10-Q: LiquidValue Development Inc. Reports Mixed Results in Q2 2024, Revenue Declines but Net Income Improves

LiquidValue Development Inc. experienced a decrease in revenue but an increase in net income for the six months ended June 30, 2024, compared to the same period in 2023, primarily due to changes in property sales and related party transactions.

Summary

• LiquidValue Development Inc. reported a net income of $804,694 for the six months ended June 30, 2024, compared to a net income of $6,614,327 for the same period in 2023.
• Revenue decreased to $5,058,305 for the six months ended June 30, 2024, from $18,190,950 for the six months ended June 30, 2023, mainly due to decreased property sales from the Lakes at Black Oak project.
• The company sold 95 lots on January 4, 2024, generating approximately $5.0 million in revenue.
• On July 1, 2024, the company closed the sale of 70 single-family detached residential lots for approximately $3.8 million.
• General and administrative expenses decreased to $833,547 for the six months ended June 30, 2024, from $887,080 for the same period in 2023.
• The company had cash of $2,824,225 as of June 30, 2024, compared to $1,774,314 as of December 31, 2023.
• The company has a letter of financial support from Alset Inc., committing to provide additional funding if required and not demand repayment for the next twelve months.
• The company's disclosure controls and procedures are not effective to ensure that information required to be disclosed is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions (SECs) rules and forms.

Sentiment

Score: 5

Explanation: The report presents mixed results, with a decrease in revenue but an increase in net income. The company's future outlook is uncertain, as it depends on raising funds from capital markets and securing loans. The disclosure of ineffective internal controls is a concern.

Positives

• Net income increased for the six months ended June 30, 2024.
• General and administrative expenses decreased for the six months ended June 30, 2024.
• The company closed the sale of 70 lots on July 1, 2024, generating approximately $3.8 million.
• The company has a letter of financial support from Alset Inc., committing to provide additional funding if required and not demand repayment for the next twelve months.
• Cash increased to $2,824,225 as of June 30, 2024, compared to $1,774,314 as of December 31, 2023.

Negatives

• Revenue decreased significantly for the six months ended June 30, 2024, primarily due to lower property sales.
• The company's disclosure controls and procedures are not effective to ensure that information required to be disclosed is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions (SECs) rules and forms.

Risks

• The future development timeline of Lakes at Black Oak depends on raising funds from capital markets, securing loans, and receiving government reimbursements.
• There is no guarantee that the company will be able to execute its plans.
• The company's disclosure controls and procedures are not effective to ensure that information required to be disclosed is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions (SECs) rules and forms.

Future Outlook

The company plans to continue its near-term focus on lot sales to regional and national builders, which is expected to improve liquidity and strengthen its financial position.

Management Comments

• The future development timeline of Lakes at Black Oak will be based on multiple conditions, including the amount of funds which may be raised from capital markets, the loans we may secure from third party financial institutions, and government reimbursements which may be received.
• The development will be step by step and expenses will be contingent on the amount of funding we will receive.

Industry Context

The company operates in the real estate development industry, which is subject to economic conditions, competition, and regulatory changes. The company's focus on lot sales to regional and national builders is a common strategy for managing risk and generating cash flow in the industry.

Comparison to Industry Standards

• It is difficult to compare LiquidValue Development Inc.'s results directly to industry standards without more specific information on its geographic market and business model.
• However, the company's gross margin ratio of 22% for the Lakes at Black Oak project in the first six months of 2024 is lower than the industry average for residential land development, which typically ranges from 30% to 50%.
• Companies like NVR Inc. and D.R. Horton are major players in the residential construction industry and serve as benchmarks for operational efficiency and profitability.

Related Party Transactions

• Alset EHome receives advances from SeD Home Limited (an affiliate of Alset International), to fund development and operation costs.
• The Company receives advances from or loans funds to SeD Intelligent Home, the owner of 99.99 % of the Company.
• MacKenzie Equity Partners, LLC, an entity owned by Charles MacKenzie, a Director of the Company, has a consulting agreement with a majority-owned subsidiary of the Company.
• The Company provides working capital advances for Alset Inc., a related party under the common control of Chan Heng Fai, the Co-CEO of the Company.
• On December 9, 2022, Alset EHome Inc., a subsidiary of the Company, entered into an agreement with Alset International Limited and Alset Inc. pursuant to which Alset EHome Inc. agreed to sell its subsidiary American Home REIT Inc. (AHR), which owns 112 single-family rental homes, to Alset Inc.

Stakeholder Impact

• Shareholders may be concerned about the decrease in revenue and the uncertainty surrounding the company's future development plans.
• Employees may be affected by changes in the company's operations and financial performance.
• Customers (builders) may be affected by the company's ability to deliver lots and meet their needs.
• Creditors may be concerned about the company's ability to repay its debts.

Next Steps

• The company plans to continue its near-term focus on lot sales to regional and national builders.
• The company will be entitled to receive certain reimbursements in the year ended December 31, 2024 and 2025.

Key Dates

Keywords

real estate development, land sales, financial results, net income, revenue, liquidity, related party transactions, Lakes at Black Oak, Alset Inc., disclosure controls