UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the
quarterly period ended March 31, 2018
or
[
]
TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from __________to _________
000-55038
Commission
file number
SeD
Intelligent Home Inc.
(Exact
name of registrant as specified in its charter)
|
NEVADA
|
|
27-1467607
|
|
State
or other jurisdiction of incorporation or
organization
|
|
(I.R.S.
Employer Identification No.)
|
|
4800 Montgomery Lane, Suite 210, Bethesda, Maryland
|
|
20814
|
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
301-971-3940
Registrant’s
telephone number, including area code
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
and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted 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 and post such files). Yes ☐
No ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a 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
|
☒
|
|
(Do not
check if a 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 is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes ☐ No
☒
As of May 10, 2018, there were
704,043,324
shares of the registrant’s common
stock
$0.001 par
value per share, issued and outstanding.
Table of Contents
|
PART I
|
FINANCIAL INFORMATION
|
1
|
|
|
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|
Item 1.
|
Consolidated Financial Statements
|
1
|
|
|
|
|
|
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Consolidated Balance Sheets (unaudited)
|
1
|
|
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|
|
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|
Consolidated Statements of Operations (unaudited)
|
2
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|
|
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Consolidated Statements of Cash Flows (unaudited)
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3
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|
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Notes to Consolidated Financial Statements (unaudited)
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4
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Item 2.
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Management's Discussion and Analysis of Financial Condition and
Results of Operations
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14
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Item 3.
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Quantitative and Qualitative Disclosure About Market
Risk
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17
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Item 4.
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Controls and Procedures
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17
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PART II
|
OTHER INFORMATION
|
17
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Item 1.
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Legal Proceedings
|
17
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Item 1A.
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Risk Factors
|
17
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Item 2.
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Unregistered Sales of Equity Securities and Use of
Proceeds
|
17
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Item 3.
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Defaults Upon Senior Securities
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17
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Item 4.
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Mine Safety Disclosures
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17
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Item 5.
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Other Information
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17
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Item 6.
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Exhibits
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18
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SIGNATURE
S
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19
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Exhibit Index
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|
SeD Intelligent Home Inc. and Subsidiaries
Consolidated Balance Sheets
|
|
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Assets:
|
|
|
|
Real
Estate
|
|
|
|
Construction
in Progress
|
$
28,672,472
|
$
30,104,201
|
|
Land
Held for Development
|
23,597,203
|
24,302,643
|
|
Real
Estate Held For Sale
|
136,248
|
136,248
|
|
|
52,405,923
|
54,543,092
|
|
|
|
|
|
Cash
|
287,505
|
358,233
|
|
Restricted
Cash
|
2,662,636
|
2,656,670
|
|
Accounts
Receivable
|
1,537
|
513,043
|
|
Prepaid
Expenses
|
37,784
|
49,903
|
|
Fixed
Assets, Net
|
16,813
|
22,062
|
|
Deposits
|
23,603
|
23,603
|
|
|
|
|
|
Total
Assets
|
$
55,435,801
|
$
58,166,606
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity:
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
Accounts
Payable and Accrued Expenses
|
$
1,001,044
|
$
1,131,116
|
|
Accrued
Interest - Related Parties
|
2,047,203
|
1,935,222
|
|
Tenant
Security Deposits
|
1,225
|
2,625
|
|
Builder
Deposits
|
4,650,644
|
5,356,718
|
|
Notes
Payable, Net of Debt Discount
|
5,839,213
|
8,132,020
|
|
Notes
Payable - Related Parties, Net of Debt Discount
|
8,023,591
|
8,003,591
|
|
Total
Liabilities
|
21,562,920
|
24,561,292
|
|
|
|
|
|
Stockholders'
Equity:
|
|
|
|
Common
Stock, at par $0.001, 1,000,000,000 shares authorized and
704,043,324 issued, and outstanding at March 31, 2018 and December
31, 2017, respectively
|
704,043
|
704,043
|
|
Additional
Paid In Capital
|
32,739,017
|
32,739,017
|
|
Accumulated
Deficit
|
(1,915,859
)
|
(2,092,837
)
|
|
Total
Stockholders' Equity
|
31,527,201
|
31,350,223
|
|
Non-controlling
Interests
|
2,345,680
|
2,255,091
|
|
Total
Stockholders' Equity
|
33,872,881
|
33,605,314
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
$
55,435,801
|
$
58,166,606
|
SeD Intelligent Home, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three Months Ended March 31
(Unaudited)
|
|
|
|
|
Revenue
|
|
|
|
Rental
Income
|
$
-
|
$
56,768
|
|
Property
Sales
|
4,105,774
|
1,092,000
|
|
|
4,105,774
|
1,148,768
|
|
Operating
Expenses
|
|
|
|
Cost
of Sales
|
3,593,508
|
1,200,614
|
|
General
and Administrative Expenses
|
253,806
|
259,426
|
|
|
3,847,314
|
1,460,040
|
|
|
|
|
|
Income
(Loss) From Operations
|
258,460
|
(311,272
)
|
|
|
|
|
|
Other
Income
|
|
|
|
Interest
Income
|
5,966
|
6,304
|
|
Other
Income
|
3,141
|
21,564
|
|
|
9,107
|
27,868
|
|
|
|
|
|
Net
Income (Loss) Before Income Taxes
|
267,567
|
(283,404
)
|
|
|
|
|
|
Provision
for Income Taxes
|
-
|
-
|
|
|
|
|
|
Net
Income (Loss)
|
267,567
|
(283,404
)
|
|
|
|
|
|
Net
Income (Loss) Attributable to Non-controlling
Interests
|
90,589
|
(28,811
)
|
|
|
|
|
|
Net
Income (Loss) Attributable to Common Stockholders
|
$
176,978
|
$
(254,593
)
|
|
|
|
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Net
Income (Loss) Per Share - Basic and Diluted
|
$
0.00
|
$
(0.00
)
|
|
|
|
|
|
Weighted
Average Common Shares Oustanding - Basic and Diluted
|
704,043,324
|
704,043,324
|
SeD Intelligent Home, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Months Ended March 31
(Unaudited)
|
|
|
|
|
|
|
|
|
Cash
Flows From Operating Activities
|
|
|
|
Net
Income (Loss)
|
$
267,567
|
$
(283,404
)
|
|
Adjustments
to reconcile net income (loss) to net cash provided by (used in)
operating activities:
|
|
|
|
Depreciation
|
5,249
|
4,809
|
|
Changes
in Operating Assets and Liabilities
|
|
|
|
Real
Estate Purchases and Development Costs
|
2,154,704
|
(244,802
)
|
|
Other
Receivable
|
511,506
|
(500
)
|
|
Prepaid
Expenses
|
12,119
|
30,549
|
|
Accounts
Payable and Accrued Expenses
|
(130,072
)
|
(387,392
)
|
|
Accrued
Interest - Related Parties
|
111,981
|
22,191
|
|
Tenant
Security Deposits
|
(1,400
)
|
-
|
|
Builder
Deposits
|
(706,074
)
|
-
|
|
Net
Cash Provided By (Used In) Operating Activities
|
2,225,580
|
(858,549
)
|
|
|
|
|
|
Cash
Flows From Investing Activities
|
|
|
|
Change
in Restricted Cash
|
(5,966
)
|
(6,304
)
|
|
Purchase
of Fixed Assets
|
-
|
(5,563
)
|
|
Net
Cash Used In Investing Activities
|
(5,966
)
|
(11,867
)
|
|
|
|
|
|
Cash
Flows From Financing Activities
|
|
|
|
Capital
Contribution - Related Party
|
-
|
109,078
|
|
Proceeds
from Notes Payable
|
-
|
694,630
|
|
Repayments
to Note Payable
|
(2,310,342
)
|
-
|
|
Net
Proceeds from Notes Payable - Related Parties
|
20,000
|
-
|
|
Net
Cash (Used In) Provided By Financing Activities
|
(2,290,342
)
|
803,708
|
|
|
|
|
|
Net
Decrease in Cash
|
(70,728
)
|
(66,708
)
|
|
Cash
- Beginning of Year
|
358,233
|
424,548
|
|
Cash
- End of Year
|
$
287,505
|
$
357,840
|
|
|
|
|
|
Supplementary
Cash Flow Information
|
|
|
|
Cash
Paid For Interest
|
$
151,036
|
$
280,662
|
|
Cash
Paid For Taxes
|
$
-
|
$
-
|
|
|
|
|
|
Supplemental
Disclosure of Non-Cash Investing and Financing
Activities
|
|
|
|
Forgiveness
of Notes Payable - Related Parties
|
$
-
|
$
13,996
|
|
Amortization
of Debt Discount Capitalized
|
$
17,535
|
$
94,722
|
SeD Intelligent Home, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2018 (Unaudited)
1.
NATURE
OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Nature of Operations
SeD
Intelligent Home Inc. (the “Company”), formerly known
as Homeownusa, was incorporated in the State of Nevada on December
10, 2009. On December 29, 2017, the Company, acquired SeD Home Inc.
(“SeD Home”) by reverse merger. SeD Home, a Delaware
corporation, formed on February 24, 2015 and named SeD Home USA,
Inc. before changing its name in May of 2015, is principally
engaged in developing, selling, managing, and leasing commercial
properties in the United States. The Company is 99.99% owned by SeD
Home International, Inc., which is wholly – owned by
Singapore eDevelopment Limited, a multinational public company,
listed on the Singapore Exchange Securities Trading Limited
(“SGXST”).
Principles of Consolidation
The
consolidated financial statements include all accounts of the
following entities as of the reporting period ending dates and for
the reporting periods as follows:
|
Name of
consolidated subsidiary
|
State or other
jurisdiction of incorporation or organization
|
Date of
incorporation or formation
|
Attributable
interest
|
|
|
|
|
|
|
SeD
USA, LLC
|
The
State of Delaware, U.S.A.
|
August 20,
2014
|
100%
|
|
150
Black Oak GP, Inc.
|
The
State of Texas, U.S.A.
|
January 23,
2014
|
100%
|
|
SeD
Development USA, Inc.
|
The
State of Delaware, U.S.A.
|
March 13,
2014
|
100%
|
|
150
CCM Black Oak Ltd.
|
The
State of Texas, U.S.A.
|
March 17,
2014
|
69%
|
|
SeD
Ballenger, LLC
|
The
State of Delaware, U.S.A.
|
July
7, 2015
|
100%
|
|
SeD
Maryland Development, LLC
|
The
State of Delaware, U.S.A.
|
October 16,
2014
|
83.55%
|
|
SeD
Development Management, LLC
|
The
State of Delaware, U.S.A.
|
June
18, 2015
|
85%
|
|
SeD
Builder, LLC
|
The
State of Delaware, U.S.A.
|
October 21,
2015
|
100%
|
|
SeD
Texas Home, LLC
|
The
State of Delaware, U.S.A.
|
June
16, 2015
|
100%
|
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, 2018 and December 31, 2017, the aggregate non-controlling
interest in SeD Home, Inc. was $2,345,680 and $2,255,091,
respectively, which is separately disclosed on the Consolidated
Balance Sheet.
On
December 29, 2017, the Company, SeD Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of the Company (the
“Merger Sub”), SeD Home, Inc. (“SeD Home”),
a Delaware corporation, and SeD Home International, Inc., a
Delaware corporation entered into an Acquisition Agreement and Plan
of Merger (the “Agreement”) pursuant to which the
Merger Sub was merged with and into SeD Home, with SeD Home
surviving as a wholly owned subsidiary of the Company. The closing
of this transaction (the “Closing”) also took place on
December 29, 2017 (the “Closing Date”). Prior to the
Closing, SeD Home International, Inc. was the owner of 100% of the
issued and outstanding common stock of SeD Home and was also the
owner of 99.96% of the Company’s issued and outstanding
common stock. The Company acquired all of the outstanding common
stock of SeD Home from SeD Home International, Inc. in exchange for
issuing to SeD Home International, Inc. 630,000,000 shares of the
Company’s common stock. Accordingly, SeD Home International,
Inc. remains the Company’s largest shareholder, and the
Company is now the sole shareholder of SeD Home. The Agreement and
the transactions contemplated thereby were approved by the Board of
Directors of each of the Company, the Merger Sub, SeD Home
International, Inc., and SeD Home. The Agreement is considered a
business combination of companies under common control and
therefore, the consolidated financial statements include the
financial statements of both companies.
Basis of Presentation
The
Company’s consolidated financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America (“US
GAAP”).
Use of Estimates
The
preparation of 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 consolidated financial
statements. Actual results could differ from those
estimates.
Earnings (Loss) per Share
Basic
income (loss) per share is computed by dividing the net 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 similar 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 dilutive financial
instruments issued or outstanding for the periods ended March 31,
2018 or December 31, 2017.
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, 2018
and December 31, 2017.
Restricted Cash
As a
condition to the loan agreement with The Xenith Bank, the Company
is required to maintain a minimum of $2,600,000 in an
interest-bearing account maintained by the lender as additional
security for the loans. The funds will remain as collateral for the
loans until the loans are paid off in full.
Other Receivables
Other
receivables include all receivables from buyers, contractors and
all other parties. The balance at December 31, 2017 was primarily a
lot sale receivable for which no allowance is necessary and payment
was received in January 2018.
Property and Equipment
Property
and equipment are recorded at cost. Expenditures for major
additions and betterments 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
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.
The
Company capitalized interest from related party borrowings of
$111,981 and $22,191 for the three months ended March 31, 2018 and
2017, respectively. The Company capitalized interest from the
third-party borrowings of $109,143 and $284,550 for the three
months ended March 31, 2018 and 2017, respectively.
A
property is classified as “held for sale” when all of
the following criteria for a plan of sale have been
met:
(1)
management, having the authority to approve the action, commits to
a plan to sell the property. (2) the property is available for
immediate sale in its present condition, subject only to terms that
are usual and customary. (3) an active program to locate a buyer
and other actions required to complete the plan to sell, have been
initiated. (4) the sale of the property is probable and is expected
to be completed within one year or the property is under a contract
to be sold. (5) the property is being actively marketed for sale at
a price that is reasonable in relation to its current fair value.
and (6) actions necessary to complete the plan of sale indicate
that it is unlikely that significant changes to the plan will be
made or that the plan will be withdrawn. When all of these criteria
have been met, the property is classified as “held for
sale”. “Real estate held for sale” only includes
El Tesoro project and D street project.
Beginning
in 2018, it is the Company’s policy to obtain annual
independent third party valuations as of December 31 for each
property and compare the fair value from the valuation to the book
value to determine if there any impairment.
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.
At
December 31, 2017 and March 31, 2018, there were no impairment
recognized for any of the projects.
Revenue Recognition
Accounting
Standards Codification ("ASC") 606, Revenue from Contracts with
Customers ("ASC 606"), 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 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.
Disaggregation of Revenue
Rental Income:
The
Company leased units to customers in 2017. The Company and customer
enter into a lease agreement with set pricing and length. The
Company’s obligation is to provide the property for lease
during the term. Revenue is recognized over the life of the
lease.
Property Sales:
The
Company’s main business is the land development. The Company
purchases land and develops it into residential communities. The
developed lots are sold to builders (customers) for the
construction of new homes. The builders sign sales contract with
the Company before they take the lots. The prices and timeline are
settled in the contract. The builders do the inspections to make
sure all conditions/requirements in contracts are met before taking
the lots. The Company recognizes revenue when lots are transferred
to the builders (HUDs are executed) and ownerships are changed at
the time. The Company has no obligation for these lots after
transferring the ownership.
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 in
the statement of financial position.
The
Company recognizes sales of lots only upon closing under the full
accrual method. Revenue is recognized when ownership of the lots is
transferred to the buyer (HUDs are executed).
Cost of Sales
Land
acquisition costs are allocated to each lot based on 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.
Income Taxes
Deferred
income tax assets and liabilities are determined based on the
estimated future tax effects of net operating loss and credit
carry-forwards and temporary differences between the tax basis of
assets and liabilities and their respective financial reporting
amounts measured at the current enacted tax rates. The differences
relate primarily to net operating loss carryforward from date of
acquisition and to the use of the cash basis of accounting for
income tax purposes. The Company records an estimated valuation
allowance on its deferred income tax assets if it is more likely
than not that these deferred income tax assets will not be
realized.
The
Company recognizes a tax benefit from an uncertain tax position
only if it is more likely than not that the tax position will be
sustained on examination by taxing authorities, based on the
technical merits of the position. The tax benefits recognized in
the consolidated financial statements from such a position are
measured based on the largest benefit that has a greater than 50%
likelihood of being realized upon ultimate settlement. The Company
has not recorded any unrecognized tax benefits.
The
Company’s tax returns for 2017, 2016, 2015 and 2014 remain
open to examination.
Recent Accounting Pronouncements
In December 2016, the Financial
Accounting Standards Board ("FASB") issued Accounting Standard
Update ("ASU") 2016-20, Technical Corrections and Improvements
to Topic 606, Revenue from Contracts with Customers. The amendments
in this ASU address loan guarantee fees, impairment testing of
contract costs, provisions for losses on construction-type and
production-type contracts, and various
disclosures.
In
April 2016, the FASB issued ASU 2016-10 - Revenue from
Contracts with Customers (Topic 606) — Identifying
Performance Obligations and Licensing. This standard amends
the guidance in ASU 2014-09 and ASU 2016-08 specifically related to
identifying performance obligations and accounting for licenses of
intellectual property.
In
March 2016, the FASB issued ASU 2016-08 - Revenue from
Contracts with Customers: Principal versus Agent Considerations.
The amendments of this standard are intended to improve the
operability and understandability of the implementation guidance on
principal versus agent considerations.
In
August 2015, the FASB issued ASU No. 2015-14 - Revenue from
Contracts with Customers (Topic 606) - Deferral of the Effective
Date, which defers the effective date of ASU 2014-09 for
one year and permits early adoption as early as the original
effective date of ASU 2014-09. The new revenue standard may be
applied retrospectively to each prior period presented or
retrospectively with the cumulative effect recognized as of the
date of adoption.
In
May 2014, the FASB, issued Accounting Standards Update, or ASU,
2014-09 (ASC 606), Revenue from Contracts with Customers, which
affects any entity that either enters into contracts with customers
to transfer goods and services or enters into contracts for the
transfer of nonfinancial assets.
Subsequent Events
The
Company evaluated the events and transactions subsequent to March
31, 2018, the balance sheet date, through May 14, 2018, which to
the date the consolidated financial statements were available to be
issued.
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, 2018 and December 31, 2017,
uninsured cash balances were
$2,450,141and
$2,514,903, respectively. There was one customer that represented
100% of gross accounts receivable at December 31, 2017
3.
PROPERTY
AND EQUIPMENT
Property
and equipment stated at cost, less accumulated depreciation and
amortization, consisted of the following:
|
|
|
|
|
Computer
Equipment
|
$
41,597
|
$
41,597
|
|
Furniture
and Fixtures
|
21,393
|
21,393
|
|
|
62,990
|
62,990
|
|
Accumulated
Depreciation
|
(46,177
)
|
(40,928
)
|
|
|
$
16,813
|
$
22,062
|
Depreciation
expense was $5,249 and $4,809 for the three months ended March 31,
2018 and 2017, respectively.
In
November 2015, SeD Maryland Development, LLC
(“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. Based
on the agreements, NVR is entitled to purchase 443 lots for a price
of approximately $56M, which escalates 3% annually after June 1,
2018.
As part
of the agreements, NVR provided 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 repaid back of the deposit. A violation
of the agreements by NVR would cause NVR to forfeit the deposit. At
March 31, 2018 and December 31, 2017, there were $4,650,644 and
$5,056,718 outstanding, respectively.
Black
Oak LP received a deposit of $300,000 from Lexington 26 LP
(Colina), a building company located in Texas. In February 2018,
the deposit $300,000 was refunded to Colina since both sides agreed
to the changed development plan. At March 31, 2018 and December 31,
2017, there were $0 and $300,000 outstanding,
respectively.
On
October 7, 2015, the Company entered into a note for $6,000,000,
bearing interest at 13%, with a maturity date of October 7, 2016
with Revere High Yield Fund, LP ( “Revere” ). In
connection with the loan, the Company incurred origination and
closing fees of $524,233, which were recorded as debt discount and
are amortized over the life of the loan. The loan is secured by a
deed of trust on the property and a Limited Guarantee Agreement
with related parties of the Company. On October 1, 2016, the loan
was extended to April 1, 2017 for fees of $109,285. These fees were
recorded as a debt discount under debt modification accounting are
amortized over the extension period. On April 1, 2017, the loan was
again extended until October 1, 2017 for a fee of $110,000. These
fees were recorded as a debt discount under debt modification
accounting and were amortized over the extension period. As of
October 1, 2017, the loan was fully repaid and there is no
outstanding principal or unamortized debt discount.
On
November 23, 2015, SeD Maryland Development LLC entered into a
Revolving Credit Note with The Xenith Bank in the original
principal amount of $8,000,000. During the term of the loan,
cumulative loan advances may not exceed $26,000,000. The line of
credit bears interest at LIBOR plus 3.8% with a floor rate of 4.5%.
The interest rate at March 31, 2018 was 5.50%.
Beginning December
1, 2015, interest only payments are due on the outstanding
principal balance. The entire unpaid principal and interest sum is
due and payable on November 22, 2018, with the option of one
twelvemonth extension period. The loan are secured by a deed
of trust on the property,
$2,600,000 of
collateral cash, and a Limited Guaranty Agreement with SeD
Ballenger. The company also has $800,000 letter of credit from the
Xenith Bank. The letter of credit is due on November 22, 2018 and
bears interest at 15%. In September 2017, Maryland Development LLC
and the Xenith Bank modified the Revolving Credit Note, which
increased the original principal amount from $8,000,000 to
$11,000,000 and extended the maturity date of the loan and letter
of credit to December 31, 2019.
As of
March 31, 2018 and December 31, 2017, the principal balance is
$5,961,955 and $8,272,297, respectively. As part of the
transaction, the Company incurred loan origination fees and closing
fees, totaling $480,947, which were recorded as debt discount and
are amortized over the life of the loan. The unamortized debt
discount was $122,742 and $140,277 at March 31, 2018 and December
31, 2017, respectively.
6.
RELATED
PARTY TRANSACTIONS
Notes Payable
SeD
Home received advances from Singapore eDevelopment Ltd (which was
the 100% owner of the Company) to fund development costs and
operation costs. The advances were unsecured, bear interest at 18%
per annum and are payable on demand. As of December 31, 2015, SeD
Home had outstanding principal due of $12,293,715 and accrued
interest of $2,161,055 due to this related party.
SeD
Home received advances from SCDPL (owned 100% by Singapore
eDevelopment) to fund development costs and operation costs. The
advances were unsecured, bear interest at 18% per annum and were
payable on demand. As of December 31, 2015, SeD Home had
outstanding principal due of $4,300,930 and accrued interest of
$1,461,058 due to this related party.
On
September 30, 2015, SeD Home received $10,500,000 interest free
loan, with a maturity date of March 31, 2016, from Hengfai Business
Development Pte, Ltd, owned by the Chief Executive Officer of
Singapore eDevelopment Ltd and is also the majority shareholder of
Singapore eDevelopment Ltd, specifically for Ballenger Run project.
SeD Home imputed interest at 13%, which is the interest rate on the
Revere Loan noted in Note 5. The imputed interest resulted in a
debt discount of $622,431 which is amortized over the life of the
note. At December 31, 2015, SeD Home had $10,500,000 outstanding on
the note and unamortized debt discount of $311,216. On April 1,
2016, SeD Home extended the note on the same terms through December
31, 2016. This resulted in an additional $933,647 of new imputed
interest which was amortized during 2016.
At
December 31, 2016, considering the long-term development and
short-term debt repayment, SeD Home restructured the loans from
these affiliates. The restructuring process was done to transfer
the loans to SeD Home International (99.99 % owner of the Company),
the principal of which, $26,913,525, was then forgiven and recorded
into additional paid in capital. SeD Home still owed the accrued
interest of $6,283,207 to SeD Home International. The remaining
accrued interest does not bear interest. On August 30, 2017, an
additional $4,560,085 of this interest was forgiven and recorded
into additional paid in capital. The remaining amount of $1,723,122
was still outstanding as of March 31, 2018 and December 31,
2017.
SeD
Home receives advances from SeD Home Limited (an affiliate of
Singapore eDevelopment), to fund development and operation costs.
The advances bear interest at 10% and are payable on demand. As of
March 31, 2018 and December 31, 2017, SeD Home had outstanding
principal due of $1,070,000 and $1,050,000 and accrued interest of
$112,677 and $86,425.
SeD
Home receives advances from SeD Home International. The advances
bore interest at 18% until August 30, 2017 when the interest rate
was adjusted to 5% and have no set repayment terms. At March 31,
2018 and December 31, 2017, there were $6,953,591 and $6,953,591 of
principal and
$1,934,526 and
$1,848,797 of accrued interest outstanding. Both accrued
outstanding interests include the remaining amount $1,723, 122
after interest was forgiven on August 30, 2017 as discussed in
previous paragraph.
During
2017, prior to the reverse merger, SeD Intelligent Home Inc.
borrowed $30,000 from SeD Home International Inc. The borrowings
did not bear any interest. In November 2017, the debt was forgiven
by SeD Home International Inc. and was recognized into additional
paid in capital.
Other Transactions
On
November 29, 2016 an affiliate of SeD Home entered into three
$500,000 bonds for a total of $1.5 million that are to incur annual
interest at eight percent and the principal shall be paid in full
on November 29, 2019. SeD Home agreed to guarantee the payment
obligations of these bonds. Further, at the maturity date, the
bondholder has the right to propose to acquire a property built by
SeD Home, and SeD will facilitate that transaction. The proposed
acquisition
purchase price
would be at SeD Home's cost. If the cost price is more than $1.5
million, the proposed acquirer would pay the difference, and if the
cost price is below $1.5 million, the affiliate of SeD would pay
the difference in cash.
Reverse Merger
As
described in Note 1, the reverse merger was done with a related
party through common control and ownership.
Management Fees
Black
Oak LP is obligated under the Limited Partnership Agreement (as
amended) to pay a $6,500 per month management fee to Arete Real
Estate and Development Company (Arete), a related party through
common ownership and $2,000 per month to American Real Estate
Investments LLC (AREI), a related party through common ownership.
The Company incurred same fees of $25,500 for the three months
ended March 31, 2018 and 2017, respectively. These fees were
capitalized as part of Real Estate on the consolidated balance
sheet.
Arete
is also entitled to a developer fee of 3% of all development costs
excluding certain costs. The fees are to be accrued until
$1,000,000 is received in revenue and/or builder deposits relating
to the Black Oak Project. At March 31, 2018 and December 31, 2017,
there was $133,130 capitalized as Real Estate relating to these
costs, respectively.
At
March 31, 2018 and December 31, 2017, the Company had $334,130 and
$314,630 owed to Arete in accounts payable and accrued
expenses.
At
March 31, 2018 and December 31, 2017, the Company had $54,000 and
$48,000 owed to AREI in accounts payable and accrued
expenses.
SeD
Maryland Development LLC was obligated under the terms of a Project
Development and Management Agreement with MacKenzie Development
Company LLC (“MacKenzie”) and Cavalier Development
Group LLC (“Cavalier”) (together, the Developers) to
provide various services for the development, construction and sale
of the Project. Mackenzie is partially owned by a family member of
a Director of the Company. The developers were entitled to certain
fees based on time and performance related milestones. The Company
incurred fees with MacKenzie of $0 and
$20,000 for the
three months ended March 31, 2018 and 2017, respectively. These
fees were capitalized as part of Real Estate on the consolidated
balance sheet. There were no amounts owed to this related party at
March 31, 2018 or December 31, 2017. On September 15, 2017,
MacKenzie assigned its rights and obligations under the Project
Development and Management Agreement to AdamsAumiller
Properties, LLC.
MacKenzie Equity
Partners, owned by a Charlie MacKenzie, a Director of the Company,
has a consulting agreement with the Company since 2015. Per the
current terms of the agreement, as amended on January 1, 2018, the
Company pays a monthly fee of $15,000 with an additional $5,000 per
month to be paid when the property development cashflow milestones
have been met. The Company incurred expenses of $45,000 and $47,198
for the three months ended March 31, 2018 and 2017, respectively,
which were capitalized as part of Real Estate on the balance sheet
as the services relate to property and project management. There
were no amounts owed to this related party at March 31, 2018 or
December 31, 2017.
Consulting Services
A law
firm, owned by Conn Flanigan, a Director of the Company, performs
consulting services for the Company. The Company incurred expenses
of $37,020 and $24,000 for the three months ended March 31, 2018
and 2017, respectively. At March 31, 2018 and December 31, 2017,
the Company owed this related party $8,000 and $17,730,
respectively.
On
August 28, 2017 the Company increased its authorized shares from
75,000,000 to 1,000,000,000 common shares with a par value of
$0.001 per share. No preferred shares have been authorized or
issued.
On July
7, 2014 CloudBiz invested $37,000 in the Company. For such
investment, CloudBiz received an additional 74 million common
shares. The 74 million common shares were issued below par at a
discount. The discount of $37,000 was recorded as a “discount
on common stock” in equity.
In
February of 2016, the Company received an additional $18,000 from
CloudBiz International Pte. Ltd., its majority shareholder, to
assist the Company in paying for operating expenses. The $18,000
was applied to "discount on common stock". In October of 2016, The
Company received an additional $40,000 from CloudBiz International
Pte. Ltd., its majority shareholder, to assist the Company in
paying for operating expenses. Of the $58,000 of proceeds received
from CloudBiz International Pte. Ltd, $37,000 were applied to
"discount on common stock" and the remaining proceeds were applied
to additional paid in capital.
On
December 22, 2016 CloudBiz International Pte. Ltd transferred
74,015,730 common shares to Singapore eDevelopment Ltd. Such shares
are presently owned by SeD Home International, Inc., a wholly owned
subsidiary of Singapore eDevelopment Ltd.
Effective
September 30, 2015, the Company entered into a noninterest bearing
note with a related party (see Note 6), for which interest was
imputed. Imputed interest recorded to additional paid in capital
for the years ended December 31, 2016 and 2015 was $622,431 and
$963,681, respectively.
As
discussed in Note 6, on December 31, 2016, $26,913,525 of related
party notes payable was forgiven and recorded as additional paid in
capital.
In
2017, SeD Home International, a related party through common
ownership, contributed $178,600 into the Company. The related party
also forgave $4,560,085 of accrued interest as of August 30,
2017.
Per
Note 1, 630,000,000 shares of common stock were issued on December
29, 2017 in connection with the reverse merger.
8.
COMMITMENTS
AND CONTINGENCIES
Leases
The
Company leases office space in Texas and Maryland. The leases
expire in 2018 and 2020, respectively and have monthly rental
payments ranging between $2,050 and $8,205. Rent expenses were
$29,759 and $28,966 for the three months ended March 31, 2018 and
2017, respectively. The below table summarizes future payments due
under these leases as of March 31, 2018.
For the
Years Ended December 31:
|
2018
(remainder)
|
83,893
|
|
2019
|
94,325
|
|
2020
|
96,924
|
|
Total
|
$
275,142
|
Lot Sale Agreements
In June
2016, SeD Maryland Development, LLC (“Maryland”)
entered into a lot purchase agreement with Orchard Development
Corporation (“Orchard”) relating to the sale of 210
multifamily units in the Ballenger Run Project for a total purchase
price of $5,250,000 with a closing date of March 31,
2018.
Based
on the agreement, Orchard must put $100,000 into a third-party
escrow account upon signing of the agreement and an additional
$150,000 upon completion of the feasibility study, which occurred
in November 2016. As of March 31, 2018 and December 31, 2017,
$250,000 in deposits is held in the escrow account. Since the funds
are held in an escrow account and not entitled to the Company,
there is no deposit recorded by the Company. As of March 31, 2018,
the agreement was amended to extend the closing date 30 days for an
additional deposit of $25,000. The extension also provides two
additional 30-day extensions which if exercised will require an
additional $25,000 deposit each.
On
February 19, 2018, SeD Maryland Development, LLC entered into a
contract to sell the Continuing Care Retirement Community Assisted
Independent Living parcel to Orchard Development Corporation. It
was agreed that the purchase price for the 5.9 acre lot would be
$2,900,000.00 with a $50,000 deposit. It was also agreed that
Orchard Development Corporation would have the right to terminate
the transaction during the feasibility study period, which would
last through May 30, 2018, and receive a refund of its deposit. On
April 13, 2018, Orchard Development Corporation indicated that it
would not be proceeding with the purchase of the CCRC parcel. The
Company is seeking to find alternative purchasers for the CCRC
parcel.
Termination
of Consultant Fees
The
Management Fees described above under Note 6 “Management
Fees” were subsequently amended as follows: In the Black Oak
Limited Partnership Agreement (the “LPA), SeD Development,
Arete, and AREI were named as Consultants, and pursuant to Section
9.17 of the initial LPA, were tasked with advising and consulting
the Partnership. Section 9.17 of the LPA was subsequently amended
on October 7, 2015 so that the Consultant fees were: 1) paidand
satisfied as of October 7, 2015; 2) reduced (SeD Development USA:
$6500 per month; Arete Real Estate: $6500 per month; and AREI:
$2000 per month); and 3) beginning on November 1, 2015, the
Consultant Fees would accrue and not be payable until Black Oak LO
has obtained $1,000,000 from a combination of builder deposits and
reimbursement revenue, as determined by SeD. On April 26, 2018,
Black Oak LP, SeD Development, Arete, and AREI entered into a
Consultant Fee Satisfaction and Release Agreement which terminated
future Consultant Fees and ended their accrual effective as
December 31, 2017. Additionally, the parties agreed that the
accrued Consultant Fees
shall remain not payable until Black Oak LP has
obtained $4,000,000 from district reimbursement revenue, as
determined by SeD. The accrued Consultant Fee amounts as of
December 31, 2017 are SeD Development USA: $162,500.00; Arete:
$162,500.00; and AREI: $30,000.00.
Termination
of Development Fees
The
Development Fees described above under Note 6 “Management
Fees” were subsequently amended as follows: On November 7,
2014,
the first
amendment to the LPA (known as the “Binding Term
Sheet”) was executed and the Black Oak partners created a
Development Fee whereby Arete Real Estate would also receive 3% of
development costs and IAD will receive 2% of development costs,
which were defined as costs of the partnership, excluding the cost
to purchase the land. In the Partnership Acknowledgement executed
on October 7, 2015, the parties receiving the DevelopmentFees were
changed to be Fogarty Family Trust II (3%) and SeD Development USA
(2%) and certain Development Fees were paid to Fogarty Family Trust
and SeD Development USA which were to offset any future Development
Fees, and in satisfaction of any Development Fees prior to October
1, 2015. In the Partnership Acknowledgement, the Development Fees:
1) were further defined as “costs of the partnership,
excluding the cost to purchase the land, to be paid annually after
an annual audit”; and 2) to be accrued and not be payable
until the Partnership has obtained $1,000,000 from a combination of
builder deposits and reimbursement revenue, as determined by SeD.
On April 26, 2018, Black Oak LP, SeD Development USA, and Fogarty
Family Trust II, entered into a Development Fee Satisfaction and
Release Agreement which terminated future Development Fees and
ended their accrual effective as December 31, 2017. Additionally,
the parties agreed that the accrued Development Fees shall remain
not payable until Black Oak LP has obtained $4,000,000 from
district reimbursement revenue, as determined by SeD. The accrued
Development Fees as of December 31, 2017 are SeD Development USA:
$91,667.00, and Fogarty Family Trust II: $137,500.00.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Forward-Looking Statements
This
Form 10Q contains certain forwardlooking statements
within the meaning of the Private Securities Litigation Reform Act
of 1995. For this purpose, any statements contained in this Form
10Q that are not statements of historical fact may be deemed
to be forwardlooking statements. Without limiting the
foregoing, words such as “may”, “will”,
“expect”, “believe”,
“anticipate”, “estimate” or
“continue” or comparable terminology are intended to
identify forwardlooking 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 Months Ended March 31, 2018 and
2017
:
|
|
|
|
|
|
|
|
Revenue
|
$
4,105,774
|
$
1,148,768
|
|
Operating
Expenses
|
$
3,847,314
|
$
1,460,040
|
|
Net Gain or
(Loss)
|
$
267,567
|
$
(283,404
)
|
Revenue
Revenue
was $4,105,774 for the three months ended March 31, 2018 as
compared to $1,148,768 for the three months ended March 31, 2017.
This increase in revenue is primarily attributable to the Company
having an increase in property sales from the Ballenger Project,
starting in May of 2017. We anticipate a higher level of revenue
from sales in 2018. Builders are required to purchase minimum
numbers of lots based on sales agreements we entered into with
them. We recognized revenue from the sale of lots to builders. We
do not build any houses ourselves at the present time.
Rental
income declined from $56,786 in the three months ended March 31,
2017 to $0 in the three months ended March 31, 2018 as all of the
Company’s rental properties, except one, were
sold.
Operating
Expenses
Operating expenses
increased to $3,847,314 for the three months ended March 31, 2018
from $1,460,040 for the three months ended March 31, 2017. This
increase is caused by increased costs relating to increased sales,
which cost of sales increased from $1,200,614 in the three months
ended March 31, 2017 to $3,593,508 in the three months ended March
31, 2018. Capitalized construction expenses and land costs were
allocated to lot sales. We anticipate total cost of sales will
increase as revenue increases. The General and administrative
expenses remained same period after period.
Net Income (Loss)
In the
three months ended March 31, 2018, the company had net income
$267,567 compared to a net loss of $283,404 in the three months
ended March 31, 2017. The profitability came from the sales of lots
from Ballenger Run projects. In 2018, we anticipate further
increase net income from our current operations. However, the
addition of new operations may cause additional expenses that
decrease the profitability.
Liquidity and Capital Resources
Our
real estate assets have decreased to $52,405,923 as of March 31,
2018 from $54,543,092 as of December 31, 2017. This decrease is a
result of the sale of lots during the three months ended March 31,
2018.
Our
liabilities declined from $24,561,292 at December 31, 2017 to
$21,562,920 at March 31, 2018. Our total assets have decreased to
$55,435,801 as of March 31, 2018 from $58,166,606 as of December
31, 2017 due to the decrease of the real estate
assets.
As of
March 31, 2018, we had cash $287,505, compared to $358,233 as of
December 31, 2017. Our Ballenger Run revolver loan balance from
Xenith Bank is approximately $5.9 million and the credit limit is
$11 million as of March 31, 2018. At December 31, 2017, the
revolver loan balance was approximate $8.3 million and credit limit
is $11 million. The interest of related party loans is accruing and
the due date of these loans could be extended.
Currently
the Black Oak project does not have any financing from third
parties. The future development timeline of Black Oak is based on
multiple limiting conditions, such as the amount of the funds
raised from capital market, the loans from third party financial
institutions, and the government reimbursements, etc. The
development will be step by step and expenses will be contingent on
the amount of funding we will receive.
Summary of Cash Flows
A
summary of cash flows from operating, investing and financing
activities for the three months ended March 31, 2018 and 2017 are
as follows:
|
|
|
|
|
|
|
|
|
Net
Cash Provided by (Used In) Operating Activities
|
$
2,225,580
|
$
(858,549
)
|
|
Net
Cash Used In Investing Activities
|
$
(5,966
)
|
$
(11,867
)
|
|
Net
Cash (Used In) Provided by financing activities
|
$
(2,290,342
)
|
$
803,708
|
|
Net
Decrease in Cash
|
$
(70,728
)
|
$
(66,708
)
|
|
Cash
and cash equivalents at beginning of the year
|
$
358,233
|
$
424,548
|
|
Cash
and cash equivalents at end of the year
|
$
287,505
|
$
357,840
|
Cash Flows from Operating Activities
Cash
flows from operating activities include costs related to assets
ultimately planned to be sold, including land development and
property purchased for resale. In the three months ended March 31,
2018, cash provided by operating activities was $2,225,580 compared
with cash $858,549 used in the three months end March 31, 2017. The
sales of the Ballenger lots in the first three months of 2018 is
the main reason of increase of the cash provided in the operating
activities. With the completion of the part of phase one of Black
Oak project, development speed was adjusted with our development
funding conditions and development costs went down as well.
Ballenger development costs also went down in the first three month
of 2018 compared that period in 2017 because of the different
development stages and the reduction by the allocated costs of sold
lots.
Cash Flows from Investing Activities
Cash
flows used in investing activities primarily includes purchases of
office fixture and computer equipment and restricted cash required
by Xenith Bank as the revolver loan collateral.
Cash Flows from Financing Activities
In the
three months ended March 31, 2017, most of loans were from third
party financial institutes, Revere Loan for Black Oak project and
Xenith Bank Loan for Ballenger Run project. In the three months
ended March 31, 2018, the company repaid $3,475,712 to the Xenith
Bank revolver loan and at same time also borrowed about $1.5
million from the Xenith Bank for its land development.
Seasonality
The
real estate business is subject to seasonal shifts in costs as
certain work in more likely to perform at certain times of year.
This may impact the expenses of SeD Home from time to time. In
addition, should we commence building homes, we are likely to
experience periodic spikes in sales as we commence the sales
process at a particular location.
Off-Balance Sheet Arrangements
As of
March 31, 2018, we did not have any off-balance sheet arrangements,
as defined under applicable SEC rules.
Critical Accounting Policies and Estimates
We have
established various accounting policies under US GAAP. Some of
these policies involve judgments, assumptions and estimates by
management. We base these estimates on historical experience,
available current market information and on various other
assumptions that management believes are reasonable under the
circumstances. Additionally, we evaluate the results of these
estimates on an ongoing basis. We are subject to uncertainties such
as the impact of future events, economic, environmental and
political factors and changes in our business environment.
Therefore, actual results could differ from these estimates. The
accounting policies that we deem most critical as
follows:
Revenue Recognition
Accounting
Standards Codification ("ASC") 606, Revenue from Contracts with
Customers ("ASC 606"), 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 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.
Disaggregation of Revenue
Rental Income:
The
Company leased units to customers in 2017. The Company and customer
enter into a lease agreement with set pricing and length. The
Company’s obligation is to provide the property for lease
during the term. Revenue is recognized over the life of the
lease.
Property Sales:
The
Company’s main business is the land development. The Company
purchases land and develops it into residential communities. The
developed lots are sold to builders (customers) for the
construction of new homes. The builders sign sales contract with
the Company before they take the lots. The prices and timeline are
settled in the contract. The builders do the inspections to make
sure all conditions/requirements in contracts are met before taking
the lots. The Company recognizes revenue when lots are transferred
to the builders (HUDs are executed) and ownerships are changed at
the time. The Company has no any obligation for these lots after
transferring the ownerships.
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 in
the statement of financial position.
The
Company recognizes sales of lots only upon closing under the full
accrual method. Revenue is recognized when ownership of the lots is
transferred to the buyer (HUDs are executed).
Real Estate 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.
The
Company capitalized interest from related party borrowings of
$111,981 and $22,191 for the three months ended March 31, 2018 and
2017, respectively. The Company capitalized interest from the
third-party borrowings of $109,143 and $284,550 for the three
months ended March 31, 2018 and 2017, respectively.
A
property is classified as “held for sale” when all of
the following criteria for a plan of sale have been
met:
(1)
management, having the authority to approve the action, commits to
a plan to sell the property. (2) the property is available for
immediate sale in its present condition, subject only to terms that
are usual and customary. (3) an active program to locate a buyer
and other actions required to complete the plan to sell, have been
initiated. (4) the sale of the property is probable and is expected
to be completed within one year or the property is under a contract
to be sold. (5) the property is being actively marketed for sale at
a price that is reasonable in relation to its current fair value.
and (6) actions necessary to complete the plan of sale indicate
that it is unlikely that significant changes to the plan will be
made or that the plan will be withdrawn. When all of these criteria
have been met, the property is classified as “held for
sale”. “Real estate held for sale” only includes
El Tesoro project and D street project.
Valuation and impairment of the project
Beginning
in 2018, it is the Company’s policy to obtain annual
independent third party valuations as of December 31 for each
property and compare the fair value from the valuation to the book
value to determine if there any impairment.
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.
At
March 31, 2018, there was no impairment recognized for any of the
projects.
Item 3. Quantitative and Qualitative Disclosures about Market
Risk
We are
a smaller reporting company as defined in Rule 12b-2 of the
Security Act of 1934 and are not required to provide the
information required under this item.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and
Procedures
As of
the end of the period covered by this report, an evaluation was
performed under the supervision and with the participation of our
management, including our Chief Executive Officers and Chief
Financial Officers, of the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (the “Exchange Act”)). Based on that
evaluation, our management, including our Chief Executive Officers
and Chief Financial Officers concluded that our disclosure controls
and procedures are not effective to ensure that information
required to be disclosed by us in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Securities and
Exchange Commission’s (“SECs”) rules and forms
and to ensure that information required to be disclosed by us in
the reports that we file or submit under the Exchange Act is
accumulated and communicated to our management, including our Chief
Executive Officers and Chief Financial Officers, as appropriate to
allow timely decisions regarding required disclosure.
(b) Changes in the Company’s Internal Controls Over Financial
Reporting
There
was no change in our internal control over financial reporting (as
defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act)
that occurred during the quarterly period ended March 31, 2018 that
has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceeding
The registrant is not a party to, and its property is not the
subject of, any material pending legal proceedings.
Item 1A. Risk Factors
Not applicable to smaller reporting companies.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
Item 6. Exhibits
The following documents are filed as a part of this
report:
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Project
Development and Management Agreement for Ballenger Run PUD, dated
as of February 25, 2015, by and between MacKenzie Development
Company, LLC and Cavalier Development Group,
LLC.
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Assignment
and Assumption Agreement, dated as of September 15, 2017, by and
between MacKenzie Development Company, LLC and Adams-Aumiller
Properties, LLC.
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Certification
of Co-Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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Certification
of Co-Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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Certification
of Co-Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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Certification
of Co-Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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Certifications
of the Chief Executive Officers and Chief Financial Officers
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
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101.INS
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XBRL Instance Document
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101.SCH
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XBRL Taxonomy Extension Schema Document
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase Document
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase Document
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101.LAB
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XBRL Taxonomy Extension Label Linkbase Document
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase Document
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SIGNATURES
Pursuant to the requirements 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.
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SED
INTELLIGENT HOME INC.
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May
15, 2018
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By:
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/s/
Fai
H. Chan
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Fai
H. Chan,
Co-Chief
Executive Officer, Director
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(Principal Executive Officer)
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May
15, 2018
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By:
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/s/
Moe
T. Chan
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Moe
T. Chan, Co-Chief Executive Officer, Director
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(Principal
Executive Officer)
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May
15, 2018
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By:
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/s/
Rongguo
(Ronald) Wei
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Rongguo
(Ronald) Wei, Co-Chief Financial Officer
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(
Principal
Financial and Accounting Officer)
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May
15, 2018
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By:
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/s/
Alan
W. L. Lui
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Alan
W. L. Lui, Co-Chief Financial Officer
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(Principal
Financial and Accounting Officer)
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Exhibit 10.9
PROJECT DEVELOPMENT
AND MANAGEMENT AGREEMENT FOR
BALLENGER RUN PUD
THIS
PROJECT DEVELOPMENT AND MANAGEMENT AGREEMENT (the
“Agreement”) is made as of this 25
th
day of February,
2015, by and between MacKenzie Development Company, LLC
(“MacKenzie”) and Cavalier Development Group, LLC
(“Cavalier”) (together MacKenzie and Cavalier are
referred to as the “Developers”) and SeD Maryland
Development, LLC (the “Owner”).
EXPLANATORY STATEMENT
The
Owner is the contract purchaser of the Project (hereinafter
defined). The Owner has requested that the Developers work together
to provide various services relating to the development,
construction and sale of the Project. Developers are jointly
willing to provide such services upon the terms and conditions
hereinafter set forth.
NOW,
THEREFORE, in consideration of the mutual covenants hereinafter set
forth and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and in consideration
of the Explanatory Statement, which shall be deemed to be a part of
this Agreement, the parties hereto do hereby covenant, agree,
represent, and warrant as follows:
The
Project consists of approximately 197± acres of developable
land zoned PUD located in Frederick County, Maryland. The property
is further defined as “Ballenger Run PUD” identified as
Parcels 53, 54 and 243 on Tax Map 86. The Project has conditional
Phase II approvals for the subdivision of 443 residential lots plus
remainder parcels dedicated for multi-family development, parkland,
a schools site and amenity space.
2.
Services To Be Provided By
Developers
.
Owner
hereby employs Developers, and Developers hereby accept the
employment by Owner, to provide various Services for the
development, construction and sale of the Project. These Services
include all reasonable tasks necessary to timely develop, construct
and sell the Project in accordance with Owner’s goals. A list
of these Services is attached hereto as Exhibit A (the
“Services”). The Developers agree to provide these
Services pursuant to the terms of this Agreement. The Developers
will represent the Owner in all matters related to the Project.
Robert J. Aumiller Jr. of MacKenzie will act as the primary point
of contact for the Owner and as the “owner’s
representative”. Stephen P. Oder of Cavalier will act as the
primary on-site manager and local Frederick County
specialist.
The
term of this Agreement and the employment of Developers by Owner
pursuant hereto shall be for an initial term of seventy-eight (78)
months and shall commence as of the execution of this Agreement.
The parties understand and agree that the initial term represents
the Owner’s estimate of the completion time for the Project.
If the Project cannot be completed prior to the end of the initial
term, then the parties may agree to extend the term and the monthly
fees paid hereunder by an amendment to this Agreement.
4.
Compensation for
Services
.
In
consideration for the Services to be rendered by Developers, Owner
agrees to pay to Developers the following fees:
a.
A preliminary
development fee (“Pre-Development Fee”) of $22,000 per
month for the development entitlement work required to obtain
unconditional approval of the improvements plans for the first
phase of the Project. It is projected by the Owner it will take
seven (7) months to obtain such approvals. The first monthly
Pre-Development Fee shall be paid upon the execution of this
Agreement and shall be paid monthly for the first seven (7) months
of the initial term of this Agreement.
b.
Subsequent to the
payment of the last monthly Pre-Development Fee, a development fee
(“Development Fee”) of $14,667 per month for the land
development and project management of the Project. The monthly
Development Fee shall be paid one month after the last payment of
the Pre-Development Fee. The monthly Development Fee shall be paid
through the month that the last of all the single-family and
townhome lots have been sold and settled to third party purchasers.
It is projected by the Owner that it will take seventy (70) months
from the date of execution of this Agreement sell and settle all
such lots.
c.
Subsequent to the
payment of the last monthly Development Fee, a close-out fee
(“Close-Out Fee”) of $11,000 per month for the
close-out of the Project and the release of guarantees and
securities as required by the government authorities. Close-out
shall be deemed complete at such time as the Developers are able to
cause the release of any and all guaranties or posted securities or
bonds provided by the Owner to develop the Project. It is projected
by the Owner that it will take eight (8) months after the sale and
settlement of the last lot provided for under 4(b) above to
close-out the Project.
d.
A fee of $1,200 per
every single-family lot sold and settled to a third party. This fee
shall be paid to the Developers at the time of settlement and shall
be paid from the lot settlement proceeds.
e.
A fee of $500 for
every townhouse lot sold and settled to a third party. This fee
shall be paid to the Developers at the time of settlement and shall
be paid from the lot settlement proceeds.
f.
A fee of $50,000
for every multi-family parcel or lot sold and settled to a third
party. This fee shall be paid to the Developer at the time of
settlement and shall be paid from the parcel settlement proceeds.
Developers and Owner acknowledge that presently there are two (2)
multi-family parcels which are part of the Project; a 210±
unit multi-family parcel and a 200± unit CCRC parcel. The
Owner shall pay this fee to the Developers so long as settlement of
the parcel(s) occurs within ten (10) years of the execution of this
Agreement and regardless of the expiration of the initial term of
this Agreement.
The
Owner acknowledges that the fees payable by Owner herein are fair
and reasonable for the services provided by the Developers
hereunder. Developers will submit separate monthly invoices to the
Owner on or about the 1
st
day of each month
for the monthly fees and the Owner shall make payment on the
monthly invoice no later than the 10
th
day of each month
following the initial payment. Lot settlement fees are due at the
time of settlement of each lot or parcel as described above. All
unpaid invoices are subject to 1.0% interest per month on the
balance due. Developers will be permitted to allocate monthly fees
and lot settlement fees between MacKenzie and Cavalier and submit
separate monthly invoices to be paid directly by the Owner.
Reimbursable expenses will be billed at cost plus 15% and include,
but are not limited to, print reproduction, mileage outside of
Frederick County or outside of Developers’ normal commute
from its office to the Project, postage or commercial delivery
fees, parking fees, or any other expense reasonably related to
Developers’ services. Developers will take reasonable efforts
to keep all reimbursable expenses to a minimum.
Developers shall
have no responsibility whatsoever for the payment of any costs
incurred in connection with the development of the Project
(including architectural, engineering, legal and construction costs
and fees). All such costs and charges shall be borne solely by
Owner. Developers shall be responsible for its own overhead
expenses incurred in the pursuit of its obligations under this
Agreement.
6.
Owner’s
Responsibility
.
Owner
hereby agrees that it shall cooperate with Developers in expediting
the development of the Project. Charles W.S. MacKenzie, or his
designee, is hereby recognized as the authorized representative of
Owner in making all decisions related to the Project and in
executing all documents on behalf of Owner in connection with the
Project and this Agreement. Developers shall, at all times during
the term of this Agreement, keep Owner fully advised on the
progress of development of the Project.
Owner
shall keep in full force and effect, at its expense, so long as
this Agreement remains in effect, public liability insurance with
respect to the Property, naming Developers as an additional
insured, with minimum limits of $1,000,000 on account of bodily
injuries or death and $1,000,000 for property damage; and such
policy or policies of insurance shall contain a provision that they
will not be modified or canceled except upon at least thirty (30)
days’ advance written notice to Developers; and a copy of
such policy or policies shall be delivered to Developers by Owner
promptly following the execution of this Agreement.
(a)
Developers hereby
agree to indemnify and save Owner harmless from and against any and
all claims, actions, damages, losses and expense of any kind
whatsoever (including reasonable attorneys’ fees) arising out
of or in connection with the negligent or willful acts and
omissions of Developers, its employees and agents with respect to
the performance of their respective obligations and duties
hereunder.
(b)
Owner hereby agrees
to indemnify and save Developers harmless from and against any and
all claims, actions, damages, losses and expenses of any kind
whatsoever (including reasonable attorneys’ fees) arising out
of or in connection with Owner’s negligent or willful acts
and omissions in connection with the development and construction
of the Project.
This
Agreement may be terminated as follows:
(a)
Owner may terminate
this Agreement immediately for cause. “For cause” means
Owner has demonstrable evidence of either (i) fraud committed by
Developers, (ii) insubordination by Developers, or (iii) repeated
failure by Developers to meet reasonable deadlines, if and only if
the failure to meet deadlines is within the reasonable control of
the Developers. Events caused by nature or acts of God, even if
anticipated by the parties, are deemed outside the reasonable
control of the Developers. If Owner terminates this Agreement for
cause, Owner shall within ten days pay any remaining balance of the
monthly fee and per lot fee earned to date, as
applicable.
(b)
Owner may terminate
this Agreement for reasons other than cause with 30 days written
notice to Developers. If this agreement is terminated for reasons
other than for cause, within 30 days of the termination date, Owner
shall pay (i) any remaining balance of the monthly fee and per lot
fee earned to date, (ii) any outstanding reimbursable expenses, and
(iii) a fee of $100,000 representing an early termination
fee.
(c)
Developers man
terminate this Agreement immediately in the event of failure of the
Owner to pay Developer any of the compensation under Section 4
hereof.
10.
Notices
. All notices, demands,
requests, consents, or approvals required or permitted under this
Agreement to be in writing shall be deemed to have been properly
given if and when mailed by certified mail, return receipt
requested, postage prepaid, or by electronic mail
(“Email”), at the following addresses indicated for
each party:
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(a)
if to
Owner:
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c/o
Charles W.S. MacKenzie
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312
Third Street, Suite 101
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Annapolis,
MD 21403
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cmackenzie@mackenzieequity.com
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(b)
and if to
Mackenzie:
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MacKenzie
Development Company, LLC
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2328
West Joppa Road, Suite 200
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Lutherville,
Maryland 21093
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Attn:
Robert J. Aumiller, Jr.
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rjaumiller@mackenziecommercial.com
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(c)
and if to
Cavalier:
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Cavalier
Development Group, LLC
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8114
Dam Number 4 Road
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Williamsport,
MD 21795
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Attn:
Stephen P. Oder
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soder@cavdev.com
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(d)
such other
addresses by any party to the other parties by notice in
writing pursuant to the provisions of this Section.
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11.
Governing Law
. This Agreement
shall be governed by, and shall be construed, in accordance with
the laws of the State of Maryland.
12.
Burden; Benefit
. This Agreement
shall be binding upon, and shall inure to the benefit of, the
parties hereto and, except as stated herein to the contrary, their
successors and assigns.
13.
Gender
. As provided herein and
as the context requires, the masculine gender shall be deemed the
feminine and neuter genders and vice versa; and the singular shall
be deemed to include the plural and vice versa.
14.
Relationship
. Nothing contained
in this Agreement shall be construed to create a relationship of
employer and employee between Developers and Owner, it being the
intent of the parties hereto that the relationship created hereby
is, in fact and intent, that of an independent contractor. Nothing
contained herein shall be deemed to constitute Owner and Developers
as partners or joint ventures. Furthermore, Developers hereby
certify that Charles W.S. MacKenzie is not an officer, member or
employee of Developers or MacKenzie Development Company, LLC and in
no way receives any compensation, fees or equity from
Developers.
15.
Severability
. If any provision
of this Agreement or application to any part or circumstances shall
be determined by any court of competent jurisdiction to be invalid
and unenforceable to any extent, the remainder of this Agreement or
the application of such provision to such personal circumstances,
other than those as to which it is so determined invalid or
unenforceable, shall not be affected thereby, and each provision
hereof shall be valid and shall be enforced to the fullest extent
permitted by law.
[Signatures
follow on next page]
IN
WITNESS WHEREBY, the parties hereto have executed this Agreement as
of the day and year first above written.
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WITNESS:
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MacKenzie
Development Company, LLC
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By:
/s/ Robert J. Aumiller,
Jr
(SEAL)
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Robert J. Aumiller,
Jr., Vice President
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WITNESS:
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Cavalier
Development Group, LLC
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By:
/s/
Stephen
P. Oder
(SEAL)
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Stephen P. Oder,
Manager
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WITNESS:
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SeD Maryland
Development, LLC
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Inter-American
Development, its Manager
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By:
/s/ Charles W. S.
MacKenzie
(SEAL)
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Charles W. S.
MacKenzie, Chief Development Officer
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EXHIBIT A
JOINT PROJECT DEVELOPMENT AND MANAGEMENT SERVICES
The
role of the Developers is to act as the “Owner’s
Representative” in the development, construction and sale of
the Project. The Developers will act with integrity and honesty and
will use all commercially reasonable efforts to maximize the
investment objectives of the Owner. The Developers will perform all
reasonable tasks as necessary to this end including but not limited
to the following:
1.
Reporting
: Report to the Owner
on the status of the Project through formal scheduled reports and
on an informal basis as the Owners requests. Maintain an updated
proforma, budgets and schedule for the Project reflecting current
conditions. Represent the Owner at all Project meetings. Provide
all necessary paperwork for monthly lender draws and letters of
credits as needed.
2.
Financing
Assistance
: Work
with Owner’s selected capital broker and lending institutions
to facilitate financing for the Project. Furnish required
underwriting and due diligence documents to lenders, review and
recommend underwriting assumptions, facilitate closing by providing
required land development documents and managing the Project
according to the terms and conditions of the loan documents.
Provide ongoing compliance reporting to lender and its selected
inspectors and auditors.
3.
Engineering and Development
Entitlements
: Manage the civil engineering process to ensure
the timely and accurate completion of all required development
approvals and entitlements for each phase of construction. Ensure
the recordation of the subdivision plats and secure all required
permits, variances, public works agreements and approvals from
Town, County, State or Federal levels (including the stream
crossing). Provide value engineering along with the general
contractor, geo-tech and environmental consultants. Coordinate the
ongoing civil engineer and geo-tech engineer involvement during the
construction process and through close out. Represent Owner at all
public meetings and meetings with government staff and elected
officials.
4.
Dry Utilities and Amenities
:
Coordinate efficient and timely installation of all dry utilities
(electric, gas, cable, etc.) with local gas, electric, cable and
phone providers. Oversee the engineering and construction of all
amenities including the clubhouse, pool, entrance monuments, street
lights, street trees, signage, reforestation, walking paths, parks,
playgrounds and cluster mailboxes. Marketing support will be
required for the design of amenities such as the clubhouse, entry
monuments and signage and is typically provided by the homebuilder
or an outside marketing firm.
5.
Construction
: Conduct the
bidding process for all contractor work, recommend contractors to
the Owner and supervise all contractor work including that of the
general contractor. In association with Owner’s attorney,
negotiate and review building contracts with contractor to clearly
define construction responsibilities in order to minimize conflicts
in the field. Manage contractors to ensure fair pricing, quality
control and timely delivery of lots. Problem-solve all contractor
issues that may arise during construction (e.g. constructability
issues, scheduling issues, third-party claims, change order
negotiation, subcontractor disputes, lien actions, cost overruns).
Ensure compliance with all permits and regulatory requirements
including State discharge permits and erosion control
permits.
6.
Home Owners Association
: Along
with Owner’s selected attorney, establish the required Home
Owners Association (“HOA”) and ensure its compliance
with the NVR lot purchase agreements. Act as HOA leadership and as
an Architectural Review Committee member until the association is
turned over to the residents at the required time. Represent Owner
at all HOA meetings and votes. Make recommendations for Owner to
hire a professional property management company to run the HOA
under Developers’ direction and supervision. The management
company will handle billing, collections, routine architectural
requests, conduct regular homeowners meetings and other daily
management duties. Fees for the management company are not a part
of this Agreement.
7.
Off-Site Requirements
:
Coordinate all off-site development requirements for the Project
including the acquisition of required right-of-ways, the
construction improvements to Ballenger Creek Pike and negotiation
and payment of all fees-in-lieu required by governmental
authorities (medium priced dwelling units, school construction
fees, road escrow payments, etc.). Along with Owner’s
selected attorney oversee the negotiations with the Frederick
County Board of Education for the dedication of a school site and
the acquisition of an easement to Phase 4.
8.
Close-Out
: Manage the close-out
process which includes dedicating all roads to the County or HOA,
obtaining certification and inspection of all stormwater management
devices, insuring compliance with all reforestation and landscaping
requirements, and ultimately obtaining a full release from all
permits and all posted construction bonds and letters of credit and
release from improvements imposed under all public works
agreements.
9.
LPA Compliance
: Manage the lot
purchase agreements (“LPAs”) with NVR, Inc. and develop
and maintain the Project in compliance with the LPAs. Enforce
Owner’s rights under the LPAs and monitor lot purchase pace
and price. At Owner’s request, act as Owner’s agent to
settle all lots purchased under the LPAs. Design lot phasing
schedules to meet the timelines under the LPAs.
10.
Multi-Family Parcels
: Assist
Owner’s selected broker with the marketing and sale of the
multi-family parcels to third parties including assemblage of
marketing materials, due diligence facilitation and entitlement
consultation. Coordinate construction with future multi-family
parcel purchasers.
11.
Costs Approvals
: Review,
approve and code all invoices and costs for the Project and advise
Owner on the sufficiency and administration of all contracts
related to the Project. Solicit proposals for all contracted work
and recommend contractors to Owner for hire. Basic accounting for
the project will be the responsibility of the Owner.
12.
Manage Consultants
: Manage all
consultants and contractors throughout the Project including
general contractors, subcontractors, landscapers, property
management companies, accountants, attorneys, engineers, geo-techs,
consultants, etc.
13.
Other
: Any other reasonable
development services requested by the Owner or required to complete
the Project in accordance with the development plan and necessary
to maximize the value of the Project for the Owner.
Please
note that some of the above Services require the assistance of a
local real estate attorney. Developers are not attorneys and any
tasks which must be performed by an attorney are not included in
the scope of the Services. Developers will recommend attorneys to
the Owner and work with the Owner’s selected attorney(s) to
complete the Services requiring legal assistance.
Additionally,
marketing responsibilities are not included in the scope of the
Services provided by the Developers. Many times the marketing
responsibilities are handled by the homebuilder and we recommend
that option for this Project. Developers will assist in all aspects
of marketing that relate to land development and will provide
recommendation whenever proposals are presented. This would include
review of community brochures, entry monument and clubhouse design
and signage.
MacKenzie Development Company, LLC
Qualifications
MacKenzie
Development Company, LLC is development subsidiary of the MacKenzie
Companies, a full-service real estate firm focused on Maryland.
Together with its sister company, MacKenzie Communities, LLC,
MacKenzie has been developing residential and commercial projects
in and around the Baltimore Metro markets for over 45 years. We
develop projects for our own account and offer our development
services to select third parties for a fee. Not only are we experts
in land development but we also are experienced owners who
understand how decisions made at the land development level affect
the bottom line. We manage projects with a focus on meeting
investor expectations and maximizing returns. The following is a
list of our recent residential development projects:
Baltimore County,
Maryland
61
Single-Family lots in 2 phases
NVR
(Ryan Homes) is the builder for both phases
Currently 80% sold
out
Baltimore County,
Maryland
36
Single-Family Villa lots
NVR
(Ryan Homes) is the builder
Currently in land
development; full sellout projected in 2016
Baltimore County,
MD
41
Single-Family lots – homes sold for $1.5 – $3.0
million
Sold to
multiple custom home builders and end-users
Sold
last lots in 2012
Baltimore County,
MD
70
Townhome lots
Currently in
entitlement approval process
Will
select homebuilder in 2015 and sell finished lots starting in
2016
5.
Preserve
at Windlass Run
Baltimore County,
MD
412
lots, mix of Single-Family and Townhome
Obtained all
Planned Unit Development (“PUD”) approvals
Terminated purchase
contract due to deal economics
6.
Granite
View Apartments
Baltimore County,
MD
318
unit market rate apartment development
Currently in the
entitlement approval process
Limited
partner responsible for financial projections and due
diligence
Cavalier Development Group, LLC
Qualifications
Our
focus since inception of the original Cavalier Development company
in 1993 has been the development of residential land in Frederick
County. The amount of residential development that we have managed
over the years is evidenced in our list of major projects that we
have participated in. We have a good local base of subcontractors
who are knowledgeable and dependable. The subcontractors we use are
very competitive in their bidding and are very responsive to us
because of the significant amount of work that we have solicited
and managed over the years.
We
understand the Frederick County process for development approvals
and permitting. Our excellent relationships with Frederick County
staff and elected officials enables us to accomplish tasks and gain
approvals under extremely tight timeframes. Our reputation for
professionalism and integrity are our keys to success.
The
following is a list of the major projects we are currently or have
completed developing:
1.
WESTWINDS
: A
four-hundred forty-five (445) unit golf course community along Gas
House Pike in Frederick County, Maryland. Owner - Potomac
Frederick, LLC.
2.
RIVER OAKS
: An
eighty-eight (88) unit single family community off of Route 144
east in Frederick County, Maryland. Owner - River Oaks Limited
Partnership.
3.
OVERLOOK PND
: A
three hundred twenty-nine (329) unit Planned Neighborhood
Development in Frederick City, Frederick Maryland. Owner - Marvin
R. Blumberg Company.
4.
BALLENGER CROSSING
PUD
: A four hundred seventy-five (490) unit Planned Unit
Development located off of Ballenger Creek Pike just south of
Frederick City. Owner - Marvin R. Blumberg Co.
5.
WALNUT RIDGE PND
: A
five hundred fifty (550) unit Planned Neighborhood Development in
Frederick City, Maryland. Owner - Mr. & Mrs. Joseph Free.
Developer - Security Development Corporation.
6.
CANAL RUN PUD
: A
five hundred seventy-five (575) unit Planned Unit Development in
Point of Rocks, MD. Owner – PV I, LLC.
7.
TILGHMAN PROPERTY
: A
forty-four (44) lot single family community in Frederick City,
Maryland. Owner - Milton Henderickson.
8.
WILLOWBROOK
:
A
four-hundred two (402) lot single family and townhome community in
Frederick City, Maryland. Owner – Adler
Financial.
9.
TILGHMANTON HEIGHTS:
A sixty-two (62) lot single family community in Washington County,
Maryland. Owner – Dr. William Schneider.
|
Robert
J. Aumiller, Jr.
|
Stephen
P. Oder
|
|
Vice
President
|
Manager
|
|
MacKenzie
Development Company, LLC
|
Cavalier
Development Group, LLC
|
|
2328
West Joppa Road, Suite 200
|
8114
Dam Number 4 Road
|
|
Lutherville,
MD 21093
|
Williamsport,
MD 21795
|
February 23,
2015
SeD
Maryland development, LLC
c/o
Charles W.S. MacKenzie
312
Third Street, Suite 101
Annapolis, MD
21403
RE:
Project Development and Management Agreement for Ballenger Run
PUD
Dear
Charley,
Pursuant to the
project development and management agreement for Ballenger Run PUD
dated February 25
th
, 2015, this letter
serves to clarify the process of how invoices will be sent to you
for the Services. Section 4 of the Agreement states that the
"Developers will submit separate monthly invoices to the Owner".
These invoices will be sent by email to you at cmackenzie@
mackenzieequity.com. An outline of how the invoices will divide the
fees between the Developers is below:
A. The
Pre-Development Fee of $22,000 per month will be invoiced as
$10,000 due to MacKenzie and $12,000 due to Cavalier.
B. The
Development Fee of $14,667 per month will be invoiced as $6,667 due
to MacKenzie and $8,000 due to Cavalier.
C. The
Close-Out Fee of $11,000 per month will be invoiced as $5,000 due
to MacKenzie and $6.000 due to Cavalier.
D. The
$1,200 fee for every single-family lot sale shall be payable in the
amount of $540 due to MacKenzie and $660 due to Cavalier. An
invoice will not be issued for these fees as you should instruct
the settlement agent to make the payments as lot
settlement.
E. The
$500 fee for every single-family lot sale shall be payable in the
amount of $225 due to MacKenzie and $275 due to Cavalier. An
invoice will not be issued for these fees as you should instruct
the settlement agent to make payments as lot
settlement.
F. The
$50,000 fee for every multi-family parcel lot sale shall be payable
in the amount of $22,500 due to MacKenzie and $27,500 due to
Calalier. An invoice will not be issued for these fees as you
should instruct the settlement agent to make payments at lot
settlement.
G. Any
reimbursable expenses incurred by the Developers will be invoiced
by the Developers separately.
H. Any
late fees on unpaid balances will accrue and be invoices by the
Developers separately.
I. The
termination fee, if incurred, will be invoiced as $50,000 due to
MacKenzie and $50,000 due to Cavalier.
Should
you have any questions regarding these fees or any other aspects of
the Agreement,
please don't
hesitate to ask. Again, we thank you for selecting our team as the
Developers and
we look forward to
working with you to make this a successful project.
Sincerely,
MacKenzie
Development Company. LLC
/s/ Robert Aumiller
Robert
J. Aumiller, Jr.
Vice
President
Cc:
Stephen P. Oder
Acknowledged and
Agreed
/s/ Charley MacKenzie
Charles
W.S. MackKenzie, Inter-American Development, LLC
On
behalf of SeD Maryland Development, LLC