Attached files
file | filename |
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EX-21 - Pro-Tech Industries, Inc. | v181177_ex21.htm |
EX-31.1 - Pro-Tech Industries, Inc. | v181177_ex31-1.htm |
EX-32.1 - Pro-Tech Industries, Inc. | v181177_ex32-1.htm |
EX-31.2 - Pro-Tech Industries, Inc. | v181177_ex31-2.htm |
EX-32.2 - Pro-Tech Industries, Inc. | v181177_ex32-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form 10-K
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the Fiscal Year Ended December 31, 2009
Commission
file number: 000-53013
Pro-Tech
Industries, Inc.
(Exact
Name of Small Business Issuer in its Charter)
Nevada
|
20-8758875
|
|
(State
of Incorporation)
|
(IRS
Employer ID No.)
|
8550
Younger Creek Drive
Sacramento,
CA 95828
(Address
of Registrant's Principal Executive Offices) (Zip Code)
(916-504-4044)
Title of Each Class
|
Name of Each Exchange on which
Registered
|
|
Common
Stock, $0.001 par value
|
Over
the Counter Bulletin
Board
|
Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. ¨ Yes x No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. ¨ Yes x No
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. 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 a shorter period that the
registrant was required to submit and post such
files). Yes ¨ x No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or smaller reporting company. See
definition of “accelerated filer large accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer ¨
|
Accelerated filer ¨
|
|||
Non-accelerated filer ¨
|
Smaller
Reporting company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act. Yes ¨ No
x
Indicate
by check mark whether the registrant is a shell company (as defined in Exchange
Act Rule 12b-2). Yes o No x
State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter. Solely for purposes of the foregoing calculation, all of the
registrant’s directors and officers are deemed to be
affiliates. $16,006,400.
State the
number of shares outstanding of each of the issuer’s classes of equity
securities, as of the latest practicable date: At April 15, 2010, there were
18,593,880 shares of Common Stock, $0.001 par value per share issued and no
shares of preferred stock.
Documents
Incorporated By Reference
None
Pro-Tech
Industries, Inc.
FORM
10-K ANNUAL REPORT
FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2009
TABLE
OF CONTENTS
PART
I
|
4
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|
ITEM
1. BUSINESS
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4
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|
ITEM
1A. RISK FACTORS
|
10
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|
ITEM
1B. UNRESOLVED STAFF COMMENTS
|
17
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|
ITEM
2. PROPERTIES
|
17
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ITEM
3. LEGAL PROCEEDINGS
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17
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ITEM
4. RESERVED
|
17
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PART
II
|
18
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|
ITEM
5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
18
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|
ITEM
6. SELECTED FINANCIAL DATA
|
19
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|
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
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19
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ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
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21
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|
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
F-2
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ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
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22
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ITEM
9A. CONTROLS AND PROCEDURES
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22
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ITEM
9B. OTHER INFORMATION
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23
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PART
III
|
23
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ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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23
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|
ITEM
11. EXECUTIVE COMPENSATION
|
25
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|
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
32
|
|
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
|
34
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ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES
|
35
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PART
IV
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36
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ITEM
15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES
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36
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SIGNATURES
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37
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CERTIFICATION
PURSUANT TO SECTION 302 (a) OF THE SARBANES-OXLEY ACT OF
2002
|
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Certification
pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of
the Sarbanes-oxley act of 2002
|
|
|
2
Special
Note Regarding Forward-Looking Statements
Some of
our statements under "Business," "Properties," "Legal Proceedings,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations,"" the Notes to Financial Statements and elsewhere in this report
constitute "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.
These statements are subject to certain events, risks and uncertainties that may
be outside our control. Some of these forward-looking statements include
statements of:
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·
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management's
plans, objectives and budgets for its future operations and future
economic performance;
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·
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capital
budget and future capital
requirements;
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·
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meeting
future capital needs;
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·
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realization
of any deferred tax assets;
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·
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the
level of future expenditures;
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·
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impact
of recent accounting
pronouncements;
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·
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the
outcome of regulatory and litigation matters;
and
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·
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the
assumptions described in this report underlying such forward-looking
statements.
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·
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Actual
results and developments may materially differ from those expressed in or
implied by such statements due to a number of factors,
including:
|
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·
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those
described in the context of such forward-looking
statements;
|
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·
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future
product development and manufacturing
costs;
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·
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changes
in our incentive plans;
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·
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timely
development and acceptance of new
products;
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·
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the
markets of our domestic and international
operations;
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·
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the
impact of competitive products and
pricing;
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·
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the
political, social and economic climate in which we conduct operations;
and
|
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·
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the
risk factors described in other documents and reports filed with the
Securities and Exchange Commission.
|
In some
cases, forward-looking statements are identified by terminology such as "may,"
"will," "should," "could," "would," "expects," "plans," "intends,"
"anticipates," "believes," "estimates," "approximates," "predicts," "potential"
or "continue" or the negative of such terms and other comparable
terminology.
Although
we believe that the expectations reflected in these forward-looking statements
are reasonable, it cannot guarantee future results, levels of activity,
performance or achievements. Moreover, neither we nor anyone else assumes
responsibility for the accuracy and completeness of such statements and is under
no duty to update any of the forward-looking statements after the date of this
report.
Unless
otherwise noted, references in this Form 10-K to “Pro-Tech Industries”, “PTI”,
“Meltdown”, “we”, “us”, “our”, and the “Company” means Pro-Tech Industries,
Inc., a Nevada corporation. Our principal place of business is located at
8550 Younger Creek Drive, Sacramento, CA 95828. Our telephone number
is (916) 504-4044.
3
PART
I
ITEM
1. BUSINESS.
Pro-Tech
Industries was incorporated in the State of Nevada on April 4, 2007 (originally
named Meltdown Massage and Body Works, inc.) , and was a development stage
company with the principal business objective of becoming a chain of
professional body treatment and skin care service centers offering spacious,
luxurious settings and a multitude of personal services including a variety of
styles of massages, aromatherapy, heated stones, exfoliate and moisturizing
treatments, mud baths, facials, manicures and pedicures, waxing and special
occasion make-up appointments as well as consultations for everyday make-up
applications.
ENTRY
INTO A MATERIAL DEFINITIVE AGREEMENT
On
December 31, 2008, we executed an agreement with Pro-Tech Fire Protection
Systems Corp (“Pro-Tech”), and our Company (the "Agreement"),
whereby pursuant to the terms and conditions of
that Agreement, Pro-Tech shareholders acquired ten million
(10,100,000) shares of our common stock, whereby Pro-Tech would become a wholly
owned subsidiary of the Company. This issuance of stock did not
involve any public offering, general advertising or solicitation. At the
time of the issuance, Pro-Tech had fair access to and was in possession of all
available material information about our company. The shares bear a
restrictive transfer legend in accordance with Rule 144 under the Securities
Act. The issuance of the securities above were effected in reliance
on the exemptions for sales of securities not involving a
public offering, as set forth in Rule
506 promulgated under the Securities Act of 1933, as
amended (the "Securities Act") and in Section 4(2) and Section 4(6)
of the Securities Act and/or Rule 506 of Regulation D.
PRO-TECH
FIRE PROTECTION SYSTEMS CORP
Pro-Tech
Fire Protection Systems Corp. (“Pro-Tech”) 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 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.
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.). Since current codes require fire protection systems, work load
remains fairly constant. Management believes that with this diversity of
services, future prospects remain strong.
Most jobs
are won by negotiation or by standard bidding practices from a variety of
sources, including repeat customers, referrals, and multiple media resources
(trade-specific marketing services, internet links, phone book ads, etc.). We
routinely work with many regular customers participating in numerous MACC
programs (Multiple Award Construction Contracts for government
projects).
Upon
award, we design most projects with in-house NICET certified project managers
and designers. We also maintain close relationships with outside design firms
and engineers to manage occasional overflow workloads. Design development
typically includes close coordination with the prime contractor, as well as
other sub-contractors.
Material
is procured from a number of local and nation-wide fire protection suppliers.
Fabricated materials are likewise obtained from these, as well as independent,
fab shops. Both fabricated and loose materials are readily available from many
excellent long-standing vendors there is no need to perform routine in-house
fabrication, allowing us to keep overhead low.
Most
installation work begins after a building is enclosed with walls and a roof,
minimizing weather-related risks or delays. Regular site visits ensure smooth
installation progress. Quality control is strictly maintained by site foremen,
superintendants, and construction, project, and area managers. Additionally,
work must pass inspection and testing requirements of project and fire
department officials, providing the final seal-of-approval.
4
“Day
Work” jobs typically wrap up in a matter of days, involving tenant improvements,
repairs, etc. With 24-hour service, we can handle emergency needs for commercial
and residential customers needing repairs, service, system restoration, etc.
Inspections make up a recurring source of work and revenue, as systems are
required by law to be inspected and professionally maintained. Inspections
usually involve visual verification of system component status, and some
operating of valves, so operating risk is negligible.
In
summary, Pro-Tech’s business model is well-founded, with long-established
relationships with superb customers and vendors, providing for a strong future
in the near and long term.
While
government regulations are always changing, Pro-Tech is able to work within the
rules of local, regional, state and federal guidelines to meet compliance in all
areas of the job, whether it is related to prevailing wage, environmental or
fire codes. Most costs of compliance are considered when bidding a
job and therefore do not generally have a large impact on us.
Pro-Tech
services include:
·
|
Commercial, Special Hazards, and
Industrial Overhead Wet Pipe, Dry Pipe, Pre-Action, Deluge, and
Foam
|
·
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New Installations, Retro-Fits,
Upgrades, Repairs, Design, Consultations, and
Analysis
|
·
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Pumps, Hydrants, Backflow
Preventers, Underground, Design, and
Consultation
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·
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5 Year Certification, Inspections
and Testing
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·
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24 Hour
Service
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·
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Alarm & Detection
installation and monitoring, inspections and
repairs
|
·
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Electrical Services including
design build, new construction, repairs, inspections and
maintenance
|
·
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Network cabling, system and
structure testing and data networking and
design
|
Management
estimates that we have grown over twenty-fold in the 13 plus years that we have
been serving our customers. With more than 150 years of combined fire protection
experience among its staff and management, management believes that we deliver
high quality service in the most economic manner, with a high degree of
integrity, excellence, and innovation within the fire protection
industry.
We
believe that the addition of the additional disciplines will help strengthen
relationships with current customers as well as help us to establish ourselves
with new customers with the ability to bid multiple disciplines on a project,
while allowing us to more efficiently cover overhead costs.
Pro-Tech
Telecommunications Segment
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
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·
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Building
Riser and Campus Systems
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·
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Cabinet
and Rack Installation
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·
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Cable
Tagging and Documentation
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·
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Communications
Rooms, MDF, IDF
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·
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Optical
and Copper Cable Installation
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·
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Raceway
Systems
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·
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Wireless
Connectivity Solutions
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Low
Voltage Systems
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·
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Security
Systems
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·
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Fire
Alarm
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·
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Card
Access Control
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·
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CATV
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Video
Surveillance
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5
Network
Systems
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·
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Enterprise
architecture strategy
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·
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Systems
integration
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·
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IT
infrastructure, implementation, and
support
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·
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Network
security and remote access
solutions
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·
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Authentication
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Voice
Systems
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·
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PBX
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·
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Key
system
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·
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VoIP
|
We
differentiate ourselves through our commitment to the highest degree of
structure, efficiency and quality practices. We consider ourselves
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.
In pursuit of these goals, Pro-Tech Telecommunications adheres to the following
fundamental principles:
Clients
as Partners
We strive
to build "lifetime" relationships with our clients by providing them with the
highest quality services, advanced technology and added value in order to earn
and maintain their respect, trust and loyalty. We believe our contribution to
this relationship is our expertise in providing the best possible services to
our clients. Our services are based on professionalism, competence, integrity
and openness.
Our
People
Pro-Tech
Telecommunications is an organization of individuals. We place a very high value
on the skills, experience and creativity that our employees bring to the group.
We believe that our professionals are among the best in our industry and we are
completely confident in their ability to meet or exceed the expectations of our
clients.
Integrity
We adhere
to a strict code of business conduct, ensuring that our people employ the
highest standards of business ethics in all dealings with clients, suppliers,
fellow employees and with the general public.
Quality
Pro-Tech
Telecommunications continuously strives for excellence by providing
high-quality, high-value deliverables to our clients. By achieving this goal, we
believe that ensure that our clients remained satisfied with the work we have
delivered for years to come and that they value Pro-Tech Telecommunications
their technology partner of choice.
Contract
Process
A fair
amount of Pro-Tech Telecommunication’s business success has been based on
negotiated/relationship driven work and a small amount of traditional bid work
(i.e. blue print take offs and submitting price quotes to general contractors on
bid day). We are typically responding to formal “Request for
Proposals” (RFPs) and looking for existing “Master Service Agreements” (MSAs) to
amend our services to. We are always seeking out strategic
partnerships to provide our customers with an overall integrated solution (i.e.
equipment suppliers with our installation services).
Market
Opportunity
According
to the-infoshop.com (http://www.the-infoshop.com/study/ftm53024-cabling-sys.html), the total US
Structured Cabling Systems (SCS) Market is forecasted to grow at a rate of
18.6%, from $6.8 billion in 2007 to $15.9 billion by 2012. This
growth is higher than previously reported, as newer network applications (i.e.
VOIP, data centers and video over IP) are expected to grow dramatically in the
future. SCS
cabling architecture is evolving to a universal enterprise network consisting of
the current primary installed LAN networks supporting newer IP sub nets, such as
voice with VOIP, data for the data centers and video via video over
IP.
6
As the
SCS market is expected to grow, Pro-Tech Telecommunications will recognize
significant revenue growth from the following industry segments and forecasted
opportunities:
|
·
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System
Integrators – Negotiated bid work (i.e. existing relationships on current
projects)
|
|
·
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Commercial
builders/developers – Bid work with strategic business partners (i.e.
electrical and general contractors)
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·
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Modular
furniture designers/builders - Office build outs, preferred
vendor list, etc
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·
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Commercial/industrial
property management companies - Tenant improvement work, new
and/or old shell build outs, etc
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·
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Telecommunication/wireless
vendors – Infrastructure upgrades, DEMARC extensions,
etc
|
|
·
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Federal
government contractors – Strategic partnerships, negotiated jobs,
etc
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·
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Federal,
State, and local municipalities – GSA work, 8-A set aside, Multiple award
schedules, cabling service contracts,
etc
|
Targeted
Markets
Pro-Tech
Telecommunications goal is to become a market leader in the design/build
communication infrastructure products and services industry. We are
well positioned in the following vertical markets and will use the following
methods to expand and to increase our new areas of doing business:
Vertical
Markets
|
·
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System
Integrators
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·
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Commercial
builders/developers
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·
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Modular
furniture designers/builders
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·
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Commercial/industrial
property management companies
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·
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Telecommunication/wireless
vendors
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·
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Federal
government contractors
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·
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Federal,
State, and local municipalities
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Contract
Vehicles
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·
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Existing
supplier and “Master Service”
agreements
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·
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Negotiated
bid work
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·
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Request
for Proposals (RFP)
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·
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General
Service Administration (GSA)
Schedules
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·
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CALNET
II (State of California)
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·
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CA
Multiple Award Schedule (CMAS)
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·
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Pre-qualification
process
|
Business
Development Philosophy
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·
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Build
on existing relationships (i.e. negotiated
work)
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·
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Subscribe
to online bid tools
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·
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Form
strategic partnerships with Disabled Veteran Owned Enterprise (DVBE)
companies
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·
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Work
with certified contractors
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·
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Define
geographic growth territories
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|
·
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Join
applicable trade organizations
|
7
Pro-Tech
Electrical Segment
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
|
·
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Building
riser and campus systems
|
|
·
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Underground
service upgrades and installation
|
|
·
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Installation
of power switchboards services, Motor Control Centers (MCC) and/or
upgrades.
|
|
·
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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.
|
|
·
|
Load
analysis
|
|
·
|
Commercial
and industrial maintenance
|
Contract
Process
As an
Electrical bidder for a specific job, we estimate all the electrical material
and related labor to provide a complete electrical system per the electrical
drawings and specifications. This proposal is reviewed along with other
electrical contractors bids and the lowest responsible bidder wins the
contract. After the contract is awarded then submittals are organized
and submitted to the projects architect and engineer for approval. Product data
submittals, samples, and shop drawings are required primarily for the architect
and engineer to verify that the correct products will be installed on the
project. Commercial buildings will often have complex pre-fabricated components.
These include: elevators, cabinets, air handling units, generators, appliances
and cooling towers. These pieces of equipment often require us to work closely
and coordinate with the other trades to ensure that they receive the correct
power. Our electrical material is purchased from numerous vendors. We have
established a strong relationship with a small group of these vendors. Since
electrical contractor are the first discipline on the project and the last to
finish we feel that these relationships with our vendors we are able to get our
materials in a timely manner to ensure the project meets the required
schedule.
We are
dedicated in providing our customers with the highest standards of workmanship,
integrity and dependability. Our electrical division will proudly service
commercial and industrial facilities 24 hours per day, 7 days per week,
including weekends and holidays. Our electrical division is approved to be
available on call 24 hours to perform service in the AT&T
environment.
Conesco,
Inc.
On
January 16, 2009, the Company issued 3,000,000 shares to shareholders of
Conesco, Inc. (“Conesco”,), as part of an acquisition, whereby Conesco would
become a wholly owned subsidiary of the Company.
Since
1993, Conesco, Inc., has been a provider of commercial flooring products,
installation, maintenance and design consultation services to businesses
throughout Northern California. Our work graces some of the most
prestigious properties in Northern California and beyond. Conesco’s
award-winning team (30 employees) approach has earned the company a reputation
for leading-edge flooring expertise, great service and first-class
products. Conesco 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
|
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·
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Ongoing
maintenance services
|
8
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·
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Green
building consultation
|
|
·
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Consultation
and expertise in complex/unique flooring
installations
|
Conesco’s
expertise in the field of commercial and industrial flooring has allowed them to
work with the following premier building contractors in Northern
California:
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Roebbelen
Contracting
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·
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McCarthy
Construction
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Howard
S. Wright
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MP
Allen
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Strategy and
Positioning
The
Company’s internal growth strategy relies mostly on building and maintaining
positive customer relationships. The company also plans to grow
externally, through strategic acquisition and alliance
activities. There are four key elements in the Company’s overall
growth strategy:
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Expand portfolio of services
through growth of A&D, telecommunications and electrical
services
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§
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Focus on internal growth and
development
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§
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Focus on expanding operating
efficiencies
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Pursue strategic acquisitions and
partnerships
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Expansion
of portfolio of services allows us to offer a “one stop shop” and offer our
customers the ability to coordinate multiple disciplines with one contact,
minimizing time and energy spent in coordination where multiple vendors might
have been used for all of these disciplines. This allows both us and
our customers to more efficiently use overhead resources.
In slow
economic times, such as what we are currently experiencing, we feel by
developing our current associates to be able to cover more diverse functions,
allows us to keep our seasoned employees. We can develop and cross
train employees, within their respective disciplines, so that when the economy
begins to grow, we will have a strong well trained staff to lead
us. We also believe the expansion of our market, most recently to
Reno and Las Vegas Nevada, puts us in strategic locations by covering the
Northern and Southern California and Nevada markets, as well as giving us bases
by which to access Arizona and Utah.
Focusing
on expanding operating efficiencies is a focus we plan by having a corporate
staff which can help all disciplines with their billing, receiving, payables,
payroll, insurance, benefits and human resource functions. We will be
able to leverage a single corporate location to help cover all of our locations
and disciplines and spread out the cost of overhead. We also feel
there are economies of scale in insurance and benefit costs that a company with
a larger employee base can get that smaller companies tend to miss out
on.
We also
plan to use this slow economic time to pursue strategic relationships with our
customers, while watching for opportunities to pick up strategic acquisitions in
some of our newer markets and business segments. We feel working to
strengthen alliances during the hard times will put us in a stronger position to
move forward and build our business when the economy begins to
turn. Likewise there are many good companies who are feeling the
pinch of the current economics. There may be opportunities to merge,
acquire or form strategic partnerships with these companies, which can in turn
lead to additional growth in our current markets. This could also
allow us to move into other markets we feel would add positive growth to the
Company.
Client
List
In
addition to providing services directly to federal, state and local governments
and Fortune 500 companies, the company has also established strong customer
relationships with the following companies:
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Aerojet
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Hensel
Phelps
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RQ
Construction
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RA
Birch
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Raley’s
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Soltek
Pacific
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9
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SouthWestern
Dakotah
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Roebellin
Construction
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Howard
S. Wright Construction
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Competitive
Landscape
The
competition is divided among many entities 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:
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.
Annual
Meeting
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 May 11,
2009. The Company is now known as Pro-Tech Industries, Inc. and the
new ticker symbol is “PTCK”. The shareholders also ratified RBSM, LLP
as the Company’s auditors as well as re-elected of Mr. Gordon, Mr. Engelbrecht,
and Mr. Crane as members of the board of directors.
Employees
The
Company has approximately 85 full time employees including 17 executive and
administrative staff, 5 in engineering, 6 in sales and marketing, with the
balance working in the field as superintendants, foreman, journeyman or
apprentices.
WHERE YOU CAN FIND MORE
INFORMATION
You are
advised to read this Form 10-K in conjunction with other reports and documents
that we file from time to time with the SEC. In particular, please read our
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that we file from
time to time. You may obtain copies of these reports directly from us or from
the SEC at the SEC’s Public Reference Room at 100 F. Street, N.E. Washington,
D.C. 20549, and you may obtain information about obtaining access to the
Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC
maintains information for electronic filers at its website
http://www.sec.gov.
ITEM
1A. RISK FACTORS
We will
require financing to fund our development activities and to support our
operations. However, we may be unable to obtain such financing. We are also
subject to risks factors specific to our business strategy and the wireless
retail industry. Rapid changes in industry standards for wireless phones and
services may require us to introduce new products and services before we can
attain profitable operations. We may be unable to introduce new products and
services on a timely basis. Moreover, there is no guarantee that any such
products will allow us to achieve profitable operations in the
future.
We have
updated or restated the risk factors previously disclosed in our prior reports
with the Securities and Exchange commission. We consider the following to be the
material risks to an investor in us. We should be viewed as a high-risk
investment and speculative in nature. An investment in our common stock may
result in a complete loss of the invested amount.
10
Because
we bear the risk of cost overruns in most of our contracts, we may experience
reduced profits or, in some cases, losses under these contracts if costs
increase above our estimates.
Our
contract prices are established largely upon estimates and assumptions of our
projected costs. These include assumptions about future economic conditions,
prices, including commodities prices, and availability of labor, including the
costs of providing labor, equipment, materials and other factors outside our
control. If our estimates or assumptions prove to be inaccurate, if
circumstances change in a way that renders our assumptions and estimates
inaccurate or we fail to execute the work cost overruns may occur, and we could
experience reduced profits or a loss for projects. For instance, unanticipated
technical problems may arise, we could have difficulty obtaining permits or
approvals, local laws or labor conditions could change, bad weather could delay
construction, raw materials prices could increase, our suppliers' or
subcontractors' may fail to perform as expected, or site conditions may be
different than we expected. Additionally, in certain circumstances, we guarantee
project completion or the achievement of certain acceptance and performance
testing levels by a scheduled date. Failure to meet schedule or
performance requirements typically results in additional costs to us, and in
some cases we may also be liable for consequential and liquidated damages.
Performance problems for existing and future projects could cause our actual
results of operations to differ materially from those we anticipate as well as
damaging our reputation within our industry and our customer base.
Many
of the markets we do work in are currently experiencing an economic downturn
that may materially and adversely affect our business because our business is
dependent on levels of construction activity.
The
demand for our services is dependent upon the existence of construction projects
and service requirements within the markets in which we operate. Any period of
economic recession affecting a market or industry in which we transact business
is likely to adversely impact our business. Many of the projects we work on have
long lifecycles from conception to completion, and the bulk of our performance
generally occurs late in a construction project's lifecycle. We experience the
results of economic trends well after an economic cycle begins. Accordingly, we
believe that our business has yet to experience many of the adverse effects of
the current economic recessionary cycle.
We cannot
predict the severity or length of the current recession. We believe that the
current uncertainty about economic conditions caused by the ongoing recession
means that many of our customers are likely to postpone spending while credit
markets remain, in large part, closed to funding commercial and industrial
developments. The industries and markets we operate in have always been and will
continue to be vulnerable to these general macroeconomic downturns because they
are cyclical in nature. The current recession is causing a drop off in the
demand for projects within our markets and industries, which will likely lead to
greater price competition as well as decreased revenue and profit. The current
recession is also likely to increase economic instability with our vendors,
subcontractors, developers, and general contractors, which could cause us
greater liability exposure and could result in us not being able to be paid, as
well as decreased revenue and profit. Further, to the extent our vendors,
subcontractors, developers, or general contractors seek bankruptcy protection,
the bankruptcy will likely force us to incur additional costs in attorneys'
fees, as well as other professional consultants, and will result in decreased
revenue and profit.
Our
backlog is subject to unexpected adjustments and a cancellation, which means
that amounts included in our backlog may not result in actual revenue or
translate into profits.
The
revenue projected from our backlog may not be realized, or, if realized, may not
result in profits. Projects may remain in our backlog for an extended period of
time or project cancellations or scope adjustments may occur with respect to
contracts reflected in our backlog. The revenue projected from our backlog may
not be realized or, if realized, may not result in profits.
A
significant portion of our business depends on our ability to provide surety
bonds. Current difficulties in the financial and surety markets may adversely
affect our bonding capacity and availability.
In the
past we have expanded and it is possible we will continue to expand the number
of total contract dollars that require an underlying bond. Surety market
conditions are currently difficult as a result of significant losses incurred by
many surety companies and the current recession. Consequently, less overall
bonding capacity is available in the market and terms have become more expensive
and restrictive. We may not be able to maintain a sufficient level of bonding
capacity in the future, which could preclude our ability to bid for certain
contracts or successfully contract with some customers. Additionally,
even if we are able to access bonding capacity to sufficiently bond future work,
we may be required to post collateral to secure bonds, which would decrease the
liquidity we would have available for other purposes. Our surety providers are
under no commitment to guarantee our access to new bonds in the future; thus,
our ability to access or increase bonding capacity is at the sole discretion of
our surety providers. If our surety companies were to limit or eliminate our
access to bonds, our alternatives would include seeking bonding capacity from
other surety companies, increasing business with clients that do not require
bonds and posting other forms of collateral for project performance, such as
letters of credit or cash. We may be unable to secure these alternatives in a
timely manner, on acceptable terms, or at all. As such, if we were to experience
an interruption or reduction in the availability of bonding capacity, it is
likely we would be unable to compete for or work on certain
projects.
11
Our
use of the percentage-of-completion method of accounting could result in a
reduction or reversal of previously recorded revenues or profits.
A
material portion of our revenue is recognized using the percentage-of-completion
method of accounting, which results in our recognizing contract revenues and
earnings ratably over the contract term in the proportion that our actual costs
bear to our estimated contract costs. The earnings or losses recognized on
individual contracts are based on estimates of contract revenue, costs and
profitability. We review our estimates of contract revenue, costs and
profitability on an ongoing basis. Prior to contract completion, we may adjust
our estimates on one or more occasions as a result of change orders to the
original contract, collection disputes with the customer on amounts invoiced or
claims against the customer for increased costs incurred by us due to
customer-induced delays and other factors. Contract losses are recognized in the
fiscal period when the loss is determined. Contract profit estimates are also
adjusted in the fiscal period in which it is determined that an adjustment is
required. As a result of the requirements of the percentage-of-completion method
of accounting, the possibility exists, for example, that we could have estimated
and reported a profit on a contract over several periods and later determined,
usually near contract completion, that all or a portion of such previously
estimated and reported profits were overstated. If this occurs, the full
aggregate amount of the overstatement will be reported for the period in which
such determination is made, thereby eliminating all or a portion of any profits
from other contracts that would have otherwise been reported in such period or
even resulting in a loss being reported for such period. On a historical basis,
we believe that we have made reasonably reliable estimates of the progress
towards completion on our long-term contracts. However, given the uncertainties
associated with these types of contracts, it is possible for actual costs to
vary from estimates previously made, which may result in reductions or reversals
of previously recorded revenue and profits.
Intense
competition in our industry could reduce our market share and our
profit.
The
markets we serve are highly competitive. Our industry is characterized by many
small companies whose activities are geographically concentrated. We compete on
the basis of our technical expertise and experience, financial and operational
resources, nationwide presence, industry reputation and dependability. While we
believe our customers consider a number of these factors in awarding available
contracts, a large portion of our work is awarded through a bid process.
Consequently, price is often the principal factor in determining which
contractor is selected, especially on smaller, less complex projects. Smaller
competitors are sometimes able to win bids for these projects based on price
alone due to their lower cost and financial return requirements. We expect
competition to intensify in our industry, presenting us with significant
challenges in our ability to maintain strong growth rates and acceptable profit
margins. If we are unable to meet these competitive challenges, we will lose
market share to our competitors and experience an overall reduction in our
profits.
If
we are unable to attract and retain qualified managers and employees, we will be
unable to operate efficiently, which could reduce our
profitability.
Our
business is labor intensive, and many of our operations experience a high rate
of employment turnover. At times of low unemployment rates in the United States,
it will be more difficult for us to find qualified personnel at low cost in some
geographic areas where we operate. Additionally, our business is managed by a
small number of key executive and operational officers. We may be unable to hire
and retain the sufficient skilled labor force necessary to operate efficiently
and to support our growth strategy. Our labor expenses may increase as a result
of a shortage in the supply of skilled personnel. Labor shortages, increased
labor costs or the loss of key personnel could reduce our profitability and
negatively impact our business.
If
we experience delays and/or defaults in customer payments, we could be unable to
recover all expenditures.
Because
of the nature of our contracts, at times we commit resources to projects prior
to receiving payments from the customer in amounts sufficient to cover
expenditures on projects as they are incurred. Delays in customer payments may
require us to make a working capital investment. If a customer defaults in
making their payments on a project in which we have devoted resources, it could
have a material negative effect on our results of operations.
12
Actual
and potential claims, lawsuits and proceedings could ultimately reduce our
profitability and liquidity and weaken our financial condition.
We are
likely to continue to be named as a defendant in legal proceedings claiming
damages from us in connection with the operation of our business. Most of the
actions against us arise out of the normal course of our performing services on
project sites. We also are and are likely to continue to be a plaintiff in legal
proceedings against customers, in which we seek to recover payment of
contractual amounts we are owed as well as claims for increased costs we incur.
When appropriate, we establish provisions against possible exposures, and we
adjust these provisions from time to time according to ongoing exposure. If our
assumptions and estimates related to these exposures prove to be inadequate or
wrong, we could experience a reduction in our profitability and liquidity and a
weakening of our financial condition. In addition, claims, lawsuits and
proceedings may harm our reputation or divert management resources away from
operating our business.
Our
recent and future acquisitions may not be successful.
We expect
to continue pursuing selective acquisitions of businesses. We cannot assure you
that we will be able to locate acquisitions or that we will be able to
consummate transactions on terms and conditions acceptable to us, or that
acquired businesses will be profitable. Acquisitions may expose us to additional
business risks different than those we have traditionally experienced. We also
may encounter difficulties integrating acquired businesses and successfully
managing the growth we expect to experience from these
acquisitions.
We may
choose to finance future acquisitions with debt, equity, cash or a combination
of the three. We can give no assurances that any future acquisitions will not
dilute earnings or disrupt the payment of a stockholder dividend. To the extent
we succeed in making acquisitions, a number of risks will result,
including:
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The
assumption of material liabilities (including for environmental-related
costs);
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Failure
of due diligence to uncover situations that could result in legal exposure
or to quantify the true liability exposure from known
risks;
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•
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The
diversion of management's attention from the management of daily
operations to the integration of
operations;
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•
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Difficulties
in the assimilation and retention of employees and difficulties in the
assimilation of different cultures and practices, as well as in the
assimilation of broad and geographically dispersed personnel and
operations, as well as the retention of employees
generally;
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•
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The
risk of additional financial and accounting challenges and complexities in
areas such as tax planning, treasury management, financial reporting and
internal controls; and
|
•
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We
may not be able to realize the cost savings or other financial benefits we
anticipated prior to the
acquisition.
|
The
failure to successfully integrate acquisitions could have an adverse effect on
our business, financial condition and results of operations.
If
we do not effectively manage our growth, our existing infrastructure may become
strained, and we may be unable to increase revenue growth.
Our past
and any future growth that we have experienced, and in the future may
experience, may provide challenges to our organization, requiring us to expand
our personnel and our operations. Future growth may strain our infrastructure,
operations and other managerial and operating resources. If our business
resources become strained, our earnings may be adversely affected and we may be
unable to increase revenue growth. Further, we may undertake contractual
commitments that exceed our labor resources, which could also adversely affect
our earnings and our ability to increase revenue growth.
Failure
or circumvention of our disclosure controls and procedures or internal controls
over financial reporting could seriously harm our financial condition, results
of operations, and our business.
We plan
to continue to maintain and strengthen internal controls and procedures to
enhance the effectiveness of our disclosure controls and internal controls over
financial reporting. Any system of controls, however well designed and operated,
is based in part on certain assumptions and can provide only reasonable, and not
absolute, assurances that the objectives of the system are met. Any failure of
our disclosure controls and procedures or internal controls over financial
reporting could harm our financial condition and results of
operations.
13
Conflicts
of interest
Certain
of our officers and directors will also serve as directors of other companies or
have significant shareholdings in other companies that may be in a similar
business. To the extent that such other companies participate in ventures in
which we may participate, or compete for prospects or financial resources with
us, these officers and directors of will have a conflict of interest in
negotiating and concluding terms relating to the extent of such participation.
In the event that such a conflict of interest arises at a meeting of the board
of directors, a director who has such a conflict must disclose the nature and
extent of his interest to the board of directors and abstain from voting for or
against the approval of such participation or such terms.
In
accordance with the laws of the State of Nevada, our directors are required to
act honestly and in good faith with a view to the best interests of our
shareholders. In determining whether or not we will participate in a particular
program and the interest therein to be acquired by it, the directors will
primarily consider the degree of risk to which we may be exposed and its
financial position at that time.
The
regulation of penny stocks by SEC and FINRA may discourage the tradability of
the company’s securities.
The
Company is a "penny stock" company. None of its
securities currently trade in
any market and, if ever available for trading, will
be subject to a Securities and
Exchange Commission rule that imposes special
sales practice requirements upon broker-dealers who sell
such securities to persons other than established customers or
accredited investors. For purposes of the
rule, the phrase "accredited investors" means, in general
terms, institutions with assets
in excess of $5,000,000, or individuals having
a net worth in excess of
$1,000,000 or having an annual income
that exceeds $200,000 (or that, when
combined with a spouse's income, exceeds $300,000). For transactions
covered by the rule, the broker-dealer must make a special suitability
determination of the purchaser and receive the purchaser's written agreement to
the transaction prior to the sale. Effectively, this discourages broker-dealers
from executing trades in penny stocks. Consequently, the rule will affect the
ability of purchasers in this offering to sell their securities in any market
that might develop, because it imposes additional regulatory burdens on penny
stock transactions.
In
addition, the Securities and Exchange Commission has adopted a number of rules
to regulate "penny stocks". Such rules include Rules 3a51-1, 15g-1, 15g-2,
15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the
Securities and Exchange Act of 1934, as amended. Because
our securities constitute “penny stocks" within the meaning of the rules, the
rules would apply to us and to our securities. The rules will further
affect the ability of owners of shares to sell their securities in any market
that might develop for them because it imposes additional regulatory burdens on
penny stock transactions.
Shareholders should be aware that, according to Securities and Exchange
Commission, the market for
penny stocks has suffered in
recent years from patterns of fraud and abuse. Such patterns include
(i) control of the market for the security by one or a few broker-dealers that
are often related to the promoter or issuer;
(ii) manipulation of prices through prearranged matching of purchases
and sales and false and misleading press releases; (iii) "boiler room"
practices involving high-pressure sales tactics and unrealistic price
projections by inexperienced sales
persons; (iv) excessive and undisclosed
bid-ask differentials and markups by selling broker-dealers; and (v)
the wholesale dumping of the same securities by promoters
and broker-dealers after prices have been manipulated to a
desired level, leaving investors with 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 the Company's securities.
Certain
Nevada Corporation Law Provisions Could Prevent A Potential Takeover, Which
Could Adversely Affect The Market Price Of Our Common Stock.
We are
incorporated in the State of Nevada. Certain provisions of Nevada corporation
law could adversely affect the market price of our common stock. Because Nevada
corporation law requires board approval of a transaction involving a change in
our control, it would be more difficult for someone to acquire control of us.
Nevada corporate law also discourages proxy contests making it more difficult
for you and other shareholders to elect directors other than the candidate or
candidates nominated by our board of directors.
We
do not pay cash dividends
We do not
pay cash dividends. We have not paid any cash dividends since inception and have
no intention of paying any cash dividends in the foreseeable future. Any future
dividends would be at the discretion of our board of directors and would depend
on, among other things, future earnings, our operating and financial condition,
our capital requirements, and general business conditions. Therefore,
shareholders should not expect any type of cash flow from their
investment.
14
Rule
144 sales in the future may have a depressive effect on the Company’s stock
price.
All of
the outstanding shares of common stock held by the present officers, directors,
and affiliate stockholders are "restricted securities" within the meaning of
Rule 144 under the Securities Act of 1933, as amended. As restricted
shares, these shares may be resold only pursuant to an
effective registration statement or under the requirements of Rule
144 or other applicable exemptions
from registration under the Act and as required under applicable state
securities laws. Officers, directors and affiliates will be able to
sell their shares if this Registration Statement becomes
effective. Rule 144 provides in
essence that
a person who is an affiliate or officer or director who
has held restricted securities for six months may, under certain
conditions, sell every three months, in brokerage transactions, a
number of shares that does not exceed the greater of 1.0% of
a company's outstanding common stock.
There is
no limit on the amount of restricted securities that may
be sold by a non-affiliate after the owner has held the
restricted securities for a period of six months if the company is a
current, reporting company under the '34 Act. A sale under
Rule 144 or under any other exemption from the Act, if available, or
pursuant to subsequent registration of shares
of common stock
of present stockholders, may have a depressive effect upon
the price of the common stock in any market that may develop. In addition, if we
are deemed a shell company pursuant to Section 12(b)-2 of the Act, our
"restricted securities", whether held by affiliates or non-affiliates, may not
be re-sold for a period of 12 months following the filing of a Form 10 level
disclosure or registration pursuant to the Act.
The
Company’s investors may suffer future dilution due to issuances of shares for
various considerations in the future.
There may
be substantial dilution to the Company's shareholders purchasing in future
offerings as a result of future decisions of the Board to issue shares without
shareholder approval for cash, services, or acquisitions.
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, in part
because it does not have a national quotation system by which potential
investors can follow the market price of shares except through information
received and generated by a limited number of broker-dealers that make markets
in particular stocks. 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.
The
stock will in all likelihood be thinly traded and as a result, investors may be
unable to sell at or near ask prices or at all if they need to liquidate
shares.
Our
shares of common stock may be thinly-traded on the OTC Bulletin
Board, meaning that the number of persons interested in purchasing our common
shares at or near ask prices at any given time may be relatively small or
non-existent. This situation is attributable to a number of
factors, including the fact that it is a
small company which is relatively unknown to
stock analysts, stock brokers, institutional investors and others in
the investment community that generate or influence sales volume, and
that even if
the Company came to the attention of such persons, they tend to
be risk-averse and would be reluctant to follow an
unproven, early stage company such as ours
or purchase or recommend the purchase of
any of our
Securities until such time as
it became more seasoned and viable. As
a consequence, there may be periods of several days or more when
trading activity in
the Company's Securities is minimal
or non-existent, as compared to a
seasoned issuer which has a large and steady volume of
trading activity that
will generally support continuous sales without an adverse effect
on the Securities price. We cannot give investors any
assurance that a broader or more active public trading market for the Company's
common securities will develop or be sustained, or that any trading levels will
be sustained. Due to these conditions, we can give investors no
assurance that they will be able to sell their shares at or near ask prices or
at all if they need money or otherwise desire to liquidate their securities of
the Company.
15
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.
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, 2007, 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.
SHOULD
ONE OR MORE OF THE FOREGOING RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD THE
UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY
FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED, INTENDED OR
PLANNED.
16
ITEM
1B. UNRESOLVED STAFF COMMENTS
Not
applicable.
ITEM
2. DESCRIPTION OF PROPERTY
Facilities
PTI’s
headquarters are currently located in two facilities totaling 22,000 square feet
in Sacramento, California. This building is shared jointly with the Fire
Protection, Telco and Electrical segments as well as Conesco, Inc. We
also have branch offices in Oceanside, CA and Las Vegas and Reno,
NV. The bulk of the workforce is out in the field.
The
Company signed a 3 year lease with a two year option beginning December
2009. The monthly lease cost is $5,550 per month for the two
buildings.
We are
currently 3 years into a 5 year lease in our Oceanside office. The
rate is slightly above market and we are looking to see if there are any
opportunities to renegotiate this lease. The monthly lease cost is $4,016 per
month.
Our Reno
office is also in a month to month lease and we are assessing the opportunity to
renegotiate the lease. The monthly lease cost is $2,674 per month.
Our Las
Vegas office was opened in a 2,800 square foot building in North Las
Vegas. We have a 40 month lease in this facility. The monthly lease
cost is $1,182 per month.
ITEM
3. 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 March
2008, a wage and hour class action law suit was filed against the Company by
three former employees and Sprinkler Fitters Union Local 669. The
suit was settled with all parties in June 2009. The full impact is
contained in the operating results contained herein.
In
September 2009, 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.
17
PART
II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Shares of
our common stock commenced trading on January 30 2009, on the National
Association of Securities Dealers Inter-dealer Quotation System Over The Counter
Bulletin Board under the symbol “MMBW.OB” and was subsequently changed to
“PTCK.OB” in May 2009. For the periods indicated, the following table sets
forth the high and low bid prices per share of common stock, as reported by the
Over The Counter Bulletin. These prices represent inter-dealer
quotations without retail markup, markdown, or commission and may not
necessarily represent actual transactions.
High
|
Low
|
|||||||
Fiscal
Year 2009
|
||||||||
First
Quarter (January – March 2009)
|
$ | 3.45 | $ | 2.05 | ||||
Second
Quarter (April – June 2009)
|
$ | 3.55 | $ | 2.80 | ||||
Third
Quarter (July – September 2009)
|
$ | 3.00 | $ | 1.90 | ||||
Fourth
Quarter (October – December 2009)
|
$ | 1.50 | $ | 0.65 | ||||
Fiscal
Year 2008 (not traded prior to Jan 2009)
|
On April
15, 2010, the closing bid price of our common stock was $0.29.
Dividends
We may
never pay any dividends to our shareholders. We did not declare any dividends
for the year ended December 31, 2009. Our Board of Directors does not
intend to distribute dividends in the near future. The declaration,
payment and amount of any future dividends will be made at the discretion of the
Board of Directors, and will depend upon, among other things, the results of our
operations, cash flows and financial condition, operating and capital
requirements, and other factors as the Board of Directors considers
relevant. There is no assurance that future dividends will be paid,
and if dividends are paid, there is no assurance with respect to the amount of
any such dividend.
Transfer
Agent
Island
Stock Transfer, 100 Second Avenue South, Suite705S, St Petersburg, FL 33701 will
act as transfer agent for our common stock.
RECENT
SALES OF UNREGISTERED SECURITIES.
During
the past three years, we have sold or issued securities which were not
registered as follows:
On
December 31, 2008, the Company issued 10,100,000 shares to Pro-Tech Fire
Protection Systems Corp. (“Pro-Tech”) as part of a merger, whereby Pro-Tech
would become a wholly owned subsidiary of the Company. This issuance
of stock did not involve any public offering, general advertising or
solicitation. At the time of the issuance, Pro-Tech had fair access to and
was in possession of all available material information about our company.
The shares bear a restrictive transfer legend in accordance with Rule 144
under the Securities Act.
On
January 16, 2009, the Company issued 3,000,000 shares to shareholders of
Conesco, Inc. (“Conesco”) as part of a merger, whereby Conesco would become a
wholly owned subsidiary of the Company. This issuance of stock did
not involve any public offering, general advertising or solicitation. At
the time of the issuance, Conesco had fair access to and was in possession of
all available material information about our company. The shares bear a
restrictive transfer legend in accordance with Rule 144 under the Securities
Act.
On
January 19, 2009 the Company issued 1,000,000 shares to key employees of the
Company as incentive would become a wholly owned subsidiary of the
Company. This issuance of stock did not involve any public offering,
general advertising or solicitation. At the time of the issuance, Pro-Tech
had fair access to and was in possession of all available material information
about our company. The shares bear a restrictive transfer legend in
accordance with Rule 144 under the Securities Act.
18
ITEM
6. SELECT FINANCIAL DATA.
This
section is not applicable since we are a small reporting company.
ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS PLAN OF OPERATION
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.
The
following discussion and analysis of our plan of operations should be read in
conjunction with our financial statements and related notes appearing elsewhere
in this prospectus. This discussion and analysis contain forward-looking
statements that involve risks, uncertainties and assumptions. Actual results may
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including, but not limited to, those presented
under the heading of “Risk Factors” and elsewhere in this annual
report.
RESULTS
OF OPERATIONS
Fiscal Year Ended December 31, 2009,
Compared to Fiscal Year Ended December 31, 2008
Revenues
were approximately $18,600,000 in Fiscal 2009, an increase of approximately
$2,100,000, or 12.7%, from revenues of approximately $16,500,000 in Fiscal 2008.
The increase was primarily due to the acquisition of Conesco which contributed
$3,600,000, expansion of the Telco and Electric segments which contributed
approximately $3,900,000 and $500,000 respectively. The Fire and
Alarm/Detection segment saw a decrease of approximately $5,800,000 for the
year. The decrease in Fire and Alarm/Detection was primarily related
to economic conditions and the increased competition at bidding. Our
management refocused their energies on different market segments in order to
increase its backlog (Note F to financials).
Gross
profit decreased from approximately $6,270,000 in Fiscal 2008 to approximately
$6,240,000 in Fiscal 2009. This decrease of approximately $30,000, or .5%, was
primarily due to the lower margins incurred by all of the new business
segments. The overall margin percent decreased in 2009 from 38.2% to
33.6%. There were some heavy cost overruns in our electrical segment
which had a major impact on their margin for 2009. We estimate
approximately $500,000 were lost in this segment compared to expectations on the
jobs that were performed. We have implemented procedures to more
closely monitor and run these jobs to make sure performance matches
expectations.
19
Combined
Operating and Selling General and Administrative expenses were approximately
$6,600,000 in Fiscal 2009 compared to approximately $5,900,000 for Fiscal 2008.
The increase of approximately $700,000 was primarily due to the annualization of
the addition of the Electrical and Telco segments, which were only a part of the
2008 numbers for the fourth quarter of 2008. This amounted to
approximately $238,000 and $396,000 respectively. The addition of
Conesco added approximately $495,000 of additional overhead as part of its
normal operations which were not part of our company in
2008. Additional costs incurred during the year were two additional
manager level accounting personnel to help with the added growth expected during
2009. We also issued stock awards to key employees as well as to
members of the board of directors during 2009. These items
were partially offset by the onetime expenses approximately $668,000 from
acquisition costs and investor relations discussed in our annual report for
December 31, 2008 on Form 10-K. With revenues falling short of
management’s expectations, the benefits of these additions did not bring the
operating efficiencies anticipated during 2009. During the fourth
quarter of 2009, management continued its review of current costs in an effort
to reduce operating overhead at all levels of the corporation. This
review will continue into 2010 as our management tries to leverage its overhead
in more efficient and cost effective manner to try and improve its bottom
line.
Depreciation
and amortization expense increased to $248,797 in Fiscal 2009 compared to
$53,496 in Fiscal 2008. This increase of approximately $196,000 was primarily
due to the acquisition of Conesco, Inc. and the amortization of the intangible
of approximately $181,000. The balance was for new computers and
leasehold improvements for the new corporate office. The remaining
$3,667 of amortization related to the purchase of Jones Fire Protection was also
written off in 2008.
Net
interest expense increased to $114,957 in Fiscal 2009 compared to $78,743 in
Fiscal 2008. This increase of approximately $36,000 was primarily due to the use
of the line of credit for working capital purposes and a second term note with
our bank which we did not carry in 2008. There was also a note with
Conesco, which replaced their line of credit (see note M).
Income
tax expense declined in 2009 due the net loss for the year offset by the 481
carryforward from Pro-Tech Fire. The section 481 carryforward (see
footnote K) which was generated when Pro-Tech was forced to go from a cash basis
tax payer to an accrual basis taxpayer. Prior to the merger with our
company, Pro-Tech was an S-Corp and therefore all taxable income was pushed up
to the owners. The net effect for 2009 is a net deferred tax
liability accrual of $80,490.
LIQUIDITY
AND CAPITAL RESOURCES
Fiscal Year Ended December 31, 2009,
Compared to Fiscal Year Ended December 31, 2008
For the
twelve months ended December 31, 2009, we experienced a net loss of $515,037. At
December 31, 2009, we had $172,490 in cash. Accounts receivable, net of
allowances for doubtful accounts, were $3,850,051 at the end of 2009, which at
70% of assets is approximately 21% lower than at December 31,
2008. This is primarily due to the carrying value of the intangibles
from the Conesco purchase and the inventory and leasehold improvements for the
new corporate facilities.
At December
31, 2009, we had working capital of $591,968 compared to working capital of
$1,447,540 at December 31, 2008. The ratio of current assets to current
liabilities stayed relatively the same at 1.14:1 at December 31, 2009 compared
to 1.41:1 at December 31, 2008. Cash flow provided by operations during
2009 was $371,296 as compared to $61,316 at December 31,
2008. Management anticipates that its existing capital resources will
be adequate to satisfy its capital requirements for the foreseeable
future.
Our
principal liquidity at December 31, 2009 included cash of $172,490, and
$3,850,051 net accounts receivable. 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
year ended December 31, 2009, we had positive cash flow from operations of
$373,955 as compared to a cash flow from operations of $61,316 in 2008. This
$373,955 increase is primarily due to a decrease in retention receivables and
their subsequent collection of approximately $507,500 offset by inventory
increase of approximately $273,000. We had an increase in
investing activities during 2009. The purchases were related
primarily to equipment required by our Telco segment for field testing, new
computers, servers and software upgrades as well as the buildout of new office
space in order to consolidate 4 separate locations our company was using during
much of the year. The costs of these items amounted to approximately
$276,000. No net additional financing activity took place during
2009. With the recognition of cost cutting measures and the increased
backlog, management anticipates returning to profitability and positive cash
flow.
20
Our
business does not require significant amounts of investment in long-term fixed
assets. The substantial majority of the capital used in our business is working
capital that funds our costs of labor materials deployed in project work until
our customers pay us. Our average job duration generally allows us to complete
the realization of revenue and earnings in cash within a few months of
invoicing.
Accordingly,
we believe cash flow, by encompassing our acquisition efforts, profit margins
and the use of working capital over our approximately three month working
capital cycle, is an effective measure of operating effectiveness and efficiency
when considered in light of our business plan for acquisitions and regional
growth. Management anticipates positive cash flows from operations beginning the
second quarter of 2010.
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 December 31, 2009 was
$900,000. Management currently believes that sufficient liquidity
exists but may seek approval to increase the facility to $1.5 million in the
future if considered necessary. We believe the line of credit facility provides
adequate liquidity and financial flexibility to support our expected growth in
fiscal 2010 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 out of compliance with
all covenants.
Long
Term Notes
Long term
notes with an outstanding principal balance of $517,091, were issued through our
bank on February 3, 2007 and December 31, 2009. 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. A third note,
is with another bank with a current balance 110,372, was issued in June 2009 and
used to replace a line of credit facility formerly held by
Conesco. This note carries an interest rate of 8.0% and will be paid
off in August 2013.
ITEM
7A. QUANITITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
We
are exposed to market risk primarily related to potential adverse changes in
interest rates as discussed below. We are actively involved in monitoring
exposure to market risk and continue to develop and utilize appropriate risk
management techniques. We are not exposed to any other significant financial
market risks including commodity price risk, foreign currency exchange risk or
interest rate risks from the use of derivative financial instruments. We do not
use derivative financial instruments.
We
have limited exposure to changes in interest rates under our revolving credit
facility. We have a debt facility under which we may borrow funds in the future.
We do not currently foresee any borrowing needs. Our debt with fixed interest
rates consists of notes to former owners of acquired companies.
The
following table presents principal amounts (stated in thousands) and related
average interest rates by year of maturity for our debt obligations and their
indicated value at December 31, 2009:
For the
twelve months ended December 31,
2010
|
2011
|
2012
|
2013
|
Fair Value
|
||||||||||||||||
Fixed
Rate Debt
|
$ | 213 | $ | 227 | $ | 131 | $ | 56 | $ | 627 | ||||||||||
Average
Interest Rate
|
8.7 | % | 10.4 | % | 6.8 | % | 5.3 | % |
21
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
PRO-TECH
INDUSTRIES, INC.
Index
to Financial Statements
Page
|
||
Report
of Independent Registered Public Accounting Firm
|
F-3
|
|
Consolidated
Balance Sheets as of December 31, 2009 and 2008
|
F-4
|
|
Consolidated
Statement of Operations for the years ended December 31, 2009 and
2008
|
F-5
|
|
Consolidated
Statement of Stockholders’ Equity for the two years ended December 31,
2009
|
F-6
|
|
Consolidated
Statement of Cash Flows for the years ended December 31, 2009 and
2008
|
F-7
|
|
Notes
to Consolidated Financial Statements
|
|
F-8
~ F-21
|
F-2
RBSM
LLP
Certified
Public Accountants
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors
Pro-Tech
Industries, Inc.
Sacramento,
California
We have
audited the accompanying consolidated balance sheets of PRO-TECH INDUSTRIES,
INC., (the “Company”) as of December 31, 2009 and 2008 and the related
consolidated statement of income, stockholders’ equity, and cash flows for each
of the two years in the period ended December 31, 2009. These consolidated
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
consolidated financial statements based upon our audits.
We have conducted our audits in
accordance with standards of the Public Company Accounting Oversight Board
(United States of America). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatements. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement
presentation. We believe our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects,
the financial position of the Company as of December 31, 2009 and 2008, and the
results of its operations and its cash flows for each of the two years in the
period ended December 31, 2009, in conformity with accounting principles
generally accepted in the United States of America.
/s/RBSM
LLP
New York,
New York
April 14,
2010
F-3
PRO-TECH INDUSTRIES,
INC.
CONSOLIDATED
BALANCE SHEETSDecember
31, 2009 and 2008
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Current
Assets:
|
||||||||
Cash
and cash equivalents
|
$ | 172,490 | $ | 86,895 | ||||
Contract
receivable, net of allowance for doubtful accounts as
of
December
31, 2009 and 2008, of $60,000 and $110,000, respectively (Note
D)
|
3,850,051 | 4,638,401 | ||||||
Costs
and estimated earnings in excess of billings (Note E)
|
306,073 | 146,338 | ||||||
Note
receivable – related party
|
77,000 | 142,543 | ||||||
Inventory
|
273,968 | 0 | ||||||
Other
current assets
|
155,386 | 87,963 | ||||||
Total
current assets
|
4,834,968 | 5,102,140 | ||||||
Property
and equipment: (Note H)
|
874,041 | 587,373 | ||||||
Less:
accumulated depreciation
|
571,394 | 504,028 | ||||||
Net
property and equipment
|
302,647 | 83,345 | ||||||
Other
Assets:
|
||||||||
Intangibles,
net of accumulated amortization as of December 31,
2009 and 2008, of $181,431 and $20,000, respectively (Note
I)
|
102,548 | - | ||||||
Goodwill
|
331,075 | - | ||||||
Deposits
|
10,856 | 10,856 | ||||||
Total
assets
|
$ | 5,582,094 | $ | 5,196,341 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
Liabilities:
|
||||||||
Accounts
payable and accrued expenses (Note J)
|
2,713,840 | $ | 1,945,178 | |||||
Notes
payable – others –current portion (Note M)
|
213,394 | 172,025 | ||||||
Accruals
on uncompleted contracts (Note E)
|
244,763 | 712,252 | ||||||
Reserve
for loss on uncompleted contracts
|
90,514 | 20,995 | ||||||
Deferred
tax liability (Note L)
|
80,490 | 110,150 | ||||||
Line
of credit (Note K)
|
900,000 | 655,500 | ||||||
Total
current liabilities
|
4,243,000 | 3,616,100 | ||||||
Long
-Term Liabilities:
|
||||||||
Notes
payable- others – long term portion (Note M)
|
414,071 | 518,030 | ||||||
LT
Deferred tax liability (Note L)
|
- | 148,650 | ||||||
Total long term liabilities | 414,071 | 666,680 | ||||||
Commitments
and contingencies (Note P)
|
- | - | ||||||
Stockholders'
Equity: (Note N)
|
||||||||
Common
Stock, $0.001 par value; 70,000,000 shares authorized;
18,593,880
shares issued and outstanding at December 31, 2009
14,600,000
shares issued and outstanding at December 31, 2008
|
18,594 | 14,600 | ||||||
Paid
in capital
|
1,421,467 | 898,961 | ||||||
Accumulated deficit
|
(515,038 | ) | - | |||||
Total
stockholders’ equity
|
925,023 | 913,561 | ||||||
Total
liabilities and stockholders' equity
|
$ | 5,582,094 | $ | 5,196,341 |
The
accompanying notes are an integral part of these consolidated financial
statements
F-4
PRO-TECH INDUSTRIES,
INC.
CONSOLIDATED
STATEMENT OF INCOME
FOR
THE YEARS ENDED
DECEMBER
31, 2009 AND 2008
2009
|
2008
|
|||||||
Net
revenue
|
$ | 18,609,920 | $ | 16,487,525 | ||||
Cost
of sales
|
12,364,059 | 10,213,866 | ||||||
Gross
profit
|
6,245,861 | 6,273,659 | ||||||
Operating
Expenses:
|
||||||||
Selling,
general and administrative
|
6,572,046 | 5,871,041 | ||||||
Depreciation
and amortization (Note H & I)
|
248,797 | 53,496 | ||||||
Total
Operating Expenses
|
6,820,843 | 5,924,537 | ||||||
Income
from Operations
|
(574,982 | ) | 349,122 | |||||
Other
Income (Expense):
|
||||||||
Interest
income(expense), net
|
(114,957 | ) | (78,744 | ) | ||||
Total
Other Expenses
|
(114,957 | ) | (78,744 | ) | ||||
Income before income taxes | (689,939 | ) | 270,378 | |||||
Income
(taxes) Benefit (Note L)
|
174,902 | (263,800 | ) | |||||
Net
Income (loss)
|
$ | (515,037 | ) | $ | 6,578 | |||
Net
income (loss) per common share (Note C):
|
||||||||
Basic
|
$ | (0.03 | ) | $ | 0.00 | |||
Diluted
|
$ | (0.03 | ) | $ | 0.00 | |||
Weighted
average common shares outstanding
|
17,766,190 | 10,100,000 |
The
accompanying notes are an integral part of these consolidated financial
statements
F-5
PRO-TECH INDUSTRIES,
INC.
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
FOR
THE TWO YEARS ENDED DECEMBER 31, 2009
Common Stock
|
||||||||||||||||||||
Common
Shares
|
Amount
|
Paid in
Capital
|
Accumulated
Deficit
|
Total
Stockholders’
Equity
|
||||||||||||||||
Balance
at January 1, 2008
|
10,100,000 | $ | 10,100 | $ | 541 | $ | 1,191,842 | $ | 1,202,483 | |||||||||||
Dividend
distributions (Note O)
|
- | - | - | (426,000 | ) | (426,000 | ) | |||||||||||||
Shares
reissued to existing MMBW shareholders
|
3,500,000 | 3,500 | - | - | 3,500 | |||||||||||||||
Reclassification
of paid in capital on revocation of S corporation tax status upon reverse
merger
|
- | - | 772,420 | (772,420 | ) | - | ||||||||||||||
Issuance
of shares for services
|
1,000,000 | 1,000 | 126,000 | - | 127,000 | |||||||||||||||
Net
income
|
- | - | - | 6,578 | 6,578 | |||||||||||||||
Balance
at December 31, 2008
|
14,600,000 | $ | 14,600 | $ | 898,961 | $ | - | $ | 913,561 | |||||||||||
Shares
issued for purchase of Conesco, Inc. at $0.127 (Note N)
|
3,000,000 | 3,000 | 378,000 | - | 381,000 | |||||||||||||||
Shares
issued to key employees @ $0.144 (Note N)
|
963,880 | 964 | 47,036 | - | 48,000 | |||||||||||||||
Shares
issued to Board of Directors @ $3.25 (Note N)
|
30,000 | 30 | 97,470 | - | 97,500 | |||||||||||||||
Net
loss
|
- | - | - | (515,038 | ) | (515,038 | ) | |||||||||||||
Balance
at December 31, 2009
|
18,593,880 | $ | 18,594 | $ | 1,421,467 | $ | (515,038 | ) | $ | 925,023 |
The
accompanying notes are an integral part of these consolidated financial
statements
F-6
PRO-TECH INDUSTRIES,
INC.
CONSOLIDATED
STATEMENT OF CASH FLOWSFOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
2009
|
2008
|
|||||||
Cash
Flows From Operating Activities:
|
||||||||
Net
income (loss) from operations
|
$ | (515,038 | ) | $ | 6,578 | |||
Adjustments
to reconcile net income (loss) to net cash provided by
operating activities:
|
||||||||
Depreciation
and amortization
|
248,797 | 53,496 | ||||||
Bad
debt write off
|
122,161 | 9,302 | ||||||
Accrual
for bad debt allowance
|
(50,000 | ) | 110,000 | |||||
Deferred
tax liability, net (Note L)
|
(178,310 | ) | 258,800 | |||||
Stock
issued to previous MMBW shareholders
|
- | 3,500 | ||||||
Stock
issued to employees and board of directors
|
145,500 | - | ||||||
Stock
issued for services
|
- | 127,000 | ||||||
Accruals
(reversal) of loss against uncompleted contracts
|
69,519 | (44,205 | ) | |||||
(Increase)
decrease in:
|
||||||||
Contract
receivable
|
905,456 | (817,443 | ) | |||||
Inventory
|
(273,968 | ) | - | |||||
Other
current assets, net
|
1,238 | (172,306 | ) | |||||
Costs
and estimated earnings in excess of billings
|
(22,730 | ) | 240,499 | |||||
Billings
in excess of costs and estimated earnings
|
(467,489 | ) | 40,562 | |||||
Increase
(decrease) in:
|
||||||||
Accounts
payable and accrued expenses, net
|
392,484 | 245,532 | ||||||
Net
Cash Provided by Operating Activities
|
373,955 | 61,316 | ||||||
Cash
Flows From Investing Activities:
|
||||||||
Purchase
of Conesco, Inc.
|
9,043 | - | ||||||
Purchase
of property and equipment
|
(279,155 | ) | (26,023 | ) | ||||
Net
Cash Used In Investing Activities
|
(270,112 | ) | (26,023 | ) | ||||
Cash
Flows From Financing Activities:
|
||||||||
Payments
for dividend distributions (Note N)
|
- | (426,000 | ) | |||||
Proceeds
from long term debt
|
120,000 | 250,000 | ||||||
Payments
of long term debt
|
(382,748 | ) | (172,050 | ) | ||||
Net
proceeds from line of credit
|
244,500 | 389,000 | ||||||
Net
Cash (Used) provided by Financing Activities
|
(18,248 | ) | 40,950 | |||||
Net
Increase in Cash And Cash Equivalents
|
85,595 | 76,243 | ||||||
Cash
and cash equivalents at beginning of year
|
86,895 | 10,653 | ||||||
Cash
and cash equivalents at the end of year
|
$ | 172,490 | $ | 86,895 | ||||
Supplemental
Disclosures of Cash Flow Information:
|
||||||||
Cash
paid during period for interest
|
$ | 95,408 | $ | 83,743 | ||||
Cash
paid during period for taxes
|
$ | - | $ | - |
The
accompanying notes are an integral part of these consolidated financial
statements
F-7
PRO-TECH INDUSTRIES,
INC.
CONSOLIDATED
STATEMENT OF CASH FLOWSFOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(continued)
2009
|
2008
|
|||||||
Non-cash
Investing and Financing Activities:
|
||||||||
Acquisition
costs in reverse merger
|
$ | - | $ | 3,500 | ||||
Shares
issued for compensation
|
$ | 145,500 | $ | - | ||||
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 | $ | - |
The
accompanying notes are an integral part of these consolidated financial
statements
F-8
PRO-TECH INDUSTRIES,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTSDecember
31, 2009 and 2008
NOTE
A - SUMMARY OF ACCOUNTING POLICIES
A summary
of the significant accounting policies applied in the preparation of the
accompanying consolidated financial statements follows.
Business and Basis of
Presentation
Pro-Tech
Fire Protection Systems Corp. (“Pro-Tech”) 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 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.
The
Company serves 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.).
In late
third quarter and fourth quarter 2008, the Company expanded its services to
include electrical and telecommunications. The client base is the
same as the fire sprinkler services. These groups were not a
significant part of the business reported in the 2008 consolidated financial
statements.
NOTE
B - MERGER AND CORPORATE RESTRUCTURE
On
December 31, 2008, the stockholders of Pro-Tech Fire Protection Systems Corp.
(“Pro-Tech”) entered into an agreement for the exchange of common stock
(“Acquisition Agreements”, “the Transaction”, or “Merger”) with the Company. The
Company had a total of 70,000,000 authorized shares with a par value of $0.001
per share and 3,500,000 shares issued and outstanding as of December 31,
2008.
The
Company’s yearend for accounting purposes was December 31, 2008. As a result of
the Merger, there was a change in control of the public entity. In accordance
with Statement of Financial Accounting Standards 141, Pro-Tech is deemed to be
the acquiring entity. While the transaction is accounted for using the purchase
method of accounting, in substance the Merger is a recapitalization of
Pro-Tech’s capital structure
For
accounting purposes, the Company accounted for the transaction as a reverse
acquisition and Pro-Tech is the surviving entity. The total purchase price and
carrying value of net assets acquired was $3,500. The Company did not recognize
goodwill or any intangible assets in connection with the transaction. As of the
date of the Agreement, the Company was an inactive corporation with no
significant assets and liabilities.
Effective
with the Acquisition Agreements, all previously outstanding common stock owned
by Pro-Tech’s stockholders were exchanged for an aggregate of 10,100,000 shares
of the Company’s common stock, $0.001 par value (“the Common
Stock”). As part of the Transaction it was agreed that, all
outstanding shares would remain outstanding. The effect of the Transaction was
that 3,500,000 shares of Common Stock would be retained.
The value
of the stock issued was the historical cost of the Company's net tangible assets
of $3,500, which did not differ materially from their fair value. The total
consideration paid of $3,500 is summarized further below.
F-9
December 31, 2008
|
||||
Common
stock retained
|
$ | 3,500 | ||
Assets
acquired
|
(- | ) | ||
Liabilities
assumed
|
- | |||
Total
consideration paid
|
$ | 3,500 |
In
accordance with Statement of Position 98-5 (“SOP 98-5”), 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 known 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 maintains an inventory which primarily consists of small parts such as
sprinkler heads, gaskets, pipe joints, junction boxes, outlets, etc.
which comes from come from closed jobs or economical buying
opportunities. They get used for repair work or filler when jobs run
short. The inventory on hand was $273,968 and $0 at December 31, 2009 and 2008,
respectively.
F-10
Advertising
The
Company follows the policy of charging the costs of advertising to expenses
incurred. The Company incurred $30,912 and $35,694, of advertising costs for the
years ended December 31, 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.
Basic and diluted earnings
per share
In
accordance with SFAS No. 128 – “Earnings Per Share”, the basic and diluted
earnings per share is computed by dividing net income available to common
stockholders by the weighted average number of common shares outstanding.
Diluted net earnings per share is computed similar to basic earnings per share
except that the denominator is adjusted for the potential dilution that could
occur if stock options, warrants, and other convertible securities were
exercised or converted into common stock. The Company does not have any
common stock equivalents at December 31, 2009 and 2008.
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:
Construction
equipment
|
5-7years
|
Automobiles
|
5
years
|
Computer
Software
|
3
years
|
Office
equipment and furniture
|
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.
F-11
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.
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 $60,000 and $110,000
as of December 31, 2009 and 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 twelve months ended December 31, 2009 and
net income for the twelve month periods ended December 31, 2008. The
Company did not have any common stock equivalent issued or outstanding as of
December 31, 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.
F-12
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 consolidated 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.
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 December 31, 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
In
January 2010, the FASB issued FASB ASU 2010-06, “Improving Disclosures about Fair
Value Measurements”, which clarifies certain existing disclosure
requirements in ASC 820 as well as requires disclosures related to significant
transfers between each level and additional information about Level 3 activity.
FASB ASU 2010-06 begins phasing in the first fiscal period after December 15,
2009. The Company is currently assessing the impact on its consolidated results
of operations and financial condition.
In
January 2010, the FASB issued Update No. 2010-04 “Accounting for Various
Topics—Technical Corrections to SEC Paragraphs” (“2010-04”). 2010-04
represents technical corrections to SEC paragraphs within various sections of
the Codification. Management is currently evaluating whether these changes will
have any material impact on its financial position, results of operations or
cash flows.
In
January 2010, the FASB issued Update No. 2010-01 “Accounting for Distributions
to Shareholders with Components of Stock and Cash—a consensus of the FASB
Emerging Issues Task Force” (“2010-03”) an update of ASC 505 “Equity.” 2010-03
clarifies the treatment of stock distributions as dividends to shareholders and
their affect on the computation of earnings per shares. The Company has not and
does not intend to declare dividends for preferred to common stock holders.
Management does not expect adoption of this standard to have any material impact
on the Company’s financial position, results of operations or operating cash
flows.
F-13
New Accounting
Pronouncements
(continued)
FASB ASC
TOPIC 860 - "Accounting for
Transfer of Financial Assets and Extinguishment of Liabilities." In June
2009, the FASB issued additional guidance under Topic 860 which improves the
relevance, representational faithfulness, and comparability of the information
that a reporting entity provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferor's continuing involvement, if any,
in transferred financial assets. This additional guidance requires that a
transferor recognize and initially measure at fair value all assets obtained
(including a transferor's beneficial interest) and liabilities incurred as a
result of a transfer of financial assets accounted for as a sale. Enhanced
disclosures are required to provide financial statement users with greater
transparency about transfers of financial assets and a transferor's continuing
involvement with transferred financial assets. This additional guidance must be
applied as of the beginning of each reporting entity's first annual reporting
period that begins after November 15, 2009, for interim periods within that
first annual reporting period and for interim and annual reporting periods
thereafter. Earlier application is prohibited. This additional guidance must be
applied to transfers occurring on or after the effective date. The adoption of
this Topic is not expected to have a material impact on the Company's financial
statements and disclosures.
In
October 2009, the FASB issued FASB ASU No. 2009-13, Revenue Recognition (Topic
605): “Multiple Deliverable
Revenue Arrangements – A Consensus of the FASB Emerging Issues Task
Force.” This standard provides application guidance on whether multiple
deliverables exist, how the deliverables should be separated and how the
consideration should be allocated to one or more units of accounting. This
update establishes a selling price hierarchy for determining the selling price
of a deliverable. The selling price used for each deliverable will be based on
vendor-specific objective evidence, if available, third-party evidence if
vendor-specific objective evidence is not available, or estimated selling price
if neither vendor-specific or third-party evidence is available. ASU 2009-13 may
be applied retrospectively or prospectively for new or materially modified
arrangements in fiscal years beginning on or after June 15, 2010, with early
adoption permitted. The Company is currently assessing the impact on
its consolidated financial position and results of operations
In
February 2010, the FASB issued FASB ASU 2010-09, Subsequent Events, Amendments to
Certain Recognition and Disclosure Requirements, which clarifies certain
existing evaluation and disclosure requirements in ASC 855 related to subsequent
events. FASB ASU 2010-09 requires SEC filers to evaluate subsequent events
through the date in which the financial statements are issued and is effectively
immediately. The new guidance does not have an effect on the Company’s
consolidated results of operations and financial condition.
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 December 31, 2009 and 2008 consist of the
followings:
2009
|
2008
|
|||||||
Contracts
receivables
|
$ | 3,245,701 | $ | 3,576,558 | ||||
Retention
receivables
|
664,350 | 1,171,843 | ||||||
Less:
Allowance for doubtful Accts
|
(60,000 | ) | (110,000 | ) | ||||
$ | 3,850,051 | $ | 4,638,401 |
F-14
NOTE
E – UNCOMPLETED CONTRACTS
At
December 31, 2009 and 2008, costs, estimated earnings, and billings on
uncompleted contracts are summarized as follows:
2009
|
2008
|
|||||||
Costs
incurred to date on uncompleted contracts
|
$ | 19,169,775 | $ | 9,987,580 | ||||
Estimated
earnings
|
3,422,931 | 1,103,017 | ||||||
22,592,706 | 11,090,597 | |||||||
Less:
billed revenue to date
|
(22,531,396 | ) | (11,656,510 | ) | ||||
$ | 61,310 | $ | (565,914 | ) | ||||
Costs
and estimated earnings in excess of billings
|
$ | 306,073 | $ | 146,338 | ||||
Less:
accruals on uncompleted contracts
|
(244,763 | ) | (712,252 | ) | ||||
$ | 61,310 | $ | (565,914 | ) |
NOTE
F – BACKLOG
The
following schedule summarizes changes in backlog on contracts from January 1,
2008 through December 31, 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 year ended December 31, 2008
|
7,861,663 | |||
Add:
contract adjustments
|
4,262,278 | |||
Less:
revenue for the year ended December 31, 2008
|
(16,487,525 | ) | ||
Backlog
balance at December 31, 2008
|
$ | 4,089,892 | ||
New
contracts for the year ended December 31, 2009
|
23,556,981 | |||
Add:
contract adjustments
|
1,672,307 | |||
Less:
revenue for the year ended December 31, 2009
|
(18,609,920 | ) | ||
Backlog
balance at December 31, 2009
|
$ | 10,709,260 |
NOTE
G – INVENTORY
Major
holdings of inventory at December 31, 2009 and 2008 consist of the
followings:
2009
|
2008
|
|||||||
Sacramento
Fire & Alarm Detection
|
$ | 106,695 | $ | - | ||||
San
Diego Fire & Alarm Detection
|
44,700 | - | ||||||
Electrical
|
48,844 | - | ||||||
Flooring
Segment
|
73,729 | - | ||||||
$ | 273,968 | $ | - |
NOTE
H – PROPERTY AND EQUIPMENT
Major
classes of property and equipment at December 31, 2009 and 2008 consist of the
followings:
2009
|
2008
|
|||||||
Vehicles
|
$ | 196,948 | $ | 196,948 | ||||
Leasehold
improvements
|
232,629 | 57,973 | ||||||
Office
equipments
|
215,792 | 160,185 | ||||||
Tools
and other equipment
|
228,672 | 172,267 | ||||||
874,041 | 587,373 | |||||||
Less:
accumulated depreciation
|
(571,394 | ) | (504,028 | ) | ||||
Net
Property and Equipment
|
$ | 302,647 | $ | 83,345 |
F-15
NOTE H – PROPERTY AND EQUIPMENT
(continued)
Depreciation
expense was $67,366 and $49,829 for the years ended December 31, 2009 and 2008,
respectively.
During
the years ended December 31, 2009 and 2008, the Company wrote off assets with a
gross acquisition value of $0 and $33,597 and net book values of $0 and $0,
respectively. All of these assets were obsolete computers and
software.
NOTE
I – INTANGIBLE ASSETS AND GOODWILL
Total
identifiable intangible assets acquired and their carrying values at December
31, 2008 are:
Weighted
|
||||||||||||||||||||
Gross
|
Accumulated
|
Average
|
||||||||||||||||||
Carrying
|
Amortization/
|
Residual
|
Amortization
|
|||||||||||||||||
Amount
|
Impairment
|
Net
|
Value
|
Period (Years)
|
||||||||||||||||
Amortized
Identifiable Intangible Assets: Jones Fire non compete
|
$ | 20,000 | $ | (20,000 | ) | $ | - | - | 5.0 | |||||||||||
Total
Amortized identifiable Intangible Assets
|
20,000 | (20,000 | ) | - | 5.0 | |||||||||||||||
Total
|
$ | 20,000 | $ | (20,000 | ) | $ | - | $ | - |
Total
identifiable intangible assets acquired and their carrying values at December
31, 2009 are:
Weighted
|
||||||||||||||||||||
Gross
|
Accumulated
|
Average
|
||||||||||||||||||
Carrying
|
Amortization/
|
Residual
|
Amortization
|
|||||||||||||||||
Amount
|
Impairment
|
Net
|
Value
|
Period (Years)
|
||||||||||||||||
Intangible
Assets and Goodwill:
|
||||||||||||||||||||
Amortized
Identifiable Intangible Assets: Conesco backlog, customer
lists
|
$ | 283,979 | $ | (181,431 | ) | $ | 102,548 | $ | - | 1.5 | ||||||||||
Total
Amortized identifiable Intangible Assets
|
283,979 | (181,431 | ) | 102,548 | 1.5 | |||||||||||||||
Goodwill
- Conesco
|
331,075 | - | 331,075 | - | ||||||||||||||||
Total
|
$ | 615,054 | $ | (181,431 | ) | $ | 433,623 | $ | - |
Total
amortization expense charged to operations for the year ended December 31,
2009 and 2008 was $181,431 and $3,667, respectively. Estimated amortization
expense as of December 31, 2009 is as follows:
Years
Ended December 31,
|
||||
2010
|
$
|
102,548
|
||
Total
|
$
|
102,548
|
The
Company does not amortize goodwill. The Company recorded goodwill in the amount
of $331,075 as a result of the acquisitions of Conesco, Inc. during the year
ended December 31, 2009. The Company evaluates goodwill for
impairment based on the fair value of the operating business units to which this
goodwill relates at least once a year. The Company generally determines the fair
value of a reporting unit using a combination of the income approach, which is
based on the present value of estimated future cash flows, and the market
approach, which compares the business unit's multiples to its competitors. At
December 31, 2009, the Company has determined that the value of Conesco’s
goodwill is fairly valued .
The
estimated fair value of our goodwill could change if the Company is unable to
achieve operating results at the levels that have been forecasted, the market
valuation of our business decreases based on transactions involving similar
companies, or there is a permanent, negative change in the market demand for the
services offered by the Company. These changes could result in a further
impairment of the existing goodwill balance that could require a material
non-cash charge to our results of operations.
F-16
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 Financial Accounting Standard (SFAS) No. 141, 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 SFAS 142 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 |
F-17
NOTE
J – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts
payable and accrued liabilities at December 31, 2009 and 2008:
2009
|
2008
|
|||||||
Accounts
payable
|
$ | 2,674,443 | $ | 1,741,225 | ||||
Accrued
payroll and vacation
|
(16,343 | ) | 187,826 | |||||
Accrued
payroll taxes
|
74 | 1,247 | ||||||
Other
liabilities
|
55,666 | 14,880 | ||||||
Total
|
$ | 2,713,840 | $ | 1,945,178 |
NOTE
K – BANK LINE 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 of 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 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 December 31, 2009 and 2008 amounted to
$900,000 and $655,500 respectively, leaving a balance available on the line of
$100,000 and $294,500, respectively. The Company is required to maintain certain
bank loan covenants. At December 31, 2009, the Company was not in
compliance with certain bank loan covenants.
NOTE
L – 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, 2009, the Company had for federal income tax purposes a net
deferred tax liability of $80,490.
Components
of the net deferred tax liability is as follows:
Year
Ended
December
31,
|
Year
Ended
December
31,
|
|||||||
2009
|
2008
|
|||||||
Deferred
tax assets
|
||||||||
Allowances
|
$ | 23,964 | $ | 38,500 | ||||
Timing
difference on amortization of intangibles
|
65,217 | - | ||||||
Total
gross deferred tax assets
|
$ | 89,181 | $ | 38,500 | ||||
Deferred
tax liabilities
|
||||||||
Section
481 carryforward
|
$ | 169,671 | $ | 297,300 | ||||
Total
gross deferred tax liabilities
|
$ | 169,671 | $ | 297,300 | ||||
Net
deferred tax liability
|
$ | 80,490 | $ | 258,800 |
The
federal and state income tax provision (benefit) is as
follows:
Year
Ended December
31,
|
||||||||
2009
|
2009
|
|||||||
Current: | ||||||||
Federal
|
$ | - | - | |||||
State
|
3,408 | 5,000 | ||||||
Total
current
|
3,408 | 5,000 | ||||||
Deferred:
|
||||||||
Federal
|
(178,310 | ) | 258,800 | |||||
State
|
- | - | ||||||
Total
deferred
|
178,310 | 258,800 | ||||||
Total tax
provision (benefit)
|
$ | 174,902 | 263,800 |
The effective
income tax rate remains the statutory rate primarily due to the benefit of the
current year loss offsetting the deferred tax liability. This resulted in no
significant increase or decrease in tax provision.
F-18
NOTE
M – NOTES PAYABLE
Notes
payable at December 31, 2009 and 2008 are as follows:
2009
|
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
$13,133.99, 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).
|
$ | 312,009 | $ | 440,055 | ||||
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
$4,785.24, 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).
|
205,083 | 250,000 | ||||||
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.
|
110,373 | - | ||||||
Total
note payable
|
627,465 | 690,055 | ||||||
Less:
current portion
|
(213,394 | ) | (172,025 | ) | ||||
Notes
payable – long term
|
$ | 414,071 | $ | 518,030 |
Aggregate
maturities of long-term debt as of December 31, 2009 are as
follows:
Year
ended
|
Amount
|
|||
December
31, 2010
|
$ | 213,194 | ||
December
31, 2011
|
227,299 | |||
December
31, 2012
|
131,141 | |||
December
31, 2013
|
55,831 | |||
Total
|
$ | 627,465 |
NOTE
N – CAPITAL STOCK
The
Company is authorized to issue 70,000,000 shares of common stock with $0.001 par
value per share. As of December 31, 2009 and December 31, 2008, the Company had
18,593,880 and 14,600,000 shares of common stock issued and outstanding,
respectively.
During
the twelve months ended December 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
O - RELATED PARTY TRANSACTIONS
Two
stockholders of the Company are co-owners of an entity that provides charter air
services, and on occasion, the Company utilizes this entity for air travel
services in connection with the Company’s contracting. During the
years ended December 31, 2009 and 2008, the Company incurred and charged to
operations $103,376 and $167,949, respectively, in connection with air travel
services provided by the entities to the Company. There were no payables owed to
the entities at December 31, 2009 and 2008, respectively.
The
entities are co-makers of a line of credit and a note payable and have pledged
substantiality all of their assets to secure the line of credit (See Note J) and
note payable (see Note L).
F-19
NOTE
P - COMMITMENTS AND CONTINGENCIES
Operating Lease
Commitments
The
Company leases office space under non-cancelable operating leases that expire
through December 2012.
The
Company also leases vehicles from Enterprise Fleet Services under non-cancelable
operating leases expiring through March 2013.
Future
minimum lease payments for the above leases over the next four years are as
follows:
2010
|
$ | 325,090 | ||
2011
|
196,149 | |||
2012
|
20,299 | |||
2013
|
8,718 | |||
Total
|
$ | 550,256 |
For the
years ended December 31, 2009 and 2008, rent expense was $207,609 and $122,840,
respectively. For the years ended December 31, 2009 and 2008, vehicle
lease expense was $240,525 and $272,912, respectively.
Litigation
In
September 2009, 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 two officers (former owners) of Pro-Tech
have both personally guaranteed these bonds. There is currently not
remuneration to the officers for these guarantees.
NOTE
Q – 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 twelve months ended December
31, 2009 and December 31, 2008, as taken from the internal management system
previously discussed, is listed below. Information for the twelve months
ended December, 2008 does not include any data from flooring and minimal
data from electrical and telecommunications or flooring, as those
acquisitions/startups were not completed by those dates.
Revenue
|
Twelve
months ended
|
|||||||
Dec 31,
2009
|
Dec 31,
2008
|
|||||||
Fire
Protection/Alarm & Detection
|
$ | 9,342,000 | $ | 15,193,000 | ||||
Telecommunications
|
4,282,000 | 443,000 | ||||||
Flooring
|
3,622,000 | - | ||||||
Electrical
|
1,364,000 | 852,000 | ||||||
Total
|
$ | 18,610,000 | $ | 16,488,000 |
F-20
Gross
Profit
|
||||||||
Dec 31, 2009
|
Dec 31, 2008
|
|||||||
Fire
Protection/Alarm & Detection
|
$ | 4,553,000 | $ | 5,642,000 | ||||
Telecommunications
|
1,026,000 | 283,000 | ||||||
Flooring
|
890,000 | - | ||||||
Electrical
|
(223,000 | ) | 349,000 | |||||
Total
|
$ | 6,246,000 | $ | 6,274,000 | ||||
Operating
Income (Loss)
|
||||||||
Dec 31, 2009
|
Dec 31, 2008
|
|||||||
Fire
Protection/Alarm & Detection
|
$ | 620,000 | $ | 2,012,000 | ||||
Telecommunications
|
543,000 | 204,000 | ||||||
Flooring
|
419,000 | - | ||||||
Electrical
|
(506,000 | ) | 305,000 | |||||
Corporate
|
(1,651,000 | ) | (2,487,000 | ) | ||||
Total
|
$ | (575,000 | ) | $ | 349,000 | |||
Depreciation/Amortization
|
||||||||
Dec 31, 2009
|
Dec 31, 2008
|
|||||||
Fire
Protection/Alarm & Detection
|
$ | 41,000 | $ | 41,000 | ||||
Telecommunications
|
8,000 | - | ||||||
Flooring
|
3,000 | - | ||||||
Electrical
|
1,000 | - | ||||||
Corporate
|
195,000 | 12,000 | ||||||
Total
|
$ | 248,000 | $ | 53,000 | ||||
Interest
|
||||||||
Twelve
months ended
|
||||||||
Dec 31, 2009
|
Dec 31, 2008
|
|||||||
Fire
Protection/Alarm & Detection
|
$ | - | $ | 5,000 | ||||
Telecommunications
|
- | - | ||||||
Flooring
|
21,000 | - | ||||||
Electrical
|
- | - | ||||||
Corporate
|
95,000 | 74,000 | ||||||
Total
|
$ | 116,000 | $ | 79,000 | ||||
Assets
|
||||||||
Dec 31, 2009
|
Dec 31, 2008
|
|||||||
Fire
Protection/Alarm & Detection
|
$ | 2,435,000 | $ | 5,196,341 | ||||
Telecommunications
|
609,000 | - | ||||||
Flooring
|
1,059,000 | - | ||||||
Electrical
|
721,000 | - | ||||||
Corporate
|
758,000 | - | ||||||
TOTAL
|
$ | 5,582,000 | $ | 5,196,341 | ||||
Capital
Expenditures
|
||||||||
Dec 31, 2009
|
Dec 31, 2008
|
|||||||
Fire
Protection/Alarm & Detection
|
$ | 13,900 | $ | 109,000 | ||||
Telecommunications
|
- | - | ||||||
Flooring
|
- | - | ||||||
Electrical
|
- | - | ||||||
Corporate
|
253,100 | - | ||||||
TOTAL
|
$ | 267,000 | $ | 109,000 |
F-21
NOTE
R- MAJOR CUSTOMERS AND SUPPLIERS
The
company had three customers who accounted for $8,141,868 or 45% of the billings
for 2009, two customers who accounted for $4,657,431 or 28% of revenue in
2008.
Purchases
from the Company’s two major vendors, (more than 10% of purchases) were
approximately $1,154,184 and $2,868,088 or 28% and 60% of materials purchases
for the years ended December 31, 2009 and 2008, respectively.
NOTE
S – 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 $73,063 and $60,868, for the years ended December 31, 2009 and
2008, respectively.
NOTE
T - SUBSEQUENT EVENTS
NONE
F-22
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
ITEM
9A. CONTROLS AND PROCEDURES
As
supervised by our board of directors and our principal executive and principal
financial officers, management has established a system of disclosure controls
and procedures and has evaluated the effectiveness of that
system. The system and its evaluation are reported on in the below
Management's Annual Report on Internal Control over Financial
Reporting. Our principal executive and financial officer has
concluded that our disclosure controls and procedures (as defined in the 1934
Securities Exchange Act Rule 13a-15(e)) as of December 31, 2009, are effective,
based on the evaluation of these controls and procedures required by paragraph
(b) of Rule 13a-15.
MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Evaluation
of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms and that such information
is accumulated and communicated to our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow for timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and
procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management is required to apply
its judgment in evaluating the cost-benefit relationship of possible controls
and procedures. Our disclosure controls and procedures were designed to provide
reasonable assurance that the controls and procedures would meet their
objectives. As required by SEC Rule 13a-15(b), our Chief Executive Officer and
Chief Financial Officer carried out an evaluation of the effectiveness of the
design and operation of our disclosure controls and procedures as of the end of
the period covered by this report. Based on the foregoing, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective at the reasonable assurance level.
Management’s
Annual Report on Internal Control over Financial Reporting
Our Chief
Executive Officer and Chief Financial Officer are responsible for establishing
and maintaining adequate internal control over our financial reporting. In order
to evaluate the effectiveness of internal control over financial reporting, as
required by Section 404 of the Sarbanes-Oxley Act, management has conducted an
assessment, including testing, using the criteria in Internal Control —
Integrated Framework, issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”). Our system of internal control over financial
reporting is designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. Because of
its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Management has used the framework set forth in
the report entitled Internal Control-Integrated Framework published by the
Committee of Sponsoring Organizations of the Treadway Commission, known as COSO,
to evaluate the effectiveness of our internal control over financial reporting.
Based on this assessment, our Chief Executive Officer and Chief Financial
Officer have concluded that our internal control over financial reporting was
effective as of December 31, 2009.This Annual Report does not include an
attestation report of our independent registered public accounting firm
regarding internal control over financial reporting. Our internal control over
financial reporting was not subject to attestation by our independent registered
public accounting firm pursuant to temporary rules of the SEC that permit us to
provide only management’s report in this Annual Report.
There has
been no change in our internal controls over financial reporting during our most
recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal controls over financial reporting.
22
Changes in Internal Controls
There
have been no changes in our internal controls over financial reporting or in
other factors that could materially affect, or are reasonably likely to affect,
our internal controls over financial reporting during the year ended December
31, 2009. There have not been any significant changes in the Company's critical
accounting policies identified since the Company filed its Form 10-K as of
December 31, 2009
ITEM
9B. OTHER INFORMATION
None.
PART III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS.
Set forth below is information
regarding the Company’s current directors and executive officers. There are no
family relationships between any of our directors or executive officers. The
directors are elected annually by stockholders. The executive officers serve at
the pleasure of the Board of Directors.
Management
Name
|
Age
|
Positions and Offices
Held
|
||
Donald
Gordon
|
50
|
CEO,
Director
|
||
Michael
Walsh
|
47
|
CFO
|
||
Tim
Crane
|
53
|
Director
|
||
Jan
Engelbrecht
|
|
50
|
|
Director
|
Donald
Gordon - CEO, co-founder of Pro-Tech Fire Protection Systems Corp.
Mr.
Gordon, President and co-founder, brings 32 years of experience in all aspects
of fire protection and construction company experience. In 1995, Mr.
Gordon, along with Mark Whittaker, formed Pro-Tech Fire Protection and continues
to run financial, as well as, day to day operations. Mr. Gordon's
experience includes general management, project management, sales, and field
work. Mr. Gordon remains active in the development of new business
opportunities and fostering long-term business relationships with key
clients.
Michael
Walsh – Chief Financial Officer
Michael
Walsh, CFO, brings over 25 years of experience in Accounting and Finance in both
private and public sectors, with established and startup companies. Mr.
Walsh has been a member of the Pro-Tech Fire Protection team since 2006. From
September 2005- December 2006, Mr. Walsh was with Falcon Technology Holdings,
Inc. acting as its Chief Financial Officer. From January 2004 –
September 2005, Mr. Walsh was the CFO of IQ Biometrix, Inc. a forensic software
startup. The Company merged with Wherify Wireless, Inc. and on close
of the merger Mr. Walsh became Corporate Controller. Mr. Walsh holds
a Master's degree as well as a bachelor's degree in Business
Administration.
Jan
Engelbrecht – Director
Jan F.
Engelbrecht is a newly appointed Board member as of January 2009. Mr.
Engelbrecht has served in the finance and technology industries for 25
years. As a CPA, Mr. Engelbrecht lead audit and consulting
engagements for Arthur Anderson and Price Waterhouse in various industries
including Banking, Oil & Gas, Real Estate, and High
Technology. For the past ten years, Mr. Engelbrecht has served as a
Software Client Executive for a world-wide technology company.
Tim
Crane – Director
Tim Crane
has been in the insurance industry for 29 years. He joined InterWest Insurance
Services in 1990 as a sales producer. In 1996 he was promoted to Vice President
and became a partner in the firm. In 2005 he was elected to the board of
directors, a position he continues to serve on. Tim holds a Bachelor of Science
in Business Administration from Northeastern University. He has been involved in
volunteer work for the United Cerebral Palsy, IBA West, American Cancer Society
and several church and school groups.
23
Audit
Committee Financial Expert
The
Company's By-Laws authorize the Board of Directors to appoint committees having
the authority to perform such duties as the Board may determine.
The Board
of Directors has appointed the Audit Committee to serve the purposes set forth
in this Charter, and has delegated the duties and responsibilities set forth in
this Charter to the Audit Committee. The Audit Committee will report to the
Board of Directors as provided in its Charter.
The Board
of Directors has appointed the Compensation Committee to serve the purposes set
forth in this Charter, and has delegated the duties and responsibilities set
forth in this Charter to the Compensation Committee. The Compensation Committee
will report to the Board of Directors as provided in its Charter.
Indemnification
of Officers and Directors
As
permitted by Nevada law, our Articles of Incorporation provide that we will
indemnify its directors and officers against expenses and liabilities they incur
to defend, settle, or satisfy any civil or criminal action brought against them
on account of their being or having been Company directors or officers unless,
in any such action, they are adjudged to have acted with gross negligence or
willful misconduct.
Pursuant
to the foregoing provisions, we have been informed that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in that Act and is, therefore, unenforceable.
Exclusion
of Liability
The
Nevada Business Corporation Act excludes personal liability for directors
for monetary damages based upon any violation of their fiduciary
duties as directors, except as to liability for any breach of the duty of
loyalty, acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, acts in violation of
the Nevada Business Corporation Act, or any transaction from
which a director receives an improper personal benefit. This
exclusion of liability does not limit any right that a director may have to
be indemnified and does not affect any director's liability under federal
or applicable state securities laws.
Code
of Conduct and Ethics
We are
committed to maintaining the highest standards of business conduct and ethics.
We have adopted a code of conduct and ethics applicable to our directors,
officers and employees. The code of conduct and ethics reflects our values and
the business practices and principles of behavior that support this commitment.
The code of conduct and ethics satisfies SEC rules for a “code of ethics”
required by Section 406 of the Sarbanes-Oxley Act of 2002, as well as the
American Stock Exchange rules for a “code of conduct and ethics.” A form of the
code of conduct and ethics was filed as Exhibit 14.1 to the Annual Report on
Form 10-K for December 31, 2009.
Compliance
with section 16(a) of the Securities Exchange Act of 1934
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's
directors and executive officers and persons who own more than 10% of a
registered class of the Company's equity securities to file various reports with
the Securities and Exchange Commission concerning their holdings of, and
transactions in, securities of the Company. Copies of these filings
must be furnished to the Company.
Mr.
Donald Gordon, our President, Chief Executive Officer and director, Mr. Michael
P Walsh, our Chief Financial Officer and Tim Crane and Jan Engelbrecht,
directors, were required to file Form 3’s.
CONFLICTS
OF INTEREST
There are
no conflicts of interest with any officers, directors or executive
staff.
24
ITEM
11. EXECUTIVE COMPENSATION.
Summary
Compensation Table
The
following table sets forth for the year ended December 31, 2009 and 2008
compensation awarded to, paid to, or earned by our other most highly compensated executive
officers whose total compensation during each fiscal year exceeded $100,000, if
any.
2009
SUMMARY COMPENSATION TABLE
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Change
in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
|
All
Other
Comp.
($)
|
Total
($)
|
|||||||||||||||||||||||||
Don
Gordon President
|
2009
|
248,717 | - | - | - | - | - | 19,441 | 268,158 | |||||||||||||||||||||||||
Pro-Tech
Industries
|
2008
|
250,000 | - | - | - | - | - | - | 250,000 | |||||||||||||||||||||||||
Michael
Walsh CFO
|
2009
|
125,626 | - | 47,520 | * | - | - | - | 17,839 | 190,985 | ||||||||||||||||||||||||
Pro-Tech
Industries
|
2008
|
112,500 | - | - | - | - | - | - | 112,500 | |||||||||||||||||||||||||
David
Baker
|
2009
|
166,750 | - | - | - | - | - | 6,584 | 173,334 | |||||||||||||||||||||||||
President
Conesco, Inc
|
2008
|
- | - | - | - | - | - | - | - | |||||||||||||||||||||||||
Sean
McGuire
|
2009
|
118,050 | - | 2,880 | * | - | - | - | 18,048 | 138,978 | ||||||||||||||||||||||||
President
Pro-Tech Fire
|
2008
|
- | - | - | - | - | - | - | - |
*Mr
McGuire and Mr Walsh’s shares vest on a monthly basis over 3 years and were part
of the stock awarded key employees as summarized in the following two
tables.
2009 and
2008 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE
Option Awards
|
Stock Awards
|
|||||||||||||||||||||||||||||||||||
Name
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
|
Option
Exercise
Price
|
Option
Expiration
Date
|
Number of
Shares or
Units of
Stock That
Have Not
Vested (#)
|
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested ($)
|
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights
That Have
Not Vested
(#)
|
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That Have
Not Vested
($)
|
|||||||||||||||||||||||||||
Key
employee grant
|
- | - | - | - | - | 630,547 | 283,746 | - | - |
25
2009 and
2008 OPTION EXERCISES AND STOCK VESTED TABLE
Option Awards
|
Stock Awards
|
|||||||||||||||||
Name
|
Year
|
Number of Shares
Acquired on
Exercise (#)
|
Value Realized on
Exercise ($)
|
Number of Shares
Acquired on Vesting
(#)
|
Value Realized on
Vesting ($)
|
|||||||||||||
Key
employee grant
|
2009
|
- | - | 297,213 | 150,000 |
26
2009
and 2008 PENSION BENEFITS TABLE
Name
|
Year
|
Plan Name
|
Number of Years of
Credited Service
|
Present Value of
Accumulated Benefit
($)
|
Payments During
Last Fiscal Year ($)
|
|||||||||||||||
NONE
|
27
2009
and 2008 NONQUALIFIED DEFERRED COMPENSATION TABLE
Name
|
Year
|
Executive
Contributions in
Last Fiscal Year
($)
|
Registrant
Contributions in
Last Fiscal Year
($)
|
Aggregate
Earnings in Last
Fiscal Year ($)
|
Aggregate
Withdrawls /
Distributions
|
Aggregate
Balance at Last
Fiscal Year-End
($)
|
||||||||||||||||||
NONE
|
28
2009
DIRECTOR COMPENSATION TABLE
Name
|
Fees
Earned or
Paid in
Cash
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Change
in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
|||||||||||||||||||||
Don
Gordon
|
600 | 32,500 | 33,100 | |||||||||||||||||||||||||
Jan
Engelbrecht
|
600 | 32,500 | 33,100 | |||||||||||||||||||||||||
Tim
Crane
|
600 | 32,500 | 33,100 |
29
2009
ALL OTHER COMPENSATION TABLE
Name
|
Year
|
Perquisites
and
Other
Personal
Benefits
($)
|
Tax
Reimbursement
($)
|
Insurance
Premiums
($)
|
Company
Contributions
to Retirement and
401(k)
Plans
($)
|
Severance
Payments /
Accruals
($)
|
Change
in Control
Payments /
Accruals
($)
|
Total ($)
|
||||||||||||||||||||||
Donald
Gordon
|
2009
|
3,358 | - | 16,083 | - | - | 19,441 | |||||||||||||||||||||||
Michael
Walsh
|
2009
|
1,756 | 16,083 | 17,839 | ||||||||||||||||||||||||||
Dave
Baker
|
2009
|
1,842 | - | 4,742 | - | - | - | 6,584 | ||||||||||||||||||||||
Sean
McGuire
|
2009
|
2,230 | 15,818 | 18,048 |
30
2009
PERQUISITES TABLE
Name
|
Year
|
Personal Use of
Company
Car/Parking
|
Financial Planning/
Legal
Fees
|
Club Dues
|
Executive Relocation
|
Total Perquisites and
Other Personal Benefits
|
||||||||||||||||
Donald
Gordon
|
2009
|
3,358 | - | - | - | 3,358 | ||||||||||||||||
Michael
Walsh
|
2009
|
1,756 | 1,756 | |||||||||||||||||||
Dave
Baker
|
2009
|
1,842 | - | - | - | 1,842 | ||||||||||||||||
Sean
McGuire
|
2009
|
2,230 | 2,230 |
31
2009
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL TABLE
Before Change in
Control
|
After Change in
Control
|
|||||||||||||||||||||||||||
Name
|
Benefit
|
Termination
w/o Cause
or for
Good
Reason
|
Termination
w/o Cause
or
for Good Reason
|
Voluntary
Termination
|
Death
|
Disability
|
Change in
Control
|
|||||||||||||||||||||
NONE
|
*
|
List
each applicable type of benefit in a separate row, e.g., severance pay,
bonus payment, stock option vesting acceleration, health care benefits
continuation, relocation benefits, outplacement services, financial
planning services or tax gross-ups.
|
Compensation
of Directors
We
currently have three directors. Directors are paid $100 per meeting
attended and were awarded 10,000 shares of our common stock each for serving as
a member of the Board of Directors for the fiscal year ended December 31,
2009. The Board of Directors will review its compensation package on
annual basis. The directors voted to temporarily stop payments until
a determined date.
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, CONFLICTS OF
INTEREST
No
retirement, pension, profit sharing, stock option or insurance programs or other
similar programs have been adopted by us for the benefit of its
employees.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The
following table lists stock ownership of our Common Stock as of December 31,
2009. The information includes beneficial ownership by (i) holders of more than
5% of our Common Stock, (ii) each of three directors and executive officers and
(iii) all of our directors and executive officers as a group. Except as noted
below, to our knowledge, each person named in the table has sole voting and
investment power with respect to all shares of our Common Stock beneficially
owned by them.
Name
and Address of Beneficial Owner
|
Amount
of Beneficial Ownership
|
Percentage
of Class
|
||||||
Donald
H. Gordon
|
5,050,000 | 27.2 | % | |||||
8550
Younger Creek Dr Sacramento, CA 95828
|
||||||||
Michael
P Walsh
|
320,000 | 1.7 | % | |||||
8550
Younger Creek Dr Sacramento, CA 95828
|
||||||||
Tim
Crane
|
32,000 | * | ||||||
8550
Younger Creek Dr Sacramento, CA 95828
|
||||||||
Jan
Engelbrecht
|
10,000 | * | ||||||
8550
Younger Creek Dr Sacramento, CA 95828
|
||||||||
All
Executive Officers and Directors as a Group
|
5,412,000 | 29.1 | % | |||||
(4
Persons)
|
||||||||
Mark
Whittaker
|
5,050,000 | 27.2 | % | |||||
3225
Production Ave, Ste B Oceanside, CA 92058
|
||||||||
Dave
Baker
|
2,900,000 | 15.6 | % | |||||
8550
Younger Creek Dr, Sacramento, CA 95828
|
32
DESCRIPTION
OF SECURITIES
Our
authorized capital stock consists of 70,000,000 shares of Common Stock, par
value $.001 per share. The following statements relating to the capital stock
set forth the material terms of our securities; however, reference is made to
the more detailed provisions of, and such statements are qualified in their
entirety by reference to, the Certificate of Incorporation, amendment to the
Certificate of Incorporation and the By-laws, copies of which are filed as
exhibits to this registration statement.
COMMON
STOCK
Holders
of shares of common stock are entitled to one vote for each share on all matters
to be voted on by the stockholders. Holders of common stock do not have
cumulative voting rights. Holders of common stock are entitled to share ratably
in dividends, if any, as may be declared from time to time by the Board of
Directors in its discretion from funds legally available therefore. In the event
of a liquidation, dissolution or winding up of the Company, the holders of
common stock are entitled to share pro rata all assets remaining after payment
in full of all liabilities. All of the outstanding shares of common stock are
fully paid and non-assessable. Holders of common stock have no preemptive rights
to purchase our common stock. There are no conversion or redemption rights or
sinking fund provisions with respect to the common stock.
The Board
of Directors does not at present intend to seek stockholder approval prior to
any issuance of currently authorized stock, unless otherwise required by law or
stock exchange rules.
PREFERRED
STOCK
The
Company is authorized to issue 5,000,000 shares of Preferred Stock, $0.001 par
value, of which no shares were issued and outstanding as of December 31, 2009.
The Board of Directors may issue such shares of Preferred Stock in one or more
series, with such voting powers, designations, preferences and rights or
qualifications, limitations or restrictions thereof as shall be stated in the
resolution or resolutions.
DIVIDENDS
Dividends,
if any, will be contingent upon our revenues and earnings, if any, capital
requirements and financial conditions. The payment of dividends, if any, will be
within the discretion of our Board of Directors. We presently intend to retain
all earnings, if any, for use in its business operations and accordingly, the
Board of Directors does not anticipate declaring any dividends prior to a
business combination.
INDEMNIFICATION
OF DIRECTORS AND OFFICERS.
Neither
our Articles of Incorporation nor Bylaws prevent us from indemnifying our
officers, directors and agents to the extent permitted under the Nevada Revised
Statute ("NRS"). NRS Section 78.502, provides that a corporation shall indemnify
any director, officer, employee or agent of a corporation against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
with any the defense to the extent that a director, officer, employee or agent
of a corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to Section 78.502(1) or 78.502(2), or in
defense of any claim, issue or matter therein.
NRS
78.502(1) provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, except an action by or in the right of the corporation, by reason
of the fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with the action, suit or proceeding if he: (a) is not
liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
33
NRS
Section 78.502(2) provides that a corporation may indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses, including amounts paid in settlement and attorneys' fees actually and
reasonably incurred by him in connection with the defense or settlement of the
action or suit if he: (a) is not liable pursuant to NRS 78.138; or (b) acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the corporation. Indemnification may not be made for
any claim, issue or matter as to which such a person has been adjudged by a
court of competent jurisdiction, after exhaustion of all appeals there from, to
be liable to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which the action or
suit was brought or other court of competent jurisdiction determines upon
application that in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper.
NRS
Section 78.747 provides that except as otherwise provided by specific statute,
no director or officer of a corporation is individually liable for a debt or
liability of the corporation, unless the director or officer acts as the alter
ego of the corporation. The court as a matter of law must determine the
question of whether a director or officer acts as the alter ego of a
corporation.
No
pending material litigation or proceeding involving our directors, executive
officers, employees or other agents as to which indemnification is being sought
exists, and we are not aware of any pending or threatened material litigation
that may result in claims for indemnification by any of our directors or
executive officers.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling us pursuant to the
foregoing provisions, we have been informed that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, we will, unless in
the opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by us is against public policy as expressed hereby in the
Securities Act and we will be governed by the final adjudication of such
issue.
Amendment
of our Bylaws
Our
bylaws may be adopted, amended or repealed by the affirmative vote of a majority
of our outstanding shares. Subject to applicable law, our bylaws also may be
adopted, amended or repealed by our Board of Directors.
Item
13. Certain Relationships and Related Transactions, and Director
Independence.
Related
Party Transactions
Two
stockholders of the Company are co-owners of an entity that provides charter air
services, and on occasion, the Company utilizes this entity for air travel
services in connection with the Company’s contracting. During the
years ended December 31, 2009 and 2008, the Company incurred and charged to
operations $167,949 and $234,038, respectively, in connection with air travel
services provided by the entities to the Company. There were no payables owed to
the entities at December 31, 2009 and 2008, respectively.
Director
Independence
One of
our directors, Donald Gordon, is an employee and would not be classified as
“independent” under the rules of the Securities and Exchange Commission. The
other two would be considered “independent”.
34
Item
14. Principal Accountant Fees and Services
On
February 17, 2009, RBSM, LLP ("RBSM") was appointed as the independent auditor
for Pro-Tech Industries, Inc. (the "Company") commencing with the year
ending December 31, 2008, and Arshad M Farooq, JD, CPA ("FAROOQ") was dismissed
as the independent auditors for the Company as of February 10,
2009.
2009
|
2008
|
2007
|
||||||||||
RBSM, LLP
|
RBSM, LLP
|
Arshad M Farooq, JD, CPA
|
||||||||||
Audit
Fees (1)
|
$ | 219,409 | $ | 78,659 | $ | 2,000 | ||||||
Audit-Related
Fees (2)
|
- | - | - | |||||||||
Tax
Fees (3)
|
- | - | - | |||||||||
All
Other Fees (4)
|
- | - | - | |||||||||
Total
|
$ | 219,409 | $ | 78,659 | $ | 2,000 |
(1)
|
Audit
fees represent fees for professional services provided in connection with
the audit of our financial statements and review of our quarterly
financial statements.
|
The audit
committee has reviewed and discussed with the Company's management and
independent registered public accounting firm the audited consolidated financial
statements of the Company contained in the Company's Annual Report on Form 10-K
for the Company's 2009 fiscal year. The audit committee has also discussed with
the auditors the matters required to be discussed, which includes, among other
items, matters related to the conduct of the audit of the Company's consolidated
financial statements.
Based on
the review and discussions referred to above, the Board approved the inclusion
of the audited consolidated financial statements be included in the Company's
Annual Report on Form 10-K for its 2009 fiscal year for filing with the
SEC.
Pre-Approval
Policies
The audit
committee's policy is now to pre-approve all audit services and all permitted
non-audit services (including the fees and terms thereof) to be provided by the
Company's independent registered public accounting firm; provided, however,
pre-approval requirements for non-audit services are not required if all such
services (1) do not aggregate to more than five percent of total revenues paid
by the Company to its accountant in the fiscal year when services are provided;
(2) were not recognized as non-audit services at the time of the engagement; and
(3) are promptly brought to the attention of the Board and approved prior to the
completion of the audit.
The Board
pre-approved all fees described above.
35
PART
IV
ITEM
15. FINANCIAL STATEMENTS AND EXHIBITS
Exhibits
3.1
|
Articles
of Incorporation (1)
|
|
3.2
|
Bylaws
of the Corporation (1)
|
|
14.1
|
Code
of Ethics (2)
|
|
21
|
Subsidiaries
(3)
|
|
31.1
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act. (3)
|
|
31.2
|
Certification
of Principal Financial and Accounting Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act. (3)
|
|
32.1
|
Certification
of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act. (3)
|
|
32.2
|
Certification
of Chief Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act. (3)
|
(1)
|
Incorporated
by reference to the same exhibit filed with the Company’s Registration
Statement on Form SB2 (Commission File No.
333-144076).
|
(2)
|
Incorporated
by reference to the same exhibit filed with Amendment No. 3 to the
Company’s Registration Statement on Form SB2 (Commission File No.
333-137170).
|
(3)
|
Filed
herewith.
|
36
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the Company caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Pro-Tech
Industries, Inc.
|
||
Dated:
April 15, 2010
|
||
By:
|
/s/ Donald Gordon
|
|
Donald
Gordon, President, Chief
|
||
Executive
Officer and Director
|
||
By:
|
/s/ Michael P Walsh
|
|
Michael
P Walsh
|
||
Chief
Financial Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following person on behalf of the Registrant in the
capacities indicated, on April 15, 2010.
By:
|
/s/ Donald
Gordon
|
|
Donald
Gordon, President, Chief Executive Officer and Director
|
By:
|
/s/ Jan
Engelbrecht
|
|
Jan
Engelbrecht, Director
|
By:
|
/s/ Tim
Crane
|
|
Tim
Crane, Director
|
37