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, Kapok Investements, 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, 2020, the Company
had not yet achieved profitable operations, had an accumulated deficit of $1,669,372 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, 2020.
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, 2020 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, 2020 and 2019 is as follows:
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Balance,
beginning of the year
|
|
$
|
7,525,055
|
|
|
$
|
3,463,528
|
|
Acquisitions:
|
|
|
1,804,000
|
|
|
|
3,993,553
|
|
|
|
|
9,329,055
|
|
|
|
7,457,081
|
|
Capital
improvements
|
|
|
256,888
|
|
|
|
67,974
|
|
Balance,
end of the year
|
|
$
|
9,585,943
|
|
|
$
|
7,525,055
|
|
The
change in the accumulated depreciation for the years ended December 31, 2020 and 2019 is as follows:
|
|
2020
|
|
|
2019
|
|
Balance,
beginning of the year
|
|
$
|
138,356
|
|
|
|
88,867
|
|
Depreciation
charge for the period
|
|
|
100,027
|
|
|
|
49,489
|
|
Balance,
end of the year
|
|
$
|
238,383
|
|
|
$
|
138,356
|
|
The
Company’s real estate investments as at December 31, 2020 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
|
|
|
$
|
22,563
|
|
|
$
|
69,311
|
|
|
$
|
562,957
|
|
2909 South Catalina Street
|
|
|
565,839
|
|
|
|
344,856
|
|
|
|
12,059
|
|
|
|
60,825
|
|
|
|
568,915
|
|
3910 Wisconsin Ave
|
|
|
337,500
|
|
|
|
150,500
|
|
|
|
88,378
|
|
|
|
17,699
|
|
|
|
482,810
|
|
3910 Walton Ave
|
|
|
318,098
|
|
|
|
191,902
|
|
|
|
2,504
|
|
|
|
17,137
|
|
|
|
558,693
|
|
1557 West 29 Street
|
|
|
496,609
|
|
|
|
146,891
|
|
|
|
17,368
|
|
|
|
11,215
|
|
|
|
643,500
|
|
1267 West 38th
|
|
|
420,210
|
|
|
|
180,090
|
|
|
|
7,191
|
|
|
|
8,613
|
|
|
|
595,000
|
|
1618 West 38th
|
|
|
508,298
|
|
|
|
127,074
|
|
|
|
14,732
|
|
|
|
4,202
|
|
|
|
648,644
|
|
4016 Dalton Avenue
|
|
|
424,005
|
|
|
|
106,001
|
|
|
|
32,893
|
|
|
|
4,550
|
|
|
|
571,249
|
|
1981 West Estrella Avenue
|
|
|
651,659
|
|
|
|
162,915
|
|
|
|
68,281
|
|
|
|
9,383
|
|
|
|
875,000
|
|
2115 Portland Street
|
|
|
753,840
|
|
|
|
188,460
|
|
|
|
-
|
|
|
|
5,140
|
|
|
|
928,822
|
|
717 West 42nd Place
|
|
|
376,800
|
|
|
|
94,200
|
|
|
|
-
|
|
|
|
2,007
|
|
|
|
472,135
|
|
3906 Denker
|
|
|
428,000
|
|
|
|
107,000
|
|
|
|
55,203
|
|
|
|
5,870
|
|
|
|
597,197
|
|
3408 S. Budlong Street
|
|
|
499,200
|
|
|
|
124,800
|
|
|
|
3,491
|
|
|
|
3,619
|
|
|
|
695,000
|
|
3912 S. Hill Street
|
|
|
483,750
|
|
|
|
162,675
|
|
|
|
18,321
|
|
|
|
18,812
|
|
|
|
656,000
|
|
4007 Brighton Avenue
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
147,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,772,379
|
|
|
$
|
2,470,580
|
|
|
$
|
342,984
|
|
|
$
|
238,383
|
|
|
$
|
9,006,922
|
|
Real
estate acquisition related party
2020
acquisitions
Trilosa
Investments, LLC
On
February 22, 2020 we completed our acquisition, through our subsidiary Trilosa Investments, LLC,, the real property located at 3906 Denker
Avenue in Los Angeles (“Denker”). The property was vacant at time of purchase. The acquisition was for $535,000 (“Purchase
Price”). Terms of the acquisition as follows. (1) A first position note with payment on principal balance of $416,000 issued by
the Property Owner, Trilosa, owing to lender, Visio Financial Services, Inc, whose terms of payments due are principle and interest,
on unpaid principal at the rate of 6% per annum. Principal and interest payable in monthly installments of $2,494.13 or more starting
on April 1, 2020 and continuing until the 1st day of March 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 March 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 $140,000 second position note owing by Trilosa, whose terms of payments due were interest only, payable on unpaid
principal at the rate of 6.00% per annum. Interest only payable in monthly installments of $700.00 or more on the 15th day
of each month beginning on the 15th day of March 2020 and continuing until the 14th day of February 2025, at which
time the entire principal balance together with interest due thereon, shall become due and payable.
Lantana
Investments, LLC
On
July 24, 2020 we completed our acquisition, through our subsidiary Lantana Investments, LLC, the real property located at 3408 Budlong
Avenue in Los Angeles (“Budlong”). The property was vacant at time of purchase. The acquisition was for $624,000.00 (“Purchase
Price”). Terms of the acquisition as follows. (1) A first position note with payment on principle balance of $470,000 issued by
the Property Owner, Lantana, owing to lender, Golden Empire Mortgage, whose terms of payments due are principal and interest, on unpaid
principal at the rate of 5% per annum. Principal and interest payable in monthly instalments of $1,958.33 or more starting on August
24, 2020 and continuing until the 24th day of July 2021, at which time the entire principal balance together with interest due thereon,
shall become due and payable. (2) A $175,000 second position note owing by Lantana, 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 instalments of $729.17 or more on the 23rd day of
each month beginning on the 23rd day of August 2020 and continuing until the 22nd day of July 2025, at which time the entire principal
balance together with interest due thereon, shall become due and payable.
Kapok
Investments, LLC
On
November 8, 2020 we completed our acquisition, through our subsidiary Kapok Investments, LLC, the real property located at 3912 S. Hill
Street in Los Angeles (“Hill”). The property was delivered vacant to Hubilu after seller moved out within 2 weeks after the
close of escrow as agreed per purchase contract. Seller paid Hubilu no money for the 2 week period. The acquisition was for $645,000.00
(“Purchase Price”). Terms of the acquisition as follows. (1) A first position note with payment on principle balance of $516,000.00
issued by the Property Owner, Kapok, owing the lender, Visio Financial Services, Inc, whose terms of payments due are principal and interest.
On unpaid principal at the rate of 6.425% per annum. Principal and interest payable in monthly instalments of $3,236.06 or more starting
on January 1, 2021 and continuing until the 1sr day of December 2050, at which time the entire principal balance together with interest
due thereon, shall become due and payable. (2) A $152,000 second position note owing by Kapok, whose terms of payments due were interest
only, payable on unpaid principal at the rate of 6.425% per annum. Interest only payable in monthly instalments of $813.83 or more on
the 2nd day of each month beginning on the 2nd day of December 2020 and continuing until the 1st day of November 2026, at which time
the entire principal balance together with interest due thereon, shall become due and payable.
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, 2020
|
|
|
December
31, 2019
|
|
|
December
31, 2019
|
|
|
Maturity
date
|
3711
South Western Ave
|
|
$
|
562,957
|
|
|
$
|
574,566
|
|
|
|
3.95
|
%
|
|
August
1, 2021
|
2909
South Catalina Street
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
First Note
|
|
|
463,103
|
|
|
|
474,868
|
|
|
|
3.50
|
%
|
|
July
25, 2021
|
-
Second Note
|
|
|
105,812
|
|
|
|
357,876
|
|
|
|
3.50
|
%
|
|
July
25, 2021
|
3910
Walton Ave.
|
|
|
558,693
|
|
|
|
518,800
|
|
|
|
5.00
|
%
|
|
August
01, 2049
|
3910
Wisconsin Street
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
First Note
|
|
|
242,810
|
|
|
|
247,571
|
|
|
|
4.375
|
%
|
|
October
1, 2036
|
-
Second Note
|
|
|
150,00
|
|
|
|
150,000
|
|
|
|
9.00
|
%
|
|
September
27, 2020
|
-
Third Note
|
|
|
90,000
|
|
|
|
235,423
|
|
|
|
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
|
|
|
|
415,000
|
|
|
|
5.50
|
%
|
|
March
19, 2023
|
-
Second Note
|
|
|
180,000
|
|
|
|
185,000
|
|
|
|
6.00
|
%
|
|
March
19, 2023
|
4016
Dalton Avenue
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
-
First Note
|
|
|
416,249
|
|
|
|
420,000
|
|
|
|
7.2
|
%
|
|
January
1, 2050
|
-
Second Note
|
|
|
155,000
|
|
|
|
-
|
|
|
|
|
|
|
|
1618
West 38 Street
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
-
First Note
|
|
|
498,644
|
|
|
|
493,920
|
|
|
|
6.30
|
%
|
|
January
1, 2020
|
-
Second Note
|
|
|
150,000
|
|
|
|
-
|
|
|
|
|
|
|
|
1981
Estrella Ave
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
First Note
|
|
|
610,000
|
|
|
|
600,000
|
|
|
|
5.00
|
%
|
|
November
30,2023
|
-
Second Note
|
|
|
265,000
|
|
|
|
265,000
|
|
|
|
5.00
|
%
|
|
November
30,2023
|
717
West 42 Place
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
First Note
|
|
|
337,167
|
|
|
|
337,167
|
|
|
|
6.85
|
%
|
|
October
31, 2025
|
-
Second Note
|
|
|
134,968
|
|
|
|
134,968
|
|
|
|
6.85
|
%
|
|
April
30, 2022
|
2115
Portland Street
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
First Note
|
|
|
609,046
|
|
|
|
616,899
|
|
|
|
6.00
|
%
|
|
June
1, 2049
|
-Second
Note
|
|
|
319,776
|
|
|
|
330,234
|
|
|
|
5.00
|
%
|
|
April
30, 2024
|
3906
Denker
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-First
Note
|
|
|
412,197
|
|
|
|
-
|
|
|
|
6.00
|
%
|
|
March
1, 2025
|
-Second
Note
|
|
|
185,000
|
|
|
|
-
|
|
|
|
6.85
|
%
|
|
February
14, 2025
|
3408
Budlong
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-First
Note
|
|
|
470,000
|
|
|
|
-
|
|
|
|
5
|
%
|
|
July
24, 2021
|
-Second
Note
|
|
|
225,000
|
|
|
|
-
|
|
|
|
5
|
%
|
|
July
22, 2025
|
3912
S. Hill Street
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-First
Note
|
|
|
516,000
|
|
|
|
-
|
|
|
|
6.425
|
%
|
|
December
1, 2050
|
-
Second Note
|
|
|
140,000
|
|
|
|
-
|
|
|
|
6.425
|
%
|
|
November
1, 2026
|
4007
Brighton Avenue
|
|
|
147,000
|
|
|
|
-
|
|
|
|
6.60
|
%
|
|
December
17, 2026
|
|
|
$
|
9,006,922
|
|
|
$
|
7,000,810
|
|
|
|
|
|
|
|
For
the period from the January 1, 2020 to December 31, 2020, the Company made principal payments totaling $117,392 on the mortgages payable.
For the period from the January 1, 2019 to December 31, 2019, the Company made principal payments totaling $28,419 on the mortgages payable.
Scheduled
repayments on mortgages payable, including paying off interest only loans and mortgages due are as follows:
Year
ending December 31,
|
|
|
|
2021
|
|
$
|
1,601,872
|
|
2022
|
|
|
424,986
|
|
2023
|
|
|
1,470,000
|
|
2024
|
|
|
319,776
|
|
2025
|
|
|
1,602,864
|
|
Thereafter
|
|
|
3,587,424
|
|
|
|
$
|
9,006,922
|
|
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, 2020 and 2019.
|
|
#
of Shares
|
|
|
Amount
|
|
|
Dividend
in Arrears
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Dividends
accrued
|
|
|
-
|
|
|
|
-
|
|
|
|
18,697
|
|
|
|
18,697
|
|
Balance,
December 31, 2020
|
|
|
500,400
|
|
|
$
|
500,400
|
|
|
$
|
85,864
|
|
|
$
|
586,264
|
|
NOTE
7–INCOME TAXES
The
Company did not record a provision for income taxes for the years ended December 2020 and 2019 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, 2020
|
|
|
December
31, 2019
|
|
|
|
|
|
|
|
|
Expected
tax recovery at the statutory rate
|
|
$
|
(79,000
|
)
|
|
$
|
(79,000
|
)
|
Non-deductible
items
|
|
|
22,000
|
|
|
|
22,000
|
|
Change
in valuation allowance
|
|
|
57,000
|
|
|
|
57,000
|
|
Provision
for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
Significant
components of the Company’s deferred tax assets are as follows:
|
|
December
31, 2020
|
|
|
December
31, 2019
|
|
|
|
|
|
|
|
|
Net
operating loss carry-forwards
|
|
$
|
193,340
|
|
|
$
|
155,792
|
|
Valuation
allowance
|
|
|
(193,340
|
)
|
|
|
(155,792
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
At
December 31, 2020, the Company has accumulated net operating losses totaling approximately $921,000 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
As
of December 31, 2020, the Company’s majority shareholder, has provided advances totaling $ 492,500 (December 31, 2019: $492,500).
These advances are unsecured and do not carry a contractual interest rate or repayment terms. In connection with these advances, the
Company has recorded an imputed interest charge of $34,569 and which was credited to additional paid-in capital for the 12 months
ended December 31, 2020. See additional related party transactions in Note 4, 5, 6 and 7.
NOTE
9 – ECONOMIC INJURY DISASTER GRANT
On
April 21, 2020, the Company received from the SBA an economic injury disaster grant in the amount of $4,000. The amount of the grant
was determined by the number of employees indicated on the EIDL application. Per the SBA, the advance does not have to be repaid if we
meet the SBA loan conditions.
NOTE
10–PROMISSORY NOTES PAYABLE – OTHER
As
of December 31, 2020, the Company has two promissory notes payable to Esteban Coaloa, outstanding, the total amount owing of $182,056.
The first is payable through its wholly owned subsidiary, Akebia Investments, LLC, in the amount of $92,463, bearing an interest
rate of 3.95%, maturing on August 1, 2021, and the second with a balance of $89,593 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
11- EQUITY
Common
Stock-
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.
In
2020-
No
stock was issued.
Preferred
Stock-
In
2019 and 2020-
No
stock was issued.
NOTE
12- COMMITMENT AND CONTINGENCIES
Office
Lease
During
the year ended December 31, 2020, the Company released half of our office space back to the landlord on a month-to-month at our office
in Beverly Hills, CA. The monthly rent reduced to $1,300 as of June 1, 2020. For the year ended December 31, 2020, we paid $2,400 for
5 months and $1,300 for 7 months and in 2019 we paid $2,400 for the year. The Company incurred $21,100 and $15,150 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
13–SUBSEQUENT EVENT
On
September 20, 2020 we entered into an agreement, through our subsidiary Trilosa Investments, LLC, to acquire its real property asset
located at 4009 Brighton Avenue in Los Angeles. We acquired the property on February 1, 2021.
On
April 17, 2021 we entered into an agreement, through our subsidiary Zinnia Investments, LLC, to acquire its real property asset located
at 3909 Denker Avenue in Los Angeles. We acquired the property on June 17, 2021.
In
May 2021, we refinanced loans on four of our Hubilu properties, 4016 Dalton, 1557 29th, 1267 W. 38th and 1981 Estrella,
taking advantage of lower interest rates and lowering the rate on those loans by an average of 1%. Loans were refinanced rate and term
only, no cash out. All loans were principal and interest fixed for 30 years , due in 30 years.
On
May 27, 2021 we entered into an agreement, through our subsidiary Sunza Investments, LLC, to acquire its real property asset located
at 4021 Halldale Avenue in Los Angeles. We acquired the property on July 23, 2021.
On
June 28, 2021, we entered into an agreement, through our subsidiary Zinnia Investments, LLC, to acquire its real property asset located
at 1284 W. 38th Street in Los Angeles. We plan to close
on the property on August 10, 2021.