10-K: LiquidValue Development Inc. Reports Strong Revenue Growth in 2023 Driven by Land Sales

LiquidValue Development Inc. saw a significant increase in revenue in 2023, primarily due to property sales from the Lakes at Black Oak project.

Summary

• LiquidValue Development Inc. reported a substantial increase in revenue, reaching $18.2 million in 2023, compared to $665,291 in 2022.
• This growth was mainly driven by increased property sales from the Lakes at Black Oak project.
• The company sold 335 lots in the first half of 2023, generating approximately $18.2 million in revenue.
• The gross margin for the Lakes at Black Oak project was approximately 37% in 2023.
• The company's net income for 2023 was $6.2 million, a significant turnaround from a net loss of $2.5 million in 2022.
• Total assets decreased to $32.1 million in 2023 from $52.7 million in 2022, primarily due to property sales.
• Total liabilities decreased to $3.2 million in 2023 from $30.3 million in 2022, mainly due to the repayment of related party notes.
• The company had cash of $1.8 million at the end of 2023, compared to $1 million at the end of 2022.
• The company expects to close on the sale of 142 lots at Lakes at Black Oak for approximately $7.4 million and 63 lots at Alset Villas for approximately $3.3 million in the second quarter of 2024.

Sentiment

Score: 7

Explanation: The document shows strong revenue growth and a significant improvement in profitability, which is positive. However, the identified material weakness in internal controls and reliance on related party funding are concerns that temper the overall positive sentiment.

Positives

• The company successfully sold a significant number of lots at the Lakes at Black Oak project, leading to substantial revenue growth.
• The company's financial position improved significantly, with a shift from a net loss to a net income.
• The company reduced its liabilities substantially, improving its balance sheet.
• The company has secured a letter of financial support from Alset Inc., ensuring funding for the next twelve months.
• The company anticipates further revenue from the sale of additional lots in 2024.

Negatives

• The company has identified a material weakness in its internal controls due to a limited number of staff.
• The company's total assets decreased from $52.7 million to $32.1 million, primarily due to property sales.
• The company's real estate assets decreased to $10.7 million from $24 million due to property sales.
• The company has a history of related party transactions, which may raise concerns about fairness and transparency.

Risks

• The company's internal controls are weak due to a limited number of staff, which could lead to misstatements in financial reporting.
• The company relies on related party funding, which may not always be available or on favorable terms.
• The real estate market is subject to fluctuations that may impact the value of the company's land holdings.
• The company's future development timeline is dependent on raising capital, securing loans, and receiving government reimbursements.
• The company's expansion into new business areas may require additional capital and may not be successful.
• The company's success is highly dependent on key personnel, and the loss of any of these individuals could negatively impact the business.

Future Outlook

The company plans to continue its near-term focus on lot sales to regional and national builders. The company expects to close on the sale of 142 lots at Lakes at Black Oak for approximately $7.4 million and 63 lots at Alset Villas for approximately $3.3 million in the second quarter of 2024. The company also anticipates receiving certain reimbursements in 2024 and 2025.

Management Comments

• Management has identified a material weakness in the design and effectiveness of our internal controls.
• Management determined that at December 31, 2023, we had a material weakness that relates to the relatively small number of staff.
• Management believes that the company has all of the material government approvals that it needs to conduct its business as currently conducted.

Industry Context

The company's focus on land development and lot sales aligns with the current demand for housing and the trend of home builders seeking ready-to-build lots. The company's expansion into sustainable and smart home technologies is also in line with growing consumer preferences for eco-friendly and technologically advanced homes.

Comparison to Industry Standards

• The company's gross margin of 37% on the Lakes at Black Oak project is within the typical range for land development projects, but can vary based on location, development costs, and market conditions.
• The company's revenue growth from $665,291 to $18.2 million is significantly higher than the average growth rate for many real estate development companies, indicating a successful year for the company.
• The company's shift from a net loss to a net income is a positive sign, but it is important to compare its profitability to industry benchmarks and competitors to assess its long-term sustainability.
• The company's reliance on related party funding is not uncommon in the real estate industry, but it is important to ensure that these transactions are conducted at arm's length and are in the best interests of all shareholders.
• The company's material weakness in internal controls is a concern and needs to be addressed to ensure the accuracy and reliability of its financial reporting.

Related Party Transactions

• The company has significant transactions with related parties, including loans from SeD Home Limited and SeD Intelligent Home Inc., and management fees paid to MacKenzie Equity Partners, LLC.
• The company sold its subsidiary American Home REIT Inc. to Alset Inc., a related party, for a total consideration of $26,250,933, including the forgiveness of debt, a promissory note, and a cash payment.

Stakeholder Impact

• Shareholders will benefit from the company's improved financial performance and future growth prospects.
• Employees may benefit from the company's expansion and potential for new opportunities.
• Customers (home builders) will benefit from the availability of ready-to-build lots.
• Creditors may be concerned about the company's reliance on related party funding and the material weakness in internal controls.

Next Steps

• The company plans to close on the sale of 142 lots at Lakes at Black Oak and 63 lots at Alset Villas in the second quarter of 2024.
• The company will continue to focus on lot sales to regional and national builders.
• The company will explore other projects in and around Houston, Texas and bring this concept to other strategic parts of the US.
• The company will continue to take steps to enhance and improve the design of its internal controls over financial reporting.

Key Dates

Keywords

land development, real estate, property sales, Lakes at Black Oak, financial results, revenue growth, internal controls, related party transactions, lot sales, Alset Villas