Item
1. Financial Statements
HUBILU
VENTURE CORPORATION
Consolidated
Interim Balance Sheets
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June 30, 2017 (unaudited)
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December 31, 2016
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ASSETS
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|
|
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|
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|
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|
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Real Estate Investments
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$
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2,195,644
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|
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$
|
-
|
|
Cash
|
|
|
11,834
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|
|
|
3,453
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|
Deposits
|
|
|
6,600
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|
|
|
6,600
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|
Prepaid expenses
|
|
|
2,980
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|
|
|
2,498
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|
|
|
|
|
|
|
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TOTAL ASSETS
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$
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2,217,058
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|
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$
|
12,551
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|
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LIABILITIES AND STOCKHOLDERS’ DEFICIT
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Liabilities:
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|
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|
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Mortgages payable
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$
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1,104,302
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|
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$
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-
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Promissory notes payable
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|
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242,750
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|
|
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-
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Series 1 Convertible Preferred shares
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|
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460,400
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|
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10,400
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Deferred tax liability
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400,788
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|
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-
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Related party advances
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293,810
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154,000
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Accounts payable
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7,646
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25,820
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Resident security deposits
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12,040
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|
|
|
-
|
|
|
|
|
|
|
|
|
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Total Liabilities
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2,521,736
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190,220
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Stockholders’ Deficit
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Common Stock; Authorized 100,000,000 common shares, $0.001 par, 25,526,500 issued and outstanding on June 30, 2017 and December 31, 2016
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25,527
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25,527
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Additional paid-in capital
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102,123
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102,123
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Accumulated Deficit
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(432,328
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)
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(305,319
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)
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Total Stockholders’ Deficit
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(304,678
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)
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(177,669
|
)
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TOTAL LIABILITIES & STOCKHOLDERS’ DEFICIT
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|
$
|
2,217,058
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$
|
12,551
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|
The
accompanying notes are an integral part of these unaudited consolidated financial statements.
HUBILU
VENTURE CORPORATION
Consolidated
Interim Statements of Operations
(unaudited)
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Three
months ended
June 30, 2017
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Three months ended
June 30, 2016
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Six months ended
June 30, 2017
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Six months ended
June 30, 2016
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Rental
Income
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$
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40,086
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$
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-
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$
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40,086
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$
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-
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Expenses
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General & administrative expenses
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14,420
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30,110
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|
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32,327
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38,392
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|
Consulting
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32,800
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-
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60,100
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-
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Depreciation
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20,144
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-
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20,144
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-
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Interest
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13,387
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|
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-
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13,387
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-
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Professional fees
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11,050
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13,375
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27,550
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30,707
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Property taxes
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6,676
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-
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6,676
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-
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Repairs and maintenance
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3,801
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-
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3,801
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-
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Utilities
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3,110
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-
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3,110
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-
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Operating
Expenses
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105,388
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43,485
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167,095
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69,099
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Net
Loss for the Period
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$
|
(65,302
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)
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|
$
|
(43,485
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)
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|
$
|
(127,009
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)
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|
$
|
(69,099
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)
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|
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Basic
and diluted loss per common share
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$
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(0.00
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)
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$
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(0.00
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)
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$
|
(0.00
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)
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$
|
(0.00
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)
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Weighted average number of common shares
outstanding:
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Basic
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25,526,500
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25,426,500
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25,526,500
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25,182,000
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The
accompanying notes are an integral part of these unaudited consolidated financial statements.
HUBILU
VENTURE CORPORATION
Consolidated
Interim Statements
of
Cash Flows
(unaudited)
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Six-months ended
June
30, 2017
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Six-months ended
June
30, 2016
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OPERATING ACTIVITIES
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|
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Net loss
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$
|
(127,009
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)
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$
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(69,099
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)
|
Adjustments to reconcile net loss to net cash provided
by (used for) operations:
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Accrued interest on promissory notes payable
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3,588
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Depreciation
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20,144
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|
-
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Changes in operating assets and liabilities:
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Deposits
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|
-
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|
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(6,600
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)
|
Prepaid expenses
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|
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(482
|
)
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|
3,000
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|
Accounts payable
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(18,174
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)
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|
589
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Resident security deposits
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(1,300
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)
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-
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|
Net cash used in Operating Activities
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|
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(123,233
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)
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|
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(72,110
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)
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INVESTING ACTIVITIES
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Cash acquired on the acquisition of Akebia Investments
LLC and Zinnia Investments LLC
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14,416
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|
-
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Net cash provided by Investing
activities
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14,416
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|
|
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-
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FINANCING ACTIVITIES
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Principal payments on promissory notes payable
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(17,248
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)
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Principal payments on mortgages
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(5,364
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)
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|
|
-
|
|
Related party advances
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|
|
139,810
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|
|
|
75,000
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|
Net cash provided by Financing
Activities
|
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117,198
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|
75,000
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Net cash increase for period
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8,381
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|
|
|
2,890
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|
Cash, at beginning of period
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3,453
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|
|
|
21,895
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|
|
|
|
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Cash, at end of period
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$
|
11,834
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$
|
24,785
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Supplemental cash flow information:
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Cash paid for interest
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$
|
9,799
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|
|
$
|
-
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|
Cash paid for income taxes
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|
$
|
-
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|
|
$
|
-
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|
The
accompanying notes are an integral part of these unaudited consolidated financial statements.
HUBILU
VENTURE CORPORATION
Notes
to the Consolidated Interim Financial Statements
June
30, 2017
(unaudited)
NOTE
1 - BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The
accompanying unaudited consolidated financial statements of Hubilu Venture Corporation (the “Company”) have been prepared
in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they should be read in conjunction with the audited
consolidated financial statements and notes thereto for the fiscal year ended December 31, 2016 included in the Annual Report
on Form 10-K filed with the SEC on June 30, 2017.
The
consolidated financial statements include the accounts of the Company and those of its subsidiaries, which are wholly-owned or
controlled by the Company.
The
unaudited consolidated interim financial statements contain all normal recurring accruals and adjustments that, in the opinion
of management, are necessary to present fairly the financial position of the Company at June 30, 2017, and the results of operations
and cash flows for the three months and six months ended June 30, 2017. It should be understood that accounting measures at interim
dates inherently involve greater reliance on estimates than at year end. The results of operations for the three and six months
ended June 30, 2017 are not necessarily indicative of the results to be expected for the full year or any future interim periods.
NOTE
2 - NATURE OF BUSINESS AND ABILITY TO CONTINUE AS A GOING CONCERN
The
Company was incorporated under the laws of the state of Delaware on March 2, 2015, under the name Hubilu Venture Corp. and, on
March 4, 2015, filed a Certificate of Correction to change the name to Hubilu Venture Corporation. The Company had limited operations
until June 2015 and since then is implementing a business plan to provide real estate consulting services to clients in the United
States as well as raise capital to make real estate acquisitions.
During
the period ended June 30, 2017, the Company acquired two multi-residential rental properties by way of acquiring two limited liability
companies (Notes 4 and 5).
The
Company‘s financial statements are prepared using accounting principles generally accepted in the United States of America
applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course
of business. The Company has net losses for the period from March 2, 2015 (inception) to June 30, 2017 of $432,328. The Company
has not yet established sufficient revenues to cover its operating costs and allow it to continue as a going concern.
The
Company expects to continue to incur operating losses and net cash outflows until such time as it generates a level of revenue
to support its cost structure. There is no assurance that profitable operations will ever be achieved, and, if achieved, will
be sustained on a continuing basis. These factors raise substantial doubt about the Company’s ability to continue as a going
concern.
The
ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating
losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
Management intends to focus on raising additional funds either by way of debt or equity issuances in order to continue operations.
The Company cannot provide any assurance or guarantee that it will be able to obtain additional financing or generate revenues
sufficient to maintain operations. Potential investors must be aware if it is unable to raise additional funds through the sale
of its common stock and generate sufficient revenues, any investment made into the Company would be lost in its entirety.
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Asset
Impairment
The
Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount
of the asset to aggregate future net cash flows (undiscounted and without interest) expected to be generated by the asset. If
such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of
the assets exceed the fair value. Management does not believe that the value of any of the Company’s real estate investments
was impaired at June 30, 2017.
Revenue
Recognition
Management
has determined that all of the Company’s leases with its various tenants are operating leases. Rental income is generally
recognized based on the terms of leases entered into with tenants. In those instances in which the Company funds tenant improvements
and the improvements are deemed to be owned by the Company, revenue recognition will commence when the improvements are substantially
completed and possession or control of the space is turned over to the tenant.
Depreciation
The
Company uses the straight-line method for depreciation and amortization. Buildings are depreciated over the estimated useful lives
which the Company estimates to be 27-30 years.
Loss
per Share
The
Company’s basic earnings (loss) per share are calculated by dividing its net income (loss) available to common stockholders
by the weighted average number of common shares outstanding for the period. The Company’s dilutive earnings (loss) per share
is calculated by dividing its net income (loss) available to common shareholders by the diluted weighted average number of shares
outstanding during the period. The diluted weighted average number of shares outstanding is the basic weighted number of shares
adjusted for any potentially dilutive debt or equity.
Recent
Accounting Pronouncement
In
January 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-1, “Business Combinations: Clarifying
the Definition of a Business.” The pronouncement changes the definition of a business to assist entities with evaluating
when a set of transferred assets and activities is a business. The pronouncement requires an entity to evaluate if substantially
all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable
assets; if so, the set of transferred assets and activities is not a business. The pronouncement is effective for fiscal years,
and for interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company
adopted the provisions of ASU No. 2017-1 effective April 1, 2017. For the period from January 1, 2017 through June 30, 2017, the
Company acquired two properties for which it was concluded substantially all of the fair value of the assets acquired with each
property acquisition was concentrated in a single identifiable asset and did not meet the definition of a business under ASU No.
2017-1. (Notes 4 and 5). Acquisition transaction costs associated with these property acquisitions were capitalized to real estate
investments.
NOTE
4–ACQUISITION OF AKEBIA INVESTMENTS LLC.
On
April 10, 2017, the Company completed its acquisition of all of the outstanding membership interests (the “Akebia Acquisition”)
of Akebia Investments, LLC (“Akebia”) for $890,000 (the “Purchase Price”). Akebia’s sole asset is
the real property located at 3711 South Western Avenue, Los Angeles, California (the “Akebia Property”). Under the
terms of the Akebia Agreement, the Company’s consideration for the Purchase Price was: (1) a $710,000 All Inclusive Deed
of Trust, secured by the Akebia Property and a promissory note (the “Akebia Note”), which bears interest at 6%, with
$100,000 due in one (1) year and the balance due on August 1, 2019; and (2) 180,000 shares of the Company’s Series 1 Convertible
Preferred Stock at an issuance price of $1.00 per share, for $180,000 (the “Akebia Preferred Stock”). After the $100,000
is paid off, the interest rate on the balance of the note will decrease to 4% principal and interest. The Akebia Preferred Stock
is convertible into the Company’s common stock at the lesser of $0.50 per share or a 10% discount to the average closing
price of our common stock for the five (5) days prior to the holders’ date of conversion. The Akebia Preferred Stock pays
a 5% dividend in-kind, annually.
As the June 30, 2017, the balance owed on
the Akebia Note was $99,170 including accrued interest of $1,466.
The
Akebia Acquisition was accounted for as an asset acquisition with the purchase price allocated as follows:
Akebia Property
|
|
$
|
1,078,030
|
|
Deferred taxes
|
|
|
(188,030
|
)
|
|
|
|
890,000
|
|
Consideration:
|
|
|
|
|
Series 1 convertible preferred shares
|
|
|
180,000
|
|
Mortgage payable assumed
|
|
|
605,710
|
|
Promissory note payable
|
|
|
104,290
|
|
|
|
$
|
890,000
|
|
NOTE
5–ACQUISITION OF ZINNIA INVESTMENTS LLC.
On
April 10, 2017, the Company completed its acquisition of all the outstanding membership interests (the “Zinnia Acquisition”)
of Zinnia Investments, LLC (“Zinnia”) for $925,000 (the “Purchase Price”). Zinnia’s sole asset is
the real property located at 2909 South Catalina Street, Los Angeles, California (the “Zinnia Property”). The Purchase
Price consisted of a: (1) a $655,000 All Inclusive Deed of Trust, secured by the Property, and a promissory note (the “Zinnia
Note”), which bears interest at 6%, with $145,000 due in one (1) year and the balance due on in two (2) years; and (2) 270,000
share of the Company’s Series 1 Convertible Preferred Stock at an issuance price of $1.00 per share, for $270,000 (the “Zinnia
Preferred Stock”). The interest rate on the Zinnia Note will decrease to the greater of 3.5%, principal and interest or
the 11
th
District Cost of Funds Index plus 2.8% principal and interest, rounded up to the nearest 0.125% and adjusted
every six (6) months starting the 1
st
day of month 6 following the $145,000 payoff, and adjusting every 6 months thereafter.
The Zinnia Preferred Stock is convertible into the Company’s common stock at the lesser of $0.50 per share or a 10% discount
to the average closing price of our common stock for the five (5) days prior to the holders’ date of conversion. The Zinnia
Preferred Stock pays a 5% dividend in-kind, annually.
As the June 30, 2017, the balance owed on
the Zinnia Note was $143,580 including accrued interest of $2,122.
The
Zinnia Acquisition was accounted for as an asset acquisition with the purchase price allocated as follows:
Zinnia Property
|
|
$
|
1,137,758
|
|
Deferred taxes
|
|
|
(212,758
|
)
|
|
|
|
925,000
|
|
Consideration:
|
|
|
|
|
Series 1 convertible preferred shares
|
|
|
270,000
|
|
Mortgage payable assumed
|
|
|
503,956
|
|
Promissory note payable
|
|
|
151,044
|
|
|
|
$
|
925,000
|
|
NOTE
6 – MORTGAGES PAYABLE
As
at June 30, 2017, the Company’s mortgages payable are summarized as follows:
|
|
Akebia Property
|
|
|
Zinnia Property
|
|
|
|
|
|
|
|
|
Remaining principal balance
|
|
$
|
602,970
|
|
|
$
|
501,332
|
|
Monthly payment (principal and interest)
|
|
|
2,904
|
|
|
|
2,185
|
|
Stated interest rate
|
|
|
3.95
|
%
|
|
|
3.125
|
%
|
Maturity date
|
|
|
August
1, 2021
|
|
|
|
July
25, 2021
|
|
In
connection with the Company’s acquisition of Akebia Investments LLC and Zinnia Investments LLC (Notes 4 and 5), the Company
issued All Inclusive Deeds of Trust that included the mortgages payable on the Akebia Property and the Zinnia Property. As at
the acquisition date, the Company assumed the mortgage payable on the Akebia Property having a principal balance of $605,710 and
assumed the mortgage payable on the Zinnia property having a principal balance of $503,956.
For
the period from the April 10, 2017 to June 30, 2017, the Company made principal payments totaling $5,364 on the mortgages payable.
NOTE
7–SERIES 1 CONVERTIBLE PREFERRED SHARES
The
Company has authorized and designated 2,000,000 shares of Series 1 convertible preferred stock (the “Preferred Stock”).
In September 2016, the Company issued 10,400 shares of Preferred Stock at an issuance price of $1.00 per share, for gross proceeds
of $10,400 and in April 2017, the Company issued 450,000 shares of Preferred Stock in connection with the Akebia and Zinnia Acquisitions.
(Notes 4 and 5).
The
Preferred Stock has the following rights and privileges:
Voting
– The holders of the Preferred Stock shall be entitled to the number of votes equal to the number of shares of common
stock into which such shares of Preferred Stock could be converted.
Change
– Each share of Preferred Stock, is convertible at the option of the holder, into shares of common stock, at the lesser
of $0.50 per share or a ten percent (10%) discount to the average closing bid price of the common stock 5 days prior to the notice
of conversion. The Preferred Stock is also subject to certain adjustments for dilution, if any, resulting from future stock issuances,
including for any subsequent issuance of common stock at a price per share less than that paid by the holders of the Preferred
Stock.
Dividends
– The holders of the Preferred Stock in preference to the holders of common stock, are entitled to receive, if and when
declared by the Board of Directors, dividends at the rate of $0.05 per share per annum, in kind, which shall accrue quarterly.
Such dividends are cumulative. No such dividends have been declared to date. In addition, the holders of the Preferred Stock are
entitled to receive a dividend, in kind equal, to any dividend paid on common stock, when and if declared by the board, on the
basis of the number of common shares into which a share of Preferred Stock may be convertible.
Liquidation
– In the event of any liquidation, dissolution, winding-up or sale or merger of the Company, whether voluntarily or
involuntarily, each holder of Preferred Stock is entitled to receive, in preference to the holders of common stock, a per-share
amount equal to the original issue price of $1.00 (as adjusted, as defined), plus all declared but unpaid dividends.
The
Preferred Stock matures on September 30, 2019.
The
predominant settlement obligation of the Series 1 Convertible Preferred shares was considered to be the issuance of a variable
number of shares to settle a fixed monetary amount. Thus, these shares are scoped into the guidance of ASC 480-10 and are accounted
for as a liability as at June 30, 2017.
NOTE
8–RELATED PARTY TRANSACTIONS
Jacaranda
Investments, Inc., the Company’s majority shareholder, who owns 98.32% of the common stock, has agreed to provide additional
working capital to the Company. As at June 2017, Jacaranda Investments, Inc. has advanced the Company $293,810. These advances
are unsecured and do not carry an interest rate or repayment terms.
Forward
Looking Statements
This
Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” in Item 2 of Part I of this report include forward-looking statements within the meaning of Section 27A of
the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995 (collectively, the “Reform
Act”). The Reform Act provides a safe harbor for forward-looking statements to encourage companies to provide prospective
information about themselves so long as they identify these statements as forward-looking and provide meaningful cautionary statements
identifying important factors that could cause actual results to differ from the projected results. All statements, other than
statements of historical fact that we make in this Quarterly Report on Form 10-Q are forward-looking. The words “anticipates,”
“believes,” “expects,” “intends,” “will continue,” “estimates,” “plans,”
“projects,” the negative of these terms and similar expressions are intended to identify forward-looking statements.
However, the absence of these words does not mean the statement is not forward-looking.
Forward-looking
statements involve risks, uncertainties or other factors which may cause actual results to differ materially from the future results,
performance or achievements expressed or implied by the forward-looking statements. These statements are based on our management’s
beliefs and assumptions, which in turn are based on currently available information. Certain risks, uncertainties or other important
factors are detailed in this Quarterly Report on Form 10-Q and may be detailed from time to time in other reports we file with
the Securities and Exchange Commission, including on Forms 8-K and 10-K.
Examples
of forward looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, our expectations regarding
our ability to generate operating cash flows and to fund our working capital and capital expenditure requirements. Important assumptions
relating to the forward-looking statements include, among others, assumptions regarding demand for our future products, the timing
and cost of capital expenditures, competitive conditions and general economic conditions. These assumptions could prove inaccurate.
Although we believe that the estimates and projections reflected in the forward-looking statements are reasonable, our expectations
may prove to be incorrect. Important factors that could cause actual results to differ materially from the results and events
anticipated or implied by such forward-looking statements include:
|
●
|
the
risks of a start-up company;
|
|
●
|
management’s
plans, objectives and budgets for its future operations and future economic performance;
|
|
●
|
capital
budget and future capital requirements;
|
|
●
|
meeting
future capital needs;
|
|
●
|
our
dependence on management and the need to recruit additional personnel;
|
|
●
|
limited
trading for our common stock, if listed or quoted
|
|
●
|
the
level of future expenditures;
|
|
●
|
impact
of recent accounting pronouncements;
|
|
●
|
the
outcome of regulatory and litigation matters; and
|
|
●
|
the
assumptions described in this report underlying such forward-looking statements. Actual results and developments may materially
differ from those expressed in or implied by such statements due to a number of factors, including:
|
|
●
|
those
described in the context of such forward-looking statements;
|
|
●
|
the
impact of competitive products and pricing;
|
|
●
|
the
political, social and economic climate in which we conduct operations; and
|
|
●
|
the
risk factors described in other documents and reports filed with the Securities and Exchange Commission, including our Registration
Statement on Form S-1 (SEC File No. 333-204347).
|
We
operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us
to predict all of those risks, nor can we assess the impact of all of those risks on our business or the extent to which any factor
may cause actual results to differ materially from those contained in any forward-looking statement. We believe these forward-looking
statements are reasonable. However, you should not place undue reliance on any forward-looking statements, which are based on
current expectations. Further, forward-looking statements speak only as of the date they are made, and unless required by law,
we expressly disclaim any obligation or undertaking to update publicly any of them in light of new information or future events.
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 and six-months ended
June 30, 2017 and 2016, respectively. 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.
On
August 18, 2016, we entered into a purchase contract (the Zinnia Agreement”) with Zinnia Investments, LLC (“Zinnia”),
a Wyoming limited liability company, which was 100% owned by Esteban Coaloa. On January 3, 2017, Zinnia amended its operating
agreement to admit Jacaranda Investments, Inc. (“Jacaranda”) as a 45% member and the Marisol Trust, Lorenzo Soria,
as Trustee, as a 10% member. On January 3, 2017, all of the members of Zinnia approved the sale of Zinnia to us. Jacaranda is
100% owned by our Chairman and CEO and Esteban Coaloa is our Vice President. Under the terms of the Zinnia Agreement, we will
acquire 100% of the membership interests of Zinnia for $925,000 (the “Purchase Price”). Zinnia’s sole asset
is the real property located at 2909 South Catalina Street, Los Angeles, California (the “Property”). Under the terms
of the Zinnia Agreement, our consideration for the Purchase Price is: (1) a $655,000 All Inclusive Deed of Trust, secured by the
Property, and a promissory note (the “Note”), which bears interest at 6%, with $145,000 due in one (1) year and the
balance due on in two (2) years; and (2) 270,000 share of our Series 1 Convertible Preferred Stock at an issuance price of $1.00
per share, for $270,000 (the “Zinnia Preferred Stock”). The interest rate on the Note will decrease to the greater
of 3.5%, principal and interest or the 11
th
District Cost of Funds Index plus 2.8% principal and interest, rounded
up to the nearest 0.125% and adjusted every six (6) months starting the 1
st
day of month 6 following the $145,000 payoff,
and adjusting every 6 months thereafter. The Zinnia Preferred Stock is convertible into our common stock at the lesser of $0.50
per share or a 10% discount to the average closing price of our common stock for the five (5) days prior to the holders’
date of conversion. The Zinnia Preferred Stock pays a 5% dividend in-kind, annually. Under the terms of the Zinnia Agreement,
the closing was subject to our verification of title, rental income and our satisfaction with the completion and results of Zinnia’s
audited financial statements. On April 10, 2017, we closed the acquisition of Zinnia.
On
September 26, 2016, we entered into a purchase contract (the Akebia Agreement”) with Akebia Investments, LLC (“Akebia”),
a Wyoming limited liability company, which was 100% owned by Esteban Coaloa. On January 2, 2017, Akebia amended its operating
agreement and admitted Jacaranda as a 90% member. On January 2, 2017, all of the members of Akebia approved the sale to us. Jacaranda
and Esteban Coaloa are related parties as described above. We agreed to acquire 100% of the membership interests of Akebia for
$890,000 (the “Purchase Price”). Akebia’s sole asset is the real property located at 3711 South Western Avenue,
Los Angeles, California (the “Akebia Property”). The terms of the Akebia Agreement, our consideration for the Purchase
Price is: (1) a $710,000 All Inclusive Deed of Trust, secured by the Akebia Property and a promissory note (the “Akebia
Note”), which bears interest at 6%, with $100,000 due in one (1) year and the balance due on August 1, 2019; and (2) 180,000
shares of our Series 1 Convertible Preferred Stock at an issuance price of $1.00 per share, for $180,000 (the “Akebia Preferred
Stock”). After the $100,000 is paid off, the interest rate on the balance of the note will decrease to 4% principal and
interest. The Akebia Preferred Stock is convertible into our common stock at the lesser of $0.50 per share or a 10% discount to
the average closing price of our common stock for the five (5) days prior to the holders’ date of conversion. The Akebia
Preferred Stock pays a 5% dividend in-kind, annually. Under the terms of the Akebia Agreement, the closing was subject to our
verification of title, rental income and our satisfaction with the completion and results of Akebia’s audited financial
statements. On April 10, 2017, we closed the acquisition of Akebia.
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 be 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:
|
1.
|
Formation
of the Company;
|
|
2.
|
Development
of our business plan;
|
|
3.
|
Evaluating
various target real estate professionals and investors to market our services;
|
|
4.
|
Research
on marketing channels/strategies for our services;
|
|
5.
|
Secured
our website domain
www.hubilu.com
and beginning the development of our initial online website; and
|
|
6.
|
Research
on services and the pricing of our services.
|
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, appointed four new officers to the company:
|
●
|
Eric
Klein, VP, Operations & Business Development, 20 years’ experience
|
|
●
|
Tracy
Black-Van Wier, VP, Investor Relations, 20 years’ experience
|
|
●
|
Stefano
Coaloa, VP, Real Estate Development, 35 years’ experience
|
|
●
|
Chille
DeCastro, VP, Marketing, 20 years’ experience
|
In
addition to executing two purchase contracts and expanding our staff, we updated and launched our website and began marketing
the company on various social media platforms including LinkedIn, Twitter, and Facebook.
As
of June 30, 2017, we had $11,834. Management does not believe this amount will satisfy our cash requirements for the next twelve
months. We plan to satisfy our future cash requirements with 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 June
30, 2017, the Company has borrowed $293,810 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.
Subsequent
to our acquisitions of Akebia Investments, LLC and Zinnia Investments, LLC, in April 2017, we are evaluating other acquisition
opportunities.
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 consutling 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 and six months ended June 30, 2017 and 2016, respectively, together with notes thereto, which
are included in this Quarterly Report on Form 10-Q.
Three
months ended June 30, 2017 compared to the three months ended June 30, 2016
Revenues
.
Our revenues increased $40,086, or 100.0%, to $40,086 for the three months ended June 30, 2017 compared to $0 for the comparable
period in 2016. The increase in revenues is due to our acquisition of two rental properties.
Operating
expenses.
Operating expenses include general and administrative expenses as well as the other expenses listed below. In total,
operating expenses increased $58,315, or 134.10%, to $101,800 for the three months ended June 30, 2017 compared to $43,485 for
the comparable period in 2016. The components of operating expenses are discussed below.
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
Amount of
Increase
(decrease)
|
|
General & administrative expenses
|
|
$
|
14,420
|
|
|
$
|
30,110
|
|
|
$
|
(15,690
|
)
|
Consulting
|
|
|
32,800
|
|
|
|
-
|
|
|
|
32,800
|
|
Depreciation
|
|
|
20,144
|
|
|
|
-
|
|
|
|
20,144
|
|
Interest
|
|
|
13,387
|
|
|
|
-
|
|
|
|
13,387
|
|
Professional fees
|
|
|
11,050
|
|
|
|
13,375
|
|
|
|
(2,325
|
)
|
Property taxes
|
|
|
6,676
|
|
|
|
-
|
|
|
|
6,676
|
|
Repairs and maintenance
|
|
|
3,801
|
|
|
|
-
|
|
|
|
3,801
|
|
Utilities
|
|
|
3,110
|
|
|
|
-
|
|
|
|
3,110
|
|
Total operating expenses
|
|
$
|
105,388
|
|
|
$
|
43,485
|
|
|
$
|
61,903
|
|
General
and administrative expenses decreased $15,690, or 52.11%, to $14,420 for the three months ended June 30, 2017 compared to $30,110
for the comparable period in 2016. The decrease is primarily due to a decrease in computer and internet expenses as well as business
and licenses expenses.
Consulting
expenses increased $32,800 to $32,800 for the three months ended June 30, 2017 compared to $0 for the comparable period in 2016.
The increase is due to the use of various social media and marketing consultants in 2017.
Depreciation
expense increased $20,144 to $20,144 for the three months ended June 30, 2017 compared to $0 for the comparable period in 2016.
The increase is due to the acquisition of our two rental properties.
Interest
expense increased $13,387 to $13,387 for the three months ended June 30, 2017 compared to $0 for the comparable period in 2016.
The increase is due to the mortgages payable acquired with the acquisition of our two rental properties in addition to the issuance
of interest bearing promissory notes to the members of the acquired limited liability companies.
Professional
fees decreased $2,325, or 33.80%, to $11,050 for the three months ended June 30, 2017 compared to $13,375 for the comparable period
in 2016. The decrease is primarily due to a decrease in accounting fees.
Property
tax expense increased $6,676 to $6,676 for the three months ended June 30, 2017 compared to $0 for the comparable period in 2016.
The increase is due to the acquisition of our two rental properties.
Repairs
and maintenance expense increased $3,801 to $3,801 for the three months ended June 30, 2017 compared to $0 for the comparable
period in 2016. The increase is due to the acquisition of our two rental properties.
Utilities
expense increased $3,110 to $3,110 for the three months ended June 30, 2017 compared to $0 for the comparable period in 2016.
The increase is due to the acquisition of our two rental properties.
Net
loss.
Our net loss increased $21,817, or 50.17%, to $65,302 for the three months ended June 30, 2017 compared to $43,485 for
the comparable period in 2016. The increase is attributable to the expenses discussed above.
Six
months ended June 30, 2017 compared to the six months ended June 30, 2016
Revenues
.
. Our revenues increased $40,086, or 100.0%, to $40,086 for the three months ended June 30, 2017 compared to $0 for the comparable
period in 2016. The increase in revenues is due to our acquisition of two rental properties.
Operating
expenses.
Operating expenses include general and administrative expenses as well as the other expenses listed below. In total,
operating expenses increased $94,408, or 136.63%, to $163,507 for the six months ended June 30, 2017 compared to $69,099 for the
comparable period in 2016. The components of operating expenses are discussed below.
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
Amount of
Increase
(decrease)
|
|
General & administrative expenses
|
|
$
|
32,327
|
|
|
$
|
38,392
|
|
|
$
|
(6,065
|
)
|
Consulting
|
|
|
60,100
|
|
|
|
-
|
|
|
|
32,800
|
|
Depreciation
|
|
|
20,144
|
|
|
|
-
|
|
|
|
20,144
|
|
Interest
|
|
|
13,387
|
|
|
|
-
|
|
|
|
13,387
|
|
Professional fees
|
|
|
27,550
|
|
|
|
30,707
|
|
|
|
(3,157
|
)
|
Property taxes
|
|
|
6,676
|
|
|
|
-
|
|
|
|
6,676
|
|
Repairs and maintenance
|
|
|
3,801
|
|
|
|
-
|
|
|
|
3,801
|
|
Utilities
|
|
|
3,110
|
|
|
|
-
|
|
|
|
3,110
|
|
Total operating expenses
|
|
$
|
167,095
|
|
|
$
|
69,099
|
|
|
$
|
97,996
|
|
General
and administrative expenses decreased $6,065, or 15.80%, to $32,335 for the six months ended June 30, 2017 compared to $38,392
for the comparable period in 2016. The decrease is primarily due to a decrease in computer and internet expenses.
Consulting
expenses increased $60,100 to $60,100 for the six months ended June 30, 2017 compared to $0 for the comparable period in 2016.
The increase is due to the use of various social media and marketing consultants in 2017.
Depreciation
expense increased $20,144 to $20,144 for the six months ended June 30, 2017 compared to $0 for the comparable period in 2016.
The increase is due to the acquisition of our two rental properties.
Interest
expense increased $13,387 to $13,387 for the six months ended June 30, 2017 compared to $0 for the comparable period in 2016.
The increase is due to the acquisition of our two rental properties in addition to the issuance of interest bearing promissory
notes to the members of the acquired limited liability companies.
Professional
fees decreased $3,157, or 10.80%, to $27,550 for the six months ended June 30, 2017 compared to $30,707 for the comparable period
in 2016. The decrease is primarily due to a decrease in accounting fees.
Property
tax expense increased $6,676 to $6,676 for the six months ended June 30, 2017 compared to $0 for the comparable period in 2016.
The increase is due to the acquisition of our two rental properties.
Repairs
and maintenance expense increased $3,801 to $3,801 for the six months ended June 30, 2017 compared to $0 for the comparable period
in 2016. The increase is due to the acquisition of our two rental properties.
Utilities
expense increased $3,110 to $3,110 for the six months ended June 30, 2017 compared to $0 for the comparable period in 2016. The
increase is due to the acquisition of our two rental properties.
Net
loss.
Our net loss increased $57,910, or 83.81%, to $127,009 for the six months ended June 30, 2017 compared to $69,099 for
the comparable period in 2016. The increase is attributable to the expenses discussed above.
Liquidity
and Capital Resources
. For the six months ended June 30, 2017, we borrowed $139,810 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 $2,217,058 as of June 30, 2017, consisting of $2,195,644 in real estate investments, $11,834 in cash, $6,600
in deposits and $2,980 in prepaid expenses.
Our
total liabilities are $2,521,736 as of June 30, 2017.
As
of June 30, 2017, our total stockholders’ deficit was $304,678 and our accumulated deficit was $432,328..
We
had $123,233 in net cash used in operating activities for the six months ended June 30, 2017, which included $127,009 in net loss,
which amount was decreased by $20,144 in depreciation expense and $3,588 in accrued interest and increased by $482 in prepaid
expenses, $18,174 in accounts payable and $1,300 in resident security deposits.
We had cash of $14,416 provided by investing
activities for the six months ended June 30, 2017 arising from cash acquired from our acquisitions of Akebia Investments LLC and
Zinnia Investments LLC.
We had $117,198 in cash provided by financing
activities for the six months ended June 30, 2017, which was due to $139,810 in related party advances, which was offset by $5,363
in principal mortgage payments and $17,248 in promissory note payables.
The
Company has $1,104,302 of mortgages payable and $242,750 in promissory notes payable as of June 30, 2017. It also has $460,400
in Series 1 Convertible Preferred shares, $400,788 in deferred taxes, $293,810 in related party advances, $7,646 in accounts payable
and $12,040 in resident security deposits.
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 June 30, 2017.
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 $7,000.
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 upgrade will be approximately
$6,000 to $7,000. Updating and improving our website will continue throughout the lifetime of our operations.
Negotiate
agreements with potential referral sources and clients
Time
Frame: Ongoing.
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: Immediately.
Material
costs: $20,000 - $25,000.
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 $20,000 - $25,000 on marketing efforts during the next 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 investment
opportunities and real estate consulting services to clients..
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.
There
is no assurance that we will ever generate any further revenue from real estate consulting.
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 expenses to be approximately $100,000 as follow:
Description
|
|
Expenses
|
|
|
|
|
|
SEC reporting and compliance
|
|
$
|
5,000
|
|
Website expansion
|
|
$
|
6,000 to $7,000
|
|
Marketing and advertising
|
|
$
|
20,000
to 25,000
|
|
Legal and accounting
|
|
$
|
35,000
|
|
Advances to independent contractors
|
|
$
|
11,500
to 14,000
|
|
Other expenses
|
|
|
25,000
|
|
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:
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 ASC 360. In applying those provisions, we have not recognized any impairment
charge on our long-lived assets during the six-months ended June 30, 2017.
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.