MHPC Manufactured Housing Properties Inc (PK)

 

Filed pursuant to Rule 253(g)(1)

File No. 024-11417

 

Offering Circular, Dated April 20, 2022

 

 

Manufactured Housing Properties Inc.

136 Main Street

Pineville, NC 28134

(980) 273-1702; www.mhproperties.com

 

UP TO 47,000 SHARES OF

SERIES C CUMULATIVE REDEEMABLE PREFERRED STOCK

 

Manufactured Housing Properties Inc. (which we refer to as “we,” “us,” “our” or “our company”) is offering up to 47,000 shares of Series C Cumulative Redeemable Preferred Stock, which we refer to as the Series C Preferred Stock, at an offering price of $1,000 per share, for a maximum offering amount of $47,000,000.

 

As of the date of this offering circular, we have completed multiple closings in which we have sold an aggregate of 10,705.4 shares of Series C Preferred Stock for total gross proceeds of approximately $10,701,840. As of the date hereof, 36,294.6 shares of Series C Preferred Stock remain available under this offering.

 

The Series C 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, and our Series B Cumulative Redeemable Preferred Stock, which we refer to as our Series B Preferred Stock. Each share of Series C Preferred Stock will have an initial stated value equal to $1,000, subject to appropriate adjustment for certain events. Holders of our Series C Preferred Stock will be entitled to receive cumulative monthly cash dividends at a per annum rate of 7% of the stated value (or $5.83 per share each month based on the initial stated value). Upon a liquidation, dissolution or winding up of our company, holders of shares of our Series C Preferred Stock will be entitled to receive, before any payment or distribution is made to the holders of our Common Stock and on a pari passu basis with holders of our Series A Preferred Stock and Series B Preferred Stock, a liquidation preference equal to the stated value per share, plus accrued but unpaid dividends thereon. Shares of Series C Preferred Stock will be redeemable by us or by the holders under certain circumstances described elsewhere in this offering circular. The Series C 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 48 for additional details.

 

 

There is no existing public trading market for the Series C Preferred Stock, and we do not anticipate that a secondary market for the stock will develop. We do not intend to apply for listing of the Series C Preferred Stock on any securities exchange or for quotation in any automated dealer quotation system or other over-the-counter market. Our Common Stock trades on the OTC Pink Market under the symbol “MHPC.”

 

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.

 

		Per Share				Maximum Offering
Public offering price		$	1,000			$	47,000,000
Sales commissions(1)(3)		$	40.0			$	1,880,000
Dealer manager fee(1)(3)		$	27.5			$	1,292,500
Proceeds to us, before expenses(2)(3)		$	932.5			$	43,827,500

 

(1)

Selling commissions and the dealer manager fee will equal up to and including 4.00% and 2.75% of aggregate gross proceeds, respectively. Each is payable to the dealer manager. However, we expect the dealer manager to authorize other broker-dealers that are members of the Financial Industry Regulatory Authority, or FINRA, which we refer to as participating broker-dealers, to sell our Series C Preferred Stock. The dealer manager may reallow all or a portion of its selling commissions attributable to a participating broker-dealer. In addition, the dealer manager also may reallow a portion of its dealer manager fee earned on the proceeds raised by a participating broker-dealer to such participating broker-dealer as a non-accountable marketing and due diligence allowance or as a wholesale fee. The amount of the reallowance to any participating broker-dealer will be determined by the dealer manager in its sole discretion.

 

(2)

In addition to the selling commissions and dealer management fee, we have agreed to pay the dealer manager a monthly service fee of $2,500 and to reimburse the deal manager and other participating broker-dealers for such expenses incurred in connection with the offering as mutually agreed to by us and the dealer manager. Please see the section captioned “Plan of Distribution” for details regarding the expenses payable in connection with this offering.

 

(3)

The combined selling commissions, dealer manager fee and additional compensation paid to the dealer manager for this offering will not exceed 8% of the aggregate gross proceeds of this offering.

 

The dealer manager of this offering is Arete Wealth Management, LLC. The dealer manager is not required to sell any specific number or dollar amount of shares but will use its “reasonable best efforts” to sell the shares offered. The minimum permitted purchase is generally $10,000 but purchases of less than $10,000 may be made in the discretion of the dealer manager.

 

This offering is being conducted 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 C Preferred Stock has been sold, (2) June 11, 2022 (one year after the offering statement of which this offering circular forms a part was originally qualified by the U.S. Securities and Exchange Commission, or the SEC), subject to an extension of up to an additional one year at the discretion of our company and the dealer manager, or (3) the date on which this offering is earlier terminated by us in our sole discretion.

 

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.

 

Arete Wealth Management, LLC,

as Dealer Manager

 

 

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:

 

●

the impact of the coronavirus pandemic on our business;

 

●

changes in the real estate market and general economic conditions;

  

●

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;

 

●

increased competition in the geographic areas in which we own and operate manufactured housing communities;

 

●

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;

  

●

our ability to maintain rental rates and occupancy levels;

 

●

changes in market rates of interest;

 

●

our ability to repay debt financing obligations;

 

●

our ability to refinance amounts outstanding under our credit facilities at maturity on terms favorable to us;

 

●

our ability to comply with certain debt covenants;

 

●

our ability to integrate acquired properties and operations into existing operations;

 

●

the availability of other debt and equity financing alternatives;

 

●

continued ability to access the debt or equity markets;

 

●

the loss of any member of our management team;

 

●

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;

 

●

the ability of manufactured home buyers to obtain financing;

 

●

the level of repossessions by manufactured home lenders;

 

●

market conditions affecting our investment securities;

 

●

changes in federal or state tax rules or regulations that could have adverse tax consequences; and

 

●

those risks and uncertainties referenced under the caption “Risk Factors” contained in this offering circular.

 

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. 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

 

Summary	1
Risk Factors	10
Use of Proceeds	18
Determination of Offering Price	19
Dividend Policy	20
Market for Common Equity and Related Stockholder Matters	21
Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Our Corporate History and Structure	31
Our Business	33
Our Properties	36
Legal Proceedings	38
Management	39
Executive Compensation	43
Security Ownership of Certain Beneficial Owners and Management	46
Transactions With Related Persons	47
Description of Securities	48
Plan of Distribution	53
Legal Matters	57
Experts	57
Where You Can Find More Information	57
Financial Statements	F-1

 

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 dealer manager 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 dealer manager 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 dealer manager 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 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.

 

 

The Offering

 

Securities being offered:		Up to 47,000 shares of Series C Preferred Stock at an offering price of $1,000 per share for a maximum offering amount of $47,000,000.
Terms of Series C Preferred Stock:		●    Ranking. The Series C Preferred Stock 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 Preferred Stock and Series B Preferred Stock.   ●    Stated Value. Each share of Series C Preferred Stock will have an initial stated value of $1,000, which is equal to the offering price per share, subject to appropriate adjustment in relation to certain events, such as recapitalizations, stock dividends, stock splits, stock combinations, reclassifications or similar events affecting our Series C Preferred Stock.   ●    Dividend Rate and Payment Date. Holders of our Series C Preferred Stock will be entitled to receive cumulative monthly cash dividends at a per annum rate of 7% of the stated value (or $5.83 per share each month based on the initial stated value). Dividends on each share will begin accruing on, and will be cumulative from, the date of issuance and regardless of whether our board of directors declares and pays such dividends. If our articles of incorporation, provisions of Nevada law or our borrowing agreements prohibit us from paying dividends, unpaid dividends will cumulate.   ●    Liquidation Preference. Upon a liquidation, dissolution or winding up of our company, holders of shares of our Series C Preferred Stock will be entitled to receive, before any payment or distribution is made to the holders of our Common Stock and on a pari passu basis with holders of our Series A Preferred Stock and Series B Preferred Stock, a liquidation preference equal to the stated value per share, plus accrued but unpaid dividends thereon.   ●    Redemption Request at the Option of a Holder. Once per calendar quarter, a holder will have the opportunity to request that we redeem that holder’s Series C Preferred Stock. Our board of directors may, however, suspend cash redemptions at any time in its discretion if it determines that it would not be in the best interests of our company to effectuate cash redemptions at a given time because we do not have sufficient cash, including because our board believes that our cash on hand should be utilized for other business purposes. Redemptions will be limited to four percent (4%) of the total outstanding Series C Preferred Stock per quarter and any redemptions in excess of such limit or to the extent suspended, shall be redeemed in subsequent quarters on a first come, first served, basis. We will redeem shares at a redemption price equal to the stated value of such redeemed shares, plus any accrued but unpaid dividends thereon, less the applicable redemption fee (if any). As a percentage of the aggregate redemption price of a holder’s shares to be redeemed, the redemption fee shall be:   ●    11% if the redemption is requested on or before the first anniversary of the original issuance of such shares;   ●    8% if the redemption is requested after the first anniversary and on or before the second anniversary of the original issuance of such shares;   ●    5% if the redemption is requested after the second anniversary and on or before the third anniversary of the original issuance of such shares; and   ●    after the third anniversary of the date of original issuance of shares to be redeemed, no redemption fee shall be subtracted from the redemption price.

 

 

Best efforts offering:		The dealer manager is selling the shares of Series C 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 C Preferred Stock offered by this offering circular but will use its best efforts to sell such shares.
Securities issued and outstanding before this offering:		12,403,680 shares of Common Stock, 1,886,000 shares of Series A Preferred Stock, 758,551 shares of Series B Preferred Stock and 10,705.4 shares of Series C Preferred Stock.
Securities issued and outstanding after this offering:		12,403,680 shares of Common Stock, 1,886,000 shares of Series A Preferred Stock, 758,551 shares of Series B Preferred Stock and 47,000 shares of Series C Preferred Stock if the maximum number of shares being offered are sold.
Minimum subscription price:		The minimum initial investment is at least $10,000 and any additional purchases must be investments of at least $5,000; provided that purchases of less than $10,000 may be made in the discretion of the dealer manager.
Use of proceeds:		We estimate our net proceeds from this offering will be approximately $43,143,000 if the maximum number of shares being offered are sold based upon the public offering price of $1,000 per share and after deducting the sales commissions, dealer manager fees and estimating offering expenses payable by us.   We intend to use the net proceeds from this offering for the acquisition and development of manufactured housing communities and/or recreational vehicle communities and for other general and working capital purposes, which may include the funding of capital improvements at properties. For a discussion, see “Use of Proceeds.”
Termination of the offering:		This offering will terminate at the earlier of: (1) the date at which the maximum amount of offered Series C Preferred Stock has been sold, (2) June 11, 2022 (one year after the offering statement of which this offering circular forms a part was originally qualified by the SEC), subject to an extension of up to an additional one year at the discretion of our company and the dealer manager, or (3) the date on which this offering is earlier terminated by us in our sole discretion.
Closings of the offering:		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. At a closing, the proceeds will be distributed to us and the associated shares will be issued to the investors.   You may not subscribe to this offering prior to the date offering statement of which this offering circular forms a part is qualified by the SEC. Before such date, you may only make non-binding indications of your interest to purchase securities in the offering. For any subscription agreement received after such date, we have the right review the subscription for completeness, complete anti-money laundering, know your client and similar background checks and accept the subscription if it is complete and passes such checks or reject the subscription if it fails any of such checks. If rejected, we will return all funds to the rejected investor within ten business days. The funds will remain in the escrow account pending the completion of anti-money laundering, know your client and similar background checks.  We intend to conduct the initial closing on a date mutually determined by us and the dealer manager.  In determining when to conduct the initial closing we and the dealer manager will take into account the number of investors with funds in escrow that have cleared the requisite background checks and the total amount of funds held in escrow pending an initial closing (although no minimum amount of funds is required to conduct an initial closing).  Upon the initial closing all funds in escrow will 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.
Restrictions on investment amount:		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.
No market for Series C Preferred Stock; transferability:		There is no existing public trading market for the Series C Preferred Stock and we do not anticipate that a secondary market for the stock will develop. We do not intend to apply for listing of the Series C Preferred Stock on any securities exchange or for quotation in any automated dealer quotation system or other over-the-counter market. Nevertheless, you will be able to freely transfer or pledge your shares subject to the availability of applicable exemptions from the registration requirements of the Securities Act of 1933, as amended.
Current symbol:		Our Common Stock trades on the OTC Pink Market under the symbol “MHPC.”
Risk factors:		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.

 

 

RISK FACTORS

 

An investment in our securities 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 C 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. 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.

 

Some states and cities, including where some our properties are located, have reacted by instituting quarantines, restrictions on travel, mask-mandates, “stay at home” rules and restrictions on the types of businesses that may continue to operate and in what capacity, as well as guidance in response to the pandemic and the need to contain it.

 

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 does not continue to slow 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:

 

●

the national and local economic climate which may be adversely affected by, among other factors, plant closings, and industry slowdowns;

 

●

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;

 

●

the number of repossessed homes in a particular market;

 

●

the lack of an established dealer network;

 

●

the rental market which may limit the extent to which rents may be increased to meet increased expenses without decreasing occupancy rates;

 

●

the safety, convenience and attractiveness of our properties and the neighborhoods where they are located;

 

●

zoning or other regulatory restrictions;

 

●

competition from other available manufactured housing communities and alternative forms of housing (such as apartment buildings and single-family homes);

 

●

our ability to provide adequate management, maintenance and insurance;

 

●

increased operating costs, including insurance premiums, real estate taxes and utilities; and

 

●

the enactment of rent control laws or laws taxing the owners of manufactured homes.

 

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 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, 2021, our total indebtedness for borrowed money was $58,958,133. 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:

 

●

failure to repay or refinance existing debt as it matures, which may result in forced disposition of assets on disadvantageous terms;

 

●

refinancing terms less favorable than the terms of existing debt; and

 

●

failure to meet required payments of principal and/or interest.

 

We face risks related to “balloon payments” and re-financings.

 

Certain of our mortgages and lines of credit will have significant outstanding principal balances on their maturity dates, commonly known as “balloon payments.” As of December 31, 2021, our total future minimum principal payments were $58,958,133. 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:

 

●

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;

 

●

our possible inability to keep our manufactured housing communities at or near full occupancy;

 

●

our possible inability to attract and keep responsible tenants;

 

●

our possible inability to expediently remove “bad” tenants from our communities;

 

●

our possible inability to timely and satisfactorily deal with complaints of our tenants;

 

●

our possible inability to locate, hire and retain qualified property management personnel; and

 

●

our possible inability to adequately control expenses with respect to our properties.

 

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:

 

●

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;

 

●

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;

 

●

even if we are able to acquire a desired property, competition from other real estate investors may significantly increase the purchase price;

 

●

we may be unable to finance acquisitions on favorable terms;

 

 

●

acquired properties may fail to perform as expected;

 

●

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

 

●

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 forty-three manufactured housing communities we currently operate, twelve are on well systems and twenty-five are on 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.

 

Our failure or the failure of third-party service providers to protect our sites, networks and systems against security breaches, or otherwise to protect our confidential information, could damage our reputation and brand and substantially harm our business and operating results.

 

We collect, maintain, transmit and store data about our tenants, employees, contractors, suppliers, vendors and others, including credit card information and personally identifiable information, as well as other confidential and proprietary information. We also employ third-party service providers that store, process and transmit certain proprietary, personal and confidential information on our behalf. We rely on encryption and authentication technology licensed from third parties in an effort to securely transmit, encrypt, anonymize or pseudonymize certain confidential and sensitive information, including credit card numbers. Advances in computer capabilities, new technological discoveries or other developments may result in the whole or partial failure of this technology to protect transaction and personal data or other confidential and sensitive information from being breached or compromised. Our security measures, and those of our third-party service providers, may not detect or prevent all attempts to hack our systems, denial-of-service attacks, viruses, malicious software, break-ins, phishing attacks, ransom-ware, social engineering, security breaches or other attacks and similar disruptions that may jeopardize the security of information stored in or transmitted by our sites, networks and systems or that we or our third-party service providers otherwise maintain, including payment card systems and human resources management platforms. We and our service providers may not anticipate, discover or prevent all types of attacks until after they have already been launched, and techniques used to obtain unauthorized access to or sabotage systems change frequently and may not be known until launched against us or our third-party service providers. In addition, security breaches can also occur as a result of non-technical issues, including intentional or inadvertent breaches by our employees or by persons with whom we have commercial relationships.

 

 

Breaches of our security measures or those of our third-party service providers or cyber security incidents could result in unauthorized access to our sites, networks and systems; unauthorized access to and misappropriation of personal information, including tenants’ and employees’ personally identifiable information, or other confidential or proprietary information of ourselves or third parties; limited or terminated access to certain payment methods or fines or higher transaction fees to use such methods; viruses, worms, spyware or other malware being served from our sites, networks or systems; deletion or modification of content or the display of unauthorized content on our sites; interruption, disruption or malfunction of operations; costs relating to breach remediation, deployment or training of additional personnel and protection technologies, responses to governmental investigations and media inquiries and coverage; engagement of third-party experts and consultants; litigation, regulatory action and other potential liabilities. If any of these breaches of security occur, our reputation and brand could be damaged, our business may suffer, we could be required to expend significant capital and other resources to alleviate problems caused by such breaches and we could be exposed to a risk of loss, litigation or regulatory action and possible liability. In addition, any party who is able to illicitly obtain a tenant’s password could access that tenant’s personal information. Any compromise or breach of our security measures, or those of our third-party service providers, could violate applicable privacy, data security and other laws, and cause significant legal and financial exposure, adverse publicity and a loss of confidence in our security measures, which could have a material adverse effect on our business.

 

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, Mr. Gee beneficially owns approximately 69.86% 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, 2021. 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, 2021, 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 C Preferred Stock

 

There is no present market for the Series C Preferred Stock, and we have arbitrarily set the price.

 

We have arbitrarily set the price of the Series C Preferred Stock with reference to the general status of the securities market and other relevant factors. The offering price for the Series C 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 C 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 C Preferred Stock and we cannot assure you that such securities could be resold by you at the price you paid for them or at any other price.

 

We cannot assure you that we will be able to pay dividends.

 

Our ability to pay dividends on our Series C 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 C Preferred Stock.

 

We may issue additional debt and equity securities, which are senior to our Series C Preferred Stock as to distributions and in liquidation, which could materially adversely affect the value of the Series C 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 stockholders. 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 C Preferred Stock, which could further limit our ability to make distributions to our stockholders. 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 C 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 C 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 C 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 our company and will not be represented on the board of directors of our company. Accordingly, no person should purchase our Series C 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 $43,143,000 if the maximum number of shares of Series C Preferred Stock being offered are sold after deducting the estimated sales commissions, dealer manager fees and offering expenses payable by us.

 

We intend to use the net proceeds from this offering for the acquisition and development of manufactured housing communities and/or recreational vehicle communities and for other general and working capital purposes, which may include the funding of capital improvements at properties.

 

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			11,750				23,500				35,250				47,000
Gross Proceeds		$	11,750,000			$	23,500,000			$	35,250,000			$	47,000,000
Selling Commissions (4.00%)			470,000				940,000				1,410,000				1,880,000
Dealer Manager Fee (2.75%)			323,125				646,250				969,375				1,292,500
Net Proceeds Before Expenses		$	10,956,875			$	21,913,750			$	32,870,625			$	43,827,500
Offering Expenses
Dealer Manager Expenses		$	587,500			$	587,500			$	587,500			$	587,500
Legal & Accounting			75,000				75,000				75,000				75,000
Publishing/EDGAR			5,000				5,000				5,000				5,000
Transfer Agent			5,000				5,000				5,000				5,000
Blue Sky Compliance			12,000				12,000				12,000				12,000
Total Offering Expenses		$	684,500			$	684,500			$	684,500			$	684,500
Amount of Offering Proceeds Available for Use		$	10,272,375			$	21,229,250			$	32,186,125			$	43,143,000
Uses
Acquisition and Development of Manufactured Housing Communities and/or Recreational Vehicle Communities and Working Capital and General Corporate Purposes		$	10,272,375			$	21,229,250			$	32,186,125			$	43,143,000
Total Expenditures		$	10,272,375			$	21,229,250			$	32,186,125			$	43,143,000
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 C Preferred Stock, and we do not expect any trading market to develop for the Series C Preferred Stock. The Series C Preferred Stock will be sold at $1,000 per share and it is expected that we will either redeem the Series C Preferred Stock at a redemption price equal to 110% of such original issue price, plus accrued dividends thereon, or that holders of the Series C Preferred Stock will exercise their right to request that we redeem or repurchase the Series C Preferred Stock at a redemption or repurchase price equal to 100% of such original issue price (or 110% after five years), plus accrued dividends thereon, and less certain redemption fees payable if shares are redeemed in the first three years. Accordingly, the $1,000 price per share of Series C Preferred Stock is arbitrary and represents the amount of investment made by an investor for purposes of determining the redemption and repurchase price.

 

 

DIVIDEND POLICY

 

Dividends on our Series C 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 C Preferred Stock will be entitled to receive cumulative monthly cash dividends at a per annum rate of 7% of the stated value (or $5.83 per share each month based on the initial stated value). Dividends on each share will begin accruing on, and will be cumulative from, the date of issuance and regardless of whether our board of directors declares and pays such dividends. If our articles of incorporation, provisions of Nevada law or our borrowing agreements prohibit us from paying dividends, unpaid dividends will cumulate.

 

Our anticipated source of funds to pay the cumulative dividends for our Series C 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 C 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 are 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.

 

Dividends on our 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.

 

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, 2020
1st Quarter		$	2.71			$	0.40
2nd Quarter			3.15				0.20
3rd Quarter			6.00				1.75
4th Quarter			5.00				2.50
Fiscal Year Ended December 31, 2021
1st Quarter			3.00				1.99
2nd Quarter			3.00				2.25
3rd Quarter			6.00				0.84
4th Quarter			3.90				2.80
Fiscal Year Ended December 31, 2022
1st Quarter		$	3.50			$	2.53
2nd Quarter (through April 19, 2022)			4.49				3.25

 

Holders

 

As of April 19, 2022, there were approximately 24 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, 2021.

 

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			706,175			$	0.01				293,825
Equity compensation plans not approved by security holders			-				-				-
Total			706,175			$	0.01				293,825

 

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, 2021, we owned and operated forty-three manufactured housing communities containing approximately 2,037 developed sites and 1,045 company-owned manufactured homes. Our communities are located in Georgia, North Carolina, South Carolina and Tennessee. See “Our Properties” for a description of these manufactured housing communities.

 

Recent Developments

 

Additional Closings of Regulation A Offering

 

Subsequent to December 31, 2021, we sold an aggregate of 4,971 shares of Series C Preferred Stock in additional closings of this offering for total gross proceeds of $4,967,440. After deducting a placement fee, we received net proceeds of approximately $4,636,344.

 

Spaulding Purchase and Sale Agreement

 

On January 19, 2022, MHP Pursuits LLC entered into a purchase and sale agreement with Spaulding Enterprises, Inc. for the purchase of a manufactured housing community located in Brunswick, Georgia consisting of 72 sites and 28 homes on approximately 17 acres for a total purchase price of $2,000,000. As of the date of this offering circular, acquisition of this community has not yet occurred.

 

Sunnyland Acquisition

 

On November 3, 2021, MHP Pursuits LLC entered into a purchase and sale agreement with Billie Jean Faust for the purchase of a manufactured housing community located in Byron, Georgia consisting of 73 sites on approximately 18.57 acres and an adjacent parcel of undeveloped land containing 15.09 acres for a total purchase price of $2,200,000. On January 27, 2022, MHP Pursuits LLC assigned its rights and obligations in the purchase agreement to Sunnyland MHP LLC and Gvest Sunnyland Homes LLC pursuant to an assignment of purchase and sale agreement. On January 31, 2022, closing of the acquisition was completed and Sunnyland MHP LLC purchased the land and land improvements, and Gvest Sunnyland Homes LLC purchased the buildings.

 

In connection with the closing of the acquisition, on January 31, 2022, Sunnyland MHP LLC entered into a loan agreement with Vanderbilt Mortgage and Finance, Inc. for a loan in the principal amount of $1,760,000 and issued a promissory note to the lender for the same amount.

 

Interest on the disbursed and unpaid principal balance accrues as follows: (a) from the date funds are first disbursed at a rate of 5.37% per annum, interest only for the first thirty-six months, and (b) on February 10, 2025, interest on the disbursed and unpaid principal balance accrues at a rate 5.21% per annum until maturity. Interest is calculated on the basis of a 360-day year and the actual number of calendar days elapsed. Payments began on March 10, 2022 and continue the 10^th of every month until maturity on February 10, 2027. Sunnyland MHP LLC may prepay the note in part or in full at any time if it pays a prepayment premium calculated in accordance with the loan agreement.

 

The note is secured by a first priority security interest in the property and is guaranteed by Raymond M. Gee. The loan agreement and note contain customary financial and other covenants and events of default for a loan of its type.

 

 

Clyde Purchase and Sale Agreement

 

On February 10, 2022, MHP Pursuits LLC entered into a purchase and sale agreement with Harold and Brenda Allen for the purchase of a manufactured housing community located in Clyde, North Carolina, a part of the Asheville Metropolitan Statistical Area, consisting of 51 sites and homes on approximately 9 acres for a total purchase price of $3,050,000. As of the date of this offering circular, acquisition of this community has not yet occurred.

 

Solid Rock Purchase and Sale Agreement

 

On February 25, 2022, MHP Pursuits LLC entered into a purchase and sale agreement with K10 Enterprises LLC for the purchase of a manufactured housing community located in Leesville, South Carolina, consisting of 39 sites and homes on approximately 11 acres for a total purchase price of $1,700,000. As of the date of this offering circular, acquisition of this community has not yet occurred.

 

Charlotte 3 Park Note Repayment

 

On February 28, 2022, our company borrowed $700,000 from Gvest Real Estate Capital, LLC, increasing the outstanding balance on the revolving promissory note described below. On March 1, 2022, proceeds from the revolving promissory note were used to repay the Charlotte 3 Park MHP LLC $1,500,000 note payable upon its maturity.

 

Warrenville Purchase and Sale Agreement

 

On November 11, 2021, MHP Pursuits LLC entered into a purchase and sale agreement with R&S Properties, LLC for the purchase of two manufactured housing communities located in Warrenville, South Carolina consisting of 85 lots and 61 homes on approximately 45 acres for a total purchase price of $3,050,000. On March 9, 2022, the agreement was amended to extend the closing date to March 31, 2022. On March 31, 2022, MHP Pursuits LLC assigned its rights and obligations in the purchase agreement to Warrenville MHP LLC and Gvest Warrenville Homes LLC pursuant to an assignment of purchase and sale agreement. On March 31, 2022, closing of the acquisition was completed and Warrenville MHP LLC purchased the land and land improvements, and Gvest Warrenville Homes LLC purchased the homes.

 

In connection with the closing of the acquisition, on March 31, 2022, Warrenville MHP LLC entered into a loan agreement with Vanderbilt Mortgage and Finance, Inc. for a loan in the principal amount of $2,440,000 and issued a promissory note to the lender for the same amount.

 

Interest on the disbursed and unpaid principal balance accrues from the date funds are first disbursed at a rate of 5.59% per annum and is calculated on the basis of a 360-day year and the actual number of calendar days elapsed. Monthly payments began on April 10, 2022 and are interest only for the first thirty-six months. The outstanding principal balance begins amortizing on March 10, 2025 through the maturity date of March 10, 2027. Warrenville MHP LLC may prepay the note in part or in full at any time if it pays a prepayment premium calculated in accordance with the loan agreement.

 

This note is secured by a first priority security interest in the property and is guaranteed by Raymond M. Gee. The loan agreement and note contain customary financial and other covenants and events of default for a loan of this type.

 

 

Results of Operations

 

The following table sets forth key components of our results of operations during the years ended December 31, 2021 and 2020.

 

		Year Ended December 31,								Increase (Decrease)
		2021				2020				Amount				Percent
						(As Revised)
Revenue
Rental and related income		$	8,328,294			$	6,380,515			$	1,947,779				30.53	%
Homes sales			33,983				-				33,983				100.00	%
Total revenues			8,362,277				6,380,515				1,981,762				31.06	%
Community operating expenses
Repair and maintenance			529,899				390,140				139,759				35.82	%
Real estate taxes			463,148				315,061				148,087				47.00	%
Utilities			691,830				571,182				120,648				21.12	%
Insurance			125,159				158,672				(33,513	)			(21.12	)%
General and administrative expense			821,234				198,425				622,809				313.88	%
Total community operating expenses			2,631,270				1,633,480				997,790				61.08	%
Corporate payroll and overhead			3,013,810				1,581,807				1,432,003				90.53	%
Depreciation and amortization expense			2,060,882				1,652,509				408,373				24.71	%
Interest expense			2,243,876				1,961,843				282,033				14.38	%
Refinancing costs			110,691				464,568				(353,877	)			(76.17	)%
Total expenses			10,060,529				7,294,207				2,766,322				37.92	%
Other income			139,300				-				139,300				100.00	%
Gain on sale of property			-				761,978				(761,978	)			(100.00	)%
Net loss		$	(1,558,952	)		$	(151,714	)			(1,407,238	)			927.56	%
Net loss attributable to non-controlling interest
Variable interest entity share of net loss			(460,609	)			451,876				(912,485	)			(201.93	)%
Net income (loss) attributable to our company			(1,098,343	)			(603,590	)			(494,753	)			81.97	%
Preferred stock dividends and put option value accretion			2,175,472				1,850,860				324,612				17.54	%
Net loss attributable to common shareholders		$	(3,273,815	)		$	(2,454,450	)		$	(819,365	)		$	33.38	%

 

Revenues. For the year ended December 31, 2021, we earned total revenues of $8,362,277, as compared to $6,380,515 for the year ended December 31, 2020, an increase of $1,981,762, or 31.06%. The increase was primarily due to $1,308,447 of rental income from the acquisition of twenty-four manufactured housing communities during 2021 and a complete year of rental income totaling $241,099 related to two properties acquired during the first quarter of 2020. The remaining increase was due to an average 2% increase in occupancy along with rental rate increases.

 

Community Operating Expenses. For the year ended December 31, 2021, we incurred total community operating expenses of $2,631,270, as compared to $1,633,480 for the year ended December 31, 2020, an increase of $997,790, or 61.08%. The increase in community operating expenses was primarily due to additional expenses associated with the twenty-four properties acquired throughout 2021. We incurred additional repairs and maintenance, insurance, and real estate tax expenses as expected and we hired additional on-site maintenance staff at several of our new parks to help us to increase efficiencies and decrease contract labor costs as we expanded into new markets this year, including in the Raleigh, Anderson, and Columbia metropolitan areas, among others. Community operating expenses as a percentage of revenues were 31.47% and 25.60% during 2021 and 2020, respectively.

 

Corporate Payroll and Overhead Expenses. For the year ended December 31, 2021, we incurred corporate payroll and overhead expenses of $3,013,810, as compared to $1,581,807 for the year ended December 31, 2020, an increase of $1,432,003, or 90.53%. This increase was primarily due to increased payroll including corporate salaries and benefits expense of $481,180 due to hiring additional personnel to support our growth and an increase in employee bonuses of $306,870. Additionally, we incurred increased audit and legal fees of approximately $45,000 largely driven by the volume of 2021 acquisitions, increased rent expense for our corporate office space by $96,000, and approximately $200,000 of additional marketing and travel expenses. Corporate payroll and overhead expenses as a percentage of revenue were 36.04% and 24.79% during 2021 and 2020, respectively.

 

Depreciation and Amortization Expense. For the year ended December 31, 2021, we recorded depreciation expense and amortization of acquisition costs of $2,060,882, as compared to $1,652,509 for the year ended December 31, 2020, an increase of $408,373, or 24.71%. The increase in depreciation and amortization was driven by approximately $260,000 related to the acquisition of depreciable assets in twenty-four manufactured housing communities during 2021 and an increase of $88,628 from a complete year of depreciation expense related to the two properties acquired during 2020. The remaining increase was due to capital improvement projects completed during the year ended December 31, 2021, such as home renovations and new home installations.

 

 

Interest Expense. For the year ended December 31, 2021, we incurred interest expense of $2,243,876, as compared to $1,961,843 for the year ended December 31, 2020, an increase of $282,033, or 14.38%. The increase was primarily related to the increase in interest expense of $296,274 on additional debt incurred to acquire new properties in 2021 and an increase of $76,252 from dividends to preferred stockholders, which are included in interest expense given the liability treatment of the mandatorily redeemable Series C Preferred Stock, offset by decreases due to the payoff of our Butternut mortgage in 2020 upon selling the community. Interest expense as a percentage of revenues was 26.83% and 30.75% during 2021 and 2020, respectively, which continues to improve as we refinance and pay down our existing debt and obtain new loans for acquisitions with more favorable terms.

 

Refinancing Costs. For the year ended December 31, 2021, we recognized $110,691 of refinancing costs, as compared to $464,568 for the year ended December 31, 2020, a decrease of $353,877, or 76.17%. The 2021 expense related to the refinancing of three loans connected to our Springlake communities for a new loan with one lender. Upon the refinance, we wrote off unamortized debt issuance costs connected with the original debt. During the year ended December 31, 2020, we refinanced notes payable related to five of our communities.

 

Other Income. During the year ended December 31, 2021, we recognized other income of $139,300 upon forgiveness of our Paycheck Protection Program loan by the Small Business Administration in June 2021, compared to $0 for the year ended December 31, 2021.

 

Gain on Sale of Property. We did not sell any of our communities during the year ended December 31, 2021. We recognized a gain on the sale of our Butternut community equal to $761,978 during the year ended December 31, 2020.

 

Net Loss. The factors described above resulted in a net loss of $1,558,952 for the year ended December 31, 2021, as compared to a net loss of $151,714 for the year ended December 31, 2020, an increase of $1,407,238, or 927.56%.

 

Liquidity and Capital Resources

 

As of December 31, 2021, we had cash and cash equivalents of $2,106,329, including restricted cash of $705,195. In addition to cash generated through operations, we use a variety of sources to fund our cash needs, including acquisitions and sales of properties. We intend to continue to increase our real estate investments. Our business plan includes acquiring communities that yield more than our cost of funds and then investing in physical improvements, including adding rental homes onto otherwise vacant sites. Our ability to continue acquiring communities are dependent on our ability to raise capital. There is no guarantee that any of these additional opportunities will materialize or that we will be able to take advantage of such opportunities. The growth of our real estate portfolio depends on the availability of suitable properties which meet our investment criteria and appropriate financing.

 

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 is sufficient 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.

 

We plan to meet our short-term liquidity requirements for the next twelve months, generally through available cash as well as net cash provided by operating activities and with funds available to us under the existing $1.5 million revolving note described below.

 

Summary of Cash Flow

 

The following table provides detailed information about our net cash flow for years ended December 31, 2021 and 2020:

 

Cash Flow

 

		Year Ended December 31,
		2021				2020
Net cash provided by operating activities		$	2,265,991			$	1,278,907
Net cash used in investing activities			(9,125,195	)			(200,195	)
Net cash provided by (used in) financing activities			6,976,676				(3,237,266	)
Net increase (decrease) in cash and cash equivalents			117,472				(2,158,554	)
Cash and cash equivalents at beginning of year			1,988,857				4,147,411
Cash and cash equivalent at end of year		$	2,106,329			$	1,988,857

 

Net cash provided by operating activities was $2,265,991 for the year ended December 31, 2021, as compared to $1,278,907 for the year ended December 31, 2020. For the year ended December 31, 2021, the net loss of $1,558,952, offset by depreciation and amortization in the amount of $2,060,882, increase in accrued liabilities of $747,559, increase in tenant security deposits of $366,043, and increase in accounts payable of $241,869 were the primary drivers of the net cash provided by operating activities. For the year ended December 31, 2020, the net loss of $151,714, offset by depreciation and amortization in the amount of $1,652,509, and write off mortgage costs totaling $464,569, were the primary drivers of the net cash provided by operating activities.

 

 

Net cash used in investing activities was $9,125,195 for the year ended December 31, 2021, as compared to $200,195 for the year ended December 31, 2020. Net cash used in investing activities for the year ended December 31, 2021 consisted of purchases of investment properties in the amount of $6,617,000 and $481,781 paid for acquisition costs, as well as capital improvements of $2,026,414, while net cash used in investing activities for the year ended December 31, 2020 consisted of purchases of investment properties in the amount of $1,001,000 and capital improvements of $1,299,195, offset by proceeds of $2,100,000 from the sale of the Butternut community.

 

Net cash provided by financing activities was $6,976,676 for the year ended December 31, 2021, as compared to $3,237,266 net cash used in financing activities for the year ended December 31, 2020. For the year ended December 31, 2021, net cash provided by financing activities consisted primarily of proceeds from issuance of preferred stock of $6,809,884 and proceeds from notes payable and lines of credit in the amount of $9,396,731, offset by repayment of notes payable of $4,909,168, repayment of VIE lines of credit of $1,732,599, and capitalized debt issuance costs of $1,526,376. For the year ended December 31, 2020, net cash used in financing activities consisted primarily of repayment of related party note and line of credit of $2,608,867, repayment of notes payable $18,555,939, capitalized financing cost of $1,230,680, and preferred share dividends of $811,143, offset by proceeds from issuance of preferred stock of $2,151,250 and proceeds from note payables of $16,960,969.

 

Prior Regulation A Offering

 

On November 1, 2019, we launched an offering under Regulation A of Section 3(6) of the Securities Act for Tier 2 offerings, pursuant to which we offered 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 offered bonus shares to early investors in this offering, whereby the first 400 investors received, 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. This offering terminated on March 30, 2021.

 

In total, we sold an aggregate of 758,551 shares of Series B Preferred Stock for total gross proceeds of $7,585,510. After deducting a placement fee and other expenses, we received net proceeds of $7,185,717. We issued 29,000 shares of Common Stock to holders of Series B Preferred Stock.

 

Current Regulation A Offering

 

On June 11, 2021, we launched a new offering under Regulation A of Section 3(6) of the Securities Act for Tier 2 offerings, pursuant to which we are offering up to 47,000 shares of Series C Preferred Stock at an offering price of $1,000 per share for a maximum offering amount of $47 million.

 

During the year ended December 31, 2021, we sold an aggregate of 5,734.4 shares of Series C Preferred Stock for total gross proceeds of $5,734,400. After deducting a placement fee and other expenses, we received net proceeds of $5,345,207. The Company capitalized an additional $159,515 of issuance costs associated with the offering which, net of amortization expense, offset with the net proceeds on the balance sheet.

 

Promissory Notes

 

We have issued promissory notes payable to lenders related to the acquisition of manufactured housing communities and mobile homes. The interest rates on these promissory notes range from 3.310% to 5.875% with 5 to 30 years principal amortization. Two of the promissory notes have an initial 6 month, two had an initial 12 month, seven have an initial 24 month, one has an initial 60 month, and one promissory note has a 180-month period of interest only payments. The promissory notes are secured by the real estate assets and $36,554,126 for eighteen loans were guaranteed by Raymond M. Gee.

 

On May 1, 2020, we received a $139,300 Paycheck Protection Program, or PPP, loan from the United States Small Business Administration, or the SBA, under provisions of the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act. The PPP loan had a two-year term and bore interest at a rate of 1.0% per annum.  The PPP provides that loans may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. We used the proceeds from the PPP loan for qualifying expenses and applied for forgiveness of the PPP loan in accordance with the terms of the CARES Act. The loan was forgiven by the SBA on June 7, 2021.

 

 

As of December 31, 2021, the outstanding balance on these notes was $50,955,777. The following are the terms of these notes:

 

		Maturity Date		Interest Rate				Balance 12/31/21				Balance 12/31/20
Pecan Grove MHP LLC		02/22/29			5.250	%			2,969,250				3,037,625
Azalea MHP LLC		03/01/29			5.400	%			790,481				810,741
Holly Faye MHP LLC		03/01/29			5.400	%			579,825				579,825
Chatham MHP LLC		04/01/24			5.875	%			1,698,800				1,734,828
Lakeview MHP LLC		03/01/29			5.400	%			1,805,569				1,832,264
B&D MHP LLC		05/02/29			5.500	%			1,779,439				1,818,303
Hunt Club MHP LLC		01/01/33			3.430	%			2,398,689				2,445,011
Crestview MHP LLC		12/31/30			3.250	%			4,682,508				4,800,000
Maple Hills MHP LLC		12/01/30			3.250	%			2,341,254				2,400,000
Springlake MHP LLC		11/14/21			3.310	%			-				4,000,000
Springlake MHP LLC*		12/10/26			4.750	%			4,016,250				-
ARC MHP LLC		01/01/30			5.500	%			3,809,742				3,885,328
Countryside MHP LLC		03/20/50			5.500	%			1,684,100				1,700,000
Evergreen MHP LLC		04/01/32			3.990	%			1,115,261				1,135,502
Golden Isles MHP LLC		03/31/26			4.000	%			787,500				-
Anderson MHP LLC*		07/10/26			5.210	%			2,153,807				-
Capital View MHP LLC*		09/10/26			5.390	%			817,064				-
Hidden Oaks MHP LLC*		09/10/26			5.330	%			823,440				-
North Raleigh MHP LLC		11/01/26			4.750	%			5,304,409				-
Charlotte 3 Park MHP LLC (Dixie, Driftwood, Meadowbrook)(1)		03/01/22			5.000	%			1,500,000				-
Carolinas 4 MHP LLC*		01/10/27			5.300	%			3,105,070
Gvest Finance LLC (B&D homes)		05/01/24			5.000	%			657,357				694,640
Gvest Finance LLC (Countryside homes)		03/20/50			5.500	%			1,287,843				1,300,000
Gvest Finance LLC (Golden Isles homes)		03/31/36			4.000	%			787,500				-
Gvest Anderson Homes LLC*		07/10/26			5.210	%			2,006,193				-
Gvest Capital View Homes LLC*		09/10/26			5.390	%			342,936				-
Gvest Hidden Oaks Homes LLC*		09/10/26			5.330	%			416,560				-
Gvest Carolinas 4 Homes LLC (Asheboro, Morganton)*		01/10/27			5.300	%			1,294,930
PPP Loan - MHP		05/01/22			1.000	%			-				139,300
Total Note Payables									50,955,777				32,313,367
Discount Direct Lender Fees									(2,064,294	)			(1,096,629	)
Total Net of Discount								$	48,891,483			$	31,216,738

 

(1)

We repaid the Charlotte 3 Park MHP LLC note payable of $1,500,000 on March 1, 2022.

 

*

The notes indicated above are subject to certain financial covenants.

 

During the year ended December 31, 2021, we refinanced our Springlake MHP LLC note payable totaling $4,000,000 to a new note with a different lender totaling $4,016,000. As of December 31, 2021, we recognized refinancing cost expense totaling $87,985 and capitalized $75,141 of debt issuance costs related to the new note. Also during the year ended December 31, 2021, Gvest Finance LLC paid off a note payable totaling $309,271 that was originally used to purchase new homes that were integrated into our Springlake community. This note was repaid with proceeds from the Springlake New Home Facility described below. Gvest Finance LLC recognized refinance cost totaling $6,204 related to this repayment.

 

During the year ended December 31, 2020, we refinanced a total of $16,374,007 from loans payable to $15,245,000 of new notes payable from five of the communities. We used the additional loans payable proceeds from the refinance to retire the related party note payable described below. As of December 31, 2020, we recognized refinancing cost expense totaling $464,568 and capitalized $640,895 of mortgage costs related to the refinancing.

 

 

Metrolina Promissory Note

 

On October 22, 2021, we issued a promissory note to Metrolina Loan Holdings, LLC, or Metrolina, a significant stockholder, in the principal amount of $1,500,000. This related party note bears interest at a rate of 18% per annum and matures on April 1, 2023. During the first six months of the note, any prepayment would require us to pay a yield maintenance fee equal to six months of interest. Thereafter, the loan may be prepaid at any time without penalty or fee. The note is guaranteed by Mr. Gee. As of December 31, 2021, the balance on this note was $1,500,000, and interest expense for the year totaled $51,780.

 

Gvest Revolving Promissory Note

 

On December 27, 2021, we issued a revolving promissory note to Raymond M. Gee, our chief executive officer, pursuant to which we may borrow up to $1,500,000 from Mr. Gee on a revolving basis for working capital or acquisition purposes. On the same date, we borrowed $150,000. This note has a five-year term and is interest-only based on an 15% annual rate through the maturity date. As of December 31, 2021, the outstanding balance on this note was $150,000.

 

Line of Credit – ARC, Crestview, and Maple Occupied Home Facility

 

On December 24, 2020, Gvest Homes I LLC entered into a loan agreement with a lender for a commitment amount of up to $20,000,000, provided that only up to $8,500,000 is to be used for used homes within our ARC, Crestview, and Maple communities. The agreement requires the maintenance of certain financial ratios and other affirmative and negative covenants.

  

On December 24, 2020, the lender agreed to advance $3,348,967 to us. During the first quarter of 2021, the lender agreed to increase this amount to $3,422,260. As of December 2021, $850,000 was still due from the lender. On December 17, 2021, the lender advanced $838,000 under the Multi-Community Rental Financing Facility discussed below and the funds were used to pay us the outstanding balance owed from the 2020 sale of ARC homes to Gvest Homes I LLC. Subsequently, Gvest Homes I LLC reduced the line of credit balance of the ARC, Crestview, and Maple Occupied Home Facility to the total amount funded to date. As of December 31, 2021 and 2020, the outstanding balance on this line of credit was $2,517,620 and $3,348,967, respectively, presented on the balance sheet net of discount direct lender fees of $95,221 and $134,051, respectively.

 

The line of credit bears interest at 8.375% and maturity date of the loan is January 1, 2030. During the years ended December 31, 2021 and 2020, interest expense totaled $168,770 and $587, respectively. Pursuant to the agreement, we are obligated to pay a fee to the lender equal to 1% of the amount of each advance which funding fee shall be deducted from the then available commitment amount. The line of credit is guaranteed by Raymond M. Gee.

 

Lines of Credit – Multi-Community Floorplan and Rental Financing Facilities

 

On July 26, 2021, Gvest Finance LLC entered into a floorplan credit agreement, rental homes credit agreement, and a credit and security supplemental agreement pursuant to which the lender has agreed to make available to Gvest Finance LLC a secured credit facility with a joint, aggregate credit limit of $5,000,000, consisting of (i) a credit limit of up to $1,000,000 under a floorplan line to be used to finance the acquisition of manufactured homes for retail sale and (ii) a credit limit of up to $4,000,000 under a rental line to finance the acquisition of rental homes. The lender subsequently agreed to extend the credit limit for the floorplan line to $2,000,000. 

 

On November 12, 2021, Gvest Finance LLC repaid the outstanding balance on the floorplan line as of that date totaling $1,676,634 using funds advanced from the Springlake New Home Facility discussed below. As of December 31, 2021, the balance on the floorplan line of credit was $1,104,255 as Gvest Finance LLC borrowed additional funds of $1,104,255 after the initial repayment which is presented on the balance sheet net of discount direct lender fees of $1,612.

 

The floorplan line of credit interest is calculated at a schedule as follows: (i) Day 1-360: LIBOR plus 6% per annum; (ii) Day 361-720: LIBOR plus 7% per annum; and (iii) Day 721+: LIBOR plus 8% per annum. Interest shall also accrue at the lesser of (a) the “LIBOR Rate”, plus 10% per annum and (b) the maximum lawful rate of interest permitted under applicable law. During the year ended December 31, 2021, total interest expense was $23,933.

 

The maturity date of the of the floorplan line of credit will vary based on each statement of financial transaction, or SOFT, a report identifying the funded homes and the applicable financial terms. Gvest Finance LLC promises to repay each floor plan advance as follows: (i) Gvest Finance LLC shall pay a principal amount in an amount equal to the original principal amount of such advance multiplied by the percentage specified in the applicable SOFT, commencing on the 15^th day of the first full month after the first anniversary of any advance and continuing on the 15^th day of each month thereafter; (ii) interest shall be payable monthly, in arrears, and shall be due and payable on or before the 15^th day of the month following the month in which such interest accrues; and (iii) Gvest Finance LLC will pay to lender an amount equal to the original invoice price of such homes inventory, less all principal payments made with respect to such inventory pursuant to (ii) above, plus all billed and unpaid interest and any applicable fees, upon the sale of inventory financed or refinanced by lender.

 

 

The rental line of credit bears interest at the greater of 3.25% or the highest prime rate of interest published in the Wall Street Journal on either (A) the date when the lender advances the loan or (B) the last day of the 60^th month following the month of the date when the lender advances the loan, plus 375 basis points in either case. The rental line of credit matures ten years after the date of each advance. During the year ended December 31, 2021, total interest expense was $2,409. As of December 31, 2021, the balance on the rental line was $838,000, presented on the balance sheet net of discount direct lender fees of $35,000. The proceeds were used to purchase used homes in the ARC community as discussed above.

 

The floorplan and rental lines of credit are guaranteed by Raymond M. Gee. Gvest Finance LLC is subject to certain financial covenants as set out in the loan agreement.

 

Line of Credit – Springlake Home Facility

 

On November 12, 2021, Gvest Springlake Homes LLC, a wholly owned subsidiary of Gvest Finance LLC, entered into a loan and security agreement for a line of credit in the principal amount of $2,000,000 to be used to purchase homes for our Springlake community. The immediate advance of funds from the line of credit totaling $1,892,481 was used to pay off Gvest Finance LLC’s preexisting note totaling $309,271 and the outstanding balance of the Line of Credit – Multi-Community Floor Plan and Rental Financing Facility totaling $1,676,634. The credit limit on this facility was increased on March 28, 2022 to $3,300,000.

 

The line of credit bears interest at the lesser of the Wall Street Journal prime rate plus one percent or 6.75% per annum and matures five years after each advance. As of December 31, 2021, the balance due on this line of credit was $1,892,481, presented on the balance sheet net of discount direct lender fees of $19,916. Interest expense related to this facility for the year ended December 31, 2021 totaled $20,936. The line of credit is guaranteed by Raymond M. Gee. Gvest Springlake Homes LLC is subject to certain financial covenants as set out in the loan agreement.

 

Off-Balance Sheet Arrangements

 

As of December 31, 2021, 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. Mobile home rental and related income is generated from lease agreements for our sites and homes. The lease component of these agreements is accounted for under Topic 842 of the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, for leases.

 

Under ASC 842, we must assess on an individual lease basis whether it is probable that we will collect the future lease payments. We consider the tenant’s payment history and current credit status when assessing collectability. When collectability is not deemed probable, we write-off the tenant’s receivables, including straight-line rent receivable, and limit lease income to cash received.

 

 

Our revenues primarily consist of rental revenues and tenant fee income. We have the following revenue sources and revenue recognition policies:

 

●

Rental revenues include revenues from the leasing land lot or a combination of both, the mobile home and land at our properties to tenants.

 

●

Revenues from the leasing of land lot or a combination of both, the mobile home and land at our properties to tenants include (i) lease components, including land lot or a combination of both, the mobile home and land, and (ii) reimbursement of utilities and account for the components as a single lease component in accordance with ASC 842.

 

●

Revenues derived from fixed lease payments are recognized on a straight-line basis over the non-cancelable period of the lease. We commence rental revenue recognition when the underlying asset is available for use by the lessee. Revenue derived from the reimbursement of utilities are generally recognized in the same period as the related expenses are incurred. Our leases are month-to-month.

  

Acquisitions. We account for acquisitions as asset 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.

 

Variable Interest Entities. In December 2020, we entered into a property management agreement with Gvest Finance LLC, a company owned and controlled by our parent company, Gvest Real Estate Capital LLC, an entity whose sole owner is Raymond M. Gee, our chairman and chief executive officer, and have subsequently entered into property management agreements with Gvest Homes I LLC, Gvest Anderson Homes LLC, Gvest Capital View Homes LLC, Gvest Hidden Oaks Homes LLC, Gvest Springlake Homes LLC, Gvest Carolinas 4 Homes LLC, Gvest Sunnyland Homes LLC and Gvest Warrenville Homes LLC, which are wholly owned subsidiaries of Gvest Finance LLC. Under the property management agreements, we manage the homes owned by the VIEs and the VIEs remit to our company all income, less any sums paid out for debt service plus 5% of the debt service payment.

 

Additionally, during 2021, we formed two entities, Brainerd Place LLC and Bull Creek LLC, for the purpose of exploring opportunities to develop mobile home communities. We own 49% of these entities and Gvest Real Estate LLC, an entity whose sole owner is Raymond M. Gee, our chairman and chief executive officer, owns 51%. We also executed operating agreements with these entities which designate Gvest Capital Management LLC, a company owned and controlled by Gvest Real Estate Capital LLC, as manager with the authority, power, and discretion to manage and control the entities’ business decisions. The operating agreements require us to make cash contributions to the entities to fund their activities, operations, and existence, if we approve the contribution requests from the manager, which ultimately provides us with power to direct the economically significant activities of these entities.

 

A company with interests in a variable interest entity, or VIE, must consolidate the entity if the company is deemed to be the primary beneficiary of the VIE; that is, if it has both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. Such a determination requires management to evaluate circumstances and relationships that may be difficult to understand and to make a significant judgment, and to repeat the evaluation at each subsequent reporting date. Primarily due to our common ownership by Mr. Gee, our power to direct the activities of these entities that most significantly impact their economic performance, and the fact that we have the obligation to absorb losses or the right to receive benefits from these entities that could potentially be significant to these entities, the entities listed above are considered to be VIEs in accordance with GAAP.

 

Investment Property and Depreciation. Investment property, including property and equipment, is 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 period’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. After the date we determine a property is held for disposition, depreciation expense is not recorded. There was no impairment during the years ended December 31, 2021 and 2020.

 

 

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 and VIEs to hold the acquired properties. Following is a summary of our subsidiaries and VIEs. All intercompany transactions and balances have been eliminated in consolidation. We do not have a majority or minority interest in any other company, either consolidated or unconsolidated.

 

Name of Subsidiary		State of Formation		Date of Formation		Ownership
Pecan Grove MHP LLC		North Carolina		October 12, 2016			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	%
Golden Isles MHP LLC		Georgia		March 16, 2021			100	%
Anderson MHP LLC		South Carolina		June 2, 2021			100	%
Capital View MHP LLC		South Carolina		August 6, 2021			100	%
Hidden Oaks MHP LLC		South Carolina		August 6, 2021			100	%
North Raleigh MHP LLC		North Carolina		September 16, 2021			100	%
Carolinas 4 MHP LLC		North Carolina		November 30, 2021			100	%
Charlotte 3 Park MHP LLC		North Carolina		December 10, 2021			100	%
Sunnyland MHP LLC*		Georgia		January 2, 2022			100	%
Warrenville MHP LLC*		South Carolina		February 15, 2022			100	%
Gvest Finance LLC		North Carolina		December 11, 2018			VIE
Gvest Homes I LLC		Delaware		November 9, 2020			VIE
Brainerd Place LLC		Delaware		February 24, 2021			VIE
Bull Creek LLC		Delaware		April 13,2021			VIE
Gvest Anderson Homes LLC		Delaware		June 22, 2021			VIE
Gvest Capital View Homes LLC		Delaware		August 6, 2021			VIE
Gvest Hidden Oaks Homes LLC		Delaware		August 6, 2021			VIE
Gvest Springlake Homes LLC		Delaware		September 24, 2021			VIE
Gvest Carolinas 4 Homes LLC		Delaware		November 13, 2021			VIE
Gvest Sunnyland Homes LLC*		Delaware		January 6, 2022			VIE
Gvest Warrenville Homes LLC*		Delaware		February 14, 2022			VIE

 

*

During the year ended December 31, 2021, there was no activity in Sunnyland MHP LLC, Warrenville MHP LLC, Gvest Sunnyland Homes LLC and Gvest Warrenville Homes LLC.

 

In December 2020, we entered into a property management agreement with Gvest Finance LLC, a company owned and controlled by our parent company, Gvest Real Estate Capital LLC, an entity whose sole owner is Raymond M. Gee, our chairman and chief executive officer, and have subsequently entered into property management agreements with Gvest Homes I LLC, Gvest Anderson Homes LLC, Gvest Capital View Homes LLC, Gvest Hidden Oaks Homes LLC, Gvest Springlake Homes LLC, Gvest Carolinas 4 Homes LLC, Gvest Sunnyland Homes LLC, and Gvest Warrenville Homes LLC, which are wholly owned subsidiaries of Gvest Finance LLC. Under the property management agreements, we manage homes owned by the VIEs and the VIEs remit to our company all income, less any sums paid out for debt service plus 5% of the debt service payment.

 

 

Additionally, during 2021, we formed two entities, Brainerd Place LLC and Bull Creek LLC, for the purpose of exploring opportunities to develop mobile home communities. We own 49% of these entities and Gvest Real Estate LLC, an entity whose sole owner is Raymond M. Gee, our chairman and chief executive officer, owns 51%. We also executed operating agreements with these entities which designate Gvest Capital Management LLC, a company owned and controlled by Gvest Real Estate Capital LLC, as manager with the authority, power, and discretion to manage and control the entities’ business decisions. The operating agreements require us to make cash contributions to the entities to fund their activities, operations, and existence, if we approve the contribution requests from the manager, which ultimately provides us with power to direct the economically significant activities of these entities.

 

Pursuant to GAAP, a company with interests in a VIE must consolidate the entity if the company is deemed to be the primary beneficiary of the VIE; that is, if it has both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. Such a determination requires management to evaluate circumstances and relationships that may be difficult to understand and to make a significant judgment, and to repeat the evaluation at each subsequent reporting date. Primarily due to our common ownership by Mr. Gee, our power to direct the activities of these entities that most significantly impact their economic performance, and the fact that we have the obligation to absorb losses or the right to receive benefits from these entities that could potentially be significant to these entities, the entities listed above are considered to be VIEs in accordance with applicable GAAP.

 

2021 Acquisitions

 

During 2021, we acquired twenty-four manufactured housing communities via newly formed subsidiaries and VIEs consisting of 806 total sites for an aggregate purchase price of $25,975,000:

 

●

On March 31, 2021, we purchased a manufactured housing community located in Brunswick, Georgia consisting of 113 sites on approximately 17 acres for a total purchase price of $2,325,000. Our subsidiary Golden Isles MHP LLC purchased the land and land improvements and our VIE, Gvest Finance LLC, purchased the homes.

 

●

On July 20, 2021, we purchased ten manufactured housing communities located in Anderson County, South Carolina consisting of 178 sites on approximately 50 acres and for a total purchase price of $5,200,000. Our subsidiary Anderson MHP LLC purchased the land and land improvements and Gvest Anderson Homes LLC, a wholly owned subsidiary of Gvest Finance LLC, purchased the homes.

 

●

On September 10, 2021, we purchased a manufactured housing community located in Lexington County, South Carolina consisting of 32 sites on approximately 10 acres a total purchase price of $1,450,000. Our subsidiary Capital View MHP LLC purchased the land and land improvements and Gvest Capital View Homes LLC, a wholly owned subsidiary of Gvest Finance LLC, purchased the homes.

 

●

On September 16, 2021, we purchased a manufactured housing community located in Lexington County, South Carolina consisting of 44 sites on approximately 9 acres for a total purchase price of $1,550,000. Our subsidiary Hidden Oaks MHP LLC purchased the land and land improvements and Gvest Hidden Oaks Homes LLC, a wholly owned subsidiary of Gvest Finance LLC, purchased the homes.

 

●

On October 25, 2021, our subsidiary North Raleigh MHP LLC purchased five manufactured housing communities located in Franklin and Granville Counties, North Carolina, consisting of 137 sites on approximately 135 acres for a total purchase price of $7,450,000.

 

●

On December 21, 2021, our subsidiary Charlotte 3 Park MHP LLC purchased three manufactured housing communities located in Charlotte, North Carolina and nearby cities of Kings Mountain, North Carolina and York, South Carolina consisting of 157 sites on approximately 78 acres for a total purchase price of $2,500,000.

 

●

On December 29, 2021, we purchased a manufactured housing community located in Morganton, North Carolina consisting of 61 sites on approximately 31 acres for a total purchase price of $2,750,000. Our subsidiary Carolinas 4 MHP LLC purchased the land and land improvements and Gvest Carolinas 4 Homes LLC, a wholly owned subsidiary of Gvest Finance LLC, purchased the homes.

 

●

On December 29, 2021, we purchased two manufactured housing communities located in Asheboro, North Carolina consisting of 84 sites on approximately 45 acres for a total purchase price of $2,750,000. Carolinas 4 MHP LLC purchased the land and land improvements, and Gvest Carolinas 4 Homes LLC purchased the homes.

 

 

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 forty-six manufactured housing communities containing approximately 2,195 developed sites and 1,142 company-owned manufactured homes. Our communities are located in Georgia, North Carolina, South Carolina and Tennessee. See “Properties” below for a description of these manufactured 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 on residential sites within the community. The owner of a manufactured home leases the site on which it is located or the lessee of a manufactured home leases both the home and site on which the home is located.

 

We believe that manufactured housing is one of the only non-subsidized affordable housing options in the U.S. and that manufactured housing is an economically attractive alternative to traditional single-family and multi-family housing, as it provides a housing alternative that has characteristics of single-family housing (no shared walls, dedicated parking and a yard), yet is more attainable than single-family while being competitively priced to multi-family. Demand for housing affordability continues to increase, but supply of manufactured housing remains virtually static, as there are not many new manufactured housing communities being developed, and many are redeveloped to higher and better uses. We are committed to 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 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. In 2020, this demographic group represented 19.7% of all full-time workers, according to the U.S. Census Bureau’s ‘Income and Poverty in the United States: 2020’.

 

●

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 most manufactured housing communities owned by individuals. We estimate that the top five manufactured housing community owners control approximately 9% 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. For the homes we own and lease to our customers, we conduct periodic unit inspections and experience less turnover than typical multi-family rentals, both of which keep our overall expense ratio lower than typical multi-family expense ratios.

 

●

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 marketed.

 

●

Centralized Operations. We have centralized many operational tasks, including accounting, marketing, lease administration, and accounts payable. The use of professional staff and technology at a corporate level allows us to scale efficiently and operate properties profitably by reducing tasks otherwise completed at the property level.

 

●

Deal Size. Due to the relatively small size of our total capitalization, non-institutional deals of less than 150 sites are accretive to our balance sheet. These smaller properties typically do not attract the larger institutional buyers and are at a lower basis and have less bidders 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 Investment Strategy

 

Our primary investment strategy is acquiring both stabilized and non-stabilized manufactured housing properties with current income and enhancing value through our internal asset and property management.

 

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.

 

We may acquire unimproved property and develop manufactured housing sites or may acquire newly developed sites. We are focused on acquiring or developing communities located in markets where there is a shortage of affordable housing and at a basis that provides both short and long-term capital appreciation. We evaluate property investments nationwide, but to date we have concentrated in the Southeast portion of the United States.

 

 

We are one of four U.S. 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 REITs traditionally use of 50-60%. Additionally, due to our small size, we can focus on smaller deals that are not accretive to institutional buyers but where potential risk-adjusted returns are greater.

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 or purchase of 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 our properties; and, in the opinion of our management, all 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, 2021, we had 33 employees, including officers, all but one of whom are full-time employees.

 

 

OUR PROPERTIES

 

As of December 31, 2021, we owned the following manufactured housing properties:

 

●

Pecan Grove – As of December 31, 2021, we had 33 employees, including officers, all but one of whom are full-time employees.

 

●

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 97%.

 

●

Holly Faye – a 35 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 99%.

 

●

Lakeview – a 84 lot all-age community situated on 17.26 acres in Spartanburg, South Carolina. The average occupancy was 97%.

 

●

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 74 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 93%.

 

●

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 99%.

 

●

B&D – a 95 lot all-age community situated on 17.75 acres and located in Chester, South Carolina. The average occupancy was 89%.

 

●

Crestview – a 113 lot all age community situated on 17.1 acres and located in the Asheville, North Carolina, Metropolitan Statistical Area. The average occupancy was 95%.

 

●

Springlake – three all-age communities with 224 lots situated on 72.7 acres and located in Warner Robins, Georgia. The average occupancy was 88%.

 

●

ARC – five all-age communities with 180 lots situated on 39.34 acres and located in Lexington, South Carolina. The average occupancy was 88%.

 

●

Countryside – a 110 lot all-age community situated on 35 acres and located in Lancaster, North Carolina. The average occupancy was 90%.

 

●

Evergreen – a 65 lot all-age community situated on 28.4 acres and located in Dandridge, Tennessee. The average occupancy was 97%

 

●

Golden Isles – a 113 lots all-age community situated on 16.76 acres and located in Brunswick, Georgia. The average occupancy was 75%.

 

●

Anderson – ten all-age communities with 178 lots situated on 50 acres and located in Anderson, South Carolina. The average occupancy was 95%.

 

●

Capital View – a 32 lot all-age community situated on 9.84 acres and located in Gaston, South Carolina. The average occupancy was 97%.

 

●

Hidden Oaks - a 44 lot all-age community situated on 8.96 acres and located in West Columbia, South Carolina. The average occupancy was 93%.

 

●

North Raleigh – five all-age communities with 137 lots situated on 135 acres and located in Franklin and Granville Counties, North Carolina. The average occupancy was 93%.

 

 

●

Dixie – a 37 lot all-age community situated on 3.43 acres and located in Kings Mountain, North Carolina. The average occupancy was 91%.

 

●

Driftwood – a 26 lot all-age community situated on 34.92 acres and located in Charlotte, North Carolina. The average occupancy was 88%.

 

●

Meadowbrook – a 94 lot all-age community situated on 40.1 acres and located in York, South Carolina. The average occupancy was 100%.

 

●

Morganton – a 61 lot all-age community situated on 31.29 acres and located in Morganton, North Carolina. The average occupancy was 100%.

 

●

Asheboro – a 84 lot all-age community situated on 45.4 acres and located in Asheboro, North Carolina. The average occupancy was 95%.

 

The average occupancy rates above represent an average of total monthly occupancy rates from January 1, 2021 (or date of acquisition) through December 31, 2021. For the year ended December 31, 2021, our total portfolio weighted average occupancy rate was 93%. We do not include vacant, undeveloped lots in our average occupancy rate calculations above.  

Subsequent to December 31, 2021, we acquired the following properties:

 

●

On January 31, 2022, we purchased a manufactured housing community located in Byron, Georgia consisting of 73 sites on approximately 18.57 acres and an adjacent parcel of 15.09 acres of undeveloped land for a total purchase price of $2,200,000. Our subsidiary Sunnyland MHP LLC purchased the land and land improvements and our VIE, Gvest Sunnyland Homes LLC, purchased the homes.

 

●

On March 31, 2022, we purchased two manufactured housing communities located in Warrenville, South Carolina consisting of 85 sites on approximately 45 acres for a total purchase price of $3,050,000. Our subsidiary Warrenville MHP LLC purchased the land and land improvements and our VIE, Gvest Warrenville Homes LLC purchased the homes.

 

 

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		61		Chairman of the Board and Chief Executive Officer
Jay Wardlaw		55		President and Director
Michael Z. Anise		45		Chief Operating Officer and Director
Chelsea H. Gee		29		Chief Financial Officer
Adam A. Martin		50		Chief Investment Officer
William H. Carter		73		Director
Richard M. Gee		29		Director
James L. Johnson		55		Director
Terry Robertson		78		Director

 

Raymond M. Gee. Mr. Gee has served as chairman of our board of directors and chief executive officer of our company since 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 & Sun Alliance and oversaw 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.

 

Jay Wardlaw. Mr. Wardlaw has served as our president and as a member of our board of directors since April 2022. He was a managing director with the Birdsey Group focusing on business development, underwriting and debt and equity placements from 2020 to 2021.  From 2015-2020, Mr. Wardlaw was a managing director in Regions Banks Real Estate Capital Markets group marketing CMBS, FNMA, HUD, Affordable Housing, Credit Tenant Lease and Loan Placement products to Regions Bank clients. Prior to joining Regions in 2015, Mr. Wardlaw spent 14 years with Bank of America’s structured real estate finance group. In addition to banking experience, Mr. Wardlaw has six years of experience as a financial consultant with KPMG and PricewaterhouseCoopers. Mr. Wardlaw has FINRA series 63, 7 and 79 certifications and holds a BS degree in Business Administration from the University of North Carolina and an MBA from the University of Florida. Mr. Wardlaw was selected to serve on the board of directors due to his extensive finance and real estate experience.

 

Michael Z. Anise. Mr. Anise has served as our chief operating officer since April 2022 and as a member of our board of directors since September 2017. He previously served as our president from August 2019 to April 2022 and as our chief financial officer from September 2017 to April 2022. From 2011 to 2017, Mr. Anise was chief financial officer of Crossroads Financial, a commercial finance company. Mr. Anise earned his BS 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.

 

Chelsea H. Gee. Mrs. Gee has served as our chief financial officer since April 2022 and previously served as vice president of finance from January 2021 to April 2022. Mrs. Gee is a licensed Certified Public Accountant in North Carolina and Texas. Prior to joining us, she worked for Ernst and Young, LLP for five and half years as a tax accountant where she advised privately owned businesses and high net worth individuals with tax compliance, planning, and financial reporting, specializing in clients with flow through investments and within the real estate sector. In 2015, Mrs. Gee received her master’s degree in accounting from Southern Methodist University and was valedictorian. She also received her BBA degree with a focus in accounting and BA degree in philosophy from Southern Methodist University in 2014.

 

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 BA degree in finance and master’s degree in land economics and real estate from Texas A&M University.

 

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.

 

Richard M. Gee. Mr. Gee has served as a member of our board of directors since October 2020. He has served as a Vice President of Gvest Capital LLC since 2018. He specializes in acquisitions and development. Prior to joining Gvest Capital LLC, he was a Policy Analyst in the Texas Senate for two years working for a senator. He is a graduate of the University of North Carolina School of Law and received his BA degree in political science from Southern Methodist University. Mr. Gee was selected to serve on the board of directors due to his real estate development experience.

 

 

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 companies target the real estate improvements industry. Mr. Johnson earned his BS 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.

 

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 BBA degree in finance and his PhD 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.

 

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

 

Raymond M. Gee and Richard M. Gee are father and son. Richard M. Gee and Chelsea H. Gee are married. There are no other 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 seven members: Raymond M. Gee, Jay Wardlaw, Michael Z. Anise, William H. Carter, Richard M. Gee, James L. Johnson and Terry Robertson. Our board of directors has determined that Messrs. Carter, Johnson and Robertson 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. Raymond M. Gee’s experience and tenure, and believed that he is highly qualified to act as both chairman and chief executive officer due to his experience, knowledge, and personality. Among the benefits of a dual chief executive officer and chairman role is this 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 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, Raymond Gee and Robertson, 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, 2021 and 2020

 

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. 

 

Name and Principal Position		Year			Salary ($)				Bonus ($)				Stock Awards ($)(1)				Other ($)				Total ($)
Raymond M. Gee,		2021				-				-				-				750,000	(3)			750,000
Chief Executive Officer		2020				-								6,500				380,000	(2)(3)			386,500
Michael Z. Anise,		2021				170,000				150,000				-				20,000	(2)			340,000
President and Chief Financial Officer		2020				150,000				100,000				6,500				10,000	(2)			266,500
Adam A. Martin,		2021				150,000				150,000				-								300,000
Chief Investment Officer		2020				130,000				100,000				-								230,000

 

(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.

 

(2)

Includes compensation earned as a member of our board of directors.

 

(3)

Includes guarantee fees accrued or paid to Mr. Gee during the years ended December 31, 2021 and 2020 of $750,000 and $370,000, respectively.

 

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, 2021.

 

		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			231,000				-				-			$	0.01			12/11/2027
Michael Z. Anise			87,000				-				-			$	0.01			12/30/2029
Adam A. Martin			240,000				-				-			$	0.01			12/12/2027

 

Additional Narrative Disclosure

 

Retirement Benefits

 

We have not maintained, and do not currently maintain, a defined benefit pension plan or nonqualified deferred compensation plan. We currently make available a retirement plan intended to provide benefits under Section 401(k) of the Internal Revenue Code of 1986, as amended, or the Code, pursuant to which employees, including the executive officers named above, can make voluntary pre-tax contributions.

 

 

Potential Payments Upon Termination or Change in Control

 

None of the named executive officers listed above are entitled to severance or other payments upon termination or a change in control of our company.  

 

Director Compensation

 

The table below sets forth our non-executive officer directors’ compensation during the fiscal year ended December 31, 2021.

 

Name		Fees Earned or Paid in Cash ($)				Total ($)
William H. Carter			20,000				20,000
Richard M. Gee			20,000				20,000
James L. Johnson			20,000				20,000
Terry Robertson			20,000				20,000

 

Stock Compensation Plan

 

In December 2017, our board of directors, with the approval of a majority of stockholders, adopted the Manufactured Housing Properties Inc. Stock Compensation Plan, or the Plan. Awards that may be granted include stock options, stock appreciation rights and restricted stock awards. These awards offer our directors, officers, employees, advisers and consultants the possibility of future value, depending on the long-term price appreciation of our Common Stock and the award holder’s continuing service with our company.

 

The following is a summary of certain significant features of the Plan. The information which follows is subject to, and qualified in its entirety by reference to, the Plan document itself, which is filed as an exhibit to the offering statement of which this offering circular forms a part.

 

Purposes of Plan: The purpose of the Plan is to provide directors, officers, employees, advisers and consultants of our company and its subsidiaries with an increased incentive to make significant and extraordinary contributions to the long-term performance and growth of our company, to join the interests of directors, officers, employees, advisers and consultants with the interests of our stockholders through the opportunity for increased stock ownership and to attract and retain directors, officers, employees, advisers and consultants of exceptional abilities. The Plan is further intended to provide flexibility to us in structuring long-term incentive compensation to best promote the foregoing objectives.

 

Administration of the Plan: The Plan is administered by our compensation committee. Among other things, the administrator has the authority to select persons who will receive awards, determine the types of awards and the number of shares to be covered by awards, and to establish the terms, conditions, performance criteria, restrictions and other provisions of awards. The administrator has authority to establish, amend and rescind rules and regulations relating to the Plan.

 

Eligible Recipients: Persons eligible to receive awards under the Plan will be those directors, officers, employees, advisers and consultants of our company and its subsidiaries who are selected by the administrator.

 

Shares Available Under the Plan: The maximum number of shares of our Common Stock that may be delivered to participants under the Plan is 1,000,000, subject to adjustment for certain corporate changes affecting the shares, such as stock splits. Shares subject to an award under the Plan for which the award is canceled, forfeited or expires again become available for grants under the Plan. Shares subject to an award that is settled will not again be made available for grants under the Plan.

 

Stock Options:

 

General. Stock options give the option holder the right to acquire from us a designated number of shares of Common Stock at a purchase price that is fixed upon the grant of the option. Stock options granted may be either tax-qualified stock options (so-called “incentive stock options”) or non-qualified stock options. Subject to the provisions of the Plan, the administrator has the authority to determine all grants of stock options. That determination will include: (i) the number of shares subject to any option; (ii) the exercise price per share; (iii) the expiration date of the option; (iv) the manner, time and date of permitted exercise; (v) other restrictions, if any, on the option or the shares underlying the option; and (vi) any other terms and conditions as the administrator may determine.

 

 

Option Price. The exercise price for stock options will be determined at the time of grant. Normally, the exercise price will not be less than the fair market value on the date of grant. As a matter of tax law, the exercise price for any incentive stock option awarded may not be less than the fair market value of the shares on the date of grant. However, incentive stock option grants to any person owning more than 10% of our voting stock must have an exercise price of not less than 110% of the fair market value on the grant date.

 

Exercise of Options. An option may be exercised only in accordance with the terms and conditions for the option agreement as established by the administrator at the time of the grant. The exercise price shall be payable in cash or, if the administrator consents, in shares of Common Stock (including Common Stock to be received upon a simultaneous exercise) or other consideration substantially equivalent to cash. The administrator may from time to time authorize payment of all or a portion of the exercise price in the form of a promissory note or other deferred payment installments according to such terms as the administrator may approve. The board may restrict or suspend the power of the administrator to permit such loans and may require that adequate security be provided.

 

Expiration or Termination. Options, if not previously exercised, will expire on the expiration date established by the administrator at the time of grant. Such term cannot exceed ten years provided that in the case of incentive stock options granted to holders of more than 10% of our voting stock, such term cannot exceed five years. Options will terminate before their expiration date if the holder’s service with our company or a subsidiary terminates before the expiration date. The option may remain exercisable for specified periods after certain terminations of employment, including terminations as a result of death, disability or retirement, with the precise period during which the option may be exercised to be established by the administrator and reflected in the grant evidencing the award.

 

Incentive and Non-Qualified Options. As described elsewhere in this summary, an incentive stock option is an option that is intended to qualify under certain provisions of the Code, for more favorable tax treatment than applies to non-qualified stock options. Any option that does not qualify as an incentive stock option will be a non-qualified stock option. Under the Code, certain restrictions apply to incentive stock options. For example, the exercise price for incentive stock options may not be less than the fair market value of the shares on the grant date and the term of the option may not exceed ten years. In addition, an incentive stock option may not be transferred, other than by will or the laws of descent and distribution, and is exercisable during the holder’s lifetime only by the holder. In addition, no incentive stock options may be granted to a holder that is first exercisable in a single year if that option, together with all incentive stock options previously granted to the holder that also first become exercisable in that year, relate to shares having an aggregate fair market value in excess of $100,000, measured at the grant date.

 

Stock Appreciation Rights: Stock appreciation rights, or SARs, which may be granted alone or in tandem with options, have an economic value similar to that of options. When a SAR for a particular number of shares is exercised, the holder receives a payment equal to the difference between the market price of the shares on the date of exercise and the exercise price of the shares under the SAR. Again, the exercise price for SARs normally is the market price of the shares on the date the SAR is granted. Under the Plan, holders of SARs may receive this payment – the appreciation value – either in cash or shares of Common Stock. The form of payment will be determined by us. Essentially, a holder of a SAR benefits when the market price of the Common Stock increases, to the same extent that the holder of an option does, but, unlike an option holder, the SAR holder need not pay an exercise price upon exercise of the award.

 

Stock Awards: Restricted shares are shares of Common Stock awarded to participants at no cost. Restricted shares can take the form of awards of restricted stock, which represent issued and outstanding shares of our Common Stock subject to vesting criteria, or restricted stock units, which represent the right to receive shares of our Common Stock subject to satisfaction of the vesting criteria. Restricted shares are forfeitable and non-transferable until the shares vest. The vesting date or dates and other conditions for vesting are established when the shares are awarded. Those may include requirements for continuous service and/or the achievement of specified performance goals.

 

Other Material Provisions: Awards will be evidenced by a written agreement, in such form as may be approved by the administrator. In the event of various changes to the capitalization of our company, such as stock splits, stock dividends and similar re-capitalizations, an appropriate adjustment will be made by the administrator to the number of shares covered by outstanding awards or to the exercise price of such awards. In the event of a change in control of our company (as defined in the Plan) then, unless the administrator or the board otherwise determines with respect to one or more awards, all outstanding awards shall become immediately fully vested and nonforfeitable. Except as otherwise determined by the administrator at the date of grant, awards will not be transferable, other than by will or the laws of descent and distribution. Our board also has the authority, at any time, to discontinue the granting of awards. The board also has the authority to alter or amend the Plan or any outstanding award or may terminate the Plan as to further grants, provided that no amendment will, without the approval of our stockholders, to the extent that such approval is required by law or the rules of an applicable exchange, increase the number of shares available under the Plan, change the persons eligible for awards under the Plan, extend the time within which awards may be made, or amend the provisions of the Plan related to amendments. No amendment that would adversely affect any outstanding award made under the Plan can be made without the consent of the holder of such award.

 

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth information regarding beneficial ownership of our Common Stock as of April 19, 2022 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			8,520,000				68.69	%
Jay Wardlaw, President and Director		Common Stock			0				*
Michael Z. Anise, President, Chief Operating Officer and Director (4)		Common Stock			338,000				2.66	%
Chelsea H. Gee, Chief Financial Officer (5)		Common Stock			33,334				*
Adam A. Martin, Chief Investment Officer (6)		Common Stock			240,000				1.90	%
William H. Carter, Director		Common Stock			20,000				*
Richard M. Gee, Director		Common Stock			0				*
James L. Johnson, Director (7)		Common Stock			72,911				*
Terry Robertson, Director		Common Stock			20,000				*
All officers and directors as a group (9 persons named above)		Common Stock			9,244,245				74.42	%
Michael P. Kelly (8)		Common Stock			2,145,000				17.29	%
Joseph Jackson (9)		Common Stock			1,254,506				10.11	%

 

*

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 12,403,680 shares of our Common Stock are considered to be outstanding pursuant to SEC Rule 13d-3(d)(1) as of April 19, 2022. For each beneficial owner above, any options exercisable within 60 days have been included in their denominator.

 

(3)

Includes 20,000 shares of Common Stock held directly and 8,500,000 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 318,000 shares of Common Stock which Mr. Anise has the right to acquire within 60 days through the exercise of vested options.

 

(5)

Consists of 33,334 shares of Common Stock which Mrs. Gee 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)

Includes 20,000 shares of Common Stock issuable upon the conversion of 20,000 shares of Series A Preferred Stock held by Mr. Johnson.

 

(8)

Represents 2,000,000 shares held by The Raymond M. Gee Irrevocable Trust and 145,000 shares held by The Mariana Vega Ortega Irrevocable Trust. Michael P. Kelly is the Trustee of both trusts and has voting and investment control over the shares held by them.

 

(9)

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 2020 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 Item 11 “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. This note was terminated in 2021. As of December 31, 2021 and 2020, the outstanding balance on this note was $0.

 

●

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. This note was to mature in May of 2023. In September 2020, we paid off the full balance and terminated the note. This related party note was guaranteed by Mr. Gee. As of December 31, 2021 and 2020, the balance on this note was $0.

 

●

During the years ended December 31, 2021 and 2020, Mr. Gee received fees totaling $500,000 and $370,000, respectively, for his personal guaranty on certain promissory notes relating to the refinancing and acquisitions of mobile home communities owned by us. During the year ended December 31, 2021, we also accrued $250,000 for personal guaranty fees owed to Mr. Gee in relation to the Asheboro and Morganton acquisitions that occurred at the end of December which were paid in January 2022. During the three months ended March 31, 2022, Mr. Gee received fees totaling $200,000 for his personal guaranty on our promissory notes relating to the Sunnyland and Warrenville acquisitions.

 

●

In August 2019, we entered into an office lease agreement with 136 Main Street LLC, an entity whose sole owner is Gvest Real Estate LLC, whose sole owner is Mr. Gee, for the lease of our offices. The lease is $12,000 per month and is on a month-to-month term. During the years ended December 31, 2021 and 2020, we paid $144,000 and $48,000, respectively, of rent expense to 136 Main Street LLC. Subsequent to December 31, 2021, we have paid $48,000 of rent expense to 136 Main Street LLC.

 

●

In December 2020, we sold 305 park owned homes in four communities to Gvest Finance LLC and Gvest Homes 1 LLC for a total of $4,648,967. In December 2020 we also entered into a property management agreement with Gvest Finance LLC, a company owned and controlled by our parent company, Gvest Real Estate Capital LLC, an entity whose sole owner is Raymond M. Gee, and have subsequently entered into property management agreements with Gvest Homes I LLC, Gvest Anderson Homes LLC, Gvest Capital View Homes LLC, Gvest Hidden Oaks Homes LLC, Gvest Springlake Homes LLC, Gvest Carolinas 4 Homes LLC, Gvest Sunnyland Homes LLC and Gvest Warrenville Homes LLC, which are wholly owned subsidiaries of Gvest Finance LLC.  Under the property management agreements, we manage homes owned by the VIEs and the VIEs remit to our company all income, less any sums paid out for debt service plus 5% of the debt service payment.

 

●

On October 22, 2021, we issued a promissory note to Metrolina, a significant stockholder, in the principal amount of $1,500,000. The note bears interest at a rate of 18% per annum and matures on April 1, 2023. During the first six months of the note, any prepayment would require us to pay a yield maintenance fee equal to six months of interest. Thereafter, the loan may be prepaid at any time without penalty or fee. The note is guaranteed by Raymond M. Gee, our chairman and chief executive officer. As of December 31, 2021, the balance on this note was $1,500,000 and interest expense for the year totaled $51,780. During the three months ended March 31, 2022, interest expense totaled $66,575.

 

●

On December 27, 2021, we issued a revolving promissory note to Gvest Real Estate Capital LLC, pursuant to which we may borrow up to $1,500,000 on a revolving basis for working capital or acquisition purposes. On the same date, we borrowed $150,000. This note has a five-year term and is interest-only based on an 15% annual rate through the maturity date. As of December 31, 2021, the outstanding balance on this note was $150,000. On February 28, 2022, we borrowed an additional $700,000. During the three months ended March 31, 2022, interest expense totaled $5,821.

 

Parent Company

 

As of April 19, 2021, Gvest Real Estate Capital LLC holds approximately 68.53% 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 the date of this offering circular, there were 12,403,680 shares of Common Stock, 1,886,000 shares of Series A Preferred Stock, 758,551 shares of Series B Preferred Stock and 10,705.4 shares of Series C Preferred Stock issued and outstanding. No other shares of our capital 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. 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 and pari passu with our Series B Preferred Stock and Series C Preferred 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, before any payment or distribution is made to the holders of our Common Stock and on a pari passu basis with holders of our Series B Preferred Stock and Series C Preferred Stock, 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 and Series C 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, before any payment or distribution is made to the holders of our Common Stock and on a pari passu basis with holders of our Series A Preferred Stock and Series C Preferred Stock, 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.

 

Series C Preferred Stock

 

On May 24, 2021, we filed an amended and restated certificate of designation with the Nevada Secretary of State to establish our Series C Preferred Stock. We designated a total of 47,000 shares of Preferred Stock as “Series C Cumulative Redeemable Preferred Stock.” Our Series C Preferred Stock has following voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions:

 

Ranking. The Series C 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 and Series B Preferred Stock. The terms of the Series C 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 C Preferred Stock as to distribution rights and rights upon our liquidation, dissolution or winding up.

 

Stated Value. Each share of Series C Preferred Stock has an initial stated value of $1,000, which is equal to the offering price per share, subject to appropriate adjustment in relation to certain events, such as recapitalizations, stock dividends, stock splits, stock combinations, reclassifications or similar events affecting our Series C Preferred Stock.

 

Dividend Rate and Payment Dates. Dividends on the Series C Preferred Stock are cumulative and payable monthly in arrears to all holders of record on the applicable record date. Holders of our Series C Preferred Stock are entitled to receive cumulative monthly cash dividends at a per annum rate of 7% of the stated value (or $5.83 per share each month based on the initial stated value). Dividends on each share begin accruing on, and are cumulative from, the date of issuance and regardless of whether our board of directors declares and pays such dividends. Dividends on shares of our Series C 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. Upon a liquidation, dissolution or winding up of our company, holders of shares of our Series C Preferred Stock are entitled to receive, before any payment or distribution is made to the holders of our Common Stock and on a pari passu basis with holders of our Series A Preferred Stock and Series B Preferred Stock, a liquidation preference equal to the stated value per share, plus accrued but unpaid dividends thereon.

 

Redemption Request at the Option of a Holder. Once per calendar quarter, a holder will have the opportunity to request that we redeem that holder’s Series C Preferred Stock. Our board of directors may, however, suspend cash redemptions at any time in its discretion if it determines that it would not be in the best interests of our company to effectuate cash redemptions at a given time because we do not have sufficient cash, including because our board believes that our cash on hand should be utilized for other business purposes. Redemptions will be limited to four percent (4%) of the total outstanding Series C Preferred Stock per quarter and any redemptions in excess of such limit or to the extent suspended, shall be redeemed in subsequent quarters on a first come, first served, basis. We will redeem shares at a redemption price equal to the stated value of such redeemed shares, plus any accrued but unpaid dividends thereon, less the applicable redemption fee (if any). As a percentage of the aggregate redemption price of a holder’s shares to be redeemed, the redemption fee shall be:

 

●

11% if the redemption is requested on or before the first anniversary of the original issuance of such shares;

 

 

●

8% if the redemption is requested after the first anniversary and on or before the second anniversary of the original issuance of such shares;

 

●

5% if the redemption is requested after the second anniversary and on or before the third anniversary of the original issuance of such shares; and

 

●

after the third anniversary of the date of original issuance of shares to be redeemed, no redemption fee shall be subtracted from the redemption price.

 

Please see the certificate of designation, which has been filed as an exhibit to the offering statement of which this offering circular forms a part, for the procedures to request a redemption.

 

Optional Redemption by our company. We have the right (but not the obligation) to redeem shares of Series C Preferred Stock at a redemption price equal to the stated value of such redeemed shares, plus any accrued but unpaid dividends thereon; provided, however, that if we redeem any shares of Series C Preferred Stock prior to the fourth (4^th) anniversary of their issuance, then the redemption price shall include a premium equal to ten percent (10%) of the stated value.

 

Mandatory Redemption by our company. We are required to redeem the outstanding shares of Series C Preferred Stock on the fourth (4^th) anniversary of their issuance at a redemption price equal to the stated value of such redeemed shares, plus any accrued but unpaid dividends thereon.

 

Optional Repurchase Upon Death, Disability or Bankruptcy of a Holder. Subject to certain restrictions and conditions, we will also repurchase shares of Series C Preferred Stock of a holder who is a natural person (including an individual beneficial holder who holds shares through a custodian or nominee, such as a broker-dealer) upon his or her death, total disability or bankruptcy, within sixty (60) days of our receipt of a written request from the holder or the holder’s estate at a repurchase price equal to the stated value, plus accrued and unpaid dividends thereon. A “total disability” means a determination by a physician approved by us that a holder, who was gainfully employed and working at least forty (40) hours per week as of the date on which his or her shares were purchased, has been unable to work forty (40) or more hours per week for at least twenty-four (24) consecutive months. Please see the certificate of designation, the form of which has been filed as an exhibit to the offering statement of which this offering circular forms a part, for the procedures to request a repurchase.

 

Restrictions on Redemption and Repurchase. We are not obligated to redeem or repurchase shares of Series C Preferred Stock if we are restricted by applicable law or our articles of incorporation from making such redemption or repurchase or to the extent any such redemption or repurchase would cause or constitute a default under any borrowing agreements to which we or any of our subsidiaries are a party or otherwise bound. In addition, we have no obligation to redeem shares in connection with a redemption request made by a holder if we determine, as of the redemption date, that we do not have sufficient funds available to fund that redemption. In this regard, we will have complete discretion under the certificate of designation for the Series C Preferred Stock to determine whether we are in possession of “sufficient funds” to fund a redemption request. To the extent we are unable to complete redemptions we may have earlier agreed to make, we will complete those redemptions promptly after we become able to do so, with all such deferred redemptions being satisfied on a first come, first served, basis.

 

Voting Rights. The Series C Preferred Stock has no voting rights relative to matters submitted to a vote of our stockholders (other than as required by law). However, we may not, without the affirmative vote or written consent of the holders of a majority of the then issued and outstanding Series C Preferred Stock: (i) amend or waive any provision of the certificate of designation or otherwise take any action that modifies any powers, rights, preferences, privileges or restrictions of the Series C Preferred Stock (other than an amendment solely for the purpose of changing the number of shares of Series C Preferred Stock designated for issuance as provided in the certificate of designation); (ii) authorize, create or issue shares of any class of stock having rights, preferences or privileges as to dividends or distributions upon a liquidation that are superior to the Series C Preferred Stock; or (iii) amend our articles of incorporation in a manner that adversely and materially affects the rights of the Series C Preferred Stock.

 

No Conversion Right. The Series C Preferred Stock is 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:

 

●

the transaction is approved by the board of directors or a majority of the voting power held by disinterested stockholders, or

 

●

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.

 

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.

 

 

PLAN OF DISTRIBUTION

 

General

 

We are offering up to a maximum of 47,000 shares of our Series C Preferred Stock. The offering is made through Arete Wealth Management, LLC, our dealer manager, on a “best efforts” basis, which means that the dealer manager is only required to use its good faith efforts and reasonable diligence to sell the shares and has no firm commitment or obligation to purchase any specific number or dollar amount of the shares.

 

As of the date of this offering circular, we have completed multiple closings in which we have sold an aggregate of 10,027.4 shares of Series C Preferred Stock for total gross proceeds of approximately $10,023,840. As of the date hereof, 34,972.6 shares of Series C Preferred Stock remain available under this offering.

 

The shares will be sold at a public offering price of $1,000 per share. The minimum initial investment is at least $10,000 and any additional purchases must be investments of at least $5,000; provided that purchases of less than $10,000 may be made in the discretion of the dealer manager.

 

This offering will terminate at the earlier of: (1) the date at which the maximum amount of offered Series C Preferred Stock has been sold, (2) June 11, 2022 (one year after the offering statement of which this offering circular forms a part was originally qualified by the SEC), subject to an extension of up to an additional one year at the discretion of our company and the dealer manager, or (3) the date on which this offering is earlier terminated by us in our sole discretion.

 

Arete Wealth Management, LLC is a securities broker-dealer registered with the SEC and a member firm of FINRA. Its principal business address is 1115 W. Fulton Market, 3rd Floor, Chicago, IL 60607. The dealer manager will manage, direct and supervise its associated persons who will be wholesalers in connection with the offering. We expect the dealer manager to authorize other broker-dealers that are members of FINRA, which we refer to as participating broker-dealers, to sell our Series C Preferred Stock in this offering.

 

Compensation of Dealer Manager and Participating Broker-Dealers

 

We have agreed to pay to the dealer manager a selling commission of 4.00% of the gross offering proceeds and a dealer manager fee of 2.75% of the gross offering proceeds. The dealer manager may reallow all or a portion of its selling commissions attributable to a participating broker-dealer. In addition, the dealer manager also may reallow a portion of its dealer manager fee earned on the proceeds raised by a participating broker-dealer to such participating broker-dealer as a non-accountable marketing and due diligence allowance or as a wholesale fee. The amount of the reallowance to any participating broker-dealer will be determined by the dealer manager in its sole discretion.

 

In addition to the selling commissions and dealer management fee, we have agreed to pay the dealer manager a monthly service fee of $2,500 and to reimburse the dealer manager and other participating broker-dealers for such expenses incurred in connection with the offering as mutually agreed to by us and the dealer manager. The maximum amount for such dealer manager expenses, including the monthly service fee, is $587,500.

 

Notwithstanding the foregoing, the combined selling commissions, dealer manager fee and additional compensation paid to the dealer manager for this offering will not exceed 8% of the aggregate gross proceeds of this offering.

 

We will not pay any selling commissions, but will pay dealer manager fees, in connection with the sale of shares to investors whose contracts for investment advisory and related brokerage services include a fixed or “wrap” fee feature. Investors may agree with their broker-dealers to reduce the amount of selling commissions payable with respect to the purchase of their shares down to zero (i) if the investor has engaged the services of a registered investment advisor or other financial advisor who will be paid compensation for investment advisory services or other financial or investment advice, or (ii) if the investor is investing through a bank trust account with respect to which the investor has delegated the decision-making authority for investments made through the account to a bank trust department. The net proceeds to us will not be affected by reducing commissions payable in connection with such sales. Neither the dealer manager nor its affiliates will directly or indirectly compensate any person engaged as an investment advisor or a bank trust department by a potential investor as an inducement for such investment advisor or bank trust department to advise favorably for an investment in the shares offered hereby.

 

No commissions or additional compensation will be payable on shares issued in satisfaction of our redemption payment obligations.

 

 

The table below sets forth the nature and estimated amount of all items viewed as compensation by FINRA, assuming we sell all the shares offered hereby.

 

		Per Share				Maximum Offering
Public offering price		$	1,000			$	47,000,000
Sales commissions(1)(3)		$	40.0			$	1,880,000
Dealer manager fee(1)(3)		$	27.5			$	1,292,500
Proceeds to us, before expenses(2)(3)		$	932.5			$	43,827,500

 

(1)

Selling commissions and the dealer manager fee will equal up to and including 4.00% and 2.75% of aggregate gross proceeds, respectively. Each is payable to the dealer manager. However, the dealer manager may reallow all or a portion of its selling commissions attributable to a participating broker-dealer. In addition, the dealer manager also may reallow a portion of its dealer manager fee earned on the proceeds raised by a participating broker-dealer to such participating broker-dealer as a non-accountable marketing and due diligence allowance or as a wholesale fee. The amount of the reallowance to any participating broker-dealer will be determined by the dealer manager in its sole discretion.

 

(2)

In addition to the selling commissions and dealer management fee, we have agreed to pay the dealer manager a monthly service fee of $2,500 and to reimburse the deal manager and other participating broker-dealers for such expenses incurred in connection with the offering as mutually agreed to by us and the dealer manager.

 

(3)

The combined selling commissions, dealer manager fee and additional compensation paid to the dealer manager for this offering will not exceed 8% of the aggregate gross proceeds of this offering.

 

We will be responsible for all expenses related to the issuance and distribution of the Series C Preferred Stock in this offering, including all expenses incident to marketing the offering and submitting filings with federal and state regulatory authorities, legal and accounting fees, and all costs of reproduction and distribution of this offering circular and any amendment or supplement thereto. We estimate that our total offering expenses, excluding the selling commissions and dealer manager fees but including the dealer manager expenses, will be approximately $684,500. For further discussion, see the section entitled “Use of Proceeds.”

 

To the extent permitted by law and our articles of incorporation, we will indemnify the participating broker-dealers and the dealer manager against certain civil liabilities, including certain liabilities arising under the Securities Act and liabilities arising from breaches of our representations and warranties contained in the dealer manager agreement. Nevertheless, the SEC takes the position that indemnification against liabilities arising under the Securities Act is against public policy and is not enforceable.

 

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 this offering. Any such purchases shall be conducted in compliance with the applicable provisions of Regulation M. 

 

Investment Procedures

 

Investors 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. Completed subscription agreements will be sent by your broker-dealer or registered investment advisor, as applicable, to the dealer manager at the address set forth in the subscription agreement. Subscription payments should be delivered directly to the escrow agent, Wilmington Trust, National Association, in accordance with the instructions contained in the subscription agreement. 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 offering statement of which this offering circular forms a part is qualified by the SEC. Before such date, you may only make non-binding indications of your interest to purchase securities in the offering. For any subscription agreement received after such date, we have the right review the subscription for completeness, complete anti-money laundering, know your client and similar background checks and accept the subscription if it is complete and passes such checks or reject the subscription if it fails any of such checks. If rejected, we will return all funds to the rejected investor within ten business days. The funds will remain in the escrow account pending the completion of anti-money laundering, know your client and similar background checks.  We intend to conduct the initial closing on a date mutually determined by us and the dealer manager.  In determining when to conduct the initial closing we and the dealer manager will take into account the number of investors with funds in escrow that have cleared the requisite background checks and the total amount of funds held in escrow pending an initial closing (although no minimum amount of funds is required to conduct an initial closing).  Upon the initial closing all funds in escrow will 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.

 

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:

 

●

A person who had individual income in excess of $200,000 in each of the two most recent years or joint income with their spouse or spousal equivalent in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year

 

●

A person whose individual net worth, or joint net worth with their spouse or spousal equivalent, exceeds $1,000,000

 

●

A director or executive officer of our company

 

●

A person holding one of the following licenses in good standing: General Securities Representative license (Series 7), the Private Securities Offerings Representative license (Series 82), or the Investment Adviser Representative license (Series 65)

 

●

An entity all of whose beneficial equity owners meet one of the conditions in the first two bullets above

 

●

An entity that has total assets in excess of $5,000,000, was not formed for the specific purpose of acquiring the securities offered and is one or more of the following (A) an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended; (B) a corporation, (C) a Massachusetts or similar business trust, (D) a partnership, or (E) a limited liability company

 

●

A trust with total assets exceeding $5,000,000, which was not formed for the specific purpose of acquiring the securities offered and whose purchase is directed by a person who has such knowledge and experience in financial and business matters that he or she is capable of evaluating the merits and risks of the investment in the securities offered

 

●

A bank as defined in section 3(a)(2) of the Securities Act, or any savings and loan association or other institution as defined in section 3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary capacity

 

●

A broker or dealer registered pursuant to section 15 of the Exchange Act

 

●

An investment adviser registered pursuant to section 203 of the Investment Advisers Act of 1940 or registered pursuant to the laws of a state

 

●

An investment adviser relying on the exemption from registering with the SEC under section 203(l) or (m) of the Investment Advisers Act of 1940, or the Investment Advisers Act

 

 

●

An insurance company as defined in section 2(a)(13) of the Securities Act

 

●

An investment company registered under the Investment Company Act of 1940, or the Investment Company Act, or a business development company as defined in section 2(a)(48) of the Investment Company Act

 

●

A Small Business Investment Company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958

 

●

A Rural Business Investment Company as defined in section 384A of the Consolidated Farm and Rural Development Act

 

●

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 total assets in excess of $5,000,000

 

●

An employee benefit plan within the meaning of Title I of the Employee Retirement Income Security Act of 1974 and (A) the investment decision is made by a plan fiduciary, as defined therein, in Section 3(21), which is either a bank, savings and loan association, insurance company, or registered investment adviser; or (B) the employee benefit plan has total assets in excess of $5,000,000; or (C) the plan is a self-directed plan with investment decisions made solely by persons who are “accredited investors” as defined therein

 

●

A private business development company as defined in Section 202(a)(22) of the Investment Advisers Act

 

●

A “family office,” as defined in rule 202(a)(11)(G)-1 under the Investment Advisers Act: (A) with assets under management in excess of $5,000,000, (B) that is not formed for the specific purpose of acquiring the securities offered, and (C) whose prospective investment is directed by a person who has such knowledge and experience in financial and business matters that such family office is capable of evaluating the merits and risks of the prospective investment

 

●

A “family client,” as defined in rule 202(a)(11)(G)-1 under the Investment Advisers Act, of a family office meeting the requirements in the bullet above and whose prospective investment in the issuer is directed by such family office pursuant to clause (C) of that bullet

 

●

An entity, of a type not listed in the bullets above for entities, not formed for the specific purpose of acquiring the securities offered, owning investments in excess of $5,000,000.

 

For purposes of calculating net worth a person’s primary residence is not included as an asset; indebtedness that is secured by a primary residence, up to the estimated fair market value of the primary residence at the time of the purchase of securities, is not included as a liability (except that if the amount of such indebtedness outstanding at the time of the purchase of securities exceeds the amount outstanding 60 days before such time, other than as a result of the acquisition of the primary residence, the amount of such excess is included as a liability); and indebtedness that is secured by a primary residence in excess of the estimated fair market value of the primary residence at the time of the purchase of securities is included as a liability.

 

In determining income, an investor should add to the investor’s adjusted gross income any amounts attributable to tax exempt income received, losses claimed as a limited partner in any limited partnership, deduction claimed for depletion, contribution to an IRA or Keogh plan, alimony payments, and any amount by which income for long-term capital gains has been reduced in arriving at adjusted gross income.

 

Offer Restrictions Outside the United States

 

Other than in the United States, no action has been taken by us or the dealer manager 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 C 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, 2021 and 2020 have been audited by Friedman LLP, an independent registered public accounting firm, to the extent and for the periods set forth in its report appearing elsewhere herein and in the offering statement, and are included in reliance on such report, 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

 

	Page(s)
Audited Consolidated Financial Statements for the Years Ended December 31, 2021 and 2020	F-2
Report of Independent Registered Public Accounting Firm (PCAOB ID 711)	F-3
Consolidated Balance Sheets as of December 31, 2021 and 2020	F-5
Consolidated Statements of Operations for the Years Ended December 31, 2021 and 2020	F-6
Consolidated Statement of Changes in Deficit for the Years Ended December 31, 2021 and 2020	F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, 2021 and 2020	F-8
Notes to Consolidated Financial Statements	F-9

 

 

 

 

 

 

 

 

 

 

 

 

MANUFACTURED HOUSING PROPERTIES INC.

 

CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and Board of Directors of

Manufactured Housing Properties Inc.

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheets of Manufactured Housing Properties Inc. (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, changes in deficit, and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, 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 control 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 presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

 

 

Acquisitions

 

Description of the Matter

 

As described in Note 1 of the consolidated financial statements, the Company accounts for acquisitions as asset acquisitions in accordance with ASC 805, “Business Combinations,” and allocates the purchase price based on the fair value of the assets acquired, which generally consist of land, site and land improvements, buildings improvements, and rental homes. As described in Note 5, during 2021, the Company acquired approximately $26.5 million of real estate properties that were accounted for as asset acquisitions. Upon an asset acquisition, the purchase price is allocated to land, building, and land improvements. We identified the evaluation of the measurement of the fair values used in purchase price allocation of acquisitions as a critical audit matter because it involves a high degree of subjectivity in evaluating the reasonableness of management’s estimates and the assumptions used in estimates.

 

How We Addressed the Matter in Our Audit

 

We obtained agreements and supporting files related to the acquisitions and purchase price allocations, reviewed management analysis and applicable documents supporting capitalized costs associated with the acquisitions. With the assistance of our valuation specialist, we compared the significant assumptions to observable market data and published industry resources.

 

/s/ Friedman LLP
We have served as the Company’s auditor since 2020.
Marlton, New Jersey
March 30, 2022

 

 

MANUFACTURED HOUSING PROPERTIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2021 AND 2020

 

		2021				2020
Assets						(As Revised)
Investment Property
Land		$	18,854,760			$	11,770,605
Site and Land Improvements			35,133,079				22,029,975
Buildings and Improvements			14,666,296				6,437,251
Construction in Process			3,030,456				7,092
Total Investment Property			71,684,591				40,244,923
Accumulated Depreciation & Amortization			(4,832,300	)			(2,779,201	)
Net Investment Property			66,852,291				37,465,722
Cash and Cash Equivalents, including restricted cash of $705,195 and $339,152, respectively			2,106,329				1,988,857
Accounts Receivable, net			175,955				46,952
Other Assets			913,205				2,895,221
Total Assets		$	70,047,780			$	42,396,752
Liabilities
Accounts Payable		$	477,484			$	236,992
Notes Payable, net of $2,064,294 and $1,096,629 debt discount			48,891,483				31,216,738
Line of Credit – Variable Interest Entity, net of $151,749 and $134,051 debt discount, respectively			6,200,607				3,214,916
Note Payable – Line of Credit Related Party			150,000				-
Note Payable – Related Party			1,500,000				-
Accrued Liabilities including amounts due to related parties of $250,000 and $0, respectively			1,235,001				237,442
Tenant Security Deposits			705,195				339,152
Series C Redeemable Preferred Stock, par value $0.01 per share; 47,000 and 0 shares authorized; 5,734 and 0 shares issued and outstanding; redemption value $5,734,400 and $0 as of December 31, 2021 and 2020, respectively			5,214,370				-
Total Liabilities			64,374,140				35,245,240
Commitments and Contingencies (See note 7)
Redeemable Preferred Stock – subject to redemption
Series A Cumulative Redeemable Convertible Preferred Stock, par value $0.01 per share; 4,000,000 shares authorized; 1,886,000 and 1,890,000 shares issued and outstanding; redemption value $7,072,500 and $7,087,500 as of December 31, 2021 and 2020, respectively			5,841,771				5,381,500
Series B Cumulative Redeemable Preferred Stock, par value $0.01 per share; 1,000,000 shares authorized; 758,551 and 641,254 shares issued and outstanding; redemption value $11,378,265 and $9,618,810 as of December 31, 2021 and 2020, respectively			8,518,594				6,692,076
Deficit
Common Stock, par value $0.01 per share; 200,000,000 shares authorized; 12,403,680 and 12,398,580 shares are issued and outstanding as of December 31, 2021 and 2020, respectively			124,037				124,016
Additional Paid in Capital			(3,160,712	)			(1,052,611	)
Accumulated Deficit			(4,672,537	)			(3,574,194	)
Total Manufactured Housing Properties Inc. Deficit			(7,709,212	)			(4,502,789	)
Non-controlling interest in Variable Interest Entities			(977,513	)			(419,275	)
Total Deficit			(8,686,725	)			(4,922,064	)
TOTAL LIABILITIES AND DEFICIT		$	70,047,780			$	42,396,752

 

See accompanying notes to consolidated financial statements

 

 

MANUFACTURED HOUSING PROPERTIES INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

		2021				2020
Revenue
Rental and related income		$	8,328,294			$	6,380,515
Property sales			33,983				-
Total revenues			8,362,277				6,380,515
Community operating expenses
Repair and maintenance			529,899				390,140
Real estate taxes			463,148				315,061
Utilities			691,830				571,182
Insurance			125,159				158,672
General and administrative expense			821,234				198,425
Total community operating expenses			2,631,270				1,633,480
Corporate payroll and overhead			3,013,810				1,581,807
Depreciation and amortization expense			2,060,882				1,652,509
Interest expense			2,243,876				1,961,843
Refinancing costs			110,691				464,568
Total Expenses			10,060,529				7,294,207
Other income			139,300
Gain on sale of property			-				761,978
Net loss before provision for income taxes			(1,558,952	)			(151,714	)
Provision for income taxes			-				-
Net loss		$	(1,558,952	)		$	(151,714	)
Net income (loss) attributable to non-controlling interest variable interest entity share of net income			(460,609	)			451,876
Net income (loss) attributable to Manufactured Housing Properties Inc.			(1,098,343	)			(603,590	)
Preferred stock dividends and put option value accretion
Series A preferred dividends			384,864				377,353
Series A preferred put option value accretion			472,271				472,500
Series B preferred dividends			579,303				433,790
Series B preferred put option value accretion			739,034				567,217
Total preferred stock dividends and put option value accretion		$	2,175,472			$	1,850,860
Net loss attributable to common stockholders		$	(3,273,815	)		$	(2,454,450	)
Weighted average shares – basic and fully diluted			13,058,917				12,896,448
Net loss per share – basic and fully diluted		$	(0.25	)		$	(0.19	)

  

See accompanying notes to consolidated financial statements

 

 

MANUFACTURED HOUSING PROPERTIES INC.

CONSOLIDATED STATEMENT OF CHANGES IN DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

		COMMON STOCK								ADDITIONAL								TOTAL MANUFACTURED HOUSING				NON
		SHARES				PAR VALUE				PAID IN CAPITAL				ACCUMULATED DEFICIT				PROPERTIES INC.				CONTROLLING INTEREST				DEFICIT
Balance at January 1, 2020			12,336,080			$	123,361			$	759,849			$	(3,840,085	)			(2,956,875	)		$	25,707			$	(2,931,168	)
Stock option expense			-				-				2,370				-				2,370				-				2,370
Common stock issuance to board of directors			50,000				500				32,000								32,500								32,500
Preferred shares Series A dividends			-				-				(377,353	)			-				(377,353	)			-				(377,353	)
Preferred shares Series A put option value accretion			-				-				(472,500	)			-				(472,500	)			-				(472,500	)
Preferred shares Series B dividends			-				-				(433,790	)			-				(433,790	)			-				(433,790	)
Preferred shares Series B put option value accretion			-				-				(567,217	)			-				(567,217	)			-				(567,217	)
Common Stock issuance to preferred share holders			12,500				155				4,030				-				4,185				-				4,185
Distributions from VIE																							(27,377	)			(27,377	)
Deemed dividend – Sale to VIE															869,481				869,481				(869,481	)			-
Net income (loss)			-				-				-				(603,590	)			(603,590	)			451,876				(151,714	)
Balance at December 31, 2020 (As Revised)			12,398,580			$	124,016			$	(1,052,611	)		$	(3,574,194	)			(4,502,789	)		$	(419,275	)		$	(4,922,064	)
Stock option expense			-				-				66,015				-				66,015				-				66,015
Preferred shares Series A dividends			-				-				(384,864	)			-				(384,864	)			-				(384,864	)
Preferred shares Series A put option value accretion			-				-				(472,271	)			-				(472,271	)			-				(472,271	)
Preferred shares Series B dividends			-				-				(579,303	)			-				(579,303	)			-				(579,303	)
Preferred shares Series B put option value accretion			-				-				(739,034	)			-				(739,034	)			-				(739,034	)
Common Stock issuance to preferred share holders			5,100				21				1,356				-				1,377				-				1,377
Contributions to VIE			-				-				-				-				-				12,371				12,371
Distributions from VIE			-				-				-				-				-				(110,000	)			(110,000	)
Net loss			-				-				-				(1,098,343	)			(1,098,343	)			(460,609	)			(1,558,952	)
Balance at December 31, 2021			12,403,680			$	124,037			$	(3,160,712	)		$	(4,672,537	)			(7,709,212	)		$	(977,513	)		$	(8,686,725	)

 

See accompanying notes to consolidated financial statements

 

 

MANUFACTURED HOUSING PROPERTIES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

		2021				2020
Cash Flows from Operating Activities:
Net loss		$	(1,558,952	)		$	(151,714	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Gain on sale of property			-				(761,978	)
Stock option expense			66,015				2,370
Stock compensation expense			-				32,500
Amortization of debt issuance costs			230,173				133,190
Write off debt issuance costs recorded as debt discount			135,339				464,569
Gain on debt extinguishment			(139,300	)			-
Loss on disposal of homes			127,057				-
Depreciation and amortization			2,060,882				1,652,509
Changes in operating assets and liabilities:
Accounts receivable			(129,003	)			(11,715	)
Other assets			118,309				215,650
Accounts payable			241,869				4,820
Tenant security deposits			366,043				28,039
Accrued liabilities			747,559				(329,333	)
Net Cash Provided by Operating Activities			2,265,991				1,278,907
Cash Flows from Investing Activities:
Capital improvements			(2,026,414	)			(1,299,195	)
Purchases of investment properties			(6,617,000	)			(1,001,000	)
Proceeds from sale of properties			-				2,100,000
Payment of acquisition costs			(481,781	)			-
Net Cash Used in Investing Activities			(9,125,195	)			(200,195	)
Cash Flows from Financing Activities:
Proceeds from notes payable – related party			1,650,000				-
Repayment of notes payable – related party			-				(2,608,867	)
Proceeds from notes payable			4,325,522				16,960,969
Repayment of notes payable			(4,909,168	)			(18,555,939	)
Proceeds from lines of credit – VIE			3,421,209				880,336
Repayment of lines of credit – VIE			(1,732,599	)			-
Proceeds from issuance of common stock			-				4,185
Proceeds from issuance of preferred stock			6,809,884				2,151,250
Payment of debt and Series C Preferred Stock costs recorded as debt discount			(1,526,376	)			(1,230,680	)
Preferred shares dividends			(964,167	)			(811,143	)
Contribution to VIE			12,371				-
Distribution from VIE			(110,000	)			(27,377	)
Net Cash Provided by (Used in) Financing Activities			6,976,676				(3,237,266	)
Net Change in Cash and Cash Equivalents			117,472				(2,158,554	)
Cash and cash equivalents at beginning of the year			1,988,857				4,147,411
Cash and cash equivalents at end of the year		$	2,106,329			$	1,988,857
Cash, cash equivalents and restricted cash consist of the following:
End of year
Cash and cash equivalents		$	1,401,134			$	1,649,705
Restricted cash			705,195				339,152
Total		$	2,106,329			$	1,988,857
Cash, cash equivalents and restricted cash consist of the following:
Beginning of year
Cash and cash equivalents		$	1,649,705			$	3,831,376
Restricted cash			339,152				316,035
Total		$	1,988,857			$	4,147,411
Cash paid for:
Income taxes		$	-			$	639
Interest		$	2,184,891			$	1,679,114
Non-Cash Investing and Financing Activities
Notes and lines of credit related to acquisitions and capital improvements		$	22,449,312			$	4,150,000
Line of credit related to acquisitions		$	-			$	2,468,631
Non-cash preferred stock accretion		$	1,211,305			$	1,039,717
Stock issued in connection with Series B Preferred Stock issuance		$	1,377			$	-
Debt issuance costs included in accounts payable		$	250,000			$	-

 

See accompanying notes to consolidated financial statements

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

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.

 

Basis of Presentation

 

The Company prepares its consolidated financial statements under the accrual basis of accounting, in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company, entities controlled by the Company through its direct or indirect ownership of a majority interest and any other entities in which the Company has a controlling financial interest. The Company consolidates variable interest entities (“VIEs”) where the Company is the primary beneficiary. The primary beneficiary of a VIE is the party that has both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.

 

The Company’s formation of all subsidiaries and VIE’s date of consolidation are as follows:

 

Name of Subsidiary		State of Formation		Date of Formation		Ownership
Pecan Grove MHP LLC		North Carolina		October 12, 2016			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	%
Golden Isles MHP LLC		Georgia		March 16, 2021			100	%
Anderson MHP LLC		South Carolina		June 2, 2021			100	%
Capital View MHP LLC		South Carolina		August 6, 2021			100	%
Hidden Oaks MHP LLC		South Carolina		August 6, 2021			100	%
North Raleigh MHP LLC		North Carolina		September 16, 2021			100	%
Carolinas 4 MHP LLC		North Carolina		November 30, 2021			100	%
Charlotte 3 Park MHP LLC		North Carolina		December 10, 2021			100	%
Gvest Finance LLC		North Carolina		December 11, 2018			VIE
Gvest Homes I LLC		Delaware		November 9, 2020			VIE
Brainerd Place LLC		Delaware		February 24, 2021			VIE
Bull Creek LLC		Delaware		April 13,2021			VIE
Gvest Anderson Homes LLC		Delaware		June 22, 2021			VIE
Gvest Capital View Homes LLC		Delaware		August 6, 2021			VIE
Gvest Hidden Oaks Homes LLC		Delaware		August 6, 2021			VIE
Gvest Springlake Homes LLC		Delaware		September 24, 2021			VIE
Gvest Carolinas 4 Homes LLC		Delaware		November 13, 2021			VIE

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

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.

 

Revenue Recognition

 

Mobile home rental and related income is generated from lease agreements for our sites and homes. The lease component of these agreements is accounted for under Topic 842 of the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, for leases.

 

Under ASC 842, the Company must assess on an individual lease basis whether it is probable that we will collect the future lease payments. The Company considers the tenant’s payment history and current credit status when assessing collectability. When collectability is not deemed probable, the Company will write-off the tenant’s receivables, including straight-line rent receivable, and limit lease income to cash received.

 

The Company’s revenues primarily consist of rental revenues and fee and other income. The Company has the following revenue sources and revenue recognition policies:

 

●

Rental revenues include revenues from the leasing of land lot or a combination of both, the mobile home and land at our properties to tenants.

 

o

Revenues from the leasing of land lot or a combination of both, the mobile home and land at the Company’s properties to tenants include (i) lease components, including land lot or a combination of both, the mobile home and land, and (ii) reimbursement of utilities and account for the components as a single lease component in accordance with ASC 842.

 

o

Revenues derived from fixed lease payments are recognized on a straight-line basis over the non-cancelable period of the lease. The Company commences rental revenue recognition when the underlying asset is available for use by the lessee. Revenue derived from the reimbursement of utilities are generally recognized in the same period as the related expenses are incurred. The Company’s leases are month-to-month.

 

Accounts Receivable 

 

Accounts receivable consist primarily of amounts currently due from residents. Accounts receivables are reported in the balance sheet at outstanding principal adjusted for any charge-offs and the allowance for losses. The Company records an allowance for bad debt when receivables are over 90 days old.

 

Acquisitions

 

The Company accounts for acquisitions as asset 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.

 

Variable Interest Entities

 

In December 2020, the Company entered into a property management agreement with Gvest Finance LLC, a company owned and controlled by the Company’s parent company, Gvest Real Estate Capital LLC, an entity whose sole owner is Raymond M. Gee, the Company’s chairman and chief executive officer, and has subsequently entered into property management agreements with Gvest Homes I LLC, Gvest Anderson Homes LLC, Gvest Capital View Homes LLC, Gvest Hidden Oaks Homes LLC, Gvest Springlake Homes LLC, Gvest Carolinas 4 Homes LLC, which are wholly owned subsidiaries of Gvest Finance LLC. Under the property management agreements, the Company manages the homes owned by the VIEs and the VIEs remit to the Company all income, less any sums paid out for debt service plus 5% of the debt service payment.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

Additionally, during 2021, the Company formed two entities, Brainerd Place LLC and Bull Creek LLC, for the purpose of exploring opportunities to develop mobile home communities. The Company owns 49% of these entities and Gvest Real Estate LLC, an entity whose sole owner is Raymond M. Gee, owns 51%. The Company also executed operating agreements with these entities which designate Gvest Capital Management LLC, a company owned and controlled by Gvest Real Estate Capital LLC, as manager with the authority, power, and discretion to manage and control the entities’ business decisions. The operating agreements require the Company to make cash contributions to the entities to fund their activities, operations, and existence, if the Company approves the contribution requests from the manager, which ultimately provides the Company with power to direct the economically significant activities of these entities.

 

A company with interests in a VIE must consolidate the entity if the company is deemed to be the primary beneficiary of the VIE; that is, if it has both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. Such a determination requires management to evaluate circumstances and relationships that may be difficult to understand and to make a significant judgment, and to repeat the evaluation at each subsequent reporting date. Primarily due to the Company’s common ownership by Mr. Gee, its power to direct the activities of these entities that most significantly impact their economic performance, and the fact that the Company has the obligation to absorb losses or the right to receive benefits from these entities that could potentially be significant to these entities, the entities listed above are considered to be VIEs in accordance applicable GAAP.

 

Net Income (Loss) Per Share

 

Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding, including vested stock options during the period. Diluted net income (loss) per share is calculated by dividing net income (loss) by 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. For the year ended December 31, 2021, the potentially dilutive penny options for the purchase of 656,175 shares of Common Stock were included in basic loss per share. Total dilutive securities outstanding as of December 31, 2021 totaled 50,000 stock options, 1,886,000 shares of Series A Cumulative Redeemable Convertible Preferred Stock, which are convertible into Common Stock for a total of 1,866,000 shares, which are not included in dilutive loss per share as the effect would be anti-dilutive. For the year ended December 31, 2020, the potentially dilutive penny options for the purchase of 519,675 shares of Common Stock were included in basic loss per share. Total dilutive securities outstanding as of December 31, 2020 totaled 136,500 stock options, 1,890,000 shares of Series A Cumulative Redeemable Convertible Preferred Stock, which are convertible into Common Shares for a total of 1,890,000, which are not included in dilutive loss per share as the effect would be anti-dilutive.

 

Use of Estimates

 

The presentation of financial statements in conformity with GAAP requires management to make estimates and assumptions that effect 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.

 

Investment Property and Depreciation

 

Investment property, including property and equipment, is 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 period’s results of operations.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

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. After the date we determine that a property is held for disposition, depreciation expense is not recorded. There was no impairment during the years ended December 31, 2021 and 2020.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid financial instruments purchased with an original maturity of three months or less to be cash equivalents.

 

The Company maintains cash balances at banks and deposits at times may exceed federally insured limits. Management believes that the financial institutions that hold the Company’s cash are financially secure and, accordingly, minimal credit risk exists. At December 31, 2021 and 2020, the Company had approximately $763,000 and $641,000 above the FDIC-insured limit, respectively, including restricted cash held for tenant security deposits of $705,195 and $339,152, respectively.

 

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 $66,015 and $2,370 during the years ended December 31, 2021 and 2020, 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. Most of the Company’s financial assets do not have a quoted market value. Therefore, estimates of fair value are necessarily based on a number of significant assumptions (many of which involve events outside the control of management). Such assumptions include assessments of current economic conditions, perceived risks associated with these financial instruments and their counterparties, future expected loss experience and other factors. Given the uncertainties surrounding these assumptions, the reported fair values represent estimates only and, therefore, cannot be compared to the historical accounting model. Use of different assumptions or methodologies is likely to result in significantly different fair value estimates.

 

The fair value of cash and cash equivalents, accounts receivables, and accounts payable approximates their current carrying amounts since all such items are short-term in nature. The fair value of variable and fixed rate mortgages payable and lines of credit approximate their current carrying amounts on the balance sheet since such amounts payable are at approximately a weighted average current market rate of interest.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

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, 2022. The Company is currently evaluating the potential impact this standard may have on the consolidated financial statements.

 

In May 2020, the Securities and Exchange Commission adopted amendments to the financial disclosure requirements in Regulation S-X relating to the acquisition and disposition of businesses by registrants. The amendments, including Rule 3-05, Financial Statements of Businesses Acquired or to Be Acquired; Rule 3-14, Special Instructions for Real Estate Operations to Be Acquired; and Article 11, Pro Forma Financial Information, focus on the financial information required to be disclosed in connection with the acquisition and disposition of businesses, real estate operations, and investment companies and generally increased the thresholds at which acquisitions are deemed significant and require additional disclosures. The amendments are effective for fiscal years beginning after December 31, 2020. 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. However, the Company will integrate these amendments in evaluating the significance and required additional disclosures upon acquisitions in future periods as necessary.

 

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 unaudited condensed consolidated financial statements.

 

Impact of Coronavirus Pandemic

 

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. 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.

 

Some states and cities, including some where the Company’s 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 and in what capacity, as well as guidance in response to the pandemic and the need to contain it.

 

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 the Company’s tenants, many of whom may be restricted in their ability to work, to pay their rent as and when due. In addition, the Company’s property managers may be limited in their ability to properly maintain the Company’s properties. Enforcing the Company’s 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 the Company from evicting tenants for certain periods in response to the pandemic. If the Company is unable to enforce its rights as landlords, its business would be materially affected

 

If the current pace of the pandemic does not continue to slow and the spread of the virus is not contained, the Company’s business operations could be further delayed or interrupted. The Company expects that government and health authorities may announce new or extend existing restrictions, which could require the Company to make further adjustments to its 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 the Company’s ability to operate its business and result in additional costs.

 

The extent to which the pandemic may impact the Company’s results will depend on future developments, which are highly uncertain and cannot be predicted as of the date of this report, 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 the Company’s performance, financial condition, results of operations and cash flows. 

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

NOTE 2 – REVISION OF PRIOR YEAR IMMATERIAL MISSTATEMENT

 

Immaterial Misstatement – Springlake Purchase Price Allocation

 

During the year ended December 31, 2021, the Company identified an error in the allocation of the purchase price of its Springlake community acquired in November 2019 that overstated the value of buildings and understated the value of land improvements and land on the balance sheet.

 

The Company assessed the materiality of this error considering both qualitative and quantitative factors and determined that for the quarters ended December 31, 2019 through September 30, 2021, the error was material to the individual line items on the balance sheet, but immaterial to the balance sheet in total since the correction only requires a reclassification.

 

The Company determined that for the quarters ended December 31, 2019 through September 30, 2021, the error was immaterial to the consolidated statement of operations, consolidated statement of changes in deficit, and consolidated statement of cash flows, so the impact to these statements is not presented below.

 

The Company has decided to correct this error as a revision to its previously issued consolidated balance sheet for the quarters ended December 31, 2019 through September 30, 2021. To correct this error, the Company reclassified $1,105,863 from buildings to land improvements and $476,787 from buildings to land in accordance with a third-party appraisal of the property.

 

Immaterial Misstatement – 2020 Homes Sale to Gvest VIEs

 

During the year ended December 31, 2021, the Company identified an error in the recording of the December 2020 related party sale of mobile homes to Gvest Finance LLC and Gvest Homes I LLC. The Company recorded the sale of all 364 park owned homes within the ARC, Countryside, Crestview, and Maple communities, but only 305 park owned homes were sold. The Company retained ownership of the remaining homes located within the ARC, Crestview, and Maple communities.

 

The Company assessed the materiality of this error considering both qualitative and quantitative factors and determined that for the year ended December 31 2020, the error was immaterial to the consolidated balance sheet, and consolidated statement of changes in deficit in total, but material to the amounts attributable to VIEs versus attributable to Manufactured Housing Properties Inc.

 

The Company has decided to correct this error as a revision to its previously issued consolidated balance sheet and statement of changes in deficit for the year and quarters ended December 31, 2020 through September 30, 2021 and has reclassified $869,481 from accumulated Manufactured Housing Properties Inc. deficit instead to non-controlling interest in VIE.

 

The Company determined for the quarters ended December 31, 2020 through September 30, 2021, the error was immaterial to the consolidated statement of operations. The consolidated statement of cash flows is not presented because there is no impact on total cash flows from operating, investing, or financing activities from this error.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

The tables below present the impacts of the revisions in the Company’s consolidated financial statements.

 

Consolidated Balance Sheets

 

		December 31, 2019				March 31, 2020				June 30, 2020				September 30, 2020				December 31, 2020				March 31, 2021				June 30, 2021				September 30, 2021
As Previously Reported:
Land		$	10,885,938			$	12,094,338			$	11,378,818			$	11,378,818			$	11,293,818			$	12,343,818			$	12,343,818			$	15,293,818
Land Improvements			17,466,801				20,286,401				21,845,771				22,007,126				20,924,112				21,506,262				21,580,874				24,107,172
Buildings			7,067,520				7,396,472				6,791,371				7,048,699				8,026,993				9,025,775				9,586,461				12,735,309
Construction in Process			-				-				-				-				-				-				-				1,897,258
Total Investment Property			35,420,259				39,777,211				40,015,960				40,434,643				40,244,923				42,875,855				43,511,153				54,033,557
Accumulated MHPC Deficit			(3,840,085	)			(4,194,251	)			(4,440,913	)			(4,497,737	)			(4,443,675	)			(4,857,951	)			(5,044,928	)			(4,621,293	)
Total MHPC Deficit			(2,956,875	)			(3,741,871	)			(4,444,310	)			(4,932,523	)			(5,372,270	)			(6,314,063	)			(7,004,003	)			(7,137,732	)
NCI in VIE			25,707				21,257				26,030				40,303				450,206				497,662				586,010				39,504
Total Deficit			(2,931,168	)			(3,720,614	)			(4,418,280	)			(4,892,220	)			(4,922,064	)			(5,816,401	)			(6,417,993	)			(7,098,228	)
Adjustments:
Land		$	476,787			$	476,787			$	476,787			$	476,787			$	476,787			$	476,787			$	476,787			$	476,787
Land Improvements			1,105,863				1,105,863				1,105,863				1,105,863				1,105,863				1,105,863				1,105,863				1,105,863
Buildings			(1,582,650	)			(1,582,650	)			(1,582,650	)			(1,582,650	)			(1,582,650	)			(1,582,650	)			(1,582,650	)			(1,582,650	)
Construction in Process			-				-				-				-				-				-				-
Total Investment Property			-				-				-				-				-				-				-				-
Accumulated MHPC Deficit			-				-				-				-				869,481				869,481				869,481				869,481
Total MHPC Deficit			-				-				-				-				869,481				869,481				869,481				869,481
NCI in VIE			-				-				-				-				(869,481	)			(869,481	)			(869,481	)			(869,481	)
Total Deficit			-				-				-				-				-				-				-				-
As Revised:
Land		$	11,362,725			$	12,571,125			$	11,855,605			$	11,855,605			$	11,770,605			$	12,820,605			$	12,820,605			$	15,770,605
Land Improvements			18,572,664				21,392,264				22,951,264				23,112,989				22,029,975				22,612,125				22,686,737				25,213,035
Buildings			5,484,870				5,813,822				5,208,721				5,466,049				6,444,343				7,443,125				8,003,811				11,152,659
Construction in Process			-				-				-				-				-				-				-				1,897,258
Total Investment Property			35,420,259				39,777,211				40,015,960				40,434,643				40,244,923				42,875,855				43,511,153				54,033,557
Accumulated MHPC Deficit			(3,840,085	)			(4,194,251	)			(4,440,913	)			(4,497,737	)			(3,574,194	)			(3,988,470	)			(4,175,447	)			(3,751,812	)
Total MHPC Deficit			(2,956,875	)			(3,741,871	)			(4,444,310	)			(4,932,523	)			(4,502,789	)			(5,444,582	)			(6,134,522	)			(6,268,251	)
NCI in VIE			25,707				21,257				26,030				40,303				(419,275	)			(371,819	)			(283,471	)			(829,977	)
Total Deficit			(2,931,168	)			(3,720,614	)			(4,418,280	)			(4,892,220	)			(4,922,064	)			(5,816,401	)			(6,417,993	)			(7,098,228	)

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

Consolidated Statements of Changes in Deficit

 

		31-Dec-20				31-Mar-21				30-Jun-21				30-Sep-21
As Previously Reported:
Accumulated Deficit - MHPC - Deemed Dividend		-				-				-				-
Total MHPC Accumulated Deficit			(4,443,675	)			(4,857,951	)			(5,044,928	)			(4,621,293	)
Total MHPC Deficit			(5,372,270	)			(6,314,063	)			(7,004,003	)			(7,137,732	)
Non-Controlling Interest			450,206				497,662				586,010				39,504
Consolidated Deficit			(4,922,064	)			(5,816,401	)			(6,417,993	)			(7,098,228	)
Adjustments
Accumulated Deficit - MHPC - Deemed Dividend			869,481				869,481				869,481				869,481
Total MHPC Accumulated Deficit			869,481				869,481				869,481				869,481
Total MHPC Deficit			869,481				869,481				869,481				869,481
Non-Controlling Interest			(869,481	)			(869,481	)			(869,481	)			(869,481	)
Consolidated Deficit			-				-				-				-
As Revised:
Accumulated Deficit - MHPC - Deemed Dividend			869,481				-				-				-
Total MHPC Accumulated Deficit			(3,574,194	)			(3,988,470	)			(4,175,447	)			(3,751,812	)
Total MHPC Deficit			(4,502,789	)			(5,444,582	)			(6,134,522	)			(6,268,251	)
Non-Controlling Interest			(419,275	)			(371,819	)			(283,471	)			(829,977	)
Consolidated Deficit			(4,922,064	)			(5,816,401	)			(6,417,993	)			(7,098,228	)

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

NOTE 3 – VARIABLE INTEREST ENTITIES

 

The Company consolidates the accounts of Gvest Finance LLC, Gvest Homes I LLC, Gvest Anderson Homes LLC, Gvest Capital View Homes LLC, Gvest Hidden Oaks Homes LLC, Gvest Springlake Homes LLC, Gvest Carolinas 4 Homes LLC, Brainerd Place LLC, and Bull Creek LLC and will continue to do so until they are no longer considered VIEs. During the year ended December 31, 2021, Gvest Finance LLC formed five wholly owned subsidiaries, Gvest Anderson Homes LLC, Gvest Capital View Homes LLC, Gvest Hidden Oaks Homes LLC, Gvest Springlake Homes LLC, and Gvest Carolinas 4 Homes LLC and the Company formed two entities, Brainerd Place LLC and Bull Creek LLC, all of which are considered VIEs.

 

Included in the consolidated results of operations for the year ended December 31, 2021 and 2020 were net loss of $460,609 and net income of $451,876, respectively, after deducting an additional management fee equal to cash flow after debt service per the management agreement of $579,703 and $0, respectively.

 

The consolidated balance sheets as of December 31, 2021 and 2020 included the following amounts related to the consolidated VIEs.

 

		2021				2020
Assets						(As Revised**)
Investment Property			14,144,268				5,067,535
Accumulated Depreciation and Amortization			(597,650	)			(288,739	)
Net Investment Property			13,546,618				4,778,796
Cash and Cash Equivalents			98,900				9,234
Accounts Receivable, net			60,506				3,506
Other Assets			158,920				14,652
Total Assets		$	13,864,944			$	4,806,188
Liabilities and Deficit
Accounts Payable		$	169,298			$	4,969
Notes Payable			6,793,319				1,994,640
Line of Credit, $151,749 and $0 debt discount			6,200,607				3,214,916
Other Liabilities*			1,679,233				9,439
Tenant Security Deposits			-				1,499
Total Liabilities			14,842,457				5,225,463
Non-Controlling interest			(977,513	)			(419,275	)
Total Non-controlling interest in variable interest entity equity			(977,513	)			(419,275	)

 

*	Included in other liabilities is an intercompany balance of $1,515,715 and $0 as of December 31, 2021 and 2020, respectively. The intercompany balances have been eliminated on the consolidated balance sheet.
**	The balances as of and the results of operations for the year ended December 31, 2020 have been revised to reflect the correction of an error in the recording of the December sale of homes to Gvest Finance LLC and Gvest Homes I LLC. The Company recorded the sale of all 364 park owned homes within the ARC, Countryside, Crestview, and Maple communities, but only 305 park owned homes were sold. See Note 2 for more information.

 

NOTE 4 – INVESTMENT PROPERTY

 

The following table summarizes the Company’s property and equipment balances are generally used to depreciate the assets on a straight-line basis:

 

		2021				2020
						(As Revised)
Investment Property
Land		$	18,854,760			$	11,770,605
Site and Land Improvements			35,133,079				22,029,975
Buildings and Improvements			14,666,296				6,437,251
Construction in Process			3,030,456				7,092
Total Investment Property			71,684,591				40,244,923
Accumulated Depreciation			(4,832,300	)			(2,779,201	)
Net Investment Property		$	66,852,291				37,465,722

 

Depreciation expense for the years ended December 31, 2021 and 2020 was $2,060,882 and $1,652,509, respectively.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

During the year ended December 31, 2021, Gvest Finance LLC, the Company’s VIE, acquired thirty-four new manufactured homes for approximately $1,900,000 including set up costs for use in the Springlake community and fourteen new manufactured homes for approximately $860,000 including set up costs for use in the Golden Isles community that are not yet occupiable and still in the set-up phase as of December 31, 2021. These homes are included in Construction in Process on the balance sheet. In prior filings, Construction in Process account included only homes undergoing renovations between tenants and was immaterial and thus was included in the Buildings and Improvements line item and not separately stated on the consolidated balance sheet. The December 31, 2020 Investment Property balances have been reclassified to separately state $7,092 Construction in Process for purposes of comparison across periods.

 

During the year ended December 31, 2021, the Company acquired twenty-four manufactured housing communities and accounted for all as asset acquisitions. Total gross acquisition costs incurred with 2021 acquisitions of $474,568 are included in Site and Land Improvements, $7,213 are included in Buildings and Improvements, and $11,465 of accumulated amortization of these acquisition costs are included in the above table and on the consolidated balance sheet for the year ended December 31, 2021. The Company acquired two manufactured housing communities in Lancaster, South Carolina and Morristown, Tennessee and accounted for them as asset acquisitions during the year ended December 31, 2020. See Note 5 for more information about these acquisitions.

 

NOTE 5 – ACQUISITIONS AND DISPOSALS

 

During the years ended December 31, 2021 and 2020, the Company acquired twenty-four and two communities, respectively. These were acquisitions from third parties and have been accounted for as asset acquisitions. The mobile homes in the communities indicated “Gvest” were acquired by the Company’s VIEs - Gvest Finance LLC, Gvest Homes I LLC, Gvest Anderson Homes LLC, Gvest Capital View Homes LLC, Gvest Hidden Oaks Homes LLC and Gvest Carolinas 4 Homes LLC - and are included in consolidation. The homes in the Countryside community were sold by the Company to Gvest Finance LLC during the year ended December 31, 2020.

 

Acquisition Date		Name (number of communities)		Land				Improvements				Building				Total Purchase Price
March 2020		Countryside MHP		$	152,880			$	3,194,245			$	352,875			$	3,700,000
March 2020		Evergreen MHP			340,000				1,111,000				-				1,451,000
		Total Purchase Price		$	492,880			$	4,305,245			$	352,875			$	5,151,000
March 2021		Golden Isles MHP		$	1,050,000			$	487,500			$	-			$	1,537,500
March 2021		Golden Isles Gvest			-				-				787,500				787,500
July 2021		Anderson MHP (10)			2,310,000				763,417	(a)			120,390				3,193,807
July 2021		Anderson Gvest			-				-				2,006,193				2,006,193
September 2021		Capital View MHP			350,000				757,064				-				1,107,064
September 2021		Capital View Gvest			-				-				342,936				342,936
September 2021		Hidden Oaks MHP			290,000				843,440				-				1,133,440
September 2021		Hidden Oaks Gvest			-				-				416,560				416,560
October 2021		North Raleigh MHP (5)			1,613,828				4,505,268				1,330,904				7,450,000
December 2021		Dixie MHP			59,133				658,351				32,516				750,000
December 2021		Driftwood MHP			53,453				352,163				19,384				425,000
December 2021		Meadowbrook MHP			410,421				781,379				133,200				1,325,000
December 2021		Asheboro MHP (2)			723,778				1,411,726				-				2,135,504
December 2021		Asheboro Gvest			-				-				614,496				614,496
December 2021		Morganton MHP			223,542				1,846,024				-				2,069,566
December 2021		Morganton Gvest			-				-				680,434				680,434
		Total Purchase Price		$	7,084,155			$	12,406,332			$	6,484,513			$	25,975,000
		Acquisition Costs			-				474,568				7,213				481,781
		Total Investment Property		$	7,084,155			$	12,880,900			$	6,491,726			$	26,456,781

 

(a)

Anderson MHP LLC also purchased vehicles and equipment totaling $156,465 which is included in the improvements column above.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

Butternut Sale

 

During the year ended December 31, 2020, the Company sold the Butternut manufactured housing community for a total sale price of $2,100,000. The cost net of accumulated depreciation of the community at the time of the sale was $1,338,022. The Company wrote off mortgage costs of $109,529 which is included in refinancing costs on the consolidated statement of operations. The Company recognized a gain on the sale of the property of $761,978 during the year ended December 31, 2020.

 

Pro-forma Financial Information (unaudited)

 

The following unaudited pro-forma information presents the combined results of operations for the years ended December 31, 2021 and 2020 as if the 2021 and 2020 acquisitions and disposition of manufactured housing communities listed above, the sale of mobile homes within the ARC, Crestview, Countryside, and Maple communities in December 2020 to Gvest Finance LLC and Gvest Homes I LLC, and the acquisition of the Sunnyland community in January 2022 had occurred on January 1, 2020.

 

		Unaudited
		For the Years Ended December 31,
		2021				2020
Total revenue		$	11,767,812			$	11,069,625
Total community operating expenses			4,220,200				4,133,478
Corporate payroll and overhead			3,013,810				1,581,807
Depreciation expense			3,181,404				3,068,380
Interest expense			3,102,659				3,021,533
Gain on sale of property			-				761,978
Other income			139,300				-
Net income (loss)		$	(1,610,961	)		$	26,405
Net loss attributable to non-controlling interest			(611,571	)			(349,943	)
Net income (loss) attributable to Manufactured Housing Properties, Inc.			(999,390	)			376,348
Preferred stock dividends / accretion			2,175,472				1,850,860
Net loss		$	(3,174,862	)		$	(1,474,513	)
Net loss per share		$	(0.24	)		$	(0.11	)

 

NOTE 6 – PROMISSORY NOTES AND LINES OF CREDIT

 

Promissory Notes

 

The Company has issued promissory notes payable to lenders related to the acquisition of its manufactured housing communities and mobile homes. The interest rates on these promissory notes range from 3.310% to 5.875% with 5 to 30 years principal amortization. Two of the promissory notes have an initial 6 month, two had an initial 12 month, seven have an initial 24 month, one has an initial 60 month, and one promissory note has a 180-month period of interest only payments. The promissory notes are secured by the real estate assets and eighteen loans totaling $36,554,126 are guaranteed by Raymond M. Gee.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

On May 1, 2020, the Company received a $139,300 Paycheck Protection Program (the “PPP”) loan from the United States Small Business Administration (the “SBA”) under provisions of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The PPP loan has a two-year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments are deferred for six months after the date of disbursement.  The PPP provides that the loan may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. The Company used the proceeds from the PPP loan for qualifying expenses and applied for forgiveness of the PPP loan in accordance with the terms of the CARES Act. The loan was forgiven by the SBA on June 7, 2021.

 

As of December 31, 2021, the outstanding balance on these notes was $50,955,777. The following are the terms of these notes:

  

		Maturity Date		Interest Rate				Balance 12/31/21				Balance 12/31/20
Pecan Grove MHP LLC		02/22/29			5.250	%		$	2,969,250			$	3,037,625
Azalea MHP LLC		03/01/29			5.400	%			790,481				810,741
Holly Faye MHP LLC		03/01/29			5.400	%			579,825				579,825
Chatham MHP LLC		04/01/24			5.875	%			1,698,800				1,734,828
Lakeview MHP LLC		03/01/29			5.400	%			1,805,569				1,832,264
B&D MHP LLC		05/02/29			5.500	%			1,779,439				1,818,303
Hunt Club MHP LLC		01/01/33			3.430	%			2,398,689				2,445,011
Crestview MHP LLC		12/31/30			3.250	%			4,682,508				4,800,000
Maple Hills MHP LLC		12/01/30			3.250	%			2,341,254				2,400,000
Springlake MHP LLC		11/14/21			3.310	%			-				4,000,000
Springlake MHP LLC		12/10/26			4.750	%			4,016,250				-
ARC MHP LLC		01/01/30			5.500	%			3,809,742				3,885,328
Countryside MHP LLC		03/20/50			5.500	%			1,684,100				1,700,000
Evergreen MHP LLC		04/01/32			3.990	%			1,115,261				1,135,502
Golden Isles MHP LLC		03/31/26			4.000	%			787,500				-
Anderson MHP LLC*		07/10/26			5.210	%			2,153,807				-
Capital View MHP LLC*		09/10/26			5.390	%			817,064				-
Hidden Oaks MHP LLC*		09/10/26			5.330	%			823,440				-
North Raleigh MHP LLC		11/01/26			4.750	%			5,304,409				-
Charlotte 3 Park MHP LLC (Dixie, Driftwood, Meadowbrook)(1)		03/01/22			5.000	%			1,500,000				-
Carolinas 4 MHP LLC*		01/10/27			5.300	%			3,105,070
Gvest Finance LLC (B&D homes)		05/01/24			5.000	%			657,357				694,640
Gvest Finance LLC (Countryside homes)		03/20/50			5.500	%			1,287,843				1,300,000
Gvest Finance LLC (Golden Isles homes)		03/31/36			4.000	%			787,500				-
Gvest Anderson Homes LLC*		07/10/26			5.210	%			2,006,193				-
Gvest Capital View Homes LLC*		09/10/26			5.390	%			342,936				-
Gvest Hidden Oaks Homes LLC*		09/10/26			5.330	%			416,560				-
Gvest Carolinas 4 Homes LLC (Asheboro, Morganton)*		01/10/27			5.300	%			1,294,930
PPP Loan - MHP		05/01/22			1.000	%			-				139,300
Total Note Payables									50,955,777				32,313,367
Discount Direct Lender Fees									(2,064,294	)			(1,096,629	)
Total Net of Discount								$	48,891,483			$	31,216,738

 

(1)

The Company repaid the Charlotte 3 Park MHP LLC note payable of $1,500,000 on March 1, 2022. See Note 10 for more details.

 

*

The notes indicated above are subject to certain financial covenants.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

During the year ended December 31, 2021, the Company refinanced its Springlake MHP LLC note payable totaling $4,000,000 to a new note with a different lender totaling $4,016,000. As of December 31, 2021, the Company recognized refinancing cost expense totaling $87,985 and capitalized $75,141 of debt issuance costs related to the new note. Also during the year ended December 31, 2021, Gvest Finance LLC paid off a note payable totaling $309,271 that was originally used to purchase new homes that were integrated into the Springlake community. This note was repaid with proceeds from the Springlake New Home Facility described below. Gvest Finance LLC recognized refinance cost totaling $6,204 related to this repayment.

 

During the year ended December 31, 2020, the Company refinanced a total of $16,374,007 from loans payable to $15,245,000 of new notes payable from five of the communities. The Company used the additional loans payable proceeds from the refinance to retire the related party note payable described below. As of December 31, 2020, the Company recognized refinancing cost expense totaling $464,568 and capitalized $640,895 of mortgage costs related to the refinancing.

 

Metrolina Promissory Notes

 

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. This note was to mature in May of 2023. In September 2020, the Company paid off the full balance and terminated the note. This related party note was guaranteed by Raymond M. Gee. As of December 31, 2021 and 2020, the balance on this note was $0.

 

On October 22, 2021, the Company issued a promissory note to Metrolina in the principal amount of $1,500,000. The note bears interest at a rate of 18% per annum and matures on April 1, 2023. During the first six months of the note, any prepayment would require the Company to pay a yield maintenance fee equal to six months of interest. Thereafter, the loan may be prepaid at any time without penalty or fee. The note is guaranteed by Mr. Gee. As of December 31, 2021, the balance on this note was $1,500,000 and interest expense for the year totaled $51,780.

 

Gvest Revolving Promissory Notes

 

On October 1, 2017, the Company issued a revolving promissory note to Raymond M. Gee, pursuant to which the Company could borrow up to $1,500,000 from Mr. Gee on a revolving basis for working capital purposes. In September 2020, the Company paid off the full balance; however, the line of credit remained available to the Company until it was cancelled in December 2021. As of December 31, 2021 and 2020, the outstanding balance on this note was $0.

 

On December 27, 2021, the Company issued a similar revolving promissory note to Gvest Real Estate Capital, LLC, pursuant to which the Company may borrow up to $1,500,000 on a revolving basis for working capital or acquisition purposes. On the same date, the Company borrowed $150,000. This note has a five-year term and is interest-only based on an 15% annual rate through the maturity date and is unsecured. As of December 31, 2021, the outstanding balance on this note was $150,000.

 

Line of Credit – ARC, Crestview, and Maple Occupied Home Facility

 

On December 24, 2020, Gvest Homes I LLC entered into a loan agreement with a lender for a commitment amount of up to $20,000,000, provided that only up to $8,500,000 is to be used for used homes within the ARC, Crestview and Maple communities. The agreement requires the maintenance of certain financial ratios and other affirmative and negative covenants.

  

On December 24, 2020 the lender agreed to advance $3,348,967 to the Company. During the first quarter of 2021, the lender agreed to increase this amount to $3,422,260. As of December 2021, $850,000 was still due from the lender. On December 17, 2021, the lender advanced $838,000 under the Multi-Community Rental Financing Facility discussed below and the funds were used to pay the Company the outstanding balance owed from the 2020 sale of ARC homes to Gvest Homes I LLC. Subsequently, Gvest Homes I LLC reduced the line of credit balance of the ARC, Crestview, and Maple Occupied Home Facility to the total amount funded to date. As of December 31, 2021 and 2020, the outstanding balance on this line of credit was $2,517,620 and $3,348,967, respectively, presented on the balance sheet net of discount direct lender fees of $95,221 and $134,051, respectively.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

The line of credit bears interest at 8.375% and maturity date of the loan is January 1, 2030. During the years ended December 31, 2021 and 2020, interest expense totaled $168,770 and $587, respectively. Pursuant to the agreement, the Company is obligated to pay a fee to the lender equal to 1% of the amount of each advance which funding fee shall be deducted from the then available commitment amount. The line of credit is guaranteed by Raymond M. Gee.

 

Lines of Credit – Multi-Community Floorplan and Rental Financing Facilities

 

On July 26, 2021, Gvest Finance LLC entered into a floorplan credit agreement, rental homes credit agreement, and a credit and security supplemental agreement pursuant to which the lender has agreed to make available to Gvest Finance LLC a secured credit facility with a joint, aggregate credit limit of $5,000,000, consisting of (i) a credit limit of up to $1,000,000 under a floorplan line to be used to finance the acquisition of manufactured homes for retail sale and (ii) a credit limit of up to $4,000,000 under a rental line to finance the acquisition of rental homes. The lender subsequently agreed to extend the credit limit for the floorplan line to $2,000,000. 

 

On November 12, 2021, Gvest Finance LLC repaid the outstanding balance on the floorplan line as of that date totaling $1,676,634 using funds advanced from the Springlake New Home Facility discussed below. As of December 31, 2021, the balance on the floorplan line of credit was $1,104,255 as Gvest Finance LLC borrowed additional funds of $1,104,255 after the initial repayment which is presented on the balance sheet net of discount direct lender fees of $1,612.

 

The floorplan line of credit interest is calculated at a schedule as follows: (i) Day 1-360: LIBOR plus 6% per annum; (ii) Day 361-720: LIBOR plus 7% per annum; and (iii) Day 721+: LIBOR plus 8% per annum. Interest shall also accrue at the lesser of (a) the “LIBOR Rate”, plus 10% per annum and (b) the maximum lawful rate of interest permitted under applicable law. During the year ended December 31, 2021, total interest expense was $23,933.

 

The maturity date of the of the floorplan line of credit will vary based on each statement of financial transaction (“SOFT”), a report identifying the funded homes and the applicable financial terms. Gvest Finance LLC promises to repay each floor plan advance as follows: (i) Gvest Finance LLC shall pay a principal amount in an amount equal to the original principal amount of such advance multiplied by the percentage specified in the applicable SOFT, commencing on the 15^th day of the first full month after the first anniversary of any advance and continuing on the 15^th day of each month thereafter; (ii) interest shall be payable monthly, in arrears, and shall be due and payable on or before the 15^th day of the month following the month in which such interest accrues; and (iii) Gvest Finance LLC will pay to lender an amount equal to the original invoice price of such homes inventory, less all principal payments made with respect to such inventory pursuant to (ii) above, plus all billed and unpaid interest and any applicable fees, upon the sale of inventory financed or refinanced by lender. 

 

The rental line of credit bears interest at the greater of 3.25% or the highest prime rate of interest published in the Wall Street Journal on either (A) the date when the lender advances the loan or (B) the last day of the 60^th month following the month of the date when the lender advances the loan, plus 375 basis points in either case. The rental line of credit matures ten years after the date of each advance. During the year ended December 31, 2021, total interest expense was $2,409. As of December 31, 2021, the balance on the rental line was $838,000, presented on the balance sheet net of discount direct lender fees of $35,000. The proceeds were used to purchase used homes in the ARC community as discussed above.

 

The floorplan and rental lines of credit are guaranteed by Raymond M. Gee. Gvest Finance LLC is subject to certain financial covenants as set out in the loan agreement.

 

Line of Credit – Springlake Home Facility

 

On November 12, 2021, Gvest Springlake Homes LLC, a wholly owned subsidiary of Gvest Finance LLC, entered into a loan and security agreement for a line of credit in the principal amount of $2,000,000 to be used to purchase homes for the Springlake community. The immediate advance of funds from the line of credit totaling $1,892,481 was used to pay off Gvest Finance LLC’s preexisting note totaling $309,271 and the outstanding balance of the Line of Credit – Multi-Community Floor Plan and Rental Financing Facility totaling $1,676,634. The credit limit on this facility was increased on March 28, 2022 to $3,300,000.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

The line of credit bears interest at the lesser of the Wall Street Journal prime rate plus one percent or 6.75% per annum and matures five years after each advance. As of December 31, 2021, the balance due on this line of credit was $1,892,481, presented on the balance sheet net of discount direct lender fees of $19,916. Interest expense related to this facility for the year ended December 31, 2021 totaled $20,936. The line of credit is guaranteed by Raymond M. Gee. Gvest Springlake Homes LLC is subject to certain financial covenants as set out in the loan agreement.

 

Maturities of Long-Term Obligations for Five Years and Beyond

 

The minimum annual principal payments of notes payable, related party debt, and lines of credit at December 31, 2021 were:

 

2022		$	2,414,963
2023			3,714,410
2024			3,337,901
2025			1,256,977
2026			18,341,237
Thereafter			29,892,646
Total minimum principal payments		$	58,958,133

 

NOTE 7 – 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 8 – 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 Cumulative Redeemable Convertible 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 Redeemable 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 liquidation, dissolution, or winding up, senior to the Common Stock and pari passu with the Series B Preferred Stock and Series C Preferred Stock (as defined below). The terms of the Series A Preferred Stock will not limit the Company’s ability to (i) incur indebtedness or (ii) issue additional equity securities that are equal or junior in rank to the shares of Series A Preferred Stock as to distribution rights and rights upon liquidation, dissolution or winding up.

 

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 years ended December 31, 2021 and 2020, the Company paid dividends of $384,864 and $377,353, respectively.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

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, before any payment or distribution is made to the holders of Common Stock and on a pari passu basis with holders of Series B Preferred Stock and Series C Preferred Stock, 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 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 the Company at a put price equal to $3.75, or 150% of the original issue purchase price of such shares. During the years ended December 31, 2021 and 2020, the Company recorded a put option value accretion of $472,271 and $472,500, respectively.

 

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, 2021, there were 1,886,000 outstanding shares of Series A Preferred Stock and the Series A Preferred Stock balance was made up of Series A Preferred Stock totaling $4,715,000 and accretion of put options totaling $1,126,771. As of December 31, 2020, there were 1,890,000 shares of Series A Preferred Stock issued and outstanding and the Series A Preferred Stock balance was made up of Series A Preferred Stock totaling $4,725,000 and accretion of put options totaling $656,500.

 

Series B Cumulative Redeemable 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 and Series C Preferred Stock. The terms of the Series B Preferred Stock will not limit the Company’s ability to (i) incur indebtedness or (ii) issue additional equity securities that are equal or junior in rank to the shares of Series B Preferred Stock as to distribution rights and rights upon 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 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 years ended December 31, 2021 and 2020, the Company paid dividends of $579,303 and $433,790 respectively.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

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, before any payment or distribution is made to the holders of Common Stock and on a pari passu basis with holders of Series A Preferred Stock and Series C Preferred Stock, 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 years ended December 31, 2021 and 2020, the Company recorded a put option value accretion of $739,034 and $567,217 respectively.

 

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 (the “Securities Act”), for Tier 2 offerings, pursuant to which the Company offered 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 offered bonus shares to early investors in this offering, whereby the first 400 investors received, 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. This offering terminated on March 30, 2021.

 

During the year ended December 31, 2021, the Company sold an aggregate of 117,297 shares of Series B Preferred Stock for total gross proceeds of $1,172,970. After deducting a placement fee and other expenses, the Company received net proceeds of $1,087,485. During the year ended December 31, 2020, the Company sold an aggregate of 231,532 shares of Series B Preferred Stock for total gross proceeds of $2,315,320. After deducting a placement fee and other expenses, the Company received net proceeds of $2,151,250.

 

As of December 31, 2021, there were 758,551 shares of Series B Preferred Stock issued and outstanding and the Series B Preferred Stock balance was made up of Series B Preferred Stock, net of commissions, totaling $7,185,716 and accretion of put options totaling $1,332,878. As of December 31, 2020, there were 641,254 shares of Series B Preferred Stock issued and outstanding and the Series B Preferred Stock balance was made up of Series B Preferred Stock, net of commissions, totaling $6,096,855 and accretion of put options totaling $595,221.

 

Series C Preferred Stock

 

On May 24, 2021, the Company filed an amended and restated certificate of designation with the Nevada Secretary of State pursuant to which the Company designated 47,000 shares of its preferred stock as Series C Cumulative Redeemable Preferred Stock (the “Series C Preferred Stock”). The Series C Preferred Stock has the following voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions:

 

Ranking. The Series C Preferred Stock ranks, as to dividend rights and rights upon liquidation, dissolution, or winding up, senior to Common Stock and pari passu with Series A Preferred Stock and Series B Preferred Stock. The terms of the Series C Preferred Stock do not limit the Company’s ability to (i) incur indebtedness or (ii) issue additional equity securities that are equal or junior in rank to the shares of Series C Preferred Stock as to distribution rights and rights upon liquidation, dissolution or winding up.

 

Stated Value. Each share of Series C Preferred Stock has an initial stated value of $1,000, subject to appropriate adjustment in relation to certain events, such as recapitalizations, stock dividends, stock splits, stock combinations, reclassifications or similar events affecting the Series C Preferred Stock.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

Dividend Rate and Payment Dates. Dividends on the Series C Preferred Stock are cumulative and payable monthly in arrears to all holders of record on the applicable record date. Holders of Series C Preferred Stock are entitled to receive cumulative monthly cash dividends at a per annum rate of 7% of the stated value (or $5.83 per share each month based on the initial stated value). Dividends on each share begin accruing on, and are cumulative from, the date of issuance and regardless of whether the board of directors declares and pays such dividends. Dividends on shares of Series C 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, 2021, the Company paid dividends of $49,292 and due to timing of payments, accrued dividends of $26,960 presented in accrued liabilities on the balance sheet.

 

Liquidation Preference. Upon a liquidation, dissolution or winding up of the Company, holders of shares of Series C Preferred Stock are entitled to receive, before any payment or distribution is made to the holders of Common Stock and on a pari passu basis with holders of Series A Preferred Stock and Series B Preferred Stock, a liquidation preference equal to the stated value per share, plus accrued but unpaid dividends thereon.

 

Redemption Request at the Option of a Holder. Once per calendar quarter, a holder will have the opportunity to request that the Company redeem that holder’s Series C Preferred Stock. The board of directors may, however, suspend cash redemptions at any time in its discretion if it determines that it would not be in the best interests of the Company to effectuate cash redemptions at a given time because the Company does not have sufficient cash, including because the board believes that the Company’s cash on hand should be utilized for other business purposes. Redemptions will be limited to four percent (4%) of the total outstanding Series C Preferred Stock per quarter and any redemptions in excess of such limit or to the extent suspended, shall be redeemed in subsequent quarters on a first come, first served, basis. The Company will redeem shares at a redemption price equal to the stated value of such redeemed shares, plus any accrued but unpaid dividends thereon, less the applicable redemption fee (if any). As a percentage of the aggregate redemption price of a holder’s shares to be redeemed, the redemption fee shall be:

 

●

11% if the redemption is requested on or before the first anniversary of the original issuance of such shares;

 

●

8% if the redemption is requested after the first anniversary and on or before the second anniversary of the original issuance of such shares;

 

●

5% if the redemption is requested after the second anniversary and on or before the third anniversary of the original issuance of such shares; and

 

●

after the third anniversary of the date of original issuance of shares to be redeemed, no redemption fee shall be subtracted from the redemption price.

 

Optional Redemption by the Company. The Company has the right (but not the obligation) to redeem shares of Series C Preferred Stock at a redemption price equal to the stated value of such redeemed shares, plus any accrued but unpaid dividends thereon; provided, however, that if the Company redeems any shares of Series C Preferred Stock prior to the fourth (4^th) anniversary of their issuance, then the redemption price shall include a premium equal to ten percent (10%) of the stated value.

 

Mandatory Redemption by the Company. The Company must redeem the outstanding shares of Series C Preferred Stock on the fourth (4^th) anniversary of their issuance at a redemption price equal to the stated value of such redeemed shares, plus any accrued but unpaid dividends thereon.

 

Voting Rights. The Series C Preferred Stock has no voting rights.

 

No Conversion Right. The Series C Preferred Stock is not convertible into shares of Common Stock.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

In accordance with ASC 480-10, the Series C Preferred Stock is treated as a liability and is presented net of unamortized debt issuance costs on the balance sheet because the Company has an unconditional obligation to redeem the Series C Preferred Stock and dividends on the Preferred C Stock are included in interest expense.

 

On June 11, 2021, the Company launched a new offering under Regulation A of Section 3(6) of the Securities Act for Tier 2 offerings, pursuant to which the Company is offering up to 47,000 shares of Series C Preferred Stock at an offering price of $1,000 per share for a maximum offering amount of $47 million.

 

During the year ended December 31, 2021, the Company sold an aggregate of 5,734.4 shares of Series C Preferred Stock for total gross proceeds of $5,734,400. After deducting a placement fee and other expenses, the Company received net proceeds of $5,345,207. The Company capitalized an additional $159,515 of issuance costs associated with the offering which, net of amortization expense, offset with the net proceeds on the balance sheet.

 

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, 2021 and 2020, there were 12,403,680 and 12,398,580 shares of Common Stock issued and outstanding, respectively.

 

Stock Issued for Service

 

During the year ended December 31, 2021, the Company issued no stock for services. During the year ended December 31, 2020, the Company issued 50,000 shares of Common Stock to board members with a value of $32,500.

 

Stock Issued for Cash

  

During the years ended December 31, 2021 and 2020, the Company issued 5,100 and 12,500 shares of Common Stock, respectively, to early investors in the Regulation A offering, valued at $1,377 and $4,185, respectively.

  

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. As of December 31, 2021, there were 706,175 shares granted and 293,825 shares remaining available under the Plan.

 

The Company has issued options to directors, officers, and employees under the Plan. One third of the options vest immediately, and two thirds vest in equal annual installments over a two-year period. During the years ended December 31, 2021 and 2020, the Company issued 50,000 and 0 options and recorded total stock option expense of $66,015 and $2,370, respectively, inclusive of the stock option expense in connection with the correction to the exercise price as noted below.

 

During the year ended December 31, 2021, the Company amended stock option agreements executed in 2019 and 2021 to correct the exercise price to $0.01 rather than $0.27 which increased stock option expense by $27,550.

 

The following table summarizes the stock options outstanding as of December 31, 2021:

 

		Number of options				Weighted average exercise price (per share)				Weighted average remaining contractual term (in  years)
Outstanding at December 31, 2020			656,175			$	0.01				7.7
Granted			50,000				0.01				9.0
Exercised			-				-				-
Forfeited / cancelled / expired			-				-				-
Outstanding at December 31, 2021			706,175			$	0.01				6.6
Exercisable at December 31, 2021			672,842			$	0.01				6.4

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

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, 2020. As of December 31, 2021, there were 706,175 “in-the-money” options with an aggregate intrinsic value of $2,040,846.

 

The following table summarizes information concerning options outstanding as of December 31, 2021.

 

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				5.9			$	0.01				519,675			$	0.01
$	0.01				136,500				8.0			$	0.01				136,500			$	0.01
$	0.01				50,000				9.0			$	0.01				16,667			$	0.01

 

The following table summarizes information concerning options outstanding as of December 31, 2020.

 

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				7.0			$	0.01				519,675			$	0.01
$	0.01				136,500				9.0			$	0.01				45,500			$	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, 2021			December 31, 2020
Risk-free interest rate		0.26 – 1.40%				-
Expected dividend yield		0.00%				-
Expected volatility		16.03 –273.98%				-
Expected life of options (in years)		6.5				-

 

NOTE 8 – RELATED PARTY TRANSACTIONS

 

See Note 6 for information regarding the promissory notes issued to Metrolina, a significant stockholder, and the revolving promissory notes issued to Raymond M. Gee, the Company’s chairman and chief executive officer.

 

In August 2019, the Company entered into an office lease agreement with 136 Main Street LLC, an entity whose sole owner is Gvest Real Estate LLC, whose sole owner is Mr. Gee, for the lease of the Company’s offices. The lease is $12,000 per month and is on a month-to-month term. During the years ended December 31, 2021 and 2020, the Company paid $144,000 and $48,000, respectively, of rent expense to 136 Main Street LLC.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

During the years ended December 31, 2021 and 2020, Raymond M. Gee received fees totaling $500,000 and $370,000, respectively, for his personal guaranty on certain promissory notes relating to the refinancing and acquisitions of mobile home communities owned by the Company. During the year ended December 31, 2021, the Company also accrued $250,000 for personal guaranty fees owed to Mr. Gee in relation to the Asheboro and Morganton acquisitions that occurred at the end of December which were paid in January 2022.

 

See Note 3 for information regarding related party VIEs.

 

NOTE 9 – INCOME TAXES

 

On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJA”) was enacted to significantly reform the Internal Revenue Code of 1987, as amended (the “IRC”). 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); and modifying or repealing many business deductions and credits.

 

The Company has significant business interest expense; however, the TCJA provision implementing a limitation of the tax deduction for interest expense does not apply to the Company as it qualifies for the small business exemption. On the 2019 and 2020 tax return, the company elected to take 100% bonus depreciation deduction available under the new TCJA tax legislation, which applied to qualified property placed in service after September 27, 2017 and before January 1, 2023. This large deduction increased our deferred tax liability and increased our NOL significantly.

 

On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, supersedes the changes related to NOLs from TCJA and permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. After December 31, 2020, the limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks are reenacted.

 

The Company’s VIEs are single member LLCs. As single member LLCs, these entities are considered disregarded for income tax purposes and are not included in the Company’s tax return. Therefore, the VIEs are not included in the tax information presented below.

 

As of December 31, 2021 and 2020, the Company had net 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, 2021 and 2020.

 

As of December 31, 2021, and 2020, the Company had Federal net operating loss carryforwards of approximately $19,257,499 and $18,446,935, respectively. The change in the valuation allowance for the years ended December 31, 2021 and 2020 was $1,352,630 and $2,364,875, respectively. The provision to return true up adjustment primarily related to a depreciation true up on the 2020 return.

 

The significant components of the current income tax benefit at December 31, 2021 and 2020 were as follows:

 

		For the Years Ended
		December 31, 2021				December 31, 2020
Statutory rate applied to income (loss) before income taxes		$	(383,885	)		$	(1,068,482	)
Increase (decrease) in income taxes results from:
VIE income			112,958				451,876
Change in valuation allowance			(1,352,630	)			2,364,876
Provision to return true up			1,623,557				(1,748,270	)
Income tax expense (benefit)		$	-			$	-

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

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 Years Ended
		December 31, 2021				December 31, 2020
Income tax benefit at			21.00	%			21.00	%
Income tax benefit - State			3.62	%			3.63	%
VIE income			-7.25	%			-10.42	%
Change in valuation allowance			86.77	%			26.09	%
Provision to return true up			-104.14	%			-40.30	%
Income tax expense (benefit)			0.00	%			0.00	%

 

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 net deferred tax assets are as follows:

 

		For the Years Ended
		December 31, 2021				December 31, 2020
Deferred tax liabilities:
Depreciation		$	(2,431,793	)		$	(761,455	)
Amortization expense			(14,372	)			(269,076	)
Other			(584	)			(584	)
Deferred tax assets:
Operating loss carryforwards			4,251,516				4,188,512
Gross deferred tax assets			1,804,767				3,157,397
Valuation allowance			(1,804,767	)			(3,157,397	)
Net deferred income tax asset		$	-			$	-

 

NOTE 10 – SUBSEQUENT EVENTS

 

Additional Closings of Regulation A Offering

 

Subsequent to December 31, 2021, the Company sold an aggregate of 4,291 shares of Series C Preferred Stock in additional closings of the Regulation A offering described below for total gross proceeds of $4,289,440. After deducting a placement fee, we received net proceeds of approximately $4,004,109.

 

Warrenville Purchase and Sale Agreement

 

On November 11, 2021, MHP Pursuits LLC entered into a purchase and sale agreement with R&S Properties, LLC for the purchase of a manufactured housing community located in Warrenville, South Carolina consisting of 85 lots and 61 homes on approximately 45 acres for a total purchase price of $3,050,000. On March 9, 2022, the agreement was amended to extend the closing date to March 31, 2022. As of the date of this report, acquisition of this community has not yet occurred.

 

Spaulding Purchase and Sale Agreement

 

On January 19, 2022, MHP Pursuits LLC entered into a purchase and sale agreement with Spaulding Enterprises, Inc. for the purchase of a manufactured housing community located in Brunswick, Georgia consisting of 72 sites and 28 homes on approximately 17 acres for a total purchase price of $2,000,000. As of the date of this report, acquisition of this community has not yet occurred.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

Sunnyland Acquisition

 

On November 3, 2021, MHP Pursuits LLC entered into a purchase and sale agreement with Billie Jean Faust for the purchase of a manufactured housing community located in Byron, Georgia consisting of 73 sites on approximately 18.57 acres and an adjacent parcel of undeveloped land containing 15.09 acres for a total purchase price of $2,200,000. On January 27, 2022, MHP Pursuits LLC assigned its rights and obligations in the purchase agreement to Sunnyland MHP LLC, an entity wholly owned by the Company, and Gvest Sunnyland Homes LLC, an entity wholly owned by Gvest Finance LLC, pursuant to an assignment of purchase and sale agreement. On January 31, 2022, closing of the purchase agreement was completed and Sunnyland MHP LLC purchased the land and land improvements, and Gvest Sunnyland Homes LLC purchased the buildings. Proforma financial information for Sunnyland is included in the unaudited proforma combined results of operations in Note 5.

 

In connection with the closing of the property, on January 31, 2022, Sunnyland MHP LLC entered into a loan agreement with Vanderbilt Mortgage and Finance, Inc. for a loan in the principal amount of $1,760,000 and issued a promissory note to the lender for the same amount.

 

Interest on the disbursed and unpaid principal balance accrues as follows: (a) from the date funds are first disbursed at a rate of 5.37% per annum, interest only for the first thirty-six months, and (b) on February 10, 2025, interest on the disbursed and unpaid principal balance accrues at a rate 5.21% per annum until maturity. Interest is calculated on the basis of a 360-day year and the actual number of calendar days elapsed. Payments began on March 10, 2022 and continue the 10^th of every month until maturity on February 10, 2027. Sunnyland MHP LLC may prepay the note in part or in full at any time if it pays a prepayment premium calculated in accordance with the loan agreement.

 

The note is secured by a first priority security interest in the property and is guaranteed by Raymond M. Gee. The loan agreement and note contain customary financial and other covenants and events of default for a loan of its type.

 

Clyde Purchase and Sale Agreement

 

On February 10, 2022, MHP Pursuits LLC entered into a purchase and sale agreement with Harold and Brenda Allen for the purchase of a manufactured housing community located in Clyde, North Carolina, a part of the Asheville Metropolitan Statistical Area, consisting of 51 sites and 51 homes on approximately 9 acres for a total purchase price of $3,050,000. As of the date of this report, acquisition of this community has not yet occurred.

 

Solid Rock Purchase and Sale Agreement

 

On February 25, 2022, MHP Pursuits LLC entered into a purchase and sale agreement with K10 Enterprises LLC for the purchase of a manufactured housing community located in Leesville, South Carolina, consisting of 39 sites and homes on approximately 11 acres for a total purchase price of $1,700,000. As of the date of this report, acquisition of this community has not yet occurred.

 

Charlotte 3 Park Note Repayment

 

On February 28, 2022, the Company borrowed $700,000 from Gvest Real Estate Capital, LLC, increasing the outstanding balance on the revolving promissory note described above. On March 1, 2022, proceeds from the revolving promissory note were used to repay the Charlotte 3 Park MHP LLC $1,500,000 note payable upon its maturity.