Filed
Pursuant to Rule 253(g)(2)
File
No. 024-10997
Supplement
No. 1 to Offering Circular dated November 1, 2019
Manufactured Housing Properties Inc.
136
Main Street
Pineville,
NC 28134
(980)
273-1702;www.mhproperties.com
This Offering
Circular Supplement No. 1 (the “Supplement”) relates to
the Offering Circular of Manufactured Housing Properties Inc. (the
“Company”), dated November 1, 2019 (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 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. The
first 400 investors will receive, in addition to Series B
Cumulative Redeemable 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 is qualified by reference to the Offering
Circular except to the extent that the information contained herein
supplements or supersedes the information contained in the Offering
Circular, and may not be delivered without the Offering
Circular.
This Supplement
includes the attached (i) Quarterly Report on Form 10-Q filed by
the Company with the Securities and Exchange Commission on November
12, 2019, (ii) Current Report on Form 8-K filed with the Securities
and Exchange Commission on November 15, 2019 and (iii) Current
Report on Form 8-K filed with the Securities and Exchange
Commission on November 20, 2019 (the “Forms”). The
exhibits to the Forms 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 15 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. 1 to Offering Circular is November 21,
2019.
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, 2019
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). ☒
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 12,
2019, there were 12,245,680
common shares of the registrant issued and outstanding.
Manufactured Housing Properties
Inc.
Quarterly
Report on Form 10-Q
Period Ended September 30,
2019
TABLE
OF CONTENTS
PART I
FINANCIAL INFORMATION
PART II
OTHER INFORMATION
FINANCIAL INFORMATION
ITEM
1.
FINANCIAL
STATEMENTS.
MANUFACTURED
HOUSING PROPERTIES INC.
UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
MANUFACTURED HOUSING PROPERTIES INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
AS
OF SEPTEMBER 30, 2019 AND DECEMBER 31, 2018
|
|
|
Assets
|
|
|
Investment
Property
|
|
|
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
|
Total
Investment Property
|
23,280,168
|
12,721,775
|
Accumulated
Depreciation and Amortization
|
(1,172,132)
|
(699,184)
|
Net
Investment Property
|
22,108,036
|
12,022,591
|
|
|
|
Cash
and Cash Equivalents
|
1,729,091
|
458,271
|
Accounts
Receivable, net
|
34,081
|
12,987
|
Other
Assets
|
561,004
|
99,472
|
|
|
|
Total
Assets
|
$24,432,212
|
$12,593,321
|
|
|
|
Liabilities
|
|
|
Accounts
Payable
|
$301,255
|
$71,091
|
Loans
Payable
|
19,668,938
|
9,086,110
|
Loans
Payable - related party
|
824,273
|
890,632
|
Note
Payable - related party
|
3,000,000
|
-
|
Convertible
Note Payable - related party
|
-
|
2,754,550
|
Accrued
Liabilities and Deposits
|
731,954
|
612,819
|
Tenant
Security Deposits
|
224,072
|
131,149
|
Total
Liabilities
|
24,750,492
|
13,546,351
|
|
|
|
Commitments and contingent liabilities (see note 5)
|
|
|
Redeemable
preferred stock Series A – subject to redemption
|
|
|
Preferred
Stock, 4,000,000 designated Series A par value $0.01 per share;
586,000 and zero shares issued and outstanding as of September 30,
2019 and December 31, 2018, respectively; redemption value
$2,137,500
|
1,512,500
|
-
|
|
|
|
Stockholders’ (Deficit)
|
|
|
Preferred
Stock, par value $0.01 per share; 10,000,000 shares
authorized
|
-
|
-
|
Common Stock, par value $0.01 per share;
200,000,000 shares authorized; 12,799,568 and 10,350,062 shares issued and outstanding as of
September 30, 2019 and December 31, 2018,
respectively
|
127,995
|
103,500
|
Additional
Paid in Capital
|
1,248,463
|
451,567
|
Retained
Earnings (accumulated deficit)
|
(3,207,238)
|
(1,801,338)
|
Total
Manufactured Housing Properties Inc. Stockholders’ Equity
(Deficit)
|
(1,830,780)
|
(1,246,271)
|
|
|
|
Non-controlling
interest
|
-
|
293,241
|
Total
(Deficit)
|
(1,830,780)
|
(953,030)
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT)
|
$24,432,212
|
$12,593,321
|
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, 2019 AND
2018
(UNAUDITED)
|
Three Months
Ended September 30,
|
Nine Months Ended
September 30,
|
|
|
|
|
|
Revenue
|
|
|
|
|
Rental
and Related Income
|
$794,543
|
$513,753
|
$1,963,835
|
$1,511,834
|
Management
fees, related party
|
4,164
|
-
|
19,448
|
-
|
Total
Revenues
|
798,707
|
513,753
|
1,983,283
|
1,511,834
|
|
|
|
|
|
Community
Operating Expenses
|
|
|
|
|
Repair
& Maintenance
|
65,394
|
35,772
|
160,621
|
112,637
|
Real
estate taxes
|
42,178
|
24,436
|
110,660
|
62,731
|
Utilities
|
50,069
|
34,965
|
130,744
|
109,056
|
Insurance
|
21,086
|
10,284
|
47,015
|
41,065
|
General
and Administrative Expense
|
66,566
|
92,672
|
227,188
|
344,819
|
Total
Community Operating Expenses
|
245,293
|
198,129
|
676,228
|
670,308
|
|
|
|
|
|
Corporate
Payroll and Overhead
|
125,228
|
253,260
|
587,463
|
528,738
|
Depreciation
& Amortization Expense
|
204,719
|
133,563
|
496,966
|
399,547
|
Interest
expense
|
555,786
|
242,538
|
1,076,254
|
738,950
|
Refinancing
costs
|
-
|
-
|
552,272
|
-
|
|
|
|
|
|
Total
Expenses
|
1,131,027
|
827,490
|
3,389,183
|
2,337,543
|
|
|
|
|
|
Net
loss before provision for income taxes
|
(332,320)
|
(313,737)
|
(1,405,900)
|
(825,709)
|
|
|
|
|
|
Provision
for income taxes
|
-
|
-
|
-
|
-
|
Net
Loss
|
$(332,320)
|
$(313,737)
|
$(1,405,900)
|
$(825,709)
|
|
|
|
|
|
Net
Income attributable to the noncontrolling interest
|
-
|
12,276
|
-
|
30,034
|
|
|
|
|
|
Net
Loss attributable to the Company
|
$(332,320)
|
$(326,013)
|
$(1,405,900)
|
$(855,743)
|
|
|
|
|
|
Preferred stock
dividends
|
|
|
|
|
Series
A preferred
|
19,000
|
-
|
43,334
|
-
|
Series
A preferred put option cost
|
23,750
|
-
|
47,500
|
-
|
Total
preferred stock dividends
|
42,750
|
-
|
90,834
|
-
|
Net loss attributable to common
stockholders
|
$(375,070)
|
$(285,674)
|
$(1,496,734)
|
$(529,730)
|
|
|
|
|
|
Weighted
Average Shares Basic and Fully Diluted
|
12,799,568
|
10,000,000
|
12,738,962
|
10,000,000
|
|
|
|
|
|
Weighted
Average Basic
|
$(0.03)
|
$(0.03)
|
$(0.12)
|
$(0.09)
|
Weighted
Average Fully Diluted
|
$(0.03)
|
$(0.03)
|
$(0.12)
|
$(0.09)
|
See Accompanying
Notes to Unaudited Condensed Consolidated Financial
Statements
MANUFACTURED HOUSING PROPERTIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(DEFICIT)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND
2018
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2018
|
-
|
$-
|
10,000,062
|
$100,000
|
$238,803
|
$302,580
|
$(504,945)
|
$136,438
|
Stock
option expense
|
-
|
-
|
-
|
-
|
245
|
-
|
-
|
245
|
Minority
Interest distributions
|
-
|
-
|
-
|
-
|
-
|
(4,498)
|
-
|
(4,498)
|
Net
Income (Loss)
|
-
|
-
|
-
|
-
|
-
|
7,572
|
(244,056)
|
(236,484)
|
Balance
at March 31, 2018
|
-
|
-
|
10,000,062
|
100,000
|
239,048
|
305,654
|
(749,001)
|
(104,299)
|
Minority
Interest distributions
|
-
|
-
|
-
|
-
|
-
|
(19,509)
|
-
|
(19,509)
|
Imputed
Interest
|
-
|
-
|
-
|
-
|
19,316
|
-
|
-
|
19,316
|
Net
Income (Loss)
|
-
|
-
|
-
|
-
|
-
|
10,186
|
(285,674)
|
(275,488)
|
Balance
at June 30, 2018
|
|
|
10,000,062
|
100,000
|
258,364
|
296,331
|
(1,034,675)
|
(379,980)
|
Minority
Interest distributions
|
|
|
-
|
-
|
-
|
(6,751)
|
-
|
(6,751)
|
Imputed
Interest
|
|
|
-
|
-
|
11,970
|
-
|
-
|
11,970
|
Stock issued for
services
|
|
|
|
|
24,500
|
|
|
24,500
|
Net
Income (Loss)
|
|
|
-
|
-
|
-
|
12,276
|
(326,013)
|
(313,737)
|
Balance
at September 30, 2018
|
-
|
$-
|
10,000,062
|
$100,000
|
$294,834
|
$301,856
|
$(1,360,688)
|
$(663,998)
|
|
|
|
|
|
|
|
|
|
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
|
-
|
-
|
2,000,000
|
20,000
|
517,562
|
(293,241)
|
-
|
244,321
|
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
|
-
|
-
|
12,895,062
|
128,950
|
1,302,724
|
-
|
(2,520,652)
|
(1,088,978)
|
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 dividends
|
-
|
-
|
-
|
-
|
(19,667)
|
-
|
-
|
(19,667)
|
Preferred
shares Series A put option
|
|
|
-
|
-
|
(23,750)
|
-
|
-
|
(23,750)
|
Net
Loss
|
-
|
-
|
-
|
-
|
-
|
-
|
(354,266)
|
(354,2660)
|
Balance
at June 30, 2019
|
-
|
-
|
12,799,568
|
127,995
|
1,278,333
|
-
|
(2,874,918)
|
(1,468,590)
|
Stock
option expense
|
-
|
-
|
-
|
-
|
8
|
-
|
-
|
8
|
Imputed
interest
|
-
|
-
|
-
|
-
|
12,872
|
-
|
-
|
12,872
|
Preferred
shares Series A dividends
|
-
|
-
|
-
|
-
|
(19,000)
|
-
|
-
|
(19,000)
|
Preferred
shares Series A put option
|
|
|
-
|
-
|
(23,750)
|
-
|
-
|
(23,750)
|
Net
Loss
|
-
|
-
|
-
|
-
|
-
|
-
|
(332,320)
|
(332,320)
|
Balance
at September 30, 2019
|
-
|
$-
|
12,799,568
|
$127,995
|
$1,248,463
|
$-
|
$(3,207,238)
|
$(1,830,780)
|
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, 2019 AND 2018
(UNAUDITED)
|
|
|
Cash
Flows From Operating Activities:
|
|
|
Net
Loss
|
$(1,405,900)
|
$(825,709)
|
Adjustments
to reconcile net loss to net cash (used in) provided by operating
activities:
|
|
|
Stock
option expense
|
24
|
24,745
|
Stock
compensation expense
|
329,700
|
-
|
Write
off of mortgage costs
|
68,195
|
-
|
Imputed
interest
|
40,733
|
31,286
|
Provision
for bad debts
|
23,820
|
58,192
|
Depreciation
& Amortization
|
504,542
|
399,547
|
Changes
in operating assets and liabilities:
|
|
|
Accounts
receivable
|
(44,914)
|
(16,582)
|
Other
assets
|
(461,532)
|
14,144
|
Accounts
payable
|
230,164
|
51,563
|
Accrued
expenses
|
119,135
|
294,199
|
Other
liabilities and deposits
|
92,923
|
32,715
|
Net
cash (used in) provided by operating activities
|
(503,110)
|
64,100
|
|
|
|
Cash
Flow From Investing Activities:
|
|
|
Proceeds
from sale of property
|
-
|
21,000
|
Purchase
of property
|
(10,138,342)
|
(148,720)
|
Net
cash used in investing activities
|
(10,138,342)
|
(127,720)
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
Proceeds
from related party note
|
7,075
|
363,332
|
Repayment
of notes payable
|
(7,898,248)
|
(181,650)
|
Proceeds
from notes payable
|
18,481,076
|
43,574
|
Non
controlling interest distributions
|
-
|
(30,758)
|
Proceeds
from issuance of Preferred Stock
|
1,465,000
|
-
|
Preferred
Stock Series A dividends
|
(43,334)
|
-
|
Proceeds
from issuance of common stock
|
68,717
|
-
|
Purchase
of treasury stock
|
(64,511)
|
-
|
Capitalized
financing cost
|
(275,519)
|
-
|
Repayment
of line of credit
|
(2,754,550)
|
-
|
Repayment
of notes payable – related party
|
(73,434)
|
-
|
Proceeds
from line of credit
|
3,000,000
|
-
|
Net
cash provided by financing activities
|
11,912,272
|
194,498
|
|
|
|
Net
change in cash and cash equivalents
|
1,270,820
|
130,878
|
Cash
and cash equivalents at beginning of the period
|
458,271
|
355,935
|
Cash
and cash equivalents at end of the period
|
$1,729,091
|
$486,813
|
|
|
|
Cash
paid for:
|
|
|
Income
Taxes
|
$-
|
$-
|
Interest
|
$577,769
|
$561,671
|
|
|
|
Non-Cash Investment and Financing Activities
|
|
|
Purchase
of minority interest in Pecan Grove
|
$537,562
|
$-
|
Non-cash
Preferred stock accretion
|
$45,500
|
$-
|
See Accompanying
Notes to Unaudited Condensed Consolidated Financial
Statements
MANUFACTURED HOUSING PROPERTIES INC.
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.
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, and Section
21E of the Securities Exchange Act of 1934, as amended, or 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,
2019, we own and operate ten manufactured housing communities
containing approximately 726 developed
sites, and a total of 261 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.
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
On
August 5, 2019, our wholly-owned subsidiary 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.
Results of Operations
Comparison of Three Months Ended September 30, 2019 and
2018
The following table
sets forth key components of our results of operations during the
three months ended September 30, 2019 and 2018, both in dollars and
as a percentage of our revenues.
|
Three Months
Ended September 30, 2019
|
Three Months
Ended September 30, 2018
|
|
|
|
|
|
Revenue
|
|
|
|
|
Rental
and related income
|
$794,543
|
99.48%
|
$513,753
|
100.00%
|
Management
fees, related party
|
4,164
|
0.52%
|
-
|
-
|
Total
revenues
|
798,707
|
100.00%
|
513,753
|
100.00%
|
Community
operating expenses
|
|
|
|
|
Repair
and maintenance
|
65,394
|
8.19%
|
35,772
|
6.96%
|
Real
estate taxes
|
42,178
|
5.28%
|
24,436
|
4.76%
|
Utilities
|
50,069
|
6.27%
|
34,965
|
6.81%
|
Insurance
|
21,086
|
2.64%
|
10,284
|
2.00%
|
General
and administrative expense
|
66,566
|
8.33%
|
92,672
|
18.04%
|
Total
community operating expenses
|
245,293
|
30.71%
|
198,129
|
38.57%
|
Corporate
payroll and overhead
|
125,228
|
15.68%
|
253,260
|
49.30%
|
Depreciation
and amortization expense
|
204,719
|
25.63%
|
133,563
|
26.00%
|
Interest
expense
|
555,786
|
69.59%
|
242,538
|
47.21%
|
Total
expenses
|
1,131,028
|
141.61%
|
827,490
|
161.07%
|
Net
loss
|
$(332,320)
|
(41.61%)
|
$(313,737)
|
(61.07%)
|
Net
income attributable to the noncontrolling interest
|
-
|
-
|
12,276
|
2.39%
|
Net
loss attributable to common stockholders
|
$(332,320)
|
(41.61%)
|
$(326,013)
|
(63.46%)
|
Revenues.
For the three months ended September 30, 2019, we had total
revenues of $798,707, as compared to $513,753 for the three months
ended September 30, 2018, an increase of $284,954, or 55.47%. The
increase in revenues between the periods was primarily due to
$290,077 of rental income from the acquisition of three
manufactured housing communities during the second and third
quarters of 2019.
Community
Operating Expenses. For the
three months ended September 30, 2019, we had total community
operating expenses of $245,293,
as compared to $198,129 for the three months ended September 30,
2018, an increase of $47,164, or 23.80%. The increase in community
operating expenses was primarily due to expenses related to the
acquisition of three manufactured housing communities during the
second and third quarters of 2019 totaling $123,244. Excluding the
three acquisitions, our community operating expenses decreased
resulting from a decrease in bad debt and the ramp up of
operational efficiencies.
Corporate
Payroll and Overhead Expenses.
For the three months ended September 30, 2019, we had corporate
payroll and overhead expenses of $125,228, as compared to $253,260
for the three months ended September 30, 2018, a decrease of
$128,032. Such decrease was primarily due to additional costs of
$62,512 related to expenses incurred for potential acquisitions
that were not completed during the three months ended September 30,
2018.
Depreciation
and Amortization Expense. For
the three months ended September 30, 2019, we had depreciation and
amortization expense of $204,719, as compared to $133,563 for the three months
ended September 30, 2018, an increase of $71,156, or 53.27%. The
increase was primarily due to the acquisition of three manufactured
housing communities during the second and third quarters of
2019.
Interest
Expense. For the three months
ended September 30, 2019, we had interest expense of
$555,786, as compared to
$242,538 for the three months ended September 30, 2018, an increase
of $313,248. The increase was primarily comprised of $134,166
related to the acquisition of three manufactured housing
communities during the second and third quarters of 2019, and the
remaining increase was due to the refinancing of five of our
manufactured housing communities during the first quarter of
2019.
Net
Loss. The factors described
above resulted in a net loss of $332,320 for the three months ended September 30, 2019, as
compared to $313,737 for the three months ended September 30, 2018,
an increase of $18,583, or 5.92%.
Comparison of Nine months ended September 30, 2019 and
2018
The following table
sets forth key components of our results of operations during the
nine months ended September 30, 2019 and 2018, both in dollars and
as a percentage of our revenues.
|
Nine Months Ended
September 30, 2019
|
Nine Months Ended
September 30, 2018
|
|
|
|
|
|
Revenue
|
|
|
|
|
Rental
and related income
|
$1,963,835
|
99.02%
|
$1,511,834
|
100.00%
|
Management
fees, related party
|
19,448
|
0.98%
|
-
|
|
Total
revenues
|
1,983,283
|
100.00%
|
1,511,834
|
100.00%
|
Community
operating expenses
|
|
|
|
|
Repair
and maintenance
|
160,621
|
8.10%
|
112,637
|
7.45%
|
Real
estate taxes
|
110,660
|
5.58%
|
63,731
|
7.32%
|
Utilities
|
130,744
|
6.59%
|
109,056
|
7.21%
|
Insurance
|
47,015
|
2.37%
|
41,065
|
2.72%
|
General
and administrative expense
|
227,188
|
11.46%
|
344,819
|
22.81%
|
Total
community operating expenses
|
676,228
|
34.10%
|
670,308
|
44.34%
|
Corporate
payroll and overhead
|
587,463
|
29.62%
|
528,738
|
34.97%
|
Depreciation
and amortization expense
|
496,966
|
25.06%
|
399,547
|
26.43%
|
Interest
expense
|
1,076,254
|
54.27%
|
738,950
|
48.88%
|
Refinancing
costs
|
552,272
|
27.85%
|
-
|
-
|
Total
expenses
|
3,389,183
|
170.89%
|
2,337,543
|
154.62%
|
Net
loss
|
$(1,405,900)
|
(70.89%)
|
$(825,709)
|
(54.62%)
|
Net
income attributable to the noncontrolling interest
|
-
|
|
30,034
|
1.99%
|
Net
loss attributable to common stockholders
|
$(1,405,900)
|
(70.89%)
|
$(855,743)
|
(56.60%)
|
Revenues.
For the nine months ended September 30, 2019, we had total revenues
of $1,983,283, as compared to $1,511,834 for the nine months ended
September 30, 2018, an increase of $471,449, or 31.18%. The
increase in revenues between the periods was primarily due to
$422,147 of rental income from the acquisition of three
manufactured housing communities during the second and third
quarters of 2019. The remaining increase was due to an average 10%
increase in occupancy and rental rates and we also recorded $19,448
of property management revenues from a related party in
2019.
Community
Operating Expenses. For the
nine months ended September 30, 2019, we had total community
operating expenses of $676,228, as compared to $670,308 for the
nine months ended September 30, 2018, a nominal increase of $5,920.
The increase in community operating expenses was primarily due
$131,620 of expenses from the acquisition of three manufactured
housing communities during the second and third quarters of 2019.
Excluding the three acquisitions, our community operating expenses
decreased resulting from a decrease in bad debt and the ramp up of
operational efficiencies.
Corporate
Payroll and Overhead Expenses.
For the nine months ended September 30, 2019, we had corporate
payroll and overhead expenses of $587,463, as compared to $528,738
for the nine months ended September 30, 2018, an increase of
$58,725. Such increase was primarily due to additional payroll to
support our growth and acquisitions.
Depreciation
and Amortization Expense. For
the nine months ended September 30, 2019, we had depreciation and
amortization expense of $496,966, as compared to $399,547 for the
nine months ended September 30, 2018, an increase of $97,419, or
24.38%. The increase was primarily due to the acquisition of three
manufactured housing communities during the second and third
quarters of 2019.
Interest
Expense. For the nine months
ended September 30, 2019, we had interest expense of $1,076,254, as
compared to $738,950 for the nine months ended September 30, 2018,
an increase of $337,304, or 45.64%. The increase was primarily
related to the three additional loans related to the three
acquisitions of manufactured housing communities during the second
and third quarters of 2019.
Refinancing
costs. During the nine months
ended September 30, 2019, we refinanced a total of $4,920,750 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. As of September 30, 2019, we
wrote off refinancing cost totaling $552,272.
Net
Loss. The factors described
above resulted in a net loss of $1,405,900 for the nine months
ended September 30, 2019, as compared to $855,743 for the nine
months ended September 30, 2018, an increase of $550,157, or
64.28%.
Liquidity and Capital Resources
As of September 30,
2019, we had cash and cash equivalents of $1,729,091. 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 may be insufficient 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. 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 we be unable to continue
as a going concern.
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,
|
|
|
|
Net
cash provided by (used in) operating activities
|
$(503,110)
|
$64,100
|
Net
cash used in investing activities
|
(10,138,342)
|
(127,720)
|
Net
cash provided by financing activities
|
11,912,272
|
194,498
|
Net
increase in cash and cash equivalents
|
1,270,820
|
130,878
|
Cash
and cash equivalents at beginning of period
|
458,271
|
355,935
|
Cash
and cash equivalent at end of period
|
$1,729,091
|
$486,813
|
Net cash used in
operating activities was $503,110 for the nine months ended
September 30, 2019, as compared to $64,100 net cash provided by
operating activities for the nine months ended September 30, 2018.
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
$329,724, 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. For the nine months ended
September 30, 2018, the net loss of $825,709, offset by
depreciation and amortization in the amount of $399,547 and an
increase in accrued expenses in the amount of $294,199, were the
primary drivers of the net cash provided by operating
activities.
Net cash used in
investing activities was $10,138,342 for the nine months ended
September 30, 2019, as compared to $127,720 for the nine months
ended September 30, 2018. Net cash used in investing activities for
the nine months ended September 30, 2019 consisted entirely of the
purchase of property, while net cash used in investing activities
for the nine months ended September 30, 2018 consisted of the
purchase of property in the amount of $148,720, offset by proceeds
of sale of property in the amount of $21,000.
Net cash provided
by financing activities was $11,912,272 for the nine months ended
September 30, 2019, as compared to $194,498 for the nine months
ended September 30, 2018. For the nine months ended September 30,
2019, net cash used in 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.
Promissory Notes
During the years
ended December 31, 2017, we entered into promissory notes payable
to lenders related to the acquisition of seven manufactured housing
communities. Generally, the interest rates on the promissory notes
range from 4.5% to 7.0% and have maturity dates ranging from March
2020 to October 2038. As of September 30, 2019, the outstanding
balance on these notes was $16,442,601. The promissory notes are
secured by the real estate assets. See Note 4 to our unaudited
condensed consolidated financial statements for more details
regarding these notes.
On May 8, 2017, we
issued a convertible promissory note to Metrolina Loan Holdings,
LLC, or Metrolina, in the principal amount of $3,000,000. The
convertible note is interest only payment based on 8%, and 10%
deferred until maturity to be paid with principal balance. The
convertible note originally awarded Metrolina 455,000 shares of
common stock as compensation, which resulted in making Metrolina a
related party due to its significant ownership. During the nine
months ended September 30, 2019, we paid off the entire balance on
the convertible 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 our 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. As of September 30, 2019, the balance on the convertible
note was $3,000,000. 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.
Off-Balance Sheet Arrangements
As
of September 30, 2019, 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 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. The Company
follows Topic 606 of the Financial Accounting Standards Board
Accounting, or FASB, Accounting Standards Codification, or ASC, for
revenue recognition and Accounting Standards Update, or 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. 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.
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.
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.
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 and $245 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.
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.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not
applicable.
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, 2019. 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, 2018 and further referenced below, which we
are still in the process of remediating as of September 30, 2019,
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, 2019, 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 in the third quarter of fiscal 2019, we continued to implement
the following remedial procedures:
●
Implemented dual
signatures and approvals on all payments.
●
Added 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 2019
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 third quarter of fiscal year 2019
that were not previously disclosed in a current report on Form 8-K
that was filed during the quarter.
During the three
month period ended September 30, 2019, 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 2019 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.
Exhibit
No.
|
|
Description
of Exhibit
|
|
|
Amended and
Restated Articles of Incorporation (incorporated by reference to
Exhibit 3.1 to the Registration Statement on Form 10 filed on April
19, 2018)
|
|
|
Certificate of
Designation of Series A Cumulative Convertible Preferred Stock
(incorporated by reference to Exhibit 2.2 to the Offering Statement
on Form 1-A filed on May 9, 2019)
|
|
|
Amended and
Restated Bylaws (incorporated by reference to Exhibit 3.2 to the
Registration Statement on Form 10 filed on April 19,
2018)
|
|
|
Purchase and Sale
Agreement, dated August 5, 2019, between MHP Pursuits LLC and CSC
Warner Robins (incorporated by reference to Exhibit 10.2 to the
Current Report on Form 8-K filed on August 6, 2019)
|
31.1*
|
|
Certifications of
Principal Executive Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
32.1*
|
|
Certifications of
Principal Financial Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
32.1*
|
|
Certifications of
Principal Executive Officer furnished pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
32.2*
|
|
Certifications of
Principal Financial Officer furnished pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
101.INS*
|
|
XBRL Instance
Document
|
101.SCH*
|
|
XBRL Taxonomy
Extension Schema Document
|
101.CAL*
|
|
XBRL Taxonomy
Extension Calculation Linkbase Document
|
101.DEF*
|
|
XBRL Taxonomy
Extension Definition Linkbase Document
|
101.LAB*
|
|
XBRL Taxonomy
Extension Label Linkbase Document
|
101.PRE*
|
|
XBRL Taxonomy
Extension Presentation Linkbase Document
|
______________
*Filed
herewith
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 12, 2019
|
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)
|
|
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): November 15, 2019
(November 11, 2019)
Manufactured Housing Properties Inc.
|
(Exact
name of registrant as specified in its charter)
|
Nevada
|
|
000-51229
|
|
51-0482104
|
(State
or other jurisdictionof 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))
|
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. [
]
Securities
registered pursuant to Section 12(b) of the Act: None
Entry into a Material Definitive Agreement.
Effective November 11, 2019, MHP Pursuits LLC (the
“Buyer”),
a wholly-owned subsidiary of Manufactured Housing Properties Inc.,
a Nevada corporation, entered into a purchase and sale agreement
(the “ARC Purchase
Agreement”) with The ARC
Investment Trust, a South Carolina trust (the
“Seller”)
for the asset purchase of 5 manufactured housing communities,
located in South Carolina, totaling 181 sites for a total purchase
price of $6.5
million.
The
ARC Purchase Agreement includes an earnest money deposit of
$15,000, which will be applied to the payment of the purchase price
at closing, and provides for a due diligence period of 40 days for
the completion of third-party reports.
The
ARC Purchase Agreement contains customary representations and
warranties. The closing of the ARC Purchase Agreement is subject to
customary closing conditions and delivery of customary closing
documents, including a special warranty deed for the ARC Property,
a Bill of Sale and General Assignment transferring the
Seller’s right, title and interest in the personal property,
intangible property, property files, warranties and licenses to the
Buyer, and an Assignment and Assumption Agreement, assigning to the
Buyer the Seller’s right, title and interest in all leases or
other rental or occupancy agreements for the ARC Property, and any
contract that the Buyer elects to assume.
The
foregoing summary of the terms and conditions of the ARC Purchase
Agreement does not purport to be complete and is qualified in its
entirety by reference to the full text of the agreement attached
hereto as Exhibit 10.1, which is incorporated herein by
reference.
Item
9.01
Financial Statements and
Exhibits.
(d)
Exhibits
Exhibit
No.
|
|
Description of
Exhibit
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10.1
|
|
Purchase and Sale
Agreement, dated November 11, 2019, between MHP Pursuits LLC and
The ARC Investment Trust
|
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this current report to be signed on its
behalf by the undersigned hereunto duly authorized.
Date:
November 15, 2019
|
MANUFACTURED HOUSING PROPERTIES INC.
|
|
|
|
|
By:
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/s/ Raymond M. Gee
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|
|
Raymond M.
Gee
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|
|
Chief
Executive Officer
|
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): November 20, 2019
(November 14, 2019)
Manufactured Housing Properties Inc.
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(Exact
name of registrant as specified in its charter)
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Nevada
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000-51229
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51-0482104
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(State
or other jurisdictionof incorporation)
|
|
(Commission
File Number)
|
|
(IRS
Employer Identification No.)
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136 Main Street, Pineville, North Carolina
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28134
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(Address
of principal executive offices)
|
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(Zip
Code)
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(980) 273-1702
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(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))
|
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. [
]
Securities
registered pursuant to Section 12(b) of the Act: None
Entry into a Material Definitive Agreement.
As previously reported on August 6, 2019, MHP
Pursuits LLC, a wholly-owned subsidiary of Manufactured Housing
Properties Inc., a Nevada corporation (the
“Company”),
entered into a purchase agreement (the “Purchase
Agreement”) with CSC
Warner Robins, a Georgia limited liability company, on August 5,
2019 for the asset purchase of a manufactured housing community
known as Spring Lake Mobile Home Park (the
“Property”),
which is located in Georgia and totals 225 sites, for a total
purchase price of $5.3 million. On November 14, 2019, closing of
the Purchase Agreement was completed and the Company’s newly
formed wholly owned subsidiary Springlake MHP LLC
(“Springlake”)
purchased the Property.
In connection with the closing, on November 14,
2019, Springlake entered into a loan agreement (the
“Loan
Agreement”) with Suntrust
Bank (the “Lender”)
for a term loan in the principal amount of $4,000,000 and
Springlake issued a promissory note to the Lender in the principal
amount of $4,000,000 (the “Note”).
The Note bears interest at the LIBOR Index Rate in
effect plus the Applicable Margin, subject to certain provisions in
the Loan Agreement providing for an adjustment of the interest
rate, and provided that while an Event of Default (as defined in
the Loan Agreement) exists or after acceleration, at the option of
the Lender, Springlake shall pay interest at the Default Rate. The
“LIBOR Interest
Rate” means (i) the rate
per annum effective on the date on which the loan was initially
funded and thereafter on the first business day of each calendar
month thereafter (each, an “Interest Rate
Determination Date”), and
equal to the London interbank offered rate for deposits in U.S.
Dollars appearing on Reuters screen page LIBOR 01 (or on any
successor or substitute page of such service or any successor to
such service, or such other commercially available source providing
such quotations as may be designated by Lender from time to time)
at approximately 11:00 A.M. (London time) two (2) business days
prior to the Interest Rate Determination Date, with a maturity
comparable to such interest period (provided that if such rate is
less than zero, such rate shall be deemed to be zero), divided by
(ii) a percentage equal to 100% minus the then stated maximum rate
of all reserve requirements (including any marginal, emergency,
supplemental, special or other reserves and without benefit of
credits for proration, exceptions or offsets that may be available
from time to time) applicable to any member bank of the Federal
Reserve System in respect of Eurocurrency liabilities as defined in
Regulation D (or any successor category of liabilities under
Regulation D); provided, that if the rate referred to in clause (i)
above is not available at any such time for any reason, then the
rate referred to in clause (i) shall instead be the interest rate
per annum, as determined by Lender, to be the arithmetic average of
the rates per annum at which deposits in U.S. Dollars in an amount
equal to the amount of the loan are offered by major banks in the
London interbank market to Lender at approximately 11:00 A.M.
(London time), two (2) business days prior to the Interest Rate
Determination Date (provided that if such rate is less than zero,
such rate shall be deemed to be zero). The
“Applicable
Margin” means 2.50% per
annum; provided, however, that in the event an affiliate of
Springlake closes a loan provided by or arranged through Lender (i)
under the Federal National Mortgage Association, Federal Home Loan
Mortgage Corporation, or Housing and Urban Development loan
programs, (ii) in an amount of no less than $1,100,000.00 and (iii)
such loan closes prior to December 31, 2019, the Applicable Margin
shall be reduced by 50 basis points, commencing on the next payment
date, for the remainder of the term of the loan thereafter. The
“Default
Rate” means the lesser of
(a) the interest rate otherwise applicable to the loan plus an
additional four percent (4%) per annum, or (b) the highest rate of
interest that lenders may contract for, charge or receive from
borrowers under Applicable Law (as defined in the Loan Agreement)
for the use, forbearance or detention of money.
Interest on the outstanding principal balance of
the loan accrues from and including the closing date to but
excluding the date of any repayment thereof. Interest is payable in
arrears on the fifth (5th) day of each calendar month (each a
“Payment
Date”), commencing on
December 5, 2019, and continuing on the Payment Date of each
calendar month thereafter, and on the maturity date (as may be
extended). In the event that any payment is not received by Lender
within ten (10) days of the date such payment is due, Springlake
shall pay to Lender a late charge equal to five percent (5%) of
such payment. Such fee shall be payable on the earlier of the date
of demand by Lender and the date that Springlake makes the late
payment.
Springlake
has the right at any time and from time to time to prepay the loan,
in whole or in part, without premium or penalty. On the earlier of
(i) the date Lender elects to require prepayment of all or a
portion of the loan in accordance with the Loan Agreement and (ii)
the next occurring Payment Date following the date on which
Springlake actually receives any insurance proceeds or condemnation
awards, if and to the extent Lender is not obligated under the Loan
Agreement to make such proceeds or awards available to Springlake
for the restoration of the Property, Springlake shall prepay the
outstanding principal balance of the loan in an amount equal to one
hundred percent (100%) of such proceeds or awards. In connection
with any voluntary, involuntary or mandatory payment or prepayment
of all or any part of the principal of the loan (including, without
limitation, payment in full on the maturity date), Springlake shall
pay to Lender an exit fee equal to one and one-half percent (1.50%)
of the amount of principal being paid at the time of such payment,
acceleration or application. Notwithstanding the foregoing, no exit
fee shall be due and payable (i) upon the Lender’s
application of the proceeds of a casualty or condemnation to the
unpaid principal balance of the loan or (ii) with respect to any
payment or prepayment made in connection with a refinance loan
issued under the Federal National Mortgage Association, Federal
Home Loan Mortgage Corporation, or Housing and Urban Development
loan programs and provided by or arranged through
Lender.
The
Note initially matures on November 14, 2021. Pursuant to the Loan
Agreement, Springlake has two (2) options to extend the maturity
date, first to May 14, 2022 and then to November 14, 2022, subject
to certain conditions, including the payment of an extension fee in
an amount equal to 0.25% of the then outstanding principal balance
of the loan.
The loan is secured by the Property and guaranteed
by Mr. Raymond M. Gee, the Company’s Chief Executive Officer
(the “Guarantor”).
The
Loan Agreement was subject to customary closing conditions and
contains customary representations and warranties. The Loan
Agreement also contains customary financial and other covenants for
a loan of this type. The Loan Agreement also contains customary
events of default, including, but not limited to: (i) for the
failure to make payments when due; (ii) for a material breach of
any representation and warranty in the loan documents; (iii) for a
breach of certain covenants contained in the Loan Agreement,
subject to certain cure periods; (iv) if Springlake shall fail to
maintain insurance as required by the Loan Agreement; (v) if there
occurs any uninsured or inadequately insured damage in excess of
$100,000 to or loss, theft or destruction in excess of $100,000, of
any of the collateral; (vi) in the event of any voluntary or
involuntary bankruptcy, liquidation, reorganization of Springlake
or the Guarantor; (vii) if Springlake or the Guarantor is unable to
pay, or admit in writing its inability to pay, or shall fail to
pay, its debts as they become due; (viii) if any judgment or order
for the payment of money in excess of $100,000 in the aggregate
shall be rendered against Springlake or the Guarantor; (ix) if any
non-monetary judgment or order shall be rendered against a
Springlake or the Guarantor that could reasonably be expected to
have a Material Adverse Effect (as defined in the Loan Agreement);
(x) upon a Change of Control (as defined in the Loan Agreement);
(xi) upon the transfer of all or any part or the Property, or any
interest therein, or of any direct or indirect interest in
Springlake, in violation of the Loan Agreement; or (xii) if there
occurs any event or circumstance that has a Material Adverse
Effect.
The
foregoing summary of the terms and conditions of the Loan Agreement
and Note does not purport to be complete and is qualified in its
entirety by reference to the full text of the agreements attached
hereto as Exhibits 10.2 and 10.3, respectively, which are
incorporated herein by reference.
Item 2.01
Completion of Acquisition or Disposition of Assets.
The
information set forth under Item 1.01 is incorporated by reference
into this Item 2.01.
Item 2.03
Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
The information set
forth under Item 1.01 with respect to the Loan Agreement and the
Note is incorporated by reference into this Item 2.01.
Item 8.01
Other Information.
On
November 20, 2019, the Company issued a press
release announcing the closing of the transactions
contemplated by the Purchase Agreement. The press
release is furnished herewith as Exhibit 99.1.
Item 9.01
Financial Statements and Exhibits.
(a)
Financial Statements of Business Acquired
The
financial statements of business acquired will be filed by an
amendment to this Form 8-K within 71 calendar days of the date
hereof.
(b)
Pro forma financial information
Pro
forma financial information will also be filed by an amendment to
this Form 8-K within 71 calendar days of the date
hereof.
(d)
Exhibits
Exhibit
No.
|
|
Description
of Exhibit
|
10.1
|
|
Purchase and Sale
Agreement, dated August 5, 2019, between MHP Pursuits LLC and CSC
Warner Robins (incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K filed on August 6, 2019)
|
10.2
|
|
Loan Agreement,
dated November 14, 2019, between Springlake MHP LLC and Suntrust
Bank
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10.3
|
|
Promissory Note
issued by Springlake MHP LLC to Suntrust Bank on November 14,
2019
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99.1
|
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Press Release
issued on November 20, 2019
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SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934,
Manufactured Housing Properties Inc. has duly caused this current
report to be signed on its behalf by the undersigned hereunto duly
authorized.
Date:
November 20, 2019
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MANUFACTURED HOUSING PROPERTIES INC.
|
|
|
|
|
By:
|
/s/ Raymond M. Gee
|
|
|
Raymond M.
Gee
|
|
|
Chief
Executive Officer
|
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