10-Q/A: Hubilu Venture Reports Wider Loss, Going Concern Doubt

Hubilu Venture Corporation reported a significantly wider net loss for the first half of 2025, alongside a going concern warning and identified material weaknesses in internal controls.

Summary

• Hubilu Venture Corporation reported a net loss of $453,902 for the six months ended June 30, 2025, a substantial increase from the $62,737 net loss in the same period of 2024.
• Rental revenue decreased by 8% to $959,939 for the six months ended June 30, 2025, primarily due to a corporate tenant vacating 18 properties in Q4 2024, with vacancies filled halfway through Q2 2025.
• Operating expenses rose significantly by $166,746, or 31.8%, to $689,969 for the six months ended June 30, 2025, driven by increased property management costs, property taxes, and repairs.
• Interest expense surged by $202,990 to $716,222 for the six months ended June 30, 2025, reflecting higher debt levels and interest rates.
• The company acquired two new properties in Los Angeles during the quarter for a total of $1,290,000, financed through new mortgages, including related-party loans.
• Cash on hand increased to $46,882 as of June 30, 2025, from $9,799 at December 31, 2024, primarily due to increased financing activities.
• The company continues to operate with negative working capital of $1,602,772 and an accumulated deficit of $2,761,042, raising substantial doubt about its ability to continue as a going concern.

Sentiment

Score: 3

Explanation: The sentiment is negative due to a significantly widened net loss, decreased rental revenue for the six-month period, negative operating cash flow, and a 'going concern' warning. Material weaknesses in internal controls further contribute to the negative outlook, despite some property acquisitions and a slight improvement in working capital deficit.

Positives

• Cash on hand increased to $46,882 as of June 30, 2025, from $9,799 at December 31, 2024.
• Working capital deficit improved to $(1,602,772) as of June 30, 2025, from $(2,582,595) at December 31, 2024.
• Rental revenue for the three months ended June 30, 2025, increased by 8.54% to $576,427 compared to the same period in 2024, primarily due to increased rental rates.
• The company continued its strategy of acquiring real estate, adding two properties in Los Angeles for $1,290,000 during the quarter and one subsequent to the quarter for $525,000.
• Loss on early extinguishment of debt decreased significantly to $10,229 for the six months ended June 30, 2025, from $63,403 in the prior year period.

Negatives

• Net loss for the six months ended June 30, 2025, widened significantly to $453,902, compared to $62,737 for the same period in 2024.
• Rental revenue for the six months ended June 30, 2025, decreased by 8% to $959,939, primarily due to a corporate tenant vacating 18 properties in Q4 2024.
• Total operating expenses increased by 31.8% to $689,969 for the six months ended June 30, 2025, driven by higher property management costs, property taxes, and repairs.
• Interest expense increased by $202,990 to $716,222 for the six months ended June 30, 2025, reflecting higher debt levels and interest rates.
• Net cash used in operating activities was $(68,680) for the six months ended June 30, 2025, a decrease of $234,217 compared to the prior year period.
• The accumulated deficit increased to $2,761,042 as of June 30, 2025, from $2,307,140 at December 31, 2024.
• The company's disclosure controls and procedures were deemed not effective as of June 30, 2025, due to material weaknesses.

Risks

• Substantial doubt exists about the company's ability to continue as a going concern due to negative working capital of $1,602,772, an accumulated deficit of $2,761,042, and expected further losses.
• The company may not be able to generate sufficient funds to sustain operations for the next twelve months and will need to raise additional cash.
• Ability to acquire new properties and increase revenues is largely dependent on success in raising additional capital.
• Material weaknesses in internal controls over financial reporting include inadequate segregation of duties, failure to identify multiple journal entries, lack of formal control for related party transactions, and insufficient technical accounting knowledge among staff.
• The company is exposed to market risk, though specific quantitative and qualitative disclosures are not provided as it is a smaller reporting company.

Future Outlook

The company expects to incur further losses in the development of its business and may not be able to generate sufficient funds to sustain operations for the next twelve months. Management plans to seek additional financing and conserve cash by reducing expenses if revenues do not meet expectations. The ability to acquire new properties and increase revenues is largely dependent on successfully raising additional capital.

Management Comments

• "We expect to incur further losses in the development of its business, and may not be able to generate sufficient funds to sustain our operations for the next twelve months."
• "Our ability to acquire new properties and increase revenues is largely dependent on our success in raising additional capital."
• "We plan to implement the appointment of additional qualified personnel to address inadequate segregation of duties and implement modifications to our financial controls to address such inadequacies, by the end of our 2025 fiscal year as resources allow."

Industry Context

Hubilu Venture Corporation operates in the Los Angeles real estate market, specializing in student housing and corporate income properties near Metro/subway stations. The company notes high demand for houses from students and corporate tenants around the USC Campus, which has allowed for increased rental rates. However, the broader market context of rising interest rates is impacting financing costs, as evidenced by the significant increase in the company's interest expense. The company's strategy of acquiring and remodeling properties to capitalize on demand aligns with a growth-oriented approach in a competitive urban real estate market, but its financial performance indicates challenges in managing costs and maintaining profitability amidst these dynamics.

Comparison to Industry Standards

• The filing does not provide specific comparable companies or industry benchmarks for direct assessment.
• The company's strategy of focusing on student housing and corporate income properties near Los Angeles Metro/subway stations is a niche approach, making direct comparisons to broad real estate benchmarks difficult without more specific data.
• The significant increase in interest expense and overall net loss suggests that the company's cost of capital and operational efficiency may be lagging behind more established or better-capitalized real estate investment firms, especially in a rising interest rate environment.
• The identified material weaknesses in internal controls are below industry best practices for public companies, regardless of size, and indicate a need for substantial improvement in governance and financial oversight.

Corporate Governance

Legal Proceedings

• The company is not currently party to any pending legal proceedings that are believed to have a material adverse effect on its financial condition, cash flows, or results of operations.

Related Party Transactions

• Jacaranda Investments, Inc. (owned by President David Behrend) provided $474,271 in unsecured advances with no contractual interest rate or repayment terms.
• Jacaranda3 Investments, Inc. (owned by President David Behrend) provided a $250,000 second position note at 8.00% interest for the acquisition of 1650 S Rimpau Blvd on May 8, 2025.
• Jacaranda3 Investments, Inc. (owned by President David Behrend) provided a $183,200 second position note at 8.00% interest for the acquisition of 1434 W. 22nd Street on June 1, 2025.
• Esteban Coaloa (preferred stock holder, potentially >5% common stock) loaned $655,000 via an All Inclusive Trust Deed at 6% interest for the purchase of 2909 S. Catalina Street on April 10, 2017.

Stakeholder Impact

• **Shareholders**: Face significant dilution risk if additional capital is raised, potential for continued losses, and uncertainty regarding the company's going concern status. The stock price may be negatively impacted by the poor financial performance and internal control issues.
• **Creditors**: Exposed to increased risk due to the company's negative working capital, accumulated deficit, and going concern warning. New and refinanced mortgages indicate continued reliance on debt financing.
• **Employees**: The limited number of personnel is cited as a cause for inadequate segregation of duties, suggesting potential strain on existing staff and a need for additional hires if resources allow.
• **Customers (Tenants)**: The company's focus on acquiring and remodeling properties in high-demand areas suggests continued investment in its rental portfolio, which could benefit tenants through improved properties. However, increased rental rates are also noted.

Next Steps

• Management plans to seek additional financing to fund operations.
• Management intends to conserve cash by further reducing expenses if revenues do not materialize at expected rates.
• The company plans to implement the appointment of additional qualified personnel and modify financial controls to remediate material weaknesses by the end of the 2025 fiscal year, as resources allow.

Key Dates

Recommendation

The company faces severe financial distress, evidenced by a significantly widened net loss, negative operating cash flow, and an explicit 'going concern' warning. Material weaknesses in internal controls indicate fundamental governance issues. While property acquisitions are ongoing, they are heavily debt-financed, exacerbating interest expense. The reliance on future capital raises in such a precarious financial state, coupled with declining revenue for the six-month period, presents an extremely high-risk profile. A seasoned investor would likely view these factors as strong indicators to exit or avoid the stock.

Keywords

Real Estate, Student Housing, Los Angeles, Property Acquisition, SEC Filing, 10-Q/A, Financial Results, Going Concern, Internal Controls, Mortgages Payable, Rental Income, HBUV