Item 2. Management’s Discussion and
Analysis of Financial Conditions and Results of Operations
The
following is management’s discussion and analysis of financial condition and results of operations and is provided as a
supplement to the accompanying unaudited financial statements and notes to help provide an understanding of our financial condition,
results of operations and cash flows during the periods included in the accompanying unaudited financial statements.
In
this Quarterly Report on Form 10-Q, “Company,” “the Company,” “us,” and “our”
refer to Hubilu Venture Corporation, a Delaware corporation, unless the context requires otherwise.
We
intend the following discussion to assist in the understanding of our financial position and our results of operations for the
three-months ended September 30, 2016 and 2015, respectively and for the six-months ended September 30, 2016 and for the period
from March 2, 2015 (inception) through September 30, 2015. You should refer to the Financial Statements and related Notes in conjunction
with this discussion.
Results
of Operations
General
We
commenced operations in March 2015, which, until June 2015, were limited to organizational and business development activities.
We began implementing our business plan in June 2015. We are real estate advisory and consulting company that assists real estate
investor professionals, as well as established companies, with advisory and consulting services focused on providing research,
analysis and acquisition opportunities to them. In August 2016, we launched a real estate acquisitions division, which specializes
in student housing income properties and the development of real estate opportunities located near Los Angeles Metro stations
within the Los Angeles Metro/Subway system. We also executed a purchase contract to acquire Zinnia Investments, LLC, the owner
of a property located at 2909 S. Catalina St. in Los Angeles. Zinnia Investments, LLC is owned by a related party. Our mission
statement is Strategic Growth through Smart Ventures, which is designed to focus us on real estate opportunities that we believe
are recession proof and have limited downside risk, while offering high upside potential in equity appreciation and cash flow.
We will also continue to assist investors and professionals in the early stage analysis of market opportunities and the evaluation
of properties prior to them committing capital for the purchase or the leasing of real estate properties. For our consulting services,
we are focusing our marketing efforts in the commercial markets; however, we are also looking at residential and income producing
markets. We are using the Internet as well as the services of independent sales consultants to market our services to investors
and professionals in Southern California with our primary efforts focused in Beverly Hills and Los Angeles near the University
of Southern California campus. Our real estate acquisitions division will actively pursuing real estate acquisitions near the
University of Southern California campus. We have had limited consulting operations and have limited financial resources. Our
auditors indicated in their report on our financial statements (the “Report”) that “the Company’s lack
of business operations and early losses raise substantial doubt about our ability to continue as a going concern.” Our operations
from March 2015 to June 2015 were devoted primarily to start-up, development and operational activities, which included:
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1.
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Formation
of the Company;
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2.
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Development
of our business plan;
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3.
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Evaluating
various target real estate professionals and investors to market our services;
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4.
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Research
on marketing channels/strategies for our services;
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5.
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Secured
our website domain
www.hubilu.com
and beginning the development of our initial online website; and
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6.
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Research
on services and the pricing of our services.
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Commencing
in June 2015, we engaged our first client, 112 South Eucalyptus Avenue, LLC, which has a related party shareholder, to assist
it in evaluating the best use of its property. We are also in negotiations with Camden Realty Group, a real estate brokerage firm,
to provide consulting services to it and to have it provide brokerage services to our clients.
We
are offering services to investors and professionals with the mission to assist them in investment and property evaluation strategies
and provide hands-on support to reduce evaluation time and resources and increase the speed for them to determine whether to proceed
with a real estate lease or investment. Besides general property evaluation services, we are offering services to assist the principals
with property development ideas and investment structure.
In
September 2016, we executed a contract to acquire Akebia Investments, LLC (“Akebia”), owner of the property at 3711
S. Western Avenue in Los Angeles. Akebia is majority owned by related parties. The property is The property satisfies both of
our target markets, being within walking distance of the Los Angeles Metro system and biking distance to USC campus. We also appointed
four new officers to the company:
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Eric
Klein, VP, Operations & Business Development, 20 years experience
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Tracy
Black-Van Wier, VP, Investor Relations, 20 years experience
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Stefano
Coaloa, VP, Real Estate Development, 35 years experience
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Chille
DeCastro, VP, Marketing, 20 years experience
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In
addition to executing two purchase contracts and expanding our staff, we updated and lauched our website and began marketing the
company on various social media platforms including LinkedIn, Twitter, and Facebook.
As
of September 30, 2016, we had $3,355 cash on hand and in the bank. Management does not believe this amount will satisfy our cash
requirements for the next twelve months. We plan to satisfy our future cash requirements - primarily the working capital required
for operations by loans from our shareholders or additional equity financing from related or third parties. The additional equity
financings will likely be in the form of private placements of common stock. As of September 30, 2016, the Company has borrowed
$100,000 from its majority shareholder.
Management
believes that if subsequent private placements are successful, we will generate sales revenue within the following twelve months
thereof. However, additional equity financing may not be available to us on acceptable terms or at all, and thus we could fail
to satisfy our future cash requirements.
If
we are unsuccessful in raising the additional proceeds through a private placement offering, we will then have to seek additional
funds through debt financing, which would be highly difficult for a new development stage company with nominal assets to secure.
Therefore, we are highly dependent upon the success of a future private placement offering and failure thereof would result in
our having to seek capital from other resources such as debt financing, which may not even be available to us. However, if such
financing were available, because we are a startup company with no operations to date, we would likely have to pay additional
costs associated with high-risk loans and be subject to an above market interest rate. At such time these funds are required,
management would evaluate the terms of such debt financing and determine whether the business could sustain operations and growth
and manage the debt load. If we cannot raise additional proceeds via a private placement of our common stock or secure debt financing
we would be required to cease business operations. As a result, investors in our common stock would lose all of their investment.
We
have no current plans, preliminary or otherwise, to merge with any other entity although we may consider such plans in the future.
At
the present time, we intend to seek various investors to obtain additional equity financing. There can be no assurance that we
will be successful in obtaining additional capital from these negotiations. If are unable to raise additional capital, we will
either suspend marketing operations until we do raise the cash, or cease operations entirely. Other than as described in this
paragraph and the preceding paragraphs, we have no other financing plans.
Management
does not plan to hire additional employees at this time. Our officers and directors, as well as independent contractors, will
be responsible for providing consulting services.
The
following discussion of our financial condition and results of operations should be read in conjunction with our unaudited financial
statements for the three months ended September 30, 2016 and 2015, respectively, and for the nine-months ended September 30, 2016
and for the period from March 2, 2015 (inception) through September 30, 2015, together with notes thereto, which are included
in this Quarterly Report on Form 10-Q.
Three
months ended September 30, 2016 compared to the three months ended September 30, 2015
Revenues
.
Our revenues decreased $2,500, or 100%, to $0 for the three months ended September 30, 2016 compared to $2,500 in revenues for
the comparable period in 2015. The decrease is attributable to our pursuit of real property acquisitions rather than consulting
engagements.
Operating expenses.
Operating
expenses include general and administrative expenses, consulting fees, professional fees, rent expense, and business license and
filings fees. In total, operating expenses increased $58,276, or 340.97%, to $75,367 for the three months ended September 30, 2016
compared to $17,091 for the comparable period in 2015. The components of operating expenses are discussed below.
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General
and administrative expenses increased $18,853 , or 75,412%, to $18,878 for the three months ended September
30, 2016 compared to $25 for the comparable period in 2015. The increase is primarily attributable to an increase in business
licenses and permits, consulting fees, Edgar filing fees, parking and office expenses as well as computer and internet expenses.
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Consulting
fees increased $22,831 to $22,831 for the three months ended September 30, 2016 compared to $0 for the comparable period in
2015. The increase is due to paying various consultants in 2016 to assist with our marketing efforts.
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Professional
fees increased $739, or 4.33%, to $17,805 for the three months ended September 30, 2016 compared to $17,066 for the comparable
period in 2015. The increase is primarily due to a decrease in legal and accounting fees offset by $2,264 in Edgar filing
fees, which are now included in general and administrative expenses.
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Rent
expense increased $6,600 to $6,600 for the three months ended September 30, 2016 compared to $0 for the comparable period
in 2015. The increase is due to the Company entering into a lease agreement with a third party landlord.
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Business
license and filing fees increased $626 for the three months ended September 30, 2016 compared to $0 for the comparable period
in 2015. The increase is due to the payment of business license fees.
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Derivative
liability expense increased $8,627 for the three months ended September 30, 2016 compared to $0 for the comparable period
in 2015. The increase is due to the embedded liability for the conversion of the Company’s Series 1 convertible preferred
stock.
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Net loss.
Our
net loss increased $60,776, or 404.09%, to $75,367 for the three months ended September 30, 2016 compared to $14,591 for the comparable
period in 2015. The increase is attributable to the expenses discussed above.
Nine
months ended September 30, 2016 compared to the period from March 2, 2015 (inception) through September 30, 2015
Revenues
.
Our revenues decreased $700, or 28.00% to $1,800 for the nine months ended September 30, 2016 compared to $2,500 for the period
from March 2, 2015 (inception) through September 30, 2015. The decrease is due to the fees in 2015 from an additional consulting
client.
Operating expenses.
Operating
expenses include general and administrative expenses, consulting fees, professional fees, rent expense, and business license and
filings fees, and stock-based compensation. In total, operating expenses increased $72,603, or 95.85%, to $146,265 for the nine
months ended September 30, 2016 compared to $73,662 for the period from March 2, 2015 (inception) through September 30, 2015. The
components of operating expenses are discussed below.
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General
and administrative expenses increased $36,449, or 3,580.45%, to $37,467 for the nine months ended September 30, 2016 compared
to $1,018 for the period from March 2, 2015 (inception) through September 30, 2015. The increase is primarily attributable
to an increase in $5,098 in Edgar filing fees, computer and internet expenses, office expenses, and parking expense. Edgar
filing fees of $3,650 were included in professional fees in the period from March 2, 2015 (inception) through September 30,
2015.
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Consulting
fees increased $23,931 to $23,931 for the nine months ended September 30, 2016 compared to $0 for the period
from March 2, 2015 (inception) through September 30, 2015. The increase is due to paying various consultants in 2016 to assist
with our marketing efforts.
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Professional
fees decreased $4,982, or 9.31%, to $48,512 for the nine months ended September 30, 2016 compared to $53,494 for the
period from March 2, 2015 (inception) through September 30, 2015. The decrease is primarily due to a decrease in legal fees
and $3,650 in Edgar filing fees. The Company now includes Edgar filing fees in general and administrative expenses.
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Rent
expense increased $14,904 to $14,904 for the nine months ended September 30, 2016 compared to $0 for the period from March
2, 2015 (inception) through September 30, 2015. The increase is due to the Company entering a lease agreement with a third-party
landlord.
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Business
license and filing fees increased $12,824 for the nine months ended September 30, 2016 compared to $0 for the period from
March 2, 2015 (inception) through September 30, 2015. The increase is due to the payment of various business license fees
and $12,000 in fees to the Depository Trust Corporation.
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Derivative
liability expense increased $8,627 for the nine months ended September 30, 2016 compared to $0 for the period from March 2,
2015 (inception) through September 30, 2015. The increase is due to the embedded liability for the conversion of the Company’s
Series 1 convertible preferred stock.
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Stock-based
compensation decreased $19,150, or 100%, to $0 for the nine months ended September 30, 2016 compared to $19,150 for period
from March 2, 2015 (inception) through September 30, 2015. The decrease is due to the consulting fees paid with common stock
in 2015.
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Net loss.
Our
net loss increased $73,303, or 103.01%, to $144,465 for the nine months ended September 30, 2016 compared to $71,162 for the period
from March 2, 2015 (inception) through September 30, 2015. The increase is attributable to the expenses discussed above.
Liquidity
and Capital Resources
. For the nine months ended September 30, 2016, we issued 10,400 shares of a Series 1 preferred at $1.00
per share for $10,400 and we borrowed $100,000 from our majority shareholder, which it advanced to us interest free. We intend
to seek additional financing for our working capital, in the form of equity or debt, to provide us with the necessary capital
to accomplish our plan of operation. There can be no assurance that we will be successful in our efforts to raise additional capital.
Our total assets are $14,455 as of September
30, 2016, consisting of $3,355 in cash, $6,600 in deposits and $4,500 in prepaid expenses.
Our working capital deficit was $109,170 as
of September 30, 2016.
Our total liabilities are $123,625 as of September
30, 2016.
Our total stockholders’ deficit was $109,170
as of September 30, 2016, and an accumulated deficit of $237,220 as of September 30, 2016.
We had $128,940 in net cash used in operating
activities for the nine months ended September 30, 2016, which included $144,465 in net loss, which amount was offset by $14,998
in accounts payable and $8,627 in derivative liabilities and increased by $6,600 in deposits and $1,500 in prepaid expenses.
We
had no cash provided by investing activities for the three months ended September 30, 2016.
We
had $110,400 in cash provided by financing activities the three months ended September 30, 2016, which was due to $10,400 from
the issuance of a Series 1 preferred and $100,000 in related party advances.
The
Company had no formal long-term lines or credit or other bank financing arrangements as of September 30, 2016.
The
Company has no current plans for the purchase or sale of any plant or equipment.
The
Company has no current plans to make any changes in the number of employees.
Income
Tax Expense (Benefit)
The
Company has a prospective income tax benefit resulting from a net operating loss carry forward and startup costs that may offset
any future operating profit.
Impact
of Inflation
The
Company believes that inflation has had a negligible effect on operations over the past quarter.
Capital
Expenditures
The
Company expended no amounts on capital expenditures for the three months ended September 30, 2016 or 2015.
Plan
of Operation
Our
plan of operations, now that we have completed our registration statement and obtained our symbol, is as follows:
Expand
and Enhance Our Website
Time
Frame: 1
st
to 3
rd
months.
Material
costs: $6,000 to $8,700.
We
intend to further develop and enhance our website. Our sole director and president, David Behrend, will be in charge of overseeing
the further development and expansion of our website and the consulting and advisory services we intend to offer. We hired a web
designer to help us with the development and functionality of the website and intend to continue to enhance it. We do not have
any written agreements with any web designers at current time. The website expansion costs, including site design and implementation
will be approximately $3,000 to $5,000. Updating and improving our website will continue throughout the lifetime of our operations.
Negotiate
agreements with potential referral sources and clients
Time
Frame: 3
rd
to 6
th
.
No
material costs.
Now
that our website is operational, we have contacted and started negotiations with potential clients and referral sources. In June
2015, we engaged our first client. We will negotiate terms and conditions of collaboration. At the beginning, we plan to focus
primarily on local advisors such as attorneys, accountants, insurance agents, title officers and financial planners. We do not
expect to compensate any referral sources and will offer reciprocal referrals to any source that is willing to refer us clients;
however, we may decide to compensate referral sources on a case-by-case basis. Then we plan to expand our target market to other
service providers and investment professionals such as investment bankers. This activity will be ongoing throughout our operations.
Even though the negotiation with potential customers and referral sources will be ongoing during the life of our operations, we
cannot guarantee that we will be able to find successful agreements, in which case our business may fail and we will have to cease
our operations. We do not expect to enter into formal written agreements with our referral sources and intend for these agreements
to be oral. We intend to enter into real estate consulting agreements with our clients that will set forth the scope of services
we agree to with these clients and provide for the hourly or flat rate billing arrangements.
In
the future, when/if we have available resources, operating history and experience, we plan to contact larger referrals sources
that have more established clients. However, we anticipate encountering many market barriers in becoming a service provider to
clients of large established professionals. Our competitors have gained customer loyalty and brand identification through their
long-standing advertising and customer service efforts. This creates a barrier to market entry by forcing us to spend time and
money to differentiate our product in the marketplace and overcome these loyalties. The large established service providers may
require capital investments in personnel. Considering our lack of operating history and experience in being a real estate consulting
firm, we may never become a consultant to large established clients.
Commence
Marketing Campaign
Time
Frame: 6
th -
12
th
months.
Material
costs: $10,000-$15,000.
We
intend to use marketing strategies, such as web advertisements, direct mailing, and phone calls to acquire potential customers.
We also plan to attend trade shows in real estate and consulting to showcase our services with a view to find new customers. We
believe that we should begin to see results from our marketing campaign within 120 days from its initiation. We also will use
Internet promotion tools on real estate and consulting websites as well as on Facebook and Twitter to advertise our services.
We intend to spend from $10,000-$20,000 on marketing efforts during the first year. Marketing is an ongoing matter that will continue
during the life of our operations. Our campaign will consist of soliciting clients by offering to provide real estate consulting
services to clients with an emphasis on research and analysis.
Even
if we are able to obtain sufficient number of consulting agreements at the end of the twelve-month period, there is no guarantee
that we will be able to attract and more importantly retain enough customers to justify our expenditures. If we are unable to
generate a significant amount of revenue and to successfully protect ourselves against those risks, then it would materially affect
our financial condition and our business could be harmed.
Hire
a Salesperson or Independent Contractors
Time
Frame: 6
th
-12
th
months.
Material
costs: $11,500-14,000.
We
eventually intend to hire one consultant with good knowledge and broad connections in the real estate consulting industry to introduce
our services. The salesperson’s job would be to find new potential clients, and to set up agreements with customers and
referral sources to engage our consulting services. The negotiation of additional agreements with potential customers will be
ongoing during the life of our operations.
In
summary, during 1
st
-6
th
month we should have developed our website. After this point we should be ready
to start more significant operations and start selling our consulting services. During months 6-12 we will be developing our marketing
campaign. There is no assurance that we will generate any revenue in the first 12 months after completion our offering or ever
generate any revenue.
David
Behrend, our president, will be devoting 40 hours per week to our operations. Mr. Behrend is a broker with Camden Realty has orally
agreed to limit his responsibilities at Camden Realty to providing brokerage services to customers that do not require consulting
services outside of the time he devotes to our operations.
Estimated
Expenses for the Next Twelve Months
The
following provides an overview of our estimated expenses to fund our plan of operation for the next twelve months. We estimate
these expense to be approximately $100,000 as follow:
Description
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Expenses
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SEC
reporting and compliance
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$
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6,000
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Website
expansion
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$
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6,000
to $8,700
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Marketing
and advertising
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$
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10,000
to 15,000
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Legal
and accounting
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$
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35,000
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Advances
to independent contractors
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$
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11,500
to 14,000
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Other
expenses
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25,000
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We
anticipate that the minimum additional capital necessary to fund our planned operations in this case for the 12-month period will
be approximately $100,000 and will be needed for general administrative expenses, business development, marketing costs and costs
associated with being a publicly reporting company. As a result, we will need to seek additional funding in the near future. The
most likely source of this additional capital is through the sale of additional shares of common stock or advances from our sole
director, our other director or our shareholders. Mr. Behrend, our sole director, through our majority shareholder, which he controls,
has orally agreed to advance us any necessary capital. However, he has no firm commitment, arrangement or legal obligation to
advance or loan funds to the Company.
If
we are able to successfully complete the above goals within the estimated timeframes set forth and are able to raise proceeds
additional proceeds that may be needed to secure additional personnel and marketing funds, those funds would be allocated as follows:
Our
management may hire full or part- time employees or independent contractors over the next six (6) months; however, at the present,
the services provided by our officers and director appears sufficient at this time. We believe that our operations are currently
on a small scale that is manageable by these two individuals and can be supplemented by engaging independent contractors. Our
management’s responsibilities are mainly administrative at this early stage. While we believe that the addition of employees
is not required over the next six (6) months, the professionals we plan to utilize may be independent contractors. We do not intend
to enter into any employment agreements with any of these professionals. Thus, these persons are not intended to be employees
of our company.
Our
management does not expect to incur any material research costs in the next twelve months; we currently do not own any plants
or equipment that we would seek to sell in the near future; we do not have any off-balance sheet arrangements; and we have not
paid for expenses on behalf of our officer or directors. Additionally, we believe that this fact shall not materially change.
Off-Balance
Sheet Arrangements
None.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Our
financial statements and related public financial information are based on the application of accounting principles generally
accepted in the United States (
“GAAP”
). GAAP requires the use of estimates; assumptions, judgments and subjective
interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported.
These estimates can also affect supplemental information contained in our external disclosures including information regarding
contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP
and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different
assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
Use
of Estimates:
Areas
where significant estimation judgments are made and where actual results could differ materially from these estimates are the
carrying value of certain assets and liabilities which are not readily apparent from other sources and the classification of net
operating loss and tax credit carry forwards.
We
believe the following is among the most critical accounting policies that impact our financial statements: We evaluate impairment
of our long-lived assets by applying the provisions of SFAS No. 144. In applying those provisions, we have not recognized any
impairment charge on our long-lived assets during the three-months ended September 30, 2016.
We
suggest that our significant accounting policies, as described in our financial statements in the Summary of Significant Accounting
Policies, be read in conjunction with this Management’s Discussion and Analysis of Financial Condition and Results of Operations.