Filed Pursuant to Rule 253(g)(2)
File No. 024-10997
Supplement No. 4 to Offering Circular
dated May 27, 2020
Manufactured Housing Properties Inc.
136 Main Street
Pineville, NC 28134
(980) 273-1702; www.mhproperties.com
This Offering Circular Supplement No. 4
(the “Supplement”) relates to the Offering Circular of Manufactured Housing Properties Inc. (the “Company”),
dated May 27, 2020 (the “Offering Circular”), relating to the Company’s public offering under Regulation
A of Section 3(6) of the Securities Act of 1933, as amended, for Tier 2 offerings, pursuant to which the Company is offering up
to 1,000,000 shares of Series B Cumulative Redeemable Preferred Stock (the “Series B Preferred Stock”) at an
offering price of $10.00 per share, for a maximum offering amount of $10,000,000 (the “Offering”). In addition,
the Company is offering bonus shares to early investors in the Offering. The first 400 investors will receive, in addition to Series
B Preferred Stock, 100 shares of Common Stock, regardless of the amount invested, for a total of 40,000 shares of Common Stock.
This Supplement should be read in conjunction with the Offering Circular and Offering Circular Supplement No. 1 filed with the
Securities and Exchange Commission (the “SEC”) on May 28, 2020, Offering Circular Supplement No. 2 filed with
the SEC on June 5, 2020 and Offering Circular Supplement No. 3 filed with the SEC on October 2, 2020 (the “Prior Supplements”),
and is qualified by reference to the Offering Circular and the Prior Supplements except to the extent that the information contained
herein supplements or supersedes the information contained in the Offering Circular and the Prior Supplements, and may not be delivered
without the Offering Circular and the Prior Supplements.
Since November 29, 2019, the Company has
completed multiple closings of the Offering in which the Company sold an aggregate of 667,231 shares of Series B Preferred Stock
to 289 investors for total gross proceeds of $6,672,310. After deducting the placement fee, the Company received aggregate net
proceeds of approximately $6,205,248 in these closings. The Company also issued an aggregate of 28,900 shares of Common Stock to
these investors.
The purpose of this Supplement is to include
the attached (i) Current Report on Form 8-K filed with the SEC on October 19, 2020 and (ii) Quarterly Report on Form 10-Q filed
with the SEC on November 10, 2020. The exhibits to such reports are not included with this Supplement and are not incorporated
by reference herein.
INVESTING IN OUR SECURITIES INVOLVES
A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY READ AND CONSIDER THE “RISK FACTORS” BEGINNING ON PAGE 10 OF THE OFFERING
CIRCULAR.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of these securities or determined if this Offering Circular
is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this Supplement No. 4 to
Offering Circular is February 5, 2021
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities
Exchange Act of 1934
Date of Report (Date of earliest event reported):
October 19, 2020 (October 14, 2020)
Manufactured Housing Properties Inc.
|
(Exact name of registrant as specified in its charter)
|
Nevada
|
|
000-51229
|
|
51-0482104
|
(State or other jurisdiction
of incorporation)
|
|
(Commission File Number)
|
|
(IRS Employer
Identification No.)
|
136 Main Street, Pineville, North Carolina
|
|
28134
|
(Address of principal executive offices)
|
|
(Zip Code)
|
(980) 273-1702
|
(Registrant’s telephone number, including area code)
|
|
(Former name or former address, if changed since last report)
|
Check the appropriate box below if the Form
8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐
|
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
|
☐
|
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
|
☐
|
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
|
☐
|
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
|
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the registrant is an emerging growth
company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
|
Item 5.02
|
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers;
Compensatory Arrangements of Certain Officers.
|
On October 14, 2020, the board of directors
of Manufactured Housing Properties Inc. (the “Company”) increased the size of the board from five to six members and
appointed Richard M. Gee to the board of directors to fill the vacancy created by such increase.
Richard M. Gee, age 28, has served
as a Vice President of Gvest Capital LLC, which provides management and administrative services to various investment and asset
ownership entities, since 2018. He specializes in acquisitions and development. Prior to joining Gvest Capital LLC, he was a Policy
Analyst in the Texas Senate for two years working for a senator. He is a graduate of the University of North Carolina School of
Law and received his BA in Political Science from Southern Methodist University. Mr. Gee was selected to serve on the board of
directors due to his real estate development experience.
Mr. Gee was appointed until his successor is
duly elected and qualified. There are no arrangements or understandings between Mr. Gee and any other person pursuant to which
he was selected as a director. There has been no transaction, nor is there any currently proposed transaction, between Mr. Gee
and the Company that would require disclosure under Item 404(a) of Regulation S-K.
SIGNATURE
Pursuant to the requirements
of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
Date: October 19, 2020
|
MANUFACTURED HOUSING PROPERTIES INC.
|
|
|
|
|
By:
|
/s/ Raymond M. Gee
|
|
|
Raymond M. Gee
|
|
|
Chief Executive Officer
|
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10−Q
(Mark
One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended: September 30, 2020
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from ____________ to _____________
Commission
File Number: 000-51229
MANUFACTURED
HOUSING PROPERTIES INC.
(Exact
name of registrant as specified in its charter)
Nevada
|
|
51-0482104
|
(State or other jurisdiction
of
incorporation or organization)
|
|
(I.R.S. Employer
Identification No.)
|
|
|
|
136
Main Street, Pineville, North Carolina
|
|
28134
|
(Address of principal
executive offices)
|
|
(Zip Code)
|
(980)
273-1702
(Registrant’s
telephone number, including area code)
(Former
name, former address and former fiscal year, if changed since last report)
Securities
registered pursuant to Section 12(b) of the Act: None
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
|
☐
|
Accelerated filer
|
☐
|
Non-accelerated filer
|
☒
|
Smaller reporting company
|
☒
|
|
Emerging growth company
|
☐
|
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
comply with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As
of November 9, 2020, there were 12,397,480 common shares of the registrant issued and outstanding.
Manufactured
Housing Properties Inc.
Quarterly
Report on Form 10-Q
Period
Ended September 30, 2020
TABLE
OF CONTENTS
PART
I
FINANCIAL
INFORMATION
|
ITEM
1.
|
FINANCIAL
STATEMENTS.
|
MANUFACTURED
HOUSING PROPERTIES INC.
UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MANUFACTURED HOUSING PROPERTIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2020 AND DECEMBER
31, 2019
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Assets
|
|
(unaudited)
|
|
|
(as Revised)
|
|
Investment Property
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
11,378,818
|
|
|
$
|
10,885,938
|
|
Site and Land Improvements
|
|
|
22,007,126
|
|
|
|
17,466,801
|
|
Buildings and Improvements
|
|
|
7,048,699
|
|
|
|
6,214,725
|
|
Total Investment Property
|
|
|
40,434,643
|
|
|
|
34,567,464
|
|
Accumulated Depreciation & Amortization
|
|
|
(2,621,354
|
)
|
|
|
(1,394,958
|
)
|
Net Investment Property
|
|
|
37,813,289
|
|
|
|
33,172,506
|
|
Cash and Cash Equivalents, including restricted cash of $371,826 and $316,035 respectively
|
|
|
2,099,390
|
|
|
|
4,146,411
|
|
Accounts Receivable, net
|
|
|
45,293
|
|
|
|
31,881
|
|
Other Assets
|
|
|
601,010
|
|
|
|
557,012
|
|
Total Assets
|
|
$
|
40,558,982
|
|
|
$
|
37,907,810
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
$
|
214,289
|
|
|
$
|
227,406
|
|
Notes Payable, net of $746,560 and $633,629 debt discount
|
|
|
32,159,085
|
|
|
|
28,359,247
|
|
Note Payable – Related Party
|
|
|
605,580
|
|
|
|
797,906
|
|
Note Payable – Line of Credit Related Party
|
|
|
-
|
|
|
|
1,730,000
|
|
Accrued Liabilities
|
|
|
583,922
|
|
|
|
551,481
|
|
Tenant Security Deposits
|
|
|
371,826
|
|
|
|
316,035
|
|
Total Liabilities
|
|
|
33,934,702
|
|
|
|
31,982,075
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (See note 5)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Redeemable Preferred Stock – subject to redemption
|
|
|
|
|
|
|
|
|
Series A Cumulative Redeemable Convertible Preferred Stock, par value $0.01 per share; 4,000,000 shares authorized; 1,890,000 shares issued and outstanding as of September 30, 2020 and December 31, 2019; redemption value $7,087,500
|
|
|
5,263,375
|
|
|
|
4,909,000
|
|
Series B Cumulative Redeemable Preferred Stock, par value $0.01 per share; 1,000,000 shares authorized; 615,291 and 409,722 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively; redemption value $9,229,365
|
|
|
6,293,427
|
|
|
|
3,973,610
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit
|
|
|
|
|
|
|
|
|
Common Stock, par value $0.01 per share; 200,000,000 shares authorized; 12,397,180 and 12,336,080 shares are issued and outstanding as of September 30, 2020 and December 31, 2019, respectively
|
|
|
123,972
|
|
|
|
123,361
|
|
Additional Paid in Capital
|
|
|
(558,758
|
)
|
|
|
759,849
|
|
Accumulated Deficit
|
|
|
(4,497,736
|
)
|
|
|
(3,840,085
|
)
|
Total Stockholders’ Deficit
|
|
|
(4,932,522
|
)
|
|
|
(2,956,875
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
$
|
40,558,982
|
|
|
$
|
37,907,810
|
|
See
Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
MANUFACTURED HOUSING PROPERTIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2020 AND 2019
(UNAUDITED)
|
|
Three Months Ended
September 30,
|
|
|
Nine months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental and related income
|
|
$
|
1,615,994
|
|
|
$
|
794,543
|
|
|
$
|
4,422,002
|
|
|
$
|
1,963,835
|
|
Management fees, related party
|
|
|
5,004
|
|
|
|
4,164
|
|
|
|
13,267
|
|
|
|
19,448
|
|
Total revenues
|
|
|
1,620,998
|
|
|
|
798,707
|
|
|
|
4,435,269
|
|
|
|
1,983,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repair and maintenance
|
|
|
93,501
|
|
|
|
65,394
|
|
|
|
234,996
|
|
|
|
160,621
|
|
Real estate taxes
|
|
|
90,498
|
|
|
|
42,178
|
|
|
|
242,776
|
|
|
|
110,660
|
|
Utilities
|
|
|
150,568
|
|
|
|
50,069
|
|
|
|
402,124
|
|
|
|
130,744
|
|
Insurance
|
|
|
27,622
|
|
|
|
21,086
|
|
|
|
116,123
|
|
|
|
47,015
|
|
General and administrative expense
|
|
|
133,279
|
|
|
|
66,566
|
|
|
|
384,949
|
|
|
|
227,188
|
|
Total community operating expenses
|
|
|
495,468
|
|
|
|
245,293
|
|
|
|
1,380,968
|
|
|
|
676,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate payroll and overhead
|
|
|
311,787
|
|
|
|
125,229
|
|
|
|
1,065,624
|
|
|
|
587,463
|
|
Depreciation and amortization expense
|
|
|
485,377
|
|
|
|
204,719
|
|
|
|
1,357,629
|
|
|
|
496,966
|
|
Interest expense
|
|
|
385,190
|
|
|
|
555,786
|
|
|
|
1,288,699
|
|
|
|
1,076,254
|
|
Refinancing costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
552,272
|
|
Total expenses
|
|
|
1,677,822
|
|
|
|
1,131,027
|
|
|
|
5,092,920
|
|
|
|
3,389,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
|
(56,824
|
)
|
|
|
(332,320
|
)
|
|
|
(657,651
|
)
|
|
|
(1,405,900
|
)
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net Loss
|
|
$
|
(56,824
|
)
|
|
$
|
(332,320
|
)
|
|
$
|
(657,651
|
)
|
|
$
|
(1,405,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends and put option value accretion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A preferred dividends
|
|
|
89,500
|
|
|
|
19,000
|
|
|
|
281,720
|
|
|
|
43,334
|
|
Series A preferred put option value accretion
|
|
|
118,125
|
|
|
|
23,750
|
|
|
|
354,375
|
|
|
|
47,500
|
|
Series B preferred dividends
|
|
|
114,413
|
|
|
|
-
|
|
|
|
310,288
|
|
|
|
-
|
|
Series B preferred put option value accretion
|
|
|
110,807
|
|
|
|
-
|
|
|
|
408,834
|
|
|
|
-
|
|
Total preferred stock dividends and put option value accretion
|
|
|
432,845
|
|
|
|
42,750
|
|
|
|
1,355,217
|
|
|
|
90,834
|
|
Net loss attributable to common stockholders
|
|
$
|
(489,669
|
)
|
|
$
|
(375,070
|
)
|
|
$
|
(2,012,868
|
)
|
|
$
|
(1,496,734
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares - basic and fully diluted
|
|
|
12,395,376
|
|
|
|
12,799,568
|
|
|
|
12,369,344
|
|
|
|
12,738,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic
|
|
$
|
(0.04
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.12
|
)
|
Net loss per share - fully diluted
|
|
$
|
(0.04
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.12
|
)
|
See
Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
MANUFACTURED HOUSING PROPERTIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF
STOCKHOLDERS’ DEFICIT
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2020 AND 2019
(UNAUDITED)
|
|
COMMON
STOCK
|
|
|
ADDITIONAL
|
|
|
NON
|
|
|
|
|
|
STOCKHOLDERS’
|
|
|
|
SHARES
|
|
|
PAR
VALUE
|
|
|
PAID IN
CAPITAL
|
|
|
CONTROLLING INTEREST
|
|
|
ACCUMULATED
DEFICIT
|
|
|
EQUITY
(DEFICIT)
|
|
Balance at January 1, 2019
|
|
|
10,350,062
|
|
|
$
|
103,500
|
|
|
$
|
451,567
|
|
|
$
|
293,241
|
|
|
$
|
(1,801,338
|
)
|
|
$
|
(953,030
|
)
|
Stock option expense
|
|
|
-
|
|
|
|
-
|
|
|
|
8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8
|
|
Common Stock issuance
for acquisition of minority interest (as revised) Note 2
|
|
|
2,000,000
|
|
|
|
20,000
|
|
|
|
273,241
|
|
|
|
(293,241
|
)
|
|
|
-
|
|
|
|
-
|
|
Common Stock issuance
for line of credit
|
|
|
545,000
|
|
|
|
5,450
|
|
|
|
299,750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
305,200
|
|
Common Stock issuance
for service
|
|
|
-
|
|
|
|
-
|
|
|
|
24,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24,500
|
|
Preferred shares Series
A dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,667
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,667
|
)
|
Imputed interest
|
|
|
-
|
|
|
|
-
|
|
|
|
14,004
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,004
|
|
Net
Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(719,314
|
)
|
|
|
(719,314
|
)
|
Balance at March
31, 2019 (as revised)
|
|
|
12,895,062
|
|
|
|
128,950
|
|
|
$
|
1,058,403
|
|
|
|
-
|
|
|
|
(2,520,652
|
)
|
|
|
(1,333,299
|
)
|
Stock option expense
|
|
|
-
|
|
|
|
-
|
|
|
|
8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8
|
|
Common Stock issuance
for cash for line of credit
|
|
|
254,506
|
|
|
|
2,545
|
|
|
|
66,172
|
|
|
|
-
|
|
|
|
-
|
|
|
|
68,717
|
|
Purchase Treasury
Common Stock
|
|
|
(350,000
|
)
|
|
|
(3,500
|
)
|
|
|
(61,011
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(64,511
|
)
|
Imputed interest
|
|
|
-
|
|
|
|
-
|
|
|
|
13,857
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,857
|
|
Preferred shares Series
A put option value accretion
|
|
|
-
|
|
|
|
-
|
|
|
|
(23,750
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(23,750
|
)
|
Preferred shares Series
A dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
(19,667
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(19,667
|
)
|
Net
Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(354,266
|
)
|
|
|
(354,266
|
)
|
Balance at June
30, 2019 (as revised)
|
|
|
12,799,568
|
|
|
$
|
127,995
|
|
|
$
|
1,034,012
|
|
|
$
|
-
|
|
|
$
|
(2,874,918
|
)
|
|
$
|
(1,792,911
|
)
|
Stock option expense
|
|
|
-
|
|
|
|
-
|
|
|
|
8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8
|
|
Imputed interest
|
|
|
-
|
|
|
|
-
|
|
|
|
12,872
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,872
|
|
Preferred shares Series
A put option value accretion
|
|
|
-
|
|
|
|
-
|
|
|
|
(19,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(19,000
|
)
|
Preferred shares Series
A dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
(23,750
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(23,750
|
)
|
Net
Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(332,320
|
)
|
|
|
(332,320
|
)
|
Balance at September
30, 2019 (as revised)
|
|
|
12,799,568
|
|
|
$
|
127,995
|
|
|
$
|
1,004,142
|
|
|
$
|
-
|
|
|
$
|
(3,207,238
|
)
|
|
$
|
(2,075,101
|
)
|
Balance at January 1, 2020 (as revised)
|
|
|
12,336,080
|
|
|
$
|
123,361
|
|
|
$
|
759,849
|
|
|
$
|
-
|
|
|
$
|
(3,840,085
|
)
|
|
$
|
(2,956,875
|
)
|
Stock option expense
|
|
|
-
|
|
|
|
-
|
|
|
|
539
|
|
|
|
-
|
|
|
|
-
|
|
|
|
539
|
|
Common Stock issuance
to preferred share holders
|
|
|
6,000
|
|
|
|
60
|
|
|
|
1,560
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,620
|
|
Preferred shares Series
A put option value accretion
|
|
|
-
|
|
|
|
-
|
|
|
|
(118,125
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(118,125
|
)
|
Preferred shares Series
A dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
(94,500
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(94,500
|
)
|
Preferred shares Series
B put option value accretion
|
|
|
-
|
|
|
|
-
|
|
|
|
(127,368
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(127,368
|
)
|
Preferred shares Series
B dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
(92,996
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(92,996
|
)
|
Net
Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(354,165
|
)
|
|
|
(354,165
|
)
|
Balance at March
31, 2020
|
|
|
12,342,080
|
|
|
$
|
123,421
|
|
|
$
|
328,959
|
|
|
$
|
-
|
|
|
$
|
(4,194,250
|
)
|
|
$
|
(3,741,870
|
)
|
Stock option expense
|
|
|
-
|
|
|
|
-
|
|
|
|
539
|
|
|
|
-
|
|
|
|
-
|
|
|
|
539
|
|
Common Stock issuance
to preferred share holders
|
|
|
2,100
|
|
|
|
21
|
|
|
|
546
|
|
|
|
-
|
|
|
|
-
|
|
|
|
567
|
|
Common shares issued
to board of directors
|
|
|
50,000
|
|
|
|
500
|
|
|
|
32,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
32,500
|
|
Preferred shares Series
A put option value accretion
|
|
|
-
|
|
|
|
-
|
|
|
|
(118,125
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(118,125
|
)
|
Preferred shares Series
A dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
(97,720
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(97,720
|
)
|
Preferred shares Series
B put option value accretion
|
|
|
-
|
|
|
|
-
|
|
|
|
(170,659
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(170,659
|
)
|
Preferred shares Series
B dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
(102,879
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(102,879
|
)
|
Net
Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(246,662
|
)
|
|
|
(246,662
|
)
|
Balance at June 30, 2020
|
|
|
12,394,180
|
|
|
$
|
123,942
|
|
|
$
|
(127,339
|
)
|
|
$
|
-
|
|
|
$
|
(4,440,912
|
)
|
|
$
|
(4,444,309
|
)
|
Stock option expense
|
|
|
-
|
|
|
|
-
|
|
|
|
646
|
|
|
|
-
|
|
|
|
-
|
|
|
|
646
|
|
Common Stock issuance
to preferred share holders
|
|
|
3,000
|
|
|
|
30
|
|
|
|
780
|
|
|
|
-
|
|
|
|
-
|
|
|
|
810
|
|
Preferred shares Series
A put option value accretion
|
|
|
-
|
|
|
|
-
|
|
|
|
(118,125
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(118,125
|
)
|
Preferred shares Series
A dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
(89,500
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(89,500
|
)
|
Preferred shares Series
B put option value accretion
|
|
|
-
|
|
|
|
-
|
|
|
|
(110,807
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(110,807
|
)
|
Preferred shares Series
B dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
(114,413
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(114,413
|
)
|
Net
Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(56,824
|
)
|
|
|
(56,824
|
)
|
Balance at September
30, 2020
|
|
|
12,397,180
|
|
|
$
|
123,972
|
|
|
$
|
(558,758
|
)
|
|
$
|
-
|
|
|
$
|
(4,497,736
|
)
|
|
$
|
(4,932,522
|
)
|
See
Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
MANUFACTURED HOUSING PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER
30, 2020 AND 2019
(UNAUDITED)
|
|
2020
|
|
|
2019
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(657,651
|
)
|
|
$
|
(1,405,900
|
)
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
In-kind contribution of interest
|
|
|
-
|
|
|
|
40,733
|
|
Provision for bad debts
|
|
|
3,802
|
|
|
|
23,820
|
|
Stock option expense
|
|
|
1,724
|
|
|
|
24
|
|
Stock compensation expense
|
|
|
32,500
|
|
|
|
329,700
|
|
Write off mortgage cost
|
|
|
-
|
|
|
|
68,195
|
|
Depreciation and amortization
|
|
|
1,357,629
|
|
|
|
504,542
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(17,214
|
)
|
|
|
(44,914
|
)
|
Other assets
|
|
|
(43,998
|
)
|
|
|
(461,532
|
)
|
Accounts payable
|
|
|
(13,117
|
)
|
|
|
230,164
|
|
Accrued liabilities
|
|
|
25,415
|
|
|
|
119,135
|
|
Tenant security deposits
|
|
|
55,791
|
|
|
|
92,923
|
|
Net Cash Provided by (Used in) Operating Activities
|
|
|
744,881
|
|
|
|
(503,110
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Capital Improvements
|
|
|
(720,594
|
)
|
|
|
-
|
|
Purchases of investment properties
|
|
|
(1,001,000
|
)
|
|
|
(10,138,342
|
)
|
Net Cash Used in Investing Activities
|
|
|
(1,721,594
|
)
|
|
|
(10,138,342
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from related – party note
|
|
|
-
|
|
|
|
7,075
|
|
Repayment of note payable – line of credit related party
|
|
|
(1,730,000
|
)
|
|
|
(2,754,550
|
)
|
Proceeds from note payable – line of credit related party
|
|
|
-
|
|
|
|
3,000,000
|
|
Proceeds from notes payable
|
|
|
418,134
|
|
|
|
18,481,076
|
|
Repayment of notes payable
|
|
|
(641,733
|
)
|
|
|
(7,898,248
|
)
|
Proceeds from issuance of preferred stock
|
|
|
1,911,792
|
|
|
|
1,465,000
|
|
Proceeds from issuance of common stock
|
|
|
-
|
|
|
|
68,717
|
|
Purchase of treasury stock
|
|
|
-
|
|
|
|
(64,511
|
)
|
Repayment of note payable - related party
|
|
|
(192,326
|
)
|
|
|
-
|
|
Capitalized financing cost
|
|
|
-
|
|
|
|
(275,519
|
)
|
Payment of mortgage costs recorded as debt discount
|
|
|
(244,167
|
)
|
|
|
(73,434
|
)
|
Preferred shares dividends
|
|
|
(592,008
|
)
|
|
|
(43,334
|
)
|
Net Cash Provided by (Used in) Financing Activities
|
|
|
(1,070,308
|
)
|
|
|
11,912,272
|
|
|
|
|
|
|
|
|
|
|
Net change in cash, cash equivalents and restricted cash
|
|
|
(2,047,021
|
)
|
|
|
1,270,820
|
|
Cash, cash equivalents and restricted cash at beginning of the period
|
|
|
4,146,411
|
|
|
|
458,271
|
|
Cash, cash equivalents and restricted cash at end of the period
|
|
$
|
2,099,390
|
|
|
$
|
1,729,091
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash consist of the following:
|
|
|
|
|
|
|
|
|
End of period
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,727,564
|
|
|
$
|
1,505,019
|
|
Restricted cash
|
|
|
371,826
|
|
|
|
224,072
|
|
Total
|
|
$
|
2,099,390
|
|
|
$
|
1,729,091
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash consist of the following:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,830,376
|
|
|
$
|
327,122
|
|
Restricted cash
|
|
|
316,035
|
|
|
|
131,149
|
|
Total
|
|
$
|
4,146,411
|
|
|
$
|
458,271
|
|
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Income Taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest
|
|
$
|
1,276,614
|
|
|
$
|
577,769
|
|
|
|
|
|
|
|
|
|
|
Non-Cash Investing and Financing Activities
|
|
|
|
|
|
|
|
|
Purchase of Minority Interest in Pecan Grove
|
|
$
|
-
|
|
|
$
|
537,562
|
|
Notes related to acquisitions
|
|
$
|
4,150,000
|
|
|
$
|
-
|
|
Non-cash Preferred stock accretion
|
|
$
|
763,209
|
|
|
$
|
45,500
|
|
See
Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
MANUFACTURED HOUSING
PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
Organization
Manufactured
Housing Properties Inc. (the “Company”) is a Nevada corporation whose principal activities are to acquire, own, and
operate manufactured housing communities.
Basis
of Presentation
The
Company prepares its consolidated financial statements under the accrual basis of accounting, in conformity with accounting principles
generally accepted in the United States of America (“GAAP”).
The
accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with GAAP for
interim financial information and with the instructions to Form 10-Q of Regulation S-X. They do not include all information and
footnotes required by GAAP for complete financial statements. The December 31, 2019 consolidated balance sheet data were derived
from audited financial statements but do not include all disclosures required by GAAP. However, except as disclosed herein, there
has been no material change in the information disclosed in the notes to the consolidated financial statements for the year ended
December 31, 2019 included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission
on April 14, 2020. The interim unaudited condensed consolidated financial statements should be read in conjunction with those
consolidated financial statements included in the Form 10-K. In the opinion of management, all adjustments considered necessary
for a fair statement of the financial statements, consisting solely of normal recurring adjustments, have been made. Operating
results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2020.
The
Company’s formation of all subsidiaries and date of consolidation are as follows:
Name of Subsidiary
|
|
State of Formation
|
|
Date of Formation
|
|
|
Ownership
|
|
Pecan Grove MHP LLC
|
|
North Carolina
|
|
October 12, 2016
|
|
|
|
100
|
%*
|
Butternut MHP Land LLC
|
|
Delaware
|
|
March 1, 2017
|
|
|
|
100
|
%
|
Azalea MHP LLC
|
|
North Carolina
|
|
October 25, 2017
|
|
|
|
100
|
%
|
Holly Faye MHP LLC
|
|
North Carolina
|
|
October 25, 2017
|
|
|
|
100
|
%
|
Chatham Pines MHP LLC
|
|
North Carolina
|
|
October 31, 2017
|
|
|
|
100
|
%
|
Maple Hills MHP LLC
|
|
North Carolina
|
|
October 31, 2017
|
|
|
|
100
|
%
|
Lakeview MHP LLC
|
|
South Carolina
|
|
November 1, 2017
|
|
|
|
100
|
%
|
MHP Pursuits LLC
|
|
North Carolina
|
|
January 31, 2019
|
|
|
|
100
|
%
|
Mobile Home Rentals LLC
|
|
North Carolina
|
|
September 30, 2016
|
|
|
|
100
|
%
|
Hunt Club MHP LLC
|
|
South Carolina
|
|
March 8, 2019
|
|
|
|
100
|
%
|
B&D MHP LLC
|
|
South Carolina
|
|
April 4, 2019
|
|
|
|
100
|
%
|
Crestview MHP LLC
|
|
North Carolina
|
|
June 28, 2019
|
|
|
|
100
|
%
|
Springlake MHP LLC
|
|
Georgia
|
|
October 10, 2019
|
|
|
|
100
|
%
|
ARC MHP LLC
|
|
South Carolina
|
|
November 13, 2019
|
|
|
|
100
|
%
|
Countryside MHP LLC
|
|
South Carolina
|
|
March 12, 2020
|
|
|
|
100
|
%
|
Evergreen MHP LLC
|
|
Tennessee
|
|
March 17, 2020
|
|
|
|
100
|
%
|
*The
Company originally acquired a 75% interest. In January 2019, the Company acquired the remaining 25% interest from a related party.
All
intercompany transactions and balances have been eliminated in consolidation. The Company does not have a majority or minority
interest in any other company, either consolidated or unconsolidated.
MANUFACTURED HOUSING
PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Revenue
Recognition
The
Company’s revenues primarily consist of rental revenues and fee and other income. The Company has the following revenue
sources and revenue recognition policies:
|
●
|
Rental
revenues include revenues from the leasing of land lot or a combination of both, the
mobile home and land at our properties to tenants.
|
|
○
|
Revenues
from the leasing of land lot or a combination of both, the mobile home and land at the
Company’s properties to tenants include (i) lease components, including land lot
or a combination of both, the mobile home and land, and (ii) reimbursement of utilities
and account for the components as a single lease component in accordance with Accounting
Standards Codification (“ASC”) 842.
|
|
○
|
Revenues
derived from fixed lease payments are recognized on a straight-line basis over the non-cancelable
period of the lease. The Company commences rental revenue recognition when the underlying
asset is available for use by the lessee. Revenue derived from the reimbursement of utilities
are generally recognized in the same period as the related expenses are incurred. The
Company’s leases are month-to-month.
|
|
●
|
Fee
and other income include late fees, violation fees and other revenue arising from contractual
agreements with third parties. This revenue is recognized as the services are transferred
in accordance with ASC 606.
|
|
●
|
Mobile
home sale revenues are recognized in accordance with Topic 606 of the Financial Accounting
Standards Board (“FASB”) ASC for revenue recognition. On January 1, 2018,
the Company adopted Accounting Standards Update (“ASU”) 2014-09, which is
a comprehensive new revenue recognition model that requires revenue to be recognized
in a manner to depict the transfer of goods or services to a customer at an amount that
reflects the consideration expected to be received in exchange for those goods or services.
The Company considers revenue realized or realizable and earned when all the five following
criteria are met: (1) identification of the contract with a customer, (2) identification
of the performance obligations in the contract, (3) determination of the transaction
price, (4) allocation of the transaction price to the performance obligations in the
contract, and (5) recognition of revenue when (or as) we satisfy a performance obligation.
|
Under
ASC 842, the Company must assess on an individual lease basis whether it is probable that the Company will collect the future
lease payments. The Company considers the tenant’s payment history and current credit status when assessing collectability. When
collectability is not deemed probable, the Company will write-off the tenant’s receivables, including straight-line rent receivable,
and limit lease income to cash received.
Accounts
Receivable
Accounts
receivable consist primarily of amounts currently due from residents. Accounts receivables are reported in the balance sheet at
outstanding principal adjusted for any charge-offs and the allowance for losses. The Company records an allowance for bad debt
when receivables are over 90 days old.
Acquisitions
The
Company accounts for acquisitions as asset acquisitions in accordance with ASC 805, “Business Combinations,” and allocates
the purchase price of the property based upon the fair value of the assets acquired, which generally consist of land, site and
land improvements, buildings and improvements and rental homes. The Company allocates the purchase price of an acquired property
generally determined by internal evaluation as well as third-party appraisal of the property obtained in conjunction with the
purchase.
Net
Income (Loss) Per Share
Basic
net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding
during the period. Diluted net income (loss) per share is calculated by dividing net income (loss) by the weighted average number
of common shares outstanding plus the weighted average number of net shares that would be issued upon exercise of stock options
pursuant to the treasury stock method. Total dilutive securities outstanding as of September 30, 2020 and 2019 totaled 656,175
and 541,334 stock options, respectively, 1,890,000 and 586,000 convertible Preferred Series A shares, respectively, which
are convertible into common shares at $2.50 per share for a total of 756,000 and 228,000, respectively, which are not included
in dilutive loss per share as the effect would be anti-dilutive.
MANUFACTURED HOUSING
PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Use
of Estimates
The
presentation of financial statements in conformity with GAAP requires management to make estimates and assumptions that effect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those
estimates.
Investment
Property and Depreciation
Investment
property which consists of property and equipment are carried at cost. Depreciation for Sites and Building is computed principally
on the straight-line method over the estimated useful lives of the assets (ranging from 15 to 25 years). Depreciation of Improvements
to Sites and Buildings, Rental Homes and Equipment and Vehicles is computed principally on the straight-line method over the estimated
useful lives of the assets (ranging from 3 to 25 years). Land Development Costs are not depreciated until they are put in use,
at which time they are capitalized as Sites and Land Improvements. Interest Expense pertaining to Land Development Costs are capitalized.
Maintenance and Repairs are charged to expense as incurred and improvements are capitalized. The costs and related accumulated
depreciation of property sold or otherwise disposed of are removed from the financial statement and any gain or loss is reflected
in the current period’s results of operations.
Impairment
Policy
The
Company applies FASB ASC 360-10, “Property, Plant & Equipment,” to measure impairment in real estate investments.
Rental properties are individually evaluated for impairment when conditions exist which may indicate that it is probable that
the sum of expected future cash flows (on an undiscounted basis without interest) from a rental property is less than the carrying
value under its historical net cost basis. These expected future cash flows consider factors such as future operating income,
trends and prospects as well as the effects of leasing demand, competition and other factors. Upon determination that a permanent
impairment has occurred, rental properties are reduced to their fair value. For properties to be disposed of, an impairment loss
is recognized when the fair value of the property, less the estimated cost to sell, is less than the carrying amount of the property
measured at the time there is a commitment to sell the property and/or it is actively being marketed for sale. A property to be
disposed of is reported at the lower of its carrying amount or its estimated fair value, less its cost to sell. Subsequent to
the date that a property is held for disposition, depreciation expense is not recorded. There was no impairment during the nine
months ended September 30, 2020 and 2019.
Cash
and Cash Equivalents
The
Company considers all highly liquid financial instruments purchased with an original maturity of three months or less to be cash
equivalents.
The
Company maintains cash balances at banks and deposits at times may exceed federally insured limits. Management believes that the
financial institutions that hold the Company’s cash are financially secure and, accordingly, minimal credit risk exists.
At September 30, 2020 and December 31, 2019, the Company had approximately $586,000 and $2,553,000 above the FDIC-insured limit,
respectively, including restricted cash held for tenant security deposits of $371,826 and $316,035, respectively.
Stock
Based Compensation
All
stock based payments to employees, nonemployee consultants, and to nonemployee directors for their services as directors, including
any grants of restricted stock and stock options, are measured at fair value on the grant date and recognized in the statements
of operations as compensation or other expense over the relevant service period in accordance with FASB ASC Topic 718. Stock based
payments to nonemployees are recognized as an expense over the period of performance. Such payments are measured at fair value
at the earlier of the date a performance commitment is reached or the date performance is completed. In addition, for awards that
vest immediately and are nonforfeitable the measurement date is the date the award is issued. The Company recorded stock option
expense of $1,724 and $24 during the nine months ended September 30, 2020 and 2019, respectively.
MANUFACTURED HOUSING
PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Fair
Value of Financial Instruments
The
Company follows paragraph 825-10-50-10 of the FASB ASC for disclosures about fair value of its financial instruments and paragraph
820-10-35-37 of the FASB ASC to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework
for measuring fair value in GAAP and expands disclosures about fair value measurements. To increase consistency and comparability
in fair value measurements and related disclosures, paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes
the inputs to valuation techniques used to measure fair value into broad levels. The fair value hierarchy gives the highest priority
to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.
Reclassifications
Certain
amounts in the prior period presentation have been reclassified to conform with the current presentation.
Income
Taxes
The
Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under
this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial
statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are
expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the
period that includes the enactment date.
The
Company recognizes deferred tax assets to the extent that the Company believes that these assets are more likely than not to be
realized. In making such a determination, the Company considers all available positive and negative evidence, including future
reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of
recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess
of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would
reduce the provision for income taxes.
The
Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) the Company
determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of
the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes
the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related
tax authority.
The
Company recognizes interest and penalties, if any, with income tax expense in the accompanying unaudited condensed consolidated
statement of operations. As of September 30, 2020, and December 31, 2019, there were no such accrued interest or penalties.
Recent
Accounting Pronouncements
In
June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments.” ASU 2016-13 requires that entities use a new forward looking “expected loss”
model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit
losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability
of the reported amount. ASU No. 2016-13 is effective for annual reporting periods, including interim reporting periods within
those periods, beginning after December 15, 2022. The Company is currently evaluating the potential impact this standard may have
on the consolidated financial statements.
In
March 2019, the FASB issued ASU No. 2019-01, “Leases (Topic 842): Codification Improvements.” ASU 2019-01 aligns the
guidance for fair value of the underlying asset by lessors with existing guidance in Topic 842. The ASU requires that the fair
value of the underlying asset at lease commencement is its cost reflecting in volume or trade discounts that may apply. However,
if there has been a significant lapse of time between the date the asset was acquired and the lease commencement date, the definition
of fair value as outlined in Topic 820 should be applied. In addition, the ASU exempts both lessees and lessors from having to
provide certain interim disclosures in the fiscal year in which a company adopts the new leases standard. The update is effective
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company has evaluated
the impact this standard had on the consolidated financial statements and determined that it had no impact on the consolidated
financial statements.
MANUFACTURED HOUSING
PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In August 2020, the FASB issued ASU 2020-06
“Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity”,
which simplifies the guidance for certain convertible debt instruments by removing the separation models for convertible debt with
a cash conversion feature or convertible instruments with a beneficial conversion feature. As a result, convertible debt instruments
will be reported as a single liability instrument with no separate accounting for embedded conversion features. Additionally, ASU
2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method
will be no longer available. The provisions of ASU 2020-06 are applicable for fiscal years beginning after December 15, 2023, with
early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the
potential impact this standard may have on the consolidated financial statements.
Management
does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
effect on the accompanying unaudited condensed consolidated financial statements.
Impact
of Coronavirus Pandemic
In
December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. The virus has since spread to
over 150 countries and every state in the United States. On March 11, 2020, the World Health Organization declared the outbreak
a pandemic, and on March 13, 2020, the United States declared a national emergency.
Most
states and cities, including where the Company’s properties are located, have reacted by instituting quarantines, restrictions
on travel, “stay at home” rules and restrictions on the types of businesses that may continue to operate, as well
as guidance in response to the pandemic and the need to contain it.
The
Company is carefully reviewing all rules, regulations, and orders and responding accordingly. The Company has taken steps to take
care of its employees, including providing the ability for employees to work remotely and implementing strategies to support appropriate
social distancing techniques for those employees who are not able to work remotely. The Company has also taken precautions with
regard to employee, facility and office hygiene as well as implementing significant travel restrictions. The Company is also assessing
its business continuity plans for all business units in the context of the pandemic. This is a rapidly evolving situation, and
the Company will continue to monitor and mitigate developments affecting its workforce, its tenants, and the public at large to
the extent the Company is able to do so.
The
rules and restrictions put in place have had a negative impact on the economy and business activity and may adversely impact the
ability of the Company’s tenants, many of whom may be restricted in their ability to work, to pay their rent as and
when due. In addition, the Company’s property managers may be limited in their ability to properly maintain the Company’s
properties. Enforcing the Company’s rights as landlord against tenants who fail to pay rent or otherwise do not
comply with the terms of their leases may not be possible as many jurisdictions, including those where are properties are located,
have established rules and/or regulations preventing us from evicting tenants for certain periods in response to the pandemic.
If the Company is unable to enforce its rights as landlords, our business would be materially affected.
If
the current pace of the pandemic cannot be slowed and the spread of the virus is not contained, the Company’s business
operations could be further delayed or interrupted. The Company expects that government and health authorities may announce new
or extend existing restrictions, which could require the Company to make further adjustments to its operations in order to comply
with any such restrictions. The duration of any business disruption cannot be reasonably estimated at this time but may materially
affect the Company’s ability to operate its business and result in additional costs.
The
extent to which the pandemic may impact the Company’s results will depend on future developments, which are highly
uncertain and cannot be predicted as of the date hereof, including new information that may emerge concerning the severity of
the pandemic and steps taken to contain the pandemic or treat its impact, among others. Nevertheless, the
pandemic and the current financial, economic and capital markets environment present material uncertainty and risk with respect
to the Company’s performance, financial condition, results of operations and cash flows.
NOTE
2 – Revision of Prior Year Immaterial Misstatement
During
the nine months ended September 30, 2020, the Company identified a certain error in recording our minority interest buyout for
Pecan Grove during the first quarter of 2019. This error resulted in decreasing our land Investment Property and Equity by $244,321
and had no impact on our income statements.
The
Company assessed the materiality of this error considering both qualitative and quantitative factors and determined that for both
the quarter and fiscal year ended December 31, 2019, the error was immaterial. The Company has decided to correct this error as
revisions to our previously issued financial statements and will adjust the Form 10-K when filed in succeeding periods of this
fiscal year.
MANUFACTURED HOUSING
PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The
table below present the impact of the revision in the Company’s condensed consolidated financial statements.
|
|
December 31, 2019
|
|
|
|
As previously
reported
|
|
|
Adjustment
|
|
|
As Revised
|
|
Balance Sheet / Statement of Changes in Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
Investment Property
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
11,130,259
|
|
|
$
|
(244,321
|
)
|
|
$
|
10,885,938
|
|
Total Investment Property
|
|
|
34,811,785
|
|
|
|
(244,321
|
)
|
|
|
34,567,464
|
|
Net Investment Property
|
|
|
33,416,827
|
|
|
|
(244,321
|
)
|
|
|
33,172,506
|
|
Total Assets
|
|
|
38,152,131
|
|
|
|
(244,321
|
)
|
|
|
37,907,810
|
|
Additional Paid in Capital
|
|
|
1,004,170
|
|
|
|
(244,321
|
)
|
|
|
759,849
|
|
Total Stockholders’ Deficit
|
|
|
(2,712,554
|
)
|
|
|
(244,321
|
)
|
|
|
(2,956,875
|
)
|
Total Liabilities and Stockholders’ Deficit
|
|
$
|
38,152,131
|
|
|
$
|
(244,321
|
)
|
|
$
|
37,907,810
|
|
The
unaudited condensed consolidated income statement and statement of cash flows are not presented because there is no impact to
these statements.
NOTE
3 – INVESTMENT PROPERTY
Investment
Property consists of the following as of:
|
|
September
30,
2020
|
|
|
December 31,
2019
|
|
Investment Property
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
11,378,818
|
|
|
$
|
10,885,938
|
|
Site and Land Improvements
|
|
|
22,007,126
|
|
|
|
17,466,801
|
|
Buildings and Improvements
|
|
|
7,048,699
|
|
|
|
6,214,725
|
|
Total Investment Property
|
|
|
40,434,643
|
|
|
|
34,567,464
|
|
Less: accumulated depreciation and amortization
|
|
|
(2,621,354
|
)
|
|
|
(1,394,958
|
)
|
Net Investment Property
|
|
$
|
37,813,289
|
|
|
$
|
33,172,506
|
|
Depreciation
and amortization expense totaled $485,377 and $204,719 for the three months ended September 30, 2020 and 2019, respectively, and
$1,357,629 and $496,966 for the nine months ended September 30, 2020 and 2019, respectively.
During
the nine months ended September 30, 2019, the Company acquired the 25% minority interest in Pecan Grove MHP LLC. The Company also
acquired two manufactured housing communities and accounted for them as asset acquisitions during the nine months ended September
30, 2020 totaling $5,310,767 (See note 8).
NOTE
4 – PROMISSORY NOTES
Promissory
Notes
The Company has issued promissory notes
payable to lenders related to the acquisition of its manufactured housing communities. These promissory notes range from 3.3% to
7.0% with 5 to 30 years principal amortization. Two of the promissory notes had an initial 6 months period on interest only payments.
The promissory notes are secured by the real estate assets and $7,397,468 for four assets were guaranteed by Raymond M. Gee, the
Company’s chairman, chief executive officer and owner of the principal stockholder of the Company.
MANUFACTURED HOUSING
PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In addition, on May 1, 2020, the Company
received a $139,300 Paycheck Protection Program (the “PPP”) loan from the United States Small Business Administration
(the “SBA”) under provisions of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”).
The PPP loan has a two-year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments are deferred
for six months after the date of disbursement. The PPP loan may be prepaid at any time prior to maturity with no prepayment penalties.
The PPP loan contains events of default and other provisions customary for a loan of this type. The PPP provides that the loan
may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. The Company
used the proceeds from the PPP loan for qualifying expenses and applied for forgiveness of the PPP loan in accordance with the
terms of the CARES Act. However, the Company cannot provide assurance that the loan will be forgiven.
During
the nine months ended September 30, 2019, the Company refinanced a total of $4,940,750 from current loans payable to $8,241,000
of new notes payable from five of the communities, resulting in an additional loan payable of $3,320,859. The Company used the
additional loans payable proceeds from the refinance to retire the related party note payable described below. During the nine
months ended September 30, 2019, the Company wrote off mortgage costs of $68,195 and capitalized $110,039 of mortgage costs due
to the refinancing.
On
April 1, 2020, the Company refinanced the loans for Butternut MHP Land LLC with the existing lender to increase the loan amount
to $1,382,269 and to extend the maturity date to April 10, 2025. In addition, the interest rate was changed to 6% per annum, provided
that on April 10, 2023 and thereafter, the interest rate shall be equal to (i) the per annum rate of interest identified as the
“Prime Rate” as published in the monthly rates section of the Wall Street Journal plus (ii) 1% per annum, adjusted
as the first day of each calendar quarter. The loan, as modified, is secured by the real estate assets of Butternut MHP Land LLC
and is guaranteed by the Company and Raymond M. Gee. The Company used the proceeds to extinguish and pay off the Butternut MHP
Land LLC Mezz loan.
As
of September 30, 2020, the Company recorded $151,365 of mortgage cost related to the two acquisitions.
The
following are terms of these notes:
|
|
Maturity
Date
|
|
Interest
Rate
|
|
|
Balance
09/30/20
|
|
|
Balance
12/31/19
|
|
Butternut MHP Land LLC
|
|
04/10/25
|
|
|
6.000
|
%
|
|
$
|
1,375,106
|
|
|
$
|
1,114,819
|
|
Butternut MHP Land LLC Mezz
|
|
04/01/27
|
|
|
7.000
|
%
|
|
|
-
|
|
|
|
280,013
|
|
Pecan Grove MHP LLC
|
|
02/22/29
|
|
|
5.250
|
%
|
|
|
3,054,267
|
|
|
|
3,095,274
|
|
Azalea MHP LLC
|
|
03/01/29
|
|
|
5.400
|
%
|
|
|
815,687
|
|
|
|
835,445
|
|
Holly Faye MHP LLC
|
|
03/01/29
|
|
|
5.400
|
%
|
|
|
579,825
|
|
|
|
574,096
|
|
Chatham MHP LLC
|
|
04/01/24
|
|
|
5.875
|
%
|
|
|
1,743,510
|
|
|
|
1,771,506
|
|
Lake View MHP LLC
|
|
03/01/29
|
|
|
5.400
|
%
|
|
|
1,838,780
|
|
|
|
1,857,266
|
|
B&D MHP LLC
|
|
04/25/29
|
|
|
5.500
|
%
|
|
|
1,827,754
|
|
|
|
1,854,788
|
|
Hunt Club MHP LLC
|
|
05/01/24
|
|
|
5.750
|
%
|
|
|
1,424,255
|
|
|
|
1,447,364
|
|
Crestview MHP LLC
|
|
07/31/24
|
|
|
5.500
|
%
|
|
|
4,105,637
|
|
|
|
4,173,652
|
|
Maple MHP LLC
|
|
01/01/23
|
|
|
5.125
|
%
|
|
|
2,636,854
|
|
|
|
2,688,653
|
|
Springlake MHP LLC
|
|
11/14/22
|
|
|
3.310
|
%
|
|
|
4,000,000
|
|
|
|
4,000,000
|
|
ARC MHP LLC
|
|
01/01/30
|
|
|
5.500
|
%
|
|
|
5,224,329
|
|
|
|
5,300,000
|
|
Countryside MHP LLC
|
|
03/20/50
|
|
|
5.500
|
%
|
|
|
3,000,000
|
|
|
|
-
|
|
Evergreen MHP LLC
|
|
04/01/32
|
|
|
3.990
|
%
|
|
|
1,140,341
|
|
|
|
-
|
|
PPP Loan
|
|
05/01/22
|
|
|
1.000
|
%
|
|
|
139,300
|
|
|
|
-
|
|
Totals note payables
|
|
|
|
|
|
|
|
|
32,905,645
|
|
|
|
28,992,876
|
|
Discount Direct Lender Fees
|
|
|
|
|
|
|
|
|
(746,560
|
)
|
|
|
(633,629
|
)
|
Total net of Discount
|
|
|
|
|
|
|
|
$
|
32,159,085
|
|
|
$
|
28,359,247
|
|
MANUFACTURED HOUSING
PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Related
Party Promissory Note
On May 8, 2017, the Company issued a
promissory note to Metrolina Loan Holdings, LLC (“Metrolina”) in the principal amount of $3,000,000. The note is interest
only payment based on 8%, and 10% deferred until maturity to be paid with principal balance. The note originally awarded Metrolina
455,000 shares of Common Stock as consideration, which resulted in making Metrolina a related party due to its significant ownership.
During the year ended December 31, 2019, the Company paid off the entire balance on the note of $2,754,550 plus interest and amended
the agreement to allow for the redeployment of the $3,000,000 available, eliminated the conversion option whereby Metrolina could
convert the ratio of total outstanding debt at time of exercise of the option into an amount of newly issued shares of the Company’s
Common Stock determined by dividing the outstanding indebtedness by $3,000,000 multiplied by 10% with a cap of 864,500 shares.
The amendment resulted in issuing an additional 545,000 shares with a fair value of $305,200 for a total of 1,000,000 shares awarded
to Metrolina. The note gives Metrolina the right and option to purchase its pro rata share of debt or equity securities issued
to maintain up to 10% equity interest in the Company at the most recent price of any equity transaction for seven years from the
amendment dated February 26, 2019. This note matures in May of 2023. As of September 30, 2020, and December 31, 2019, the balance
on this note was $0 and $1,730,000, respectively. During the three months ended September 30, 2020, the Company paid off the full
balance and terminated the loan facility. The related party note was guaranteed by Mr. Gee, the Company’s Chief Executive
Officer.
Revolving
Promissory Note
On
October 1, 2017, the Company issued a revolving promissory note to Raymond M. Gee, the Company’s chairman and chief executive
officer, pursuant to which the Company may borrow up to $1,500,000 from Mr. Gee on a revolving basis for working capital purposes.
This note has a five-year term with no annual interest and principal payment is deferred until the maturity date. As of September
30, 2020 and December 31, 2019, the outstanding balance on this note was $605,580 and $797,906, respectively.
Maturities
of Long-Term Obligations for Five Years and Beyond
The
minimum annual principal payments of notes payable at September 30, 2020 by fiscal year were:
2020 (remainder of year)
|
|
|
$
|
135,491
|
|
2021
|
|
|
|
667,735
|
|
2022
|
|
|
|
4,648,421
|
|
2023
|
|
|
|
3,067,795
|
|
2024
|
|
|
|
7,195,039
|
|
Thereafter
|
|
|
|
17,191,164
|
|
Total minimum principal payments
|
|
|
$
|
32,905,645
|
|
NOTE
5 – COMMITMENTS AND CONTINGENCIES
From
time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of
business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise
that may harm its business. The Company is currently not aware of any such legal proceedings or claims that they believe will
have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results.
MANUFACTURED HOUSING
PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
6 – STOCKHOLDERS’ EQUITY
Preferred
Stock
The
Company is authorized to issue up to 10,000,000 shares of preferred stock, $0.01 par value.
Series
A Preferred Stock
On
May 8, 2019, the Company filed a certificate of designation with the Nevada Secretary of State pursuant to which the Company designated
4,000,000 shares of its preferred stock as Series A Cumulative Convertible Preferred Stock (the “Series A Preferred Stock”).
The Series A Preferred Stock has the following voting powers, designations, preferences and relative rights, qualifications, limitations
or restrictions:
Ranking.
The Series A Preferred Stock ranks, as to dividend rights and rights upon our liquidation, dissolution, or winding up, senior
to the Common Stock.
Dividend
Rate and Payment Dates. Dividends on the Series A Preferred Stock are cumulative and payable monthly in arrears to all
holders of record on the applicable record date. Holders of Series A Preferred Stock will be entitled to receive cumulative dividends
in the amount of $0.017 per share each month, which is equivalent to the rate of 8% of the $2.50 liquidation preference per share.
Dividends on shares of Series A Preferred Stock will continue to accrue even if any of the Company’s agreements prohibit
the current payment of dividends or the Company does not have earnings. During the nine months ended September 30, 2020 and 2019,
the Company paid dividends of $281,720 and $43,334, respectively.
Liquidation
Preference. The liquidation preference for each share of Series A Preferred Stock is $2.50. Upon a liquidation, dissolution
or winding up of the Company, holders of shares of Series A Preferred Stock will be entitled to receive the liquidation preference
with respect to their shares plus an amount equal to any accrued but unpaid dividends (whether or not declared) to, but not including,
the date of payment with respect to such shares.
Stockholder
Optional Conversion. Each share of Series A Preferred Stock is convertible, at any time and from time to time, at the
option of the holder thereof and without the payment of additional consideration, into that number of shares of Common Stock determined
by dividing the liquidation preference of such share by the conversion price then in effect. The conversion price is initially
equal $2.50, subject to adjustment as set forth in the certificate of designation. In addition, if at any time the trading price
of the Common Stock is greater than the liquidation preference of $2.50, the Company may deliver a written notice to all holders
to cause each holder to convert all or part of such holders’ Series A Preferred Stock.
Company
Call and Stockholder Put Options. Commencing on the fifth anniversary of the initial issuance of shares of Series A Preferred
Stock and continuing indefinitely thereafter, the Company will have a right to call for redemption the outstanding shares of Series
A Preferred Stock at a call price equal to $3.75, or 150% of the original issue price of the Series A Preferred Stock, and correspondingly,
each holder of shares of Series A Preferred Stock shall have a right to put the shares of Series A Preferred Stock held by such
holder back to us at a put price equal to $3.75, or 150% of the original issue purchase price of such shares. During the nine
months ended September 30, 2020 and 2019, the Company recorded a put option value accretion of $354,375 and $47,500, respectively.
Voting
Rights. The Company may not authorize or issue any class or series of equity securities ranking senior to the Series A
Preferred Stock as to dividends or distributions upon liquidation (including securities convertible into or exchangeable for any
such senior securities) or amend the Company’s articles of incorporation (whether by merger, consolidation, or otherwise)
to materially and adversely change the terms of the Series A Preferred Stock without the affirmative vote of at least two-thirds
of the votes entitled to be cast on such matter by holders of the outstanding shares of Series A Preferred Stock, voting together
as a class. Otherwise, holders of the shares of Series A Preferred Stock do not have any voting rights.
As
of September 30, 2020, there were 1,890,000 shares of Series A Preferred Stock issued and outstanding. As of September 30, 2020,
the Series A Preferred Stock balance was made up of Series A Preferred Stock totaling $4,725,000 and accretion of put options
totaling $538,375. As of December 31, 2019, the Series A Preferred Stock balance was made up of Series A Preferred Stock totaling
$4,725,000 and accretion of put options totaling $184,000.
Series
B Preferred Stock
On
December 2, 2019, the Company filed a certificate of designation with the Nevada Secretary of State pursuant to which the Company
designated 1,000,000 shares of its preferred stock as Series B Cumulative Redeemable Preferred Stock (the “Series B Preferred
Stock”). The Series B Preferred Stock has the following voting powers, designations, preferences and relative rights, qualifications,
limitations or restrictions:
Ranking.
The Series B Preferred Stock rank, as to dividend rights and rights upon liquidation, dissolution, or winding up, senior to the
Common Stock and pari passu with the Series A Preferred Stock.
MANUFACTURED HOUSING
PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Dividend
Rate and Payment Dates. Dividends on the Series B Preferred Stock are cumulative and payable monthly in arrears to all
holders of record on the applicable record date. Holders of Series B Preferred Stock will be entitled to receive cumulative dividends
in the amount of $0.067 per share each month, which is equivalent to the annual rate of 8% of the $10.00 liquidation preference
per share; provided that upon an event of default (generally defined as the Company’s failure to pay dividends when due
or to redeem shares when requested by a holder), such amount shall be increased to $0.083 per month, which is equivalent to the
annual rate of 10% of the $10.00 liquidation preference per share. During the nine months ended September 30, 2020 and 2019, the
Company paid dividends of $310,288 and $0, respectively.
Liquidation
Preference. The liquidation preference for each share of Series B Preferred Stock is $10.00. Upon a liquidation, dissolution
or winding up of the Company, holders of shares of Series B Preferred Stock will be entitled to receive the liquidation preference
with respect to their shares plus an amount equal to any accrued but unpaid dividends (whether or not declared) to, but not including,
the date of payment with respect to such shares.
Company
Call and Stockholder Put Options. Commencing on the fifth anniversary of the initial issuance of shares of Series B Preferred
Stock and continuing indefinitely thereafter, the Company will have a right to call for redemption the outstanding shares of Series
B Preferred Stock at a call price equal to $15.00, or 150% of the original issue price of the Series B Preferred Stock, and correspondingly,
each holder of shares of Series B Preferred Stock shall have a right to put the shares of Series B Preferred Stock held by such
holder back to the Company at a put price equal to $15.00, or 150% of the original issue purchase price of such shares. During
the nine months ended September 30, 2020 and 2019, the Company recorded a put option value accretion of $408,834 and $0, respectively.
Voting
Rights. The Company may not authorize or issue any class or series of equity securities ranking senior to the Series B
Preferred Stock as to dividends or distributions upon liquidation (including securities convertible into or exchangeable for any
such senior securities) or amend the Company’s articles of incorporation (whether by merger, consolidation, or otherwise)
to materially and adversely change the terms of the Series B Preferred Stock without the affirmative vote of at least two-thirds
of the votes entitled to be cast on such matter by holders of outstanding shares of Series B Preferred Stock, voting together
as a class. Otherwise, holders of the shares of Series B Preferred Stock do not have any voting rights.
No
Conversion Right. The Series B Preferred Stock is not convertible into shares of Common Stock.
On
November 1, 2019, the Company launched an offering under Regulation A of Section 3(6) of the Securities Act of 1933, as, amended,
for Tier 2 offerings, pursuant to which the Company is offering up to 1,000,000 shares of Series B Preferred Stock at an offering
price of $10.00 per share, for a maximum offering amount of $10,000,000. In addition, the Company is offering bonus shares to
early investors in this offering, whereby the first 400 investors will receive, in addition to Series B Preferred Stock, 100 shares
of Common Stock, regardless of the amount invested, for a total of 40,000 shares of Common Stock.
During
the nine months ended September 30, 2020, the Company sold an aggregate of 205,569 shares of Series B Preferred Stock for total
gross proceeds of $2,055,690. After deducting a placement fee and other expenses, the Company received net proceeds of $1,911,792.
As
of September 30, 2020, there were 615,291 shares of Series B Preferred Stock issued and outstanding.
Common
Stock
The
Company is authorized to issue up to 200,000,000 shares of Common Stock, par value $0.01 per share. As of September 30, 2020,
there were 12,397,180 shares of Common Stock issued and outstanding.
Stock
Issued for Service
In
November 2018, the Company issued 350,000 shares of Common Stock for services to an investment bank for advisory services with
a fair value of $171,500, and $24,500 of that fair value was expensed during the three months ended September 30, 2019. During
year ended December 31, 2019, the Company purchased these shares back for a total of $61,837 and canceled the shares due to the
termination of the advisory service agreement with the investment bank.
In
February 2019, the Company issued an additional 545,000 shares of Common Stock for services to Metrolina with a fair value of
$305,200.
In
April 2020, the Company issued 50,000 shares of Common Stock to board members with a value of $32,500.
Stock
Issued for Cash
In
June 2019, the Company issued an additional 254,506 shares of Common Stock for cash of $68,717 to Metrolina upon its exercise
of its option to purchase additional stock to maintain up to 10% ownership of the Company’s Common Stock outstanding.
MANUFACTURED HOUSING
PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
During
the nine months ended September 30, 2020 and 2019, the Company issued 8,100 and 0 shares of Common Stock, respectively, to early
investors in the Regulation A offering, valued at $2,187 and $0, respectively.
Stock
issued for Acquisition
In
January 2019, the Company issued 2,000,000 shares of Common Stock to Gvest Real Estate Capital LLC, which is controlled and owned
by Mr. Gee, the Company’s Chief Executive Officer, to acquire the 25% minority interest in Pecan Grove, which were valued
at the historical cost value of $293,241.
Equity
Incentive Plan
In
December 2017, the Board of Directors, with the approval of a majority of the stockholders of the Company, adopted the Manufactured
Housing Properties Inc. Stock Compensation Plan (the “Plan”) which is administered by the Compensation Committee.
As of September 30, 2020, there were 656,175 shares granted and 343,825 shares remaining available under the Plan.
The
Company has issued options to directors and officers under the Plan. One third of the options vest immediately, and two thirds
vest in equal annual installments over a two-year period. The Company issued 519,675 shares in December 2017 and 136,500 shares
in December 2019. The Company recorded stock option expense of $1,724 and $24 during the nine months ended September 30, 2020
and 2019, respectively.
The
following table summarizes the stock options outstanding as of September 30, 2020:
|
|
Number of
options
|
|
|
Weighted average
exercise price
(per share)
|
|
|
Weighted average
remaining contractual
term
(in years)
|
|
Outstanding at December 31, 2019
|
|
|
656,175
|
|
|
$
|
0.03
|
|
|
|
8.7
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited / cancelled / expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at September 30, 2020
|
|
|
656,175
|
|
|
$
|
0.03
|
|
|
|
8.2
|
|
The
aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company’s
closing stock price at fiscal year-end and the exercise price, multiplied by the number of in-the-money options) that would have
been received by the option holder had all options holders exercised their options on September 30, 2020. As of September 30,
2020, there were 656,175 “in-the-money” options with an aggregate intrinsic value of $2,648,266.
The
following table summarizes information concerning options outstanding as of September 30, 2020.
Strike Price
Range ($)
|
|
|
Outstanding
stock options
|
|
|
Weighted average
remaining contractual
term (in years)
|
|
|
Weighted average
outstanding strike price
|
|
|
Vested stock
options
|
|
|
Weighted average
vested strike price
|
|
$
|
0.01
|
|
|
|
519,675
|
|
|
|
7.2
|
|
|
$
|
0.01
|
|
|
|
519,675
|
|
|
$
|
0.01
|
|
$
|
0.27
|
|
|
|
136,500
|
|
|
|
9.3
|
|
|
$
|
0.27
|
|
|
|
45,500
|
|
|
$
|
0.27
|
|
MANUFACTURED HOUSING
PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The
table below presents the weighted average expected life in years of options granted under the Plan as described above. The risk-free
rate of the stock options is based on the U.S. Treasury yield curve in effect at the time of grant, which corresponds with the
expected term of the option granted.
The
fair value of stock options was estimated using the Black Scholes option pricing model with the following assumptions for grants
made during the periods indicated.
Stock option assumptions
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Risk-free interest rate
|
|
|
-
|
|
|
|
0.26
|
%
|
Expected dividend yield
|
|
|
-
|
|
|
|
0.00
|
%
|
Expected volatility
|
|
|
-
|
|
|
|
15.17
|
%
|
Expected life of options (in years)
|
|
|
-
|
|
|
|
10.0
|
|
NOTE
7 – RELATED PARTY TRANSACTIONS
On
October 1, 2017, the Company issued a revolving promissory note to Raymond M. Gee, the Company’s chairman and chief executive
officer, pursuant to which the Company may borrow up to $1,500,000 from Mr. Gee on a revolving basis for working capital purposes.
This note has a five-year term with no annual interest and principal payment is deferred until the maturity date. As of September
30, 2020 and December 31, 2019, the outstanding balance on this note was $605,580 and $797,906, respectively.
On May 8, 2017, the Company issued a
promissory note to Metrolina in the principal amount of $3,000,000. The note is interest only payment based on 8%, and 10% deferred
until maturity to be paid with principal balance. The note originally awarded Metrolina 455,000 shares of Common Stock as consideration,
which resulted in making Metrolina a related party due to its significant ownership. During the year ended December 31, 2019, the
Company paid off the entire balance on the note of $2,754,550 plus interest and amended the agreement to allow for the redeployment
of the $3,000,000 available, eliminated the conversion option whereby Metrolina could convert the ratio of total outstanding debt
at time of exercise of the option into an amount of newly issued shares of the Company’s Common Stock determined by dividing
the outstanding indebtedness by $3,000,000 multiplied by 10% with a cap of 864,500 shares. The amendment resulted in issuing an
additional 545,000 shares with a fair value of $305,200 for a total of 1,000,000 shares awarded to Metrolina. The note gives Metrolina
the right and option to purchase its pro rata share of debt or equity securities issued to maintain up to 10% equity interest in
the Company at the most recent price of any equity transaction for seven years from the amendment dated February 26, 2019. This
note matures in May of 2023. As of September 30, 2020 and December 31, 2019, the balance on this note was $0 and $1,730,000, respectively.
During the three months ended September 30, 2020 the Company paid off the full balance and terminated the loan facility. The related
party note was guaranteed by Mr. Gee, the Company’s Chief Executive Officer.
In
January 2019, the Company issued 2,000,000 shares of Common Stock to Gvest Real Estate Capital LLC, an entity controlled by Mr.
Gee, the Company’s Chief Executive Officer, to acquire the 25% minority interest in Pecan Grove, which were valued at the
historical cost value of $293,241.
In
August 2019, the Company entered into an office lease agreement with Gvest Real Estate Capital LLC for the lease of its offices.
The lease is $4,000 per month and is on a month-to-month term. Total rent expense for the nine months ended September 30, 2020
and 2019 was $36,000 and $0, respectively, and $12,000 and $0 for the three months ended September 30, 2020 and 2019, respectively.
During
the three and nine months ended September 30, 2020, the Company recorded $5,004 and $13,267, respectively, in revenues related
to property management consulting services provided to Gvest Real Estate Capital LLC, compared to $4,164 and $19,448 during the
three and nine months ended September 30, 2019, respectively.
During
the nine months ended September 30, 2020, Mr. Gee, the Company’s Chief Executive Officer, received a $50,000 fee for his
personal guarantee on a promissory note relating to a loan for one of the Company’s acquisitions, and $70,000 fee for his
personal guarantee on a promissory note relating to the refinance of our loans for Butternut MHP Land LLC.
MANUFACTURED HOUSING
PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8 – ACQUISITIONS
The
Company completed two acquisitions during the nine months ended September 30, 2020. These were asset acquisitions from third parties
and have been accounted for as asset acquisitions. The acquisition date estimated fair value was determined by third party
appraisals.
Acquisition Date
|
|
Name
|
|
Land
|
|
|
Improvements
|
|
|
Building
|
|
|
Acquisition Cost
|
|
|
Total Purchase Price
|
|
March 2020
|
|
Countryside MHP
|
|
$
|
152,880
|
|
|
$
|
3,194,245
|
|
|
$
|
352,875
|
|
|
$
|
21,642
|
|
|
$
|
3,721,642
|
|
March 2020
|
|
Evergreen MHP
|
|
|
340,000
|
|
|
|
1,111,000
|
|
|
|
-
|
|
|
|
138,125
|
|
|
|
1,589,125
|
|
|
|
|
|
$
|
492,880
|
|
|
$
|
4,305,245
|
|
|
$
|
352,875
|
|
|
$
|
159,767
|
|
|
$
|
5,310,767
|
|
Pro-forma
Financial Information
The
following unaudited pro-forma information presents the combined results of operations for the nine months ended September 30,
2020 and 2019 as if the above acquisitions of manufactured housing communities had been completed on January 1, 2020 and 2019.
Pro-forma for the nine months ended September 30, 2019 includes the five acquisitions during 2019.
|
|
Nine months
ended
September 30,
2020
Consolidated
|
|
|
Acquisitions
|
|
|
Adjustment
|
|
|
Nine months
ended
September 30,
2020
Pro Forma
|
|
Total revenue
|
|
$
|
4,435,269
|
|
|
$
|
167,618
|
|
|
$
|
|
|
|
$
|
4,602,887
|
|
Total expenses
|
|
|
5,092,919
|
|
|
|
60,297
|
|
|
|
|
|
|
|
5,153,216
|
|
Depreciation and amortization expense
|
|
|
-
|
|
|
|
-
|
|
|
|
49,445
|
|
|
|
49,445
|
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
40,719
|
|
|
|
40,719
|
|
Net income (loss)
|
|
$
|
(657,650
|
)
|
|
$
|
107,321
|
|
|
|
|
|
|
|
(640,493
|
)
|
Preferred stock dividends and put option value accretion
|
|
|
1,355,217
|
|
|
|
-
|
|
|
|
|
|
|
|
1,355,217
|
|
Net loss attributable to common shareholders
|
|
$
|
(2,012,867
|
)
|
|
$
|
107,321
|
|
|
|
|
|
|
$
|
(1,995,710
|
)
|
Weighted average - basic and fully diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.16
|
)
|
|
|
Nine months
ended
September 30,
2019
Consolidated
|
|
|
Acquisitions
|
|
|
Adjustment
|
|
|
Nine months
ended
September 30,
2019
Pro Forma
|
|
Total revenue
|
|
$
|
1,983,283
|
|
|
$
|
2,242,274
|
|
|
$
|
|
|
|
$
|
4,225,557
|
|
Total expenses
|
|
|
3,389,183
|
|
|
|
915,444
|
|
|
|
|
|
|
|
4,304,627
|
|
Depreciation and amortization expense
|
|
|
-
|
|
|
|
-
|
|
|
|
839,572
|
|
|
|
839,572
|
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
612,296
|
|
|
|
612,296
|
|
Net income (loss)
|
|
$
|
(1,405,900
|
)
|
|
$
|
1,326,830
|
|
|
|
|
|
|
|
(1,530,938
|
)
|
Preferred stock dividends and put option value accretion
|
|
|
90,834
|
|
|
|
-
|
|
|
|
|
|
|
|
90,834
|
|
Net loss attributable to common shareholders
|
|
$
|
(1,496,734
|
)
|
|
$
|
1,326,830
|
|
|
|
|
|
|
$
|
(1,621,772
|
)
|
Weighted average - basic and fully diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.13
|
)
|
MANUFACTURED HOUSING
PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
Three months
ended
September 30,
2019
Consolidated
|
|
|
Acquisitions
|
|
|
Adjustment
|
|
|
Three months
ended
September 30,
2019
Pro Forma
|
|
Total revenue
|
|
$
|
798,707
|
|
|
$
|
751,211
|
|
|
$
|
|
|
|
$
|
1,549,918
|
|
Total expenses
|
|
|
1,131,027
|
|
|
|
311,335
|
|
|
|
|
|
|
|
1,442,362
|
|
Depreciation and amortization expense
|
|
|
-
|
|
|
|
-
|
|
|
|
279,857
|
|
|
|
279,857
|
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
204,099
|
|
|
|
204,099
|
|
Net income (loss)
|
|
$
|
(332,320
|
)
|
|
$
|
439,876
|
|
|
|
|
|
|
|
(376,400
|
)
|
Preferred stock dividends and put option value accretion
|
|
|
42,750
|
|
|
|
-
|
|
|
|
|
|
|
|
42,750
|
|
Net loss attributable to common shareholders
|
|
$
|
(375,070
|
)
|
|
$
|
439,876
|
|
|
|
|
|
|
$
|
(419,150
|
)
|
Weighted average - basic and fully diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.03
|
)
|
NOTE
9 – SUBSEQUENT EVENTS
Series
B Preferred Stock
On
October 27, 2020, the Company completed an additional closing of the Regulation A offering described below, pursuant to which the
Company sold an aggregate of 11,885 shares of Series B Preferred Stock to investors for total gross proceeds of $118,850. After
deducting the placement fee, the Company received net proceeds of $110,531. The Company also issued 300 shares of Common Stock
to additional early investors.
|
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|
Use
of Terms
Except
as otherwise indicated by the context and for the purposes of this report only, references in this report to “we,”
“our” and the “Company” refer to Manufactured Housing Properties Inc., a Nevada corporation, and its consolidated
subsidiaries.
Special
Note Regarding Forward Looking Statements
In
addition to historical information, this report contains certain “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), that include information relating to future events, future financial
performance, strategies, expectations, competitive environment, regulation and availability of resources. These forward-looking
statements include, without limitation: statements concerning projections, predictions, expectations, estimates or forecasts for
our business, financial and operating results and future economic performance; statements of management’s goals and objectives;
trends affecting our financial condition, results of operations or future prospects; statements regarding our financing plans
or growth strategies; statements concerning litigation or other matters; and other similar expressions concerning matters that
are not historical facts. Words such as “may,” “will,” “should,” “could,” “would,”
“predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,”
“intends,” “plans,” “believes” and “estimates,” and similar expressions, as well
as statements in future tense, identify forward-looking statements.
Forward-looking
statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications
of the times, or by which, that performance or those results will be achieved. Forward-looking statements are based on information
available at the time they are made and/or management’s good faith beliefs as of that time with respect to future events
and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed
in or suggested by the forward-looking statements.
Potential
investors should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities
laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information,
future events, changed circumstances or any other reason. If we do update one or more forward-looking statements, no inference
should be drawn that we will make additional updates with respect to those or other forward-looking statements. Potential investors
should not make an investment decision based solely on our projections, estimates or expectations.
Overview
We
are a self-administered, self-managed, vertically integrated owner and operator of manufactured housing communities. Manufactured
housing communities are residential developments designed and improved for the placement of detached, single-family manufactured
homes that are produced off-site and installed and set on residential sites within the community. The owner of a manufactured
home leases the site on which it is located and the lessee of a manufactured home leases both the home and site on which the home
is located. We earn income from leasing manufactured home sites to tenants who own their own manufactured home and the rental
of company-owned manufactured homes to residents of the communities.
We
originally incorporated in the State of Nevada as Frontier Staffing, Inc. on September 3, 2003. Since our incorporation, we have
experienced several name changes and have been engaged in several different business endeavors. On October 12, 2017, Mobile Home
Rental Holdings LLC, a North Carolina limited liability company, which engaged in acquiring and operating manufactured housing
properties, merged with and into the Company. In connection with the merger, the name of the Company was changed to Manufactured
Housing Properties Inc., the former business and management of Mobile Home Rental Holdings LLC became the business and management,
respectively of the Company.
As
of September 30, 2020, we own and operate twenty manufactured housing communities containing approximately 1,308 developed sites,
and a total of 461 company-owned manufactured homes, including:
|
●
|
Pecan
Grove – a 81 lot, all-age community situated on 10.71 acres and located
in Charlotte, North Carolina.
|
|
●
|
Butternut
– a 59 lot, all-age community situated on 13.13 acres and located in Corryton,
Tennessee, a suburb of Knoxville, Tennessee.
|
|
●
|
Azalea
Hills – a 41 lot, all-age community situated on 7.46 acres and located
in Gastonia, North Carolina, a suburb of Charlotte, North Carolina.
|
|
●
|
Holly
Faye – a 37 lot all-age community situated on 8.01 acres and located in
Gastonia, North Carolina, a suburb of Charlotte North Carolina.
|
|
●
|
Lakeview
– a 97 lot all-age community situated on 17.26 acres in Spartanburg, South
Carolina.
|
|
●
|
Chatham
Pines – a 49 lot all-age community situated on 23.57 acres and located
in Chapel Hill, North Carolina.
|
|
●
|
Maple
Hills – a 73 lot all-age community situated on 21.20 acres and located
in Mills River, North Carolina, which is part of the Asheville, North Carolina, Metropolitan
Statistical Area.
|
|
●
|
Hunt
Club Forest – a 79 lot all-age community situated on 13.02 acres and located
in the Columbia, South Carolina metro area.
|
|
●
|
B&D
– a 97 lot all-age community situated on 17.75 acres and located in Chester,
South Carolina.
|
|
●
|
Crestview
– a 113 lot all-age community situated on 17.1 acres and located in the Ashville,
NC MSA, North Carolina, Metropolitan Statistical Area.
|
|
●
|
Spring
Lake – three all-age communities with 225 lots situated on 72.7 acres
and located in Warner Robins, Georgia.
|
|
●
|
ARC
– five all-age communities with 182 lots situated on 39.34 acres and
located in Lexington, South Carolina.
|
|
●
|
Countryside –
a 110 lot all-age community situated on 35 acres and located in Lancaster, North Carolina.
|
|
●
|
Evergreen –
a 65 lot all-age community situated on 28.4 acres and located in Dandridge, Tennessee.
|
We
believe that manufactured housing is accepted by the public as a viable and economically attractive alternative to common stick-built
single-family housing. We believe that the affordability of the modern manufactured home makes it a very attractive housing alternative.
Manufactured housing is one of the only non-subsidized affordable housing options in the U.S. Demand for housing affordability
continues to increase, but supply remains static, as there are virtually no new manufactured housing communities being developed.
We are committed to becoming an industry leader in providing this affordable housing option and an improved level of service to
our residents, while producing an attractive and stable risk adjusted return to our investors.
Recent
Developments
Impact
of Coronavirus Pandemic
In
December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. The virus has since spread to
over 150 countries and every state in the United States. On March 11, 2020, the World Health Organization declared the outbreak
a pandemic, and on March 13, 2020, the United States declared a national emergency.
Most
states and cities, including where our properties are located, have reacted by instituting quarantines, restrictions on travel,
“stay at home” rules and restrictions on the types of businesses that may continue to operate, as well as guidance
in response to the pandemic and the need to contain it.
We
are carefully reviewing all rules, regulations, and orders and responding accordingly. We have taken steps to take care of our
employees, including providing the ability for employees to work remotely and implementing strategies to support appropriate social
distancing techniques for those employees who are not able to work remotely. We have also taken precautions with regard to employee,
facility and office hygiene as well as implementing significant travel restrictions. We are also assessing our business continuity
plans for all business units in the context of the pandemic. This is a rapidly evolving situation, and we will continue to monitor
and mitigate developments affecting our workforce, our tenants, and the public at large to the extent we are able to do so.
The
rules and restrictions put in place have had a negative impact on the economy and business activity and may adversely impact the
ability of our tenants, many of whom may be restricted in their ability to work, to pay their rent as and when due. In addition,
our property managers may be limited in their ability to properly maintain our properties. Enforcing our rights as landlord against tenants who
fail to pay rent or otherwise do not comply with the terms of their leases may not be possible as many jurisdictions, including
those where are properties are located, have established rules and/or regulations preventing us from evicting tenants for certain
periods in response to the pandemic. If we are unable to enforce our rights as landlords, our business would be materially affected.
If
the current pace of the pandemic cannot be slowed and the spread of the virus is not contained, our business operations could
be further delayed or interrupted. We expect that government and health authorities may announce new or extend existing restrictions,
which could require us to make further adjustments to our operations in order to comply with any such restrictions. The duration
of any business disruption cannot be reasonably estimated at this time but may materially affect our ability to operate our business
and result in additional costs.
The
extent to which the pandemic may impact our results will depend on future developments, which are highly uncertain and
cannot be predicted as of the date of this Form 10-Q, including new information that may emerge concerning the severity of the pandemic and
steps taken to contain the pandemic or treat its impact, among others. Nevertheless, the pandemic and the current financial,
economic and capital markets environment present material uncertainty and risk with respect to our performance, financial condition,
results of operations and cash flows.
Series B Preferred Stock
On October 27, 2020, the Company completed
an additional closing of the Regulation A offering (see Note 6), pursuant to which the Company sold an aggregate of 11,885 shares
of Series B Preferred Stock to investors for total gross proceeds of $118,850. After deducting the placement fee, the Company received
net proceeds of $110,531. The Company also issued 300 shares of Common Stock to additional early investors.
Results
of Operations
Comparison
of Three Months Ended September 30, 2020 and 2019
The
following table sets forth key components of our results of operations during the three months ended September 30, 2020 and 2019,
both in dollars and as a percentage of our revenues.
|
|
Three Months Ended
September 30,
2020
|
|
|
Three Months Ended
September 30,
2019
|
|
|
|
Amount
|
|
|
Percent of Revenues
|
|
|
Amount
|
|
|
Percent of Revenues
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental and related income
|
|
$
|
1,615,994
|
|
|
|
99.69
|
%
|
|
$
|
794,543
|
|
|
|
99.48
|
%
|
Management fees, related party
|
|
|
5,004
|
|
|
|
0.31
|
%
|
|
|
4,164
|
|
|
|
0.52
|
%
|
Total revenues
|
|
|
1,620,998
|
|
|
|
100.00
|
%
|
|
|
798,707
|
|
|
|
100.00
|
%
|
Community operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repair and maintenance
|
|
|
93,501
|
|
|
|
5.77
|
%
|
|
|
65,394
|
|
|
|
8.19
|
%
|
Real estate taxes
|
|
|
90,498
|
|
|
|
5.58
|
%
|
|
|
42,178
|
|
|
|
5.28
|
%
|
Utilities
|
|
|
150,568
|
|
|
|
9.29
|
%
|
|
|
50,069
|
|
|
|
6.27
|
%
|
Insurance
|
|
|
27,622
|
|
|
|
1.70
|
%
|
|
|
21,086
|
|
|
|
2.64
|
%
|
General and administrative expense
|
|
|
133,279
|
|
|
|
8.22
|
%
|
|
|
66,566
|
|
|
|
8.33
|
%
|
Total community operating expenses
|
|
|
495,468
|
|
|
|
30.57
|
%
|
|
|
245,293
|
|
|
|
30.71
|
%
|
Corporate payroll and overhead
|
|
|
311,787
|
|
|
|
19.23
|
%
|
|
|
125,229
|
|
|
|
15.68
|
%
|
Depreciation and amortization expense
|
|
|
485,377
|
|
|
|
29.94
|
%
|
|
|
204,719
|
|
|
|
25.63
|
%
|
Interest expense
|
|
|
385,190
|
|
|
|
23.76
|
%
|
|
|
555,786
|
|
|
|
69.59
|
%
|
Total expenses
|
|
|
1,677,822
|
|
|
|
103.51
|
%
|
|
|
1,131,027
|
|
|
|
141.61
|
%
|
Net loss
|
|
$
|
(56,824
|
)
|
|
|
(3.51
|
)%
|
|
$
|
(332,320
|
)
|
|
|
(41.61
|
)%
|
Preferred stock dividends and put option value accretion
|
|
|
(432,845
|
)
|
|
|
(26.70
|
)%
|
|
|
(42,750
|
)
|
|
|
(5.35
|
)%
|
Net loss attributable to common stockholders
|
|
$
|
(489,669
|
)
|
|
|
(30.21
|
)%
|
|
$
|
(375,070
|
)
|
|
|
(46.96
|
)%
|
Revenues.
For the three months ended September 30, 2020, we had total revenues of $1,620,998, as compared to $798,707 for the three months
ended September 30, 2019, an increase of $822,291, or 102.9%. The increase in revenues between the periods was primarily due to
$621,013 of rental income from the acquisition of four manufactured housing communities subsequent to September 30, 2019.
Community Operating Expenses.
For the three months ended September 30, 2020, we had total community operating expenses of $495,468, as compared to $245,293 for
the three months ended September 30, 2019, an increase of $250,175, or 101.9%. The increase in community operating expenses was
primarily due to expenses related to the acquisition of four manufactured housing communities subsequent to September 30, 2019
totaling $223,052. Excluding the four acquisitions, our community operating expenses
increased by $27,123 due to additional repair and maintenance costs incurred during 2020 as we stabilized newly acquired communities.
Corporate Payroll and Overhead
Expenses. For the three months ended September 30, 2020, we had corporate payroll and overhead expenses of $311,787, as
compared to $125,229 for the three months ended September 30, 2019, an increase of $186,558. Such increase was primarily due to
additional audit fees due to our acquisition audits, and additional corporate personnel to support our growth.
Depreciation
and Amortization Expense. For the three months ended September 30, 2020, we had depreciation and amortization expense
of $485,377, as compared to $204,719 for the three months ended September 30, 2019, an increase of $280,658. The increase was
primarily due to the acquisition of four manufactured housing communities subsequent to September 30, 2019.
Interest
Expense. For the three months ended September 30, 2020, we had interest expense of $385,190, as compared to $555,786 for
the three months ended September 30, 2019, a decrease of $170,596. The decrease was primarily related to the refinancing of five
of our manufactured housing communities during the first quarter of 2019, and the payoff and termination of our related party
line of credit during the three months ended September 30, 2020.
Net
Loss. The factors described above resulted in a net loss of $56,824 for the three months ended September 30, 2020, as
compared to $332,320 for the three months ended September 30, 2019, a decrease of $275,496, or 82.9%.
Comparison
of Nine months Ended September 30, 2020 and 2019
The
following table sets forth key components of our results of operations during the nine months ended September 30, 2020 and 2019,
both in dollars and as a percentage of our revenues.
|
|
Nine months Ended
September 30,
2020
|
|
|
Nine months Ended
September 30,
2019
|
|
|
|
Amount
|
|
|
Percent of Revenues
|
|
|
Amount
|
|
|
Percent of Revenues
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental and related income
|
|
$
|
4,422,002
|
|
|
|
99.70
|
%
|
|
$
|
1,963,835
|
|
|
|
99.02
|
%
|
Management fees, related party
|
|
|
13,267
|
|
|
|
0.30
|
%
|
|
|
19,448
|
|
|
|
0.98
|
%
|
Total revenues
|
|
|
4,435,269
|
|
|
|
100.00
|
%
|
|
|
1,983,283
|
|
|
|
100.00
|
%
|
Community operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repair and maintenance
|
|
|
234,996
|
|
|
|
5.30
|
%
|
|
|
160,621
|
|
|
|
8.10
|
%
|
Real estate taxes
|
|
|
242,776
|
|
|
|
5.47
|
%
|
|
|
110,660
|
|
|
|
5.58
|
%
|
Utilities
|
|
|
402,124
|
|
|
|
9.07
|
%
|
|
|
130,744
|
|
|
|
6.59
|
%
|
Insurance
|
|
|
116,123
|
|
|
|
2.62
|
%
|
|
|
47,015
|
|
|
|
2.37
|
%
|
General and administrative expense
|
|
|
384,949
|
|
|
|
8.68
|
%
|
|
|
227,188
|
|
|
|
11.46
|
%
|
Total community operating expenses
|
|
|
1,380,968
|
|
|
|
31.14
|
%
|
|
|
676,228
|
|
|
|
34.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate payroll and overhead
|
|
|
1,065,624
|
|
|
|
24.03
|
%
|
|
|
587,463
|
|
|
|
29.62
|
%
|
Depreciation and amortization expense
|
|
|
1,357,629
|
|
|
|
30.61
|
%
|
|
|
496,966
|
|
|
|
25.06
|
%
|
Interest expense
|
|
|
1,288,699
|
|
|
|
29.06
|
%
|
|
|
1,076,254
|
|
|
|
54.27
|
%
|
Refinancing costs
|
|
|
-
|
|
|
|
-
|
|
|
|
552,272
|
|
|
|
27.85
|
%
|
Total expenses
|
|
|
5,092,920
|
|
|
|
114.83
|
%
|
|
|
3,389,183
|
|
|
|
170.89
|
%
|
Net loss
|
|
$
|
(657,651
|
)
|
|
|
(14.83
|
)%
|
|
$
|
(1,405,900
|
)
|
|
|
(70.89
|
)%
|
Preferred stock dividends and put option value accretion
|
|
|
(1,355,217
|
)
|
|
|
(4.58
|
)%
|
|
|
(90,834
|
)
|
|
|
-
|
|
Net loss attributable to common stockholders
|
|
$
|
(2,012,868
|
)
|
|
|
(45.38
|
)%
|
|
$
|
(1,496,734
|
)
|
|
|
(75.46
|
)%
|
Revenues.
For the nine months ended September 30, 2020, we had total revenues of $4,435,269, as compared to $1,983,283 for the nine months
ended September 30, 2019, an increase of $2,451,986, or 123.6%. The increase in revenues between the periods was primarily due
to $1,672,227 of rental income from the acquisition of four manufactured housing communities subsequent to September 30, 2019.
Community Operating Expenses.
For the nine months ended September 30, 2020, we had total community operating expenses of $1,380,968, as compared to $676,228
for the nine months ended September 30, 2019, an increase of $704,740, or 104.2%. The increase in community operating expenses
was primarily due to expenses related to the acquisition of four manufactured housing communities subsequent to September 30, 2019
totaling $568,672. Excluding the four acquisitions, our community operating expenses increased by $136,068 due to additional repair
and maintenance costs incurred during 2020 as we stabilized newly acquired communities.
Corporate
Payroll and Overhead Expenses. For the nine months ended September 30, 2020, we had corporate payroll and overhead expenses
of $1,065,624, as compared to $587,463 for the nine months ended September 30, 2019, an increase of $478,161. Such increase was
primarily due to additional audit fees due to our acquisition audits, and additional corporate personnel to support our growth.
Depreciation
and Amortization Expense. For the nine months ended September 30, 2020, we had depreciation and amortization expense of
$1,357,629, as compared to $496,966 for the nine months ended September 30, 2019, an increase of $860,663. The increase was primarily
due to the acquisition of four manufactured housing communities subsequent to September 30, 2019.
Interest
Expense. For the nine months ended September 30, 2020, we had interest expense of $1,288,699, as compared to $1,076,254
for the nine months ended September 30, 2019, an increase of $212,445. The increase was primarily comprised of $407,346 related
to new debt associated with our acquisition of four manufactured housing communities subsequent to September 30, 2019. This was
offset from the refinancing of five of our manufactured housing communities during the first quarter of 2019, and the payoff and
termination of our related party line of credit during the three months ended September 30, 2020.
Refinancing
Expenses. During the nine months ended September 30, 2019, we refinanced a total of $4,940,750 from our current loans
payable to $8,241,000 of new notes payable from five of our ten existing communities, resulting in an additional loan payable
of $3,320,859. We used the additional loans payable proceeds from the refinance to retire our convertible note payable of $2,754,550
plus accrued interest and recorded a loss of $552,272 on the refinancing. As of September 30, 2019, the Company wrote off mortgage
costs of $68,195 and capitalized $110,039 of mortgage costs due to the refinancing.
Net
Loss. The factors described above resulted in a net loss of $657,651 for the nine months ended September 30, 2020, as
compared to $1,405,900 for the nine months ended September 30, 2019, a decrease of $748,249, or 53.2%.
Liquidity
and Capital Resources
As
of September 30, 2020, we had cash and cash equivalents of $2,099,390, including restricted cash of $371,826. In addition to cash
generated through operations, we use a variety of sources to fund our cash needs, including acquisitions. We intend to continue
to increase our real estate investments. Our business plan includes acquiring communities that yield in excess of our cost of
funds and then investing in physical improvements, including adding rental homes onto otherwise vacant sites. Our ability to continue
acquiring communities are dependent on our ability to raise capital. There is no guarantee that any of these additional opportunities
will materialize or that we will be able to take advantage of such opportunities. The growth of our real estate portfolio depends
on the availability of suitable properties which meet our investment criteria and appropriate financing.
We
will require additional funding to finance the growth of our current and expected future operations as well as to achieve its
strategic objectives. We believe that our current available cash along with anticipated revenues will be sufficient to meet our
cash needs for the near future. There can be no assurance that financing will be available in amounts or terms acceptable to us,
if at all.
Summary
of Cash Flow
The
following table provides detailed information about our net cash flow for the period indicated:
Cash
Flow
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Net cash provided by (used in) operating activities
|
|
$
|
744,881
|
|
|
$
|
(503,110
|
)
|
Net cash used in investing activities
|
|
|
(1,721,594
|
)
|
|
|
(10,138,342
|
)
|
Net cash provided by (used in) financing activities
|
|
|
(1,070,308
|
)
|
|
|
11,912,272
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(2,047,021
|
)
|
|
|
1,270,820
|
|
Cash and cash equivalents at beginning of period
|
|
|
4,146,411
|
|
|
|
458,271
|
|
Cash and cash equivalent at end of period
|
|
$
|
2,099,390
|
|
|
$
|
1,729,091
|
|
Net cash provided by operating activities
was $744,881 for the nine months ended September 30, 2020, as compared to $503,110 net cash used in operating activities for the
nine months ended September 30, 2019. For the nine months ended September 30, 2020, the net loss of $657,651, offset by depreciation
and amortization in the amount of $1,357,629 and an increase in accrued liabilities in the amount of $25,415 were the primary drivers
of the net cash provided by operating activities. For the nine months ended September 30, 2019, the net loss of $1,405,900, a decrease
in other assets in the amount of $461,532 due to lender’s escrowed funds held by lender at closing to be released back to
us upon the completion of certain capital improvement projects, offset by depreciation and amortization in the amount of $504,542,
stock compensation expense in the amount of $329,700, an increase in accounts payable of $230,164, and accrued expenses in the
amount of $119,135, were the primary drivers of the net cash used in operating activities.
Net
cash used in investing activities was $1,721,594 for the nine months ended September 30, 2020, as compared to $10,138,342 for
the nine months ended September 30, 2019. Net cash used in investing activities for the nine months ended September 30, 2020 consisted
of the purchase of investment properties in the amount of $1,001,000 and capital improvements in the amount of $720,594, while
net cash used in investing activities for the nine months ended September 30, 2019 consisted entirely of the purchase of property.
Net
cash used in financing activities was $1,070,308 for the nine months ended September 30, 2020, as compared to $11,912,272 net
cash provided by financing activities for the nine months ended September 30, 2019. For the nine months ended September 30, 2020,
net cash used in financing activities consisted of repayment of related party notes payable of $1,730,000, repayment of notes
payable $641,733, preferred share dividends of $592,008, payment of mortgage costs recorded as debt discount of $244,167, repayment
of related party note of $192,326, offset by proceeds from issuance of preferred stock of $1,911,792 and proceeds from note payables
of $418,134. For the nine months ended September 30, 2019, net cash provided by financing activities consisted of proceeds from
notes payable in the amount of $18,481,076, proceeds from the issuance of preferred stock in the amount of $1,465,000, proceeds
from line of credit in the amount of $3,000,000, proceeds from issuance of common stock in the amount of $68,717 and proceeds
from related party note in the amount of $7,075, offset by repayment of notes payable in the amount of $7,898,248, repayment of
line of credit in the amount of $2,754,550, capitalized financing costs of $275,519, purchase of treasury stock in the amount
of $64,511 and preferred stock dividends in the amount of $43,334.
Regulation
A Offering
On
November 1, 2019, we launched an offering under Regulation A of Section 3(6) of the Securities Act for Tier 2 offerings, pursuant
to which we are offering up to 1,000,000 shares of Series B Preferred Stock at an offering price of $10.00 per share, for a maximum
offering amount of $10,000,000. In addition, we are offering bonus shares to early investors in this offering, whereby the first
400 investors will receive, in addition to Series B Preferred Stock, 100 shares of Common Stock, regardless of the amount invested,
for a total of 40,000 shares of Common Stock.
As
of September 30, 2020, we sold an aggregate of 615,291 shares of Series B Preferred Stock for total gross proceeds of $6,152,910.
After deducting a placement fee and other expenses, we received net proceeds of $5,722,206.
Promissory
Notes
The
Company has issued promissory notes payable to lenders related to the acquisition of its manufactured housing communities. These
promissory notes range from 3.3% to 7.0% with 5 to 30 years principal amortization. Two of the promissory notes had an initial
6 months period on interest only payments. The promissory notes are secured by the real estate assets and $7,397,468 for four
assets were guaranteed by Raymond M. Gee, the Company’s chairman, chief executive officer and owner of the principal stockholder
of the Company.
In addition, on May 1, 2020, the Company
received a $139,300 Paycheck Protection Program (the “PPP”) loan from the United States Small Business Administration
(the “SBA”) under provisions of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”).
The PPP loan has a two-year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments are deferred
for six months after the date of disbursement. The PPP loan may be prepaid at any time prior to maturity with no prepayment penalties.
The PPP loan contains events of default and other provisions customary for a loan of this type. The PPP provides that the loan
may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. The Company
used the proceeds from the PPP loan for qualifying expenses and applied for forgiveness of the PPP loan in accordance with the
terms of the CARES Act. However, the Company cannot provide assurance that the loan will be forgiven.
The following are terms of these notes:
|
|
Maturity
Date
|
|
Interest
Rate
|
|
|
Balance
09/30/20
|
|
|
Balance
12/31/19
|
|
Butternut MHP Land LLC
|
|
04/10/25
|
|
|
6.000
|
%
|
|
$
|
1,375,106
|
|
|
$
|
1,114,819
|
|
Butternut MHP Land LLC Mezz
|
|
04/01/27
|
|
|
7.000
|
%
|
|
|
-
|
|
|
|
280,013
|
|
Pecan Grove MHP LLC
|
|
02/22/29
|
|
|
5.250
|
%
|
|
|
3,054,267
|
|
|
|
3,095,274
|
|
Azalea MHP LLC
|
|
03/01/29
|
|
|
5.400
|
%
|
|
|
815,687
|
|
|
|
835,445
|
|
Holly Faye MHP LLC
|
|
03/01/29
|
|
|
5.400
|
%
|
|
|
579,825
|
|
|
|
574,096
|
|
Chatham MHP LLC
|
|
04/01/24
|
|
|
5.875
|
%
|
|
|
1,743,510
|
|
|
|
1,771,506
|
|
Lake View MHP LLC
|
|
03/01/29
|
|
|
5.400
|
%
|
|
|
1,838,780
|
|
|
|
1,857,266
|
|
B&D MHP LLC
|
|
04/25/29
|
|
|
5.500
|
%
|
|
|
1,827,754
|
|
|
|
1,854,788
|
|
Hunt Club MHP LLC
|
|
05/01/24
|
|
|
5.750
|
%
|
|
|
1,424,255
|
|
|
|
1,447,364
|
|
Crestview MHP LLC
|
|
07/31/24
|
|
|
5.500
|
%
|
|
|
4,105,637
|
|
|
|
4,173,652
|
|
Maple MHP LLC
|
|
01/01/23
|
|
|
5.125
|
%
|
|
|
2,636,854
|
|
|
|
2,688,653
|
|
Springlake MHP LLC
|
|
11/14/22
|
|
|
3.310
|
%
|
|
|
4,000,000
|
|
|
|
4,000,000
|
|
ARC MHP LLC
|
|
01/01/30
|
|
|
5.500
|
%
|
|
|
5,224,329
|
|
|
|
5,300,000
|
|
Countryside MHP LLC
|
|
03/20/50
|
|
|
5.500
|
%
|
|
|
3,000,000
|
|
|
|
-
|
|
Evergreen MHP LLC
|
|
04/01/32
|
|
|
3.990
|
%
|
|
|
1,140,341
|
|
|
|
-
|
|
PPP Loan
|
|
05/01/22
|
|
|
1.000
|
%
|
|
|
139,300
|
|
|
|
-
|
|
Totals note payables
|
|
|
|
|
|
|
|
|
32,905,645
|
|
|
|
28,992,876
|
|
Discount Direct Lender Fees
|
|
|
|
|
|
|
|
|
(746,560
|
)
|
|
|
(633,629
|
)
|
Total net of Discount
|
|
|
|
|
|
|
|
$
|
32,159,085
|
|
|
$
|
28,359,247
|
|
Metrolina
Promissory Note
On May 8, 2017, the Company issued a
promissory note to Metrolina Loan Holdings, LLC (“Metrolina”) in the principal amount of $3,000,000. The note is interest
only payment based on 8%, and 10% deferred until maturity to be paid with principal balance. The note originally awarded Metrolina
455,000 shares of Common Stock as consideration, which resulted in making Metrolina a related party due to its significant ownership.
During the year ended December 31, 2019, the Company paid off the entire balance on the note of $2,754,550 plus interest and amended
the agreement to allow for the redeployment of the $3,000,000 available, eliminated the conversion option whereby Metrolina could
convert the ratio of total outstanding debt at time of exercise of the option into an amount of newly issued shares of the Company’s
Common Stock determined by dividing the outstanding indebtedness by $3,000,000 multiplied by 10% with a cap of 864,500 shares.
The amendment resulted in issuing an additional 545,000 shares with a fair value of $305,200 for a total of 1,000,000 shares awarded
to Metrolina. The note gives Metrolina the right and option to purchase its pro rata share of debt or equity securities issued
to maintain up to 10% equity interest in the Company at the most recent price of any equity transaction for seven years from the
amendment dated February 26, 2019. This note matures in May of 2023. As of September 30, 2020 and December 31, 2019, the balance
on this note was $0 and $1,730,000, respectively. During the three months ended September 30, 2020, the Company paid off the full
balance and terminated the loan facility. The related party note was guaranteed by Mr. Gee, the Company’s Chief Executive
Officer.
Revolving
Promissory Note
On
October 1, 2017, the Company issued a revolving promissory note to Raymond M. Gee, the Company’s chairman and chief executive
officer, pursuant to which the Company may borrow up to $1,500,000 from Mr. Gee on a revolving basis for working capital purposes.
This note has a five-year term with no annual interest and principal payment is deferred until the maturity date. As of September
30, 2020, and December 31, 2019, the outstanding balance on this note was $605,580 and $797,906, respectively.
Off-Balance
Sheet Arrangements
As
of September 30, 2020, we had no off-balance sheet arrangements.
Critical
Accounting Policies
The
discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with United States generally accepted accounting principles (“GAAP”). The preparation
of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts
of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our
consolidated financial statements. Actual results may differ from these estimates under different assumptions or conditions.
Significant
accounting policies are defined as those that involve significant judgment and potentially could result in materially different
results under different assumptions and conditions. Management believes the following critical accounting policies are affected
by our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Revenue
Recognition. Our revenues primarily consist of rental revenues and fee and other income. We have the following revenue
sources and revenue recognition policies:
|
●
|
Rental
revenues include revenues from the leasing land lot or a combination of both, the mobile
home and land at our properties to tenants.
|
|
○
|
Revenues
from the leasing of land lot or a combination of both, the mobile home and land at our
properties to tenants include (i) lease components, including land lot or a combination
of both, the mobile home and land, and (ii) reimbursement of utilities and account for
the components as a single lease component in accordance with Accounting Standards Codification
(“ASC”) 842.
|
|
○
|
Revenues
derived from fixed lease payments are recognized on a straight-line basis over the non-cancelable
period of the lease. We commence rental revenue recognition when the underlying asset
is available for use by the lessee. Revenue derived from the reimbursement of utilities
are generally recognized in the same period as the related expenses are incurred. Our
leases are month-to-month.
|
|
●
|
Fee
and other income include late fees, violation fees and other revenue arising from contractual
agreements with third parties. This revenue is recognized as the services are transferred
in accordance with ASC 606.
|
|
●
|
Mobile
home sale revenues are recognized in accordance with Topic 606 of the Financial Accounting
Standards Board (“FASB”) ASC for revenue recognition. On January 1, 2018,
we adopted Accounting Standards Update (“ASU”) 2014-09, which is a comprehensive
new revenue recognition model that requires revenue to be recognized in a manner to depict
the transfer of goods or services to a customer at an amount that reflects the consideration
expected to be received in exchange for those goods or services. We consider revenue
realized or realizable and earned when all the five following criteria are met: (1) identification
of the contract with a customer, (2) identification of the performance obligations in
the contract, (3) determination of the transaction price, (4) allocation of the transaction
price to the performance obligations in the contract, and (5) recognition of revenue
when (or as) we satisfy a performance obligation.
|
Under
ASC 842, we must assess on an individual lease basis whether it is probable that we will collect the future lease payments. We
consider the tenant’s payment history and current credit status when assessing collectability. When collectability is not
deemed probable, we write-off the tenant’s receivables, including straight-line rent receivable, and limit lease income
to cash received.
Investment
Property and Equipment and Depreciation. Property and equipment are carried at cost. Depreciation for Sites and Building
is computed principally on the straight-line method over the estimated useful lives of the assets (ranging from 15 to 25 years).
Depreciation of Improvements to Sites and Buildings, Rental Homes and Equipment and Vehicles is computed principally on the straight-line
method over the estimated useful lives of the assets (ranging from 3 to 25 years). Land Development Costs are not depreciated
until they are put in use, at which time they are capitalized as Sites and Land Improvements. Interest Expense pertaining to Land
Development Costs are capitalized. Maintenance and Repairs are charged to expense as incurred and improvements are capitalized.
The costs and related accumulated depreciation of property sold or otherwise disposed of are removed from the financial statement
and any gain or loss is reflected in the current year’s results of operations.
Impairment
Policy. The Company applies FASB ASC 360-10, “Property, Plant & Equipment,” to measure impairment in real
estate investments. Rental properties are individually evaluated for impairment when conditions exist which may indicate that
it is probable that the sum of expected future cash flows (on an undiscounted basis without interest) from a rental property is
less than the carrying value under its historical net cost basis. These expected future cash flows consider factors such as future
operating income, trends and prospects as well as the effects of leasing demand, competition and other factors. Upon determination
that a permanent impairment has occurred, rental properties are reduced to their fair value. For properties to be disposed of,
an impairment loss is recognized when the fair value of the property, less the estimated cost to sell, is less than the carrying
amount of the property measured at the time there is a commitment to sell the property and/or it is actively being marketed for
sale. A property to be disposed of is reported at the lower of its carrying amount or its estimated fair value, less its cost
to sell. Subsequent to the date that a property is held for disposition, depreciation expense is not recorded. There was no impairment
during the nine months ended September 30, 2020 and 2019.
Stock-Based
Compensation. All stock based payments to employees, nonemployee consultants, and to nonemployee directors for their services
as directors, including any grants of restricted stock and stock options, are measured at fair value on the grant date and recognized
in the statements of operations as compensation or other expense over the relevant service period in accordance with FASB ASC
Topic 718. Stock based payments to nonemployees are recognized as an expense over the period of performance. Such payments are
measured at fair value at the earlier of the date a performance commitment is reached or the date performance is completed. In
addition, for awards that vest immediately and are nonforfeitable the measurement date is the date the award is issued. The Company
recorded stock option expense of $1,724 and $24 during the nine months ended September 30, 2020 and 2019, respectively.
Fair
Value of Financial Instruments. The Company follows paragraph 825-10-50-10 of the FASB ASC for disclosures about fair
value of its financial instruments and paragraph 820-10-35-37 of the FASB ASC to measure the fair value of its financial instruments.
Paragraph 820-10-35-37 establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements.
To increase consistency and comparability in fair value measurements and related disclosures, paragraph 820-10-35-37 establishes
a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into broad levels. The
fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities
and the lowest priority to unobservable inputs.
Income Taxes. We account
for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine
deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and
liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a
change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making
such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable
temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine
that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an
adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. We record uncertain
tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more likely
than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions
that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent
likely to be realized upon ultimate settlement with the related tax authority. We recognize and interest and penalties, if any,
with income tax expense in the accompanying consolidated statement of operations. As of September 30, 2020 and December 31, 2019,
there were no such accrued interest or penalties.
Recent
Accounting Pronouncements
In
June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments.” ASU 2016-13 requires that entities use a new forward looking “expected loss”
model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit
losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability
of the reported amount. ASU No. 2016-13 is effective for annual reporting periods, including interim reporting periods within
those periods, beginning after December 15, 2022. The Company adopted this standard on January 1, 2020. The adopted of this standard
had no impact on the unaudited condensed consolidated financial statements.
In
March 2019, the FASB issued ASU No. 2019-01, “Leases (Topic 842): Codification Improvements.” ASU 2019-01 aligns the
guidance for fair value of the underlying asset by lessors with existing guidance in Topic 842. The ASU requires that the fair
value of the underlying asset at lease commencement is its cost reflecting in volume or trade discounts that may apply. However,
if there has been a significant lapse of time between the date the asset was acquired and the lease commencement date, the definition
of fair value as outlined in Topic 820 should be applied. In addition, the ASU exempts both lessees and lessors from having to
provide certain interim disclosures in the fiscal year in which a company adopts the new leases standard. The update is effective
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company has evaluated
the impact this standard had on the consolidated financial statements and determined that it had no impact on the consolidated
financial statements.
In August 2020, the FASB issued ASU 2020-06
“Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity”,
which simplifies the guidance for certain convertible debt instruments by removing the separation models for convertible debt with
a cash conversion feature or convertible instruments with a beneficial conversion feature. As a result, convertible debt instruments
will be reported as a single liability instrument with no separate accounting for embedded conversion features. Additionally, ASU
2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method
will be no longer available. The provisions of ASU 2020-06 are applicable for fiscal years beginning after December 15, 2023, with
early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the
potential impact this standard may have on the consolidated financial statements.
Management
does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
effect on the accompanying unaudited condensed consolidated financial statements.
|
ITEM
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|
Not
applicable.
|
ITEM
4.
|
CONTROLS
AND PROCEDURES.
|
Evaluation
of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures
refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or
submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and
forms of the Securities and Exchange Commission and that such information is accumulated and communicated to our management, including
our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
As
required by Rule 13a-15(e) of the Exchange Act, our management has carried out an evaluation, with the participation and under
the supervision of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of
our disclosure controls and procedures, as of September 30, 2020. Based upon, and as of the date of this evaluation, our chief
executive officer and chief financial officer determined that, because of the material weaknesses described in Item 9A “Controls
and Procedures” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and further referenced below,
which we are still in the process of remediating as of September 30, 2020, our disclosure controls and procedures were not effective.
Changes
in Internal Control Over Financial Reporting
We
regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve
controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include
such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.
During
its evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2020, our management
identified the following material weaknesses:
|
●
|
We
lack proper segregation of duties due to the limited number of employees within the accounting
department.
|
|
●
|
We
lack effective closing procedures.
|
To
mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions,
along with the use of legal and accounting professionals. As we grow, we expect to increase our number of employees, which will
enable us to implement adequate segregation of duties within the internal control framework.
Our
management has identified the steps necessary to address the material weaknesses, and implemented the following remedial procedures:
|
●
|
We
have implemented dual signatures and approvals on all payments.
|
|
●
|
We
have added and plan to continue to add additional employees to assist in the financial
closing procedures.
|
|
●
|
As
necessary, we will continue to engage consultants or outside accounting firms in order
to ensure proper accounting for our consolidated financial statements.
|
We
intend to complete the remediation of the material weaknesses discussed above as soon as practicable but we can give no assurance
that we will be able to do so. Designing and implementing an effective disclosure controls and procedures is a continuous effort
that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to devote
significant resources to maintain a financial reporting system that adequately satisfies our reporting obligations. The remedial
measures that we have taken and intend to take may not fully address the material weaknesses that we have identified, and material
weaknesses in our disclosure controls and procedures may be identified in the future. Should we discover such conditions, we intend
to remediate them as soon as practicable. We are committed to taking appropriate steps for remediation, as needed.
Other than in connection with the implementation
of the remedial measures described above, there were no changes in our internal controls over financial reporting during the third
quarter of fiscal 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
PART
II
OTHER
INFORMATION
|
ITEM
1.
|
LEGAL
PROCEEDINGS.
|
From
time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business.
However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time
to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have
a material adverse effect on our business, financial condition or operating results.
Not
applicable.
|
ITEM
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
|
We
have not sold any equity securities during the three months ended September 30, 2020 that were not previously disclosed in a current
report on Form 8-K that was filed during the quarter.
During
the three months ended September 30, 2020, we did not repurchase any shares of our common stock.
|
ITEM
3.
|
DEFAULTS
UPON SENIOR SECURITIES.
|
None.
|
ITEM
4.
|
MINE
SAFETY DISCLOSURES.
|
Not
applicable.
|
ITEM
5.
|
OTHER
INFORMATION.
|
We have no information to disclose
that was required to be in a report on Form 8-K during the third quarter of fiscal year 2020 but was not reported. There have
been no material changes to the procedures by which security holders may recommend nominees to our board of directors.
*Filed
herewith
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Date: November 10, 2020
|
MANUFACTURED HOUSING PROPERTIES
INC.
|
|
|
|
/s/ Raymond
M. Gee
|
|
Name: Raymond M. Gee
|
|
Title: Chief Executive Officer
|
|
(Principal Executive Officer)
|
|
|
|
|
|
/s/ Michael
Z. Anise
|
|
Name: Michael Z. Anise
|
|
Title: President and Chief Financial Officer
|
|
(Principal Financial and Accounting Officer)
|
Exhibit
31.1
CERTIFICATIONS
I,
Raymond M. Gee, certify that:
|
1.
|
I
have reviewed this quarterly report on Form 10-Q of Manufactured Housing Properties Inc.;
|
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report;
|
|
3.
|
Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
|
|
4.
|
The
registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a)
|
Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b)
|
Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
|
|
|
c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based
on such evaluation; and
|
|
d)
|
Disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
|
|
5.
|
The
registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):
|
|
a)
|
All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
|
|
b)
|
Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
|
Date:
November 10, 2020
|
/s/
Raymond M. Gee
|
|
Raymond M. Gee
|
|
Chief Executive Officer
|
|
(Principal
Executive Officer)
|
Exhibit
31.2
CERTIFICATIONS
I,
Michael Z. Anise, certify that:
|
1.
|
I
have reviewed this quarterly report on Form 10-Q of Manufactured Housing Properties Inc.;
|
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report;
|
|
3.
|
Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
|
|
4.
|
The
registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a)
|
Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b)
|
Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
|
|
|
c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based
on such evaluation; and
|
|
d)
|
Disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
|
|
5.
|
The
registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):
|
|
a)
|
All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
|
|
b)
|
Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
|
Date:
November 10, 2020
|
/s/ Michael Z. Anise
|
|
Michael Z. Anise
|
|
President and Chief Financial Officer
|
|
(Principal Financial and Accounting Officer)
|
Exhibit
32.1
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
The
undersigned Chief Executive Officer of MANUFACTURED HOUSING PROPERTIES INC. (the “Company”), DOES HEREBY CERTIFY that:
|
1.
|
The
Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 (the “Report”), fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
|
2.
|
Information
contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
|
IN
WITNESS WHEREOF, the undersigned has executed this statement on November 10, 2020.
|
/s/
Raymond M. Gee
|
|
Raymond M. Gee
|
|
Chief
Executive Officer
|
|
(Principal Executive Officer)
|
A
signed original of this written statement required by Section 906 has been provided to Manufactured Housing Properties Inc. and
will be retained by Manufactured Housing Properties Inc. and furnished to the Securities and Exchange Commission or its staff
upon request.
The
forgoing certification is being furnished to the Securities and Exchange Commission pursuant to § 18 U.S.C. Section 1350.
It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated
by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation
language in such filing.
Exhibit
32.2
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
The
undersigned Chief Financial Officer of MANUFACTURED HOUSING PROPERTIES INC. (the “Company”), DOES HEREBY CERTIFY that:
|
1.
|
The
Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 (the “Report”), fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
|
2.
|
Information
contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
|
IN
WITNESS WHEREOF, the undersigned has executed this statement on November 10, 2020.
|
/s/
Michael Z. Anise
|
|
Michael Z. Anise
|
|
President
and Chief Financial Officer
|
|
(Principal
Financial and Accounting Officer)
|
A
signed original of this written statement required by Section 906 has been provided to Manufactured Housing Properties Inc. and
will be retained by Manufactured Housing Properties Inc. and furnished to the Securities and Exchange Commission or its staff
upon request.
The
forgoing certification is being furnished to the Securities and Exchange Commission pursuant to § 18 U.S.C. Section 1350.
It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated
by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation
language in such filing.
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