Preliminary Offering Circular, Dated May 9, 2019
AN OFFERING STATEMENT PURSUANT TO REGULATION A RELATING TO THESE
SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. INFORMATION CONTAINED IN THIS PRELIMINARY
OFFERING CIRCULAR IS SUBJECT TO COMPLETION OR AMENDMENT. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED BEFORE
THE OFFERING STATEMENT FILED WITH THE COMMISSION IS
QUALIFIED. THIS PRELIMINARY OFFERING CIRCULAR SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
NOR MAY THERE BE ANY SALES OF THESE SECURITIES IN ANY STATE IN
WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL BEFORE
REGISTRATION OR QUALIFICATION UNDER THE LAWS OF ANY SUCH
STATE. WE MAY ELECT TO SATISFY OUR OBLIGATION TO DELIVER
A FINAL OFFERING CIRCULAR BY SENDING YOU A NOTICE WITHIN TWO
BUSINESS DAYS AFTER THE COMPLETION OF OUR SALE TO YOU THAT CONTAINS
THE URL WHERE THE OFFERING CIRCULAR WAS FILED MAY BE
OBTAINED.
Manufactured Housing Properties Inc.
136 Main Street
Pineville, NC 28134
(980) 273-1702; www.mhproperties.com
UP TO 1,000,000 SHARES OF
SERIES B REDEEMABLE PREFERRED STOCK
Manufactured
Housing Properties Inc. (which we
refer to as “our company,” “we,”
“our” and “us”), is offering up to
1,000,000 shares of Series B Cumulative Redeemable Preferred Stock,
which we refer to as the Series B Preferred Stock, at an offering
price of $10.00 per share, for a maximum offering amount of
$10,000,000.
The
Series B Preferred Stock being offered will rank, as to dividend
rights and rights upon our liquidation, dissolution, or winding up,
senior to our Common Stock and
pari passu with our
Series A Cumulative Convertible
Preferred Stock, which we refer to as our Series A Preferred
Stock. Holders of our Series B
Preferred Stock will be entitled to receive cumulative dividends in
the amount of $0.067 per share each month; provided that upon an
event of default (generally defined as our failure to pay dividends
when due or to redeem shares when requested by a holder), such
amount shall be increased to $0.083 per month. The
liquidation preference for each share of our Series B Preferred
Stock is $10.00. Upon a liquidation, dissolution or winding up of
our company, holders of shares of our Series B Preferred Stock will
be entitled to receive the liquidation preference with respect to
their shares plus an amount equal to any accrued but unpaid
dividends (whether or not declared) to, but not including, the date
of payment with respect to such shares. Commencing on the fifth
anniversary of the initial closing of this offering and continuing
indefinitely thereafter, we shall have a right to call for
redemption the outstanding shares of our Series B Preferred Stock
at a call price equal to 150% of the original issue price of our
Series B Preferred Stock, and correspondingly, each holder of
shares of our Series B Preferred Stock shall have a right to put
the shares of Series B Preferred Stock held by such holder back to
us at a put price equal to 150% of the original issue purchase
price of such shares. The Series B Preferred Stock will have no
voting rights (except for certain matters) and are not convertible
into shares of our Common Stock. See
“Description of Securities” beginning on page
1 for additional details.
This
offering is being conducted on a “best efforts” basis
pursuant to Regulation A of Section 3(6) of the Securities Act of
1933, as amended, or the Securities Act, for Tier 2 offerings. This
offering will terminate at the earlier of: (1) the date at which
the maximum amount of offered Series B Preferred Stock has been
sold, (2) the date which is 180 days after this offering is
qualified by the U.S. Securities and Exchange Commission, or the
SEC, subject to an extension of up to an additional 180 days at the
discretion of our company and the underwriter, or (3) the date on
which this offering is earlier terminated by us in our sole
discretion.
Digital
Offering LLC, which we refer to as the underwriter, is the lead
underwriter for this offering. The underwriter is selling our
Series B Preferred Stock in this offering on a best efforts basis
and is not required to sell any specific number or dollar amount of
Series B Preferred Stock offered by this offering circular, but
will use its best efforts to sell such Series B Preferred Stock. 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 [ ],
or, in the case of investors who invest through Cambria Capital
LLC, or Cambria Capital, the My IPO platform, which is operated as
an unincorporated division of Cambria Capital, or other
broker-dealers, which we refer to as Other Broker-Dealers, that
clear through the same clearing firm (which we refer to as the
Clearing Firm) as Cambria Capital, proceeds will remain in the
investor’s own brokerage account with Cambria Capital. The My
IPO platform (available at www.myipo.com)
is an unincorporated division of Cambria Capital, a FINRA member
broker-dealer that is registered with the SEC and is an affiliate
of the underwriter. At a closing, the proceeds will be
distributed to us and the associated Series B Preferred Stock will
be issued to the investors. If there are no closings or if funds
remain in the escrow account upon termination of this offering
without any corresponding closing, the funds so deposited for this
offering will be promptly returned to investors, without deduction
and generally without interest, or, in the case of investors who
invest through Cambria Capital, the My IPO platform, or Other
Broker-Dealers, their funds will remain unrestricted in their own
investment account. See “Underwriting.”
|
To public in
this offering:
|
Number of Shares
of Series B Preferred Stock
|
Price to
public
|
Underwriting
commissions (1)
|
Proceeds to
issuer (2)
|
|
Per share:
|
n/a
|
$10.00
|
$0.70
|
$9.30
|
|
Total
Maximum:
|
1,000,000
|
$10,000,000
|
$700,000
|
$9,300,000
|
|
To
underwriter:
|
Number of Shares
of Common Stock
|
Price to
public
|
Underwriting
commissions
|
Proceeds to
issuer
|
|
Underwriter
warrants
|
(3)
|
n/a
|
n/a
|
n/a
|
|
Shares of Common
Stock underlying underwriter warrants
|
(3)
|
n/a
|
n/a
|
n/a
|
(1) This
table depicts broker-dealer commissions of 7% of the gross offering
proceeds. Please refer to the section captioned
“Underwriting” for additional information regarding
total underwriter compensation. In addition to commissions, we have
agreed to reimburse the underwriter for its reasonable
out-of-pocket expenses of up to $30,000.
(2) Before
deducting expenses of the offering, which are estimated to be
approximately $115,000. See the section captioned
“Underwriting” for details regarding the compensation
payable in connection with this offering. This amount represents
the proceeds of the offering to us, which will be used as set out
in the section captioned “Use of
Proceeds.”
(3) In
addition to the broker-dealer discounts and commissions included in
the above table, we have agreed to issue the underwriter
at each closing a warrant to purchase
a number of shares of Common Stock equal to 5% of the total amount
raised in such closing divided by $2.50, which is the price per
share at which shares of our Series A Preferred Stock are
convertible into Common Stock, at an exercise price of $10 per
share. The underwriter warrants will have a five-year term and
contain a standard cashless exercise provision. The underwriter
warrants will contain other customary terms and conditions,
including without limitation, provisions for piggy back
registration rights, and the underwriter warrants are being
registered under the offering statement of which this offering
circular is a part.
Our business and an investment in shares of our Series B Preferred
Stock involve significant risks. See “Risk Factors”
beginning on page 1 of
this offering circular to read about factors that you should
consider before making an investment decision. You should also
consider the risk factors described or referred to in any documents
incorporated by reference in this offering circular, before
investing in these securities.
We are an “emerging growth company” as defined in the
Jumpstart Our Business Startups Act, or the JOBS Act, and, as such,
may elect to comply with certain reduced reporting requirements for
this offering circular and future filings after this
offering.
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.
The
approximate date of commencement of proposed sale to the public is
[ ].
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, 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:
●
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 statement.
Potential
investors should not place undue reliance on any forward-looking
statements. Except as expressly required by the federal securities
laws, there is no undertaking to publicly update or revise any
forward-looking statements, whether as a result of new information,
future events, changed circumstances or any other reason. If we do
update one or more forward-looking statements, no inference should
be drawn that we will make additional updates with respect to those
or other forward-looking statements. Potential investors should not
make an investment decision based solely on our company’s
projections, estimates or expectations.
The
specific discussions herein about our company include financial
projections and future estimates and expectations about our
company’s business. The projections, estimates and
expectations are presented in this offering circular only as a
guide about future possibilities and do not represent actual
amounts or assured events. All the projections and estimates are
based exclusively on our company management’s own assessment
of its business, the industry in which it works and the economy at
large and other operational factors, including capital resources
and liquidity, financial condition, fulfillment of contracts and
opportunities. The actual results may differ significantly from the
projections.
TABLE OF CONTENTS
|
1
|
|
|
10
|
|
|
18
|
|
|
19
|
|
|
20
|
|
|
21
|
|
|
22
|
|
|
23
|
|
|
29
|
|
|
30
|
|
|
34
|
|
|
35
|
|
|
36
|
|
|
40
|
|
|
41
|
|
|
42
|
|
|
43
|
|
|
47
|
|
|
53
|
|
|
53
|
|
|
53
|
|
|
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 underwriter has not, authorized
anyone to provide you with any information other than that
contained in this offering circular. We are offering to sell, and
seeking offers to buy, the securities covered hereby only in
jurisdictions where offers and sales are permitted. The information
in this offering circular is accurate only as of the date of this
offering circular, regardless of the time of delivery of this
offering circular or any sale of the securities covered hereby. Our
business, financial condition, results of operations and prospects
may have changed since that date. We are not, and the underwriter
is not, making an offer of these securities in any jurisdiction
where the offer is not permitted.
For
investors outside the United States: We have not, and the
underwriter has not, taken any action that would permit this
offering or possession or distribution of this offering circular in
any jurisdiction where action for that purpose is required, other
than in the United States. Persons outside the United States who
come into possession of this offering circular must inform
themselves about, and observe any restrictions relating to, the
offering of the securities covered hereby or the distribution of
this offering circular outside the United States.
This
offering circular includes statistical and other industry and
market data that we obtained from industry publications and
research, surveys and studies conducted by third parties. Industry
publications and third-party research, surveys and studies
generally indicate that their information has been obtained from
sources believed to be reliable, although they do not guarantee the
accuracy or completeness of such information. We believe that the
data obtained from these industry publications and third-party
research, surveys and studies are reliable. We are ultimately
responsible for all disclosure included in this offering
circular.
We
further note that the representations, warranties and covenants
made by us in any agreement that is filed as an exhibit to the
offering statement of which this offering circular is a part were
made solely for the benefit of the parties to such agreement,
including, in some cases, for the purpose of allocating risk among
the parties to such agreements, and should not be deemed to be a
representation, warranty or covenant to you. Moreover, such
representations, warranties or covenants were accurate only as of
the date when made. Accordingly, such representations, warranties
and covenants should not be relied on as accurately representing
the current state of our affairs.
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO
GIVE ANY INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS
OFFERING CIRCULAR. YOU SHOULD NOT RELY ON ANY UNAUTHORIZED
INFORMATION. THIS OFFEIRNG CIRCULAR IS NOT AN OFFER TO SELL OR BUY
ANY SECURITIES IN ANY STATE OR OTHER JURISDICTION IN WHICH IT IS
UNLAWFUL. THE INFORMATION IN THIS OFFERING CIRCULAR IS CURRENT AS
OF THE DATE ON THE COVER. YOU SHOULD RELY ONLY ON THE INFORMATION
CONTAINED IN THIS OFFERING CIRCULAR.
|
|
SUMMARY
This summary highlights selected information contained elsewhere in
this offering circular. This summary is not complete and does not
contain all the information that you should consider before
deciding whether to invest in our securities. You should carefully
read the entire offering circular, including the risks associated
with an investment in our company discussed in the “Risk
Factors” section of this offering circular, before making an
investment decision.
Our Company
Overview
We are
a self-administered,
self-managed, vertically integrated owner and operator of
manufactured housing communities. We earn income from leasing
manufactured home sites to tenants who own their own manufactured
home and the rental of company-owned manufactured homes to
residents of the communities.
We own
and operate eight manufactured housing communities containing
approximately 613 developed sites, and a total of 98 company-owned
manufactured homes, including:
●
Pecan
Grove – a 81 lot, all-age
community situated on 10.71 acres and located in Charlotte, North
Carolina.
●
Butternut
– a 59 lot, all-age community
situated on 13.13 acres and located in Corryton, Tennessee, a
suburb of Knoxville, Tennessee.
●
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.
●
Holly
Faye – a 37 lot all-age
community situated on 8.01 acres and located in Gastonia, North
Carolina, a suburb of Charlotte North Carolina.
●
Lakeview
– a 97 lot all-age community
situated on 17.26 acres in Spartanburg, South
Carolina.
●
Chatham
Pines – a 49 lot all-age
community situated on 23.57 acres and located in Chapel Hill, North
Carolina.
●
Maple
Hills – a 73 lot all-age
community situated on 21.20 acres and located in Mills River, North
Carolina, which is part of the Asheville, North Carolina,
Metropolitan Statistical Area.
●
Hunt Club
Forest – a 79 lot all-age
community situated on 13.02 acres and located in the Columbia,
South Carolina metro area.
●
B&D
– a 97 lot all-age community
situated on 17.75 acres and located in Chester, South
Carolina.
The Manufactured Housing Community Industry
Manufactured housing communities are residential developments
designed and improved for the placement of detached, single-family
manufactured homes that are produced off-site and installed and set
on residential sites within the community. The owner of a
manufactured home leases the site on which it is located and the
lessee of a manufactured home leases both the home and site on
which the home is located.
We believe that manufactured housing is accepted by the public as a
viable and economically attractive alternative to common
stick-built single-family housing. We believe that the
affordability of the modern manufactured home makes it a very
attractive housing alternative. Manufactured housing is one
of the only non-subsidized affordable housing options in the U.S.
Demand for housing affordability continues to increase, but supply
remains static, as there are virtually no new manufactured housing
communities being developed. We are committed to becoming an
industry leader in providing this affordable housing option and an
improved level of service to our residents, while producing an
attractive and stable risk adjusted return to our
investors.
A
manufactured housing community is a land-lease community designed
and improved with home sites for the placement of manufactured
homes and includes related improvements and amenities. Each
homeowner in a manufactured housing community leases from the
community a site on which a home is located. The manufactured
housing community owner owns the underlying land, utility
connections, streets, lighting, driveways, common area amenities,
and other capital improvements and is responsible for enforcement
of community guidelines and maintenance of the community.
Generally, each homeowner is responsible for the maintenance of his
or her home and upkeep of his or her leased site. In some cases,
customers may rent homes with the community owner’s
maintaining ownership and responsibility for the maintenance and
upkeep of the home. This option provides flexibility for customers
seeking a more affordable, shorter-term housing option and enables
the community owner to meet a broader demand for housing and
improve occupancy and cash flow.
|
|
|
|
Our Competition
There
are numerous private companies, but only three publicly-traded
real estate investment trusts, or REITs, that compete in the
manufactured housing industry. Many of the private
companies and one of the REITs, UMH Properties, Inc., may compete
with us for acquisitions of manufactured housing communities.
Many of these companies have larger
operations and greater financial resources than we do. The
number of competitors, however, is increasing as new entrants
discover the benefits of the manufactured housing asset
class. We believe that due to the fragmented nature of
ownership within the manufactured housing sector, the level of
competition is less than that in other commercial real estate
sectors.
Our Competitive Strengths
We
believe that the following competitive strengths enable us to
compete effectively:
●
Deal Sourcing. Our
deal sourcing consists of marketed deals, pocket listings, and off
market deals. Marketed deals are properties that are listed
with a broker who exposes the property to the largest pool of
buyers possible. Pocket listings are properties that are presented
by brokers to a limited pool of buyers. Off market deals are ones
that are not actively marketed. As a result of our network of
relationships in our industry, only two properties in our portfolio
were marketed deals, the rest were off-market or pocket listings.
●
Centralized
Operations. We have centralized many operational tasks,
including accounting, marketing, lease administration, and accounts
payable. The use of professional staff and technology allows
us to scale efficiently and operate properties profitably by
reducing tasks otherwise completed at the property
level.
●
Deal Size. We
believe that our small capitalization size with non-institutional
deals of less than 150 sites are accretive to our balance sheet.
These sized properties typically have less bidders at lower
prices than larger properties. We can profitably operate
these smaller properties through our centralized
operations.
●
Creating Value. Our
underwriting expertise enables us to identify acquisition prospects
to provide attractive risk adjusted returns. Our operational
team has the experience, skill and resources to create this value
through physical and/or operational property
improvements.
Our Growth Strategy
Our
growth strategy is to acquire both stable and undervalued and
underperforming manufactured housing properties that have current
income. We believe that we can enhance value through our
professional asset and property management. Our property management
services are mainly comprised of tenant contracts and leasing,
marketing vacancies, community maintenance, enforcement of
community policies, establishment and collection rent, and payment
of vendors. Our lot and manufactured home leases are generally for
one month and auto renew monthly for an additional
month.
Our
investment mission on behalf of our stockholders is to deliver an
attractive risk-adjusted return with a focus on value creation,
capital preservation, and growth. In our ongoing search for
acquisition opportunities we target and evaluate manufactured
housing communities nationwide.
We may invest in improved and unimproved real property and may
develop unimproved real property. These property investments may be
located throughout the United States, but to date we have
concentrated in the Southeast portion of the United States. We are
focused on acquiring communities with significant upside potential
and leveraging our expertise to build long-term capital
appreciation.
We are
one of four public companies in the manufactured housing sector,
but we are the only one not organized as a REIT, thereby giving us
flexibility to focus on growth through reinvestment of income and
employing higher leverage upon acquisition than the REITs
traditionally utilize due to market held norms around 50-60%. This
can give us a competitive advantage when bidding for assets.
Additionally, due to our small size, non-institutional sized deals
of less than 150 sites, which have less bidders and lower prices,
are accretive to our balance sheet.
|
|
|
|
Our Risks and Challenges
Our prospects should be considered in light of the risks,
uncertainties, expenses and difficulties frequently encountered by
similar companies. Our ability to realize our business objectives
and execute our strategies is subject to risks and uncertainties,
including, among others, the following:
●
General
economic conditions and the concentration of our properties in
North Carolina, South Carolina, and Tennessee may affect our
ability to generate sufficient revenue.
●
We
may be unable to compete with our larger competitors, which may in
turn adversely affect our profitability.
●
Costs
associated with taxes and regulatory compliance may reduce our
revenue.
●
Rent
control legislation may harm our ability to increase
rents.
●
Environmental
liabilities could affect our profitability.
●
Losses
in excess of our insurance coverage or uninsured losses could
adversely affect our cash flow.
●
We
may not be able to integrate or finance our acquisitions and our
acquisitions may not perform as expected.
●
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
may be unable to sell properties when appropriate because real
estate investments are illiquid.
●
We
face risks generally associated with our debt.
●
We
face risks related to “balloon payments” and
re-financings.
●
Covenants
in our credit agreements could limit our flexibility and adversely
affect our financial condition.
●
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.
●
We
may not be able to obtain adequate cash to fund our
business.
●
The
report of our independent registered public accounting firm
expresses substantial doubt about our ability to continue as a
going concern.
●
We
have one stockholder that can single-handedly control our
company.
●
There is no present
market for the Series B Preferred Stock and we have arbitrarily set
the price.
●
We
cannot assure you that we will be able to pay
dividends.
●
You will not have a
vote or influence on the management of our company.
In addition, we face other risks and uncertainties that may
materially affect our business prospects, financial condition, and
results of operations. You should consider the risks discussed in
“Risk Factors” and elsewhere in this offering circular
before investing in our Series B Preferred Stock.
Recent Developments
During the first quarter of 2019, we entered into agreements to
acquire the assets of three manufactured housing communities
totaling approximately $10,715,000.
In April 2019, we completed the first acquisition of the Hunt Club
Forest community described above for a purchase price of
$2,211,570.
In May 2019, we completed the second acquisition of the B&D
community described above for a purchase price of
$2,500,000.
We expect to close the remaining acquisition in the second quarter
of 2019.
|
|
|
|
Emerging Growth Company
We
qualify as an “emerging growth company” under the JOBS
Act. As a result, we are permitted to, and intend to, rely on
exemptions from certain disclosure requirements. For so long as we
are an emerging growth company, we
will not be required to:
●
have an auditor
report on our internal controls over financial reporting pursuant
to Section 404(b) of the Sarbanes-Oxley Act;
●
comply with any
requirement that may be adopted by the Public Company Accounting
Oversight board regarding mandatory audit firm rotation or a
supplement to the auditor’s report providing additional
information about the audit and the financial statements (i.e., an
auditor discussion and analysis);
●
submit certain
executive compensation matters to shareholder advisory votes, such
as “say-on-pay” and “say-on-frequency;”
and
●
disclose certain
executive compensation related items such as the correlation
between executive compensation and performance and comparisons of
the chief executive officer’s compensation to median employee
compensation.
In addition, Section 107 of the JOBS Act also provides that an
emerging growth company can take advantage of the extended
transition period provided in Section 7(a)(2)(B) of the Securities
Act for complying with new or revised accounting standards. In
other words, an emerging growth company can delay the adoption of
certain accounting standards until those standards would otherwise
apply to private companies. We have elected to take advantage of
the benefits of this extended transition period. Our financial
statements may therefore not be comparable to those of companies
that comply with such new or revised accounting
standards.
We will remain an emerging growth company for up to five years, or
until the earliest of (i) the last day of the first fiscal year in
which our total annual gross revenues exceed $1 billion, (ii) the
date that we become a large accelerated filer as defined in Rule
12b-2 under the Securities Exchange Act of 1934, as amended, or the
Exchange Act, which would occur if the market value of our Common
Stock that is held by non-affiliates exceeds $700 million as of the
last business day of our most recently completed second fiscal
quarter or (iii) the date on which we have issued more than $1
billion in non-convertible debt during the preceding three year
period.
Corporate Information
Our
principal executive offices are located at 136 Main Street,
Pineville, NC 28134 and our telephone number is (980) 273-1702. We
maintain a website at www.mhproperties.com.
Information available on our website is not incorporated by
reference in and is not deemed a part of this offering
circular.
|
|
|
|
The Offering
|
|
||
|
|
Securities being offered:
|
|
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.
|
|
|
|
Terms of Series B Preferred Stock:
|
|
●
Ranking - The Series B Preferred Stock
ranks, as to dividend rights and rights upon our liquidation,
dissolution, or winding up, senior to our Common Stock and
pari passu with our Series
A Preferred Stock. The terms of the Series B Preferred Stock will
not limit our ability to (i) incur indebtedness or (ii) issue
additional equity securities that are equal or junior in rank to
the shares of our Series B Preferred Stock as to distribution
rights and rights upon our liquidation, dissolution or winding
up.
●
Dividend Rate and Payment
Dates - Dividends on the
Series B Preferred Stock being offered will be cumulative and
payable monthly in arrears to all holders of record on the
applicable record date. Holders of our Series B Preferred Stock
will be entitled to receive cumulative dividends in the amount of
$0.067 per share each month, which is equivalent to the annual rate
of 8% of the $10.00 liquidation preference per share described
below; provided that upon an event of
default (generally defined as our failure to pay dividends when due
or to redeem shares when requested by a holder), such amount shall
be increased to $0.083 per month, which is equivalent to the
annual rate of 10% of the $10.00 liquidation preference per share
described below. Dividends on shares of our Series B Preferred
Stock will continue to accrue even if any of our agreements
prohibit the current payment of dividends or we do not have
earnings.
●
Liquidation
Preference - The liquidation preference for each share of
our Series B Preferred Stock is $10.00. Upon a liquidation,
dissolution or winding up of our company, holders of shares of our
Series B Preferred Stock will be entitled to receive the
liquidation preference with respect to their shares plus an amount
equal to any accrued but unpaid dividends (whether or not declared)
to, but not including, the date of payment with respect to such
shares.
●
Company Call and
Stockholder Put Options - Commencing on the fifth
anniversary of the initial closing of this offering and continuing
indefinitely thereafter, we shall have a right to call for
redemption the outstanding shares of our Series B Preferred Stock
at a call price equal to 150% of the original issue price of our
Series B Preferred Stock, and correspondingly, each holder of
shares of our Series B Preferred Stock shall have a right to put
the shares of Series B Preferred Stock held by such holder back to
us at a put price equal to 150% of the original issue purchase
price of such shares.
●
Further
Issuances - The shares of our Series B
Preferred Stock have no maturity date, and we will not be required
to redeem shares of our Series B Preferred Stock at any time except
as otherwise described above under the caption “Company Call
and Stockholder Put Options.” Accordingly, the shares of our
Series B Preferred Stock will remain outstanding indefinitely,
unless we decide, at our option, to exercise our call right, the
holder of the Series B Preferred Stock exercises his put
right.
●
Voting Rights - We
may not authorize or issue any class or series of equity securities
ranking senior to the Series B Preferred Stock as to dividends or
distributions upon liquidation (including securities convertible
into or exchangeable for any such senior securities) or amend our
articles of incorporation (whether by merger, consolidation, or
otherwise) to materially and adversely change the terms of the
Series B Preferred Stock without the affirmative vote of at least
two-thirds of the votes entitled to be cast on such matter by
holders of our outstanding shares of Series B Preferred Stock,
voting together as a class. Otherwise, holders of the shares of our
Series B Preferred Stock will not have any voting
rights.
●
No Conversion Right
- The Series B Preferred Stock is not convertible into shares of
our Common Stock.
|
|
|
|
|
|
Procedures for Subscribing through Cambria Capital, the My IPO
Platform or Other Broker-Dealers.
Cambria Capital is an SEC registered broker-dealer and member of
FINRA and SIPC. Cambria Capital has been appointed by us and
Digital Offering, our managing broker-dealer, as a soliciting
dealer for this offering. Cambria Capital operates the My IPO
platform as a separate unincorporated business division. Cambria
Capital’s clearing firm, who we refer to as the Clearing
Firm, is an SEC registered broker-dealer and member of FINRA and
SIPC and is authorized to act as a clearing broker-dealer. Cambria
Capital and its My IPO division clear through the Clearing Firm as
do other broker-dealers who may participate in this offering. We
refer to such other broker-dealers that clear through the Clearing
Firm and who may participate in this offering as Other
Broker-Dealers.
Prospective investors investing through Cambria Capital, My IPO or
Other Broker-Dealers will acquire shares of our Series B Preferred
Stock through book-entry order by opening an account with Cambria
Capital, My IPO, or an Other Broker-Dealer, or by utilizing an
existing Cambria Capital account, My IPO account or account with an
Other Broker-Dealer. In each such case, the account will be an
account owned by the investor and held at the Clearing Firm, as the
clearing firm for the exclusive benefit of such investor. The
investor will also be required to complete and submit a
subscription agreement. Subscriptions for shares of Series B
Preferred Stock acquired through an account at Cambria Capital, My
IPO or an Other Broker-Dealer are all processed
online.
The process for investing through Cambria Capital, My IPO or
through Other Broker-Dealers will work in the following manner. The
Clearing Firm will enter into a custody agreement with us pursuant
to which we will issue uncertificated securities to be held at the
Clearing Firm, and the shares of Series B Preferred stock held at
the Clearing Firm will be reflected as an omnibus position on our
records and the transfer agent's records in the name of the
Clearing Firm, for the exclusive benefit of customers. We will open
a brokerage account with the Clearing Firm and the Clearing Firm
will hold the shares of Series B Preferred Stock to be sold in the
offering in book-entry form in our company’s Clearing Firm
account. When the shares of Series B Preferred stock are sold, the
Clearing Firm maintains a record of each investor's ownership
interest in those securities. Under an SEC no-action letter
provided to the Clearing Firm in January 2015, the Clearing Firm is
allowed to treat the issuer as a good control location pursuant to
Exchange Act Rule 15c3-3(c)(7) under these circumstances. The
customer's funds will not be transferred into a separate account
awaiting the initial closing, or any other closing, but will remain
in the customer's account at the Clearing Firm pending instructions
to release funds to us if all conditions necessary for a closing
are met.
In order to subscribe to purchase the shares of Series B Preferred
Stock through Cambria Capital, My IPO or through an Other
Broker-Dealer, a prospective investor must electronically complete
and execute a subscription agreement and provide payment using the
procedures indicated below. When submitting the subscription
request through Cambria Capital, My IPO or an Other Broker-Dealer,
a prospective investor is required to agree to various terms and
conditions by checking boxes and to review and electronically sign
any necessary documents. We will not accept any subscription
agreements prior to the SEC’s qualification of this
offering.
After any contingencies of the offering or any particular closing
are met, we will notify the Clearing Firm when we wish to conduct a
closing. The Clearing Firm executes the closing by transferring
each investor's funds from their Cambria Capital, My IPO or Other
Broker-Dealer accounts to our Clearing Firm account and
transferring the correct number of book-entry shares to each
investor’s account from our Clearing Firm account. The shares
are then reflected in the investor's online account and shown on
the investor's Cambria Capital, My IPO or Other Broker-Dealer
account statements. Cambria Capital, My IPO and Other
Broker-Dealers will also send trade confirmations individually to
the investors.
|
|
|
|
|
|
|
|
|
|
|
|
Other Subscription Procedures
Investors not purchasing through Cambria Capital, My IPO or an
Other Broker-Dealer that clears through the Clearing Firm must
complete and execute a subscription agreement for a specific number
of shares and pay for the shares at the time of the subscription.
Completed subscription agreements will be sent by your
broker-dealer or registered investment advisor, as applicable, to
Digital Offering at the address set forth in the subscription
agreement. Subscription payments should be delivered directly to
the escrow agent. If you send your subscription payment to your
broker or registered investment advisor, then your broker or
registered investment advisor will immediately forward your
subscription payment to the escrow agent. Subscriptions will be
effective only upon our acceptance, and we reserve the right to
reject any subscription in whole or in part.
|
|
|
|
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.
|
|
|
|
Current symbol:
|
|
Pink Open Market: 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
1 before
deciding to invest in our securities.
|
|
|
|
|
|
|
|
|
|
Summary Financial Data
The
following table summarizes selected financial data regarding our
business and should be read in conjunction with our financial
statements and related notes contained elsewhere in this offering
circular and the information under “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.”
The
summary consolidated financial data as of December 31, 2018 and
2017 and for the years then ended for our company are derived from
our audited consolidated financial statements included elsewhere in
this offering circular. Such audited consolidated financial
statements are prepared and presented in accordance with generally
accepted accounting principles in the United States, or GAAP. The
summary financial data information is only a summary and should be
read in conjunction with the historical financial statements and
related notes contained elsewhere herein. The financial statements
contained elsewhere fully represent our financial condition and
operations; however, they are not indicative of our future
performance.
|
|
RISK
FACTORS
An investment in our Series B Preferred Stock involves a high
degree of risk. You should carefully read and consider all of the
risks described below, together with all of the other information
contained or referred to in this offering circular, before making
an investment decision with respect to our securities. If any of
the following events occur, our financial condition, business and
results of operations (including cash flows) may be materially
adversely affected. In that event, the value of your Series B
Preferred Stock could decline, and you could lose all or part of
your investment.
Real Estate Industry Risks
General economic conditions and the concentration of our properties
in 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 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 or reletting were significantly lower than expected rates,
then our business and results of operations could be adversely
affected. In addition, certain expenditures associated with each
property (such as real estate taxes and maintenance costs)
generally are not reduced when circumstances cause a reduction in
income from the property.
We 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.
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.
Our investments are concentrated in the manufactured
housing/residential sector and our business would be adversely
affected by an economic downturn in that sector.
Our investments in real estate assets are concentrated in the
manufactured housing/residential sector. This concentration may
expose us to the risk of economic downturns.
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 seven manufactured housing communities we currently operate,
four are on well and septic systems. At these locations, we are
subject to compliance with monthly, quarterly and yearly testing
for contaminants as outlined by each state’s Department of
Environmental Protection Agencies. Currently, we are not subject to
radon or asbestos monitoring requirements.
Additionally, in connection with the management of the properties
or upon acquisition or financing of a property, we authorize the
preparation of Phase I or similar environmental reports (which
involves general inspections without soil sampling or ground water
analysis) completed by independent environmental consultants. Based
on such environmental reports and our ongoing review of its
properties, as of the date of this offering circular, we are not
aware of any environmental condition with respect to any of our
properties that we believe would be reasonably likely to have a
material adverse effect on our financial condition or results of
operations. These reports, however, cannot reflect conditions
arising after the studies were completed, and no assurances can be
given that existing environmental studies reveal all environmental
liabilities, that any prior owner or operator of a property or
neighboring owner or operator did not create any material
environmental condition not known to us, or that a material
environmental condition does not otherwise exist with respect to
any one property or more than one property.
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.
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.
Financing Risks
We face risks generally associated with our debt.
We finance a portion of our investments in properties through debt.
As of the December 31, 2018, our total long-term indebtedness for
borrowed money was $12,432,026. 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 will have significant outstanding
principal balances on their maturity dates, commonly known as
“balloon payments.” As of December 31, 2018, our total
future minimum principal payments were $12,731,292. 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.
Other Risks
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.
The report of our independent registered public accounting firm
expresses substantial doubt about our ability to continue as a
going concern.
Our auditors have indicated in their report on our financial
statements for the fiscal year ended December 31, 2018 that
conditions exist that raise substantial doubt about our ability to
continue as a going concern due to our recurring losses from
operations and substantial decline in our working capital. A
“going concern” opinion could impair our ability to
finance our operations through the sale of equity, incurring debt,
or other financing alternatives. Our ability to continue as a going
concern will depend upon the availability and terms of future
funding, and continued growth in operating activities.
Disruptions in financial markets could affect our ability to obtain
financing on reasonable terms and have other adverse effects on us
and the market price of our securities.
Since 2008, the United States stock and credit markets have
experienced significant price volatility, dislocations and
liquidity disruptions, which have caused market prices of many
stocks and debt securities to fluctuate substantially and the
spreads on prospective debt financings to widen considerably. These
circumstances have materially impacted liquidity in the financial
markets, making terms for certain financings less attractive, and
in certain cases have resulted in the unavailability of certain
types of financing. War in certain Middle Eastern countries, the
slowing of the Chinese economy and the recent decline in petroleum
prices, among other factors, have added to the uncertainty in the
capital markets. Uncertainty in the stock and credit markets may
negatively impact our ability to access additional financing at
reasonable terms, which may negatively affect our ability to
acquire properties and otherwise pursue our investment strategy. A
prolonged downturn in the stock or credit markets may cause us to
seek alternative sources of potentially less attractive financing
and may require us to adjust our investment strategy accordingly.
These types of events in the stock and credit markets may make it
more difficult or costly for us to raise capital through the
issuance of the Common Stock, preferred stock or debt securities.
The potential disruptions in the financial markets may have a
material adverse effect on the market value of our securities, and
the return we receive on our properties and investments, as well as
other unknown adverse effects on us or the economy in
general.
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, the Chairman of our board of
directors and our president and chief executive officer. At
present, Gvest Real Estate Capital owns 67.04% 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 choses 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 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 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 may amend our business policies without stockholder
approval.
Our board of directors determines our growth, investment,
financing, capitalization, borrowing, operations and distributions
policies. Although our board of directors has no intention at
present to change or reverse any of these policies, they may be
amended or revised without notice to stockholders. Accordingly,
stockholders may not have control over changes in our policies. We
cannot assure you that changes in our policies will serve fully the
interests of all stockholders.
Future terrorist attacks and military conflicts could have a
material adverse effect on general economic conditions, consumer
confidence and market liquidity.
Among other things, it is possible that interest rates may be
affected by these events. An increase in interest rates may
increase our costs of borrowing, leading to a reduction in our
earnings. Terrorist acts affecting our properties could also result
in significant damages to, or loss of, our properties.
Additionally, we may be unable to obtain adequate insurance
coverage on acceptable economic terms for losses resulting from
acts of terrorism. Our lenders may require that we carry terrorism
insurance even if we do not believe that this insurance is
necessary or cost effective. Should an act of terrorism result in
an uninsured loss or a loss in excess of insured limits, we could
lose capital invested in a property, as well as the anticipated
future revenues from a property, while remaining obligated for any
mortgage indebtedness or other financial obligations related to the
property. Any loss of these types would adversely affect our
financial condition.
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.
Geographic concentration of our current property
portfolio.
The properties we own at present are located in North Carolina,
South Carolina, and Tennessee.
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, our 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, we are exposed to the risks of downturns in the
local economy or other local real estate market conditions which
could adversely affect occupancy rates, rental rates, and property
values in these markets.
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.
Risks Related to this Offering and Ownership of Our Series B
Preferred Stock
There is no present market for the Series B Preferred Stock and we
have arbitrarily set the price.
We have
arbitrarily set the price of the Series B Preferred Stock with
reference to the general status of the securities market and other
relevant factors. The offering price for the Series B Preferred
Stock should not be considered an indication of the actual value of
such securities and is not based on our net worth or prior
earnings. Although our Common Stock is quoted on the OTC Pink
marketplace, our Series B Preferred Stock will not be eligible for
quotation on the over-the-counter market. Accordingly, it will be
very difficult for you to liquidate your shares of Series B
Preferred Stock and we cannot assure you that the such securities
could be resold by you at the price you paid for them or at any
other price.
We cannot assure you that we will be able to pay
dividends.
Our ability to pay dividends on our Series B Preferred Stock is
dependent on our ability to operate profitably and to generate cash
from our operations and the operations of our subsidiaries. We
cannot guarantee that we will be able to pay dividends as required
by the terms of our Series B Preferred Stock.
We may issue additional debt and equity securities, which are
senior to our Series B Preferred Stock as to distributions and in
liquidation, which could materially adversely affect the value of
the Series B Preferred Stock.
In the
future, we may attempt to increase our capital resources by
entering into additional debt or debt-like financing that is
secured by all or up to all of our assets, or issuing debt or
equity securities, which could include issuances of commercial
paper, medium-term notes, senior notes, subordinated notes or
shares. In the event of our liquidation, our lenders and holders of
our debt securities would receive a distribution of our available
assets before distributions to our shareholders. Any preferred
securities, if issued by our company, may have a preference with
respect to distributions and upon liquidation that is senior to the
preference of the Series B Preferred Stock, which could further
limit our ability to make distributions to our shareholders.
Because our decision to incur debt and issue securities in our
future offerings will depend on market conditions and other factors
beyond our control, we cannot predict or estimate the amount,
timing or nature of our future offerings and debt
financing.
Further,
market conditions could require us to accept less favorable terms
for the issuance of our securities in the future. Thus, you will
bear the risk of our future offerings reducing the value of your
Series B Preferred Stock. In addition, we can change our leverage
strategy from time to time without approval of holders of our
preferred stock or Common Stock, which could materially adversely
affect the value of our preferred stock, including the Series B
Preferred Stock.
You will not have a vote or influence on the management of our
company.
All
decisions with respect to the management of our company will be
made exclusively by the officers, directors, managers or employees
of our company. You, as an investor in our Series B Preferred
Stock, have very limited voting rights and will have no ability to
vote on issues of company management and will not have the right or
power to take part in the management of the company and will not be
represented on the board of directors of our company. Accordingly,
no person should purchase our Series B Preferred Stock unless he or
she is willing to entrust all aspects of management to our
company.
USE OF
PROCEEDS
We
estimate that we will receive net proceeds of approximately
$9,185,000 if the maximum number of shares of Series B Preferred
Stock being offered are sold after deducting the estimated
underwriting discount and estimated offering expenses payable by
us.
The
following table below sets forth the uses of proceeds assuming the
sale of 25%, 50%, 75% and 100% of the securities offered for sale
in this offering by us. For further discussion, see the section
entitled “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.”
As of
the date of this offering circular and except as explicitly set
forth herein, we cannot specify with certainty all of the
particular uses of the net proceeds from this offering. Pending use
of the net proceeds from this offering as described above, we may
invest the net proceeds in short-term interest-bearing investment
grade instruments.
The
expected use of net proceeds from this offering represents our
intentions based upon our current plans and business conditions,
which could change in the future as our plans and business
conditions evolve and change. The amounts and timing of our actual
expenditures, specifically with respect to working capital, may
vary significantly depending on numerous factors. As a result, our
management will retain broad discretion over the allocation of the
net proceeds from this offering.
The
above description of the anticipated use of proceeds is not binding
on us and is merely description of our current intentions.
We reserve the right to change the
above use of proceeds if management believes it is in the best
interests of our company.
DETERMINATION OF OFFERING
PRICE
There is no trading market for our Series B Preferred Stock and we
do not expect any trading market to develop for the Series B
Preferred Stock. The Series B Preferred Stock was sold at par and
it is expected that after the fifth anniversary of the initial
closing of this offering we will either exercise our right to call
the Series B Preferred Stock for redemption at a call price equal
to 150% of par (i.e., of the original issue price of the Series B
Preferred Stock) or that holders of the Series B Preferred Stock
will exercise their right to put their shares of Series B Preferred
Stock to us at 150% of par. Accordingly, the $10.00 price per share
of Series B Preferred Stock is arbitrary and represents the amount
of investment made by an investor for purposes of determining the
redemption price upon a put or call (i.e., the redemption price
will be 150% of the purchase price or $15.00 per share of Series B
Preferred Stock).
DIVIDEND
POLICY
Dividends on the Series B Preferred Stock being offered will be
cumulative and payable monthly in arrears to all holders of record
on the applicable record date. Holders of our Series B Preferred
Stock will be entitled to receive cumulative dividends in the
amount of $0.067 per share each month, which is equivalent to the
annual rate of 8% of the $10.00 liquidation preference per share;
provided that upon an event of default (generally defined as our
failure to pay dividends when due or to redeem shares when
requested by a holder), such amount shall be increased to $0.083
per month, which is equivalent to the annual rate of 10% of
the $10.00 liquidation preference per share. Dividends on shares of our Series B Preferred
Stock will continue to accrue even if any of our agreements
prohibit the current payment of dividends or we do not have
earnings.
Dividends
on our Series A Preferred Stock are cumulative and payable monthly
in arrears to all holders of record on the applicable record date.
Holders of our Series A Preferred Stock will be entitled to receive
cumulative dividends in the amount of $0.017 per share each month,
which is equivalent to the rate of 8% of the $2.50 liquidation
preference per share. Dividends on shares of our Series A Preferred
Stock will continue to accrue even if any of our agreements
prohibit the current payment of dividends or we do not have
earnings.
We have never declared dividends or paid cash dividends on our
Common Stock. Our board of directors will make any future decisions
regarding dividends. We currently intend to retain and use any
future earnings for the development and expansion of our business
and do not anticipate paying any cash dividends in the near future.
Our board of directors has complete discretion on whether to pay
dividends. Even if our board of directors decides to pay dividends,
the form, frequency and amount will depend upon our future
operations and earnings, capital requirements and surplus, general
financial condition, contractual restrictions and other factors
that the board of directors may deem relevant.
CAPITALIZATION
The
following table sets forth our capitalization, as of December 31,
2018:
●
on an actual basis;
and
●
on an as adjusted
basis to give effect to the sale of the maximum of $10,000,000 of
shares of Series B Preferred Stock in this offering after deducting
underwriting discounts and commissions and other estimated offering
expenses payable by us, and after giving effect to the use of
proceeds described herein.
You
should read this table in conjunction with “Use of
Proceeds” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”
and our financial statements and the related notes to those
financial statements included elsewhere in this offering
circular.
|
|
As
of December 31, 2018
|
|
|
|
Actual
|
As
Adjusted
|
|
Cash and cash
equivalents
|
$458,271
|
$9,643,271
|
|
Debt:
|
|
|
|
Loans
payable
|
9,086,110
|
9,086,110
|
|
Loans payable
– related party
|
890,632
|
890,632
|
|
Convertible note
payable – related party
|
2,754,550
|
2,754,550
|
|
Total
debt:
|
12,731,292
|
12,731,292
|
|
Series B Preferred
Redeemable Preferred Stock
|
-
|
9,185,000
|
|
Stockholders’
equity (deficit):
|
|
|
|
Preferred
Stock, par value $0.01 per share, 10,000,000 shares authorized, of
which (i) 4,000,000 shares are designated Series A Cumulative
Convertible Preferred Stock and no shares are issued and
outstanding as of December 31, 2018 and (ii) no shares are
designated as Series B Preferred Redeemable Preferred Stock or
issued and outstanding as of December 31, 2018
|
-
|
-
|
|
Common
Stock, par value $0.01 per share, 200,000,000 shares authorized,
10,350,062 shares are issued and outstanding as of December 31,
2018
|
103,500
|
103,500
|
|
Additional paid-in
capital
|
451,567
|
451,567
|
|
Accumulated deficit
|
$(1,801,338)
|
$(1,801,338)
|
|
Non-controlling interest
|
293,241
|
293,241
|
|
Total
stockholder’s equity (deficit)
|
(953,030)
|
(953,030)
|
|
Total
capitalization
|
11,778,262
|
11,778,262
|
MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Market Information
Our Common Stock is traded on
the Pink OTC Markets 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, 2017
|
|
|
|
1st
Quarter
|
$0.90
|
$0.90
|
|
2nd
Quarter
|
1.50
|
0.90
|
|
3rd
Quarter
|
1.50
|
1.50
|
|
4th
Quarter
|
3.60
|
1.20
|
|
|
|
|
|
Fiscal Year Ended December 31, 2018
|
|
|
|
1st
Quarter
|
$5.40
|
$1.20
|
|
2nd
Quarter
|
1.20
|
0.51
|
|
3rd
Quarter
|
1.04
|
0.30
|
|
4th
Quarter
|
1.00
|
0.30
|
|
|
|
|
|
Fiscal Year Ended December 31, 2019
|
|
|
|
1st
Quarter
|
$1.00
|
$1.00
|
|
2nd Quarter (through
May 8, 2019)
|
1.00
|
1.00
|
Holders
As of May 8, 2019, there were approximately 20 registered
shareholders of our Common Stock based on the number of record
owners.
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, 2018.
|
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
|
541,334
|
$0.01
|
458,666
|
|
Equity
compensation plans not approved by security holders
|
-
|
-
|
-
|
|
Total
|
541,334
|
$0.01
|
458,666
|
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 manufactured home
and the rental of company-owned manufactured homes to residents of
the communities.
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 been 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 LLC became the business
and management, respectively of our company.
As of
December 31, 2018, we owned and
operated seven manufactured housing communities containing
approximately 440 developed sites, and a total of 97 company-owned
manufactured homes. The communities are located in North Carolina,
South Carolina, and Tennessee.
Our Business Strategy
Our business strategy is to acquire both stable and undervalued and
underperforming manufactured housing properties that have current
income. We believe that we can enhance value through our
professional asset and property management. Our investment mission
on behalf of our stockholders is to deliver an attractive risk
adjusted return with a focus on value creation, capital
preservation, and growth. In our ongoing search for acquisition
opportunities we target and evaluate manufactured housing
communities nationwide.
We are one of four public companies that acquire, own, manage and
operate communities in the manufactured housing sector, but we are
the only one not organized as a REIT, thereby giving us flexibility
to focus on growth through reinvestment of income and employing
higher leverage upon acquisition than the REITs traditionally
utilize due to market held norms around 50 % to 60%. This can give
us a competitive advantage when bidding for assets. Additionally,
due to our small size, non institutional sized deals of less than
150 sites, which have less bidders and lower prices, are accretive
to our balance sheet.
Recent Developments
During the first quarter of 2019, we entered into agreements to
acquire the assets of three manufactured housing communities
totaling approximately $10,715,000. The three transactions will be
accounted for as asset acquisitions.
In April 2019, we completed the first acquisition of Hunt Club
Forest manufactured housing community for a purchase price of
$2,211,570. The 79-pad property is located in the Columbia, SC
metro area.
In May 2019, we completed the second acquisition of B&D
manufactured housing community for a purchase price of $2,500,000.
The 97-pad property is located in Chester, SC.
We expect to close the remaining acquisition in the second quarter
of 2019.
In March of 2019, we refinanced a total of $4,920,750 from our
current loans payable to $8,241,609 of new notes payable from five
of our seven existing communities, resulting in an additional loan
payable of $3,320,859. We used the additional loans payable
proceeds from the refinance to retire our Convertible Note Payable
of $2,754,550 plus accrued interest. $4,573,000 of the total
$8,241,609, representing the refinancing portion for Azalea, Holly
Faye, and Pecan Grove required a personal guarantee from our chief
executive officer.
In January 2019, we agreed to acquire the 25% minority interest in
Pecan Grove from a related party, and we issued 2,000,000 shares of
our Common Stock to Gvest Real Estate for the minority interest
acquisition which were valued at the historical cost value of
$537,502.
Results of Operations
We prepare our consolidated financial statements under the accrual
basis of accounting, in conformity with GAAP.
Our subsidiaries are all formed in the state of North Carolina as
limited liability companies, except for Butternut MHP Land LLC and
Lakeview MHP LLC, which were formed in the States of Delaware and
South Carolina, respectively. The acquisition and date of
consolidation are as follows:
|
Date of Consolidation
|
|
Subsidiary
|
|
Ownership
|
|
October 2016
|
|
Pecan Grove JV LLC
|
|
75%*
|
|
April 2017
|
|
Butternut MHP Land LLC
|
|
100%
|
|
November 2017
|
|
Azalea MHP LLC
|
|
100%
|
|
November 2017
|
|
Holly Faye MHP LLC
|
|
100%
|
|
November 2017
|
|
Chatham Pines MHP LLC
|
|
100%
|
|
November 2017
|
|
Lakeview MHP LLC
|
|
100%
|
|
December, 2017
|
|
Maple Hills MHP LLC
|
|
100%
|
* As
noted above, in January 2019, we acquired the remaining 25%
interest in Pecan Grove JV LLC from a related
party.
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.
Revenues
For the year ended December 31, 2018, we had total revenues of
$2,000,312, as compared to $689,788 for the year ended December 31,
2017, an increase of $1,310,524. The increase in revenues between
the periods was primarily due to an average 10% increase in
occupancy and rates, and the acquisition of five manufactured
housing communities during the fourth quarter of 2017 (one
manufactured housing community was acquired during the first
quarter of 2017). During the year ended December 31, 2018, we
recorded $4,000 of property management revenues from a related
party, and $21,000 from the sale of two manufactured homes for
cash.
Expenses
For the year ended December 31, 2018, we had total expenses of
$3,242,653, as compared to $1,175,121 for the year ended December
31, 2017, an increase of $2,067,532. Total expenses for the year
ended December 31, 2018 consisted of community operating expenses
of $676,381, corporate payroll and overhead expenses of $1,030,527,
depreciation and amortization expense of $534,290 and interest
expense of $1,001,455, while total expenses for the year ended
December 31, 2017 consisted of community operating expenses of
$271,330, corporate payroll and overhead expenses of $184,754,
depreciation and amortization expense of $162,680, interest expense
of $251,798 and reorganization costs of $304,559.
Community Operating
Expenses. For the year ended
December 31, 2018, we had total community operating expenses of
$676,381, or 34% of revenues, as compared to $271,330, or 39% of
revenues, for the year ended December 31, 2017, an increase of
$405,051. The increase in community operating expenses between the
periods was primarily due to the ramp up of operations from our
acquisitions of five manufactured housing communities acquired
during the fourth quarter of 2017.
Corporate Payroll and Overhead
Expenses. For the year ended
December 31, 2018, we had corporate payroll and overhead expenses
of $1,030,527, or 52% or revenues, as compared to $184,754, or 27%
of revenues, for the year ended December 31, 2017, an increase of
$845,773. For the year ended December 31, 2018, our corporate
payroll and overhead expenses were mainly comprised of payroll
expenses of $588,646, stock-based compensation expense of $171,569,
and audit and legal fees of $193,957. Corporate payroll and
overhead increased as we hired additional employees to support the
five acquisitions in the fourth quarter of 2017 and to support
growth and future acquisitions, as well as due to additional legal
and audit costs related to our reverse merger transaction and
acquisitions, and stock-based compensation issued to
consultant.
Interest
Expense. For the year ended
December 31, 2018, we had interest expense of $1,001,455, as
compared to $251,798 for the year ended December 31, 2017, an
increase of $749,657. The increase in interest expense was due to
additional debt incurred related to the five acquisitions during
the fourth quarter of 2017, and an increase in imputed interest of
$37,207.
Net Loss
The factors described above resulted in a net loss of $1,296,393
for the year ended December 31, 2018, as compared to $506,087 for
the year ended December 31, 2017.
Liquidity and Capital Resources
Our principal liquidity demands have historically been, and are
expected to continue to be, acquisitions, capital improvements,
development and expansions of properties, debt service, and
purchases of manufactured home inventory and rental
homes.
In addition to cash generated through operations, we use a variety
of sources to fund our cash needs, including acquisitions. We
intend to continue to increase our real estate investments. Our
business plan includes acquiring communities that yield in excess
of 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.
Our working capital has been provided by our operating activities
and our related party note. As of December 31, 2018, the related
party entity with a common ownership to our president loaned us
$890,632 for costs related to reorganization cost and working
capital. The related party note has a five-year term with no annual
interest and principal payments are deferred to maturity date for a
total credit line of $1.5 million. Except our line of
credit, generally, our promissory notes on our acquisitions range
from 4.5% to 7.0% with 20 to 25 years principal amortization. Two
of the promissory notes had an initial 6 months period on interest
only payments. The line of credit is interest only payment based of
10%, and 8% deferred till maturity to be paid with principal
balance. We plan to meet our
short-term liquidity requirements of approximately $1,053,174 for
the next twelve months, generally through available cash as well as
net cash provided by new acquisitions, operating activities, and
availability under our existing related party note of $890,632. We
also have availability from our lenders under our loan agreements
for capital expenditure needs on our acquisitions. We expect these
resources to help us meet operating working capital requirements.
The ability of our company to continue its operations as a going
concern is dependent on management’s plans, which include
raising of capital through debt and/or equity markets with some
additional funding from other traditional financing sources,
including term notes.
The following table summarizes total current assets, liabilities
and working capital at December 31, 2018 compared to December 31,
2017.
|
|
December
31
|
|
|
|
2018
|
2017
|
|
Current
Assets
|
$570,730
|
$452,306
|
|
Current
Liabilities
|
1,053,174
|
492,143
|
|
Working Capital
(Deficit)
|
(482,444)
|
(39,837)
|
Off-Balance Sheet Arrangements
As of December 31, 2018, 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.
Significant accounting policies are defined as those that involve
significant judgment and potentially could result in materially
different results under different assumptions and conditions.
Management believes the following critical accounting policies are
affected by our more significant judgments and estimates used in
the preparation of our consolidated financial
statements.
Revenue Recognition
We follow Topic 606 of the FASB Accounting Standards Codification
for revenue recognition and ASU 2014-09. On January 1, 2018, we
adopted ASU 2014-09, which is a comprehensive new revenue
recognition model that requires revenue to be recognized in a
manner to depict the transfer of goods or services to a customer at
an amount that reflects the consideration expected to be received
in exchange for those goods or services. We consider revenue
realized or realizable and earned when all the five following
criteria are met: (1) Identify the Contract with a Customer, (2)
Identify the Performance Obligations in the Contract, (3) Determine
the Transaction Price, (4) Allocate the Transaction Price to the
Performance Obligations in the Contract, and (5) Recognize Revenue
When (or As) the Entity Satisfies a Performance Obligation. Results
for reporting periods beginning after January 1, 2018 are presented
under ASU 2014-09, while prior period amounts are not adjusted and
continue to be reported under the previous accounting standards.
There was no impact to revenues as a result of applying ASU 2014-09
for year ended December 31, 2018, and there have not been any
significant changes to our business processes, systems, or internal
controls as a result of implementing the standard. We recognize
rental income revenues on a monthly basis based on the terms of the
lease agreement which are for either the land or a combination of
both, the mobile home and land. Home sales revenues are recognized
upon the sale of a home with an executed sales agreement. We have
deferred revenues from home lease purchase options and records
those option fees as deferred revenues and then records them as
revenues when (1) the lease purchase option term is completed and
title has been transferred, or (2) the leaseholder defaults on the
lease terms resulting in a termination of the agreement which
allows us to keep any payments as liquidated damages.
Real Estate Investments
We apply FASB ASC 360-10, Property, Plant & Equipment to
measure impairment in real estate investments. Rental properties
are individually evaluated for impairment when conditions exist
which may indicate that it is probable that the sum of expected
future cash flows (on an undiscounted basis without interest) from
a rental property is less than the carrying value under its
historical net cost basis. These expected future cash flows
consider factors such as future operating income, trends and
prospects as well as the effects of leasing demand, competition and
other factors. Upon determination that a permanent impairment has
occurred, rental properties are reduced to their fair value. For
properties to be disposed of, an impairment loss is recognized when
the fair value of the property, less the estimated cost to sell, is
less than the carrying amount of the property measured at the time
there is a commitment to sell the property and/or it is actively
being marketed for sale. A property to be disposed of is reported
at the lower of its carrying amount or its estimated fair value,
less its cost to sell. Subsequent to the date that a property is
held for disposition, depreciation expense is not
recorded.
Upon acquisition of a property, we apply 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.
We conducted a comprehensive review of all real estate asset
classes in accordance with ASC 360-10-35-21, which indicates that
asset values should be analyzed whenever events or changes in
circumstances indicate that the carrying value of a property may
not be fully recoverable. The process entailed the analysis of
property for instances where the net book value exceeds the
estimated fair value. In accordance with ASC 360-10-35-17, an
impairment loss shall be recognized if the carrying amount of a
long-lived asset is not recoverable and exceeds its fair value. We
utilize the experience and knowledge of its internal valuation team
to derive certain assumptions used to determine an operating
property’s cash flow. Such assumptions include lease-up
rates, rental rates, rental growth rates, and capital expenditures.
We reviewed our operating properties in light of the requirements
of ASC 360-10 and determined that, as of December 31, 2018, the
undiscounted cash flows over the holding period for these
properties were in excess of their carrying values and, therefore,
no impairment charges were required.
Use of Estimates
The preparation of these consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period.
Our significant accounting estimates and assumptions affecting the
consolidated financial statements were the estimates and
assumptions used in valuation of equity and derivative instruments.
Those significant accounting estimates or assumptions bear the risk
of change due to the fact that there are uncertainties attached to
those estimates or assumptions, and certain estimates or
assumptions are difficult to measure or value.
Management bases its estimates on historical experience and on
various assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources.
Management
regularly reviews its estimates utilizing currently available
information, changes in facts and circumstances, historical
experience and reasonable assumptions. After such reviews, and if
deemed appropriate, those estimates are adjusted accordingly.
Actual results could differ from those estimates. Significant
estimates include the assumptions used in valuing equity-based
transactions, valuation of deferred tax assets, depreciable lives
of property and equipment and valuation of investment
property.
Stock-Based Compensation
All stock-based payments to employees, non-employee 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. 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
non-forfeitable the measurement date is the date the award is
issued.
Fair Value of Financial Instruments
We follow paragraph 825-10-50-10 of the FASB Accounting Standards
Codification for disclosures about fair value of our financial
instruments and Paragraph 820-10-35-37 of the FASB ASC to measure
the fair value of our financial instruments. Paragraph 820-10-35-37
establishes a framework for measuring fair value in GAAP and
expands disclosures about fair value measurements. To increase
consistency and comparability in fair value measurements and
related disclosures, Paragraph 820-10-35-37 establishes a fair
value hierarchy which prioritizes the inputs to valuation
techniques used to measure fair value into broad levels. The fair
value hierarchy gives the highest priority to quoted prices
(unadjusted) in active markets for identical assets or liabilities
and the lowest priority to unobservable inputs.
Recent Accounting Pronouncements
In May 2017, the FASB issued ASU No. 2017-09, “Compensation
Stock Compensation (Topic 718): Scope of Modification
Accounting.” ASU 2017-09 clarifies which changes to the terms
or conditions of a share-based payment award are subject to the
guidance on modification accounting under FASB Accounting Standards
Codification Topic 718. Entities would apply the modification
accounting guidance unless the value, vesting requirements and
classification of a share-based payment award are the same
immediately before and after a change to the terms or conditions of
the award. ASU No. 2017-09 is effective for fiscal years beginning
after December 15, 2017, including interim periods within those
fiscal years. We have evaluated the potential impact this standard
may have on the consolidated financial statements and determined
that it had no impact on the consolidated financial
statements.
On February 22, 2017, the FASB issued ASU No. 2017-05, “Other
Income -Gains and Losses from the Derecognition of Nonfinancial
Assets.” ASU 2017-05 provides guidance for recognizing gains
and losses from the transfer of nonfinancial assets and in
substance nonfinancial assets in contracts with noncustomers,
unless other specific guidance applies. The standard requires a
company to derecognize nonfinancial assets once it transfers
control of a distinct nonfinancial asset or distinct in substance
nonfinancial asset. Additionally, when a company transfers its
controlling interest in a nonfinancial asset, but retains a
noncontrolling ownership interest, we are required to measure any
noncontrolling interest it receives or retains at fair value. The
guidance requires companies to recognize a full gain or loss on the
transaction. As a result of the new guidance, the guidance specific
to real estate sales in ASC 360-20 will be eliminated. As such,
sales and partial sales of real estate assets will now be subject
to the same derecognition model as all other nonfinancial assets.
The guidance is effective for annual periods beginning after
December 15, 2017, including interim periods within that reporting
period. We have evaluated the potential impact this standard may
have on the consolidated financial statements and determined that
it had no impact on the consolidated financial
statements.
In August 2016, the FASB issued ASU No. 2016-15, “Statement
of Cash Flows (Topic 230), Classification of Certain Cash Receipts
and Cash Payments.” ASU 2016-15 will make eight targeted
changes to how cash receipts and cash payments are presented and
classified in the statement of cash flows. ASU 2016-15 is effective
for annual reporting periods, including interim reporting periods
within those periods, beginning after December 15, 2017. Early
adoption is permitted. We believe that the adoption of this
standard will not have a material impact on our financial position,
results of operations or cash flows. We have evaluated the
potential impact this standard may have on the consolidated
financial statements and determined that it had no impact on the
consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial
Instruments – Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments.” ASU 2016-13 requires
that entities use a new forward looking “expected loss”
model that generally will result in the earlier recognition of
allowance for credit losses. The measurement of expected credit
losses is based upon historical experience, current conditions, and
reasonable and supportable forecasts that affect the collectability
of the reported amount. ASU No. 2016-13 is effective for annual
reporting periods, including interim reporting periods within those
periods, beginning after December 15, 2019. We are currently
evaluating the potential impact this standard may have on the
consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
“Leases.” ASU 2016-02 amends the existing accounting
standards for lease accounting, including requiring lessees to
recognize most leases on their balance sheets and making targeted
changes to lessor accounting. The standard requires a modified
retrospective transition approach for all leases existing at, or
entered into after, the date of initial application, with an option
to use certain transition relief. ASU 2016-02 will be effective for
annual reporting periods beginning after December 15, 2018. Early
adoption is permitted. We have evaluated the potential impact this
standard may have on the consolidated financial statements and
determined that it had no impact on the consolidated financial
statements.
In January 2016, the FASB issued ASU 2016-01, “Financial
Instruments – Overall: Recognition and Measurement of
Financial Assets and Financial Liabilities.” ASU 2016-01
requires equity investments (except those accounted for under the
equity method of accounting, or those that result in consolidation
of the investee) to be measured at fair value with changes in fair
value recognized in net income, requires public business entities
to use the exit price notion when measuring the fair value of
financial instruments for disclosure purposes, requires separate
presentation of financial assets and financial liabilities by
measurement category and form of financial asset, and eliminates
the requirement for public business entities to disclose the
method(s) and significant assumptions used to estimate the fair
value that is required to be disclosed for financial instruments
measured at amortized cost. ASU 2016-01 is effective for annual
reporting periods, including interim reporting periods within those
periods, beginning after December 15, 2017, and early adoption is
permitted. We evaluated the potential impact this standard may have
on the consolidated financial statements and determined that it had
no impact on the consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07 “Compensation
– Stock Compensation (Topic 718): Improvements to Nonemployee
Share-Based Payment Accounting.” This ASU relates to the accounting for
non-employee share-based payments. The amendment in this Update
expands the scope of Topic 718 to include all share-based payment
transactions in which a grantor acquired goods or services to be
used or consumed in a grantor’s own operations by issuing
share-based payment awards. The ASU excludes share-based payment
awards that relate to (1) financing to the issuer or (2) awards
granted in conjunction with selling goods or services to customers
as part of a contract accounted for under Topic 606, Revenue from
Contracts from Customers. The share-based payments are to be
measured at grant-date fair value of the equity instruments that
the entity is obligated to issue when the good or service has been
delivered or rendered and all other conditions necessary to earn
the right to benefit from the equity instruments have been
satisfied. This standard will be effective for public business
entities for fiscal years beginning after December 15, 2018,
including interim periods within that fiscal year. For all other
entities, the amendments are effective for fiscal years beginning
after December 15, 2019, and interim periods within fiscal years
beginning after December 15, 2020. Early adoption is permitted, but
no earlier than an entity’s adoption of Topic 606. We are
currently reviewing the provisions of this ASU to determine if
there will be any impact on our results of operations, cash flows
or financial condition.
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 Consolidated Financial
Statements.
OUR CORPORATE HISTORY AND
STRUCTURE
Our Corporate History and Background
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.
During
the fourth quarter 2016, we acquired the assets of our first
manufactured housing community containing 81 home sites. During the
year ended December 31, 2017, we acquired the assets of six
manufactured housing communities containing approximately 360 home
sites. See “Our Properties” for a description of these
properties. In connection with these acquisitions, we established
various limited liability companies to hold these acquired
properties.
On October 12, 2016, we established Pecan Grove JV LLC as a 75%
owned subsidiary and Pecan Grove MHP LLC as a wholly-owned
subsidiary of Pecan Grove JV LLC in the State of North Carolina. In
January 2019, we acquired the remaining 25% interest in Pecan Grove
JV LLC.
On March 1, 2017, we established Butternut MHP Land LLC as a
wholly-owned subsidiary in the State of Delaware.
On October 25, 2017, we established Azalea MHP LLC as a
wholly-owned subsidiary in the State of North
Carolina.
On October 25, 2017, we established Holly Faye MHP LLC as a
wholly-owned subsidiary in the State of North Carolina
On October 31, 2017, we established Chatham Pines MHP LLC as a
wholly-owned subsidiary in the State of North
Carolina.
On October 31, 2017, we established Maple Hills MHP LLC as a
wholly-owned subsidiary in the State of North
Carolina.
On November 1, 2017, we established Lakeview MHP LLC as a
wholly-owned subsidiary in the State of South
Carolina.
Our Corporate Structure
The following chart reflects or organizational structure as of the
date of this offering circular.
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.
As of
December 31, 2018, we owned and
operated seven manufactured housing communities containing
approximately 440 developed sites, and a total of 97 company-owned
manufactured homes. The communities are located in North Carolina,
South Carolina, and Tennessee.
The Manufactured Housing Community Industry
Manufactured housing communities are residential developments
designed and improved for the placement of detached, single-family
manufactured homes that are produced off-site and installed and set
on residential sites within the community. The owner of a
manufactured home leases the site on which it is located and the
lessee of a manufactured home leases both the home and site on
which the home is located.
We believe that manufactured housing is accepted by the public as a
viable and economically attractive alternative to common
stick-built single-family housing. We believe that the
affordability of the modern manufactured home makes it a very
attractive housing alternative. Manufactured housing is one
of the only non-subsidized affordable housing options in the U.S.
Demand for housing affordability continues to increase, but supply
remains static, as there are virtually no new manufactured housing
communities being developed. We are committed to becoming an
industry leader in providing this affordable housing option and an
improved level of service to our residents, while producing an
attractive and stable risk adjusted return to our
investors.
A
manufactured housing community is a land-lease community designed
and improved with home sites for the placement of manufactured
homes and includes related improvements and amenities. Each
homeowner in a manufactured housing community leases from the
community a site on which a home is located. The manufactured
housing community owner owns the underlying land, utility
connections, streets, lighting, driveways, common area amenities,
and other capital improvements and is responsible for enforcement
of community guidelines and maintenance of the community.
Generally, each homeowner is responsible for the maintenance of his
or her home and upkeep of his or her leased site. In some cases,
customers may rent homes with the community owner’s
maintaining ownership and responsibility for the maintenance and
upkeep of the home. This option provides flexibility for customers
seeking a more affordable, shorter-term housing option and enables
the community owner to meet a broader demand for housing and
improve occupancy and cash flow.
We
believe that manufactured housing communities have several
characteristics that make them an attractive investment when
compared to certain other types of real estate, particularly
multifamily, including:
●
Significant Barriers to
Entry. We believe
that the supply of new manufactured housing communities will
be constrained due to significant barriers to entry in the
industry, including: (i) various zoning restrictions and negative
zoning biases against manufactured housing communities; (ii)
substantial upfront costs associated with the development of
infrastructure, amenities and other offsite improvements required
by various governmental agencies, and (iii) a significant length of
time before lease-up and revenues can commence.
●
Diminishing Supply.
Supply is decreasing due to redevelopment of older
parks.
●
Large Demographic Group of
Potential Customers.
We consider households earning between $25,000 and $50,000 per year
to be our core customer base. This demographic group represents
about 43 percent of overall U.S. households, according to 2016 U.S.
Census data.
●
Stable Resident
Base. We believe
that manufactured housing communities tend to achieve and
maintain a stable rate of occupancy, due to the following factors:
(i) residents generally own their own homes; moving a manufactured
home from one community to another involves substantial cost and
effort and often results in the abandonment of on-site improvements
made by the resident such as decks, garages, carports, and
landscaping; and (iii) residents enjoy a sense of community
inherent in manufactured housing communities similar to
residential subdivisions.
●
Fragmented Ownership of
Communities.
Manufactured housing community ownership in the United States
is highly fragmented, with a majority of manufactured housing
communities owned by individuals. The top five
manufactured housing community owners control approximately 7%
of manufactured housing community home sites.
●
Low Recurring Capital
Requirements.
Although manufactured housing community owners are responsible
for maintaining the infrastructure of the community, each homeowner
is responsible for the upkeep of his or her own home and home site,
thereby reducing the manufactured housing community
owner’s ongoing maintenance expenses and capital
requirements.
●
Affordable Homeowner
Lifestyle.
Manufactured housing communities offer an affordable lifestyle
typically unavailable in apartments, including lack of common
walls, a yard for each resident, the ability to park by the front
door, and a sense of community.
Competition
There
are numerous private companies, but only three publicly-traded
REITs that compete in the manufactured housing industry. Many
of the private companies and one of the REITs, UMH Properties,
Inc., may compete with us for acquisitions of manufactured housing
communities. Many of these companies
have larger operations and greater financial resources than we
do. The number of competitors, however, is increasing as new
entrants discover the benefits of the manufactured housing asset
class. We believe that due to the fragmented nature of
ownership within the manufactured housing sector, the level of
competition is less than that in other commercial real estate
sectors.
Competitive Strengths
We
believe that the following competitive strengths enable us to
compete effectively:
●
Deal Sourcing. Our
deal sourcing consists of marketed deals, pocket listings, and off
market deals. Marketed deals are properties that are listed
with a broker who exposes the property to the largest pool of
buyers possible. Pocket listings are properties that are presented
by brokers to a limited pool of buyers. Off market deals are ones
that are not actively marketed. As a result of our network of
relationships in our industry, only two properties in our portfolio
were marketed deals, the rest were off-market or pocket listings.
●
Centralized
Operations. We have centralized many operational tasks,
including accounting, marketing, lease administration, and accounts
payable. The use of professional staff and technology allows
us to scale efficiently and operate properties profitably by
reducing tasks otherwise completed at the property
level.
●
Deal Size. We
believe that our small capitalization size with non-institutional
deals of less than 150 sites are accretive to our balance sheet.
These sized properties typically have less bidders at lower
prices than larger properties. We can profitably operate
these smaller properties through our centralized
operations.
●
Creating Value. Our
underwriting expertise enables us to identify acquisition prospects
to provide attractive risk adjusted returns. Our operational
team has the experience, skill and resources to create this value
through physical and/or operational property
improvements.
Our Growth Strategy
Our
growth strategy is to acquire both stable and undervalued and
underperforming manufactured housing properties that have current
income. We believe that we can enhance value through our
professional asset and property management. Our property management
services are mainly comprised of tenant contracts and leasing,
marketing vacancies, community maintenance, enforcement of
community policies, establishment and collection rent, and payment
of vendors. Our lot and manufactured home leases are generally for
one month and auto renew monthly for an additional
month.
Our
investment mission on behalf of our stockholders is to deliver an
attractive risk-adjusted return with a focus on value creation,
capital preservation, and growth. In our ongoing search for
acquisition opportunities we target and evaluate manufactured
housing communities nationwide.
We may invest in improved and unimproved real property and may
develop unimproved real property. These property investments may be
located throughout the United States, but to date we have
concentrated in the Southeast portion of the United States. We are
focused on acquiring communities with significant upside potential
and leveraging our expertise to build long-term capital
appreciation.
We are
one of four public companies in the manufactured housing sector,
but we are the only one not organized as a REIT, thereby giving us
flexibility to focus on growth through reinvestment of income and
employing higher leverage upon acquisition than the REITs
traditionally utilize due to market held norms around 50-60%. This
can give us a competitive advantage when bidding for assets.
Additionally, due to our small size, non-institutional sized deals
of less than 150 sites, which have less bidders and lower prices,
are accretive to our balance sheet.
Regulation
Federal, State and/or Local Regulatory Compliance
We are subject to a variety of Federal, state, and/or local
statutes, ordinances, rules, and regulations covering the purchase,
development and operation of real estate assets. These regulatory
requirements include zoning and land use, worksite safety, traffic,
and other matters, such as local rules that may impose restrictive
zoning and developmental requirements. We are subject to various
licensing, registration, and filing requirements in connection with
the development and operation of certain real estate assets.
Additionally, state and/or local governments retain certain rights
with respect to eminent domain which could enable them to restrict
or alter the use of our property. These requirements may lead to
increases in our overall costs. The need to comply with these
requirements may significantly delay development with regard to
properties, or lead us to alter our plans regarding certain real
estate assets. Some requirements, on a property by property
evaluation, may lead to a determination that development of a
particular property would not be economically feasible, even if any
or all necessary governmental approvals were obtained.
We believe that each community has all material operating permits
and approvals.
Environmental Regulatory Compliance
Under various Federal, state and/or local laws, ordinances and
regulations, a current or previous owner or operator of a property
may be required to investigate and/or clean-up hazardous or toxic
substances released at that property. That owner or operator also
may be held liable to third parties for bodily injury or property
damage (investigation and/or clean-up costs) incurred by those
parties in connection with the contamination at that site. These
laws often impose liability without regard to whether the owner or
operator knew of or otherwise caused the release of the hazardous
or toxic substances. In addition, persons who arrange for the
disposal or treatment of hazardous substances or other regulated
materials also may be liable for the costs of removal or
remediation of such substances at a disposal or treatment facility,
whether or not such facility is owned or operated by such
persons.
The costs of remediation or removal of hazardous or toxic
substances can be substantial, and the presence of contamination,
or the failure to remediate contamination discovered, at a property
we own or operate may adversely affect our ability to develop,
sell, lease, or borrow upon that property. Current and former
tenants at a property we own may have, or may have involved, the
use of hazardous materials or generated hazardous wastes, and those
situations could result in our incurring liabilities to remediate
any resulting contamination if the responsible party is unable or
unwilling to do so.
In addition, our properties may be exposed to a risk of
contamination originating from other sources. While a property
owner generally is not responsible for remediating contamination
that has migrated on-site from an off-site source, the
contaminant’s presence could have adverse effects on our
ability to develop, construct on, operate, sell, lease, or borrow
upon that property. Certain environmental laws may create a lien on
a contaminated site in favor of the government for damages and
costs the government may incur to remediate that contamination.
Moreover, if contamination is discovered on a property,
environmental laws may impose restrictions on the manner in which
that property may be used, or how businesses may be operated on
that property, thus reducing our ability to maximize our investment
in that property. Our properties have been subjected to varying
degrees of environmental assessment at various times; however, the
identification of new areas of contamination, a change in the
extent or known scope of contamination, or changes in environmental
regulatory standards and/or cleanup requirements could result in
significant costs to us.
Insurance and Property Maintenance and Improvement
Policies
Our properties are insured against risks that may cause property
damage and business interruption including events such as fire,
business interruption, general liability and if applicable, flood.
Our insurance policies contain deductible requirements, coverage
limits and particular exclusions. It is our policy to maintain
adequate insurance coverage on all of our properties; and, in the
opinion of our management, all of our properties are adequately
insured. We also obtain title insurance insuring fee title to the
properties in an aggregate amount which we believe to be
adequate.
It is also our policy to properly maintain, modernize, expand and
make improvements to its properties when required.
Employees
As of December 31, 2018, we had 10 employees, including officers,
all of whom are full-time employees.
OUR
PROPERTIES
As of December 31, 2018, we owned the following manufactured
housing properties, including their average occupancy, which is an
average of total monthly occupancy rates from January 1, 2018
through December 31, 2018:
●
Pecan
Grove – 75%* interest in
an 81 lot, all-age community situated on 10.71 acres and located in
Charlotte, North Carolina. The average occupancy was
95%.
●
Butternut
– a 59 lot, all-age community
situated on 13.13 acres and located in Corryton, Tennessee, a
suburb of Knoxville, Tennessee. The average occupancy was
91%.
●
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 90%.
●
Holly
Faye – a 37 lot all-age
community situated on 8.01 acres and located in Gastonia, North
Carolina, a suburb of Charlotte North Carolina. The average
occupancy was 91%.
●
Lakeview
– a 97 lot all-age community
situated on 17.26 acres in Spartanburg, South Carolina. The average
occupancy was 89%.
●
Chatham
Pines – a 49 lot all-age
community situated on 23.57 acres and located in Chapel Hill, North
Carolina. The average occupancy was 100%.
●
Maple
Hills – a 73 lot all-age
community situated on 21.20 acres and located in Mills River, North
Carolina, which is part of the Asheville, North Carolina,
Metropolitan Statistical Area. The average occupancy was
99%.
For the
year ended December 31, 2018, our total portfolio weighted average
occupancy rate was 93.4%.
*In January 2019, we acquired the remaining 25% interest in Pecan
Grove.
In April 2019, we acquired Hunt Club Forest manufactured housing
community. The 79-pad property is located in the Columbia, South
Carolina metro area.
In May 2019, we acquired B&D manufactured housing community.
The 97-pad property is located in Chester, South
Carolina.
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
|
|
57
|
|
Chairman
of the Board, Chief Executive Officer and President
|
|
Michael
Z. Anise
|
|
42
|
|
Chief
Financial Officer and Director
|
|
Adam A.
Martin
|
|
46
|
|
Chief
Investment Officer
|
|
Terry Robertson
|
|
75
|
|
Director
|
|
James
L. Johnson
|
|
52
|
|
Director
|
|
William
H. Carter
|
|
70
|
|
Director
|
Raymond M. Gee. Mr. Gee has
served as chairman of our board of directors, chief executive
officer and president of our company in October 2017 as a result of
the merger of Mobile Home Rental Holdings LLC with our company.
From 2012 to 2017, he was CEO of Gvest Capital LLC. Gvest Capital
LLC, an entity wholly owned and controlled by Mr. Gee, provides
management and administrative services to various investment and
asset ownership entities, including Gvest Real Estate Capital LLC.
By reason of such ownership and control, Gvest Capital LLC, Gvest
Real Estate Capital LLC and the other entities wholly owned and
controlled by Mr. Gee are each considered to be affiliates of our
company. Mr. Gee earned his B.B.A. degree in Finance from the
University of Oklahoma. Mr. Gee was selected to serve on our
board of directors due to his management experience in our
industry.
Michael Z. Anise. Mr. Anise has
served as our chief financial officer and as a member of our board
of directors since September
2017. From 2011 to 2017, Mr. Anise was chief financial officer of
Crossroads Financial, a commercial finance company. Mr. Anise
earned his B.S. degree in Accounting, with a minor in Finance, from
Florida Atlantic University. Mr. Anise was selected to serve on our
board of directors due to finance experience.
Adam A. Martin. Mr. Martin has
served as our chief investment officer since October 2017. From
2009 to September 2017, he was CIO of Gvest Capital LLC, a company
that provides management and administrative services to various
investment and asset ownership entities. Mr. Martin earned is B.A.
degree in Finance and Masters degree in Land Economics and Real
Estate from Texas A&M University.
Terry Robertson. Dr.
Robertson has served as a member of
our board of directors since December 2018. Since 2007, Mr.
Robertson has served as consultant at ROBERTSON Appraisal &
Consulting, a real estate appraisal and consulting firm that he
founded. Prior to that, he worked at Carroll&Carroll Real
Estate Appraisers. Dr. Robertson earned his B.B.A. degree in
Finance and his Ph.D. from the University of Georgia, and is
Professor Emeritus of Price College of Business of the University
of Oklahoma. Mr. Robertson is an author of articles and
books relating to corporate financial structure, real estate
valuation and regional economic development. Dr. Robertson
was selected to serve on our board of
directors due to finance and real estate investment
background.
James L. Johnson. Mr. Johnson has served as a member of our board of
directors since March 2018. He is the founder of Carpet
South Design Inc., where he has served as its CEO since 2013. He
also owns a majority interest in Piedmont Stair Works Design LLC.
The operations of both of these companies target the real estate
improvements industry. Mr. Johnson
earned his B.S. degree in Business Management from the University
of Phoenix. Mr. Johnson was selected to serve on our board of
directors due to experience in the real estate
industry.
William H. Carter. Mr. Carter has served as a member of our board of
directors since March 2018. He has served as president of
The Carter Land Company for the past 15 years. The Carter Land
Company has provided brokerage services with respect to 144
manufactured housing communities in the Southeast. The firm
presently manages apartments, single family houses, commercial
warehouses, mobile home parks, self-storage facilities and retail
buildings. Mr. Carter was selected to
serve on our board of directors due to his experience in our
industry.
Directors
and executive officers are elected until their successors are duly
elected and qualified. There are no arrangements or understandings
known to us pursuant to which any director or executive officer was
or is to be selected as a director (or director nominee) or
executive officer.
Family Relationships
There are no family relationships between any of our directors or
executive officers.
Involvement in Certain Legal Proceedings
To the
best of our knowledge, except as described below, none of our
directors or executive officers has, during the past ten
years:
●
been convicted in a
criminal proceeding or been subject to a pending criminal
proceeding (excluding traffic violations and other minor
offences);
●
had any bankruptcy
petition filed by or against the business or property of the
person, or of any partnership, corporation or business association
of which he was a general partner or executive officer, either at
the time of the bankruptcy filing or within two years prior to that
time;
●
been subject to any
order, judgment, or decree, not subsequently reversed, suspended or
vacated, of any court of competent jurisdiction or federal or state
authority, permanently or temporarily enjoining, barring,
suspending or otherwise limiting, his involvement in any type of
business, securities, futures, commodities, investment, banking,
savings and loan, or insurance activities, or to be associated with
persons engaged in any such activity;
●
been found by a
court of competent jurisdiction in a civil action or by the
Securities and Exchange Commission or the Commodity Futures Trading
Commission to have violated a federal or state securities or
commodities law, and the judgment has not been reversed, suspended,
or vacated;
●
been the subject
of, or a party to, any federal or state judicial or administrative
order, judgment, decree, or finding, not subsequently reversed,
suspended or vacated (not including any settlement of a civil
proceeding among private litigants), relating to an alleged
violation of any federal or state securities or commodities law or
regulation, any law or regulation respecting financial institutions
or insurance companies including, but not limited to, a temporary
or permanent injunction, order of disgorgement or restitution,
civil money penalty or temporary or permanent cease-and-desist
order, or removal or prohibition order, or any law or regulation
prohibiting mail or wire fraud or fraud in connection with any
business entity; or
●
been the subject
of, or a party to, any sanction or order, not subsequently
reversed, suspended or vacated, of any self-regulatory organization
(as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C.
78c(a)(26))), any registered entity (as defined in Section 1(a)(29)
of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any
equivalent exchange, association, entity or organization that has
disciplinary authority over its members or persons associated with
a member.
Corporate Governance
Our
current board of directors is comprised of five members: Raymond M.
Gee, Michael Z.
Anise, Terry Robertson, James
L. Johnson and William H. Carter. Our board of directors has
determined that Messrs. Robertson, Johnson and Carter are
independent directors as that term is defined in the rules of the
Nasdaq Stock Market.
Our
board of directors currently has two standing committees, an audit
committee and a compensation committee, which perform various
duties on behalf of and report to the board of directors. Each of
the standing committees is comprised of a majority of independent
directors. From time to time, the board of directors may establish
other committees.
Governance Structure
Currently, our chief executive officer is also our Chairman. Our
board of directors believes that, at this time, having a combined
chief executive officer and Chairman is the appropriate leadership
structure for our company. In making this determination, the board
of directors considered, among other matters, Mr. Gee’s
experience and tenure, and believed that Mr. Gee is highly
qualified to act as both Chairman and chief executive officer due
to his experience, knowledge, and personality. Among
the benefits of a combined chief
executive officer/Chairman considered by the board of directors is
that such structure promotes clearer leadership and direction for
our company and allows for a single, focused chain of command to
execute our strategic initiatives and business
plans.
The Board’s Role in Risk Oversight
Our board of directors plays an active role, as a whole and also at
the committee level, in overseeing management of our risks and
strategic direction. Our board of directors regularly reviews
information regarding our liquidity and operations, as well as the
risks associated with each. Our audit committee oversees the
process by which our senior management and relevant
employees assess and manage our
exposure to, and management of, financial risks. Our compensation
committee is responsible for overseeing the management of risks
relating to our executive compensation plans and arrangements.
While each committee is responsible for evaluating certain risks
and overseeing the management of such risks, the entire board of
directors is regularly informed about such
risks.
Audit Committee
Our audit committee currently consists of Messrs. Robertson,
Anise and Carter, with Mr. Robertson
serving as chairman. Our board of directors has determined that
each member of our audit committee is able to read and understand
fundamental financial statements and has substantial business experience that
results in such member’s financial sophistication. Our board
of directors further determined that Mr. Robertson possesses the
accounting or related financial management experience that
qualifies his as financially sophisticated within the meaning of
the rules of the Nasdaq Stock Market and that he is an “audit
committee financial expert” as defined by the rules and
regulations of the SEC.
The primary purposes of our audit committee are to assist our board
of directors in fulfilling its responsibility to oversee the
accounting and financial reporting processes of our company and
audits of our financial statements, including (i) retaining
and overseeing our independent accountants; (ii) assisting the
board in its oversight of the integrity of our financial
statements, the qualifications, independence and performance of our
independent auditors and our compliance with legal and regulatory
requirements; (iii) reviewing and approving the plan and scope of
the internal and external audit; (iv) pre-approving any audit and
non-audit services provided by our independent auditors; (v)
approving the fees to be paid to our independent auditors; (vi)
reviewing with our chief executive officer and chief financial
officer and independent auditors the adequacy and effectiveness of
our internal controls; (vii) preparing the audit committee report
to be filed with the SEC; (viii) reviewing hedging transactions;
and (ix) reviewing and assessing annually the audit
committee’s performance and the adequacy of its charter.
The role and responsibilities of our
audit committee are more fully set forth in a written charter
adopted by our board of directors, which is available on our
website at www.mhproperties.com.
Compensation Committee
Our compensation committee currently consists of Messrs.
Johnson, Robertson and Gee, with Mr.
Johnson serving as chairman. The primary purposes of our
compensation committee are to assist our board of directors in
fulfilling its responsibility to determine the compensation of our executive officers and
directors and to approve and evaluate the compensation policies and
programs of our company, including (i) reviewing from time
to time and approving our corporate goals and objectives relevant
to compensation and our executive compensation structure and
compensation range; (ii) evaluating the chief executive
officer’s performance in light of the goals and objectives
and determining and approving the chief executive officer’s
compensation based on this evaluation; (iii) determining and
approving the compensation paid to our chief financial officer and
any other executive officers; (iv) determining the compensation of
our independent directors; (v) granting rights to indemnification
and reimbursement of expenses to any officers, employees or
directors; (vi) making recommendations to the board regarding
equity-based and incentive compensation plans, policies and
programs; and (vii) reviewing and assessing annually the
compensation committee’s performance and the adequacy of its
charter. The role and responsibilities
of our compensation committee are more fully set forth in a written
charter adopted by our board of directors, which is available on
our website at www.mhproperties.com.
The policies underlying our compensation committee’s
compensation decisions are designed to attract and retain the
best-qualified management personnel available. We routinely compensate our
executive officers through salaries. At our discretion, we may
reward executive officers and employees through bonus programs
based on profitability and other objectively measurable performance
factors. Additionally, we use stock options and other incentive
awards to compensate our executives and other key employees to
align the interests of our executive officers with the interests of
our stockholders. In establishing executive compensation, our
compensation committee will evaluate compensation paid to similar
officers employed at other companies of similar size in the same
industry and the individual performance of each officer as it
impacts our overall performance with particular focus on an
individual’s contribution to the realization of operating
profits and the achievement of strategic business goals. Our
compensation committee will further attempt to rationalize a
particular executive’s compensation with that of other
executive officers of our company in an effort to distribute
compensation fairly among the executive officers. Although the
components of executive compensation (salary, bonus and incentive
grants) will be reviewed separately, compensation decisions will be
made based on a review of total compensation.
Code of Ethics
We have
adopted a code of ethics that applies to all of our directors,
officers and employees, including our principal executive officer,
principal financial officer and principal accounting officer. Such
code of ethics addresses, among other things, honesty and ethical
conduct, conflicts of interest, compliance with laws, regulations
and policies, including disclosure requirements under the federal
securities laws, and reporting of violations of the
code.
We are
required to disclose any amendment to, or waiver from, a provision
of our code of ethics applicable to our principal executive
officer, principal financial officer, principal accounting officer,
controller, or persons performing similar functions. We intend to
use our website as a method of disseminating this disclosure, as
permitted by applicable SEC rules. Any such disclosure will be
posted to our website within four business days following the date
of any such amendment to, or waiver from, a provision of our code
of ethics.
EXECUTIVE COMPENSATION
Summary Compensation Table - Years Ended December 31, 2018 and
2017
The following table sets forth information concerning all cash and
non-cash compensation awarded to, earned by or paid to the named
persons for services rendered in all capacities during the noted
periods. No other executive officers received total annual
salary and bonus compensation in excess of $100,000.
|
Name and
Principal Position
|
Year
|
Salary
($)
|
Option
Awards
($)(1)
|
Total
($)
|
|
Raymond M. Gee, Chief Executive
Officer
|
2018
|
-
|
-
|
-
|
|
|
2017
|
-
|
-
|
-
|
|
Michael Z. Anise, Chief Financial
Officer
|
2018
|
130,000
|
37
|
130,037
|
|
|
2017
|
130,000
|
81
|
130,081
|
|
Adam
A. Martin, Chief Investment Officer
|
2018
|
130,000
|
38
|
130,038
|
|
|
2017
|
150,000
|
84
|
150,084
|
(1)
The Option Awards
were granted by our board of directors on December 12, 2017
pursuant to our Stock Compensation Plan, expire on December 11,
2027, have an exercise price of $.01 per share, and vest one-third
on the date of grant, one-third on December 12, 2018 and one-third
on December 12, 2019.
Outstanding Equity Awards at Fiscal Year End
|
|
Option
Awards
|
||||
|
Name
|
Number
of Securities Underlying Unexercised Options (#)
Exercisable
|
Number
of Securities Underlying Unexercised Options (#)
Un-exercisable
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options (#)
|
Option
Exercise Price ($)
|
Option
Expiration Date
|
|
Michael
Z. Anise
|
154,000
|
77,000
|
-
|
$0.01
|
12/11/2027
|
|
Adam
A. Martin
|
160,000
|
80,000
|
-
|
$0.01
|
12/11/2027
|
Director Compensation
Our non-employee directors do not currently receive any
compensation for their service, but we may adopt a compensation
plan for our directors at a future time.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth information regarding beneficial
ownership of our Common Stock as of May 8, 2019 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, Chief Executive Officer and President (3)
|
Common
Stock
|
8,645,000
|
67.04%
|
|
Michael Z. Anise,
Chief Financial Officer and Director (4)
|
Common
Stock
|
154,000
|
1.18%
|
|
Adam A. Martin,
Chief Investment Officer (5)
|
Common
Stock
|
160,000
|
1.23%
|
|
Terry
Robertson, Director
|
Common
Stock
|
0
|
*
|
|
James L. Johnson,
Director
|
Common
Stock
|
0
|
*
|
|
William H. Carter,
Director
|
Common
Stock
|
0
|
*
|
|
All officers and
directors as a group (6 persons named above)
|
Common
Stock
|
8,959,000
|
69.45%
|
|
Michael P. Kelly (6)
|
Common
Stock
|
2,000,000
|
15.51%
|
|
Joseph Jackson
(7)
|
Common
Stock
|
1,000,000
|
7.75%
|
* 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
12,895,062 shares of our Common stock are considered to be
outstanding pursuant to SEC Rule 13d-3(d)(1) as of May 8, 2019. For
each beneficial owner above, any options exercisable within 60 days
have been included in the denominator.
(3)
Represents
shares 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)
Consists of
154,000 shares of our Common
Stock which Mr. Anise has the right to acquire within 60 days
through the exercise of vested options but does not include
77,000 shares of our Common
Stock issuable upon the exercise of options not exercisable within
60 days.
(5)
Consists of
154,000 shares of our Common
Stock which Mr. Martin has the right to acquire within 60 days
through the exercise of vested options but does not include
80,000 shares of our Common
Stock issuable upon the exercise of options not exercisable within
60 days.
(6)
Represents
shares held by The Raymond M Gee Irrevocable Trust. Michael P.
Kelly is the Trustee of The Raymond M Gee Irrevocable Trust and has
voting and investment control over the shares held by
it.
(7)
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
The
following includes a summary of transactions since the beginning of
our 2017 fiscal year, or any currently proposed transaction, in
which we were or are to be a participant and the amount involved
exceeded or exceeds the lesser of $120,000 or one percent of the
average of our total assets at year-end for the last two completed
fiscal years, and in which any related person had or will have a
direct or indirect material
interest (other than compensation described under “Executive
Compensation”). We believe the terms obtained or
consideration that we paid or received, as applicable, in
connection with the transactions described below were comparable to
terms available or the amounts that would be paid or received, as
applicable, in arm's-length transactions.
On or about October 1, 2017, we entered into a revolving promissory
note with Raymond M. Gee, our chief executive officer and chairman
of our board and beneficial owner of a majority of our outstanding
Common Stock, 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 mandatory
principal payment is deferred until the maturity date. As of
December 31, 2018, the amount owed by us to Mr. Gee under this note
is $890,632, and no payments have been made by us since the date we
issued this note to Mr. Gee.
In
December 2018, we recorded $4,000 in revenues related to property
management consulting services provided to an entity with common
ownership as our chief executive officer and chairman.
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 May 8, 2019, there were 12,895,062 shares of Common Stock and 280,000 shares of our
Series A Preferred Stock issued and outstanding. No other shares of
our preferred stock were issued and outstanding as of such
date.
Common Stock
Holders of our Common Stock are entitled to one vote for each share
on all matters voted upon by our stockholders, including the
election of directors, and do not have cumulative voting rights.
Subject to the rights of holders of any then outstanding
shares of our Preferred Stock, our Common Stockholders are entitled
to any dividends that may be declared by our board. Holders
of our Common Stock are entitled to share ratably in our net assets
upon our dissolution or liquidation after payment or provision for
all liabilities and any preferential liquidation rights of our
Preferred Stock then outstanding. Holders of our Common Stock
have no preemptive rights to purchase shares of our stock.
The shares of our Common Stock are not subject to any
redemption provisions. The rights, preferences and
privileges of holders of our Common Stock will be subject to those
of the holders of any shares of our Preferred Stock that we may
issue in the future.
Preferred Stock
Our articles of incorporation further authorize the board of
directors to issue, from time to time, without stockholder approval, up to 10,000,000 shares of
Preferred Stock. Our board may, from time to time, authorize the
issuance of one or more classes or series of Preferred Stock
without stockholder approval. Subject to the provisions of our
articles of incorporation and limitations prescribed by law, our
board is authorized to adopt resolutions to issue shares, establish
the number of shares, change the number of shares constituting any
series, and provide or change the voting powers, designations,
preferences and relative rights, qualifications, limitations or
restrictions on shares of our Preferred Stock, including dividend
rights, terms of redemption, conversion rights and liquidation
preferences, in each case without any action or vote by our
stockholders.
One of the effects of undesignated Preferred Stock may be to enable
our board to discourage an attempt to obtain control of our company
by means of a tender offer, proxy contest, merger or otherwise. The
issuance of Preferred Stock may adversely affect the rights of our
common stockholders by, among other things: restricting dividends
on the Common Stock; diluting the voting power of the Common Stock;
impairing the liquidation rights of the Common Stock; or delaying
or preventing a change in control without further action by the
stockholders.
Series A Preferred Stock
On May 8, 2019, we filed a certificate of designation with the
Nevada Secretary of State to establish our Series A Preferred
Stock. We designated a total of 4,000,000 shares of Preferred Stock
as “Series A Cumulative Convertible Preferred Stock.”
Our Series A Preferred Stock has the following voting powers,
designations, preferences and relative rights, qualifications,
limitations or restrictions:
Ranking. The Series A Preferred Stock ranks, as to dividend
rights and rights upon our liquidation, dissolution, or winding up,
senior to our Common Stock. The terms of the Series A Preferred
Stock will not limit our ability to (i) incur indebtedness or (ii)
issue additional equity securities that are equal or junior in rank
to the shares of our Series A Preferred Stock as to distribution
rights and rights upon our liquidation, dissolution or winding
up.
Dividend Rate and Payment Dates. Dividends on our Series A
Preferred Stock are cumulative and payable monthly in arrears to
all holders of record on the applicable record date. Holders of our
Series A Preferred Stock will be entitled to receive cumulative
dividends in the amount of $0.017 per share each month, which is
equivalent to the rate of 8% of the $2.50 liquidation preference
per share. Dividends on shares of our Series A Preferred Stock will
continue to accrue even if any of our agreements prohibit the
current payment of dividends or we do not have
earnings.
Liquidation Preference. The liquidation preference for each
share of our Series A Preferred Stock is $2.50. Upon a liquidation,
dissolution or winding up of our company, holders of shares of our
Series A Preferred Stock will be entitled to receive the
liquidation preference with respect to their shares plus an amount
equal to any accrued but unpaid dividends (whether or not declared)
to, but not including, the date of payment with respect to such
shares.
Stockholder Optional Conversion. Holders of shares of our
Series A Preferred Stock may at any time convert shares of our
Series A Preferred Stock in full, but not in part, into shares of
our Common Stock at a conversion rate of $2.50 per share of Common
Stock. In the event that such conversion might result in the
issuance of a fractional share of our Common Stock, the number of
shares of our Common Stock issued to the holder shall be rounded up
to the nearest whole number.
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
Prior to the initial closing of this offering, we will file a
certificate of designation with the Nevada Secretary of State to
establish our Series B Preferred Stock. We will designate a total
of 1,000,000 shares of Preferred Stock as “Series B
Cumulative Redeemable Preferred Stock.” Our Series B Preferred Stock will have
the following voting powers, designations, preferences and relative
rights, qualifications, limitations or
restrictions:
Ranking. The Series B 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. The terms of the Series B Preferred Stock will not limit our
ability to (i) incur indebtedness or (ii) issue additional equity
securities that are equal or junior in rank to the shares of our
Series B Preferred Stock as to distribution rights and rights upon
our liquidation, dissolution or winding up.
Dividend Rate and Payment Dates. Dividends on the Series B
Preferred Stock being offered will be cumulative and payable
monthly in arrears to all holders of record on the applicable
record date. Holders of our Series B Preferred Stock will be
entitled to receive cumulative dividends in the amount of $0.067
per share each month, which is equivalent to the annual rate of 8%
of the $10.00 liquidation preference per share; 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 will be $10.00. Upon a
liquidation, dissolution or winding up of our company, holders of
shares of our Series B Preferred Stock will be entitled to receive
the liquidation preference with respect to their shares plus an
amount equal to any accrued but unpaid dividends (whether or not
declared) to, but not including, the date of payment with respect
to such shares.
Company Call and Stockholder Put Options. Commencing on 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 will not
be convertible into shares of our Common Stock.
Underwriter Warrants
At the closing of this offering, we are required to issue the
underwriter a warrant to purchase a number of shares of Common
Stock equal to 5% of the total amount raised in such closing
divided by $2.50, which is the price per share at which shares of
our Series A Preferred Stock are convertible into Common Stock, at
an exercise price of $10 per share. The underwriter warrants will
have a five-year term and contain a standard cashless exercise
provision. The underwriter warrants will contain other customary
terms and conditions, including without limitation, provisions for
piggy back registration rights, and the underwriter warrants are
being registered under the offering statement of which this
offering circular is a part.
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.
UNDERWRITING
Engagement Agreement with Digital Offering
We are currently party to an engagement agreement with Digital
Offering LLC, who we refer to as the underwriter. The underwriter
has agreed to act as our managing broker-dealer for the offering.
The underwriter has made no commitment to purchase all or any part
of the shares of Series B Preferred Stock being offered but has
agreed to use its best efforts to sell such shares in the
offering.
The term of the engagement agreement began on April 30, 2019 and
will continue until the earlier to occur of: (i) the closing of
this offering and (ii) ten (10) business days after either party
gives the other written notice of termination.
The engagement agreement provides that the underwriter may ask
other FINRA member broker-dealers that are registered with the SEC
to participate as soliciting dealers for this offering. We refer to
these other broker-dealers as soliciting dealers. Upon appointment
of any such soliciting dealer, the underwriter is permitted to
re-allow all or part of its fees and expense allowance as described
below. Such soliciting dealer is also automatically entitled to
receive the benefits of our engagement agreement with the
underwriter, including the indemnification rights arising under the
engagement agreement upon their execution of a soliciting dealer
agreement with the underwriter that confirms that such soliciting
dealer is so entitled. We will not be responsible for paying any
placement agency fees, commissions or expense reimbursements to any
soliciting dealers retained by the underwriter that is in excess of
the fees and expense reimbursement provided for under our
engagement agreement with the underwriter.
None of the soliciting dealers are purchasing any of the shares of
Series B Preferred Stock in this offering and are not required to
sell any specific number or dollar amount of Series B Preferred
Stock, but will instead arrange for the sale of securities to
investors on a “best efforts” basis, meaning that they
need only use their best efforts to sell the
securities.
Underwriter Compensation
Cash Commission and Underwriter Warrants
We will pay the underwriter concurrently with each closing of the
offering a cash placement fee equal to 7% of the gross proceeds of
such closing. As additional compensation to the underwriter, we
will issue to the underwriter at each closing a warrant to purchase
a number of shares of Common Stock equal to 5% of the total amount
raised in such closing divided by $2.50, which is the price per
share at which shares of our Series A Preferred Stock are
convertible into Common Stock, at an exercise price of $10 per
share. The underwriter warrants will have a five-year term and
contain a standard cashless exercise provision. The underwriter
warrants will contain other customary terms and conditions,
including without limitation, provisions for piggy back
registration rights, and the underwriter warrants are being
registered under the offering statement of which this offering
circular is a part.
The underwriter warrants and the shares of our Common Stock
underlying the underwriter warrants have been deemed compensation
by FINRA and are therefore subject to a 180-day lock-up pursuant to
Rule 5110(g)(1) of FINRA. Digital Offering, or permitted assignees
under such rule, may not exercise, sell, transfer, assign, pledge,
or hypothecate the underwriter warrants or the shares of our Common
Stock underlying the underwriter warrants, nor will they engage in
any hedging, short sale, derivative, put, or call transaction that
would result in the effective economic disposition of the
underwriter warrants or the underlying shares for a period of 180
days from the applicable closing. In addition, the underwriter
warrants provide for registration rights upon request, in certain
cases. The demand registration right provided will not be greater
than five years from the date on which this offering statement is
qualified in compliance with FINRA Rule 5110(f)(2)(G)(iv). The
piggyback registration right provided will not be greater than
seven years from the date on which the offering statement is
qualified in compliance with FINRA Rule 5110(f)(2)(G)(v). We will
bear all fees and expenses attendant to registering the securities
issuable on exercise of the underwriter warrants other than any
underwriting commissions incurred and payable by the holders. The
exercise price and number of shares issuable upon exercise of the
underwriter warrants may be adjusted in certain circumstances
including in the event of a stock dividend or our recapitalization,
reorganization, merger or consolidation. However, the underwriter
warrant exercise price or underlying shares will not be adjusted
for issuances of shares of Common Stock at a price below the
underwriter warrant exercise price.
Underwriter Expenses
We will be responsible for paying or reimbursing the underwriter
for all of its reasonable documented out-of-pocket expenses related
to the offering including, without limitation, the
underwriter’s legal expenses, cost of background checks and
independent third party due diligence reports on our company,
travel expenses, photocopying, and courier services subject to a
cap of $30,000.
Retainer Amount
Upon entering into the engagement agreement with the underwriter,
we paid the underwriter a $15,000 retainer, which was used by the
underwriter for the payment of the legal and other expenses
described above. The retainer amount will be set off against and
credited toward the expenses described above. Any unused portion of
the retainer amount will be returned to us if the offering is
terminated for any reason.
Company Expenses
We are responsible for all of our own costs and expenses relating
to the offering, including, without limitation:
●
all
filing fees and communication expenses relating to the
qualification of the securities to be sold in the offering with the
SEC and the filing of the offering materials with the FINRA under
FINRA Rule 5110,
●
the
My IPO investor platform is paperless, should we want paper
offering documents, the costs of all mailing and printing of the
offering documents, the offering statement, the offering circular
and all amendments, supplements and exhibits thereto and as many
preliminary and final offering circulars as the underwriter and we
may reasonably deem necessary,
●
the
costs of preparing, electronically delivering certificates
representing shares of Series B Preferred Stock sold in the
offering,
●
the
costs and expenses of the transfer agent for the Series B Preferred
Stock, and
●
the
costs and expenses of our accountants and the fees and expenses of
our legal counsel and other agents and
representatives.
We estimate the expenses of this offering payable by us, not
including commissions, will be approximately $115,000, which
includes the underwriter expense reimbursement of up to $30,000,
but excludes any commissions attributable to the sale of shares of
our Series B Preferred Stock in the offering.
Purchase of Securities by Our Officers and Directors
Our officers and directors and affiliates of our officers and
directors are permitted to purchase shares in the offering. Any
such purchases shall be conducted in compliance with the applicable
provisions of Regulation M.
Pricing of the Offering
Prior to the offering, our Common Stock has been eligible for
quotation on the Pink Open Market, however, there has been very
little trading of our Common Stock on such market. The public
offering price for our Series B Preferred Stock was determined by
negotiation between us and the underwriter. The principal factors
considered in determining the terms of our Series B Preferred Stock
and the public offering price include:
●
the
information set forth in this offering circular and otherwise
available to the underwriter;
●
our
history and prospects and the history of and prospects for the
industry in which we compete;
●
our
past and present financial performance;
●
our
prospects for future earnings and the present state of our
development;
●
the
general condition of the securities markets at the time of this
offering;
●
the
recent market prices of, and demand for, publicly traded Common
Stock of generally comparable companies;
●
the
price and terms upon which we sold shares of our Series A Preferred
Stock; and
●
other
factors deemed relevant by our underwriter and
us.
Indemnification and Control
We have agreed to indemnify the underwriter and soliciting dealers
against liabilities relating to the offering arising under the
Securities Act and the Exchange Act, liabilities arising from
breaches of some or all of the representations and warranties
contained in our engagement agreement with the underwriter or the
Representation Letter (as defined in the engagement agreement) or
agreements with soliciting dealers, and to contribute to payments
that the soliciting dealers may be required to make for these
liabilities.
The underwriter and the soliciting dealers and their respective
affiliates are engaged in various activities, which may include
securities trading, commercial and investment banking, financial
advisory, investment management, investment research, principal
investment, hedging, financing and brokerage activities. The
underwriter and the soliciting dealers and their respective
affiliates may in the future perform various financial advisory and
investment banking services for us, for which they received or will
receive customary fees and expenses.
Our Relationship with the Underwriter and Soliciting
Dealers
In the ordinary course of their various business activities, the
underwriter and soliciting dealers and their respective affiliates
may make or hold a broad array of investments and actively trade
debt and equity securities (or related derivative securities) and
financial instruments (including bank loans) for their own account
and for the accounts of their customers, and such investment and
securities activities may involve securities and/or instruments of
our company. The underwriter and soliciting dealers and their
respective affiliates may also make investment recommendations
and/or publish or express independent research views in respect of
such securities or instruments, or recommend to clients that they
acquire, long and/or short positions in such securities and
instruments.
Offering Period and Expiration Date
This offering will start on or after the date that the offering
statement is qualified by the SEC and will terminate at the
earlier of: (1) the date at which the maximum amount of offered
units has been sold, (2) the date which is 180 days after this
offering is qualified by the U.S. Securities and Exchange
Commission, or the SEC, subject to an extension of up to an
additional 180 days at the discretion of us and the underwriter, or
(3) the date on which this offering is earlier terminated by us in
our sole discretion. We refer to the duration of this offering as
described above as the offering period.
Investment Procedures
Subscription Procedures for Cambria Capital, My IPO and Cambria
Capital’s Clearing Firm
Cambria
Capital is an SEC registered broker-dealer and member of FINRA and
SIPC. Cambria Capital has been appointed by us and Digital
Offering, our managing broker-dealer, as a soliciting dealer for
this offering. Cambria Capital operates the My IPO platform as a
separate unincorporated business division. Cambria Capital’s
clearing firm, who we refer to as the Clearing Firm, is an SEC
registered broker-dealer and member of FINRA and SIPC and is
authorized to act as a clearing broker-dealer. Cambria Capital and
its My IPO division clear through the Clearing Firm as do other
broker-dealers who may participate in this offering. We refer to
such other broker-dealers that clear through the Clearing Firm and
who may participate in this offering as Other
Broker-Dealers.
Prospective
investors investing through Cambria Capital, My IPO or Other
Broker-Dealers will acquire shares of our Series B Preferred Stock
through book-entry order by opening an account with Cambria
Capital, My IPO, or an Other Broker-Dealer, or by utilizing an
existing Cambria Capital account, My IPO account or account with an
Other Broker-Dealer. In each such case, the account will be an
account owned by the investor and held at the Clearing Firm, as the
clearing firm for the exclusive benefit of such investor. The
investor will also be required to complete and submit a
subscription agreement. Subscriptions for shares of Series B
Preferred Stock acquired through an account at Cambria Capital, My
IPO or an Other Broker-Dealer are all processed online
Our
transfer agent is First American Stock Transfer Inc. Our transfer
agent will record and maintain records of the shares of Series B
Preferred Stock issued of record by us, including shares issued of
record to the Depositary Trust Corporation, which we refer to as
the DTC, or its nominee, Cede & Co., for the benefit of
broker-dealers, including the Clearing Firm. The Clearing Firm, as
the clearing firm, will maintain the individual shareholder
beneficial records for accounts at Cambria Capital, My IPO or Other
Broker-Dealers.
The
process for investing through Cambria Capital, My IPO or through
Other Broker-Dealers will work in the following manner. The
Clearing Firm will enter into a custody agreement with us pursuant
to which we will issue uncertificated securities to be held at the
Clearing Firm, and the shares of Series B Preferred stock held at
the Clearing Firm will be reflected as an omnibus position on our
records and the transfer agent's records in the name of the
Clearing Firm, for the exclusive benefit of customers. We will open
a brokerage account with the Clearing Firm and the Clearing Firm
will hold the shares of Series B Preferred Stock to be sold in the
offering in book-entry form in our company’s Clearing Firm
account. When the shares of Series B Preferred stock are sold, the
Clearing Firm maintains a record of each investor's ownership
interest in those securities. Under an SEC no-action letter
provided to the Clearing Firm in January 2015, the Clearing Firm is
allowed to treat the issuer as a good control location pursuant to
Exchange Act Rule 15c3-3(c)(7) under these circumstances. The
customer's funds will not be transferred into a separate account
awaiting the initial closing, or any other closing, but will remain
in the customer's account at the Clearing Firm pending instructions
to release funds to us if all conditions necessary for a closing
are met. We intend to apply for DTC eligibility of our shares and
if our shares gain DTC eligibility then the shares held in the
Clearing Firm accounts will be included in the position of DTC or
its nominee, Cede & Co., on the records of our transfer
agent.
In
order to subscribe to purchase the shares of Series B Preferred
Stock through Cambria Capital, My IPO or through an Other
Broker-Dealer, a prospective investor must electronically complete
and execute a subscription agreement and provide payment using the
procedures indicated below. When submitting the subscription
request through Cambria Capital, My IPO or an Other Broker-Dealer,
a prospective investor is required to agree to various terms and
conditions by checking boxes and to review and electronically sign
any necessary documents. We will not accept any subscription
agreements prior to the SEC’s qualification of this
offering.
The
funds that will be used by an investor purchasing through Cambria
Capital, My IPO or an Other Broker-Dealer that clears through the
Clearing Firm to purchase the securities are deposited by the
investor prior to the applicable closing date into a brokerage
account at the Clearing Firm, which will be owned by the investor.
The funds for the investor's account held at the Clearing Firm can
be provided by check, wire, Automated Clearing House, or ACH, push,
ACH pull, direct deposit, Automated Customer Account Transfer
Service, or ACATS, or non-ACATS transfer. Under an SEC no-action
letter provided to the Clearing Firm in July 2015, the funds will
remain in the customer’s account after they are deposited and
until the conditions of the offering are satisfied and the offering
closes, the prospective investor’s offer is cancelled, or
this offering is withdrawn or expired.
After
any contingencies of the offering or any particular closing are
met, we will notify the Clearing Firm when we wish to conduct a
closing. The Clearing Firm executes the closing by transferring
each investor's funds from their Cambria Capital, My IPO or Other
Broker-Dealer accounts to our Clearing Firm account and
transferring the correct number of book-entry shares to each
investor’s account from our Clearing Firm account. The shares
are then reflected in the investor's online account and shown on
the investor's Cambria Capital, My IPO or Other Broker-Dealer
account statements. Cambria Capital, My IPO and Other
Broker-Dealers will also send trade confirmations individually to
the investors.
Other Procedures for Subscribing
Investors
not purchasing through Cambria Capital, My IPO or an Other
Broker-Dealer that clears through the Clearing Firm must complete
and execute a subscription agreement for a specific number of
shares and pay for the shares at the time of the subscription.
Subscription agreements may be submitted in paper form, or
electronically, if electronic subscription agreements and signature
are made available to you by your broker-dealer or registered
investment advisor. Generally, when submitting a subscription
agreement electronically, a prospective investor will be required
to agree to various terms and conditions by checking boxes and to
review and electronically sign any necessary documents. You may pay
the purchase price for your shares by: (i) check; (ii) wire
transfer in accordance with the instructions contained in your
subscription agreement or (iii) electronic funds transfer via ACH
in accordance with the instructions contained in your subscription
agreement. All checks should be made payable to “[ ], as
Escrow Agent for Manufactured Housing Properties Inc.”
Completed subscription agreements will be sent by your
broker-dealer or registered investment advisor, as applicable, to
Digital Offering at the address set forth in the subscription
agreement. Subscription payments should be delivered directly to
the escrow agent. If you send your subscription payment to your
broker or registered investment advisor, then your broker or
registered investment advisor will immediately forward your
subscription payment to the escrow agent. Subscriptions will be
effective only upon our acceptance, and we reserve the right to
reject any subscription in whole or in part.
You may
not subscribe to this offering prior to the date this offering is
qualified by the SEC, which we will refer to as the qualification
date. Before the qualification date, you may only make non-binding
indications of your interest to purchase securities in the
offering. For any subscription
agreements received after the qualification date, we have the right
to review and accept or reject the subscription in whole or in
part, for any reason or for no reason. If rejected, we will
return all funds to the rejected subscribers within ten business days. If
accepted, the funds will remain in the escrow account until all
conditions to closing have been satisfied or waived, at which point
we will have an initial closing of the offering and the funds in
escrow will then be transferred into our general account. Following
the initial closing of this offering, we expect to have several
subsequent closings of this offering until the maximum offering
amount is raised or the offering is terminated. You will receive a
confirmation of your purchase promptly following the closing in
which you participate.
Right to Reject Subscriptions
After we receive your complete, executed subscription agreement (a
form of which is attached to the offering statement as Exhibit 4.1)
and the funds required under the subscription agreement have been
transferred to the escrow account, we have the right to review and
accept or reject your subscription in whole or in part, for any
reason or for no reason. We will return all monies from rejected
subscriptions immediately to you, without interest or
deduction.
Acceptance of Subscriptions
Upon our acceptance of a subscription agreement, we will
countersign the subscription agreement and issue the shares
subscribed at closing. Once you submit the subscription agreement
and it is accepted, you may not revoke or change your subscription
or request your subscription funds. All accepted subscription
agreements are irrevocable.
Investment Amount Limitations
Generally,
no sale may be made to you in this offering if the aggregate
purchase price you pay is more than 10% of the greater of your
annual income or net worth. Different rules apply to accredited
investors and non-natural persons. Before making any representation
that your investment does not exceed applicable thresholds, we
encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For
general information on investing, we encourage you to refer
to www.investor.gov.
As a
Tier 2, Regulation A offering, investors must comply with the 10%
limitation to investment in the offering. The only investor in this
offering exempt from this limitation is an “Accredited
Investor” as defined under Rule 501 of Regulation D. If you
meet one of the following tests you should qualify as an Accredited
Investor:
1.
You are a natural
person who has had individual income in excess of $200,000 in each
of the two most recent years, or joint income with your spouse in
excess of $300,000 in each of these years, and have a reasonable
expectation of reaching the same income level in the current
year;
2.
You are a natural
person and your individual net worth, or joint net worth with your
spouse, exceeds $1,000,000 at the time you purchase our units
(please see above on how to calculate your net worth);
3.
You are an
executive officer or general partner of the issuer or a manager or
executive officer of the general partner of the
issuer;
4.
You are an
organization described in Section 501(c)(3) of the Code, a
corporation, a Massachusetts or similar business trust or a
partnership, not formed for the specific purpose of acquiring the
units, with total assets in excess of $5,000,000;
5.
You are a bank or a
savings and loan association or other institution as defined in the
Securities Act, a broker or dealer registered pursuant to Section
15 of the Exchange Act, an insurance company as defined by the
Securities Act, an investment company registered under the
Investment Company Act or a business development company as defined
in that act, any Small Business Investment Company licensed by the
Small Business Investment Act of 1958 or a private business
development company as defined in the Investment Advisers Act of
1940;
6.
You are an entity
(including an Individual Retirement Account trust) in which each
equity owner is an accredited investor;
7.
You are a trust
with total assets in excess of $5,000,000, your purchase of units
is directed by a person who either alone or with his purchaser
representative(s) (as defined in Regulation D promulgated under the
Securities Act) has such knowledge and experience in financial and
business matters that he is capable of evaluating the merits and
risks of the prospective investment, and you were not formed for
the specific purpose of investing in the units; or
8.
You are a plan
established and maintained by a state, its political subdivisions,
or any agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees, if such plan has
assets in excess of $5,000,000.
NOTE:
For the purposes of calculating your Net Worth, it is defined as
the difference between total assets and total liabilities. This
calculation must exclude the value of your primary residence and
may exclude any indebtedness secured by your primary residence (up
to an amount equal to the value of your primary residence). In the
case of fiduciary accounts, net worth and/or income suitability
requirements may be satisfied by the beneficiary of the account or
by the fiduciary, if the fiduciary directly or indirectly provides
funds for the purchase of the units.
Offer Restrictions Outside the United States
Other
than in the United States, no action has been taken by us or the
underwriter that would permit a public offering of the securities
offered by this offering circular in any jurisdiction where action
for that purpose is required. The securities offered by this
offering circular may not be offered or sold, directly or
indirectly, nor may this offering circular or any other offering
material or advertisements in connection with the offer and sale of
any such securities be distributed or published in any
jurisdiction, except under circumstances that will result in
compliance with the applicable rules and regulations of that
jurisdiction. Persons into whose possession this offering circular
comes are advised to inform themselves about and to observe any
restrictions relating to the offering and the distribution of this
offering circular. This offering circular does not constitute an
offer to sell or a solicitation of an offer to buy any securities
offered by this offering circular in any jurisdiction in which such
an offer or a solicitation is unlawful.
LEGAL
MATTERS
The
validity of the shares of Series B Preferred Stock covered by this
offering circular will be passed upon by Sherman & Howard L.L.C.
EXPERTS
The
financial statements of our company for the year ended December 31,
2018 and 2017 have been audited by Liggett & Webb, P.A., an
independent registered public accounting firm, to the extent and
for the periods set forth in their 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.
FINANCIAL STATEMENTS
|
|
Page(s)
|
|
|
|
|
F-2
|
|
|
F-3
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6
|
|
|
F-7
|
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the
Shareholders and Board of Directors of:
Manufactured
Housing Properties, Inc.
Opinion on the Financial Statements
We have
audited the accompanying consolidated balance sheets of
Manufactured Housing Properties, Inc. (the “Company”)
as of December 31, 2018 and 2017, the related consolidated
statements of operations, changes in stockholders’ deficit
and cash flows for each of the two years ended December 31, 2018
and 2017, and the related notes. In our opinion, the consolidated
financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2018 and 2017,
and the results of its operations and its cash flows for the years
ended December 31, 2018 and 2017, in conformity with accounting
principles generally accepted in the United States of
America.
Explanatory Paragraph – Going Concern
The
accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 2 to the consolidated financial statements, the
Company has experienced net losses since inception and negative
cash flows from operations and has relied on loans from related
parties to fund its operations. These factors raise substantial
doubt about the Company's ability to continue as a going concern.
Management’s plans in regard to these matters are described
in Note 2. The consolidated financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
Basis for Opinion
These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements
based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal controls over
financial reporting. As part of our audits, we are required to
obtain an understanding of internal control over financial
reporting, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such
opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
/s/ Liggett & Webb, P.A.
LIGGETT
& WEBB, P.A.
Certified Public Accountants
We have
served as the Company’s auditor since 2017.
Boynton
Beach, Florida
April
1, 2019
MANUFACTURED HOUSING PROPERTIES,
INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2018 AND DECEMBER 31, 2017
|
Assets
|
2018
|
2017
|
|
Investment
Property
|
|
|
|
Land
|
$4,357,950
|
$4,357,950
|
|
Site
and Land Improvements
|
6,781,845
|
6,773,316
|
|
Buildings
and Improvements
|
1,441,222
|
1,239,504
|
|
Acquisition
Cost
|
140,758
|
140,758
|
|
Total
Investment Property
|
12,721,775
|
12,511,528
|
|
Accumulated
Depreciation and Amortization
|
(699,184)
|
(164,894)
|
|
Net
Investment Property
|
12,022,591
|
12,346,634
|
|
|
|
|
|
Cash
and Cash Equivalents
|
458,271
|
355,935
|
|
Accounts
Receivable, net
|
12,987
|
46,400
|
|
Other
Assets
|
99,472
|
49,971
|
|
|
|
|
|
Total
Assets
|
$12,593,321
|
$12,798,940
|
|
|
|
|
|
Liabilities
|
|
|
|
Accounts
Payable
|
$71,091
|
$35,726
|
|
Loans
Payable
|
9,086,110
|
9,205,647
|
|
Loans
Payable - related party
|
890,632
|
441,882
|
|
Convertible
Note Payable – Related party
|
2,754,550
|
2,754,550
|
|
Accrued
Liabilities
|
612,819
|
136,360
|
|
Tenant
Security Deposits
|
131,149
|
88,337
|
|
Total
Liabilities
|
13,546,351
|
12,662,502
|
|
|
|
|
|
Commitments
and Contingencies (See note 6)
|
-
|
-
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity (deficit)
|
|
|
|
|
|
|
|
Preferred
Stock (Stock par value $0.01 per share, 10,000,000 shares
authorized, of which 4,000,000 shares designated Series A
Cumulative Convertible, and zero shares are issued and outstanding
as of December 31, 2018 and 2017, respectively)
|
-
|
-
|
|
Common
Stock (Stock par value $0.01 per share, 200,000,000 shares
authorized, 10,350,062 and 10,000,062 shares are issued and
outstanding as of December 31, 2018 and 2017,
respectively)
|
103,500
|
100,000
|
|
Additional
Paid in Capital
|
451,567
|
238,803
|
|
Accumulated
deficit
|
(1,801,338)
|
(504,945)
|
|
Total
Manufactured Housing Properties, Inc. Stockholders’
Deficit
|
(1,246,271)
|
(166,142)
|
|
|
|
|
|
Non-controlling
interest
|
293,241
|
302,580
|
|
Total
Equity (Deficit)
|
(953,030)
|
136,438
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
(DEFICIT)
|
$12,593,321
|
$12,798,940
|
See accompanying notes to consolidated financial
statements
MANUFACTURED HOUSING PROPERTIES,
INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
|
|
2018
|
2017
|
|
Revenue
|
|
|
|
Rental
and Related Income
|
$1,975,312
|
$689,788
|
|
|
|
|
|
Management
fees, related party
|
4,000
|
-
|
|
Home
sales
|
21,000
|
-
|
|
Total
Revenues
|
2,000,312
|
689,788
|
|
|
|
|
|
|
|
|
|
Community
Operating Expenses
|
|
|
|
Repair
and Maintenance
|
135,131
|
26,891
|
|
Real
estate taxes
|
81,024
|
31,840
|
|
Utilities
|
149,516
|
97,769
|
|
Insurance
|
54,079
|
12,462
|
|
General
and Administrative Expense
|
256,631
|
102,368
|
|
Total
Community Operating Expenses
|
676,381
|
271,330
|
|
|
|
|
|
Corporate
Payroll and Overhead
|
1,030,527
|
184,754
|
|
Depreciation
and Amortization Expense
|
534,290
|
162,680
|
|
Interest
expense
|
1,001,455
|
251,798
|
|
Reorganization
costs
|
-
|
304,559
|
|
|
|
|
|
Total
Expenses
|
3,242,653
|
1,175,121
|
|
|
|
|
|
Net
loss before provision for income taxes
|
(1,242,341)
|
(485,333)
|
|
|
|
|
|
Provision
for income taxes
|
8,286
|
-
|
|
Net
loss
|
$(1,250,627)
|
$(485,333)
|
|
|
|
|
|
Net
Income attributable to the non-controlling interest
|
45,766
|
20,754
|
|
|
|
|
|
Net
Loss attributable to the Company
|
$(1,296,393)
|
$(506,087)
|
|
|
|
|
|
Weighted
Average Shares - Basic and Fully Diluted
|
10,100,747
|
5,175,180
|
|
|
|
|
|
Weighted
Average - Basic
|
$(0.13)
|
$(0.10)
|
|
Weighted
Average - Fully Diluted
|
$(0.13)
|
$(0.10)
|
See accompanying notes to consolidated financial
statements
MANUFACTURED HOUSING PROPERTIES,
INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
|
|
COMMON
STOCK
|
ADDITIONAL
PAID
IN
|
NON-
CONTROLLING
|
RETAINED
EARNINGS
(ACCUMULATED
|
STOCKHOLDERS’
EQUITY
|
|
|
|
SHARES
|
PAR
VALUE
|
CAPITAL
|
INTEREST
|
DEFICIT)
|
(DEFICIT)
|
|
Balance at December 31,
2016
|
3,820,845
|
$38,208
|
$92,822
|
$309,533
|
$1,142
|
$441,705
|
|
|
|
|
|
|
|
|
|
Stock issued for line
of credit
|
455,000
|
4,550
|
11,053
|
-
|
-
|
15,603
|
|
|
|
|
|
|
|
|
|
Shares issued to
consultant for reverse merger
|
553,888
|
5,539
|
13,456
|
-
|
-
|
18,995
|
|
|
|
|
|
|
|
|
|
Capital
Contributions
|
4,824,155
|
48,242
|
117,195
|
-
|
-
|
165,437
|
|
|
|
|
|
|
|
|
|
Stock option
expense
|
-
|
-
|
245
|
-
|
-
|
245
|
|
|
|
|
|
|
|
|
|
In-kind contribution of
interest
|
-
|
-
|
7,493
|
-
|
-
|
7,493
|
|
|
|
|
|
|
|
|
|
Minority Interest
distributions
|
-
|
-
|
-
|
(27,707)
|
-
|
(27,707)
|
|
|
|
|
|
|
|
|
|
Recapitalization
|
346,174
|
3,461
|
(3,461)
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
Net Income
(Loss)
|
-
|
-
|
-
|
20,754
|
(506,087)
|
(485,333)
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
2017
|
10,000,062
|
100,000
|
238,803
|
302,580
|
(504,945)
|
136,438
|
|
|
|
|
|
|
|
|
|
Stock option
expense
|
-
|
-
|
69
|
-
|
-
|
69
|
|
|
|
|
|
|
|
|
|
Imputed Interest
|
-
|
-
|
44,695
|
-
|
-
|
44,695
|
|
Stock issued for
services
|
350,000
|
3,500
|
168,000
|
-
|
-
|
171,500
|
|
Non controlling Interest
distributions
|
-
|
-
|
-
|
(55,105)
|
-
|
(55,105)
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
-
|
-
|
-
|
45,766
|
(1,296,393)
|
(1,250,627)
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
2018
|
10,350,062
|
$103,500
|
$451,567
|
$293,241
|
$(1,801,338)
|
$(953,030)
|
See accompanying notes to consolidated financial
statements
MANUFACTURED HOUSING PROPERTIES,
INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
|
|
2018
|
2017
|
|
Cash
Flows From Operating Activities:
|
|
|
|
Net
Loss
|
$(1,250,627)
|
$(485,333)
|
|
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
|
|
|
|
In-kind
contribution of interest
|
44,695
|
7,493
|
|
Provision
for bad debts
|
59,657
|
-
|
|
Stock
option expense
|
69
|
245
|
|
Stock
compensation expense
|
171,500
|
34,598
|
|
Depreciation
& Amortization
|
534,290
|
162,680
|
|
Changes
in operating assets and liabilities:
|
|
|
|
Accounts
receivable
|
(26,244)
|
(46,400)
|
|
Other
assets
|
(49,501)
|
(49,971)
|
|
Accounts
payable
|
35,365
|
12,133
|
|
Accrued
expenses
|
476,459
|
125,124
|
|
Other
Liabilities and deposits
|
42,812
|
88,337
|
|
Net
Cash Provided by (used in) Operating Activities
|
38,475
|
(151,094)
|
|
|
|
|
|
Cash
Flows From Investing Activities:
|
|
|
|
Purchases
of investment properties
|
(231,247)
|
(23,322)
|
|
Proceeds
from sale of properties
|
21,000
|
-
|
|
Net
Cash Used in Investing Activities
|
(210,247)
|
(23,322)
|
|
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
|
Proceeds
from issuance of common stock
|
-
|
165,437
|
|
Proceeds
from related party note
|
448,750
|
441,882
|
|
Proceeds
from note payables
|
117,014
|
(70,540)
|
|
Repayment
of notes payable
|
(236,551)
|
-
|
|
Non
controlling interest (Distributions)
|
(55,105)
|
(27,707)
|
|
Net
cash provided by financing activities
|
274,108
|
509,072
|
|
|
|
|
|
Net
Change in Cash and cash equivalents
|
102,336
|
334,656
|
|
Cash
and cash equivalents at Beginning of the Period
|
355,935
|
21,279
|
|
Cash
and cash equivalents at End of the Period
|
$458,271
|
$355,935
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
Income
Taxes
|
$8,286
|
$-
|
|
Interest
|
$751,344
|
$159,234
|
|
|
|
|
|
Non-Cash
Investing and Financing Activities
|
|
|
|
The
Company issued a convertible and notes payable totaling $1,889,393
for the purchase of investment properties totaling $1,889,393 in
2017.
|
|
|
See accompanying notes to consolidated financial
statements
MANUFACTURED HOUSING PROPERTIES,
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
ORGANIZATION
(A) Organization
The Company is a Nevada corporation whose principal activities
together with its affiliates, acquires, owns, and operates
manufactured housing communities. Mobile Home Rental Holdings
(“MHRH”) was formed in April 2016 to acquire the assets
for Pecan Grove MHP in November 2016 and Butternut MHP in April
2017. To continue the acquisition and aggregation of mobile home
parks, MHRH intend to raise capital in the public markets.
Therefore, on October 21, 2017, MHRH was acquired by and merged
with a public entity Stack-it Storage, Inc. (OTC: STAK). As part of
the merger transaction, Stack-it Storage, Inc. changed its name to
Manufactured Housing Properties Inc. (OTC: MHPC).
For accounting purposes, this transaction was accounted for as a
reverse merger and has been treated as a recapitalization of
Stack-it Storage, Inc. with Manufactured Housing Properties, Inc.
as the accounting acquirer.
Basis of Presentation
The Company prepares its consolidated financial statements under
the accrual basis of accounting, in conformity with accounting
principles generally accepted in the United States of America
(“GAAP”).
The Company’s subsidiaries are all formed in the state of
North Carolina as Limited Liability Companies. The acquisition and
date of consolidation are as follows:
|
Date of Consolidation
|
|
Subsidiary
|
|
Ownership
|
|
October 2016
|
|
Pecan Grove MHP, LLC
|
|
75%
|
|
April 2017
|
|
Butternut MHP, LLC
|
|
100%
|
|
November 2017
|
|
Azalea MHP, LLC
|
|
100%
|
|
November 2017
|
|
Holly Faye MHP, LLC
|
|
100%
|
|
November 2017
|
|
Chatham MHP, LLC
|
|
100%
|
|
November 2017
|
|
Lake View MHP, LLC
|
|
100%
|
|
December, 2017
|
|
Maple Hills MHP, LLC
|
|
100%
|
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
The Company follows Topic 606 of the FASB Accounting Standards
Codification for revenue recognition and ASU 2014-09. On January 1,
2018, the Company adopted ASU 2014-09, which is a comprehensive new
revenue recognition model that requires revenue to be recognized in
a manner to depict the transfer of goods or services to a customer
at an amount that reflects the consideration expected to be
received in exchange for those goods or services. The Company
considers revenue realized or realizable and earned when all the
five following criteria are met: (1) Identify the Contract with a
Customer, (2) Identify the Performance Obligations in the Contract,
(3) Determine the Transaction Price, (4) Allocate the Transaction
Price to the Performance Obligations in the Contract, and (5)
Recognize Revenue When (or As) the Entity Satisfies a Performance
Obligation. Results for reporting periods beginning after January
1, 2018 are presented under ASU 2014-09, while prior period amounts
are not adjusted and continue to be reported under the previous
accounting standards. There was no impact to revenues as a result
of applying ASU 2014-09 for year ended December 31, 2018, and there
have not been any significant changes to our business processes,
systems, or internal controls as a result of implementing the
standard. The Company recognizes rental income revenues on a
monthly basis based on the terms of the lease agreement which are
for either the land or a combination of both, the mobile home and
land. Home sales revenues are recognized upon the sale of a home
with an executed sales agreement. The Company has deferred revenues
from home lease purchase options and records those option fees as
deferred revenues and then records them as revenues when (1) the
lease purchase option term is completed and title has been
transferred, or (2) the leaseholder defaults on the lease terms
resulting in a termination of the agreement which allows us to keep
any payments as liquidated damages.
Accounts receivable consist primarily of amounts currently due from
residence. 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 recievables are over 90 days old.
Acquisitions
The Company accounts for acquisitions in accordance with ASC 805,
Business Combinations (“ASC 805”) 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.
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 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. Total dilutive
securities outstanding as of December 31, 2018 and 2017 totaled
541,334 and 698,000 stock options, respectively and 793,683 and
786,695 convertible shares, respectively, which are not included in
dilutive loss per share as the effect would be
anti-dilutive.
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period.
The Company’s significant accounting estimates and
assumptions affecting the consolidated financial statements were
the estimates and assumptions used in valuation of equity and
derivative instruments. Those significant accounting estimates or
assumptions bear the risk of change due to the fact that there are
uncertainties attached to those estimates or assumptions, and
certain estimates or assumptions are difficult to measure or
value.
Management bases its estimates on historical experience and on
various assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources.
Management regularly reviews its estimates utilizing currently
available information, changes in facts and circumstances,
historical experience and reasonable assumptions. After such
reviews, and if deemed appropriate, those estimates are adjusted
accordingly. Actual results could differ from those estimates.
Significant estimates include the assumptions used in valuing
equity-based transactions, valuation of deferred tax assets,
depreciable lives of property and equipment and valuation of
investment property.
Investment Property and Equipment and Depreciation
Property and equipment are carried at cost. Depreciation for Sites
and Building is computed principally on the straight-line method
over the estimated useful lives of the assets (ranging from 15 to
25 years). Depreciation of Improvements to Sites and Buildings,
Rental Homes and Equipment and Vehicles is computed principally on
the straight-line method over the estimated useful lives of the
assets (ranging from 3 to 25 years). Land Development Costs are not
depreciated until they are put in use, at which time they are
capitalized as Sites and Land Improvements. Interest Expense
pertaining to Land Development Costs are capitalized. Maintenance
and Repairs are charged to expense as incurred and improvements are
capitalized. The costs and related accumulated depreciation of
property sold or otherwise disposed of are removed from the
financial statement and any gain or loss is reflected in the
current year’s results of operations.
Impairment Policy
The Company applies Financial Accounting Standards Board Accounting
Standards Codification (“ASC”) 360-10, Property, Plant
& Equipment (“ASC 360-10”) to measure impairment in
real estate investments. Rental properties are individually
evaluated for impairment when conditions exist which may indicate
that it is probable that the sum of expected future cash flows (on
an undiscounted basis without interest) from a rental property is
less than the carrying value under its historical net cost basis.
These expected future cash flows consider factors such as future
operating income, trends and prospects as well as the effects of
leasing demand, competition and other factors. Upon determination
that a permanent impairment has occurred, rental properties are
reduced to their fair value. For properties to be disposed of, an
impairment loss is recognized when the fair value of the property,
less the estimated cost to sell, is less than the carrying amount
of the property measured at the time there is a commitment to sell
the property and/or it is actively being marketed for sale. A
property to be disposed of is reported at the lower of its carrying
amount or its estimated fair value, less its cost to sell.
Subsequent to the date that a property is held for disposition,
depreciation expense is not recorded.
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, 2018 and 2017, the Company had no cash balances above the
FDIC-insured limit, 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. 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 $69 and $245 during the years
ended December 31, 2018 and 2017, respectively.
Fair Value of Financial Instruments
We follow paragraph 825-10-50-10 of the FASB Accounting Standards
Codification for disclosures about fair value of our financial
instruments and paragraph 820-10-35-37 of the FASB Accounting
Standards Codification (“Paragraph 820-10-35-37”) to
measure the fair value of our financial instruments. Paragraph
820-10-35-37 establishes a framework for measuring fair value in
accounting principles generally accepted in the United States of
America (“U.S. GAAP”), and expands disclosures about
fair value measurements. To increase consistency and comparability
in fair value measurements and related disclosures, Paragraph
820-10-35-37 establishes a fair value hierarchy which prioritizes
the inputs to valuation techniques used to measure fair value into
broad levels. The fair value hierarchy gives the highest priority
to quoted prices (unadjusted) in active markets for identical
assets or liabilities and the lowest priority to unobservable
inputs.
Recent Accounting Pronouncements
In May 2017, the FASB issued ASU No. 2017-09,
“Compensation-Stock Compensation (Topic 718): Scope of
Modification Accounting.” ASU 2017-09 clarifies which changes
to the terms or conditions of a share-based payment award are
subject to the guidance on modification accounting under FASB
Accounting Standards Codification Topic 718. Entities would apply
the modification accounting guidance unless the value, vesting
requirements and classification of a share-based payment award are
the same immediately before and after a change to the terms or
conditions of the award. ASU No. 2017-09 is effective for fiscal
years beginning after December 15, 2017, including interim periods
within those fiscal years. The Company has evaluated the potential
impact this standard may have on the consolidated financial
statements and determined that it had no impact on the consolidated
financial statements.
On February 22, 2017, the FASB issued ASU No. 2017-05, “Other
Income -Gains and Losses from the Derecognition of Nonfinancial
Assets.” ASU 2017-05 provides guidance for recognizing gains
and losses from the transfer of nonfinancial assets and in
substance nonfinancial assets in contracts with noncustomers,
unless other specific guidance applies. The standard requires a
company to derecognize nonfinancial assets once it transfers
control of a distinct nonfinancial asset or distinct in substance
nonfinancial asset. Additionally, when a company transfers its
controlling interest in a nonfinancial asset, but retains a
noncontrolling ownership interest, the cCompany is required to
measure any noncontrolling interest it receives or retains at fair
value. The guidance requires companies to recognize a full gain or
loss on the transaction. As a result of the new guidance, the
guidance specific to real estate sales in ASC 360-20 will be
eliminated. As such, sales and partial sales of real estate assets
will now be subject to the same derecognition model as all other
nonfinancial assets. The guidance is effective for annual periods
beginning after December 15, 2017, including interim periods within
that reporting period. The Company has evaluated the potential
impact this standard may have on the consolidated financial
statements and determined that it had no impact on the consolidated
financial statements.
In August 2016, the FASB issued ASU No. 2016-15, “Statement
of Cash Flows (Topic 230), Classification of Certain Cash Receipts
and Cash Payments.” ASU 2016-15 will make eight targeted
changes to how cash receipts and cash payments are presented and
classified in the statement of cash flows. ASU 2016-15 is effective
for annual reporting periods, including interim reporting periods
within those periods, beginning after December 15, 2017. Early
adoption is permitted. The Company believes that the adoption of
this standard will not have a material impact on our financial
position, results of operations or cash flows. The Company has
evaluated the potential impact this standard may have on the
consolidated financial statements and determined that it had no
impact on the consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial
Instruments – Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments.” ASU 2016-13 requires
that entities use a new forward looking “expected loss”
model that generally will result in the earlier recognition of
allowance for credit losses. The measurement of expected credit
losses is based upon historical experience, current conditions, and
reasonable and supportable forecasts that affect the collectability
of the reported amount. ASU No. 2016-13 is effective for annual
reporting periods, including interim reporting periods within those
periods, beginning after December 15, 2019. The Company is
currently evaluating the potential impact this standard may have on
the consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
“Leases.” ASU 2016-02 amends the existing accounting
standards for lease accounting, including requiring lessees to
recognize most leases on their balance sheets and making targeted
changes to lessor accounting. The standard requires a modified
retrospective transition approach for all leases existing at, or
entered into after, the date of initial application, with an option
to use certain transition relief. ASU 2016-02 will be effective for
annual reporting periods beginning after December 15, 2018. Early
adoption is permitted. The Company has evaluated the potential
impact this standard may have on the consolidated financial
statements and determined that it had no impact on the consolidated
financial statements.
In January 2016, the FASB issued ASU 2016-01, “Financial
Instruments – Overall: Recognition and Measurement of
Financial Assets and Financial Liabilities.” ASU 2016-01
requires equity investments (except those accounted for under the
equity method of accounting, or those that result in consolidation
of the investee) to be measured at fair value with changes in fair
value recognized in net income, requires public business entities
to use the exit price notion when measuring the fair value of
financial instruments for disclosure purposes, requires separate
presentation of financial assets and financial liabilities by
measurement category and form of financial asset, and eliminates
the requirement for public business entities to disclose the
method(s) and significant assumptions used to estimate the fair
value that is required to be disclosed for financial instruments
measured at amortized cost. ASU 2016-01 is effective for annual
reporting periods, including interim reporting periods within those
periods, beginning after December 15, 2017, and early adoption is
permitted. The Company has evaluated the potential impact this
standard may have on the consolidated financial statements and
determined that it had no impact on the consolidated financial
statements.
In June 2018, the FASB issued ASU 2018-07“Compensation –
Stock Compensation (Topic 718): Improvements to Nonemployee
Share-Based Payment Accounting.” This ASU relates to the accounting for
non-employee share-based payments. The amendment in this Update
expands the scope of Topic 718 to include all share-based payment
transactions in which a grantor acquired goods or services to be
used or consumed in a grantor’s own operations by issuing
share-based payment awards. The ASU excludes share-based payment
awards that relate to (1) financing to the issuer or (2) awards
granted in conjunction with selling goods or services to customers
as part of a contract accounted for under Topic 606, Revenue from
Contracts from Customers. The share-based payments are to be
measured at grant-date fair value of the equity instruments that
the entity is obligated to issue when the good or service has been
delivered or rendered and all other conditions necessary to earn
the right to benefit from the equity instruments have been
satisfied. This standard will be effective for public business
entities for fiscal years beginning after December 15, 2018,
including interim periods within that fiscal year. For all other
entities, the amendments are effective for fiscal years beginning
after December 15, 2019, and interim periods within fiscal years
beginning after December 15, 2020. Early adoption is permitted, but
no earlier than an entity’s adoption of Topic 606. We are
currently reviewing the provisions of this ASU to determine if
there will be any impact on our results of operations, cash flows
or financial condition.
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 Consolidated Financial
Statements.
NOTE 2 – GOING CONCERN
The ability of the Company to continue its operations as a going
concern is dependent on management’s plans, which include the
raising of capital through debt and/or equity markets with some
additional funding from other traditional financing sources,
including term notes, until such time that funds provided by
operations are sufficient to fund working capital requirements.
There is substantial doubt about the Company’s ability to
continue as a going concern.
The Company will require additional funding to finance the growth
of its current and expected future operations as well as to achieve
its strategic objectives. The Company believes its current
available cash along with anticipated revenues may be insufficient
to meet its cash needs for the near future. There can be no
assurance that financing will be available in amounts or terms
acceptable to the Company, if at all. The accompanying consolidated
financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. These consolidated
financial statements do not include any adjustments relating to the
recovery of the recorded assets or the classification of the
liabilities that might be necessary should the Company be unable to
continue as a going concern.
Our working capital has been provided by our operating activities
and our related party note. As of December 31, 2018, the related
party entity with a common ownership to the Company’s
president loaned the Company $890,632 for costs related to
Reorganization cost and working capital. The related party note has
a five-year term with no annual interest and principal payments are
deferred to maturity date for a total credit line of $1.5 million.
Except our line of credit, generally, our promissory notes on our
acquisitions range from 4.5% to 7.0% with 20 to 25 years principal
amortization. Two of the promissory notes had an initial 6 months
period on interest only payments. The Line of Credit is interest
only payment based on 10%, and 8% deferred till maturity to be paid
with principal balance. We plan to meet our short-term liquidity
requirements of approximately $1,053,174 for the next twelve
months, generally through available cash as well as net cash
provided by operating activities and availability under our
existing related party note of $890,632. We also have availability
from our lenders under our loan agreements for Capital expenditure
needs on our acquisitions. We expect these resources to help the
Company meet operating working capital requirements. The ability of
the Company to continue its operations as a going concern is
dependent on management’s plans, which include raising of
capital through debt and/or equity markets with some additional
funding from other traditional financing sources, including term
notes.
NOTE 3 – FIXED ASSETS
The following table summarizes the Company's property and equipment
balances are generally used to depreciate the assets on a
straight-line basis:
|
Fixed Assets
|
2018
|
2017
|
|
Investment
Property
|
|
|
|
Land
|
$4,357,950
|
$4,357,950
|
|
Site
and Land Improvements
|
6,781,845
|
6,773,316
|
|
Buildings
and Improvements
|
1,441,222
|
1,239,504
|
|
Acquisition
Cost
|
140,758
|
140,758
|
|
Total
Investment Property
|
12,721,775
|
12,511,528
|
|
Accumulated
Depreciation & Amortization
|
(699,184)
|
(164,894)
|
|
Net
Investment Property
|
$12,022,591
|
$12,346,634
|
Depreciation & Amortization Expense for the years ended
December 31, 2018 and 2017 were $534,290 and $162,680,
respectively. Total additional fixed assets during the years ended
December 31, 2018 and 2017 were $231,247 and $23,322,
respectively.
NOTE 4 – ACQUISITIONS
The Company had no additional acquisition during the year ended
December 31, 2018. During the fourth quarter 2016, the Company
acquired the assets of its first manufactured housing community
containing 81 home sites. During the year ended December 31, 2017,
the Company acquired the assets of six manufactured housing
communities containing approximately 360 home sites. These were
asset acquisitions from third parties and have been accounted for
as asset acquisitions. The acquisition date estimated fair value was
determined by third party appraisals. The acquisition of the
manufactured housing
communities acquired assets
consisted of the following:
|
Acquisition Date
|
|
Name
|
Land
|
Improvements
|
Building
|
Acquisition
Cost
|
Total Purchase
Price
|
|
November,
2016
|
|
Pecan
Grove MHP
|
$1,338,750
|
$443,034
|
$-
|
$30,644
|
$1,812,428
|
|
|
|
|
|
|
|
|
|
|
April,
2017
|
|
Butternut
MHP
|
85,000
|
1,120,063
|
419,504
|
31,613
|
1,656,180
|
|
November,
2017
|
|
Azalea
MHP
|
149,200
|
557,953
|
-
|
14,884
|
722,037
|
|
November,
2017
|
|
Holly
Faye MHP
|
160,000
|
532,965
|
-
|
4,850
|
697,815
|
|
November,
2017
|
|
Chatham
MHP
|
940,000
|
962,285
|
-
|
21,001
|
1,923,286
|
|
November,
2017
|
|
Lake
View MHP
|
520,000
|
1,216,306
|
|
28,410
|
1,764,716
|
|
December,
2017
|
|
Maple
Hills MHP
|
1,165,000
|
1,940,710
|
820,000
|
9,356
|
3,935,066
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$4,357,950
|
$6,773,316
|
$1,239,504
|
$140,758
|
$12,511,528
|
Pro-forma Financial Information
The following unaudited pro-forma information presents the combined
results of operations for the periods as if the above acquisitions
of manufactured housing communities had been completed on January
1, 2017.
|
|
For the Year Ended
December 31, 2017
|
|
Total
Revenue
|
$1,706,957
|
|
Total
Expenses
|
2,863,305
|
|
Net
Loss
|
$(1,156,348)
|
|
Net
Income Attributable to non-controlling interest
|
20,754
|
|
Net
Loss Attributable to the Company
|
$(1,177,102)
|
|
Net
Loss per common share, basic and diluted
|
$(0.12)
|
NOTE 5 – PROMISSORY NOTES
During the years ended December 31, 2017, the Company entered into
promissory notes from lenders related to the acquisition of seven
manufactured housing communities.
Except
our line of credit, generally, the promissory notes range from 4.5%
to 7.0% with 20 to 25 years principal amortization. Two of the promissory notes had an initial
6 months period on interest only payments. The Line of Credit is
interest only payment based on 10%, and 8% deferred till maturity
to be paid with principal balance. The Line of Credit awarded the
lender 455,000 shares of common stock as compensation, which
resulted in making the lender a related party due to their
significant ownership. The promissory notes are secured by the real
estate assets of which $3,004,119 for four assets were also secured
by the guarantee of the owner of the principal stockholder of the
Company. The line of credit is secured by the Company's guarantee
and by the guarantee of the owner of the principal stockholder of
the Company.
The following are terms of our secured outstanding
debt:
|
|
Maturity Date
|
Interest Rate
|
Balance 12/31/18
|
Balance 12/31/17
|
|
Butternut
MHP Land LLC
|
3/30/20
|
6.500%
|
$1,134,971
|
$1,155,619
|
|
Butternut
MHP Land LLC Mezz
|
4/1/27
|
7.000%
|
287,086
|
294,160
|
|
Pecan
Grove MHP LLC ***
|
11/4/26
|
4.500%
|
1,270,577
|
1,310,345
|
|
Azalea
MHP LLC ***
|
11/10/27
|
5.000%
|
598,571
|
495,023
|
|
Holly
Faye MHP LLC ***
|
10/1/38
|
4.000%
|
462,328
|
505,500
|
|
Chatham
MHP LLC ***
|
12/1/22
|
5.125%
|
1,366,753
|
1,395,000
|
|
Lake
View MHP LLC ***
|
12/1/22
|
5.125%
|
1,222,521
|
1,250,000
|
|
Maple
MHP LLC
|
1/1/23
|
5.125%
|
2,743,303
|
2,800,000
|
|
Totals
note payables
|
|
|
9,086,110
|
9,205,647
|
|
|
|
|
|
|
|
Convertible
notes payable (**)
|
5/8/19
|
18.000%
|
2,754,550
|
2,754,550
|
|
Related
Party notes payable
|
09/30/22
|
(*)
|
890,632
|
441,882
|
|
Total
convertible note and notes payable including related
party
|
|
|
$12,731,292
|
$12,402,079
|
(*) As of December 31, 2018, a related party entity with a
common ownership to the Company’s founder loaned the Company
$890,632 for reorganization cost and working capital. The note has
a five-year term with no annual interest and principal payments are
deferred to maturity date. The Company recorded an In-kind
contribution of interest in the amount of $44,695 and $7,493 for
the years ended December 31, 2018 and 2017,
respectively.
(**)
The line of credit, which is guaranteed by the owner of the
principal stockholder of the Company, has a conversion option
whereby the lender can convert the ratio of total outstanding debt
at time of exercise of the option into an amount of newly issued
shares of the Company’s common stock equal determined by
dividing the outstanding indebtedness by $3,000,000 multiplied by
10% with a cap of 864,500 shares. As of December 31, 2018, the
indebtedness under the line of credit was $2,754,550 and this
amount would have resulted in a conversion into 793,683 newly
issued shares Note that the line of credit was amended during the
first quarter of 2019 (see note 10).
(***)
Note that these loan payables were refinanced during the first
quarter of 2019 (See Note 10).
Maturities of Long-Term Obligations for Five Years and
Beyond
The minimum annual principal payments of notes payable at December 31, 2018
were:
|
2019
|
$2,992,665
|
|
2020
|
1,326,854
|
|
2021
|
238,061
|
|
2022
|
3,432,253
|
|
2023
and Thereafter
|
4,741,459
|
|
Total
minimum principal payments
|
$12,731,292
|
NOTE 6 – 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 7 – STOCKHOLDERS’ EQUITY
Preferred Stock
Our
Articles of Incorporation, as amended, further authorize the Board
of Directors to issue, from time to time, without stockholder
approval, up to 10,000,000 shares of preferred stock ($0.01par
value). As of the date hereof, no shares of preferred stock are
issued and outstanding.
In the first quarter of 2019, we executed Subscription Agreements
relating to the sale of 280,000 shares of our Series A Cumulative
Convertible Preferred Stock for a total of $700,000 in cash. This
is a part of a total of $10,000,000 that we are seeking through the
sale of shares of our preferred
stock to acquire assets of manufactured housing communities in our
pipeline. The preferred share that will be issued will provide
purchasers with an annual return of 8% annually, paid in monthly
distributions, and 1.5 times the initial investment at redemption
after 5 years for a total IRR of approximately 16%. Our Series A
Cumulative Convertible Preferred Stockholder shall have the right
to convert into common stock at $2.50 per share at any time. The
Company shall have the right, but not the obligation, to cause a
conversion of the shares of its Series A Preferred Stock into
shares of our Common Stock at a conversion rate of $2.50 per share
of Common Stock when the Market Price of the shares of our Common
Stock reaches $2.50. Our Series A Cumulative Convertible Preferred
Stock have liquidity rights over our common shareholders. Our
Series A Cumulative Convertible
Preferred Stock requires that the Company may not authorize or
issue any class or series of equity securities ranking senior to
the Shares as to dividends or distributions upon liquidation or
amend our charter to materially and adversely change the terms of
the shares of 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 outstanding shares of Series A Preferred
Stock, voting together as a class. Otherwise, holders of the shares
of Series A Preferred Stock will not have any voting
rights.
Common Stock
Our
authorized capital stock consists of 200,000,000 shares of common
stock, par value $0.01 per share.
Stock issued for Service
In November 2017, the Company issued 455,000 shares of stock for
services to a lender under a line of credit facility agreement with
a fair value of $15,603, and 553,888 shares of stock for services
to a financial advisor in relation to the Merger with a fair value
of $18,995.
In
November 2018, the Company issued 350,000 shares of stock for
services to an investment bank for advisory services with a fair
value of $171,500.
Stock issued for Cash
In November 2017, the Company issued 4,824,155 shares of stock for cash of $165,437 to
its founder and Chairman of the Board.
(C)-
Stock issued for Recapitalization
In November 2017, the Company was deemed to issue 346,174 shares of
stock to its former shareholders related to the recapitalization
related to shares issued to the previous legacy stockholders.
(D)
– Stock Split
In March 2018, the Company completed a 1-for-6 reverse split of its
outstanding shares of common stock resulting in our total
outstanding common shares to be 10,000,062 from 60,000,000. The
consolidated financial statements have been retroactively adjusted
to reflect the stock split.
(E) - Equity Incentive Plan
In December 2017, the Board of Directors, with the approval of a majority of the stockholders of
the Company, adopted the Equity Incentive Plan (the
“Plan”) which will be administered by a committee
appointed by the Board.
The Company, under its Equity Incentive Plan, issues options to
various officers and directors. One third of the options vest
immediately, and two thirds vest in equal annual installments over a two-year period.
All of the options are exercisable at a purchase price of $.01 per
share.
The Company recorded stock option expense of $69 and $245 during the years ended December
31, 2018 and 2017, respectively.
The following table summarizes the stock options outstanding as of
December 31, 2018 and 2017:
|
|
Number of options
|
Weighted average exercise price (per share)
|
Weighted average remaining contractual term (in years)
|
|
Outstanding
at December 31, 2016
|
-
|
$-
|
-
|
|
Granted
|
698,000
|
0.01
|
10.0
|
|
Exercised
|
-
|
-
|
-
|
|
Forfeited
/ cancelled / expired
|
-
|
-
|
-
|
|
Outstanding
at December 31, 2017
|
698,000
|
$0.01
|
10.0
|
|
Granted
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
|
Forfeited
/ cancelled / expired
|
(156,666)
|
$(0.01)
|
-
|
|
Outstanding
at December 31, 2018
|
541,334
|
$0.01
|
9.0
|
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, 2018. As of December 31, 2018, there were 377,000
“in-the-money” options with an aggregate intrinsic
value of $373,230.
The following table summarizes information concerning options outstanding as of December 31,
2018:
The following table summarizes information concerning options outstanding as of December 31,
2017:
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,
2018
|
December 31,
2017
|
|
Risk-free
interest rate
|
-
|
1.95%
|
|
Expected
dividend yield
|
-
|
0.00%
|
|
Expected
volatility
|
-
|
16.71%
|
|
Expected
life of options (in years)
|
-
|
10
|
(F) Non-Controlling Interest
As of
December 31, 2018, the Company owned 75% of membership interest in
Pecan Grove MHP LLC. During December of 2018, The
Company's Chief Executive Officer acquired the 25% minority
interest in Pecan Grove MHP from an unaffiliated
investor. During the
years ended December 31, 2018 and 2017, the Company made a total
distribution of $55,105 and $27,707 to the non-controlling
interest, respectively (see note 10).
NOTE 8 - RELATED PARTY TRANSACTIONS
The
Company issued 4,824,155 shares of common stock during the year
ended December 31, 2017, for cash totaling $165,437 to its founder
and Chairman of the Board.
As of
December 31, 2018, an entity with a common ownership to the
Company’s founder loaned the Company $890,632 for
reorganization cost and working capital. The note has a five-year
term with no annual interest and principal payments are deferred to
maturity date. The Company recorded an In-kind contribution of
interest in the amount of $44,695 and $7,493 for the years ended
December 31, 2018 and 2017, respectively.
The
Company entered into a debt agreement for a revolving line of
credit. The Line of Credit is interest only payment based on 10%,
and 8% deferred until maturity to be paid with principal balance.
The Line of Credit is personally guaranteed by the owner of the
principal stockholder of the Company. The Line of Credit awarded
the lender 455,000 shares of common stock as consideration of the
note. The fair value of shares was $15,603, based on the recent
cash price and was treated as a debt discount, which resulted in
making the lender a related party due to their significant
ownership.
The
line of credit, which is guaranteed by the owner of the principal
stockholder of the Company, has a conversion option whereby the
lender can convert the ratio of total outstanding debt at time of
exercise of the option into an amount of newly issued shares of the
company’s common stock equal determined by dividing the
outstanding indebtedness by $3,000,000 multiplied by 10% with a cap
of 864,500 shares. As of December 31, 2018, the indebtedness under
the line of credit was $2,754,550 and this amount would have
resulted in a conversion into 793,683 newly issued
shares.
The
line of credit also gives the lender an option to purchase up to
864,500 shares of newly issued common stock for a purchase price of
$3,000,000 minus the value of the outstanding principal of the
Note, if any, previously converted into equity.
In
December 2018, The Company recorded $4,000 in revenues related to
property management consulting services provided to an entity with
common ownership as our founder and Chairman of the
Board.
NOTE 9 – INCOME TAXES
On December 22, 2017, President Trump signed into law the Tax Cuts
and Jobs Act (the “TCJA”) that significantly reforms
the Internal Revenue Code of 1986, as amended (the “Internal
Revenue Code”). The TCJA, among other things, contains
significant changes to
corporate taxation, including 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; limitation of the tax deduction for interest
expense; limitation of the deduction for net operating losses to
80% of current year taxable income and elimination of net operating
loss carrybacks, in each case, for losses arising in taxable years
beginning after December 31, 2017 (though any such tax losses may
be carried forward indefinitely); modifying or repealing many
business deductions and credits, including reducing the business
tax credit for certain clinical testing expenses incurred in the
testing of certain drugs for rare diseases or conditions generally
referred to as “orphan drugs”; and repeal of the
federal Alternative Minimum Tax
(“AMT”).
At December 31, 2017, the Company had deferred tax assets
principally arising from the net operating loss carry forwards for
income tax purposes multiplied by the Federal statutory tax rate of
34%. 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, 2017.
The significant components of the deferred tax asset at December 31, 2018 and 2017 was as
follows:
|
|
For the Years Ended
|
|
|
|
December 31,
2018
|
December 31,
2017
|
|
Statutory
rate applied to income (loss) before income taxes
|
$(322,845)
|
$(183,432)
|
|
Increase
in income taxes results from:
|
|
|
|
Non-deductible
expense
|
55,606
|
16,212
|
|
Change
in tax rate estimates
|
-
|
54,210
|
|
Change
in valuation allowance
|
275,525
|
113,010
|
|
Income
tax expense (benefit)
|
$8,286
|
$-
|
The difference between income tax expense computed by applying the
federal statutory corporate tax rate and provision for actual
income tax is as follows:
|
|
For the Year Ended
|
|
|
|
December 31,
2018
|
December 31,
2017
|
|
Income
tax benefit at U.S. statutory rate of 34%
|
-21.00%
|
-34.00%
|
|
Income
tax benefit - State
|
-2.04%
|
-3.80%
|
|
Non-deductible
expense
|
4.29%
|
3.34%
|
|
Change
in tax rate estimates
|
0.00%
|
11.17%
|
|
Change
in valuation allowance
|
21.25%
|
23.29%
|
|
Income
tax expense (benefit)
|
2.50%
|
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 deferred tax
assets are as follows:
|
|
For the Year Ended
|
|
|
Deferred
tax assets:
|
December 31,
2018
|
December 31,
2017
|
|
Amortization
expense
|
$7,288
|
$2,619
|
|
Operating
loss carryforwards
|
381,247
|
110,391
|
|
Gross
deferred tax assets
|
388,535
|
113,010
|
|
Valuation
allowance
|
(388,535)
|
(113,010)
|
|
Net
deferred income tax asset
|
$-
|
$-
|
NOTE 10 – SUBSEQUENT EVENTS
During the first quarter of 2019, we entered into agreements to
acquire the assets of three manufactured housing communities
totaling approximately $10,715,000. The three transactions will be
accounted for as asset acquisition, and we expect to close
them in the second quarter of 2019.
In
March of 2019, we refinanced a total of $4,920,750 from our current
loans payable to $8,241,609 of new notes payable from five of our
seven existing communities, resulting in an additional loan payable
of $3,320,859. The Company used the additional loans payable
proceeds from the refinance to retire our Convertible Note Payable
of $2,754,550 plus accrued interest. $4,573,000 of the total
$8,241,609, representing the refinancing portion for Azalea, Holly
Faye, and Pecan Grove required a personal guarantee from our Chief
Executive Officer.
In
February of 2019, we executed an amendment to our Convertible Note
Payable to make available the $3,000,000 line of credit for
redeployment under the same terms. The amendment requires the
Company to issue the lender an additional 545,000 shares of common
stock to the lender with a fair value of $16,350. The amendment
eliminated the convertible option to the lender to purchase up to
864,500 shares of newly issued common stock for a purchase price of
$3,000,000 minus the value of the outstanding principal of the
Note, if any, previously converted into equity. The amendment gives
the lender the right and option to purchase its pro rata share of
debt or equity securities issued in order to allow lender to
maintain a 10% equity interest into the Company for seven years
from the date of the amendment.
In
January 2019, we agreed to acquire the 25% minority interest in
Pecan Grove, and we will issue 2,000,000 shares of our common stock
to Gvest Real Estate for the minority interest acquisition which
were valued at the historical cost value of $537,502.
In the
first quarter of 2019, we executed Subscription Agreements relating
to the sale of 280,000 shares of our Series A Cumulative
Convertible Preferred Stock for a total of $700,000 in cash. This
is a part of a total of $10,000,000 that we are seeking through the
sale of shares of our preferred stock to acquire assets of
manufactured housing communities in our pipeline. The preferred
share that will be issued will provide purchasers with an annual
return of 8% annually, paid in monthly distributions, and 1.5 times
the initial investment at redemption after 5 years for a total IRR
of approximately 16%. Our Series A
Cumulative Convertible Preferred Stockholder shall have the right
to convert into common stock at $2.50 per share at any time. The
Company shall have the right, but not the obligation, to cause a
conversion of the shares of its Series A Preferred Stock into
shares of our Common Stock at a conversion rate of $2.50 per share
of Common Stock when the Market Price of the shares of our Common
Stock reaches $2.50. Our Series A Cumulative Convertible Preferred
Stock have liquidity rights over our common shareholders. Our
Series A Cumulative Convertible Preferred Stock requires that the
Company may not authorize or issue any class or series of equity
securities ranking senior to the Shares as to dividends or
distributions upon liquidation or amend our charter to materially
and adversely change the terms of the shares of 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 outstanding
shares of Series A Preferred Stock, voting together as a class.
Otherwise, holders of the shares of Series A Preferred Stock will
not have any voting rights.
PART III – EXHIBITS
Exhibit Index
|
Exhibit No.
|
|
Description
|
|
1.1*
|
|
Engagement
Agreement, dated April 30, 2019, between Manufactured Housing
Properties Inc. and Digital Offering LLC
|
|
|
Amended
and Restated Articles of Incorporation (incorporated by reference
to Exhibit 3.1 to the Registration Statement on Form 10 filed on
April 19, 2018)
|
|
|
2.2*
|
|
Certificate of
Designation of Series A Cumulative
Convertible Preferred Stock
|
|
2.3*
|
|
Form of
Certificate of Designation of Series B Cumulative Redeemable
Preferred Stock
|
|
|
Amended
and Restated Bylaws (incorporated by reference to Exhibit 3.2 to
the Registration Statement on Form 10 filed on April 19,
2018)
|
|
|
3.1**
|
|
Form of
Underwriter Warrant
|
|
4.1**
|
|
Form of
Subscription Agreement
|
|
|
Purchase Agreement, dated May 5, 2016, between
Gvest Capital LLC and Wright’s Pecan Grove Mobile Home
Village LP (Pecan Grove) (incorporated by reference to
Exhibit 10.1 to the Registration Statement on Form 10 filed on
April 19, 2018)
|
|
|
|
Promissory Note issued by Pecan Grove MHP LLC to
Carolina Trust Bank on October 28, 2016 (incorporated by
reference to Exhibit 10.2 to the Registration Statement on Form 10
filed on April 19, 2018)
|
|
|
|
Purchase Agreement, dated September 28, 2016,
between Gvest Capital LLC and TB3 LLC (Butternut)
(incorporated by reference to Exhibit 10.3 to the Registration
Statement on Form 10 filed on April 19, 2018)
|
|
|
|
Promissory Note issued by Butternut MHP Land LLC
to Clayton Bank and Trust on March 30, 2017 (incorporated by
reference to Exhibit 10.4 to the Registration Statement on Form 10
filed on April 19, 2018)
|
|
|
|
Promissory Note issued by Butternut MHP Land LLC
to TB3, LLC on March 31, 2017 (incorporated by reference to
Exhibit 10.5 to the Registration Statement on Form 10 filed on
April 19, 2018)
|
|
|
|
Purchase Agreement, dated September 21, 2017,
between Beaver Creek CRE, LLC and Azalea Hills MHP, LLC (Azalea
Hills) (incorporated by reference to Exhibit 10.6 to the
Registration Statement on Form 10 filed on April 19,
2018)
|
|
|
|
Promissory Note issued by Azalea MHP LLC to
Carolina Trust Bank on November 10, 2017 (incorporated by
reference to Exhibit 10.7 to the Registration Statement on Form 10
filed on April 19, 2018)
|
|
|
|
Purchase Agreement, dated August 17, 2017, between
Beaver Creek CRE, LLC and Chatham Pines, LLC (Chatham Pines)
(incorporated by reference to Exhibit 10.8 to the Registration
Statement on Form 10 filed on April 19, 2018)
|
|
|
|
Promissory Note issued by Chatham Pines MHP LLC to
The Capitol Life Insurance Company on November 12, 2017
(incorporated by reference to Exhibit 10.9 to the Registration
Statement on Form 10 filed on April 19, 2018)
|
|
|
|
Purchase Agreement, dated July 2017, between
Beaver Creek CRE, LLC and Lakeview Partners, LLC (Lakeview)
(incorporated by reference to Exhibit 10.10 to the Registration
Statement on Form 10 filed on April 19, 2018)
|
|
|
|
Promissory Note issued by Lakeview MHP LLC to The
Capitol Life Insurance Company on November 17, 2017
(incorporated by reference to Exhibit 10.11 to the Registration
Statement on Form 10 filed on April 19, 2018)
|
|
|
|
Purchase Agreement, dated September 20, 2017,
between Beaver Creek CRE, LLC and EDA Holdings, LLC (Holly
Faye) (incorporated by reference to Exhibit 10.12 to the
Registration Statement on Form 10 filed on April 19,
2018)
|
|
Exhibit No.
|
|
Description
|
|
|
Assumption Agreement, dated November 14, 2017,
between Holly Faye MHP LLC and EDA Holdings, LLC
(incorporated by reference to Exhibit 10.13 to the Registration
Statement on Form 10 filed on April 19, 2018)
|
|
|
|
Purchase Agreement, dated September 5, 2017,
between Beaver Creek CRE, LLC and Maple Hill Holdings LLC (Maple
Hills) Maple MHP (incorporated by reference to Exhibit 10.14
to the Registration Statement on Form 10 filed on April 19,
2018)
|
|
|
|
Promissory Note issued by Maple Hills MHP LLC to
The Capitol Life Insurance Company on December 8, 2017
(incorporated by reference to Exhibit 10.15 to the Registration
Statement on Form 10 filed on April 19, 2018)
|
|
|
|
Promissory Note issued by Mobile Home
Rental Holdings LLC to Metrolina Loan
Holdings, LLC on May 8, 2017 (incorporated by reference to
Exhibit 10.16 to the Registration Statement on Form 10 filed on
April 19, 2018)
|
|
|
6.17*
|
|
First
Amendment to Promissory Note, dated September 28, 2017, between
Manufactured Housing Properties Inc. and Metrolina Loan Holdings, LLC
|
|
|
Second
Amendment to Promissory Note, dated February 26, 2019, between
Manufactured Housing Properties Inc. and Metrolina Loan Holdings, LLC (incorporated
by reference to Exhibit 10.19 to the Annual Report on Form 10-K
filed on April 1, 2019)
|
|
|
|
Revolving
Promissory Note issued by Manufactured Housing Properties Inc. to
Raymong M. Gee on October 1, 2017 (incorporated by reference to
Exhibit 10.18 to the Amendment No. 2 to Registration Statement on
Form 10 filed on July 13, 2018)
|
|
|
|
Purchase and Sale
Agreement, dated January 1, 2019, between Gvest Finance, LLC and
Manufactured Housing Properties Inc. (incorporated by reference to
Exhibit 10.20 to the Annual Report on Form 10-K filed on April 1,
2019)
|
|
|
6.21*
|
|
Manufactured
Housing Properties Inc. Stock Compensation Plan
|
|
8.1**
|
|
Escrow
Agreement
|
|
10.1
|
|
Power
of attorney (included on the signature page of this offering
statement)
|
|
|
Consent
of Liggett & Webb, P.A.
|
|
|
11.2**
|
|
Consent
of Sherman & Howard L.L.C
(included in Exhibit 12.1)
|
|
12.1**
|
|
Opinion
of Sherman & Howard L.L.C
|
|
15.1*
|
|
Code of
Ethics and Business Conduct
|
*
Filed
herewith
**
To be filed by
amendment
SIGNATURES
Pursuant
to the requirements of Regulation A, the issuer certifies that it
has reasonable grounds to believe that it meets all of the
requirements for filing on Form 1-A and has duly caused this
offering statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Pineville, State of North
Carolina, on May 9,
2019.
|
|
Manufactured Housing Properties Inc.
|
|
|
|
By:
|
/s/
Raymond M. Gee
|
|
|
|
Raymond
M. Gee
Chairman
and Chief Executive Officer
|
|
|
By:
|
/s/
Michael Z. Anise
|
|
|
|
Michael
Z. Anise
Chief
Financial Officer
|
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Raymond M. Gee and Michael Z. Anise as
true and lawful attorney-in-fact and agent, with full powers
of substitution and resubstitution,
for them and in their name, place and stead, in any and all
capacities, to sign any and all amendments to this offering
statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the SEC, and
generally to do all such things in their names and behalf in their
capacities as officers and directors to enable the Company to
comply with the provisions of the Securities Act of 1933 and all
requirements of the SEC, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every
act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as he or she might
or could do in person, ratifying and confirming all that said
attorney-in-fact and agent or his substitutes or substitute, may
lawfully do or cause to be done by virtue
hereof.
This offering statement has
been signed by the following persons, in the capacities, and on the
dates indicated.
|
SIGNATURE
|
TITLE
|
DATE
|
|
|
|
|
|
|
|
/s/
Raymond M. Gee
|
|
Chairman
and Chief Executive Officer (Principal Executive
Officer)
|
May 9,
2019
|
|
Raymond
M. Gee
|
|
|
|
|
|
|
|
|
|
/s/
Michael Z. Anise
|
|
Chief
Financial Officer and Director (Principal Financial and Accounting
Officer)
|
May 9,
2019
|
|
Michael
Z. Anise
|
|
|
|
|
|
|
|
|
|
/s/
Terry Robertson
|
|
Director
|
May 9,
2019
|
|
Terry
Robertson
|
|
|
|
|
|
|
|
|
|
/s/
James L. Johnson
|
|
Director
|
May 9,
2019
|
|
James
L. Johnson
|
|
|
|
|
|
|
|
|
|
/s/
William H. Carter
|
|
Director
|
May 9,
2019
|
|
William
H. Carter
|
|
|
|
III-3
