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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