UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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| [X] |
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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For the quarterly period ended August 31, 2015 |
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| [ ] |
Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934 |
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For the transition period from __________ to__________ |
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Commission File Number: 333-171423 |
Berkshire Homes, Inc.
(Exact name of registrant as specified in its
charter)
| |
|
| Nevada |
68-0680858 |
| (State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
| |
|
2375 East Camelback Road, Suite 600
Phoenix, AZ 85016 |
| (Address of principal executive offices) |
| |
| (602) 387-5393 |
| (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.
[ ] Yes [X] 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.
| [ ] Large accelerated filer |
[ ] Accelerated filer |
| [ ] Non-accelerated filer |
[X] 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 [X] No
State the number of shares outstanding of each
of the issuer’s classes of common stock, as of the latest practicable date: 1,572,002 as of October 20, 2015
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Our consolidated financial statements included
in this Form 10-Q are as follows:
These consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions
to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating
results for the interim period ended August 31, 2015 are not necessarily indicative of the results that can be expected for the
full year.
BERKSHIRE HOMES, INC.
CONSOLIDATED BALANCE SHEETS (unaudited)
AS OF
|
August 31, 2015 |
|
November 30, 2014 |
| ASSETS |
|
|
|
|
|
|
|
| Properties |
|
$ |
|
|
|
$ |
|
| Properties under development |
|
3,233,999 |
|
|
|
4,963,545 |
|
| Properties held for sale |
|
2,409,708 |
|
|
|
932,171 |
|
| Properties, net |
|
5,643,707 |
|
|
|
5, 895,716 |
|
| Cash and equivalents |
$ |
477,776 |
|
|
$ |
353,685 |
|
| Prepaid expenses |
|
25,206 |
|
|
|
5,000 |
|
| Assets related to discontinued operations, net of accumulated depreciation of $ 59,907 (2014-$24,923) |
|
2,776,361 |
|
|
|
2,634,247 |
|
| Vehicle, net of accumulated depreciation of $ nil (2014-$ 1,229) |
|
- |
|
|
|
28,271 |
|
| Advances due from Praetorian Property, Inc. |
|
3,877 |
|
|
|
- |
|
| Deferred financing costs |
|
38,977 |
|
|
|
5,322 |
|
| Total Assets |
$ |
8,965,904 |
|
|
$ |
8,922,241 |
|
| LIABILITIES AND STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
| Accounts payable and accrued liabilities |
$ |
6,903 |
|
|
$ |
26,529 |
|
| Accrued interest |
|
722,556 |
|
|
|
373,544 |
|
| Accounts payable to related parties |
|
482,243 |
|
|
|
494,020 |
|
| Advances due to Praetorian Property, Inc. |
|
- |
|
|
|
149,472 |
|
| Loan payable |
|
212,110 |
|
|
|
- |
|
| Promissory notes |
|
9,150,000 |
|
|
|
9,150,000 |
|
| Total liabilities |
|
10,573,812 |
|
|
|
10,193,565 |
|
| Stockholders’ Deficit |
|
|
|
|
|
|
|
| Preferred stock, $0.0001 par value, 20,000,000 shares authorized; 2,000,000 and nil shares issued and outstanding |
|
200 |
|
|
|
200 |
|
| Common Stock, $0.0001 par value, 500,000,000 shares authorized, 1,572,002 and 1,572,002 shares issued and outstanding |
|
157 |
|
|
|
157 |
|
| Additional paid-in capital |
|
168,243 |
|
|
|
168,243 |
|
| Preferred share subscription receivable |
|
(20,000 |
) |
|
|
(20,000) |
|
| Accumulated Deficit |
|
(1,756,508 |
) |
|
|
(1,419,924 |
) |
| Total Stockholders’ Deficit |
|
(1,607,908 |
) |
|
|
(1,271,324 |
) |
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT |
$ |
8,965,904 |
|
|
$ |
8,922,241 |
|
See accompanying notes to the unaudited consolidated
financial statements.
BERKSHIRE HOMES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
FOR THE THREE MONTHS AND NINE MONTHS ENDED
AUGUST 31, 2015 AND 2014
|
Three months ended
August 31, 2015 |
|
Three months ended
August 31, 2014 |
|
Nine months ended
August 31, 2015 |
|
Nine months ended
August 31, 2014 |
| REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Property sales |
$ |
230,002 |
|
|
$ |
3,411,705 |
|
|
$ |
1,655,418 |
|
|
$ |
4,621,705 |
|
| COST OF SALES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Property costs |
|
180,978 |
|
|
|
2,997,901 |
|
|
|
1,492,474 |
|
|
|
4,106,511 |
|
| GROSS PROFIT |
|
49,024 |
|
|
|
413,804 |
|
|
|
162.944 |
|
|
|
515,194 |
|
| EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Depreciation |
|
- |
|
|
|
- |
|
|
|
4,917 |
|
|
|
- |
|
| Consulting fees |
|
- |
|
|
|
- |
|
|
|
5,000 |
|
|
|
12,000 |
|
| Insurance |
|
3,221 |
|
|
|
832 |
|
|
|
10,693 |
|
|
|
6,897 |
|
| General and administrative |
|
8,843 |
|
|
|
22,988 |
|
|
|
31,956 |
|
|
|
49,319 |
|
| Professional fees |
|
11,539 |
|
|
|
731 |
|
|
|
60,368 |
|
|
|
45,696 |
|
| Management fees and expenses |
|
26,692 |
|
|
|
31,624 |
|
|
|
100,534 |
|
|
|
85,995 |
|
| TOTAL EXPENSES |
|
50,295 |
|
|
|
56,175 |
|
|
|
213,468 |
|
|
|
199,907 |
|
| INCOME (LOSS) FROM OPERATIONS |
|
(1,271) |
|
|
|
357,629 |
|
|
|
(50,524 |
) |
|
|
315,287 |
|
| OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gain on sale of vehicle |
|
3,346 |
|
|
|
- |
|
|
|
3,346 |
|
|
|
- |
|
| Interest expense |
|
(126,086 |
) |
|
|
(102,595 |
) |
|
|
(359,122 |
) |
|
|
(198,416 |
) |
|
TOTAL OTHER INCOME (EXPENSE) |
|
(122,740 |
) |
|
|
(102,595 |
) |
|
|
(355,776 |
) |
|
|
(198,416 |
) |
| INCOME (LOSS) FROM CONTINUING OPERATIONS |
|
(124,011 |
) |
|
|
255,034 |
|
|
|
(406,300 |
) |
|
|
116,871 |
|
| INCOME (LOSS) FROM DISCONTINUED OPERATIONS |
|
(15,880) |
|
|
|
|
|
|
|
69,716 |
|
|
|
|
|
| NET INCOME (LOSS) |
$ |
(139,891 |
) |
|
$ |
255,034 |
|
|
$ |
(336,584 |
) |
|
$ |
116,871 |
|
| NET INCOME (LOSS) PER SHARE: BASIC AND DILUTED CONTINUING OPERATIONS |
$ |
(0.08 |
) |
|
$ |
0.16 |
|
|
$ |
(0.26 |
) |
|
$ |
0.07 |
|
| NET INCOME PER SHARE: BASIC AND DILUTED DISCONTINUED OPERATIONS |
$ |
(0.01 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.00 |
) |
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC AND DILUTED |
|
1,572,002 |
|
|
|
1,572,002 |
|
|
|
1,572,002 |
|
|
|
1,700,889 |
|
See accompanying notes to the unaudited consolidated
financial statements.
BERKSHIRE HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
FOR THE NINE MONTHS ENDED
|
August 31, 2015 |
|
August 31, 2014 |
| CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
| Net income (loss) for the period |
$ |
(336,584 |
) |
|
$ |
116,871 |
|
| Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
| Gain on sale of vehicle |
|
(3,346) |
|
|
|
- |
|
| Depreciation |
|
39,901 |
|
|
|
— |
|
| Amortization of deferred financing costs |
|
8,595 |
|
|
|
7,369 |
|
| Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
| Prepaid expenses |
|
(20,206) |
|
|
|
— |
|
| Inventory of properties under development |
|
252,009 |
|
|
|
(6,689,398 |
) |
| Accounts payable |
|
(19,626 |
) |
|
|
(11,655 |
) |
| Accounts payable related party |
|
(11,777 |
) |
|
|
— |
|
| Accrued interest |
|
349,012 |
|
|
|
198,416 |
|
| Net Cash Provided/(Used) by Operating Activities |
|
257,978 |
|
|
|
(6,378,397 |
) |
| CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
| Proceeds on sale of vehicle |
|
26,700 |
|
|
|
|
|
| Rental properties, rehabilitation expense |
|
(177,098 |
) |
|
|
— |
|
| Net Cash Used by Investing Activities |
|
(150,398) |
|
|
|
— |
|
| CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
| Proceeds from loan payable |
|
169,860 |
|
|
|
|
|
| Issuance of promissory notes |
|
— |
|
|
|
6,500,000 |
|
| Repayment of advances from Praetorian Property, Inc. |
|
(153,349 |
) |
|
|
117,951 |
|
| Net Cash Provided by Financing Activities |
|
16,511 |
|
|
|
6,617,951 |
|
| Net Change in Cash |
|
124,091 |
|
|
|
239,554 |
|
| Cash and Cash equivalents, beginning of period |
|
353,685 |
|
|
|
146,048 |
|
| Cash and Cash equivalents, end of period |
$ |
477,776 |
|
|
$ |
385,602 |
|
| SUPPLEMENTAL CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
| Interest paid |
$ |
— |
|
|
$ |
— |
|
| Income taxes paid |
$ |
— |
|
|
$ |
— |
|
| NON CASH TRANSACTIONS |
|
|
|
|
|
|
|
| Preferred stock subscription |
$ |
— |
|
|
$ |
20,000 |
|
| Cancellation of common stock |
$ |
— |
|
|
$ |
5,800 |
|
See accompanying notes to the unaudited consolidated
financial statements.
BERKSHIRE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
AUGUST 31, 2015 AND 2014
NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
Berkshire Homes, Inc. (the “Company”)
was incorporated in Nevada on June 2, 2010.
The Company operated an agricultural consulting
business until November 16, 2012 when upon change of management the Company changed its business focus to acquisition, rehabilitation
and sale or lease of distressed residential real estate in the United States.
NOTE 2- SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited interim financial
statements of Berkshires Homes, Inc. (the “Company”) have been prepared in accordance with accounting principles generally
accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction
with the Company’s audited 2014 annual financial statements and notes thereto filed on Form 10-K with the SEC. In the opinion
of management, all adjustments, consisting of normal reoccurring adjustments, necessary for a fair presentation of financial position
and the results of operations for the interim periods present have been reflected herein. The results of operation for interim
periods are not necessarily indicative of the results to be expected for the full year.
NOTE 3 - RELATED PARTY TRANSACTIONS
During the three months ended August 31, 2015
and 2014, the Company incurred management fees and expenses of $26,692 and $31,624 to its officers, respectively. During the nine
months ended August 31, 2015 and 2014, the Company incurred management fees and expenses of $100,534 and $85,995 to its officers,
respectively.
As of August 31, 2015 and December
31, 2014, the Company had a payable of $482,243 owed to Bay Capital A.G., who became a related party during 2013 by
obtaining majority ownership. As of August 31, 2015 and December 31, 2014, there were $0 and $11,0777 owed to the Chief
Executive Officer of the Company, respectively.
During 2013, Praetorian Property, Inc., an
entity with common ownership and management, advanced an aggregate of $50,496 to us which was outstanding as of November 30, 2013.
In addition, in 2014, Cannabis advanced an additional $99,093 to us, $117 of which was written off as of the year ended November
30, 2014. During the period ended August 31, 2015, the Company repaid $ 153,349 of the advances. As at August 31, 2015, the total
advances to Cannabis was $3,877.
The amounts due to these related parties are
due on demand, non-interest bearing and unsecured.
NOTE 4 - PROMISSORY NOTES
On June 13, 2013,
the Company borrowed $2,150,000 at an interest rate of 5% per annum. The promissory note is unsecured and is due on June 13, 2015.
In connection with the note, the Company paid a fee of $19,650 to a third party which was recorded as deferred financing costs
and is being amortized to interest expense over the life of the loan using the effective interest rate method. During the period
ended August 31, 2015, amortization expense of $5,322 was recognized and no unamortized financing costs as of August 31, 2015.
The note has matured. While the note has matured, the note has not been declared in default. Accordingly,
the Company will continue accruing interest at 5% per annum and not the default interest rate of 12% per annum.
On June 27, 2013, the Company borrowed $500,000
at an interest rate of 5% per annum. The promissory note is unsecured and is due on June 27, 2015. The note has matured. While
the note has matured, the note has not been declared in default. Accordingly, the Company will continue accruing interest at 5%
per annum and not the default interest rate of 12% per annum
On April 21, 2014, the Company borrowed $4,500,000
at an interest rate of 5% per annum. The promissory note is unsecured and is due on April 21, 2016.
On June 23, 2014, the Company borrowed $2,000,000
at an interest rate of 5% per annum. The promissory note is unsecured and is due on June 23, 2016.
NOTE 5 – LOAN PAYABLE
On July 6, 2015, the Company entered
into a term note agreement in the total amount of $1,500,000. The loan payable is repayable in monthly interest payments
of interest only, calculated at the greater of 8.25% or 475 basis points above the Wall Street Journal’s Prime
Lending Rate. Balance of principal and any unpaid interest is due July 1, 2017. The Company received an initial advance of
$212,110. Financing fees of $42,520 have been deferred on the balance sheet and are being amortized over a 24 month period.
The loan is secured by the Company’s Tallahassee property. The
proceeds of the loan is only for the payment of costs directly associated with the construction of the improvements and shall
not divert such funds for any other purpose.
NOTE 6 - COMMON STOCK
On February 12, 2014, the Company authorized a class of Series
A preferred stock consisting of 5,000,000 shares with a par value of $ 0.0001 per share. On February 12, 2014, the Company agreed
to issue 2,000,000 such shares for cash of $20,000. As of August 31, 2015, the Company had not received the proceeds of the share
subscription and the proceeds have been recorded as share subscriptions receivable.
NOTE 7 – ACQUISITION
On June 27, 2014, the Company acquired a 100%
ownership interest in a property located in Tallahassee, Florida at an auction for a purchase price of $2,500,000 and rehabilitation
expenses of $159,170 for a total of $2,659,170. During the period ended August 31, 2015, the Company incurred rehabilitation expenses
of $16,411 related to the property and during this period inventory of properties under development increased by $225,557. The
property consisted of 56 residential units consisting of one and two bedrooms. There were preexisting leases. However, due
to the short-term nature of the leases, no value was assigned to them. The property was purchased for the purpose of resale after
renovations. Offers for the purchase of the property have been received. On February 2, 2015, a written offer for $3,500,000 has
been executed.
The following table summarizes the preliminary
estimated fair values of the assets and liabilities acquired as part of the Tallahasee purchase:
| Land |
$ |
556,000 |
|
| Buildings, net and Improvements |
|
2,078,247 |
|
| Estimated fair value of assets and liabilities acquired |
$ |
2,634,247 |
|
The rental income and expenses from the discontinued operations
for the three and nine months ended August 31, 2015 is as follows:
|
|
3 months |
|
|
|
9 months |
|
| Rental Income |
$ |
11,399 |
|
|
|
60,637 |
|
| Purchase deposit forfeited |
|
— |
|
|
|
75,000 |
|
| Rental Expense |
|
(15,618 |
) |
|
|
(30,938 |
) |
| Depreciation Expense |
|
(11,661 |
) |
|
|
(34,983 |
) |
| Total rental income and expense |
|
(15,880) |
|
|
|
69,716 |
|
The property has been classified as held for sale. As a result the
assets and rental income have been presented as discontinued operations in the financial statements.
NOTE 8 – SUBSEQUENT EVENTS
The Company has come to an agreement to convert $20,000 in accounts
payable as payment for the subscription receivable for the 2,000,000 shares of Series A Preferred Stock.
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 are focused on the
acquisition, rehabilitation and sale of distressed residential properties in the United States. We will, however, consider the
acquisition of commercial and multi-family properties as well. 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 primarily residential homes in target markets that we believe exhibit favorable demographics and long-term
economic trends, attractive acquisition prices and appreciation potential, as well as rental yields with commercial and multi-family
properties. We intend to implement a buy and renovate strategy to increase value, livability, and attractiveness, and then sell
the properties or we may keep them for value as rental properties.
In furthering our business plan, we have been
actively searching for capital to purchase distressed properties and build our inventory. We have sold an aggregate of $9,150,000
of our 5% unsecured promissory notes (the “5% Notes”) for gross proceeds to us of $9,150,000. 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.
On July 6, 2015, we entered into a term note
agreement in the total amount of $1,500,000. The loan payable is repayable in monthly interest payments of interest only, calculated
at the greater of 8.25% or 475 basis points above the Wall Street Journal’s Prime Lending Rate. Balance of principal and
any unpaid interest is due July 1, 2017. We received an initial advance of $212,110. Financing fees of $42,520 have been deferred
on the balance sheet and are being amortized over a 24 month period. The loan is secured by our property located in Tallahassee
Florida.
With the money
we have raised through debt financing to date we have acquired 23 properties for a purchase price of $11,855,762.02. Of these 23
properties we have sold 14 for $7,019,800.00 prior to closing costs. Also, 1 property is under contract for sale, 2 are listed
for sale, and 6 are under rehab. The properties include single and multi-family residences in 6 States. We plan to recycle all
the capital from these properties and purchase more similar type assets to rehabilitate and sell. Additionally, we plan to expand
our portfolio and have been looking at other major urban markets to enter into. Our short and long-term goals are to seek out opportunistic
real estate investments that meet our underwriting criteria including twenty percent annualized returns. There is no assurance,
however, that we will find the assets that fit our parameters or that we will raise the needed capital to implement our business
plan.
We will continue our efforts to secure additional
financing, which is necessary to implement our business strategy of acquiring a substantial portfolio investment properties. We
plan to continue our efforts to secure financing.
Results of Operations for the three months
ended August 31, 2015 and 2014
Revenues
We generated sales of
$230,002 for the three months ended August 31, 2015, as compared with sales of $3,411,705 for the same period ended August 31,
2014. Our cost of sales totaled $180,978 for the three months ended August 31, 2015, as compared with cost of sales of $2,997,901
for the same period ended August 31, 2014. Our costs of sales includes: purchase price, rental expenses, rehabilitation, escrow,
closing costs, and commissions. We only had one sale during the three months ended August 31, 2015. We expect to have more sales
in the upcoming quarter. We achieved a gross profit of $49,024 for the three months ended August 31, 2015, as compared with a gross
profit of $413,804 for the same period ended August 31, 2015.
We generated sales of $1,655,418 for the nine
months ended August 31, 2015, as compared with sales of $4,621,705 for the same period ended August 31, 2014. Our cost of sales
totaled $1,492,474 for the nine months ended August 31, 2015, as compared with sales of $4,106,511 for the same period ended August
31, 2014. Our costs of sales includes: purchase price, rental expenses, rehabilitation, escrow, closing costs, and commissions.
We achieved a gross profit of $162,944 for the nine months ended August 31, 2015, which represented a 10% margin, as compared with
a gross profit of $515,194, which also represented an 11% margin.
Discontinued Operations
We purchased a property for $2,500,000 (and
rehabilitation expenses of $159,170) that is now related to discontinued operations and held for sale. Our loss and income from
these discontinued operations totaled $15,880 and $69,716 for the three and months ended August 31, 2015, respectively.
Operating Expenses
Operating expenses decreased
by $5,880 to $50,295 for the three months ended August 31, 2015 from $56,175 for the same period ended August 31, 2014. Our operating
expenses for the three months ended August 31, 2015 mainly consisted of management fees and expenses of $26,692, professional fees
of $11,539, general and administrative expenses of $8,843, and insurance expenses of $3,221. In comparison, our operating expenses
for the three months ended August 31, 2014 consisted of management fees and expenses of $31,624, general and administrative expenses
of $22,988, professional fees of $731 and insurance expenses of $832.
Operating expenses increased
by $13,561 to $213,468 for the nine months ended August 31, 2015 from $199,907 for the same period ended August 31, 2014. Our operating
expenses for the nine months ended August 31, 2015 mainly consisted of management fees and expenses of $100,534, professional fees
of $60,368, general and administrative expenses of $31,956, insurance expenses of $10,693, consulting fees of $5,000 and depreciation
of $4,917. In comparison, our operating expenses for the nine months ended August 31, 2014 consisted of management fees and expenses
of $85,995, professional fees of $45,696, general and administrative expenses of $49,319, consulting fees of $12,000 and insurance
expenses of $6,897.
We anticipate our operating expenses will increase
as we continue to expand our operations. The increase will be attributable to administrative and operating costs associated with
the management associated with the increase in the acquisition, renovation and sale of residential properties and our continued
reporting obligations with the Securities and Exchange Commission.
Interest Expenses
We incurred
interest expenses of $126,086 for the three months ended August 31, 2015, as compared with $102,595 for the same period ended
August 31, 2014. We incurred interest expenses of $359,122 for the nine months ended August 31, 2015, as compared with $198,416
for the same period ended August 31, 2014.
During the reporting
period, we entered into a term note agreement in the total amount of $1,500,000. The loan payable is repayable in monthly interest
payments of interest only, calculated at the greater of 8.25% or 475 basis points above the Wall Street Journal’s Prime Lending
Rate. Balance of principal and any unpaid interest is due July 1, 2017. We received an initial advance of $212,110. Financing fees
of $42,520 have been deferred on the balance sheet and are being amortized over a 24 month period.
Prior to the reporting
period, we have sold an aggregate of $9,150,000 of our 5% unsecured promissory notes (the “5% Notes”) for gross proceeds
to us of $9,150,000. 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.
We expect that interest expenses will increase
as we plan to take on more debt to finance our property acquisitions resulting in higher interest expenses.
Net Loss
We incurred a net loss of $139,891 for the
three months ended August 31, 2015, compared to net income of $255,034 for the same period ended August 31, 2014. We incurred a
net loss of $336,584 for the nine months ended August 31, 2015, compared to net income of $116,871 for the same period ended August
31, 2014.
For the three months ended August 31, 2015,
we incurred a loss of $124,011 from continuing operations and a net loss of $15,880 from discontinued operations. For the nine
months ended August 31, 2015, we incurred a loss of $406,300 from continuing operations and net income of $69,716 from discontinued
operations.
Liquidity and Capital
Resources
As of August 31, 2015,
we had total assets of $8,965,904. We had total liabilities of $10,573,812 as of August 31, 2015.
Operating activities
provided $257,978 in cash for the nine months ended August 31, 2015, as compared with $6,378,397 used for the same period ended
August 31, 2014. Our positive operating cash flow for August 31, 2015 was mainly a result of a decrease in our real property inventory
and a decrease in accrued interest.
Investing activities
used $150,398 in cash for nine months ended August 31, 2015, as compared with $0 used for same period ended August 31, 2014. Our
negative investing cash flow for August 31, 2015 was mainly a result of a property related to discontinued operations now held
for sale.
Financing activities
for the nine months ended August 31, 2015 provided $16,511 in cash, as compared with cash flows provided by financing activities
of $6,617,951 for same period ended August 31, 2014. Our positive cash flow from financing activities for the nine months ended
August 31, 2015 was the result of proceeds from our term note agreement, as described above, offset by repayments made to Praetarion
Property, Inc.
As of August 31, 2015,
we had $477,776 in cash. With the cash on hand, we have sufficient cash to operate our business at the current level for the next
twelve months. Our plan, however, is to acquire more properties, and to do this, we intend to fund our expansion through debt and/or
equity financing arrangements. 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.
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.
Our critical accounting
policies are set forth in Note 2 to the financial statements.
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, 2015, there were no off balance
sheet arrangements.
Item 3. Quantitative and Qualitative
Disclosures About Market Risk
A smaller reporting company is not required
to provide the information required by this Item.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We conducted an evaluation, with the participation
of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or
the Exchange Act, as of August 31, 2015, to ensure that information required to be disclosed by us in the reports filed or submitted
by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities
Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports
filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive
and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required
disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of August
31, 2015, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses
identified and described below.
Our principal executive officers do not expect
that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures
were designed to provide reasonable assurance of achieving their objectives and our principal executive officers have determined
that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated,
can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally,
controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions.
Remediation Plan to Address the Material
Weaknesses in Internal Control over Financial Reporting
A material weakness is a deficiency, or a combination
of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement
of our annual or interim financial statements will not be prevented or detected on a timely basis. Management identified the following
three material weaknesses that have caused management to conclude that, as of August 31, 2015, our disclosure controls and procedures,
and our internal control over financial reporting, were not effective at the reasonable assurance level:
• We
do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls
over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act as of the period ending August 31, 2015. Management
evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of
our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
• We
do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and
nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the
extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by
separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure
controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
•
Effective controls over the control environment were not maintained. Specifically, a formally adopted written code of business
conduct and ethics that governs our employees, officers, and directors was not in place. There is a material weakness in our management
not having GAAP and SEC reporting expertise. Additionally, management has not developed and effectively communicated to employees
its accounting policies and procedures. This has resulted in inconsistent practices. Further, our Board of Directors does not currently
have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii)
of Regulation S-K. Since these entity level programs have a pervasive effect across the organization, management has determined
that these circumstances constitute a material weakness.
To address these material weaknesses, management
performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all
material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe
that the financial statements included in this report fairly present, in all material respects, our financial condition, results
of operations and cash flows for the periods presented.
To remediate the material weakness in our documentation,
evaluation and testing of internal controls we plan to engage a third-party firm to assist us in remedying this material weakness
once resources become available.
We intend to remedy our material weakness with
regard to insufficient segregation of duties by hiring additional employees in order to segregate duties in a manner that establishes
effective internal controls once resources become available.
Changes in Internal Control over Financial
Reporting
No change in our system of internal control
over financial reporting occurred during the period covered by this report, the period ended August 31, 2015, that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to any pending legal proceeding.
We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more
of our voting securities are adverse to us or have a material interest adverse to us.
Item 1A. Risk Factors
A smaller reporting company is not required
to provide the information required by this Item.
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Mine Safety Disclosures
N/A
Item 5. Other Information
None
Item 6. Exhibits
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| |
|
| |
Berkshire Homes, Inc.
|
| Date: |
November 2, 2015
|
| By: |
/s/ Llorn Kylo |
| |
Llorn Kylo |
| Title: |
President, Chief Executive Officer and Director |
CERTIFICATIONS
I, Llorn Kylo, certify that;
| 1. |
|
I have reviewed this quarterly report on Form 10-Q for the quarter ended August 31, 2015 of Berkshire Homes, Inc. (the “registrant”); |
| 2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. |
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. |
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. |
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. |
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. |
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. |
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. |
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. |
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 2, 2015
/s/ Llorn Kylo
By: Llorn Kylo
Title: Chief Executive Officer
CERTIFICATIONS
I, Munjit Johal, certify that;
| 1. |
|
I have reviewed this quarterly report on Form 10-Q for the quarter ended August 31, 2015 of Berkshire Homes, Inc. (the “registrant”); |
| 2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. |
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. |
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. |
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. |
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. |
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. |
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. |
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. |
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 2, 2015
/s/ Munjit Johal
By: Munjit Johal
Title: Chief Financial Officer
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AND
CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002
In connection with the quarterly Report
of Berkshire Homes, Inc. (the “Company”) on Form 10-Q for the quarter ended August 31, 2015 filed with the
Securities and Exchange Commission (the “Report”), I, Llorn Kylo, Chief Executive Officer of the Company, and I,
Munjit Johal, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Report fully complies with the requirements of Section 13(a)
of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material
respects, the consolidated financial condition of the Company as of the dates presented and the consolidated result of operations
of the Company for the periods presented. |
| By: |
/s/ Llorn Kylo |
| Name: |
Llorn Kylo |
| Title: |
Principal Executive Officer and Director |
| Date: |
November 2, 2015 |
| By: |
/s/ Munjit Johal |
| Name: |
Munjit Johal |
| Title: |
Principal Financial Officer, Principal Accounting Officer and Chief Financial Officer |
| Date: |
November 2, 2015 |
This certification has been furnished solely pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
Berkshire Homes (CE) (USOTC:BKSH)
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