U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

AMENDMENT NO. 2

TO

FORM 1-A

REGULATION A OFFERING CIRCULAR

UNDER

THE SECURITIES ACT OF 1933

 

 

Noble Advisors, LLC

(Exact name of issuer as specified in its charter)

 

 

Pennsylvania

(State of other jurisdiction of incorporation or organization)

1817 Olde Homestead Lane

Suite 101

Lancaster, PA 17601

717-398-0700

(Address, including zip code, and telephone number, including area code of issuer’s principal executive office)

Kimberly J. Decker

Barley Snyder LLP

126 East King Street

Lancaster, PA 17601

717-299-5201

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

6799		26-2364364
(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

 

 

 

An offering statement pursuant to Regulation A relating to these securities has been filed with the United States Securities and Exchange Commission (the “SEC”). Information contained in this Preliminary Offering Circular is subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted before the offering statement filed with the SEC is qualified. This Preliminary Offering Circular shall not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sales of these securities in any state in which such offer, solicitation or sale would be unlawful before registration or qualification under the laws of any such state. We may elect to satisfy our obligation to deliver a Final Offering Circular by sending you a notice within two business days after the completion of our sale to you that contains the URL where the final Offering Circular or the Offering Statement in which such Final Offering Circular was filed may be obtained.

 

Preliminary Offering Circular, Subject to Completion, dated May 31, 2018

Part II – Information Required in Offering Circular

Offering Circular

NOBLE ADVISORS, LLC

1817 OLDE HOMESTEAD LANE, SUITE 101

LANCASTER, PA 17601

717-398-0700

WWW.NOBLEWEB.COM

$20,000,000 of Subordinated, Unsecured, Interest-Only Promissory Notes

Minimum Investment:  $50,000

Noble Advisors, LLC (the “Issuer”) is a Pennsylvania limited liability company that, through its wholly-owned subsidiaries, primarily engages in the business of buying, selling and managing real estate and mortgage-backed securities. The Issuer will offer and sell, on a continuous, best efforts basis, its subordinated, unsecured, interest-only promissory notes (each a “Note” and collectively the “Notes”). The aggregate amount of Notes sold will not exceed $20,000,000 in any 12-month period.

Several different maturity terms are available for each Note purchased, with a fixed rate of interest that varies by the maturity term selected. Interest only payments are made on Notes on a quarterly basis, with principal being due and payable at maturity. Each Note represents a full and unconditional obligation of the Issuer, but is unsecured and subordinated to the Issuer’s and its subsidiaries’ institutional debt obligations. Notes must be purchased in minimum amounts of $50,000 and in increments of $5,000 above the minimum, subject to the Issuer’s right, in its discretion to permit purchases in lesser amounts or increments. For more information on the Notes and their terms, please see “THE NOTES” on page 18.

All offers will be extended, and subscription agreements executed, by the Issuer. Neither the Issuer nor any of its officers or employees receives any commission for the sale of the Notes. In its discretion, the Issuer may elect to utilize the services of a broker-dealer to sell some or all of the Notes. The Issuer anticipates that the fee due to a broker-dealer in connection with the sale of a Note will not exceed 2% of the amount of the Note.

 

								Price		Underwriting Discounts and   Commissions1		Proceeds to The Issuer2
						Minimum Investment Per Note		$50,000		$1,000		$49,000
						Total Offering		$20,000,000		$200,000		$19,800,0003

¹ The Issuer intends to offer the Notes through the efforts of its managers and officers, who will receive no compensation in connection with such sales. However, the Issuer may choose to engage a broker-dealer to solicit subscriptions for Notes, and will pay such broker-dealers a commission of up to 2% of the amount of Notes sold as a result of such efforts. Although the Company may not engage a broker-dealer at all, the amount of commissions estimated here presumes that all Notes have been sold through the efforts of a broker-dealer.

² Before estimated offering expenses of $50,000.

³ The Total Offering amount of Notes has been set by the Issuer at $20,000,000. However, the Issuer may increase the Total Offering, in its sole and absolute discretion, subject to prior approval by the Securities and Exchange Commission.

Investing in the Notes is speculative and involves substantial risks. You should purchase a Note only if you can afford a complete loss of your investment. See “Risk Factors” beginning on page 11 to read about the more significant risks you should consider before buying a Note. The Notes have not been approved or disapproved by the Securities and Exchange Commission, nor has the accuracy or adequacy of this Offering Circular. Any representation to the contrary is a criminal offense.

FOR FLORIDA RESIDENTS: THE UNITS REFERRED TO HEREIN WILL BE SOLD TO, AND ACQUIRED BY, THE HOLDER IN A TRANSACTION EXEMPT UNDER SECTION 517.061 OF THE FLORIDA SECURITIES ACT. IN ADDITION, ALL FLORIDA RESIDENTS SHALL HAVE THE PRIVILEGE OF VOIDING A PURCHASE WITHIN THREE (3) DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE BY SUCH PURCHASER TO THE ISSUER. AN AGENT OF THE ISSUER OR AN ESCROW AGENT OR WITHIN THREE DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO SUCH PURCHASER, WHICHEVER OCCURS LATER.

FOR PENNSYLVANIA RESIDENTS: IF YOU HAVE ACCEPTED AN OFFER TO PURCHASE THESE SECURITIES AND HAVE RECEIVED A WRITTEN NOTICE EXPLAINING YOUR RIGHT TO WITHDRAW YOUR ACCEPTANCE PURSUANT TO SECTION 207(M)(2) OF THE PENNSYLVANIA SECURITIES ACT OF 1972, YOU MAY ELECT, WITHIN TWO BUSINESS DAYS FROM THE DATE OF RECEIPT BY THE ISSUER OF YOUR BINDING CONTRACT OF PURCHASE OR, IN THE CASE OF A TRANSACTION IN WHICH THERE IS NO BINDING CONTRACT OF PURCHASE, WITHIN TWO BUSINESS DAYS AFTER YOU MAKE THE INITIAL PAYMENT FOR THE SECURITIES BEING OFFERED, TO WITHDRAW YOUR ACCEPTANCE AND RECEIVE A FULL REFUND OF ALL MONEYS PAID BY YOU. YOUR WITHDRAWAL OF ACCEPTANCE WILL BE WITHOUT ANY FURTHER LIABILITY TO ANY PERSON. TO ACCOMPLISH THIS WITHDRAWAL, YOU NEED ONLY SEND A WRITTEN NOTICE (INCLUDING A NOTICE BY FACSIMILE OR ELECTRONIC MAIL) TO THE ISSUER (OR PLACEMENT AGENT IF ONE IS LISTED ON THE FRONT PAGE OF THE OFFERING MEMORANDUM) INDICATING YOUR INTENTION TO WITHDRAW.

The date of this Offering Circular is May     , 2018, and the offering of the Notes is anticipated to commence within two business days thereof.

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In order to purchase a Note, an Investor must meet certain criteria. See “WHO MAY INVEST” on page 5. Individual purchases will be consummated through execution of a subscription agreement which contains conditions and restrictions. All investors will also be required to sign a subordination agreement. There is no public market for the Notes, and it is unlikely that any such market will develop. There is no minimum amount of Notes that must be sold in order to consummate this offering of Notes (the “Offering”), and subscription proceeds will not be escrowed. The amount invested by each Investor will be immediately available to the Issuer. The Issuer reserves the right to accept or reject any subscription for any reason, in the Issuer’s sole discretion. The purchase price for each Note is to be paid in immediately available funds in United States dollars at the time of subscription. The Notes are offered subject to acceptance of subscriptions, prior sale, and withdrawal or cancellation of the Offering at any time without prior notice.

The Issuer has chosen to follow the Offering Circular Format for this document.

 

 

Prospective purchasers should not regard the contents of this Offering Circular or any other communication from the Issuer as a substitute for careful and independent tax and financial planning. Each potential investor is encouraged to consult with his, her or its own independent legal counsel, accountant and other professionals with respect to the legal and tax aspects of this investment and with specific reference to his, her or its own tax situation, prior to subscribing for the Notes. The purchase of Notes by an individual retirement account, Keogh plan or other qualified retirement plan involves special tax risks and other considerations that should be carefully considered by an Investor. Income earned by qualified plans as a result of an investment in the Notes may be subject to federal income taxes, even though such plans are otherwise tax exempt. See “ERISA Considerations”.

The information contained in this Offering Circular has been supplied by the Issuer. This Offering Circular contains summaries of documents not contained in this Offering Circular, but all such summaries are qualified in their entirety by references to the actual documents. Copies of documents referred to in this Offering Circular, but not included as an annex, will be made available to qualified prospective investors upon request.

No person has been authorized in connection with this offering to give any information or to make any representations other than that information and those representations specifically contained in this Offering Circular; any other information or representations should not be relied upon. Any prospective purchaser of the Notes who receives any other information or representations should contact the Issuer immediately to determine the accuracy of such information and representations. Neither the delivery of this Offering Circular nor any sales hereunder shall, under any circumstances, create an implication that there has been no change in the affairs of the Issuer or in the information set forth herein since the date of this Offering Circular set forth above.

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TABLE OF CONTENTS

 

WHO MAY INVEST			5
IMPORTANT INFORMATION ABOUT THIS OFFERING CIRCULAR			5
OFFERING SUMMARY			7
RISK FACTORS			11
THE NOTES			18
PLAN OF DISTRIBUTION			21
THE ISSUER AND AFFILIATED ENTITIES			22
MANAGEMENT			27
USE OF PROCEEDS			31
MANAGEMENT’S DISCUSSION AND ANALYSIS			32
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS			45
ERISA CONSIDERATIONS			47
REPORTS			49
ACCOUNTANTS			50
LEGAL COUNSEL			50
ACCESS TO ADDITIONAL INFORMATION			50
FINANCIAL STATEMENTS			F-1
ANNEX A  -     INTEREST RATE CHART			A-1
ANNEX B  -     ORGANIZATIONAL CHART			B-1
ANNEX C  -     SERVICES AGREEMENT			C-1
ANNEX D  -     SUBSCRIPTION AGREEMENT			D-1
ANNEX E  -     SUBORDINATION & JUNIOR LENDER AGREEMENT			E-1
ANNEX F   -     FORM OF PROMISSORY NOTES			F-1

 

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WHO MAY INVEST

This Offering Circular does not constitute an offer to sell or a solicitation of an offer to buy any securities offered hereby in any jurisdiction where, or to any person to whom, it is unlawful to make such an offer. This Offering is currently available to individuals, Keogh plans, IRAs and entities that are residents of (or for entities, domiciled in) the states of Pennsylvania, Delaware, Colorado, North Carolina, Oregon or Florida. For this purpose, individuals are considered to be residents of the state in which they maintain their principal residence, and a corporation, partnership, trust or other entity is considered to be domiciled in the state where the principal office of the entity is located. In addition, each investor must meet one of the following conditions: (i) net worth of at least $70,000 (not including a primary residence, vehicles or home furnishings) and income of at least $70,000; or (ii) net worth of at least five (5) times the amount invested. The purchase of Notes by an IRA, Keogh plan or other qualified retirement plan involves special tax risks and other considerations that should be carefully considered. Income earned by qualified plans as a result of an investment in the notes may be subject to federal income taxes, even though such plans are otherwise tax exempt. See “ERISA Considerations”.

IMPORTANT INFORMATION ABOUT THIS

OFFERING CIRCULAR

Please carefully read the information in this Offering Circular and any supplements thereto. You should rely only upon the information in this Offering Circular as we have not authorized anyone to provide any different information regarding us or this offering.

Offering Statement. This Offering Circular is part of an offering statement we have filed with the Securities and Exchange Commission (the “SEC”). We contemplate this being a “continuous offering” and thus, we anticipate that we will prepare and distribute supplements to reflect material developments to add or change information contained in this Offering Circular. The offering statement we filed with the SEC includes annexes that provide detailed information or documents discussed in this Offering Circular. You may access such information through the electronic data gathering, analysis and retrieval system found at https://www.sec.gov/edgar.

Cautionary Note Regarding Forward Looking Statements.  We make forward-looking statements in this document. These forward-looking statements include statements regarding future prospects, profitability, liquidity, market risk, values and financial results. The words “believes,” “expects,” “may,” “will,” “should,” “projects,” “contemplates,” “anticipates,” “forecasts,” “intends” or other similar words or terms are intended to identify forward-looking statements. These forward-looking statements are subject to significant uncertainties because they are based upon or are affected by factors including:

 

•

changes in the prices and values of commercial and residential real estate;

•

changes in the prices and values of commercial and residential real estate real-estate backed securities;

•

interest rate fluctuations;

•

changes in relationships with financial institutions which are important sources of real estate properties and business;

•

adverse changes in the economy;

•

the failure of assumptions underlying expectations or other estimates;

 

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the value, condition, and operation of the properties and investments acquired by the Issuer from time to time;

•

availability of financing and capital to support the Issuer’s business and growth, including, without limitation, senior debt and/or subordinated debt; and

•

other factors, including those matters discussed in the “RISK FACTORS” section of this document.

Because of these uncertainties, the Issuer’s actual future results may be materially different from the results indicated by these forward-looking statements. We undertake no obligation to update or otherwise revise any forward-looking statements, whether as a result of new information, future events or otherwise, and such statements should not be considered representations or warranties by us.

We are offering to sell, and seeking offers to buy, Notes only in jurisdictions where offers and sales are permitted. The information contained in this Memorandum is intended to be accurate only as of the date of this Memorandum, regardless of the time of delivery of this Memorandum or of any sale of Notes. This Memorandum supersedes all prior information and discussions concerning any proposed offering of Notes.

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RISK FACTORS

Investing in the Notes involves significant risks. Note holders will be subject to risks inherent in being a holder of Notes and the risks of the business activities of the Issuer. Recipients should carefully consider the following factors, as well as other information contained in this Confidential Private Offering Memorandum (the “Memorandum”), before deciding to invest in the Notes. In the opinion of management of the Issuer, Investors should only invest in the Notes if they are able to afford the loss of their entire investment, if they have substantial financial means and if they have no need for liquidity to the extent of their investment in the Notes. In considering an investment in the Notes, recipients should carefully consider all of the following risks, as well as the other information set forth in this Memorandum or provided by the Issuer. The risk factors set forth below should not be considered an exhaustive listing of all potential risks.

The Issuer is dependent on the Operating Entities for cash flow, including funds required to pay interest on the Notes and to repay the Notes at maturity.

The Issuer will be almost exclusively reliant on profits generated by the investment activities of the Operating Entities as the ultimate source of funds to pay interest on the Notes as well as to repay the Notes at maturity. As a result, Note holders are subject to all of the risks and uncertainties associated with the business of the Operating Entities, the most important of which are set forth below:

The Issuer’s ability to pay the interest on the Notes and to repay the Notes at maturity is dependent on the success of the Operating Entities and its ability to obtain distributions from the Operating Entities, all of which have debt obligations of their own that may prevent the Issuer from obtaining distributions upon an event of default at the Operating Entity level.

Two of the Operating Entities (Central Penn Capital Management, LLC (“CPCM”) and Noble Capital Management, LLC (“NCM”)) have issued significant amounts of subordinated, unsecured notes in private placements (the “CPCM Notes” and the “NCM Notes”, respectively). As of December 31, 2017, the balance of CPCM Notes and NCM Notes outstanding was as follows: Central Penn Capital Management LLC $22,205,832; and Noble Capital Management, LLC $2,802,580.

In addition, each Operating Entity has obtained a commercial credit facility to support its operations. As of December 31, 2017 the balance of each such facility for Central Penn Capital Management, Noble Capital Management, LLC, Chesapeake Capital Management, LLC and Susquehanna Capital Management, LLC was $0. Each such facility’s available line of credit is significant and, as a result, the Operating Entities may at various times be considered highly leveraged.

The CPCM Notes are subordinated to CPCM’s commercial lenders, and the NCM Notes are subordinated to NCM’s commercial lenders. We refer to CPCM’s and NCM’s current or future commercial lenders, as well as any current or future commercial lender of the Issuer or any of the other Operating Entities, as the “Senior Lenders”, and we refer to all credit extended by the Senior Lenders as the “Senior Debt”. The Notes will be unsecured and subordinated to the Senior Debt of all Senior Lenders. The CPCM Notes are only subordinated to CPCM’s own Senior Lender’s commercial loan facility. Likewise, the NCM Notes are only subordinated to NCM’s

 

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own Senior Lender’s commercial loan facility. Despite similar subordination, holders of CPCM Notes and holders of NCM Notes are likely to have a superior right to any available assets of CPCM and NCM, respectively, compared to Note holders in the event of a default under the CPCM Notes or NCM Notes, respectively.

The Issuer is reliant upon the Operating Entities for funding necessary to repay the Notes. If any of the Operating Entities defaults on its Senior Debt, or if any of the Operating Entities does not generate a profit or experiences a loss, the Issuer may be unable to obtain excess funds from such Operating Entity. In that situation, the Issuer may not have sufficient funds to make payments of interest on the Notes or to repay the Notes at maturity. There can be no assurance that the Operating Entities as a whole, or any of them, will be able to generate a profit sufficient to allow the Issuer to pay the interest due on the Notes or to repay the Notes at maturity.

See “THE NOTES – Subordination to Senior Lenders” on page 18 for a description of the Subordination terms.

Volatility of the real estate market may adversely affect the Operating Entities’ results.

The Operating Entities’ core business is primarily the investment in real estate, currently with a focus on the Middle Atlantic states as well as mortgage-backed securities throughout the United States. The real estate market is often volatile, and a significant downward movement of real estate values could severely affect the value of the Operating Entities’ investments and ability to generate a positive return on those investments. The results of operations of the Operating Entities (and therefore of the Issuer) may be affected by employment, economic, regional, regulatory developments or other factors related to the real estate industry. If real estate values drop significantly, the Operating Entities’ financial condition could deteriorate significantly, and they may be unable to repay funds invested in them by the Issuer or loaned to them by the Issuer.

Real estate and mortgage-backed securities are illiquid investments. If the Operating Entities are unable to dispose of their investments at the most opportune time, or when desired, the Operating Entities may not have sufficient funds to meet their obligations, including repayment of investments in them by the Issuer or loans made to them by the Issuer.

The Issuer anticipates that the Operating Entities’ investments will be concentrated in real estate and mortgage-backed securities. From time to time, there may not be an active market in either real estate or mortgage-backed securities. As a result, it may be difficult for one or more of the Operating Entities to dispose of real estate inventory or mortgage-backed securities at times and at prices that are most beneficial or that match their need for liquid funds. Such conditions may result in a less favorable price for real estate or mortgage-backed securities sales than might be obtainable if the investments were readily saleable, or cause an Operating Entity to have insufficient cash funds to pay senior debt or loans made by the Issuer. The Issuer expects that the Operating Entities will generally have a significant amount of real estate under agreement at any given time but does not anticipate that they will have a written policy regarding the minimum liquidity in their respective portfolios of real estate and mortgage-backed securities.

 

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Limited cash flow may result from investments in mortgage-backed securities.

A portion of the Operating Entities’ investments will be invested in mortgage-backed securities. The Operating Entities generate cash flow from these investments when a borrower makes principal and interest payments, a borrower sells a property and pays off a loan, a settlement is reached with a borrower on a short sale, a borrower refinances, or the Operating Entity takes title via a deed and sells the underlying real estate. If one or more of the Operating Entities is significantly delayed in its timeline to complete any of the above, it may not have sufficient cash flow to pay its debt service obligations, including investments into it by the Issuer or loans made to it by the Issuer.

As owner and operator of real estate, the Operating Entities are exposed to property liability risks inherent in those activities.

Real estate ownership involves an inherent amount of property risk and liability of the owner to prevent injury or death to individuals who are on the premises. Although the Operating Entities have safety measures in place and intend to carry property and liability insurance coverage on commercial real estate held in portfolio, it will not typically maintain property insurance coverage on residential real estate held in portfolio. In addition, even with respect to real estate for which the Issuer obtains insurance, an Operating Entity may suffer financial harm if a parcel of real estate suffers damage by fire, wind, rain or similar incidents or if an individual is seriously injured or killed at one of the properties, any of which could negatively affect the financial condition of the affected Operating Entity and, therefore, the cash flow available to the Issuer.

As owner of mortgage-backed securities, the Operating Entities are exposed to uninsured or underinsured real estate in those activities.

Some of the owners of the real estate that secures the Operating Entities’ mortgage-backed securities may allow their property insurance to lapse or the underlying property may be uninsured or underinsured or not be covered by a specific hazard. In the case of owned real estate, although the Operating Entities intend to be the loss payee on the insurance policies covering their respective mortgages, and generally carry forced place insurance on higher value properties when they become uninsured, there is no guarantee that an Operating Entity will be able to ensure that insurance coverage is in place at all times and for all hazards, and it may suffer financial harm if a parcel of real estate suffers damage during a lapse in insurance coverage. A significant damage event at an uninsured and underinsured property could negatively affect the financial condition of the affected Operating Entity and, therefore, the cash flow available to the Issuer.

The investments of the Operating Entities may have title defects and lack title insurance.

The majority of the real estate purchased by the Operating Entities is purchased without title insurance and often is held in ownership without title insurance. Additionally, some of the mortgages purchased by the Operating Entities are purchased without title insurance. Real estate and mortgages purchased without title insurance create risk for an Operating Entity because any title defects become the

 

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responsibility of the Operating Entity. If title is defective on a significant amount of an Operating Entity’s real estate investments, the Operating Entity could experience losses that would negatively affect both the Operating Entity and its ability to repay investments into it by the Issuer or money loaned to it by the Issuer.

The Operating Entities may invest in non-real estate assets, which carry different risks, including loss of lien position, depreciation in value, obsolescence and lack of security.

In addition to their core business of investing in real estate and mortgage-backed securities, from time to time the Operating Entities invest in debt instruments secured by assets other than real estate, such as non-real estate backed debt instruments such as debt secured by UCCs, accounts receivable, inventory and vehicles. These investments will be made at the sole discretion of the Issuer; however, the Issuer does not intend to hold more than 20% of its total investments in non-real estate backed debt instruments. These non-real estate backed debt instruments may be secured by depreciated collateral, or collateral that may be difficult to locate and liquidate. If an Operating Entity does not maintain UCC filings, it could lose its lien position to other creditors or entirely. Also, all or a portion of accounts receivable may turn out to be uncollectible. In general, inventory may become obsolete, may be of lower value than represented by the borrower of the note it secures, is more difficult to track and may be less salable. In addition, vehicles are depreciating assets and may be easier to transport or hide than other types of collateral. Additionally, an Operating Entity may also invest in unsecured debt instruments which have no collateral which exposes it to a complete loss of its investment. Loss of access to collateral could cause an Operating Entity to be unable to collect the associated debt, in whole or in part.

The Issuer and the Operating Entities need significant funds to conduct business.

The Issuer’s core business involves funding the activities of the Operating Entities. In order to be successful, the Operating Entities need to have the ability to fund a steady acquisition and turnover of real estate and mortgage-backed securities. The ability of the Issuer or its Operating Entities to obtain traditional secured financing from institutional lenders is limited due to the short time period that the Operating Entities typically hold the deed on the majority of the real estate investments made, which makes it difficult for institutional lenders to use the portfolio of real estate as collateral. Additionally, many institutional lenders are reluctant to use sub-performing or non-performing mortgage-backed securities as security. If the Issuer and the Operating Entities are unable to obtain financing, the Operating Entities may be unable to meet their obligations or capitalize on the opportunities available. As a result, even if the Issuer sells all of the Notes hereby offered, the Issuer may have a substantial need for additional capital beyond that raised through this Offering to properly finance the activities of the Operating Entities.

The Issuer’s Senior Debt obligations may become significant.

As of the date of this Memorandum, the Issuer has no Senior Lender but is actively seeking a commercial bank to become its Senior Lender. In addition, all four of the Operating Entities, CPCM, CCM, NCM and SCM, have Senior Lenders. The Issuer retains the unlimited right to acquire an unlimited amount of Senior Debt, at the Issuer’s sole discretion, as do the Operating Entities. If the Issuer or its Operating Entities are unable to meet their respective

 

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debt obligations to their Senior Lenders, holders of the Notes may not be able to recover their principal investment in the Notes or receive any interest thereon.

The Notes are subordinated to Senior Debt.

Payment of the principal and interest on the Notes will be subordinated to all Senior Lenders, including Senior Lenders to the Operating Entities. Therefore, in the event of a dissolution of the Issuer or its Operating Entities, the Senior Lenders and any other secured creditors of the Issuer or of such Operating Entity will be entitled to recover the amounts they are owed out of the proceeds, if any, realized from the sale of that entity’s assets (see “THE NOTES – Subordination to Senior Lenders”). In addition, during the period of any default on obligations to a Senior Lender, Note holders are not able to receive payments of either principal or interest until the default is cured. Accordingly, the ability of a Note holder to recover all or any portion of amounts due under a Note under such circumstances will depend on the amount of funds available and the amount of the claims of Senior Lender and other secured creditors. There can be no assurances that a Note holder will recover any funds at all upon dissolution of the Issuer or an Operating Entity.

Increased leverage may reduce profits and negatively impact the Issuer’s ability to repay the Notes.

The Issuer anticipates using Senior Debt, additional Notes or other indebtedness to fund future operations of the Operating Entities. Such debt will increase both the possibilities of profit and the risk of loss experienced by the Issuer. The amount of the borrowings, and the interest rates and fees on those borrowings, which will fluctuate, may have an effect on the Issuer’s profitability. Under certain circumstances, a Senior Lender may demand an increase in the collateral that secures such indebtedness, and if the Issuer is unable to provide additional collateral, the lender could liquidate assets held by the Issuer, which is likely to include the assets of its Operating Entities. Such liquidation could have extremely adverse consequences on the value of the assets owned by the Issuer and its ability to repay the Notes.

Investors have no ability to participate in management of the Issuer and will not be able to review or control the investments the Issuer makes.

Investors will have no right or power to directly take part in the management or control of the business of the Issuer. All decisions with respect to the management of the Issuer will be made exclusively by its Manager. The real estate and mortgage-backed securities investments to be made by the Issuer with the proceeds of this offering have not yet been identified. You will not have an opportunity to review the investments to made by the Issuer in advance and are relying on the Issuer and its Manager to make all such decisions. Thus, you are ultimately relying on the successful decision making of the Manager’s key officers for the success of the Issuer’s operations and, therefore, its ability to repay the Notes according to their terms.

There is no assurance that all of the Notes being offered will be sold because there will not be an underwriter.

The Offering will not be undertaken through the services of an underwriter, and there can be no assurance that any or all of the Notes offered hereby will be sold. Failure to sell some or all of the Notes offered may result in the Issuer having lower capital than management considers ideal, which could adversely affect the ability of the Issuer to fund the Operating Entities’ activities sufficient to take advantage of available business opportunities.

 

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The Issuer’s liquidity could be negatively impacted if it fails to appropriately stagger the maturities of the Notes that it sells.

The Notes have terms as short as 30 days and as long as seven years. As a result, the Issuer will need to manage the scheduled maturities of the various terms of the Notes that it sells in this offering. If the Issuer fails to manage the Note maturities, it may become obligated to repay a greater amount of principal and interest on the Notes than it has cash available, resulting in a default on the Notes and possibly on its Senior Debt as well.

Note holders do not have the right to be repaid at any time other than scheduled maturity.

A Note holder has no right to demand payment of their Note at any time other than the scheduled maturity of the Note.

Transferability of the Notes is restricted.

Transfer of the Notes is substantially restricted under both federal and certain state securities laws. The Notes cannot be resold without registration under the applicable federal and state securities laws or without complying with an exemption from registration. A legend will be placed on each Note to that effect.

The Notes contain a forum selection provision that requires all disputes to be resolved in the courts of Lancaster County in the Commonwealth of Pennsylvania, regardless of convenience or cost to the Investor to litigate in that forum.

The Notes provide that the courts located in Lancaster County, Pennsylvania are the sole and exclusive forum for any noteholder actions relating to a Note, including actions to enforce payment of a Note. Therefore, an Investor may be compelled to travel to Lancaster County, Pennsylvania to prosecute or defend any claims involving a Note. Lancaster County may be an inconvenient forum for an Investor, which could cause an Investor to incur additional costs and expenses. Moreover, the exclusive forum provision may limit an Investor’s ability to bring a claim in a judicial forum that the Investor believes is more favorable to the Investor. An Investor also waives any right to a jury trial with respect to claims involving a Note. As a result, the forum selection provision may have the effect of discouraging lawsuits with respect to enforcement of the Note.

The lack of a market for the Notes will make it difficult for a Note holder to sell a Note.

In addition to the restrictions on transfer of the Notes imposed by the securities laws, no market currently exists for the resale of the Notes. Therefore, a Note holder will likely not be able to sell or otherwise dispose of a Note at an acceptable price or at all, and will need to remain a Note holder until the maturity date set forth in the Note.

Investors will not have the benefit that would come with registration of the offer of Notes under federal or, in some cases, state securities laws.

The offer and sale of the Notes pursuant to the Offering have not been and will not be registered under the Securities Act, as amended, and will not be registered under any state securities act, other than the state securities acts of Pennsylvania, Delaware and Oregon, by reason of specific exemption from registration under such acts. Thus, the Offering has not been subjected to the more intense scrutiny in every jurisdiction in which the Offering is made that is provided by the registration process. Accordingly, Investors must judge the adequacy of

 

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disclosure and fairness of the terms of the Offering on their own, and without the benefit of registration level review by any regulatory agency in those jurisdictions in which the Issuer is relying on an exemption from registration.

The Notes are unsecured and are not guaranteed by any person or entity.

Payment of the principal and interest on the Notes is not secured by a security interest in any of the assets of the Issuer or any other person, and the Notes are not guaranteed by any person or entity. Therefore, in the event the Issuer defaults in the payment of a Note, the Note holder should not expect to be able to recover payment from the Issuer’s assets generally or recover payment from any guarantor.

Impact of federal and state taxes on ownership of the Notes.

Federal and state tax laws are subject to amendment at any time and any such amendment is likely to impact the effective return on the Notes. If tax rates are decreased or deductions increased, the effective return to a holder of Notes would be increased. On the other hand, if tax rates are increased or deductions decreased, the effective return to a holder of Notes would be decreased. State income taxes and personal property taxes vary from state to state, and an Investor must consider the impact of the tax structure applicable to the Notes in the state in which the Investor resides. Given current public fiscal issues, it is possible that the benefits of an investment in the Notes could be substantially impacted by changing tax policies of the federal government and the various states.

The Noble Group is engaged in other activities that may create a conflict of interest in terms of time and effort spent on behalf of the Operating Entities.

The success of the Issuer’s investments in the Operating Entities will be directly impacted by the success of the research and services provided by The Noble Group. The Noble Group provides the research required to identify investment opportunities that are purchased by the Operating Entities and provides general administrative, accounting, real estate management, real estate brokerage, loan servicing and loan workout services to the Operating Entities. Although The Noble Group will devote substantial time to the business of the Issuer and the Operating Entities, The Noble Group will engage in other business activities, including without limitation, providing investment real estate advisory services to other affiliated entities other than the Operating Entities, including companies that have a similar investment objective to that of the Operating Entities. The failure of The Noble Group to remain involved with the Issuer and its Operating Entities would likely have a material adverse effect on the operations of the Issuer and its ability to repay the Notes. See “MANAGEMENT – Conflicts of Interest”.

In addition to the risks described above, the Issuer and the Notes may be subject to unforeseen risks or risks not fully appreciated as of the date of the Offering Circular. In considering an investment in the Notes, Investors should keep in mind the possibility of these and other risks that could be important.

 

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THE NOTES

General

The Notes are unsecured, subordinated promissory notes of the Issuer with a fixed rate of interest that is determined by reference to the rate being offered by the Issuer with respect to the selected maturity date of the Note at the time of purchase. Interest rates are set by the Issuer, in its discretion; provided, however, that quarter-over-quarter interest rate changes are limited to 0.50% (either positive or negative) for each maturity offered, and the total interest rate change over the life of the Offering for each maturity offered is limited to 2.00% (either positive or negative) from the initial rate offered at the time of commencement of the Offering. The available maturity terms that an investor may select from are as follows: (i) three, five or seven years; (ii) one year, and payable upon 30 days’ written demand thereafter; or (iii) payable upon 30 days’ written demand. The Notes are obligations of the Issuer to repay the Note holder the principal amount of the Note with interest at the applicable rate. The form of term Note is attached hereto as Annex F.

Interest Rates

An Investor must choose the maturity term of the Note upon subscription, and that selection will determine the interest rate of the Note. The interest rates being offered by the Issuer for each Note depends on the selected term of the Note in accordance with the Interest Rate Chart in effect at the time of purchase. The Interest Rate Chart in effect for the current calendar quarter, is attached hereto as Annex A. The issuer updates its offered rates on the first day of each calendar quarter, and will publish its revised Interest Rate Chart on each such date.

Interest Payments

The Issuer will make quarterly payments of interest only, beginning the first calendar quarter following the month of issuance of the Note. In lieu of payment of interest, a Note holder may, at the Note holder’s sole option, choose for interest to accrue until maturity of the Note.

Maturity

Each Note is due and payable in full, along with all accrued and unpaid interest, on its maturity date or, in the case of any Note with a demand feature, upon demand in accordance with its terms.

Prepayment by the Issuer

The Issuer may prepay one or more of the Notes at any time and from time to time, in whole or in part, without premium or penalty.

Subordination to Senior Lenders

Two of the Operating Entities (CPCM and NCM have issued significant amounts of subordinated, unsecured notes in private placements (the “CPCM Notes” and the “NCM Notes”, respectively). As of December 31, 2017, the balance of these outstanding notes was as follows: Central Penn Capital Management, LLC Notes $22,205,832; and Noble Capital Management, LLC Notes $2,802,578.

 

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In addition, each Operating Entity has obtained a commercial credit facility to support its operations. As of December 31, 2017, the balance of each such facility was $0.

The CPCM Notes are subordinated to CPCM’s commercial lenders, and the NCM Notes are subordinated to NCM’s commercial lenders. We refer to CPCM’s and NCM’s current or future commercial lenders as well as any current or future commercial lender of the Issuer as the “Senior Lenders”, and we refer to all credit extended by the Senior Lenders as the “Senior Debt”.

The Notes are unsecured and will be subordinated to the Senior Debt of all Senior Lenders. The CPCM Notes are only subordinated to CPCM’s own Senior Lender’s commercial loan facility. Likewise, the NCM Notes are only subordinated to NCM’s own Senior Lender’s commercial loan facility.

As of the date of this Memorandum, the Issuer has no Senior Lender, but is actively seeking a commercial bank to become its Senior Lender. The Issuer anticipates any Senior Lender will require a first lien security interest on all of the Issuer’s assets.

As a result of the foregoing, the Issuer is requiring that each Note holder execute a Joinder by which such Note holder becomes a party to a Subordination and Junior Lender Agreement, attached hereto as Annex E. The Subordination and Junior Lender Agreement governs the relationship between the Senior Lenders, on one hand, and all of the Note holders, on the other hand.

The Subordination and Junior Lender Agreement provides, among other things, that: (a) the Issuer may pay regular installments of principal and interest on the Notes if, but only if, no event of default exists with respect to the indebtedness owing to a Senior Lender; (b) each Note holder is prohibited from accepting or retaining any installment of principal and/or interest at any time when any event of default exists with respect to the indebtedness owing to a Senior Lender; and (c) he, she or it will execute a revised subordination and junior lender agreement if any Senior Lender requires a different form. In addition, the Note holders agree, as between themselves, that each Note holder is prohibited from enforcing, collecting, foreclosing, entering judgment or otherwise taking any steps whatsoever to legally require the Issuer to make any payment of principal, interest, costs, or expenses on account of such Note holder individually, and any such actions taken shall be for the benefit of all holders of Notes. See “Pari Passu / Pro-Rata Relationship Among Note Holders”, below.

In the event of a dissolution of the Issuer, the proceeds, if any, realized from the sale of any assets will be distributed only after the satisfaction of all claims of secured and senior creditors, including the Senior Lenders. The holders of Notes will be subordinated to all Senior Lenders, including Senior Lenders to the Operating Entities, and the Senior Lenders will, therefore, be entitled to seek repayment from the borrowing entity’s assets before Note holders. In addition, other creditors holding a security interest will be entitled to payment from the assets covered by the security interest before any general creditors, including the Note holders, may be paid. Accordingly, the ability of a Note holder to recover all or any portion of the outstanding principal or interest on a Note under such circumstances will depend on the amount of funds realized from the sale of the Issuer’s assets and the amount of the claims of all senior and secured creditors. There can be no assurances that a Note holder will be able to recover any funds at all upon liquidation or dissolution of the Issuer.

 

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Pari Passu / Pro-Rata Relationship Among Note Holders

The Subscription Agreement provides that, subject to the Subordination and Junior Lender Agreement, the proceeds from any disposition of all or any part of the Issuer’s assets shall be shared by and distributed among the Note holders on a pari passu, pro-rata basis. If the Issuer offers Notes in the future, all Note holders under this Offering and future offerings will also hold pari passu, pro-rata rights among themselves. The Issuer will require that all such future investors in subsequent offerings sign a similar subscription agreement and will be equal in rights to the purchasers of Notes in this Offering.

Additional Borrowings

So long as the Issuer is not in default, the Issuer may, without any Note holder’s consent, and in its sole discretion, obtain unlimited additional secured or unsecured Senior Debt from one or more Senior Lenders. Each Note holder is required to execute such additional agreements with respect to such Senior Debt as any Senior Lender may require (which will, among other things, subordinate the Notes to the rights of such Senior Lenders).

Events of Default; Remedies

The Issuer will be in default if any of the following occur:

 

(a)

The Issuer fails to pay any installment of any amount due under the Note within 15 days after it become due;

 

(b)

The Issuer fails to observe or perform any other covenants or provisions contained in the Note, after 60 days’ notice and opportunity to cure or such longer period as is reasonably necessary to effect a cure;

 

(c)

The Issuer makes any warranty, representation or statement to a Note holder that is false or misleading in any material respect, either at the time made or furnished.

 

(c)

The Issuer makes an assignment for the benefit of creditors, or a trustee or receiver is appointed for the Issuer or for any of its property, to the extent the same is not vacated or set aside within 60 days; or

 

(d)

Any proceeding is commenced by or against the Issuer under any bankruptcy, reorganization, arrangement or readjustment of debt, insolvency, receivership, liquidation, or dissolution law or statute, to the extent the same is not vacated or set aside within 60 days.

If an event a default occurs, subject to the restrictions set forth in the Subordination and Junior Lender Agreement and to the pari-passu status of all Note holders, a Note holder may take one or more of the following actions:

 

(a)

Declare the entire unpaid principal balance of the Note, together with all accrued interest, and all other sums due under the Note (the “Indebtedness”) to be due and payable immediately; and/or

 

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(d)

Exercise any other right or remedy provided in the Note, at law or in equity.

In addition, any costs of suit and other expenses incurred by a Note holder in connection with any action to enforce the Note, whether or not suit is brought, including reasonable attorneys’ fees, is payable by the Issuer on demand.

Governing Law

The Notes will be governed by the laws of the Commonwealth of Pennsylvania, and the exclusive venue for any enforcement action or other dispute regarding the Notes will be Lancaster County, Pennsylvania.

PLAN OF DISTRIBUTION

General

This Offering will end on the earlier of two years from the date of this Offering Circular, when all the Notes have been sold or such earlier date as the Issuer may determine to end the Offering, in the exercise of its discretion. The Notes are offered on an “any or all” basis. There is no minimum level of Notes which must be sold in connection with the Offering.

The Issuer may enter into selling agreements with broker-dealers who are registered with Financial Industry Regulatory Authority (“FINRA”). Such broker-dealers would be paid a commission of up to 2% on subscriptions they solicit from investors. Other than the commission, no additional compensation will be paid to such broker-dealers nor will any expense of such participating broker-dealers be paid by the Issuer.

The officers and managers of the Issuer will also solicit purchasers of Notes. However, they will receive no additional compensation for such solicitation efforts.

Investors must invest a minimum of $50,000 for the purchase of a Note, and in increments of $5,000 for amounts above the minimum. Proceeds may be used or invested immediately by the Issuer and will not be placed in an escrow account. The Issuer reserves the right to accept a subscription for less than the amount subscribed for. The Issuer reserves the right (i) to waive or change the minimum investment required for any Investor and (ii) to reject, in whole or in part, the subscription of any person for any reason, at its sole discretion. If any subscription is rejected, the funds tendered with respect thereto will be returned promptly to the Investor, without interest.

Eligible Investors

See “WHO MAY INVEST” on page 5.

 

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How to Subscribe

You may subscribe for Notes by:

 

1)

Dating, completing and signing a Subscription Agreement (attached hereto as Annex D),

 

2)

Dating and signing the Subordination and Junior Lender Agreement (attached hereto as Annex E);

 

3)

Delivering the above documents (collectively, the “Subscription Documents”) to the Issuer on a date reasonably acceptable to the Issuer or designated by the Issuer in advance, but in no event later than the termination date of the offering; and

 

4)

Tendering payment in full of the required cash purchase price (the “Subscription Funds”) for the Notes being subscribed for in the Subscription Documents. Checks should be made payable to “Noble Advisors, LLC”.

Wiring instructions are as follows:

Beneficiary Institution – BB&T

Beneficiary Institution Address – 1950 Olde Philadelphia Pike, Lancaster, PA 17602

Beneficiary ABA # – 031309123

Beneficiary Account Number – 1390000747080

Beneficiary Name – Noble Advisors, LLC

Beneficiary Address – 1817 Olde Homestead Lane; Suite 101; Lancaster, PA 17601

All Subscription Documents and Subscription Funds may be mailed or delivered to Terry Hertzog at Noble Advisors, LLC; 1817 Olde Homestead Lane, Suite 101, Lancaster, PA 17601. The Issuer shall use reasonable efforts to accept or reject a Subscription Agreement within fifteen (15) days of its receipt. If the Issuer rejects the Subscription, it shall so notify the Investor and shall return the Subscription Funds to the Investor, along with a copy of the Subscription Agreement marked “Rejected”. If the Issuer accepts the Subscription, it shall execute the Subscription Agreement and shall return a fully executed copy of the Subscription Agreement to the Investor. Notes will be issued by the Issuer within five business days of acceptance of a Subscription Agreement. The Issuer reserves the right to reject any subscription for any reason, at its sole discretion.

THE ISSUER AND AFFILIATED ENTITIES

General

Noble Advisors, LLC is a Pennsylvania limited liability company that was formed on March 31, 2008. The Issuer is the sole member (owner) of the Operating Entities and of The Noble Group. The Issuer invests equity capital into the Operating Entities. The Issuer has no employees. All services required by the Issuer to operate its business are provided by its manager, The Noble Group.

 

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Headquarters

The Issuer’s headquarters are located at 1817 Olde Homestead Lane, Suite 101, Lancaster, PA 17601. The headquarters office is a leased facility, consisting of approximately 6,255 square feet. The Issuer anticipates that this facility will be sufficient for its needs for the foreseeable future.

Ownership

The Issuer is owned as follows:

 

Name		Class					Percent Ownership
Katherine L. Millen		A					*
Kenneth L. Herr		A					*
Junction Holdings, LP		A					*
Gregory K. Millen		B					90% of Class B Interests
Lane G. Randolph		B					8% of Class B Interests
Rich Hawkins		B					2% of Class B Interests

 

* The Class A investors of the Issuer have capital invested in the Issuer and a profits interest in the Issuer and are entitled to a preferred return (over and above the Class B investors) on the capital they have invested in the Issuer. The Class A investors are members of the Issuer but have no voting rights.

Effective as of January 1, 2018, the Noble Group LLC, manager of Noble Advisors, LLC, was sold to the Issuer by Mr. Millen, pursuant to an Agreement of Sale executed in May 2018.

Structure

The following is a description of the Issuer’s structure. The Issuer’s Organizational Chart is attached hereto as Annex B.

The Operating Entities. For general liability, diversification and strategic business reasons, the Issuer has established wholly-owned subsidiaries (the “Operating Entities”), each which engage in substantially the same operations: a) the purchase and sale of real estate, and b) the purchase and resolution of performing and non-performing mortgage backed securities. As of the date of this Memorandum, the Operating Entities are Central Penn Capital Management, LLC, Chesapeake Capital Management, LLC, Noble Capital Management, LLC and Susquehanna Capital Management, LLC. The Issuer may establish more entities to be Operating Entities in the future. Each of the Operating Entities is a Pennsylvania limited liability company whose sole member is the Issuer. The manager of each of the Operating Entities and of the Issuer is The Noble Group.

The Operating Entities currently have no employees, and all services required by the Operating Entities are provided by The Noble Group. The core business and primary investment strategy of each of the Operating Entities is to invest in real estate, with a current focus on the Middle Atlantic region of the United States, and mortgage-backed securities throughout the United States. From time to time, the Operating Entities will make other investments in other securities, such as (i) debt instruments secured by assets other than real estate, including UCCs, accounts receivable, inventory and vehicles, (ii) non-convertible debt securities, such as certificates of deposits, commercial paper, notes, bonds or

 

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debentures, (iii) money market investments, such as U.S. Government Notes, and (iv) unsecured loans to affiliated entities other than the Operating Entities.

Central Penn Capital Management, LLC. Central Penn Capital Management, LLC (“CPCM”) and its wholly-owned subsidiary, Horizon Residential Loan Servicing, LLC, (“Horizon”) purchase single-family residential properties at foreclosure sales, primarily in the Middle Atlantic region of the United States, and acquire performing and non-performing mortgage-backed securities throughout the United States. CPCM currently has $7.0 million in member’s capital, maintains a revolving line of credit of $14.0 million with senior lender BB&T and had $22.2 million of subordinated, unsecured notes outstanding as of December 31, 2017.

Chesapeake Capital Management, LLC. Chesapeake Capital Management, LLC (“CCM”) is newly formed and therefore, has not yet purchased assets. The Issuer is currently in the process of providing member’s capital to CCM to support the existing revolving line of credit of $3.5 million with senior lender First National Bank. CCM does not have any subordinated, unsecured notes outstanding.

Noble Capital Management, LLC. Noble Capital Management, LLC (“NCM”), to-date, has only purchased mortgage loans. NCM currently has $1.6 million in member’s capital, maintains a $5.0 million revolving line of credit with its senior lender Orrstown Bank, and had $2.8 million of subordinated, unsecured notes outstanding as of December 31, 2017.

Susquehanna Capital Management, LLC. Susquehanna Capital Management, LLC (“SCM”) is newly formed and therefore, has not yet purchased assets. SCM currently has $1.2 million in member’s capital and maintains a $3.5 million revolving line of credit with its senior lender, PeoplesBank. SCM does not have any subordinated, unsecured notes outstanding.

The Noble Group, LLC. The Noble Group, LLC (“The Noble Group”) is a Pennsylvania limited liability company and a Pennsylvania licensed real estate brokerage firm that is owned, 100%, by the Issuer. The Noble Group has a staff of 32 full-time and 6 part-time employees. Through a Services Agreement with each of the Operating Entities, The Noble Group provides research services required to identify acquisition opportunities and provides general administrative, accounting, real estate management, real estate brokerage, loan servicing and loan workout services to the Operating Entities. See “Operations,” below. The Noble Group also has Services Agreements with other affiliated entities that are not part of the Operating Entities. The Operating Entities are not responsible for the operating expenses of The Noble Group, although they pay significant fees to The Noble Group per the terms of their respective Services Agreement. See “Compensation and Fees to The Noble Group” under “MANAGEMENT” beginning on page 27. A copy of the Services Agreement with the Issuer is attached hereto as Annex C. Gregory K. Millen is the real estate broker of record of The Noble Group. Lane G. Randolph, Kenneth L. Herr and Gregory K. Millen are its managers.

 

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Funding of the Operating Entities

The Issuer funds the operations of the Operating Entities by investing capital in these entities, and the Issuer will use the proceeds of this offering to support that funding. The Issuer continuously reviews the capital needs of each Operating Entity and invests available capital based on an assessment of acquisition opportunities, working capital and debt servicing requirements, and other cash flow needs. As cash becomes available in the Operating Entities, capital will be returned to the Issuer to satisfy its debt servicing requirements, its preferred equity returns, distributions to members and to further invest in the Operating Entities or new companies as needed.

Currently, the funding of the Operating Entities by the Issuer supplements outside funding previously obtained by CPCM and NCM through private placements of junior notes, as well as commercial loan facilities extended by different lending institutions to each of the Operating Entities. The Issuer ultimately intends to consolidate its capital needs and capital planning at the Issuer level over the course of the next several years and, therefore, does not anticipate that any of the Operating Entities will raise further significant capital through the sale of additional subordinated, unsecured notes. As a result, the subordinated, unsecured notes previously issued by CPCM and NCM will be allowed to proceed to maturity without renewal or reissuance and/or may be repaid ahead of maturity in the Issuer’s discretion.

Operations

Real estate and mortgage-backed securities are reviewed for purchase by The Noble Group, which provides advice and services to the Operating Entities on a contractual basis, including providing advice for bidding on and purchasing properties and loans that are for sale. For real estate investments, The Noble Group considers such factors as the property’s physical condition, location, value, condition of title and market trends. The purchase price or bid amount for each property depends, in part, on reviews of comparable properties in the local real estate market along with an estimate of the cost of any required capital improvements or repairs to the property. Once a property is purchased, a value analyst and project manager are assigned and work together to implement all renovations within an approved budget. The Noble Group identifies and utilizes qualified subcontractors who perform all of our repairs and renovations for real estate investment properties. Project managers are responsible for coordinating all renovation projects with subcontractors to ensure that the scope of work is executed as desired. For mortgage-backed securities investment opportunities, The Noble Group considers such factors as the borrower’s creditworthiness, payment history, loan amount, condition of title, and the value, location and condition of the underlying real estate.

The specific investment objectives of the Operating Entities are:

 

1)

Gains on the sale of real estate, including properties purchased at foreclosure sales, properties bought directly from banks, lenders or other means and the conversion of mortgage-backed securities into deeded ownership of the underlying real estate and subsequent sale of that real estate. Real estate sales are typically considered inventory transactions or are completed in less than one year and, therefore, the income produced from these transactions is taxed as ordinary income.

 

2)

Gains from loan payoffs resulting from payment solutions worked out with borrowers, including short sales (i.e. the permitted sale of the real estate by the

 

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borrower at a price lower than the full amount owed by the borrower), loan workouts pursuant to which the borrower and an Operating Entity would modify payment terms, including interest rates or timing of payments of principal and interest, in order to better enable the borrower to repay the loan in full, and borrower refinancing with other financial institutions, in which case the Operating Entity’s note from the borrower is often paid in full. Regardless of how long the loans were owned, gains produced from these loan payoffs is taxed as ordinary income.

 

3)

Loan income from performing mortgage-backed securities. We anticipate that many borrowers of mortgage-backed securities that are purchased will be current with payments or on a payment plan to become current. We may hold these notes for longer than one year or until loan maturity. Loan payments from these borrowers are generally recognized as interest income and taxed at ordinary income tax rates. In order to stabilize its collateral base and to build stable long-term loan income, the Operating Entities may retain mortgage-backed securities on a long-term basis.

 

4)

Income from long-term rental real estate. While rental income is taxed at ordinary income tax rates, gains on the sale of rental real estate held for longer than one year is typically taxed at more favorable long-term capital gain rates. To obtain long-term capital gain tax treatment, stabilization of the collateral base and to build stable long-term rental income, each Operating Entity may retain a portion of its real estate longer than one year.

Each Operating Entity will typically not invest more than 10% of its total available capital in a single property or real estate security. However, market movements and available opportunities may cause this guideline to be exceeded at the sole discretion of The Noble Group.

The Operating Entities’ investments in non-real estate backed assets are intended to be short-term and may be made during any period when liquid funds are awaiting investment in real estate assets or mortgage-backed securities, such as following acceptance of subscriptions or following the liquidation of real estate backed investments. Such investments may also be made when, in the opinion of the Issuer, investment in real estate or mortgage-backed securities is inadvisable due to general market conditions or factors affecting the real estate industry.

Legal Proceedings

The Issuer and the Operating Entities are not currently involved as a defendant in any material pending legal proceeding, nor are there any known material legal proceedings contemplated against the Issuer or the Operating Entities.

 

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MANAGEMENT

The Issuer’s manager is The Noble Group, which in turn is managed by Lane G. Randolph, Kenneth L. Herr and Gregory K. Millen (the “Managers”). All decisions regarding the operations of the Issuer are effectively made by the Managers. The majority owner of the Issuer is Gregory K. Millen (the “Principal”). The Managers and the Principal oversee the operations of the Issuer and The Noble Group. The background of the Managers and of the management team of The Noble Group is set forth below.

Gregory K. Millen - Broker of The Noble Group and Majority Owner of Noble

                                    Advisors, LLC

		Gregory K. Millen is the majority owner of Noble Advisors, LLC. His real estate career began in 1989 in Florida and in 1992 he began representing financial institutions in the sale of their-bank-owned (distressed) real estate. Greg has overseen the disposition of well over 4,500 properties for financial institutions and his own companies. He is a licensed real estate broker in Pennsylvania and holds a B.A. in Finance from Elizabethtown College. Greg is actively involved in providing services to the Operating Entities through his role as an employee of The Noble Group and has control of the Operating Entities through his majority ownership of Noble Advisors, LLC.

Lane G. Randolph - Senior Manager of The Noble Group, Manager of the Operating Entities

                                    and Member of Noble Advisors, LLC

		Lane G. Randolph has been with The Noble Group since 2005 and is a Senior Manager of The Noble Group as well as a minority owner of Noble Advisors, LLC. Prior to 2005, Lane owned Highmark Management, Inc., which specialized in the preservation, maintenance and management of real estate. Lane is actively involved in the management of the accounting, loan and real estate departments as well as participating on the teams responsible for both real estate and loan acquisition and disposition. He also remains involved in the research and development of new markets and strategies for The Noble Group, and is a Pennsylvania-licensed real estate agent.

Kenneth L. Herr - Senior Manager of The Noble Group, Manager of the Operating Entities

                                 and Member of Noble Advisors, LLC

		Kenneth L. Herr has been with The Noble Group since 2005 and is a Senior Manager of The Noble Group as well as a minority owner of Noble Advisors, LLC. For 35 years prior to joining The Noble Group, Ken served in diverse types of management roles in high paced manufacturing settings. Ken oversees property management and operations of The Noble Group. He is a graduate of Drexel University and holds a B.A. in Commerce and Engineering.

 

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Richard W. Hawkins - CPA, Controller, and Accounting Manager of The Noble Group and

                                        Member of Noble Advisors, LLC

		Rich has been employed by The Noble Group since January, 2010. Rich has over 20 years of experience as a leader in the financial department of several manufacturing and real estate firms, including The Pfaltzgraff Company, Danaher Tool Group, Hubbell Incorporated, and Carlino Development Group, a regional residential and commercial developer-builder. He is a graduate of Penn State University with a B.S. degree in Accounting and has earned his CPA credentials.

Sean D. Teaman - Residential Real Estate Manager of The Noble Group

 

		Sean joined The Noble Group in July of 2015. Prior to joining The Noble Group, he worked in the transportation package delivery industry for over 20 years at United Parcel Service. Sean served in operations management in a variety of roles, including productivity, safety and compliance. He currently oversees the real estate division and is involved daily in the acquisition, renovation and disposition of residential real estate. He is a graduate of Columbus University in with a B.S. degree in Business Administration.

Beneficial Ownership

As of December 31, 2017, the Issuer had outstanding two classes of equity interests, Class A (which is a non-voting, profits only interest) and Class B (which is voting). The Class A interests of the Issuer represent an aggregate investment in the issuer of $3,875,000 as of December 31, 2017 and the Class A interests are entitled to a preferred return before the Class B interests. Neither the Class A or the Class B interests are entitled to any preference above the Issuer’s secured creditors, unsecured creditors or Note holders. Additionally, Class A interests are non-voting interests and do not provide any other interest in the Issuer. The Class B interests of the Issuer are owned as follows: 90% is owned by Gregory K. Millen, 8% by Lane G. Randolph and 2% by Richard W. Hawkins. The mailing address for each of these members is the address of the Issuer.

Conflicts of Interest

Various conflicts of interest exist between the Issuer, its Operating Entities and other entities that are affiliated through significant common ownership by Gregory K. Millen.

Overlap of the Issuer with Other Funds. The Noble Group is the general partner of an existing fund, Noble Opportunity Fund II, LP (“NOF Fund II”). NOF Fund II is an active investor in real estate and mortgage-backed securities. Additionally, The Noble Group provides services to Junction Holdings, LP, which is also an active investor in real estate and mortgage-backed securities. While it is currently anticipated that The Noble Group’s management team, Mr. Millen, Mr. Randolph, Mr. Hawkins and Mr. Herr, will devote significant time to the activities of the Issuer and its Operating Entities, they will also devote significant time to the activities of these other funds. They may also serve in similar capacities for additional real estate investments or investment companies from time to time, some of which may have a similar investment goal to the Issuer. Such other activities may present potential or actual conflicts of interest in allocating time, resources or investment opportunities between the Issuer and such other business activities.

 

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Other Activities of the Issuer’s Principal and Members. Mr. Millen, Mr. Randolph, Mr. Hawkins and Mr. Herr may provide management and real estate investment advisory services to other clients, including individuals or entities that follow investment programs similar to or different from that of the Issuer. It is not anticipated that the Issuer will have an interest in the accounts of such other clients. A number of actual and potential conflicts of interest between the Issuer and these clients exist with respect to the allocation of investment opportunities among the Issuer and these clients.

Service Providers and Suppliers. The Issuer and its Members are not prohibited from engaging any other entity in which they have an interest, including The Noble Group, to perform services or sell supplies to the Issuer. Any transaction for which specific payment is not described herein is intended to be compensated at fair market value and for compensation no higher than would be charged by an unrelated third party for such services. However, conflicts of interest would arise if any such entity or The Noble Group failed to perform adequately its undertakings to the Issuer.

Compensation and Fees to The Noble Group. The Noble Group provides numerous services to the Operating Entities, the Issuer and affiliated entities other than the Operating Entities, including real estate investment services and advice, general administrative services, accounting, loan servicing, loan workout, real estate property management and real estate brokerage services, for which The Noble Group is compensated, as summarized in the chart on the following page.

The Operating Entities and the Issuer pay a minimum monthly fee (the “Base Compensation”) to The Noble Group. The Noble Group, along with each of the Operating Entities and the Issuer, agree to annual projected service needs and the total cost for The Noble Group to provide those services. From this projected total cost, anticipated variable income is subtracted, resulting in the Base Compensation for the year to be paid evenly each month. Income to The Noble Group from providing these services fluctuates based on activity and includes items such as sales commissions, property management fees, loan servicing fees and loan workout commissions. The Base Compensation fees charged by The Noble Group for such services are at comparable market rates reflected by industry practice and charged by unaffiliated firms for similar services. For affiliated entities other than the Operating Entities, Base Compensation is paid on 0.1667% (2.0% per annum) of the book value of total ending assets each month.

The Noble Group can earn Incentive Compensation from each of the Operating Entities if agreed-upon Operating Entity net income targets are achieved. In any fiscal year that an Operating Entity’s net income exceeds twenty percent (20%) of that entity’s beginning of the year total member’s capital (the “Hurdle Rate”), that entity will pay to The Noble Group additional compensation (the “Incentive Compensation”) of up to thirty percent (30%) of the net income exceeding the Hurdle Rate. Incentive Compensation is paid on or before January 15^th of the following year.

Whenever the Issuer has invested in an affiliated limited partnership (“LP”), in any fiscal year that the Issuer’s share of LP Net Income exceeds twenty percent (20%) of the Issuer’s beginning of the year investment balance in the LP (the “LP Hurdle Rate”), the Issuer will pay to The Noble Group Incentive Compensation of up to thirty percent (30%) of the net income exceeding the LP Hurdle Rate.

 

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At year-end, The Noble Group and each Operating Entity, affiliated entity other than the Operating Entities and any LP reconciles and approves the actual amount of total compensation received during the year by The Noble Group from each entity and the actual amount of total expenses incurred by The Noble Group during the year to provide agreed-upon services to each entity. Based on this reconciliation, The Noble Group and each Operating Entity, affiliated entity other than the Operating Entities and any LP agree to the Incentive Compensation percentage to be paid, up to thirty percent (30%) of the net income exceeding the Hurdle Rate. If total compensation paid to The Noble Group is greater than total expenses incurred by The Noble Group, The Noble Group and each Operating Entity, affiliated entity other than the Operating Entities and any LP may agree to reduce Incentive Compensation below 30%. Incentive Compensation is structured for related parties and is not based on comparable market rates, on specific industry practice or charged by unaffiliated firms for similar services.

The Noble Group’s agreement to provide services to the Issuer is more fully defined in the Services Agreement, attached hereto as Annex C. The Issuer believes that the fees charged by The Noble Group, other than Incentive Compensation, are similar to fees that it would be required to pay to an unaffiliated entity for similar services. Each Services Agreement is renegotiated on an annual basis.

The table below summarizes the terms of the Services Agreements with both the Issuer and all of the Operating Entities:

 

		Noble Advisors		Noble Capital Management		Central Penn Capital Management		Susquehanna Capital Management		Chesapeake   Capital   Management
Effective Date		01/01/2018		01/01/2018		01/01/2018		01/01/2018		06/01/2017
Term		1 Year1		1 year1		1 Year1		1 Year1		1 Year1
Base Compensation		$5,900/month		$17,000/month		$150,000/month		$6,000/month2		$5,000/month3
Incentive Compensation		Up to 30% of net income exceeding Hurdle Rate 4

 

1

Services Agreement automatically renews for a period of 1 year unless either party provides termination notice.

 

2

Base Compensation payments began on July, 1, 2017.

 

3

Base Compensation payments began on January 1, 2018.

 

4

See Incentive Compensation referenced above.

The Noble Group Performance Issues. If The Noble Group failed to provide its services in accordance with the Services Agreements or had performance issues, the Operating Entities would have a conflict of interest in taking action to enforce the Services Agreements against The Noble Group, including exercising any termination rights or taking other legal action. It is unlikely that the Operating Entities would terminate the Services Agreements or replace The Noble Group as their services provider.

 

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USE OF PROCEEDS

After payment of costs of this Offering and certain administrative expenses of the Issuer, the Issuer anticipates that it will use the cash proceeds from the sale of the Notes to finance the Operating Entities through equity infusions. The Issuer may also use the proceeds to invest in new companies that will engage in operations substantially similar to those engaged in by the Operating Entities. The Issuer has no specific plan for any particular division of the proceeds of the sale of the Notes among the Operating Entities or into any new companies.

 

Working Capital			10	%		$	2,000,000
Investments in real estate and mortgage backed securities purchased through the Operating Entities			90	%		$	18,000,000
Total Proceeds			100	%		$	20,000,000

The Issuer ultimately controls the Operating Entities’ use of the funds, including the application of the funds to repay debt or to make additional investments. The Issuer does not intend for the proceeds of this offering to be used to pay off debt of the Operating Entities, but it may be used to make payments on the Operating Entities’ debt in the ordinary course of business. The Issuer has not identified any specific real estate, real estate investments or mortgage-back securities to be acquired by the Operating Entities with the proceeds of the sale of the Notes. Specific acquisitions and investments by the Operating Entities will be determined by their manager. Pending application by the Operating Entities of the invested proceeds in connection with their real estate and mortgage-backed investment activities, the funds will be invested in short-term deposits at banks when practical. No proceeds will be used to compensate or otherwise make payments to the officers or manager of the Issuer or of the Operating Entities or any of their Affiliates. The Issuer reserves the right to alter the intended use of proceeds in its discretion, but none of the proceeds will be used to make payments to officers of the Issuer or its affiliates.

It is difficult to estimate the net cash proceeds we will receive from the Offering because there is no minimum level of subscriptions that must be received as a condition to our accepting subscriptions in this Offering. Further, we will incur certain expenses in connection with the Offering. Additionally, any commissions we may pay to participating broker-dealers will effectively reduce the proceeds we receive from sale of Notes. We will also estimate that we will pay approximately $50,000 in legal, accounting, filing and printing fees. In addition, if we determine to use a broker-dealer, we may incur other costs which we would intend to pay using proceeds from the Offering.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS

The following discussion of our financial condition and results of operations should be read in conjunction with our audited 2017 and 2016 consolidated financial statements and the accompanying notes thereto included elsewhere herein. The following discussion contains, in addition to historical information, forward-looking statements that include risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those factors set forth under Risk Factors.

Overview

The Issuer is a Pennsylvania limited liability company that invests in various wholly-owned subsidiaries and affiliated limited partnerships that are engaged in activities related to the purchase and sale of real estate and mortgage-backed securities. Neither the Issuer, nor its wholly-owned subsidiaries or affiliated limited partnerships, have employees. The Issuer contracts for all required services from an affiliated company, The Noble Group.

The Issuer, through its wholly-owned subsidiaries, is a buyer of single-family residential properties at foreclosure sales, primarily in the Middle Atlantic region of the United States. Our affiliated company, The Noble Group, which is the manager of the Issuer, provides various services to our subsidiaries, including property research and acquisition, property management, real estate brokerage, and administration. The Noble Group has a staff of 42 employees and provides research required to identify properties for acquisition, manages the purchase and improvement of our real estate, and coordinates the sales of our properties. Our goal is to maximize return on invested capital by properly valuing real estate for purchase, diligently managing costs, and achieving the highest selling price possible while minimizing our days of ownership for each property.

Through our wholly owned subsidiaries, we also acquire performing and non-performing mortgage loans secured by real estate throughout the United States. These mortgages are generally purchased at a discount from unpaid principal balance and serviced until paid in full under the terms of the note, satisfied by the borrower or foreclosed with the underlying property being resold at retail. The Noble Group provides the research and due diligence necessary for loan acquisition, manages our loan servicing needs, and works with our borrowers to determine loan workout solutions. Our objective is to structure workouts to maximize our investment returns by receiving loan payoffs as quickly as possible. This objective is often accomplished by providing borrowers with discounted loan payoff opportunities within defined timelines.

Thus, revenue of these two asset divisions is comprised of two primary components: (i) property sales revenue recognized upon contract settlement and title transfer of real estate; and (ii) mortgage loan income from loan payments and payoffs and based on an assessment of loan cash flows and timing.

Opportunities and Risks

We continue to see sufficient attractive opportunities to buy properties at foreclosure sales throughout the Middle Atlantic region. In the short-term, we expect steady volume in the Middle Atlantic states in which we currently operate. Our strategy is to grow by consistently

 

32

adding several more counties in the Middle Atlantic states in which we search for distressed properties in which to invest. In the long-term, we anticipate that we will continue to explore further opportunities throughout the Mid-Atlantic and other states in order to broaden our buying opportunities.

The market for buying and selling loans has provided consistent opportunities for us to place capital, and we expect this trend to continue. In the short-term, we will continue to pursue opportunities to purchase small (investment size of $5.0 million or less) performing and non-performing loan opportunities that we believe are generally overlooked by larger institutional investors. In the long-term, we intend to explore opportunities to purchase mid-sized loans (ranging from approximately $5.0 million to $10.0 million).

We face various risks impacting our ability to generate profits, raise additional capital, and meet our obligations to lenders. Our future operating results over both the short and long-term will be subject to fluctuations due to several factors, some of which are outside our control. These factors include but are not limited to real estate market volatility, an increase in market regulation and business restrictions, and the condition of the general economy.

As we strive to strategically grow our total assets under management there are various challenges to be considered: (i) to avoid overpaying for targeted asset acquisitions we work with The Noble Group to maintain a robust and disciplined research and due diligence program; (ii) we rely on subcontractors for substantially all improvements and repairs to our real estate; as this represents significant property spending, we continually strive to maintain a strong pool of subcontractors that satisfy our requirements for cost, quality, and strict timelines; (iii) we need significant capital to be successful and have secured financing from multiple institutional lenders; if we are unable to maintain these existing debt facilities, we may be unable to meet existing obligations, capitalize on opportunities available or continue our current volume of asset purchases; obtaining new financing with similar terms may be difficult as many institutional lenders are reluctant to use distressed assets as collateral; (iv) we are subject to numerous federal, state and local laws and regulations imposing various requirements and restrictions which increases the cost of doing business; failure to comply with these laws, rules and regulations would expose us to fines, penalties or potential litigation liabilities which could have a material adverse effect on the business.

Key Financial Measures and Indicators

Property Sales

Property sales revenue is recognized upon contract settlement and title transfer of real estate. The amount of revenue recognized is equal to the contract sales price less seller assistance of real estate inventory settled during the period. Seller assistance represents an amount the seller contributes to the buyer for settlement closing costs.

Because we have been able to successfully replicate our investment approach across targeted real estate markets, growth of our property sales is mainly impacted by the number of markets we participate in as a buyer of real estate and capital available for investment. We currently are an active investor in 24 counties across the Middle Atlantic, and continually assess opportunities to strategically expand our geographic reach.

 

33

Property Acquisition Costs and Gross Profit

Property acquisition costs include the price at which our real estate was acquired, including any settlement costs and fees. These costs also include any capital improvements we make to the property, including expenditures for items such as a new roof, new kitchen, new heating system, or the cumulative cost of a full house renovation, including new carpeting and painting. Subtracting property acquisition costs from property sales results in gross profit from property sales. Our target goal for gross profit as a percentage of sales is 20%.

Property acquisition and improvement expenditures are recorded to inventory at cost and recognized upon property settlement. We continually assess property value in order to state our inventory at the lower of cost or fair value less cost to sell. Inventory write offs are included in property acquisition costs as incurred.

Mortgage Loan Income

We purchase performing and non-performing mortgage loans secured by real estate throughout the United States. A mortgage is purchased for an amount that is less than the balance owed by the borrower. We consider the amount, timing, and probability of future cash flows from each loan. If cash flow is estimable and probable, we use the accretable yield recognition model. The amount by which total expected cash flow exceeds our acquisition cost is recognized as income on a level yield basis each month over the remaining life of the loan. We continually assess actual and projected cash flows. If loan payments stop, we discontinue income recognition and evaluate whether we need to switch to the cost recovery method and possibly write off the loan.

Certain mortgage loans acquired are accounted for using the cost recovery income recognition model because we cannot reasonably estimate future cash flows and timing. Under this model, income on a cost recovery loan is recognized only after cumulative loan payments received equal the acquisition cost basis of the loan. Properties foreclosed on or received via deed in lieu of foreclosure are transferred to short-term real estate inventory at carrying value for resale or held for leasing until disposition.

Operating Expenses

Property Expenses. Non-capitalized property expenses are related to our inventory levels and days of ownership for each property. These expenditures are expensed as incurred and are for items such as trash removal and cleaning, utilities, lawn care and snow removal, real estate taxes, insurance, and general repairs and maintenance.

Management Fees. Monthly management fees are paid to The Noble Group as compensation for various services provided, including research and acquisition, finance and accounting, and general administrative services. These fees also include an annual incentive payment to The Noble Group if net income targets are achieved.

Sales Commissions. Sales commissions include a 3% commission paid to The Noble Group as compensation for real estate listing services provided. When The Noble Group is unable to provide real estate brokerage services due to a property’s

 

34

location or timing of service needs, a separate real estate broker is engaged and receives this commission. Sales commissions also include a separate commission paid to a buyer’s agent.

Loan Servicing and Broker Fees. Loan servicing and broker fees include monthly servicing fees paid to our third-party loan servicer, FCI Lender Services, Inc., or to The Noble Group for any loans serviced in-house. These fees also include third-party broker commissions paid for loan sales and a 3% commission paid to The Noble Group for any loan workout payments.

Loan Write-offs. Loan acquisitions are recorded at cost. Over the life of a mortgage loan, we continue to evaluate whether the loan’s projected undiscounted net cash flows are less than cost and, if so, recognize a loan write off to reduce the loan’s carrying value reported on the balance sheet.

Legal and Professional Fees. Legal and professional fees include expenditures for entity level legal expenses and for annual audit and tax services. Note that asset specific legal spending is charged to property expenses as incurred or, in the case of a loan, legal expenses are charged to the cost basis of the loan.

Financial Fees. Financial fees include bank charges for lines of credit and account services fees.

Miscellaneous Expenses. Miscellaneous expenses include other operating expenses such as state taxes and registration fees, miscellaneous selling expenses, etc.

Investment Income and Other Income and Expense

Investment Income. The Issuer owned a 29% interest in Noble Opportunity Fund I, LP. We account for this investment using the equity method and have included in income our pro rata share of Noble Opportunity Fund I, LP’s net income for the year ended December 31, 2016. Noble Opportunity Fund I, LP completed operations on December 31, 2016.

Central Penn Capital Management, LLC, a wholly-owned subsidiary of the Issuer, owned one limited partnership unit in Noble Opportunity Fund I, LP, providing it with approximately a 1.13% ownership interest. We account for this investment using the equity method and have included in income a corresponding pro rata share of Noble Opportunity Fund I, LP’s net income for the year ended December 31, 2016. Noble Opportunity Fund I, LP completed operations on December 31, 2016.

The Issuer owns a 19% interest in Noble Opportunity Fund II, LP. We account for this investment using the equity method and have included in income our pro rata share of Noble Opportunity Fund II, LP’s net income for the years ended December 31, 2017 and December 31, 2016.

Interest Expense. Interest expense includes interest paid to our senior lenders for use of bank lines of credit, to subordinated debt holders who have made loans to Central Penn Capital Management, LLC and Noble Capital Management, LLC, and to affiliated companies for any short-term loans.

Other Income and Expense. Other income and expense includes rental income and expenses, sales contract termination fees, occupancy fees, interest income, and other miscellaneous income and expenses.

 

35

Results of Operations – 2017 and 2016

Following is a discussion of our results of operations for the years ended December 31, 2017 and 2016. The tables included in the period comparisons below provide summaries of our consolidated results of operations. The period-to-period comparisons of financial results are not necessarily indicative of future results.

The financial results for 2017 and 2016 referred to in this discussion are based on our audited financial statements.

In 2017, net income increased by 9% to $3,863,802. This increase was mainly due to a 34% increase in gross profit from property sales offset by a 24% decrease in mortgage loan income and a 22% increase in operating expenses.

 

		For the twelve months ended December 31,																				Percentage     Change
		2017				% Sales								2016				% Sales
Property Sales		$	63,864,269				100%							$	44,373,491				100%				44%
Property Acquisition Costs			51,262,172				80%								35,000,555				79	%			46%
Gross Profit from Property Sales			12,602,097				20%								9,372,936				21	%			34%
Mortgage Loan Income			2,872,632				4%								3,774,442				9	%			-24%
Operating Expenses
Property Expenses			3,269,191				5%								2,327,720				5	%			40%
Management Fees			2,573,488				4%								2,706,807				6	%			-5%
Sales Commissions			3,560,541				6%								2,526,806				6	%			41%
Loan Servicing and Broker Fees			371,448				1%								430,485				1	%			-14%
Loan Write-offs			117,765				0%								238,652				1	%			-51%
Legal and Professional Fees			288,682				0%								119,506				0	%			142%
Financial Fees			59,307				0%								35,549				0	%			67%
Miscellaneous Expenses			8,430				0%								21,267				0	%			-60%
Total Operating Expenses			10,248,852				16%								8,406,792				19	%			22%
Income from Operations			5,225,878				8%								4,740,586				11	%			10%
Investment Income			172,843				0%								506,372				1	%			-66%
Other Income (Expense)
Interest Expense			(1,714,732)				-3%								(1,700,329)				-4	%			1%
Other Income (Expense)			179,813				0%								11,283				0	%			1494%
Total Other Income (Expense)			(1,534,919)				-2%								(1,689,046)				-4	%			-9%
Net Income		$	3,863,802				6%							$	3,557,912				8	%			9%

Property Sales

Total property sales revenue increased by 44% mainly due to the results of adding three new markets in the Mid-Atlantic during 2016. Sales revenue in these new markets was recognized throughout 2017. In contrast, 2016 was a startup year in these markets, and sales revenue was recognized over a partial period. Our strategy in 2016 was to focus on the Middle Atlantic states and exit other less profitable market areas.

Loan conversion properties are properties used as collateral for loans we acquire, and this real estate is subsequently obtained through foreclosure or deed in lieu of foreclosure.

 

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Sales of loan conversion properties fluctuate depending on our portfolio of loans and the number, timing and value of foreclosures we initiate. In 2017, several higher valued loan conversion properties were sold compared to 2016, adding to the overall increase in property sales revenue.

 

		For the twelve months ended December 31,														Percentage     Change
		2017				% of Total				2016				% of Total
Pennsylvania		$	26,711,522			42%				$	24,968,999			56%			7%
New Jersey			25,980,331			41%					9,498,990			21%			174%
Delaware			7,475,945			12%					6,688,681			15%			12%
All Other States			-			0%					2,229,200			5%			-100%
Subtotal Acquired at Auction			60,167,798			94%					43,385,870			98%			39%
Loan Conversion Properties			3,696,471			6%					987,621			2%			274%
Total Property Sales		$	63,864,269			100%				$	44,373,491			100%			44%

Gross Profit from Property Sales

Gross profit from property sales increased by 34% in 2017, mainly driven by increased sales volume in new markets added in 2016. Gross profit in these new markets was recognized throughout 2017. In contrast, 2016 was a startup year in these markets and gross profit was recognized over a partial period.

Gross profits from loan conversion properties fluctuate depending on our portfolio of loans and the number, timing and value of foreclosures we initiate. As noted above, in 2017, several higher valued loan conversion properties were sold in comparison to 2016.

 

		For the twelve months ended December 31,																Percentage     Change
		2017				% of Sales						2016				% of Sales
Pennsylvania		$	5,189,665			19%						$	5,370,264			22%		-3%
New Jersey			5,071,883			20%							2,147,887			23%		136%
Delaware			1,694,058			23%							1,459,953			22%		16%
All Other States			-			0%							207,537			9%		-100%
Subtotal Acquired at Auction			11,955,606			20%							9,185,641			21%		30%
Loan Conversion Properties			646,491			17%							187,295			19%		245%
Total Gross Profit Margin		$	12,602,097			20%						$	9,372,936			21%		34%

 

37

Mortgage Loan Income

Mortgage loan income decreased by 24%, mainly due to holding a smaller mix of loan assets, receiving less in loan payments, and converting a higher number of loans to real estate in our Central Penn Capital Management, LLC subsidiary (CPCM).

 

		For the twelve months ended December 31,								Percentage       Change
		2017				2016
CPCM Loan Sales & Satisfaction		$	1,118,935			$	1,942,254			-42%
CPCM Loan Interest Income & Fees			758,886				1,042,652			-27%
Subtotal CPCM Mortgage Loan Income			1,877,821				2,984,906			-37%
NCM Loan Sales & Satisfaction			933,104				616,295			51%
NCM Loan Interest Income & Fees			58,434				173,241			-66%
Subtotal NCM Mortgage Loan Income			991,538				789,536			26%
SCM Loan Sales & Satisfaction			-				-			NA
SCM Loan Interest Income & Fees			3,273				-			NA
Subtotal SCM Mortgage Loan Income			3,273				-			NA
Total Loan Sales & Satisfaction			2,052,039				2,558,549			-20%
Total Loan Interest Income & Fees			820,593				1,215,893			-33%
Total Mortgage Loan Income		$	2,872,632			$	3,774,442			-24%

Mortgage loan income recognition depends on the mix of accretable yield or cost recovery loans and whether each loan performs in accordance with its cash flow plan or is satisfied through payoff, sale, or conversion to real estate. Payments are generally allocated between income and principal, with principal applied to reduce our cost basis in the loan asset. Total mortgage loan payments applied in 2017 were 10% lower in comparison to 2016, with approximately $10.0 million of payments applied to reduce our loan portfolio cost basis.

 

		For the twelve months ended December 31,								Percentage       Change
		2017				2016
CPCM Mortgage Loan Income		$	1,877,821			$	2,984,906				-37%
CPCM Principal & Other Payments			5,612,937				7,524,749				-25%
Subtotal CPCM Mortgage Loan Payments			7,490,758				10,509,655				-29%
NCM Mortgage Loan Income			991,538				789,536				26%
NCM Principal & Other Payments			4,373,447				3,069,015				43%
Subtotal NCM Mortgage Loan Payments			5,364,985				3,858,551				39%
SCM Mortgage Loan Income			3,273				-				NA
SCM Principal & Other Payments			1,022				-				NA
Subtotal SCM Mortgage Loan Payments			4,295				-				NA
Total Mortgage Loan Income			2,872,632				3,774,442				-24%
Total Principal & Other Payments			9,987,406				10,593,764				-6%
Total Mortgage Loan Payments		$	12,860,038			$	14,368,206				-10%

Operating Expenses

Property Expenses

Property expenses increased by 43%, mainly due to the purchase of approximately 70 more units in 2017 than in the prior year in order to support higher

 

38

targeted sales volume. Because there was a corresponding increase in sales, property expenses as a percentage of sales was consistent at 5%. In addition, our weighted days of ownership were consistent at approximately 150 days in both the 2017 and 2016 periods.

 

		For the twelve months ended December 31,												Percentage   Change
		2017				% of Sales		2016				% of Sales
Cash for Keys / Eviction		$	69,680			0.1%		$	108,516			0.2%		-36%
Initial Landscaping			375,919			0.6%			205,789			0.5%		83%
Legal Fees			76,595			0.1%			70,391			0.2%		9%
Professional Fees			120,762			0.2%			75,405			0.2%		60%
Repairs & Maintenance			409,027			0.6%			424,080			1.0%		-4%
Taxes & Other Settlement Fees			1,007,708			1.6%			616,526			1.4%		63%
Trashout & Cleaning			812,623			1.3%			523,640			1.2%		55%
Truck Stock			8,873			0.0%			9,959			0.0%		-11%
Utilities			277,549			0.4%			170,888			0.4%		62%
Total Property Expenses		$	3,158,736			4.9%		$	2,205,194			5.0%		43%

Management Fees

Management fees to The Noble Group decreased by 5% in 2017. The decrease was mainly due to a lower monthly retainer paid by Central Penn Capital Management, LLC (CPCM). Starting in 2017, CPCM was able to structure a commission program in selected new markets where The Noble Group became the designated listing agent. With CPCM paying these new commissions to The Noble Group, it was able to reduce its monthly retainer. Offsetting this savings was a higher incentive reserve in CPCM based on achieving favorable financial performance targets, a higher monthly retainer due from Noble Capital Management, LLC, which began operations in 2016, and a higher level of support needed for the Issuer for administration and investment performance.

 

39

Monthly retainer fees are agreed upon to support continual, on-going services provided by The Noble Group to the Issuer and its subsidiaries. In addition, if defined net income targets are achieved, incentives are paid to The Noble Group.

 

		For the twelve months ended December 31,								Percentage   Change
		2017				2016
CPCM Retainer		$	1,440,000			$	1,905,000			-24%
CPCM Incentive Payment			659,767				501,531			32%
Subtotal CPCM			2,099,767				2,406,531			-13%
NCM Retainer			180,000				112,500			60%
NCM Incentive Payment			193,233				63,682			203%
Subtotal NCM			373,233				176,182			112%
SCM Retainer			15,000				-			NA
SCM Incentive Payment			-				-			NA
Subtotal SCM			15,000				-			NA
Noble Advisors Retainer			63,600				21,000			203%
Noble Advisors Incentive Payment			21,888				103,094			-79%
Subtotal Noble Advisors			85,488				124,094			-31%
Total Management Fees		$	2,573,488			$	2,706,807			-5%

Investment Income and Other Income and Expense

Investment Income

Investment income was lower by 66% in 2017 due to lower income allocated to the Issuer from its investment in Noble Opportunity Fund I, LP and Noble Opportunity Fund II, LP. Noble Opportunity Fund I, LP completed operations at the end of 2016.

 

		For the twelve months ended December 31,								Percentage   Change
		2017				2016
Noble Opportunity Fund I (CPCM 1 Unit)		$	-			$	15,878			-100%
Noble Opportunity Fund I (29%)			-				262,149			-100%
Noble Opportunity Fund II (19%)			172,843				228,345			-24%
Total Investment Income		$	172,843			$	506,372			-66%

Other Income (Expense)

Net rental income was significantly higher in 2017 due to a one-time early lease termination fee of approximately $420,000 received by Noble Capital Management, LLC. The right to collect this fee was acquired as part of a loan purchase. This fee receipt was offset by higher rental expenses in Central Penn Capital Management, LLC, mainly due to our acquisition, through loan conversion, of commercial properties in West Chester, Pennsylvania, Blue Ridge, Georgia, Fond du Lac, Wisconsin, and Roebling, New Jersey.

Interest Expense

Interest expense was approximately the same in 2017 and 2016. Central Penn Capital Management, LLC and Noble Capital Management, LLC have continued to

 

40

add subordinated loans while reducing the interest rates offered in order to achieve a lower cost of capital.

 

		For the twelve months ended December 31,								Percentage   Change
		2017				2016
CPCM Line of Credit		$	103,471			$	189,673			-45%
CPCM Subordinated Loans			1,376,586				1,172,762			17%
CPCM Affiliated Company Loans			181,151				285,878			-37%
Subtotal CPCM			1,661,208				1,648,313			1%
NCM Line of Credit			33				13,954			-100%
NCM Subordinated Loans			147,778				60,301			145%
Subtotal NCM			147,811				74,255			99%
Noble Advisors Short-Term Loans			-				58,586			-100%
Total Lines of Credit			103,504				203,627			-49%
Total Subordinated Loans			1,524,364				1,233,063			24%
Total Affiliated Company Loans			181,151				285,878			-37%
Total Short-Term Loans			-				58,586			-100%
Elimination of Affiliated Company Loans			(94,287)				(80,825)			17%
Total Interest Expense		$	1,714,732			$	1,700,329			1%

Assets Under Management (at cost)

Assets under management increased by 5% to $35.2 million in 2017. Residential real estate acquired at auction increased by 24%, mainly due to growth in new markets in the Middle Atlantic area. Our loan conversion real estate increased significantly in 2017, including commercial properties in West Chester, Pennsylvania, Blue Ridge, Georgia, Fond du Lac, Wisconsin, and Roebling, New Jersey.

 

Cash Flow Analysis

The following table summarizes cash flows for the years ended December 31, 2017 and 2016:

 

		For the twelve months ended December 31,								Dollar   Change
		2017				2016
Net Cash Provided by (Used in) Operating Activities		$	1,870,540			$	(5,374,431)			$	7,244,971
Net Cash Provided by Investing Activities			137,927				421,494				(283,567)
Net Cash Provided by (Used in) Financing Activities			(272,867)				4,327,973				(4,600,840)
Net Increase (Decrease) in Cash		$	1,735,600			$	(624,964)			$	2,360,564

 

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Operating Activities

Cash flows provided by operating activities were $1.9 million in 2017 compared to $5.4 million cash flows used in 2016. Net cash used in operating activities is driven by our net income adjusted for non-cash items and changes in operating assets and liabilities. The $7.2 million increase in cash flows provided by operating activities in 2017 was primarily due to a comparative increase in cash received from mortgage loan holdings of $5.7 million and comparatively less cash used for real estate purchases of $2.6 million.

Investing Activities

Cash flows provided by investing activities were $137,927 in 2017 compared to $421,494 in 2016. The decrease in cash provided by investing activities was mainly due to a decrease in cash distributions received from Noble Opportunity Fund I, LP as it completed operations.

Financing Activities

Cash flows used in financing activities were $0.3 million in 2017 compared to $4.3 million in cash flows provided by financing activities in 2016. The decrease in cash provided by financing activities was primarily due to a comparative increase in the repayment of loans from affiliated companies of $9.0 million offset by a comparative decrease in cash used for the net repayment of lines of credit of $4.5 million.

Liquidity and Capital Resources

Our operations are primarily funded through members’ capital, bank lines of credit, and issuance of subordinated debt by our subsidiaries. Through these sources, we have sufficient liquidity to meet our business needs and financial obligations.

 

 

42

Members’ Capital, Distributions & Retained Earnings

Net profits are first allocated to Class A Members based on a preferred return percentage applied to their daily investment account balance. Currently the preferred return percentage is paid monthly to the Class A Members. Remaining net profits are allocated to Class B Members according to their membership interests. Generally, a minimum of 60% of the net profits allocated to the Class B Members are distributed annually and up to 40% are retained. In 2017, new Class A capital contributions were $675,000 and retained Class B net profits were $1.1 million.

Lines of Credit

Central Penn Capital Management, LLC, Noble Capital Management, LLC, Susquehanna Capital Management, LLC, and Chesapeake Capital Management, LLC maintain revolving lines of credit. Loan advances are based on a borrowing base formula and certain financial covenants must be maintained annually. See Notes to Consolidated Financial Statements, “Lines of Credit”.

Subordinated Debt

Central Penn Capital Management, LLC and Noble Capital Management, LLC have entered into subordinated loan agreements with various individuals and entities. See Notes to Consolidated Financial Statements, “Subordinated Debt”.

Annual Maturities of Subordinated Debt:

 

				December 31,
				2017				2016
Annual Maturities:		12/31/2017		$	-			$	7,721,311
		12/31/2018			14,821,494				5,317,874
		12/31/2019			1,281,282				960,438
		12/31/2020			2,768,070				2,488,993
		12/31/2021			2,549,856				2,129,085
		12/31/2022			3,587,710				-
Total Subordinated Debt				$	25,008,412			$	18,617,701

The proceeds from the current offering of Notes by the Issuer will allow the Issuer and the Operating Entities to ultimately consolidate the capital needs and capital planning at the Issuer level over the course of the next several years. The Issuer does not anticipate that any of the Operating Entities will raise further significant capital through the sale of additional subordinated, unsecured notes. As a result, the subordinated, unsecured notes previously issued by CPCM and NCM will be allowed to proceed to maturity without renewal or reissuance and/or may be repaid ahead of maturity in the Issuer’s discretion.

Loans Payable – Related Parties

At December 31, 2016, two of our affiliated companies, Noble Opportunity Fund I, LP and Noble Opportunity Fund II, LP, had available cash balances of $4.5 million that were loaned to Central Penn Capital Management, LLC. This borrowing was used in place of line of credit advances. At December 31, 2017, these loans had been repaid in full and our lines of credit had no balances and were fully available. Loans from related parties may not be consistently available in future periods.

 

43

See Notes to the Consolidated Financial Statements, “Loans Payable – Related Party”.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements.

 

44

MATERIAL FEDERAL INCOME TAX CONSIDERATIONS

The information provided herein was not intended or written to be used, and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. This information has been provided to support the promotion or marketing of the offering of the Notes. Any person proposing to invest in the Notes is urged to seek advice based on that person’s particular circumstances from an independent tax advisor.

The income tax consequences of an investment in the Notes are complex. Accordingly, Investors should not consider this discussion as a substitute for careful individual tax planning. You are urged to consult with your tax advisors, attorneys or accountants on matters relating to an investment in the Notes, with special reference to your own situation and potential future changes in tax laws and regulations.

The following discussion is based upon the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), existing regulations thereunder (the “Regulations”), published rulings and court decisions. The Code and the Regulations are constantly subject to change, and the interpretations of the Code and the Regulations may be modified or affected at any time by Congress, the Department of the Treasury or judicial decision. It should be noted that any such change could be applied retroactively. Many provisions of the Code that significantly affect the tax consequences of investments in entities taxable as partnerships with investments in real estate have not yet been the subject of court decisions or authoritative interpretation by the IRS. It is impossible to predict what tax legislation, if any, will be enacted, and there can be no assurance that proposals that would adversely affect an investment in the Issuer will not be enacted into law.

No rulings have been or will be requested from the IRS concerning any of the tax matters described herein. Accordingly, there can be no assurance that the IRS or a court will not disagree with the following discussion or with any of the positions taken by the Issuer for Federal income tax purposes.

The following discussion, and any other statements in this Memorandum pertaining to Federal income tax consequences of the ownership of Notes, generally address only aspects considered to be of interest to a typical individual investor who is a citizen or resident of the United States. Investors that are subject to special tax rules, including, but not limited to, governmental entities, insurance companies, banks, thrifts, traders of securities that elect to use a mark-to-market method of accounting for their securities holdings and organizations exempt from taxation should consult their own tax advisors as to the applicability of such special rules to an investment in the Issuer. The description herein of the tax effects of owning Notes is based on the expectation that the Notes will be respected as debt for Federal income tax purposes.

It will be the responsibility of each investor to prepare and file all appropriate income tax returns that may be required as a result of the purchase of a Note. An IRS audit of the Issuer may also result in a complete audit of an Investor’s tax return.

 

45

Summary of Material Tax Aspects

The following summarizes the primary material Federal income tax aspects for an investment in the Issuer.

The analysis contained in this section is contingent upon the Notes being characterized as debt. The mere fact that an advance of funds to an entity is labeled as debt does not necessarily mean it is debt for Federal income tax purposes. The proper characterization of a financial relationship as debt or equity is determined based on all the facts and circumstances. Judicial decisions analyzing the debt versus equity issue often have cited a list of factors that may be relevant to the determination of whether the structure in question constitutes debt or equity. An examination of these cases suggests that no one factor has been deemed by the courts to be controlling or decisive. Among the factors considered by the courts have been the following: (i) the names given to any certificate of ownership evidencing the indebtedness or investment; (ii) the source of the payment; (iii) the right to enforce the payment of principal and interest; (iv) participation in management; (v) a status equal to or inferior to that of regular creditors; (vi) the intent of the parties; (vii) “thin” or inadequate capitalization; (viii) an identity of interest between the creditor and the equity owner; (ix) payment of interest only out of funds which would be a source of dividends; and (x) the borrower’s ability to obtain loans from outside lending institutions. Although the Issuer believes that the Notes have the indicia of debt, should the IRS re-characterize the Notes at any time as equity interests in the Issuer, the state, local and Federal income tax consequences will be substantially different.

The tax consequences to Investors of the Notes differ depending on whether the payments received by the Investor from the Issuer are repayments of principal or are repayments of interest. Interest payments will be ordinary income to the Investors at the time they are received. Repayments of principal, on the other hand, are non-taxable to the Investors as returns of capital.

In the event the Issuer becomes unable to repay the Notes pursuant to their terms, the Notes will be viewed as bad debt. Losses from bad debt that do not arise in the course of an individual taxpayer’s business (or businesses) are treated as short-term capital losses. As such, they are subject to the capital loss deduction limitations. Specifically, taxpayers can automatically deduct up to $3,000 of capital losses each year even if they have no capital gains ($1,500 if married filing separate status). Additional capital losses can only be deducted against capital gains from other sources. Therefore, if an Investor has a non-business bad debt loss arising from the Issuer’s inability to repay the Notes, but has capital gains that are less than the capital losses, it may take many years to fully deduct the bad debt loss.

In addition to the Federal income tax consequences described above, Investors may be subject to state and local tax consequences by reason of investment in the Issuer. Interest payments to Investors will generally be required to be included in determining the Investor’s reportable income for state or local income tax purposes in the jurisdiction in which the Investor is a resident. Further, upon the Investor’s death, estate or inheritance taxes might be payable in such jurisdictions based upon the Investor’s interest in the Issuer. Depending upon the applicable state and local laws, tax benefits that are available to the Investor for Federal income tax purposes may not be available to the Investor for state or local income tax purposes.

 

46

Investors are urged to consult their personal tax advisor regarding the impact of state and local taxes upon an investment in the Issuer. A discussion of state and local tax law is beyond the scope of this Confidential Private Offering Memorandum.

ERISA CONSIDERATIONS

The following is a discussion of how certain requirements of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and the Code relating to Employee Benefit Plans and certain Other Benefit Arrangements (each as defined below) may affect an investment in the Notes. It is not, however, a complete or comprehensive discussion of all employee benefits aspects of such an investment. If the prospective investors are trustees or other fiduciaries of an Employee Benefit Plan or Other Benefit Arrangement, before purchasing Notes, they should consult with their own independent legal counsel to assure that the investment does not violate any of the applicable requirements of ERISA or the Code, including, without limitation, the ERISA fiduciary rules and the prohibited transaction requirements of ERISA and the Code.

ERISA Fiduciary Duties

Under ERISA, persons who serve as trustees or other fiduciaries of an Employee Benefit Plan have certain duties, obligations and responsibilities with respect to the participants and beneficiaries of such plans. Among the ERISA fiduciary duties are the duty to invest the assets of the plan prudently, and the duty to diversify the investment of plan assets so as to minimize the risk of large losses. An “Employee Benefit Plan” is a plan subject to ERISA that is an employee pension benefit plan (such as a defined benefit pension plan or a section 401(k) or 403(b) plan) or any employee welfare benefit plan (such as an employee group health plan).

Prohibited Transaction Requirements

Section 406 of ERISA and Section 4975 of the Code proscribe certain dealings between Employee Benefit Plans or Other Benefit Arrangements, on the one hand, and “parties-in interest” or “disqualified persons” with respect to those plans or arrangements on the other. An “Other Benefit Arrangement” is a benefit arrangement described in Section 4975(e)(1) of the Code (such as a self-directed IRA, other than an Employee Benefit Plan.

Prohibited transactions include, directly or indirectly, any of the following transactions between an Employee Benefit Plan or Other Benefit Arrangement and a party in interest or disqualified person:

 

(a)

sales or exchanges of property;

 

(b)

lending of money or other extension of credit;

 

(c)

furnishing of goods, services or facilities; and

 

(d)

transfers to, or use by or for the benefit of, a party in interest or disqualified person of any assets of the Employee Benefit Plan or Other Benefit Arrangement.

 

47

In addition, prohibited transactions include any transaction where a trustee or other fiduciary of an Employee Benefit Plan or Other Benefit Arrangement:

 

(a)

deals with plan assets for his own account;

 

(b)

acts on the behalf of parties whose interests are adverse to the interest of the plan; or

 

(c)

receives consideration for his own personal account from any party dealing with the plan with respect to plan assets.

The terms “party in interest” under ERISA and “disqualified person” under the Code have similar definitions. The terms include persons who have particular relationships with respect to an Employee Benefit Plan or Other Benefit Arrangement, such as:

 

(a)

fiduciaries;

 

(b)

persons rendering services of any nature to the plan;

 

(c)

employers any of whose employees are participants in the plan, as well as owners of 50% or more of the equity interests of such employers;

 

(d)

spouses, lineal ascendants, lineal descendants, and spouses of such ascendants or descendants of any of the above persons;

 

(e)

employees, officers, directors and 10% or more owners of such fiduciaries, service providers, employers or owners;

 

(f)

entities in which any of the above-described parties hold interests of 50% or more; and

 

(g)

10% or more joint venturers or partners of certain of the parties described above.

Certain transactions between Employee Benefit Plans or Other Benefit Arrangements and parties in interest or disqualified persons that would otherwise be prohibited transactions are exempt from the prohibited transaction rules due to the application of certain statutory or regulatory exemptions. In addition, the United States Department of Labor (the “DOL”) has issued class exemptions and individual exemptions for certain types of transactions. Violations of the prohibited transaction rules may require the prohibited transactions to be rescinded and will cause the parties in interest or disqualified persons to be subject to excise taxes under Section 4975 of the Code.

Investments in the Company

If a prospective investor is a fiduciary of an Employee Benefit Plan, the investor must act prudently and ensure that the plan’s assets are adequately diversified to satisfy the ERISA fiduciary duty requirements. Whether an investment in the Company is prudent and whether an Employee Benefit Plan’s investments are adequately diversified must be determined by the plan’s fiduciaries in light of all of the relevant facts and circumstances. A fiduciary should consider, among other factors, the limited marketability of the Notes.

 

48

Prospective investors also should be aware that under certain circumstances the DOL may view the underlying assets of the Company as “plan assets” for purposes of the ERISA fiduciary rules and the ERISA and Internal Revenue Code prohibited transaction rules. DOL regulations indicate that Company assets will not be considered plan assets if less than 25% of the value of the Notes is held by Employee Benefit Plans and Other Benefit Arrangements.

The Company anticipates that if any investor is an Employee Benefit Plan subject to ERISA, the Company will limit the investments by all Employee Benefit Plans and Other Benefit Arrangements to ensure that the 25% limit is not exceeded. Because the 25% limit is determined after every subscription or redemption, the Company has the authority to require the redemption of all or some of the Notes held by any Investor that is an Employee Benefit Plan or Other Benefit Arrangement if the continued holding of such Notes, in the sole opinion of the Company, could result in the Company being subject to the ERISA fiduciary rules.

If there are no Employee Benefit Plan investors in the Company, the Company anticipates that investments by Other Benefit Arrangements (such as self-directed IRAs) may exceed the 25% limit. This may cause the underlying assets of the Company to be considered plan assets for purposes of the Code prohibited transaction rules. In such a case, the Other Benefit Arrangement investors must ensure that their investments do not constitute prohibited transactions under Section 4975 of the Code. Such investors should consult with independent legal counsel on these issues.

Special Limitations

The discussion of the ERISA fiduciary aspects and the ERISA and Code prohibited transaction rules contained in this Memorandum is not intended as a substitute for careful planning. The applicability of ERISA fiduciary rules and the ERISA or Code prohibited transaction rules to Investors may vary from one Investor to another, depending upon that Investor’s situation. Accordingly, prospective investors should consult with their own attorneys, accountants and other personal advisors as to the effect of ERISA and the Code on their situation of a purchase and ownership of the Notes and as to potential changes in the applicable law.

REPORTS

Annual Audited Financial Statements

For fiscal year 2018 and subsequent years, the Issuer will mail audited financials to Investors on an annual basis. Copies of the audited financial statement will be furnished to each Note holder within 120 days after the end of each Fiscal Year. The Fiscal Year of the Issuer ends on December 31^st. The Issuer’s audited, consolidated financial statements for 2017 and 2016 are included in this Offering Circular beginning at page F-1.

Quarterly Performance Reports

Quarterly performance reports will be provided to Note holders no later than 45 days after the end of each calendar quarter. These quarterly performance reports are internally prepared by the Issuer and typically include an overview of business activity and a balance sheet and income statement for the prior quarter.

 

49

Quarterly Investor Statements

Each Note holder will receive an Investor Statement after each calendar quarter. Investor Statements will include details of the interest earned on their Note and other pertinent financial information specific to the Note.

ACCOUNTANTS

The audited, consolidated financial statements of Noble Advisors, LLC as of December 31, 2017, have been included herein in reliance upon the report of Brown Schultz Sheridan & Fritz, CPAs, independent accounting firm, upon the authority of said firm as experts in accounting and auditing. The audited, consolidated financial statements of Noble Advisors, LLC as of December 31, 2016, have been included herein in reliance upon the report of Acuity Advisors and CPAs, independent accounting firm, and upon the authority of said firm as experts in accounting and auditing.

LEGAL COUNSEL

The law firm of Barley Snyder LLP (“Counsel”) represents the Issuer in connection with this Offering and the preparation of certain documents relating to the Notes described in this Memorandum. Counsel is not responsible for the accuracy or completion of this Memorandum or the information set forth herein. Counsel does not represent the legal, tax or any other interest of Investors or Note holders. No Note holder, Investor or recipient of this Memorandum should impute or imply any duty on the part of Counsel, or any member of Counsel, at any time, present or future, to advise or inform the Investors or recipients with respect to any information received or obtained by Counsel relating to the Issuer.

Investors should not construe the contents of this Memorandum or any written or oral communications from the Issuer, or the employees, agents or affiliates of The Noble Group, as advice of any kind, including, without limitation, tax, legal, accounting, or investment advice. Investors are encouraged to consult their own independent advisors, including legal counsel and financial advisors, in connection with a potential investment in the Notes.

ACCESS TO ADDITIONAL INFORMATION

Subject to the discretion of the Issuer, Investors and/or their professional advisors are invited to review at the office of the Issuer, at any reasonable time upon advance notice, materials available from the Issuer relating to its activities, its management and this Offering.

The Issuer will answer inquiries from Investors and/or their designated representatives or advisors concerning the Issuer and any other matters relating to the organization and operations of the Issuer and the Offering and sale of the Notes and will afford to Investors and/or their professional advisors the opportunity to obtain additional information (to the extent that the Issuer possesses such information, or can acquire it without unreasonable effort or expense, and to the extent that such information is not regarded by the managers as a trade secret) necessary to assess the accuracy of representations or information set forth in this Memorandum. Notwithstanding the foregoing, for competitive and other reasons, to the extent allowed by law and by generally accepted accounting principles, the identity of the properties held by the Issuer may be kept confidential from Investors and, in such case, the Issuer will reveal information regarding such properties at its sole discretion.

 

50

Copies of any of the documents summarized or referenced herein that are not attached hereto may be obtained by writing to or calling the Issuer at:

Terry Hertzog

Noble Advisors, LLC

1817 Olde Homestead Lane

Suite 101

Lancaster, PA 17601

(717) 398-0700 x 130 (office)

(717) 271-8317 (cell)

thertzog@nobleweb.com

 

51

 

NOBLE ADVISORS, LLC

AND SUBSIDIARIES

YEARS ENDED

DECEMBER 31, 2017 AND 2016

 

F-1

NOBLE ADVISORS, LLC AND SUBSIDIARIES

DECEMBER 31, 2017 AND 2016

CONTENTS

 

		Page
Independent auditors’ report			1-2
Financial statements:
Consolidated balance sheets			3
Consolidated statements income			4-5
Consolidated statements of members’ equity			6
Consolidated statements of cash flows			7-8
Notes to consolidated financial statements			9-20
Supplementary information:
Independent auditors’ report on consolidating information			21
Consolidating balance sheets			22-25
Consolidating statements of income			26-29
Consolidating statements of members’ equity			30-31

 

F-2

Independent Auditors’ Report

Management

Noble Advisors, LLC and Subsidiaries

Lancaster, Pennsylvania

Report on the Financial Statements

We have audited the accompanying consolidated financial statements of Noble Advisors, LLC and Subsidiaries, which includes Noble Advisors, LLC (a limited liability company), Noble Capital Management, LLC (a limited liability company), Chesapeake Capital Management, LLC (a limited liability company), Susquehanna Capital Management, LLC (a limited liability company), and the consolidation of Central Penn Capital Management, LLC and Subsidiary including Central Penn Capital Management, LLC (a limited liability company) and Horizon Residential Loan Servicing, LLC (a limited liability company), which comprise the consolidated balance sheet as of December 31, 2017, and the related consolidated statements of income, of members’ equity and of cash flows for the year then ended and the related notes to the consolidated financial statements.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

 

 

1

 

F-3

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Noble Advisors, LLC and Subsidiaries as of December 31, 2017, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Prior Period Financial Statements

The consolidated financial statements of Noble Advisors, LLC and Subsidiaries as of December 31, 2016 were audited by other auditors whose report dated May 17, 2017, expressed an unmodified opinion on those statements.

 

Lancaster, Pennsylvania

April 26, 2018

 

2

 

F-4

NOBLE ADVISORS, LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2017 AND 2016

ASSETS

 

		2017				2016
Current assets:
Cash		$	2,749,264			$	1,013,664
Accounts receivable			864,954				241,687
Accounts receivable, related party			0				2,488
Loan receivable, related party			103,706				429,065
Prepaid expenses			148,209				52,815
Real estate inventory:
Residential			19,158,363				15,568,685
Commercial			0				1,811,712
Mortgage notes			6,772,680				10,621,962
Cash escrows			9,142				197,916
Other assets			23,656				18,506
Total current assets			29,829,974				29,958,500
Property and equipment:
Commercial rental properties			4,440,988				0
Accumulated depreciation, commercial			(66,731	)			0
Residential rental properties			1,078,265				1,115,861
Accumulated depreciation, residential			(51,199	)			(24,053	)
Net property and equipment			5,401,323				1,091,808
Other assets:
Investment in:
Noble Opportunity Fund I, LP			0				46,652
Noble Opportunity Fund II, LP			241,976				160,408
Long-term mortgage notes			3,896,730				4,428,968
Total long-term assets			4,138,706				4,636,028
Total assets		$	39,370,003			$	35,686,336

 

See notes to consolidated financial statements.

 

 

F-5

LIABILITIES AND MEMBERS’ EQUITY

 

		2017				2016
Current liabilities:
Accounts payable		$	346,767			$	625,848
Accounts payable, related party			1,417,571				1,015,394
Accrued:
Expenses and other liabilities			315,533				324,152
Member distributions			1,542,745				1,622,058
Interest			158,334				143,384
Mortgage escrows and prepayments			28,704				65,399
Loans payable, related party			0				4,521,856
Current maturities of subordinated debt			14,821,494				7,721,311
Total current liabilities			18,631,148				16,039,402
Long-term liabilities, subordinated debt			10,186,918				10,896,390
Total liabilities			28,818,066				26,935,792
Members’ equity			10,551,937				8,750,544
Total liabilities and members’ equity		$	39,370,003			$	35,686,336

 

3

 

F-6