Kingfish Holding Corp - Quarter Report: 2009 June (Form 10-Q)

form10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D. C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-52375

Kesselring Holding Corporation

(Exact name of small business issuer as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

20-4838580

(I.R.S. Employer Identification No.)

1956 Main Street

Sarasota, Florida 34236

(Address of principal executive offices)

(941) 953-5774

(Issuer's telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and 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 the 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 x No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o

Non-accelerated filer o Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b2 of the Exchange Act). Yes o No x

The number of shares of the registrant’s Common Stock, $0.0001 par value per share, outstanding as of August 19, 2009 is 36,046,321.

KESSELRING HOLDING CORPORATION AND SUBSIDIARIES

INDEX

PART I.	Financial Information	Page No.

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets at June 30, 2009 (Unaudited) and September 30, 2008	4

	Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended June 30, 2009 and 2008	5

	Condensed Consolidated Statements of Operations (Unaudited) for the Nine Months Ended June 30, 2009 and 2008	6

	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended June 30, 2009 and 2008	7

	Notes to Condensed Consolidated Financial Statements	8

	Item 2. Management’s Discussion and Analysis or Plan of Operation	19

	Item 3. Quantitative and Qualitative Disclosures About Market Risks	22

	Item 4. Controls and Procedures	22

PART II.	Other Information

	Item 1. Legal Proceedings	27

	Item 1A. Risk Factors	27

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	27

	Item 3. Defaults Upon Senior Securities	27

	Item 4. Submission of Matters to a Vote of Security Holders	27

	Item 5. Other Information	27

	Item 6. Exhibits	28

SIGNATURES		29

PART I—FINANCIAL INFORMATION

FORWARD-LOOKING STATEMENTS

Certain information included in this report and other Company filings (collectively, “SEC filings”) under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (as well as information communicated orally or in writing between the dates of such SEC filings) contains or may contain forward looking information that is subject to certain risks, trends and uncertainties that could cause actual results to differ materially from expected results. Among these risks, trends and uncertainties are the Company’s ability to raise capital, national and local economic conditions, the lack of an established operating history for the Company’s current business activities, conditions and trends in the restoration and general contracting industries in general, changes in interest rates, the impact of severe weather on the Company’s operations, the effect of governmental regulation on the Company and other factors described from time to time in our filings with the Securities and Exchange Commission.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

KESSELRING HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS



	June 30,			September 30,
	2009			2008
Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$	30,062		$	92,211
Accounts receivable, net allowances		1,151,264			850,055
Inventories		583,624			575,781
Other current assets		40,517			75,916
Assets of discontinued business		-			389,270
Total current assets		1,805,467			1,983,233

Property and equipment, net		2,271,747			2,377,976
Intangible assets, net		-			10,499
Other assets		53,780			56,273
Total assets	$	4,130,994		$	4,427,981

Liabilities and stockholders' deficit
Current liabilities:
Accounts payable and accrued expenses	$	2,188,512		$	1,996,571
Current maturities of notes payable		500,894			205,236
Current maturities of notes payable-related parties		945,000			945,000
Liabilities of discontinued business		-			568,626
Total current liabilities		3,634,406			3,715,433
Notes payable		1,510,088			1,572,075
Total liabilities		5,144,494			5,287,508

Stockholders' deficit:
Preferred stock, $0.0001 par value, 20,000,000 shares
authorized; 1,000,000 shares designated Series A with
1,000,000 shares issued and outstanding at September 30, 2008,
none at June 30, 2009		-			1,500,000
Common stock, $0.0001 par value, 200,000,000 shares
authorized; 36,046,321 and 38,308,669 shares issued
and outstanding, respectively		3,605			3,831
Additional paid-in capital		4,033,012			4,479,985
Accumulated deficit		(5,050,117	)		(6,843,343	)
Total stockholders' deficit		(1,013,500	)		(859,527	)
Total liabilities and stockholders' deficit	$	4,130,994		$	4,427,981

See notes to condensed consolidated financial statements.

KESSELRING HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Three Months Ended
	June 30,			June 30,
	2009			2008
	(Unaudited)			(Unaudited)
Revenues	$	2,059,273		$	1,578,295

Cost of revenues		1,574,777			1,118,485
Gross profit		484,496			459,810
Operating expenses:
Salaries and benefits		320,414			543,031
Professional fees		59,497			34,943
Insurance		21,683			26,058
Rent and occupancy costs		8,680			5,419
Depreciation and amortization		33,404			37,879
Transportation		13,973			18,333
Repairs and maintenance		13,369			16,631
Advertising		1,765			3,015
Restructuring and exit costs		-			(12,500)
Other operating expenses		68,269			112,787
		541,055			785,596
Loss from operations		(56,559	)		(325,786	)
Other income (expense):
Interest expense		(73,222	)		(63,288	)
Interest income		-			1,062
Other income (expense) net		2,447			1,171
Gain on retirement of fixed assets		-			-
		(70,775	)		(61,055	)
Loss from continuing operations		(127,334	)		(386,841	)
Discontinued operations (note 8):
Loss from discontinued operations		-			(79,474)
Gain on disposal of discontinued operations		-			-
Net gain/(loss) from discontinued operations		-			(79,474	)
Income/(loss) before income taxes		(127,334)			(466,315	)
Net Income/(loss)	$	(127,334)		$	(466,315	)

Income (loss) applicable to common stockholders:
Net Income/( loss)	$	(127,334)		$	(466,315	)
Undeclared preferred stock dividends		-			(37,500	)
Income (loss) applicable to common stockholders	$	(127,334)		$	(503,815	)

Income (loss) per common share:
Continuing operations:
Basic	$	0.00		$	(0.01	)
Diluted	$	0.00		$	(0.01	)

Weighted average common shares, basic		36,046,321			37,010,510
Weighted average common shares, diluted		36,046,321			37,010,510
Discontinued operations:
Basic	$	0.00		$	(0.00	)
Diluted	$	0.00		$	(0.00	)

Weighted average common shares, basic		36,046,321			37,010,510
Weighted average common shares, diluted		36,046,321			37,010,510

See notes to condensed consolidated financial statements.

KESSELRING HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	For the Nine Months Ended
	June 30,			June 30,
	2009			2008
	(Unaudited)			(Unaudited)
Revenues	$	6,116,155		$	5,295,564

Cost of revenues		4,407,162			3,749,534
Gross profit		1,708,993			1,546,030
Operating expenses:
Salaries and benefits		1,166,245			1,785,979
Professional fees		189,748			594,509
Insurance		68,739			70,701
Rent and occupancy costs		25,839			101,112
Depreciation and amortization		98,925			91,765
Transportation		43,084			75,705
Repairs and maintenance		48,912			44,996
Advertising		4,110			44,734
Restructuring and exit costs		-			776,600
Other operating expenses		220,320			441,624
		1,865,922			4,027,725
Loss from operations		(156,929	)		(2,481,695	)
Other income (expense):
Interest expense		(224,907	)		(146,383	)
Interest income		-			1,062
Other income (expense), net		14,604			13,577
Gain on retirement of fixed assets		9,980			-
		(200,323	)		(131,744	)
Loss from continuing operations		(357,252	)		(2,613,439	)
Discontinued operations (note 8):
Loss from discontinued operations		(161,554)			(711,588)
Gain from disposal of discontinued operations		349,146			-
Net gain/(loss) from discontinued operations		187,592			(711,588	)
Loss before income taxes		(169,660	)		(3,325,027	)
Net loss	$	(169,660	)	$	(3,325,027	)

Income (loss) applicable to common stockholders:
Net loss	$	(169,660	)	$	(3,325,027	)
Undeclared preferred stock dividends		-			(75,000	)
Income (loss) applicable to common stockholders	$	(169,660)		$	(3,400,027	)

Income (loss) per common share:
Continuing operations:
Basic	$	(0.00)		$	(0.09	)
Diluted	$	(0.00)		$	(0.09	)

Weighted average common shares, basic		37,147,001			36,011,018
Weighted average common shares, diluted		37,147,001			36,011,018

Discontinued operations:
Basic	$	0.01		$	(0.02	)
Diluted	$	0.01		$	(0.02	)

Weighted average common shares, basic		37,147,001			36,011,018
Weighted average common shares, diluted		37,147,001			36,011,018

See notes to condensed consolidated financial statements.

KESSELRING HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Nine Months Ended
	June 30,			June 30,
	2009			2008
Cash flows from operating activities:	(Unaudited)			(Unaudited)
Net loss	$	(169,660	)	$	(3,325,027	)
Adjustments to reconcile net loss to net cash from
operating activities:
Depreciation and amortization of long-lived assets		146,220			114,105
Share-based payments, employees		6,469			395,499
Amortization of deferred financing costs		2,493			10,510
Gain on disposal of assets		(187,592	)		22,574
Loss (gain) on retirement of fixed assets		(21,256)			-
Changes in operating assets and liabilities:
Accounts receivable		(301,209	)		15,969
Inventories		(7,843)			140,515
Other current assets		35,399			21,260
Accounts payable and accrued expenses		191,940			1,275,426
Discontinued operations, net		-			353,584
Net cash flows from operating activities		(305,038	)		(975,585	)

Cash flows from investing activities:
Purchases of property and equipment		-			(174,857)
Net cash flows from investing activities		-			(174,857)

Cash flows from financing activities:
Proceeds from buyback of stock warrants		9,217			-
Proceeds from notes payable		233,672			370,173
Proceeds from notes payable related parties		-			735,000
Net cash flows from financing activities		242,889			1,105,173

Net change in cash		(62,150	)		(45,269	)
Cash at beginning of period		92,211			95,511
Cash at end of period	$	30,062		$	50,242

Supplemental Cash Flow Information:

Cash paid for:
Interest	$	158,897		$	146,383
Income taxes	$	-		$	-

Liabilities extinguished with the issuance of common stock	$	-		$	136,068
Paid in capital arising from the issuance of common stock and
assets in settlement of related party liabilities	$	-		$	(57,152)

See notes to condensed consolidated financial statements.

KESSELRING HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.	Basis of presentation, nature of our business:

Basis of presentation:

Our unaudited condensed consolidated financial statements as of June 30, 2009 and for the three and nine months ended June 30, 2009 and 2008 have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with interim reporting standards of Regulation S-X of the Securities and Exchange Commission ( “SEC” ). Accordingly, they do not include all the information required by generally accepted accounting principles for complete financial statements. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of our financial position as of June 30, 2009, our results of operations for the three and nine months ended June 30, 2009 and 2008 and cash flows for the nine months ended June 30, 2009 and 2008 have been included in their preparation. These unaudited condensed consolidated financial statements should be read in conjunction with our annual financial statements for our fiscal year ended September 30, 2008 and Management’s Discussion and Analysis and Plan of Operation, and related notes thereto, included in the Company’s Form 10-KSB filed on December 29, 2008 with the SEC. Operating results for the three and nine months ended June 30, 2009 are not necessarily indicative of the results that may be expected for the year ending September 30, 2009.

Consolidation:

Our consolidated financial statements include the accounts of our wholly-owned subsidiaries (King Brothers Woodworking, Inc. and King Door and Hardware, Inc., formerly known as our Manufactured Products segment) and our discontinued subsidiary, Kesselring Restoration, Inc., formerly known as our Construction Services segment. We now operate as one reportable segment. The consolidated statements of operations presented herein reflect the results of Kesselring Restoration, Inc. from October 1, 2007 through June 30, 2009 under the caption “Discontinued operations”. King Brothers Woodworking, Inc. and King Door and Hardware, Inc.’s results are included in Kesselring Holding Corporation’s consolidated operations for all periods presented.

Liquidity:

The preparation of financial statements in accordance with Accounting Principles Generally Accepted in the United States of America contemplates that the Company will continue as a going concern, for a reasonable period. As reflected in our condensed consolidated financial statements, we have incurred losses of ($169,660) and ($3,325,027) during the nine months ended June 30, 2009 and 2008, respectively. We have used cash of ($305,038) and ($975,585) in our operating activities during the nine months ended June 30, 2009 and 2008, respectively. We also have a current working capital deficiency of ($1,828,939) that is insufficient in our management’s view to sustain our current levels of operations for a reasonable period without additional financing. These trends and conditions continue to raise substantial doubt surrounding our ability to continue as a going concern for a reasonable period.

During the second fiscal quarter of our year ended September 30, 2008, our Board of Directors undertook a restructuring program focused on curtailing our cost structure, restructuring management and associated responsibilities, cutting our headcount, raising capital and aggressively seeking acquisition opportunities. The initial measure was to substantially restructure our executive management. This restructured executive management team developed and implemented strategic and tactical plans to address the Board-Directed mandate to alleviate our liquidity shortfalls, improve gross profit margins, reduce expenses and, ultimately, achieve profitability. Since the first fiscal quarter of our year ended September 30, 2008, execution of this plan has included (i) the elimination of a substantial number of our Florida-based positions and the associated employment costs, (ii) the curtailment of operating costs and expenses, (iii) the discontinuance and ultimate transfer of our Constructions Services segment business to a Trustee; and, (iv) the aggressive development of our manufactured products business.

KESSELRING HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenues have increased $820,591, or 15.5%, from $5,295,564 during the nine months of the year ended September 30, 2008 to $6,116,155 during the nine months of our year ending September 30, 2009.

As a result of the above, our negative liquidity conditions have improved $191,178 from a working capital deficiency of ($2,020,118) at June 30, 2008 to ($1,828,939) at June 30, 2009. Our management will continue these efforts while seeking other permanent sources of equity. However, there can be no assurance that additional capital arrangements, at terms suitable to our management, will present themselves.

In addition to the restructuring of our current operations, management is currently performing due diligence procedures on certain acquisition candidates and carefully considering other strategic initiatives to bring the Company into a state of profitability and continued growth.

Ultimately, the Company’s ability to continue for a reasonable period is dependent upon management’s ability to continue to increase revenues and profits, maintain current operating expense levels, and obtaining additional financing to augment working capital requirements and support acquisition plans. There can be no assurance that management will be successful in achieving these objectives or obtain financing under terms and conditions that are suitable. The accompanying financial statements do not include any adjustments associated with these uncertainties.

Impairments and Disposals

We evaluate our tangible and definite-lived intangible assets for impairment under Statement of Financial Accounting Standards No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144) annually at the beginning of our fourth fiscal quarter or more frequently in the presence of circumstances or trends that may be indicators of impairment. Our evaluation is a two step process. The first step is to compare our undiscounted cash flows, as projected over the remaining useful lives of the assets, to their respective carrying values. In the event that the carrying values are not recovered by future undiscounted cash flows, as a second step, we compare the carrying values to the related fair values and, if lower, record an impairment adjustment. For purposes of fair value, we generally use replacement costs for tangible fixed assets and discounted cash flows, using risk-adjusted discount rates, for intangible assets.

On March 31, 2009, our management and Board of Directors approved the assignment of all assets and liabilities of our Kesselring Restoration division to a Trustee who is responsible for liquidating the assets and distributing the proceeds to creditors. Kesselring Restoration comprised our Construction Services segment, as defined in SFAS 144, and have presented that unit in the accompanying financial statements on the basis that (a) the operations and cash flows of the component have been eliminated from our ongoing operations a result of the disposal transaction and (b) we have no significant continuing involvement in the operations of the component after the disposal transaction. See Note 8 for additional information about the disposal.

We have certain intangible assets that are not subject to amortization because they currently have indefinite lives. We are required to evaluate whether these assets acquire a finite useful life annually and, if present, commence amortization thereof. Prior to that event, if ever, we evaluate intangible assets that are not subject to amortization under the guidance of Statement of Financial Accounting Standards No. 142 Goodwill and Intangible Assets (SFAS 142). Under this standard, the impairment test consists of a comparison of the fair values of the intangible assets with the respective carrying values. An impairment loss would be required for an excess in carrying value over the fair value on an asset-by-asset basis.

KESSELRING HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Recent accounting pronouncements - We have reviewed accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. We believe that the following impending standards may have an impact on our future filings. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations ("SFAS 141(R)"), which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination. SFAS 141R is effective as of the beginning of the first fiscal year beginning on or after December 15, 2008. The effective date therefore is October 1, 2009. Earlier adoption is prohibited.

In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements Liabilities –an Amendment of ARB No. 51. This statement amends ARB No. 51 to establish accounting and reporting standards for the Non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 will change the classification and reporting for minority interest and non-controlling interests of variable interest entities. Following the effectiveness of SFAS 160, the minority interest and non-controlling interest of variable interest entities will be carried as a component of stockholders’ equity. This statement is effective for fiscal years and interim periods within those fiscal years, beginning on or after December 15, 2008 and earlier adoption is prohibited. Since we do not currently have Variable Interest Entities consolidated in our financial statements, adoption of this standard is not expected to have a material effect.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities – an amendment to FASB Statement No. 133 (“SFAS 161”). SFAS 161 is intended to improve financial standards for derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. Entities are required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early adoption encouraged. We are currently evaluating the impact of SFAS 161, if any, will have on our financial position, results of operations or cash flows. Adoption of this standard is not expected to have a material effect in our financial statements.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles ("SFAS 162"). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (the GAAP hierarchy). SFAS 162 will become effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles." The Company does not expect the adoption of SFAS 162 will have a material effect on its financial position, results of operations or cash flows.

In April 2008, the FASB issued FSP No. FAS 142-3 Determination of the Useful Life of Intangible Assets. This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. The guidance in FSP 142-3 for determining the useful life of a recognized intangible asset shall be applied prospectively to intangible assets acquired after adoption, and the disclosure requirements shall be applied prospectively to all intangible assets recognized as of, and subsequent to, adoption. The Company is currently evaluating the impact of FSP 142-3 on its financial position, results of operations or cash flows, and believes that the established lives will continue to be appropriate under the FSP.

In May 2008, the FASB issued FSP Accounting Principles Board 14-1 Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) ("FSP APB 14-1"). FSP APB 14-1 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer's non-convertible debt borrowing rate. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008 on a retroactive basis. The Company is currently evaluating the potential impact, if any, of the adoption of FSP APB 14-1 on its financial position, results of operations or cash flows.

In June 2008, the Emerging Issues Task Force issued EITF Consensus No. 07-05 Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock, which supersedes the definition in EITF 06-01 for periods beginning after December 15, 2008. The objective of this Issue is to provide guidance for determining whether an equity-linked financial instrument (or embedded feature) is indexed to an entity's own stock and it applies to any freestanding financial instrument or embedded feature that has all the characteristics of a derivative in of Statement 133, for purposes of determining whether that instrument or embedded feature qualifies for the first part of the scope exception in paragraph 11(a) of Statement 133 (the “Paragraph 11(a) Exemption). This Issue also applies to any freestanding financial instrument that is potentially settled in an entity's own stock, regardless of whether the instrument has all the characteristics of a derivative in Statement 133, for purposes of determining whether the instrument is within the scope of Issue 00-19. We currently have warrants that embody terms and conditions that require the reset of their strike prices upon our sale of shares, but they are currently classified in liabilities, thus it is not expected that this standard will have a material impact on our financial position, results of operations or cash flows, Accordingly, this standard will be adopted in our quarterly period ended June 30, 2009.

KESSELRING HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In June 2008, the Emerging Issues Task Force issue EITF Consensus No. 08-04 Transition Guidance for Conforming Changes to Issue 98-5 Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, which is effective for years ending after December 15, 2008. Early adoption is not permitted. The overall objective of the Issue is to conform the requirements of EITF 00-27 and Financial Accounting Standard No. 150 with EITF 98-5 to provide for consistency in application of the standard. We computed and recorded a beneficial conversion feature in connection with certain of our prior financing arrangements and do not believe that this standard has any material effect on that accounting.

On April 1, 2009, the FASB issued FSP 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination that Arise from Contingencies” (FSP 141R-1). FSP 141R-1 amends and clarifies SFAS No. 141R to address application issues associated with initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. FSP 141R-1 is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company will apply the provisions of FSP 141R-1 to future acquisitions.

On April 9, 2009, the FASB issued FSP SFAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,” which provides additional guidance for estimating fair value in accordance with SFAS No. 157 when the volume and level of activity for the asset or liability have significantly decreased. This FSP re-emphasizes that regardless of market conditions the fair value measurement is an exit price concept as defined in SFAS No. 157. This FSP clarifies and includes additional factors to consider in determining whether there has been a significant decrease in market activity for an asset or liability and provides additional clarification on estimating fair value when the market activity for an asset or liability has declined significantly. FSP SFAS 157-4 is applied prospectively to all fair value measurements where appropriate and will be effective for interim and annual periods ending after June 15, 2009. The adoption of FSP 157-4 is not expected to have a material impact on the Company’s consolidated financial statements or results of operations.

On April 29, 2009, the FASB issued FSP SFAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” This FSP which amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” to require publicly-traded companies, as defined in APB Opinion No. 28, “Interim Financial Reporting,” to provide disclosures on the fair value of financial instruments in interim financial statements. FSP SFAS 107-1 and APB 28-1 are effective for interim periods ending after June 15, 2009. The adoption of FSP SFAS 107-1 is not expected to have a material impact on the Company’s consolidated financial statements or results of operations.

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 our present or future financial statements.

2.	Inventories:

Inventories consisted of the following at June 30, 2009 and September 30, 2008:

	June 30		September 30
Raw materials	$	276,466	$	266,449
Work-in-process		302,291		238,986
Finished goods		4,867		70,346
	$	583,624	$	575,781

KESSELRING HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.	Accounts payable and accrued expenses:

Accounts payable and accrued expenses consisted of the following at June 30, 2009 and September 30, 2008:

	June 30		September 30
Accounts payable	$	1,289,140	$	1,078,863
Accrued expenses		517,482		535,818
Accounts payable and accrued expenses		1,806,622		1,614,681
Restructuring reserve		381,890		381,890
	$	2,188,512	$	1,996,5710

Restructuring and exit activities:

As discussed in Note 1, The Company initiated a restructuring plan in 2008. We account for exit and termination activities in accordance with Financial Accounting Standards Board issued Statements on Financial Accounting Standards No. 146 Accounting for Costs Associated with Exit of Disposal Activities. Statement No. 146 represents a significant change from the then prior practice by requiring that a liability for costs associated with an exit or disposal activity be recognized and initially measured at fair value only when the liability is incurred.

The following table illustrates the activity in our restructuring reserve:

Activity	Balance at September 30, 2008		Restructuring Charges		Restructuring Payments		Balance at June 30, 2009
Contract termination costs	$	312,500	$	--	$	--	$	312,500
Termination benefits		58,749		--		--		58,748
Other associated costs		10,641		--		--		10,641
	$	381,890	$	--	$	--	$	381,890

KESSELRING HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Contract Termination Costs: In March 2008, we exited a significant facility operating lease that has remaining non-cancellable payments of $748,787 (including executory costs). At that time, we recorded our best estimate of the fair value of the lease obligation, amounting to $425,040, which was net of estimated sublease collections, using a probability weighted, discounted forward cash flow valuation technique. In July 2008, we entered into a settlement agreement and mutual release with the landlord. Based upon the terms of the settlement agreement, we revised our estimate of the lease exit reserve which reduced the reserve by $119,000.

Termination Benefits: We have terminated the employment of certain officers and employees since the commencement of our restructuring activities. We record termination benefits when they are both approved by the appropriate level of management (or in some instance our Board of Directors) and the benefit is communicated to and committed to the employee. Our termination benefits do not include any on-going performance payments (such as stay-bonuses) or benefits (such as health insurance).

Other Associated Costs: These costs represent direct, incremental expenses associated with the exit or restructuring activities, such as legal expenses related to consultation and the drafting of agreements.

Since current accounting standards provide for the recognition of restructuring and exit activities when the related costs have been incurred, we may have additional charges in future periods as we continue our restructuring activities.

4. Notes payable:

Notes payable consisted of the following at June 30, 2008 and September 30, 2008:

	June 30			September 30
Variable rate mortgage note payable, due January 2017 (a)	$	1,215,402		$	1,229,763
8.0% Note payable, due July 2017 (b)		294,778			300,089
4.9% Note payable, due August 2010		--			13,246
7.0% Related party note due on demand (c)		695,000			695,000
12.0% Related Party note due on demand (c)		250,000			250,000
Prime Plus 4.5%, $750,000 bank credit facility (d)		450,890			180,141
Loans on equipment		49,912			54,072
		2,955,982			2,722,311
Current maturities of notes payable		(500,894	)		(205,236	)
Current maturities of notes payable-related parties		(945,000	)		(945,000	)
Long-term debt	$	1,510,088		$	1,572,075

(a)

In March, 2007, we borrowed $1,255,500 under a ten-year, adjustable rate mortgage note. The coupon rate is based on the five-year Treasury Rate for Zero-Coupon Government Securities, plus 280 basis points (5.34% and 5.78% at June 30, 2009 and September 30, 2008, respectively). The mortgage note is secured by commercial real estate owned in Washington State.

KESSELRING HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(b)

In August, 2007, we incurred mortgage debt of $308,000 as the partial purchase price for real estate in the State of Washington (with a cost of $389,257). This note has a ten-year term and an adjustable coupon rate based on the five-year Treasury Rate for Zero-Coupon Government Securities, plus 310 basis points (5.64% and 6.08% at June 30, 2009 and September 30, 2008, respectively). This debt is secured by the real estate acquired.

(c)	See Note 5 for additional information about these related party notes.
(d)	On May 14, 2008, we entered into an agreement with a financial institution to provide up to $1,000,000 in secured credit, subject to certain limitations. On May 22, 2009, we entered into an agreement with this same financial institution to provide up to $750,000 in secured credit, subject to certain limitations. Under this facility, we are permitted to draw on an advance line of up to 80% of certain eligible accounts receivable. The interest rate is Prime plus 4.5%. The line is secured by the accounts receivable, inventory, and the unencumbered fixed assets of that segment. As part of the transaction entered into on May 14, 2008, the lender was granted 150,000 shares of common stock having a fair market value of $15,000.

Maturities of our notes payable for each year ending September 30, are as follows:


2009		1,409,241
2010		51,435
2011		53,844
2012		33,782
2013		36,318
2014		38,985
Thereafter		1,332,377
	$	2,955,982

5.	Related party transactions:

Consulting fees, related parties:

Our consulting fees, related parties, for the nine months ended June 30, 2009 and 2008 amounted to $0 and $35,325, respectively, and are comprised of the following:

·	We paid $4,000 and $12,111, respectively, in professional fees to an accounting firm partially owned by our former Interim Chief Financial Officer and Director.

We paid $5,000 and $23,214, respectively, in consultancy fees to Spyglass Ventures. The managing partner of Spyglass Ventures is also actively involved in other unrelated business ventures. The Chairman of our Board of Directors and our Chief Executive Officer are directly involved in some of those other unrelated business ventures. Our Chairman and our Chief

Executive Officer does not participate in the determination of the fees that we pay to Spyglass Ventures.

KESSELRING HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Related party loans:

In October, November and December, 2007 and January, June and July, 2008, certain members of our Board of Directors, or organizations with which they are affiliated, funded an aggregate $945,000 to us pursuant to notes payable. These notes bear interest at 7.0% and mature as follows: April 18, 2010 - $250,000; April 23, 2010 - $50,000; May 8, 2010 - $25,000; November 6, 2009 - $25,000 and December 18, 2009 – $250,000; December 27, 2009 - $30,000; December 30, 2009 - $45,000; and, January 3, 2010 - $20,000. In addition an additional $250,000 was added in three tranches bearing interest of 12% and mature on April 18, 2010.

Other Related party transactions:

On October 13, 2008 we issued our two outside Directors each 100,000 shares of common stock with a total fair market value at that time of $8,000.

6.	Stockholders’ deficit:

Common stock issuances:

On October 13, 2008 we issued our two outside Directors each 100,000 shares of common stock with a total fair market value at that time of $8,000.

Stock options:

We record compensation expense related to stock options as they vest using the grant-date, fair value method prescribed in Statements on Financial Accounting Standards No. 123R Accounting for Share-Based Payments. We did not issue any stock options during the nine months ended June 30, 2009.

KESSELRING HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table illustrates the status of our stock option awards as of June 30, 2009:

	Options Outstanding		Weighted Average Prices
October 1, 2008		2,790,200	$	0.13
Granted		--		--
Exercised		--		--
Expired or forfeited		--		--
June 30, 2009		2,790,200	$	0.13

Exercisable at June 30, 2009		2,790,200

The above options have an aggregate weighted average remaining term of 3.82 years.

Amortization of our stock-option based compensation arrangements during the nine months ended June 30, 2009 was $31,128, and is included in the salaries and benefits.

Warrants:

We have warrants outstanding to purchase 10,297,671 shares of our common stock. Our outstanding warrants range in exercise prices from $0.01 to $0.54 and have a weighted average remaining life of 3.07 years on June 30, 2009.

The following table illustrates the status of our stock warrants as of June 30, 2009:

	Warrants Outstanding		Weighted Average Prices
September 30, 2008		10,297,671	$	0.52
Granted		--		--
Exercised		--		--
Expired		--		--
June 30, 2009		10,297,671	$	0.38

Exercisable at June 30, 2009		10,297,671

On December 30, 2008, we entered into an Agreement with Vision Opportunity Master Fund, Ltd. (“Vision”) pursuant to which Vision agreed to return for cancellation 2,467,348 shares of common stock and 1,000,000 shares of preferred stock, waive all rights and penalties under that certain Registration Rights Agreement entered by and between the Company and Vision in May 2007 (the “Vision Registration Agreement”), terminate the Vision Registration Agreement and amend its right to participate in future financings providing that such right shall terminate in December 2010 in consideration of the payment of $100. In addition, we agreed to amend the Class A Common Stock Purchase Warrant to purchase 3,091,959 shares of common stock to reduce the exercise price to $.01 per share and the Class J Common Stock Purchase Warrant to purchase 3,091,959 shares of common stock to provide a termination date of December 31, 2012.

KESSELRING HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We accounted for the redemption as an equity transaction pursuant to the guidance of EITF D-42 The Effect on the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock (as interpreted by EITF 00-27 Application of EITF 98-5 to Certain Convertible Instruments), which generally provides that when an entity redeems convertible preferred securities “with a beneficial conversion feature,” the excess of (a) the fair value of the consideration for the redemption, over (b) the carrying value of the convertible preferred security, plus (c) the amount previously recognized for the beneficial conversion feature, should be subtracted or added to net earnings to arrive at net earnings (loss) available to common stock holders. For purposes of these calculations, the cash paid ($100), plus the fair value of the modified warrants ($53,491) was subtracted from the carrying value of the preferred stock ($1,500,000), plus the originally recorded beneficial conversion feature ($513,374), resulting in a transference of enterprise value in the amount of $1,959,783 to the benefit of the common shareholders. This amount is reflected in the accompanying statement of operations as a deemed dividend arising from the redemption transaction.

7.	Commitments and contingencies:

Warranties:

We provide a basic limited one-year warranty on workmanship and materials for all products manufactured. We estimate the costs that may be incurred under its basic limited warranty and record a liability in the amount of such costs at the time the associated revenue is recognized. Factors that affect our warranty liability include the number of products manufactured, historical and anticipated rates of warranty claims and average cost per claim. Estimated warranty costs are 0.25% of the total sales price of products manufactured. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

Lease arrangements:

On August 15, 2007, we entered into a three-year operating lease for 2,030 square feet of office space on Main Street in Sarasota, Florida. Non-cancelable annual lease payments for each year ending September 30 are as follows: 2008--$28,816; 2009--$29,825; and, 2010--$25,575.

8.	Impairments and Disposals:

On March 31, 2009, our management and Board of Directors approved the assignment of all assets and liabilities of our Kesselring Restoration division to a Trustee who is responsible for liquidating the assets and distributing the proceeds to creditors. Kesselring Restoration comprised our Construction Services segment, as defined in SFAS 144, and have presented that unit in the accompanying financial statements on the basis that (a) the operations and cash flows of the component have been eliminated from our ongoing operations a result of the disposal transaction and (b) we have no significant continuing involvement in the operations of the component after the disposal transaction. This transaction resulted in a gain on disposal of $349,146.

There are no assets or liabilities remaining at March 31, 2009. The caption discontinued operations on our statements of operations reflects the following for the nine months ended June 30, 2009 and 2008, respectively:

		2009			2008
Loss from operations of discontinued business	$	(161,554)	)	$	(711,588)
Gain on disposal of discontinued business		349,146			0
Net Gain/(loss) from discontinued business		187,592		$	(711,588)

KESSELRING HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9.	Subsequent events:

Default under Bank Lending Facility

The Company maintains a Line of Credit financing arrangement with a financial institution whereby the Company can receive advances against certain eligible Accounts Receivable up to an aggregate amount of $750,000. Pursuant to this arrangement, the division to which the Line of Credit was issued to, King Brothers Woodworking, must achieve certain covenants, including, but not limited to, a profitability covenant requiring that the division achieve at least $10,000 per month in Net Income for that division. In the month of June 2009, the division failed to meet the profitability covenant. As a result of this default, the division is prohibited from making any advances to the Company while in default. Additionally, while in default, the interest rate charged by the financial institution increases by 5.0% above the interest rate immediately in effect prior to the event of default.

Default under Operating Lease for Company Headquarters

The Company is in arrears for the sum of $4,619 ($2,309 each for July and August 2009) on the rent payments owed to the landlord for its corporate headquarters. Under the terms of the lease, the lessor can demand payment or possession of the premises if not paid. The Company is working with the landlord on a satisfactory resolution of the matter.

Resignation of Interim Chief Financial Officer

On July 20, 2009, Gary King, a Director, resigned as Interim Chief Financial Officer. The Company has not yet named a replacement.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

This Management's Discussion and Analysis of Financial Condition and Plan of Operations includes a number of forward-looking statements that reflect Management's current views with respect to future events and financial performance. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. Those statements include statements regarding the intent, belief or current expectations of us and members of its management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements.

Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission. Important factors currently known to Management could cause actual results to differ materially from those in forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time. We believe that its assumptions are based upon reasonable data derived from and known about our business and operations and the business and operations of the Company. No assurances are made that actual results of operations or the results of our future activities will not differ materially from its assumptions. Factors that could cause differences include, but are not limited to, expected market demand for the Company’s services, fluctuations in pricing for materials, and competition.

The Company was organized as a Delaware corporation on April 11, 2006. Following our acquisition of Kesselring Corporation on May 18, 2007, we were engaged in the manufacturer of products (cabinetry and remodeling products) and construction services (building, remodeling and restoration services).

On December 12, 2008, in response to the dramatically deteriorating business environment in the West Central Florida area for the services offered by Kesselring Restoration Corporation (“KRC”), a wholly owned subsidiary of the Company, which was focused on construction and restoration services, the Company decided to terminate those employees and focus its efforts on subcontracting-out certain projects.

On March 31, 2009, KRC executed and delivered an Assignment for Benefit of Creditors, under Florida Statutes Section 727.101 et seq. (“Assignment”), assigning all of its assets to an assignee, who is responsible for taking possession of, protecting, preserving, and liquidating such assets and ultimately distributing the proceeds to creditors of KRC according to their priorities as established by Florida law. A designated assignee has been assigned to serve in a fiduciary capacity in connection with the foregoing Assignment and will assume his duties effective immediately. The Assignee filed a petition commencing the assignment proceedings in the Circuit Court of the Twelfth Judicial Circuit in and for Manatee County, Florida, Civil Division on March 31, 2009.

Under the terms of the Assignment, KRC transferred to the Assignee, in trust for the benefit of each of KRC’s creditors, all property, including (but not limited to) the assets, accounts receivable, inventory, lists of creditors, books and records, etc. Under Florida State law, the Assignee has the full power and authority to dispose of the property, sue for and recover in his own name everything belonging to KRC, compromise and settle all claims, disputes and litigations of, and review any transfers of KRC’s property. Neither the Company nor its other wholly-owned subsidiaries are included in the above referenced proceedings.

On April 3, 2009, Kenneth Craig resigned as an executive officer and director of the Company. Charles B. Rockwood, the Company’s Chief Operating and Financial Officer, was appointed as a director to fill the vacancy resulting from Mr. Craig’s resignation and was also appointed as the Chief Executive Officer. Further, Mr. Rockwood also resigned as Chief Operating and Financial Officer. Mr. Gary King, a director of the Company, was appointed as Interim Chief Financial Officer. On July 20, 2009, Gary King, a Director, resigned as Interim Chief Financial Officer. The Company has not yet named a replacement.

Sensitive Accounting Estimates

The financial information contained in our comparative results of operations and liquidity disclosures has been derived from our unaudited consolidated financial statements included herein. The preparation of those unaudited consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and notes. The following significant estimates have made in the preparation of our unaudited consolidated financial statements and should be considered when reading our Management’s Discussion and Analysis:

Contract revenue: Our revenue recognition policies require us to estimate our total contract costs and revise those estimates for changes in the facts and circumstances. These estimates consider all available information including pricing quotes provided by our vendors for materials, projections of our direct labor costs and our past experience in providing contract services. Estimates, by their nature are subjective. Actual results could differ.

Intangible assets: Our intangible assets require us to make subjective estimates about our future operations and cash flows so that we can evaluate the recoverability of such assets. These estimates consider available information and market indicators including our operational history, our expected contract performance, and changes in the industries that we serve.

Share-based payment arrangements: The Black-Scholes-Merton and Trinomial Lattice valuation models that we use to value share-indexed contracts, such as warrants and options, requires that certain assumptions be made when calculating the compensation expense related to stock options. Of these assumptions, a volatility factor is required as part of the calculation. Due to the lack of significant stock history, the volatility of comparable companies (“peers”) was analyzed to determine the appropriate rate to be used in the calculation.

Common stock valuation: Estimating the fair value of our common stock is necessary in the preparation of computations related to share-based payments and financing transactions. We believe that the most appropriate and reliable basis for common stock value is trading market prices in an active market. Prior to May 31, 2007, we utilized the income approach to enterprise valuation coupled with our common shares outstanding to estimate the fair value of our common stock per share. The income approach requires us to develop subjective estimates about our future operating performance and cash flows. It also requires us to develop estimates related to the discount rate necessary to discount future cash flows. As with any estimates, actual results could be different. On May 31, 2007, some of our common stock became publicly traded under our newly acquired trading symbol. We continue to review and evaluate trading activity to determine whether such activity provides a reliable basis upon which to value our common stock. Commencing with our quarterly financial statements after May 31, 2007, we began using trading market information in the fair value of our per share common stock price.

We account for exit and termination activities arising from our restructuring program in accordance with Statement of Financial Accounting Standards No. 146 Accounting for Costs Associated with Exit of Disposal Activities. Statement No. 146 represents a significant change from the prior practice by requiring that a liability for costs associated with an exit or disposal activity be recognized generally as they are incurred and initially measured at fair value only when the liability is incurred. Fair value measurements of these liabilities are particularly sensitive because they require us to make reasonable business projections of future outcomes. In making these estimations, we have considered multiple, probability-weighted outcomes. Since current accounting standards provide for the recognition of restructuring and exit activities when the related costs have been incurred, we may have additional charges in future periods as we continue our restructuring activities.

Effect of Recently Issued Accounting Pronouncements:

Results of Operations for the Three Months ended June 30, 2009 and 2008:

Revenues: Our revenues increased $480,978, or 30.5%, to $2,059,273 in 2009 compared to $1,578,295 for the prior year. This increase between periods is the result of new business development activities to secure new projects.

Cost of Revenues and Gross Profit: Our cost of revenues increased $456,292, or 40.8%, to $1,574,777 in 2009 compared to $1,118,485 for the prior year. This increase is primarily due to the completion of several larger, higher cost projects completed during the period. Gross profit increased $24,686, or 5.4%, to $484,496 in 2009 compared to $459,810, for the prior year.

Salaries and Benefits Expenses: Our salaries and benefits expense decreased $226,617, or 41.0%, to $320,414 in 2009 compared to $543,031 for the prior year. This decrease between periods is primarily the result of the personnel reductions implemented subsequent to the first quarter of the prior period. Our salaries and benefits expense in 2009 includes $0 of compensation expense arising from share-based payment arrangements, compared to $24,208 in 2008. We have entered into employment contracts that include share-based awards. As we grow our business, we may use share-based payment arrangements to compensate and motivate our employees. Accordingly, share-based payments and the associated expense may increase in future periods.

Professional Fees: Our professional fees increased $24,554, or 70.3%, to $59,497 in 2009 compared to $34,943 for the prior year. This is a temporary increase due to timing.

Rent and Occupancy: We rent the facilities used for our corporate headquarters. We own the facilities used for our operating businesses. Our rent and occupancy expense increased $3,261, or 60.2%, to $8,680 in 2009 compared to $5,419 for the prior year.

This increase is primarily due to the absence of sub-lease income in the current period.

Depreciation and Amortization: Depreciation and amortization, net of amounts included in cost of revenues, decreased $4,475, or 11.8%, to $33,404 in 2009 compared to $37,879 for the prior year. This decrease is due to the retirement of certain office and production equipment subsequent to the prior period.

Repairs and Maintenance: Repairs and Maintenance expense decreased $3,262, or 16.0%, to $13,369 in 2009 compared to $16,631 for the prior year. This is a temporary decrease due to timing.

Transportation: Transportation expense decreased $4,360, or 23.8%, to $13,973 in 2009 compared to $18,333 for the prior year.

Insurance: Insurance expense decreased $4,375, or 16.8%, to $21,683 in 2009 compared to $26,058 for the prior year. This is a temporary increase due to timing.

Advertising: Advertising expense decreased $1,250, or 41.5%, to $1,765 in 2009 compared to $3,015 for the prior year. This decrease is the result of a change in business development strategy which reduced advertising expenses in the current period.

Restructuring and Exit Activities: As discussed in note 3, we commenced a restructuring program during the prior period that included termination of employees, exiting contracts and certain other exit costs. We did not incur any such expense during the current period. We account for our restructuring and exit activities under the guidelines of Statement 146 Accounting for Costs Associated with Exit or Disposal Activities. Generally, costs arising from exit and restructuring activities are recorded when they are incurred. In the case of contract terminations, costs are incurred upon contract termination or exit. In the case of termination benefits, costs are incurred when the benefit has been fixed and disclosed to the employee.

We incurred restructuring expenses of $776,600 during the nine months ended June 30, 2008. Of this amount, $452,040 represents the termination and exit of a material lease, $299,560 represents termination benefits disclosed to former employees, and $25,000 was for legal fees that we have incurred. We recorded the contract termination at its fair value, using estimated future cash flows. Actual cash flows from this activity could be different. In addition, because restructuring and exit activities are recorded as they are incurred, we may record additional charges in future periods as the expense associated with the activity are incurred. The following table illustrates our charges and reserves during the nine months ended June 30, 2008:

Activity	Balance at October 1, 2007		Restructuring Charges		Restructuring Payments		Balance at June 30, 2008
Contract termination costs	$	--	$	452,040	$	--	$	452,040
Termination benefits		--		299,560		195,188		104,372
Other associated costs		--		25,000		4,386		20,614
	$	--	$	776,600	$	199,574	$	577,026

Other Operating Expenses: Other operating expenses decreased $44,518, or 39.5%, to $68,269 in 2009 compared to $112,787 for the prior year. This decrease between periods is primarily the result of a reduction in the corporate infrastructure.

Interest Income: Interest income was immaterial in both periods.

Interest Expense: Interest expense increased $9,879, or 15.6%, to $73,167 in 2009 compared to $63,288 for the prior year due to increased average borrowings.

Other Income(Expense) net: Other Income/(expense) was immaterial in both periods.

Discontinued operations: As more fully discussed in note 8, we disposed of a business during the quarterly period ended March 31, 2009 that constituted an identifiable component and the arrangement provided for no material ongoing involvement. Accordingly, the component is accounted for as a discontinued operation. We had no operations of that business during the quarterly period ended June 30, 2009. We incurred a net loss of ($79,747) during the quarterly period ended June 30, 2008.

Income/(loss) Applicable to Common Stockholders: Our loss applicable to common stockholders amounts to ($127,334). During the prior year, our loss applicable to common stockholders amounted to ($503,815) and represented our net loss of ($466,315) plus preferred stock dividends and accretions of ($37,500).

Income/(loss) Per Common Share: Our loss per common share decreased from ($0.01) in 2008 to ($0.00) in 2009.

Results of Operations for the Nine Months ended June 30, 2009 and 2008:

Revenues: Our revenues increased $820,591, or 15.5%, to $6,116,155 in 2009 compared to $5,295,564 for the prior year. This increase between periods is the result of new business development activities to secure new projects.

Cost of Revenues and Gross Profit: Our cost of revenues increased $657,628, or 17.5%, to $4,407,162 in 2009 compared to $3,749,534 for the prior year. This is due to the increase in revenues. Gross profit increased $162,963, or 10.5%, to $1,708,993 in 2009 compared to $1,546,030 for the prior year.

Salaries and Benefits Expenses: Our salaries and benefits expense decreased $619,734, or 34.7%, to $1,166,245 in 2009 compared to $1,785,979 for the prior year. This decrease between periods is primarily the result of the personnel reductions implemented subsequent to the first quarter of 2008. Our salaries and benefits expense in 2009 includes $31,328 of compensation expense arising from share-based payment arrangements, compared to $395,499 in 2008. We have entered into employment contracts that include share-based awards. As we grow our business, we may use share-based payment arrangements to compensate and motivate our employees. Accordingly, share-based payments and the associated expense may increase in future periods.

Professional Fees: Professional fees decreased $404,761, or 68.1%, to $189,748 in 2009 compared to $594,509 for the prior year. This decrease reflects the reduction in the use of outside professionals.

Rent and Occupancy: We rent the facilities used for our corporate headquarters. We own the facilities used for our operating businesses. Our rent and occupancy expense decreased $75,273, or 74.4%, to $25,839 in 2009 compared to $101,112 for the prior year. As more fully discussed in note 3, in the prior year period, we exited our former corporate headquarters space and moved into a smaller space that better meets our current needs.

Depreciation and Amortization: Depreciation and amortization, net of amounts included in cost of revenues, increased $7,160, or 7.8%, to $98,925 in 2009 compared to $91,765 for the prior year. This increase is due to the addition of equipment used in our manufacturing operations.

Repairs and Maintenance: Repairs and Maintenance expense increased $3,916, or 8.7%, to $48,912 in 2009 compared to $44,996 for the prior year. The increase is due to work performed on the machinery used in our manufacturing operations.

Transportation: Transportation expense decreased $32,621, or 43.1%, to $43,084 in 2009 compared to $75,705 for the prior year. This decrease between periods is primarily the result of having fewer out of town projects in the current prior period.

Insurance: Insurance expense decreased $1,962, or 2.8%, to $68,739 in 2009 compared to $70,701 for the prior year.

Advertising: Advertising expense decreased $40,624, or 90.8%, to $4,110 in 2009 compared to $44,734 for the prior year. This decrease between periods is primarily the result of a change in business development strategy which eliminated advertising initiatives conducted at the corporate level in the current period.

Restructuring and Exit Activities: Our restructuring and exit activities arose during the second quarter of 2008 and are discussed in the analysis of quarterly results, above.

Other Operating Expenses: Other operating expenses decreased $221,304, or 50.0%, to $220,320 in 2009 compared to $441,624 for the prior year. This decrease between periods is primarily the result of a reduction in the corporate infrastructure.

Interest Income: Interest income was immaterial in both periods.

Interest Expense: Interest expense increased $78,256, or 53.5%, to $224,639 in 2009 compared to $146,383 for the prior year due to increased average borrowings.

Other Income/(Expense), net: Other Income/(expense), net increased $1,027, or 7.6%, to $14,604 in 2009 compared to $13,577 for the prior year.

Discontinued operations: As more fully discussed in note 8, we disposed of a business during the quarterly period ended March 31, 2009 that constituted an identifiable component and the arrangement provided for no material ongoing involvement. Accordingly, the component is accounted for as a discontinued operation. The net income from our discontinued business segment improved $899,180, from a net loss of ($711,588) during the nine months ended June 30, 2008 to a net gain of $187,592 during the nine months ended June 30, 2009. This net income from discontinued operations includes a gain of $349,146 from the disposal of the business. Ongoing costs are expected to be nominal, if any.

Income/(loss) Applicable to Common Stockholders: Our loss applicable to common stockholders amounts to ($169,660). During the prior year, our loss applicable to common stockholders amounted to ($3,400,027) and represented our net loss of ($3,325,027) plus preferred stock dividends and accretions of ($75,000).

Income/(Loss) Per Common Share: Our loss per common share decreased from ($0.09) in 2008 to ($0.00) in 2009.

Liquidity and Capital Resources:

Working Capital: Our negative liquidity conditions have worsened ($96,740) to a working capital deficiency of ($1,828,940) as of June 30, 2009 from a working capital deficiency of ($1,732,200) as of September 30, 2008. We are taking actions to preserve our cash reserves in order to sustain our operations while working closely with our creditors and vendors to extend terms of payment, the latter having the effect of increasing our liabilities. We will still need additional capital in order to continue operations until we are able to achieve positive operating cash flow. Additional capital is being sought, but we cannot guarantee that we will be able to obtain such investments. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and a downturn in the North American stock and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. There can be no assurance that we will be successful in obtaining additional funding. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations. In addition, we are also evaluating other strategic alternatives including potentially disposing of assets as well as potentially acquiring other assets or companies although we have not entered a definitive agreement with respect to any potential strategic alternative at this time. These trends & conditions continue to raise substantial doubt surrounding our ability to continue as a going concern for a reasonable period.

Cash flows from Operating Activities: Net cash used in operating activities was ($305,038) for the nine months ended June 30, 2009 as compared to net cash used in operating activities of ($975,585) for the nine months ended June 30, 2008. The principle reason for this decrease was our net loss decreased $3,155,367 to ($169,660) for the nine months ended June 30, 2009 as compared to ($3,325,027) for the nine months ended June 30, 2008 offset largely by decreases in accounts payable and accrued expenses of $1,083,486 and discontinued operations of $541,176.

Cash flows from Investing Activities: Capital expenditures were $0 and $174,857 during the nine months ended June 30, 2009 and 2008, respectively. We currently have no material commitments for equipment or other capital expenditures.

Cash flows from Financing Activities: During the nine months ended June 30, 2009, we generated cash from drawings on a Line of Credit for $233,672 (net of repayments).

Commitments, Guarantees and Off Balance Sheet Items:

We operate our corporate headquarters under the following operating lease:

We entered into a three-year operating lease for 2,030 square feet of office space in Sarasota, Florida. Non-cancelable annual lease payments for each year ending September 30 are as follows: 2008--$28,816; 2009--$29,825; and, 2010--$25,575

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

ITEM 4. CONTROLS AND PROCEDURES

As of June 30, 2009, we carried out an evaluation, under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in our periodic reports is recorded, processed, summarized and reported, within the time periods specified for each report and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

There was no change in our internal controls over financial reporting that has materially affected, or is reasonable likely to materially affect, our internal control over financial reporting during the quarter covered by this Report.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm its business. Except as disclosed below:

Except as set forth above, we are currently not aware of any legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse affect on our business, financial condition or operating results.

ITEM 1(A), RISK FACTORS

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

The Company maintains a Line of Credit financing arrangement with a financial institution whereby the Company can receive advances against certain eligible Accounts Receivable up to an aggregate amount of $750,000. Pursuant to this arrangement, the division to which the Line of Credit was issued to, King Brothers Woodworking, must achieve certain covenants, including, but not limited to, a profitability convenant requiring that the division achieve at least $10,000 per month in Net Income for that division. In the month of June 2009, the division failed to meet the profitability covenant. As a result of this default, the division is prohibited from making any advances to the Company while in default. Additionally, while in default, the interest rate charged by the financial institution increases by 5.0% above the interest rate immediately in effect prior to the event of default.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

The Company is in arrears for the sum of $4,619. ($2,309. each for July and August 2009) on the rent payments owed to the landlord for its corporate headquarters. Under the terms of the lease, the lessor can demand payment or possession of the premises if not paid. The Company is working with the landlord on a satisfactory resolution of the matter.

On July 20, 2009, Gary King, a Director, resigned as Interim Chief Financial Officer. The Company has not yet named a replacement.

Item 6.

Exhibits

Number		Description

31.1		Certification by Chief Executive Officer and Principal Financial and Accounting Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002

32.1		Certification by Chief Executive Officer and Principal Financial and Accounting Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements 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.

	Kesselring Holding Corporation
	(Registrant)

Date: August 19, 2009	By:	/s/ Charles B. Rockwood
		Charles B. Rockwood
		Chief Executive Officer
		(Principal Executive, Financial and Accounting Officer)