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This Annual Report on Form 10-K contains forward-looking statements. Our actual
results could differ materially from those set forth because of general economic
conditions and changes in the assumptions used in making such forward-looking
statements. The following discussion and analysis of our financial condition and
results of operations should be read together with the audited consolidated
financial statements and accompanying notes and the other financial information
appearing elsewhere in this Report. The analysis set forth below is provided
pursuant to applicable Securities and Exchange Commission regulations and is not
intended to serve as a basis for projections of future events. Refer also to
“Risk Factors” and “Cautionary Note Regarding Forward Looking Statements” in
Item 1 above.
The following is management’s discussion and analysis of financial condition and
results of operations and is provided as a supplement to the accompanying
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 financial statements.
In this Annual Report on Form 10-K, “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 as of December 31, 2022 and 2021 and our results of
operations for the year ended December 31, 2022 and 2021. You should refer to
the Financial Statements and related Notes in conjunction with this discussion.
Results of Operations General
We are a startup enterprise that commenced operations on March 5, 2015, which,
until June 2015, has been limited to organizational and business development
activities. 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. Our mission is 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. We intend to focus our initial marketing efforts in the
commercial markets; however, we will also look at residential and income
producing markets. We intend to use the Internet as well as the services of
independent sales consultants to market our services to investors and
professionals in Southern California with our initial efforts focused in Beverly
Hills and Los Angeles. We have had limited 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 2, 2015 (Date of Incorporation) to December 2019 were
devoted primarily to development, operational activities, and acquisitions 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, to assist it in evaluating the best use of its property.
We intend to provide services to target 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 intend to offer
services to assist the principals with property development ideas and investment
structure.
Our goal is to assist investors by providing them with the property
opportunities, analysis and guidance to enhance their ability to purchase or
lease real estate. We are not real estate brokers and do not intend to offer
brokerage services. We intend to initially target businesses in Southern
California.
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As of December 31, 2022, we had $92,068 cash on hand. 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. The additional equity financing will likely be in the form of
private placements of common stock. As of December 31, 2022, the Company has
borrowed $474,271 from Jacaranda Investments, Inc.
Management believes that if subsequent private placements are successful, we
will generate sales revenue within the following twelve months thereof. However,
additional equity financing may not be available to us on acceptable terms or at
all, and thus we could fail to satisfy our future cash requirements.
If we are unsuccessful in raising the additional proceeds through a private
placement offering, we will then have to seek additional funds through debt
financing, which would be highly difficult for a new development stage company
with nominal assets to secure. Therefore, we are highly dependent upon the
success of a future private placement offering and failure thereof would result
in our having to seek capital from other resources such as debt financing, which
may not even be available to us. However, if such financing were available,
because we are a startup company with no operations to date, we would likely
have to pay additional costs associated with high-risk loans and be subject to
an above market interest rate. At such time these funds are required, management
would evaluate the terms of such debt financing and determine whether the
business could sustain operations and growth and manage the debt load. If we
cannot raise additional proceeds via a private placement of our common stock or
secure debt financing, we would be required to cease business operations. As a
result, investors in our common stock would lose all of their investment.
We have no current plans, preliminary or otherwise, to merge with any other
entity although we may consider such plans in the future.
At the present time, we intend to seek various investors to obtain additional
equity financing. There can be no assurance that we will be successful in
obtaining additional capital from these negotiations. If are unable to raise
additional capital, we will either suspend marketing operations until we do
raise the cash or cease operations entirely. Other than as described in this
paragraph and the preceding paragraphs, we have no other financing plans.
Management does not plan to hire additional employees at this time. Our officers
and directors, as well as independent contractors, will be responsible for
providing consulting services.
Critical Accounting Policy and Estimates. Our Management’s Discussion and
Analysis of Financial Condition and Results of Operations section discusses our
financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation
of these financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. On an on-going basis, management evaluates
its estimates and judgments, including those related to revenue recognition,
accrued expenses, financing operations, and contingencies and litigation.
Management bases its estimates and judgments on historical experience and on
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. The most significant accounting estimates inherent in
the preparation of our financial statements include estimates as to the
appropriate carrying value of certain assets and liabilities which are not
readily apparent from other sources. In addition, these accounting policies are
described at relevant sections in this discussion and analysis and in the notes
to the financial statements included in this Annual Report on Form 10-K.
The following discussion of our financial condition and results of operations
should be read in conjunction with our audited financial statements for the year
ended December 31, 2022 and 2021, respectively together with notes thereto,
which are included in this Annual Report on Form 10-K.
For the Year Ended December 31, 2022 compared to the year ended December 31,
2021.
Revenues. Our rental revenues increased $386,900 to $1,579,682 for the year
ended December 31, 2022, compared to $1,192,782 for the comparable period in
2021 due to the acquisition of 4 new properties which were rehabbed and rented
out.
Operating expenses. Operating expenses increased $273,197 to $798,559 for the
year ended December 31, 2022, compared to $525,362 for the comparable period in
2021. Operating expenses are comprised of general and administrative expenses,
consulting fees, depreciation, professional fees, property taxes, rent, repairs
and maintenance, transfer agent and filing fees and utilities. The components of
operating expenses are discussed below.
General and administrative expenses increased $182,239 to $589,948 for the year
ended December 31, 2022, compared to $407,709 for the comparable period in 2021.
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Depreciation increased $90,958 to $208,611 for the year ended December 31, 2022,
compared to $117,653 for the comparable period in 2021.
Professional fees increased $61,521 to $61,916 for the year ended December 31,
2022, compared to $395 for the comparable period in 2021. Professional fees
consisted of legal fees and accounting fees.
Property taxes increased $74,835 to $198,038 for the year ended December 31,
2022, compared to $123,203 for the comparable period in 2021. The increase is
due to the acquisition of additional rental properties in 2023.
Utilities decreased $3,314 to $66,357 for the year ended December 31, 2022,
compared to $69,671 for the comparable period in 2021.
Net Loss. Our net loss increased by a net amount of $157,149, due to a loss of
$114,286 for the year ended December 31, 2022, compared to net income of $42,863
for the comparable period in 2021.
Liquidity and Capital Resources. Since 2015, Jacaranda Investments, Inc.,
provided us with $492,500 in related party advances. We have not been advanced
any more money since 2018. Jacaranda Investments, Inc. has agreed not to seek
repayment of its advances until we are financially able to repay them. In 2021,
$18,229 was repaid to Jacaranda Investments, Inc. leaving the balance at
$474,271.
Our total assets are $17,089,666 as of December 31, 2022, consisting of
$11,800,304 in real estate, building and capital improvements of $5,458,695,
$296,463 in property acquisition and financing, net of $564,647 in depreciation,
$92,068 in cash and $6,783 in security deposits.
Our total liabilities are $17,982,243 as of December 31, 2022 and $14,934,746 as
of December 31, 2021.
Our total stockholders’ deficit is $892,577 for the year ended December 31,
2022, and as of December 31, 2022, our accumulated deficit is $1,740,795.
Our net cash provided by operations was $241,335 for the year ended December 31,
2022.
Our investing activities used a total of $559,903 for the year ended December
31, 2022.
We had $206,898 in cash provided by financing activities for the year ended
December 31, 2022.
We do not now have funds sufficient for pursuing our plan of operation, but we
are in the process of trying to increase rents to finance our operations through
rental cash flow. If operating difficulties or other factors (many of which are
beyond our control) delay our realization of revenues or cash flows from rental
income, we may be limited in our ability to pursue our business plan. Moreover,
if unexpected expenses arise due to unanticipated pressures or if we decide to
expand our business plan beyond its currently anticipated level or otherwise, we
will require additional financing to fund our operations, in addition to
anticipated cash generated from our operations. Additional financing might not
be available on terms favorable to us, or at all. If adequate funds were not
available or were not available on acceptable terms, our ability to fund our
operations, take advantage of unanticipated opportunities, develop or enhance
our business or otherwise respond to competitive pressures would be
significantly limited. In a worst-case scenario, we might not be able to fund
our operations or to remain in business, which could result in a total loss of
our stockholders’ investment. If we raise additional funds through the issuance
of equity or convertible debt securities, the percentage ownership of our
stockholders would be reduced, and these newly issued securities might have
rights, preferences or privileges senior to those of existing stockholders.
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Belladonna Lily Investments, Inc., a Wyoming Corporation is not, and has never
been a related party to Hubilu Venture Corporation. Neither Hubilu, nor David
Behrend has, nor ever had any ownership interest, nor controlling interest in
Belladonna, and David Behrend was not an officer of Belladonna during, or after
the reporting period.
The Company had no formal long-term lines or credit or other bank financing
arrangements as of December 31, 2022 or 2021.
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.
Concentrations
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of rental income. Sales to nine customers
accounted for 75% of consolidated sales for the year ended December 31, 2022
(Zinnia ($151,144) 10%, Sunza ($212,713) 13%, Elata ($144,944) 9%, Boabab
($337,354) 21%, Akebia ($142,095) 9%, Lantana ($236,694) 15%, Kapok ($102,770)
7%, Trilosa ($195,769) 12% and Mopane ($56,200) 4%.
Income Tax Expense (Benefit)
The Company has a prospective income tax benefit resulting from a net operating
loss carry forward 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 $559,903 on capital improvements for the year ended
December 31, 2022.
Plan of Operation
We were incorporated in the State of Delaware on March 2, 2015. We have never
declared bankruptcy, have never been in receivership, and have never been
involved in any legal action or proceedings. Since incorporation, we have not
made any significant purchase or sale of assets. We are a real estate consulting
and acquisition company that has just begun to generate revenues through our
real estate acquisitions. If we are unable to successfully continue to find
customers who will engage us to provide real estate consulting services or in
acquiring cash flow positive properties, we will be dependent on related party
advances or the sale of securities for our working capital.
Our business strategy is to market our website (www.hubilu.com) whereby
potential real estate users and investors will be able to review our consulting
services and engage us. We will develop our presence on various e-commerce sites
focused on the real estate, consulting and advisory industries as well as on
mainstream sites such as Facebook, Twitter, and LinkedIn. We are also focusing
on expanding our referral network by targeting other advisors such as lawyers,
accountants, insurance agents, financial planners and other service
professionals.
The number of companies which we will be able to provide services to will depend
upon the success of our marketing efforts through our website and our referral
network.
112 South Eucalyptus Avenue, LLC, our first client, retained us to assist it in
maximizing its return on equity for its property, and to source new properties
for it to buy. We are evaluating various options for the client including a sale
or a 1031 exchange. We are also advising the client on the use of strategies
utilizing an all-inclusive trust deed (AITD) whereby the seller of real estate,
with equity greater than its tax base, can spread the tax liability over the
life of the loan underlying the AITD. This strategy also allows the seller to
have an ongoing income stream, which is the primary objective of selling a
property using an AITD. We have conducted a preliminary valuation of the
property and have shown the opportunity to several potential investors. In the
event we are unable to attract an interested party to purchase the property, we
will then introduce the seller to an experienced real estate broker who
understands AITDs and how to market the property to buyers. We are also in the
process of seeking new properties for the client to buy, either as a stand-alone
purchase or as part of a 1031 exchange.
Our business is advising and consulting with real estate users and investors by
providing consulting services to support to their leasing or acquisition
strategies. We intend to advise them on their capital formation, consulting with
jurisdictional issues, property taxes, zoning, corporate structure,
administrative functions, such as bookkeeping, accounting, regulatory compliance
and reporting, valuation and other administrative tasks that real estate users
and investors may not be familiar with or desire to operate internally.
26
We intend to work collaboratively with real estate users and investors, as well
as their existing advisors, to assist them in the proper structure around
proposed leases, development or acquisitions. We believe that by providing
guidance and support to our potential clients and assisting them in structuring
their leases, developments or acquisitions we believe we will enable them to
achieve increased returns. We intend to partner and work with professional and
technical advisors that have knowledge and expertise in real estate investors.
To the extent that our potential clients request our assistance in seeking
capital or accessing the capital markets, we intend to introduce them to the
appropriate advisors who have the requisite expertise in the various areas that
may require such expertise.
Our founder has access to strategic relationships with real estate investors,
financial firms, investment bankers, brokers, individual and institutional
investors as well as accountants and attorneys. Our founder has invested his
capital in the real estate markets and has experience with real estate investing
and management. We believe that a properly structured real estate transaction
eases the ability to attract the equity capital from investors thereby allowing
the necessary capital to develop or acquire the properties.
Our business is focused on acquiring vacant residential income properties that
we rehabilitate and rent at student housing market values while simultaneously
consulting and advising with real estate investors, professionals, and
companies, We believe that this model of student housing acquisitions and
consulting with investors will generate positive cash flow in growing the
company, which will increase the evaluation of our stock, creating value for our
investors and also obtaining client loyalty. The following are key elements of
our strategy:
? Acquisition process has a strategic methodology when acquiring and calculating
cost in not only purchasing but in rehab and the value in renting out to
students near the USC campus and expanding LA Metro/subway stations. This allows
favorable returns.
We may conduct limited research and development of additional services to offer.
Further we do not expect significant changes in the number of employees. Upon
completion of our public offering, our specific goal is to offer consulting
services to real estate users and investors. Our plan of operations is as
follows:
Expand and Enhance Our Website
Time Frame: 1st to 3rd months.
Material costs: $3,000 to $5,000.
We intend to further develop and enhance our website at www.hubilu.com. Our sole
director and president, David Behrend, will oversee the further development and
expansion of our website and the consulting and advisory services we are
offering to potential clients. We hired a web designer to help us with the
development and functionality of the website and intend to continue to enhance
it. We do not have any written agreements with any web designers at current
time. The website expansion costs, including site design and implementation will
be approximately $3,000 to $5,000. Updating and improving our website will
continue throughout the lifetime of our operations.
Negotiate agreements with potential referral sources and clients
Time Frame: 3rd to 6th. 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.
27
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.
Ongoing Marketing Campaign
Time Frame: 6th – 12th months.
Material costs: $10,000.
We intend to use marketing strategies, such as social media, networking and
organic marketing to acquire potential customers and potential investors. 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 $10,000 on marketing efforts during the next
year. We intend our marketing efforts to be an ongoing activity that will
continue during the life of our operations.
Even if we can obtain sufficient number of consulting agreements, or purchase
enough assets 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.
Independent Contractors Time Frame: 6th-12th months. Material costs: $50,000.
We believe our officers have good knowledge and broad connections in the real
estate consulting industry to introduce our services, including find new
potential clients, set up agreements with customers and referral sources to
engage our consulting services. We currently anticipate that the negotiation of
additional agreements with potential customers will be ongoing during the life
of our operations.
We believe our website is state-of-the-art and we developed it to use as part of
our sales efforts. During the next 12 months, we will implement our marketing
campaign to assist officers in sales and marketing. There is no assurance that
we will generate any revenue in the next 12 months or ever generate any future
revenue.
David Behrend, our president, is devoting approximately twenty-five hours per
week to our operations. Once we expand our operations and attract more customers
to use our services and acquire more assets, Mr Behrend has agreed to commit
more time as required.
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. These expenses, which we estimate to be as
follows:
Description Expenses
SEC reporting and compliance $ 5,000
Website expansion 1,000
Marketing and advertising 10,000
Advances to independent contractors 50,000
Salaries 70,000
Legal and accounting 65,000
$ 201,000
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We anticipate that the minimum additional capital necessary to fund our planned
operations in this case for the 12-month period will be approximately $201,000
and will be needed for general administrative expenses, business development,
marketing costs and costs associated with being a publicly reporting company.
Thus, we will need to seek additional funding in the future. The most likely
source of this additional capital is through the sale of additional shares of
common or preferred stock or loans obtained by the company.
If we can successfully complete the above goals within the estimated timeframes
set forth and can raise proceeds additional proceeds that may be needed to
secure additional personnel and marketing funds, those funds would be allocated
as follows:
Our management may hire full or part- time employees or independent contractors
over the next six (6) months; however, at the present, the services provided by
our officers and director appears sufficient now. 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 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 soon; 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.
Recent Accounting Pronouncement
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.
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