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 March 31, 2017 and 2016, respectively. You should refer to the Financial Statements and related Notes in conjunction
with this discussion.
Results
of Operations
General
We
commenced operations in March 2015, which, until June 2015, were limited to organizational and business development activities.
We began implementing our business plan in June 2015. We are real estate advisory and consulting company that assists real estate
investor professionals, as well as established companies, with advisory and consulting services focused on providing research,
analysis and acquisition opportunities to them. In August 2016, we launched a real estate acquisitions division, which specializes
in student housing income properties and the development of real estate opportunities located near Los Angeles Metro stations
within the Los Angeles Metro/Subway system.
On August 18, 2016,
we entered into a purchase contract (the Zinnia Agreement”) with Zinnia Investments, LLC (“Zinnia”), a Wyoming
limited liability company, which was 100% owned by Esteban Coaloa. On January 3, 2017, Zinnia amended its operating agreement
to admit Jacaranda Investments, Inc. (“Jacaranda”) as a 45% member and the Marisol Trust, Lorenzo Soria, as Trustee,
as a 10% member. On January 3, 2017, all of the members of Zinnia approved the sale of Zinnia to us. Jacaranda is 100% owned by
our Chairman and CEO and Esteban Coaloa is our Vice President. Under the terms of the Zinnia Agreement, we will acquire 100% of
the membership interests of Zinnia for $925,000 (the “Purchase Price”). Zinnia’s sole asset is the real property
located at 2909 South Catalina Street, Los Angeles, California (the “Property”). Under the terms of the Zinnia Agreement,
our consideration for the Purchase Price is: (1) a $655,000 All Inclusive Deed of Trust, secured by the Property, and a promissory
note (the “Note”), which bears interest at 6%, 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. On January 2, 2017, Akebia amended its operating agreement and admitted
Jacaranda as a 90% member. On January 2, 2017, all of the members of Akebia approved the sale to us. Jacaranda and Esteban Coaloa
are related parties as described above. We agreed to acquire 100% of the membership interests of Akebia for $890,000 (the “Purchase
Price”). Akebia’s sole asset is the real property located at 3711 South Western Avenue, Los Angeles, California (the
“Akebia Property”). The terms of the Akebia Agreement, our consideration for the Purchase Price is: (1) a $710,000
All Inclusive Deed of Trust, secured by the Akebia Property and a promissory note (the “Akebia Note”), which bears
interest at 6%, 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.
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 pursuing real estate acquisitions near the University of Southern
California campus. We have had limited consulting operations and have limited financial resources. Our auditors indicated in their
report on our financial statements (the “Report”) that “the Company’s lack of business operations and
early losses raise substantial doubt about our ability to continue as a going concern.” Our operations from March 2015 to
June 2015 were devoted primarily to start-up, development and operational activities, which included:
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1.
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Formation
of the Company;
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2.
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Development
of our business plan;
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3.
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Evaluating
various target real estate professionals and investors to market our services;
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4.
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Research
on marketing channels/strategies for our services;
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5.
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Secured
our website domain
www.hubilu.com
and beginning the development of our initial online website; and
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6.
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Research
on services and the pricing of our services.
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Commencing
in June 2015, we engaged our first client, 112 South Eucalyptus Avenue, LLC, which has a related party shareholder, to assist
it in evaluating the best use of its property. We are also in negotiations with Camden Realty Group, a real estate brokerage firm,
to provide consulting services to it and to have it provide brokerage services to our clients.
We
are offering services to investors and professionals with the mission to assist them in investment and property evaluation strategies
and provide hands-on support to reduce evaluation time and resources and increase the speed for them to determine whether to proceed
with a real estate lease or investment. Besides general property evaluation services, we are offering services to assist the principals
with property development ideas and investment structure.
In September 2016,
we appointed four new officers to the company:
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Eric
Klein, VP, Operations & Business Development, 20 years’ experience
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Tracy
Black-Van Wier, VP, Investor Relations, 20 years’ experience
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Stefano
Coaloa, VP, Real Estate Development, 35 years’ experience
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Chille
DeCastro, VP, Marketing, 20 years’ experience
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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 March 31, 2017, we had $6,104 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 March 31, 2017, the Company has borrowed $234,000 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.
Although we aquired Akebia Investments,
LLC and Zinnia Investments, LLC, in April 2017, we have no current plans, preliminary or otherwise, to merge with any other entity
although we may consider such plans in the future. We will evaluate opportunities as we are made aware of them.
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.
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 March 31, 2017 and 2016, respectively, together with notes thereto, which are included in
this Quarterly Report on Form 10-Q.
Three
months ended March 31, 2017 compared to the three months ended March 31, 2016
Revenues
.
We did not have any revenues for the three months ended March 31, 2017 or the comparable period in 2016. The lack of revenues
is due to our increased focus on acquiring rental properties.
Operating
expenses.
Operating expenses include general and administrative expenses and professional fees. In total, operating expenses
increased $36,094, or 140.92%, to $61,707 for the three months ended March 31, 2017 compared to $25,613 for the comparable period
in 2016. The components of operating expenses are discussed below.
General and administrative expenses increased
$31,926, or 290.84%, to $45,207 for the three months ended March 31, 2017 compared to $13,281 for the comparable
period in 2016. General and administrative expenses consisted of:
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March 31, 2017
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March 31, 2016
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Amount of
increase
(decrease)
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Consulting expense
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$
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27,300
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$
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5,000
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$
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22,300
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Automobile expense
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2,718
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585
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2,133
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Marketing expense
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2,500
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-
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2,500
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Transfer Agent expense
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1,061
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1,695
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(634
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Rent expense
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6,700
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1,704
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4,996
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Miscellaneous expense
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4,928
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4,297
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631
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Total General and administrative expense
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$
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45,207
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$
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13,281
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$
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31,926
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Professional fees increased $4,168, or 33.80%,
to $16,500 for the three months ended March 31, 2017 compared to $12,332 for the comparable period in 2016. The increase is primarily
due to a decrease in legal and accounting fees.
Net
loss.
Our net loss increased $36,094, or 140.92%, to $61,707 for the three months ended March 31, 2017 compared to $25,613
for the comparable period in 2016. The increase is attributable to the expenses discussed above.
Liquidity
and Capital Resources
. For the three months ended March 31, 2017, we borrowed $80,000 from our majority shareholder, which
it advanced to us interest free. We intend to seek additional financing for our working capital, in the form of equity or debt,
to provide us with the necessary capital to accomplish our plan of operation. There can be no assurance that we will be successful
in our efforts to raise additional capital.
Our
total assets are $17,502 as of March 31, 2017, consisting of $6,104 in cash, $6,600 in deposits and $4,798 in prepaid expenses.
Our
working capital deficit was $239,376 as of March 31, 2017.
Our
total liabilities are $256,878 as of March 31, 2017.
As
of March 31, 2017, our total stockholders’ deficit was $239,376 and our accumulated deficit was $367,026.
We
had $77,349 in net cash used in operating activities for the three months ended March 31, 2017, which included $61,707 in net
loss, which amount was increased by $2,300 in prepaid expenses and $13,342 in accounts payable.
We
had no cash provided by investing activities for the three months ended March 31, 2017.
We
had $80,000 in cash provided by financing activities for the three months ended March 31, 2017, which was due to $80,000 in related
party advances.
The
Company had no formal long-term lines or credit or other bank financing arrangements as of March 31, 2017.
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 expended no amounts on capital expenditures for the three months ended March 31, 2017.
Plan
of Operation
Our plan of operations is as follows:
Expand
and Enhance Our Website
Time Frame: 3 months.
Material costs: $6,000 to $7,000.
We intend to further develop and enhance our
website. Our sole director and president, David Behrend, will be in charge of overseeing the further development and expansion
of our website and the consulting and advisory services we intend to offer. We hired a web designer to help us with the development
and functionality of the website and intend to continue to enhance it. We do not have any written agreements with any web designers
at current time. The website expansion costs, including site upgrade, will be approximately $6,000 to $7,000.
Updating and improving our website will continue throughout the lifetime of our operations.
Negotiate
agreements with potential referral sources and clients
Time Frame: Ongoing.
No material costs.
Now
that our website is operational, we have contacted and started negotiations with potential clients and referral sources. In June
2015, we engaged our first client. We will negotiate terms and conditions of collaboration. At the beginning, we plan to focus
primarily on local advisors such as attorneys, accountants, insurance agents, title officers and financial planners. We do not
expect to compensate any referral sources and will offer reciprocal referrals to any source that is willing to refer us clients;
however, we may decide to compensate referral sources on a case-by-case basis. Then we plan to expand our target market to other
service providers and investment professionals such as investment bankers. This activity will be ongoing throughout our operations.
Even though the negotiation with potential customers and referral sources will be ongoing during the life of our operations, we
cannot guarantee that we will be able to find successful agreements, in which case our business may fail and we will have to cease
our operations. We do not expect to enter into formal written agreements with our referral sources and intend for these agreements
to be oral. We intend to enter into real estate consulting agreements with our clients that will set forth the scope of services
we agree to with these clients and provide for the hourly or flat rate billing arrangements.
In
the future, when/if we have available resources, operating history and experience, we plan to contact larger referrals sources
that have more established clients. However, we anticipate encountering many market barriers in becoming a service provider to
clients of large established professionals. Our competitors have gained customer loyalty and brand identification through their
long-standing advertising and customer service efforts. This creates a barrier to market entry by forcing us to spend time and
money to differentiate our product in the marketplace and overcome these loyalties. The large established service providers may
require capital investments in personnel. Considering our lack of operating history and experience in being a real estate consulting
firm, we may never become a consultant to large established clients.
Commence
Marketing Campaign
Time Frame: Immediately
Material costs: $20,000 - $25,000.
We intend to use marketing strategies, such
as web advertisements, direct mailing, and phone calls to acquire potential customers. We also plan to attend trade shows in real
estate and consulting to showcase our services with a view to find new customers. We believe that we should begin to see results
from our marketing campaign within 120 days from its initiation. We also will use Internet promotion tools on real estate and
consulting websites as well as on Facebook and Twitter to advertise our services. We intend to spend from $20,000-$25,000
on marketing efforts during the next year. Marketing is an ongoing matter that will continue during the life of our operations.
Our campaign will consist of soliciting clients by offering to provide investment opportunities and real estate consulting
services to clients.
Even
if we are able to obtain sufficient number of consulting agreements at the end of the twelve-month period, there is no guarantee
that we will be able to attract and more importantly retain enough customers to justify our expenditures. If we are unable to
generate a significant amount of revenue and to successfully protect ourselves against those risks, then it would materially affect
our financial condition and our business could be harmed.
Hire
a Salesperson or Independent Contractors
Time
Frame: 6
th
-12
th
months.
Material
costs: $11,500-14,000.
We
eventually intend to hire one consultant with good knowledge and broad connections in the real estate consulting industry to introduce
our services. The salesperson’s job would be to find new potential clients, and to set up agreements with customers and
referral sources to engage our consulting services. The negotiation of additional agreements with potential customers will be
ongoing during the life of our operations.
There is no assurance that we will ever
generate any further revenue from real estate consulting.
David
Behrend, our president, will be devoting 40 hours per week to our operations. Mr. Behrend is a broker with Camden Realty has orally
agreed to limit his responsibilities at Camden Realty to providing brokerage services to customers that do not require consulting
services outside of the time he devotes to our operations.
Estimated
Expenses for the Next Twelve Months
The
following provides an overview of our estimated expenses to fund our plan of operation for the next twelve months. We estimate
these expenses to be approximately $100,000 as follow:
Description
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Expenses
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SEC reporting and compliance
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$
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5,000
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Website expansion
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$
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6,000 to $7,000
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Marketing and advertising
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$
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20,000
to 25,000
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Legal and accounting
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$
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35,000
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Advances to independent contractors
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$
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11,500 to 14,000
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Other expenses
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25,000
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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 $100,000 and will be needed for general administrative expenses, business development, marketing costs and costs
associated with being a publicly reporting company. As a result, we will need to seek additional funding in the near future. The
most likely source of this additional capital is through the sale of additional shares of common stock or advances from our sole
director, our other director or our shareholders. Mr. Behrend, our sole director, through our majority shareholder, which he controls,
has orally agreed to advance us any necessary capital. However, he has no firm commitment, arrangement or legal obligation to
advance or loan funds to the Company.
If
we are able to successfully complete the above goals within the estimated timeframes set forth and are able to raise proceeds
additional proceeds that may be needed to secure additional personnel and marketing funds, those funds would be allocated as follows:
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 at this time. We believe that our operations are currently
on a small scale that is manageable by these two individuals and can be supplemented by engaging independent contractors. Our
management’s responsibilities are mainly administrative at this early stage. While we believe that the addition of employees
is not required over the next six (6) months, the professionals we plan to utilize may be independent contractors. We do not intend
to enter into any employment agreements with any of these professionals. Thus, these persons are not intended to be employees
of our company.
Our
management does not expect to incur any material research costs in the next twelve months; we currently do not own any plants
or equipment that we would seek to sell in the near future; we do not have any off-balance sheet arrangements; and we have not
paid for expenses on behalf of our officer or directors. Additionally, we believe that this fact shall not materially change.
Off-Balance
Sheet Arrangements
None.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Our
financial statements and related public financial information are based on the application of accounting principles generally
accepted in the United States (
“GAAP”
). GAAP requires the use of estimates; assumptions, judgments and subjective
interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported.
These estimates can also affect supplemental information contained in our external disclosures including information regarding
contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP
and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different
assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
Use
of Estimates:
Areas
where significant estimation judgments are made and where actual results could differ materially from these estimates are the
carrying value of certain assets and liabilities which are not readily apparent from other sources and the classification of net
operating loss and tax credit carry forwards.
We
believe the following is among the most critical accounting policies that impact our financial statements: We evaluate impairment
of our long-lived assets by applying the provisions of SFAS No. 144. In applying those provisions, we have not recognized any
impairment charge on our long-lived assets during the three-months ended March 31, 2017.
We
suggest that our significant accounting policies, as described in our financial statements in the Summary of Significant Accounting
Policies, be read in conjunction with this Management’s Discussion and Analysis of Financial Condition and Results of Operations.