**UNITED
                STATES**
 **SECURITIES
                AND EXCHANGE COMMISSION**
 Washington,
                D.C. 20549
 
 **FORM
                10-KSB**
  x
                        ANNUAL
                            REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES ACT
                            OF
                            1934
    o
                        TRANSITION
                          REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
                          ACT OF
                          1934
  For the fiscal year ended September 30,
                  2007
  Commission
                File Number 000-52375
 
 **KESSELRING
                HOLDING CORPORATION**
 (Name
                of
                small business issuer in its charter)
 
 **Delaware**
                      
                      **20-4838580**(State
                          or other jurisdiction of incorporation)
                      
                      (I.R.S
                          Employer Identification Number)**6710
                          Professional Parkway West, Suite 301**
                        **Sarasota,
                          Florida**
                      
                      **34240**(Address
                          of principal executive offices)
                      
                      (Zip
                          Code)
 
 Issuer’s
                          telephone number
                      
                      **(941)
                          953-5774**
 Securities
              registered under Section 12(b) of the Exchange Act: None
  Securities
              registered under Section 12(g) of the Exchange Act: None
   Check
              whether the Issuer (1) filed all reports required to be filed by Section
              13 or
              15(d) of the Exchange Act 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 [X] No [ ]
  Check
              if
              there is no disclosure of delinquent filers in response to Item 405
              of
              Regulation S-B is not contained in this form, and no disclosure will
              be
              contained, to the best of the Registrant's knowledge, in definitive
              proxy or
              information statements incorporated by reference in Part III of this
              Form 10-KSB
              or any amendment to this Form 10-KSB. [ ]
   Indicate
              by check mark whether the registrant is a shell company (as defined
              in Rule
              12b-2 of the Exchange Act) Yes [ ] No [X]
  The
              Issuer's gross sales for the year ending September 30, 2007 were
              $12,175,194.
  As
              of
              December 26, 2007 the number of shares outstanding of the Issuer's
              common stock
              was 35,507,665.
  As
              of
              December 26, 2007 the aggregate number of shares held by non-affiliates
              was
              approximately 19,943,874.
  As
              of
              December 26, 2007 the aggregate market value of the Issuer's common
              stock held
              by non-affiliates was $6,182,601, based on the average bid and asked
              price of
              $0.31 per share as of December 26, 2007.
  1
 
  **KESSELRING
              HOLDING CORPORATION**
 **FORM
              10-KSB TABLE OF CONTENTS**
 
 Certain
              information included in this report and other Company filings (collectively,
              “SEC Filings”) under 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 effects of
              governmental regulation on the Company and other factors described
              from time to
              time win our filings with the Securities and Exchange Commission.
 
 PART
                        OR ITEM
                    DESCRIPTION
                        OF ITEMPART
                        IITEM
                        1.
                    Description
                        of Business.ITEM
                        1A.
                    Risk
                        Factors.ITEM
                        2.
                    Description
                        of Property.ITEM
                        3.
                    Legal
                        Proceedings.ITEM
                        4.
                    Submission
                        of Maters to a Vote of Security Holders.PART
                        IIITEM
                        5.
                    Market
                        for Common Equity and Related Stockholder Matters.ITEM
                        6.
                    Management’s
                        Discussion and Analysis or Plan of Operation.ITEM
                        7.
                    Financial
                        Statements.ITEM
                        8.
                    Changes
                        In and Disagreements With Accountants on Accounting and Financial
                        Disclosure.ITEM
                        8A.
                    Controls
                        and Procedures.ITEM
                        8B.
                    Other
                        Information.PART
                        IIIITEM
                        9.
                    Directors
                        and Executive Officers of the Registrant.ITEM
                        10.
                    Executive
                        CompensationITEM
                        11.
                    Security
                        Ownership of Certain Beneficial Owners and Management and
                        Related
                        Stockholder Matters.ITEM
                        12.
                    Certain
                        Relationships and Related Transactions.ITEM
                        13.
                    Exhibit
                        Index.ITEM
                        14.
                    Principal
                        Accountant Fees and Services.
  2
 **PART
              I**
 **ITEM
              I. DESCRIPTION OF BUSINESS**
  **ITEM
              1(a) – Business Development**
 
 Kesselring
              Holding Corporation (formerly known as Offline Consulting, Inc.) (the
“Company”)
              was organized as a Delaware Corporation on April 11, 2006. Following
              our
              acquisition of Kesselring Corporation on May 18, 2007 (more fully discussed
              in
              this Item, below), we are engaged in (i) construction and restoration
              services,
              principally to commercial property owners, (ii) the manufacture and
              sale of
              cabinetry and remodeling products, principally to contractors and (iii)
              commercial remodeling on customer-owned properties. Our business segments
              consist of (i) ***Construction Services*** (building,
              remodeling and restoration services), and (ii) ***Manufactured
              Products*****(cabinetry and remodeling products). See
              Item 1(b) – Business of Issuer.
 
 **Merger
              and Recapitalization**
 
 On
              May
              18, 2007, we acquired Kesselring Corporation, a Florida Corporation
              (“Kesselring
              Florida”) pursuant to a Share Exchange Agreement (the “Exchange Agreement”). The
              Exchange Agreement provided for, among other things, the exchange of
              Kesselring
              Florida’s 26,773,800 outstanding common shares for 26,796,186 (or 80.28%) of
              our
              post-forward split common shares. Considering that, following the acquisition
              of
              Kesselring Florida, Kesselring Florida’s shareholders control the majority of
              the Company’s outstanding voting common stock, its management has actual
              operational and governance control and Offline effectively succeeded
              its
              otherwise minimal operations to its operations, Kesselring Florida
              was
              considered the accounting acquirer in this reverse-merger transaction.
              A
              reverse-merger transaction is considered, and accounted for, as a capital
              transaction in substance. It is equivalent to the issuance of Kesselring
              Florida’s common stock for the net monetary assets of Offline, accompanied
              by a
              recapitalization. On the date of the merger, Offline had no assets
              and no
              liabilities. Financial statements included in Item 7 and other information
              presented herein reflect the consolidated assets and liabilities and
              operations
              of Kesselring Florida, giving effect to the recapitalization, as if
              it had been
              the Company during the periods presented.
 
 On
              May
              18, 2007, immediately before the merger, Marcello Trbitsch (the pre-merger
              majority shareholder and principal officer) entered into a Settlement
              and
              Release Agreement (the “Settlement Agreement”) with the Company pursuant to
              which he agreed to cancel 117,048,750 shares of common stock in consideration
              of
              the transfer of all of the assets of the Company’s former business. The
              Settlement Agreement further provided for Mr. Trbitsh’s assumption of all
              obligations and liabilities of the Company’s former business.
 
 In
              connection with the acquisition of Kesselring Florida, we changed our
              fiscal
              year end from December 31 to September 30. In addition, on June 8,
              2007, we
              changed our name from Offline Consulting, Inc. to Kesselring Holding
              Corporation.
  On
              June
              29, 2007, our Board of Directors and stockholders approved a 19.5 for
              one
              forward stock split of our issued and outstanding common stock and
              a reduction
              in our authorized shares from 700,000,000 to 200,000,000, each of which
              were
              effective on July 8, 2007. All share and per share information has
              been restated
              to give effect to the forward split for all periods presented.
 
 **Financing
              Transactions**
 
 On
              May
              18, 2007, we entered into a financing arrangement with Vision Opportunity
              Master
              Fund Ltd. (“Vision”) pursuant to which we sold various securities in
              consideration of an aggregate purchase price of $1,500,000 (the “Preferred
              Financing”). In connection with the Preferred Financing, we issued the following
              securities to Vision:
 
 ·
                    1,000,000
                        shares of Series A Preferred Stock (the “Series A
                        Preferred”);
 ·
                    Series
                        A Common Stock Purchase Warrants to purchase 3,091,959 shares
                        of common
                        stock at $.49 per share for a period of five years (“Series A
                        Warrants”);
 ·
                    Series
                        B Common Stock Purchase Warrants to purchase 3,091,959 shares
                        of common
                        stock at $.54 per share for a period of five years (“Series B Warrants”);
                        and,
 ·
                    Series
                        J Common Stock Purchase Warrants to purchase 3,091,959 shares
                        of common
                        stock at $.54 per share for a period of one year from the
                        effective date
                        of the registration statement (“Series J
                        Warrants”).
 
 The
              shares of Series A Preferred Stock are convertible, at any time at
              the option of
              the holder, into an aggregate of 3,091,959 shares of our common stock.
              Holders
              of the Series A Preferred Stock are entitled to receive, when declared
              by our
              board of directors, annual dividends of $0.12 per share of Series A
              Preferred
              Stock paid semi-annually on June 30 and December 31. Such dividends
              may be paid,
              at the election of the Company, either (i) in cash if legally able
              to do so, or
              (ii) in restricted shares of our common stock with piggyback registration
              rights.
 
 In
              the
              event of any liquidation or winding up of our company, the holders
              of Series A
              Preferred Stock will be entitled to receive, in preference to holders
              of common
              stock, an amount equal to 115% of the original purchase price per share.
              There
              are no other net-cash settlement provisions embodied in the Series
              A Preferred
              Stock that are not within our control.
 
 The
              Series A Warrants and the Series B Warrants are exercisable for five
              years at an
              exercise price of $0.49 and $0.54 per share, respectively. In the event
              that the
              shares of common stock underlying the Series A Warrants and the Series
              B
              Warrants are not registered by May 2009, then the Series A Warrants
              and the
              Series B Warrants are exercisable on a cashless basis. The Series J
              Warrants are
              exercisable for one year from the date of the registration statement
              registering
              the shares of common stock underlying the Series J Warrants is declared
              effective at an exercise price of $.54 per share.
 
 We
              granted the investor registration rights with respect to the Series
              A Preferred
              Stock and the warrants. We were required to file a registration statement
              within
              60 days from closing and have such registration statement declared
              effective
              within 150 days from closing if the registration statement is not reviewed
              or,
              in the event that the registration statement is reviewed, within 180
              days from
              closing. If we fail to have the Registration Statement filed or declared
              effective by the required dates, which is the case, the dividend rate
              associated
              with the Series A Preferred Stock, as applicable, is increased from
              8% to 10%.
              Otherwise, there are no required cash payments (such as registration
              payments or
              penalties) that accrue to the benefit of the investors. Additionally,
              Vision has
              the right of first refusal on subsequent funding opportunities along
              with the
              right to reset the conversion price and exercise price associated with
              the
              Series A Preferred and the Warrants in the event that the purchase
              price for the
              subsequent funding rounds is less than the conversion price or the
              exercise
              price in the Preferred Financing.
  3
  On
              March
              2, 2007, we entered into a face value, $1,255,500, ten-year, adjustable
              rate
              mortgage note payable which was and continues to be secured by real
              estate that
              we own in Yakima, Washington. See Item 2 for additional information
              about our
              real estate holdings.
 
 On
              August
              16, 2007, we entered into a Securities Purchase Agreement with the
              Marie Baier
              Foundation (the “Foundation”), pursuant to which we issued a convertible
              promissory note in the principal amount of $350,000 (the “Foundation Note”). The
              Foundation Note bears interest at 7.36%, matures one year from the
              date of
              issuance and is convertible into our common stock, at the Foundation’s option,
              at a conversion price of $0.48 per share (the trading market on that
              date was
              $0.30). The Foundation converted the note with interest for 733,725
              shares of
              common stock on September 17, 2007.
 
 In
              October, November and December 2007, certain of our Board of Directors,
              or
              organizations with which they are affiliated, funded an aggregate $600,000
              to us
              pursuant to notes payable. These notes bear interest at 7.0% and mature
              as
              follows: April 18, 2009 – $250,000; April 23, 2009 - $50,000; May 6, 2009 -
              $25,000; May 8, 2009 - $25,000 and June 13, 2009 – $250,000.
 
 **Purchases
              of Businesses**
 
 We
              believe that opportunities exist to roll up small, privately-owned
              businesses in
              the segments that we operate within. As of this date, we have completed
              the
              acquisitions listed below. Further acquisitions are dependent upon
              our ability
              to identify acquisition targets, negotiate terms that are favorable
              to the
              Company and, if necessary, acquire the necessary financing to complete
              the
              acquisition. There can be no assurances that we will be able to achieve
              these
              conditions necessary to complete acquisitions.
 
 On
              January 14, 2005, Kesselring Florida acquired the outstanding common
              stock of
              Kesselring Restoration Corporation, Inc. (“Kesselring Restoration”) for cash
              consideration of $80,000 and notes payable of $50,000; accordingly,
              our purchase
              price amounted to $130,000. We made this purchase for the purpose of
              commencing
              our Restoration Services business. The acquisition of Kesselring Restoration
              was
              accounted for using the purchase method of accounting. Accordingly,
              the purchase
              price, plus the fair values of assumed liabilities, was allocated to
              the
              tangible and intangible assets acquired based upon their respective
              fair values.
              Since the fair values of the tangible and intangible assets acquired
              exceeded
              the purchase price, the fair values of long-lived assets acquired,
              including
              identifiable intangible assets, were reduced to zero and the excess
              of $12,504
              was recorded as an extraordinary gain during the period the acquisition
              occurred. The operations of Kesselring Restoration are included in
              our
              consolidated financial statements commencing on the date of this
              acquisition.
 
 On
              March
              10, 2005, Kesselring Florida acquired the outstanding common stock
              of TBS
              Constructors, Inc. (“TBS”) for cash consideration of $10,000. We made this
              purchase principally for the purpose of engaging TBS’s then owner as our
              President, and entering into the residential home construction and
              remodeling
              business. The acquisition of TBS was accounted for using the purchase
              method of
              accounting. Accordingly, the purchase price, plus the fair values of
              assumed
              liabilities was allocated to the tangible and intangible assets acquired
              based
              upon their respective fair values. The operations of TBS Constructors,
              Inc. are
              included in our consolidated financial statements commencing on the
              date of this
              acquisition.
  On
              July
              1, 2006, Kesselring Florida acquired the outstanding common stock of
              the
              individual companies comprising the King Group of Companies (the “King Group”)
              for 7,446,218 shares of our common stock; face value $700,000 of notes
              payable,
              due December 31, 2006; and, up to $150,000 for certain direct, purchase-related
              reimbursements that were probable of payment at the time of the purchase.
              The
              King Group comprised individual companies that were under common shareholder
              control at the time of our purchase. We purchased the King Group for
              the purpose
              of commencing our Manufactured Products business. The common shares
              that we
              issued had a fair value of $1,680,723 on the acquisition date based
              upon a
              valuation of the share values using the Income Approach; accordingly,
              our
              purchase price amounted to $2,530,723. Our acquisition of the King
              Group was
              accounted for using the purchase method of accounting. Accordingly,
              the purchase
              price, noted above, plus the fair values of assumed liabilities, was
              allocated
              to the tangible and intangible assets acquired based upon their respective
              fair
              values. The operations of the King Group are included in our consolidated
              financial statements commencing on the date of this acquisition. In
              addition,
              given that the King Group was a material acquisition, we have included
              its prior
              financial statements in Item 7, herein, for the period immediately
              preceding our
              acquisition.
  The
              Company has entered into a letter of intent for the proposed acquisition
              of a
              roofing company located in Florida. The Company has completed a valuation
              of the
              roofing company and has verbally agreed to terms with the sellers with
              to the
              acquisition price. Concurrently, the two companies are working through
              the
              structure and the timing of the transaction. This acquisition is subject
              to
              final negotiation, execution of a definitive acquisition agreement,
              completion
              of legal and financial due diligence, Kesselring board approval, board
              and
              shareholder approval of the roofing company, funding and customary
              closing
              conditions. It is anticipated to close before the end of the Company's
              second
              quarter, although the Company cannot provide any guarantee as to the
              timing of
              the closing or whether closing will occur at all.
  **Other
              Business Development Matters:**
  On
              August
              15, 2007, Douglas P. Badertscher was appointed Chief Executive Officer
              of
              Kesselring Holding Corporation replacing Kenneth Craig who remains
              a Director.
              Mr. Baderscher’s employment contract, which has a term through November 2010,
              provides for base compensation, plus a contingent bonus arrangement,
              certain
              reasonable allowances, and the award of options to purchase 2,500,000
              shares of
              common stock. Mr. Badertscher’s options vest in four tranches of 625,000
              commencing November 15, 2007 and have an exercise price of $0.30. The
              stock
              options expire on November 15, 2012.
  On
                August
                16, 2007, we entered into an Investor Relations Agreement with Pismo
                Consulting
                (“Pismo”) for $350,000 and 200,000 shares of common stock (the common stock
                had
                a value of $60,000, based upon trading market prices). The term of
                this
                agreement is for one year.
  4
 
 On
              October 4, 2007 Laura Camisa, our former Chief Financial Officer, terminated
              her
              employment. Virgil L. Sandifer, Jr. was appointed by the Board of Directors
              as
              Interim Chief Financial Officer. Ms Camisa received severance compensation
              that
              was based on her contracted compensation in the amount of $87,500;
              this amount
              will be paid over a period of six months. We have recorded the termination
              benefits in the first fiscal quarter of 2008 at which time all conditions
              to its
              measurement were established; that is, the arrangement was approved
              and
              communicated to the former employee.
 
 On
              October 12, 2007, we terminated the employment of the President of
              Kesselring
              Restoration and Kesselring Coastal Construction. Upon the filing of
              this annual
              report, no severance arrangement with the former President has been
              presented to
              the Board of Directors for approval or communicated to the former
              employee.
 
 On
              October 15, 2007, Thomas McTigue was hired as President of Kesselring
              Restoration, Kesselring Construction and Kesselring Aluminum; all wholly-owned
              subsidiaries. Mr. McTigue is a Licensed Contractor under the jurisdiction
              of the
              Florida Department of Business and Professional Regulation. In addition
              to a
              base compensation and benefits, Mr. McTigue received 100,000 shares
              of
              restricted common stock and is entitled to a contingent award of up
              to an
              additional 100,000 shares of restricted stock, which is dependent upon
              the
              performance of the operations that he oversees. The contingent award
              expires on
              September 30, 2008.
  **ITEM
              1(b) – Business of Issuer**
  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. As more fully discussed in Note 14 to our
              Consolidated Financial Statements, included in Item 7 and Item 1(b),
              herein, our
              business segments consist of (i) ***Construction Services***
              (building and restoration services), and (ii) ***Manufactured
              Products***. Our Construction Services Segment, consisting of
              building and restoration services, is conducted in the State of Florida
              and
              principally serves the West Central Florida Area. Our Manufactured
              Products
              Segment facilities are located in the State of Washington and principally
              serve
              contractors in the Northwestern United States.
  **Construction
              Services Segment**
 
 Kesselring
              Restoration is a restoration and construction services company offering
              diversified general contracting, restoration, construction management
              and
              design-build services primarily to commercial property owners. We have
              established a strong reputation within our markets by executing significant
              projects on time and within budget while adhering to strict quality control
              measures. Kesselring Restoration offers commercial exterior restoration
              services
              that include removal and replacement of concrete, stucco, carpentry,
              waterproofing and painting of buildings ranging from single floor to
              high-rise.
              Kesselring Restoration performs work primarily on condominiums, but also
              on
              banks, hotels, office buildings, and shopping malls. Most of Kesselring
              Restoration services are performed by its employees. We believe that
              an average
              coastal structure requires restoration services every five to seven
              years under
              normal weather circumstances. A portion of our work requires surety
              bonding and
              Kesselring has surety bonding agreements with various institutions
              to meet its
              bonding needs.
 
 **Manufactured
              Products Segment**
 
 The
              King
              Group of Companies (“King Group”) are manufacturers of wood casing products and
              cabinets in central Washington State. In over 29,000 square feet of
              manufacturing space, the King Group manufactures specialty wood moldings,
              doors,
              casework, display fixtures and related hard surface materials. Approximately
              75%
              of its work is commercial with the remainder high-end residential.
              The
              commercial work is predominately secured through competitive bidding.
              Work is
              performed for major general construction contractors statewide.
 
 **Competition**
 
 In
              the
              Construction Services Segment, we compete against numerous local and
              regional
              construction service providers. The competition for construction services
              generally has the result of reducing competitive bidding. Competitors
              in our
              Manufactured Products business segment include Masco Corporation and
              Imperial
              Industries, Inc. We expect additional competitors as the market for
              specialty
              services continues to grow and lacks significant barriers to entry.
 
 **Sources
              and Availability of Raw Materials**
 
 Currently,
              the raw materials used in our business segments, are neither short-supply
              nor
              subject to severe market volatility as to pricing. We have a robust
              network of
              material providers in both of our operating segments and are aware
              of many other
              sources should a current provider be unable to fulfill our needs.
  **Government
              Regulation**
 
 Portions
              of our operations are highly regulated and subject to a variety of
              federal and
              state laws, including environmental laws, which require that we obtain
              various
              licenses, permits and approvals. We must obtain and maintain various
              federal,
              state and local governmental licenses, permits and approvals in order
              to provide
              our services. We believe we are in material compliance with all applicable
              licensing and similar regulatory requirements. However, we can provide
              no assurance that we can maintain our licenses or registrations in the
              states in which we currently do business, or that we can obtain licenses
              or
              registrations required by any states in which we may desire to expand our
              business.
 
 Portions
              of our business are heavily regulated by federal, state and local environmental
              regulations, including those promulgated under the Environmental Protection
              Agency. These federal, state and local environmental laws and regulations
              govern
              the discharge of hazardous materials into the air and water, as well
              as the
              handling, storage, and disposal of hazardous materials and the remediation
              of
              contaminated sites. Our businesses may involve working around and with
              volatile,
              toxic and hazardous substances and other regulated substances.  We are not
              aware of any federal, state or local environmental laws or regulations
              that will
              materially affect our earnings or competitive position, or result in
              material
              capital expenditures; however, we cannot predict the effect on our
              operations of
              possible future environmental legislation or regulations.
 
 **Employees**
 
 As
              of
              September 30, 2007, we have 86 employees of which 77 are full time
              employees.
              Our employees are located in Florida and Washington: 36 employed in
              our
              Construction Services Segment, 42 in our Manufactured Products Segment,
              and 8 in
              Corporate. We have not experienced any work stoppages and we consider
              relations
              with our employees to be good. Further, we believe that the workforce
              in our
              service areas are generally sufficient to support our overall growth
              plans.
 
 5
  **PART
              1**
 **ITEM
              1A. RISK FACTORS.**
 
 You
              should carefully consider the risks described below as well as other
              information
              provided to you in this document, including information in the section
              of this
              document entitled “Information Regarding Forward Looking Statements.” Additional
              risks and uncertainties not presently known to our company or that
              we currently
              believe are immaterial may also impair our business operations. If
              any of the
              following risks actually occur, our businesses, financial condition
              or results
              of operations could be materially adversely affected, the value of
              our common
              stock could decline, perhaps significantly, and you may lose all or
              part of your
              investment.
 
 **Risks
              Related to Our Business**
 
 **Our
              limited operating history makes it difficult for us to evaluate our
              future
              business prospects and make decisions based on those estimates of our
              future
              performance**.
 
 Although
              our management team has been engaged in the restoration and wood working
              business for an extended period of time, we did not begin operations
              of our
              current business concept relating to restoration and wood working until
              January
              2005 and we have only recently commenced our plan of acquiring other
              companies.
              Through September 30, 2007, we have completed three acquisitions.  We have
              a limited operating history in our current combined form, which makes
              it
              difficult to evaluate our business on the basis of historical
              operations.  As a consequence, it is difficult, if not impossible, to
              forecast our future results based upon our historical data.  Reliance on
              the historical results of our acquisition targets may not be representative
              of
              the results we will achieve, particularly in our combined form.  Because of
              the uncertainties related to our lack of historical operations, we
              may be
              hindered in our ability to anticipate and timely adapt to increases
              or decreases
              in sales, revenues or expenses.  If we make poor budgetary decisions as a
              result of unreliable historical data, we could be less profitable or
              incur
              losses, which may result in a decline in our stock price.
 
 **Our
              results of operations have historically resulted in losses, and we
              may not be
              able to achieve profitability.**
 
 We
              incurred a net loss of ($3,106,621) for the year ended September 30,
              2007 and a
              net loss of ($419,898) for the year ended September 30, 2006. Our management
              believes that our current business plan will be successful and that
              we believe
              we will be able to limit our losses; however, our business plan is
              speculative
              and unproven.  Although our revenues grew substantially due to our growth
              strategy, there is no assurance that we will be successful in executing
              our
              business plan or that even if we successfully implement our business
              plan, that
              we will be able to curtail our losses now or in the future.  If we incur
              significant operating losses, our stock price may decline, perhaps
              significantly.
  **Our
              business depends on the demand for construction and restoration services,
              and if
              the demand for these services decrease, our revenues could
              decline.**
 
 Our
              business depends upon the demand for construction and restoration services
              that
              we provide primarily to commercial sites and multifamily properties.  We
              would be adversely affected by any slowdown in the growth of, or reduction
              in
              demand for, restoration services. Additionally, demand for all of our
              services
              depends on numerous factors, including:
 
 ●
                    The
                        state of the economy in general; and,●
                    the
                      financial condition of associations, commercial building owners
                      or
                      businesses lookingServices
                      to retain our services.
  If
              demand
              for the services that we provide decreases, then we may experience
              a decline in
              sales resulting in decreased profits.  If demand for our services decreases
              and our management fails to implement appropriate adjustments, then
              our
              profitability could suffer and the price of our common stock could
              decline.
  **We
              may engage in acquisitions, which will consume resources and may be
              unsuccessful
              or unprofitable.**
  We
              have
              pursued, and we intend to continue to pursue, a strategy of acquiring
              businesses
              that fit within our business model. Our business model is to acquire
              restoration
              and construction services and remodeling businesses as well as businesses
              that
              manufacture and sell cabinetry and remodeling products.  However,
              acquisitions are not always successful or profitable.  Any future
              acquisitions could expose us to risks, including risks associated with
              assimilating new operations and personnel; diversion of resources from
              our
              existing businesses; inability to generate revenues sufficient to offset
              associated acquisition costs; and risks associated with the maintenance
              of uniform standards, controls, procedures and policies.  Acquisitions
              may also result in additional expenses from amortizing acquired intangible
              assets.  If we attempt an acquisition and are unsuccessful in its
              completion, we will likely incur significant expenses without any benefit
              to our
              company.  If we are successful in completing an acquisition, the risks and
              other problems we face may ultimately make the acquisition unprofitable. 
Failed acquisition transactions and underperforming completed acquisitions
              would
              burden us with significant costs without any corresponding benefits
              to us, which
              could cause our stock price to decrease, perhaps significantly.
  **We
              expect that we will need to raise additional funds, and these funds
              may not be
              available when we n****eed them***.*
  We
              believe that we will need to raise approximately $8 million to $10
              million, in
              order to fund our growth strategy and implement our business plan. 
Specifically, we expect that we will need to raise additional funds
              in order to
              pursue rapid expansion, develop new or enhanced services and products,
              and
              acquire complementary businesses or assets.  Additionally, we may need
              funds to respond to unanticipated events that require us to make additional
              investments in our business.  There can be no assurance that additional
              financing will be available when needed on favorable terms, or at all.  If
              these funds are not available when we need them, then we may need to
              change our
              business strategy and reduce our rate of growth.
  6
 
 **We
              must effectively mana****ge the growth of our operations, or our
              company will suffer***.*
  Our
              ability to successfully implement our business plan requires an effective
              planning and management process.  If funding is available, we intend to
              increase the scope of our operations and acquire complimentary businesses. 
Implementing our business plan will require significant additional
              funding and
              resources.  If we grow our operations, we will need to hire additional
              employees and make significant capital investments.  If we grow our
              operations, it will place a significant strain on our management and
              our
              resources.  If we grow, we will need to improve our financial and
              managerial controls and reporting systems and procedures, and we will
              need to
              expand, train and manage our workforce.  Any failure to manage any of the
              foregoing areas efficiently and effectively would cause our business
              to
              suffer.
  **We
              face competition from numerous sources and competition may increase,
              leading to
              a decline in revenues.**
  We
              compete primarily with well-established companies, many of which we
              believe have
              greater resources than Kesselring.  We believe that barriers to entry in
              the restoration and rebuilding/remodeling services sectors are not
              significant
              and start-up costs are relatively low, so our competition may increase
              in the
              future.  New competitors may be able to launch new businesses similar to
              ours, and current competitors may replicate our business model, at
              a relatively
              low cost.  If competitors with significantly greater resources than ours
              decide to replicate our business model, they may be able to quickly
              gain
              recognition and acceptance of their business methods and products through
              marketing and promotion.  We may not have the resources to compete
              effectively with current or future competitors.  If we are unable to
              effectively compete, we will lose sales to our competitors and our
              revenues will
              decline.
  **Our
              failure to comply with federal and state environmental laws and regulations
              could result in fines or injunctions, which could materially
              imp****air the operation of our
              business***.*
 
 Portions
              of our business are heavily regulated by federal, state and local environmental
              laws and regulations, including those promulgated under the Environmental
              Protection Agency.  These federal, state and local environmental laws and
              regulations govern the discharge of hazardous materials into the air
              and water,
              as well as the handling, storage, and disposal of hazardous materials
              and the
              remediation of contaminated sites.  Our businesses may involve working
              around and with volatile, toxic and hazardous substances and other
              regulated
              substances.  We may become liable under these federal, state and local laws
              and regulations for the improper characterization, handling or disposal
              of
              hazardous or other regulated substances.  We may become subject to claims
              for personal injury or property damage related to accidents, spills,
              and
              exposure to hazardous substances that are related to our business.
 It is
              possible that some of our operations could become subject to an injunction
              which
              would impede or even prevent us from operating that portion of our
              business.  Any significant environmental claim or injunction could have a
              material adverse impact on our financial condition.  Additionally,
              environmental regulations and laws are constantly changing, and changes
              in those
              laws and regulations could significantly increase our compliance costs
              and
              divert our human and other resources from revenue-generating
              activities.
  **The
              failure to obtain and maintain required
              governmental licenses****, permits and approvals could have a
              substantial adverse effect on our operations***.*
  We
              must
              obtain and maintain various federal, state and local governmental licenses,
              permits and approvals in order to provide our services.  We may not be
              successful in obtaining or maintaining any necessary license, permit
              or
              approval.  Further, as we seek to expand our operations into new markets,
              regulatory and licensing requirements may delay our entry into new
              markets, or
              make entry into new markets cost-prohibitive.  We cannot assure you
              that we will be able to obtain or, once obtained, maintain our licenses
              or
              registrations in any states where we are required to be licensed or
              registered
              to operate our business.  Our activities in states where necessary licenses
              or registrations are not available could be curtailed pending processing
              of an
              application, and we may be required to cease operating in states where
              we do not
              have valid licenses or registrations.  We could also become subject to
              civil or criminal penalties for operating without required licenses
              or
              registrations.  These costs may be substantial and may materially impair
              our prospects, business, financial condition and results of
              operation.
  **If
              we fail to maintain adequate insurance, our financial results could
              be
              negatively impacted.**
 
 We
              carry
              standard general liability insurance in amounts determined to be reasonable
              by
              our management.  We are also covered through standard worker's compensation
              insurance against claims by our employees for injuries and other conditions
              contracted while on the job.  Although we believe we are adequately
              insured, if we fail to adequately assess our insurance needs or if
              a significant
              amount of claims are made by workers or others, there can be no assurance
              that
              the amount of such claims will not exceed our available insurance,
              resulting in
              a material negative impact on our financial results.  This could have an
              adverse impact on the price of our common stock.
  **We
              are heavily dependent on our senior management, and a loss of a
              me****mber of our senior management team could cause our
              stock
              price to suffer**.
  If
              we
              lose members of our senior management, we may not be able to find appropriate
              replacements on a timely basis, and our business could be adversely
              affected.  Our existing operations and continued future development depend
              to a significant extent upon the performance and active participation
              of certain
              key individuals, including primarily our Chief Executive Officer.  We
              cannot guarantee that we will be successful in retaining the services
              of these
              or other key personnel.  If we were to lose any of these individuals, we
              may not be able to find appropriate replacements on a timely basis
              and our
              financial condition and results of operations could be materially adversely
              affected.
  **Our
              inability to hire, train and retain qualified employees could cause
              our
              financial condition to suffer.**
  The
              success of our business is highly dependent upon our ability to hire,
              train and
              retain qualified employees.  We face competition from other employers for
              laborers, and the availability of labor is limited, particularly in
              areas
              serviced by our restoration services.  We must offer a competitive
              employment package in order to hire and retain employees, and any increase
              in
              competition for labor may require us to increase wages or benefits
              in order to
              maintain a sufficient work force, resulting in higher operation costs. 
Additionally, we must successfully train our employees in order to
              provide high
              quality services.  In the event of high turnover or a labor shortage, we
              may experience difficulty in providing consistent high-quality services. 
These factors could adversely affect our results of operations.
   7
 
 **The
              issuance of shares upon conversion of the Series A
              Convertible Preferred Stock and exercise of outstanding Series A, Series
              B and
              Series J Warrants issued to the investor may cause immediate and substantial
              dilution to our existing stockholders.**
 
 The
              issuance of shares upon conversion of the Series A Preferred Stock
              and exercise
              of warrants may result in substantial dilution to the interests of
              other
              stockholders since the investor may ultimately convert and sell the
              full amount
              issuable on conversion. Although the investor may not convert their
              Series A
              Preferred Stock if such conversion would cause them to own more than 9.99%
              of the Company’s outstanding common stock, this restriction does not prevent the
              investor from converting and/or exercising some of their holdings and
              then
              converting the rest of their holdings. In this way, the investor could
              sell more
              than their limit while never holding more than this limit.
  **SPECIFIC
              RISKS RELATING TO OUR COMMON STOCK**
 
 **We
              have not paid dividends in the past and do not expect to pay dividends
              in the
              future. Any return on investment may be limited to the value of our
              common
              stock**
  We
              have
              never paid cash dividends on our common stock and do not anticipate
              paying cash
              dividends in the foreseeable future. The payment of dividends on our
              common
              stock will depend on earnings, financial condition and other business
              and
              economic factors affecting it at such time as the board of directors
              may
              consider relevant. If we do not pay dividends, our common stock may
              be less
              valuable because a return on your investment will only occur if its
              stock price
              appreciates.
 
 **There
              is a limited market for our common stock which may make it more difficult
              to
              dispose of your stock.**
 
 Our
              common stock is currently quoted on the Over the Counter Bulletin Board
              under
              the symbol "KSSH". There is a limited trading market for our common
              stock.
              Accordingly, there can be no assurance as to the liquidity of any markets
              that
              may develop for our common stock, the ability of holders of our common
              stock to
              sell our common stock, or the prices at which holders may be able to
              sell our
              common stock.
 
 **A
              sale of a substantial number of shares of our common stock may cause
              the price
              of our common stock to decline.**
  If
              our
              stockholders sell substantial amounts of our common stock in the public
              market,
              the market price of our common stock could fall. These sales also may
              make it
              more difficult for the Company to sell equity or equity-related securities
              in
              the future at a time and price that the Company deems reasonable or
              appropriate.
              Stockholders who have been issued shares in the Acquisition will be
              able to sell
              their shares pursuant to Rule 144 under the Securities Act of 1933,
              beginning
              one year after the stockholders acquired their shares.
  **Our
              common stock is subject to the "Penny Stock" rules of the SEC and the
              trading
              market in our securities is limited, which makes transaction in our
              stock
              cumbersome and may reduce the value of an investment in our
              stock.**
 
 The
              SEC
              has adopted Rule 3a51-1 which establishes the definition of a "penny
              stock," for
              the purposes relevant to us, is any equity security that has a market
              price of
              less than $5.00 per share or with an exercise price of less than $5.00
              per
              share, subject to certain exceptions. For any transaction involving
              a penny
              stock, unless exempt, Rule 15g-9 requires:
 
 ·
                    that
                        a broker or dealer approve a person's account for transactions
                        in penny
                        stocks; and,
 ·
                    the
                        broker or dealer receive from the investor a written agreement
                        to the
                        transaction, setting forth the identity and quantity of the
                        penny stock to
                        be purchased.
 
 In
              order
              to approve a person's account for transactions in penny stocks, the
              broker or
              dealer must:
 
 ·
                    obtain
                        financial information and investment experience objectives
                        of the person;
                        and
 ·
                    make
                        a reasonable determination that the transactions in penny
                        stocks are
                        suitable for that person and the person has sufficient knowledge
                        and
                        experience in financial matters to be capable of evaluating
                        the risks of
                        transactions in penny stocks
 
 The
              broker or dealer must also deliver, prior to any transaction in a penny
              stock, a
              disclosure schedule prescribed by the SEC relating to the penny stock
              market,
              which, in highlight form:
 
 ·
                    sets
                        forth the basis on which the broker or dealer made the suitability
                        determination; and,
 ·
                    that
                        the broker or dealer received a signed, written agreement
                        from the
                        investor prior to the transaction.
 
 Disclosure
              also has to be made about the risks of investing in penny stocks in
              both public
              offerings and in secondary trading and about the commissions payable
              to both the
              broker-dealer and the registered representative, current quotations
              for the
              securities and the rights and remedies available to an investor in
              cases of
              fraud in penny stock transactions. Finally, monthly statements have
              to be sent
              disclosing recent price information for the penny stock held in the
              account and
              information on the limited market in penny stocks.
 
 Generally,
              brokers may be less willing to execute transactions in securities subject
              to the
              "penny stock" rules. This may make it more difficult for investors
              to dispose of
              our common stock and cause a decline in the market value of our
              stock.
 
 
 8
  **PART
              I**
 **ITEM
              2. DESCRIPTION OF PROPERTY.**
 
 Our
              Corporate Headquarters are located in Sarasota, Florida. Our Construction
              Services Operations are located in Bradenton, Florida.
 
 ·
                    Sarasota
                        Facility: We lease our Sarasota, Florida Facility (5,964
                        square feet)
                        under a non-cancelable operating lease with a remaining term
                        of
                        approximately five years. Our annual lease obligations under
                        this lease
                        are $156,878, $163,260, $169,109, $176,022 and $166,712 for
                        each year in
                        the five-year period ending September 30,
                        2012.
 ·
                    Bradenton
                        Facility: We lease our Bradenton, Florida facility (2,030
                        square feet) on
                        a month-to-month basis with a monthly rent payment of
                        $3,940.
 
 Our
              Manufactured Products Operations are located in Yakima, Washington.
              We own four
              facilities that are used for manufacturing, warehousing and administration.
              Information about these facilities is as follows:
 
 **Address**
                    **Date
                        Purchased**
                    **Square
                        Feet**
                    **Purchase
                        Price**
                    **Est.
                        Market Value**602
                        W. Valley Mall Blvd. (1)
                    May
                        1987
                    21,600
                    $468,000
                    $950,000604
                        W. Valley Mall Blvd. (1)
                    March
                        1988
                    7,500
                    $220,000
                    $550,0003711
                        S. 1st
                        Street
                    July
                        1976
                    6,822
                    $82,000
                    $172,000506
                        W. Valley Mall Blvd. (2)
                    July
                        2007
                    7,200
                    $389,257
                    $389,257
 
 (1)
                    On
                        March 2, 2007, we entered into a face value, $1,255,500,
                        ten-year,
                        adjustable rate mortgage note payable which is secured by
                        the 602 and 604
                        W. Valley Mall Blvd properties.
  (2)
                    The
                        506 W. Valley manufacturing facility secures a ten-year mortgage
                        with a
                        face value of $308,000.
  On
              July
              30, 2007, we entered into a purchase agreement for the purchase of
              13,000 square
              feet of unimproved land with 7,200 square feet of office space adjacent
              to our
              604 W. Valley Mall Blvd. Location. This purchase facilitates expansion of
              our manufacturing capability at that location. We otherwise believe
              that our
              current facilities are sufficient for our current operating levels
              and projected
              growth in the near term. We have no material commitments to purchase
              other
              property or equipment.
  **PART
              I**
 **ITEM
              3. 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.
 
 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.
  **PART
              I**
 **ITEM
              4. SUBMISSION OF MATTERS TO A VOTE OF SECURTIY HOLDERS.**
 
 NONE.
   9




**PART
      II**




**ITEM
      5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
      MATTERS**





**Market
      Information:**





Our
      common stock is traded on the OTC Bulletin Board, referred to herein as the
      OTCBB, under the symbol “KSSH”. The high and low trades for our shares for each
      quarter were:





Quarterly
                period ended:
            
            High
            
            LowSeptember
                30, 2007
            
            $1.00
            
            $0.26June
                30, 2007
            
            $0.23
            
            $0.12March
                31, 2007
            
            NA
            
            NADecember
                31, 2006
            
            NA
            
            NA





**Holders:**





As
      of
      September 30, 2007, there were approximately 79 holders of record of our common
      stock. This number excludes individual stockholders holding stock under nominee
      security position listings.





**Dividends:**





We
      have
      never paid cash dividends and have no plans to do so in the foreseeable future.
      Our future dividend policy will be determined by our board of directors and
      will
      depend upon a number of factors, including our financial condition and
      performance, our cash needs and expansion plans, income tax consequences, and
      the restrictions that applicable laws and our credit arrangements then
      impose.





**Securities
      authorized for issuance under equity compensation plans:**





The
      following table sets forth information about shares of the Company’s common
      stock that may be issued upon the exercise of options granted to employees
      and/or consultants:





Category
            Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights
            Weighted-average
                exercise price of outstanding options, warrants and rights
            Number
                of securities remaining available for issuance under equity compensation
                planSecurity
                Holder Approved
            -
            -
            -Security
                Holder Not Approved
            10,537,871
            .52
            2,092,498






10






**Recent
      Sales of Unregistered Securities**





On
      August
      16, 2007, we entered into a Securities Purchase Agreement with the Marie Baier
      Foundation (the “Foundation”), pursuant to which we issued a convertible
      promissory note in the principal amount of $350,000 (the “Foundation Note”). The
      Foundation Note bears interest at 7.36%, matures one year from the date of
      issuance and is convertible into our common stock, at the Foundation’s option,
      at a conversion price of $0.48 per share (the trading market on that date was
      $0.30). The Foundation converted the note with interest for 733,725 shares
      of
      common stock on September 26, 2007.








**PART
      II**


**ITEM
      6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION**





**Overview**





Our
      Management’s Discussion and Analysis should be read in conjunction with our
      consolidated financial statements included in Item 7, herein.





Kesselring
      Holding Corporation (formerly known as Offline Consulting, Inc. the “Company”)
      was organized as a Delaware Corporation on April 11, 2006. Following our
      acquisition of the Kesselring Corporation, on May 18, 2007 (more fully discussed
      in this Item, below), 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. Our
      business segments consist of (i) ***Construction Services***
      (building and restoration services), and (ii) ***Manufactured
      Products***. See Item 1(b) – Business of Issuer. 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. As more fully discussed in
      Note
      14 to our Consolidated Financial Statements included in Item 7 and Item 1(b),
      herein, our business segments consist of (i) ***Construction
      Services*** (building and restoration services), and (ii)
***Manufactured Products***. Our building and restoration
      services are conducted in the State of Florida and principally serve the West
      Central Florida Area. Our Manufactured Products manufacturing facilities are
      located in the State of Washington and serve principally contractors in the
      Northwestern United States.





On
      May
      18, 2007, we acquired Kesselring Corporation, a Florida Corporation (“Kesselring
      Florida”) pursuant to a Share Exchange Agreement (the “Exchange Agreement”). The
      Exchange Agreement provided for, among other things, the exchange of Kesselring
      Florida’s 26,773,800 outstanding common shares (representing 99.9% of their
      common shares) for 26,796,186 (or 80.28%) of our common shares. Considering
      that
      Kesselring Florida’s shareholders control the majority of the Company’s
      outstanding voting common stock, its management has actual operational control
      and Offline effectively succeeded its otherwise minimal operations to its
      operations, Kesselring Florida was considered the accounting acquirer in this
      reverse-merger transaction. A reverse-merger transaction is considered, and
      accounted for, as a capital transaction in substance. It is equivalent to the
      issuance of Kesselring Florida’s common stock for the net monetary assets of
      Offline, accompanied by a recapitalization. On the date of the merger, Offline
      had no assets and no liabilities. Financial statements included in Item 7 and
      other information presented herein reflect the consolidated assets and
      liabilities and operations of Kesselring Florida, giving effect to the
      recapitalization, as if it had been the Issuer during the periods
      presented.





On
      June
      29, 2007, our Board of Directors and stockholders approved a 19.5 for one
      forward stock split of our issued and outstanding stock and a reduction in
      our
      authorized shares from 700,000,000 to 200,000,000, each of which were effective
      on July 8, 2007. All share and per share information has been restated to give
      effect to the forward split for all periods presented.




**Growth
      Strategy**





We
      believe that opportunities exist to roll up small, privately-owned businesses
      in
      the segments that we operate within. As of this date, we have completed the
      acquisitions listed below. Further acquisitions are dependent upon our ability
      to identify acquisition targets, negotiate terms that are favorable to the
      Company and, if necessary, acquire the necessary financing to complete the
      acquisition. There can be no assurances that we will be able to achieve these
      conditions necessary to complete acquisitions.





On
      January 14, 2005, Kesselring Florida acquired the outstanding common stock
      of
      Kesselring Restoration for cash consideration of $80,000 and notes payable
      of
      $50,000; accordingly, our purchase price amounted to $130,000. We made this
      purchase for the purpose of commencing our Restoration Services business. The
      acquisition of Kesselring Restoration Corporation, Inc. was accounted for using
      the purchase method of accounting. Accordingly, the purchase price, plus the
      fair values of assumed liabilities, was allocated to the tangible and intangible
      assets acquired based upon their respective fair values. Since the fair values
      of the tangible and intangible assets acquired exceeded the purchase price,
      the
      fair values of long-lived assets acquired, including identifiable intangible
      assets, were reduced to zero and the excess of $12,504 was recorded as an
      extraordinary gain during the period the acquisition occurred. The operations
      of
      Kesselring Restoration Corporation, Inc. are included in our consolidated
      financial statements commencing on the date of this acquisition.





On
      March
      10, 2005, Kesselring Florida acquired the outstanding common stock of TBS
      Constructors, Inc. (“TBS”) for cash consideration of $10,000. We currently
      operate this subsidiary under the name Coastal Construction. We made this
      purchase principally for the purpose of engaging TBS’s then owner as our
      President, and entering into the residential home construction and remodeling
      business. The acquisition of TBS was accounted for using the purchase method
      of
      accounting. Accordingly, the purchase price, plus the fair values of assumed
      liabilities was allocated to the tangible and intangible assets acquired based
      upon their respective fair values. The operations of TBS Constructors, Inc.
      are
      included in our consolidated financial statements commencing on the date of
      this
      acquisition.






11





On
      July
      1, 2006, Kesselring Florida acquired the outstanding common stock of the
      individual companies comprising the King Group for 7,446,218 shares of our
      common stock; face value $700,000 of notes payable, due December 31, 2006;
      and,
      up to $150,000 for certain direct, purchase-related reimbursements that were
      probable of payment at the time of the purchase. The King Group comprised
      individual companies that were under common shareholder control at the time
      of
      our purchase. We purchased the King Group for the purpose of commencing our
      Manufactured Products business. The common shares that we issued had a fair
      value of $1,680,723 on the acquisition date based upon a valuation of the share
      values using the Income Approach; accordingly, our purchase price amounted
      to
      $2,530,723. Our acquisition of the King Group was accounted for using the
      purchase method of accounting. Accordingly, the purchase price, noted above,
      plus the fair values of assumed liabilities, was allocated to the tangible
      and
      intangible assets acquired based upon their respective fair values. The
      operations of the King Group are included in our consolidated financial
      statements commencing on the date of this acquisition. In addition, given that
      the King Group was a material acquisition, we have included is prior financial
      statements in Item 7, herein, for the period immediately preceding our
      acquisition.







**Sensitive
      Accounting Estimates**





The
      financial information contained in our comparative results of operations and
      liquidity disclosures has been derived from our consolidated financial
      statements included in Item 7 herein. The preparation of those consolidated
      financial statements in conformity with generally accepted accounting principles
      requires management to make estimates and assumptions that affect the amounts
      reported in the financial statements and notes. The following significant
      estimates have made in the preparation of our consolidated financial statements
      and should be considered when reading our Management’s Discussion and
      Analysis:





·
            Contract
                revenue: Our revenue recognition policies require us to estimate
                our total
                contract costs and revise those estimates for changes in the facts
                and
                circumstances. These estimates consider all available information
                including pricing quotes provided by our vendors for materials,
                projections of our direct labor costs and our past experience in
                providing
                contract services. Estimates, by their nature are subjective. Actual
                results could differ.





·
            Intangible
                assets: Our intangible assets require us to make subjective estimates
                about our future operations and cash flows so that we can evaluate
                the
                recoverability of such assets. These estimates consider available
                information and market indicators including our operational history,
                our
                expected contract performance, and changes in the industries that
                we
                serve.





·
            Share-based
                payment arrangements: The Black-Scholes-Merton valuation model that
                we use
                to value share-indexed contracts, such as warrants and options, requires
                that certain assumptions be made when calculating the compensation
                expense
                related to stock options. Of these assumptions, a volatility factor
                is
                required as part of the calculation. Due to the lack of significant
                stock
                history, the volatility of comparable companies (“peers”) was analyzed to
                determine the appropriate rate to be used in the
                calculation.





·
            Common
                stock valuation: Estimating the fair value of our common stock is
                necessary in the preparation of computations related to share-based
                payments and financing transactions. We believe that the most appropriate
                and reliable basis for common stock value is trading market prices
                in an
                active market. Prior to May 31, 2007, we utilized the income approach
                to
                enterprise valuation coupled with our common shares outstanding to
                estimate the fair value of our common stock per share. The income
                approach
                requires us to develop subjective estimates about our future operating
                performance and cash flows. It also requires us to develop estimates
                related to the discount rate necessary to discount future cash flows.
                As
                with any estimates, actual results could be different. On May 31,
                2007,
                some of our common stock became publicly traded under our newly acquired
                trading symbol. We continue to review and evaluate trading activity
                to
                determine whether such activity provides a reliable basis upon which
                to
                value our common stock. Commencing with our quarterly financial statements
                after May 31, 2007, we began using trading market information in
                the fair
                value of our per share common stock
                price.





As
      of
      September 30, 2007, there have been no material additions to our critical
      accounting policies and there have been no changes in the application of
      existing accounting principles.








12




**Results
      of Operations for the Year Ended September 30, 2007, compared to the Year Ended
      September 30, 2006**





**Revenues:**
      Our consolidated revenues increased $4,845,340, or 66%, to $12,175,195 in 2007
      compared to $7,329,855 for the prior year.





*Manufactured
      Products Segment*: Revenues from our Manufactured Products Segment increased
      $5,325,630 in 2007 to $7,063,190, compared to $1,737,560 in the prior year.
      This
      increase is largely attributable to inclusion of the King Group, acquired on
      July 1, 2006, in our operations for the current fiscal year. In the prior year,
      the King Group was only included in our operations for the fourth fiscal
      quarter.





*Construction
      Services Segment*: Revenues from our Construction Services Segment decreased
      $480,290 or 9% to $5,112,005 in 2007, compared to $5,592,295 in the prior year.
      The following table illustrates the revenue comparison for our homebuilding
      and
      renovation construction services:





2007
            
            
            2006Homebuilding
            
            $
            3,043,034
            
            
            $
            3,824,713Restoration
            
            
            2,068,971
            
            
            
            1,767,582$
            5,112,005
            
            
            $
            5,592,295





We
      had
      five homes under construction in fiscal 2007, two are complete and three are
      over 80% complete as of September 30, 2007. All of these homes were contracted
      for during 2005 and 2006. We did not contract to build any new homes during
      2007
      and we are currently planning to scale down these operations and focus on the
      growth of restoration services. However, we are not currently planning to exit
      homebuilding services. The increase in our restoration services resulted
      principally from the shift of emphasis from homebuilding to restoration
      services.





**Cost
      of Revenues and Margins:** Our consolidated cost of revenues increased
      $3,967,814 or 68% to $9,794,083 in 2007, compared to $5,826,269 in the prior
      year. Our consolidated gross profit increased $877,526 or 58% to $2,381,112
      in
      2007, compared to $1,503,586 in the prior year.





*Manufactured
      Products Segment*: Cost of revenues in our Manufactured Products Segment
      increased $4,426,466 to $5,764,472 in 2007, compared to $1,335,006 in the prior
      year. This increase is largely attributable to inclusion of the King Group,
      acquired on July 1, 2006, in our operations for the entire fiscal year. As
      previously mentioned, in the prior year, the King Group was only included in
      our
      operations for the fourth fiscal quarter. Our overall gross profit percentage
      decreased to 18% in 2007, compared to 23% in 2006, principally due to higher
      competition that has resulted in reduced pricing.





*Construction
      Services Segment*: Cost of revenues arising from our Construction Services
      Segment decreased $461,652 or 10% to $4,029,611 in 2007, compared to $4,491,263
      in the prior year. The following table illustrates the cost of revenues
      comparison for our homebuilding and restoration construction
      services:





2007
            
            
            2006Homebuilding
            
            $
            2,664,626
            
            
            $
            3,588,578Restoration
            
            
            1,364,985
            
            
            
            902,685$
            4,029,611
            
            
            $
            4,491,263





Our
      homebuilding services experienced an increased gross profit percentage to 12%
      in
      2007, compared to 6% in 2006. The higher gross profit percentage in 2007
      reflects better than anticipated labor costs. Our restoration services
      experienced a decreased gross profit percentage to 34% from 49% in 2006. The
      lower gross profit is attributable to an increase in competition as the builders
      in new construction markets have repositioned themselves into the restoration
      market as a result of the declining economic conditions in the West Central
      Florida Area, which are currently being experienced across the United
      States.





**Salaries
      and Benefits Expenses:** Our salaries and benefits expense increased
      $946,657 or 97% to $1,926,983 in 2007, compared to $980,326 in the prior year.
      The increase resulted from (i) our acquisition of the King Group, and (ii)
      the
      increase in average head count during 2007.





Our
      salaries and benefits expense in 2007 includes $340,834 of compensation arising
      from share-based payment arrangements, compared to $360,375 in 2006. We have
      entered into employment contracts subsequent to our recent fiscal year end
      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.





Subsequent
      to our recent fiscal year end, we decreased our workforce principally 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 will add employees accordingly. In addition,
      a
      former officer of the company resigned on October 5, 2007. As a result, we
      will
      recognize $87,500 of severance in the first quarter of fiscal 2008. This
      severance will be paid over the first two quarters of fiscal 2008. We did not
      otherwise extend termination benefits to other employees who were
      dismissed.





**Professional
      Fees:** Our professional fees increased $1,520,085 to $1,737,795 in 2007,
      compared to $217,710 in the prior year. This increase was due to increased
      legal, audit and consulting fees that were necessary to (i) prepare financial
      statements for the fiscal years ended September 30, 2006 and 2005, (ii) prepare
      filings to report financial and other information about our merger and (iii)
      provide the necessary consultancy support traditionally required by a
      publicly-traded company. We paid $152,143 of our professional fees in 2007
      under
      share-based arrangements. We record share-based payments at fair values. We
      do
      not anticipate incurring professional fees of this magnitude in future
      periods.





**Consulting
      Fees, Related Parties**: Our consulting fees, related parties, decreased
      $139,796 to $429,189 in 2007, compared to $568,985 in the prior year. In the
      prior year, the consulting fees were paid entirely under share-based payment
      arrangements. We record share-based payments at fair value. Consulting fees,
      related parties, were paid in cash during 2007. Consulting fees, related
      parties, related to the services in connection with the merger and the
      going-public decision. We do not anticipate incurring consulting fees, related
      parties, at this level in future periods.






13





**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 $165,771 to $229,197 in 2007, compared to $63,426 in the
      prior
      year. This increase is largely attributable to inclusion of the King Group,
      acquired on July 1, 2006, in our operations for the current fiscal year.
      Previously, we combined our corporate and construction services activities
      at
      one facility. Our rent and occupancy costs will increase in future periods
      as
      our operating statements reflect the continuation of our corporate headquarter
      lease.





**Repair
      and Maintenance**: Our repair and maintenance expense increased $160,807
      to $200,270 in 2007, compared to $39,463 in the prior year. This increase was
      due to the inclusion of the King Group in our operations for the entire fiscal
      year.





**Depreciation
      and Amortization:** Depreciation and amortization net of amounts included
      in cost of sales, increased $34,855 or 26% to $167,182 in 2007 compared to
      $132,327 in the prior year. This increase was primarily due to (i) the purchase
      of the King Group which included three buildings and manufacturing equipment
      (ii) the amortization of intangibles that arose from our business acquisitions,
      and (iii) the purchase of additional equipment needed for the increase in demand
      for the Manufactured Product Segment.





**Other
      Operating Expenses**: Other operating expenses increased $746,227 to
      $803,870 in 2007 compared to $57,393 in the prior year. This increase is
      primarily due to (i) the purchase of the King Group of Companies, (ii)
      advertising campaigns resulting in approximately $114,000 of additional costs,
      and (iii) recognition of approximately $100,000 in additional bad debts arising
      from homebuilding services.





**Interest
      Expense:** Our interest expense increased from $33,239 in 2006 to
      $107,715 in 2007 due to increased average borrowings. During our current fiscal
      year we generated proceeds from the issuance of interest-bearing debt in the
      amount of $2,431,200. We paid debt in the amount of $1,651,413 during the same
      year. Considering that a large balance of our new indebtedness arose late in
      the
      year (i.e. during the June to August timeframe) we expect our average
      outstanding balances to increase, which, in turn, will result in an increase
      in
      interest expense. In addition, we are amortizing approximately $55,000 in
      deferred financing costs over the terms of our loans with charges to interest
      expense. These charges will continue while balances are
      outstanding.





**Interest
      Income:** We received $1,265 and $5,799 in interest income in 2006 and
      2007, respectively. The increase in interest income was a result of higher
      average deposited balances. Currently, cash is being used in operating
      activities and, accordingly, interest income is expected to decline during
      fiscal 2008.





**Income
      Tax Benefit:** We recorded an income tax benefit of $254,829 during the
      year ended September 30, 2007 compared to $221,728 in 2006. 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 each 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 next fiscal year.





**Loss
      Applicable to Common Stockholders**: Loss applicable to common
      stockholders amounting to ($4,585,725) represents our net loss of ($3,106,621)
      less preferred stock dividends and accretions of ($1,479,104). Our preferred
      stock dividends and accretion arose in connection with our Series A Preferred
      Stock and Warrant Sale in May of 2007. In connection with this financing
      transaction, we recorded a deemed dividend to the benefit of the preferred
      stockholders in the amount of $1,429,104. See the discussion of this accounting
      under our Liquidity and Capital Resources section, below. We do not anticipate
      any further deemed dividends on this financial instrument. However, the
      financial instrument has a cumulative dividend feature and 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 $50,000.





**Loss
      Per Common Share**: Our loss per common share increased from ($0.02) in
      2006 to ($0.14) in 2007. The increase in the loss per common share is
      attributable to (i) our increased net loss during 2007 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
      effects of these financial instruments on our diluted loss per share is
      anti-dilutive. The following table illustrates the number of indexed shares
      in
      each of these categories:





Indexed
              SharesSeries
                A Preferred Stock
            
            
            3,091,966Warrants
            
            
            10,291,671Stock
                Options
            
            
            240,200Total
                share indexed to financial instruments
            
            
            13,629,837





We
      apply
      the Treasury Stock Method to compute the dilutive effects of options and
      warrants. We apply the If-Converted Method to compute the dilutive effects
      of
      convertible securities, such as the Series A Preferred Stock. In future periods,
      these financial instruments may have a dilutive effect on our loss per common
      share and, accordingly, may be included in the computation at that
      time.








14








**Liquidity
      and Capital Resources**





As
      reflected in our consolidated financial statements, we have incurred losses
      of
      ($3,106,621) and ($419,898) during the years ended September 30, 2007 and 2006,
      respectively. As discussed above, in the operating results comparison, our
      2007
      loss included, among other items, significant increases in salaries and benefits
      and professional fees that substantially depressed our operating income. In
      addition, our current working capital level of $613,551 is insufficient in
      our
      view to sustain our current levels of operations without substantial cost
      reductions and additional financing. During our most recent fiscal year ended
      September 30, 2007, our financing activities resulted in net cash proceeds
      of
      $2,459,787; we had anticipated approximately $1,500,000 more than this amount
      in
      order to execute our previously established strategic plan. However, the lower
      than expected funding coupled with significant operating expenses, associated
      principally with strategic decisions to enter the public market place, have
      largely exhausted our available reserves.





In
      response to these conditions, commencing in August 2007, our Board of Directors
      initiated the restructuring of our management, led by the replacement of our
      Chief Executive Officer. Our executive restructuring further included the
      reassignment of our Chief Operating Officer duties, the replacement of our
      Chief
      Financial Officer and President of our Contract Services Operations; and also
      included the replacement of certain highly-expensive outside financial
      consultants with an experienced and qualified Controller.





Led
      by
      our newly appointed CEO and supported by our Board of Directors, our
      restructured management team has developed a strategic plan to alleviate our
      liquidity shortfalls, curtail expenses and, ultimately, achieve profitability.
      Since August 2007, execution of this plan has included (i) the substantial
      reduction of our Florida-based headcount and the associated employment costs,
      (ii) the substantial curtailment of operating costs and expenses, principally
      in
      the area of outside consultants and professionals, (iii) the refocus of
      contracting work away (although, not completely) from less-profitable
      homebuilding activities to restoration and renovation contracting activities;
      and, (iv) the aggressive development of our manufactured products business.
      Management believes that further cost curtailment opportunities are present
      to
      provide for our continuity for a reasonable period. However, in addition to
      the
      restructuring of our current operations, we are currently evaluating certain
      substantial financing arrangements, 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.





On
      May
      18, 2007, we entered into a financing arrangement with Vision Opportunity Master
      Fund Ltd. (“Vision”) pursuant to which we sold various securities in
      consideration of an aggregate purchase price of $1,500,000 (the “Preferred
      Financing”). In connection with the Preferred Financing, we issued the following
      securities to Vision:





·
            1,000,000
                shares of Series A Preferred Stock (the “Series A
                Preferred”);


·
            Series
                A Common Stock Purchase Warrants to purchase 3,091,959 shares of
                common
                stock at $.49 per share for a period of five years (“Series A
                Warrants”);


·
            Series
                B Common Stock Purchase Warrants to purchase 3,091,959 shares of
                common
                stock at $.54 per share for a period of five years (“Series B Warrants”);
                and,


·
            Series
                J Common Stock Purchase Warrants to purchase 3,091,959 shares of
                common
                stock at $.54 per share for a period of one year from the effective
                date
                of the registration statement (“Series J
                Warrants”).




The
      shares of Series A Preferred Stock are convertible, at any time at the option
      of
      the holder, into an aggregate of 3,091,959 shares of our common stock. Holders
      of the Series A Preferred Stock are entitled to receive, when declared by our
      board of directors, annual dividends of $0.12 per share of Series A Preferred
      Stock paid semi-annually on June 30 and December 31. Such dividends may be
      paid,
      at the election of the Company, either (i) in cash if legally able to do so,
      or
      (ii) in restricted shares of our common stock with piggyback registration
      rights.





In
      the
      event of any liquidation or winding up of our company, the holders of Series
      A
      Preferred Stock will be entitled to receive, in preference to holders of common
      stock, an amount equal to 115% of the original purchase price per share. There
      are no other net-cash settlement provisions embodied in the Series A Preferred
      Stock that are not within our control.





The
      Series A Warrants and the Series B Warrants are exercisable for five years
      at an
      exercise price of $0.49 and $0.54 per share, respectively. In the event that
      the
      shares of common stock underlying the Series A Warrants and the Series B
      Warrants are not registered by May 2009, then the Series A Warrants and the
      Series B Warrants are exercisable on a cashless basis; however, the provision
      is
      contractually defined to provide for an explicit limit on the number of common
      shares indexed to these warrants. The Series J Warrants are exercisable for
      one
      year from the date of the registration statement registering the shares of
      common stock underlying the Series J Warrants is declared effective at an
      exercise price of $.54 per share.





We
      granted the investor registration rights with respect to the Series A Preferred
      Stock and the warrants. We were required to file a registration statement within
      60 days from closing and have such registration statement declared effective
      within 150 days from closing if the registration statement is not reviewed
      or,
      in the event that the registration statement is reviewed, within 180 days from
      closing. If we fail to have the Registration Statement filed or declared
      effective by the required dates, which is the case, the dividend rate associated
      with the Series A Preferred Stock, as applicable, is increased from 8% to 10%.
      Otherwise, there are no required cash payments (such as registration payments
      or
      penalties) that accrued to the benefit of the investors. Additionally, Vision
      has the right of first refusal on subsequent funding opportunities along with
      the right to reset the conversion price and exercise price associated with
      the
      Series A Preferred and the Warrants in the event that the purchase price for
      the
      subsequent funding rounds is less than the conversion price or the exercise
      price in the Preferred Financing.





15





On
      March
      2, 2007, we entered into a face value, $1,255,500, ten-year, adjustable rate
      mortgage note payable which was and continues to be secured by real estate
      that
      we own in Yakima, Washington. See Item 2 for additional information about our
      real estate holdings.





On
      August
      16, 2007, we entered into a Securities Purchase Agreement with the Marie Baier
      Foundation (the “Foundation”), pursuant to which we issued a convertible
      promissory note in the principal amount of $350,000 (the “Foundation Note”). The
      Foundation Note bears interest at 7.36%, matures one year from the date of
      issuance and is convertible into our common stock, at the Foundation’s option,
      at a conversion price of $0.48 per share (the trading market on that date was
      $0.30). The Foundation converted the note with interest for 733,725 shares
      of
      common stock on September 26, 2007.





In
      October, November and December 2007, certain members of our Board of Directors,
      or organizations with which they are affiliated, funded an aggregate $600,000
      to
      us pursuant to notes payable. These notes bear interest at 7.0% and mature
      as
      follows: April18, 2009 – $250,000; April 23, 2009 - $50,000; May 6, 2009 -
      $25,000; May 8, 2009 - $25,000 and June 13, 2009 – $250,000.





Ultimately,
      the Company’s ability to continue for a reasonable period is dependent upon
      management’s continued successful reduction of costs and expenses to a level
      that our current operations can support and obtaining additional financing
      to
      augment our working capital requirements and support our acquisition plans.
      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.





For
      further analysis, we are providing information on the cash flows associated
      with
      our financial activities as follows:




**Operating
      Activities**




Net
      cash
      used in operating activities was $2,167,616 for the year ended September 30,
      2007 as compared to net cash provided by operating activities of $290,798 for
      the year ended September 30, 2006. The principle reason for the change was
      the
      Net Loss increased from $419,898 in fiscal year ended September 30, 2006 to
      $3,106,621 in fiscal year ended September 30, 2007. Our non-cash operating
      expense in 2007 included $515,478 of share-based payments, $262,621 in
      depreciation and amortization, $101,227 in bad debts, and a deferred tax benefit
      of ($254,829). Comparable amounts in 2006 were $929,175, $170,790, $-0-, and
      ($221,728), respectively. Share-based payments in 2006 reflected significant
      compensation to employees and related party consultant. Our 2007 performance
      did
      not merit compensation at 2006 levels. We intend to continue to use share-based
      payment arrangements to compensate our employees, which will reduce operating
      cash outflows. Depreciation increased largely due to our purchase in 2006 of
      the
      King Group. We experienced bad debts in our Construction Services Segment as
      a
      result of customer disputes in 2007. Otherwise, we have not experienced
      significant bad debts. Our non-cash tax benefit from net losses was limited
      to
      ($254,829) under current accounting standards. We will not recognize further
      tax
      benefits from net losses until we generate taxable income.




**Investing
      Activities**





Capital
      expenditures were $682,911 in fiscal year ended September 30, 2007 and $66,592
      in fiscal year ended September 30, 2006. The increase was substantially due
      to
      the acquisition of adjacent land and an associated building at our Washington
      manufacturing facility. We currently have no material commitments for the
      purchase of property and equipment.








**Financing
      Activities**





During
      our year ended September 30, 2007, we generated cash from (i) the sale of
      preferred stock and warrants for net proceeds of $1,190,000, (ii) the sale
      of a
      convertible promissory note for net proceeds of $350,000, (iii) the sale of
      common stock for net proceeds of $490,000; and (iii) the issuance of a mortgage
      note payable for $1,255,500 that is secured by a portion of our real estate.
      During the year ended September 30, 2007, we repaid $1,651,413 of notes payable,
      including $700,000 of acquisition indebtedness that arose in connection with
      our
      acquisition of the King Companies. Following is information about our new
      financing activities:





*Sale
      of Preferred Stock and Warrants:*





On
      May
      18, 2007, we entered into a financing arrangement with one investor pursuant
      to
      which we sold Series A Preferred Stock and three tranches of warrants to
      purchase our common stock in consideration of an aggregate purchase price of
      $1,500,000 (the “Preferred 2007 Financing”). Net proceeds from this financing
      arrangement amounted to $1,190,000. In connection with the Preferred 2007
      Financing, the Company issued the following securities to the
      investor:





·
            1,000,000
                shares of Series A Preferred Stock (the “Series A
                Preferred”);


·
            Series
                A Common Stock Purchase Warrants to purchase 3,091,959 shares of
                common
                stock at $0.49 per share for a period of five years (“Series A
                Warrants”);


·
            Series
                B Common Stock Purchase Warrants to purchase 3,091,959 shares of
                common
                stock at $0.54 per share for a period of five years (“Series B Warrants”);
                and,


·
            Series
                J Common Stock Purchase Warrants to purchase 3,091,959 shares of
                common
                stock at $0.54 per share for a period of one year from the effective
                date
                of the registration statement (“Series J
                Warrants”)





The
      shares of Series A Preferred Stock have a stated value of $1.50 per share and
      are convertible, at any time at the option of the holder, into an aggregate
      of
      3,091,966 shares of the Company’s common stock. Holders of the Series A
      Preferred Stock have if-converted voting rights and are entitled to receive,
      when and if declared by the Company's Board of Directors, annual dividends
      of
      $0.12 per share****of Series A Preferred Stock (representing
      8.0% of the stated value) paid semi-annually on June 30 and December 31. Such
      dividends may be paid, at the option of the Company, either (i) in cash, or
      (ii)
      in restricted shares of common stock. No dividends on the Series A Preferred
      Stock were declared during the nine months ended June 30, 2007. The underlying
      Certificate of Designation provides for redemption in common stock or cash
      under
      certain circumstances. There are no circumstances that are not within the
      Company’s control that could result in net-cash settlement of the Series A
      Preferred Stock. In the event of any liquidation or winding up of the Company,
      the holders of Series A Preferred Stock will be entitled to a liquidation value
      equal to 115% of the original purchase price of $1.725 per share ($1,725,000
      in
      the aggregate).






16





The
      Series A Preferred Stock was evaluated under Statements of Financial Accounting
      Standards No. 150 Accounting for Certain Financial Instruments with
      Characteristics of Both Liabilities and Equity (“FAS150”) and Statements
      on Financial Accounting Standards No. 133 Accounting for Derivative Financial
      Instruments and Hedging Activities (“FAS133”). Since the Series A Preferred
      Stock is not mandatorily redeemable and there are no conditions that would
      give
      rise to an unconditional cash-settlement obligation, we concluded that they
      were
      not within the scope of FAS150. In evaluating the Series A Preferred Stock
      under
      the context of FAS133, we first concluded that, for purposes of evaluating
      the
      classification of the embedded conversion option and certain other features,
      its
      terms and conditions and features were more akin to equity; specifically, a
      perpetual preferred equity security. In performing this evaluation we considered
      many of the terms and conditions in the Certificate of Designation, including
      the voting rights and dividend rights afforded the Series A Preferred Stock
      holders. As such, we concluded that the embedded features that principally
      embodied risks of equity (e.g. the conversion option) were clearly and closely
      related to the host contract and that bifurcation and liability classification
      was not required. Finally, we considered classification of the Series A
      Preferred Stock under the guidance of EITF D-98 Classification and
      Measurement of Redeemable Securities. This standard provides that provisions
      for net-cash settlement under circumstances that are not within the control
      of
      management would be precluded from classification in stockholders’ equity. As
      previously mentioned, there are no such terms that could result in net-cash
      settlement for matters that are not within our control. Accordingly, we have
      classified the Series A Preferred Stock in our stockholders’
equity.





In
      addition to the evaluation that we performed on the Series A Preferred Stock,
      we
      also evaluated the warrants issued therewith (both financing and placement
      agent
      warrants) against the criteria for classification in stockholders’ equity
      specified in EITF 00-19, Accounting for Derivative Financial Instruments that
      are Indexed to, and Potentially Settled in, a Company’s Own Stock (EITF
      00-19), as amended by FSP EITF 00-19-2 Accounting for Registration Payment
      Arrangements. EITF 00-19 provides for eight conditions that freestanding
      derivative financial instruments must achieve in order to be classified in
      stockholders’ equity; this test is required to be performed at the inception of
      the freestanding derivative and at each reporting period until settlement
      thereof. The conditions generally provide for an evaluation of whether a company
      has sufficient authorized shares to settle all of its financial instruments,
      whether it is able to settle in unregistered shares (since registration
      activities are presumed not to be within a company’s control) and whether terms
      of the derivative afford the holder either rights similar to those of a creditor
      or are materially greater than the rights of a holder of the underlying common
      shares. Based upon our analysis of these conditions, we concluded that
      classification in stockholder’s equity of the warrants was appropriate.
      Significant considerations in drawing this conclusion were (i) certain
      registration rights afforded the warrant holder, discussed in the next
      paragraph, provided for economic alternatives in the event that we were unable
      to settle with registered shares, (ii) we have sufficient authorized and
      unissued shares to settle the warrants and all of our other share-indexed
      financial contracts and (iii) certain cash-less exercise provisions only in
      the
      A and B warrants are structured to limit the number of shares issuable upon
      exercise of that provision to a number of shares below the number of shares
      indexed to the warrants.




As
      noted
      above, we entered into a Registration Rights Agreement with the investors in
      the
      Preferred 2007 Financing. Our agreement provides for the filing of a
      registration statement and achievement of the effectiveness on a best efforts
      basis, using reasonably commercial means that are within our capabilities and
      control. However, we have agreed with the investors that, in the event that
      we
      are unable to file a registration statement or achieve effectiveness, we will
      increase the annual dividend rate on the Series A Preferred Stock from 8% to
      10%, but no higher.





Notwithstanding
      our conclusions to classify the Series A Preferred Stock and warrants in
      stockholders’ equity, we were required to further evaluate the Series A
      Preferred Stock under EITF 98-5, Accounting for Convertible Securities with
      Beneficial Conversion Features or Contingently Adjustable Conversion Ratios
      (EITF 98-5), as amended and interpreted by EITF 00-27, Application of Issue
      98-5 to Certain Convertible Securities. Although the conversion price of the
      Series A Convertible Preferred Stock was below our estimated fair market value
      per share, EITF 98-5 requires us to calculate an effective conversion rate,
      which gives effect to the allocation of proceeds from the transaction to the
      three tranches of warrants (on a relative fair value basis consistent with
      Accounting Principles Board Opinion No. 14, Accounting for Debt with
      Detachable Warrants). Accordingly, to allocate the relative fair values
      between the Series A Preferred Stock and the warrants, we estimated the fair
      value of each class of warrants on the date of issuance using the
      Black-Scholes-Merton valuation model (no dividend yield; volatility of 76.37%,
      risk-free interest rate of 4.84%; and an expected life of 5 years and 1.5 years
      for the Series A and B Warrants and the Series J Warrants, respectively). We
      concluded that the fair value of the Series A Preferred Stock was equal to
      the
      stated value, since it was relatively consistent with its common stock
      equivalent value. As a result, we allocated $605,730 to the warrants, which
      was
      immediately recorded in paid-in capital. The amount allocated to the Series
      A
      Preferred Stock amounted to $584,270, which resulted in an effective conversion
      price of $0.19; this amount is beneficial to our estimated common stock fair
      value of $0.355 on the date of the transaction. The gross beneficial conversion
      feature of $513,374 was recorded in paid-in capital. The remaining balance
      ascribed to the Series A Preferred Stock amounted to $70,896.





Following
      the allocation of the beneficial conversion feature above, we considered the
      probability that the Series A Preferred Stock holders would convert to common
      stock. Although the Series A Preferred does not have a stated maturity or
      redemption provision, based upon our communications with the investors, we
      believe that conversion to our common stock is more likely than not. As a
      result, we are required to recognize as a deemed dividend, the amount by which
      the stated value of the preferred stock exceeds the carrying value. The deemed
      distribution of $1,429,104 is recorded as accretion to the Series A Preferred
      Stock in our stockholders’ equity and a charge to paid-in capital, since we have
      an accumulated deficit on the date of the transaction.





The
      aforementioned calculations and accounting required estimation of the fair
      value
      of our common stock. We are responsible for the valuation of our common stock
      and believe that trading market prices are the best indicator for stock price
      valuation. For purposes of the fair value, we have utilized the trading market
      of our common stock since our stock became publicly traded on June 1, 2007.
      However, during the first sixty days of our trading, we noted that our stock
      price fluctuated significantly in terms of both share prices and daily trading
      levels. We believe that these fluctuations are indicative of the responses
      by
      market participants as we provided information about our business to the market
      place. Accordingly, for purposes of our stock price value in the aforementioned
      calculations, we utilized a weighted average share price, based upon a
      combination of closing market prices and trading levels, for a reasonable period
      following listing and trading of our common stock. This calculation resulted
      in
      a value of $0.355 per common share, which was only slightly different than
      our
      pre-trading, private-company valuation of $0.350 (which applied income approach
      to valuation) used in recent periods to value common stock underlying
      share-based payment arrangements that we have entered into. We believe that
      this
      approach to valuing our common stock is in accordance with the objectives of
      fair value measurement.






17





*Sale
      of Convertible Promissory Note:*





On
      August
      16, 2007, we entered into a Securities Purchase Agreement with the Marie Baier
      Foundation (the “Foundation”), pursuant to which we issued a convertible
      promissory note in the principal amount of $350,000 (the “Foundation Note”). The
      Foundation Note bears interest at 7.36%, matures one year from the date of
      issuance and is convertible into our common stock, at the Foundation’s option,
      at a conversion price of $0.48 per share (the trading market on that date was
      $0.30).





We
      evaluated the Foundation Note on the date of its issuance under Statements
      on
      Financial Accounting Standards No. 133 Accounting for Derivative Financial
      Instruments and Hedging Activities for embedded terms and features that may
      require separate recognition as derivative liabilities. While the contracts
      included such features, including the embedded conversion feature, none required
      bifurcation. The embedded conversion feature, in fact, met the Conventional
      Convertible exemption because the conversion price was fixed and there were
      no
      other conditions that would result in variability in the number of shares issued
      to settle the contract. In addition, the conversion feature did not embody
      a
      beneficial conversion feature, which would generally result in a portion of
      the
      proceeds being allocated to stockholders’ equity.





The
      Foundation converted the note with interest for 733,725 shares of common stock
      on September 26, 2007. Since the conversion was effected under the terms of
      the
      convertible promissory note, without adjustment or inducement, we treated the
      conversion as a reclassification of the carrying value to stockholders’ equity
      under the context provided in Accounting Principles Board Opinion No. 26
Early Extinguishment of Debt and related interpretations.





*Subsequent
      financings:*





In
      October, November and December 2007, certain members of our Board of Directors,
      or organizations with which they are affiliated, funded an aggregate $600,000
      to
      us pursuant to notes payable. These notes bear interest at 7.0% and mature
      as
      follows: April18, 2009 – $250,000; April 23, 2009 - $50,000; May 6, 2009 -
      $25,000; May 8, 2009 - $25,000 and June 13, 2009 – $250,000.




**Off-balance
      Sheet Arrangements**





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.





On
      August
      31, 2007, we entered into an operating lease for 5,964 square feet of office
      space in Sarasota, Florida. 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.








18




**PART
        II**
 **ITEM
        7. FINANCIAL STATEMENTS**
 
 **KESSELRING
        HOLDING CORPORATION AND SUBSIDIARIES**
 **INDEX
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
        ENDED SEPTEMBER 30, 2007 AND 2006**
 
 
 
 
 **KESSELRING
                  HOLDING CORPORATION**
                **(ISSUER
                  FINANCIALS)**
              **Page**Report
                  of Independent Registered Public Accounting Firm
              F-1Consolidated
                  Balance Sheets at September 30, 2007 and 2006
              F-2Consolidated
                  Statements of Operations for the Years Ended September 30, 2007
                  and
                  2006
              F-3Consolidated
                  Statements of Stockholders’ Equity for the Years Ended September 30, 2007and
                  2006
              F-4
                  -F-5Consolidated
                  Statements of Cash Flows for the Years Ended September 30, 2007
                  and
                  2006
              F-6Notes
                  to Consolidated Financial Statements
              F-7-
                  F-34**KING
                  COMPANIES**
                **(ACQUIRED
                  COMPANY FINANCIALS)**Report
                  of Independent Certified Public Accountants
              F-35Combined
                  Statements of Operations for the Nine-Months Ended June 30, 2006
                  and
                  Year
                Ended
                  September 30, 2005
              F-36Combined
                  Statements of Cash Flows for the Nine-Months Ended June 30, 2006
                  and
                  Year
                Ended
                  September 30, 2005
              F-37Notes
                  to Combined Financial Statements
              F-38
                  - F-43
 
 
 19
  **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 
 To
        the
        Board of Directors and Stockholders
 Kesselring
        Holding Corporation
 
 We
        have
        audited the accompanying consolidated balance sheets of Kesselring Holding
        Corporation and Subsidiaries (the “Company”) as of September 30, 2007 and 2006,
        and the related consolidated statements of operations, stockholders' equity
        (deficit), and cash flows for the years then ended. These consolidated financial
        statements are the responsibility of the Company's management. Our
        responsibility is to express an opinion on these consolidated 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. We were not engaged to perform
        an
        audit of the Company's internal control over financial reporting. Our audits
        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 purpose of expressing an opinion on the effectiveness of the
        Company's internal control over financial reporting. Accordingly, we express
        no
        such opinion. An audit includes examining, on a test basis, evidence supporting
        the amounts and disclosures in the financial statements. An audit also includes
        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 consolidated financial statements referred to above present
        fairly,
        in all material respects, the consolidated financial position of Kesselring
        Holding Corporation and Subsidiaries as of September 30, 2007 and 2006 and
        the
        consolidated results of their operations and their cash flows for the years
        then
        ended in conformity with accounting principles generally accepted in the
        United
        States of America.
 
 As
        more
        fully discussed in Note 1 to the consolidated financial statements, the Company
        has experienced recurring losses and management does not believe that working
        capital is sufficient to maintain operations at their current levels. These
        conditions raise substantial doubt surrounding the Company’s ability to continue
        as a going concern. Management’s plans are also included in Note 1. The
        consolidated financial statements do not include any adjustments that may
        arise
        from this uncertainty.
 
 
 /s/
        Lougheed & Company, L.L.C.
 
 
 
 Tampa,
        Florida
 December
        14, 2007
 
 F-1
 
  **KESSELRING
        HOLDING CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEETS**
 **SEPTEMBER
        30, 2007 AND 2006**
 
  2007
                
                
                2006**Assets**Current
                    assets:Cash
                    and cash equivalents
                
                $
                159,744
                
                
                $
                550,482Accounts
                    receivable, net allowances
                
                
                1,311,833
                
                
                
                1,763,501Inventories
                
                
                580,203
                
                
                
                479,560Costs
                    and estimated earnings in excess of billingson
                    uncompleted contracts
                
                
                132,435
                
                
                
                129,465Other
                    current assets
                
                
                141,669
                
                
                
                93,619Total
                    current assets
                
                
                2,325,884
                
                
                
                3,016,627Property
                    and equipment, net
                
                
                2,643,835
                
                
                
                2,167,851Intangible
                    assets, net
                
                
                24,499
                
                
                
                81,780Other
                    assets
                
                
                55,095
                
                
                
                -Total
                    assets
                
                $
                5,049,313
                
                
                $
                5,266,258**Liabilities
                    and stockholders' equity**Current
                    liabilities:Accounts
                    payable and accrued expenses
                
                $
                1,488,155
                
                
                $
                1,189,650Billings
                    in excess of costs and estimated earnings onuncompleted
                    contracts
                
                
                192,932
                
                
                
                319,384Current
                    maturities of notes payable
                
                
                31,246
                
                
                
                199,511Current
                    maturities of notes payable-related parties
                
                
                -
                
                
                
                929,524Deferred
                    income taxes
                
                
                -
                
                
                
                254,8291,712,333
                
                
                
                2,892,898Notes
                    payable
                
                
                1,543,435
                
                
                
                20,8593,255,768
                
                
                
                2,913,757Commitments
                    (Note 13)
                
                
                -
                
                
                
                -Stockholders'
                    equity:Preferred
                    stock, $0.0001 par value, 20,000,000 sharesauthorized;
                    1,000,000 shares designated Series APreferred;
                    1,000,000 issued and outstanding
                
                
                1,500,000
                
                
                
                -Common
                    stock, $0.0001 par value, 200,000,000 sharesauthorized;
                    35,507,665 and 25,329,800 shares issuedand
                    outstanding, respectively
                
                
                3,551
                
                
                
                2,533Additional
                    paid-in capital
                
                
                3,984,152
                
                
                
                2,937,505Accumulated
                    deficit
                
                
                (3,694,158
                )
                
                
                (587,537
                )Total
                    stockholders' equity
                
                
                1,793,545
                
                
                
                2,352,501Total
                    liabilities and stockholders' equtiy
                
                $
                5,049,313
                
                
                $
                5,266,258
 
 See
        accompanying notes.
 
  F-2
    **KESSELRING
        HOLDING CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 **YEARS
        ENDED SEPTEMBER 30, 2007 AND 2006**
  
 2007
                
                
                2006Revenues:Product
                    sales
                
                $
                7,063,190
                
                
                $
                1,737,560Construction
                    services
                
                
                5,112,005
                
                
                
                5,592,29512,175,195
                
                
                
                7,329,855Cost
                    of revenues:Product
                    sales
                
                
                5,764,472
                
                
                
                1,335,006Construction
                    services
                
                
                4,029,611
                
                
                
                4,491,2639,794,083
                
                
                
                5,826,269Gross
                    profit
                
                
                2,381,112
                
                
                
                1,503,586Operating
                    expenses:Salaries
                    and benefits
                
                
                1,926,983
                
                
                
                980,326Professional
                    fees
                
                
                1,737,795
                
                
                
                217,710Consulting
                    fees, related parties
                
                
                429,189
                
                
                
                568,985Rent
                    and occupancy costs
                
                
                229,197
                
                
                
                63,426Repairs
                    and maintenance
                
                
                200,270
                
                
                
                39,463Depreciation
                    and amortization
                
                
                167,182
                
                
                
                132,327Transportation
                    costs
                
                
                155,602
                
                
                
                49,993Other
                    operating expenses
                
                
                803,670
                
                
                
                57,3935,649,888
                
                
                
                2,109,623Loss
                    from operations
                
                
                (3,268,776
                )
                
                
                (606,037
                )Other
                    income (expense):Interest
                    expense
                
                
                (107,715
                )
                
                
                (33,239
                )Other
                    income (expense), net
                
                
                9,242
                
                
                
                (3,615
                )Interest
                    income
                
                
                5,799
                
                
                
                1,265(92,674
                )
                
                
                (35,589
                )Loss
                    before income taxes
                
                
                (3,361,450
                )
                
                
                (641,626
                )Income
                    tax benefit
                
                
                254,829
                
                
                
                221,728Net
                    loss
                
                $
                (3,106,621
                )
                
                $
                (419,898
                )Loss
                    applicable to common stockholders:Net
                    loss
                
                $
                (3,106,621
                )
                
                $
                (419,898
                )Preferred
                    stock dividends and accretions
                
                
                (1,479,104
                )
                
                
                -Loss
                    applicable to common stockholders
                
                $
                (4,585,725
                )
                
                $
                (419,898
                )Loss
                    per common share, basic and diluted
                
                $
                (0.14
                )
                
                $
                (0.02
                )Weighted
                    average common shares, basic and diluted
                
                
                33,477,552
                
                
                
                23,321,954
 
 See
        accompanying notes.
 
  F-3
   **KESSELRING
        HOLDING CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF STOCKHOLDERS’ EQUITY**
 **YEARS
        ENDED SEPTEMBER 30, 2007 AND 2006**
 
 
 
 
 Preferred
                
                
                Stock
                
                
                Common
                
                
                Stock
                
                
                Paid-in
                
                
                AccumulatedShares
                
                
                Amount
                
                
                Shares
                
                
                Amount
                
                
                Capital
                
                
                Deficit
                
                
                TotalBalances
                    at October 1, 2006
                
                
                -
                
                
                $
                -
                
                
                
                25,329,800
                
                
                $
                254
                
                
                $
                2,939,784
                
                
                $
                (587,537
                )
                
                $
                2,352,501Sale
                    of common stock
                
                
                
                
                
                
                
                
                
                
                1,400,000
                
                
                
                14
                
                
                
                489,986
                
                
                
                -
                
                
                
                490,000Common
                    stock issued to consultants for services
                
                
                
                
                
                
                
                
                
                
                44,000
                
                
                
                0
                
                
                
                22,000
                
                
                
                -
                
                
                
                22,00026,773,800
                
                
                
                268
                
                
                
                3,451,770
                
                
                
                (587,537
                )
                
                
                2,864,501Recapitalization:Cancellation
                    of accounting acquirer shares
                
                
                
                
                
                
                
                
                
                
                (26,773,800
                )
                
                
                (268
                )
                
                
                (3,445,170
                )
                
                
                -
                
                
                
                (3,445,438
                )Issuance
                    of shares to accounting acquirer
                
                
                
                
                
                
                
                
                
                
                1,374,163
                
                
                
                137
                
                
                
                3,445,300
                
                
                
                -
                
                
                
                3,445,437Common
                    shares of legal acquirer outstanding
                
                
                
                
                
                
                
                
                
                
                337,480
                
                
                
                34
                
                
                
                (34
                )
                
                
                -
                
                
                
                -Reverse
                    stock split
                
                
                
                
                
                
                
                
                
                
                31,823,739
                
                
                
                3,182
                
                
                
                (3,182
                )
                
                
                -
                
                
                
                -Recapitalized
                    stockholders' equity
                
                
                
                
                
                
                
                
                
                
                33,535,382
                
                
                
                3,354
                
                
                
                3,448,684
                
                
                
                (587,537
                )
                
                
                2,864,500Post-recapitalization
                    transactions:Sale
                    of Series A Preferred Stock and warrants:Allocation
                    of proceeds to Series A Preferred and warrants
                
                
                1,000,000
                
                
                
                584,270
                
                
                
                -
                
                
                
                -
                
                
                
                605,730
                
                
                
                -
                
                
                
                1,190,000Beneficial
                    conversion feature in Series A Preferred
                
                
                -
                
                
                
                (513,374
                )
                
                
                -
                
                
                
                -
                
                
                
                513,374
                
                
                
                -
                
                
                
                -Deemed
                    dividend accretes Series A Preferred
                
                
                -
                
                
                
                1,429,104
                
                
                
                -
                
                
                
                -
                
                
                
                (1,429,104
                )
                
                
                -
                
                
                
                --Share-based
                    payment arrangements (at fair values):
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                -Common
                    stock issued to employees
                
                
                -
                
                
                
                -
                
                
                
                930,000
                
                
                
                93
                
                
                
                286,407
                
                
                
                -
                
                
                
                286,500Common
                    stock issued to consultants
                
                
                -
                
                
                
                -
                
                
                
                233,558
                
                
                
                23
                
                
                
                130,120
                
                
                
                -
                
                
                
                130,143Common
                    stock issued to Board Members
                
                
                -
                
                
                
                -
                
                
                
                75,000
                
                
                
                8
                
                
                
                22,493
                
                
                
                -
                
                
                
                22,501Issuance
                    of employee stock options (240,200 indexed shares)
                
                
                -
                
                
                
                -
                
                
                
                
                
                
                
                
                
                
                
                54,334
                
                
                
                -
                
                
                
                54,334-Conversion
                    of convertible debt for common stockat
                    a rate implicit in the contract
                
                
                -
                
                
                
                -
                
                
                
                733,725
                
                
                
                73
                
                
                
                352,114
                
                
                
                -
                
                
                
                352,187-Net
                    loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (3,106,621
                )
                
                
                (3,106,621
                )Balances
                    at September 30, 2007
                
                
                1,000,000
                
                
                $
                1,500,000
                
                
                
                35,507,665
                
                
                $
                3,551
                
                
                $
                3,984,152
                
                
                $
                (3,694,158
                )
                
                $
                1,793,545
  F-4
   **KESSELRING
            HOLDING CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
            STATEMENTS OF STOCKHOLDERS’ EQUITY**
 **YEARS
            ENDED SEPTEMBER 30, 2007 AND 2006**
  Common
                
                
                Stock
                
                
                Paid-in
                
                
                Accumulated
                
                
                DeferredShares
                
                
                Amount
                
                
                Capital
                
                
                Deficit
                
                
                Compensation
                
                
                TotalBalances
                    at October 1, 2006
                
                
                14,100,000
                
                
                $
                141
                
                
                $
                131,915
                
                
                $
                (167,639
                )
                
                $
                (153,465
                )
                
                $
                (189,048
                )Sale
                    of common stock
                
                
                860,000
                
                
                
                9
                
                
                
                300,991
                
                
                
                -
                
                
                
                -
                
                
                
                301,000Share-based
                    payment arrangements:Common
                    stock issued for business acquisitions
                
                
                7,440,000
                
                
                
                74
                
                
                
                1,680,649
                
                
                
                -
                
                
                
                -
                
                
                
                1,680,723Common
                    stock issued to related parties for services
                
                
                2,229,800
                
                
                
                23
                
                
                
                568,784
                
                
                
                -
                
                
                
                -
                
                
                
                568,807Common
                    stock issued to employees
                
                
                700,000
                
                
                
                7
                
                
                
                196,865
                
                
                
                -
                
                
                
                -
                
                
                
                196,872Termination
                    and reclassification of redemption feature
                
                
                -
                
                
                
                -
                
                
                
                100,000
                
                
                
                -
                
                
                
                -
                
                
                
                100,000Remeasurement
                    upon award modification
                
                
                -
                
                
                
                -
                
                
                
                10,038
                
                
                
                -
                
                
                
                (10,038
                )
                
                
                -Amortization
                    of deferred compensation
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                163,503
                
                
                
                163,503Reorganization
                    distribution
                
                
                -
                
                
                
                -
                
                
                
                (49,458
                )
                
                
                -
                
                
                
                -
                
                
                
                (49,458
                )Net
                    loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (419,898
                )
                
                
                -
                
                
                
                (419,898
                )25,329,800
                
                
                $
                254
                
                
                $
                2,939,784
                
                
                $
                (587,537
                )
                
                $
                -
                
                
                $
                2,352,501
 
 
 See
        accompanying notes.
 
 F-5
  **KESSELRING
        HOLDING CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **YEARS
        ENDED SEPTEMBER 30, 2007 AND 2006**
  2007
                
                
                2006Cash
                    flows from operating activities:Net
                    loss
                
                $
                (3,106,621
                )
                
                $
                (419,898
                )Adjustments
                    to reconcile net loss to net cash fromoperating
                    activities:Share-based
                    payments:Employees
                
                
                340,834
                
                
                
                360,368Consultants
                    (goods and services)
                
                
                152,144
                
                
                
                99,240Directors
                
                
                22,500
                
                
                
                -Other
                    related parties
                
                
                -
                
                
                
                469,567Deferred
                    income taxes
                
                
                (254,829
                )
                
                
                (221,728
                )Depreciation
                    and amortization of long-lived assets
                
                
                262,621
                
                
                
                170,790Bad
                    debts
                
                
                101,227
                
                
                
                -Amortization
                    of deferred finance costs
                
                
                -
                
                
                
                -Changes
                    in operating assets and liabilities:Accounts
                    receivable
                
                
                350,441
                
                
                
                (475,067
                )Inventories
                
                
                (100,643
                )
                
                
                (42,008
                )Contract
                    assets and liabilities
                
                
                (129,423
                )
                
                
                (3,065
                )Other
                    current assets
                
                
                (48,050
                )
                
                
                (64,682
                )Other
                    assets
                
                
                (58,508
                )
                
                
                7Accounts
                    payable and accrued expenses
                
                
                300,693
                
                
                
                417,274Net
                    cash flows from operating activities
                
                
                (2,167,614
                )
                
                
                290,798Cash
                    flows from investing activities:Purchases
                    of property and equipment
                
                
                (682,911
                )
                
                
                (143,991
                )Net
                    cash acquired in a business acquisition
                
                
                -
                
                
                
                126,857Reorganization
                    distribution (Note 2)
                
                
                -
                
                
                
                (49,458
                )Net
                    cash flows from investing activities
                
                
                (682,911
                )
                
                
                (66,592
                )Cash
                    flows from financing activities:Proceeds
                    from mortgage notes payable
                
                
                2,431,200
                
                
                
                268,047Proceeds
                    from sale of preferred stock and warrants
                
                
                1,190,000
                
                
                
                -Payment
                    of notes payable to related parties
                
                
                (924,524
                )
                
                
                (4,000
                )Payment
                    of notes payable
                
                
                (726,889
                )
                
                
                (366,515
                )Proceeds
                    from sales of common stock
                
                
                490,000
                
                
                
                301,000Net
                    cash flows from financing activities
                
                
                2,459,787
                
                
                
                198,532Net
                    change in cash
                
                
                (390,738
                )
                
                
                422,738Cash
                    at the beginning of the year
                
                
                550,482
                
                
                
                127,744Cash
                    at the end of the year
                
                $
                159,744
                
                
                $
                550,4822007
                
                
                2006**Supplemental
                    Cash Flow Information:**Cash
                    paid for:Interest
                
                $
                98,261
                
                
                $
                10,664Income
                    taxes
                
                $
                -
                
                
                $
                -Cash
                    received in a business combination
                
                
                
                
                
                $
                126,857Non-cash
                    investing and financing activities:Conversion
                    of face value $350,000 convertible debtand
                    $2,187 accrued interest for common stock
                
                $
                352,187Fair
                    value of common stock issued in purchasebusiness
                    combination
                
                
                
                
                
                $
                1,680,723Issuance
                    of notes payable to sellers in purchasebusiness
                    combination
                
                
                
                
                
                $
                850,000Property
                    and equipment acquired with debt issuedto
                    the seller
                
                
                
                
                
                $
                27,147
 See
        accompanying notes.
 
 F-6
  **KESSELRING
        HOLDING CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **1.**
              **Business,
                  basis of presentation and significant accounting
                  policies:**
 
 *Our
        business:*
 
 Kesselring
        Holding Corporation (formerly Offline Consulting, Inc. the “Company”) was
        organized as a Delaware Corporation on April 11, 2006. 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. As more fully discussed in Note 14, our business
        segments consist of (i) Construction Services (building and restoration
        services), and (ii) Manufactured Products. Our building and restoration services
        are conducted in the State of Florida and principally serve the West Central
        Florida Area. Our Manufactured Products manufacturing facilities are located
        in
        the State of Washington and serve principally contractors in the Northwestern
        United States.
 
 *Basis
        of presentation:*
 
 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
        consolidated financial statements, we have incurred losses of ($3,106,621)
        and
        ($419,898) during the years ended September 30, 2007 and 2006, respectively.
        In
        addition, our current working capital level of $613,551 is insufficient in
        our
        management’s view to sustain our current levels of operations for a reasonable
        period without substantial cost curtailment and additional financing. During
        our
        most recent fiscal year ended September 30, 2007, our financing activities
        resulted in net cash proceeds of $2,459,787; we had anticipated raising
        approximately $1,500,000 more than this in order to execute our strategic
        plan.
        This lower than expected funding coupled with the substantial operating expenses
        incurred in connection with our strategic decision to enter the public market
        place, have largely exhausted our available reserves. These trends and
        conditions raise substantial doubt surrounding our ability to continue as
        a
        going concern for a reasonable period.
 
 In
        response to these conditions, commencing in August 2007, our Board of Directors
        initiated the restructuring of our management, led by the replacement of
        our
        Chief Executive Officer. Our executive restructuring also included the
        reassignment of our Chief Operating Officer duties and the replacing the
        President of our Construction Services Segment. Additionally, we replaced
        certain highly-paid financial consultants with an experienced and qualified
        Corporate Controller. On October 4, 2007, our Chief Financial Officer terminated
        her employment.
   F-7
   
 **KESSELRING
        HOLDING CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **1.**
              **Business,
                  basis of presentation and significant accounting policies
                  (continued):**
 
 Led
        by
        our newly appointed CEO and supported by our Board of Directors, our
        restructured management team has developed a strategic plan to alleviate
        our
        liquidity shortfalls, curtail expenses and, ultimately, achieve profitability.
        Since August 2007, execution of this plan has included (i) the reduction
        of our
        Florida-based headcount (including those officer positions referred to in
        the
        preceding paragraph) and the associated employment costs, (ii) the curtailment
        of operating costs and expenses, principally in the area of outside consulting
        and professional fees, (iii) the refocus of contracting work away (although,
        not
        completely) from less profitable homebuilding activities to more profitable
        restoration and renovation contracting activities; and, (iv) the aggressive
        development of our manufactured products business. We believe that further
        cost
        curtailment opportunities are present to provide for our continuity for a
        reasonable period. However, in addition to the restructuring of our current
        operations, management is currently reviewing certain substantial financing
        arrangements, 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 continued successful curtailment of costs and expenses to a level
        that our current operations can support and obtaining additional financing
        to
        augment our working capital requirements and support our acquisition plans.
        There can be no assurance that management will be successful in achieving
        sufficient cost reductions or obtain financing under terms and conditions
        that
        are suitable. The accompanying financial statements do not include any
        adjustments associated with these uncertainties.
 
 *Merger
        and Recapitalization:*
 
 On
        May
        18, 2007, we merged with Kesselring Corporation, a Florida Corporation
        (“Kesselring Florida”) pursuant to a Share Exchange Agreement (the “Exchange
        Agreement”). The Exchange Agreement provided for, among other things, the
        exchange of Kesselring Florida’s 26,773,800 outstanding common shares for
        26,796,186 (or 80.28%) of our common shares. Considering that Kesselring
        Florida’s shareholders now control the majority of the Company’s outstanding
        voting common stock, its management has actual operational control and Offline
        effectively succeeded its otherwise minimal operations to the operations
        of
        Kesselring Florida, Kesselring Florida is considered the accounting acquirer
        in
        this reverse-merger transaction. A reverse-merger transaction is considered,
        and
        accounted for as, a capital transaction in substance; it is equivalent to
        the
        issuance of Kesselring Florida’s common stock for the net monetary assets of
        Offline, accompanied by a recapitalization. On the date of the merger, Offline
        had no assets and no liabilities. Financial statements presented post-merger
        reflect the financial assets and liabilities and operations of Kesselring
        Florida, giving effect to the recapitalization, as if it had been the Issuer
        during the periods presented.
    F-8
    **KESSELRING
        HOLDING CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **1.**
              **Business,
                  basis of presentation and significant accounting policies
                  (continued):**
 
 
 On
        May
        18, 2007, immediately before the merger, Marcello Trbitsch (the pre-merger
        majority shareholder and principal officer) entered into a Settlement and
        Release Agreement (the “Agreement”) with Offline Consulting, Inc. (“Offline”)
        pursuant to which he agreed to cancel 117,048,750 shares of common stock
        in
        consideration of the transfer of all of the assets (having a carrying value
        of
        approximately $10,000) of the Company’s former business. The Agreement further
        provided for Mr. Trbitsh’s assumption of all obligations and liabilities of the
        Company’s former business (amounting to approximately $35,000). While Kesselring
        Florida was not a party to the Agreement, execution of the Agreement was
        a
        condition precedent to the merger as was explicitly provided for in the Share
        Exchange Agreement. In recognition that the former business was unable to
        develop into a viable business entity and that the assets had no value, the
        pre-merged company charged the assets to operations as an impairment charge.
        The
        assumption of liabilities was treated as a capital transaction since the
        extinguishment involved a significant related party.
 
 In
        connection with the merger, we changed our fiscal year end from December
        31 to
        September 30. In addition, on June 8, 2007, we changed our name from Offline
        Consulting, Inc. to Kesselring Holding Corporation.
 
 On
        June
        29, 2007, our Board of Directors and stockholders approved a 19.5 for one
        forward stock split of our issued and outstanding stock which was effective
        on
        July 8, 2007. All share and per share information has been restated to give
        effect to the forward split for all periods presented.
 
 *Consolidation
        policy:*
 
 Our
        consolidated financial statements include the accounts of the Company and
        our
        wholly-owned subsidiaries, Kesselring Florida, Kesselring Restoration Inc.,
        King
        Brothers Woodworking, Inc., King Door and Hardware, Inc., Kesselring Homes,
        Inc., and 1st
        Aluminum, Inc. All significant inter-company balances and transactions have
        been
        eliminated in our consolidated financial statements.
 
 *Revenue
        recognition:*
 
 We
        recognize revenue when persuasive evidence of an arrangement exists, delivery
        has occurred or services have been rendered, our price is fixed or otherwise
        determinable and collectability is probable. Our revenue recognition policy
        for
        each of our offerings follows:
 
 
 F-9
 
 
 **KESSELRING
        HOLDING CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **1.**
              **Business,
                  basis of presentation and significant accounting policies
                  (continued):**
 
 
 Construction
        Services– Our construction services revenue reflects the revenues that we
        derive from providing restoration and building services under formal contractual
        arrangements. Our restoration contracts are principally with commercial property
        owners; such as hotel or apartment building owners. Our building contracts
        provide for the commercial construction customer-owned property; we do not
        take
        title or possession to real-estate (including land, buildings and improvements)
        in connection with these construction services. Our remodeling contracts
        are
        with commercial and multifamily property owners. These services include the
        provisioning of our workforce, the engagement of subcontractors and the delivery
        and installation of materials and products that are necessary to provide
        services to our customers. We contract with our customers on both a fixed-price
        and time and material basis. We generally recognize contract revenues by
        applying the percentage-of-completion method, where the percentage of revenue
        that we record is determined by dividing our contract-specific costs incurred
        by
        our estimate of total costs on each contract. In certain instances where
        restoration contracts are very short in duration and involve minimal costs,
        we
        record revenue when our contractual responsibilities have been completed;
        but
        only after we conclude that the application of this method would not result
        in
        materially different reported revenues. In all instances, we evaluate our
        contracts for possible losses. We record contract losses when such losses
        are
        both probable and reasonably estimable.
 
 Manufactured
        Product– Our manufactured product sales reflect revenue that we derive from
        our Manufactured Products operating segment. We manufacture and sell custom
        cabinetry and custom remodeling products principally to construction
        contractors. In certain instances, to facilitate the sale of our custom
        products, we may engage to install our products at the contractor worksite
        at
        the time of delivery. We recognize product sales when products have been
        picked
        up at our facility or delivered, and where installation is required, installed
        at our customer’s worksite.
 
 *Cash
        and Cash Equivalents:*
 
 For
        purposes of our statements of cash flows, we consider all highly liquid
        investments with a maturity of three months or less when purchased to be
        cash
        equivalents. The Company owns depositary balances at several financial
        institutions, in amounts which may exceed FDIC insured limits from time to
        time.
        We minimize the risks associated with such concentrations by periodically
        considering the reported standing of the financial institution.
 
 
 F-10
 
 
 
 
 **KESSELRING
        HOLDING CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **1.**
              **Business,
                  basis of presentation and significant accounting policies
                  (continued):**
 
 
 *Accounts
        receivable:*
 
 Accounts
        receivable represents normal trade obligations from customers that are subject
        to normal trade collection terms, without discounts or rebates. We require
        deposits or retainers when we consider a customer’s credit risk to warrant the
        collection of such. In addition, we at times collect deposits in connection
        with
        our construction services, consistent with industry practice. Notwithstanding
        these collections, we periodically evaluate the collectability of our accounts
        receivable and consider the need to establish an allowance for doubtful accounts
        based upon our historical collection experience and specifically identifiable
        information about our customers.
 
 Notwithstanding
        the above policies, when we begin a remodeling, restoration or building project,
        it is our practice to send a notice to owner in order to protect our lien
        rights
        on the property underlying the project to reduce the risk of uncollectible
        receivables. Other parties, particularly banks and other lending institutions
        may have a superior security interest in the property. From time to time
        we
        pursue legal action in the ordinary course of business to enforce the lien,
        including negotiation, arbitration, mediation or other legal means. The process
        involved in pursuing these collection actions may impact our ability to collect
        receivables in a timely manner.
 
 *Inventories:*
 
 Inventories
        consist of (i) manufacturing materials used in and held for sale in our
        Manufactured Products operating segment, (ii) non-contract-specific construction
        materials used in our Construction services operating segment, and (iii)
        work-in-process on short-duration time and material contracts. Manufacturing
        and
        general contract inventories are stated at the lower of cost, applying the
        first-in, first-out method, or market. Work-in-process on short-duration
        time
        and material contracts is recorded at the job-specific actual cost of material,
        labor and overhead.
 
 *Property
        and equipment:*
 
 Property
        and equipment are stated at cost. Buildings and improvements, vehicles, office
        and production equipment are depreciated using the straight-line method over
        the
        estimated useful lives of the related assets. Carrying values of land are
        considered for impairment at least annually. Maintenance and routine repairs
        are
        charged to expense as incurred. Significant renewals and betterments are
        capitalized. At the time of retirement or other disposition of property and
        equipment, the cost and accumulated depreciation are removed from the accounts
        and any resulting gain or loss is reflected in the statement of
        operations.
 
 F-11
 
 **KESSELRING
        HOLDING CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **1.**
              **Business,
                  basis of presentation and significant accounting policies
                  (continued):**
 
 
 *Intangible
        assets:*
 
 Our
        intangible assets arose from the purchase of businesses (See Note 2). Intangible
        assets are recorded at our cost, and are being amortized over estimated useful
        lives.
 
 *Impairment
        of long-lived assets:*
 
 We
        assess
        the recoverability of our long-lived assets (property and equipment and
        identifiable intangible assets) by determining whether undiscounted cash
        flows
        of long-lived assets over their remaining lives are sufficient to recover
        the
        respective carrying values. The amount of long-lived asset impairment, if
        any,
        is measured based on fair values of our assets and is charged to operations
        in
        the period in which long-lived asset impairment is determined by
        management.
 
 *Advertising
        expense:*
 
 We
        expense our advertising costs as they are incurred. During the year ended
        September 30, 2007, advertising costs amounted to approximately $114,000.
        Advertising was minimal in 2006.
 
 *Share-based
        Payments:*
 
 Share-based
        payments issued to employees and non-employees are accounted for at their
        grant-date fair values pursuant to Statements on Financial Accounting Standards
        No. 123(R), Shared-Based Payments (revised 2004). The provisions in
        Statement No. 123(R) were effective for all stock options or other equity-based
        awards to our employees that vest or become exercisable during our first
        quarter
        of fiscal 2007. Prior to our adoption of Statement No. 123(R), we issued
        shares
        as compensation to employees and non-employees and in connection with
        acquisitions of business. In all instances, we recorded share-based payments
        at
        their fair value on the date issued. As a result, the adoption of Statement
        No.
        123(R) did not have a transitional effect on our current period financial
        statements.
 
 
 
 F-12
  
 **KESSELRING
        HOLDING CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **1.**
              **Business,
                  basis of presentation and significant accounting policies
                  (continued):**
 
 
 *Income
        taxes:*
 
 We
        account for income taxes under the asset and liability method in accordance
        with
        Financial Accounting Standard No. 109, Accounting for Income Taxes. Under
        this method, deferred tax assets and liabilities are recognized for the future
        tax consequences attributable to differences between the financial statement
        carrying amounts of assets and liabilities and their respective tax bases.
        Deferred tax assets and liabilities are measured using enacted tax rates
        expected to apply to taxable income in the years in which those temporary
        differences are expected to be recovered or settled. Under Statement No.
        109,
        the effect on deferred tax assets and liabilities of a change in tax rates
        is
        recognized in income in the period that includes the enactment date. A valuation
        allowance is provided for certain deferred tax assets if it is more likely
        than
        not that we will not realize tax assets through future operations.
 
 *Comprehensive
        income:*
 
 Comprehensive
        income is defined as all changes in stockholders’ equity from transactions and
        other events and circumstances. Therefore, comprehensive income includes
        our net
        income (loss) and all charges and credits made directly to stockholders’ equity
        other than stockholder contributions and distributions. We had no other
        transactions or events that affect our comprehensive income.
 
 *Net
        income (loss) per share:*
 
 Basic
        income (loss) per share is computed by dividing income available to common
        stockholders by the weighted average number of outstanding common shares
        during
        the period of computation. Diluted income (loss) per share gives effect to
        potentially dilutive common shares outstanding. Potentially dilutive securities
        include stock options and warrants. We give effect to these dilutive securities
        using the Treasury Stock Method. Potentially dilutive securities also include
        preferred stock and, from time-to-time, other convertible financial instruments.
        We give effect to these dilutive securities using the If-Converted Method.
        Irrespective, dilutive securities are not considered in our net income (loss)
        per share calculations if the effect of including them would be
        anti-dilutive.
 
 
 F-13
  
 **KESSELRING
        HOLDING CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **1.**
              **Business,
                  basis of presentation and significant accounting policies
                  (continued):**
 
 *Use
        of estimates:*
 
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America requires us to make estimates
        and assumptions that affect the reported amounts of assets and liabilities
        and
        disclosure of contingent assets, if any, at the date of the financial statements
        and the reported amounts of revenues and expenses during the reporting period.
        Significant estimates that we have made in the preparation of our financial
        statements are as follows:
 
 Contract
        revenue: Our revenue recognition policies require us to estimate our total
        contract costs and revise those estimates for changes in the facts and
        circumstances. These estimates consider all available information; including
        pricing quotes provided by our vendors for materials, projections of our
        employee compensation and our past experience in providing construction
        services.
 
 Intangible
        assets: Our intangible assets require us to make subjective estimates about
        our
        future operations and cash flows so that we can evaluate the recoverability of
        such assets. These estimates consider all available information and market
        indicators; including our operational history, our expected contract performance
        and changes in the industries that we serve.
 
 Share
        Based Payments: Estimating the fair value of our common stock is necessary
        in
        the preparation of computations related to share-based payments and financing
        transactions. We believe that the most appropriate and reliable basis for
        common
        stock value is trading market prices in an active market. However, prior
        to May
        31, 2007, our common stock was not listed or publicly traded under our symbol.
        Prior to May 31, 2007, we utilized the income approach to enterprise valuation
        coupled with our common shares outstanding to estimate the fair value of
        our
        common stock per share. The income approach requires us to develop subjective
        estimates about our future operating performance and cash flows. It also
        requires us to develop estimates related to the discount rate necessary to
        discount future cash flows. As with any estimates, actual results could be
        different. On May 31, 2007, some of our common stock became publicly traded
        under our newly acquired trading symbol. We continue to review and evaluate
        trading activity to determine whether such activity provides a reliable basis
        upon which to value our common stock. Commencing with our quarterly financial
        statements after May 31, 2007, we began using trading market information
        in the
        fair value of our per share common stock price.
  Actual
        results could differ from these estimates.
   F-14
   **KESSELRING
        HOLDING CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **2.**
              **Purchases
                  of business:**
 
 On
        July
        1, 2006, Kesselring Florida acquired the outstanding common stock of the
        individual companies comprising the King Group of Companies for 7,446,218
        shares
        of our common stock; face value $700,000 of notes payable, due December 31,
        2006; and, up to $150,000 for certain direct, purchase-related reimbursements
        that were probable of payment at the time of the purchase. The King Group
        was
        under common shareholder control at the time of our purchase. We purchased
        King
        for the purpose of commencing our Manufactured Products business. The common
        shares that we issued had a fair value of $1,680,723 on the acquisition date
        based upon a valuation of the share values; accordingly, our purchase price
        amounted to $2,530,723.
 
 Our
        acquisition of the King Group was accounted for using the purchase method
        of
        accounting. Accordingly, the purchase price, noted above, plus the fair values
        of assumed liabilities, was allocated to the tangible and intangible assets
        acquired based upon their respective fair values. The operations of the King
        Group are included in our consolidated financial statements commencing on
        the
        date of this acquisition.
 
 The
        purchase price as allocated and the fair values of assets acquired are as
        follows:
 
 As
                  Allocated
              
              
              Fair
                  ValueCash
              
              $
              126,857
              
              
              $
              126,857Accounts
                  receivable
              
              
              1,038,224
              
              
              
              1,038,224Inventories
              
              
              437,552
              
              
              
              437,552Other
                  assets
              
              
              14,420
              
              
              
              14,420Property
                  and equipment
              
              
              1,873,317
              
              
              
              1,873,317Intangible
                  assets
              
              
              42,000
              
              
              
              42,000Total
                  assets
              
              
              3,532,370
              
              
              
              3,532,370Accounts
                  payable and accrued expenses
              
              
              (433,754
              )
              
              
              (433,754
              )Deferred
                  income taxes
              
              
              (476,557
              )
              
              
              --Note
                  payable
              
              
              (91,336
              )
              
              
              (91,336
              )Total
                  liabilities
              
              
              (1,001,647
              )
              
              
              (525,090
              )Purchase
                  price
              
              $
              2,530,723
              
              
              $
              3,007,280
 
 We
        have
        evaluated the assets acquired in our acquisition of the King Group and
        determined that excess of the fair values of net assets acquired over our
        purchase price is attributable to the customer and vendor relationships of
        the
        King Group established prior to our purchase. As a result, we have recorded
        a
        portion of the excess cost that will be amortized over the estimated period
        of
        the relationships of three years.
 
 
 
 F-15
 
 
 
 **KESSELRING
        HOLDING CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **2.**
              **Purchases
                  of business (continued):**
  The
        following unaudited pro forma operations data gives effect to the acquisition
        of
        the King Group as if having occurred on October 1, 2005:
 
 Year
                  ended
                September
                  30, 2006Revenues
              
              $
              12,418,797Net
                  loss
              
              
              (118,025
              )Loss
                  per common share
              
              
              (0.01
              )
 
 Pro
        forma
        financial information is not necessarily indicative of the results that we
        would
        have achieved had the acquisition of the King Companies been acquired on
        the
        specified date.
 
 *Reorganization:*
 
 On
        June
        30, 2006 Kesselring Florida spun-off its parent company, West Coast Construction
        Management LLC (“WCCM”) by distributing all of the common stock of Kesselring
        Florida, then owned by WCCM, to the WCCM members on a pro-rata basis. WCCM
        was a
        holding company that had no operations other than certain management
        responsibilities directly related to Kesselring Florida. Accordingly, WCCM
        incurred certain administrative expenses and facility costs that were solely
        attributable to the operations of Kesselring Florida. Total operating expenses
        of WCCM amounted to approximately $63,000 and $16,000 during the nine months
        ended June 30, 2006 and the period from inception (January 5, 2005) to September
        30, 2005, respectively. This reorganization was accounted for as a reverse
        spin-off under EITF 02-11 Accounting for Reverse Spin-offs since all
        requisite criteria (including the size, management and fair values) of the
        separate companies indicated that reverse spin-off treatment was appropriate.
        The expenses incurred by WCCM were pushed down to Kesselring Florida and,
        accordingly, are reflected in the accompanying financial statements because
        costs and expenses incurred by a parent company on behalf of a subsidiary
        should
        be pushed down to a subsidiary for reporting purposes under current
        standards.
 
 
 F-16
 
 **KESSELRING
        HOLDING CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **3.**
              **Accounts
                  receivable:**
 
 Accounts
        receivable consisted of the following at September 30, 2007 and
        2006:
 
 September
                  30, 2007
              
              Construction
                Services
              
              
              Manufactured
                Product
              
              
              TotalCompleted
                  contracts and product
                Deliveries
              
              $
              100,578
              
              
              $
              920,527
              
              
              $
              1,021,105Uncompleted
                  contracts
              
              
              290,728
              
              
              
              -
              
              
              
              290,728$
              391,306
              
              
              $
              920,527
              
              
              $
              1,311,833
 
 September
                  30, 2006
              
              Construction
                Services
              
              
              Manufactured
                Product
              
              
              TotalCompleted
                  contracts and product
                Deliveries
              
              $
              191,217
              
              
              $
              1,178,211
              
              
              $
              1,369,428Uncompleted
                  contracts
              
              
              394,073
              
              
              
              -
              
              
              
              394,073$
              585,290
              
              
              $
              1,178,211
              
              
              $
              1,763,501
 
 Our
        accounts receivable are net of reserves for uncollectible accounts of $96,264
        and $-0- at September 30, 2007 and 2006, respectively.
 
 **4.**
              **Inventories:**
 
 Inventories
        consisted of the following at September 30, 2007 and 2006:
 
 2007
              
              
              2006Raw
                  materials
              
              $
              126,253
              
              
              $
              226,860Work-in-process
              
              
              323,555
              
              
              
              145,578Finished
                  goods
              
              
              130,394
              
              
              
              107,122$
              580,203
              
              
              $
              479,560
 
 **5.**
              **Uncompleted
                  contracts:**
 
 Costs,
        estimated earnings and billings on uncompleted contracts are as
        follows:
 
 2007
              
              
              2006Contract
                  costs
              
              $
              7,554,740
              
              
              $
              4,898,020Estimated
                  earnings
              
              
              1,578,622
              
              
              
              881,890Billings
              
              
              (9,193,859
              )
              
              
              (5,969,829
              )$
              (60,497
              )
              
              $
              (189,919
              )
 
 
 F-17
 
 **KESSELRING
        HOLDING CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 
 **5.**
              **Uncompleted
                  contracts (continued):**
 
 2007
              
              
              2006Costs
                  and estimated earnings in excess of
                billings
                  on uncompleted contracts
              
              $
              132,435
              
              
              $
              129,465Billings
                  in excess of costs and estimated
                earnings
                  on uncompleted contracts
              
              
              (192,932
              )
              
              
              (319,384
              )$
              (60,497
              )
              
              $
              (189,919
              )
 
 **6.**
              **Property
                  and equipment:**
 
 Property
        and equipment consisted of the following as of September 30, 2007 and
        2006:
 
 2007
              
              
              2006Land
              
              $
              532,291
              
              
              $
              450,547Buildings
              
              
              1,496,873
              
              
              
              1,186,861Building
                  improvements
              
              
              30,724
              
              
              
              21,592Vehicles
              
              
              334,118
              
              
              
              307,438Office
                  equipment
              
              
              247,307
              
              
              
              81,469Production
                  equipment
              
              
              286,503
              
              
              
              201,7032,927,816
              
              
              
              2,249,640Less
                  accumulated depreciation
              
              
              (283,981
              )
              
              
              (81,789
              )$
              2,643,835
              
              
              $
              2,167,851
 
 We
        depreciated our property and equipment using the straight-line method. Buildings
        and building improvements are depreciated over 30 years and 15 years,
        respectively. Vehicles are depreciated over 5 years. Office equipment and
        furniture is depreciated over lives ranging from 3 to 7 years. Production
        equipment is depreciated over lives ranging from 5 to 10 years.
 
 Depreciation
        expense has been allocated to the following activities in our consolidated
        financial statements:
 
 2007
              
              
              2006Cost
                  of sales
              
              $
              95,439
              
              
              $
              38,463Operating
                  expenses
              
              
              109,900
              
              
              
              26,178$
              205,339
              
              
              $
              61,641
 
 
 F-18
 
 **KESSELRING
        HOLDING CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 
 **7.**
              **Intangible
                  assets:**
 
 Intangible
        assets, which arose during our business acquisition activities discussed
        in Note
        2, consisted of the following as of September 30, 2007 and 2006:
 
 2007
              
              
              2006Employment
                  contracts
              
              $
              206,017
              
              
              $
              206,017Customer
                  lists
              
              
              42,000
              
              
              
              42,000248,017
              
              
              
              248,017Accumulated
                  amortization
              
              
              (223,518
              )
              
              
              (166,237
              )$
              24,499
              
              
              $
              81,780
 
 We
        amortize our employment contract intangibles over 2 years. We amortize our
        customer list intangibles over 3 years.
 
 Amortization
        expense amounting to $57,282 and $106,149 during the years ended September
        30,
        2007 and 2006, respectively, and is reflected as a component of operating
        expenses in our consolidated financial statements. Estimated future amortization
        of intangible assets for the years ending September 30 is: 2008— $14,000; 2009—
$10,499.
 
 **8.**
              **Accounts
                  payable and accrued
                  expenses:**
 
 Accounts
        payable and accrued expenses consisted of the following at September 30,
        2007
        and 2006:
 
 2007
              
              
              2006Accounts
                  payable
              
              $
              1,031,898
              
              
              $
              821,456Accrued
                  expenses
              
              
              407,964
              
              
              
              235,955Accrued
                  losses on contracts
              
              
              1,465
              
              
              
              98,914Accrued
                  warranty costs
              
              
              46,828
              
              
              
              33,325$
              1,488,155
              
              
              $
              1,189,650
 
 
 F-19
 
  
 **KESSELRING
        HOLDING CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **9.**
              **Notes
                  payable and convertible promissory
                  note:**
 
 *Notes
        payable:*
 
 Notes
        payable consisted of the following at September 30, 2007 and 2006:
 
 2007
              
              
              2006Variable
                  rate mortgage note payable, due January 2017 (a)
              
              $
              1,247,261
              
              
              $
              --8.0%
                  Note payable, due July 2017 (b)
              
              
              306,562
              
              
              
              --4.9%
                  Note payable, due August 2010
              
              
              20,858
              
              
              
              27,8727.0%
                  Stockholder notes, due December 2006 (c)
              
              
              --
              
              
              
              850,000Prime
                  plus 1%, $250,000 bank credit facility (d)
              
              
              --
              
              
              
              191,6757.75%
                  Stockholder notes, due on demand
              
              
              --
              
              
              
              79,524Other
                  bank debt
              
              
              --
              
              
              
              8731,574,681
              
              
              
              1,149,894Current
                  maturities
              
              
              (31,246
              )
              
              
              (1,129,035
              )Long-term
                  debt
              
              $
              1,543,435
              
              
              $
              20,859
 
 (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 (7.73%
                  at
                  September 30, 2007). 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 real estate in the State of Washington (with
                  a cost of
                  $389,257). This note has a ten-year term and an adjustable coupon
                  rate
                  based on the five-year Treasury Rate for Zero-Coupon Government
                  Securities, plus 310 basis points (8.03% at September 30, 2007).
                  This debt
                  is secured by the real estate
                  acquired.
 (c)
              The
                  7.0% stockholder notes arose in connection with our purchase of
                  the King
                  Group of Companies on July 1, 2006. See Note 2 for additional information
                  about this arrangement.
 (d)
              In
                  June, 2007, our $250,000 bank line of credit was paid in full and
                  cancelled.
 (e)
              In
                  March, 2007, we amended our remaining bank line of credit from
                  a maximum
                  borrowing amount of $370,000 to a maximum borrowing amount of $200,000.
                  The line expired on October 31, 2007. This line had a variable
                  Coupon rate
                  equal to the Prime Rate (8.25% at September 30, 2007). Borrowings
                  during
                  the periods presented were minimal.
 
 Maturities
        of our notes payable for each year ending September 30 are as
        follows:
 
 2008
              
              $
              31,2462009
              
              
              33,8862010
              
              
              56,6052011
              
              
              31,1842012
              
              
              33,370Thereafter
              
              
              1,388,390$
              1,574,681
 
   F-20
  
 **KESSELRING
        HOLDING CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 
 **9.**
              **Notes
                  payable and convertible promissory note
                  (continued):**
 
 *Convertible
        Promissory Note:*
 
 On
        August
        16, 2007, we entered into a Securities Purchase Agreement with the Marie
        Baier
        Foundation (the “Foundation”), pursuant to which we issued a convertible
        promissory note in the principal amount of $350,000 (the “Foundation Note”). On
        September 26, 2007 the Foundation converted the note into our common stock.
        While outstanding, the Foundation Note bore interest at 7.36%, had a one
        year
        term and was convertible into our common stock, at the Foundation’s option, at a
        conversion price of $0.48 per share (the trading market on the contract
        inception date was $0.30).
 
 We
        evaluated the Foundation Note on the inception date under Statements on
        Financial Accounting Standards No. 133 Accounting for Derivative Financial
        Instruments and Hedging Activities for embedded terms and features that may
        require separate recognition as derivative liabilities. While the contracts
        included such features, including the embedded conversion feature, none required
        bifurcation. The embedded conversion feature, in fact, met the Conventional
        Convertible exemption because the conversion price was fixed and there were
        no
        other conditions that would result in variability in the number of shares
        issued
        to settle the contract. In addition, the conversion feature did not embody
        a
        beneficial conversion feature (a conversion price that is less than the trading
        market value of the underlying shares of common stock). A beneficial conversion
        feature would generally result in a portion of the proceeds being allocated
        to
        stockholders’ equity.
 
 The
        Foundation converted the note, $350,000, and accrued interest, $2,187, for
        733,725 shares of common stock on September 26, 2007. Since the conversion
        was
        effected under the explicit terms of the convertible promissory note, without
        adjustment or inducement, we treated the conversion as a reclassification
        of the
        carrying value on the date of conversion to stockholders’ equity under the
        context provided in Accounting Principles Board Opinion No. 26 Early
        Extinguishment of Debt and related interpretations.
 
 
 F-21
 
  
 **KESSELRING
        HOLDING CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **10.**
              **Related
                  party transactions:**
 
 *Consulting
        fees, related parties:*
 
 Our
        consulting fees, related parties, for the year ended September 30, 2007 amounted
        to $429,189 and is comprised of the activities, as follows:
 
 Our
        former Chief Executive Officer received $43,500 in fees under a consultancy
        contract through the first quarter of our fiscal year ended September 30,
        2007.
        Subsequent to this consultancy agreement the former Chief Executive Officer
        received a salary which was 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 through the first quarter
        of our fiscal year ended September 30, 2007. Subsequent to this consultancy
        agreement the former Chief Operating Officer received a salary which was
        included in salaries and benefits.
  We
        paid
        $176,000 to Advice Consulting who was retained to manage the subsidiaries
        of
        Kesselring Corporation, the predecessor to Kesselring Holding Corporation.
        The
        managing member of Advice Consulting was the father of the then Chief Executive
        Officer of Kesselring Corporation and a current director.
  We
        paid
        $103,796 in professional fees to an accounting firm partially owned by our
        Interim Chief Financial Officer and Director.
 
 We
        paid
        $73,983 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 is directly
        involved in some of those other unrelated business ventures.  Our
        Chairman does not participate in the determination of the fees that we pay
        to
        Spyglass Ventures.
  *Other
        transactions and accounts:*
 
 During
        the year ended September 30, 2007, we compensated the members of our Board
        of
        Directors with 75,000 shares of common stock with a fair value of $22,501.
        This
        amount is included in other operating expenses.
 
 
 F-22
 
 
 
 
 **KESSELRING
        HOLDING CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 
 **11.**
              **Stockholders’
                  equity:**
  **Year
        ended September 30, 2007:**
 
 *Recapitalization:*
 
 On
        June
        29, 2007, our Board of Directors and a majority of our stockholders approved
        19.5 shares for one share forward stock split of our issued and outstanding
        stock. All share and per share information has been restated to give effect
        to
        the stock split. In addition, the number of common shares that we are authorized
        to issue was decreased from 700,000,000 to 200,000,000.
 
 On
        May
        18, 2007, we merged with Kesselring Corporation, a Florida Corporation
        (“Kesselring Florida”) pursuant to a Share Exchange Agreement (the “Exchange
        Agreement”). The Exchange Agreement provided for, among other things, the
        exchange of Kesselring Florida’s 26,773,800 outstanding common shares for
        26,796,186 (or 80.28%) of our common shares. Considering that Kesselring
        Florida’s shareholders controlled the majority of the post-merger outstanding
        voting common stock, its management had actual post-merger operational control
        (e.g. All principal executive and operational positions) and governance control
        (e.g. Board of Directors); and Offline effectively succeeded its otherwise
        minimal operations to the operations of Kesselring Florida, Kesselring Florida
        was considered the accounting acquirer in this reverse-merger transaction.
        A
        reverse-merger transaction is considered, and accounted for as, a capital
        transaction in substance. It is equivalent to the issuance of Kesselring
        Florida’s common stock for the net monetary assets of Offline, accompanied by a
        recapitalization in stockholders’ equity.
  *Private
        placement of common stock:*
 
 On
        September 15, 2006, we commenced a private placement of our common stock
        at
        $0.35 per share. Through the end of our fiscal year ended September 30, 2006,
        sold 860,719 shares for net proceeds of $301,000. In October and November
        2006,
        we sold 1,401,170 shares for proceeds of $490,000. Accordingly, during the
        period commencing September 15, 2006 through November 2006, we sold 2,261,889
        shares and received proceeds of $791,000. No further sales of common stock
        are
        planned under this private placement arrangement.
 
 
 
 F-23
 
 
 
 
 **KESSELRING
        HOLDING CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **11.**
              **Stockholders’
                  equity (continued):**
 
 *Share-based
        payments - consultants:*
 
 During
        the year ended September 30, 2007, we compensated consultants with 277,558
        shares of common stock for professional, organizational and operations related
        services. We recorded share-based consulting expense of $152,143 as services
        were rendered, based upon the fair value of the shares issued.
 
 *Sale
        of preferred stock and warrants:*
 
 On
        May
        18, 2007, we entered into a financing arrangement with one investor pursuant
        to
        which we sold Series A Preferred Stock and three tranches of warrants to
        purchase our common stock in consideration of an aggregate purchase price
        of
        $1,500,000 (the “Preferred 2007 Financing”). Net proceeds from this financing
        arrangement amounted to $1,190,000. In connection with the Preferred 2007
        Financing, the Company issued the following securities to the
        investor:
 
 ·
              1,000,000
                  shares of Series A Preferred Stock (the “Series A
                  Preferred”);
 ·
              Series
                  A Common Stock Purchase Warrants to purchase 3,091,959 shares of
                  common
                  stock at $0.49 per share for a period of five years (“Series A
                  Warrants”);
 ·
              Series
                  B Common Stock Purchase Warrants to purchase 3,091,959 shares of
                  common
                  stock at $0.54 per share for a period of five years (“Series B Warrants”);
                  and,
 ·
              Series
                  J Common Stock Purchase Warrants to purchase 3,091,959 shares of
                  common
                  stock at $0.54 per share for a period of one year from the effective date
                  of the registration statement (“Series J
                  Warrants”)
 
 The
        shares of Series A Preferred Stock have a stated value of $1.50 per share
        and
        are convertible, at any time at the option of the holder, into an aggregate
        of
        3,091,966 shares of the Company’s common stock. Holders of the Series A
        Preferred Stock have if-converted voting rights and are entitled to receive,
        when and if declared by the Company's Board of Directors, annual dividends
        of
        $0.12 per share****of Series A Preferred Stock (representing
        8.0% of the stated value) paid semi-annually on June 30 and December 31.
        Such
        dividends may be paid, at the option of the Company, either (i) in cash,
        or (ii)
        in restricted shares of common stock. No dividends on the Series A Preferred
        Stock were declared during the nine months ended June 30, 2007. The underlying
        Certificate of Designation provides for redemption in common stock or cash
        under
        certain circumstances. There are no circumstances that are not within the
        Company’s control that could result in net-cash settlement of the Series A
        Preferred Stock. In the event of any liquidation or winding up of the Company,
        the holders of Series A Preferred Stock will be entitled to a liquidation
        value
        equal to 115% of the original purchase price of $1.725 per share ($1,725,000
        in
        the aggregate).
   F-24
 
 **KESSELRING
        HOLDING CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **11.**
              **Stockholders’
                  equity (continued):**
 
 The
        Series A Preferred Stock was evaluated under Statements of Financial Accounting
        Standards No. 150 Accounting for Certain Financial Instruments with
        Characteristics of Both Liabilities and Equity (“FAS150”) and Statements
        on Financial Accounting Standards No. 133 Accounting for Derivative Financial
        Instruments and Hedging Activities (“FAS133”). Since the Series A Preferred
        Stock is not mandatorily redeemable and there are no conditions that would
        rise
        to an unconditional cash-settlement obligation, we concluded that they were
        not
        within the scope of FAS150. In evaluating the Series A Preferred Stock under
        the
        context of FAS133, we first concluded that, for purposes of evaluating the
        classification of the embedded conversion option and certain other features,
        its
        terms and conditions and features were more akin to equity; specifically,
        a
        perpetual preferred equity security. In performing this evaluation we considered
        many of the terms and conditions in the Certificate of Designation, including
        the voting rights and dividend rights afforded the Series A Preferred Stock
        holders. As such, we concluded that the embedded features that principally
        embodied risks of equity (e.g. the conversion option) were clearly and closely
        related to the host contract and that bifurcation and liability classification
        was not required. Finally, we considered classification of the Series A
        Preferred Stock under the guidance of EITF D-98 Classification and Measurement
        of Redeemable Securities. This standard provides that provisions for net-cash
        settlement under circumstances that are not within the control of management
        would be precluded from classification in stockholders’ equity. As previously
        mentioned, there are no such terms that could result in net-cash settlement
        for
        matters that are not within our control. Accordingly, we have classified
        the
        Series A Preferred Stock in our stockholders’ equity.
 
 In
        addition to the evaluation that we performed on the Series A Preferred Stock,
        we
        also evaluated the warrants issued therewith (both financing and placement
        agent
        warrants) against the criteria for classification in stockholders’ equity
        specified in EITF 00-19, Accounting for Derivative Financial Instruments that
        are Indexed to, and Potentially Settled in, a Company’s Own Stock (EITF
        00-19), as amended by FSP EITF 00-19-2 Accounting for Registration Payment
        Arrangements. EITF 00-19 provides for eight conditions that freestanding
        derivative financial instruments must achieve in order to be classified in
        stockholders’ equity; this test is required to be performed at the inception of
        the freestanding derivative and at each reporting period until settlement
        thereof. The conditions generally provide for an evaluation of whether a
        company
        has sufficient authorized shares to settle all of its financial instruments,
        whether it is able to settle in unregistered shares (since registration
        activities are presumed not to be within a company’s control) and whether terms
        of the derivative afford the holder either rights similar to those of a creditor
        or are materially greater than the rights of a holder of the underlying common
        shares. Based upon our analysis of these conditions, we concluded that
        classification in stockholder’s equity of the warrants was appropriate.
        Significant considerations in drawing this conclusion were (i) certain
        registration rights afforded the warrant holder, discussed in the next
        paragraph, provided for economic alternatives in the event that we were unable
        to settle with registered shares, (ii) we have sufficient authorized and
        unissued shares
   
 F-25
 **KESSELRING
        HOLDING CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 
 **11.**
              **Stockholders’
                  equity (continued):**
 
 to
        settle
        the warrants and all of our other share-indexed financial contracts and (iii)
        certain cash-less exercise provisions only in the A and B warrants are
        structured to limit the number of shares issuable upon exercise of that
        provision to a number of shares below the number of shares indexed to the
        warrants.
 
 As
        noted
        above, we entered into a Registration Rights Agreement with the investors
        in the
        Preferred 2007 Financing. Our agreement provides for the filing of a
        registration statement and achievement of the effectiveness on a best efforts
        basis, using reasonably commercial means that are within our capabilities
        and
        control. However, we have agreed with the investors that, in the event that
        we
        are unable to file a registration statement or achieve effectiveness, we
        will
        increase the annual dividend rate on the Series A Preferred Stock from 8%
        to
        10%, but no higher.
 
 Notwithstanding
        our conclusions to classify the Series A Preferred Stock and warrants in
        stockholders’ equity, we were required to further evaluate the Series A
        Preferred Stock under EITF 98-5, Accounting for Convertible Securities with
        Beneficial Conversion Features or Contingently Adjustable Conversion Ratios
        (EITF 98-5), as amended and interpreted by EITF 00-27, Application of Issue
        98-5 to Certain Convertible Securities. Although the conversion price of the
        Series A Convertible Preferred Stock was below our estimated fair market
        value
        per share, EITF 98-5 requires us to calculate an effective conversion rate,
        which gives effect to the allocation of proceeds from the transaction to
        the
        three tranches of warrants (on a relative fair value basis consistent with
        Accounting Principles Board Opinion No. 14, Accounting for Debt with
        Detachable Warrants). Accordingly, to allocate the relative fair values
        between the Series A Preferred Stock and the warrants, we estimated the fair
        value of each class of warrants on the date of issuance using the
        Black-Scholes-Merton valuation model (no dividend yield; volatility of 76.37%,
        risk-free interest rate of 4.84%; and an expected life of 5 years and 1.5
        years
        for the Series A and B Warrants and the Series J Warrants, respectively).
        We
        concluded that the fair value of the Series A Preferred Stock was equal to
        the
        stated value, since it was relatively consistent with its common stock
        equivalent value. As a result, we allocated $605,730 to the warrants, which
        was
        immediately recorded in paid-in capital. The amount allocated to the Series
        A
        Preferred Stock amounted to $584,270, which resulted in an effective conversion
        price of $0.19; this amount is beneficial to our estimated common stock fair
        value of $0.355 on the date of the transaction. The gross beneficial conversion
        feature of $513,374 was recorded in paid-in capital. The remaining balance
        ascribed to the Series A Preferred Stock amounted to $70,896.
 
 
 
 F-26
 
 
 **KESSELRING
        HOLDING CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 
 **11.**
              **Stockholders’
                  equity (continued):**
 
 Following
        the allocation of the beneficial conversion feature above, we considered
        the
        probability that the Series A Preferred Stock holders would convert to common
        stock. Although the Series A Preferred does not have a stated maturity or
        redemption provision, based upon our communications with the investors, we
        believe that conversion to our common stock is more likely than not. As a
        result, we are required to recognize as a deemed dividend, the amount by
        which
        the stated value of the preferred stock exceeds the carrying value. The deemed
        distribution of $1,429,104 is recorded as accretion to the Series A Preferred
        Stock in our stockholders’ equity and a charge to paid-in capital, since we have
        an accumulated deficit on the date of the transaction.
 
 The
        aforementioned calculations and accounting required estimation of the fair
        value
        of our common stock. We are responsible for the valuation of our common stock
        and believe that trading market prices are the best indicator for stock price
        valuation. For purposes of the fair value, we have utilized the trading market
        of our common stock since our stock became publicly traded on June 1, 2007.
        However, during the first sixty days of our trading, we noted that our stock
        price fluctuated significantly in terms of both share prices and daily trading
        levels. We believe that these fluctuations are indicative of the responses
        by
        market participants as we provided information about our business to the
        market
        place. Accordingly, for purposes of our stock price value in the aforementioned
        calculations, we utilized a weighted average share price, based upon a
        combination of closing market prices and trading levels, for a reasonable
        period
        following listing and trading of our common stock. This calculation resulted
        in
        a value of $0.355 per common share, which was only slightly different than
        our
        pre-trading, private-company valuation of $0.350 (which applied income approach
        to valuation) used in recent periods to value common stock underlying
        share-based payment arrangements that we have entered into. We believe that
        this
        approach to valuing our common stock is in accordance with the objectives
        of
        fair value measurement.
 
 *Option
        issuances - Employees:*
 
 In
        January, 2007, we granted options to purchase 200,167 shares of our common
        stock
        to a senior officer as part of an employment agreement. These options vested
        immediately and are exercisable for five years at $0.37 per share. The fair
        value of the option award was estimated on the date of grant as $46,000 using
        the Black-Scholes-Merton valuation model that used the following assumptions:
        dividend yield - none, volatility of 79%, risk-free interest rate of 4.9%,
        assumed forfeiture rate as they occur, and an expected life of 5 years.
        Accordingly, we recognized $46,000 of compensation expense on the date of
        grant.
 
 F-27
 
 
 
 **KESSELRING
        HOLDING CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 
 **11.**
              **Stockholders’
                  equity (continued):**
 
 In
        May,
        2007, we granted options to purchase 40,033 shares of our common stock to
        an
        employee as part of an employment agreement. These options vested immediately
        and are exercisable for five years at $.50 per share. The fair value of the
        option award was estimated on the date of grant as $8,334 using the
        Black-Scholes-Merton valuation model that used the following assumptions:
        dividend yield - none, volatility of 76.37%, risk-free interest rate of 4.84%,
        assumed forfeiture rate as they occur, and an expected life of 5 years.
        Accordingly, we recognized $8,334 of compensation expense on the date of
        grant.
 
 *Summary
        tables for options and warrants outstanding:*
 
 As
        of
        September 30, 2007, we have options outstanding to purchase 240,200 shares
        of
        our common stock and warrants outstanding to purchase 10,297,671 shares of
        our
        common stock. The following tables illustrate our cumulative option and warrant
        activities:
 
 Our
        outstanding stock options range in exercise prices from $0.37 to $0.50 and
        have
        a weighted average remaining life of 4.39 years on September 30,
        2007.
 
 Options
                Outstanding
              
              
              Weighted-Average
                Exercise
                  PricesBalances
                  at October 1, 2006
              
              
              --
              
              
              
              --Awards
              
              
              240,200
              
              
              $
              0.39Exercised
              
              
              --
              
              
              
              --Cancelled,
                  expired or forfeited
              
              
              --
              
              
              
              --Balances
                  at September 30, 2007
              
              
              240,200
              
              
              $
              0.39Options
                  exercisable
              
              
              240,200
              
              
              $
              0.39
 
 Effective
        December 10, 2007, we granted 2,500,000 stock options to our Chief Executive
        Officer in connection with his employment contract. The options have an exercise
        price of $0.30 and vest quarterly in four equal tranches commencing November
        2007. The options have a term of five years. These options will be accounted
        for
        in accordance with Statement 123(R), at their grant date fair values commencing
        in the first quarter of our 2008 fiscal year.
 
 
 F-28
 
  **KESSELRING
        HOLDING CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 
 **11.**
              **Stockholders’
                  equity (continued):**
 
 Our
        outstanding warrants range in exercise prices from $0.49 to $0.54 and have
        a
        weighted average remaining life of 3.47 years on September 30,
        2007.
 
 Warrants
                Outstanding
              
              
              Weighted-Average
                Exercise
                  PricesBalances
                  at October 1, 2006
              
              
              --
              
              
              
              --Issued
              
              
              10,297,671
              
              
              $
              0.52Exercised
              
              
              --
              
              
              
              --Expired
              
              
              --
              
              
              
              --Balances
                  at September 30, 2007
              
              
              10,297,671
              
              
              $
              0.52
 
 **Year
        ended September 30, 2006:**
 
 *Share-based
        payments—employees:*
 
 During
        the year ended September 30, 2006, we awarded 700,000 shares of common stock
        to
        officers and employees that were recorded as compensation expense of $196,872
        based upon the fair value of the shares issued. This amount, plus $163,496
        of
        amortization of the arrangement discussed in the following paragraph represent
        the amount in the caption stock-based compensation in our statement of cash
        flows. These shares vested immediately and there were no performance obligations
        related to the award. This expense is included as a component of salaries
        and
        related expenses on our consolidated statement of operations.
 
 During
        the year ended September 30, 2005, we
        awarded 1,100,000 shares of common stock, with a fair value of $216,656,
        to an
        officer under an employment contract that had a term of two years. The
        employment contract provided for, among other things, vesting over the two
        year
        term and a contingent right to require us to redeem the shares for $100,000.
        We
        recorded the shares at fair value, subject to amortization over the contractual
        term, and classified the fair value of the redemption feature outside of
        stockholders’ equity. On July 1, 2006, we amended the employment contract with
        this officer to eliminate the vesting and the redemption provisions. By
        accelerating the vesting of the original award, the contract amendment required
        us to re-measure compensation to this officer, resulting in additional
        compensation expense of $10,038. We computed the additional compensation
        as the
        award’s intrinsic value on the date of the modification in excess of the award’s
        original intrinsic value. Since the amendment also terminated the redemption
        right, the balance carried outside of stockholders’ equity was reclassified to
        additional paid-in capital.
 
 
 F-29
 
 
 **KESSELRING
        HOLDING CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **11.**
              **Stockholders’
                  equity (continued):**
 
 *Share-based
        payments—consultants:*
 
 During
        the year ended September 30, 2006, we compensated consultants with 2,229,800
        shares of common stock for professional, organizational and operational related
        services. We recorded share-based consulting expense of $568,807, which,
        as
        discussed in Note 10, included $469,567 that was paid to our stockholders,
        as
        services were rendered, based upon the fair value of the shares
        issued.
 
 *Common
        stock issued for business acquisitions:*
 
 As
        more
        fully discussed in Note 2, we issued 7,446,218 shares of our common stock
        in
        connection with the acquisition of the King Group of companies. We included
        the
        fair values of these shares in our purchase price, which was allocated to
        the
        assets that we acquired, based on their fair values.
 
 *Private
        placement of common stock:*
 
 On
        September 15, 2006, we commenced a private placement of up to 14,285,714
        shares
        of our common stock for net proceeds of up to $5,000,000 at a $0.35 per share
        price with a minimum of 10,000 shares per investor. As of September 30, 2006,
        we
        sold 860,000 shares for net proceeds of $301,000. Subsequently, in October
        and
        November 2006, we sold 1,400,000 shares for proceeds of $490,000. Accordingly,
        since the inception of this offering, we have sold 2,260,000 shares and received
        proceeds of $791,000.
 
 **12.**
              **Income
                  taxes:**
 
 Our
        provision (benefit) for income taxes consisted of the following components
        at
        September 30, 2007 and 2006:
 
 2007
              
              
              2006Current:Federal
              
              $
              -
              
              
              $
              -State
              
              
              -
              
              
              
              -Deferred
                  income taxes
              
              
              (254,829
              )
              
              
              (221,728
              )$
              (254,829
              )
              
              $
              (221,728
              )
 
 Deferred
        tax assets and (liabilities) reflect the net tax effect of temporary differences
        between the carrying amount of asset and liabilities for financial reporting
        purposes and amounts used for income tax purposes. Significant components
        of our
        deferred tax assets are as follows as of September 30, 2007 and
        2006:
 
 F-30
 
 **KESSELRING
        HOLDING CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **12.**
              **Income
                  taxes (continued):**
 
 2007
              
              
              2006Property
                  and fixed assets
              
              $
              (544,514
              )
              
              $
              (492,129
              )Intangible
                  assets
              
              
              (16,298
              )
              
              
              (60,975
              )Other
                  liabilities
              
              
              -
              
              
              
              (22,139
              )Net
                  operating loss carry forwards
              
              
              1,525,245
              
              
              
              307,874Reserves
                  and accruals
              
              
              58,031
              
              
              
              12,540Net
                  deferred tax assets (liabilities)
              
              
              1,022,464
              
              
              
              (254,829
              )Valuation
                  allowances
              
              
              (1,022,464
              )
              
              
              -Net
                  deferred taxes, after valuation allowances
              
              $
              -
              
              
              $
              (254,829
              )
 
 Our
        valuation allowance increased $1,022,464 and decreased $3,216 during the
        years
        ended September 30, 2007 and 2006, respectively.
 
 As
        of
        September 30, 2007, we have Federal net operating loss carry-forwards of
        approximately $4,053,268. Net operating loss carry-forwards expire starting
        in
        2016 through 2023. The ultimate availability of these losses to offset future
        taxable income may be subject to limitations under Internal Revenue Code
        Section
        382.
 
 The
        reconciliation of the effective income tax rate to the Federal statutory
        rate is
        as follows for the periods below:
  2007
              
              
              2006Federal
                  income at the statutory rate
              
              
              (34.00
              %)
              
              
              (34.00
              %)Composite
                  state rate, net of Federal benefit (a)
              
              
              (3.63
              %)
              
              
              (2.21
              %)Non-taxable
                  income items
              
              
              -
              
              
              
              -Non-deductible
                  expense items
              
              
              0.20
              %
              
              
              5.52
              %Change
                  in the valuation allowance
              
              
              37.43
              %
              
              
              (0.50
              %)Effective
                  income tax rate
              
              
              -
              
              
              
              (31.19
              %)
 
 (a)
        We
        operate in one jurisdiction (the State of Washington) that does not have
        a
        corporate income tax. The composite state tax rate gives effect to this
        jurisdiction.
 
 **13.**
              **Commitments
                  and contingencies:**
 
 *Restructuring
        and termination charges:*
 
 Commencing
        in August, 2007, we terminated eight at-will employees without termination
        benefits. In October, 2007, we terminated the President of our Construction
        Services Segment. Negotiations for termination benefits are on-going and
        will be
        recorded, if any, in the period that both the arrangement is approved and
        the
        former employee is notified of the benefit, if any. In October, 2007, our
        Chief
        Financial Officer terminated her employment. As part of her employment
        agreement, severance benefits amounting to $87,500 were awarded. These benefits
        will be paid over a period of six months.
 
   F-31
 
 **KESSELRING
        HOLDING CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 
 **13.**
              **Commitments
                  and contingencies
                  (continued):**
 
 As
        discussed
        in Note 1, our new management is currently contemplating measures that may
        give
        rise to exit, disposal and termination costs in future periods. Accounting
        for
        these types of costs was significantly altered in 2003 when the 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 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. Accordingly, exit, disposal and termination costs will be considered
        for treatment under Statement No. 146 in future periods, as they arise, if
        any.
 
 *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.
 
 The
        following tabular presentation reflects activity in warranty reserves during
        the
        periods presented:
 
 Year
                  ended September 30, 2007
              
              
              Year
                  ended September 30, 2006Balance
                  at beginning of period
              
              $
              33,325
              
              
              $
              8,513Warranty
                  charges
              
              
              25,723
              
              
              
              29,172Warranty
                  payments
              
              
              (12,220
              )
              
              
              (4,360
              )Balance
                  at end of period
              
              $
              46,828
              
              
              $
              33,325
 
 *Lease
        obligations and rent:*
 
 Rent
        and
        related expense for the years ended September 30, 2007 and 2006 amounted
        to
        $229,197 and $63,426 respectively.
 
  F-32
  **KESSELRING
        HOLDING CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 
 **13.**
              **Commitments
                  and contingencies
                  (continued):**
 
 On
        August
        15, 2007, our Contract Services Segment 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.
 
 In
        September, 2007 we entered into an operating lease for 5,964 square feet
        of
        office space in Sarasota, Florida. 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.
 
 **14.**
              **Segment
                  information:**
 
 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 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 these
        products principally to construction and homebuilding contractors in the
        Northwestern United States.
 
 During
        2007 and 2006 we incurred expenses of $1,818,864 and $598,225, 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.
 
 Selected
        financial information about our segments is provided in the table
        below:
 
 2007
              
              Construction
                Services
              
              
              Manufactured
                Product
              
              
              Corporate
              
              
              TotalRevenues
              
              $
              5,112,004
              
              
              $
              7,063,190
              
              
              $
              --
              
              
              $
              12,175,194Operating
                  Income/(Loss)
              
              
              (735,146
              )
              
              
              (552,611
              )
              
              
              (1,818,864
              )
              
              
              (3,106,621
              )Depreciation
                  and amortization
              
              
              104,408
              
              
              
              118,640
              
              
              
              2,720
              
              
              
              225,768Identifiable
                  assets
              
              
              819,321
              
              
              
              4,014,093
              
              
              
              215,898
              
              
              
              5,049,312
 
 2006
              
              Construction
                Services
              
              
              Manufactured
                Product
              
              
              Corporate
              
              
              TotalRevenues
              
              $
              5,592,295
              
              
              $
              1,737,560
              
              
              $
              --
              
              
              $
              7,329,855Operating
                  Income/(Loss)
              
              
              (133,659
              )
              
              
              125,847
              
              
              
              (598,225
              )
              
              
              (606,037
              )Depreciation
                  and amortization
              
              
              148,898
              
              
              
              21,892
              
              
              
              --
              
              
              
              170,790Identifiable
                  assets
              
              
              1,440,394
              
              
              
              3,825,864
              
              
              
              --
              
              
              
              5,266,258
    F-33
  
 
 **KESSELRING
        HOLDING CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **15.**
              **Subsequent
                  events:**
 
 *Employment
        contract:*
 
 On
        August 15, 2007, our Board of Directors of
        the Company appointed Douglas P. Badertscher as the President and Chief
        Executive Officer of the Company. On October 25, 2007, Mr. Badertscher and
        the
        Company executed an Employment Agreement regarding the same, effective August
        15, 2007. On December 10, 2007, Mr. Badertscher and the Company entered into
        an
        Amended and Restated Employment Agreement that provides for the following
        terms
        and conditions, effective August 15, 2007:
 
 ·
              Base
                  annual salary of $250,000;
 ·
              The
                  award of options to purchase 2,500,000 shares of common stock of
                  which
                  625,000 vest on November 15, 2007, 625,000 shall vest on February
                  15,
                  2008, 625,000 shall vest on May 15, 2008 and 625,000 shall vest
                  on August
                  15, 2008 at an exercise price of $0.30 per share on a cash or cashless
                  basis;
 ·
              Participation
                  in the employee stock incentive
                  plan;
 ·
              $35,000
                  advance against future bonuses to be paid on execution of
                  contract;
 ·
              Operating
                  Income bonus, accrued and paid (subject to cash availability) quarterly,
                  equal to the greater of $35,000 or 3.0% of that fiscal year’s operating
                  income to paid no later than 75 days following the end of the quarter
                  in
                  which the bonus payment accrued;
 ·
              Acquisition
                  bonus equal to 1⁄2 of 1% (50 basis points) of the Gross Revenue of the
                  acquired company, accrued and paid (subject to cash availability)
                  in two
                  equal parts: at closing and after the successful integration of
                  the
                  acquired company;
 ·
              Automobile
                  allowance of $350 per month;
 ·
              Reimbursement
                  of membership fees up to a maximum of $2,500 to the Founder’s
                  Club;
 ·
              Company
                  paid health benefits for the executive and his
                  family;
 ·
              Participation
                  in all employee benefit plans and programs;
                  and,
 ·
              Reimbursement
                  of reasonable expenses.
 
 The
        term
        of the employment agreement is 36 months and may be renewed for one-year
        periods
        unless either party notifies the other within 60 days prior to the end of
        the
        initial or renewal employment term of its intent to terminate the
        agreement.
 
 Share-based
        awards provided for in the employment agreement will be accounted for based
        upon
        the grant-date measurement value and recognized as compensation expense as
        the
        options vest. The grant-date fair value had not been calculated on the filing
        date of this report.
 
 *Subsequent
        financings:*
 
 In
        October, November and December 2007, certain of our Board of Directors, or
        organizations with which they are affiliated, funded an aggregate $600,000
        to us
        pursuant to notes payable. These notes bear interest at 7.0% and mature as
        follows: April 18, 2009 – $250,000; April 23, 2009 - $50,000; May 6, 2009 -
        $25,000; May 8, 2009 - $25,000 and June 13, 2009 – $250,000.
 
 
 F-34
  
 **REPORT
        OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS**
 
 
 
 
 
 
 To
        the
        Board of Directors
 Kesselring
        Holding Corporation
 
 We
        have
        audited the accompanying combined statements of operations and cash flows
        of the
        King Companies (the “Companies”) for the nine months ended September 30, 2006
        and the year ended September 30, 2005. These combined financial statements
        are
        the responsibility of the Company's management. Our responsibility is to
        express
        an opinion on these combined financial statements based on our
        audits.
 
 We
        conducted our audits in accordance with auditing standards generally accepted
        in
        the United States of America. Those standards require that we plan and perform
        the audit to obtain reasonable assurance about whether the financial statements
        are free of material misstatement. An audit includes examining, on a test
        basis,
        evidence supporting the amounts and disclosures in the financial statements.
        An
        audit also includes 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 combined financial statements referred to above present fairly,
        in
        all material respects, the combined  operations and combined cash
        flows of the King Companies (the “Companies”) for the nine months ended
        September 30, 2006 and the year ended September 30, 2005, in conformity with
        accounting principles generally accepted in the United States of
        America.
 
 On
        July
        1, 2006, the King Companies were acquired by a wholly-owned subsidiary of
        Kesselring Holding Corporation.
 
 
 /s/
        Lougheed & Company LLC
 
 
 Tampa,
        Florida
 January
        23, 2007
   F-35
 **KING
            COMPANIES**
 **COMBINED
            STATEMENTS OF OPERATIONS**
  Nine-Months
                    Ended
                    June
                      30, 2006
                  
                  
                  Year
                      Ended
                    September
                      30, 2005**Product
                      sales**
                  
                  $
                  4,993,020
                  
                  
                  $
                  5,956,000**Cost
                      of sales**
                  
                  
                  4,020,885
                  
                  
                  
                  4,800,454**Gross
                      profit**
                  
                  
                  972,135
                  
                  
                  
                  1,155,546**Operating
                      expenses:**Salaries
                      and related
                  
                  
                  334,033
                  
                  
                  
                  338,862Utilities
                      and occupancy costs
                  
                  
                  35,317
                  
                  
                  
                  45,655Depreciation
                  
                  
                  2,604
                  
                  
                  
                  4,583Other
                      operating expenses
                  
                  
                  55,425
                  
                  
                  
                  75,237**Total
                      operating expenses**
                  
                  
                  427,379
                  
                  
                  
                  464,337**Income
                      from operations**
                  
                  
                  544,756
                  
                  
                  
                  691,209**Other
                      income (expense):**Interest
                      income
                  
                  
                  1,638
                  
                  
                  
                  5,121Interest
                      income, related party
                  
                  
                  3,912
                  
                  
                  
                  -Interest
                      expense
                  
                  
                  (12,586
                  )
                  
                  
                  (15,868
                  )Other
                      income
                  
                  
                  1,647
                  
                  
                  
                  10,126**Total
                      other income (expense), net**
                  
                  
                  (5,389
                  )
                  
                  
                  (621
                  )**Net
                      income**
                  
                  $
                  539,367
                  
                  
                  $
                  690,588**Two-class
                      basic and diluted income per share (Note 4):**King
                      Door & Hardware, Inc.
                  
                  $
                  126.91
                  
                  
                  $
                  157.16King
                      Brothers Woodworking, Inc.
                  
                  $
                  46.03
                  
                  
                  $
                  62.63**Unaudited
                      pro forma operating information:**Net
                      income, as reported
                  
                  $
                  539,367
                  
                  
                  $
                  690,588Pro
                      forma provision for income taxes
                  
                  
                  (183,385
                  )
                  
                  
                  (234,800
                  )Pro
                      forma net income
                  
                  $
                  355,982
                  
                  
                  $
                  455,788
  See
          notes
          to combined financial statements.
  F-36
  **KING
          COMPANIES**
 **COMBINED
          STATEMENTS OF CASH FLOWS**
  Nine
                      Months
                    Ended
                    June
                      30, 2006
                  
                  
                  Year
                      Ended
                    September
                      30, 2005**Cash
                      flows from operating activities:**Net
                      income
                  
                  $
                  539,367
                  
                  
                  $
                  690,588Adjustments
                      to reconcile net income to net cash from operating
                      activities:Depreciation
                  
                  
                  65,258
                  
                  
                  
                  86,682Changes
                      in operating assets and liabilities:Accounts
                      receivable
                  
                  
                  (226,867
                  )
                  
                  
                  (154,872
                  )Prepaids
                      and other current assets
                  
                  
                  8,857
                  
                  
                  
                  (17,312
                  )Inventories
                  
                  
                  (56,803
                  )
                  
                  
                  (55,883
                  )Accounts
                      payable and accrued expenses
                  
                  
                  88,548
                  
                  
                  
                  (318,072
                  )Net
                      cash flows from operating activities
                  
                  
                  418,360
                  
                  
                  
                  231,131**Cash
                      flows from investing activities:**Purchases
                      of property and equipment
                  
                  
                  (35,042
                  )
                  
                  
                  (76,373
                  )Proceeds
                      from sale of property and equipment
                  
                  
                  490
                  
                  
                  
                  2,896Proceeds
                      from notes payable, related party
                  
                  
                  -
                  
                  
                  
                  118,466Repayment
                      of notes payable, related party
                  
                  
                  (27,130
                  )
                  
                  
                  -Net
                      cash flows from investing activities
                  
                  
                  (61,682
                  )
                  
                  
                  44,989**Cash
                      flows from financing activities:**Distributions
                      to shareholders
                  
                  
                  (269,896
                  )
                  
                  
                  (294,140
                  )Net
                      cash flows from financing activities
                  
                  
                  (269,896
                  )
                  
                  
                  (294,140
                  )Net
                      change in cash
                  
                  
                  86,782
                  
                  
                  
                  (18,020
                  )Cash
                      at beginning of period
                  
                  
                  21,807
                  
                  
                  
                  39,827Cash
                      at end of period
                  
                  $
                  108,589
                  
                  
                  $
                  21,807Cash
                      paid for interest
                  
                  $
                  12,586
                  
                  
                  $
                  15,868
 See
          notes
          to combined financial statements.
 
 F-37
 **KING
        COMPANIES**
 **NOTES
        TO COMBINED FINANCIAL STATEMENTS**
 
 **1.**
              **Organization
                  and significant accounting
                  policies:**
 
 **Organization:**
  The
        King
        Companies are comprised of King Brothers Woodworking (“KBW”) that was organized
        as a Washington Corporation on October 21, 1977, King Door & Hardware
        (“KDH”) that was organized as a Washington Corporation on December 20, 1996, and
        King Brothers Partnership (the “Partnership”) that was organized as a Washington
        Partnership on October 27, 1976. Collectively, these companies are referred
        to
        herein as the Companies. The Companies were under common shareholder control
        (consisting of two family members owning a 50% interest in each company)
        and
        operated under one management group as an autonomous operating entity during
        the
        periods presented. Accordingly, the combined operations and cash flows are
        presented in the accompanying financial statements as representative of the
        operations acquired by a wholly-owned subsidiary of Kesselring Holding
        Corporation on July 1, 2006.
  KBW
        is
        engaged in the manufacture and sale of custom cabinetry, wood trim, and
        countertops principally to commercial customers in the Northwestern United
        States. KDH is engaged in the assembling and sale of steel doors and associated
        hardware and framing for commercial customers in the Northwestern United
        States.
        The partnership owns the commercial real estate occupied by KBW and KDH.
        We have
        concluded that the combined operations of the Companies fall into one dominant
        industry segment.
  **Significant
        accounting policies:**
  
  *Principles
        of combination:*Our combined financial statements include the accounts of
        the KBW, KDH and the Partnership. All significant inter-company balances
        and
        transactions have been eliminated in our combined financial
        statements.
  *Revenue
        recognition**:*We manufacture and sell custom cabinetry and custom remodeling
        products principally to construction contractors. In certain instances, to
        facilitate the sale of our products, we may engage to install our products
        at
        the contractor worksite at the time of delivery. We recognize revenue when
        persuasive evidence of an arrangement exists, delivery has occurred or services
        have been rendered, our price is fixed or otherwise determinable and
        collectability is probable. We believe that these conditions have been achieved
        when products have been picked up at our facility or delivered, and where
        installation is required, installed at our customer’s worksite. No one customer
        accounted for 10% or more of our sales during the periods
        presented.
   F-38
  **KING
        COMPANIES**
 **NOTES
        TO COMBINED FINANCIAL STATEMENTS**
 
 **1.**
              **Organization
                  and significant accounting policies
                  (continued):**
 
 **Significant
        accounting policies (continued):**
 
 *Depreciation
        expense:*Buildings and improvements, vehicles, office and production
        equipment are depreciated using the straight-line method over the estimated
        useful lives of the related assets. Total depreciation expense amounted to
        $65,258 during the nine-months ended June 30, 2006 and $86,682 during the
        year
        ended September 30, 2005. Of these amounts $62,654 and $82,099 were included
        in
        cost of sales during the nine months ended June 30, 2006 and the year ended
        September 30, 2005, respectively.
 
 Maintenance
        and routine repairs are charged to expense as incurred. Significant renewals
        and
        betterments are capitalized. At the time of retirement or other disposition
        of
        property and equipment, the cost and accumulated depreciation are removed
        from
        the accounts and any resulting gain or loss is reflected in the statement
        of
        operations. Carrying values of our long-lived assets are considered for
        impairment when and if facts and circumstances arise that are indications
        of a
        potential impairment; otherwise we perform this evaluation annually by
        considering the projected cash flows derived from our asset groups.
 
 *Pro
        forma income taxes:*During the periods presented, the Companies were
        flow-through companies for income tax purposes; that is, either Subchapter
        S
        Corporations or partnerships. For purposes of the unaudited pro forma income
        tax
        provision we accounted for income taxes under the asset and liability method
        in
        accordance with Financial Accounting Standard No. 109, Accounting for Income
        Taxes. Under this method, deferred tax assets and liabilities are recognized
        for the future tax consequences attributable to differences between the
        financial statement carrying amounts of assets and liabilities and their
        respective tax bases. Deferred tax assets and liabilities are measured using
        enacted tax rates expected to apply to taxable income in the years in which
        those temporary differences are expected to be recovered or settled. Under
        Statement No. 109, the effect on deferred tax assets and liabilities of a
        change
        in tax rates is recognized in income in the period that includes the enactment
        date. A valuation allowance is provided for deferred tax assets if it is
        more
        likely than not that we will not realize such assets through future sources
        of
        income.
 
 *Net
        income per share:*Our combined basic income per share is computed applying
        the “two-class” approach for calculating and reporting earnings per share as
        provided in Financial Accounting Standard No. 128, Earnings per Share.
        The two-class approach is appropriate for reporting earnings per share when
        multiple classes of common stock participate in portions of earnings, as
        is the
        case in our combined financial statements. Basic earnings per share for each
        company is calculated by dividing net income by its weighted average number
        of
        outstanding common shares outstanding during the period of computation. We
        had
        no potentially dilutive, equity-indexed instruments outstanding during the
        periods presented in our consolidated statements of operations.
   F-39
   **KING
        COMPANIES**
 **NOTES
        TO COMBINED FINANCIAL STATEMENTS**
 
 **1.**
              **Organization
                  and significant accounting policies
                  (continued):**
 
 **Significant
        accounting policies (continued):**
  *Use
        of estimates:*The preparation of financial statements in conformity with
        accounting principles generally accepted in the United States of America
        requires us to make estimates and assumptions that affect the reported amounts
        of assets and liabilities and disclosure of contingent assets, if any, at
        the
        date of the financial statements and the reported amounts of revenues and
        expenses during the reporting period. Significant estimates that we have
        made in
        the preparation of our financial statements are as follows:
  Actual
        results could differ from these estimates.
  **2.**
              **Related
                  party transactions**
 
 Our
        other
        income and expense includes interest income arising from notes receivable
        from
        the stockholders of the Companies. As of June 30, 2006 and September 30,
        2005,
        the Companies had stockholder notes bearing interest at 7.75% and due in
        full on
        November 1, 2006. The balance of these notes was $36,033 and $56,881 for
        June
        30, 2006 and September 30, 2005, respectively. Interest payments were current
        through the end of both periods. In addition, as of June 30, 2006 and September
        30, 2005, the Company had a stockholder demand line of credit bearing interest
        of 7.75%. The balance of this line of credit was $55,304 and $61,586 for
        June
        30, 2006 and September 30, 2005, respectively. Interest payments on the demand
        line were current through both period ends.
 
 **3.**
              **Unaudited
                  pro forma income
                  taxes:**
 
  Because
        the Companies were flow-through entities for income tax purposes (either
        Subchapter S Corporations or partnerships) during the periods presented,
        they
        were not subject to Federal, and certain state, income taxes. The pro forma
        data
        shown herein reflects the provision for income taxes that would have been
        recorded had the Companies been taxed as C corporations.
     F-40
  **KING
        COMPANIES**
 **NOTES
        TO COMBINED FINANCIAL STATEMENTS**
 
 **3.**
              **Unaudited
                  pro forma income taxes
                  (continued):**
 
  Our
        unaudited pro forma provision for income taxes consisted of the following
        components:
  
 Nine
                    months
                  ended
                    June 30,
                  2006
                
                
                Year
                    Ended
                  September
                    30,
                  2005Current
                    tax expense:Federal
                
                $
                221,078
                
                
                $
                178,709State
                
                
                -
                
                
                
                -Deferred
                    tax exp (benefit)
                
                
                (37,693
                )
                
                
                56,091Total
                    provision (benefit) for income taxes
                
                $
                183,385
                
                
                $
                234,800
  The
        Companies’ state taxing jurisdiction (State of Washington) does not provide for
        a corporate income tax. The statutory rates in all other jurisdictions that
        we
        would have been taxed in were we taxed as C Corporations does not differ
        from
        our pro forma effective income tax rate.
   F-41
  **KING
        COMPANIES**
 **NOTES
        TO COMBINED FINANCIAL STATEMENTS**
 
 **4.**
              **Combined
                  equity and net income per
                  share:**
 
 Combined
        equity:
  Common
                    Stock
                
                
                Paid-in
                
                
                RetainedShares
                
                
                Amount
                
                
                Capital
                
                
                Earnings
                
                
                TotalBalance
                    at September 30, 2005
                
                
                6,800
                
                
                $
                32,000
                
                
                $
                253,248
                
                
                $
                1,185,668
                
                
                $
                1,470,916Net
                    income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                539,367
                
                
                
                539,367Distributions
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (269,896
                )
                
                
                (269,896
                )Balance
                    at June 30, 2006
                
                
                6,800
                
                
                $
                32,000
                
                
                $
                253,248
                
                
                $
                1,455,139
                
                
                $
                1,740,387King
                    Brothers Woodworking
                
                
                2,800
                
                
                $
                28,000
                
                
                $
                -
                
                
                $
                861,408
                
                
                $
                889,408King
                    Door and Hardware
                
                
                4,000
                
                
                
                4,000
                
                
                
                253,248
                
                
                
                157,444
                
                
                
                414,692King
                    Partnership
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                436,287
                
                
                
                436,2876,800
                
                
                $
                32,000
                
                
                $
                253,248
                
                
                $
                1,455,139
                
                
                $
                1,740,387Balance
                    at September 30, 2004
                
                
                6,800
                
                
                $
                32,000
                
                
                $
                253,248
                
                
                $
                789,220
                
                
                $
                1,074,468Net
                    income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                690,588
                
                
                
                690,588Distributions
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (294,140
                )
                
                
                (294,140
                )Balance
                    at September 30, 2005
                
                
                6,800
                
                
                $
                32,000
                
                
                $
                253,248
                
                
                $
                1,185,668
                
                
                $
                1,470,916King
                    Brothers Woodworking
                
                
                2,800
                
                
                $
                28,000
                
                
                $
                -
                
                
                $
                584,938King
                    Door and Hardware
                
                
                4,000
                
                
                
                4,000
                
                
                
                253,248
                
                
                
                144,000
                
                
                
                401,248King
                    Partnership
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                456,730
                
                
                
                456,7306,800
                
                
                $
                32,000
                
                
                $
                253,248
                
                
                $
                1,185,668
                
                
                $
                1,470,916
 Earnings
        per share:
  Our
        combined basic income per share is computed applying the “two-class” approach
        for calculating and reporting earnings per share as provided in Financial
        Accounting Standard No. 128, Earnings per Share. The two-class approach
        is appropriate for reporting earnings per share when multiple classes of
        common
        stock participate in portions of earnings, as is the case in our combined
        financial statements. Basic earnings per share for each company is calculated
        by
        dividing net income by its weighted average number of outstanding common
        shares
        outstanding during the period of computation. We had no potentially dilutive,
        equity-indexed instruments outstanding during the periods presented in our
        consolidated statements of operations.
   F-42
 **KING
        COMPANIES**
 **NOTES
        TO COMBINED FINANCIAL STATEMENTS**
 
 **4.**
              **Combined
                  equity and net income per share
                  (continued):**
 
 The
        Companies were under common shareholder control and operated under one
        management group as an autonomous operating entity during the periods presented.
        The King Partnership recognized rental income from KBW and KDH and incurred
        certain expenses, which income and expense was eliminated in the combined
        financial statements. Since the King Partnership was not engaged in any other
        income producing activities and all costs were allocated to KBW and KDH,
        the
        Partnership did not have earnings on which to base per share amounts. The
        following table illustrates our computation of each of the components of
        the
        two-class earnings per share:
  Nine-months
                  ended June 30, 2006:
              
              KBW
              
              
              KDHNet
                  income
              
              $
              355,338
              
              
              $
              184,129Basic
                  and diluted income per share
              
              $
              126.91
              
              
              $
              46.03Weighted
                  average common shares
              
              
              2,800
              
              
              
              4,000
 
  Year
                  ended September 30, 2005:
              
              KBW
              
              
              KDHNet
                  income
              
              $
              440,054
              
              
              $
              250,534Basic
                  and diluted income per share
              
              $
              157.16
              
              
              $
              62.63Weighted
                  average common shares
              
              
              2,800
              
              
              
              4,000
 
 **5.**
              **Commitments
                  and Contingencies:**
 
  *Warranties:*We
        provide a warranty on products manufactured for a one year period. We estimate
        the costs that may be incurred under the basic limited warranty and record
        a
        liability in the amount of such costs at the time the associated revenue
        is
        recognized. Factors that affect our warranty liability include the number
        of
        products manufactured, historical and anticipated rates of warranty claims
        and
        average cost per claim. Estimated warranty costs are accrued using a rate
        of
        0.25% of sales. We periodically assess the adequacy of our recorded warranty
        liabilities and adjust the amounts as necessary. Warranty costs have not
        been
        material.
 
 *Lease
        obligations*: We lease minor tools and equipment on cancellable
        month-to-month terms. Rent expense during the nine-months ended June 30,
        2005
        and the year ended September 30, 2007 was minimal.
  **6.**
              **Subsequent
                  event:**
 
  On
        July
        1, 2006, Kesselring Holding Corporation, through a wholly-owned subsidiary,
        acquired all of the operating assets and assumed the operating liabilities
        of
        the Companies.
  F-43


**PART
      II**


**ITEM
      8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE**





On
      June
      12, 2007 (the “Dismissal Date”), we advised Morgenstern, Svboda & Baer,
      CPA’s, P.C. (the “Former Auditor”) that they were dismissed as Offline
      Consulting Inc.’s (now know as Kesselring Holding Corporation) independent
      registered public accounting firm. The decision to dismiss the Former Auditor
      as
      Offline’s independent registered public accounting firm was approved by its
      Board of Directors on June 8, 2007. Upon receipt of such dismissal, the Former
      Auditor notified Offline that it had previously resigned on June 4, 2007 as
      the
      auditor for Offline pursuant to a letter sent to Marcello Trebitsch, Offline’s
      former executive officer and director, at Offline’s former offices located in
      Brooklyn, New York. As the Former Auditor’s resignation was sent to a former
      executive officer at Offline’s former address and not to Offline’s company
      address, we deem such resignation to be ineffective. Except as noted in the
      paragraph immediately below, the reports of the Former Auditor on Offline’s
      consolidated financial statements for the period commencing April 11, 2006
      (inception) through December 31, 2006 did not contain an adverse opinion or
      disclaimer of opinion, and such reports were not qualified or modified as to
      uncertainty, audit scope, or accounting principle.





The
      reports of the Former Auditor on Offline’s consolidated financial statements for
      the period commencing April 11, 2006 (inception) through December 31, 2006
      contained an explanatory paragraph which noted that there was substantial doubt
      as to its ability to continue as a going concern as it had no operations and
      no
      established source of revenue.





During
      the period commencing April 11, 2006 (inception) through December 31, 2006,
      and
      through the Dismissal Date, Offline has not had any disagreements with the
      Former Auditor on any matter of accounting principles or practices, financial
      statement disclosure or auditing scope or procedure, which disagreements, if
      not
      resolved to the Former Auditor’s satisfaction, would have caused them to make
      reference thereto in their reports on our consolidated financial statements
      for
      such years.





During
      the period commencing April 11, 2006 (inception) through December 31, 2006,
      and
      through the Dismissal Date, there were no reportable events, as defined in
      Item 304(a)(1)(v) of Regulation S-K.





We
      provided the Former Auditor with a copy of this disclosure. On June 19, 2007,
      the Former Auditor provided us with a letter dated June 15, 2007 stating that
      it
      agreed with the statements made in this section.





On
      June
      12, 2007 (the “Engagement Date”), we engaged Lougheed & Company LLC (“New
      Auditor”) as its independent registered public accounting firm for its fiscal
      year ended September 30, 2007 because the New Auditor had served as the auditor
      of Kesselring Corporation, with whom we merged on May 18, 2007. The decision
      to
      engage the New Auditor as its independent registered public accounting firm
      was
      approved by our Board of Directors.




During
      the two most recent fiscal years and through the Engagement Date, the Company
      had not consulted with the New Auditor regarding either:





·
            the
                application of accounting principles to any specified transaction,
                either
                completed or proposed, or the type of audit opinion that might be
                rendered
                on the Company’s financial statements, and neither a written report was
                provided to the Company nor oral advice was provided that the New
                Auditor
                concluded was an important factor considered by the Company in reaching
                a
                decision as to the accounting, auditing or financial reporting issue;
                or


·
            any
                matter that was either subject of disagreement or event, as defined
                in
                Item 304(a)(1)(iv)(A) of Regulation S-B and the related instruction
                to
                Item 304 of Regulation S-B, or a reportable event, as that term is
                explained in Item 304(a)(1)(iv)(A) of Regulation
                S-B.




**PART
      II**


**ITEM
      8A. CONTROLS AND PROCEDURES**





As
      of the
      end of the period covered by this report, our principal executive officer and
      principal 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 Chairman and Chief Executive
      Officer, along with the Company’s Chief 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 September
      30, 2007 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 Financial Officer as appropriate, to allow timely
      decisions regarding required disclosure.






**PART
      II**


**ITEM
      8B. OTHER INFORMATION**





NONE.






20






**PART
      III**


**ITEM
      9. DIRECTORS AND EXECUTIVE OFFICERS OF THE ISSUER**




**Executive
      Officers and Directors**




Below
      are
      the names and certain information regarding our executive officers and directors
      following the acquisition of Kesselring:




Name
              Age
              PositionDouglas
                  P. Badertscher
              53
              Chief
                  Executive Officer and DirectorClifford
                  H. Wildes
              57
              Chairman
                  of the BoardVirgil
                  Lee "Brother" Sandifer, Jr.
              52
              Interim
                  Chief Financial Officer and DirectorGary
                  King
              67
              Director
                  and President of King BrothersKenneth
                  Craig
              53
              DirectorJames
                  K. Toomey
              42
              DirectorBen
                  Bond
              66
              Director




**Background
      of Executive Officers and Directors**




Set
      forth
      below is a biographical description of each of our directors and senior
      executive officers.




**Douglas
      P. Badertscher, Chief Executive Officer and Director**




Mr.
      Badertscher has more than 22 years of experience providing financial, business
      and management services to the health care and financial sectors. Mr.
      Badertscher has spent the last several years as an executive in the health
      care
      industry. Most recently, from May 2004 to May 2006, Mr. Badertscher served
      as
      the Chief Executive Officer of Midtown Imaging LLC, a private company engaged
      in
      building and operating outpatient diagnostic imaging centers. From October
      2003
      to April 2004, Mr. Badertscher served as the Chief Executive Officer of Coastal
      Orthopedics which operates orthopedic surgery centers and from February 2002
      to
      October 2004, Mr. Badertscher served as the Chief Executive Officer of Center
      for Sight which is engaged in the delivery of patient care in the field of
      ophthalmology. He also has 14 years of experience in the financial industry
      as
      the manager of New York-based companies Equitable and Mutual of New
      York.




**Clifford
      H. Wildes, Chairman of the Board**




Mr.
      Wildes has over 25 years of executive management experience in private and
      public companies. Over the past two decades, he has also acted as a CEO, COO,
      President and Chairman of numerous public and private entities. Mr. Wildes
      has
      had significant experience in the microelectronics, computer hardware and
      software industries, as well as investment and financial consulting for both
      technology and non-technology sectors. He was the founder and from inception
      to
      January 2007 and served as the Chairman of nFinanse, Inc., a publicly-traded
      company that is a provider of stored value and prepaid card solutions in the
      United States, symbol NFSE.OB. He was also the founder and from 1985 to 1995
      served as the CEO
      and
      Chairman of Microtech International Inc., a privately held company that he
      sold
      to a Japanese public company in 1995, as well as the founder from inception
      to
      1977 served as the CEO and Chairman of Nova Interactive Inc., which he sold
      to a
      public company in 1997. As an officer of these companies, Mr. Wildes'
      responsibilities included not only day-to-day operations, but also interfacing
      with the SEC, outside auditors and counsel.




21




Wildes
      has been a finalist for Inc. Magazines Entrepreneur of the Year award. He was
      featured on a FOX TV special and has been a guest speaker on radio talk programs
      discussing the latest technology and financial service solutions. He is listed
      in several Who’s Who publications with numerous newspaper and magazine articles
      featuring stories about him and or his various start-up companies’ success. Born
      in Boston, Massachusetts, Mr. Wildes earned a Bachelor of Science degree from
      Boston State College which is now the University of Massachusetts
      Boston.




**Virgil
      Lee "Brother" Sandifer, Jr., Interim Chief Financial Officer and
      Director**




Mr.
      Sandifer is a Certified Public Accountant and managing partner of the accounting
      firm of Sayle, Sandifer & Associates, LLP, where he has practiced since
      1980. Mr. Sandifer attended the University of Mississippi where he received
      a
      Bachelor of Arts in Accounting in 1977 and a Master of Business Administration
      in 1979.




**Gary
      King, President, King Brothers Woodworking and Director**




Mr.
      King
      assumed financial and internal operational control of King Brothers Woodworking,
      Inc. in 1976 co-managing with his brother since that time. In 1997 Mr. King
      assumed a similar role in King Door and Hardware, Inc., a company he and his
      brother founded. Prior to that Mr. King worked in various staff and management
      positions with Battelle Memorial Institute, Pacific Northwest Laboratories
      in
      Richland, Washington. Mr. King holds both a BS degree in Physics and an MBA
      degree from the University of Washington in Seattle, WA. He currently serves
      as
      treasurer on the governing board of Northwest University in Kirkland, WA which
      he joined in 1985.




**Kenneth
      Craig, Director**




Mr.
      Craig
      has over 25 years of executive management experience in private and public
      companies. He was a co-founder, past CEO, CFO and Board Member of nFinanse,
      Inc.
      from April 2002 to August 2005, a publicly-traded company that is a provider
      of
      stored value and prepaid card solutions in the United States. From 1998 to
      2001,
      Mr. Craig consulted or was employed by various companies holding positions
      of
      CEO, President or Vice President; his responsibilities included interfacing
      with
      investors, attorneys, auditors and the SEC.




**James
      K. Toomey, Director**




Mr.
      Toomey has served as a director of Coast Bank since April, 2000, and Chairman
      of
      the Board of Directors since June, 2003. Previously, Mr. Toomey served in
      various positions for Knight­Ridder/Bradenton Herald from 1990 to 1997.
      Since 1997, Mr. Toomey’s business interests have been focused towards commercial
      real estate and investments. He is the co-owner of four real estate investment
      companies, a retail clothing company, and an ice cream store. He founded the
      Toomey Foundation for the Natural Sciences in 2000, a not-for-profit
      organization for the preservation and education of archeological,
      paleontological and geological resources.





22




**Ben
      Bond, Director**




Mr.
      Bond
      is a Certified Public Accountant and for the past 12 years has operated a CPA
      firm that specializes in taxation, accounting and management consulting.
      Previously, Mr. Bond held management positions in accounting and auditing with
      several public companies, including Blount, Inc. and Grand Met, PLC. He began
      his career with Deloitte and Touche (then Haskins & Sells) in Tampa. A
      graduate of the University of Florida, he holds active CPA licenses in Florida
      and North Carolina.




**Code
      of Ethics**




We
      have
      adopted a Code of Ethics and Business Conduct for Officers, Directors and
      Employees that applies to all of the officers, directors and employees of our
      company.




**Compliance
      with Section 16 of the Exchange Act**




Section
      16(a) of the Securities Exchange Act of 1934 requires the Company’s Directors
      and executive officers, and persons who own more than 10 percent of the
      Company’s common stock, to file with the SEC the initial reports of ownership
      and reports of changes in ownership of common stock. Officers, Directors and
      greater than 10 percent stockholders are required by SEC regulation to furnish
      the Company with copies of all Section 16(a) forms they file.




Specific
      due dates for such reports have been established by the SEC and the Company
      is
      required to disclose in this annual report any failure to file reports by such
      dates during fiscal 2007. Based solely on its review of the copies of such
      reports received by it, or written representations from certain reporting
      persons that no Forms 5 were required for such persons, the Company believes
      that during the fiscal year ended September 30, 2007, there was no failure
      to
      comply with Section 16(a) filing requirements applicable to its officers,
      Directors and ten percent stockholders.




**Board
      meetings and committees; annual meeting attendance**




In
      2007,
      the Board met 14 times and made 6 additional written resolutions. The directors
      attended all of the combined total meetings of the Board and the committees
      on
      which they served in 2007.




The
      Board
      of Directors has established an Audit Committee, a Compensation Committee,
      a
      nominating committee and a corporate governance committee. Mr. Bond serves
      as a
      member of the audit committee. The Board of Directors has not appointed any
      member of the Audit Committee as an "audit committee financial expert". Messrs
      Sandifer and Bond serve as members of the Compensation Committee. Nominations
      for election to the Board of Directors may be made by the Board of Directors
      or
      by any shareholder entitled to vote for the election of directors in accordance
      with our bylaws and Delaware law. Meetings may be held from time to time to
      consider matters for which approval of our Board of Directors is desirable
      or is
      required by law.




The
      Compensation Committee met 2 times and decided 2 matters by written resolution
      during the year ended September 30, 2007. The function of the Committee is
      to
      approve stock plans and option grants and review and make recommendations to
      the
      Board of Directors regarding executive compensation and benefits. The function
      of the Compensation Committee is to approve stock plans and option grants and
      review and make recommendations to the Board of Directors regarding executive compensation
      and benefits.





23




**PART
      III**




**ITEM
      10. EXECUTIVE COMPENSATION**




**EXECUTIVE
      COMPENSATION**




**SUMMARY
      COMPENSATION TABLE**




The
      following table summarizes all compensation recorded by the Company in each
      of
      the last two completed fiscal years for our principal executive officer and
      our
      three most highly compensated executives officers who were serving as executive
      officers as of the end of the fiscal year. Such officers are referred to herein
      as our “Named Officers.”




Name
            Year
              ended
            Salary
            Bonus
            Stock
              Awards
            Option
              Awards
            Non-Equity
                Incentive
                Plan
              Compensation
            Change
                inPensionValueand
                Non-QualifiedDeferred
              Compensation
              Earnings
            All
              Other
              Comp
            
            TotalDouglas
                P. Badertscher (1)
            9/30/2007
            31,251
            -
            -
            -
            -
            -
            -
            
            31,251CEO
            9/30/2006
            -
            -
            -
            -
            -
            -
            -
            
            -V.L.
                Sandifer Jr. (2)
            9/30/2007
            -
            -
            7,500
            -
            -
            -
            103,796
            (6)
            111,296Interim
                CFO
            9/30/2006
            -
            -
            90,636
            -
            -
            -
            26,642
            (6)
            117,278Clifford
                H. Wildes (3)
            9/30/2007
            109,154
            -
            60,000
            -
            -
            -
            31,920
            (7)
            201,064Chairman
            9/30/2006
            -
            -
            101,966
            -
            -
            -
            11,250
            (7)
            113,216Kenneth
                Craig (4)
            9/30/2007
            109,154
            -
            60,000
            -
            -
            -
            43,500
            (5)
            212,654Director
            9/30/2006
            -
            -
            101,966
            -
            -
            -
            41,250
            (5)
            143,216Laura
                Camisa (8)
            9/30/2007
            96,615
            -
            99,000
            46,000
            -
            -
            -
            
            241,615Former
                CFO
            9/30/2006
            -
            -
            -
            
            -
            -
            -
            
            -







(1)
      Mr.
      Badertscher was appointed Chief Executive Officer of the Company effective
      August 15, 2007.





24




(2)
            Mr.
                Sandifer served as our Interim Chief Financial Officer from June
                1, 2006
                until December 31, 2006 when he resigned from his position with the
                Company. Mr. Sandifer did not receive any base salary or bonus in
                fiscal
                year 2006 for his services as our Chief Financial Officer. Mr. Sandifer’s
                firm performs tax work for the
                Company.




(3)
            Mr.
                Wildes served as our acting Chief Operating Officer from May 1, 2006
                until
                December 31, 2006 when he was appointed as our Chief Operating Officer.
                Mr. Wildes did not receive any base salary or bonus in fiscal year
                2006
                for his services as our Chief Operating Officer. Mr. Wildes resigned
                from
                the position of Chief Operating Officer effective August 15,
                2007.




(4)
            Mr.
                Craig served as our acting Chief Executive Officer from May 1, 2006
                until
                December 31, 2006 when he was appointed as our Chief Executive Officer.
                Mr. Craig did not receive any base salary or bonus in fiscal year
                2006 for
                his services as our Chief Executive Officer. Mr. Craig resigned from
                the
                position of Chief Executive Officer effective August 15,
                2007.




(5)
            Represents
                payments made for consulting services while Mr. Craig was our acting
                Chief
                Executive Officer.




(6)
            Represents
                payments made for consulting services while Mr. Sandifer was our
                Interim
                Chief Financial Officer in fiscal 2007 in addition to tax services
                performed.




(7)
            Represents
                payments made for consulting services while Mr. Wildes was our acting
                Chief Operating Officer.




(8)
            Ms.
                Camisa resigned as Chief Financial Officer on the October 5, 2007.
                In
                January, 2007, we granted options to purchase 200,167 shares of our
                common
                stock to Ms. Camisa as part of an employment agreement. These options
                vested immediately and must be excercised by 1/4/08. The fair
                value of the option award was estimated on the date of grant as $46,000
                using the Black­Scholes-Merton valuation
                model.




Outstanding
      Equity Awards at Fiscal Year-End




Kesselring’
      s Named Executive Officers did not hold unexercised options or any other stock
      awards as of the end of our fiscal year, September 30, 2006.




As
      of
      September 30, 2007, the following equity awards were outstanding:




25




Option
                Awards
            Stock
                AwardsEquityEquity
            
            
            
            
            IncentiveIncentive
            
            
            
            
            Plan
                Awards:Plan
            
            
            
            Market
            NumberAwards:
            
            
            
            Value
                  of
            ofNumber
            Number
            Number
            
            
            Number
            Shares
                  or
            Unearnedof
            of
            of
            
            
            of
                  Shares
            Units
                  of
            Shares,Securities
            Securities
            Securities
            
            
            or
                  Units
            Stock
            Units
                orUnderlying
            Underlying
            Underlying
            
            
            of
                Stock
            That
            Other
                RightsUnexercised
            Unexercised
            Unexercised
            Option
            
            That
                Have
            Have
            That
                HaveOptions
            Options
            Unearned
            Exercise
            Option
            Not
            Not
            Not(#)
            (#)
            Options
            Price
            Expiration
            Vested
            Vested
            VestedName
            Exercisable
            Unexercisable
            (#)
            ($)
            Date
            (#)
            ($)
            (#)LauraCamisa
            200,167
            0
            0
            $0.23
            01-04-08
            0
            $0.00
            0







Except
      as
      set forth above, no other named executive officer has received an equity
      award.




We
      adopted FAS 123(R) in October, 2006. Had our compensation expense for
      stock-based awards previously been determined based upon fair values at the
      grant dates for awards under this plan, our net loss and net loss per share
      amount for the years ended September 30, 2007 and 2006 would have been
      unchanged.




Restricted
      Stock Issued for the year ended September 30, 2007:




Restricted
      stock was issued to officers, directors, employees and consultants pursuant
      to
      their agreements during the year ended September 30, 2007. The stock vested
      upon
      issuance. The following table summarizes the activity related to restricted
      stock issued to officers, directors, employees and consultants during the year
      ended September 30, 2007:





26







Name
            Number
              of
              Securities
                Underlying Unexercised Options
              (#)
              Exercisable
            Number
                of
              Securities
              Underlying
              Unexercised
              Options
              (#)
              Unexercisable
            Equity
                Incentive Plan
              Awards:
              Number
                of
              Securities
              Underlying
                Unexercised Unearned Options (#)
            Option
                Exercise Price
              ($)
            Option
                Expiration
              Date
            Number
                of Shares or Units of Stock That Have Not
              Vested
              (#)
            Market
                Value of Shares or
              Units
                of
              Stock
              That
              Have
              Not
              Vested
              ($)
            Equity
                Incentive Plan Awards: Number of
              Unearned
                Shares, Units or Other Rights That Have Not
              Vested
              (#)None









Compensation
      expense related to restricted stock grants was $461,144 for fiscal 2007. At
      September 30, 2007, we have no unrecognized compensation expense related to
      restricted stock grants.




Director
      Compensation




Outside
      Directors are compensated at $3,000 per quarter plus awarded 25,000 shares
      of
      restricted stock per year for acting in such capacity. For the year ended
      September 30, 2007, we compensated the members of our Board of Directors a
      total
      of 75,000 shares of common stock with a fair value of $22,501. This amount
      is
      included in other operating expenses in our Consolidated Statement of
      Operations. Additionally, Directors are reimbursed for reasonable out-of-pocket
      expenses for attending meetings. Inside directors are not compensated for acting
      as a Director.




27




The
      following table sets forth with respect to the named Director, compensation
      information inclusive of equity awards and payments made in the year end
      December 31, 2006.







Name
            Fees
                Earned or Paid in Cash
            Stock
                Awards
            Option
                Awards
            Non-Equity
              Incentive
                Plan Compensation
            Change
                in Pension Value and
              Nonqualified
              Deferred
                Compensation Earnings
            All
                Other Compensation
            TotalBen
              Bond
            $0
            $7,500
            $0
            $0
            $0
            $0
            $7,500James
              K. Toomey
            $0
            $7,500
            $0
            $0
            $0
            $0
            $7,500




Employment
      Agreements




Douglas
      P. Badertscher, Chief Executive Officer




Mr.
      Badertscher was appointed by the Board of Directors on August 15, 2007 as
      President and Chief Executive Officer of the Company. On October 25, 2007,
      Mr.
      Badertscher and the Company executed an Employment Agreement regarding the
      same,
      effective August 15, 2007. On December 10, 2007, Mr. Badertscher and the Company
      entered into an Amended and Restated Employment Agreement also effective August
      15, 2007. That agreement provides for the following terms and
      conditions:





·
            Base
              annual salary of $250,000; ·
            The
                award of options to purchase 2,500,000 shares of common stock of
                which
                625,000 vest on November 15, 2007, 625,000 shall vest on February
                15,
                2008, 625,000 shall vest on May 15, 2008 and 625,000 shall vest on
                August
                15, 2008 at an exercise price of $0.30 per share on a cash or cashless
                basis;


·
            Participation
                in the employee stock incentive
                plan;


·
            $35,000
                advance against future bonuses to be paid on execution of
                agreement;


·
            Operating
                Income bonus, accrued and paid (subject to cash availability) quarterly,
                equal to the greater of $35,000 or 3.0% of that fiscal year’s operating
                income to paid no later than 75 days following the end of the quarter
                in
                which the bonus payment accrued;


·
            Acquisition
                bonus equal to 1/2 of 1% (50 basis points) of the Gross Revenue of
                the
                acquired company, accrued and paid (subject to cash availability)
                in two
                equal parts: at closing and after the successful integration of the
                acquired company;


·
            Automobile
                allowance of $350 per month;


·
            Reimbursement
                of membership fees up to a maximum of $2,500 to the Founder’s
                Club;


·
            Company
                paid health benefits for the executive and his
                family;


·
            Participation
                in all employee benefit plans and programs;
                and,


·
            Reimbursement
                of reasonable expenses.




The
      term
      of the employment agreement is 36 months and may be renewed for one-year periods
      unless either party notifies the other within 60 days prior to the end of the
      initial or renewal employment term of its intent to terminate the
      agreement.





28




**PART
      III**




**ITEM
      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS**




**SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**




The
      following table sets forth certain information, as of September 30, 2007 with
      respect to the beneficial ownership of the outstanding common stock by (i)
      any
      holder of more than five (5%) percent; (ii) each of our executive officers
      and
      directors; and (iii) our directors and executive officers as a group. Except
      as
      otherwise indicated, each of the stockholders listed below has sole voting
      and
      investment power over the shares beneficially owned.




Name
                of Beneficial Owner (1)
            Common
                Stock
              Beneficially
                Owned
            
            Percentage
                of
              Common
                Stock (2)Douglas
                Badertscher, CEO*
            1,250,000
            (8)
            3.40%V.
                L. Sandifer, CFO*
            445,342
            
            1.25%Kenneth
                Craig*
            2,902,739
            (3)
            8.17%Clifford
                H. Wildes*
            2,852,703
            (4)
            8.03%Gary
                and Margaret King*
            5,720,500
            (3)
            16.11%Nicole
                O’Sullivan
            2,255,500
            (5)
            6.95%Daniel
                Ezelle
            2,185,500
            
            6.16%Teresita
                Craig
            2,757,788
            (6)
            7.77%James
                K. Toomey *
            765,630
            (7)
            2.16%Ben
                Bond *
            25,000
            
            .007%Curtis
                and Lois King
            2,965,000
            
            8.35%All
                officers and directors as a group (7) persons
            13,986,914
            
            38.05%*Executive
                officer and/or director of our company.







(1)
            Except
                as otherwise indicated, the address of each beneficial owner is c/o
                Kesselring Holding Corporation, 6710 Professional Parkway, Suite
                301,
                Sarasota, FL 34240.




(2)
            Applicable
                percentage ownership is based on 35,507,665 shares of common stock
                outstanding as of December 26, 2007, together with securities exercisable
                or convertible into shares of common stock within 60 days of December
                26,
                2007 for each stockholder. Beneficial ownership is determined in
                accordance with the rules of the Securities and Exchange Commission
                and
                generally includes voting or investment power with respect to securities.
                Shares of common stock that are currently exercisable or exercisable
                within 60 days of December 26, 2007 are deemed to be beneficially
                owned by
                the person holding such securities for the purpose of computing the
                percentage of ownership of such person, but are not treated at outstanding
                for the purpose of computing the percentage ownership of any other
                person.




(3)
            Includes
                an aggregate of 1,501,227 shares of common stock held by Mr. Craig’s wife
                and children.




(4)
            Includes
                1,501,247 shares of common stock held by Mr. Wildes’
                wife.




(5)
            Represents
                shares of common stock held by the Nicole O’Sullivan
                Trust.




(6)
            Includes
                710,600 shares of common stock beneficially owned by Tectonics,
                Inc.




(7)
            Includes
                an aggregate of 500,409 shares of common stock held by Mrs. Craig’s
                husband.




(8)
            Includes
                625,000 shares of common stock issuable upon exercise of options
                that have
                vested and 625,000 shares of common stock issuable upon exercise
                of
                options that will vest within 60 days of December 26,
                2007.




29




**PART
      III**




**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**




**Consulting
      Fees, Related Parties:** Our consulting fees, related parties, decreased
      $139,796 to $429,189 in 2007, compared to $568,985 in the prior year. In the
      prior year, the consulting fees were paid entirely under share-based payment
      arrangements. We record share-based payments at fair value. In 2007, Consulting
      fees, related parties, were paid in cash and represent fees paid for services
      in
      connection with the decision to become a public company.




Our
      consulting fees, related parties, for the year ended September 30, 2007 amounted
      to $429,189 and is comprised of the following:




Our
      former Chief Executive Officer received $43,500 in fees under a consultancy
      contract through the first quarter of the fiscal year ended September 30, 2007.
      Subsequent to this consultancy agreement, the former Chief Executive Officer
      received a salary which was 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 through the first quarter
      of the fiscal year ended September 30, 2007. Subsequent to this consultancy
      agreement, the former Chief Operating Officer received a salary which was
      included in salaries and benefits.




In
      March
      2007, Advice Consulting was retained to manage the subsidiaries of Kesselring
      Corporation, the predecessor of Kesselring Holding Corporation. The Managing
      Member of Advice Consulting was the father of Ken Craig, the Chief Executive
      Officer at the time and a current director. On June 15, 2007, Advice Consulting,
      LLC terminated their consulting agreement with Kesselring Corporation and was
      paid a cancellation fee of $48,000 pursuant to the consulting
      agreement.




We
      paid
      $103,796 in professional fees to an accounting firm partially owned by our
      Interim Chief Financial Officer and Director.




We
      paid
      $73,983 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 is directly involved in some
      of
      those other unrelated business ventures. Our Chairman does not participate
      in
      the determination of fees that we pay to Spyglass Ventures.




**Board
      of Directors or Related Party Loans:** In October, November and December
      2007, certain members of our Board of Directors, or organizations with which
      they are affiliated, funded an aggregate $600,000 to us pursuant to notes
      payable. These notes bear interest at 7.0% and mature as follows: April 18,
      2009
– $250,000; April 23, 2009 - $50,000; May 6, 2009 - $25,000; May 8, 2009 -
      $25,000 and June 13, 2009 – $250,000.





30




Clifford
      H. Wildes, Chairman of the Board of Directors of the Company, and Todd A.
      Ellsworth, a consultant to the company, are partners in Searchlight Partners
      LLC
      and Searchlight Advisors LLC. Searchlight Partners LLC and Searchlight Advisors
      LLC have a business relationship with Cypress Advisors, a consulting firm to
      the
      Company and to which the Company has paid fees. Wildes, Ellsworth and
      Searchlight have not received any fees from any business relationship associated
      with any business between Kesselring and Cypress.




During
      2007, the Clifford H. Wildes, Chairman of the Board of Directors of the Company,
      contracted with a Kesselring subsidiary to perform work at his residence at
      a
      standard Kesselring billing rate and profit. This work was for approximately
      $29,000 and was paid in full by Mr. Wildes. In November, 2007, Wildes entered
      into a second contract not to exceed $32,000 with a Kesselring subsidiary for
      work to be performed on his residence at a standard Kesselring billing rate
      and
      profit, commencing in January, 2008. Mr. Wildes paid a deposit of $20,000
      pursuant to the contract.




James
      K.
      Toomey joined the Board of Directors of Kesselring Holding Corporation on June
      4, 2007 and serves on the Audit Committee and is Chairman of the Nominations
      and
      Corporate Governance Committee. In the preceding three years, Mr. Toomey, his
      affiliates, partners, family members or entities of which he is a member,
      officer or director, have hired Kesselring Homes or Kesselring Restoration
      for
      the following projects: from February to May 2006, to remodel a personal
      residence for approximately $76,000; in June and July, 2006, a business
      remodeling for Two Sides of Nature, Inc., for $14,000; and electrical remodeling
      for Two Scoops, Inc. for approximately $1,600; and, in November 2006, remodeling
      of an office building to which Mr. Toomey is a director for approximately $600.
      In October, 2007, Kesselring Holding Corporation received a note payable from
      AMI Holdings, Inc., a business in which Mr. Toomey and his spouse have a 42%
      interest, for $250,000 maturing in April, 2009 with an interest rate of 7%
      annually. In December, 2007, Kesselring Holding Corporation received a second
      note payable from AMI Holdings, Inc., a business in which Mr. Toomey and his
      spouse have a 42% interest, for $250,000 maturing in June, 2009 with an interest
      rate of 7% annually.




Virgil
      L.
      Sandifer, Interim Chief Financial Officer and Director, is the personal
      accountant for Kenneth Craig, also a Director of the Company.




Mr.
      Craig
      sold an automobile to Company in fiscal year 2006 for $17,000.




Mr.
      Sandifer was paid $103,796 directly or to his company for accounting and tax
      services provided to the Company in fiscal year 2007. Additionally, Mr. Sandifer
      accrues compensation of $2,000 per week pursuant to his duties as Interim Chief
      Financial Officer of the Company.





31




**PART
      III**




**ITEM
      13. EXHIBIT INDEX**






Exhibit
              Number
            
            Description3.1
            
            Certificate
              of Incorporation (3)3.2
            
            Certificate
              of Designation for Series A Preferred Stock (1)3.3
            
            Certificate
              of Ownership (4)3.4
            
            Bylaws
              (3)4.1
            
            Securities
              Purchase Agreement entered with Vision Master Opportunity Fund Ltd.
              (1)4.2
            
            Series
              A Warrant issued to Vision Opportunity Master Fund Ltd. (1)4.3
            
            Series
              B Warrant issued to Vision Opportunity Master Fund Ltd. (1)4.4
            
            Series
              J Warrant issued to Vision Opportunity Master 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
              Purchase Agreement by and among Offline Consulting, Inc., Kesselring
              Corporation shareholders
              of Kesselring Corporation(1)10.2
            
            Settlement
              Agreement by and between Offline Consulting Inc. and Marcello
              Trebitsch(1)10.3
            
            Agreement
              and Release of Claims by and between Kesselring Corporation and Laura
              A.
              Camisa (6)10.4
            
            Amended
                and Restated Employment Agreement by and between Kesselring Holding
                Corporation and Douglas
                P. Badertscher (7)10.5
            
            Employee
              Nonstatutory Stock Option Agreement issued to Douglas P. Badertscher
              (7)14.1
            
            Code
              of Ethics16.1
            
            Letter
              from Morgenstern, Svboda & Baer, CPA’s, P.C(5).31.1
            
            Certification
                of the Chief
                Executive Officer and the Principal Accounting/Financial Officerpursuant
                to Section 302 of the Sarbanes-Oxley Act of
                2002.32.1
            
            Certification of
                the Chief Executive Officer and the PrincipalAccounting/Financial
                Officer pursuant to 18 U.S.C. Section 1350, AsAdopted Pursuant to
                Section
                906 of the 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, 2




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




(3)
            Incorporated
                by reference to the Form SB-2 Registration Statement filed with the
                Securities and Exchange Commission on D 7,
                2006.




(4)
            Incorporated
                by reference to the Form 8-K Current Report filed with the Securities
                and
                Exchange Commission on June 13, 20




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




(6)
            Incorporated
                by reference to the Form 8-K Current Report filed with the Securities
                and
                Exchange Commission on October 5,




(7)
            Incorporated
                by reference to the Form 8-K Current Report filed with the Securities
                and
                Exchange Commission on December
                2007.





32




**PART
      III**




**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**




**Audit
      Fees**




The
      aggregate fees billed by Lougheed & Company LLC for the audit of our annual
      consolidated financial statements for the year ended September 30, 2007 amounted
      to $101,400. The aggregate fees billed by Lougheed & Company LLC for the
      review of our quarterly filings amounted to $23,480.




The
      aggregate fees billed by Morgenstern, Svoboda & Baer, CPAs, PC for the audit
      of our annual consolidated financial statements and reviews of quarterly
      financial statements for the year ended December 30, 2006 amounted to
      $5,000.




The
      aggregate fees billed by Lougheed & Company LLC for audit-related services
      of our acquired companies during the year ended September 30, 2007 was
      $8,000.




**All
      Other Fees**




The
      aggregate fees billed by Lougheed & Company LLC for services, primarily
      related to consents issued in connection with registration statements, during
      the years ended September 30, 2007 amounted to $66,700.




**Audit
      Committee Pre-approval**




Our
      Audit
      Committee approves all audit and non-audit services provided by our primary
      accountants.












33




**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.
 
 
 KESSELRING
                  HOLDING CORPORATION(Issuer)By:
              /s/
                  Douglas P. BadertscherDouglas
                  P. Badertscher, President and Chief Executive Officer, December
                  28, 2007
                  (Principle Executive Officer)
 
 By:
              /s/Virgil
                  L. Sandifer, Jr.Virgil
                  L. Sandifer, Jr., Interim Chief Financial Officer and Director,
                  December
                  28, 2007
                (Principle
                  Accounting Officer)
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, this report has
        been
        signed below by the following persons on behalf of the registrant and in
        the
        capacities and on the dates indicated.
 
 /s/
                  Douglas P. Badertscher
              
              /s/
                  Clifford H. WildesDouglas
                  P. Badertscher, President and Chief Executive Officer, December
                  28, 2007
                  (Principle Executive Officer)
              
              Clifford
                  H. Wildes, Chairman of the Board of Directors, December 28,
                  2007/s/
                  Virgil L. Sandifer, Jr.
              
              /s/
                  Gary E. KingVirgil
                  L. Sandifer, Jr., Interim Chief Financial Officer and Director,
                  December
                  28, 2007
                (Principle
                  Accounting Officer)
              
              Gary
                  E. King, Director, December 28, 2007/s/
                  Kenneth Craig
              
              /s/
                  Ben BondKenneth
                  Craig, Director, December 28, 2007
              
              Ben
                  Bond, Director, December 28, 2007
 
 James
                  K. Toomey, Director, December 28, 2007
 
 34