Kesselring Holding Corporation. - Quarterly Report of Financial Condition (10QSB)

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-QSB

(Mark One)

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

For the quarter ended June 30, 2008

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

Commission File No. 000-52375

KESSELRING HOLDING CORPORATION

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

Delaware (State or other jurisdiction of incorporation or organization)	20-4838580 (IRS Employer Identification Number)

1956 Main Street Sarasota, Florida 34236 (Addresses of principal executive offices)	34236 ( Zip Code)

Issuer's telephone number, including area code: (941) 953-5774

Check whether the Issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No

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

Large accelerated filer o	Accelerated filer o	Non-accelerated filer o

Non accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes [ ] No [X]

As of August 14, 2008, 38,228,669 shares of Common Stock were outstanding.

Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]

KESSELRING HOLDING CORPORATION. AND SUBSIDIARIES

INDEX

PART I. Financial Information			Page No.

	Item 1.	Financial Statements	4

		Condensed Consolidated Balance Sheets at June 30, 2008 (Unaudited) and September 30, 2007	4

		Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended June 30, 2008 and 2007	5

		Condensed Consolidated Statements of Operations (Unaudited) for the Nine Months Ended June 30, 2008 and 2007	6

		Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended June 30, 2008 and 2007	7

		Notes to Condensed Consolidated Financial Statements	8

	Item 2.	Management’s Discussion and Analysis or Plan of Operation	16

	Item 3.	Quantitative and Qualitative Disclosures About Market Risks	22

	Item 4.	Controls and Procedures	22

	Item 4T.	Controls and Procedures	22

PART II.	Other Information

	Item 1.	Legal Proceedings	23

	Item 1A.	Risk Factors	23

	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	23

	Item 3.	Defaults Upon Senior Securities	24

	Item 4.	Submission of Matters to a Vote of Security Holders	24

	Item 5.	Other Information	24

	Item 6.	Exhibits	25

SIGNATURES			26

PART I—FINANCIAL INFORMATION

FORWARD-LOOKING STATEMENTS

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

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

KESSELRING HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

JUNE 30, 2008 AND SEPTEMBER 30, 2007

	2008			2007
Assets	(Unaudited)
Current assets
Cash and cash equivalent	$	54,153		$	159,744
Accounts receivable, net of allowance for doubtful accounts
of $113,474 and $96,264, respectively		1,116,982			1,311,833
Inventories		439,688			580,203
Costs and estimated earnings in excess of billings on
uncompleted contracts		19,330			132,435
Other Current Assets		177,982			141,669
Total current assets		1,808,135			2,325,884

Property and equipment, net		2,626,606			2,643,835
Intangible assets, net		13,999			24,499
Deferred loan costs		61,250			55,095
Total assets	$	4,509,990		$	5,049,313


Liabilities and Stockholders' Equity (Deficit)
Current liabilities
Accounts payable and accrued expenses	$	2,107,206		$	1,488,155
Restructuring Reserve		577,026			-
Billings in excess of costs and estimated earnings on
uncompleted contracts		208,794			192,932
Notes payable and current maturities of long-term debt		350,063			31,246
Notes payable - related parties		735,000			-
Total current liabilities		3,978,089			1,712,333

Long-term debt, less current maturities		1,600,742			1,543,435
Total liabilities		5,578,831			3,255,768

Commitments and contingent liabilities (Note 8)		-			-

Stockholders' equity (deficit)
Preferred stock, $.0001 par value, 20,000,000 shares authorized;
1,000,000 and 1,000,000 Series A shares issued and outstanding,
respectively aggregate liquidation preference of $1,725,000		1,500,000			1,500,000
Common stock, $0.0001 par value, 200,000,000 shares authorized;
37,992,305 and 35,507,665 shares issued and outstanding, respectively		3,800			3,551
Additional paid-in capital		4,446,887			3,984,152
Accumulated deficit		(7,019,528	)		(3,694,158	)
Total stockholders' equity (deficit)		(1,068,841	)		1,793,545
Total liabilities and stockholder's equity (deficit)	$	4,509,990		$	5,049,313

See notes to condensed consolidated financial statements.

KESSELRING HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2008 AND 2007

	2008			2007
Revenues
Manufactured Products	$	1,578,295		$	1,646,423
Construction Services		418,504			1,063,043
		1,996,799			2,709,466

Cost of revenues
Manufactured Products		1,118,485			1,362,732
Construction Services		273,462			836,599
		1,391,947			2,199,331

Gross profit		604,852			510,135

Operating expenses
Salaries and benefits, including share-based
payments of $106,791 in 2008, $8,334 in 2007		681,386			455,225
Consultant - related parties		-			91,501
Professional fees		40,854			332,269
Rent and occupancy		17,421			52,106
Depreciation and amortization, less amounts
included in cost of revenue		44,979			3,348
Repairs and maintenance		17,569			2,217
Transportation		30,603			12,725
Insurance		46,812
Advertising		8,476
Bad Debts		-			155,363
Restructuring and Exit Costs		(12,500	)
Other operating expenses		132,778			162,233
		1,008,378			1,266,987

Loss from operations		(403,526	)		(756,852	)

Other income (expense)
Interest income		1,062			1,570
Interest expense		(64,181	)		(29,426	)
Other income (expense), net		330			130
Total other income (expense), net		(62,789	)		(27,726	)

Loss before income taxes		(466,315	)		(784,578	)
Income taxes		-			21,867

Net loss		(466,315	)		(762,711	)

Deemed dividend					(1,429,104	)
Undeclared preferred stock dividends		(37,500	)		(14,333	)
Loss applicable to common shareholders	$	(503,815	)	$	(2,206,148	)

Loss per common share
Basic and diluted	$	(0.01	)	$	(0.07	)

Weighted average common shares outstanding
Basic and diluted		37,010,501			33,456,785

See notes to condensed consolidated financial statements.

KESSELRING HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

NINE MONTHS ENDED JUNE 30, 2008 AND 2007

	2008			2007
Revenues
Manufactured Products	$	5,295,564		$	5,134,080
Construction Services		1,806,989			4,280,038
		7,102,553			9,414,118

Cost of revenues
Manufactured Products		3,749,534			4,337,395
Construction Services		1,573,465			3,133,751
		5,322,999			7,471,146

Gross profit		1,779,554			1,942,972

Operating expenses
Salaries and benefits, including share-based
payments of $315,829 in 2008, $54,334 in 2007		2,291,034			1,189,555
Consultants - related parties		-			312,538
Professional fees		641,056			978,418
Rent and occupancy		139,337			135,284
Depreciation and amortization, less amounts
included in cost of revenue		116,017			71,737
Repairs and maintenance		49,558			36,116
Transportation		110,999			45,349
Insurance		112,001
Advertising		63,119
Bad Debts Expense		163,068			155,363
Restructuring and Exit Costs		776,600
Other operating expenses		515,645			364,844
		4,978,434			3,289,204

Loss from operations		(3,198,880	)		(1,346,232	)

Other income (expense)
Interest income		1,062			5,470
Interest expense		(147,888	)		(74,231	)
Other income (expense), net		20,679			(1,904	)
Total other income (expense), net		(126,147	)		(70,665	)

Loss before income taxes		(3,325,027	)		(1,416,897	)
Income taxes		-			254,829

Net loss		(3,325,027	)		(1,162,068	)

Deemed dividend					(1,429,104	)
Undeclared preferred stock dividends		(75,000	)		(14,333	)
Loss applicable to common shareholders	$	(3,400,027	)	$	(2,605,505	)

Loss per common share
Basic and diluted	$	(0.09	)	$	(0.08	)

Weighted average common shares outstanding
Basic and diluted		36,011,018			33,255,792

See notes to condensed consolidated financial statements.

KESSELRING HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED JUNE 30, 2008 AND 2007

	2008			2007
Cash flows from operating activities:
Net loss	$	(3,325,027	)	$	(1,162,068	)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization		180,012			179,406
Stock-based compensation—employees		315,829			54,334
Stock-based compensation—consultants related parties		14,000			-
Stock-based compensation—consultants		15,000			74,643
Stock-based compensation—directors		50,670			-
Gain on disposal of equipment		22,574			-
Deferred income taxes					(254,829	)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		194,850			339,048
Inventories		140,514			17,059
Contract assets		113,106			(206,735	)
Other current assets		(36,313	)		(212,151	)
Other assets		(6,154	)		-
Accounts payable and accrued expenses		1,268,537			(65,136	)
Contract liabilities		10,546			2,844
Net cash from operating activities		(1,041,857	)		(1,233,585	)

Cash flows from investing activities:
Purchases of property and equipment		(174,857	)		(182,390	)
Net cash from investing activities		(174,857	)		(182,390	)

Cash flows from financing activities:
Proceeds from notes payable and credit facilities		1,172,302			1,495,500
Proceeds from notes payable - related parties		835,000			-
Repayment of notes payable and credit facilities		(796,178	)		(353,622	)
Repayment of notes payable, related parties		(100,000	)		(929,389	)
Proceeds from sale of common stock		-			490,000
Proceeds from sale of preferred stock and warrants, net of related costs		-			1,190,000
Net cash from financing activities		1,111,123			1,892,489

Net change in cash		(105,591	)		476,514
Cash at beginning of period		159,744			550,482
Cash at end of period	$	54,153		$	1,026,996

Supplemental Cash Flow Information:
Cash paid for interest	$	147,888		$	75,749

See notes to condensed consolidated financial statements.

KESSELRING HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.	Basis of presentation and nature of our business :

Basis of presentation:

Our unaudited condensed consolidated financial statements as of June 30, 2008 and for the three and nine months ended June 30, 2008 and 2007 have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with interim reporting standards of Regulation S-B of the Securities and Exchange Commission ( “SEC” ). Accordingly, they do not include all the information required by generally accepted accounting principles for complete financial statements. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of our financial position as of June 30, 2008, our results of operations for the three and nine months ended June 30, 2008 and 2007 and cash flows for the nine months ended June 30, 2008 and 2007 have been included in their preparation. These unaudited condensed consolidated financial statements should be read in conjunction with our annual financial statements for our fiscal year ended September 30, 2007 and Management’s Discussion and Analysis and Plan of Operation, and related notes thereto, included in the Company’s Form 10-KSB filed on December 28, 2007 with the SEC. Operating results for the nine months ended June 30, 2008 are not necessarily indicative of the results that may be expected for the year ending September 30, 2008.

The preparation of financial statements in accordance with Accounting Principles Generally Accepted in the United States of America contemplates that the Company will continue as a going concern, for a reasonable period. As reflected in our condensed consolidated financial statements, we have incurred losses of ($3,325,027) and ($1,162,068) during the nine months ended June 30, 2008 and 2007, respectively. We have used cash of ($1,041,857) and ($1,233,585) in our operating activities during the nine months ended June 30, 2008 and 2007, respectively. We also have a current working capital deficiency of ($2,169,954) that is insufficient in our management’s view to sustain our current levels of operations for a reasonable period without additional financing. Finally, as discussed in Note 4, we have defaulted on a material operating lease that has resulted in a material charge to our operations. These trends and conditions continue to raise substantial doubt surrounding our ability to continue as a going concern for a reasonable period.

In response to these trends and conditions, our Board of Directors has substantially restructured our executive management. This restructured executive management team has been implementing a strategic plan to alleviate our liquidity shortfalls, improve gross profit margins, reduce expenses and, ultimately, achieve profitability. Since August 2007, execution of this plan has included (i) the elimination of a substantial number of our Florida-based positions and the associated employment costs, (ii) the curtailment of operating costs and expenses, (iii) the refocus of construction services work away from less profitable homebuilding activities to more profitable restoration and renovation activities; and, (iv) the aggressive development of our manufactured products business.

As a result of our executive management’s efforts, we have (i) increased our consolidated gross profits to 30% for our third quarter, compared to 19% and 26% during our first and second quarters, respectively, (ii) reduced our cash-based compensation expenditures to $575,000 for our third quarter, compared to $840,000 and $538,000 during our first and second quarters, respectively, and (iii) reduced our total operating expenses to $1,008,000 for our third quarter, compared to $1,760,000 and $2,135,000 during our first and second quarters, respectively. Notwithstanding the operating performance improvements, our quarterly revenues have declined from earlier quarters, resulting from our decision not to contract further for the construction of new luxury homes, and our negative liquidity conditions have worsened from reporting working capital of $613,551 at September 30, 2007 to a deficiency of working capital of ($2,169,954). The reduction in liquidity is due to our preservation of cash reserves to sustain our operations while working closely with our creditors and vendors to extend terms of payment, the later having the effect of increasing our liabilities. Our management will continue these efforts while seeking other permanent sources of equity. However, there can be no assurance that additional capital arrangements, at terms suitable to our management, will present themselves.

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

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

2.	Nature of our business and segment information :

We are engaged in (i) restoration services, principally to commercial property owners, (ii) the manufacture and sale of cabinetry and remodeling products, principally to contractors and (iii) multifamily and commercial remodeling and building services on customer-owned properties. We apply the “management approach” to the identification of our reportable operating segments as provided in Financial Accounting Standard No. 131 Disclosures about Segments of an Enterprise and Related Information . This approach requires us to report our segment information based on how our chief decision making officer internally evaluates our operating performance. Our business segments consist of (i) Construction Services and (ii) Manufactured Products. Construction Services consists of commercial and multifamily construction and restoration services including the exterior removal and replacement of steel reinforced concrete, stucco, carpentry work, waterproofing and painting of commercial buildings such as hotels, condominiums, and apartment buildings. We currently provide these services to commercial property owners principally in the West Central Florida Area. Our Manufactured Products business consists of the custom manufacturing and sale of cabinetry, wood moldings, doors, casework, display fixtures and other types of specialty woodwork. We provide the vast majority of these products to commercial construction contractors in the Northwestern United States and some products to homebuilding contractors in that same area.

Selected financial information about our segments for the nine months ended June 30, 2008 and 2007 is provided in the table below:

2008	Construction Services			Manufactured Products			Corporate			Total
Revenues	$	1,806,989		$	5,295,564		$	--		$	7,102,553
Operating Income/(loss)		(1,001,587	)		(430,804	)		(1,892,636	)		(3,325,027	)
Restructuring charges		(40,000	)		--			(736,600	)		(776,600	)
Depreciation and amortization		(45,821	)		(102,453	)		(31,738	)		(180,012	)
Identifiable assets (at 6/30/08 )		472,126			3,862,886			174,978			4,509,990

2007	Construction Services			Manufactured Products			Corporate			Total
Revenues	$	4,280,038		$	5,134,080		$	--		$	9,414,118
Operating Income/(loss)		(431,403	)		193,254			(923,919	)		(1,162,068	)
Depreciation and amortization		(94,492	)		(84,914	)		--			(179,406	)
Identifiable assets (at 6/30/07 )		1,337,398			3,861,394			609,744			5,808,536

During the nine months ended June 30, 2008 and 2007 we incurred expenses of $1,892,636 and $923,919, respectively, in strategic business activities that were not directly attributable to the operations of our segments. All other corporate expenses have been allocated to the segments. Also during the nine months ended June 30, 2008, we recorded restructuring and exit costs that are more fully described in Note 4.

3.	Inventories:

Inventories consisted of the following at June 30, 2008 and September 30, 2007:

	2008		2007
Raw materials	$	323,629	$	126,253
Work-in-process		116,059		323,555
Finished goods		--		130,394
	$	439,688	$	580,203

4.	Accounts payable and accrued expenses :

Accounts payable and accrued expenses consisted of the following at June 30, 2008 and September 30, 2007:

	2008		2007
Accounts payable	$	1,690,432	$	1,031,898
Accrued expenses		385,542		407,964
Accrued losses on contracts		1,465		1,465
Accrued warranty costs		29,767		46,828
Accounts payable and accrued expenses		2,107,206		1,488,155
Restructuring reserve		577,026		--
	$	2,684,232	$	1,488,155

Restructuring and exit activities:

As discussed in Note 1, our Board of Directors has substantially restructured our executive management. This restructured executive management team has been implementing a strategic plan to alleviate our liquidity shortfalls, improve gross profit margins, reduce expenses and, ultimately, achieve profitability. Since August 2007, execution of this plan has included (i) the elimination of a substantial number of our Florida-based positions and the associated employment costs, (ii) the curtailment of operating costs and expenses, (iii) the refocus of construction services work away from less profitable homebuilding activities to more profitable restoration and renovation activities; and, (iv) the aggressive development of our manufactured products business.

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

The following table illustrates the activity in our restructuring reserve:

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

Contract Termination Costs: In March 2008, we exited a significant facility operating lease that has remaining non-cancellable payments of $748,787 (including executory costs). As discussed in Note 9, on July 10 th , we entered into a settlement agreement and mutual release with the landlord with an effective date of July 2 nd . We have recorded our best estimate of the fair value of the lease obligation, which is net of possible sublease collections, using a probability weighted, discounted forward cash flow valuation technique.

Termination Benefits: We have terminated the employment of certain officers and employees since the commencement of our restructuring activities. We record termination benefits when they are both approved by the appropriate level of management (or in some instance our Board of Directors) and the benefit is communicated to and committed to the employee. Our termination benefits do not include any on-going performance (such as stay-bonuses) or benefit (such as health) requirements. Subsequent to our quarter ended June 30, 2008, we issued 236,000 shares in settlement of a termination benefit amounting to $75,000. This settlement will be reflected in the period that the shares were issued.

Other Associated Costs: These costs generally include direct, incremental expenses associated with the exit or restructuring activities, such as legal expenses.

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

5.	Notes payable :

Notes payable consisted of the following at June 30, 2008 and September 30, 2007:

	2008			2007
Variable rate mortgage note payable, due January 2017 (a)	$	1,234,250		$	1,247,261
8.0% Note payable, due July 2017 (b)		301,723			306,562
4.9% Note payable, due August 2010		15,209			20,858
Prime plus 1%, $300,000 bank credit facility (c)		--			--
Prime plus 4.5%, $1,000,000 bank credit facility(e)		315,261			--
7.0% related party notes due on demand (d)		695,000			--
12.0% related party note due on demand (d)		40,000			--
Auto Loan		11,600			--
Loans on equipment		72,762			--

		2,685,805			1,574,681
Current maturities (including related party notes)		(1,085,063	)		(31,246	)
Long-term debt	$	1,600,742		$	1,543,435

(a)

In March, 2007, we borrowed $1,255,500 under a ten-year, adjustable rate mortgage note. The coupon rate is based on the five-year Treasury Rate for Zero-Coupon Government Securities, plus 280 basis points (6.14% and 7.73% at June 30, 2008 and September 30, 2007, respectively). The mortgage note is secured by commercial real estate owned in Washington State.

(b)

In August, 2007, we incurred mortgage debt of $308,000 as the partial purchase price for commercial real estate owned in Washington State with a cost of $389,257. This note has a ten-year term and an adjustable coupon rate based on the five-year Treasury Rate for Zero-Coupon Government Securities, plus 310 basis points (6.44% and 8.03% at June 30, 2008 and September 30, 2007, respectively). This debt is secured by the real estate acquired.

(c)	$100,000 of this bank line of credit expired on March 31, 2008; $200,000 was to expire on October 31, 2008. See (e) for additional information about a replacement line of credit.

(d)	See Note 6 and Note 9 for additional information about these related party notes.

(e)

On April 29, 2008, we entered into an agreement with a financial institution to provide up to $1,000,000 in secured credit, subject to certain limitations. This facility will replace a previous facility with another bank that had a limit of $300,000. Under this new facility, we are permitted to draw on an advance line of up to 80% of certain eligible accounts receivable arising from our manufactured products segment. The interest rate is Prime plus 4.5%. The line is secured by the accounts receivable, inventory, and the unencumbered fixed assets of that segment. As part of the transaction, the lender was granted 150,000 shares of common stock having a fair market value of $15,000.

Maturities of our notes payable for each year ending September 30 (or remaining period thereof) at June 30, 2008 are as follows:

2008	$	328,957
2009		731,042
2010		126,010
2011		56,405
2012		33,370
Thereafter		1,410,021
	$	2,685,805

6.	Related party transactions :

Consulting fees, related parties:

Our consulting fees, related parties, for the nine months ended June 30, 2008 and 2007 amounted to $35,325 and $312,538, respectively, and are comprised of the following:

·	We paid $12,111 and $84,042, respectively, in professional fees to an accounting firm partially owned by our former Interim Chief Financial Officer and Director.

We paid $23,214 and $36,830, respectively, in consultancy fees to Spyglass Ventures. The managing partner of Spyglass Ventures is also actively involved in other unrelated business ventures. The Chairman of our Board of Directors and our Chief Operating and Financial Officer are directly involved in some of those other unrelated business ventures. Our Chairman and our Chief Operating and Financial Officer do not participate in the determination of the fees that we pay to Spyglass Ventures.

Our Chief Executive Officer received $43,500 in fees under a consultancy contract for the six months ended March 31, 2007. Subsequent to this consultancy contract this individual received a salary which is included in salaries and benefits.

Our former Chief Operating Officer and current Chairman of our Board of Directors received $31,910 in fees under a consultancy contract for the six months ended March 31, 2007. Subsequent to this consultancy contract, this individual received a salary which is included in salaries and benefits.

We paid $96,000 in consultancy fees to a family member of our former Chief Executive Officer for the six months ended March 31, 2007. There were no consulting fees paid for the nine months ended June 30, 2008.

Related party loans:

In October, November and December 2007 and January and June 2008, certain members of our Board of Directors, or organizations with which they are affiliated, funded an aggregate $835,000 to the company pursuant to notes payable. $100,000 of these loans was repaid during the quarter ended December 31, 2007. These notes bear interest at 7.0% and mature as follows: October 23, 2008 - $50,000; December 27, 2008 - $30,000; December 31, 2008 - $45,000; January 3, 2009 - $20,000; April 18, 2009 – $250,000; May 8, 2009 - $25,000; June 18, 2009 – $250,000; November 6, 2009 - $25,000; and, June 26, 2009 - $40,000.

Settlements:

During the quarterly period ended March 31, 2008, we settled obligations to certain officers and directors (having a carrying value in accounts payable and accrued liabilities of $165,067) for 1,228,630 shares of common stock, having a fair value of $86,004, and cash and assets, having a fair value of $28,999. We accounted for each individual settlement separately. Gains (aggregating $57,152) were recorded in stockholders’ equity due to the related party nature of the settlement. Losses (aggregating $7,088) were recorded in salaries and benefits. The common shares were not physically issued until May 2008. Also see Note 7.

7.	Stockholders’ equity (deficit) :

Common stock issuances:

During the nine months ended June 30, 2008, we issued 160,000 shares of our common stock to employees for compensation. We valued these common shares using the trading market prices in effect on the date of the award. Total compensation expense related to this award amounted to $60,800 and is included in salaries and benefits expense.

Also during the nine months ended June 30, 2008, we committed to the issuance of an aggregate of 2,274,630 shares of common stock to certain officers and board members in connection with their employment contracts and settlements, as follows.

We committed to the issuance of 1,046,000 shares of common stock, having a fair value of $73,220, to two officers in connection with their ongoing employment arrangements. These shares vested upon the award date and the expense is reflected in our salaries and benefits expense. The shares were physically issued in May 2008.

We committed to the issuance of 1,228,630 shares of common stock, having a fair value of $86,004, to our officers and board members as partial settlement of liabilities. The remainder of the settlement was in the form of cash and assets having a fair value of $28,999. The settlements gave rise to (i) a credit to paid-in capital of $57,152, representing the extinguishment gains resulting from the settlements and (ii) a charge to salaries and benefits of $7,088, representing the extinguishment losses resulting from the settlements. Extinguishment gains or losses were determined relative to each employee or board member. Extinguishment gains arising from transactions with related parties are, as required under current accounting standards, recorded as a capital transaction. The shares were physically issued in May 2008.

Stock options:

We record compensation expense related to stock options as they vest using the grant-date, fair value method prescribed in Statements on Financial Accounting Standards No. 123R Accounting for Share-Based Payments. The aggregate grant-date fair value of stock options issued during the nine months ended June 30, 2008 was estimated to be $315,829 using the Trinomial Lattice valuation technique. Significant assumptions underlying this technique include (i) an effective volatility range of 55.71% to 97.28%, (ii) a risk-free rate range of 2.89% to 3.32% and (iii) an effective term equal to the contractual term.

The following table illustrates the status of our stock option awards as of June 30, 2008:

	Options Outstanding			Weighted Average Prices
October 1, 2007		240,200		$	0.39
Granted		4,800,000			0.21
Exercised		--			--
Expired or forfeited		(2,500,000	)		0.30
June 30, 2008		2,540,200		$	0.11

Exercisable at June 30, 2008		1,790,200

The above options have an aggregate weighted average remaining term of 4.80 years.

Amortization of our stock-option based compensation arrangements during the nine months ended June 30, 2008 amounted to $161,808, and is included in the caption salaries and benefits.

Warrants:

We have warrants outstanding to purchase 10,297,671 shares of our common stock. Our outstanding warrants range in exercise prices from $0.49 to $0.54 and have a weighted average remaining life of 2.93 years on June 30, 2008.

The following table illustrates the status of our stock warrants as of June 30, 2008:

	Warrants Outstanding		Weighted Average Prices
October 1, 2007		10,297,671	$	0.52
Granted		--		--
Exercised		--		--
Expired		--		--
June 30, 2008		10,297,671	$	0.52

Exercisable at June 30, 2008		10,297,671

Preferred stock:

Our Series A Preferred Stock has a conversion option that is indexed to 3,091,966 of our common shares. In addition, the terms provide for cumulative dividends. We record dividends when they are declared by our Board of Directors. As of June 30, 2008 $130,685 of cumulative preferred stock dividends are in arrears.

Other:

During the nine months ended June 30, 2008, we settled a vendor dispute that resulted in the vendor’s return of 200,000 shares of common stock that had been previously recorded based upon their fair value. The shares were redeemed without consideration and cancelled.

8.	Commitments and contingencies :

Warranties:

We provide a basic limited one-year warranty on workmanship and materials for all construction and restoration services performed and products manufactured. We estimate the costs that may be incurred under its basic limited warranty and record a liability in the amount of such costs at the time the associated revenue is recognized. Factors that affect our warranty liability include the number of homes constructed, the amount of restoration services performed, the number of products manufactured, historical and anticipated rates of warranty claims and average cost per claim. Estimated warranty costs are 0.50% of the total sales price of homes constructed and restoration services performed and 0.25% of the total sales price of products manufactured. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

Lease arrangements:

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

9.	Subsequent events:

Subsequent financings:

On June 26, 2008, the Board of Directors approved a financing arrangement from a member of the Board of Directors to provide loans to the Company for a total of $250,000 to be secured by a 2 nd lien position on the real estate owned by our Washington subsidiary. The Company received $40,000 on June 26 th , $21,000 on July 3 rd , and $189,000 on July 8 th . The loans mature on the 365 th day after each loan was made and bear interest at 12%

Settlement of facility Lease obligation:

In March 2008, we exited a significant facility operating lease that has remaining non-cancellable payments of $748,787 (including executor costs). On July 10 th , we entered into a settlement agreement and mutual release with the landlord with an effective date of July 2 nd with the following terms:

1)	For a payment of $75,000 in five equal installments of $15,000 each on July 2 nd , August 2 nd , September 2 nd , October 2 nd and November 2 nd , 2008, the landlord has agreed to an abatement of legal action against the company for a period of two years.

2)	At the end of the two year period, and if the initial payment is made, the landlord shall be entitled to a final judgment of the lessor of the following amounts:

a.	The sum of $312,500, or

b.	The sum of $709,045 minus the initial payment of $75,000 and any rent received as part of a sub lease arrangement during the balance of the initial lease term.

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

Results of Operations for the Three months ended June 30, 2008 and 2007 :

Revenues: Our consolidated revenues decreased $712,667, or 26%, to $1,996,799 in 2008 compared to $2,709,466 for the prior year.

Manufactured Products Segment : Revenues from our Manufactured Products Segment decreased $68,128, or 4%, to $1,578,295 in 2008 compared to $1,646,423 for the prior year.

Construction Services Segment : Revenues from our Construction Services Segment decreased $644,539, or 61%, to $418,504 in 2008 compared to $1,063,043 for the prior year. The following table illustrates the revenue comparison for our Homebuilding and Restoration Services divisions:

	2008		2007
Homebuilding	$	50,470	$	841,088
Restoration Services		368,034		221,955
	$	418,504	$	1,063,043

We had five homes under construction in fiscal 2007, four were completed and one is over 99% complete as of June 30, 2008. All of these homes were contracted for during 2005 and 2006. We have not contracted to build any new homes during 2007 or 2008 and do not anticipate building any other homes in the future. The 2008 results reflect our phasing-out of the homebuilding market and concentrating our efforts on growing the more profitable Restoration Services division.

Cost of Revenues and Gross Profit: Our consolidated cost of revenues decreased $807,384, or 37%, to $1,391,497 in 2008 compared to $2,199,331 for the prior year. Our consolidated gross profit increased $94,717, or 19%, to $604,852 in 2008 compared to $510,135, for the prior year.

Manufactured Products Segment : Cost of revenues in our Manufactured Products Segment decreased $244,247, or 18%, to $1,118,485 in 2008 compared to $1,362,732 for the prior year.

Construction Services Segment : Cost of revenues in our Construction Services Segment decreased $563,137, or 67%, to $273,462 in 2008 compared to $836,599 for the prior year. The following table illustrates the cost of revenues comparison for our Homebuilding and Restoration Services divisions:

	2008		2007
Homebuilding	$	16,991	$	654,181
Restoration Services		256,471		182,418
	$	273,462	$	836,599

The gross profit in our Homebuilding division reflects the near completion of all of the remaining houses the Company had under contract as of June 30, 2008.

Salaries and Benefits Expenses: Our salaries and benefits expense increased $226,162, or 50%, to $681,386 in 2008 compared to $455,225 for the prior year.

Our salaries and benefits expense in 2008 includes $106,791 of compensation expense arising from share-based payment arrangements, compared to $8,334 in 2007. We have entered into employment contracts that include share-based awards. As we grow our business, we may use share-based payment arrangements to compensate and motivate our employees. Accordingly, share-based payments and the associated expense may increase in future periods.

During the three months ended June 30, 2008, we further decreased the workforce involved in our Construction Services Segment. These headcount reductions will result in lower compensation expense in future periods. However, as our operations grow and improve, we may add employees accordingly.

Professional Fees: Our professional fees decreased $291,415, or 88%, to $40,854 in 2008 compared to $332,269 for the prior year. This decrease reflects the reduction in the use of outside professionals to assist the Company in its efforts to enter the public marketplace.

Rent and Occupancy : We rent the facilities used for our Corporate Headquarters and our Construction Services Segment under operating leases. We own the facilities used for our Manufactured Products Segment and, accordingly, rent and occupancy costs for that segment are minimal. Our rent and occupancy expense decreased $34,686, or 67%, to $17,421 in 2008 compared to $52,107 for the prior year.

As more fully discussed in restructuring and exit activities, below, we have exited our corporate headquarter lease and are occupying a smaller facility that meets our current needs.

Depreciation and Amortization: Depreciation and amortization, net of amounts included in cost of revenues, increased $41,631, or 1,243%, to $44,979 in 2008 compared to $3,348 for the prior year. This increase is attributable to our expanded production capabilities in our Manufactured Products Segment.

Repairs and Maintenance : Repairs and Maintenance expense increased $15,352, or 692%, to $17,569 in 2008 compared to $2,217 for the prior year.

Transportation : Transportation expense increased $17,878, or 140%, to $30,603 in 2008 compared to $12,725 for the prior year.

Restructuring and Exit Activities: Our restructuring and exit activities arose during the second quarter and are discussed below in the analysis of our results for nine months.

Other Operating Expenses : Other operating expenses decreased $29,455, or 18%, to $132,778 in 2008 compared to $162,233 for the prior year.

Interest Income: We received $1,062 and $1,570 in interest income in 2008 and 2007, respectively. The decrease in interest income was a result of lower average deposited balances.

Interest Expense: Our interest expense increased $34,755, or 118%, to $64,181 in 2008 compared to $29,426 for the prior year due to increased average borrowings.

Income Tax Benefit: We recorded an income tax benefit of $21,867 in 2007. We recognize income tax benefits from net operating losses only in instances where future revenue sources, as outlined in Statements on Financial Accounting Standards No. 109 Accounting for Income Taxes , are present. During that period, we recognized the benefits against future reversing temporary differences; that is, deferred tax credits. During the year ended September 30, 2007, we exhausted all future income sources and, accordingly, do not expect to record income tax benefits in our current fiscal year.

Loss Applicable to Common Stockholders : Loss applicable to common stockholders amounting to ($503,815) represents our net loss of ($466,315) less preferred stock dividends and accretions of $37,500. Our preferred stock dividends and accretion arose in connection with our Series A Preferred Stock and Warrant Sale in May of 2007. Since the preferred stock has a cumulative dividend feature, those dividends, declared or undeclared, will continue to be reflected in our loss applicable to common shareholders until the preferred shares are converted, if ever. We have not declared dividends on the Series A Preferred Stock. However, for purposes of computing our net loss per common share, we are required to include dividends in arrearage that amounts to $75,000 as of June 30, 2008.

Loss Per Common Share : Our loss per common share decreased from ($0.07) in 2007 to ($0.01) in 2008. The decrease in the loss per common share is attributable to (i) our decreased net loss during 2008. Our diluted loss per common share does not include the effects of (i) our Convertible Series A Preferred Stock, (ii) warrants and (iii) employee stock options, because the effect of these financial instruments on our diluted loss per share is anti-dilutive.

Results of Operations for the Nine months ended June 30, 2008 and 2007 :

Revenues: Our consolidated revenues decreased $2,311,565, or 25%, to $7,102,553 in 2008 compared to $9,414,118 for the prior year.

Manufactured Products Segment : Revenues from our Manufactured Products Segment increased $161,484, or 3%, to $5,295,564 in 2008 compared to $5,134,080 for the prior year.

Construction Services Segment : Revenues from our Construction Services Segment decreased $2,473,049, or 58%, to $1,806,989 in 2008 compared to $4,280,038 for the prior year. The following table illustrates the revenue comparison for our Homebuilding and Restoration Services divisions:

	2008		2007
Homebuilding	$	327,573	$	3,259,275
Restoration Services		1,479,416		1,020,763
	$	1,806,989	$	4,280,038

Cost of Revenues and Gross Profit: Our consolidated cost of revenues decreased $2,148,147, or 29%, to $5,322,999 in 2008 compared to $7,471,146, for the prior year. Our consolidated gross profit decreased $163,418, or 8%, to $1,779,554 in 2008 compared to $1,942,972 for the prior year.

Manufactured Products Segment : Cost of revenues in our Manufactured Products Segment decreased $587,861, or 14%, to $3,749,534 in 2008 compared to $4,337,395 for the prior year.

Construction Services Segment : Cost of revenues in our Construction Services Segment decreased $1,560,286, or 50%, to $1,573,465 in 2008 compared to $3,133,751 for the prior year. The following table illustrates the cost of revenues comparison for our Homebuilding and Restoration Services divisions:

	2008		2007
Homebuilding	$	292,113	$	2,610,272
Restoration Services		1,281,352		523,479
	$	1,573,465	$	3,133,751

The gross profit in our Homebuilding division reflects the near completion of all of the remaining houses the Company had under contract as of June 30, 2008.

Salaries and Benefits Expenses: Our salaries and benefits expense increased $1,101,479 or 93%, to $2,291,034 in 2008 compared to $1,189,555 for the prior year.

Our salaries and benefits expense in 2008 includes $315,829 of compensation arising from share-based payment arrangements, compared to $54,334 in 2007. We have entered into employment contracts that include share-based awards. In addition, as we grow our business, we may use share-based payment arrangements to compensate and motivate our employees. Accordingly, share-based payments and the associated expense may increase in future periods.

During the nine months ended June 30, 2008, we further decreased the workforce involved in our Construction Services Segment and at our Corporate Headquarters. These headcount reductions will result in lower compensation expense in future periods. However, as our operations grow and improve, we may add employees accordingly.

Professional Fees: Our professional fees decreased $337,362, or 34%, to $641,056 in 2008 compared to $978,418, for the prior year. This decrease reflects the reduction in the use of outside professionals to assist the Company in its efforts to enter the public marketplace.

Rent and Occupancy : We rent the facilities used for our Corporate Headquarters and our Construction Services Segment under operating leases. We own the facilities used for our Manufactured Products Segment and, accordingly, rent and occupancy costs for that segment are minimal. Our rent and occupancy expense increased $4,053, or 3%, to $139,337 in 2008 compared to $135,284 for the prior year.

As more fully discussed in restructuring and exit activities, above in the quarterly results, we have exited our corporate headquarter lease and are occupying a smaller facility that meets our current needs. Our rent and occupancy costs are, therefore, expected to substantially decline in the future periods that we occupy the current facility.

Depreciation and Amortization: Depreciation and amortization, net of amounts included in cost of revenues, increased $44,280, or 62%, to $116,017 in 2008 compared to $71,737 for the prior year.

Repairs and Maintenance : Repairs and Maintenance expense increased $13,442, or 37%, to $49,558 in 2008 compared to $36,116 for the prior year.

Transportation : Transportation expense increased $65,650, or 145%, to $110,999 in 2008 compared to $45,349 for the prior year.

Restructuring and Exit Activities: We commenced a restructuring program during the second quarter that included termination of employees, exiting contracts and certain other exit costs. We account for our restructuring and exit activities under the guidelines of Statement 146 Accounting for Costs Associated with Exit or Disposal Activities. Generally, costs arising from exit and restructuring activities are recorded when they are incurred. In the case of contract terminations, costs are incurred upon contract termination or exit. In the case of termination benefits, costs are incurred when the benefit has been fixed and disclosed to the employee.

We incurred restructuring expenses of $776,600 during the nine months ended June 30, 2008. Of this amount, $452,040 represents the termination and exit of a material lease (see Note 9), $299,560 represents termination benefits disclosed to former employees, and $25,000 was for legal fees that we have incurred. We recorded the contract termination at its fair value, using estimated future cash flows. Actual cash flows from this activity could be different. In addition, because restructuring and exit activities are recorded as they are incurred, we may record additional charges in future periods as the expense associated with the activity are incurred. The following table illustrates our charges and reserves during the nine months ended June 30, 2008:

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

Other Operating Expenses : Other operating expenses increased $150,801, or 41%, to $515,645 in 2008 compared to $364,844 for the prior year. $108,760 of this increase is attributable to the establishment of a new corporate office (now vacated, see note 9) and the outsourcing of its technology hosting.

Interest Income: We received $1,062 and $5,470 in interest income in 2008 and 2007, respectively. The decrease in interest income was a result of lower average deposited balances.

Interest Expense: Our interest expense increased $73,657, or 99%, to $147,888 in 2008 compared to $74,231 for the prior year due to increased average borrowings.

Income Tax Benefit: We recorded an income tax benefit of $254,829 in 2007. We recognize income tax benefits from net operating losses only in instances where future revenue sources, as outlined in Statements on Financial Accounting Standards No. 109 Accounting for Income Taxes , are present. During that period, we recognized the benefits against future reversing temporary differences; that is, deferred tax credits. During the year ended September 30, 2007, we exhausted all future income sources and, accordingly, do not expect to record income tax benefits in our current fiscal year.

Loss Applicable to Common Stockholders : Loss applicable to common stockholders amounting to ($3,400,027) represents our net loss of ($3,325,027) less preferred stock dividends and accretions of $75,000. Our preferred stock dividends and accretion arose in connection with our Series A Preferred Stock and Warrant Sale in May of 2007. Since the preferred stock has a cumulative dividend feature, those dividends, declared or undeclared, will continue to be reflected in our loss applicable to common shareholders until the preferred shares are converted, if ever. We have not declared dividends on the Series A Preferred Stock. However, for purposes of computing our net loss per common share, we are required to include dividends in arrearage that amounts to $75,000 as of June 30, 2008.

Loss Per Common Share : Our loss per common share increased from ($0.08) in 2007 to ($0.09) in 2008. The increase in the loss per common share is attributable to (i) our increased net loss during 2008 coupled with (ii) the preferred stock dividends and accretions that are required to be reflected as reductions to our net loss solely for this computation. Our diluted loss per common share does not include the effects of (i) our Convertible Series A Preferred Stock, (ii) warrants and (iii) employee stock options, because the effect of these financial instruments on our diluted loss per share is anti-dilutive.

Liquidity and Capital Resources :

Working Capital: We have a working capital deficiency of ($2,169,954) as of June 30, 2008, compared to working capital of $613,551 as of September 30, 2007. Our net current assets decreased $517,749 during the intervening period and our net current liabilities increased by $2,265,756. The increase in net current liabilities is largely attributable to short-term borrowings of $1,053,817 (of which $735,000 was loaned to the Company by related parties and affiliated companies) and increases in our accounts payable and accrued liabilities of $619,052. We also incurred $577,026 related to our restructuring activities. We are currently addressing our working capital deficiency by curtailing our costs, obtaining additional financing from available sources, and working with certain of our vendors to extend their payment terms. We are also aggressively seeking permanent and/or long-term financing opportunities to alleviate these working capital deficiencies. There can be no assurance that management will be successful in achieving sufficient cost reductions or obtain additional financing under terms and conditions that are suitable.

Cash flows from Operating Activities: Net cash used in operating activities was ($1,041,857) for the nine months ended June 30, 2008 as compared to net cash used in operating activities of ($1,233,585) for the nine months ended June 30, 2007. The principle reason for this decrease was our net loss increased $2,162,959 to $3,325,027 for the nine months ended June 30, 2008 as compared to $1,162,068 for the nine months ended June 30, 2007 offset by an increase in Accounts Payable of $1,398,809.

Cash flows from Investing Activities: Capital expenditures were $174,857 and $182,390 for the nine months ended June 30, 2008 and 2007, respectively. We currently have no material commitments for equipment or other capital expenditures.

Cash flows from Financing Activities: During the nine months ended June 30, 2008, we generated cash from (i) the issuance of notes payable to related parties for $835,000, (ii) drawings on a Line of Credit for $292,382 (net of repayments), (iii) repayments of an auto loan for $5,668, (iv) the issuance of notes payable in connection with the purchase of machinery and equipment for $78,074, (v) purchase of a vehicle for $11,600.

On April 29, 2008, we entered into an agreement with a financial institution to provide for a Line of Credit (“LOC”) of up to $1,000,000, subject to certain limitations. This line replaces a previous facility with another financial institution that had a limit of $300,000. Under the LOC we are permitted to draw up to 80% of certain eligible accounts receivable arising from our Manufactured Products Segment. The interest rate is Prime plus 4.5%. The line is secured by the accounts receivable, inventory, and the unencumbered fixed assets of that segment. As part of the transaction, the lender was granted 150,000 shares of its common stock having a fair value of $15,000. The fair value of these shares, plus any other direct financing costs, is subject to capitalization and amortization as a yield adjustment over the term of the facility.

Commitments, Guarantees and Off Balance Sheet Items :

We operate certain facilities under operating leases, as follows:

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

Item 3. Quantitative and Qualitative Disclosures About Market Risks

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

Item 4. Controls and Procedures

Not applicable

ITEM 4T. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, our principal executive officer and principal financial/accounting officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer, along with the Company’s Chief Operating and Financial Officer, who concluded that the Company’s disclosure controls and procedures were effective as of the date of the evaluation.

There were no changes in internal controls during the quarterly period ended June 30, 2008 that have materially affected, or are reasonably likely to have materially affected, our internal controls subsequent to the date we carried out our evaluation.

Disclosure controls and procedures are controls and other procedures that are designed to provide reasonable assurance that information required to be disclosed in the Company’s reports filed or submitted under the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Operating and Financial Officer as appropriate, to allow timely decisions regarding required disclosure.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

In September, 2007 we entered into an operating lease for 5,964 square feet of office space in Sarasota, Florida which was our former corporate headquarters. Non-cancelable annual lease payments for each year ending September 30 are as follows: 2008--$156,878; 2009--$163,260; 2010--$169,109; 2011--$176,022; and, 2012--$166,712. As discussed in Note 9, we have vacated this space and on July 10 th , we entered into a settlement agreement and mutual release with the landlord with an effective date of July 2 nd .

We are in discussions with former counsel regarding a potential dispute.

Except as set forth above, we are currently not aware of any legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse affect on our business, financial condition or operating results. We define material as equal to or greater than 10% of our current assets for these purposes.

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

All of the above securities were offered and sold to the investors in a private placement transaction made in reliance upon exemptions from registration pursuant to Section 4(2) under the Securities Act of 1933 and Rule 506 promulgated there under. Each of the investors are accredited investors as defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5. OTHER INFORMATION

Item 6. Exhibits

Number

Description

3.1

Certificate of Incorporation (3)

	3.2	Certificate of Designation of Series A Preferred Stock (1)

	3.3	Certificate of Ownership (4)

3.4

By-Laws (3)

4.1

Securities Purchase Agreement entered with Vision Master Opportunity Fund Ltd. (1)

4.2

Series A Warrant issued to Vision Master Opportunity Fund Ltd. (1)

4.3

Series B Warrant issued to Vision Master Opportunity Fund Ltd. (1)

4.4

Series J Warrant issued to Vision Master Opportunity Fund Ltd. (1)

4.5

Registration Rights Agreement entered with Vision Master Opportunity Fund Ltd. (1)

4.6

Warrant issued to Cypress Advisors LLC (1)

10.1

Share Exchange Agreement by and among Offline Consulting, Inc., Kesselring Corporation and the shareholders of Kesselring Corporation (1)

	10.2	Settlement Agreement by and between Offline Consulting, Inc. and Marcello Trebitsch (1)

	10.3	Settlement Agreement and Mutual Release by and between Cannon Offices L.L.C. and Kesselring Holding Corporation (6)

	16.1	Letter from Morgenstern, Svboda & Baer, CPA’s P.C. (5)

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

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

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

	32.2	Certification by Chief Financial Officer pursuant to Section 906 of Sarbanes- Oxley Act of 2002

(1)	Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on May 21, 2007.

(2)	Incorporated by reference to the Form 8-K/A filed with the Securities and Exchange Commission June 20, 2007.

(3)	Incorporated by reference to the Form SB-2 Registration Statement filed with the Securities and Exchange Commission June 20, 2007.

(4)	Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on June 13, 2007.

(5)	Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on June 20, 2007.

(6)	Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on July 16, 2008.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Kesselring Holding Corporation
	(Registrant)

By:	/s/ Kenneth C. Craig
	Kenneth C. Craig
	Chief Executive Officer (Principal Executive Officer)


By:	/s/ Charles B. Rockwood
	Charles B. Rockwood
	Chief Operating and Financial Officer (Principal Financial and Accounting Officer)

Date: August 14, 2008

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KSSH Kingfish Holding Corporation (CE)

Actualités Kesselring Holding Corporation.

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