Attached files
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EX-32.2 - Pro-Tech Industries, Inc. | v165561_ex32-2.htm |
EX-32.1 - Pro-Tech Industries, Inc. | v165561_ex32-1.htm |
EX-31.1 - Pro-Tech Industries, Inc. | v165561_ex31-1.htm |
EX-31.2 - Pro-Tech Industries, Inc. | v165561_ex31-2.htm |
U.S.
Securities and Exchange Commission
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x Quarterly
Report Pursuant to Section 13 or 15(d) of
the
Securities Exchange Act of 1934
For the
quarterly period ended September 30, 2009
o Transition
Report Pursuant to Section 13 or 15(d)
of
the Securities Exchange Act
For the
transition period from N/A to N/A
Commission File No. 000-53013
Pro-Tech
Industries, Inc.
(Name of
small business issuer as specified in its charter)
Nevada
|
20-8758875
|
|
State
of Incorporation
|
IRS
Employer Identification No.
|
8540
Younger Creek DR, #2
Sacramento,
CA 95828
(Address
of principal executive offices)
(916)
388-0255
(Issuer’s
telephone number)
(Meltdown
Massage & Body Works, Inc.)
(Former
name or Former Address if Changes Since Last Report)
Securities
registered under Section 12(b) of the Exchange Act:
None
Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock, $0.001 par value per share
(Title
of Class)
Indicate
by check mark whether the Registrant (1) has filed all reports required 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: Yes x
No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes ¨ No
¨
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non–accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b–2 of the Exchange Act. (Check
one):
Large
accelerated filer ¨ Accelerated
filer ¨ Non–Accelerated
filer ¨ Small Business
Issuer x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b–2 of the Exchange Act). Yes ¨ No x
Transitional
Small Business Disclosure Format (check one): Yes ¨ No x
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
Class
|
Outstanding
at November 13, 2009
|
|
Common
stock, $0.001 par value
|
18,630,000
|
PRO-TECH
INDUSTRIES, INC.
(FORMERLY
MELTDOWN MASSAGE AND BODY WORKS, INC.)
INDEX
TO FORM 10-Q FILING
SEPTEMBER
30, 2009
TABLE
OF CONTENTS
PART
I
FINANCIAL
INFORMATION
|
|
Page
Numbers
|
||
PART
I - FINANCIAL INFORMATION
|
|
|||
Item 1.
|
|
Condensed
Consolidated Financial Statements (unaudited)
|
|
|
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Condensed
Consolidated Balance Sheets
|
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4
|
|
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Condensed
Consolidated Statements of Operations
|
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5
|
|
Condensed Consolidated
Statement of Stockholders’ Equity
|
6
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|||
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Condensed
Consolidated Statement of Cash Flows
|
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7
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|
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Notes
to Condensed Consolidated Financial Statements
|
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8
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Item 2.
|
|
Management
Discussion & Analysis of Financial Condition and Results of
Operations
|
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21
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Item 3
|
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Quantitative
and Qualitative Disclosures About Market Risk
|
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27
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Item 4.
|
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Controls
and Procedures
|
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27
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PART
II - OTHER INFORMATION
|
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|||
Item1
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|
Legal
Proceedings
|
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28
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Item1A
|
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Risk
Factors
|
|
28
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Item 2.
|
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Unregistered
Sales of Equity Securities and Use of Proceeds
|
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31
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Item 3.
|
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Defaults
Upon Senior Securities
|
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31
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Item 4.
|
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Submission
of Matters to a Vote of Security Holders
|
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31
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Item 5
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Other
information
|
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31
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Item 6.
|
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Exhibits
|
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31
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Signature
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33
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CERTIFICATIONS
Exhibit
31 – Management certification
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Exhibit
32 – Sarbanes-Oxley Act
|
|
2
PART I
|
FINANCIAL
INFORMATION
|
Item 1.
|
Interim Consolidated Financial Statements and Notes
to Interim
Consolidated Financial
Statements
|
Pro-Tech
Industries, Inc.
(Formerly
Meltdown Massage and Body Works, Inc.)
General
The
accompanying reviewed interim consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q. Therefore,
they do not include all information and footnotes necessary for a complete
presentation of financial position, results of operations, cash flows, and
stockholders' equity in conformity with generally accepted accounting
principles. Except as disclosed herein, there has been no material
change in the information disclosed in the notes to the consolidated financial
statements included in the Company's annual report on Form 10-K for the year
ended December 31, 2008. In the opinion of management, all
adjustments considered necessary for a fair presentation of the results of
operations and financial position have been included and all such adjustments
are of a normal recurring nature. Operating results for the three and
nine months ended September 30, 2009 are not necessarily indicative of the
results that can be expected for the year ending December 31, 2009.
Index
to Financial Statements
Page
|
||
Condensed
Consolidated Balance Sheets as of September 30, 2009 (Unaudited) and
December 31, 2008
|
4
|
|
Unaudited
Condensed Consolidated Statements of Operations for the three months and
nine months ended September 30, 2009 and 2008
|
5
|
|
Unaudited
Condensed Consolidated Statement of Stockholders’ Equity for the nine
months ended September 30, 2009
|
6
|
|
Unaudited
Condensed Consolidated Statement of Cash Flows for the nine months
ended September 30, 2009 and 2008
|
7
|
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
8
~20
|
3
PRO-TECH
INDUSTRIES, INC.
(FORMERLY
MELTDOWN MASSAGE AND BODY WORKS, INC.)
CONDENSED
CONSOLIDATED BALANCE SHEETS
September 30, 2009
|
December 31, 2008
|
|||||||
(unaudited)
|
||||||||
ASSETS | ||||||||
Current
Assets:
|
||||||||
Cash
and cash equivalents
|
$ | 43,050 | $ | 86,895 | ||||
Contract
receivable, net of allowance for doubtful accounts as
of September 30, 2009 and December 31, 2008, of $50,000 and
$110,000, respectively (Note D)
|
3,704,817 | 4,638,401 | ||||||
Costs
and estimated earnings in excess of billings (Note E)
|
560,768 | 146,338 | ||||||
Note
receivable – related party
|
15,000 | 142,543 | ||||||
Other
current assets
|
138,676 | 87,963 | ||||||
Total
current assets
|
4,462,311 | 5,102,140 | ||||||
Property
and equipment: (Note G)
|
717,314 | 587,373 | ||||||
Less:
accumulated depreciation
|
545,056 |
504,028
|
||||||
Net
property and equipment
|
172,258 | 83,345 | ||||||
Other
Assets:
|
||||||||
Intangibles,
net of accumulated amortization as of September 30,
2009 and December 31, 2008, of $107,125 and $20,000, respectively (Note
H)
|
527,929 | - | ||||||
Deposits
|
14,974 | 10,856 | ||||||
TOTAL
ASSETS
|
$ | 5,177,472 | $ | 5,196,341 | ||||
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
||||||||
Current
Liabilities:
|
||||||||
Accounts
payable and accrued expenses (Note I)
|
$ | 1,851,494 | $ | 1,945,178 | ||||
Notes
payable – others –current portion (Note L)
|
210,077 | 172,025 | ||||||
Accruals
on uncompleted contracts (Note E)
|
275,646 | 712,252 | ||||||
Deferred
tax liability - current portion, net (Note K)
|
126,503 | 110,150 | ||||||
Reserve
for loss on uncompleted contracts
|
- | 20,995 | ||||||
Line
of credit (Note J)
|
970,000 | 655,500 | ||||||
Total
current liabilities
|
3,433,720 | 3,616,100 | ||||||
Long
-Term Liabilities:
|
||||||||
Notes
payable- others – long term portion (Note L)
|
468,659 | 518,030 | ||||||
Deferred
taxes payable, net (Note K)
|
42,417 | 148,650 | ||||||
511,076 | 666,680 | |||||||
Commitments
and contingencies (Note O)
|
- | - | ||||||
Stockholders'
Equity: (Note M)
|
||||||||
Common
Stock, $0.001 par value; 70,000,000 shares authorized; 18,630,000
and 14,600,000 shares issued and outstanding at September 30,
2009 and December 31, 2008, respectively (Note
M)
|
18,630 | 14,600 | ||||||
Additional
paid in capital
|
1,517,431 | 898,961 | ||||||
Deferred
compensation
|
(132,375 | ) | - | |||||
Accumulated
deficit
|
(171,010 | ) | - | |||||
Total
stockholders’ equity
|
1,232,676 | 913,561 | ||||||
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$ | 5,177,472 | $ | 5,196,341 |
See
accompanying notes to these unaudited condensed consolidated financial
statements
4
PRO-TECH
INDUSTRIES, INC.
(FORMERLY
MELTDOWN MASSAGE AND BODY WORKS, INC.)
CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Three
Months
Ended
September 30,
2009
|
Three
Months
Ended September 30, 2008
|
Nine months
ended
September
30,
2009
|
Nine months
ended
September 30, 2008
|
|||||||||||||
Net
revenue
|
$ | 4,658,375 | $ | 4,440,578 | $ | 13,728,330 | $ | 11,195,287 | ||||||||
Cost
of sales
|
2,877,595 | 2,293,437 | 8,517,572 | 6,964,961 | ||||||||||||
Gross
profit
|
1,780,780 | 2,147,141 | 5,210,758 | 4,230,326 | ||||||||||||
Operating
Expenses:
|
||||||||||||||||
Depreciation
and amortization (Note G & H)
|
47,270 | 14,058 | 128,153 | 38,776 | ||||||||||||
Selling,
general and administrative
|
1,832,687 | 1,686,813 | 5,261,345 | 3,914,290 | ||||||||||||
Total
Operating Expenses
|
1,879,957 | 1,700,871 | 5,389,498 | 3,953,066 | ||||||||||||
Income
(loss) from Operations
|
(99,177 | ) | 446,270 | (178,739 | ) | 277,260 | ||||||||||
Other
Income (Expense):
|
||||||||||||||||
Interest
expense, net
|
(26,096 | ) | (20,376 | ) | (78,743 | ) | (59,627 | ) | ||||||||
Total
Other Expenses
|
(26,096 | ) | (20,376 | ) | (78,743 | ) | (59,627 | ) | ||||||||
Net
income (loss) before provision for income taxes
|
(125,273 | ) | 425,894 | (257,482 | ) | 217,633 | ||||||||||
Income
tax benefit(expense)
|
56,996 | - | 86,472 | (5,000 | ) | |||||||||||
Net
Income (loss)
|
$ | (68,277 | ) | $ | 425,894 | $ | (171,010 | ) | $ | 212,633 | ||||||
Net
income (loss) per common share outstanding , basic and
diluted
|
$ | (0.01 | ) | $ | 0.04 | $ | (0.01 | ) | $ | 0.02 | ||||||
Weighted average shares outstanding
|
17,872,500 | 10,100,000 | 17,667,079 | 10,100,000 |
See
accompanying notes to these unaudited condensed consolidated financial
statements
5
PRO-TECH
INDUSTRIES, INC.
(FORMERLY
MELTDOWN MASSAGE AND BODY WORKS, INC.)
CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR
THE PERIOD JANUARY 1, 2009 THROUGH SEPTEMBER 30, 2009
(UNAUDITED)
Common Stock
|
Additional
|
Total
|
||||||||||||||||||||||
Shares
|
Amount
|
Paid in
Capital
|
Deferred
Compensation
|
Accumulated
Deficit
|
Stockholders’
Equity
|
|||||||||||||||||||
Balance
at January1, 2009
|
14,600,000 | $ | 14,600 | $ | 898,961 | $ | - | $ | - | $ | 913,561 | |||||||||||||
Shares
issued for Conesco, Inc. @ $0.127 per share
|
3,000,000 | 3,000 | 378,000 | - | - | 381,000 | ||||||||||||||||||
Shares
issued to employees @ $0.144 per share
|
1,000,000 | 1,000 | 143,000 | (108,000 | ) | - | 36,000 | |||||||||||||||||
Shares
issued for board compensation@$3.25
|
30,000 | 30 | 97,470 | (24,375 | ) | 73,125 | ||||||||||||||||||
Net
income
|
- | - | - | - | (171,010 | ) | (171,010 | ) | ||||||||||||||||
Balance
at September 30, 2009
|
18,630,000 | $ | 18,630 | $ | 1,517,431 | $ | (132,375 | ) | $ | (171,010 | ) | $ | 1,232,676 |
See
accompanying notes to these unaudited condensed consolidated financial
statements
6
PRO-TECH
INDUSTRIES, INC.
(FORMERLY
MELTDOWN MASSAGE AND BODY WORKS, INC.)
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Nine months
ended September
30,
2009
|
Nine
months
ended September
30,
2008
|
|||||||
Cash
Flows From Operating Activities:
|
||||||||
Net
(loss) income from operations
|
$ | (171,010 | ) | $ | 212,633 | |||
Adjustments
to reconcile net income (loss) to net cash provided by (used
in) operating activities:
|
||||||||
Depreciation
and amortization
|
128,153 | 38,776 | ||||||
Bad
debt
|
114,858 | 155 | ||||||
Reverse
allowance for doubtful accounts
|
(60,000 | ) | - | |||||
Shares
issued for compensation
|
109,125 | - | ||||||
Reversal
of loss against uncompleted contracts
|
(20,995 | ) | (58,508 | ) | ||||
(Increase)
decrease in:
|
||||||||
Accounts
receivable
|
1,067,995 | 261,283 | ||||||
Other
current assets, net
|
114,295 | (214,943 | ) | |||||
Costs
and estimated earnings in excess of billings
|
(277,425 | ) | 121,156 | |||||
Billings
in excess of costs and estimated earnings
|
(436,606 | ) | 101,784 | |||||
Increase
(decrease) in:
|
||||||||
Deferred
tax liability
|
(106,198 | ) | - | |||||
Accounts
payable and accrued expenses, net
|
(495,882 | ) | (378,703 | ) | ||||
Net
Cash (Used in) Provided by Operating Activities
|
(33,691 | ) | 83,633 | |||||
Cash
Flows From Investing Activities:
|
||||||||
Payment
for purchase of property and equipment
|
(123,436 | ) | (108,873 | ) | ||||
Cash
received on purchase of subsidiary
|
9,043 | - | ||||||
Net
Cash Used In Investing Activities
|
(114,392 | ) | (108,873 | ) | ||||
Cash
Flows From Financing Activities:
|
||||||||
Payment
on principal on long term debt
|
(210,262 | ) | (90,431 | ) | ||||
Payments
for dividend distributions (Note M)
|
- | (426,000 | ) | |||||
Proceeds
from line of credit
|
314,500 | 595,500 | ||||||
Net
Cash Provided by Financing Activities
|
104,238 | 79,069 | ||||||
Net
(decrease) increase in cash and cash equivalents
|
(43,845 | ) | 53,829 | |||||
Cash
and cash equivalents at beginning of period
|
86,895 | 10,653 | ||||||
Cash
and cash equivalents at the end of period
|
$ | 43,050 | $ | 64,482 | ||||
Supplemental
Disclosures of Cash Flow Information:
|
||||||||
Cash
paid during period for interest
|
$ | 78,743 | $ | 57,309 | ||||
Cash
paid during period for taxes
|
$ | - | $ | 5,000 | ||||
Non-Cash
Investing and Financing Transactions:
|
||||||||
Shares
issued for compensation
|
$ | 109,125 | $ | - | ||||
Acquisition:
|
||||||||
Current
assets acquired
|
$ | 338,435 | $ | - | ||||
Equipment
and other assets acquired
|
6,505 | - | ||||||
Intangible
assets acquired
|
615,054 | - | ||||||
Liabilities
assumed
|
(578,994 | ) | - | |||||
Shares
issued as consideration
|
$ | 381,000 | $ | - |
See
accompanying notes to these unaudited condensed consolidated financial
statements
7
PRO-TECH
INDUSTRIES, INC.
(FORMERLY
MELTDOWN MASSAGE AND BODY WORKS, INC.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(UNAUDITED)
NOTE
A - BUSINESS DESCRIPTION
General
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-Q. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. However, the
results from operations for the three and nine month period ended September 30,
2009, are not necessarily indicative of the results that may be expected for the
year ended December 31, 2009. These unaudited condensed consolidated financial
statements should be read in conjunction with the consolidated December 31, 2008
financial statements and footnotes thereto included in the Company's Form 10-K
filed with the Securities and Exchange Commission (the “SEC”).
Business and Basis of
Presentation
Pro-Tech
Industries, Inc. was incorporated under the laws of the State of Nevada on April
4, 2007. On December 31, 2008, the Company merged with and into
Pro-Tech Fire Protection Systems Corp. (“Pro-Tech”). The unaudited
condensed consolidated financial statements include the accounts of Pro-Tech
Industries, Inc., Pro-Tech Fire Protection Systems Corp. and Conesco, Inc., the
operating subsidiaries (collectively, the “Company”).
The
Company’s operating subsidiary, Pro-Tech, was incorporated under the laws of the
State of California on May 4, 1995. Pro-Tech is a full-service contractor
serving the western United States, with offices in California and Nevada.
Services include estimating, designing, fabricating, and installing all types of
standard and specialty water-based fire protection systems. In addition, the
company offers “Day Work” services, including inspecting, testing, repairing and
servicing of same.
On
January 16, 2009, the Company acquired Conesco, Inc. (“Conesco”) in a stock for
stock exchange. Conesco has been a provider of commercial flooring
products, installation, maintenance and design consultation services to
businesses throughout Northern California since 1993. Our work graces
some of the most prestigious properties in Northern California and beyond.
Pro-Tech Flooring’s award-winning team (30 employees) approach has earned the
company a reputation for leading-edge flooring expertise, great service and
first-class products.
All
significant intercompany balances and transactions have been eliminated in
consolidation.
NOTE
B – REVERSE MERGER AND CORPORATE RESTRUCTURE
On
December 31, 2008, the Company consummated a reverse merger by entering into a
share exchange agreement (the “Share Exchange”) with the stockholders of
Pro-Tech, pursuant to which the stockholders of Pro-Tech exchanged all
of the issued and outstanding capital stock of Pro-Tech for 10,100,000 shares of
common stock of the Company representing approximately 74% of the
Company’s outstanding capital stock, Meltdown shareholders retained the
3,500,000 shares of previously issued shares of common stock.
As a
result of the Share Exchange, there was a change in control of the Company. In
accordance with Accounting Standards Codification subtopic 805-10, Business
Combinations (“ASC 805-10) Accounting Standards Codification subtopic 805-10,
Business Combinations (“ASC 805-10),, the Company was the acquiring entity.
In substance, the Share Exchange is a recapitalization of the Company’s capital
structure rather than a business combination.
For
accounting purposes, the Company accounted for the transaction as a reverse
acquisition with the Pro-Tech as the surviving entity. The total purchase price
and carrying value of net assets acquired was $-0-. The
Company did not recognize goodwill or any intangible assets in connection
with the transaction. Prior to the Share Exchange, the Company was an inactive
corporation with no significant assets and liabilities.
8
The
accompanying unaudited condensed consolidated financial statements include the
historical financial condition, results of operations and cash flows of Pro-Tech
prior to the Share Exchange.
All
reference to Common Stock shares and per share amounts have been retroactively
restated to effect the reverse acquisition as if the transaction had taken place
as of the beginning of the earliest period presented.
The total
consideration paid was $3,500 and the significant components of the transaction
are as follows:
December 31, 2008
|
||||
Common
stock retained
|
$
|
3,500
|
||
Assets
acquired
|
(-
|
) | ||
Liabilities
assumed
|
-
|
|||
Total
consideration paid
|
$
|
3,500
|
In
accordance with Accounting Standards Codification subtopic 720-15, Start-up
Costs (“ASC 720-15”), the Company expensed $3,500 as organization
costs.
On May 8,
2009, the Company’s stockholders approved a name change from Meltdown Massage
and Body Works, Inc. to Pro-Tech Industries, Inc. which became effective with
the filing of an amendment to the our Articles of Incorporation on May11,
2009. The Company is now know as Pro-Tech Industries, Inc. and the
new ticker symbol is PTCK.
NOTE
C - SUMMARY OF ACCOUNTING POLICIES
Revenue
Recognition
The
Company recognizes revenues from fixed-price and modified fixed-price
construction contracts on the percentage-of-completion method, measured by the
percentage of cost incurred to date to estimated total cost for each contract.
That method is used because management considers total cost to be the best
available measure of progress on the contracts. Because of inherent
uncertainties in estimating costs, it is at least reasonably possible that the
estimates used will change within the near term. The Company also recognizes
revenue from non-fixed price (time and materials) contracts. The
revenue from these contracts is billed monthly and is based on actual time and
material costs which have occurred on the job for the billing
period.
Contract
costs include all direct material and labor costs and those indirect costs
related to contract performance, such as indirect labor, supplies, tools,
repairs, and depreciation. Selling, general, and administrative costs are
charged to expense as incurred. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined. Changes in
job performance, job conditions, and estimated profitability may result in
revisions to costs and income, which are recognized in the period in which the
revisions are determined. Changes in estimated job profitability resulting from
job performance, job conditions, contract penalty provisions, claims, change
orders, and settlements, are accounted for as changes in estimates in the
current period.
Revenue
on contracts can be derived from different disciplines and is accounted for on a
consolidated basis by job to see overall performance, as well as the ability to
break the job down by discipline to see how each contributes to the overall
performance of the job.
The
asset, “Costs and estimated earnings in excess of billings on uncompleted
contracts,” represents revenues recognized in excess of amounts billed. The
liability, “Billings in excess of costs and estimated earnings on uncompleted
contracts,” or “accruals on uncompleted contracts” represents billings in excess
of revenues recognized.
Contract
Receivables
Contract
receivables are recorded when invoices are issued and are presented in the
balance sheet net of the allowance for doubtful accounts. Contract receivables
are written off when they are determined to be uncollectible. The allowance for
doubtful accounts is estimated based on the Company’s historical losses, the
existing economic conditions in the construction industry, and the financial
stability of its customers.
Inventory
The
Company keeps an immaterial amount of parts from jobs on hand. The
materials consist of small parts such as sprinkler heads, gaskets, pipe joints,
etc. which mainly come from closed jobs. They get used for repair
work or filler when jobs run short.
9
Advertising
The
Company follows the policy of charging the costs of advertising to expenses
incurred. The Company incurred $24,416 and $28,849, of advertising costs for the
nine months ended September 30, 2009 and 2008, respectively.
Income
Taxes
In
accordance with Accounting Standards Codification subtopic 740-10, Income Taxes
(“ASC 740-10”) deferred income taxes are the result of the expected future tax
consequences of temporary differences between the financial statement and tax
basis of assets and liabilities. Generally, deferred income taxes are classified
as current or non-current in accordance with the classification of the related
asset or liability. Items that are not related to an asset or liability are
classified as current or non-current depending on the periods in which the
temporary differences are expected to reverse. A valuation allowance is provided
against deferred income tax assets in circumstances where management believes
the recoverability of a portion of the assets is not reasonably assured. Losses
incurred, if any, are carried forward as applicable Accounting Standards
Codification subtopic 740-10, Income Taxes (“ASC 740-10”) and the Internal
Revenue Code and potentially may be used to offset taxable net income generated
in the future. The Company had previously elected to be treated as a subchapter
“S” corporation for federal tax purposes. The reverse merger caused
the Company to lose its subchapter “S” corporation status. The
Company became responsible for $849,628 in deferred income that carried forward
from 2007 when Pro-Tech was forced to change from cash to accrual based
taxpayer. Pro-Tech took a 481a election to spread the acceleration
over 4 years. The Company provides for income taxes based on pre-tax
earnings reported in the consolidated financial statements. Certain items such
as depreciation are recognized for tax purposes in periods other than the period
they are reported in the consolidated financial statements. Following
the reverse merger status, beginning, January 1, 2009, the Company became a
C-Corp and subject to standard quarterly taxes provisions. Results of
operations may not be comparable to prior results.
Cash
Equivalents
For
purposes of the Statements of Cash Flows, the Company considers all highly
liquid debt instruments purchased with a maturity date of three months or less
to be cash equivalents.
Property and
Equipment
Property
and equipment are stated at cost and depreciated over their estimated useful
lives of 3 to 10 years using the straight-line method as follows:
5-7years
|
|
Automobiles
|
5
years
|
Computer
Software
|
3
years
|
3-7years
|
|
Leasehold
improvements
|
life
of the lease agreement where
appropriate
|
Maintenance
and repairs to automobiles, equipment, furniture and computers is expensed as
incurred. There is no reevaluation of useful life as most of the
assets are short term in nature and the repairs or maintenance are in the normal
course of the operating life of the asset. Upon disposal of assets,
the Company reduces the asset account and the accumulated depreciation account
for the balances at that point in time. The difference between the
amounts received greater than the book value is recognized as a gain and if the
amount is less than the book value is recognized as a
loss. Depreciation is not included in cost of goods
sold.
Long-Lived
Assets
The
Company has adopted Accounting Standards Codification subtopic 360-10, Property,
Plant and Equipment (“ASC 360-10”).. ASC 360-10 requires that long-lived assets
and certain identifiable intangibles held and used by the Company be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Events relating to
recoverability may include significant unfavorable changes in business
conditions, recurring losses, or a forecasted inability to achieve break-even
operating results over an extended period. The Company evaluates the
recoverability of long-lived assets based upon forecasted undiscounted cash
flows. Should any impairment in value be indicated, the carrying value of
intangible assets will be adjusted, based on estimates of future discounted cash
flows resulting from the use and ultimate disposition of the
asset. ASC 360-10 also requires assets to be disposed of be reported
at the lower of the carrying amount or the fair value less costs to
sell.
10
Concentrations of Credit
Risk
Financial
instruments and related items, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash, cash equivalents and
receivables. The Company places its cash and temporary cash
investments with credit quality institutions. At times, such
investments may be in excess of the FDIC insurance limit. The Company
periodically reviews its contract receivables in determining its allowance for
doubtful accounts. The allowance for doubtful accounts was $50,000 and $110,000
as of September 30, 2009 and December 31, 2008, respectively.
Basic and Diluted Earnings
(Loss) Per Share
Basic and
diluted income or loss per common share is based upon the weighted average
number of common shares outstanding during the three and nine months ended
September 30, 2009 and 2008, under the provisions of Accounting Standards
Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”), “Earnings Per
Share” and as amended/superseded in “Compensation” (“ASC 718-10”). As the
Company had net loss for the nine months ended September 30, 2009 and net income
for the nine month periods ended September 30, 2008. The Company did not have
any common stock equivalent issued or outstanding as of September 30, 2009 or
for any other earlier period. Non-vested shares have been excluded as
common stock equivalents in the diluted earnings per share because they are
either anti-dilutive, or their effect is not material.
Stock Based
Compensation
The
Company adopted Accounting Standards Codification subtopic 718-10, Compensation
(“ASC 718-10”), Accounting for Stock-Based Compensation, to account for
compensation costs under our stock option plans. In adopting ASC 718-10, company
elected to use the modified prospective method to account for the transition
from the intrinsic value method to the fair value recognition method. Under the
modified prospective method, compensation cost is recognized from the adoption
date forward for all new stock options granted and for any outstanding unvested
awards as if the fair value method had been applied to those awards as of the
date of grant. We had no outstanding unvested awards at the adoption date or
earlier period. The Company uses the fair value method for equity
instruments granted to non-employees and uses the Black Scholes model for
measuring the fair value. The stock based fair value compensation is determined
as of the date of the grant or the date at which the performance of the services
is completed (measurement date) and is recognized over the periods in which the
related services are rendered.
Comprehensive
Income
The
Company adopted Accounting Standards Codification subtopic 220-10, Comprehensive
Income (“ASC 220-10”). ASC 220-10 establishes standards for the reporting and
displaying of comprehensive income and its components. Comprehensive income is
defined as the change in equity of a business during a period from transactions
and other events and circumstances from non-owners sources. It includes all
changes in equity during a period except those resulting from investments by
owners and distributions to owners. ASC 220-10 requires other comprehensive
income (loss) to include foreign currency translation adjustments and unrealized
gains and losses on available for sale securities.
Segment
Information
Accounting
Standards Codification subtopic Segment Reporting 280-10 (“ASC 280-10”)
establishes standards for reporting information regarding operating segments in
annual financial statements and requires selected information for those segments
to be presented in interim financial reports issued to stockholders. ASC 280-10
also establishes standards for related disclosures about products and services
and geographic areas. Operating segments are identified as components of an
enterprise about which separate discrete financial information is available for
evaluation by the chief operating decision maker, or decision-making group, in
making decisions how to allocate resources and assess performance. The
information disclosed herein materially represents all of the financial
information related to the Company’s principal operating segment.
Use of
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly actual results
could differ from those estimates.
11
Fair
Value
In
January 2008, the Company adopted the Accounting Standards Codification subtopic
825-10, Financial Instruments (“ASC 825-10”) which defines fair value for
accounting purposes, establishes a framework for measuring fair value and
expands disclosure requirements regarding fair value measurements. The Company’s
adoption of ASC 825-10 did not have a material impact on its consolidated
financial statements. Fair value is defined as an exit price, which is the price
that would be received upon sale of an asset or paid upon transfer of a
liability in an orderly transaction between market participants at the
measurement date. The degree of judgment utilized in measuring the fair value of
assets and liabilities generally correlates to the level of pricing
observability. Financial assets and liabilities with readily available, actively
quoted prices or for which fair value can be measured from actively quoted
prices in active markets generally have more pricing observability and require
less judgment in measuring fair value. Conversely, financial assets and
liabilities that are rarely traded or not quoted have less price observability
and are generally measured at fair value using valuation models that require
more judgment. These valuation techniques involve some level of management
estimation and judgment, the degree of which is dependent on the price
transparency of the asset, liability or market and the nature of the asset or
liability. At September 30, 2009 and December 31, 2008 the Company did not have
any financial assets measured at fair value on a recurring basis.
Reclassifications
Certain
reclassifications have been made to conform prior period data to the current
presentation. These reclassifications had no effect on reported
income.
New Accounting
Pronouncements
Effective
July 1, 2009, the Company adopted the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) 105-10, Generally Accepted Accounting
Principles – Overall (“ASC 105-10”). ASC 105-10 establishes the FASB Accounting Standards
Codification (the “Codification”) as the source of authoritative
accounting principles recognized by the FASB to be applied by nongovernmental
entities in the preparation of financial statements in conformity with U.S.
GAAP. Rules and interpretive releases of the SEC under authority of federal
securities laws are also sources of authoritative U.S. GAAP for SEC registrants.
All guidance contained in the Codification carries an equal level of authority.
The Codification superseded all existing non-SEC accounting and reporting
standards. All other non-grandfathered, non-SEC accounting literature not
included in the Codification is non-authoritative. The FASB will not issue new
standards in the form of Statements, FASB Staff Positions or Emerging Issues
Task Force Abstracts. Instead, it will issue Accounting Standards Updates
(“ASUs”). The FASB will not consider ASUs as authoritative in their own right.
ASUs will serve only to update the Codification, provide background information
about the guidance and provide the bases for conclusions on the change(s) in the
Codification. References made to FASB guidance throughout this document have
been updated for the Codification. ASC 105 is effective for financial statements
issued for interim and annual periods ending after September 15,
2009
Effective
January 1, 2008, the Company adopted FASB ASC 820-10, Fair Value Measurements and
Disclosures – Overall (“ASC 820-10”) with respect to its financial assets
and liabilities. In February 2008, the FASB issued updated guidance related to
fair value measurements, which is included in the Codification in ASC 820-10-55,
Fair Value Measurements and
Disclosures – Overall – Implementation Guidance and Illustrations. The
updated guidance provided a one year deferral of the effective date of ASC
820-10 for non-financial assets and non-financial liabilities, except those that
are recognized or disclosed in the financial statements at fair value at least
annually. Therefore, the Company adopted the provisions of ASC 820-10 for
non-financial assets and non-financial liabilities effective January 1,
2009, and such adoption did not have a material impact on the Company’s
consolidated results of operations or financial condition.
Effective
April 1, 2009, the Company adopted FASB ASC 820-10-65, Fair Value Measurements and
Disclosures – Overall – Transition and Open Effective Date Information
(“ASC 820-10-65”). ASC 820-10-65 provides additional guidance for estimating
fair value in accordance with ASC 820-10 when the volume and level of activity
for an asset or liability have significantly decreased. ASC 820-10-65 also
includes guidance on identifying circumstances that indicate a transaction is
not orderly. The adoption of ASC 820-10-65 did not have an impact on the
Company’s consolidated results of operations or financial
condition.
Effective
April 1, 2009, the Company adopted FASB ASC 825-10-65, Financial Instruments – Overall –
Transition and Open Effective Date Information (“ASC 825-10-65”). ASC
825-10-65 amends ASC 825-10 to require disclosures about fair value of financial
instruments in interim financial statements as well as in annual financial
statements and also amends ASC 270-10 to require those disclosures in all
interim financial statements. The adoption of ASC 825-10-65 did not have a
material impact on the Company’s consolidated results of operations or financial
condition
Effective
July 1, 2009, the Company adopted FASB ASU No. 2009-05, Fair Value Measurements and
Disclosures (Topic 820) (“ASU 2009-05”). ASU 2009-05 provided amendments
to ASC 820-10, Fair Value
Measurements and Disclosures – Overall, for the fair value measurement of
liabilities. ASU 2009-05 provides clarification that in circumstances in which a
quoted price in an active market for the identical liability is not available, a
reporting entity is required to measure fair value using certain techniques. ASU
2009-05 also clarifies that when estimating the fair value of a liability, a
reporting entity is not required to include a separate input or adjustment to
other inputs relating to the existence of a restriction that prevents the
transfer of a liability. ASU 2009-05 also clarifies that both a quoted price in
an active market for the identical liability at the measurement date and the
quoted price for the identical liability when traded as an asset in an active
market when no adjustments to the quoted price of the asset are required are
Level 1 fair value measurements. Adoption of ASU 2009-05 did not have a material
impact on the Company’s consolidated results of operations or financial
condition.
12
In
October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue
Arrangements, (amendments to FASB ASC Topic 605, Revenue Recognition) (“ASU
2009-13”) and ASU 2009-14, Certain Arrangements That Include
Software Elements, (amendments to FASB ASC Topic 985, Software) (“ASU
2009-14”). ASU 2009-13 requires entities to allocate revenue in an
arrangement using estimated selling prices of the delivered goods and services
based on a selling price hierarchy. The amendments eliminate the residual method
of revenue allocation and require revenue to be allocated using the relative
selling price method. ASU 2009-14 removes tangible products from the scope
of software revenue guidance and provides guidance on determining whether
software deliverables in an arrangement that includes a tangible product are
covered by the scope of the software revenue guidance. ASU 2009-13 and ASU
2009-14 should be applied on a prospective basis for revenue arrangements
entered into or materially modified in fiscal years beginning on or after
June 15, 2010, with early adoption permitted. The Company does not expect
adoption of ASU 2009-13 or ASU 2009-14 to have a material impact on the
Company’s consolidated results of operations or financial
condition.
FASB ASC
855, Subsequent Events (“ASC 855” and formerly referred to as FAS-165), modified
the subsequent event guidance. The three modifications to the subsequent events
guidance are: 1) To name the two types of subsequent events either as recognized
or non-recognized subsequent events, 2) To modify the definition of subsequent
events to refer to events or transactions that occur after the balance sheet
date, but before the financial statement are issued or available to be issued
and 3) To require entities to disclose the date through which an entity has
evaluated subsequent events and the basis for that date, i.e. whether that date
represents the date the financial statements were issued or were available to be
issued. This guidance is effective for interim or annual financial periods
ending after June 15, 2009, and should be applied prospectively.
Stock
based compensation is recognized as provided under FASB ASC 718-10 and FASB ASC
505-50 (Prior authoritative literature: FASB Statement 123(R), “Share Based
Payment.”)FASB ASC 718-10 requires all share-based payments to employees,
including grants of employee stock options, to be recognized as compensation
expense over the requisite service period (generally the vesting period) in the
financial statements based on their fair values
In April
2008 the FASB issued ASC 350-30 (formerly FSP No. 142-3), Determination of the
Useful Life of Intangible Assets, which amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under ASC 350-10 (formerly SFAS
142). This pronouncement requires enhanced disclosures concerning a company’s
treatment of costs incurred to renew or extend the term of a recognized
intangible asset. It is effective for financial statements issued for fiscal
years beginning after December 15, 2008. We determined that the standard will
not have a material impact on our consolidated financial
statements.
Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not, or are not believed by
management to, have a material impact on the Company’s present or future
consolidated financial statements.
NOTE D – CONTRACT
RECEIVABLES
Contract
receivables at September 30, 2009 and December 31, 2008 consist of the
followings:
September 30, 2009
|
December 31, 2008
|
|||||||
Contracts
receivables
|
$ | 2,940,536 | $ | 3,576,558 | ||||
Retention
receivables
|
814,281 | 1,171,843 | ||||||
Allowance
for doubtful accounts
|
(50,000 | ) | (110,000 | ) | ||||
$ | 3,704,817 | $ | 4,638,401 |
NOTE E – UNCOMPLETED
CONTRACTS
At
September 30, 2009 and December 31, 2008, costs, estimated earnings, and
billings on uncompleted contracts are summarized as follows:
September 30, 2009
|
December 31, 2008
|
|||||||
Costs
incurred to date on uncompleted contracts
|
$ | 3,957,974 | $ | 9,987,580 | ||||
Estimated
earnings
|
1,588,908 | 1,103,017 | ||||||
5,546,882 | 11,090,597 | |||||||
Less:
billed revenue to date
|
(5,261,760 | ) | (11,656,510 | ) | ||||
$ | 285,122 | $ | (565,914 | ) | ||||
Costs
and estimated earnings in excess of billings
|
$ | 560,768 | $ | 146,338 | ||||
Less:
accruals on uncompleted contracts
|
(275,646 | ) | (712,252 | ) | ||||
$ | 285,122 | $ | (565,914 | ) |
13
NOTE
F – BACKLOG
The
following schedule summarizes changes in backlog on contracts from January 1,
2009 through September 30, 2009. Backlog represents the amount of revenue the
Company expects to realize from work to be performed on uncompleted contracts in
progress at year end and from contractual agreements on which work has not yet
begun.
Backlog
balance at January 1, 2008
|
$ | 8,453,476 | ||
New
contracts for the nine month ended September 30, 2008
|
6,396,424 | |||
Add:
contract adjustments
|
2,993,764 | |||
Less:
revenue for the nine month ended September 30, 2008
|
(11,195,288 | ) | ||
Backlog
balance at September 30, 2008
|
$ | 6,648,376 |
Backlog
balance at January 1, 2009
|
$ | 4,089,892 | ||
New
contracts for the nine months ended September 30,
2009
|
15,602,461 | |||
Add:
contract adjustments
|
196,334 | |||
Less:
revenue for the nine months ended September 30, 2009
|
(13,728,330 | ) | ||
Backlog
balance at September 30, 2009
|
$ | 6,160,357 | ||
In
addition to the backlog balance as of September 30, 2009, as above, the Company
had a total of $3,485,000 customer contracts in the process of
finalization.
NOTE G – PROPERTY AND
EQUIPMENT
Major
classes of property and equipment at September 30, 2009 and December 31, 2008
consist of the followings:
September 30, 2009
|
December 31, 2008
|
|||||||
Vehicles
|
$ | 196,949 | $ | 196,948 | ||||
Leasehold
improvements
|
86,384 | 57,973 | ||||||
Office
equipments
|
205,309 | 160,185 | ||||||
Tools
and other equipment
|
228,672 | 172,267 | ||||||
717,314 | 587,373 | |||||||
Less:
accumulated depreciation
|
(545,056 | ) | (504,028 | ) | ||||
Net
Property and Equipment
|
$ | 172,258 | $ | 83,345 |
Depreciation
expense was $41,028 and $35,776 for the nine months ended September 30, 2009 and
2008, respectively and $16,520 and $13,058 for the three months ended September
30, 2009 and 2008, respectively.
NOTE
H – ASSETS ACQUISITION/INTANGIBLES
Intangibles
consist of a non-compete agreement and the customer list.
The
following summarizes intangible assets at September 30, 2009 and December 31,
2008:
September 30, 2009
|
December 31, 2008
|
|||||||
Non-Compete
agreement
|
$ | 20,000 | $ | 20,000 | ||||
Intangibles:
Customer List
|
615,054 | - | ||||||
Less:
accumulated amortization
|
107,125 | 20,000 | ||||||
Net
Intangibles
|
$ | 527,929 | $ | - |
14
On
January 16, 2009, the Company entered in to an agreement for the exchange of
common stock (“merger”) with the shareholders of Conesco (“Conesco
Shareholders”) and Conesco, Inc. (“Conesco”). The Company issued
3,000,000 restricted shares of its common stock valued at $381,000 in exchange
for all outstanding shares of Conesco. Conesco became a wholly owned subsidiary
of the Company.
The total
purchase price and carrying value of net assets acquired was
$381,000. The Company recognized customer list as intangible
assets in connection with the transaction. At the time of the acquisition, there
was no active market for the Company’s common stock. As a result,
the Company’s management estimated the fair value of the shares issued
based on a valuation model, which management believes approximates the fair
value of the net assets acquired.
In
accordance with Accounting Standards Codification subtopic 805-10, Business
Combinations, the total purchase price was allocated to the estimated fair value
of assets acquired and liabilities assumed. The estimate of fair value of the
assets acquired was based on management’s estimates. The Company
plans to utilize a valuation specialist to re-estimate these values in the near
future and accordingly, these value estimates may change in the near
future. The total purchase price was allocated to the assets and
liabilities acquired as follows:
Cash
and other current assets
|
$
|
338,435
|
||
Equipment
and other assets
|
6,505
|
|||
Intangible
assets
|
615,054
|
|||
Liabilities
|
(578,994
|
)
|
||
Total
purchase price
|
$
|
381,000
|
Intangibles
of $615,054 represented the excess of the purchase price over the fair value of
the net tangible assets acquired. The Company will amortize the
intangibles over 5 years and will review the value of the intangibles to
account for any possible impairment as per guidance in ASC 350 during the twelve
months ended December 31, 2009 and beyond until the value of the asset is deemed
impaired.
The
following data presents unaudited pro forma revenues, net loss and basic and
diluted net loss per share of common stock for the Company as if the
acquisitions discussed above, had occurred on January 1, 2008. The
Company has prepared these pro forma financial results for comparative purposes
only. These pro forma financial results may not be indicative of the
results that would have occurred if the Company had completed these acquisitions
at the beginning of the periods shown below or the results that will be attained
in the future.
Year
Ended December 31, 2008
|
||||||||||||
As Reported
|
Pro
Forma Adjustments
|
Pro
Forma
|
||||||||||
Revenues
|
$ | 16,487,525 | $ | 1,016,187 | $ | 17,503,712 | ||||||
Net
income (loss)
|
$ | 6,578 | $ | (123,681 | ) | $ | (117,103 | ) | ||||
Net
loss per common share outstanding - basic & diluted
|
$ | .00 | $ | .00 | $ | (.01 | ) | |||||
Weighted
average common shares outstanding - basic & diluted
|
10,100,000 | 10,100,000 |
NOTE
I – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts
payable and accrued liabilities at September 30, 2009 and December 31,
2008:
September 30, 2009
|
December 31, 2008
|
|||||||
Accounts
payable
|
$ | 1,745,657 | $ | 1,741,225 | ||||
Accrued
payroll and vacation
|
28,893 | 187,826 | ||||||
Accrued
payroll taxes
|
43,215 | 1,247 | ||||||
Other
liabilities
|
33,729 | 14,880 | ||||||
Total
|
$ | 1,851,494 | $ | 1,945,178 |
15
NOTE
J – BANK LINES OF CREDIT
The
Company has a line of credit with Westamerica Bank in the amount of
$1,000,000. The line of credit is secured by substantially all of the
assets of the Company and guaranteed by the Company’s principal
stockholders. In addition, entities owned and controlled by the
Company’s principal stockholders are co-makers on the line of credit and have
pledged substantially all of the assets as security for the line of credit (see
Note N). The line of credit bears interest at the Bank Rate minus
0.5%, per annum, with interest due and payable monthly and expires on June 30,
2010. The balance outstanding under the line of credit at September
30, 2009 and December 31, 2008 amounted to $970,000 and $655,500, respectively.
The Company is required to maintain certain bank loan covenants. At
September 30, 2009, the Company was not in compliance with certain bank loan
covenants.
NOTE
K – DEFERRED TAXES
ASC
740-10 requires the recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statement or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between financial statements
and tax bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse.
On
January 1, 2007, the Pro-Tech changed from cash basis to accrual basis for the
recognition of income taxes. The Company elected to pro-rate the
initial tax catch up over 4 years as allowed by Section 481. At
December 31, 2008, the Company had for federal income tax purposes a net
deferred tax liability of $258,800.
Components
of the net deferred tax liability are as follows:
Nine months ended
September 30, 2009
|
||||
Deferred
tax assets
|
||||
Allowances
|
$ | 19,970 | ||
Timing
differences on amortization of intangibles
|
23,198 | |||
Total
gross deferred tax assets
|
43,168 | |||
Deferred
tax liabilities
|
||||
Section
481 carryforward
|
$ | 212,088 | ||
Total
gross deferred tax liabilities
|
212,088 | |||
Net
deferred tax liability
|
$ | 168,920 |
NOTE
L – NOTES PAYABLE
Notes
payable at September 30, 2009 and December 31, 2008 are as follows:
September 30, 2009
|
December 31, 2008
|
|||||||
Note
payable to Bank, interest at 7.76% per annum; secured by substantially all
of the Company’s assets; with monthly principal and interest payments of
$13,090.68, due February, 2012. The Note is guaranteed by the Company’s
principal stockholders. In addition, entities owned and controlled by the
Company’s principal stockholders are co-makers of the Note and have
pledged substantially all of their assets as security for the Note (see
Note N).
|
$ | 344,723 | $ | 440,055 | ||||
Note
payable to Bank, interest at 8.0% per annum; secured by substantially all
of the Conesco assets; with monthly principal and interest payments of
$3,766.86, due August, 2012. The Note is guaranteed by the Company’s
principal stockholders.
|
117,593 | - | ||||||
Note
payable to Bank, interest at 5.5% per annum; secured by substantially all
of the Company’s assets; with monthly principal and interest payments of
$4,776.33, due December, 2013. The Note is guaranteed by the Company’s
principal stockholders. In addition, entities owned and controlled by the
Company’s principal stockholders are co-makers of the Note and have
pledged substantially all of their assets as security for the Note (see
Note N).
|
216,420 | 250,000 | ||||||
Total
notes payable
|
678,736 | 690,055 | ||||||
Less:
current portion
|
210,077 | 172,025 | ||||||
Notes
payable – long term
|
$ | 468,659 | $ | 518,030 |
16
Aggregate
maturities of long-term debt as of September 30, 2009 are as
follows:
Year
ended
|
Amount
|
|||
September
30, 2010
|
$ | 210,077 | ||
September
30, 2011
|
223,728 | |||
September
30, 2012
|
175,892 | |||
September
30, 2013
|
55,054 | |||
September
30, 2014
|
13,985 | |||
Total
|
$ | 678,736 |
NOTE
M – CAPITAL STOCK
The
Company is authorized to issue 70,000,000 shares of common stock with $0.001 par
value per share. As of September 30, 2009 and December 31, 2008, the Company had
18,630,000 and 14,600,000 shares of common stock issued and outstanding,
respectively.
During
the nine months ended September 30, 2009 and 2008, the Company distributed
dividends to the owner’s, while still a private company (2008), totaling $0 and
$426,000, respectively.
On
January 16, 2009, the Company issued 3,000,000 shares of common stock valued at
$381,000 for the purchase of Conesco, Inc. (see Note H above).
On
January 19, 2009, the Company issued 1,000,000 shares of common stock valued at
$144,000 as compensation.
On May
28, 2009, the Company issued 30,000 shares to its board of directors valued at
$97,500 as compensation.
NOTE
N - RELATED PARTY TRANSACTIONS
Two
stockholders of the Company are co-owners of an entity that provides charter air
service, and on occasion, the Company utilizes this entity for air travel
services in connection with the Company’s contracting. The Company
incurred and charged to operations costs of $81,777 and $111,297 in the nine
months ended September 30, 2009 and 2008 in connection with air travel
services provided by the entity to the Company. There were no payables owed to
the entity at September 30, 2009 and 2008, respectively.
The
entity is a co-maker of a line of credit and a note payable and has pledged
substantially all of its assets to secure the line of credit (see Note J) and
note payable (see Note L).
NOTE
O - COMMITMENTS AND CONTINGENCIES
Operating Lease
Commitments
The
Company leases office space under non-cancelable operating leases that expire
through December 2011. The Company also leases vehicles from Enterprise
Fleet Services under non-cancelable operating leases expiring through March
2013. There are also office equipment leases running through January
2014.
Future
minimum lease payments for the above leases over the next three years are as
follows:
Amount
|
||||
2010
|
$ | 210,926 | ||
2011
|
142,072 | |||
2012
|
34,787 | |||
2013
|
11,490 | |||
2014
|
1,496 | |||
$ | 400,771 |
17
For the
nine months ended September 30, 2009 and 2008, rent expense was $156,509 and
$97,053, respectively. For the nine months ended September 30,
2009 and 2008, vehicle lease expense was $178,271 and $214,792,
respectively. For the three months ended September 30, 2009 and 2008, rent
expense was $66,879 and $32,890, respectively. For the three months
ended September 30, 2009 and 2008, vehicle lease expense was $76,410 and
$65,590, respectively.
Litigation
In
September, the Pro-Tech Fire Protection Systems Corp was named in a suit by a
local bank. The Company believes that it has meritorious defenses to
the plaintiff’s claims and intends to vigorously defend itself against the
Plaintiff’s claims. Management believes the ultimate outcome of this matter will
not have a material adverse effect on the Company’s consolidated financial
position or results of operations. The Company will seek recourse for
any costs it incurs in defending itself against this claim.
Surety
Bonds
A certain
number of our construction projects require us to maintain a surety
bond. The bond surety company requires additional guarantees for
issuance of the bonds. The three largest stockholders of Pro-Tech
have personally guaranteed these bonds. There is currently no
remuneration to these stockholders for these guarantees.
NOTE
P – SEGMENT INFORMATION
The
Company is managed by specific lines of business including fire protection and
alarm and detection, electrical, telecommunications and flooring. The Company’s
management makes financial decisions and allocates resources based on the
information it receives from its internal management system on each of its lines
of business. Certain other expenses associated with the public company status
are reported at the Meltdown parent company level, not within the subsidiaries.
These expenses are reported separately in this footnote. The Company’s
management relies on the internal management system to provide sales and cost
information by line of business.
Summarized
financial information by line of business for the three and nine months
ended September 30, 2009 and September 30, 2008, as taken from the internal
management system previously discussed, is listed below. Information for the
three and nine months ended September 30, 2008 does not include any data
from electrical, telecommunications or flooring, as those acquisitions/startups
were not completed by those dates.
Revenue
|
Three
months ended
|
Nine
months ended
|
||||||||||||||
Sept 30, 2009
|
Sept 30, 2008
|
Sept 30, 2009
|
Sept 30, 2008
|
|||||||||||||
Fire
Protection/Alarm & Detection
|
$ | 2,217,259 | $ | 4,440,578 | $ | 7,615,419 | $ | 11,195,287 | ||||||||
Telecommunications
|
1,208,308 | - | 3,232,813 | - | ||||||||||||
Flooring
|
1,018,154 | - | 2,455,471 | - | ||||||||||||
Electrical
|
214,654 | - | 424,627 | - | ||||||||||||
Total
|
$ | 4,658,375 | $ | 4,440,578 | $ | 13,728,330 | $ | 11,195,287 |
Gross
Profit
|
Three
months ended
|
Nine
months ended
|
||||||||||||||
Sept 30, 2009
|
Sept 30, 2008
|
Sept 30, 2009
|
Sept 30, 2008
|
|||||||||||||
Fire
Protection/Alarm & Detection
|
$ | 1,166,363 | $ | 2,147,141 | $ | 3,604,618 | $ | 4,230,326 | ||||||||
Telecommunications
|
273,325 | - | 777,901 | - | ||||||||||||
Flooring
|
292,751 | - | 768,556 | - | ||||||||||||
Electrical
|
48,341 | - | 59,683 | - | ||||||||||||
Total
|
$ | 1,780,780 | $ | 2,147,141 | $ | 5,210,758 | $ | 4,230,326 |
Operating
Income (Loss)
|
Three
months ended
|
Nine
months ended
|
||||||||||||||
Sept 30, 2009
|
Sept 30, 2008
|
Sept 30, 2009
|
Sept 30, 2008
|
|||||||||||||
Fire
Protection/Alarm & Detection
|
$ | 283,901 | $ | 1,282,071 | $ | 929,988 | $ | 1,765,855 | ||||||||
Telecommunications
|
163,594 | (14,518 | ) | 402,297 | (14,518 | ) | ||||||||||
Flooring
|
169,076 | - | 441,831 | - | ||||||||||||
Electrical
|
(29,904 | ) | - | (120,812 | ) | - | ||||||||||
Corporate
|
(685,844 | ) | (821,283 | ) | (1,832,043 | ) | (1,474,077 | ) | ||||||||
Total
|
$ | (99,177 | ) | $ | 446,270 | $ | (178,739 | ) | $ | 277,260 |
18
Depreciation/Amortization
|
Three
months ended
|
Nine
months ended
|
||||||||||||||
Sept 30, 2009
|
Sept 30, 2008
|
Sept 30, 2009
|
Sept 30, 2008
|
|||||||||||||
Fire
Protection/Alarm & Detection
|
$ | 6,954 | $ | 10,756 | $ | 20,862 | $ | 31,281 | ||||||||
Telecommunications
|
3,164 | - | 3,164 | - | ||||||||||||
Flooring
|
627 | - | 2,380 | - | ||||||||||||
Electrical
|
210 | - | 490 | - | ||||||||||||
Corporate
|
36,315 | 3,302 | 101,257 | 7,495 | ||||||||||||
Total
|
$ | 47,270 | $ | 14,058 | $ | 128,153 | $ | 38,776 |
Interest
|
Three
months ended
|
Nine
months ended
|
||||||||||||||
Sept 30, 2009
|
Sept 30, 2008
|
Sept 30, 2009
|
Sept 30, 2008
|
|||||||||||||
Fire
Protection/Alarm & Detection
|
$ | - | $ | - | $ | - | $ | - | ||||||||
Telecommunications
|
- | - | - | - | ||||||||||||
Flooring
|
2,420 | - | 9,008 | - | ||||||||||||
Electrical
|
- | - | - | - | ||||||||||||
Corporate
|
23,676 | 20,376 | 69,735 | 59,627 | ||||||||||||
Total
|
$ | 26,096 | $ | 20,376 | $ | 78,743 | $ | 59,627 |
Assets
Sept 30, 2009
|
December 31, 2008
|
|||||||
Fire
Protection/Alarm & Detection
|
$ | 2,492,985 | $ | 5,196,341 | ||||
Telecommunications
|
768,161 | - | ||||||
Flooring
|
1,204,311 | - | ||||||
Electrical
|
152,000 | - | ||||||
Corporate
|
560,015 | - | ||||||
TOTAL
|
$ | 5,177,472 | $ | 5,196,341 |
Capital Expenditures
Sept 30, 2009
|
Sept 30, 2008
|
|||||||
Fire
Protection/Alarm & Detection
|
$ | 13,900 | $ | 108,873 | ||||
Telecommunications
|
- | - | ||||||
Flooring
|
- | - | ||||||
Electrical
|
- | - | ||||||
Corporate
|
109,536 | - | ||||||
TOTAL
|
$ | 123,436 | $ | 108,873 |
NOTE
Q - MAJOR CUSTOMERS AND SUPPLIERS
The
company had three customers (representing 9 separate jobs) accounting for
47% of the total revenue for the nine months ended September 30, 2009 and
two jobs which accounted for 38% of the total revenue for the nine months
ended September 30, 2008. The company had two customers
accounting for 42% of the total revenue for the three months ended September 30,
2009 and two jobs which accounted for 30% of the total revenue for the three
months ended September 30, 2008. The Company often has multiple jobs
running under some customers, but the jobs will have different owners and
therefore should not necessarily be considered one customer from the standpoint
of concentration.
Purchases
from the Company’s three major vendors accounted for 43% of purchases for the
nine months ended September 30, 2009 and were approximately 65% for the nine
months ended September 30, 2008. Purchases from the Company’s two
major vendors accounted for 36% of purchases for the three months ended
September 30, 2009 and were approximately 58% for the three months ended
September 30, 2008. There are multiple vendors available to get
materials and the Company does not run a risk of shortage due to the loss of any
of the vendors.
19
NOTE
R – EMPLOYEE BENEFITS PLAN
The
Company sponsors a defined contribution 401(k) plan covering substantially all
full-time employees, which provides for the Company matching the participant's
elective deferral up to 3% of their annual gross income. The Company's
expense for the plan was $57,300 and $45,707, for the nine months
ended September 30, 2009 and 2008, respectively and $17,050 and $15,662 for
the three months ended September 30, 2009 and 2008, respectively.
NOTE
S - SUBSEQUENT EVENTS
There are
no subsequent events that are material in nature to be disclosed at this
time.
20
Unless
otherwise noted, references in this Form 10-Q to “Pro-Tech”, “we”, “us”, “our”,
and the “Company” means Pro-Tech Industries, Inc., a Nevada corporation.
Our principal place of business is located at 8540 Younger Creek Drive #2,
Sacramento, CA 95828. Our telephone number is (916)
388-0255.
ITEM
2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following discussion and analysis should be read in conjunction with our
consolidated financial statements and related notes thereto included
elsewhere in this registration statement. Portions of this document that are not
statements of historical or current fact are forward-looking statements that
involve risk and uncertainties, such as statements of our plans, objectives,
expectations and intentions. The cautionary statements made in this registration
statement should be read as applying to all related forward-looking statements
wherever they appear in this registration statement. From time to time, we may
publish forward-looking statements relative to such matters as anticipated
financial performance, business prospects, technological developments and
similar matters. The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements. All statements other than statements
of historical fact included in this section or elsewhere in this report are, or
may be deemed to be, forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Important factors that could cause actual
results to differ materially from those discussed in such forward-looking
statements include, but are not limited to, the following: changes in the
economy or in specific customer industry sectors; changes in customer
procurement policies and practices; changes in product manufacturer sales
policies and practices; the availability of product and labor; changes in
operating expenses; the effect of price increases or decreases; the variability
and timing of business opportunities including acquisitions, alliances, customer
agreements and supplier authorizations; our ability to realize the anticipated
benefits of acquisitions and other business strategies; the incurrence of debt
and contingent liabilities in connection with acquisitions; changes in
accounting policies and practices; the effect of organizational changes within
the Company; the emergence of new competitors, including firms with greater
financial resources than ours; adverse state and federal regulation and
legislation; and the occurrence of extraordinary events, including natural
events and acts of God, fires, floods and accidents.
Forward-looking
statements involve risks, uncertainties and other factors, which may cause our
actual results, performance or achievements to be materially different from
those expressed or implied by such forward-looking statements. Factors and risks
that could affect our results and achievements and cause them to materially
differ from those contained in the forward-looking statements include those
identified in the section titled “Risk Factors” in the Company’s Annual Report
on Form 10-K for the period ended December 31, 2008, as well as other factors
that we are currently unable to identify or quantify, but that may exist in the
future.
In addition, the foregoing factors
may affect generally our business, results of operations and financial position.
Forward-looking statements speak only as of the date the statement was made. We
do not undertake and specifically decline any obligation to update any
forward-looking statements.
OVERVIEW
On
December 31, 2008, we executed an agreement with Pro-Tech Fire Protection
Systems Corp (“Pro-Tech Fire” or “Pro-Tech Fire Protection Systems”), and our
company (the
"Agreement"), whereby pursuant to the terms and conditions
of that Agreement, Pro-Tech Fire shareholders acquired ten
million one hundred thousand (10,100,000) shares of our common stock,
whereby Pro-Tech Fire would become a wholly owned subsidiary of our
company. The predecessor to our company was incorporated in the State
of Nevada on April 4, 2007, and was a development stage company with the
principal business objective of becoming a chain of professional body treatment
and skin care service centers. On May 8, 2009 at the annual meeting,
the stockholders and board of directors approved and officially changed our name
to Pro-Tech Industries, Inc.
Pro-Tech
Fire was incorporated on May 4, 1995 under the laws of the State of California
to engage in any lawful corporate undertaking, including, but not limited to;
installation, repair and inspections of fire protection systems in commercial,
military and industrial settings.
PRO-TECH
FIRE PROTECTION SYSTEMS CORP
Pro-Tech
Fire Protection Systems is a full-service contractor serving the western United
States, with offices in California and Nevada. Services include estimating,
designing, fabricating, and installing all types of standard and specialty
water-based fire protection systems. In addition, our company offers “Day Work”
services, including inspecting, testing, repairing and servicing of
same.
We serve
the new construction market, as well as customers retro-fitting, upgrading or
repairing their existing facilities, bringing existing facilities to current
standards (for example, installing sprinklers at a customer’s expanded storage
warehouse, etc.).
21
Pro-Tech
Fire services include:
¨
|
Commercial,
Special Hazards, and Industrial Overhead Wet Pipe, Dry Pipe, Pre-Action,
Deluge, and Foam
|
|
¨
|
New
Installations, Retro-Fits, Upgrades, Repairs, Design, Consultations, and
Analysis
|
¨
|
Pumps,
Hydrants, Backflow Preventers, Underground, Design, and
Consultation
|
|
¨
|
5
Year Certification, Inspections and
Testing
|
¨
|
24
Hour Service
|
|
¨
|
Alarm
& Detection installation, inspections and repairs, and third party
monitoring
|
¨
|
Electrical
Services including design build, new construction, repairs, inspections
and maintenance
|
|
¨
|
Network
cabling, system and structure testing and data networking and
design
|
Pro-Tech
Telecommunications
Pro-Tech
Telecommunications provides inside/outside plant installation/implementation
services, telecommunications hardware/software deployment (voice systems),
maintenance support services, on-site technicians for telecommunications
upgrades, and cable system design services. In addition, Pro-Tech
Telecommunications also has a full data networking group that can design,
configure, and deploy custom data networking solutions based on individual
client needs. Pro-Tech Telecommunications provides the following
services to commercial, government and other business enterprises.
Services
Offered:
Infrastructure
Systems/Services
¨
|
Building
Riser and Campus Systems
|
|
¨
|
Cabinet
and Rack Installation
|
¨
|
Cable
Tagging and Documentation
|
|
¨
|
Communications
Rooms, MDF, IDF
|
¨
|
Optical
and Copper Cable Installation
|
|
¨
|
Raceway
Systems
|
¨
|
Wireless
Connectivity Solutions
|
Low
Voltage Systems
¨
|
Security
Systems
|
|
¨
|
Fire
Alarm
|
¨
|
Card
Access Control
|
|
¨
|
CATV
|
¨
|
Video
Surveillance
|
Network
Systems
¨
|
Enterprise
architecture strategy
|
|
¨
|
Systems
integration
|
¨
|
IT
infrastructure, implementation, and support
|
|
¨
|
Network
security and remote access
solutions
|
¨
|
Authentication
|
Voice
Systems
¨
|
PBX
|
|
¨
|
Key
system
|
¨
|
VoIP
|
We
differentiate ourselves through our commitment to the highest degree of
structure, efficiency and quality practices. We are experts at
providing solutions that precisely fit our client's needs. We do not manufacture
equipment and are vendor agnostic when providing equipment solutions (i.e. we
will install customer or vendor owned/provided equipment). Our mission is to
provide cost-effective, high quality services and solutions to enhance the
competitive position of our clients, using creative and innovative
approaches.
22
Pro-Tech
Electrical
Pro-Tech
Electrical Services Division is a full service Electrical contractor providing
reliable and quality workmanship throughout California. Our capacities are not
limited to commercial and industrial project but, to a vast range of electrical
construction projects. Our primary bid focus has been in the areas
of heavy commercial such as large distribution centers, commercial retail
(shopping centers, etc.), and institutional work (schools, churches, etc.) We
strive to provide competitive pricing for the commercial and industrial bid
market. We furnish detailed and competitive pricing, value engineering options,
and a team approach to our clients. Pro-Tech Electrical provides the
following services to commercial, government and other business
enterprises:
Electrical
Services
¨
|
Building
riser and campus systems
|
|
¨
|
Underground
service upgrades and installation
|
¨
|
Installation
of power switchboards services, Motor Control Centers (MCC) and/or
upgrades.
|
|
¨
|
New
emergency generators, controls and transfer
switches.
|
¨
|
UPS
(Uninterruptible Power Systems) and upgrades.
|
|
¨
|
Fuse
and Circuit Breaker upgrade and
installations
|
¨
|
Interior/
exterior Lighting and related controls.
|
|
¨
|
Site
lighting installation and upgrades
|
¨
|
Security
lighting
|
|
¨
|
Industrial
electrical projects including explosion proof equipment and
installations.
|
¨
|
Building
riser and campus systems
|
|
¨
|
Load
analysis
|
¨
|
Commercial
and industrial maintenance
|
Conesco,
Inc.
On
January 16, 2009, we issued 3,000,000 shares to shareholders of Conesco, Inc.
(“Conesco”), as part of an acquisition, whereby Conesco became our wholly owned
subsidiary.
Since
1993, Conesco has been a provider of commercial flooring products, installation,
maintenance and design consultation services to businesses throughout Northern
California. In management’s opinion, our work graces some of the most
prestigious properties in Northern California and beyond. Conesco’s team
approach has earned it a reputation, in management’s opinion, for leading-edge
flooring expertise, great service and first-class products. Conesco,
Inc. offers the following products and services:
¨
|
Professional
design and specification consultation
|
|
¨
|
Material
and installation of carpet, resilient, ceramic stone, and wood
flooring
|
¨
|
Material
and installation of raised access/Clean Room flooring
|
|
¨
|
Modular
wiring and under-floor HVAC delivery
systems
|
¨
|
Ongoing
maintenance services
|
|
¨
|
Green
building consultation
|
¨
|
Consultation
and expertise in complex/unique flooring
installations
|
We
believe Conesco, Inc.’s expertise in the field of commercial and industrial
flooring has allowed them to work with the following premier building
contractors in Northern California:
¨
|
Roebbelen
Contracting
|
|
¨
|
McCarthy
Construction
|
¨
|
Howard
S. Wright
|
|
¨
|
MP
Allen
|
Competition
The
competition is divided among many players in our four markets. The
market is highly fragmented and there is not a dominate player in any of the
markets. Two of the larger competitors are as follows:
23
Cosco –
Cosco is a multifaceted, full service fire protection contractor, providing
design, fabrication, installation service and inspection of a wide variety of
automatic fire suppression systems. The company specializes in large
construction projects including hospitals, high-rise structures, hotels, large
office and manufacturing facilities. The company maintains
experienced staff including engineers, designers, project managers and
installers. Cosco has offices in Los Angeles, San Francisco, Seattle,
Fresno, San Diego, and Anchorage.
Tyco/Grinnell
(NYSE: TYC) - Tyco International, Ltd. operates as a diversified manufacturing
and services company. The company, through its subsidiaries, designs,
manufactures, and distributes electronic security and fire protection systems;
electrical and electronic components; and medical devices and supplies, imaging
agents, pharmaceuticals, and adult incontinence and infant care products. Tyco’s
fire and security products and services include electronic security systems,
fire detection systems and suppression systems, as well as fire extinguishers
and related products. The company’s electrical and electronic components
comprise electronic/electrical connector systems; fiber optic components; and
wireless devices, such as private radio systems, heat shrink products, circuit
protection devices, and magnetic devices.
Employees
We have
approximately 85 full time employees including 13 executive and administrative
staff, 5 in engineering, 7 in sales and marketing, with the balance working in
the field as superintendants, foreman, journeyman or apprentices.
Recent
Developments
None
Results
of Operations
Three Months Ended September 30, 2009
Compared to Three Months Ended September 30, 2008
Revenues
were approximately $4,658,375 for the three months ended September 30, 2009, an
increase of approximately $217,796, or 5%, from revenues of approximately
$4,440,579 for the three months ended September 30, 2008. This increase was
primarily the results of the new divisions which were not a part of our 2008
operations. These divisions added approximately $2,441,116, with the
revenue coming from the divisions as follows: telecommunications $1,208,308,
flooring $1,018,154, and electrical $214,654. Fire protection saw a
decrease of approximately $2,223,319 over the prior period. This
demonstrates the competitive nature management has observed in all of our
divisions due to the economy, but is more visible in the analysis of same
division revenues. We continue to work with our long standing
customer base as well as creating new relationships to help weather the economic
downturn. Our backlog has increased from the quarter ended June 30,
2009 by approximately $2.2 million dollars and we expect, but can provide no
assurances, it to grow as awarded bids previously announced get contracts
finalized and the projects begin. See Footnote F of June and September
financials.
Gross
profit decreased to approximately $1,780,780 for the three months ended
September 30, 2009 from approximately $2,147,142 for the three months ended
September 30, 2008. This decrease of approximately $366,362, or 17.06%, was
primarily due to the decrease in margin percent from 48.2% to 38.4%, or
$435,177. This is offset by the increase in sales at the current
margin. Materials as a percent of cost of sales decreased about 27%
and direct labor about 16%. The decreases are primarily attributable
to the fact that both the flooring and telecommunications groups use subcontract
labor, which has increased our “other” direct costs
substantially. The margin decrease is primarily due to the increased
competition to gain jobs as well as tighter margins in our newer
divisions. We are seeing fewer private works jobs and an increase in
the number of contractors bidding on the public works jobs.
Selling,
general and administrative expenses were approximately $1,832,687 for the three
months ended September 30, 2009 compared to approximately $1,686,813 for the
three months ended September 30, 2008. The general and administrative cost
related to revenues increased to 39% for three months ended September 30, 2009
compared to 38% for the three months ended September 30, 2008. The
increase is partially a result of an increase in legal and accounting expenses
of approximately $121,360 due to defense of the union and bank lawsuits, for
which the union suit has been settled and increase in accounting fees associated
with review and reporting requirements. We had not previously had
reviews prepared for its quarterly results, causing the reviews of 2009 to add
costs not previously incurred. The remainder of the increase was
primarily attributable to salaries and benefits for staffing. We
added the telecommunications and electrical divisions, as well as the Conesco
acquisition, none of which were active in the nine months ended September 30,
2008. These three areas accounted for approximately $107,000, 78,000
and $123,000, respectively, of the total increase in selling, general and
administrative costs for the quarter. These costs are partially
offset by a onetime cost from 2008 for costs incurred from merger
activity. See discussion under Selling, general and
administrative in nine month review section for analysis of annual savings
actions of the Company.
Depreciation
and amortization expense increased to $47,270 for the three months ended
September 30, 2009 compared to $14,058in the three months ended September 30,
2008. We had minimal investments in fixed assets and depreciation
expense is relatively flat. The increase came from the intangible
amortization related to the Conesco purchase.
24
Net
interest expense increased to $26,096 for the three months ended September 30,
2009 compared to $20,374 for the three months ended September 30, 2008. This
increase was primarily due to the use of the line of credit for working capital
purposes as well as new term loans from the bank in December 2008 and Conesco in
June 2009.
Nine Months Ended September 30, 2009
Compared to Nine Months Ended September 30, 2008
Revenues
were approximately $13,728,330 for the nine months ended September 30, 2009, an
increase of approximately $2,533,042, or 23%, from revenues of approximately
$11,195,287 for the nine months ended September 30, 2008. This increase was
primarily the results of the new divisions which were not a part of our 2008
operations. These divisions added approximately $6,112,911, with the
revenue coming from the divisions as follows: telecommunications $3,232,813,
flooring $ 2,455,471, and electrical $424,627. Fire protection saw a
decrease of approximately $3,579,868 over the prior year (47%). This
demonstrates the competitive nature management has observed in all of our
divisions due to the economy, but is more visible in the analysis of same
division revenues. We continue to work with our long standing
customer base as well as creating new relationships to help weather the economic
downturn. Our backlog has increased from the quarter ended June 30, 2009 by
approximately $2.2 million dollars and we expect, it to grow as awarded bids
previously announced get contracts finalized and the projects begin. See
footnote F of June and September financials.
Gross
profit increased to approximately $5,210,759 for the nine months ended September
30, 2009 from approximately $4,230,327 for the nine months ended September 30,
2008. This increase of approximately $980,432 or 23% was primarily due to the
increase in revenues of approximately $2,533,042 million at the gross margin of
38%, or $ 962,556. The gross margin of 38% in 2009 is an increase over the 37.8%
achieved in 2008. This margin increase accounts for the remaining
increase. Materials as a percent of cost of sales decreased about
13.2% and direct labor about 18.4%. The decreases are primarily
attributable to the fact that both the flooring and telecommunications groups
use subcontract labor which increased other direct costs as a percentage of cost
of sales by 31.7%.
Selling,
general and administrative expenses were approximately $5,261,345 for the nine
months ended September 30, 2009 compared to approximately $3,914,290 for the
nine months ended September 30, 2008. The selling, general and administrative
cost related to revenues increased to 38% for nine months ended September 30,
2009 in compared to 35% for the nine months ended September 30,
2008. The increase is partially a result of an increase in legal and
accounting expense of approximately $384,194 due to defense of the union and
bank lawsuits, for which the union suit has been settled and increase in
accounting fees associated with review and reporting requirements. We
had not previously had audits or reviews done for its quarterly results, causing
the reviews of 2009 to add costs not previously incurred. The
remainder of the increase was primarily attributable to salaries and benefits
for staffing. We added the telecommunications and electrical
divisions, as well as the Conesco acquisition, none of which were active in the
nine months ended September 30, 2008. These three areas accounted for
approximately $372,000, 180,000 and $324,000, respectively, of the total
increase in selling, general and administrative costs for the
quarter. These costs are partially offset by a onetime cost from 2008
for costs incurred from merger activity of $418,686 which was not incurred in
2009. Management has reviewed staffing and made cuts which, on an
annual basis, management believes will save the Company in excess of $250,000 in
overhead costs. Costs related to a lawsuit which was recently settled
were incurred primarily during the first two quarters of the year also will not
be reoccurred going forward (approximately $80,000). The nine months
also have costs incurred which represents the last in which we will require
review of multiple years by its accountants for its financials, an expected
reduction of approximately $75,000 beginning in 2010 with all other things being
equal.
Depreciation
and amortization expense increased to $128,153 for the nine months ended
September 30, 2009 compared to $38,776 in the nine months ended September 30,
2008. We had minimal investments in fixed assets and depreciation
expense is relatively flat. The increase came from the intangible
amortization related to the Conesco purchase.
Net
interest expense increased to $78,743 for the nine months ended September 30,
2009 compared to $59,626 for the nine months ended September 30, 2008. This
increase was primarily due to the use of the line of credit for working capital
purposes as well as new term loans from the bank in December 2008 and Conesco in
June 2009.
Income
tax benefit increased to $86,472 for the nine months ended September 30, 2009
from expense $5,000 for the nine months ended September 30, 2008. This is
approximately $91,472 lower due mainly to the change in tax structure from an
S-Corp to a C-Corp for 2009 and the deferred tax changes for
amortization.
25
Liquidity and Capital
Resources
Liquidity:
For the
nine months ended September 30, 2009, we experienced a net loss of $171,010. At
September 30, 2009, we had $43,050 in cash. Accounts receivable, net of
allowances for doubtful accounts, were $3,704,817 at September 30, 2009, which
at approximately 83% of assets is approximately 16 % lower than at December 31,
2008, this decrease is primarily attributable the increase in intangibles of
approximately $ 527,929 related to the Conesco purchase as well as a
reduction due to collection of approximately $358,000 in retention
receivables.
At
September 30, 2009, we had working capital of $1,028,591, compared to working
capital of $1,486,040 at December 31, 2008. The ratio of current assets to
current liabilities decreased slightly 1.30:1 at September 30, 2009 compared to
1.41:1 at December 31, 2008. The September 2008 ratio was
1.37:1. Cash flow used by operations during the nine months
ended September 30, 2009 was $33,691 as compared to cash provided by operations
of $83,633 for the nine months ended September 30, 2008. Management anticipates
that our existing capital resources will be adequate to satisfy its capital
requirements for the foreseeable future.
Our
principal liquidity at September 30, 2009 included cash of $43,050 and
$3,704,817 of net accounts receivable. Our management believes that our
liquidity position remains sufficient enough to support on-going general
administrative expense, strategic positioning, and the garnering of contracts
and relationships.
Cash
Flow
For the
nine months ended September 30, 2009, we had negative cash flow from operations
of $33,691 as compared to cash provided by operations of $83,633 for the same
period in 2008. This $117,324 decrease is primarily due to the increased loss of
approximately $383,643 as compared to the same period last year. This
was partially offset by an increase in 2009 of non cash items totaling $164,943
compared to a use of cash of $19,578 in 2008. The September 2009
quarter also showed a use of cash for accounts payable of approximately $496,000
compared to approximately $379,000 in the previous year. We also saw
a tightening of billing practices within our customer base. This led
to tighter billings which led to use of cash by reducing our billings in excess
of cost by approximately $437,000 where last period showed it as a receipt of
cash of approximately $102,000. We recognized a use of cash as we
increased our costs in excess of billings approximately $277,000 for the period
compared to providing approximately $121,000 last period. We also
were able to use its deposits and advances and prepaid expenses as a source of
approximately $114,000 compared to it being a use last period of approximately
$215,000.
Investing
activity consisted of the purchase of computers of approximately $123,000 and
$109,000 for the nine months ended September 30, 2009 and 2008,
respectively. We also are preparing a new office to combine our
Sacramento divisions in one building. They are covering the leasehold
improvements and expect, but cannot guarantee, to take possession during the
fourth quarter.
Financing
activity for 2009 consisted of net payments on long term debt obligations of
$210,262 offset by line of credit borrowings of $314,500. For 2008, there
was a dividend paid to the owners or Pro-Tech Fire for tax payments of $426,000,
long term debt payments of $90,431 with borrowings off the line of credit of
$595,500.
With
recent cuts in corporate and selling, general and administrative costs,
management anticipates our cash flow will be positive for the remainder of
2009.
Capital
Resources:
Line
of Credit Facility
The line
of credit facility is primarily used to fund short-term changes in working
capital. The total capacity of the facility at September 30, 2009 was
$1,000,000. Our management believes that sufficient liquidity exists but may
seek approval to increase the facility to $1.5 million in the future if
considered necessary. Our management believes the line of credit facility
provides adequate liquidity and financial flexibility to support our expected
growth in fiscal 2009 and beyond.
The
facility contains customary financial covenants require us to maintain certain
financial ratios, including an asset coverage ratio and dollars, debt to equity
ratio and a tangible net worth requirement. Non-compliance with any of these
ratios or a violation of other covenants could result in an event of default and
reduce availability under the facility. We are currently not in compliance with
three of the total of five covenants and have full availability under the
facility.
Effective
August 10, 2009, our company executed a new credit facility increasing the line
to $1,000,000. The interest rate remains at .5% less than the
lender’s index rate, currently 4.5% and the maturity date was reset to June 30,
2010. With the renewal of this credit facility the lender reset
customary financial covenants requiring us to maintain certain financial ratios,
including an asset coverage ratio and dollars, debt to equity ratio and a
tangible net worth requirement.
26
Should
the current financing arrangements prove to be insufficient for our current
needs; we are willing to go to the capital markets to raise the necessary
capital to meet these needs.
Long
Term Notes
Long term
notes with original principal balances totaling $900,000, were issued through
our bank on February 3, 2007 ($650,000) and December 31, 2008, ($250,000). The
notes were are payable over 5 years and will be paid off on or about February 1,
2012 and December 31, 2013. The notes carry interest rates of 7.76%
and 5.5% respectively. These notes are held by the same bank the Company uses
for its banking and where the line of credit is held. At September
30, 2009, the outstanding balance on these notes was $561,142.
In June
2009, Conesco’s bank termed out its line of credit, into a three year
note. The note is for $120,000 and is due July 2012. The
note carries interest of 8%. At September 30, 2009, the outstanding
balance on this note was $117,593.
Critical
Accounting Estimates and Recently Issued Accounting Standards
Please
refer to Note C to the financial statements.
Inflation
In the
opinion of management, inflation will not have an impact on the Company’s
financial condition and results of its operations.
Off-Balance
Sheet Arrangements
We do not
have any off balance sheet arrangements that are reasonably likely to have a
current or future effect on our financial condition, revenues, and results of
operations, liquidity or capital expenditures.
Other
Considerations
There are
numerous factors that affect the business and the results of its
operations. Sources of these factors include general economic and
business conditions, federal and state regulation of business activities, the
level of demand for product services, the level and intensity of competition in
the media content industry, and the ability to develop new services based on new
or evolving technology and the market's acceptance of those new services, our
ability to timely and effectively manage periodic product transitions, the
services, customer and geographic sales mix of any particular period, and our
ability to continue to improve our infrastructure including personnel and
systems to keep pace with our anticipated rapid growth.
Additional
Information
We file
reports and other materials with the Securities and Exchange
Commission. These documents may be inspected and copied the
Commission’s Public Reference Room at 100 F Street, N.E., Washington, D.C.
20549. The public may obtain information on the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330. The
Commission maintains a web site at http://www.sec.gov that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the Commission.
ITEM 3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not
hold any derivative instruments and do not engage in any hedging
activities.
ITEM
4. CONTROLS AND PROCEDURES
Our
principal executive officer and our principal financial officer, evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures as such term is defined under Rule 13a-15(e) promulgated under
the Securities Exchange Act of 1934, as amended (Exchange Act), as of the last
day of the fiscal period covered by this report, September 30,
2009. The term disclosure controls and procedures means our controls
and other procedures that are designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the SEC’s rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is accumulated and communicated to management, including
our principal executive and principal financial officer, or persons performing
similar functions, as appropriate to allow timely decisions regarding required
disclosure.
27
Our
principal executive officer and our principal financial officer, are responsible
for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act
Rules 13a-15(f). Our principal executive officer and our
principal financial officer are required to base their assessment of
the effectiveness of our internal control over financial reporting on a
suitable, recognized control framework, such as the framework developed by the
Committee of Sponsoring Organizations (COSO). The COSO framework,
published in Internal
Control-Integrated Framework, is known as the COSO Report. Our
principal executive officer and our principal financial officer, have chosen the
COSO framework on which to base their assessment. Based on this
evaluation, our principal executive officer and our principal financial officer
concluded that our internal control over financial reporting was effective as of
September 30, 2009.
Management’s
report was not subject to attestation by our registered public accounting firm
pursuant to temporary rules of the Securities and Exchange Commission that
permit us to provide only management’s report in our annual reports on Form 10-K
for the annual reporting periods through December 31, 2009.
It should
be noted that any system of controls, however well designed and operated, can
provide only reasonable and not absolute assurance that the objectives of the
system are met. In addition, the design of any control system is based in part
upon certain assumptions about the likelihood of certain events. Because of
these and other inherent limitations of control systems, there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions, regardless of how remote.
b)
Changes in Internal Control over Financial Reporting.
During
the Quarter ended September 30, 2009, there was no change in our internal
control over financial reporting (as such term is defined in Rule 13a-15(f)
under the Exchange Act) that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART
II – OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
We are
not a party to any legal proceedings, there are no known judgments against the
Company, nor are there any known actions or suits filed or threatened against it
or its officers and directors, in their capacities as such. We are
not aware of any disputes involving the Company and the Company has no known
claim, actions or inquiries from any federal, state or other government agency.
We are not aware of any claims against the Company or any
reputed claims against it at this time, except as follows:
In August
2009, Pro-Tech was named in a lawsuit by a local bank seeking collection for
overdrawn funds which it believes Pro-Tech to be a party to. The
Company believes that it has meritorious defenses to the plaintiff’s claims and
intends to vigorously defend itself against the Plaintiff’s claims. Management
believes the ultimate outcome of this matter will not have a material adverse
effect on the Company’s consolidated financial position or results of
operations. The Company will seek recourse for any costs it incurs in
defending itself against this claim.
ITEM 1A
- Risk Factors
There
have been no material changes in the risk factors previously disclosed in our
Annual Report on Form 10-K for the fiscal year ended December 31, 2008.
However, the following risk factors, in addition to risk factors previously
disclosed in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2008, should be considered.
28
Our
Common Stock Is Subject To Penny Stock Regulation
Our
shares are subject to the provisions of Section 15(g) and Rule 15g-9 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), commonly
referred to as the "penny stock" rule. Section 15(g) sets forth certain
requirements for transactions in penny stocks and Rule 15g-9(d)(1) incorporates
the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act.
The Commission generally defines penny stock to be any equity security that has
a market price less than $5.00 per share, subject to certain exceptions. Rule
3a51-1 provides that any equity security is considered to be penny stock unless
that security is: registered and traded on a national securities exchange
meeting specified criteria set by the Commission; authorized for quotation on
the NASDAQ Stock Market; issued by a registered investment company; excluded
from the definition on the basis of price (at least $5.00 per share) or the
registrant's net tangible assets; or exempted from the definition by the
Commission. Since our shares are deemed to be "penny stock", trading in the
shares will be subject to additional sales practice requirements on
broker/dealers who sell penny stock to persons other than established customers
and accredited investors.
FINRA Sales Practice
Requirements May Also Limit A Stockholder's Ability To Buy And Sell Our
Stock.
In
addition to the “penny stock” rules described above, the Financial Industry
Regulatory Authority (FINRA) has adopted rules that require that in recommending
an investment to a customer, a broker-dealer must have reasonable grounds for
believing that the investment is suitable for that customer. Prior to
recommending speculative low priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information
about the customer's financial status, tax status, investment objectives and
other information. Under interpretations of these rules, FINRA believes that
there is a high probability that speculative low priced securities will not be
suitable for at least some customers. FINRA requirements make it more difficult
for broker-dealers to recommend that their customers buy our common stock, which
may limit your ability to buy and sell our stock and have an adverse effect on
the market for our shares.
We
May Not Have Access To Sufficient Capital To Pursue Our Business And Therefore
Would Be Unable To Achieve Our Planned Future Growth:
We intend
to pursue a growth strategy that includes development of the Company business
and technology. Currently we have limited capital which may be
insufficient to pursue our plans for development and growth. Our
ability to implement our growth plans may depend primarily on our ability to
obtain additional private or public equity or debt financing. We are
currently seeking additional capital. Such financing may not be
available at all, or we may be unable to locate and secure additional capital on
terms and conditions that are acceptable to us. Our failure to obtain
additional capital may have a material adverse effect on our
business.
Nevada Law
And Our Articles Of Incorporation Protect Our Directors From Certain Types Of
Lawsuits, Which Could Make It Difficult For Us To Recover Damages From Them In
The Event Of A Lawsuit.
Nevada
law provides that our directors will not be liable to our company or to our
stockholders for monetary damages for all but certain types of conduct as
directors. Our Articles of Incorporation require us to indemnify our directors
and officers against all damages incurred in connection with our business to the
fullest extent provided or allowed by law. The exculpation provisions may have
the effect of preventing stockholders from recovering damages against our
directors caused by their negligence, poor judgment or other circumstances. The
indemnification provisions may require our company to use our assets to defend
our directors and officers against claims, including claims arising out of their
negligence, poor judgment, or other circumstances.
Because We Are Quoted On The OTCBB
Instead Of An Exchange Or National Quotation System, Our Investors May Have A
Tougher Time Selling Their Stock Or Experience Negative Volatility On The Market
Price Of Our Stock.
Our
common stock is traded on the OTCBB. The OTCBB is often highly
illiquid. There is a greater chance of volatility for securities that
trade on the OTCBB as compared to a national exchange or quotation system. This
volatility may be caused by a variety of factors, including the lack of readily
available price quotations, the absence of consistent administrative supervision
of bid and ask quotations, lower trading volume, and market conditions.
Investors in our common stock may experience high fluctuations in the market
price and volume of the trading market for our securities. These fluctuations,
when they occur, have a negative effect on the market price for our securities.
Accordingly, our stockholders may not be able to realize a fair price from their
shares when they determine to sell them or may have to hold them for a
substantial period of time until the market for our common stock
improves.
Failure To Achieve And Maintain
Effective Internal Controls In Accordance With Section 404 Of The
Sarbanes-Oxley Act Could Have A Material Adverse Effect On Our Business And
Operating Results.
It may be
time consuming, difficult and costly for us to develop and implement the
additional internal controls, processes and reporting procedures required by the
Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal
auditing and other finance staff in order to develop and implement appropriate
additional internal controls, processes and reporting procedures. If we are
unable to comply with these requirements of the Sarbanes-Oxley Act, we may not
be able to obtain the independent accountant certifications that the
Sarbanes-Oxley Act requires of publicly traded companies.
29
If we
fail to comply in a timely manner with the requirements of Section 404 of
the Sarbanes-Oxley Act regarding internal control over financial reporting or to
remedy any material weaknesses in our internal controls that we may identify,
such failure could result in material misstatements in our financial statements,
cause investors to lose confidence in our reported financial information and
have a negative effect on the trading price of our common stock.
Pursuant
to Section 404 of the Sarbanes-Oxley Act and current SEC regulations,
beginning with our annual report on Form 10-K for our fiscal period ending
December 31, 2008, we will be required to prepare assessments regarding internal
controls over financial reporting and beginning with our annual report on Form
10-K for our fiscal period ending December 31, 2009, furnish a report by our
management on our internal control over financial reporting. We have begun the
process of documenting and testing our internal control procedures in order to
satisfy these requirements, which is likely to result in increased general and
administrative expenses and may shift management time and attention from
revenue-generating activities to compliance activities. While our management is
expending significant resources in an effort to complete this important project,
there can be no assurance that we will be able to achieve our objective on a
timely basis. There also can be no assurance that our auditors will be able to
issue an unqualified opinion on management’s assessment of the effectiveness of
our internal control over financial reporting. Failure to achieve and maintain
an effective internal control environment or complete our Section 404
certifications could have a material adverse effect on our stock
price.
In
addition, in connection with our on-going assessment of the effectiveness of our
internal control over financial reporting, we may discover “material weaknesses”
in our internal controls as defined in standards established by the Public
Company Accounting Oversight Board, or the PCAOB. A material weakness is a
significant deficiency, or combination of significant deficiencies, that results
in more than a remote likelihood that a material misstatement of the annual or
interim financial statements will not be prevented or detected. The PCAOB
defines “significant deficiency” as a deficiency that results in more
than a remote likelihood that a misstatement of the financial statements
that is more than inconsequential will not be prevented or
detected.
In the
event that a material weakness is identified, we will employ qualified personnel
and adopt and implement policies and procedures to address any material
weaknesses that we identify. However, the process of designing and implementing
effective internal controls is a continuous effort that requires us to
anticipate and react to changes in our business and the economic and regulatory
environments and to expend significant resources to maintain a system of
internal controls that is adequate to satisfy our reporting obligations as a
public company. We cannot assure you that the measures we will take will
remediate any material weaknesses that we may identify or that we will implement
and maintain adequate controls over our financial process and reporting in the
future.
Any
failure to complete our assessment of our internal control over financial
reporting, to remediate any material weaknesses that we may identify or to
implement new or improved controls, or difficulties encountered in their
implementation, could harm our operating results, cause us to fail to meet our
reporting obligations or result in material misstatements in our financial
statements. Any such failure could also adversely affect the results of the
periodic management evaluations of our internal controls and, in the case of a
failure to remediate any material weaknesses that we may identify, would
adversely affect the annual auditor attestation reports regarding the
effectiveness of our internal control over financial reporting that are required
under Section 404 of the Sarbanes-Oxley Act. Inadequate internal controls
could also cause investors to lose confidence in our reported financial
information, which could have a negative effect on the trading price of our
common stock.
Operating
History And Lack Of Profits Which Could Lead To Wide Fluctuations In Our Share
Price. The Price At Which You Purchase Our Common Shares May Not Be Indicative
Of The Price That Will Prevail In The Trading Market. You May Be Unable To Sell
Your Common Shares At Or Above Your Purchase Price, Which May Result In
Substantial Losses To You. The Market Price For Our Common Shares Is
Particularly Volatile Given Our Status As A Relatively Unknown Company With A
Small And Thinly Traded Public Float, Limited
The
market for our common shares is characterized by significant price volatility
when compared to seasoned issuers, and we expect that our share price will
continue to be more volatile than a seasoned issuer for the indefinite future.
The volatility in our share price is attributable to a number of factors. First,
as noted above, our common shares are sporadically and thinly traded. As a
consequence of this lack of liquidity, the trading of relatively small
quantities of shares by our shareholders may disproportionately influence the
price of those shares in either direction. The price for our shares could, for
example, decline precipitously in the event that a large number of our common
shares are sold on the market without commensurate demand, as compared to a
seasoned issuer which could better absorb those sales without adverse impact on
its share price. Secondly, we are a speculative or “risky” investment due to our
limited operating history and lack of profits to date, and uncertainty of future
market acceptance for our potential products. As a consequence of this enhanced
risk, more risk-adverse investors may, under the fear of losing all or most of
their investment in the event of negative news or lack of progress, be more
inclined to sell their shares on the market more quickly and at greater
discounts than would be the case with the stock of a seasoned issuer. Many of
these factors are beyond our control and may decrease the market price of our
common shares, regardless of our operating performance. We cannot make any
predictions or projections as to what the prevailing market price for our common
shares will be at any time, including as to whether our common shares will
sustain their current market prices, or as to what effect that the sale of
shares or the availability of common shares for sale at any time will have on
the prevailing market price.
30
Shareholders
should be aware that, according to SEC Release No. 34-29093, the market for
penny stocks has suffered in recent years from patterns of fraud and abuse. Such
patterns include (1) control of the market for the security by one or a few
broker-dealers that are often related to the promoter or issuer;
(2) manipulation of prices through prearranged matching of purchases and
sales and false and misleading press releases; (3) boiler room practices
involving high-pressure sales tactics and unrealistic price projections by
inexperienced sales persons; (4) excessive and undisclosed bid-ask
differential and markups by selling broker-dealers; and (5) the wholesale
dumping of the same securities by promoters and broker-dealers after prices have
been manipulated to a desired level, along with the resulting inevitable
collapse of those prices and with consequent investor losses. Our management is
aware of the abuses that have occurred historically in the penny stock market.
Although we do not expect to be in a position to dictate the behavior of the
market or of broker-dealers who participate in the market, management will
strive within the confines of practical limitations to prevent the described
patterns from being established with respect to our securities. The occurrence
of these patterns or practices could increase the volatility of our share
price.
Volatility In Our Common Share Price
May Subject Us To Securities Litigation, Thereby Diverting Our Resources That
May Have A Material Effect On Our Profitability And Results Of
Operations.
As
discussed in the preceding risk factors, the market for our common shares is
characterized by significant price volatility when compared to seasoned issuers,
and we expect that our share price will continue to be more volatile than a
seasoned issuer for the indefinite future. In the past, plaintiffs have often
initiated securities class action litigation against a company following periods
of volatility in the market price of its securities. We may in the future be the
target of similar litigation. Securities litigation could result in substantial
costs and liabilities and could divert management’s attention and
resources.
ITEM 2. UNREGISTERED SALES OF
EQUITY SECURITIES AND USE OF PROCEEDS SECURITIES
There
were no unregistered sales of securities during the three months ended September
30, 2009.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
There
were no defaults upon senior securities of during the period ended September 30,
2009.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There
were no matters submitted to a shareholder vote for the three months ended
September 30, 2009.
|
ITEM
5. OTHER INFORMATION
None.
ITEM
6. EXHIBITS
3.1
|
Certificate
of Incorporation (1)
|
|
3.2
|
Bylaws
of Pro-Tech Industries, Inc. (1)
|
|
14.1
|
Code
of Ethics (2)
|
|
31.1
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act(3)
|
|
31.2
|
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act.(3)
|
|
32.2
|
Certification
of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act.(3)
|
|
32.2
|
Certification
of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act.(3)
|
31
1) Incorporated
by reference to the Company’s filing on Form SB-2, as filed with the Securities
and Exchange Commission on June 27, 2007.
(2) Incorporated
by reference to the Company’s filing on Form 10-K, as filed with the Securities
and Exchange Commission on April 15, 2009.
(3) Filed
herein.
32
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934 the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Registrant
|
Pro-Tech
Industries, Inc.
|
|
Date:
November 13, 2009
|
By:
/s/ Donald
Gordon
|
|
Donald
Gordon
|
||
Chief
Executive Officer
|
33