Forward-Looking Statements
This Form 10-Q contains certain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. For this purpose, any
statements contained in this Form 10-Q that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, words such as "may", "will", "expect", "believe", "anticipate",
"estimate" or "continue" or comparable terminology are intended to identify
forward-looking statements. These statements by their nature involve substantial
risks and uncertainties, and actual results may differ materially depending on a
variety of factors, many of which are not within our control. These factors
include by are not limited to economic conditions generally and in the
industries in which we may participate, competition within our chosen industry,
including competition from much larger competitors, technological advances and
failure to successfully develop business relationships.
Results of Operations for the Three and Nine Months Ended September 30, 2021 and
2020:
Three-months Ended Nine-months Ended
September 30, September 30, September 30, September 30,
2021 2020 2021 2020
Revenue $ 3,547,396 $ 4,160,132 $ 12,026,069 $ 9,161,926
Cost of Revenue $ 2,235,305 $ 3,637,351 $ 8,709,404 $ 7,894,441
General and
Administrative $ 360,955 $ 226,864 $ 1,173,751 $ 734,131
Other Income
(Expense) $ (29,277 ) $ (10,953 ) $ (56,267 ) $ 8,501
Provision for
Income Taxes $ - $ 128,260 $ - $ 242,913
Net Income $ 921,859 $ 156,704 $ 2,086,647 $ 298,942
Revenue
Revenue was $3,547,396 for the three months ended September 30, 2021 as compared
to $4,160,132 for the three months ended September 30, 2020. Revenue was
$12,026,069 for the nine months ended September 30, 2021 as compared to
$9,161,926 for the nine months ended September 30, 2020. The increase in revenue
is caused mainly by an increase in property sales from the Ballenger project in
2021. In this project, builders are required to purchase a minimum number of
lots based on their applicable sale agreements. We collect revenue only from the
sale of lots to builders. We are not involved in the construction of homes at
the present time.
Income from the sale of Front Foot Benefits ("FFBs"), assessed on Ballenger
project lots, increased from $54,147 in the three months ended September 30,
2020 to $182,813 in the three months ended September 30, 2021. Income from the
sale of FFBs increased from $169,349 in the nine months ended September 30, 2020
to $431,458 in the nine months ended September 30, 2021. The increase is a mixed
result of the increased sale of properties to homebuyers in 2021 and sale of
FFBs of a higher value.
In second quarter of 2021, the Company started renting homes to tenants. Revenue
from rental business was $133,302 and $155,249 for the three and nine months
ended September 30, 2021, respectively. The company expects that the revenue
from this business will continue to increase as we acquire more rental houses
and successfully rent them.
Cost of Revenue
All cost of revenue in the three and nine months ended on September 30, 2021
came from our Ballenger and SeD Texas projects. The cost of revenue in the three
and nine months ended on September 30, 2020 came from our Ballenger project. The
gross margin ratio for Ballenger project in first nine months of 2021 and 2020
were approximately 28% and 14%, respectively. The different types of lots
usually have different gross margins, the main reason which led to the increase
in 2021. The gross margin ratio for SeD Texas project in first nine months of
2021 and 2020 were approximately 26% and 0%, respectively.
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General and Administrative Expenses
General and administrative expenses increased from $226,864 in the three months
ended September 30, 2020 to $360,955 in the three months ended September 30,
2021. General and administrative expenses increased from $734,131 in the nine
months ended September 30, 2020 to $1,173,751 in the nine months ended September
30, 2021. The increase in those expenses is caused mainly by an increase in
professional fees in 2021.
Net Income (Loss)
In the three months ended September 30, 2021, the Company had net income of
$921,859 compared to net income of $156,704 in the three months ended September
30, 2020. In the nine months ended September 30, 2021, the Company had net
income of $2,086,647 compared to net income of $298,942 in the nine months ended
September 30, 2020. The increase in net income was caused by the increased sales
in our Ballenger Project and rental income from our SeD Texas project in 2021.
Liquidity and Capital Resources
Our real estate assets under development have decreased to $15,273,767 as of
September 30, 2021 from $20,616,237 as of December 31, 2020. This decrease
reflects increase in sales of lots and a higher increase in cost of sales than
in capitalized costs related to the construction in progress. In the nine months
ended September 30, 2021, we purchased 46 homes, which will be used in the
Company's rental business. Our rental properties assets were $10,608,473 as of
September 30, 2021. Additionally, in September 2021 we purchased a house which
currently serves as the model house with some office space for a property
manager. This property asset was $419,263 as of September 30, 2021.
Our liabilities increased from $2,691,098 at December 31, 2020 to $8,260,254 at
September 30, 2021. Our total assets have increased to $34,470,570 as of
September 30, 2021 from $29,219,785 as of December 31, 2020.
As of September 30, 2021, we had cash of $3,511,515 and restricted cash of
$4,399,872 compared to $2,375,180 and $5,729,067 as of December 31, 2020,
respectively.
Our Ballenger Run project has a revolver loan from 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. As of September 30, 2021 and
December 31, 2020, the revolver loan balance was $0.
On June 18, 2020, Alset EHome Inc. (formerly known as SeD Home & REITs Inc. and
Alset iHome Inc.) entered into a Loan Agreement with M&T Bank. Pursuant to this
Loan Agreement, M&T Bank provided a non-revolving loan to Alset EHome Inc. in an
aggregate amount of up to $2,990,000. As of September 30, 2020, the M&T loan
balance was $670,281. The loan was paid off in May 2021.
On February 11, 2021, the Company entered into a term 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 may apply 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. At this time, we are not in a
position to quantify the portion of the PPP Term Note that will be forgiven.
In the first nine months of 2021 the Company signed multiple purchase agreements
to acquire 46 homes in Montgomery and Harris Counties, Texas. By September 30,
2021, all of the 46 homes were closed with an aggregate purchase cost of
$10,662,228. The Company borrowed $5,975,019 from SeD Intelligent Home Inc. to
fund part of these acquisitions. All of these purchased homes are properties of
our rental business.
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Our subsidiaries are reviewing plans for potential additional fundraising to
fund single family rental operations and the acquisition of additional real
estate projects.
The future development timeline of Black Oak will be based on multiple
conditions, including the amount of funds which may be raised from capital
markets, the loans we may secure from third party financial institutions, and
government reimbursements which may be received. The development will be step by
step and expenses will be contingent on the amount of funding we will receive.
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