SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K/A

                                (AMENDMENT NO. 1)
               ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED      October 31, 2000
                               -------------------------------------------------

Commission File Number:
                       ---------------------------------------------------------

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

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

3311 Industrial 25th Street, Fort Pierce, Florida.                  34946
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(Address of principal executive offices)                          (Zip Code)

(561) 464-5100
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(Registrant's telephone number, including area code)

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

Securities registered pursuant to Section 12 (g) of the Act: Common Stock, $.001
par value.

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. /_/

The  aggregate   market  value  of  the   Registrant's   voting  stock  held  by
nonaffiliates of the Registrant was $13.0 million as of February 12, 2001.

The number of shares outstanding of the Registrant's  common stock is 29,800,391
asof February 12, 2001.

                       DOCUMENTS INCORPORATED BY REFERENCE

 Certain information contained in the Proxy Statement for the Annual Meeting of
     Stockholders of Registrant to be filed with the Securities and Exchange
          Commission on or before February 28, 2001, is incorporated by
                   reference into Part III of this Form 10-K.
<PAGE>
                                     PART I

ITEM 1. BUSINESS

A.    General Business Developments

Pro Tech  Communications,  Inc. (the "Company") was incorporated in the State of
Florida on October 5, 1994.  From  August  30,  1991 to October  31,  1994,  the
Company's  business was  conducted by Pro Tech  Systems,  a limited  partnership
organized under the laws of the State of California.  Keith Larkin, the Chairman
of the Board, Chief Executive Officer and Treasurer of the Company,  was general
partner of Pro Tech  Systems  and there were 12 limited  partners in the limited
partnership.  From the  formation  of Pro Tech Systems in August 1991 until June
1993,  the  limited  partnership  was  involved  in  engineering  and  designing
lightweight telecommunications headsets as well as preliminary marketing efforts
for the product. From June 1993 until October 1994, Pro Tech Systems was engaged
in limited  manufacturing and marketing  activities for its product. On November
1, 1994,  all of the assets of Pro Tech Systems were  transferred to the Company
as  consideration  for the issuance of 2,000,000  shares of the Company's common
stock, par value $.001 per share,  which were subsequently  distributed on a pro
rata basis to each of the partners of the  partnership.  Effective  December 13,
1994,  Pro Tech  Systems was formally  dissolved.  On  September  13, 2000,  the
Company completed a transaction  whereby it sold 23,702,750 shares of its common
stock , representing  approximately 83% of its outstanding  common stock, to NCT
Hearing Products,  Inc. ("NCT Hearing"), a wholly-owned subsidiary of NCT Group,
Inc.  ("NCT"),  in exchange for exclusive rights to certain NCT technologies for
use in lightweight cellular, multimedia and telephony headsets.

The Company presently designs,  develops,  manufactures and markets  lightweight
telecommunications  headsets.  The  Company's  headsets  employ new  concepts in
advanced  lightweight design and marketing  strategies involving the sale of the
Company's product directly to the commercial headset market as a replacement for
its competitors'  products. The Company presently sells its first design for the
commercial  headset  market  comprised  of fast food  companies  and other large
quantity  users  of  headset  systems,  and  is in  the  process  of  completing
development of several other headsets for the telephone user market,  to include
telephone  operating  companies,  government  agencies,  business  offices,  and
professional telephone centers. The Company's products include:

o     ProCom Headset
o     A-10 Amplifier (telephone)
o     Apex Headset
o     Trinity Headset
o     A-27 Amplifier

In  addition,  the  Company  will  continue  to  concentrate  its efforts on the
production of that portion of the telephone  headset that the user wears.  There
are two  components to a complete  telephone  headset.  The first is the headset
component  that the user wears,  consisting of a speaker and a  microphone.  The
second is the  electronic  amplifier  which is  relatively  more  complex,  time
consuming  and costly to produce as its requires  many  variations  to interface
with the wide variety of telephone  systems in the market and  generates  higher
labor and material costs.  The electronic  amplifier also generally offers lower
profit margins than the headset  component.  As a result,  the Company presently
has  sourced  the  first  of  several  amplifiers  engineered  to the  Company's
specifications.

The Company will also continue to concentrate  its efforts on the production and
distribution  of new headset  designs having the capability of connecting to and
interfacing with various  electronic  amplifiers and telephone systems currently
in use. The Company has adopted a co-engineering  product  development  strategy
through  the  use  of  joint   engineering   agreements   with   companies  with
complimentary  engineering patents. The Company projects that this strategy will
greatly  increase  the product  development  cycle while  offering  far superior
products to its  customers.  The Company has  continued to make  investments  in
technology  and had  incurred  development  costs with  respect  to  engineering
prototypes,  pre-production  models and field  testing of several new  products.
Management  believes that the Company's  investment in technology will result in
the improvement of the functionality, speed and cost of components and products.

B.    Industry Background

The  lightweight   telephone   headset   industry  is  highly   competitive  and
characterized by a few dominant  manufacturers.  The Company is aware of several
companies who manufacture  telephone  headsets,  each of which possesses greater
financial,  manufacturing,  marketing  and  other  resources  than the  Company.
Primary among the Company's  competitors is Plantronics,  Inc.  ("Plantronics"),
the world's largest manufacturer of lightweight telephone headsets.  Plantronics
was founded by Mr.  Larkin.  The  Company  estimates  Plantronics'  share of the
market to be approximately  46% worldwide.  Plantronics  reported net sales from
all  of  its  products  (including   electronic  amplifiers  and  other  headset
accessories  and services) were  approximately  $320 million for the fiscal year
2000. Other  competitors  include GN Netcom,  Inc. and Hello Direct. In 1997, GN
NetCom,  Inc.  purchased both UNEX Corporation and ACS Wireless in an attempt to
grow its market share through  acquisitions and recently announced the potential
acquisition of Hello Direct. ACS Wireless was founded by Mr. Larkin. The Company
believes GN Netcom, Inc. has a market share of approximately 29% worldwide.

Designed   specifically   for  air  traffic   controllers  and  other  aerospace
applications,  the first headsets were intended as a replacement  for the heavy,
bulky headsets in use. While lightweight  telephone headsets continue to be used
for  such  purposes.  Today  telephone  headsets  are  predominantly  used  as a
substitute  to telephone  handsets  used by a wide  variety of users,  including
telephone  operating  companies  and  telephone  call  centers  (such as airline
reservations,  catalog sales and credit  collection  operations) and to a lessor
extent, by business persons and other  professionals  whose occupations  require
extensive,  though  not  constant,  use  of  the  telephone.  In  comparison  to
speakerphones,  telephone  headsets provide greater  communications  clarity and
security.  The Company  believes  that these  advantages  will lead to increased
demand for telephone headsets.

Telephone  headsets also have commercial  applications,  primarily two-way radio
communication systems, such as those used by fast food attendants to communicate
with patrons and other personnel.  Personal computer  applications for telephone
headsets  include audio input and output via voice command,  voice dictation and
integrated voice telephone functions.

The Company  believes  that in selecting  telephone  headsets,  users  primarily
consider price, product quality,  reliability,  product design and features, and
warranty  terms.  The Company  believes that its headsets are superior in design
and  construction  and  substantially  lower in price than the models  currently
available from the Company's  competitors.  No assurances can be given, however,
that the  Company's  products  will be  perceived by users and  distributors  as
providing a competitive  advantage  over  competing  headsets.  In addition,  no
assurance can be given that  competing  technologies  will not become  available
which are  superior,  less costly or marketed by better known  companies.  Also,
certain  customers may prefer to do business with companies  with  substantially
greater resources than the Company.

In addition to direct  competition  from other  companies  offering  lightweight
telephone  headsets,  the Company may face indirect  competition in its industry
from  technological  advances such as interactive  voice response  systems which
require no human  operators  for certain  applications  such as account  balance
inquiries  or  airplane  flight  information.  The  Company  believes  that this
competition  will be more than offset by increased  demand for headsets as voice
telecommunication applications expand.

C.    Existing Products

The ProCom.

The Company's initial entry into the lightweight fast-food headset market is the
"ProCom." Weighing less than 2 ounces, the ProCom is worn by users over the head
by means of a springsteel  wire headband and a cushioned  earphone.  Attached to
the earphone,  which may be worn over either ear, is an adjustable  boom,  which
connects to the ProCom's microphone. The ProCom headset connects to the wireless
belt-pack  system  with the use of various  plug types  offered by the  wireless
belt-pack  providers sold in many  fast-food  franchises  around the world.  See
"BUSINESS  --  Competition."  The  Company is  presently  selling  the ProCom to
distributors  at prices  ranging  from  $20.00 to $49.00  per  headset,  and the
product is sold by the Company to retailers for $54.00 per headset.

The Freedom.

The Freedom is an  adaptation  of the ProCom  headset to allow for it to be worn
without a headband and is currently being sold in the fast-food market.  Through
the use of a Company  engineered clip, this headset attaches to the standard hat
or visor being worn in the fast-food  franchise.  The electronics in the Freedom
are  virtually  the  same  as the  ProCom  headset  providing  the  same  market
acceptance.  Through  its own  research,  the  Company  found  the need for user
comfort  from the use of  headsets  over  very long time  periods.  The  Company
introduced this product in April 1998.

The Manager's Headset.

The manager's  headset is a  lightweight  over-the-ear  fast-food  headset which
provides improved comfort to the fast-food store manager  monitoring  drive-thru
activity.  It was introduced  and favorably  received in February of this fiscal
year and the  Company  will  continue  to offer this  headset  in the  Company's
fast-food  product line for the fiscal year 2001. The Company sells this headset
in a range from $24.50 to $46.00 depending on volumes purchased.

The APEX.

The Company  introduced the APEX headset for sale in the second quarter of 1999.
After conducting its own market research, the Company determined that there is a
demand  for  a  headset  which  combines  both  over-the-head  and  over-the-ear
features.  As a result,  the Company  designed the APEX to  incorporate  both of
these features, which should enhance the Company's ability to market the product
to cellular, personal computer and small office telephone users. The Company had
offered the headset version initially,  followed by the interchangeable version.
The APEX is a commercial adaptation of the headset that the Company has designed
for use by the National  Aeronautics and Space Administration  ("NASA").  Boeing
Defense and Space Group  ("Boeing") is a prime  contractor for NASA, and as such
has the  responsibility to choose certain components and products used in NASA's
space program. The Company was chosen by The Boeing Corporation as a supplier of
telephone  headsets for NASA  projects  after the Company  provided  Boeing with
product  specifications  which met NASA's  requirements for the product.  Boeing
also  subjected the  Company's  product to various tests in order to ensure that
the product would  function under  conditions  for space travel.  See BUSINESS--
Marketing  and  Sales".  The  APEX is a  smaller  design  of the  Trinity,  with
components reduced by 20% in order to create a lightweight  headset. The speaker
and microphone  positioning  can be easily  adjusted by the user for the headset
thereby  allowing the product to fit numerous  head and ear sizes.  In addition,
the APEX has a detachable  headband allowing the users the choice of wearing the
headset over the head or over the ear. The Company  presently  sells the APEX to
distributors  at prices  ranging from $40.00 to $62.00 per headset.  The APEX is
being sold by  distributors  and directly by the Company to end-users for $99.00
per headset.

The ASTRA.

The Company introduced the Astra headset for sale in the fourth quarter of 1999.
The Astra headset is a variation of the Apex headset in that it has been adapted
for use directly in non-amplified phone systems. A preamplifier circuit has been
inserted  inside the headset to allow for a direct  connection into an automatic
call distributor (ACD) or phone system that provides this required configuration
headset.

The A-10 Amplifier.

The A-10  amplifier  is the first in a series  of  multi-line  amplifiers  being
offered with each of the Company's headsets.  It is designed for the SOHO market
(small office/home  office) and has been engineered to work with over 90% of all
existing  phone systems in the world.  The size is very small and  engineered to
plug and play with most phone systems.

The A-27 Amplifier.

The A-27 amplifier is the first in a series of amplifiers  specifically designed
for automatic control distributors (ACD) or phone systems which use the standard
PJ-237  2-prong  plug as their  interface.  This  amplifier  will  employ  noise
suppression  technology designed by the Company.  Three patent applications were
filed in fiscal year 2000. The A-27 was introduced into the  call-center  market
in the 2nd quarter of fiscal year 2000.  The  Company  presently  sells the A-27
Amplifier to distributors at prices ranging from $67.00 to $89.00 per amplifier.
The A-27 Amplifier is being sold by distributors  and directly by the Company to
end-users for $127.00 per amplifier.

The Active Series Headset.

The Active Series Headset was introduced in the 2nd quarter of fiscal year 2000.
These  headsets are designed for the mobile  headset user.  Cellular phone users
and automobile hands-free kits will be the primary market focus of this product.
The Company  presently sells the Active Series Headset to distributors at prices
ranging from $8.00 to $20.00 per  headset.  The Active  Series  headset is being
sold by  distributors  and directly by the Company to  end-users  for $25.00 per
headset.

The Trinity.

The  Trinity  has been  designed  for users in noisy  environments.  The Company
completed  the  development  of this product  early in the 2000  calendar  year.
Unlike other headsets currently available,  the Trinity will employ a light (1/2
ounce)  "acoustical  ear cup" which  completely  surrounds  the user's ear.  The
perimeter of this cup rests  lightly in a broad area of contact  around the ear,
rather than against or in the ear itself,  which the Company believes will allow
the user to wear the  Trinity in comfort  for  extended  periods.  Moreover,  by
enclosing the ear, the  acoustical  ear cup reduces  background  noise,  thereby
significantly improving the clarity and strength of reception from the earphone.
The Trinity has been designed as a comfortable  and  lightweight  alternative to
the bulky commercial sound  suppressant  headsets,  which are presently the only
headsets available to users operating in noisy office environments.  The Trinity
headset  can be worn in a single ear cup version or dual ear cup  version.  Like
the ProCom,  the Trinity will be produced  with a choice of adapters  capable of
interfacing with the electronic  amplifiers and telephone  systems of most major
manufacturers. The Company presently sells the Trinity to distributors at prices
ranging  from  $42.00 to $54.00  per  headset,  and the  product  is sold by the
Company to retailers for $118.00 per headset.

The disparity in price between the cost to  distributors  and retailers for each
product  described in this section is primarily a result of a shifting of direct
selling  expenses from the Company to  distributors.  These expenses,  averaging
approximately  $11.23 of the individual unit retail price, have been accepted by
distributors in return for a lower average  purchase  price.  The Company offers
lower prices for its products to distributors who purchase certain quantities of
products to increase sales and gain market share for the Company's products.

D.    Marketing and Sales

The  Company  presently  intends to market its  product  primarily  through  its
officers and staff,  utilizing  industry  contacts  and calling  upon  potential
purchasers.  The Company plans on  supplementing  the  marketing  efforts of its
employees by using  electronic  commerce  from the Company's web site along with
independent sales representatives and strategic marketing agreements.

The following summarizes the Company's key alliances:

--------------------------------------------------------------------------------
                              Date Initial
                              Relationship
  Key Marketing Alliances      Established           Applications
---------------------------- ----------------  ---------------------------------
McDonalds Corporation          April 1995      Aftermarket Fast Food Headsets
Hello Direct                   April 2000      Marketing Agreement
3M Corporation                 April 2000      Marketing Agreement
Muzak Corporation               July 2000      Marketing Agreement
--------------------------------------------------------------------------------

The Company  markets and will  continue to market its  headsets  directly to the
commercial  headset  market  as a  replacement  for its  competitors'  headsets.
Examples of such  purchasers  include fast food  companies and  franchisees  and
other large quantity users of commercial  headset  systems.  The Company entered
into  a  non-binding  business  relationship   agreement  with  McDonalds  Corp.
("McDonalds")  which allows the Company to sell its products on a  non-exclusive
basis to McDonalds' franchises and company-owned restaurants. Initial test sales
to McDonalds  and its  franchisees  by the Company and Pro Tech Systems  totaled
$424,300  in  1994,   which  included  sales  to  more  than  3,500   McDonalds'
restaurants.  These  numbers  increased  to more than 7,000  restaurants  during
fiscal year 1995 and to more than 11,000  restaurants  during  fiscal year 2000.
The Company's sales of headsets increased in fiscal year 2000 by 45% as a result
of an increase in unit sales through its  distribution  channels to the existing
fast-food  market along with the Company's  decision to expand its presence into
the  restaurant  market through the resale of Motorola and Kenwood  radios.  The
sale of the Company's  products to  McDonalds'-owned  restaurants and franchisee
restaurants represented approximately 12% and 14% of the Company's net sales for
the fiscal year 1999 and fiscal 2000, respectively.

As the Company  expands,  it will direct its marketing and sales efforts at: (i)
telephone  operating  companies;  (ii)  telephone  system  manufacturers;  (iii)
personal  computer  manufacturers;  and (iv) government  agencies.  In addition,
manufacturers  of new telephone  systems and other  telecommunication  equipment
that utilize  headsets have been targeted by the Company as a developing  market
for telephone  headsets.  The Company will also supplement the above  strategies
with joint ventures and marketing  agreements with companies with  complementary
technologies.  Although  the Company  presently  intends to sell its products to
several large telephone  users,  there can be no assurance that the Company will
be  successful  in such  efforts.  Other  potential  large volume  purchasers of
headsets are  manufacturers  of personal  computers,  especially  when  headsets
become a standard telephone accessory.  In addition, the Company plans to market
its products to government agencies. The Company's headset has been approved for
sale to Boeing,  a prime  contractor  of NASA,  for use by  astronauts  in space
travel.  To date,  the Company  has had $8,765 of sales to Boeing for  prototype
headsets. While profits from government contracts are anticipated to be minimal,
such sales enhance the  credibility  and reputation of the selected  headset and
its manufacturer, especially within the telephone industry.

Finally, the Company's directed marketing and sales efforts will be supplemented
by the distribution of the Company's  products through  established  channels of
distribution.  These include: (i) specialized headset distributors that derive a
majority of their revenues from the sale of headsets to both end users,  and, to
a lessor extent,  resellers;  and (ii) large  electronic  wholesalers that offer
hundreds of products,  including headsets.  It is anticipated that a majority of
sales  of the  Company's  headsets  to  commercial  users  such as  credit  card
companies and airlines will be through such distributors.

In addition to  marketing  its  technology  through its  marketing  alliances as
described  above,  as of October 31, 2000, the Company has an internal sales and
marketing  force of 5 employees,  1  independent  sales  representative  and its
executive officers and directors.

The  Company  does not have a  significant  foreign  exchange  transaction  risk
because its non-U.S. revenue is denominated and settled in U.S. dollars.

E.    Manufacturing

In fiscal  year  1999,  the  Company  made a major  shift in its  production  by
completing the transition of its final assembly  manufacturing  process to a Far
East  manufacturer.  This  transition  was  completed  on August 1,  1999.  This
decision was made as a result of major improvements in the quality of components
being  provided to the Company  from its  principal  suppliers  along with major
savings in production  costs.  The Company is currently  sourcing all components
from several Far East  suppliers who build each  component  according to Company
specifications.  However,  as a result of a rapid expansion of sales to the fast
food market, the Company was forced to expand its U.S. manufacturing  operations
to  support  the  increase  in  sales  for the  year  ended  October  31,  2000.
Consequently,  in spite of this  increase,  the Company  will adhere to its past
cost  reduction  policy  and  is in  the  process  of  expanding  its  Far  East
manufacturing  operations to support the current and projected sales volumes.  A
full migration of this  production  capacity from the Company's U.S.  operations
offshore will be completed by the second quarter of 2001. An interruption in the
supply of a  component  for which the  Company  is unable to  readily  procure a
substitute source of supply could temporarily result in the Company's  inability
to deliver products on a timely basis,  which in turn could adversely affect its
operations.  To date, the Company has not experienced any shortages of supplies.
In order to meet  forecasted  customer  requirements  the Company  has  multiple
suppliers  for every  component to reduce the risk in a disruption of the supply
chain.  At October 31, 1999 and 2000, the amount of the Company's  inventory was
$285,883  and  $558,860,  respectively.  The  increase  in  inventory  level  is
attributed  to two factors.  First,  the Company  benefited  from an  individual
headset  component price reduction for larger purchases made from its suppliers.
Second,  the Company  made  larger  purchases  of  finished  product in order to
benefit  from a  further  reduction  in costs  from the  manufacture  of  larger
quantities.

As a  result  of the  move of all  production  to the  Far  East,  all  existing
production  facilities in the principal offices in Fort Pierce,  Florida are now
being used for storing inventory, engineering, and specialty headset production.
The Company  believes  that the Fort Pierce  office  presently  does not possess
sufficient  capacity  for  these  uses and  therefore  plans to move to a 13,000
square foot facility in March 2001.  In the event that  purchase  orders were to
exceed the  capabilities  of the Fort Pierce  location or the  Company's  supply
chain from the Far East were to be  disrupted,  the  Company  would  immediately
enter  into  subcontracting  arrangements  for the  products  with  other  third
parties.  A  delay  in  establishing  such  arrangements,  if  necessary,  could
adversely affect the Company's  ability to deliver products on a timely basis to
its customers,  which in turn could adversely  affect the Company's  operations.
The Company,  however,  believes  that  subcontracting  the  manufacture  of the
Company's products could be accomplished on short notice given the simple design
of the Company's products.

F.          Concentrations of Credit Risk

The Company  sells its products and  services to  distributors  and end users in
various  industries  worldwide.  As outlined  below,  the  Company's two largest
customers  accounted for  approximately  34% of revenues  during 2000 and 21% of
gross  accounts  receivable  at October 31,  2000.  The Company does not require
collateral or other security to support customer receivables.
<PAGE>

                                         As of October 31, 2000,
                                       And for the year then ended
                                       -----------------------------
                                        Accounts          Revenue
              CUSTOMER                 Receivable
 ------------------------------------  -----------        ----------

 Muzak                                 $   57,782         $  315,159
 McDonalds                             $   32,827         $  205,167
 All Other                             $  330,763         $1,042,158
                                       -----------        ----------
                               Total   $  421,372         $1,562,484
                                       ===========        ==========

The Company regularly assesses the realizability of its accounts  receivable and
performs a detailed analysis of its aged accounts  receivable.  When quantifying
the realizability of accounts  receivable,  the Company takes into consideration
the value of past due receivables and the  collectibility  of such  receivables,
based on credit worthiness.

Financial instruments, which potentially subject the Company to concentration of
credit  risk,  consist  principally  of cash  and  cash  equivalents  and  trade
receivables.  The Company's  cash  equivalents  consist of commercial  paper and
other  investments  that are  readily  convertible  into cash and have  original
maturities of three months or less. The Company primarily maintains its cash and
cash equivalents in one bank.

G.    Competition

The  lightweight   telephone   headset   industry  is  highly   competitive  and
characterized by a few dominant  manufacturers.  The Company is aware of several
companies who manufacture  telephone  headsets,  each of which possesses greater
financial,  manufacturing,  marketing  and  other  resources  than the  Company.
Primary among the Company's  competitors  is  Plantronics,  the world's  largest
manufacturer of lightweight  telephone headsets.  Plantronics was founded by Mr.
Larkin.   The  Company   estimates   Plantronics  share  of  the  market  to  be
approximately  40%  worldwide.  Plantronics  reported  net sales from all of its
products  (including  electronic  amplifiers and other headset  accessories  and
services)  were  approximately  $320  million  for the fiscal  year 2000.  Other
competitors  include GN Netcom,  Inc. and Hello Direct. In 1997, GN NetCom, Inc.
purchased  both UNEX  Corporation  and ACS  Wireless  in an  attempt to grow its
market  share  through   acquisitions  and  recently   announced  the  potential
acquisition of Hello Direct. ACS Wireless was founded by Mr. Larkin. The Company
estimates that GN Netcom,  Inc. has  approximately  29% market share  worldwide.
These companies are well established and have substantially  greater management,
technical,  financial,  marketing  and product  development  resources  than the
Company.

The Company  believes  that in selecting  telephone  headsets,  users  primarily
consider price, product quality,  reliability,  product design and features, and
warranty  terms.  The Company  believes that its headsets are superior in design
and  construction  and  substantially  lower in price than the models  currently
available from the Company's  competitors.  No assurances can be given, however,
that the  Company's  products  will be  perceived by users and  distributors  as
providing a competitive  advantage  over  competing  headsets.  In addition,  no
assurance can be given that  competing  technologies  will not become  available
which are  superior,  less costly or marketed by better known  companies.  Also,
certain  customers may prefer to do business with companies  with  substantially
greater resources than the Company.

In addition to direct  competition  from other  companies  offering  lightweight
telephone  headsets,  the Company may face indirect  competition in its industry
from  technological  advances such as interactive  voice response  systems which
require no human  operators  for certain  applications  such as account  balance
inquiries  or  airplane  flight  information.  The  Company  believes  that this
competition  will be more than offset by increased  demand for headsets as voice
telecommunication applications expand.
<PAGE>

H.    Government Contracts

The  Company  currently  is the  contract  provider  of  headsets  to the Boeing
Corporation,   the  prime  contractor  to  NASA  (National   Aeronautical  Space
Administration),  for headsets to be used in the  international  space  station.
Government   contracts   provide  for  cancellation  at  the  government's  sole
discretion,  in which  event the  contractor  or  subcontractor  may recover its
actual costs up to the date of cancellation, plus a specified profit percentage.
Governmental  expenditures for defense are subject to the political  process and
to  rapidly  changing  world  events,  either  or both of which  may  result  in
significant reductions in such expenditures in the proximate future.  Government
contracts or contracts  with prime  government  contractors  are not viewed as a
significant part of the Company's business.

I.    Environmental Regulation Compliance

Compliance with Federal,  state and local provisions regulating the discharge of
materials into the environment,  or otherwise  relating to the protection of the
environment,  does not have any material  effect upon the capital  expenditures,
earnings or competitive position of the Company.

J.    Proprietary Protection

The  Company  does not  presently  own any  patents  for any of its  products or
technologies. In fiscal year 1999, the employment agreement of Keith Larkin, the
Company's  Chairman of the Board and Treasurer was  eliminated.  Mr. Larkin also
resigned as President of the Company but remained the Company's  Chairman of the
Board and Treasurer. Mr. Hennessey, the Company's Vice President was immediately
named as his successor as President,  Secretary and COO. Mr. Larkin's focus will
continue  to be in new product  development  and Mr.  Hennessey  now manages the
operation of the business.  The Company intends to seek patent protection on its
inventions at the appropriate time in the future.  The process of seeking patent
protection  can be lengthy and  expensive,  and there can be no  assurance  that
patents will issue from any applications filed by the Company or that any patent
issued will be of sufficient scope or strength or provide meaningful  protection
or any commercial  advantage to the Company. The Company may be subjected to, or
may initiate,  litigation or patent office interference  proceedings,  which may
require significant  financial and management  resources.  The failure to obtain
necessary  rights or the advent of  litigation  arising  out of any such  claims
could have a material adverse effect on the Company's operations.

Certain of the Company's employees involved in engineering are required to enter
into  confidentially  agreements as a condition of employment.  The Company does
not currently own any  registered  trademarks,  although the Company  intends to
file trademark applications in the future with respect to distinguishing marks.

K.    Employees

The Company  currently  has 21 full-time  employees  and 3 part-time  employees,
including 5 persons in management,  5 persons in administration and shipping,  5
persons in  marketing  and 6 persons in  assembly  and  production.  The Company
intends to hire up to 3 additional  employees within the next six months, one of
whom will work in engineering,  2 in marketing.  None of the Company's employees
are represented by a collective  bargaining  unit, and the Company believes that
its relationship with its employees is good.

L.    Business Segments

The  Company  operates  in  one  business  segment  (lightweight   headsets  for
commercial use) predominantly within one geographic area (North America).

M.    Available Information

We file  annual,  quarterly  and special  reports,  proxy  statements  and other
information with the Securities Exchange  Commission  ("SEC").  You may read and
copy any document we file at the SEC's  public  reference  rooms in  Washington,
D.C.,  New  York,  New  York,  and  Chicago,  Illinois.  Please  call the SEC at
1-800-SEC-0330  for further  information on the public  reference rooms. Our SEC
filings  are  also   available   to  the  public  from  the  SEC's   Website  at
"http://www.sec.gov."

ITEM 2.     PROPERTIES

The Company's  executive,  sales and manufacturing  offices occupy approximately
5,000 square feet of space located at 3309 and 3311 Industrial 25th Street, Fort
Pierce,  Florida 34946,  pursuant to three leases expiring on November 30, 2000.
The Company's aggregate monthly rent under all leases is $2,450. The Company has
leased its current  space on a month to month  basis  until its new  facility is
ready for occupancy.

In January 2001, the Company signed a lease for approximately 12,927 square feet
of new  office  and  production  space  in Ft.  Pierce,  Florida.  The  lease is
effective  March 1, 2001 and expires in February  2006 and  provides for monthly
rental of  approximately  $5,000  increasing  to  approximately  $8,000 over the
five-year term.

ITEM 3.     LEGAL PROCEEDINGS

The Company is not party to any legal proceeding.

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

An annual meeting of stockholders of the Company was held on August 11, 2000. At
the meeting, Keith Larkin and Richard Hennessey were elected directors,  each to
serve until the next annual meeting of  stockholders  and until his successor is
elected and qualified.  The  stockholders  also (1) approved an amendment of the
Company's Restated Certificate of Incorporation to increase the number of shares
of common stock  authorized  thereunder  from  10,000,000  shares to  40,000,000
shares and (2) approved the amendment to the Company's 1998 Stock Incentive Plan
to increase the aggregate number of shares of the Company's  reserved for awards
of restricted  stock and for issuance upon the exercise of stock options granted
under the 1998 Plan from 500,000 shares to 2,000,000  shares.  The vote taken at
such meeting was as follows:

(a)  With respect to the election of the directors:

                               FOR         WITHHELD
      Larkin               3,780,388       223,500
      Hennessey            3,780,388       223,500

(b)  With  respect to the  proposal to approve the  amendment  of the  Company's
     Restated  Certificate of  Incorporation to increase the number of shares of
     common stock authorized thereunder from 10,000,000 to 40,000,000 shares:

                                            ABSTENTIONS AND
           FOR              AGAINST        BROKER NON-VOTES
         2,203,576          604,250             6,600

(c)  With respect to the proposal to approve the amendment to the Company's 1998
     Stock  Incentive  Plan to increase  the  aggregate  number of shares of the
     Company's reserved for awards of restricted stock and for the issuance upon
     the exercise of stock options under the 1998 Plan from 500,000 to 2,000,000
     shares:

                                              ABSTENTIONS AND
           FOR             AGAINST            BROKER NON-VOTES
        2,205,362          623,250                 7,100

<PAGE>
                                     PART II

ITEM 5.     MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
            MATTERS

The common stock began trading on the NASD OTC Bulletin Board on March 22, 1996.
The  Company's  stock is currently  being traded  under the symbol  "PCTU".  The
following  table  sets forth the  average  high and low bid prices of the common
stock as  reported  by the  NASD's  OTC  Bulletin  Board for each of the  fiscal
quarters  during the Company's  last two fiscal years and the interim  period of
the current  fiscal year. The market  quotations  reflect  inter-dealer  prices,
without retail  mark-up,  markdown,  or commission and may not represent  actual
transactions.


              Year ended October 31, 1998     High       Low
              ------------------------------- --------- --------
                First Quarter                 $ 4.49    $ 4.20
                Second Quarter                $ 2.86    $ 2.60
                Third Quarter                 $ 0.97    $ 0.94
                Fourth Quarter                $ 0.36    $ 0.26



             Year ended October 31, 1999       High      Low
             --------------------------------  -------- --------
               First Quarter                   $ 0.50   $ 0.38
               Second Quarter                  $ 0.38   $ 0.27
               Third Quarter                   $ 0.50   $ 0.31
               Fourth Quarter                  $ 0.50   $ 0.19


             Year ended October 31, 2000       High      Low
             --------------------------------  -------- --------
               First Quarter                   $0.310   $0.299
               Second Quarter                  $0.880   $0.788
               Third Quarter                   $0.670   $0.625
               Fourth Quarter                  $1.062   $0.625

On February 12, 2001,  the last reported  sale of the Company's  common stock as
reported by the NASD OTC Bulletin  Board was  $0..437.  As of February 12, 2001,
there were approximately 44 record holders of the common stock.

The Company has neither  declared nor paid any dividends on its shares of common
stock since its incorporation in October 1994 and does not anticipate  declaring
a cash dividend in the reasonably  foreseeable  future.  Any decisions as to the
future payment of dividends  will depend on the earnings and financial  position
of the Company and such other factors as the Board of Directors  deems relevant.
The  Company  anticipates  that it will  retain  earnings,  if any,  in order to
finance expansion of its operations.

See Item 7 -  "Management's  Discussion and Analysis of Financial  Condition and
Results of Operations - Overview" for a  description  of the Company's  sales of
unregistered securities during the year ended October 31, 2000.

<PAGE>

ITEM 6.     SELECTED FINANCIAL DATA.

The  selected  consolidated  financial  data set forth below is derived from the
historical  financial  statements  of the  Company.  The data set forth below is
qualified  in its  entirety by and should be read in  conjunction  with Item 8 -
"Financial  Statements"  and Item 7  -"Management's  Discussion  and Analysis of
Financial  Condition and Results of Operations"  that are included  elsewhere in
this document.
<TABLE>
<CAPTION>

                                                             Years Ended October 31,
                                         ---------------------------------------------------------------
                                            1996         1997        1998        1999         2000
                                         -----------  ---------  ------------  -----------  ------------
STATEMENTS OF OPERATIONS DATA:
<S>                                        <C>         <C>        <C>          <C>          <C>
 Net sales                                 852,778     996,993    $1,142,482   $1,091,551   $ 1,562,484

Cost of goods sold                         281,682     333,755       470,450      414,931       623,555
                                         -----------  ---------  ------------  -----------  ------------

   Gross profit                            571,096     663,238       672,032      675,620       938,929

Selling, general and administrative        513,398     698,785       882,385      893,384     1,275,290
Provision for doubtful accounts             (8,661)      3,924        38,835        3,771         7,990
                                         -----------  ---------  ------------  -----------  ------------
Income (loss) from operations               66,359     (39,471)     (249,188)    (221,535)     (344,351)

Other income (expense):
Interest income (expense), net              13,800      28,688        24,719        9,181       (31,715)

Miscellaneous income                           107          58            89          697         1,726
Loss on disposal of fixed assets                 -      (1,116)            -         (964)            -
Form 10-SB filing costs                    (79,072)
                                         -----------  ---------  ------------  -----------  ------------
  Income (loss) before income taxes          1,194     (11,841)     (224,380)    (221,065)     (374,340)
                                         -----------  ---------  ------------  -----------  ------------
Income tax expense (benefit)                 1,715         400          (964)           -             -
                                         -----------  ---------  ------------  -----------  ------------
 Net loss                                     (521)    (12,241)   $ (223,416)  $ (221,065)  $  (374,340)

Less:
Preferred stock beneficial conversion            -           -             -            -     3,569,000
Preferred stock dividend requirement             -           -             -            -       375,000
Accretion of difference between carrying         -           -             -            -         5,425
                                         -----------  ---------  ------------  -----------  ------------
Net (loss) attributable to
  common stockholders                         (521)    (12,241)   $ (223,416)  $ (221,065)  $(4,323,765)
                                         ===========  =========  ============  ===========  ============
 Basic and Diluted Net loss per share        (0.00)      (0.00)   $    (0.05)  $    (0.05)  $     (0.57)
                                         ===========  =========  ============  ===========  ============
 Weighted average number of common
   Shares outstanding(1)                 3,414,000   4,122,795     4,254,000    4,254,000     7,537,855
                                         ===========  =========  ============  ===========  ============
</TABLE>
<TABLE>
<CAPTION>
                                          ------------------------------------------------------------
                                                                   October 31,
                                              1996        1997       1998        1999       2000
                                          -----------  ----------  ----------  ---------  ------------
BALANCE SHEET DATA:
<S>                                        <C>         <C>         <C>         <C>        <C>
 Total assets                              $1,110,508  $1,239,143  $1,158,898  $ 945,377  $18,652,665

 Total current liabilities                     99,153      81,764     209,845    209,300      662,956

 Long-term debt                                     -           -           -      8,089        3,687
 Retained earnings (Accumulated deficit)       43,438      31,197    (192,219)  (413,284)    (787,624)

 Stockholders' equity(2)                    1,011,355   1,157,469     949,053    727,988   17,986,022

 Working capital                              878,109     996,458     724,769    494,148    1,419,819
</TABLE>

(1)Excludes  shares  issuable upon the exercise of  outstanding  stock  options,
   warrants  and  convertible  preferred  stock,  since  their  effect  would be
   antidilutive.

(2) The Company has never declared nor paid cash dividends on its common stock.

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

The  following  discussion  should  be read in  conjunction  with the  financial
statements and the notes thereto included herein.

A.    Forward-Looking Statements

Statements in this Annual Report on Form 10-K which are not historical facts are
forward-looking statements which involve risks and uncertainties.  The Company's
actual  results  in fiscal  2001 and beyond  may  differ  materially  from those
expressed  in any  forward-looking  statements  made by,  or on behalf  of,  the
Company.  Important factors that could cause actual results to differ materially
include but are not limited to the Company's ability to: achieve  profitability;
achieve a competitive position in design, development, licensing, production and
distribution of technologies  and electronic  systems;  produce a cost effective
product  that  will gain  acceptance  in  relevant  consumer  and other  product
markets;  increase  revenues from products;  realize funding from product sales,
and engineering and development  services to sustain the Company's current level
of  operation;  timely  introduce  new  products;  continue its current level of
operations to maintain  satisfactory  relations with its customers;  attract and
retain key personnel;  maintain and expand its strategic alliances;  and protect
Company  know-how,  inventions  and  other  secret or  unprotected  intellectual
property.

B.    Overview

Pro Tech  Communications,  Inc.  (hereinafter  referred  to as "Pro Tech" or the
"Company")  presently designs,  develops,  manufactures and markets  lightweight
telecommunications  headsets.  The  Company's  headsets  employ new  concepts in
advanced  lightweight design and marketing  strategies involving the sale of the
Company's product directly to the commercial headset market as a replacement for
its competitors'  products. The Company presently sells its first design for the
commercial  headset  market  comprised  of fast food  companies  and other large
quantity  users  of  headset  systems,  and  is in  the  process  of  completing
development of several other headsets for the telephone user market,  to include
telephone  operating  companies,  government  agencies,  business  offices,  and
professional telephone centers. The Company's products include:

o     ProCom Headset
o     A-10 Amplifier (telephone)
o     Apex Headset
o     Trinity Headset
o     A-27 Amplifier

The  Company's  operating  revenues are  comprised of product  sales.  Operating
revenues for the fiscal year ended October 31, 2000  consisted of  approximately
$1,562,000 in product sales.

The Company's business strategy is to continually offer lightweight headsets and
telephony  products that employ cutting edge sound technologies with an emphasis
on price/performance.  In addition, the Company will continue to concentrate its
efforts on the production of that portion of the telephone headset that the user
wears. There are two components to a complete  telephone  headset.  The first is
the  headset  component  that the user  wears,  consisting  of a  speaker  and a
microphone.  The second is the  electronic  amplifier  which is relatively  more
complex,  time consuming and costly to produce as it requires many variations to
interface with the wide variety of telephone systems in the market and generates
higher labor and material costs. The electronic  amplifier also generally offers
lower  profit  margins  than the  headset  component.  As a result,  the Company
presently has  out-sourced to Asian  manufacturers  the production of amplifiers
engineered to the Company's specifications.

The Company will also continue to concentrate  its efforts on the production and
distribution  of new headset  designs having the capability of connecting to and
interfacing with various  electronic  amplifiers and telephone systems currently
in use. The Company has adopted a co-engineering  product  development  strategy
through  the  use  of  joint   engineering   agreements   with   companies  with
complimentary  engineering patents. The Company projects that this strategy will
greatly  accelerate  the product  development  cycle while offering far superior
products to its  customers.  The Company has  continued to make  investments  in
technology  and has  incurred  development  costs with  respect  to  engineering
prototypes,  pre-production  models and field  testing of several new  products.
Management  believes that the Company's  investment in technology will result in
the improvement of the functionality, speed and cost of components and products.

As the Company  establishes  distribution  channels and as consumer awareness of
its products  increases,  so, too, will its product sales. At the same time, the
Company  continues to strive to lower the cost of its products and enhance their
technological performance.

Since its inception,  the Company has incurred losses from operations which have
been  recurring and amounted to $787,624 on a cumulative  basis through  October
31, 2000. These losses,  which include the costs for development of products for
commercial  use, have been funded  primarily  from (1) product sales and (2) the
sale of preferred stock  convertible into common stock, (3) common stock and (4)
short-term financing arrangements.

C.    RESULTS OF OPERATIONS

YEAR ENDED OCTOBER 31, 2000 AS COMPARED TO THE YEAR ENDED OCTOBER 31, 1999:

For the year ended October 31, 2000, the Company realized a net loss of $374,340
compared to a net loss of $221,065  for the year ended  October  31,  1999.  The
current  reporting year loss was attributed to three factors:  (1) The Company's
acquisition  of certain  intangible  property  from NCT Hearing  Products,  Inc.
required  amortization  expense of $78,000 during the month of October 2000, (2)
Due to acquisition  of  approximately  83% of the Company's  common stock by NCT
Hearing Products,  Inc., related to the intangible property acquired,  there was
an overhead expense allocation incurred by the Company of approximately $101,000
for the period from September 12, 2000 to October 31, 2000 and (3) the result of
the growing  competition  in the Company's  distributor  selling  channel in the
fast-food market causing a deterioration of gross margins.

Net sales  generated  during the year ended  October 31, 2000  increased  43% to
$1,562,484  from $1,090,551 in fiscal year ended October 31, 1999. This increase
in sales was as a result of two factors:  (1) The Company's  ability to continue
to recoup fast-food headset market share lost during fiscal year ended 1999, (2)
Sales from the market introduction of several new telephone headsets and related
communication equipment.

The Company continued the sale of its products through  distributors  augmenting
these sales with direct  sales from the  Company's  own  outbound  telemarketing
operation.  At the  completion of fiscal year 2000,  the Company sold a total of
41,121  headsets,  as compared to 27,641  headsets in the  previous  year.  This
difference  represents an increase in sales of 13,480  headsets or 49% more than
the  comparable  twelve-month  period.  Net  unit  sales of  fast-food  headsets
increased 33% primarily from the expansion of the Company's  sales  distribution
channel  previously  mentioned.  Consistent with the Company's  objectives,  the
indirect  distribution  channel  accounted  for 73% of net revenues and 77% unit
volumes  versus 64% of net revenues  and 74% of unit  volumes in the  comparable
1999 period.  The Company has successfully  maintained its relationship with The
McDonald's  Corporation  and  once  again  has  been  selected  to be a part  of
McDonald's International Owner Operator's trade show planned for April of fiscal
year 2002.  Sales from outside the fast-food market were $250,000 as a result of
delays in the market introduction of the Company's telephone product line. These
delays were the result of the lack of working  capital  required to successfully
enter this  market.  On  September  29,  2000,  the Company  received an initial
capital  infusion of $1.5 million to support this working  capital  requirement,
with  corresponding  stock  warrants to invest an additional  $2.3 million.  The
Company  expects sales to dramatically  increase from the telephone  market as a
result of receiving this capital infusion. The market introductions of these new
products are planned in the 2nd and 3rd quarter of fiscal year 2001.

Gross margin percent  decreased 1.86% to 60.09% versus 61.95% in comparable 1999
period as a result of the  Company's  desire to regain lost market  share due to
price  competition  in the  fast-food  headset  market as well as an increase in
manufacturing of certain of the Company's products domestically here in the U.S.

Selling,  general and  administrative  expenses  (SG&A) for the fiscal year were
$1,275,290  or 81.6% of  revenues  versus  $893,384  or 89% in  revenues  in the
comparable 1999 period. This increase was the result of several factors.  First,
due to the transaction  resulting in the acquisition of the intangible  property
from NCT Hearing  Products,  Inc the Company incurred  approximately  $78,000 of
amortization  expense of such intangible  property and an allocation of overhead
expense which amounted to  approximately  $101,000 for the period from September
12, 2000 to October 31, 2000.  Second,  the Company  decreased its marketing and
advertising  expenses to $54,424 from $98,738 in the comparable 1999 period as a
result  of a  reduction  in  expenses  in  marketing  material  from  the use of
alternative source along with the decision to reduce the Company's attendance at
trade shows showing  targeted return on  investments.  These trade shows allowed
the Company the opportunity to successfully present the new products planned for
market  introduction  in the 1st and 2nd  quarter of fiscal year 2000 along with
the opportunity to perform needed market  research  necessary to have successful
product introductions in the future. The Company has continued its investment in
Research and Development and new product development  accounting for investments
mold designs and component  testing.  Although  this is the Company's  intention
there is no formal agreements in place and no assurances that they will occur in
the future.  The  Company is also  reviewing  several  possible  alliances  with
companies  that have  complimentary  products,  which could provide  access into
several key accounts in the telephone market.

 Net  amortization and  depreciation  expenses  increased to $128,658 or 8.2% of
revenues  in the current  fiscal year versus  $45,222 or 4.1% of revenues in the
comparable 1999 period. This increase was as a result of the amortization of the
intangible  property  acquired in  September  2000.  Such  amortization  expense
amounted to approximately $78,000 for the year ended October 31, 2000.

The Company  generated  interest income of $4,877 for the year ended October 31,
2000 as compared to $10,202 for the comparable  1999 year.  The interest  income
resulted  from the  Company's  investment  of the net proceeds  from the private
placement of  securities  into  short-term  certificates  of deposits  less cash
available for investment used in operations.

YEAR ENDED OCTOBER 31, 1999 AS COMPARED TO THE YEAR ENDED OCTOBER 31, 1998:

For the year ended October 31, 1999, the Company realized a net loss of $221,065
compared to a net loss of $223,416 for the year ended October 31, 1998. The 1999
reporting year loss was attributed to three factors:  (1) The Company maintained
production  of its products at the Company's  Florida  office for nine months of
this  fiscal  year  corresponding  with  incurring  one-time  charges  from  the
transition  of the  Company's  production  operations  to the Far East;  (2) The
Company's  revenues  were  negatively  impacted  late in the second half of this
fiscal  year as a result of a  competitors  attempt  to take away the  Company's
distributor  selling channel in the fast-food market;  and (3) A five week delay
in the market  introduction of the Company's  telephone  headsets as a result of
the Taiwan earthquake in the 4th quarter fiscal year 1999. For fiscal year 1998,
the loss is attributed to the following  adjustments:  (1) an additional accrued
warranty  expense of $97,000,  (2) the write-off of  $36,062owed  to the Company
from the closing of the Company's  investment banker firm under retainer,  (3) a
one time charge of $50,000 to the Company's production  department.  as a result
of a product  re-call (4) the payment of $25,000 due to the result of a mediated
settlement with the Company's public relations firm.

Net sales  generated  during the year ended October 31, 1999  decreased  4.5% to
$1,090,551  from $1,142,482 in fiscal year ended October 31, 1998. This decrease
in sales was as a result of two factors:  (1) Delays in the market  introduction
of several  telephone  products  resulting in very little sales  benefit for the
current  fiscal  year.  (2) The  adoption  of the  Company's  distributor  sales
strategy from one of the Company's  direct  competitors in the fast food market.
This action from this competitor severely impacted the ability of the Company to
sell into this  channel in the fourth  quarter  of the  fiscal  year 1999.  This
channel  represented  72% of the Company's sales volume for the fiscal year. The
Company,  after  realizing  this  competitive  tactic,  countered with increased
discounts  of the  Company's  products.  The result of this  counter  action has
allowed the Company to recoup approximately 30% of the revenues lost late in the
current  fiscal year and the Company used the same tactics to win back  business
lost during this period in fiscal year 2000.

The Company continued the sale of its products through  distributors  augmenting
these sales with direct  sales from the  Company's  own  outbound  telemarketing
operation.  At the  completion of fiscal year 1999,  the Company sold a total of
27,641  headsets,  as compared to 29,673  headsets in the  previous  year.  This
difference  represents  a decrease in sales of 2,032  headsets or 6.8% less than
the  comparable  twelve-month  period.  Net  unit  sales of  fast-food  headsets
decreased 6.7% primarily from the increase in competitive  activity described in
the previous paragraph.  Consistent with the Company's objectives,  the indirect
distribution  channel  accounted  for 64% of net  revenues  and 74% unit volumes
versus  64% of net  revenues  and 74% of unit  volumes  in the  comparable  1998
period.  The Company  has  successfully  maintained  its  relationship  with The
McDonald's  Corporation  and  once  again  has  been  selected  to be a part  of
McDonald's International Owner Operator's trade show planned for April of fiscal
year 2000.  In addition the Company was invited to present its products at KFC's
International  trade show  planned  to be held in  January of fiscal  year 2000.
Sales from outside the fast-food market were negligible as a result of delays in
the market  introduction  of the Company's  telephone  product line. The Company
expects sales to dramatically  increase upon the market introduction  planned in
the 1st and 2nd quarter of fiscal year 2000.

Gross margin percent  increased 3.13% to 61.95% versus 58.82% in comparable 1998
period as result of the fourth  quarter cost savings from the  transition of all
production  offshore to the Far East.  This action  showed a 48% gain in cost of
goods  produced  through the Company's now  established  Far East  manufacturing
partners.  The  Company  plans to keep this same  supply-chain  in place for all
existing and new  products  planned for market  introduction  in the 1st and 2nd
quarter of fiscal year 2000.

Selling,  general and  administrative  expenses  (SG&A) for the fiscal year were
$893,384  or  81.9%  of  revenues  versus  $882,385  or 76% in  revenues  in the
comparable 1998 period. This increase was the result of several factors.  First,
in fiscal year 1999,  an  unaffiliated  investment-banking  firm was retained in
order to proceed with the structuring of a potential  investment of capital into
the Company.  The capital would be used for new product  development  along with
the associated expansion of sales personnel developing the telephone market. For
the current fiscal year 1999, the Company's  expenses to this firm were $35,000.
Second, the Company increased its marketing and advertising  expenses to $98,738
from $43,143 in the comparable  1998 period to support  several  telephone trade
shows attended by the Companies  marketing staff.  These trade shows allowed the
Company the  opportunity to  successfully  present the new products  planned for
market  introduction  in the 1st and 2nd  quarter of fiscal year 2000 along with
the opportunity to perform needed market  research  necessary to have successful
product introductions in the future. The Company has continued its investment in
Research and Development and new product development  accounting for investments
mold designs and component  testing.  Although  this is the Company's  intention
there is no formal agreements in place and no assurances that they will occur in
the future.  The  Company is also  reviewing  several  possible  alliances  with
companies  that have  complimentary  products,  which could provide  access into
several key accounts in the telephone market. The Company was able to reduce its
accrued expenses  associated with warranty charges for its product to $78,038 in
1999 from  $152,503 in 1998.  This change was as a result of major  improvements
made in the quality and price of components used in the Company's products.

Net depreciation  expenses increased to $45,222 or 4% of revenues in the current
fiscal year versus $38,783 or 3% of revenues in the comparable 1998 period. This
increase  was as a result  of an  increased  investment  in  production  molding
associated with new product development along with investment in the improvement
of the Company's trade show marketing  displays being used in call-center  trade
shows.

The  Company  generated  interest  income of  $10,202  for  fiscal  year 1999 as
compared to $24,719 for the comparable  1998 year. The interest  income resulted
from the Company's  investment of the net proceeds from the private placement of
securities  into  short-term  certificates  of deposits less cash  available for
investment used in operations.

D.    LIQUIDITY AND CAPITAL RESOURCES

The current ratio  (current  assets to current  liabilities)  of the Company was
3.14 to 1.00 at  October  31,  2000,  as  compared  to 3.36 to 1.00 for the same
comparable  1999 fiscal year. At October 31, 2000, the Company's  current assets
exceeded its current liabilities by approximately $1,419,819.

During the current  fiscal year ending  October 31, 2000, the Company has funded
its working  capital  requirements  with cash flow from  operations,  short-term
borrowings and the sale of convertible preferred stock. Management believes that
the Company  has  sufficient  funds to meet the  Company's  anticipated  working
capital  requirements  for the  next 12  months.  In  addition  the  Company  is
currently  seeking a new  asset-based  lending  agreement to further  assist the
Company  attain it's  projected  business  growth in 2001. In December 2000, the
Company terminated its short-term factoring arrangement entered into in December
1999. Under this agreement the Company's  obligations were collateralized by all
of the Company's  account  receivable,  inventory,  and equipment.  During 2000,
under the expired factoring agreement the Company had obtained advances totaling
$339,440.

In addition, in order for the Company to maximize the potential of the telephone
user  market  and to enable  the  Company  to expand  into  additional  markets,
including  government agencies and personal computers,  the Company will require
additional  capital.  On March 27, 2000, the Company obtained a loan from Westek
Communications  Inc. (a related party) for $150,000  payable in one year with an
interest  rate of  8.5%.  These  funds  were  used to  finance  ongoing  product
development along with the associated market introduction and promotion of these
new products. The Company will seek to raise additional financing as a result of
its  relationship  with NCT Hearing  Products,  Inc. and its parent  company NCT
Group, Inc.

At October 31, 2000, cash and cash equivalents were $1,070,408. Such balance was
invested in interest bearing money market accounts.

The Company's  working capital increased to $1,419,819 at October 31, 2000, from
$494,148 at October 31, 1999.  This  $925,671  increase was primarily due to the
receipt  of net  proceeds  of  $1,200,025  from  the sale of  $1,500,000  of the
Company's Series A Convertible Preferred stock in September 2000.

During 2000, the net cash used in operating activities was $511,558, compared to
$239,858 used in operating activities during 1999, an increase of $271,700.  The
$511,558 net cash used in operating  activities  was  primarily due to increased
interest  expense  on  short-term  borrowings  made  throughout  2000 along with
investments  of  $41,454 in R&D along  with the  hiring of a  Vice-President  of
Engineering.  The  remainder  $470,013  was invested in SG&A in  preparation  of
several new product introductions planned for the fiscal year 2001.

Net inventory increased during 2000 by $272,977, due to the increase of its fast
food headset market and production of new products  during 2000. The Company has
received  individual  unit cost benefits by extending its commitments to its Far
East suppliers  beyond 6 months thus allowing for a further 27% reduction in the
Company's per unit costs.

The net cash provided by financing  activities was $1,551,690 in 2000, primarily
due to the $1,200,025 net proceeds from the Series A Preferred Stock  financings
(see note 6 - "Notes to the  Financial  Statements"  for  further  details)  and
$449,975 net proceeds from issuance of notes payable (see note 5 - "Notes to the
Financial Statements" for further details).

The Company has no lines of credit with banks or other lending  institutions and
therefore has no unused borrowing capacity.

Due to the  Company's  need to fund new product  development  and increase  it's
manufacturing  capacity in order to meet new business  demands in 2000 and 2001,
it was  necessary  for the  Company to enter into  certain  transactions,  which
provided additional funding as follows:

On June 7, and July 7, 2000, the Company  obtained bridge  financing of $299,975
through  its  relationship  with NCT Group,  Inc.  in order to support  existing
product development and working capital requirements.

On September 13, 2000, the Company entered into a Stock Purchase  Agreement with
NCT's  subsidiary,  NCT  Hearing,  pursuant  to which  NCT  Hearing  granted  an
exclusive  license to the Company for rights to certain NCT technologies for use
in  lightweight  cellular,  multimedia  and telephony  headsets.  The license is
royalty  free unless and until NCT Hearing  owns less than 50% of the  Company's
common stock on a fully diluted basis. If NCT Hearing's  percentage ownership of
common stock is less than 50%, the Company will be required to pay NCT Hearing a
royalty of 6% of net sales.  In  consideration  for this  license,  the  Company
issued 23,702,750 shares of its common stock, representing  approximately 83% of
its  issued  and  outstanding  common  stock,  to NCT  Hearing.  As a  condition
precedent to the closing of the transaction, NCT arranged $1.5 million in equity
financing  for  the  Company  through  the  sale  of the  Company's  convertible
preferred stock (see below).

On September  29,  2000,  the Company  entered  into a  Securities  Purchase and
Supplemental  Exchange Rights  Agreement with Austost  Anstalt  Schaan,  Balmore
Funds,  S.A. and Zakeni Limited (The "Pro Tech Investors") and NCT to consummate
the $1.5 million  financing  arranged by NCT for the Company in connection  with
its sale of Pro Tech Series A Convertible Preferred Stock ("Pro Tech Preferred")
to the Pro Tech Investors.  The Pro Tech Preferred  consists of 1,500 designated
shares,  par value of $0.01 per share and a stated value of one thousand dollars
($1,000)  per share with  accretion of four percent (4%) per annum on the stated
value payable upon  conversion or exchange in either cash or common stock at the
election of the Company. Under such agreement,  the Pro Tech Investors may elect
to exchange  their Pro Tech  Preferred for shares of NCT common stock or convert
their  Pro  Tech  Preferred  for  shares  of the  Company's  common  stock  at a
conversion price which shall be the lesser of (i) the then lowest average of the
average closing bid price for a share of the Company's  common stock as reported
on the NASD OTC  Bulletin  Board  for any  consecutive  five day  period  out of
fifteen trading days preceding the date of such  conversion,  less a discount of
20%,  subject to certain  adjustments  set forth in the Articles of Amendment to
Articles of Incorporation of the Company dated as of September 29, 2000; or (ii)
a fixed  conversion  price of $0.50 set forth in the  Articles of  Amendment  to
Articles of Incorporation of the Company dated as of September 29, 2000.

In connection  with the execution of the  Securities  Purchase and  Supplemental
Exchange Rights  Agreement on September 29, 2000, the Company issued warrants to
the Pro Tech  Investors to acquire 4.5 million  shares of the  Company's  common
stock.  Such warrants are  exercisable  at $0.50 per share and expire on October
28, 2003. In addition,  the Company has the right to require the warrant holders
to exercise upon a call from the Company.  The warrants are callable as follows:
(i) one third of the  warrants  are  callable  by the Company if the closing bid
price of the common stock for each of the previous  fifteen  trading days equals
or exceeds  $0.68 per share and the average  daily  trading  volume  during such
period is equal to or exceeds  150,000  shares;  (ii) two thirds of the warrants
are  callable by the  Company if the  closing bid price of the common  stock for
each of the previous  fifteen trading days equals or exceeds $0.94 per share and
the  average  daily  trading  volume  during  such period is equal to or exceeds
150,000  shares;  and (iii) the warrants  are callable in their  entirety by the
Company if the  closing bid price of the common  stock for each of the  previous
fifteen  trading days equals or exceeds  $1.135 per share and the average  daily
trading volume during such period is equal to or exceeds 150,000 shares.

E.    Capital Expenditures

There were no material  commitments  for capital  expenditures as of October 31,
2000, and no other material commitments are anticipated in the near future.

ITEM 7A.    QUANTITATIVE OR QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Pro Tech's primary market risk exposures are  fluctuations in interest rates and
foreign exchange rates. The Company is exposed to short-term  interest rate risk
on certain of its debts and trade accounts  receivable  sales.  The Company does
not  use  derivative  financial   instruments  to  hedge  cash  flows  for  such
obligations.  In the normal course of business,  the Company employs established
policies and procedures to manage these risks.

Based upon a hypothetical  10 percent  proportionate  increase in interest rates
from the average  level of interest  rates  during the last twelve  months,  and
taking into consideration  expected  investment  positions,  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.

ITEM 8.      FINANCIAL STATEMENTS

The  Reports  of  the  Independent  Auditors  Morgan,  Jacoby,  Thurn,  Boyle  &
Associates,  P.A.,  and the  financial  statements  and  accompanying  notes are
attached.

                                                              Page

Independent Auditors' Report                                  F-1

Balance Sheets as of October 31, 1999 and 2000                F-2

Statements of Operations for the years ended October 31,
1998, 1999 and 2000                                           F-3

Statements of Stockholders' Equity for the years ended
October 31, 1998, 1999 and 2000                               F-4

Statements of Cash Flows for the years ended October 31,
1998, 1999 and 2000                                           F-5

Notes to Financial Statements                                 F-6

ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

There have been no disagreements with independent  accountants on accounting and
financial disclosure matters during the Company's two most recent fiscal years.
<PAGE>

                                    PART III


ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth the names,  ages,  positions and the offices held
by each of the  executive  officers and  directors of the Company as of February
13, 2001.

  Name                   Age               Positions and Offices
  --------------------- -----  ----------------------------------------------
  Keith Larkin           76    Chairman of the Board, Chief Executive
                                Officer and Treasurer
  Richard Hennessey      41    President, Director and Secretary
  Michael J. Parrella    52    Director
  Cy E. Hammond          46    Director
  Irene Lebovics         47    Director

Keith Larkin is the founder, Chairman of the Board of Directors, Chief Executive
Officer and Treasurer of the Company.  Mr. Larkin's 30-year  professional career
has been devoted to  designing,  manufacturing  and marketing his new designs in
lightweight  telephone headsets.  In 1961, Mr. Larkin founded  Plantronics,  the
current industry leader in lightweight  telephone  headsets with annual sales of
all its products  (including the electronic  amplifier) in 1999 of approximately
$286 million. From 1961 until he sold his interest in 1967, Mr. Larkin served as
the President and Chairman of Plantronics,  during which Plantronics established
itself as the main source of  lightweight  telephone  headsets to the  telephone
industry and provided  the  headsets  for NASA  Mercury,  Gemini and Apollo moon
flights. In the late 1970's, Mr. Larkin conceived,  developed and patented a new
design in headsets to compete against Plantronics' headsets.  With Mr. Larkin as
its  President,  ACS Wireless  attained $1 million  monthly sales figures to the
telephone  market  within  three years of operation  and  replaced  Plantronics'
headsets  on the NASA Space  Shuttle.  In 1986,  he left ACS  Wireless to become
involved in  Christian  children's  relief  programs in Haiti and Honduras for a
period of three years.  From January 1989 to August 1991,  Mr.  Larkin served as
the President of Advanced Recreational Technology, Inc., an engineering research
and development  company owned by Mr. Larkin. In August 1991, Mr. Larkin founded
Pro Tech Systems,  a California  limited  partnership that he managed as general
partner.  Pro Tech  Systems  was  formed  to  design,  manufacture,  and  market
lightweight  telephone  headsets.  Upon the transfer of all of the assets of Pro
Tech Systems to the Company in November  1994, Mr. Larkin became the Chairman of
the Board of Directors,  Chief Executive Officer, President and Treasurer of the
Company,  positions  which he held until  February 2, 1999,  when he resigned as
President  of the Company but  retained his position as Chairman of the Board of
Directors, Chief Executive Officer and Treasurer.

Richard Hennessey joined the Company as Director of Marketing in August 1995 and
was appointed Vice President  Marketing on June 10, 1996. On August 4, 1998, Mr.
Hennessey was appointed to Secretary and Director of the Company. On February 2,
1999 Mr.  Hennessey was appointed  President and Chief Operating  Officer of the
Company.  From 1982 through 1984, Mr. Hennessey was a salesman with the computer
sales division of Lanier  Business  Products  located in Boston,  Massachusetts.
From 1984 through April 1994,  Mr.  Hennessey held various new venture sales and
sales management positions with Digital Equipment Corporation. From January 1995
until Mr. Hennessey joined the Company,  he was engaged in voluntary  missionary
work.

Michael J. Parrella currently serves as a Director of the Company.  Mr. Parrella
is Chairman of the Board of Directors and Chief  Executive  Officer of NCT. From
November 1994 to July 1995, Mr.  Parrella  served as Executive Vice President of
NCT.  Prior to that,  from  February  1988  until  November  1994,  he served as
President and Chief Operating  Officer of NCT. He initially became a director of
NCT  in  1986  after  evaluating  the  application   potential  of  NCT's  noise
cancellation technology.  At that time, he formed an investment group to acquire
control of the Board of Directors  and to raise new capital to  restructure  NCT
and its research and  development  efforts.  Mr.  Parrella  also serves as Chief
Executive  Officer  and  Acting  President  of NCT Audio  Products,  Inc.  ("NCT
Audio"),  a  subsidiary  of the  Company,  a position to which he was elected on
September  4, 1997.  He became a director of NCT Audio on August 25,  1998.  Mr.
Parrella is a director of Advancel  Logic Corp.  ("Advancel"),  a subsidiary  of
NCT, serves as Chairman of the Board of Distributed Media Corporation ("DMC"), a
subsidiary of NCT, serves as Chairman of the Board of NCT Hearing Products, Inc.
("NCT  Hearing"),  a  subsidiary  of NCT, and serves as Chairman of the Board of
Midcore Software, Inc., ("Midcore"), a subsidiary of NCT.

Cy E.  Hammond  currently  serves as a Director of the Company.  Mr.  Hammond is
Senior  Vice  President,   Chief  Financial  Officer,  Treasurer  and  Assistant
Secretary of NCT. He joined NCT as  Controller in January 1990 and was appointed
a Vice  President  in February  1994.  Mr.  Hammond  also serves as Acting Chief
Financial Officer and Treasurer of NCT Audio, a position to which he was elected
on  September  4, 1997,  and  Acting  Chief  Financial  Officer,  Treasurer  and
Assistant Secretary for Advancel,  a position to which he was elected on January
5, 2000.  Mr.  Hammond  serves as a director of  Midcore.  During  1989,  he was
Treasurer and Director of Finance for Alcolac,  Inc., a multinational  specialty
chemical  producer.  Prior to 1989 and from 1973,  Mr. Hammond served in several
senior finance  positions at the Research Division of W.R. Grace & Co., the last
of which included management of the division's worldwide financial operations.

Irene Lebovics  currently  serves as a Director of the Company.  Ms. Lebovics is
President and Secretary of NCT and President of NCT Hearing. On January 5, 2000,
Ms.  Lebovics  was elected  Acting  Chief  Marketing  Officer and  Secretary  of
Advancel.  She joined NCT as Vice  President of NCT and President of NCT Medical
Systems  ("NCTM") in July 1989. In March 1990,  NCTM became part of NCT Personal
Quieting  and Ms.  Lebovics  served  as  President.  In  January  1993,  she was
appointed  Senior Vice President of NCT. In November 1994, Ms.  Lebovics  became
President of NCT Hearing.  From August 1, 1995, to May 1, 1996,  she also served
as  Secretary  of NCT.  Ms.  Lebovics  has held  various  positions  in  product
marketing with  Bristol-Myers,  a consumer products company,  and in advertising
with McCaffrey and McCall. Ms. Lebovics serves as a director of DMC and Midcore.


Section  16(a) of the  Securities  Exchange Act of 1934  requires the  Company's
directors,  executive officers and persons who own more than 10% of a registered
class  of the  Company's  equity  securities  to file  with the  Securities  and
Exchange  Commission  (the "SEC")  initial  reports of ownership  and reports of
changes in ownership in the Common  Stock.  Executive  officers,  directors  and
persons  who own more than 10% of a  registered  class of the  Company's  equity
securities  are required by SEC regulation to furnish the Company with copies of
all Section 16(a) forms they file with the SEC.

To the Company's knowledge, based solely on review of the copies of such reports
furnished  to the  Company  and  representations  that  no  other  reports  were
required,  during the fiscal year ended October 31, 2000,  all of such executive
officers,  directors and persons who own more than 10% of a registered  class of
the  Company's  equity  securities   complied  with  all  Section  16(a)  filing
requirements.
<PAGE>

ITEM 11.    EXECUTIVE COMPENSATION

Set forth below is certain  information for the three fiscal years ended October
31, 1998, 1999 and 2000 relating to compensation received by the Company's Chief
Executive  Officer and, if  applicable,  the other four most highly  compensated
officers of the Company  whose total annual salary and bonus for the fiscal year
ended October 31, 2000 exceeded $100,000.

<TABLE>
<CAPTION>
                                                                                  Securities
                                                                 Other            Underlying          All
Name and Principal                                               Annual        Options/Warrants      Other
     Position                 Year    Salary ($)    Bonus ($) Compensation ($)     SARs (#)      Compensation
--------------------------- -------- -----------   ---------- ---------------- ----------------  -------------
<S>                           <C>     <C>          <C>          <C>               <C>             <C>
Keith Larkin                  2000    $22,500      $       -    $       -                -         $      -
   Chairman of the Board      1999     25,000              -            -          540,000                -
    Chief Executive Officer   1998     42,500              -            -                -                -
    and Treasurer
</TABLE>

Compensation Arrangements with Certain Officers and Directors

The Company had an employment  agreement with Keith Larkin, which was terminated
on February 2, 1999.  The  agreement  provided  for a maximum  annual  salary of
$90,000  with  additional  amounts  added  using the  consumer  price index as a
minimum.  Mr.  Larkin was eligible for the maximum  annual salary during a given
year only if the  Company  generated  annual  sales of at least  $2,000,000  and
pre-tax  income equal to at least 20% of the Company's  annual sales.  Since the
Company did not meet the minimum  requirements during fiscal years 1998, 1999 or
2000, the Board of Directors paid Mr. Larkin the  compensation  set forth in the
preceding table.

The Company has no set salary obligations to Mr. Larkin for his services for the
current or future fiscal years. Mr. Larkin, however, has agreed to assign to the
Company all of his rights,  title and interest in and to any and all inventions,
discoveries,  developments,  improvements,  processes, trade secrets, trademark,
copyright and patent rights of which he conceives  during his tenure as Chairman
of the Board of Directors, Chief Executive Officer and Treasurer of the Company.

The Company does not have a written employment agreement with Richard Hennessey.
During each of the fiscal  years  ended  October 31,  1998,  1999 and 2000,  Mr.
Hennessey received a salary of $51,000, $51,000 and $76,621, respectively.

Messrs.  Larkin and Hennessey did not receive any  additional  compensation  for
serving as directors of the Company.

Compensation of Directors

No directors of the Company have received any fees for serving as a director.

Stock Option Plans

On November 28, 2000, the Company  issued options to purchase  500,000 shares of
common stock at $0.4375 per share under the 1998 Stock  Option Plan,  which vest
as follows:  125,000  immediately,  125,000 on  November  28,  2001,  125,000 on
November 28,  2002,  and 125,000 on November  28,  2003.  The options  expire on
November 28, 2007.
<PAGE>


                2000 Aggregated Option and Warrant Exercises and
                   October 31, 2000 Option and Warrant Values

The following table sets forth certain  information with respect to the exercise
of options and  warrants to purchase  common  stock during the fiscal year ended
October 31, 2000 and the  unexercised  options and  warrants  held and the value
thereof at that date, by each of Mr. Larkin and Mr. Hennessey.
<TABLE>
<CAPTION>

                                                   Number of shares
                      Number                            Underlying                 Value of Unexercised
                        of                          Unexercised Options          In-the-Money Options
                      Shares                          and Warrants at               and Warrants at
                     Acquired                        October 31, 2000              October 31, 2000
                         On          Value   --------------------------------- --------------------------
    Name             Exercise(#)   Realized  Exercisable (#) Unexercisable ($) Exercisable Unexercisable
------------------  ------------  ---------- --------------- ----------------- ----------- --------------
<S>                 <C>           <C>          <C>            <C>                <C>        <C>
Keith Larkin               -           -       540,000               -           $ 97,200    $        -

Richard Hennessey          -           -       300,000          50,000           $ 90,750    $   15,000
</TABLE>

During  fiscal year 2000,  neither Mr.  Larkin nor Mr.  Hennessey  exercised any
stock options. The fair market value of the Company's common stock as of October
31,  2000 was in excess of the  exercise  price  for both Mr.  Larkin's  and Mr.
Hennessey's stock options. Accordingly, as of October 31, 2000, Mr. Larkin's and
Mr. Hennessey's unexercised stock options had value as indicated above.

1996 Stock Option Plan

On April 15, 1996,  the Board of Directors of the Company  adopted the Company's
1996 Stock Option Plan.  The 1996 Plan  provides for the grant by the Company of
options to purchase up to an  aggregate of 590,000 of the  Company's  authorized
but unissued  shares of common stock  (subject to  adjustment  in certain  cases
including  stock splits,  recapitalizations  and  reorganizations)  to officers,
directors, consultants, and other persons rendering services to the Company.

The purposes of the 1996 Plan are to provide  incentive to employees,  including
officers, directors and consultants of the Company, to encourage such persons to
remain in the employ of the  Company  and to attract to the  Company  persons of
experience and ability. The 1996 Plan terminates on April 15, 2002.

Options granted under the 1996 Plan may be either incentive stock options within
the meaning of the Internal Revenue Code of 1986, as amended, or options that do
not qualify as incentive  options.  The exercise price of incentive options must
be at least equal to the fair market  value of the shares of common stock on the
date of grant;  provided,  however,  that the  exercise  price of any  incentive
option  granted to any person who, at the time of the grant of the option,  owns
stock  aggregating 10% or more of the total combined voting power of the Company
or any parent or  subsidiary  of the Company,  must not be less than 110% of the
fair market value

On April 15, 1996,  540,000 and 50,000 shares were granted to the Company's then
president and officers, respectively, at an option price of $0.50 per share. The
stock option  exercise price was the fair value at the date of the grant,  which
was determined from the price paid per share during the Company's stock offering
carried  out in 1996.  The stock  options are  exercisable  upon the grant date,
extending over a period of three years.

Prior to fiscal year 1998, the Company  received $25,000 upon issuance of 50,000
shares of common  stock upon the  exercise  of 50,000  options by the  Company's
officers.  On April  13,  1999  the  remaining  540,000  options  issued  to the
Company's previous president were extended for 2 years to April 15, 2001.

      1998 Stock Option Plan

On March 5, 1998, the Board of Directors  adopted the 1998 Stock Option Plan for
the benefit of directors,  officers,  employees and  consultants to the Company.
The 1998 Plan  originally  authorized  the  issuance of up to 500,000  shares of
common stock and was increased to 2,000,000 shares of common stock on August 11,
2000.  On August 4,  1998,  200,000  and  100,000  shares  were  granted  to the
Company's officers and employees, respectively, at an option price of $0.375 per
share.  The stock option  exercise price was the fair market value of a share of
common  stock at the date of the grant.  Options to purchase  150,000  shares of
common stock granted to Richard  Hennessey vest and are  exercisable as follows:
50,000  immediately,  50,000 on August 4, 1999 and 50,000 on August 4, 2000. The
remaining  options  vested  immediately.  All  options  are  exercisable  over a
three-year period from the date of vesting.

On April 13, 1999,  the remaining  1998 Plan options to purchase  200,000 shares
were granted to Richard  Hennessey  at an option  price of $0.38 per share.  The
stock option exercise price was greater than the fair market value of a share of
common stock at the date of the grant.  The options vest and are  exercisable as
follows: 100,000 immediately;  50,000 on April 13, 2000; and 50,000 on April 13,
2001. The options expire April 13, 2004.


ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
            AND MANAGEMENT.

Information  required  under  this  item  is  contained  in a  definitive  proxy
statement that the Registrant  will file on or before  February 28, 2001, and is
incorporated herein by reference.



ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

None.

<PAGE>


PART IV

ITEM 14.    Exhibits, Financial Statements Schedules and
            Reports on Form 8-K.

(a)    (1)  Financial  Statements.  The following financial statements are filed
            as part of this Form 10-K.

Independent Auditors' Report

Balance Sheets as of October 31, 1999 and October 31, 2000.

Statements of Operations for the years ended October 31, 1998, 1999 and 2000.

Statements of  Stockholders'  Equity for the years ended October 31, 1998,  1999
and 2000.

Statements of Cash Flows for the years ended October 31, 1998, 1999 and 2000.

Notes to Financial Statements.

      (2)   Financial  Statements  Schedules- Schedules are omitted as not
            applicable or not required

(a)   (3)   Exhibits including those Incorporated by Reference.


*   3(a)    Amended and Restated  Articles of  Incorporation of the Company
            as filed  with the  Department  of State of the State of  Florida on
            August 17, 2000, incorporated herein by reference to Exhibit 3(a) to
            the Company's  Quarterly Report on Form 10-QSB for the quarter ended
            July 31, 2000.

**  3(b)    Amended and Restated  Articles of  Incorporation of the Company
            as filed  with the  Department  of State of the State of  Florida on
            October 2, 2000.

**  3(c)    Bylaws of the Company.

**  4(a)    Warrant to purchase  1,125,000  shares of common  stock of the
            Company  at a  purchase  price of $0.50 per share  issued to Austost
            Anstalt Schaan.

**   4(b)   Warrant to purchase  1,125,000  shares of common  stock of the
            Company  at a  purchase  price of $0.50 per share  issued to Balmore
            Funds S.A.

**   4(c)   Warrant to purchase  2,250,000  shares of common  stock of the
            Company  at a  purchase  price of $0.50 per  share  issued to Zakeni
            Limited.

*    10(a)  1996 Stock Option Plan. (1)

**   10(b)  1998 Stock Option Plan (1);  incorporated  herein by reference
            to Exhibit 10.1 to the Company's  Registration Statement on Form S-8
            filed on August 3, 1998.

*    10(c)  Stock Option, dated April 15, 1996, issued by the Company to Keith
            Larkin. (1)

**   10(d)  Stock  Option,  dated August 4, 1998,  issued by the Company to
            Richard Hennessey. (1)

**   10(e)  Stock  Option,  dated April 13, 1999,  issued by the Company to
            Richard Hennessey. (1)

**   10(f)  Promissory  Note,  dated  March  27,  2000  issued  by  the  Company
            to  Westek Communications.

     10(g)  Stock Purchase Agreement between the Company and NCT Hearing
            Products,  Inc., dated  September 13, 2000,  incorporated  herein by
            reference to Exhibit 10 (an) to the  Pre-Effective  Amendment No. 2
            to Form S-1 of NCT Group, Inc. filed with the SEC on December 3,
            2000.

**   10(h)  License  Agreement  between the Company and NCT Hearing  Products,
            Inc.,  dated September 12, 2000.

**   10(i)  Securities  Purchase and  Supplemental  Exchange Rights  Agreement,
            dated as of September 29, 2000,  among the Company, NCT Group, Inc.,
            Austost Anstalt Schaan, Balmore Funds, S.A. and Zakeni Limited.

**   10(j)  Registration  Rights  Agreement,  dated as of  September  29,  2000,
            among  the  Company,  NCT Group,  Inc.,  Austost  Anstalt  Schaan,
            Balmore Funds,  S.A. and Zakeni Limited.

**   10(k)  Consulting Agreement with Union Atlantic LC dated March 15, 1999.

**   10(l)  Amendment No. 1 to Consulting  Agreement  between the Company and
            Union Atlantic LC dated June 1, 1999.

**   10(m)  Modification to Consulting  Agreement between the Company and
            Union Atlantic LC dated July 29, 1999.

     10(n)  Shareholder's  Agreement dated September 13, 2000 by and between the
            Company and NCT Hearing Products, Inc.

**   23(a)  Consent of Morgan, Jacoby, Thurn, Boyle & Associates, P.A.


     27      Financial Data Schedule.
-----------------------

*  Incorporated by reference to the initial filing with the SEC of the Company's
   Form 10-KSB on July 5, 1996.

** Incorporated herein by reference to Registration  Statement on Form S-1 filed
   with the SEC November 3, 2000.

(1)   Denotes a management contract or compensatory plan or arrangement.

(b) No report on Form 8-K was filed  during the last quarter of the year covered
    by this Annual Report on Form 10-K.

<PAGE>

                                   SIGNATURES




In accordance  with Section 13 or 15(d) of the Securities  Exchange Act of 1934,
the Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on February 14, 2001.

                               PRO TECH COMMUNICATIONS, INC.
                                  (Registrant)



                                By:  /s/  RICHARD HENNESSEY
                                    ---------------------------------
                                         Richard Hennessey, President

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



  Signature                 Capacity                 Date
 ----------------------------------------------------------------------

 /s/ RICHARD HENNESSEY   Director, Secretary and      February 14, 2001
 ------------------------President
     Richard Hennessey

 /s/ KEITH LARKIN        Chief Executive Officer,     February 14, 2001
 ------------------------Treasurer and Chairman of
     Keith Larkin        the Board (Principal
                         Executive, Financial and
                         Accounting Officer)

 /s/ MICHAEL J. PARRELLA        Director              February 14, 2001
 ------------------------
     Michael J. Parrella


 /s/ CY E. HAMMOND              Director              February 14, 2001
 ------------------------
     Cy E. Hammond


 /s/ IRENE LEBOVICS             Director              February 14, 2001
 ------------------------
     Irene Lebovics


<PAGE>

                          Independent Auditors' Report
                           --------------------------

The Board of Directors
Pro Tech Communications, Inc.:


We have audited the accompanying balance sheets of Pro Tech Communications, Inc.
as of  October  31,  1999 and 2000 and the  related  statements  of  operations,
stockholders'  equity  and cash  flows for each of the  years in the  three-year
period ended October 31, 2000. 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 auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Pro Tech Communications,  Inc.
as of October 31, 1999 and 2000,  and the results of its operations and its cash
flows for each of the years in the  three-year  period ended October 31, 2000 in
conformity with accounting principles generally accepted in the United States of
America.


/s/ Morgan, Jacoby, Thurn, Boyle & Associates, P.A.
---------------------------------------------------
     Morgan, Jacoby, Thurn, Boyle & Associates, P.A.

Vero Beach, Florida
December 22, 2000,
    except for note 12,
    as to which the date is
    January 26, 2001






<PAGE>

PRO TECH COMMUNICATIONS, INC.
BALANCE SHEETS
OCTOBER 31,
<TABLE>
<CAPTION>
                                                                                   1999                  2000
                                                                             ----------------      ----------------
ASSETS
Current assets:
<S>                                                                            <C>                  <C>
     Cash and cash equivalents                                                 $     160,428        $    1,070,408
     Accounts receivable, less allowance for doubtful accounts of
         $18,661 and $26,557, respectively (note 5)                                  205,923               421,372
     Inventories, net of reserves (note 2)                                           285,883               558,860
     Due from officers and employees                                                  14,298                   365
     Other current assets                                                             36,916                31,770
                                                                             ----------------      ----------------
                     Total current assets                                            703,448             2,082,775

Property and equipment, net                                                          196,747               278,805

Intangible assets, net of accumulated amortization of $77,655 (note 6)                     -            16,229,837

Due from officer (note 10)                                                            43,743                56,824
Other assets                                                                           1,439                 4,424
                                                                             ----------------      ----------------
                                                                               $     945,377        $   18,652,665
                                                                             ================      ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable                                                          $     100,104        $      216,807
     Accrued expenses(note 4)                                                        100,388               102,165
     Current portion of capital lease obligations (note 8)                             8,808                 6,757
     Other liabilities (note 10)                                                           -               101,057
     Notes Payable(note 5)                                                                 -               236,170
                                                                             ----------------      ----------------
                     Total current liabilities                                       209,300               662,956

      Capital lease obligations(note 8)                                                8,089                 3,687
                                                                             ----------------      ----------------
                     Total liabilities                                               217,389               666,643

Commitments (note 8)

Stockholders' equity(notes 6 and 7):
Preferred stock, $.01 par value,  authorized 998.500 shares, none issued
         and outstanding                                                                   -                     -
Series A Convertible Preferred stock, $.01 par value, $1,000 stated value,
authorized, issu-d and outstan1,505,4250 shares
Common stock, $.001 par value, authorized 40,000,000 shares, issued and
outstanding 4,24,2540 and 28,248,43828,248s, respectively
Additional paid-in-capital                                                         1,137,018            17,239,973
Accumulated deficit                                                                 (413,284)             (787,624)
                                                                             ----------------      ----------------
                     Total stockholders' equity                                      727,988            17,986,022
                                                                             ----------------      ----------------
                                                                               $     945,377        $   18,652,665
                                                                             ================      ================
</TABLE>

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


<PAGE>

PRO TECH COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                        For the Years
                                                                       Ended October 31,
                                                          -------------------------------------------
                                                              1998           1999            2000
                                                          ------------   ------------   -------------
<S>                                                       <C>            <C>            <C>
Net sales                                                 $ 1,142,482    $ 1,090,551    $  1,562,484

Cost of goods sold                                            470,450        414,931         623,555
                                                          ------------   ------------   -------------

        Gross profit                                          672,032        675,620         938,929

Selling, general and administrative                           882,385        893,384       1,275,290
Provision for doubtful accounts                                38,835          3,771           7,990
                                                          ------------   ------------   -------------

       Loss from operations                                  (249,188)      (221,535)       (344,351)

Other income (expense) :
    Interest income                                            24,719         10,202           4,877
    Interest expense                                                -         (1,021)        (36,592)
   Miscellaneous expense                                           89            697           1,726
   Loss on disposal of fixed assets                                 -         (9,408)              -
                                                          ------------   ------------   -------------
         Loss before income taxes                            (224,380)      (221,065)       (374,340)

Income tax expense (benefit)(note 9)                             (964)             -               -
                                                          ------------   ------------   -------------

NET LOSS                                                  $  (223,416)   $  (221,065)   $   (374,340)
                                                          ============   ============   =============

Adjustments attributable to preferred stock(note 6):
   Preferred stock beneficial conversion feature          $         -    $         -    $  3,569,000
   Preferred stock dividend requirement                             -              -         375,000
   Accretion of difference between carrying amount
      and redemption amount of redeemable
      preferred stock                                               -              -           5,425
                                                          ------------   ------------   -------------

NET LOSS ATTRIBUTABLE TO
COMMON STOCKHOLDERS                                       $  (223,416)   $  (221,065)   $ (4,323,765)
                                                          ============   ============   =============

Basic and diluted income/(loss) per share                 $     (0.05)   $     (0.05)   $      (0.57)
                                                          ============   ============   =============

Weighted average common shares outstanding -
   basic and diluted                                        4,254,000      4,254,000       7,537,855
                                                          ============   ============   =============
</TABLE>

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



<PAGE>

PRO TECH COMMUNICATIONS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended October 31, 1998, 1999 and 2000

<TABLE>
<CAPTION>
                                                                                                           Retained
                                                                      Series A                             Earnings
                                                        Common        Preferred       Additional        (Accumulated)
                                                        Stock          Stock         Paid in Capital      (Deficit)         Total
                                                    ------------    ------------    -----------------   -------------   ------------
<S>              <C> <C>                            <C>             <C>             <C>                 <C>             <C>
Balance, October 31, 1997                           $     4,254     $         -     $      1,122,018    $     31,197    $ 1,157,469

Executive compensation
   contributed by an officer (note 6)                                                         15,000                         15,000

Net loss                                                                                                    (223,416)      (223,416)
                                                    ------------    ------------    -----------------   -------------   ------------
Balance, October 31, 1998                                 4,254               -            1,137,018        (192,219)       949,053

Net loss                                                      -               -                    -        (221,065)      (221,065)
                                                    ------------    ------------    -----------------   -------------   ------------
Balance, October 31, 1999                                 4,254               -            1,137,018        (413,284)       727,988

Issuance of 12,000  shares of
     common stock under stock
     option plans(note 7)                                    12               -                4,548               -          4,560

Issuance of 23,982,438 shares
     of common stock in exchange for certain
     intangible assets including 279,688 shares
     issued as issuance costs, net of related
     issuance costs of $179,678 (note 6)                 23,982               -           16,103,832               -     16,127,814

Issuance of 1,500,000 of preferred stock (note 6)             -       1,500,000                    -               -      1,500,000

Accretion dividend of preferred stock                         -           5,425               (5,425)              -              -

Net loss                                                      -               -                    -        (374,350)      (374,350)
                                                    ------------    ------------    -----------------   -------------   ------------
Balance, October 31, 2000                           $    28,248     $ 1,505,425     $     17,239,973    $ (787,634)   $  17,986,012
                                                    ============    ============    =================   =============   ============
</TABLE>

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


PRO TECH COMMUNICATIONS, INC.
STATEMENTS OF Cash Flows
Years ended October 31,
<TABLE>
<CAPTION>

                                                                            ------------      ------------      -------------
                                                                                1998              1999              2000
                                                                            ------------      ------------      -------------
Cash flows from operating activities:
<S>                                                                          <C>               <C>              <C>
            Net (loss)                                                       $ (223,416)       $ (221,065)      $   (374,340)
            Adjustments to reconcile net loss to net cash
              (used in) operating activities:
               Depreciation and amortization                                     38,783            45,222            128,658
               Common stock options and warrants issued
                 as consideration for:
                  Compensation                                                                          -                  -
                 Operating expenses                                                                     -                  -
               Provision for doubtful accounts                                    2,773             3,771              7,990
               Loss on disposition of fixed assets                                    -             9,408                  -
               Executive compensation contributed by an officer                  15,000                 -                  -
               Beneficial conversion feature on convertible note (Note 8)                               -                  -
               Changes in operating assets and liabilities:                                                                -
                         (Increase) decrease in accounts receivable              27,746            (9,459)          (223,439)
                         (Increase) decrease in inventories, net                (85,001)          (40,273)          (272,977)
                         Increase in receivable from officers and employees     (22,033)             (590)               852
                         (Increase) decrease in other assets                     21,553           (17,519)             2,161
                         Increase(decrease) in accounts payable                  13,641            63,724            116,703
                         Increase (decrease) in accrued expenses                114,530           (73,077)             1,777
                         Increase in due to parent                                    -                 -            101,057
                                                                            ------------      ------------      -------------
               Net cash (used in) operating activities                      $   (96,424)      $  (239,858)      $   (511,558)
                                                                            ------------      ------------      -------------

Cash flows from investing activities:
            Capital expenditures                                                (64,497)          (49,482)          (130,152)
            Purchase of short-term investments                                 (523,905)                -                  -
            Proceeds on maturity of short-term investments                      527,296           254,545                  -
                                                                            ------------      ------------      -------------
               Net cash (used in) investing activities                      $   (61,106)      $   205,063       $   (130,152)
                                                                            ------------      ------------      -------------

Cash flows from financing activities:
            Proceeds from:
               Convertible notes (net) (Note8)                                        -                 -                  -
               Notes payable                                                          -                 -            536,145
               Sale of preferred stock (net) (Note 6)                                 -                 -          1,020,347
               Sale of common stock (net)                                             -                 -              4,560
            Repayment of:
               Capital lease obligations                                              -            (3,574)            (9,362)
                                                                            ------------      ------------      -------------
               Net cash provided by financing activities                    $         -       $    (3,574)      $  1,551,690
                                                                            ------------      ------------      -------------

Net increase (decrease) in cash and cash equivalents                        $  (157,530)      $   (38,369)      $    909,980
Cash and cash equivalents - beginning of period                                 356,327           198,797                  -
                                                                            ------------      ------------      -------------
Cash and cash equivalents - end of period                                   $   198,797       $   160,428       $    909,980
                                                                            ============      ============      =============

Supplemental  disclosures  of cash flow  information:
Cash paid during the year for:
   Interest                                                                 $         -       $     1,021       $     26,592
                                                                            ============      ============      =============
</TABLE>

Supplemental disclosures of non-cash investing and financing activities:

During 1999 and 2000, the Company acquired $20,471 and $2,909, respectively, of
equipment through capital leases.

During  2000,  the  Company  acquired  licenses  and patent  rights  through the
issuance of 23,982,438 shares of common stock valued at $16,307,492.

During 2000, the Company issued Series A Convertible Preferred Stock in exchange
for the satisfaction of notes payable amounting to $299,975.

During 2000,  the Company  adjusted the  carrying  value of preferred  stock and
additional paid-in capital for the 4% accretion totaling $5,425.

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

<PAGE>

                               PRO TECH COMMUNICATIONS, INC.

                          Notes to Financial Statements


(1)   Organization and Summary of Significant Accounting Policies

      (a)  Organization

           Pro Tech  Communications,  Inc.  (the  "Company")  was  organized and
           incorporated  under the laws of the State of Florida  for the purpose
           of  designing,   developing,   producing  and  marketing  lightweight
           telephone  headsets.  The Company presently  manufactures and markets
           its  headsets  primarily  for fast food  companies  and  other  large
           quantity users of headset  systems.  The Company is in the process of
           completing the  development of several designs for the telephone user
           market,  which includes  telephone  operating  companies,  government
           agencies and business offices.  The Company's business strategy is to
           offer  lightweight  headsets with design  emphasis on performance and
           durability at a cost below that of its competitors.

           As a result of the issuance of common stock on September 12, 2000, as
           discussed in note 6, the Company  became a subsidiary  of NCT Hearing
           Products,  Inc., a wholly owned  subsidiary of NCT Group,  Inc. As of
           October 31, 2000,  NCT Hearing  Products,  Inc.  owned  approximately
           82.9% of the outstanding common stock of the Company.

           On December 28, 2000,  the Company  decided to change its year-end to
           conform with NCT Group, Inc., which is December 31. Accordingly,  the
           Company will report on the  two-month  transition  period in its Form
           10-K as of December 31, 2000.

      (b)  Cash and Cash Equivalents

           The Company considers all highly liquid investments  purchased with a
           maturity of three months or less to be cash equivalents.

      (c)  Inventory

           Inventories  are  stated  at the  lower  of cost or  market.  Cost is
           determined using the first-in, first-out (FIFO) method.

      (d)  Revenue and Cost Recognition

           The Company recognizes revenues as products are shipped. Each headset
           carries  a one to two year  warranty,  depending  on the  model.  The
           Company  provides,  by a  current  charge  to  income,  an  amount it
           estimates  that will be needed to cover future  warranty  obligations
           for products sold during the year. The accrued liability for warranty
           costs is included in accrued expenses in the balance sheet.

      (e)  Property and Equipment

           Property and equipment is carried at cost.  Depreciation  is computed
           using the straight-line method over the estimated useful lives of the
           assets,  which are generally 5-10 years. Repair and maintenance costs
           are charged to expense when incurred.

      (e)  Intangible Assets

           Intangible assets consist of licensing rights of certain technologies
           acquired  from NCT Hearing  Products,  Inc.  through the  issuance of
           common  stock  (see  note 6).  Amortization  is  computed  using  the
           straight-line method over the estimated useful lives of the assets of
           17.5  years.  Intangible  assets  are  periodically  reviewed  by the
           Company  for  impairments  where  the  fair  value  is less  than the
           carrying value.  Amortization  expense was $77,655 for the year ended
           October 31, 2000.

      (f)  Income Taxes

           Income taxes are accounted for under the asset and liability  method.
           Deferred tax assets and liabilities are recognized for the future tax
           consequences   attributable  to  differences  between  the  financial
           statement  carrying  amounts of existing  assets and  liabilities and
           their  respective tax bases.  Deferred tax assets and liabilities are
           measured  using enacted tax rates expected to apply to taxable income
           in the years in which those temporary  differences are expected to be
           recovered   or  settled.   The  effect  on  deferred  tax  assets  or
           liabilities  of a change in tax rates is  recognized in income in the
           period that includes the enactment date.

      (g)  Advertising

           The  costs of  advertising,  promotion  and  marketing  programs  are
           charged to operations in the year  incurred.  Advertising  costs were
           $43,143,  $98,738 and $54,424 for the years ended  October 31,  1998,
           1999 and 2000,  respectively,  and were included in selling,  general
           and  administrative   expenses  in  the  accompanying  statements  of
           operations.

      (h)  Research and Development

           Research and  development  costs are expensed  when  incurred and are
           included in selling,  general and administrative expenses. The amount
           charged to expense for the years ended  October  31,  1998,  1999 and
           2000 was $40,815, $70,809 and $41,554, respectively.

      (i)  Fair Value of Financial Instruments

           The estimated fair values of the Company's cash and cash equivalents,
           accounts receivable and current liabilities  approximate the carrying
           amount due to the short-term nature of such financial instruments.

      (j)  Use of Estimates

           The preparation of the Company's  financial  statements in conformity
           with generally accepted accounting  principles requires management to
           make estimates and  assumptions  that affect the reported  amounts of
           assets, liabilities,  revenues and expenses and contingent assets and
           liabilities. Actual results could differ from those estimates.

      (k)  Loss Per Common Share

           The  Company  reports  loss  per  common  share  in  accordance  with
           Statement  of  Financial   Accounting  Standards  ("SFAS")  No.  128,
           "Earnings Per Share."  Generally,  the per share effects of potential
           common  shares  such  as  warrants,  options,  convertible  debt  and
           convertible  preferred  stock have not been  included,  as the effect
           would be  antidilutive  (see note 6).  However,  when preferred stock
           will be convertible to common stock at a conversion rate that is at a
           discount  from the common stock market price at the time of issuance,
           the  discounted   amount  is  an  assured   incremental   yield,  the
           "beneficial conversion feature," to the preferred shareholders and is
           accounted for as an embedded dividend to preferred shareholders.  The
           Company  has  reflected  such  beneficial  conversion  feature  as  a
           preferred  stock  dividend  and  as an  adjustment  to the  net  loss
           attributable to common stockholders.

      (l)  Stock Options

           The Company has adopted the disclosure  only  provisions of Statement
           of Financial  Accounting  Standards  (SFAS) No. 123,  Accounting  for
           Stock-Based   Compensation,   and   continues  to  apply   Accounting
           Principles  Board  Opinion  No.  25 and  related  interpretations  in
           accounting for its stock-based compensation plans.

      (m)  Long-Lived Assets

           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  future  net cash
           flows  expected  to be  generated  by the asset.  If such  assets are
           considered  to  be  impaired,  the  impairment  to be  recognized  is
           measured  by the  amount by which the  carrying  amount of the assets
           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.  There were no such impairments for the years ending October
           31, 1999 and 2000.

      (n)  Concentrations of Credit Risk

           Financial  instruments,  which  potentially  subject  the  Company to
           concentration  of credit risk,  consist of cash and cash  equivalents
           and  trade   receivables.   The  Company   maintains  cash  and  cash
           equivalents  in  accounts  with  various  financial  institutions  in
           amounts,  which at  times,  may be in  excess  of the FDIC  insurance
           limit. As of October 31, 2000, the Company's cash and cash equivalent
           balances  exceeded the FDIC insurance limit by $948,749.  The Company
           has not  experienced any losses on such accounts and does not believe
           it is exposed to any  significant  risk with respect to cash and cash
           equivalents.

           The Company sells its products and services to  distributors  and end
           users in various industries worldwide. The Company regularly assesses
           the realizability of accounts receivable and takes into consideration
           the  value of past due  receivables  and the  collectibility  of such
           receivables, based on credit worthiness. The Company does not require
           collateral or other security to support customer receivables.

           The Company is  currently  sourcing all  components  from several Far
           East   suppliers   who  build  each   component   to  the   Company's
           specifications.  An  interruption  in the supply of a  component  for
           which the Company is unable to readily procure a substitute source of
           supply could  temporarily  result in the Company's ability to deliver
           products on a timely basis,  which in turn could adversely affect its
           operations. To date, the Company has not experienced any shortages of
           supplies.

      (o)  Recent Accounting Standards

           In June 1997, the Financial Standards  Accounting Board (FASB) issued
           Statement No. 130,  Reporting  Comprehensive  Income (Statement 130),
           which   establishes   standards   for   reporting   and   display  of
           comprehensive  income and its  components  in a  financial  statement
           having the same prominence as other financial  statements.  Statement
           130 is effective for years  beginning after December 15, 1997 (fiscal
           year 1999 for the Company).  As of October 31, 2000,  the Company had
           no components considered to be other comprehensive income.

           In June 1999,  the FASB  issued  Statement  No. 133,  Accounting  for
           Derivative  Instruments and Hedging Activities (Statement 133), which
           establishes   accounting  and  reporting   standards  for  derivative
           instruments   and  hedging   activities.   Statement   133   requires
           recognizing  derivatives  as assets or  liabilities at fair value and
           defines certain  conditions  when such  derivatives may be considered
           hedges. In addition,  the FASB issued Statement No. 138, which amends
           Statement  133.  Statement 133, as amended by Statements 137 and 138,
           is effective for fiscal years  beginning  after June 15, 2000 (fiscal
           year 2001 for the Company).  As of October 31, 2000,  the Company had
           no such derivatives.

           In September 2000, the FASB issued Statement No. 140,  Accounting for
           Transfers and Servicing of Financial  Assets and  Extinguishments  of
           Liabilities - a replacement of FASB Statement No. 125. This statement
           replaced  Statement  No.  125  and is  effective  for  transfers  and
           servicing  of financial  assets and  extinguishments  of  liabilities
           occurring  after  March 31,  2001.  Statement  140 is  effective  for
           recognition  and disclosures of certain  securitization  transactions
           for fiscal years ending after December 15, 2000.

           The  Company  does not expect  these new  pronouncements  will have a
           significant impact on the reporting of its financial results.

(2)  Inventory

     Inventory at October 31, 1999 and 2000 consists of the following:

                                                   1999          2000
                                              -------------  ------------

       Raw materials                             96,015        180,347
       Work in process                           70,560         77,766
       Finished goods                           119,308        300,747
                                              -------------  ------------

                                               $285,883       $558,860
                                              =============  ============

(3)  Net Property and Equipment

     The  following is a summary of property  and  equipment at October 31, 1999
     and 2000:

                                                  1999          2000
                                              -------------  ------------

       Production molds                        $184,430      $ 295,621
       Office equipment                          63,957         36,049
       Production equipment                      35,049         66,918
       Leased equipment                          20,471         23,380
       Leasehold improvements                    14,577         29,577
       Vehicles                                   5,557          5,557
       Marketing displays                        16,160         16,160
                                              -------------  ------------

           Total cost                           340,201        473,262
     Less accumulated depreciation and
       amortization                             143,454        194,457
                                              -------------  ------------

           Total                               $196,747      $ 278,805
                                              =============  ============

     Total  depreciation  and  amortization  expense  was  $38,628,  $45,067 and
     $51,546 for the years ended October 31, 1998, 1999 and 2000, respectively.

<PAGE>

(4)  Accrued Expenses

     Accrued expenses consisted of the following at October 31, 1999 and 2000:

                                            1999           2000
                                       --------------  -------------

           Accrued warranty expense    $   78,038      $   78,879
           Other accrued expenses          22,350          23,286
                                       --------------  -------------

                                       $  100,388      $  102,165
                                       ==============  =============

 (5) Notes Payable and Other Financing Arrangements

     On  March  27,  2000,  the  Company  received  a loan  of  $150,000  from a
     stockholder  of the  Company.  The loan matures on March 27, 2001 and bears
     interest at 8.5% per annum, payable at maturity.

     On December 22,  1999,  the Company  entered  into a  short-term  factoring
     arrangement  providing  for  advances  of up to  $300,000,  based on 80% of
     selected  accounts  receivable  factored  under the agreement on a recourse
     basis.  The Company is charged a factoring fee of 1% on each advance,  plus
     2% per month on advances outstanding.  In addition, the minimum fee charged
     per month is 1% of the total factoring plan, or $3,000,  during the life of
     the  agreement,  which is for six months and  automatically  renewable  for
     additional six month terms,  unless  terminated by the Company with 30 days
     notice.  The  Company's  obligations  are  collateralized  by  all  of  the
     Company's account receivable, inventory, and equipment.

     At October 31, 2000,  accounts receivable factored under this agreement and
     still outstanding was $103,223,  of which,  $86,170 had been received under
     the  borrowing  arrangement  and is  classified  as note payable to finance
     company in the accompanying  balance sheet.  Total fees incurred under this
     arrangement  amounted to $25,167 during the year ended October 31, 2000 and
     have been classified as interest expense in the  accompanying  statement of
     operations. The Company terminated this arrangement in December 2000.

(6)  Capital Stock

     On August 11, 2000, the Company's shareholders approved an amendment to the
     Company's  Articles of  Incorporation  to increase the number of authorized
     shares of common stock from  10,000,000 to 40,000,000  and to authorize the
     creation of 1,000,000 shares of non-voting, blank check preferred stock.

     Series A Convertible Preferred Stock

     On September 29, 2000,  the  Company's  Board of Directors  designated  the
     Series A Convertible  Preferred Stock with 1,500  authorized  shares, a par
     value of $0.01 per  share,  and a stated  value of $1,000  per  share.  The
     Series A  preferred  stock has an  accretion  of 4% per annum on the stated
     value  payable upon  conversion or exchange in either cash or common stock.
     Each share of stock is convertible into the Company's 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, less a
     discount  of 20%,  subject  to  certain  adjustments  as set  forth  in the
     Articles of Amendment to Articles of  Incorporation of the Company dated as
     of  September  29,  2000;  or a fixed  price of $0.50,  subject  to certain
     adjustments  as set forth in the  Articles  of  Amendment  to  Articles  of
     Incorporation  of the Company  dated as of September 29, 2000. In addition,
     the  stock  is  exchangeable  for  common  stock  of NCT  Group,  Inc.  Any
     outstanding shares will be manditorily converted on March 31, 2005.

     The  Company,  at its  option,  may redeem up to  $500,000  of the Series A
     preferred stock if the closing bid price is less than $0.50 per share.  The
     redemption  price is equal to 125% of the  stated  value  plus  100% of the
     cumulative 4% accretion.  The stock may be redeemed at the holders'  option
     if the holder of at least  two-thirds of the Series A Preferred Shares then
     outstanding  require such redemption  upon certain events of  noncompliance
     with the  terms of the  Series A  Preferred  Stock  Purchase  Agreement  or
     Registration Rights Agreement.

     On September 29, 2000, the Company entered into an agreement to issue 1,500
     shares of Series A Convertible Preferred Stock for $1,500,000.  The Company
     received  $1,200,025  cash  and  satisfied  $299,975  of notes  payable  in
     exchange for the preferred  stock.  In addition,  under the agreement,  the
     Company  provided  warrants to purchase  4,500,000  shares of the Company's
     common stock. The warrants are exercisable at $0.50 per share and expire on
     October 28, 2003. The Company has the right to require the warrant  holders
     to exercise upon a call by the Company under the following conditions:  one
     third of the  warrants  are callable if the closing bid price of the common
     stock for each of the  previous  fifteen  days equals or exceeds  $0.68 per
     share and the average daily  trading  volume during such period is at least
     150,000 shares;  two thirds of the warrants are callable if the closing bid
     price of the common stock for each of the  previous  fifteen days equals or
     exceeds $0.94 per share and the average  daily  trading  volume during such
     period is at least 150,000 shares; and, all of the warrants are callable if
     the closing bid price of the common stock for each of the previous  fifteen
     days  equals or exceeds  $1.135  per share and the  average  daily  trading
     volume during such period is at least 150,000 shares.

     The following table summarizes warrants to purchase common stock during the
     years ended October 31, 1998 and 2000 (no warrants were outstanding  during
     the year ended October 31, 1999):


                                        1998                      2000
                               ------------------------  -----------------------
                                            Weighted                 Weighted
                                            Average                  Average
                                Shares      Exercise      Shares     Exercise
                                             Price                     Price
                               ---------  -------------  ----------  -----------
   Warrants outstanding,
     beginning of year         1,000,000  $    1.50               -    $     -
   Warrants granted                    -          -       4,500,000       0.50
   Warrants terminated         1,000,000       1.50               -          -
                              ----------  -------------  ----------  -----------

   Warrants outstanding and
     exercisable, end of year          -  $       -       4,500,000    $  0.50
                              ----------  -------------  ----------  -----------

     As of October 31, 2000, the Company's  outstanding warrants have a weighted
     average remaining contractual life of approximately 2.9 years.

     Common Stock

     On September 12, 2000, the Company  acquired  licensing  rights for certain
     technologies  from NCT  Hearing  Products,  Inc.  through  the  issuance of
     23,982,438 shares of common stock, including 279,688 shares of common stock
     for costs of issuance.  The intangible assets received in the exchange were
     valued at the fair value of the Company's stock, which was $16,307,492.

     At October 31, 1999 and 2000,  $4,000 was held in escrow for the benefit of
     the  Company  pending  completion  of the  subscription  agreements  by two
     investors  for 4,000  shares each.  These  receivables  are netted  against
     additional paid-in capital.

     For purposes of determining earnings per share per common stockholder,  the
     Company  estimated  the value of the warrants  issued during the year ended
     October 31, 2000 to be $3,569,000 using the Black-Scholes  valuation method
     prescribed by SFAS No. 123, with the following assumptions:  dividend yield
     of 0%; expected  volatility of 100%;  risk-free interest rate of 5.97%; and
     expected  lives of three years.  In addition,  the value of the  discounted
     conversion  price as of October 31, 2000 was $375,000  based on the average
     closing bid price of approximately  $0.96.  Total accretion on the Series A
     Convertible Preferred Stock as of October 31, 2000 amounted to $5,425.

     As of October 31, 2000, the number of shares of common stock required to be
     reserved  for the  conversion  of  preferred  stock and for the exercise of
     options and warrants, was 8,802,981 shares.

     During the year ended October 31, 1998, the Company's  president was paid a
     salary in cash of $30,000. In addition,  the Company recorded  compensation
     expense of  $15,000,  with a  corresponding  credit to  additional  paid-in
     capital,  to  reflect  the  estimated  fair  value of the  unpaid  services
     provided by the president to the Company.

(7)  Stock Option Plans

     On April 15,  1996,  the Board of  Directors  adopted The 1996 Stock Option
     Plan (the 1996 Plan), for the benefit of directors, officers, employees and
     consultants  to the  Company.  The Plan  authorized  the  issuance of up to
     590,000  shares of common  stock.  On April 15,  1996,  540,000  and 50,000
     shares were granted to the Company's President and officers,  respectively,
     at an option price of $0.50 per share.  The stock option exercise price was
     the fair value at the date of the grant.  On April 13,  1999,  the original
     expiration date of the options,  the Company  extended the options to April
     15, 2001.

     On March 5, 1998, the Board of Directors adopted the 1998 Stock Option Plan
     for the benefit of directors,  officers,  employees and  consultants to the
     Company.  This plan  originally  authorized  the  issuance of up to 500,000
     shares of common  stock and was  increased  to  2,000,000  shares of common
     stock on August 11,  2000.  On August 4, 1998,  200,000 and 100,000  shares
     were granted to the Company's officers and employees,  respectively,  at an
     option price of $0.375 per share.  The stock option  exercise price was the
     fair  market  value of a share of  common  stock at the date of the  grant.
     Options to purchase 150,000 shares of common stock vest and are exercisable
     as follows:  50,000  immediately;  50,000 on August 4, 1999;  and 50,000 on
     August 4, 2000. The remaining options vested  immediately.  All options are
     exercisable over a three-year period from the date of vesting.

     During March and April 2000,  options to purchase  12,000  shares of common
     stock at $0.375 per share were  exercised.  Total proceeds  received by the
     Company amounted to $4,560.

     On April 13, 1999,  the  remaining  1998 Plan  options to purchase  200,000
     shares were  granted to Company  officer,  at an option  price of $0.38 per
     share.  The stock  option  exercise  price was greater than the fair market
     value of a share of common stock at the date of the grant. The options vest
     and are exercisable as follows:  100,000  immediately;  50,000 on April 13,
     2000; and 50,000 on April 13, 2001. The options expire on April 13, 2004.


<PAGE>


     The following table summarizes stock option activity:
<TABLE>
<CAPTION>

                            1998                   1999                   2000
                     --------------------   --------------------  ---------------------
                                Weighted               Weighted              Weighted
                                Average                Average               Average
                                Exercise               Exercise              Exercise
                     Shares     Price       Shares     Price      Shares     Price
                     --------   ---------   ---------  ---------  ---------  ----------
<S>                  <C>        <C>           <C>      <C>        <C>        <C>
 Options outstanding
 beginning of year   540,000    $  0.500      840,000  $  0.455   1,040,000  $  0.441

Options granted      300,000       0.375      200,000     0.380           -         -
Options exercised          -           -            -         -     (12,000)   (0.380)
Options expired            -           -            -         -           -         -
                     --------   ---------   ---------  ---------  ---------  ----------

Options outstanding
 end of year         840,000    $  0.455    1,040,000  $  0.441   1,028,000  $  0.442
                     ========   =========   =========  =========  =========  ==========

Options exercisable
 end of year         740,000    $  0.466      890,000  $  0.451     978,000  $  0.445
                     ========   =========   =========  =========  =========  ==========
</TABLE>

     As of October 31,  2000,  the  Company's  outstanding  stock  options  have
     exercise  prices  ranging  from  $0.375  to $0.50  and a  weighted  average
     remaining contractual life of approximately 1.3 years.

     No  compensation  expense was recorded  during 1998,  1999 and 2000 for the
     options issued to the Company's officers and employees,  in accordance with
     APB 25. Had  compensation  expense been determined on the fair value at the
     date of grant in  accordance  with the  provisions  of  Statement  123, the
     Company's net loss and loss per share  attributable to common  stockholders
     would have been adjusted to the pro forma amounts indicated below:

                                1998          1999         2000
                            ------------  ------------  -----------
        Net loss:
        As reported         $ (223,416)    $(221,065)   $(4,323,765)
                            ============  ============  ===========
        Pro forma           $ (278,280)    $(369,295)   $(4,341,632)
                            ============  ============  ===========

        Loss per share:
        As reported          $   (0.05)     $  (0.05)   $   (0.57)
                            ============  ============  ===========
        Pro forma            $   (0.06)     $  (0.09)   $   (0.58)
                            ============  ============  ===========

     The fair value of each option grant is estimated on the date of grant using
     the Black-Scholes  option-pricing model with the following weighted-average
     assumptions  used for  grants  in  1999:  dividend  yield  of 0%;  expected
     volatility of 141%;  risk-free  interest rate of 5.76%; and, expected lives
     ranging from three to five years.

     The fair value of each option grant is estimated on the date of grant using
     the Black-Scholes  option-pricing model with the following weighted-average
     assumptions  used for  grants  in  1998:  dividend  yield  of 0%;  expected
     volatility of 150%;  risk-free  interest rate of 5.45%; and, expected lives
     of three years.


<PAGE>


(8)  Commitments

     Future  minimum lease  payments under  noncancelable  operating  leases for
     buildings and equipment  and the present  value of future  minimum  capital
     lease payments as of October 31, 2000 are:

          Year ended October 31         Capital Leases      Operating
                                                              Leases
      ------------------------------    ----------------  ---------------

                   2001                  $  7,964           $  2,789
                   2002                     3,676                  -
                   2003                       390                  -

      Total minimum lease payments         12,030                 2,789
                                        ================  ===============

      Less   amount    representing         1,586
      interest
                                        ----------------  ---------------
      Present  value of net minimum
         capital lease payments            10,444

      Less current installments             6,757
                                        ----------------  ---------------

      Obligations under capital
         leases, excluding current       $  3,687
         installments
                                        ----------------  ---------------

     Rent expense under lease agreements  totaled  $24,637,  $32,559 and $41,696
     for the years ended October 31, 1998, 1999 and 2000, respectively.

(9)  Income Taxes

     There was no  provision  for income  taxes for the years ended  October 31,
     1999  and  2000  due to  operating  losses  incurred.  Income  tax  expense
     (benefit) consisted of the following for the year ended October 31, 1998:

                                      Current     Deferred       Total
                                     ----------  ------------  -----------
               1998:
                  Federal            $(6,264)    $    3,800    $   (2,464)
                  State                    -          1,500         1,500
                                     ----------  ------------  -----------

                                     $(6,264)    $    5,300    $     (964)
                                     ==========  ============  ===========

     The actual expense (benefit) differs from the "expected" amount computed by
     applying the U.S.  Federal  corporate income tax rate of 34% to loss before
     income taxes as follows:

                                          1998        1999          2000
                                       ----------  ------------  -----------

     Computed "expected" tax benefit    $(75,961)  $(75,162)     $(127,276)
     Increase (reduction) in income
      taxes resulting from:
        Net operating loss not
           currently utilizable           70,001     75,016       100,873
     Nondeductible amortization                -          -        26,403
     Other nondeductible expenses          4,996        146             -
                                       ----------  ------------  -----------
                                        $   (964)  $      -      $      -
                                       ==========  ============  ===========

     The  exercise  of stock  options in 1997 and 2000,  which had been  granted
     under the  Company's  1996 and 1998 Stock  Option  Plans (see note 7), gave
     rise to compensation  totaling $225,000 and $8,952,  respectively,  that is
     includable in the taxable  income of the  employees  and  deductible by the
     Company  for  federal  and state  income tax  purposes.  Such  compensation
     resulted from  increases in the fair market value of the  Company's  common
     stock  subsequent to the date of grant of the  applicable  exercised  stock
     options and, accordingly,  in accordance with APB 25, such compensation was
     not recognized as an expense for financial reporting purposes.  The related
     tax benefits  will be  reflected as  contributions  to  additional  paid-in
     capital in the periods in which the  compensation  deduction is utilized by
     the  Company  and,  in  accordance  with  APB 25 and  Statement  109,  such
     compensation  deductions  are not  considered to be temporary  differences.
     Such  deductions  have  not been  utilized  by the  Company  due to the net
     operating losses generated in 1999 and 2000.

     The  Company has net  operating  loss  carryforwards  for federal and state
     income tax purposes amounting to $846,000 and $927,000, respectively, which
     expire  through the year 2020.  In accordance  with  Internal  Revenue Code
     Section 382, the Company's net operating loss  carryforwards are subject to
     certain  limitations  resulting  from the  issuance of common  stock to NCT
     Hearing Products, Inc., as discussed in note 6.

     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.

     Deferred income taxes reflect the net tax effects of temporary  differences
     between  the  carrying  amounts of assets  and  liabilities  for  financial
     reporting   purposes  and  the  amounts  used  for  income  tax   purposes.
     Significant components of the Company's deferred tax assets and liabilities
     are as follows:
                                                     1999        2000
                                                   ----------  ----------
        Accounts receivable principally due to
          allowance for doubtful accounts          $  3,700    $   5,200
        Accrued warranty expense                     15,400       15,400
        Net operating loss carryforwards             70,000      124,900
       Contribution carryforwards                       400          500
                                                   ----------  ----------
                                                     89,500      146,000
        Less valuation allowance                     81,700      139,200
                                                   ----------  ----------

       Total deferred tax assets                      7,800        6,800

        Plant and equipment principally due to
          differences in depreciation                 7,800        6,800
                                                   ----------  ----------

       Total deferred tax liabilities                 7,800        6,800
                                                   ----------  ----------

       Net deferred taxes                          $      -    $       -
                                                   ----------  ----------
<PAGE>

(10) Related Party Transactions

     During  fiscal  year 1996,  the  Company  loaned  $28,882 to its  Chairman.
     Outstanding  principal  and  interest,  at 5% per annum,  are due August 2,
     2003.  During  the year ended  October  31,  1998,  the  Company  loaned an
     additional  $3,650 to its  Chairman,  which is due October 31,  2002,  with
     interest at 5% per annum.  Outstanding  principal and interest  amounted to
     $43,743 and $56,824 as of October 31, 1999 and 2000, respectively.

     The Company had an employment  agreement with its former  President,  which
     was  terminated  during 1999.  The agreement  provided for a maximum annual
     salary of $90,000 with  additional  amounts added using the consumer  price
     index as a minimum.  The  President  was  eligible  for the maximum  annual
     salary during a given year only if the Company generated annual sales of at
     least  $2,000,000 and pre-tax income equal to at least 20% of the Company's
     annual sales. Since the Company had not met the minimum  requirements noted
     above, the Board determined the President's compensation accordingly.

     As of October 31, 2000, the Company owed $101,057 to NCT Hearing  Products,
     Inc.,  its  parent  company,  for  various  administrative  and  accounting
     services provided to the Company.

11)  Major Customers

     During 1998,  one customer  accounted  for  approximately  27% of net sales
     generated  during  the year.  During  1999,  two  customers  accounted  for
     approximately  30% of net sales generated during the year. During 2000, two
     customers accounted for approximately 34% of net sales generated during the
     year.

(12)  Fourth Quarter Adjustment

     During the fourth  quarter of the year ended October 31, 2000,  the Company
     recorded a decrease to inventory  and an increase to cost of goods sold for
     approximately  $75,000 to correct an error that occurred  during the second
     quarter of the year ended October 31, 2000.

(13) Subsequent Events

     On November 28, 2000, the Company issued options to purchase 500,000 shares
     of common  stock at $0.4375  per share  under the 1998 Stock  Option  Plan,
     which vest as follows:  125,000 immediately,  125,000 on November 28, 2001,
     125,000 on November 28, 2002, and 125,000 on November 28, 2003. The options
     expire on November 28, 2007

     On  January  4,  2001,  330  shares of  convertible  preferred  stock  were
     converted in exchange for 1,336,170  shares of the Company's  common stock.
     On  January  16,  2001,  20  shares of  convertible  preferred  stock  were
     converted in exchange  for 73,725  shares of common  stock.  On January 19,
     2001, 40 shares of convertible  preferred  stock were converted in exchange
     for 142,058 shares of common stock.

     On January 26,  2001,  the Company  entered  into an agreement to lease new
     office and production  space,  effective  March 1, 2001. The lease provides
     for  monthly  payments  increasing  from  $5,395 to $8,092 over a five-year
     term.