Notes
to the Financial Statements
December
31, 2019
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 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 December 31, 2019, the Company had not
yet achieved profitable operations, had an accumulated deficit of $1,490,572 since inception 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.
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.
Real
Estate
Land,
buildings and improvements are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful
life ranging generally from 27 years to a maximum of 30 years on buildings and major improvements. Maintenance and repairs that
do not improve or extend the useful lives of the related assets are charged to operations as incurred. Tenant improvements are
capitalized and depreciated over the life of the related lease or their estimated useful life, whichever is shorter.
The
Company’s methodology of allocating the cost of acquisitions to assets acquired and liabilities assumed is based on estimated
fair values, replacement cost and/or appraised values. When the Company acquires operating real estate properties, the purchase
price is allocated to land, building, improvements, leasing costs, intangibles such as in-place leases, assumed debt, if any,
and to current assets and liabilities acquired, if any. The value allocated to in-place leases is amortized over the related lease
term and reflected as rental income in the consolidated statements of operations.
When
the Company acquires a property, it allocates the aggregate purchase price to tangible assets, consisting of land, building, site
improvements and furniture, fixtures and equipment, and identifiable intangible assets component at the time of purchase. The
Company follows the guidance as outlined in ASC 805-10, Business Combinations, as amended by ASU 2017-01. Most
property acquisitions made by the Company will fall within the category of acquired assets rather than acquired businesses. This
distinction will cause the Company to capitalize its costs for acquisitions, allocate them to the fair value of acquired assets
and liabilities and amortize these costs over the remaining useful lives of those assets and liabilities. Should the Company complete
any acquisitions in the future which qualify as acquisitions of businesses, associated acquisition costs would be expensed as
incurred.
Asset
Impairment
The
Company reviews 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. Management does not believe that the value of any of the Company’s real estate investments
was impaired at December 31, 2019.
Loss
per Share
The
Company’s basic loss per share are calculated by dividing its net loss available to common stockholders by the weighted
average number of common shares outstanding for the period. The Company’s dilutive loss per share is calculated by dividing
its net 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.
Income
Taxes
The
Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are determined based
on the differences between the financial statement carrying amounts and the income tax basis of assets and liabilities. Deferred
tax assets and liabilities are measured using enacted tax rates applicable to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date. A valuation allowance is applied against any deferred
tax asset if, based on available evidence, it is more likely than not that some or all of the deferred tax assets will not be
realized. For uncertain tax positions that meet a “more likely than not” threshold, the Company recognizes the benefit
of uncertain tax positions in the consolidated financial statements. The Company’s practice is to recognize interest and
penalties, if any, related to uncertain tax positions in income tax expense in the consolidated statements of operations.
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.
Note
4 -INVESTMENTS IN REAL ESTATE - Related
Party
The
change in the real estate property investments for the years ended December 31, 2019 and 2018 is as follows:
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Balance, beginning of the year
|
|
$
|
3,463,528
|
|
|
$
|
1,786,257
|
|
Acquisitions:
|
|
|
3,993,553
|
|
|
|
1,645,225
|
|
|
|
|
7,457,081
|
|
|
|
3,431,482
|
|
Capital improvements
|
|
|
67,974
|
|
|
|
32,046
|
|
Balance, end of the year
|
|
$
|
7,525,055
|
|
|
$
|
3,463,528
|
|
The change in the accumulated depreciation
for the years ended December 31, 2019 and 2018 is as follows:
|
|
2019
|
|
|
2018
|
|
Balance, beginning of the year
|
|
$
|
88,867
|
|
|
|
49,555
|
|
Depreciation charge for
the period
|
|
|
49,489
|
|
|
|
39,312
|
|
Balance, end of the year
|
|
$
|
138,356
|
|
|
$
|
88,867
|
|
The
Company's real estate investments as at December 31, 2019 is summarized as follows:
|
|
Initial cost to
the Company
|
|
|
Capital
|
|
|
Accumulated
|
|
|
|
|
Property
|
|
Land
|
|
|
Building
|
|
|
Improvements
|
|
|
Depreciation
|
|
|
Encumbrances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3711 South Western Ave
|
|
$
|
508,571
|
|
|
$
|
383,716
|
|
|
$
|
14,095
|
|
|
$
|
57,622
|
|
|
$
|
574,566
|
|
2909 South Catalina Street
|
|
|
565,839
|
|
|
|
344,856
|
|
|
|
4,749
|
|
|
|
50,709
|
|
|
|
832,744
|
|
3910 Wisconsin Ave
|
|
|
337,500
|
|
|
|
137,500
|
|
|
|
69,024
|
|
|
|
8,533
|
|
|
|
632,994
|
|
3910 Walton Ave
|
|
|
318,098
|
|
|
|
191,902
|
|
|
|
2,502
|
|
|
|
11,810
|
|
|
|
518,800
|
|
1557 West 29 Street
|
|
|
496,609
|
|
|
|
146,891
|
|
|
|
5,949
|
|
|
|
6,340
|
|
|
|
643,500
|
|
1267 West 38th
|
|
|
420,210
|
|
|
|
180,090
|
|
|
|
3,702
|
|
|
|
3,342
|
|
|
|
600,000
|
|
1618 West 38th
|
|
|
508,298
|
|
|
|
127,074
|
|
|
|
-
|
|
|
|
-
|
|
|
|
493,920
|
|
4016 Dalton Avenue
|
|
|
424,005
|
|
|
|
106,001
|
|
|
|
-
|
|
|
|
-
|
|
|
|
420,000
|
|
1981 West Estrella Avenue
|
|
|
651,659
|
|
|
|
162,915
|
|
|
|
-
|
|
|
|
-
|
|
|
|
865,000
|
|
2115 Portland Street
|
|
|
753,840
|
|
|
|
188,460
|
|
|
|
-
|
|
|
|
-
|
|
|
|
946,133
|
|
717
West 42nd Place
|
|
|
376,800
|
|
|
|
94,200
|
|
|
|
-
|
|
|
|
-
|
|
|
|
473,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,361,429
|
|
|
$
|
2,063,605
|
|
|
$
|
100,021
|
|
|
$
|
138,356
|
|
|
$
|
7,000,810
|
|
Real estate acquisition related party
2019
acquisitions
Elata
Investments, LLC
On
July 12, 2019, the Company closed on the acquisition of Elata Investments, LLC. On March 22, 2019 the company entered into a purchase
contract to purchase personal property (“the Elata Agreement”) with Adlon Investments, LLC to acquire 100% membership
interest in Elata Investments, LLC. a Wyoming Limited Liability Company. The Elata Agreement was subject to due diligence and
verification of title and rental income. Adlon Investments, LLC., a Wyoming Limited Liability Company (“Adlon”). The
acquisition was scheduled to close on July 12, 2019 and did close on July 12, 2019. Elata’s sole asset was its real property
located at 1267 W. 38th Street, Los Angeles. On July 12th, 2019, the acquisition was completed for $600,000.
The terms of the Hubilu membership interest purchase was subject to two loans as follows. (1) A $415,000 first position note owing
by Elata, whose terms of payments due were interest only, payable on unpaid principal at the rate of 5.50% per annum. Interest
only payable in monthly installments of $1,902.08 or more on the 20th day of each month beginning on the 20th day of August, 2019
and continuing until the 19th day of March 2023, at which time the entire principal balance together with interest due
thereon, shall become due and payable. (2) A $185,000 second position note owing by Elata, whose terms of payments due were interest
only, payable on unpaid principal at the rate of 6% per annum. Interest only payable in monthly installments of $346.87
or more on the 20th day of each month beginning on the 20th day of August 2019 and continuing until the 19th day of
March 2023, at which time the entire principal balance together with interest due thereon, shall become due and payable.
On
December 13, 2019 we completed our acquisition, through our subsidiary, Elata Investments, LLC, the real property located at 4016
Dalton, Los Angeles CA (“Dalton”). The property was vacant at time of purchase. The acquisition was for $525,000 (“Purchase
Price”). Terms of the acquisition as follows: (1) A first position note with payment on principal balance of $441,995.20
issued by the Property Owner, Elata, owing to lender, Visio Financial Services, Inc, whose terms of payments due are principle
and interest, on unpaid principal at the rate of 7.2% per annum. Principal and interest payable in monthly installments of $2,850.91
or more starting on February 1, 2020 and continuing until the 1st day of January 2050, at which time the entire principal
balance together with interest due thereon, shall become due and payable.
The
initial fixed interest rate will change to an adjustable interest rate on the 1st day of January, 2025, and the adjustable
interest rate may change on that day every 12th month thereafter. The date on which the initial fixed interest rate
changes to an adjustable interest rate, and each date on which my adjustable interest rate could change. (2) a $83,004.80 second
position note owing by Elata to Belladonna Lily Investments, Inc (“Bella”), whose terms of payments due were interest
only, payable from December 11, 2019 on unpaid principal at the rate of 6% per annum. Interest only payable in monthly installments
of $750.00 or more on the 11th day of each month beginning on the January 11, 2020, and continuing until December 10, 2023, at
which time the entire principal balance together with any outstanding interest due thereon, shall become due and payable. The
note to Bella in second position was increased to $150,000 at time of initial funding, with the difference of $66,995.20 being
used to fund closing costs, carrying costs and fix up costs.
On
December 30, 2019 we completed our acquisition, through our subsidiary, Elata Investments, LLC (“Elata”), the real
property located at 1618 West 38th Street, Los Angeles CA (“38th”). The property was vacant
at time of purchase. The acquisition was for $630,000 (“Purchase Price”). Terms of the acquisition as follows: (1)
A first position note with payment on principal balance of $504,000.00 issued by the Property Owner, Elata, owing to lender, Visio
Financial Services, Inc, whose terms of payments due are principle and interest, on unpaid principal at the rate of 6.3% per annum.
Principal and interest payable in monthly installments of $3,119.62 or more starting on February 1, 2020 and continuing until
the 1st day of January 2050, at which time the entire principal balance together with interest due thereon, shall become
due and payable. Note: The initial fixed interest rate will change to an adjustable interest rate on the 1st day of
January, 2025, and the adjustable interest rate may change on that day every 12th month thereafter. The date on which
the initial fixed interest rate changes to an adjustable interest rate, and each date on which my adjustable interest rate could
change. (2) A $126,000 second position note owing by Elata to Belladonna Lily Investments, Inc (“Bella”), whose terms
of payments due were interest only, payable from December 11, 2019 on unpaid principal at the rate of 6% per annum. Interest only
payable in monthly installments of $750.00 or more on the 11th day of each month beginning on January 11, 2020, and continuing
until December 10, 2025, at which time the entire principal balance together with any outstanding interest due thereon, shall
become due and payable. The note to Bella in second position was increased to $150,000 at time of initial funding, with the difference
of $24,000 being used to fund closing costs, carrying costs and fix up costs.
Kapok
Investments, LLC
On
December 31, 2019, the Company closed on the acquisition of Kapok Investments, LLC, (“Kapok”) and its real property
asset located at 1981 Estrella, Los Angeles. Under the terms of the Kapok Agreement, the Company was to acquire 100% membership
interest in Kapok for $888,000. The property was vacant at time of purchase. Kapok was owned by a related party. The acquisition
was subject to two loans as follows: (1) A $600,000 first position note owing by Kapok to Belladonna Lily Investments, Inc. (“Bella”)
whose terms of payments due were interest only, payable on unpaid principal at the rate of 5.00% per annum. Interest only payable
in monthly installments of $2,500 or more on the 1st day of each month beginning on the 1st day of January, 2020 and continuing
until the 30th day of November, 2023, at which time the entire principal balance together with interest due thereon,
shall become due and payable. (2) A $288,000 second position note owing by Kapok to Bella, whose terms of payments due were interest
only, payable on unpaid principal at the rate of 5.00% per annum. Interest only payable in monthly installments of $1,200.00 or
more on the 1st day of each month beginning on the 1st day of February 2020 and continuing until the 30th day of November,
2023 at which time the entire principal balance together with interest due thereon, shall become due and payable.
Trilosa
Investments, LLC
On
December 31, 2019, the Company acquired 100% membership interest in Trilosa Investments, LLC, a Wyoming Limited Liability Company
(“Trilosa”) which was owned by a related party. Trilosa’s sole asset was the real property located at 717 W.
42nd Place, Los Angeles CA. Under the terms of the Trilosa Agreement, the Company acquired 100% membership interest
in Trilosa for $471,000.00 (“the Purchase Price”) payable as follows: (1) subject to a $337,167.43 first position
mortgage with payment on principal balance of $337,167.43 owing to lender, Fay Servicing, Inc., interest only from January 1,
2020 on unpaid principal at the rate of 6.85% per annum in monthly installments of $1,924.66 or more on the 1st day
of each month, beginning with the first payment on the 1st day of February 2020 and continuing until 31st day
of October 2025. (2) A $133,500.00 second position note owing by Trilosa to Belladonna Lily Investments, Inc (“Bella”),
whose terms of payments due were interest only, payable from January 1, 2020 on unpaid principal at the rate of 6.85% per annum.
Interest only payable in monthly installments of $762.06 or more on the 1st day of each month beginning on the February 1, 2020,
and continuing until April 30, 2022, at which time the entire principal balance together with any outstanding interest due thereon,
shall become due and payable. Balance of purchase price paid in cash.
Boabab
Investments, LLC
On
December 31, 2019, the Company acquired 100% membership interest in Boabab Investments, LLC, a Wyoming Limited Liability Company
(“Boabab”) which is owned by a related party. Boabab’s sole asset was the real property located at 2115 Portland
Street, Los Angeles CA. Under the terms of the Boabab Agreement, the Company was to acquire 100% membership interest in Boabab
for $942,000 (“the Purchase Price”) payable as follows: (1) a $ first position mortgage with payment on principal
balance of $616,899.15 owing to lender, Nexera Holding, LLC dba Newfi Lending, a Delaware Corporation. interest only from July
1, 2019 on unpaid principal at the rate of 6.00% per annum in monthly installments of $3,721.13 or more on the 1st day
of each month, beginning with the first payment on the 1st day of January 2020 and continuing until 1st day
of June 2049. Note: The initial fixed interest rate will change to an adjustable interest rate on the 1st day of June,
2024, and the adjustable interest rate may change on that day every 12th month thereafter. The date on which the initial
fixed interest rate changes to an adjustable interest rate, and each date on which my adjustable interest rate could change. (2)
A $325,000.00 second position note owing by Boabab to Belladonna Lily Investments, Inc (“Bella”), whose terms of payments
due were interest only, payable from December 31, 2019 on unpaid principal at the rate of 5.00% per annum. Interest only payable
in monthly installments of $1,354.17 or more on the 1st day of each month beginning on the 1st day of February, 2020,
and continuing until 30th day of April 2024, at which time the entire principal balance together with any outstanding
interest due thereon, shall become due and payable.
2018
acquisitions- related party
Sunza
Investments, LLC
On
May 30, 2018, the Company entered into a contract to purchase personal property (“the Sunza Agreement”) with Adlon
Investments, Inc. a Wyoming Corporation (“Adlon”), to acquire its 100% membership interest in Sunza Investments, LLC,
a Wyoming Limited Liability Company (“Sunza”). Adlon was 100% owned by Jacaranda Investments, Inc., a Wyoming Corporation
(“Jacaranda”), which is 100% owned by the Company’s Chairman and CEO. Adlon Investments, Inc., Jacaranda Investments,
Inc., are related parties to this purchase. The purchase closed on May 31, 2018. Sunza’s sole asset was the real property
located at 3910 Walton Avenue, Los Angeles, CA 90037 (the “Property”). Under the terms of the Sunza Agreement, the
Company’s purchase price is $510,000 (“the Purchase Price”), which is comprised of the following: (1) a $325,500
promissory note dated April 5, 2018 (the “Note”) and a First Deed of Trust, secured by the Property, whereby Sunza,
as Trustee of the 3910 Walton Avenue Trust, dated April 3, 2018 (“Maker”) promises to pay Belladonna Lily Investments,
Inc, a Wyoming Corporation the sum of $325,500 with interest only from April 5, 2018 on unpaid principal at the rate of 6% per
annum. The Company is paying monthly instalment payments of $1,627.50 until April 30, 2020, at which time the entire principal
balance together with interest due thereon, shall become due and payable; and (2) a $184,500 promissory note (the “2nd Note”)
secured by a 2nd Trust Deed and payable to Belladonna Lily Investments, Inc, a Wyoming Corporation with interest only until the
April 30, 2020, at which time the entire Principal balance together with interest is due thereon, shall become due and payable.
On
September 27, 2018, the Company closed the acquisition of the real property located at 3910 Wisconsin Street, Los Angeles California
for a purchase price of $487,500. The terms of the acquisition is subject to three loans: (1) A first position note (the “1st
Note”) with unpaid principal balance of $252,228 taken subject to the Property Sellers owing their lender, whose terms
of payments are principal and interest, with payments commencing November 1, 2018, on unpaid principal at the rate of 4.375% per
annum. Interest only payable in monthly installments of $1,627.50 or more on the 1st day of each month beginning on
the November 1, 2018, and continuing until October 1, 2036, at which time the entire principal balance together with interest
due thereon, shall become due and payable; (2) A $200,000 second position note owing by Sunza to Yerba Mate Corporation, whose
terms of payments due were interest only, payable from November 1, 2018 on unpaid principal at the rate of 9% per annum. Interest
only consist of interest only monthly installments of $1,500.00 that commenced on November 1, 2018, and continuing until October
31, 2020, at which time the entire principal balance together with any outstanding interest due thereon, shall become due and
payable; and (3) a $40,000 third position note owing by Sunza to Belladonna Lily Investments, Inc., whose terms of payments consist
of interest only monthly installments at the rate of 9% per annum at the amount of $300 payable from November 1, 2018 until April
30, 2022, at which time the entire principal balance together with any outstanding interest due thereon, shall become due and
payable.
Lantana
Investments, LLC
On
December 31, 2018, the Company acquired the 100% membership interest in Lantana Investments, LLC, a Wyoming Limited Liability
Company (“Lantana”) from Jacaranda Investments, Inc. (“Jacaranda”). Jacaranda is wholly owned by our Chairman
and CEO. Jacaranda Investments, Inc. is a related party to the transaction. Lantana’s sole asset is the building and land
located at 1557 W. 29th Street, Los Angeles CA (“the Lantana Property”).
Under
the terms of the Lantana Agreement, the Company acquired the 100% membership interest in Lantana for $643,500 (“the Purchase
Price”) payable as follows: (1) a $443,500 promissory note (the “Lantana Note”) with principal and interest
payments of $2,531.65 payable until the October 30, 2048, at which time the entire principal balance together with interest is
due thereon. The Lantana Note is secured by a 1st Trust Deed and is fixed for 7 years and thereafter adjusted to 1-year
LIBOR plus 5.25%; and (2) a $200,000 promissory note (the “Lantana Second Note”) secured by a 2nd Trust
Deed and owing to Belladonna Lily Investments, Inc. The Lantana Second Note bears interest at 6.85% per annum with interest only
monthly payments of $1,141.67 until October 30, 2022 at which time the entire principal balance together with interest due thereon,
shall become due and payable.
2017 acquisitions- related party
Akebia Investments, LLC
On April 10, 2017, the Company completed
its acquisition of all of the outstanding membership interests (the “Akebia Acquisition”) of Akebia Investments, LLC
(“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 Akebia Acquisition has been accounted
for as an asset acquisition with the proceeds allocated entirely to the Akebia Property. There was no contingent consideration
associated with the Akebia Acquisition.
Under the terms of the Akebia Acquisition,
the Company’s consideration for the Purchase Price was: (1) a $710,000 All Inclusive Deed of Trust (“Akebia AITD”),
secured by the Akebia Property and a promissory note (the “Akebia Note”), which bears interest at 6% and (2) 180,000
shares of the Company’s Series 1 Convertible Preferred Stock at an issuance price of $1 per share, for $180,000. The Akebia
AITD was reduced to $702,462 after adjustments for closing costs at the date of purchase of the Akebia Property.
The Akebia AITD includes terms of repayment
of $100,000 due August 1, 2020. Once the initial repayment of $100,000 has been made, the interest rate on the remaining balance
of the Akebia AITD will reduce to 4% per annum.
Zinnia Investments, LLC
On April 10, 2017, the Company completed
its acquisition of all the outstanding membership interests (the “Zinnia Acquisition”) of Zinnia Investments, LLC
(“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 “Zinnia Property”). The Akebia Acquisition has been accounted
for as an asset acquisition with the proceeds allocated entirely to the Akebia Property. There was no contingent consideration
associated with the Zinnia Acquisition.
Under the terms of the Zinnia Acquisition,
the Company’s consideration for the Purchase Price was: (1) a $655,000 All Inclusive Deed of Trust (“Zinnia AITD”),
secured by the Zinnia Property and a promissory note (the “Zinnia Note”), which bears interest at 6% and (2) 270,000
shares of the Company’s Series 1 Convertible Preferred Stock at an issuance price of $1.00 per share, for $270,000. The
Zinnia AITD was reduced to $654,810 after adjustments for closing costs at the date of purchase of the Akebia Property.
The Zinnia AITD includes terms of repayment
of $145,000 one year from the date of inception and the remaining balance due on the Zinnia Note’s second anniversary date.
Once the initial repayment of $145,000 has been made, the interest rate on the remaining balance of the Zinnia AITD will be reduced
to the greater of 3.5% per annum or the 11th District Cost of Funds Index plus 2.8% including a provision that the
rate cannot be greater than 9.0%.
NOTE
5–PROPERTY INDEBTEDNESS
The
Company’s mortgages are summarized as follows:
|
|
|
|
|
Stated
interest rate
|
|
|
|
|
|
Principal
balance
|
|
|
as
at
|
|
|
|
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
|
December
31, 2019
|
|
|
Maturity
date
|
3711 South
Western Ave
|
|
$
|
574,566
|
|
|
$
|
585,935
|
|
|
|
3.95
|
%
|
|
August
1, 2021
|
2909 South Catalina
Street
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
First Note
|
|
|
474,868
|
|
|
|
485,294
|
|
|
|
3.50
|
%
|
|
July 25, 2021
|
-
Second Note
|
|
|
357,876
|
|
|
|
12,000
|
|
|
|
3.50
|
%
|
|
July 25, 2021
|
3910 Walton Ave.
|
|
|
518,800
|
|
|
|
510,000
|
|
|
|
5.00
|
%
|
|
August 01, 2049
|
3910 Wisconsin Street
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
First Note
|
|
|
247,571
|
|
|
|
252,228
|
|
|
|
4.375
|
%
|
|
October 1, 2036
|
-
Second Note
|
|
|
150,000
|
|
|
|
200,000
|
|
|
|
9.00
|
%
|
|
September 27, 2020
|
-
Third Note
|
|
|
235,423
|
|
|
|
40,000
|
|
|
|
4.00
|
%
|
|
April 30, 2022
|
1157 West 29 Street
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
First Note
|
|
|
443,500
|
|
|
|
443,500
|
|
|
|
6.85
|
%
|
|
November 1, 2025
|
-
Second Note
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
6.85
|
%
|
|
April 30,2022
|
1267 West 38 Street
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
-
First Note
|
|
|
415,000
|
|
|
|
-
|
|
|
|
5.50
|
%
|
|
March 19, 2023
|
-
Second Note
|
|
|
185,000
|
|
|
|
-
|
|
|
|
6.00
|
%
|
|
March 19, 2023
|
4016
Dalton Avenue
|
|
|
420,000
|
|
|
|
-
|
|
|
|
7.2
|
%
|
|
January 1,
2050
|
1618 West 38 Street
|
|
|
493,920
|
|
|
|
-
|
|
|
|
6.30
|
%
|
|
January 1, 2050
|
1981 Estrella Ave
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
First Note
|
|
|
600,000
|
|
|
|
-
|
|
|
|
5.00
|
%
|
|
November 30,2023
|
- Second
Note
|
|
|
265,000
|
|
|
|
-
|
|
|
|
5.00
|
%
|
|
November 30,2023
|
717 West 42 Place
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
First Note
|
|
|
337,167
|
|
|
|
-
|
|
|
|
6.85
|
%
|
|
October 31, 2025
|
- Second
Note
|
|
|
135,986
|
|
|
|
-
|
|
|
|
6.85
|
%
|
|
April 30, 2022
|
2115 Portland Street
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
First Note
|
|
|
616,899
|
|
|
|
-
|
|
|
|
6.00
|
%
|
|
June 1, 2049
|
-
Second Note
|
|
|
329,234
|
|
|
|
-
|
|
|
|
5.00
|
%
|
|
April
30,2024
|
|
|
$
|
7,000,810
|
|
|
$
|
2,716,957
|
|
|
|
|
|
|
|
For
the period from the January 1, 2019 to December 31, 2019, the Company made principal payments totaling $28,419 on the mortgages
payable. For the period from the January 1, 2018 to December 31, 2018, the Company made principal payments totaling $22,202 on
the mortgages payable.
Scheduled
repayments on mortgages payable, including paying off interest only loans and mortages due are as follows:
Year
ending December 31,
|
|
|
|
2020
|
|
$
|
96,338
|
|
2021
|
|
|
1,401,847
|
|
2022
|
|
|
459,032
|
|
2023
|
|
|
1,673,532
|
|
2024
|
|
|
360,532
|
|
Thereafter
|
|
|
3,009,529
|
|
|
|
$
|
7,000,810
|
|
NOTE
6–SERIES 1 CONVERTIBLE PREFERRED SHARES
The
Company has authorized and designated 2,000,000 shares of Series 1 convertible preferred stock (the “Preferred Stock”).
In September 2016, the Company issued 10,400 shares of Preferred Stock at an issuance price of $1 per share, for proceeds of $10,400
and in April 2017, the Company issued 450,000 shares of Preferred Stock in connection with the Akebia and Zinnia Acquisitions.
(Notes 4 and 5). In January 2018, the Company issued 20,000 shares of Preferred Stock at an issuance price of $1per share, for
proceeds of $20,000. In March 2018, the Company issued 20,000 shares of Preferred Stock at an issuance price of $1.00 per share,
for gross proceeds of $20,000.
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.
Change
– 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.
The
Preferred Stock matures on September 30, 2029.
The
predominant settlement obligation of the Series 1 Convertible Preferred shares was considered to be the issuance of a variable
number of shares to settle a fixed monetary amount. Thus, these shares are scoped into the guidance of ASC 480-10 and are accounted
for as a liability as at December 31, 2019 and 2018.
|
|
#
of Shares
|
|
|
Amount
|
|
|
Dividend
in Arrears
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2017
|
|
|
460,400
|
|
|
$
|
460,400
|
|
|
$
|
17,395
|
|
|
$
|
477,795
|
|
Issuance of shares for cash
|
|
|
40,000
|
|
|
|
20,000
|
|
|
|
1,732
|
|
|
|
41,732
|
|
Dividends accrued
|
|
|
-
|
|
|
|
-
|
|
|
|
23,020
|
|
|
|
23,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
|
|
500,400
|
|
|
|
500,400
|
|
|
|
42,147
|
|
|
$
|
542,547
|
|
Dividends accrued
|
|
|
-
|
|
|
|
-
|
|
|
|
25,020
|
|
|
|
25,020
|
|
Balance, December 31, 2019
|
|
|
500,400
|
|
|
$
|
500,400
|
|
|
$
|
67,167
|
|
|
$
|
567,567
|
|
NOTE
7–INCOME TAXES
The
Company did not record a provision for income taxes for the years ended December 2019 and 2018 due to a full valuation allowance
against its deferred tax assets.
On
December 22, 2017, the Tax Cuts and Jobs Act (2017 Tax Act) was enacted. The 2017 Tax Act includes a number of changes to existing
U.S. tax laws that impact the Company, most notably a reduction of the U.S. corporate tax rate from 34% to 21%, for tax years
beginning after December 31, 2017. The 2017 Tax Act also provides for the implementation of a territorial tax system, a one-time
transition tax on certain foreign earnings, the acceleration of depreciation for certain assets placed into service after September
27, 2017 and other prospective changes beginning in 2018, including repeal of the domestic manufacturing deduction, acceleration
of tax revenue recognition, capitalization of research and development expenditures, additional limitations on executive compensation
and limitations on the deductibility of interest.
Pursuant
to the SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, the Company has
not finalized its accounting for the income tax effects of the 2017 Tax Act. This includes a provisional amount related to the
re-measurement of deferred tax assets based on the rates at which they are expected to reverse in the future, which is generally
21% plus the applicable state tax rate, with a corresponding change to the valuation allowance as of December 31, 2017. The impact
of the 2017 Tax Act may differ from this estimate during the ensuing fiscal year due to, among other things, further refinement
of the Company’s calculation, changes in interpretations and assumptions the Company has made, additional guidance that
may be issued and actions the Company may take as a result of the 2017 Tax Act.
The
difference between the provision for income taxes and income taxes computed using the effective U.S. federal statutory rate is
as follows:
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
|
|
|
|
|
|
|
Expected tax recovery at the statutory rate
|
|
$
|
(79,000
|
)
|
|
$
|
(88,000
|
)
|
Non-deductible items
|
|
|
22,000
|
|
|
|
41,000
|
|
Change in valuation allowance
|
|
|
57,000
|
|
|
|
47,000
|
|
Provision for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
Significant
components of the Company’s deferred tax assets are as follows:
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
|
|
|
|
|
|
|
Net operating loss carry-forwards
|
|
$
|
155,792
|
|
|
$
|
164,000
|
|
Valuation allowance
|
|
|
(155,792
|
)
|
|
|
(164,000
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
At
December 31, 2019, the Company has accumulated net operating losses totaling approximately $741,869 which may be available to
carry forward and offset future years’ taxable income.
Realization
of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences
and carry-forwards are expected to be available to reduce taxable income. As the achievement of required future taxable income
is uncertain, the Company recorded a valuation allowance against its deferred tax asset.
NOTE 8–RELATED PARTY
TRANSACTIONS - OTHER
As of December 31, 2019, in the event
interest was paid, an amount equal to $34,375 which is an imputed loan interest using a rate of 7% which is a comparable
rate to other companies of this size and operation, would be owing Jacaranda Investments, Inc., the Company’s majority
shareholder, who has advanced the Company $492,500 (2018 - $485,300). All properties were purchased from related parties with
the exception of 3910 Wisconsin Street, 4016 Dalton Avenue and 1618 W. 38th Street, which were purchased as arm's length
transactions. These advances are unsecured and do not carry an interest rate or repayment terms. The balance of imputed
interest is included under additional paid in capital.
NOTE 9–PROMISSORY NOTES PAYABLE – OTHER
As of December 31, 2019, the Company has two promissory notes payable to Esteban Coaloa, outstanding, the
total amount owing of $182,055. The first is payable through its wholly owned subsidiary, Akebia Investments, LLC, in the amount
of $92,463, bearing an interest rate of 3.95%, maturing on August 1, 2021, and the second is payable through its wholly owned subsidiary,
Zinnia Investments, LLC, bearing an interest rate of 3.50%, maturing on July 25, 2021. The total balance is due on the maturity
date of each note.
NOTE 10- EQUITY
Common Stock-
In 2018-
144,000
shares were issued at $0.95 per share, closing price at the date of grant, valued at $136,800 to a consultant for stock-based
compensation.
30,000
shares were issued at $1.00 per share, closing price at the date of grant, valued at $30,000 to a consultant for stock-based
compensation.
15,000
shares were issued at $1.00 per share, closing price at the date of grant, valued at $15,000 to 3 officers for stock-based compensation.
15,000
shares were issued at $1.00 per share, closing price at the date of grant, valued at $15,000 to 3 consultants for stock-based
compensation.
In
2019-
50,000
shares were issued at $0.80 per share, closing price at the date of grant, valued at $40,000 to a consultant for stock-based compensation.
171,625
shares were issued at $0.80 per share, closing price at the date of grant, valued at $137,300 to 3 officers for stock-based compensation.
35,000
shares were issued at $0.80 per share, closing price at the date of grant, valued at $28,000 to a former employee for a settlement
agreement.
250,000
shares were issued at $0.68 per share, closing price at the date of grant, valued at $170,000 to 2 officers and 2 consultants
for stock-based compensation.
Preferred
Stock-
In
2018-
40,000
shares of our Series 1 Preferred Stock were issued at $1.00 per share valued at $40,000 to 4 accredited investors.
NOTE
11- COMMITMENT AND CONTINGENCIES
Office
Lease
During
the year ended December 31, 2019, the Company rented space on a month-to-month basis in an office in Beverly Hills, CA. The monthly
rent is $2400. For the year ended December 31, 2019 and 2018, the Company incurred $27,600 and 28,800 in rent expense, respectively.
Litigation
From
time to time the Company may become a party to litigation in the normal course of business. Management believes that there are
no current legal matters that would have a material effect on the Company’s financial position or results of operation.
NOTE
12–SUBSEQUENT EVENT
On
January 2, 2020 we entered into an agreement, through our subsidiary Trilosa Investments, LLC, to acquire its real property asset
located at 3906 Denker Avenue in Los Angeles. We acquired the property on February 21, 2020.