SUMMER ENERGY HOLDINGS INC - Annual Report: 2011 (Form 10-K)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
(Mark One)
X . ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2011.
. TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________.
Commission file number 333-144620
CASTWELL PRECAST CORPORATION
(Exact name of registrant as specified in charter)
NEVADA |
| 20-2722022 |
(State or other jurisdiction of incorporation or organization) |
| (IRS Employer Identification No.) |
5641 South Magic Drive, Murray, Utah |
| 84107 |
(Address of principal executive offices) |
| (Zip Code) |
Registrant’s telephone number, including area code: (801) 599-5443
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Exchange Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes . No X .
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes X . No .
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. Yes . No X . (Note: The registrant is a voluntary filer and is not subject to the filing requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934. Although not subject to these filing requirements, the registrant 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 as if it were subject to such filing requirements.)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes X . No .
Indicate by check mark 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 X .
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | . | Accelerated filer | . |
Non-accelerated filer | . (Do not check if a smaller reporting company) | Smaller reporting company | X . |
Indicate by check mark whether the issuer is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes . No X .
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, 2011, based on the $0.15 price at which the common equity was sold in the registrant’s registered offering in 2008, the aggregate market value of the 1,192,070 shares held by non-affiliates was approximately $178,810.
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. Yes . No .
(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 20, 2011, there were 4,178,348 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.
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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
Recent Events
Contribution Agreement
As reported in our current report on Form 8-K filed January 19, 2012, on January 17, 2012, Castwell Precast Corporation (the “Company”) entered into an Agreement and Plan of Contribution among the Company, Summer Energy, LLC, a Texas limited liability company (“Summer”), and the members of Summer (the “Contribution Agreement”), which generally provides for the Company’s acquisition of Summer in exchange for shares of the Company’s common stock. Closing of the transactions contemplated by the Contribution Agreement is subject to several significant conditions and no assurances can be given that such conditions will be satisfied or that the acquisition will be completed.
Summer is a Houston, Texas based limited liability company that was recently organized in April, 2011 to engage in business as a retail electric provider (“REP”) in the State of Texas. The Texas regulatory structure permits REPs to procure and sell electricity at unregulated prices and pay to the local transmission and distribution utilities a regulated tariff rate for delivering electricity to its customers. Summer plans initially to sell electricity and provide the related service transactions, billing, customer service, collections and remittance services to residential and commercial customers in certain markets within the state of Texas and will seek to compete in such markets by offering its customers lower electricity rates, flexible payment and pricing choices, simple offers with understandable terms and responsive customer service. Summer was awarded a license by the Public Utility Commission of Texas (“PUCT”) to become a REP in September 2011 and commenced operations on February 15, 2012. As of September 30, 2011, Summer reported total members’ equity of approximately $2,400,000. There is no material relationship between the Company or its affiliates and Summer and its affiliates other than the Contribution Agreement.
The Contribution Agreement generally provides that prior to closing of the transaction, the Company will effect a 1-for-4 reverse stock split in its issued and outstanding shares of common stock and cause certain stockholders to return to the Company for cancellation 237,500 post-split shares of the Company’s common stock. As a result, immediately prior to closing there will be 807,087 post-split shares of the Company’s common stock outstanding and 25,000 post-split shares reserved for issuance upon the exercise of outstanding warrants. At closing the Company will issue 9,697,624 post-split shares of its common stock to the members of Summer on a 1-for-1 basis in exchange for their Summer membership interest units. The outstanding warrants and convertible obligations of Summer will be converted into the right to receive shares of the Company’s common stock on the same terms and conditions as contained in such warrants and convertible obligations. The Contribution Agreement also provides that prior to closing the Company will amend its articles of incorporation to implement the reverse stock split, change the name of the Company to “Summer Energy Holdings, Inc.” or some derivation thereof, and increase the Company’s authorized capital. The Contribution Agreement also provides that the Company will adopt a stock option and stock award plan in a form acceptable to Summer. At closing, the Company’s current officers and directors will resign from their positions and the persons designated by Summer and elected by the Company’s stockholders will be appointed as the new officers and directors of the Company. The shares of the Company’s common stock to be issued to the Summer Members will constitute restricted securities that have not been registered under the Securities Act of 1933, as amended, and are being issued in reliance upon exemptions from the registration requirements thereof.
Closing of the acquisition is subject to several significant conditions including the approval of the transaction by the TPUC, the approval of the transaction and related corporate actions by the Company’s stockholders, the approval by FINRA of the corporate actions to be effected by the Company, the preparation of financial statements of Summer meeting the requirements of the Contribution Agreement, and other customary conditions to closing. Certain of such conditions have been satisfied to date but there can be no assurance that all such conditions will be satisfied or waived or that the acquisition will be completed.
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After giving effect to the reverse stock split and cancellation of shares, the Summer members would hold 9,697,624 shares or approximately 92.3% of the 10,504,711 shares of the Company’s common stock to be outstanding following the completion of such actions, without giving effect to the outstanding warrants and convertible obligations of either party. As such, the Contribution Agreement will result in a change of control of the Company and, following the consummation thereof, the Summer Members will be able to elect directors and control the policies and practices of the Company. It is anticipated that the transaction will be accounted for as a reverse acquisition for accounting purposes.
The Contribution Agreement provides contractual limitations on the public resale of the Company’s shares following closing by providing that the shares to be received by the Summer Members pursuant to the Contribution Agreement and the shares of restricted stock held by the Company’s current stockholders will not be sold in any public market unless and until: the Company has become subject to the reporting requirements of section 13 or 15(d) of the Exchange Act; the Company has filed all reports and other materials required to be filed by section 13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months (or for such shorter period that the Company was required to file such reports and materials), other than Form 8-K reports; and a period of at least one (1) year has elapsed from the date on which current “Form 10” information has been filed by the Company with the SEC reflecting its acquisition of Summer.
The foregoing summary of selected provisions of the Contribution Agreement does not purport to be complete and is qualified in its entirety by reference to the Contribution Agreement, a copy of which is being filed as an exhibit to this report.
Special Stockholders’ Meeting
As reported in our current report on Form 8-K filed on March 16, 2012, at a special meeting of the Company’s stockholders held March 15, 2012, the Company’s stockholders approved proposals to: (1) authorize and approve the Agreement and Plan of Contribution dated as of January 17, 2012 among the Company, Summer Energy, LLC and its members; (2) authorize an amendment to the Company’s articles of incorporation in the form attached to the Proxy Statement as Exhibit A; (3) authorize the amendment and restatement of the Company’s bylaws in the form attached to the Proxy Statement as Exhibit B; (4) authorize and approve the 2012 Stock Option and Stock Award Plan in the form attached to the Proxy Statement as Exhibit C; (5) elect Amie Coleman, Jason Haislip and Duane Smith as directors of the Company to serve until the earlier of (i) the closing date of the transactions contemplated by the Contribution Agreement (Proposal 1), or (ii) the next annual meeting of the Company’s stockholders if the closing of the transactions contemplated by the Contribution Agreement does not take place; and (6) to elect Mace Meeks and Michael Vanderhoof as Class I directors for a term of one year; Andrew Priest and James Stapleton as Class II directors for a term of two years; and Rod Danielson, Stuart Gaylor and Jaleea George as Class III directors for a term of three years, with all such terms commencing on the closing date of the transactions contemplated by the Contribution Agreement (Proposal 1).
The actions contemplated by Proposals 2, 3 and 4 will not be implemented, and the persons elected as directors pursuant to Proposal 6 will not commence their terms of office, unless and until the transactions contemplated by the Agreement and Plan of Contribution (Proposal 1) have been completed.
If and when the transactions contemplated by the Agreement and Plan of Contribution have been completed, the Company will file a current report on Form 8-K providing, among other things, additional information with regard to Summer and the actions described above.
General
We were incorporated under the laws of Nevada on March 25, 2005. 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.
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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
Our window wells are manufactured at a manufacturing and warehouse facility owned by our vice president and located at 11744 South 2700 West, South Jordan, 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 a maximum of 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.
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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 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
We have no outside employees and we are dependent on our officers for 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. Our manufacturing operations are located in a manufacturing and warehouse facility owned by our vice president and located at 11744 South 2700 West, South Jordan, Utah. We use approximately one-third of the facility on a shared basis pursuant to an oral, month-to-month arrangement. We paid no rent for the use of such facility during 2011. 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.
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Our financial statements contain a going concern qualification generally indicating that we have a history of net operating losses and we have a significant accumulated deficit, which raise substantial doubt about our ability to continue as a going concern.
Our annual audited financial statements contain a going concern qualification indicating that we have a history of net operating losses and we have a significant accumulated deficit, which raise substantial doubt about our ability to continue as a going concern. We incurred net operating losses of $51,330 and $44,447 for the years ended December 31, 2011 and 2010, respectively, and we had an accumulated deficit of $371,798 as of December 31, 2011. 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 the additional debt or equity capital required in order to continue our operations.
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, a net loss of $98,661 for the year ended December 31, 2008, a net loss of $56,278 for the year ended December 31, 2009, a net loss of $44,447 for the year ended December 31, 2010, and a net loss of $51,330 for the year ended December 31, 2011. There can be no assurance that we will be able to operate at a 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 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 are currently no published quotations and there is no active trading market for our stock, and there can be no assurance that an active or liquid trading market for our 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 March 20, 2012, our officers and directors were the beneficial owners of approximately 51.5% 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.”)
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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. Our manufacturing operations are located in a manufacturing and warehouse facility owned by our vice president and located at 11744 South 2700 West, South Jordan, Utah. We use approximately one-third of the facility on a shared basis pursuant to an oral, month-to-month arrangement and we paid no rent for the use of such facility during 2010 or 2011. 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. Mine Safety Disclosures.
Not Applicable.
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, there currently are no published quotations on the OTC Bulletin Board and there is 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 20, 2012, there were no published bid or asked quotations for the Company’s common stock on the OTC Bulletin Board.
At March 20, 2012, there were approximately 65 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.
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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
During our 2011 fiscal year, we sold 200,000 shares of our common stock to an accredited investor for aggregate proceeds of $30,000. The investor represented that he was an “accredited investor” as defined in Rule 501 of Regulation D. No underwriter was involved in any of the foregoing transactions and the shares were sold by the Company directly to the investor. The shares were sold without registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance on the exemption from such registration requirements provided by Section 4(2) of the Securities Act for transactions not involving any public offering. The shares were sold without general advertising or solicitation, the purchaser acknowledged that he was purchasing restricted securities which had not been registered under the Securities Act and which were subject to certain restrictions on resale, and the certificates representing the shares were imprinted with the usual and customary restricted stock legend.
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 2011 fiscal year.
Item 6. Selected Financial Data
Not applicable. The Company is a “smaller reporting company.”
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. On April 4, 2008, we completed the sale of 1,000,000 shares of common stock pursuant to a registration statement on Form SB-2 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 proceeds received from such offering were sufficient to sustain our operations through December 31, 2010. During 2010, we sold 170,000 shares of our common stock in two private transactions for $25,500, and during 2011 we sold 200,000 shares of our common stock in two private transactions for $30,000, to provide the Company with additional working capital and as of December 31, 2011 such additional funds had been substantially exhausted.
Our executive offices are located at the residence of our president and treasurer for which we pay no rent. Our manufacturing operations are located in a manufacturing and warehouse facility owned by our vice president and located at 11744 South 2700 West, South Jordan, Utah. We use approximately one-third of the facility on a shared basis pursuant to an oral, month-to-month arrangement and we paid no rent for the use of such facility during 2010 or 2011. 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. To date, we have not operated on a profitable basis.
2011 Fiscal Year Compared to 2010 Fiscal Year
As discussed below, the housing crisis and the related drop in new residential construction have drastically reduced the demand for our products and have had a material adverse effect on our business and financial condition. If the housing crisis continues, our losses will increase and we will be forced to either obtain additional debt or equity capital or to cease operations. During 2011 we sold 200,000 shares of our common stock in two private transactions for $30,000 to provide the Company with additional working capital and as of December 31, 2011 such additional funds had been substantially exhausted. Except for the foregoing, 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.
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During the year ended December 31, 2011, our revenues were $0 compared to revenues of $2,400 for the year ended December 31, 2010, a decrease of $2,400 or 100%. The decrease is attributable to the lack of product sales during 2011 as result of the continuing housing crisis and the precipitous decrease in the construction of new homes. During 2011, our gross profit was $0 compared to a gross profit of $941 for the 2010 fiscal year, a decrease of $941.
During the year ended December 31, 2011, our general and administrative expenses were $39,306 compared to general and administrative expenses of $33,364 for the year ended December 31, 2010. The $5,942 increase in general and administrative expenses from 2010 to 2011 is primarily attributable to increases in legal/professional fees ($13,580) and taxes and licenses ($517), partially offset by a decrease in contract labor ($8,000). Depreciation expense was $12,024 in 2010 and 2011 resulting in total operating expenses of $51,330 for the year ended December 31, 2011 compared to $45,388 for the year ended December 31, 2010.
During the year ended December 31, 2011, our net loss was $51,330 compared to a net loss of $44,447 for the year ended December 31, 2010. The $6,883 increase in net loss from 2010 to 2011 was attributable to the $941 decrease in gross profit discussed above and the $5,942 increase in total operating expenses.
Liquidity and Capital Resources
On a consolidated basis, as of December 31, 2011, we had current assets in the form of cash in the amount of $6,981 and current liabilities of $25,790, which resulted in a working capital deficit of $18,809. As of December 31, 2010, we had cash in the amount of $4,247 and current liabilities of $13,750, which resulted in a working capital deficit of $9,503. The increase in working capital deficit from December 31, 2010 to December 31, 2011 is the result of our operating loss during such period and the payment of expenses and accounts payable which more than offset the proceeds we received from the sales of our common stock in April and August, 2011.
As indicated in Note 5 to our financial statements, we incurred a net operating loss of $51,330 for the year ended December 31, 2011 and we have an accumulated deficit of $371,798 as of December 31, 2011. In addition, we generated no revenue for the year ended December 31, 2011. 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.
At December 31, 2011, we did not have sufficient resources to permit us to continue our business plan and conduct our operations for the next six months and we were dependent on the receipt of additional debt or equity funding in order to continue our operations. We have not entered into any agreement or arrangement for the provision of additional funding and no assurance can be given that such funding will be available to us on acceptable terms or at all.
Cash Flows
Operating Activities
Net cash used by operating activities was $27,266 for the 2011 fiscal year resulting primarily from the net loss of $51,330 partially offset by $12,024 in depreciation and an increase in accrued expenses of $12,040. Net cash used by operating activities was $22,615 for the 2010 fiscal year resulting primarily from the net loss of $44,447 partially offset by $12,024 in depreciation and an increase in accrued expenses of $9,808.
Investing Activities
Net cash used by investing activities was $0 in 2011 and 2010.
Financing Activities
Net cash provided by financing activities was $30,000 in 2011 as a result of our receipt of $30,000 in proceeds from the private sales of our common stock. Net cash provided by financing activities was $25,500 in 2010 as a result of our receipt of $25,500 in proceeds from the private sales of our common stock.
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:
10
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, 2011 and 2010, 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, 2011 and 2010 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.
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, 2011 and 2010 was $12,024 and $12,024, respectively.
Basic and Diluted Earnings (Loss) Per Share
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, 2011 and 2010, the Company did not have any dilutive common stock equivalents.
Income Taxes
On December 31, 2011, the Company had a net operating loss available for carry forward of $371,798. The tax benefit of approximately $130,000 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 2026.
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
Not applicable. The Company is a “smaller reporting company.”
11
Item 8. Financial Statements
The following financial statements are being filed with this report and are located immediately following the signature page.
Consolidated Financial Statements, December 31, 2011
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets, December 31, 2011 and 2010
Consolidated Statements of Operations for the years ended December 31, 2011 and 2010
Consolidated Statement of Stockholders’ (Deficit) Equity for the years ended December 31, 2011 and 2010.
Consolidated Statements of Cash Flows for the years ended December 31, 2011 and 2010
Notes to Consolidated 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, 2011, 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, 2011 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 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, 2011. 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 our President and Treasurer concluded that as of December 31, 2011, the Company’s internal control over financial reporting was effective.
In conducting its evaluation, our President and Treasurer identified a weakness in the Company’s internal control, which arises from the fact that the Company’s principal executive and principal financial officers are the same person, which does not allow for segregation of duties. The President and Treasurer believes the weakness is mitigated by the limited number of transactions each year and the engagement of an outside certified public accounting firm to assist us with period end financial disclosure and reporting processes and the preparation of quarterly financial statements. As such, our President and Treasurer does not believe the weakness has a material effect on the accuracy and completeness of our financial reporting and disclosure as included in this report or that the weakness constitutes a material weakness such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or deterred on a timely basis.
12
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting during the quarter ended December 31, 2011 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.
Name |
| Age |
| Term Of Office |
| Positions Held |
Jason Haislip |
| 39 |
| 2011 |
| President, Treasurer and Director |
Amie Coleman |
| 29 |
| 2011 |
| Secretary and Director |
Duane J. Smith |
| 53 |
| 2011 |
| Vice President and Director |
________________________
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 firefighting equipment. From March 2000 through April 2005, Mr. Haislip was employed by L.N. Curtis & Sons Sales in a similar capacity. The board believes Mr. Haislip is qualified to serve as a director of the Company due to his extensive knowledge of the Company as a result of his status as a founder and his knowledge of the window well industry.
Amie Coleman, is a founder and principal stockholder of the Company who has served as secretary and a director of the Company since January 10, 2008. The board believes Ms. Coleman is qualified to serve as a director due to her extensive knowledge of the Company as a result of her status as a founder. Ms. Coleman is and has since August 2010 been a homemaker. From November 2004 until August 2010 she was self-employed as a hair stylist and from 2008 until August 2010 she was also engaged on a part-time basis as a certified Pilates instructor.
Duane J. Smith, was appointed as vice president and a director of the Company on January 10, 2008. Mr. Smith is and has since August 2010 been western regional construction manager for Phillips Edison & Company. He is also self-employed as a licensed general contractor and ranch foreman. From approximately January 2000 through January 2009, Mr. Smith was also the president and owner of Day & Night Glass, a commercial and residential glass company. The board believes Mr. Smith is qualified to serve as a director of the Company due to his experience as a general contractor and his knowledge of the construction industry.
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 2011, but the directors met during 2011 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.
13
Board of Directors
Our board of directors consists of three persons; Jason Haislip, Amie Coleman 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 expense 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.
Communications with Directors
Shareholders may communicate with the Board of Directors or any individual director by sending written communications addressed to the Board of Directors, or any individual director, to: Castwell Precast Corporation, Attention: Corporate Secretary, 5641 South Magic Drive, Murray, Utah 84107. All communications will be compiled by the corporate secretary and forwarded to the Board of Directors or any individual director, as appropriate. In order to facilitate a response to any such communication, the Company’s Board of Directors suggests, but does not require, that any such submission include the name and contact information of the shareholder submitting the communication.
Section 16(a) Beneficial Ownership Reporting Compliance
The Company does not have a class of equity securities registered pursuant to Section 12 of the Securities Exchange Act of 1934. As a result, no reports are required to be filed pursuant to Section 16(a) of the Exchange Act by the Company’s directors and executive officers, and persons who own more than 10% of a registered class of the Company’s equity securities.
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 chief executive officer in all capacities for the fiscal years ended December 31, 2011 and 2010. No executive officer of the Company received total annual compensation in excess of $100,000 per year during the 2011 or 2010 fiscal years.
14
Summary Compensation Table
Name and Principal Position | Year | Salary | Bonus | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation | All Other Compensation | Total |
|
|
|
|
|
|
|
|
|
Jason T. Haislip | 2011 | $ 0 | - | - | - | - | - | $ 0 |
President(1) | 2010 | $ 0 | - | - | - | - | - | $ 0 |
(1)
Jason Haislip served as secretary of the Company from its inception in March 2005 through January 10, 2008, as treasurer from inception in March 2005 through the present and as president from January 10, 2008 to the present.
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. As a result of the downturn in the Company’s business, in early 2009, Mr. Haislip agreed to serve without compensation pending an increase in revenues from operations or our receipt of additional financing and Mr. Smith agreed to serve on a contract basis based on time devoted to the Company’s affairs. We will continue to 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 and during the year ended December 31, 2011none of the directors received any compensation from the Company for their service in any other capacity.
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
The following table sets forth as of March 20, 2012, 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 4,178,348 issued and outstanding shares of our common stock.
Title of Class | Beneficial Owner (1) | Amount | Percentage Ownership |
Principal Stockholders |
|
|
|
Common Stock | Cambria Investment Fund, L.P. (2) 2321 Rosecrans Ave. Suite 4270 El Segundo, CA 90245 | 251,875 | 5.9% |
Common Stock | Michael Vanderhoof(3) P.O. Box 715 Oakley, UT 84055 | 936,278 | 21.9% |
Officers and Directors |
|
|
|
Common Stock | Amie Coleman | 1,450,000 | 32.3% |
Common Stock | Jason T. Haislip | 700,000 | 16.8% |
Common Stock | Duane J. Smith | 100,000 | 2.4% |
Common Stock | All Executive Officers |
|
|
| And Directors as a Group (Three Persons) | 2,150,000 | 51.5% |
15
_____________________
(1) Except as otherwise noted, the 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 606,473 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.
Office and Manufacturing 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. Our manufacturing operations are located in a manufacturing and warehouse facility owned by our vice president and located at 11744 South 2700 West, South Jordan, Utah. We use approximately one-third of the facility on a shared basis pursuant to an oral, month-to-month arrangement. We did not pay rent for the use of such space during 2010 or 2011.
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 Accounting Fees and Services
Madsen & Associates CPA’s Inc. served as the Company’s independent accountants for the fiscal years ended December 31, 2011 and 2010.
During the fiscal years ended December 31, 2011 and December 31, 2010, fees for services provided by Madsen & Associates CPA’s, Inc. were as follows:
|
| Year Ended | ||
|
| December 31, | ||
|
| 2011 |
| 2010 |
Audit Fees | $ | 13,850 | $ | 12,750 |
Audit-Related Fees |
| - |
| - |
Tax Fees |
| 375 |
| 375 |
All Other Fees |
| - |
| - |
|
|
|
|
|
Total | $ | 14,225 | $ | 13,125 |
“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.
16
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
The following documents are included as exhibits to this report.
(a) Exhibits
Exhibit Number |
| SEC Reference Number |
| Title of Document |
| Location |
|
|
|
|
|
|
|
3.1 |
| 3 |
| Articles of Incorporation |
| Incorporated by Reference* |
3.2 |
| 3 |
| Bylaws |
| Incorporated by Reference* |
10.1 |
| 10 |
| Warrant to Purchase Securities Between Castwell Precast Corporation and Cambria Investment Fund, LP dated November 14, 2005 |
| Incorporated by Reference* |
10.2 |
| 10 |
| Agreement and Plan of Contribution dated as of January 17, 2012 among Castwell Precast Corporation, Summer Energy, LLC and the members of Summer Energy LLC. |
| Incorporated by Reference** |
21.1 |
| 21 |
| Schedule of Subsidiaries |
| This Filing |
31.1 |
| 31 |
| Section 302 Certification of Chief Executive and Chief Financial Officer |
| This Filing |
32.1 |
| 32 |
| Section 1350 Certification of Chief Executive and Chief Financial Officer |
| This Filing |
101.INS*** |
|
|
| XBRL Instance Document |
| This Filing |
101.SCH*** |
|
|
| XBRL Taxonomy Extension Schema |
| This Filing |
101.CAL*** |
|
|
| XBRL Taxonomy Extension Calculation Linkbase |
| This Filing |
101.DEF*** |
|
|
| XBRL Taxonomy Extension Definition Linkbase |
| This Filing |
101.LAB*** |
|
|
| XBRL Taxonomy Extension Label Linkbase |
| This Filing |
101.PRE*** |
|
|
| XBRL Taxonomy Extension Presentation Linkbase |
| This Filing |
*Incorporated by reference to the Company’ Form SB-2 Registration Statement filed July 16, 2007
**Incorporated by reference to the Company’s current report on Form 8-K filed January 19, 2012.
***XBRL information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934, and is not subject to liability under those sections, is not part of any registration statement or prospectus to which it relates and is not incorporated or deemed to be incorporated by reference into any registration statement, prospectus or other document.
17
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)
Dated: March 26, 2012
By /s/ Jason T. Haislip
Jason T. Haislip, President
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.
Dated: March 26, 2012
By /s/ Jason T. Haislip
Jason T. Haislip
President, Treasurer and Director
(Principal Executive and Accounting Officer)
Dated: March 26, 2012
By /s/ Amie Coleman
Amie Coleman
Secretary and Director
Dated: March 26, 2012
By /s/ Duane Smith
Duane Smith
Vice President and Director
18
Supplemental Information to be Furnished with Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act
(a) At the time of filing this report on Form 10-K, the Company is furnishing to the Securities and Exchange Commission for its information a copy of the proxy statement with respect to the special meeting of the Company’s stockholders held on March 15, 2012.
(b) The foregoing material shall not be deemed to be “filed” with Commission or otherwise subject to the liabilities of Section 18 of the Act, except to the extent that the registrant specifically incorporates it in its annual report on this Form by reference.
19
CASTWELL PRECAST CORP. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
F-1
CASTWELL PRECAST CORP. AND SUBSIDIARY
CONTENTS
| PAGE |
Report of Independent Registered Public Accounting Firm | 3 |
|
|
Consolidated Balance Sheets, December 31, 2011 and 2010 | 4 |
|
|
Consolidated Statements of Operations for the years ended December 31, 2011 and 2010 | 5 |
|
|
Consolidated Statement of Stockholders’ (Deficit) Equity for the years ended December, 2011 and 2010 | 6 |
|
|
Consolidated Statements of Cash Flows for the years ended December, 2011 and 2010 | 7 |
|
|
Notes to Consolidated Financial Statements | 8-10 |
F-2
MADSEN & ASSOCIATES CPA’s, INC. |
|
|
|
To the Board of Directors and
Stockholders of Castwell Precast Corp. and Subsidiary
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the accompanying consolidated balance sheets of Castwell Precast Corp. and Subsidiary (the Company) as of December 31, 2011 and 2010, and the related consolidated statements of operations, stockholders’ (deficit) equity, and cash flows for each of the years in the two-year period ended December 31, 2011. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Castwell Precast Corp. and Subsidiary as of December 31, 2011 and 2010, and the consolidated results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has an accumulated deficit and recurring net operating losses, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are described in the notes to the consolidated financial statements. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Madsen & Associates CPA’s, Inc.
Murray, Utah
March 19, 2012
F-3
Castwell Precast Corp. and Subsidiary
Consolidated Balance Sheet
|
| December 31, |
| December 31, |
ASSETS |
| 2011 |
| 2010 |
Current Assets: |
|
|
|
|
Cash | $ | 6,981 | $ | 4,247 |
Total Current Assets |
| 6,981 |
| 4,247 |
|
|
|
|
|
Equipment |
| 93,332 |
| 93,332 |
Less: Accumulated Depreciation |
| (85,986) |
| (73,962) |
Total Equipment |
| 7,346 |
| 19,370 |
|
|
|
|
|
Total Assets | $ | 14,327 | $ | 23,617 |
|
|
|
|
|
LIABILITIES & STOCKHOLDERS' (DEFICIT) EQUITY |
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
Accrued Expenses | $ | 25,790 | $ | 13,750 |
Total Liabilities |
| 25,790 |
| 13,750 |
|
|
|
|
|
Commitments and Contingencies |
| - |
| - |
|
|
|
|
|
Stockholders' (Deficit) Equity |
|
|
|
|
Preferred Stock - $.001 par value, 10,000,000 shares authorized, no shares issued and outstanding |
| - |
| - |
Common Stock - $.001 par value, 50,000,000 shares authorized, 4,178,348 and 3,978,348 shares issued and outstanding at December 31, 2011 & 2010 |
| 4,178 |
| 3,978 |
Additional Paid-in-Capital |
| 356,157 |
| 326,357 |
Accumulated Deficit |
| (371,798) |
| (320,468) |
Total Stockholders' (Deficit) Equity |
| (11,463) |
| 9,867 |
|
|
|
|
|
Total Liabilities and Stockholders’ (Deficit) Equity | $ | 14,327 | $ | 23,617 |
See accompanying notes to consolidated financial statements
F-4
Castwell Precast Corp. and Subsidiary
Consolidated Statements of Operations
|
| December 31, |
| December 31, |
|
| 2011 |
| 2010 |
|
|
|
|
|
Revenues | $ | - | $ | 2,400 |
Cost of Goods Sold |
| - |
| 1,459 |
Gross Profit |
| - |
| 941 |
|
|
|
|
|
Expenses: |
|
|
|
|
General and Administrative (Note 4) |
| 39,306 |
| 33,364 |
Depreciation |
| 12,024 |
| 12,024 |
|
|
|
|
|
Total Operating Expenses |
| 51,330 |
| 45,388 |
|
|
|
|
|
Net Loss | $ | (51,330) | $ | (44,447) |
|
|
|
|
|
Weighted Average Common Shares Outstanding |
| 4,077,708 |
| 3,938,074 |
Basic and Diluted Loss per Common Share | $ | (0.01) | $ | (0.01) |
See accompanying notes to consolidated financial statements
F-5
Castwell Precast Corp. and Subsidiary
Consolidated Statement of Stockholders' (Deficit) Equity
| Preferred |
| Preferred |
| Common |
| Common |
|
|
|
|
|
|
| Stock |
| Stock |
| Stock |
| Stock |
| Paid-In |
| Accumulated |
| Total |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December 31, 2009 | - | $ | - |
| 3,808,348 | $ | 3,808 | $ | 301,027 | $ | (276,021) | $ | 28,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of common stock; March 25, 2010 | - |
| - |
| 100,000 |
| 100 |
| 14,900 |
| - |
| 15,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of common stock; March 31, 2010 | - |
| - |
| 70,000 |
| 70 |
| 10,430 |
| - |
| 10,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) for the year ended December 31, 2010 | - |
| - |
| - |
| - |
| - |
| (44,447) |
| (44,447) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December 31, 2010 | - |
| - |
| 3,978,348 |
| 3,978 |
| 326,357 |
| (320,468) |
| 9,867 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of common stock; April 1, 2011 | - |
| - |
| 66,667 |
| 67 |
| 9,933 |
| - |
| 10,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of common stock; August 18, 2011 | - |
| - |
| 133,333 |
| 133 |
| 19,867 |
| - |
| 20,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) for the year ended December 31, 2011 | - |
| - |
| - |
| - |
| - |
| (51,330) |
| (51,330) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December 31, 2011 | - | $ | - |
| 4,178,348 | $ | 4,178 | $ | 356,157 | $ | (371,798) | $ | (11,463) |
See accompanying notes to consolidated financial statements
F-6
Castwell Precast Corp. and Subsidiary
Consolidated Statements of Cash Flows
|
| December 31, |
| December 31, |
|
| 2011 |
| 2010 |
Cash Flows from Operating Activities: |
|
|
|
|
Net (Loss) | $ | (51,330) | $ | (44,447) |
|
|
|
|
|
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
Depreciation |
| 12,024 |
| 12,024 |
Changes in current assets and liabilities: |
|
|
|
|
Accrued expenses |
| 12,040 |
| 9,808 |
|
|
|
|
|
Net cash Provided by (Used by) Operating Activities |
| (27,266) |
| (22,615) |
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
Proceeds from sale of equipment |
| - |
| - |
Purchase of equipment |
| - |
| - |
|
|
|
|
|
Net cash (Used by) Investing Activities |
| - |
| - |
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
Common stock issued for Cash |
| 30,000 |
| 25,500 |
Net cash Provided by Financing Activities |
| 30,000 |
| 25,500 |
|
|
|
|
|
Net (Decrease) Increase in Cash |
| 2,734 |
| 2,885 |
|
|
|
|
|
Cash at Beginning of Period |
| 4,247 |
| 1,362 |
|
|
|
|
|
Cash at End of Period | $ | 6,981 | $ | 4,247 |
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
|
|
|
Interest | $ | - | $ | - |
Taxes | $ | - | $ | - |
See accompanying notes to consolidated financial statements
F-7
CASTWELL PRECAST CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED 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 December 31, 2011, 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 the known troubled accounts, historical experience, and other currently available evidence. As of December 31, 2011 and 2010, 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, 2011 and 2010 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.
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, 2011 and 2010 was $12,024 and $12,024, respectively.
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
In accordance with ASC Topic 260, “Earnings per Share,” the basic earnings (loss) per common share is computed by dividing the 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, 2011 and 2010, the Company did not have any dilutive common stock equivalents.
INCOME TAXES
On December 31, 2011, the Company had a net operating loss available for carry forward of $371,798. The tax benefit of approximately $130,000 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 2026.
F-8
CASTWELL PRECAST CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
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
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 March 25, 2010, the Company completed the sale of 100,000 shares of common stock to an accredited investor. The sale price was set at $0.15 per share and the Company received gross proceeds of $15,000.
On March 31, 2010, the Company completed the sale of 70,000 shares of common stock to an accredited investor. The sale price was set at $0.15 per share and the Company received gross proceeds of $10,500.
On April 1, 2011, the Company completed the sale of 66,667 shares of common stock to an accredited investor. The sale price was set at $0.15 per share and the Company received gross proceeds of $10,000.
On August 18, 2011, the Company completed the sale of 133,333 shares of common stock to an accredited investor. The sale price was set at $0.15 per share and the Company received gross proceeds of $20,000
As of December 31, 2011 the Company had zero shares of preferred stock outstanding and 4,178,348 shares of common stock outstanding.
NOTE 4 – GENERAL & ADMINISTRATIVE EXPENSES
For the year ended December 31, 2011, general and administrative expenses consisted of the following:
Office | $ | 252 |
Legal/Professional |
| 36,486 |
Auto |
| 1,891 |
Taxes/Licenses |
| 677 |
| $ | 39,306 |
For the year ended December 31, 2010, general and administrative expenses consisted of the following:
Office | $ | 554 |
Legal/Professional |
| 22,906 |
Auto |
| 1,744 |
Taxes/Licenses |
| 160 |
Contract Labor |
| 8,000 |
| $ | 33,364 |
F-9
CASTWELL PRECAST CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – GOING CONCERN
The Company incurred a net operating loss of $51,330 and $44,447 for the years ended December 31, 2011 and 2010 and has an accumulated deficit of $371,798 as of December 31, 2011. 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.
NOTE 6 – SUBSEQUENT EVENTS
On January 17, 2012, the Company entered into an Agreement and Plan of Contribution among the Company, Summer Energy, LLC, a Texas limited liability company (“Summer”), and the members of Summer (the “Contribution Agreement”), which generally provides for the Company’s acquisition of Summer in exchange for shares of the Company’s common stock. Summer is a Houston, Texas based limited liability company that was recently organized in April, 2011 to engage in business as a retail electric provider (“REP”) in the State of Texas. Closing of the transactions contemplated by the Contribution Agreement is subject to several significant conditions and no assurances can be given that such conditions will be satisfied or that the acquisition will be completed.
The Contribution Agreement generally provides that prior to closing of the transaction, the Company will effect a 1-for-4 reverse stock split in its issued and outstanding shares of common stock and cause certain stockholders to return to the Company for cancellation 237,500 post-split shares of the Company’s common stock. As a result, immediately prior to closing there will be 807,087 post-split shares of the Company’s common stock outstanding and 25,000 post-split shares reserved for issuance upon the exercise of outstanding warrants. At closing the Company will issue 9,697,624 post-split shares of its common stock to the members of Summer on a 1-for-1 basis in exchange for their Summer membership interest units. The outstanding warrants and convertible obligations of Summer will be converted into the right to receive shares of the Company’s common stock on the same terms and conditions as contained in such warrants and convertible obligations. As such, the Contribution Agreement will result in a change of control of the Company.
The Contribution Agreement also provides that prior to closing the Company will amend its articles of incorporation to implement the reverse stock split, change the name of the Company to “Summer Energy Holdings” or some derivation thereof, and increase the Company’s authorized capital. The Contribution Agreement also provides that the Company will adopt a stock option and stock award plan in a form acceptable to Summer. At closing, the Company’s current officers and directors will resign from their positions and the persons designated by Summer will be appointed as the new officers and directors of the Company. The shares of the Company’s common stock to be issued to the Summer Members will constitute restricted securities that have not been registered under the Securities Act of 1933, as amended, and are being issued in reliance upon exemptions from the registration requirements thereof.
F-10