UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
1-SA
SEMIANNUAL
REPORT PURSUANT TO REGULATION A
For
the fiscal semiannual period ended:
June 30, 2022
UC
Asset, LP
(Exact
name of issuer as specified in its charter)
|
Delaware
|
|
30-0912782 |
|
State
of other jurisdiction of
incorporation or organization
|
|
(I.R.S.
Employer
Identification No.) |
537
Peachtree Street NE, Atlanta GA 30308
(Full
mailing address of principal executive offices)
(470)
475-1035
(Issuer’s
telephone number, including area code)
INFORMATION TO BE INCLUDED IN REPORT
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
We
make statements in this semiannual report on Form 1-SA (the
“Semiannual Report”), that are forward-looking statements within
the meaning of the federal securities laws. The words “believe,”
“estimate,” “expect,” “anticipate,” “intend,” “plan,” “seek,”
“may,” and similar expressions or statements regarding future
periods are intended to identify forward-looking statements. These
forward-looking statements involve known and unknown risks,
uncertainties and other important factors that could cause our
actual results, performance or achievements, or industry results,
to differ materially from any predictions of future results,
performance or achievements that we express or imply in this
Semiannual Report or in the information incorporated by reference
into this Semiannual Report.
The
forward-looking statements included in this Semiannual Report are
based upon our current expectations, plans, estimates, assumptions
and beliefs that involve numerous risks and uncertainties.
Assumptions relating to the foregoing involve judgments with
respect to, among other things, future economic, competitive and
market conditions and future business decisions, all of which are
difficult or impossible to predict accurately and many of which are
beyond our control. Although we believe that the expectations
reflected in such forward-looking statements are based on
reasonable assumptions, our actual results and performance could
differ materially from those set forth in the forward-looking
statements.
Any
of the assumptions underlying forward-looking statements could be
inaccurate. You are cautioned not to place undue reliance on any
forward-looking statements included in this Semiannual Report. All
forward-looking statements are made as of the date of this
Semiannual Report and the risk that actual results will differ
materially from the expectations expressed in this Semiannual
Report will increase with the passage of time. Except as otherwise
required by the federal securities laws, we undertake no obligation
to publicly update or revise any forward-looking statements after
the date of this Semiannual Report, whether as a result of new
information, future events, changed circumstances or any other
reason. In light of the significant uncertainties inherent in the
forward-looking statements included in this Semiannual Report, the
inclusion of such forward-looking statements should not be regarded
as a representation by us or any other person that the objectives
and plans set forth in this Semiannual Report will be
achieved.
Item 1. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Overview
The
business purpose of our Partnership is to invest for capital
appreciation.
Our
business model is to invest in properties that are undervalued or
have considerable potential to appreciate in the near future. This
often involves innovative investment models which will either
introduce a property to a new niche market, or facilitate new
business relationships surrounding a property, under which the
value of the property may reach its maximum potential. It also
requires visionary thinking, to invest in properties before the
market situation may experience dramatic change due to the emerge
of new technologies, new economic factors, and/or new
regulations.
Since
our approach is innovative, there are usually no pre-defined cycles
for our investments. It may take as short as a few weeks, or as
long as several years, before we complete an investment cycle and
sell a portfolio property. During our holding period, a property
usually does not produce much cash income, or no cash income at
all. Since we are using historic cost as our bookkeeping method,
our book will likely show the property as losing money, until the
moment when we sell the property. Only then will we be able to book
all the profit (if any) accumulated over the whole period of
investment cycle. This will constantly result in irregularity and
volatility of our booked revenue and profit.
We
will discuss more about the impact of accounting method on our
financials in “Critical Accounting Estimate” at the end of this
Item 1.
Material Changes in Financial Statements
Change
of Revenue
| Six
Months Period Ended June 30 |
|
2022 |
|
|
2021 |
|
| INCOME |
|
|
|
|
|
|
|
|
| Sales
of portfolio properties |
|
$ |
- |
|
|
$ |
1,909,644 |
|
| Rental income |
|
|
7,500 |
|
|
|
61,242 |
|
| Unrealized
gain(loss) on marketable securities |
|
|
(490,000 |
) |
|
|
- |
|
|
Interest income |
|
|
64,800 |
|
|
|
93,605 |
|
| Total
income |
|
$ |
(417,700 |
) |
|
$ |
2,063,951 |
|
Our
sales of portfolio properties dropped to zero during the six months
period ended June 30, 2022, because we had almost completely sold
our holdings in residential properties in fiscal year 2020 and
2021. We sold no properties for the six months ended June 30, 2022.
For the same period, our rental income also dropped, because we
were not holding many residential properties, which generating
rental income.
During
the period we also took an unrealized loss on certain marketable
securities we held in our portfolio, in the context of the overall
bearish trend of the US stock market.
Our
interest income went down slightly, because, for the first quarter
of 2022, we forbore interest on the $950,000 remaining balance on a
note, in exchange for that a third party will buy out the remaining
balance. We resumed charging interest after the third party
defaulted in March, 2022.
Change
of operating expenses
Our
operating expenses remained stable in the first half of 2022,
compared to the first half of 2021. Professional fees increased
slightly, because we launched a business plan in the beginning of
2022, to work toward a secondary public offering to be combined
with an up-listing to NYSE. That plan was later suspended at the
end of first half of 2022.
Our
general and administrative expenses increased by approximately
$110,000, from approximately $70,000 for the six months ended June
30, 2021, to approximately $180,000 for the same period in 2022.
This was mostly because of the increase in general expenses, which
includes 1) the increase of property tax from $0 in the first half
of fiscal year 2021, to approximately $33,000 in the first half of
fiscal year 2022; 2) the increase in marketing and advertisement
costs, from approximately $17,000 in the first half of fiscal year
2021, to approximately $70,000 in the first half of fiscal year
2022; and 3) the increase of travel expenses, from approximately
$2,000 in the first half of fiscal year 2021, to approximately
$20,000 in the first half of fiscal year 2022.
The
latter two categories of general expense increases were mostly the
result of our increased marketing and business development campaign
in the first half of 2022, with the business goal to launch a
secondary public offering and to do an up-listing to NYSE, and to
develop a $20-50 million investment portfolio of cannabis
properties.
Changes
of gross margin and net income
For
the first half of fiscal year of 2021 and 2022, our gross operating
profit was $133,496 and negative $417,700 respectively. For the
same period, our net income was negative $151,113 and negative
$844,222 respectively. Net income is negative $0.03 per share and
negative $0.15 per share respectively. We started distributing a
dividend of $0.10/share in 2022, and distributed $90,206 during the
first half of the year.
|
Six Month Period ended June 30 |
|
Gross
Profit |
|
|
Net
Income |
|
|
Net Income /
Common
Unit |
|
| 2021 |
|
$ |
133,496 |
|
|
$ |
151,113 |
|
|
$ |
0.03 |
|
| 2022 |
|
$ |
417,700 |
|
|
$ |
842,222 |
|
|
$ |
0.15 |
|
The
changes of gross margins and net income was mostly the result of
changes of our revenue and operating expenses.
Other
Material Changes in Financial Statements
Our
loan to related parties decreased by approximately $330,000 as the
result of: 1) one of the related parties paid off its loan upon
maturity; and 2) another one of the related parties continued
paying off his advancement of management fees.
Our
loan to third parties increased by approximately $250,0000 as the
result of: 1) we lent $200,000 as a pre-IPO bridge loan to a third
party; and 2) accumulation of unpaid interest on our third-party
loans.
Liquidity
and Capital Resources
Cash Flows
As an
investor, we do not manage the daily operation of any of our
portfolio properties, except for some insignificant and
non-material operative activities. We intend to form partnerships
with third party operators/managers to conduct daily operations. We
usually require the third-party to bear all operating cost, except
for capital spending which will increase the value of
properties.
Meanwhile
we apply a disciplined investment strategy, under which we will
usually make new investments only when we have cash
available.
Under
such a business model, we don’t usually have any significant amount
of cash commitments, except for 1) management fees and professional
fees, which are usually stable and predictable period-to-period;
and 2) amount due on our debt financing.
The
following table shows a summary of cash flows for the periods set
forth below.
| |
|
6 Months Ended
June 30,
2022 |
|
|
6 Months Ended
June 30,
2021 |
|
| Net cash provided by (used
in) operating activities |
|
$ |
(352,357 |
) |
|
$ |
(170,440 |
) |
| Net cash provided by (used in)
investing activities |
|
$ |
(516,683 |
) |
|
$ |
1,072,119 |
|
| Net cash provided by (used in)
financing activities |
|
$ |
- |
|
|
$ |
400,000 |
|
| Cash at beginning of period |
|
$ |
1,256,371 |
|
|
$ |
1,419,710 |
|
| Cash at end of period |
|
$ |
387,331 |
|
|
$ |
2,721,469 |
|
Change
of Cash Level
Our
cash reserve on June 30,2022 decreased to approximately $387,000,
from approximately $2.7 million on June 30, 2021. Management
believes this is a healthier level of cash reserve. As an
investment company, we do not want to have a large amount of cash
on hands, which will not yield any return. On the other hand, we
always need a cash reserve so that we can invest when a great
opportunity presents itself.
Net
Cash (Used in) Provided in Operating Activities
Our
net cash from operating activities decreased to approximately
negative $352,000 in the first half of 2022, from a negative
$170,000 in the first half of 2021. This mostly is the result of
the increase in general and administrative spendings by
approximately $110,000, and the decrease of our rent income by
approximately $54,000.
Net
Cash (Used in) Provided by Investing Activities
Our
net cash provided by investing activities is primarily the result
of cash received from divesting our existing portfolio assets
(including properties and loans), reduced by cash used for
investing in new portfolio assets.
For
the six months ended June 30, 2022, we did not divest any
properties. We invested $235,477 into improvement of portfolio
assets, $200,000 in a short term loan, and paid approximately
$90,000 of dividends, which resulted in a net negative cashflow of
approximately $517,000.
For
the six months ended June 30, 2021, we received approximately $1.91
million from divesting portfolio assets, received $24,000 of loan
repayments, made approximately $768,000 investments in new
portfolio assets, and made $100,000 into new loan investments,
which resulted in a net cashflow of approximately $1.07
million.
Net
Cash Provided by Financing Activities
For
the six months ended June 30, 2021, net cash provided by financing
activities was primarily the result of a construction loan in the
amount of $400,000.
For
the six months ended June 30, 2022, net cash provided by financing
activities was primarily the result of repayment of a related party
loan, and the redemption of 166,667 Series A preferred shares. The
two transactions offset each other, resulting in a net cashflow of
zero.
Commitments and Contingencies
We
pay quarterly management fees to our general partner, UCF Asset
LLC. Management fees are calculated at 2.0% of assets under
management(AUM) as of the last day of our preceding fiscal year.
According to our bylaw, the value of AUM is determined using fair
market value (FMV) accounting. Management fees for the six months
ended June 30, 2021 and 2022 were $90,575 and $90,000,
respectively.
We
used to lease space from an unaffiliated third party at 2299
Perimeter Park Drive, Suite 120 in Atlanta, GA. We terminated that
lease and had no longer paid any rent since April
2022.
We
have an outstanding construction loan of $400,000 and are paying
monthly interest on that debt at an annual rate of 4.25%. The debt
matured in the third quarter of 2022 and was extended for another
12 months.
The
Company is in the process of distributing a dividend of $0.10 per
common unit for the year of 2021. The total amount of dividend will
be approximately $548,500 based on the number of common units
currently outstanding. Approximately $90,000 was distributed by the
end of June 30, 2022.
Capital Resources
Since
our inception, we have funded our operations primarily through the
sale of limited partner interests sold in private placements. Our
Initial Public Offering pursuant to Regulation A plus was closed on
October 12, 2018. The net proceeds of capital raised in the
offering was $1.15 million. On March 02, 2020, we closed a private
placement from an accredited investor, pursuant to which the
Company raised a total of $300,000, which was redeemed in June
2022.
The
Company may raise more capital through private or public offering
of its partnership units. There are no guarantees, however, that
the Company will be able to do so.
Debt
financing
As of
and by December 31, 2021, our outstanding debt includes a loan
facility of $400,000 from a local bank, utilized by our subsidiary
SHOC LLC. It carries an annual interest rate of 4.25%. It matured
in the third quarter of 2022 and was extended for another 12
months.
Trend
information
The
following discussion covers some significant trends or
uncertainties affecting our business during the reporting period,
in our industry or on macro economy level. These trends might have
impacts on our continuing operations, particularly on our portfolio
investments.
Expansion
of our portfolio into cannabis properties
On
September 29, 2021, the Company announced that we will expand our
portfolio into cannabis properties. On November 15, 2021, we
announced that we will follow similar investment strategies
implemented by other public companies, such as Power REIT (NYSE:
PW). As of and by June 30, 2022, we have not made any investment
into cannabis properties.
Shifting
of our portfolio investments from residential to
income-producing
Our
real estate portfolio used to be only residential properties.
Starting from early 2020, we have been exiting our investments in
residential properties, and shifting our investment to income
producing properties, including Airbnb properties and office spaces
(historic landmarks). By and as of the end of 2021, residential
properties had dropped to less than 50% of our portfolio property
investments. By and as of June 30, 2022, residential properties had
dropped to approximately 40% of our portfolio property
investments.
Impact
of COVID-19 on national and local real estate
markets
The
COVID-19 pandemic has had a huge impact on real estate markets. We
have closely followed its impacts. We published a “White Paper” on
February 23, 2021, to outline our major observations, analyses, and
conclusions. As of June 30, 2022, we do not believe that there will
be further major impacts on our business from COVID-19 in the
foreseeable future.
Application
of blockchain technology (NFT) in real estate
industry
In
the beginning of the third quarter of 2021, ALS acquired historical
Rufus Rose House in downtown Atlanta through a standard property
purchase deal. It will partner with block-chain technology
companies to issue Non-fungible Tokens (“NFT”) based on certain
derivative property rights (For example, the right to use the image
of the property for business purpose). As of and by the end of this
reporting period, management has no reasonable ground to determine
whether and/or when any of the projected NFT sales will be
realized. Management highlights the fact that ALS acquired Rufus
Rose House on the basis of its commercial value as an office
building, and any sales from NFTs will provide extra return on this
investment.
US
stock market and concerns of recession on US economy
There
has been an ongoing concern of a possible recession on US economy
in the past two years, and it appears to us that the concern grows
stronger in the first half of 2022. The US stock market experienced
another downward adjustment, which had negative impact on the
marketable securities we held, resulting in a $490,000 unrealized
loss. As and by the end of June 30, 2022, we still hold marketable
securities of a value of $360,000, which is subject to continuous
volatility of the stock market.
Critical
accounting estimates
Since
our inception, we have adopted fair market value accounting under
ASC (Accounting Standards Codification) 946-10-15. The fair market
value of our portfolio properties is assessed and reassessed each
and every year by the end of fiscal year, using one of the
following methods: 1) independent appraisals conducted by licensed
and independent third parties; 2) executed contracts which provides
definitive amount of selling a property, discounted to current
value; or 3) cost-based valuation when there are no other
reasonable methods available.
On
March 22, 2022, the management of UC Asset LP (the “Company”) was
notified that the US Security and Exchange Commission (the “SEC”)
objected to the Company’s conclusion that UC Asset LP and its
subsidiaries met the criteria to apply fair market value
accounting. As a result, the Company has changed to historical cost
accounting for our financial statements, including the financial
statements contained in this filing.
Our
investment strategy is innovative, and there are usually no
pre-defined cycles for our investments. It may take as short as a
few weeks, or as long as several years, before we complete an
investment cycle and sell a portfolio property. During our holding
period, a property usually does not produce much cash income, or no
cash income at all. Since we are using historic cost as our
bookkeeping method, our book will likely show the property as
losing money, until the moment when we sell the property. Only then
will we be able to book all the profit (if any) accumulated over
the whole period of investment cycle. This will constantly result
in irregularity and volatility of our booked revenue and profit, as
long as we still apply historical cost accounting.
Item
2. Other Information
Not
applicable for the reporting period.
Item
3. Financial Statements
INDEX
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UC ASSET, LP
Condensed
Consolidated Balance Sheets
| |
|
June
30,
2022 |
|
|
December 31,
2021 |
|
| ASSETS |
|
|
|
|
|
|
| Cash
and cash equivalents |
|
$ |
387,331 |
|
|
$ |
1,256,371 |
|
| Marketable equity
securities held for sale |
|
|
360,000 |
|
|
|
850,000 |
|
| Real estate held
for sale |
|
|
672,399 |
|
|
|
657,188 |
|
| Real estate held
for renovation/remodel |
|
|
2,563,461 |
|
|
|
2,383,475 |
|
| Real estate held
for rental, net of accumulated depreciation |
|
|
448,977 |
|
|
|
420,638 |
|
| Loans to third
parties |
|
|
1,771,815 |
|
|
|
1,519,815 |
|
| Loans to related
parties |
|
|
24,876 |
|
|
|
357,675 |
|
| Property and
equipment, net |
|
|
1,833 |
|
|
|
2,833 |
|
|
Prepaid expenses and other assets |
|
|
14,488 |
|
|
|
31,614 |
|
| |
|
|
|
|
|
|
|
|
| Total Assets |
|
$ |
6,245,180 |
|
|
$ |
7,479,609 |
|
| |
|
|
|
|
|
|
|
|
| LIABILITIES AND
PARTNERS’ CAPITAL |
|
|
|
|
|
|
|
|
| Accounts payable
and accrued expenses |
|
$ |
1,213 |
|
|
$ |
1,214 |
|
|
Mortgage loan |
|
|
400,000 |
|
|
|
400,000 |
|
| |
|
|
|
|
|
|
|
|
| Total
Liabilities |
|
|
401,213 |
|
|
|
401,214 |
|
| |
|
|
|
|
|
|
|
|
| Partners’ Capital: |
|
|
|
|
|
|
|
|
Series A
preferred units, 0 and 166,667 issued and outstanding at June 30,
2022
and December 31,2021 |
|
|
- |
|
|
|
300,000 |
|
Common units 5,485,025 issued and outstanding at June 30, 2022
and
December 31,2021 |
|
|
5,843,967 |
|
|
|
6,778,395 |
|
| |
|
|
|
|
|
|
|
|
| Total Partner’s
Capital |
|
|
5,843,967 |
|
|
|
7,078,395 |
|
| |
|
|
|
|
|
|
|
|
| Total Liabilities
and Partners’ Capital |
|
$ |
6,245,180 |
|
|
$ |
7,479,609 |
|
UC ASSET,
LP
Condensed
Consolidated Statements of Operations
Six
months ended June 30,
(unaudited)
| |
|
2022 |
|
|
2021 |
|
| INCOME |
|
|
|
|
|
|
| Sales of homes |
|
$ |
- |
|
|
$ |
1,909,644 |
|
| Unrealized loss on
marketable equity securities |
|
|
(490,000 |
) |
|
|
|
|
| Rental income |
|
|
7,500 |
|
|
|
61,242 |
|
|
Interest income |
|
|
64,800 |
|
|
|
93,065 |
|
| |
|
|
|
|
|
|
|
|
| Total income |
|
|
(417,700 |
) |
|
|
2,063,951 |
|
| |
|
|
|
|
|
|
|
|
| COST OF
SALES |
|
|
|
|
|
|
|
|
| Cost of
sales |
|
|
- |
|
|
|
1,930,455 |
|
| |
|
|
|
|
|
|
|
|
| Total
cost of sales |
|
|
- |
|
|
|
1,930,455 |
|
| |
|
|
|
|
|
|
|
|
| Gross Margin |
|
|
(417,700 |
) |
|
|
133,496 |
|
| |
|
|
|
|
|
|
|
|
| OPERATING
EXPENSES |
|
|
|
|
|
|
|
|
| Management
fees |
|
|
90,000 |
|
|
|
90,575 |
|
| Professional
fees |
|
|
100,134 |
|
|
|
79,701 |
|
| Other general and
administrative |
|
|
179,876 |
|
|
|
69,926 |
|
| Interest
expense |
|
|
8,973 |
|
|
|
- |
|
| Loss on disposal
of asset |
|
|
39,100 |
|
|
|
- |
|
|
Depreciation |
|
|
8,439 |
|
|
|
44,407 |
|
| |
|
|
|
|
|
|
|
|
| Total
operating expenses |
|
|
426,522 |
|
|
|
284,609 |
|
| |
|
|
|
|
|
|
|
|
| Net increase
(decrease) in net assets from operations |
|
$ |
(844,222 |
) |
|
$ |
(151,113 |
) |
| |
|
|
|
|
|
|
|
|
| Net increase in
net assets per unit |
|
$ |
(0.15 |
) |
|
$ |
(0.03 |
) |
| Weighted average units
outstanding |
|
|
5,485,025 |
|
|
|
5,635,306 |
|
UC ASSET, LP
Condensed Consolidated Statement of Partners’ Capital
For the six months ended June 30, 2022
(unaudited)
| |
|
Limited
Partners
Common
Units
|
|
|
Limited
Partners
Preferred A
Units
|
|
|
Limited
Partners
Common
Units
Amount |
|
|
Limited
Partners
Preferred A
Units
Amount |
|
|
Total
Partners’
Equity
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, January 1, 2022
|
|
|
5,485,025 |
|
|
|
166,667 |
|
|
$ |
6,778,395 |
|
|
$ |
300,000 |
|
|
$ |
7,078,395 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cancellation of Preferred Series A
units |
|
|
- |
|
|
|
(166,667 |
) |
|
|
- |
|
|
|
(300,000 |
) |
|
|
(300,000 |
) |
| Dividend distribution |
|
|
- |
|
|
|
- |
|
|
|
(90,206 |
) |
|
|
- |
|
|
|
(90,206 |
) |
| Net loss |
|
|
- |
|
|
|
- |
|
|
|
(844,222 |
) |
|
|
- |
|
|
|
(844,222 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, June 30, 2022 |
|
|
5,485,025 |
|
|
|
- |
|
|
$ |
5,843,967 |
|
|
$ |
- |
|
|
$ |
5,843,967 |
|
UC ASSET, LP
Condensed Consolidated Statement of Partners’ Capital
For the six months ended June 30, 2021
(unaudited)
| |
|
Limited Partners
Common Units
|
|
|
Limited
Partners
Preferred A
Units
|
|
|
Limited
Partners
Common
Units
Amount |
|
|
Limited
Partners
Preferred A
Units
Amount
|
|
|
Total
Partners’
Equity
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, January 1, 2021 |
|
|
5,635,306 |
|
|
|
166,667 |
|
|
$ |
8,622,529 |
|
|
$ |
300,000 |
|
|
$ |
8,922,529 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net change in
net assets from operations |
|
|
- |
|
|
|
- |
|
|
|
(257,426 |
) |
|
|
- |
|
|
|
(257,426 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, June 30, 2021 |
|
|
5,635,306 |
|
|
|
166,667 |
|
|
$ |
8,365,103 |
|
|
$ |
300,000 |
|
|
$ |
8,665,103 |
|
UC ASSET,
LP
Condensed
Consolidated Statements of Cash Flows
Six
months ended June 30,
(unaudited)
|
|
|
2022 |
|
|
2021 |
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
Net
decrease in net assets from operations |
|
$ |
(844,222 |
) |
|
$ |
(151,113 |
) |
Adjustments
to reconcile net decrease in net assets from operations to net
cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
Net
unrealized loss on marketable equity securities |
|
|
490,000 |
|
|
|
- |
|
|
Loss
on asset disposal |
|
|
39,100 |
|
|
|
- |
|
|
Amortization
of prepaid expense |
|
|
17,126 |
|
|
|
26,939 |
|
|
Depreciation |
|
|
8,439 |
|
|
|
44,407 |
|
|
Changes
in working capital items |
|
|
|
|
|
|
|
|
|
Accrued
interest receivable |
|
|
(62,800 |
) |
|
|
(90,411 |
) |
|
Deposits
and other assets |
|
|
- |
|
|
|
(262 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities |
|
|
(352,357 |
) |
|
|
(170,440 |
) |
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Investment
in portfolio properties |
|
|
(235,477 |
) |
|
|
(768,321 |
) |
|
Sale
of portfolio properties |
|
|
- |
|
|
|
1,909,643 |
|
|
Investments
in portfolio loans |
|
|
(200,000 |
) |
|
|
(100,000 |
) |
|
Repayments
of portfolio loans |
|
|
- |
|
|
|
24,000 |
|
|
Dividend
payment |
|
|
(90,206 |
) |
|
|
- |
|
|
Repayments
of portfolio loans, related party |
|
|
9,000 |
|
|
|
6,877 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by investing activities |
|
|
(516,683 |
) |
|
|
1,072,199 |
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Cash
received from mortgage loan on portfolio property |
|
|
- |
|
|
|
400,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities |
|
|
- |
|
|
|
400,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents |
|
|
(869,040 |
) |
|
|
1,301,759 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period |
|
|
1,256,371 |
|
|
|
1,419,710 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period |
|
$ |
387,331 |
|
|
$ |
2,721,469 |
|
UC
ASSET, LP
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information
as to the six months ended June 30, 2022 is unaudited)
NOTE
1 - ORGANIZATION AND NATURE OF OPERATIONS
UC
Asset, LP (the “Partnership”) is a Delaware Limited Partnership
formed for the purpose of making capital investments with a focus
on growth-equity investments and real estate. The Partnership was
formed on February 1, 2016.
The
Partnership is managed by its General Partner, UCF Asset
LLC.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a)
Basis of accounting The Partnership prepares its financial
statements on the accrual basis in accordance with accounting
principles generally accepted in the United States. Purchases and
sales of investments are recorded upon the closing of the
transaction. Investments are recorded at fair value with unrealized
gains and losses reflected in the statement of changes in net
assets.
The
accompanying unaudited condensed interim financial statements have
been prepared in accordance with Generally Accepted Accounting
Principles ("GAAP") in the United States of America ("U.S.") as
promulgated by the Financial Accounting Standards Board ("FASB")
Accounting Standards Codification ("ASC") and with the rules and
regulations of the U.S. Securities and Exchange Commission ("SEC").
In our opinion, the accompanying unaudited interim financial
statements contain all adjustments (which are of a normal recurring
nature) necessary for a fair presentation. Operating results for
the six months ended June 30, 2022 are not necessarily indicative
of the results that may be expected for the year ending December
31, 2022
(b)
Principles of Consolidation The Partnership’s consolidated
financial statements include the financial statements of UC Asset,
LP and its wholly owned subsidiaries: Atlanta Landsight, LLC, SHOC
Holdings LLC, Hotal Service LLC and OK4ZO Properties LLC. All
intercompany balances and transactions have been
eliminated.
(c)
Use of estimates The preparation of 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 of assets and
liabilities, disclose contingent assets and liabilities at the date
of the financial statements and report amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
(d)
Fair value measurements The Partnership records and carries its
investments at fair value, defined as the price the Partnership
would receive to sell the asset in an orderly transaction with a
market participant at the balance sheet date. In the absence of
active markets for the identical assets, such measurements involve
the development of assumptions based on market observable data and,
in the absence of such data, internal information that is
consistent with what market participants would use in a
hypothetical transaction that occurs at the balance sheet
date.
UC
ASSET, LP
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
(d)
Fair value measurements, continued
Observable
inputs reflect market data obtained from independent sources, while
unobservable inputs reflect management’s market assumptions.
Preference is given to observable inputs. These two types of inputs
create the following fair value hierarchy:
Level
1: Quoted prices in active markets for identical assets or
liabilities.
Level
2: Quoted prices for similar instruments in active markets, quoted
prices for identical or similar instruments in markets that are not
active, and model derived valuations whose inputs are observable or
whose significant value drivers are observable
Level
3: Significant inputs to the valuation model are
unobservable
The
General Partner maintains policies and procedures to value
instruments using the best and most relevant data available. In
addition, The General partner reviews valuations, including
independent price validation for certain instruments. Further, in
other instances, independent pricing vendors are obtained to assist
in valuing certain instruments.
(e)
Cash and equivalents The Partnership considers all highly
liquid debt instruments with original maturities of three (3)
months or less to be cash equivalents.
(f)
Investments The Partnership’s core activity is to make
investments in real estate properties. Excess funds are held in
financial institutions.
Investments
in short term loans are recorded at fair value, which are their
stated amount due to their short-term maturity and modest interest
rates. Portfolio investments are recorded at their estimated fair
value, as determined in good faith by the General Partner of the
Partnership. Unrealized gains and losses are recognized in
earnings.
The
estimated fair value of investments as determined by the General
Partner was $7,436,461 and $8,523,230 representing 87.98% and
93.53% of partners’ capital at June 30, 2022 and December 31, 2021,
whose values have been estimated by the General Partner in the
absence of readily ascertainable market values. Due to the inherent
uncertainty of valuation, the General Partner’s determination of
values may differ significantly from values that would have been
realized had a ready market for the investments existed, and the
differences could be material. The 100 million shares of Puration
Inc. common stock received to settle accrued interest on the $1.2
million note are valued on a mark to market basis as they are held
for sale.
(g)
Federal Income taxes As a limited partnership, the Partnership
is not a taxpaying entity for federal or state income tax purposes;
accordingly, a provision for income taxes has not been recorded in
the accompanying financial statements. Partnership income or losses
are reflected in the partners’ individual or corporate tax returns
in accordance with their ownership percentages.
As
defined by Financial Accounting Standards Board Accounting
Standards Codification (ASC) Topic 740, Income Taxes, no provision
or liability for materially uncertain tax positions was deemed
necessary by management. Therefore, no provision or liability for
uncertain tax positions has been included in these financial
statements. Generally, the Partnerships tax returns remain open for
three years for federal income tax examination.
(h)
Income Interest income from portfolio investments is recorded
as accrued.
(i)
Reclassification Certain prior period items have been
reclassified to conform with the current period
presentation.
UC
ASSET, LP
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
(j)
Recent Accounting Pronouncements Partnership management does
not believe that any recently issued, but not yet effective
accounting pronouncements, if adopted, would have a material effect
on the accompanying financial statements.
NOTE
3 - LIQUIDITY AND GOING CONCERN CONSIDERATIONS
The
Partnership’s consolidated financial statements have been prepared
on a going concern basis, which contemplates the realization of
assets and the settlement of liabilities and commitments in the
normal course of business. The Partnership sustained a net
operating loss of approximately $844,222 and cash use of $352,357
from operations for the six months ended June 30, 2022. These
conditions raise substantial doubt about our ability to continue as
a going concern. The accompanying condensed consolidated financial
statements do not include any adjustments that might be necessary
if we are unable to continue as a going concern.
NOTE
4 - FAIR VALUE OF FINANCIAL INSTRUMENTS
(a)
Cash and Cash Equivalents The fair value of financial
instruments that are short-term and that have little or no risk are
considered to have a fair value equal to book value.
(b)
Unsecured Loan Investments The fair value of short-term
unsecured loans are considered to have a fair value equal to book
value due to the short-term nature and market rate of interest
commensurate with the level of credit risk. At June 30, 2022 and
December 31, 2021, there were $600,000 and $700,000 in loans,
respectively.
(c)
Portfolio Investments The portfolio investments consist of
member equity interests which are not publicly traded. The General
Partner (“GP”) uses the investee entity’s real estate valuation
reports as a basis for valuation when there is limited, or no,
relevant market activity for a specific instrument or for other
instruments that share similar characteristics. Portfolio
investments priced by reference to valuation reports are included
in Level 3. The GP conducts internal reviews of pricing to ensure
reasonableness of valuations used. Based on the information
available, management believes that the fair values provided are
representative of prices that would be received to sell the
individual assets at the measurement date (exit prices).
The
fair values of the investee entity’s assets are determined in part
by placing reliance on third-party valuations of the properties
and/or third party approved internally prepared analyses of recent
offers or prices on comparable properties in the proximate
vicinity. The third-party valuations and internally developed
analyses are significantly impacted by the local market economy,
market supply and demand, competitive conditions and prices on
comparable properties, adjusted for anticipated date of sale,
location, property size, and other factors. Each property is unique
and is analyzed in the context of the particular market where the
property is located. In order to establish the significant
assumptions for a particular property, the GP analyzes historical
trends, including trends achieved by the GP's operations, if
applicable, and current trends in the market and economy impacting
the property. These methods use unobservable inputs to develop fair
value for the GP’s properties. Due to the volume and variance of
unobservable inputs, resulting from the uniqueness of each of the
GP's properties, the GP does not use a standard range of
unobservable inputs with respect to its evaluation of
properties.
UC
ASSET, LP
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
4 - FAIR VALUE OF FINANCIAL INSTRUMENTS, continued
(c)
Portfolio Investments, continued
Changes
in economic factors, consumer demand and market conditions, among
other things, could materially impact estimates used in the
third-party valuations and/or internally prepared analyses of
recent offers or prices on comparable properties. Thus, estimates
can differ significantly from the amounts ultimately realized by
the investee segment from disposition of these assets.
The
following tables present the fair values of assets and liabilities
measured on a recurring basis:
|
At
June 30, 2022 |
|
|
|
|
Fair
Value Measurement at Reporting Date Using |
|
|
|
|
Fair
Value
|
|
|
Quoted
Prices in
Active Markets
for Identical
Assets/Liabilities
(Level 1) |
|
|
Significant
Other
Observable
Inputs
(Level 2) |
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Atlanta
Landsight, LLC |
|
$ |
5,557,667 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
5,557,667 |
|
|
SHOC
Holdings LLC |
|
|
1,500,000 |
|
|
|
- |
|
|
|
- |
|
|
|
1,500,000 |
|
|
Short
term loans |
|
|
665,148 |
|
|
|
- |
|
|
|
- |
|
|
|
665,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets |
|
$ |
7,722,815 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
7,722,815 |
|
|
At
December 31, 2021 |
|
|
|
|
Fair
Value
Measurement at Reporting Date Using |
|
|
|
|
Fair
Value
|
|
|
Quoted
Prices in
Active Markets
for Identical
Assets/Liabilities
(Level 1) |
|
|
Significant
Other
Observable
Inputs
(Level 2) |
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Atlanta
Landsight, LLC |
|
$ |
6,009,667 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
6,009,667 |
|
|
SHOC
Holdings LLC |
|
|
1,500,000 |
|
|
|
- |
|
|
|
- |
|
|
|
1,500,000 |
|
|
Short
term loans |
|
|
779,448 |
|
|
|
- |
|
|
|
- |
|
|
|
779,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets |
|
$ |
8,289,115 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
8,289,115 |
|
The
fair value measurements are subjective in nature, involve
uncertainties and matters of significant judgment; therefore, the
results cannot be determined with precision, substantiated by
comparison to independent markets and may not be realized in an
actual sale or immediate settlement of the instruments.
UC
ASSET, LP
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
4 - FAIR VALUE OF FINANCIAL INSTRUMENTS, continued
(c)
Portfolio Investments, continued
There
may be inherent weaknesses in any calculation technique, and
changes in the underlying assumptions used, including discount
rates and estimates of future cash flows, could significantly
affect the results. For all of these reasons, the aggregation of
the fair value calculations presented herein do not represent, and
should not be construed to represent, the underlying value of the
Partnership.
Generally,
the fair value of the Atlanta investee’s properties is not
sensitive to changes in unobservable inputs since generally the
properties are held for less than six months. Generally such
changes in unobservable inputs take longer than six months to have
an appreciable effect of more than 1 to 2% on these properties fair
value. The Dallas investee’s property is more sensitive to changes
in unobservable inputs because this property was acquired with a
longer time horizon due to the nature of its size and undeveloped
status.
The
following table presents the changes in Level 3 instruments
measured on a recurring basis:
| Six
Months Ended June 30, 2022 |
|
Portfolio Investments |
|
|
January
1, 2022 |
|
$ |
8,289,115 |
|
|
Total
gains or losses (realized/unrealized): |
|
|
|
|
|
Included
in earnings |
|
|
(39,100 |
) |
|
Included
in other comprehensive income |
|
|
- |
|
|
Purchases,
issuance and settlements |
|
|
(527,200 |
) |
|
Transfers in/out of Level 3
|
|
|
- |
|
|
|
|
|
|
|
|
March
31, 2021 |
|
$ |
7,722,815 |
|
| Year
Ended December 31, 2021 |
|
Portfolio Investments |
|
|
January
1, 2021 |
|
$ |
7,434,296 |
|
|
Total
gains or losses (realized/unrealized): |
|
|
|
|
|
Included
in earnings |
|
|
1,149,594 |
|
|
Included
in other comprehensive income |
|
|
- |
|
|
Purchases,
issuance and settlements |
|
|
(294,775 |
) |
|
Transfers
in/out of Level 3 |
|
|
- |
|
|
|
|
|
|
|
|
December
31, 2021 |
|
$ |
8,289,115 |
|
UC
ASSET, LP
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
5 - CONCENTRATIONS OF CREDIT RISK
a)
Cash Funds held by the Partnership are guaranteed by the
Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. The
Partnership’s cash balance was in excess of FDIC insured limits by
$137,332 and $933,224 at June 30, 2022 and December 31,
2021.
NOTE
6 - CAPITAL
The
Partnerships capital structure consists of one General Partner and
81 limited partners. The Partnerships total contributed capital was
$5,843,967 and $7,078,395, at June 30, 2022 and December 31, 2021,
respectively. The limited partner common units are 5,485,025 at
June 30, 2022 and December 31, 2021. The limited partner preferred
Series A units are zero and 166,667 at June 30, 2022 and December
31, 2021.
The
Preferred Units carry the following rights and
privileges:
|
|
- |
annual
dividend of $0.09 per unit, not to exceed the audited annual net
increase to net assets from operations |
| |
|
|
|
|
- |
carry
no voting rights |
| |
|
|
|
|
- |
preference
for dividends and in liquidation |
| |
|
|
|
|
- |
12
months post issuance, redeemable at $0.50 per unit, if the market
price of the common units falls below $0.50 per unit for 20
consecutive trading days |
| |
|
|
|
|
- |
12
months post issuance, convertible into common units on a variable
conversion ratio 1.0:1.0 (if the lowest closing price of the common
units is $1.80 or more for the 5 trading days prior to conversion),
up to 1.125:1.0 (if the lowest closing price of the common units is
$1.60 or less for the 5 trading days prior to
conversion) |
| |
|
|
|
|
- |
conversion
and redemption price shall not be lower than the book value per
common unit based on the last audited book value per
unit |
In
June 2022, the Partnership exchanged a Note receivable of $300,000
principal with $39,100 of accrued interest for the 166,667shares of
preferred Series A units, which were subsequently
cancelled.
b)
Allocations of Profits and Losses The net profit of the
Partnership is allocated to the Limited Partners in proportion to
each partner’s respective capital contribution on all liquidated
portfolio investments made by the Partnership. Losses are allocated
to all partners in proportion to each partner’s respective capital
contribution, provided that, to the extent profits had been
previously allocated in a manner other than in proportion to
capital contributions, losses are allocated in the reverse order as
such profits were previously allocated.
The
GP participates in the profits of the Partnership at a rate of 20%
above a 10% annualized return to the Limited Partners. Beginning
January 1, 2020, the GP participates in the profits of the
Partnership at a rate of 20% above an 8% annualized return to the
Limited Partners.
NOTE
7 - MANAGEMENT FEES - RELATED PARTY
The
Partnership pays annual management fees to UCF Asset LLC.
Management fees are calculated at 2.0% of audited book value on the
first day of the fiscal year, payable quarterly. Management fees
were $90,000 and $90,5758 for the six months ended June 30, 2022
and 2021, respectively.
UC
ASSET, LP
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8 - SUBSEQUENT EVENTS
(a)
Portfolio Investments In September 2022, the partnership,
through its wholly owned subsidiary Atlanta Landsight LLC,
repurchased the land in Texas in exchange for the promissory note
held by ALS in the amount of $950,000 with accrued interest of
$147,250 and $252,750 in cash. This note was secured by the
land.
(b)
Short-Term Debt In August 2022, the partnership issued a
promissory note in exchange for $100,000 in cash. This note carries
a maturity date of November 29, 2022 and a 12% annual interest
rate.
SIGNATURES
Pursuant
to the requirements of Regulation A, the Issuer has duly caused
this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
UC
Asset, LP
|
By
(Signature and Title) |
|
|
|
|
|
UCF
Asset, LLC |
|
|
|
|
|
/s/
Gregory Bankston |
|
|
Name: |
Gregory
Bankston |
|
| Title: |
Managing
Member |
|
| Date: |
October
11, 2022 |
|
Pursuant
to the requirements of Regulation A, this Report has been signed
below by the following persons on behalf of the Issuer and in the
capacities and on the dates indicated.
|
By
(Signature and Title) |
|
|
|
|
|
/s/
Gregory Bankston, |
|
|
Managing
Member |
|
|
UCF
Asset, LLC |
|
|
Date: |
October
11, 2022 |
|
|
By
(Signature and Title) |
|
|
|
|
|
/s/
Xianghong Wu, |
|
|
Member
of Majority Interest |
|
|
UCF
Asset, LLC |
|
|
Date: |
October
11, 2022 |
|
7
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