Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 2)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Date of Report (Date of earliest event reported):
December 29,
2017
SeD Intelligent Home Inc.
(Exact
name of registrant as specified in its charter)
Nevada
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|
000-55038
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27-1467607
|
(State
or other jurisdiction of incorporation)
|
|
(Commission
File Number)
|
|
(IRS
Employer Identification No.)
|
4800 Montgomery Lane, Suite 210
Bethesda, MD
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20814
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
Registrant’s
telephone number, including area code: 301-971-3940
N/A
(Former
name or former address, if changed since last report)
Check
the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant
under any of the following provisions (see General Instruction A.2.
below):
☐ Written communications pursuant to Rule 425 under
the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under
the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule
14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule
13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate
by check mark whether the registrant is an emerging growth company
as defined in Rule 405 of the Securities Act of 1933
(§ 230.405 of this chapter) or Rule 12b-2 of the
Securities Exchange Act of 1934 (§ 240.12b-2 of this
chapter).
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.
☐
Throughout this Report on Form 8-K, the terms the
“Company,” “we,” “us” and
“our” refer to SeD Intelligent Home Inc., and
“our board of directors” refers to the board of
directors of SeD Intelligent Home Inc.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
INFORMATION
This Current Report on Form 8-K contains forward-looking statements
regarding, among other things, our future operating results and
financial position, our business strategy, and other objectives for
our future operations. The words “anticipate,”
“believe,” “intend,” “expect,”
“may,” “estimate,” “predict,”
“project,” “potential” and similar
expressions are intended to identify forward-looking statements,
although not all forward-looking statements contain these
identifying words. We have based these forward-looking statements
largely on our current expectations and projections about future
events and financial trends that we believe may affect our
business, financial condition and results of operations. There are
a number of important risks and uncertainties that could cause our
actual results to differ materially from those indicated by
forward-looking statements including those set forth in the section
of this Current Report entitled “Risk Factors.” We may
not actually achieve the plans, intentions or expectations
disclosed in our forward-looking statements, and you should not
place undue reliance on our forward-looking statements. Actual
results or events could differ materially from the plans,
intentions and expectations disclosed in the forward-looking
statements we make. Our forward-looking statements do not reflect
the potential impact of any future acquisitions, mergers,
dispositions, joint ventures or investments that we may
make.
You should read this Current Report on Form 8-K and the documents
that we have filed as exhibits to this Current Report on
Form 8-K completely and with the understanding that our actual
future results may be materially different from what we expect. The
forward-looking statements contained in this Current Report on Form
8-K are made as of the date of this Current Report
on Form 8-K, and we do not assume any obligation to
update any forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by
applicable law.
Item 1.01 Entry into a Material Definitive Agreement.
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.
SeD
Home International, Inc. is wholly owned by Singapore eDevelopment
Limited (referred to herein as “Singapore
eDevelopment”), a Singapore based company traded on the
Catalist Board of the Singapore Exchange Securities Trading Limited
(SGX-ST). The Chief Executive Officer and Chairman of Singapore
eDevelopment is Mr. Fai H. Chan. Mr. Fai H. Chan is also, through
an entity he controls, the majority shareholder of Singapore
eDevelopment. Mr. Fai H. Chan was a member of the Board of each of
the Company, the Merger Sub, SeD Home International, Inc. and SeD
Home on the Closing Date; he remains on the Board of the
Company, SeD
Home International, Inc. and SeD Home, and will now serve as Co-CEO
of both the Company and its subsidiary SeD Home. Moe T. Chan, who
is the son of Mr. Fai H. Chan, will serve as Co-CEO and as a member
of the Board of both the Company and SeD Home as well. Moe T. Chan
is also on the Board of Directors of Singapore eDevelopment. Alan
W. L. Lui, the Chief Financial Officer of Singapore eDevelopment
will also serve as Co-CFO of both the Company and SeD Home. The
other officers and directors of SeD Home will also serve in such
positions with the Company.
2
SeD
Home’s main business is land development. SeD Home purchases
land and develops it into residential communities. Development
activities are contracted out, including planning, platting,
design, and construction, as well as other work with engineers,
surveyors and architects. The developed lots are sold to builders
for the construction of new homes. SeD Home’s main assets are
two property development projects: one located north of Houston,
Texas (referred to as our “Black Oak” project) and one
located near Washington D.C. in Frederick, Maryland (referred to as
our “Ballenger Run” project), in each case as further
described below. The Company intends to commence additional land
development activities at new locations in the future. These
opportunities will be identified and the Company will seek
appropriate financing or the investment of additional capital on
reasonable terms. The Company, through SeD Home and its
subsidiaries, intends to expand into new real estate related
businesses, although such expansion remains in the planning stages.
The Company also owns one rental property at the current time. As a
result of this transaction, we believe that SeD Home will be able
to more effectively access capital markets.
A copy
of the Agreement is included as Exhibit 2.1 to this Current Report
and is hereby incorporated by reference. All references to the
Agreement and other exhibits to this Current Report are qualified,
in their entirety, by the text of such exhibits.
The
information contained in Item 2.01 below relating to the
Agreement and the transaction contemplated thereby is incorporated
herein by reference.
The
determination of the accounting acquirer in this transaction (the
“Merger”) was based on a review of the pertinent facts
and circumstances. The identification of the acquiring entity in
this instance is subjective and was based on a number of factors
outlined in ASC 805-10-55-12 and ASC 805-10-55-13, which are as
follows:
●
the relative voting
rights in the combined entity after the business
combination;
●
the existence of a
large minority voting interest in the combined entity if no other
owner or organized group of owners has a significant voting
interest;
●
the composition of
the governing board of directors of the combined
entity;
●
the composition of
the senior management of the combined entity;
●
the terms of the
exchange of equity interests;
●
the relative size
of each entity;
●
which party
initiated the transaction; and
●
other qualitative
factors.
After
consideration of the factors outlined above, it was determined that
SeD Home was the accounting acquirer in this transaction based on
the following:
●
Until the Closing,
the Company had no business operations. The relative size of the
entities (e.g. revenues, assets, debts and equities) indicated that
SeD Home was more significant, leading to the conclusion that this
criterion favored SeD Home as the accounting acquirer.
●
Immediately
following the Merger, SeD Home’s board members comprised all
of the combined company’s board of directors, leading to the
conclusion that this criterion favored SeD Home as the accounting
acquirer.
●
Immediately
following the consummation of the Merger, SeD Home management team
members comprised all of the senior management positions of the
combined company.
Since
SeD Home is the acquiring entity for accounting purposes, the
financial statements for all periods up to and including the
December 29, 2017 Merger date are the financial statements of the
entity that is now our subsidiary, SeD Home. The financial
statements for all periods subsequent to the December 29, 2017
Merger date are the consolidated financial statements of the
Company and SeD Home.
3
Both
SeD Home and the Company are controlled subsidiaries of SeD Home
International, Inc. The Merger is the transaction between entities
under common control, and that ASC 805-50 provides guidance on
preparing financial statements and related disclosures. Since there
is no change in control from SeD Home International, Inc.’s
perspective, there is no change in basis in the financial
statements of the Company. However, we can still look at US GAAP
“acquisition method” of accounting. Under the
acquisition method of accounting, the purchase price is required to
be allocated to the underlying tangible and intangible assets
acquired and liabilities assumed based on their respective fair
market values. The fair value of the Company’s assets (only
cash) and liabilities (Payables and Accrued Liabilities) at
December 29, 2017, are the same as their book value carrying
amounts. The stocks of the Company were not traded in the market,
and the Company did not have any business or own tangible or
intangible assets at the time of Merger. The Company was a
“Shell” company and no business was transferred based
on Accounting Standards Update No. 2017-01-Business Combinations
(Topic 805), so no goodwill was recognized as of the Merger date.
We believe it was appropriated to keep the Company’s
historical financials without adjusting goodwill at the Merger.
Also, as both the Company and SeD Home were under the common
control of SeD Home International Inc., the financials of both
companies were combined after the Merger.
Item 2.01 Completion of Acquisition or Disposition of
Assets.
As
described in item 1.01 above, and as incorporated herein by
reference thereto, on December 29, 2017, the Company effected a
transaction pursuant to which it became the sole shareholder of SeD
Home and issued to SeD Home International, Inc., the sole
shareholder of SeD Home, 630,000,000 shares of the Company’s
common stock.
As a
result, the Company is no longer a “shell company” as
that term is defined in Rule 405 of the Securities Act and Rule
12b-2 of the Exchange Act and the Company’s business
operations will now be those operations that SeD Home is currently
conducting and may conduct in the future.
FORM 10 DISCLOSURE
Set
forth below is the information required by Form 10 Pursuant to
Section 12(b) or (g) of the Securities Exchange Act of
1934.
BUSINESS
SeD
Intelligent Home Inc., formerly known as Homeownusa, was
incorporated in the State of Nevada on December 10, 2009 with the
intention of entering into the home equity lease/rent to own
business. The Company is no longer pursuing this business plan. Our
address is 4800 Montgomery Lane, Suite 210, Bethesda, MD, 20814.
Our telephone number is 301-971-3940.
On
December 31, 2013, the Company’s sole director and officer
and nine other shareholders sold their interest in the Company to
CloudBiz International Pte, Ltd (“CloudBiz”), a
Singapore corporation. The total number of shares purchased was
15,730 which represented a 69% interest in the Company’s
issued and outstanding common stock (the
“Transaction”). Along with the Transaction, the sole
director and officer resigned and Mr. Conn Flanigan was appointed
as the Company’s Chief Executive Officer and sole director.
On July 7, 2014 CloudBiz invested $37,000 in the Company. For such
investment, CloudBiz received an additional 74 million shares of
the Company’s common stock. In October 2014, the Company
issued 20,534 shares to 30 new investors for total proceeds of
$2,053. On December 22, 2016 Cloudbiz International Pte. Ltd
transferred 74,015,730 common shares to Singapore eDevelopment.
Singapore eDevelopment subsequently contributed its ownership in
the Company to its subsidiary SeD Home International, Inc. (which
also owned SeD Home until December 29, 2017, at which time SeD Home
International, Inc. contributed its shares of SeD Home to the
Company). The majority of the Company’s common stock
continues to be owned by SeD Home International, Inc. On January
10, 2017, our board of directors appointed Fai H. Chan as Director.
On March 10, 2017, Mr. Rongguo (Ronald) Wei, CPA, was appointed as
Chief Financial Officer of the Company.
4
In
connection with the acquisition of SeD Home, the Company has
appointed new officers and directors. Fai H. Chan and Moe T. Chan
will now serve as co-Chief Executive Officers; Rongguo (Ronald) Wei
and Alan
W. L. Lui will serve as Co-Chief Financial Officers, and our Board
of Directors will include Fai H. Chan, Moe T. Chan, Conn Flanigan
and Charley MacKenzie.
With
the completion of the Company’s acquisition of SeD Home, we
are now in the business of land development. While the Company will
own real estate, the Company does not intend to be a REIT for
federal tax purposes.
SeD
Home was incorporated in Delaware on February 24, 2015, and was
named SeD Home USA, Inc. before changing its name in May of 2015.
Prior to the Closing, SeD Home was entirely owned and controlled by
Singapore eDevelopment and certain of its subsidiaries since its
incorporation. Since SeD Home’s incorporation, the management
and funding of SeD Home has been directed by Singapore
eDevelopment’s management, including Singapore
eDevelopment’s Chief Executive Officer and controlling
shareholder, Fai H. Chan. The officers and directors of SeD Home
are the same six individuals who are the officers and directors of
the Company (listed above). SeD Home’s Black Oak project is a
162-acre land sub-division development north of Houston, Texas. SeD
Home’s Ballenger Run project is a 197-acre sub-division
development near Washington D.C. in Frederick County, Maryland. SeD
Home conducts its operations through nine wholly and partially
owned subsidiaries. SeD Home’s affiliates will provide
project and asset management via separate agreements with
consultants.
The
land development business involves converting undeveloped land into
buildable lots. When possible, in future projects we will attempt
to mitigate risk by attempting to enter into contracts with
strategic home building partners for the sale of lots to be
developed. In such circumstances, it is our intention that (i) we
will conduct a feasibility study on a particular land development;
(ii) both SeD Home and the strategic home building partners will
work together in connection with acquisition of the appropriate
land; (iii) strategic home building partners will typically agree
to enter into agreements to purchase up to 100% of the buildable
lots to be developed; (iv) SeD Home and the strategic home building
partners will enter into appropriate agreements; and (v) SeD Home
will proceed to acquire the land for development and will be
responsible for the infrastructure development, ensuring the
completion of the project and delivery of buildable lots to the
strategic home building partner.
We also
intend, to the fullest extent practicable, to source land where
local government agencies (including county, district and other
municipalities) and public authorities, such as improvement
districts, will reimburse the majority of infrastructure costs
incurred by the land developer for developing the land to build
taxable properties. The developers and public authorities enter
into agreements whereby the developers are reimbursed for their
costs of infrastructure.
The
Company will also consider the potential to purchase foreclosure
property development projects from banks if attractive
opportunities should arise.
The
Company, utilizing the extensive business network of its management
and majority shareholder, may from time to time attempt to forge
joint ventures with other parties. Through its subsidiaries, SeD
Home may manage such joint ventures.
In
addition to the completion of our current projects, we intend to
seek additional land development projects in diverse regions across
the United States. Such projects may be within both the for-sale
and for-rent markets, and we may expand from residential properties
to other property types, including but not limited to commercial
and retail properties. We will consider projects in diverse regions
across the United States, however, SeD Home and its management and
consultants have longstanding relationships with local owners,
brokers, managers, lenders, tenants, attorneys and accountants to
help it source deals throughout Maryland and Texas. SeD Home will
continue to focus on off-market deals and raise appropriate
financing.
SeD
Home, via a subsidiary, is presently exploring opportunities to
expand its current portfolio by developing communities solely
designed for renters. SeD Home is exploring the potential to pursue
this new endeavor in part to improve cash flow and smooth out the
inconsistencies of income in residential land development. SeD will
continue to attempt to mitigate risk and maximize returns. At the
present time, SeD Home owns one home through its subsidiary SeD
USA, LLC that is available for rent. Previously, SeD Home owned
other homes for rent which have been sold.
5
Entering
into the business of building homes with the intention of owning
and renting those homes would provide an opportunity for SeD Home
to create value by (i) acquiring properties for horizontal and
vertical development; (ii) providing fee generation via property
management and leasing; and (iii) capturing rent escalations over
long term periods. SeD Home and its affiliates would provide
property management for customers seeking to offload home
maintenance and lawn care.
Through
our subsidiaries, we will explore the potential to pursue other
business opportunities related to real estate. The Company is
evaluating the potential to enter into activities related to real
estate and home technologies, although we note that these potential
opportunities remain at the exploratory stage, and we may not
pursue these opportunities at the discretion of our management. The
Company is particularly exploring opportunities related to smart
home and eco-friendly home technologies.
We also
intend to enlarge the scope of property-related services.
Additional planned activities, which we intend to be carried out
through SeD Home, include financing, home management, realtor
services, insurance and home title validation. We may particularly
provide these services in connection with homes we build. These
activities are also in the planning stages.
The
Company has expended minimal resources on the projects currently
being explored as potential additions to our core land development
business, consisting primarily of management time, payments for
market studies and expenditures for the development of proposed
floor plans for potential residential developments. The Company has
not yet determined the estimated time frame for when it might
commence operations in any such new business
opportunities.
As of
September 30, 2017, our subsidiary SeD Home had total assets of
$59,922,551 and total liabilities of $26,628,663. Total assets as
of December 31, 2016 were $56,101,434 and total liabilities were
$27,007,067.
Employees
At the
present time, our subsidiary SeD Development Management LLC has
four full time employees, and no part time employees. Much of our
work is done by contractors retained for projects, and at the
present time we have no full or part time employees outside of SeD
Development Management LLC.
Compliance with Government Regulation
The
development of our real estate projects will require the Company to
comply with federal, state and local environmental regulations. In
connection with this compliance, our real estate acquisition and
development projects will require environmental
studies. To
date, the Company has spent approximately $42,356 on environmental
studies and compliance. Such costs are reflected in construction
progress costs in our financial statements.
The
cost of complying with governmental regulations are significant and
will increase if we add additional real estate projects and become
involved in homebuilding in the future. We will incur additional
expenses related to complying with U.S. securities reporting
requirements now that SeD Home is owned by SeD Intelligent Home
Inc.
At the
present time, we believe that we have all of the material
government approvals that we need to conduct our business as
currently conducted. We are subject to periodic local permitting
that must be addressed, but we do not anticipate that such
requirements for government approval will have a material impact on
our business as presently conducted. We are required to comply with
government regulations and to make filings from time to time with
various government entities. Such work is typically handled by
outside contractors we retain.
Intellectual Property
At the
present time, the Company does not own any trademarks, but we
anticipate filing trademark applications as we expand into new
areas of business.
6
Corporate Organization
The
following chart describes the Company’s ownership of various
subsidiaries:
Black Oak
Black
Oak is a 162 acre land infrastructure development and sub-division
project situated in Magnolia, Texas north of Houston. 150 Black Oak
LP was a partnership formed by our current partner prior to our
investment. 150 Black Oak LP had contracts to purchase seven
contiguous parcels of land. Our initial equity investment was
US$4.3 million for 60% ownership in the partnership. Upon this
initial investment in February 2014, we changed the name of the
partnership to 150 CCM Black Oak, Ltd (the “Black Oak
LP”). Since then we have increased our ownership in the Black
Oak LP to 69%. Black Oak LP is owned by a general partner and three
limited partners. Black Oak LP is controlled by SeD Home through
its indirect ownership and control of the general partner and a
majority of the limited partnership interests. The general partner
of Black Oak LP, a Texas corporation called 150 Black Oak GP, Inc.,
is wholly owned by SeD USA, LLC, which in turn is wholly owned by
SeD Home. A majority of the limited partnership interests are owned
by SeD Development USA, Inc., which is wholly owned by SeD Home.
150 Black Oak GP, Inc. was previously jointly owned with a partner,
but is now entirely owned by SeD USA LLC. The limited partners in
Black Oak LP include SeD Development USA, Inc., American Real
Estate Investments LLC and the Fogarty Family Trust II. As the only
Class A limited partner, SeD Development USA, Inc. is entitled to a
preferred return of five percent (5%) on its capital contribution
prior to distributions to any other limited partner. As of
September 30, 2017, Black Oak had total outstanding debts of
$11,482,447 to SeD Development USA, Inc. and $6,305,229 to SeD
Builder, Inc., each of which is one of our subsidiaries. Such loans
are at an annual interest rate of 15% per year and are secured by
deeds on the Black Oak property.
Black
Oak LP is obligated under its Limited Partnership Agreement (as
amended) to pay certain monthly consultant fees to SeD Home’s
subsidiary SeD Development USA, LLC in the amount of $6,500 per
month, as well as to Arete Real Estate and Development Company in
the amount of $6,500 per month and to limited partner American Real
Estate Investments LLC in the amount of $2,000 per month. The
consultant fees are for management, oversight, and supervision of
the development of the Black Oak project. These consultant fees are
being accrued will be paid upon Black Oak LP receiving $1,000,000
from a combination of builder deposits and reimbursement revenue,
as determined by SeD Development USA, LLC.
For the
years ended December 31, 2016 and 2015, respectively, Black Oak LP
incurred fees payable to SeD Development USA, LLC of $217,200, and
$19,500, fees payable to Arete Real Estate and Development Company
of $102,000 and $23,507, and fees payable to American Real Estate
Investments LLC of $24,000, and $6,000. The consultant fees paid in
the fiscal year ended December 31, 2015 included certain one-time
payments of accrued consultant fees made to SeD Development USA,
LLC, Arete Real Estate and Development Company, and American Real
Estate Investments LLC. Arete Real Estate and Development Company
and American Real Estate Investments LLC are related parties of the
Company.
The
site plan at Black Oak is being revised to allow for approximately
420-500 residential lots of varying sizes. We anticipate that our
involvement in land development aspects of this project will take
approximately three to five additional years to complete. Since
February of 2015, we have completed several important tasks related
to the project, including clearing certain portions of the
property, paving certain roads within the project and complying
with the local improvement district to ensure reimbursement of
these costs. We project selling lots and the construction of homes
will take place in 2018. We are presently in negotiations with
multiple builders for lot takedowns or in some cases entire phases
of the project.
The
Black Oak project is applying for reimbursement of certain
construction of roads, sewer, water etc. While we may be entitled
to reimbursements from a local improvement district, the amount and
timing of such payments is uncertain. The timing of such potential
reimbursements will be impacted by certain bond sales by the Harris
County Improvement District #17.
7
In October 2015, the project
obtained a US$6.0 million construction loan from Revere High Yield
Fund, LP. This loan was paid off in October of 2017.
In
August of 2017, we entered into a listing agreement for the Black
Oak project with a nationally recognized land broker in Houston,
Texas. Should we receive an acceptable offer for all or part of
this project, we would strongly consider selling the project. There
can be no guarantee that we will receive an offer at an acceptable
amount. We continue to move forward with our development plans. If
we are able to sell this project at an attractive price, we
anticipate utilizing the net proceeds from such sale for the
development of new projects and our expansion into new areas of
business.
At the
present time, the Company is considering expanding its current
policy of selling buildable lots to include a strategy of building
housing for sale or rent, particularly at our Black Oak
property.
Ballenger Run
In
November 2015, we completed the US$15.65 million acquisition of
Ballenger Run, a 197-acre land sub-division development located in
Frederick County, Maryland. Previously, on May 28, 2014, the RBG
Family, LLC entered into the Assignable Real Estate Sales Contract
with NVR, Inc. (“NVR”) by which RBG Family, LLC would
sell the 197 acres for $15,000,000.00 to NVR. On December 10, 2014,
NVR assigned this contract to SeD Maryland Development, LLC in the
Assignment and Assumption Agreement and entered into a series of
Lot Purchase Agreements by which NVR would purchase subdivided lots
from SeD Maryland Development, LLC.
SeD
Maryland Development’s acquisition of the 197 acres was
funded in part from a US$5.6 million deposit from NVR Inc.
(“NVR”). The balance of US$10.05 million was derived
from a total equity contribution of US$15.2 million by SeD
Ballenger LLC (“SeD Ballenger”) and CNQC Maryland
Development LLC (a unit of Qingjian International Group Co, Ltd,
China, “CNQC”). The project is owned by SeD Maryland
Development, LLC (“SeD Maryland”). SeD Maryland is
83.55% owned by SeD Ballenger and 16.45% by CNQC.
One of
our subsidiaries, SeD Development Management, LLC is the manager of
Ballenger Run pursuant to a Management Agreement. Under the
Management Agreement, SeD Development Management, LLC shall manage,
operate and administer SeD Maryland’ s day-to-day operations,
business and affairs, subject to the supervision of SeD Maryland,
and shall have only such functions and authority as SeD Maryland
may delegate to it. For performing these services, SeD Development
Management, LLC is entitled to a base management fee of five
percent of the gross revenue (including reimbursements) of
Ballenger Run. The base management fee shall be earned and paid in
monthly installments of $38,650 before gross revenue is determined.
When the gross revenue shall be determined, the parties will make
adjustments for underpayment or overpayment as necessary to ensure
the five percent of the gross revenue. SeD Development Management,
LLC may also earn incentive compensation of twenty percent of any
profit distributions to SeD Maryland above a 30% pre-tax internal
rate of return.
SeD
Maryland entered into a Project Development and Management
Agreement for Ballenger Run with MacKenzie Development Company, LLC
and Cavalier Development Group, LLC on February 25, 2015. MacKenzie
Development Company, LLC assigned its rights and obligations to
this agreement to Adams Aumiller Properties, LLC on September 9,
2017. Pursuant to this Project Development and Management
Agreement, Adams Aumiller, LLC and Cavalier Development Group, LLC
coordinate and manage the construction, financing, and development
of Ballenger Run. SeD Maryland compensates Adams Aumiller LLC and
Cavalier Development Group, LLC with a monthly aggregate fee of
$14,667 until all single family and townhome lots have been sold.
The monthly aggregate fee will then adjust to $11,000 which will
continue for approximately eight months to allow all close out
items to be finished including the release of guarantees and
securities as required by the government authorities. The Project
Development and Management Agreement for Ballenger Run also
requires SeD Maryland to pay a fee of $1200 and $500 for each
single-family and townhome, respectively, sold to a third party.
Finally, SeD Maryland will also pay a fee of $50,000 upon the sale
of the parcel underlying the multi-family lots and for the CCRC
parcel.
8
This
property is zoned for 443 entitled Residential Lots, 210 entitled
Multi-family Units and 200 entitled Continuing Care
Retirement Community
(“CCRC”) units approved for twenty (20) years from the
date of a Developers Rights & Responsibilities Agreement dated
October 8, 2014, as amended on September 6, 2016. We anticipate
that the completion of our involvement in this project will take
approximately five years from the date of this Current
Report.
Revenue
from Ballenger Run is anticipated to come from four main
sources:
●
The sale of 443
entitled and constructed residential lots to NVR;
●
The sale of the lot
for the 210 entitled multi-family units;
●
The sale of the lot
for the 200 entitled CCRC units; and
●
The sale of 443
front foot benefit assessments.
The
total project revenue is estimated to be approximately $68 million
(prior to costs). Revenues may be lower, however, if we fail to
attain certain goals and meet certain conditions.
Financing
from Xenith Bank (f/k/a The Bank of Hampton Roads or Shore Bank)
closed simultaneous with the settlement on the land on November 23,
2015, pursuant to a subsequent amendment to the terms of this loan,
the loan provides (i) for a maximum of $11 million outstanding;
(ii) that the maturity of this loan will be December 31, 2019; and
(iii) includes an $800,000 letter of credit facility, with an
annual rate of 1.5% on all issued letters of credit.
This
loan is to fund the development of the first 276 lots, the
multi-family parcel and senior living parcel, the amenities
associated with these phases, and certain Ballenger Creek Pike
improvements.
Expenses
from Ballenger Run include, but not be limited to costs associated
with land prices, closing costs, hard development costs, cost in
lieu of construction, soft development costs and interest costs. We
presently estimate these costs to be between $58 and $60 million.
We may also encounter expenses which we have not anticipated, or
which are higher than presently anticipated.
This
project will have four phases. The first phase has been completed
and the second phase has begun.
The
following chart describes the various phases of this
project:
Phase 1
construction of all infrastructure was complete as of December 31,
2017. The initial model lot sales with NVR began in May 2017 and
all lot sales of varying types as outlined in the chart set forth
above are continuing through the first quarter of 2018. In the
fourth quarter of 2017 all improvement plans and cost estimates
were approved for Phases 2A, 2B, 2C and 2D. Phase 2B is the next
phase of lot takedowns for NVR. Phase 2B plat recordation and final
construction began in March of 2018. Lot sales by NVR also began in
March of 2018. Phases 2A, C and D plat recordation and final
construction are anticipated by June of 2018.
Sale of Residential Lots
The 443
Residential Lots were contracted for sale under a Lot Purchase
Agreement to NVR, a company based in the US and listed on the New
York Stock Exchange. NVR is a home builder which is engaged in the
construction and sale of single-family detached homes, townhouses
and condominium buildings. It also operates a mortgage banking and
title services business. Under the Lot Purchase Agreements, NVR
provided SeD Home with an upfront deposit of $5.6 million and has
agreed to purchase the lots at a range of prices. The total
estimated revenue to be received pursuant to these Lot Purchase
Agreements, if all lots are sold, is approximately $59 million
based on our projection that the lot selling prices will increase
3% per annum on a quarterly basis after June 1, 2018. The lot types
and quantities to be sold to NVR under the Lot Purchase Agreements
include the following:
9
Lot Type
|
|
Quantity
|
Single Family
Detached Large
|
|
85
|
Single Family
Detached Small
|
|
89
|
Single Family
Detached Neo Traditional
|
|
33
|
Single Family
Attached 28’ Villa
|
|
85
|
Single Family
Attached 20’ End Unit
|
|
46
|
Single Family
Attached 16’ Internal Unit
|
|
105
|
Total
|
|
443
|
There
are five different types of Lot Purchase Agreements
(“LPAs”), which are essentially the same except for the
price and unit details for each type of lot. Under the LPAs, NVR
shall purchase 30 available lots per quarter. The LPAs provide
several conditions related to preparation of the lots which must be
met so that a lot can be made available for sale to NVR. SeD
Maryland is to provide customary lot preparation including but not
limited to as survey, grading, utilities installation, paving, and
other infrastructure and engineering. The sale of 13 model lots to
NVR began in May of 2017. NVR has started marketing lots and has
commenced sales. In the event NVR did not purchase the lots under
the LPAs, SeD Maryland would be entitled to keep the NVR deposit
and terminate the LPAs. Should SeD Maryland breach the LPAs, it
would have to return the remainder of the NVR deposit that has not
already been credited to NVR for any sales of lots under the LPAs
and NVR would be able to seek specific performance of the LPAs as
well as any other rights available at law or in
equity.
Sale of Lots for the Multi-family Units
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 December 31, 2017, and 2016,
$250,000 in deposits were held in the escrow account.
Since the funds were 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.
Sale of the Front Foot Benefit Assessments
We have
established a front foot benefit assessment on all of the NVR lots.
This is a 30 year annual assessment allowed in Frederick County
which requires homeowners to pay the developer to reimburse the
costs of installing public water and sewer to the lots. These
assessments become effective as homes are settled at which time we
can sell the collection rights to the assessments to investors who
will pay a lump sum up front so we can realize the revenue sooner.
Overall, we project that these front foot benefits will result in
additional profits of approximately $900,000. Front foot benefit
assessments are subject to amendment by regulatory agencies,
legislative bodies, and court rulings, and any changes to front
foot benefit assessments could cause us to reassess these
projections.
CCRC Parcel
On
February 19, 2018, SeD Maryland Development, LLC entered into a
contract to sell the CCRC 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 will seek to find alternative purchasers
for the CCRC parcel.
10
Wetland Impact Permit
The
Ballenger project will require a joint wetland impact permit, which
requires the review of several state and federal agencies,
including the US Army Corps of Engineers. The permit is primarily
required for Phase 3 construction which will not start until 2019
or later but it also affects a pedestrian trail at the Ballenger
project and the multi-family sewer connection. The US Army Corps of
Engineers allowed us to proceed with construction on Phase 1, but
required archeological testing. As of the date of this report, the
archeological testing has been completed with no further
recommendations on Phase 1 of the project. Required architectural
studies on the final phase of development will likely result in the
loss of only one lot, however, we cannot be certain of future
reviews and their impact on the project.
K-6 Grade School Site
In
connection with getting the necessary approvals for the Ballenger
Project, we agreed to transfer thirty acres of land that abuts the
development for the construction of a local K-6 grade school. We
will not be involved in the construction of such
school.
Home Incubation Project
Recognizing
that large land sub-division projects have a longer time horizon,
we previously introduced a home incubation initiative to market
completed U.S. single-family homes, with existing tenants, to
investors in Asia (the “Home Incubation
Project”).
Under
the Home Incubation Project, we purchased 27 homes, mostly located
in Texas. We sold 24 of the homes by the end of 2016 and an
additional two in 2017. SeD Home retains only one rental home at
the present time. The Group also purchased a terrace residential
property in Washington DC and renovated and sold the property in
2017.
Competition
There
are a number of companies engaged in the development of land.
Should we expand our operations into the business of constructing
homes ourselves, we will face increased competition, including
competition from large, established and well-financed companies,
some of which may have considerable ties and experience in the
geographical areas in which we seek to operate. Similarly, as we
consider other opportunities we may wish to pursue in addition to
our current land development business, we anticipate that we will
face experienced competitors.
We will
compete in part on the basis of the skill, experience and
innovative nature of our management team, and their track record of
success in diverse industries.
Emerging Growth Company
We
qualify as an Emerging Growth Company as defined in the Jumpstart
Our Business Startups (JOBS) Act. As an “Emerging Growth
Company” under the JOBS Act, we are permitted to rely on
exemptions from certain disclosure requirements. For so long as we
are an emerging growth company, we will not be required
to:
●
have an auditor
report on our internal controls over financial reporting pursuant
to Section 404(b) of the Sarbanes-Oxley Act;
●
provide an auditor
attestation with respect to management’s report on the
effectiveness of our internal controls over financial
reporting;
●
comply with any
requirement that may be adopted by the Public Company Accounting
Oversight Board regarding mandatory audit firm rotation or a
supplement to the auditor’s report providing additional
information about the audit and the financial statements (i.e., an
auditor discussion and analysis);
●
submit certain
executive compensation matters to shareholder advisory votes, such
as “say-on-pay” and “say-on-frequency;”
and
●
disclose certain
executive compensation related items such as the correlation
between executive compensation and performance and comparisons of
the Chief Executive’s compensation to median employee
compensation.
11
In
addition, Section 107 of the JOBS Act also provides that an
emerging growth company can take advantage of the extended
transition period provided in Section 7(a)(2)(B) of the Securities
Act for complying with new or revised accounting standards. In
other words, an emerging growth company can delay the adoption of
certain accounting standards until those standards would otherwise
apply to private companies. We have elected to take advantage of
the benefits of this extended transition period. Our financial
statements may therefore not be comparable to those of companies
that comply with such new or revised accounting
standards.
We will
remain an “emerging growth company” until the last day
of the fiscal year of the issuer following the fifth anniversary of
the date of the first sale of common equity securities pursuant to
an effective registration statement (in the case of the Company,
this date will be December 31, 2018). The applicable rules also
provide that we would cease to be an emerging growth company at the
earliest to occur of (i) the last day of the first fiscal year in
which our total annual gross revenues is $1 billion; (ii) the date
that we become a “large accelerated filer” as defined
in Rule 12b-2 under the Securities Exchange Act of 1934, which
would occur if the market value of our ordinary shares that is held
by non-affiliates is $700 million as of the last business day of
our most recently completed second fiscal quarter; or (iii) the
date on which we have issued more than $1 billion in
non-convertible debt during the preceding three year
period.
Until
such time, however, we cannot predict if investors will find our
common stock less attractive because we may rely on these
exemptions. If some investors find our common stock less attractive
thus, there may be a less active trading market for our common
stock and our stock price may be more volatile.
RISK FACTORS
An
investment in our common stock involves a high degree of risk. You
should carefully consider the risks described below and the other
information in this report before making a decision to invest in
our common stock. If any of the following risks and uncertainties
develop into actual events, our business, results of operations and
financial condition could be adversely affected. In those cases,
the trading price of our common stock could decline and you may
lose all or part of your investment.
Risks Related to Our Company
We will need additional capital to expand our current operations or
to enter into new fields of operations.
Both
the expansion of our current land development operations into new
geographic areas and the proposed expansion of the Company into new
businesses in the real estate industry will require additional
capital. We will need to seek additional financing either through
borrowing, private offerings of our securities or through strategic
partnerships and other arrangements with corporate partners. We
cannot be assured that additional financing will be available to
us, or if available, will be available to us on terms favorable to
us. If adequate additional financing is not available on acceptable
terms, we may not be able to implement our business development
plan or expand our operations.
We must retain key personnel for the success of our
business.
Our
success is highly dependent on the skills and knowledge of our
management team, including their knowledge of our projects and
network of relationships. If we are unable to retain the members of
such team, or adequate substitutes, this could have a material
adverse effect on our business and financial
condition.
If we fail to effectively manage our growth our future business
results could be harmed and our managerial and operational
resources may be strained.
As we
proceed with the expansion of our operations, we expect to
experience significant and rapid growth in the scope and complexity
of our business. We will need to hire additional personnel in order
to successfully advance our operations. This growth is likely to
place a strain on our management and operational resources. The
failure to develop and implement effective systems, or to hire and
retain sufficient personnel for the performance of all of the
functions necessary to effectively service and manage our potential
business, or the failure to manage growth effectively, could have a
materially adverse effect on our business and financial
condition.
12
There are risks related to conflicts of interest with our
partners.
The two
projects will be dependent upon SeD Development Management LLC, a
subsidiary of SeD Home, for the services required for their
operations. The interlocking interests of our officers and
directors create a number of conflicts of interest between our
Company and our partners in the two projects. Neither of the two
current projects has any employees, and these projects will be
dependent upon SeD Development Management LLC and its affiliates
for the services required for their operations.
The
Company, through SeD Development Management LLC, will receive fees
and reimbursements for the services it provides to the limited
partnerships and may realize income from operations and upon the
liquidation of the limited partnerships. The agreements and
arrangements between the limited partnerships and SeD Development
Management LLC and its affiliates, including those relating to
compensation, were not negotiated at arm’s-length. Although
the aggregate amount of reimbursements SeD Development Management
LLC may receive is limited by the limited partnership’s
Management Agreement, the amount of services that SeD Development
Management LLC provides, and therefore the amount of reimbursement
it receives within these limits, will be determined in the first
instance by SeD Development Management LLC.
SeD
Development Management LLC manages Ballenger Run for SeD Maryland.
Potential conflict between SeD Development Management, LLC and CNQC
regarding the management of Ballenger Run could undermine our
ability to effectively implement our vision for these projects, and
could result in costly and time-consuming litigation.
SeD
Development USA, LLC, a wholly owned subsidiary of SeD Home, serves
as the General Partner of 150 CCM Black Oak Ltd. Pursuant to the
Limited Partnership Agreement and the Bylaws of the General
Partner, SeD Development Management, as General Partner, shall
manage the construction and development of the property at Black
Oak. Potential conflict between SeD Development Management, LLC and
the limited partners of Black Oak LP, Fogarty Family Trust II and
American Real Estate Investments, LLC, regarding the management of
Black Oak could undermine our ability to effectively implement our
vision for these projects, and could result in costly and
time-consuming litigation.
Members of our management may face competing demands relating to
their time, and this may cause our operating results to
suffer.
Our
Co-Chief Executive Officers, Fai H. Chan and Moe T. Chan, are both
officers and directors of Singapore eDevelopment, the entity which
owns SeD Home International, Inc., our majority shareholder. They
are involved in a number of other projects other than our
Company’s real estate business and will continue to be so
involved. Both of our Co-Chief Executive Officers have their
primarily residences and business offices in Asia, and accordingly,
there will be limits on how often they are able to visit the
locations of our real estate investments. Similarly, our Co- Chief
Financial Officers are both also engaged in non-real estate
activities of Singapore eDevelopment, and only one of our Co-Chief
Financial Officers resides and works in the United States (at an
office located in Bethesda, MD).
Our relationship with our majority shareholder and its parent and
affiliates may be on terms which are perceived by investors as more
or less favorable than those that could be obtained from third
parties.
Our
majority shareholder, SeD Home International, Inc., presently owns
99.99% of our issued and outstanding common stock. While we
anticipate that such percentage will be diluted over time, our
majority shareholder, its parent and affiliates will be perceived
as having influence over our management and operations, and any
loans or other agreements which we may enter into with our majority
shareholder and its parents and affiliates may be perceived by
investors as being on terms that are less favorable than we could
otherwise receive; such perception could adversely impact the price
of our common stock. Similarly, such agreements could be perceived
as being on terms more favorable than those that could be obtained
from third parties, and any unwillingness by our majority
shareholder and its parent and affiliates to engage with our common
stock could discourage investors.
13
Risks Relating to the Real Estate Industry
The market for Real Estate is subject to fluctuations that may
impact the value of the land or housing inventory that we hold,
which may impact the price of our common stock.
Investors
should be aware that the value of any real estate we own may
fluctuate from time to time in connection with broader market
conditions and regulatory issues which we cannot predict or
control, including interest rates, the availability of credit, the
tax benefits of homeownership and wage growth, unemployment and
demographic trends in the regions in which may conduct business.
Should the price of real estate decline in the areas in which we
have purchased land decline, the price at which we will be able to
sell lots to home builders, or if we build houses, the price at
which can sell such houses to buyers, will decline.
The regulation of mortgages could adversely impact home buyers
willingness to buy new homes which we may be involved in building
and selling.
If we
become active in the construction and sale of homes to customers,
the ability of home buyers to get mortgages could have an impact on
our sales, as we anticipate that the majority of home buyers will
be financed through mortgage financing.
An increase in interest rates will cause a decrease in the
willingness of buyers to purchase land for building homes and
completed home.
An
increase in interest rates will likely impact sales, reducing both
the number of homes and lots we can sell and the price at which we
can sell them.
Our business, results of operations and financial condition could
be adversely impacted by significant inflation or
deflation.
Significant
inflation could have an adverse impact on us by increasing the
costs of land, materials and labor. We may not be able to offset
cost increases caused by inflation. In addition, our costs of
capital, as well as those of our future business partners, may
increase in the event of inflation, which may cause us to need to
cancel projects. Significant deflation could cause the value of our
inventories of land or homes to decline, which could sharply impact
our profits.
New environmental regulations could create new costs for our land
development business, and other business in which we may commence
operations.
At the
present time, we are subjected to a number of environmental
regulations. If we expand into the business of building homes
ourselves, we will be subjected to an increasing number of
environmental regulations. The number and complexity of local,
state and federal regulations may increase over time. Additional
environmental regulations can add expenses to our existing
business, and to businesses which we may enter into the future,
which may reduce our profits.
Zoning and land use regulations impacting the land development and
homebuilding industries may limit our activities and increase our
expenses, which would adversely affect our profits.
We must
comply with zoning and land use regulations impacting the land
development and home building industries. We will need to obtain
the approval of various government agencies to expand our
operations as currently into new areas and to commence the building
of homes. Our ability to gain the necessary approvals is not
certain, and the expense and timing of approval processes may
increase in ways that adversely impact our profits.
14
The availability and cost of skilled workers in the building trades
may impact the timing and profitability of projects that we
participate in.
Should
there be a lack of skilled workers to be retained by our Company
and its partners, the ability to complete land development and
potential construction projects may be delayed.
Shortages in required materials could impact the profitability of
construction partnerships we may participate in.
Should
a shortage of required materials occur, such shortage could cause
added expense and delays that will undermine our
profits.
Our ability to have a positive relationship with local communities
could impact our profits.
Should
we develop a poor relationship with the communities in which we
will operate, such relationship will impact our
profits.
We may face litigation in connection with either our current
activities or activities which we may conduct in the
future.
As we
expand our activities, the likelihood of litigation shall increase.
The expenses of such litigation may be substantial. We may be
exposed to litigation for environmental, health, safety, breach of
contract, defective title, construction defects, home warranty and
other matters. Such litigation could include expensive class action
matters. We could be responsible for matters assigned to
subcontractors, which could be both expensive and difficult to
predict.
As we expand operations, we will incur greater insurance costs and
likelihood of uninsured losses.
If we
expand our operations into home building, we may experience
material losses for personal injuries and damage to property in
excess of insurance limits. In addition, our premiums may
raise.
Health and safety incidents that occur in connection with our
potential expansion into the home building business could be
costly.
If we
commence operations in the homebuilding business, we will be
exposed to the danger of health and safety risks to our employees
and contractors. Health and safety incidents could result in the
loss of the services of valued employees and contractors and expose
us to significant litigation and fines. Insurance may not cover, or
may be insufficient to cover, such losses.
Adverse weather conditions, natural disasters and man-made
disasters may delay our projects or cause additional
expenses.
The
land development operations which we currently conduct and the
construction projects which we may become involved in at a later
date may be adversely impacted by unexpected weather and natural
disasters, including but not limited to storms, hurricanes,
tornados, floods, blizzards, fires, earthquakes. Man-made disasters
including terrorist attacks, electrical outages and cyber-security
incidents may also impact the costs and timing of the completion of
our projects. Cyber-security incidents, including those that result
in the loss of financial or other personal data, could expose us to
litigation and reputational damage. If insurance is unavailable to
us on acceptable terms, or if our insurance is not adequate to
cover business interruptions and losses from the conditions
described above and similar incidents, or results of operations
will be adversely affected. In addition, damage to new homes caused
by these conditions may cause our insurance costs to
increase.
15
Risks Associated with Real Estate-Related Debt and Other
Investments
Any real estate debt security that we originate or purchase is
subject to the risks of delinquency and foreclosure.
We may
originate and purchase real estate debt securities, which are
subject to numerous risks including delinquency and foreclosure. We
will not have recourse to the personal assets of our tenants. The
ability of a lessee to pay rent depends primarily upon the
successful operation of the property, rather than upon the
existence of independent income or assets of the
tenant.
Any hedging strategies we utilize may not be successful in
mitigating our risks.
We may
enter into hedging transactions to manage, for example, the risk of
interest rate or price changes. To the extent that we may
occasionally use derivative financial instruments, we will be
exposed to credit, basis and legal enforceability risks. Derivative
financial instruments may include interest rate swap contracts,
interest rate cap or floor contracts, futures or forward contracts,
options or repurchase agreements. In this context, credit risk is
the failure of the counterparty to perform under the terms of the
derivative contract. If the fair value of a derivative contract is
positive, the counterparty owes us, which creates credit risk for
us. Basis risk occurs when the index upon which the contract is
based is more or less variable than the index upon which the hedged
asset or liability is based, thereby making the hedge less
effective. Finally, legal enforceability risks encompass general
contractual risks, including the risk that the counterparty will
breach the terms of, or fail to perform its obligations under, the
derivative contract. We may not be able to manage these risks
effectively.
Risks Related to Our Potential Expansion into New Fields of
Operations
If we pursue the development of new technologies, we will be
required to respond to rapidly changing technology and customer
demands.
In the
event that the Company enters the business of developing
“Smart Home” and similar technologies (an area which we
are presently exploring), the future success of such operation will
depend on our ability to adapt to technological advances,
anticipate customer demands and develop new products. We may
experience technical or other difficulties that could delay or
prevent the development, introduction or marketing of products.
Also, we may not be able to adapt new or enhanced services to
emerging industry standards, and our new products may not be
favorably received.
Risks Related To Our Common Stock
The shares of our common stock are currently not being traded and
there can be no assurance that there will be an active market in
the future.
Our
shares of common stock are not publicly traded, and if trading
commences, the price may not reflect our value. There can be no
assurance that there will be an active market for our shares of
common stock in the future. As a result, investors may not be able
to liquidate their investment or liquidate it at a price that
reflects the value of the business.
It is possible that we will not establish an active market unless
our stock is listed for trading on an exchange, and we cannot
assure you that we will ever satisfy exchange listing
requirements.
It is
possible that a significant trading market for our shares will not
develop unless the shares are listed for trading on a national
exchange. Exchange listing would require us to satisfy a number of
tests as to corporate governance, public float, shareholders,
equity, assets, market makers and other matters, some of which we
do not currently meet. We cannot assure you that we will ever
satisfy listing requirements for a national exchange or that there
ever will be significant liquidity in our shares.
16
If we issue additional shares of our common stock, you will
experience dilution of your ownership interest.
We may
issue shares of our authorized but unissued equity securities in
the future. Such shares may be issued in connection with raising
capital, acquiring assets or firing or retaining employees or
consultants. If we issue such shares, your ownership will be
diluted.
We do not intend to pay dividends in the foreseeable future, and
investors should not purchase our stock expecting to receive
dividends.
We have
not paid any dividends on our common stock in the past, and we do
not anticipate that we will pay dividends in the foreseeable
future. Accordingly, some investors may decline to invest in our
common stock, and this may reduce the liquidity of our
stock.
The limitations on liability for officers, directors and employees
under the laws of the State of Nevada and the existence of
indemnification rights for our officers, directors and employees
could result in substantial expenditures by the Company and could
discourage lawsuits against our officers, directors and
employees.
Our
Articles of Incorporation contain a specific provision that
eliminates the liability of our officers and directors for monetary
damages to our company and shareholders. Further, we intend to
provide indemnification to our officers and directors to the
fullest extent permitted by the laws of the State of Nevada. We may
also enter into employment and other agreements in the future
pursuant to which we will have indemnification obligations. The
foregoing indemnification obligations could result in the Company
incurring substantial expenditures to cover the cost of settlement
or damage awards against officers and directors. These obligations
may discourage the filing of derivative litigation by our
shareholders against our officers and directors even where such
litigation may be perceived as beneficial by our
shareholders.
SeD Home will incur increased costs and compliance risks as a
result of becoming a public company.
As a
public company, SeD Home will incur significant legal, accounting
and other expenses that SeD Home did not occur prior to being
acquired by the Company.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This
Current Report on Form 8-K contains certain forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. For this purpose, any statements contained in
this Current Report on Form 8-K that are not statements of
historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, words such as “may”,
“will”, “expect”, “believe”,
“anticipate”, “estimate” or
“continue” or comparable terminology are intended to
identify forward-looking statements. These statements by their
nature involve substantial risks and uncertainties, and actual
results may differ materially depending on a variety of factors,
many of which are not within our control. These factors include by
are not limited to economic conditions generally and in the
industries in which we may participate; competition within our
chosen industry, including competition from much larger
competitors; technological advances and failure to successfully
develop business relationships.
Results of Operations for the nine months ended September 30, 2017
and 2016
Summary of Statements of Operations for the Nine Months Ended
September 30, 2017 and 2016:
|
Nine
Months Ended
|
|
|
September
30,
2017
|
September
30,
2016
|
Revenue
|
$2,792,174
|
$840,987
|
Operating
Expenses
|
$3,384,750
|
$1,773,495
|
Loss
From Operations
|
$(592,576)
|
$(932,508)
|
17
Revenue
Revenue
was $2,792,174 for the nine months ended September 30, 2017 as
compared to $840,987 for the nine months ended September 30, 2016.
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 enter into with them.
We collect revenue from the sale of lots to builders; we do not
build any houses ourselves at the present time.
Rental
income declined from $176,887 in the period ended September 30,
2016 to $88,438 in the period ended September 30, 2017 as certain
rental properties were sold (we now own only one rental property).
Unless we acquire additional rental-income producing assets, such
rental income may decline further in 2018 if this remaining rental
home is sold.
Operating Expenses
Operating
expenses increased to $3,384,750 for the nine months ended
September 30, 2017 from $1,773,495 for the nine months ended
September 30, 2016. This increase is caused by increased costs
relating to increased sales, which cost of sales increased from
$702,952 in the nine months ended September 30, 2016 to $2,570,182
in the nine months ended September 30, 2017. Accrued construction
expenses were allocated to lot sales. We anticipate total cost of
sales will increase as revenue increases.
Loss from Operations
Our
loss from operations decreased from $932,508 to $592,576 in the
nine month period ended September 30, 2016 to September 30, 2017,
in large part because of our increased property sales. In 2018, we
anticipate further decline in losses relating to our current
operations, however, the addition of new operations may cause new
expenses that delay any profitability.
Liquidity and Capital Resources
Our
real estate assets have increased to $56,588,763 as of September
30, 2017 from $52,915,566 as of December 31, 2016. This increase
largely reflects an increase in construction in progress to
$31,262,668 as of September 30, 2017 from $26,146,557. Our cash has
increased from $392,172 as of December 31, 2016 to $595,457 as of
September 30, 2017. Our liabilities declined from $27,007,067 at
December 31, 2016 to $26,628,663 at September 30, 2017. Our total
assets have increased to $59,922,551 as of September 30, 2017 from
$56,101,434 as of December 31, 2016.
As of
September 30, 2017, we had cash $595,457, compared to $392,172 as
of December 31, 2016. Our Ballenger Run revolver loan balance from
Hampton Road Bank is approximately $10 million and the credit limit
is $11 million as of September 30, 2017. At December 31, 2016, the
revolver loan balance was approximate $7.2 million and credit limit
is $8 million. The interest of intercompany loans is accruing and
the due date of these intercompany loans could be
extended.
Based
on the sales projection of Ballenger run by sales contract with NVR
and Orchard Development Corporation, the 2018 revenue is
approximately $20 million. The majority of the loan from Xenith
Bank will be repaid and the balance closes to less than $1 million
at end of 2018. The credit line of revolver loan is $11 million. At
same time, we expect that the restricted cash $2.6 million will
release to us around September 2018 after we satisfy the terms on
the loan agreement. In 2018, Ballenger will distribute about $2.7
million cash back to SeD Home.
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.
18
Summary of Cash Flows
A
summary of cash flows from operating, investing and financing
activities for the nine months ended September 30, 2017 and 2016
are as follows:
|
2017
|
2016
|
|
|
|
Net
cash Used In Operating Activities
|
$(4,390,104)
|
$(8,177,847)
|
Net
Cash Used In Investing Activities
|
$(26,848)
|
$(22,690)
|
Net
Cash Provided by financing activities
|
$4,620,237
|
$6,413,895
|
Net
Increase (Decrease) in Cash
|
$203,285
|
$(1,786,642)
|
Cash
and cash equivalents at beginning of the year
|
$392,172
|
$2,291,529
|
Cash
and cash equivalents at end of the year
|
$595,457
|
$504,887
|
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 nine months of 2017, cash
used in operating activities was $4,390,104, compared with
$8,177,847 in 2016. The decease of the development costs in 2017 is
the main reason of decrease of the cash used in operation
activities. With the completion of the part of phase one of Black
Oak project, development speed was adjusted with the market need
and development costs went down as well. Ballenger development
costs were basically same in the nine months of 2017 as that period
in 2016.
Cash Flows from Investing Activities
Cash flows used in investing activities primarily includes
purchases of office fixture and computer equipment and money market
deposit required by Hampton Road Bank as the revolver loan
collateral.
Cash Flows from Financing Activities
In 2016, most of loans were from third party financial institutes,
Revere Loan for Black Oak project and Hampton Loan for Ballenger
Run project. In 2017, SeD Home borrowed $7.8 million from SeD to
pay off Revere Loan $6 million and to support the land development
of Black Oak and Ballenger projects. The majority of loan for
Ballenger was still from the third-party Hampton Road
Bank.
Black Oak
Black
Oak is a 162 acre land infrastructure development and sub-division
project situated in Magnolia, Texas north of Houston. 150 Black Oak
LP was a partnership formed by our current partner prior to our
investment. 150 Black Oak LP had contracts to purchase seven
contiguous parcels of land. Our initial equity investment was
US$4.3 million for 60% ownership in the partnership. Upon this
initial investment in February 2014, we changed the name of the
partnership to 150 CCM Black Oak, Ltd (the “Black Oak
LP”). Since then we have increased our ownership in the Black
Oak LP to 69%. Black Oak LP is owned by a general partner and three
limited partners. Black Oak LP is controlled by SeD Home through
its indirect ownership and control of the general partner and a
majority of the limited partnership interests. The general partner
of Black Oak LP, a Texas corporation called 150 Black Oak GP, Inc.,
is wholly owned by SeD USA, LLC, which in turn is wholly owned by
SeD Home. A majority of the limited partnership interests are owned
by SeD Development USA, Inc., which is wholly owned by SeD Home.
150 Black Oak GP, Inc. was previously jointly owned with a partner,
but is now entirely owned by SeD USA LLC. The limited partners in
Black Oak LP include SeD Development USA, Inc., American Real
Estate Investments LLC and the Fogarty Family Trust II. As the only
Class A limited partner, SeD Development USA, Inc. is entitled to a
preferred return of five percent (5%) on its capital contribution
prior to distributions to any other limited partner. As of
September 30, 2017, Black Oak had total outstanding debts of
$11,482,447 to SeD Development USA, Inc. and $6,305,229 to SeD
Builder, Inc., each of which is one of our subsidiaries. Such loans
are at an annual interest rate of 15% per year and are secured by
deeds on the Black Oak property.
19
Black
Oak LP is obligated under its Limited Partnership Agreement (as
amended) to pay certain monthly consultant fees to SeD Home’s
subsidiary SeD Development USA, LLC in the amount of $6,500 per
month, as well as to Arete Real Estate and Development Company in
the amount of $6,500 per month and to limited partner American Real
Estate Investments LLC in the amount of $2,000 per month. The
consultant fees are for management, oversight, and supervision of
the development of the Black Oak project. These consultant fees are
being accrued will be paid upon Black Oak LP receiving $1,000,000
from a combination of builder deposits and reimbursement revenue,
as determined by SeD Development USA, LLC.
For the
years ended December 31, 2016 and 2015, respectively, Black Oak LP
incurred fees payable to SeD Development USA, LLC of $ 217,200, and
$19,500, fees payable to Arete Real Estate and Development Company
of $102,000, and $23,507, and fees payable to American Real Estate
Investments LLC of $24,000, and $6,000. The consultant fees paid in
the fiscal year ended December 31, 2015 included certain one-time
payments of accrued consultant fees made to SeD Development USA,
LLC, Arete Real Estate and Development Company, and American Real
Estate Investments LLC. Arete Real Estate and Development Company
and American Real Estate Investments LLC are related parties of the
Company.
The
site plan at Black Oak is being revised to allow for approximately
420-500 residential lots of varying sizes. We anticipate that our
involvement in land development aspects of this project will take
approximately three to five additional years to complete. Since
February of 2015, we have completed several important tasks related
to the project, including clearing certain portions of the
property, paving certain roads within the project and complying
with the local improvement district to ensure reimbursement of
these costs. We project selling lots and the construction of homes
will take place in 2018. We are presently in negotiations with
multiple builders for lot takedowns or in some cases entire phases
of the project.
The
Black Oak project is applying for reimbursement of certain
construction of roads, sewer, water etc. While we may be entitled
to reimbursements from a local improvement district, the amount and
timing of such payments is uncertain. The timing of such potential
reimbursements will be impacted by certain bond sales by the Harris
County Improvement District #17.
In
December 2015, the project obtained a US$6.0 million construction
loan from Revere High Yield Fund, LP. This loan was paid off in
October of 2017.
In
August of 2017, we entered into a listing agreement for the Black
Oak project with a nationally recognized land broker in Houston,
Texas. Should we receive an acceptable offer for all or part of
this project, we would strongly consider selling the project. There
can be no guarantee that we will receive an offer at an acceptable
amount. We continue to move forward with our development plans. If
we are able to sell this project at an attractive price, we
anticipate utilizing the net proceeds from such sale for the
development of new projects and our expansion into new areas of
business.
Ballenger Run
In
November 2015, we completed the acquisition of Ballenger Run, a
197-acre land sub-division development located in Frederick County,
Maryland. Previously, on May 28, 2014, the RBG Family, LLC entered
into the Assignable Real Estate Sales Contract with NVR, Inc.
(“NVR”) by which RBG Family, LLC would sell the 197
acres for $15,000,000.00 to NVR. On December 10, 2014, NVR assigned
this contract to SeD Maryland Development, LLC in the Assignment
and Assumption Agreement and entered into a series of Lot Purchase
Agreements by which NVR would purchase subdivided lots from SeD
Maryland Development, LLC.
SeD
Maryland Development’s acquisition of the 197 acres was
funded in part from a US$5.6 million deposit from NVR. The balance
of US$10.05 million was derived from a total equity contribution of
US$15.2 million by SeD Ballenger LLC (“SeD Ballenger”)
and CNQC Maryland Development LLC (a unit of Qingjian International
Group Co, Ltd, China, “CNQC”). The project is owned by
SeD Maryland Development, LLC (“SeD Maryland”). SeD
Maryland is 83.55% owned by SeD Ballenger and 16.45% by
CNQC.
20
One of
our subsidiaries, SeD Development Management, LLC is the manager of
Ballenger Run pursuant to a Management Agreement. Under the
Management Agreement, SeD Development Management, LLC shall manage,
operate and administer SeD Maryland’ s day-to-day operations,
business and affairs, subject to the supervision of SeD Maryland,
and shall have only such functions and authority as SeD Maryland
may delegate to it. For performing these services, SeD Development
Management, LLC is entitled to a base management fee of five
percent of the gross revenue (including reimbursements) of
Ballenger Run. The base management fee shall be earned and paid in
monthly installments of $38,650 before gross revenue is determined.
When the gross revenue shall be determined, the parties will make
adjustments for underpayment or overpayment as necessary to ensure
the five percent of the gross revenue. SeD Development Management,
LLC may also earn incentive compensation of twenty percent of any
profit distributions to SeD Maryland above a 30% pre-tax internal
rate of return.
SeD
Maryland entered into a Project Development and Management
Agreement for Ballenger Run with MacKenzie Development Company, LLC
and Cavalier Development Group, LLC on February 25, 2015. MacKenzie
Development Company, LLC assigned its rights and obligations to
this agreement to Adams Aumiller Properties, LLC on September 9,
2017. Pursuant to this Project Development and Management
Agreement, Adams Aumiller, LLC and Cavalier Development Group, LLC
coordinate and manage the construction, financing, and development
of Ballenger Run. SeD Maryland compensates Adams Aumiller LLC and
Cavalier Development Group, LLC with a monthly aggregate fee of
$14,667until all single family and townhome lots have been sold.
The monthly aggregate fee will then adjust to $11,000 which will
continue for approximately eight months to allow all close out
items to be finished including the release of guarantees and
securities as required by the government authorities. The Project
Development and Management Agreement for Ballenger Run also
requires SeD Maryland to pay a fee of $1200and $500 for each
single-family and townhome, respectively, sold to a third party.
Finally, SeD Maryland will also pay a fee of $50,000 upon the sale
of the parcel underlying the multi-family lots and for the CCRC
parcel.
This
property is zoned for 443 entitled Residential Lots, 210 entitled
Multi-family Units and 200 entitled Continuing Care Retirement
Community (“CCRC”) units approved for twenty (20) years
from the date of a Developers Rights & Responsibilities
Agreement dated October 8, 2014, as amended on September 6, 2016.
We anticipate that the completion of our involvement in this
project will take approximately five years from the date of this
Current Report.
Revenue
from Ballenger Run is anticipated to come from four main
sources:
●
The sale of 443
entitled and constructed residential lots to NVR;
●
The sale of the lot
for the 210 entitled multi-family units;
●
The sale of the lot
for the 200 entitled CCRC units; and
●
The sale of 443
front foot benefit assessments.
The
total project revenue is estimated to be approximately $68 million
(prior to costs). Revenues may be lower, however, if we fail to
attain certain goals and meet certain conditions.
Financing
from Xenith Bank (f/k/a The Bank of Hampton Roads or Shore Bank)
closed simultaneous with the settlement on the land on November 23,
2015, pursuant to a subsequent amendment to the terms of this loan,
the loan provides (i) for a maximum of $11 million outstanding;
(ii) that the maturity of this loan will be December 31, 2019; and
(iii) includes an $800,000 letter of credit facility, with an
annual rate of 1.5% on all issued letters of credit.
This
loan is to fund the development of the first 276 lots, the
multi-family parcel and senior living parcel, the amenities
associated with these phases, and certain Ballenger Creek Pike
improvements.
Expenses
from Ballenger Run include, but not be limited to costs associated
with land prices, closing costs, hard development costs, cost in
lieu of construction, soft development costs and interest costs. We
presently estimate these costs to be between $58 and $60 million.
We may also encounter expenses which we have not anticipated, or
which are higher than presently anticipated.
This
project will have four phases. The first phase has been completed
and the second phase has begun.
Sale of Residential Lots
The 443
Residential Lots were contracted for sale under a Lot Purchase
Agreement to NVR, a company based in the US and listed on the New
York Stock Exchange. NVR is a home builder which is engaged in the
construction and sale of single-family detached homes, townhouses
and condominium buildings. It also operates a mortgage banking and
title services business. Under the Lot Purchase Agreements, NVR
provided SeD Home with an upfront deposit of $5.6 million and has
agreed to purchase the lots at a range of prices. The total
estimated revenue to be received pursuant to these Lot Purchase
Agreements, if all lots are sold, is approximately $59 million
based on our projection that the lot selling prices will increase
3% per annum on a quarterly basis after June 1, 2018. The lot types
and quantities to be sold to NVR under the Lot Purchase Agreements
include the following:
Lot Type
|
|
Quantity
|
Single Family
Detached Large
|
|
85
|
Single Family
Detached Small
|
|
89
|
Single Family
Detached Neo Traditional
|
|
33
|
Single Family
Attached 28’ Villa
|
|
85
|
Single Family
Attached 20’ End Unit
|
|
46
|
Single Family
Attached 16’ Internal Unit
|
|
105
|
Total
|
|
443
|
21
There
are five different types of Lot Purchase Agreements
(“LPAs”), which are essentially the same except for the
price and unit details for each type of lot. Under the LPAs, NVR
shall purchase 30 available lots per quarter. The LPAs provide
several conditions related to preparation of the lots which must be
met so that a lot can be made available for sale to NVR. SeD
Maryland is to provide customary lot preparation including but not
limited to as survey, grading, utilities installation, paving, and
other infrastructure and engineering. The sale of 13 model lots to
NVR began in May of 2017. NVR has started marketing lots and has
commenced sales. In the event NVR did not purchase the lots under
the LPAs, SeD Maryland would be entitled to keep the NVR deposit
and terminate the LPAs. Should SeD Maryland breach the LPAs, it
would have to return the remainder of the NVR deposit that has not
already been credited to NVR for any sales of lots under the LPAs
and NVR would be able to seek specific performance of the LPAs as
well as any other rights available at law or in
equity.
Sale of Lots for the Multi-family Units
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 December 31, 2017, and 2016,
$250,000 in deposits were held in the escrow account. Since
the funds were 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.
Sale of the Front Foot Benefit Assessments
We have
established a front foot benefit assessment on all of the NVR lots.
This is a 30 year annual assessment allowed in Frederick County
which requires homeowners to pay the developer to reimburse the
costs of installing public water and sewer to the lots. These
assessments become effective as homes are settled at which time we
can sell the collection rights to the assessments to investors who
will pay a lump sum up front so we can realize the revenue sooner.
Overall, we project that these front foot benefits will result in
additional profits of approximately $900,000. Front foot benefit
assessments are subject to amendment by regulatory agencies,
legislative bodies, and court rulings, and any changes to front
foot benefit assessments could cause us to reassess these
projections.
CCRC Parcel
On
February 19, 2018, SeD Maryland Development, LLC entered into a
contract to sell the CCRC 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 will seek to find alternative purchasers
for the CCRC parcel.
Wetland Impact Permit
The
Ballenger project will require a joint wetland impact permit, which
requires the review of several state and federal agencies,
including the US Army Corps of Engineers. The permit is primarily
required for Phase 3 construction which will not start until 2019
or later but it also affects a pedestrian trail at the Ballenger
project and the multi-family sewer connection. The US Army Corps of
Engineers allowed us to proceed with construction on Phase 1 but
required archeological testing. As of the date of this report, the
archeological testing has been completed with no further
recommendations on Phase 1 of the project. Required architectural
studies on the final phase of development will likely result in the
loss of only one lot, however, we cannot be certain of future
reviews and their impact on the project.
K-6 Grade School Site
In
connection with getting the necessary approvals for the Ballenger
Project, we agreed to transfer thirty acres of land that abuts the
development for the construction of a local K-6 grade school. We
will not be involved in the construction of such
school.
Off-Balance Sheet Arrangements
As of
September 30, 2017, we did not have any off-balance sheet
arrangements, as defined under applicable SEC rules.
Results of Operations for the Year Ended December 31, 2016 Compared
to the Year Ended December 31, 2015
|
Year
Ended
|
|
|
December
31,
2016
|
December
31,
2015
|
Revenue
|
$1,030,059
|
$3,155,761
|
Operating
Expenses
|
$2,128,546
|
$3,940,361
|
Loss
From Operations
|
$(1,098,487)
|
$(784,600)
|
Revenue
Revenue
was $1,030,059 for the year ended December 31, 2016 as compared to
$3,155,761 for the year ended December 31, 2015. This decrease in
revenue is primarily attributable to the Company having larger
property sales in 2015 than in 2016, including having sold a larger
number of homes in 2015. Property sales were $2,965,400 in the year
ended December 31, 2015 and $800,000 in the year ended December 31,
2016.
22
Operating Expenses
Operating
expenses decreased to $2,128,546 for the year ended December 31,
2016 from $3,940,361 for the year ended December 31, 2015. This
change was largely caused by decreased costs of sales, which cost
of sales decreased from $2,612,646 in the year ended December 31,
2015 to $970,397 in the year ended December 31, 2016. Expenses
described in part because a majority of our incubation homes were
sold in 2015. Accrued construction expenses were allocated to lot
sales. We anticipate total cost of sales will increase as revenue
increases.
Loss from Operations
Our
loss from operations increased from $784,600 in the year ended
December 31, 2015 to $1,098,487 in the year ended December 31,
2016, in large part because of our decreased property sales.
Similarly, net loss increased from $781,001 in the year ended
December 31, 2015 to $1,056,742 in the year ended December 31,
2016. Sales have increased in the period subsequent to December 31,
2016, and we anticipate declining losses in 2018 relating to our
current operations, however, the addition of new operations may
cause new expenses that delay any potential
profitability.
Liquidity and Capital Resources
Our
real estate assets have increased from $37,279,041 as of December
31, 2015 to $52,915,566 as of December 31, 2016. Our total assets
increased from $42,329,092 as of December 31, 2015 to $56,101,434
as of December 31, 2016, although our cash dropped from $2,291,529
as of December 31, 2015 to $392,172 as of December 31, 2016. Our
total liabilities declined from $40,055,189 as of December 31, 2015
to $27,007,067 as of December 31, 2016.
Summary of Cash Flows
A
summary of cash flows from operating, investing and financing
activities for the years ended December 31, 2016 and 2015 are as
follows:
|
2016
|
2015
|
|
|
|
Net
cash Used In Operating Activities
|
$(12,034,820)
|
$(16,403,973)
|
Net
Cash Used In Investing Activities
|
$(42,947)
|
$(2,667,515)
|
Net
Cash Provided by financing activities
|
$10,209,538
|
$21,016,818
|
Net
Increase (Decrease) in Cash
|
$(1,868,229)
|
$1,945,330
|
Cash
and cash equivalents at beginning of the year
|
$2,292,777
|
$347,447
|
Cash
and cash equivalents at end of the year
|
$424,548
|
$2,292,777
|
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. Net cash used in operating was $12
million in 2016, as compared to $16 million in 2015. Ballenger
project started in 2015 when the company purchased land ($16
million) at same time received $6 million builder’s deposit.
The cash used in 2016 mostly for the land development costs of
Ballenger and Black Oak.
23
Cash Flows from Investing Activities
Cash
flows used in investing activities primarily includes purchases of
office fixture and computer equipment and money market deposit
required by Hampton Road Bank as the revolver loan collateral. In
2015, the company put $2.6 million cash into Hampton Road Bank
money market account as the revolver loan collateral. No funds were
added in 2016 and 2017.
Cash Flows from Financing Activities
Net
cash provided by financing activities was $21 million and $10
million for 2016 and 2015. In 2015, the company borrowed $16
million from SeD mostly for the start of Ballenger project, such as
land purchase and development. In 2016, most of loans are third
party loans, Revere Loan for Black Oak and Hampton Loan for
Ballenger.
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
December 31, 2016, 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 on-going 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 and Cost of Sales
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).
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.
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.
24
The
Company capitalized interest from related party borrowings of
$211,005 and $2,662,189 for the years ended December 31, 2017 and
2016, respectively. The Company capitalized interest from the
third-party borrowings of $1,008,220 and $911,764 for the years
ended December 31, 2017 and 2016, respectively.
As of
December 31, 2016, land held for development was equal to $25.5
million (consisting of Black Oak in the amount of $9.3 million and
Ballenger in the amount of $16.2 million); capitalized development
costs were $20.2 million (consisting of Black Oak in the amount of
$10.7 million and Ballenger in the amount of $9.5 million);
property held for sale was $1.3 million; and capitalized finance
costs were $5.8 million from the SeD Home. Total real estate on the
balance sheet is about $53 million.
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.
Through
December 31, 2017, it was the Company’s policy to obtain an
independent thirdparty valuation for each project every two
years to test for impairment. Every reporting period, the Company
compared the book value to the fair value obtained in the most
recent valuation and looks at market conditions to see if there are
any indicators of impairment. If any indicators are noted, the
Company will obtain a new valuation and compare the fair value to
the book value.
Beginning
in 2018, it is the Company’s policy to obtain annual
independent thirdparty 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.
At
December 31, 2016, the Company recognized $29,281 of impairment
related to the D Street Home Remodeling Project. There was no
impairment for the Black Oak or Ballenger Run
Projects.
At
December 31, 2017, there was no impairment recognized for any of
the projects.
PROPERTIES
Black Oak
The
Black Oak property is located in Montgomery County in Magnolia,
Texas. This property is located east of FM 2978 via Standard Road
to Dry Creek Road and South of the Woodlands, one of the most
successful, fastest growing master planned communities in Texas.
This residential land development consists of 450 lots on
162 acres. Black Oak LP
is the primary developer responsible for all infrastructure
development. This property is included in Harris County Improvement
District #17.
Ballenger Run
Ballenger
Run is a residential land development project located in Frederick
County in Frederick, Maryland. This property is located
approximately 40 miles from Washington, DC, 50 miles from Baltimore
and is located less than four miles from I-70 and I-270. Ballenger
Run is situated on approximately 197 acres of land and entitled for
853 residential units consisting of 443 residential Lots, 210
multi-family units and 200 age restricted units. SeD Development
Management is the primary developer responsible for all
infrastructure development.
25
Development of Properties
At the
present time, the Company is considering expanding its current
policy of selling buildable lots to include a strategy of building
housing for sale or rent, particularly at our Black Oak
property.
Office Space
At the
present time, the Company is renting offices in Houston, Texas and
Bethesda, Maryland through SeD Home. At the present time, our
office space is sufficient for our operations as presently
conducted, however, as we expand into new projects and into new
areas of operations we anticipate that we will require additional
office space.
26
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Pre-Closing Security Ownership
The
following table sets forth, as of December 29, 2017, prior to the
Closing, the number and percentage of our outstanding shares of
common stock owned by (i) each person known to us to beneficially
own more than 5% of its outstanding common stock, (ii) each
director, (iii) each named executive officer and significant
employee, and (iv) all officers and directors as a
group.
The
number of shares listed below includes shares that each shareholder
listed in the table has the right to acquire beneficial ownership
of within 60 days.
Name and
Address (2)
|
Number of
Common Shares Beneficially Owned
|
Percentage of
Outstanding Common Shares (1)
|
Fai H. Chan
(3)
|
74,015,730
|
99.96%
|
Conn
Flanigan
|
0
|
0.00%
|
Rongguo (Ronald)
Wei
|
0
|
0.00%
|
All Directors and
Officers (3 individuals)
|
74,015,730
|
99.96%
|
Singapore
eDevelopment (3)
|
74,015,730
|
99.96%
|
SeD Home
International, Inc. (3)
|
74,015,730
|
99.96%
|
(1)
Based upon
74,043,324 outstanding common shares as of December 29, 2017, prior
to the Closing.
(2)
The mailing address
for each individual and entity set forth above is c/o SeD
Intelligent Home Inc., 4800 Montgomery Lane, Suite 210, MD
20814.
(3)
Fai H. Chan may be
deemed to be the beneficial owner of those 74,015,730 shares held
by Singapore eDevelopment’s subsidiary SeD Home
International, Inc. prior to the Closing, as he is the Chief
Executive Officer and majority shareholder of Singapore
eDevelopment.
Post-Closing Security Ownership
The
following table sets forth, both as of December 29, 2017, following
the Closing and the issuance of 630,000,000 shares of our common
stock, and as of April 16, 2018, the number and percentage of our
outstanding shares of common stock owned by (i) each person known
to us to beneficially own more than 5% of its outstanding common
stock, (ii) each director, (iii) each named executive officer and
significant employee, and (iv) all officers and directors as a
group.
The
number of shares listed below includes shares that each shareholder
listed in the table has the right to acquire beneficial ownership
of within 60 days.
Name and
Address (2)
|
Number of
Common Shares Beneficially Owned
|
Percentage of
Outstanding Common Shares (1)
|
Fai H. Chan
(3)
|
704,015,730
|
99.99%
|
Moe T.
Chan
|
0
|
0.00%
|
Conn
Flanigan
|
0
|
0.00%
|
Charley
MacKenzie
|
0
|
0.00%
|
Rongguo (Ronald)
Wei
|
0
|
0.00%
|
Alan W. L.
Lui
|
0
|
0.00%
|
All Directors and
Officers (6 individuals)
|
704,015,730
|
99.99%
|
Singapore
eDevelopment (3)
|
704,015,730
|
99.99%
|
SeD Home
International, Inc. (3)
|
704,015,730
|
99.99%
|
(1)
Based upon
704,043,324 outstanding common shares as of December 29,
2017.
(2)
The mailing address
for each individual and entity set forth above is c/o SeD
Intelligent Home Inc., 4800 Montgomery Lane, Suite 210, MD
20814.
(3)
Fai H. Chan may be
deemed to be the beneficial owner of those 704,015,730 shares held
by Singapore eDevelopment’s subsidiary SeD Home
International, Inc. following the Closing, as he is the Chief
Executive Officer and majority shareholder of Singapore
eDevelopment.
27
Changes in Control
The
Company is not aware of any arrangement which may at a subsequent
date result in a change in control of the Company.
DIRECTORS AND EXECUTIVE OFFICERS
The
name, age and position of our officers and directors are set forth
below:
Name
|
|
Age
|
|
Position(s)
|
Fai H.
Chan
|
|
73
|
|
Co-Chief
Executive Officer and Chairman of the Board of
Directors
|
Moe T.
Chan
|
|
39
|
|
Co-Chief
Executive Officer and Member of the Board of Directors
|
Conn
Flanigan
|
|
49
|
|
Secretary
and Member of the Board of Directors
|
Charley
MacKenzie
|
|
46
|
|
Member
of the Board of Directors
|
Rongguo
(Ronald) Wei
|
|
46
|
|
Co-Chief
Financial Officer
|
Alan W.
L. Lui
|
|
47
|
|
Co-Chief
Financial Officer
|
The
mailing address for each of the officers and directors named above
is c/o of the Company at: 4800 Montgomery Lane, Suite 210,
Bethesda, MD, 20814.
Business Experience
Fai H.
Chan. Fai H. Chan has served as a member of our Board of Directors
since January 10, 2017 and has served as Co-Chief Executive Officer
of the Company since December 29, 2017. Mr. Chan is an expert in
banking and finance, with years of experience in these industries.
He has also restructured 35 companies in various industries and
countries in the past 40 years. Mr. Chan serves as the CEO of
Singapore eDevelopment, a limited company listed on the Catalist of
the Singapore Exchange Securities Trading Limited. Singapore
eDevelopment is a diversified holding company. He was appointed
director of Singapore eDevelopment on March 1, 2014. He is also
Non-Executive Director of ASX-listed bio-technology company Holista
Colltech Ltd, a position he has held since July of 2013. Mr. Chan
served as a member of the Board of Directors of HotApp Blockchain
Inc., a technology company since October of 2014 and served as the
Company’s CEO from December of 2014 until June of 2017. From
September of 1992 until July of 2015, Mr. Chan also served as
Managing Chairman of HKSE-listed Heng Fai Enterprises Limited, a
holding company now known as ZH International Holdings, Ltd. He
also served as director of Global Medical REIT Inc. (NYSE: GMRE)
from December of 2013 until July of 2015 and as director of
American Housing REIT Inc. from October of 2013 to July of 2015.
Mr. Chan was also formerly (i) the Managing Director of SGX
Catalist-listed SingHaiyi Group Ltd from November of 2003 until
September of 2013, which under his leadership, transformed from a
failing store-fixed business provider with net asset value of less
than S$10 million into a property trading and investment company
and finally to a property development company with net asset value
over S$150 million before Mr. Chan ceded controlling interest in
late 2012; (ii) the Executive Chairman of China Gas Holdings
Limited, a formerly failing fashion retail company listed on SEHK
which, under his direction, was restructured to become one of a few
large participants in the investment in and operation of city gas
pipeline infrastructure in China; (iii) a director of Global Med
Technologies, Inc., a medical company listed on NASDAQ engaged in
the design, development, marketing and support information for
management software products for healthcare-related facilities;
(iv) a director of Skywest Ltd, an ASX-listed airline company; and
(v) the Chairman and Director of American Pacific
Bank.
Director
Qualifications of Fai H. Chan:
The
board of directors appointed Mr. Chan in recognition of his
abilities to assist the Company in expanding its business and the
contributions he can make to the Company’s strategic
direction.
Moe T.
Chan. Moe Chan was appointed Co-Chief Executive Officer of our
Company and a member of our Board of Directors on December 29,
2017. Moe Chan has served as the Group Chief Development Officer of
Singapore eDevelopment since July of 2015 and is responsible for
Singapore eDevelopment’s international property development
business (including serving as Co-Chief Executive Officer and a
member of the Board of SeD Home). Moe Chan has served as an
Executive Director of Singapore eDevelopment since January of 2016.
From April 2014 to June 2015 Moe Chan was the Chief Operating
Officer of SEHK-listed ZH International Holdings Ltd (formerly
known as Heng Fai Enterprises Limited) and was responsible for that
company’s global business operations consisting of REIT
ownership and management, property development, hotels and
hospitality, as well as property and securities investment and
trading. Prior to that, he was an executive director (from March
2006 to February 2014) and the Chief of Project Development (from
April 2013 to February 2014) of SGX-ST Catalist-listed SingHaiyi
Group Ltd, overseeing its property development projects. He was
also a non-executive director of the Toronto Stock Exchange-listed
RSI International Systems Inc., a hotel software company, from July
2007 to August 2016.
Moe T.
Chan has a diverse background and experience in the fields of
property, hospitality, investment, technology and consumer finance.
He holds a Master’s Degree in Business Administration with
honors from the University of Western Ontario, a Master’s
Degree in Electro-Mechanical Engineering with honors and a
Bachelor’s Degree in Applied Science with honors from the
University of British Columbia. Moe Chan is the son of Fai H.
Chan.
Director
Qualifications of Moe T. Chan:
The
board of directors appointed Moe Chan in recognition of his
extensive knowledge of real estate and ability to assist the
Company in expanding its business.
28
Conn
Flanigan. Mr. Flanigan is a member of our Board of Directors and a
practicing attorney specializing in corporate, real estate, and
securities law. Mr. Flanigan is a legal advisor to Singapore
eDevelopment and has served as officer and director to several US
subsidiaries of Singapore eDevelopment. Mr. Flanigan served as the
Secretary and General Counsel for Global Medical REIT Inc.
(NYSE:GMRE) from December 2013 to May 2017. From September 4, 2013
to May 2017, Mr. Flanigan also served as General Counsel and
Secretary, and as a director, of American Housing REIT Inc. Mr.
Flanigan served as a member of the Board Directors of Amarantus
Bioscience Holdings, Inc., a biotech company, from February 23,
2017 until May 12, 2017. Mr. Flanigan has served a director of
HotApp Blockchain Inc. since October 23, 2014 and as legal counsel
and secretary since December 31, 2014. From February 2000 until May
2017, Mr. Flanigan was employed as General Counsel by subsidiaries
of ZH International Holdings, Ltd., including eBanker USA.com, Inc.
and ZH USA, LLC. In this role, he served as General Counsel
and Secretary for other ZH International Holdings, Ltd.
subsidiaries such as Global Medical REIT Inc. (July 2013 through
May 2017). Mr. Flanigan received a B.A. in International
Relations from the University of San Diego in 1990 and a Juris
Doctor Degree from the University of Denver Sturm College of Law in
1996.
Director
Qualifications of Conn Flanigan:
Mr.
Flanigan’s service as an officer, director and employee of
various entities has provided him with significant knowledge and
experience regarding corporate financial and governance
matters.
Charley
MacKenzie. Mr. MacKenzie has served as a member of the
Company’s Board of Directors since December 29, 2017 and
served as the Chief Development Officer for SeD Development
Management, a subsidiary of SeD Home, since July of 2015. Mr.
MacKenzie has also served as a member of the Board of Directors of
SeD Home since October of 2017. He was previously the Chief
Development Officer for Inter-American Development (IAD), a
subsidiary of Heng Fai Enterprises from April of 2014 to June of
2015. Mr. MacKenzie is also a member of real estate investment
company MacKenzie Equity Partners since June 2005 and was the owner
of moving and storage company Smartbox Portable Storage from
October 2006 to February 2017. Mr. MacKenzie focuses on
acquisitions and development of residential and mixed-use projects
within the United States. Mr. MacKenzie specializes in site
selection, contract negotiations, marketing and feasibility
analysis, construction and management oversight, building design
and investor relations. Mr. MacKenzie has developed over 1,300
residential units inclusive of single family homes, multi-family,
and senior living dwellings totaling more than $110M and over
650,000 square feet of commercial valued at over $100M. Mr.
MacKenzie received a BA and graduate degree from St. Lawrence
University where he served on Board of Trustees from
2003-2007.
Director
Qualifications of Charley MacKenzie:
The
board of directors appointed Charley MacKenzie in recognition of
his extensive knowledge of real estate and ability to assist the
Company in expanding its business.
Rongguo
(Ronald) Wei. Mr. Wei has served as the Company’s Chief
Financial Officer since March 10, 2017. Mr. Wei is a finance
professional with more than 15 years of experience working in
public and private corporations in the United States. As the Chief
Financial Officer of SeD Development Management LLC, Mr. Wei is
responsible for oversight of all finance, accounting, reporting,
and taxation activities for that company. Prior to joining SeD
Development Management LLC in August of 2016, Mr. Wei worked for
several different US multinational and private companies including
serving as Controller at American Silk Mill, LLC, a textile
manufacturing and distribution company, from August of 2014 to July
of 2016, serving as a Senior Financial Analyst at Air Products
& Chemicals, Inc., a manufacturing company, from January of
2013 to June of 2014 and serving as a Financial/Accounting Analyst
at First Quality Enterprise, Inc., a personal products company,
from 2011-2012. Before Mr. Wei came to US, he worked as an equity
analyst in Hong Yuan Securities, an investment bank, in Beijing,
China, concentrating on industrial and public company research and
analysis. Mr. Wei is a Certified Public Accountant and received his
MBA from the University of Maryland and a Master of Business
Taxation from the University of Minnesota. Mr. Wei also holds a
Master in Business degree from Tsinghua University and a Bachelor
degree from Beihang University. Mr. Wei served as a member of the
Board Directors of Amarantus Bioscience Holdings, Inc., a biotech
company, from February 23, 2017 until May 3, 2017, and has served
as Chief Financial Officer of such company since February 23,
2017.
29
Alan W.
L. Lui has served as the Company’s Co-Chief Financial Officer
since December 29, 2017 and has served as the Co-Chief Financial
Officer of SeD Home since October of 2017. Mr. Lui has served as
Chief Financial Officer of HotApp Blockchain Inc., a technology
company since May 12, 2016 and has served as a director of one of
HotApp’s subsidiaries since July of 2016. Mr. Lui has been
Chief Financial Officer of Singapore eDevelopment, the
Company’s majority shareholder since November 1, 2016 and
served as its Acting Chief Financial Officer since June 22, 2016.
Since October of 2016, Mr. Lui has also served as a director of BMI
Capital Partners International Ltd, a Hong Kong investment
consulting company. From June of 1997 through March of 2016, Mr.
Lui served in various executive roles at ZH International Holdings
Ltd. (a Hong Kong-listed company formerly known as Heng Fai
Enterprises Ltd), including Financial Controller. Mr. Lui oversaw
the financial and management reporting and focusing on its
financing operations, treasury investment and management. He has
extensive experience in financial reporting, taxation and financial
consultancy and management in Hong Kong. He also managed all
financial forecasts and planning. Mr. Lui is a certified CPA in
Australia and received a Bachelor’s Degree in Business
Administration from the Hong Kong Baptist University in
1993.
Code of Ethics
We have
not adopted a code of ethics that applies to our officers,
directors and employees. When we do adopt a code of ethics, we will
disclose it in a Current Report on Form 8-K.
Committees and Independent Directors
Our
Board of Directors has no nominating or compensation committees.
Our Board believes that the functions of such committees can be
performed by the entire Board until independent directors have been
appointed. The Company’s current audit committee consists of
Conn Flanigan. Our Board intends to create nominating and
compensation committees, and to appoint a member to our audit
committee that qualifies as an “audit committee financial
expert” as defined in Item 407(d)(5)(ii) of Regulation S-K,
and is independent, in the near future.
Our
Board has voluntarily adopted the corporate governance standards
defining the independence of our directors imposed by the NASDAQ
Capital Market's requirements for independent directors pursuant to
Rule 5605(a)(2) of the Marketplace Rules of The NASDAQ Stock Market
LLC.
EXECUTIVE COMPENSATION
At the
present time, neither SeD Intelligent Home Inc. nor SeD Home and
its subsidiaries is a party to any compensation arrangements with
any officer or director of either entity and has made no provisions
for paying cash or non-cash compensation to such officers and
directors, except for Charley MacKenzie and Rongguo (Ronald)
Wei.
A
subsidiary of SeD Home is paying salaries to four employees at the
present time, which includes Mr. Wei, and has consulting
arrangements with certain individuals, including Mr.
MacKenzie.
Prior
to the Closing, Mr. Wei was compensated by SeD Development
Management LLC for his services to SeD Home at a rate of $112,800
per year, plus benefits valued at approximately $10,000 per year.
Mr. Wei has been compensated by SeD Development Management LLC
since August of 2016. Prior to the Closing Date, Mr. Wei was not
paid by SeD Intelligent Home Inc. SeD Development Management LLC
will now continue to compensate Mr. Wei at the same rate, and he
will perform services for SeD Intelligent Home as well as its
subsidiary SeD Home.
A
company controlled by Mr. MacKenzie is paid consulting fees of
approximately $20,000 per month, which includes payment for his
services to SeD Home and its subsidiaries.
Mr.
Flanigan serves in various director and officer positions with
subsidiaries of Singapore eDevelopment. Mr. Flanigan’s law
firm has been paid legal fees by various subsidiaries of Singapore
eDevelopment in the past, including those fees paid to his law firm
by SeD Home and its subsidiaries that are described
below.
30
Mr. Fai
H. Chan is compensated by Singapore eDevelopment, where he serves
as Chief Executive Officer. Mr. Moe T. Chan and Mr. Alan Lui are
also employed and compensated by Singapore eDevelopment. As part of
their duties as officers of Singapore eDevelopment, each of these
three individuals works on a number of matters for Singapore
eDevelopment, including devoting various amounts of time to the
management of Singapore eDevelopment’s various subsidiaries
and divisions, such as SeD Intelligent Home and SeD Home. The
amount of time each of these individuals spends on matters related
to SeD Intelligent Home and SeD Home has varied greatly based on
the Company’s needs, and no definite statement may be made as
to what percentage of these three individuals’ time has been
spent or will be spent in the future on matters related to SeD
Intelligent Home and SeD Home. SeD Intelligent Home and SeD Home
and its subsidiaries do not compensate these three individuals for
their services. Neither SeD Intelligent Home Inc. nor SeD Home and
its subsidiaries is charged for the services of Fai H. Chan, Moe T.
Chan and Alan Lui and Singapore eDevelopment does not have a
management contract with SeD Intelligent Home, SeD Home or any of
its subsidiaries.
In
connection with the acquisition of SeD Home by SeD Intelligent Home
Inc., SeD Intelligent Home and its subsidiaries intend to enter
into revised compensation agreements with officers, directors and
certain employees in the immediate future.
The
table below summarizes all compensation awarded to, earned by, or
paid to SeD Intelligent Home Inc.’s named executive officer
for all services rendered in all capacities to us for the period
from January 1, 2015 through December 31, 2017.
SUMMARY COMPENSATION TABLE
Name and
Principal Position (1)(2)(3)
|
Year
|
Salary
|
Bonus
|
Stock
Awards
|
Option
Awards
|
Non-Equity
Incentive Plan Comp
|
Nonqualified
deferred Comp Earnings
|
All Other
Comp
|
Total
|
|
|
|
|
|
|
|
|
|
|
Fai H. Chan
(4)
|
2017
|
__
|
__
|
__
|
__
|
__
|
__
|
__
|
__
|
Chairman of the
Board and
|
2016
|
__
|
__
|
__
|
__
|
__
|
__
|
__
|
__
|
Co-Chief Executive
Officer
|
2015
|
__
|
__
|
__
|
__
|
__
|
__
|
__
|
__
|
Moe T. Chan
(4)
|
2017
|
__
|
__
|
__
|
__
|
__
|
__
|
__
|
__
|
Director and
Co-Chief Executive Officer
|
2016
|
__
|
__
|
__
|
__
|
__
|
__
|
__
|
__
|
|
2015
|
__
|
__
|
__
|
__
|
__
|
__
|
__
|
__
|
Conn Flanigan
(5)
|
2017
|
__
|
__
|
__
|
__
|
__
|
__
|
$110,334(6)
|
$110,334(6)
|
Director and Former
Chief Executive Officer
|
2016
|
__
|
__
|
__
|
__
|
__
|
__
|
$96,000(6)
|
$96,000(6)
|
|
2015
|
__
|
__
|
__
|
__
|
__
|
__
|
$40,000(6)
|
$40,000(6)
|
Rongguo (Ronald) Wei (7)
|
2017
|
$112,800
|
__
|
__
|
__
|
__
|
__
|
$10,000
|
$122,800
|
Co-Chief Financial Officer
|
2016
|
$47,000
|
__
|
__
|
__
|
__
|
__
|
__
|
$47,000
|
|
2015
|
__
|
__
|
__
|
__
|
__
|
__
|
__
|
__
|
Alan W. L. Lui
(4)(8)
|
2017
|
__
|
__
|
__
|
__
|
__
|
__
|
__
|
__
|
Co-Chief Financial
Officer
|
2016
|
__
|
__
|
__
|
__
|
__
|
__
|
__
|
__
|
|
2015
|
__
|
__
|
__
|
__
|
__
|
__
|
__
|
__
|
Charley MacKenzie (9) Director
|
2017
|
__
|
__
|
__
|
__
|
__
|
__
|
$222,930(10)
|
$222,930(10)
|
|
2016
|
__
|
__
|
__
|
__
|
__
|
__
|
__
|
__
|
|
2015
|
__
|
__
|
__
|
__
|
__
|
__
|
__
|
__
|
(1)
SeD Intelligent
Home Inc. did not pay any salaries to any officer, director or
employee in the fiscal years ended December 31, 2015 and December
31, 2016.
(2)
SeD Home also did
not compensate its executive officers and directors in the fiscal
years ended December 31, 2015 and December 31, 2016, only employees
and consultants.
(3)
Effective as of
December 29, 2017, Mr. Fai H. Chan was appointed as our Chairman
and Co-Chief Executive Officer; Moe T. Chan was appointed as a
member of our Board and as Co-Chief Executive Officer; Rongguo
(Ronald) Wei and Alan W. L. Lui were appointed as our Co-Chief
Financial Officers; and Charley MacKenzie joined the
Company’s Board of Directors.
(4)
As described is
further detail above, Singapore eDevelopment compensates Mr. Fai H.
Chan, Mr. Moe T. Chan and Mr. Lui for their services to a number of
divisions and subsidiaries of Singapore eDevelopment. Each of these
three individuals works on a number of matters for Singapore
eDevelopment, including devoting various amounts of time to matters
related to SeD Intelligent Home. SeD Intelligent Home does not
compensate these individuals and Singapore eDevelopment does not
charge SeD Intelligent Home for their services.
(5)
Mr. Flanigan was
the sole officer and director of SeD Intelligent Home Inc. in 2015
and 2016; he resigned as Chief Executive Officer on December 29,
2017 but continues to serve as a member of our Board of
Directors.
(6)
Mr.
Flanigan’s law firm was paid $40,000 in total fees by various
subsidiaries of SeD Home for Mr. Flanigan’s legal services in
2015, $96,000 in 2016 and $110,334 in 2017.
(7)
Mr. Wei was
compensated by SeD Home’s subsidiary SeD Development
Management LLC in 2016 and 2017, beginning on August 1, 2016 but
did not commence serving as an officer of SeD Home until October of
2017.
(8)
Mr. Lui was
appointed Co-Chief Financial Officer of SeD Home in October of
2017.
(9)
Mr. MacKenzie
joined SeD Home’s Board of Directors in October of
2017.
(10)
A company
controlled by Mr. MacKenzie was paid total consulting fees of
$222,930 in 2017 by SeD Home. This company is currently paid
consulting fees of approximately $20,000 per month, which includes
payment for his services to SeD Home and its
subsidiaries.
31
As of
the date of this Report, the Company does not have any stock option
plans, retirement, pension, or profit sharing plans for the benefit
of any of our officers or directors.
Outstanding Equity Awards at Fiscal Year-End
There
were no grants of stock options through the date of this
report.
We do
not have any long-term incentive plans that provide compensation
intended to serve as incentive for performance.
The
board of directors of the Company has not adopted a stock option
plan. The company has no plans to adopt it but may choose to do so
in the future. If such a plan is adopted, this may be administered
by the board or a committee appointed by the board (the
“Committee”). The Committee would have the power to
modify, extend or renew outstanding options and to authorize the
grant of new options in substitution therefore, provided that any
such action may not impair any rights under any option previously
granted. The Company may develop an incentive based stock option
plan for its officers and directors.
Stock Awards Plan
The
company has not adopted a Stock Awards Plan but may do so in the
future. The terms of any such plan have not been
determined.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, DIRECTOR
INDEPENDENCE
Family Relationships
Fai H.
Chan, our Co-Chief Executive Officer, Chairman of our Board and
Chairman of the Board and Chief Executive Officer of our majority
shareholder and its corporate parent is the father of Moe T. Chan,
our other Co-Chief Executive Officer and a Member of our
Board.
Transactions with Related Persons, Promoters, and Certain Control
Persons
SeD
Intelligent Home Inc.
The
majority shareholder of SeD Intelligent Home Inc. is SeD Home
International, Inc., a wholly owned subsidiary of Singapore
eDevelopment.
On July
7, 2014 CloudBiz International Pte. Ltd (“Cloudbiz”)
invested $37,000 in SeD Intelligent Home Inc. At such time CloudBiz
was the shareholder holding a majority of our common stock. For
such investment, CloudBiz received an additional 74 million shares
of the common stock of SeD Intelligent Home Inc. Cloudbiz was under
the control of Fai H. Chan, our current Co-Chief Executive Officer
and Chairman.
In
February and October of 2016, we received $58,000 from CloudBiz.
$37,000 were applied to “discount on common stock” and
the remaining proceeds were applied to additional
paid-in-capital.
On
December 22, 2016 in consideration of S$98,000 (Singapore Dollars,
approximately US$67,620.00 as of that date) Cloudbiz International
Pte. Ltd transferred 74,015,730 shares of our common stock to
Singapore eDevelopment. These 74,015,730 shares of our common stock
were subsequently transferred to SeD Home International,
Inc.
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.
Pursuant
to the Agreement, on December 29, 2017, we issued 630,000,000
shares of our common stock to SeD Home International, Inc., the
sole shareholder of SeD Home, in exchange for all of the issued and
outstanding shares of SeD Home. Such securities were not registered
under the Securities Act of 1933 and were issued pursuant to the
exemption under Section 4(2) of the Securities Act.
32
Mr. Fai
H. Chan is compensated by Singapore eDevelopment, where he serves
as Chief Executive Officer. Mr. Moe T. Chan and Mr. Alan Lui are
also employed and compensated by Singapore eDevelopment. As part of
their duties as officers of Singapore eDevelopment, each of these
three individuals works on a number of matters for Singapore
eDevelopment, including devoting various amounts of time to the
management of Singapore eDevelopment’s various subsidiaries
and divisions, such as SeD Intelligent Home and SeD Home. The
amount of time each of these individuals spends on matters related
to SeD Intelligent Home and SeD Home has varied greatly based on
the Company’s needs, and no definite statement may be made as
to what percentage of these three individuals’ time has been
spent or will be spent in the future on matters related to SeD
Intelligent Home and SeD Home. SeD Intelligent Home and SeD Home
and its subsidiaries do not compensate these three individuals for
their services. Neither SeD Intelligent Home Inc. nor SeD Home and
its subsidiaries is charged for the services of Fai H. Chan, Moe T.
Chan and Alan Lui and Singapore eDevelopment does not have a
management contract with SeD Intelligent Home, SeD Home or any of
its subsidiaries.
Other
than as described above, there has been no transaction, since
January 1, 2015, or currently proposed transaction, in which we
were or are to be a participant and the amount involved exceeds the
lesser of $120,000 or one percent of our total assets at year-end
for the last completed fiscal year, and in which any of the
following persons had or will have a direct or indirect material
interest:
(i)
Any director or
executive officer of our company;
(ii)
Any person who
beneficially owns, directly or indirectly, shares carrying more
than 5% of the voting rights attached to our outstanding shares of
common stock;
(iii)
Any of our
promoters and control persons; and
(iv)
Any member of the
immediate family (including spouse, parents, children, siblings and
in-laws) of any of the foregoing persons.
In
light of the relationships between each of our four directors and
our majority shareholder and its corporate parent, none of our
directors may be deemed to be independent. Our board of directors
has no nominating or compensation committees. The Company’s
current Audit Committee consists of Conn Flanigan. Our board of
directors has voluntarily adopted the corporate governance
standards defining the independence of our directors imposed by the
NASDAQ Capital Market's requirements for independent directors
pursuant to Rule 5605(a)(2) of the Marketplace Rules of The NASDAQ
Stock Market LLC.
SeD
Home
Since
its inception, SeD Home has received advances from Singapore
eDevelopment. These advances are 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 has also received advances from certain wholly-owned
subsidiaries of Singapore eDevelopment to fund development costs
and operation costs. The advances are unsecured, bear interest at
18% per annum and are 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 a $10,500,000 interest free
loan, with a maturity date of March 31, 2016, from Hengfai Business
Development Pte, Ltd, owned by Fai H. Chan, the Chief Executive
Officer and Chairman of Singapore eDevelopment, 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.
33
At
December 31, 2016, SeD Home restructured the loans from these
affiliates. The restructuring process was done to transfer the
principal of the loans to Singapore eDevelopment, which was then
forgiven and recorded into additional paid in capital. The
principal forgiven was $26,913,525. SeD Home still maintained the
accrued interest of $6,283,207. 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. At December 31, 2017, $1,723,122 of accrued interest is
outstanding relating to this transaction
In
2016, SeD Home received advances from SeD Home Limited (an
affiliate of Singapore eDevelopment), to fund development costs and
operation costs. The loan bears interest at 10% and is payable on
demand. As of December 31, 2017, and December 31, 2016, SeD Home
had outstanding principal due of $1,050,000 and $500,000 and
accrued interest of $86,425 and $1,095.
SeD
Home receives advances from SeD Home International (an affiliate
through common ownership). 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 December 31, 2017, there was $6,953,591
of principal and $125,675 of accrued interest outstanding. There
were no amounts outstanding at December 31, 2016.
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 fees of $102,000 and $102,000 for the years
ended December 31, 2017 and 2016, 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 December 31, 2017 and 2016, there were
$133,130 and $0 capitalized as Real Estate relating to these
costs.
At
December 31, 2017 and 2016, the Company had $314,630 and $103,700
owed to Arete in accounts payable and accrued
expenses.
At
December 31, 2017 and 2016, the Company had $48,200 and $24,200
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 and Cavalier Development Group LLC to provide various
services for the development, construction and sale of the
projects. SeD Home incurred fees of $176,000 and $210,684 for the
years ended December 31, 2016 and 2015, respectively, and an
additional $132,000 for the nine months ended September 30, 2017.
Charley MacKenzie, who has been appointed to the Boards of both SeD
Intelligent Home Inc. and SeD Home, is related to the owner of
MacKenzie Development Company LLC. In November of 2017, MacKenzie
Development Company LLC was replaced with Adams-Aumiller
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 terms of the agreement the Company must pay a monthly fee
of $12,500 and a 2% management fee. In May 2017, the agreement was
amended to increase the monthly fee to $20,000. The Company
incurred expenses of $222,930 and $186,095 for the years ended
December 31, 2017 and 2016, 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 December 31, 2017 or 2016.
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.
Conn
Flanigan’s law firm was paid $40,000 in total fees by various
subsidiaries of SeD Home for Mr. Flanigan’s legal services in
2015, $96,000 in 2016 and $110,334 in 2017.
34
LEGAL PROCEEDINGS
The
Company is not a party to any pending legal proceedings, and no
such proceedings are known to be contemplated.
There
are no material proceedings to which any director, officer or
affiliate of the Company, or any owner of record or beneficially of
more than five percent of any class of voting securities of the
Company, or any associate of any such director, officer, affiliate
of the Company, or security holder is a party adverse to the
Company or any of its subsidiaries or has a material interest
adverse to the Company or any of its subsidiaries.
MARKET
PRICE AND DIVIDENDS ON REGISTRANT’S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Information
There
is presently no established public trading market for our shares of
common stock. We do plan to reapply for quoting of our common
stock on the OTC Bulletin Board. However, we can provide no
assurance that our shares of common stock will be quoted on
the Bulletin Board or, if traded, that a public market will
materialize. In connection with the change of the Company’s
name from Homeownusa to SeD Intelligent Home Inc., the
Company’s symbol changed from HMUS to SEDH on December 13,
2017.
Holders
At
April 16, 2017, the Company had 53 shareholders.
Securities authorized for issuance under equity compensation
plans.
The
Company does not have securities authorized for issuance under any
equity compensation plans.
RECENT SALES OF UNREGISTERED SECURITIES
On July
7, 2014 CloudBiz International Pte, Ltd invested $37,000 in the
Company. For such investment, CloudBiz received an additional 74
million shares of the Company’s common stock pursuant to
Regulation S. In October 2014, the Company issued 20,534 shares to
30 new accredited investors pursuant to Rule 506 of Regulation D
for total proceeds of $2,053.
Pursuant
to the Agreement, on December 29, 2017, we issued 630,000,000
shares of our Common Stock to SeD Home International, Inc., the
sole shareholder of SeD Home, in exchange for all of the issued and
outstanding shares of SeD Home. Such securities were not registered
under the Securities Act of 1933 and were issued pursuant to the
exemption under Section 4(2) of the Securities Act.
DESCRIPTION OF REGISTRANT’S SECURITIES
The
Company has authorized 1,000,000,000 shares of common stock, $0.001
par value per share, of which 74,043,324 shares were issued and
outstanding prior to the Closing, and 704,043,324 are issued and
outstanding following the Closing.
No
shares of preferred stock have been authorized nor
issued.
Holders
of our common stock are entitled to one vote for each share held on
all matters submitted to a vote of our stockholders.
35
Since
inception we have not paid any dividends on our common stock. We
currently do not anticipate paying any cash dividends in the
foreseeable future on our common stock. Although we intend to
retain our earnings, if any, to finance the exploration and growth
of our business, our board of directors will have the discretion to
declare and pay dividends in the future. Payment of dividends in
the future will depend upon our earnings, capital requirements, and
other factors, which our board of directors may deem
relevant.
Rule 144 Restriction on Resale
Prior
to transaction with SeD Home, we were considered a “shell
company” within the meaning of rule 12b-2 under the Exchange
Act, in that we had nominal operations and assets. Rule 144
promulgated under the Securities Act, which permits the resale of
the shares of Common Stock, subject to various terms and
conditions, is not available until one year has elapsed since the
filing of this Form 8-K containing “Form 10
information” and only if we are current in meeting our SEC
filing requirements. As a result, your ability to sell your shares
may be limited.
Transfer Agent
Our
stock transfer agent is Direct Transfer LLC. Their mailing address
is 500 Perimeter Park Drive Suite D, Morrisville NC 27560, and
their telephone number is (919) 744-2722.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section
78.138 of the Nevada Revised Statutes (“NRS”) provides
that a director or officer will not be individually liable unless
it is proven that (i) the director's or officer's acts or omissions
constituted a breach of his or her fiduciary duties, and (ii) such
breach involved intentional misconduct, fraud or a knowing
violation of the law.
Section
78.7502 of NRS permits a company to indemnify its directors and
officers against expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with a
threatened, pending or completed action, suit or proceeding if the
officer or director (i) is not liable pursuant to NRS 78.138 or
(ii) acted in good faith and in a manner the officer or director
reasonably believed to be in or not opposed to the best interests
of the corporation and, if a criminal action or proceeding, had no
reasonable cause to believe the conduct was unlawful.
Section
78.751 of NRS permits a Nevada company to indemnify its officers
and directors against expenses incurred by them in defending a
civil or criminal action, suit or proceeding as they are incurred
and in advance of final disposition thereof, upon receipt of an
undertaking by or on behalf of the officer or director to repay the
amount if it is ultimately determined by a court of competent
jurisdiction that such officer or director is not entitled to be
indemnified by the company. Section 78.751 of NRS further permits
the company to grant its directors and officers additional rights
of indemnification under its articles of incorporation or bylaws or
otherwise.
Section
78.752 of NRS provides that a Nevada company may purchase and
maintain insurance or make other financial arrangements on behalf
of any person who is or was a director, officer, employee or agent
of the company, or is or was serving at the request of the company
as a director, officer, employee or agent of another company,
partnership, joint venture, trust or other enterprise, for any
liability asserted against him and liability and expenses incurred
by him in his capacity as a director, officer, employee or agent,
or arising out of his status as such, whether or not the company
has the authority to indemnify him against such liability and
expenses.
Our
articles of incorporation provide for the indemnification of our
officers and directors but does not eliminate or limit the
liability of an officer or director for acts or omissions which
involve intentional misconduct, fraud or a knowing violation of law
or the payment of distributions in violation of Section 78.300 of
NRS.
Insofar
as indemnification by us for liabilities arising under the
Securities Act may be permitted to our directors, officers or
persons controlling the company pursuant to provisions of our
articles of incorporation and bylaws, or otherwise, we have been
advised that in the opinion of the SEC, such indemnification is
against public policy as expressed in the Securities Act and is
therefore unenforceable. In the event that a claim for
indemnification by such director, officer or controlling person of
us in the successful defense of any action, suit or proceeding is
asserted by such director, officer or controlling person in
connection with the securities being offered, we will, unless in
the opinion of our counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by us is
against public policy as expressed in the Securities Act and will
be governed by the final adjudication of such issue.
36
At the
present time, there is no pending litigation or proceeding
involving a director, officer, employee or other agent of ours in
which indemnification would be required or permitted. We are not
aware of any threatened litigation or proceeding, which may result
in a claim for such indemnification.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The
information provided below in Item 9.01 of this Current Report on
Form 8-K is incorporated by reference into this Item.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL
DISCLOSURE
Not
Applicable
FINANCIAL STATEMENTS AND EXHIBITS
The information provided below in Item 9.01 of this Current Report
on Form 8-K is incorporated by reference into this
Item.
Item 3.02 Unregistered Sales of Equity Securities.
Pursuant
to the Agreement, on December 29, 2017, we issued 630,000,000
shares of our Common Stock to SeD Home International, Inc., the
sole shareholder of SeD Home. Such securities were not registered
under the Securities Act of 1933 and were issued pursuant to the
exemption under Section 4(2) of the Securities Act.
Item 5.02 Departure of Directors or Certain Officers;
Election of Directors; Appointment of Certain Officers;
Compensatory Arrangements of Certain Officers.
On
December 29, 2017, Conn Flanigan resigned as the Chief Executive
Officer of the Company. Mr. Flanigan shall continue to serve as the
Secretary of the Company, and as a member of the Company’s
Board of Directors.
Effective
as of December 29, 2017, Fai H. Chan, a member of our Board of
Directors, has been appointed as the Chairman of our Board of
Directors and Co-Chief Executive Officer of our
Company.
Effective
as of December 29, 2017, Moe T. Chan has been appointed as Co-Chief
Executive Officer of our Company, to serve along Mr. Fai H. Chan,
and as a member of our Board of Directors. Moe T. Chan is the son
of Fai H. Chan, the Chairman and Co-Chief Executive Officer of our
Company.
Effective
as of December 29, 2017, Alan W. L. Lui was appointed as Co-Chief
Financial Officer of our Company, to serve along with Rongguo
(Ronald) Wei, our current Chief Financial Officer.
Effective
as of December 29, 2017, Charley MacKenzie was appointed as a
member of our Board of Directors.
Biographical
information for each of our officers and directors is set forth in
Item 2.01, which is incorporated herein by reference.
Each of
our officers and directors is presently compensated by Singapore
eDevelopment, the corporate parent of the Company’s majority
shareholder, at no cost to the Company, except for Mr. Wei and Mr.
MacKenzie. The Company has not entered into any compensation
arrangements with any of our officers and directors except for Mr.
Wei, who is compensated by SeD Development Management, LLC, a
subsidiary of SeD Home, and Mr. MacKenzie, who is compensated
pursuant to a consulting agreement with SeD Development Management
LLC. Information regarding the compensation arrangements for each
of Mr. Wei and Mr. MacKenzie is set forth in Item 2.01, which is
incorporated herein by reference.
37
Item 5.06 Change in Shell Company Status.
A
result of the transaction described in Item 1.01 and Item 2.01, the
management of SeD Intelligent Home Inc. (the “Company”)
has determined that we are not a shell corporation as that term is
defined in Rule 405 of the Securities Act and Rule 12b-2 of the
Exchange Act.
Item
2.01(f) of Form 8-K states that if the registrant was a shell
company, then the registrant must disclose the information that
would be required if the registrant were filing a general form for
registration of securities on Form 10 under the Securities Exchange
Act of 1934, as amended. Accordingly, we have provided the
information that would be included in a Form 10 registration
statement in Item 2.01.
Item 9.01 Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
The
Audited Financial Statements of SeD Home, Inc. for the fiscal years
ended December 31, 2015 and December 31, 2016 are filed as Exhibit
99.1 to this Current Report on Form 8-K and are incorporated herein
by reference. The Unaudited Financial Statements of SeD Home, Inc.
for the fiscal period ended September 30, 2017 are filed as Exhibit
99.2 to this Current Report on Form 8-K and are incorporated herein
by reference.
(d) Exhibits.
Exhibit
No.
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Description
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Acquisition
Agreement and Plan of Merger dated December 29, 2017 by and among
SeD Intelligent Home Inc., SeD Acquisition Corp., SeD Home
International, Inc. and SeD Home, Inc., incorporated herein by
reference to Exhibit 2.1 to the Company’s Current Report on
Form 8-K, filed with the Securities and Exchange Commission on
December 29, 2017.
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Certificate
of Incorporation of the Company, incorporated herein by reference
to Exhibit 3.1 to the Company’s Registration Statement on
Form S-11 filed with the Securities and Exchange Commission on
October 20, 2010.
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Bylaws
of the Company, incorporated herein by reference to Exhibit 3.2 to
the Company’s Registration Statement on Form S-11 filed with
the Securities and Exchange Commission on October 20,
2010.
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Amendment
to the Company’s Articles of Incorporation, incorporated
herein by reference to Exhibit 3.3 to the Company’s Quarterly
Report on Form 10-Q, filed with the Securities and Exchange
Commission on November 2, 2017.
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Certificate of Incorporation of SeD Home, Inc., incorporated herein by reference to Exhibit 3.4
to the Company’s Current Report on Form 8-K, filed with the
Securities and Exchange Commission on December 29,
2017.
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Bylaws of SeD Home, Inc., incorporated herein by reference to Exhibit 3.5
to the Company’s Current Report on Form 8-K, filed with the
Securities and Exchange Commission on December 29,
2017.
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Agreement
of Limited Partnership of 150 CCM Black Oak, Ltd., dated as of
March 20, 2014, by and between 150 Black Oak GP, Inc. and CCM
Development USA Corporation, American Real Estate Investments, LLC
and the Fogarty Family Trust II, incorporated herein by reference
to Exhibit 10.1 to the Company’s Current Report on Form 8-K,
filed with the Securities and Exchange Commission on December 29,
2017.
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Amendment of Agreement of Limited Partnership of 150 CCM Black Oak,
Ltd., dated as of November 7, 2014, by and between 150 Black Oak
GP, Inc. and CCM Development USA Corporation, American Real Estate
Investments, LLC and the Fogarty Family Trust
II, incorporated
herein by reference to Exhibit 10.2 to the Company’s Current
Report on Form 8-K, filed with the Securities and Exchange
Commission on December 29, 2017.
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Amendment
of Agreement of Limited Partnership of 150 CCM Black Oak, Ltd., by
and between 150 Black Oak GP, Inc. and CCM Development USA
Corporation, American Real Estate Investments, LLC and the Fogarty
Family Trust II, incorporated herein by reference to Exhibit 10.3
to the Company’s Current Report on Form 8-K, filed with the
Securities and Exchange Commission on December 29,
2017.
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Amendment of Agreement of Limited Partnership of 150 CCM Black Oak,
Ltd., dated as of September 26, 2014, by and between 150 Black Oak
GP, Inc. and CCM Development USA Corporation, American Real Estate
Investments, LLC and the Fogarty Family Trust
II, incorporated
herein by reference to Exhibit 10.4 to the Company’s Current
Report on Form 8-K, filed with the Securities and Exchange
Commission on December 29, 2017.
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Form of Lot Purchase Agreement for Ballenger Run, entered into as
of December 10, 2014, by and among SeD Maryland Development, LLC
and NVR, Inc. d/b/a Ryan Homes, incorporated herein by reference to Exhibit 10.5
to the Company’s Current Report on Form 8-K, filed with the
Securities and Exchange Commission on December 29,
2017.
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Management
Agreement, entered into as of July 15, 2015, by and between SeD
Maryland Development, LLC and SeD Development Management, LLC,
incorporated herein by reference to Exhibit 10.6 to the
Company’s Current Report on Form 8-K, filed with the
Securities and Exchange Commission on December 29,
2017.
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Amended
and Restated Limited Liability Company Agreement of SeD Maryland
Development, LLC, dated as of September 16, 2015, by and between
SeD Maryland Development, LLC and SeD Development Management, LLC,
incorporated herein by reference to Exhibit 10.7 to the
Company’s Current Report on Form 8-K, filed with the
Securities and Exchange Commission on December 29,
2017.
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Consulting
Services Agreement, dated as of May 1, 2017, between SeD
Development Management LLC and MacKenzie Equity Partners LLC,
incorporated herein by reference to Exhibit 10.8 to the
Company’s Current Report on Form 8-K, filed with the
Securities and Exchange Commission on December 29,
2017.
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Subsidiaries
of the Company, incorporated by reference to Exhibit 21 to the
Company’s Current Report on Form 8-K, filed with the
Securities and Exchange Commission on December 29,
2017.
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SeD
Home, Inc.’s audited financial statements for the years ended
December 31, 2015 and December 31, 2016.
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SeD
Home, Inc.’s unaudited financial statements for the nine
months ended September 30, 2017.
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Pro
Forma Financial Information.
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38
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 hereunto duly authorized.
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SeD Intelligent Home Inc.
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Date:
April 17, 2018
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By:
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/s/
Rongguo (Ronald) Wei
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Name:
Rongguo (Ronald) Wei
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Title:
Co-Chief Financial Officer
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39