Notes to Condensed Unaudited Financial Statements
For the Three and Nine Months Ended June 30, 2013
1. Basis of Presentation
The accompanying unaudited condensed financial statements are presented in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal occurring accruals) considered necessary in order to make the financial statements not misleading, have been included. Operating results for the nine months ended June 30, 2013 are not necessarily indicative of results that may be expected for the year ending September 30, 2013. The condensed financial statements are presented on the accrual basis. The Company operates as a real estate investment trust (“REIT”) for federal income tax purposes. The Company elected to be taxed as a real estate investment trust (REIT) under the Internal Revenue Code of 1986, as amended (the Code). The Company believes it has qualified for taxation as a REIT and, as such, the Company generally will not be subject to U.S. federal income tax on taxable income that is distributed to shareholders. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to U.S. federal income tax on its taxable income at regular corporate tax rates.
2. Nature of Operations
Inspired Builders, Inc. (the “Company”) was incorporated in the State of Nevada in February 2010. The Company is a construction company that specializes in residential home repair and home improvements. The Company contracts with homeowners to build custom home improvements, including shelving for closets, bathroom remodeling, upgrading home entertainment centers and replacing flooring. In May 2013, the Company’s board of directors has determined that conversion of the Company’s corporate status to that of a real estate investment trust (a “REIT”) would best support the company’s strategic direction. Accordingly, the board has passed and adopted a resolution for the Company to be treated as a REIT and will designate its tax status on Form 1120 to be filed with the IRS for the tax year 2013.
In connection with the Change of Control that occurred on January 13, 2012, our principal offices are located in Santa Monica, California.
3. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Such estimates and assumptions impact, among others, the following; estimates of the probability and potential magnitude of contingent liabilities and the valuation allowance for deferred tax assets due to continuing operating losses.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from our estimates.
Cash
The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents. There were no cash equivalents at June 30, 2013 and September 30, 2012.
The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times may exceed federally insured limits.
Fair Value of Financial Instruments
For purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. The carrying amounts of cash, loannotes payable, andmortgage payable, accounts payable, due to related party and accrued expenses reported in the balance sheets are estimated by management to approximate fair value at June 30, 2013 and September 30, 2012.
Revenue Recognition
The Company records revenue for services rendered when all of the following have occurred: (1) persuasive evidence of an arrangement exists, (2) the product/service is delivered, (3) the sales price to the customer is fixed or determinable, and (4) collectability of the related customer receivable is reasonably assured.
Income Taxes
The Company accounts for income taxes in accordance with generally accepted accounting principles which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between financial statement and income tax bases of assets and liabilities that will result in taxable income or deductible expenses in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets and liabilities to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period adjusted for the change during the period in deferred tax assets and liabilities.
The Company follows the accounting requirements associated with uncertainty in income taxes using the provisions of Financial Accounting Standards Board (FASB) ASC 740, Income Taxes . Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not the positions will be sustained upon examination by the tax authorities. It also provides guidance for derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As of June 30, 2013 and September 30, 2012, the Company has no uncertain tax positions that qualify for either recognition or disclosure in the financial statements. All tax returns from fiscal years 2008 to 2011 are subject to IRS audit.
In May 2013 The Company’s board of directors has determined that conversion of the Company’s corporate status to that of a real estate investment trust (a “REIT”) would best support the company’s strategic direction. Accordingly, the board has passed and adopted a resolution for the Company to be treated as a REIT and will designate its tax status on Form 1120 to be filed with the IRS for the tax year 2013.
Earnings per share
In accordance with accounting guidance now codified as FASB ASC Topic 260, “Earnings per Share,” basic earnings (loss) per share is computed by dividing net income (loss) by weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.
The Company did not have any potential common stock equivalents at June 30, 2013 and 2012.
Recent accounting pronouncements
In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,” (“(“ASU 2011-04”). This standard results in a common requirement between the FASB and the International Accounting Standards Board for measuring fair value and disclosing information about fair value measurements. ASU 2011-04 is effective for fiscal years and interim periods beginning after December 15, 2011. The adoption of this accounting pronouncement did not have any effect on our financial position and results of operations.
All other new accounting pronouncements issued but not yet effective or adopted have been deemed not to be relevant to us, hence are not expected to have any impact once adopted.
4.NOTE 4 – RESTATEMENT
On June 24, 2013 the Company entered into an agreement with a related party to purchase a parcel of undeveloped land in Duval County Florida. The purchase price for the Duval property was $1,350,000, payable by the Company’s delivery of it’s 3% $750,000 mortgage due on June 15, 2014. The $600,000 balance of the purchase price was paid by the issuance to the seller of 100,000 shares of the Company’s common stock, $0.001 par value per share, which was valued by the parties at $6.00 per share. The Company subsequently determined that the carrying value of the real property should have been at historical cost, due to the related party nature of the transaction, which was below the $1,350,000 value that was attributed to it in the purchase agreements. As a result, the accounting for the real property has been revised to reflect the asset at historical cost and the excess purchase price as a return of capital in the Statement of Stockholders Deficit. The Company concluded that the effect of these errors will be to decrease the value of the Real Property and the total assets of the Company as of June 30, 2013. The adjustment only affects the balance sheet as of June 30, 2013 and has no effect on net loss or cash flows.
| June 30, 2013 | |
Changes to Condensed Balance Sheet | As Previously Reported | | | Adjustment | | As Restated | |
| | | | | | | |
Real estate - Asset | | $ | 1,350,000 | | | $ | (1,042,496 | ) | | $ | 307,504 | |
| | | | | | | | | | | | |
Additional Paid In Capital | | $ | (609,875 | ) | | $ | 1,042,496 | | | $ | 432,621 | |
5. Going Concern
As reflected in the accompanying condensed unaudited financial statements, the Company has a net loss of $101,934 and net cash used in operations of $0$32,400 for the nine months ended June 30, 2013. In addition, the Company has not had construction revenues since May 2011 and the only prospect for positive cash flow is through the issuance of common stock or debt.
The ability of the Company to continue itsit’s operations is dependent on Management's plans, which include the raising of capital through debt and/or equity markets with some additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. There is no plan or knowledge of any tangible financing source or discussions with any investors to raise additional capital. If the Company does not begin to generate sufficient revenue or raise additional funds through a financing, the Company may need to incur additional liabilities with certain related parties to sustain the Company’s existence. The Company will require additional funding to finance the growth of its future operations as well as to achieve its strategic objectives. The Company believes its current available cash along with anticipated revenues may be insufficient to meet its cash needs for the near future. There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all.
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
5.6. Real Estate
On June 24, 2013, the Company entered into an agreement with a thirdrelated party to purchase a parcel of undeveloped land in Duval County, Florida. The purchase price for the Duval property iswas $1,350,000, payable as to $750,000 by the Company’s delivery of itsa 3% $750,000 note and mortgage due on June 15, 2014. The $600,000 balance of the purchase price was paid by approving the issuance to the seller of 100,000 shares of the Company’s common stock,stock. The $0.001 par value per share which was valued by the parties at $6.00 per share.share, based on the closing price of the stock on the date of the closing. In additionaccordance with SAB 7310.1, transfers of nonmonetary assets for stock or other consideration of the registrant are recorded at the predecessor cost. Accordingly, the Company incurred $4,213recorded the value of closing costs which were expensed during the period.
real estate acquired at the historical basis of $307,504. Refer to Note 4.
6.7. Mortgage Payable
On June 24, 2013 the Company entered into an agreement with a thirdrelated party to purchase a parcel of undeveloped land in Duval County Florida. The purchase price for the Duval property iswas $1,350,000, payable as to $750,000 by the Company’s delivery of itsa 3% $750,000 note and mortgage due on June 15, 2014. The $600,000 balance of the purchase price was paid by the issuance to the seller of 100,000 shares of the Company’s common stock, $0.001 par value per share, which was valued by the parties at $6.00 per share. As of June 30, 2013 the Company recorded accrued interest of $375$375.
7.8. Note Payable – Related Party
On January 13, 2012 the Company entered into a 12 month unsecured promissory note in the amount of $211,000. Interest shall accrue in arrears on the principal of this Note outstanding from time to time at the rate of ten percent (10.00%) per annum. Interest shall be payable on the last day of each quarter, commencing March 30, 2012, and continuing until the Maturity Date. Should Maker fail to pay the entire Loan and accrued interest by the Maturity Date, Maker agrees that the interest rate shall increase to Twelve percent (12.00%) per annum. On May 10, 2013 the Company and the related party agreed to extend the maturity of the loan for an additional year or until January 13, 2014. On May 22, 2012 the Company borrowed an additional $32,714 from the related party with the same terms. On September 17, 2012 the Company borrowed an additional $22,033 from the related party with the same terms On February 7, 2013 the Company borrowed an additional $28,773 from the related party with the same terms Accrued interest at June 30, 2013 and September 30, 2012 amounted to $37,342 and $16,341, respectively.
7.9. Stockholders’ Equity
On June 24, 2013, the Company issued 100,000 shares of common stock valued at $600,000 ($6.00/share) for the purchase of real estate.
8.10. Commitments and Contingencies
From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise that may harm its business. The Company is currently not aware of any such legal proceedings or claims that they believe will have, individually or in the aggregate, a material adverse affect on its business, financial condition or operating results.
9.11. Concentration of Credit Risk
The Company relies heavily on the support of its president and majority shareholder. A withdrawal of this support, for any reason, will have a material adverse affect on the Company’s financial position and its operations.
10.12. Related Party Transaction
On January 13, 2012 the Company entered into a 12 month unsecured promissory note in the amount of $211,000. Interest shall accrue in arrears on the principal of this Note outstanding from time to time at the rate of ten percent (10.00%) per annum. Interest shall be payable on the last day of each quarter, commencing March 30, 2012, and continuing until the Maturity Date. Should Maker fail to pay the entire Loan and accrued interest by the Maturity Date, Maker agrees that the interest rate shall increase to Twelve percent (12.00%) per annum. On May 10, 2013 the Company and the related party agreed to extend the maturity of the loan for an additional year or until January 13, 2014. On May 22, 2012 the Company borrowed an additional $32,714 from the related party with the same terms. On September 17, 2012 the Company borrowed an additional $22,033 from the related party with the same terms On February 7, 2013 the Company borrowed an additional $28,773 from the related party with the same terms Accrued interest at June 30, 2013 and September 30, 2012 amounted to $37,342 and $16,341, respectively.
11.13. Subsequent Events
On August 1, 2013 a related party advanced the Company $30,000.
The following discussion and analysis summarizes the significant factors affecting our condensed consolidatedunaudited results of operations, financial condition and liquidity position for the three and nine months ended June 30, 2013. These financial statements should be read in conjunction with the financial statements of the Company for the year ended September 30, 2012 and notes thereto contained in the information filed as part of the Company’s Annual report on Form 10-K and Amendment No. 1 to Form 10-K, which were filed with the Commission on January 15, 2013 and February 14, 2013, respectively. The following discussion and analysis contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements.
Forward-looking statements in this Quarterly Report on Form 10-Q, including without limitation, statements related to our plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties including without limitation the following: (i) our plans, strategies, objectives, expectations and intentions are subject to change at any time at our discretion; (ii) our plans and results of operations will be affected by our ability to manage growth and competition; and (iii) other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission (“SEC”).
In some cases, you can identify forward-looking statements by terminology such as ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘could,’’ ‘‘expects,’’ ‘‘plans,’’ ‘‘intends,’’ ‘‘anticipates,’’ ‘‘believes,’’ ‘‘estimates,’’ ‘‘predicts,’’ ‘‘potential,’’ or ‘‘continue’’ or the negative of such terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We are under no duty to update any of the forward-looking statements after the date of this Report.
The following plan of operation provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto. This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.
Inspired Builders, Inc., a Nevada Corporation, was established in Boston, Massachusetts in 2010 as a construction company with a focus on residential real estate remodeling and repairs. On January 13, 2012, pursuant to the change of control transaction previously disclosed in the Company’s filing on Form 10-K dated as of January 13, 2012, we relocated to Santa Monica, California. Prior to the change of control transaction, our real estate activities were limited to the residential segment of the market.
Going forward, our activities are expected to focus mostly on hospitality and commercial real estate, with continuing select activity in the residential segment. Our focus will be to acquire, remodel, develop and manage real estate properties and related activities, including making and managing loans secured by real estate. Any such efforts will require substantial financial and management resources, which the Company does not currently possess. Therefore, while we will seek to acquire these resources as a part of our business plans, there can be no assurance of our success, and therefore, in our ability to enter the real estate or any other market.
Our long-term strategy targets upper-upscale and upscale full-service and select service hotels in primary, secondary and resort markets throughout the United States. In our commercial real estate segment, we intend to acquire, own, remodel, and develop properties that are leased primarily to retail tenants under long-term net leases and primarily held for investment.
In certain cases we anticipate future investments in real estate in the form of mortgages, structured finance investments or other loans, which may be secured by real estate, a borrower’s pledge of ownership interests in the entity that owns the real estate or other assets. These investments may be subordinated to senior loans encumbering the underlying real estate or assets. Subordinated positions are generally subject to a higher risk of nonpayment of principal and interest than the more senior loans. As other opportunities arise, we may also seek to expand the our real estate activities to include other types of real estate-related investments, such as: