NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 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%
|
January 2019
|
|
MHP Pursuits LLC
|
|
100%
|
April 2019
|
|
Hunt Club MHP, LLC
|
|
100%
|
May 2019
|
|
B&D MHP, LLC
|
|
100%
|
July 2019
|
|
Crestview MHP, 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
nine months ended September 30, 2019, 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
SEPTEMBER 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 September 30, 2019 and 2018 totaled
541,334 and 698,000 stock options, respectively, 586,000 and 0
convertible Preferred Series A shares, respectively, and 0 and
786,695 shares under convertible notes payable, 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
SEPTEMBER 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
September 30, 2019 and December 31, 2018, the Company had
approximately $855,600 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
$24,524 and $24,724 during the nine months ended September 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
SEPTEMBER 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 December 15, 2018. Early
adoption is permitted. The Company has evaluated the potential
impact this standard may have on the consolidated financial
statements and determined that it had no impact on the consolidated
financial statements.
In 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 December 15, 2020. 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
SEPTEMBER 30, 2019
The Company’s working capital has been provided by operating
activities and a related party note. As of September 30, 2019, the
related party entity with a common ownership to the Company’s
CEO loaned the Company $824,273 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 $1,477,000 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 $824,273. 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
|
$7,933,521
|
$4,357,950
|
Site
and Land Improvements
|
12,029,524
|
6,781,845
|
Buildings
and Improvements
|
3,000,635
|
1,441,222
|
Acquisition
Cost
|
316,488
|
140,758
|
|
23,280,168
|
12,721,775
|
Less: accumulated depreciation and amortization
|
(1,172,132)
|
(669,184)
|
|
$22,108,036
|
$12,022,591
|
Depreciation and amortization expense totaled $204,719 and $133,563
for the three months ended September 30, 2019, and 2018,
respectively, and $496,966 and $399,547 for the nine months ended
September 30, 2019, and 2018, respectively.
During the nine months ended September 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 three manufactured housing communities during the
nine months ended September 30, 2019 totaling
$4,483,648.
As of September 30, 2019, the Company wrote off mortgage cost of
$68,195 and capitalized $275,519 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
nine months ended September 30, 2019, the Company entered into
promissory notes payable to lenders related to the acquisition of
three manufactured housing communities.
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 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 September 30, 2019, the Company wrote off
mortgage costs of $68,195 and capitalized $275,519 of mortgage
costs due to the refinancing.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
Except for a 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 promissory notes are secured by the
Company’s real estate assets. 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, Metrolina Loan Holdings, LLC (“Metrolina”),
455,000 shares of common stock as consideration, which resulted in
making Metrolina a related party due to its significant ownership.
The line of credit is guaranteed by the owner of the principal
stockholder of the Company. During the nine months ended September
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 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 line of credit gives Metrolina 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 the most
recent price of any equity transaction for seven years from the
amendment dated February 26, 2019. As of September 30, 2019, the
balance on the line of credit was $3,000,000.
The following are terms of the Company’s secured outstanding
debt:
|
|
|
|
|
Butternut
MHP Land LLC
|
03/30/20
|
6.500%
|
$1,119,829
|
$1,134,971
|
Butternut
MHP Land LLC Mezz
|
04/01/27
|
7.000%
|
281,781
|
287,086
|
Pecan
Grove MHP LLC
|
11/04/26
|
4.500%
|
3,117,922
|
1,270,577
|
Azalea
MHP LLC
|
11/10/27
|
5.000%
|
834,405
|
598,571
|
Holly
Faye MHP LLC
|
10/01/38
|
4.000%
|
579,825
|
462,328
|
Chatham
MHP LLC
|
12/01/22
|
5.125%
|
1,776,993
|
1,366,753
|
Lake
View MHP LLC
|
12/01/22
|
5.125%
|
1,863,444
|
1,222,521
|
B&D
MHP LLC
|
04/25/29
|
5.500%
|
1,797,065
|
2,743,303
|
Hunt
Club MHP LLC
|
05/01/24
|
5.750%
|
1,411,930
|
-
|
Crestview MHP
LLC
|
07/31/24
|
5.750%
|
4,186,887
|
-
|
Maple
MHP LLC
|
01/01/23
|
5.125%
|
2,698,858
|
-
|
Totals
note payables
|
|
|
19,668,938
|
9,086,110
|
|
|
|
|
Convertible
notes payable(*)
|
12/12/21
|
18.000%
|
3,000,000
|
2,754,550
|
Related
Party notes payable
|
12/31/20
|
(**)
|
824,273
|
890,632
|
Total
convertible note and notes payable including related
party
|
|
|
$23,493,211
|
$12,731,292
|
(*) This agreement was amended during 2019 to eliminate the
conversion option making this a non-convertible note payable
starting January 1, 2019.
(**) As of September 30, 2019, a related party entity with a common
ownership to the Company’s CEO loaned the Company $824,273
for working capital. The note has a three-year term with no annual
interest and principal payments are deferred to maturity date. For
the nine month ended September 30, 2019 and 2018, the Company
recorded imputed interest related to the note of $40,733 and
$31,286, respectively.
Maturities of Long Term Obligations for Five Years and
Beyond
The minimum annual principal payments of notes payable at September
30, 2019 by fiscal year were:
2019
|
$220,007
|
2020
|
1,776,870
|
2021
|
307,816
|
2022
|
1,522,098
|
2023
and Thereafter
|
19,666,420
|
Total
minimum principal payments
|
$23,493,211
|
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
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 redeemable preferred Series A Cumulative
Convertible Preferred Stock (the “Series A Preferred
Stock”) totaling $1,465,000 during the nine months ended
September 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 nine months ended
September 30, 2019, the Company paid $43,334 of Series A Preferred
dividends distribution and recorded a put option cost of
$47,500.
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. The Company designated 4,000,000
shares as Series A preferred stock.
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
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.
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. 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.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
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.
The Company issued redeemable preferred Series A Preferred Stock
totaling $1,465,000 during the nine months ended September 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 nine months ended
September 30, 2019, the Company paid $43,334 of Series A Preferred
dividends distribution and recorded a put option cost of
$47,500.
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, 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
nine months ended September 30, 2019. During the nine months ended
September 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 February 2019, the Company issued an additional 545,000 shares
of common stock for services to Metrolina 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
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.
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.
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 $24 and $245 during
the nine months ended September 30, 2019 and 2018,
respectively.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
The following table summarizes the stock options outstanding as of
September 30, 2019:
|
|
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 September 30, 2019
|
541,334
|
$0.01
|
8.25
|
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, 2019. As of September 30,
2019, there were 477,000 “in-the-money” options with an
aggregate intrinsic value of $477,230.
The following table summarizes information concerning options
outstanding as of September 30, 2019.
|
Outstanding stock
options
|
Weighted average remaining contractual term (in years)
|
Weighted average outstanding strike price
|
|
Weighted average vested strike price
|
$0.01
|
541,334
|
8.25
|
$0.01
|
477,000
|
$0.01
|
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.
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 September 30, 2019, an entity with a common ownership to the
Company’s founder loaned the Company $824,273 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 $40,733 and $31,286 for the nine months
ended September 30, 2019 and 2018, respectively.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
During the year ended December 31, 2017, the Company entered into a
debt agreement for a revolving line of credit with Metrolina. 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 Metrolina 455,000 shares of common
stock as consideration, which resulted in making Metrolina a
related party due to its significant ownership. The line of credit
is guaranteed by the owner of the principal stockholder of the
Company. During the nine months ended September 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 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 line of credit gives Metrolina 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 the most
recent price of any equity transaction for seven years from the
amendment dated February 26, 2019. In June 2019, Metrolina
exercised this option and the Company issued an additional 254,506
shares of common stock for cash of $68,717.
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 nine months ended September 30, 2019, the Company
recorded $19,448 in revenues related to property management
consulting services provided to an entity with common ownership as
the CEO of the Company.
During the nine months ended September 30, 2019, the
Company’s founder received a $50,000 fee for his personal
guarantee on a promissory note related to one of the
Company’s acquisitions.
NOTE 8 – ACQUISITIONS
The Company had three acquisitions during the nine months ended
September 30, 2019 totaling 289 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.
Acquisition
Date
|
Name
|
|
|
|
|
|
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
|
July,
2019
|
Crestview
MHP
|
991,750
|
2,975,250
|
1,533,000
|
53,057
|
5,553,057
|
|
Total
|
$2,331,250
|
$6,100,813
|
$1,533,000
|
$284,814
|
$10,249,877
|
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.
|
9/30/2019
Consolidated
I/S
|
Hunt Club 1/1/2019 – 4/1/2019
|
|
Crestview
1/1/2019 – 7/31/2019
|
|
Total
Revenue
|
$1,983,283
|
$96,143
|
$128,254
|
$439,802
|
$2,647,482
|
Total
Expenses
|
3,389,183
|
76,123
|
35,676
|
160,921
|
3,661,903
|
Preferred stock dividends
|
90,834
|
|
|
|
90,834
|
Net Income
(Loss)
|
$(1,496,734)
|
$20,020
|
$92,578
|
$278,881
|
$(1,110,255)
|
Net loss per
share
|
|
|
|
|
$(0.09)
|
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
NOTE 9 – SUBSEQUENT EVENTS
On August 5, 2019, MHP Pursuits LLC entered into a purchase
agreement with CSC Warner Robins, a Georgia limited liability
company, for the purchase 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.
On
October 3, 2019, the Company repurchased 553,888 shares of common
stock for a total of $57,500 due to a settlement from an advisory
service agreement.