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 September 30, 2010 ̈  Transition
      Report Pursuant to Section 13 or 15(d)of
      the Securities Exchange ActFor
      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  ̈ 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  November 15, 2010Common
      stock, $0.001 par value
            
            18,532,808








PRO-TECH
INDUSTRIES, INC.





INDEX
TO FORM 10-Q FILING


September
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
                    
                    22Item 3
                    Quantitative
      and Qualitative Disclosures About Market Risk
                    
                    29Item 4.
                    Controls
      and Procedures
                    
                    29PART
      II - OTHER INFORMATIONItem1
                    Legal
      Proceedings
                    
                    30Item1A
                    Risk
      Factors
                    
                    30Item 2.
                    Unregistered
      Sales of Equity Securities and Use of Proceeds
                    
                    33Item 3.
                    Defaults
      Upon Senior Securities
                    
                    33Item 4.
                    Removed
      and Reserved
                    
                    33Item 5
                    Other
      information
                    
                    33Item 6.
                    Exhibits
                    
                    33Signature
                    
                    34





CERTIFICATIONSExhibit
      31 – Management certificationExhibit
      32 – Sarbanes-Oxley Act


2


PART
      I
            FINANCIAL
      INFORMATION





Item 1.
            Interim Unaudited
      Condensed ConsolidatedFinancial Statements and Notes
      toInterim
      Unaudited Condensed ConsolidatedFinancial
      Statements




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
nine months ended September 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 September 30, 2010 (Unaudited) and
      December 31, 2009
              4Unaudited
      Condensed Consolidated Statements of Operations for the three and nine
      months ended September 30, 2010 and 2009
              5Unaudited
      Condensed Consolidated Statement of Cash Flows for the nine
      months  ended September 30, 2010 and 2009
              6-7Notes
      to Unaudited Condensed Consolidated Financial Statements
              7
      ~21


3


PRO-TECH
INDUSTRIES, INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS


September 30, 2010
                  (unaudited)
                
                
                December31,2009ASSETSCurrent
      Assets:Cash
      and cash equivalents
                
                $
                243,500
                
                
                $
                186,894Contract
      receivable, net of allowance for doubtful accounts  as of
      September 30, 2010 and December 31, 2009, of $100,000 and $50,000,
      respectively
                
                
                2,685,301
                
                
                
                2,659,979Costs
      and estimated earnings in excess of billings
                
                
                406,313
                
                
                
                123,185Note
      receivable – related party
                
                
                -
                
                
                
                77,000Inventory
                
                
                169,052
                
                
                
                200,238Other
      current assets
                
                
                230,492
                
                
                
                154,386Deferred
      financing cost, net
                
                
                56,281
                
                
                
                -Discontinued
      operations
                
                
                786,027
                
                
                
                1,433,283Total
      current assets
                
                
                4,576,966
                
                
                
                4,834,965Property
      plant and equipment, net
                
                
                238,375
                
                
                
                298,141Other
      Assets:Intangibles,
      net of  accumulated amortization as of  September 30,
      2010 and December 31, 2009, of $283,979 and $181,431,
      respectively
                
                
                -
                
                
                
                102,548Deposits
                
                
                10,856
                
                
                
                10,856Discontinued
      Operations
                
                
                334,327
                
                
                
                335,584Total
      assets
                
                
                5,160,524
                
                
                
                5,582,094LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)Current
      Liabilities:Accounts
      payable and accrued expenses
                
                
                2,224,532
                
                
                
                2,249,449Short
      term note payable
                
                
                41,475
                
                
                
                -Notes
      payable – current portion
                
                
                265,623
                
                
                
                184,512Accruals
      on uncompleted contracts
                
                
                252,768
                
                
                
                197,514Reserve
      for loss on uncompleted contracts
                
                
                -
                
                
                
                87,431Line
      of credit
                
                
                1,000,000
                
                
                
                900,000Warrant
      and derivative liability
                
                
                441,045
                
                
                
                -Discontinued
      operations
                
                
                374,491
                
                
                
                579,094Total
      current liabilities
                
                
                4,599,934
                
                
                
                4,243,000Long
      -Term Liabilities:Notes
      payable- others  – long term portion
                
                
                215,880
                
                
                
                332,580Discontinued
      Operations
                
                
                93,525
                
                
                
                81,491Total
      Long Term Liabilities
                
                
                309,405
                
                
                
                414,071Series
      A 10% convertible redeemable preferred stock, no par value, 40,000 shares
      authorized; 23,000 and 0 issued and outstanding, (net) at September
      30, 2010 and December 31, 2009, respectively
                
                
                309,401
                
                
                
                -Stockholders'
      Equity (Deficit):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 September 30, 2010 and December 31,
      2009,  respectively
                
                
                18,532
                
                
                
                18,594Additional
      paid in capital
                
                
                1,282,330
                
                
                
                1,421,467Accumulated deficit
                
                
                (1,359,078
                )
                
                
                (515,038
                )Total
      stockholders’ equity (deficit)
                
                
                (58,216
                )
                
                
                925,023Total
      liabilities and stockholders' equity (deficit)
                
                $
                5,160,524
                
                
                $
                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
                  September
                  30,2010
                
                
                Three
                  Months
                  Ended
                  September
                  30,2009
                
                
                Nine
                  months
                  Ended
                  September
                  30,2010
                
                
                Nine
                  months
                  Ended
                  September
                  30,2009Net
      revenue
                
                $
                3,732,221
                
                
                $
                3,640,221
                
                
                $
                10,892,160
                
                
                $
                11,272,860Cost
      of sales
                
                
                2,403,483
                
                
                
                2,152,192
                
                
                
                7,444,510
                
                
                
                6,830,657Gross
      profit
                
                
                1,328,738
                
                
                
                1,488,029
                
                
                
                3,447,650
                
                
                
                4,442,203Operating
      Expenses:Depreciation
      and amortization (Note G & H)
                
                
                42,260
                
                
                
                46,643
                
                
                
                215,267
                
                
                
                125,773Selling,
      general and administrative
                
                
                1,053,581
                
                
                
                1,709,639
                
                
                
                3,478,513
                
                
                
                4,937,000Total
      Operating Expenses
                
                
                1,095,841
                
                
                
                1,756,282
                
                
                
                3,693,780
                
                
                
                5,062,773Income
      (Loss) from Operations
                
                
                232,897
                
                
                
                (268,253
                )
                
                
                (246,130
                )
                
                
                (620,570
                )Other
      Income (Expense):Gain
      on change in fair value of derivative liability
                
                
                (131,217
                )
                
                
                -
                
                
                
                72,610
                
                
                
                -Interest
      expense, net
                
                
                (57,148
                )
                
                
                (23,675
                )
                
                
                (113,826
                )
                
                
                (69,735
                )Total
      Other Income (Expense)
                
                
                (188,365
                )
                
                
                (23,675
                )
                
                
                (41,216
                )
                
                
                (69,735
                )Income
      (loss) income before income taxes
                
                
                44,532
                
                
                
                (291,929
                )
                
                
                (287,346
                )
                
                
                (690,305
                )Income
      tax benefit (expense)
                
                
                -
                
                
                
                56,996
                
                
                
                80,490
                
                
                
                86,472Income(loss)
      from continuing operations
                
                
                44,532
                
                
                
                (234,933
                )
                
                
                (206,856
                )
                
                
                (603,833
                )Income(loss)
      from discontinued operations
                
                
                (122,639
                )
                
                
                166,655
                
                
                
                (610,822
                )
                
                
                432,823Net
      Income(Loss)
                
                
                (78,107
                )
                
                
                (68,277
                )
                
                
                (817,678
                )
                
                
                (171,010
                )Preferred
      stock dividends and amortized discount
                
                
                142,957
                
                
                
                -
                
                
                
                248,055
                
                
                
                -Net
      Income(loss) attributable to common shareholders
                
                $
                (221,064
                )
                
                $
                (68,277
                )
                
                $
                (1,065,733
                )
                
                $
                (171,010
                )Net
      income (loss) per share  from continuing
    operations:Basic
                
                $
                0.00
                
                
                $
                (0.01
                )
                
                $
                (0.01
                )
                
                $
                (0.03
                )Diluted
                
                $
                0.00
                
                
                $
                (0.01
                )
                
                $
                (0.01
                )
                
                $
                (0.03
                )Net
      income (loss) per share:Basic
                
                $
                (0.01
                )
                
                $
                0.00
                
                
                $
                (0.04
                )
                
                $
                (0.01
                )Diluted
                
                $
                (0.01
                )
                
                $
                0.00
                
                
                $
                (0.04
                )
                
                $
                (0.01
                )Net
      income (loss) per share attributable to common
shareholder:Basic
                
                $
                (0.01
                )
                
                $
                0.00
                
                
                $
                (0.06
                )
                
                $
                (0.01
                )Diluted
                
                $
                (0.01
                )
                
                $
                0.00
                
                
                $
                (0.05
                )
                
                $
                (0.01
                )Weighted
      average common shares outstanding (Note A)
                
                
                18,502,924
                
                
                
                17,872,500
                
                
                
                18,393,346
                
                
                
                17,667,079





See
accompanying notes to these unaudited condensed consolidated financial
statements


5





PRO-TECH
INDUSTRIES, INC.


CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS


(UNAUDITED)





Nine months ended
                  September 30,2010
                
                
                2009Cash
      Flows From Operating Activities:Net
      income (loss) from operations
                
                $
                (817,678
                )
                
                $
                (171,010
                )Income
      (loss) from discontinued operations
                
                
                (610,822
                )
                
                
                432,824Income
      (loss) from continuing operations
                
                
                (206,856
                )
                
                
                (603,834
                )Adjustments
      to reconcile net  income (loss) to net cash provided by
      operating activities:Depreciation
      and amortization
                
                
                170,304
                
                
                
                128,153Amortization
      of deferred financing costs paid by stock
                
                
                23,734
                
                
                
                -Bad
      debt write off
                
                
                53,680
                
                
                
                130,704Accrual
      for bad debt allowance
                
                
                50,000
                
                
                
                (76,000
                )Change
      in fair value of warrant liability and reset derivative
                
                
                (72,610
                )
                
                
                -Amortization
      of deferred compensation
                
                
                30,620
                
                
                
                109,125Accruals
      (reversal) of loss against uncompleted contracts
                
                
                (87,431
                )
                
                
                (20,995
                )Deferred
      tax liability (asset)
                
                
                (80,490
                )
                
                
                (106,198
                )(Increase)
      decrease in:Contract
      receivable
                
                
                (129,001
                )
                
                
                1,788,076Inventory
                
                
                31,187
                
                
                
                -Deferred
      finance cost
                
                
                (28,142
                )
                
                
                -Other
      current assets, net
                
                
                894
                
                
                
                114,295Costs
      and estimated earnings in excess of billings
                
                
                (283,128
                )
                
                
                (190,124
                )Billings
      in excess of costs and estimated earnings
                
                
                55,254
                
                
                
                (525,449
                )Increase
      (decrease) in:Accounts
      payable and accrued expenses, net
                
                
                115,660
                
                
                
                (301,821
                )Net
      Cash (Used In) Provided by in Continuing Operating
      Activities
                
                
                (356,325
                )
                
                
                445,932Net
      Cash Used in Discontinued Operating Activities
                
                
                (166,913
                )
                
                
                (512,665
                )Net
      Cash Used in Operating Activities
                
                
                (523,238
                )
                
                
                (66,733
                )Cash
      Flows From Investing Activities:Purchase
      of property and equipment
                
                
                (7,990
                )
                
                
                (124,807
                )Net
      Cash Used In Continuing Investing Activities
                
                
                (7,990
                )
                
                
                (124,807
                )Net
      Cash Provided by Discontinued Investing Activities
                
                
                -
                
                
                
                9,043Net
      Cash Used In Investing Activities
                
                
                (7,990
                )
                
                
                (115,764
                )Cash
      Flows From Financing Activities:Proceeds
      from short term borrowings
                
                
                17,500
                
                
                
                -Proceeds
      from sale of convertible redeemable preferred stock
                
                
                575,000
                
                
                
                -Payments
      of long term debt
                
                
                (116,700
                )
                
                
                (138,082
                )Proceeds
      from line of credit
                
                
                100,000
                
                
                
                314,500Net
      Cash Provided by Continuing Financing Activities
                
                
                575,800
                
                
                
                176,418Net
      Cash Provided by (Used In) Discontinued Financing
      Activities
                
                
                12,034
                
                
                
                (38,790
                )Net
      Cash Provided by Financing Activities
                
                
                587,834
                
                
                
                137,628Net
      increase (decrease) in Cash And Cash Equivalents
                
                
                56,606
                
                
                
                (44,869
                )Cash
      and cash equivalents at beginning of period
                
                
                186,894
                
                
                
                86,895Cash
      and cash equivalents at the end of period
                
                $
                243,500
                
                
                $
                42,026





See
accompanying notes to these unaudited condensed consolidated financial
statements


6


PRO-TECH
INDUSTRIES, INC.


CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS


(unaudited)


(continued)





Nine months ended
                      September 30,2010
                    
                    
                    2009Supplemental
      Disclosures of Cash Flow Information:Cash
      paid during period for interest
                    
                    $
                    113,826
                    
                    
                    $
                    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
                    
                    $
                    264,730
                    
                    
                    $
                    -Beneficial
      conversion feature of series A redeemable preferred stock
                    
                    $
                    513,655
                    
                    
                    $
                    -Preferred
      stock dividend – non-cash
                    
                    $
                    26,363
                    
                    
                    $
                    -Amortization
      of BCF transferred to additional paid in capital
                    
                    $
                    221,693
                    
                    
                    $
                    -





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


September
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 nine months period ended September 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  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,
Pro-Tech offers “Day Work” services, including inspecting, testing, repairing
and servicing of same.





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





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 to complete the
sale in the final quarter of 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 inter-company accounts and transactions
have been eliminated in consolidation.





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





NOTE
B – REVERSE MERGER AND CORPORATE RESTRUCTURE





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





As a
result of the Share Exchange, there was a change in control of the Company. In
accordance with 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.


8





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.





The
Company has entered into a LOI with the former owner of Conesco, Inc. to buy all
of the outstanding shares of Conesco.  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 through July 31, 2010.





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
$169,052 and $200,238 at September 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 $15,507 and $22,538 of advertising costs for the
nine months ended September 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 September 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 nine months ended
September 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 September 30, 2009 and
the nine months ended September 30, 2010 and 2009, the effects of the shares
issuable upon exercise of outstanding warrants, options and convertible
securities as of September 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
September 30, 2010:





Three months ended
                    September 30, 2010Net
      income from continuing operations used in computing basic net
      income
                  
                  $
                  (78,107
                  )Less:
      Preferred stock dividend and amortized warrant
      and  discount
                  
                  
                  (142,957
                  )Net
      loss from continuing operations in computing diluted net loss per
      share
                  
                  $
                  (221,064
                  )





The
weighted average shares outstanding used in the basic net income per share
computations for the three months ended September 30, 2010 was
18,502,924.  In determining the number of shares used in computing
diluted loss per share, the Company added approximately 2,464,000
potentially dilutive securities for the three months ended September 30,
2010. The potentially dilutive securities added were mostly attributable to
the warrants, and convertible preferred shares outstanding.  As a
result, the diluted loss per share for the three months ended September 30,
2010 was $0.00.





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
September 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.


11





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 Company issued additional warrants which
increased the reset provision by $59,944 in August 2010.  The addition
was used in the calculation for the reset values at September 30,
2010.





The fair
value of the reset provision of $441,044 at September 30, 2010 was determined
using the Black Scholes Option Pricing Model with the following
assumptions:





Dividend
      yield:
                  
                  
                  -0-
                  %Volatility
                  
                  
                  211.4
                  %Risk
      free rate:
                  
                  
                  4.00
                  %





The
change in fair value of the reset derivative and warrant liability resulted in a
current quarter non operating charge to operations of
$131,217.





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 these 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 to note T.


12





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.




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.


13





Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not, or are not believed by
management to, have a material impact on the Company’s present or future
consolidated financial statements.




NOTE D – CONTRACT
RECEIVABLES




Contract
receivables at September 30, 2010 and December 31, 2009 consist of the
followings:





September 30, 2010
                  
                  
                  December 31, 2009Contracts
      receivables
                  
                  $
                  2,484,222
                  
                  
                  $
                  2,396,783Retention
      receivables
                  
                  
                  301,079
                  
                  
                  
                  313,196Allowance
      for doubtful accounts
                  
                  
                  (100,000
                  )
                  
                  
                  (50,000
                  )$
                  2,685,301
                  
                  
                  $
                  2,659,979




NOTE E – UNCOMPLETED
CONTRACTS




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


September 30, 2010
                  
                  
                  December 31, 2009Costs
      incurred to date on uncompleted contracts
                  
                  $
                  3,110,917
                  
                  
                  $
                  16,495,273Estimated
      earnings
                  
                  
                  1,771,837
                  
                  
                  
                  2,760,8524,882,754
                  
                  
                  
                  19,256,125Less:
      billed revenue to date
                  
                  
                  4,729,209
                  
                  
                  
                  19,330,455Under
      (over) billings, net
                  
                  $
                  153,545
                  
                  
                  $
                  (74,329
                  )Costs
      and estimated earnings in excess of billings
                  
                  $
                  406,313
                  
                  
                  $
                  123,185Less:
      accruals on uncompleted contracts
                  
                  
                  (252,768
                  )
                  
                  
                  (197,514
                  )Under
      (over) billings, net
                  
                  $
                  153,545
                  
                  
                  $
                  (74,329
                  )




NOTE
F – BACKLOG




The
following schedule summarizes changes in backlog on contracts from January 1,
2009 through September 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 figures are not included in the table below, refer
to not A and note U.





Backlog
      balance at January 1, 2009
                    
                    $
                    4,089,892New
      contracts for the nine months ended September 30, 2009
                    
                    
                    9,626,581Add:
      contract adjustments
                    
                    
                    833,711Less:
      revenue for the nine months ended September 30, 2009
                    
                    
                    (11,272,860
                    )Backlog
      balance at September 30, 2009
                    
                    $
                    3,277,324





Backlog
      balance at January 1, 2010
                    
                    $
                    8,324,093New
      contracts for the nine months ended September 30, 2010
                    
                    
                    7,400,345Add:
      contract adjustments
                    
                    
                    197,698Less:
      revenue for the nine months ended September 30, 2010
                    
                    
                    (10,892,160
                    )Backlog
      balance at September 30, 2010
                    
                    $
                    5,029,976




NOTE G – PROPERTY AND
EQUIPMENT




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


14





September 30,
                    2010
                  
                  
                  December 31, 2009Vehicles
                  
                  $
                  196,948
                  
                  
                  $
                  196,949Leasehold
      improvements
                  
                  
                  237,013
                  
                  
                  
                  232,628Office
      equipments
                  
                  
                  211,902
                  
                  
                  
                  208,279Tools
      and other equipment
                  
                  
                  228,672
                  
                  
                  
                  228,672874,535
                  
                  
                  
                  866,528Less:
      accumulated depreciation
                  
                  
                  636,160
                  
                  
                  
                  568,387Net
      Property and Equipment
                  
                  $
                  238,375
                  
                  
                  $
                  298,141




Depreciation
expense was $67,756 and $67,366 for the nine months ended September 30, 2010 and
2009, respectively and $10,727 and $15,893 for the three months ended September
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 September 30, 2010 and December 31,
2009:





September 30, 2010
                  
                  
                  December 31, 2009Intangibles:
      Customer List
                  
                  $
                  283,979
                  
                  
                  $
                  283,979Less:
      accumulated amortization
                  
                  
                  283,979
                  
                  
                  
                  181,431Net
      Intangibles
                  
                  $
                  -
                  
                  
                  $
                  -





On
January 16, 2009, the Company entered into an agreement for the exchange of
common stock (“merger”) with the shareholders of Conesco (“Conesco
Shareholders”) and Conesco, Inc. (“Conesco”).  The Company issued
3,000,000 restricted shares of its common stock valued at $381,000 in exchange
for all outstanding shares of Conesco. Conesco became a wholly owned subsidiary
of the Company.





The total
purchase price and carrying value of net assets acquired was
$381,000.  The Company recognized customer list as intangible
assets in connection with the transaction. At the time of the acquisition, there
was no active market for the Company’s common stock. As a result,
the Company’s management estimated the fair value of the shares issued
based on a valuation model, which management believes approximates the fair
value of the net assets acquired.





In
accordance with Accounting Standards Codification 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.  Goodwill valued at $331,075 has been shown under
discontinued operations.





NOTE
I – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES





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


15





September 30,
                    2010
                  
                  
                  December31,2009Accounts
      payable
                  
                  $
                  2,027,521
                  
                  
                  $
                  2,170,134Accrued
      payroll and vacation
                  
                  
                  18,882
                  
                  
                  
                  (11,915
                  )Accrued
      payroll taxes
                  
                  
                  49,393
                  
                  
                  
                  74Other
      liabilities
                  
                  
                  128,736
                  
                  
                  
                  55,666Total
                  
                  $
                  2,224,532
                  
                  
                  $
                  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 September 30,
2010.  The balance outstanding under the line of credit at September
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
September 30, 2010 and December 31, 2009, the Company was not in compliance with
certain bank loan covenants.  The Company executed a one year
extension on the line of credit on October 12, 2010.  As part of the
agreement, the line was reduced to $975,000 effective on the date of
signing.




NOTE
K – NOTES PAYABLE




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


September 30, 2010
                  
                  
                  December 31, 2009Note
      payable to Bank, interest at 7.76% per annum; secured bysubstantially
      all of the Company’s assets; with monthly principal andinterest
      payments of $13,133.99, due February, 2012. The Note isguaranteed
      by the Company’s principal stockholders. In addition,entities
      owned and controlled by the Company’s principal stockholdersare
      co-makers of the Note and have pledged substantially all of theirassets
      as security for the Note (see Note O).
                  
                  $
                  209,960
                  
                  
                  $
                  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).
                  
                  
                  170,001
                  
                  
                  
                  205,083Note
      Payable to Viking Supply, 5% interest per annum, unsecured, 7 payments of
      $4,919.10 plus interest and a final payment of $4,298.20 plus
      interest
                  
                  
                  23,975
                  
                  
                  
                  -Note
      Payable to Roebbelen Construction, interest at 6.0% per annum, unsecured,
      monthly payment of $6,245.40 for 18 months
                  
                  
                  101,542
                  
                  
                  
                  -Note
      payable to two individuals, interest at 9.0% per annum, the notes are
      unsecured, with principal and interest due on or about June 30,
      2010.  Company is in default on payment of these
      notes.
                  
                  
                  17,500
                  
                  
                  
                  -Total
      notes payable
                  
                  
                  522,978
                  
                  
                  
                  517,092Less:
      current portion
                  
                  
                  307,098
                  
                  
                  
                  184,512Notes
      payable – long term
                  
                  $
                  215,880
                  
                  
                  $
                  332,580





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





Year ended
                  
                  AmountSeptember
      30, 2011
                  
                  $
                  307,098September
      30, 2012
                  
                  
                  146,827September
      30, 2013
                  
                  
                  55,054September
      30, 2014
                  
                  
                  13,999Total
                  
                  $
                  522,978


16




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 575,000 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 September 30, 2010.





As part
of the raise the Company paid a cash commission of $51,875 as well as issuing
133,928 shares of its common stock, valued at the time of issuance at $51,875,
which was shown as deferred finance cost.  During the three and nine
month periods ending September 30, 2010 the Company amortized $26,150 and
$47,469, respectively.





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.  This amendment increased the warrants by 321,429
to a total of 821,429 warrants.





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 $264,730 using the Black
Scholes option pricing model. Further, we attributed a beneficial conversion
feature of $513,655 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 $513,655, 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 $221,692.




NOTE
M – CAPITAL STOCK




The
Company is authorized to issue 70,000,000 shares of common stock with $0.001 par
value per share. As of September 30, 2010 and December 31, 2009, the Company
had  18,593,880 and 18,532,808 shares of common stock issued and
outstanding respectively.  During the nine months ended September 30,
2010, the Company recorded compensation cost of approximately $30,619 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.  The warrants and strike
price were adjusted in August.  The warrants are now priced at $0.35
and have increased to 821,429 warrants.


17





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
                
                
                821,429
                
                
                
                0.35
                
                
                
                -
                
                
                
                -Exercised
      during the period
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Terminated
      during the period
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Outstanding
      at end of the period
                
                
                821,429
                
                
                $
                0.35
                
                
                
                -
                
                
                $
                -Exercisable
      at end of the period
                
                
                821,429
                
                
                $
                0.35
                
                
                
                -
                
                
                $
                -





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





Range of Exercise Prices
                        
                        
                        Remaining
                          Number
                          Outstanding
                        
                        
                        Weighted Average
                          Contractual Life
                          (Years)
                        
                        
                        Weighted Average
                          Exercise Price$
                        0.35
                        
                        
                        
                        821,429
                        
                        
                        
                        4.50
                        
                        
                        $
                        0.35





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 September 30, 2010 and 2009, the Company incurred and
charged to operations $8,829 and $33,817, respectively, in connection with air
travel services provided by the entities to the Company. There were no payables
owed to the entities at September 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).





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
                  
                  $
                  217,7522012
                  
                  
                  50,4452013
                  
                  
                  10,0842014
                  
                  
                  1,496Total
                  
                  $
                  279,777




For the
nine months ended September 30, 2010 and 2009, rent expense was $121,644 and
$135,309, respectively.  For the nine months ended September 30, 2010
and 2009, vehicle lease expense was $128,865 and $178,271,
respectively.


18





Litigation





In
September 2010, a law suit was filed against the Company and others by
Falcon Technologies, Inc. and its subsidiaries.  The essence of the
plaintiff’s suit is that the Company actions allegedly violated a merger
agreement between Falcon and other parties and, consequently, was
party to defrauding Falcon.  The Company believes there is currently a
settlement in place for these allegations in which no party admitted to any
wrong doing, and, in addition, denies the allegations and will vigorously
defend the action.  It is also the Company’s position that this
lawsuit is without merit and will seek all remedies available to it
under the aforementioned settlement agreement.





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 nine months ended September
30, 2010 and 2009, as taken from the internal management system previously
discussed, is listed below.





Revenue
                  
                  Three months ended
                  
                  
                  Nine months endedSeptember 30,
                    2010
                  
                  
                  September 30,
                    2009
                  
                  
                  September 30,
                    2010
                  
                  
                  September30,
                    2009Fire
      Protection/Alarm & Detection
                  
                  $
                  3,030,000
                  
                  
                  $
                  2,217,000
                  
                  
                  $
                  7,383,000
                  
                  
                  $
                  7,615,000Telecommunications
                  
                  
                  699,000
                  
                  
                  
                  1,208,000
                  
                  
                  
                  2,686,000
                  
                  
                  
                  3,233,000Electrical
                  
                  
                  3,000
                  
                  
                  
                  215,000
                  
                  
                  
                  823,000
                  
                  
                  
                  425,000Total
                  
                  $
                  3,732,000
                  
                  
                  $
                  3,640,000
                  
                  
                  $
                  10,892,000
                  
                  
                  $
                  11,273,000





Gross Profit
                  
                  Three months ended
                  
                  
                  Nine months endedSeptember 30,
                    2010
                  
                  
                  September 30,
                    2009
                  
                  
                  September 30,
                    2010
                  
                  
                  September30,
                    2009Fire
      Protection/Alarm & Detection
                  
                  $
                  1,395,000
                  
                  
                  $
                  1,166,000
                  
                  
                  $
                  3,300,000
                  
                  
                  $
                  3,605,000Telecommunications
                  
                  
                  (28,000
                  )
                  
                  
                  273,000
                  
                  
                  
                  344,000
                  
                  
                  
                  778,000Electrical
                  
                  
                  (38,000
                  )
                  
                  
                  48,000
                  
                  
                  
                  (196,000
                  )
                  
                  
                  60,000Total
                  
                  $
                  1,329,000
                  
                  
                  $
                  1,487,000
                  
                  
                  $
                  3,448,000
                  
                  
                  $
                  4,443,000





Operating Income (Loss)
                  
                  Three months ended
                  
                  
                  Nine months endedSeptember 30,
                    2010
                  
                  
                  September 30,
                    2009
                  
                  
                  September 30,
                    2010
                  
                  
                  September30,
                    2009Fire
      Protection/Alarm & Detection
                  
                  $
                  821,000
                  
                  
                  $
                  284,000
                  
                  
                  $
                  1,431,000
                  
                  
                  $
                  930,000Telecommunications
                  
                  
                  (132,000
                  )
                  
                  
                  164,000
                  
                  
                  
                  50,000
                  
                  
                  
                  402,000Electrical
                  
                  
                  (72,000
                  )
                  
                  
                  (30,000
                  )
                  
                  
                  (377,000
                  )
                  
                  
                  (121,000
                  )Corporate
                  
                  
                  (384,000
                  )
                  
                  
                  (686,000
                  )
                  
                  
                  (1,350,000
                  )
                  
                  
                  (1,832,000
                  )Total
                  
                  $
                  233,000
                  
                  
                  $
                  (268,000
                  )
                  
                  $
                  (246,000
                  )
                  
                  $
                  (621,000
                  )





Depreciation/Amortization
                  
                  Three months ended
                  
                  
                  Nine months endedSeptember 30,
                    2010
                  
                  
                  September 30,
                    2009
                  
                  
                  September 30,
                    2010
                  
                  
                  September 30,
                    2009Fire
      Protection/Alarm & Detection
                  
                  $
                  (2,000
                  )
                  
                  $
                  7,000
                  
                  
                  $
                  13,000
                  
                  
                  $
                  21,000Telecommunications
                  
                  
                  -
                  
                  
                  
                  3,000
                  
                  
                  
                  9,000
                  
                  
                  
                  3,000Electrical
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,000
                  
                  
                  
                  -Corporate
                  
                  
                  44,000
                  
                  
                  
                  36,000
                  
                  
                  
                  192,000
                  
                  
                  
                  102,000Total
                  
                  $
                  42,000
                  
                  
                  $
                  46,000
                  
                  
                  $
                  215,000
                  
                  
                  $
                  126,000


19





Interest (Income)Expense
                    
                    Three months ended
                    
                    
                    Nine months endedSeptember 30,
                      2010
                    
                    
                    September 30,
                      2009
                    
                    
                    September 30,
                      2010
                    
                    
                    September 30,
                      2009Fire
      Protection/Alarm & Detection
                    
                    $
                    1,000
                    
                    
                    $
                    -
                    
                    
                    $
                    (5,000
                    )
                    
                    $
                    -Telecommunications
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Electrical
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Corporate
                    
                    
                    56,000
                    
                    
                    
                    24,000
                    
                    
                    
                    119,000
                    
                    
                    
                    70,000Total
                    
                    $
                    57,000
                    
                    
                    $
                    24,000
                    
                    
                    $
                    114,000
                    
                    
                    $
                    70,000




Assets


September 30, 2010
                      
                      
                      December 31, 2009Fire
      Protection/Alarm & Detection
                      
                      $
                      3,198,000
                      
                      
                      $
                      2,435,000Telecommunications
                      
                      
                      580,000
                      
                      
                      
                      609,000Electrical
                      
                      
                      169,000
                      
                      
                      
                      721,000Corporate
                      
                      
                      958,000
                      
                      
                      
                      758,000Discontinued
      Operations
                      
                      
                      256,000
                      
                      
                      
                      1,059,000TOTAL
                      
                      $
                      5,161,000
                      
                      
                      $
                      5,582,000




Capital
Expenditures


September 30, 2010
                      
                      
                      September 30, 2009Fire
      Protection/Alarm & Detection
                      
                      $
                      -
                      
                      
                      $
                      13,900Telecommunications
                      
                      
                      -
                      
                      
                      
                      -Electrical
                      
                      
                      -
                      
                      
                      
                      -Corporate
                      
                      
                      7,990
                      
                      
                      
                      110,910TOTAL
                      
                      $
                      7,990
                      
                      
                      $
                      124,810





NOTE
R - MAJOR CUSTOMERS AND SUPPLIERS




The
Company had two customers accounting for 37% of the total revenue for the
nine months ended September 30, 2010 and two customers which accounted for
42% of the total revenue for the nine months ended September 30, 2009. The
Company had two customers accounting for 39% of the total revenue for the
three months ended September 30, 2010 and two jobs which accounted for 33% of
the total revenue for the three months ended September 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 largest vendor accounted for 46% of materials purchases for
the nine months ended September 30, 2010 and from its three largest vendors were
approximately 60% for the nine months ended September 30, 2009.  Purchases
from the Company’s largest vendor accounted for 50% of purchases for the three
months ended September 30, 2010 and from its three largest vendors were
approximately 66% for the three months ended September 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 $13,298 and $57,300, for the nine months ended September 30,
2010 and 2009, respectively.  In April 2010, the Company temporarily
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.


20





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
September 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
                        
                        $
                        (199,813
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        $
                        (199,813
                        )Reset derivative
                        
                        
                        (241,232
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (241,232
                        )Total
                        
                        $
                        (441,045
                        )
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        (441,045
                        )





(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 September 30, 2010:


Warrant Liability
                  
                  
                  Reset DerivativeBalance,
      December 31, 2009
                  
                  $
                  -
                  
                  
                  $
                  -Total
      (gains) lossesWarrants
      issued with Redeemable Preferred Series A
                  
                  
                  264,730
                  
                  
                  
                  -Convertible
      Redeemable Preferred Series A
                  
                  
                  -
                  
                  
                  
                  248,924Mark-to-market
      at September 30, 2010:-
      Series A Preferred Stock Reset Derivative
                  
                  
                  -
                  
                  
                  
                  (7,692
                  )-
      Warrants issued with Convertible Redeemable Preferred Series
    A
                  
                  
                  (64,917
                  )
                  
                  
                  -Transfers
      in and/or out of Level 3
                  
                  
                  —
                  
                  
                  
                  —Balance,
      September 30, 2010
                  
                  $
                  199,813
                  
                  
                  $
                  241,232Total
      gain for the nine month period included in earnings relating to the
      liabilities held at September 30, 2010
                  
                  $
                  64,917
                  
                  
                  $
                  7,692





NOTE
U - SUBSEQUENT EVENTS





On
October 13, the Company executed an extension with its bank for 1 year on its
line of credit.  The terms remained the same.  The bank
asked for a payment of $25,000 and reduced the limit on the line to
$975,000.  There will be two more payments of $25,000 due to the bank
by December 31, 2010 and March 31, 2011 reducing the line of credit limit to
$925,000.


21


Unless
otherwise noted, references in this Form 10-Q to “Pro-Tech”, “we”, “us”, “our”,
and the “Company” means Pro-Tech Industries, Inc., a Nevada corporation. 
Our principal place of business is located at 8550 Younger Creek Drive #2,
Sacramento, CA 95828.  Our telephone number is (916)
388-0255.





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





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




Forward-looking
statements involve risks, uncertainties and other factors, which may cause our
actual results, performance or achievements to be materially different from
those expressed or implied by such forward-looking statements. Factors and risks
that could affect our results and achievements and cause them to materially
differ from those contained in the forward-looking statements include those
identified in the section titled “Risk Factors” in the Company’s Annual Report
on Form 10-K for the period ended December 31, 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 fire
protection systems. In addition, our company offers “Day Work” services,
including inspecting, testing, repairing and servicing of same.





We serve
the new construction market, as well as customers retro-fitting, upgrading or
repairing their existing facilities, bringing existing facilities to current
standards (for example, installing sprinklers at a customer’s expanded storage
warehouse, etc.).


Pro-Tech
Fire services include:


22






            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
            Fire
      Extinguisher and Hood suppression systems serve, installation, and
      inspections for Nevada





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.


23





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


None





Results
of Operations





Nine months ended September 30, 2010
Compared to Nine months ended September 30, 2009


24




Revenue




Revenues
were $10,892,160 for the nine months ended September 30, 2010,  a
decrease of $380,700, or 3.4%, from revenues of $11,272,860 for the nine months
ended September 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 nine months ended September 30, 2010 and 2009
were approximately $7,383,000 or 68% and $7,615,000 or 68% 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 nine months ended September 30, 2010 and 2009 was
approximately $2,686,000 or 25% and $3,233,000 or 29% of total revenue,
respectively.  The large contract that has supported this group is
starting to wind down.  While there could be additional opportunities
with this customer, management is reviewing how to gain traction into other
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 nine
months ended September 30, 2010 and 2009 was approximately $823,000 or 8% and
$425,000 or 4% 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.   The current market segment where are electrical
group specializes is slow.  We are currently using our electrical
group within our other segments while we wait for their niche market to come
back.





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 $7,444,510 or 68% of revenue for the
nine months ended September 30, 2010, compared to $6,830,657 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 nine months ended September 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
division.   The multi-segment history of our company is rather
limited since this is only the 7th quarter
with all of our segments up in operation. The historical trend of the last seven
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 nine months ended September 30, 2010 and 2009 was approximately
$4,083,000 and 55% and $4,010,000 and 53%, respectively.  The dollar
increase in our cost of revenue is due to the corresponding increase in cost of
revenue during the nine months ended September 30, 2010.  The 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
nine months ended September 30, 2010 and 2009 was approximately $2,342,000 and
87% and $2,455,000 and 76%, respectively.   The dollar decrease in
cost of revenue is primarily due to the reduction in sales.  The
decrease 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
nine months ended September 30, 2010 and 2009 was approximately $1,019,000 and
124% and $365,000 and 86%, respectively.  The dollar increase in our
cost of revenue is due to the corresponding increase in revenue during the nine
months ended September 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 $3,478,513 for the nine months ended
September 30, 2010 compared to $4,937,000 for the nine months ended September
30, 2009. The selling, general and administrative cost related to revenues
decreased to 31.9% for nine months ended September 30, 2010 as compared to 43.8%
for the nine months ended September 30, 2009, despite having a smaller revenue
base in 2010.


25





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, consolidation of rents and an
older fleet which has reduced our vehicle leasing costs.





Depreciation
and amortization




Depreciation
and amortization expense increased to $215,267 for the nine months ended
September 30, 2010 compared to $125,733 in the nine months ended September 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 finalized in August
2010.  Depreciation expense increased due to leasehold improvements
put into the property leased in Sacramento for all of the Sacramento
operations.  It also includes the amortization of the financing costs
of the Series A preferred stock.





Interest




Net
interest expense increased to $113,826 for the nine months ended September 30,
2010 compared expense of $69,735 for the nine months ended September 30, 2009.
This change was primarily due to the increase in interest expense due to full
use of the line of credit for working capital purposes.





Income
Tax




Income
tax benefit decreased to $80,490 for the nine months ended September 30,
2010 from $86,472 for the nine months ended September 30,
2009.  This is a $5,982 benefit due mainly to the movement of the
section 481a adjustment of $424,814 from deferred status at September 30, 2009
to current at September 30, 2010.  This is offset by the current loss
incurred in the nine months ended September 30, 2010, which eliminates any
potential deferred tax asset.





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





Revenue




Revenues
were $3,732,221 for the three months ended September 30, 2010; an increase of
$92,000, or 3%, from revenues of $3,640,221 for the three months ended September
30, 2009. This increase was primarily driven by increases in the fire protection
segment, offset by a decrease in the telecommunications and electrical
segments.  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 September 30, 2010 and 2009
were approximately $3,030,000 or 81% and $2,217,000 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 September 30, 2010 and 2009 was
approximately $699,000 or 19% and $1,208,000 or 33% 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 September 30, 2010 and 2009 was approximately $3,000 or 0%
and $215,000 or 6% of total revenue, respectively.  The current market
segment where are electrical group specializes is slow.  We are
currently using our electrical group within our other segments while we wait for
their niche market to come back.





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 $2,403,483 or 64% of revenue for the
three months ended September 30, 2010, compared to $2,152,192 or 59% 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.    The current economy is not allowing companies to
produce margins from the past and we are no exception.  We are seeking
out other segments of the market to allow us to try and increase our
margins.  All segments of our company are being monitored closely to
keep margins in line with management’s expectations.


26





Fire Life
Safety segment cost of revenue and cost of revenue as a percentage of revenue
for the three months ended September 30, 2010 and 2009 was approximately
$1,635,000 and 54% and $1,051,000 and 47%, respectively.  The dollar
increase in our cost of revenue is due to the corresponding increase in revenue
during the three months ended September 30, 2010, as well as the increase 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 September 30, 2010 and 2009 was approximately $727,000 and
104% and $935,000 and 77%, respectively.  The dollar decrease in our
cost of revenue is due to the corresponding decrease in revenue during the three
months ended September 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.  This segment started new
business lines and has incurred heavy startup costs.  Management hopes
but cannot assure these costs should start to normalize as the revenues increase
and wash out the startup costs.





Electrical
power segment cost of revenue and cost of revenue as a percentage of revenue for
the three months ended September 30, 2010 and 2009 was approximately $41,000 and
1,367% and $167,000 and 78%, respectively.  The dollar decrease in our
cost of revenue is due primarily to reduced revenues during the three months
ended September 30, 2010.  The increase 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 $1,053,581 for the three months ended
September 30, 2010 compared to $1,709,639 for the three months ended September
30, 2009. The selling, general and administrative cost related to revenues
decreased to 28.1% for three months ended September 30, 2010 as compared to 47%
for the three months ended September 30, 2009.





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 decreased to $42,260 for the three months ended
September 30, 2010 compared to $46,643 in the three months ended September 30,
2009.  The decrease came primarily from the end of intangible
amortization related to discontinued operations.  This amortization
finalized in August 2010.  It was partially offset by the amortization
of the financing costs of the Series A preferred stock.





Interest




Net
interest expense increased to $57,148 for the three months ended September 30,
2010 compared expense of $23,675 for the three months ended September 30, 2009.
This increase was primarily increased charges due to slow pay of invoices and
timeliness of payments to vendors.





Income
Tax




There was
no income tax benefit or expense for the three months ended September 30, 2010
compared to an income of $56,996 for the three months ended September 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
nine months ended September 30, 2010, we experienced a net loss from continuing
operations of $206,856 and a net loss of $610,822 from discontinued
operations.  At September 30, 2010, we had $243,500 in
cash.  Accounts receivable, net of allowances for doubtful accounts,
were $2,685,301 at September 30, 2010.


27





At
September 30, 2010, we had negative working capital of $22,968, compared to
working capital of $591,965 at December 31, 2009. The ratio of current assets to
current liabilities decreased to 1:1 at September 30, 2010 compared to 1.14:1 at
December 31, 2009.  Cash used by continuing operations during the nine
months ended September 30, 2010 was $356,325 as compared to cash provided by
continuing operations of $445,932 for the nine months ended September 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 September 30, 2010 included cash of $243,500 and
$2,685,301 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
nine months ended September 30, 2010, we had cash used of $356,325 from our
continuing operating activities, primarily as a result of our net loss from
continuing operations of $206,856, an increase in costs in excess of billings of
$283,128, 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 $55,254, depreciation and amortization
of $170,304, bad debt allowance and write offs of $103,680 and by increase in
accounts payable of $115,660 offset by reduction for gain on fair value change
of warrants of $72,610.  By comparison, net cash provided by continuing
operating activities was $445,932 for the nine months ended September 30,
2009.  This was primarily driven by a large increase in receivables in
that quarter.





There was
limited investing activity from continuing operations during the nine months
ended September 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, and
the build out of the Company’s new offices of approximately
$124,807.





Financing
activity from continuing operations for 2010 consisted of payments on long term
debt obligations of $116,700 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 $17,500.  For 2009, financing activity from continuing
operations consisted of payments on long term debt obligations of $138,082
offset by line of credit borrowings of $314,500.





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 September 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 fourth
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
October 13, 2010, our company executed a new credit facility decreasing the line
to $975,000.  The interest rate remains at .5% less than the lender’s
index rate, currently 4.5% and the maturity date was reset to September 30,
2011.  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.  As part of the new agreement, we are
required to pay down $25,000 by December 31, 2010 and March 31,
2011.





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.


28





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 September 30, 2010 on these two notes are $209,960 and $170,001,
respectively.





During
the quarter the Company executed notes with two vendors to replace outstanding
invoices and allow payments over time.  The Company is paying between
5-6% on these obligations and it has proven to help keep a positive relationship
with these vendors.  The notes are pay able over 8 and 18
months.





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.


29





b)
Changes in Internal Control over Financial Reporting.





During
the Quarter ended September 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.





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.


30





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.




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.


31




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.





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.


32





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 agreement was modified
in August to increase the warrants to 821,629 and reduced the price to $0.35 per
share as well as the conversion price for the Series A Preferred
stock.  As part of the raise the Company paid a cash commission of
$51,875 as well as issuing 133,928 shares of its common stock, valued at the
time of issuance at $51,875.





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 September 30,
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)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, 2010.





(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:
      November 15, 2010
                By:
                /s/ Donald GordonDonald
      GordonChief
      Executive Officer
  Registrant
                Pro-Tech
      Industries, Inc.Date:
      November 15, 2010
                By:
                /s/ Michael WalshMichael
      WalshChief
      Financial Officer (Principal Financial
Officer)
  34