U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10

AMENDMENT NO 5

 

GENERAL FORM FOR REGISTRATION OF SECURITIES

PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934

 

UC ASSET LP

(Exact Name of Registrant as Specified in its charter)

 

Delaware   024-10802   30-0912782
(State or other jurisdiction of
incorporation or organization)
  (Commission File Number)   (IRS Employer
Identification No.)

 

2299 Perimeter Park Drive, Suite 120

Atlanta, Georgia 30341

(Address of principal executive offices)

 

Registrant’s telephone number: (470) 475-1035

Registrant’s fax number:

 

Copies to:

Richard W. Jones, Esq.

Jones & Haley, P.C.

750 Hammond Drive

Building 12, Suite 100

Atlanta, Georgia 30328

(770) 804-0500

www.corplaw.net

 

Securities to be registered under Section 12(b) of the Act:  None

 

Securities to be registered under Section 12(g) of the Act: Common Units

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 ☐
Non-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. ☐

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
Item 1. Business 1
     
Item 1A. Risk Factors 5
     
Item 2. Financial Information 11
     
Item 3. Properties 19
     
Item 4. Security Ownership of Certain Beneficial Owners and Management 20
     
Item 5. Directors and Executive Officers 20
     
Item 6. Executive Compensation 21
     
Item 7. Certain Relationships and Related Transactions and Director Independence 21
     
Item 8 Legal Proceedings 22
     
Item 9. Market Price of Dividends on the Registrant’s Common Equity and Related Stockholder Matters 22
     
Item 10. Recent Sales of Unregistered Securities 22
     
Item 11. Description of Registrant’s Securities to be Registered 23
     
Item 12. Indemnification of Directors and Officers 27
     
Item 13. Financial Statements and Supplementary Data 28
     
Item 14. Changes in and Disagreements with Accounting and Financial Disclosures 28
     
Item 15. Financial Statements and Exhibits F-1
     
  Signatures 29

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This document contains forward-looking statements. All statements other than statements of historical facts contained in this document, including statements regarding our future results of operations and financial position, business strategy, and likelihood of success and other plans and objectives of management for future operations, and future results of current and anticipated products are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

 

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “aim,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this document are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this document and are subject to a number of risks, uncertainties and assumptions described under the sections in this document titled “Risk Factors” and elsewhere in this document. Forward-looking statements are subject to inherent risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, new risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties that we may face. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

 

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INFORMATION REQUIRED IN REGISTRATION STATEMENT

 

This Amendment No 5 to the Registration Statement on Form 10 (“Amendment No 4”) amends the Registration Statement on Form 10 originally filed on September 18, 2020 (“Original Filing”) by UC Asset LP, a Delaware limited partnership (“UC Asset,” the “Company,” the “Partnership”, “we,” or “us”).

 

Item 1. Business.

 

General development of business.

 

UC Asset LP is a limited partnership formed on February 01, 2016 under the laws of the State of Delaware. We invest in our portfolio investments for the purpose of capital appreciation. According to our bylaws, the overwhelming majority of our portfolio investments must be allocated to real estate in metropolitan areas, such as Atlanta, GA and Dallas, TX. Our portfolio investments are owned through a number of subsidiaries, which may develop, redevelop, operate and trade these properties for the purpose of expanding our portfolio, increasing capital appreciation, and exiting from investments. As of March 31, 2021, all of our subsidiaries are wholly-owned and controlled by us. Our principal office address is 2299 Perimeter Park Drive, Suite 120, Atlanta, GA 30341.

 

Our partnership is managed by our general partner, UCF Asset LLC under the terms of our partnership’s Limited Partnership Agreement. Except for limited conditions defined in our limited partnership agreement, UCF Asset LLC acting as general partner has authority to exercise full management of our partnership. Limited partners are passive investors and have limited power over our partnership and our general partner.

 

General Partner

 

UCF Asset LLC is a limited liability company formed on January 26, 2016 under the law of the State of Georgia. The principal office of our general partner is the same to that of our partnership.

 

The individuals who, directly or indirectly, own and control our general partner are “Larry” Xianghong Wu with an 80% interest and Gregory Bankston with a 20% interest. Gregory Bankston is the managing member of our general partner.

 

UCF Asset LLC does not conduct any business activities other than management of our partnership.

 

The general partner may be removed, upon consent of the limited partners representing at least sixty-six and two-thirds percent (66 2/3%) of the outstanding common units voting as a single class, where (i) the general partner has been convicted of fraud, embezzlement, or a similar felony by a court of competent jurisdiction in a final judgment, or (ii) the general partner materially and willfully breaches our limited partnership agreement.

 

The general partner may, at any time, assign all or a portion of its partnership interest to any affiliate and, in the general partner’s sole discretion, admit the affiliate as an additional or substitute general partner.

 

The general partner is paid an annual management fee, in four payments made quarterly, at 2.0% of net asset under management of the partnership.

 

Business Operations

 

By and as of June 30, 2021, our operations primarily consist of our ownership interests in Atlanta Landsight LLC, SHOC Holdings LLC, and Hotal LLC, all of them are Georgia limited liability companies,. Our partnership owns 100% of all these subsidiaries.

 

We had expanded our operations into Dallas, TX and invested in a piece of farmland there, held under our 100% subsidiary, UCF Development LLC, which was a Texas limited liability company. We sold that piece of farmland in October, 2020, and dissolved UCF Development LLC in November, 2020.

 

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Atlanta Landsight LLC, (“ALS”), invests in residential and commercial properties in the Atlanta metropolitan area. The primary goal of Atlanta Landsight’s business strategy is to support the interests of the wider group of investors in UC Asset LP. Its investment strategy involves acquiring a property, renovating or remodeling it, and placing it back on the market for sale, or renting it out for continuous rental income. Any substantive non-passive works in development and redevelopment are performed and managed by third party contractors. Occasionally, ALS also invested in residential properties in other metropolitan areas. As of June 30, 2021, ALS has decreased its holdings in residential property, but ALS has not made any investments in commercial real estate. Over time, we expect that commercial properties will account for the majority of ALS’s portfolio.

 

UCF Development LLC, (“UCFD”), had acquired land located in Farmersville, Texas in the Dallas metropolitan area. The land was acquired by Atlanta Landsight LLC in January 2020. ALS subsequently sold the land to a third party in October 2020.

 

In the fourth quarter of 2020, our investment portfolio expanded to include investment interests in two more subsidiaries, SHOC LLC and Hotal LLC, both Georgia limited liability companies. Our ownership interests represent 100% of both SHOC LLC and Hotal LLC. We formed SHOC LLC by investing an initial capital of $900,000 into it, which includes $200,000 of cash and $700,000 of short-term notes assigned to SHOC. We formed Hotal LLC. by investing a nominal amount of capital and by assigning to it certain intangible assets, including registered brand name Hotal and website theHotal.com. Those intangible assets are not valued and carry zero book value. Agreements of the above assignments were previously filed as exhibits to our annual report. SHOC LLC plans to invest in and develop properties located in communities adjacent to major airports and/or central business districts for shared home-office accommodations. Hotal LLC plans to invest in shared home-office accommodations or other commercial properties in hospitality industry. It currently has no operations and only nominal capital formation. Both subsidiaries were formed for the purpose to support the interests of the wider group of investors in UC Asset LP.

 

UC Asset LP also invests in private debts and other non-property-based opportunities, to the extent that the revenue generated from those debts and other opportunities will not exceed ten percent (10%) of total revenue of the Partnership. From inception through June 30, 2021, UC Asset LP held debt investments of approximately $750,000 in total. $700,000 of those debts were assigned to SHOC LLC as capital contribution in the fourth quarter of 2020.

 

Narrative description of business.

 

The business purpose of our Partnership is to invest for capital appreciation.

 

By and of the date of June 30, 2021, our partnership primarily invests in residential properties for capital appreciation in the Atlanta metropolitan area. We have made our first commercial property investment in the second quarter of 2021, and expect to expand our portfolio to include more commercial properties.

 

We perform our investment activities through a number of subsidiaries, which are usually wholly-owned or majority-owned by us, and all of them operate for the business purpose of real estate investment.

 

Our investment strategy is to look for high-growth and value-added investment patterns in real estate. Each of our subsidiaries are expected to create and implement their unique high-growth and value-added investment patterns or models. The management of Partnership will work continuously to identify such investment patterns/models, and then invest in existing companies or form new companies of which the business purposes are to implement those strategies/models for greater capital appreciation.

 

Specifically, new technologies are changing people’s life, changing their way to live, work and travel. Hence new technologies are redefining the concept of “property” for both residential and commercial properties. We believe that technology will create many new opportunities for value-added, high-growth investment patterns/models in real estate.

 

Residential Investment in Metropolitan Atlanta

 

Our subsidiary, Atlanta Landsight LLC, a Georgia limited liability company, acquires and redevelops residential real estate properties in metropolitan Atlanta, mostly in suburban regions north of downtown Atlanta, known as Brookhaven, Dunwoody and Marietta, and in downtown Atlanta. Atlanta is the ninth largest metropolitan area in the United States.

  

Upon acquisition of a property, Atlanta Landsight LLC may make improvements intended to increase its value before putting it back on the market for sale. Depending on the condition of a property, the improvements may be renovation, remodeling, or a complete tear-down and rebuild of the residential home. After improvements, ALS management may sell the completed project immediately if management believes the submarket has reached its short-term peak; or, they may rent it out for a period, usually 12 months, if management believes that the submarket has potential of appreciation in the coming year. All substantive non-passive works of improvements are performed and managed by third party contractors.

 

ALS may resell a property without improvement if the value appreciation has generated a satisfactory ROI, or if there are any reasonable business considerations.

 

Renovation

 

Renovating a property usually includes optimizing spaces, fixing or replacing water, power and HVAC equipment, installing new flooring, upgrading the kitchen and bathrooms, installing new appliances, and/or painting of interior and exterior walls. Renovation can be a relatively low-cost method to improve the value of a property.

 

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For the fiscal year of 2019, ALS completed 7 residential renovation projects in the Atlanta metropolitan area. Three properties were sold, and three were rented out, and one property was still listed for sale as of December 31, 2019. This property was ultimately sold in the first quarter of 2020.

 

For the fiscal year of 2020, ALS completed one residential renovation project in the Atlanta metropolitan area. It was sold in early August 2020. ALS terminated the lease of one of the rental properties, and listed it for sale in May 2020. This property was sold in early August 2020.

 

Remodeling

 

A remodeled property may include many of the renovations described above, but it can also include changes to the structure, usually by adding more space and altering floor plans. Remodeling will usually cost more than renovation but less than rebuilding, and its return on investment (“ROI”) will usually be higher than renovation but lower than rebuilding.

 

For the fiscal years 2019 and 2020, ALS did not have any remodeling projects. Atlanta Landsight LLC’s last remodeling project was completed in 2017. It was rented out for several years before eventually sold in June 2021.

 

Rebuilding

 

If the condition of a property is in such poor shape that it would not be cost effective to repair it, it may be a candidate to tear down and rebuild. When choosing properties to rebuild, ALS management prefers those in a neighborhood where other active rebuilding projects have taken place and completed rebuilt properties have been sold.

 

For the fiscal year of 2019, ALS completed two rebuilding projects in the Atlanta metropolitan area. One of them was sold, and the other one was rented out in June, 2020.

 

For the fiscal year of 2020 and till the first quarter of 2021, ALS completed one rebuilding project and it was sold in April 2021.

 

* * *

 

Starting from the second quarter of 2020, ALS has been decreasing its portfolio in residential properties. The process has continued in 2021, as the management project that residential market has reached its short-term peak. As of June 30, 2021, ALS owned three residential properties and one developable lot in metro Atlanta; and one residential property in Greensboro, North Carolina.

 

Of these four properties, ALS has leased out two on annual or monthly contracts. Monthly revenue on two rental properties is approximately $6,500, as of June 30, 2021. Monthly revenue will rise to $7,500 after certain improvements will be performed to one of the properties.

 

As of June 30, 2021, the fair market value of ALS’ residential properties, which have occupancy permits, was obtained either by appraisals conducted by a licensed and independent third party(i.e. Real Estate Valuation, Inc.), or by the management based on executed contracts. Total value of these properties was assessed at approximately $1.84 million. There is one property that currently doesn’t meet the code and one vacant lot, for which their fair market values were calculated using methods developed by the management. The methods, as well as the results, have been reviewed and approved by an independent and licensed third party. – i.e. Brandon Atkins from Keller Williams (Atlanta Perimeter office). Total value of these properties was assessed at approximately $263,000.

 

Farmland Investment in Metropolitan Dallas

 

In September 2016, our subsidiary UCF Development LLC (“UCFD”) purchased 76% of a 72.53-acre farmland located within the township of Farmersville, Texas, in Collin County, located in the northeast quadrant of the Dallas Metropolitan Area. In February 2018, UCFD purchased the remaining 24% of this property, and this land is now included in our investment, Atlanta Landsight LLC.

 

The purchase price in September, 2016 for the Farmersville property was $805,216. The total historical cost for this property (including commissions, taxes, consulting fees etc.) is approximately $900,000, as of September 30, 2020.

 

The value of the Farmersville, TX property is solely based on the valuation by independent and licensed third parties. The most up-to-date appraisal report valued the property at $1,088,000.00 as of December 19, 2019. This report was provided by Michelle Godwin from Valuright Appraisal, Inc.

 

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This property was sold for $1,300,000.00 in October, 2020.  

 

SHOC (“Shared Home Office Cluster/Community”) properties: investment, development, and operation

 

SHOC is a new concept of properties similar to “home rentals” developed and operated by companies such as Airbnb (NASDAQ: ABNB) and Vrbo. The improvement from common “home rentals” is that SHOC properties are defined as home-offices for rent.

 

Home rentals have become trendy and are perceived as alternatives to conventional hotels. So far, home rentals have become an appealing choice for leisure travelers, but not as appealing to business travelers. According to our research, there are two major factors that are preventing business travelers from using home rentals instead of conventional business hotels. First, most home rental properties are residential properties, absent of business facilities, such as conference rooms. Secondly, most home rental properties are not adjacent to either major airports or the center business districts, which make them geographically not convenient for business travelers. To address those concerns, we have come up with the concept SHOC, standing for Shared Home-Office Community or Shared Home-Office Cluster (depending on the density of our SHOC properties). In comparison to conventional hotel rooms, SHOC will be equipped with home-office facilities such as hi-speed internet, video conferencing, easy access to office accessories such as printers and scanners, and other tools to empower today’s business travelers. But it also presents the personalized charm, including home-style full-equipped kitchen, to serve travelers with a home office away from home.

 

SHOC holdings LLC(“SHOC LLC”) is the start-up focusing on acquiring and managing a portfolio of SHOC properties. We own 100% of the ownership interests in SHOC LLC.

 

Daily operation of SHOC’s portfolio properties, including sales on platforms such as Airbnb, will be performed by third party business partners. We are engaging into negotiations with such third party partners.

 

For the fiscal year of 2020:

SHOC LLC has just started and has done some research and development of its products, and has searched and screened properties that could potentially become SHOC properties, however, no projects have been completed, and no revenues have been generated at this time.

 

For the 6 months by June 30, 2021:

SHOC LLC has purchased a commercial property of 8 apartment units in downtown Atlanta for approximately $750,000. It carries a loan of approximately $400,000, with an annual interest of 4.250% and a term of 1 year. Management project to redevelop this property into 8-10 units of shared-home-office units. The cost of redevelopment will likely be fully covered with the loan.

 

The redevelopment of the property, as well as the following operation of this property as short-term rental, will be performed by independent third parties.

 

Hotal LLC

 

In the fourth quarter of 2020, we formed Hotal LLC with purpose to apply innovative investment models in hospitality properties. As of June 30, 2021, it had not made any investments.

 

Debt Investments

 

We have made a limited number of debt investments from time to time in promissory notes or private loans to related and unrelated third parties. As of June 30, 2021, we held approximately $739,000 of outstanding debt investments, which accounts for approximately10% of our net equity.

 

Status of Publicly Announced New Services

 

In May 2020, we announced that we were offering, through and to be managed by Atlanta Landsight LLC, a pandemic mortgage debt relief program for businesses experiencing financial emergencies due to the COVID-19 pandemic. This program is aimed at acquiring equities in commercial properties which are suffering from the impact of Covid-19 pandemic.

 

As of December 31, 2020, this new service has been terminated due to inadequate demand from the market. We have spent approximately $5000 in marketing and promoting this program. which represents total cost associated with this program.

 

Competitive Position in the Industry and Methods of Competition

 

UC Asset is structured as a Master Limited Partnership (MLP) rather than a real estate investment trust (REIT) in order to focus on long-term value growth. The Partnership is among one of the very few real estate MLPs trading on US public markets, and the only one on OTCQX. This unique legal structure empowers UC Asset to take a longer-term approach to real estate investments, because MLPs do not have to constantly make cash distributions as REITs are required to do. Our legal structure allows us to hold our investment indefinitely for the purpose of maximizing return on investment.

 

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Number of Employees

 

As of June 30, 2021, the Partnership has two full time employees, who are the two members of our General Partner, UCF Asset LLC. The Partnership has five part time employees, including a project manager, an accountant, an investor relations director, and two Audit Committee members.

 

Reports to Security Holders

 

Currently, our partnership is required by security laws to file Form 1-K, Form 1-SA as annual and semi-annual reports, with the Securities and Exchange Commission (SEC). We also voluntarily file quarterly reports on Form 1-U with the SEC. Once this registration statement goes effective the Partnership will be filing regular reports under the Securities Act of 1934 – 10-K’s and 10-Q’s --on the EDGAR platform.

 

The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission. The address of that site is http://www.sec.gov where our reports can be found at https://www.sec.gov/cgi-bin/browse-edgar?company’uc+asset

 

Item 1A. Risk Factors.

 

Investing in our common units involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this Offering Circular before deciding whether to invest in our common units. The occurrence of any of the events or developments described below could harm our financial condition, results of operations, business, and prospects. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may harm our business, financial conditions, result of operations, and prospects.

 

General Risks Related to our Partnership

 

We have a limited operating history.

 

We were formed in February 2016 and have a limited operating history. As a result, there is only a limited period on which to base an assumption that our business operations will prove to be successful. Our future operating results will depend on many factors, including our ability to raise adequate working capital, availability of properties for investment, and our ability to develop and redevelop properties.

 

We are significantly dependent on our general partner and its managing member and member of majority interest.

 

Our business plan is significantly dependent upon the abilities and continued participation of Gregory C. Bankston and “Larry” Xianghong Wu, the managing member and member of majority interest respectively of our general partner. It would be difficult to replace either of them at this stage of our partnership. The loss by or unavailability of their services would have an adverse effect on our business, operations, and prospects. There can be no assurance that we would be able to locate or employ personnel to replace Mr. Bankston or Mr. Wu should their services be discontinued. In the event that we are unable to locate or employ personnel to replace either of them, we may be required to cease pursuing our business, which could result in a loss on your investment.

 

We are significantly dependent on our subsidiary’s management team and their continuous operation

 

Our investment activities are usually performed by our subsidiaries which are affiliate investment entities. Depending on the terms and conditions of our investments, including the terms and conditions of operating agreements of our subsidiaries, we will be able to retain limited level of control on their management, which may or may not include: to replace or initiate replacement for the management team, to set guidelines for the use of our capital, to approve or disapprove strategic changes of business plans, and other means of controls. Despite of these controls we may or may not have, those subsidiaries are operated separately from us, no matter whether they are fully or partially owned by us. We depend upon the abilities of their management teams and successes of their operations to achieve our investment goal. In the event that one or more of our subsidiaries fail to meet their business goal or discontinue their operations, we may not have adequate control to stop these events from happening and may lose part or even all our interests in those subsidiaries.

 

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Our general partner has broad discretion to manage our partnership and you will have limited ability to exercise control over the direction of our partnership.

 

UCF Asset LLC, our general partner, has the power to make operational decisions without input by the limited partners. Such decisions may pertain to the scope of development, the selection of personnel, and whether to enter into material transactions with related parties. You will be unable to evaluate the economic merit of property investments before we make them and will be entirely relying on the ability of UCF Asset LLC, our general partner, to select our investments. Our general partner will have broad discretion in investing or divesting our equity positions in any subsidiaries, and they may also have broad discretion in approving or disapproving investment strategies of our subsidiaries, and selecting or replacing managements of our subsidiaries. You may not have the opportunity in advance to review any of these business decisions made and actions taken by our general partner.

  

Removal of the General Partner

 

The General Partner may not be removed for cause unless such removal is approved by written consent of the Limited Partners owning 66 2/3% of the Units.  This could greatly reduce the ability of the limited partners to remove the general partner.

 

You will have limited control over changes in our policies and operations, which increases the uncertainty and risks you face as a limited partner.

 

Our general partner determines our major policies, including our policies regarding financing, growth and debt capitalization. Our general partner may amend or revise these and other policies without a vote of the limited partners. Our general partner’s broad discretion in setting policies and our limited partners’ inability to exert control over those policies increases the uncertainty and risks you face as a limited partner.

 

Our ability to make distributions to our limited partners is subject to fluctuations in our financial performance, operating results and capital improvement requirements.

 

We do not currently have an established policy on paying distribution to our limited partners. In the event of downturns in our operating results, our capability to receive capital returns or distribution from our subsidiaries, unanticipated capital requirements to support the continuous operation of our subsidiaries and to manage our portfolio properties which are usually held under our subsidiaries, or other factors, we may be unable to declare or pay distributions. The timing and amount of distributions are the sole discretion of our general partner who will consider, among other factors, our financial performance, any debt service obligations, and our taxable income and capital expenditure requirements. We cannot assure you that we will generate sufficient cash in order to fund distributions.

 

The failure of our properties to appreciate in value would most likely preclude our limited partners from realizing a return on their ownership.

 

There is no assurance that our real estate investments will appreciate in value or will ever be sold at a profit. The marketability and value of the properties will depend upon many factors beyond the control of our management. There is no assurance that there will be a ready market for the properties, since investments in real property are generally non-liquid. The real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand, that are beyond our control. We cannot predict whether our will be able to sell any property for the price or on the terms set by it, or whether any price or other terms offered by a prospective purchaser would be acceptable to our investee. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property.

 

Risks Related to our Operations

 

Real estate investments are illiquid.

 

Because real estate investments are relatively illiquid, our subsidiary’s ability to promptly sell one or more properties or investments in our portfolio in response to changing economic, financial and investment conditions may be limited. In particular, these risks could arise from weakness in or even the lack of an established market for a property, changes in the financial condition or prospects of prospective purchasers, changes in national or international economic conditions, and changes in laws, regulations or fiscal policies of jurisdictions in which the property is located. We may be unable to realize our investment objectives by sale, other disposition or refinance at attractive prices within any given period of time or may otherwise be unable to complete any exit strategy.

 

The profitability of real estate investment is uncertain.

 

We expect our subsidiaries will make investments in properties selectively. Acquisition of properties entails risks that investments will fail to perform in accordance with expectations. In undertaking these acquisitions, our subsidiary’s will incur certain risks, including the expenditure of funds on, and the devotion of management’s time to, transactions that may not come to fruition, and the prospects for sale of a property may prove inaccurate.

 

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Our investment portfolio may not be diversified.

 

Our investment portfolio currently are overwhelmingly consisted of our ownership interests in a number of real estate properties which are overwhelmingly centered in the Atlanta and Dallas metropolitan areas. Our potential profitability and our ability to diversify our investments may be limited, both geographically and by type of properties purchased. Our properties may not be well diversified, and their economic performance could be affected by changes in local economic conditions. Our performance is therefore linked to economic conditions in the regions in which our will acquire properties and in the market for real estate generally. Therefore, to the extent that there are adverse economic conditions in the regions in which our properties are located and in the market for real estate, such conditions could result in a reduction of our income and cash to return capital and thus affect the amount of distributions we can make to you.

 

Our subsidiary’s may not have control over procedure and quality of redevelopment of properties.

 

We expect that our subsidiary will retain general contractors to perform the actual physical redevelopment on their properties. As a result, they will be subject to risks in connection with a contractor’s ability to control costs, the timing of completion of redevelopment, and a contractor’s ability to build in conformity with plans and specification. Theoretically, the P&L (profit or loss) of redevelopment will be borne by contractors. However, contractors may try to renegotiate the budget with us and transfer part of extra cost to our subsidiaries. Further, failed improvements, untimely completion of improvements, and/or lower-than-expected-quality of improvements may impair our subsidiaries’ ability to sell a property at projected value, or to generate revenue from a property.

 

Inventory or available properties might not be sufficient to achieve our investment goals.

 

Our subsidiary’s may not be successful in identifying suitable properties that meet our acquisition criteria, or in consummating acquisitions or investments on satisfactory terms. Failures in identifying or consummating acquisitions would impair the pursuit of our business plan.

 

The consideration paid for our target acquisition may exceed fair market value, which may harm our financial condition and operating results.

 

The consideration that our subsidiary’s pay for a property will be based upon numerous factors, and the acquisition may be purchased in a negotiated transaction rather than through a competitive bidding process. We cannot assure anyone that wthey will be able to negotiate the best purchase price or that the purchase price that is paid for a property will be the best possible price, that they will be able to generate an acceptable return on such acquisitions, or that the location or other relevant economic and financial data of any properties that they acquire will meet acceptable risk profiles.

 

Our subsidiary’s may not make a profit if they sell a property.

 

The prices that can be obtained when they determine to sell a property will depend on many factors that are presently unknown, including the operating history, tax treatment of real estate investments, demographic trends in the area, and available financing. Our subsidiary may not realize any significant appreciation on their investment in a property.

 

Our subsidiary’s may obtain lines of credit and other borrowings, increasing the risk of loss due to heightened risk of foreclosure.

 

Our subsidiary’s may obtain lines of credit or other financing that may be secured by their properties. As with any liability, there is a risk that they may be unable to repay its obligations from the sale of their assets. Therefore, when borrowing and securing such borrowing with their assets, they risk losing such assets in the event wthey are unable to repay such obligations or meet such demands.

 

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Our subsidiary’s may suffer losses that are not covered by insurance.

 

The geographic areas in which they acquire, and own properties may be at risk for damage to property due to certain weather-related and environmental events, including such things as severe thunderstorms, hurricanes, flooding, and tornadoes. To the extent possible, the subsidiary may, but is not required to attempt, to acquire insurance against fire or environmental hazards. However, such insurance may not be available in all areas, nor are all hazards insurable. In addition, an insurance company may deny coverage for certain claims or determine that the value of the claim is less than the cost to restore the property, resulting in further losses in income to our partnership.

 

Our debt investments and/or our subsidiary’s debt investment are risky

 

Our primary business goal is to invest into real estate companies, and to guide those companies to invest into the development, operation or transaction of real estate properties. From time to time, when we or our subsidiaries have cash reserve, those cash may be invested into short-term debts to increase return. Overall, debt investments are not as risky as real estate investment. Yet they are subject to loss of value due to defaults by the borrowing parties. Since most borrowers of our debts are small businesses with low credit quality, the risk of default can be considerable.

 

We cannot assure you that we will achieve or maintain profitability and our auditor has expressed substantial doubt about our ability to continue as a going concern.

 

We will need to raise additional working capital to continue our normal and planned operations. We will need to generate and sustain significant revenue levels in future periods in order to become profitable, and, even if we do, we may not be able to maintain or increase our level of profitability. We may have to seek out additional funding to pay for our operating expenses. Accordingly, substantial doubt exists about our ability to continue as a going concern and we cannot assure you that we will achieve sustainable operating profits as we continue to expand our business, and otherwise implement our growth initiatives. Our auditors refer to this in footnote 3 to the financial statements.

 

Investment Company Risks

 

Investors will not receive the benefit of the regulations provided to real estate investment trusts or investment companies.

 

We are not a real estate investment trust and enjoy a broader range of permissible activities. Under the Investment Company Act of 1940 (referred to as the “1940 Act”), an “investment company” is defined as an issuer which is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities; is engaged or proposes to engage in the business of issuing face-amount certificates of the instalment type, or has been engaged in such business and has any such certificate outstanding; or is engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities, and owns or proposes to acquire investment securities having a value exceeding 40% of the value of such issuer’s total assets (exclusive of government securities and cash items) on an unconsolidated basis. We intend to operate in such manner as not to be classified as an “investment company” within the meaning of the 1940 Act as we intend on primarily holding real estate. The management and the investment practices and policies of ours are not supervised or regulated by any federal or state authority. As a result, investors will be exposed to certain risks that would not be present if we were subjected to a more restrictive regulatory situation.

 

The exemption from the Investment Company Act of 1940 may restrict our operating flexibility.

 

We do not believe that at any time we will be deemed an “investment company” under the 1940 Act as we do not intend on trading or selling securities. Rather, we intend to hold and manage real estate. However, if at any time we may be deemed an “investment company,” we believe we will be afforded an exemption under Section 3(c)(5)(C) of the 1940 Act. Section 3(c)(5)(C) of the 1940 Act excludes from regulation as an “investment company” any entity that is primarily engaged in the business of purchasing or otherwise acquiring “mortgages and other liens on and interests in real estate”. To qualify for this exemption, we must ensure our asset composition meets certain criteria. Maintaining this exemption may adversely impact our ability to acquire or hold investments, to engage in future business activities that we believe could be profitable, or could require us to dispose of investments that we might prefer to retain. If we are required to register as an “investment company” under the 1940 Act, then the additional expenses and operational requirements associated with such registration may materially and adversely impact our financial condition and results of operations in future periods.

 

If we are deemed to be an investment company, we may be required to institute burdensome compliance requirements and our activities may be restricted.

 

If we are ever deemed to be an investment company under the 1940 Act, we may be subject to certain restrictions including:

 

  restrictions on the nature of our investments; and

 

  restrictions on the issuance of securities.

 

In addition, we may have imposed upon us certain burdensome requirements, including:

 

  registration as an investment company;

 

  adoption of a specific form of corporate structure; and

 

  reporting, record keeping, voting, proxy, compliance policies and procedures and disclosure requirements and other rules and regulations.

 

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Federal Income Tax Risks

 

The Internal Revenue Service may challenge our characterization of material tax aspects of your investment in our common units.

 

You are urged to consult with your own tax advisor with respect to the federal, state, local, and foreign tax considerations of an investment in our partnership. We do not intend to seek any rulings from the Internal Revenue Service regarding any of the tax issues impacting our partnership. Accordingly, we cannot assure you that the tax conclusions discussed in this offering, if contested, would be sustained by the Internal Revenue Service or any court.

 

You may realize taxable income without cash distributions, and you may have to use funds from other sources to fund tax liabilities.

 

As a limited partner, you will be required to report your allocable share of our taxable income on your personal income tax return regardless of whether you have received any cash distributions from us. It is possible that your common units will be allocated taxable income in excess of your cash distributions. We cannot assure you that funds will be available for distribution in any year. As a result, you may have to use funds from other sources to pay your tax liability.

 

You may not be able to benefit from any tax losses that are allocated to your common units.

 

Common units in our partnership may be allocated their share of tax losses should any arise. Section 469 of the Internal Revenue Code limits the allowance of deductions for losses attributable to passive activities, which are defined generally as activities in which the taxpayer does not materially participate. Any tax losses allocated to investors will be characterized as passive losses, and, accordingly, the deductibility of such losses will be subject to these limitations. Losses from passive activities are generally deductible only to the extent of a taxpayer’s income or gains from passive activities and will not be allowed as an offset against other income, including salary or other compensation for personal services, active business income or “portfolio income”, which includes non-business income derived from dividends, interest, royalties, annuities and gains from the sale of property held for investment. Accordingly, you may receive no benefit from your share of tax losses unless you are concurrently being allocated passive income from other sources.

 

We may be audited which could subject you to additional tax, interest, and penalties.

 

Our federal income tax returns may be audited by the Internal Revenue Service. Any audit of our partnership could result in an audit of your tax return. The results of any such audit may require adjustments of items unrelated to your investment, in addition to adjustments to items related to our partnership. In the event of any such audit or adjustments, you might incur attorneys’ fees, court costs, and other expenses in contesting deficiencies asserted by the Internal Revenue Service. You may also be liable for interest on any underpayment and penalties from the date your tax was originally due. The tax treatment of all partnership items will generally be determined at the partnership level in a single proceeding rather than in separate proceedings with each partner, and our general partner is primarily responsible for contesting federal income tax adjustments proposed by the Internal Revenue Service. In such a contest, our general partner may choose to extend the statute of limitations as to all partners and, in certain circumstances, may bind the partners to a settlement with the Internal Revenue Service. Further, our general partner may cause us to take advantage of simplified flow-through reporting of partnership items. If so, adjustments to partnership items would continue to be determined at the partnership level however, and any such adjustments would be accounted for in the year they take effect, rather than in the year to which such adjustments relate. Our general partner will have the discretion in such circumstances either to pass along any such adjustments to the partners or to bear such adjustments at the partnership level.

 

Legislative or regulatory action could adversely affect investors.

 

We cannot assure you that legislative, judicial, or administrative changes in the federal income laws will not adversely affect you as a limited partner. Any such changes could have an adverse effect on an investment in our partnership or on the market value or the resale potential of our properties. You are urged to consult with your own tax advisor with respect to the impact of recent legislation on your investment in our partnership and the status of legislative, regulatory, or administrative developments and proposals and their potential effect on an investment in our common units.

 

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Risks Related to our Common Units

 

An investment in our common units may be illiquid.

 

Our common units are currently traded on OTCQX, but there is no assurance that you will be able to sell your common units on OTCQX at your desired price. You may never be able to liquidate your investment or otherwise dispose of your common units at your desired price. Our partnership does not currently have a redemption program and there is no assurance that our partnership will ever redeem or “buy back” your common units.

 

A sale of a substantial number of common units may cause the price of our common units to decline.

 

If our limited partners sell, or the market perceives that our limited partners intend to sell for various reasons, substantial amounts of our common units in a public market, the market price of our common units could fall. Sales of a substantial number of our common units may make it more difficult for us to sell securities in the future at a time and price that we deem reasonable or appropriate.

 

Regulatory changes by Chinese government.

 

A majority of the common units are owned by Chinese citizens who purchased our common units using funds in accounts outside of mainland of China (“offshore accounts”) that are not currently subject to any laws and/or regulations mandated by the Chinese government. These offshore accounts may be located in but not limited to the U.S., Canada, United Kingdom, Hong Kong and Macau. If the Chinese government implements new laws and/or regulations to extend its jurisdiction to offshore accounts owned by Chinese citizens, we may be unable to successfully raise capital in future offerings.

 

If relations between the United States and China worsen, investors may be unwilling to hold or buy our common units and the market price of our common units may decrease.

 

A significant number of our common units are and will be owned by Chinese individuals. At various times during recent years, the U.S. and China have had significant disagreements over political and economic issues. Controversies may arise in the future between these two countries. Any political or trade controversies between the U.S. and China, whether or not directly related to our business, could reduce the price of our common units.

 

The COVID-19 pandemic could have negative effects on our business.

 

On March 11, 2020 the World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containments and mitigation measures worldwide. The Partnership is monitoring this closely, and although operations have not been materially affected by the coronavirus outbreak to date, the ultimate severity of the outbreak is uncertain. Operations of the Partnership are ongoing as the delivery of electricity to customers is considered as essential business. Further the uncertain nature of its spread globally may impact our business operations resulting from quarantines of employees, customers, and third-party service providers. At this time, the Company is unable to estimate the this event on its operations.

 

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Item 2. Financial Information.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

 

Management is currently unaware of any trends or conditions other than those mentioned in this management’s discussion and analysis that could have a material adverse effect on the Company’s current financial position, future results of operations, or liquidity. However, investors should also be aware of factors that could have a negative impact on the Company’s prospects and the consistency of progress in the areas of revenue generation, liquidity, and generation of capital resources. These may include: (i) variations in revenue, (ii) possible inability to attract investors for its equity securities or otherwise raise adequate funds from any source should the Company seek to do so, (iii) increased governmental regulation or significant changes in such regulations, (iv) increased competition, (v) unfavorable outcomes to litigation to which the Company may become a party in the future, and (vi) a very competitive and rapidly changing real estate environment.

 

The risks identified here are not all inclusive. New risk factors emerge from time to time and it is not possible for management to predict all of such risk factors, nor can it assess the impact of all such risk factors on the Company’s business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results.

 

Overview

 

We are a limited partnership engaged in the investment of real estate properties, including improvement and/or redevelopment of these properties for the purpose of capital appreciation, in metropolitan Atlanta, GA and Dallas, TX. Our general partner is UCF Asset LLC.

 

Since its incorporation, the Company has grown its net equity from $2.25 million as of the date of March 01, 2016, to $8.67 million as of June 30, 2021.

 

Net equity per common unit has grown from $1.156/per unit as of March 01, 2016, to $1.538/per unit (fully diluted) as of December 31, 2020, after a $0.050 dividend distribution in the year of 2018. The following table shows the change of net equity per share during this period:

 

Period end   Net Equity per Unit pre-dilution     After Potential Dilution/Anti-dilution*     Dividend Distributed per Unit  
Inception, March 1, 2016 - unaudited   $ 1.156       N/A          
December 31, 2016   $ 1.332       N/A          
December 31, 2017   $ 1.560       N/A          
December 31, 2018   $ 1.482                           N/A     $ 0.050  
December 31, 2019   $ 1.528       N/A          
December 31, 2020   $ 1.583     $ 1.538          
June 30, 2021 - unaudited   $ 1.529     $  1.493          

 

Table I: Net equity per share of UC Asset LP, between March 01, 2016 to June 30, 2021.

 

* Based on the assumption that all preferred units/convertible notes were converted into maximum possible number of common units. Currently there are 166,667 preferred units issued and they could possibly be converted at $1.60/unit into a maximum number of 187,500 common units.

 

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On January 02, 2020, our units began to be quoted on the OTCQX, the Best Market of OTC markets.

 

Legal Structure of our Company

 

The business is structured as a publicly traded limited partnership (Master Limited Partnership or MLP) rather than a real estate investment trust (REIT) in order to appeal to investors looking for long-term growth. It combines the tax benefits of a private partnership with the liquidity of a publicly traded company. The majority of MLPs are organized in natural resources sectors of the economy, and only a very limited number invest in real estate. The Master Limited Partnership Association counted a total number of 82 MLPs trading on US national exchanges, and only four of them are in the real estate sector. As a matter of fact, we are the only real estate MLP quoted on OTCQX.

 

Liquidity and Capital Resources

 

Capital Resources

 

Since our inception, we have funded our operations primarily through the issuance of limited partner interests to raise capital. Prior to our initial public offering (IPO) in 2018, we conducted three private placements of limited partner interests in March 2016, October 2016, and April 2017. We have raised a total of $6,900,000 from these private placements. Prior to our public offering, there were 42 limited partners in our partnership.

 

Initial Public Offering

 

In January 2018, we made our first public filing of our Offering Circular with the SEC pursuant to the requirements of Regulation A plus. This original Offering Circular intended to raise capital of a minimum of $6 million and a maximum of $12 million. However, it was beyond Management’s reasonable expectation that economic ties between the U.S. and China would experience a fast downturn in the first quarter of 2018, as the so-called “trade war” between the U.S. and China erupted. The demand for our IPO substantially decreased, and we changed our Offering Circular in April 2018, to decrease the size of our IPO to a minimum of $3 million and maximum of $6 million.

 

On June 13, 2018, our Offering Circular was qualified by the SEC. However, in the following months, the tension of trade disputes between the U.S. and China kept rising. During this period, a series of negative comments spread by a third party (against whom we have filed a charge of defamation in a Chinese court and won the court decision in September 2019), might also have decreased the demand to our offering. By August 2018, it was clear that we would not be able to raise a minimum of $3 million. We made another change to our Offering Circular and reduced the fundraising target to a minimum of $1.43 million and a maximum of $2.85 million.

 

Our IPO was closed on October 12, 2018. The gross amount of raised capital was $1.45 million. We had a total of 80 limited partners after the IPO.

 

Issuance of Series A Preferred Units

 

On March 02, 2020, the Partnership closed a private placement, under which the company issued 166,667 shares of Series A Preferred Units to raise capital of $300,000, at a price of $1.80/unit, from a domestic investor.

 

The Series A Preferred Units were sold with premium, in the sense that the price for the preferred shares to be converted into common units is considerably higher than the current net equity per unit of the Partnership. The issuance of Series A Preferred Units, therefore, will likely increase the Partnership’s net equity per unit.

 

The Series A Preferred Units may be converted into common units at the holder’s option, after 12 months from the initial issuance date. The conversion price may range between $1.60 - $1.80 per unit, depending on the trading price of common units at the time of conversion.

 

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Debt financing

 

As of June 30, 2021, our subsidiaries had following loan facilities:

 

SHOC Holdings LLC has a construction loan of $400,000 from a local bank. Material terms of this loan include the follows:

 

Lender: The Citizens Bank of Georgia.

 

Principal: $400,000.

 

Duration: 12 months. Borrower will pay in one payment all outstanding principal and unpaid accrued interests on July 05, 2022.

 

Interest and Interest rate: Borrower will pay monthly any unpaid accrued interests. Interest rate is variable which is 1.000 percentage point over the Index rate. The Index is 4.42500% per annum at the beginning of the term.

 

Security: the loan is secured by the property under construction.

 

Full text of the loan agreement is included in this registration statement as Exhibit 4.2.

 

After adjustment of our investment and operating plan, we believe our available capital will be sufficient to fund our operating plan through at least the next twelve months. However, our operating plan may change due to many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings or other sources, such as strategic collaborations. Further, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. There is no assurance that the Company, either through itself or through any of its subsidiaries, will be able to obtain such funds on terms that are acceptable to us.

 

Additional financing may result in dilution to limited partners, imposition of debt covenants and repayment obligations or other restrictions that may affect our business.

 

Anti-dilution Clause

 

Section 4.01(a) of our Limited Partnership Agreement contains an anti-dilution clause which offers protection to the interests of current investors when additional units or derivative units of our Company will be offered for the purpose of additional financing. The referenced clause reads as follows:

 

…. provided that i) any Common Units shall not be offered at a price lower than the book value per Common Unit based on the last audited financial statement immediately preceding the offering of such Common Unit; and ii) any Units or Derivative Units, if convertible into Common Units, the conversion price shall not be set or calculated at a price lower than the book value per Common Unit based on the last audited financial statement immediately preceding the date when such Units or Derivative Units were issued. The foregoing conditions i) and ii) may be waived for any offering if the general partner has received the approval of a Unit Majority prior to such offering.”

 

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Cash Flows

 

The following table shows a summary of cash flows for the periods set forth below:

 

    Year Ended
December 31,
2020
    Year Ended
December 31,
2019
 
Net cash used in operating activities   $ 360,960     $ (383,766 )
Net cash (used in) provided by investing activities   $ 1,820,983     $ 164,226  
Net cash provided by financing activities   $ (194,000 )   $ 135,383  
Cash at beginning of period   $ 153,687     $ 237,844  
Cash at end of period   $ 1,419,710     $ 153,687  

 

    Half year Ended
June 30,
2021
    Half year Ended
June 30,
2020
 
Net cash used in operating activities   $ 170,440     $ 627,673  
Net cash (used in) provided by investing activities   $ 1,072,199     $ 181,587  
Net cash provided by financing activities   $ 400,000     $ 492,000  
Cash at beginning of period   $ 1,419,710     $ 153,687  
Cash at end of period   $ 2,721,469     $ 199,601  

 

Net Cash Used in Operating Activities

 

For the year ended December 31, 2019, net cash used in operating activities was primarily the result of management fees and professional fees.

 

For the year ended December 31, 2020, net cash used in operating activities was primarily the result of management fees and professional fees.

 

For the six months ended June 30, 2020, net cash used in operating activities was primarily the result of management fees and professional fees.

 

For the six months ended June 30, 2021, net cash used in operating activities was primarily the result of management fees and professional fees.

 

Net Cash (Used in) Provided by Investing Activities

 

For the year ended December 31, 2019, net cash provided by investing activities was primarily the result of the exit of portfolio properties generating $2.8 million in cash, the investment of $2.2 million on portfolio properties and net $0.4 million in new loans to related parties.

 

  For the year ended December 31, 2020, net cash provided by investing activities was primarily the result of the exit of portfolio properties generating $4.7 million in cash, investment of $3.0 million on portfolio properties and net $0.06 million in repayments of loans to related parties.

 

For the six months ended June 30, 2020, net cash provided by investing activities was primarily the result of the above-reported, plus $400,000 investment in debts.

 

For the six months ended June 30, 2021, net cash provided by investing activities was primarily the result of approximately $1,910,000 received from selling two residential properties, $350,000 invested in acquiring one commercial property, and $16,500 earnest money invested in acquiring a historic landmark property.

  

Net Cash Provided by Financing Activities

 

For the year ended December 31, 2019, net cash provided by financing activities was due to a refund of back-up withholding from the U.S. Internal Revenue Service on behalf of our limited partners and the receipt of $0.1 million from a new construction loan.

 

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For the year ended December 31, 2020, net cash provided by financing activities was due to the net proceeds of $300,000 in contribution by a limited partner through issuance of Series A Preferred Units and proceeds of $0.2 million from the construction loan and the repayment of $0.4 million on the construction loan.

 

For the six months ended June 30, 2020, net cash provided by financing activities was primarily due to a construction loan, as discussed above, plus net proceeds of $300,000 in contribution by a limited partner through issuance of Series A Preferred Units.

 

For the six months ended June 30, 2021, net cash provided by financing activities was primarily the result of an acquisition loan utilized by SHOC Holdings LLC, in the amount of $400,000.

 

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 as of the last day of our preceding fiscal year. Management fees for the years ended December 31, 2019 and 2020 were $164,488 and $182,798, respectively. Management fees for the six months ended June 30, 2020 and 2021 were $89,075 and $77,053, respectively.

 

In addition, we lease space from an unaffiliated third party at 2299 Perimeter Park Drive, Suite 120 in Atlanta, GA. Rent was paid monthly at $2,035 through November 1, 2019, and increased to $2,096 through November 1, 2020, and increased to $2,158 for the next twelve months. Pursuant to the terms of the lease, we have provided a deposit of $2,189 to the landlord. 

 

Off Balance-sheet Arrangements

 

The Partnership doesn’t have any off balance-sheet arrangements.

 

Results of Operations

 

Year Ended December 31, 2019

 

In fiscal year 2019, our investment operations were primarily performed through our wholly owned subsidiary Atlanta Landsight LLC. It purchased three properties and sold five properties during this period. Atlanta Landsight LLC had $41,138 of realized loss and $677,139 of unrealized gains. We recorded this gain as a combined unrealized gain of $636,001 for the period. UCF Development LLC had $108,000 unrealized gain during this period. In addition, our unrealized gains during this period included accrued but unpaid interest.

 

Our operational expenses were $516,329 during this period, consisting principally of management fees paid to our general partner, and professional fees.

 

During the year ended December 31, 2019, we recorded an increase in net equity of $203,542.

 

Year Ended December 31, 2020

 

In fiscal year 2020, our investment operations were primarily performed through our wholly owned subsidiary UCF Development LLC and Atlanta Landsight LLC.

 

UCF Development LLC transferred its portfolio investment to Atlanta Landsight LLC in the first quarter for a nominal price of $1.00. UCF Development was later dissolved in November 2020, and all its remaining assets, which was a cash balance of approximately $12,000, was returned to the Partnership.

 

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Atlanta Landsight LLC purchased one property and sold five properties during this period. Atlanta Landsight LLC had $466,479 of realized loss and $394,211 of unrealized loss. We recorded this net loss as a combined unrealized loss of $860,789 for the period. UCF Development LLC was dissolved, and all its gains and losses were absorbed by Atlanta Landsight LLC during this period. In addition, our unrealized gains during this period included accrued but unpaid interest amounting to $40,837 on our loan portfolio.

 

Our operational expenses were $584,424 during this period, consisting principally of management fees of $182,789 paid to our general partner, and professional fees.

 

During the year ended December 31, 2020, we recorded an increase in net equity of $120, 174.

 

Six months Ended June 30, 2020

 

During the six month period ending on June 30, 2020, our investment operations were primarily performed through our wholly owned subsidiaries Atlanta Landsight LLC and UCF Development LLC.

 

Atlanta Landsight LLC had a realized loss of $456,785, which was mostly from the exit of two portfolio properties at reduced price, and an unrealized loss of $1,187,608, which was mostly from readjustment of the fair market value of our inventories in consideration of potential impact of the pandemic.

 

Our operational expenses were $226, 531 during this period, consisting principally of management fees paid to our general partner, and professional fees. In addition, we made investment income of $23,225 from loan investments.

 

UCFD transferred its farmland property to ALS along with the unrealized gain carried in the property. In additional, UCFD had $802 of realized losses from continuous operations.

 

We consolidated these gains/losses into a realized loss of $660,894 and a unrealized loss of $1,187,608.

 

During the 6 month period ending on June 30, 2020, we also recorded a decrease in net equity of $1,848,502.

 

Six months Ended June 30, 2021

 

For the six months ending on June 30, 2021, our investment operations were primarily performed through our wholly owned subsidiary Atlanta Landsight LLC and SHOC Holdings LLC.

 

Atlanta Landsight LLC had $47,870 of realized gain, mostly from liquidating two portfolio properties and received rental income from held portfolio properties, and $106,313 of unrealized loss, mostly from the adjustment of fair market value of two portfolio properties due to change of use. SHOC Holdings LLC had $23,340 of realized gain in this period, mostly from interest income from its portfolio investments.

 

Our operational expenses were $224,998 during this period, consisting principally of management fees paid to our general partner, and professional fees. In addition, we made investment income of $2,654 from short term loans.

 

We consolidated our gains/losses into a realized loss of $151, 113 and an unrealized loss of $106,313.

 

During the 6-month period ending on June 30, 2021, we recorded a decrease in net equity of $257,426.

 

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Trend information

 

The following discussion covers some significant trends affecting our business, in our industry, or to the macro economy, since the last fiscal year, which had impacts on our operations. It also covers known trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our operation for the current fiscal year of 2020.

 

Public trading of our common units and its impact on our business operation

 

On October 31, 2019, we qualified to be quoted on OTC markets. On January 02, 2020, our common units began being quoted on the OTCQX, the Best Market of OTC Markets.

 

We believe that clearance by FINRA and the quoting of our units on OTCQX will have significant impact on our business operations in the year of 2020 and the years to follow. First of all, we now have the option of raising capital via PIPE deals (private placement of public equity) to meet our operational needs. If we are able to raise funds via pipe deals, as to which there is no assurance, this will provide available capital which has not been available as a funding source to the Partnership during the past two years.

 

Secondly, we believe it will enable us to acquire properties by issuing new units, possibly preferred units and/or restricted units, instead of cash for all or part of the acquisition cost. This will reduce our cash outflow, and the capital saved can be used on renovation/remodeling/rebuilding of the acquired properties.

 

Impact of COVID-19 on national and local real estate markets

 

COVID-19 pandemic has had a huge impact on real estate markets. In the two metropolitan areas where we conduct our business, the City of Atlanta had been under lock-down since March 17, 2020 followed by a lockdown of the whole state of Georgia since April 01, 2020 and the State of Texas had been under lockdown since March 19, 2020. These lockdown orders placed many businesses on halt or remote operations and is expected to hurt the economy and, eventually, the real estate market.

 

Commercial properties in Atlanta were impacted immediately. According to a report released April 20 by Atlanta consulting firm, Bleakly Advisory Group, the corona virus pandemic may push retail vacancy across metro Atlanta to 40%, creating an unprecedented challenge for mall owners and other landlords. Socially driven businesses, such as restaurants, lounges and clubs, also have experienced record-breaking economic losses. We believe this in turn will hurt the landlords of commercial properties that lease properties to those businesses.

 

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Generally, residential real estate prices have remained at the same level. But the number of sales of residential properties have decreased. The reason, according to data of several independent sources, was that supply dropped even faster than demand. This led to a temporary balance of supply and demand at the same price level.

 

We believe that this balance is not sustainable, because economic impact of COVID-19 is not temporary and hence the buyers will not return soon. We have observed the trend of market adjustment in the last few weeks before the end of first half of year 2020.

 

However, the impact of Covid-19 may help our business in a relative sense. On April 30, 2020, a research report issued by Zacks Small-cap Research (https://finance.yahoo.com/news/ucasu-thinking-past-uncertainty-invest-090000970.html) praised our company, concluding that “UC Asset combines an experienced management team with an attractive investment track record, backed by a stable base of long-term investors, and it is well positioned to both manage through the slowdown and leverage opportunities on the other side.”

 

Our Strategy to Counter against and Benefit from the Impact of COVID-19

 

On April 20, 2020, ALS closed two transactions liquidating two properties to cash buyers, at prices substantially lower than their current book values. ALS made this decision based on management’s best-effort projection of real estate market in US generally and in Atlanta specifically, under the impact of the pandemic of COVID-19.

 

Management believes that it served the best interest of the Partnership and its shareholders for ALS to liquidate these properties, because 1) ALS had entered into a drought of sales due to COVID-19 pandemic and its cash reserves had decreased to a risky level; 2) management believes that the real estate market will enter into a bearish period due to COVID-19 pandemic, and ALS may not be able to liquidate those properties at better prices in foreseeable future; 3) ALS and the Partnership have other investments and investment opportunities that are believed to be more promising than those liquidated properties; and 4) the Partnership has formulated a business plan to capitalize opportunities in a projected bearish real estate market, and it needs cash returned from ALS to execute on its business plan.

 

As further measures to counter the impact of the pandemic, ALS made some properties available for rent to generate cash flow. ALS also rented out one additional property in the first quarter. By and as of the end of first nine months of 2020, ALS had three properties generating stable monthly rental incomes.

 

By the end of the year 2020, the management was convinced that the residential market is reaching its peak in the next 12 months. This position was reflected in a “White Paper” released by the management on February 23, 2021. In the White Paper, the management also concluded that the fast rising of building costs, which is also a consequence of COVID-19 pandemic, made it undesirable to invest into residential homes that need redevelopments.

 

Following this conclusion, the management started to execute a strategy to decrease its portfolio investment in residential property and shift funds to more promising opportunities such as SHOC. As of and by June 20, 2021, ALS has sold 7 properties in the past 18 months, which represent an approximate $5 million dollar decrease of the company’s holdings in detached residential properties. Plus the sale of the 72-acre farmland in Dallas, TX, our cash reserve and other liquid assets surpassed $5 million in late June. After a purchase of a SHOC property for $750,000, we still retained a strong cash position. As new COVID-19 cases are dropping across the United States and in most places of the world, we believe we are well-prepared for the post-pandemic real estate market.

 

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Item 3. Properties.

 

Properties Owned under ALS

 

The following table provides information of general character of ALS’s principal physical properties, grouped under 3 categories on basis of the various investment strategies that have been applied in acquiring them. All the properties are owned indirectly by the Partnership through its subsidiary Atlanta Landsight LLC. Atlanta Landsight LLC owns most of the properties in fee simple and there is no debt on the properties, except for a mortgage loan of approximately $380,000 (as of June 30, 2021) from a local bank.

 

Business Purpose   Numbers of Properties   Locations   Total Fair Market Value     Total Monthly Rent  
Residential for Rent   2   Atlanta, GA & Greensboro, NC   $ 1,272,000     $ 6,500  
Residential Held   3   Atlanta, GA   $ 896,200       --  
TOTAL           $ 2,168,200     $ 6,500  

 

The fair market value of ALS’s residential properties is determined by licensed and independent experts. Independent and licensed appraiser Real Estate Valuation, Inc was hired by ALS to provide appraisal reports on certain individual properties, while independent and licensed realtor Brandon Atkins from Keller Williams was hired to review and approve our fair market value calculation formula on other properties collectively. These two approaches covered all the properties owned by ALS.

 

More Detailed Discussion of Our Properties Listed in Above Table

 

By and as of June 30, 2020, ALS’s principal physical properties include 5 residential properties. With one exception, all of the residential properties are located in metropolitan Atlanta, GA, mostly in growing suburban areas surrounding downtown Atlanta. Out of the 4 properties in metropolitan Atlanta, 2 are detached single-family houses, 1 is lot zoned for detached house, and 1 is small multi-family property. We also own a detached single-family house in Greensboro, NC.

 

Two of our detached single-family houses are currented rented out, including one in northern suburban area of Atlanta, and one in north-western suburban area of Greensboro. The Atlanta properties are on 12-month lease with option to annual renew. The Greensboro property lease expires on June 20, 2021, and it includes a lease-buy term giving the tenant an option to buy the property at $500,000 before the date of expiration, which is July 21, 2021. Upon mutual agreements, the expiration date has been extended for 3 months. The total value of fair market value of these two properties is approximately $1.27 million, and the monthly rent income generated from these three properties add up to $6,500. Annual gross rent income equals approximately 6.1% of the total fair market value.

 

Three properties are residential and may be used to partner with third-party developers for development. According to our business plan as of June 30, 2021: 1) one multiple-family property in an underdeveloped community in southern suburban Atlanta may be torn down and rebuilt into multiple-family property for sale or for rent; 2) one lot in a growing community in southern suburban Atlanta may be developed into a single house for sale or for rent; and 3) one detached single-family properties in northern suburban Atlanta may be renovated for sale or for rent. Fair market value of these properties adds up to approximately $896,000

 

Properties previously owned under UCFD

 

In September 2016, UCF Development LLC (“UCFD”) purchased 76% of a 72.53-acre farmland located within the township of Farmersville, Texas, in Collin County, located in the northeast quadrant of the Dallas Metropolitan Area. In February 2018, UCFD purchased the remaining 24% of this property and now own 100% of this land. In January 2020 this land was sold to Atlanta Landsight LLC through a internal nominal sale.

 

The purchase price in September, 2016 for the Farmersville property was $805,216. The total historical cost for us on this property (including commissions, taxes, consulting fees etc.) is approximately $860,000, as of September 30, 2020.

 

The value of the Farmersville, TX property was appraised at $1,088,000.00 as of December 19, 2019. This appraisal report was provided by Michelle Godwin from Valuright Appraisal, Inc. This property was sold in October 2020 at $1,300,000.

 

UCFD was subsequently dissolved after the sale of the farmland.

 

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Properties owned under SHOC

 

In April 2021, SHOC purchased its first Shared Home-Office Cluster (SHOC) property located in the historical district of downtown Atlanta. The deal is closed in June 2021.

 

This property may be developed into about 10 units for short-stay rental, through online platforms such as Airbnb or Vrbo, following the innovative business model of SHOC. SHOC is a disruptive new concept for real estate investment. SHOC Holdings defines the concept as a residential property with each bedroom designed as an individual business lodge equipped with office capabilities. These home-office spaces can be rented out individually, mostly targeting business travelers.

 

Management believes that SHOC combines the merits of both home stays (such as Airbnb) and conventional business hotels. It offers business conveniences that current home stays lack, and provides a lifestyle charm that current business hotels fail to provide.

 

For this specific property, total acquisition cost is approximately $750 000. SHOC estimates an additional $300,000 to $400,000 will be invested to remodel and renovate the property into about 10 units, including 2 executive suite units with private patio, 1 unit as a common meeting area, and 1 basement unit which may provide additional lodging for an onsite manager.

 

Properties owned under other subsidiaries

 

As of June 30, 2021, our other subsidiaries did not own any properties.

 

COVID-19 Disclosure

 

To the knowledge of our management, we do not see and/or foresee any other specific impacts of COVID-19 on our properties that are material enough to require disclosure, besides those we have already disclosed and discussed in the section Trending Information of Item 2 in this filing. Specifically, all of our leases have been fully paid, and none of our tenants have made any rent relief requests.

 

We will keep monitoring the development of COVID-19 pandemic and will disclose in timely manner any specific and material impacts of COVID-19 on our properties, including but not limited to if any of our lease will not be fully paid, or if any of our tenants may make any rent relief requests, in our future filings.

 

Item 4. Security Ownership of Certain Beneficial Owners and Management.

 

As of and by the date we filed this amendment to our registration statement, which, there were no unit holders to our knowledge that beneficially owns more than 10% of our common units, and there were no holder to our knowledge beneficially owns more than 5% of our common units except for one investor who owned approximately 5.37%. The managing member does not beneficially own any of our common units and the member of majority interest of our general partner (“Larry” Xianghong Wu,) beneficially owns 172,953 of our common units (3.07%). The general partner is entitled to 20% of all distribution to be made by the Partnership after the common unit holders receive a return equal to the Partnership audited book value See “Distribution”.

 

As of the by the date of filing of this amendment, the security ownership of certain beneficial owners and management of our company is listed as below:

 

Beneficial Owner   Title   Security   Amount     Percentage of Same Type of Securities  
Ying Huang   None   Common Units     302,667       5.37 %
Officers and Directors:                        
“Larry” Xianghong Wu   Majority Owner of General Partner   Common Units     172,953       3.07 %
Gregory Bankston  

Managing Member of General Partner

  N/A     0       0 %
Harris Miller   Audit Committee Member   N/A     0       0 %
Li Zheng   Audit Committee Member   N/A     0       0 %

 

Item 5. Directors and Executive Officers.

 

The operation of our partnership is managed by our general partner. We do not have any directors, officers, or significant employees. The following are key managers of our general partner and their respective ages and positions as of March 1, 2021. As the member of majority interest of our general partner, Dr. Wu contributes his time and services to our general partner as an owner rather than an employee.

 

Name   Position   Age   Since
Gregory Bankston   Managing Member   48   formation in January 2016
“Larry” Xianghong Wu   Member of Majority Interest   51   formation in January 2016

 

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Mr. Gregory Bankston has served as managing member of UCF Asset LLC since its formation in January 2016. Between 2013 and 2016, he founded and operated Real Estate Butlers. Prior to then, he was a co-owner of Bankston Brokers, formerly known as Bankston Realty, since 2010. Mr. Bankston is a member of Atlanta Board of Realtors, the Georgia Association of Realtors, and the National Association of Realtors.

 

Dr. “Larry” Xianghong Wu has been the member of majority interest of UCF Asset LLC since its formation in January 2016. Between 2012 and 2016, he was the founder and chief executive officer of Shanghai Heqing Asset Management LP, a limited partnership based in Shanghai, China, focused on Chinese investments in the U.S., particularly real estate. Between 2011 and 2012, he was chief executive officer of EHE Capital, a Chinese PE fund managing a portfolio of approximately $1 billion from 2011. Prior to then, he worked at Cisco Systems, Inc. between 2009 and 2011 as a vice president in charge of Cisco’s strategic business transformation in China. Dr. Wu has served as policy advisor and counsellor to the Chinese government and officials. He also served as a Board Member of Finance and Investment of the Capital Club in China from 2009 to 2013.

 

The general partner may be removed, upon consent of the limited partners representing at least sixty-six and two-thirds percent (66 2/3%) of the outstanding common units voting as a single class, where (i) the general partner has been convicted of fraud, embezzlement, or a similar felony by a court of competent jurisdiction in a final judgment, or (ii) the general partner materially and willfully breaches our limited partnership agreement.

 

The general partner may, at any time, assign all or a portion of its partnership interest to any affiliate and, in the general partner’s sole discretion, admit the affiliate as an additional or substitute general partner.

 

Audit Committee

 

Our Company is a limited partnership and is not required to set up a board of directors. However, we are still required by the rule of OTCQX to set up an Audit Committee.

 

In February 2019, the Company resolved to establish an Audit Committee. Starting from July 01, 2019, we have admitted two Audit Committee members who both are independent. Herein the meaning of “independent” follows the guidelines published by OTC Market Group Inc.

 

The two members are:

 

Harris Miller is a prominent American politician, businessman, and lobbyist. Miller served as president of the Information Technology Association of America and the World Information Technology and Services Alliance (WITSA) for 12 years. He ran for US Senate in 2006 and lost to Jim Webb in the Commonwealth of Virginia. Mr. Miller received a political science master’s degree from Yale University in 1975.

 

For a detailed biography of Harris Miller, please see: https://en.wikipedia.org/wiki/Harris_Miller

 

Li Zheng is currently president of Techtop Industries Inc., an electric motor manufacturer based in Atlanta, GA, which Li co-founded in 2008 with extended family members. Before founding and operating Techtop, Li worked as an environmental engineer, and spent 10 years on academic research and consulting for various water resources and sustainable development projects in the western United States, Northern China, Tibet Plateau, and the mountainous regions of Nepal and India. Li has also been serving as a board member of non-profit Atlanta Young Singers since 2015. Li obtained his Ph.D. degree in Water Resources Engineering from the University of Notre Dame in 1997.

 

Item 6. Executive Compensation.

 

The operation of our partnership is managed by our general partner, UCF Asset LLC. Our partnership does not have any directors or officers who receive compensation other than the Audit Committee members.

 

We pay management fees quarterly to our general partner. Management fees are calculated at 2.0% of assets under management as of the last day of our preceding fiscal year. The fee is paid quarterly. Management fees for the periods ended December 31, 2019 and 2020 was $164,488 and $182,798, respectively. Management fees for the six months ended June 30, 2021 were $77,053. In addition, the General Partner will receive approximately 20% of all distributions the Partnership makes above a “hurdle rate”. See “Distributions”.

 

We also pay our Audit Committee members $7,000 each annually.

 

In addition to the management fee, we reimburse the general partner for standard expenses it may incur in managing the Partnership in accordance with our limited partnership agreement. These reimbursable expenses include: organizational expenses; fees for accountants, attorneys, auditors, and other professionals; expenses associated with partnership taxation reporting; operational expenses including insurance, valuation reports, and real estate brokerage commissions; and government filing fees and costs.

 

Item 7. Certain Relationships and Related Transactions, and Director Independence.

 

We utilize the real estate brokerage services of Liz Bankston of Bankston Brokers to acquire and sell properties in the Atlanta area. Mrs. Bankston is the wife of Gregory Bankston, the managing member of our general partner. Our working relationship with Liz Bankston is not exclusive, and we have worked with other brokers from time to time. In 2019, ALS paid Mrs. Bankston approximately $31,152 as commissions for acting as broker in connection with five real estate transactions. In 2020, ALS paid Mrs. Bankston approximately $71,430 in connection with five real estate transactions. We believe the sales commissions paid to Mrs. Bankston are at or less than the standard market rate.

 

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In June 2019, we advanced $100,000 to our general partner. This advance carries a 0.25% monthly interest rate and maturity date of June 10, 2021 or upon the LP having raised an additional $20,000,000 in capital. This advancement was made to empower and fund the general partner to carry on the business plan of converting the Company into a Qualified Opportunity Zone. However, the plausibility of such conversion has considerably dropped since the advance. Since then, $52,513.76 of the advance, plus interest of $3,515, has been paid back by the general partner prior to its due date. The rest of the loan will be paid back using a payment schedule, through which the principal amount will carry a 1% quarterly interest rate. The general partner will pay 10% of its management fee back to the Partnership quarterly, until all the principal and accumulated interest is paid off.

 

In April 2019, we loaned $300,000 to a third party, which then acquired a 10% economic interest in our general partner. This note carried a 5.6% annual interest rate in 2019, 8% annual interest rate for 2020 and 10% annual interest rate for 2021 and a maturity date of March 31, 2021, in a single lump sum. In March 2020, in consideration of the COVID-19 pandemic, we reached an agreement with this third party to keep the introductory rate of 5.6% for the year of 2020. In December 2020, the Note was extended to the year end of 2021.

 

Item 8. Legal Proceedings.

 

To our knowledge there are no material pending legal proceedings against the Company at this time.

 

Item 9. Market Price of and Dividends on Our Common Units and Related Stockholder Matters.

 

Starting from the date of January 02, 2020, our common units have been quoted on OTCQX under the symbol UCASU. OTCQX quotations, as over-the-counter market quotations, reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. The high and low common unit sales per unit were as follows:

 

    First     Second     Third     Fourth        
    Quarter     Quarter     Quarter     Quarter     Full Year  
2020                                        
High   $ 2.20     $ 2.36     $ 2.36     $ 2.40     $ 2.40  
Low   $ 1.88     $ 0.215     $ 2.20     $ 0.52     $ 0.215  
2019                                        
High   $ n/a     $ n/a     $ n/a     $ n/a     $ n/a  
Low   $       $       $       $       $    
2018                                        
High   $ n/a     $ n/a     $ n/a     $ n/a     $ n/a  
Low                                        

 

As of and by the date of January 02, 2020, we have 80 holders of our common units. After January 02, 2020, our units became actively traded on OTC markets, and since there are non-NOBO shareholders, we are no longer able to have a precise head count of our unit holders.

 

We paid a $0.05/unit dividend to our common unit holders for the fiscal year of 2018. We may pay dividend to our common unit holders in the future, at the sole discretion of our general partner, on basis of their judgment on our business matters.

 

As of June 30, 2021, there were no securities of our partnership authorized for issuance under equity compensation plans.

 

Item 10. Recent Sales of Unregistered Securities.

 

On March 2, 2020 we sold 166,667 Series A preferred units to one purchaser for a total consideration of $300,000. These units were sold on a private basis, no underwriter was involved with the sales and no commissions were paid in connection with such sales.

 

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The Series A units were sold to an “accredited investor.” The Series A units issued by the Partnership are deemed “restricted securities” within the meaning of that term as defined in Rule 144 of the Securities Act and have been issued pursuant to the “private placement” exemption under Section 4(2) of the Securities Act. This transaction did not involve a public offering of securities. Investors who purchased securities in the private placement had access to information on the Partnership necessary to make an informed decision. The Partnership has been informed that the purchaser is able to bear the economic risk of this investment, they are aware that the securities were not registered under the Securities Act, and they have been notified that the securities cannot be re-offered or re-sold unless the securities are registered or are qualified for sale pursuant to an exemption from registration.

 

Neither the Partnership nor any person acting on its behalf offered or sold the securities by means of any form of general solicitation or general advertising.

 

The purchaser represented in writing that he acquired the securities for his own accounts and not with the view to, or for resale in connection with any distribution. A legend was placed on the certificate issued stating that the securities are restricted, they have not been registered under the Securities Act and they cannot be sold or otherwise transferred without an effective registration or an exemption therefrom.

 

Item 11. Description of Registrant’s Securities to be Registered.

 

General

 

The following is a summary of the rights of our common units, key provisions of our limited partnership agreement, and certain tax consequences of our partnership and being a limited partner.

 

Common Units

 

Common units represent limited partner interests in our partnership. The holders of common units are entitled to participate in partnership distributions and exercise the rights or privileges available to limited partners under our limited partnership agreement. For a description of the rights and privileges of limited partners under our limited partnership agreement, including voting rights, please read “Limited Partnership Agreement” below.

 

Transfer Agent

 

As of the date of this registration statement our transfer agent is Securities Transfer Corporation.

 

Limited Partnership Agreement

 

Our limited partnership agreement, as amended from time to time, is the governing instrument establishing the terms and conditions pursuant to which our partnership will conduct business. Our limited partnership agreement also establishes the rights and obligations between and among the limited partners and our general partner, as well as other important terms and provisions relating to our partnership.

 

The following is a summary of our limited partnership agreement. A copy of our limited partnership agreement is included as an exhibit to the offering statement of which this Offering Circular forms a part. This summary is qualified by reference to the exhibit containing our complete limited partnership agreement.

 

Profits and Losses

 

Losses for any fiscal year shall be allocated among the limited partners in proportion to their capital account balances, until the balance of each capital account equals zero. Thereafter, all losses shall be allocated in accordance with each limited partner’s respective percentage interest in our partnership. Profits will first be allocated pro rata to the limited partners in accordance with the amount of losses previously allocated if such previous losses were not offset by profits. Thereafter, profits shall be allocated in accordance with actual distributions as described below. The General Partner participates in the profits of the Partnership at a rate of 20% above a 10% annualized return to the Limited Partners: increasing to 40% of the profits above an 18% annualized return to the Limited Partners.

 

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Distributions

 

Except as provided elsewhere in our limited partnership agreement, net cash flow of the Partnership with respect to each disposed portfolio investment shall be distributed to the partners at the discretion of the general partner, in the following order:

 

  (i) First, 100% to the limited partners in proportion to their respective percentage interests, calculated at the time of such distribution, until the limited partners have received an aggregate amount equal to the annual rate of return (non-compounding) of the audited book value for the fiscal year immediately preceding such distribution.
  (ii) Second, 100% to our general partner until the cumulative distribution to our general partner pursuant to this clause (ii) equals twenty percent (20%) of the total amounts distributed pursuant to clause (i) and this clause (ii), in each case, attributable to such portfolio investment (including any capital contributions used to fund fees and expenses with respect to such portfolio investment) and all other portfolio investments that have been previously disposed of (and not previously recouped) in the same fiscal year.
  (iii) Third, 80% to the limited partners in proportion to their respective percentage interests and 20% to our general partner.

 

Voting Rights

 

The limited partners will have no right to participate in the management of our partnership and will have limited voting rights. Limited partners shall have the right to vote only on the following matters:

 

Removal of General Partner for Cause

 

The limited partners, by an affirmative vote of limited partners representing more than 66 2/3% of the outstanding units, shall have the right to remove our general partner where (i) our general partner has been convicted of fraud, embezzlement, or a similar felony by a court of competent jurisdiction in a final judgment; or (ii) our general partner has willfully and materially breached our limited partnership agreement. An action for removal also provides for the election of a substitute general partner by the limited partners.

 

Amendment of Limited Partnership Agreement

 

Our limited partnership agreement may be amended or modified by the limited partners representing at least a majority of the outstanding units; provided, however, that our limited partnership agreement may be amended by our general partner without the consent of the limited partners (i) in any manner that does not materially adversely affect the limited partners, individually or collectively, (ii) to effect any changes required by any governmental body or agency, or (iii) to comply with any applicable laws or regulations; provided further, that there shall be no amendment that (i) would materially reduce the rights, or increase the obligations, of a limited partner unless the amendment (A) is consented to by such limited partner or (B) by its terms applies to all limited partners; or (ii) (A) increases a limited partner’s capital commitment or (B) imposes personal liability upon a limited partner for any debts or obligations of our partnership unless, in each case, the amendment is consented to by such limited partner.

 

Consent of Limited Partners

 

In any circumstances requiring the approval or consent of the limited partners, a failure to respond in the time specified by our general partner, which time shall not be less than 15 days, shall constitute a vote and consent to approve the proposed action.

 

Annual Meetings

 

Our general partner shall specify the time and place of each annual meeting of the partners. Special meetings may be called only by our general partner or by the limited partners representing at least a majority of the outstanding units. Notice of such meetings shall be provided not less than ten (10) calendar days nor more than sixty (60) calendar days before the date of the meeting, to each record holder entitled to vote at such meeting.

 

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List of Limited Partners Entitled to Vote

 

A complete list of limited partners entitled to vote at any meeting of the partners shall be open to the examination of any limited partner, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days before the meeting, at the principal place of business of our partnership.

 

Tax Information Returns to Limited Partners

 

Our partnership shall use commercially reasonable efforts to provide to each limited partner and, to the extent necessary, each former limited partner, Internal Revenue Service Schedule K-1 with respect to such fiscal year by April 15th of the calendar year immediately following the end of each fiscal year.

  

No Right to Repurchase or Redemption of Units.

 

Our limited partnership agreement does not provide for the repurchase or redemption of units.

 

Death, Disability, Incompetency or Bankruptcy of a Limited Partner

 

In the event of the death, disability, incapacity or adjudicated incompetency of a limited partner or if a limited partner becomes bankrupt, his, her or its rights as a limited partner to share in our partnership’s distributions and allocations and to assign his, her or its interest or cause the substitution of a substituted limited partner will transfer to his, her or its personal representative, administrator, guardian, conservator, trustee in bankruptcy or other legal representative.

 

Limits on General Partner’s Liability

 

Our general partner shall be fully protected and indemnified by our partnership against all liabilities and losses suffered by our general partner (including attorneys’ fees, costs of investigation, fines, judgments and amounts paid in settlement, actually and reasonably incurred by our general partner in connection with such action, suit or proceeding) by virtue of its status as general partner with respect to any acts or omissions, except for gross negligence, criminal misconduct, or willful misconduct.

 

Other Activities of General Partner

 

Our general partner shall devote such time as reasonably necessary to manage our partnership’s business affairs. Subject to the other express provisions of our limited partnership agreement, our general partner, at any time and from time to time may engage in and possess interests in other business ventures of any and every type and description, independently or with others, including ventures in competition with our partnership, with no obligation to offer to our partnership or any limited partner the right to participate therein,

 

Dissolution of the Partnership

 

Our partnership shall be dissolved upon the first to occur of the following events: (i) an election to dissolve our partnership by our general partner that is approved by limited partners representing at least a majority of the outstanding units, (ii) the sale, exchange, or other disposition of all or substantially all of partnership assets, (iii) our partnership ceasing to have any limited partners, or (iv) the entry of a decree of a judicial dissolution of our partnership.

 

Power of Attorney

 

By becoming a party to our limited partnership agreement, each limited partner will appoint our general partner as his, her or its attorney-in-fact and empower and authorize our general partner to make, execute, acknowledge, publish and file on behalf of such limited partner in all necessary or appropriate places, such documents as may be necessary or appropriate to carry out the intent and purposes of our limited partnership agreement.

 

Accounting Records and Reports

 

Our partnership may engage an independent accountant or accounting firm, in the discretion of our general partner, to act as the accountant for our partnership and to audit our partnership’s books and accounts as of the end of each fiscal year. As soon as practicable after the end of such fiscal year, our general partner shall provide to each limited partner a balance sheet and an income statement of our partnership as of the end of and for such fiscal year. Upon inquiry, limited partners may be given access to additional information at the general partner’s discretion. Additional information made available to any limited partner will be made available to each other limited partner making a similar request; provided that no information is confidential or proprietary as to a limited partner.

 

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Tax Matters

 

Our general partner is designated as the Tax Matters Partner, who is authorized and required to represent our partnership in connection with all tax audits, examinations and investigations of the affairs of our partnership by any federal, state or local tax authorities, including any resulting administrative and judicial proceedings. Our general partner shall keep all partners reasonably informed of the progress of any tax audit, examination or investigation.

 

Undertakings

 

Our partnership undertakes to send to each limited partner at least on an annual basis a detailed statement of any transactions with the general partner or its affiliates, and of fees, commissions, compensation and other benefits paid, or accrued to the general partner or its affiliate for the fiscal year completed, showing the amount paid or accrued to each recipient and the services performed.

 

Taxation

 

The following is a summary of certain relevant federal income tax considerations resulting from an investment in our partnership, but does not purport to cover all of the potential tax considerations applicable to any specific purchaser. Prospective investors are urged to consult with and rely upon their own tax advisors for advice on these and other tax matters with specific reference to their own tax situation and potential changes in applicable law.

 

Taxation of Undistributed Fund Income

 

Under the laws pertaining to federal income taxation of limited partnerships, no federal income tax is paid by our partnership as an entity. Each individual limited partner reports on the limited partner’s federal income tax return the distributive share of partnership income, gains, losses, deductions and credits, whether or not any actual distribution is made to the limited partner during a taxable year. Each individual limited partner may deduct the limited partner’s distributive share of partnership losses, if any, to the extent of the tax basis of the limited partner’s interests at the end of the year in which the losses occurred. The characterization of an item of profit or loss will usually be the same for the limited partner as it was for our partnership. Since individual limited partners will be required to include partnership income in their personal income without regard to whether there are distributions of partnership income, limited partners may become liable for federal and state income taxes on partnership income even though they have received no cash distributions from our partnership with which to pay such taxes.

 

Tax Returns

 

We will provide limited partners sufficient information from our partnership’s informational tax return for limited partners to prepare their individual federal, state, and local tax returns. Our informational tax returns will be prepared by certified public accountants selected by our general partner.

 

Series A Preferred Units

 

Preferred Dividends

 

The holders of the Series A preferred units will receive an annual dividend of $0.09 per unit. The preferred units shall not be entitled to share in any other dividends that are distributed to any other class of units.

 

Voting Rights

 

The Series A preferred units shall be entitled to no voting rights.

 

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Ranking

 

The Series A preferred units shall be senior to the common units with respect to dividends, distributions and payments on liquidation.

 

Redemption at the option of the holder

 

The Series A preferred units shall be redeemed at the option of the holder for $.50 per share at any time the common units fall below $.50 per share on the common units’ trading platform, consecutively for a minimum of 20 straight trading days.

 

Conversion

 

After 12 months from the initial issuance the holders of the Series A preferred units shall be entitled to convert them to common units, based on a formula tied to the current trading price of the common units.

 

Limitation on Sale Price

 

This Series A preferred units shall not be offered, and any conversion units shall not be set lower than the book value per common unit based on the last audited financial statement.

 

Item 12. Indemnification of Directors and Officers.

 

Section 3.06 of our current Limited Partnership Agreement provides indemnification to our covered persons, to the fullest extent permitted by law. Covered persons including our General Partner, its affiliates, or their respective members, partners, officers, directors, employees, shareholders, agents, and managers of each of them. This indemnification is provided against any and all claims, demands, damages, liabilities, costs, expenses, including legal fees, losses, suits, proceedings, and actions, whether judicial, administrative, investigative, or otherwise, of whatever nature, known or unknown, liquidated or unliquidated, that may accrue to or be incurred by any covered person, or in which any covered person may become involved, as a party or otherwise, or with which any covered person may be threatened, relating to or arising out of the investment or other activities of our partnership, or activities undertaken in connection with the partnership, or otherwise relating to or arising out of our Limited Partnership Agreement, including amounts paid in satisfaction of judgments, in compromise or as fines or penalties, and counsel fees and expenses incurred in connection with the preparation for or defense or disposition of any investigation, action, suit, arbitration, or other proceeding, whether civil or criminal (all of such Claims, amounts and expenses covered by this Section 3.05(d) are referred to collectively as “Damages”), except to the extent that such Damages arose from disabling conduct to which such covered person has pleaded guilty or nolo contendere, or it shall have been determined by a court of competent jurisdiction in a final judgment that such Damages arose from a disabling conduct of such covered person.

 

Notwithstanding the foregoing, a covered person will only be eligible for indemnification for claims relating to or arising out of transactions or covered actions that took place during the time such Covered Person was a shareholder, officer, director, employee, agent, partner, member, or manager of any of the General Partner or any of its affiliates. The satisfaction of any indemnification and any saving harmless shall be from and limited to partnership assets, and no partner shall have any personal liability on account thereof.

 

Expenses incurred by a covered person in defense or settlement of any claim that may be subject to a right of indemnification hereunder shall be advanced by the Partnership, in the sole discretion of the General Partner, prior to the final disposition thereof upon receipt of an undertaking by or on behalf of the covered person to repay the amount advanced to the extent that it shall be determined ultimately by a court having appropriate jurisdiction in the decision that is not subject to appeal, that such covered person is not entitled to be indemnified hereunder.

  

In the event any covered person becomes involved in any capacity in any action, proceeding, or investigation brought by or against any person in connection with any matter arising out of or in connection with the Partnership’s business or affairs and to which such covered person may have a right to indemnification hereunder, the Partnership will periodically reimburse such covered person for its legal and other expenses (including the cost of any investigation, preparation, defense, or settlement thereof) incurred in connection therewith prior to the final disposition thereof, provided, that such covered person shall promptly repay to the partnership the amount of any such reimbursed expenses paid to it if it shall ultimately be determined, by a court having appropriate jurisdiction in the decision that is not subject to appeal, that such covered person is not entitled to be indemnified by the partnership in connection with such action, proceeding, or investigation as a result of disabling conduct.

 

27

 

 

Any covered person entitled to indemnification from the Partnership hereunder shall obtain the written consent of the General Partner prior to entering into any compromise or settlement which would result in an obligation of the Partnership to indemnify such Person if such covered person is other than the General Partner. Additionally, if liabilities arise out of the conduct of the affairs of the Partnership and any other person for which the person entitled to indemnification from the Partnership hereunder was then acting in a similar capacity, the amount of the indemnification provided by the Partnership shall be limited to the Partnership’s proportionate share thereof as determined in good faith by the General Partner in light of its fiduciary duties to the Partnership and the shareholders.

 

Item 13. Financial Statements and Supplementary Data.

 

Financial statements and applicable supplementary data required by this Form are included herein as a separate section of this Form 10 beginning on page F-1 and are incorporated in this Item 13 by reference.

 

Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

There have been no changes in certifying accountants and there have been no disagreements with accountants in the two most recent fiscal years or any subsequent interim period.

 

28

 

 

Item 15. Financial Statements and Exhibits.

 

(a) Index to Financial Statements

 

1.1 Consolidated Financial Statements of 2 years by December 31, 2020 F-2
   
Report of Independent Registered Public Accounting Firm F-2
   
Consolidated Balance Sheets F-3
   
Consolidated Statements of Changes in Net Assets F-4
   
Consolidated Statement of Partners’ Capital F-5
   
Consolidated Statements of Cash Flows F-6
   
Notes to Consolidated Financial Statements F-7
   

 

1.2. Condensed Financial Statements of 6 months by June 30, 2021 F-12
   
Condensed Consolidated Balance Sheets F-12
   
Condensed Consolidated Statements of Changes in Net Assets F-13
   
Condensed Consolidated Statement of Partners’ Capital F-14
   
Condensed Consolidated Statements of Cash Flows F-15
   
Notes to Condensed Consolidated Financial Statements F-16

 

F-1

 

 

1.1 Consolidated Financial Statements of 2 years by December 31, 2020

 

Report of Independent Registered Public Accounting Firm

 

To the shareholders and the board of directors of UC Asset, LP

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of UC Asset, LP as of December 31, 2020 and 2019, the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.

 

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a significant accumulated deficit. In addition, the Company continues to experience negative cash flows from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

/S/ BF Borgers CPA PC

 

BF Borgers CPA PC

 

We have served as the Company’s auditor since 2021

 

Lakewood, CO

 

August 2, 2021

 

F-2

 

 

UC ASSET, LP

 

Consolidated Balance Sheets

 

December 31,

 

    2020     2019  
ASSETS            
Portfolio investments   $ 7,493,777     $ 8,624,091  
Property and equipment and other assets, net     66,980       77,083  
Cash and cash equivalents     1,419,710       153,687  
                 
Total Assets   $ 8,980,467     $ 8,854,861  
                 
LIABILITIES AND PARTNERS’ CAPITAL                
Accounts payable and accrued expenses   $ 57,938     $ 52,507  
Construction loan     -       194,000  
Partners’ Capital:                
Series A preferred units, 166,667 and 0 issued and outstanding at December 31,2020 and 2019     300,000       -  
Common units 5,635,306 issued and outstanding     8,622,529       8,608,354  
                 
Total Liabilities and Partners’ Capital   $ 8,980,467     $ 8,854,861  

 

The accompanying notes are an integral part of the financial statements

 

F-3

 

 

UC ASSET, LP

 

Consolidated Statements of Changes in Net Assets

 

Year ended December 31,

 

    2020     2019  
INCOME            
Sales of homes   $ 4,376,205     $ 2,843,362  
Rental income     118,447       83,900  
Interest income     31,581       21  
                 
Total income     4,526,233       2,927,283  
                 
COST OF SALES                
Cost of sales     4,390,681       2,884,551  
                 
Total cost of sales     4,390,681       2,884,551  
                 
Gross Margin     135,552       42,732  
                 
OPERATING EXPENSES                
Management fees     182,789       169,560  
Professional fees and other expenses     335,259       285,214  
Depreciation     66,376       61,555  
                 
Total operating expenses     584,424       516,329  
                 
Net investment loss before unrealized gains (losses)     (448,872 )     (473,597 )
                 
GAINS/LOSSES FROM INVESTMENTS                
Net realized and unrealized gains (losses) from investments:                
Net unrealized gain (loss) on portfolio investments     463,047       677,139  
                 
Net realized and unrealized gains (losses)     463,047       677,139  
                 
Net increase (decrease) in net assets from operations   $ 14,175     $ 203,542  
                 
Net increase in net assets per unit from operations   $ 0.00     $ 0.04  
Weighted average units outstanding     5,635,306       5,635,306  
                 

 

The accompanying notes are an integral part of the financial statements

 

F-4

 

 

UC ASSET, LP

 

Consolidated Statement of Partners’ Capital

 

    Limited
Partners
Common
Units
    Limited
Partners
Preferred
A Units
    Limited
Partners
Common Units
Amount
    Limited
Partners
Preferred
A Units
Amount
    General
Partner
    Total
Partners’
Equity
 
                                     
BALANCE, January 1, 2019     5,635,306       -     $ 8,359,739     $ -     $        -     $ 8,359,739  
                                                 
Return of limited partner tax distributions     -       -       48,271       -               48,271  
Distributions     -       -       (16,668 )     -       -       (16,668 )
Net change in net assets from operations     -       -       217,012       -       -       217,012  
                                                 
BALANCE, December 31, 2019     5,635,306       -       8,608,354       -       -       8,608,354  
Issuance of Preferred Series A units     -       166,667       -       300,000               300,000  
Net change in net assets from operations     -       -       14,175       -       -       14,175  
                                                 
BALANCE, December 31, 2020     5,635,306       166,667     $ 8,622,529     $ 300,000     $ -     $ 8,922,529  

 

The accompanying notes are an integral part of the financial statements

 

F-5

 

 

UC ASSET, LP

 

Consolidated Statements of Cash Flows

 

Year ended December 31,

 

    2020     2019  
CASH FLOWS FROM OPERATING ACTIVITIES:            
Net increase (decrease) in net assets from operations   $ 14,175     $ 175,874  
Adjustments to reconcile net increase (decrease) in net assets from operations to net cash used in operating activities:                
Net unrealized (gains) losses on portfolio investments     (463,047 )     (636,001 )
Amortization of prepaid expense and deferred rent             22,183  
Depreciation and amortization     66,376       61,555  
Changes in working capital items                
Accrued interest receivable     4,200       (4,200 )
Accounts receivable     4,445       6,937  
Deposits     3,456       3,100  
Prepaid expense     4,003       (15,936 )
Accrued expenses     5,432       2,722  
                 
Net cash used in operating activities     (360,960 )     (383,766 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Investments in portfolio loans     (70,000 )     (300,000 )
Investments in portfolio loans, related party     -       (150,000 )
Investments in portfolio properties     (2,968,981 )     (2,234,770 )
Proceeds from sale of portfolio properties     4,731,881       2,798,996  
Repayments of portfolio loans     128,083       50,000  
                 
Net cash provided by (used in) investing activities     1,820,983       164,226  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from construction loan     232,000       103,780  
Payments on construction loan     (426,000 )        
Distributions to limited partners     -       (16,668 )
Return of limited partner tax distributions     -       48,271  
                 
Net cash provided in financing activities     (194,000 )     135,383  
                 
Net decrease in cash and cash equivalents     1,266,023       (84,157 )
                 
CASH and cash equivalents, beginning of period     153,687       237,844  
                 
CASH and cash equivalents, end of period   $ 1,419,710     $ 153,687  
                 
Non-Cash Financing Activities:                
Sale of portfolio property for notes receivable   $ 1,300,000     $ -  

 

The accompanying notes are an integral part of the financial statements

 

F-6

 

 

UC ASSET, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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 in limited liability companies 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.

 

(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 and Hotal Service 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.

 

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.

 

F-7

 

 

(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 in properties as determined by the General Partner, 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. See Note 3.

 

(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 interest as accrued.

 

(i) 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 settlement of liabilities and commitments in the normal course of business. The Partnership sustained a net operating loss of approximately $448,872 and cash use of $360,960 from operations for the year ended December 31, 2020. These conditions raise substantial doubt about our ability to continue as a going concern. The accompanying 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 December 31, 2019 and 2018, there were $400,000 and no short-term 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.

 

F-8

 

 

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 December 31, 2020         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   $ 4,936,494     $             -     $          -     $ 4,936,494  
UCF Development, LLC     -       -       -       -  
SHOC Holdings LLC     740,837       -       -       740,837  
Hotal Service LLC     -       -       -       -  
Short term loans     405,001       -       -       405,001  
                                 
Total Assets   $ 5,341,495     $ -     $ -     $ 5,341,495  

 

At December 31, 2019         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   $ 7,120,630     $            -     $           -     $ 7,120,630  
UCF Development, LLC     1,142,118       -       -       1,142,118  
Short term loans     405,001       -       -       405,001  
                                 
Total Assets   $ 8,667,749     $ -     $ -     $ 8,667,749  

 

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.

 

F-9

 

 

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. However, the Dallas investee is very cognizant of changes in the unobservable inputs that affect the fair value of this property and intends to consider any and all such changes as it develops it plan for the development of this property.

 

The following table presents the changes in Level 3 instruments measured on a recurring basis:

 

Year Ended December 31, 2020   Portfolio
Investments
 
January 1, 2020   $ 8,667,749  
Total gains or losses (realized/unrealized):        
Included in earnings     996,342  
Included in other comprehensive income     -  
Purchases, issuance and settlements     (1,772,571 )
Transfers in/out of Level 3     -  
         
December 31, 2020   $ 7,891,520  

 

Year Ended December 31, 2019   Portfolio
Investments
 
January 1, 2019   $ 8,227,738  
Total gains or losses (realized/unrealized):        
Included in earnings     752,492  
Included in other comprehensive income     -  
Purchases, issuance and settlements     (312,481 )
Transfers in/out of Level 3     -  
         
December 31, 2019   $ 8,667,749  

 

F-10

 

 

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 $1,169,710 and $0 at December 31, 2020 and 2019.

 

NOTE 6 – CAPITAL

 

The Partnerships capital structure consists of one General Partner and 81 limited partners. The Partnerships total contributed capital was $8,086,232 and $7,777,540 at December 31, 2020 and 2019, respectively. The limited partner common units are 5,635,306 at December 31, 2020 and 2019. The limited partner preferred Series A units are 166,667 and 0 at December 31, 2020 and 2019, respectively.

 

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 the first quarter 2020 the partnership issued 166,667 Series A preferred units in exchange for $300,000 in cash.

 

a) Distributions Distributions from the Partnership are made to partners in accordance with the Partnerships limited partnership agreement.

 

During 2019, the partnership was refunded $48,271 of the previously distributed backup withholding from the U.S. Internal Revenue Service.

 

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 assets under management on the first day of the fiscal year, payable quarterly. Management fees were $182,789 and $169,590 for the years ended December 31, 2020 and 2019, respectively.

 

F-11

 

 

1.2. Condensed Financial Statements of 6 months by June 30, 2021

 

UC ASSET, LP

 

Condensed Consolidated Balance Sheets

 

    June 30,
2021
    December 31,
2020
 
  (unaudited)        
ASSETS                
Portfolio investments   $ 6,394,330     $ 7,493,777  
Property and equipment and other assets, net     20,765       66,980  
Cash and cash equivalents     2,721,469       1,419,710  
                 
Total Assets   $ 9,136,564     $ 8,980,467  
                 
LIABILITIES AND PARTNERS’ CAPITAL                
Accrued and other liabilities   $ 71,461     $ 57,938  
Mortgage loans     400,000          
Partners capital:                
Series A preferred units, 166,667and 0 issued and outstanding at March 31, 2020 and December 31, 2019, respectively     300,000       300,000  
Common units, 5,635,306 units issued and outstanding at June 30, 2020 and December 31, 2019     8,365,103       8,622,529  
                 
Total Liabilities and Partners’ Capital   $ 9,136,564     $ 8,980,467  

 

F-12

 

 

UC ASSET, LP

 

Condensed Consolidated Statements of Changes in Net Assets from Operations

 

Three and Six months ended June 30,

 

(unaudited)

 

    Three Months Ended
June 30
    Six Months Ended
June 30,
 
    2021     2020     2021     2020  
                         
INCOME                        
   Sales of homes   $ 1,909,644     $ 869,087     $ 1,909,644     $ 869,087  
   Rental income     24,942       24,700       61,242       46,647  
   Interest income     38,504       14,525       93,065       23,225  
                                 
          Total income     1,973,090       908,312       2,063,951       938,959  
                                 
COST OF SALES                                
   Cost of sales     1,930,455       1,342,061       1,930,455       1,342,061  
                                 
          Total cost of sales     1,930,455       1,342,061       1,930,455       1,342,061  
                                 
Gross Margin     42,635       (433,749 )     133,496       (403,102 )
                                 
OPERATING EXPENSES                                
   Management fees     45,287       45,287       90,575       92,214  
   Professional fees and other expenses     55,931       72,137       149,627       142,386  
   Depreciation     22,321       11,499       44,407       23,191  
                                 
          Total operating expenses     123,539       128,923       284,609       257,791  
                                 
Net investment loss before unrealized gains (losses)     (80,904 )     (562,672 )     (151,113 )     (660,893 )
                                 
GAINS/LOSSES FROM INVESTMENTS                                
Net realized and unrealized gains (losses) from investments:                                
   Net unrealized gain (loss) on portfolio investments     (6,097 )     (291,805 )     (106,313 )     (1,187,608 )
                                 
          Net realized and unrealized gains (losses)     (6,097 )     (291,805 )     (106,313 )     (1,187,608 )
                                 
Net increase (decrease) in net assets from operations   $ (87,001 )   $ (854,477 )   $ (257,426 )   $ (1,848,501 )
                                 
Net increase in net assets per unit   $ (0.02 )   $ (0.15 )   $ (0.05 )   $ (0.33 )
Weighted average units outstanding     5,635,303       5,635,303       5,635,303       5,635,303  

 

F-13

 

 

UC ASSET, LP

Condensed Consolidated Statement of Partners’ Capital

For the three and six months ended June 30, 2020

(unaudited)

 

   

 

Limited
Partners
Common
Units

   

 

Limited
Partners
Preferred A
Units

    Limited
Partners
Common
Units
Amount
    Limited
Partners
Preferred A
Units
Amount
    General
Partner
   

Total
Partners’
Equity

 
BALANCE, January 1, 2020     5,635,303       -     $ 8,798,031     $ -     $      -     $ 8,798,031  
                                                 
Issuance of Preferred Series A units             166,667       -       300,000               300,000  
Net change in net assets from operations     -       -       (994,022 )     -       -       (994,022 )
                                                 
BALANCE, March 31, 2020     5,635,303       166,667       7,804,009       300,000     $ -       8,104,009  
                                                 
Net change in net assets from operations     -       -       (854,477 )     -       -       (854,477 )
                                                 
BALANCE, June 30, 2020     5,635,303       166,667     $ 6,949,532     $ 300,000       -     $ 7,249,532  

 

UC ASSET, LP

Condensed Consolidated Statement of Partners’ Capital

For the three and 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
    General
Partner
    Total
Partners’
Equity
 
BALANCE, January 1, 2021     5,635,303       166,667     $ 8,622,529     $ 300,000     $        -     $ 8,922,529  
                                                 
Net change in net assets from operations     -       -       (170,425 )     -       -       (170,425 )
                                                 
BALANCE, March 31, 2021     5,635,303       166,667       8,452,104       300,000       -       8,752,104  
                                                 
Net change in net assets from operations     -       -       (87,001 )     -       -       (87,001 )
                                                 
BALANCE, June 30, 2021     5,635,303       166,667     $ 8,365,103     $ 300,000       -     $ 8,665,103  

 

F-14

 

 

UC ASSET, LP

 

Condensed Consolidated Statements of Cash Flows

 

Six months ended June 30,

 

(unaudited)

 

    2021     2020  
CASH FLOWS FROM OPERATING ACTIVITIES:            
Net decrease in net assets from operations   $ (257,426 )   $ (1,848,502 )
Adjustments to reconcile net decrease in net assets from operations to net cash provided by (used in) operating activities:                
Net unrealized losses on portfolio investments     106,313       1,187,608  
Amortization of prepaid expense     26,939       37,521  
Depreciation     44,407       23,191  
Changes in working capital items                
Accrued receivables     (90,411 )     (15,937 )
Deposits and other assets     (262 )     (12,000 )
Accrued and other liabilities     -       446  
                 
Net cash used in operating activities     (170,440 )     (627,673 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Investment in portfolio properties     (768,321 )     (337,500 )
Sale of portfolio properties     1,909,643       869,087  
Investments in portfolio loans     (100,000 )     (400,000 )
Repayments of portfolio loans     24,000       50,000  
Repayments of portfolio loans, related party     6,877       -  
                 
Net cash provided by investing activities     1,072,199       181,587  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Cash received from mortgage loan on portfolio property     400,000       -  
Cash received from construction loan on portfolio property     -       192,000  
Cash received for preferred A units     -       300,000  
                 
Net cash provided by financing activities     400,000       492,000  
                 
Net increase in cash and cash equivalents     1,301,759       45,914  
                 
Cash and cash equivalents, beginning of period     1,419,710       153,687  
                 
Cash and cash equivalents, end of period   $ 2,721,469     $ 199,601  

 

F-15

 

 

UC ASSET, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information as to the three months ended March 31, 2021 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 three months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

 

(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 and Hotal Service 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.

 

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:

 

F-16

 

 

UC ASSET, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

(d) Fair value measurements, continued

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 $7,493,777 representing 87.98% and 86.91% of partners’ capital at March 31, 2021 and December 31, 2020, 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.

 

(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) 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.

 

F-17

 

 

UC ASSET, LP

NOTES TO CONDENSED CONSOLIDATED 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 $257,426 and cash use of $170,440 from operations for the six months ended June 30, 2021. 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, 2021 and December 31, 2020, there were $899,603 and $782,754 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.

 

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.

 

F-18

 

 

UC ASSET, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 4 - FAIR VALUE OF FINANCIAL INSTRUMENTS, continued

 

(c) Portfolio Investments, continued

 

The following tables present the fair values of assets and liabilities measured on a recurring basis:

 

At June 30, 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   $ 4,990,484     $             -     $            -     $ 4,990,484  
SHOC Holdings LLC     796,949       -       -       796,949  
Hotal Service LLC     -       -       -       -  
Short term loans     899,603       -       -       899,603  
                                 
Total Assets   $ 6,687,036     $ -     $ -     $ 6,687,036  

 

At December 31, 2020         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   $ 4,997,614     $             -     $           -     $ 4,997,614  
SHOC Holdings LLC     940,837       -       -       940,837  
Hotal Service LLC     -       -       -       -  
Short term loans     782,754       -       -       782,754  
                                 
Total Assets   $ 6,721,205     $ -     $ -     $ 6,721,205  

 

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.

 

F-19

 

 

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:

 

Three Months Ended March 31, 2021   Portfolio
Investments
 
January 1, 2020   $ 7,891,520  
Total gains or losses (realized/unrealized):        
Included in earnings     (259,678 )
Included in other comprehensive income     (125,313 )
Purchases, issuance and settlements     (1,112,199 )
Transfers in/out of Level 3     -  
         
March 31, 2021   $ 6,394,330  

 

Year Ended December 31, 2020   Portfolio
Investments
 
January 1, 2020   $ 8,667,749  
Total gains or losses (realized/unrealized):        
Included in earnings     996,342  
Included in other comprehensive income     (1,772,571 )
Purchases, issuance and settlements        
Transfers in/out of Level 3     -  
         
December 31, 2020   $ 7,891,520  

 

F-20

 

 

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 $2,174,279 and $798,743 at June 30, 2021 and December 31, 2020.

 

NOTE 6 - CAPITAL

 

The Partnerships capital structure consists of one General Partner and 81 limited partners. The Partnerships total contributed capital was $8,077,540 at June 30, 2021 and December 31, 2020. The limited partner common units are 5,635,306 at June 30, 2021 and December 31, 2020. The limited partner preferred Series A units are 166,667 at June 30, 2021 and December 31, 2020.

 

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 the first quarter 2020 the partnership issued 166,667 Series A preferred units in exchange for $300,000 in cash.

 

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 assets under management on the first day of the fiscal year, payable quarterly. Management fees were $90,575 and $92,214 for the six months ended June 30, 2021 and 2020, respectively.

 

F-21

 

 

(b) Index to Exhibits

 

3.1   Certificate of Limited Partnership of UC Asset Filed previously with our Form 1A on February 12, 2018.
     
3.2   Limited Partnership Agreement Filed previously with our Form 10-12G/A on November 05, 2020
     
3.3   Certificate of Designation of Series A Preferred Units Filed previously with our Form 1U on June 9, 2020
     
3.3   Debt Assignment Agreement Between UC Asset and SHOC Holdings LLC
     
3.3.1   Debt Assignment of $400,000 Filed previously with our Form 10-12G/A on April 29, 2021
     
3.3.2   Debt Assignment of $300,000 Filed previously with our Form 10-12G/A on April 29, 2021
     
3.4   Rights Assignment Agreement Between UC Asset and Hotal LLC Filed previously with our Form 10-12G/A on April 29, 2021
     
4.1   Construction Loan Promissory Note Filed previously with our Form 10-12G/A on November 05, 2020

 

F-22

 

 

SIGNATURES

 

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this Amendment to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  UC ASSET, LP (Registrant)
     
  UC Asset, LLC (General Partner)
     
Date: September 15, 2021 By: /s/ Gregory Bankston
    Gregory Bankston, Manager
     
  And
     
  By: /s/ Xianghong Wu
    Xianghong Wu, Majority Voting Rights Owner

 

 

29

 

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