004, the Financial  Accounting  Standards  Board ("FASB")
          issued SFAS No. 151,  "Inventory  Costs--an  amendment of ARB No. 43,"
          which  is the  result  of its  efforts  to  converge  U.S.  accounting
          standards for inventories  with  International  Accounting  Standards.
          SFAS No. 151 requires idle facility expenses,  freight,  handling cost
          and   wasted   material   (spoilage)   costs  to  be   recognized   as
          current-period  charges.  It also  requires  that  allocation of fixed
          production  overhead to the costs of conversion be based on the normal
          capacity of the production facilities.  SFAS No. 151 will be effective
          for us  beginning  January  1,  2006.  We do not  anticipate  that the
          adoption of SFAS No. 151 will have a material  impact on our financial
          position, results of operations or cash flows.

          In  December  2004,  the FASB  issued  SFAS  No.  123  (Revised  2004)
          "Share-Based  Payment" that  prescribes the accounting for share-based
          payment  transactions in which a company receives employee services in
          exchange for (a) equity  instruments of the company or (b) liabilities
          that are based on the fair value of the company's  equity  instruments
          or that may be settled by the  issuance  of such  equity  instruments.
          SFAS No.  123R  addresses  all forms of  share-based  payment  awards,
          including  shares issued under employee stock  purchase  plans,  stock
          options, restricted stock and stock appreciation rights. SFAS No. 123R
          eliminates  the  ability  to  account  for  share-based   compensation
          transactions using APB Opinion No. 25, "Accounting for Stock Issued to
          Employees,"  that  was  previously  allowed  under  SFAS  No.  123  as
          originally  issued.  Under SFAS No.  123R,  companies  are required to
          record  compensation   expense  for  all  share  based  payment  award
          transactions measured at fair value. In April 2005, the Securities and
          Exchange  Commission  ("SEC")  delayed the effective  date of SFAS No.
          123R.  Accordingly,  this  statement  is  effective  for us  beginning
          January 1, 2006.  We do not  anticipate  that the adoption of SFAS No.
          123R will have a material impact on our financial position, results of
          operations or cash flows as there are no outstanding  unvested options
          at December 31, 2005. However, future issuance, if any, of share-based
          employee  payment  awards  may have a  material  impact on our  future
          financial position, results of operations or cash flows.

          In May 2005,  the FASB issued SFAS No.  154,  "Accounting  Changes and
          Error  Corrections--A  Replacement  of APB  Opinion  No.  20 and  FASB
          Statement No. 3." SFAS No. 154 requires  retrospective  application to
          prior  periods'   financial   statements  for  changes  in  accounting
          principle,   unless  it  is  impracticable  to  determine  either  the
          period-specific  effects or the cumulative effect of the change.  SFAS
          No. 154 also requires that  retrospective  application  of a change in
          accounting  principle be limited to the direct  effects of the change.
          Indirect effects of a change in accounting principle, such as a change
          in  non-discretionary   profit-sharing   payments  resulting  from  an
          accounting  change,   should  be  recognized  in  the  period  of  the
          accounting  change.  SFAS No.  154  also  requires  that a  change  in
          depreciation,   amortization,   or  depletion  method  for  long-lived
          non-financial  assets  be  accounted  for as a  change  in  accounting
          estimate affected by a change in accounting principle. SFAS No. 154 is
          effective for  accounting  changes and  corrections  of errors made in
          fiscal years beginning after December 15, 2005. The provisions of this
          statement are  effective  for us beginning  January 1, 2006. We do not
          anticipate  that the  adoption  of SFAS No.  154 will have a  material
          impact on our financial position, results of operations or cash flows.

                                       F-10
<PAGE>

2.   Inventory

Inventory consisted of the following:

                                                         December 31,
                                               ---------------------------------
                                                    2004               2005
                                               --------------     --------------
     Finished goods                             $    268,012       $    220,039
     Components                                      174,726            169,769
     Work in progress                                 19,640             31,199
                                               --------------     --------------
       Gross inventory                               462,378            421,007
     Less:  reserve for obsolete inventory           118,531            181,793
                                               --------------     --------------
     Total inventory                            $    343,847       $    239,214
                                               ==============     ==============

3.   Other Current Assets

Other Current Assets consisted of the following:

                                                         December 31,
                                               ---------------------------------
                                                    2004               2005
                                               --------------     --------------
     Prepaid insurance                          $     15,922       $     16,487
     Prepaid inventory purchases                       4,843              5,010
     Other                                            15,121             17,039
                                               --------------     --------------
       Total other current assets               $     35,886       $     38,536
                                               ==============     ==============

4.   Property and Equipment

The following is a summary of property and equipment:

                                                         December 31,
                                               ---------------------------------
                                                    2004               2005
                                               --------------     --------------
     Production molds                           $    454,303       $    490,934
     Office equipment                                171,582            112,659
     Production equipment                             39,140             30,940
     Leasehold improvements                          315,050            315,050
     Vehicles                                         12,414                -
     Marketing displays                               18,116             18,116
                                               --------------     --------------
                                                   1,010,605            967,699
     Less accumulated depreciation
       and amortization                              708,946            749,116
                                               --------------     --------------
                                                     301,659            218,583
                                               --------------     --------------
     Assets under capital lease:
     Cost                                             61,893             61,893
     Less accumulated amortization                    57,154             60,489
                                               --------------    ---------------
                                                       4,739              1,404
                                               --------------     --------------
     Total property and equipment, net          $    306,398       $    219,987
                                               ==============     ==============

Total  depreciation  and  amortization  expense,  with  respect to property  and
equipment, was approximately $156,000, $147,000 and $129,000 for the years ended
December  31,  2003,  2004 and 2005,  respectively.  Included in these totals is
amortization expense on assets under capital leases for the years ended December
31,  2003,  2004  and  2005  of  approximately  $19,000,   $17,000  and  $3,000,
respectively.

                                       F-11
<PAGE>

5.   Intangible Assets

On September  12,  2000,  we obtained a license for rights to  electronic  noise
canceling  and noise and echo  cancellation  technologies  from NCT  Hearing  in
consideration  of the issuance of  23,982,438  shares of our common  stock.  The
intangible  assets received in the exchange were valued at the fair value of the
shares we issued, or $16,307,492. On April 21, 2004, we obtained an expansion of
our existing  technology  license from NCT  Hearing,  in exchange for  9,821,429
shares of our common stock. The license covers over 50 patents,  patents pending
and  innovations  relating  to  electronic  noise  canceling  and noise and echo
cancellation,  and with this  expansion,  encompasses all styles of headsets (an
expansion from  lightweight,  portable styles) including  headphones,  earmuffs,
earbuds  and  earplugs,  as well as all  markets (an  expansion  from  cellular,
multimedia and telephony) including consumer audio, industrial safety, spectator
racing,  two-way radio  communications and aviation.  In addition,  the expanded
license  permits  us  to  use  NCT  Hearing's  existing  brand  names  including
NoiseBuster,  ProActive and ClearSpeech products. The intangible assets received
in the license  expansion were valued at the fair value of the shares we issued,
or $275,000 and added to the cost basis of the intangible assets included in our
balance sheet.

Intangible assets are periodically  reviewed for impairment where the fair value
is  less  than  the  carrying  value.  Amortization  expense  was  approximately
$181,000,  $195,000 and $201,000 for the years ended December 31, 2003, 2004 and
2005,  respectively.  Estimated  amortization  expense for each of the next five
years is approximately $201,000.

6.   Accrued Expenses

Accrued Expenses consisted of the following:

                                                         December, 31
                                               ---------------------------------
                                                    2004               2005
                                               --------------     --------------
     Accrued payroll and vacation               $    111,292       $     99,769
     Accrued professional services                    70,434             60,000
     Accrued warranty                                 28,044             31,161
     Other                                            19,375             10,630
                                               --------------     --------------
     Total accrued expenses                     $    229,145       $    201,560
                                               ==============     ==============

7.   Due to Factor and Other Liabilities

On March 26, 2001, we entered into a factoring  agreement.  Under this agreement
we are  required  to  factor  substantially  all of our trade  receivables  on a
non-recourse  basis in return for  immediate  cash credit  equal to 85% of these
factored  receivables,  less a factoring  fee. The  factoring fee is 1.9% of the
invoice  amount and 3.5% over the prime rate on the  amount  advanced  under the
factoring agreement. The prime rate was 7.25% at December 31, 2005. In addition,
at  December  31,  2005 we had  approximately  $18,000 in holdback at the factor
representing  15%  of the  aggregate  unpaid  gross  amount  of all  outstanding
accounts factored under this factoring agreement.  If the net amount of accounts
submitted for any one month does not exceed  $100,000,  the factor may charge an
additional  commitment  fee. As of December 31, 2005, no such fees were imposed.
Such factored  receivables  are subject to acceptance by the factor.  The factor
also has the  option to  accept  factored  receivables  with  recourse.  If such
recourse  receivables  are not paid  within 46 days,  we must buy back the total
outstanding  receivable.  Obligations  due to the  factor  under  the  factoring
agreement are  collateralized  by a continuing  security  interest in all of our
accounts receivable, notes receivable, chattel paper, documents, instruments and
general  intangibles  now existing or acquired of every kind  wherever  located,
together with merchandise  returns and goods, and all proceeds of every kind and
nature.

At December 31, 2005,  accounts  receivable  factored  under this  agreement and
still outstanding were approximately $120,000, of which,  approximately $102,000
had been received under the factoring  agreement under the recourse  provisions.
Total fees incurred under this  arrangement  amounted to  approximately  $4,000,
$2,000 and $6,000  during the years  ended  December  31,  2003,  2004 and 2005,
respectively.  Interest  expense  incurred  under this  arrangement  amounted to
approximately  $2,000,  $1,000 and $3,000  during the years ended  December  31,
2003, 2004 and 2005, respectively.

                                       F-12
<PAGE>

During the years ended December 31, 2004 and 2005, NCT Hearing  advanced cash to
us in anticipation of the receipt of funds from outstanding accounts receivable.
These advances were non-interest bearing and were payable within 35 days. During
2004 and 2005,  advances under these  short-term notes payable were $499,013 and
$377,178,  respectively  and payments were $441,166 and $364,753,  respectively,
with  $70,272  being  consolidated  into a  long-term  note  payable  due to NCT
Hearing. As of December 31, 2004 and 2005,  outstanding short-term notes payable
from NCT Hearing under this  arrangement  were  approximately  $58,000 and zero,
respectively (see Note 16).

8.   Notes Payable and Note Payable to Stockholder

On January 20, 2005, we obtained a bank loan of $17,601.  The loan, secured by a
vehicle,  provides for equal monthly payments of approximately  $358,  including
interest at 8.0%,  maturing on February 10, 2010.  As of December 31, 2005,  the
balance  outstanding was $15,202; of which $3,202 is included in current portion
of note payable and $12,000 is included in note payable on our balance sheet.

On June 1, 2005,  we  refinanced  $23,396 in principal  from a note payable to a
stockholder,  which was due to mature on June 27, 2005, into a new note. The new
note bore interest at 8.5% and provided for monthly payments  including interest
of $3,500 through November 30, 2005, with the remaining  balance due on December
30, 2005. On August 1, 2005, we  refinanced  the remaining  principal of $16,704
from the June 1, 2005 note with a modification  of terms.  The debt  instruments
were deemed not to be substantially different in accordance with Emerging Issues
Task Force Issue No. 96-19  "Debtor's  Accounting for a Modification or Exchange
of Debt  Instruments."  The new note  bears  interest  at 12% and  provides  for
monthly  payments  including  interest  of $1,500  from  November  2005  through
September  2006,  with the  remaining  balance  due on October 15,  2006.  As of
December  31,  2005,  the balance  outstanding  was $14,447 and included in note
payable to stockholder on our balance sheet.

9.   Preferred  Stock Subject to Mandatory  Conversion into a Variable Number of
     Shares

Series A Convertible Preferred Stock

As of December 31, 2005, we had 1,500 shares  designated  and zero shares issued
and outstanding of our series A convertible  preferred  stock.  Each share has a
par value of $0.01,  and a stated value of $1,000.  Our series A preferred stock
had a  cumulative  dividend of 4% per annum on the stated  value,  payable  upon
conversion or exchange in either cash or common stock at our option.  The shares
of series A preferred stock were  convertible into shares of our common stock or
exchangeable for shares of NCT common stock at the holder's  option.  Each share
of series A preferred  stock was  convertible  into our common  stock based on a
conversion price that was the lower of: the lowest average closing bid price for
a five-day  consecutive period out of fifteen trading days preceding the date of
conversion, less a discount of 20%; or a fixed price of $0.50. The exchange rate
into NCT common  stock was the lowest  average of the average  closing bid price
for a share of NCT common stock for any consecutive five trading days out of the
fifteen trading days preceding the date of conversion, less a discount of 20%.

Our series A  preferred  stock was covered  under the  adoption of SFAS No. 150,
"Accounting  for Certain  Financial  Instruments  with  Characteristics  of both
Liabilities  and Equity"  effective  July 1, 2003.  SFAS No. 150  required us to
reclassify the series A preferred stock from the stockholders' equity section to
the current  liability  section on our balance  sheet.  In connection  with this
reclassification,  we were  required  to  increase  the  value  of the  series A
preferred  stock to reflect  the  monetary  value of the shares  required  to be
issued upon conversion.  The series A preferred stock was increased $12,500 with
a corresponding decrease to additional paid-in capital.

SFAS No. 150 also  required us to record any payments or accruals of payments to
holders of such  instruments  as interest  costs.  Therefore,  effective July 1,
2003,  the  dividends  accrued to holders  of the series A  preferred  stock are
recorded as interest expense in the statement of operations; whereas, previously
they were  recorded as a  reduction  to  additional  paid-in  capital.  Interest
expense  recorded for the series A preferred  stock for the years ended December
31, 2003, 2004 and 2005 was $1,009, $2,006 and $482, respectively. The reduction
to additional  paid-in capital for the series A preferred stock,  calculated for
purposes of determining net loss attributable to common  stockholders,  was $991
for the year ended December 31, 2003.

No shares of series A preferred  stock were  converted or  exchanged  during the
years  ended  December  31,  2003 and 2004.  On March 31,  2005,  the  remaining
outstanding  50 shares of our series A preferred  stock plus  accrued  dividends
were automatically converted into 1,844,007 shares of our common stock.

                                       F-13
<PAGE>

Series B Convertible Preferred Stock

As of December 31, 2005, we had 500 shares  designated and 460 shares issued and
outstanding of our series B convertible  preferred  stock.  Each share has a par
value of $0.01 and a stated value of $1,000.  Our series B preferred stock has a
cumulative dividend of 4% per annum on the stated value, payable upon conversion
or exchange in either cash or common stock at our option. The shares of series B
preferred  stock may be  converted  into shares of our common stock or exchanged
for shares of NCT common  stock.  Each  share of stock is  convertible  into our
common  stock  based on a  conversion  price  that is the lower of:  the  lowest
average  closing  bid price for a  five-day  consecutive  period  out of fifteen
trading  days  preceding  the date of  conversion,  less a discount of 20%; or a
fixed  price of $0.25.  The  exchange  rate into NCT common  stock is the lowest
average of the average closing bid price for a share of NCT common stock for any
consecutive five trading days out of the fifteen trading days preceding the date
of  exchange,   less  a  discount  of  20%.  Any  outstanding   shares  will  be
automatically converted on March 31, 2006 (see Note 18).

Prior to April  10,  2003,  the  series B  preferred  stock  was  classified  as
temporary equity rather than stockholders' equity because under the terms of the
agreements  entered  into in  connection  with  the  issuance  of the  series  B
preferred  stock,  the holder of those shares may have had a right to require us
to redeem the shares at 125% of the stated  value,  or an  increase  of $125,000
over the  stated  value.  This type of  redemption  would not be within our sole
control,  and accordingly,  we treated the shares as temporary  equity. On April
10, 2003,  we entered  into an  agreement  with the holder of series B preferred
stock whereby the holder agreed to waive certain registration rights relating to
series B preferred stock.  This cancelled the triggering  event,  which may have
placed the redemption of series B preferred stock at the holder's  option.  With
the signing of this  agreement,  such  redemption was solely within our control.
The  increase  of $125,000  over the stated  value was  reversed  by  increasing
additional  paid-in  capital and decreasing our series B preferred stock and our
series B preferred stock was classified within the stockholders' equity (capital
deficit) section of our balance sheet.

Our series B  preferred  stock was  covered  under the  adoption of SFAS No. 150
effective  July 1, 2003.  SFAS No. 150  required us to  reclassify  our series B
preferred stock from the  stockholders'  equity section to the current liability
section on our balance sheet. In connection with this reclassification,  we were
required  to increase  the value of the series B preferred  stock to reflect the
monetary value of the shares required to be issued upon conversion. The series B
preferred  stock  was  increased  $125,000  with  a  corresponding  decrease  to
additional paid-in capital.

SFAS No. 150  required  us to record any  payments  or  accruals  of payments to
holders of such  instruments  as interest  costs.  Therefore,  effective July 1,
2003,  the dividends  accrued to the holder of the series B preferred  stock are
recorded as interest expense in the statement of operations; whereas, previously
they were  recorded as a  reduction  to  additional  paid-in  capital.  Interest
expense  recorded for the series B preferred  stock for the years ended December
31, 2003,  2004 and 2005 was $10,080,  $18,963 and  $18,400,  respectively.  The
reduction  to  additional  paid-in  capital  for the series B  preferred  stock,
calculated  for  purposes  of  determining  net  loss   attributable  to  common
stockholders, was $9,920 for the year ended December 31, 2003.

The series B preferred  stock is carried on our balance sheet as of December 31,
2005 at its monetary value of $656,415,  which is comprised of the fair value of
the shares of $575,000 plus the cash value of the accrued  dividends of $81,415.
We would have to issue  approximately 71.9 million shares of our common stock if
settlement  of the stated value of the series B preferred  stock had occurred as
of December 31, 2005. We have the option to settle the accrued dividends in cash
or common  stock.  As of December 31, 2005,  settlement  in common stock for the
accrued  dividends  on the series B preferred  stock would  require  issuance of
approximately  12.7  million  shares.  There is no limit on the number of shares
that we could be  required  to issue upon  conversion  of the series B preferred
stock. No shares of series B preferred stock were converted or exchanged  during
the years ended  December 31, 2003 and 2005.  During the year ended December 31,
2004, 40 shares of series B preferred stock and accrued dividends were converted
into 2,522,042 shares of our common stock.

                                       F-14
<PAGE>

10.  Notes Payable Due to Affiliates

As of December 31, 2004,  we owed  $2,207,255 to NCT Hearing under the following
secured promissory notes,  bearing interest at the prime rate (5.25% at December
31, 2004).

<TABLE>
<CAPTION>

Original issue date of note:    Maturing:               Principal       Interest           Total
----------------------------    ---------            --------------   ------------   ---------------
<S>    <C> <C>                          <C>           <C>              <C>            <C>
  June 30, 2004                   April 1, 2006       $  1,671,843     $   39,808     $   1,711,651
  September 17, 2004              April 1, 2006             35,000            497            35,497
  September 30, 2004              October 1, 2006          218,617          2,732           221,349
  December 31, 2004               October 1, 2006          238,758            -             238,758
                                                     --------------   ------------   ---------------
                                                      $  2,164,218     $   43,037     $   2,207,255
                                                     ==============   ============   ===============

</TABLE>

During 2005, we issued an aggregate of $3,705,504 of secured promissory notes to
NCT Hearing as  consideration  for  $115,000  of cash  advanced,  $1,242,662  of
services provided and the refinancing of $2,234,490 of principal and $113,352 of
interest for notes consolidated in advance of maturity. The notes are secured by
a continuing security interest in all of our assets and all proceeds.

As of December 31, 2005,  we owed  $3,812,229 to NCT Hearing under the following
secured promissory notes,  bearing interest at the prime rate (7.25% at December
31, 2005).

<TABLE>
<CAPTION>

Original issue date of note:    Maturing:               Principal       Interest           Total
----------------------------    ---------            --------------   ------------   ---------------
<S>        <C> <C>                    <C>             <C>              <C>            <C>
  February 25, 2005             April 1, 2007         $     30,000     $   1,650      $      31,650
  March 16, 2005                April 1, 2007               35,000         1,820             36,820
  March 22, 2005                April 1, 2007               50,000         2,552             52,552
  March 31, 2005                April 1, 2007              263,215        13,044            276,259
  June 30, 2005                 October 1, 2007          2,083,704        71,329          2,155,033
  September 22, 2005            October 1, 2007             70,272         1,347             71,619
  September 30, 2005            April 1, 2008              848,167        14,983            863,150
  December 31, 2005             April 1, 2008              325,146           -              325,146
                                                     --------------   ------------   ---------------
                                                      $  3,705,504     $ 106,725      $   3,812,229
                                                     ==============   ============   ===============

</TABLE>

11.  Capital Stock

Common Stock

For the year ended  December  31,  2003,  there were no  issuances of our common
stock.

On April 5, 2004, NCT Hearing  converted an aggregate of $640,466 of our secured
promissory notes and interest into 27,846,351 shares of our common stock.

On April 21, 2004, we obtained an expansion of our existing  technology  license
from NCT Hearing in exchange for 9,821,429  shares of our common stock (see Note
5).

On April 27,  2004,  40  shares  of our  series B  preferred  stock and  accrued
dividends were converted into 2,522,042 shares of our common stock (see Note 9).

On March 31, 2005, we issued 1,844,007 shares of our common stock upon automatic
conversion of 50 shares of our series A convertible  preferred stock and accrued
dividends (see Note 9).

The number of shares of our common  stock  required to be reserved  for issuance
was  approximately  120.5  million based on the market price of $0.008 per share
(or the discount from market as provided  under the  applicable  agreements)  at
December 31, 2005. This reserve includes amounts for the conversion of preferred
stock and for the  exercise of  options.  The number of shares to be issued upon
conversion of our outstanding preferred stock varies as a function of the market
price of our common stock.

                                       F-15
<PAGE>

Warrants

The following table summarizes  warrants to purchase our common stock during the
years  ended  December  31, 2003 and 2004.  There were no  warrants  outstanding
during the year ended December 31, 2005.

<TABLE>
<CAPTION>

                                                         Years Ended December 31,
                                       --------------------------------------------------------------
                                                   2003                            2004
                                       -----------------------------   ------------------------------
                                                        Weighted                        Weighted
                                                         Average                         Average
                                           Shares     Exercise Price      Shares       Exercise Price
                                       --------------  --------------  --------------  --------------
<S>                                        <C>         <C>                 <C>          <C>
Outstanding at beginning of year           5,500,000   $      0.433        1,000,000    $      0.130
Warrants granted                                 -              -                -               -
Warrants canceled or expired              (4,500,000)        (0.500)      (1,000,000)         (0.130)
                                       --------------                  --------------
Outstanding at end of year                 1,000,000   $      0.130              -      $        -
                                       ==============                  ==============

</TABLE>

12.  Stock Option Plans

In 1998,  our Board of  Directors  adopted  the 1998 Stock  Option  Plan for the
benefit of our directors,  officers,  employees and  consultants.  This plan, as
amended, authorizes the issuance of up to 30 million shares of our common stock.

On March 9, 2004, we issued  options to officers and employees to purchase up to
635,000 shares of our common stock at an exercise price of $0.03 per share under
the 1998  Stock  Option  Plan,  to vest as  follows:  158,750  immediately  upon
issuance;  158,750  on March 9, 2005;  158,750  on March 9, 2006 and  158,750 on
March 9, 2007 and expire on March 9, 2011.  The exercise  price of these options
was equal to the fair market  value of our common  stock on the grant  date.  On
November 23, 2004, the Board of Directors  accelerated the vesting  schedules of
options granted to directors, officers and employees dated March 9, 2004 to 100%
vested to acknowledge its continued gratitude for employee dedication.  Although
the acceleration of vesting schedules was a modification of the original grants,
there was no accounting  consequence because the market price on the date of the
modification was equal to the original exercise price of the grants. As a result
of this  acceleration,  we will not be required to  recognize an expense for the
fair  value of  unvested  options  after  adoption  of SFAS No.  123R.  Of these
options, 440,000 remain outstanding and exercisable as of December 31, 2005.

On December 28, 2005, we issued options to officers and employees to purchase up
to 527,000  shares of our common stock at an exercise  price of $0.008 per share
under the 1998 Stock Option Plan, which options vested immediately upon issuance
and expire on December 28, 2012.  The exercise  price of these options was equal
to the  fair  market  value of our  common  stock on the  grant  date.  Of these
options, all remain outstanding and exercisable as of December 31, 2005.

The following  summarizes stock option activity for the years ended December 31,
2003, 2004 and 2005:

<TABLE>
<CAPTION>

                                                                       Years Ended December 31,
                                       ----------------------------------------------------------------------------------------
                                                  2003                          2004                          2005
                                       ----------------------------  ---------------------------   ----------------------------
                                                       Weighted                      Weighted                      Weighted
                                                        Average                       Average                       Average
                                          Shares     Exercise Price    Shares      Exercise Price    Shares      Exercise Price
                                       ------------  --------------  ------------  --------------  ------------  --------------
<S>                                      <C>          <C>              <C>          <C>              <C>          <C>
Outstanding at beginning of the year     1,372,500    $      0.253     1,285,000    $      0.242     1,495,000    $      0.158
Options granted                                -               -         635,000           0.030       527,000           0.008
Options exercised                              -               -             -               -             -               -
Options expired                            (87,500)          0.402      (425,000)          0.221           -               -
                                       ------------                  ------------                  ------------
Outstanding at end of year               1,285,000    $      0.242     1,495,000    $      0.158     2,022,000    $      0.119
                                       ============                  ============                  ============
Options exercisable at end of year       1,285,000    $      0.242     1,495,000    $      0.158     2,022,000    $      0.119
                                       ============                  ============                  ============

</TABLE>

                                       F-16
<PAGE>

As of December 31, 2005,  our  outstanding  stock options have  exercise  prices
ranging from $0.008 to $0.4375 and a weighted average remaining contractual life
of  approximately  4.2 years. As of December 31, 2005,  27,966,000  options were
available for future grants under the 1998 Stock Option Plan.

13.  Commitments

Future minimum lease payments under  noncancelable  operating leases expiring in
2009 for buildings and equipment and the present value of future minimum capital
lease payments as of December 31, 2005 are as follows:

<TABLE>
<CAPTION>

     Year ending December 31                                            Capital Leases          Operating Leases
     -----------------------                                           -----------------        -----------------
<S>       <C>                                                                   <C>                     <C>
          2006                                                          $         9,992          $        71,834
          2007                                                                      373                   68,450
          2008                                                                      -                     70,504
          2009                                                                      -                     11,808
                                                                       -----------------        -----------------
     Total minimum lease payments                                                10,365          $       222,596
                                                                                                =================
     Less amount representing interest                                              524
                                                                       -----------------
     Present value of net minimum capital lease payments                          9,841
     Less current installments                                                    9,473
                                                                       -----------------
     Obligations under capital leases, excluding current installments   $           368
                                                                       =================

</TABLE>

Rent  expense was  approximately  $119,000,  $122,000 and $125,000 for the years
ended December 31, 2003, 2004 and 2005, respectively.

14.  Income Taxes

There was no provision  for income taxes for the years ended  December 31, 2003,
2004 and 2005 due to operating losses incurred.

We had net  deferred  tax  assets of  approximately  $7,341,400  and  $8,109,300
attributable to intangible  assets and net operating  losses available to offset
future federal income tax at December 31, 2004 and 2005,  respectively.  Our net
deferred tax assets have been fully reserved by a valuation  allowance since the
realization of its benefit is uncertain.  The  difference  between the statutory
federal income tax rate of 34% and our effective tax rate is due to increases in
the valuation  allowance of $364,000,  $454,400 and $767,900 for the years ended
December 31, 2003, 2004 and 2005, respectively.

At December 31, 2005, we had net operating  loss  carryforwards  for federal and
state  income  tax   purposes   amounting  to   $13,084,000   and   $13,134,000,
respectively,  which expire  through the year 2025. In accordance  with Internal
Revenue Code Section 382, our net operating  loss  carryforwards  are subject to
certain  limitations  resulting from the issuance of common stock to NCT Hearing
(see Note 5).

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-17
<PAGE>

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
our deferred tax assets and liabilities are as follows:

                                                          December 31,
                                               ---------------------------------
                                                    2004             2005
                                               ---------------  ----------------
Allowance for doubtful accounts                 $      11,000    $       11,000
Inventory reserve                                      44,800            68,500
Accrued warranty expense                               10,500            11,700
Property and equipment                                 18,000            54,000
Intangible assets                                   3,422,000         3,039,000
Net operating loss carryforwards                    3,834,000         4,924,000
Other carryforwards                                     1,100             1,100
                                               ---------------  ----------------
Total deferred tax assets                           7,341,400         8,109,300

Less valuation allowance                            7,341,400         8,109,300
                                               ---------------  ----------------
Net deferred tax asset                          $         -      $          -
                                               ===============  ================


15.  Discontinued Operations and Business Division Information

Our  business  divisions  during  2005  were:  (1)  Products  Business  and  (2)
Telecommunications  Systems Integration.  Our operations have been predominately
based in the Products  Business  division.  At December 31, 2003,  2004 and 2005
these divisions were not separately  reportable segments in accordance with SFAS
No. 131,  "Disclosures about Segments of an Enterprise and Related Information."
We  evaluate  division  performance  based on net  sales and  operating  income.
Management  does not track  division data or evaluate  division  performance  on
additional financial information.  As such, there are no separately identifiable
division assets or separately identifiable statements of income (below operating
income).  We do not track or assign  assets to  individual  business  divisions.
Likewise,  depreciation  expense and capital  additions  are also not tracked by
business division.

We disposed of our Telecommunications  Systems Integration division (TSI) during
the fourth  quarter of 2005.  This disposal meets the criteria  established  for
recognition as discontinued  operations under SFAS No. 144,  "Accounting for the
Impairment or Disposal of Long-Lived  Assets." TSI represents a component of our
business   comprised  of   operations   and  cash  flows  that  can  be  clearly
distinguished, operationally and for financial reporting purposes, from the rest
of the  entity.  At  December  31,  2005,  TSI was  classified  as  discontinued
operation and its results of operations are separately  reported for all periods
presented.  Summarized financial information for discontinued  operations is set
forth below. There are no assets held for sale at December 31, 2005.

<TABLE>
<CAPTION>

                                                       Telecom Systems Integration Division
                                               ------------------------------------------------------
                                                     2003              2004                2005
                                               ----------------   ----------------   ----------------
<S>                                             <C>                <C>                <C>
Net Sales                                       $      110,133     $      119,123     $       77,022

Cost of goods sold                                      38,470             30,309             35,155
Selling, general and administrative expenses            84,645             93,797             90,463
                                               ----------------   ----------------   ----------------
                                                       123,115            124,106            125,618

                                               ----------------   ----------------   ----------------
Loss from discontinued operations               $      (12,982)    $       (4,983)    $      (48,596)
                                               ================   ================   ================

</TABLE>

Products  Business:  Our Products  Business  engineers,  designs and distributes
audio and  communications  solutions  and other  products  for  business  users,
industrial users and consumers. Our current products include Apollo headsets and
amplifiers for use in contact centers,  ProCom headsets for use in quick-service
restaurants,  NoiseBuster  noise canceling safety earmuffs for use in high noise
industrial   environments  and  NoiseBuster   noise  canceling   consumer  audio
headphones.

                                       F-18
<PAGE>

Telecommunications  Systems Integration Business: Our Telecommunications Systems
Integration Business sold and installed simple to sophisticated analog,  digital
and  Internet  Protocol  phone  systems and provided  telecommunications  system
integration  support to the small  office and the large  corporate  call  center
clients.  We  discontinued  the operations of this business  division during the
fourth quarter of 2005.

16.  Related Party Transactions

As of December 31,  2004,  we owed  $2,265,102  to NCT  Hearing,  consisting  of
$2,207,255 in notes  payable due to affiliates  and $57,847 in due to factor and
other  liabilities  on our balance  sheet.  As of  December  31,  2005,  we owed
$3,812,229  to NCT Hearing  included in notes  payable due to  affiliates on our
balance  sheet (see Notes 7 and 10).  NCT  Hearing and its  affiliates  provided
approximately  $267,000 and $127,000 in net cash advances to us during the years
ended December 31, 2004 and 2005, respectively.

NCT  Hearing  and its  affiliates  charge us for labor  and  overhead  which are
included in NCT Hearing and affiliates  charges on our statements of operations.
These charges were allocated to us based on specific  identification and, to the
extent that such identification was not practical,  on the basis of employees or
other methods  which  management  believes to be a reasonable  reflection of the
utilization  of services  provided or the benefit  received by us. The following
table  summarizes  the  approximate  charges by NCT Hearing  and its  affiliates
during the years ended December 31, 2003, 2004 and 2005.

                                       For the Year Ended December 31,
                               -------------------------------------------------
                                   2003              2004             2005
                               --------------   --------------   ---------------

     Labor                      $    137,000     $    442,000     $     898,000
     Overhead                        177,000          117,000           110,000
                               -------------   ---------------  ----------------
                                $    314,000     $    559,000     $   1,008,000
                               =============   ===============  ================

We participate in the NCT Group, Inc. Employee Benefits Plan, referred to as the
Benefit Plan. The Benefit Plan provides,  among other  coverage,  certain health
benefits to  employees  and  directors of NCT's United  States  operations.  NCT
administers  this  modified  self-insured  Benefit  Plan  through  a  commercial
third-party administrative health care provider. NCT's maximum aggregate benefit
exposure  in each  Benefit  Plan  fiscal  year is  limited  to  $634,000,  while
individual  benefit  exposure  in each  Benefit  Plan  fiscal year is limited to
$45,000.  Benefit claims in excess of these individual or maximum aggregate stop
loss limits are covered by a commercial  insurance  provider to which NCT pays a
nominal  premium for such stop loss coverage.  NCT records benefit claim expense
in the  period  in which the  benefit  claim is  incurred.  Any  benefit  claims
incurred  by us are  submitted  to NCT for  payments  and such  claims  are then
charged  to us. At  December  31,  2004 and 2005,  the  balance  owed to NCT for
benefit  claims was  approximately  $471,000 and $510,000,  respectively  and is
included in the amount due to NCT Hearing  discussed  above. For the years ended
December  31,  2003,  2004 and 2005,  health  benefits  and claims  included  in
selling,  general and  administrative  expenses on our  statements of operations
were approximately $69,000, $32,000 and $43,000, respectively.

We participate in NCT's 401(k) Plan,  referred to as the 401(k) Plan. The 401(k)
Plan is qualified  under  Section  401(k) of the Internal  Revenue Code of 1986.
Each  eligible  employee  may elect to  contribute  up to 15% of the  employee's
annual  compensation  to the 401(k) Plan. NCT, at the discretion of its Board of
Directors,  may match employee  contributions  to the 401(k) Plan. There were no
matching contributions for the years ended December 31, 2003, 2004 and 2005.

                                       F-19
<PAGE>

17.  Selected Quarterly Financial Data (Unaudited)

The following tables contain selected quarterly  financial data for each quarter
of 2004 and 2005.  We believe  the  following  information  reflects  all normal
recurring  adjustments  necessary for a fair presentation of the information for
the periods presented. The operating results for any quarter are not necessarily
indicative of results for any future periods.

(Unaudited)

<TABLE>
<CAPTION>

                                                                    Year Ended December 31, 2004
                                            ----------------------------------------------------------------------------
                                             1st Quarter     2nd Quarter     3rd Quarter     4th Quarter     Full Year
                                            -------------  --------------  --------------  --------------  -------------
<S>                                          <C>            <C>             <C>             <C>             <C>
Net sales                                    $   232,320    $    241,673    $    285,951    $    315,689    $ 1,075,633
Gross profit                                     162,425         166,334         185,740          73,103        587,602
Loss attributable to common stockholders        (247,645)       (304,650)       (326,291)       (511,569)    (1,390,155)
Loss per share - basic and diluted *               (0.01)            -               -             (0.01)         (0.02)

                                                                    Year Ended December 31, 2005
                                            ----------------------------------------------------------------------------
                                             1st Quarter     2nd Quarter     3rd Quarter     4th Quarter     Full Year
                                            -------------  --------------  --------------  --------------  -------------

Net sales                                    $   298,191    $    288,082    $    295,201    $    379,504    $ 1,260,978
Gross profit                                     201,339         197,867         197,713         132,331        729,250
Loss attributable to common stockholders        (452,316)       (431,849)       (554,174)       (623,648)    (2,061,987)
Loss per share - basic and diluted *               (0.01)          (0.01)          (0.01)          (0.01)         (0.03)

</TABLE>

* Loss per share for each quarter is computed using the weighted-average  number
of shares  outstanding  during that quarter and loss per share for the full year
is computed using the  weighted-average  number of shares outstanding during the
year.  Therefore,  the  sum of  the  four  quarters'  loss  per  share  may  not
necessarily equal the full-year loss per share.

4th Quarter 2004:
----------------
Includes increase in inventory reserve of $114,000.


18.  Subsequent Events

On March 23,  2006,  we amended  our  articles  of  incorporation  to extend the
mandatory conversion date on our series B convertible preferred stock from March
31, 2006 to March 31, 2008.

                                       F-20
<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON SCHEDULE II


Board of Directors and Stockholders
Pro Tech Communications, Inc.

Our audits  were  conducted  for the  purpose of forming an opinion on the basic
financial  statements of Pro Tech  Communications,  Inc. as of December 31, 2004
and 2005 and for each of the years ended December 31, 2003,  2004 and 2005 taken
as a whole.  The 2003,  2004 and 2005  information  included  on  Schedule II is
presented for purposes of additional  analysis and is not a required part of the
basic financial statements.  Such information has been subjected to the auditing
procedures  applied in the audits of the basic financial  statements and, in our
opinion,  is fairly  stated in all  material  respects  in relation to the basic
financial statements taken as a whole.


/s/ Eisner LLP
--------------
    Eisner LLP


New York, New York
March 3, 2006


                                       F-21
<PAGE>




<TABLE>
<CAPTION>
                                                             SCHEDULE II

PRO TECH COMMUNICATIONS, INC.
VALUATION AND QUALIFYING ACCOUNTS
------------------------------------------------------------------------------------------------------------------------------------
              Column A                                       Column B               Column C              Column D       Column E
------------------------------------------------------------------------------------------------------------------------------------
                                                                            Charged       Charged to
                                                             Balance at     to costs        other                       Balance at
                                                             beginning        and         accounts -     Deductions -     end of
             Description                                     of period      expenses      Describe        Describe        period
-------------------------------------------                 -----------    ----------    ------------   -------------  ------------
<S>                      <C> <C>                             <C>            <C>           <C>           <C>             <C>
Allowance for doubtful accounts:
     Year ended December 31, 2003                            $  27,309      $   6,591     $     -       $   2,463 (a)   $  31,437
     Year ended December 31, 2004                               31,437         14,621           -          17,781 (a)      28,277
     Year ended December 31, 2005                               28,277         15,794           -          15,826 (a)      28,245

Allowance for inventory obsolescence:
     Year ended December 31, 2003                               10,000            -             -           5,000 (b)       5,000
     Year ended December 31, 2004                                5,000        113,531           -             -           118,531
     Year ended December 31, 2005                              118,531         63,262           -             -           181,793

Accumulated depreciation:
     Year ended December 31, 2003                              465,775        155,887           -             -           621,662
     Year ended December 31, 2004                              621,662        147,040           -           2,602 (c)     766,100
     Year ended December 31, 2005                              766,100        129,140           -          85,635 (c)     809,605

Accumulated other intangibles and other assets amortization:
     Year ended December 31, 2003                                2,048        182,184           -           3,511 (d)     180,721
     Year ended December 31, 2004                              180,721        194,610           -             -           375,331
     Year ended December 31, 2005                              375,331        200,721           -             -           576,052


Attention is directed to the foregoing report of independent registered accounting firm and the notes to our financial statements.

</TABLE>

------
(a) Accounts written off, net of recoveries.
(b) Accounts previously reserved for, written off in current year.
(c) Write off fixed asset dispositions against reserve.
(d) Write down intangibles to estimated fair value.

                                       F-22
<PAGE>

                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 23, 2006.

                                                PRO TECH COMMUNICATIONS, INC.

                                                By:      /s/ RICHARD HENNESSEY
                                                         ---------------------
                                                         Richard Hennessey
                                                         President and
                                                         Chief Operating Officer

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.

            Name                         Title                         Date
            ----                         -----                         ----

  /s/ RICHARD HENNESSEY        President, Chief Operating         March 23, 2006
  -----------------------         Officer and Director
      Richard Hennessey       (principal executive officer)


  /s/ MARY CHRISTIAN-HEIN      Senior Vice President, Chief       March 23, 2006
  -----------------------     Financial Officer and Treasurer
      Mary Christian-Hein        (principal finance and
                                   accounting officer)

  /s/ IRENE LEBOVICS               Chairman of the Board          March 23, 2006
  -----------------------
      Irene Lebovics


  /s/ MICHAEL J. PARRELLA                Director                 March 23, 2006
  -----------------------
      Michael J. Parrella


  /s/ CY E. HAMMOND                      Director                 March 23, 2006
  -----------------------
      Cy E. Hammond

                                       S-1