UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
1-SA
SEMIANNUAL
REPORT PURSUANT TO REGULATION A
For the
fiscal semiannual period ended:
June
30, 2023
UC Asset,
LP
(Exact
name of issuer as specified in its charter)
| Delaware |
|
30-0912782 |
State of other jurisdiction of
incorporation or organization |
|
(I.R.S. Employer
Identification No.) |
537
Peachtree Street NE, Atlanta GA 30308
(Full mailing
address of principal executive offices)
(470)
475-1035
(Issuer’s
telephone number, including area code)
INFORMATION
TO BE INCLUDED IN REPORT
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
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 (“Risk Factors”) no matter
whether these Risk Factors are described in this document or not. 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.
Item 1. Management’s
Discussion and Analysis of Financial Condition and Results of Operations
Overview
The business purpose of our
Partnership is to invest in real estate for capital appreciation.
Our
business model is to invest in properties that are undervalued or have considerable potential to appreciate in the near future. This often
involves introduction of innovative investment models, under which the value of concerned properties may reach its maximum potential.
It also requires visionary thinking, to invest in properties before the market situation may experience dramatic change due to the emergence
of new technologies, new economic factors, and/or new regulations.
On March 31, 2022, the Company
announced that investing in real estate associated with cannabis cultivation will be our major business focus.
As far as we know, as of the
date of this report, our Company is one of only four SEC (“Security and Exchange Commission”)-reporting public companies investing
in real estate for cannabis cultivation. The other three are Innovative Industrial Properties, Inc (NYSE: IIPR), Power REIT (NYSE/American:
PW), and NewLake Capital Partners, Inc (OTCQX: NCLP).
Cannabis Property Investment
in the State of Oklahoma
On May 01, 2023, we invested
in a $3.2 million medical cannabis cultivation property located in Edmond, Oklahoma (the “Edmond Property”). Edmond is a city
in the Oklahoma City metropolitan area. We acquired a 50% equity ownership in this property by acquiring a 50% ownership interest of AZO
Properties LLC(“AZO”), a State of Oklahoma limited liability company, which holds the title of the property lien-free. As
of and by June 30, 2023, AZO has no other business operations other than owning and managing the Edmond Property.
Our 50% ownership in AZO is
non-managerial. As the non-managerial member, we are entitled to receive a preferred distribution at a “base” amount of $12,000
per month, before the managing member will have the right to receive distribution or other compensation. The preferred distribution is
cumulative, in the sense that any unpaid dividend will be accumulated as debt by AZO to us, which will bear a market-rate interest. After
paying off the preferred distribution, AZO may pay a dividend to the managing member for a maximum amount which equals the amount of preferred
distribution (the “catch-up distribution”). The catch-up distribution payable to the managing member is non-cumulative, in
the sense that any unpaid catch-up distribution for a month shall be irrevocably waived and cancelled by the end of that month.
We expect to receive the aforesaid
preferred distribution starting from August 2023.
Under the terms of the operating
agreement, the “base” amount of the preferred distribution will increase by a 5% compound rate, every 24 months after the
first 36 months. In other words, “base” amount of preferred distribution will become $12,600 per month starting from August
2026, and will become $13,230 per month starting from August 2028, and so on.
AZO may pay extra distributions
to us and the managing member, if it has net cash available in any given month after paying the preferred distribution and catch-up distribution.
Extra distributions shall be allocated evenly (50/50) between us and the managing member.
We paid $1 million cash and issued 500,000 shares
of Series B Preferred Units of UC Asset (“Series B”), in exchange for our 50% ownership of AZO. A significant part of the
$1 million paid will be used to expand the Edmond Property by adding approximately 50% of cultivation space. The 500,000 Series B shares
are issued at the face value of $1.20 per share. Holders of our Series B are not entitled to receive any dividend from UC Asset, and they
have no voting power on the business matter of UC Asset.
Each Series B share may be converted into one common
unit of UC Asset. However, Series B is only eligible for conversion, when UC Asset will receive a permanent increase of preferred distribution
above the “base” amount. The number of Series B shares eligible for conversion is linked to the amount of permanent increase
of the preferred distribution. This conversion mechanism is designed to motivate the managing member to improve the performance of AZO.
The underlying principle is that managing member can only convert his Series B shares into common shares when AZO outperforms and distributes
more than the “base” amount of preferred distribution.
Other
Real Estate Investment
Historically,
the Company invested in residential properties, “short rental” properties and farmlands. The Company has exited most investments
in these properties. We continued this process in the first half of the year 2023 by selling one more property, which is a piece of farmland
located in Dallas, TX, for a consideration of $1,900,000.
As
of the date of this report, the Company holds one historic landmark building, one residential property, and one commercial lot through
its wholly owned subsidiaries, Atlanta Landsight LLC (“ALS”) and SHOC Holdings LLC (“SHOC”).
The
Company also holds a convertible note in the principle amount of approximate $430,000. The debtor on the note is another real estate investment
company, Vaycaychella Inc. (OTC: VAYK), whose business is to facilitate financing for the purchase and renovation of real estate properties
in order to generate revenue from short-term vacation rentals. This note will mature in January, 2024.
Other
investment
The
Company may from time to time invest less than 10% of its net assets in debt instruments. Currently, the Company holds $200,000 debt against
Curative Technology Inc (OTC: CURA). As of June 30, 2023, Curative has defaulted on the loan for a period of 5 months. The management
of Curative, including its CEO, CFO and a board member has provided personal guarantees for the collection of the monthly payment on this
note.
Material Changes in Financial Statements
Change of Revenue
| Six Months Period Ended June 30 | |
2023 | | |
2022 | |
| INCOME | |
| | |
| |
| Sales of portfolio properties | |
$ | 1,813,600 | | |
| - | |
| Unrealized gain(loss) on marketable securities | |
| - | | |
$ | (490,000 | ) |
| Gain on Debt Settlement | |
$ | 40,372 | | |
| - | |
| Rental income | |
| - | | |
$ | 7,500 | |
| Interest income | |
$ | 33,154 | | |
$ | 64,800 | |
| Total income | |
$ | 1,887,126 | | |
$ | (417,700 | ) |
Our sales surged from negative
$417,000 for the six months ended June 30,2022 to $1,813,600 for the six months ended June 30, 2023, mostly because we sold a property
for a net proceed of $1.813 million, whereas we sold no properties for the six months ended June 30, 2022.
Since our business goal is
to invest for capital appreciation, we only sell a property when we believe that it has reached its potential of value appreciation, which
is highly dependent on the overall market situation which is beyond our control and may not follow any patterns. Our sales revenue, therefore,
is highly volatile year over year.
Another major factor contributing
to our revenue change in the six months ended June 30, 2023 over the same period of 2022 is that we took an unrealized loss on certain
marketable securities we held in our portfolio in the six months ended June 30, 2022. These securities were settled against a debt note
issued by us. The settlement resulted in a gain of $40,372 for us.
Our interest income decreased
from the six months ended June 30,2022 to the six months ended June 30, 2023, mostly because of the decrease of debt investments we held
against other parties.
Change of operating expenses
| Six Months Period Ended June 30 | |
2023 | | |
2022 | |
| Management Fees | |
$ | 49,900 | | |
$ | 90,000 | |
| Professional fees | |
$ | 71,218 | | |
$ | 100,134 | |
| Other General and Administrative | |
$ | 53,801 | | |
$ | 179,876 | |
| Interest Expense | |
$ | 2,185 | | |
$ | 8,973 | |
| Loss on disposal of asset | |
$ | - | | |
$ | 39,100 | |
| Depreciation | |
$ | 17,114 | | |
| 8,439 | |
| Total Operating Expenses | |
$ | 194,218 | | |
$ | 426,522 | |
In the third quarter of 2022,
after we postponed our plan for a Secondary Public Offering(“SPO”), our management vowed that we would focus on, among other
goals, cutting our operating expenses. Our performance in the first half of 2023 shows that the management team has successfully reduced
our operating costs.
Our operating expenses decreased
significantly across the board (except for depreciation), for the six months ended June 30, 2023, compared to the same period in 2022.
As a result, total operating expenses decreased approximately 55% year over year for the reporting period.
In particular, 1) management
fees decreased by more than 44%, due to a change of the method used to calculate management fees, which was proposed by the management
team with the intention of reducing management fees; 2) Professional fees decreased by approximately 29%, mostly due to termination of
the plan for a Secondary Public Offering; 3) other general and administrative cost decreased by more than 70%, mostly due to decrease
of marketing and advertisement costs, travel costs, and a reduction in property taxes; 4) interest expenses decreased by more than 75%,
mostly because we paid off all of our outstanding debt and became debt free in the first quarter of 2023; and 5) loss on disposal of asset
decreased from $39,100 to $0.
Changes of Gross Margin
and Net Income
For the first half of fiscal
year of 2022 and 2023, our gross operating profit was negative $417,700 and a positive $537,126 respectively. For the same period, our
net income was negative $844,222 and positive $342,908 respectively. Net income is negative $0.15 per share and positive $0.06 per share
respectively. We started distributing the dividend of $0.10/share for fiscal year 2021 in the year 2022, and we distributed $90,206 during
the first half of the year in fiscal 2022.
| Six Month Period ended June 30 | |
Gross Profit | | |
Net Income | | |
Net Income /
Common
Unit | |
| 2022 | |
$ | (417,700 | ) | |
$ | (842,222 | ) | |
$ | (0.15 | ) |
| 2023 | |
$ | 537,126 | | |
$ | 342,908 | | |
$ | 0.06 | |
The changes in gross margin
and net income are mostly the result of changes in our gross revenue and operating expenses.
Changes in Assets
Total assets increased to
approximately $7.54 million as of June 30, 2023 from approximately $5.60 million as of June 30, 2022, mostly due to the acquisition of
a $3.2 million cannabis property in the State of Oklahoma as discussed more specifically above. This acquisition also led to the increase
of our minority interest in consolidated subsidiaries, to $1.6 million as of June 30, 2023, from $0 as of June 30, 2022. It also resulted
in the increase of partners’ capital in series B preferred units, to $0.6 million as of June 30, 2023, from $0 as of June 30, 2022.
Net equity allocated to common
unit shareholders increased to approximately $5.33 million as of June 30, 2023, from approximately $4.99 million as of June 30, 2022,
due to the net income allocated to common unit shareholders.
Other Material Changes
in Financial Statements
Our loans to related parties
was paid off and decreased from $10,544 to $0. Our investment to related parties increased from $0 to $120,000, because the Company bought
a 10% equity ownership in our general partnership.
Liquidity and Capital Resources
Cash Flows
As an investor, we do not
manage the daily operation of any of our portfolio properties, except for some insignificant and non-material operating activities. We
intend to form partnerships with third party operators/managers to conduct daily operations. We usually require the third-party to bear
all operating costs, except for capital spending which will increase the value of our properties.
Meanwhile we apply a disciplined
investment strategy, under which we will usually make new investments only when we have cash available.
Under such a business model,
we don’t usually have a significant amount of cash commitments, except for 1) management fees and professional fees, which are usually
stable and predictable period-to-period; and 2) amounts due because of our debt financing.
The following table shows a summary of our cash
flows for the periods set forth below.
| | |
6 Months Ended
June 30,
2023 | | |
6 Months Ended
June 30,
2022 | |
| Net cash provided by (used in) operating activities | |
$ | 848,863 | | |
$ | (352,357 | ) |
| Net cash provided by (used in) investing activities | |
$ | 131,405 | | |
$ | (516,683 | ) |
| Net cash provided by (used in) financing activities | |
$ | (400,000 | ) | |
$ | - | |
| Cash at beginning of period | |
$ | 168,955 | | |
$ | 1,256,371 | |
| Cash at end of period | |
$ | 749,223 | | |
$ | 387,331 | |
Net Cash (Used in) Provided
in Operating Activities
Our net cash from operating
activities increased to approximately $849,000 in the first half of 2023, from negative $352,000 in the first half of 2022. This is mostly
the result of i) increase of net operative income to approximately $343,000 in the first half of 2023, from approximately $844,000 negative
in the first half of 2022; ii) decrease of cash inflow from unrealized loss to $0 in the first half of 2023, from $490,000 in the first
half of 2022, and iii) increase of cash inflow from insurance claims receivable of $560,000 in the first half of 2023, from $0 in the
first half of 2022.
Net Cash (Used in) Provided
by Investing Activities
Our net cash provided by investing
activities is primarily the result of cash received from divesting our existing portfolio assets (including properties and loans), reduced
by cash used for investing in new portfolio assets.
For the six months ended June
30, 2023, the most significant sources of our net cash provided by investing activities are: i) the sale of farmland in Texas for
net proceeds of approximately $1,814,000; ii) we invested approximately $1.56 million of cash in portfolio properties, including our first
cannabis property in the State of Oklahoma; and iii) we invested $120,000 in a 10% equity ownership in our general partner.
For the six months ended June
30, 2022, we did not divest any properties. We invested $235,477 into the improvement of portfolio assets, $200,000 in a short term loan,
and we paid a dividend of approximately $90,000, which resulted in a net negative cashflow of approximately $517,000.
Net Cash Provided by Financing
Activities
For the six months ended June
30, 2023, net cash provided by financing activities was primarily the result of paying off a construction loan of $400,000.
For the six months ended June
30, 2022, net cash provided by financing activities was primarily the result of repayment of a related party loan, and the redemption
of 166,667 Series A preferred shares. The two transactions offset each other, resulting in a net cashflow of zero.
Commitments and Contingencies
We pay quarterly management
fees to our general partner, UCF Asset LLC. Management fees are calculated at 2.0% of assets under management (AUM) as of the last day
of our preceding fiscal year. Before the year of 2023, the value of AUM was determined using fair market value (FMV) accounting, according
to the bylaw (limited partnership agreement) of the Company. At the annual shareholder meeting of 2023, the General Partner proposed an
amendment of the bylaw, in order to switch to the historical cost method in determining AUM.
The aforementioned switch
remarkably reduces the amount of management fees. As a result, management fees for the fiscal year of 2023 will decrease to approximately
$99,784, from the amount of $188,316 charged for the fiscal year of 2022.
We used to lease space from
an unaffiliated third party at 2299 Perimeter Park Drive, Suite 120 in Atlanta, GA. We have terminated that lease and will no longer pay
any rent after April 2022.
We repaid a construction loan
of $400,000 in February 2023, and have become debt free since then.
In the year 2022, the Company
distributed a dividend of $0.10 per common unit for the year 2021. The total amount of the dividend was approximately $548,500, based
on the number of common units currently outstanding. As of and by June 30, 2023, there were still a number of shareholders who didn’t
cash our dividend checks. The total amount of dividend checks that had not been cashed was approximately $4,000, which the Company should
be prepared to pay when requested by eligible shareholders.
Capital Resources
Since our inception, we have
funded our operations primarily through the sale of limited partner interests sold in private placements. Our Initial Public Offering
pursuant to Regulation A plus was closed on October 12, 2018. The net proceeds of capital raised in the offering was $1.15 million. On
March 02, 2020, we closed a private placement from an accredited investor, pursuant to which the Company raised a total of $300,000, which
was redeemed in June 2022.
The Company may raise more
capital through private or public offering of its partnership units. There are no guarantees, however, that the Company will be able to
do so or that it will be able to do so on terms that are acceptable to the Company.
Debt financing
As of and by June 30, 2023,
the company has utilized no debt financing, and is debt free.
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.
US stock market and concerns
of recession on US economy
There has been an ongoing
concern of a possible recession on US economy in the past three years. The US stock market experienced some downward adjustment in the
year 2022, which had a negative impact on the marketable securities we held, resulting in a $750,000 unrealized loss. As and by the end
of December 30, 2022, we still hold marketable securities of a value of $100,000.We were able to redeem that holding for a total amount
of $214,356.62 (which is $208,120.51 of principal plus $6336.11 of interest) on March 28, 2023, and thereby greatly reduced the risk of
market volatility which we may be subjected to.
Unit Pricing for Regulated
Cannabis Products
In the year of 2022 till the
first few months of 2023, many states continue to experience declines in unit pricing for regulated cannabis products, with that decline
more pronounced in some states more than in others, which compresses operating margins for operators. However, we have observed a stabilization
and possibly a moderate increase of unit pricing in the last months of the first half of 2023. This may have a positive impact on our
portfolio in cannabis properties.
Critical accounting estimates
Since our inception, we have
adopted fair market accounting under ASC (Accounting Standards Codification) 946-10-15.
On March 22, 2022, the management
of UC Asset LP (the “Company”) was notified by the US Security and Exchange Commission (the “SEC”), that the SEC
objected to the Company’s conclusion that UC Asset LP and its subsidiaries met the criteria to apply Investment Company accounting
under ASC 946 for certain historical periods. In light of the conclusion of the Staff of the SEC, on March 25, 2022, management filed
an 8-K stating that investors should no longer rely on the financial statements set forth in certain enumerated prior filings. As a result
of the staffs’ position the Company has changed to historical cost accounting for our financial statements, starting with our filing
on Form 1-K for the fiscal year of 2021.
Item
2. Other Information
Addition of a manager
On April 2023, Mr. Greg Bankston resigned his position
as a managing member of UCF Asset LLC; however, he remains a member of UCF Asset LLC. On April 25, 2023, Mr. Jason Armstrong was hired
as manager of UCF Asset LLC. Mr. Bankston and Dr. Wu will pay for Mr. Armstrong’s services as manager out of management fees to
be received.
Jason Armstrong had worked as a contracted project
director for UC Asset since the year 2021. He is the founder and manager of EES Contracting, which he started in 2004 as a site development
company, and expanded into a licensed new construction and high-end remodeling business in the year 2008. Mr. Armstrong also worked as
a project management consultant to multiple real estate investment groups between 2012 and 2018, assisting in creating budgets, schedules,
and handling accounting on construction projects both in the metro Atlanta area and across the country.
In combination with the change of management team,
the Company purchased 10% of UCF Asset LLC’s member ownership from Mr. Bankston, for the consideration of $120,000. Mr. Bankston
bought the 10% ownership for $50,000 in the year 2017. After the purchase, the Company will no longer pay the management fee on that 10%
ownership, which, based on the projected management fee amount of the year 2022 ($99,783), will reduce the management fee by $9,978 per
year.
Issuance of 500,000 series B preferred units
In connection with the acquisition of our fifty
percent ownership in an Oklahoma City cannabis property, we issued 500,000 shares of our series B preferred units (“Series B”)
to the seller as part of the purchase price. Each Series B share carries a face value of $1.20, and therefore the Series B shares issued
to the seller have a total face value of $600,000. Each share of Series B may be converted into one share of common units, subject to
certain terms and conditions. The certificate of series B preferred units, which contains the terms and conditions of conversion among
other matters, is filed along with this Form 1-SA as Exhibit 3.4 to this report.
Regulatory action against the Company by the
State of Washington
On February 27, 2023, the Department of Financial
Institutions (“DFI”), State of Washington issued a Statement of Charges and Notice of Intent to Enter Order of Cease and Desist,
to Impose Fines and to Charge Costs (the “Statement of Charges”) against the Company and Mr. Xianghong Wu. In the Statement
of Charges, DFI stated that, during our Initial Public Offering (“IPO) , which was conducted under Regulation A plus (“Reg
A+”) and was qualified at the federal government level by the Security and Exchange Commission (“SEC”) , and which occurred
in the year 2018, our Company failed to register the IPO with the State of Washington and made one sale in the State of Washington, and
hence violated the statue RCW.21.20.140 of the State of Washington.
We requested a hearing on this matter and intend
to defend this action vigorously.
Item
3. Financial Statements
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UC ASSET, LP
Condensed Consolidated Balance Sheets
| | |
June 30,
2023 | | |
December 31,
2022 | |
| ASSETS | |
| | |
| |
| CURRENT ASSETS | |
| | |
| |
| Cash and cash equivalents | |
$ | 749,223 | | |
$ | 168,955 | |
| Insurance claim receivable | |
| - | | |
| 560,000 | |
| Marketable equity securities held for sale | |
| - | | |
| 100,000 | |
| Investment in related party, at cost | |
| 120,000 | | |
| - | |
| Real estate held for sale | |
| 339,186 | | |
| 1,645,465 | |
| Loans to third parties | |
| 755,966 | | |
| 779,148 | |
| Loans to related parties | |
| - | | |
| 10,544 | |
| Prepaid expenses and other assets | |
| 35,502 | | |
| 22,148 | |
| Total current assets | |
| 1,999,877 | | |
| 3,286,260 | |
| | |
| | | |
| | |
| PROPERTY AND EQUIPMENT | |
| | | |
| | |
| Property and equipment, net | |
| 2,661,974 | | |
| 833 | |
| Real estate held for rental, net of accumulated depreciation | |
| 872,792 | | |
| 472,711 | |
| Total property and equipment | |
| 3,534,766 | | |
| 473,544 | |
| | |
| | | |
| | |
| LONG-TERM ASSETS | |
| | | |
| | |
| Real estate held for renovation/remodel | |
| 2,005,568 | | |
| 1,838,719 | |
| Total long-term assets | |
| 2,005,568 | | |
| 1,838,719 | |
| | |
| | | |
| | |
| Total Assets | |
$ | 7,540,211 | | |
$ | 5,598,523 | |
| | |
| | | |
| | |
| LIABILITIES AND PARTNERS’ CAPITAL | |
| | | |
| | |
| Accounts payable and accrued expenses | |
$ | 8,013 | | |
$ | 1,213 | |
| Short-term note payable | |
| - | | |
| 208,119 | |
| Mortgage loan | |
| - | | |
| 400,000 | |
| | |
| | | |
| | |
| Total Liabilities | |
| 8,013 | | |
| 609,332 | |
| | |
| | | |
| | |
| Partners’ Capital: | |
| | | |
| | |
| Minority interest in consolidated subsidiary | |
| 1,600,000 | | |
| - | |
| Series B preferred units, 500,000 and 0 issued and outstanding | |
| 600,000 | | |
| - | |
| Common units 5,485,025 and 5,485,025 issued and outstanding | |
| 5,332,198 | | |
| 4,989,191 | |
| | |
| | | |
| | |
| Total Partner’s Capital | |
| 7,532,198 | | |
| 4,989,191 | |
| | |
| | | |
| | |
| Total Liabilities and Partners’ Capital | |
$ | 7,540,211 | | |
$ | 5,598,523 | |
The accompanying notes are an integral part of the consolidated financial statements
UC ASSET, LP
Condensed Consolidated Statements of Operations
Six months ended June 30,
(unaudited)
| | |
2023 | | |
2022 | |
| INCOME | |
| | |
| |
| Sales of real estate | |
$ | 1,813,600 | | |
$ | - | |
| Unrealized loss on marketable equity securities | |
| - | | |
| (490,000 | ) |
| Gain on debt settlement | |
| 40,372 | | |
| - | |
| Rental income | |
| - | | |
| 7,500 | |
| Interest income | |
| 33,154 | | |
| 64,800 | |
| | |
| | | |
| | |
| Total income | |
| 1,887,126 | | |
| (417,700 | ) |
| | |
| | | |
| | |
| COST OF SALES | |
| | | |
| | |
| Cost of sales | |
| 1,350,000 | | |
| - | |
| | |
| | | |
| | |
| Total cost of sales | |
| 1,350,000 | | |
| - | |
| | |
| | | |
| | |
| Gross Margin | |
| 537,126 | | |
| (417,700 | ) |
| | |
| | | |
| | |
| OPERATING EXPENSES | |
| | | |
| | |
| Management fees | |
| 49,900 | | |
| 90,000 | |
| Professional fees | |
| 71,218 | | |
| 100,134 | |
| Other general and administrative | |
| 53,801 | | |
| 179,876 | |
| Interest expense | |
| 2,185 | | |
| 8,973 | |
| Loss on disposal of asset | |
| - | | |
| 39,100 | |
| Depreciation | |
| 17,114 | | |
| 8,439 | |
| | |
| | | |
| | |
| Total operating expenses | |
| 194,218 | | |
| 426,522 | |
| | |
| | | |
| | |
| Net increase (decrease) in net assets from operations | |
$ | 342,908 | | |
$ | (844,222 | ) |
| | |
| | | |
| | |
| Net increase in net assets per unit | |
$ | 0.06 | | |
$ | (0.15 | ) |
| Weighted average units outstanding | |
| 5,485,025 | | |
| 5,485,025 | |
The accompanying notes are an integral part of the consolidated financial statements
UC ASSET, LP
Condensed Consolidated Statement of Partners’
Capital
For the six months ended June 30, 2022
(unaudited)
| | |
Limited Partners Common Units | | |
Limited Partners Preferred A Units | | |
Limited Partners Common Units Amount | | |
Limited Partners Preferred A Units Amount | | |
Total Partners’ Equity | |
| | |
| | |
| | |
| | |
| | |
| |
| BALANCE, January
1, 2022 | |
| 5,485,025 | | |
| 166,667 | | |
$ | 6,778,395 | | |
$ | 300,000 | | |
$ | 7,078,395 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Cancellation of Preferred Series A units | |
| - | | |
| (166,667 | ) | |
| - | | |
| (300,000 | ) | |
| (300,000 | ) |
| Dividend distribution | |
| - | | |
| - | | |
| (90,206 | ) | |
| - | | |
| (90,206 | ) |
| Net loss | |
| - | | |
| - | | |
| (844,222 | ) | |
| - | | |
| (844,222 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| BALANCE, June
30, 2022 | |
| 5,485,025 | | |
| - | | |
$ | 5,843,967 | | |
$ | - | | |
$ | 5,843,967 | |
UC ASSET, LP
Condensed Consolidated Statement of Partners’
Capital
For the six months ended June 30, 2023
(unaudited)
| | |
Limited
Partners Common Units | | |
Limited
Partners Preferred B Units | | |
Limited Partners Common Units Amount | | |
Limited Partners Preferred B Units Amount | | |
Minority Investment in Consolidated Subsidiary | | |
Total Partners’ Equity | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| BALANCE, January
1, 2023 | |
| 5,635,306 | | |
| - | | |
$ | 4,989,290 | | |
| - | | |
| | | |
$ | 4,989,290 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Sale of Preferred Series B units | |
| - | | |
| 500,000 | | |
| - | | |
| 600,000 | | |
| 1,600,000 | | |
| 2,200,000 | |
| Net change in net assets from operations | |
| - | | |
| - | | |
| 342,908 | | |
| - | | |
| | | |
| 342,908 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| BALANCE, June
30, 2023 | |
| 5,635,306 | | |
| 500,000 | | |
$ | 5,332,198 | | |
$ | 600,000 | | |
$ | 1,600,000 | | |
$ | 7,532,198 | |
The accompanying notes are an integral part of the consolidated financial statements
UC ASSET, LP
Condensed Consolidated Statements of Cash Flows
Six months ended June 30,
(unaudited)
| | |
2023 | | |
2022 | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | |
| |
| Net increase (decrease) in net assets from operations | |
$ | 342,908 | | |
$ | (844,222 | ) |
| Adjustments to reconcile net decrease in net assets from operations to net cash provided by (used in) operating activities: | |
| | | |
| | |
| Net unrealized loss on marketable equity securities | |
| - | | |
| 490,000 | |
| Loss on asset disposal | |
| - | | |
| 39,100 | |
| Gain on debt settlement | |
| (40,371 | ) | |
| | |
| Amortization of prepaid expense | |
| 9,947 | | |
| 17,126 | |
| Depreciation | |
| 17,114 | | |
| 8,439 | |
| Changes in working capital items | |
| | | |
| | |
| Accrued interest receivable | |
| (12,000 | ) | |
| (62,800 | ) |
| Insurance claim receivable | |
| 560,000 | | |
| - | |
| Prepaid expenses | |
| (28,735 | ) | |
| - | |
| Deposits and other assets | |
| - | | |
| - | |
| | |
| | | |
| | |
| Net cash provided by (used in) operating activities | |
| 848,863 | | |
| (352,357 | ) |
| | |
| | | |
| | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
| Investment in portfolio properties | |
| (1,556,739 | ) | |
| (235,477 | ) |
| Sale of portfolio property | |
| 1,813,600 | | |
| - | |
| Investments in portfolio loans | |
| (16,000 | ) | |
| (200,000 | ) |
| Investment in related party | |
| (120,000 | ) | |
| - | |
| Dividend payment | |
| - | | |
| (90,206 | ) |
| Repayments of portfolio loans, related party | |
| 10,544 | | |
| 9,000 | |
| | |
| | | |
| | |
| Net cash provided by investing activities | |
| 131,405 | | |
| (516,683 | ) |
| | |
| | | |
| | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
| Cash paid to retire mortgage loan on portfolio property | |
| (400,000 | ) | |
| - | |
| | |
| | | |
| | |
| Net cash used by financing activities | |
| (400,000 | ) | |
| - | |
| | |
| | | |
| | |
| Net increase in cash and cash equivalents | |
| 580,268 | | |
| (869,040 | ) |
| | |
| | | |
| | |
| Cash and cash equivalents, beginning of period | |
| 168,955 | | |
| 1,256,371 | |
| | |
| | | |
| | |
| Cash and cash equivalents, end of period | |
$ | 749,223 | | |
$ | 387,331 | |
The accompanying notes are an integral part of the consolidated financial statements
UC ASSET, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information as to the six months ended June 30,
2023 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 consolidated
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 condensed consolidated financial statements contain all adjustments (which are of a normal
recurring nature) necessary for a fair presentation. Operating results for the six months ended June 30, 2023, are not necessarily indicative
of the results that may be expected for the year ending December 31, 2023
(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 AZO Properties LLC. All intercompany balances and transactions have been eliminated.
(c) Use of estimates The preparation of
financial statements in conformity with accounting principles generally accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities, disclose contingent assets and liabilities
at the date of the financial statements and report amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
(d) Fair value measurements ASC 825-10
“Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair
value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new
election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be
reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.
ASC 825 also requires disclosures of the fair
value of financial instruments. The carrying value of the Company’s current financial instruments, which include cash and cash equivalents,
accounts payable and accrued liabilities approximates their fair values because of the
short-term maturities of these instruments.
UC ASSET, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
(d) Fair value measurements, continued
FASB ASC 820 “Fair Value Measurement”
clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants. It also requires disclosure about how fair value is determined for assets and liabilities
and establishes a hierarchy for these assets and liabilities must be grouped, based on significant levels of inputs as follows:
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 determination of where assets and liabilities
fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
(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 historical cost, except for investments in securities held for sale, which are valued on a mark to market basis.
(g) Federal Income taxes As a limited partnership,
the Partnership is not a taxpaying entity for federal or state income tax purposes; accordingly, a provision for income taxes has not
been recorded in the accompanying financial statements. Partnership income or losses are reflected in the partners’ individual or
corporate tax returns in accordance with their ownership percentages.
As defined by Financial Accounting Standards Board
Accounting Standards Codification (ASC) Topic 740, Income Taxes, no provision or liability for materially uncertain tax positions was
deemed necessary by management. Therefore, no provision or liability for uncertain tax positions has been included in these financial
statements. Generally, the Partnerships tax returns remain open for three years for federal income tax examination.
(h) Income Interest income from portfolio investments is recorded
as accrued.
(i) Reclassification Certain prior period items have been reclassified
to conform with the current period presentation.
(j) Recent Accounting Pronouncements Partnership management
does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on
the accompanying financial statements.
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 earned net operating income of approximately $317,808 and cash provision
of $848,863 from operations for the six months ended June 30, 2023. The historical 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, 2023 and December 31, 2022, there were $756,000 and $779,000 in loans,
respectively.
Changes in economic factors, consumer demand and
market conditions, among other things, could materially impact estimates used in the third-party valuations and/or internally prepared
analyses of recent offers or prices on comparable properties. Thus, estimates can differ significantly from the amounts ultimately realized
by the investee segment from disposition of these assets.
The following tables present the fair values of
assets and liabilities measured on a recurring basis:
| At June 30, 2023 | |
| | |
Fair Value Measurement at Reporting Date Using | |
| | |
Fair Value | | |
Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) | | |
Significant Other Observable Inputs
(Level 2) | | |
Significant Unobservable Inputs
(Level 3) | |
| Atlanta Landsight, LLC | |
$ | 5,557,667 | | |
$ | - | | |
$ | - | | |
$ | 5,557,667 | |
| SHOC Holdings LLC | |
| 339,186 | | |
| - | | |
| - | | |
| 339,186 | |
| AZO Properties, LLC | |
| 2,661,974 | | |
| - | | |
| - | | |
| 2,661,974 | |
| Short term loans | |
| 755,966 | | |
| - | | |
| - | | |
| 755,966 | |
| | |
| | | |
| | | |
| | | |
| | |
| Total Assets | |
$ | 6,652,819 | | |
$ | - | | |
$ | - | | |
$ | 6,652,819 | |
UC ASSET, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - FAIR VALUE OF FINANCIAL INSTRUMENTS,
continued
(c) Portfolio Investments,
continued
| At December 31, 2022 | |
| | |
Fair Value Measurement at Reporting Date Using | |
| | |
Fair Value | | |
Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) | | |
Significant Other Observable Inputs
(Level 2) | | |
Significant Unobservable Inputs
(Level 3) | |
| Atlanta Landsight, LLC | |
$ | 4,612,461 | | |
$ | - | | |
$ | - | | |
$ | 4,612,461 | |
| SHOC Holdings LLC | |
| 295,465 | | |
| - | | |
| - | | |
| 295,465 | |
| Short term loans | |
| 779,448 | | |
| - | | |
| - | | |
| 779,448 | |
| | |
| | | |
| | | |
| | | |
| | |
| Total Assets | |
$ | 5,687,374 | | |
$ | - | | |
$ | - | | |
$ | 5,687,374 | |
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.
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.
UC ASSET, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - FAIR VALUE OF FINANCIAL INSTRUMENTS, continued
(c) Portfolio Investments, continued
The following table presents the changes in Level 3 instruments measured
on a recurring basis:
| Six Months Ended June 30, 2023 | |
Portfolio Investments | |
| January 1, 2023 | |
$ | 5,687,374 | |
| Total realized gains or losses: | |
| | |
| Included in earnings | |
| 503,972 | |
| Included in other comprehensive income | |
| - | |
| Purchases, issuance and settlements | |
| 461,473 | |
| Transfers in/out of Level 3 | |
| - | |
| | |
| | |
| June 30, 2023 | |
$ | 6,652,819 | |
| Year Ended December 31, 2022 | |
Portfolio Investments | |
| January 1, 2022 | |
$ | 6,288,790 | |
| Total realized gains or losses: | |
| | |
| Included in earnings | |
| (685,611 | ) |
| Included in other comprehensive income | |
| - | |
| Purchases, issuance and settlements | |
| 83,895 | |
| Transfers in/out of Level 3 | |
| - | |
| | |
| | |
| December 31, 2022 | |
$ | 5,687,074 | |
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 $293,941 and $0 at June 30, 2023 and December 31, 2022.
UC ASSET, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - CAPITAL
The Partnerships capital structure consists of
one General Partner and approximately 81 limited partners. The Partnerships total contributed capital was $5,907,098 and $4,989,191, at
June 30, 2023 and December 31, 2022, respectively. The limited partner common units are 5,485,025 at June 30, 2023 and December 31, 2022.
The limited partner preferred Series B units are 500,000 and 0 at June 30, 2023 and December 31, 2022.
The Series B Preferred Units carry the following rights and privileges:
- carry no automatic dividend rights, the LP can
elect to declare a dividend for the Series B
- carry no voting rights
- preference for dividends and in liquidation over
common units and any other preferred units
- carry no redemption rights
- 12 months post issuance, convertible into common units
on a variable conversion ratio 1.0:1.0 initially (Conversion ratio=Face Value/Conversion Price, or 1=$1.20/$1.20) The LP can opt to designate
a different Conversion Price. The LP may reset a Maximum Conversion Amount
In May 2023, the Partnership exchanged 500,000
Series B Preferred Units, with a face value of $1.20 per unit for 50% ownership of a parcel of land valued at $1.2 million contributed
to its subsidiary AZO Properties LLC .
In May 2023, the LP exchanged the second 50% of
the land acquired by the issuance of the Series B Preferred Units in exchange for 50% ownership of AZO Properties LLC, a previously wholly
owned subsidiary.
b) Allocations of Profits and Losses The
net profit of the Partnership is allocated to the Limited Partners in proportion to each partner’s respective capital contribution
on all liquidated portfolio investments made by the Partnership. Losses are allocated to all partners in proportion to each partner’s
respective capital contribution, provided that, to the extent profits had been previously allocated in a manner other than in proportion
to capital contributions, losses are allocated in the reverse order as such profits were previously allocated.
The GP participates in the profits of the Partnership
at a rate of 20% above a 10% annualized return to the Limited Partners. Beginning January 1, 2020, the GP participates in the profits
of the Partnership at a rate of 20% above an 8% annualized return to the Limited Partners.
NOTE 7 - MANAGEMENT FEES - RELATED PARTY
The Partnership pays annual management fees to
UCF Asset LLC. Management fees are calculated at 2.0% of audited book value on the first day of the fiscal year, payable quarterly. Management
fees were $75,000 and $90,000 for the six months ended June 30, 2023 and 2022, respectively.
NOTE 8 - NOTES RECEIVABLE
In January 2023 the LP agreed with two 3rd parties to a
tri-party transaction to the assumption of a $479,148 note (including accrued interest) receivable from one party to $414,000 note receivable
from a third party, with a write-off of the $65,148 difference of accrued interest. This new note carries an 8% interest rate and is due
January 31, 2024. At June 30, 2023 $13,800 of interest has been accrued.
In April 2023, the LP extended $16,000 in cash to a third party for
a note receivable carrying an 8% interest rate and maturity of December 11, 2023. At June 30, 2023 $166 of interest has been accrued.
NOTE 9 - INVESTMENT IN RELATED PARTY
The LP purchased a 10% LLC interest in the LP’s general partner.
The LP will only pay 90% of the management fee to the general partner while the LP holds this ownership interest.
Item
4. Exhibits
SIGNATURES
SIGNATURES
Pursuant to the requirements of Regulation A, the Issuer has duly caused
this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| UC Asset, LP |
|
| |
|
| By (Signature and Title) |
|
| |
|
| UCF Asset, LLC |
|
| |
|
|
| /s/ Jason Armstrong |
|
| Name: |
Jason Armstrong |
|
| Title: |
Manager |
|
| Date: |
August 21, 2023 |
|
Pursuant to the requirements of Regulation A, this Report has been
signed below by the following persons on behalf of the Issuer and in the capacities and on the dates indicated.
| By (Signature and Title) |
|
| |
|
|
| /s/ Gregory Bankston |
|
| Member |
|
| UCF Asset, LLC |
|
| Date: August 21, 2023 |
|
| By (Signature and Title) |
|
| |
|
|
| /s/ Larry Xianghong Wu |
|
| Member of Majority Interest |
|
| UCF Asset, LLC |
|
| Date: August 21, 2023 |
|
8
Exhibit 3.4
CERTIFICATE OF DESIGNATION OF SERIES B PREFERRED UNITS OF UC ASSET,
LP
500,000 Shares
Date: May 01, 2023
UC Asset, LP (the “Company”), a limited partnership organized
and existing under and by virtue of the provisions of Delaware law (the “Delaware Law”),
DOES HEREBY CERTIFY:
Pursuant to the authority granted to the General
Partner in Section 4.01(a) of the limited partnership of the Company, the General Partner, does hereby issue Five Hundred Thousand (500,000)
shares of Series B Preferred Units of the Company (hereinafter referred to as the “Series B Preferred Units”), and designate
the rights, preferences, powers, privileges, restrictions, qualifications, and limitations of the Series B Preferred Units as follows:
Section 1. Face Value
Each Series B Preferred Unit shall bear a face value of one dollar
and twenty cents ($1.20).
Section 2. Initial Issuance Date
Each and every Series B Preferred Unit is issued on the date of May
01, 2023 (the “Initial Issuance Date”), which is also evidenced on the cover of this Certificate as well as on the signature
page.
Section 3. No Dividends and Non-transferrable.
Except for otherwise it may be granted by the Company in writing from
time to time, holders of Series B Preferred Units shall NOT be entitled to receive any dividends, regardless of any dividends that may
be attributed to any other classes of units of the Company, including common units of the Company (the “Common Units”) as
defined by the Company in its bylaw.
Except for otherwise it may be granted by the Company in writing from
time to time, Series B Preferred Shares shall be held by the holder on record, and shall NOT be assigned or transferred to any other persons.
Section 4. Voting Rights.
Holders of Series B Preferred Units shall be entitled to no voting
rights on any business matters of the Company.
Holders of Series B Preferred Units shall become
holder of Common Units, and thereby gain voting rights the same as any other Common Unit holders, immediately at the moment when the
holder converts any number of Series B Preferred Units into Common Units. Voting rights defined herein shall apply to any ongoing voting
processes that are not concluded at the moment of conversion.
Section 5. Ranking
All shares of Common Units shall be of junior rank to all Preferred
Units with respect to the preferences as to dividends or distributions, and payments upon liquidation event. The rights of the shares
of Common Units shall be subject to the preferences and relative rights of the Preferred Units.
All shares of other series of Preferred Units shall be of junior rank
to Series B Preferred Units with respect to the preferences as to dividends or distributions, and payments upon liquidation event. The
rights of the shares of other series of Preferred Units shall be subject to the preferences and relative rights of the Series B Preferred
Units.
Section 6. Conversion
Preferred Units shall be convertible into shares of Common Units on
the terms and conditions set forth in this Section 6 and the following Section 7 and 8.
a. Holder’s Conversion Rights. Subject to terms and conditions
hereinunder in Section 6(b),6(c),6(d) and 6(e), any Holder shall be entitled to convert any number of Series B Preferred Units, at any
time or times on or after twelve (12) months of the Initial Issuance Date, into fully paid and nonassessable shares of Common Units.
b. Conversion Ratio. The number of shares of Common Units issuable
upon conversion of each preferred unit (the “Conversion Ratio”), which shall apply to this Series B Preferred Unit, as well
as to any other series of preferred units that have been issued or will be issued by the Company, shall be determined according to the
following formula:
The Conversion Ratio of any a series of preferred units shall equal
to its Face Value divided by its conversion price (Conversion Ratio = Face Value/Conversion Price).
c. Conversion Price. The conversion price of Series B Preferred
Units shall be set at One dollar and twenty cents ($1.20), or any other amount lower than this price that may be granted by the
Company in writing from time to time.
d. No fractional shares. No fractional shares of Common Unit
are to be issued upon the conversion of any Preferred Unit, but rather the number of shares of Common Unit to be issued shall be rounded
to the nearest whole number.
e. Maximum Amount of Conversion. Total number of converted
shares(including those converted before and those to be converted at the current conversion) shall not exceed a maximum amount (“Max
Amount”) which shall be agreed, in a separate agreement or by other means in writing, between issuer and holder of Series B Preferred
Units from time to time. The maximum possible amount for holder to convert additional amount of shares without exceeding the Max Amount,
after the current conversion, shall be recorded in each Conversion Notices defined in following Section 7.a. Initially, the Max Amount
shall be determined using the following formula: Max Amount shall equal to current amount (as at the moment of conversion) of monthly
Additional Guaranteed Distribution to the issuer, divided by $1,200, and then round down to nearest integer, and then times 100,000.
For the purpose of this subsection, Additional Guaranteed Distribution shall have the same meaning as in the Operating Agreement of AZO
Properties LLC, which is a joint venture between the issuer and the holder of Series B Preferred Units.
Section 7. Mechanics of Conversion.
The conversion of and referred units, which shall apply to this Series
B Preferred Unit, as well as to any other series of preferred units that have been issued or will be issued by the Company, shall be conducted
in the following manner:
a. Holder’s Delivery Requirements.
To convert preferred units into shares of Common Units on a date (a “Conversion Date”), the Holder shall 1) transmit in writing,
by means of facsimile, email, certified mail, or otherwise deliver, for receipt on or prior to 11:59 p.m., New York City Time, on such
date, a copy of a properly completed notice of conversion executed by the registered Holder of the Preferred Units subject to such conversion
in the form attached hereto as Addendum I (the “Conversion Notice”) to the Company and the Company’s designated transfer
agent (the “Transfer Agent”) and 2) surrender to the Company as soon as practicable following such date the original certificates
representing the Preferred Units being converted (the “Preferred Unit Certificates”).
b. Company’s Response. Upon receipt by the Company of
a Conversion Notice, the Company shall 1) as soon as practicable, but in any event within ten (10) Trading Day (the “Share Delivery
Date”), send in writing, by means of facsimile, email, certified mail, or otherwise deliver, a confirmation of receipt of such Conversion
Notice to such Holder and the Transfer Agent, which confirmation shall constitute an instruction to the Transfer Agent to process such
Conversion Notice in accordance with the terms herein; and 2) if the number of Preferred Units represented by the Preferred Unit Certificate(s)
submitted for conversion is greater than the number of Preferred Units being converted, then the Company shall, as soon as practicable,
after receipt of the Preferred Unit Certificate(s) (the “Preferred Unit Delivery Date”) and at its own expense, issue and
deliver to the Holder a new Preferred Unit Certificate representing the number of Preferred Units not converted.
c. Record Holder. The Person or Persons entitled to receive
the shares of Common Unit issuable upon a conversion of Preferred Units shall be treated for all purposes as the record holder or holders
of such shares of Common Unit on the Conversion Date.
Section 8. Other terms regarding Conversion
a. Authorization of Common Units. The Company shall, at or prior
to the time of any conversion, take any and all actions necessary to increase its authorized, but unissued Common Units and to reserve
and keep available out of its authorized, but unissued Common Units, such number of shares of Common Units as shall, from time to time,
be sufficient to effect conversion of the Series B Preferred Units.
b. Book-Entry. The Holder and the Company shall maintain records
showing the number of preferred units so converted and the dates of such conversions. In the event of any dispute or discrepancy, such
records of the Company establishing the number of preferred units to which the record Holder is entitled shall be controlling and determinative
in the absence of manifest error.
Section 9. Other Matters.
Any other matters regarding the Series B Preferred Units that are not
defined herein shall be guided by the Limited Partnership Agreement of the Company(the “LPA”). In the event of any inconsistency,
conflict or ambiguity between this Certificate and the LPA, the LPA shall control and supersede any such inconsistency, conflict or ambiguity.
IN WITNESS WHEREOF, this Certificate of
Designation of Series B Preferred Units has been executed by a duly authorized officer of this Company on this May 01,2023
(“Initial Issuance Date”).
| UC ASSET, LP |
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| General Partner |
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| By: |
/s/ Jason Armstrong, Manager |
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Jason Armstrong, Manager |
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| AND |
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| By: |
/s/ Larry Xianghong Wu |
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Larry Xianghong Wu, Majority Member |
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Addendum I: Conversion Notice
I, (name of person or
entity)________________________, holder of (amount)__________________________shares of Series B Preferred Units of UC Asset LP (the
“Company”), of which my ownership is evidenced with the provided original certificate, hereby notify the Company my
decision to convert (amount)____________________________shares of Series B Preferred Units into common units of the Company.
I understand and have agreed that, after this conversion, the maximum
number of Series B Preferred Shares, which I may still convert after this conversion, shall not exceed (amount)___________________shares,
subject to changes agreed between me and the Company in separate agreements.
UC Asset Limited Partner... (QB) (USOTC:UCASU)
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