Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking
Statements
Certain
statements, other than purely historical information, including estimates, projections, statements relating to our business plans,
objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking
statements.” These forward-looking statements generally are identified by the words “believes,” “project,”
“expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,”
“may,” “will,” “would,” “will be,” “will continue,” “will likely
result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are
subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our
ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have
a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes
in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted
accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue
reliance should not be placed on such statements.
Company
Overview
We
were incorporated as Indigo International Corp. on June 2, 2010 in the State of Nevada originally to operate a consulting business
in commercial cultivation of white mushrooms (agaricus bisporus).
On
December 4, 2012, we changed our name to Berkshire Homes, Inc. in connection with the pursuit of a new business plan. We are now
focused on the acquisition and rehabilitation of distressed residential properties in the United States. Our corporate offices
are located at 2375 East Camelback Road, Suite 600, Phoenix, AZ 85016 and our phone number is (602) 387-5393.
We
believe that the current housing market environment presents an unprecedented opportunity for those who have the expertise, operating
platform, technology systems and capital in place to execute an acquisition and operating strategy in a cost-effective manner.
We intend to build a geographically diversified portfolio of residential homes in target markets that we believe exhibit favorable
demographics and long-term economic trends, attractive acquisition prices, rental yields and appreciation potential. We intend
to implement a buy and renovate strategy to increase value, livability, and attractiveness, and then sell the properties or keep
them for value as rental properties.
In
furthering our business plan, we have been active searching for capital to purchase distressed properties and build our inventory.
During the reporting period, we sold an aggregate of $2,650,000 of our 5% unsecured promissory notes (the “5% Notes”)
for gross proceeds to us of $2,650,000. The 5% Notes accrued interest at the rate of 5% per annum are due and payable twenty four
months from their respective dates of issuance, subject to acceleration in the event of default and the 5% Notes may be prepaid,
in whole or in part, without penalty or premium.
While
we were able to raise some financing, we will need substantial financing to implement our business strategy to acquire a portfolio
of investment properties. We plan to continue our efforts to secure financing.
With
the money we were able to raise, we purchased three residential homes in the greater Seattle area. We plan to expand our portfolio
of homes and have been looking at other major urban markets to buy, renovate and sell homes. Our goal is to seek out opportunistic
investments of buying and selling homes to achieve a twenty percent return on our investments. There is no assurance, however,
that we will find the residential homes that fit our parameters or that we will raise the needed capital to implement our business
plan.
Results
of Operations for the three and nine months ended August 31, 2013 and 2012
Revenues
We
have generated limited revenue since our inception. We are a development stage company and there is no guarantee that we will be able
to execute on our business. We have incurred losses since our inception.
Operating
Expenses
Operating
expenses increased to $74,239 for the three months ended August 31, 2013 from $66,969 for the three months ended August 31, 2012.
Our operating expenses for the three months ended August 31, 2013 consisted of professional fees in the amount of $ 3,700, management
fees and expenses of $37,500, and general and administrative expenses of $33,039. In comparison, our operating expenses for the
three months ended August 31, 2012 consisted of professional fees in the amount of $9,600, management fees and expenses of $34,960
and general and administrative expenses of $22,409.
Operating
expenses decreased to $190,911 for the nine months ended August 31, 2013 from $351,191 for the nine months ended August 31, 2012.
Our operating expenses for the nine months ended August 31, 2013 consisted of professional fees in the amount of $47,076, management
fees and expenses of $ 87,500, consulting fees of $1,000 and general and administrative expenses of $55,335. In comparison, our
operating expenses for the nine months ended August 31, 2012 consisted of professional fees in the amount of $45,213 , management
fees and expenses of $144,382, consulting fees of $84,419 and general and administrative expenses of $77,177.
We
anticipate our operating expenses will increase as we undertake our plan of operations. The increase will be attributable to administrative
and operating costs associated with the acquisition, renovation and sale of residential properties and the professional fees associated
with our becoming a reporting company under the Securities Exchange Act of 1934.
Other
Expenses
We
incurred other expenses of $73,237 and $109,637 for the three and nine months ended August 31, 2013, respectively, as compared
with $0 for other expenses for the three and nine months ended August 31, 2012. Our other expenses for the three and nine months
ended August 31, 2013 consisted of interest expenses and the loss on extinguishment of liabilities.
Net
Loss
We
incurred a net loss of $147,476 for the three months ended August 31, 2013, compared to a net loss of $82,969 for the three months
ended August 31, 2012.
We
incurred a net loss of $300,548 for the nine months ended August 31, 2013 compared to a net loss of $378,346 for the nine months
ended August 31, 2012.
We
incurred a cumulative net loss of $1,279,892 for the period from June 2, 2010 (Inception) to August 31, 2013.
Liquidity
and Capital Resources
As
of August 31, 2013, we had total current assets of $2,064,589, consisting of cash and inventories. We had current liabilities
of $545,881 as of August 31, 2013. Accordingly, we had working capital of $1,518,708 as of August 31, 2013.
Operating
activities used $1,245,106 in cash for the nine months ended August 31, 2013, as compared with $374,679 provided for the nine
months ended August 31, 2012. Our negative operating cash flow for August 31, 2013 was mainly a result of our increase in inventories
and our net loss for the period.
Financing
activities for the nine months ended August 31, 2013 generated $2,230,350 in cash, as compared with cash flows provided by financing
activities of $400,000 for the nine months ended August 31, 2012. Our positive cash flow for the nine months ended August 31,
2013 was the result of proceeds from the issuance of a promissory note, offset mainly by $500,000 in payments on long term debt.
As
of August 31, 2013, we had $1,020,959 in cash. Until we are able to sustain our ongoing operations through revenue, we intend
to fund operations through debt and/or equity financing arrangements, which may be insufficient to fund our capital expenditures,
working capital, or other cash requirements. We do not have any formal commitments or arrangements for the sales of stock or the
advancement or loan of funds at this time. There can be no assurance that such additional financing will be available to us on
acceptable terms, or at all.
Going
Concern
The
accompanying financial statements have been prepared on a going concern basis which assumes we will be able to realize our assets
and discharge our liabilities in the normal course of business for the foreseeable future. We have incurred losses since inception
resulting in an accumulated deficit of $1,279,981 as of August 31, 2013 and further losses are anticipated in the development
of our business raising substantial doubt about our ability to continue as a going concern. The ability to continue as a going
concern is dependent upon generating profitable operations in the future and/or to obtain the necessary financing to meet our
obligations and repay our liabilities arising from normal business operations when they come due. Management anticipates financing
operating costs over the next twelve months with loans and/or private placement of common stock. These financial statements do
not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification
of liabilities that might result from this uncertainty.
Critical
Accounting Policies
In
December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management
Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the
portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or
complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
We do not believe that any accounting policies currently fit this definition.
Recently
Issued Accounting Pronouncements
We
do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations,
financial position or cash flow.
Off
Balance Sheet Arrangements
As
of August 31, 2013, there were no off balance sheet arrangements.