Hubilu Venture Corp - Quarter Report: 2020 June (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: June 30, 2020

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]

Securities registered pursuant to Section 12(b) of the Act:

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:s As of December 29, 2020 the number of shares outstanding of the issuer’s sole class of common stock, $0.001 par value per share, is 26,237,125.

table of contents

Part I – FINANCIAL INFORMATION

Item 1. Financial Statements

HUBILU VENTURE CORPORATION

Consolidated Balance Sheets

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

HUBILU VENTURE CORPORATION

Consolidated Statements of Operations

(unaudited)

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

HUBILU VENTURE CORPORATION

Consolidated Statement of Stockholders’ Deficit

(unaudited)

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

HUBILU VENTURE CORPORATION

Consolidated Statements of Cash Flows

(unaudited)

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

HUBILU VENTURE CORPORATION

Notes to the Consolidated Financial Statements

June 30, 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 June 30, 2020, the Company had not yet achieved profitable operations, had an accumulated deficit of $1,619,939 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 condensed 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 condensed 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:

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:

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- INVESTMENTS IN REAL ESTATE

The change in the real estate property investments for the six months ended June 30, 2020 and the year ended December 31, 2019 is as follows:

The change in the accumulated depreciation for the six months ended June 30, 2020 and 2019 is as follows:

The Company’s real estate investments as of June 30, 2020 is summarized as follows:

NOTE 5- PROPERTY INDEBTEDNESS- Related Party

NOTE 6 – PROMISSORY NOTES PAYABLE

As of June 30, 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 with a balance of $89,592 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 7 – RELATED PARTY TRANSACTIONS

As of June 30, 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 and which was credited to additional paid-in capital for the 6 months ended June 30, 2020. See additional related party transactions in Note 5 and 6.

As of June 30, 2020, the Company was advanced funds from an investor for operating expenses in the amount of $30,000, which is secured by the Lantana property and does not carry a contractual interest or repayment terms. The second advance of $125,815 is secured by the Wisconsin property bearing an interest of $2.20%.

NOTE 8 – ECONOMIC INJURY DISASTER GRANT

On April 21, 2020, the Company received from the SBA an economic injury disaster grant in the amount of $4,000. The amount of the grant was determined by the number of employees indicated on the EIDL application. Per the SBA, the advance does not have to be repaid.

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.

NOTE 10 – SUBSEQUENT EVENTS

On October 30, 2020, the Company acquired, through its wholly owned subsidiary Kapok Investments, LLC, its real property asset located at 3912 Hill Street, Los Angeles.

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 and six months ended June 30, 2020 and 2019, respectively. You should refer to the Financial Statements and related Notes in conjunction with this discussion.

Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited financial statements for the three and six months ended June 30, 2020 and 2019, respectively, together with notes thereto, which are included in this Quarterly Report on Form 10-Q.

Three months ended June 30, 2020 compared to the three months ended June 30, 2019

Revenues. Our revenues increased to $216,171 for the three months ended June 30, 2020 compared to $108,749 for the comparable period in 2019. The increase is due to the acquisition of 7 new properties.

Operating expenses. In total, operating expenses decreased $36,243 to $101,397 for the three months ended June 30, 2020 compared to $137,640 for the comparable period in 2019. The decrease is primarily due to the Company paying one less salary.

General and administrative expenses decreased $1,118 to $12,503 for the three months ended June 30, 2020 compared to $13,621 for the comparable period in 2019.

Consulting expenses decreased $50,267 to $0 for the three months ended June 30, 2020 compared to $50,267 for the comparable period in 2019.

Depreciation expense increased $10,291 to $22,822 for the three months ended June 30, 2020 compared to $12,531 for the comparable period in 2019. The increase is due to acquiring more properties

Professional fees decreased $10,218 to $0 for the three months ended June 30, 2020 compared to $10,218 for the comparable period in 2019. The decrease is attributable to the timing of the invoices received by the Company’s professional service providers.

Property tax expense increased $12,186 to $17,470 for the three months ended June 30, 2020 compared to $5,284 for the comparable period in 2019. The increase is due to paying our taxes earlier in the first quarter.

Repairs and maintenance expense increased $2,852 to $5,487 for the three months ended June 30, 2020 compared to $2,635 for the comparable period in 2019. The increase is due to a new acquisition last quarter.

Promissory Note Interest expense increased $2,707 to $22,437 for the three months ended June 30, 2020 compared to $19,730 for the comparable period in 2019.

Mortgage Interest increased $46,943 to $83,821 for the three months ended June 30, 2020 compared to $36,878 for the comparable period in 2019. The increase is due to the acquisition of 7 new properties.

Net loss. Our net loss decreased $90,465 to $6,289 for the three months ended June 30, 2020 compared to $96,754 for the comparable period in 2019. The decrease is attributable to the revenue and expenses discussed above.

Six months ended June 30, 2020 compared to the six months ended June 30, 2019

Revenues. Our revenues increased to $372,301 for the six months ended June 30, 2020 compared to $191,499 for the comparable period in 2019. The increase is due to the acquisition of 7 new properties.

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 decreased $106,174 to $281,777 for the six months ended June 30, 2020 compared to $387,951 for the comparable period in 2019. The decrease is due to less consulting services.

General and administrative expenses increased $55,943 to $88,287 for the six months ended June 30, 2020 compared to $32,344 for the comparable period in 2019.

Consulting expenses decreased $246,867 to $0 for the six months ended June 30, 2020 compared to $246,867 for the comparable period in 2019. The decrease is attributable to a lesser fair value attributable to common shares issued to consultants during the six months ended June 30, 2019 compared to the same period in the prior fiscal year.

Depreciation expense increased $22,626 to $45,671 for the six months ended June 30, 2020 compared to $23,045 for the comparable period in 2019.

Professional fees decreased $15,669 to $624 for the six months ended June 30, 2020 compared to $16,293 for the comparable period in 2019.

Property tax expense increased $21,855 to $31,962 for the six months ended June 30, 2020 compared to $10,107 for the comparable period in 2019. The increase is due to paying our taxes earlier in the first quarter.

Rent expense decreased $6,750 to $7,350 for the six months ended June 30, 2020 compared to $14,100 for the comparable period in 2019. The decrease is due to downsizing our office space.

Repairs and maintenance expense increased $9,311 to $13,973 for the six months ended June 30, 2020 compared to $4,662 for the comparable period in 2019. The increase is due to a new acquisition last quarter.

Transfer Agent and Filing Fees increased $421 to $1,101 for the six months ended June 30, 2020 compared to $680 for the comparable period in 2019. The increase is due to additional monthly fees paid.

Utilities expense increased $12,879 to $20,532 for the six months ended June 30, 2020 compared to $7,653 for the comparable period in 2019. The increase is due to additional property acquisitions.

Promissory Note Interest expense increased $37,173 to $60,868 for the six months ended June 30, 2020 compared to $23,695 for the comparable period in 2019.

Mortgage Interest increased $63,579 to $139,744 for the six months ended June 30, 2020 compared to $76,165 for the comparable period in 2019. The increase is due to the acquisition of 7 new properties.

Net loss. Our net loss decreased $184,455 to $129,367 for the six months ended June 30, 2020 compared to $313,822 for the comparable period in 2019. The decrease is attributable to the revenue and expenses discussed above.

Liquidity and Capital Resources. For the six months ended June 30, 2020, we did not borrow any money from our majority shareholder. 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 $8,111,370 as of June 30, 2020, consisting of $8,056,093 in net property assets, $48,677 in cash and $6,600 in deposits.

Our total liabilities are $8,979,847 as of June 30, 2020.

We used $24,308 in operating activities for the six months ended June 30, 2020 including $129,367 in net loss which was offset by non-cash charges of $45,671 and depreciation, $12,442 in dividends accrued in preferred shares, a net increase of $4,845 in accounts payable, imputed interest of $17,327 and $61,529 received for security deposits.

We used $180,065 in investing activities for the six months ended June 30, 2020, which was used for building additions and improvements.

We had $58,841 provided by financing activities for the six months ended June 30, 2020.

The Company had no formal long-term lines or credit or other bank financing arrangements as of June 30, 2020.

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 $180,065 on building improvements during the six months ended June 30, 2020.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

For information on the impact of recent accounting pronouncements on our business, see note 3 of the Notes to the Consolidated Financial Statements.

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 and six month period ended June 30, 2020, 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.

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.