UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________to _________
Commission file number
| (Exact name of registrant as specified in its charter) |
State or other jurisdiction of incorporation or organization |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act: None
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of November 4, 2022, there were shares of the registrant’s common stock $0.001 par value per share, issued and outstanding.
Table of Contents
| PART I FINANCIAL INFORMATION | ||
| Item 1. | Condensed Consolidated Financial Statements | |
| Condensed Consolidated Balance Sheets | 3 | |
| Condensed Consolidated Statements of Operations | 4 | |
| Condensed Consolidated Statements of Stockholders’ Equity | 5 | |
| Condensed Consolidated Statements of Cash Flows | 6 | |
| Notes to Condensed Consolidated Financial Statements | 7 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 |
| Item 3. | Quantitative and Qualitative Disclosure About Market Risk | 21 |
| Item 4. | Controls and Procedures | 21 |
| PART II OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 21 |
| Item 1A. | Risk Factors | 21 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 21 |
| Item 3. | Defaults Upon Senior Securities | 21 |
| Item 4. | Mine Safety Disclosures | 21 |
| Item 5. | Other Information | 21 |
| Item 6. | Exhibits | 22 |
| SIGNATURES | 23 | |
| 2 |
Part I. Financial Information
LiquidValue Development Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | (Audited) | |||||||
| Assets: | ||||||||
| Real Estate | ||||||||
| Investments in Single-family Residential Properties | ||||||||
| Land | $ | $ | ||||||
| Building and Improvements | ||||||||
| Less: Accumulated Depreciation | ( | ) | ( | ) | ||||
| Investments in Single-family Residential Properties, Net | ||||||||
| Construction in Progress | ||||||||
| Land Held for Development | ||||||||
| Other Properties | ||||||||
| Cash | ||||||||
| Restricted Cash | ||||||||
| Accounts Receivable | ||||||||
| Other Receivable | ||||||||
| Related Party Receivable | ||||||||
| Prepaid Expenses | ||||||||
| Fixed Assets, Net | ||||||||
| Deposits | ||||||||
| Operating Lease Right-Of-Use Asset | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity: | ||||||||
| Liabilities: | ||||||||
| Accounts Payable and Accrued Expenses | $ | $ | ||||||
| Accrued Interest - Related Parties | ||||||||
| Builder Deposits | ||||||||
| Operating Lease Liability | ||||||||
| Note Payable, net of discount | ||||||||
| Note Payable - Related Parties | ||||||||
| Total Liabilities | ||||||||
| Stockholders’ Equity: | ||||||||
| Common Stock, at par $, shares authorized and issued, and outstanding at September 30, 2022 and December 31, 2021 | ||||||||
| Additional Paid in Capital | ||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Total LiquidValue Development Inc. Stockholders’ Equity | ||||||||
| Non-controlling Interests | ||||||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements
| 3 |
LiquidValue Development Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 2022 and 2021
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | ||||||||||||||||
| Rental | $ | $ | $ | $ | ||||||||||||
| Property | ||||||||||||||||
| Operating Expenses | ||||||||||||||||
| Cost of Revenue | ||||||||||||||||
| General and Administrative | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Loss (Income) From Operations | ( | ) | ( | ) | ||||||||||||
| Other Income & Expense | ||||||||||||||||
| Interest Expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income | ||||||||||||||||
| Other Expense | ( | ) | ||||||||||||||
| Total Other Expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net (Loss) Income Before Income Taxes | ( | ) | ( | ) | ||||||||||||
| Income Tax Expense | ||||||||||||||||
| Net (Loss) Income | ( | ) | ( | ) | ||||||||||||
| Net (Loss) Income Attributable to Non-controlling Interests | ( | ) | ( | ) | ||||||||||||
| Net (Loss) Income Attributable to Common Stockholders | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Net (Loss) Income Per Share - Basic and Diluted | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Weighted Average Common Shares Outstanding - Basic and Diluted | ||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 4 |
LiquidValue Development Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders’ Equity
For the Three- and Nine-Months Periods ended September 30, 2022 and 2021
| Common Stock | ||||||||||||||||||||||||||||
| Shares | Par Value $0.001 | Additional Paid in Capital | Accumulated Deficit | Total LiquidValue Development Inc. Stockholders’ Equity | Non- controlling Interests | Total Stockholders’ Equity | ||||||||||||||||||||||
| Balance at January 1, 2022 | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||
| Net (Loss) Income | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||
| Net (Loss) Income | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||
| Net Loss | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||
| Shares | Par Value $0.001 | Additional Paid in Capital | Accumulated Deficit | Total LiquidValue Development Inc. Stockholders’ Equity | Non-controlling Interests | Total Stockholders’ Equity | ||||||||||||||||||||||
| Balance at January 1, 2021 | ( | ) | ||||||||||||||||||||||||||
| Distribution to Non-Controlling Stockholder | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Net (Loss) Income | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||
| Distribution to Non-Controlling Stockholder | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Net Income | - | |||||||||||||||||||||||||||
| Balance at June, 2021 | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||
| Distribution to Non-Controlling Stockholder | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Net Income (Loss) | - | ( | ) | |||||||||||||||||||||||||
| Balance at September, 2021 | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 5 |
LiquidValue Development Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2022 and 2021
(Unaudited)
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net (Loss) Income | $ | ( | ) | $ | ||||
| Adjustments to Reconcile Net (Loss) Income to Net Cash (Used in) Provided by Operating Activities: | ||||||||
| Depreciation | ||||||||
| Amortization of Right -Of- Use Asset | ||||||||
| PPP Loan Forgiveness | ( | ) | ||||||
| Amortization of Debt Discount | ||||||||
| Changes in Operating Assets and Liabilities | ||||||||
| Real Estate Development | ( | ) | ||||||
| Accounts Receivable | ( | ) | ( | ) | ||||
| Related Party Receivable | ( | ) | ||||||
| Prepaid Expenses | ( | ) | ||||||
| Other Receivable | ( | ) | ||||||
| Accounts Payable and Accrued Expenses | ||||||||
| Accrued Interest - Related Parties | ||||||||
| Operating Lease Liability | ( | ) | ( | ) | ||||
| Builder Deposits | ( | ) | ( | ) | ||||
| Net Cash (Used in) Provided by Operating Activities | ( | ) | ||||||
| Cash Flows from Investing Activities | ||||||||
| Purchase of Fixed Assets | ( | ) | ( | ) | ||||
| Purchase of Real Estate Properties | ( | ) | ( | ) | ||||
| Real Estate Improvements | ( | ) | ||||||
| Net Cash Used in Investing Activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Borrowing from PPP | ||||||||
| Repayment to Note Payable | ( | ) | ||||||
| Distribution to Non-controlling Interest Shareholders | ( | ) | ||||||
| Borrowing from Notes Payable - Related Parties | ||||||||
| Repayment to Notes Payable - Related Parties | ( | ) | ||||||
| Net Cash Provided by Financing Activities | ||||||||
| Net Decrease in Cash and Restricted Cash | ( | ) | ( | ) | ||||
| Cash and Restricted Cash - Beginning of Period | ||||||||
| Cash and Restricted Cash - End of Period | $ | $ | ||||||
| Cash | $ | $ | ||||||
| Restricted Cash | $ | $ | ||||||
| Total Cash and Restricted Cash | $ | $ | ||||||
| Supplementary Cash Flow Information | ||||||||
| Cash Paid for Interest | $ | $ | ||||||
| Cash Paid for Taxes | $ | $ | ||||||
| Supplemental Disclosure of Non-Cash Investing and Financing Activities | ||||||||
| Initial Recognition of Operating Lease Right-Of-Use Asset and Liability | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
| 6 |
LiquidValue Development Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2022 (Unaudited)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
LiquidValue
Development Inc. (the “Company”), formerly known as SeD Intelligent Home Inc. and Homeownusa, was incorporated in the State
of Nevada on December 10, 2009. On December 29, 2017, the Company, acquired Alset EHome Inc. (“Alset EHome”) by reverse merger.
Alset EHome, a Delaware corporation, was formed on February 24, 2015. Alset EHome is principally engaged in developing, selling, managing,
and leasing residential properties in the United States in current stage and may expand from residential properties to other property
types, including but not limited to commercial and retail properties. The Company is
The Company’s current operations concentrate around two types of projects, land development and house rental business. Both of them are included in our only reporting segment – real state. In determination of segments, the Company, together with its chief operating decision maker, who is also our CEO, considers factors that include the nature of business activities, allocation of resources and management structure.
Principles of Consolidation
The condensed consolidated financial statements include all accounts of the following entities as of the reporting period ending dates and for the reporting periods as follows:
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All intercompany balances and transactions have been eliminated. Non–controlling interest represents the minority equity investment in the Company’s subsidiaries, plus the minority investors’ share of the net operating results and other components of equity relating to the non–controlling interest.
As
of September 30, 2022 and December 31, 2021, the aggregate non-controlling interest in Alset EHome Inc. was $
Basis of Presentation
The Company’s condensed consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (“US GAAP”).
The unaudited financial information furnished herein reflects all adjustments, consisting solely of normal recurring items, which in the opinion of management are necessary to fairly state the financial position of the Company and the results of its operations for the periods presented. This report should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2021 filed on March 14, 2022. The Company assumes that the users of the interim financial information herein have read or have access to the audited consolidated financial statements for the preceding fiscal year and the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The consolidated balance sheet at December 31, 2021 was derived from the audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The results of operations for the interim periods presented are not necessarily indicative of results for the year ending December 31, 2022.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements. The Company’s significant estimates are made in connection with the valuation of real estate. Actual results could differ from those estimates.
Basic income (loss) per share is computed by dividing the net income (loss) attributable to the common stockholders by weighted average number of shares of common stock outstanding during the period. Fully diluted loss per share is computed similarly to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There were no potentially dilutive financial instruments issued or outstanding for the periods ended September 30, 2022 or September 30, 2021.
Fair Value of Financial Instruments
For purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. The carrying amount of the Company’s short-term financial instruments approximates fair value due to the relatively short period to maturity for these instruments.
Cash and Cash Equivalents
The
Company considers all highly liquid investments with a maturity of three months or less at the date of acquisition to be cash equivalents.
There were
| 8 |
Restricted Cash
As
a condition to the loan agreement with the Manufacturers and Traders Trust Company (“M&T Bank”), the Company was required
to maintain a minimum of $
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable include all receivables from buyers, contractors and all other parties. The Company records an allowance for doubtful accounts based on a review of the outstanding receivables, historical collection information and economic conditions. No allowance was necessary at either September 30, 2022 or December 31, 2021.
Property and Equipment and Depreciation
Property
and equipment are recorded at cost, less accumulated depreciation. Expenditures for major additions and betterments that extend the useful
life or functionality are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is computed by the
straight-line method (after taking into account their respective estimated residual values) over the estimated useful lives, which are
Real Estate Assets
| ● | Land Development Assets |
Real estate assets are recorded at cost, except when real estate assets are acquired that meet the definition of a business combination in accordance with Financial Accounting Standards Board (“FASB”) ASC 805, “Business Combinations,” which acquired assets are recorded at fair value. Interest, property taxes, insurance and other incremental costs (including salaries) directly related to a project are capitalized during the construction period of major facilities and land improvements. The capitalization period begins when activities to develop the parcel commence and ends when the asset constructed is completed. The capitalized costs are recorded as part of the asset to which they relate and are reduced when lots are sold.
In addition to our annual assessment of potential triggering events in accordance with ASC 360, the Company applies a fair-value based impairment test to the net book value assets on an annual basis and on an interim basis, if certain events or circumstances indicate that an impairment loss may have occurred.
The Company did not record impairment on any of its projects during the nine months ended on September 30, 2022, nor for the nine months ended September 30, 2021.
| ● | Investments in Single-Family Residential Properties |
The Company accounts for its investments in single-family residential properties as asset acquisitions and records these acquisitions at their purchase price. The purchase price is allocated between land, building, improvements and existing leases based upon their relative fair values at the date of acquisition. The purchase price for purposes of this allocation is inclusive of acquisition costs which typically include legal fees, title fees, property inspection and valuation fees, as well as other closing costs.
Building
improvements and buildings are depreciated over estimated useful lives of approximately
The Company assesses its investments in single-family residential properties for impairment whenever events or changes in business circumstances indicate that carrying amounts of the assets may not be fully recoverable. When such events occur, management determines whether there has been impairment by comparing the asset’s carrying value with its fair value. Should impairment exist, the asset is written down to its estimated fair value. The Company did not recognize any impairment losses during the nine months ended on September 30, 2022.
| 9 |
Revenue Recognition
| ● | Land Development Revenue Recognition |
ASC 606, Revenue from Contracts with Customers, establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The Company adopted this new standard on January 1, 2018 under the modified retrospective method. The adoption of this new standard did not have a material effect on our financial statements.
In accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for these goods or services. The provisions of ASC 606 include a five-step process by which we determine revenue recognition, depicting the transfer of goods or services to customers in amounts reflecting the payment to which we expect to be entitled in exchange for those goods or services. ASC 606 requires us to apply the following steps: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, we satisfy the performance obligation. A detailed breakdown of the five-step process for the revenue recognition of our Ballenger project, which were essentially all of the revenue of the Company in 2022 and 2021, is as follows:
| a. | Identify the contract with a customer. |
In the event of a sale the Company has signed agreements with the builders for developing the raw land ready to build lots. The contract has agreed upon prices, timelines, and specifications for what is to be provided.
| b. | Identify the performance obligations in the contract. |
Performance obligations of the Company include delivering developed lots to the customer, which are required to meet certain specifications that are outlined in the contract. The customer inspects all lots prior to accepting title to ensure all specifications are met.
| c. | Determine the transaction price. |
The transaction price is fixed and specified in the contract. Any subsequent change orders or price changes are required to be approved by both parties.
| d. | Allocate the transaction price to performance obligations in the contract. |
Each lot or a group of lots is considered to be a separate performance obligation, for which the specified price in the contract is allocated to.
| e. | Recognize revenue when (or as) the entity satisfies a performance obligation. |
In the event of a sale the builders do the inspections to make sure all conditions/requirements are met before taking title of lots. The Company recognizes revenue when title is transferred. The Company does not have further performance obligations once title is transferred.
| 10 |
| ● | Rental Revenue Recognition |
The Company leases real estate properties to its tenants under leases that are predominately classified as operating leases, in accordance with ASC 842, Leases (“ASC 842”). Real estate rental revenue is comprised of minimum base rent and revenue from the collection of lease termination fees.
Rent from tenants is recorded in accordance with the terms of each lease agreement on a straight-line basis over the initial term of the lease. Rental revenue recognition begins when the tenant controls the space and continues through the term of the related lease. Generally, at the end of the lease term, the Company provides the tenant with a one-year renewal option, including mostly the same terms and conditions provided under the initial lease term, subject to rent increases.
The Company defers rental revenue related to lease payments received from tenants in advance of their due dates. These amounts are presented within deferred revenues and other payables on the Company’s condensed consolidated balance sheets.
Rental revenue is subject to an evaluation for collectability on several factors, including payment history, the financial strength of the tenant and any guarantors, historical operations and operating trends of the property, and current economic conditions. If our evaluation of these factors indicates that it is not probable that we will recover substantially all of the receivable, rental revenue is limited to the lesser of the rental revenue that would be recognized on a straight-line basis (as applicable) or the lease payments that have been collected from the lessee. Differences between rental revenue recognized and amounts contractually due under the lease agreements are credited or charged to straight-line rent receivable or straight-line rent liability, as applicable. For the nine months ended September 30, 2022, the Company did not recognize any deferred revenue and collected all rents due.
Sale of the Front Foot Benefit Assessments
We
have established a front foot benefit (“FFB”) assessment on all of the NVR lots. This is a 30-year annual assessment allowed
in Frederick County which requires homeowners to reimburse the developer for the costs of installing public water and sewer to the lots.
These assessments become effective as homes are settled, at which time we can sell the collection rights to investors who will pay an
upfront lump sum, enabling us to more quickly realize the revenue. The selling prices range from $
Contract Assets and Contract Liabilities
Based on our contracts, we invoice customers once our performance obligations have been satisfied, at which point payment is unconditional. Accordingly, our contracts do not give rise to contract assets or liabilities under ASC 606. Accounts receivable are recorded when the right to consideration becomes unconditional. We disclose receivables from contracts with customers separately on the balance sheets.
| 11 |
Cost of Revenue
| ● | Cost of Real Estate Sale |
All of the costs of real estate sales are from our land development business. Land acquisition costs are allocated to each lot based on the area method, the size of the lot comparing to the total size of all lots in the project. Development costs and capitalized interest are allocated to lots sold based on the total expected development and interest costs of the completed project and allocating a percentage of those costs based on the selling price of the sold lot compared to the expected sales values of all lots in the project.
If allocation of development costs and capitalized interest based on the projection and relative expected sales value is impracticable, those costs could also be allocated based on area method, the size of the lot comparing to the total size of all lots in the project.
| ● | Cost of Rental Revenue |
Cost of rental revenue consists primarily of the costs associated with management and leasing fees to our management company, repairs and maintenance, depreciation and other related administrative costs. Utility expenses are paid directly by tenants.
Recent Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of Reference Rate Reform on Financial Reporting. The amendments in this Update provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this Update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The Company’s line of credit agreement provides procedures for determining a replacement or alternative rate in the event that LIBOR is unavailable. The amendments in this Update are effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of ASU 2020-04 on its future consolidated financial statements.
In October 2021, the FASB issued ASU No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” ASU 2021-08 requires the company acquiring contract assets and contract liabilities obtained in a business combination to recognize and measure them in accordance with ASC 606, “Revenue from Contracts with Customers”. At the acquisition date, the company acquiring the business should record related revenue, as if it had originated the contract. Before the update such amounts were recognized by the acquiring company at fair value. The amendments in this Update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. The Company plans to adopt these requirements prospectively, effective on the first day of year 2023.
2. CONCENTRATION OF CREDIT RISK
The
group maintains cash balances at various financial institutions. These balances are secured by the Federal Deposit Insurance Corporation.
At times, these balances may exceed the federal insurance limits. At September 30, 2022 and December 31, 2021, uninsured cash and restricted
cash balances were $
3. BUILDER DEPOSITS
In
November 2015, SeD Maryland Development, LLC (“SeD Maryland”) entered into lot purchase agreements with NVR, Inc. (“NVR”)
relating to the sale of single-family home and townhome lots to NVR in the Ballenger Run Project. The purchase agreements were amended
three times thereafter. Based on the agreements, NVR is entitled to purchase
As
part of the agreements, NVR was required to give a deposit in the amount of $
| 12 |
4. NOTES PAYABLE
M&T Bank Loans
On
April 17, 2019, SeD Maryland Development LLC entered into a Development Loan Agreement with Manufacturers and Traders Trust Company (“M&T
Bank”) in the principal amount not to exceed at any one time outstanding the sum of $
On
June 18, 2020, Alset EHome Inc. entered into a Loan Agreement with M&T Bank. Pursuant to the Loan Agreement, M&T Bank provided
a non-revolving loan to Alset EHome Inc. in an aggregate amount of up to $
Paycheck Protection Program Loan
On
February 11, 2021, the Company entered into a five year note with M&T Bank with a principal amount of $
The
PPP Term Note is unsecured and guaranteed by the United States Small Business Administration. The Company applied to M&T Bank for
forgiveness of the PPP Term Note, with the amount which may be forgiven equal to at least
5. RELATED PARTY TRANSACTIONS
Loan from SeD Home Limited
The
Company receives advances from SeD Home Limited (an affiliate of Alset International) to fund development and operation costs. The advances
bear interest of
| 13 |
Loan to/from SeD Intelligent Home Inc. (f.k.a. SeD Home International Inc.)
The
Company receives advances from or loans funds to SeD Intelligent Home, the owner of
Management Fees
MacKenzie
Equity Partners, LLC, an entity owned by a Charles MacKenzie, a Director of the Company, has had a consulting agreement with a majority-owned
subsidiary of the Company since 2015. Per the terms of the agreement, as amended on January 1, 2018, the Company’s subsidiary paid
a monthly fee of $
In
addition, MacKenzie Equity Partners will be paid certain bonuses, including
The
Company incurred expenses of $
On
December 29, 2020, the Company entered into a Management Services Agreement (the “Management Services Agreement”) with Alset
International, pursuant to which the Company paid Alset International a one-time payment of $
Advances to Alset Inc.
The
Company pays some operating expenses for Alset Inc., a related party under the common control of Chan Heng Fai, the CEO of the Company.
The advances are interest free with no set repayment terms. On September 30, 2022 and December 31, 2021, the balance of these advances
was $
6. STOCKHOLDERS’ EQUITY
Cash Dividend Distributions
From
January to September 2021, the Board of Managers of SeD Maryland Development LLC (the
The Company did not authorize any distribution during nine months ended September 30, 2022.
| 14 |
7. SINGLE FAMILY RESIDENTIAL PROPERTIES
As
of September 30, 2022, the Company owns
The following table presents the summary of our SRFs as of September 30, 2022:
Number of Homes | Aggregate investment | Average Investment per Home | ||||||||||
| SFRs | $ | $ | ||||||||||
8. LEASE INCOME
The Company generally rents its SFRs under lease agreements with a term of one year. Future minimum rental revenue under existing leases on our properties at September 30, 2022 in each calendar year through the end of their terms are as follows:
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| Total Future Receipts | $ |
Property Management Agreements
The
Company has entered into property management agreement with the property managers under which the property managers generally oversee
and direct the leasing, management and advertising of the properties in our portfolio, including collecting rents and acting as liaison
with the tenants. The Company pays its property managers a monthly property management fee for each property unit and a leasing fee.
For the three months ended September 30, 2022 and 2021, property management fees incurred by the property managers were $
9. COMMITMENTS AND CONTINGENCIES
Leases
The
Company leases office space in Texas and Maryland. The lease for the Company’s Texas office is currently on a month-to-month basis,
while the lease of the Company’s Maryland office expires on
The
balance of the operating lease right-of-use asset and operating lease liability as of September 30, 2022 was $
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Supplemental Cash Flow and Other Information Related to Operating Leases are as follows:
Nine Months Ended September 30, 2022 | ||||
| Weighted Average Remaining Operating Lease Term (in years) | ||||
The below table summarizes future payments due under these leases as of September 30, 2022.
For the Years Ending September 30:
| 2023 | $ | |||
| 2024 | ||||
| Total Minimum Lease Payments | ||||
| Less: Effect of Discounting | ||||
| Present Value of Future Minimum Lease Payments | ||||
| Less: Current Obligation under Leases | ||||
| Long-term Lease Obligations | $ |
Lot Sale Agreements
On
November 23, 2015, SeD Maryland Development LLC completed the $
Certain
arrangements for the sale of buildable lots to NVR require the Company to credit NVR with an amount equal to one year of the FFB assessment.
Under ASC 606, the credits to NVR are not in exchange for a distinct good or service and accordingly, the amount of the credit was recognized
as the reduction of revenue. As of September 30, 2022 and December 31, 2021, the accrued balance due to NVR was $
Security Deposits
Our
rental-home lease agreements require tenants to provide a one-month security deposits. The property management company collects all security
deposits and maintains them in a trust account. The Company also has obligation to refund these deposits to the renters at the time of
lease termination. As of September 30, 2022, the security deposits held in the trust account were $
10. SUBSEQUENT EVENTS
On
October 28, 2022, 150 CCM Black Oak Ltd. (the “Seller”), a Texas Limited Partnership and subsidiary of the Company, entered
into a Contract for Purchase and Sale and Escrow Instructions (the “Agreement”) with Century Land Holdings of Texas, LLC,
a Colorado limited liability company (the “Buyer”). Pursuant to the terms of the Agreement, the Seller has agreed to sell
all of the approximately 242 single-family detached residential lots comprising a residential community in the city of Magnolia, Texas
known as the “Lakes at Black Oak.” The lots will be sold at a range of prices, and the Seller will also be entitled to receive
a community enhancement fee for each lot sold. The aggregate purchase price and community enhancement fees are anticipated to be $
The closing of the transactions described in the Agreement depends on the satisfaction of certain conditions set forth therein. There can be no assurance that such closings will be completed on the terms outlined herein or at all. The Buyer has agreed to purchase the lots in stages, with an estimated closing date of December of 2022 for the first 132 lots to be acquired, with the remainder to be acquired through 2023. Prior to such closing dates, the Buyer shall have a thirty (30) day inspection period in which to inspect the properties and determine their suitability; during such inspection period, the Buyer may decline to proceed with the closing of these transactions.
The Seller shall be required to develop and improve the property at the Seller’s cost pursuant to certain development plans and government regulations prior to the closings described above.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as “may”, “will”, “expect”, “believe”, “anticipate”, “estimate” or “continue” or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within our control. These factors include by are not limited to economic conditions generally and in the industries in which we may participate, competition within our chosen industry, including competition from much larger competitors, technological advances and failure to successfully develop business relationships.
Results of Operations for the Three and Nine Months Ended September 30, 2022 and 2021:
| Three-months Ended | Nine-months Ended | |||||||||||||||
September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||
| Revenue | $ | 579,758 | $ | 3,547,396 | $ | 1,870,882 | $ | 12,026,069 | ||||||||
| Cost of Revenue | $ | 416,181 | $ | 2,235,305 | $ | 1,716,523 | $ | 8,709,404 | ||||||||
| General and Administrative | $ | 413,496 | $ | 360,955 | $ | 1,270,983 | $ | 1,173,751 | ||||||||
| Other Expense | $ | 259,893 | $ | 29,277 | $ | 660,119 | $ | 56,267 | ||||||||
| Net (Loss) Income | $ | (509,812 | ) | $ | 921,859 | $ | (1,776,743 | ) | $ | 2,086,647 | ||||||
Revenue
Revenue was $579,758 for the three months ended September 30, 2022 as compared to $3,547,396 for the three months ended September 30, 2021. Revenue was $1,870,882 for the nine months ended September 30, 2022 as compared to $12,026,069 for the nine months ended September 30, 2021. The decrease in revenue is caused mainly by the decrease in property sales from the Ballenger project in 2022. In the first nine months of 2022 the last three homes in Ballenger Project were sold. In this project, builders were required to purchase a minimum number of lots based on their applicable sale agreements. We collected revenue only from the sale of lots to builders. We are not involved in the construction of homes at the present time.
Income from the sale of Front Foot Benefits (“FFBs”), assessed on Ballenger Run project lots, decreased from $182,813 in the three months ended September 30, 2021 to $9,968 in the three months ended September 30, 2022. Income from the sale of FFBs decreased from $431,458 in the nine months ended September 30, 2021 to $126,055 in the nine months ended September 30, 2022. The decrease is a result of the decreased sale of properties to homebuyers in 2022.
In the second quarter of 2021, the Company started renting homes to tenants. Revenue from rental business was $569,792 and $133,302 for the three months ended September 30, 2022 and 2021, respectively. Revenue from rental business was $1,206,273 and $155,249 for the nine months ended September 30, 2022 and 2021, respectively. The company expects that the revenue from this business will continue to increase as we acquire more rental houses and successfully rent them.
Cost of Revenue
All cost of revenue in the nine months ended on September 30, 2022 and 2021 came from our Ballenger and SeD Texas projects. The gross margin ratio for Ballenger project in first nine months of 2022 and 2021 were approximately 31% and 23%, respectively. The different types of lots usually have different gross margins, the main reason which led to the increase in 2022. The gross margin ratio for SeD Texas project in first nine months of 2022 and 2021 were approximately -4% and 26%, respectively.
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General and Administrative Expenses
General and administrative expenses increased from $360,955 in the three months ended September 30, 2021 to $413,496 in the three months ended September 30, 2022. General and administrative expenses increased from $1,173,751 in the nine months ended September 30, 2021 to $1,270,983 in the nine months ended September 30, 2022. The increase in those expenses is caused mainly by the increase in the professional fees in 2022.
Net Income (Loss)
In the three months ended September 30, 2022, the Company had net loss of $509,812 as compared to net income of $921,859 in the three months ended September 30, 2021. In the nine months ended September 30, 2022, the Company had net loss of $1,776,743 as compared to net income of $2,086,647 in the nine months ended September 30, 2021. The increase in net loss was caused by increased administrative and interest expenses.
Liquidity and Capital Resources
Our real estate assets have increased to $ 47,107,327 as of September 30, 2022 from $40,034,933 as of December 31, 2021. This increase primarily reflects the acquisition of 3 new rental properties in the first nine months of 2022, which will be used in the Company’s rental business. Our rental properties assets were $26,150,360 as of September 30, 2022. Additionally, in September 2021 we purchased a house which currently serves as the model house with some office space for a property manager. This property asset was $414,155 as of September 30, 2022.
Our liabilities increased from $23,278,817 at December 31, 2021 to $ 26,755,885 at September 30, 2022. Our total assets have increased to $ 49,880,432 as of September 30, 2022 from $48,180,107 as of December 31, 2021.
As of September 30, 2022, we had cash of $1,986,016 and restricted cash of $309,145 compared to $3,055,745 and $4,399,984 as of December 31, 2021, respectively.
Our Ballenger Run project has a revolver loan from M&T Bank in the principal amount not to exceed at any one time outstanding the sum of $8,000,000, with a cumulative loan advance amount of $18,500,000. As of September 30, 2022 and December 31, 2021, the revolver loan balance was $0.
On June 18, 2020, Alset EHome Inc. entered into a Loan Agreement with M&T Bank. Pursuant to this Loan Agreement, M&T Bank provided a non-revolving loan to Alset EHome Inc. in an aggregate amount of up to $2,990,000. As of September 30, 2021, the M&T loan balance was $0. The loan was paid off in May 2021.
On February 11, 2021, the Company entered into a term note with M&T Bank with a principal amount of $68,502 pursuant to the Paycheck Protection Program (“PPP Term Note”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan is evidenced by a promissory note. The PPP Term Note bears interest at a fixed annual rate of 1.00%, with the first sixteen months of principal and interest deferred or until we apply for the loan forgiveness. The PPP Term Note may be accelerated upon the occurrence of an event of default.
The PPP Term Note is unsecured and guaranteed by the United States Small Business Administration. The Company applied to M&T Bank for forgiveness of the PPP Term Note, with the amount which may be forgiven equal to at least 60% of payroll costs and other eligible payments incurred by the Company, calculated in accordance with the terms of the CARES Act. The PPP loan was forgiven in April, 2022
During 2021 the Company signed multiple purchase agreements to acquire 109 homes in Montgomery and Harris Counties, Texas. By December 31, 2021, the acquisition of the 109 homes was completed with an aggregate purchase cost of $24,940,764. The Company borrowed $19,122,471 from SeD Intelligent Home Inc. to fund most of these acquisitions.
Our subsidiaries are reviewing plans for potential additional fundraising to fund single family rental operations and the acquisition of additional real estate projects.
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The future development timeline of Black Oak will be based on multiple conditions, including the amount of funds which may be raised from capital markets, the loans we may secure from third party financial institutions, and government reimbursements which may be received. The development will be step by step and expenses will be contingent on the amount of funding we will receive.
The management believes that the available cash in bank accounts and favorable cash revenue from real estate projects are sufficient to fund our operations for at least the next 12 months.
Summary of Cash Flows
A summary of cash flows from operating, investing and financing activities for the nine months ended September 30, 2022 and 2021 are as follows:
| 2022 | 2021 | |||||||
| Net Cash (Used in) Provided by Operating Activities | $ | (6,094,224 | ) | $ | 6,228,105 | |||
| Net Cash Used in Investing Activities | $ | (1,806,345 | ) | $ | (11,085,464 | ) | ||
| Net Cash Provided by Financing Activities | $ | 2,740,000 | $ | 4,664,499 | ||||
Cash Flows from Operating Activities
Cash flows from operating activities include costs related to assets ultimately planned to be sold, including land purchased for development and resale, and costs related to construction, which were capitalized in the book. In the nine months ended September 30, 2022, cash used in operating activities was $6,094,224 compared to cash provided of $6,228,105 the nine months ended September 30, 2021. Development of real estate and other expenses were the main reason for the cash used in operating activities in 2022.
Cash Flows from Investing Activities
Cash flows used in investing activities in the nine months ended September 30, 2022 and 2021 include the purchase of properties and improvements for our rental business, as well as small expenditures for purchases of office computer equipment.
Cash Flows from Financing Activities
In the nine months ended September 30, 2022, the Company repaid $1,000,000 and subsequently borrowed $3,740,000 from a related party loan. In the nine months ended September 30, 2021, the Company repaid $690,035 of bank loan, distributed $1,398,250 in cash to the minority shareholder, borrowed $6,684,282 from a related party and obtained $68,502 from PPP loan.
Seasonality
The real estate business is subject to seasonal shifts in costs as certain work is more likely to be performed at certain times of year. This may impact the expenses of Alset EHome Inc. from time to time. In addition, should we commence building homes, we are likely to experience periodic spikes in sales as we commence the sales process at a particular location.
Impact of Recent Public Health Events
In December 2019, a novel strain of coronavirus (“COVID-19”) was first identified in Wuhan, Hubei Province, China, and has since spread to a number of other countries, including the United States. The COVID-19 pandemic, or other adverse public health developments, could have a material and adverse effect on our business operations.
In the three and nine months ended September 30, 2022, the COVID-19 pandemic did not have a material impact on our operations. However, the extent to which the COVID-19 pandemic may impact our business in the future will depend on developments which are highly uncertain and cannot be predicted. The COVID-19 pandemic’s far-reaching impact on the global economy could negatively affect various aspects of our business, including demand for real estate and the cost of materials.
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The COVID-19 pandemic could impact the ability of our staff and contractors to continue to work, and our ability to conduct our operations in a prompt and efficient manner. In 2020, we experienced a slowdown in the planned construction of a clubhouse at the Ballenger Run project which was completed behind schedule. We believe this delay was caused in part by policies requiring lower numbers of contractors working in indoor spaces. In the future, the COVID-19 pandemic could cause similar delays at future projects.
The COVID-19 pandemic may adversely impact the timeliness of local government in granting required approvals. Accordingly, COVID-19 may cause the completion of important stages in our real estate projects to be delayed.
At our Black Oak project in Texas, we have strategically redesigned the lots since the beginning of the COVID-19 pandemic for a smaller “starter home” products that we believe will be more resilient in fluctuating markets. We have received strong indications that buyers and renters across the country are expressing interest in moving from more densely populated urban areas to the suburbs. Should we initiate sales at Black Oak, we believe the general trend of customers’ interest shifting from urban to suburban areas will be favorable such project. Unlike our Ballenger Run project, our Black Oak project may include our involvement in single family rental home development.
Impact on Staff
Most of our staff works out of our Bethesda, Maryland office. Our staff has shifted to mostly working from home since March 2020, but this has had minimal impact on our operations to date. The COVID-19 pandemic has also impacted the frequency with which our management would otherwise travel to the Black Oaks project; however, we have a contractor in Texas providing supervision of the project. Management continues to regularly supervise the remaining tasks at the Ballenger Run project. Limitations on the mobility of our management and staff may slow down our ability to enter into new transactions and expand existing projects.
We have not reduced our staff in connection with the COVID-19 pandemic. To date, we did not have to expend significant resources related to employee health and safety matters related to the COVID-19 pandemic. We have a small staff, however, and the inability of any significant number of our staff to work due to illness or the illness of a family member could adversely impact our operations.
Recent Business Developments in our Home Rental Business
Recently, the Company expanded its real estate portfolio to single family rental houses. During 2021 and early 2022, the Company, through its subsidiaries, acquired 112 homes in Montgomery and Harris Counties, Texas.
In the first fifty of the 112 rental homes that were acquired, as part of our commitment to advancing smart and healthy sustainable living, we have installed Tesla PV solar panels and Powerwalls. We are reviewing plans to add solar panels and related technologies at the balance of the single-family rental homes, where feasible. In addition, we have added technologies at many of the single family rental homes such as (i) smart solar, thermostat, and energy usage controls; (ii) smart lighting controls; (iii) smart locks and security; and (iv) smart home automation devices. We believe these and other technologies will be attractive to renters and we continue to build and pursue strategic, technological partnerships that will assist us as we expand our real estate business to include building homes for rent and building homes for sale in the future.
The Company has entered into a property management agreement with the property managers under which the property managers generally oversee and direct the leasing, management and advertising of the properties in our portfolio, including collecting rents and acting as liaison with the tenants. The Company pays its property managers a monthly property management fee per property unit and a leasing fee.
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Off-Balance Sheet Arrangements
As of September 30, 2022, we did not have any off-balance sheet arrangements, as defined under applicable SEC rules.
Critical Accounting Policy and Estimates
The Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). For detail accounting policy and estimates information, please see Note 1 in the condensed consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a “smaller reporting company” as defined by Item 10(f)(1) of Regulation S-K, the Company is not required to provide the information required by this Item.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officers and Chief Financial Officers, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our management, including our Chief Executive Officers and Chief Financial Officers concluded that our disclosure controls and procedures are not effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (“SECs”) rules and forms and to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officers and Chief Financial Officers, as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in the Company’s Internal Controls Over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) that occurred during the quarterly period ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceeding
The registrant is not a party to, and its property is not the subject of, any material pending legal proceedings.
Item 1A. Risk Factors
Not applicable to smaller reporting companies.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
Not Applicable.
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Item 6. Exhibits
The following documents are filed as a part of this report:
* Filed herewith.
** Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| LIQUIDVALUE DEVELOPMENT INC. | ||
| November 4, 2022 | By: | /s/ Fai H. Chan |
Fai H. Chan Co-Chief Executive Officer and Director | ||
| (Principal Executive Officer) | ||
| November 4, 2022 | By: | /s/ Moe T. Chan |
Moe T. Chan Co-Chief Executive Officer and Director | ||
| (Principal Executive Officer) |
| November 4, 2022 | By: | /s/ Rongguo (Ronald) Wei |
Rongguo (Ronald) Wei Co-Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
| November 4, 2022 | By: | /s/ Alan W. L. Lui |
Alan W. L. Lui Co-Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
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