Item 1. Financial Statements
Our financial statements included in
this Form 10-Q are as follows:
|
F-1
|
Balance Sheets as of February 28, 2014 and February 28, 2013 (unaudited);
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F-2
|
Statements of Operations for the three months ended February 28, 2014 and 2013, and period from June 2, 2010 (Inception) to February 28, 2014 (unaudited);
|
|
F-3
|
Statements of Cash Flows for the three months ended February 28, 2014 and 2013, and period from June 2, 2010 (Inception) to February 28, 2014 (unaudited); and
|
|
F-4
|
Notes to Financial Statements.
|
These 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 February 28, 2014 are not necessarily indicative of the results
that can be expected for the full year.
BERKSHIRE HOMES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS (unaudited)
|
|
February 28, 2014
|
|
November 30, 2013
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
$
|
3,683
|
|
|
$
|
146,048
|
|
|
Inventory of property under development
|
|
2,041,086
|
|
|
|
1,914,762
|
|
|
Total Current Assets
|
|
2,044,769
|
|
|
|
2,060,810
|
|
|
Deferred financing costs
|
|
12,691
|
|
|
|
15,147
|
|
|
TOTAL ASSETS
|
$
|
2,057,460
|
|
|
$
|
2,075,957
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
105,917
|
|
|
$
|
78,191
|
|
|
Accounts payable to related parties
|
|
494,020
|
|
|
|
494,020
|
|
|
Advances due to related party
|
|
275
|
|
|
|
275
|
|
|
Advances due to Longview Realty, Inc.
|
|
87,849
|
|
|
|
50,496
|
|
|
Promissory notes current
|
|
1,868,493
|
|
|
|
—
|
|
|
Total Current Liabilities
|
|
2,556,554
|
|
|
|
622,982
|
|
|
|
|
|
|
|
|
|
|
|
Promissory notes long term
|
|
781,507
|
|
|
|
2,650,000
|
|
|
Total liabilities
|
|
3,338,061
|
|
|
|
3,272,982
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value, 20,000,000 shares authorized; no shares issued and outstanding
|
|
200
|
|
|
|
—
|
|
|
Common Stock, $.0001 par value, 500,000,000 shares authorized, 157,200,000 and 215,200,000 shares issued and outstanding
|
|
15,720
|
|
|
|
21,520
|
|
|
Additional paid-in capital
|
|
152,680
|
|
|
|
127,080
|
|
|
Preferred share subscription receivable
|
|
(20,000
|
)
|
|
|
—
|
|
|
Deficit accumulated during the development stage
|
|
(1,429,201
|
)
|
|
|
(1,345,625
|
)
|
|
Total Stockholders’ Deficit
|
|
(1,280,601
|
)
|
|
|
(1,197,025
|
)
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
$
|
2,057,460
|
|
|
$
|
2,075,957
|
|
See accompanying notes to unaudited
consolidated financial statements.
BERKSHIRE HOMES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
|
|
Three Months Ended
February 28, 2014
|
|
Three Months Ended
February 28, 2013
|
|
For the period from
June 2, 2010
(Inception)
to
February 28, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
22,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting fees
|
|
12,000
|
|
|
|
1,000
|
|
|
|
566,922
|
|
|
General and administrative
|
|
8,993
|
|
|
|
15,893
|
|
|
|
196,847
|
|
|
Professional fees
|
|
8,252
|
|
|
|
41,482
|
|
|
|
150,819
|
|
|
Management fees and expenses
|
|
18,750
|
|
|
|
12,500
|
|
|
|
310,776
|
|
|
TOTAL EXPENSES
|
|
47,995
|
|
|
|
70,875
|
|
|
|
1,225,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
(47,995
|
)
|
|
|
(70,875
|
)
|
|
|
(1,203,364
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
(35,581
|
)
|
|
|
(17,050
|
)
|
|
|
(190,122
|
)
|
|
Loss on extinguishment of liabilities
|
|
—
|
|
|
|
—
|
|
|
|
(35,715
|
)
|
|
TOTAL OTHER INCOME (EXPENSE)
|
|
(35,581
|
)
|
|
|
(17,050
|
)
|
|
|
(225,837
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
$
|
(83,576
|
)
|
|
$
|
(87,925
|
)
|
|
$
|
(1,429,201
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER SHARE: BASIC AND DILUTED
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC AND DILUTED
|
|
197,800,000
|
|
|
|
90,200,000
|
|
|
|
|
|
See accompanying notes to unaudited
consolidated financial statements.
BERKSHIRE HOMES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
|
|
Three Months Ended
February 28, 2014
|
|
Three Months Ended
February 28, 2013
|
|
June 2, 2010
(Inception) to
February 28, 2014
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period
|
$
|
(83,576
|
)
|
|
$
|
(87,925
|
)
|
|
$
|
(1,429,201
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of liabilities
|
|
—
|
|
|
|
—
|
|
|
|
35,715
|
|
|
Amortization of deferred financing costs
|
|
2,456
|
|
|
|
—
|
|
|
|
6,959
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Inventory of properties under development
|
|
(126,324
|
)
|
|
|
—
|
|
|
|
(2,041,086
|
)
|
|
Accounts payable and accrued interest
|
|
27,726
|
|
|
|
38,162
|
|
|
|
677,445
|
|
|
Accounts payable - related party
|
|
—
|
|
|
|
250
|
|
|
|
11,777
|
|
|
Net Cash Used in Operating Activities
|
|
(179,718
|
)
|
|
|
(49,513
|
)
|
|
|
(2,738,391
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances from related parties
|
|
—
|
|
|
|
—
|
|
|
|
275
|
|
|
Cash paid for deferred financing costs
|
|
—
|
|
|
|
—
|
|
|
|
(19,650
|
)
|
|
Borrowings on related party debt
|
|
—
|
|
|
|
—
|
|
|
|
500,000
|
|
|
Issuance of promissory notes
|
|
—
|
|
|
|
100,000
|
|
|
|
2,650,000
|
|
|
Payments on related party debt
|
|
—
|
|
|
|
—
|
|
|
|
(500,000
|
)
|
|
Advances from Longview Realty, Inc.
|
|
37,353
|
|
|
|
—
|
|
|
|
87,849
|
|
|
Sale of common stock
|
|
—
|
|
|
|
—
|
|
|
|
23,600
|
|
|
Net Cash Provided by Financing Activities
|
|
37,353
|
|
|
|
100,000
|
|
|
|
2,742,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
(142,365
|
)
|
|
|
50,487
|
|
|
|
3,683
|
|
|
Cash, beginning of period
|
|
146,048
|
|
|
|
—
|
|
|
|
—
|
|
|
Cash, end of period
|
$
|
3,683
|
|
|
$
|
50,487
|
|
|
$
|
3,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Income taxes paid
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH TRANSACTIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock subscription receivable
|
$
|
20,000
|
|
|
$
|
—
|
|
|
$
|
20,000
|
|
|
Cancellation of common stock
|
$
|
5,800
|
|
|
$
|
—
|
|
|
$
|
5,800
|
|
|
Common stock issued for accrued interest
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
89,285
|
|
See accompanying notes to unaudited
consolidated financial statements.
BERKSHIRE HOMES, INC.
(A DEVELOPMENT STAGE
COMPANY)
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
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 is in the development stage as defined under Statement on Financial Accounting
Standards Accounting Standards Codification FASB ASC 915-205 "Development-Stage Entities.”
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.
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 2013 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. Notes to the financial statements, which would substantially duplicate the disclosure
required in the Company’s fiscal 2013 financial statements have been omitted.
NOTE 2 - GOING CONCERN
These consolidated financial statements have
been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities
in the normal course of business for the foreseeable future. The Company has incurred losses since inception resulting in an accumulated
deficit of $1,429,201 as of February 28, 2014 and further losses are anticipated in the development of its business raising substantial
doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent
upon the Company generating profitable operations in the future and/or to obtain the necessary financing to meet its obligations
and repay its 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.
NOTE 3- RELATED PARTY TRANSACTIONS
During the three months ended February 28,
2014 and 2013, the Company incurred management fees of $18,750 and $12,500, respectively to the sole director and officer of the
Company.
As of February 28, 2014, the Company
had payables owed to the sole director and officer of the Company of $11,777 consisting of amounts paid
by the sole director and officer on behalf of the Company.
As of February 28, 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.
A former director of the Company loaned $275
to the Company on June 2, 2010. The amount was outstanding at February 28, 2014 and 2013.
During 2013, Longview Realty Inc., an entity
with common ownership, advanced an aggregate of $50,496 to the Company. In addition, during the three months ended February 28,
2014, Longview advanced an additional $ 37,353 to the Company. As at February 28, 2014, the total advances from Longview was $
87,849.
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 February 28, 2014, amortization
expense of $2,456 was recognized and unamortized financing costs of $12,691 are deferred on the balance sheet. As of February 28, 2014, $1,531,507 was classified as a short-term liability and $618,493 was classified as
a long-term liability.
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. As of February 28, 2014, $336,986 was classified as a short-term liability and $163,014 was classified as
a long-term liability.
NOTE 5- 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 issued 2,000,000 such shares for cash of $20,000. As of the date of filing, the Company had not received the proceeds
of the share subscription and the proceeds have been recorded as share subscriptions receivable.
During the three months ended February 28,
2014, the sole director and officer returned an aggregate of 58,000,000 common shares to the Company and they were cancelled.
NOTE 6 - SUBSEQUENT EVENTS
In accordance with ASC 855-10, the Company has analyzed its operations
subsequent to February 28, 2014 to the date these financial statements were issued, and has determined that it does not have any
material subsequent events to disclose.
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 actively searching
for capital to purchase distressed properties and build our inventory. In 2013, 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.
With the money we were able to raise, we purchased six single-family
homes in the greater Seattle area. All of these properties been renovated and are currently under contract for sale or are up for
sale. We plan to recycle the capital from these properties and buy more similar type properties to buy, renovate and sell. Additionally,
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.
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.
Results of Operations for the three months ended February
28, 2014 and 2013
Revenues
We have generated no revenue since our inception. We are
a development stage company that has only recently acquired properties 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 decreased to $47,995 for the three months
ended February 28, 2014 from $70,875 for the three months ended February 28, 2013. Our operating expenses for the three months
ended February 28, 2014 consisted of professional fees in the amount of $ 8,252, management fees and expenses of $18,750, general
and administrative expenses of $8,993 and consulting fees of $12,000. In comparison, our operating expenses for the three months
ended February 28, 2013 consisted of professional fees in the amount of $41,482, management fees and expenses of $12,500, general
and administrative expenses of $15,893 and consulting fees of $ 1,000.
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 our continued reporting obligations with the Securities and Exchange Commission.
Interest Expenses
Interest expenses increased by $18, 531 to $35,581 for the
three months ended February 28, 2014 from $17,050 for the three months ended February 28, 2013. The increase is attributable to
the increase in long-term promissory notes.
On June 13, 2013, we issued a promissory note for proceeds
of $2,150,000 at an interest rate of 5% per annum. The promissory note is unsecured and is due on June 13, 2015. On June 27, 2013,
we issued a promissory note for proceeds of $500,000 at an interest rate of 5% per annum. The promissory note is unsecured and
is due on June 27, 2015.
Net Loss
We incurred a net loss of $83,576 for the three months ended
February 28, 2014, compared to a net loss of $87,925 for the three months ended February 28, 2013.
Liquidity and Capital Resources
As of February 28, 2014, we had total current assets of $2,044,769,
consisting of cash and our real property inventory. We had current liabilities of $2,556,554 as of February 28, 2014. Accordingly,
we had a working capital deficit of $511,785 as of February 28, 2014.
Operating activities used $179,718 in cash for the three
months ended February 28, 2014, as compared with $49,513 used for the three months ended February 28, 2013. Our negative operating
cash flow for February 28, 2014 was mainly a result of the increase in our real property inventory and our net loss for the period.
Financing activities for the year ended February 28, 2014
generated $37,353 in cash, as compared with cash flows provided by financing activities of $100,000 for the three months ended
February 28, 2013. Our positive cash flow from financing activities for the three months ended February 28, 2014 was the result
of advances from Cannabis-RX, Inc, (formerly Longview Realty, Inc.), a related party.
As of February 28, 2014, we had $3,683 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
These 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 $ 1,429,201 as of February
28, 2014 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 February 28, 2014, there were no off balance sheet
arrangements.
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 February 28, 2014, 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 February
28, 2014, 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 February 28, 2014, our disclosure controls and procedures,
and our internal control over financial reporting, were not effective at the reasonable assurance level:
1.
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 February 28, 2014. 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.
2.
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.
3.
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. 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 February 28, 2014, that has materially affected,
or is reasonably likely to materially affect, our internal control over financial reporting.
