See accompanying notes to the unaudited consolidated financial statements.
Winchester Holding Group
(A Development Stage Company)
September 30, 2012
Notes to the Consolidated Financial Statements
(unaudited)
Note 1 - Organization and operations
Winchester Holding Group, a development stage company, was incorporated on September 14, 2011 under the laws of the State of Nevada. Initial operations have included organization and incorporation, target market identification, marketing plans, and capital formation. A substantial portion of the Company’s activities has involved developing a business plan and establishing contacts and visibility in the marketplace. The Company has generated no revenues since inception.
We intend in the future to acquire through Winchester Holding Properties LLC, an Illinois limited liability company which is our wholly-owned subsidiary and its series of to-be formed sub-subsidiary LLC’s, each sub-subsidiary LLC to acquire each property, single and multi-family real estate and real estate related-assets in the greater Chicago metropolitan area (including Northern Indiana). We anticipate that our initial focus will be on be on properties that qualify for the HUD Section 8 tenant-based Housing Choice Voucher (HCV) program that is funded by the federal government and administered by the Chicago Housing Authority (CHA). The Voucher Program allows eligible families to select housing in the private rental market and receive assistance in that housing unit. Rental housing has to meet the basic housing quality standards, but there is no fair market rent limitation on rent. Under this tenant-based assistance program, now known as the Housing Choice Voucher (HCV) program, an assisted family is required to pay at least 30 percent of adjusted income for rent.
Note 2 - Summary of significant accounting policies
Basis of Presentation
Management acknowledges its responsibility for the preparation of the accompanying interim unaudited consolidated financial statements which reflect all adjustments, consisting of normal recurring adjustments, considered necessary in its opinion for a fair statement of its financial position and the results of its operations for the interim period presented. These unaudited consolidated financial statements should be read in conjunction with the summary of significant accounting policies and notes to financial statements included in the Company’s Form S-11 registration statement filed on May 7, 2012, which became effective September 7, 2012. The accompanying unaudited consolidated financial statements for Winchester Holding Group have been prepared in accordance with accounting principles generally accepted in the United States of America (the “U.S.”) for interim financial operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole.
Principles of Consolidation
The consolidated financial statements include the accounts of Winchester Holdings Group and its wholly-owned subsidiary, Winchester Holding Properties, LLC. All significant inter-company balances and transactions have been eliminated in consolidation.
Development Stage Company
The Company is a development stage company as defined by section 810-10-20 of the FASB Accounting Standards Codification. The Company is still devoting substantially all of its efforts on establishing the business and its planned principal operations have not commenced. All losses accumulated since inception have been considered as part of the Company’s development stage activities.
Winchester Holding Group
(A Development Stage Company)
September 30, 2012
Notes to the Consolidated Financial Statements
(unaudited)
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
The Company’s significant estimates and assumptions include the fair value of financial instruments; the carrying value, recoverability and impairment, if any, of long-lived assets, including the values assigned to and the estimated useful life of office equipment; underlying assumptions to estimate the fair value of warrants and options; income tax rate, income tax provision, deferred tax assets, deferred tax assets and the valuation allowance of deferred tax assets, and the assumption that the Company will continue as a going concern. Those significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to those estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.
Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations are deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.
Fair value of financial instrument
The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
| Level 1 | | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
| | | |
| Level 2 | | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. |
| | | |
| Level 3 | | Pricing inputs that are generally observable inputs and not corroborated by market data. |
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expenses and accounts payable, approximate their fair values because of the short maturity of these instruments.
Winchester Holding Group
(A Development Stage Company)
September 30, 2012
Notes to the Consolidated Financial Statements
(unaudited)
It is not however, practical to determine the fair value of advances from stockholder due to their related party nature.
Cash equivalents
The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.
Related parties
The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.
Pursuant to Section 850-10-20 the related parties include a. affiliates of the Company; b. entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a. the nature of the relationship(s) involved ; b. adescription of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.
Commitment and contingencies
The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Winchester Holding Group
(A Development Stage Company)
September 30, 2012
Notes to the Consolidated Financial Statements
(unaudited)
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time, that these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
Income taxes
The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.
The Company adopted section 740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25”). Section 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.
The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying consolidated balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary.
Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.
Net income (loss) per common share
Net income (loss) per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock and potentially dilutive outstanding shares of common stock during the period to reflect the potential dilution that could occur from common shares issuable through contingent share arrangements, stock options and warrants.
There were no potentially dilutive common shares outstanding for the period from September 14, 2011 (inception) through September 30, 2012.
Winchester Holding Group
(A Development Stage Company)
September 30, 2012
Notes to the Consolidated Financial Statements
(unaudited)
Subsequent events
The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements were issued. Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.
Recently issued accounting pronouncements
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying unaudited consolidated financial statements.
Note 3 – Going concern
The accompanying unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
As reflected in the accompanying unaudited consolidated financial statements, the Company had a deficit accumulated during the development stage and stockholders’ deficiency and working capital deficit at September 30, 2012 of $69,589 and $12,833 and $12,833, respectively. The Company has continuing net losses and had a net loss of $69,589 and net cash used in operating activities of $61,506 for the period from September 14, 2011 (inception) through September 30, 2012 and is in the development state with no revenues. These matters raise substantial doubt about the Company's ability to continue as a going concern.
While the Company is attempting to commence operations and generate sufficient revenues, the Companys cash position may not be sufficient enough to support the Companys daily operations. Management intends to raise additional funds by way of a private or public offering. Management believes that the actions presently being taken to further implement its business plan and generate sufficient revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to generate sufficient revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Companys ability to further implement its business plan and generate sufficient revenues.
The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Note 4 – Stockholder’s equity
Shares authorized
Upon formation, the total number of shares of all classes of stock which the Company is authorized to issue is One Hundred Million (100,000,000) shares of Common Stock, par value $0.001 per share, and Ten Million (10,000,000) shares of Preferred Stock, par value $0.001 per share.
Common stock
On September 14, 2011, upon formation, the Company issued an aggregate of 25,000,000 shares of the newly formed corporation’s common stock to its Chief Executive Officer for a nominal value of $0.001 per share or $25,000 for cash.
On September 14, 2011, the Company agreed to issue 255,700 vested common shares for legal services. The shares were valued at $0.001 per share based on the sale price to the founder, resulting in a $256 expense.
From January 1 through May 3, 2012, the Company authorized the issuance of 315,000 shares of its common stock for cash, valued at $0.10 per share for a total of $31,500.
Winchester Holding Group
(A Development Stage Company)
September 30, 2012
Notes to the Consolidated Financial Statements
(unaudited)
Note 5 – Related party transactions
As of September 30, 2012, the Company owes a loan payable in the amount of $21,947 for expenses paid by a shareholder/officer on behalf of the Company. The loan is unsecured, non-interest bearing, and payable on demand, and was memorialized under a Funding Agreement made effective as of January 1, 2012.
Free office space
The Company has been provided office space by its Chief Executive Officer at no cost. The management determined that such cost is nominal and did not recognize the rent expense in its consolidated financial statement.
Note 6 – Commitments
On September 14, 2011, the Company signed an engagement agreement with Williams Securities Law Firm, P.A. (“Legal consultant”) to perform legal services by securing a qualification for the quotation of the Company’s securities on the OTC Bulletin Board. The fees of the engagement shall be $36,000, payable $12,000 upon commencement of work, $12,000 upon filing of the registration statement, and $6,000 ($12,000 less discount given of $6,000) upon effectiveness of the registration statement. In addition, the Company shall issue 255,700 shares of its common stock upon execution of the agreement. The entire remaining unpaid fee shall become due and payable in full and all prior payments in cash and stock will be retained as fully earned for services rendered.
As of September 30, 2012, $24,000 was paid in cash and 255,700 common shares were issued to the Legal Consultant as agreed.
