SUMMER ENERGY HOLDINGS INC - Quarter Report: 2009 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

 

(Mark One)

 

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

For the quarterly period ended September 30, 2009

 

For the transition period from ______________________________ to ______________________________

 

Commission File Number 333-144620

 

 

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). The registrant has not yet been phased into the Interactive Data reporting system.

 

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).

 

As of November 12, 2009, the issuer had outstanding 3,808,348 shares of common stock, par value $0.001.

 

 

CASTWELL PRECAST CORPORATION

FORM 10-Q

 

FOR THE QUARTER ENDED SEPTEMBER 30, 2009

 

INDEX

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition

 

 

 

PART II Other Information

 

 

 

 

 

 

 

 

 

 

 

PART I – FINANCIAL INFORMATION

 

CASTWELL PRECAST CORP. AND SUBSIDIARY

 

CONSOLIDATED CONDENSED BALANCE SHEETS

 

 

 

 

 

 

        

 

 

 

 

 

 

CASTWELL PRECAST CORP. AND SUBSIDIARY

 

UNAUDITED NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

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 September 30, 2009, the Company owned 100% of the shares of issued and outstanding stock of Castwell Precast, Inc.

 

NOTE 2 – SUMMARY OF ACCOUNTING POLICIES

 

Condensed Financial Statements. The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at September 30, 2009 and 2008 and for the periods then ended have been made.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2008 audited financial statements. The results of operations for the periods ended September 30, 2009 and 2008 are not necessarily indicative of the operating results for the full year.

 

Recent Accounting Pronouncements. Management believes that the adoption of any new and 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 September 30, 2009. 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 September 30, 2009 the Company had zero shares of preferred stock outstanding and 3,808,348 shares of common stock outstanding.

 

 

 

CASTWELL PRECAST CORP. AND SUBSIDIARY

 

UNAUDITED NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

NOTE 4 – GENERAL & ADMINISTRATIVE EXPENSES

 

For the three months ended September 30, 2009, general and administrative expenses consisted of the following:

 

 

For the three months ended September 30, 2008, general and administrative expenses consist of the following:

 

 

 

For the nine months ended September 30, 2009, general and administrative expenses consisted of the following:

 

 

7

 

 

CASTWELL PRECAST CORP. AND SUBSIDIARY

 

UNAUDITED NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

NOTE 4 – GENERAL & ADMINISTRATIVE EXPENSES - CONTINUED

 

For the nine months ended September 30, 2008, general and administrative expenses consisted of the following:

 

 

 

NOTE 5 – GOING CONCERN

 

The Company incurred a net operating loss of $7,069 for the three months ended September 30, 2009 and has an accumulated deficit of $266,049 as of September 30, 2009.  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.

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and notes thereto.

 

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.

 

General

 

We were incorporated on March 25, 2005 to engage in the business of manufacturing and installing precast concrete window wells. Although we have not yet operated on a profitable basis, the cash received from financing activities during 2005 and the proceeds from our public offering in April 2008 have been sufficient to sustain our operations through September 30, 2009.

 

Our executive offices are located at the residence of our president and treasurer for which we pay no rent. Until January 31, 2008, our operations were conducted at a leased facility consisting of approximately 4,000 square feet which we rented on a month-to-month basis for a monthly rental of $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.

 

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.

 

Third Quarter of 2009 Compared to Third Quarter of 2008

 

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 three months ended September 30, 2009, our revenues were $0 compared to revenues of $3,310 for the three month’s ended September 30, 2008, a decrease of $3,310 or 100%. The decrease is attributable to a lack of product sales during the third quarter of 2009 as result of the troubled housing market and the decrease in the construction of new homes. For the three months ended September 30, 2009, our gross loss was $1,360 compared to a gross loss for the three months ended September 30, 2008 of $2,956, a decrease of $1,596 or 53.9%. The decrease in gross loss is primarily attributable to the $4,906 reduction in cost of goods sold during the third quarter of 2009.

 

During the third quarter of 2009 our total operating expenses were $5,709 compared to operating expenses of $25,179 for the third quarter of 2008, a decrease of $19,470 or 77.3%. The decrease is primarily attributable to a $10,230 decrease in payroll, a $3,110 decrease in professional and legal fees, a $1,342 decrease in auto expense, and a $1,400 reduction in rent.

 

During the three months ended September 30, 2009, our net loss was $7,069 compared to a net loss of $29,341 for the three months ended September 30, 2008. The decrease in net loss was primarily attributable to the $1,596 reduction in gross loss which was more than offset by the $19,470 decrease in operating expenses discussed above.

 

Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008

 

During the nine months ended September 30, 2009, our revenues were $2,620 compared to revenues of $24,256 for the nine month’s ended September 30, 2008, a decrease of $21,636 or 89.2%. The decrease is attributable to significantly reduced product sales during the first nine months of 2009 as result of the troubled housing market and the decrease in the construction of new homes. For the nine months ended September 30, 2009, our gross loss was $687 compared to a gross profit for the nine months ended September 30, 2008 of $5,278, a decrease of $5,965 or 113%. The decrease is attributable to the significant decrease in revenues discussed above offset by the $15,671 decrease in cost of goods sold.

 

During the nine months ended September 30, 2009 our total operating expenses were $45,619 compared to operating expenses of $85,953 for the first nine months of 2008, a decrease of $40,334 or 46.9%. The decrease is primarily attributable to a $22,884 decrease in payroll, a $3,366 decrease in auto expense, a $2,780 decrease in rent, a $2,036 decrease in office expense, and a $4,262 reduction in professional and legal fees.

 

During the nine months ended September 30, 2009, our net loss was $46,306 compared to a net loss of $81,689 for the nine months ended September 30, 2008, a decrease of $35,383, or 43.3%. The decrease in net loss was primarily attributable to the $5,965 reduction in gross profit which was more than offset by the $40,334 decrease in operating expenses discussed above.

 

Liquidity and Capital Resources

 

On a consolidated basis, as of September 30, 2009, we had current assets in the form cash and receivables in the amount of $7,228 and current liabilities of $2,842, which resulted in net working capital of $4,386. As of December 31, 2008, we had cash and receivables in the amount of $43,174 and current liabilities of $1,500, which resulted in net working capital of $41,674. The $37,288 decrease in our working capital from December 31, 2008 to September 30, 2009 is the result of the payment of expenses and accounts payable.

 

 

As indicated in the footnotes to our financial statements, we incurred a net operating loss of $7,069 for the three months ended September 30, 2009 and we have an accumulated deficit of $266,049 as of September 30, 2009.  In addition, we had $0 revenues for the three months ended September 30, 2009. These conditions raise substantial doubt about our ability to continue as a going concern.  The financial statements included with this report do not include any adjustments that might result from the outcome of these uncertainties.   

 

Management’s plans to overcome the Company’s working capital deficit, 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.

 

Cash Flows

 

Operating Activities

 

Net cash used by operating activities was $35,946 for the first nine months of 2009 resulting primarily from the net loss of $46,306. Net cash used by operating activities was $92,558 for the first nine months of 2008 resulting primarily from the net loss of $81,689 and a decrease in accrued expenses of $26,489.

 

Investing Activities

 

Net cash used by investing activities was $0 during the first nine months of 2009 compared to net cash used by investing activities of $6,586 during the first nine months of 2008 resulting primarily from the purchase of equipment.

 

Financing Activities

 

Net cash provided by financing activities during the first nine months of 2009 was $0 as compared to $150,000 for the corresponding period of 2008. The decrease results from our receipt of proceeds from our initial public offering in April 2008 in the aggregate amount of $150,000.

 

Condensed Financial Statements

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted from the accompanying financial statements. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2008 audited financial statements.

 

 

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 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not Applicable. The Company is a “smaller reporting company.”

 

Item 4T. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures.  Under the supervision and with the participation of our management, including our President and Treasurer, who acts as our principal executive and principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this report.  Based upon that evaluation, our President and Treasurer concluded that as a result of the material weaknesses in our internal control over financial reporting described below, our disclosure controls and procedures as of the end of the period covered by this report were not effective such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our President, as appropriate to allow timely decisions regarding disclosure. We plan to remediate such weaknesses in the manner described below.

 

Changes in Internal Control Over Financial Reporting. During the most recent quarter ended September 30, 2009, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) ) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

As provided in Item 9A(T) of our 2008 annual report on Form 10-K, in connection with an evaluation of the Company’s internal control over financial reporting as of December 31, 2008, using the COSO framework, our management, with the participation of our 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 have engaged 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.

 

 

Part II—OTHER INFORMATION

Item 1. Legal Proceedings.

 

The Company is not a party to any material pending legal proceedings and, to the best of its knowledge, its properties are not the subject of any such proceedings.

 

Item 1A. Risk Factors.

 

See the risk factors described in Item 1A of the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2008.

 

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

 

Use of Proceeds

 

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 September 30, 2009, the Company has utilized the entire amount of the net proceeds from the offering for the purposes and in the approximate amounts set forth below:

 

_____________________________________

 

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

 

 

As of September 30, 2009, all offering proceeds had been spent. The use of proceeds described above differs from the use of proceeds described in the prospectus in that steel molds with an estimated acquisition cost of $18,000 were not acquired due to the downturn in the Company’s business, the forklift cost $7,500 less than the estimated cost of such item, and general and administrative expenses were higher due to higher than anticipated legal and accounting fees.

 

Item 3. Defaults Upon Senior Securities.

 

 

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

 

Not Applicable.

 

Item 5. Other Information.

 

Not Applicable.

 

 

The following documents are included as exhibits to this report:

 

(a) Exhibits

 

 

 

(Signatures contained on following page)

 

 

 

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.