U.S.
SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549


FORM
10-Q





x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934





For the
quarterly period ended: June
30, 2010





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





Commission
file number: 000-52769





VINYL PRODUCTS, INC.


(Exact
name of registrant as specified in its charter)





Nevada
                26-0295367(State
      or other jurisdiction of incorporation or organization)
                (I.R.S.
      Employer Identification
No.)





2210 South Ritchey Street,
Santa Ana, California 92705


(Address
of principal executive offices)





(714)
210-8888


(Registrant's
telephone number)








(Former
name, former address and former


fiscal
year, if changed since last report)





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





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every


Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files).


 ̈ Yes  x No





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





Large
      accelerated filer    ̈
                      Accelerated
      filer      ̈Non-accelerated
      filer      ̈
                        (Do
      not check if a smaller reporting company)
                      Smaller
      reporting company     x





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





APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY


PROCEEDINGS
DURING THE PRECEDING FIVE YEARS





Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. ̈  Yes    ̈  No


APPLICABLE
ONLY TO CORPORATE ISSUERS





State the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date:  At August 13, 2010 there were
22,864,200 shares of common stock outstanding.





Forward-Looking
Statements




This
Quarterly Report on Form 10-Q ("Report") and the documents incorporated by
reference into the Report include forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934.  These forward-looking statements generally can
be identified by the use of forward-looking terminology, including the words
“believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,”
“will,” “potential,” “continue,” or “should,” or, in each case, their negative
or other variations or comparable terminology.  We believe that the
expectations reflected in such forward-looking statements are
accurate.  However, we cannot assure you that such expectations will
occur.  Our actual results, performance, or outcomes could differ
materially from those expressed or implied in the forward-looking
statements.  Factors that could cause or contribute to such
differences include, but are not limited to:





·
            an
      interruption in supply from our sole vendor of vinyl
    products;


·
            our
      lack of product diversification;


·
            a
      change in consumer preferences away from outdoor products manufactured
      from vinyl;


·
            the
      sensitivity of our industry to prevailing national economic
      conditions;


·
            our
      inability to develop a successful franchise
  program;


·
            the
      ability of prospective franchisees to obtain credit to finance the
      purchase of franchises from us;


·
            the
      failure of our franchise operations to generate the revenues we expect or
      the need to subsidize our franchise
operations;


·
            our
      ability to raise capital if necessary to fund the development of our
      franchise program or for other corporate
  purposes;


·
            competition
      from one or more other companies that seek to develop national vinyl
      products chains;


·
            our
      ability to retain our officers, directors, key personnel, and management;
      and


·
            our
      inability to manage growth.





In
addition, the Company’s views about the effectiveness of our remediation of
material weaknesses in our controls also constitute “forward-looking
statements.”




We
caution you that the foregoing list of important factors is not
exclusive.  We refer readers to the Item 1A Risk Factors in our Annual
Report on Form 10-K for the year ended December 31, 2009 for a discussion of
many of the known risks we face.   We operate in a very competitive
environment.  New risks may emerge from time to time.  It is
not possible for our management to predict all risks, nor can we assess the
impact of all factors on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements we may make.




By their
nature, forward-looking statements involve risks and uncertainties because they
relate to events and depend on circumstances that may or may not occur in the
future.  We caution you that forward-looking statements are not
guarantees of future performance and that our actual results of operations,
financial condition and liquidity, and developments in the industry in which we
operate may differ materially from those made in or suggested by the
forward-looking statements contained in this Report.  In addition,
even if our results of operations, financial condition and liquidity, and
developments in the industry in which we operate are consistent with the
forward-looking statements contained in this Report, those results or
developments may not be indicative of results or developments in subsequent
periods. You should not place undue reliance on these forward-looking
statements, which speak only as of the date of this
Report.





We are
under no duty to update any of these forward-looking statements after the date
of this filing to conform our prior forward-looking statements to actual results
or revised expectations, except as required by Federal securities
law.


2


Item
1.  Financial Statements and Supplementary Data





Financial
Statement Index





Unaudited
Consolidated Financial Statements


for
the Six Months Ended June 30, 2010





PageConsolidated
      Balance Sheets as of June 30, 2010 (unaudited) and December 31, 2009
      (audited)
                
                F–1Consolidated
      Statements of Operations (unaudited) for the three months and six months
      ended June 30, 2010 and 2009
                
                F–2Consolidated
      Statements of Stockholders’ Deficit (unaudited) for the six months ended
      June 30, 2010
                
                F-3Consolidated
      Statements of Cash Flows (unaudited) for the six months ended June 30,
      2010 and 2009
                
                F-4Notes
      to the Financial Statements
                
                F–5




3




VINYL
PRODUCTS, INC.
 Consolidated
Balance Sheets
 June 30, 2010 and
December 31, 2009
  June 30
                                      
                                      
                                      December 312010 (Unaudited)
                                      
                                      
                                      2009ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                                      
                                      $
                                      94,844
                                      
                                      
                                      $
                                      12,333Accounts
      receivable, net
                                      
                                      
                                      10,760
                                      
                                      
                                      
                                      36,189Inventory
                                      
                                      
                                      135,775
                                      
                                      
                                      
                                      137,961Prepaid
      expenses
                                      
                                      
                                      49,340
                                      
                                      
                                      
                                      54,251Total
      current assets
                                      
                                      
                                      290,719
                                      
                                      
                                      
                                      240,734PROPERTY
      AND EQUIPMENT:Property
      and equipment, net of accumulated depreciation of $249,160 and
      $214,260, respectively
                                      
                                      
                                      222,886
                                      
                                      
                                      
                                      235,982Net
      property and equipment
                                      
                                      
                                      222,886
                                      
                                      
                                      
                                      235,982OTHER
      ASSETS:Security
      deposits
                                      
                                      
                                      11,490
                                      
                                      
                                      
                                      8,690Total
      other assets
                                      
                                      
                                      11,490
                                      
                                      
                                      
                                      8,690TOTAL
      ASSETS
                                      
                                      $
                                      525,095
                                      
                                      
                                      $
                                      485,406LIABILITIES
      AND SHAREHOLDERS' EQUITY (DEFICIT)CURRENT
      LIABILITIES:Current
      portion notes payable - vehicles
                                      
                                      $
                                      12,700
                                      
                                      
                                      $
                                      16,900Accounts
      payable and accrued liabilities
                                      
                                      
                                      358,024
                                      
                                      
                                      
                                      287,855Bank
      line of credit
                                      
                                      
                                      98,818
                                      
                                      
                                      
                                      22,207Customer
      deposits
                                      
                                      
                                      152,663
                                      
                                      
                                      
                                      103,292Total
      current liabilities
                                      
                                      
                                      622,205
                                      
                                      
                                      
                                      430,254LONG-TERM
      LIABILITIES:Notes
      payable – vehicles, net of current portion of $12,700 and $16,900,
      respectively
                                      
                                      
                                      7,100
                                      
                                      
                                      
                                      13,868Total
      long-term liabilities
                                      
                                      
                                      7,100
                                      
                                      
                                      
                                      13,868Total
      Liabilities
                                      
                                      
                                      629,305
                                      
                                      
                                      
                                      444,122SHAREHOLDERS'
      EQUITY (DEFICIT):Preferred
      stock, $0.0001 par value; 10,000,000 shares authorized; no shares
      issued and outstanding at June 30, 2010 and December
    31,2009
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Common
      stock, $0.0001 par value; 100,000,000 shares authorized;22,864,200
      and 22,864,200 shares issued and outstanding at June 30, 2010 and
      December 31, 2009, respectively
                                      
                                      
                                      2,287
                                      
                                      
                                      
                                      2,287Paid-in
      capital
                                      
                                      
                                      160,413
                                      
                                      
                                      
                                      160,413Retained
      earnings (deficit)
                                      
                                      
                                      (266,910
                                      )
      )
                                      
                                      
                                      (121,416
                                      )Total
      shareholders’equity (deficit)
                                      
                                      
                                      (104,210
                                      )
                                      
                                      
                                      41,284TOTAL
      LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
                                      
                                      $
                                      525,095
                                      
                                      
                                      $
                                      485,406
  The
accompanying notes are an integral part of these financial
statements.
  F-1
 
 VINYL
PRODUCTS, INC.
 Consolidated
Statements of Operations
 Unaudited
 For
the Three Months and Six Months Ended June 30, 2010 and 2009
 
 Three
      Months Ended
                              June
      30
                            
                            
                            Six
      Months Ended
                              June
      302010
                            
                            
                            2009
                            
                            
                            2010
                            
                            
                            2009Income
                            
                            $
                            898,083
                            
                            
                            $
                            800,403
                            
                            
                            $
                            1,671,558
                            
                            
                            $
                            1,484,911Cost
      of goods sold:Labor
                            
                            
                            137,494
                            
                            
                            
                            127,598
                            
                            
                            
                            271,101
                            
                            
                            
                            265,578Materials
                            
                            
                            268,228
                            
                            
                            
                            236,813
                            
                            
                            
                            484,630
                            
                            
                            
                            394,630Other
                            
                            
                            13,919
                            
                            
                            
                            6,005
                            
                            
                            
                            25,505
                            
                            
                            
                            13,296Total
      cost of goods sold
                            
                            
                            419,641
                            
                            
                            
                            370,416
                            
                            
                            
                            781,236
                            
                            
                            
                            673,504Gross
      profit
                            
                            
                            478,442
                            
                            
                            
                            429,987
                            
                            
                            
                            890,322
                            
                            
                            
                            811,407Expenses:Advertising
      and marketing
                            
                            
                            62,642
                            
                            
                            
                            46,397
                            
                            
                            
                            115,239
                            
                            
                            
                            81,137Selling,
      general and administrative
                            
                            
                            111,177
                            
                            
                            
                            89,033
                            
                            
                            
                            220,290
                            
                            
                            
                            181,614Payroll
                            
                            
                            288,800
                            
                            
                            
                            267,898
                            
                            
                            
                            525,000
                            
                            
                            
                            520,046Professional
      fees
                            
                            
                            65,113
                            
                            
                            
                            50,785
                            
                            
                            
                            107,553
                            
                            
                            
                            134,654Rent
                            
                            
                            34,684
                            
                            
                            
                            26,070
                            
                            
                            
                            60,754
                            
                            
                            
                            52,140Total
      expenses
                            
                            
                            562,416
                            
                            
                            
                            480,183
                            
                            
                            
                            1,028,836
                            
                            
                            
                            969,591Net
      Operating Income (Loss)
                            
                            
                            (83,974
                            )
                            
                            
                            (50,196
                            )
                            
                            
                            (138,514
                            )
                            
                            
                            (158,184
                            )Other
      Income (Expense):Interest
      income
                            
                            
                            -
                            
                            
                            
                            92
                            
                            
                            
                            -
                            
                            
                            
                            349Interest
      expense
                            
                            
                            (3,694
                            )
                            
                            
                            (1,671
                            )
                            
                            
                            (5,380
                            )
                            
                            
                            (2,952
                            )Net
      other income (expense)
                            
                            
                            (3,694
                            )
                            
                            
                            (1,579
                            )
                            
                            
                            (5,380
                            )
                            
                            
                            (2,603
                            )Loss
      before income taxes
                            
                            
                            (87,668
                            )
                            
                            
                            (51,775
                            )
                            
                            
                            (143,894
                            )
                            
                            
                            (160,787
                            )Income
      taxes
                            
                            
                            -
                            
                            
                            
                            (200
                            )
                            
                            
                            (1,600
                            )
                            
                            
                            (400
                            )Net
      loss
                            
                            $
                            (87,668
                            )
                            
                            $
                            (51,975
                            )
                            
                            $
                            (145,494
                            )
                            
                            $
                            (161,187
                            )Earnings
      per share:Basic
                            
                            $
                            (0.00
                            )
                            
                            $
                            (0.00
                            )
                            
                            $
                            (0.01
                            )
                            
                            $
                            (0.01
                            )Diluted
                            
                            $
                            (0.00
                            )
                            
                            $
                            (0.00
                            )
                            
                            $
                            (0.01
                            )
                            
                            $
                            (0.01
                            )Weighted
      average shares outstanding:Basic
                            
                            
                            22,864,200
                            
                            
                            
                            22,862,481
                            
                            
                            
                            22,864,200
                            
                            
                            
                            22,862,481Diluted
                            
                            
                            22,864,200
                            
                            
                            
                            22,862,481
                            
                            
                            
                            22,864,200
                            
                            
                            
                            22,862,481
  The
accompanying notes are an integral part of these financial
statements.
  F-2
 
 VINYL
PRODUCTS, INC.
 Consolidated
Statements of Shareholders' Deficit
 Unaudited
 
  TotalRetained
                        
                        
                        Share-Preferred
                        
                        
                        Common
                        
                        
                        Paid-In
                        
                        
                        Earnings
                        
                        
                        holders'Shares
                        
                        
                        Stock
                        
                        
                        Shares
                        
                        
                        Stock
                        
                        
                        Capital
                        
                        
                        (Deficit)
                        
                        
                        DeficitBalances,
      December 31, 2009
                        
                        
                        -
                        
                        
                        $
                        -
                        
                        
                        
                        22,864,200
                        
                        
                        $
                        2,287
                        
                        
                        $
                        160,413
                        
                        
                        $
                        (121,416
                        )
                        
                        $
                        41,284Net
      Loss for the Period
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (145,494
                        )
                        
                        
                        (145,494
                        )Balances,
      June 30, 2010
                        
                        
                        -
                        
                        
                        $
                        -
                        
                        
                        
                        22,864,200
                        
                        
                        $
                        2,287
                        
                        
                        $
                        160,413
                        
                        
                        $
                        (266,910
                        )
                        
                        $
                        (104,210
                        )
 
 The accompanying notes are an integral
part of these financial statements.
  F-3
  VINYL
PRODUCTS, INC.
 Consolidated
Statements of Cash Flows
 Unaudited
 For
the Six Months Ended June 30, 2010 and 2009
  For the Six Months Ended2010
                                    
                                    
                                    2009OPERATING
      ACTIVITIES:Net
      Loss
                                    
                                    $
                                    (145,494
                                    )
                                    
                                    $
                                    (161,187
                                    )Adjustments
      to Reconcile Net Loss to Net Cash Provided By (Used In) Operating
      Activities:Depreciation
                                    
                                    
                                    34,900
                                    
                                    
                                    
                                    25,200Decrease
      (increase) in accounts receivable, net
                                    
                                    
                                    25,428
                                    
                                    
                                    
                                    23,375Decrease
      (increase) in inventory
                                    
                                    
                                    2,187
                                    
                                    
                                    
                                    8,517Decrease
      (increase) in prepaid expenses
                                    
                                    
                                    4,909
                                    
                                    
                                    
                                    (18,807
                                    )Decrease
      (increase) security deposit
                                    
                                    
                                    (2,800
                                    )
                                    
                                    
                                    -Increase
      (decrease) in accounts payable and accrued expenses
                                    
                                    
                                    74,540
                                    
                                    
                                    
                                    45,072Increase
      (decrease) in customer deposits
                                    
                                    
                                    49,371
                                    
                                    
                                    
                                    98,948Increase
      (decrease) in income taxes payable
                                    
                                    
                                    (4,369
                                    )
                                    
                                    
                                    400Net
      cash provided (used) by operating activities
                                    
                                    
                                    38,672
                                    
                                    
                                    
                                    21,518INVESTING
      ACTIVITIESLeasehold
      improvements
                                    
                                    
                                    (12,597
                                    )
                                    
                                    
                                    -Office
      and computer equipment purchases
                                    
                                    
                                    (9,206
                                    )
                                    
                                    
                                    (908Net
      cash provided (used) by investing activities
                                    
                                    
                                    (21,803
                                    )
                                    
                                    
                                    (908
                                    )FINANCING
      ACTIVITIESIssuance
      of common stock for cash
                                    
                                    
                                    -
                                    
                                    
                                    
                                    2,100Collection
      of stock receivable
                                    
                                    
                                    -
                                    
                                    
                                    
                                    5,000Line
      of credit principal borrowings
                                    
                                    
                                    82,611
                                    
                                    
                                    
                                    53,755Line
      of credit principal repayments
                                    
                                    
                                    (6,000
                                    )
                                    
                                    
                                    (17,262
                                    )Vehicle
      loans principal payments
                                    
                                    
                                    (10,969
                                    )
                                    
                                    
                                    (7,954
                                    )Net
      cash provided (used) by financing activities
                                    
                                    
                                    65,642
                                    
                                    
                                    
                                    35,639NET
      CASH INCREASE (DECREASE) FOR THE PERIOD
                                    
                                    
                                    82,511
                                    
                                    
                                    
                                    56,249CASH
      AT BEGINNING OF THE PERIOD
                                    
                                    
                                    12,333
                                    
                                    
                                    
                                    114,900CASH
      AT END OF THE PERIOD
                                    
                                    $
                                    94,844
                                    
                                    
                                    $
                                    171,149SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:CASH
      PAID DURING THE PERIOD FOR:INTEREST
                                    
                                    $
                                    5,380
                                    
                                    
                                    $
                                    19,662TAXES
                                    
                                    $
                                    1,600
                                    
                                    
                                    $
                                    -
  The
accompanying notes are an integral part of these financial
statements.
  F-4
 
 VINYL
PRODUCTS, INC.
 Notes
to Unaudited Consolidated Financial Statements
 For
the Six Months Ended June 30, 2010 and2009
 
  NOTE A – SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
  Organization–Vinyl Products, Inc. (“the
Company”) was incorporated in the State of Delaware on May 24, 2007, under the
name Red Oak Concepts, Inc. to serve as a vehicle for a business combination
through a merger, capital stock exchange, asset acquisition or other similar
business combination.  The Company filed a registration statement on
Form 10 under the Securities Exchange Act of 1934, as amended, to register its
class of common stock on September 15, 2007, that was effective as of November
14, 2007.  On December 4, 2007, the Company changed its jurisdiction
of domicile by merging with a Nevada corporation titled Red Oak Concepts,
Inc.  On November 21, 2008, the Company changed its name to Vinyl
Products, Inc. in connection with a reverse acquisition transaction with The
Vinyl Fence Company, Inc. (“TVFC”), a California corporation.
  On November 20, 2008, the Company entered into a
Share Exchange Agreement (the “Exchange Agreement”) with
TVFC.  Pursuant to the terms of the Exchange Agreement, the Company
acquired all of the outstanding capital stock of TVFC from the TVFC
shareholders in exchange for 22,100,000 shares of the Company’s common
stock.  Because the acquisition was treated as a reverse acquisition,
the financial statements of the Company have been retroactively adjusted to
reflect the acquisition from the beginning of the reported periods. The stock
exchange transaction has been accounted as a reverse acquisition and
recapitalization of the Company whereby TVFC is deemed to be the accounting
acquirer (legal acquiree) and the Company to be the accounting acquiree (legal
acquirer).  The basis of the assets, liabilities and retained earnings
of TVFC has been carried over in the recapitalization, and earnings per share
have been retroactively restated to reflect the reverse
acquisition.
  Pursuant
to the Exchange Agreement, on November 21, 2008, the Company filed a Certificate
of Amendment to its Articles of Incorporation with the Secretary of State for
the State of Nevada to change its corporate name to “Vinyl Products, Inc.” to
better reflect its business.
  Business
Activity
 Vinyl
Products, Inc. designs, fabricates and installs fencing, patio covers, gates,
decking and railings made of co-extruded vinyl from its location in Santa Ana,
California.  The Company operates in one reportable segment, the
domestic vinyl products industry.
 
 Basis of Presentation and
Principles of Consolidation
 The
Company maintains its accounting records on an accrual basis in accordance with
generally accepted accounting principles in the United States of America
("U.S. GAAP").
 
 The
consolidated financial statements include the accounts of all controlled
subsidiaries. All significant intercompany balances and transactions have been
eliminated.
  The
financial information included in this quarterly report should be read in
conjunction with the consolidated financial statements and related notes thereto
in our Form 10-K for the year ended December 31, 2009.
  The
results of operations for the six months ended June 30, 2010 are not necessarily
indicative of the results to be expected for the full year ending December 31,
2010.
  F-5
  Cash and Cash
Equivalents
 The
Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.  The Company did not have
any cash equivalents at June 30, 2010 and December 31, 2009.
  Use of
Estimates
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period.  Actual results could differ from these
estimates.
  Stock Based
Compensation
 The
Company accounts for stock-based employee compensation arrangements using the
fair value method in accordance with the accounting provisions relating to
share-based payments (“Codification Topic 718”).  The company accounts
for the stock options issued to non-employees in accordance with these
provisions. Stock options are valued using a Black-Scholes options pricing model
which requires estimates such as expected term, discount rate and stock
volatility.
 
 Revenue
Recognition
 Customer
deposits are recorded as a current liability when received.  Under
California law, the customer has three days in which to cancel a
contract.  Revenues are recognized when the installations of the
products are complete.  The related cost of goods sold includes
materials, installation labor, and miscellaneous other costs. Revenue is always
deferred until the price is fixed, our obligation to perform has been relieved
and collectability is reasonably assured.
 
 Advertising and Marketing
Expense
 The
Company expenses all advertising and marketing costs as incurred.
  Fair Value of Financial
Instruments
 In the
first quarter of fiscal year 2009, the Company adopted Accounting Standards
Codification subtopic 820-10, Fair Value Measurements and Disclosures ("ASC
820-10"). ASC 820-10 defines fair value, establishes a framework for measuring
fair value and enhances fair value measurement disclosure. ASC 820-10 delays,
until the first quarter of fiscal year 2009, the effective date for
ASC 820-10 for all non-financial assets and non-financial liabilities,
except those that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). The adoption of ASC 820-10
did not have a material impact on the Company's consolidated financial position
or operations, but does require that the Company disclose assets and liabilities
that are recognized and measured at fair value on a non-recurring basis,
presented in a three-tier fair value hierarchy, as follows:
 
 •Level 1.
Observable inputs such as quoted prices in active markets;
 
 •Level 2. Inputs,
other than the quoted prices in active markets, that are observable either
directly or indirectly; and
 
 •Level 3.
Unobservable inputs in which there is little or no market data, which require
the reporting entity to develop its own assumptions.
  F-6
 
 Accounts
Receivable
 The
Company sells to individual homeowners and homeowner associations. The Company
provides an allowance for doubtful accounts receivable equal to the estimated
uncollectible amounts. That estimate is based on historical collection
experience, current economic and market conditions and a review of the current
status of each customer's trade accounts receivable. The allowance for doubtful
accounts receivable was $9,946 at March 31, 2010, and December 31,
2009.
  Inventory
 Inventory
is stated at the lower of average cost or market value.  Inventory
consists of raw materials and fabricated materials awaiting installation.
Inventory is periodically reviewed to determine if it is marketable, obsolete or
impaired. Inventory that is determined to not be marketable is written down to
market value. Inventory that is determined to be obsolete or impaired is written
off to expense at the time the impairment is identified.
 
 Income
Taxes
 The
Company accounts for income taxes using the asset and liability method, which
requires the establishment of deferred tax assets and liabilities for the
temporary differences between the financial reporting basis and the tax basis of
the Company’s assets and liabilities at enacted tax rates expected to be in
effect when such amounts are realized or settled. 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 to the extent deferred tax assets may not be recoverable after
consideration of the future reversal of deferred tax liabilities, tax planning
strategies, and projected future taxable income.
 
 Impairment of Long-Lived
Assets
 Using the
guidance of the Accounting Standards Codification, the Company reviews the
carrying value of property and equipment for impairment whenever events and
circumstances indicate that the carrying value of an asset may not be
recoverable from the estimated future cash flows expected to result from its use
and eventual disposition. In cases where undiscounted expected future cash flows
are less than the carrying value, an impairment loss is recognized equal to an
amount by which the carrying value exceeds the fair value of assets. The factors
considered by management in performing this assessment include current operating
results, trends and prospects, the manner in which the property is used, and the
effects of obsolescence, demand, competition and other economic
factors.
 
 Property and
Equipment
 Property,
plant and equipment are stated at cost less accumulated depreciation. The cost
of property, plant and equipment is depreciated using the straight-line method
over the estimated useful life of the asset. Long-lived assets are reviewed for
impairment whenever in management's judgment conditions indicate a possible
loss. Such impairment tests compare estimated undiscounted cash flows to the
recorded value of the asset. If impairment is indicated, the asset is written
down to its fair value or, if fair value is not readily determinable, to an
estimated fair value based on discounted cash flows. Fully depreciated assets
are retained in property, plant and equipment and accumulated depreciation
accounts until they are removed from service. In case of disposals of assets,
the assets and related accumulated depreciation are removed from the accounts,
and the net amounts after proceeds from disposal are credited or charged to
income.
  F-7
  Depreciation
and amortization are computed using the straight-line method over the following
estimated useful lives:
  Vehicles
                
                2 –
      7 yearsFurniture
      and Fixtures
                
                7 –
      15 yearsLeasehold
      Improvements
                
                2 –
      8 yearsMachinery
      and Equipment
                
                5 –
      15 yearsOffice
      and Computer Equipment
                
                3 –
      7 yearsSigns
                
                7
      years
  Property
and equipment are carried at cost and consisted of the following at June 30,
2010 and December 31, 2009:
 
 2010
                    
                    
                    2009Vehicles
                    
                    $
                    160,551
                    
                    
                    $
                    160,551Furniture
      and Fixtures
                    
                    
                    31,665
                    
                    
                    
                    31,665Leasehold
      Improvements
                    
                    
                    97,494
                    
                    
                    
                    84,897Machinery
      and Equipment
                    
                    
                    100,274
                    
                    
                    
                    100,274Office
      and Computer Equipment
                    
                    
                    70,592
                    
                    
                    
                    61,385Signs
                    
                    
                    11,470
                    
                    
                    
                    11,470Total
                    
                    
                    472,046
                    
                    
                    
                    450,242Less:
      Accumulated Depreciation
                    
                    
                    249,160
                    
                    
                    
                    214,260Property
      and Equipment, net
                    
                    $
                    222,886
                    
                    
                    $
                    235,982
  Recently Adopted and
Recently Enacted Accounting Pronouncements:
  In April
2008, the FASB issued ASC 350-10, "Determination of the Useful Life of
Intangible Assets." ASC 350-10 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under ASC 350-10, "Goodwill and Other Intangible
Assets." ASC No. 350-10 is effective for fiscal years beginning after
December 15, 2008. The adoption of this ASC did not have a material impact
on our consolidated financial statements.
  In April
2009, the FASB issued ASC 805-10, "Accounting for Assets Acquired and
Liabilities assumed in a Business Combination That Arise from Contingencies—an
amendment of FASB Statement No. 141 (Revised December 2007), Business
Combinations". ASC 805-10 addresses application issues raised by preparers,
auditors and members of the legal profession on initial recognition and
measurement, subsequent measurement and accounting and disclosure of assets and
liabilities arising from contingencies in a business combination. ASC 805-10 is
effective for assets or liabilities arising from contingencies in business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008.
ASC 805-10 will have an impact on our accounting for any future
acquisitions and its consolidated financial statements.
  In May
2009, the FASB issued ASC Topic 855, Subsequent Events. ASC Topic 855
established principles and requirements for evaluating and reporting subsequent
events and distinguishes which subsequent events should be recognized in the
financial statements versus which subsequent events should be disclosed in the
financial statements. ASC Topic 855 also requires disclosure of the date through
which subsequent events are evaluated by management. ASC Topic 855 was effective
for interim periods ending after June 15, 2009 and applies prospectively.
Because ASC Topic 855 impacts the disclosure requirements, and not the
accounting treatment for subsequent events, the adoption of ASC Topic 855 did
not impact our consolidated results of operations or financial condition. See
Note K for disclosures regarding our subsequent events.
  F-8
  Effective
July 1, 2009, we adopted the Financial Accounting Standards Board ("FASB")
Accounting Standards Codification ("ASC") 105-10, Generally Accepted Accounting
Principles—Overall ("ASC 105-10"). ASC 105-10 establishes the FASB Accounting
Standards Codification (the "Codification") as the source of authoritative
accounting principles recognized by the FASB to be applied by nongovernmental
entities in the preparation of financial statements in conformity with
U.S. GAAP. Rules and interpretive releases of the SEC under authority of
federal securities laws are also sources of authoritative U.S. GAAP for SEC
registrants. All guidance contained in the Codification carries an equal level
of authority. The Codification superseded all existing non-SEC accounting and
reporting standards. All other non-grandfathered, non-SEC accounting literature
not included in the Codification is non-authoritative. The FASB will not issue
new standards in the form of Statements, FASB Staff Positions or Emerging Issues
Task Force Abstracts. Instead, it will issue Accounting Standards Updates
("ASUs"). The FASB will not consider ASUs as authoritative in their own right.
ASUs will serve only to update the Codification, provide background information
about the guidance and provide the bases for conclusions on the change(s) in the
Codification. References made to FASB guidance throughout these consolidated
financials have been updated for the Codification.
  In August
2009, the FASB issued ASU No. 2009-05, Measuring Liabilities at Fair Value,
which provides additional guidance on how companies should measure liabilities
at fair value under ASC 820. The ASU clarifies that the quoted price for an
identical liability should be used. However, if such information is not
available, an entity may use the quoted price of an identical liability when
traded as an asset, quoted prices for similar liabilities or similar liabilities
traded as assets, or another valuation technique (such as the market or income
approach). The ASU also indicates that the fair value of a liability is not
adjusted to reflect the impact of contractual restrictions that prevent its
transfer and indicates circumstances in which quoted prices for an identical
liability or quoted price for an identical liability traded as an asset may be
considered level 1 fair value measurements. This ASU is effective
October 1, 2009. We are currently evaluating the impact of this standard,
but would not expect it to have a material impact on our consolidated results of
operations or financial condition.
  NOTE B –
COMMITMENTS/LEASES
  The
Company leases its 10,000 square foot facility under a non-cancellable lease
arrangement that expires on March 31, 2011, with an option to renew for an
additional two-year period.
 
 The
Company also leases a 1,000 square foot sales office under a non-cancellable
lease arrangement that expires on March 31, 2010, with options to renew for
three additional one-year periods.
 
 The
Company has an available $100,000 line of credit with no stated maturity which
it opened in January 2006.    The interest rate is prime
plus 3 percentage points, which rate was 8.25% at June 30, 2010.  The
balance owed was $98,818 as of June 30, 2010, and $22,207 as of December 31,
2009.  The line of credit is guaranteed by the President and the
Secretary.
 
 NOTE C — LONG-TERM DEBT
OBLIGATIONS
 
 The
Company acquired four vehicles under installment sales contracts with interest
rates varying from 4.9% to 6.9%.  Future principal payments under
these agreements are as follows:
 
 2010
                      
                      $
                      6,7172011
                      
                      $
                      10,6802012
                      
                      $
                      2,4032013
                      
                      $
                      -2014
                      
                      $
                      -
  F-9
  NOTE D –Basic and Diluted Net Loss
Per Common Share
  Basic and
diluted net loss per share calculations are calculated on the basis of the
weighted average number of common shares outstanding during the periods
presented. The per share amounts include the dilutive effect of common stock
equivalents in years with net income. Basic and diluted loss per share is the
same due to the anti-dilutive nature of potential common stock
equivalents.
  2010 and
2009 information is not presented as the effect of all potential common stock
equivalents would be anti-dilutive.
 
 NOTE E – EMPLOYEE STOCK
OPTION PLAN
  On
September 24, 2008, the Company granted stock options to employees to purchase
133,800 shares of common stock at $.50 a share, with immediate
vesting.  Four employees subsequently left the Company and their
options for 5,400 shares were terminated.  As of June 30, 2010 and
December 31, 2009, options to purchase 5,200 shares had been
exercised,  As of June 30, 2010, options to purchase 109,600 remained
unexercised.  The options expire on September 23, 2010. The Company
valued these options using a Black-Scholes valuation model with an estimated
volatility of 39%, discount rate of 1.69%, and an expected term of less than one
year. The value of these grants was estimated to be approximately
$67,000.
  NOTE F – SHAREHOLDERS’
EQUITY
  Common
Shares
 The
Company is authorized to issue 100,000,000 shares of $.0001 par value common
stock, and had 22,864,200 shares outstanding at June 30, 2010 and December 31,
2009.
 
 Preferred
Shares
 The
Company is authorized to issue 10,000,000 shares of $.0001 par value preferred
stock.  The Company has never issued any shares of preferred
stock.
 
 NOTE G –
CONTINGENCIES
  Lawsuits
occur in the normal course of business, but the Company is not aware of any
pending litigation at this time.
  NOTE H – SUBSEQUENT
EVENT
  We have
evaluated subsequent events through August 14, 2010; no events have occurred
through this period that requires disclosure.
  F-10




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





You
should read the following discussion and analysis of financial condition and
results of operations, together with our consolidated financial statements and
related notes thereto appearing elsewhere in this Quarterly
Report.




Overview





General





We market
and install a wide variety of attractive, durable, low-maintenance vinyl
products, including fencing, patio covers, decking, railing and trim categories
from our retail locations in Santa Ana and Redondo Beach,
California.  Our products are used largely in renovation and
remodeling by our customers who include homeowners and homeowner
associations.





We
differentiate our Company from others in the industry on the basis of the manner
in which we market and sell our products and the level of service we offer our
customers.  Given that the purchase of our products represents a
substantial investment in a customer's home, typically their most significant
capital asset, we seek to connect with home owners' intrinsic desire to take the
time to make an informed, value-driven purchasing
decision.  Throughout the sales process, we invest the time and effort
to develop a relationship with a prospect, as opposed to home centers,
specialized retail distributors and independent contractors that typically
employ a hard-sell pitch and seek to make a sale only when a consumer is
prepared to make a purchase.





Our
marketing efforts are designed to capture information about prospective
purchasers of exterior vinyl products early in the buying cycle.  We
maintain contact with them over the course of the decision-making process to
educate and consult with them about vinyl products generally, the purchasing and
installation process and the ownership experience.  We seek to
demonstrate to prospects that purchasing from us represents the best value for
their money in that we provide a worry-free ownership experience that we believe
is not available from other independent retailers, contractors or the national
home improvement chains.





We are
not aware of any participant in the exterior vinyl products industry that
operates on a national basis and we believe that a significant opportunity
exists for us to develop a national franchise.  We believe that our
business model can be replicated successfully throughout the country and that
the fundamental elements of our proprietary sales and marketing techniques,
which we believe are sophisticated when compared to our direct competitors, can
be conveyed effectively through written materials and training to motivated
entrepreneurs.  We will seek to leverage our business model by
initiating a franchise organization and establishing our Company and brand as
the first national vinyl products retail chain.





Our existing and proposed business is
subject to numerous substantial risks, including, among others, that we purchase
all of our vinyl products from a single source; our future growth will, in large
part, be dependent upon the success of our planned franchise program and there
are numerous risks associated with such model; the availability of disposable
income to homeowners; the availability of consumer credit; the availability of
credit to prospective purchasers of our franchises and general economic
conditions, including the level of activity in home improvements and housing
turnover.  These risks and other important factors relating to our
current and proposed business are detailed in our Annual Report on Form 10-K for
the year ended December 31, 2009 that we filed with the Securities and Exchange
Commission on April 9, 2010 (the "2009 Annual Report").





Results
of Operations





Comparison of the Three
Months Ended June 30, 2010 and 2009





Income:   Income
for the second quarter of 2010 was $898,083, an increase of 12% compared to
income of $800,403 during the second quarter of 2009.  We believe that
such increase is correlated to subtle improvements in the national economy,
enhancements in our marketing approach (including increasing our advertising
budget), and the launch of our new retail location in Los Angeles County in
February 2010.


4





Cost of Goods Sold:
During 2009 and 2010, the contract with our vinyl supplier provided for
significant discounts on raw materials we purchased upon achieving certain
specified purchase quotas, which we met.  Our cost of goods sold for
all periods reported in this Quarterly Report is net of the discount we receive
on the cost of raw materials. (In October 2009, the supplier eliminated the
specified purchase quotas.)





Cost of
goods sold increased from $370,416 in 2009 to $419,641 in
2010.  Although the resulting gross profit increased from $429,987 for
the 2009 period to $478,442 for the 2010 period (an increase of 6%), the gross
profit percentage decreased slightly from 53.7% in 2009 to 53.3% in
2010.  We attribute the decrease in the gross profit percentage to
pricing pressure from our competitors.





Expenses:





Advertising
and marketing expense during the second quarter of 2010 was $62,642, an increase
of $16,245, or 35%, from the second quarter of 2009 in which we expended
$46,397.  We increased our advertising expenditures during the second
quarter in an effort to drive sales in a weak economy and in connection with the
launch our new sales location in Los Angeles County.  In addition, we
continued to adjust the mix of our advertising and marketing programs in our
ongoing effort to maximize the effectiveness of our advertising strategy and the
return on advertising investment.





Selling,
general and administrative expenses increased from $89,033 during the second
quarter of 2009 to $111,177, or 25%, during the second quarter of
2010.  The $22,144 increase was due primarily increases in
depreciation, printing and filing fees, and utilities.





Payroll
expenses increased from $267,898 to $288,800, an increase of $20,902 or 8%, due
primarily to increases in officer compensation and sales
commissions.





Professional
fees increased from $50,785 during the 2009 period to $65,113 during the
corresponding 2010 period, or 28%.  The increase was due primarily to
an increase in audit fees.





Rent
expense increase from $26,070 to $34,684 due to our new sales location in Los
Angeles County.





Comparison of the Six Months
Ended June 30, 2010 and 2009





Income:   Income
for the first two quarters of 2010 was $1,671,558, an increase of 13% compared
to income of $1,484,911 during the first two quarters of 2009.  We
believe that such increase is correlated to subtle improvements in the national
economy, enhancements in our marketing approach (including increasing our
advertising budget), and the launch of our new retail location in Los Angeles
County in February 2010.





Cost of Goods Sold:
During 2009 and 2010, the contract with our vinyl supplier provided for
significant discounts on raw materials we purchased upon achieving certain
specified purchase quotas, which we met.  Our cost of goods sold for
all periods reported in this Quarterly Report is net of the discount we receive
on the cost of raw materials. (In October 2009, the supplier eliminated the
specified purchase quotas.)





Cost of
goods sold increased from $673,504 in 2009 to $781,236 in
2010.  Although the resulting gross profit increased from $811,407 for
the 2009 period to $890,322 for the 2010 period (an increase of 10%
corresponding to the increase in income of 12%), the gross profit percentage
decreased slightly from 54.6% in 2009 to 53.3% in 2010.  We attribute
the decrease in the gross profit percentage to pricing pressure from our
competitors.





Expenses:





Advertising
and marketing expense during the first two quarters of 2010 was $115,239, an
increase of $34,102, or 42%, from the first two quarters of 2009 in which we
expended $81,137.  We increased our advertising expenditures during
2010 in an effort to drive sales in a weak economy and in connection with the
launch our new sales location in Los Angeles County.  In addition, we
continued to adjust the mix of our advertising and marketing programs in our
ongoing effort to maximize the effectiveness of our advertising strategy and the
return on advertising investment.


5





Selling,
general and administrative expenses increased from $181,641 during the first two
quarters of 2009 to $220,290, or 21%, during the first two quarters of
2010.  The increase was due primarily to increases in directors and
officers insurance, vehicle expenses, and depreciation.





Payroll
expenses increased from $520,046 to $525,000, or 1%, due primarily to a decrease
in officer compensation of $32,000 offset by an increase in sales commissions of
$27,000.





Professional
fees decreased from $134,654 during the 2009 period to $107,553 in the
corresponding 2010 period, or 20%.  The decrease was due primarily to
a decrease in legal fees related to SEC filings, offset by an increase in audit
fees.





Rent
increased from $52,140 in 2009 to $60,754 in 2010, due to the new sales location
in Los Angeles County.





For the
three years ended June 30, 2010, inflation and changing prices have had little
impact on revenues and net income.  As our sole vinyl supplier has
increased prices, we have been able to increase our prices
correspondingly.





Cash
Flows





Six  Months Ended
June 30, 2010 and  2009





Cash
and Cash Equivalents





Our cash
and cash equivalents were $12,333 at December 31, 2009, and increased to $94,844
by June 30, 2010, as explained below.





Net
cash provided by operating activities





Net cash
provided by operating activities was $38,672 for the six months ended June 30,
2010, compared to $21,518 for the six months ended June 30, 2009.  The
increase in cash provided by operating activities of approximately $17,000 was
primarily attributable to a $51,000 smaller net loss in 2010 and a $13,000
larger increase in accounts payable and accrued expenses, offset by a $50,000
smaller increase in customer deposits.





Net
cash used in investing activities





Net cash
used in investing activities was $21,803 for the six months ended June 30, 2010,
compared to $908 for the six months ended June 30, 2009.  The increase
was due to leasehold improvements at the new Los Angeles County sales location
($13,000) and the addition of office and computer equipment.




Net
cash provided by financing activities





Net cash
provided by financing activities was $65,642 for the six months ended June 30,
2010, compared to $35,639 in the six months ended June 30, 2009. In both
periods, the increase was attributable primarily to line of credit
borrowings.





Liquidity
and Capital Resources





Our
current capital requirements are allocated principally among payroll; selling,
general and administrative expenses; professional fees; rent; and advertising
and marketing expenses.  Historically, we have financed our business
with cash flow from operations and borrowings under a revolving bank line of
credit.  We do not anticipate making any significant capital additions
in 2010 other than in connection with the development and implementation of our
franchise program.


6





We
believe that our existing capital resources and liquidity position will be
sufficient to satisfy all of our purposes over the next twelve months, including
the development and implementation of the first phases of a franchise
organization, as more fully described below under the heading "Capital
Requirements".





Even in
the event that the economic recession persists over the remainder of 2010 and we
do not return to or exceed pre-recession sales levels during the current fiscal
year, we are optimistic that we will have available the capital resources
necessary from revenue and our line of credit to develop and implement the
initial phases of our franchise program and for other corporate purposes, as
necessary.





If
product sales do not rebound during the remainder of 2010 or if they decline
significantly, we will seek to reduce overhead by discharging installers and
administrative personnel.  Since our sales personnel are remunerated
by way of commissions only, a decline in sales results in a corresponding
reduction in our sales commissions expense.  A continued decline in
sales would reduce income which would reduce the Company’s liquidity position
and likely result in the deferred implementation of our franchise
program.  However, unless there is a further significant downturn in
the economy and our sales, we believe that we can maintain or improve our
current financial position.





Historically,
our operating results, financial condition and liquidity position were enhanced
significantly by virtue of substantial discounts we receive on vinyl products
from our supplier to the retail market price at which such products are
sold.  Until October 2009, the discounts were conferred upon our
achieving certain minimum quarterly purchases of products, which we had met in
each prior quarter of our existence.  In October 2009, our supplier
eliminated the minimum purchase requirements that triggered the discount and we
now receive the discount on all products we purchase from our
supplier.  We anticipate that our agreement will be renewed in
September 2010 on materially similar terms.





The
agreement with our vinyl products supplier includes other terms that may impact
our liquidity and financial condition.  For example, our supplier does
not offer us any rebates or incentives, provisions that might be expected to be
included in agreements of this nature.   Moreover, we have a
right of return but there is a 20% restocking fee; however, returns have not
been significant, and restocking fees always have been waived by the
supplier.





Capital
Requirements





Over the
next twelve months, we will commence developing a franchise
program.  As described below, we expect that the cost to us to
implement the first phase of our franchise program, including the fees of our
franchise consultant and franchise license fees and costs for registration of
our franchise organization in the State of California, will not exceed an
additional $50,000, as more fully described below.  Once we receive
approval from California to offer franchises, we expect to retain two or three
additional employees to manage our franchise operations and which will require
additional capital.





In June
2009, we engaged a franchise consultant to assist us with the development of the
program.  We cannot estimate the costs associated with its deployment
on a national basis.  We are advised by our franchise consultant that
the costs to develop and implement the program and maintain the organization are
highly variable and are a function of numerous factors, such as the number of
jurisdictions in which franchisees are located and the specific jurisdictions
selected (which will bear on franchise registration fees to be paid); the
geographical location of our franchises (close in proximity to each other or
widely separated – which will bear on advertising and other costs); the extent
of the advertising efforts we may employ; and the additional infrastructure we
may require to manage the organization.





We expect
to implement our franchise program in phases.  Our initial step
encompassed the preparation, with the assistance and guidance of our franchise
consultant, of the preponderance of the documentation required to develop and
implement the program.  This included documents mandated by the
government and internal organizational documentation.  We have
substantially completed the preparation of these documents.   We
anticipate that we will expend an additional $5,000 on finalizing the
documentation of our franchise program and submitting our franchise registration
application to California.  We expect to be in a position to offer
franchises in California in the second half of 2010.


7





Initially,
it is our intent to sell franchises in relatively close proximity to our
principal offices in Orange County, California.  We believe that we
can more competently and efficiently manage, support and oversee the development
of franchises closer to our home office.  We expect that the success
of our efforts in California will influence directly our decision as to when to
commence offering franchises in other jurisdictions.  Success will be
measured not only by the number of franchises we sell and their performance, but
also by our ability to manage our operations and provide the level of support
necessary to ensure the success of our franchisees.





As we
have advanced through the process of establishing the parameters of our
franchise program and have become more familiar with franchising generally, we
have gained a sense of our internal requirements and the capital we will be
required to allocate to the program once we begin to offer and sell
franchises.  For example, we believe that it will be necessary to add
personnel to manage the administrative and accounting components of the
program.  Toward this end, we may hire two or three additional
internal personnel in 2010 to manage the process and we will allocate capital to
engage such personnel.  Consideration as to future staffing
requirements will be dictated by the growth and requirements of the
program.  We may seek to outsource facets of the development and
operation of the franchise program to avoid the burdens of enlarging our
infrastructure and to take advantage of the expertise of industry
professionals.  We may engage consultants to assist with franchise
organizational matters, such as legal counsel to assist with preparation of
franchise registration applications, and professionals who engage in franchisee
recruitment and to whom we may pay finders' fees, and advertising.





Once a
franchise program has been developed, we expect to allocate significant cash
resources to advertising (both to recruit franchisees and to fund advertising on
behalf of our franchisees), marketing staff, accounting staff and general and
administrative expenses, as well as the costs and expenses of any outsourced
operations.  We cannot currently estimate the costs associated with
these elements of the program, as they may vary
significantly.  However, we do not believe that the extent of the
additional personnel or other infrastructure and other services we may require
will necessarily correspond to the scale of the program so that there will not
substantial additional expenses incurred as we enroll franchisees or enter into
new jurisdictions.  Future costs will be contingent on the performance of
the program, the speed with which we determine to expand into additional
jurisdictions into which we will offer franchises, and the size of the
organization.





It is our
intention to fund the above-described first phases of our franchise organization
internally from capital generated from operating revenue from our existing
retail location and our line of credit.  We will seek to develop a
program and organization within the constraints of our cash resources and take a
conservative approach, growing as conditions, return on investment and available
capital, among other factors, warrant.  In the event that we have
underestimated the costs associated with the development of our franchise
program, or we encounter unanticipated costs, delays or difficulties, or that
the recession deepens or extends significantly longer than financial experts
anticipate, we may be required to seek external funding.  As of June
30, 2010, we had incurred costs and expenses in connection with the development
of our franchise program of approximately $60,000 and expect that we will expend
no more than an additional $50,000 through the remainder of
2010.  Thereafter, we will allocate capital as the program requires
and as economic conditions improve and our sales and income
recover.





In the
event we require capital for any purpose, we may seek to secure third-party
financing.  The nature of the financing, debt or equity, will be
dependent upon current market conditions and availability.  We cannot
be certain that such capital will be available to us on favorable or acceptable
terms, or at all.





Outlook





Demand
for our products can be linked to changes in the health of the economy in
general and the level of activity in home improvements and
remodeling.  These activity levels, in turn, are affected by housing
turnover (sales of existing home and new housing starts) and such factors as
consumer confidence, home equity values, home equity loan withdrawals, consumer
spending habits, reasonably attainable consumer credit, income, interest rates
and inflation.  These factors have been in poor positions over the
last 20 months, and indications are that they will remain that way in the
near-term.  For example, existing home sales were relatively flat in
2009 and during the first seven months of 2010, while new housing starts during
2009 were the worst since World War II.  We believe that these factors
have resulted in decreased home improvement and remodeling spending, which
caused our sales and results of operations to decline during 2009.  We
continue to manage our business on the basis that there will not be any
significant improvements in market conditions during the foreseeable
future.


8





While we
expect that current business conditions will persist for the remainder of 2010,
we continue to believe that our business model is fundamentally
sound.  We believe that the range of quality products we offer,
combined with our marketing approach, will continue to attract customers and
that we can return to pre-recession sales levels at our retail location as the
economy rebounds.  We expect that sales at our new retail location in
Los Angeles County will continue to grow as we achieve market penetration
through continued advertising efforts and by employing the proven sales and
marketing techniques that represent the foundation of the success of our primary
sales office in Santa Ana.   The proximity of our two retail
operations (less than 40 miles apart) allows us to take advantage of certain
economies of scale.  Our Los Angeles County location is a lean
operation that employs two people.  All support services, including
administrative, accounting and product fabrication, are undertaken at our
principal facility in Santa Ana, from which installation crews are
dispatched.  The relative proximity of the locations also allows, in
large part, for confluent marketing efforts with respect to the two
operations.  We believe that the new location provides us with access
to a significant potential market for our products at a relatively low operating
cost and that we will derive meaningful revenue from this location by the end of
2010 that will boost our gross income and net income.





We
continue to believe that the franchise model represents a promising prospect for
significant growth of our Company.  We think that the key elements of
our business will be attractive factors to franchisees and lead us to believe
that our growth strategy, predicated on launching a national franchise program
in 2010 will fill a niche that can generate significant growth over the longer
term.  We believe that franchising has become an attractive option for
baby boomers who desire to remain active after retirement or who have been
squeezed out of current positions by mergers, downsizing and the declining
economy.  In fact, we believe that many of these people will make the
best franchise owners given their business experience.  We believe
that the franchise industry will continue to grow both because more baby boomers
are reaching retirement age every year and these people frequently have
accumulated the savings required to launch an entrepreneurial
business.  However, we believe that the performance of our franchise
program may depend, in part, on the availability of credit to prospective
franchisees.  Most franchises are acquired by franchisees utilizing a
combination of personal investment and third-party financing.  In
light of current adverse economic conditions marked by tight credit, prospective
franchisees may have difficulty obtaining the financing required to purchase a
franchise from us.  If credit is not available to these prospects,
franchise sales may be sluggish or we may not sell any franchises, which would
adversely affect our results of operations and liquidity and impact our ability
to expand the franchise program into additional jurisdictions.





Until the
advent of more promising economic conditions, we will take a conservative
approach to our business generally and to the development of our franchise
program specifically.  We will be deliberate in the development of our
franchise organization, to avoid over-extending our financial resources, and we
will carefully plan when and how we penetrate new territories.  We are
hoping that the credit crisis will have abated to some degree by the time we are
prepared to launch our franchise program in 2010 and that credit will be more
readily available from semi-private and government sources such as a Small
Business Investment Company or the Small Business Administration  to
provide more loans to entrepreneurs, which would facilitate the acquisition of
loans by our prospects.





Quantitative
and Qualitative Disclosures About Market Risk





We do not
use derivative financial instruments in our investment portfolio and have no
foreign exchange contracts.  Our financial instruments consist of cash
and cash equivalents, trade accounts receivable and accounts
payable.





Critical Accounting Policies and
Estimates





Our
discussion and analysis of our financial condition and results of operations is
based upon the consolidated financial statements and notes to the consolidated
financial statements, which have been prepared in conformity with accounting
principles generally accepted in the United States of America.  The
preparation of the consolidated financial statements requires us to make
estimates, judgments and assumptions, which we believe to be reasonable, based
on the information available.  These estimates and assumptions affect
the reported amounts of assets, liabilities, revenues and expenses and related
disclosures of contingent assets and liabilities.  Variances in the
estimates or assumptions used could yield materially different accounting
results.  On an ongoing basis, we evaluate the continued
appropriateness of our accounting policies and resulting estimates to make
adjustments we consider appropriate under the facts and
circumstances.


9





We have
chosen accounting policies we believe are appropriate to report accurately and
fairly our operating results and financial position, and we apply those
accounting policies in a consistent manner.  As described in
Item 7. “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” of our 2009 Annual Report, we consider our policies on
accounting for revenue recognition, inventory, accounts receivable, income
taxes, advertising and marketing expenses, stock-based compensation and property
and equipment to be the most critical in the preparation of the consolidated
financial statements because they involve the most difficult, subjective, or
complex judgments about the effect of matters that are inherently uncertain.
There have been no material changes to our application of critical accounting
policies and significant judgments and estimates since December 31,
2009.





Recent
Accounting Pronouncements





See Note
A of Notes to Consolidated Financial Statements for a discussion of new and
recently adopted accounting pronouncements.





Item
3. Quantitative and Qualitative Disclosures About Market Risk.





Not applicable.





Item
4(T). Controls and Procedures.





Evaluation of Disclosure Controls and
Procedures





As of
June 30, 2010 and the date of this Report, the Company’s management carried out
an evaluation, under the supervision and with the participation of the Company’s
President (PEO) and Chief Financial Officer (PFO), of the effectiveness of the
design and operation of the Company’s disclosure controls and procedures (as
defined in Rules 13a-15 and 15d-15 under the Exchange Act), pursuant to Exchange
Act Rule 13a-15.  As a result of our continuing efforts to remediate
the material weaknesses in our internal control over financial reporting that
existed as of December 31, 2009 and which remained, in part, extant as of the
close of the period covered by this Report, our PEO and PFO concluded that the
Company's disclosure controls and procedures were not effective as of June 30,
2010.





The
weaknesses in our disclosure and procedures encompassed weaknesses in certain
elements of our internal control over financial reporting (ICFR) that our
subsumed within our disclosure controls and procedures.  A material
weakness is defined in Section 210.1-02(4) of Regulation S-X as a
deficiency, or combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material
misstatement of the annual or interim financial statements will not be prevented
or detected on a timely basis.  The specific weaknesses relate to
elements of our ICFR that provide reasonable assurances that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles and comprise the
following:





·
            Accounting
      and Finance Personnel Weaknesses — The Company lacks appropriate resources
      within the accounting function.  This lack of resources has led
      to a lack of segregation of duties and insufficient attention to the
      internal control process over financial
  reporting.





·
            Lack
      of an Audit Committee — We do not have an audit committee, resulting in
      ineffective oversight in establishing and monitoring of required financial
      reporting internal control
procedures.





Changes
in Internal Controls





During
the three months ended June 30, 2010 through the date of this Report, we did not
make any changes to our internal control over financial reporting (as defined in
Rules 13a-15 and 15d-15 under the Exchange Act) that materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.


10





PART
II — OTHER INFORMATION





Item
1. Legal Proceedings.





On
December 5, 2008, a former employee of the Company filed a complaint in Superior
Court against the Company and its principals, seeking compensatory damages,
attorneys' fees, punitive damages and equitable relief in connection with our
termination of the employee for what we deemed to be cause.  In 2009,
the Company paid its $12,500 share of the insurance deductible.  In
March 2010, the case was settled in arbitration, with no further liability for
the Company.





Item
1A. Risk Factors.





Smaller
reporting companies are not required to provide the information required by this
item.





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





(a) During
the three months ended June 30, 2010, the Company did not issue any
securities.





(b) Not
applicable.





(c)
During the three months ended June 30, 2010, neither the issuer nor any
"affiliated purchaser," as defined in Rule 10b-18(a)(13), purchased any shares
or other units of any class of the issuer's equity securities.





Item
3. Defaults Upon Senior Securities.





None.





Item
4. (Removed and Reserved)





Item
5. Other Information.





(a) None.





(b) The Company has not adopted any
procedures by which security holders may recommend nominees to the registrant's
board of directors.


11





Item
6. Exhibits.





Exhibit
                    
                    Description31.1
                    
                    Certification
      of the Company’s Principal Executive Officer pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Quarterly
      Report on Form 10-Q for the quarter ended June 30,
2010.31.2
                    
                    Certification
      of the Company’s Principal Financial Officer pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Quarterly
      Report on Form 10-Q for the quarter ended June 30,
2010.32.1*
                    
                    Certification
      of the Company’s Principal Executive Officer and Principal Financial
      Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
      906 of the Sarbanes Oxley Act of
2002.





*  Pursuant
to Commission Release No. 33-8238, this certification will be treated as
“accompanying” this Quarterly Report on Form 10-Q and not “filed” as part of
such report for purposes of Section 18 of the Securities Exchange Act of
1934, as amended, or otherwise subject to the liability of Section 18 of
the Securities Exchange Act of 1934, as amended, and this certification will not
be deemed to be incorporated by reference into any filing under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended,
except to the extent that the registrant specifically incorporates it by
reference.


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SIGNATURES





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





VINYL
      PRODUCTS, INC.Date:
      August 16, 2010
                          /s/  Gordon
      KnottGordon
      KnottPresident
      and Chief Executive OfficerDate:
      August 16, 2010
                          /s/  Douglas
      E. WellsDouglas
      E. WellsChief
      Financial Officer and Principal Financial
  Officer




13