UC Asset LP 10-K/A, filed Nov 1, 2021
UC Asset LP (UCASU)
About this 10-K/A
UC Asset LP filed this 10-K/A on November 1, 2021, covering the fiscal year ended December 31, 2020.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 2
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________________________to_______________________________________________
UC ASSET LP
(Exact Name of Registrant as Specified in its charter)
| Delaware | 024-10802 | 30-0912782 | ||
|
(State or other jurisdiction of incorporation or organization) |
(Commission File Number) |
(IRS Employer Identification No.) |
2299 Perimeter Park Drive, Suite 120
Atlanta, Georgia 30341
(Address of principal executive offices)
Registrant’s telephone number: (470) 475-1035
Copies to:
Richard W. Jones, Esq.
Jones & Haley, P.C.
750 Hammond Drive
Building 12, Suite 100
Atlanta, Georgia 30328
(770) 804-0500
www.corplaw.net
Securities registered pursuant to Section 12(b) of the Act: None
Securities to be registered under Section 12(g) of the Act: Common Units
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Non-accelerated filer ☐ | Smaller reporting company ☒ |
| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. $12,961,197
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Common Units: 5,635,303
DOCUMENTS INCORPORATED BY REFERENCE
None.
TABLE OF CONTENTS
| PART IV | 12 | |
| Item 15. Exhibit and Financial Statement Schedules. | 12 | |
| Item 16. 10-K Summary | 12 | |
i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements. All statements other than statements of historical facts contained in this document, including statements regarding our future results of operations and financial position, business strategy, and likelihood of success and other plans and objectives of management for future operations, and future results of current and anticipated products are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “aim,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this document are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this document and are subject to a number of risks, uncertainties and assumptions described under the sections in this document titled “Risk Factors” and elsewhere in this document. Forward-looking statements are subject to inherent risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, new risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties that we may face. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
ii
This Amendment No. 2 on Form 10-K/A (the “Amendment”) amends the Annual Report on Form 10-K (the “2021 Form 10-K”) of UC Asset LP (the “Company” , the “Partnership”, “we” or “our”) for the year ended December 31, 2020, as filed with the Securities and Exchange Commission (the “SEC”) on August 03, 2021. We are filing this Amendment to amend the 2021 Form 10-K to: 1) amend Part II, Item 5 to provide most updated information on number of holders of our common units, as well as the market information required by Item 201(a)(1) of Regulation S-K; 2) amended Part II, Item 5 to disclose the exemption relied upon and the facts supporting reliance upon the exemption for the private placement disclosed in this section; 3) correct a few typographical errors, contained in the “Overview” section of Part II, Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations. Specifically, we corrected the numbers included in the last row of Table I: Net equity per share of UC Asset LP, between March 01, 2016 to December 31, 2020. 4) updated Part III, Item 11: Executive Compensation, to include most up-to-date amount of management fees paid to our General Partner. And 5) update Exhibit 31.1a, 31.1b, 32.1a and 32.1b to the new date of filing this Amendment.
Except as described above, no other changes have been made to the 2021 Form 10-K. The 2021 Form 10-K continues to speak as of the date of the 2021 Form 10-K, and we have not updated the disclosures contained therein to reflect any events which occurred at a date subsequent to the filing of the 2021 Form 10-K other than as expressly indicated in this Amendment.
iii
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
| (a) | Market for Registrant’s Common Units |
Starting from the date of January 02, 2020, our common units have been quoted on OTCQX under the symbol UCASU.
OTCQX quotations, as over-the-counter market quotations, reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. The high and low common unit sales per unit were as follows:
| First | Second | Third | Fourth | |||||||||||||||||
| Quarter | Quarter | Quarter | Quarter | Full Year | ||||||||||||||||
| 2020 | ||||||||||||||||||||
| High | $ | 2.20 | $ | 2.36 | $ | 2.36 | $ | 2.40 | $ | 2.40 | ||||||||||
| Low | $ | 1.88 | $ | 0.215 | $ | 2.20 | $ | 0.52 | $ | 0.215 | ||||||||||
| 2019 | ||||||||||||||||||||
| High | $ | n/a | $ | n/a | $ | n/a | $ | n/a | $ | n/a | ||||||||||
| Low | $ | $ | $ | $ | $ | |||||||||||||||
As of and by the date of September 30, 2021, we have 104 NOBO shareholders of our common units, among whom 90 shareholders hold 100 or more shares of our common units.
We have not made a distribution to our common unit holders for the past two fiscal years. We may make distributions to our common unit holders in the future, but the payment of such distributions is at the sole discretion of our general partner.
| (b) | Related Stockholder Matters |
As of March 1, 2021, there were no securities of our partnership authorized for issuance under an equity compensation plans.
On March 2, 2020, UC Asset closed a private placement, under which the Company issued 166,667 shares of Series A Preferred Units, at a price of $1.80/unit, . The Company raised an aggregate of $300,000 from a domestic investor. The Series A Preferred Units were sold at a premium, in the sense that the price for the preferred shares to be converted into common units is considerably higher than the current net equity per unit of the Company. The issuance of Series A Preferred Units, therefore, will likely increase the Company’s net equity per unit. The Series A Preferred Units may be converted into common units at the holder’s option, after 12 months from the initial issuance date. The conversion price may range between $1.60 - $1.80 per unit, depending on the trading price of common units at the time of conversion.
These units were sold on a private basis, no underwriter was involved with the sales and no commissions were paid in connection with such sales.
The Series A units were sold to an “accredited investor.” The Series A units issued by the Partnership are deemed “restricted securities” within the meaning of that term as defined in Rule 144 of the Securities Act and have been issued pursuant to the “private placement” exemption under Section 4(2) of the Securities Act. This transaction did not involve a public offering of securities. Investors who purchased securities in the private placement had access to information on the Partnership necessary to make an informed decision. The Partnership has been informed that the purchaser is able to bear the economic risk of this investment, they are aware that the securities were not registered under the Securities Act, and they have been notified that the securities cannot be re-offered or re-sold unless the securities are registered or are qualified for sale pursuant to an exemption from registration.
Neither the Partnership nor any person acting on its behalf offered or sold the securities by means of any form of general solicitation or general advertising.
The purchaser represented in writing that he acquired the securities for his own accounts and not with the view to, or for resale in connection with any distribution. A legend was placed on the certificate issued stating that the securities are restricted, they have not been registered under the Securities Act and they cannot be sold or otherwise transferred without an effective registration or an exemption therefrom.
| (c) | Use of Proceeds |
The proceeds raised from the issuance of our Series A Preferred Units were contributed to Atlanta Landsight LLC (“ALS”) as an additional capital contribution, and then were used to pay down ALS’s construction loan.
| (d) | Issuer Purchases of Equity Securities |
We did not have any repurchases of our equity securities by the Company in the fourth quarter of the year of 2020.
1
Item 6. Selected Financial Data.
Not applicable to smaller reporting companies.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Management is currently unaware of any trends or conditions other than those mentioned in this management’s discussion and analysis that could have a material adverse effect on the Company’s current financial position, future results of operations, or liquidity. However, investors should also be aware of factors that could have a negative impact on the Company’s prospects and the consistency of progress in the areas of revenue generation, liquidity, and generation of capital resources. These may include: (i) variations in revenue, (ii) possible inability to attract investors for its equity securities or otherwise raise adequate funds from any source should the Company seek to do so, (iii) increased governmental regulation or significant changes in such regulations, (iv) increased competition, (v) unfavorable outcomes to litigation to which the Company may become a party in the future, and (vi) a very competitive and rapidly changing real estate environment.
The risks identified here are not all inclusive. New risk factors emerge from time to time and it is not possible for management to predict all of such risk factors, nor can it assess the impact of all such risk factors on the Company’s business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results.
Overview
We are a limited partnership and we invested in four subsidiaries that are engaged in the redevelopment and development of real estate properties in metropolitan Atlanta, GA and Dallas, TX. Our general partner is UCF Asset LLC.
Since its incorporation, the Company has grown its net equity from $2.25 million as of the date of March 01, 2016, to $7,705,352 million as of December 31, 2020.
Net equity per common unit has grown from $1.156/per unit as of March 01, 2016, to $1.538/per unit (fully diluted) as of December 31, 2020, after a $0.050 distribution in the year of 2018. The following table shows the change of net equity per share during this period:
| Period end | Net Equity per Unit pre-dilution | After Full Dilution * | Dividend Distributed per Unit | |||||||||
| Inception, March 1, 2016 - unaudited | $ | 1.156 | N/A | |||||||||
| December 31, 2016 | $ | 1.332 | N/A | |||||||||
| December 31, 2017 | $ | 1.560 | N/A | |||||||||
| December 31, 2018 | $ | 1.482 | N/A | $ | 0.050 | |||||||
| December 31, 2019 | $ | 1.528 | N/A | |||||||||
| December 31, 2020 | $ | 1.583 | $ | 1.538 | ||||||||
Table I: Net equity per share of UC Asset LP, between March 01, 2016 to December 31, 2020.
| * | 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 January 02, 2020, our units began to be quoted on the OTCQX, the Best Market of OTC markets.
2
Legal Structure of our Company
The business is structured as a publicly traded limited partnership (Master Limited Partnership or MLP) rather than a real estate investment trust (REIT) in order to appeal to investors looking for long-term growth. It combines the tax benefits of a private partnership with the liquidity of a publicly traded company. The majority of MLPs are organized in natural resources sectors of the economy, and only a very limited number invest in real estate. The Master Limited Partnership Association counted a total number of 82 MLPs trading on US national exchanges, and only four of them are in the real estate sector. As a matter of fact, we are the only real estate MLP quoted on OTCQX.
Liquidity and Capital Resources
Capital Resources
Since our inception, we have funded our operations primarily through the sale of limited partner interests in private placements. Prior to our public offering, there were 42 limited partners in the Partnership.
Initial Public Offering
In January 2018, we made our first public filing of our Offering Circular with the SEC, pursuant to the requirements of Regulation A plus. On June 13, 2018, our Offering Circular was qualified by the SEC. Our IPO was closed on October 12, 2018. The gross amount of raised capital was $1.45 million. We had a total of 80 limited partners after the IPO.
Issuance of Series A Preferred Units
On March 02, 2020, the Company closed a private placement, pursuant to which the Partnership issued 166,667 shares of Series A Preferred Units, at a price of $1.80/unit raising a total of $300,000.
The Series A Preferred Units were sold with premium, in the sense that the price for the preferred shares to be converted into common units is considerably higher than the current net equity per unit of the Company. The issuance of Series A Preferred Units, therefore, will likely increase the Company’s net equity per unit.
The Series A Preferred Units may be converted into common units at the holder’s option, after 12 months from the initial issuance date. The conversion price may range between $1.60 - $1.80 per unit, depending on the trading price of common units at the time of conversion.
Debt financing
ALS, our wholly-owned subsidiary, has a construction loan facility of $490,000 from a local bank. ALS had paid off all outstanding balances from this loan facility, and had no outstanding loans as of December 31, 2020. None of our subsidiaries, nor the Company, has any outstanding balance from debt financing as of December 31, 2020.
Cash Flows
The following table shows a summary of cash flows for the periods set forth below:
| Year Ended December 31, 2020 | Year Ended December 31, 2019 | |||||||
| Net cash used in operating activities | $ | 360,960 | $ | (383,766 | ) | |||
| Net cash (used in) provided by investing activities | $ | 1,820,983 | $ | 164,226 | ||||
| Net cash provided by financing activities | $ | (194,000 | ) | $ | 135,383 | |||
| Cash at beginning of period | $ | 153,687 | $ | 237,844 | ||||
| Cash at end of period | $ | 1,419,710 | $ | 153,687 | ||||
3
Net Cash Used in Operating Activities
For the year ended December 31, 2019, net cash used in operating activities was primarily the result of management fees and professional fees.
For the year ended December 31, 2020, net cash used in operating activities was primarily the result of management fees and professional fees.
Net Cash (Used in) Provided by Investing Activities
For the year ended December 31, 2019, net cash provided by investing activities was primarily the result of the exit of portfolio properties generating $2.8 million in cash, the investment of $2.2 million on portfolio properties and net $0.4 million in new loans to related parties.
For the year ended December 31, 2020, net cash provided by investing activities was primarily the result of the exit of portfolio properties generating $4.7 million in cash, investment of $3.0 million on portfolio properties and net $0.06 million in repayments of loans to related parties.
Net Cash Provided by Financing Activities
For the year ended December 31, 2019, net cash provided by financing activities was due to a refund of back-up withholding from the U.S. Internal Revenue Service on behalf of our limited partners and the receipt of $0.1 million from a new construction loan.
For the year ended December 31, 2020, net cash provided by financing activities was due to the net proceeds of $300,000 in contribution by a limited partner through issuance of Series A Preferred Units and proceeds of $0.2 million from the construction loan and the repayment of $0.4 million on the construction loan.
Commitments and Contingencies
We pay quarterly management fees to our general partner, UCF Asset LLC. Management fees are calculated at 2.0% of assets under management as of the last day of our preceding fiscal year. Management fees for the years ended December 31, 2019 and 2020 were $164,488 and $182,798, respectively.
In addition, 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: $2,035 through November 1, 2019, and from November 2, 2019 through November 1, 2020 the next was $2,096. Rent was increased to $2,158 for the next twelve months. Pursuant to the terms of the lease, we have provided a deposit of $2,189 to the landlord.
Off Balance-sheet Arrangements
The Company doesn’t have any off balance-sheet arrangements.
Results of Operations
Year Ended December 31, 2019
In this fiscal year, our investment operations are primarily performed through our wholly owned subsidiary Atlanta Landsight LLC. It purchased three properties and sold five properties during this period. Atlanta Landsight LLC had $41,138 of realized loss and $677,139 of unrealized gains. We recorded this gain as a combined unrealized gain of $636,001 for the period. UCF Development LLC had $108,000 unrealized gain during this period. In addition, our unrealized gains during this period included accrued but unpaid interest.
4
Our operational expenses were $516,329 during this period, consisting principally of management fees paid to our general partner, and professional fees.
During the year ended December 31, 2019, we recorded an increase in net equity of $203,542.
Year Ended December 31, 2020
In this fiscal year, our investment operations are primarily performed through our wholly owned subsidiary UCF Development LLC and Atlanta Landsight LLC.
UCF Development LLC transferred its portfolio investment to Atlanta Landsight LLC in the first quarter for a nominal price of $1.00. UCF Development was latter dissolved in November 2020, and all its remained assets, which was a cash balance of approximately $12,000, was returned to us.
Atlanta Landsight LLC purchased one property and sold five properties during this period. Atlanta Landsight LLC had $466,479 of realized loss and $394,211 of unrealized loss. We recorded this net loss as a combined unrealized loss of $860,789 for the period. UCF Development LLC was dissolved, and all its gains and losses were absorbed by Atlanta Landsight LLC during this period. In addition, our unrealized gains during this period included accrued but unpaid interest amounting to $40,837 on our loan portfolio.
Our operational expenses were $584,424 during this period, consisting principally of management fees of $182,789 paid to our general partner, and professional fees.
During the year ended December 31, 2020, we recorded an increase in net equity of $120, 174.
Trend information
The following discussion covers some significant trends affecting our business, in our industry, or to the macro economy, since the last fiscal year, which had impacts on our operations. It also covers known trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our operation for the current fiscal year of 2020.
Public trading of our common units and its impact on our business operation
On October 31, 2019, we qualified to be quoted on OTC markets. On January 02, 2020, our common units began being quoted on the OTCQX, the Best Market of OTC Markets.
We believe that clearance by FINRA and the quoting of our units on OTCQX will have significant impact on our business operations in the year of 2020 and the years to follow. First of all, we now have the option of raising capital via PIPE deals (private placement of public equity) to meet our operational needs. If we are able to raise funds via pipe deals, as to which there is no assurance, this will provide available capital which has not been available as a funding source to the Partnership during the past two years.
Secondly, we believe it will enable us to acquire properties by issuing new units, possibly preferred units and/or restricted units, instead of cash for all or part of the acquisition cost. This will reduce our cash outflow, and the capital saved can be used on renovation/remodeling/rebuilding of the acquired properties.
Impact of COVID-19 on national and local real estate markets
COVID-19 pandemic has had a huge impact on real estate markets. In the two metropolitan areas where we conduct our business, the City of Atlanta had been under lock-down since March 17, 2020 followed by a lockdown of the whole state of Georgia since April 01, 2020 and the State of Texas had been under lockdown since March 19, 2020. These lockdown orders placed many businesses on halt or remote operations and is expected to hurt the economy and, eventually, the real estate market.
5
Commercial properties in Atlanta were impacted immediately. According to a report released April 20 by Atlanta consulting firm, Bleakly Advisory Group, the corona virus pandemic may push retail vacancy across metro Atlanta to 40%, creating an unprecedented challenge for mall owners and other landlords. Socially driven businesses, such as restaurants, lounges and clubs, also have experienced record-breaking economic losses. We believe this in turn will hurt the landlords of commercial properties that lease properties to those businesses.
Generally, residential real estate prices have increased for the year of 2020, following an immediate drop in the first quarter of the year. We believe that this increase is not sustainable, and the residential market may reach its highest point in 2nd or 3rd quarter of the year 2021.
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
Our Strategy to Counter against the Impact of COVID-19
On April 20, 2020, We closed two transactions liquidating two properties to cash buyers, at prices substantially lower than their current book values. We made this decision based on management’s best-effort projection of real estate market in US generally and in Atlanta specifically, under the impact of the pandemic of COVID-19.
As further measures to counter the impact of the pandemic, ALS made some properties available for rent to generate cash flow. ALS also rented out one additional property in the first quarter. By and as of the year end of 2020, ALS had four properties generating monthly rental incomes.
We also launched a new business strategy to acquire income-producing properties which have temporary difficulties generating income and paying their mortgage. We named this new strategy “Pandemic Mortgage Bailout Program”. However, this program was later declared inactive due to inadequate demand from the market. We have spent approximately $5000 in marketing and promoting this program, which represents the total cost associated with this program.
In fourth quarter of 2020, we formed SHOC Holdings LLC, of which the business model is innovative, and, in our view, adapts to the post-pandemic commercial real estate market. For more details about SHOC, please refer to respective discussions in Item 1 of this filing.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable to smaller reporting companies.
Item 8. Financial Statements and Supplementary Data.
The financial statements and related notes are included as part of this report as indexed in the Appendix on page F-1 et seq.
6
INDEX TO FINANCIAL STATEMENTS
F-1
Report of Independent Registered Public Accounting Firm
To the shareholders and the board of directors of UC Asset, LP
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of UC Asset, LP as of December 31, 2020 and 2019, the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a significant accumulated deficit. In addition, the Company continues to experience negative cash flows from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/S/ BF Borgers CPA PC
BF Borgers CPA PC
We have served as the Company’s auditor since 2021
Lakewood, CO
August 2, 2021
F-2
Consolidated Balance Sheets
December 31,
| 2020 | 2019 | |||||||
| ASSETS | ||||||||
| Portfolio investments | $ | 7,493,777 | $ | 8,624,091 | ||||
| Property and equipment and other assets, net | 66,980 | 77,083 | ||||||
| Cash and cash equivalents | 1,419,710 | 153,687 | ||||||
| Total Assets | $ | 8,980,467 | $ | 8,854,861 | ||||
| LIABILITIES AND PARTNERS’ CAPITAL | ||||||||
| Accounts payable and accrued expenses | $ | 57,938 | $ | 52,507 | ||||
| Construction loan | - | 194,000 | ||||||
| Partners’ Capital: | ||||||||
| Series A preferred units, 166,667 and 0 issued and outstanding at December 31,2020 and 2019 | 300,000 | - | ||||||
| Common units 5,635,306 issued and outstanding | 8,622,529 | 8,608,354 | ||||||
| Total Liabilities and Partners’ Capital | $ | 8,980,467 | $ | 8,854,861 | ||||
F-3
Consolidated Statements of Changes in Net Assets
Year ended December 31,
| 2020 | 2019 | |||||||
| INCOME | ||||||||
| Sales of homes | $ | 4,376,205 | $ | 2,843,362 | ||||
| Rental income | 118,447 | 83,900 | ||||||
| Interest income | 31,581 | 21 | ||||||
| Total income | 4,526,233 | 2,927,283 | ||||||
| COST OF SALES | ||||||||
| Cost of sales | 4,390,681 | 2,884,551 | ||||||
| Total cost of sales | 4,390,681 | 2,884,551 | ||||||
| Gross Margin | 135,552 | 42,732 | ||||||
| OPERATING EXPENSES | ||||||||
| Management fees | 182,789 | 169,560 | ||||||
| Professional fees and other expenses | 335,259 | 285,214 | ||||||
| Depreciation | 66,376 | 61,555 | ||||||
| Total operating expenses | 584,424 | 516,329 | ||||||
| Net investment loss before unrealized gains (losses) | (448,872 | ) | (473,597 | ) | ||||
| GAINS/LOSSES FROM INVESTMENTS | ||||||||
| Net realized and unrealized gains (losses) from investments: | ||||||||
| Net unrealized gain (loss) on portfolio investments | 463,047 | 677,139 | ||||||
| Net realized and unrealized gains (losses) | 463,047 | 677,139 | ||||||
| Net increase (decrease) in net assets from operations | $ | 14,175 | $ | 203,542 | ||||
| Net increase in net assets per unit from operations | $ | 0.00 | $ | 0.04 | ||||
| Weighted average units outstanding | 5,635,306 | 5,635,306 | ||||||
F-4
Consolidated Statement of Partners’ Capital
Limited |
Limited | Limited Partners Common Units Amount | Limited Partners Preferred A Units Amount |
General |
Total Partners’ Equity | |||||||||||||||||||
| BALANCE, January 1, 2019 | 5,635,306 | - | $ | 8,359,739 | $ | - | $ | - | $ | 8,359,739 | ||||||||||||||
| Return of limited partner tax distributions | - | - | 48,271 | - | 48,271 | |||||||||||||||||||
| Distributions | - | - | (16,668 | ) | - | - | (16,668 | ) | ||||||||||||||||
| Net change in net assets from operations | - | - | 217,012 | - | - | 217,012 | ||||||||||||||||||
| BALANCE, December 31, 2019 | 5,635,306 | - | 8,608,354 | - | - | 8,608,354 | ||||||||||||||||||
| Issuance of Preferred Series A units | - | 166,667 | - | 300,000 | 300,000 | |||||||||||||||||||
| Net change in net assets from operations | - | - | 14,175 | - | - | 14,175 | ||||||||||||||||||
| BALANCE, December 31, 2020 | 5,635,306 | 166,667 | $ | 8,622,529 | $ | 300,000 | $ | - | $ | 8,922,529 | ||||||||||||||
F-5
Consolidated Statements of Cash Flows
Year ended December 31,
| 2020 | 2019 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net increase (decrease) in net assets from operations | $ | 14,175 | $ | 175,874 | ||||
| Adjustments to reconcile net increase (decrease) in net assets from operations to net cash used in operating activities: | ||||||||
| Net unrealized (gains) losses on portfolio investments | (463,047 | ) | (636,001 | ) | ||||
| Amortization of prepaid expense and deferred rent | 22,183 | |||||||
| Depreciation and amortization | 66,376 | 61,555 | ||||||
| Changes in working capital items | ||||||||
| Accrued interest receivable | 4,200 | (4,200 | ) | |||||
| Accounts receivable | 4,445 | 6,937 | ||||||
| Deposits | 3,456 | 3,100 | ||||||
| Prepaid expense | 4,003 | (15,936 | ) | |||||
| Accrued expenses | 5,432 | 2,722 | ||||||
| Net cash used in operating activities | (360,960 | ) | (383,766 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Investments in portfolio loans | (70,000 | ) | (300,000 | ) | ||||
| Investments in portfolio loans, related party | - | (150,000 | ) | |||||
| Investments in portfolio properties | (2,968,981 | ) | (2,234,770 | ) | ||||
| Proceeds from sale of portfolio properties | 4,731,881 | 2,798,996 | ||||||
| Repayments of portfolio loans | 128,083 | 50,000 | ||||||
| Net cash provided by (used in) investing activities | 1,820,983 | 164,226 | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from construction loan | 232,000 | 103,780 | ||||||
| Payments on construction loan | (426,000 | ) | ||||||
| Distributions to limited partners | - | (16,668 | ) | |||||
| Return of limited partner tax distributions | - | 48,271 | ||||||
| Net cash provided in financing activities | (194,000 | ) | 135,383 | |||||
| Net decrease in cash and cash equivalents | 1,266,023 | (84,157 | ) | |||||
| CASH and cash equivalents, beginning of period | 153,687 | 237,844 | ||||||
| CASH and cash equivalents , end of period | $ | 1,419,710 | $ | 153,687 | ||||
| Non-Cash Financing Activities: | ||||||||
| Sale of portfolio property for notes receivable | $ | 1,300,000 | $ | - | ||||
F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS
UC Asset, LP (the “Partnership”) is a Delaware Limited Partnership formed for the purpose of making capital investments in limited liability companies with a focus on growth-equity investments and real estate. The Partnership was formed on February 1, 2016.
The Partnership is managed by its General Partner, UCF Asset LLC.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of accounting The Partnership prepares its financial statements on the accrual basis in accordance with accounting principles generally accepted in the United States. Purchases and sales of investments are recorded upon the closing of the transaction. Investments are recorded at fair value with unrealized gains and losses reflected in the statement of changes in net assets.
(b) Principles of Consolidation The Partnership’s consolidated financial statements include the financial statements of UC Asset, LP and its wholly owned subsidiaries: Atlanta Landsight, LLC, SHOC Holdings LLC and Hotal Service LLC. All intercompany balances and transactions have been eliminated.
(c) Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclose contingent assets and liabilities at the date of the financial statements and report amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(d) Fair value measurements The Partnership records and carries its investments at fair value, defined as the price the Partnership would receive to sell the asset in an orderly transaction with a market participant at the balance sheet date. In the absence of active markets for the identical assets, such measurements involve the development of assumptions based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the balance sheet date.
Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect management’s market assumptions. Preference is given to observable inputs. These two types of inputs create the following fair value hierarchy:
| Level 1: | Quoted prices in active markets for identical assets or liabilities. | |
| Level 2: | Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model derived valuations whose inputs are observable or whose significant value drivers are observable. | |
| Level 3: | Significant inputs to the valuation model are unobservable |
The General Partner maintains policies and procedures to value instruments using the best and most relevant data available. In addition, The General partner reviews valuations, including independent price validation for certain instruments. Further, in other instances, independent pricing vendors are obtained to assist in valuing certain instruments.
(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.
F-7
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
(f) Investments, continued
The estimated fair value of investments in properties as determined by the General Partner, whose values have been estimated by the General Partner in the absence of readily ascertainable market values. Due to the inherent uncertainty of valuation, the General Partner’s determination of values may differ significantly from values that would have been realized had a ready market for the investments existed, and the differences could be material. See Note 3.
(g) Federal Income taxes As a limited partnership, the Partnership is not a taxpaying entity for federal or state income tax purposes; accordingly, a provision for income taxes has not been recorded in the accompanying financial statements. Partnership income or losses are reflected in the partners’ individual or corporate tax returns in accordance with their ownership percentages.
As defined by Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 740, Income Taxes, no provision or liability for materially uncertain tax positions was deemed necessary by management. Therefore, no provision or liability for uncertain tax positions has been included in these financial statements. Generally, the Partnerships tax returns remain open for three years for federal income tax examination.
(h) Income Interest income from portfolio investments is recorded as interest as accrued.
(i) Recent Accounting Pronouncements Partnership management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.
NOTE 3 – LIQUIDITY AND GOING CONCERN CONSIDERATIONS
The Partnership’s consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business. The Partnership sustained a net operating loss of approximately $448,872 and cash use of $360,960 from operations for the year ended December 31, 2020. These conditions raise substantial doubt about our ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
NOTE 4 – FAIR VALUE OF FINANCIAL INSTRUMENTS
(a) Cash and Cash Equivalents The fair value of financial instruments that are short-term and that have little or no risk are considered to have a fair value equal to book value.
(b) Unsecured Loan Investments The fair value of short-term unsecured loans are considered to have a fair value equal to book value due to the short-term nature and market rate of interest commensurate with the level of credit risk. At December 31, 2019 and 2018, there were $400,000 and no short-term loans, respectively.
(c) Portfolio Investments The portfolio investments consist of member equity interests which are not publicly traded. The General Partner (“GP”) uses the investee entity’s real estate valuation reports as a basis for valuation when there is limited, or no, relevant market activity for a specific instrument or for other instruments that share similar characteristics. Portfolio investments priced by reference to valuation reports are included in Level 3. The GP conducts internal reviews of pricing to ensure reasonableness of valuations used. Based on the information available, management believes that the fair values provided are representative of prices that would be received to sell the individual assets at the measurement date (exit prices).
The fair values of the investee entity’s assets are determined in part by placing reliance on third-party valuations of the properties and/or third party approved internally prepared analyses of recent offers or prices on comparable properties in the proximate vicinity. The third-party valuations and internally developed analyses are significantly impacted by the local market economy, market supply and demand, competitive conditions and prices on comparable properties, adjusted for anticipated date of sale, location, property size, and other factors. Each property is unique and is analyzed in the context of the particular market where the property is located. In order to establish the significant assumptions for a particular property, the GP analyzes historical trends, including trends achieved by the GP’s operations, if applicable, and current trends in the market and economy impacting the property. These methods use unobservable inputs to develop fair value for the GP’s properties. Due to the volume and variance of unobservable inputs, resulting from the uniqueness of each of the GP’s properties, the GP does not use a standard range of unobservable inputs with respect to its evaluation of properties.
F-8
NOTE 4 – FAIR VALUE OF FINANCIAL INSTRUMENTS, continued
(c) Portfolio Investments, continued
Changes in economic factors, consumer demand and market conditions, among other things, could materially impact estimates used in the third-party valuations and/or internally prepared analyses of recent offers or prices on comparable properties. Thus, estimates can differ significantly from the amounts ultimately realized by the investee segment from disposition of these assets.
The following tables present the fair values of assets and liabilities measured on a recurring basis:
| At December 31, 2020 | Fair Value Measurement at Reporting Date Using | |||||||||||||||
Fair Value | Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) |
Significant | |||||||||||||
| Atlanta Landsight, LLC | $ | 4,936,494 | $ | - | $ | - | $ | 4,936,494 | ||||||||
| UCF Development, LLC | - | - | - | - | ||||||||||||
| SHOC Holdings LLC | 740,837 | - | - | 740,837 | ||||||||||||
| Hotal Service LLC | - | - | - | - | ||||||||||||
| Short term loans | 405,001 | - | - | 405,001 | ||||||||||||
| Total Assets | $ | 5,341,495 | $ | - | $ | - | $ | 5,341,495 | ||||||||
| At December 31, 2019 | Fair Value Measurement at Reporting Date Using | |||||||||||||||
Fair Value | Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) |
Significant | |||||||||||||
| Atlanta Landsight, LLC | $ | 7,120,630 | $ | - | $ | - | $ | 7,120,630 | ||||||||
| UCF Development, LLC | 1,142,118 | - | - | 1,142,118 | ||||||||||||
| Short term loans | 405,001 | - | - | 405,001 | ||||||||||||
| Total Assets | $ | 8,667,749 | $ | - | $ | - | $ | 8,667,749 | ||||||||
The fair value measurements are subjective in nature, involve uncertainties and matters of significant judgment; therefore, the results cannot be determined with precision, substantiated by comparison to independent markets and may not be realized in an actual sale or immediate settlement of the instruments.
F-9
NOTE 4 – FAIR VALUE OF FINANCIAL INSTRUMENTS, continued
(c) Portfolio Investments, continued
There may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results. For all of these reasons, the aggregation of the fair value calculations presented herein do not represent, and should not be construed to represent, the underlying value of the Partnership.
Generally, the fair value of the Atlanta investee’s properties is not sensitive to changes in unobservable inputs since generally the properties are held for less than six months. Generally such changes in unobservable inputs take longer than six months to have an appreciable effect of more than 1 to 2% on these properties fair value. The Dallas investee’s property is more sensitive to changes in unobservable inputs because this property was acquired with a longer time horizon due to the nature of its size and undeveloped status. However, the Dallas investee is very cognizant of changes in the unobservable inputs that affect the fair value of this property and intends to consider any and all such changes as it develops it plan for the development of this property.
The following table presents the changes in Level 3 instruments measured on a recurring basis:
| Year Ended December 31, 2020 | Portfolio Investments | |||
| January 1, 2020 | $ | 8,667,749 | ||
| Total gains or losses (realized/unrealized): | ||||
| Included in earnings | 996,342 | |||
| Included in other comprehensive income | - | |||
| Purchases, issuance and settlements | (1,772,571 | ) | ||
| Transfers in/out of Level 3 | - | |||
| December 31, 2020 | $ | 7,891,520 | ||
| Year Ended December 31, 2019 | Portfolio Investments | |||
| January 1, 2019 | $ | 8,227,738 | ||
| Total gains or losses (realized/unrealized): | ||||
| Included in earnings | 752,492 | |||
| Included in other comprehensive income | - | |||
| Purchases, issuance and settlements | (312,481 | ) | ||
| Transfers in/out of Level 3 | - | |||
| December 31, 2019 | $ | 8,667,749 | ||
NOTE 5 – CONCENTRATIONS OF CREDIT RISK
a) Cash Funds held by the Partnership are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. The Partnership’s cash balance was in excess of FDIC insured limits by $1,169,710 and $0 at December 31, 2020 and 2019.
F-10
NOTE 6 – CAPITAL
The Partnerships capital structure consists of one General Partner and 81 limited partners. The Partnerships total contributed capital was $8,086,232 and $7,777,540 at December 31, 2020 and 2019, respectively. The limited partner common units are 5,635,306 at December 31, 2020 and 2019. The limited partner preferred Series A units are 166,667 and 0 at December 31, 2020 and 2019, respectively.
The Preferred Units carry the following rights and privileges:
| - | annual dividend of $0.09 per unit, not to exceed the audited annual net increase to net assets from operations |
| - | carry no voting rights |
| - | preference for dividends and in liquidation |
| - | 12 months post issuance, redeemable at $0.50 per unit, if the market price of the common units falls below $0.50 per unit for 20 consecutive trading days |
| - | 12 months post issuance, convertible into common units on
a variable conversion ratio 1.0:1.0 (if the lowest closing Price of the common units is $1.80 or more for the 5 trading days prior to conversion), up to 1.125:1.0 (if the lowest closing price of the common units is $1.60 or less for the 5 trading days prior to conversion) |
| - | conversion and redemption price shall not be lower than the book value per common unit based on the last audited book value per unit |
In the first quarter 2020 the partnership issued 166,667 Series A preferred units in exchange for $300,000 in cash.
a) Distributions Distributions from the Partnership are made to partners in accordance with the Partnerships limited partnership agreement.
During 2019, the partnership was refunded $48,271 of the previously distributed backup withholding from the U.S. Internal Revenue Service.
b) Allocations of Profits and Losses The net profit of the Partnership is allocated to the Limited Partners in proportion to each partner’s respective capital contribution on all liquidated portfolio investments made by the Partnership. Losses are allocated to all partners in proportion to each partner’s respective capital contribution, provided that, to the extent profits had been previously allocated in a manner other than in proportion to capital contributions, losses are allocated in the reverse order as such profits were previously allocated.
The GP participates in the profits of the Partnership at a rate of 20% above a 10% annualized return to the Limited Partners. Beginning January 1, 2020, the GP participates in the profits of the Partnership at a rate of 20% above an 8% annualized return to the Limited Partners.
NOTE 7 – MANAGEMENT FEES - RELATED PARTY
The Partnership pays annual management fees to UCF Asset LLC. Management fees are calculated at 2.0% of assets under management on the first day of the fiscal year, payable quarterly. Management fees were $182,789 and $169,590 for the years ended December 31, 2020 and 2019, respectively.
F-11
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
For the two years ending December 31, 2020, there were no resignation, declination to stand for re-election, or dismissal of any of our accountants.
Subsequently, on June 02, 2021, we filed Form 8-K announcing the change of our principal accountant from Daszkal Bolton LLP who served as our auditor to Ben F Borgers CPA.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Annual Report on Form 10-K. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based on our evaluation, our Principal Executive Officer and Principal Financial Officer, after considering the existence of material weaknesses identified, determined that our internal control over financial reporting disclosure controls and procedures were not effective as of December 31, 2020.
Management’s Annual Report on Internal Control over Financial Reporting
Our 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 Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
Our internal control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records, that in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors, and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
* * * * *
7
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management, including our Principal Executive Officer and Principal Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment, management used the May 2013 updated criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control over Financial Reporting - Guidance for Smaller Public Companies.
Based on management’s evaluation, they have identified the following deficiencies which together constitute a material weakness in our assessment of the effectiveness of internal control over financial reporting as of December 31, 2020:
| ● | The Company has inadequate segregation of duties within its cash disbursement control design. |
| ● | During the year ended December 31, 2020, the Company internally performed all aspects of its financial reporting process, including, but not limited to the underlying accounting records and the recording of journal entries and for the preparation of financial statements. This process was deficient, because these duties were performed often times by the same people, and therefore a lack of review was created over the financial reporting process that might result in a failure to detect errors in spreadsheets, calculations, or assumptions used to compile the financial statements and related disclosures as filed with the SEC. These control deficiencies could result in a material misstatement to our interim or annual financial statements that would not be prevented or detected. |
It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control system, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.
We regularly review our system of internal control over financial reporting to ensure we maintain an effective internal control environment.
Changes in Control over Financial Reporting
There were no changes in our internal controls over financial reporting during the year ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
8
Item 10. Directors, Executive Officers and Corporate Governance.
The operation of our partnership is managed by our general partner. We do not have any directors, officers, or significant employees. The following are key managers of our general partner and their respective ages and positions as of March 1, 2021. As the member of majority interest of our general partner, Dr. Wu contributes his time and services to our general partner as an owner rather than an employee.
| Name | Position | Age | Since | |||
| Gregory Bankston | Managing Member | 48 | formation in January 2016 | |||
| “Larry” Xianghong Wu | Member of Majority Interest | 51 | formation in January 2016 |
Mr. Gregory Bankston has served as managing member of UCF Asset LLC since its formation in January 2016. Between 2013 and 2016, he founded and operated Real Estate Butlers. Prior to then, he was a co-owner of Bankston Brokers, formerly known as Bankston Realty, since 2010. Mr. Bankston is a member of Atlanta Board of Realtors, the Georgia Association of Realtors, and the National Association of Realtors.
Dr. “Larry” Xianghong Wu has been the member of majority interest of UCF Asset LLC since its formation in January 2016. Between 2012 and 2016, he was the founder and chief executive officer of Shanghai Heqing Asset Management LP, a limited partnership based in Shanghai, China, focused on Chinese investments in the U.S., particularly real estate. Between 2011 and 2012, he was chief executive officer of EHE Capital, a Chinese PE fund managing a portfolio of approximately $1 billion from 2011. Prior to then, he worked at Cisco Systems, Inc. between 2009 and 2011 as a vice president in charge of Cisco’s strategic business transformation in China. Dr. Wu has served as policy advisor and counselor to the Chinese government and officials. He also served as a Board Member of Finance and Investment of the Capital Club in China from 2009 to 2013.
The general partner may be removed, upon consent of the limited partners representing at least sixty-six and two-thirds percent (66 2/3%) of the outstanding common units voting as a single class, where (i) the general partner has been convicted of fraud, embezzlement, or a similar felony by a court of competent jurisdiction in a final judgment, or (ii) the general partner materially and willfully breaches our limited partnership agreement.
The general partner may, at any time, assign all or a portion of its partnership interest to any affiliate and, in the general partner’s sole discretion, admit the affiliate as an additional or substitute general partner.
Audit Committee
Our Company is a limited partnership and is not required to set up a board of directors. However, we are still required by the rule of OTCQX to set up an Audit Committee.
In February 2019, the Company resolved to establish an Audit Committee. Starting from July 01, 2019, we have admitted two Audit Committee members who both are independent. Herein the meaning of “independent” follows the guidelines published by OTC Market Group Inc.
The two members are:
Harris Miller is a prominent American politician, businessman, and lobbyist. Miller served as president of the Information Technology Association of America and the World Information Technology and Services Alliance (WITSA) for 12 years. He ran for US Senate in 2006 and lost to Jim Webb in the Commonwealth of Virginia. Mr. Miller received a political science master’s degree from Yale University in 1975.
For a detailed biography of Harris Miller, please see: https://en.wikipedia.org/wiki/Harris_Miller
Li Zheng is currently president of Techtop Industries Inc., an electric motor manufacturer based in Atlanta, GA, which Mr. Zheng co-founded in 2008 with extended family members. Before founding and operating Techtop, Li worked as an environmental engineer, and spent 10 years on academic research and consulting for various water resources and sustainable development projects in the western United States, Northern China, Tibet Plateau, and the mountainous regions of Nepal and India. Li has also been serving as a board member of non-profit Atlanta Young Singers since 2015. Li obtained his Ph.D. degree in Water Resources Engineering from the University of Notre Dame in 1997.
9
Item 11. Executive Compensation.
The operation of our partnership is managed by our general partner, UCF Asset LLC. Our partnership does not have any directors or officers who receive compensation other than the Audit Committee members.
We pay management fees quarterly to our general partner. Management fees are calculated at 2.0% of assets under management as of the last day of our preceding fiscal year. The fee is paid quarterly. Management fees for the periods ended December 31, 2019 and 2020 was $164,488 and $182,798, respectively. Management fees for the six months ended June 30, 2021 were $77,053. In addition, the General Partner will receive approximately 20% of all distributions the Company makes above a “hurdle rate”. See “Distributions”.
We also pay our Audit Committee members $7,000 each annually.
In addition to the management fee, we reimburse the general partner for standard expenses it may incur in managing the Company in accordance with our limited partnership agreement. These reimbursable expenses include: organizational expenses; fees for accountants, attorneys, auditors, and other professionals; expenses associated with partnership taxation reporting; operational expenses including insurance, valuation reports, and real estate brokerage commissions; and government filing fees and costs.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
As of and by the date of December 31, 2020, there were no unit holders to our knowledge that beneficially owns more than 10% of our common units, and there were no holder to our knowledge beneficially owns more than 5% of our common units except for one investor who owned approximately 5.37%. The managing member of UCF Asset, LLC does not beneficially own any of our common units and the member of majority interest of our general partner (“Larry” Xianghong Wu,) beneficially owns 172,953 of our common units (3.07%). The general partner is entitled to 20% of all distribution to be made by the Company after the common unit holders receive a return equal to the Company audited book value See “Distribution”.
As of the by the date of December 31,2020, the security ownership of certain beneficial owners and management of our company is listed as below:
| Beneficial Owner | Title | Security | Amount | Percentage of Same Type of Securities | |||||||||||||
| Ying Huang | None | Common Units | 302,667 | 5.37 | % | ||||||||||||
| Officers and Directors: | |||||||||||||||||
| “Larry” Xianghong Wu | Majority Owner of General Partner | Common Units | 172,953 | 3.07 | % | ||||||||||||
| Gregory Bankston | Managing Member of General Partner | N/A | 0 | 0 | % | ||||||||||||
| Harris Miller | Audit Committee Member | N/A | 0 | 0 | % | ||||||||||||
| Li Zheng | Audit Committee Member | N/A | 0 | 0 | % | ||||||||||||
Item 13. Certain Relationships and Related Transactions, and Director Independence.
We utilize the real estate brokerage services of Liz Bankston of Bankston Brokers to acquire and sell properties in the Atlanta area. Mrs. Bankston is the wife of Gregory Bankston, the managing member of our general partner. Our working relationship with Liz Bankston is not exclusive, and we have worked with other brokers from time to time. In 2019, ALS paid Mrs. Bankston approximately $31,152 as commissions for acting as broker in connection with five real estate transactions. In 2020, ALS paid Mrs. Bankston approximately $71,430 in connection with five real estate transactions. We believe the sales commissions paid to Mrs. Bankston are at or less than the standard market rate.
In June 2019, we advanced $100,000 to our general partner. This advance carries a 0.25% monthly interest rate and maturity date of June 10, 2021 or upon the Partnership having raised an additional $20,000,000 in capital. This advancement was made to empower and fund the general partner to carry on the business plan of converting the Company into a Qualified Opportunity Zone. However, the plausibility of such conversion has considerably dropped since the advance. Since then, $52,513.76 of the advance, plus interest of $3,515, has been paid back by the general partner to the partnership prior to its due date. The rest of the loan will be paid back using a payment schedule, through which the principal amount will carry a 1% quarterly interest rate. The general partner will forego 10% of its management fee quarterly, until all the principal and accumulated interest of this note is paid off.
In April 2019, we loaned $300,000 to a third party, which then acquired a 10% economic interest in our general partner. This note carried a 5.6% annual interest rate in 2019, 8% annual interest rate for 2020 and 10% annual interest rate for 2021 and a maturity date of March 31, 2021, in a single lump sum. In March 2020, in consideration of the COVID-19 pandemic, we reached an agreement with this third party to keep the introductory rate of 5.6% for the year of 2020.
10
Item 14. Principal Accountant Fees and Services.
Audit Fees
Daszkal Bolton LLP is the principal accountant to audit our annual financial statements and review and semi-annual and quarterly financial statements. The table below lists the aggregate fees billed for each of the last two fiscal years for professional services rendered by Daszkal Bolton LLP.
| Year | Quarterly Review Fee | Semi-Annual Review Fee | Annual Audit Fee | Total | |||||||||||||
| 2019 | 0 | $ | 8,000 | $ | 17,500 | $ | 25,500 | ||||||||||
| 2020 | $ | 21,000 | 0 | $ | 25,000 | $ | 46,000 | ||||||||||
| Sum Total | $ | 71,500 | |||||||||||||||
The audit fee in 2020 is significantly high because we started to be quoted on OTCQX and since reporting quarterly, instead of semi-annually. It also reflects the review work performed on our Form 10 and its amendments.
Audit Related Fees
No audit related fees were billed by Daszkal Bolton LLP in the fiscal year of 2019.
A fee of $7,000 was billed by Daszkal Bolton LLP for reviewing our Form 10 filing, three Form 10 Amendment filing, as well as our responses to SEC stuff’s comments in relate to the aforementioned filings.
Tax Fees
No tax fees were billed by Daszkal Bolton LLP in the fiscal year of 2019 and 2020.
All other Fees
No other fees were billed by Daszkal Bolton LLP in the fiscal year of 2019 and 2020.
Pre-approval policy
All services and fees rendered by our principal accountant in the past two fiscal years are pre-approved by our Audit Committee.
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Item 15. Exhibit and Financial Statement Schedules.
(a) Financial statements; and financial statement schedules
The financial statements and financial statement schedules as well as the notes thereto are listed in the index to financial statements in Item 8 are filed as part of this Annual Report on Form 10-K.
(b) Exhibits
| 3.1 | |
| 3.2 | Limited Partnership Agreement Filed previously with our Form 10-12G/A on November 05, 2020 |
| 3.3 | |
| 10.1 | Audit Committee Member Service Agreement Filed Previously with our Form 1-K on April 01, 2020 |
| 31.1 | Section 302 Certification by Principal Executive Officers and Principal Accounting Officers, or persons performing similar functions: |
| 31.1a: Section 302 Certification by Managing General Partner | |
| 31.1b: Section 302 Certification by Majority Member of General Partner | |
| 31.2 | Section 906 Certification by Principal Executive Officer and Principal Accounting Officers, or persons performing similar functions: |
| 31.2a: Section 906 Certification by Managing General Partner | |
| 31.2b: Section 906 Certification by Majority Member of General Partner |
As permitted, the registrant has elected not to supply a summary of information required by Form 10-K.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| By: | and | |||
| /s/ Gregory Charles Bankston | /s/ Xianghong Wu | |||
| Gregory Charles Bankston | Xianghong Wu | |||
| Managing General Partner | Majority Member of General Partner | |||
October 29, 2021 |
October 29, 2021 | |||
13
Exhibit 31.1a
CERTIFICATION
PURSUANT TO SECTION 302 OF
THE SARBANES-OXLY ACT OF 2002
I, Gregory Charles Bankston, certify that:
| 1. | I have reviewed this annual report on Form 10-K/a No.2 of UC Asset LP(the “Partnership”); |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; |
| 4. | The Partnership’s other certifying officers and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) of the registrant, and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation and; |
| d. | Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting. |
| 5. | The Partnership’s other certifying officer and I have disclosed to the Partnership’s auditor and the Audit Committee: |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting. |
Date: October 29, 2021
| By: | /s/ Gregory Charles Bankston | |
| Gregory Charles Bankston | ||
| Managing General Partner |
Exhibit 31.1b
CERTIFICATION
PURSUANT TO SECTION 302 OF
THE SARBANES-OXLY ACT OF 2002
I, Larry Xianghong Wu, certify that:
| 1. | I have reviewed this annual report on Form 10-K/a No.2 of UC Asset LP(the “Partnership”); |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; |
| 4. | The Partnership’s other certifying officers and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) of the registrant, and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation and; |
| d. | Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting. |
| 5. | The Partnership’s other certifying officer and I have disclosed to the Partnership’s auditor and the Audit Committee: |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting. |
Date: October 29, 2021
| By: | /s/ Larry Xianghong Wu | |
| Larry Xianghong Wu | ||
| Majority Member of General Partner |
Exhibit 31.2a
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of UC Asset LP, a limited partnership (the “Partnership”) on Form 10-K/a No.2 for the period ending December 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gregory Charles Bankston, Managing General Partner of the Partnership, certifies to the best of my knowledge, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
A signed original of this written statement required by Section 906 has been provided to UC Asset LP, and will be retained by UC Asset LP and furnished to the Securities and Exchange Commission or its staff upon request.
Date: October 29, 2021
| By: | /s/ Gregory Charles Bankston | |
| Gregory Charles Bankston | ||
| Managing General Partner |
Exhibit 31.2b
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of UC Asset LP, a limited partnership (the “Partnership”) on Form 10-K/a No.2 for the period ending December 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Larry Xianghong Wu, Majority Member of General Partner of the Partnership, certifies to the best of my knowledge, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
A signed original of this written statement required by Section 906 has been provided to UC Asset LP, and will be retained by UC Asset LP and furnished to the Securities and Exchange Commission or its staff upon request.
Date: October 29, 2021
| By: | /s/ Larry Xianghong Wu | |
| Larry Xianghong Wu | ||
| Majority Member of General Partner |