Hubilu Venture Corp - Quarter Report: 2018 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] quarterly REPORT under SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2018

or

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File No. 000-55611

Hubilu Venture Corporation

(Exact Name of Registrant as Specified in its Charter)

Registrant’s telephone number, including area code: (310) 308-7887

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§230.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated file,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ] No [X]

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section l2, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes [  ] No [  ]

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of November 4, 2018, the number of shares outstanding of the issuer’s sole class of common stock, $0.001 par value per share, is 25,730,500.

table of contents

Part I – FINANCIAL INFORMATION

Item 1. Financial Statements

HUBILU VENTURE CORPORATION

Condensed Interim Balance Sheets

The accompanying notes are an integral part of these unaudited condensed financial statements.

HUBILU VENTURE CORPORATION

Consolidated Interim Statements of Operations

(unaudited)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

HUBILU VENTURE CORPORATION

Condensed Interim Statement of Cash Flows

(unaudited)

The accompanying notes are an integral part of these unaudited condensed financial statements.

HUBILU VENTURE CORPORATION

Notes to the Condensed Interim Financial Statements

September 30, 2018

(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. The Company owns four rental properties located near the campus of the University of Southern California.

NOTE 2 – BASIS OF PRESENTATION AND ABILITY TO CONTINUE AS A GOING CONCERN

These unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and accounting principles generally accepted in the United States (“GAAP”) for interim reporting. Accordingly, certain information and footnote disclosures normally included in the annual financial statements in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the disclosures are adequate to make the information presented not misleading. These accompanying unaudited interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for fair presentation of the information contained herein.

The consolidated balance sheet as of December 31, 2017, was derived from the audited annual financial statements but does not include all disclosures required by GAAP. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K/A for the year ended December 31, 2017 filed with the SEC on June 7, 2018. The Company follows the same accounting policies in the preparation of interim reports.

During the period ended September 30, 2018, the Company’ subsidiary, Sunza Investments, LLC, acquired one multi-residential rental property (Note 4).

At September 30, 2018, the Company had not yet achieved profitable operations, had an accumulated deficit of $955,947 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

Use of Estimates

The preparation of financial statements in conformity with US GAAP which requires management to make estimates and assumptions that in certain circumstances affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and revenues and expenses. These estimates are prepared using management’s best judgment, after considering past, current and expected events and economic conditions. Actual results could differ from these estimates.

Principles of Consolidation

These consolidated financial statements include the accounts of Hubilu Venture Corporation and its wholly-owned subsidiaries, Akebia Investments LLC, Zinnia Investments LLC and Sunza Investments, LLC. All inter-company transactions and balances have been eliminated on consolidation.

Comparative Balances

Certain of the comparative balances have been reclassified to conform with the presentation in the current period financial statements.

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.

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:

The carrying value of cash, property indebtedness, accounts payable, advance payable, promissory notes payable, preferred shares and due to related party approximate their fair values.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases, amending the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The guidance will be effective in the first quarter of 2019 and allows for early adoption. The new standard requires a modified retrospective transition approach for all leases existing at the date of initial application, with an option to use certain transition relief. ASU 2016-02 provides for transition relief, which includes not electing to (i) reassess whether any expired or existing contract is a lease or contains a lease, (ii) reassess the lease classification of any expired or existing leases and (iii) expense any capitalized initial direct costs for any existing leases. The Company will continue to assess the impact of the new standard.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers and in August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers-Deferral of the Effective Date, which defers the effective date of the new revenue recognition standard until the first quarter of 2018. Subsequently, the FASB has issued multiple ASUs clarifying ASU 2014-09 and ASU 2015-14. Under the new standard, revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable. Revenue is generally recognized net of allowances and any taxes collected from customers and subsequently remitted to governmental authorities. The majority of the Company’s revenue is derived from rental income, which is scoped out from this standard and will be accounted for under ASU 2016-02, Leases.

The Company’s other revenue streams, which are being evaluated under this ASU, include but are not limited to management fees, non-recurring rental and non-rental related income and gains and losses from real estate dispositions. The Company adopted the new standard as of January 1, 2018 with no material impact on the consolidated financial statements.

NOTE 4 – PROPERTY ACQUISITIONS

On May 31, 2018, the Company acquired a 100% membership interest in Sunza Investments, LLC, a Wyoming Limited Liability Company (“Sunza”) for $510,000 (“Purchase Price”). Sunza’s sole asset is the real property located at 3910 Walton Avenue, Los Angeles CA.

The terms of the Hubilu membership interest purchase for $510,000 was subject to two loans as follows:

On September 27, 2018, Sunza Investments, LLC, a Wyoming Limited Liability Company (“Sunza”), of which the Company is 100% Member, acquired a property at 3910 Wisconsin Ave, Los Angeles, CA 90037 for $487,500 (“Purchase Price”)

The terms of the purchase for $487,500 was subject to three loans as follows:

NOTE 5–RELATED PARTY TRANSACTIONS

Jacaranda Investments, Inc., the Company’s majority shareholder, has advanced the Company $450,400. These advances are unsecured and do not carry an interest rate or repayment terms.

NOTE 6 – SHARE ISSUANCES

On January 5, 2018, Hubilu signed a 1 year consulting agreement with Pacific Horizon Capital Inc. (“Pacific”), which was paid in one payment of 144,000 common shares valued at $1.39 per share. Pacific is contracted to research and present crypto currency opportunities to Hubilu for acquisition and investment. The Company recognized consulting fees of $200,160 in connection with this share issuance.

During the nine months ended September 30, 2018, the Company issued 60,000 common shares valued at $1.00 per share for consulting services, including bookkeeping and accounting services, online marketing services and real estate analysis. The Company recognized consulting fees of $60,000 in connection with this share issuance.

During the nine months ended September 30, 2018, the Company issued 40,000 shares of the company’s 5% Voting Cumulative Series 1 Convertible Preferred Stock for $40,000.

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:

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 ended September 30, 2018 and 2017, 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. 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 was our Vice President until his death in 2017. Under the terms of the Zinnia Agreement, we acquired 100% of the membership interests of Zinnia for $910,695 (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%, interest only, 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, our former Vice President. 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 $882,463 (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%, interest only, 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.

During the 9 months ended June 30, 2018, we installed Solar Panels at 3711 S. Western Ave, Los Angeles (“Western”). The cost was $28,300 of which we borrowed $26,500 at 6%. Western is a master metered property for utilities.

We expect to reduce our electric utility bill at Western by approximately $5,000 per year. After providing for the cost of the loan we expect to recover the money in approximately 7 to 8 years. The value of the property also increased by approximately $100,000 because of the increase to the bottom line.

On May 31, 2018, the Company acquired a 100% membership interest in Sunza Investments, LLC, a Wyoming Limited Liability Company (“Sunza”) for $510,000 (“Purchase Price”). Sunza’s sole asset is the real property located at 3910 Walton Avenue, Los Angeles  CA.

The terms of the Hubilu membership interest purchase for $510,000 was subject to two loans as follows:

On September 27, 2018, Sunza Investments, LLC, a Wyoming Limited Liability Company (“Sunza”), of which the Company is 100% Member, acquired a property at 3910 Wisconsin Ave, Los Angeles, CA 90037 for $487,500 (“Purchase Price”)

The terms of the purchase for $475,000 was subject to three loans as follows:

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.

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 appointed the following new officers to the company:

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 September 30, 2018, we had $3,993 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, 2018, the Company has borrowed $450,400 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.

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.

We are encouraged by the effectiveness under which our properties are operating. Net Operating Income on our properties is much greater than industry standards of competitive properties in similar locations. To continue to keep our costs low, 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, 2018 and 2017, respectively, together with notes thereto, which are included in this Quarterly Report on Form 10-Q.

Three months ended September 30, 2018 compared to the three months ended September 30, 2017

Revenues. Our revenues increased to $60,183 for the three months ended September 30, 2018 compared to $33,501 for the comparable period in 2017. The increase is due to the acquisitions of our property in May 31, 2018.

Operating expenses. Operating expenses include general and administrative expenses, consulting expense, depreciation, professional fees, property taxes, rent, repairs and maintenance, transfer agent and filing fees, and utilities. In total, operating expenses increased $15,340, to $110,547 for the three months ended September 30, 2018 compared to $95,207 for the comparable period in 2017. The components of operating expenses are discussed below.

General and administrative expenses decreased $2,821, to $11,953 for the three months ended September 30, 2018 compared to $14,774 for the comparable period in 2017.

Consulting expenses decreased $7,291 to $20,324 for the three months ended September 30, 2018 compared to $27,615 for the comparable period in 2017. The decrease is attributable to the Company replacing a marketing consultant.

Depreciation expense increased $4,355 to $24,498 for the three months ended September 30, 2018 compared to $20,143 for the comparable period in 2017.

Professional fees increased $21,024 to $24,471 for the three months ended September 30, 2018 compared to $3,447 for the comparable period in 2017. The increase is primarily due to the timing of the invoices provided by our professional advisors.

Property tax expense decreased $912 to ($763) for the three months ended September 30, 2018 compared to $149 for the comparable period in 2017. The decrease is due to a tax refund.

Rent expense decreased $301 to $6,899 for the three months ended September 30, 2018 compared to $7,200 for the comparable period in 2017.

Repairs and maintenance expense decreased $7,890 to $922 for the three months ended September 30, 2018 compared to $8,812 for the comparable period in 2017. Even though we acquired an additional property during the quarter, our aggressive management and excellent condition of the properties resulted in reductions of repairs and maintenance.

Transfer Agent and Filing Fees increased $1,300 to $1,300 for the three months ended September 30, 2018 compared to $0 for the comparable period in 2017. The increase is due to monthly fees paid.

Utilities expense decreased $58 to $3,155 for the three months ended September 30, 2018 compared to $3,213 for the comparable period in 2017. Even though we purchased an additional property in the previous quarter and a property at the end of this quarter, the tenants pay all utilities in both properties.

Promissory Note Interest expense decreased $2,175 to $4,084 for the three months ended September 30, 2018 compared to $6,259 for the comparable period in 2017.

Mortgage Interest increased $7,934 to $17,778 for the three months ended September 30, 2018 compared to $9,854 for the comparable period in 2017.

Net loss. Our net loss decreased $7,532 to $60,433 for the three months ended September 30, 2018 compared to $67,965 for the comparable period in 2017. The decrease is attributable to the revenue and expenses discussed above.

Nine months ended September 30, 2018 compared to the nine months ended September 30, 2017

Revenues. Our revenues increased to $158,531 for the nine months ended September 30, 2018 compared to $73,587 for the comparable period in 2017. The increase is due to the acquisition of our property on May 31, 2018.

Operating expenses. Operating expenses include general and administrative expenses, consulting expense, depreciation, professional fees, property taxes, rent, repairs and maintenance, transfer agent and filing fees, and utilities. In total, operating expenses increased $281,159 to $539,874 for the nine months ended September 30, 2018 compared to $258,715 for the comparable period in 2017. The components of operating expenses are discussed below.

General and administrative expenses decreased $6,926, to $26,875 for the nine months ended September 30, 2018 compared to $33,801 for the comparable period in 2017.

Consulting expenses increased $236,557 to $324,272 for the nine months ended September 30, 2018 compared to $87,715 for the comparable period in 2017. The increase is attributable to the Company issuing stock to a consultant to research potential cryptocurrency opportunities and investments.

Depreciation expense increased $19,827 to $60,114 for the nine months ended September 30, 2018 compared to $40,287 for the comparable period in 2017. The increase is attributable to our acquisitions of our two rental properties in 2018.

Professional fees increased $9,332 to $40,329 for the nine months ended September 30, 2018 compared to $30,997 for the comparable period in 2017. The increase is primarily due to the timing of the invoices provided by our professional advisors.

Property tax expense increased $2,503 to $9,328 for the nine months ended September 30, 2018 compared to $6,825 for the comparable period in 2017. The increase is due to the acquisition of our two rental properties in 2018.

Rent expense was $20,699 for the nine months ended September 30, 2018 compared to $20,500 for the comparable period in 2017. The increase is due to a slight increase in our monthly lease rate.

Repairs and maintenance expense decreased $7,612 to $5,001 for the nine months ended September 30, 2018 compared to $12,613 for the comparable period in 2017. Even though we acquired two additional properties in 2018, our aggressive management and excellent condition of the properties, resulted in a decrease of repairs and maintenance.

Transfer Agent and Filing Fees increased $2,095 to $2,095 for the nine months ended September 30, 2018 compared to $0 for the comparable period in 2017. The increase is due to issuing stock certificates and other stock certificate resolutions and monthly fees.

Utilities expense increased $3,781 to $10,104 for the nine months ended September 30, 2018 compared to $6,323 for the comparable period in 2017. Increase reflects utilities for 9 months vs 6 months.

Promissory Note Interest expense increased $3,057 to $12,903 for the nine months ended September 30, 2018 compared to $9,846 for the comparable period in 2017.

Mortgage Interest increased $21,403 to $41,057 for the nine months ended September 30, 2018 compared to $19,654 for the comparable period in 2017.

Net loss. Our net loss increased $218,131 to $413,105 for the nine months ended September 30, 2018 compared to $194,794 for the comparable period in 2017. The increase is attributable to the revenue and expenses discussed above.

Liquidity and Capital Resources. For the nine months ended September 30, 2018, we borrowed $101,000 from our majority shareholder, which was 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 $2,722,454 as of September 30, 2018, consisting of $2,710,361 in net property assets, $3,993 in cash, $6,600 in deposits and $1,500 in prepaid expenses.

Our total liabilities are $3,290,591 as of September 30, 2018.

As of September 30, 2018, our total stockholders’ deficit was $568,137 and our accumulated deficit was $955,947.

We had $85,138 in cash used in operating activities for the nine months ended September 30, 2018, including $413,105 in net loss which was offset by non-cash charges of $60,114 for depreciation, $260,160 in stock based compensation, $18,859 in financing fees, and a net reduction of $29,266 in accounts payable.

We used $48,773 in investing activities for the nine months ended September 30, 2018, which was used for building additions and improvements.

We had $125,916 in cash provided by financing activities for the nine months ended September 30, 2018.

The Company had no formal long-term lines or credit or other bank financing arrangements as of September 30, 2018.

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.

Impact of Inflation

The Company believes that inflation has had a negligible effect on operations over the past quarter.

Capital Expenditures

The Company spent $36,272 on building improvements during the nine months ended September 30, 2018.

CRITICAL ACCOUNTING POLICIES

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.

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.

The following critical accounting policies affect our more significant estimates and assumptions used in preparing our consolidated financial statements.

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.

Asset Impairment

We review 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.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this item.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

We conducted an evaluation, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934 as amended (the “Exchange Act”)). Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the fiscal quarter covered by this quarterly report on Form 10-Q were not effective at a reasonable assurance level to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

(b) Changes in Internal Controls over Financial Reporting

During the three-month period ended September 30, 2018, there has been no change in internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

SignatureS

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.