SUMMER ENERGY HOLDINGS INC - Annual Report: 2008 (Form 10-K)

                                                                                                        

(Mark One)

 

                

For the transition period from ______________________________ to ______________________________

 

Commission File Number 333-144620

 

                                                                                                        

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act:None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.       

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

 

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

 

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 Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (22.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K          

 

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.

 

 

Indicate by check mark whether the issuer is a shell company (as defined in rule 12b-2 of the Exchange Act).

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.

 

As of June 30, 2008, based on the $0.15 price at which the common equity was sold in the registrant’s registered offering, the aggregate market value of the 1,122,070 shares held by non-affiliates was approximately $168,300.

 

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.       

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

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

 

As of March 27, 2009, there were 3,808,348 shares of the issuer’s common stock outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980).     

 

None.

 

 

FORWARD-LOOKING STATEMENTS

 

This report contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements reflect the Company’s views with respect to future events based upon information available to it at this time. These forward-looking statements are subject to certain uncertainties and other factors that could cause actual results to differ materially from these statements. These uncertainties and other factors include, but are not limited to the risk factors described herein under the caption “Risk Factors.” The words “anticipates,” “believes,” “estimates,” “expects,” “plans,” “projects,” “targets” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, changes in assumptions, future events or otherwise.

 

Part I

 

Item 1. Business

 

General

 

We were incorporated under the laws of Nevada on March 25, 2005. In connection with our organization, we sold 2,000,000 shares of our common stock to two founding stockholders for $74,000, consisting of $20,000 in cash and the contribution of property and equipment with an agreed value of $54,000. Subsequently, from May through July 2005, we sold an additional 380,000 shares to three persons for $38,000 in cash and in December 2005 we issued 428,348 shares to two creditors in connection with their conversion of $42,835 of outstanding debt to equity. In November 2005, we also issued a seven-year warrant to a creditor entitling it to purchase up to 100,000 shares of our common stock at an exercise price of $0.10 per share as additional consideration for a loan. On April 4, 2008, we completed the sale of all 1,000,000 shares of common stock offered pursuant to a registration statement from which we received gross proceeds of $150,000 before deducting the costs of the Offering. We conduct our operations through our wholly owned subsidiary, Castwell Precast, Inc., a Utah corporation, that was also incorporated in March 2005. Unless otherwise indicated, Castwell Precast Corporation and Castwell Precast, Inc. are collectively referred to throughout this report as “we”, “us” or the “Company.”

 

We are engaged in the business of manufacturing and installing decorative window wells made from precast concrete. Our window wells are molded on the interior side to resemble a natural stone pattern that is more pleasing to the eye than the typical corrugated metal or fiberglass product. In addition, we believe the strength and durability of concrete make our window wells superior to those manufactured from galvanized steel, aluminum, fiberglass or similar materials which may buckle, shift or break over time and, in the case of composite and fiberglass, are subject to warping or fading as a result of prolonged exposure to sunlight. Our window wells are designed for long-term use and are bolted to the foundation of the home at the time of installation to prevent future settling or movement. Our window wells are available in natural concrete which provides a neutral background and increases the amount of light reflected into the basement as well as a variety of colors that will match the window well to a desired color scheme and provide additional contrast to accentuate the illusion of real stone. We also offer ladders and covers that have been custom made to fit our line of window wells.

 

The Industry

 

Window wells are structures that are placed around basement windows to protect them from caving earth and soil build-up. Window wells are also designed to provide light and ventilation to the basement area and, in some cases, to provide an exit from the basement in the event of an emergency. In order to be effective, we believe window wells should extend from several inches below the sill of the basement window to a height that is approximately 4 to 6 inches above grade level. Window wells range in size from small wells whose function is solely to protect a smaller size basement window to large wells designed to provide egress to the outdoors in the event of an emergency. Window wells are governed by local building codes which generally require at least one means of emergency escape from a basement location. Window wells designed to serve as escape or rescue windows must meet the minimum requirements for length, width and accessibility and must be equipped with a ladder or steps if they exceed a certain height. All of our window wells meet the minimum size required for an egress window well in accordance with Salt Lake County, Utah regulations.

 

Our Products

 

All of our window wells are made of precast concrete with the interior side molded to resemble natural stone. We manufacture window wells in the following five standard sizes: 6 feet wide, 5.5 feet tall; 5 feet wide, 5.5 feet tall; 5 feet wide, 4.5 feet tall; 4 feet wide, 5.5 feet tall; and 3 feet wide, 5 feet tall. Our window wells have built in bolts for attaching them to the foundation and built in forklift ports to facilitate moving and loading the products. Our window wells can be ordered in natural concrete tones or a variety of colors that are produced by adding stains to the concrete before it is poured. Our window wells range in price from approximately $400 to $500 each and we typically include installation if the purchaser buys three or more window wells for simultaneous delivery. We also offer custom steel ladders ranging in price from approximately $85 to $105 based on the type of paint finish, and window well covers ranging in price from approximately $230 to $270 based on paint finish. Covers are generally required by building codes for window wells located within three feet of a walking area and ladders are required for window wells with a depth greater than 3 feet.

 

Manufacturing

 

During 2007, we manufactured all of our window wells at our manufacturing and warehouse facility in Murray, Utah. On February 1, 2008, we relocated our manufacturing operations to a manufacturing and warehouse facility owned by our vice president and located at 11744 South 2700 West, Riverton, Utah. We currently use five molds to manufacture window wells in five different dimensions. Each mold is constructed of two pieces of heavy steel which are pinned together to permit pouring of the concrete and are separated when the concrete has hardened so the finished window wells can be removed. One side of the mold is lined with a sculptured rubber mat that creates the appearance of natural stone on that side of the mold. The manufacturing process is a simple one that involves assembling the molds, placing wire mesh, steel and the attaching bolts in the molds, filling the molds with concrete, and disassembling the molds after the concrete has hardened. We purchase our concrete from third party cement plants who deliver the concrete in cement trucks capable of pouring it directly into our molds. We purchase the wire mesh, steel and bolt components from local suppliers and believe all of such supplies are readily available from a variety of sources. Once the window wells have been removed from the molds, they are moved and stacked by forklift to await delivery. Since we work only one shift per day, we cannot pour cement more than once per day and our current capacity is limited to a maximum of five window wells per day or twenty-five per week.

 

Installation

 

Our window wells are loaded onto a trailer with a forklift and transported to the job site. At the job site, the window wells are off-loaded from the truck and moved into position outside each window with the use of a freestanding crane or boom truck with a crane mounted on the truck bed. Once placed in position, the window wells are bolted to the foundation and soil is backfilled around the exterior side of the window well. The interior can then be partially filled with gravel and soil or decorative rock if desired. It is the responsibility of the contractor or homeowner to prepare the site for installation of the window well. The area around the window well must be excavated to the required dimensions and must have a compacted and level base at the prescribed depth below the windowsill. In the typical case, installation takes approximately fifteen to twenty minutes per window well. We currently use our trailer to deliver a maximum of four window wells to a job site and rent a crane or boom truck to install our window wells at the site for a cost of approximately $80 per hour with a two-hour minimum charge.

 

Marketing and Sales

 

We typically sell our window wells to smaller homebuilders building specialty homes in the Salt Lake City Metropolitan Area who are willing to pay more for the decorative look and durability of our window wells as compared to the conventional corrugated steel, aluminum or fiberglass models. We don’t employ any salesman or marketing personnel and generally sell our window wells by word of mouth and by “cold calls” to residential contractors. We also pay an 8% to 15% sales commission to one independent window well salesman for selling our window wells to residential contractors. We previously attempted to develop a relationship with larger home builders and developers for the installation of all window wells in a large-scale residential development but found that most large scale developments are budgeted to use cheaper galvanized window wells and are not willing to pay more for our products. We offer price discounts on our products based on the volume purchased. The market for our products varies with the level of construction in the area and is typically slowest during periods of bad weather and below freezing temperatures.

 

Competition

 

We compete with a variety of window well manufacturers including manufacturers of the low end, traditional corrugated steel, aluminum or fiberglass models, larger manufacturers of precast concrete models and national manufacturers selling large pre-built systems designed to provide easy emergency ingress and egress to a home. We believe our primary local competitor is O Well and that our national competitors include ScapeWel, Wilbert Precast, Inc., Mar-flex Landscapes and others, although we believe shipping costs make it difficult for out-of-state manufacturers to compete on the basis of price. All of our competitors are better established and have more experience and financial and human resources than do we and there is no assurance that we will be able to compete effectively in our chosen market.

 

Regulation

 

We are regulated by local building authorities that issue building permits for the construction of new dwellings and the renovation of existing dwellings. We are also subject to federal and state laws applicable to environmental hazards and hazardous wastes in connection with our manufacturing operations. Applicable environmental laws generally require us to place liners in any dumpsters used to dispose of waste concrete and to dispose of such concrete at a concrete recycling facility. At the present time, the cost of complying with such environmental laws is not significant and environmental laws and regulations do not have a material effect on our business or financial condition.

 

Employees and Consultants

 

Our officers are our only employees and we are dependent on their continued service to operate our business. The loss of our officers, particularly our president/treasurer, would have a material adverse impact on our business and there is no assurance that we could locate qualified replacements. We have not entered into employment agreements with our officers and we do not carry “key man” life insurance on their lives.

 

Facilities

 

Our offices are located at the residence of our president and treasurer at 5641 South Magic Drive, Murray, Utah 84107, which space is provided to us without charge. During the 2007 fiscal year, we also leased an approximately 4,000 square foot manufacturing and warehouse facility located at 4131 South 420 West, Murray, Utah, on a month-to-month basis for a monthly rent of approximately $1,600 plus utilities. On February 1, 2008 we relocated our manufacturing operations to a manufacturing and warehouse facility owned by our vice president and located at 11744 South 2700 West, Riverton, Utah. We use approximately one-third of the facility on a shared basis and we pay a monthly rent of $400 plus our share of utilities. The base rent was previously $500 per month but was reduced in November 2008 as a result of the downturn in our business. We believe these facilities will be adequate for the operation of our business for at least the next twelve months.

 

Item 1A. Risk Factors

 

Risk Factors

 

Our business involves significant risks. You are cautioned not to make an investment in our Shares unless you can afford to lose your entire investment. You should carefully consider the following risk factors and the other information included in this report before you decide to buy our Shares.

 

Our financial statements contain a going concern qualification indicating that we do not have the necessary working capital for our planned activity which raises doubts about our ability to continue as a going concern.

 

Our annual audited financial statements contain a going concern qualification indicating that we do not have the necessary working capital for our planned activity and stating that this raises doubts about our ability to continue as a going concern. We incurred a net operating loss of $98,661 for the year ended December 31, 2008 and, as of December 31, 2008, we had working capital of only $41,674. We have not entered into any agreements or arrangements for the provision of additional debt or equity financing and there can be no assurance that we will be able to obtain additional debt or equity capital should it be required in order to continue our operations. There can be no assurance that our current working capital will be adequate to allow us to continue to implement our business plan or that we will be able to continue as a going concern.

 

 

We were incorporated in March 2005, have a history of operating losses and there can be no assurance that we will be able to operate at a profit in the future.

 

We were incorporated on March 25, 2005. We incurred a net loss of $61,209 for the approximately nine months ended December 31, 2005, a net loss of $8,700 for the fiscal year ended December 31, 2006, a net loss of $51,173 for the fiscal year ended December 31, 2007, and a net loss of $98,661 for the year ended December 31, 2008. There can be no assurance that we will be able to operate at profit in the future.

 

Our operations are subject to various risks including, but not limited to, the continuation of the housing crisis and the related decrease in new residential construction which has already substantially reduced the demand for our products and has had a material adverse effect on our business and financial condition.

 

Our success will depend on our ability to grow our operations so that our revenues can begin to exceed our costs of operation. Our operations are subject to various risks including, but not limited to, the continuation of the housing crisis and the related decrease in new residential construction which has already substantially reduced the demand for our products and has had a material adverse effect on our business and financial condition. If the housing crisis continues, it could further reduce the demand for our products and have a further material adverse effect on our business and financial condition.

 

We depend on our officers and the loss of their services would have an adverse effect on our business.

 

We are dependent on our officers, particularly our president and treasurer, Jason T. Haislip, to operate our business and the loss of any of such persons would have an adverse impact on our operations until such time as they could be replaced, if they could be replaced. We do not have employment agreements with our officers and we do not carry key man life insurance on their lives. (See “Management.”)

 

There is currently no established trading market for our stock and there is no assurance that any market will develop in the future, which means a purchaser of our shares may not be able to resell the shares in the future.

 

Although our stock is included for quotation on the OTC Bulletin Board, there is currently no active trading market for the Company's stock, and there can be no assurance that an active or liquid trading market for the Company's stock will develop in the future. As a result, the acquisition of our common stock must be considered an “illiquid” investment and a purchaser may not be able to resell the shares in the future. (See “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”)

 

Our stock is subject to special sales practice requirements that could have an adverse impact on any trading market that may develop for our stock.

 

Our stock is subject to special sales practice requirements applicable to “penny stocks” which are imposed on broker-dealers who sell low-priced securities of this type. These rules may be anticipated to affect the ability of broker-dealers to sell our stock, which may in turn be anticipated to have an adverse impact on the market price for our stock if and when a trading market should develop. (See “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”)

 

Our officers and directors own a majority of our issued and outstanding shares and other stockholders have little or no ability to elect directors or influence corporate matters

 

As of December 31, 2008, our officers and directors were the beneficial owners of approximately 56.5% of our issued and outstanding shares of common stock. Such persons will able to determine the outcome of actions taken by us that require stockholder approval. For example, they will be able to elect all of our directors and control the policies and practices of the Company. (See “Principal Stockholders.”)

 

All shares previously sold by us without registration are currently eligible for sale under Rule 144, which may have an adverse impact on any trading market that may develop for our common stock.

 

All of the 2,808,348 issued and outstanding shares of our common stock that were issued without registration were issued more than two years ago are currently eligible for sale pursuant to Rule 144 adopted under the Securities Act. As a result, non-affiliates are able to sell their shares in any market for our common stock without limitation. For stockholders who are “affiliates” of the Company, which generally includes officers, directors and 10% or greater stockholders, Rule 144 generally requires that they not make any sales unless the Company is current in the filing of periodic reports with the SEC, that they file notices on Form 144 with respect to such sales, and that their public sales of restricted securities do not exceed the greater of 1% of the Company’s issued and outstanding shares of common stock or 1% of the average trading volume on a national exchange during the preceding four weeks. The possibility of sales under Rule 144 may, in the future, have a depressive effect on the price of the Company’s securities in any market which may develop. The 2,150,000 shares of the Company’s common stock held by Amie Martindale and Jason T. Haislip are also subject to the requirements of a Promotional Shares Lock-In Agreement with the Company and such persons are required to sell their shares in accordance with the requirements of such agreement until such time as it has terminated. (See “Certain Relationships and Related Transactions: Promotional Shares Lock-In Agreement.”)

 

Item 2. Properties.

 

Our offices are located at the residence of our president and treasurer at 5641 South Magic Drive, Murray, Utah 84107, which space is provided to us without charge. During the 2007 fiscal year, we also leased an approximately 4,000 square foot manufacturing and warehouse facility located at 4131 South 420 West, Murray, Utah, on a month-to-month basis for a monthly rent of approximately $1,600 plus utilities. On February 1, 2008 we relocated our manufacturing operations to a manufacturing and warehouse facility owned by our vice president and located at 11744 South 2700 West, Riverton, Utah. We use approximately one-third of the facility on a shared basis and we pay a monthly rent of $500 plus our share of utilities. The base rent was previously $500 per month but was reduced in November 2008 as a result of the downturn in our business. We believe these facilities will be adequate for the operation of our business for at least the next twelve months.

 

Item 3. Legal Proceedings.

 

The Company is not a party to any material legal proceedings, and to our knowledge, no such legal proceedings have been threatened against us.

 

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

 

No matters were submitted to the vote of our security holders during the fourth quarter of the fiscal year ended December 31, 2008.

 

Part II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Market Information

 

In December, 2008, the Company's common stock became included on the OTC Bulletin Board under the symbol "CPXE." However, no regular quotations have been submitted and there is currently no active trading market for the Company's stock. There can be no assurance that an active or liquid trading market for the Company's stock will develop in the future. On March 27, 2009, there were no published bid or asked quotations for the Company’s common stock on the OTC Bulletin Board.

 

At March 27, 2009, there were approximately 67 holders of record of the Company's common stock, as reported by the Company's transfer agent. In computing the number of holders of record, each broker-dealer and clearing corporation holding shares on behalf of its customers is counted as a single stockholder.

 

 

No dividends have ever been paid on the Company's securities, and the Company has no current plans to pay dividends in the foreseeable future.

Special Sales Practice Requirements with Regard to “Penny Stocks”

 

In order to protect investors from patterns of fraud and abuse that have occurred in the market for low priced securities commonly referred to as “penny stocks,” the SEC has adopted regulations that generally define a “penny stock” to be any equity security having a market price (as defined) less than $5.00 per share, or an exercise price of less than $5.00 per share, subject to certain exceptions. Since the price of our stock is well below $5.00 per share, our stock is subject to the “penny stock” regulations. As a result, broker-dealers selling our common stock are subject to additional sales practices when they sell our stock to persons other than established clients and “accredited investors.” For transactions covered by these rules, before the transaction is executed, the broker-dealer must make a special customer suitability determination, receive the purchaser’s written consent to the transaction and deliver a risk disclosure document relating to the penny stock market. The broker-dealer must also disclose the commission payable to both the broker-dealer and the registered representative taking the order, current quotations for the securities and, if applicable, the fact that the broker-dealer is the sole market maker and the broker-dealer’s presumed control over the market. Monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Such “penny stock” rules may restrict trading in our common stock and may deter broker-dealers from effecting transactions in our common stock.

 

Equity Compensation Plans

 

We do not have in effect any compensation plans under which our equity securities are authorized for issuance and we do not have any outstanding employee stock options.

 

Transfer Agent

 

Colonial Stock Transfer Co., Inc., 66 Exchange Place, Suite 100, Salt Lake City, Utah 84111, telephone (801) 355-5740, serves as the transfer agent and registrar for our common stock.

 

Recent Sales of Unregistered Securities

 

We did not sell any unregistered securities during our 2008 fiscal year.

 

Use of Proceeds from Registered Offering

 

The Company’s registration statement on Form S-1, SEC File No. 333-144620 (the “Registration Statement”), was ordered effective on February 6, 2008. The Company registered 1,000,000 shares of its common stock pursuant to the Registration Statement at an offering price of $0.15 per share for aggregate proceeds of up to $150,000. On April 4, 2008, the Company completed the sale of all 1,000,000 shares of common stock registered pursuant to the Registration Statement (the “Offering”) for gross proceeds of $150,000. The Company received net proceeds from the offering in the amount of $115,500 after deducting the following offering expenses:

 

 

 

From the effective date of the Registration Statement through December 31, 2008, the Company has utilized the net proceeds from the offering for the purposes and in the amounts set forth below:

 

___________________________________

*Indicates direct payments to officers, directors and ten percent stockholders. All other expenses involve direct payments to others.

 

The remaining portion of the net proceeds in the amount of approximately $40,400 is being held in interest bearing bank accounts.

 

Issuer Purchases of Equity Securities

 

We have not adopted a stock repurchase plan and we did not purchase any shares of our equity securities during the 2008 fiscal year.

 

Item 6. Selected Financial Data

 

Because the Company is a Smaller Reporting Company, it is not required to respond to this Item.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

You should read the following discussion in conjunction with our financial statements, which are included elsewhere in this report. The following information contains forward-looking statements. (See “Forward Looking Statements” and “Item 1A. Risk Factors.”)

 

General

 

We were incorporated on March 25, 2005 to engage in the business of manufacturing and installing precast concrete window wells. In connection with our organization, we sold 2,000,000 shares of our common stock to two officers and founding stockholders, for consideration of $74,000, consisting of $20,000 in cash and the contribution of property and equipment with an agreed upon value of $54,000. Subsequently, from May through July 2005, we sold an additional 380,000 shares to three persons for $38,000 in cash and in December 2005 we issued 428,348 shares to two creditors as payment for loans with an aggregate outstanding balance of $42,835 including principal and interest. In November 2005, we also issued a seven-year warrant to one of such creditors entitling it to purchase up to 100,000 shares of our common stock at an exercise price of $0.10 per share as additional consideration for a loan. On April 4, 2008, we completed the sale of all 1,000,000 shares of common stock offered pursuant to a registration statement from which we received gross proceeds of $150,000 before deducting the costs of the Offering. Although we have not yet operated on a profitable basis, the cash received from such financing activities during 2005 and 2008 has been sufficient to sustain our operations through December 31, 2008 and we have not sold any additional shares of stock or borrowed any additional funds.

 

Our executive offices are located at the residence of our president and treasurer for which we pay no rent. During the 2007 fiscal year, we also leased an approximately 4,000 square foot manufacturing and warehouse facility located at 4131 South 420 West, Murray, Utah, on a month-to-month basis for a monthly rent of approximately $1,600 plus utilities. On February 1, 2008 we relocated our manufacturing operations to a manufacturing and warehouse facility owned by our vice president and located at 11744 South 2700 West, Riverton, Utah. We use approximately one-third of the facility on a shared basis and we pay a monthly rent of $400 plus our share of utilities. The base rent was previously $500 per month but was reduced in November 2008 as a result of the downturn in our business. We believe these facilities will be adequate for the operation of our business for at least the next twelve months.

 

Our operations involve the manufacture, sale and installation of decorative pre-cast concrete window wells. Substantially all of such work is performed by our officers with limited marketing assistance from an independent contractor. To date, we have not operated on a profitable basis.

 

2008 Fiscal Year Compared to 2007 Fiscal Year

 

As discussed below, the housing crisis and the related drop in new residential construction have substantially reduced the demand for our products and have had a material adverse effect on our business and financial condition. If the housing crisis continues, it could further reduce our revenues, increase our losses and force us to either obtain additional debt or equity capital or to cease operations. We have not entered into any agreement or arrangement for the provision of additional debt or equity funding and no assurance can be given that such funding would be available to us on acceptable terms or at all.

 

During the year ended December 31, 2008, our revenues were $25,316 compared to revenues of $128,815 for the year ended December 31, 2007, a decrease of $103,499 or 80.3%. We believe the decrease is primarily attributable to significantly reduced product sales during 2008 as result of the housing crisis and the precipitous decrease in the construction of new homes. During 2008, our gross profit was $5,220 or 20.6% of revenues compared to a gross profit for the 2007 of $53,492 or 41.5% of revenues, a decrease of $48,272 or 90.2%. The decrease results from the significantly decreased revenues described above.

 

During the year ended December 31, 2008, our total operating expenses were $103,881, which was slightly lower than our operating expenses of $104,665 for the year ended December 31, 2007. During 2008, reductions in office expenses ($8,929) and rent ($13,620) were offset by increases in automobile ($5,965), professional fees ($5,713), payroll ($6,787) and insurance expenses ($1,318).

 

During the year ended December 31, 2008, our net loss was $98,661 compared to a net loss of $51,173 for the year ended December 31, 2007. The increase in net loss was primarily attributable to the $48,272 reduction in gross profit discussed above.

 

Liquidity and Capital Resources

 

On a consolidated basis, as of December 31, 2008, we had current assets in the form cash and receivables in the amount of $43,174 and current liabilities of $1,500, which resulted in working capital of $41,674. As of December 31, 2007, we had cash and receivables in the amount of $7,603 and current liabilities of $27,000, which resulted in working capital deficit of $19,397. The increase in working capital from December 31, 2007 to December 31, 2008 is the result of our receipt of the proceeds from our public offering in April 2008 offset by our operating loss during such period. We anticipate that our existing assets will be sufficient to permit us to continue our business plan and conduct our operations for a period of at least six months. If the housing market does not recover within the next six months with a corresponding increase in the demand for our products and an increase in our revenue, we will require additional debt or equity funding in order to continue our operations. We have not entered into any agreement or arrangement for the provision of such funding and no assurance can be given that such funding will be available to us on acceptable terms or at all. As a result of the downturn in our business, we have reduced the annual base salaries payable to our president and vice president to $6,000 and $1,200, respectively.

 

Cash Flows

 

Operating Activities

 

Net cash used by operating activities was $100,731 for the 2008 fiscal year, which is an increase of $94,220 from $6,511 used during the 2007 fiscal year. The difference is primarily attributable to a $47,488 increase in our net loss and a decrease in accrued expenses of $27,000 for fiscal year 2007 that was followed by a $25,500 increase in accrued expenses for fiscal year 2008.

 

Investing Activities

 

Net cash used by investing activities was $7,116 in 2008 compared to net cash provided by investing activities of $38 during 2007. The increase is due to our purchase of equipment during 2008.

 

Financing Activities

 

The Company received $150,000 in cash from financing activities during the 2008 as a result of the completion of our public offering, compared to $0 in cash from financing activities for the 2007 fiscal year.

 

Critical Accounting Policies

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported in the financial statements, including the notes thereto, and related disclosures of commitments and contingencies, if any. We consider our critical accounting policies to be those that require the more significant judgments and estimates in the preparation of financial statements, including the following:

 

Revenue Recognition

 

The Company recognizes revenue upon delivery of its precast concrete products.

 

Allowance for Doubtful Accounts

 

The allowance for doubtful accounts reflects the Company’s best estimate of probable losses inherent in the accounts receivable balance. The Company determines the allowance based on known troubled accounts, historical experience, and other currently available evidence. As of December 31, 2008 and 2007, the Company had a zero balance in the allowance for doubtful accounts.

 

Depreciation

 

The Company’s fixed assets consist mainly of machinery and equipment used to produce the concrete products it uses in its operations. The Company provides for depreciation of its equipment by the straight-line method, using an estimated useful life of 7 years. Depreciation expense for the years ended December 31, 2008 and 2007 was $16,848 and $12,024, respectively.

 

Basic and Diluted Earnings (Loss) Per Share

 

In accordance with SFAS No. 128, “Earnings per Share,” the basic earnings (loss) per common share is computed by dividing net earnings available to common stockholders by the weighted average number of common shares outstanding. Diluted earnings (loss) per common share is computed similarly to basic earnings (loss) per common share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. As of December 31, 2008 and 2007, the Company did not have any dilutive common stock equivalents.

 

Income Taxes

 

On December 31, 2008, the Company had a net operating loss available for carry forward of $219,743. The tax benefit of approximately $77,000 from the loss carry forward has been fully offset by a valuation reserve because the use of the future tax benefit is doubtful as the Company has been unable to establish a projection of operating profits for future years. The loss carryover will begin to expire in 2025.

 

Recent Accounting Pronouncements

 

Management believes that the adoption of any new relevant accounting pronouncements will not have a material effect on the Company’s results of operations or its financial position.

 

Off-Balance Sheet Arrangements

 

The Company has not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.

 

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

 

Because the Company is a Smaller Reporting Company, it is not required to respond to this Item.

 

Item 8. Financial Statements

 

The following financial statements are being filed with this report and are located immediately following the signature page.

 

Financial Statements, December 31, 2008

Independent Auditors’ Report

Consolidated Balance Sheets, December 31, 2008 and 2007

Consolidated Statements of Operations, for the years ended December 31, 2008 and 2007

Consolidated Statements of Stockholders’ Equity, from January 1, 2007 through December 31, 2008

Consolidated Statements of Cash Flows, for the years ended December 31, 2008 and 2007

Notes to Financial Statements

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

Item 9A(T). Controls and Procedures

 

Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our President and Treasurer who serves as our principal executive and principal financial office, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“the Exchange Act”) as of December 31, 2008, the end of the period covered by this report. Based upon that evaluation, our President and Treasurer, concluded that our disclosure controls and procedures as of December 31, 2008 were effective such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our President and Treasurer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

 

Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Our management, with the participation of our President and Treasurer, who serves as our principal executive and principal financial officer, evaluated the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008. In making this evaluation, our management used the COSO framework, an integrated framework for the evaluation of internal controls issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management, with the participation of President and Treasurer concluded that as of December 31, 2008, the Company’s internal control over financial reporting was not effective due to the existence of material weaknesses in such internal control over financial reporting.

 

The weaknesses identified by our President and Treasurer were (i) a lack of personnel with technical accounting expertise; (ii) ineffective controls over period end financial disclosure and reporting processes; and (iii) the Company’s principal executive and principal financial officers are the same person, which does not provide adequate segregation of duties. In an effort to remediate such material weaknesses and other deficiencies and to enhance our internal control, we plan to hire additional personnel with technical accounting expertise or engage an outside accounting firm to assist the Company in closing its books and preparing financial statements on a quarterly basis. We also plan to implement additional procedures, as resources permit, to mitigate the risks created by the lack of segregation of duties.

 

This Annual Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this Annual Report.

 

Changes in Internal Control over Financial Reporting

 

There was no change in our internal control over financial reporting during the quarter ended December 31, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other Information

 

None.

 

Part III

 

Item 10. Directors, Executive Officers and Corporate Governance

 

Directors and Executive Officers

 

The following table indicates the name, age, term of office and position held by each of our officers and directors. The term of office for each officer position is for one year or until his or her successor is duly elected and qualified by the board of directors. The term of office for a director is for one year or until his or her successor is duly elected and qualified by the stockholders.

 

13

 

 

________________________

Certain biographical information with respect to our officers and directors is set forth below.

 

Jason T. Haislip, is a founder and principal stockholder of the Company and has served as president from January 10, 2008 to the present, as secretary from March 2005 through January 10, 2008 and as treasurer and a director of the Company since its inception in March 2005. From November 2008 to the present, Mr. Haislip has also been employed by L.N. Curtis & Sons Sales as a sales representative for fire fighting equipment. From March 2000 through April 2005, Mr. Haislip was employed by L.N. Curtis & Sons Sales in a similar capacity.

 

Amie Martindale, is a founder and principal stockholder of the Company who has served as secretary and a director of the Company since January 10, 2008. Ms. Martindale is and has since November 2004, been self-employed as a hair stylist at McCarty Salon. For approximately three years prior to that time, she was employed by Salon Juliano where she completed an apprenticeship to be a licensed cosmetologist.

 

Duane J. Smith, was recently appointed as vice president and a director of the Company on January 10, 2008. Mr. Smith is and has for the past ten years been the president and owner of Day & Night Glass, a commercial and residential glass company. Mr. Smith is a licensed general contractor.

 

Family Relationships

 

There are no family relationships among our directors, executive officers or persons nominated or chosen to become directors or executive officers.

 

Director Meetings and Stockholder Meeting Attendance

 

The Board of Directors held no formal meetings during 2008, but the directors met on several occasions during 2008 for informal discussions and took action by unanimous written consents in lieu of meetings. Our policy is to encourage, but not require, members of the Board of Directors to attend annual stockholder meetings. We did not have an annual stockholder meeting during the prior year.

 

Board of Directors

 

Our board of directors consists of three persons; Jason Haislip, Amie Martindale and Duane Smith. None of our directors is “independent” within the meaning of Rule 4200(a)(15) of the NASDAQ Marketplace because they are officers and employees of the Company.

 

Our board of directors has not appointed any standing committees, there is no separately designated audit committee and the entire board of directors acts as our audit committee. The board of directors does not have an independent “financial expert” because it does not believe the scope of the Company’s activities to date has justified the expenses involved in obtaining such a financial expert. In addition, our securities are not listed on a national exchange and we are not subject to the special corporate governance requirements of any such exchange.

 

The Company does not have a compensation committee and the entire board participates in the consideration of executive officer and director compensation. The Company’s executive officers are also members of the Company’s board of directors and such persons participate in determining the amount and form of executive and director compensation. To date, the Company has not engaged independent compensation consultants to determine or recommend the amount or form of executive or director compensation.

 

The Company does not have a standing nominating committee and the Company’s entire board of directors performs the functions that would customarily be performed by a nominating committee. The board of directors does not believe a separate nominating committee is required at this time due to the limited size of the Company’s business operations and the limited resources of the Company which do not permit it to compensate its directors. The board of directors has not established policies with regard to the consideration of director candidates recommended by security holders or the minimum qualifications of such candidates.

 

Code of Ethics

 

We have not adopted a Code of Ethics that applies to our executive officers, including our principal executive, financial and accounting officers. We do not believe the adoption of a code of ethics at this time would provide any meaningful additional protection to the Company because we have only three employees, all of whom are officers and directors, and our business operations are not extensive or complex.

 

Item 11. Executive Compensation

 

The following table sets forth certain information regarding the annual compensation paid to our two chief executive officers in all capacities for the fiscal years ended December 31, 2008 and 2007. No executive officer of the Company received total annual compensation in excess of $100,000 per year during the 2008 or 2007 fiscal years.

 

Summary Compensation Table

 

 

We have not granted our officers or directors any stock options, stock awards or other forms of equity compensation. We do not currently provide our officers or directors with medical insurance or other similar employee benefits, although we may do so in the future.

 

We do not have any retirement, pension, profit sharing, or insurance or medical reimbursement plans covering our officers or directors, and we are not contemplating implementing any such plans at this time.

 

Officer Compensation

 

The compensation for our officers is determined by our board of directors based on management’s recommendations. Jason Haislip, president and director, and Duane Smith, vice president and director, participate in the determination of management compensation. We previously agreed to pay Jason Haislip, president and treasurer, an annual base salary of $40,000 per year and to pay Duane Smith, vice president, an

 

annual base salary of $6,000 per year. However, as a result of the downturn in the Company’s business the annual salaries of such persons have been reduced to $6,000 and $1,200, respectively. In addition, both of such persons may be entitled to annual bonuses based on individual and company performance. We will also reimburse our officers for reasonable costs and expenses incurred by them in connection with our business. We may pay additional compensation to our officers in the future, including medical insurance and retirement benefits and increases in compensation, if justified based on the growth of our business and the time such persons are required to devote to our business. We have not entered into an employment agreement with any of our officers.

 

Director Compensation

 

Our directors do not currently receive any compensation for serving in their capacity as directors. Duane Smith, who is also an officer of the Company, was paid $2,800 in salary during 2008 and was paid $3,700 as rent for the Company’s manufacturing facility. As a result of the downturn in the Company’s business, in November 2008 the rent for such manufacturing facility was reduced from $500 per month to $400 per month.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management

and Related Stockholder Matters

 

The following table sets forth as of March 27, 2009, the number of shares of the Company’s common stock, par value $0.001, owned of record or beneficially by each person known to be the beneficial owner of 5% or more of the issued and outstanding shares of the Company’s common stock, and by each of the Company’s officers and directors, and by all officers and directors as a group. On such date, there were 3,808,348 issued and outstanding shares of our common stock.

 

_____________________

⁽¹⁾  Except as otherwise noted, shares are owned beneficially and of record, and such record stockholder has sole voting, investment, and dispositive power over the shares indicated.

⁽²⁾ Includes 100,000 shares which may be acquired by Cambria Investment Fund at a price of $0.10 per share pursuant to presently exercisable common stock purchase warrants. The shares of common stock underlying the warrants are deemed to be outstanding shares for the purpose of computing the stockholder’s percentage ownership.

 

⁽³⁾ Includes 306,473 shares of which Mr. Vanderhoof is the record and beneficial owner, 77,930 shares owned of record by his spouse, and 151,875 shares and 100,000 presently exercisable common stock purchase warrants owned of record by Cambria Investment Fund, L.P., with respect to which Mr. Vanderhoof may be deemed to share investment and dispositive power as a result of his status as a manager of the general partner of Cambria Investment Fund, L.P. The shares of common stock underlying the warrants are deemed to be outstanding shares for the purpose of computing the stockholder’s percentage ownership.

 

Item 13. Certain Relationships and Related Transactions

 

Unless otherwise indicated, the terms of the following transactions between related parties were not determined as a result of arm’s length negotiations.

 

Promoters

 

The Company was founded and organized by Jason Haislip, our president, treasurer and director, and by Mathew Martindale, our former president and director, who are each considered promoters of the Company. Michael Vanderhoof provided advice and assistance to Messrs. Martindale and Haislip in connection with the Company’s organization and Mr. Vanderhoof may also be considered to be a promoter of the Company. Amie Martindale, the daughter of Michael Vanderhoof, and the former spouse of Mathew Martindale, was the joint owner with Mathew Martindale of assets contributed to the Company in connection with its organization and may also be considered to be a promoter of the Company.

 

Transactions

 

In March 2005, in connection with our organization, we issued 1,300,000 shares of our common stock to Mathew Martindale and Amie Martindale in consideration for their contribution to the Company of assets with an agreed net value of $54,000. In January 2008, Mr. Martindale conveyed all his interest in the 1,300,000 shares of the Company’s common stock to Amie Martindale. The assets consisted of molds, tools, rebar, wire mesh and window wells which had been acquired by Mathew and Amie Martindale from an unrelated third party. As discussed below, in connection with the acquisition of the assets, the Company assumed a $26,000 promissory note that had been given by Mathew Martindale and Amie Martindale to Michael Vanderhoof to finance a portion of the purchase price for the assets. The Martindales had originally agreed to purchase the assets from the third party for a purchase price of $105,000 but the price was subsequently reduced to $84,000 pursuant to negotiations between the parties.

 

In March 2005, in connection with our organization, we also issued 700,000 shares of our common stock to Jason Haislip for $20,000 in cash.

 

In connection with our acquisition of assets from Mathew Martindale and Amie Martindale as described above, we assumed a note payable to Michael Vanderhoof, a principal stockholder, in the principal amount of $26,000 bearing interest at 8% per annum. In December 2005, Mr. Vanderhoof converted the outstanding principal balance of such note, together with all accrued and unpaid interest thereon, in the aggregate amount of $27,647 into 276,473 shares of the Company’s common stock at the rate of one share for each $0.10 in debt converted.

 

In June 2005, we issued Michael Vanderhoof 30,000 shares of our common stock for $3,000 in cash.

 

In July 2005 we issued Amie Martindale 150,000 shares of our common stock for $15,000 in cash.

 

In November 2005, we borrowed $15,000 from Cambria Investment Fund, L.P. (“Cambria Investment Fund”) pursuant to the terms of a convertible promissory note bearing interest at ten percent per annum that was convertible into shares of common stock at a price of $0.10 per share. In connection with the transaction, we also issued Cambria Investment Fund common stock purchase warrants entitling it to purchase up to 100,000 additional shares of our common stock at any time prior to November 14, 2012 at a price of $0.10 per share and granted it certain “piggy back” registration rights, or the right to include such shares in certain registration statements filed by the Company with respect to other shares of Company stock, that generally only become effective after we have completed a public offering of more than $1,000,000 of our securities or a merger with a publicly traded company. In December 2005, Cambria Investment Fund converted the outstanding principal balance of such loan together with

 

all accrued and unpaid interest thereon in the aggregate amount of $15,188 into 151,875 shares of the Company’s common stock at the rate of one share for each $0.10 in debt converted. Michael Vanderhoof is a manager of the limited liability company that is the general partner of Cambria Investment Fund

 

Office Space

 

Our executive offices are located at the residence of our president and we pay no rent for the use of such space. We reimburse our president for actual out-of-pocket costs incurred on our behalf for paper, copies, long distance telephone charges and similar items used in connection with our operations. On February 1, 2008 we relocated our manufacturing operations to a manufacturing and warehouse facility owned by our vice president and located at 11744 South 2700 West, Riverton, Utah. We use approximately one-third of the facility on a shared basis and we pay a monthly rent of $400 plus our share of utilities. The base rent was previously $500 per month but was reduced in November 2008 as a result of the downturn in the Company’s business. We believe the terms of such rental arrangement are no less favorable to the Company than those that could be negotiated at arm’s length with an unrelated third party.

 

Promotional Shares Lock-In Agreement

 

In accordance with requirements imposed by the Utah Securities Division with regard to the Company’s initial public offering, the Company entered into that certain Promotional Shares Lock-In Agreement (the “Lock-In Agreement”) dated as of December 5, 2007, with Jason Haislip and Mathew Martindale, then officers, directors and principal stockholders of the Company, and Amie Martindale, the spouse of Mathew Martindale and a principal stockholder of the Company (collectively, the “Lock-In Holders”). The Lock-In Agreement generally provides that while the Lock-In Agreement is in effect, the Lock-In Holders will not sell, transfer, hypothecate or otherwise dispose of an aggregate of 2,150,000 shares of the Company’s common stock held by them except: (a) by will, the laws of descent and distribution, the operation of law or by court order; (b) the hypothecation by the estate of a deceased Lock-In Holder to pay the expenses of the deceased person’s estate; and (c) by gift to the Lock-In Holder’s family members as long as the Promotional Shares remain subject to the terms of the Lock-In Agreement. The Promotional Shares will be released from the requirements of the Lock-In Agreement as follows: (a) beginning two years after the completion date of the Offering, 2 ½ % of the Promotional Shares may be released each quarter on a pro rata basis and on the fourth anniversary of the Offering all remaining Promotional Shares shall be released; and (b) notwithstanding the foregoing, all of the Promotional Shares shall be released from the Lock-In Agreement upon the occurrence of one of the following events: (i) the Offering is terminated and either no securities were sold in the Offering or the proceeds received from investors from the sale of securities in the Offering have been returned to the investors; (ii) the Offering did not qualify for registration with the Utah Securities Division; (iii) the Company’s common stock is quoted on the OTC Bulletin Board (or any successor thereto having substantially the same eligibility and reporting requirements) and the bid price for such stock posted by non-affiliated market makers is equal to or greater than the $0.15 offering price for the Offering (as adjusted for stock splits, stock dividends etc.) for a period of 20 consecutive trading days; or (iv) the Company’s common stock should become a “Covered Security” as defined in Section 18(b)(1) of the Securities Act. If, during the time the Lock-In Agreement is in effect, the Company enters into any merger, reorganization, liquidation, dissolution or other transaction or proceeding with a person who is not a promoter of the Company that results in a distribution of the Company’s assets or securities, then: (a) all holders of the Company’s equity securities will initially share on a pro rata, per share basis in the distribution, in proportion to the amount of cash or other consideration that they paid per share for their equity securities (provided that the Utah Securities Division has accepted the value of the other consideration), until the stockholders who purchased the Company’s equity securities in the Offering (the “Public Stockholders”) have received, or have had irrevocably set aside for them, an amount that is equal to one hundred percent (100%) of the offering price per share times the number of shares of equity securities they purchased in the Offering and which they still hold at the time of the distribution, as adjusted for stock splits, stock dividends recapitalizations and the like; (b) after such distribution, all holders of the Company’s equity securities will participate on an equal, per share basis times the number of shares of equity securities they held at the time of the distribution, adjusted for stock splits, stock dividends, recapitalizations and the like; and (c) a distribution may proceed on lesser terms and conditions than the terms and conditions stated above if a majority of the equity securities that are not held by promoters, or their associates or affiliates, vote, or consent by consent procedure to approve the lesser terms and conditions at a special meeting called for that specific purpose. If the Company enters into any merger, reorganization, liquidation, dissolution or other transaction or proceeding with a promoter that results in a distribution while this Agreement remains in effect, the Promotional Shares will remain subject to the terms of the Lock-In Agreement. At the time the Lock-In Agreement was executed, 1,300,000 of the Promotional Shares were owned jointly by Mathew Martindale and Amie Martindale. In January 2008, Mr. Martindale conveyed all his interest in such shares to Amie Martindale and the shares remained subject to the Lock-In Agreement.

 

The foregoing description of the Lock-In Agreement is summary in nature and is qualified by reference to the Lock-In Agreement, a copy of which is included as an exhibit to this report.

 

Indemnification

 

Our articles of incorporation provide that our directors shall have no personal liability to our company or our stockholders for damages for breaches of their fiduciary duties as directors or officers, except for acts or omissions which involve intentional misconduct, fraud or a knowing violation of law, or the payment of certain unlawful distributions. In addition, Section 78.037 of the Nevada corporation law, Article VI of our articles of incorporation, and Article VIII of our bylaws provide for indemnification of our directors and officers in a variety of circumstances, which may include liabilities under the Securities Act of 1933, as amended. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons pursuant to the foregoing provisions, we have been informed that in the opinion of the Securities and Exchange Commission such indemnification is contrary to public policy as expressed in the Securities Act and, therefore, is unenforceable.

 

Item 14. Principal Accountant Fees and Services

 

Madsen & Associates CPA’s Inc. served as the Company’s independent accountants for the fiscal years ended December 31, 2008 and 2007.

 

During the fiscal years ended December 31, 2008 and December 31, 2007, fees for services provided by Madsen & Associates CPA’s, Inc. were as follows:

 

 

“Audit Fees” consisted of fees billed for services rendered for the audit of the Company’s annual financial statements, review of financial statements included in the Company’s quarterly reports on Form 10-Q, and other services normally provided in connection with statutory and regulatory filings. “Audit-Related Fees” consisted of fees billed for due diligence procedures in connection with acquisitions and divestitures and consultation regarding financial accounting and reporting matters. “Tax Fees” consisted of fees billed for tax payment planning and tax preparation services. “All Other Fees” consisted of fees billed for services in connection with legal matters and technical accounting research.

 

The Company’s Board of Directors has adopted a policy requiring the pre-approval of any non-audit engagement of Madsen & Associates CPA’s, Inc. and has pre-approved the engagement of such firm to assist the Company with federal and state tax returns. In the event the Company wishes to engage such firm to perform accounting, technical, diligence or other permitted services not related to the services performed by such firm as our independent auditor, the Company’s President will prepare a summary of the proposed engagement, detailing the nature of the engagement, the reasons why Madsen & Associates CPA’s, Inc. is the preferred provider of such services and the estimated duration and cost of the engagement. The report will be provided to our Board of Directors, who will evaluate whether the proposed engagement will interfere with the independence of such firm in the performance of its auditing services.

 

Item 15. Exhibits and Financial Statement Schedules

 

 

(a) Exhibits

 

*   Incorporated by reference to the Company’ Form SB-2 Registration Statement filed July 16, 2007

**Incorporated by reference to Amendment No. 1 to the Company’ Form SB-2 Registration Statement 
                     filed December 11, 2007.

 

 

 

 

[The balance of this page has been left blank intentionally]

 

SIGNATURES

 

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

 

CASTWELL PRECAST CORPORATION

(Registrant)

 

 

 

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

 

 

 

 

 

 

 

 

F-2

 

 

F-3

 

 

 

 

 

F-5

CASTWELL PRECAST CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008

 

NOTE 1 - ORGANIZATION AND OPERATIONS

 

Castwell Precast Corp. (the “Company”) was incorporated in Nevada on March 25, 2005. Since inception, the Company’s purpose has been to design, develop, and market precast concrete products.

 

On March 25, 2005, the Company formed Castwell Precast, Inc. to be operated as a subsidiary of the Company. As of December 31, 2008 and 2007, the Company owned 100% of the shares of issued and outstanding stock of Castwell Precast, Inc.

 

NOTE 2 - SUMMARY OF ACCOUNTING POLICIES

 

A summary of the Company's significant accounting policies applied in the preparation of the accompanying financial statements follows.

 

REVENUE RECOGNITION

 

The Company recognizes revenue upon delivery of its precast concrete products.

 

ALLOWANCE FOR DOUBTFUL ACCOUNTS

 

The allowance for doubtful accounts reflects the Company’s best estimate of probable losses inherent in the accounts receivable balance. The Company determines the allowance based on known troubled accounts, historical experience, and other currently available evidence. As of December 31, 2008 and 2007, the Company had a zero balance in the allowance for doubtful accounts.

 

FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The Company has determined that the book value of the Company’s financial instruments at December 31, 2008 and 2007 approximates fair value.

 

USE OF ESTIMATES

 

In preparing the Company's financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates.

 

F-6

 

DEPRECIATION

 

The Company’s fixed assets consist mainly of machinery and equipment used to produce concrete products it uses in its operations. The Company provides for depreciation of its equipment by the straight-line method, using an estimated useful life of 7 years. Depreciation expense for the years ended December 31, 2008 and 2007 was $16,848 and $12,024, respectively.

 

BASIC AND DILUTED EARNINGS (LOSS) PER SHARE

 

In accordance with SFAS No. 128, “Earnings per Share,” the basic earnings (loss) per common share is computed by dividing net earnings available to common stockholders by the weighted average number of common shares outstanding. Diluted earnings (loss) per common share is computed similarly to basic earnings (loss) per common share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. As of December 31, 2008 and 2007, the Company did not have any dilutive common stock equivalents.

 

INCOME TAXES

 

On December 31, 2008, the Company had a net operating loss available for carry

forward of $219,743. The tax benefit of approximately $77,000 from the loss carry

forward has been fully offset by a valuation reserve because the use of the future tax benefit is doubtful as the Company has been unable to establish a projection of operating profits for future years. The loss carryover will begin to expire in 2025.

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

Management believes that the adoption of any new relevant accounting pronouncements will not have a material effect on the Company's results of operations or its financial position.

 

NOTE 3 – STOCKHOLDERS’ EQUITY

 

During 2005, the Company issued 100,000 warrants in conjunction with debt. This debt was converted to stock in December 2005, and the warrants remain outstanding as of December 31, 2008. At the time the warrants and debt were issued, the warrants were valued using the Black-Scholes model, and the related value was not material to the financial statement presentation.

 

The Company has authorized 10,000,000 shares of preferred stock, par value $.001, and 50,000,000 shares of common stock, par value $.001.

 

On April 4, 2008, the Company completed the sale of 1,000,000 shares of common stock offered pursuant to a registration statement on Form S-1. The offering price was $0.15 per share and the Company received gross proceeds of $150,000.

 

As of December 31, 2008 the Company had zero shares of preferred stock outstanding and 3,808,348 shares of common stock outstanding.

 

F-7

 

NOTE 4 – GENERAL & ADMINISTRATIVE EXPENSES

 

For the year ended December 31, 2008, general and administrative expenses consist of the following:

 

 

For the year ended December 31, 2007, general and administrative expenses consist of the following:

 

 

NOTE 5 – GOING CONCERN

 

The Company incurred a net operating loss of $98,661 and $51,173 for the years ended December 31, 2008 and 2007, respectively, and has an accumulated deficit of $219,743 as of December 31, 2008. These conditions raise substantial doubt about the ability of the Company to continue as a going concern.  The financial statements do not include any adjustments that might result from the outcome of these uncertainties.   

 

Management’s plans to overcome the Company’s negative cash flows from operating activities and recurring operating losses include increased marketing activity in an attempt to increase the Company’s sales of window wells in connection with remodels as opposed to new construction, an attempt to identify other sources of revenue to provide the Company with cash flow pending the recovery of the housing market, and the reduction of operating expenses.  No assurances can be given that the Company will be able to accomplish these objectives or that if achieved, they will be adequate to eliminate the Company’s operating losses.  If the Company is unable to stem its history of operating losses before its capital is exhausted, it will be required to seek additional debt or equity funding in order to continue its operations.  The Company has not entered into any agreements or arrangement with regard to the provision of such additional funding and no assurances can be given that such funding will be available to the Company.

 

F-8