Notes
to the Consolidated Financial Statements
March
31, 2020
(unaudited)
NOTE
1 – NATURE OF BUSINESS
Hubilu
Venture Corporation (“the Company”) was incorporated under the laws of the state of Delaware on March 2, 2015 and
is a publicly traded real estate consulting, asset management and business acquisition company, which specializes in acquiring
student housing income properties and development/business opportunities located near the Los Angeles Metro/subway stations and
within the Los Angeles area
NOTE
2 – BASIS OF PRESENTATION AND ABILITY TO CONTINUE AS A GOING CONCERN
The
accompanying consolidated financial statements include the accounts of the Company and each of its wholly owned subsidiaries:
Akebia Investments LLC, Zinnia Investments, LLC, Sunza Investments, LLC, Lantana Investments LLC, Elata Investments, LLC, Trilosa
Investments, LLC, and Boabab Investments, LLC. All intercompany transactions have been eliminated on consolidation.
The
financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United
States of America (“US GAAP”) on the basis that the Company will continue as a going concern, which assumes that the
Company will be able to meet its obligations and continue its operations for the next year. Realization values may be substantially
different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary
to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern.
At March 31, 2020, the Company had not yet achieved profitable operations, had an accumulated deficit of $1,613,650 and expects
to incur further losses in the development of its business, all of which casts substantial doubt upon the Company’s ability
to continue as a going concern and, therefore, that it may be unable to realize its assets and discharge its liabilities in the
normal course of business. 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. 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.
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Preparation and Summary of Significant Accounting Policies
The
accompanying unaudited consolidated financial statements have been prepared by the Company in accordance with Securities
and Exchange Commission rules and regulations and generally accepted accounting principles in the United States of America (“US
GAAP”) and in the opinion of management contain all adjustments necessary to present fairly the financial position, results
of operations and cash flows for the periods presented. The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.
These consolidated financial statements should be read in conjunction with the consolidated financial statements and
related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
Fair
Value Measurements
The
fair value hierarchy under GAAP is based on three levels of inputs, of which the first two are considered observable and the last
unobservable, that may be used to measure fair value which are the following:
Level
1
|
quoted
prices (unadjusted) in active markets for identical assets or liabilities.
|
|
|
Level
2
|
observable
inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical
or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or
whose significant value drivers are observable; and
|
|
|
Level
3
|
assets
and liabilities whose significant value drivers are unobservable by little or no market activity and that are significant
to the fair value of the assets or liabilities.
|
New
Accounting Pronouncements
In
February 2016, the Financial Accounting Standards Board, or FASB, established Topic 842, Leases, by issuing Accounting Standards
Update (“ASU”) No. 2016-02, which requires lessors to classify leases as a sales-type, direct financing, or operating
lease and requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic
842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10,
Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The Company adopted the new standard
effective January 1, 2019 and elected the effective date method for the transition. The Company elected the following practical
expedients:
|
●
|
Transition
method practical expedient – permits the Company to use the effective date as the date of initial application. Upon
adoption, the Company did not have a cumulative-effect adjustment to the opening balance of retained earnings. Financial information
and disclosures for periods before January 1, 2019 were not updated.
|
|
●
|
Short-term
lease practical expedient – permits the Company not to recognize leases with a term equal to or less than 12 months.
|
Lessor
Accounting
The
accounting for lessors under the new standard remained relatively unchanged with a few targeted updates impacting the Company,
which included: (i) narrower definition of initial direct costs that requires certain costs to be expensed rather than capitalized,
and (ii) provisions for uncollectible rents to be recorded as a reduction in revenue rather than as bad debt expense.
Lessee
Accounting
The
new standard requires lessees to recognize a right-of-use asset and lease liability on the balance sheet for all leases with a
term longer than 12 months. Leases are classified as finance or operating at inception, with classification affecting the pattern
and recording of expenses in the statement of operations. There was no impact on the Company’s financial statements on the
adoption of Topic 842 given that its office lease does not exceed 12 months in duration.
NOTE
4- PROPERTY ACQUISITIONS - Related Party
On
February 22, 2020 we completed our acquisition, through our subsidiary Trilosa Investments, LLC,, the real property located at
3906 Denker Avenue in Los Angeles (“Denker”). The property was vacant at time of purchase. The acquisition was for
$535,000 (“Purchase Price”). Terms of the acquisition as follows:
(1)
A first position note with payment on principal balance of $416,000 issued by the Property Owner, Trilosa, owing to lender, Visio
Financial Services, Inc, whose terms of payments due are principle and interest, on unpaid principal at the rate of 6% per annum.
Principal and interest payable in monthly installments of $2,494.13 or more starting on April 1, 2020 and continuing until the
1st day of March 2050, at which time the entire principal balance together with interest due thereon, shall become
due and payable.
The
initial fixed interest rate will change to an adjustable interest rate on the 1st day of March 2025, and the adjustable
interest rate may change on that day every 12th month thereafter. The date on which the initial fixed interest rate
changes to an adjustable interest rate, and each date on which my adjustable interest rate could change. (2) A $140,000 second
position note owing by Trilosa, whose terms of payments due were interest only, payable on unpaid principal at the rate of 6.00%
per annum. Interest only payable in monthly installments of $700.00 or more on the 15th day of each month beginning
on the 15th day of March 2020 and continuing until the 14th day of February 2025, at which time the entire
principal balance together with interest due thereon, shall become due and payable.
NOTE
5- INVESTMENTS IN REAL ESTATE- Related party
The
change in the real estate property investments for the three months ended March 31, 2020 and the year ended December 31, 2019
is as follows:
|
|
Three months
ended
March 31, 2020
|
|
Year
ended
December 31, 2019
|
|
|
|
|
|
Balance, beginning of the period
|
|
$
|
7,525,055
|
|
|
$
|
3,463,528
|
|
Acquisitions:
|
|
|
535,000
|
|
|
|
3,993,553
|
|
|
|
|
8,060,055
|
|
|
|
7,457,081
|
|
Capital improvements
|
|
|
92,667
|
|
|
|
67,974
|
|
Balance, end of the period
|
|
$
|
8,152,722
|
|
|
$
|
7,525,055
|
|
The
change in the accumulated depreciation for the three months ended March 31, 2020 and 2019 is as follows:
|
|
March 31, 2020
|
|
|
March 31, 2019
|
|
Balance, beginning of the period
|
|
$
|
138,357
|
|
|
$
|
88,867
|
|
Depreciation charge for the period
|
|
|
22,849
|
|
|
|
10,514
|
|
Balance, end of the period
|
|
$
|
161,206
|
|
|
$
|
99,381
|
|
The
Company’s real estate investments as of March 31, 2020 is summarized as follows:
|
|
Initial
Cost to the Company
|
|
|
Capital
|
|
|
Accumulated
|
|
|
|
|
|
Security
|
|
|
|
Land
|
|
|
Building
|
|
|
Improvements
|
|
|
Depreciation
|
|
|
Encumbrances
|
|
|
Deposits
|
|
3711 South
Western Ave
|
|
$
|
508,571
|
|
|
$
|
383,716
|
|
|
$
|
-
|
|
|
$
|
61,345
|
|
|
$
|
664,367
|
|
|
$
|
12,404
|
|
2909 South Catalina
|
|
|
565,839
|
|
|
|
344,856
|
|
|
|
-
|
|
|
|
53,923
|
|
|
|
561,828
|
|
|
|
14,200
|
|
3910 Wisconsin Ave
|
|
|
337,500
|
|
|
|
150,000
|
|
|
|
31,486
|
|
|
|
11,395
|
|
|
|
487,571
|
|
|
|
12,650
|
|
3910 Walton Ave
|
|
|
318,098
|
|
|
|
191,902
|
|
|
|
-
|
|
|
|
13,564
|
|
|
|
693,055
|
|
|
|
11,000
|
|
1557 West 29th
|
|
|
496,609
|
|
|
|
146,891
|
|
|
|
-
|
|
|
|
7,775
|
|
|
|
643,500
|
|
|
|
9,175
|
|
1267 West 38th
Street
|
|
|
420,210
|
|
|
|
180,090
|
|
|
|
3,490
|
|
|
|
5,099
|
|
|
|
600,000
|
|
|
|
8,105
|
|
1618 West 38th
|
|
|
508,298
|
|
|
|
127,074
|
|
|
|
14,732
|
|
|
|
1,401
|
|
|
|
653,050
|
|
|
|
6,230
|
|
4016 Dalton Avenue
|
|
|
424,005
|
|
|
|
106,001
|
|
|
|
20,547
|
|
|
|
1,306
|
|
|
|
569,336
|
|
|
|
4,630
|
|
1981 West Estrella
Avenue
|
|
|
651,659
|
|
|
|
162,915
|
|
|
|
20,255
|
|
|
|
1,819
|
|
|
|
875,000
|
|
|
|
7,100
|
|
2115 Portland Street
|
|
|
753,840
|
|
|
|
188,460
|
|
|
|
-
|
|
|
|
1,713
|
|
|
|
934,756
|
|
|
|
12,695
|
|
717 West 42nd
Place
|
|
|
376,800
|
|
|
|
94,200
|
|
|
|
2,157
|
|
|
|
892
|
|
|
|
472,135
|
|
|
|
1,350
|
|
3906
Denker Street
|
|
|
428,000
|
|
|
|
107,000
|
|
|
|
-
|
|
|
|
973
|
|
|
|
568,000
|
|
|
|
-
|
|
|
|
$
|
5,789,429
|
|
|
$
|
2,183,105
|
|
|
$
|
92,667
|
|
|
$
|
161,206
|
|
|
$
|
7,410,950
|
|
|
$
|
99,539
|
|
NOTE
6- PROPERTY INDEBTEDNESS - RELATED PARTY
The
Company’s mortgages are summarized as follows:
|
|
|
|
|
Stated
interest
|
|
|
|
|
|
Principal
balance
|
|
|
rate
as at
|
|
|
|
|
|
March
31, 2020
|
|
|
December
31, 2019
|
|
|
March
31, 2020
|
|
|
Maturity
date
|
3711
South Western Avenue
|
|
$
|
571,904
|
|
|
$
|
574,600
|
|
|
|
3.95
|
%
|
|
August
1, 2021
|
2909
South Catalina Street
|
|
|
472,235
|
|
|
|
474,924
|
|
|
|
3.50
|
%
|
|
July
25, 2021
|
3910 Walton Ave.
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
-First
Note
|
|
|
565,145
|
|
|
|
567,243
|
|
|
|
6.00
|
%
|
|
April
30, 2020
|
-Second
Note
|
|
|
125,811
|
|
|
|
309,734
|
|
|
|
6.00
|
%
|
|
July 25, 2021
|
3910
Wisconsin Street
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
First Note
|
|
|
246,400
|
|
|
|
247,571
|
|
|
|
4.375
|
%
|
|
October
1, 2036
|
-
Second Note
|
|
|
155,000
|
|
|
|
150,000
|
|
|
|
9.00
|
%
|
|
September
27, 2020
|
-
Third Note
|
|
|
90,000
|
|
|
|
235,425
|
|
|
|
9.00
|
%
|
|
April
30, 2022
|
1557
West 29th Street
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
First Note
|
|
|
443,500
|
|
|
|
443,500
|
|
|
|
6.85
|
%
|
|
November
1, 2025
|
-Second
Note
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
6.85
|
%
|
|
October
30, 2022
|
-Unsecured Note
|
|
|
51,000
|
|
|
|
30,000
|
|
|
|
-
|
|
|
-
|
1267 West 38th
Street
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-First
Note
|
|
|
415,000
|
|
|
|
415,000
|
|
|
|
5.50
|
%
|
|
March
19,2023
|
-
Second Note
|
|
|
185,000
|
|
|
|
185,000
|
|
|
|
6.00
|
%
|
|
March
19, 2023
|
4016 Dalton Avenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-First
Note
|
|
|
419,336
|
|
|
|
420,000
|
|
|
|
7.2
|
%
|
|
January
1, 2025
|
-Second
Note
|
|
|
150,000
|
|
|
|
-
|
|
|
|
6.00
|
%
|
|
December
10, 2023
|
1618 West 38th
Street
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-First
Note
|
|
|
503,050
|
|
|
|
504,000
|
|
|
|
6.3
|
%
|
|
January
1, 2050
|
-Second
Note
|
|
|
150,000
|
|
|
|
-
|
|
|
|
6.00
|
%
|
|
December
10, 2023
|
1981 Estrella Avenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-First
Note
|
|
|
610,000
|
|
|
|
600,000
|
|
|
|
5.00
|
%
|
|
November
30, 2023
|
-Second
Note
|
|
|
240,000
|
|
|
|
265,000
|
|
|
|
5.00
|
%
|
|
November
30, 2023
|
717 West 42nd
Place
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-First
Note
|
|
|
337,167
|
|
|
|
337,167
|
|
|
|
6.85
|
%
|
|
October
31, 2025
|
-Second
Note
|
|
|
134,968
|
|
|
|
134,968
|
|
|
|
6.85
|
%
|
|
April
30, 2022
|
2115 Portland Avenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-First
Note
|
|
|
614,980
|
|
|
|
616,899
|
|
|
|
6.00
|
%
|
|
May
31, 2024
|
-Second
Note
|
|
|
319,778
|
|
|
|
319,778
|
|
|
|
5.00
|
%
|
|
April
30, 2024
|
3906 Denker
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-First
Note
|
|
|
416,000
|
|
|
|
-
|
|
|
|
6.00
|
%
|
|
March
1, 2050
|
-Second
Note
|
|
|
152,000
|
|
|
|
-
|
|
|
|
6.00
|
%
|
|
February
14, 2025
|
|
|
$
|
7,568,274
|
|
|
$
|
7,000,810
|
|
|
|
|
|
|
|
NOTE
7 – PROMISSORY NOTES PAYABLE -RELATED PARTY
March 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
$
|
182,055
|
|
|
$
|
182,055
|
|
As
of March 31, 2020, the Company has two promissory notes payable to Esteban Coaloa, outstanding, the total amount owing of $182,055.
The first is payable through its wholly owned subsidiary, Akebia Investments, LLC, in the amount of $92,463, bearing an interest
rate of 3.95%, maturing on August 1, 2021, and the second is payable through its wholly owned subsidiary, Zinnia Investments,
LLC, bearing an interest rate of 3.50%, maturing on July 25, 2021. The total balance is due on the maturity date of each note.
Under the terms of the acquisition of the Akebia property at
3711 South Western Avenue, the Company’s consideration for the acquisition included a promissory note (“Akebia Note”).
NOTE
8–RELATED PARTY TRANSACTIONS
As
of March 31, 2020, the Company’s majority shareholder, has provided advances totaling $492,500 (December 31, 2019: $492,500).
These advances are unsecured and do not carry a contractual interest rate or repayment terms. In connection with these advances,
the Company has recorded an imputed interest charge of $8,619 which was credited to additional paid-in capital for the three months
ended March 31, 2020. See additional related party transactions in note 6 and note 7.
NOTE
9 – SERIES 1 CONVERTIBLE PREFERRED SHARES
On
September 8, 2016, the Company authorized and designated 2,000,000 shares of Series 1 convertible preferred stock (the “Preferred
Stock”).
Effective
September 30, 2019, the 5% Voting, Cumulative Convertible Series 1 Preferred Stock date of conversion has been extended to the
September 30,2029.
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.
Conversion
– 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 5% per annum, in kind, which shall accrue quarterly. Such dividends
are cumulative. No such dividends have been declared to date.
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.
|
|
# of Shares
|
|
|
Amount
|
|
|
Dividend in Arrears
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
|
|
500,400
|
|
|
$
|
500,400
|
|
|
$
|
42,147
|
|
|
$
|
542,547
|
|
Dividends accrued
|
|
|
-
|
|
|
|
-
|
|
|
|
25,020
|
|
|
|
25,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019
|
|
|
500,400
|
|
|
|
500,400
|
|
|
|
67,167
|
|
|
|
567,567
|
|
Dividends accrued
|
|
|
|
|
|
|
|
|
|
|
6,255
|
|
|
|
6,255
|
|
Balance, March 31, 2020
|
|
|
500,400
|
|
|
$
|
500,400
|
|
|
$
|
73,422
|
|
|
$
|
573,822
|
|
NOTE
10 – SUBSEQUENT EVENTS
On
July 14, 2020, the Company acquired, through its wholly owned subsidiary Trilosa Investments, LLC, its real property asset located
at 3408 S. Budlong Street, Los Angeles.
On
September 11, 2020 Kapok Investments, LLC, of which the company is 100% member, entered into an agreement to acquire its real
property asset located at 3912 Hill Street, Los Angeles. Purchase to close in Q4, 2020.
Effective
May 26, 2020, Maurice Simone, Vice President and Secretary, has resigned from his position at the company.
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:
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the
risks of a start-up company;
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management’s
plans, objectives and budgets for its future operations and future economic performance;
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capital
budget and future capital requirements;
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meeting
future capital needs;
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our
dependence on management and the need to recruit additional personnel;
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limited
trading for our common stock, if listed or quoted
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the
level of future expenditures;
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impact
of recent accounting pronouncements;
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the
outcome of regulatory and litigation matters; and
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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:
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those
described in the context of such forward-looking statements;
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the
political, social and economic climate in which we conduct operations; and
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the
risk factors described in other documents and reports filed with the Securities and Exchange Commission
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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.