U.S.
Securities and Exchange Commission


Washington,
D.C. 20549







FORM
10-Q


(Mark One)x
              Quarterly
      Report Pursuant to Section 13 or 15(d) ofthe
      Securities Exchange Act of 1934For the quarterly
      period ended June 30, 2010o
              Transition
      Report Pursuant to Section 13 or 15(d)of
      the Securities Exchange Act





For the
transition period from N/A to N/A







Commission File No.000-53013





Pro-Tech
Industries, Inc.


(Name of
small business issuer as specified in its charter)






Nevada
            
            20-8758875State of
      Incorporation
            
            IRS Employer
      Identification No.





8550
Younger Creek DR, #2


Sacramento,
CA 95828


(Address
of principal executive offices)





(916)
388-0255


(Issuer’s
telephone number)







(Former
name or Former Address if Changes Since Last Report)





Securities
registered under Section 12(b) of the Exchange Act:


None


Securities
registered under Section 12(g) of the Exchange Act:


Common
Stock, $0.001 par value per share


(Title
of Class)





Indicate
by check mark whether the Registrant (1) has filed all reports required by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports) and (2) has been subject to such filing requirements
for the past 90 days:  Yes  x
    No   ̈




Indicate
by check mark whether the Registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o No x




Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non–accelerated filer. See definition of “accelerated
filer 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
      companyx





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b–2 of the Exchange Act).  Yes   ̈    No  x





Transitional
Small Business Disclosure Format (check one): Yes o No x





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.





Class
            
            Outstanding
      at  August 13, 2010Common
      stock, $0.001 par value
            
            18,532,808













PRO-TECH
INDUSTRIES, INC.





INDEX
TO FORM 10-Q FILING


June
30, 2010





TABLE
OF CONTENTS





PART
I


FINANCIAL
INFORMATION





Page
                NumbersPART
      I - FINANCIAL INFORMATIONItem 1.
              
              Condensed
      Consolidated Financial Statements (unaudited)
              
              3Item 2.
              
              Management
      Discussion & Analysis of Financial Condition and Results of
      Operations
              
              21Item 3
              
              Quantitative
      and Qualitative Disclosures About Market Risk
              
              28Item 4.
              
              Controls
      and Procedures
              
              28PART
      II - OTHER INFORMATIONItem1
              
              Legal
      Proceedings
              
              29Item1A
              
              Risk
      Factors
              
              29Item 2.
              
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              
              32Item 3.
              
              Defaults
      Upon Senior Securities
              
              32Item 4.
              
              Removed
      and Reserved
              
              32Item 5
              
              Other
      information
              
              32Item 6.
              
              Exhibits
              
              32Signature
              
              34




CERTIFICATIONS






Exhibit 31 –
      Management certification
            
            35-36Exhibit 32 –
      Sarbanes-Oxley Act
            
            37-38





2


PART I FINANCIAL
INFORMATION





Item 1.
            Interim Unaudited
      Condensed ConsolidatedFinancial Statements and Notes
      to Interim Unaudited Condensed Consolidated Financial
      Statements




Pro-Tech
Industries, Inc.




General





The
accompanying reviewed interim consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q.  Therefore,
they do not include all information and footnotes necessary for a complete
presentation of financial position, results of operations, cash flows, and
stockholders’ equity in conformity with generally accepted accounting
principles.  Except as disclosed herein, there has been no material
change in the information disclosed in the notes to the consolidated financial
statements included in the Company’s annual report on Form 10-K for the year
ended December 31, 2009.  In the opinion of management, all
adjustments considered necessary for a fair presentation of the results of
operations and financial position have been included and all such adjustments
are of a normal recurring nature.  Operating results for the three and
six months ended June 30, 2010 are not necessarily indicative of the results
that can be expected for the year ending December 31, 2010.




Index
to Financial Statements





PageCondensed
      Consolidated Balance Sheets as of June 30, 2010 (Unaudited) and December
      31, 2009
            
            4Unaudited
      Condensed Consolidated Statements of Operations for the three and six
      months ended June 30, 2010 and 2009
            
            5Unaudited
      Condensed Consolidated Statement of Cash Flows for the six
      months  ended June 30, 2010 and 2009
            
            6-7Notes
      to Unaudited Condensed Consolidated Financial Statements
            
            8
      ~20





3




PRO-TECH INDUSTRIES,
INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS





June 30, 2010
              (unaudited)
            
            
            December 31,
              2009ASSETSCurrent
      Assets:Cash
      and cash equivalents
            
            $
            551,615
            
            
            $
            186,894Contract
      receivable, net of allowance for doubtful accounts  as of June
      30, 2010 and December 31, 2009, of $100,000 and $50,000,
      respectively
            
            
            2,620,959
            
            
            
            2,659,979Costs
      and estimated earnings in excess of billings
            
            
            322,976
            
            
            
            123,185Note
      receivable – related party
            
            
            -
            
            
            
            77,000Inventory
            
            
            188,014
            
            
            
            200,238Other
      current assets
            
            
            321,668
            
            
            
            154,386Discontinued
      operations
            
            
            1,234,446
            
            
            
            1,433,283Total
      current assets
            
            
            5,239,678
            
            
            
            4,834,965Property
      plant and equipment, net
            
            
            245,479
            
            
            
            298,141Other
      Assets:Intangibles,
      net of  accumulated amortization as of  June 30, 2010
      and December 31, 2009, of $276,091 and $181,431,
    respectively
            
            
            7,888
            
            
            
            102,548Goodwill
            
            
            331,075
            
            
            
            331,075Deposits
            
            
            10,856
            
            
            
            10,856Discontinued
      Operations
            
            
            3,252
            
            
            
            4,509Total
      assets
            
            $
            5,838,228
            
            
            $
            5,582,094LIABILITIES AND STOCKHOLDERS’
      EQUITYCurrent
      Liabilities:Accounts
      payable and accrued expenses
            
            $
            2,778,930
            
            
            $
            2,249,449Notes
      payable – current portion
            
            
            233,809
            
            
            
            184,512Accruals
      on uncompleted contracts
            
            
            223,559
            
            
            
            197,514Reserve
      for loss on uncompleted contracts
            
            
            -
            
            
            
            87,431Line
      of credit
            
            
            1,000,000
            
            
            
            900,000Warrant
      and derivative liability
            
            
            249,884
            
            
            
            -Discontinued
      operations
            
            
            667,049
            
            
            
            579,094Total
      current liabilities
            
            
            5,153,231
            
            
            
            4,243,000Long
      -Term Liabilities:Notes
      payable- others  – long term portion
            
            
            235,132
            
            
            
            332,580Discontinued
      Operations
            
            
            67,050
            
            
            
            81,491Total
      Long Term Liabilities
            
            
            302,182
            
            
            
            414,071Series
      A 10% convertible redeemable preferred stock, no par value, 40,000 shares
      authorized; 23,000 and 0 issued and outstanding, (net) at June 30, 2010
      and December 31, 2009, respectively
            
            
            226,387
            
            
            
            -Stockholders’
      Equity:Preferred
      stock, undesignated, no par value; 1,960,000 shares authorized, no shares
      issued and outstanding
            
            
            -
            
            
            
            -Common
      Stock, $0.001 par value; 70,000,000 shares authorized;18,532,808
      and 18,593,880 shares issued and outstanding at June 30, 2010and
      December 31, 2009, respectively
            
            
            18,533
            
            
            
            18,594Paid
      in capital
            
            
            1,404,374
            
            
            
            1,421,467Accumulated
      deficit
            
            
            (1,266,479
            )
            
            
            (515,038
            )Total
      stockholders’ equity
            
            
            156,428
            
            
            
            925,023Total
      liabilities and stockholders’ equity
            
            $
            5,838,228
            
            
            $
            5,582,094




See
accompanying notes to these unaudited condensed consolidated financial
statements




4




PRO-TECH
INDUSTRIES, INC.


CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS


(UNAUDITED)





Three
      Months Ended June 30, 2010
            
            
            Three
      Months Ended June 30, 2009
            
            
            Six
      MonthsEnded June 30,
              2010
            
            
            Six
      Months
              Ended
      June 30,
              2009Net
      revenue
            
            $
            3,707,399
            
            
            $
            3,597,993
            
            
            $
            7,159,939
            
            
            $
            7,632,638Cost
      of sales
            
            
            2,132,062
            
            
            
            2,332,862
            
            
            
            5,041,027
            
            
            
            4,678,465Gross
      profit
            
            
            1,575,337
            
            
            
            1,265,131
            
            
            
            2,118,912
            
            
            
            2,954,174Operating
      Expenses:Depreciation
      and amortization (Note G & H)
            
            
            97,120
            
            
            
            42,507
            
            
            
            173,007
            
            
            
            79,130Selling,
      general and administrative
            
            
            1,149,096
            
            
            
            1,663,455
            
            
            
            2,424,933
            
            
            
            3,227,361Total
      Operating Expenses
            
            
            1,246,216
            
            
            
            1,705,962
            
            
            
            2,597,940
            
            
            
            3,306,491Income
      (Loss) from Operations
            
            
            329,121
            
            
            
            (440,831
            )
            
            
            (479,028
            )
            
            
            (352,317
            )Other
      Income (Expense):Gain
      on change in fair value of derivative liability
            
            
            203,827
            
            
            
            -
            
            
            
            203,827
            
            
            
            -Interest
      expense, net
            
            
            (22,941
            )
            
            
            (28,543
            )
            
            
            (56,678
            )
            
            
            (46,060
            )Total
      Other Income (Expense)
            
            
            180,886
            
            
            
            (28,543
            )
            
            
            147,149
            
            
            
            (46,060
            )Income
      (loss) income before income taxes
            
            
            510,007
            
            
            
            (469,374
            )
            
            
            (331,879
            )
            
            
            (398,377
            )Income
      tax benefit (expense)
            
            
            -
            
            
            
            89,792
            
            
            
            80,490
            
            
            
            29,476Income(loss)
      from continuing operations
            
            
            510,007
            
            
            
            (379,582
            )
            
            
            (251,389
            )
            
            
            (368,901
            )Income(loss)
      from discontinued operations
            
            
            (196,962
            )
            
            
            154,519
            
            
            
            (488,182
            )
            
            
            266,168Net
      Income(Loss)
            
            
            313,045
            
            
            
            (225,063
            )
            
            
            (739,571
            )
            
            
            (102,733
            )Preferred
      stock dividends and amortized discount
            
            
            105,098
            
            
            
            -
            
            
            
            105,098
            
            
            
            -Net
      Income(loss) attributable to common shareholders
            
            $
            207,947
            
            
            $
            (225,063
            )
            
            $
            (844,669
            )
            
            $
            (102,733
            )Net
      income (loss) per share  from continuing
    operations:Basic
            
            $
            0.03
            
            
            $
            (0.02
            )
            
            $
            (0.01
            )
            
            $
            (0.02
            )Diluted
            
            
            0.02
            
            
            
            (0.02
            )
            
            
            (0.01
            )
            
            
            (0.02
            )Net
      income (loss) per share:Basic
            
            $
            0.02
            
            
            $
            (0.01
            )
            
            $
            (0.04
            )
            
            $
            (0.01
            )Diluted
            
            
            0.01
            
            
            
            (0.01
            )
            
            
            (0.04
            )
            
            
            (0.01
            )Net
      income (loss) per share attributable to common
shareholder:Basic
            
            $
            0.01
            
            
            $
            (0.01
            )
            
            $
            (0.05
            )
            
            $
            (0.01
            )Diluted
            
            
            0.01
            
            
            
            (0.01
            )
            
            
            (0.05
            )
            
            
            (0.01
            )Weighted
      average common shares outstanding (Note A)
            
            
            18,473,871
            
            
            
            17,772,107
            
            
            
            18,382,232
            
            
            
            17,486,713




See
accompanying notes to these unaudited condensed consolidated financial
statements




5




PRO-TECH
INDUSTRIES, INC.


CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS


(UNAUDITED)




Six
      months endedJune 30,2010
            
            
            2009Cash
      Flows From Operating Activities:Net
      income (loss) from operations
            
            $
            (739,571
            )
            
            $
            (102,733
            )Income
      (loss) from discontinued operations
            
            
            (488,182
            )
            
            
            266,168Income
      (loss) from continuing operations
            
            
            (251,389
            )
            
            
            (368,901
            )Adjustments
      to reconcile net  income (loss) to net cash provided by
      operating activities:Depreciation
      and amortization
            
            
            151,689
            
            
            
            79,130Amortization
      of deferred financing costs
            
            
            21,318
            
            
            
            -Bad
      debt write off
            
            
            47,664
            
            
            
            35,512Accrual
      for bad debt allowance
            
            
            50,000
            
            
            
            (76,000
            )Change
      in fair value of warrant liability and reset derivative
            
            
            (203,827
            )
            
            
            -Amortization
      of deferred compensation
            
            
            24,200
            
            
            
            72,750Accruals
      (reversal) of loss against uncompleted contracts
            
            
            (87,431
            )
            
            
            (20,995
            )Deferred
      tax liability (asset)
            
            
            (80,490
            )
            
            
            (63,780
            )(Increase)
      decrease in:Contract
      receivable
            
            
            (58,644
            )
            
            
            838,603Inventory
            
            
            12,225
            
            
            
            -Other
      current assets, net
            
            
            (59,726
            )
            
            
            131,341Costs
      and estimated earnings in excess of billings
            
            
            (199,791
            )
            
            
            53,856Billings
      in excess of costs and estimated earnings
            
            
            26,045
            
            
            
            (466,275
            )Increase
      (decrease) in:Accounts
      payable and accrued expenses, net
            
            
            571,768
            
            
            
            (311,845
            )Net
      Cash Used in Continuing Operating Activities
            
            
            (36,387
            )
            
            
            (96,604
            )Net
      Cash Used in Discontinued Operating Activities
            
            
            (200,133
            )
            
            
            (106,822
            )Net
      Cash Used in Operating Activities
            
            
            (236,520
            )
            
            
            (203,426
            )Cash
      Flows From Investing Activities:Purchase
      of property and equipment
            
            
            (4,367
            )
            
            
            (12,820
            )Net
      Cash Used In Continuing Investing Activities
            
            
            (4,367
            )
            
            
            (12,820
            )Net
      Cash Provided by Discontinued Investing
    Activities
            
            
            -
            
            
            
            9,043Net
      Cash Used In Continuing Investing Activities
            
            
            (4,367
            )
            
            
            (3,777
            )Cash
      Flows From Financing Activities:Proceeds
      from short term borrowings
            
            
            42,500
            
            
            
            -Proceeds
      from sale of convertible redeemable preferred stock
            
            
            575,000
            
            
            
            -Payments
      of long term debt
            
            
            (97,448
            )
            
            
            (124,759
            )Proceeds
      from line of credit
            
            
            100,000
            
            
            
            294,500Net
      Cash Provided by Continuing Financing Activities
            
            
            620,052
            
            
            
            169,741Net
      Cash Provided by Discontinued Financing Activities
            
            
            (14,441
            )
            
            
            (38,790
            )Net
      Cash Provided by Financing Activities
            
            
            605,611
            
            
            
            130,952Net increase
      (decrease) in Cash And Cash Equivalents
            
            
            364,721
            
            
            
            (76,251
            )Cash
      and cash equivalents at beginning of period
            
            
            186,894
            
            
            
            86,895Cash
      and cash equivalents at the end of period
            
            $
            551,615
            
            
            $
            10,645





See
accompanying notes to these unaudited condensed consolidated financial
statements




6





PRO-TECH
INDUSTRIES, INC.


CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS


(unaudited)


(continued)




Six
      months endedJune 30,2010
            
            
            2009Supplemental
      Disclosures of Cash Flow Information:Cash
      paid during period for interest
            
            $
            56,678
            
            
            $
            46,060Cash
      paid during period for taxes
            
            $
            -
            
            
            $
            -Non-cash
      Investing and Financing Activities:Acquisition:Current
      assets acquired
            
            $
            -
            
            
            $
            338,435Equipment
      and other assets acquired
            
            
            -
            
            
            
            6,505Intangible
      assets acquired
            
            
            -
            
            
            
            615,054Liabilities
      assumed
            
            
            -
            
            
            
            (578,994
            )Shares
      issued as consideration
            
            $
            -
            
            
            $
            381,000Fair
      value of warrants issued with series A redeemable preferred
      stock
            
            $
            204,786
            
            
            $
            -Beneficial
      conversion feature of series A redeemable preferred stock
            
            $
            453,711
            
            
            $
            -Preferred
      stock dividend – non-cash
            
            $
            11,870
            
            
            $
            -Amortization
      of BCF transferred to additional paid in capital
            
            $
            93,228
            
            
            $
            -




The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements




7





PRO-TECH
INDUSTRIES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


June
30, 2010


(UNAUDITED)





NOTE
A - BUSINESS DESCRIPTION





General




The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-Q.  Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.





In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. However, the
results from operations for the six months period ended June 30, 2010, are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2010. These unaudited condensed consolidated financial statements
should be read in conjunction with the consolidated December 31, 2009 financial
statements and footnotes thereto included in the Company’s Form 10-K filed with
the Securities and Exchange Commission (the “SEC”).





Business and Basis of
Presentation





The
Company was originally incorporated under the laws of the State of Nevada on
April 4, 2007 under the name Meltdown Massage and Body Works, Inc. (“Meltdown”)
and formerly operated as a development stage company. On December 31, 2008,
Meltdown merged with and into Pro-Tech Fire Protection Systems Corp.
(“Pro-Tech”).  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 Company
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
unaudited condensed consolidated financial statements include the accounts of
Meltdown, Pro-Tech and Conesco, Inc., the operating subsidiaries (collectively,
the “Company”).





The
Company’s operating subsidiary, Pro-Tech, was incorporated under the laws of the
State of California on May 4, 1995. Pro-Tech is a full-service contractor
serving the western United States, with offices in California and Nevada.
Services include estimating, designing, fabricating, and installing all types of
standard and specialty water-based fire protection systems. In addition, the
company offers “Day Work” services, including inspecting, testing, repairing and
servicing of same.





On
January 16, 2009, the Company acquired Conesco, Inc. (“Conesco”) in a stock for
stock exchange.  Conesco, Inc has been a provider of commercial
flooring products, installation, maintenance and design consultation services to
businesses throughout Northern California since 1993.  Conesco’s 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.





On July
31, 2010, the Company entered into a letter of intent to sell the stock of
Conesco, Inc. to its prior owner upon the terms and subject to the conditions of
a definitive agreement.  The final terms of the definitive agreement
are in the process of being finalized and management projects the completion of
the sale on or about August 31, 2010.  The letter of intent is
non-binding and either side may terminate with written notice. These
unaudited condensed consolidated financial statements include disclosure of the
results of operations for Conesco, for all periods presented, as discontinued
operations.





All
significant intercompany balances and transactions have been eliminated in
consolidation.





NOTE
B – REVERSE MERGER AND CORPORATE RESTRUCTURE





On
December 31, 2008, the Company consummated a reverse merger by entering into a
share exchange agreement (the “Share Exchange”) with the stockholders of
Pro-Tech, pursuant to which the stockholders of Pro-Tech exchanged all
of the issued and outstanding capital stock of Pro-Tech for 10,100,000 shares of
common stock of the Company representing approximately 74%  of the
Company’s outstanding capital stock, Meltdown shareholders retained the
3,500,000 shares of previously issued shares of common stock.





8


As a
result of the Share Exchange, there was a change in control of the Company. In
accordance with SFAS No. 141, the Company was the acquiring entity. In
substance, the Share Exchange is a recapitalization of the Company’s capital
structure rather than a business combination.





For
accounting purposes, the Company accounted for the transaction as a reverse
acquisition with the Pro-Tech as the surviving entity. The total purchase price
and carrying value of net assets acquired was $-0-.  The
Company did not recognize goodwill or any intangible assets in connection
with the transaction. Prior to the Share Exchange, the Company was an inactive
corporation with no significant assets and liabilities.





All
reference to Common Stock shares and per share amounts have been retroactively
restated to effect the reverse acquisition as if the transaction had taken place
as of the beginning of the earliest period presented.




The total
consideration paid was $3,500 and the significant components of the transaction
are as follows:





December
      31,
              2008Common
      stock retained
            
            $
            3,500Assets
      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 July
31, 2010, the Company has entered into a letter of intent with the former
owner of Conesco, Inc. to buy all of the outstanding shares of Conesco (see
footnote U below).  The accompanying unaudited condensed
consolidated financial statements include the historical financial
condition, results of operations and cash flows of Pro-Tech showing Conesco as a
discontinued operation.





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.





9


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 closed jobs or economical buying opportunities.  They get used
for repair work or filler when jobs run short. The inventory on hand was
$188,014 and $200,238 at June 30, 2010 and December 31, 2009,
respectively.





Advertising





The
Company follows the policy of charging the costs of advertising to expenses
incurred. The Company incurred $13,541 and $17,548, of advertising costs for the
six months ended June 30, 2010 and 2009, respectively.





Income
Taxes





In
accordance with Accounting Standards Codification subtopic 740-10, Income Taxes
(“ASC 740-10”) deferred income taxes are the result of the expected future tax
consequences of temporary differences between the financial statement and tax
basis of assets and liabilities. Generally, deferred income taxes are classified
as current or non-current in accordance with the classification of the related
asset or liability. Items that are not related to an asset or liability are
classified as current or non-current depending on the periods in which the
temporary differences are expected to reverse. A valuation allowance is provided
against deferred income tax assets in circumstances where management believes
the recoverability of a portion of the assets is not reasonably assured. Losses
incurred, if any, are carried forward as applicable Accounting Standards
Codification subtopic 740-10, Income Taxes (“ASC 740-10”) and the Internal
Revenue Code and potentially may be used to offset taxable net income generated
in the future. The Company had previously elected to be treated as a subchapter
“S” corporation for federal tax purposes.  The reverse merger caused
the Company to lose its subchapter “S” corporation status.  The
Company became responsible for $849,628 in deferred income that carried forward
from 2007 when Pro-Tech was forced to change from cash to accrual based
taxpayer.  Pro-Tech took a 481a election to spread the acceleration
over 4 years.  The Company provides for income taxes based on pre-tax
earnings reported in the consolidated financial statements. Certain items such
as depreciation are recognized for tax purposes in periods other than the period
they are reported in the consolidated financial statements.  Following
the reverse merger status, beginning, January 1, 2009, the Company became a
C-Corp and subject to standard quarterly taxes provisions.  Results of
operations may not be comparable to prior results.





Cash
Equivalents





For
purposes of the Statements of Cash Flows, the Company considers all highly
liquid debt instruments purchased with a maturity date of three months or less
to be cash equivalents.





Property and
Equipment





Property
and equipment are stated at cost and depreciated over their estimated useful
lives of 3 to 10 years using the straight-line method as follows:






Construction
      equipment
            5-7
  yearsAutomobiles
            5 yearsComputer
      Software
            3 yearsOffice equipment and
      furniture
            3-7
  yearsLeasehold
      improvements
            life of the lease
      agreement where appropriate





Maintenance
and repairs to automobiles, equipment, furniture and computers is expensed as
incurred.  There is no reevaluation of useful life as most of the
assets are short term in nature and the repairs or maintenance are in the normal
course of the operating life of the asset.  Upon disposal of assets,
the Company reduces the asset account and the accumulated depreciation account
for the balances at that point in time.  The difference between the
amounts received greater than the book value is recognized as a gain and if the
amount is less than the book value is recognized as a
loss.  Depreciation is not included in cost of goods
sold.





Long-Lived
Assets





The
Company has adopted ASC 360-10-15-3 “Impairment of Disposal of long-lived
Assets”. The Statement requires that long-lived assets and certain identifiable
intangibles held and used by the Company be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Events relating to recoverability may include
significant unfavorable changes in business conditions, recurring losses, or a
forecasted inability to achieve break-even operating results over an extended
period.  The Company evaluates the recoverability of long-lived assets
based upon forecasted undiscounted cash flows. Should any impairment in value be
indicated, the carrying value of intangible assets will be adjusted, based on
estimates of future discounted cash flows resulting from the use and ultimate
disposition of the asset.  ASC 360-10 also requires assets to be
disposed of be reported at the lower of the carrying amount or the fair value
less costs to sell.





10


Concentrations of Credit
Risk





Financial
instruments and related items, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash, cash equivalents and
receivables.  The Company places its cash and temporary cash
investments with credit quality institutions.  At times, such
investments may be in excess of the FDIC insurance limit. The Company
periodically reviews its contract receivables in determining its allowance for
doubtful accounts. The allowance for doubtful accounts was $100,000 and $50,000
as of June 30, 2010 and December 31, 2009, 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 six months ended June
30, 2010 and 2009, 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 reported a
net loss for the three months ended June 30, 2009 and the six months ended June
30, 2010 and 2009, the effects of the shares issuable upon exercise of
outstanding warrants, options and convertible securities as of June 30, 2010 and
2009 have not been considered in the diluted net loss per common share since
these dilutive securities would reduce the loss per common share and become
anti-dilutive.  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.




The
following reconciliation of net income and share amounts used in the computation
of income (loss) per share for the three months ended June 30,
2010:


Three
      Months EndedJune
      30, 2010Net
      income from continuing operations used in computing basic net
      income
              
              $
              510,007Less:
      Gain on derivative/warrant liability marked to fair value
              
              
              (203,827
              )Net
      loss from continuing operations in computing diluted net loss per
      share:
              
              $
              306,180
 
 The
weighted  average shares  outstanding  used in the
basic net income per share  computations for the three months ended
June 30, 2010 was 18,473,871. In determining  the number of shares
used in computing  diluted loss per share, the Company added
approximately  1,725,000 potentially dilutive securities for the three
months ended June 30, 2010.
The  potentially  dilutive  securities
added  were  mostly  attributable  to  the  warrants,  and  convertible
preferred shares  outstanding.  As a result, the diluted
income per share for the three months ended June 30, 2010 was
$0.02.




Derivative financial
instruments





On
October 1, 2001, the Company adopted Accounting Standards Codification subtopic
815-10, Derivatives and Hedging (“ASC 815-10”), which requires that all
derivative instruments be recognized in the financial statements at fair value.
The adoption of ASC 815-10 did not have a significant impact on the results of
operations, financial position or cash flows during the three month period ended
June 30, 2010 and 2009.





The
Company uses derivative financial instruments for trading purposes also. Credit
risk related to the derivative financial instrument is managed by periodic
settlements. Changes in fair value of derivative financial instruments are
recorded as adjustments to the assets or liabilities being hedged in the
statement of operations or in accumulated other comprehensive income (loss),
depending on whether the derivative is designated and qualifies for hedge
accounting, the type of hedge transaction represented and the effectiveness of
the hedge.





Effect of Related
Prospective Accounting Pronouncement





Accounting
Standards Codification subtopic 815-40, Derivatives and Hedging,; Contracts in
Entity’s own Equity (“ASC 815-40”) became effective for the Company on October
1, 2009.  The Company’s Series A (convertible) Preferred Stock has
certain reset provisions that require the Company to reduce the conversion price
of the Series A (convertible) Preferred Stock if the Company issues equity at a
price less than the conversion price.  Upon the effective date, the
provisions of ASC 815-40 required a reclassification to liability based on the
reset feature of the agreements if the Company sells equity at a price below the
conversion price of the Series A Preferred Stock.





Therefore,
in accordance with ASC 815-40, the Company determined the fair value of the
initial reset provision of $453,711 at April 15, 2010 using the Black-Scholes
formula assuming no dividends, a risk-free interest rate of 4.00%, expected
volatility of 176.1%, and expected life of 1 years. The net value of the reset
provision at the date of adoption of ASC 815-40 was recorded as a reset
derivative liability on the balance sheet in the amount of $453,711 and a
reduction to series A convertible redeemable preferred stock.  Changes
in fair value are recorded as non-operating, non-cash income or expense at each
reporting date.





The fair
value of the reset provision of $249,884 at June 30, 2010 was determined using
the Black Scholes Option Pricing Model with the following
assumptions:





Dividend
      yield:
            
            
            -0-
            %Volatility
            
            
            176.1
            %Risk
      free rate:
            
            
            4.00
            %




11


The
change in fair value of the reset derivative and warrant liability resulted in a
current period non operating charge to operations of
$203,827.





Stock Based
Compensation





The
Company adopted the fair value recognition provisions Accounting Standard
Codification sub-topic 718-10 (ASC 718-10) Compensation, to account for
compensation costs under our stock option plans. In adopting SFAS No. 123(R), we
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.





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 unaudited condensed 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. The Company did have financial assets measured at fair
value on a recurring basis refer note T.





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 March
2010, the FASB issued new accounting guidance, under ASC Topic 605 onRevenue
Recognition.  This standard provides that the milestone method
is a valid application of the proportional performance model for revenue
recognition if the milestones are substantive and there is substantive
uncertainty about whether the milestones will be
achieved.  Determining whether a milestone is substantive requires
judgment that should be made at the inception of the arrangement.  To
meet the definition of a substantive milestone, the consideration earned by
achieving the milestone (1) would have to be commensurate with either the level
of effort required to achieve the milestone or the enhancement in the value of
the item delivered, (2) would have to relate solely to past performance, and (3)
should be reasonable relative to all deliverables and payment terms in the
arrangement.  No bifurcation of an individual milestone is allowed and
there can be more than one milestone in an arrangement.  The standard
is effective for interim and annual periods beginning on or after June 15,
2010.  The Company is currently evaluating the impact the adoption of
this guidance will have on its consolidated financial statements.
 
 In
February 2010, the FASB issued ASU No. 2010-09, which updates the
guidance in ASC 855,Subsequent Events, such that companies that file with the SEC will no
longer be required to indicate the date through which they have analyzed
subsequent events. This updated guidance became effective immediately upon
issuance and was adopted as of the first quarter of 2010.
 
 In
February 2010 the FASB issued Update No. 2010-08Technical Corrections to Various
Topics (“2010-08”). 2010-08 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. 2010-06Fair Value Measurements and
Disclosures—Improving Disclosures about Fair Value
Measurements  (“2010-06”). 2010-06 requires new disclosures
regarding significant transfers between Level 1 and Level 2 fair value
measurements, and disclosures regarding purchases, sales, issuances and
settlements, on a gross basis, for Level 3 fair value measurements. 2010-06 also
calls for further disaggregation of all assets and liabilities based on line
items shown in the statement of financial position. This amendment is effective
for fiscal years beginning after December 15, 2010 and interim periods within
those fiscal years. The Company is currently evaluating whether adoption of this
standard will have a material impact on its consolidated financial position,
results of operations or cash flows.
  In
January 2010 the FASB issued Update No. 2010-05Compensation—Stock
Compensation—Escrowed Share Arrangements and Presumption of
Compensation  (“2010-05”). 2010-05 re-asserts that the Staff of
the Securities Exchange Commission (the “SEC Staff”) has stated the presumption
that for certain shareholders escrowed share represent a compensatory
arrangement. 2010-05 further clarifies the criteria required to be met to
establish a position different from the SEC Staff’s position. The Company does
not believe this pronouncement will have any material impact on its consolidated
financial position, results of operations or cash flows.
  In
January 2010 the FASB issued Update No. 2010-04Accounting 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 consolidated financial position, results of
operations or cash flows.





12


In
January 2010 the FASB issued Update No. 2010-02Accounting and Reporting for
Decreases in Ownership of a Subsidiary—a Scope
Clarification  (“2010-02”) an update of ASC 810Consolidation .
2010-02 clarifies the scope of ASC 810 with respect to decreases in ownership in
a subsidiary to those of a subsidiary or group of assets that are a business or
nonprofit, a subsidiary that is transferred to an equity method investee or
joint venture, and an exchange of a group of assets that constitutes a business
or nonprofit activity to a non-controlling interest including an equity method
investee or a joint venture. Management does not expect adoption of this
standard to have any material impact on its consolidated financial position,
results of operations or operating cash flows. Management does not intend to
decrease its ownership in any of its wholly-owned subsidiaries.
  In
January 2010 the FASB issued Update No. 2010-01Accounting 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 505Equity . 2010-03
clarifies the treatment of stock distributions as dividends to shareholders and
their affect on the computation of earnings per shares. Management does not
expect adoption of this standard to have any material impact on its consolidated
financial position, results of operations or operating cash flows.
  On
February 24, 2010, Financial Accounting Standards Board  (“FASB”)
the FASB issued guidance in the “Subsequent Events” topic of the FASC to provide
updates including: (1) requiring the company to evaluate subsequent events
through the date in which the financial statements are issued; (2) amending
the glossary of the “Subsequent Events” topic to include the definition of “SEC
filer” and exclude the definition of “Public entity”; and (3) eliminating
the requirement to disclose the date through which subsequent events have been
evaluated. This guidance was prospectively effective upon issuance. The adoption
of this guidance did not impact the Company’s results of operations of 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 June 30, 2010 and December 31, 2009 consist of the
followings:





June 30,
              2010
            
            
            December 31,
              2009Contracts
      receivables
            
            $
            2,277,794
            
            
            $
            2,396,783Retention
      receivables
            
            
            443,165
            
            
            
            313,196Allowance
      for doubtful accounts
            
            
            (100,000
            )
            
            
            (50,000
            )$
            2,620,959
            
            
            $
            2,659,979




NOTE E – UNCOMPLETED
CONTRACTS




At June
30, 2010 and December 31, 2009, costs, estimated earnings, and billings on
uncompleted contracts are summarized as follows:




June 30,
              2010
            
            
            December 31,
              2009Costs
      incurred to date on uncompleted contracts
            
            $
            5,304,567
            
            
            $
            16,495,273Estimated
      earnings
            
            
            789,902
            
            
            
            2,760,8526,094,469
            
            
            
            19,256,125Less:
      billed revenue to date
            
            
            5,995,052
            
            
            
            19,330,455Under
      (over) billings, net
            
            $
            99,417
            
            
            $
            (74,329
            )Costs
      and estimated earnings in excess of billings
            
            $
            322,976
            
            
            $
            123,185Less:
      accruals on uncompleted contracts
            
            
            (223,559
            )
            
            
            (197,514
            )Under
      (over) billings, net
            
            $
            99,417
            
            
            $
            (74,329
            )




13


NOTE
F – BACKLOG




The
following schedule summarizes changes in backlog on contracts from January 1,
2009 through June 30, 2010. 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. The Conesco figure are not included in below table refer note A and
note U.





Backlog
      balance at January 1, 2009
            
            $
            4,089,892New
      contracts for the six months ended June 30, 2009
            
            
            5,522,483Add:
      contract adjustments
            
            
            83,245Less:
      revenue for the six months ended June 30, 2009
            
            
            (7,632,638
            )Backlog
      balance at June 30, 2009
            
            $
            2,062,982





Backlog
      balance at January 1, 2010
            
            $
            8,324,093New
      contracts for the six months ended June 30, 2010
            
            
            3,553,470Add:
      contract adjustments
            
            
            235,367Less:
      revenue for the six months ended June 30, 2010
            
            
            (7,159,939
            )Backlog
      balance at June 30, 2010
            
            $
            4,952,991




NOTE G – PROPERTY AND
EQUIPMENT




Major
classes of property and equipment at June 30, 2010 and December 31, 2009 consist
of the followings:





June 30,
              2010
            
            
            December 31,
              2009Vehicles
            
            $
            196,948
            
            
            $
            196,949Leasehold
      improvements
            
            
            237,013
            
            
            
            232,628Office
      equipments
            
            
            208,279
            
            
            
            208,279Tools
      and other equipment
            
            
            228,672
            
            
            
            228,672870,912
            
            
            
            866,528Less:
      accumulated depreciation
            
            
            625,433
            
            
            
            568,387Net
      Property and Equipment
            
            $
            245,479
            
            
            $
            298,141




Depreciation
expense was $57,029 and $22,755 for the six months ended June 30, 2010 and 2009,
respectively and $28,472 and $11,757 for the three months ended June 30, 2010
and 2009, respectively.




NOTE
H – – INTANGIBLE ASSETS AND GOODWILL





Intangibles
consist of a non-compete agreement and the customer list.





The
following summarizes intangible assets at June 30, 2010 and December 31,
2009:





June 30,
              2010
            
            
            December 31,
              2009Goodwill
            
            $
            331,075
            
            
            $
            331,075Intangibles:
      Customer List
            
            
            283,979
            
            
            
            283,979Less:
      accumulated amortization
            
            
            276,091
            
            
            
            181,431Net
      Intangibles
            
            $
            338,963
            
            
            $
            433,623




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.





14


In
accordance with Accounting Standards Codification 805-10, Business Combinations
(ASC 805-10), 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
            
            $
            338,435Equipment
      and other assets
            
            
            6,505Intangible
      assets
            
            
            615,054Liabilities
            
            
            (578,994
            )Total
      purchase price
            
            $
            381,000





Intangibles
of $615,054 represented the excess of the purchase price over the fair value of
the net tangible assets acquired.  The Company will amortize the
intangibles over 5 years and will review the value of the intangibles to account
for any possible impairment as per guidance in ASC 350 during the twelve months
ended December 31, 2009 and beyond until the value of the asset is deemed
impaired. Also refer to note U for discontinued operating relating to
Conesco.




NOTE
I – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES





Accounts
payable and accrued liabilities at June 30, 2010 and December 31,
2009:





June 30,
              2010
            
            
            December 31,
              2009Accounts
      payable
            
            $
            2,555,161
            
            
            $
            2,170,134Accrued
      payroll and vacation
            
            
            21,171
            
            
            
            (11,915
            )Accrued
      payroll taxes
            
            
            63,457
            
            
            
            74Other
      liabilities
            
            
            139,141
            
            
            
            55,666Total
            
            $
            2,778,930
            
            
            $
            2,213,959




NOTE
J – BANK LINES OF CREDIT




The
Company has a line of credit with Westamerica Bank in the amount of
$1,000,000.  The line of credit is secured by substantially all of the
assets of the Company and guaranteed by the Company’s principal
stockholders.  In addition, entities owned and controlled by the
Company’s principal stockholders are co-makers of the line of credit and have
pledged substantially all of the assets as security for the line of credit (see
Note O).  The line of credit bears interest at the Bank rate minus
0.5%, per annum, with interest due and payable monthly and expires on June 30,
2010.  The balance outstanding under the line of credit at June 30,
2010 and December 31, 2009 amounted to $1,000,000 and $900,000 respectively,
leaving a balance available on the line of $0 and $100,000, respectively. The
Company is required to maintain certain bank loan covenants.  At June
30, 2010 and December 31, 2009, the Company was not in compliance with certain
bank loan covenants.  The Company received a 60 day extension on the
line of credit as paperwork is updated for renewal of the line.




15


NOTE
K – NOTES PAYABLE




Notes
payable at June 30, 2010 and December 31, 2009 are as follows:




June 30,
                2010
              
              
              December 31,
                2009Note
      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 O).
              
              $
              244,612
              
              
              $
              312,009Note
      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 O).
              
              
              181,829
              
              
              
              205,083Note
      payable to three individuals, interest at 9.0% per annum, the Notes
      Unsecured, with principal and interest due on or about June 30,
      2010
              
              
              42,500
              
              
              
              —Total
      notes payable
              
              
              468,941
              
              
              
              517,092Less:
      current portion
              
              
              233,809
              
              
              
              184,512Notes
      payable – long term
              
              $
              235,132
              
              
              $
              332,580




Aggregate
maturities of long-term debt as of June 30, 2010 are as follows:





Year
      ended
            
            AmountJune
      30, 2011
            
            $
            233,809June
      30, 2012
            
            
            152,846June
      30, 2013
            
            
            54,090June
      30, 2014
            
            
            28,196Total
            
            $
            468,941




NOTE
L – PREFERRED STOCK




We have
designated 40,000 shares of preferred stock as Series A convertible redeemable
preferred stock no par value, which may be issued in one or more sub-series, and
have authorized the issuance of 23,000 shares of Series A convertible redeemable
preferred stock. The Series A Preferred Stock is convertible into shares of our
common stock at a conversion price of $0.50 per share, subject to adjustment for
customary anti-dilution provisions. Holder may redeem the Series A Preferred
Stock partially or in full at the purchase price subject to the holder’s
conversion rights or redemption rights. The Series A Preferred Stock accrues
dividends at an annual rate of 10% per annum, payable quarterly, either in cash
or, at our election, shares of our common stock.





During
April 2010, we sold 23,000 shares in a private placement at a price
of $25 per share.  The total purchase price was $575,000 and the
proceeds to our company, net of commissions paid to our investment advisor, were
approximately $523,125.  The investors received $287,500 in
warrants to purchase common stock. Each warrant is exercisable for a period of
five years, with an exercise price of $0.50.  Since the Series A
convertible redeemable preferred stock may ultimately be redeemed at the option
of the holder, the carrying value of the preferred stock, net of discount and
accumulated dividends, has been classified as temporary equity on the balance
sheet at June 30, 2010.





In July
2010, the Company amended the purchase and warrant agreement to amend the strike
price on the warrants from $0.50 to $0.35 per share.  All other terms
remained the same.





In
accordance with Emerging Issues Task Force (“EITF”) No.00-27,“Application of EITF Issue
No. 98-5, ‘Accounting for Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Conversion Rates’, to Certain Convertible
Instruments“,  a portion of the proceeds were allocated to the warrants
based on their relative fair value, which totaled $204,786 using the Black
Scholes option pricing model. Further, we attributed a beneficial conversion
feature of $453,710 to the Series A preferred shares based upon the
difference between the effective conversion price of those shares and the
closing price of our common shares on the date of issuance. The assumptions used
in the Black Scholes model are as follows:  (1) dividend yield of
0%; (2) expected volatility of 176.1%, (3) weighted average
risk-free interest rate of 4%, and (4) expected life of 1 year as
the conversion feature and warrants are immediately exercisable. The expected
term of the warrants represents the estimated period of time until exercise and
is based on historical experience of similar awards and giving consideration to
the contractual terms. The amounts attributable to the warrants and beneficial
conversion feature, aggregating $453,710, have been recorded as a discount and
deducted from the face value of the preferred stock. Since the preferred stock
is classified as temporary equity, we are amortizing the discount over the
period of one year (the initial redemption date) as a charge to additional
paid-in capital (since there is a deficit in retained earnings). The charge to
additional paid in capital for 2010 was $93,228.




16




NOTE
M – CAPITAL STOCK




The
Company is authorized to issue 70,000,000 shares of common stock with $0.001 par
value per share. As of June 30, 2010 and December 31, 2009, the Company had
18,532,808 and 18,593,880 shares of common stock issued and outstanding
respectively.  During the six months ended June 30, 2010, the Company
recorded compensation cost of approximately $24,200 relating to shares issued
during the year ended December 31, 2009 and vested during the quarter ended
March 31, 2010, after adjustments for the termination and service changes
etc.





In April
2010, the Company sold 23,000 shares of Series A 10% Redeemable Convertible
Preferred Stock, no par value, for $575,000 to two accredited
investors.  The investors also received 575,000 warrants to purchase
shares of common stock at $0.50 per share.  The warrants expire five
years from date of issuance, April 2015.





NOTE
N – WARRANTS





Transactions
involving our warrant issuances are summarized as follows:





2010
                
                
                2009Number
                
                
                Weighted
                  Average
                  Exercise
      Price
                
                
                Number
                
                
                Weighted
                  Average
                  Exercise
      PriceOutstanding
      at beginning of the period
                
                
                -
                
                
                $
                -
                
                
                
                -
                
                
                $
                -Granted
      during the period
                
                
                575,000
                
                
                
                0.50
                
                
                
                -
                
                
                
                -Exercised
      during the period
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Terminated
      during the period
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Outstanding
      at end of the period
                
                
                575,000
                
                
                $
                0.50
                
                
                
                -
                
                
                $
                -Exercisable
      at end of the period
                
                
                575,000
                
                
                $
                0.50
                
                
                
                -
                
                
                $
                -





The
number and weighted average exercise prices of our options and warrants
outstanding as of June 30, 2010 is as follows:





Range
      of Exercise Prices
            
            Remaining
              Number
              Outstanding
            
            Weighted Average
              Contractual Life
              (Years)
            
            Weighted Average
              Exercise Price$0.50
            
            
            575,000
            
            
            4.75
            
            $
            0.50




NOTE
O - RELATED PARTY TRANSACTIONS




Two
primary 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 three months ended June 30, 2010 and 2009, the Company incurred and charged
to operations $1,848 and $24,502, respectively, in connection with air travel
services provided by the entities to the Company. There were no payables owed to
the entities at June 30, 2010 and December 31, 2009, 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 K).





17


NOTE
P - COMMITMENTS AND CONTINGENCIES





Operating Lease
Commitments





The
Company leases office space under non-cancelable operating leases that expire
through December 2011.  The Company also leases vehicles from
Enterprise Fleet Services under non-cancelable operating leases expiring through
March 2013.





Future
minimum lease payments for the above leases over the next four years are as
follows:




Amount2011
            
            $
            237,6882012
            
            
            93,2692013
            
            
            12,1332014
            
            
            2,993Total
            
            $
            346,083




For the
six month ended June 30, 2010 and 2009, rent expense was $89,630 and $64,164,
respectively.  For the six months ended June 30, 2010 and 2009,
vehicle lease expense was $94,419 and $97,478, respectively.




Litigation





The
Company is not currently in any litigation.





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 (refer to note A and note U).





Summarized
financial information by line of business for the six months ended June 30, 2010
and 2009, as taken from the internal management system previously discussed, is
listed below. Information for the six months ended June 30, 2009 does not
include any data from electrical, telecommunications or flooring, as those
acquisitions/startups were not completed by those dates.





Three
      months ended
            
            
            Six
      months endedRevenue
            
            June 30,
              2010
            
            
            June 30,
              2009
            
            
            June 30,
              2010
            
            
            June 30,
              2009Fire
      Protection/Alarm & Detection
            
            $
            2,790,000
            
            
            $
            2,203,000
            
            
            $
            4,352,000
            
            
            $
            5,398,000Telecommunications
            
            
            742,000
            
            
            
            1,313,000
            
            
            
            1,987,000
            
            
            
            2,025,000Electrical
            
            
            176,000
            
            
            
            82,000
            
            
            
            821,000
            
            
            
            210,000Total
            
            $
            3,708,000
            
            
            $
            3,598,000
            
            
            $
            7,160,000
            
            
            $
            7,633,000





Three
      months ended
            
            
            Six
      months endedGross
      Profit
            
            June 30,
              2010
            
            
            June 30,
              2009
            
            
            June 30,
              2010
            
            
            June 30,
              2009Fire
      Protection/Alarm & Detection
            
            $
            1,355,000
            
            
            $
            998,000
            
            
            $
            1,906,000
            
            
            $
            2,446,000Telecommunications
            
            
            113,000
            
            
            
            286,000
            
            
            
            371,000
            
            
            
            550,000Electrical
            
            
            107,000
            
            
            
            (19,000
            )
            
            
            (158,000
            )
            
            
            (42,000
            )Total
            
            $
            1,575,000
            
            
            $
            1,265,000
            
            
            $
            2,119,000
            
            
            $
            2,954,000





Three
      months ended
            
            
            Six
      months endedOperating
      Income (Loss)
            
            June 30,
              2010
            
            
            June 30,
              2009
            
            
            June 30,
              2010
            
            
            June 30,
              2009Fire
      Protection/Alarm & Detection
            
            $
            767,000
            
            
            $
            256,000
            
            
            $
            603,000
            
            
            $
            708,000Telecommunications
            
            
            42,000
            
            
            
            110,000
            
            
            
            182,000
            
            
            
            239,000Electrical
            
            
            63,000
            
            
            
            (65,000
            )
            
            
            (305,000
            )
            
            
            (115,000
            )Corporate
            
            
            (543,000
            )
            
            
            (742,000
            )
            
            
            (959,000
            )
            
            
            (1,184,000
            )Total
            
            $
            329,000
            
            
            $
            (441,000
            )
            
            $
            (479,000
            )
            
            $
            (352,000
            )




18




Three
      months ended
            
            
            Six
      months endedDepreciation/Amortization
            
            June 30,
              2010
            
            
            June 30,
              2009
            
            
            June 30,
              2010
            
            
            June 30,
              2009Fire
      Protection/Alarm & Detection
            
            $
            7,000
            
            
            $
            7,000
            
            
            $
            14,000
            
            
            $
            14,000Telecommunications
            
            
            5,000
            
            
            
            -
            
            
            
            9,000
            
            
            
            -Electrical
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Corporate
            
            
            85,000
            
            
            
            36,000
            
            
            
            150,000
            
            
            
            65,000Total
            
            $
            97,000
            
            
            $
            43,000
            
            
            $
            173,000
            
            
            $
            79,000





Three
      months ended
            
            
            Six
      months endedInterest
      (Income)Expense
            
            June 30,
              2010
            
            
            June 30,
              2009
            
            
            June 30,
              2010
            
            
            June 30,
              2009Fire
      Protection/Alarm & Detection
            
            $
            (3,000
            )
            
            $
            -
            
            
            $
            (3,000
            )
            
            $
            -Telecommunications
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Electrical
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Corporate
            
            
            (178,000
            )
            
            
            29,000
            
            
            
            (144,000
            )
            
            
            46,000Total
            
            $
            (181,000
            )
            
            $
            29,000
            
            
            $
            (147,000
            )
            
            $
            46,000




Assets
            
            June 30,
              2010
            
            
            December 31,
              2009Fire
      Protection/Alarm & Detection
            
            $
            2,516,000
            
            
            $
            2,435,000Telecommunications
            
            
            458,000
            
            
            
            609,000Electrical
            
            
            133,000
            
            
            
            721,000Corporate
            
            
            1,494,000
            
            
            
            758,000Discontinued
      Operations
            
            
            1,237,000
            
            
            
            1,059,000TOTAL
            
            $
            5,838,000
            
            
            $
            5,582,000




Capital
      Expenditures
            
            June 30,
              2010
            
            
            June 30,
              2009Fire
      Protection/Alarm & Detection
            
            $
            -
            
            
            $
            13,900Telecommunications
            
            
            -
            
            
            
            -Electrical
            
            
            -
            
            
            
            -Corporate
            
            
            4,367
            
            
            
            -TOTAL
            
            $
            4,367
            
            
            $
            13,900




NOTE
R - MAJOR CUSTOMERS AND SUPPLIERS




The
Company had two customers accounting for 41% of the total revenue for the six
months ended June 30, 2010 and two customers which accounted for 26% of the
total revenue for the six months ended June 30, 2009.  The Company had
two customers accounting for 35% of the total revenue for the three months ended
June 30, 2010 and two jobs which accounted for 46% of the total revenue for the
three months ended June 30, 2009.  The Company often has multiple jobs
running under some customers, but the jobs will have different owners and
therefore should not necessarily be considered one customer from the standpoint
of concentration of risk.




Purchases
from the Company’s two major vendors accounted for 57% of materials purchases
for the six months ended June 30, 2010 and were approximately 46% for the six
months ended June 30, 2009.   Purchases from the Company’s two
major vendors accounted for 85% of purchases for the three months ended June 30,
2010 and were approximately 36% for the three months ended June 30,
2009.  There are multiple vendors available to get materials and the
Company does not run a risk of shortage due to the loss of any of the
vendors.




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 $13,407 and $40,251, for the six months ended June 30, 2010 and
2008, respectively.  In April 2010, the Company suspended the matching
portion of the 401(k) plan.




NOTE
T — FAIR VALUE
 
 ASC
825-10 defines fair value as the price that would be received from selling an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. When determining the fair value
measurements for assets and liabilities required or permitted to be recorded at
fair value, the Company considers the principal or most advantageous market in
which it would transact and considers assumptions that market participants would
use when pricing the asset or liability, such as inherent risk, transfer
restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value
hierarchy that requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. ASC 825-10
establishes three levels of inputs that may be used to measure fair
value:
 
 Level 1 -
Quoted prices in active markets for identical assets or
liabilities.
 
 Level 2 -
Observable inputs other than Level 1 prices such as quoted prices for similar
assets or liabilities; quoted prices in markets with insufficient volume or
infrequent transactions (less active markets); or model-derived valuations in
which all significant inputs are observable or can be derived principally from
or corroborated by observable market data for substantially the full term of the
assets or liabilities.
 
 Level 3 -
Unobservable inputs to the valuation methodology that are significant to the
measurement of fair value of assets or liabilities.
 
 To the
extent that valuation is based on models or inputs that are less observable or
unobservable in the market, the determination of fair value requires more
judgment. In certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, for disclosure
purposes, the level in the fair value hierarchy within which the fair value
measurement is disclosed is determined based on the lowest level input that is
significant to the fair value measurement.
 
 Items
recorded or measured at fair value on a recurring basis in the accompanying
consolidated financial statements consisted of the following items as of
June 30, 2010:
  Total
              
              
              Quoted
                Prices
      in
                Active
                Markets
      for
                Identical
                Instruments
                Level
      1
              
              
              Significant
                Other
                Observable
                Inputs
                Level
      2
              
              
              Significant
                Unobservable
                Inputs
                Level
      3 (A)LiabilitiesWarrant
      liability
              
              
              (133,658
              )
              
              
              -
              
              
              
              -
              
              
              
              (133,658
              )Reset derivative
              
              
              (116,226
              )
              
              
              -
              
              
              
              -
              
              
              
              (116,226
              )Total
              
              $
              (249,884
              )
              
              $
              -
              
              
              $
              -
              
              
              $
              (249,884
              )
 
 (A)
              Fair
      value is estimated based on internally-developed models or methodologies
      utilizing significant inputs that are unobservable from objective
      sources.
 
 Level 3
Liabilities comprised of our bifurcated reset provision contained within our
Series C stock and the fair value of issued warrants with reset
provisions.
 
 The
following table provides a summary of changes in fair value of the Company’s
Level 3 financial liabilities as of June 30, 2010:
  Three Months Ended  June
30, 2010
  WarrantLiability
              
              
              ResetDerivativeBalance,
      December 31, 2009
              
              $
              -
              
              
              $
              -Total
      (gains) lossesWarrants
      issued with Redeemable Preferred Series A
              
              
              204,786
              
              
              
              -Convertible
      Redeemable Preferred Series A
              
              
              
              
              
              
              248,924Mark-to-market
      at June 30, 2010:-
      Series A Preferred Stock Reset Derivative
              
              
              
              
              
              
              (132,698)-
      Warrants issued with Convertible Redeemable Preferred Series
    A
              
              
              (71,128)Transfers
      in and/or out of Level 3
              
              
              —
              
              
              
              —Balance,
      June 30, 2010
              
              $
              133,658
              
              
              $
              116,225Total
      gain for the period included in earnings relating to the liabilities held
      at June 30, 2010
              
              $
              71,128
              
              
              $
              132,698


NOTE U
- SUBSEQUENT EVENTS





On July
31, 2010, the Company entered into a letter of intent to sell the stock of
Conesco, Inc. to its prior owner upon the terms and subject to the conditions of
a definitive agreement.  The final terms of the definitive agreement
are in the process of being finalized and management projects the completion of
project to complete the sale on or about August 31, 2010.  The letter
of intent is non-binding and either side may terminate with written
notice.





19


In July
the Company entered into an amendment of the Series A Puchase agreement to
change the strike price on the conversion and warrant shares from $0.50 to
$0.35.  This price reset will increase the number of warrants for the
financing from 575,000 to 821,427 common shares available to
purchase.  No other terms of the agreement were changed.





Subsequent
events have been evaluated through August 16, 2010, a date that the financial
statements were issued.  All appropriate subsequent event disclosures,
if any have been made in notes to our unaudited condensed consolidated financial
statements.




20





ITEM
2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS





The
following discussion and analysis should be read in conjunction with our
consolidated financial statements and related notes thereto included
elsewhere in this registration statement. Portions of this document that are not
statements of historical or current fact are forward-looking statements that
involve risk and uncertainties, such as statements of our plans, objectives,
expectations and intentions. The cautionary statements made in this registration
statement should be read as applying to all related forward-looking statements
wherever they appear in this registration statement. From time to time, we may
publish forward-looking statements relative to such matters as anticipated
financial performance, business prospects, technological developments and
similar matters. The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements. All statements other than statements
of historical fact included in this section or elsewhere in this report are, or
may be deemed to be, forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Important factors that could cause actual
results to differ materially from those discussed in such forward-looking
statements include, but are not limited to, the following: changes in the
economy or in specific customer industry sectors; changes in customer
procurement policies and practices; changes in product manufacturer sales
policies and practices; the availability of product and labor; changes in
operating expenses; the effect of price increases or decreases; the variability
and timing of business opportunities including acquisitions, alliances, customer
agreements and supplier authorizations; our ability to realize the anticipated
benefits of acquisitions and other business strategies; the incurrence of debt
and contingent liabilities in connection with acquisitions; changes in
accounting policies and practices; the effect of organizational changes within
the Company; the emergence of new competitors, including firms with greater
financial resources than ours; adverse state and federal regulation and
legislation; and the occurrence of extraordinary events, including natural
events and acts of God, fires, floods and accidents.




Forward-looking
statements involve risks, uncertainties and other factors, which may cause our
actual results, performance or achievements to be materially different from
those expressed or implied by such forward-looking statements. Factors and risks
that could affect our results and achievements and cause them to materially
differ from those contained in the forward-looking statements include those
identified in the section titled “Risk Factors” in the Company’s Annual Report
on Form 10-K for the period ended December 31, 2009, as well as other factors
that we are currently unable to identify or quantify, but that may exist in the
future.




In addition, the foregoing factors
may affect generally our business, results of operations and financial position.
Forward-looking statements speak only as of the date the statement was made. We
do not undertake and specifically decline any obligation to update any
forward-looking statements.





OVERVIEW





On
December 31, 2008, we executed an agreement with Pro-Tech Fire Protection
Systems Corp (“Pro-Tech Fire” or “Pro-Tech Fire Protection Systems”), and our
company(the
“Agreement”), whereby pursuant to the terms and conditions of
that Agreement, Pro-Tech Fire shareholders acquired ten million one
hundred thousand (10,100,000) shares of our common stock, whereby Pro-Tech
Fire would become a wholly owned subsidiary of our company.  The
predecessor to our company was incorporated in the State of Nevada on April 4,
2007, and was a development stage company with the principal business objective
of becoming a chain of professional body treatment and skin care service
centers.  On May 8, 2009 at our annual meeting, the stockholders and
board of directors approved and officially changed our name to Pro-Tech
Industries, Inc.





Pro-Tech
Fire was incorporated on May 4, 1995 under the laws of the State of California
to engage in any lawful corporate undertaking, including, but not limited to;
installation, repair and inspections of fire protection systems in commercial,
military and industrial settings.





PRO-TECH
FIRE PROTECTION SYSTEMS CORP





Pro-Tech
Fire Protection Systems is a full-service contractor serving the western United
States, with offices in California and Nevada. Services include estimating,
designing, fabricating, and installing all types of standard and specialty
water-based fire protection systems. In addition, our company offers “Day Work”
services, including inspecting, testing, repairing and servicing of
same.





21


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.).




Pro-Tech
Fire services include:





·
            Commercial,
      Special Hazards, and Industrial Overhead Wet Pipe, Dry Pipe, Pre-Action,
      Deluge, and Foam·
            New
      Installations, Retro-Fits, Upgrades, Repairs, Design, Consultations, and
      Analysis





·
            Pumps,
      Hydrants, Backflow Preventers, Underground, Design, and
      Consultation·
            5
      Year Certification, Inspections and
Testing





·
            24
      Hour Service·
            Alarm
      & Detection installation, inspections and repairs, and third party
      monitoring





·
            Electrical
      Services including design build, new construction, repairs, inspections
      and maintenance·
            Network
      cabling, system and structure testing and data networking and
      design





Pro-Tech
Telecommunications





Pro-Tech
Telecommunications provides inside/outside plant installation/implementation
services, telecommunications hardware/software deployment (voice systems),
maintenance support services, on-site technicians for telecommunications
upgrades, and cable system design services. In addition, Pro-Tech
Telecommunications also has a full data networking group that can design,
configure, and deploy custom data networking solutions based on individual
client needs.  Pro-Tech Telecommunications provides the following
services to commercial, government and other business enterprises.





Services
Offered:


Infrastructure
Systems/Services




·
            Building
      Riser and Campus Systems·
            Cabinet
      and Rack Installation





·
            Cable
      Tagging and Documentation·
            Communications
      Rooms, MDF, IDF





·
            Optical
      and Copper Cable Installation·
            Raceway
      Systems





·
            Wireless
      Connectivity Solutions




Low
Voltage Systems





·
            Security
      Systems·
            Fire
      Alarm





·
            Card
      Access Control·
            CATV





·
            Video
      Surveillance





Network
Systems





·
            Enterprise
      architecture strategy·
            Systems
      integration





·
            IT
      infrastructure, implementation, and support·
            Network
      security and remote access
solutions





·
            Authentication




Voice
Systems




·
            PBX·
            Key
      system





·
            VoIP




We
differentiate ourselves through our commitment to the highest degree of
structure, efficiency and quality practices.  We are experts at
providing solutions that precisely fit our client’s needs. We do not manufacture
equipment and are vendor agnostic when providing equipment solutions (i.e. we
will install customer or vendor owned/provided equipment). Our mission is to
provide cost-effective, high quality services and solutions to enhance the
competitive position of our clients, using creative and innovative
approaches.





22




Pro-Tech
Electrical




Pro-Tech
Electrical Services Division is a full service Electrical contractor providing
reliable and quality workmanship throughout California. Our capacities are not
limited to commercial and industrial project but, to a vast range of electrical
construction projects.   Our primary bid focus has been in the areas
of heavy commercial such as large distribution centers, commercial retail
(shopping centers, etc.), and institutional work (schools, churches, etc.) Our
Management strives to provide competitive pricing for the commercial and
industrial bid market. We believe we furnish detailed and competitive pricing,
value engineering options, and a team approach to our
clients.  Pro-Tech Electrical provides the following services to
commercial, government and other business enterprises:




Electrical
Services




·
            Building
      riser and campus systems·
            Underground
      service upgrades and installation





·
            Installation
      of power switchboards services, Motor Control Centers (MCC) and/or
      upgrades.·
            New
      emergency generators, controls and transfer
  switches.





·
            UPS
      (Uninterruptible Power Systems) and upgrades.·
            Fuse
      and Circuit Breaker upgrade and
installations





·
            Interior/
      exterior Lighting and related controls.·
            Site
      lighting installation and upgrades





·
            Security
      lighting·
            Industrial
      electrical projects including explosion proof equipment and
      installations.





·
            Building
      riser and campus systems·
            Load
      analysis





·
            Commercial
      and industrial maintenance





Competition





The
competition is divided among many players in our four markets.  The
market is highly fragmented and there is not a dominate player in any of the
markets.  Two of the larger competitors are as follows:





Cosco –
Cosco is a multifaceted, full service fire protection contractor, providing
design, fabrication, installation service and inspection of a wide variety of
automatic fire suppression systems.  The company specializes in large
construction projects including hospitals, high-rise structures, hotels, large
office and manufacturing facilities.  The company maintains
experienced staff including engineers, designers, project managers and
installers.  Cosco has offices in Los Angeles, San Francisco, Seattle,
Fresno, San Diego, and Anchorage.





Tyco/Grinnell
(NYSE: TYC) - Tyco International, Ltd. operates as a diversified manufacturing
and services company. The company, through its subsidiaries, designs,
manufactures, and distributes electronic security and fire protection systems;
electrical and electronic components; and medical devices and supplies, imaging
agents, pharmaceuticals, and adult incontinence and infant care products. Tyco’s
fire and security products and services include electronic security systems,
fire detection systems and suppression systems, as well as fire extinguishers
and related products. The company’s electrical and electronic components
comprise electronic/electrical connector systems; fiber optic components; and
wireless devices, such as private radio systems, heat shrink products, circuit
protection devices, and magnetic devices.





Employees





We have
approximately 66 full time employees including 11 executive and administrative
staff, 4 in engineering, 7 in sales and marketing, with the balance working in
the field as superintendants, foreman, journeyman or apprentices.





Recent
Developments




On July
31, 2010, we entered into a letter of intent to sell the stock of Conesco, Inc.
to its prior owner upon the terms and subject to the conditions of a definitive
agreement. The final terms of the definitive agreement are in the process of
being finalized and management projects the completion of the sale on or about
August 31, 2010. The letter of intent is non-binding and either side may
terminate with written notice.




23





Results
of Operations





Six months ended June 30, 2010
Compared to Six months ended June 30, 2009




Revenue




Revenues
were $7,159,939 for the six months ended June 30, 2010, a decrease of $472,699,
or 6.2%, from revenues of $7,632,638 for the six months ended June 30, 2009.
This decrease was primarily the results of a slow economy and slower than
expected growth of jobs in our Fire Life Safety division.





Fire Life
Safety segment revenue for the six months ended June 30, 2010 and 2009 were
approximately $4,352,000 or 61% and $5,398,000 or 71% of total revenue,
respectively.  The decrease in revenue was due to a slow economy and
slower than expected growth of jobs.  Management believes, but cannot
guarantee, that this segment’s revenues will increase steadily in the following
quarters.





Telecommunication
segment revenue for the six months ended June 30, 2010 and 2009 was
approximately $1,987,000 or 28% and $2,025,000 or 27% of total revenue,
respectively.  The revenue in this segment was relatively
flat.  The Company is reviewing how to gain traction into areas where
this segment has specialized licensing opportunities that some of the
competition does not have at its disposable.  Management is exploring
the means to leverage these opportunities and relationships in these trying
times.





Electrical segment revenue for the six
months ended June 30, 2010 and 2009 was approximately $821,000 or 11% and
$210,000 or 3% of total revenue, respectively.  The increase in
revenue was due primarily organic growth and recognition of revenue from over
billings, under billings and the accrual for losses on projects projected at
December 31, 2009.





Cost
of Revenue





Cost of
revenue consists of direct costs on contracts such as direct labor, design,
materials, third party subcontractors, and certain other direct overhead
costs.  Our cost of revenue was $5,041,027 or 70% of revenue for the
six months ended June 30, 2010, compared to $4,678,465 or 61% for the same
period of the prior year.  The dollar increase in our total cost of
revenue is due primarily to the corresponding increase in the percentage of cost
of sales during the six months ended June 30, 2010. The increase as a percentage
of revenue is due to the blend of project revenue attributable to our existing
operations and cost overruns incurred by our Electrical.   The
multi-segment history of our company is rather limited since this is only the
6th
quarter with all of our segments up in operation. The historical trend of the
last five quarters has ranged from approximately 59% to 91%.  The cost
of revenue percentage is expected to vary depending on our mix of project
revenue and segment revenue.  Our management contends that the
completion of the “overrun” jobs in the Electrical will allow us to get our
margins back in line with management’s expectations.  These areas will
continue to be monitored closely going forward, as will all of our
segments.





Fire Life
Safety segment cost of revenue and cost of revenue as a percentage of revenue
for the six months ended June 30, 2010 and 2009 was approximately $2,446,000 and
56% and $2,952,000 and 55%, respectively.  The dollar decrease in our
cost of revenue is due to the corresponding decrease in revenue during the six
months ended June 30, 2010.  This minor change in cost of revenue as a
percentage of revenue was due to the blend of project revenue attributable to
our existing operations and the more competitive bid environment reducing the
margins available on work won.





Telecommunication
segment cost of revenue and cost of revenue as a percentage of revenue for the
six months ended June 30, 2010 and 2009 was approximately $1,616,000 and 81% and
$1,475,000 and 73%, respectively.   This increase in cost of revenue
as a percentage of revenue was due to the blend of project revenue attributable
to our existing operations, plus the cost of initial expansion into additional
segments of the telecommunications market.  Management believes, but
cannot guarantee, that some of these costs should be better leveraged as this
area of telecommunications grows.





Electrical
segment cost of revenue and cost of revenue as a percentage of revenue for the
six months ended June 30, 2010 and 2009 was approximately $979,000 and 119% and
$252,000 and 120%, respectively.  The dollar increase in our cost of
revenue is due to the corresponding increase in revenue during the six months
ended June 30, 2010.  This segment had issues with cost overruns on
its four primary jobs started in the fourth quarter of 2009.  These
overruns continued into the first quarter of 2010.  Management
believes it has significantly reduced overhead and other costs and is reviewing
the viability of and/or direction to take with this segment to insure that it
can contribute to the overall success of our company.





Selling,
general and administrative




Selling,
general and administrative expenses were $2,424,932 for the six months ended
June 30, 2010 compared to $3,227,361 for the six months ended June 30, 2009. The
selling, general and administrative cost related to revenues decreased to 33.9%
for six months ended June 30, 2010 as compared to 42.3% for the six months ended
June 30, 2009, despite having a smaller revenue base in 2010.





24


The
decrease is primarily a result of a decrease in legal and accounting expense of
approximately $120,000 due to defense of the union and bank lawsuits, for which
the union suit has been settled and decrease in accounting fees associated with
review and reporting requirements.  We had not previously had audits
or reviews done for our quarterly results, causing the reviews of 2009 to add
costs.  The remainder of the decrease was primarily attributable to
salaries and benefits of reduced staffing levels.





Depreciation
and amortization




Depreciation
and amortization expense increased to $173,007 for the six months ended June 30,
2010 compared to $79,130 in the six months ended June 30, 2009.  The
increase came primarily from the intangible amortization related to the Conesco
purchase, which was initially set up as a sixty month amortization, but was
changed to eighteen months after review and analysis by an independent third
party.  This amortization will finalize in August
2010.  Depreciation expense increased due to leasehold improvements
put into the property leased in Sacramento for all of the Sacramento
operations.  There was also amortization of costs incurred for the
sale of preferred stock.  These costs are being amortized over twelve
months.





Interest




Net
interest income increased to $147,149 for the six months ended June 30, 2010
compared expense of $46,060 for the six months ended June 30, 2009. This change
was primarily due to the recognition of a gain on the fair value of warrants
outstanding at June 30, 2010 offset by an in increase in interest expense due to
full use of the line of credit for working capital purposes.





Income
Tax




Income
tax benefit increased to $80,490 for the six months ended June 30, 2010 from a
benefit of $29,476 for the six months ended June 30, 2009.  This is
approximately a $51,000 higher benefit due mainly to the movement of the section
481a adjustment of $424,814 from deferred status at June 30, 2009 to current at
June 30, 2010.  This is offset by the current loss incurred in the six
months ended June 30, 2010, which eliminates any potential deferred tax
asset.





Three Months Ended June 30, 2010
Compared to Three Months Ended June 30, 2009





Revenue




Revenues
were $3,707,399 for the three months ended June 30, 2010; an increase of
$109,406, or 3%, from revenues of $3,597,993 for the three months ended June 30,
2009. This increase was primarily driven by increases in the fire protection
segment, offset by a decrease in the telecommunications
segment.  Management is optimistic about the results in the fire
segment, but the slow economy is still being watched as we try to increase
revenues throughout all of our segments.





Fire Life
Safety segment revenue for the three months ended June 30, 2010 and 2009 were
approximately $2,790,000 or 75% and $2,203,000 or 61% of total revenue,
respectively.  The increase in revenue was due to jobs starting that
had been waiting in backlog.  This segment continues to make headway
in garnering contracts and has had a recent increase in bid activity in this
segment.  Management believes, but cannot guarantee, that this
segment’s revenues will increase steadily in the following
quarters.





Telecommunication
segment revenue for the three months ended June 30, 2010 and 2009 was
approximately $742,000 or 20% and $1,313,000 or 36% of total revenue,
respectively.  The decrease in revenue was due primarily to the
winding down of the state project this segment has been working
on.  Management is reviewing how to gain traction into areas where
this segment has specialized licensing opportunities that some of the
competition does not have at its disposable. Management hopes, but cannot
guarantee, that they will be able to increase revenues for this segment through
these means.





Electrical segment revenue for the
three months ended June 30, 2010 and 2009 was approximately $176,000 or 5% and
$82,000 or 2% of total revenue, respectively.  The increase in revenue
was due primarily organic growth and recognition of revenue from under
billings.





Cost
of Revenue





Cost of
revenue consists of direct costs on contracts such as direct labor, design,
materials, third party subcontractors, and certain other direct overhead
costs.  Our cost of revenue was $2,132,062 or 57.5% of revenue for the
three months ended June 30, 2010, compared to $2,332,862 or 64.8% for the same
period of the prior year.  The decrease as a percentage of revenue is
due to the blend of project revenue attributable to our existing operations and
the fire protection segment becoming a larger piece of the
revenue.    All segments of our company are being monitored
closely to keep margins in line with management’s expectations.





25


Fire Life
Safety segment cost of revenue and cost of revenue as a percentage of revenue
for the three months ended June 30, 2010 and 2009 was approximately $1,435,000
and 51% and $1,205,000 and 55%, respectively.  The dollar increase in
our cost of revenue is due to the corresponding increase in revenue during the
three months ended June 30, 2010.  The decrease in cost of revenue as
a percentage of revenue was due to the blend of project revenue attributable to
our existing operations.





Telecommunications
segment cost of revenue and cost of revenue as a percentage of revenue for the
three months ended June 30, 2010 and 2009 was approximately $629,000 and 85% and
$1,027,000 and 78%, respectively.  The dollar decrease in our cost of
revenue is due to the corresponding decrease in revenue during the three months
ended June 30, 2010.  This increase in cost of revenue as a percentage
of revenue was due to the blend of project revenue attributable to our existing
operations and the cost of initial expansion into additional segments of the
telecommunications market.





Electrical
power segment cost of revenue and cost of revenue as a percentage of revenue for
the three months ended June 30, 2010 and 2009 was approximately $68,000 and 39%
and $101,000 and 123%, respectively.  The dollar decrease in our cost
of revenue is due primarily to cost savings during the three months ended June
30, 2010.  The decrease as a percentage of revenue is due primarily to
the blend of project revenue attributable to our existing
operations.  Management has significantly reduced overhead and other
costs and is reviewing the viability of and/or direction to take with this
segment to insure that it can contribute to the overall success of our
company.





Selling,
general and administrative




Selling,
general and administrative expenses were $1,149,096 for the three months ended
June 30, 2010 compared to $1,663,455 for the three months ended June 30, 2009.
The selling, general and administrative cost related to revenues decreased to
31.0% for three months ended June 30, 2010 as compared to 46.2% for the three
months ended June 30, 2009, despite having a smaller revenue base in
2010.





The
decrease is primarily a result of a decrease in administrative payroll, travel
related expenses for vehicles, airfare, fuel and hotels.  Management
has taken a hard look at these costs and continues to make cuts and adjustments
to keep these costs in line as we continue to increase revenue and margin
levels.





Management
continues to monitor costs in these difficult economic times in order to remove
unnecessary overhead.





Depreciation
and amortization




Depreciation
and amortization expense increased to $97,120 for the three months ended June
30, 2010 compared to $42,507 in the three months ended June 30,
2009.  The increase came primarily from the intangible amortization
related to discontinued operations, which was initially set up as a sixty month
amortization, but was changed to eighteen months after review and analysis by an
independent third party.  This amortization will finalize in August
2010.  The company also had amortization on fees associated with the
sale of preferred stock.  The costs will be amortized over twelve
months.





Interest




Net
interest income increased to $180,886 for the three months ended June 30, 2010
compared expense of $28,543 for the three months ended June 30, 2009. This
increase was primarily due to recognition of a gain on the fair value of
warrants outstanding at June 30, 2010.





Income
Tax




There was
no income tax benefit or expense for the three months ended June 30, 2010
compared to an expense of $60,316 for the three months ended June 30, 2009. This
is due to the net loss position of the Company and no subsequent realization of
any deferred tax assets until positive earnings are gained.





Liquidity and Capital
Resources





Liquidity:





For the
six months ended June 30, 2010, we experienced a net loss from continuing
operations of $251,389 and a net loss of $488,182 from discontinued
operations.  At June 30, 2010, we had $551,615 in
cash.  Accounts receivable, net of allowances for doubtful accounts,
were $2,620,959 at June 30, 2010.  In April, 2010, the Company sold
23,000 shares of its Series A Convertible Redeemable Preferred stock with
net proceeds of $523,125.




26


At June
30, 2010, we had working capital of $86,447, compared to working capital of
$591,965 at December 31, 2009. The ratio of current assets to current
liabilities decreased to 1.01:1 at June 30, 2010 compared to 1.14:1 at December
31, 2009.  Cash used by continuing operations during the six months
ended June 30, 2010 was $36,387 as compared to cash used by continuing
operations of $96,604 for the six months ended June 30, 2009. Management
anticipates, but can provide no assurances, that that our existing capital
resources will be adequate to satisfy its capital requirements for the
foreseeable future.




Our
principal liquidity at June 30, 2010 included cash of $551,615 and $2,260,959 of
net accounts receivable. Our management believes, but can provide no assurances,
that 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
six months ended June 30, 2010, we had cash used of $36,387 from our continuing
operating activities, primarily as a result of our net loss from continuing
operations of $251,389, an increase in costs in excess of billings of $26,045, a
decrease in deferred tax liabilities of $80,490 and decrease in accrual for loss
against uncompleted contracts of $87,431, primarily offset by increase in
billing in excess of cost of $199,791, depreciation and amortization of
$151,689, bad debt allowance and write offs of $97,664 and by increase in
accounts payable of $571,768.  Add backs for stock based compensation
amounted to $24,200 offset by reduction for gain on fair value change of
warrants.  By comparison, net cash used in continuing operating activities
was $96,604 for the six months ended June 30, 2009.





There was
limited investing activity from continuing operations during the six months
ended June 30, 2010.    The activity consisted of upgrading
security monitors at the Sacramento offices.  The investing activity
during 2009 consisted of the purchase of computers and equipment of
approximately $12,820.





Financing
activity from continuing operations for 2010 consisted of payments on long term
debt obligations of $97,448 offset by line of credit borrowings of $100,000 and
the sale of Series A preferred stock with gross proceeds of $575,000 and short
term notes of $42,500.  For 2009, financing activity from continuing
operations consisted of payments on long term debt obligations of $124,759
offset by line of credit borrowings of $294,500.





With
recent cuts in corporate and selling, general and administrative costs,
management anticipates, but can provide no assurances, that our cash flow will
be positive for the remainder of 2010.





Capital
Resources:





Line
of Credit Facility





The line
of credit facility is primarily used to fund short-term changes in working
capital. The total capacity of the facility at June 30, 2010 was $1,000,000. Our
management believes that sufficient liquidity exists but may seek approval to
increase the facility or find other funding sources to increase the facility to
$1.5 million in the future.  Our management believes an increased line
of credit facility would help to provide adequate liquidity and financial
flexibility to support our expected growth beginning in the second quarter of
2010 and beyond.





The
facility contains customary financial covenants requiring us to maintain certain
financial ratios, including an asset coverage ratio and dollars, debt to equity
ratio and a tangible net worth requirement. Non-compliance with any of these
ratios or a violation of other covenants could result in an event of default and
reduce availability under the facility. We are currently not in compliance with
our covenants, but have full availability under the facility.





Effective
August 10, 2009, our company executed a new credit facility increasing the line
to $1,000,000.  The interest rate remains at .5% less than the
lender’s index rate, currently 4.5% and the maturity date was reset to June 30,
2010.  With the renewal of this credit facility the lender reset
customary financial covenants requiring us to maintain certain financial ratios,
including an asset coverage ratio and dollars, debt to equity ratio and a
tangible net worth requirement.  The Company and bank executed a 60
day extension while updated terms for the facility are determined.





Should
the current financing arrangements prove to be insufficient for our current
needs; we are willing to go to the capital markets to raise the necessary
capital to meet these needs.





27




Long
Term Notes





Long term
notes with original principal balances totaling $900,000, were issued through
our bank on February 3, 2007 ($650,000) and December 31, 2008, ($250,000). The
notes were are payable over 5 years and will be paid off on or about February 1,
2012 and December 31, 2013.  The notes carry interest rates of 7.76%
and 5.5% respectively. These notes are held by the same bank the Company uses
for its banking and where the line of credit is held.  The current
balances at June 30, 2010 on these two notes are $244,612 and $181,829,
respectively.





Critical
Accounting Estimates and Recently Issued Accounting Standards





Please
refer to Note C to the financial statements.





Inflation





In the
opinion of management, inflation will not have an impact on our company’s
financial condition and results of its operations.





Off-Balance
Sheet Arrangements




We do not
have any off balance sheet arrangements that are reasonably likely to have a
current or future effect on our financial condition, revenues, and results of
operations, liquidity or capital expenditures.





Other
Considerations





There are
numerous factors that affect the business and the results of its
operations.  Sources of these factors include general economic and
business conditions, federal and state regulation of business activities, the
level of demand for product services, the level and intensity of competition in
the media content industry, and the ability to develop new services based on new
or evolving technology and the market’s acceptance of those new services, our
ability to timely and effectively manage periodic product transitions, the
services, customer and geographic sales mix of any particular period, and our
ability to continue to improve our infrastructure including personnel and
systems to keep pace with our anticipated rapid growth.





Additional
Information





We file
reports and other materials with the Securities and Exchange
Commission.  These documents may be inspected and copied the
Commission’s Public Reference Room at 100 F Street, N.E., Washington, D.C.
20549. The public may obtain information on the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330.  The
Commission maintains a web site at http://www.sec.gov that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the Commission.


ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK


We do not
hold any derivative instruments and do not engage in any hedging
activities.





ITEM
4.  CONTROLS AND PROCEDURES




Evaluation of Disclosure Controls
and Procedures. Under the supervision and with the participation of our
management, including our President, Chief Financial Officer and Secretary, we
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”))
as of the end of the period covered by this report. Based upon that evaluation,
our President, Chief Financial Officer and Secretary concluded that our
disclosure controls and procedures as of the end of the period covered by this
report were effective such that the information required to be disclosed by us
in reports filed under the Securities Exchange Act of 1934 is (i) recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms and (ii) accumulated and communicated to our
management to allow timely decisions regarding disclosure. A controls system
cannot provide absolute assurance, however, that the objectives of the controls
system are met, and no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within a company
have been detected.




28


b)
Changes in Internal Control over Financial Reporting.





During
the Quarter ended June 30, 2010, there was no change in our internal control
over financial reporting (as such term is defined in Rule 13a-15(f) under the
Exchange Act) that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.





PART
II – OTHER INFORMATION





ITEM
1. LEGAL PROCEEDINGS





We are
not a party to any legal proceedings, there are no known judgments against the
Company, nor are there any known actions or suits filed or threatened against it
or its officers and directors, in their capacities as such.  We are
not aware of any disputes involving the Company and the Company has no known
claim, actions or inquiries from any federal, state or other government agency.
 We are not aware of any claims against the Company or any
reputed claims against it at this time, except as follows:





ITEM 1A
- Risk Factors




You
should carefully consider the following risk factors together with the other
information contained in this Interim Report on Form 10-Q, and in prior reports
pursuant to the Securities Exchange Act of 1934, as amended and the Securities
Act of 1933, as amended.  If any of the risks factors actually occur,
our business, financial condition or results of operations could be materially
adversely affected. In such cases, the trading price of our common stock could
decline. We believe there are no changes that constitute material changes from
the risk factors previously disclosed in the prior reports pursuant to the
Securities Exchange Act of 1934, as amended and the Securities Act of 1933 and
include or reiterate the following risk factors:





Our
Common Stock Is Subject To Penny Stock Regulation





Our
shares are subject to the provisions of Section 15(g) and Rule 15g-9 of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), commonly
referred to as the “penny stock” rule. Section 15(g) sets forth certain
requirements for transactions in penny stocks and Rule 15g-9(d)(1) incorporates
the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act.
The Commission generally defines penny stock to be any equity security that has
a market price less than $5.00 per share, subject to certain exceptions. Rule
3a51-1 provides that any equity security is considered to be penny stock unless
that security is: registered and traded on a national securities exchange
meeting specified criteria set by the Commission; authorized for quotation on
the NASDAQ Stock Market; issued by a registered investment company; excluded
from the definition on the basis of price (at least $5.00 per share) or the
registrant’s net tangible assets; or exempted from the definition by the
Commission. Since our shares are deemed to be “penny stock”, trading in the
shares will be subject to additional sales practice requirements on
broker/dealers who sell penny stock to persons other than established customers
and accredited investors.





FINRASales Practice
Requirements May Also Limit A Stockholder’s Ability To Buy And Sell Our
Stock.





In
addition to the “penny stock” rules described above, the Financial Industry
Regulatory Authority (FINRA) has adopted rules that require that in recommending
an investment to a customer, a broker-dealer must have reasonable grounds for
believing that the investment is suitable for that customer. Prior to
recommending speculative low priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information
about the customer’s financial status, tax status, investment objectives and
other information. Under interpretations of these rules, FINRA believes that
there is a high probability that speculative low priced securities will not be
suitable for at least some customers. FINRA requirements make it more difficult
for broker-dealers to recommend that their customers buy our common stock, which
may limit your ability to buy and sell our stock and have an adverse effect on
the market for our shares.





29


We
May Not Have Access To Sufficient Capital To Pursue Our Business And Therefore
Would Be Unable To Achieve Our Planned Future Growth:




We intend
to pursue a growth strategy that includes development of the Company business
and technology.  Currently we have limited capital which may be
insufficient to pursue our plans for development and growth.  Our
ability to implement our growth plans may depend primarily on our ability to
obtain additional private or public equity or debt financing.  We are
currently seeking additional capital.  Such financing may not be
available at all, or we may be unable to locate and secure additional capital on
terms and conditions that are acceptable to us.  Our failure to obtain
additional capital may have a material adverse effect on our
business.





Nevada Law
And Our Articles Of Incorporation Protect Our Directors From Certain Types Of
Lawsuits, Which Could Make It Difficult For Us To Recover Damages From Them In
The Event Of A Lawsuit.




Nevada
law provides that our directors will not be liable to our company or to our
stockholders for monetary damages for all but certain types of conduct as
directors. Our Articles of Incorporation require us to indemnify our directors
and officers against all damages incurred in connection with our business to the
fullest extent provided or allowed by law. The exculpation provisions may have
the effect of preventing stockholders from recovering damages against our
directors caused by their negligence, poor judgment or other circumstances. The
indemnification provisions may require our company to use our assets to defend
our directors and officers against claims, including claims arising out of their
negligence, poor judgment, or other circumstances.




Because We Are Quoted On The OTCBB
Instead Of An Exchange Or National Quotation System, Our Investors May Have A
Tougher Time Selling Their Stock Or Experience Negative Volatility On The Market
Price Of Our Stock.




Our
common stock is traded on the OTCBB. The OTCBB is often highly
illiquid.  There is a greater chance of volatility for securities that
trade on the OTCBB as compared to a national exchange or quotation system. This
volatility may be caused by a variety of factors, including the lack of readily
available price quotations, the absence of consistent administrative supervision
of bid and ask quotations, lower trading volume, and market conditions.
Investors in our common stock may experience high fluctuations in the market
price and volume of the trading market for our securities. These fluctuations,
when they occur, have a negative effect on the market price for our securities.
Accordingly, our stockholders may not be able to realize a fair price from their
shares when they determine to sell them or may have to hold them for a
substantial period of time until the market for our common stock
improves.




Failure To Achieve And Maintain
Effective Internal Controls In Accordance With Section 404 Of The
Sarbanes-Oxley Act Could Have A Material Adverse Effect On Our Business And
Operating Results.




It may be
time consuming, difficult and costly for us to develop and implement the
additional internal controls, processes and reporting procedures required by the
Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal
auditing and other finance staff in order to develop and implement appropriate
additional internal controls, processes and reporting procedures. If we are
unable to comply with these requirements of the Sarbanes-Oxley Act, we may not
be able to obtain the independent accountant certifications that the
Sarbanes-Oxley Act requires of publicly traded companies.




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 ended
December 31, 2009, we were required to prepare assessments regarding
internal controls over financial reporting and beginning with our annual report
on Form 10-K for our fiscal period ended December 31, 2009, furnish a report by
our management on our internal control over financial reporting.. Failure to
achieve and maintain an effective internal control environment could have a
material adverse effect on our stock price.




30


In
addition, in connection with our on-going assessment of the effectiveness of our
internal control over financial reporting, we may discover “material weaknesses”
in our internal controls as defined in standards established by the Public
Company Accounting Oversight Board, or the PCAOB. A material weakness is a
significant deficiency, or combination of significant deficiencies, that results
in more than a remote likelihood that a material misstatement of the annual or
interim financial statements will not be prevented or detected. The PCAOB
defines “significant deficiency” as a deficiency that results in more
than a remote likelihood that a misstatement of the financial statements
that is more than inconsequential will not be prevented or
detected.




In the
event that a material weakness is identified, we will employ qualified personnel
and adopt and implement policies and procedures to address any material
weaknesses that we identify. However, the process of designing and implementing
effective internal controls is a continuous effort that requires us to
anticipate and react to changes in our business and the economic and regulatory
environments and to expend significant resources to maintain a system of
internal controls that is adequate to satisfy our reporting obligations as a
public company. We cannot assure you that the measures we will take will
remediate any material weaknesses that we may identify or that we will implement
and maintain adequate controls over our financial process and reporting in the
future.




Any
failure to complete our assessment of our internal control over financial
reporting, to remediate any material weaknesses that we may identify or to
implement new or improved controls, or difficulties encountered in their
implementation, could harm our operating results, cause us to fail to meet our
reporting obligations or result in material misstatements in our financial
statements. Any such failure could also adversely affect the results of the
periodic management evaluations of our internal controls and, in the case of a
failure to remediate any material weaknesses that we may identify, would
adversely affect the annual auditor attestation reports regarding the
effectiveness of our internal control over financial reporting that are required
under Section 404 of the Sarbanes-Oxley Act. Inadequate internal controls
could also cause investors to lose confidence in our reported financial
information, which could have a negative effect on the trading price of our
common stock.




Operating
History And Lack Of Profits Which Could Lead To Wide Fluctuations In Our Share
Price. The Price At Which You Purchase Our Common Shares May Not Be Indicative
Of The Price That Will Prevail In The Trading Market. You May Be Unable To Sell
Your Common Shares At Or Above Your Purchase Price, Which May Result In
Substantial Losses To You. The Market Price For Our Common Shares Is
Particularly Volatile Given Our Status As A Relatively Unknown Company With A
Small And Thinly Traded Public Float, Limited




The
market for our common shares is characterized by significant price volatility
when compared to seasoned issuers, and we expect that our share price will
continue to be more volatile than a seasoned issuer for the indefinite future.
The volatility in our share price is attributable to a number of factors. First,
as noted above, our common shares are sporadically and thinly traded. As a
consequence of this lack of liquidity, the trading of relatively small
quantities of shares by our shareholders may disproportionately influence the
price of those shares in either direction. The price for our shares could, for
example, decline precipitously in the event that a large number of our common
shares are sold on the market without commensurate demand, as compared to a
seasoned issuer which could better absorb those sales without adverse impact on
its share price. Secondly, we are a speculative or “risky” investment due to our
limited operating history and lack of profits to date, and uncertainty of future
market acceptance for our potential products. As a consequence of this enhanced
risk, more risk-adverse investors may, under the fear of losing all or most of
their investment in the event of negative news or lack of progress, be more
inclined to sell their shares on the market more quickly and at greater
discounts than would be the case with the stock of a seasoned issuer. Many of
these factors are beyond our control and may decrease the market price of our
common shares, regardless of our operating performance. We cannot make any
predictions or projections as to what the prevailing market price for our common
shares will be at any time, including as to whether our common shares will
sustain their current market prices, or as to what effect that the sale of
shares or the availability of common shares for sale at any time will have on
the prevailing market price.




Shareholders
should be aware that, according to SEC Release No. 34-29093, the market for
penny stocks has suffered in recent years from patterns of fraud and abuse. Such
patterns include (1) control of the market for the security by one or a few
broker-dealers that are often related to the promoter or issuer;
(2) manipulation of prices through prearranged matching of purchases and
sales and false and misleading press releases; (3) boiler room practices
involving high-pressure sales tactics and unrealistic price projections by
inexperienced sales persons; (4) excessive and undisclosed bid-ask
differential and markups by selling broker-dealers; and (5) the wholesale
dumping of the same securities by promoters and broker-dealers after prices have
been manipulated to a desired level, along with the resulting inevitable
collapse of those prices and with consequent investor losses. Our management is
aware of the abuses that have occurred historically in the penny stock market.
Although we do not expect to be in a position to dictate the behavior of the
market or of broker-dealers who participate in the market, management will
strive within the confines of practical limitations to prevent the described
patterns from being established with respect to our securities. The occurrence
of these patterns or practices could increase the volatility of our share
price.




Volatility In Our Common Share Price
May Subject Us To Securities Litigation, Thereby Diverting Our Resources That
May Have A Material Effect On Our Profitability And Results Of
Operations.




As
discussed in the preceding risk factors, the market for our common shares is
characterized by significant price volatility when compared to seasoned issuers,
and we expect that our share price will continue to be more volatile than a
seasoned issuer for the indefinite future. In the past, plaintiffs have often
initiated securities class action litigation against a company following periods
of volatility in the market price of its securities. We may in the future be the
target of similar litigation. Securities litigation could result in substantial
costs and liabilities and could divert management’s attention and
resources.





31


COMPLIANCE
WITH CHANGING REGULATION OF CORPORATE GOVERNANCE AND PUBLIC DISCLOSURE WILL
RESULT IN ADDITIONAL EXPENSES AND POSE CHALLENGES FOR OUR MANAGEMENT TEAM.




Changing
laws, regulations and standards relating to corporate governance and public
disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection
Act and the rules and regulations promulgated thereunder, the Sarbanes-Oxley Act
and SEC regulations, have created uncertainty for public companies and
significantly increased the costs and risks associated with accessing the U.S.
public markets. Our management team will need to devote significant time and
financial resources to comply with both existing and evolving standards for
public companies, which will lead to increased general and administrative
expenses and a diversion of management time and attention from revenue
generating activities to compliance activities.





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.





ITEM 2.  UNREGISTERED SALES OF
EQUITY SECURITIES AND USE OF PROCEEDS SECURITIES





In April
2010, the Company sold 23,000 shares of Series A 10% Redeemable Convertible
Preferred Stock, no par value, for $575,000 to two accredited
investors.  The investors also received 575,000 warrants to purchase
shares of common stock at $0.50 per share.  The warrants expire five
years from date of issuance, April 2015.





The above
offering and sale was made in reliance upon the exemption from registration
under Rule 506 of Regulation D promulgated under the Securities Act of 1933
and/or Section 4(2) of the Securities Act of 1933, based on the following:
(a) the investors confirmed to us that they were “accredited investors,” as
defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933
and had such background, education and experience in financial and business
matters as to be able to evaluate the merits and risks of an investment in the
securities; (b) there was no public offering or general solicitation with
respect to the offering; (c) the investors were provided with certain
disclosure materials and all other information requested with respect to our
company; (d) the investors acknowledged that all securities being purchased
were “restricted securities” for purposes of the Securities Act of 1933, and
agreed to transfer such securities only in a transaction registered under the
Securities Act of 1933 or exempt from registration under the Securities Act; and
(e) a legend was placed on the certificates representing each such security
stating that it was restricted and could only be transferred if subsequent
registered under the Securities Act of 1933or transferred in a transaction
exempt from registration under the Securities Act of 1933.





ITEM
3.  DEFAULTS UPON SENIOR SECURITIES





There
were no defaults upon senior securities during the period ended March 31,
2010.




ITEM 4.  REMOVED AND
RESERVED




ITEM
5.  OTHER INFORMATION




None.




ITEM
6.  EXHIBITS




3.1
            
            Certificate
      of Incorporation (1)3.2
            
            Bylaws
      of Pro-Tech Industries, Inc. (1)14.1
            
            Code
      of Ethics (2)




32




31.1
            
            Certification
      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act(3)31.2
            
            Certification
      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act.(3)32.2
            
            Certification
      of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
      Act.(3)32.2
            
            Certification
      of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
      Act.(3)







(1)   Incorporated
by reference to the Company’s filing on Form SB-2, as filed with the Securities
and Exchange Commission on June 27, 2007.




(2)   Incorporated
by reference to the Company’s filing on Form 10-K, as filed with the Securities
and Exchange Commission on April 15, 2009.





(3)  Filed
herein.




33




SIGNATURES





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




Registrant
              Pro-Tech
      Industries, Inc.Date:
      August 16, 2010
              By:
              /s/ Donald
    GordonDonald
      GordonChief
      Executive Officer




Registrant
              Pro-Tech
      Industries, Inc.Date:
      August 16, 2010
              By:
              /s/ Michael
    WalshMichael
      WalshChief
      Financial Officer (Principal Financial Officer)
  34