UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/1
(Amendment No. 2)
(Mark One)
| ý | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended: December 31, 2008
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to ________
Commission file number: 000-52769
VINYL PRODUCTS, INC.
(Name of Small Business Issuer in its charter)
| Nevada | 26-0295367 |
| (State or other jurisdiction of Identification No.) | (I.R.S. Employer incorporation or organization) |
| 2210 South Ritchey Street, Santa Ana, California | 92705 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (714) 210-8888
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $0.0001 per share
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ý No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes ý No
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.
ý Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
ý Yes 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 □ | Smaller reporting company ý |
| (Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ý No
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. $0
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.At March 30, 2009 there were 22,263,200 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
EXPLANATORY NOTE
In this Amendment to Annual Report on Form 10-K (this “Form 10K/A”), we refer to Vinyl Products, Inc., a Nevada corporation, as “we,” “us,” “our” or “our company.”
We are filing this Amendment No. 2 on Form 10-K/A ("Amendment No. 2") to our Annual Report on Form 10-K for the year ended December 31, 2008 as originally filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2009 (the “Original Filing”), and as thereafter amended upon the filing of Amendment No. 1 to Form 10-K/A as filed with the SEC on November 13, 2009 ("Amendment No. 1"), to amend "Item 9A. Controls and Procedures," as set forth in Amendment No. 1, to state management's conclusion as to the effectiveness of the Company's internal control over financial reporting.
In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), each item of Amendment No. 1 that is amended by this Amendment No. 2 is restated in its entirety, and this Amendment No. 2 is accompanied by currently dated certifications on Exhibits 31.1 and 31.2 by our Chief Executive Officer and Chief Financial Officer, respectively, and Exhibit 32.1 by our Chief Executive Officer and Chief Financial Officer.
Except as expressly set forth in this Amendment No. 2, we are not amending any other part of the Original Filing or Amendment No. 1. This Amendment No. 2 continues to speak as of the date of the Original Filing, except as such disclosure was amended by Amendment No. 1, and does not reflect events occurring after the filing of the Original Filing, other than as described in Amendment No. 1, or modify or update any related or other disclosures, including forward-looking statements, unless expressly noted otherwise. Accordingly, this Amendment No. 2 should be read in conjunction with the Original Filing and Amendment No.1 and with our other filings made with the SEC subsequent to the filing of the Original Filing and Amendment No. 1, including any amendments to those filings. The filing of this Amendment No. 2 shall not be deemed an admission that the Original Filing or Amendment No. 1 when made included any untrue statement of a material fact or omitted to state a material fact necessary to make a statement not misleading.
We maintain disclosure controls and procedures that are designed to ensure that information we are required to disclose in the reports we file under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including our President and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management also is responsible for establishing and maintaining internal control over financial reporting which is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding the prevention or timely detection of the unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Our management does not expect that our disclosure controls and procedures or internal control over financial reporting will be effective in all instances. There are inherent limitations in all control systems that reflect both resource constraints and the human factor as it relates to the application of a control system, including the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Controls also can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events and any design may not succeed in achieving its stated goals under all potential future conditions.
Evaluation of Disclosure Controls and Procedures
As of December 31, 2008, the Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer (principal executive officer, or PEO) and Chief Financial Officer (principal financial officer, or 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 evaluation we identified the following material weaknesses in our disclosure controls and procedures, which are more fully described below under the heading "Identification of Material Weakness":
| · | failure to implement entity level controls; |
| · | failure to institute adequate inventory and labor utilization controls; |
| · | failure to institute procedures to accurately compute taxes; and |
| · | undue reliance on third party professionals. |
In view of the results of our evaluation, the Company’s PEO and PFO concluded that the Company's disclosure controls and procedures were not effective as of December 31, 2008.
Changes in Internal Controls
We believe that the material weaknesses we identified with respect to our disclosure controls and procedures also represented weaknesses in our internal control over financial reporting. During the three months ended December 31, 2008, we made changes to our internal control over financial reporting (as defined in Rules 13a-15 and 15d-15 under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting, as more fully described below under the heading "Identification of Material Weakness."
Identification of Material Weaknesses in Controls and Procedures
In the course of preparing the audited consolidated financial statements we filed with the Form 10-K for the year ended December 31, 2008 (the "Original Filing") and the periods thereafter, and in connection with the evaluation of our controls and procedures, we discovered the material weaknesses in our controls and procedures enumerated above under the heading "Evaluation of Disclosure Controls and Procedures."
A material weakness in internal control over financial reporting 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. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the Company's financial reporting.
Prior to our acquisition of The Vinyl Fence Company, Inc. ("TVFC") in November 2008, we were a "shell" company that had no operations and TVFC had operated its business as a private company. Accordingly, we were not subject to the rigorous rules and regulations relating to controls and procedures under the Sarbanes Oxley Act of 2002 or the Exchange Act.
A. Failure to Implement Entity Level Controls and Inventory and Labor Utilization Controls
In connection with the preparation of unaudited financial statements for the quarter ended September 30, 2008, management of TVFC, which became our subsidiary after the share exchange transaction consummated on November 20, 2008, determined that TVFC had material weaknesses in its internal controls over financial reporting and, consequently, weaknesses in our disclosure controls and procedures. We are reporting the weaknesses in this Form 10-K because it is the first periodic report we are filing under the Exchange Act.
Management became aware of the accounting irregularities in the course of reviewing monthly financial operations reports for the month ended September 30, 2008 that demonstrated a significant decline in TVFC's gross profit percentage over the previous several months. In an itemized review of the monthly financial information for the several prior quarters, management of TVFC was unable to account for approximately $200,000 of inventory that TVFC had purchased that was not the subject of corresponding sales orders. During the course of TVFC's preliminary investigation of the matter in September 2008, management discovered that certain employees were committing fraud against the Company by stealing inventory and reselling it pursuant to fraudulent sales orders that were never submitted to the Company. These employees were retaining the sale price of the inventory and, in some cases, using Company employees to fabricate and install the products on Company time using Company equipment and vehicles.
We reported the loss resulting from the theft of inventory in our unaudited financial statements for the quarter ended September 30, 2008 and the numerical information included in those financial statements is accurate. However, the notes to the financial statements did not discuss the theft or provide an explanation for the declining financial performance, as we continued to investigate the circumstances surrounding the incidents. Furthermore, while the management's discussion and analysis portion of the Current Report on Form 8-K (filed with the SEC on November 26, 2008) made reference to a decline in our gross profit resulting from personnel problems in our fabricating and installation departments, noting that we addressed these issues by re-defining the roles of our staff responsible for fabrication and installation and by restructuring our work force, it did not make reference to the theft or the weaknesses in our internal controls and procedures.
In connection with its investigation of the unaccounted for inventory, management of TVFC identified the following material weaknesses to TVFC’s (and, after consummation of share exchange on November 20, 2008, the Company's) internal control over financial reporting:
Entity Level Controls: The Company failed to develop and maintain a company-wide anti-fraud program over the initiating and processing of financial transactions, as well as other company-wide procedures which may have an impact on internal controls over financial reporting.
Inventory and Labor Utilization Control: Senior management failed to maintain sufficient oversight over inventory usage and labor utilization. As an example, this lack of proper oversight allowed certain trusted employees to fabricate ship and install products for fraudulent jobs.
During the last fiscal quarter of 2008, management implemented measures to address these material weaknesses in our internal control over financial reporting. These actions have materially affected the Company’s internal control over financial reporting for that period, and included:
| · | Personnel Changes: Our primary responses to rooting out the fraud were to terminate those identified as the perpetrators and to redefine the roles of the managers of our accounting department, customer service department and installation department. The underlying premise of the changes in our managers' roles is to distribute accountability for transactions within each of the core elements of our operations among multiple departments. These changes are intended to ensure that each material transaction is examined by more than one individual; a safeguard that we believe will significantly reduce the possibility that a fraudulent transaction would go undetected or unreported to senior management. |
| · | Inventory Control Procedures: We developed a series of controls and procedures to monitor the flow of inventory through each stage of our operations. Inventory is reconciled with materials purchased and received against jobs scheduled and the analysis reports are reviewed by senior management. Material variances between inventory inspected and inventory requirements for booked orders are reported to management immediately. We also are developing returned goods procedures that will account for materials returned from jobsites (for scrap or reuse) which will allow us to determine the true material usage and gross profit. |
In addition to the foregoing, management more closely oversees all aspects of operations. More importantly, management reviews gross profit components and percentages on a monthly basis to ensure that we properly account for all inventory.
There can be no assurance at this time that the actions taken to date will effectively remediate the material weakness described above. We are continuing to closely monitor and assess the effectiveness of our processes, procedures and controls, and our board of directors (which serves as our audit committee) will make adjustments as and when necessary.
| B. | Failure to Institute Procedures to Accurately Compute Taxes; Reliance on Third Party Professionals |
We determined that our failure to accurately compute our federal and state corporate income tax liability for the year ended December 31, 2008, as described under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations – Reclassification and Restatement," was a result of the following weaknesses in our internal control over financial reporting:
| · | Inadequate Expertise in the application of Federal and State Tax Laws as they Impact Financial Reporting: Our internal accounting personnel did not possess sufficient expertise in the application of federal and state tax laws as they apply to consolidation of an acquired business with a different fiscal year end. |
| · | Reliance on Third Party Professionals: We retained a certified public accountant to prepare our tax returns for the year ended December 31, 2008. We may not have adequately assessed this person's qualifications to ascertain his level of experience to render the services for which we retained him. Moreover, we did not adequately monitor this person's work and placed undue reliance on his expertise without confirming the accuracy of the finished product. |
Our failure to accurately compute our federal and state corporate income taxes for the year ended December 31, 2008 resulted in an understatement of our tax liability at December 31, 2008, which impacted our financial statements in each subsequent interim period through June 30, 2009. As further described in Note L to the audited consolidated financial statements accompanying this report, this error resulted in the restatement of the Company’s financial statements for the year ended December 31, 2008.
We have not yet taken any action to remediate the material weaknesses identified above. We currently are exploring all of the options available to us and will consider each option carefully before taking any action. The remediation of these material weaknesses will be among our highest priorities.
We cannot assure you at this time that the actions and remediation efforts we ultimately implement will effectively remediate the material weakness described above.
Management’s Report on Internal Control over Financial Reporting
We are required to evaluate our internal control over financial reporting in order to allow management to report on their effectiveness on an annual basis, as required by Section 404 of the Sarbanes-Oxley Act of 2002 and the rules and regulations of the SEC. These laws and regulations provide that management's evaluation of the effectiveness of our internal control over financial reporting is based on a suitable, recognized control framework that is established by a body or group that has followed due-process procedures, including the broad distribution of the framework for public comment. We are in the process of implementing the components and principles presented in "Internal Control — Integrated Framework," issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), as the basis for our internal control over financial reporting. We expect to base assessments of and reports on our internal control over financial reporting on the COSO framework commencing with the year ending December 31, 2009. In view of the material weaknesses in the Company's internal control over financial reporting that existed as of December 31, 2008, management has concluded that the Company's internal control over financial reporting was not effective as of said date.
This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Item 15. Exhibits, Financial Statement Schedules.
(b) Exhibits.
The exhibits listed below are either included or incorporated by reference as indicated:
| Exhibit No. | Exhibit Description |
| 2.1# | Agreement and Plan of Merger October 10, 2007, among Red Oak Concepts, Inc., a Delaware corporation, Red Oak Concepts, Inc., a Nevada corporation, and the holders of all of the outstanding shares of common stock of each such corporation. |
| 2.2* | Share Exchange Agreement dated November 20, 2008 |
| 3.1^ | Certificate of Incorporation of Red Oak Concepts, Inc., a Delaware corporation. |
| 3.2^ | By-laws of Red Oak Concepts, Inc., a Delaware corporation. |
| 3.3# | Articles of Incorporation of Red Oak Concepts, Inc., a Nevada corporation. |
| 3.4# | By-laws of Red Oak Concepts, Inc., a Nevada corporation. |
| 3.5* | Certificate of Amendment to Articles of Incorporation of Red Oak Concepts, Inc. |
| 4.1# | Specimen common stock certificate of Vinyl Products, Inc. |
| 4.2* | Form of Option Agreement issued by The Vinyl Fence Company, Inc., the obligations of which were assumed by the registrant pursuant to the Share Exchange Agreement. |
| 4.3* | Registration Rights Agreement dated November 20, 2008 among the registrant and the recipients of the common stock received pursuant to the Share Exchange Agreement filed as Exhibit 2.1 hereto, the holders of the registrant's common stock immediately prior to the closing of the Share Exchange Agreement, the holders of certain options assumed by the registrant under the Share Exchange Agreement and the purchasers of shares of common stock in the registrant's private placement completed on November 24, 2008. |
| 4.4* | Lock Up/Leak Out Agreement dated November 20, 2008 between the registrant and each of Susan D. Zachmann, Katherine Daniels and Barbara Deadwiley. |
| 4.5* | Form of Lock Up/Leak Out dated November 20, 2008 between the registrant and each of Haber LLC, Themis LLC and Tailor Made Financial LLC. |
| 4.6* | Form of Subscription Agreement between the Registrant and the purchasers in the private offering of securities completed on November 24, 2008. |
| 4.7* | Registration Rights Agreement dated November 24, 2008 among the registrant and the purchasers of shares of common stock in the registrant's private placement completed on November 24, 2008. |
| 10.1# | Form of demand promissory note dated June 17, 2007 executed by Red Oak Concepts, Inc. in favor each of Susan Zachmann and Katherine Daniels each in the principal amount of $14,950. |
| 10.2* | Lease agreement between AGA Partners and The Vinyl Fence Company, Inc., a California corporation dated January 31, 2005. |
| 10.3* | Fabricator Agreement dated November 11, 2003 between U.S. Polymers, Inc., and The Vinyl Fence Company, Inc. as amended and extended on August 29, 2008. |
| 10.4† | Professional Employer Agreement dated June 23, 2005 between Better Business Systems, Inc. (now Avitus Group) and The Vinyl Fence Company, Inc. |
| 10.5◊ | Lease Renewal dated February 10, 2009 between AGA Partners and The Vinyl Fence Company, Inc. |
| 14.1* | Code of Business and Ethical Conduct |
| 31.1+ | 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 Annual Report on Form 10-K/A for the year ended December 31, 2009. |
| 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 Annual Report on Form 10-K/A for the year ended December 31, 2009. |
| 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. |
| # | Incorporated by reference to the registrant's filing on Form 10-SB as filed with the Securities and Exchange Commission on August 15, 2007. |
| ^ | Incorporated by reference to the registrant's filing on Amendment No. 1 to Form 10-SB as filed with the Securities and Exchange Commission on September 4, 2007. |
| * | Incorporated by reference to the registrant's Current Report on Form 8K as filed with the Securities and Exchange Commission on November 26, 2008. |
| † | Incorporated by reference to the registrant's registration statement on Form S-1 as filed with the Securities and Exchange Commission on March 27, 2009. |
| ◊ | Incorporated by reference to the registrant's Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 31, 2009. |
| + | Filed herewith. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on January 8, 2010.
| VINYL PRODUCTS, INC. | ||
| By: | /s/ Gordon Knott | |
| Gordon Knott | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on January 8, 2010.
| Signature | Title |
/s/ Gordon Knott Gordon Knott | President, Principal Executive Officer and Director |
/s/ Douglas E. Wells Douglas E. Wells | Chief Financial Officer and Principal Financial Officer |
/s/ Garabed Khatchoyan Garabed Khatchoyan | Secretary and Director |