NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2019
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. Mobile Home
Rental Holdings (“MHRH”) was formed in April 2016 to
acquire the assets for Pecan Grove MHP in November 2016 and
Butternut MHP in April 2017. To continue the acquisition and
aggregation of mobile home parks, MHRH intend to raise capital in
the public markets. Therefore, on October 21, 2017, MHRH was
acquired by and merged with a public entity Stack-it Storage, Inc.
(OTC: STAK). As part of the merger transaction, Stack-it Storage,
Inc. changed its name to Manufactured Housing Properties Inc. (OTC:
MHPC).
For accounting purposes, this transaction was accounted for as a
reverse merger and has been treated as a recapitalization of
Stack-it Storage, Inc. with Manufactured Housing Properties, Inc.
as the accounting acquirer.
Basis of Presentation
The Company prepares its consolidated financial statements under
the accrual basis of accounting, in conformity with accounting
principles generally accepted in the United States of America
(“GAAP”).
The Company’s subsidiaries are all formed in the state of
North Carolina as limited liability companies, except for Butternut
MHP Land LLC and Lakeview MHP LLC, which were formed in the States
of Delaware and South Carolina, respectively. The acquisition and
date of consolidation are as follows:
|
Date of Consolidation
|
|
Subsidiary
|
|
Ownership
|
|
October 2016*
|
|
Pecan Grove MPH LLC
|
|
100%
|
|
April 2017
|
|
Butternut MHP Land LLC
|
|
100%
|
|
November 2017
|
|
Azalea MHP LLC
|
|
100%
|
|
November 2017
|
|
Holly Faye MHP LLC
|
|
100%
|
|
November 2017
|
|
Chatham Pines MHP LLC
|
|
100%
|
|
November 2017
|
|
Lakeview MHP LLC
|
|
100%
|
|
December 2017
|
|
Maple Hills MHP LLC
|
|
100%
|
|
April 2019
|
|
Hunt Club MHP, LLC
|
|
100%
|
|
May 2019
|
|
B&D MHP, LLC
|
|
100%
|
|
January 31, 2019
|
|
MHP Pursuits LLC
|
|
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.
Revenue Recognition
The Company follows Topic 606 of the Financial Accounting Standards
Board Accounting (“FASB”) Accounting Standards
Codification (“ASC”) for revenue recognition and
Accounting Standards Update (“ASU”) 2014-09. On January
1, 2018, the Company adopted ASU 2014-09, which is a comprehensive
new revenue recognition model that requires revenue to be
recognized in a manner to depict the transfer of goods or services
to a customer at an amount that reflects the consideration expected
to be received in exchange for those goods or services. The Company
considers revenue realized or realizable and earned when all the
five following criteria are met: (1) 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) the
Company satisfies a performance obligation. Results for reporting
periods beginning after January 1, 2018 are presented under ASU
2014-09, while prior period amounts are not adjusted and continue
to be reported under the previous accounting standards. There was
no impact to revenues as a result of applying ASU 2014-09 for the
six months ended June 30, 2018, and there have not been any
significant changes to the Company’s business processes,
systems, or internal controls as a result of implementing the
standard.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2019
The Company recognizes rental income revenues on a monthly basis
based on the terms of the lease agreement which are for either the
land or a combination of both, the mobile home and land. Home sales
revenues are recognized upon the sale of a home with an executed
sales agreement. The Company has deferred revenues from home lease
purchase options and records those option fees as deferred revenues
and then records them as revenues when (1) the lease purchase
option term is completed and title has been transferred, or (2) the
leaseholder defaults on the lease terms resulting in a termination
of the agreement which allows us to keep any payments as liquidated
damages.
Accounts Receivable
Accounts receivable consist primarily of amounts currently due from
residence. Accounts receivables are reported in the balance sheet
at outstanding principal adjusted for any charge-offs and the
allowance for losses. The Company records an allowance for bad debt
when receivables are over 90 days old.
Acquisitions
The Company accounts for 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 June 30, 2019 and 2018 totaled 541,334
and 698,000 stock options, respectively, and 570,000 and 0
convertible Preferred Series A shares, respectively, which are
not included in dilutive loss per share as the effect would be
anti-dilutive.
Use of Estimates
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period.
The Company’s significant accounting estimates and
assumptions affecting the consolidated financial statements were
the estimates and assumptions used in valuation of equity and
derivative instruments. Those significant accounting estimates or
assumptions bear the risk of change due to the fact that there are
uncertainties attached to those estimates or assumptions, and
certain estimates or assumptions are difficult to measure or
value.
Management bases its estimates on historical experience and on
various assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources.
Management regularly reviews its estimates utilizing currently
available information, changes in facts and circumstances,
historical experience and reasonable assumptions. After such
reviews, and if deemed appropriate, those estimates are adjusted
accordingly. Actual results could differ from those estimates.
Significant estimates include the assumptions used in valuing
equity-based transactions, valuation of deferred tax assets,
depreciable lives of property and equipment and valuation of
investment property.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2019
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.
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
June 30, 2019 and December 31, 2018, the Company had approximately
$762,000 and $0 above the FDIC-insured limit,
respectively.
Stock Based Compensation
All stock based payments to employees, nonemployee consultants, and
to nonemployee directors for their services as directors, including
any grants of restricted stock and stock options, are measured at
fair value on the grant date and recognized in the statements of
operations as compensation or other expense over the relevant
service period 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
$16 and $245 during the six months ended June 30, 2019 and 2018,
respectively.
Fair Value of Financial Instruments
The Company follows paragraph 825-10-50-10 of the FASB ASC for
disclosures about fair value of our financial instruments and
paragraph 820-10-35-37 of the FASB ASC to measure the fair value of
our financial instruments. Paragraph 820-10-35-37 establishes a
framework for measuring fair value in GAAP and expands disclosures
about fair value measurements. To increase consistency and
comparability in fair value measurements and related disclosures,
paragraph 820-10-35-37 establishes a fair value hierarchy which
prioritizes the inputs to valuation techniques used to measure fair
value into broad levels. The fair value hierarchy gives the highest
priority to quoted prices (unadjusted) in active markets for
identical assets or liabilities and the lowest priority to
unobservable inputs.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2019
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, 2019. The Company is
currently evaluating the potential impact this standard may have on
the consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
“Leases.” ASU 2016-02 amends the existing accounting
standards for lease accounting, including requiring lessees to
recognize most leases on their balance sheets and making targeted
changes to lessor accounting. The standard requires a modified
retrospective transition approach for all leases existing at, or
entered into after, the date of initial application, with an option
to use certain transition relief. ASU 2016-02 will be effective for
annual reporting periods beginning after January 1, 2019. Early
adoption is permitted. The Company has evaluated the potential
impact this standard may have on the consolidated financial
statements and determined that it had no impact on the consolidated
financial statements.
In June 2018, the FASB issued ASU 2018-07 “Compensation
– Stock Compensation (Topic 718): Improvements to Nonemployee
Share-Based Payment Accounting.” This ASU relates to the
accounting for non-employee share-based payments. The amendment in
this ASU expands the scope of Topic 718 to include all share-based
payment transactions in which a grantor acquired goods or services
to be used or consumed in a grantor’s own operations by
issuing share-based payment awards. The ASU excludes share-based
payment awards that relate to (1) financing to the issuer or (2)
awards granted in conjunction with selling goods or services to
customers as part of a contract accounted for under Topic 606,
Revenue from Contracts from Customers. The share-based payments are
to be measured at grant-date fair value of the equity instruments
that the entity is obligated to issue when the good or service has
been delivered or rendered and all other conditions necessary to
earn the right to benefit from the equity instruments have been
satisfied. This standard will be effective for public business
entities for fiscal years beginning after December 15, 2018,
including interim periods within that fiscal year. For all other
entities, the amendments are effective for fiscal years beginning
after December 15, 2019, and interim periods within fiscal years
beginning after January 1, 2019. Early adoption is permitted, but
no earlier than an entity’s adoption of Topic 606. 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.
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 condensed consolidated
financial statements.
NOTE 2 – GOING CONCERN
The ability of the Company to continue its operations as a going
concern is dependent on management’s plans, which include the
raising of capital through debt and/or equity markets with some
additional funding from other traditional financing sources,
including term notes, until such time that funds provided by
operations are sufficient to fund working capital requirements.
There is substantial doubt about the Company’s ability to
continue as a going concern.
The Company will require additional funding to finance the growth
of its current and expected future operations as well as to achieve
its strategic objectives. The Company believes its current
available cash along with anticipated revenues may be insufficient
to meet its cash needs for the near future. There can be no
assurance that financing will be available in amounts or terms
acceptable to the Company, if at all. The accompanying unaudited
condensed consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of
business. These unaudited condensed consolidated financial
statements do not include any adjustments relating to the recovery
of the recorded assets or the classification of the liabilities
that might be necessary should the Company be unable to continue as
a going concern.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2019
The Company’s working capital has been provided by operating
activities and a related party note. As of June 30, 2019, the
related party entity with a common ownership to the Company’s
CEO loaned the Company $878,567 for costs related to reorganization
and working capital. The related party note has a five-year term
with no annual interest and principal payments are deferred to
maturity date for a total credit line of $1.5 million. Except for
the line of credit, generally, promissory notes on acquisitions
range from 4.5% to 7.0% with 20 to 25 years principal amortization.
Two of the promissory notes had an initial 6 months period on
interest only payments. The line of credit is interest only payment
based on 8%, and 10% deferred until maturity to be paid with
principal balance. The Company plans to meet its short-term
liquidity requirements of approximately $770,000 for the next
twelve months, generally through available cash as well as net cash
provided by operating activities and availability under the
existing $1.5 million related party line of credit of which total
outstanding note of $878,567. The Company also has availability
from lenders under loan agreements for capital expenditure needs on
acquisitions. The Company expects these resources to help the
Company meet operating working capital requirements. The ability of
the Company to continue its operations as a going concern is
dependent on management’s plans, which include raising of
capital through debt and/or equity markets with some additional
funding from other traditional financing sources, including term
notes.
NOTE 3 – FIXED ASSETS
Property and equipment consists of the following as
of:
|
|
|
|
|
Land
|
$
7,727,771
|
$
4,357,950
|
|
Site
and Land Improvements
|
8,123,820
|
6,781,845
|
|
Buildings
and Improvements
|
1,457,395
|
1,441,222
|
|
Acquisition
Cost
|
268,430
|
140,758
|
|
|
17,577,416
|
12,721,775
|
|
Less: accumulated depreciation and amortization
|
(959,837
)
|
(669,184
)
|
|
|
$
16,617,579
|
$
12,022,591
|
Depreciation and amortization expense totaled $157,321 and $133,162
for the three months ended June 30, 2019, and 2018, respectively,
and $292,247 and $265,984 for the six months ended June 30, 2019,
and 2018, respectively.
During the six months ended June 30, 2019 the Company acquired the
25% minority interest in Pecan Grove MHP LLC resulting in an
additional asset write up to land of $244,321. The Company also
acquired two manufactured housing communities during the six months
ended June 30, 2019 totaling $4,483,648.
As of June 30, 2019, the Company wrote off mortgage cost of $68,195
and capitalized $227,461 of mortgage cost related to the two
acquisition and the refinancing from five of our nine existing
communities.
NOTE 4 – PROMISSORY NOTES
During the years ended December 31, 2017 and 2016, the company
entered into promissory notes payable to lenders related to the
acquisition of seven manufactured housing communities. During the
six months ended June 30, 2019, the Company entered into promissory
notes payable to lenders related to the acquisition of two
manufactured housing communities.
During the six months ended June 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 ten existing communities, resulting
in an additional loan payable of $3,320,859. The Company used the
additional loans payable proceeds from the refinance to retire its
convertible note payable of $2,754,550 plus accrued interest. As of
June 30, 2019, the Company wrote off mortgage costs of $68,195 and
capitalized $227,461 of mortgage costs due to the refinancing.
During the three months ended June 30, 2019, the Company had
additional notes payable totaling $3,306,649 relating to the two
acquisitions and the refinancing. As of June 30, 2019, the
outstanding loan balances are $15,542,820.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2019
Except for the line of credit, generally, the promissory notes
range from 4.5% to 7.0% with 20 to 25 years principal amortization.
Two of the promissory notes had an initial 6 months period on
interest only payments. The line of credit is interest only payment
based on 8%, and 10% deferred until maturity to be paid with
principal balance. The line of credit originally awarded the lender
455,000 shares of common stock as compensation, which resulted in
making the lender a related party due to its significant ownership.
The promissory notes are secured by the real estate assets, and the
line of credit is guaranteed by the owner of the principal
stockholder of the Company. During the six months ended June 30,
2019, the Company paid off the entire balance on the line of credit
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 the lender 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
equal 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
the lender. As of June 30, 2019, the balance on the line of credit
was $1,270,000.
The line of credit gives the lender an option to purchase up to 10%
of outstanding common shares at the most recent price of any equity
transaction
for seven years
from the amendment dated February 26, 2019
.
The following are terms of the Company’s secured outstanding
debt:
|
|
Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Butternut MHP Land
LLC
|
3/30/20
|
6.500
%
|
$
1,124,755
|
$
1,134,971
|
|
Butternut MHP Land
LLC Mezz
|
4/1/27
|
7.000
%
|
283,550
|
287,086
|
|
Pecan Grove MHP
LLC
|
11/4/26
|
4.500
%
|
3,133,037
|
1,270,577
|
|
Azalea MHP
LLC
|
11/10/27
|
5.000
%
|
838,821
|
598,571
|
|
Holly Faye MHP
LLC
|
10/1/38
|
4.000
%
|
579,825
|
462,328
|
|
Chatham MHP
LLC
|
12/1/22
|
5.125
%
|
1,785,048
|
1,366,753
|
|
Lake View MHP
LLC
|
12/1/22
|
5.125
%
|
1,869,263
|
1,222,521
|
|
B&D MHP
LLC
|
4/25/29
|
5.500
%
|
1,869,261
|
2,743,303
|
|
Hunt Club MHP
LLC
|
5/1/24
|
5.750
%
|
1,345,411
|
-
|
|
Maple MHP
LLC
|
1/1/23
|
5.125
%
|
2,713,849
|
$
-
|
|
Totals note
payables
|
|
|
15,542,820
|
9,086,110
|
|
|
|
|
|
|
Convertible notes
payable
|
12/12/21
|
18.000
%
|
1,270,000
|
2,754,550
|
|
Related Party notes
payable
|
12/31/20
|
(*)
|
878,567
|
890,632
|
|
Total convertible
note and notes payable including related party,
net
|
|
|
$
17,691,387
|
$
12,731,292
|
(*) As of June 30, 2019, a related party entity with a common
ownership to the Company’s CEO loaned the Company $878,567
for working capital. The note has a three-year term with no annual
interest and principal payments are deferred to maturity date. For
the six month ended June 30, 2019 and 2018, the Company recorded
imputed interest related to the note of $27,861 and $19,316,
respectively.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2019
Maturities of Long Term Obligations for Five Years and
Beyond
The minimum annual principal payments of notes payable at June 30,
2019 by fiscal year were:
|
2019
|
$
220,007
|
|
2020
|
1,776,870
|
|
2021
|
307,816
|
|
2022
|
1,522,098
|
|
2023
and Thereafter
|
13,864,596
|
|
Total
minimum principal payments
|
$
17,691,387
|
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.
The Company issued Series A Redeemable Preferred Stock totaling
$1,425,000 during the six months ended June 30, 2019.
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 six months ended June 30, 2019, the
Company paid $24,334 of Series A Preferred dividends distribution
and recorded a put option cost of $23,750.
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 six months ended June 30, 2019, the
Company paid $24,334 of Series A Preferred dividends distribution
and recorded a put option cost of $23,750.
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.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2019
Stockholder Optional Conversion
. Holders of shares of Series
A Preferred Stock may at any time convert shares of Series A
Preferred Stock in full, but not in part, into shares of common
stock at a conversion rate of $2.50 per share. In the event that
such conversion might result in the issuance of a fractional share,
the number of shares of common stock issued to the holder shall be
rounded up to the nearest whole number.
Company Call and Stockholder Put Options
.
Commencing on
the fifth anniversary of the initial issuance of shares of 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 six months ended June 30, 2019, the Company paid $24,334 of
Series A Preferred dividends distribution and recorded a put option
cost of $23,750.
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 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 June 30, 2019, that Company has issued 570,000 shares of
Series A Preferred Stock for a total of $1,425,000 in cash. As of
June 30, 2019, the Company owed preferred distributions totaling
$9,500 for the month of June 2019 that were paid on July 1,
2019.
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 June 30, 2019, there
were 12,799,568 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, of which $24,500 was expensed during the
six months ended June 30, 2019. During the six months ended June
30, 2019, the Company purchased back into treasury the 350,000
shares for a total of $64,511 due to the termination of the
advisory service agreement with the investment bank.
In January 2019, the Company issued 2,000,000 shares of common
stock to Gvest Real Estate to acquire the 25% minority interest in
Pecan Grove, which were valued at the historical cost value of
$537,562.
In February 2019, the Company issued an additional 545,000 shares
of stock for services to Metrolina
Loan Holdings, LLC
(“Metrolina”)
, the same
lender under an amendment to the line of credit facility agreement,
with a fair value of $305,200.
Stock issued for Cash
In June 2019, the Company issued an additional 254,506 shares of
stock for cash of $68,717 to Metrolina, the same lender under an
amendment to the line of credit facility agreement, pursuant to
which Metrolina exercised its option to purchase the additional
shares to maintain up to 10% ownership of the Company’s
outstanding common stock at a purchase price equal to the most
recent price of any equity transaction of the Company.
Stock Split
In March 2018, the Company completed a 1-for-6 reverse split of its
outstanding shares of common stock resulting in the reduction of
the total outstanding common stock from 60,000,000 shares to
10,000,062 shares. The condensed consolidated financial statements
have been retroactively adjusted to reflect the stock
split.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2019
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.
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. All of
the options are exercisable at a purchase price of $0.01 per
share.
The Company recorded stock option expense of $16 and $245 during
the six months ended June 30, 2019 and 2018,
respectively.
The following table summarizes the stock options outstanding as of
June 30, 2019 and 2018:
|
|
|
Weighted average exercise price (per share)
|
Weighted average remaining contractual term (in years)
|
|
Outstanding
at December 31, 2018
|
541,334
|
$
0.01
|
9.0
|
|
Granted
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
|
Forfeited
/ cancelled / expired
|
-
|
-
|
-
|
|
Outstanding
at June 30, 2019
|
541,334
|
$
0.01
|
8.5
|
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 June 30, 2019. As of June 30, 2019,
there were 377,000 “in-the-money” options with an
aggregate intrinsic value of $373,230.
The following table summarizes information concerning options
outstanding as of June 30, 2019 and December 31, 2018.
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
|
|
|
|
Risk-free
interest rate
|
-
|
1.95
%
|
|
Expected
dividend yield
|
-
|
0.00
%
|
|
Expected
volatility
|
-
|
16.71
%
|
|
Expected
life of options (in years)
|
-
|
9.0
|
Non-Controlling Interest
Prior to January 1, 2019, the Company owned 75% of membership
interest in Pecan Grove MHP LLC. The remaining 25% was owned by
unaffiliated non-controlling investors.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2019
In January 2019, the Company issued 2,000,000 shares of common
stock to Gvest Real Estate to acquire the 25% minority interest in
Pecan Grove, which were valued at the historical cost value of
$537,562.
NOTE 7 RELATED PARTY TRANSACTIONS
As of June 30, 2019, an entity with a common ownership to the
Company’s founder loaned the Company $878,567 for
reorganization costs and working capital. The note has a five-year
term with no annual interest and principal payments are deferred to
maturity date. The Company recorded an In-kind contribution of
interest in the amount of $27,861 and $19,316 for the six months
ended June 30, 2019 and 2018, respectively.
During the year ended December 31, 2017, the Company entered into a
debt agreement with Metrolina for a revolving line of credit. The
line of credit is interest only payment based on 8%, and 10%
deferred until maturity to be paid with principal balance. The line
of credit is personally guaranteed by the owner of the principal
stockholder of the Company. The line of credit originally awarded
the lender 455,000 shares of common stock as consideration of the
note. During the three months ended June 30, 2019, the Company paid
off the entire balance on the line of credit 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
the lender 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 equal 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 the lender. The line of credit
gives the lender the right and option to purchase it’s pro
rata share of debt or equity securities issued to maintain up to
10% equity interest in the Company at a price equal to the most
recent price of any equity transaction of the Company for seven
years from the amendment dated February 26, 2019.
In June 2019, the Company issued an additional 254,506 shares of
common stock for cash of $68,717 to Metrolina, the same lender
under an amendment to the line of credit facility agreement,
pursuant to which Metrolina exercised its option to purchase up to
10% of outstanding common stock of the Company at a price equal to
the most recent price of any equity transaction of the
Company.
In January 2019, the Company issued 2,000,000 shares of common
stock to Gvest Real Estate to acquire the 25% minority interest in
Pecan Grove, which were valued at the historical cost value of
$537,562.
During the six months ended June 30, 2019, the Company recorded
$15,284 in revenues related to property management consulting
services provided to an entity with common ownership as the CEO of
the Company.
During the six months ended June 30, 2019, the Company’s
founder received a $50,000 fee for his personal guarantee on the
promissory note relating to a loan for one of our acquisitions. the
fee was recorded as a loan cost and is amortized over the five year
life of the loan.
NOTE 8 – ACQUISITIONS
The Company had two acquisitions during the six months ended June
30, 2019 totaling 176 sites. These were asset acquisitions from
third parties and have been accounted for as asset acquisitions.
The
acquisition date
estimated fair value was determined by third party
appraisals.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April,
2019
|
Hunt
Club MHP
|
$
589,500
|
$
1,375,500
|
$
-
|
$
140,296
|
$
2,105,296
|
|
|
|
|
|
|
|
|
May,
2019
|
B&D
MHP
|
750,000
|
1,750,063
|
-
|
91,461
|
2,591,461
|
|
|
|
|
|
|
|
|
|
Total
|
$
1,339,500
|
$
3,125,563
|
$
-
|
$
231,757
|
$
4,696,820
|
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2019
Pro-forma Financial Information
The following unaudited pro-forma information presents the combined
results of operations for the periods as if the above acquisitions
of manufactured housing communities had been completed on January
1, 2019.
|
|
6/30/2019
Consolidated
I/S
|
Hunt
Club 1/1/2019 – 4/1/2019
|
|
|
|
|
|
|
|
|
|
Total
Revenue
|
$
1,184,576
|
$
96,143
|
$
128,254
|
$
1,408,973
|
|
|
|
|
|
|
|
|
2,258,156
|
76,123
|
35,676
|
2,369,955
|
|
|
|
|
|
|
Preferred stock
dividends
|
48,084
|
-
|
-
|
48,084
|
|
|
|
|
|
|
|
Net Income
(Loss)
|
(1,121,664
)
|
20,020
|
92,578
|
(1,009,066
)
|
Net Loss per
common share, basic and diluted
|
|
|
|
$
(0.08
)
|
NOTE 9 – SUBSEQUENT EVENTS
On March 1, 2019, MHP Pursuits LLC, a wholly-owned subsidiary of
the Company, entered into a purchase and sale contract with
Crestview, LLC and A & A Construction Enterprises, LLC for the
purchase of a manufactured housing community known as Crestview
Estates Mobile Home Park, which is located in East Flat Rock, North
Carolina and totals 113 sites, for a total purchase price of $5.5
million with a note payable of $4,200,000. Closing of this
acquisition was completed on July 31, 2019.
On July 31, 2019,
the Company drew an additional $1,730,000 from its line of credit
with Metrolina Loan Holdings, LLC to complete the acquisitions of
Crestview, LLC and A&A Construction Enterprises,
LLC.
Effective August 1, 2019, MHP Pursuits LLC entered into a purchase
and sale agreement with The ARC Investment Trust, a South Carolina
trust, for the purchase, subject due diligence, of five
manufactured housing communities, which are located in South
Carolina and total 181 sites, for a total purchase price of $6.5
million.
On August 5, 2019, MHP Pursuits LLC entered into a purchase
agreement with CSC Warner Robins, a Georgia limited liability
company, for the purchase, subject to due diligence, of a
manufactured housing community known as Spring Lake Mobile Home
Park, which is located in Georgia and totals 225 sites, for a total
purchase price of $5.3 million.