Notes
to Unaudited Condensed Consolidated Financial Statements
March
31, 2023
1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature
of Operations
LiquidValue
Development Inc. (the “Company”), formerly known as SeD Intelligent Home Inc. and Homeownusa, was incorporated in the State
of Nevada on December 10, 2009. On December 29, 2017, the Company, acquired Alset EHome Inc. (“Alset EHome”) by reverse merger.
Alset EHome, a Delaware corporation, was formed on February 24, 2015. Alset EHome is principally engaged in developing, selling, managing,
and leasing residential properties in the United States at the current time and may expand from residential properties to other property
types, including but not limited to commercial and retail properties. The Company is 99.99% owned by SeD Intelligent Home Inc., formerly
known as SeD Home International, Inc., which is wholly-owned by Alset International Limited (“Alset International”), a multinational
public company, listed on the Singapore Exchange Securities Trading Limited.
The
Company’s current operations concentrate around land development projects, included in our only reporting segment – real
estate. In determination of segments, the Company, together with its chief operating decision maker, who is also our CEO, considers factors
that include the nature of business activities, allocation of resources and management structure.
The
Company was also in the business of renting homes, however, on December 9, 2022, Alset EHome entered into a Stock Purchase Agreement
with Alset International Limited and Alset Inc., pursuant to which Alset EHome agreed to sell all of the shares of American Home
REIT Inc., the company holding all of the 112 rental properties, to Alset Inc. For further details on this transaction, refer to
Note 5 to Company’s Financial Statements – Related Party Transactions and Note 7 – Discontinued
Operations.
Going
Concern
To
date, the Company has incurred operating losses since inception of $11,300,640. As a result, these conditions may raise substantial doubt
regarding our ability to continue as a going concern twelve months from the date of issuance of our financial statements. The ability
of the Company to continue as a going concern is dependent on raising capital to fund its business plan and ultimately to attain profitable
operations. The Company intends to continue to fund its business through its operations and advances from related parties as may be required.
Funding the Company’s operations is our first priority, before repaying related party debtors. Therefore, available cash will be
used to fund the Company’s operations before related party debtor repayments. Concurrently, management will work
with the related party debtors on a plan to repay the related party loans, which are repayable on demand. The Company has obtained a
letter of financial support from Alset Inc., an indirect owner of the Company. Alset Inc. committed to provide any additional funding
required by the Company and would not demand repayment within the year 2023.
In
late 2022 and early 2023, the Company entered into three contracts with builders to sell multiple lots from its Black Oak project.
The sales contemplated by these contracts are contingent on certain conditions which the parties to such contracts will need to meet
and are expected to generate approximately $22
million of funds from operations, not including certain expenses that the Company will be required to pay. In
addition, the Company will be entitled to receive certain reimbursements in the year ended December 31, 2024. In April 2023,
the Company closed the sale of the first 131 lots. Funds from such sale were approximately $6.6
million.
The
Company plans to continue its near-term focus on lot sales to regional and national builders. Funds from such lot sales will substantially
improve the Company’s liquidity, strengthen its financial position and meet is working capital requirements.
The
Company will continue its business model of being flexible to market conditions and thus will entertain further sales of finished lots
to builders with the highest and best pricing based on market demand. Concurrently, it will evaluate acquiring new homes from regional
and national builders to further the build-to-rent business model for income producing product in surrounding markets within Houston
and Maryland markets.
These
financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts
and classification of liabilities that might result from this uncertainty.
Principles
of Consolidation
The
condensed consolidated financial statements include all accounts of the following entities as of the reporting period ending dates and
for the reporting periods as follows:
SCHEDULE
OF ACCOUNTS OF ENTITIES
Name of consolidated subsidiary | |
State or other jurisdiction of incorporation or organization | |
Date of incorporation or formation | |
Attributable interest | |
Alset EHome Inc. | |
Delaware | |
February 24, 2015 | |
| 100 | % |
SeD USA, LLC | |
Delaware | |
August 20, 2014 | |
| 100 | % |
150 Black Oak GP, Inc. | |
Texas | |
January 23, 2014 | |
| 100 | % |
SeD Development USA, Inc. | |
Delaware | |
March 13, 2014 | |
| 100 | % |
150 CCM Black Oak Ltd. | |
Texas | |
March 17, 2014 | |
| 100 | % |
SeD Ballenger, LLC | |
Delaware | |
July 7, 2015 | |
| 100 | % |
SeD Maryland Development, LLC | |
Delaware | |
October 16, 2014 | |
| 83.55 | % |
SeD Development Management, LLC | |
Delaware | |
June 18, 2015 | |
| 85 | % |
SeD Builder, LLC | |
Delaware | |
October 21, 2015 | |
| 100 | % |
SeD REIT Inc. | |
Maryland | |
August 20, 2019 | |
| 100 | % |
Alset Solar Inc. | |
Texas | |
September 21, 2020 | |
| 80 | % |
AHR Black Oak One, LLC | |
Delaware | |
September 29, 2021 | |
| 100 | % |
Robotic gHome Inc. | |
Texas | |
August 25, 2022 | |
| 90 | % |
All
intercompany balances and transactions have been eliminated. Non–controlling interest represents the minority equity investment
in the Company’s subsidiaries, plus the minority investors’ share of the net operating results and other components of equity
relating to the non–controlling interest.
As
of March 31, 2023 and December 31, 2022, the aggregate non-controlling interest in Alset EHome Inc. was $73,150 and $74,260, respectively,
which is separately disclosed on the Condensed Consolidated Balance Sheets.
Basis
of Presentation
The
Company’s condensed consolidated financial statements have been prepared in accordance with the accounting principles generally
accepted in the United States of America (“US GAAP”).
The
unaudited financial information furnished herein reflects all adjustments, consisting solely of normal recurring items, which in the
opinion of management are necessary to fairly state the financial position of the Company and the results of its operations for the periods
presented. This report should be read in conjunction with the Company’s consolidated financial statements and notes thereto included
in the Company’s Form 10-K for the year ended December 31, 2022 filed on March 28, 2023. The Company assumes that the users of
the interim financial information herein have read or have access to the audited consolidated financial statements for the preceding
fiscal year and the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The consolidated
balance sheet at December 31, 2022 was derived from the audited consolidated financial statements but does not include all disclosures
required by accounting principles generally accepted in the United States of America. The results of operations for the interim periods
presented are not necessarily indicative of results for the year ending December 31, 2023.
Use
of Estimates
The
preparation of condensed consolidated 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 in the condensed consolidated
financial statements. The Company’s significant estimates are made in connection with the valuation of real estate. Actual results
could differ from those estimates.
When
the Company purchases properties but does not receive the assessment information from the county, the Company allocates the values between
land and building based on the data of similar properties. The Company makes appropriate adjustments once the assessment from the county
is received. At the same time, any necessary adjustments to depreciation expense are made in the income statement. On March 31, 2023
and December 31, 2022 the Company adjusted $0 and $4,791,997 between building and land, respectively. During the first three months of
2023 and 2022, the Company adjusted depreciation expenses $0 and $0, respectively.
Earnings
(Loss) per Share
Basic
income (loss) per share is computed by dividing the net income (loss) attributable to the common stockholders by weighted average number
of shares of common stock outstanding during the period. Fully diluted loss per share is computed similarly to basic loss per share except
that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were dilutive. There were no potentially dilutive financial instruments
issued or outstanding for the periods ended March 31, 2023 or March 31, 2022.
Fair
Value of Financial Instruments
For
purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced sale or liquidation. The carrying amount of the Company’s short-term
financial instruments approximates fair value due to the relatively short period to maturity for these instruments.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with a maturity of three months or less at the date of acquisition to be cash equivalents.
There were no cash equivalents as of March 31, 2023 and December 31, 2022.
Restricted
Cash
As
a condition to the loan agreement with the Manufacturers and Traders Trust Company (“M&T Bank”), the Company was required
to maintain a minimum of $2,600,000 in an interest-bearing account maintained by the lender as additional security for the loan. The
funds were required to remain as collateral for the loan until the loan is paid off in full and the loan agreement terminated. On March
15, 2022 approximately $2,300,000 was released from collateral, leaving approximately $300,000 as collateral for outstanding letters
of credit. The Company also has an escrow account with M&T Bank to deposit a portion of cash proceeds from lot sales. The funds in
the escrow account were specifically to be used for the payment of the loan from M&T Bank. The funds were required to remain in the
escrow account for the loan payment until the loan agreement terminates. In May 2022 the funds from this escrow account were released
and the account closed. As of March 31, 2023 and December 31, 2022, the total balance of these two accounts was $309,295 and $309,219,
respectively.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts
receivable include all receivables from buyers, contractors and all other parties. The Company records an allowance for doubtful accounts
based on a review of the outstanding receivables, historical collection information and economic conditions. No allowance was necessary
at either March 31, 2023 or December 31, 2022.
Property
and Equipment and Depreciation
Property
and equipment are recorded at cost, less accumulated depreciation. Expenditures for major additions and betterments that extend the useful
life or functionality are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is computed by the
straight-line method (after taking into account their respective estimated residual values) over the estimated useful lives, which are
3 years.
Real
Estate Assets
|
● |
Land
Development Assets |
Real
estate assets are recorded at cost, except when real estate assets are acquired that meet the definition of a business combination in
accordance with Financial Accounting Standards Board (“FASB”) ASC 805, “Business Combinations,” which acquired
assets are recorded at fair value. Interest, property taxes, insurance and other incremental costs (including salaries) directly related
to a project are capitalized during the construction period of major facilities and land improvements. The capitalization period begins
when activities to develop the parcel commence and ends when the asset constructed is completed. The capitalized costs are recorded as
part of the asset to which they relate and are reduced when lots are sold.
In
addition to our annual assessment of potential triggering events in accordance with ASC 360, the Company applies a fair-value based impairment
test to the net book value assets on an annual basis and on an interim basis, if certain events or circumstances indicate that an impairment
loss may have occurred.
The
Company did not record impairment on any of its projects during the three months ended on March 31, 2023, nor for the three months ended
March 31, 2022.
On
October 28, 2022, 150 CCM Black Oak Ltd. (the “Seller”), a Texas Limited Partnership and subsidiary of the Company, entered
into a Contract for Purchase and Sale and Escrow Instructions (the “Agreement”) with Century Land Holdings of Texas, LLC,
a Colorado limited liability company (the “Buyer”). Pursuant to the terms of the Agreement, the Seller agreed to sell approximately
242 single-family detached residential lots comprising a residential community in the city of Magnolia, Texas known as the “Lakes
at Black Oak.” On November 28, 2022, the parties to the Agreement entered into an amendment to the Agreement (the “Amendment”).
Pursuant to the Amendment, the parties agreed that the Buyer would purchase approximately 131 single-family detached residential lots,
instead of 242 lots. This transaction closed on April 13, 2023.
|
● |
Investments
in Single-Family Residential Properties |
The
Company accounts for its investments in single-family residential properties as asset acquisitions and records these acquisitions at
their purchase price. The purchase price is allocated between land, building, improvements and existing leases based upon their relative
fair values at the date of acquisition. The purchase price for purposes of this allocation is inclusive of acquisition costs which typically
include legal fees, title fees, property inspection and valuation fees, as well as other closing costs.
Building
improvements and buildings are depreciated over estimated useful lives of approximately 10 to 27.5 years, respectively, using the straight-line
method.
The
Company assesses its investments in single-family residential properties for impairment whenever events or changes in business
circumstances indicate that carrying amounts of the assets may not be fully recoverable. When such events occur, management
determines whether there has been impairment by comparing the asset’s carrying value with its fair value. Should impairment
exist, the asset is written down to its estimated fair value. The Company did not recognize any impairment losses during the year
ended on December 31, 2022. The Company disposed this business to related party on January 13, 2023. For further details on this
transaction, refer to Note 5 to Company’s Financial Statements – Related Party Transactions and Note 7 –
Discontinued Operations.
Revenue
Recognition
|
● |
Land
Development Revenue Recognition |
ASC
606, Revenue from Contracts with Customers, establishes principles for reporting information about the nature, amount, timing and uncertainty
of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The Company adopted this
new standard on January 1, 2018 under the modified retrospective method. The adoption of this new standard did not have a material effect
on our financial statements.
In
accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized
reflects the consideration to which we expect to be entitled to receive in exchange for these goods or services. The provisions of ASC
606 include a five-step process by which we determine revenue recognition, depicting the transfer of goods or services to customers in
amounts reflecting the payment to which we expect to be entitled in exchange for those goods or services. ASC 606 requires us to apply
the following steps: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine
the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when,
or as, we satisfy the performance obligation. A detailed breakdown of the five-step process for the revenue recognition of our Ballenger
project, which were essentially all of the revenue of the Company in 2022, is as follows:
|
a. |
Identify
the contract with a customer. |
In
the event of a sale the Company has signed agreements with the builders for developing the raw land ready to build lots. The contract
has agreed upon prices, timelines, and specifications for what is to be provided.
|
b. |
Identify
the performance obligations in the contract. |
Performance
obligations of the Company include delivering developed lots to the customer, which are required to meet certain specifications that
are outlined in the contract. The customer inspects all lots prior to accepting title to ensure all specifications are met.
|
c. |
Determine
the transaction price. |
The
transaction price is fixed and specified in the contract. Any subsequent change orders or price changes are required to be approved by
both parties.
|
d. |
Allocate
the transaction price to performance obligations in the contract. |
Each
lot or a group of lots is considered to be a separate performance obligation, for which the specified price in the contract is allocated
to.
|
e. |
Recognize
revenue when (or as) the entity satisfies a performance obligation. |
In
the event of a sale the builders do the inspections to make sure all conditions/requirements are met before taking title of lots. The
Company recognizes revenue when title is transferred. The Company does not have further performance obligations once title is transferred.
|
● |
Rental
Revenue Recognition |
The
Company leases real estate properties to its tenants under leases that are predominately classified as operating leases, in accordance
with ASC 842, Leases (“ASC 842”). Real estate rental revenue is comprised of minimum base rent and revenue from the collection
of lease termination fees.
Rent
from tenants is recorded in accordance with the terms of each lease agreement on a straight-line basis over the initial term of the lease.
Rental revenue recognition begins when the tenant controls the space and continues through the term of the related lease. Generally,
at the end of the lease term, the Company provides the tenant with a one-year renewal option, including mostly the same terms and conditions
provided under the initial lease term, subject to rent increases.
The
Company defers rental revenue related to lease payments received from tenants in advance of their due dates. These amounts are presented
within deferred revenues and other payables on the Company’s condensed consolidated balance sheets.
Rental
revenue is subject to an evaluation for collectability on several factors, including payment history, the financial strength of the
tenant and any guarantors, historical operations and operating trends of the property, and current economic conditions. If our
evaluation of these factors indicates that it is not probable that we will recover substantially all of the receivable, rental
revenue is limited to the lesser of the rental revenue that would be recognized on a straight-line basis (as applicable) or the
lease payments that have been collected from the lessee. Differences between rental revenue recognized and amounts contractually due
under the lease agreements are credited or charged to straight-line rent receivable or straight-line rent liability, as applicable.
For the year ended December 31, 2022, the Company did not recognize any deferred revenue and collected all rents due. The Company
disposed this business to related party on January 13, 2023. For further details on this transaction, refer to Note 5 to
Company’s Financial Statements – Related Party Transactions and Note 7 – Discontinued Operations.
We
have established a front foot benefit (“FFB”) assessment on all of the NVR lots. This is a 30-year annual assessment allowed
in Frederick County which requires homeowners to reimburse the developer for the costs of installing public water and sewer to the lots.
These assessments become effective as homes are settled, at which time we can sell the collection rights to investors who will pay an
upfront lump sum, enabling us to more quickly realize the revenue. The selling prices range from $3,000 to $4,500 per home depending
the type of the home. Our total revenue from the front foot benefit assessment is approximately $ million. To recognize revenue of the
FFB assessment, both our and NVR’s performance obligation have to be satisfied. Our performance obligation is completed once we
complete the construction of water and sewer facility and close the lot sales with NVR, which inspects these water and sewer facility
prior to close lot sales to ensure all specifications are met. NVR’s performance obligation is to sell homes they build to homeowners.
Our FFB revenue is recognized on quarterly basis after NVR closes sales of homes to homeowners. The agreement with these FFB investors
is not subject to amendment by regulatory agencies and thus our revenue from the FFB assessment is not either. During the three months
ended on March 31, 2023 and 2022, we recognized revenue of $ and $ from the FFB assessments, respectively.
Contract
Assets and Contract Liabilities
Based
on our contracts, we invoice customers once our performance obligations have been satisfied, at which point payment is unconditional.
Accordingly, our contracts do not give rise to contract assets or liabilities under ASC 606. Accounts receivable are recorded when the
right to consideration becomes unconditional. We disclose receivables from contracts with customers separately on the balance sheets.
Cost
of Revenue
|
● |
Cost
of Real Estate Sale |
All
of the costs of real estate sales are from our land development business. Land acquisition costs are allocated to each lot based on the
area method, the size of the lot comparing to the total size of all lots in the project. Development costs and capitalized interest are
allocated to lots sold based on the total expected development and interest costs of the completed project and allocating a percentage
of those costs based on the selling price of the sold lot compared to the expected sales values of all lots in the project.
If
allocation of development costs and capitalized interest based on the projection and relative expected sales value is impracticable,
those costs could also be allocated based on area method, the size of the lot comparing to the total size of all lots in the project.
Cost
of rental revenue consists primarily of the costs associated with management and leasing fees to our management company, repairs and
maintenance, depreciation and other related administrative costs. Utility expenses are paid directly by tenants. The Company
disposed this business to related party on January 13, 2023. For further details on this transaction, refer to Note 5 to
Company’s Financial Statements – Related Party Transactions and Note 7 – Discontinued Operations.
Recent
Accounting Pronouncements
In
March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of Reference Rate Reform on Financial Reporting.
The amendments in this Update provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP)
to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments
in this Update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate
expected to be discontinued because of reference rate reform. The Company’s line of credit agreement provides procedures for determining
a replacement or alternative rate in the event that LIBOR is unavailable. The amendments in this Update are effective for all entities
as of March 12, 2020 through December 31, 2024. The Company does not believe that ASU 2020-04 will have significant impact on its
future consolidated financial statements.
In
October 2021, the FASB issued ASU No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract
Liabilities from Contracts with Customers.” ASU 2021-08 requires the company acquiring contract assets and contract liabilities
obtained in a business combination to recognize and measure them in accordance with ASC 606, “Revenue from Contracts with Customers”.
At the acquisition date, the company acquiring the business should record related revenue, as if it had originated the contract. Before
the update such amounts were recognized by the acquiring company at fair value. The amendments in this Update are effective for fiscal
years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including
in interim periods, for any financial statements that have not yet been issued. The Company has adopted these requirements, effective
on the first day of year 2023. The application of the ASU 2021-08 has not had a material impact on our consolidated financial statements.
2.
CONCENTRATION OF CREDIT RISK
The
group maintains cash balances at various financial institutions. These balances are secured by the Federal Deposit Insurance Corporation.
At times, these balances may exceed the federal insurance limits. At March 31, 2023 and December 31, 2022, uninsured cash and restricted
cash balances were $150,407 and $1,354,302, respectively.
3.
BUILDER DEPOSITS
In
November 2015, SeD Maryland Development, LLC (“SeD Maryland”) entered into lot purchase agreements with NVR, Inc. (“NVR”)
relating to the sale of single-family home and townhome lots to NVR in the Ballenger Run Project. The purchase agreements were amended
three times thereafter. Based on the agreements, NVR is entitled to purchase 479 lots for a price of approximately $64 million, which
escalates 3% annually after June 1, 2018.
As
part of the agreements, NVR was required to give a deposit in the amount of $5,600,000. Upon the sale of lots to NVR, 9.9% of the purchase
price is taken as payback of the deposit. A violation of the agreements by NVR would cause NVR to forfeit the deposit. On January 3,
2019 and April 28, 2020, NVR gave SeD Maryland two more deposits in the amounts of $100,000 and $220,000, respectively, based on the
3rd Amendment to the Lot Purchase Agreement. On March 31, 2023 and December 31, 2022, there were $0 and $0 held on deposit, respectively.
4.
NOTES PAYABLE
M&T
Bank Loans
On
April 17, 2019, SeD Maryland Development LLC entered into a Development Loan Agreement with Manufacturers and Traders Trust Company (“M&T
Bank”) in the principal amount not to exceed at any one time outstanding the sum of $8,000,000, with a cumulative loan advance
amount of $18,500,000. The line of credit bears interest rate of LIBOR plus 375 basis points. SeD Maryland Development LLC was also provided
with a Letter of Credit (“L/C”) Facility in an aggregate amount of up to $900,000. The L/C commission will be 1.5% per annum
on the face amount of the L/C. Other standard lender fees will apply in the event L/C is drawn down. The loan is a revolving line of
credit. The L/C Facility is not a revolving loan, and amounts advanced and repaid may not be re-borrowed. Repayment of the Loan Agreement
is secured by $2,600,000 collateral fund and a Deed of Trust issued to the Lender on the property owned by SeD Maryland. As of March
31, 2023 and December 31, 2022, the outstanding balance of the revolving loan was $0. On March 15, 2022 approximately $2,300,000 was
released from collateral, leaving approximately $300,000 as collateral for outstanding letters of credit.
Paycheck
Protection Program Loan
On
February 11, 2021, the Company entered into a five year note with M&T Bank with a principal amount of $68,502 pursuant to the Paycheck
Protection Program (“PPP Term Note”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).
The PPP Loan is evidenced by a promissory note. The PPP Term Note bears interest at a fixed annual rate of 1.00%, with the first sixteen
months of principal and interest deferred or until we apply for the loan forgiveness. The PPP Term Note may be accelerated upon the occurrence
of an event of default.
The
PPP Term Note is unsecured and guaranteed by the United States Small Business Administration. The Company applied to M&T Bank for
forgiveness of the PPP Term Note, with the amount which may be forgiven equal to at least 60% of payroll costs and other eligible payments
incurred by the Company, calculated in accordance with the terms of the CARES Act. In April, 2022 the Company received confirmation that
the loan was fully forgiven.
5.
RELATED PARTY TRANSACTIONS
Loan
from SeD Home Limited
The
Company receives advances from SeD Home Limited (an affiliate of Alset International) to fund development and operation costs. The advances
bear interest of 10% and are payable on demand. As of March 31, 2023 and December 31, 2022, Alset EHome Inc. had outstanding principal
due of $0 and $0, respectively and accrued interest of $228,557 and $228,557, respectively.
Loan
from SeD Intelligent Home Inc.
The
Company receives advances from SeD Intelligent Home, the owner of 99.99% of the Company. The advances bore interest of 18% until August
30, 2017 when the interest rate was adjusted to 5% and have no set repayment terms. On March 31, 2023, the Company owed $11,943,055 of
advance principal and $1,325,298 of accrued interest. On December 31, 2022, the Company owed $26,443,055 of advance principal and $1,154,462
of accrued interest.
Management
Fees
MacKenzie
Equity Partners, LLC, an entity owned by a Charles MacKenzie, a Director of the Company, has had a consulting agreement with a majority-owned
subsidiary of the Company since 2015. Per the terms of the agreement, as amended on January 1, 2018, the Company’s subsidiary paid
a monthly fee of $20,000 for consulting services. Pursuant to an agreement entered into in June of 2022, the Company’s subsidiary
has paid $25,000 per month for consulting services, effective as of January, 2022.
In
addition, MacKenzie Equity Partners is to paid certain bonuses, including (i) a sum of $50,000 on June 30, 2022; (ii) a sum of $50,000
upon the successful financing of 100 homes owned by American Housing REIT Inc. with an entity not affiliated with SeD Development Management
LLC (a subsidiary of the Company); and (iii) a sum of $50,000 upon the successful leasing of 30 homes in the Alset of Black Oak development.
The
Company incurred expenses of $75,000 and $60,000 in the three months ended March 31, 2023 and 2022, respectively, which were capitalized
as part of Real Estate on the balance sheet as the services relate to property and project management. In June, 2022, MacKenzie Equity
Partners accrued $50,000 bonus payment (as described above). On March 31, 2023 and December 31, 2022, the Company owed this related party
$25,000 and $25,000, respectively.
On
December 29, 2020, the Company entered into a Management Services Agreement (the “Management Services Agreement”) with Alset
International, pursuant to which the Company paid Alset International a one-time payment of $360,000 for the services of certain Alset
International staff members the Company received in 2020, and agreed to pay Alset International $30,000 per month for services to be
provided in 2021. This Management Services Agreement had a term that ended December 31, 2021. Alset International provided the Company
with services related to the development of the Black Oak and Ballenger Run real estate projects near Houston, Texas and in Frederick,
Maryland, respectively, and the potential development of future real estate projects. During the three months ended March 31, 2023 and
2022 the Company incurred expense of $0 and $0, respectively, and owed this related party $720,000 as of March 31, 2023 and December
31, 2022. This balance due is included in the loan amount from SeD Intelligent Home Inc., which in turn owes the funds to Alset International.
Advances
to Alset Inc.
The
Company pays some operating expenses for Alset Inc., a related party under the common control of Chan Heng Fai, the CEO of the Company.
The advances are interest free with no set repayment terms. On March 31, 2023 and December 31, 2022, the balance of these advances was
$4,088 and $0, respectively.
Sale
of Rental Business
On
December 9, 2022, Alset EHome Inc., a subsidiary of LiquidValue Development Inc. (the “Company”), entered into an agreement
with Alset International Limited and Alset Inc. pursuant to which Alset EHome Inc. agreed to sell its subsidiary American Home REIT Inc.
(“AHR”), which owns 112 single-family rental homes, to Alset Inc. The closing of the transaction contemplated by this agreement
was completed on January 13, 2023.
Alset
EHome Inc. sold AHR for a total consideration of $26,250,933, including the forgiveness of debt in the amount of $13,900,000, a promissory
note in the amount of $11,350,933 and a cash payment of $1,000,000. This purchase price represents the book value of AHR as of November
30, 2022. The closing of this transaction was approved by the stockholders of Alset International Limited. The difference between the
selling price and AHR’s book value on the date of sale of $274,204 was recorded as additional paid in capital, considering that
it was a related party transaction. The Company accrued $172,410 interest on note receivable from Alset Inc. on March 31, 2023.
Alset
Inc. owns 85.4% of Alset International Limited, and Alset International Limited indirectly owns approximately 99.9% of the Company. Certain
members of the Company’s Board of Directors and management are also members of the Board of Directors and management of each of
Alset International Limited and Alset Inc. Chan Heng Fai, the Chairman, Chief Executive Officer and majority stockholder of Alset Inc.,
is also the Chairman and Chief Executive Officer of both the Company and Alset International Limited; Chan Tung Moe is the Co-Chief Executive
Officer and a member of the Board of Directors of Alset Inc., Alset International Limited and the Company; and Charles MacKenzie, a director
of the Company, is also an officer of Alset Inc.
6.
STOCKHOLDERS’ EQUITY
As
of March 31, 2023, there were 704,043,324 shares of the registrant’s common stock $0.001 par value per share, issued and outstanding.
The
Company did not authorize any distribution during three months ended March 31, 2023 and three months ended March 31, 2022.
7.
DISCONTINUED OPERATIONS
On
December 9, 2022 Alset EHome Inc. (Alset EHome), a subsidiary of the Company, entered into stock purchase agreement with Alset International
Limited (“Alset International”) and Alset Inc., pursuant to which Alset Inc. agreed to purchase all of the outstanding shares
of American Home REIT Inc., a wholly owned subsidiary of Alset EHome. American Home REIT Inc. is the owner of 112 rental homes. Alset
EHome is a majority-owned, indirect subsidiary of Alset International, while Alset International is a majority-owned, indirect subsidiary
of Alset Inc. The purchase price of the transaction was established at $26,250,933. Pursuant to the stock purchase agreement the purchase
price should be satisfied by (i) a cash payment from Alset Inc. to Alset EHome of $1,000,000 in immediate available funds; (ii) the offset
of amount owned by Alset International to Alset Inc. in the amount of $13,900,000, and simultaneously Alset International will offset
the same amount owed by Alset EHome to Alset International in an the same amount; and (iii) the issuance of the Promissory Note by Alset
Inc. to Alset EHome in the amount of $11,350,933. The closing of this sale is subject to the approval of shareholders of Alset International.
The difference between the selling price and AHR’s book value on the date of sale of $274,204 was recorded as additional paid in
capital, considering that it was a related party transaction. The Company accrued $172,410 interest on note receivable from Alset Inc.
on March 31, 2023.
Under
ASU 2014-08, a disposal transaction meets the definition of a discontinued operation if all of the following criteria are met:
|
1. |
The
disposal group constitutes a component of an entity or a group of components of an entity. |
|
|
|
|
2. |
The
component of an entity (or group of components of an entity) meets the held-for-sale classification criteria, is disposed of by sale,
or is disposed of other than by sale (e.g., “by abandonment, in an exchange measured based on the recorded amount of the nonmonetary
asset relinquished, or in a distribution to owners in a spinoff”). |
|
|
|
|
3. |
The
disposal of a component of an entity (or group of components of an entity) “represents a strategic shift that has (or will
have) a major effect on an entity’s operations and financial results”. |
American
Home REIT Inc., is the owner of all rental properties of the Company’s rental business. The transaction described above is a disposal
by sale and has a major effect on our financial results. Since it meets all of the test criteria set forth above, we have treated this
disposal transaction as a discontinued operations in our financial statements.
The
closing of this transaction was completed on January 13, 2023.
The
composition of assets and liabilities included in discontinued operations are as follows:
SCHEDULE OF DISCONTINUED OPERATIONS
| |
January 13,
2023 | | |
December 31,
2022 | |
| |
($) | | |
($) | |
Assets: | |
| | | |
| | |
Real Estate | |
| | | |
| | |
Land | |
$ | - | | |
$ | 4,908,590 | |
Building and Improvements | |
| - | | |
| 21,933,889 | |
Real Estate Gross | |
| - | | |
| 26,842,479 | |
Less: Accumulated Depreciation | |
| - | | |
| (973,257 | ) |
Total Real Estate | |
| - | | |
| 25,869,222 | |
| |
| | | |
| | |
Cash | |
| - | | |
| 1,186,658 | |
Accounts Receivable | |
| - | | |
| 34,743 | |
Related Party Receivable | |
| - | | |
| 4,800 | |
Prepaid Expenses | |
| - | | |
| 4,413 | |
Total Assets | |
$ | - | | |
$ | 27,099,836 | |
| |
| | | |
| | |
Liabilities: | |
| | | |
| | |
| |
| | | |
| | |
Accounts Payable and Accrued Expenses | |
$ | - | | |
$ | 1,112,932 | |
Total Liabilities | |
$ | - | | |
$ | 1,112,932 | |
The
aggregate financial results of discontinued operations were as follows:
| |
Period Ended
January 13, 2023 | | |
Three Months
Ended March 31, 2022 | |
Income Statement Disclosures Attributable to Discontinued
Operation | |
| | |
| |
Rental Revenue | |
$ | 81,767 | | |
$ | 232,582 | |
| |
| | | |
| | |
Expenses | |
| | | |
| | |
General and Administrative | |
| 31,315 | | |
| 34,728 | |
Cost of Revenues | |
| 31,506 | | |
| 76,785 | |
Depreciation Expense | |
| 29,121 | | |
| 140,635 | |
| |
| | | |
| | |
Total Operating Expenses | |
| 91,942 | | |
| 252,148 | |
| |
| | | |
| | |
Loss From Operations | |
| (10,175 | ) | |
| (19,566 | ) |
| |
| | | |
| | |
Bank Charges | |
| - | | |
| 90 | |
Total Other Expense | |
| - | | |
| 90 | |
| |
| | | |
| | |
Loss from Discontinued Operations | |
$ | (10,175 | ) | |
$ | (19,656 | ) |
The
cash flows attributable to the discontinued operations are as follows:
| |
Period
Ended
January
13, 2023 | | |
Three Months
Ended
March
31, 2022 | |
Cash Flows Attributable
to Discontinued Operations | |
| | |
| |
Operating | |
$ | 10,175 | | |
$ | 59,834 | |
Investing | |
| - | | |
| (722,817 | ) |
Financing | |
| - | | |
| - | |
Net Change in Cash | |
$ | 10,175 | | |
$ | (662,983 | ) |
8.
COMMITMENTS AND CONTINGENCIES
Leases
The
Company leases office space in Texas and Maryland. The lease for the Company’s Texas office was terminated on January 31, 2023
while the lease of the Company’s Maryland office expires on December 31, 2024. The monthly rental payments range between $2,335
and $8,143, respectively. Rent expense was $26,111 and $30,145 for the three months ended March 31, 2023 and 2022, respectively. The
below table summarizes future payments due under these leases as of March 31, 2023.
The
balance of the operating lease right-of-use asset and operating lease liability as of March 31, 2023 was $86,637 and $88,423, respectively.
The balance of the operating lease right-of-use asset and operating lease liability as of December 31, 2022 was $108,950 and $110,431,
respectively.
The
below table summarizes future payments due under these leases as of March 31, 2023.
For
the Years Ending March 31:
SCHEDULE OF FUTURE PAYMENTS DUE UNDER LEASES
| |
| | |
2024 | |
| 95,758 | |
Total Minimum Lease Payments | |
$ | 95,758 | |
Less: Effect of Discounting | |
| (7,334 | ) |
Present Value of Future Minimum Lease Payments | |
| 88,423 | |
Less: Current Obligation under Lease | |
| 88,423 | |
Long-term Lease Obligation | |
$ | - | |
Lot
Sale Agreements
On
November 23, 2015, SeD Maryland Development LLC completed the $15,700,000 acquisition of Ballenger Run, a 197-acre land sub-division
development located in Frederick County, Maryland. Previously, on May 28, 2014, the RBG Family, LLC entered into a $15,000,000 assignable
real estate sales contract with NVR, by which RBG Family, LLC would facilitate the sale of the 197 acres of Ballenger Run to NVR. On
December 10, 2015, NVR assigned this contract to SeD Maryland Development, LLC through execution of an assignment and assumption agreement
and entered into a series of lot purchase agreements by which NVR would purchase 443 subdivided residential lots from SeD Maryland Development,
LLC. During the three months ended March 31, 2023 and 2022, NVR has purchased 0 and 3 lots, respectively.
Certain
arrangements for the sale of buildable lots to NVR require the Company to credit NVR with an amount equal to one year of the FFB assessment.
Under ASC 606, the credits to NVR are not in exchange for a distinct good or service and accordingly, the amount of the credit was recognized
as the reduction of revenue. As of March 31, 2023 and December 31, 2022, the accrued balance due to NVR was $189,475 and $189,475, respectively.
|
- |
Agreement
to Sell 110 Lots |
On
March 16, 2023, the Seller entered into a Purchase and Sale Agreement (the “Purchase and Sale Agreement”) with Rausch Coleman
Homes Houston, LLC, a Texas limited liability company (“Rausch Coleman”). Pursuant to the terms of the Purchase and Sale
Agreement, the Seller has agreed to sell approximately 110 single-family detached residential lots which comprise a section of the Lakes
at Black Oak. The price of the lots and certain community enhancement fees the Seller will be entitled to receive are anticipated to
equal an aggregate of $6,586,250.
The
closing of the sale of these 110
lots depends on the satisfaction of certain conditions set forth in the Purchase and Sale Agreement. There can be no assurance that
such closings will be completed on the terms outlined herein or at all. Commencing on March 16, 2023, Rausch Coleman had a thirty
(30) day inspection period in which to inspect the properties and determine their suitability; during such inspection period, Rausch
Coleman was entitled to decline to proceed with the closing of these transactions. Rausch Coleman did not exercise its right to
decline, and pursuant to the Purchase and Sale Agreement, has made an additional deposit in escrow. Through the date hereof, Rausch Coleman has deposited $957,250
in escrow.
The
Seller shall be required to complete certain improvements at the property at the Seller’s cost prior to the closing.
|
- |
Agreement
to Sell 189 Lots |
On
March 17, 2023, the Seller entered into a Contract of Sale (the “Contract of Sale”) with Davidson Homes, LLC, an Alabama
limited liability company (“Davidson Homes”). Pursuant to the terms of the Contract of Sale, the Seller has agreed to sell
approximately 189 single-family detached residential lots comprising an additional section of the Lakes at Black Oak. The price of the
lots and certain community enhancement fees the Seller will be entitled to receive are anticipated to equal an aggregate of $10,022,500.
The
closing of the transactions described in the Contract of Sale depends on the satisfaction of certain conditions set forth therein.
There can be no assurance that such closings will be completed on the terms outlined herein or at all. Davidson Homes has agreed to
purchase the lots in stages, comprising an initial closing of 94
lots, the remaining lots to be purchased on or before December 29, 2023. Commencing on March 17, 2023, Davidson Homes had a thirty
(30) day inspection period in which to inspect the properties and determine their suitability; during such inspection period,
Davidson Homes was entitled to decline to proceed with the closing of these transactions. Davidson Homes did not exercise its right
to decline, and pursuant to the Contract of Sale, has made an additional deposit in escrow. Through the date hereof, Davidson Homes has deposited $1,425,000
in escrow.
The
Seller shall be required to complete certain improvements at the property at the Seller’s cost prior to the closing.
Security
Deposits
Our
rental-home lease agreements require tenants to provide a one-month security deposits. The property management company collects all security
deposits and maintains them in a trust account. The Company also has obligation to refund these deposits to the renters at the time of
lease termination. As of December 31, 2022, the security deposits held in the trust account were $271,480.
9.
SUBSEQUENT EVENTS
On
April 13, 2023, 150 CCM Black Oak Ltd. (the “Seller”), a Texas Limited Partnership and a wholly owned subsidiary of the Company,
completed the sale of 131 single-family detached residential lots in a residential community in the city of Magnolia, Texas known as
the “Lakes at Black Oak” to Century Land Holdings of Texas, LLC, a Colorado limited liability company (the “Buyer”).
The Seller has received total consideration of $6,615,500 from the Buyer. In addition, the Seller will be entitled to receive certain reimbursements in the year ended December 31, 2024.