Filed
pursuant to Rule 253(g)(1)
File
No. 024-10997
This Post-Qualification Offering Circular
Amendment No. 1 amends the Offering Circular of Manufactured Housing Properties Inc. qualified on November 1, 2019 to add, update
and/or replace information contained in the Offering Circular.
Offering Circular, Dated May 27, 2020
Manufactured Housing Properties Inc.
136 Main Street
Pineville, NC 28134
(980) 273-1702; www.mhproperties.com
UP TO 1,000,000 SHARES OF
SERIES B REDEEMABLE PREFERRED STOCK
AND 40,000 SHARES OF COMMON STOCK
Manufactured Housing Properties Inc. (which
we refer to as “our company,” “we,” “our” and “us”), is offering up to 1,000,000
shares of Series B Cumulative Redeemable Preferred Stock, which we refer to as the Series B Preferred Stock, at an offering price
of $10.00 per share, for a maximum offering amount of $10,000,000. In addition, we are offering bonus shares to early investors
in this offering. The first 400 investors will receive, in addition to Series B Preferred Stock, 100 shares of Common Stock, regardless
of the amount invested, for a total of 40,000 shares of Common Stock.
The Series B Preferred Stock being offered
will rank, as to dividend rights and rights upon our liquidation, dissolution, or winding up, senior to our Common Stock and pari
passu with our Series A Cumulative Convertible Preferred Stock, which we refer to as our Series A Preferred Stock. Holders
of our Series B Preferred Stock will be entitled to receive cumulative dividends in the amount of $0.067 per share each month;
provided that upon an event of default (generally defined as our failure to pay dividends when due or to redeem shares when requested
by a holder), such amount shall be increased to $0.083 per month. The liquidation preference for each share of our Series B Preferred
Stock is $10.00. Upon a liquidation, dissolution or winding up of our company, holders of shares of our Series B Preferred Stock
will be entitled to receive the liquidation preference with respect to their shares plus an amount equal to any accrued but unpaid
dividends (whether or not declared) to, but not including, the date of payment with respect to such shares. Commencing on November
29, 2024 (the fifth anniversary of the initial closing of this offering) and continuing indefinitely thereafter, we shall have
a right to call for redemption the outstanding shares of our Series B Preferred Stock at a call price equal to 150% of the original
issue price of our Series B Preferred Stock, and correspondingly, each holder of shares of our Series B Preferred Stock shall
have a right to put the shares of Series B Preferred Stock held by such holder back to us at a put price equal to 150% of the
original issue purchase price of such shares. The Series B Preferred Stock will have no voting rights (except for certain matters)
and are not convertible into shares of our Common Stock. See “Description of Securities” beginning on page 42 for
additional details.
This offering is being conducted on a
“best efforts” basis pursuant to Regulation A of Section 3(6) of the Securities Act of 1933, as amended, or the Securities
Act, for Tier 2 offerings. This offering will terminate at the earlier of: (1) the date at which the maximum amount of offered
Series B Preferred Stock has been sold, (2) the date which is 180 days after this offering was originally qualified by the U.S.
Securities and Exchange Commission, or the SEC, which was November 1, 2019, subject to an extension of up to an additional 180
days at the discretion of our company and the underwriter, or (3) the date on which this offering is earlier terminated by us
in our sole discretion.
Digital Offering LLC, which we refer to
as the underwriter, is the lead underwriter for this offering. The underwriter is selling our Series B Preferred Stock in this
offering on a best efforts basis and is not required to sell any specific number or dollar amount of Series B Preferred Stock
offered by this offering circular, but will use its best efforts to sell such Series B Preferred Stock. Cambria Capital LLC, or
Cambria Capital, has been appointed by us and the underwriter as a soliciting dealer for this offering. Cambria Capital is an
SEC registered broker-dealer and member of the Financial Industry Regulatory Authority, or FINRA, and the Securities Investor
Protection Corporation, or SIPC. Cambria Capital operates the My IPO platform (available at www.myipo.com) as a separate unincorporated
business division. Cambria Capital’s clearing firm, who we refer to as the Clearing Firm, is an SEC registered broker-dealer
and member of FINRA and SIPC and is authorized to act as a clearing broker-dealer. Cambria Capital and its My IPO division clear
through the Clearing Firm as do other broker-dealers who may participate in this offering. We refer to such other broker-dealers
that clear through the Clearing Firm and who may participate in this offering as Other Broker-Dealers.
We may undertake one or more closings
on a rolling basis. Until we complete a closing, the proceeds for this offering will be kept in an escrow account maintained at
Wilmington Trust, National Association, or, in the case of investors who invest through Cambria Capital, the My IPO platform,
or Other Broker-Dealers that clear through the Clearing Firm, proceeds will remain in the investor’s own brokerage account
with Cambria Capital. At a closing, the proceeds will be distributed to us and the associated Series B Preferred Stock will be
issued to the investors. If there are no closings or if funds remain in the escrow account upon termination of this offering without
any corresponding closing, the funds so deposited for this offering will be promptly returned to investors, without deduction
and generally without interest, or, in the case of investors who invest through Cambria Capital, the My IPO platform, or Other
Broker-Dealers, their funds will remain unrestricted in their own investment account. See “Underwriting.”
As of the date of this offering circular,
we have completed five closings in which we have sold an aggregate of 502,362 shares of Series B Preferred Stock for total gross
proceeds of $5,053,620. After deducting the placement fee, we received net proceeds of approximately $4,699,867, before other
offering expenses. We also issued an aggregate of 19,300 shares of Common Stock to early investors.
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Price
to
Public
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Underwriting
discount
and
commissions(1)
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Proceeds
to issuer(2)
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Per Share
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$
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10.00
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$
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0.70
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$
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9.30
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Total Maximum
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$
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10,000,000
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$
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700,000
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$
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9,300,000
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(1) This table
depicts broker-dealer commissions of 7% of the gross offering proceeds. Please refer to the section captioned “Underwriting”
for additional information regarding total underwriter compensation. In addition to commissions, we have agreed to reimburse the
underwriter for its reasonable out-of-pocket expenses of up to $30,000.
(2) Before deducting
expenses of the offering, which are estimated to be approximately $115,000. See the section captioned “Underwriting”
for details regarding the compensation payable in connection with this offering. This amount represents the proceeds of the offering
to us, which will be used as set out in the section captioned “Use of Proceeds.”
Our business and an investment in shares
of our Series B Preferred Stock involve significant risks. See “Risk Factors” beginning on page 10 of this offering
circular to read about factors that you should consider before making an investment decision. You should also consider the risk
factors described or referred to in any documents incorporated by reference in this offering circular, before investing in these
securities.
Generally, no sale may be made to you
in this offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or your net worth.
Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does
not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For general information on
investing, we encourage you to refer to www.investor.gov.
THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION DOES NOT PASS UPON THE MERITS OR GIVE ITS APPROVAL OF ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES
IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SOLICITATION MATERIALS. THESE SECURITIES ARE OFFERED
PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE COMMISSION; HOWEVER, THE COMMISSION HAS NOT MADE AN INDEPENDENT DETERMINATION
THAT THE SECURITIES OFFERED ARE EXEMPT FROM REGISTRATION.
This offering circular follows the disclosure
format of Part I of Form S-1 pursuant to the general instructions of Part II(a)(1)(ii) of Form 1-A.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This offering circular and the documents
incorporated by reference herein contain, in addition to historical information, certain “forward-looking statements”
within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, or
the Exchange Act, that include information relating to future events, future financial performance, strategies, expectations,
competitive environment, regulation and availability of resources. These forward-looking statements include, without limitation:
statements concerning projections, predictions, expectations, estimates or forecasts for our business, financial and operating
results and future economic performance; statements of management’s goals and objectives; trends affecting our financial
condition, results of operations or future prospects; statements regarding our financing plans or growth strategies; statements
concerning litigation or other matters; and other similar expressions concerning matters that are not historical facts. Words
such as “may,” “will,” “should,” “could,” “would,” “predicts,”
“potential,” “continue,” “expects,” “anticipates,” “future,” “intends,”
“plans,” “believes” and “estimates,” and similar expressions, as well as statements in future
tense, identify forward-looking statements.
Forward-looking statements should not
be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times, or by which,
that performance or those results will be achieved. Forward-looking statements are based on information available at the time
they are made and/or management’s good faith beliefs as of that time with respect to future events and are subject to risks
and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by
the forward-looking statements. Important factors that could cause these differences include, but are not limited to:
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the impact of the coronavirus
pandemic on our business;
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changes in the real estate
market and general economic conditions;
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the inherent risks associated
with owning real estate, including local real estate market conditions, governing laws
and regulations affecting manufactured housing communities and illiquidity of real estate
investments;
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increased competition in
the geographic areas in which we own and operate manufactured housing communities;
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our ability to continue to
identify, negotiate and acquire manufactured housing communities and/or vacant land which
may be developed into manufactured housing communities on terms favorable to us;
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our ability to maintain rental
rates and occupancy levels;
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changes in market rates of
interest;
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our ability to repay debt
financing obligations;
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our ability to refinance
amounts outstanding under our credit facilities at maturity on terms favorable to us;
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our ability to comply with
certain debt covenants;
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our ability to integrate
acquired properties and operations into existing operations;
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the availability of other
debt and equity financing alternatives;
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continued ability to access
the debt or equity markets;
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the loss of any member of
our management team;
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our ability to maintain internal
controls and processes to ensure all transactions are accounted for properly, all relevant
disclosures and filings are timely made in accordance with all rules and regulations,
and any potential fraud or embezzlement is thwarted or detected;
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the ability of manufactured
home buyers to obtain financing;
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the level of repossessions
by manufactured home lenders;
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market conditions affecting
our investment securities;
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changes in federal or state
tax rules or regulations that could have adverse tax consequences; and
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those risks and uncertainties
referenced under the caption “Risk Factors” contained in this offering circular.
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Potential investors should not place undue
reliance on any forward-looking statements. Except as expressly required by the federal securities laws, there is no undertaking
to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances
or any other reason. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional
updates with respect to those or other forward-looking statements. Potential investors should not make an investment decision
based solely on our company’s projections, estimates or expectations.
The specific discussions herein about
our company include financial projections and future estimates and expectations about our company’s business. The projections,
estimates and expectations are presented in this offering circular only as a guide about future possibilities and do not represent
actual amounts or assured events. All the projections and estimates are based exclusively on our company management’s own
assessment of its business, the industry in which it works and the economy at large and other operational factors, including capital
resources and liquidity, financial condition, fulfillment of contracts and opportunities. The actual results may differ significantly
from the projections.
TABLE OF CONTENTS
Please read this offering circular carefully.
It describes our business, our financial condition and results of operations. We have prepared this offering circular so that
you will have the information necessary to make an informed investment decision.
You should rely only on the information
contained in this offering circular. We have not, and the underwriter has not, authorized anyone to provide you with any information
other than that contained in this offering circular. We are offering to sell, and seeking offers to buy, the securities covered
hereby only in jurisdictions where offers and sales are permitted. The information in this offering circular is accurate only
as of the date of this offering circular, regardless of the time of delivery of this offering circular or any sale of the securities
covered hereby. Our business, financial condition, results of operations and prospects may have changed since that date. We are
not, and the underwriter is not, making an offer of these securities in any jurisdiction where the offer is not permitted.
For investors outside the United States:
We have not, and the underwriter has not, taken any action that would permit this offering or possession or distribution of this
offering circular in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside
the United States who come into possession of this offering circular must inform themselves about, and observe any restrictions
relating to, the offering of the securities covered hereby or the distribution of this offering circular outside the United States.
This offering circular includes statistical
and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by
third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has
been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information.
We believe that the data obtained from these industry publications and third-party research, surveys and studies are reliable.
We are ultimately responsible for all disclosure included in this offering circular.
We further note that the representations,
warranties and covenants made by us in any agreement that is filed as an exhibit to the offering statement of which this offering
circular is a part were made solely for the benefit of the parties to such agreement, including, in some cases, for the purpose
of allocating risk among the parties to such agreements, and should not be deemed to be a representation, warranty or covenant
to you. Moreover, such representations, warranties or covenants were accurate only as of the date when made. Accordingly, such
representations, warranties and covenants should not be relied on as accurately representing the current state of our affairs.
WE HAVE NOT AUTHORIZED ANY DEALER,
SALESPERSON OR OTHER PERSON TO GIVE ANY INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS OFFERING CIRCULAR. YOU SHOULD
NOT RELY ON ANY UNAUTHORIZED INFORMATION. THIS OFFEIRNG CIRCULAR IS NOT AN OFFER TO SELL OR BUY ANY SECURITIES IN ANY STATE OR
OTHER JURISDICTION IN WHICH IT IS UNLAWFUL. THE INFORMATION IN THIS OFFERING CIRCULAR IS CURRENT AS OF THE DATE ON THE COVER.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS OFFERING CIRCULAR.
SUMMARY
This summary highlights selected information
contained elsewhere in this offering circular. This summary is not complete and does not contain all the information that you
should consider before deciding whether to invest in our securities. You should carefully read the entire offering circular, including
the risks associated with an investment in our company discussed in the “Risk Factors” section of this offering circular,
before making an investment decision.
Our
Company
Overview
We are a self-administered, self-managed,
vertically integrated owner and operator of manufactured housing communities. We earn income from leasing manufactured home sites
to tenants who own their own manufactured home and the rental of company-owned manufactured homes to residents of the communities.
We own and operate 20 manufactured housing
communities containing approximately 1,308 developed sites and a total of 417 company-owned manufactured homes, including:
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Pecan Grove
– a 81 lot, all-age community situated on 10.71 acres and located in Charlotte,
North Carolina.
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Butternut –
a 59 lot, all-age community situated on 13.13 acres and located in Corryton, Tennessee,
a suburb of Knoxville, Tennessee.
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Azalea Hills
– a 41 lot, all-age community situated on 7.46 acres and located in Gastonia, North
Carolina, a suburb of Charlotte, North Carolina.
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Holly Faye
– a 37 lot all-age community situated on 8.01 acres and located in Gastonia, North
Carolina, a suburb of Charlotte North Carolina.
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Lakeview –
a 97 lot all-age community situated on 17.26 acres in Spartanburg, South Carolina.
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Chatham Pines
– a 49 lot all-age community situated on 23.57 acres and located in Chapel Hill,
North Carolina.
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Maple Hills
– a 73 lot all-age community situated on 21.20 acres and located in Mills River,
North Carolina, which is part of the Asheville, North Carolina, Metropolitan Statistical
Area.
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Hunt Club Forest
– a 79 lot all-age community situated on 13.02 acres and located in the Columbia,
South Carolina metro area.
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B&D –
a 97 lot all-age community situated on 17.75 acres and located in Chester, South Carolina.
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Crestview –
a 113 lot all-age community situated on 19.05 acres and located in East Flat Rock, North
Carolina.
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Spring Lake
– a 225 lot all-age community situated on 72.7 acres and located in Warner Robins,
Georgia.
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ARC – a
182 lot all-age community situated on 39.34 acres and located in Lexington, South Carolina.
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Countryside
– a 110 lot all-age community situated on 35 acres and located in Lancaster, North
Carolina.
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Evergreen –
a 65 lot all-age community situated on 28.4 acres and located in Dandridge, Tennessee.
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The Manufactured Housing Community
Industry
Manufactured housing communities are residential
developments designed and improved for the placement of detached, single-family manufactured homes that are produced off-site
and installed and set on residential sites within the community. The owner of a manufactured home leases the site on which it
is located and the lessee of a manufactured home leases both the home and site on which the home is located.
We believe that manufactured housing is
accepted by the public as a viable and economically attractive alternative to common stick-built single-family housing. We believe
that the affordability of the modern manufactured home makes it a very attractive housing alternative. Manufactured housing is
one of the only non-subsidized affordable housing options in the U.S. Demand for housing affordability continues to increase,
but supply remains static, as there are virtually no new manufactured housing communities being developed. We are committed to
becoming an industry leader in providing this affordable housing option and an improved level of service to our residents, while
producing an attractive and stable risk adjusted return to our investors.
A manufactured housing community is a
land-lease community designed and improved with home sites for the placement of manufactured homes and includes related improvements
and amenities. Each homeowner in a manufactured housing community leases from the community a site on which a home is located.
The manufactured housing community owner owns the underlying land, utility connections, streets, lighting, driveways, common area
amenities, and other capital improvements and is responsible for enforcement of community guidelines and maintenance of the community.
Generally, each homeowner is responsible for the maintenance of his or her home and upkeep of his or her leased site. In some
cases, customers may rent homes with the community owner’s maintaining ownership and responsibility for the maintenance
and upkeep of the home. This option provides flexibility for customers seeking a more affordable, shorter-term housing option
and enables the community owner to meet a broader demand for housing and improve occupancy and cash flow.
Our Competition
There are numerous private companies,
but only three publicly-traded real estate investment trusts, or REITs, that compete in the manufactured housing industry. Many
of the private companies and one of the REITs, UMH Properties, Inc., may compete with us for acquisitions of manufactured
housing communities. Many of these companies have larger operations and greater financial resources than we do. The number of
competitors, however, is increasing as new entrants discover the benefits of the manufactured housing asset class. We believe
that due to the fragmented nature of ownership within the manufactured housing sector, the level of competition is less than that
in other commercial real estate sectors.
Our Competitive Strengths
We believe that the following competitive
strengths enable us to compete effectively:
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Deal Sourcing.
Our deal sourcing consists of marketed deals, pocket listings, and off market deals.
Marketed deals are properties that are listed with a broker who exposes the property
to the largest pool of buyers possible. Pocket listings are properties that are presented
by brokers to a limited pool of buyers. Off market deals are ones that are not actively
marketed. As a result of our network of relationships in our industry, only two
properties in our portfolio were marketed deals, the rest were off-market or pocket listings.
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Centralized Operations.
We have centralized many operational tasks, including accounting, marketing, lease administration,
and accounts payable. The use of professional staff and technology allows us to
scale efficiently and operate properties profitably by reducing tasks otherwise completed
at the property level.
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Deal Size.
We believe that our small capitalization size with non-institutional deals of less than
150 sites are accretive to our balance sheet. These sized properties typically
have less bidders at lower prices than larger properties. We can profitably operate
these smaller properties through our centralized operations.
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Creating Value.
Our underwriting expertise enables us to identify acquisition prospects to provide attractive
risk adjusted returns. Our operational team has the experience, skill and resources
to create this value through physical and/or operational property improvements.
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Our Growth Strategy
Our growth strategy is to acquire
both stable and undervalued and underperforming manufactured housing properties that have current income. We believe that we can
enhance value through our professional asset and property management. Our property management services are mainly comprised of
tenant contracts and leasing, marketing vacancies, community maintenance, enforcement of community policies, establishment and
collection rent, and payment of vendors. Our lot and manufactured home leases are generally for one month and auto renew monthly
for an additional month.
Our investment mission on behalf
of our stockholders is to deliver an attractive risk-adjusted return with a focus on value creation, capital preservation, and
growth. In our ongoing search for acquisition opportunities we target and evaluate manufactured housing communities nationwide.
We may invest in improved and
unimproved real property and may develop unimproved real property. These property investments may be located throughout the United
States, but to date we have concentrated in the Southeast portion of the United States. We are focused on acquiring communities
with significant upside potential and leveraging our expertise to build long-term capital appreciation.
We are one of four public companies
in the manufactured housing sector, but we are the only one not organized as a REIT, thereby giving us flexibility to focus on
growth through reinvestment of income and employing higher leverage upon acquisition than the REITs traditionally utilize due
to market held norms around 50-60%. This can give us a competitive advantage when bidding for assets. Additionally, due to our
small size, non-institutional sized deals of less than 150 sites, which have less bidders and lower prices, are accretive to our
balance sheet.
Our Risks and Challenges
Our prospects should be considered in
light of the risks, uncertainties, expenses and difficulties frequently encountered by similar companies. Our ability to realize
our business objectives and execute our strategies is subject to risks and uncertainties, including, among others, the following:
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The coronavirus pandemic
may cause a material adverse effect on our business.
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We may not be able to obtain
adequate cash to fund our business.
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General economic conditions
and the concentration of our properties in Georgia, North Carolina, South Carolina, and
Tennessee may affect our ability to generate sufficient revenue.
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We face risks generally associated
with our debt.
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Covenants in our credit agreements
could limit our flexibility and adversely affect our financial condition.
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A change in the United States
government policy regarding to the Federal National Mortgage Association (Fannie Mae)
and the Federal Home Loan Mortgage Corporation (Freddie Mac) could impact our financial
condition.
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We may not be able to integrate
or finance our acquisitions and our acquisitions may not perform as expected.
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New acquisitions may fail
to perform as expected and the intended benefits may not be realized, which could have
a negative impact on our operations.
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We may be unable to sell
properties when appropriate because real estate investments are illiquid.
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We may be unable to compete
with our larger competitors, which may in turn adversely affect our profitability.
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Losses in excess of our insurance
coverage or uninsured losses could adversely affect our cash flow.
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Costs associated with taxes
and regulatory compliance may reduce our revenue.
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Rent control legislation
may harm our ability to increase rents.
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We have one stockholder that
can single-handedly control our company.
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There is no present market
for the Series B Preferred Stock and we have arbitrarily set the price.
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We cannot assure you that
we will be able to pay dividends.
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You will not have a vote
or influence on the management of our company.
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Impact of Coronavirus Pandemic
In December 2019, a novel strain of coronavirus
was reported to have surfaced in Wuhan, China. The virus has since spread to over 150 countries and every state in the United
States. On March 11, 2020, the World Health Organization declared the outbreak a pandemic, and on March 13, 2020, the
United States declared a national emergency.
Most states and cities, including where
our properties are located, have reacted by instituting quarantines, restrictions on travel, “stay at home” rules
and restrictions on the types of businesses that may continue to operate, as well as guidance in response to the pandemic and
the need to contain it.
We are carefully reviewing all rules,
regulations, and orders and responding accordingly. We have taken steps to take care of our employees, including providing the
ability for employees to work remotely and implementing strategies to support appropriate social distancing techniques for those
employees who are not able to work remotely. We have also taken precautions with regard to employee, facility and office hygiene
as well as implementing significant travel restrictions. We are also assessing our business continuity plans for all business
units in the context of the pandemic. This is a rapidly evolving situation, and we will continue to monitor and mitigate developments
affecting our workforce, our tenants, and the public at large to the extent we are able to do so.
The rules and restrictions put in place
have had a negative impact on the economy and business activity and may adversely impact the ability of our tenants, many
of whom may be restricted in their ability to work, to pay their rent as and when due. In addition, our property managers
may be limited in their ability to properly maintain our properties. Enforcing our rights as landlord against tenants who
fail to pay rent or otherwise do not comply with the terms of their leases may not be possible as many jurisdictions, including
those where are properties are located, have established rules and/or regulations preventing us from evicting tenants for certain
periods in response to the pandemic. If we are unable to enforce our rights as landlords, our business would be materially affected.
If the current pace of the pandemic
cannot be slowed and the spread of the virus is not contained, our business operations could be further delayed or interrupted.
We expect that government and health authorities may announce new or extend existing restrictions, which could require us to make
further adjustments to our operations in order to comply with any such restrictions. The duration of any business disruption cannot
be reasonably estimated at this time but may materially affect our ability to operate our business and result in additional costs.
The extent to which the pandemic may
impact our results will depend on future developments, which are highly uncertain and cannot be predicted as of the date of this
offering circular, including new information that may emerge concerning the severity of the pandemic and steps taken
to contain the pandemic or treat its impact, among others. Nevertheless, the pandemic and the current financial, economic
and capital markets environment present material uncertainty and risk with respect to our performance, financial condition, results
of operations and cash flows. See also “Risk Factors” below.
Corporate Information
Our principal executive offices are located
at 136 Main Street, Pineville, NC 28134 and our telephone number is (980) 273-1702. We maintain a website at www.mhproperties.com.
Information available on our website is not incorporated by reference in and is not deemed a part of this offering circular.
The
Offering
Securities being offered:
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Up to 1,000,000 shares of Series B Preferred Stock
at an offering price of $10.00 per share for a maximum offering amount of $10,000,000. In addition, we are offering bonus
shares to early investors in this offering, whereby the first 400 investors will receive, in addition to Series B Preferred
Stock, 100 shares of Common Stock, regardless of the amount invested, for a total of 40,000 shares of Common Stock.
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Terms of Series B Preferred Stock:
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· Ranking
- The Series B Preferred Stock ranks, as to dividend rights and rights upon our liquidation, dissolution, or winding
up, senior to our Common Stock and pari passu with our Series A Preferred Stock. The terms of the Series B Preferred
Stock will not limit our ability to (i) incur indebtedness or (ii) issue additional equity securities that are equal or
junior in rank to the shares of our Series B Preferred Stock as to distribution rights and rights upon our liquidation,
dissolution or winding up.
· Dividend
Rate and Payment Dates - Dividends on the Series B Preferred Stock being offered will be cumulative and payable
monthly in arrears to all holders of record on the applicable record date. Holders of our Series B Preferred Stock will
be entitled to receive cumulative dividends in the amount of $0.067 per share each month, which is equivalent to the annual
rate of 8% of the $10.00 liquidation preference per share described below; provided that upon an event of default (generally
defined as our failure to pay dividends when due or to redeem shares when requested by a holder), such amount shall be
increased to $0.083 per month, which is equivalent to the annual rate of 10% of the $10.00 liquidation preference per
share described below. Dividends on shares of our Series B Preferred Stock will continue to accrue even if any of our
agreements prohibit the current payment of dividends or we do not have earnings.
· Liquidation
Preference - The liquidation preference for each share of our Series B Preferred Stock is $10.00. Upon a liquidation,
dissolution or winding up of our company, holders of shares of our Series B Preferred Stock will be entitled to receive
the liquidation preference with respect to their shares plus an amount equal to any accrued but unpaid dividends (whether
or not declared) to, but not including, the date of payment with respect to such shares.
· Company
Call and Stockholder Put Options - Commencing on November 29, 2024 (the fifth anniversary of the initial closing
of this offering) and continuing indefinitely thereafter, we shall have a right to call for redemption the outstanding
shares of our Series B Preferred Stock at a call price equal to 150% of the original issue price of our Series B Preferred
Stock, and correspondingly, each holder of shares of our Series B Preferred Stock shall have a right to put the shares
of Series B Preferred Stock held by such holder back to us at a put price equal to 150% of the original issue purchase
price of such shares.
· Further
Issuances - The shares of our Series B Preferred Stock have no maturity date, and we will not be required to redeem
shares of our Series B Preferred Stock at any time except as otherwise described above under the caption “Company
Call and Stockholder Put Options.” Accordingly, the shares of our Series B Preferred Stock will remain outstanding
indefinitely, unless we decide, at our option, to exercise our call right, the holder of the Series B Preferred Stock
exercises his put right.
· Voting
Rights - We may not authorize or issue any class or series of equity securities ranking senior to the Series B
Preferred Stock as to dividends or distributions upon liquidation (including securities convertible into or exchangeable
for any such senior securities) or amend our articles of incorporation (whether by merger, consolidation, or otherwise)
to materially and adversely change the terms of the Series B Preferred Stock without the affirmative vote of at least
two-thirds of the votes entitled to be cast on such matter by holders of our outstanding shares of Series B Preferred
Stock, voting together as a class. Otherwise, holders of the shares of our Series B Preferred Stock will not have any
voting rights.
· No
Conversion Right - The Series B Preferred Stock is not convertible into shares of our Common Stock.
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Best efforts offering:
|
|
The underwriter is selling the shares of Series
B Preferred Stock offered in this offering circular on a “best efforts” basis and is not required to sell any
specific number or dollar amount of shares of Series B Preferred Stock offered by this offering circular, but will use its
best efforts to sell such shares.
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|
|
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Securities issued and outstanding before this offering:
|
|
12,322,680 shares of Common Stock, 1,890,000 shares of Series
A Preferred Stock, and no shares of Series B Preferred Stock.
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|
|
|
Securities issued and outstanding after this offering:
|
|
12,362,680 shares of Common Stock, 1,890,000 shares of Series
A Preferred Stock and 1,000,000 shares of Series B Preferred Stock if the maximum number of shares being offered are sold.
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Minimum subscription price:
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|
The minimum initial investment is at least $5,000 and any additional
purchases must be investments of at least $100.
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|
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Use of proceeds:
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|
We estimate our net proceeds from
this offering will be approximately $9,185,000 if the maximum number of shares being offered are sold based upon the public
offering price of $10.00 per share and after deducting the underwriting discounts and commissions and estimating
offering expenses payable by us.
We intend to use the net proceeds
from this offering for the acquisition of manufactured housing communities. For a discussion, see “Use of Proceeds.”
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Termination of the offering:
|
|
This offering will terminate at the earlier
of: (1) the date at which the maximum amount of offered shares has been sold, (2) the date which is 180 days after this offering
was originally qualified by the SEC, which was November 1, 2019, subject to an extension of up to 180 days by us and the underwriter,
or (3) the date on which this offering is earlier terminated by us in our sole discretion.
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Closings of the offering; Subscribing through Cambria
Capital, the My IPO platform, or Other Broker-Dealers:
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We may undertake one or more closings
on a rolling basis. Until we complete a closing, the proceeds for this offering will be kept in an escrow account maintained
at Wilmington Trust, National Association or will be held in your own brokerage account as described below. At a closing,
the proceeds will be distributed to us and the associated shares will be issued to the investors. If there are no closings
or if funds remain in the escrow account upon termination of this offering without any corresponding closing, the investments
for this offering will be promptly returned to investors, without deduction and generally without interest.
You may not subscribe to this
offering prior to the date this offering is qualified by the SEC, which we will refer to as the qualification date. Before
the qualification date, you may only make non-binding indications of your interest to purchase securities in the offering.
For any subscription agreements received after the qualification date, we have the right to review and accept or reject
the subscription in whole or in part, for any reason or for no reason. If rejected, we will return all funds to the rejected
investor within ten business days. If accepted, the funds will remain in the escrow account until all conditions to closing
have been satisfied or waived, at which point we will have an initial closing of the offering and the funds in escrow
will then be transferred into our general account.
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Following the initial closing
of this offering, we expect to have several subsequent closings of this offering until the maximum offering amount is
raised or the offering is terminated. We expect to have closings on a monthly basis and expect that we will accept all
funds subscribed for each month subject to our working capital and other needs consistent with the use of proceeds described
in this offering circular. Investors should expect to wait approximately one month and no longer than forty-five
days before we accept their subscriptions and they receive the securities subscribed for. An investor’s subscription
is binding and irrevocable and investors will not have the right to withdraw their subscription or receive a return of
funds prior to the next closing unless we reject the investor’s subscription. You will receive a confirmation of
your purchase promptly following the closing in which you participate.
Procedures for Subscribing
through Cambria Capital, the My IPO Platform or Other Broker-Dealers
Cambria Capital is an SEC registered
broker-dealer and member of FINRA and SIPC. Cambria Capital has been appointed by us and the underwriter, our managing
broker-dealer, as a soliciting dealer for this offering. Cambria Capital operates the My IPO platform as a separate unincorporated
business division. Cambria Capital’s clearing firm, who we refer to as the Clearing Firm, is an SEC registered broker-dealer
and member of FINRA and SIPC and is authorized to act as a clearing broker-dealer. Cambria Capital and its My IPO division
clear through the Clearing Firm as do other broker-dealers who may participate in this offering. We refer to such other
broker-dealers that clear through the Clearing Firm and who may participate in this offering as Other Broker-Dealers.
Prospective investors investing
through Cambria Capital, My IPO or Other Broker-Dealers will acquire shares of our Series B Preferred Stock through book-entry
order by opening an account with Cambria Capital, My IPO, or an Other Broker-Dealer, or by utilizing an existing Cambria
Capital account, My IPO account or account with an Other Broker-Dealer. In each such case, the account will be an account
owned by the investor and held at the Clearing Firm, as the clearing firm for the exclusive benefit of such investor.
The investor will also be required to complete and submit a subscription agreement. Subscriptions for shares of Series
B Preferred Stock acquired through an account at Cambria Capital, My IPO or an Other Broker-Dealer are all processed online
The process for investing through
Cambria Capital, My IPO or through Other Broker-Dealers will work in the following manner. The Clearing Firm will enter
into a custody agreement with us pursuant to which we will issue uncertificated securities to be held at the Clearing
Firm, and the shares of Series B Preferred stock held at the Clearing Firm will be reflected as an omnibus position on
our records and the transfer agent's records in the name of the Clearing Firm, for the exclusive benefit of customers.
We will open a brokerage account with the Clearing Firm and the Clearing Firm will hold the shares of Series B Preferred
Stock to be sold in the offering in book-entry form in our company’s Clearing Firm account. When the shares of Series
B Preferred stock are sold, the Clearing Firm maintains a record of each investor’s ownership interest in those
securities. Under an SEC no-action letter provided to the Clearing Firm in January 2015, the Clearing Firm is allowed
to treat the issuer as a good control location pursuant to Exchange Act Rule 15c3-3(c)(7) under these circumstances. The
customer's funds will not be transferred into a separate account awaiting the initial closing, or any other closing, but
will remain in the customer's account at the Clearing Firm pending instructions to release funds to us if all conditions
necessary for a closing are met.
In order to subscribe to purchase
the shares of Series B Preferred Stock through Cambria Capital, My IPO or through an Other Broker-Dealer, a prospective
investor must electronically complete and execute a subscription agreement and provide payment using the procedures indicated
below. When submitting the subscription request through Cambria Capital, My IPO or an Other Broker-Dealer, a prospective
investor is required to agree to various terms and conditions by checking boxes and to review and electronically sign
any necessary documents. We will not accept any subscription agreements prior to the SEC’s qualification of this
offering.
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After any contingencies of the
offering or any particular closing are met, we will notify the Clearing Firm when we wish to conduct a closing. The Clearing
Firm executes the closing by transferring each investor’s funds from their Cambria Capital, My IPO or Other Broker-Dealer
accounts to our Clearing Firm account and transferring the correct number of book-entry shares to each investor’s
account from our Clearing Firm account. The shares are then reflected in the investor’s online account and shown
on the investor's Cambria Capital, My IPO or Other Broker-Dealer account statements. Cambria Capital, My IPO and Other
Broker-Dealers will also send trade confirmations individually to the investors.
Other Subscription Procedures
Investors not purchasing through
Cambria Capital, My IPO or an Other Broker-Dealer that clears through the Clearing Firm must complete and execute a subscription
agreement for a specific number of shares and pay for the shares at the time of the subscription. Completed subscription
agreements will be sent by your broker-dealer or registered investment advisor, as applicable, to Digital Offering at
the address set forth in the subscription agreement. Subscription payments should be delivered directly to the escrow
agent. If you send your subscription payment to your broker or registered investment advisor, then your broker or registered
investment advisor will immediately forward your subscription payment to the escrow agent. Subscriptions will be effective
only upon our acceptance, and we reserve the right to reject any subscription in whole or in part.
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Restrictions on investment amount:
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Generally, no sale may be made to you in
this offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or net worth.
Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment
does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(c) of Regulation A. For general information
on investing, we encourage you to refer to www.investor.gov.
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Current symbol:
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OTC Pink Market: MHPC.
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Risk factors:
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Investing in our securities is highly speculative and involves
a high degree of risk. You should carefully consider the information set forth in the “Risk Factors” section beginning
on page 10 before deciding to invest in our securities.
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Summary
Financial Data
The following tables summarize selected
financial data regarding our business and should be read in conjunction with our financial statements and related notes contained
elsewhere in this offering circular and the information under “Management’s Discussion and Analysis of Financial Condition
and Results of Operations.”
The summary consolidated financial data
as of December 31, 2019 and 2018 and for the years then ended for our company are derived from our audited consolidated financial
statements included elsewhere in this offering circular.
Our consolidated financial statements
are prepared and presented in accordance with generally accepted accounting principles in the United States, or GAAP. The summary
financial data information is only a summary and should be read in conjunction with the historical financial statements and related
notes contained elsewhere herein. The financial statements contained elsewhere fully represent our financial condition and operations;
however, they are not indicative of our future performance.
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Years Ended December 31,
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2019
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2018
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Statements of Operations Data
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Total revenues
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$
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3,021,691
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$
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2,000,312
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Total community operating expenses
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1,149,788
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676,381
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Corporate payroll and overhead
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1,253,383
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1,030,527
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Depreciation and amortization expense
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786,179
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|
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534,290
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Interest expense
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1,312,469
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|
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1,001,455
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Refinancing costs
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552,272
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-
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Total expenses
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5,054,091
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3,242,653
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Provision for income taxes
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6,347
|
|
|
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8,286
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Net loss
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$
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(2,038,747
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)
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$
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(1,250,627
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)
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Net income attributable to the non-controlling interest
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-
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45,766
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Net loss attributable to the company
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$
|
(2,038,747
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)
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$
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(1,296,393
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)
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Total preferred stock dividends
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|
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360,937
|
|
|
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-
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Net loss attributable to common stockholders
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$
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(2,399,684
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)
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$
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(1,296,393
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)
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Weighted average shares - basic and fully diluted
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12,624,171
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|
|
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10,100,747
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Net loss per share - basic and fully diluted
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$
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(0.19
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)
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$
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(0.13
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)
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As of December 31,
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2019
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2018
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Balance Sheet Data
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Cash and cash equivalents
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$
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4,146,411
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$
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458,271
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Net Investment Property
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33,416,827
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|
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12,022,591
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Total assets
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38,152,131
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|
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12,593,321
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Total liabilities
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31,982,075
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|
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13,546,351
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Stockholders’ deficit
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|
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(2,712,554
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)
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|
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(953,030
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)
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Total liabilities and stockholders’ equity (deficit)
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$
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38,152,131
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$
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12,593,321
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RISK FACTORS
An investment in our Series B Preferred
Stock involves a high degree of risk. You should carefully read and consider all of the risks described below, together with all
of the other information contained or referred to in this offering circular, before making an investment decision with respect
to our securities. If any of the following events occur, our financial condition, business and results of operations (including
cash flows) may be materially adversely affected. In that event, the value of your Series B Preferred Stock could decline, and
you could lose all or part of your investment.
Risks Related to our Business and Industry
The coronavirus pandemic may cause
a material adverse effect on our business.
In December 2019, a novel strain of coronavirus
was reported to have surfaced in Wuhan, China. The virus has since spread to over 150 countries and every state in the United
States. On March 11, 2020, the World Health Organization declared the outbreak a pandemic, and on March 13, 2020, the
United States declared a national emergency.
The spread of the virus in many countries
continues to adversely impact global economic activity and has contributed to significant volatility and negative pressure in
financial markets. The pandemic has had, and could have a significantly greater, material adverse effect on the U.S.
economy as a whole, as well as the local economies where our properties are located. The pandemic has resulted, and may continue
to result for an extended period, in significant disruption of global financial markets, which may reduce our ability to access
capital in the future, which could negatively affect our liquidity.
Most states and cities, including where
are our properties are located, have reacted by instituting quarantines, restrictions on travel, “stay at home” rules
and restrictions on the types of businesses that may continue to operate, as well as guidance in response to the pandemic and
the need to contain it. These rules and restrictions have had a negative impact on the economy and business activity and may adversely
impact the ability of our tenants, many of whom may be restricted in their ability to work, to pay their rent as and when
due. In addition, our property managers may be limited in their ability to properly maintain our properties. Enforcing
our rights as landlord against tenants who fail to pay rent or otherwise do not comply with the terms of their leases
may not be possible as many jurisdictions, include those where are properties are located, have established rules and/or regulations
preventing us from evicting tenants for certain periods in response to the pandemic. If we are unable to enforce our rights as
landlords, our business would be materially affected.
If the current pace of the pandemic
cannot be slowed and the spread of the virus is not contained, our business operations could be further delayed or interrupted.
We expect that government and health authorities may announce new or extend existing restrictions, which could require us to make
further adjustments to our operations in order to comply with any such restrictions. The duration of any business disruption cannot
be reasonably estimated at this time but may materially affect our ability to operate our business and result in additional costs.
The extent to which the pandemic may
impact our results will depend on future developments, which are highly uncertain and cannot be predicted as of the date of this
offering circular, including new information that may emerge concerning the severity of the pandemic and steps taken
to contain the pandemic or treat its impact, among others. Nevertheless, the pandemic and the current financial, economic
and capital markets environment present material uncertainty and risk with respect to our performance, financial condition, results
of operations and cash flows.
We may not be able to obtain adequate
cash to fund our business.
Our business requires access to adequate
cash to finance our operations, distributions, capital expenditures, debt service obligations, development and redevelopment costs
and property acquisition costs, if any. We expect to generate the cash to be used for these purposes primarily with operating
cash flow, borrowings under secured and unsecured loans, proceeds from sales of strategically identified assets and, when market
conditions permit, through the issuance of debt and equity securities from time to time. We may not be able to generate sufficient
cash to fund our business, particularly if we are unable to renew leases, lease vacant space or re-lease space as leases expire
according to our expectations.
General economic conditions and
the concentration of our properties in Georgia, North Carolina, South Carolina, and Tennessee may affect our ability to generate
sufficient revenue.
The market and economic conditions in
our current markets may significantly affect manufactured housing occupancy or rental rates. Occupancy and rental rates, in turn,
may significantly affect our revenues, and if our communities do not generate revenues sufficient to meet our operating expenses,
including debt service and capital expenditures, current cash flow and ability to pay or refinance our debt obligations could
be adversely affected. As a result of the current geographic concentration of our properties in Georgia, North Carolina, South
Carolina and Tennessee, we are exposed to the risks of downturns in the local economy or other local real estate market conditions
that could adversely affect occupancy rates, rental rates, and property values in these markets.
Other factors that may affect general
economic conditions or local real estate conditions include:
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the national and local economic
climate which may be adversely affected by, among other factors, plant closings, and
industry slowdowns;
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local real estate market
conditions such as the oversupply of manufactured home sites or a reduction in demand
for manufactured home sites in an area;
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the number of repossessed
homes in a particular market;
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the lack of an established
dealer network;
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●
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the rental market which may
limit the extent to which rents may be increased to meet increased expenses without decreasing
occupancy rates;
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the safety, convenience and
attractiveness of our properties and the neighborhoods where they are located;
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●
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zoning or other regulatory
restrictions;
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competition from other available
manufactured housing communities and alternative forms of housing (such as apartment
buildings and single-family homes);
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our ability to provide adequate
management, maintenance and insurance;
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increased operating costs,
including insurance premiums, real estate taxes and utilities; and
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●
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the enactment of rent control
laws or laws taxing the owners of manufactured homes.
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Our income would also be adversely affected
if tenants were unable to pay rent or if sites were unable to be rented on favorable terms. If we were unable to promptly renew
the leases for a significant number of sites, or if the rental rates upon such renewal or reletting were significantly lower than
expected rates, then our business and results of operations could be adversely affected. In addition, certain expenditures associated
with each property (such as real estate taxes and maintenance costs) generally are not reduced when circumstances cause a reduction
in income from the property.
We face risks generally associated
with our debt.
We finance a portion of our investments
in properties through debt. As of December 31, 2019, our total indebtedness for borrowed money was $31,520,782. We are subject
to the risks normally associated with debt financing, including the risk that our cash flow will be insufficient to meet required
payments of principal and interest. In addition, debt creates other risks, including:
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failure to repay or refinance
existing debt as it matures, which may result in forced disposition of assets on disadvantageous
terms;
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●
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refinancing terms less favorable
than the terms of existing debt; and
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●
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failure to meet required
payments of principal and/or interest.
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We face risks related to “balloon
payments” and re-financings.
Certain of our mortgages will have significant
outstanding principal balances on their maturity dates, commonly known as “balloon payments.” As of December 31, 2019,
our total future minimum principal payments were $28,992,853. There can be no assurance that we will be able to refinance the
debt on favorable terms or at all. To the extent we cannot refinance debt on favorable terms or at all, we may be forced to dispose
of properties on disadvantageous terms or pay higher interest rates, either of which would have an adverse impact on our financial
performance and ability to service debt and make distributions.
We may become more highly leveraged,
resulting in increased risk of default on our obligations and an increase in debt service requirements that could adversely affect
our financial condition and results of operations and our ability to pay distributions.
We have incurred, and may continue to
incur, indebtedness in furtherance of our activities. We could become more highly leveraged, resulting in an increased risk of
default on our obligations and in an increase in debt service requirements, which could adversely affect our financial condition
and results of operations and our ability to pay distributions to stockholders.
Covenants in our credit agreements
could limit our flexibility and adversely affect our financial condition.
The terms of our various credit agreements
and other indebtedness require us to comply with a number of customary financial and other covenants, such as maintaining debt
service coverage and leverage ratios and maintaining insurance coverage. These covenants may limit our flexibility in our operations,
and breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness even if we
had satisfied our payment obligations. If we were to default under our credit agreements, our financial condition would be adversely
affected.
A change in the United States government
policy regarding to the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie
Mac) could impact our financial condition.
Fannie Mae and Freddie Mac are a major
source of financing for the manufactured housing real estate sector. We could depend on Fannie Mae and Freddie Mac to finance
growth by purchasing or guarantying manufactured housing community loans. In February 2011, the Obama Administration released
a report to Congress that included options, among others, to gradually shrink and eventually shut down Fannie Mae and Freddie
Mac. We do not know when or if Fannie Mae or Freddie Mac will restrict their support of lending to our real estate sector or to
us in particular. A final decision by the government to eliminate Fannie Mae or Freddie Mac or reduce their acquisitions or guarantees
of our mortgage loans, may adversely affect interest rates, capital availability and our ability to refinance our existing mortgage
obligations as they come due and obtain additional long-term financing for the acquisition of additional communities on favorable
terms or at all.
We face risks relating to the property
management services that we provide.
There are inherent risks in our providing
property management services to the manufactured housing communities on the properties that we own. The more significant of these
risks include:
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our possible liability for
personal injury or property damage suffered by our employees and third parties, including
our tenants, that are not fully covered by our insurance;
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our possible inability to
keep our manufactured housing communities at or near full occupancy;
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|
●
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our possible inability to
attract and keep responsible tenants;
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●
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our possible inability to
expediently remove “bad” tenants from our communities;
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●
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our possible inability to
timely and satisfactorily deal with complaints of our tenants;
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●
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our possible inability to
locate, hire and retain qualified property management personnel; and
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●
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our possible inability to
adequately control expenses with respect to our properties.
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We may not be able to integrate
or finance our acquisitions and our acquisitions may not perform as expected.
We acquire and intend to continue to acquire
manufactured housing communities on a select basis. Our acquisition activities and their success are subject to the following
risks:
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●
|
we may be unable to acquire
a desired property because of competition from other well capitalized real estate investors,
including both publicly traded REITs and institutional investment funds;
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|
●
|
even if we enter into an
acquisition agreement for a property, it is usually subject to customary conditions for
closing, including completion of due diligence investigations to our satisfaction, which
may not be satisfied;
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|
●
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even if we are able to acquire
a desired property, competition from other real estate investors may significantly increase
the purchase price;
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|
●
|
we may be unable to finance
acquisitions on favorable terms;
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|
●
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acquired properties may fail
to perform as expected;
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|
●
|
acquired properties may be
located in new markets where we face risks associated with a lack of market knowledge
or understanding of the local economy, lack of business relationships in the area and
unfamiliarity with local governmental and permitting procedures; and
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|
●
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we may be unable to quickly
and efficiently integrate new acquisitions, particularly acquisitions of portfolios of
properties, into our existing operations.
|
If any of the above were to occur, our
business and results of operations could be adversely affected.
In addition, we may acquire properties
subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities. As a result,
if a liability were to be asserted against us based on ownership of those properties, we might have to pay substantial sums to
settle it, which could adversely affect our cash flow.
New acquisitions may fail to perform
as expected and the intended benefits may not be realized, which could have a negative impact on our operations.
We intend to continue to acquire manufactured
housing communities. However, newly acquired properties may fail to perform as expected and could pose risks for our ongoing operations
including the following:
|
●
|
integration may prove costly
or time-consuming and may divert management’s attention from the management of
daily operations;
|
|
●
|
difficulties or an inability
to access capital or increases in financing costs;
|
|
●
|
we may incur costs and expenses
associated with any undisclosed or potential liabilities;
|
|
●
|
unforeseen difficulties may
arise in integrating an acquisition into our portfolio;
|
|
●
|
expected synergies may not
materialize; and
|
|
●
|
we may acquire properties
in new markets where we face risks associated with lack of market knowledge such as understanding
of the local economy, the local governmental and/or local permit procedures.
|
As a result of the foregoing, we may not
accurately estimate or identify all costs necessary to bring an acquired manufactured housing communities up to standards established
for our intended market position. As such, we cannot provide assurance that any acquisition that we make will be accretive to
us in the near term or at all. Furthermore, if we fail to realize the intended benefits of an acquisition, it may have a negative
impact on our operations.
Development and expansion properties
may fail to perform as expected and the intended benefits may not be realized, which could have a negative impact on our operations.
We may periodically consider development
and expansion activities, which are subject to risks such as construction costs exceeding original estimates and construction
and lease-up delays resulting in increased construction costs and lower than expected revenues. Additionally, there can be no
assurance that these properties will operate better as a result of development or expansion activities due to various factors,
including lower than anticipated occupancy and rental rates causing a property to be unprofitable or less profitable than originally
estimated.
We regularly expend capital to maintain,
repair and renovate our properties, which could negatively impact our financial condition and results of operations.
We may, or we may be required to, from
time to time make significant capital expenditures to maintain or enhance the competitiveness of our manufactured housing communities.
There can be no assurances that any such expenditures would result in higher occupancy or higher rental rates.
We may be unable to sell properties
when appropriate because real estate investments are illiquid.
Real estate investments generally cannot
be sold quickly and, therefore, will tend to limit our ability to vary our property portfolio promptly in response to changes
in economic or other conditions. The inability to respond promptly to changes in the performance of our property portfolio could
adversely affect our financial condition and ability to service our debt and make distributions to our stockholders.
We may be unable to compete with
our larger competitors, which may in turn adversely affect our profitability.
The real estate business is highly competitive.
We compete for manufactured housing community investments with numerous other real estate entities, such as individuals, corporations,
REITs, and other enterprises engaged in real estate activities. In many cases, the competing concerns may be larger and better
financed than we are, making it difficult for us to secure new manufactured housing community investments. Competition among private
and institutional purchasers of manufactured housing community investments has led to increases in the purchase prices paid for
manufactured housing communities and consequent higher fixed costs. To the extent we are unable to effectively compete in the
marketplace, our business may be adversely affected.
Actions by our competitors may decrease
or prevent increases in the occupancy and rental rates of our properties which could adversely affect our business.
We compete with other owners and operators
of manufactured housing community properties, some of whom own properties similar to ours in the same submarkets in which our
properties are located. The number of competitive manufactured housing community properties in a particular area could have a
material adverse effect on our ability to lease sites and increase rents charged at our properties or at any newly acquired properties.
In addition, other forms of multi-family residential properties, such as private and federally funded or assisted multi-family
housing projects and single-family housing, provide housing alternatives to potential tenants of manufactured housing communities.
If our competitors offer housing at rental rates below current market rates or below the rental rates we currently charge our
tenants, we may lose potential tenants, and we may be pressured to reduce our rental rates below those we currently charge in
order to retain tenants when our tenants’ leases expire. As a result, our financial condition, cash flow, cash available
for distribution, and ability to satisfy our debt service obligations could be materially adversely affected.
Losses in excess of our insurance
coverage or uninsured losses could adversely affect our cash flow.
We generally maintain insurance policies
related to our business, including casualty, general liability and other policies covering business operations, employees and
assets. However, we may be required to bear all losses that are not adequately covered by insurance. In addition, there are certain
losses that are not generally insured because it is not economically feasible to insure against them, including losses due to
riots or acts of war. If an uninsured loss or a loss in excess of insured limits occurs with respect to one or more of our properties,
then we could lose the capital we invested in the properties, as well as the anticipated profits and cash flow from the properties
and, in the case of debt that carries recourse to us, we would remain obligated for any mortgage debt or other financial obligations
related to the properties. Although we believe that our insurance programs are adequate, no assurance can be given that we will
not incur losses in excess of its insurance coverage, or that we will be able to obtain insurance in the future at acceptable
levels and reasonable cost.
Costs associated with taxes and
regulatory compliance may reduce our revenue.
We are subject to significant regulation
that inhibits our activities and may increase our costs. Local zoning and use laws, environmental statutes and other governmental
requirements may restrict expansion, rehabilitation and reconstruction activities. These regulations may prevent us from taking
advantage of economic opportunities. Legislation such as the Americans with Disabilities Act may require us to modify our properties
at a substantial cost and noncompliance could result in the imposition of fines or an award of damages to private litigants. Future
legislation may impose additional requirements. We cannot predict what requirements may be enacted or amended or what costs we
will incur to comply with such requirements. Costs resulting from changes in real estate laws, income taxes, service or other
taxes may adversely affect our funds from operations and our ability to pay or refinance our debt. Similarly, changes in laws
increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges
or other conditions may result in significant unanticipated expenditures, which would adversely affect our business and results
of operations.
Rent control legislation may harm
our ability to increase rents.
State and local rent control laws in certain
jurisdictions may limit our ability to increase rents and to recover increases in operating expenses and the costs of capital
improvements. We may purchase additional properties in markets that are either subject to rent control or in which rent-limiting
legislation exists or may be enacted.
Environmental liabilities could
affect our profitability.
Under various federal, state and local
laws, as well as local ordinances and regulations, an owner or operator of real estate is liable for the costs of removal or remediation
of certain hazardous substances at, on, under or in such property, as well as certain other potential costs relating to hazardous
or toxic substances. Such laws often impose such liability without regard to whether the owner knew of, or was responsible for,
the presence of such hazardous substances. A conveyance of the property, therefore, does not relieve the owner or operator from
liability. As a current or former owner and operator of real estate, we may be required by law to investigate and clean up hazardous
substances released at or from the properties we currently own or operate or have in the past owned or operated. We may also be
liable to the government or to third parties for property damage, investigation costs and cleanup costs. In addition, some environmental
laws create a lien on the contaminated site in favor of the government for damages and costs the government incurs in connection
with the contamination. Contamination may adversely affect our ability to sell or lease real estate or to borrow using the real
estate as collateral. Persons who arrange for the disposal or treatment of hazardous substances also may be liable for the costs
of removal or remediation of such substances at a disposal or treatment facility owned or operated by another person. In addition,
certain environmental laws impose liability for the management and disposal of asbestos-containing materials and for the release
of such materials into the air. These laws may provide for third parties to seek recovery from owners or operators of real properties
for personal injury associated with asbestos-containing materials. In connection with the ownership, operation, management, and
development of real properties, we may be considered an owner or operator of such properties and, therefore, are potentially liable
for removal or remediation costs, and also may be liable for governmental fines and injuries to persons and property. When we
arrange for the treatment or disposal of hazardous substances at landfills or other facilities owned by other persons, we may
be liable for the removal or remediation costs at such facilities. We are not aware of any environmental liabilities relating
to our investment properties that would have a material adverse effect on our business, assets, or results of operations. However,
we cannot assure you that environmental liabilities will not arise in the future and that such liabilities will not have a material
adverse effect on our business, assets or results of operation.
Of the twenty manufactured housing communities
we currently operate, five are on well and septic systems. At these locations, we are subject to compliance with monthly, quarterly
and yearly testing for contaminants as outlined by each state’s Department of Environmental Protection Agencies. Currently,
we are not subject to radon or asbestos monitoring requirements.
Additionally, in connection with the management
of the properties or upon acquisition or financing of a property, we authorize the preparation of Phase I or similar environmental
reports (which involves general inspections without soil sampling or ground water analysis) completed by independent environmental
consultants. Based on such environmental reports and our ongoing review of its properties, as of the date of this offering circular,
we are not aware of any environmental condition with respect to any of our properties that we believe would be reasonably likely
to have a material adverse effect on our financial condition or results of operations. These reports, however, cannot reflect
conditions arising after the studies were completed, and no assurances can be given that existing environmental studies reveal
all environmental liabilities, that any prior owner or operator of a property or neighboring owner or operator did not create
any material environmental condition not known to us, or that a material environmental condition does not otherwise exist with
respect to any one property or more than one property.
We are subject to risks arising
from litigation.
We may become involved in litigation.
Litigation can be costly, and the results of litigation are often difficult to predict. We may not have adequate insurance coverage
or contractual protection to cover costs and liability in the event we are sued, and to the extent we resort to litigation to
enforce our rights, we may incur significant costs and ultimately be unsuccessful or unable to recover amounts we believe are
owed to us. We may have little or no control of the timing of litigation, which presents challenges to our strategic planning.
We are dependent on key personnel.
Our executive and other senior officers
have a significant role in our success. Our ability to retain our management group or to attract suitable replacements should
any members of the management group leave depends on the competitive nature of the employment market. The loss of services from
key members of the management group or a limitation in their availability could adversely affect our financial condition and cash
flow. Further, such a loss could be negatively perceived in the capital markets.
Our management is inexperienced
in running a public entity.
With the exception of Michael Z. Anise,
our president, chief financial officer and a director, our management does not have prior experience with the operation and management
of a public entity. As a result, they will be learning as they proceed and may be forced to rely more heavily on the expertise
of outside professionals than they might otherwise, which in turn could lead to higher legal and accounting costs and possible
securities law compliance issues.
We have one stockholder that can
single-handedly control our company.
Our largest stockholder is Gvest Real
Estate Capital LLC, an entity whose sole owner is Raymond M. Gee, our chairman and chief executive officer. At present, Gvest
Real Estate Capital LLC owns 70% of our total issued and outstanding Common Stock. Under Nevada law, this ownership position provides
Mr. Gee with the almost unrestricted ability to control the business, management and strategic direction of our company. If Mr.
Gee chooses to exercise this control, his decisions regarding our company could be detrimental to, or not in the best interests
of our company and its other stockholders.
We have identified material weaknesses
in our internal control over financial reporting. If we fail to develop or maintain an effective system of internal controls,
we may not be able to accurately report our financial results and prevent fraud. As a result, current and potential stockholders
could lose confidence in our financial statements, which would harm the trading price of our Common Stock.
Companies that file reports with the SEC,
including us, are subject to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or SOX 404. SOX 404 requires management
to establish and maintain a system of internal control over financial reporting and annual reports on Form 10-K filed under the
Exchange Act to contain a report from management assessing the effectiveness of a company’s internal control over financial
reporting. Separately, under SOX 404, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, public
companies that are large accelerated filers or accelerated filers must include in their annual reports on Form 10-K an attestation
report of their regular auditors attesting to and reporting on management’s assessment of internal control over financial
reporting. Non-accelerated filers and smaller reporting companies, like us, are not required to include an attestation report
of their auditors in annual reports.
A report of our management is included
under Item 9A. “Controls and Procedures” of our annual report on Form 10-K for the year ended December 31, 2019. We
are a smaller reporting company and, consequently, are not required to include an attestation report of our auditor in our annual
report. However, if and when we become subject to the auditor attestation requirements under SOX 404, we can provide no assurance
that we will receive a positive attestation from our independent auditors.
During its evaluation of the effectiveness
of internal control over financial reporting as of December 31, 2019, management identified material weaknesses. These material
weaknesses were associated with (i) our lack of proper segregation of duties due to the limited number of employees within the
accounting department and (ii) our lack of effective closing procedures. We are undertaking remedial measures, which measures
will take time to implement and test, to address these material weaknesses. There can be no assurance that such measures will
be sufficient to remedy the material weaknesses identified or that additional material weaknesses or other control or significant
deficiencies will not be identified in the future. If we continue to experience material weaknesses in our internal controls or
fail to maintain or implement required new or improved controls, such circumstances could cause us to fail to meet our periodic
reporting obligations or result in material misstatements in our financial statements, or adversely affect the results of periodic
management evaluations and, if required, annual auditor attestation reports. Each of the foregoing results could cause investors
to lose confidence in our reported financial information and lead to a decline in our stock price.
Risks Related to this Offering and
Ownership of Our Series B Preferred Stock
There is no present market for the
Series B Preferred Stock and we have arbitrarily set the price.
We have arbitrarily set the price of the
Series B Preferred Stock with reference to the general status of the securities market and other relevant factors. The offering
price for the Series B Preferred Stock should not be considered an indication of the actual value of such securities and is not
based on our net worth or prior earnings. Although our Common Stock is quoted on the OTC Pink Market, our Series B Preferred Stock
will not be eligible for quotation on the over-the-counter market. Accordingly, it will be very difficult for you to liquidate
your shares of Series B Preferred Stock and we cannot assure you that the such securities could be resold by you at the price
you paid for them or at any other price.
Our Common Stock is eligible for
quotation on the OTC Pink Market but few quotations have been made and limited trading has occurred in our Common Stock. Due to
the lack of an active trading market for our securities, you may have difficulty selling any shares you purchase, which could
result in the loss of your investment.
There is presently no demand for our Common
Stock and no active public market exists for our Common Stock. Our Common Stock is eligible for quotation on the Pink Market operated
by OTC Markets Group. The Pink Market is a regulated quotation service that displays real-time quotes, last sale prices and volume
information in over-the-counter securities. The Pink Market is not an issuer listing service, market or exchange. The requirements
for quotation on the Pink Market are considerably lower and less regulated than those of an exchange. Because of this, it is possible
that fewer brokers or dealers will be interested in making a market in our Common Stock because the market for such securities
is more limited, the stocks are more volatile, and the risk to investors is greater, which may impact the liquidity of our Common
Stock. Even if an active market begins to develop in our Common Stock, the quotation of our Common Stock on the Pink Market may
result in a less liquid market available for existing and potential stockholders to trade Common Stock, could depress the trading
price of our Common Stock and could have a long-term adverse impact on our ability to raise capital in the future. If an active
market is never developed for our Common Stock, it will be difficult or impossible for you to sell any Common Stock you purchase.
We cannot assure you that we will
be able to pay dividends.
Our ability to pay dividends on our Series
B Preferred Stock is dependent on our ability to operate profitably and to generate cash from our operations and the operations
of our subsidiaries. We cannot guarantee that we will be able to pay dividends as required by the terms of our Series B Preferred
Stock.
We may issue additional debt and
equity securities, which are senior to our Series B Preferred Stock as to distributions and in liquidation, which could materially
adversely affect the value of the Series B Preferred Stock.
In the future, we may attempt to increase
our capital resources by entering into additional debt or debt-like financing that is secured by all or up to all of our assets,
or issuing debt or equity securities, which could include issuances of commercial paper, medium-term notes, senior notes, subordinated
notes or shares. In the event of our liquidation, our lenders and holders of our debt securities would receive a distribution
of our available assets before distributions to our shareholders. Any preferred securities, if issued by our company, may have
a preference with respect to distributions and upon liquidation that is senior to the preference of the Series B Preferred Stock,
which could further limit our ability to make distributions to our shareholders. Because our decision to incur debt and issue
securities in our future offerings will depend on market conditions and other factors beyond our control, we cannot predict or
estimate the amount, timing or nature of our future offerings and debt financing.
Further, market conditions could require
us to accept less favorable terms for the issuance of our securities in the future. Thus, you will bear the risk of our future
offerings reducing the value of your Series B Preferred Stock. In addition, we can change our leverage strategy from time to time
without approval of holders of our preferred stock or Common Stock, which could materially adversely affect the value of our preferred
stock, including the Series B Preferred Stock.
You will not have a vote or influence
on the management of our company.
All decisions with respect to the management
of our company will be made exclusively by the officers, directors, managers or employees of our company. You, as an investor
in our Series B Preferred Stock, have very limited voting rights and will have no ability to vote on issues of company management
and will not have the right or power to take part in the management of the company and will not be represented on the board of
directors of our company. Accordingly, no person should purchase our Series B Preferred Stock unless he or she is willing to entrust
all aspects of management to our company.
USE OF PROCEEDS
We estimate that
we will receive net proceeds of approximately $9,185,000 if the maximum number of shares of Series B Preferred Stock being offered
are sold after deducting the estimated underwriting discount and estimated offering expenses payable by us.
The following table below sets forth the
uses of proceeds assuming the sale of 25%, 50%, 75% and 100% of the securities offered for sale in this offering by us. For further
discussion, see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
|
|
25% of Offering Sold
|
|
|
50% of Offering Sold
|
|
|
75% of Offering Sold
|
|
|
100% of Offering Sold
|
|
Offering Proceeds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Sold
|
|
|
250,000
|
|
|
|
500,000
|
|
|
|
750,000
|
|
|
|
1,000,000
|
|
Gross Proceeds
|
|
$
|
2,500,000
|
|
|
$
|
5,000,000
|
|
|
$
|
7,500,000
|
|
|
$
|
10,000,000
|
|
Underwriting Commissions (7%)
|
|
|
175,000
|
|
|
|
350,000
|
|
|
|
525,000
|
|
|
|
700,000
|
|
Net Proceeds Before Expenses
|
|
|
2,325,000
|
|
|
|
4,650,000
|
|
|
|
6,975,000
|
|
|
|
9,300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offering Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriter Expenses
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
30,000
|
|
Legal & Accounting
|
|
|
70,000
|
|
|
|
70,000
|
|
|
|
70,000
|
|
|
|
70,000
|
|
Publishing/EDGAR
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
5,000
|
|
Transfer Agent
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
5,000
|
|
Blue Sky Compliance
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
5,000
|
|
Total Offering Expenses
|
|
|
115,000
|
|
|
|
115,000
|
|
|
|
115,000
|
|
|
|
115,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Offering Proceeds Available for Use
|
|
|
2,210,000
|
|
|
|
4,535,000
|
|
|
|
6,860,000
|
|
|
|
9,185,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of manufactured housing communities and related transactional expenses
|
|
|
2,210,000
|
|
|
|
4,535,000
|
|
|
|
6,860,000
|
|
|
|
9,185,000
|
|
Total Expenditures
|
|
|
2,210,000
|
|
|
|
4,535,000
|
|
|
|
6,860,000
|
|
|
|
9,185,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Remaining Proceeds
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
As of the date of this offering circular
and except as explicitly set forth herein, we cannot specify with certainty all of the particular uses of the net proceeds from
this offering. Pending use of the net proceeds from this offering as described above, we may invest the net proceeds in short-term
interest-bearing investment grade instruments.
The expected use of net proceeds from
this offering represents our intentions based upon our current plans and business conditions, which could change in the future
as our plans and business conditions evolve and change. The amounts and timing of our actual expenditures, specifically with respect
to working capital, may vary significantly depending on numerous factors. As a result, our management will retain broad discretion
over the allocation of the net proceeds from this offering.
The above description of the anticipated
use of proceeds is not binding on us and is merely description of our current intentions. We reserve the right to change the
above use of proceeds if management believes it is in the best interests of our company.
DETERMINATION
OF OFFERING PRICE
There is no
trading market for our Series B Preferred Stock and we do not expect any trading market to develop for the Series B Preferred
Stock. The Series B Preferred Stock will be sold at $10.00 per share and it is expected that after November 29, 2024 (the
fifth anniversary of the initial closing of this offering) we will either exercise our right to call the Series B Preferred
Stock for redemption at a call price equal to 150% of such original issue price of the Series B Preferred Stock, or that
holders of the Series B Preferred Stock will exercise their right to put their shares of Series B Preferred Stock to us at
150% of such original issue price of the Series B Preferred Stock. Accordingly, the $10.00 price per share of Series B
Preferred Stock is arbitrary and represents the amount of investment made by an investor for purposes of determining the
redemption price upon a put or call (i.e., the redemption price will be 150% of the purchase price or $15.00 per share of
Series B Preferred Stock).
DIVIDEND POLICY
Dividends on the Series B Preferred Stock
being offered will be cumulative and payable monthly in arrears to all holders of record on the applicable record date. Holders
of our Series B Preferred Stock will be entitled to receive cumulative dividends in the amount of $0.067 per share each month,
which is equivalent to the annual rate of 8% of the $10.00 liquidation preference per share; provided that upon an event of default
(generally defined as our failure to pay dividends when due or to redeem shares when requested by a holder), such amount shall
be increased to $0.083 per month, which is equivalent to the annual rate of 10% of the $10.00 liquidation preference per share.
Dividends on shares of our Series B Preferred Stock will continue to accrue even if any of our agreements prohibit the current
payment of dividends or we do not have earnings.
Our anticipated source of funds to pay
the cumulative dividends for our Series B Preferred Stock will be from net operating income, retained earnings and the proceeds
of the refinancing our other indebtedness. We believe that our net operating income will increase as we deploy the funds
raised in this offering in a manner consistent with the use of proceeds described in this offering circular. We expect that
our retained earnings will increase as we increase net operating income and we expect to refinance other indebtedness on our properties
based upon our increased net operating income and then use the proceeds of such refinancings along with our retained earnings
to repay investors.
See also “Risk Factors—Risks
Related to this Offering and Ownership of Our Series B Preferred Stock—We cannot assure you that we will be able to pay
dividends.”
Dividends on our Series A Preferred Stock
are cumulative and payable monthly in arrears to all holders of record on the applicable record date. Holders of our Series A
Preferred Stock will be entitled to receive cumulative dividends in the amount of $0.017 per share each month, which is equivalent
to the rate of 8% of the $2.50 liquidation preference per share. Dividends on shares of our Series A Preferred Stock will continue
to accrue even if any of our agreements prohibit the current payment of dividends or we do not have earnings.
We have never declared dividends or paid
cash dividends on our Common Stock. Our board of directors will make any future decisions regarding dividends. We currently intend
to retain and use any future earnings for the development and expansion of our business and do not anticipate paying any cash
dividends in the near future. Our board of directors has complete discretion on whether to pay dividends. Even if our board of
directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital
requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors
may deem relevant.
MARKET FOR COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our Common Stock is eligible for quotation
on the OTC Pink Market under the symbol “MHPC.” The following table sets forth, for the periods indicated, the high
and low closing prices of our Common Stock. These prices reflect inter-dealer prices, without retain mark-up or commission, and
may not represent actual transactions.
|
|
Closing Prices
|
|
|
|
High
|
|
|
Low
|
|
Fiscal Year Ended December 31, 2018
|
|
|
|
|
|
|
1st Quarter
|
|
$
|
5.40
|
|
|
$
|
1.20
|
|
2nd Quarter
|
|
|
1.20
|
|
|
|
0.51
|
|
3rd Quarter
|
|
|
1.04
|
|
|
|
0.30
|
|
4th Quarter
|
|
|
1.00
|
|
|
|
0.30
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended December 31, 2019
|
|
|
|
|
|
|
|
|
1st Quarter
|
|
$
|
1.00
|
|
|
$
|
1.00
|
|
2nd Quarter
|
|
|
1.00
|
|
|
|
1.00
|
|
3rd Quarter
|
|
|
4.15
|
|
|
|
0.85
|
|
4th Quarter
|
|
|
4.50
|
|
|
|
2.70
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended December 31, 2020
|
|
|
|
|
|
|
|
|
1st Quarter
|
|
$
|
2.71
|
|
|
$
|
0.40
|
|
2nd Quarter (through April 28, 2020)
|
|
|
1.25
|
|
|
|
0.59
|
|
Holders
As of April 28, 2020, there were approximately
204 registered holders of our Common Stock. This number excludes the shares owned by stockholders holding shares under nominee
security position listings.
Securities Authorized for Issuance
Under Equity Compensation Plans
The following table sets forth certain
information about the securities authorized for issuance under our incentive plans as of December 31, 2019.
Plan Category
|
|
Number
of securities to be issued upon exercise of outstanding options, warrants and rights
(a)
|
|
|
Weighted-average
exercise price of outstanding options, warrants and rights
(b)
|
|
|
Number
of securities remaining available for future issuance under equity compensation plans
(excluding securities reflected in column (a))
(c)
|
|
Equity compensation plans approved by security holders
|
|
|
565,175
|
|
|
$
|
0.03
|
|
|
|
165,500
|
|
Equity compensation plans not approved by security holders
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
565,175
|
|
|
$
|
0.03
|
|
|
|
165,500
|
|
In December 2017, our board of directors,
with the approval of a majority of stockholders, adopted a Stock Compensation Plan. The Stock Compensation Plan provides for grants
stock options and other forms of incentive compensation to officers, employees, directors, advisors or consultants of our company
or its subsidiaries. We are authorized to issue up to 1,000,000 shares of Common Stock under this plan.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following management’s discussion
and analysis of financial condition and results of operations provides information that management believes is relevant to an
assessment and understanding of our plans and financial condition. The following selected financial information is derived
from our historical financial statements should be read in conjunction with such financial statements and notes thereto set forth
elsewhere herein and the “Cautionary Note Regarding Forward-Looking Statements” explanation included herein.
Overview
We are a self-administered, self-managed,
vertically integrated owner and operator of manufactured housing communities. We earn income from leasing manufactured home sites
to tenants who own their own manufactured home and the rental of company-owned manufactured homes to residents of the communities.
As of December 31, 2019, we owned and
operated 18 manufactured housing communities containing approximately 1,133 developed sites and a total of 307 company-owned manufactured
homes.
We believe that manufactured housing is
accepted by the public as a viable and economically attractive alternative to common stick-built single-family housing. We believe
that the affordability of the modern manufactured home makes it a very attractive housing alternative. Manufactured housing is
one of the only non-subsidized affordable housing options in the U.S. Demand for housing affordability continues to increase,
but supply remains static, as there are virtually no new manufactured housing communities being developed. We are committed to
becoming an industry leader in providing this affordable housing option and an improved level of service to our residents, while
producing an attractive and stable risk adjusted return to our investors.
Recent Developments
Impact of Coronavirus
Pandemic
In December 2019, a novel strain of coronavirus
was reported to have surfaced in Wuhan, China. The virus has since spread to over 150 countries and every state in the United
States. On March 11, 2020, the World Health Organization declared the outbreak a pandemic, and on March 13, 2020, the
United States declared a national emergency.
Most states and cities, including where
our properties are located, have reacted by instituting quarantines, restrictions on travel, “stay at home” rules
and restrictions on the types of businesses that may continue to operate, as well as guidance in response to the pandemic and
the need to contain it.
We are carefully reviewing all rules,
regulations, and orders and responding accordingly. We have taken steps to take care of our employees, including providing the
ability for employees to work remotely and implementing strategies to support appropriate social distancing techniques for those
employees who are not able to work remotely. We have also taken precautions with regard to employee, facility and office hygiene
as well as implementing significant travel restrictions. We are also assessing our business continuity plans for all business
units in the context of the pandemic. This is a rapidly evolving situation, and we will continue to monitor and mitigate developments
affecting our workforce, our tenants, and the public at large to the extent we are able to do so.
The rules and restrictions put in place
have had a negative impact on the economy and business activity and may adversely impact the ability of our tenants, many
of whom may be restricted in their ability to work, to pay their rent as and when due. In addition, our property managers
may be limited in their ability to properly maintain our properties. Enforcing our rights as landlord against tenants who
fail to pay rent or otherwise do not comply with the terms of their leases may not be possible as many jurisdictions, including
those where are properties are located, have established rules and/or regulations preventing us from evicting tenants for certain
periods in response to the pandemic. If we are unable to enforce our rights as landlords, our business would be materially affected.
If the current pace of the pandemic
cannot be slowed and the spread of the virus is not contained, our business operations could be further delayed or interrupted.
We expect that government and health authorities may announce new or extend existing restrictions, which could require us to make
further adjustments to our operations in order to comply with any such restrictions. The duration of any business disruption cannot
be reasonably estimated at this time but may materially affect our ability to operate our business and result in additional costs.
The extent to which the pandemic may
impact our results will depend on future developments, which are highly uncertain and cannot be predicted as of the date of this
offering circular, including new information that may emerge concerning the severity of the pandemic and steps taken
to contain the pandemic or treat its impact, among others. Nevertheless, the pandemic and the current financial, economic
and capital markets environment present material uncertainty and risk with respect to our performance, financial condition, results
of operations and cash flows. See also “Risk Factors” below.
Additional Closings of Regulation
A Offering
Subsequent to December 31, 2019, we
sold an aggregate of 92,640 shares of Series B Preferred Stock for total gross proceeds of $956,400 in this offering. After
deducting a placement fee, we received net proceeds of approximately $889,452. We also issued 3,900 shares of Common Stock to
early investors.
Countryside Acquisition
On January 7, 2020, MHP Pursuits LLC,
our wholly-owned subsidiary, entered into a purchase and sale agreement with J & A Real Estate LLC, or J&A, for the purchase
of a manufactured housing community known as Countryside Estates Mobile Home Park, which is located in Lancaster, North Carolina
and totals 110 sites, for a total purchase price of $3.7 million. On March 12, 2020, the closing was completed and our newly formed
wholly owned subsidiary Countryside MHP LLC, or Countryside, purchased the property.
In connection with the closing, on March
12, 2020, Countryside issued a promissory note to J&A in the principal amount of $3,000,000. The remainder of the purchase
price, or $700,000, was paid in cash. The note bears interest at the rate of 5.5% per annum, or the maximum rate allowed by applicable
law, and is due and payable in full on March 20, 2050. Payments for the first twelve (12) months of the term of the note shall
be interest-only in the amount of $13,750 per month. Thereafter, principal and interest, in the amount of $17,201 per month, shall
be due and payable based upon a thirty (30) year amortization. If any monthly payment is not received by J&A within fifteen
(15) days after the applicable due date, Countryside must pay a late charge in an amount equal to the delinquent amount then due
multiplied by 4%. Countryside may prepay the note, in whole or in party, at any time without penalty.
The note also contains customary events
of default, including: (i) if Countryside shall be in default in the payment of any principal, interest or other amount due under
the note and such default shall not be cured within five (5) days after written notice from J&A; (ii) if Countryside shall
be in default in the performance of any non-monetary obligation in the note and such default shall not be cured within thirty
(30) days after written notice from J&A; or (iii) if Countryside shall default in the due observation or performance of any
covenant, condition or agreement contained in the mortgage described below and such default shall not be cured within thirty (30)
days after written notice from J&A. Upon the occurrence of an event of default, interest on the aggregate outstanding indebtedness
(including accrued interest) of the note shall increase to 5.5% per annum plus the U.S. Prime Rate as measured and reported by
the Wall Street Journal and in effect on the date of default, until such aggregate indebtedness is paid in full.
The note is secured by a mortgage, assignment
of rents and leases, security agreement and fixture filing with respect to the property. The mortgage contains customary representations,
warranties and covenants by Countryside and remedies upon an event of default under the note.
Evergreen Acquisition
On January 1, 2020, MHP Pursuits LLC,
our wholly-owned subsidiary, entered into a purchase and sale agreement with Evergreen Marketing LLC for the purchase of a manufactured
housing community known as Evergreen Pointe Mobile Home Park, which is located in Dandridge, Tennessee and totals 65 sites, for
a total purchase price of $1,438,000. On March 17, 2020, the closing was completed and our newly formed wholly owned subsidiary
Evergreen MHP LLC, or Evergreen, purchased the property.
In connection with the closing, on March
17, 2020, Evergreen entered into a loan agreement with Hunt Mortgage Capital, LLC, or the Lender, for a loan in the principal
amount of $1,150,000 and Evergreen issued a promissory note to the Lender in the principal amount of $1,150,000. The remainder
of the purchase price, or $288,000, was paid in cash.
The note bears interest at a rate of 3.99%
per annum and is due and payable on April 1, 2032. The monthly payments under the note are equal to $5,483.65. If any monthly
payment is not received by the Lender within ten (10) days after the applicable due date, Evergreen must pay a late charge in
an amount equal to the delinquent amount then due multiplied by 5%. Furthermore, if any payment remains past due for thirty (30)
days or more, interest on such unpaid amounts shall accrue at the lesser of 7.99% or the maximum rate allowed by applicable law.
Evergreen may prepay the note in full, but not in part, at any time if it pays a prepayment premium calculated in accordance with
the loan agreement.
The note is secured by the property and
guaranteed by Mr. Raymond M. Gee, our Chief Executive Officer, Gvest Capital Real Estate LLC, an entity controlled by Mr. Gee,
and our company (which we collectively refer to as the Guarantors).
The loan agreement was subject to customary
closing conditions and contains customary representations and warranties. The loan agreement also contains customary financial
and other covenants for a loan of this type. The loan agreement also contains customary events of default, some of which are subject
to cure periods as set forth in the loan agreement, including, but not limited to: (i) any failure by Evergreen to pay or deposit
when due any amount required by the note, the loan agreement or any other loan document (as defined in the loan agreement); (ii)
any failure by Evergreen to maintain the insurance coverage required by any loan document; (iii) if any warranty, representation,
certification, or statement of Evergreen or any Guarantor in the loan agreement or any of the other loan documents is false inaccurate,
or misleading in any material respect when made; (iv) the fraud, gross negligence, willful misconduct, or material misrepresentation
or material omission by or on behalf of Evergreen or any Guarantor or any of their officers, directors, trustees, partners, members,
or managers in connection with the application for, or creation of, the loan or any financial statement, rent roll, or other report
or information provided to Lender during the term of the loan; (v) the occurrence of any transfer (as defined in the loan agreement)
not permitted by the loan documents; (vi) the occurrence of a bankruptcy event (as defined in the loan agreement); (vii) if a
Guarantor is a natural person, the death of such individual, unless certain requirements set forth in the loan agreement are met;
(viii) the occurrence of a guarantor bankruptcy event (as defined in the loan agreement), unless certain requirements of the loan
agreement are met; (ix) any failure by Evergreen or a Guarantor to comply with certain covenants in the loan agreement; or (x)
any failure by Evergreen to perform any of its obligations under the loan agreement or any loan document as and when required.
Repayment of Metrolina Note
In February 2020, we repaid $1,000,000
of principal and accrued interest on the Metrolina promissory note referred to below.
Loan Refinancing
On April 1, 2020, we refinanced the loans
for Butternut MHP Land LLC described below with the existing lender to increase the loan amount to $1,388,019 and to extend the
maturity date to April 10, 2025. In addition, the interest rate was changed to 6% per annum, provided that on April 10, 2023 and
thereafter, the interest rate shall be equal to (i) the per annum rate of interest identified as the “Prime Rate”
as published in the monthly rates section of the Wall Street Journal plus (ii) 1% per annum, adjusted as the first day of each
calendar quarter. The loan, as modified, is secured by the real estate assets of Butternut MHP Land LLC and is guaranteed by our
company and Raymond M. Gee, who received a loan guarantee fee of $70,000.
Results of Operations
The following table sets forth key components
of our results of operations during the years ended December 31, 2019 and 2018.
|
|
Year Ended December 31,
|
|
|
Increase (Decrease)
|
|
|
|
2019
|
|
|
2018
|
|
|
Amount
|
|
|
Percent
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental and related income
|
|
$
|
2,968,472
|
|
|
$
|
1,975,312
|
|
|
$
|
986,382
|
|
|
|
50.28
|
%
|
Management fees, related party
|
|
|
48,319
|
|
|
|
4,000
|
|
|
|
44,319
|
|
|
|
1107.98
|
%
|
Homes sales
|
|
|
4,900
|
|
|
|
21,000
|
|
|
|
(16,100
|
)
|
|
|
(76.67
|
)%
|
Total revenues
|
|
|
3,021,691
|
|
|
|
2,000,312
|
|
|
|
1,014,601
|
|
|
|
50.65
|
%
|
Community operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repair and maintenance
|
|
|
234,770
|
|
|
|
135,131
|
|
|
|
92,860
|
|
|
|
73.74
|
%
|
Real estate taxes
|
|
|
142,187
|
|
|
|
81,024
|
|
|
|
61,163
|
|
|
|
75.49
|
%
|
Utilities
|
|
|
212,719
|
|
|
|
149,516
|
|
|
|
63,023
|
|
|
|
42.27
|
%
|
Insurance
|
|
|
83,975
|
|
|
|
54,079
|
|
|
|
29,896
|
|
|
|
55.28
|
%
|
General and administrative expense
|
|
|
476,137
|
|
|
|
256,631
|
|
|
|
219,506
|
|
|
|
85.53
|
%
|
Total community operating expenses
|
|
|
1,149,788
|
|
|
|
676,381
|
|
|
|
466,629
|
|
|
|
69.99
|
%
|
Corporate payroll and overhead
|
|
|
1,253,383
|
|
|
|
1,030,527
|
|
|
|
222,856
|
|
|
|
21.63
|
%
|
Depreciation and amortization expense
|
|
|
786,179
|
|
|
|
534,290
|
|
|
|
251,889
|
|
|
|
47.14
|
%
|
Interest expense
|
|
|
1,312,469
|
|
|
|
1,001,455
|
|
|
|
311,014
|
|
|
|
31.06
|
%
|
Refinancing costs
|
|
|
552,272
|
|
|
|
-
|
|
|
|
552,272
|
|
|
|
100.00
|
%
|
Total expenses
|
|
|
5,054,091
|
|
|
|
3,242,653
|
|
|
|
1,804,660
|
|
|
|
55.86
|
%
|
Net loss before provision for income taxes
|
|
|
(2,032,400
|
)
|
|
|
(1,242,341
|
)
|
|
|
(790,059
|
)
|
|
|
63.59
|
%
|
Provision for income taxes
|
|
|
6,347
|
|
|
|
8,286
|
|
|
|
(1,939
|
)
|
|
|
(23.40
|
)%
|
Net loss
|
|
$
|
(2,038,747
|
)
|
|
$
|
(1,250,627
|
)
|
|
$
|
(788,120
|
)
|
|
|
63.02
|
%
|
Net income attributable to the noncontrolling interest
|
|
|
-
|
|
|
|
45,766
|
|
|
|
(45,766
|
)
|
|
|
(100.00
|
)%
|
Net loss attributable to the Company
|
|
$
|
(2,038,747
|
)
|
|
$
|
(1,296,393
|
)
|
|
$
|
(742,354
|
)
|
|
|
57.26
|
%
|
Revenues. For the year ended
December 31, 2019, we had total revenues of $3,021,691, as compared to $2,000,312 for the year ended December 31, 2018, an increase
of $1,021,379, or 51.06%. The increase was primarily due to $867,180 of rental income from the acquisition of five manufactured
housing communities during 2019. The remaining increase was due to an average 7% increase in occupancy and rental rate increases,
and $4,900 related to home sales, and we also recorded $48,319 of property management revenues from a related party in 2019.
Community Operating Expenses.
For the year ended December 31, 2019, we had total community operating expenses of $1,149,788, as compared to $676,381 for the
year ended December 31, 2018, an increase of $473,407. The increase in community operating expenses was primarily due $319,072
of expenses from the acquisition of five manufactured housing communities during 2019. Excluding the acquisitions, our community
operating expenses increased resulting from an increase in repair and maintenance costs of $87,960 from prior year.
Corporate Payroll and Overhead Expenses.
For the year ended December 31, 2019, we had corporate payroll and overhead expenses of $1,253,383, as compared to $1,030,527
for the year ended December 31, 2018, an increase of $222,856, or 21.63%. This increase was primarily due to stock compensation
expense of $349,950 during 2019 compared to $171,500 during 2018.
Depreciation and Amortization Expense.
For the year ended December 31, 2019, we had depreciation and amortization expense of $786,179, as compared to $534,290 for the
year ended December 31, 2018, an increase of $251,889, or 47.14%. The increase was primarily due to the acquisition of five manufactured
housing communities during 2019.
Interest Expense. For the
year ended December 31, 2019, we had interest expense of $1,312,469, as compared to $1,001,455 for the year ended December 31,
2018, an increase of $311,014, or 31.06%. The increase was primarily related to the five additional loans related to the five
acquisitions of manufactured housing communities during 2019.
Refinancing Costs. During
the year ended December 31, 2019, we refinanced a total of $4,920,750 from our current loans payable to $8,241,000 of new notes
payable from five of our communities, resulting in an additional loan payable of $3,320,859. We used the additional loans payable
proceeds from the refinance to retire our related party note payable of $2,754,550 plus accrued interest. As of December 31, 2019,
we wrote off refinancing cost totaling $552,272.
Net Loss. The factors described
above resulted in a net loss of $2,038,747 for the year ended December 31, 2019, as compared to $1,296,393 for the year ended
December 31, 2018, an increase of $788,120, or 63.02%.
Liquidity and Capital Resources
As of December 31, 2019, we had cash and
cash equivalents of $4,146,411. The ability of our company to continue its operations is dependent on management’s plans,
which include the raising of capital through debt and/or equity markets with some additional funding from other traditional financing
sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements.
We will require additional funding to
finance the growth of our current and expected future operations as well as to achieve our strategic objectives. We believe that
our current available cash along with anticipated revenues may be insufficient to meet our cash needs for the near future. There
can be no assurance that financing will be available in amounts or terms acceptable to us, if at all.
Our working capital has been used in operating
activities, a related party revolving note and proceeds from our Regulation A offering described below. We plan to meet our short-term
liquidity requirements of approximately $1,577,513 for the next twelve months, generally through available cash as well as net
cash provided by operating activities and availability under the existing $1.5 million revolving note described below, of which
$797,906 was outstanding as of December 31, 2019. We also have availability from lenders under loan agreements for capital expenditure
needs on acquisitions. We expect these resources to help us meet operating working capital requirements.
Summary of Cash Flow
The following table provides detailed
information about our net cash flow for years ended December 31, 2019 and 2018:
Cash Flow
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Net cash provided by (used in) operating activities
|
|
$
|
(950,236
|
)
|
|
$
|
38,475
|
|
Net cash used in investing activities
|
|
|
(22,017,784
|
)
|
|
|
(210,247
|
)
|
Net cash provided by financing activities
|
|
|
26,656,160
|
|
|
|
274,108
|
|
Net increase in cash and cash equivalents
|
|
|
3,688,140
|
|
|
|
102,336
|
|
Cash and cash equivalents at beginning of period
|
|
|
458,271
|
|
|
|
355,935
|
|
Cash and cash equivalent at end of period
|
|
$
|
4,146,411
|
|
|
$
|
458,271
|
|
Net cash used in operating activities
was $950,236 for the year ended December 31, 2019, as compared to $38,475 net cash provided by operating activities for the year
ended December 31, 2018. For the year ended December 31, 2019, the net loss of $2,038,747, a decrease in other assets in the amount
of $457,540 due to lender’s escrowed funds held by lender at closing to be released back to us upon the completion of certain
capital improvement projects, offset by depreciation and amortization in the amount of $738,789, stock compensation expense in
the amount of $349,950, an increase in accounts payable of $156,315, and increase in security deposits $184,886, were the primary
drivers of the net cash used in operating activities. For the year ended December 31, 2018, the net loss of $1,250,627, offset
by depreciation and amortization in the amount of $534,290, an increase in accrued expenses in the amount of $476,459, and stock
compensation expense in the amount of $171,500, were the primary drivers of the net cash provided by operating activities.
Net cash used in investing activities
was $22,017,784 for the year ended December 31, 2019, as compared to $210,247 for the year ended December 31, 2018. Net cash used
in investing activities for the year ended December 31, 2019 consisted of $22,022,684 of the purchase of property, offset by proceeds
from sale of property in the amount of $4,900. Net cash used in investing activities for the year ended December 31, 2018 consisted
of the purchase of property in the amount of $231,247, offset by proceeds of sale of property in the amount of $21,000.
Net cash provided by financing activities
was $26,656,160 for the year ended December 31, 2019, as compared to $274,108 for the year ended December 31, 2018. For the year
ended December 31, 2019, net cash provided by financing activities consisted of proceeds from notes payable in the amount of $25,079,000,
proceeds from the issuance of preferred stock in the amount of $8,670,606, proceeds from line of credit in the amount of $2,695,000,
and proceeds from issuance of common stock in the amount of $72,875, offset by repayment of notes payable in the amount of $5,172,234,
repayment of line of credit in the amount of $3,719,550, capitalized financing costs of $608,541, repayments of related party
note of $99,801, and purchase of treasury stock in the amount of $119,337. For the year ended December 31, 2018, net cash provided
by financing activities consisted of proceeds from related party note in the amount of $448,750 and proceeds from note payables
in the amount of $117,014, offset by repayment of notes payable in the amount of $236,551 and non-controlling distributions in
the amount of $55,105.
Regulation A Offering
On November 1, 2019, we launched this
offering. As of December 31, 2019, we sold an aggregate of 409,722 shares of Series B Preferred Stock for total gross proceeds
of $4,097,220. After deducting a placement fee, we received net proceeds of approximately $3,796,673. We also issued 15,400 shares
of Common Stock to early investors in this offering with a fair value of $4,158.
Secured Promissory Notes
We have issued promissory notes payable
to lenders related to the acquisition of our manufactured housing communities. These promissory notes range from 4.5% to 7.0%
with 20 to 25 years principal amortization. Two of the promissory notes had an initial 6 months period on interest only payments.
The promissory notes are secured by the real estate assets and $3,004,119 for three assets were guaranteed by Raymond M. Gee,
our chairman, chief executive officer and owner of the principal stockholder of our company.
During the year ended December 31, 2019,
we refinanced a total of $4,940,750 from current loans payable to $8,241,000 of new notes payable from five of the communities,
resulting in an additional loan payable of $3,320,859. We used the additional loans payable proceeds from the refinance to retire
the related party note payable described below. As of December 31, 2019, we wrote off mortgage costs of $68,195 and capitalized
$275,519 of mortgage costs due to the refinancing.
As of December 31, 2019, the outstanding
balance on these notes was $28,992,876. The following are terms of these notes.
|
|
Maturity Date
|
|
Interest Rate
|
|
|
Balance 12/31/19
|
|
|
Balance 12/31/18
|
|
Butternut MHP Land LLC
|
|
03/30/20
|
|
|
6.500
|
%
|
|
$
|
1,114,819
|
|
|
$
|
1,134,971
|
|
Butternut MHP Land LLC Mezz
|
|
04/01/27
|
|
|
7.000
|
%
|
|
|
280,013
|
|
|
|
287,086
|
|
Pecan Grove MHP LLC
|
|
11/04/26
|
|
|
4.500
|
%
|
|
|
3,095,274
|
|
|
|
1,270,577
|
|
Azalea MHP LLC
|
|
11/10/27
|
|
|
5.000
|
%
|
|
|
835,445
|
|
|
|
598,571
|
|
Holly Faye MHP LLC
|
|
10/01/38
|
|
|
4.000
|
%
|
|
|
574,096
|
|
|
|
462,328
|
|
Chatham MHP LLC
|
|
12/01/22
|
|
|
5.125
|
%
|
|
|
1,771,506
|
|
|
|
1,366,753
|
|
Lakeview MHP LLC
|
|
12/01/22
|
|
|
5.125
|
%
|
|
|
1,857,266
|
|
|
|
1,222,521
|
|
B&D MHP LLC
|
|
05/02/29
|
|
|
5.500
|
%
|
|
|
1,854,788
|
|
|
|
-
|
|
Hunt Club MHP LLC
|
|
05/01/24
|
|
|
5.750
|
%
|
|
|
1,447,364
|
|
|
|
-
|
|
Crestview MHP LLC
|
|
08/01/24
|
|
|
5.500
|
%
|
|
|
4,173,652
|
|
|
|
-
|
|
Springlake MHP LLC
|
|
11/14/22
|
|
|
4.500
|
%
|
|
|
4,000,000
|
|
|
|
-
|
|
ARC MHP LLC
|
|
01/01/30
|
|
|
5.500
|
%
|
|
|
5,300,000
|
|
|
|
-
|
|
Maple Hills MHP LLC
|
|
01/01/23
|
|
|
5.125
|
%
|
|
|
2,688,653
|
|
|
|
2,743,303
|
|
Totals note payables
|
|
|
|
|
|
|
|
|
28,992,876
|
|
|
|
9,086,100
|
|
Discount Direct Lender Fees
|
|
|
|
|
|
|
|
|
(692,454
|
)
|
|
|
(140,758
|
)
|
Total net of Discount
|
|
|
|
|
|
|
|
$
|
28,359,247
|
|
|
$
|
8,945,352
|
|
Metrolina Promissory Note
On May 8, 2017, we issued a promissory
note to Metrolina Loan Holdings, LLC, or Metrolina, in the principal amount of $3,000,000. The note is interest only payment based
on 8%, and 10% deferred until maturity to be paid with principal balance. The note originally awarded Metrolina 455,000 shares
of Common Stock as consideration, which resulted in making Metrolina a related party due to its significant ownership. During
the year ended December 31, 2019, we paid off the entire balance on the note of $2,754,550 plus interest and amended the agreement
to allow for the redeployment of the $3,000,000 available, eliminated the conversion option whereby Metrolina could convert the
ratio of total outstanding debt at time of exercise of the option into an amount of newly issued shares of our Common Stock determined
by dividing the outstanding indebtedness by $3,000,000 multiplied by 10% with a cap of 864,500 shares. The amendment resulted
in issuing an additional 545,000 shares with a fair value of $305,200 for a total of 1,000,000 shares awarded to Metrolina. The
note gives Metrolina the right and option to purchase its pro rata share of debt or equity securities issued to maintain up to
10% equity interest in our company at the most recent price of any equity transaction for seven years from the amendment dated
February 26, 2019. As of December 31, 2019, the balance on this note was $1,730,000. The note is guaranteed by Mr. Gee.
Revolving Promissory Note
On October 1, 2017, we issued a revolving
promissory note to Raymond M. Gee, our chairman and chief executive officer, pursuant to which we may borrow up to $1,500,000
from Mr. Gee on a revolving basis for working capital purposes. This note has a five-year term with no annual interest and principal
payment is deferred until the maturity date. As of December 31, 2019, the outstanding balance on this note was $797,906. During
the years ended December 31, 2019 and 2018, we recorded imputed interest related to the note of $87,577 and $44,695, respectively.
Off-Balance Sheet Arrangements
As of December 31, 2019, we had no off-balance
sheet arrangements.
Critical Accounting Policies
The discussion and analysis of our financial
condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance
with GAAP. The preparation of these consolidated financial statements requires management to make estimates and judgments that
affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and
liabilities at the date of our consolidated financial statements. Actual results may differ from these estimates under different
assumptions or conditions.
Critical accounting policies are defined
as those that involve significant judgment and potentially could result in materially different results under different assumptions
and conditions. Management believes the following critical accounting policies are affected by our more significant judgments
and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition. We
follow Topic 606 of the Financial Accounting Standards Board Accounting, or FASB, Accounting Standards Codification, or ASC, for
revenue recognition and Accounting Standards Update, or ASU, 2014-09. On January 1, 2018, we adopted ASU 2014-09, which is a comprehensive
new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to
a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. We consider
revenue realized or realizable and earned when all the five following criteria are met: (1) identification of the contract with
a customer, (2) identification of the performance obligations in the contract, (3) determination of the transaction price, (4)
allocation of the transaction price to the performance obligations in the contract, and (5) recognition of revenue when (or as)
we satisfy a performance obligation. Results for reporting periods beginning after January 1, 2018 are presented under ASU 2014-09,
while prior period amounts are not adjusted and continue to be reported under the previous accounting standards. There was no
impact to revenues as a result of applying ASU 2014-09 for the year ended December 31, 2019, and there have not been any significant
changes to our business processes, systems, or internal controls as a result of implementing the standard. We recognize rental
income revenues on a monthly basis based on the terms of the lease agreement which are for either the land or a combination of
both, the mobile home and land. Home sales revenues are recognized upon the sale of a home with an executed sales agreement. We
have deferred revenues from home lease purchase options and records those option fees as deferred revenues and then record them
as revenues when (1) the lease purchase option term is completed and title has been transferred, or (2) the leaseholder defaults
on the lease terms resulting in a termination of the agreement which allows us to keep any payments as liquidated damages. We
record an allowance for bad debts as rental income is probable not to be collected. As of December 31, 2019 and 2018,
our allowance for doubtful accounts was $10,117 and $59,657, respectively.
Acquisitions.
We account for acquisitions in accordance with ASC 805, “Business Combinations,” and allocate the purchase price of
the property based upon the fair value of the assets acquired, which generally consist of land, site and land improvements, buildings
and improvements and rental homes. We allocate the purchase price of an acquired property generally determined by internal evaluation
as well as third-party appraisal of the property obtained in conjunction with the purchase.
Investment Property and Equipment
and Depreciation. Property and equipment are carried at cost. Depreciation for sites and building is computed principally
on the straight-line method over the estimated useful lives of the assets (ranging from 15 to 25 years). Depreciation of improvements
to sites and buildings, rental homes and equipment and vehicles is computed principally on the straight-line method over the estimated
useful lives of the assets (ranging from 3 to 25 years). Land development costs are not depreciated until they are put in use,
at which time they are capitalized as sites and land improvements. Interest expense pertaining to land development costs are capitalized.
Maintenance and repairs are charged to expense as incurred and improvements are capitalized. The costs and related accumulated
depreciation of property sold or otherwise disposed of are removed from the financial statement and any gain or loss is reflected
in the current year’s results of operations.
Impairment Policy. We apply
FASB ASC 360-10, “Property, Plant & Equipment,” to measure impairment in real estate investments. Rental properties
are individually evaluated for impairment when conditions exist which may indicate that it is probable that the sum of expected
future cash flows (on an undiscounted basis without interest) from a rental property is less than the carrying value under its
historical net cost basis. These expected future cash flows consider factors such as future operating income, trends and prospects
as well as the effects of leasing demand, competition and other factors. Upon determination that a permanent impairment has occurred,
rental properties are reduced to their fair value. For properties to be disposed of, an impairment loss is recognized when the
fair value of the property, less the estimated cost to sell, is less than the carrying amount of the property measured at the
time there is a commitment to sell the property and/or it is actively being marketed for sale. A property to be disposed of is
reported at the lower of its carrying amount or its estimated fair value, less its cost to sell. Subsequent to the date that a
property is held for disposition, depreciation expense is not recorded.
Stock-Based Compensation.
All stock based payments to employees, nonemployee consultants, and to nonemployee directors for their services as directors,
including any grants of restricted stock and stock options, are measured at fair value on the grant date and recognized in the
statements of operations as compensation or other expense over the relevant service period in accordance with FASB ASC Topic 718.
Stock based payments to nonemployees are recognized as an expense over the period of performance. Such payments are measured at
fair value at the earlier of the date a performance commitment is reached or the date performance is completed. In addition, for
awards that vest immediately and are nonforfeitable the measurement date is the date the award is issued. We recorded stock option
expense of $4,774 and $69 during the years ended December 31, 2019 and 2018, respectively.
Fair Value of Financial
Instruments. We follow paragraph 825-10-50-10 of the FASB ASC for disclosures about fair value of our financial instruments
and paragraph 820-10-35-37 of the FASB ASC to measure the fair value of our financial instruments. Paragraph 820-10-35-37 establishes
a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. To increase consistency and
comparability in fair value measurements and related disclosures, paragraph 820-10-35-37 establishes a fair value hierarchy which
prioritizes the inputs to valuation techniques used to measure fair value into broad levels. The fair value hierarchy gives the
highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to
unobservable inputs.
Recent Accounting Pronouncements
In June 2016, the FASB issued
ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.”
ASU 2016-13 requires that entities use a new forward looking “expected loss” model that generally will result in the
earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience,
current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13
is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December
15, 2019. We are currently evaluating the potential impact this standard may have on the consolidated financial statements.
In February 2016, the FASB
issued ASU 2016-02, “Leases.” ASU 2016-02 amends the existing accounting standards for lease accounting, including
requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The standard
requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application,
with an option to use certain transition relief. ASU 2016-02 will be effective for annual reporting periods beginning after December
15, 2018. Early adoption is permitted. We have evaluated the impact this standard had on the consolidated financial statements
and determined that it had no impact on the consolidated financial statements.
In June 2018, the FASB issued
ASU 2018-07 “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” This
ASU relates to the accounting for non-employee share-based payments. The amendment in this ASU expands the scope of Topic 718
to include all share-based payment transactions in which a grantor acquired goods or services to be used or consumed in a grantor’s
own operations by issuing share-based payment awards. The ASU excludes share-based payment awards that relate to (1) financing
to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted
for under Topic 606, Revenue from Contracts from Customers. The share-based payments are to be measured at grant-date fair value
of the equity instruments that the entity is obligated to issue when the good or service has been delivered or rendered and all
other conditions necessary to earn the right to benefit from the equity instruments have been satisfied. This standard will be
effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that
fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim
periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s
adoption of Topic 606. We have evaluated the impact this standard had on the consolidated financial statements and determined
that it had no impact on the consolidated financial statements.
Management does not believe
that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the
accompanying condensed consolidated financial statements.
OUR CORPORATE
HISTORY AND STRUCTURE
We originally incorporated in the State
of Nevada as Frontier Staffing, Inc. on September 3, 2003. Since our incorporation, we have experienced several name changes and
have engaged in several different business endeavors. On October 12, 2017, Mobile Home Rental Holdings LLC, a North Carolina limited
liability company, which engaged in acquiring and operating manufactured housing properties, merged with and into our company.
In connection with the merger, the name of our company was changed to Manufactured Housing Properties Inc., the former business
and management of Mobile Home Rental Holdings became the business and management, respectively, of our company at that time.
In connection with our acquisitions of
manufactured housing communities, we have established various limited liability companies to hold the acquired properties. Following
is a summary of our subsidiaries, each of which is owned directly by our company.
Name of Subsidiary
|
|
State of Formation
|
|
Date of Formation
|
|
Ownership
|
Pecan Grove MHP LLC
|
|
North Carolina
|
|
October 12, 2016
|
|
100%
|
Butternut MHP Land LLC
|
|
Delaware
|
|
March 1, 2017
|
|
100%
|
Azalea MHP LLC
|
|
North Carolina
|
|
October 25, 2017
|
|
100%
|
Holly Faye MHP LLC
|
|
North Carolina
|
|
October 25, 2017
|
|
100%
|
Chatham Pines MHP LLC
|
|
North Carolina
|
|
October 31, 2017
|
|
100%
|
Maple Hills MHP LLC
|
|
North Carolina
|
|
October 31, 2017
|
|
100%
|
Lakeview MHP LLC
|
|
South Carolina
|
|
November 1, 2017
|
|
100%
|
MHP Pursuits LLC
|
|
North Carolina
|
|
January 31, 2019
|
|
100%
|
Mobile Home Rentals LLC
|
|
North Carolina
|
|
September 30, 2016
|
|
100%
|
Hunt Club MHP LLC
|
|
South Carolina
|
|
March 8, 2019
|
|
100%
|
B&D MHP LLC
|
|
South Carolina
|
|
April 4, 2019
|
|
100%
|
Crestview MHP LLC
|
|
North Carolina
|
|
June 28, 2019
|
|
100%
|
Springlake MHP LLC
|
|
Georgia
|
|
October 10, 2019
|
|
100%
|
ARC MHP LLC
|
|
South Carolina
|
|
November 13, 2019
|
|
100%
|
Countryside MHP LLC
|
|
South Carolina
|
|
March 12, 2020
|
|
100%
|
Evergreen MHP LLC
|
|
Tennessee
|
|
March 17, 2020
|
|
100%
|
OUR BUSINESS
Overview
We are a self-administered, self-managed,
vertically integrated owner and operator of manufactured housing communities. We earn income from leasing manufactured home sites
to tenants who own their own manufactured home and the rental of company-owned manufactured homes to residents of the communities.
We own and operate 20 manufactured housing
communities containing approximately 1,308 developed sites and a total of 417 company-owned manufactured homes. The communities
are located in Georgia, North Carolina, South Carolina and Tennessee. See “Our Properties” for s description of these
housing communities.
The Manufactured Housing Community
Industry
Manufactured housing communities are residential
developments designed and improved for the placement of detached, single-family manufactured homes that are produced off-site
and installed and set on residential sites within the community. The owner of a manufactured home leases the site on which it
is located and the lessee of a manufactured home leases both the home and site on which the home is located.
We believe that manufactured housing is
accepted by the public as a viable and economically attractive alternative to common stick-built single-family housing. We believe
that the affordability of the modern manufactured home makes it a very attractive housing alternative. Manufactured housing is
one of the only non-subsidized affordable housing options in the U.S. Demand for housing affordability continues to increase,
but supply remains static, as there are virtually no new manufactured housing communities being developed. We are committed to
becoming an industry leader in providing this affordable housing option and an improved level of service to our residents, while
producing an attractive and stable risk adjusted return to our investors.
A manufactured housing community is a
land-lease community designed and improved with home sites for the placement of manufactured homes and includes related improvements
and amenities. Each homeowner in a manufactured housing community leases from the community a site on which a home is located.
The manufactured housing community owner owns the underlying land, utility connections, streets, lighting, driveways, common area
amenities, and other capital improvements and is responsible for enforcement of community guidelines and maintenance of the community.
Generally, each homeowner is responsible for the maintenance of his or her home and upkeep of his or her leased site. In some
cases, customers may rent homes with the community owner’s maintaining ownership and responsibility for the maintenance
and upkeep of the home. This option provides flexibility for customers seeking a more affordable, shorter-term housing option
and enables the community owner to meet a broader demand for housing and improve occupancy and cash flow.
We believe that manufactured housing communities
have several characteristics that make them an attractive investment when compared to certain other types of real estate, particularly
multifamily, including:
|
●
|
Significant Barriers
to Entry. We believe that the supply of new manufactured housing
communities will be constrained due to significant barriers to entry in the industry,
including: (i) various zoning restrictions and negative zoning biases against manufactured housing
communities; (ii) substantial upfront costs associated with the development of infrastructure,
amenities and other offsite improvements required by various governmental agencies, and
(iii) a significant length of time before lease-up and revenues can commence.
|
|
●
|
Diminishing Supply.
Supply is decreasing due to redevelopment of older parks.
|
|
●
|
Large Demographic Group
of Potential Customers. We consider households earning between $25,000
and $50,000 per year to be our core customer base. This demographic group represents
about 43 percent of overall U.S. households, according to 2016 U.S. Census data.
|
|
●
|
Stable Resident Base.
We believe that manufactured housing communities tend to achieve and maintain
a stable rate of occupancy, due to the following factors: (i) residents generally own
their own homes; moving a manufactured home from one community to another involves substantial
cost and effort and often results in the abandonment of on-site improvements made by
the resident such as decks, garages, carports, and landscaping; and (iii) residents enjoy
a sense of community inherent in manufactured housing communities similar to residential
subdivisions.
|
|
●
|
Fragmented Ownership
of Communities. Manufactured housing community ownership in the United
States is highly fragmented, with a majority of manufactured housing communities
owned by individuals. The top five manufactured housing community owners control
approximately 7% of manufactured housing community home sites.
|
|
●
|
Low Recurring Capital
Requirements. Although manufactured housing community owners are
responsible for maintaining the infrastructure of the community, each homeowner is responsible
for the upkeep of his or her own home and home site, thereby reducing the manufactured housing
community owner’s ongoing maintenance expenses and capital requirements.
|
|
●
|
Affordable Homeowner
Lifestyle. Manufactured housing communities offer an affordable lifestyle
typically unavailable in apartments, including lack of common walls, a yard for each
resident, the ability to park by the front door, and a sense of community.
|
Competition
There are numerous private companies,
but only three publicly-traded REITs that compete in the manufactured housing industry. Many of the private companies
and one of the REITs, UMH Properties, Inc., may compete with us for acquisitions of manufactured housing communities. Many of
these companies have larger operations and greater financial resources than we do. The number of competitors, however, is increasing
as new entrants discover the benefits of the manufactured housing asset class. We believe that due to the fragmented nature
of ownership within the manufactured housing sector, the level of competition is less than that in other commercial real estate
sectors.
Competitive Strengths
We believe that the following competitive
strengths enable us to compete effectively:
|
●
|
Deal Sourcing. Our deal sourcing consists of marketed deals, pocket listings,
and off market deals. Marketed deals are properties that are listed with a broker who exposes the property to the largest
pool of buyers possible. Pocket listings are properties that are presented by brokers to a limited pool of buyers. Off market
deals are ones that are not actively marketed. As a result of our network of relationships in our industry, only two
properties in our portfolio were marketed deals, the rest were off-market or pocket listings.
|
|
●
|
Centralized Operations.
We have centralized many operational tasks, including accounting, marketing, lease administration,
and accounts payable. The use of professional staff and technology allows us to
scale efficiently and operate properties profitably by reducing tasks otherwise completed
at the property level.
|
|
●
|
Deal Size.
We believe that our small capitalization size with non-institutional deals of less than
150 sites are accretive to our balance sheet. These sized properties typically
have less bidders at lower prices than larger properties. We can profitably operate
these smaller properties through our centralized operations.
|
|
●
|
Creating Value.
Our underwriting expertise enables us to identify acquisition prospects to provide attractive
risk adjusted returns. Our operational team has the experience, skill and resources
to create this value through physical and/or operational property improvements.
|
Our Growth Strategy
Our growth strategy is to acquire
both stable and undervalued and underperforming manufactured housing properties that have current income. We believe that we can
enhance value through our professional asset and property management. Our property management services are mainly comprised of
tenant contracts and leasing, marketing vacancies, community maintenance, enforcement of community policies, establishment and
collection rent, and payment of vendors. Our lot and manufactured home leases are generally for one month and auto renew monthly
for an additional month.
Our investment mission on behalf
of our stockholders is to deliver an attractive risk-adjusted return with a focus on value creation, capital preservation, and
growth. In our ongoing search for acquisition opportunities we target and evaluate manufactured housing communities nationwide.
We may invest in improved and
unimproved real property and may develop unimproved real property. These property investments may be located throughout the United
States, but to date we have concentrated in the Southeast portion of the United States. We are focused on acquiring communities
with significant upside potential and leveraging our expertise to build long-term capital appreciation.
We are one of four public companies
in the manufactured housing sector, but we are the only one not organized as a REIT, thereby giving us flexibility to focus on
growth through reinvestment of income and employing higher leverage upon acquisition than the REITs traditionally utilize due
to market held norms around 50-60%. This can give us a competitive advantage when bidding for assets. Additionally, due to our
small size, non-institutional sized deals of less than 150 sites, which have less bidders and lower prices, are accretive to our
balance sheet.
Regulation
Federal, State and/or Local Regulatory
Compliance
We are subject to a variety of federal,
state, and/or local statutes, ordinances, rules, and regulations covering the purchase, development and operation of real estate
assets. These regulatory requirements include zoning and land use, worksite safety, traffic, and other matters, such as local
rules that may impose restrictive zoning and developmental requirements. We are subject to various licensing, registration, and
filing requirements in connection with the development and operation of certain real estate assets. Additionally, state and/or
local governments retain certain rights with respect to eminent domain which could enable them to restrict or alter the use of
our property. These requirements may lead to increases in our overall costs. The need to comply with these requirements may significantly
delay development with regard to properties, or lead us to alter our plans regarding certain real estate assets. Some requirements,
on a property by property evaluation, may lead to a determination that development of a particular property would not be economically
feasible, even if any or all necessary governmental approvals were obtained.
We believe that each community has all
material operating permits and approvals.
Environmental Regulatory Compliance
Under various federal, state and/or local
laws, ordinances and regulations, a current or previous owner or operator of a property may be required to investigate and/or
clean-up hazardous or toxic substances released at that property. That owner or operator also may be held liable to third parties
for bodily injury or property damage (investigation and/or clean-up costs) incurred by those parties in connection with the contamination
at that site. These laws often impose liability without regard to whether the owner or operator knew of or otherwise caused the
release of the hazardous or toxic substances. In addition, persons who arrange for the disposal or treatment of hazardous substances
or other regulated materials also may be liable for the costs of removal or remediation of such substances at a disposal or treatment
facility, whether or not such facility is owned or operated by such persons.
The costs of remediation or removal of
hazardous or toxic substances can be substantial, and the presence of contamination, or the failure to remediate contamination
discovered, at a property we own or operate may adversely affect our ability to develop, sell, lease, or borrow upon that property.
Current and former tenants at a property we own may have, or may have involved, the use of hazardous materials or generated hazardous
wastes, and those situations could result in our incurring liabilities to remediate any resulting contamination if the responsible
party is unable or unwilling to do so.
In addition, our properties may be exposed
to a risk of contamination originating from other sources. While a property owner generally is not responsible for remediating
contamination that has migrated on-site from an off-site source, the contaminant’s presence could have adverse effects on
our ability to develop, construct on, operate, sell, lease, or borrow upon that property. Certain environmental laws may create
a lien on a contaminated site in favor of the government for damages and costs the government may incur to remediate that contamination.
Moreover, if contamination is discovered on a property, environmental laws may impose restrictions on the manner in which that
property may be used, or how businesses may be operated on that property, thus reducing our ability to maximize our investment
in that property. Our properties have been subjected to varying degrees of environmental assessment at various times; however,
the identification of new areas of contamination, a change in the extent or known scope of contamination, or changes in environmental
regulatory standards and/or cleanup requirements could result in significant costs to us.
Insurance and Property Maintenance
and Improvement Policies
Our properties are insured against risks
that may cause property damage and business interruption including events such as fire, business interruption, general liability
and if applicable, flood. Our insurance policies contain deductible requirements, coverage limits and particular exclusions. It
is our policy to maintain adequate insurance coverage on all of our properties; and, in the opinion of our management, all of
our properties are adequately insured. We also obtain title insurance insuring fee title to the properties in an aggregate amount
which we believe to be adequate.
It is also our policy to properly maintain,
modernize, expand and make improvements to its properties when required.
Employees
As of December 31, 2019, we had 17 employees,
including officers, all of whom are full-time employees.
OUR PROPERTIES
As of December 31, 2019, we owned the
following manufactured housing properties:
|
●
|
Pecan Grove
– a 81 lot, all-age community situated on 10.71 acres and located in Charlotte,
North Carolina. The average occupancy was 100%.
|
|
●
|
Butternut –
a 59 lot, all-age community situated on 13.13 acres and located in Corryton, Tennessee,
a suburb of Knoxville, Tennessee. The average occupancy was 78%.
|
|
●
|
Azalea Hills
– a 41 lot, all-age community situated on 7.46 acres and located in Gastonia, North
Carolina, a suburb of Charlotte, North Carolina. The average occupancy was 98%.
|
|
●
|
Holly Faye
– a 37 lot all-age community situated on 8.01 acres and located in Gastonia, North
Carolina, a suburb of Charlotte North Carolina. The average occupancy was 98%.
|
|
●
|
Lakeview –
a 97 lot all-age community situated on 17.26 acres in Spartanburg, South Carolina. The
average occupancy was 98%.
|
|
●
|
Chatham Pines
– a 49 lot all-age community situated on 23.57 acres and located in Chapel Hill,
North Carolina. The average occupancy was 100%.
|
|
●
|
Maple Hills
– a 73 lot all-age community situated on 21.20 acres and located in Mills River,
North Carolina, which is part of the Asheville, North Carolina, Metropolitan Statistical
Area. The average occupancy was 78%.
|
|
●
|
Hunt Club Forest
– a 79 lot all-age community situated on 13.02 acres and located in the Columbia,
South Carolina metro area. The average occupancy was 100%.
|
|
●
|
B&D –
a 97 lot all-age community situated on 17.75 acres and located in Chester, South Carolina.
The average occupancy was 77%.
|
|
●
|
Crestview –
a 113 lot all-age community situated on 19.05 acres and located in East Flat Rock, North
Carolina. The average occupancy was 91%.
|
|
●
|
Spring Lake
– a 225 lot all-age community situated on 72.7 acres and located in Warner Robins,
Georgia. The average occupancy was 90%.
|
|
●
|
ARC – a
182 lot all-age community situated on 39.34 acres and located in Lexington, South Carolina.
The average occupancy was 92%.
|
The average occupancy rates above represent
an average of total monthly occupancy rates from January 1, 2019 (or date of acquisition) through December 31, 2019. For the year
ended December 31, 2019, our total portfolio weighted average occupancy rate was 95%.
On March 12, 2020, we acquired a manufactured
housing community known as Countryside Estates Mobile Home Park, which is located in Lancaster, North Carolina and totals 110
sites.
On March 17, 2020, we acquired a manufactured
housing community known as Evergreen Pointe Mobile Home Park, which is located in Dandridge, Tennessee and totals 65 sites.
LEGAL PROCEEDINGS
From time to time, we may become involved
in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent
uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are
currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business,
financial condition or operating results.
MANAGEMENT
Directors and Executive Officers
The following sets forth information about our directors and
executive officers as of the date of this offering circular:
Name
|
|
Age
|
|
Position
|
Raymond M. Gee
|
|
58
|
|
Chairman of the Board and Chief Executive Officer
|
Michael Z. Anise
|
|
43
|
|
President, Chief Financial Officer and Director
|
Andrew Coatley
|
|
37
|
|
Chief Operating Officer
|
Adam A. Martin
|
|
47
|
|
Chief Investment Officer
|
Terry Robertson
|
|
76
|
|
Director
|
James L. Johnson
|
|
53
|
|
Director
|
William H. Carter
|
|
71
|
|
Director
|
Raymond M. Gee. Mr. Gee
has served as chairman of our board of directors and chief executive officer of our company in October 2017 as a result of the
merger of Mobile Home Rental Holdings LLC with our company. Mr. Gee has 30 years of experience in commercial real estate, development,
and structured finance. He has also served as the chief executive officer of Gvest Capital LLC, which provides management and
administrative services to various investment and asset ownership entities, since 2012. Prior to forming Gvest Capital LLC, he
was the head of real estate and structured products for Royal & SunAlliance and was in charge of a multi-billion-dollar diversified
portfolio. Previously he headed the Latin American real estate practice for Arthur Andersen in Mexico City. Mr. Gee is a graduate
of the University of Oklahoma with a BBA in Finance/Real Estate. Mr. Gee was selected to serve on our board of directors
due to his management experience in our industry.
Michael Z. Anise. Mr. Anise
has served as our chief financial officer and as a member of our board of directors since September 2017 and has served as our
president since August 2019. From 2011 to 2017, Mr. Anise was chief financial officer of Crossroads Financial, a commercial finance
company. Mr. Anise earned his B.S. degree in Accounting, with a minor in Finance, from Florida Atlantic University. Mr. Anise
was selected to serve on our board of directors due to finance experience.
Andrew Coatley. Mr. Coatley
has served as our chief operating officer since October 2019. From 2014 to October 2019, he was the executive property director
for Bainbridge Companies providing operational leadership. Mr. Coatley earned a B.S. in education from The Defiance of Ohio.
Adam A. Martin. Mr. Martin
has served as our chief investment officer since October 2017. From 2009 to September 2017, he was CIO of Gvest Capital LLC, a
company that provides management and administrative services to various investment and asset ownership entities. Mr. Martin earned
is B.A. degree in Finance and Masters degree in Land Economics and Real Estate from Texas A&M University.
Terry Robertson. Dr. Robertson
has served as a member of our board of directors since December 2018. Since 2007, Mr. Robertson has served as consultant at ROBERTSON
Appraisal & Consulting, a real estate appraisal and consulting firm that he founded. Prior to that, he worked at Carroll&Carroll
Real Estate Appraisers. Dr. Robertson earned his B.B.A. degree in Finance and his Ph.D. from the University of Georgia, and is
Professor Emeritus of Price College of Business of the University of Oklahoma. Mr. Robertson is an author of articles and books
relating to corporate financial structure, real estate valuation and regional economic development. Dr. Robertson was selected
to serve on our board of directors due to finance and real estate investment background.
James L. Johnson. Mr. Johnson
has served as a member of our board of directors since March 2018. He is the founder of Carpet South Design Inc., where he has
served as its CEO since 2013. He also owns a majority interest in Piedmont Stair Works Design LLC. The operations of both of these
companies target the real estate improvements industry. Mr. Johnson earned his B.S. degree in Business Management from the University
of Phoenix. Mr. Johnson was selected to serve on our board of directors due to experience in the real estate industry.
William H. Carter. Mr. Carter
has served as a member of our board of directors since March 2018. He has served as president of The Carter Land Company for the
past 15 years. The Carter Land Company has provided brokerage services with respect to 144 manufactured housing communities in
the Southeast. The firm presently manages apartments, single family houses, commercial warehouses, mobile home parks, self-storage
facilities and retail buildings. Mr. Carter was selected to serve on our board of directors due to his experience in our industry.
Directors and executive officers are elected
until their successors are duly elected and qualified. There are no arrangements or understandings known to us pursuant to which
any director or executive officer was or is to be selected as a director (or director nominee) or executive officer.
Family Relationships
There are no family relationships between
any of our directors or executive officers.
Involvement in Certain Legal Proceedings
To the best of our knowledge, except as
described below, none of our directors or executive officers has, during the past ten years:
|
●
|
been convicted in a criminal
proceeding or been subject to a pending criminal proceeding (excluding traffic violations
and other minor offences);
|
|
●
|
had any bankruptcy petition
filed by or against the business or property of the person, or of any partnership, corporation
or business association of which he was a general partner or executive officer, either
at the time of the bankruptcy filing or within two years prior to that time;
|
|
●
|
been subject to any order,
judgment, or decree, not subsequently reversed, suspended or vacated, of any court of
competent jurisdiction or federal or state authority, permanently or temporarily enjoining,
barring, suspending or otherwise limiting, his involvement in any type of business, securities,
futures, commodities, investment, banking, savings and loan, or insurance activities,
or to be associated with persons engaged in any such activity;
|
|
●
|
been found by a court of
competent jurisdiction in a civil action or by the Securities and Exchange Commission
or the Commodity Futures Trading Commission to have violated a federal or state securities
or commodities law, and the judgment has not been reversed, suspended, or vacated;
|
|
●
|
been the subject of, or a
party to, any federal or state judicial or administrative order, judgment, decree, or
finding, not subsequently reversed, suspended or vacated (not including any settlement
of a civil proceeding among private litigants), relating to an alleged violation of any
federal or state securities or commodities law or regulation, any law or regulation respecting
financial institutions or insurance companies including, but not limited to, a temporary
or permanent injunction, order of disgorgement or restitution, civil money penalty or
temporary or permanent cease-and-desist order, or removal or prohibition order, or any
law or regulation prohibiting mail or wire fraud or fraud in connection with any business
entity; or
|
|
●
|
been the subject of, or a
party to, any sanction or order, not subsequently reversed, suspended or vacated, of
any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act
(15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the
Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association,
entity or organization that has disciplinary authority over its members or persons associated
with a member.
|
Corporate Governance
Our current board of directors is comprised
of five members: Raymond M. Gee, Michael Z. Anise, Terry Robertson, James L. Johnson and William H. Carter. Our board of directors
has determined that Messrs. Robertson, Johnson and Carter are independent directors as that term is defined in the rules of the
Nasdaq Stock Market.
Our board of directors currently has two
standing committees, an audit committee and a compensation committee, which perform various duties on behalf of and report to
the board of directors. Each of the standing committees is comprised of a majority of independent directors. From time to time,
the board of directors may establish other committees.
Governance Structure
Currently, our chief executive officer
is also our chairman. Our board of directors believes that, at this time, having a combined chief executive officer and chairman
is the appropriate leadership structure for our company. In making this determination, the board of directors considered, among
other matters, Mr. Gee’s experience and tenure, and believed that Mr. Gee is highly qualified to act as both chairman and
chief executive officer due to his experience, knowledge, and personality. Among the benefits of a combined chief executive officer/chairman
considered by the board of directors is that such structure promotes clearer leadership and direction for our company and allows
for a single, focused chain of command to execute our strategic initiatives and business plans.
The Board’s Role in Risk Oversight
Our board of directors plays an active
role, as a whole and also at the committee level, in overseeing management of our risks and strategic direction. Our board of
directors regularly reviews information regarding our liquidity and operations, as well as the risks associated with each. Our
audit committee oversees the process by which our senior management and relevant employees assess and manage our exposure to,
and management of, financial risks. Our compensation committee is responsible for overseeing the management of risks relating
to our executive compensation plans and arrangements. While each committee is responsible for evaluating certain risks and overseeing
the management of such risks, the entire board of directors is regularly informed about such risks.
Audit Committee
Our audit committee currently consists
of Messrs. Robertson, Anise and Carter, with Mr. Robertson serving as chairman. Our board of directors has determined that each
member of our audit committee is able to read and understand fundamental financial statements and has substantial business experience
that results in such member’s financial sophistication. Our board of directors further determined that Mr. Robertson possesses
the accounting or related financial management experience that qualifies him as financially sophisticated within the meaning of
the rules of the Nasdaq Stock Market and that he is an “audit committee financial expert” as defined by the rules
and regulations of the SEC.
The primary purposes of our audit committee
are to assist our board of directors in fulfilling its responsibility to oversee the accounting and financial reporting processes
of our company and audits of our financial statements, including (i) retaining and overseeing our independent accountants; (ii)
assisting the board in its oversight of the integrity of our financial statements, the qualifications, independence and performance
of our independent auditors and our compliance with legal and regulatory requirements; (iii) reviewing and approving the plan
and scope of the internal and external audit; (iv) pre-approving any audit and non-audit services provided by our independent
auditors; (v) approving the fees to be paid to our independent auditors; (vi) reviewing with our chief executive officer and chief
financial officer and independent auditors the adequacy and effectiveness of our internal controls; (vii) preparing the audit
committee report to be filed with the SEC; (viii) reviewing hedging transactions; and (ix) reviewing and assessing annually the
audit committee’s performance and the adequacy of its charter. The role and responsibilities of our audit committee are
more fully set forth in a written charter adopted by our board of directors, which is available on our website at www.mhproperties.com.
Compensation Committee
Our compensation committee currently consists
of Messrs. Johnson, Robertson and Gee, with Mr. Johnson serving as chairman. The primary purposes of our compensation committee
are to assist our board of directors in fulfilling its responsibility to determine the compensation of our executive officers
and directors and to approve and evaluate the compensation policies and programs of our company, including (i) reviewing from
time to time and approving our corporate goals and objectives relevant to compensation and our executive compensation structure
and compensation range; (ii) evaluating the chief executive officer’s performance in light of the goals and objectives and
determining and approving the chief executive officer’s compensation based on this evaluation; (iii) determining and approving
the compensation paid to our chief financial officer and any other executive officers; (iv) determining the compensation of our
independent directors; (v) granting rights to indemnification and reimbursement of expenses to any officers, employees or directors;
(vi) making recommendations to the board regarding equity-based and incentive compensation plans, policies and programs; and (vii)
reviewing and assessing annually the compensation committee’s performance and the adequacy of its charter. The role and
responsibilities of our compensation committee are more fully set forth in a written charter adopted by our board of directors,
which is available on our website at www.mhproperties.com.
The policies underlying our compensation
committee’s compensation decisions are designed to attract and retain the best-qualified management personnel available.
We routinely compensate our executive officers through salaries. At our discretion, we may reward executive officers and employees
through bonus programs based on profitability and other objectively measurable performance factors. Additionally, we use stock
options and other incentive awards to compensate our executives and other key employees to align the interests of our executive
officers with the interests of our stockholders. In establishing executive compensation, our compensation committee will evaluate
compensation paid to similar officers employed at other companies of similar size in the same industry and the individual performance
of each officer as it impacts our overall performance with particular focus on an individual’s contribution to the realization
of operating profits and the achievement of strategic business goals. Our compensation committee will further attempt to rationalize
a particular executive’s compensation with that of other executive officers of our company in an effort to distribute compensation
fairly among the executive officers. Although the components of executive compensation (salary, bonus and incentive grants) will
be reviewed separately, compensation decisions will be made based on a review of total compensation.
Code of Ethics
We have adopted a code of ethics that
applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer
and principal accounting officer. Such code of ethics addresses, among other things, honesty and ethical conduct, conflicts of
interest, compliance with laws, regulations and policies, including disclosure requirements under the federal securities laws,
and reporting of violations of the code.
We are required to disclose any amendment
to, or waiver from, a provision of our code of ethics applicable to our principal executive officer, principal financial officer,
principal accounting officer, controller, or persons performing similar functions. We intend to use our website as a method of
disseminating this disclosure, as permitted by applicable SEC rules. Any such disclosure will be posted to our website within
four business days following the date of any such amendment to, or waiver from, a provision of our code of ethics.
EXECUTIVE COMPENSATION
Summary Compensation Table –
Years Ended December 31, 2019 and 2018
The following table sets forth information
concerning all cash and non-cash compensation awarded to, earned by or paid to the named persons for services rendered in all
capacities during the noted periods. No other executive officers received total annual salary and bonus compensation in excess
of $100,000.
Name and Principal Position
|
|
Year
|
|
Salary
($)
|
|
|
Option
Awards
($)(1)
|
|
|
Stock
Awards
($)(1)
|
|
|
Total
($)
|
|
Raymond M. Gee, Chief Executive Officer
|
|
2019
|
|
|
-
|
|
|
|
-
|
|
|
|
2,700
|
|
|
|
2,700
|
|
|
|
2018
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
Michael Z. Anise, Chief Financial Officer
|
|
2019
|
|
|
150,000
|
|
|
|
5,230
|
|
|
|
2,700
|
|
|
|
157,930
|
|
|
|
2018
|
|
|
130,000
|
|
|
|
37
|
|
|
|
-
|
|
|
|
130,037
|
|
Adam A. Martin, Chief Investment Officer
|
|
2019
|
|
|
130,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
130,000
|
|
|
|
2018
|
|
|
150,000
|
|
|
|
38
|
|
|
|
-
|
|
|
|
150,038
|
|
|
(1)
|
The amount is equal to the aggregate
grant-date fair value with respect to the awards, computed in accordance with FASB ASC
Topic 718.
|
Outstanding Equity Awards at Fiscal
Year End
The following table includes certain information
with respect to the value of all unexercised options and unvested shares of restricted stock previously awarded to the executive
officers named above at the fiscal year ended December 31, 2019.
|
|
Option Awards
|
Name
|
|
Number of Securities Underlying
Unexercised Options (#) Exercisable
|
|
|
Number of Securities Underlying
Unexercised Options (#) Unexercisable
|
|
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned
Options
(#)
|
|
|
Option Exercise Price ($)
|
|
|
Option Expiration Date
|
Michael Z. Anise
|
|
|
236,000
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
0.01
|
|
|
12/11/2027
|
Michael Z. Anise
|
|
|
32,333
|
|
|
|
64,667
|
|
|
|
-
|
|
|
$
|
0.27
|
|
|
12/26/2029
|
Adam A. Martin
|
|
|
240,000
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
0.01
|
|
|
12/11/2027
|
Director Compensation
The table below sets forth our non-executive
officer directors’ compensation during the fiscal year ended December 31, 2019.
Name
|
|
Fees Earned or Paid in Cash
($)
|
|
|
Stock
Awards
($)(1)
|
|
|
Total
($)
|
|
Terry Robertson
|
|
|
-
|
|
|
|
2,700
|
|
|
|
2,700
|
|
James L. Johnson
|
|
|
-
|
|
|
|
2,700
|
|
|
|
2,700
|
|
William H. Carter
|
|
|
-
|
|
|
|
2,700
|
|
|
|
2,700
|
|
|
(1)
|
During the fourth quarter of
2019, we awarded 10,000 shares of Common Stock to each of our directors under our Stock
Compensation Plan. These shares vested in full on the date of issuance. The amount is
equal to the aggregate grant-date fair value with respect to the awards, computed in
accordance with FASB ASC Topic 718.
|
SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information
regarding beneficial ownership of our Common Stock as of April 28, 2020 by (i) each of our officers and directors; (ii) all of
our officers and directors as a group; and (iii) each person who is known by us to beneficially own more than 5% of our Common
Stock. Unless otherwise specified, the address of each of the persons set forth below is in care of our company, 136 Main Street,
Pineville, NC 28134.
Name and Address of Beneficial Owner
|
|
Title of Class
|
|
Amount
and Nature of Beneficial Ownership(1)
|
|
|
Percent
of Class(2)
|
|
Raymond M. Gee, Chairman and Chief Executive Officer
(3)
|
|
Common Stock
|
|
|
8,665,000
|
|
|
|
70.21
|
%
|
Michael Z. Anise, President, Chief Financial Officer and Director
(4)
|
|
Common Stock
|
|
|
288,333
|
|
|
|
2.29
|
%
|
Andrew Coatley, Chief Operating Officer (5)
|
|
Common Stock
|
|
|
20,000
|
|
|
|
*
|
|
Adam A. Martin, Chief Investment Officer (6)
|
|
Common Stock
|
|
|
240,000
|
|
|
|
1.91
|
%
|
Terry Robertson, Director
|
|
Common Stock
|
|
|
20,000
|
|
|
|
*
|
|
James L. Johnson, Director
|
|
Common Stock
|
|
|
20,000
|
|
|
|
*
|
|
William H. Carter, Director
|
|
Common Stock
|
|
|
20,000
|
|
|
|
*
|
|
All officers and directors as a group (7 persons named above)
|
|
Common Stock
|
|
|
9,268,333
|
|
|
|
75.05
|
%
|
Michael P. Kelly (7)
|
|
Common Stock
|
|
|
2,000,000
|
|
|
|
16.20
|
%
|
Joseph Jackson (8)
|
|
Common Stock
|
|
|
1,254,506
|
|
|
|
10.16
|
%
|
* Less than 1%
|
(1)
|
Beneficial Ownership is determined in
accordance with the rules of the SEC and generally includes voting or investment power
with respect to securities. The person is also deemed to be a beneficial owner of any
security of which that person has a right to acquire beneficial ownership within 60 days.
Except as set forth below, each of the beneficial owners listed above has direct ownership
of and sole voting power and investment power with respect to the shares of our Common
Stock.
|
|
(2)
|
A total of 12,341,980 shares of our
Common stock are considered to be outstanding pursuant to SEC Rule 13d-3(d)(1) as of
April 28, 2020. For each beneficial owner above, any options exercisable within 60 days
have been included in the denominator.
|
|
(3)
|
Includes 20,000 shares of Common Stock
held directly and 8,645,000 shares of Common Stock held by Gvest Real Estate Capital
LLC. Raymond M. Gee is the Managing Member of Gvest Real Estate Capital LLC and has voting
and investment control over the shares held by it.
|
|
(4)
|
Includes 20,000 shares of Common Stock
held directly and 268,333 shares of Common Stock which Mr. Anise has the right to acquire
within 60 days through the exercise of vested options.
|
|
(5)
|
Consists of 20,000 shares of Common
Stock which Mr. Coatley has the right to acquire within 60 days through the exercise
of vested options.
|
|
(6)
|
Consists of 240,000 shares of Common
Stock which Mr. Martin has the right to acquire within 60 days through the exercise of
vested options.
|
|
(7)
|
Represents shares held by The Raymond
M Gee Irrevocable Trust. Michael P. Kelly is the Trustee of The Raymond M Gee Irrevocable
Trust and has voting and investment control over the shares held by it.
|
|
(8)
|
Represents shares held by Metrolina
Loan Holdings, LLC. Joseph Jackson is the Managing Member of Metrolina Loan Holdings,
LLC and has voting and investment control over the shares held by it. The address
of Metrolina Loan Holdings, LLC is 108 Gateway Blvd, Suite 104, Mooresville, NC 28117.
|
We do not currently have any arrangements
which if consummated may result in a change of control of our company.
TRANSACTIONS WITH
RELATED PERSONS
Transactions with Related Persons
The following includes a summary of transactions
since the beginning of our 2018 fiscal year, or any currently proposed transaction, in which we were or are to be a participant
and the amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average of our total assets at year end
for the last two completed fiscal years, and in which any related person had or will have a direct or indirect material interest
(other than compensation described under “Executive Compensation”). We believe the terms obtained or consideration
that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available
or the amounts that would be paid or received, as applicable, in arm’s-length transactions.
|
●
|
On October 1, 2017, we issued
a revolving promissory note to Raymond M. Gee, our chairman and chief executive officer,
pursuant to which we may borrow up to $1,500,000 from Mr. Gee on a revolving basis for
working capital purposes. This note has a five-year term with no annual interest and
principal payment is deferred until the maturity date. As of December 31, 2019, the amount
owed by us to Mr. Gee under this note is $797,906, with $87,577 of imputed interest and
$83,206 of payments have been made by us since the date we issued this note to Mr. Gee.
|
|
●
|
On May 8, 2017, we issued
a promissory note to Metrolina in the principal amount of $3,000,000. The note is interest
only payment based on 8%, and 10% deferred until maturity to be paid with principal balance.
The note originally awarded Metrolina 455,000 shares of Common Stock as consideration,
which resulted in making Metrolina a related party due to its significant ownership.
During the year ended December 31, 2019, we paid off the entire balance on the note of
$2,754,550 plus interest and amended the agreement to allow for the redeployment of the
$3,000,000 available, eliminated the conversion option whereby Metrolina could convert
the ratio of total outstanding debt at time of exercise of the option into an amount
of newly issued shares of our Common Stock determined by dividing the outstanding indebtedness
by $3,000,000 multiplied by 10% with a cap of 864,500 shares. The amendment resulted
in issuing an additional 545,000 shares with a fair value of $305,200 for a total of
1,000,000 shares awarded to Metrolina. The note gives Metrolina the right and option
to purchase its pro rata share of debt or equity securities issued to maintain up to
10% equity interest in our company at the most recent price of any equity transaction
for seven years from the amendment dated February 26, 2019. As of December 31, 2019,
the balance on this note was $1,730,000. The arty note is guaranteed by Mr. Gee.
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In January 2019, we executed
an agreement to acquire the 25% minority interest in Pecan Grove and issued 2,000,000
shares of our Common Stock to Gvest Real Estate Capital LLC, an entity controlled by
Mr. Gee, for the minority interest acquisition, which were valued at the historical cost
value of $537,562.
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During the years ended December
31, 2019 and 2018, we recorded $48,319 and $4,000, respectively in revenues related to
property management consulting services provided to Gvest Real Estate Capital LLC.
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During the year ended December
31, 2019, Mr. Gee received a $50,000 fee for his personal guarantee on a promissory note
relating to a loan for one of our acquisitions. The fee was recorded as a loan cost and
is amortized over the five year life of the loan.
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On April 1, 2020, Mr. Gee
received a $70,000 fee for his personal guarantee on the new promissory note issued by
Butternut MHP Land LLC in connection with the refinancing of that loan. The fee was recorded
as a loan cost and is amortized over the five year life of the loan.
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During the year ended December
31, 2019 we entered into an office lease agreement with Gvest Real Estate Capital LLC
for the lease of our offices. The lease is $4,000 per month and is on a month-to-month
term. During 2019, we paid $16,000 of rent expense to Gvest Real Estate Capital LLC.
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Parent Company
As of April 28, 2020, Gvest Real Estate
Capital LLC holds approximately 70% of our issued and outstanding voting securities.
DESCRIPTION OF
SECURITIES
General
The following description summarizes important
terms of the classes of our capital stock. This summary does not purport to be complete and is qualified in its entirety by the
provisions of our articles of incorporation and our bylaws which have been filed as exhibits to the offering statement of which
this offering circular is a part.
Our authorized capital stock consists
of 200,000,000 shares of Common Stock, par value $0.01 per share, and 10,000,000 shares of Preferred Stock, par value $0.01 per
share.
As of April 28, 2020, there were 12,341,980
shares of Common Stock, 1,890,000 shares of Series A Preferred Stock and 502,362 shares of Series B Preferred Stock issued and
outstanding. No other shares of our preferred stock were issued and outstanding as of such date.
Common Stock
Holders of our Common Stock are entitled
to one vote for each share on all matters voted upon by our stockholders, including the election of directors, and do not have
cumulative voting rights. Subject to the rights of holders of any then outstanding shares of our Preferred Stock, our Common
Stockholders are entitled to any dividends that may be declared by our board. Holders of our Common Stock are entitled to
share ratably in our net assets upon our dissolution or liquidation after payment or provision for all liabilities and any preferential
liquidation rights of our Preferred Stock then outstanding. Holders of our Common Stock have no preemptive rights to purchase
shares of our stock. The shares of our Common Stock are not subject to any redemption provisions. The rights, preferences
and privileges of holders of our Common Stock will be subject to those of the holders of any shares of our Preferred Stock that
we may issue in the future.
Preferred Stock
Our articles of incorporation further
authorize the board of directors to issue, from time to time, without stockholder approval, up to 10,000,000 shares of Preferred
Stock. Our board may, from time to time, authorize the issuance of one or more classes or series of Preferred Stock without stockholder
approval. Subject to the provisions of our articles of incorporation and limitations prescribed by law, our board is authorized
to adopt resolutions to issue shares, establish the number of shares, change the number of shares constituting any series, and
provide or change the voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions
on shares of our Preferred Stock, including dividend rights, terms of redemption, conversion rights and liquidation preferences,
in each case without any action or vote by our stockholders.
One of the effects of undesignated Preferred
Stock may be to enable our board to discourage an attempt to obtain control of our company by means of a tender offer, proxy contest,
merger or otherwise. The issuance of Preferred Stock may adversely affect the rights of our common stockholders by, among other
things: restricting dividends on the Common Stock; diluting the voting power of the Common Stock; impairing the liquidation rights
of the Common Stock; or delaying or preventing a change in control without further action by the stockholders.
Series A Preferred Stock
On May 8, 2019, we filed a certificate
of designation with the Nevada Secretary of State to establish our Series A Preferred Stock. We designated a total of 4,000,000
shares of Preferred Stock as “Series A Cumulative Convertible Preferred Stock.” Our Series A Preferred Stock has the
following voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions:
Ranking. The Series A Preferred
Stock ranks, as to dividend rights and rights upon our liquidation, dissolution, or winding up, senior to our Common Stock. The
terms of the Series A Preferred Stock will not limit our ability to (i) incur indebtedness or (ii) issue additional equity securities
that are equal or junior in rank to the shares of our Series A Preferred Stock as to distribution rights and rights upon our liquidation,
dissolution or winding up.
Dividend Rate and Payment Dates.
Dividends on our Series A Preferred Stock are cumulative and payable monthly in arrears to all holders of record on the applicable
record date. Holders of our Series A Preferred Stock will be entitled to receive cumulative dividends in the amount of $0.017
per share each month, which is equivalent to the rate of 8% of the $2.50 liquidation preference per share. Dividends on shares
of our Series A Preferred Stock will continue to accrue even if any of our agreements prohibit the current payment of dividends
or we do not have earnings.
Liquidation Preference.
The liquidation preference for each share of our Series A Preferred Stock is $2.50. Upon a liquidation, dissolution or winding
up of our company, holders of shares of our Series A Preferred Stock will be entitled to receive the liquidation preference with
respect to their shares plus an amount equal to any accrued but unpaid dividends (whether or not declared) to, but not including,
the date of payment with respect to such shares.
Stockholder Optional Conversion.
Each share of Series A Preferred Stock is convertible, at any time and from time to time, at the option of the holder thereof
and without the payment of additional consideration, into that number of shares of Common Stock determined by dividing the liquidation
preference of such share by the conversion price then in effect. The conversion price is initially equal $2.50, subject to adjustment
as set forth in the certificate of designation. In addition, if at any time the trading price of our Common Stock is greater than
the liquidation preference of $2.50, we may deliver a written notice to all holders to cause each holder to convert all or part
of such holders Series A Preferred Stock.
Company Call and Stockholder Put
Options. Commencing on the fifth anniversary of the initial issuance of shares of our Series A Preferred Stock and continuing
indefinitely thereafter, we shall have a right to call for redemption the outstanding shares of our Series A Preferred Stock at
a call price equal to $3.75, or 150% of the original issue price of our Series A Preferred Stock, and correspondingly, each holder
of shares of our Series A Preferred Stock shall have a right to put the shares of Series A Preferred Stock held by such holder
back to us at a put price equal to $3.75, or 150% of the original issue purchase price of such shares.
Further Issuances. We will
not be required to redeem shares of our Series A Preferred Stock at any time except as otherwise described above under the caption
“Company Call and Stockholder Put Options.” Accordingly, the shares of our Series A Preferred Stock will remain outstanding
indefinitely, unless we decide, at our option, to exercise our call right, the holder of the Series A Preferred Stock exercises
his put right or the holder of shares of Series A Preferred Stock converts such stock into Common Stock in accordance with the
terms of the Series A Preferred Stock. The shares of Series A Preferred Stock are not subject to any sinking fund.
Voting Rights. We may not
authorize or issue any class or series of equity securities ranking senior to the Series A Preferred Stock as to dividends or
distributions upon liquidation (including securities convertible into or exchangeable for any such senior securities) or amend
our articles of incorporation (whether by merger, consolidation, or otherwise) to materially and adversely change the terms of
the Series A Preferred Stock without the affirmative vote of at least two-thirds of the votes entitled to be cast on such matter
by holders of our outstanding shares of Series A Preferred Stock, voting together as a class. Otherwise, holders of the shares
of our Series A Preferred Stock do not have any voting rights.
Series B Preferred Stock
On December 2, 2019, we filed a certificate
of designation with the Nevada Secretary of State to establish our Series B Preferred Stock. We designated a total of 1,000,000
shares of Preferred Stock as “Series B Cumulative Redeemable Preferred Stock.” Our Series B Preferred Stock has the
following voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions:
Ranking. The Series B Preferred
Stock ranks, as to dividend rights and rights upon our liquidation, dissolution, or winding up, senior to our Common Stock and
pari passu with our Series A Preferred Stock. The terms of the Series B Preferred Stock do not limit our ability to (i)
incur indebtedness or (ii) issue additional equity securities that are equal or junior in rank to the shares of our Series B Preferred
Stock as to distribution rights and rights upon our liquidation, dissolution or winding up.
Dividend Rate and Payment Dates.
Dividends on the Series B Preferred Stock are cumulative and payable monthly in arrears to all holders of record on the applicable
record date. Holders of our Series B Preferred Stock are entitled to receive cumulative dividends in the amount of $0.067 per
share each month, which is equivalent to the annual rate of 8% of the $10.00 liquidation preference per share; provided that upon
an event of default (generally defined as our failure to pay dividends when due or to redeem shares when requested by a holder),
such amount shall be increased to $0.083 per month, which is equivalent to the annual rate of 10% of the $10.00 liquidation preference
per share. Dividends on shares of our Series B Preferred Stock will continue to accrue even if any of our agreements prohibit
the current payment of dividends or we do not have earnings.
Liquidation Preference.
The liquidation preference for each share of our Series B Preferred Stock is $10.00. Upon a liquidation, dissolution or winding
up of our company, holders of shares of our Series B Preferred Stock will be entitled to receive the liquidation preference with
respect to their shares plus an amount equal to any accrued but unpaid dividends (whether or not declared) to, but not including,
the date of payment with respect to such shares.
Company Call and Stockholder Put
Options. Commencing on November 29, 2024 (the fifth anniversary of the initial closing of this offering) and continuing
indefinitely thereafter, we shall have a right to call for redemption the outstanding shares of our Series B Preferred Stock at
a call price equal to $15.00, or 150% of the original issue price of our Series B Preferred Stock, and correspondingly, each holder
of shares of our Series B Preferred Stock shall have a right to put the shares of Series B Preferred Stock held by such holder
back to us at a put price equal to $15.00, or 150% of the original issue purchase price of such shares.
Further Issuances. We will
not be required to redeem shares of our Series B Preferred Stock at any time except as otherwise described above under the caption
“Company Call and Stockholder Put Options.” Accordingly, the shares of our Series B Preferred Stock will remain outstanding
indefinitely, unless we decide, at our option, to exercise our call right, the holder of the Series B Preferred Stock exercises
his put right. The shares of Series B Preferred Stock will not be subject to any sinking fund.
Voting Rights. We may not
authorize or issue any class or series of equity securities ranking senior to the Series B Preferred Stock as to dividends or
distributions upon liquidation (including securities convertible into or exchangeable for any such senior securities) or amend
our articles of incorporation (whether by merger, consolidation, or otherwise) to materially and adversely change the terms of
the Series B Preferred Stock without the affirmative vote of at least two-thirds of the votes entitled to be cast on such matter
by holders of our outstanding shares of Series B Preferred Stock, voting together as a class. Otherwise, holders of the shares
of our Series B Preferred Stock will not have any voting rights.
No Conversion Right. The
Series B Preferred Stock are not convertible into shares of our Common Stock.
Anti-takeover Effects of Nevada Law
Business Combinations
The “business combination”
provisions of Sections 78.411 to 78.444, inclusive, of the Nevada Revised Statutes prohibit a Nevada corporation with at least
200 stockholders from engaging in various “combination” transactions with any interested stockholder for a period
of three years after the date of the transaction in which the person became an interested stockholder, unless the transaction
is approved by the board of directors prior to the date the interested stockholder obtained such status; or after the expiration
of the three-year period, unless:
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the transaction is approved
by the board of directors or a majority of the voting power held by disinterested stockholders,
or
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if the consideration to be
paid by the interested stockholder is at least equal to the highest of: (a) the highest
price per share paid by the interested stockholder within the three years immediately
preceding the date of the announcement of the combination or in the transaction in which
it became an interested stockholder, whichever is higher, (b) the market value per share
of common stock on the date of announcement of the combination and the date the interested
stockholder acquired the shares, whichever is higher, or (c) for holders of preferred
stock, the highest liquidation value of the preferred stock, if it is higher.
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A “combination” is defined
to include mergers or consolidations or any sale, lease exchange, mortgage, pledge, transfer or other disposition, in one transaction
or a series of transactions, with an “interested stockholder” having: (a) an aggregate market value equal to 5% or
more of the aggregate market value of the assets of the corporation, (b) an aggregate market value equal to 5% or more of the
aggregate market value of all outstanding shares of the corporation, or (c) 10% or more of the earning power or net income of
the corporation. In general, an “interested stockholder” is a person who, together with affiliates and associates,
owns (or within three years, did own) 10% or more of a corporation’s voting stock.
These provisions could prohibit or delay
mergers or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire our company even
though such a transaction may offer stockholders the opportunity to sell their stock at a price above the prevailing market price.
Control Share Acquisitions
The “control share” provisions
of Sections 78.378 to 78.3793, inclusive, of the Nevada Revised Statutes, which apply only to Nevada corporations with at least
200 stockholders, including at least 100 stockholders of record who are Nevada residents, and which conduct business directly
or indirectly in Nevada, prohibit an acquiror, under certain circumstances, from voting its shares of a target corporation’s
stock after crossing certain ownership threshold percentages, unless the acquiror obtains approval of the target corporation’s
disinterested stockholders. These provisions specify three thresholds: one-fifth or more but less than one-third, one-third but
less than a majority, and a majority or more, of the outstanding voting power. Once an acquiror crosses one of the above thresholds,
those shares in an offer or acquisition, and acquired within 90 days thereof, become “control shares” and such control
shares are deprived of the right to vote until disinterested stockholders restore the right. These provisions also provide that
if control shares are accorded full voting rights and the acquiring person has acquired a majority or more of all voting power,
all other stockholders who do not vote in favor of authorizing voting rights to the control shares are entitled to demand payment
for the fair value of their shares in accordance with statutory procedures established for dissenters’ rights.
Anti-takeover Effects of Articles of
Incorporation and Bylaws
Our articles of incorporation and bylaws
also contain certain provisions that may have anti-takeover effects, making it more difficult for or preventing a third party
from acquiring control of our company or changing our board of directors and management.
As noted above, our articles of incorporation
authorize our board to issue up to 10,000,000 shares of Preferred Stock without further stockholder approval. The Preferred Stock
may be issued in one or more series, the terms of which may be determined at the time of issuance by the board of directors without
further action by the stockholders. These terms may include preferences as to dividends and liquidation, conversion rights, redemption
rights and sinking fund provisions. The issuance of any Preferred Stock could diminish the rights of holders of Common Stock,
and therefore could reduce the value of such Common Stock. In addition, specific rights granted to future holders of Preferred
Stock could be used to restrict our ability to merge with, or sell assets to, a third party. The ability of the board to issue
Preferred Stock could make it more difficult, delay, discourage, prevent or make it more costly to acquire or effect a change-in-control,
which in turn could prevent stockholders from recognizing a gain in the event that a favorable offer is extended and could materially
and negatively affect the market price of our Common Stock.
In addition, according to our articles
of incorporation and bylaws neither the holders of Common Stock nor the holders of Preferred Stock have cumulative voting rights
in the election of directors. The lack of cumulative voting makes it more difficult for other stockholders to replace the board
of directors or for a third party to obtain control of our company by replacing the board of directors. The bylaws also contain
a limitation as to who may call special meetings as well as require advance notice of stockholder matters to be brought at a meeting.
Additionally, our bylaws also provide that no director may be removed by less than a two-thirds vote of the issued and outstanding
shares entitled to vote on the removal.
Transfer Agent and Registrar
The transfer agent and registrar for our
Common Stock is First American Stock Transfer, Inc. with an address at 4747 North 7th Street Suite 170, Phoenix AZ 85014.
Their phone number is (602) 485-1346.
UNDERWRITING
Engagement Agreement with Digital Offering
We are currently party to an engagement
agreement with Digital Offering LLC, who we refer to as the underwriter. The underwriter has agreed to act as our managing broker-dealer
for the offering. The underwriter has made no commitment to purchase all or any part of the shares of Series B Preferred Stock
being offered but has agreed to use its best efforts to sell such shares in the offering.
The term of the engagement agreement began
on April 30, 2019 and will continue until the earlier to occur of: (i) the closing of this offering and (ii) ten (10) business
days after either party gives the other written notice of termination.
The engagement agreement provides that
the underwriter may ask other FINRA member broker-dealers that are registered with the SEC to participate as soliciting dealers
for this offering. We refer to these other broker-dealers as soliciting dealers. Upon appointment of any such soliciting dealer,
the underwriter is permitted to re-allow all or part of its fees and expense allowance as described below. Such soliciting dealer
is also automatically entitled to receive the benefits of our engagement agreement with the underwriter, including the indemnification
rights arising under the engagement agreement upon their execution of a soliciting dealer agreement with the underwriter that
confirms that such soliciting dealer is so entitled. We will not be responsible for paying any placement agency fees, commissions
or expense reimbursements to any soliciting dealers retained by the underwriter that is in excess of the fees and expense reimbursement
provided for under our engagement agreement with the underwriter.
None of the soliciting dealers are purchasing
any of the shares of Series B Preferred Stock in this offering and are not required to sell any specific number or dollar amount
of Series B Preferred Stock, but will instead arrange for the sale of securities to investors on a “best efforts”
basis, meaning that they need only use their best efforts to sell the securities.
Underwriter Compensation
Cash Commission
We will pay the underwriter concurrently
with each closing of the offering a cash placement fee equal to 7% of the gross proceeds of such closing.
Underwriter Expenses
We will be responsible for paying or reimbursing
the underwriter for all of its reasonable documented out-of-pocket expenses related to the offering including, without limitation,
the underwriter’s legal expenses, cost of background checks and independent third party due diligence reports on our company,
travel expenses, photocopying, and courier services subject to a cap of $30,000.
Retainer Amount
Upon entering into the engagement agreement
with the underwriter, we paid the underwriter a $15,000 retainer, which was used by the underwriter for the payment of the legal
and other expenses described above. The retainer amount will be set off against and credited toward the expenses described above.
Any unused portion of the retainer amount will be returned to us if the offering is terminated for any reason.
Right of First Refusal
We will grant the underwriter a right
of first refusal, for a period of 6 months following the completion of this offering, to act as financial advisor or to act as
a joint financial advisor on at least equal economic terms on any public or private equity financing of our company.
Company Expenses
We are responsible for all of our own
costs and expenses relating to the offering, including, without limitation:
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all filing fees and communication
expenses relating to the qualification of the securities to be sold in the offering with
the SEC and the filing of the offering materials with the FINRA under FINRA Rule 5110,
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the My IPO investor platform
is paperless, should we want paper offering documents, the costs of all mailing and printing
of the offering documents, the offering statement, the offering circular and all amendments,
supplements and exhibits thereto and as many preliminary and final offering circulars
as the underwriter and we may reasonably deem necessary,
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the costs of preparing, electronically
delivering certificates representing shares of Series B Preferred Stock sold in the offering,
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the costs and expenses of
the transfer agent for the Series B Preferred Stock, and
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the costs and expenses of
our accountants and the fees and expenses of our legal counsel and other agents and representatives.
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We estimate the expenses of this offering
payable by us, not including commissions, will be approximately $115,000, which includes the underwriter expense reimbursement
of up to $30,000, but excludes any commissions attributable to the sale of shares of our Series B Preferred Stock in the offering.
Purchase of Securities by Our Officers
and Directors
Our officers and directors and affiliates
of our officers and directors are permitted to purchase shares in the offering. Any such purchases shall be conducted in compliance
with the applicable provisions of Regulation M.
Pricing of the Offering
Prior to the offering, our Common Stock
has been eligible for quotation on the OTC Pink Market, however, there has been very little trading of our Common Stock on such
market. The public offering price for our Series B Preferred Stock was determined by negotiation between us and the underwriter.
The principal factors considered in determining the terms of our Series B Preferred Stock and the public offering price include:
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the information set forth
in this offering circular and otherwise available to the underwriter;
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our history and prospects
and the history of and prospects for the industry in which we compete;
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our past and present financial
performance;
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our prospects for future
earnings and the present state of our development;
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the general condition of
the securities markets at the time of this offering;
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the recent market prices
of, and demand for, publicly traded Common Stock of generally comparable companies;
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the price and terms upon
which we sold shares of our Series A Preferred Stock; and
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other factors deemed relevant
by our underwriter and us.
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Indemnification and Control
We have agreed to indemnify the underwriter
and soliciting dealers against liabilities relating to the offering arising under the Securities Act and the Exchange Act, liabilities
arising from breaches of some or all of the representations and warranties contained in our engagement agreement with the underwriter
or the Representation Letter (as defined in the engagement agreement) or agreements with soliciting dealers, and to contribute
to payments that the soliciting dealers may be required to make for these liabilities.
The underwriter and the soliciting dealers
and their respective affiliates are engaged in various activities, which may include securities trading, commercial and investment
banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage
activities. The underwriter and the soliciting dealers and their respective affiliates may in the future perform various financial
advisory and investment banking services for us, for which they received or will receive customary fees and expenses.
Our Relationship with the Underwriter
and Soliciting Dealers
In the ordinary course of their various
business activities, the underwriter and soliciting dealers and their respective affiliates may make or hold a broad array of
investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including
bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may involve
securities and/or instruments of our company. The underwriter and soliciting dealers and their respective affiliates may also
make investment recommendations and/or publish or express independent research views in respect of such securities or instruments,
or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
Offering Period and Expiration Date
This offering commenced on the date
that the offering was originally qualified by the SEC (November 1, 2019) and will terminate at the earlier of: (1) the date
at which the maximum amount of offered Series B Preferred Stock has been sold, (2) the date which is 180 days after this
offering was qualified by the SEC, subject to an extension of up to an additional 180 days at the discretion of our company
and the underwriter, or (3) the date on which this offering is earlier terminated by us in our sole discretion. We refer to
the duration of this offering as described above as the offering period.
Investment Procedures
Subscription Procedures for Cambria
Capital, My IPO and Cambria Capital’s Clearing Firm
Cambria Capital is an SEC registered broker-dealer
and member of FINRA and SIPC. Cambria Capital has been appointed by us and Digital Offering, our managing broker-dealer, as a
soliciting dealer for this offering. Cambria Capital operates the My IPO platform as a separate unincorporated business division.
Cambria Capital’s clearing firm, who we refer to as the Clearing Firm, is an SEC registered broker-dealer and member of
FINRA and SIPC and is authorized to act as a clearing broker-dealer. Cambria Capital and its My IPO division clear through the
Clearing Firm as do other broker-dealers who may participate in this offering. We refer to such other broker-dealers that clear
through the Clearing Firm and who may participate in this offering as Other Broker-Dealers.
Prospective investors investing through
Cambria Capital, My IPO or Other Broker-Dealers will acquire shares of our Series B Preferred Stock through book-entry order by
opening an account with Cambria Capital, My IPO, or an Other Broker-Dealer, or by utilizing an existing Cambria Capital account,
My IPO account or account with an Other Broker-Dealer. In each such case, the account will be an account owned by the investor
and held at the Clearing Firm, as the clearing firm for the exclusive benefit of such investor. The investor will also be required
to complete and submit a subscription agreement. Subscriptions for shares of Series B Preferred Stock acquired through an
account at Cambria Capital, My IPO or an Other Broker-Dealer are all processed online.
Our transfer agent is First American Stock
Transfer Inc. Our transfer agent will record and maintain records of the shares of Series B Preferred Stock issued of record by
us, including shares issued of record to the Depositary Trust Corporation, which we refer to as the DTC, or its nominee, Cede
& Co., for the benefit of broker-dealers, including the Clearing Firm. The Clearing Firm, as the clearing firm, will maintain
the individual shareholder beneficial records for accounts at Cambria Capital, My IPO or Other Broker-Dealers.
The process for investing through Cambria
Capital, My IPO or through Other Broker-Dealers will work in the following manner. The Clearing Firm will enter into a custody
agreement with us pursuant to which we will issue uncertificated securities to be held at the Clearing Firm, and the shares of
Series B Preferred stock held at the Clearing Firm will be reflected as an omnibus position on our records and the transfer agent’s
records in the name of the Clearing Firm, for the exclusive benefit of customers. We will open a brokerage account with the Clearing
Firm and the Clearing Firm will hold the shares of Series B Preferred Stock to be sold in the offering in book-entry form in our
company’s Clearing Firm account. When the shares of Series B Preferred stock are sold, the Clearing Firm maintains a record
of each investor’s ownership interest in those securities. Under an SEC no-action letter provided to the Clearing Firm in
January 2015, the Clearing Firm is allowed to treat the issuer as a good control location pursuant to Exchange Act Rule 15c3-3(c)(7)
under these circumstances. The customer’s funds will not be transferred into a separate account awaiting the initial closing,
or any other closing, but will remain in the customer’s account at the Clearing Firm pending instructions to release funds
to us if all conditions necessary for a closing are met. We intend to apply for DTC eligibility of our shares and if our shares
gain DTC eligibility then the shares held in the Clearing Firm accounts will be included in the position of DTC or its nominee,
Cede & Co., on the records of our transfer agent.
In order to subscribe to purchase the
shares of Series B Preferred Stock through Cambria Capital, My IPO or through an Other Broker-Dealer, a prospective investor must
electronically complete and execute a subscription agreement and provide payment using the procedures indicated below. When submitting
the subscription request through Cambria Capital, My IPO or an Other Broker-Dealer, a prospective investor is required to agree
to various terms and conditions by checking boxes and to review and electronically sign any necessary documents. We will not accept
any subscription agreements prior to the SEC’s qualification of this offering.
The funds that will be used by an investor
purchasing through Cambria Capital, My IPO or an Other Broker-Dealer that clears through the Clearing Firm to purchase the securities
are deposited by the investor prior to the applicable closing date into a brokerage account at the Clearing Firm, which will be
owned by the investor. The funds for the investor’s account held at the Clearing Firm can be provided by check, wire, Automated
Clearing House, or ACH, push, ACH pull, direct deposit, Automated Customer Account Transfer Service, or ACATS, or non-ACATS transfer.
Under an SEC no-action letter provided to the Clearing Firm in July 2015, the funds will remain in the customer’s account
after they are deposited and until the conditions of the offering are satisfied and the offering closes, the prospective investor’s
offer is cancelled, or this offering is withdrawn or expired.
After any contingencies of the offering
or any particular closing are met, we will notify the Clearing Firm when we wish to conduct a closing. The Clearing Firm executes
the closing by transferring each investor’s funds from their Cambria Capital, My IPO or Other Broker-Dealer accounts to
our Clearing Firm account and transferring the correct number of book-entry shares to each investor’s account from our Clearing
Firm account. The shares are then reflected in the investor’s online account and shown on the investor’s Cambria Capital,
My IPO or Other Broker-Dealer account statements. Cambria Capital, My IPO and Other Broker-Dealers will also send trade confirmations
individually to the investors.
Other Procedures for Subscribing
Investors not purchasing through Cambria
Capital, My IPO or an Other Broker-Dealer that clears through the Clearing Firm must complete and execute a subscription agreement
for a specific number of shares and pay for the shares at the time of the subscription. Subscription agreements may be submitted
in paper form, or electronically, if electronic subscription agreements and signature are made available to you by your broker-dealer
or registered investment advisor. Generally, when submitting a subscription agreement electronically, a prospective investor will
be required to agree to various terms and conditions by checking boxes and to review and electronically sign any necessary documents.
You may pay the purchase price for your shares by check or wire transfer in accordance with the instructions contained
in your subscription agreement. All checks should be made payable to “WILMINGTON TRUST, N.A. as Escrow Agent for Manufactured Housing
Escrow.” Completed subscription agreements will be sent by your broker-dealer or registered investment advisor, as applicable,
to Digital Offering at the address set forth in the subscription agreement. Subscription payments should be delivered directly
to the escrow agent. If you send your subscription payment to your broker or registered investment advisor, then your broker or
registered investment advisor will immediately forward your subscription payment to the escrow agent. Subscriptions will be effective
only upon our acceptance, and we reserve the right to reject any subscription in whole or in part.
You may not subscribe to this offering
prior to the date this offering is qualified by the SEC, which we will refer to as the qualification date. Before the qualification
date, you may only make non-binding indications of your interest to purchase securities in the offering. For any subscription
agreements received after the qualification date, we have the right to review and accept or reject the subscription in whole or
in part, for any reason or for no reason. If rejected, we will return all funds to the rejected investor within ten business days.
If accepted, the funds will remain in the escrow account until all conditions to closing have been satisfied or waived, at which
point we will have an initial closing of the offering and the funds in escrow will then be transferred into our general account.
Following the initial closing of this
offering, we expect to have several subsequent closings of this offering until the maximum offering amount is raised or the offering
is terminated. We expect to have closings on a monthly basis and expect that we will accept all funds subscribed for each month
subject to our working capital and other needs consistent with the use of proceeds described in this offering circular. Investors
should expect to wait approximately one month and no longer than forty-five days before we accept their subscriptions and they
receive the securities subscribed for. An investor’s subscription is binding and irrevocable and investors will not
have the right to withdraw their subscription or receive a return of funds prior to the next closing unless we reject the investor’s
subscription. You will receive a confirmation of your purchase promptly following the closing in which you participate.
Right to Reject Subscriptions
After we receive your complete, executed
subscription agreement (a form of which is attached to the offering statement as Exhibit 4.1) and the funds required under the
subscription agreement have been transferred to the escrow account, we have the right to review and accept or reject your subscription
in whole or in part, for any reason or for no reason. We will return all monies from rejected subscriptions immediately to you,
without interest or deduction.
Acceptance of Subscriptions
Upon our acceptance of a subscription
agreement, we will countersign the subscription agreement and issue the shares subscribed at closing. Once you submit the subscription
agreement and it is accepted, you may not revoke or change your subscription or request your subscription funds. All accepted
subscription agreements are irrevocable.
Investment Amount Limitations
Generally, no sale may be made to you
in this offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or net worth. Different
rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed
applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For general information on investing,
we encourage you to refer to www.investor.gov.
As a Tier 2, Regulation A offering, investors
must comply with the 10% limitation to investment in the offering. The only investor in this offering exempt from this limitation
is an “Accredited Investor” as defined under Rule 501 of Regulation D. If you meet one of the following tests you
should qualify as an Accredited Investor:
|
1.
|
You are a natural person who has
had individual income in excess of $200,000 in each of the two most recent years, or
joint income with your spouse in excess of $300,000 in each of these years, and have
a reasonable expectation of reaching the same income level in the current year;
|
|
2.
|
You are a natural person and your
individual net worth, or joint net worth with your spouse, exceeds $1,000,000 at the
time you purchase our units (please see above on how to calculate your net worth);
|
|
3.
|
You are an executive officer or
general partner of the issuer or a manager or executive officer of the general partner
of the issuer;
|
|
4.
|
You are an organization described
in Section 501(c)(3) of the Code, a corporation, a Massachusetts or similar business
trust or a partnership, not formed for the specific purpose of acquiring the units, with
total assets in excess of $5,000,000;
|
|
5.
|
You are a bank or a savings and
loan association or other institution as defined in the Securities Act, a broker or dealer
registered pursuant to Section 15 of the Exchange Act, an insurance company as defined
by the Securities Act, an investment company registered under the Investment Company
Act or a business development company as defined in that act, any Small Business Investment
Company licensed by the Small Business Investment Act of 1958 or a private business development
company as defined in the Investment Advisers Act of 1940;
|
|
6.
|
You are an entity (including an
Individual Retirement Account trust) in which each equity owner is an accredited investor;
|
|
7.
|
You are a trust with total assets
in excess of $5,000,000, your purchase of units is directed by a person who either alone
or with his purchaser representative(s) (as defined in Regulation D promulgated under
the Securities Act) has such knowledge and experience in financial and business matters
that he is capable of evaluating the merits and risks of the prospective investment,
and you were not formed for the specific purpose of investing in the units; or
|
|
8.
|
You are a plan established and
maintained by a state, its political subdivisions, or any agency or instrumentality of
a state or its political subdivisions, for the benefit of its employees, if such plan
has assets in excess of $5,000,000.
|
NOTE: For the purposes of calculating
your Net Worth, it is defined as the difference between total assets and total liabilities. This calculation must exclude the
value of your primary residence and may exclude any indebtedness secured by your primary residence (up to an amount equal to the
value of your primary residence). In the case of fiduciary accounts, net worth and/or income suitability requirements may be satisfied
by the beneficiary of the account or by the fiduciary, if the fiduciary directly or indirectly provides funds for the purchase
of the units.
Offer Restrictions Outside the United
States
Other than in the United States, no action
has been taken by us or the underwriter that would permit a public offering of the securities offered by this offering circular
in any jurisdiction where action for that purpose is required. The securities offered by this offering circular may not be offered
or sold, directly or indirectly, nor may this offering circular or any other offering material or advertisements in connection
with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that
will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this offering
circular comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution
of this offering circular. This offering circular does not constitute an offer to sell or a solicitation of an offer to buy any
securities offered by this offering circular in any jurisdiction in which such an offer or a solicitation is unlawful.
LEGAL MATTERS
The validity of the shares of Series B
Preferred Stock covered by this offering circular will be passed upon by Sherman & Howard L.L.C.
EXPERTS
The consolidated financial statements
of our company for the years ended December 31, 2019 and 2018 have been audited by Liggett & Webb, P.A., an independent registered
public accounting firm, to the extent and for the periods set forth in their reports appearing elsewhere herein and in the offering
statement, and are included in reliance on such reports, given the authority of said firm as an expert in auditing and accounting.
WHERE YOU CAN
FIND MORE INFORMATION
We have filed with the SEC an offering
statement on Form 1-A under the Securities Act with respect to the units offered in this offering. This offering circular
does not contain all of the information set forth in the offering statement. For further information with respect to the units
offered in this offering and our company, we refer you to the offering statement and to the attached exhibits. With respect to
each such document filed as an exhibit to the offering statement, we refer you to the exhibit for a more complete description
of the matters involved.
You may inspect our offering statement
and the attached exhibits and schedules without charge at the public reference facilities maintained by the SEC at 100 F Street,
N.E., Washington, D.C. 20549. You can also request copies of those documents, upon payment of a duplicating fee, by writing to
the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms.
Our SEC filings, including the offering
statement and the exhibits filed with the offering statement, are also available from the SEC’s website at www.sec.gov,
which contains reports, proxy and information statements and other information regarding issuers that file electronically with
the SEC. Additionally, we will make these filings available, free of
charge, on our website at www.mhproperties.com as soon as reasonably
practicable after we electronically file such materials with, or furnish them to, the SEC. The information on our website, other
than these filings, is not, and should not be, considered part of this prospectus and is not incorporated by reference into this
document.
FINANCIAL STATEMENTS
MANUFACTURED
HOUSING PROPERTIES INC.
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019
AND 2018
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
of:
Manufactured Housing Properties Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of Manufactured Housing Properties Inc. (the “Company”) as of December 31, 2019 and 2018, the related
consolidated statements of operations, changes in stockholders’ equity (deficit) and cash flows for each of the two years
ended December 31, 2019 and 2018, and the related notes. In our opinion, the consolidated financial statements present fairly,
in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations
and its cash flows for the years ended December 31, 2019 and 2018, in conformity with accounting principles generally accepted
in the United States of America.
Basis for Opinion
These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance
with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is
not required to have, nor were we engaged to perform, an audit of its internal controls over financial reporting. As part of our
audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing
an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such
opinion.
Our audits included performing procedures
to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
/s/ LIGGETT & WEBB, P.A.
LIGGETT & WEBB, P.A.
Certified Public Accountants
We have served as the Company’s
auditor since 2017.
Boynton Beach, Florida
April 14, 2020
MANUFACTURED HOUSING
PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2019 AND 2018
Assets
|
|
2019
|
|
|
2018
|
|
Investment Property
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
11,130,259
|
|
|
$
|
4,357,950
|
|
Site and Land Improvements
|
|
|
17,466,801
|
|
|
|
6,781,845
|
|
Buildings and Improvements
|
|
|
6,214,725
|
|
|
|
1,441,222
|
|
Total Investment Property
|
|
|
34,811,785
|
|
|
|
12,581,017
|
|
Accumulated Depreciation & Amortization
|
|
|
(1,394,958
|
)
|
|
|
(699,184
|
)
|
Net Investment Property
|
|
|
33,416,827
|
|
|
|
11,881,833
|
|
Cash and Cash Equivalents
|
|
|
4,146,411
|
|
|
|
458,271
|
|
Accounts Receivable, net
|
|
|
31,881
|
|
|
|
12,987
|
|
Other Assets
|
|
|
557,012
|
|
|
|
99,472
|
|
Total Assets
|
|
$
|
38,152,131
|
|
|
$
|
12,452,563
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
$
|
227,406
|
|
|
$
|
71,091
|
|
Notes Payable, net of $633,629 and $140,758
|
|
|
28,359,247
|
|
|
|
8,945,352
|
|
Notes Payable – Related Party
|
|
|
797,906
|
|
|
|
890,632
|
|
Note Payable – Related Party
|
|
|
1,730,000
|
|
|
|
2,754,550
|
|
Accrued Liabilities
|
|
|
551,481
|
|
|
|
612,819
|
|
Tenant Security Deposits
|
|
|
316,035
|
|
|
|
131,149
|
|
Total Liabilities
|
|
|
31,982,075
|
|
|
|
13,405,593
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (See note 6)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Redeemable Preferred Stock – subject to redemption
|
|
|
|
|
|
|
|
|
Series A Cumulative Convertible Preferred Stock,
par value $0.01 per share; 4,000,000 shares authorized; 1,890,000 and zero shares issued and outstanding as of December 31,
2019 and December 31, 2018, respectively; redemption value $7,087,500
|
|
|
4,909,000
|
|
|
|
-
|
|
Series B Cumulative Redeemable Preferred Stock,
par value $0.01 per share; 1,000,000 shares authorized; 409,722 and zero shares issued and outstanding as of December 31,
2019 and December 31, 2018, respectively; redemption value $6,145,830
|
|
|
3,973,610
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity (deficit)
|
|
|
|
|
|
|
|
|
Common Stock, par value $0.01 per share; 200,000,000
shares authorized; 12,336,080 and 10,350,062 shares are issued and outstanding as of December 31, 2019 and 2018, respectively
|
|
|
123,361
|
|
|
|
103,500
|
|
Additional Paid in Capital
|
|
|
1,004,170
|
|
|
|
451,567
|
|
Accumulated Deficit
|
|
|
(3,840,085
|
)
|
|
|
(1,801,338
|
)
|
Total Manufactured Housing Properties Inc. Stockholders’ Deficit
|
|
|
(2,712,554
|
)
|
|
|
(1,246,271
|
)
|
|
|
|
|
|
|
|
|
|
Non-controlling Interest
|
|
|
-
|
|
|
|
293,241
|
|
Total Equity (Deficit)
|
|
|
(2,712,554
|
)
|
|
|
(953,030
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
$
|
38,152,131
|
|
|
$
|
12,452,563
|
|
See accompanying notes to consolidated
financial statements
MANUFACTURED HOUSING
PROPERTIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2019
AND 2018
|
|
2019
|
|
|
2018
|
|
Revenue
|
|
|
|
|
|
|
Rental and related income
|
|
$
|
2,968,472
|
|
|
$
|
1,975,312
|
|
Management fees, related party
|
|
|
48,319
|
|
|
|
4,000
|
|
Home sales
|
|
|
4,900
|
|
|
|
21,000
|
|
Total revenues
|
|
|
3,021,691
|
|
|
|
2,000,312
|
|
|
|
|
|
|
|
|
|
|
Community operating expenses
|
|
|
|
|
|
|
|
|
Repair and maintenance
|
|
|
234,770
|
|
|
|
135,131
|
|
Real estate taxes
|
|
|
142,187
|
|
|
|
81,024
|
|
Utilities
|
|
|
212,719
|
|
|
|
149,516
|
|
Insurance
|
|
|
83,975
|
|
|
|
54,079
|
|
General and administrative expense
|
|
|
476,137
|
|
|
|
256,631
|
|
Total community operating expenses
|
|
|
1,149,788
|
|
|
|
676,381
|
|
|
|
|
|
|
|
|
|
|
Corporate payroll and overhead
|
|
|
1,253,383
|
|
|
|
1,030,527
|
|
Depreciation and amortization expense
|
|
|
786,179
|
|
|
|
534,290
|
|
Interest expense
|
|
|
1,312,469
|
|
|
|
1,001,455
|
|
Refinancing costs
|
|
|
552,272
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Expenses
|
|
|
5,054,091
|
|
|
|
3,242,653
|
|
|
|
|
|
|
|
|
|
|
Net loss before provision for income taxes
|
|
|
(2,032,400
|
)
|
|
|
(1,242,341
|
)
|
Provision for income taxes
|
|
|
6,347
|
|
|
|
8,286
|
|
Net loss
|
|
$
|
(2,038,747
|
)
|
|
$
|
(1,250,627
|
)
|
Net Income attributable to the non-controlling interest
|
|
|
-
|
|
|
|
45,766
|
|
Net Loss attributable to the Company
|
|
$
|
(2,038,747
|
)
|
|
$
|
(1,296,393
|
)
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
|
|
|
|
|
|
Series A preferred
|
|
|
125,700
|
|
|
|
-
|
|
Series A preferred put option cost
|
|
|
184,000
|
|
|
|
-
|
|
Series B preferred
|
|
|
23,233
|
|
|
|
-
|
|
Series B preferred put option cost
|
|
|
28,004
|
|
|
|
-
|
|
Total preferred stock dividends
|
|
$
|
360,937
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Net Loss attributable to common shareholders
|
|
$
|
(2,399,684
|
)
|
|
$
|
(1,296,393
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares – basic and fully diluted
|
|
|
12,624,171
|
|
|
|
10,100,747
|
|
|
|
|
|
|
|
|
|
|
Weighted average – basic and fully diluted
|
|
$
|
(0.19
|
)
|
|
$
|
(0.13
|
)
|
See accompanying notes to consolidated
financial statements
MANUFACTURED HOUSING
PROPERTIES INC.
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS’ DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2019
AND 2018
|
|
PREFERRED STOCK
|
|
|
COMMON STOCK
|
|
|
ADDITIONAL
PAID IN
|
|
|
NON
CONTROLLING
|
|
|
ACCUMULATED
|
|
|
STOCKHOLDERS’
|
|
|
|
SHARES
|
|
|
PAR VALUE
|
|
|
SHARES
|
|
|
PAR VALUE
|
|
|
CAPITAL
|
|
|
INTEREST
|
|
|
DEFICIT
|
|
|
DEFICIT
|
|
Balance at January 1, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
10,000,062
|
|
|
$
|
100,000
|
|
|
$
|
238,803
|
|
|
$
|
302,580
|
|
|
$
|
(504,945
|
)
|
|
$
|
136,438
|
|
Stock option expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
69
|
|
|
|
-
|
|
|
|
-
|
|
|
|
69
|
|
Non controlling Interest distributions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(55,105
|
)
|
|
|
-
|
|
|
|
(55,105
|
)
|
Stock issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
350,000
|
|
|
|
3,500
|
|
|
|
168,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
171,500
|
|
Imputed interest
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
44,695
|
|
|
|
-
|
|
|
|
-
|
|
|
|
44,695
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
45,766
|
|
|
|
(1,296,393
|
)
|
|
|
(1,250,627
|
)
|
Balance at December 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
10,350,062
|
|
|
$
|
103,500
|
|
|
$
|
451,567
|
|
|
$
|
293,241
|
|
|
$
|
(1,801,338
|
)
|
|
$
|
(953,030
|
)
|
Stock option expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,774
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,774
|
|
Common Stock issuance for acquisition of minority
interest
|
|
|
-
|
|
|
|
-
|
|
|
|
2,000,000
|
|
|
|
20,000
|
|
|
|
517,562
|
|
|
|
(293,241
|
)
|
|
|
-
|
|
|
|
244,321
|
|
Common stock issuance for related party note
|
|
|
-
|
|
|
|
-
|
|
|
|
545,000
|
|
|
|
5,450
|
|
|
|
299,750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
305,200
|
|
Common stock issuance for cash for related party
note
|
|
|
-
|
|
|
|
-
|
|
|
|
254,506
|
|
|
|
2,545
|
|
|
|
66,172
|
|
|
|
-
|
|
|
|
-
|
|
|
|
68,717
|
|
Common stock issuance for service
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
250
|
|
|
|
6,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,750
|
|
Common stock issued to the board
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
500
|
|
|
|
13,000
|
|
|
|
|
|
|
|
|
|
|
|
13,500
|
|
Purchase treasury common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
(350,000
|
)
|
|
|
(3,500
|
)
|
|
|
(58,337
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(61,837
|
)
|
Common stock repurchased and retired
|
|
|
-
|
|
|
|
-
|
|
|
|
(553,888
|
)
|
|
|
(5,538
|
)
|
|
|
(51,962
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(57,500
|
)
|
Stock issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24,500
|
|
Series A Preferred dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(125,700
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(125,700
|
)
|
Accretion Series A Preferred
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(28,004
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(28,004
|
)
|
Series B Preferred dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(23,233
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(23,233
|
)
|
Accretion Series B Preferred
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(184,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(184,000
|
)
|
Common Stock issuance to preferred share holders
|
|
|
-
|
|
|
|
-
|
|
|
|
15,400
|
|
|
|
154
|
|
|
|
4,004
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,158
|
|
Imputed interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
87,577
|
|
|
|
-
|
|
|
|
-
|
|
|
|
87,577
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,038,747
|
)
|
|
|
(2,038,747
|
)
|
Balance at December 31, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
12,336,080
|
|
|
$
|
123,361
|
|
|
$
|
1,004,170
|
|
|
$
|
-
|
|
|
$
|
(3,840,085
|
)
|
|
$
|
(2,712,554
|
)
|
See accompanying notes to consolidated
financial statements
MANUFACTURED HOUSING
PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2019
AND 2018
|
|
2019
|
|
|
2018
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(2,038,747
|
)
|
|
$
|
(1,250,627
|
)
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
In-kind contribution of interest
|
|
|
87,577
|
|
|
|
44,695
|
|
Provision for bad debts
|
|
|
10,117
|
|
|
|
59,657
|
|
Stock option expense
|
|
|
4,774
|
|
|
|
69
|
|
Stock compensation expense
|
|
|
349,950
|
|
|
|
171,500
|
|
Write off mortgage cost
|
|
|
68,280
|
|
|
|
-
|
|
Amortization debt discount
|
|
|
47,390
|
|
|
|
-
|
|
Loss on home sales
|
|
|
(11,678
|
)
|
|
|
-
|
|
Depreciation and amortization
|
|
|
738,789
|
|
|
|
534,290
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(29,011
|
)
|
|
|
(26,244
|
)
|
Other assets
|
|
|
(457,540
|
)
|
|
|
(49,501
|
)
|
Accounts payable
|
|
|
156,315
|
|
|
|
35,365
|
|
Accrued expenses
|
|
|
(61,338
|
)
|
|
|
476,459
|
|
Other liabilities and deposits
|
|
|
184,886
|
|
|
|
42,812
|
|
Net Cash Provided by (Used in) Operating Activities
|
|
|
(950,236
|
)
|
|
|
38,475
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Purchases of investment properties
|
|
|
(22,022,684
|
)
|
|
|
(231,247
|
)
|
Proceeds from sale of properties
|
|
|
4,900
|
|
|
|
21,000
|
|
Net Cash Used in Investing Activities
|
|
|
(22,017,784
|
)
|
|
|
(210,247
|
)
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
72,875
|
|
|
|
-
|
|
Proceeds from related – party note
|
|
|
7,075
|
|
|
|
448,750
|
|
Repayment of notes payable – related party
|
|
|
(99,801
|
)
|
|
|
-
|
|
Proceeds from note payables
|
|
|
25,079,000
|
|
|
|
117,014
|
|
Repayment of notes payable
|
|
|
(5,172,234
|
)
|
|
|
(236,551
|
)
|
Proceeds from issuance of preferred stock
|
|
|
8,670,606
|
|
|
|
-
|
|
Purchase of treasury stock
|
|
|
(119,337
|
)
|
|
|
-
|
|
Capitalized financing cost
|
|
|
(608,541
|
)
|
|
|
-
|
|
Repayment of related party note
|
|
|
(3,719,550
|
)
|
|
|
-
|
|
Proceeds from related party note
|
|
|
2,695,000
|
|
|
|
-
|
|
Preferred shares dividends
|
|
|
(148,933
|
)
|
|
|
-
|
|
Non controlling interest (distributions)
|
|
|
-
|
|
|
|
(55,105
|
)
|
Net Cash Provided by Financing Activities
|
|
|
26,656,160
|
|
|
|
274,108
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash and cash equivalents
|
|
|
3,688,140
|
|
|
|
102,336
|
|
Cash and cash equivalents at Beginning of the Period
|
|
|
458,271
|
|
|
|
355,935
|
|
Cash and cash equivalents at End of the Period
|
|
$
|
4,146,411
|
|
|
$
|
458,271
|
|
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Income Taxes
|
|
$
|
6,347
|
|
|
$
|
8,286
|
|
Interest
|
|
$
|
1,084,104
|
|
|
$
|
751,344
|
|
|
|
|
|
|
|
|
|
|
Non-Cash Investing and Financing Activities
|
|
|
|
|
|
|
|
|
Purchase of minority interest in Pecan Grove
|
|
$
|
537,562
|
|
|
$
|
-
|
|
Non-cash Preferred stock accretion
|
|
$
|
212,004
|
|
|
$
|
-
|
|
See accompanying notes to consolidated
financial statements
MANUFACTURED HOUSING
PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019
AND 2018
NOTE 1 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES AND ORGANIZATION
Organization
Manufactured Housing Properties Inc. (the
“Company”) is a Nevada corporation whose principal activities are to acquire, own, and operate manufactured housing
communities. Mobile Home Rental Holdings (“MHRH”) was formed in April 2016 to acquire the assets for Pecan Grove MHP
in November 2016 and Butternut MHP in April 2017. To continue the acquisition and aggregation of mobile home parks, MHRH intend
to raise capital in the public markets. Therefore, on October 21, 2017, MHRH was acquired by and merged with a public entity Stack-it
Storage, Inc. (OTC: STAK). As part of the merger transaction, Stack-it Storage, Inc. changed its name to Manufactured Housing
Properties Inc. (OTC: MHPC).
For accounting purposes, this
transaction was accounted for as a reverse merger and has been treated as a recapitalization of Stack-it Storage, Inc. with Manufactured
Housing Properties Inc. as the accounting acquirer.
Basis of Presentation
The Company prepares its consolidated
financial statements present the balance sheets, statements of operations. changes in stockholder’s deficit and cash flows
of the Company under the accrual basis of accounting, in conformity with accounting principles generally accepted in the United
States of America (“GAAP”).
Principle of Consolidation
The accompanying financial statements
are presented on a consolidated basis the accounts of the Company and its wholly owned subsidiaries. All intercompany balances
have been eliminated upon consolidation.
The Company’s subsidiaries are all
formed as limited liability companies. The acquisition and date of consolidation are as follows:
Name
of Subsidiary
|
|
State of
Formation
|
|
Date of Consolidation
|
|
Ownership
|
Pecan Grove MHP LLC
|
|
North Carolina
|
|
October 12, 2016*
|
|
100%*
|
Butternut MHP Land LLC
|
|
Delaware
|
|
March 1, 2017
|
|
100%
|
Azalea MHP LLC
|
|
North Carolina
|
|
October 25, 2017
|
|
100%
|
Holly Faye MHP LLC
|
|
North Carolina
|
|
October 25, 2017
|
|
100%
|
Chatham Pines MHP LLC
|
|
North Carolina
|
|
October 31, 2017
|
|
100%
|
Maple Hills MHP LLC
|
|
North Carolina
|
|
October 31, 2017
|
|
100%
|
Lakeview MHP LLC
|
|
South Carolina
|
|
November 1, 2017
|
|
100%
|
MHP Pursuits LLC
|
|
North Carolina
|
|
January 31, 2019
|
|
100%
|
Mobile Home Rentals LLC
|
|
North Carolina
|
|
September 30, 2016
|
|
100%
|
Hunt Club MHP LLC
|
|
South Carolina
|
|
March 8, 2019
|
|
100%
|
B&D MHP LLC
|
|
South Carolina
|
|
April 4, 2019
|
|
100%
|
Crestview MHP LLC
|
|
North Carolina
|
|
June 28, 2019
|
|
100%
|
Springlake MHP LLC
|
|
Georgia
|
|
October 10, 2019
|
|
100%
|
ARC MHP LLC
|
|
South Carolina
|
|
November 13, 2019
|
|
100%
|
*The Company originally acquired a 75% interest. In January
2019, the Company acquired the remaining 25% interest from a related party.
All intercompany transactions and balances
have been eliminated in consolidation. The Company does not have a majority or minority interest in any other company, either
consolidated or unconsolidated.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019
AND 2018
Revenue Recognition
The Company follows Topic 606
of the Financial Accounting Standards Board Accounting (“FASB”) Accounting Standards Codification (“ASC”)
for revenue recognition and Accounting Standards Update (“ASU”) 2014-09. On January 1, 2018, the Company adopted ASU
2014-09, which is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the
transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for
those goods or services. The Company considers revenue realized or realizable and earned when all the five following criteria
are met: (1) identification of the contract with a customer, (2) identification of the performance obligations in the contract,
(3) determination of the transaction price, (4) allocation of the transaction price to the performance obligations in the contract,
and (5) recognition of revenue when (or as) the Company satisfies a performance obligation. Results for reporting periods beginning
after January 1, 2018 are presented under ASU 2014-09, while prior period amounts are not adjusted and continue to be reported
under the previous accounting standards. There was no impact to revenues as a result of applying ASU 2014-09 for the year ended
December 31, 2019, and there have not been any significant changes to the Company’s business processes, systems, or internal
controls as a result of implementing the standard.
Acquisitions
The Company accounts for acquisitions
in accordance with ASC 805, “Business Combinations,” and allocates the purchase price of the property based upon the
fair value of the assets acquired, which generally consist of land, site and land improvements, buildings and improvements and
rental homes. The Company allocates the purchase price of an acquired property generally determined by internal evaluation as
well as third-party appraisal of the property obtained in conjunction with the purchase.
Investment Property and Equipment
and Depreciation
Property and equipment are carried at
cost. Depreciation for sites and building is computed principally on the straight-line method over the estimated useful lives
of the assets (ranging from 15 to 25 years). Depreciation of improvements to sites and buildings, rental homes and equipment and
vehicles is computed principally on the straight-line method over the estimated useful lives of the assets (ranging from 3 to
25 years). Land development costs are not depreciated until they are put in use, at which time they are capitalized as sites and
land improvements. Interest expense pertaining to land development costs are capitalized. Maintenance and repairs are charged
to expense as incurred and improvements are capitalized. The costs and related accumulated depreciation of property sold or otherwise
disposed of are removed from the financial statement and any gain or loss is reflected in the current year’s results of
operations.
Impairment Policy
The Company applies FASB ASC 360-10, “Property,
Plant & Equipment,” to measure impairment in real estate investments. Rental properties are individually evaluated for
impairment when conditions exist which may indicate that it is probable that the sum of expected future cash flows (on an undiscounted
basis without interest) from a rental property is less than the carrying value under its historical net cost basis. These expected
future cash flows consider factors such as future operating income, trends and prospects as well as the effects of leasing demand,
competition and other factors. Upon determination that a permanent impairment has occurred, rental properties are reduced to their
fair value. For properties to be disposed of, an impairment loss is recognized when the fair value of the property, less the estimated
cost to sell, is less than the carrying amount of the property measured at the time there is a commitment to sell the property
and/or it is actively being marketed for sale. A property to be disposed of is reported at the lower of its carrying amount or
its estimated fair value, less its cost to sell. Subsequent to the date that a property is held for disposition, depreciation
expense is not recorded.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019
AND 2018
Stock-Based Compensation
All stock based payments to
employees, nonemployee consultants, and to nonemployee directors for their services as directors, including any grants of restricted
stock and stock options, are measured at fair value on the grant date and recognized in the statements of operations as compensation
or other expense over the relevant service period in accordance with FASB ASC Topic 718. Stock based payments to nonemployees
are recognized as an expense over the period of performance. Such payments are measured at fair value at the earlier of the date
a performance commitment is reached or the date performance is completed. In addition, for awards that vest immediately and are
nonforfeitable the measurement date is the date the award is issued. The Company recorded stock option expense of $4,774 and $69
during the years ended December 31, 2019 and 2018, respectively.
Fair Value of Financial
Instruments
The Company follows paragraph
825-10-50-10 of the FASB ASC for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB
ASC to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair
value in GAAP and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements
and related disclosures, paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques
used to measure fair value into broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted)
in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.
Net Loss per Share
Basic and diluted loss per
share amounts are computed based on net loss divided the weighted average number of common shares outstanding plus the weighted
average number of net shares that would be issued upon exercise of stock options pursuant to the treasury stock method. Total
dilutive securities outstanding as of December 31, 2019 and 2018 total totaled 2,299,722 and 0 convertible shares, respectively,
and options of 659,175 and 541,334, respectively, which were not included in the computation of diluted loss per share because
the assumed conversion and exercise would be anti-dilutive for the years ended December 31, 2019 and 2018.
Management Estimates
The presentation of financial
statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reported period . Actual results could differ from those estimates.
Reclassifications
Certain 2018 balances have
been reclassified in the 2019 financial statement presentation. The reclassification of loan costs did not have any effects on
the financial statements.
Cash and Cash Equivalents
For purposes of these financial
statements, cash and cash equivalents include highly liquid debt instruments with maturity of less than three months.
Concentrations of Credit
Risk
Financial instruments and related
items, which potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents.
The Company places its cash and temporary cash investments with high credit quality institutions. At times, such investments may
be in excess of the FDIC insurance limit. Currently our operating accounts are approximately $2,553,454 above the FDIC limit.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019
AND 2018
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU No.
2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.”
ASU 2016-13 requires that entities use a new forward looking “expected loss” model that generally will result in the
earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience,
current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13
is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December
15, 2019. The Company is currently evaluating the potential impact this standard may have on the consolidated financial statements.
In February 2016, the FASB issued ASU
2016-02, “Leases.” ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring
lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The standard requires
a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application,
with an option to use certain transition relief. ASU 2016-02 will be effective for annual reporting periods beginning after December
15, 2018. Early adoption is permitted. The Company has evaluated the impact this standard had on the consolidated financial statements
and determined that it had no impact on the consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07
“Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” This
ASU relates to the accounting for non-employee share-based payments. The amendment in this ASU expands the scope of Topic 718
to include all share-based payment transactions in which a grantor acquired goods or services to be used or consumed in a grantor’s
own operations by issuing share-based payment awards. The ASU excludes share-based payment awards that relate to (1) financing
to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted
for under Topic 606, Revenue from Contracts from Customers. The share-based payments are to be measured at grant-date fair value
of the equity instruments that the entity is obligated to issue when the good or service has been delivered or rendered and all
other conditions necessary to earn the right to benefit from the equity instruments have been satisfied. This standard will be
effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that
fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim
periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s
adoption of Topic 606. The Company has evaluated the impact this standard had on the consolidated financial statements and determined
that it had no impact on the consolidated financial statements.
Management does not believe that any other
recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying
condensed consolidated financial statements.
NOTE 2 – FIXED ASSETS
The following table summarizes the Company’s property
and equipment balances are generally used to depreciate the assets on a straight-line basis:
Fixed
Assets
|
|
2019
|
|
|
2018
|
|
Investment Property
|
|
|
|
|
|
|
Land
|
|
$
|
11,130,259
|
|
|
$
|
4,357,950
|
|
Site and Land Improvements
|
|
|
17,466,801
|
|
|
|
6,781,845
|
|
Buildings and Improvements
|
|
|
6,214,725
|
|
|
|
1,441,222
|
|
Total Investment Property
|
|
|
34,811,785
|
|
|
|
12,581,017
|
|
Accumulated Depreciation & Amortization
|
|
|
(1,394,958
|
)
|
|
|
(699,184
|
)
|
Net Investment Property
|
|
$
|
33,358,019
|
|
|
$
|
11,881,833
|
|
Depreciation and amortization expense
for the years ended December 31, 2019 and 2018 were $738,789 and $534,290, respectively. Total additional fixed assets during
the years ended December 31, 2019 and 2018 were $22,022,684 and $231,247, respectively.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019
AND 2018
NOTE 3 – ACQUISITIONS
During the fourth quarter 2016, the Company
acquired the assets of its first manufactured housing community containing 81 home sites. During the year ended December 31, 2017,
the company acquired the assets of six manufactured housing communities containing approximately 360 home sites. The Company had
five additional acquisitions during the year ended December 31, 2019. These were asset acquisitions from third parties and have
been accounted for as asset acquisitions. The acquisition date estimated fair value was determined by third party appraisals.
The acquisition of the manufactured housing communities acquired assets consisted of the following:
Acquisition Date
|
|
Name
|
|
Land
|
|
|
Improvements
|
|
|
Building
|
|
|
Total
Purchase
Price
|
|
November 2016
|
|
Pecan Grove MHP
|
|
$
|
1,583,071
|
|
|
$
|
432,501
|
|
|
$
|
20,463
|
|
|
$
|
2,036,035
|
|
April 2017
|
|
Butternut MHP
|
|
|
85,000
|
|
|
|
1,130,527
|
|
|
|
431,618
|
|
|
|
1,647,145
|
|
November 2017
|
|
Azalea MHP
|
|
|
149,200
|
|
|
|
559,936
|
|
|
|
114,959
|
|
|
|
824,095
|
|
November 2017
|
|
Holly Faye MHP
|
|
|
160,000
|
|
|
|
553,273
|
|
|
|
3,700
|
|
|
|
716,973
|
|
November 2017
|
|
Chatham MHP
|
|
|
940,000
|
|
|
|
965,900
|
|
|
|
2,000
|
|
|
|
1,907,900
|
|
November 2017
|
|
Lakeview MHP
|
|
|
520,000
|
|
|
|
1,226,256
|
|
|
|
53,564
|
|
|
|
1,799,820
|
|
December 2017
|
|
Maple Hills MHP
|
|
|
1,165,000
|
|
|
|
1,943,710
|
|
|
|
843,885
|
|
|
|
3,952,595
|
|
April 2019
|
|
Hunt Club MHP
|
|
|
1,394,275
|
|
|
|
589,500
|
|
|
|
3,886
|
|
|
|
1,987,661
|
|
May 2019
|
|
B&D MHP
|
|
|
1,750,000
|
|
|
|
914,061
|
|
|
|
-
|
|
|
|
2,664,061
|
|
August 2019
|
|
Crestview MHP
|
|
|
991,750
|
|
|
|
2,975,250
|
|
|
|
1,533,000
|
|
|
|
5,500,000
|
|
November 2019
|
|
Springlake MHP
|
|
|
923,213
|
|
|
|
2,769,637
|
|
|
|
1,582,650
|
|
|
|
5,275,500
|
|
December 2019
|
|
ARC MHP
|
|
|
1,468,750
|
|
|
|
3,406,250
|
|
|
|
1,625,000
|
|
|
|
6,500,000
|
|
|
|
|
|
$
|
11,130,259
|
|
|
$
|
17,466,801
|
|
|
$
|
6,214,725
|
|
|
$
|
34,811,785
|
|
Pro-forma Financial Information
(unaudited)
The following unaudited pro-forma information
presents the combined results of operations for the periods as if the above acquisitions of manufactured housing communities had
been completed on January 1, 2018.
|
|
For the Years Ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Total Revenue
|
|
$
|
5,039,009
|
|
|
$
|
4,965,466
|
|
Total Expenses
|
|
|
5,830,724
|
|
|
|
4,641,410
|
|
Depreciation & Amortization
|
|
|
1,476,322
|
|
|
|
1,701,436
|
|
Interest Expense
|
|
|
1,850,999
|
|
|
|
1,866,883
|
|
Preferred Stock Dividends / Accretion
|
|
|
360,937
|
|
|
|
-
|
|
Net Income (Loss)
|
|
$
|
(4,479,973
|
)
|
|
$
|
(3,244,263
|
)
|
Net Loss Per Share
|
|
$
|
(0.35
|
)
|
|
$
|
(0.32
|
)
|
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019
AND 2018
NOTE 4 – PROMISSORY NOTES
Secured Promissory Notes
The Company has issued promissory notes
payable to lenders related to the acquisition of its manufactured housing communities. These promissory notes range from 4.5%
to 7.0% with 20 to 25 years principal amortization. Two of the promissory notes had an initial 6 months period on interest only
payments. The promissory notes are secured by the real estate assets and $6,344,894 for three assets were guaranteed by Raymond
M. Gee, the Company’s chairman, chief executive officer and owner of the principal stockholder of the Company.
During the year ended December 31, 2019,
the Company refinanced a total of $4,940,750 from current loans payable to $8,241,000 of new notes payable from five of the communities,
resulting in an additional loan payable of $3,320,859. The Company used the additional loans payable proceeds from the refinance
to retire the related party note payable described below. As of December 31, 2019, the Company wrote off mortgage costs of $68,280
and capitalized $608,541 of mortgage costs due to the refinancing. As of December 31, 2019, the outstanding balance on these notes
was $8,134,996. The following are terms of these notes:
|
|
Maturity
Date
|
|
Interest
Rate
|
|
|
Balance
12/31/19
|
|
|
Balance
12/31/18
|
|
Butternut MHP Land LLC (see Note 9)
|
|
03/30/20
|
|
|
6.500
|
%
|
|
$
|
1,114,819
|
|
|
$
|
1,134,971
|
|
Butternut MHP Land LLC Mezz (see Note 9)
|
|
04/01/27
|
|
|
7.000
|
%
|
|
|
280,013
|
|
|
|
287,086
|
|
Pecan Grove MHP LLC
|
|
11/04/26
|
|
|
4.500
|
%
|
|
|
3,095,274
|
|
|
|
1,270,577
|
|
Azalea MHP LLC
|
|
11/10/27
|
|
|
5.000
|
%
|
|
|
835,445
|
|
|
|
598,571
|
|
Holly Faye MHP LLC
|
|
10/01/38
|
|
|
4.000
|
%
|
|
|
574,096
|
|
|
|
462,328
|
|
Chatham MHP LLC
|
|
12/01/22
|
|
|
5.125
|
%
|
|
|
1,771,506
|
|
|
|
1,366,753
|
|
Lakeview MHP LLC
|
|
12/01/22
|
|
|
5.125
|
%
|
|
|
1,857,266
|
|
|
|
1,222,521
|
|
B&D MHP LLC
|
|
05/02/29
|
|
|
5.500
|
%
|
|
|
1,854,788
|
|
|
|
-
|
|
Hunt Club MHP LLC
|
|
05/01/24
|
|
|
5.750
|
%
|
|
|
1,447,364
|
|
|
|
-
|
|
Crestview MHP LLC
|
|
08/01/24
|
|
|
5.500
|
%
|
|
|
4,173,652
|
|
|
|
-
|
|
Springlake MHP LLC
|
|
11/14/22
|
|
|
4.500
|
%
|
|
|
4,000,000
|
|
|
|
-
|
|
ARC MHP LLC
|
|
01/01/30
|
|
|
5.500
|
%
|
|
|
5,300,000
|
|
|
|
-
|
|
Maple Hills MHP LLC
|
|
01/01/23
|
|
|
5.125
|
%
|
|
|
2,688,653
|
|
|
|
2,743,303
|
|
Totals note payables
|
|
|
|
|
|
|
|
|
28,992,876
|
|
|
|
9,086,100
|
|
Discount Direct Lender Fees
|
|
|
|
|
|
|
|
|
(692,454
|
)
|
|
|
(140,758
|
)
|
Total net of Discount
|
|
|
|
|
|
|
|
$
|
28,359,247
|
|
|
$
|
8,945,352
|
|
Related Party Promissory Note
On May 8, 2017, the Company issued a promissory
note to Metrolina Loan Holdings, LLC (“Metrolina”) in the principal amount of $3,000,000. The note is interest only
payment based on 8%, and 10% deferred until maturity to be paid with principal balance. The note originally awarded Metrolina
455,000 shares of Common Stock as consideration, which resulted in making Metrolina a related party due to its significant ownership.
During the year ended December 31, 2019, the Company paid off the entire balance on the note of $2,754,550 plus interest and amended
the agreement to allow for the redeployment of the $3,000,000 available, eliminated the conversion option whereby Metrolina could
convert the ratio of total outstanding debt at time of exercise of the option into an amount of newly issued shares of the Company’s
Common Stock determined by dividing the outstanding indebtedness by $3,000,000 multiplied by 10% with a cap of 864,500 shares.
The amendment resulted in issuing an additional 545,000 shares with a fair value of $305,200 for a total of 1,000,000 shares awarded
to Metrolina. The note gives Metrolina the right and option to purchase its pro rata share of debt or equity securities issued
to maintain up to 10% equity interest in the Company at the most recent price of any equity transaction for seven years from the
amendment dated February 26, 2019. As of December 31, 2019, the balance on this note was $1,730,000. The related party note is
guaranteed by Mr. Gee.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019
AND 2018
Revolving Promissory Note
On October 1, 2017, the Company issued
a revolving promissory note to Raymond M. Gee, the Company’s chairman and chief executive officer, pursuant to which the
Company may borrow up to $1,500,000 from Mr. Gee on a revolving basis for working capital purposes. This note has a five-year
term with no annual interest and principal payment is deferred until the maturity date. As of December 31, 2019, the outstanding
balance on this note was $797,906. During the years ended December 31, 2019 and 2018, the Company recorded imputed interest related
to the note of $87,577 and $44,695, respectively.
Maturities of Long-Term Obligations
for Five Years and Beyond
The minimum annual principal payments
of notes payable at December 31, 2019 were:
2020
|
|
$
|
480,907
|
|
2021
|
|
|
2,254,163
|
|
2022
|
|
|
5,329,658
|
|
2023
|
|
|
2,996,492
|
|
2024 and Thereafter
|
|
|
20,459,561
|
|
Total minimum principal payments
|
|
$
|
31,520,781
|
|
NOTE 5 – COMMITMENTS AND CONTINGENCIES
From time to time, the Company may become
involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject
to inherent uncertainties, and an adverse result in these or other matters may arise that may harm its business. The Company is
currently not aware of any such legal proceedings or claims that they believe will have, individually or in the aggregate, a material
adverse effect on its business, financial condition or operating results.
NOTE 6 – STOCKHOLDERS’
EQUITY
Preferred Stock
The Company is authorized to issue up
to 10,000,000 shares of preferred stock, $0.01 par value.
Series A Preferred Stock
On May 8, 2019, the Company filed a certificate
of designation with the Nevada Secretary of State pursuant to which the Company designated 4,000,000 shares of its preferred stock
as Series A Cumulative Convertible Preferred Stock (the “Series A Preferred Stock”). The Series A Preferred Stock
has the following voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions:
Ranking. The Series A Preferred
Stock ranks, as to dividend rights and rights upon our liquidation, dissolution, or winding up, senior to the Common Stock.
Dividend Rate and Payment Dates.
Dividends on the Series A Preferred Stock are cumulative and payable monthly in arrears to all holders of record on the applicable
record date. Holders of Series A Preferred Stock will be entitled to receive cumulative dividends in the amount of $0.017 per
share each month, which is equivalent to the rate of 8% of the $2.50 liquidation preference per share. Dividends on shares of
Series A Preferred Stock will continue to accrue even if any of the Company’s agreements prohibit the current payment of
dividends or the Company does not have earnings. During the year ended December 31, 2019, the Company paid dividends of $125,700.
Liquidation Preference.
The liquidation preference for each share of Series A Preferred Stock is $2.50. Upon a liquidation, dissolution or winding up
of the Company, holders of shares of Series A Preferred Stock will be entitled to receive the liquidation preference with respect
to their shares plus an amount equal to any accrued but unpaid dividends (whether or not declared) to, but not including, the
date of payment with respect to such shares.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019
AND 2018
Stockholder Optional Conversion.
Each share of Series A Preferred Stock is convertible, at any time and from time to time, at the option of the holder thereof
and without the payment of additional consideration, into that number of shares of Common Stock determined by dividing the liquidation
preference of such share by the conversion price then in effect. The conversion price is initially equal $2.50, subject to adjustment
as set forth in the certificate of designation. In addition, if at any time the trading price of the Common Stock is greater than
the liquidation preference of $2.50, the Company may deliver a written notice to all holders to cause each holder to convert all
or part of such holders’ Series A Preferred Stock.
Company Call and Stockholder Put
Options. Commencing on the fifth anniversary of the initial issuance of shares of Series A Preferred Stock and continuing
indefinitely thereafter, the Company will have a right to call for redemption the outstanding shares of Series A Preferred Stock
at a call price equal to $3.75, or 150% of the original issue price of the Series A Preferred Stock, and correspondingly, each
holder of shares of Series A Preferred Stock shall have a right to put the shares of Series A Preferred Stock held by such holder
back to us at a put price equal to $3.75, or 150% of the original issue purchase price of such shares. During the year ended December
31, 2019, the Company recorded a put option cost of $184,000.
Voting Rights. The Company
may not authorize or issue any class or series of equity securities ranking senior to the Series A Preferred Stock as to dividends
or distributions upon liquidation (including securities convertible into or exchangeable for any such senior securities) or amend
the Company’s articles of incorporation (whether by merger, consolidation, or otherwise) to materially and adversely change
the terms of the Series A Preferred Stock without the affirmative vote of at least two-thirds of the votes entitled to be cast
on such matter by holders of the outstanding shares of Series A Preferred Stock, voting together as a class. Otherwise, holders
of the shares of Series A Preferred Stock do not have any voting rights.
As of December 31, 2019, that Company
has issued 1,890,000 shares of Series A Preferred Stock for a total of $4,725,000 in cash. As of December 31, 2019, the Series
A Preferred stock balance was made up of Series A Preferred Stock totaling $4,725,000 and Accretion of put options totaling $184,000.
Series B Preferred Stock
On December 2, 2019, the Company filed
a certificate of designation with the Nevada Secretary of State pursuant to which the Company designated 1,000,000 shares of its
preferred stock as Series B Cumulative Redeemable Preferred Stock (the “Series B Preferred Stock”). The Series B Preferred
Stock has the following voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions:
Ranking. The Series B Preferred
Stock rank, as to dividend rights and rights upon liquidation, dissolution, or winding up, senior to the Common Stock and pari
passu with the Series A Preferred Stock.
Dividend Rate and Payment Dates.
Dividends on the Series B Preferred Stock are cumulative and payable monthly in arrears to all holders of record on the applicable
record date. Holders of Series B Preferred Stock will be entitled to receive cumulative dividends in the amount of $0.067 per
share each month, which is equivalent to the annual rate of 8% of the $10.00 liquidation preference per share; provided that upon
an event of default (generally defined as the Company’s failure to pay dividends when due or to redeem shares when requested
by a holder), such amount shall be increased to $0.083 per month, which is equivalent to the annual rate of 10% of the $10.00
liquidation preference per share. During the year ended December 31, 2019, the Company paid dividends of $23,233.
Liquidation Preference.
The liquidation preference for each share of Series B Preferred Stock is $10.00. Upon a liquidation, dissolution or winding up
of the Company, holders of shares of Series B Preferred Stock will be entitled to receive the liquidation preference with respect
to their shares plus an amount equal to any accrued but unpaid dividends (whether or not declared) to, but not including, the
date of payment with respect to such shares.
Company Call and Stockholder Put
Options. Commencing on the fifth anniversary of the initial issuance of shares of Series B Preferred Stock and continuing
indefinitely thereafter, the Company will have a right to call for redemption the outstanding shares of Series B Preferred Stock
at a call price equal to $15.00, or 150% of the original issue price of the Series B Preferred Stock, and correspondingly, each
holder of shares of Series B Preferred Stock shall have a right to put the shares of Series B Preferred Stock held by such holder
back to the Company at a put price equal to $15.00, or 150% of the original issue purchase price of such shares. During the year
ended December 31, 2019, the Company recorded a put option cost of $28,004.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019
AND 2018
Voting Rights. The Company
may not authorize or issue any class or series of equity securities ranking senior to the Series B Preferred Stock as to dividends
or distributions upon liquidation (including securities convertible into or exchangeable for any such senior securities) or amend
the Company’s articles of incorporation (whether by merger, consolidation, or otherwise) to materially and adversely change
the terms of the Series B Preferred Stock without the affirmative vote of at least two-thirds of the votes entitled to be cast
on such matter by holders of outstanding shares of Series B Preferred Stock, voting together as a class. Otherwise, holders of
the shares of Series B Preferred Stock do not have any voting rights.
No Conversion Right. The
Series B Preferred Stock is not convertible into shares of Common Stock.
On November 1, 2019, the Company launched
an offering under Regulation A of Section 3(6) of the Securities Act of 1933, as, amended, for Tier 2 offerings, pursuant to which
the Company is offering up to 1,000,000 shares of Series B Preferred Stock at an offering price of $10.00 per share, for a maximum
offering amount of $10,000,000. In addition, the Company is offering bonus shares to early investors in this offering, whereby
the first 400 investors will receive, in addition to Series B Preferred Stock, 100 shares of Common Stock, regardless of the amount
invested, for a total of 40,000 shares of Common Stock. As of December 31, 2019 there were 15,400 shares of Common Stock issued
with a fair value of $4,158.
As of December 31, 2019, the Company sold
an aggregate of 409,722 shares of Series B Preferred Stock for total gross proceeds of $4,097,220. After deducting a placement
fee and other expenses, the Company received net proceeds of $3,945,606.
Common Stock
The Company is authorized to issue up
to 200,000,000 shares of Common Stock, par value $0.01 per share. As of December 31, 2019, there were 12,336,080 shares of Common
Stock issued and outstanding.
The Company repurchased and retired 553,888
shares of Common Stock for $57,500 during the fourth quarter of fiscal year 2019.
(A) Stock issued for
Service
In November 2018, the Company issued 350,000
shares of Common Stock for services to an investment bank for advisory services with a fair value of $171,500, and $24,500 of
that fair value was expensed during the three months ended March 31, 2019. During year ended December 31, 2019, the Company purchased
these shares back into treasury for a total of $61,837 due to the termination of the advisory service agreement with the investment
bank.
In February 2019, the Company issued an
additional 545,000 shares of Common Stock for services to Metrolina with a fair value of $305,200.
In November 2019, the Company issued 50,000
shares of Common Stock to board members with a value of $13,500.
In October 2019, the Company issued 25,000
shares of Common Stock for consulting services with a value of $6,750.
(B) Stock issued for
Cash
In June 2019, the Company issued an additional
254,506 shares of Common Stock for cash of $68,717 to Metrolina upon its exercise of its option to purchase additional stock to
maintain up to 10% ownership of the Company’s Common Stock outstanding.
In December 2019, the Company issued 15,400
shares of Common Stock to early investors in the Regulation A offering, valued at $4,158.
(C) Stock issued for
Acquisition
In January 2019, the Company issued 2,000,000
shares of Common Stock to Gvest Real Estate Capital LLC to acquire the 25% minority interest in Pecan Grove, which were valued
at the historical cost value of $537,562.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019
AND 2018
(D) Stock Split
In March 2018, the Company completed a
1-for-6 reverse split of its outstanding shares of Common Stock resulting in the reduction of the total outstanding Common Stock
from 60,000,000 shares to 10,000,062 shares. The consolidated financial statements have been retroactively adjusted to reflect
the stock split.
(E) Equity Incentive
Plan
In December 2017, the Board of Directors,
with the approval of a majority of the stockholders of the Company, adopted the Manufactured Housing Properties Inc. Stock Compensation
Plan (the “Plan”) which is administered by the Compensation Committee.
The Company has issued options to directors
and officers under the Plan. One third of the options vest immediately, and two thirds vest in equal annual installments over
a two-year period. All of the options are exercisable at a purchase price of $0.01 per share.
The Company recorded stock option expense
of $4,774 and $69 during the years ended December 31, 2019 and 2018, respectively.
The following table summarizes the stock
options outstanding as of December 31, 2019 and 2018:
|
|
Number of
options
|
|
|
Weighted
average
exercise
price
(per share)
|
|
|
Weighted
average
remaining
contractual
term
(in years)
|
|
Outstanding at December 31, 2017
|
|
|
698,000
|
|
|
|
0.01
|
|
|
|
10.0
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited / cancelled / expired
|
|
|
(156,666
|
)
|
|
|
-
|
|
|
|
-
|
|
Outstanding at December 31, 2018
|
|
|
541,334
|
|
|
$
|
0.01
|
|
|
|
9.0
|
|
Granted
|
|
|
136,500
|
|
|
|
0.27
|
|
|
|
10.0
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited / cancelled / expired
|
|
|
(21,659
|
)
|
|
|
-
|
|
|
|
-
|
|
Outstanding at December 31, 2019
|
|
|
656,175
|
|
|
$
|
0.21
|
|
|
|
8.7
|
|
The aggregate intrinsic value in the table
above represents the total intrinsic value (the difference between the Company’s closing stock price at fiscal year-end
and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holder had
all options holders exercised their options on December 31, 2019. As of December 31, 2019, there were 565,175 “in-the-money”
options with an aggregate intrinsic value of $1,549,106.
The following table summarizes information
concerning options outstanding as of December 31, 2019:
Strike Price
Range ($)
|
|
|
Outstanding
stock options
|
|
|
Weighted
average
remaining
contractual term
(in years)
|
|
|
Weighted
average
outstanding
strike price
|
|
|
Vested stock
options
|
|
|
Weighted
average vested
strike price
|
|
$
|
0.01
|
|
|
|
519,675
|
|
|
|
8.0
|
|
|
$
|
0.01
|
|
|
|
519,675
|
|
|
$
|
0.01
|
|
|
0.27
|
|
|
|
136,500
|
|
|
|
10.0
|
|
|
|
0.27
|
|
|
|
45,500
|
|
|
|
0.27
|
|
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019
AND 2018
The following table summarizes information
concerning options outstanding as of December 31, 2018:
Strike Price
Range ($)
|
|
|
Outstanding
stock options
|
|
|
Weighted
average
remaining
contractual term
(in years)
|
|
|
Weighted
average
outstanding
strike price
|
|
|
Vested stock
options
|
|
|
Weighted
average vested
strike price
|
|
$
|
0.01
|
|
|
|
541,334
|
|
|
|
9.0
|
|
|
$
|
0.01
|
|
|
|
377,000
|
|
|
$
|
0.01
|
|
The table below presents the weighted
average expected life in years of options granted under the Plan as described above. The risk-free rate of the stock options is
based on the U.S. Treasury yield curve in effect at the time of grant, which corresponds with the expected term of the option
granted.
The fair value of stock options was estimated
using the Black Scholes option pricing model with the following assumptions for grants made during the periods indicated.
Stock
option assumptions
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Risk-free interest rate
|
|
|
0.26
|
%
|
|
|
1.95
|
%
|
Expected dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Expected volatility
|
|
|
15.17
|
%
|
|
|
16.71
|
%
|
Expected life of options (in years)
|
|
|
10
|
|
|
|
10
|
|
NOTE 7 - RELATED PARTY TRANSACTIONS
On October 1, 2017, the Company issued
a revolving promissory note to Raymond M. Gee, the Company’s chairman and chief executive officer, pursuant to which the
Company may borrow up to $1,500,000 from Mr. Gee on a revolving basis for working capital purposes. This note has a five-year
term with no annual interest and principal payment is deferred until the maturity date. As of December 31, 2019, the outstanding
balance on this note was $797,906. During the years ended December 31, 2019 and 2018, the Company recorded imputed interest related
to the note of $87,577 and $44,695, respectively.
On May 8, 2017, the Company issued a promissory
note to Metrolina in the principal amount of $3,000,000. The note is interest only payment based on 8%, and 10% deferred until
maturity to be paid with principal balance. The note originally awarded Metrolina 455,000 shares of Common Stock as consideration,
which resulted in making Metrolina a related party due to its significant ownership. During the year ended December 31, 2019,
the Company paid off the entire balance on the note of $2,754,550 plus interest and amended the agreement to allow for the redeployment
of the $3,000,000 available, eliminated the conversion option whereby Metrolina could convert the ratio of total outstanding debt
at time of exercise of the option into an amount of newly issued shares of the Company’s Common Stock determined by dividing
the outstanding indebtedness by $3,000,000 multiplied by 10% with a cap of 864,500 shares. The amendment resulted in issuing an
additional 545,000 shares with a fair value of $305,200 for a total of 1,000,000 shares awarded to Metrolina. The note gives Metrolina
the right and option to purchase its pro rata share of debt or equity securities issued to maintain up to 10% equity interest
in the Company at the most recent price of any equity transaction for seven years from the amendment dated February 26, 2019.
As of December 31, 2019, the balance on this note was $1,730,000. The related party note is guaranteed by Mr. Gee.
In January 2019, the Company issued 2,000,000
shares of Common Stock to Gvest Real Estate Capital LLC, an entity controlled by Mr. Gee, to acquire the 25% minority interest
in Pecan Grove, which were valued at the historical cost value of $537,562.
During the year ended December 31, 2019,
the Company entered into an office lease agreement with Gvest Real Estate Capital LLC for the lease of its offices. The lease
is $4,000 per month and is on a month-to-month term. Total rent expense for the year ended December 31, 2019 was $16,000.
During the years ended December 31, 2019
and 2018, the Company recorded $48,319 and $4,000, respectively in revenues related to property management consulting services
provided to Gvest Real Estate Capital LLC.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019
AND 2018
During the year ended December 31, 2019,
Mr. Gee received a $50,000 fee for his personal guarantee on a promissory note relating to a loan for one of our acquisitions.
The fee was recorded as a loan cost and is amortized over the five year life of the loan.
NOTE 8 – INCOME TAXES
On December 22, 2017, President Trump
signed into law the Tax Cuts and Jobs Act (the “TCJA”) that significantly reforms the Internal Revenue Code of 1986,
as amended (the “Internal Revenue Code”). The TCJA, among other things, contains significant changes to corporate
taxation, including a reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, effective as
of January 1, 2018; a limitation of the tax deduction for interest expense; a limitation of the deduction for net operating losses
to 80% of current year taxable income and elimination of net operating loss carrybacks, in each case, for losses arising in taxable
years beginning after December 31, 2017 (though any such tax losses may be carried forward indefinitely); modifying or repealing
many business deductions and credits, including reducing the business tax credit for certain clinical testing expenses incurred
in the testing of certain drugs for rare diseases or conditions generally referred to as “orphan drugs”; and repeal
of the federal Alternative Minimum Tax.
At December 31, 2019 and 2018, the Company
had deferred tax assets principally arising from the net operating loss carry forwards for income tax purposes multiplied by the
Federal statutory tax rate of 21%. As management of the Company cannot determine that it is more likely than not that we will
realize the benefit of the deferred tax assets, a valuation allowance equal to the deferred tax asset has been established at
December 31, 2019 and 2018.
As of December 31, 2019 and 2018, the
Company had net operating loss carryforwards of approximately $3,057,500 and $1,492,600, respectively. The change in the valuation
allowance for the years ended December 31, 2019 and 2018 were $403,987 and $275,525, respectively.
The significant components of the deferred
tax asset at December 31, 2019 and 2018 was as follows:
|
|
For the Years Ended
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Statutory rate applied to income (loss) before income taxes
|
|
$
|
(520,747
|
)
|
|
$
|
(322,845
|
)
|
Increase in income taxes results from:
|
|
|
|
|
|
|
|
|
Non-deductible expense
|
|
|
123,107
|
|
|
|
55,606
|
|
Change in tax rate estimates
|
|
|
-
|
|
|
|
-
|
|
Change in valuation allowance
|
|
|
403,987
|
|
|
|
275,525
|
|
Income tax expense (benefit)
|
|
$
|
6,347
|
|
|
$
|
8,286
|
|
The difference between income tax expense
computed by applying the federal statutory corporate tax rate and provision for actual income tax is as follows:
|
|
For the Year Ended
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Income tax benefit at U.S. statutory rate of 34%
|
|
|
-21.00
|
%
|
|
|
-21.00
|
%
|
Income tax benefit - State
|
|
|
-3.33
|
%
|
|
|
-2.04
|
%
|
Non-deductible expense
|
|
|
5.97
|
%
|
|
|
4.29
|
%
|
Change in valuation allowance
|
|
|
19.58
|
%
|
|
|
21.25
|
%
|
Income tax expense (benefit)
|
|
|
1.22
|
%
|
|
|
2.50
|
%
|
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019
AND 2018
Deferred income taxes result from temporary
differences in the recognition of income and expenses for the financial reporting purposes and for tax purposes. The effects of
temporary differences that gave rise to deferred tax assets are as follows:
|
|
For the Year Ended
|
|
Deferred tax assets:
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Amortization expense
|
|
$
|
11,544
|
|
|
$
|
7,288
|
|
Operating loss carryforwards
|
|
|
780,978
|
|
|
|
381,247
|
|
Gross deferred tax assets
|
|
|
792,522
|
|
|
|
388,535
|
|
Valuation allowance
|
|
|
(792,522
|
)
|
|
|
(388,535
|
)
|
Net deferred income tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
NOTE 9 – SUBSEQUENT EVENTS
Additional Closings of Regulation
A Offering
Subsequent to December 31, 2019, the Company
sold an aggregate of 92,640 shares of Series B Preferred Stock for total gross proceeds of $956,400 under the Regulation A offering
described above. After deducting a placement fee and other expenses, the Company received net proceeds of approximately $889,452.
The Company also issued 3,900 shares of Common Stock to early investors.
Countryside Acquisition
On January 7, 2020, MHP Pursuits LLC,
a wholly-owned subsidiary of the Company, entered into a purchase and sale agreement with J & A Real Estate LLC (“J&A”)
for the purchase of a manufactured housing community known as Countryside Estates Mobile Home Park, which is located in Lancaster,
North Carolina and totals 110 sites, for a total purchase price of $3.7 million. On March 12, 2020, the closing was completed
and the Company’s newly formed wholly owned subsidiary Countryside MHP LLC (“Countryside”) purchased the property.
In connection with the closing, on March
12, 2020, Countryside issued a promissory note to J&A in the principal amount of $3,000,000. The remainder of the purchase
price, or $700,000, was paid in cash. The note bears interest at the rate of 5.5% per annum, or the maximum rate allowed by applicable
law, and is due and payable in full on March 20, 2050. Payments for the first twelve (12) months of the term of the note shall
be interest-only in the amount of $13,750 per month. Thereafter, principal and interest, in the amount of $17,201 per month, shall
be due and payable based upon a thirty (30) year amortization. If any monthly payment is not received by J&A within fifteen
(15) days after the applicable due date, Countryside must pay a late charge in an amount equal to the delinquent amount then due
multiplied by 4%. Countryside may prepay the note, in whole or in party, at any time without penalty.
The note also contains customary events
of default, including: (i) if Countryside shall be in default in the payment of any principal, interest or other amount due under
the note and such default shall not be cured within five (5) days after written notice from J&A; (ii) if Countryside shall
be in default in the performance of any non-monetary obligation in the note and such default shall not be cured within thirty
(30) days after written notice from J&A; or (iii) if Countryside shall default in the due observation or performance of any
covenant, condition or agreement contained in the mortgage described below and such default shall not be cured within thirty (30)
days after written notice from J&A. Upon the occurrence of an event of default, interest on the aggregate outstanding indebtedness
(including accrued interest) of the note shall increase to 5.5% per annum plus the U.S. Prime Rate as measured and reported by
the Wall Street Journal and in effect on the date of default, until such aggregate indebtedness is paid in full.
The note is secured by a mortgage, assignment
of rents and leases, security agreement and fixture filing with respect to the property. The mortgage contains customary representations,
warranties and covenants by Countryside and remedies upon an event of default under the note.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019
AND 2018
Evergreen Acquisition
On January 1, 2020, MHP Pursuits LLC,
a wholly-owned subsidiary of the Company, entered into a purchase and sale agreement with Evergreen Marketing LLC for the purchase
of a manufactured housing community known as Evergreen Pointe Mobile Home Park, which is located in Dandridge, Tennessee and totals
65 sites, for a total purchase price of $1,438,000. On March 17, 2020, the closing was completed and the Company’s newly
formed wholly owned subsidiary Evergreen MHP LLC (“Evergreen”) purchased the property.
In connection with the closing, on March
17, 2020, Evergreen entered into a loan agreement with Hunt Mortgage Capital, LLC (the “Lender”), for a loan in the
principal amount of $1,150,000 and Evergreen issued a promissory note to the Lender in the principal amount of $1,150,000. The
remainder of the purchase price, or $288,000, was paid in cash.
The note bears interest at a rate of 3.99%
per annum and is due and payable on April 1, 2032. The monthly payments under the note are equal to $5,483.65. If any monthly
payment is not received by the Lender within ten (10) days after the applicable due date, Evergreen must pay a late charge in
an amount equal to the delinquent amount then due multiplied by 5%. Furthermore, if any payment remains past due for thirty (30)
days or more, interest on such unpaid amounts shall accrue at the lesser of 7.99% or the maximum rate allowed by applicable law.
Evergreen may prepay the note in full, but not in part, at any time if it pays a prepayment premium calculated in accordance with
the loan agreement.
The note is secured by the property and
guaranteed by Mr. Raymond M. Gee, the Company’s Chief Executive Officer, Gvest Capital Real Estate LLC, an entity controlled
by Mr. Gee, and the Company (the “Guarantors”).
The loan agreement was subject to customary
closing conditions and contains customary representations and warranties. The loan agreement also contains customary financial
and other covenants for a loan of this type. The loan agreement also contains customary events of default, some of which are subject
to cure periods as set forth in the loan agreement, including, but not limited to: (i) any failure by Evergreen to pay or deposit
when due any amount required by the note, the loan agreement or any other loan document (as defined in the loan agreement); (ii)
any failure by Evergreen to maintain the insurance coverage required by any loan document; (iii) if any warranty, representation,
certification, or statement of Evergreen or any Guarantor in the loan agreement or any of the other loan documents is false inaccurate,
or misleading in any material respect when made; (iv) the fraud, gross negligence, willful misconduct, or material misrepresentation
or material omission by or on behalf of Evergreen or any Guarantor or any of their officers, directors, trustees, partners, members,
or managers in connection with the application for, or creation of, the loan or any financial statement, rent roll, or other report
or information provided to Lender during the term of the loan; (v) the occurrence of any transfer (as defined in the loan agreement)
not permitted by the loan documents; (vi) the occurrence of a bankruptcy event (as defined in the loan agreement); (vii) if a
Guarantor is a natural person, the death of such individual, unless certain requirements set forth in the loan agreement are met;
(viii) the occurrence of a guarantor bankruptcy event (as defined in the loan agreement), unless certain requirements of the loan
agreement are met; (ix) any failure by Evergreen or a Guarantor to comply with certain covenants in the loan agreement; or (x)
any failure by Evergreen to perform any of its obligations under the loan agreement or any loan document as and when required.
Repayment of Metrolina Note
In February 2020, the Company repaid $1,000,000
of principal and accrued interest on the Metrolina related party promissory note.
Loan Refinancing
On April 1, 2020, the Company refinanced
the loans for Butternut MHP Land LLC (see Note 4) with the existing lender to increase the loan amount to $1,388,019 and to extend
the maturity date to April 10, 2025. In addition, the interest rate was changed to 6% per annum, provided that on April 10, 2023
and thereafter, the interest rate shall be equal to (i) the per annum rate of interest identified as the “Prime Rate”
as published in the monthly rates section of the Wall Street Journal plus (ii) 1% per annum, adjusted as the first day of each
calendar quarter. The loan, as modified, is secured by the real estate assets of Butternut MHP Land LLC and is guaranteed by the
Company and Raymond M. Gee, who received a loan guarantee fee of $70,000.
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