Item 1. Financial Statements.
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UC ASSET, LP
Condensed Consolidated Balance Sheets
|
|
|
September
30,
2021
|
|
|
December
31,
2020
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Cash
|
|
$
|
826,112
|
|
|
$
|
1,419,710
|
|
|
Portfolio investments
|
|
|
7,795,012
|
|
|
|
7,493,777
|
|
|
Property and equipment,
net
|
|
|
3,333
|
|
|
|
6,005
|
|
|
Prepaid
expenses and other assets
|
|
|
17,381
|
|
|
|
60,975
|
|
|
Total Assets
|
|
$
|
8,641,838
|
|
|
$
|
8,980,467
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND PARTNERS’
CAPITAL
|
|
|
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
|
$
|
144,696
|
|
|
$
|
57,938
|
|
|
Mortgage loans
|
|
|
400,000
|
|
|
|
-
|
|
|
Partners capital:
|
|
|
|
|
|
|
|
|
|
Series A preferred units, 166,667and 0 issued and outstanding at September 30, 2020 and December 31, 2019, respectively
|
|
|
300,000
|
|
|
|
300,000
|
|
|
Common units, 5,635,306 units issued and outstanding at September 30, 2020 and December 31, 2019
|
|
|
7,797,142
|
|
|
|
8,622,529
|
|
|
Total Liabilities and
Partners’ Capital
|
|
$
|
8,641,838
|
|
|
$
|
8,980,467
|
|
The accompanying notes are an integral part of the condensed consolidated financial statements
UC ASSET, LP
Condensed Consolidated Statements of Changes
in Net Assets from Operations
(unaudited)
|
|
|
Three Months Ended
September 30
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of homes
|
|
$
|
-
|
|
|
$
|
939,436
|
|
|
$
|
1,909,644
|
|
|
$
|
1,808,523
|
|
|
Rental income
|
|
|
22,000
|
|
|
|
29,800
|
|
|
|
83,242
|
|
|
|
76,447
|
|
|
Interest income
|
|
|
36,766
|
|
|
|
(4,044
|
)
|
|
|
129,831
|
|
|
|
19,181
|
|
|
Total income
|
|
|
58,766
|
|
|
|
965,192
|
|
|
|
2,122,717
|
|
|
|
1,904,151
|
|
|
COST OF SALES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
149,297
|
|
|
|
908,577
|
|
|
|
2,079,752
|
|
|
|
2,250,638
|
|
|
Total cost of sales
|
|
|
149,297
|
|
|
|
908,577
|
|
|
|
2,079,752
|
|
|
|
2,250,638
|
|
|
Gross Margin
|
|
|
(90,531
|
)
|
|
|
56,615
|
|
|
|
42,965
|
|
|
|
(346,487
|
)
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees
|
|
|
45,288
|
|
|
|
45,288
|
|
|
|
135,863
|
|
|
|
137,502
|
|
|
General and administrative expenses
|
|
|
144,469
|
|
|
|
63,182
|
|
|
|
294,096
|
|
|
|
205,568
|
|
|
Interest expense
|
|
|
4,000
|
|
|
|
-
|
|
|
|
4,000
|
|
|
|
8,000
|
|
|
Depreciation
|
|
|
28,270
|
|
|
|
14,260
|
|
|
|
72,677
|
|
|
|
37,451
|
|
|
Total operating expenses
|
|
|
222,027
|
|
|
|
122,730
|
|
|
|
506,636
|
|
|
|
388,521
|
|
|
Net investment loss before unrealized gains (losses)
|
|
|
(312,558
|
)
|
|
|
(66,115
|
)
|
|
|
(463,671
|
)
|
|
|
(735,008
|
)
|
|
GAINS/LOSSES FROM INVESTMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized gains (losses) from investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain (loss) on portfolio investments
|
|
|
(255,403
|
)
|
|
|
133,453
|
|
|
|
(361,716
|
)
|
|
|
(1,054,155
|
)
|
|
Net realized and unrealized gains (losses)
|
|
|
(255,403
|
)
|
|
|
133,453
|
|
|
|
(361,716
|
)
|
|
|
(1,054,155
|
)
|
|
Net increase (decrease) in net assets from operations
|
|
$
|
(567,961
|
)
|
|
$
|
67,338
|
|
|
$
|
(825,387
|
)
|
|
$
|
(1,789,163
|
)
|
|
Net increase in net assets per unit
|
|
$
|
(0.10
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.15
|
)
|
|
$
|
(0.32
|
)
|
|
Weighted average units outstanding
|
|
|
5,635,303
|
|
|
|
5,635,303
|
|
|
|
5,635,303
|
|
|
|
5,635,303
|
|
The accompanying notes are an integral part of
the condensed consolidated financial statements
UC ASSET, LP
Condensed Consolidated Statement of Partners’
Capital
(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
|
|
|
Net change in net assets from operations
|
|
|
-
|
|
|
|
-
|
|
|
|
67,338
|
|
|
|
-
|
|
|
|
-
|
|
|
|
67,338
|
|
|
BALANCE, September 30, 2020
|
|
|
5,635,303
|
|
|
|
166,667
|
|
|
$
|
7,016,870
|
|
|
$
|
300,000
|
|
|
|
-
|
|
|
$
|
7,316,870
|
|
UC ASSET, LP
Condensed Consolidated Statement of Partners’
Capital
(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
|
|
|
Net change in net assets from operations
|
|
|
-
|
|
|
|
-
|
|
|
|
(567,961
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(567,961
|
)
|
|
BALANCE, September 30, 2021
|
|
|
5,635,303
|
|
|
|
166,667
|
|
|
$
|
7,797,142
|
|
|
$
|
300,000
|
|
|
|
-
|
|
|
$
|
8,097,142
|
|
The accompanying notes are an integral part of
the condensed consolidated financial statements
UC ASSET, LP
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30,
(unaudited)
|
|
|
2021
|
|
|
2020
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net decrease in net assets from operations
|
|
$
|
(825,387
|
)
|
|
$
|
(1,789,163
|
)
|
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
|
|
|
361,716
|
|
|
|
1,054,155
|
|
|
Amortization of prepaid expense
|
|
|
54,355
|
|
|
|
34,597
|
|
|
Depreciation
|
|
|
72,677
|
|
|
|
37,451
|
|
|
Changes in working capital items
|
|
|
|
|
|
|
|
|
|
Accounts receivable and accrued interest
|
|
|
(88,211
|
)
|
|
|
(28,387
|
)
|
|
Prepaid expenses, deposits and other assets
|
|
|
(10,761
|
)
|
|
|
(24,929
|
)
|
|
Accrued and other liabilities
|
|
|
86,758
|
|
|
|
48,634
|
|
|
Net cash used in operating activities
|
|
|
(348,853
|
)
|
|
|
(667,642
|
)
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Investment in portfolio properties
|
|
|
(2,508,579
|
)
|
|
|
(648,651
|
)
|
|
Sale of portfolio properties
|
|
|
1,909,644
|
|
|
|
1,808,523
|
|
|
Investments in portfolio loans
|
|
|
(100,000
|
)
|
|
|
(400,000
|
)
|
|
Repayments of portfolio loans
|
|
|
54,190
|
|
|
|
54,014
|
|
|
Purchase of fixed assets
|
|
|
-
|
|
|
|
(6,000
|
)
|
|
Net cash (used in) provided by investing activities
|
|
|
(644,745
|
)
|
|
|
807,886
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Cash received from mortgage loan on portfolio property
|
|
|
400,000
|
|
|
|
-
|
|
|
Cash received from construction loan on portfolio property
|
|
|
-
|
|
|
|
232,000
|
|
|
Cash received for preferred A units
|
|
|
-
|
|
|
|
300,000
|
|
|
Net cash provided by financing activities
|
|
|
400,000
|
|
|
|
532,000
|
|
|
Net increase in cash and cash equivalents
|
|
|
(593,598
|
)
|
|
|
672,244
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
1,419,710
|
|
|
|
153,687
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
826,112
|
|
|
$
|
825,931
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
Interest paid in cash
|
|
$
|
4,000
|
|
|
$
|
-
|
|
|
Non-cash financing activities:
|
|
|
|
|
|
|
|
|
|
Portfolio property exchanged for convertible note receivable
|
|
$
|
-
|
|
|
$
|
1,300,000
|
|
The accompanying notes are an integral part of
the condensed consolidated financial statements
UC ASSET, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information as to the nine months ended September
30, 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 nine months ended September 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.
UC ASSET, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Observable inputs reflect market data obtained
from independent sources, while unobservable inputs reflect management’s market assumptions. Preference is given to observable inputs.
These two types of inputs create the following fair value hierarchy:
(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 $7,795,012 and $7,493,777 representing 96.83% and 86.91% of partners’ capital at September 30, 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. See Note 4.
(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 financials.
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 $463,671 and cash use
of $348,853 from operations for the nine months ended September 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 September 30, 2021 and December 31, 2020, there were $898,290 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.
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 September 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
|
|
$
|
6,134,268
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,134,268
|
|
|
SHOC Holdings LLC
|
|
|
762,454
|
|
|
|
-
|
|
|
|
-
|
|
|
|
762,454
|
|
|
Hotal Service LLC
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Short term loans
|
|
|
898,290
|
|
|
|
-
|
|
|
|
-
|
|
|
|
898,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
7,795,012
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,795,012
|
|
|
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.
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:
|
Nine Months Ended September 30, 2021
|
|
Portfolio
Investments
|
|
|
January 1, 2020
|
|
$
|
7,493,777
|
|
|
Total gains or losses (realized/unrealized):
|
|
|
|
|
|
Included in earnings
|
|
|
42,965
|
|
|
Included in other comprehensive income
|
|
|
(361,716
|
)
|
|
Purchases, issuance and settlements
|
|
|
619,986
|
|
|
Transfers in/out of Level 3
|
|
|
-
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
$
|
7,795,012
|
|
|
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
|
|
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 $298,595 and $798,743 at September 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 September 30, 2021 and December
31, 2020. The limited partner common units are 5,635,306 at September 30, 2021 and December 31, 2020. The limited partner preferred Series
A units are 166,667 at September 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 $135,863
and $137,502 for the nine months ended September 30, 2021 and 2020, respectively.
NOTE 8 - SUBSEQUENT EVENTS
(a) Portfolio Investments In the fourth
quarter 2021, the Company entered into two agreements regarding the $1,200,000 convertible note received in payment of the sale of its
Texas property. This note matured on October 30, 2021. In the first agreement the Company agreed to accept 100 million shares of restricted
common stock of Puration Inc. as payment of the $96,000 in interest accrued through October 30, 2021. The shares were valued on November
1, 2021 at $1.46 million. The Company also entered into an assignment of the principal amount of the note to a third party. The third
party is required to pay for this assignment in 5 tranches, four at $250,000 every ninety days and the final $200,000 within 390 days
of the effective date of the agreement.
Item 2. 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
UC Asset LP partnership (“UC Asset,”
the “Company,” the “Partnership”, “we,” or “us”) is a limited partnership formed on February
01, 2016 under the laws of the State of Delaware. The business is structured as a publicly traded limited partnership (Master Limited
Partnership or MLP) rather than a real estate investment trust (REIT), with the intention to appeal to investors looking for long-term
growth. As a matter of fact, we are the only real estate MLP quoted on OTCQX.
Our business purpose is to
invest in our portfolio investments, primarily real estate properties, for the purpose of capital appreciation. Upon investing in a property,
we may hold for appreciation, or we may seek to collect investment incomes from continuous operation of the property. As investor, we
do not manage the operation of any property, except for some insignificant and non-material management activities. We intend to form partnerships
with third party operators/managers, under which the third party will acquire the right to operate/manage our property by paying rent,
forming a profit-sharing partnership, or by other arrangements which may be innovative. We usually require the third-party bear all operating
cost, except for a few insignificant expenditures such as property owner insurance.
Our business strategy is to
carry on innovative, or otherwise active, real estate investment strategies, in order to maximize the Company’s returns.
We intend to form separate
subsidiaries to conduct our investments. Each of the subsidiaries focuses on a specialized investment strategy. By and as of September
30, 2021, our business operations are being performed primarily through our wholly-owned subsidiaries Atlanta Landsight LLC and SHOC Holdings
LLC. Both are State of Georgia LLCs.
Atlanta Landsight LLC,
(“ALS”), invests in residential and commercial properties in the Atlanta metropolitan area. It was initially created to
focus on residential (“house flip”) market. Over time, ALS’ strategy has shifted to innovative investment in non-residential
properties in metro Atlanta. In the second quarter of 2021, ALS acquired historical Rufus Rose House in downtown Atlanta, through a standard
real estate purchase deal. Beside continuous use of the House as a commercial property (office space), the Company will partner with block-chain
technology companies to issue Non-fungible Tokens (“NFT”) based on certain derivative property rights (For example, the right
to use the image of the property for business purpose). If this business strategy proves to be a success, ALS may acquire more historical
buildings to form similar business partnerships.
SHOC Holdings LLC (“SHOC
LLC”) invests in SHOC properties. SHOC, is an acronym standing for Shared Home-Office Cluster/Community. SHOC properties are
variation of “home rental” properties, which have been developed and operated by companies such as Airbnb (NASDAQ: ABNB) and
Vrbo. The difference of SHOC from other “home rentals” is that SHOC properties are defined as home-offices for short rental,
targeting business travelers. Based on our market research, business travelers are an underserved group among “home rental”
customers. Our definition of SHOC property is that it will locate nearby major airports or business center districts, and its units will
be equipped with home-office facilities such as hi-speed internet, video conferencing, office accessories and other tools to empower today’s
business travelers. Meanwhile, a SHOC should also present the home-style charm, including full-equipped kitchen, to serve travelers with
a home office away from home.
In April 2021, SHOC LLC made
its first investment by acquiring a triplex building in downtown Atlanta in April 2021, for a consideration of approximately $750,000,
through a standard real estate purchase transaction. Since then, it has formed a non-binding partnership with an independent third-party,
which will manage and operate the property as short rental on Airbnb and similar platforms.
Other Investment Strategies
On September 29, 2021, the
Company announced that we will expand our portfolio into cannabis properties. The Company announced on November 15, 2021 that we will
adopt an investment model similar to those implemented by some other public companies, such as Power REIT(NYSE: PW). It was also announced
that we had developed a pipeline of possible investment opportunities.
The Company owns another wholly-owned
State of Georgia LLC, the Hotal LLC, which has no operation and carries zero book value.
We occasionally invest in
private debts and other non-real estate opportunities, to the extent that the revenue generated from those opportunities will not exceed
ten percent (10%) of total revenue of the Company. As of and by September 30, 2021, UC Asset LP held debt investments of approximately
$731,000 in total. $700,000 of those debts were assigned to SHOC LLC as a capital contribution in the fourth quarter of 2020, which was
reversed in the third quarter 2021.
Results of Operations
Our business purpose is to
invest for capital appreciation. Among all financial indicators, the management perceives the increase of our book value per common unit
(BVPU) as a key indicator of capital appreciation. Our BVPU has grown from $1.156 as of March 01, 2016, to $1.534 (fully diluted) as of
September 30, 2021, after a $0.050 per unit distribution in 2018. The following table shows the change of BVPU over 12-month period ended
September 30, 2021:
|
Period end
|
|
BVPU
pre-dilution
|
|
|
BVPU
Fully-diluted *
|
|
|
September 30, 2020-unaudited
|
|
$
|
1.363
|
|
|
$
|
1.319
|
|
|
December 31, 2020
|
|
$
|
1.583
|
|
|
$
|
1.538
|
|
|
September 30, 2021 - unaudited
|
|
$
|
1.534
|
|
|
$
|
1.484
|
|
Table I: BVPU of UC Asset LP, for the reporting
period.
|
*
|
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.
|
On September 29, 2021, the Company announced that
it may distribute a dividend of $0.10 per common unit for the year of 2021.
Material Changes in
Financial Statements
Three months ended September
30, 2021
During the three months ended
September 30, 2021, our portfolio investment increased by $1.4 million, which were mostly from the acquisition of a historic landmark
building, the Rufus Rose House, for a consideration of approximately $1.65 million.
Our cash and cash equivalent
decreased by $1.9 million, which reflected mostly 1) the change of our portfolio investment, and 2) our operational expenses, which were
$0.2 million during this period, consisting principally of management fees paid to our general partner, and professional fees.
Our realized loss during this
period is $0.09 million, and our unrealized loss during this period is $0.26 million. The numbers are results of our continuous portfolio
management.
During the 3 months period
ended September 30, 2020, we recorded an increase in net equity of $0.07 million, mostly from our operational expenses offset by unrealized
gains.
Nine months Ended September
30, 2021
During the nine-month period
ended September 30, 2021, our portfolio investment increased by $0.3 million, which were mostly from: 1) the acquisition of our first
Airbnb-based SHOC property, for a consideration of approximately $750,000, in the second quarter; 2) the acquisition of a historic landmark
building, the Rufus Rose House, for a consideration of approximately $1.65 million, in the third quarter; and 3) the liquidation of two
residential properties.
Our cash and cash equivalent
decreased by $0.6 million, which reflected mostly 1) the change of our portfolio investment, and 2) our operational expenses, which were
$0.5 million during this period, consisting principally of management fees paid to our general partner, and professional fees.
Our realized gain during this
period is $0.04 million, and our unrealized loss during this period is $0.36 million. The numbers are results of our continuous portfolio
management.
During the 9 months period
ended June 30, 2020, we recorded a decrease in net equity of $0.8 million, mostly from our operational expenses and continuous portfolio
management.
Trend information
The following discussion covers
some significant trends or uncertainties affecting our business during the reporting period, in our industry, or to the macro economy,
which had impacts on our continuing operations, particularly on our portfolio investments.
Impact of COVID-19 on national
and local real estate markets
COVID-19 pandemic has had
a huge impact on real estate markets. We have closely followed its impacts. We published a “White Paper” on February 23, 2021,
to outline our major observations, analyses, and conclusions. In the White Paper the management concluded that the unusual price hike
of residential property in 2020 and 2021 was an unexpected consequence of the pandemic, and therefore not sustainable, and probably will
peak in the second half of 2021. The White Paper also concluded that fast rising construction costs, which is also a consequence of COVID-19
pandemic, made it undesirable to invest into residential homes that need redevelopments.
For a detailed discussion
on the impact of COVID pandemic on real estate market, please refer to a whitepaper published by us: https://www.ucasset.com/WhitePapers/2021%20Management%20White%20Paper.pdf
Application of blockchain
technology (NFT) in real estate industry
In the beginning of the third
quarter of 2021, ALS acquired historical Rufus Rose House in downtown Atlanta through a standard property purchase deal. It will partner
with block-chain technology companies to issue Non-fungible Tokens (“NFT”) based on certain derivative property rights (For
example, the right to use the image of the property for business purpose). According to the projection provided by the third party, ALS
may collect $1 million to $5 million from sales of those NFTs. This projection is of a broad range and highly speculative. The actual
result may vary significantly from the projection. As of and by the end of this reporting period, the management has no reasonable ground
to determine whether and/or when any of the projected sales will be realized. It is worthy to notice that ALS acquired Rufus Rose House
on the basis of its commercial value as an office building, and any sales from NFTs representing the properties’ intangible and
historic value will provide extra return on this investment. To sum up, NFT licensing fee is potentially an extra source of return that
may have significant positive impact on our operation results, but it is of high uncertainties and not reliable at this moment.
Expansion of our portfolio
into cannabis properties
On September 29, 2021, the
Company announced that we will expand our portfolio into cannabis properties. As of and by September 30, 2021, we have not disclosed any
specific plan regarding cannabis property investments. On November 15, 2021, we announced that we will follow similar investment strategies
implemented by other public companies, such as Power REIT (NYSE: PW). It was also announced that we had developed a pipeline of possible
investment opportunities.
Pending receipt of 100
million restricted shares of PURA Inc (OTC: PURA)
On November 04, 2021, the
Company reached a debt settlement agreement with PURA Inc, which owed $1.2 million to the Company in form of a convertible note, which
matured at October 30, 2021 and was defaulted by PURA. Under the debt settlement agreement PURA would pay back the principal of $1.2 million
in five payments spreading over 12 months, or have a third party acquired the principal for $1.2 million in five payments spreading over
12 months, and would issue the company 100 million restricted shares within 15 business days. By and as of the day of filing this report,
the Company has not received the 100 million restricted shares, although the process has started.
Once received, the Company
shall be able to book these shares valued at their current market price, which, based on PURA’s share price so far November, may
range between $1.3 million to $1.7 million. This will increase the net equity of the Company by the same amount. However, given the volatility
of OTC stocks, the Company will reserve a provisional loss on these shares, which will be decided on basis of PURA’s trading history
with consideration to the uncertainty in the next 12 months. Due to the provisional loss, the increase of the Company’s net equity
will be significantly less than the projected $1.3 million to $1.7 million.
Critical accounting
estimates
Since our inception, we have
adopted fair market accounting under ASC (Accounting Standards Codification) 946-10-15. The fair market value of our portfolio properties
is assessed and reassessed each and every year by the end of fiscal year, using one of the following methods: 1) independent appraisals
conducted by licensed and independent third parties; 2) executed contracts which provides definitive amount of selling a property, discounted
to current value; or 3) cost-based valuation when there are no obviously reasonably methods to follow.
At this moment, a major portion
of our portfolio properties are appraised annually, using data collected by and as of the end of calendar year. Since property market
may be volatile during the year, the appraised valuation may not reflect the real value of these properties. In the future, we may appraise
our portfolio properties on semi-annual bases, so that our financial statements will better represent the reality of our operation.
For the year of 2021, the
year-end appraisal may result in a substantial increase of book value of the Rufus Rose House, since management believes that we acquired
the property at a price substantially under its fair market value.
Liquidity and Capital Resources
Cash Flows
As an investor, we do not
manage the operation of any of our portfolio property, except for some insignificant and non-material operative activities. We intend
to form partnerships with third party operators/managers, under which the third party will acquire the right to operate/manage our property
by paying rent, forming a profit-sharing partnership, or by other arrangements which may be innovative. We usually require the third-party
bear all operating cost, except for a few insignificant expenditures such as property owner insurance.
Under such a business model,
we don’t usually have significant amount of cash commitments from our daily operation, except for 1) management fees and professional
fees, which are usually stable and predictable period-to-period; and 2) due amount of our debt financing. Besides these cash commitments,
our demand for cash comes primarily from our desire to expand our portfolio by making new investments, for which the amount and schedule
are highly controllable by the management, and will unlikely constitute any mandatory cash commitments.
The following table shows a summary of cash flows
for the periods set forth below:
|
|
|
Nine months Ended
September 30,
2021
|
|
|
Nine months Ended
September 30,
2020
|
|
|
Net cash used in operating activities
|
|
$
|
(348,853
|
)
|
|
$
|
(667,642
|
)
|
|
Net cash (used in) provided by investing activities
|
|
$
|
(644,745
|
)
|
|
$
|
807,886
|
|
|
Net cash provided by financing activities
|
|
$
|
400,000
|
|
|
$
|
532,000
|
|
|
Cash at beginning of period
|
|
$
|
1,419,710
|
|
|
$
|
153,687
|
|
|
Cash at end of period
|
|
$
|
826,112
|
|
|
$
|
825,931
|
|
Net Cash (Used in) Provided
in Operating Activities
For the nine months ended
September 30, 2020, our net cash used in operating activities are primarily the result of 1) management fees; 2) professional fees; 3)
$346,000 of lost in selling two properties under their book values; and 4) other miscellaneous spending.
For the nine months ended
September 30, 2021, our net cash used in operating activities are primarily the result of 1) management fees; 2) professional fees; and
3) other miscellaneous spending.
Net Cash (Used in) Provided
by Investing Activities
For the nine months ended
September 30, 2020, net cash provided by investing activities was primarily the result of approximately $1,807,000 we received selling
four residential properties, minus: approximately $545,000 invested on improvement of properties, and $400,000 investment in debt.
For the nine months ended
September 30, 2021, net cash provided by investing activities was primarily the result of approximately $1,910,000 received from selling
two residential properties, minus: $750,000 invested in acquiring one commercial property, $1,650,000 invested in acquiring a historic
landmark commercial property, and approximately $168,000 into the preservation of a landmark property and improvement on other properties.
Net Cash Provided by Financing
Activities
For the nine months ended
September 30, 2020, net cash provided by financing activities was primarily the result of increase in a construction loan utilized by
Atlanta Landsight of $232,000, plus net proceeds of $300,000 in contribution by a limited partner through issuance of Series-A Preferred
Units.
For the nine months ended
September 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 three months ended September 30, 2020 and 2021 were $45,287 and $44,613, respectively.
Management fees for the nine months ended September 30, 2020 and 2021 were $135,861 and $133,838, respectively.
We lease space from an unaffiliated
third party at 2299 Perimeter Park Drive, Suite 120 in Atlanta, GA. Rent is paid monthly and the amount paid is as follows: $2,158 from
November 2, 2020 through November 1, 2021, and $2,374 on a monthly basis since November 2, 2021. Pursuant to the terms of the lease, we
have provided a deposit of $2,189 to the landlord.
We have an outstanding debt
of $400,000 and are paying monthly interest on an annual rate of 4.25%. The debt matures in the third quarter of 2022.
On September 29, 2021, the
Company announced that it may distribute a dividend of $0.10 per common unit for the year of 2021. If delivered, the total amount of dividend
will be approximately $548,500 based on the number of outstanding shares. The dividend will be distributed in the first or second quarter
of 2022, after the companies 2021 financials are audited.
Capital Resources
Since our inception, we have
funded our operations primarily through the sale of limited partner interests in private placements. Prior to our public offering, there
were 42 limited partners in the Partnership, who invested a total amount of $6.9 million. Our Initial Public Offering pursuant to the
requirements of Regulation A plus was closed on October 12, 2018. The gross amount of capital raised in the offering was $1.45 million.
We had a total of 80 limited partners after the IPO. On March 02, 2020, we closed a private placement from an accredited investor, pursuant
to which the Company raised a total of $300,000. Altogether, we have raised a total amount of $8.65 million from selling our equity interest.
The Company may raise more
capital through private or public offering of its partnership interests. There are no guarantees, however, that the Company will be able
to do so.
Debt financing
As of and by September 30,
2021, our outstanding debt includes a loan facility of $400,000 from a local bank, utilized by our subsidiary SHOC LLC. It matures in
the third quarter of 2022 and carries an annual interest of 4.25%.
Off Balance-sheet Arrangements
The Company doesn’t
have any off balance-sheet arrangements.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 under the Exchange Act, our management evaluated
the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2021.
Our management, with the participation of our (principal executive
officer, and our principal accounting officer), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the
end of the period covered by this report.
Based on this evaluation, our management has concluded that, as of
the end of such period, our disclosure controls and procedures were not effective to ensure that information that is required to be disclosed
by us in the reports we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods
specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our president (our principal
executive officer, our principal accounting officer and our principal financial officer), to allow timely decisions regarding required
disclosure. The reason or these deficiencies are as follows:
|
|
1)
|
We have an inadequate number of personnel.
|
|
|
|
|
|
|
2)
|
We do not have sufficient segregation of duties within our accounting functions.
|
|
|
|
|
|
|
3)
|
We have insufficient written policies and procedure over our disclosures.
|
Evaluation of Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate
internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over
financial reporting is a process designed by, or under the supervision of, our principal executive officer and our principal accounting
officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of our Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP, and that receipts and expenditures of our company are being made only in accordance with authorizations
of management and directors of our Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of our Company’s assets that could have a material effect on the financial statements. Because
of its inherent limitations, internal control over financial reporting may not provide absolute assurance that a misstatement of our financial
statements would be prevented or detected.
Further, the evaluation of the effectiveness of internal control over
financial reporting was made as of a specific date, and continued effectiveness in future periods is subject to the risks that controls
may become inadequate, because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has conducted, with the participation of our principal executive
officer and our principal accounting officer, an evaluation of the effectiveness of our internal control over financial reporting as of
September 30, 2021 in accordance with the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”)
in Internal Control — Integrated Framework. Based on this assessment, management concluded that as of September 30, 2021, our Company’s
internal control over financial reporting was not effective based on present Company activity. Our Company is in the process of adopting
specific internal control mechanisms. Future controls, among other things, will include more checks and balances and communication strategies
between the management and the board to ensure efficient and effective oversight over Company activities as well as more stringent accounting
policies to track and update our financial reporting.
Changes in Internal Controls over Financial Reporting
As of the end of the period covered by this report, there have been
no changes in the internal controls over financial reporting during the quarter ended September 30, 2021, that materially affected, or
are reasonably likely to materially affect, our internal control over financial reporting subsequent to the date of management’s
last evaluation.
Coronavirus Impact (COVID-19)
Due to the recent outbreak of the coronavirus reported in many countries
worldwide, local and federal governments have issued travel advisories, canceled large scale public events and closed schools. In addition,
some companies have canceled conferences and travel plans and are requiring employees to work from home. Global financial markets have
also experienced extreme volatility and disruptions to capital and credit markets.
We are unable to predict the impact of the coronavirus on our operations
at this time. Adverse events such as health-related concerns about working in our offices, the inability to travel, potential impact on
our business partners and customers, and other matters affecting the general work and business environment could harm our business and
interfere with the pursuit of our business plan. The adverse events may also adversely impact our ability to raise capital or to continue
as a going concern. We continue to monitor the outbreak of the coronavirus on our operations. The global economic slowdown and the
other risks and uncertainties associated with the pandemic could have a material adverse effect on our business, financial condition,
results of operations and growth prospects. In addition, to the extent the ongoing COVID-19 pandemic adversely affects the Company’s business
and results of operations, it may also have the effect of heightening many of the other risks and uncertainties which the Company faces.