PTSH PTS Inc (CE)

PTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 AND FROM

INCEPTION OF DEVELOPMENT STAGE (FEBRUARY 24, 2010) TO MARCH 31, 2010

(Unaudited)

	MARCH 31, 2010		MARCH 31, 2009		INCEPTION OF DEVELOPMENT STAGE (FEBRUARY 24, 2010) TO MARCH 31, 2010
Cash flows from operating activities:
Net income (loss)	$        773,108		$       (106,148)		$  (80,496)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization	17,594		27,415		-
Issuance of shares for services	24,889		25,225		24,889
Amortization of beneficial conversion feature (finance costs)	4,641		4,300		314
(Gain) loss on extinguishment of debt	(66,430)		8,204		-
Loss attributable to minority interest	(45,683)		(4,870)		-
Gain on disposition of subsidiary	(893,191)		-		-
Decrease (increase) in assets:
Accounts receivable	241,822		39,467		-
Other current assets	2,294		(457)		-
Increase (decrease) in liabilities:
Accounts payable and accrued expenses	(983)		4,817		33,837
Advances payable	-		(174)		-
Cash provided by (used in) operating activities	58,061		(2,221)		(21,456)
Cash flows from investing activities:
Cash retained by subsidiary	(218,020)		-		-
Cash paid for fixed assets	-		(18,743)		-
Cash used in investing activities	(218,020)		(18,743)		-
Cash flows from financing activities:
Sale of common stock	35,689		-		35,689
Payments on notes and leases	(2,627)		(3,300)		-
Payments on related party notes	(10,000)		(8,002)		-
Advances payable	2,000		10,000		-
Advances repaid	(200)		-		-
Advances payable - related party	-		9,000		-
Cash provided by financing activities	24,862		7,698		35,689
Net increase (decrease) in cash	(135,097)		(13,266)		14,233
Cash, beginning of period	151,192		116,987		1,862
Cash, end of period	$          16,095		$        103,721		$       16,095
Supplemental Schedule of Cash Flow Information:
Cash paid for interest	$            2,030		$            9,355		$                 -
Non-Cash Financial Activity:
Debt and liabilities settled with common stock	$  239,966		$                 -
Subsidiary debenture assumed	141,606		-
Accrued interest expense added to principal amount of debt	18,946		35,853
Increase in conversion of note payable upon extinguishment of debt	-		8,204

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

 

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  PTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010

(Unaudited)

NOTE 1- ORGANIZATION AND NATURE OF OPERATIONS AND BASIS OF PRESENTATION

PTS, Inc. (“our”, “us”, “we”, “PTS” or the “Company”) was incorporated in the state of Nevada on November 5, 1996. Our subsidiaries include Disability Access Consultants, Inc. (“DAC”), Disability Access Corporation (“DBYC”), PTS Card Solutions, Inc., Glove Box, Inc., PTS Global Capital, Inc., PTS Technologies, Inc. and PTS Group Limited, an inactive Hong Kong corporation formed on April 17, 2008.

PTS Card Solutions, Inc., Glove Box, Inc., PTS Global Capital, Inc., PTS Technologies, Inc. and PTS Group Limited are all inactive subsidiaries and the Company has discontinued all activities, past and prospective, for the following inactive subsidiaries: PTS Card Solutions, Inc., Glove Box, Inc., PTS Global Capital, Inc., PTS Technologies, Inc. and PTS Group Limited.

DAC is a corporation with an extensive history of accessibility compliance consulting. DAC provides consultation to numerous state and local governmental entities and businesses.  DAC has assisted city and county governments, the Federal government, school districts, and other public entities and municipalities. DAC has also assisted retail, commercial, recreational and corporate clients to comply with state and federal accessibility standards.  DAC has developed transition/barrier removal plans, provided consultation and expert witness services.  DAC offers both pro-active services as well as support and assistance for companies that are facing penalties and litigation for being out of compliance. DAC has assisted in litigation and has performed compliance audits for public entities and other businesses. To help companies and public entities meet the requirements of the Americans with Disabilities Act and other accessibility standards, DAC has developed  proprietary software that is a management tool to simplify and streamline the accessibility compliance process. DAC has offices in Nevada, Northern California and Florida.

During 2010 PTS divested itself of its ownership in DBYC and DAC. Effective February 23, 2010, our board of directors determined that the implementation of our business plan was no longer financially feasible.  At such time, we discontinued the implementation of our prior business plan and are now pursuing an acquisition strategy, whereby we will seek to either acquire undervalued businesses and/or merge with businesses with a history of operating revenues in markets that provide room for growth (“Acquisition Strategy”). The assets, liabilities and operations of DBYC and DAC have been presented as discontinued operations in the financial statements.

Upon the divestiture of DBYC and DAC, the Company re-entered development stage and has presented inception to date financial statement information from February 24, 2010 to March 31, 2010.

 

Our Acquisition Strategy is focused on pursuing a strategy of growth by acquiring both undervalued businesses and/or merging with businesses with a history of operating revenues. We will utilize several criteria to evaluate prospective acquisitions including whether the business to be acquired  (1) is an established business with viable services  or products,  (2) has an experienced and qualified management  team, (3)  has room for growth and/or expansion into other markets, (4) is  accretive to earnings, (5) offers the opportunity to achieve and/or enhance profitability,  and  (6)  increases  shareholder value.

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements as of March 31, 2010 and for the three month periods ended March 31, 2010 and 2009 have been prepared by PTS pursuant to the rules and regulations of the Securities and Exchange Commission, including Form 10-Q and Regulation S-X. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and

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regulations. The Company believes that the disclosures provided are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the audited financial statements and explanatory notes for the year ended December 31, 2009 as disclosed in the company's 10-K for that year as filed with the SEC, as it may be amended.

 

The results of the three months ended March 31, 2010 are not necessarily indicative of the results to be expected for the pending full year ending December 31, 2010.

Going Concern

The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. However, we have experienced recurring net operating losses, have no current source of revenue and have a working capital deficiency of $511,496 as of March 31, 2010. These factors raise substantial doubt about our ability to continue as a going concern.  Without realization of additional capital, it would be unlikely for us to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.

We will need additional capital to continue our operations and will endeavor to raise funds through the sale of equity shares.

We believe that our future is dependent upon the consummation of a merger, acquisition or other business combination between us and a viable operating entity. There can be no assurance that we will be able to complete any merger, acquisition or other business combination between us and a viable operating entity. Additionally, management believes that we may need to raise additional funds through equity or debt financing to complete a merger, acquisition or other business combination between us and a viable operating entity.  There can be no assurance that we will be able to successfully complete an equity or debt financing to complete an acquisition, merger or other business combination between us and a viable operating entity.

Furthermore, debt financing, if available, will require payment of interest and may involve restrictive covenants that could impose limitations on our operating flexibility.  Our failure to successfully obtain additional future funding may jeopardize our ability to continue our business and operations.

If we raise additional funds by issuing equity securities, existing stockholders may experience a dilution in their ownership.  In addition, as a condition to giving additional funds to us, future investors may demand, and may be granted, rights superior to those of existing stockholders.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of PTS and its subsidiaries. All significant intercompany transactions have been eliminated.  

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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Revenue Recognition

DAC generates revenue from services regarding compliance with state, federal and local accessibility codes. Services include inspections of facilities, production of accessibility reports, consultation, expert witness services, and review of policies and procedures of the client. In all cases, revenue is recognized as earned by the Company. Though contracts may vary between a progress-basis and completed project basis, as the client becomes liable to the Company for services provided, as defined in the agreement, the client is then invoiced and revenue is accordingly recognized and recorded.  The Company does not recognize or record any revenues for which it does not have a legal basis for invoicing or legally collecting. For progress-basis contracts, the Company invoices the client when it has completed the specified portion of the agreement, there by, ensuring the client is legally liable to the Company for payment of the invoice. On progress-basis contracts, revenue is not recognized until this criteria is met. The Company generally seeks progress-based agreements when the length of engagement will exceed two months and the size of contract exceeds $25,000.

Loss Per Share

Basic and diluted loss per common share for all periods presented is computed based on the weighted average number of common shares outstanding during the year as defined by FASB ASC Topic 260, “Earnings Per Share”. The assumed exercise of common stock equivalents was not utilized for the three months ended March 31, 2009 since the effect would be anti-dilutive. There were 746,881,352 and 5,304,490,281 common stock equivalents outstanding at March 31, 2010 and 2009, respectively.

 

Income Taxes

We utilize ASC 740 “Income Taxes” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.  

Stock Based Compensation

We account for our stock based compensation under ASC 718 “Compensation – Stock Compensation” using the fair value based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period.  This guidance establishes standards for the accounting for transactions in which an entity exchanges it equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.

We use the fair value method for equity instruments granted to non-employees and use the Black-Scholes model for measuring the fair value of options. 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 vesting periods.

Potential Derivative Instruments

We periodically assess our financial and equity instruments to determine if they require derivative accounting. Instruments which may potentially require derivative accounting are conversion features of debt and common stock equivalents in excess of available authorized common shares.

We have determined that the conversion features of our debt instruments are not derivative instruments because they are not readily convertible to cash based on our historical trading volume.

Fair Value of Financial Instruments

 

Our short-term financial instruments, including cash, accounts payable and other liabilities, consist primarily of instruments without extended maturities, the fair value of which, based on management’s estimates, reasonably approximate their book value. The fair value of short term and long term convertible notes is based on management estimates and reasonably approximates their book value after comparison to obligations with similar interest rates and maturities.

Fair Value Measurements

 

ASC 820 defines fair value as the amount that would be received for an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also 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 820 describes the following three levels of inputs that may be used:

 

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets and liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

 

Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data.

 

Level 3: Unobservable inputs when there is little or no market data available, thereby requiring an entity to develop its own assumptions. The fair value hierarchy gives the lowest priority to Level 3 inputs.

 

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The table below summarizes the fair values of our financial liabilities as of March 31, 2010:

  

		Fair Value at				Fair Value Measurement Using
		March 31, 2010			Level 1			Level 2			Level 3
Convertible notes payable		$	647,945			$	—			$	—			$	647,945
		$	647,945			$	—			$	—			$	647,945

 

Reclassifications

 

Certain prior period items have been reclassified to conform to the current period presentation. The reclassifications had no impact on net loss. The reclassifications relate to discontinued operations.

Recent Accounting Pronouncements

In January 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-06 to amend the disclosure requirements related to recurring and nonrecurring fair value measurements found in ASC Topic 820 “Fair Value Measurements and Disclosure” . The guidance requires new disclosures on the transfers of assets and liabilities between Level 1 (quoted prices in active market for identical assets or liabilities) and Level 2 (significant other observable inputs) of the fair value measurement hierarchy, including the reasons and the timing of the transfers. The guidance became effective for the Company beginning January 1, 2010. The adoption of this guidance does not have a material impact on the Company’s consolidated financial statements.

In February 2010, the FASB issued ASU 2010-09 which amends guidance on ASC Topic 855 “Subsequent Events”. This guidance alleviates potential conflicts between FASB guidance and SEC requirements. Under this amended guidance, SEC filers are no longer required to disclose the date through which subsequent events have been evaluated in originally issued and revised financial statements. This guidance was effective immediately and we adopted these new requirements for the period ended March 31, 2010. The adoption of this guidance did not have a material impact on our financial statements.

Issued

In October 2009, the FASB issued ASU 2009-13 which changes ASC Topic 506 “Revenue Recognition” for revenue recognition for multiple-deliverable arrangements. These changes require separation of consideration received in such arrangements by establishing a selling price hierarchy (not the same as fair value) for determining the selling price of a deliverable, which will be based on available information in the following order: vendor-specific objective evidence, third-party evidence, or estimated selling price; eliminate the residual method of allocation and require that the consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method, which allocates any discount in the arrangement to each deliverable on the basis of each deliverable’s selling price; require that a vendor determine its best estimate of selling price in a manner that is consistent with that used to determine the price to sell the deliverable on a standalone basis; and expand the disclosures related to multiple-deliverable revenue arrangements. These changes become effective on January 1, 2011. The Company has determined that the adoption of these changes will not have an impact on the consolidated financial statements, as the Company does not currently have any such arrangements with its customers.

In January 2010, the FASB issued ASU 2010-06 to amend the disclosure requirements related to recurring and nonrecurring fair value measurements found in ASC Topic 820 “Fair Value Measurements and Disclosures” . The guidance requires a roll forward of activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance will become effective for the Company with the reporting period beginning July 1, 2011. The adoption of this guidance will not have a material impact on the Company’s consolidated financial statements.

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

NOTE 3 – SALE OF SUBSIDIARIES AND DISCONTINUED OPERATIONS

During February of 2010 the Company undertook reorganization and restructuring efforts which resulted in the divestiture of the Company’s interest in Disability Access Corporation and in Disability Access Consultants Inc. through an exchange agreement with the Company’s former CEO Peter Chin.  More particularly, on February 23, 2010, PTS, Inc., entered into an Exchange and Settlement Agreement (the “Agreement”) with Mr. Peter Chin to resolve mutual obligations and liabilities.  The effect of the agreement was that Mr. Peter Chin would resign from all positions and appointments in PTS, Inc. as of the close of business on February 23, 2010 and the Board would accept such resignation, and that further Peter Chin would forgive $502,699 of collective accumulated obligations for salary, advances and expenses from PTS, Inc. and would further exchange 4,863,333 PTS, Inc. Series A preferred shares (worth approximately $328,275 based on closing bid price at February 12, 2010) in exchange for 10,000,000 Series A preferred shares in Disability Access Corporation, held by PTS, Inc. plus 1,175,126,879 common shares in Disability Access Corporation  held by PTS, Inc. plus all notes receivable and notes payable (including debentures) held by PTS, Inc. or owed by PTS to Disability Access Corporation and/or its subsidiary Disability Access Consultants, Inc. The net exchange eliminated PTS, Inc.’s interest in Disability Access Corporation as well as Disability Access Consultants, Inc.   This event was not entered into or contemplated by management, nor committed to by management until after December 31, 2009. The assets, liabilities and operations of DBYC and DAC have been presented as discontinued operations in the financial statements.

We have recorded a gain on disposition of the subsidiaries in the amount of $893,191. The gain has been calculated as follows:

Fair value of consideration:
Series E shares	$                     1,000,000
Series A Shares	328,275
Accrued Payroll	273,500
Convertible Debenture	210,816
Accrued Interest	18,973
Advances	2,000
DBYC Payable	188,193
DAC Receivable	(608,417)
NonControlling interest at deconsolidation	148,342
	1,561,682
Net assets of DBYC/DAC	(668,491)
Gain	$                     893,191

 

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NOTE 4 – RELATED PARTY TRANSACTIONS

 

Due to Related Parties

On January 1, 2010, a note and related accrued interest payable to Peter Chin were combined into a single convertible note in the principal amount of $84,276. The note bears interest at 8%, is due on December 31, 2010 and is convertible into our common stock, at the option of the holder, at a 30% discount to the current market price of our stock at the date of conversion.

On January 1, 2010, a note, advances payable and related accrued interest payable to Sandy Chin were combined into a single convertible note in the principal amount of $13,043. The note bears interest at 8%, is due on December 31, 2011 and is convertible into our common stock, at the option of the holder, at a 30% discount to the current market price of our stock at the date of conversion.

In February 2010 a convertible debenture and related accrued interest payable to Peter Chin aggregating $229,789 was cancelled in connection with his purchase of DBYC and DAC described in Note 3.

In February 2010 accrued salary payable to Peter Chin aggregating $273,500 was cancelled in connection with his purchase of DBYC and DAC described in Note 3.

NOTE 5 – STOCK TRANSACTIONS

The Company amended its Articles of Incorporation on May 19, 2010 (with Board approval February 25, 2010) to authorize Five Billion (5,000,000,000) shares of capital stock, of which Four Billion Eight Hundred Million (4,800,000,000) shares with a par value of $0.00001 par share, is designated, “Common Stock,” and of which Two Hundred Million (200,000,000) shares with a par value of $0.001 per share, is designated “Preferred Stock”.

During the three months ended March 31, 2010:

We issued 442,277,141 shares of common stock pursuant to the conversion of 4,585,600 shares of Series A preferred stock, 3,000,000 shares of Series C preferred stock and 37,350 shares of Series E preferred stock. The Company cancelled 62,500 Series A preferred stock in agreement with the shareholder as the shareholder could not locate the physical certificate to convert. All converted Series E preferred stock were converted at a negotiated conversion rate and not the rate stated in the Company’s designation for the series.  

We issued 306,039,861 shares for payment of debt and accrued interest reduction aggregating $184,187. The shares were valued at $131,457 and we recorded a gain of $52,730 upon extinguishment of debt.

We issued Peter Chin 40,000,000 S-8 shares of common stock for consulting services after his resignation as Chief Executive Officer. These shares were valued at $0.0016 per share, or $64,000.

We sold 35,689,400 shares of restricted common shares for proceeds aggregating $35,689. Of this amount, 15,689,400 shares sold for proceeds of $15,689 were not issued at March 31, 2010 and this amount is classified in equity as common stock subscribed at March 31, 2010. 

NOTE 6 – CONVERTIBLE DEBENTURES, NOTES PAYABLE AND OTHER PAYABLES

During the three months ended March 31, 2010 we issued 241,754,147 shares of common stock in settlement of $148,187 of debentures, notes and accrued interest. The shares were valued at $104,457 and we recorded a gain of $43,730 upon extinguishment of debt.

During the three months ended March 31, 2010 we amended all remaining notes from December 31, 2009 that were not converted into common stock during the first quarter. These notes aggregate to approximately $288,000, of which, $84,276 matures on December 31, 2010 and $203,533 mature in 2011. These notes bear an 8% interest rate per annum and are convertible into common stock at a 50% discount to the current market price of our stock at the date of conversion.

During the three months ended March 31, 2010 we settled $14,000 of advances payable with payments aggregating $300 and we recorded a gain of $13,700 upon extinguishment of debt.

During the three months ended March 31, 2010 we issued 13,392,857 shares of common stock in settlement of $7,500 of advances payable. The shares were valued at $5,625 and we recorded a gain of $1,875 upon extinguishment of debt.

During the three months ended March 31, 2010 we issued 50,892,857 shares of common stock in settlement of $28,500 of accrued compensation. The shares were valued at $21,375 and we recorded a gain of $7,125 upon extinguishment of debt.

During the three months ended March 31, 2010 we assumed a debenture payable by DBYC in the amount of $141,606. The debenture matures on December 31, 2011, bears an 8% interest rate per annum and is convertible into common stock at a 30% discount to the current market price of our stock at the date of conversion.

NOTE 7 - SUBSEQUENT EVENTS

Subsequent to the quarter ended March 31, 2010, the Company issued 15,689,400 shares for cash totaling $15,689 and 15,000,000 shares were issued to non-affiliated party for consulting services totaling $21,000. These shares were issued based upon the exemption from registration found in Section 4(2) of the Securities Act.

 

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NOTE 8 - CONTINGENT LIABILITY

During March of 2005, PTS, Inc. adopted an Employee Stock Incentive Plan for the Year 2005, which was filed with the Commission on Form S-8.  Per the terms of the Plan, PTS, Inc. granted common stock awards to employees.  The purchase price of the shares of common stock was 85% of the fair market value of the common stock on the date of exercise.  During the period from March 2005 until February of 2008, PTS, Inc. realized $1,182,630 in proceeds from the exercise of these stock awards.  These proceeds were immediately reinvested into PTS to sustain the operating activities of the Company in its business pursuits and no one was ungainly enriched by the administration of the plan.  After being made aware of a potential violation of the federal securities laws in the administration of this Plan, management of PTS, Inc. has come to the conclusion that there indeed was potentially a violation of federal securities laws in the administration of the plan.  Further, this potential violation of federal securities laws creates a contingent liability for PTS, Inc., which might equal the amount of money realized by PTS, Inc. in the administration of the plan.  Upon further analysis management is unable to estimate if any additional amounts would be due.  Additionally, as of this date, no enforcement action has been threatened or instituted by the Securities and Exchange Commission, or any other state or federal regulatory body regarding this potential violation of the federal securities laws.  Due to these uncertainties and that Management has determined this contingent liability to be remote; we have not recorded a liability in our financial statements and are providing this disclosure due to the material nature of this event.

 

 

 

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide the information required by this item. See “Risk Factors” in Part II Item 1A. of this quarter report on Form 10-Q for the period ended March 31, 2010.

PART II - OTHER INFORMATION

Item 1A. Risk Factors

We believe that we do not have any material exposure to interest or commodity risks.  Our financial results are quantified in U.S. dollars and our obligations and expenditures with respect to our operations are incurred in U.S. dollars.  Although we do not believe we currently have any materially significant market risks relating to our operations resulting from foreign exchange rates, if we enter into financing or other business arrangements denominated in currency other than the U.S. dollars, variations in the exchange rate may give rise to foreign exchange gains or losses that may be significant.

We do not use financial instruments for trading purposes and we are not a party to any leveraged derivatives.

Risks Relating to Our Business

We are subject to the requirements of section 404 of the Sarbanes-Oxley Act. If we are unable to timely comply with section 404 or if the costs related to compliance are significant, our profitability, stock price and result of operations and financial condition could be materially adversely affected.

We are required to comply with the provisions of Section 404 of the Sarbanes-Oxley Act of 2002, which require us to maintain an ongoing evaluation and integration of the internal controls of our business. We were required to document and test our internal controls and certify that we are responsible for maintaining an adequate system of internal control procedures for the year ended December 31, 2009. In subsequent years, our independent registered public accounting firm will be required to opine on those internal controls and management’s assessment of those controls. In the process, we may identify areas requiring improvement, and we may have to design enhanced processes and controls to address issues identified through this review.

We cannot be certain that we will be able to successfully complete the procedures, certification and attestation requirements of Section 404 or that our auditors will not have to report a material weakness in connection with the presentation of our financial statements. If we fail to comply with the requirements of Section 404 of if our auditors report such material weakness, the accuracy and timeliness of the filing of our annual report may be materially adversely affected and could cause investors to lose confidence in our reported financial information, which could have a negative affect on the trading price of our common stock. In addition, a material weakness in the effectiveness of our internal controls over financial reporting could result in an increased chance of fraud and the loss of customers, reduce our ability to obtain financing and require additional expenditures to comply with these requirements, each of which could have a material adverse effect on our business, results of operations and financial condition.

 

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Further, we believe that the out-of-pocket costs, the diversion of management’s attention from running the day-to-day operations and operational changes caused by the need to comply with the requirements of Section 404 of the Sarbanes-Oxley Act could be significant. If the time and costs associated with such compliance exceed our current expectations, our results of operations could be adversely affected.

We are not likely to succeed unless we can overcome the many obstacles we face.

As an investor, you should be aware of the difficulties, delays and expenses we encounter, many of which are beyond our control, including unanticipated market trends, employment costs, and administrative expenses.  We cannot assure our investors that our proposed business plans as described in this report will materialize or prove successful, or that we will ever be able to finalize development of our products or services or operate profitably.  If we cannot operate profitably, you could lose your entire investment.  As a result of the nature of our business, initially we expect to sustain substantial operating expenses without generating significant revenues.

Our acquisition strategy involves a number of risks.

We intend to pursue growth through the opportunistic acquisition of companies or assets that will enable us to expand our service lines to provide more cost-effective customer solutions. We routinely review potential acquisitions.  This strategy involves certain risks, including difficulties in the integration of operations and systems, the diversion of our management’s attention from other business concerns, and the potential loss of key employees of acquired companies.  We may not be able to successfully acquire, and/or integrate acquired businesses into our operations.

Risks Relating to Our Stock

We may need to raise additional capital.  If we are unable to raise necessary additional capital, our business may fail or our operating results and our stock price may be materially adversely affected.

Due to the lack of significant revenue, we need to secure adequate funding.  If we are unable to obtain adequate funding, we may not be able to successfully develop and market our products and services and our business will most likely fail.  We do not have commitments for additional financing.  To secure additional financing, we may need to borrow money or sell more securities, which may reduce the value of our outstanding securities.  Under these circumstances, we may be unable to secure additional financing on favorable terms or at all.

Selling additional stock, either privately or publicly, would dilute the equity interests of our stockholders.  If we borrow more money, we will have to pay interest and may also have to agree to restrictions that limit our operating flexibility.  If we are unable to obtain adequate financing, we may have to curtail business operations which would have a material negative effect on operating results and most likely result in a lower stock price.

Our common stock has experienced in the past, and is expected to experience in the future, significant price and volume volatility, which substantially increases the risk that you may not be able to sell your shares at or above the price that you pay for the shares.

Because of the limited trading market for our common stock, and because of the possible price volatility, you may not be able to sell your shares of common stock when you desire to do so.  During 2009 and 2008, our common stock was sold and purchased at prices that ranged from a high of $0.002 to a low of $0.0006 per share.  The inability to sell your shares in a rapidly declining market may substantially increase your risk of loss because of such illiquidity because the price for our common stock may suffer greater declines due to its price volatility.

The price of our common stock that will prevail in the market after this offering may be higher or lower than the price you pay.  Certain factors, some of which are beyond our control, that may cause our share price to fluctuate significantly include, but are not limited to, the following:

·

Variations in our quarterly operating results;

·

The development of a market in general for our products and services;

·

Changes in market valuations of similar companies;

·

Announcement by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;

·

Loss of a major customer or failure to complete significant transactions;

·

Additions or departures of key personnel; and

·

Fluctuations in stock market price and volume.

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Additionally, in recent years the stock market in general, and the OTC Bulletin Board and technology stocks in particular, have experienced extreme price and volume fluctuations.  In some cases, these fluctuations are unrelated or disproportionate to the operating performance of the underlying company.  These market and industry factors may materially and adversely affect our stock price, regardless of our operating performance.

Over the past few months, there have been periods of significant increases in trading volume of our common stock during which the price of our stock has both increased and decreased.  The historical trading of our common stock is not necessarily an indicator of how it will trade in the future and our trading price as of the date of this report does not necessarily portend what the trading price of our common stock might be in the future.

Our directors have the right to authorize the issuance of preferred stock and additional shares of our common stock.

Our directors, within the limitations and restrictions contained in our articles of incorporation and without further action by our stockholders, have the authority to issue shares of preferred stock from time to time in one or more series and to fix the number of shares and the relative rights, conversion rights, voting rights, and terms of redemption, liquidation preferences and any other preferences, special rights and qualifications of any such series.   Any issuance of preferred stock could adversely affect the rights of holders of our common stock.

Should we issue additional shares of our common stock at a later time, each investor’s ownership interest in PTS, Inc. would be proportionally reduced.  No investor will have any preemptive right to acquire additional shares of our common stock, or any of our other securities.

If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board which would limit the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

Companies trading on the OTC Bulletin Board, such as PTS, Inc., must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC Bulletin Board.  If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board.  As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

Our common stock is subject to the “penny stock” rules of the SEC and the trading market in our securities is limited, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.

The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions.  Inasmuch as that the current bid and ask price of common stock is less than $5.00 per share, our shares are classified as “penny stock” under the rules of the SEC.  For any transaction involving a penny stock, unless exempt, the rules require:

·

That a broker or dealer approve a person’s account for transactions in penny stocks; and

·

The broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:

·

Obtain financial information and investment experience objectives of the person; and

·

Make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:

·

Sets forth the basis on which the broker or dealer made the suitability determination; and

·

That the broker or dealer received a signed, written agreement from the investor prior to the transaction.

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Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules.  This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions.  Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

Investors in penny stock should be prepared for the possibility that they may lose their entire investment.

Contingent Liability for Securities Act Violation

During December 2006, we distributed 126,189,788 shares of Disability Access Corporation to our stockholders on a pro rata basis. Please note that this distribution was an unregistered transaction, and, as such, may have exposed PTS, Inc. to violations of the Securities Act.  Therefore, there is a potential contingent liability for rescission demands by affected shareholders of PTS, Inc.  

During March of 2005, PTS, Inc. adopted an Employee Stock Incentive Plan for the Year 2005, which was filed with the Commission on Form S-8.  Per the terms of the Plan, PTS, Inc. granted common stock awards to employees.  The purchase price of the shares of common stock was 85% of the fair market value of the common stock on the date of exercise.  During the period from March 2005 until February of 2008, PTS, Inc. realized $1,182,630 in proceeds from the exercise of these stock awards.  These proceeds were immediately reinvested into PTS to sustain the operating activities of the Company in its business pursuits and no one was ungainly enriched by the administration of the plan.  After being made aware of a potential violation of the federal securities laws in the administration of this Plan, management of PTS, Inc. has come to the conclusion that there indeed was potentially a violation of federal securities laws in the administration of the plan.  Further, this potential violation of federal securities laws creates a contingent liability for PTS, Inc., which might equal the amount of money realized by PTS, Inc. in the administration of the plan.  Upon further analysis management is unable to estimate if any additional amounts would be due.  Additionally, as of this date, no enforcement action has been threatened or instituted by the Securities and Exchange Commission, or any other state or federal regulatory body regarding this potential violation of the federal securities laws.  Due to these uncertainties and that Management has determined this contingent liability to be remote; we have not recorded a liability in our financial statements and are providing this disclosure due to the material nature of this event.

 

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SIGNATURES

In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: July 13, 2010

	PTS, Inc.
	By:  /s/ Marc Pintar Marc Pintar, Interim Chief Executive Officer, Interim Chief Financial Officer and Interim Chairman  of the Board of Directors

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