MANUFACTURED HOUSING PROPERTIES INC. - Annual Report: 2022 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to _____________

Commission File No. 000-51229

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐  No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ 

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐  No ☒

As of June 30, 2022 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market value of the shares of the registrant’s common stock held by non-affiliates (based upon the closing price of such shares as reported on OTC Pink Market) was approximately $512,415. Shares of the registrant’s common stock held by each executive officer and director and by each person who owns 10% or more of the outstanding common stock have been excluded from the calculation in that such persons may be deemed to be affiliates of the registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of March 28, 2023, there were a total of 12,493,012 shares of common stock of the registrant issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

Manufacturing Housing Properties Inc.

Annual Report on Form 10-K

Year Ended December 31, 2022

TABLE OF CONTENTS

INTRODUCTORY NOTES

Use of Terms

Except as otherwise indicated by the context and for the purposes of this report only, references in this report to “we,” “our” and “our company” refer to Manufactured Housing Properties Inc., a Nevada corporation, and its consolidated subsidiaries and variable interest entities, or VIE’s.

Special Note Regarding Forward Looking Statements

This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which 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:

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 report 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 management’s own assessment of our business, the industry in which we operate 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.

PART I

ITEM 1. BUSINESS.

Overview

We are a self-administered, self-managed, vertically integrated owner and operator of manufactured housing communities. We earn income from (i) leasing manufactured home sites to tenants who own their own manufactured home and (ii) leasing manufactured homes owned by us to residents of the communities.  

We own and operate 55 manufactured housing communities containing approximately 2,579 developed sites and 1,394 company-owned manufactured homes. Our communities are located in Georgia, North Carolina, South Carolina and Tennessee. See Item 2. “Properties” for a description of these manufactured housing communities.

Our mission is to provide affordable housing and an improved level of service to our residents, while producing an attractive and stable risk adjusted return to our investors. We believe that manufactured housing is one of the few non-subsidized affordable housing options in the U.S. Manufactured housing is an economically attractive alternative to traditional single-family and multi-family housing, as it provides characteristics of single-family housing (no shared walls, dedicated parking and a yard) while being competitively priced to multi-family housing. Demand for housing affordability is high and is projected to continue to increase. However, we believe that the supply of manufactured housing is not keeping pace with the demand, as there are few new manufactured housing communities being built.

Our Corporate History and Structure

We originally incorporated in the State of Nevada as Frontier Staffing, Inc. on September 3, 2003. Since our incorporation, we have experienced several name changes and have engaged in several different business endeavors. On October 12, 2017, Mobile Home Rental Holdings LLC, a North Carolina limited liability company, which engaged in acquiring and operating manufactured housing properties, merged with and into our company. In connection with the merger, the name of our company was changed to Manufactured Housing Properties Inc., the former business and management of Mobile Home Rental Holdings became the business and management, respectively, of our company at that time.

In connection with our acquisitions of manufactured housing communities, we have established various limited liability companies to hold the acquired properties. We consolidate these entities and VIEs where we are primary beneficiary. The following is a summary of our subsidiaries and VIEs. All intercompany transactions and balances have been eliminated in consolidation. We do not have a majority or minority interest in any other company, either consolidated or unconsolidated.

In December 2020, we entered into a property management agreement with Gvest Finance LLC, a company owned and controlled by our parent company, Gvest Real Estate Capital LLC, an entity whose sole owner is Raymond M. Gee, our chairman and chief executive officer, and have subsequently entered into property management agreements with Gvest Homes I LLC, Gvest Anderson Homes LLC, Gvest Capital View Homes LLC, Gvest Hidden Oaks Homes LLC, Gvest Springlake Homes LLC, Gvest Carolinas 4 Homes LLC, Gvest Sunnyland Homes LLC, Gvest Warrenville Homes LLC and Gvest Wake Forest 2 Homes LLC, which are all wholly owned subsidiaries of Gvest Finance LLC. Under the property management agreements, we manage the homes owned by the VIEs and the VIEs remit to our company all income, less any sums paid out for operational expenses and debt service but retain 5% of the debt service payment as a reserve.

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

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

2022 Acquisitions

During 2022, we acquired 13 manufactured housing communities via newly formed subsidiaries and VIEs consisting of 560 total sites for an aggregate purchase price of $24,269,769:

Manufactured Housing and The Manufactured Housing Industry

Manufactured homes are constructed in a factory setting. The quality and efficiency of the construction process increase affordability and overall performance. The high demand for affordable housing positions manufactured housing as an attractive option for first-time homebuyers and families who have a limited housing budget.

Manufactured homes are built using standard construction materials. The assembly line approach minimizes or eliminates issues that affect traditional “stick-built” home construction, such as adverse weather, theft or vandalism of tools and material, on-site damage, and unskilled labor. The high quality and efficiency of the manufactured home building process leads to construction costs that are close to 50% less per square foot than the per square foot cost of conventionally built homes. Newly constructed manufactured homes are required to adhere to the U.S. Department of Housing and Urban Development code, or the HUD Code. The HUD Code, which was revised in the early 1990’s, regulates the design and building of manufactured homes to enhance their durability, energy efficiency, and fire resistance.

According to data provided by the Manufactured Housing Institute, over 22 million Americans live in a manufactured home. There are over 8.4 million manufactured homes in the U.S. Manufactured homes accounted for over 9% of all single-family home builds in 2022. In some states, between 15% and 20% of all residents live in a manufactured home. Research has shown that residents cite affordability as a key driver in their choice to live in a manufactured home, with over 90% satisfied with their home. In addition to affordability, manufactured homes have demonstrated their ability to maintain or increase in value, with the median value increasing 39% compared to an increase of 33% for site-built homes over the same period.

Manufactured housing communities are land-lease residential developments designed and improved for the placement of detached, single-family manufactured homes that are produced off-site and installed on residential sites within the community. The owner of a manufactured home leases the site on which the home is located. In other cases, a tenant will rent a home from the community (i.e., a park-owned home), with the tenant agreeing to lease the home and the site on which the home is located.

There are over 43,000 manufactured home communities in the United States which lease home sites for over 4.3 million homes. The manufactured housing community 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 their home and upkeep of the leased site. In some communities, customers may rent homes from the community, with the owner responsible for the maintenance and upkeep of the home. This option provides flexibility for customers seeking a more affordable housing option and enables the community owner to meet a broader demand for housing, improve occupancy, and increase cash flow.

From an investment perspective, we believe that manufactured housing communities have several attractive characteristics when compared to other types of real estate, particularly multifamily, including:

Competition

There are numerous private companies, but only three U.S. publicly traded real estate investment trusts, or REITs, which 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. While more companies have entered the industry in the recent past, we believe that the fragmented nature of ownership within the manufactured housing sector leads to less competition compared to other commercial real estate sectors.

Competitive Strengths

We believe that the following competitive strengths enable us to compete effectively:

Our Investment Strategy

Our investment mission is to deliver an attractive risk-adjusted return with a focus on value creation, capital preservation, and growth.

Our primary investment strategy is to purchase manufactured housing communities that meet our acquisition criteria and will experience an increase in value through our internal asset and property management. Secondarily, we may acquire unimproved property and develop manufactured housing communities or may acquire newly-developed communities. We are focused on acquiring or developing communities which are located in markets where there is a shortage of affordable housing and provide a basis that provides both short and long-term capital appreciation. More recently, we have seen more acquisition opportunities that combine manufactured home sites with recreational vehicle, or RV pads, especially in Texas, as well as the Southeastern and Southwestern US. While not a focus of our business presently, we could acquire a number of these properties in the future, and we could elect to convert RV pads to manufactured home sites or operate them long-term as RV pads.

Historically, we have concentrated our acquisition efforts on “all-age” communities in the southeastern United States. However, we are actively pursuing potential acquisitions of communities in other high-growth areas of the country where affordable housing is in high demand.

We are one of four U.S. public companies in the manufactured housing sector, but we are the only company not organized as a REIT, thereby giving us flexibility to focus on growth through reinvestment of income and employing higher leverage upon acquisition than REITs traditionally use of 50-60%. Additionally, due to our small size, we can focus on smaller deals that are not accretive to institutional buyers but where potential risk-adjusted returns are greater. 

Regulation

Federal, State and/or Local Regulatory Compliance

We are subject to a variety of federal, state, and/or local statutes, ordinances, rules, and regulations covering the purchase, development, and operation of real estate assets. These regulatory requirements include zoning and land use, worksite safety, traffic, and other matters, such as local rules that may impose restrictive zoning and developmental requirements. We are subject to various licensing, registration, and filing requirements in connection with the development and operation of certain real estate assets. Additionally, state and/or local governments retain certain rights with respect to eminent domain which could enable them to restrict or alter the use of our property. These requirements may lead to increases in our overall costs. The need to comply with these requirements may significantly delay development or purchase of properties or lead us to alter our plans regarding certain real estate assets. Some requirements, on a property-by-property evaluation, may lead to a determination that development of a particular property would not be economically feasible, even if any or all necessary governmental approvals were obtained.

Newly constructed manufactured homes are required to adhere to the HUD Code. The HUD Code, which was revised in the early 1990’s, regulates the design and building of manufactured homes to enhance their durability, energy efficiency, and fire resistance. The construction and safety standards are provided in Title 24, Subtitle B, Chapter XX, Part 3280 of the Hud Code (https://www.ecfr.gov/current/title-24/subtitle-B/chapter-XX/part-3280).

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 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 way that property may be used, or how businesses may be operated on that property, thus reducing our ability to maximize our investment in that property. Our properties have been subjected to varying degrees of environmental assessment at various times; however, the identification of new areas of contamination, a change in the extent or known scope of contamination, or changes in environmental regulatory standards and/or cleanup requirements could result in significant costs to us.

Insurance and Property Maintenance and Improvement Policies

Our properties are insured against risks that may cause property damage and business interruption including events such as fire, business interruption, general liability and if applicable, flood. Our insurance policies contain deductible requirements, coverage limits and particular exclusions. It is our policy to maintain adequate insurance coverage on all our properties; and, in the opinion of our management, all our properties are adequately insured. We also obtain title insurance insuring fee title to the properties in an aggregate amount that 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, 2022, we had 59 employees, including officers, all but one of whom are full-time employees.

ITEM 1A. RISK FACTORS.

An investment in our Common 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 report, before making an investment decision with respect to our Common Stock or our company. 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 market price of our Common Stock could decline, and you could lose all or part of your investment.

Risks Related to our Business and Industry

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 coronavirus pandemic may cause a material adverse effect on our business.

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. On March 11, 2020, the World Health Organization declared the outbreak a pandemic, and on March 13, 2020, the United States declared a national emergency.

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

The rules and restrictions put in place had a negative impact on the economy and business activity and may adversely impact the ability of the Company’s tenants, many of whom may be restricted in their ability to work, to pay their rent as and when due. In addition, property managers, maintenance staff, and other employees may be limited in their ability to properly maintain our properties. 

The extent to which the pandemic may impact our results will depend on future developments, which are highly uncertain and cannot be predicted as of the date of this report, including new information that may emerge concerning the severity of the pandemic and steps taken to contain the pandemic or treat its impact, among others. Nevertheless, the pandemic and the current financial, economic, and capital markets environment present material uncertainty and risk with respect to our performance, financial condition, results of operations and cash flows.

General economic conditions and the concentration of our properties in Georgia, North Carolina, South Carolina, and Tennessee may affect our ability to generate sufficient revenue.

The market and economic conditions in our current markets may significantly affect manufactured housing occupancy or rental rates. Occupancy and rental rates, in turn, may significantly affect our revenues, and if our communities do not generate revenues sufficient to meet our operating expenses, including debt service and capital expenditures, current cash flow and ability to pay or refinance our debt obligations could be adversely affected. As a result of the current geographic concentration of our properties in Georgia, North Carolina, South Carolina, and Tennessee, we are exposed to the risks of downturns in the local economy or other local real estate market conditions that could adversely affect occupancy rates, rental rates, and property values in these markets.

Other factors that may affect general economic conditions or local real estate conditions include:

Our income would also be adversely affected if tenants were unable to pay rent or if sites were unable to be rented on favorable terms. If we were unable to promptly renew the leases for a significant number of sites, or if the rental rates upon such renewal were significantly lower than expected rates, then our business and results of operations could be adversely affected. In addition, certain expenditures associated with each property (such as real estate taxes and maintenance costs) generally are not reduced when circumstances cause a reduction in income from the property.

Our business could be adversely affected by unfavorable economic and political conditions, which in turn, can negatively impact our ability to generate returns to you.

Our future business and operations are sensitive to general business and economic conditions in the United States. Factors beyond our control could cause fluctuations resulting in adverse conditions, such as heightened inflation. Sustained inflationary pressures resulted in the Federal Reserve Board increasing interest rates significantly during 2022, and the Federal Reserve Board has continued to raise interest rates in 2023. To the extent such conditions worsen, inflation may make it more difficult for our borrowers to repay loans, and may increase the risk of default by them, which in turn, can negatively impact our ability to generate returns to you.

In addition, national and regional economies and financial markets have become increasingly interconnected, which increases the possibilities that conditions in one country, region, or market might adversely impact issuers in a different country, region, or market. Major economic or political disruptions, such as the slowing economy in China, the war in Ukraine and sanctions on Russia, and a potential economic slowdown in the United Kingdom and Europe, may have global negative economic and market repercussions. While we do not intend to make loans to borrowers located in those countries, such disruptions may nevertheless impact its operations. 

We face risks generally associated with our debt.

We finance a portion of our investments in properties through debt. As of December 31, 2022, our total indebtedness for borrowed money was $87,919,399. 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:

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

Certain of our mortgages and lines of credit will have significant outstanding principal balances on their maturity dates, commonly known as “balloon payments.” As of December 31, 2022, our total future minimum principal payments were $87,919,399. We refinanced $62,000,000 of this debt during 2022 which will not mature until 2032. However, there can be no assurance that we will be able to refinance our debt on favorable terms or at all upon maturity. 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 the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) could impact our financial condition.

In January 2023, the Biden Administration released a Blueprint for a Renters Bill of Rights. This included a proposal that the Federal Housing Finance Agency, the independent regulator and conservator of Freddie Mac and Fannie Mae, will launch a new public process to examine proposed actions promoting renter protections and limits on rent increases. Fannie Mae and Freddie Mac are a major source of financing for the manufactured housing real estate sector. We depend on Fannie Mae and Freddie Mac to finance growth by purchasing or guaranteeing manufactured housing community loans. If enacted, we do not know the extent to which these renter protections and limits on rent increases will impact our financial condition and our ability to collect rent from our tenants. A decision by the government to limit rent increases through Fannie Mae and Freddie Mac may adversely affect interest rates, capital availability and our ability to refinance our existing mortgage obligations as they come due and obtain additional long-term financing for the acquisition of additional communities on favorable terms or at all.

We face risks relating to the property management services that we provide.

There are inherent risks in our providing property management services to the manufactured housing communities on the properties that we own. The more significant of these risks include:

Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults, or non-performance by financial institutions or transactional counterparties, could adversely affect our current and projected business operations and our financial condition and results of operations.

Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. For example, on March 10, 2023, Silicon Valley Bank, or SVB, was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation, or the FDIC, as receiver. Similarly, on March 12, 2023, Signature Bank Corp., or Signature, and Silvergate Capital Corp. were each swept into receivership. Although a statement by the Department of the Treasury, the Federal Reserve and the FDIC indicated that all depositors of SVB would have access to all of their money after only one business day of closure, including funds held in uninsured deposit accounts, borrowers under credit agreements, letters of credit and certain other financial instruments with SVB, Signature or any other financial institution that is placed into receivership by the FDIC may be unable to access undrawn amounts thereunder. Although we are not a borrower under or party to any material letter of credit or any other such instruments with SVB, Signature or any other financial institution currently in receivership, if we enter into any such instruments and any of our lenders or counterparties to such instruments were to be placed into receivership, we may be unable to access such funds. In addition, if any of our partners, suppliers or other parties with whom we conduct business are unable to access funds pursuant to such instruments or lending arrangements with such a financial institution, such parties’ ability to pay their obligations to us or to enter into new commercial arrangements requiring additional payments to us could be adversely affected. In this regard, counterparties to credit agreements and arrangements with these financial institutions, and third parties such as beneficiaries of letters of credit (among others), may experience direct impacts from the closure of these financial institutions and uncertainty remains over liquidity concerns in the broader financial services industry. Similar impacts have occurred in the past, such as during the 2008-2010 financial crisis.

Inflation and rapid increases in interest rates have led to a decline in the trading value of previously issued government securities with interest rates below current market interest rates. Although the U.S. Department of Treasury, FDIC and Federal Reserve Board have announced a program to provide up to $25 billion of loans to financial institutions secured by certain of such government securities held by financial institutions to mitigate the risk of potential losses on the sale of such instruments, widespread demands for customer withdrawals or other liquidity needs of financial institutions for immediately liquidity may exceed the capacity of such program.

Our access to funding sources and other credit arrangements in amounts adequate to finance or capitalize our current and projected future business operations could be significantly impaired by factors that affect us, any financial institutions with which we enter into credit agreements or arrangements directly, or the financial services industry or economy in general. These factors could include, among others, events such as liquidity constraints or failures, the ability to perform obligations under various types of financial, credit or liquidity agreements or arrangements, disruptions or instability in the financial services industry or financial markets, or concerns or negative expectations about the prospects for companies in the financial services industry. These factors could involve financial institutions or financial services industry companies with which we have financial or business relationships, but could also include factors involving financial markets or the financial services industry generally.

The results of events or concerns that involve one or more of these factors could include a variety of material and adverse impacts on our current and projected business operations and our financial condition and results of operations. These risks include, but may not be limited to, the following:

In addition, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on acceptable terms or at all. Any decline in available funding or access to our cash and liquidity resources could, among other risks, adversely impact our ability to meet our operating expenses or other obligations, financial or otherwise, result in breaches of our financial and/or contractual obligations, or result in violations of federal or state wage and hour laws. Any of these impacts, or any other impacts resulting from the factors described above or other related or similar factors, could have material adverse impacts on our liquidity and our current and/or projected business operations and financial condition and results of operations.

In addition, any further deterioration in the macroeconomic economy or financial services industry could lead to losses or defaults by our partners, vendors or suppliers, which in turn, could have a material adverse effect on our current and/or projected business operations and results of operations and financial condition. For example, a partner may fail to make payments when due, default under their agreements with us, become insolvent or declare bankruptcy, or a supplier may determine that it will no longer deal with us as a customer. In addition, a vendor or supplier could be adversely affected by any of the liquidity or other risks that are described above as factors that could result in material adverse impacts on us, including but not limited to delayed access or loss of access to uninsured deposits or loss of the ability to draw on existing credit facilities involving a troubled or failed financial institution. The bankruptcy or insolvency of any partner, vendor or supplier, or the failure of any partner to make payments when due, or any breach or default by a partner, vendor or supplier, or the loss of any significant supplier relationships, could cause us to suffer material losses and may have a material adverse impact on our business.

We may not be able to integrate or finance our acquisitions.

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:

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:

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. For instance, in connection with the recent refinancing of our debt, KeyBank withheld approximately $4,000,000 in escrow for planned capital projects to improve the financed communities, which is included in restricted cash. There can be no assurances that any such expenditures would result in higher occupancy or higher rental rates.

We may be unable to sell properties when appropriate because real estate investments are illiquid.

Real estate investments generally cannot be sold quickly and, therefore, will tend to limit our ability to vary our property portfolio promptly in response to changes in economic or other conditions. The inability to respond promptly to changes in the performance of our property portfolio could adversely affect our financial condition and ability to service our debt and make distributions to our stockholders.

We may be unable to compete with our larger competitors, which may in turn adversely affect our profitability.

The real estate business is highly competitive. We compete for manufactured housing community investments with numerous other real estate entities, such as individuals, corporations, REITs, and other enterprises engaged in real estate activities. In many cases, the competing concerns may be larger and better financed than we are, making it difficult for us to secure new manufactured housing community investments. Competition among private and institutional purchasers of manufactured housing community investments has led to increases in the purchase prices paid for manufactured housing communities and consequent higher fixed costs. To the extent we are unable to effectively compete in the marketplace, our business may be adversely affected.

Actions by our competitors may decrease or prevent increases in the occupancy and rental rates of our properties which could adversely affect our business.

We compete with other owners and operators of manufactured housing community properties, some of whom own properties similar to ours in the same submarkets in which our properties are located. The number of competitive manufactured housing community properties in a particular area could have a material adverse effect on our ability to lease sites and increase rents charged at our properties or at any newly acquired properties. In addition, other forms of multi-family residential properties, such as private and federally funded or assisted multi-family housing projects and single-family housing, provide housing alternatives to potential tenants of manufactured housing communities. If our competitors offer housing at rental rates below current market rates or below the rental rates we currently charge our tenants, we may lose potential tenants, and we may be pressured to reduce our rental rates below those we currently charge in order to retain tenants when our tenants’ leases expire. As a result, our financial condition, cash flow, cash available for distribution, and ability to satisfy our debt service obligations could be materially adversely affected.

Losses in excess of our insurance coverage or uninsured losses could adversely affect our cash flow.

We generally maintain insurance policies related to our business, including casualty, general liability and other policies covering business operations, employees and assets. However, we may be required to bear all losses that are not adequately covered by insurance. In addition, there are certain losses that are not generally insured because it is not economically feasible to insure against them, including losses due to riots or acts of war. If an uninsured loss or a loss in excess of insured limits occurs with respect to one or more of our properties, then we could lose the capital we invested in the properties, as well as the anticipated profits and cash flow from the properties and, in the case of debt that carries recourse to us, we would remain obligated for any mortgage debt or other financial obligations related to the properties. Although we believe that our insurance programs are adequate, no assurance can be given that we will not incur losses in excess of its insurance coverage, or that we will be able to obtain insurance in the future at acceptable levels and reasonable cost.

Costs associated with taxes and regulatory compliance may reduce our revenue.

We are subject to significant regulation that inhibits our activities and may increase our costs. Local zoning and use laws, environmental statutes and other governmental requirements may restrict expansion, rehabilitation and reconstruction activities. These regulations may prevent us from taking advantage of economic opportunities. Legislation such as the Americans with Disabilities Act may require us to modify our properties at a substantial cost and noncompliance could result in the imposition of fines or an award of damages to private litigants. Future legislation may impose additional requirements. We cannot predict what requirements may be enacted or amended or what costs we will incur to comply with such requirements. Costs resulting from changes in real estate laws, income taxes, service or other taxes may adversely affect our funds from operations and our ability to pay or refinance our debt. Similarly, changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures, which would adversely affect our business and results of operations.

Rent control legislation may harm our ability to increase rents.

State and local rent control laws in certain jurisdictions may limit our ability to increase rents and to recover increases in operating expenses and the costs of capital improvements. We may purchase additional properties in markets that are either subject to rent control or in which rent-limiting legislation exists or may be enacted.

Environmental liabilities could affect our profitability.

Under various federal, state and local laws, as well as local ordinances and regulations, an owner or operator of real estate is liable for the costs of removal or remediation of certain hazardous substances at, on, under or in such property, as well as certain other potential costs relating to hazardous or toxic substances. Such laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous substances. A conveyance of the property, therefore, does not relieve the owner or operator from liability. As a current or former owner and operator of real estate, we may be required by law to investigate and clean up hazardous substances released at or from the properties we currently own or operate or have in the past owned or operated. We may also be liable to the government or to third parties for property damage, investigation costs and cleanup costs. In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and costs the government incurs in connection with the contamination. Contamination may adversely affect our ability to sell or lease real estate or to borrow using the real estate as collateral. Persons who arrange for the disposal or treatment of hazardous substances also may be liable for the costs of removal or remediation of such substances at a disposal or treatment facility owned or operated by another person. In addition, certain environmental laws impose liability for the management and disposal of asbestos-containing materials and for the release of such materials into the air. These laws may provide for third parties to seek recovery from owners or operators of real properties for personal injury associated with asbestos-containing materials. In connection with the ownership, operation, management, and development of real properties, we may be considered an owner or operator of such properties and, therefore, are potentially liable for removal or remediation costs, and also may be liable for governmental fines and injuries to persons and property. When we arrange for the treatment or disposal of hazardous substances at landfills or other facilities owned by other persons, we may be liable for the removal or remediation costs at such facilities. We are not aware of any environmental liabilities relating to our investment properties that would have a material adverse effect on our business, assets, or results of operations. However, we cannot assure you that environmental liabilities will not arise in the future and that such liabilities will not have a material adverse effect on our business, assets or results of operation.

Of the 55 manufactured housing communities we currently operate, 16 are on well systems and 35 are on septic systems. At these locations, we are subject to compliance with monthly, quarterly and yearly testing for contaminants as outlined by each state’s Department of Environmental Protection Agencies. Currently, we are not subject to radon or asbestos monitoring requirements.

Additionally, in connection with the management of the properties or upon acquisition or financing of a property, we authorize the preparation of Phase I or similar environmental reports (which involves general inspections without soil sampling or ground water analysis) completed by independent environmental consultants. Based on such environmental reports and our ongoing review of its properties, as of the date of this report, we are not aware of any environmental condition with respect to any of our properties that we believe would be reasonably likely to have a material adverse effect on our financial condition or results of operations. These reports, however, cannot reflect conditions arising after the studies were completed, and no assurances can be given that existing environmental studies reveal all environmental liabilities, that any prior owner or operator of a property or neighboring owner or operator did not create any material environmental condition not known to us, or that a material environmental condition does not otherwise exist with respect to any one property or more than one property.

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

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

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

We are subject to risks arising from litigation.

We may become involved in litigation. Litigation can be costly, and the results of litigation are often difficult to predict. We may not have adequate insurance coverage or contractual protection to cover costs and liability in the event we are sued, and to the extent we resort to litigation to enforce our rights, we may incur significant costs and ultimately be unsuccessful or unable to recover amounts that we believe are owed to us. We may have little or no control of the timing of litigation, which presents challenges to our strategic planning.

We are dependent on key personnel.

Our executive and other senior officers have a significant role in our success. Our ability to retain our management group or to attract suitable replacements should any members of the management group leave depends on the competitive nature of the employment market. The loss of services from key members of the management group or a limitation in their availability could adversely affect our financial condition and cash flow. Further, such a loss could be negatively perceived in the capital markets.

Our company is a small-and mid-capitalization company which presents challenges to our management team.

Often small- and mid-capitalization companies and the industries in which they focus are still evolving and, as a result, they may be more sensitive to changing market conditions. As a result, our management team will be learning as they proceed and may be forced to rely more heavily on the expertise of outside professionals than they might otherwise, which in turn could lead to higher legal and accounting costs and possible securities law compliance issues. 

We have one stockholder that can single-handedly control our company.

Our largest stockholder is Gvest Real Estate Capital LLC, an entity whose sole owner is Raymond M. Gee, our chairman and chief executive officer. At present, Mr. Gee beneficially owns approximately 68.79% of our total issued and outstanding Common Stock. Under Nevada law, this ownership position provides Mr. Gee with the almost unrestricted ability to control the business, management and strategic direction of our company. If Mr. Gee chooses to exercise this control, his decisions regarding our company could be detrimental to, or not in the best interests of our company and its other stockholders.

We have identified material weaknesses in our internal control over financial reporting. If we fail to develop or maintain an effective system of internal controls, we may not be able to accurately report our financial results and prevent fraud. As a result, current and potential stockholders could lose confidence in our financial statements, which would harm the trading price of our Common Stock.

Companies that file reports with the Securities and Exchange Commission, or the SEC, including us, are subject to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or SOX 404. SOX 404 requires management to establish and maintain a system of internal control over financial reporting and annual reports on Form 10-K filed under the Exchange Act to contain a report from management assessing the effectiveness of a company’s internal control over financial reporting. Separately, under SOX 404, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, public companies that are large accelerated filers or accelerated filers must include in their annual reports on Form 10-K an attestation report of their regular auditors attesting to and reporting on management’s assessment of internal control over financial reporting. Non-accelerated filers and smaller reporting companies, like us, are not required to include an attestation report of their auditors in annual reports.

A report of our management is included under Item 9A. “Controls and Procedures.” We are a smaller reporting company and, consequently, are not required to include an attestation report of our auditor in our annual report. However, when and if we become subject to the auditor attestation requirements under SOX 404, we can provide no assurance that we will receive a positive attestation from our independent auditors.

During its evaluation of the effectiveness of internal control over financial reporting as of December 31, 2022, management identified material weaknesses. These material weaknesses were associated with (i) our lack of proper segregation of duties due to the limited number of employees within the accounting department and (ii) our lack of effective closing procedures. We are undertaking remedial measures, which measures will take time to implement and test, to address these material weaknesses. There can be no assurance that such measures will be sufficient to remedy the material weaknesses identified or that additional material weaknesses or other control or significant deficiencies will not be identified in the future. If we continue to experience material weaknesses in our internal controls or fail to maintain or implement required new or improved controls, such circumstances could cause us to fail to meet our periodic reporting obligations or result in material misstatements in our financial statements, or adversely affect the results of periodic management evaluations and, if required, annual auditor attestation reports. Each of the foregoing results could cause investors to lose confidence in our reported financial information and lead to a decline in our stock price.

Risks Related to Ownership of Our Common Stock

Our Common Stock is eligible for quotation on the Pink Market but few quotations have been made and limited trading has occurred in our Common Stock. Due to the lack of an active trading market for our securities, you may have difficulty selling any shares you purchase, which could result in the loss of your investment.

Our Common Stock is eligible for quotation on the Pink Market operated by OTC Markets Group Inc. The Pink Market is a regulated quotation service that displays real-time quotes, last sale prices and volume information in over-the-counter securities. The Pink Market is not an issuer listing service, market or exchange. The requirements for quotation on the Pink Market are considerably lower and less regulated than those of an exchange. Because of this, it is possible that fewer brokers or dealers will be interested in making a market in our Common Stock because the market for such securities is more limited, the stocks are more volatile, and the risk to investors is greater, which may impact the liquidity of our Common Stock. Even if an active market begins to develop in our Common Stock, the quotation of our Common Stock on the Pink Market may result in a less liquid market available for existing and potential stockholders to trade Common Stock, could depress the trading price of our Common Stock and could have a long-term adverse impact on our ability to raise capital in the future. If an active market is never developed for our Common Stock, it will be difficult or impossible for you to sell any Common Stock you purchase.

We cannot predict the extent to which an active public trading market for our Common Stock will develop or be sustained. If an active public trading market does not develop or cannot be sustained, you may be unable to liquidate your investment in our Common Stock.

At present, there is minimal public trading in our Common Stock. We cannot predict the extent to which an active public market for our Common Stock will develop or be sustained due to a number of factors, including the fact that we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors, and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares of Common Stock until such time as we became more seasoned and viable. Consequently, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on stock price. We cannot give you any assurance that an active public trading market for our Common Stock will develop or be sustained. If such a market cannot be sustained, you may be unable to liquidate your investment in our Common Stock.

Our Common Stock may be subject to significant price volatility which may have an adverse effect on your ability to liquidate your investment in our Common Stock.

The market for our Common Stock may be characterized by significant price volatility when compared to seasoned issuers, and we expect that our stock price will be more volatile than a seasoned issuer for the indefinite future. The potential volatility in our stock price is attributable to a number of factors. First, our shares of Common Stock may be sporadically and/or thinly traded. As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by our stockholders may disproportionately influence the price of those shares in either direction. The price for our shares could, for example, decline precipitously if a large number of our shares of Common Stock are sold on the market without commensurate demand, as compared to a seasoned issuer that could better absorb those sales without adverse impact on its stock price. Secondly, an investment in us is a speculative or “risky” investment due to our lack of meaningful profits to date and uncertainty of future profits. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer.

We may be subject to penny stock regulations and restrictions, and you may have difficulty selling shares of our Common Stock.

The SEC has adopted regulations which generally define so-called “penny stocks” to be an equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. Our Common Stock is a “penny stock” and is subject to Rule 15g-9 under the Exchange Act. This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers and “accredited investors” (generally, individuals with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together with their spouses). For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers to sell any of our securities in the secondary market, thus possibly making it more difficult for us to raise additional capital.

For any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in penny stock, of a disclosure schedule prepared by the SEC relating to the penny stock market. Disclosure is also required to be made about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.

There can be no assurance that our Common stock will qualify for exemption from this rule. In any event, even if our Common Stock were exempt from this rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction would be in the public interest.

We have never paid cash dividends on our Common Stock and do not intend to pay dividends for the foreseeable future.

We have paid no cash dividends on our Common Stock to date, and we do not anticipate paying cash dividends on our Common Stock in the near term. For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our Common Stock. Accordingly, investors must be prepared to rely on sales of their Common Stock after price appreciation to earn an investment return, which may never occur. Investors seeking cash dividends should not purchase our Common Stock. Any determination to pay dividends in the future will be made at the discretion of our board of directors and will depend on our results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board deems relevant.

Our Preferred Stock have liquidation preferences senior to our Common Stock.

Our Series A Cumulative Convertible Preferred Stock, which we refer to as our Series A Preferred Stock, Series B Cumulative Redeemable Preferred Stock, which we refer to as our Series B Preferred Stock, and Series C Cumulative Redeemable Preferred Stock, which we refer to as our Series C Preferred Stock, have liquidation preferences that get paid prior to any payment on our Common Stock. As a result, if we were to dissolve, liquidate, merge with another company or sell our assets, the holders of our Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock would have the right to receive up to approximately $39,650,767 as of December 31, 2022, plus any unpaid dividends, before any amount is paid to the holders of our Common Stock. The payment of the liquidation preferences could result in common stockholders not receiving any consideration if we were to liquidate, dissolve or wind up, either voluntarily or involuntarily. The existence of the liquidation preferences may also reduce the value of our Common Stock, make it harder for us to sell shares of Common Stock in offerings in the future, or prevent or delay a change of control.

We may issue additional debt and equity securities that are senior to our Common Stock as to distributions and in liquidation, which could materially adversely affect the value of the Common Stock.

In the future, we may attempt to increase our capital resources by entering into additional debt or debt-like financing that is secured by all or up to all of our assets, or issuing debt or equity securities, which could include issuances of commercial paper, medium-term notes, senior notes, subordinated notes or shares. In the event of our liquidation, our lenders and holders of our debt securities would receive a distribution of our available assets before distributions to our stockholders. Any additional 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 our Common Stock, which could further limit our ability to make distributions to our stockholders. Because our decision to incur debt and issue securities in our future offerings will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings and debt financing.

Further, market conditions could require us to accept less favorable terms for the issuance of our securities in the future. Thus, you will bear the risk of our future offerings reducing the value of your Common Stock. In addition, we can change our leverage strategy from time to time without approval of holders of our Common Stock, which could materially adversely affect the value of our Common Stock.

Our articles of incorporation, bylaws and Nevada law have anti-takeover provisions that could discourage, delay or prevent a change in control, which may cause our stock price to decline.

Our articles of incorporation, bylaws and Nevada law contain provisions which could make it more difficult for a third party to acquire us, even if closing such a transaction would be beneficial to our stockholders. We are currently authorized to issue up to 5,000,000 shares of “blank check” Preferred Stock. This Preferred Stock may be issued in one or more series, the terms of which may be determined at the time of issuance by our board of directors without further action by stockholders. The terms of any series of Preferred Stock may include voting rights (including the right to vote as a series on particular matters), preferences as to dividend, liquidation, conversion and redemption rights and sinking fund provisions. The issuance of any Preferred Stock could materially adversely affect the rights of the holders of our Common Stock, and therefore, reduce the value of our Common Stock. For example, specific rights granted to future holders of Preferred Stock could be used to restrict our ability to merge with, or sell our assets to, a third party and thereby preserve control by current management.

Provisions of our articles of incorporation, bylaws and Nevada law also could have the effect of discouraging potential acquisition proposals or making a tender offer or delaying or preventing a change in control, including changes a stockholder might consider favorable. Such provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. Specifically, our articles of incorporation, bylaws and Nevada law, among other things, provide our board of directors with the ability to alter our bylaws without stockholder approval, and provide that vacancies on our board of directors may be filled by a majority of directors in office, although less than a quorum.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

Not applicable.

ITEM 2. PROPERTIES.

As of December 31, 2022, we owned the following manufactured housing properties consisting of 2,579 total lots represented on the map below:

The average occupancy rates above represent an average of total monthly occupancy rates from January 1, 2022 (or date of acquisition) through December 31, 2022. For the year ended December 31, 2022, our total portfolio weighted average occupancy rate was 91%. We do not include vacant, undeveloped lots in our average occupancy rate calculations above. When we infill vacant lots with new homes, the lots are counted as vacant lots for purposes of our occupancy calculations until a certificate of occupancy is obtained from the local government and the new home is occupiable by a tenant.  

ITEM 3. 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.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information

Our Common Stock is eligible for quotation on the Pink Market under the symbol “MHPC.” The following table sets forth, for the periods indicated, the high and low closing prices of our Common Stock. These prices reflect inter-dealer prices, without retain mark-up or commission, and may not represent actual transactions.

Approximate Number of Holders of Our Common Stock

As of March 28, 2023, there were approximately 50 registered holders of our Common Stock. In computing the number of holders of record of our common shares, each broker-dealer and clearing corporation holding shares on behalf of its customers is counted as a single stockholder.

Dividend Policy

Dividends on our Series A Preferred Stock are cumulative and payable monthly in arrears to all holders of record on the applicable record date. Holders of our Series A Preferred Stock are entitled to receive cumulative dividends in the amount of $0.017 per share each month, which is equivalent to the rate of 8% of the $2.50 liquidation preference per share. Dividends on shares of our Series A Preferred Stock will continue to accrue even if any of our agreements prohibit the current payment of dividends, or we do not have earnings.

Dividends on our Series B Preferred Stock are cumulative and payable monthly in arrears to all holders of record on the applicable record date. Holders of our Series B Preferred Stock are entitled to receive cumulative dividends in the amount of $0.067 per share each month, which is equivalent to the annual rate of 8% of the $10.00 liquidation preference per share; provided that upon an event of default (generally defined as our failure to pay dividends when due or to redeem shares when requested by a holder), such amount shall be increased to $0.083 per month, which is equivalent to the annual rate of 10% of the $10.00 liquidation preference per share. Dividends on shares of our Series B Preferred Stock will continue to accrue even if any of our agreements prohibit the current payment of dividends or we do not have earnings.

Dividends on our Series C Preferred Stock are cumulative and payable monthly in arrears to all holders of record on the applicable record date. Holders of our Series C Preferred Stock are entitled to receive cumulative dividends in the amount of $5.83 per share each month, which is equivalent to the annual rate of 7% of the $1,000.00 liquidation preference per share. Dividends on shares of our Series C Preferred Stock will continue to accrue even if any of our agreements prohibit the current payment of dividends or we do not have earnings.

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. See also Item 1.A. “Risk Factors—Risks Related to Ownership of Our Common Stock—We have never paid cash dividends on our Common Stock and do not intend to pay dividends for the foreseeable future.”

Securities Authorized for Issuance under Equity Compensation Plans

See Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

Recent Sales of Unregistered Securities

We have not sold any securities during the 2022 fiscal year that were not previously disclosed in a quarterly report on Form 10-Q or a current report on Form 8-K that was filed during the 2022 fiscal year.

Purchases of Equity Securities

We did not repurchase any shares of our Common Stock during fiscal year 2022.

ITEM 6. [RESERVED]

ITEM 7. 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 “Special Note Regarding Forward Looking Statements” explanation included in the “Introductory Notes” above.

Overview

We are a self-administered, self-managed, vertically integrated owner and operator of manufactured housing communities. We earn income from (i) leasing manufactured home sites to tenants who own their own manufactured home and (ii) leasing manufactured homes owned by us to residents of the communities.

As of December 31, 2022, we owned and operated 55 manufactured housing communities containing approximately 2,579 developed sites and 1,394 company-owned manufactured homes. The communities are located in Georgia, North Carolina, South Carolina and Tennessee. See Item 2. “Properties” for a description of these manufactured housing communities.

Recent Developments

Additional Closings of Regulation A Offering

Subsequent to December 31, 2022, we sold an aggregate of 3,874 shares of Series C Preferred Stock in additional closings of this offering for total gross proceeds of $3,874,500. After deducting a placement fee, we received net proceeds of approximately $3,613,371.

Country Aire Acquisition

On September 21, 2022, MHP Pursuits LLC, our wholly owned subsidiary, entered into a purchase and sale agreement with a third-party for the purchase of a manufactured housing community located in Simpsonville, South Carolina, consisting of 107 sites all occupied by tenant-owned manufactured homes on approximately 21 acres for a total purchase price of $5,350,000. On December 9, 2022, MHP Pursuits LLC assigned its rights and obligations in the purchase agreement to Country Aire MHP LLC pursuant to an assignment of purchase and sale agreement. On January 12, 2023, closing of the purchase agreement was completed and Country Aire MHP LLC purchased the community.

In connection with the closing of the property, on January 12, 2023, Country Aire MHP LLC entered into a loan agreement with KeyBank National Association, or KeyBank, for a loan in the principal amount of $3,500,000 and issued a promissory note to the lender for the same amount.

Interest on the disbursed and unpaid principal balance accrues from the date funds are first disbursed at adjusted daily simple SOFR plus a margin rate of 2.25% per annum, interest only until the initial maturity date of September 13, 2025. A twelve-month extension of the maturity date is available which if exercised, the loan would amortize during this period. Country Aire MHP LLC may prepay the note in part or in full prior to the maturity date subject to an exit fee as defined in the loan agreement.

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

Merritt Place Acquisition

On October 20, 2022, MHP Pursuits LLC, our wholly owned subsidiary, entered into a purchase and sale agreement with a third-party for the purchase of a manufactured housing community located in Brunswick, Georgia, consisting of 40 developed sites, 14 sites to be developed by the seller, and 24 homes on approximately 17.8 acres for a total purchase price of $2,400,000. On January 12, 2023, MHP Pursuits LLC assigned its rights and obligations in the purchase agreement to Merritt Place MHP LLC pursuant to an assignment of purchase and sale agreement. On January 27, 2023, closing of the purchase agreement was completed and Merritt Place MHP LLC purchased the land, land improvements, and homes, further expanding our presence in the Brunswick market.

In connection with the acquisition of the property, on January 27, 2023, Merritt Place MHP LLC entered into a loan agreement with the seller, Merritt Place Rentals LLC, for a loan in the principal amount of $300,000 and issued a promissory note to the lender for the same amount. The note stipulates that Merritt Place will repay the note in full within 5 days of the seller-lender completing development of 14 additional sites. Interest is not charged under this note.

Also in connection with the acquisition of the property, on January 27, 2023, Merritt Place MHP LLC entered into a loan agreement with PrimeSouth Bank, for a loan in the principal amount of $1,680,000 and issued a promissory note to the lenders for the same amount. PrimeSouth Bank agreed to advance an additional $240,000 to Merritt Place MHP LLC upon the completion of the development of the 14 additional lots.

Interest on the disbursed and unpaid principal balance accrues from the date funds are first disbursed at an initial variable rate of 8.00% per annum and thereafter based on the daily Wall Street Journal Prime Rate plus a margin of 1.00%. Payments will be interest only until maturity on January 27, 2024. Merritt Place MHP LLC may prepay the PrimeSouth Bank note in part or in full subject to a penalty as defined in the loan agreement and the note is guaranteed by Raymond M. Gee.

Both notes are secured by first priority security interests in the property. The loan agreement and notes contain customary financial and other covenants and events of default for real estate loans.

Impact of Coronavirus Pandemic

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. On March 11, 2020, the World Health Organization declared the outbreak a pandemic, and on March 13, 2020, the United States declared a national emergency.

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

The rules and restrictions put in place have had a negative impact on the economy and business activity and may adversely impact the ability of the Company’s tenants, many of whom may be restricted in their ability to work, to pay their rent as and when due.  

The extent to which the pandemic may impact the Company’s results will depend on future developments, which are highly uncertain and cannot be predicted as of the date of this report, including new information that may emerge concerning the severity of the pandemic and steps taken to contain the pandemic or treat its impact, among others. Nevertheless, the pandemic and the current financial, economic and capital markets environment present material uncertainty and risk with respect to the Company’s performance, financial condition, results of operations and cash flows. See also Item 1A. “Risk Factors” above.

Results of Operations

The following table sets forth key components of our results of operations during the years ended December 31, 2022 and 2021.

Revenues. For the year ended December 31, 2022, we earned total revenues of $14,202,273, as compared to $8,416,038 for the year ended December 31, 2021, an increase of $5,786,235, or 68.75%. The increase was primarily due to $1,415,218 of rental income from the acquisition of 13 manufactured housing communities during 2022 and a complete year of rental income related to 24 communities acquired during 2021 which exceeded revenue recognized for the same communities during 2021 by $3,678,691. The remaining increase was due to rental rate increases.

Community Operating Expenses. For the year ended December 31, 2022, we incurred total community operating expenses of $5,194,674, as compared to $2,631,270 for the year ended December 31, 2021, an increase of $2,563,404, or 97.42%. The increase in community operating expenses was primarily associated with the 37 properties acquired during 2022 and 2021, including additional repairs and maintenance, insurance, utilities, and real estate tax expenses and we hired additional on-site maintenance staff at several of our new parks to increase efficiencies and decrease contract labor costs. Community operating expenses as a percentage of revenues were 36.58% and 31.26% during 2022 and 2021, respectively.

Corporate Payroll and Overhead Expenses. For the year ended December 31, 2022, we incurred corporate payroll and overhead expenses of $5,053,771, as compared to $3,013,810 for the year ended December 31, 2021, an increase of $2,039,961, or 67.69%. This increase was primarily due to payroll related expenses including additional corporate salaries and benefits expense of $1,034,997, one-time bonuses and recruiter service fees of $119,000 related to new hires, one-time separation payments of approximately $226,000, and an increase in stock compensation expense of $104,276 due to issuance of stock options to officers hired to support our growth. The increase in corporate overhead expenses was also due to approximately $160,000 of additional marketing and travel expenses and $191,000 of pursuit costs written off during 2022 in relation to abandoned potential acquisitions and development deals. Corporate payroll and overhead expenses as a percentage of revenue were 35.58% and 35.81% during 2022 and 2021, respectively.

Depreciation Expense. For the year ended December 31, 2022, we recorded depreciation expense of $3,441,413, as compared to $2,060,882 for the year ended December 31, 2021, an increase of $1,380,531, or 66.99%. The increase in depreciation was driven by $1,246,616 related to the assets acquired in 37 manufactured housing communities during 2021 and 2022. The remaining increase was due to depreciation of capital improvement projects completed and placed into service during the year ended December 31, 2022, such as home renovations and new home installations.

Interest Expense. For the year ended December 31, 2022, we incurred interest expense of $5,525,839, as compared to $2,243,876 for the year ended December 31, 2021, an increase of $3,281,963, or 146.26%. The increase was primarily related to the increase in interest expense of $1,235,747 on additional debt incurred to acquire new properties in 2022 and a full year of interest related to 2021 acquisition debt, $371,139 of additional interest on related party debt, an increase in amortization of debt issuance costs of $439,758, and an increase of $788,141 in dividends to series C preferred stockholders, which are included in interest expense given the liability treatment of the mandatorily redeemable Series C Preferred Stock. Interest expense as a percentage of revenues was 38.91% and 26.66% during 2022 and 2021, respectively.

Refinancing Costs. For the year ended December 31, 2022, we incurred refinancing costs of $3,620,422, as compared to $110,691 for the year ended December 31, 2021, an increase of $3,509,731, or 3,170.75%, primarily driven by a non-recurring major portfolio refinance on September 1, 2022 through KeyBank and Fannie Mae, which refinanced most of the outstanding debt in our portfolio for a total new principal balance of $62,000,000. We incurred refinancing expense of $3,604,672 in connection with the debt we extinguished including write-off of net unamortized debt issuance costs totaling $2,203,841, prepayment penalties of $1,385,596, and other fees of $15,235.

Cost of Home Sales. For the year ended December 31, 2022, we received proceeds of $208,098 from the sale of 26 manufactured homes to our tenants and wrote off cost basis of $269,572 in connection with the sale of these assets. For the year ended December 31, 2021, we received proceeds of $87,744 from the sale of 16 manufactured homes to our tenants and wrote off cost basis of $53,761 in connection with the sale of these assets.

Other Income. During the year ended December 31, 2022, we recognized other income of $500, which represented miscellaneous non-operating fees compared to $139,300 for the year ended December 31, 2021, which represented the forgiveness of our Paycheck Protection Program loan by the Small Business Administration in June 2021.

Gain on Sale of Community. We sold the Chambert Forest community within our Anderson portfolio consisting of 11 sites and homes during the year ended December 31, 2022 for gross proceeds of $250,000 and recognized a net gain on sale of $102,655. We did not sell any of our communities during the year ended December 31, 2021.

Net Loss. The factors described above resulted in a net loss of $8,800,253 for the year ended December 31, 2022, as compared to a net loss of $1,558,952 for the year ended December 31, 2021, an increase of $7,241,301, or 464.50%, inclusive of $3,604,672 non-recurring refinancing costs related to KeyBank portfolio refinance.

Liquidity

The consolidated financial statements have been prepared in conformity with GAAP, which contemplate continuation of our company as a going concern. We have incurred net losses each year since inception and have experienced slightly negative cash flows from operations during the year ended December 31, 2022. The portfolio refinance with KeyBank drove the large net loss for the year ended December 31, 2022, which is a non-recurring cost going forward. Additionally, we are in an acquisitive, growth stage whereby we have doubled the number of home sites in our portfolio of manufactured housing communities over the past two years. We acquire communities and invest in physical improvements, implement operational efficiencies to cut costs, work to improve occupancy and collections, and increase rents based on each respective market all to stabilize the acquired communities to their full potential. We increased the number of home sites in our portfolio by 27% over the twelve months ended December 31, 2022, which are still stabilizing. We have incurred additional corporate payroll and overhead and interest expense in order to accomplish such growth which has driven losses and used operating cash flow.

Our principal demands for cash are operating and administrative expenses, dividends on our preferred stock, debt service payments, capital expenditures to improve the properties within our portfolio, and community acquisitions. We expect to fund our operating cash requirements over the next year through a combination of cash on hand, net cash provided by our property operations, and if necessary, borrowings from our related party lines of credit available for working capital or other cash flow needs. Additionally, proceeds from the KeyBank portfolio refinance were used to pay off debt attached to a significant percentage of our Company owned manufactured homes which are now unencumbered and can be sold to generate liquidity, if needed.

Our continued growth depends on the availability of suitable properties which meet our investment criteria and appropriate financing, which includes 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. There can be no assurance that financing will be available in amounts or terms acceptable to us, if at all. Proceeds from issuance of Series C Preferred Stock and cash held in escrow with our lenders will fund our capital improvement projects and acquisitions. To the extent that funds or appropriate communities are not available, fewer acquisitions and capital improvements will be made.

Summary of Cash Flow

The following table provides detailed information about our net cash flow for years ended December 31, 2022 and 2021:

Cash Flow

Net cash used in operating activities was $59,793 for the year ended December 31, 2022, as compared to $2,178,247 net cash provided by operating activities for the year ended December 31, 2021. For the year ended December 31, 2022, the net loss of $8,800,253, offset in part by non-cash depreciation expense of $3,441,413 and amortization of debt issuance costs of $669,931 and write-off of net unamortized debt issuance costs totaling $2,219,591 upon refinance were primary drivers of the net cash used in operating activities. Additionally, prepayment penalties and other fees of $1,400,831 paid to prior lenders upon refinance of the majority of our loans that is included in net loss is added back to net loss to present as a financing activity. For the year ended December 31, 2021, the net loss of $1,558,952, offset by depreciation in the amount of $2,060,882, increase in accrued liabilities of $747,559, increase in tenant security deposits of $366,043, and increase in accounts payable of $241,869 were the primary drivers of the net cash provided by operating activities.

Net cash used in investing activities was $10,897,267 for the year ended December 31, 2022, as compared to $9,037,451 for the year ended December 31, 2021. Net cash used in investing activities for the year ended December 31, 2022 consisted of purchases of investment properties in the amount of $7,856,769 and $615,823 paid for acquisition costs and advanced pursuit costs and deposits for potential deals of $343,678, as well as capital improvements of $2,289,095, offset by proceeds from sales of homes of $208,098. Net cash used in investing activities for the year ended December 31, 2021 consisted of purchases of investment properties in the amount of $6,617,000 and $481,781 paid for acquisition costs, as well as capital improvements of $2,026,414 and proceeds from sales of homes of $87,744. 

Net cash provided by financing activities was $19,256,346 for the year ended December 31, 2022, as compared to $6,976,676 for the year ended December 31, 2021. For the year ended December 31, 2022, net cash provided by financing activities consisted primarily of proceeds received from refinanced notes payable and lines of credit of $67,086,313, proceeds from issuance of preferred stock of $15,849,602, proceeds from related party debt of $4,700,000, offset by repayment of notes payable upon refinance of $52,774,771, repayment of VIE lines of credit upon refinance of $3,085,607, repayment of related party debt of $4,350,000, repayment of notes payable of $518,622, repayment of VIE lines of credit of $203,919, payment of mortgage costs and financing costs recorded as debt discount of $4,615,257, payment of prepayment penalties totaling $1,400,831 to old lenders upon refinance of the majority of loans in our portfolio, and preferred stock dividends of $976,897. For the year ended December 31, 2021, net cash provided by financing activities consisted primarily of proceeds from issuance of preferred stock of $6,821,884, proceeds from refinanced notes payable and lines of credit in the amount of $6,746,731, proceeds from related party debt of $1,650,000, and proceeds from VIE lines of credit of $1,000,000, offset by repayment of notes payable upon refinance of $4,309,272, repayment of VIE lines of credit upon refinance of $1,676,634, capitalized debt issuance costs of $1,526,376, preferred stock dividends of $964,167, and repayment of notes payable of $599,896.

Regulation A Offering

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

During the year ended December 31, 2022, we sold an aggregate of 15,849.6 shares of Series C Preferred Stock for total gross proceeds of $15,849,602. After deducting a placement fee and broker dealer commissions, we received net proceeds of $14,786,508. In addition to the placement fee and broker dealer commissions, we capitalized an additional $91,886 of other issuance costs associated with the offering which, net of amortization expense, offset with the net proceeds on the balance sheet.

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

Promissory Notes

We have issued promissory notes payable to lenders related to the acquisition of its manufactured housing communities. The interest rates on outstanding promissory notes range from 4% to 7.39% with 5 to 30 years principal amortization. The promissory notes are secured by the real estate assets and 31 loans totaling $75,583,029 are guaranteed by Raymond M. Gee, our chairman and chief executive officer. 

On September 1, 2022, we entered into 23 loan agreements with KeyBank and Fannie Mae for a total principal balance of $62,000,000. The loan proceeds were primarily used to pay off third party notes and line of credit with various other lenders totaling approximately $54,000,000, promissory note issued to Metrolina Loan Holdings, LLC for $1,500,000 and a revolving promissory note issued to Gvest Real Estates Capital LLC for $2,000,000. KeyBank withheld approximately $4,000,000 in escrow for planned capital projects to improve the financed communities which is included in restricted cash. We recognized refinancing expense of $3,604,672 in connection with the debt we extinguished including write-off of net unamortized debt issuance costs totaling $2,203,841, prepayment penalties of $1,385,596, and other fees of $15,234. The new loans with KeyBank are interest-only at 4.87% for the first 60 months of the term with principal and interest payments continuing thereafter until maturity on September 1, 2032. We may prepay the notes in part or in full subject to prepayment penalties if repaid before May 31, 2032, and without penalty if repaid on or subsequent to that date. The loans are secured by the real estate, which predominately excludes mobile homes, and are guaranteed by our company and Raymond M. Gee. We capitalized $2,842,213 of debt issuance costs in connection with this refinancing including a $1,000,000 accrued guaranty fee owed to Raymond M. Gee to be paid at a later date.

As of December 31, 2022, the outstanding balance on all third-party promissory notes was $79,550,080. The following are the terms of these notes:

Lines of Credit – Variable Interest Entities

The agreements for each of the above line of credit facilities require the maintenance of certain financial ratios or other affirmative and negative covenants. All the above line of credit facilities are guaranteed by Raymond M. Gee.

NAV Real Estate, LLC Promissory Note

On June 29, 2022, we issued a revolving promissory note to NAV RE, LLC, an entity whose owners are Adam Martin, our chief investment officer, and his spouse pursuant to which we may borrow up to $2,000,000 on a revolving basis for working capital or acquisition purposes. On the same date, we borrowed $2,000,000. As of December 31, 2022, the outstanding principal balance on this note was $2,000,000. This note has a five-year term and is interest-only based on an 15% annual rate through the maturity date and is unsecured. During the years ended December 31, 2022 and 2021, interest expense totaled $154,167 and $0, respectively.

Off-Balance Sheet Arrangements

As of December 31, 2022, we had no off-balance sheet arrangements.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our consolidated financial statements. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting policies are defined as those that involve significant judgment and potentially could result in materially different results under different assumptions and conditions. Management believes the following critical accounting policies are affected by our more significant judgments and estimates used in the preparation of our consolidated financial statements.

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

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

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

Revenue from sales of manufactured homes is recognized in accordance with the core principle of ASC 606, at the time of closing when control of the home transfers to the customer. After closing of the sale transaction, we generally have no remaining performance obligation.

Leases. Rental revenue is generated from lease agreements with tenants for lease of our sites and manufactured homes where we are the lessor. The terms of these leases are generally annual or month-to-month and are renewable upon the consent of both parties and contain no option to purchase the underlying asset. Therefore, these leases are accounted for as operating leases in accordance with ASC 842.

We are the lessee in a lease agreement for our corporate office space with a related party entity owned and controlled by Raymond M. Gee, our CEO and chairman. The lease term for our office is month-to-month, the lease is terminable by either party if written, thirty-day notice is given, and the lease contains no option to purchase the facility. This lease is accounted for as an operating lease. Pursuant to ASC 842-20-25-2, we as the lessee, have elected the short-term lease measurement exception whereby lease expense is recognized on a straight-line basis over the term of the lease with no right-of-use asset or lease liability recognized on the consolidated balance sheet.

Acquisitions. We account for acquisitions as asset acquisitions in accordance with ASC 805, “Business Combinations,” and allocate the purchase price of the property based upon the fair value of the assets acquired, which generally consist of land, site and land improvements, buildings and improvements and rental homes. We allocate the purchase price of an acquired property generally determined by a third-party purchase price allocation report obtained in conjunction with the purchase based on appraisals.

Debt Issuance Costs. Costs incurred in connection with obtaining financing are deferred and amortized on a straight-line basis over the term of the related obligation with the amortization included as a component of interest expense in the statement of operations. The unamortized balance of the debt issuance costs is presented in the consolidated balance sheet as direct reduction from the carrying amount of the debt. Upon prepayment, refinance, or substantial modification of a debt obligation, the related unamortized costs are written off to expense.

Investment Property and Depreciation. Investment real property and equipment are carried at cost. Depreciation of buildings, improvements to sites and buildings, rental homes, 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). Maintenance and repairs are charged to expense as incurred and improvements are capitalized. We use our professional judgement in determining whether such costs meet the criteria for capitalization or must be expensed as incurred. The costs and related accumulated depreciation of property sold or otherwise disposed of are removed from the financial statement and any gain or loss is reflected in the current period’s results of operations. For development and expansion projects, we capitalize direct project costs, such as construction, architectural and legal, as well as indirect project costs such as interest. Land development costs are not depreciated until they are put in use, at which time they are capitalized as land improvements.

Impairment Policy. We apply FASB ASC 360-10, “Property, Plant & Equipment,” to measure impairment in real estate investments. Rental properties are individually evaluated for impairment when conditions exist which may indicate that it is probable that the sum of expected future cash flows (on an undiscounted basis without interest) from a rental property is less than the carrying value under its historical net cost basis. These expected future cash flows consider factors such as future operating income, trends and prospects as well as the effects of leasing demand, competition and other factors. Upon determination that a permanent impairment has occurred, rental properties are reduced to their fair value. For properties to be disposed of, an impairment loss is recognized when the fair value of the property, less the estimated cost to sell, is less than the carrying amount of the property measured at the time there is a commitment to sell the property and/or it is actively being marketed for sale. A property to be disposed of is reported at the lower of its carrying amount or its estimated fair value, less its cost to sell. Subsequent to the date that a property is held for disposition, depreciation expense is not recorded. There was no impairment during the years ended December 31, 2022 and 2021.

Variable Interest Entities. In December 2020, we entered into a property management agreement with Gvest Finance LLC, a company owned and controlled by our parent company, Gvest Real Estate Capital LLC, an entity whose sole owner is Raymond M. Gee, our chairman and chief executive officer, and has subsequently entered into property management agreements with Gvest Homes I LLC, Gvest Anderson Homes LLC, Gvest Capital View Homes LLC, Gvest Hidden Oaks Homes LLC, Gvest Springlake Homes LLC, Gvest Carolinas 4 Homes LLC, Gvest Sunnyland Homes LLC, Gvest Warrenville Homes LLC and Gvest Wake Forest 2 Homes LLC, which are all wholly owned subsidiaries of Gvest Finance LLC. Under the property management agreements, the Company manages the homes owned by the VIEs and the VIEs remit to us all income, less any sums paid out for operational expenses and debt service but retain 5% of the debt service payment as a reserve.

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

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

During the year ended December 31, 2022, we refinanced most of our debt and used the refinance proceeds to pay off loans totaling $4,664,384 for which homes owned by Gvest Anderson Homes LLC, Gvest Capital View Homes LLC, Gvest Hidden Oaks Homes LLC, Gvest Carolinas 4 Homes LLC and Gvest Sunnyland Homes LLC were collateral. Homes in these communities were transferred to our wholly owned subsidiary, MHP Home Holdings LLC, in exchange for the debt paid off on behalf of these VIE entities owned by Gvest Finance LLC and intercompany debt forgiven totaling $460,226. This change in ownership of the homes is reflected in the current period’s balance sheet and the difference between the debt paid off and forgiven and the cost basis of the assets exchanged is reflected as an adjustment to additional paid in capital of $278,138 on the statement of changes in deficit which is eliminated in consolidation. Furthermore, we used refinance proceeds to pay off loans held by Gvest Finance LLC and Gvest Springlake Homes LLC which financed homes in the Springlake and Countryside communities. These VIE entities are in the process of obtaining replacement debt which has not been finalized of the date of this report. An intercompany loan of $2,893,981 is included in accrued liabilities and eliminated in consolidation equal to the Countryside and Springlake debt and refinance costs paid by us on the VIEs’ behalf that have not yet been repaid as of the date of this report.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The full text of our audited consolidated financial statements begins on page F-1 of this annual report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.  

ITEM 9A. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15(e) of the Exchange Act, our management has carried out an evaluation, with the participation and under the supervision of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as of December 31, 2022. Based upon, and as of the date of this evaluation, our chief executive officer and chief financial officer determined that, because of the material weaknesses described below, our disclosure controls and procedures were not effective.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for our company. Internal control over financial reporting refers to the process designed by, or under the supervision of, our principal executive officer and principal financial and accounting officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, and includes those policies and procedures that:

Our management evaluated the effectiveness of our internal control over financial reporting as of December 31, 2022. In making this evaluation, management used the framework established in the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. Based on our evaluation, we determined that, as of December 31, 2022, our internal control over financial reporting was not effective due to the following material weaknesses.

To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of legal and accounting professionals. As we grow, we expect to increase our number of employees, which will enable us to implement adequate segregation of duties within the internal control framework.

To cure the foregoing material weakness, we have taken or plan to take the following remediation measures:

We intend to complete the remediation of the material weaknesses discussed above as soon as practicable, but we can give no assurance that we will be able to do so. Designing and implementing an effective disclosure controls and procedures is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to devote significant resources to maintain a financial reporting system that adequately satisfies our reporting obligations. The remedial measures that we have taken and intend to take may not fully address the material weaknesses that we have identified, and material weaknesses in our disclosure controls and procedures may be identified in the future. Should we discover such conditions, we intend to remediate them as soon as practicable. We are committed to taking appropriate steps for remediation, as needed.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Changes in Internal Controls over Financial Reporting

We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.

Other than in connection with the implementation of the remedial measures described above, there were no changes in our internal controls over financial reporting during the quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION.

None. 

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

Not applicable. 

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The following sets forth information about our directors and executive officers as of the date of this report:

Raymond M. Gee. Mr. Gee has served as chairman of our board of directors and chief executive officer of our company since October 2017 as a result of the merger of Mobile Home Rental Holdings LLC with our company. Mr. Gee has 30 years of experience in commercial real estate, development, and structured finance. He has also served as the chief executive officer of Gvest Capital LLC, which provides management and administrative services to various investment and asset ownership entities, since 2012. Prior to forming Gvest Capital LLC, he was the head of real estate and structured products for Royal & Sun Alliance and oversaw a multi-billion-dollar diversified portfolio. Previously he headed the Latin American real estate practice for Arthur Andersen in Mexico City. Mr. Gee is a graduate of the University of Oklahoma with a BBA in finance/real estate. Mr. Gee was selected to serve on our board of directors due to his management experience in our industry.

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

Vira Turchinyak. Ms. Turchinyak has served as our chief financial officer since January 2023. Ms. Turchinyak oversees all of our financial, SEC, and tax reporting responsibilities. Ms. Turchinyak is a licensed certified public accountant in North Carolina and New York. Prior to joining us, she served as a controller at Cantor Fitzgerald’s Real Estate Investment Management group overseeing accounting and financial reporting for non-traded REITs, 1031 exchange fund and opportunity zone funds. Prior to Cantor, she was with AR Global Investments, LLC where she was a financial reporting manager preparing all SEC filings for a publicly traded REIT with $3.6 billion in assets under management. Ms. Turchinyak launched her career at PricewaterhouseCoopers, LLP in New York City where she spent three years as an auditor serving public and private clients in the real estate industry. Ms. Turchinyak received her BS degree in Accounting from the University at Buffalo.

Julia Pererva. Mrs. Pererva has served as our chief operating officer since September of 2022. She is a certified property manager (CPM) and holds a real estate broker’s license in North Carolina and South Carolina. She also currently serves as a real estate broker with Engle & Volkers. Prior to joining us, Mrs. Pererva served as commercial property portfolio manager of MPV Properties from December 2020 to June 2022, as chief operating officer of Attention To Detail Restoration Company from March 2019 to July 2020, as commercial property portfolio manager of Flagship Healthcare Properties from May 2018 to March 2019 and as director of asset management at Gvest Capital LLC from February 2015 to May 2018. Her previous experience with MPV Properties, Flagship Healthcare Properties and Gvest Capital LLC includes managing over 500,000 SF multi-state commercial portfolios which included office, retail, medical, associations and multi-family assets throughout the Southeast. Mrs. Pererva received her bachelor’s degree in Organizational Communications and Management from Wingate University. 

Adam A. Martin. Mr. Martin has served as our chief investment officer since October 2017. He is responsible for identifying and executing our investment strategies. Mr. Martin has 25 years of experience in the acquisition, development, financing, and asset management of commercial real estate and structured finance investments. Prior to joining us, Mr. Martin was a principal of Pinnacle Capital Partners, a real estate investment and development company. He also worked for Deutsche Bank Mortgage Capital originating and structuring loans for Deutsche’s credit tenant lease/structured products and conduit platforms. Prior to that, Mr. Martin worked for Royal & Sun Alliance where he originated and managed a multi-billion diversified real estate and structured products portfolio. Mr. Martin graduated from Texas A&M University with a BBA in Finance and a master’s degree in real estate.

John P. Gee. Mr. Gee has served as a member of our board of directors since September 2022. He served as a vice president of acquisitions of our company from 2020 to 2021 and as a vice president of our affiliate Gvest Capital LLC, which provides management and administrative services to various investment and asset ownership entities, since January 2020. He is a graduate of the University of North Carolina at Charlotte. Mr. Gee was selected to serve on the board of directors because of his real estate experience. 

William H. Carter. Mr. Carter has served as a member of our board of directors since March 2018. He has served as president of The Carter Land Company for the past 15 years. The Carter Land Company has provided brokerage services with respect to 144 manufactured housing communities in the Southeast. The firm presently manages apartments, single family houses, commercial warehouses, mobile home parks, self-storage facilities and retail buildings. Mr. Carter was selected to serve on our board of directors due to his experience in our industry.

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

Terry Robertson. Dr. Robertson has served as a member of our board of directors since December 2018. Since 1982, Dr. Robertson has served as consultant at ROBERTSON Appraisal & Consulting, a real estate appraisal and consulting firm that he founded. From 2000 to 2007, he worked at Carroll & Carroll Real Estate Appraisers. Dr. Robertson earned his BBA degree in finance and his PhD from the University of Georgia and is Professor Emeritus of Price College of Business of the University of Oklahoma. Dr. Robertson is an author of articles and books relating to corporate financial structure, real estate valuation and regional economic development. Dr. Robertson was selected to serve on our board of directors due to finance and real estate investment background.

Directors and executive officers are elected until their successors are duly elected and qualified. There are no arrangements or understandings known to us pursuant to which any director or executive officer was or is to be selected as a director (or director nominee) or executive officer.

Family Relationships

Raymond M. Gee is the father of Richard M. Gee and John P. Gee. There are no other family relationships between any of our directors.

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:

Corporate Governance

Our current board of directors is comprised of six members: Raymond M. Gee, Jay Wardlaw, William H. Carter, John P. Gee, Richard M. Gee, and Terry Robertson. Our board of directors has determined that Messrs. Carter and Robertson are independent directors as that term is defined in the rules of the Nasdaq Stock Market.

Our board of directors currently has two standing committees, an audit committee and a compensation committee, which perform various duties on behalf of and report to the board of directors. From time to time, the board of directors may establish other committees.

Governance Structure

Currently, our chief executive officer is also our chairman. Our board of directors believes that, at this time, having a combined chief executive officer and chairman is the appropriate leadership structure for our company. In making this determination, the board of directors considered, among other matters, Mr. Raymond M. Gee’s experience and tenure, and believed that he is highly qualified to act as both chairman and chief executive officer due to his experience and expertise. Among the benefits of a dual chief executive officer and chairman role is this structure promotes clearer leadership and direction for our company and allows for a single, focused chain of command to execute our strategic initiatives and business plans.

The Board’s Role in Risk Oversight

Our board of directors plays an active role, as a whole and at the committee level, in overseeing management of our risks and strategic direction. Our board of directors regularly reviews information regarding our liquidity and operations, as well as the risks associated with each. Our audit committee oversees the process by which our senior management and relevant employees assess and manage our exposure to, and management of, financial risks. Our compensation committee is responsible for overseeing the management of risks relating to our executive compensation plans and arrangements. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire board of directors is regularly informed about such risks.

Audit Committee

Our audit committee currently consists of Messrs. Robertson and Carter, with Mr. Robertson serving as chairman. Our board of directors has determined that each member of our audit committee is able to read and understand fundamental financial statements and has substantial business experience that results in such member’s financial sophistication. Our board of directors further determined that Mr. Robertson possesses the accounting or related financial management experience that qualifies him as financially sophisticated within the meaning of the rules of the Nasdaq Stock Market and that he is an “audit committee financial expert” as defined by the rules and regulations of the SEC.

The primary purposes of our audit committee are to assist our board of directors in fulfilling its responsibility to oversee the accounting and financial reporting processes of our company and audits of our financial statements, including (i) retaining and overseeing our independent accountants; (ii) assisting the board in its oversight of the integrity of our financial statements, the qualifications, independence and performance of our independent auditors and our compliance with legal and regulatory requirements; (iii) reviewing and approving the plan and scope of the internal and external audit; (iv) pre-approving any audit and non-audit services provided by our independent auditors; (v) approving the fees to be paid to our independent auditors; (vi) reviewing with our chief executive officer and chief financial officer and independent auditors the adequacy and effectiveness of our internal controls; (vii) preparing the audit committee report to be filed with the SEC; (viii) reviewing hedging transactions; and (ix) reviewing and assessing annually the audit committee’s performance and the adequacy of its charter.

Compensation Committee

Our compensation committee currently consists of Messrs. Raymond Gee and Robertson. 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 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.

Material Changes to Director Nomination Procedures

There have been no material changes to the procedures by which stockholders may recommend nominees to our board of directors since such procedures were last disclosed.

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.

Insider Trading Policy

We have adopted an insider trading policy which prohibits our directors, officers and employees from engaging in transactions in our Common Stock while in the possession of material non-public information; engaging in transactions in the stock of other companies while in possession of material non-public information that they become aware of in performing their duties; and disclosing material non-public information to unauthorized persons outside our company.

Our insider trading policy restricts trading by directors, officers and certain key employees during blackout periods, which generally begin 15 calendar days before the end of each fiscal quarter and end two business days after the issuance of our earnings release for the quarter. Additional blackout periods may be imposed with or without notice, as the circumstances require.

Our insider trading policy also prohibits our directors, officers and employees from purchasing financial instruments (such as prepaid variable forward contracts, equity swaps, collars and exchange funds) designed to hedge or offset any decrease in the market value of our Common Stock they hold, directly or indirectly. In addition, directors, officers and employees are expressly prohibited from pledging our Common Stock to secure personal loans or other obligations, including by holding their Common Stock in a margin account, unless such arrangement is specifically approved in advance by the administrator of our insider trading policy, or making short-sale transactions in our Common Stock.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors and executive officers and beneficial holders of more than 10% of our Common Stock to file with the SEC initial reports of ownership and reports of changes in ownership of our equity securities. Officers, directors and greater than 10% stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. We believe, based solely on a review of the copies of such reports furnished to us and representations of these persons, that all reports were timely filed for the year ended December 31, 2022, except as follows:

As of the date of this report, these delinquent reports have been filed.

ITEM 11. EXECUTIVE COMPENSATION.

Summary Compensation Table – Years Ended December 31, 2022 and 2021

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.