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

PART I.	Financial Information	Page No.

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets at March 31, 2009 (Unaudited) and September 30, 2008	5

	Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2009 and 2008	6

	Condensed Consolidated Statements of Operations (Unaudited) for the Six Months Ended March 31, 2009 and 2008	7

	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended March 31, 2009 and 2008	8

	Notes to Condensed Consolidated Financial Statements	9

	Item 2. Management’s Discussion and Analysis or Plan of Operation	22

	Item 3. Quantitative and Qualitative Disclosures About Market Risks	30

	Item 4T. Controls and Procedures	30

PART II.	Other Information

	Item 1. Legal Proceedings	31

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	31

	Item 3. Defaults Upon Senior Securities	31

	Item 4. Submission of Matters to a Vote of Security Holders	31

	Item 5. Other Information	31

	Item 6. Exhibits	32

SIGNATURES		33

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



	March 31,			September 30,
	2009			2008
Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$	66,041		$	92,211
Accounts receivable, net allowances		1,030,967			850,055
Inventories		538,644			575,781
Other current assets		76,129			75,916
Assets of discontinued business		-			389,270
Total current assets		1,711,781			1,983,233

Property and equipment, net		2,307,568			2,377,976
Intangible assets, net		3,499			10,499
Other assets		46,319			56,273
Total assets	$	4,069,166		$	4,427,981

Liabilities and stockholders' deficit
Current liabilities:
Accounts payable and accrued expenses	$	2,073,603		$	1,996,571
Current maturities of notes payable		393,337			205,236
Current maturities of notes payable-related parties		945,000			945,000
Liabilities of discontinued business		-			568,626
Total current liabilities		3,411,940			3,715,433
Notes payable		1,543,391			1,572,075
Total liabilities		4,955,331			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 March 31, 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		(4,922,783	)		(6,843,343	)
Total stockholders' deficit		(886,166	)		(859,527	)
Total liabilities and stockholders' deficit	$	4,069,166		$	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
	March 31,			March 31,
	2009			2008
	(Unaudited)			(Unaudited)
Revenues	$	1,993,092		$	1,928,113

Cost of revenues		1,506,194			1,297,330
Gross profit		486,898			630,783
Operating expenses:
Salaries and benefits		392,908			410,283
Professional fees		60,067			207,498
Insurance		36,685			23,338
Rent and occupancy costs		9,743			48,651
Depreciation and amortization		32,761			39,301
Transportation		11,587			11,981
Repairs and maintenance		(95)			16,083
Advertising		1,254			9,508
Restructuring and exit costs		-			789,100
Other operating expenses		79,335			151,396
		624,245			1,707,139
Loss from operations		(137,347	)		(1,076,356	)
Other income (expense):
Interest expense		(75,042	)		(49,089	)
Interest income		(212)			-
Other income (expense) net		12,040			8,277
Gain on retirement of fixed assets		9,980			-
		(53,234	)		(40,812	)
Loss from continuing operations		(190,581	)		(1,117,168	)
Discontinued operations (note 8):
Loss from discontinued operations		-			(433,917)
Gain on disposal of discontinued operations		349,146			-
Net gain/(loss) from discontinued operations		349,146			(433,917	)
Income/(loss) before income taxes		158,565			(1,551,085	)
Income tax benefit		-			-
Net Income/(loss)	$	158,565		$	(1,551,085	)

Income (loss) applicable to common stockholders:
Net Income/( loss)	$	158,565		$	(1,551,085	)
Undeclared preferred stock dividends		-			(37,500	)
Income (loss) applicable to common stockholders	$	158,565		$	(1,588,585	)

Income (loss) per common share:
Continuing operations:
Basic	$	0.00		$	(0.04	)
Diluted	$	0.00		$	(0.04	)

Weighted average common shares, basic		36,046,321			35,537,995
Weighted average common shares, diluted		36,046,321			35,537,995
Discontinued operations:
Basic	$	0.01		$	(0.01	)
Diluted	$	0.01		$	(0.01	)

Weighted average common shares, basic		36,046,321			35,537,995
Weighted average common shares, diluted		36,046,321			35,537,995

See notes to condensed consolidated financial statements.

KESSELRING HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	For the Six Months Ended
	March 31,			March 31,
	2009			2008
	(Unaudited)			(Unaudited)
Revenues	$	4,056,882		$	3,717,269

Cost of revenues		2,832,385			2,620,316
Gross profit		1,224,497			1,096,953
Operating expenses:
Salaries and benefits		845,831			1,252,430
Professional fees		130,251			559,260
Insurance		47,055			45,957
Rent and occupancy costs		17,159			94,199
Depreciation and amortization		65,521			62,663
Transportation		29,111			47,365
Repairs and maintenance		35,542			34,655
Advertising		2,345			34,762
Restructuring and exit costs		-			789,100
Other operating expenses		152,050			311,187
		1,324,866			3,231,578
Loss from operations		(100,369	)		(2,134,625	)
Other income (expense):
Interest expense		(151,473	)		(83,095	)
Interest income		(212)			-
Other income (expense), net		12,157			(9,150)
Gain on retirement of fixed assets		9,980			-
		(129,548	)		(92,245	)
Loss from continuing operations		(229,917	)		(2,226,870	)
Discontinued operations (note 8):
Loss from discontinued operations		(161,554)			(631,841)
Gain from disposal of discontinued operations		349,146			-
Net gain/(loss) from discontinued operations		187,592			(631,841	)
Loss before income taxes		(42,325	)		(2,858,711	)
Income tax benefit		-			-
Net loss	$	(42,325	)	$	(2,858,711	)

Income (loss) applicable to common stockholders:
Net loss	$	(42,325	)	$	(2,858,711	)
Undeclared preferred stock dividends		-			(75,000	)
Income (loss) applicable to common stockholders	$	(42,325)		$	(2,933,711	)

Income (loss) per common share:
Continuing operations:
Basic	$	(0.00)		$	(0.08	)
Diluted	$	(0.00)		$	(0.08	)

Weighted average common shares, basic		37,147,001			34,683,451
Weighted average common shares, diluted		37,147,001			34,683,451

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

Weighted average common shares, basic		37,147,001			34,683,451
Weighted average common shares, diluted		37,147,001			34,683,451

See notes to condensed consolidated financial statements.

KESSELRING HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Six Months Ended
	March 31,			March 31,
	2009			2008
Cash flows from operating activities:	(Unaudited)			(Unaudited)
Net loss	$	(42,325	)	$	(2,858,711	)
Adjustments to reconcile net loss to net cash from
operating activities:
Depreciation and amortization of long-lived assets		95,625			93,440
Share-based payments, employees		6,469			187,973
Amortization of deferred financing costs		9,954			2,925
Gain on disposal of assets		(187,592	)		-
Loss (gain) on retirement of fixed assets		(9,980)			-
Changes in operating assets and liabilities:
Accounts receivable		(180,912	)		(101,578	)
Inventories		37,137			123,828
Other current assets		(213)			24,321
Accounts payable and accrued expenses		77,031			1,231,675
Discontinued operations, net		-			402,391
Net cash flows from operating activities		(194,806	)		(894,084	)

Cash flows from investing activities:
Purchases of property and equipment		-			(182,105)
Net cash flows from investing activities		-			(182,105)

Cash flows from financing activities:
Proceeds from buyback of stock warrants		9,219			-
Proceeds from notes payable		159,417			313,512
Proceeds from notes payable related parties		-			695,000
Net cash flows from financing activities		168,636			1,008,512

Net change in cash		(26,170	)		(67,677	)
Cash at beginning of period		92,211			95,511
Cash at end of period	$	66,041		$	27,834

Supplemental Cash Flow Information:

Cash paid for:
Interest	$	151,473		$	83,707
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 March 31, 2009 and for the three and six months ended March 31, 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 March 31, 2009, our results of operations for the three and six months ended March 31, 2009 and 2008 and cash flows for the six months ended March 31, 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 six months ended March 31, 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, 2008 through March 31, 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 ($42,325) and ($2,858,711) during the six months ended March 31, 2009 and 2008, respectively. We have used cash of ($194,805) and ($894,084) in our operating activities during the six months ended March 31, 2009 and 2008, respectively. We also have a current working capital deficiency of ($1,700,159) 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 $339,613, or 9.1%, from $3,717,269 during the six months of the year ended September 30, 2008 to $4,056,882 during the six months of our year ending September 30, 2009.

As a result of the above, our negative liquidity conditions have improved $32,040 from a working capital deficiency of ($1,732,200) at March 31, 2008 to ($1,700,159) at March 31, 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. Also see Fair Value Measurements, above. 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. Earlier adoption is prohibited. The Company is currently seeking to complete a purchase business combination. If the purchase is completed before July 1, 2009, the Company will be required to apply SFAS 141. However, if the transaction is completed on or after July 1, 2009, the Company will be required to apply SFAS 141(R).

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. Accordingly, upon the effectiveness of this statement, we will begin to reflect non-controlling interest in our consolidated variable interest entities 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

KESSELRING HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED 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. This standard will affect the disclosures in our financial statements to provide the required information.

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 July 2006, the FASB issued Interpretation No. 48, Accounting for uncertainty in Income Taxes (“FIN 48”). FIN No. 48 clarifies the accounting for Income Taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. It also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition and clearly scopes income taxes out of SFAS No. 5, Accounting for Contingencies . FIN 48 was effective for fiscal years beginning after December 15, 2006. Accordingly, we have implemented FIN 48 by summarizing and evaluating all potential uncertain tax positions. As a result of our implementation, FIN No. 48 did not have a material impact on our financial position, results of operations or cash flows, although, as discussed in our income tax disclosures, certain positions are present that require our periodic review in maintaining compliance with this standard.

In December 2006, the FASB issued FSP EITF 00-19-2, Accounting for Registration Payment Arrangements (FSP 00-19-2) which addresses accounting for registration payment arrangements. FSP 00-19-2 specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with SFAS No. 5, Accounting for Contingencies . FSP 00-19-2 further clarifies that a financial instrument subject to a registration payment arrangement should be accounted for in accordance with other applicable generally accepted accounting principles without regard to the contingent obligation to transfer consideration pursuant to the registration payment arrangement. For registration payment arrangements and financial instruments subject to those arrangements that were entered into prior to the issuance of EITF 00-19-2, this guidance shall be effective for financial statements issued for fiscal years beginning after December 15, 2006 and interim periods within those fiscal years. The adoption of EITF 00-19-02 did not have a material impact on our financial position, results of operations or cash flows, because we have no current transactions that embody Registration Payment Arrangements, as defined in the standard.

KESSELRING HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 Company is required to adopt FSP 142-3 on October 1, 2008. 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 (our fiscal year ending September 30, 2010). 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 or equity-indexed financial instruments and amounts less than the conversion prices. These features will no longer be treated as “equity” under the EITF once it becomes effective. Rather, such instruments will require classification as liabilities and measurement at fair value. Early adoption is precluded. Accordingly, this standard will be adopted in our quarterly period ended September 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 (our fiscal year ending September 30, 2009). 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.

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 March 31, 2009 and September 30, 2008:

	March 31		September 30
Raw materials	$	303,220	$	266,449
Work-in-process		235,424		238,986
Finished goods		--		70,346
	$	538,644	$	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 March 31, 2009 and September 30, 2008:

	March 31		September 30
Accounts payable	$	1,224,634	$	1,078,863
Accrued expenses		467,079		535,818
Accounts payable and accrued expenses		1,691,713		1,614,681
Restructuring reserve		381,890		381,890
	$	2,073,603	$	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 March 31, 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 March 31, 2008 and September 30, 2008:

	March 31			September 30
Variable rate mortgage note payable, due January 2017 (a)	$	1,218,472		$	1,229,763
8.0% Note payable, due July 2017 (b)		293,980			300,089
4.9% Note payable, due August 2010		10,066			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%, $1,000,000 bank credit facility (d)		367,968			180,141
Loans on equipment		46,242			54,072
		2,881,728			2,722,311
Current maturities of notes payable		(393,337	)		(205,236	)
Current maturities of notes payable-related parties		(945,000	)		(945,000	)
Long-term debt	$	1,543,391		$	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 (4.47% and 5.78% at March 31, 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 (4.77% and 6.08% at March 31, 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. This facility replaced a previous facility with another bank that had a limit of $300,000. Under this new 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, 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		1,287,968
2010		54,912
2011		31,515
2012		33,781
2013		36,317
2014		38,984
Thereafter		1,398,251
	$	2,881,728

5.	Related party transactions:

Consulting fees, related parties:

Our consulting fees, related parties, for the six months ended March 31, 2009 and 2008 amounted to $0 and $35,325, respectively, and are comprised of the following:

·	We paid $3,000 and $12,111, respectively, in professional fees to an accounting firm partially owned by our former Interim Chief Financial Officer and Director.

We paid $3,000 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, 2009 - $250,000; April 23, 2009 - $50,000; May 8, 2009 - $25,000; November 6, 2009 - $25,000 and June 18, 2009 – $250,000; June 27, 2009 - $30,000; June 30, 2009 - $45,000; and, July 3, 2009 - $20,000. In addition an additional $250,000 was added in three tranches bearing interest of 12% and mature as follows: June 26, 2009 - $40,000; July 3, 2009 - $21,000; July 8, 2009 - $189,000.

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:

We did not issue any common stock during the six month period ended March 31, 2009.

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 six months ended March 31, 2009.

KESSELRING HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table illustrates the status of our stock option awards as of March 31, 2009:

	Options Outstanding		Weighted Average Prices
October 1, 2008		2,790,200	$	0.13
Granted		--		--
Exercised		--		--
Expired or forfeited		--		--
March 31, 2009		2,790,200	$	0.13

Exercisable at March 31, 2009		2,790,200

The above options have an aggregate weighted average remaining term of 4.07 years.

Amortization of our stock-option based compensation arrangements during the six months ended March 31, 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 3.32 years on March 31, 2009.

The following table illustrates the status of our stock warrants as of March 31, 2009:

	Warrants Outstanding		Weighted Average Prices
September 30, 2008		10,297,671	$	0.52
Granted		--		--
Exercised		--		--
Expired		--		--
March 31, 2009		10,297,671	$	0.38

Exercisable at March 31, 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 six months ended March 31, 2009 and 2008, respectively:

		2009			2008
Loss from operations of discontinued business	$	(161,554)	)	$	(631,841)
Gain on disposal of discontinued business		349,146			0
Net Gain/(loss) from discontinued business		187,592		$	(631,841)

KESSELRING HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9.	Subsequent events:

The following related party loans had the following maturity dates: April 18, 2009 - $250,000; April 23, 2009 - $50,000; and May 8, 2009 - $25,000. Each of these loans was extended one year to the following maturity dates: April 18, 2010 - $250,000; April 23, 2010 - $50,000; and May 8, 2010 - $25,000.

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 is 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 Registrant. Charles B. Rockwood, the Registrant’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.

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:

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. Also see Fair Value Measurements, above. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.

In December 2006, the FASB issued FSP EITF 00-19-2, Accounting for Registration Payment Arrangements (FSP 00-19-2) which addresses accounting for registration payment arrangements. FSP 00-19-2 specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with SFAS No. 5, Accounting for Contingencies. FSP 00-19-2 further clarifies that a financial instrument subject to a registration payment arrangement should be accounted for in accordance with other applicable generally accepted accounting principles without regard to the contingent obligation to transfer consideration pursuant to the registration payment arrangement. For registration payment arrangements and financial instruments subject to those arrangements that were entered into prior to the issuance of EITF 00-19-2, this guidance shall be effective for financial statements issued for fiscal years beginning after December 15, 2006 and interim periods within those fiscal years. The adoption of EITF 00-19-02 did not have a material impact on our financial position, results of operations or cash flows, because we have no current transactions that embody Registration Payment Arrangements, as defined in the standard.

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 (our fiscal year ending September 30, 2010). 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 or equity-indexed financial instruments and amounts less than the conversion prices. These features will no longer be treated as “equity” under the EITF once it becomes effective. Rather, such instruments will require classification as liabilities and measurement at fair value. Early adoption is precluded. Accordingly, this standard will be adopted in our quarterly period ended September 30, 2009.

Results of Operations for the Three months ended March 31, 2009 and 2008:

Revenues: Our revenues increased $64,979, or 3.4%, to $1,993,092 in 2009 compared to $1,928,113 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 $208,864, or 16.1%, to $1,506,194 in 2009 compared to $1,297,330 for the prior year. This increase is primarily due to the completion of several larger, higher cost projects completed during the period. Gross profit decreased $143,885, or 22.8%, to $486,898 in 2009 compared to $630,783, for the prior year.

Salaries and Benefits Expenses: Our salaries and benefits expense decreased $17,375, or 4.2%, to $392,908 in 2009 compared to $410,283 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 $2,283 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 decreased $147,431, or 71.0%, to $60,067 in 2009 compared to $207,498 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 $38,908, or 80.0%, to $9,743 in 2009 compared to $48,651 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, decreased $6,540, or 16.6%, to $32,761 in 2009 compared to $39,301 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 $16,178, or 100.6%, to ($95) in 2009 compared to $16,083 for the prior year. This is a temporary decrease due to timing.

Transportation: Transportation expense decreased $394, or 3.3%, to $11,587 in 2009 compared to $11,981 for the prior year.

Insurance: Insurance expense increased $13,347, or 57.2%, to $36,685 in 2009 compared to $23,338 for the prior year. This is a temporary increase due to timing.

Advertising: Advertising expense decreased $8,254, or 86.8%, to $1,254 in 2009 compared to $9,508 for the prior year. This decrease between periods is primarily 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 $789,100 during the six months ended March 31, 2008. Of this amount, $452,040 represents the termination and exit of a material lease, $312,060 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 six months ended March 31, 2008:

Activity	Balance at October 1, 2007		Restructuring Charges		Restructuring Payments		Balance at March 31, 2008
Contract termination costs	$	--	$	452,040	$	--	$	452,040
Termination benefits		--		312,060		95,915		216,145
Other associated costs		--		25,000		--		25,000
	$	--	$	789,100	$	95,195	$	693,185

Other Operating Expenses: Other operating expenses decreased $72,061, or 47.6%, to $79,335 in 2009 compared to $151,396 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 $25,953, or 52.9%, to $75,042 in 2009 compared to $49,089 for the prior year due to increased average borrowings.

Other Income(Expense) net: Other Income/(expense), net increased $13,745 to $22,022, or 166.0%, in 2009 compared to $8,277 for the prior year resulting from the collection of an accounts receivable account written off in a prior period.

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 three months ended March 31, 2009. We recorded a net gain of $349,146 during the three months ended March 31, 2009. This compares to a net loss of ($433,917) during the three months ended March 31, 2008. Ongoing costs are expected to be nominal, if any.

Income/(loss) Applicable to Common Stockholders: Our income applicable to common stockholders amounts to $158,565. During the prior year, our loss applicable to common stockholders amounted to ($1,588,585) and represented our net loss of ($1,551,083) plus preferred stock dividends and accretions of ($37,500).

Income/(loss) Per Common Share: Our loss per common share decreased from ($0.04) in 2008 to ($0.00) in 2009.

Results of Operations for the Six months ended March 31, 2009 and 2008:

Revenues: Our revenues increased $339,613, or 9.1%, to $4,056,882 in 2009 compared to $3,717,269 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 $212,069, or 8.1%, to $2,832,385 in 2009 compared to $2,620,316 for the prior year. This is due to the increase in revenues. Gross profit increased $127,544, or 11.6%, to $1,224,497 in 2009 compared to $1,096,953 for the prior year.

Salaries and Benefits Expenses: Our salaries and benefits expense decreased $406,599, or 32.5%, to $845,831 in 2009 compared to $1,252,430 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 $148,267 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 $429,010, or 76.7%, to $130,250 in 2009 compared to $559,260 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 $77,040, or 81.8%, to $17,159 in 2009 compared to $94,199 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 $2,858, or 4.6%, to $65,521 in 2009 compared to $62,663 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 $887, or 2.6%, to $35,542 in 2009 compared to $34,655 for the prior year.

Transportation: Transportation expense decreased $18,254, or 38.5%, to $29,111 in 2009 compared to $47,365 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 increased $1,098, or 2.4%, to $47,055 in 2009 compared to $45,957 for the prior year.

Advertising: Advertising expense decreased $32,417, or 93.3%, to $2,345 in 2009 compared to $34,762 for the prior year. This decrease between periods is primarily the result of a change in business development strategy which reduced advertising expenses 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 $159,137, or 51.1%, to $152,050 in 2009 compared to $311,187 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 $68,378, or 82.3%, to $151,473 in 2009 compared to $83,095 for the prior year due to increased average borrowings.

Other Income/(Expense), net: Other Income/(expense), net increased $31,287 to $22,137, or 341.9%, in 2009 compared to ($9,150) for the prior year primarily the result of the collection of an accounts receivable account written off in a prior period and a loss on the sale of certain fixed assets in the prior period.

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 $819,433, from a net loss of ($631,841) during the six months ended March 31, 2008 to a net gain of $187,592 during the six months ended March 31, 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 ($42,325). During the prior year, our loss applicable to common stockholders amounted to ($2,933,711) and represented our net loss of ($2,858,711) plus preferred stock dividends and accretions of ($75,000).

Income/(Loss) Per Common Share: Our loss per common share decreased from ($0.08) in 2008 to ($0.00) in 2009.

Liquidity and Capital Resources:

Working Capital: Our negative liquidity conditions have improved $32,040 to a working capital deficiency of ($1,700,159) as of March 31, 2009 from a working capital deficiency of ($1,732,200) as of September 30, 2008. The improvement is the result of actions taken to improve the company’s liquidity while at the same time increasing borrowings from our line of credit to support an increase in revenues. 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.

Cash flows from Operating Activities: Net cash used in operating activities was ($194,805) for the six months ended March 31, 2009 as compared to net cash used in operating activities of ($894,084) for the six months ended March 31, 2008. The principle reason for this decrease was our net loss decreased $2,816,386 to ($42,325) for the six months ended March 31, 2009 as compared to ($2,858,711) for the six months ended March 31, 2008 offset largely by decreases in accounts payable and accrued expenses of $1,154,296 and discontinued operations of $581,747.

Cash flows from Investing Activities: Capital expenditures were $182,105 during the six months ended March 31, 2008. We did not have any during six months ended March 31, 2009. We currently have no material commitments for equipment or other capital expenditures.

Cash flows from Financing Activities: During the six months ended March 31, 2009, we generated cash from drawings on a Line of Credit for $159,417 (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 4T. CONTROLS AND PROCEDURES

As of March 31, 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 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5. OTHER INFORMATION

None.

Item 6.

Exhibits

Number		Description

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

31.2		Certification by Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002

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

32.2		Certification by Chief Financial 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: May 15, 2009	By:	/s/ Charles B. Rockwood
		Charles B. Rockwood
		Chief Executive Officer
		(Principal Executive Officer)



Date: May 15, 2009	By:	/s/ Gary King
		Gary King
		Interim Chief Financial Officer
		(Principal Financial and Accounting Officer)