As of June 30, 2020 (the last business
day of the registrant’s most recently completed second fiscal quarter), the aggregate market value of the shares of the registrant’s
common stock held by non-affiliates (based upon the closing price of such shares as reported on OTC Pink Market) was approximately
$2,098,695. Shares of the registrant’s common stock held by each executive officer and director and by each person who owns
10% or more of the outstanding common stock have been excluded from the calculation in that such persons may be deemed to be affiliates
of the registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
PART
I
Overview
We
are a self-administered, self-managed, vertically integrated owner and operator of manufactured housing communities. 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 own and operate nineteen manufactured housing communities
containing approximately 1,235 developed sites and a total of 407 company-owned manufactured homes. The communities are located in Georgia,
North Carolina, South Carolina and Tennessee. See Item 2. “Properties” for a description of these manufactured housing communities.
Our
Corporate History and Structure
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 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 our company. In connection with the merger, the name of our company was changed to Manufactured Housing Properties
Inc., the former business and management of Mobile Home Rental Holdings became the business and management, respectively, of our
company at that time.
During
2020, we completed two acquisitions of manufactured housing communities and sold one community.
On
January 7, 2020, MHP Pursuits LLC, our wholly-owned subsidiary, entered into a purchase and sale agreement with J & A Real
Estate LLC for the purchase of a manufactured housing community known as Countryside Estates Mobile Home Park, which is located
in Lancaster, North Carolina and totals 110 sites, for a total purchase price of $3.7 million. On March 12, 2020, the closing
was completed and our newly formed wholly owned subsidiary Countryside MHP LLC purchased the property.
On
January 1, 2020, MHP Pursuits LLC entered into a purchase and sale agreement with Evergreen Marketing LLC for the purchase of
a manufactured housing community known as Evergreen Pointe Mobile Home Park, which is located in Dandridge, Tennessee and totals
65 sites, for a total purchase price of $1,589,000. On March 17, 2020, the closing was completed and our newly formed wholly owned
subsidiary Evergreen MHP LLC purchased the property.
On
December 18, 2020, we sold the Butternut manufactured housing community for a total sale price of $2,100,000. The cost net of
accumulated depreciation of the community at the time of the sale was $1,338,022. We wrote off mortgage costs of $109,529 which
is included in refinancing costs on the consolidated statement of operations. We recognized a gain on the sale of the property
of $761,978 which is included in other income on the consolidated statements of operations.
In
connection with our acquisitions of manufactured housing communities, we have established various limited liability companies
to hold the acquired properties. Following is a summary of our subsidiaries, each of which is owned directly by our company.
Name of Subsidiary
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State of Formation
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Date of Formation
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Ownership
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Pecan Grove MHP LLC
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North Carolina
|
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October 12, 2016
|
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100%
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Azalea MHP LLC
|
|
North Carolina
|
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October 25, 2017
|
|
100%
|
Holly Faye MHP LLC
|
|
North Carolina
|
|
October 25, 2017
|
|
100%
|
Chatham Pines MHP LLC
|
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North Carolina
|
|
October 31, 2017
|
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100%
|
Maple Hills MHP LLC
|
|
North Carolina
|
|
October 31, 2017
|
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100%
|
Lakeview MHP LLC
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|
South Carolina
|
|
November 1, 2017
|
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100%
|
MHP Pursuits LLC
|
|
North Carolina
|
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January 31, 2019
|
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100%
|
Mobile Home Rentals LLC
|
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North Carolina
|
|
September 30, 2016
|
|
100%
|
Hunt Club MHP LLC
|
|
South Carolina
|
|
March 8, 2019
|
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100%
|
B&D MHP LLC
|
|
South Carolina
|
|
April 4, 2019
|
|
100%
|
Crestview MHP LLC
|
|
North Carolina
|
|
June 28, 2019
|
|
100%
|
Springlake MHP LLC
|
|
Georgia
|
|
October 10, 2019
|
|
100%
|
ARC MHP LLC
|
|
South Carolina
|
|
November 13, 2019
|
|
100%
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Countryside MHP LLC
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South Carolina
|
|
March 12, 2020
|
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100%
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Evergreen MHP LLC
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Tennessee
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March 17, 2020
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100%
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In
December 2020, we sold 305 park owned homes in four communities to Gvest Finance LLC, a company owned and controlled by our parent
company, Gvest Real Estate Capital LLC, an entity whose sole owner is Raymond M. Gee, our chairman and chief executive officer,
and to its wholly owned subsidiary Gvest Homes 1 LLC, for a total of $4,648,967. We also executed a management agreement with
these entities to manage the homes while remitting to our company all income, less any sums paid out for debt service plus 5%
of the debt service payment. Primarily due to our common ownership by Mr. Gee, our power to direct the activities of these entities
that most significantly impact their economic performance, and our company having the obligation to absorb losses or the right
to receive benefits from these entities that could potentially be significant to these entities, Gvest Finance LLC and Gvest Homes
1 LLC are considered to be variable interest entities, or VIEs, in accordance with applicable United States generally accepted
accounting principles, or GAAP. A company with interests in a VIE must consolidate the entity if the company is deemed to be the
primary beneficiary of the VIE; that is, if it has both (1) the power to direct the economically significant activities of
the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially
be significant to the VIE. Such a determination requires management to evaluate circumstances and relationships that may be difficult
to understand and to make a significant judgment, and to repeat the evaluation at each subsequent reporting date. In accordance
with applicable GAAP, because of the common ownership among the entities, the consolidation of the VIEs have been accounted for
retrospectively as of the beginning of the first period presented in the consolidated financial statements.
The
Manufactured Housing Community Industry
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
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.
A
manufactured housing community is a land-lease community designed and improved with home sites for the placement of manufactured
homes and includes related improvements and amenities. Each homeowner in a manufactured housing community leases from the community
a site on which a home is located. The manufactured housing community owner owns the underlying land, utility connections, streets,
lighting, driveways, common area amenities, and other capital improvements and is responsible for enforcement of community guidelines
and maintenance of the community. Generally, each homeowner is responsible for the maintenance of his or her home and upkeep of
his or her leased site. In some cases, customers may rent homes with the community owner’s maintaining ownership and responsibility
for the maintenance and upkeep of the home. This option provides flexibility for customers seeking a more affordable, shorter-term
housing option and enables the community owner to meet a broader demand for housing and improve occupancy and cash flow.
We
believe that manufactured housing communities have several characteristics that make them an attractive investment when compared
to certain other types of real estate, particularly multifamily, including:
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Significant
Barriers to Entry. We believe that the supply of new manufactured housing
communities will be constrained due to significant barriers to entry in the industry,
including: (i) various zoning restrictions and negative zoning biases against manufactured housing
communities; (ii) substantial upfront costs associated with the development of infrastructure,
amenities and other offsite improvements required by various governmental agencies, and
(iii) a significant length of time before lease-up and revenues can commence.
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Diminishing
Supply. Supply is decreasing due to redevelopment of older parks.
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Large
Demographic Group of Potential Customers. We consider households earning
between $25,000 and $50,000 per year to be our core customer base. In 2019, this demographic
group represented about 34.9% of all full-time workers, according to 2019 U.S. Census
data estimates.
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Stable
Resident Base. We believe that manufactured housing communities tend
to achieve and maintain a stable rate of occupancy, due to the following factors: (i)
residents generally own their own homes; moving a manufactured home from one community
to another involves substantial cost and effort and often results in the abandonment
of on-site improvements made by the resident such as decks, garages, carports, and landscaping;
and (iii) residents enjoy a sense of community inherent in manufactured housing
communities similar to residential subdivisions.
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Fragmented
Ownership of Communities. Manufactured housing community ownership
in the United States is highly fragmented, with a majority of manufactured housing
communities owned by individuals. We estimate that the top five manufactured housing
community owners control approximately 9% of manufactured housing community home
sites.
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Low
Recurring Capital Requirements. Although manufactured housing community
owners are responsible for maintaining the infrastructure of the community, each homeowner
is responsible for the upkeep of his or her own home and home site, thereby reducing
the manufactured housing community owner’s ongoing maintenance expenses and
capital requirements.
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Affordable
Homeowner Lifestyle. Manufactured housing communities offer an affordable
lifestyle typically unavailable in apartments, including lack of common walls, a yard
for each resident, the ability to park by the front door, and a sense of community.
|
Competition
There
are numerous private companies, but only three publicly traded real estate investment trusts, or REITs, that compete in the
manufactured housing industry. Many of the private companies and one of the REITs, UMH Properties, Inc., may compete
with us for acquisitions of manufactured housing communities. Many of these companies have larger operations and greater financial
resources than we do. The number of competitors, however, is increasing as new entrants discover the benefits of the manufactured
housing asset class. We believe that due to the fragmented nature of ownership within the manufactured housing sector, the
level of competition is less than that in other commercial real estate sectors.
Competitive
Strengths
We
believe that the following competitive strengths enable us to compete effectively:
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Deal
Sourcing. Our deal sourcing consists of marketed deals, pocket listings, and
off market deals. Marketed deals are properties that are listed with a broker who
exposes the property to the largest pool of buyers possible. Pocket listings are properties
that are presented by brokers to a limited pool of buyers. Off market deals are ones
that are not actively marketed. As a result of our network of relationships in
our industry, only two properties in our portfolio were marketed deals, the rest were
off-market or pocket listings.
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Centralized
Operations. We have centralized many operational tasks, including accounting,
marketing, lease administration, and accounts payable. The use of professional
staff and technology allows us to scale efficiently and operate properties profitably
by reducing tasks otherwise completed at the property level.
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Deal
Size. We believe that our small capitalization size with non-institutional deals
of less than 150 sites are accretive to our balance sheet. These sized properties
typically have less bidders at lower prices than larger properties. We can profitably
operate these smaller properties through our centralized operations.
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Creating
Value. Our underwriting expertise enables us to identify acquisition prospects
to provide attractive risk adjusted returns. Our operational team has the experience,
skill and resources to create this value through physical and/or operational property
improvements.
|
Our
Growth Strategy
Our
growth strategy is to acquire both stable and undervalued and underperforming manufactured housing properties that have current
income. We believe that we can enhance value through our professional asset and property management. Our property management services
are mainly comprised of tenant contracts and leasing, marketing vacancies, community maintenance, enforcement of community policies,
establishment and collection rent, and payment of vendors. Our lot and manufactured home leases are generally for one month and
auto renew monthly for an additional month.
Our
investment mission on behalf of our stockholders is to deliver an attractive risk-adjusted return with a focus on value creation,
capital preservation, and growth. In our ongoing search for acquisition opportunities we target and evaluate manufactured housing
communities nationwide.
We
may invest in improved and unimproved real property and may develop unimproved real property. These property investments may be
located throughout the United States, but to date we have concentrated in the Southeast portion of the United States. We are focused
on acquiring communities with significant upside potential and leveraging our expertise to build long-term capital appreciation.
We
are one of four public companies in the manufactured housing sector, but we are the only one not organized as a REIT, thereby
giving us flexibility to focus on growth through reinvestment of income and employing higher leverage upon acquisition than the
REITs traditionally utilize due to market held norms around 50-60%. This can give us a competitive advantage when bidding for
assets. Additionally, due to our small size, non-institutional sized deals of less than 150 sites, which have less bidders and
lower prices, are accretive to our balance sheet.
Regulation
Federal,
State and/or Local Regulatory Compliance
We
are subject to a variety of federal, state, and/or local statutes, ordinances, rules, and regulations covering the purchase, development
and operation of real estate assets. These regulatory requirements include zoning and land use, worksite safety, traffic, and
other matters, such as local rules that may impose restrictive zoning and developmental requirements. We are subject to various
licensing, registration, and filing requirements in connection with the development and operation of certain real estate assets.
Additionally, state and/or local governments retain certain rights with respect to eminent domain which could enable them to restrict
or alter the use of our property. These requirements may lead to increases in our overall costs. The need to comply with these
requirements may significantly delay development with regard to properties, or lead us to alter our plans regarding certain real
estate assets. Some requirements, on a property by property evaluation, may lead to a determination that development of a particular
property would not be economically feasible, even if any or all necessary governmental approvals were obtained.
We
believe that each community has all material operating permits and approvals.
Environmental
Regulatory Compliance
Under
various federal, state and/or local laws, ordinances and regulations, a current or previous owner or operator of a property may
be required to investigate and/or clean-up hazardous or toxic substances released at that property. That owner or operator also
may be held liable to third parties for bodily injury or property damage (investigation and/or clean-up costs) incurred by those
parties in connection with the contamination at that site. These laws often impose liability without regard to whether the owner
or operator knew of or otherwise caused the release of the hazardous or toxic substances. In addition, persons who arrange for
the disposal or treatment of hazardous substances or other regulated materials also may be liable for the costs of removal or
remediation of such substances at a disposal or treatment facility, whether or not such facility is owned or operated by such
persons.
The
costs of remediation or removal of hazardous or toxic substances can be substantial, and the presence of contamination, or the
failure to remediate contamination discovered, at a property we own or operate may adversely affect our ability to develop, sell,
lease, or borrow upon that property. Current and former tenants at a property we own may have, or may have involved, the use of
hazardous materials or generated hazardous wastes, and those situations could result in our incurring liabilities to remediate
any resulting contamination if the responsible party is unable or unwilling to do so.
In
addition, our properties may be exposed to a risk of contamination originating from other sources. While a property owner generally
is not responsible for remediating contamination that has migrated on-site from an off-site source, the contaminant’s presence
could have adverse effects on our ability to develop, construct on, operate, sell, lease, or borrow upon that property. Certain
environmental laws may create a lien on a contaminated site in favor of the government for damages and costs the government may
incur to remediate that contamination. Moreover, if contamination is discovered on a property, environmental laws may impose restrictions
on the manner in which that property may be used, or how businesses may be operated on that property, thus reducing our ability
to maximize our investment in that property. Our properties have been subjected to varying degrees of environmental assessment
at various times; however, the identification of new areas of contamination, a change in the extent or known scope of contamination,
or changes in environmental regulatory standards and/or cleanup requirements could result in significant costs to us.
Insurance
and Property Maintenance and Improvement Policies
Our
properties are insured against risks that may cause property damage and business interruption including events such as fire, business
interruption, general liability and if applicable, flood. Our insurance policies contain deductible requirements, coverage limits
and particular exclusions. It is our policy to maintain adequate insurance coverage on all of our properties; and, in the opinion
of our management, all of our properties are adequately insured. We also obtain title insurance insuring fee title to the properties
in an aggregate amount which we believe to be adequate.
It
is also our policy to properly maintain, modernize, expand and make improvements to its properties when required.
Employees
As
of December 31, 2020, we had 21 employees, including officers, all of whom are full-time employees.
An
investment in our Common Stock involves a high degree of risk. You should carefully read and consider all of the risks described
below, together with all of the other information contained or referred to in this report, before making an investment decision
with respect to our Common Stock or our company. If any of the following events occur, our financial condition, business and results
of operations (including cash flows) may be materially adversely affected. In that event, the market price of our Common Stock
could decline, and you could lose all or part of your investment.
Risks
Related to our Business and Industry
The
coronavirus pandemic may cause a material adverse effect on our business.
In
December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. The virus has since spread to
over 150 countries and every state in the United States. On March 11, 2020, the World Health Organization declared the outbreak
a pandemic, and on March 13, 2020, the United States declared a national emergency.
The
spread of the virus in many countries continues to adversely impact global economic activity and has contributed to significant
volatility and negative pressure in financial markets. The pandemic has had, and could have a significantly greater,
material adverse effect on the U.S. economy as a whole, as well as the local economies where our properties are located. The pandemic
has resulted, and may continue to result for an extended period, in significant disruption of global financial markets, which
may reduce our ability to access capital in the future, which could negatively affect our liquidity.
Most
states and cities, including where are our properties are located, have reacted by instituting quarantines, restrictions on travel,
“stay at home” rules and restrictions on the types of businesses that may continue to operate, as well as guidance
in response to the pandemic and the need to contain it. These rules and restrictions have had a negative impact on the economy
and business activity and may adversely impact the ability of our tenants, many of whom may be restricted in their ability
to work, to pay their rent as and when due. In addition, our property managers may be limited in their ability to properly
maintain our properties. Enforcing our rights as landlord against tenants who fail to pay rent or otherwise
do not comply with the terms of their leases may not be possible as many jurisdictions, include those where are properties are
located, have established rules and/or regulations preventing us from evicting tenants for certain periods in response to the
pandemic. If we are unable to enforce our rights as landlords, our business would be materially affected.
If
the current pace of the pandemic cannot be slowed and the spread of the virus is not contained, our business operations could
be further delayed or interrupted. We expect that government and health authorities may announce new or extend existing restrictions,
which could require us to make further adjustments to our operations in order to comply with any such restrictions. The duration
of any business disruption cannot be reasonably estimated at this time but may materially affect our ability to operate our business
and result in additional costs.
The extent to which the pandemic may
impact our results will depend on future developments, which are highly uncertain and cannot be predicted as of December 31, 2020,
including new information that may emerge concerning the severity of the pandemic and steps taken to contain the pandemic or
treat its impact, among others. Nevertheless, the pandemic and the current financial, economic and capital markets environment
present material uncertainty and risk with respect to our performance, financial condition, results of operations and cash flows.
We
may not be able to obtain adequate cash to fund our business.
Our
business requires access to adequate cash to finance our operations, distributions, capital expenditures, debt service obligations,
development and redevelopment costs and property acquisition costs, if any. We expect to generate the cash to be used for these
purposes primarily with operating cash flow, borrowings under secured and unsecured loans, proceeds from sales of strategically
identified assets and, when market conditions permit, through the issuance of debt and equity securities from time to time. We
may not be able to generate sufficient cash to fund our business, particularly if we are unable to renew leases, lease vacant
space or re-lease space as leases expire according to our expectations.
General
economic conditions and the concentration of our properties in Georgia, North Carolina, South Carolina, and Tennessee may affect
our ability to generate sufficient revenue.
The
market and economic conditions in our current markets may significantly affect manufactured housing occupancy or rental rates.
Occupancy and rental rates, in turn, may significantly affect our revenues, and if our communities do not generate revenues sufficient
to meet our operating expenses, including debt service and capital expenditures, current cash flow and ability to pay or refinance
our debt obligations could be adversely affected. As a result of the current geographic concentration of our properties in Georgia,
North Carolina, South Carolina and Tennessee, we are exposed to the risks of downturns in the local economy or other local real
estate market conditions that could adversely affect occupancy rates, rental rates, and property values in these markets.
Other
factors that may affect general economic conditions or local real estate conditions include:
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the
national and local economic climate which may be adversely affected by, among other factors,
plant closings, and industry slowdowns;
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local
real estate market conditions such as the oversupply of manufactured home sites or a
reduction in demand for manufactured home sites in an area;
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the
number of repossessed homes in a particular market;
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the
lack of an established dealer network;
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the
rental market which may limit the extent to which rents may be increased to meet increased
expenses without decreasing occupancy rates;
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the
safety, convenience and attractiveness of our properties and the neighborhoods where
they are located;
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zoning
or other regulatory restrictions;
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competition
from other available manufactured housing communities and alternative forms of housing
(such as apartment buildings and single-family homes);
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our
ability to provide adequate management, maintenance and insurance;
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increased
operating costs, including insurance premiums, real estate taxes and utilities; and
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the
enactment of rent control laws or laws taxing the owners of manufactured homes.
|
Our
income would also be adversely affected if tenants were unable to pay rent or if sites were unable to be rented on favorable terms.
If we were unable to promptly renew the leases for a significant number of sites, or if the rental rates upon such renewal were
significantly lower than expected rates, then our business and results of operations could be adversely affected. In addition,
certain expenditures associated with each property (such as real estate taxes and maintenance costs) generally are not reduced
when circumstances cause a reduction in income from the property.
We
face risks generally associated with our debt.
We finance a portion of our investments in properties
through debt. As of December 31, 2020, our total indebtedness for borrowed money was $35,662,334. We are subject to the risks normally
associated with debt financing, including the risk that our cash flow will be insufficient to meet required payments of principal and
interest. In addition, debt creates other risks, including:
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failure
to repay or refinance existing debt as it matures, which may result in forced disposition
of assets on disadvantageous terms;
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refinancing
terms less favorable than the terms of existing debt; and
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failure
to meet required payments of principal and/or interest.
|
We
face risks related to “balloon payments” and re-financings.
Certain of our mortgages will have significant
outstanding principal balances on their maturity dates, commonly known as “balloon payments.” As of December 31, 2020,
our total future minimum principal payments were $35,662,334. There can be no assurance that we will be able to refinance the debt
on favorable terms or at all. To the extent we cannot refinance debt on favorable terms or at all, we may be forced to dispose
of properties on disadvantageous terms or pay higher interest rates, either of which would have an adverse impact on our financial
performance and ability to service debt and make distributions.
We
may become more highly leveraged, resulting in increased risk of default on our obligations and an increase in debt service requirements
that could adversely affect our financial condition and results of operations and our ability to pay distributions.
We
have incurred, and may continue to incur, indebtedness in furtherance of our activities. We could become more highly leveraged,
resulting in an increased risk of default on our obligations and in an increase in debt service requirements, which could adversely
affect our financial condition and results of operations and our ability to pay distributions to stockholders.
Covenants
in our credit agreements could limit our flexibility and adversely affect our financial condition.
The
terms of our various credit agreements and other indebtedness require us to comply with a number of customary financial and other
covenants, such as maintaining debt service coverage and leverage ratios and maintaining insurance coverage. These covenants may
limit our flexibility in our operations, and breaches of these covenants could result in defaults under the instruments governing
the applicable indebtedness even if we had satisfied our payment obligations. If we were to default under our credit agreements,
our financial condition would be adversely affected.
A
change in the United States government policy regarding to the Federal National Mortgage Association (Fannie Mae) and the Federal
Home Loan Mortgage Corporation (Freddie Mac) could impact our financial condition.
Fannie
Mae and Freddie Mac are a major source of financing for the manufactured housing real estate sector. We could depend on Fannie
Mae and Freddie Mac to finance growth by purchasing or guarantying manufactured housing community loans. In February 2011, the
Obama Administration released a report to Congress that included options, among others, to gradually shrink and eventually shut
down Fannie Mae and Freddie Mac. We do not know when or if Fannie Mae or Freddie Mac will restrict their support of lending to
our real estate sector or to us in particular. A final decision by the government to eliminate Fannie Mae or Freddie Mac or reduce
their acquisitions or guarantees of our mortgage loans, may adversely affect interest rates, capital availability and our ability
to refinance our existing mortgage obligations as they come due and obtain additional long-term financing for the acquisition
of additional communities on favorable terms or at all.
We
face risks relating to the property management services that we provide.
There
are inherent risks in our providing property management services to the manufactured housing communities on the properties that
we own. The more significant of these risks include:
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our
possible liability for personal injury or property damage suffered by our employees and
third parties, including our tenants, that are not fully covered by our insurance;
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our
possible inability to keep our manufactured housing communities at or near full occupancy;
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our
possible inability to attract and keep responsible tenants;
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our
possible inability to expediently remove “bad” tenants from our communities;
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our
possible inability to timely and satisfactorily deal with complaints of our tenants;
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our
possible inability to locate, hire and retain qualified property management personnel;
and
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our
possible inability to adequately control expenses with respect to our properties.
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We
may not be able to integrate or finance our acquisitions and our acquisitions may not perform as expected.
We
acquire and intend to continue to acquire manufactured housing communities on a select basis. Our acquisition activities and their
success are subject to the following risks:
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we
may be unable to acquire a desired property because of competition from other well capitalized
real estate investors, including both publicly traded REITs and institutional investment
funds;
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even
if we enter into an acquisition agreement for a property, it is usually subject to customary
conditions for closing, including completion of due diligence investigations to our satisfaction,
which may not be satisfied;
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even
if we are able to acquire a desired property, competition from other real estate investors
may significantly increase the purchase price;
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we
may be unable to finance acquisitions on favorable terms;
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acquired
properties may fail to perform as expected;
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acquired
properties may be located in new markets where we face risks associated with a lack of
market knowledge or understanding of the local economy, lack of business relationships
in the area and unfamiliarity with local governmental and permitting procedures; and
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we
may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions
of portfolios of properties, into our existing operations.
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If
any of the above were to occur, our business and results of operations could be adversely affected.
In
addition, we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect
to unknown liabilities. As a result, if a liability were to be asserted against us based on ownership of those properties, we
might have to pay substantial sums to settle it, which could adversely affect our cash flow.
New
acquisitions may fail to perform as expected and the intended benefits may not be realized, which could have a negative impact
on our operations.
We
intend to continue to acquire manufactured housing communities. However, newly acquired properties may fail to perform as expected
and could pose risks for our ongoing operations including the following:
|
●
|
integration
may prove costly or time-consuming and may divert management’s attention from the
management of daily operations;
|
|
●
|
difficulties
or an inability to access capital or increases in financing costs;
|
|
●
|
we
may incur costs and expenses associated with any undisclosed or potential liabilities;
|
|
●
|
unforeseen
difficulties may arise in integrating an acquisition into our portfolio;
|
|
●
|
expected
synergies may not materialize; and
|
|
●
|
we
may acquire properties in new markets where we face risks associated with lack of market
knowledge such as understanding of the local economy, the local governmental and/or local
permit procedures.
|
As
a result of the foregoing, we may not accurately estimate or identify all costs necessary to bring an acquired manufactured housing
communities up to standards established for our intended market position. As such, we cannot provide assurance that any acquisition
that we make will be accretive to us in the near term or at all. Furthermore, if we fail to realize the intended benefits of an
acquisition, it may have a negative impact on our operations.
Development
and expansion properties may fail to perform as expected and the intended benefits may not be realized, which could have a negative
impact on our operations.
We
may periodically consider development and expansion activities, which are subject to risks such as construction costs exceeding
original estimates and construction and lease-up delays resulting in increased construction costs and lower than expected revenues.
Additionally, there can be no assurance that these properties will operate better as a result of development or expansion activities
due to various factors, including lower than anticipated occupancy and rental rates causing a property to be unprofitable or less
profitable than originally estimated.
We
regularly expend capital to maintain, repair and renovate our properties, which could negatively impact our financial condition
and results of operations.
We
may, or we may be required to, from time to time make significant capital expenditures to maintain or enhance the competitiveness
of our manufactured housing communities. There can be no assurances that any such expenditures would result in higher occupancy
or higher rental rates.
We
may be unable to sell properties when appropriate because real estate investments are illiquid.
Real
estate investments generally cannot be sold quickly and, therefore, will tend to limit our ability to vary our property portfolio
promptly in response to changes in economic or other conditions. The inability to respond promptly to changes in the performance
of our property portfolio could adversely affect our financial condition and ability to service our debt and make distributions
to our stockholders.
We
may be unable to compete with our larger competitors, which may in turn adversely affect our profitability.
The
real estate business is highly competitive. We compete for manufactured housing community investments with numerous other real
estate entities, such as individuals, corporations, REITs, and other enterprises engaged in real estate activities. In many cases,
the competing concerns may be larger and better financed than we are, making it difficult for us to secure new manufactured housing
community investments. Competition among private and institutional purchasers of manufactured housing community investments has
led to increases in the purchase prices paid for manufactured housing communities and consequent higher fixed costs. To the extent
we are unable to effectively compete in the marketplace, our business may be adversely affected.
Actions
by our competitors may decrease or prevent increases in the occupancy and rental rates of our properties which could adversely
affect our business.
We
compete with other owners and operators of manufactured housing community properties, some of whom own properties similar to ours
in the same submarkets in which our properties are located. The number of competitive manufactured housing community properties
in a particular area could have a material adverse effect on our ability to lease sites and increase rents charged at our properties
or at any newly acquired properties. In addition, other forms of multi-family residential properties, such as private and federally
funded or assisted multi-family housing projects and single-family housing, provide housing alternatives to potential tenants
of manufactured housing communities. If our competitors offer housing at rental rates below current market rates or below the
rental rates we currently charge our tenants, we may lose potential tenants, and we may be pressured to reduce our rental rates
below those we currently charge in order to retain tenants when our tenants’ leases expire. As a result, our financial condition,
cash flow, cash available for distribution, and ability to satisfy our debt service obligations could be materially adversely
affected.
Losses
in excess of our insurance coverage or uninsured losses could adversely affect our cash flow.
We
generally maintain insurance policies related to our business, including casualty, general liability and other policies covering
business operations, employees and assets. However, we may be required to bear all losses that are not adequately covered by insurance.
In addition, there are certain losses that are not generally insured because it is not economically feasible to insure against
them, including losses due to riots or acts of war. If an uninsured loss or a loss in excess of insured limits occurs with respect
to one or more of our properties, then we could lose the capital we invested in the properties, as well as the anticipated profits
and cash flow from the properties and, in the case of debt that carries recourse to us, we would remain obligated for any mortgage
debt or other financial obligations related to the properties. Although we believe that our insurance programs are adequate, no
assurance can be given that we will not incur losses in excess of its insurance coverage, or that we will be able to obtain insurance
in the future at acceptable levels and reasonable cost.
Costs
associated with taxes and regulatory compliance may reduce our revenue.
We
are subject to significant regulation that inhibits our activities and may increase our costs. Local zoning and use laws, environmental
statutes and other governmental requirements may restrict expansion, rehabilitation and reconstruction activities. These regulations
may prevent us from taking advantage of economic opportunities. Legislation such as the Americans with Disabilities Act may require
us to modify our properties at a substantial cost and noncompliance could result in the imposition of fines or an award of damages
to private litigants. Future legislation may impose additional requirements. We cannot predict what requirements may be enacted
or amended or what costs we will incur to comply with such requirements. Costs resulting from changes in real estate laws, income
taxes, service or other taxes may adversely affect our funds from operations and our ability to pay or refinance our debt. Similarly,
changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions
on discharges or other conditions may result in significant unanticipated expenditures, which would adversely affect our business
and results of operations.
Rent
control legislation may harm our ability to increase rents.
State
and local rent control laws in certain jurisdictions may limit our ability to increase rents and to recover increases in operating
expenses and the costs of capital improvements. We may purchase additional properties in markets that are either subject to rent
control or in which rent-limiting legislation exists or may be enacted.
Environmental
liabilities could affect our profitability.
Under
various federal, state and local laws, as well as local ordinances and regulations, an owner or operator of real estate is liable
for the costs of removal or remediation of certain hazardous substances at, on, under or in such property, as well as certain
other potential costs relating to hazardous or toxic substances. Such laws often impose such liability without regard to whether
the owner knew of, or was responsible for, the presence of such hazardous substances. A conveyance of the property, therefore,
does not relieve the owner or operator from liability. As a current or former owner and operator of real estate, we may be required
by law to investigate and clean up hazardous substances released at or from the properties we currently own or operate or have
in the past owned or operated. We may also be liable to the government or to third parties for property damage, investigation
costs and cleanup costs. In addition, some environmental laws create a lien on the contaminated site in favor of the government
for damages and costs the government incurs in connection with the contamination. Contamination may adversely affect our ability
to sell or lease real estate or to borrow using the real estate as collateral. Persons who arrange for the disposal or treatment
of hazardous substances also may be liable for the costs of removal or remediation of such substances at a disposal or treatment
facility owned or operated by another person. In addition, certain environmental laws impose liability for the management and
disposal of asbestos-containing materials and for the release of such materials into the air. These laws may provide for third
parties to seek recovery from owners or operators of real properties for personal injury associated with asbestos-containing materials.
In connection with the ownership, operation, management, and development of real properties, we may be considered an owner or
operator of such properties and, therefore, are potentially liable for removal or remediation costs, and also may be liable for
governmental fines and injuries to persons and property. When we arrange for the treatment or disposal of hazardous substances
at landfills or other facilities owned by other persons, we may be liable for the removal or remediation costs at such facilities.
We are not aware of any environmental liabilities relating to our investment properties that would have a material adverse effect
on our business, assets, or results of operations. However, we cannot assure you that environmental liabilities will not arise
in the future and that such liabilities will not have a material adverse effect on our business, assets or results of operation.
Of
the nineteen manufactured housing communities we currently operate, five are on well and septic systems. At these locations, we
are subject to compliance with monthly, quarterly and yearly testing for contaminants as outlined by each state’s Department
of Environmental Protection Agencies. Currently, we are not subject to radon or asbestos monitoring requirements.
Additionally,
in connection with the management of the properties or upon acquisition or financing of a property, we authorize the preparation
of Phase I or similar environmental reports (which involves general inspections without soil sampling or ground water analysis)
completed by independent environmental consultants. Based on such environmental reports and our ongoing review of its properties,
as of the date of this offering circular, we are not aware of any environmental condition with respect to any of our properties
that we believe would be reasonably likely to have a material adverse effect on our financial condition or results of operations.
These reports, however, cannot reflect conditions arising after the studies were completed, and no assurances can be given that
existing environmental studies reveal all environmental liabilities, that any prior owner or operator of a property or neighboring
owner or operator did not create any material environmental condition not known to us, or that a material environmental condition
does not otherwise exist with respect to any one property or more than one property.
We
are subject to risks arising from litigation.
We
may become involved in litigation. Litigation can be costly, and the results of litigation are often difficult to predict. We
may not have adequate insurance coverage or contractual protection to cover costs and liability in the event we are sued, and
to the extent we resort to litigation to enforce our rights, we may incur significant costs and ultimately be unsuccessful or
unable to recover amounts we believe are owed to us. We may have little or no control of the timing of litigation, which presents
challenges to our strategic planning.
We
are dependent on key personnel.
Our
executive and other senior officers have a significant role in our success. Our ability to retain our management group or to attract
suitable replacements should any members of the management group leave depends on the competitive nature of the employment market.
The loss of services from key members of the management group or a limitation in their availability could adversely affect our
financial condition and cash flow. Further, such a loss could be negatively perceived in the capital markets.
Our
management is inexperienced in running a public entity.
With
the exception of Michael Z. Anise, our president, chief financial officer and a director, our management does not have prior experience
with the operation and management of a public entity. As a result, they will be learning as they proceed and may be forced to
rely more heavily on the expertise of outside professionals than they might otherwise, which in turn could lead to higher legal
and accounting costs and possible securities law compliance issues.
We
have one stockholder that can single-handedly control our company.
Our
largest stockholder is Gvest Real Estate Capital LLC, an entity whose sole owner is Raymond M. Gee, our chairman and chief executive
officer. At present, Mr. Gee beneficially owns approximately 69.87% of our total issued and outstanding Common Stock. Under Nevada
law, this ownership position provides Mr. Gee with the almost unrestricted ability to control the business, management and strategic
direction of our company. If Mr. Gee chooses to exercise this control, his decisions regarding our company could be detrimental
to, or not in the best interests of our company and its other stockholders.
We
have identified material weaknesses in our internal control over financial reporting. If we fail to develop or maintain an effective
system of internal controls, we may not be able to accurately report our financial results and prevent fraud. As a result, current
and potential stockholders could lose confidence in our financial statements, which would harm the trading price of our Common
Stock.
Companies
that file reports with the Securities and Exchange Commission, or the SEC, including us, are subject to the requirements of Section
404 of the Sarbanes-Oxley Act of 2002, or SOX 404. SOX 404 requires management to establish and maintain a system of internal
control over financial reporting and annual reports on Form 10-K filed under the Exchange Act to contain a report from management
assessing the effectiveness of a company’s internal control over financial reporting. Separately, under SOX 404, as amended
by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, public companies that are large accelerated filers or
accelerated filers must include in their annual reports on Form 10-K an attestation report of their regular auditors attesting
to and reporting on management’s assessment of internal control over financial reporting. Non-accelerated filers and smaller
reporting companies, like us, are not required to include an attestation report of their auditors in annual reports.
A
report of our management is included under Item 9A. “Controls and Procedures.” We are a smaller reporting company
and, consequently, are not required to include an attestation report of our auditor in our annual report. However, if and when
we become subject to the auditor attestation requirements under SOX 404, we can provide no assurance that we will receive a positive
attestation from our independent auditors.
During
its evaluation of the effectiveness of internal control over financial reporting as of December 31, 2020, management identified
material weaknesses. These material weaknesses were associated with (i) our lack of proper segregation of duties due to the limited
number of employees within the accounting department and (ii) our lack of effective closing procedures. We are undertaking remedial
measures, which measures will take time to implement and test, to address these material weaknesses. There can be no assurance
that such measures will be sufficient to remedy the material weaknesses identified or that additional material weaknesses or other
control or significant deficiencies will not be identified in the future. If we continue to experience material weaknesses in
our internal controls or fail to maintain or implement required new or improved controls, such circumstances could cause us to
fail to meet our periodic reporting obligations or result in material misstatements in our financial statements, or adversely
affect the results of periodic management evaluations and, if required, annual auditor attestation reports. Each of the foregoing
results could cause investors to lose confidence in our reported financial information and lead to a decline in our stock price.
Risks
Related Ownership of Our Common Stock
Our
Common Stock is eligible for quotation on the Pink Market but few quotations have been made and limited trading has occurred in
our Common Stock. Due to the lack of an active trading market for our securities, you may have difficulty selling any shares you
purchase, which could result in the loss of your investment.
Our
Common Stock is eligible for quotation on the Pink Market operated by OTC Markets Group Inc. The Pink Market is a regulated quotation
service that displays real-time quotes, last sale prices and volume information in over-the-counter securities. The Pink Market
is not an issuer listing service, market or exchange. The requirements for quotation on the Pink Market are considerably lower
and less regulated than those of an exchange. Because of this, it is possible that fewer brokers or dealers will be interested
in making a market in our Common Stock because the market for such securities is more limited, the stocks are more volatile, and
the risk to investors is greater, which may impact the liquidity of our Common Stock. Even if an active market begins to develop
in our Common Stock, the quotation of our Common Stock on the Pink Market may result in a less liquid market available for existing
and potential stockholders to trade Common Stock, could depress the trading price of our Common Stock and could have a long-term
adverse impact on our ability to raise capital in the future. If an active market is never developed for our Common Stock, it
will be difficult or impossible for you to sell any Common Stock you purchase.
We
cannot predict the extent to which an active public trading market for our Common Stock will develop or be sustained. If an active
public trading market does not develop or cannot be sustained, you may be unable to liquidate your investment in our Common Stock.
At
present, there is minimal public trading in our Common Stock. We cannot predict the extent to which an active public market for
our Common Stock will develop or be sustained due to a number of factors, including the fact that we are a small company that
is relatively unknown to stock analysts, stock brokers, institutional investors, and others in the investment community that generate
or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be
reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares of Common Stock until
such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity
in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity
that will generally support continuous sales without an adverse effect on stock price. We cannot give you any assurance that an
active public trading market for our Common Stock will develop or be sustained. If such a market cannot be sustained, you may
be unable to liquidate your investment in our Common Stock.
Our
Common Stock may be subject to significant price volatility which may have an adverse effect on your ability to liquidate your
investment in our Common Stock.
The
market for our Common Stock may be characterized by significant price volatility when compared to seasoned issuers, and we expect
that our stock price will be more volatile than a seasoned issuer for the indefinite future. The potential volatility in our stock
price is attributable to a number of factors. First, our shares of Common Stock may be sporadically and/or thinly traded. As a
consequence of this lack of liquidity, the trading of relatively small quantities of shares by our stockholders may disproportionately
influence the price of those shares in either direction. The price for our shares could, for example, decline precipitously in
the event that a large number of our shares of Common Stock are sold on the market without commensurate demand, as compared to
a seasoned issuer that could better absorb those sales without adverse impact on its stock price. Secondly, an investment in us
is a speculative or “risky” investment due to our lack of meaningful profits to date and uncertainty of future profits.
As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment
in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater
discounts than would be the case with the stock of a seasoned issuer.
We
may be subject to penny stock regulations and restrictions and you may have difficulty selling shares of our Common Stock.
The
SEC has adopted regulations which generally define so-called “penny stocks” to be an equity security that has a market
price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. Our Common Stock
is a “penny stock” and is subject to Rule 15g-9 under the Exchange Act. This rule imposes additional sales practice
requirements on broker-dealers that sell such securities to persons other than established customers and “accredited investors”
(generally, individuals with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together with
their spouses). For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the
purchaser and have received the purchaser’s written consent to the transaction prior to sale. As a result, this rule may
affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers to sell any of our securities
in the secondary market, thus possibly making it more difficult for us to raise additional capital.
For
any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in penny stock, of
a disclosure schedule prepared by the SEC relating to the penny stock market. Disclosure is also required to be made about sales
commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally,
monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information
on the limited market in penny stock.
There
can be no assurance that our Common stock will qualify for exemption from this rule. In any event, even if our Common Stock were
exempt from this rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict
any person from participating in a distribution of penny stock, if the SEC finds that such a restriction would be in the public
interest.
We
have never paid cash dividends on our Common Stock and do not intend to pay dividends for the foreseeable future.
We
have paid no cash dividends on our Common Stock to date and we do not anticipate paying cash dividends on our Common Stock in
the near term. For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business,
and we do not anticipate paying any cash dividends on our Common Stock. Accordingly, investors must be prepared to rely on sales
of their Common Stock after price appreciation to earn an investment return, which may never occur. Investors seeking cash dividends
should not purchase our Common Stock. Any determination to pay dividends in the future will be made at the discretion of our board
of directors and will depend on our results of operations, financial condition, contractual restrictions, restrictions imposed
by applicable law and other factors our board deems relevant.
Our
Preferred Stock have liquidation preferences senior to our Common Stock.
Our
Series A Cumulative Convertible Preferred Stock, which we refer to as our Series A Preferred Stock, and Series B Cumulative Redeemable
Preferred Stock, which we refer to as our Series B Preferred Stock, have liquidation preferences that get paid prior to any payment
on our Common Stock. As a result, if we were to dissolve, liquidate, merge with another company or sell our assets, the holders
of our Series A Preferred Stock and Series B Preferred Stock would have the right to receive up to approximately $16,706,310 as
of December 31, 2020, plus any unpaid dividends, before any amount is paid to the holders of our Common Stock. The payment of
the liquidation preferences could result in common stockholders not receiving any consideration if we were to liquidate, dissolve
or wind up, either voluntarily or involuntarily. The existence of the liquidation preferences may also reduce the value of our
Common Stock, make it harder for us to sell shares of Common Stock in offerings in the future, or prevent or delay a change of
control.
We
may issue additional debt and equity securities that are senior to our Common Stock as to distributions and in liquidation, which
could materially adversely affect the value of the Common Stock.
In
the future, we may attempt to increase our capital resources by entering into additional debt or debt-like financing that is secured
by all or up to all of our assets, or issuing debt or equity securities, which could include issuances of commercial paper, medium-term
notes, senior notes, subordinated notes or shares. In the event of our liquidation, our lenders and holders of our debt securities
would receive a distribution of our available assets before distributions to our stockholders. Any additional preferred securities,
if issued by our company, may have a preference with respect to distributions and upon liquidation that is senior to the preference
of our Common Stock, which could further limit our ability to make distributions to our stockholders. Because our decision to
incur debt and issue securities in our future offerings will depend on market conditions and other factors beyond our control,
we cannot predict or estimate the amount, timing or nature of our future offerings and debt financing.
Further,
market conditions could require us to accept less favorable terms for the issuance of our securities in the future. Thus, you
will bear the risk of our future offerings reducing the value of your Common Stock. In addition, we can change our leverage strategy
from time to time without approval of holders of our Common Stock, which could materially adversely affect the value of our Common
Stock.
Our
articles of incorporation, bylaws and Nevada law have anti-takeover provisions that could discourage, delay or prevent a change
in control, which may cause our stock price to decline.
Our
articles of incorporation, bylaws and Nevada law contain provisions which could make it more difficult for a third party to acquire
us, even if closing such a transaction would be beneficial to our stockholders. We are currently authorized to issue up to 5,000,000
shares of “blank check” Preferred Stock. This Preferred Stock may be issued in one or more series, the terms of which
may be determined at the time of issuance by our board of directors without further action by stockholders. The terms of any series
of Preferred Stock may include voting rights (including the right to vote as a series on particular matters), preferences as to
dividend, liquidation, conversion and redemption rights and sinking fund provisions. The issuance of any Preferred Stock could
materially adversely affect the rights of the holders of our Common Stock, and therefore, reduce the value of our Common Stock.
In particular, specific rights granted to future holders of Preferred Stock could be used to restrict our ability to merge with,
or sell our assets to, a third party and thereby preserve control by current management.
Provisions
of our articles of incorporation, bylaws and Nevada law also could have the effect of discouraging potential acquisition proposals
or making a tender offer or delaying or preventing a change in control, including changes a stockholder might consider favorable.
Such provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. In particular,
our articles of incorporation, bylaws and Nevada law, as applicable, among other things, provide our board of directors with the
ability to alter our bylaws without stockholder approval, and provide that vacancies on our board of directors may be filled by
a majority of directors in office, although less than a quorum.
|
ITEM
1B.
|
UNRESOLVED
STAFF COMMENTS.
|
Not
applicable.
As
of December 31, 2020, we owned the following manufactured housing properties:
|
●
|
Pecan
Grove – a 81 lot, all-age community situated on 10.71 acres and located
in Charlotte, North Carolina. The average occupancy was 100%.
|
|
●
|
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. The average occupancy
was 97%.
|
|
●
|
Holly
Faye – a 35 lot all-age community situated on 8.01 acres and located in
Gastonia, North Carolina, a suburb of Charlotte North Carolina. The average occupancy
was 97%.
|
|
●
|
Lakeview
– a 84 lot all-age community situated on 17.26 acres in Spartanburg, South
Carolina. The average occupancy was 99%.
|
|
●
|
Chatham
Pines – a 49 lot all-age community situated on 23.57 acres and located
in Chapel Hill, North Carolina. The average occupancy was 100%.
|
|
●
|
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. The average occupancy was 87%.
|
|
●
|
Hunt
Club Forest – a 78 lot all-age community situated on 13.02 acres and located
in the Columbia, South Carolina metro area. The average occupancy was 100%.
|
|
●
|
B&D
– a 95 lot all-age community situated on 17.75 acres and located in Chester,
South Carolina. The average occupancy was 85%.
|
|
●
|
Crestview
– a 113 lot all-age community situated on 17.1 acres and located in the Ashville,
NC MSA, North Carolina, Metropolitan Statistical Area. The average occupancy was 90%.
|
|
●
|
Spring
Lake – three all-age communities with 226 lots situated on 72.7 acres
and located in Warner Robins, Georgia. The average occupancy was 87%.
|
|
●
|
ARC
– five all-age communities with 187 lots situated on 39.34 acres and
located in Lexington, South Carolina. The average occupancy was 82%.
|
|
●
|
Countryside –
a 109 lot all-age community situated on 35 acres and located in Lancaster, North Carolina.
The average occupancy was 90%.
|
|
●
|
Evergreen –
a 64 lot all-age community situated on 28.4 acres and located in Dandridge, Tennessee.
The average occupancy was 98%.
|
The average occupancy rates above represent an average
of total monthly occupancy rates from January 1, 2020 (or date of acquisition) through December 31, 2020. For the year ended December
31, 2020, our total portfolio weighted average occupancy rate was 93%.
|
ITEM
3.
|
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.
|
ITEM
4.
|
MINE
SAFETY DISCLOSURES.
|
Not
applicable.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2020 AND 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.
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”).
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company, entities controlled by the Company through its direct or
indirect ownership of a majority interest and any other entities in which the Company has a controlling financial interest. The
Company consolidates variable interest entities (“VIEs”) where the Company is the primary beneficiary. The primary
beneficiary of a VIE is the party that has both the power to direct the activities that most significantly impact the VIE’s
economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant
to the VIE.
The
Company’s formation of all subsidiaries and VIE’s date of consolidation are as follows:
Name
of Subsidiary/VIE
|
|
State
of Formation
|
|
Date
of Formation
|
|
Ownership
|
Pecan
Grove MHP LLC
|
|
North
Carolina
|
|
October
12, 2016
|
|
100%
*
|
Azalea
MHP LLC
|
|
North
Carolina
|
|
October
25, 2017
|
|
100%
|
Holly
Faye MHP LLC
|
|
North
Carolina
|
|
October
25, 2017
|
|
100%
|
Chatham
Pines MHP LLC
|
|
North
Carolina
|
|
October
31, 2017
|
|
100%
|
Maple
Hills MHP LLC
|
|
North
Carolina
|
|
October
31, 2017
|
|
100%
|
Lakeview
MHP LLC
|
|
South
Carolina
|
|
November
1, 2017
|
|
100%
|
MHP
Pursuits LLC
|
|
North
Carolina
|
|
January
31, 2019
|
|
100%
|
Mobile
Home Rentals LLC
|
|
North
Carolina
|
|
September
30, 2016
|
|
100%
|
Hunt
Club MHP LLC
|
|
South
Carolina
|
|
March
8, 2019
|
|
100%
|
B&D
MHP LLC
|
|
South
Carolina
|
|
April
4, 2019
|
|
100%
|
Crestview
MHP LLC
|
|
North
Carolina
|
|
June
28, 2019
|
|
100%
|
Springlake
MHP LLC
|
|
Georgia
|
|
October
10, 2019
|
|
100%
|
ARC
MHP LLC
|
|
South
Carolina
|
|
November
13, 2019
|
|
100%
|
Countryside
MHP LLC
|
|
South
Carolina
|
|
March
12, 2020
|
|
100%
|
Evergreen
MHP LLC
|
|
Tennessee
|
|
March
17, 2020
|
|
100%
|
Gvest
Finance LLC
|
|
North
Carolina
|
|
December
11, 2018
|
|
VIE
|
Gvest
Finance Homes I LLC
|
|
Delaware
|
|
November
9, 2020
|
|
VIE
|
|
*
|
The
Company originally acquired a 75% interest. In January 2019, the Company acquired the remaining 25% interest from a related party.
|
During
the Year ended December 31, 2020, we sold the Butternut manufactured housing community for a total sale price of $2,100,000. The
cost net of accumulated depreciation of the community at the time of the sale was $1,338,022. The Company wrote off mortgage costs
of $109,529 which is included in refinancing costs on the consolidated statement of operations. The Company recognized a gain
on the sale of the property of $761,978 which is included in other income on the consolidated statements of operations.
All
intercompany transactions and balances have been eliminated in consolidation.
MANUFACTURED
HOUSING PROPERTIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2020 AND 2019
Revenue
Recognition
Mobile
home sale revenues are recognized in accordance with Topic 606 of the Financial Accounting Standards Board ( “FASB)”
Accounting Standards Codification (“ASC”) for revenue recognition. The Company recognizes revenues in a manner to
depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in
exchange for those goods or services. The Company considers revenue realized or realizable and earned when all the five following
criteria are met: (1) identification of the contract with a customer, (2) identification of the performance obligations in the
contract, (3) determination of the transaction price, (4) allocation of the transaction price to the performance obligations in
the contract, and (5) recognition of revenue when (or as) we satisfy a performance obligation.
Under
ASC 842, the Company must assess on an individual lease basis whether it is probable that we will collect the future lease payments.
The Company considers the tenant’s payment history and current credit status when assessing collectability. When collectability
is not deemed probable, the Company will write-off the tenant’s receivables, including straight-line rent receivable, and
limit lease income to cash received.
The
Company’s revenues primarily consist of rental revenues and fee and other income. The Company has the following revenue
sources and revenue recognition policies:
|
●
|
Rental
revenues include revenues from the leasing of land lot or a combination of both, the mobile home and land at our properties to
tenants.
|
|
○
|
Revenues
from the leasing of land lot or a combination of both, the mobile home and land at the Company’s properties to tenants include
(i) lease components, including land lot or a combination of both, the mobile home and land, and (ii) reimbursement of utilities
and account for the components as a single lease component in accordance with ASC 842.
|
|
○
|
Revenues
derived from fixed lease payments are recognized on a straight-line basis over the non-cancelable period of the lease. The Company
commences rental revenue recognition when the underlying asset is available for use by the lessee. Revenue derived from the reimbursement
of utilities are generally recognized in the same period as the related expenses are incurred. The Company’s leases are
month-to-month.
|
|
●
|
Fee
and other income include late fees, violation fees and other revenue arising from contractual agreements with third parties. This
revenue is recognized as the services are transferred in accordance with ASC 606.
|
Accounts
Receivable
Accounts
receivable consist primarily of amounts currently due from residents. Accounts receivables are reported in the balance sheet at
outstanding principal adjusted for any charge-offs and the allowance for losses. The Company records an allowance for bad debt
when receivables are over 90 days old.
Acquisitions
The
Company accounts for acquisitions as asset acquisitions in accordance with ASC 805, “Business Combinations,” and allocates
the purchase price of the property based upon the fair value of the assets acquired, which generally consist of land, site and
land improvements, buildings and improvements and rental homes. The Company allocates the purchase price of an acquired property
generally determined by internal evaluation as well as third-party appraisal of the property obtained in conjunction with the
purchase.
MANUFACTURED
HOUSING PROPERTIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2020 AND 2019
Variable
Interest Entities
In
December 2020, the Company sold 305 park owned homes in four communities to Gvest Finance LLC, a company owned and controlled
by the Company’s parent company, Gvest Real Estate Capital LLC, an entity whose sole owner is Raymond M. Gee, the Company’s
chairman and chief executive officer, and to its wholly owned subsidiary Gvest Homes 1 LLC, for a total of $4,648,967. The Company
also executed a management agreement with these entities to manage the homes while remitting to the Company all income, less any
sums paid out for debt service plus 5% of the debt service payment. Primarily due to the Company’s common ownership by Mr.
Gee, its power to direct the activities of these entities that most significantly impact their economic performance, and the fact
that the Company has the obligation to absorb losses or the right to receive benefits from these entities that could potentially
be significant to these entities, Gvest Finance LLC and Gvest Homes 1 LLC are considered to be VIEs in accordance applicable GAAP.
A company with interests in a VIE must consolidate the entity if the company is deemed to be the primary beneficiary of the VIE;
that is, if it has both (1) the power to direct the economically significant activities of the entity and (2) the obligation
to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. Such
a determination requires management to evaluate circumstances and relationships that may be difficult to understand and to make
a significant judgment, and to repeat the evaluation at each subsequent reporting date. In accordance with applicable GAAP, because
of the common ownership among the entities, the consolidation of the VIEs have been accounted for retrospectively as of the beginning
of the first period presented in the consolidated financial statements.
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, including vested stock options 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.
For the years ended December 31, 2020 and 2019, the potentially dilutive penny options for the purchase of 519,675 shares of common stock
were included in basic loss per share. Total dilutive securities outstanding as of December 31, 2020 and 2019 totaled 136,500 stock options,
1,890,000 convertible Preferred Series A shares, which are convertible into common shares at $2.50 per share for a total of 756,000,
which are not included in dilutive loss per share as the effect would be anti-dilutive.
Use
of Estimates
The
presentation of financial statements in conformity with GAAP requires management to make estimates and assumptions that effect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those
estimates.
Investment
Property and Depreciation
Investment
property which consists of property and equipment are carried at cost. Depreciation for Sites and Building is computed principally
on the straight-line method over the estimated useful lives of the assets (ranging from 15 to 25 years). Depreciation of Improvements
to Sites and Buildings, Rental Homes and Equipment and Vehicles is computed principally on the straight-line method over the estimated
useful lives of the assets (ranging from 3 to 25 years). Land Development Costs are not depreciated until they are put in use,
at which time they are capitalized as Sites and Land Improvements. Interest Expense pertaining to Land Development Costs are capitalized.
Maintenance and Repairs are charged to expense as incurred and improvements are capitalized. The costs and related accumulated
depreciation of property sold or otherwise disposed of are removed from the financial statement and any gain or loss is reflected
in the current period’s results of operations.
MANUFACTURED
HOUSING PROPERTIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2020 AND 2019
Impairment
Policy
The
Company applies FASB ASC 360-10, “Property, Plant & Equipment,” to measure impairment in real estate investments.
Rental properties are individually evaluated for impairment when conditions exist which may indicate that it is probable that
the sum of expected future cash flows (on an undiscounted basis without interest) from a rental property is less than the carrying
value under its historical net cost basis. These expected future cash flows consider factors such as future operating income,
trends and prospects as well as the effects of leasing demand, competition and other factors. Upon determination that a permanent
impairment has occurred, rental properties are reduced to their fair value. For properties to be disposed of, an impairment loss
is recognized when the fair value of the property, less the estimated cost to sell, is less than the carrying amount of the property
measured at the time there is a commitment to sell the property and/or it is actively being marketed for sale. A property to be
disposed of is reported at the lower of its carrying amount or its estimated fair value, less its cost to sell. Subsequent to
the date that a property is held for disposition, depreciation expense is not recorded. There was no impairment during the year
ended December 31, 2020 and 2019.
Cash
and Cash Equivalents
The
Company considers all highly liquid financial instruments purchased with an original maturity of three months or less to be cash
equivalents.
The
Company maintains cash balances at banks and deposits at times may exceed federally insured limits. Management believes that the
financial institutions that hold the Company’s cash are financially secure and, accordingly, minimal credit risk exists.
At December 31, 2020 and 2019, the Company had approximately $641,000 and $2,553,000 above the FDIC-insured limit, respectively,
including restricted cash held for tenant security deposits of $339,152 and $316,035, respectively.
Stock
Based Compensation
All
stock based payments to employees, nonemployee consultants, and to nonemployee directors for their services as directors, including
any grants of restricted stock and stock options, are measured at fair value on the grant date and recognized in the statements
of operations as compensation or other expense over the relevant service period in accordance with FASB ASC Topic 718. Stock based
payments to nonemployees are recognized as an expense over the period of performance. Such payments are measured at fair value
at the earlier of the date a performance commitment is reached or the date performance is completed. In addition, for awards that
vest immediately and are nonforfeitable the measurement date is the date the award is issued. The Company recorded stock option
expense of $2,370 and $4,774 during the year ended December 31, 2020 and 2019, respectively.
Fair
Value of Financial Instruments
The
Company follows paragraph 825-10-50-10 of the FASB ASC for disclosures about fair value of its financial instruments and paragraph
820-10-35-37 of the FASB ASC to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework
for measuring fair value in GAAP and expands disclosures about fair value measurements. To increase consistency and comparability
in fair value measurements and related disclosures, paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes
the inputs to valuation techniques used to measure fair value into broad levels. The fair value hierarchy gives the highest priority
to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.
MANUFACTURED
HOUSING PROPERTIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2020 AND 2019
Reclassifications
Certain
amounts in the prior period presentation have been reclassified to conform with the current presentation.
Income
Taxes
The
Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under
this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial
statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are
expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the
period that includes the enactment date.
The
Company recognizes deferred tax assets to the extent that the Company believes that these assets are more likely than not to be
realized. In making such a determination, the Company considers all available positive and negative evidence, including future
reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of
recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess
of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would
reduce the provision for income taxes.
The
Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) the Company
determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of
the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes
the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related
tax authority.
The
Company recognizes interest and penalties, if any, with income tax expense in the accompanying consolidated statement of operations.
As of December 31, 2020, and December 31, 2019, there were no such accrued interest or penalties.
Recent
Accounting Pronouncements
In
June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments.” ASU 2016-13 requires that entities use a new forward looking “expected loss”
model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit
losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability
of the reported amount. ASU No. 2016-13 is effective for annual reporting periods, including interim reporting periods within
those periods, beginning after December 15, 2022. The Company is currently evaluating the potential impact this standard may have
on the consolidated financial statements.
In
March 2019, the FASB issued ASU No. 2019-01, “Leases (Topic 842): Codification Improvements.” ASU 2019-01 aligns the
guidance for fair value of the underlying asset by lessors with existing guidance in Topic 842. The ASU requires that the fair
value of the underlying asset at lease commencement is its cost reflecting in volume or trade discounts that may apply. However,
if there has been a significant lapse of time between the date the asset was acquired and the lease commencement date, the definition
of fair value as outlined in Topic 820 should be applied. In addition, the ASU exempts both lessees and lessors from having to
provide certain interim disclosures in the fiscal year in which a company adopts the new leases standard. The update is effective
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company has evaluated
the impact this standard had on the consolidated financial statements and determined that it had no impact on the consolidated
financial statements.
MANUFACTURED
HOUSING PROPERTIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2020 AND 2019
In
August 2020, the FASB issued ASU 2020-06 “Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging
- Contracts in Entity’s Own Equity”, which simplifies the guidance for certain convertible debt instruments by removing
the separation models for convertible debt with a cash conversion feature or convertible instruments with a beneficial conversion
feature. As a result, convertible debt instruments will be reported as a single liability instrument with no separate accounting
for embedded conversion features. Additionally, ASU 2020-06 requires the application of the if-converted method for calculating
diluted earnings per share and the treasury stock method will be no longer available. The provisions of ASU 2020-06 are applicable
for fiscal years beginning after December 15, 2023, with early adoption permitted no earlier than fiscal years beginning after
December 15, 2020. The Company is currently evaluating the potential impact this standard may have on the consolidated financial
statements.
Management
does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
effect on the accompanying unaudited condensed consolidated financial statements.
Impact
of Coronavirus Pandemic
In
December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. The virus has since spread to
over 150 countries and every state in the United States. On March 11, 2020, the World Health Organization declared the outbreak
a pandemic, and on March 13, 2020, the United States declared a national emergency.
Most
states and cities, including where the Company’s properties are located, have reacted by instituting quarantines, restrictions
on travel, “stay at home” rules and restrictions on the types of businesses that may continue to operate, as well
as guidance in response to the pandemic and the need to contain it.
The
Company is carefully reviewing all rules, regulations, and orders and responding accordingly. The Company has taken steps to take
care of its employees, including providing the ability for employees to work remotely and implementing strategies to support appropriate
social distancing techniques for those employees who are not able to work remotely. The Company has also taken precautions with
regard to employee, facility and office hygiene as well as implementing significant travel restrictions. The Company is also assessing
its business continuity plans for all business units in the context of the pandemic. This is a rapidly evolving situation, and
the Company will continue to monitor and mitigate developments affecting its workforce, its tenants, and the public at large to
the extent the Company is able to do so.
The
rules and restrictions put in place have had a negative impact on the economy and business activity and may adversely impact the
ability of the Company’s tenants, many of whom may be restricted in their ability to work, to pay their rent as and
when due. In addition, the Company’s property managers may be limited in their ability to properly maintain the
Company’s properties. Enforcing the Company’s rights as landlord against tenants who fail to
pay rent or otherwise do not comply with the terms of their leases may not be possible as many jurisdictions, including those
where are properties are located, have established rules and/or regulations preventing us from evicting tenants for certain periods
in response to the pandemic. If the Company is unable to enforce its rights as landlords, our business would be materially affected.
If
the current pace of the pandemic cannot be slowed and the spread of the virus is not contained, the Company’s business
operations could be further delayed or interrupted. The Company expects that government and health authorities may announce new
or extend existing restrictions, which could require the Company to make further adjustments to its operations in order to comply
with any such restrictions. The duration of any business disruption cannot be reasonably estimated at this time but may materially
affect the Company’s ability to operate its business and result in additional costs.
The
extent to which the pandemic may impact the Company’s results will depend on future developments, which are highly
uncertain and cannot be predicted as of the date hereof, including new information that may emerge concerning the severity of
the pandemic and steps taken to contain the pandemic or treat its impact, among others. Nevertheless, the
pandemic and the current financial, economic and capital markets environment present material uncertainty and risk with respect
to the Company’s performance, financial condition, results of operations and cash flows.
MANUFACTURED
HOUSING PROPERTIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2020 AND 2019
NOTE
2 – REVISIONS OF PRIOR YEAR IMMATERIAL MISSTATEMENT
Immaterial
Misstatement
During
the year ended December 31, 2020, the Company identified a certain error in recording its minority interest buyout for Pecan Grove
during the first quarter of 2019. This error resulted in decreasing land Investment Property and Equity by $244,321 and had no
impact on the Company’s income statements.
The
Company assessed the materiality of this error considering both qualitative and quantitative factors and determined that for both
the quarter and fiscal year ended December 31, 2019, the error was immaterial. The Company has decided to correct this error as
revisions to its previously issued financial statements for the year ended December 31, 2019.
Retrospective
Application of Consolidation – Entities Under Common Control
The
Company consolidates the accounts of Gvest Finance LLC and Gvest Homes 1 LLC. In accordance with applicable GAAP, due to common
ownership among the entities, the consolidation has been accounted for retrospectively as of the beginning of the first period
presented in the consolidated financial statements.
The
table below present the impacts of the revision and the retrospective application to account for the VIEs in the Company’s
consolidated financial statement.
Consolidated Balance Sheets
|
|
December 31, 2019
|
|
|
|
As
previously
reported
|
|
|
Adjustment
for
Revision
|
|
|
Adjustment
for
retrospective
application
|
|
|
As
Revised
|
|
Investment
Property
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
11,130,259
|
|
|
$
|
(244,321
|
)
|
|
|
-
|
|
|
$
|
10,885,938
|
|
Total
Investment Property
|
|
|
34,811,785
|
|
|
|
(244,321
|
)
|
|
|
852,795
|
|
|
|
35,420,259
|
|
Net
Investment Property
|
|
|
33,416,827
|
|
|
|
(244,321
|
)
|
|
|
833,552
|
|
|
|
34,006,058
|
|
Total
Assets
|
|
|
38,152,131
|
|
|
|
(244,321
|
)
|
|
|
851,916
|
|
|
|
38,759,726
|
|
Total
Liabilities
|
|
|
31,982,075
|
|
|
|
-
|
|
|
|
826,209
|
|
|
|
32,808,284
|
|
Additional
Paid in Capital
|
|
|
1,004,170
|
|
|
|
(244,321
|
)
|
|
|
-
|
|
|
|
759,849
|
|
Total
Deficit
|
|
|
(2,712,554
|
)
|
|
|
(244,321
|
)
|
|
|
25,707
|
|
|
|
(2,931,168
|
)
|
Total
Liabilities and Deficit
|
|
$
|
38,152,131
|
|
|
$
|
(244,321
|
)
|
|
|
851,916
|
|
|
$
|
38,759,726
|
|
The consolidated statement of operations and statement of cash flows
for the year ended December 31, 2019 are not presented because there is no impact to these statements due to the revision of a prior year
immaterial misstatement. The effect of retrospective application of consolidation on these statements was deemed immaterial. The consolidated
statement of operations and statement of cash flows for the year ended December 31, 2019 that are presented in the financial statements
reflect the retrospective application of consolidation.
MANUFACTURED
HOUSING PROPERTIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2020 AND 2019
NOTE
3 – VARIABLE INTEREST ENTITIES
The
Company consolidates the accounts of Gvest Finance LLC and Gvest Homes 1 LLC and will continue to do so until they are no longer
considered VIEs. Net operating income associated with these entities are included in the consolidated results of operations for
the years ended December 31, 2020 and 2019 were $451,876 and $25,707, respectively. The consolidated balance sheets as of December
31, 2020 and 2019 included the following amounts related to the consolidated VIEs.
|
|
2020
|
|
|
2019
|
|
Assets
|
|
|
|
|
|
|
Investment Property
|
|
$
|
6,036,057
|
|
|
$
|
852,795
|
|
Accumulated Depreciation
|
|
|
(387,780
|
)
|
|
|
(19,243
|
)
|
Net Investment Property
|
|
|
5,648,277
|
|
|
|
833,552
|
|
Cash and Cash Equivalents
|
|
|
9,234
|
|
|
|
1,000
|
|
Accounts Receivable, net
|
|
|
3,506
|
|
|
|
3,356
|
|
Other Assets
|
|
|
14,652
|
|
|
|
14,008
|
|
Total Assets
|
|
$
|
5,675,669
|
|
|
$
|
851,916
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Deficit
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
$
|
4,969
|
|
|
$
|
4,765
|
|
Notes Payable
|
|
|
1,994,640
|
|
|
|
730,111
|
|
Line of Credit, net of $134,051 of debt discount
|
|
|
3,214,916
|
|
|
|
-
|
|
Notes Payable, related party
|
|
|
-
|
|
|
|
80,961
|
|
Accrued Liabilities
|
|
|
9,439
|
|
|
|
10,372
|
|
Tenant Security Deposits
|
|
|
1,499
|
|
|
|
-
|
|
Total Liabilities
|
|
|
5,225,463
|
|
|
|
826,209
|
|
|
|
|
|
|
|
|
|
|
Non-Controlling interest
|
|
|
450,206
|
|
|
|
25,707
|
|
Total Non-controlling interest in variable interest entity equity
|
|
|
450,206
|
|
|
|
25,707
|
|
NOTE
4 – INVESTMENT PROPERTY
The
following table summarizes the Company’s property and equipment balances are generally used to depreciate the assets on
a straight-line basis:
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
(As Revised)
|
|
Investment Property
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
11,293,818
|
|
|
$
|
10,885,938
|
|
Site and Land Improvements
|
|
|
20,924,112
|
|
|
|
17,466,801
|
|
Buildings and Improvements
|
|
|
8,026,993
|
|
|
|
7,067,520
|
|
Total Investment Property
|
|
|
40,244,923
|
|
|
|
35,420,259
|
|
Accumulated Depreciation
|
|
|
(2,779,201
|
)
|
|
|
(1,414,201
|
)
|
Net Investment Property
|
|
$
|
37,465,722
|
|
|
|
34,006,058
|
|
Depreciation
expense for the years ended December 31, 2020 and 2019 were $1,652,509 and $805,421, respectively.
During
2019, the Company acquired the 25% minority interest in Pecan Grove MHP LLC.
MANUFACTURED
HOUSING PROPERTIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2020 AND 2019
NOTE
5 – ACQUISITIONS AND DISPOSALS
During
the year ended December 31, 2019, the Company acquired the assets of five manufactured housing communities. The Company had three
additional acquisitions during the year ended December 31, 2020. These were asset acquisitions from third parties and have been
accounted for as asset acquisitions. The acquisition date estimated fair value was determined by third party appraisals.
The acquisition of the manufactured housing communities acquired assets consisted of the following:
Acquisition Date
|
|
Name
|
|
Land
|
|
|
Improvements
|
|
|
Building
|
|
|
Total
Purchase
Price
|
|
April 2019
|
|
Hunt Club MHP
|
|
|
1,394,275
|
|
|
|
589,500
|
|
|
|
3,886
|
|
|
|
1,987,661
|
|
May 2019
|
|
B&D MHP
|
|
|
1,750,000
|
|
|
|
914,061
|
|
|
|
-
|
|
|
|
2,664,061
|
|
August 2019
|
|
Crestview MHP
|
|
|
991,750
|
|
|
|
2,975,250
|
|
|
|
1,533,000
|
|
|
|
5,500,000
|
|
November 2019
|
|
Springlake MHP
|
|
|
923,213
|
|
|
|
2,769,637
|
|
|
|
1,582,650
|
|
|
|
5,275,500
|
|
December 2019
|
|
ARC MHP
|
|
|
1,468,750
|
|
|
|
3,406,250
|
|
|
|
1,625,000
|
|
|
|
6,500,000
|
|
March 2020
|
|
Countryside MHP
|
|
|
152,880
|
|
|
|
3,194,245
|
|
|
|
352,875
|
|
|
|
3,700,000
|
|
March 2020
|
|
Evergreen MHP
|
|
|
340,000
|
|
|
|
1,111,000
|
|
|
|
-
|
|
|
|
1,451,000
|
|
Total
|
|
|
|
|
7,020,868
|
|
|
|
14,959,943
|
|
|
|
5,097,411
|
|
|
|
27,078,222
|
|
Pro-forma
Financial Information (unaudited)
The
following unaudited pro-forma information presents the combined results of operations for the periods as if the above acquisitions
and sale of manufactured housing communities during 2020 had been completed on January 1, 2019.
|
|
For the Years Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Total Revenue
|
|
$
|
6,431,518
|
|
|
$
|
5,410,405
|
|
Total Expenses
|
|
|
4,007,848
|
|
|
|
4,074,247
|
|
Depreciation & Amortization
|
|
|
1,843,936
|
|
|
|
1,737,982
|
|
Interest Expense
|
|
|
2,037,301
|
|
|
|
1,962,117
|
|
Net Income (Loss)
|
|
$
|
(1,145,567
|
)
|
|
$
|
(2,363,941
|
)
|
Preferred Stock Dividends / Accretion
|
|
|
1,850,860
|
|
|
|
360,937
|
|
Net Income (Loss)
|
|
$
|
(2,996,427
|
)
|
|
$
|
(2,724,878
|
)
|
Net Loss Per Share
|
|
$
|
(0.22
|
)
|
|
$
|
(0.20
|
)
|
Butternut
Sale
During
the year ended December 31, 2020, the Company sold the Butternut manufactured housing community for a total sale price of $2,100,000.
The cost net of accumulated depreciation of the community at the time of the sale was $1,338,022. The Company wrote off mortgage
costs of $109,529 which is included in refinancing costs on the consolidated statement of operations. The Company recognized a
gain on the sale of the property of $761,978 which is included in other income on the consolidated statements of operations.
MANUFACTURED
HOUSING PROPERTIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2020 AND 2019
NOTE
6 – PROMISSORY NOTES AND LINES OF CREDIT
Promissory
Notes
The Company has issued promissory notes payable
to lenders related to the acquisition of its manufactured housing communities. These promissory notes range from 3.3% to 7.0% with 5 to
30 years principal amortization. Two of the promissory notes had an initial 6 months period on interest only payments. The promissory
notes are secured by the real estate assets and $26,124,753 for eleven loans were guaranteed by Raymond M. Gee, the Company’s chairman,
chief executive officer and owner of the principal stockholder of the Company. During the year ended December 31, 2020, the Company
refinanced a total of $16,374,007 from current loans payable to $15,245,000 of new notes payable from five of the communities. The Company
used the additional loans payable proceeds from the refinance to retire the related party note payable described below. As of December
31, 2020, the Company wrote off mortgage costs of $464,568 and capitalized $640,895 of mortgage costs due to the refinancing.
In
addition, on May 1, 2020, the Company received a $139,300 Paycheck Protection Program (the “PPP”) loan from the United
States Small Business Administration under provisions of the Coronavirus Aid, Relief and Economic Security Act (the “CARES
Act”). The PPP loan has a two-year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments
are deferred for six months after the date of disbursement. The PPP loan may be prepaid at any time prior to maturity with no
prepayment penalties. The PPP loan contains events of default and other provisions customary for a loan of this type. The PPP
provides that the loan may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described
in the CARES Act. The Company used the proceeds from the PPP loan for qualifying expenses and applied for forgiveness of the PPP
loan in accordance with the terms of the CARES Act. However, the Company cannot provide assurance that the loan will be forgiven.
As of December 31, 2020, the outstanding
balance on these notes was $32,313,367. The following are terms of these notes.
|
|
Maturity
Date
|
|
Interest
Rate
|
|
|
Balance
12/31/20
|
|
|
Balance
12/31/19
|
|
Butternut MHP Land LLC
|
|
04/10/25
|
|
|
6.000
|
%
|
|
$
|
-
|
|
|
$
|
1,114,819
|
|
Butternut MHP Land LLC Mezz
|
|
04/01/27
|
|
|
7.000
|
%
|
|
|
-
|
|
|
|
280,013
|
|
Pecan Grove MHP LLC
|
|
02/22/29
|
|
|
5.250
|
%
|
|
|
3,037,625
|
|
|
|
3,095,274
|
|
Azalea MHP LLC
|
|
03/01/29
|
|
|
5.400
|
%
|
|
|
810,741
|
|
|
|
835,445
|
|
Holly Faye MHP LLC
|
|
03/01/29
|
|
|
5.400
|
%
|
|
|
579,825
|
|
|
|
574,096
|
|
Chatham MHP LLC
|
|
04/01/24
|
|
|
5.875
|
%
|
|
|
1,734,828
|
|
|
|
1,771,506
|
|
Lakeview MHP LLC
|
|
03/01/29
|
|
|
5.400
|
%
|
|
|
1,832,264
|
|
|
|
1,857,266
|
|
B&D MHP LLC
|
|
04/25/29
|
|
|
5.500
|
%
|
|
|
1,818,303
|
|
|
|
1,854,788
|
|
Hunt Club MHP LLC
|
|
05/01/24
|
|
|
5.750
|
%
|
|
|
2,445,011
|
|
|
|
1,447,364
|
|
Crestview MHP LLC
|
|
12/31/30
|
|
|
3.250
|
%
|
|
|
4,800,000
|
|
|
|
4,173,652
|
|
Maple Hills MHP LLC
|
|
12/01/30
|
|
|
3.250
|
%
|
|
|
2,400,000
|
|
|
|
2,688,653
|
|
Springlake MHP LLC
|
|
11/14/22
|
|
|
3.310
|
%
|
|
|
4,000,000
|
|
|
|
4,000,000
|
|
ARC MHP LLC
|
|
01/01/30
|
|
|
5.500
|
%
|
|
|
3,885,328
|
|
|
|
5,300,000
|
|
Countryside MHP LLC
|
|
03/20/50
|
|
|
5.500
|
%
|
|
|
1,700,000
|
|
|
|
-
|
|
Evergreen MHP LLC
|
|
04/01/32
|
|
|
3.990
|
%
|
|
|
1,135,502
|
|
|
|
-
|
|
PPP Loan
|
|
05/01/22
|
|
|
1.000
|
%
|
|
|
139,300
|
|
|
|
-
|
|
Gvest B&D
|
|
05/01/24
|
|
|
5.000
|
%
|
|
|
694,640
|
|
|
|
730,111
|
|
Gvest Countryside
|
|
03/20/50
|
|
|
5.500
|
%
|
|
|
1,300,000
|
|
|
|
-
|
|
Totals note payables
|
|
|
|
|
|
|
|
|
32,313,367
|
|
|
|
29,722,987
|
|
Discount Direct Lender Fees
|
|
|
|
|
|
|
|
|
(1,096,629
|
)
|
|
|
(633,629
|
)
|
Total net of Discount
|
|
|
|
|
|
|
|
$
|
31,216,738
|
|
|
$
|
29,098,358
|
|
MANUFACTURED
HOUSING PROPERTIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2020 AND 2019
Metrolina
Promissory Note – Related Party
On
May 8, 2017, the Company issued a promissory note to Metrolina Loan Holdings, LLC (“Metrolina”) in the principal amount
of $3,000,000. The note is interest only payment based on 8%, and 10% deferred until maturity to be paid with principal balance.
The note originally awarded Metrolina 455,000 shares of Common Stock as consideration, which resulted in making Metrolina a related
party due to its significant ownership. During the year ended December 31, 2019, the Company paid off the entire balance on the
note of $2,754,550 plus interest and amended the agreement to allow for the redeployment of the $3,000,000 available, eliminated
the conversion option whereby Metrolina could convert the ratio of total outstanding debt at time of exercise of the option into
an amount of newly issued shares of the Company’s Common Stock determined by dividing the outstanding indebtedness by $3,000,000
multiplied by 10% with a cap of 864,500 shares. The amendment resulted in issuing an additional 545,000 shares with a fair value
of $305,200 for a total of 1,000,000 shares awarded to Metrolina. The note gives Metrolina the right and option to purchase its
pro rata share of debt or equity securities issued to maintain up to 10% equity interest in the Company at the most recent price
of any equity transaction for seven years from the amendment dated February 26, 2019. This was to mature in May of 2023. In September
2020, the Company paid off the full balance and terminated the loan facility. As of December 31, 2020 and 2019, the balance on
this note was $0 and $1,730,000, respectively. The related party note was guaranteed by Mr. Gee, the Company’s Chief Executive
Officer.
Revolving
Promissory Note
On October 1, 2017, the Company issued a revolving
promissory note to Raymond M. Gee, the Company’s chairman and chief executive officer, pursuant to which the Company may borrow
up to $1,500,000 from Mr. Gee on a revolving basis for working capital purposes. This note has a five-year term with no annual interest
and principal payment is deferred until the maturity date. In December 2020, the Company paid off the full balance. As of December 31,
2020 and 2019, the outstanding balance on this note was $0 and $878,867, respectively.
Line
of Credit – Occupied Home Facility
On
December 24, 2020 Gvest Homes I LLC entered into a loan agreement with a lender for a commitment amount of up to $20,000,0000
provided that only up to $8,500,000 is to be used for homes. The agreement requires the maintenance of certain financial ratios
and other affirmative and negative covenants. As of December 31, 2020, the Company was not in compliance with a certain financial
covenant. The Company obtained a waiver from the lender for the covenant in March 2021.
For
the year ended December 31, 2020 the Lender agreed to advance $3,348,967 to the Company, of which $2,218,630 was due from the
lender as of the balance sheet date. Subsequent to December 31, 2020, the Company collected $770,643 of the outstanding balance
owed to the Company from the lender. As of December 31, 2020, discount direct lender fees were $134,051.
The loan bears interest at 8.375% and maturity
date of the loan is January 1, 2030. Pursuant to the agreement, the Company is obligated to pay a fee to the lender equal to 1% of the
amount of each advance which funding fee shall be deducted from the then available commitment amount. The advances are guaranteed by Raymond
M. Gee, the Company’s chairman, chief executive officer and owner of the principal stockholder of the Company.
Maturities
of Long-Term Obligations for Five Years and Beyond
The
minimum annual principal payments of notes payable at December 31, 2020 were:
2021
|
|
$
|
787,433
|
|
2022
|
|
|
4,798,533
|
|
2023
|
|
|
803,740
|
|
2024
|
|
|
2,961,214
|
|
2025
|
|
|
801,504
|
|
Thereafter
|
|
|
25,509,910
|
|
Total minimum principal payments
|
|
$
|
35,662,334
|
|
MANUFACTURED
HOUSING PROPERTIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2020 AND 2019
NOTE
7 – 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.
NOTE
8 – STOCKHOLDERS’ EQUITY
Preferred
Stock
The
Company is authorized to issue up to 10,000,000 shares of preferred stock, $0.01 par value.
Series
A Cumulative Redeemable Convertible Preferred Stock
On
May 8, 2019, the Company filed a certificate of designation with the Nevada Secretary of State pursuant to which the Company designated
4,000,000 shares of its preferred stock as Series A Cumulative Redeemable Convertible Preferred Stock (the “Series A Preferred
Stock”). The Series A Preferred Stock has the following voting powers, designations, preferences and relative rights, qualifications,
limitations or restrictions:
Ranking.
The Series A Preferred Stock ranks, as to dividend rights and rights upon liquidation, dissolution, or winding up, senior to the
Common Stock and pari passu with the Series B Preferred Stock (as defined below).
Dividend
Rate and Payment Dates. Dividends on the Series A Preferred Stock are cumulative and payable monthly in arrears to all
holders of record on the applicable record date. Holders of Series A Preferred Stock will be entitled to receive cumulative dividends
in the amount of $0.017 per share each month, which is equivalent to the rate of 8% of the $2.50 liquidation preference per share.
Dividends on shares of Series A Preferred Stock will continue to accrue even if any of the Company’s agreements prohibit
the current payment of dividends or the Company does not have earnings. During the years ended December 31, 2020 and 2019, the
Company paid dividends of $377,353 and $125,700, respectively.
Liquidation
Preference. The liquidation preference for each share of Series A Preferred Stock is $2.50. Upon a liquidation, dissolution
or winding up of the Company, holders of shares of Series A Preferred Stock will be entitled to receive, before any payment or
distribution is made to the holders of Common Stock and on a pari passu basis with holders of Series B Preferred
Stock, the liquidation preference with respect to their shares plus an amount equal to any accrued but unpaid dividends (whether
or not declared) to, but not including, the date of payment with respect to such shares.
Stockholder
Optional Conversion. Each share of Series A Preferred Stock is convertible, at any time and from time to time, at the
option of the holder thereof and without the payment of additional consideration, into that number of shares of Common Stock determined
by dividing the liquidation preference of such share by the conversion price then in effect. The conversion price is initially
equal $2.50, subject to adjustment as set forth in the certificate of designation. In addition, if at any time the trading price
of the Common Stock is greater than the liquidation preference of $2.50, the Company may deliver a written notice to all holders
to cause each holder to convert all or part of such holders’ Series A Preferred Stock.
MANUFACTURED
HOUSING PROPERTIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2020 AND 2019
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 the Company at a put price equal to $3.75, or 150% of the original issue purchase price of such shares. During
the years ended December 31, 2020 and 2019, the Company recorded a put option value accretion of $472,500 and $184,000, respectively.
Voting
Rights. The Company may not authorize or issue any class or series of equity securities ranking senior to the Series A
Preferred Stock as to dividends or distributions upon liquidation (including securities convertible into or exchangeable for any
such senior securities) or amend the Company’s articles of incorporation (whether by merger, consolidation, or otherwise)
to materially and adversely change the terms of the Series A Preferred Stock without the affirmative vote of at least two-thirds
of the votes entitled to be cast on such matter by holders of the outstanding shares of Series A Preferred Stock, voting together
as a class. Otherwise, holders of the shares of Series A Preferred Stock do not have any voting rights.
As
of December 31, 2020, there were 1,890,000 shares of Series A Preferred Stock issued and outstanding. As of December 31, 2020,
the Series A Preferred Stock balance was made up of Series A Preferred Stock totaling $4,725,000 and accretion of put options
totaling $656,500. As of December 31, 2019, the Series A Preferred Stock balance was made up of Series A Preferred Stock totaling
$4,725,000 and accretion of put options totaling $184,000.
Series
B Cumulative Redeemable Preferred Stock
On
December 2, 2019, the Company filed a certificate of designation with the Nevada Secretary of State pursuant to which the Company
designated 1,000,000 shares of its preferred stock as Series B Cumulative Redeemable Preferred Stock (the “Series B Preferred
Stock”). The Series B Preferred Stock has the following voting powers, designations, preferences and relative rights, qualifications,
limitations or restrictions:
Ranking.
The Series B Preferred Stock rank, as to dividend rights and rights upon liquidation, dissolution, or winding up, senior to the
Common Stock and pari passu with the Series A Preferred Stock.
Dividend
Rate and Payment Dates. Dividends on the Series B Preferred Stock are cumulative and payable monthly in arrears to all
holders of record on the applicable record date. Holders of Series B Preferred Stock will be entitled to receive cumulative dividends
in the amount of $0.067 per share each month, which is equivalent to the annual rate of 8% of the $10.00 liquidation preference
per share; provided that upon an event of default (generally defined as the Company’s failure to pay dividends when due
or to redeem shares when requested by a holder), such amount shall be increased to $0.083 per month, which is equivalent to the
annual rate of 10% of the $10.00 liquidation preference per share. During the years ended December 31, 2020 and 2019, the Company
paid dividends of $433,790 and $23,233, respectively.
Liquidation
Preference. The liquidation preference for each share of Series B Preferred Stock is $10.00. Upon a liquidation, dissolution
or winding up of the Company, holders of shares of Series B Preferred Stock will be entitled to receive, before any payment or
distribution is made to the holders of Common Stock and on a pari passu basis with holders of Series A Preferred
Stock, the liquidation preference with respect to their shares plus an amount equal to any accrued but unpaid dividends (whether
or not declared) to, but not including, the date of payment with respect to such shares.
MANUFACTURED
HOUSING PROPERTIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2020 AND 2019
Company
Call and Stockholder Put Options. Commencing on the fifth anniversary of the initial issuance of shares of Series B Preferred
Stock and continuing indefinitely thereafter, the Company will have a right to call for redemption the outstanding shares of Series
B Preferred Stock at a call price equal to $15.00, or 150% of the original issue price of the Series B Preferred Stock, and correspondingly,
each holder of shares of Series B Preferred Stock shall have a right to put the shares of Series B Preferred Stock held by such
holder back to the Company at a put price equal to $15.00, or 150% of the original issue purchase price of such shares. During
the years ended December 31, 2020 and 2019, the Company recorded a put option value accretion of $567,217 and $28,004, respectively.
Voting
Rights. The Company may not authorize or issue any class or series of equity securities ranking senior to the Series B
Preferred Stock as to dividends or distributions upon liquidation (including securities convertible into or exchangeable for any
such senior securities) or amend the Company’s articles of incorporation (whether by merger, consolidation, or otherwise)
to materially and adversely change the terms of the Series B Preferred Stock without the affirmative vote of at least two-thirds
of the votes entitled to be cast on such matter by holders of outstanding shares of Series B Preferred Stock, voting together
as a class. Otherwise, holders of the shares of Series B Preferred Stock do not have any voting rights.
No
Conversion Right. The Series B Preferred Stock is not convertible into shares of Common Stock.
On
November 1, 2019, the Company launched an offering under Regulation A of Section 3(6) of the Securities Act of 1933, as, amended,
for Tier 2 offerings, pursuant to which the Company is offering up to 1,000,000 shares of Series B Preferred Stock at an offering
price of $10.00 per share, for a maximum offering amount of $10,000,000. In addition, the Company is offering bonus shares to
early investors in this offering, whereby the first 400 investors will receive, in addition to Series B Preferred Stock, 100 shares
of Common Stock, regardless of the amount invested, for a total of 40,000 shares of Common Stock.
During the year ended December 31, 2019, the Company
sold an aggregate of 409,722 shares of Series B Preferred Stock for total gross proceeds of $4,097,220. After deducting a placement fee
and other expenses, the Company received net proceeds of $3,973,610. During the year ended December 31, 2020, the Company sold an aggregate
of 231,532 shares of Series B Preferred Stock for total gross proceeds of $2,315,320. After deducting a placement fee and other expenses,
the Company received net proceeds of $2,151,250.
As
of December 31, 2020, there were 641,254 shares of Series B Preferred Stock issued and outstanding. As of December 31, 2020, the
Series B Preferred Stock balance was made up of Series B Preferred Stock totaling $ 6,412,540 and accretion of put options
totaling $279,536. As of December 31, 2019, the Series B Preferred Stock balance was made up of Series B Preferred Stock totaling
$ 4,097,220 and accretion of put options totaling $123,610.
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 December 31, 2020 and
2019, there were 12,398,580 and 12,336,080 shares of Common Stock issued and outstanding, respectively.
Stock
Issued for Service
In
November 2018, the Company issued 350,000 shares of Common Stock for services to an investment bank for advisory services with
a fair value of $171,500, and $24,500 of that fair value was expensed during the three months ended September 30, 2019. During
year ended December 31, 2019, the Company purchased these shares back for a total of $61,837 and canceled the shares due to the
termination of the advisory service agreement with the investment bank.
In
February 2019, the Company issued an additional 545,000 shares of Common Stock for services to Metrolina with a fair value of
$305,200.
MANUFACTURED
HOUSING PROPERTIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2020 AND 2019
In
October 2019, the Company issued 25,000 shares of Common Stock for consulting services with a value of $6,750.
In
November 2019, the Company issued 50,000 shares of Common Stock to board members with a value of $13,500.
In
April 2020, the Company issued 50,000 shares of Common Stock to board members with a value of $32,500.
Stock
Issued for Cash
In
June 2019, the Company issued an additional 254,506 shares of Common Stock for cash of $68,717 to Metrolina upon its exercise
of its option to purchase additional stock to maintain up to 10% ownership of the Company’s Common Stock outstanding.
During
the years ended December 31, 2020 and 2019, the Company issued 12,500 and 15,400 shares of Common Stock, respectively, to early
investors in the Regulation A offering, valued at $4,185 and $4,158, respectively.
Stock
issued for Acquisition
In
January 2019, the Company issued 2,000,000 shares of Common Stock to Gvest Real Estate Capital LLC, which is controlled and owned
by Mr. Gee, the Company’s Chief Executive Officer, to acquire the 25% minority interest in Pecan Grove, which were valued
at the historical cost value of $293,241.
Equity
Incentive Plan
In
December 2017, the Board of Directors, with the approval of a majority of the stockholders of the Company, adopted the Manufactured
Housing Properties Inc. Stock Compensation Plan (the “Plan”) which is administered by the Compensation Committee.
As of December 31, 2020, there were 656,175 shares granted and 343,825 shares remaining available under the Plan.
The
Company has issued options to directors and officers under the Plan. One third of the options vest immediately, and two thirds
vest in equal annual installments over a two-year period. The Company issued 519,675 shares in December 2017 and 136,500 shares
in December 2019.
The
Company recorded stock option expense of $2,370 and $4,774 during the years ended December 31, 2020 and 2019, respectively.
The
following table summarizes the stock options outstanding as of December 31, 2020:
|
|
Number of options
|
|
|
Weighted average exercise price (per share)
|
|
|
Weighted average remaining contractual term (in years)
|
|
Outstanding at December 31, 2019
|
|
|
656,175
|
|
|
$
|
0.03
|
|
|
|
8.7
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited / cancelled / expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at December 31, 2020
|
|
|
656,175
|
|
|
$
|
0.03
|
|
|
|
7.7
|
|
MANUFACTURED
HOUSING PROPERTIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2020 AND 2019
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 December 31, 2020. As of December 31, 2020,
there were 656,175 “in-the-money” options with an aggregate intrinsic value of $1,598,386.
The
following table summarizes information concerning options outstanding as of December 31, 2020.
Strike Price
Range ($)
|
|
|
Outstanding
stock options
|
|
|
Weighted average remaining
contractual term
(in years)
|
|
|
Weighted average outstanding
strike price
|
|
|
Vested
stock options
|
|
|
Weighted
average vested
strike price
|
|
$
|
0.01
|
|
|
|
519,675
|
|
|
|
7.0
|
|
|
$
|
0.01
|
|
|
|
519,675
|
|
|
$
|
0.01
|
|
$
|
0.27
|
|
|
|
136,500
|
|
|
|
9.0
|
|
|
$
|
0.27
|
|
|
|
45,500
|
|
|
$
|
0.27
|
|
The following table summarizes information
concerning options outstanding as of December 31, 2019.
Strike Price
Range ($)
|
|
|
Outstanding
stock options
|
|
|
Weighted average remaining
contractual term
(in years)
|
|
|
Weighted average outstanding
strike price
|
|
|
Vested
stock options
|
|
|
Weighted average vested
strike price
|
|
$
|
0.01
|
|
|
|
519,675
|
|
|
|
8.0
|
|
|
$
|
0.01
|
|
|
|
519,675
|
|
|
$
|
0.01
|
|
$
|
0.27
|
|
|
|
136,500
|
|
|
|
10.0
|
|
|
$
|
0.27
|
|
|
|
45,500
|
|
|
$
|
0.27
|
|
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
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
Risk-free interest rate
|
|
|
-
|
|
|
|
0.26
|
%
|
Expected dividend yield
|
|
|
-
|
|
|
|
0.00
|
%
|
Expected volatility
|
|
|
-
|
|
|
|
15.17
|
%
|
Expected life of options (in years)
|
|
|
-
|
|
|
|
10.0
|
|
NOTE
8 – RELATED PARTY TRANSACTIONS
On October 1, 2017, the Company issued a revolving
promissory note to Raymond M. Gee, the Company’s chairman and chief executive officer, pursuant to which the Company may borrow
up to $1,500,000 from Mr. Gee on a revolving basis for working capital purposes. This note has a five-year term with no annual interest
and principal payment is deferred until the maturity date. In December 2020, the Company paid off the full balance. As of December 31,
2020 and 2019, the outstanding balance on this note was $0 and $878,867, respectively.
On
May 8, 2017, the Company issued a promissory note to Metrolina in the principal amount of $3,000,000. The note is interest only
payment based on 8%, and 10% deferred until maturity to be paid with principal balance. The note originally awarded Metrolina
455,000 shares of Common Stock as consideration, which resulted in making Metrolina a related party due to its significant ownership.
During the year ended December 31, 2019, the Company paid off the entire balance on the note of $2,754,550 plus interest and amended
the agreement to allow for the redeployment of the $3,000,000 available, eliminated the conversion option whereby Metrolina could
convert the ratio of total outstanding debt at time of exercise of the option into an amount of newly issued shares of the Company’s
Common Stock determined by dividing the outstanding indebtedness by $3,000,000 multiplied by 10% with a cap of 864,500 shares.
The amendment resulted in issuing an additional 545,000 shares with a fair value of $305,200 for a total of 1,000,000 shares awarded
to Metrolina. The note gives Metrolina the right and option to purchase its pro rata share of debt or equity securities issued
to maintain up to 10% equity interest in the Company at the most recent price of any equity transaction for seven years from the
amendment dated February 26, 2019. This note was to mature in May of 2023. In September 2020, the Company paid off the full balance
and terminated the loan facility. As of December 31, 2020 and 2019, the balance on this note was $0 and $1,730,000, respectively.
The related party note was guaranteed by Mr. Gee, the Company’s Chief Executive Officer.
MANUFACTURED
HOUSING PROPERTIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2020 AND 2019
In
January 2019, the Company issued 2,000,000 shares of Common Stock to Gvest Real Estate Capital LLC, an entity controlled by Mr.
Gee, the Company’s Chief Executive Officer, to acquire the 25% minority interest in Pecan Grove, which were valued at the
historical cost value of $293,241.
In
August 2019, the Company entered into an office lease agreement with Gvest Real Estate Capital LLC for the lease of its offices.
The lease was $4,000 per month and is on a month-to-month term, starting on January 1, 2021 lease was increased to $12,000 per
month. Total rent expense for the years ended December 31, 2020 and 2019 was $48,000 and $20,000, respectively.
During
the years ended December 31, 2020 and 2019, the Company recorded $0 and $36,741, respectively, in revenues related to property
management consulting services provided to Gvest Real Estate Capital LLC.
During
the year ended December 31, 2020 and 2019, Mr. Gee, the Company’s Chief Executive Officer, received a $370,000 and $50,000,
respectively fees for his personal guarantee on certain promissory notes relating to the refinancing and acquisitions of our mobile
home communities.
NOTE
9 – INCOME TAXES
On December 22, 2017, President Trump signed into
law the Tax Cuts and Jobs Act (the “TCJA”) that significantly reforms the Internal Revenue Code of 1986, as amended (the “Internal
Revenue Code”). The TCJA, among other things, contains significant changes to corporate taxation, including a reduction of the corporate
tax rate from a top marginal rate of 35% to a flat rate of 21%, effective as of January 1, 2018; a limitation of the tax deduction for
interest expense; a limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net
operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such tax losses
may be carried forward indefinitely); and modifying or repealing many business deductions and credits.
The Company has significant business interest
expense; however, the TCJA provision implementing a limitation of the tax deduction for interest expense does not apply to the Company
as it qualifies for the small business exemption. On the 2019 tax return, the company elected to take 100% bonus depreciation deduction
available under the new TCJA tax legislation, which applies to qualified property placed in service after September 27, 2017 and before
January 1, 2023. This large expense created a deferred tax liability and also increased 2019 NOL significantly.
On March 27, 2020, the Coronavirus Aid, Relief,
and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, superseded
the change related to NOLs from TCJA and permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning
before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding
taxable years to generate a refund of previously paid income taxes. The Company is currently evaluating the impact of the CARES Act, but
at present does not expect that the NOL carryback provision of the CARES Act would result in a material cash benefit to us.
At December 31, 2020 and 2019, the Company had
net deferred tax assets principally arising from the net operating loss carry forwards for income tax purposes multiplied by the Federal
statutory tax rate of 21%. As management of the Company cannot determine that it is more likely than not that we will realize the benefit
of the deferred tax assets, a valuation allowance equal to the deferred tax asset has been established at December 31, 2020 and 2019.
As of December 31, 2020, and 2019, the
Company had net operating loss carryforwards of approximately $17,005,734 and $3,057,500, respectively. The change in the valuation
allowance for the years ended December 31, 2020 and 2019 were $2,364,875 and $403,987, respectively. The provision to return true
up adjustment primarily related to bonus depreciation deducted on the 2019 tax return on all qualifying assets purchased and placed
in service in 2019 which was not captured in the 2019 provision calculation and the Company’s true up of all prior year NOLs
as calculated at provision to the prior year tax returns.
MANUFACTURED
HOUSING PROPERTIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2020 AND 2019
The significant components of the current income
tax benefit at December 31, 2020 and 2019 was as follows:
|
|
For the Years Ended
|
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
Statutory rate applied to income (loss) before income taxes
|
|
$
|
(1,068,482
|
)
|
|
$
|
(515,347
|
)
|
Increase (decrease) in income taxes results from:
|
|
|
|
|
|
|
|
|
Non-deductible expense
|
|
|
-
|
|
|
|
123,107
|
|
VIE Income
|
|
|
451,876
|
|
|
|
(5,400
|
)
|
Change in valuation allowance
|
|
|
2,364,876
|
|
|
|
403,987
|
|
Provision to return true up
|
|
|
(1,748,270
|
)
|
|
|
-
|
|
Income tax expense (benefit)
|
|
$
|
-
|
|
|
$
|
6,347
|
|
The difference between income tax expense computed
by applying the federal statutory corporate tax rate and provision for actual income tax is as follows:
|
|
For the Years Ended
|
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
Income tax benefit at U.S. statutory rate of 21%
|
|
|
-21.00
|
%
|
|
|
-21.00
|
%
|
Income tax benefit - State
|
|
|
-3.63
|
%
|
|
|
-3.33
|
%
|
Non-deductible expense
|
|
|
-
|
%
|
|
|
5.97
|
%
|
VIE Income
|
|
|
-10.42
|
%
|
|
|
-0.24
|
%
|
Change in valuation allowance
|
|
|
-54.51
|
%
|
|
|
19.82
|
%
|
Provision to return true up
|
|
|
-40.30
|
%
|
|
|
|
%
|
Income tax expense (benefit)
|
|
|
0.00
|
%
|
|
|
1.22
|
%
|
Deferred income taxes result from temporary differences
in the recognition of income and expenses for the financial reporting purposes and for tax purposes. The effects of temporary differences
that gave rise to net deferred tax assets are as follows:
|
|
For the Years Ended
|
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
Depreciation
|
|
$
|
(761,455
|
)
|
|
$
|
-
|
|
Amortization expense
|
|
|
(269,076
|
)
|
|
|
-
|
|
Other
|
|
|
(584
|
)
|
|
|
-
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Amortization expense
|
|
|
-
|
|
|
|
11,544
|
|
Operating loss carryforwards
|
|
|
4,188,512
|
|
|
|
780,978
|
|
Gross deferred tax assets
|
|
|
3,157,397
|
|
|
|
792,522
|
|
Valuation allowance
|
|
|
(3,157,397
|
)
|
|
|
(792,522
|
)
|
Net deferred income tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
NOTE
10 – SUBSEQUENT EVENTS
Additional
Closings of Regulation A Offering
Subsequent
to December 31, 2020, the Company sold an aggregate of 74,882 shares of Series B Preferred Stock is additional closings of the
Regulation A offering described above for total gross proceeds of $748,820. After deducting a placement fee, we received net proceeds
of approximately $696,403. The Company also issued 2,900 shares of Common Stock to additional early investors.