See Accompanying Notes to Unaudited Condensed Consolidated
Financial Statements
See Accompanying Notes to Unaudited Condensed Consolidated
Financial Statements
See Accompanying Notes to Unaudited Condensed Consolidated
Financial Statements
See Accompanying Notes to Unaudited Condensed Consolidated
Financial Statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 AND 2020
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES AND ORGANIZATION
Organization
Manufactured Housing Properties Inc. (the “Company”)
is a Nevada corporation whose principal activities are to acquire, own, and operate manufactured housing communities.
Basis of Presentation
The Company prepares its consolidated financial
statements under the accrual basis of accounting, in conformity with accounting principles generally accepted in the United States of
America (“GAAP”).
The accompanying unaudited condensed consolidated
financial statements of the Company have been prepared in accordance with GAAP for interim financial information and with the instructions
to Form 10-Q of Regulation S-X. They do not include all information and footnotes required by GAAP for complete financial statements.
The December 31, 2020 consolidated balance sheet data were derived from audited financial statements but do not include all disclosures
required by GAAP. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to
the consolidated financial statements for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K,
as filed with the Securities and Exchange Commission on March 31, 2021. The interim unaudited condensed consolidated financial statements
should be read in conjunction with those consolidated financial statements included in the Form 10-K. In the opinion of management, all
adjustments considered necessary for a fair statement of the financial statements, consisting solely of normal recurring adjustments,
have been made. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2021.
Principles of Consolidation
The unaudited
condensed 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 date of consolidation are as follows:
Name of Subsidiary
|
|
State of Formation
|
|
Date of Formation
|
|
Ownership
|
Pecan Grove MHP LLC
|
|
North Carolina
|
|
October 12, 2016
|
|
100%
|
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%
|
Golden Isles MHP LLC
|
|
Georgia
|
|
March 16, 2021
|
|
100%
|
Gvest Finance LLC
|
|
North Carolina
|
|
December 11, 2018
|
|
VIE
|
Gvest Homes I LLC
|
|
Delaware
|
|
November 9, 2020
|
|
VIE
|
All intercompany transactions and balances have
been eliminated in consolidation.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 AND 2020
(UNAUDITED)
Revenue Recognition
Mobile home sale revenues are recognized in accordance
with Topic 606 of the Financial Accounting Standards Board (“FASB”) ASC for revenue recognition. On January 1, 2018, the Company
adopted Accounting Standards Update (“ASU”) 2014-09, which is a comprehensive new revenue recognition model that requires
revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration
expected to be received in exchange for those goods or services. The Company considers revenue realized or realizable and earned when
all the five following criteria are met: (1) identification of the contract with a customer, (2) identification of the performance obligations
in the contract, (3) determination of the transaction price, (4) allocation of the transaction price to the performance obligations in
the contract, and (5) recognition of revenue when (or as) we satisfy a performance obligation.
Under ASC 842, the Company must assess on an individual
lease basis whether it is probable that the Company will collect the future lease payments. The Company considers the tenant’s payment
history and current credit status when assessing collectability. When collectability is not deemed probable, the Company will write-off
the tenant’s receivables, including straight-line rent receivable, and limit lease income to cash received.
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.
|
|
o
|
Revenues
from the leasing of land lot or a combination of both, the mobile home and land at the Company’s
properties to tenants include (i) lease components, including land lot or a combination of
both, the mobile home and land, and (ii) reimbursement of utilities and account for the components
as a single lease component in accordance with Accounting Standards Codification (“ASC”)
842.
|
|
o
|
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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 AND 2020
(UNAUDITED)
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 I 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 I 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 unaudited condensed 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 three months ended March 31, 2021, 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 March 31, 2021 totaled 186,500 stock options and 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. Total dilutive
securities outstanding as of March 31, 2020 totaled 656,175 stock options and 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 AND 2020
(UNAUDITED)
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
three months ended March 31, 2021 and 2020.
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 March 31, 2021 and December 31, 2020, the Company had approximately
$1,591,000 and $641,000 above the FDIC-insured limit, respectively, including restricted cash held for tenant security deposits of $371,892
and $339,152, 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 $646 and $539 during the three months ended March 31, 2021 and 2020,
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.
Reclassifications
Certain amounts in the prior period presentation
have been reclassified to conform with the current presentation. For the three months ended March 31, 2020, the Company reclassed approximately
$200,000 from general and administrative expense to corporate payroll and overhead on the condensed consolidated statements of operations.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 AND 2020
(UNAUDITED)
Income Taxes
The Company accounts for income taxes under the
asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences
of events that have been included in the financial statements. Under this method, the Company determines deferred tax assets and liabilities
on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in
effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities
is recognized in income in the period that includes the enactment date.
The Company recognizes deferred tax assets to
the extent that the Company believes that these assets are more likely than not to be realized. In making such a determination, the Company
considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected
future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize
its deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax
asset valuation allowance, which would reduce the provision for income taxes.
The Company records uncertain tax positions in
accordance with ASC 740 on the basis of a two-step process in which (1) the Company determines whether it is more likely than not that
the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the
more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely
to be realized upon ultimate settlement with the related tax authority.
The Company recognizes interest and penalties,
if any, with income tax expense in the accompanying unaudited condensed consolidated statement of operations. As of March 31, 2021, and
December 31, 2020, 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 unaudited condensed consolidated financial statements.
In May 2020, the Securities and Exchange Commission
adopted amendments to the financial disclosure requirements in Regulation S-X relating
to the acquisition and disposition of businesses by registrants. The amendments, including Rule 3-05, Financial Statements of Businesses
Acquired or to Be Acquired; Rule 3-14, Special Instructions for Real Estate Operations to Be Acquired; and Article 11, Pro Forma Financial
Information, focus on the financial information required to be disclosed in connection with the acquisition and disposition of businesses,
real estate operations, and investment companies and generally increased the thresholds at which acquisitions are deemed significant and
require additional disclosures. The amendments are effective for fiscal years beginning after December 31, 2020. The Company has
evaluated the impact this standard had on the consolidated financial statements and determined that it had no impact on the unaudited
condensed consolidated financial statements. However, the Company will integrate these amendments
in evaluating the significance and required additional disclosures upon acquisitions in future periods as necessary.
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.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 AND 2020
(UNAUDITED)
Impact of Coronavirus Pandemic
In December 2019, a novel strain of coronavirus
was reported to have surfaced in Wuhan, China. 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 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 does
not continue to slow 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
of this report, 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 AND 2020
(UNAUDITED)
NOTE 2 – RETROSPECTIVE APPLICATION
OF CONSOLIDATION
The Company consolidates the accounts of Gvest
Finance LLC and Gvest Homes I 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 balances
reported for the three months ended March 31, 2020 on the condensed consolidated statement of operations, statement of deficit, and statements
of cash flows have been adjusted accordingly.
NOTE 3 – VARIABLE INTEREST ENTITIES
The Company consolidates the accounts of Gvest
Finance LLC and Gvest Homes I LLC and will continue to do so until they are no longer considered VIEs. Included in the unaudited condensed
consolidated results of operations for the three months ended March 31, 2021 and 2020 were $55,085 net operating income and $4,450 net
operating loss, respectively. The consolidated balance sheets as of March 31, 2021 and December 31, 2020 included the following amounts
related to the consolidated VIEs.
|
|
March 31,
2021
(Unaudited)
|
|
|
December 31,
2020
|
|
Assets
|
|
|
|
|
|
|
Investment Property
|
|
$
|
7,022,031
|
|
|
$
|
6,036,057
|
|
Accumulated Depreciation
|
|
|
(454,871
|
)
|
|
|
(387,780
|
)
|
Net Investment Property
|
|
|
6,567,160
|
|
|
|
5,648,277
|
|
Cash and Cash Equivalents
|
|
|
296,205
|
|
|
|
9,234
|
|
Accounts Receivable, net
|
|
|
5,123
|
|
|
|
3,506
|
|
Other Assets
|
|
|
-
|
|
|
|
14,652
|
|
Total Assets
|
|
$
|
6,868,488
|
|
|
$
|
5,675,669
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Deficit
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
$
|
38,595
|
|
|
$
|
4,969
|
|
Notes Payable, net of $250 and $0 debt discount
|
|
|
2,772,743
|
|
|
|
1,994,640
|
|
Line of Credit, net of $131,433 and $134,051 debt discount
|
|
|
3,285,702
|
|
|
|
3,214,916
|
|
Accrued Liabilities
|
|
|
272,800
|
|
|
|
9,439
|
|
Tenant Security Deposits
|
|
|
986
|
|
|
|
1,499
|
|
Total Liabilities
|
|
|
6,370,826
|
|
|
|
5,225,463
|
|
|
|
|
|
|
|
|
|
|
Non-Controlling interest
|
|
|
497,662
|
|
|
|
450,206
|
|
Total Non-controlling interest in variable interest entity equity
|
|
|
497,662
|
|
|
|
450,206
|
|
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 AND 2020
(UNAUDITED)
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:
|
|
March 31,
2021
(Unaudited)
|
|
|
December 31,
2020
|
|
Investment Property
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
12,343,818
|
|
|
$
|
11,293,818
|
|
Site and Land Improvements
|
|
|
21,506,262
|
|
|
|
20,924,112
|
|
Buildings and Improvements
|
|
|
9,025,775
|
|
|
|
8,026,993
|
|
Total Investment Property
|
|
|
42,875,855
|
|
|
|
40,244,923
|
|
Less: accumulated depreciation and amortization
|
|
|
(3,219,106
|
)
|
|
|
(2,779,201
|
)
|
Net Investment Property
|
|
$
|
39,656,749
|
|
|
$
|
37,465,722
|
|
Depreciation and amortization expense totaled
$441,623 and $399,337 for the three months ended March 31, 2021 and 2020, respectively.
During the three months ended March 31, 2021,
the Company acquired one manufactured housing community in Brunswick, Georgia and accounted for it as an asset acquisition. The
Company also acquired two manufactured housing communities in Lancaster, South Carolina and Morristown, Tennessee and accounted for them
as asset acquisitions during the three months ended March 31, 2020 (See note 5).
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 AND 2020
(UNAUDITED)
NOTE 5 – ACQUISITIONS AND DISPOSALS
The Company completed one acquisition during the
three months ended March 31, 2021. This was an asset acquisition from a third party and has been accounted for as asset acquisition. The acquisition
date estimated fair value was determined by a third party appraisal. The buildings and certain improvements referenced in the table below
were acquired by the Company’s VIEs: Gvest Finance, LLC and Gvest Homes I, LLC and are included in consolidation.
Acquisition Date
|
|
Name
|
|
Land
|
|
|
Improvements
|
|
|
Building
|
|
|
Acquisition Cost
|
|
|
Total Purchase Price
|
|
March 2020
|
|
Countryside MHP
|
|
$
|
152,880
|
|
|
$
|
3,194,245
|
|
|
$
|
352,875
|
|
|
$
|
21,642
|
|
|
$
|
3,721,642
|
|
March 2020
|
|
Evergreen MHP
|
|
|
340,000
|
|
|
|
1,111,000
|
|
|
|
-
|
|
|
|
138,125
|
|
|
|
1,589,125
|
|
|
|
|
|
$
|
492,880
|
|
|
$
|
4,305,245
|
|
|
$
|
352,875
|
|
|
$
|
159,767
|
|
|
$
|
5,310,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 2021
|
|
Golden Isles MHP
|
|
$
|
1,050,000
|
|
|
$
|
487,500
|
|
|
$
|
-
|
|
|
$
|
123,319
|
|
|
$
|
1,660,819
|
|
March 2021
|
|
Golden Isles Gvest
|
|
|
-
|
|
|
|
-
|
|
|
|
785,784
|
|
|
|
250
|
|
|
|
786,034
|
|
|
|
|
|
$
|
1,050,000
|
|
|
$
|
487,500
|
|
|
$
|
785,784
|
|
|
$
|
123,569
|
|
|
$
|
2,446,853
|
|
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 during the year ended December 31, 2020.
Pro-forma Financial Information
The following unaudited pro-forma information
presents the combined results of operations for the three months ended March 31, 2020 as if the above acquisitions and disposition
of manufactured housing communities had been completed on January 1, 2020.
|
|
Three
months ended
March 31,
2020
Consolidated
|
|
|
Acquisitions
|
|
|
Three
months ended
March 31,
2020
Pro Forma
|
|
Total revenue
|
|
$
|
1,363,090
|
|
|
|
244,790
|
|
|
|
1,607,880
|
|
Total expenses
|
|
|
878,905
|
|
|
|
123,058
|
|
|
|
1,001,963
|
|
Depreciation and amortization expense
|
|
|
399,337
|
|
|
|
61,647
|
|
|
|
460,984
|
|
Interest expense
|
|
|
443,464
|
|
|
|
65,861
|
|
|
|
509,325
|
|
Net income (loss)
|
|
$
|
(358,616
|
)
|
|
|
(5,776
|
)
|
|
|
(364,392
|
)
|
Net loss attributable to non-controlling interest
|
|
|
(4,450
|
)
|
|
|
|
|
|
|
(4,450
|
)
|
Net loss attributable to Manufactured Housing Properties, Inc
|
|
|
(354,166
|
)
|
|
|
(5,776
|
)
|
|
|
(359,942
|
)
|
Preferred stock dividends / accretion
|
|
|
432,989
|
|
|
|
-
|
|
|
|
432,989
|
|
Net income (loss)
|
|
$
|
(787,155
|
)
|
|
|
(5,776
|
)
|
|
|
(792,931
|
)
|
Net loss per share
|
|
|
(0.06
|
)
|
|
|
|
|
|
|
(0.06
|
)
|
NOTE 6 – PROMISSORY NOTES
Promissory Notes
The Company has issued promissory notes payable
to lenders related to the acquisition of its manufactured housing communities. These promissory notes range from 3.3% to 5.9% with 5 to
30 years principal amortization. Two of the promissory notes had initial 12 month, and three promissory notes had an initial 24 month,
60 month, and 180 month period on interest only payments, respectively. The promissory notes are secured by the real estate assets and
$26,890,911 for twelve loans were guaranteed by Raymond M. Gee, the Company’s chairman, chief executive officer and owner of the
principal stockholder of the Company.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 AND 2020
(UNAUDITED)
On May 1, 2020, the Company received a $139,300
Paycheck Protection Program (the “PPP”) loan from the United States Small Business Administration (the “SBA”)
under provisions of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The PPP loan has a two-year term
and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments are deferred for six months after the date of
disbursement. The PPP loan may be prepaid at any time prior to maturity with no prepayment penalties. The PPP loan contains events of
default and other provisions customary for a loan of this type. The PPP provides that the loan may be partially or wholly forgiven if
the funds are used for certain qualifying expenses as described in the CARES Act. The Company used the proceeds from the PPP loan for
qualifying expenses and applied for forgiveness of the PPP loan in accordance with the terms of the CARES Act. However, the Company cannot
provide assurance that the loan will be forgiven.
As of March 31, 2021, the outstanding balance
on these notes was $33,762,069. The following are the terms of these notes:
|
|
Maturity Date
|
|
Interest Rate
|
|
|
Balance 03/31/21
|
|
|
Balance 12/31/20
|
|
Pecan Grove MHP LLC
|
|
02/22/29
|
|
|
5.250
|
%
|
|
|
3,020,326
|
|
|
|
3,037,625
|
|
Azalea MHP LLC
|
|
03/01/29
|
|
|
5.400
|
%
|
|
|
805,522
|
|
|
|
810,741
|
|
Holly Faye MHP LLC
|
|
03/01/29
|
|
|
5.400
|
%
|
|
|
579,825
|
|
|
|
579,825
|
|
Chatham MHP LLC
|
|
04/01/24
|
|
|
5.875
|
%
|
|
|
1,726,018
|
|
|
|
1,734,828
|
|
Lakeview MHP LLC
|
|
03/01/29
|
|
|
5.400
|
%
|
|
|
1,825,387
|
|
|
|
1,832,264
|
|
B&D MHP LLC
|
|
05/02/29
|
|
|
5.500
|
%
|
|
|
1,808,447
|
|
|
|
1,818,303
|
|
Hunt Club MHP LLC
|
|
01/01/33
|
|
|
3.430
|
%
|
|
|
2,433,291
|
|
|
|
2,445,011
|
|
Crestview MHP LLC
|
|
12/31/30
|
|
|
5.500
|
%
|
|
|
4,777,517
|
|
|
|
4,800,000
|
|
Maple Hills MHP LLC
|
|
12/01/30
|
|
|
5.125
|
%
|
|
|
2,388,758
|
|
|
|
2,400,000
|
|
Springlake MHP LLC
|
|
11/14/22
|
|
|
3.310
|
%
|
|
|
4,000,000
|
|
|
|
4,000,000
|
|
ARC MHP LLC
|
|
01/01/30
|
|
|
5.500
|
%
|
|
|
3,866,819
|
|
|
|
3,885,328
|
|
Countryside MHP LLC
|
|
03/20/50
|
|
|
5.500
|
%
|
|
|
1,700,000
|
|
|
|
1,700,000
|
|
Evergreen MHP LLC
|
|
04/01/32
|
|
|
3.990
|
%
|
|
|
1,130,366
|
|
|
|
1,135,502
|
|
Golden Isles MHP LLC
|
|
03/31/26
|
|
|
4.000
|
%
|
|
|
787,500
|
|
|
|
-
|
|
PPP Loan
|
|
05/01/22
|
|
|
1.000
|
%
|
|
|
139,300
|
|
|
|
139,300
|
|
Gvest B&D
|
|
05/01/24
|
|
|
5.000
|
%
|
|
|
685,493
|
|
|
|
694,640
|
|
Gvest Countryside
|
|
03/20/50
|
|
|
5.500
|
%
|
|
|
1,300,000
|
|
|
|
1,300,000
|
|
Gvest Golden Isles
|
|
03/31/36
|
|
|
4.000
|
%
|
|
|
787,500
|
|
|
|
-
|
|
Totals note payables
|
|
|
|
|
|
|
|
|
33,762,069
|
|
|
|
32,313,367
|
|
Discount Direct Lender Fees
|
|
|
|
|
|
|
|
|
(1,127,324
|
)
|
|
|
(1,096,629
|
)
|
Total net of Discount
|
|
|
|
|
|
|
|
$
|
32,634,745
|
|
|
$
|
31,216,738
|
|
Related Party Promissory Note
On May 8, 2017, the Company issued a promissory
note to Metrolina Loan Holdings, LLC (“Metrolina”) in the principal amount of $3,000,000. The note is interest only payment
based on 8%, and 10% deferred until maturity to be paid with principal balance. The note originally awarded Metrolina 455,000 shares of
Common Stock as consideration, which resulted in making Metrolina a related party due to its significant ownership. During the year ended
December 31, 2019, the Company paid off the entire balance on the note of $2,754,550 plus interest and amended the agreement to allow
for the redeployment of the $3,000,000 available, eliminated the conversion option whereby Metrolina could convert the ratio of total
outstanding debt at time of exercise of the option into an amount of newly issued shares of the Company’s Common Stock determined
by dividing the outstanding indebtedness by $3,000,000 multiplied by 10% with a cap of 864,500 shares. The amendment resulted in issuing
an additional 545,000 shares with a fair value of $305,200 for a total of 1,000,000 shares awarded to Metrolina. The note gives Metrolina
the right and option to purchase its pro rata share of debt or equity securities issued to maintain up to 10% equity interest in the Company
at the most recent price of any equity transaction for seven years from the amendment dated February 26, 2019. This
note was to mature in May of 2023. In September 2020, we paid off the full balance and terminated the note. The related party
note was guaranteed by Mr. Gee, the Company’s Chief Executive Officer.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 AND 2020
(UNAUDITED)
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 September 2020, we paid off the full
balance. As of March 31, 2021 and December 31, 2020, the outstanding balance on this note was $0;
however, the line of credit is still available to the Company.
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.
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.
On December 24, 2020 the lender agreed to advance
$3,348,967 to the Company. The lender agreed to increase this amount to $3,422,260 offset with payments made by the Company of $5,125
during the three months ended March 31, 2021, of which $1,550,000 was due from the lender as of the balance sheet date. As of March 31,
2021 and December 31, 2020, discount direct lender fees were $131,433 and $134,051, respectively.
Maturities of Long-Term Obligations for Five Years and Beyond
The minimum annual principal payments of notes
payable at March 31, 2021 by fiscal year were:
2021
|
|
|
627,795
|
|
2022
|
|
|
4,789,859
|
|
2023
|
|
|
794,311
|
|
2024
|
|
|
2,950,964
|
|
2025
|
|
|
790,362
|
|
Thereafter
|
|
|
27,225,913
|
|
Total minimum principal payments
|
|
$
|
37,179,204
|
|
NOTE 7 – COMMITMENTS AND CONTINGENCIES
On February 11, 2021, MHP Pursuits, LLC, a wholly-owned
subsidiary of the Company, entered into a purchase and sale agreement (the “Anderson Purchase Agreement”) with Gilmer and
Sons Mobile Homes Sales and Rentals, Inc. for the purchase of ten manufactured housing communities located in Anderson County, South Carolina
consisting of 179 sites on approximately 50 acres for a total purchase price of $5,200,000. As of May 17, 2021, the closing of the Anderson
Purchase Agreement has not been completed.
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 Preferred Stock
On May 8, 2019, the Company filed a certificate
of designation with the Nevada Secretary of State pursuant to which the Company designated 4,000,000 shares of its preferred stock as
Series A Cumulative Convertible Preferred Stock (the “Series A Preferred Stock”). The Series A Preferred Stock has the following
voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions:
Ranking. The Series A Preferred
Stock ranks, as to dividend rights and rights upon our liquidation, dissolution, or winding up, senior to the Common Stock.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 AND 2020
(UNAUDITED)
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 three months ended March 31, 2021 and 2020, the Company paid dividends of $96,167 and $94,500 respectively.
Liquidation Preference. The liquidation
preference for each share of Series A Preferred Stock is $2.50. Upon a liquidation, dissolution or winding up of the Company, holders
of shares of Series A Preferred Stock will be entitled to receive the liquidation preference with respect to their shares plus an amount
equal to any accrued but unpaid dividends (whether or not declared) to, but not including, the date of payment with respect to such shares.
Stockholder Optional Conversion.
Each share of Series A Preferred Stock is convertible, at any time and from time to time, at the option of the holder thereof and without
the payment of additional consideration, into that number of shares of Common Stock determined by dividing the liquidation preference
of such share by the conversion price then in effect. The conversion price is initially equal $2.50, subject to adjustment as set forth
in the certificate of designation. In addition, if at any time the trading price of the Common Stock is greater than the liquidation preference
of $2.50, the Company may deliver a written notice to all holders to cause each holder to convert all or part of such holders’ Series
A Preferred Stock.
Company Call and Stockholder Put Options.
Commencing on the fifth anniversary of the initial issuance of shares of Series A Preferred Stock and continuing indefinitely thereafter,
the Company will have a right to call for redemption the outstanding shares of Series A Preferred Stock at a call price equal to $3.75,
or 150% of the original issue price of the Series A Preferred Stock, and correspondingly, each holder of shares of Series A Preferred
Stock shall have a right to put the shares of Series A Preferred Stock held by such holder back to us at a put price equal to $3.75, or
150% of the original issue purchase price of such shares. During the three months ended March 31, 2021 and 2020, the Company recorded
a put option value accretion of $118,125.
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 March 31, 2021, there were 1,890,000 shares
of Series A Preferred Stock issued and outstanding. As of March 31, 2021, the Series A Preferred Stock balance was made up of Series A
Preferred Stock totaling $4,725,000 and accretion of put options totaling $774,625. 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.
Series B Preferred Stock
On December 2, 2019, the Company filed a certificate
of designation with the Nevada Secretary of State pursuant to which the Company designated 1,000,000 shares of its preferred stock as
Series B Cumulative Redeemable Preferred Stock (the “Series B Preferred Stock”). The Series B Preferred Stock has the following
voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions:
Ranking. The Series B Preferred
Stock rank, as to dividend rights and rights upon liquidation, dissolution, or winding up, senior to the Common Stock and pari
passu with the Series A Preferred Stock.
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
three months ended March 31, 2021 and 2020, the Company paid dividends of $129,409 and $92,996, respectively.
Liquidation Preference. The liquidation
preference for each share of Series B Preferred Stock is $10.00. Upon a liquidation, dissolution or winding up of the Company, holders
of shares of Series B Preferred Stock will be entitled to receive the liquidation preference with respect to their shares plus an amount
equal to any accrued but unpaid dividends (whether or not declared) to, but not including, the date of payment with respect to such shares.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 AND 2020
(UNAUDITED)
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 three months ended March 31, 2021 and 2020, the Company
recorded a put option value accretion of $185,839 and $127,368, 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 offered
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 offered bonus shares to early investors in this offering, whereby the first 400 investors received, in addition
to Series B Preferred Stock, 100 shares of Common Stock, regardless of the amount invested, for a total of 40,000 shares of Common Stock.
This offering terminated on March 30, 2021.
During the three months ended March 31, 2021,
the Company sold an aggregate of 116,097 shares of Series B Preferred Stock for total gross proceeds of $1,160,970. After deducting a
placement fee and other expenses, the Company received net proceeds of $1,079,702. During the three months ended March 31, 2020, the Company
sold an aggregate of 115,235 shares of Series B Preferred Stock for total gross proceeds of $1,152,350. After deducting a placement fee
and other expenses, the Company received net proceeds of $1,071,686.
As of March 31, 2021, there were 757,351 shares
of Series B Preferred Stock issued and outstanding. As of March 31, 2021, the Series B Preferred Stock balance was made up of Series B
Preferred Stock, net of commissions, totaling $7,185,717 and accretion of put options totaling $779,683. As of December 31, 2020, the
Series B Preferred Stock balance was made up of Series B Preferred Stock, net of commissions, totaling $6,096,855 and accretion of put
options totaling $595,221.
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 March 31, 2021 there were 12,403,680 shares of Common Stock issued and outstanding.
Stock Issued for Cash
During the three months ended March 31, 2021 and
2020, the Company issued 5,100 and 6,000 shares of Common Stock, respectively, to early investors in the Regulation A offering, valued
at $1,377 and $1,620, respectively.
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 March 31, 2021 there were 706,175 shares granted and
293,825 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 50,000 options in January 2021. The Company recorded stock option expense of $646 and $539 during the three months
ended March 31, 2021 and 2020, respectively.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 AND 2020
(UNAUDITED)
The following table summarizes the stock options
outstanding as of March 31, 2021:
|
|
Number of options
|
|
|
Weighted average exercise price (per share)
|
|
|
Weighted average remaining contractual term
(in years)
|
|
Outstanding at December 31, 2020
|
|
|
656,175
|
|
|
$
|
0.03
|
|
|
|
7.7
|
|
Granted
|
|
|
50,000
|
|
|
|
0.27
|
|
|
|
9.7
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited / cancelled / expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at March 31, 2021
|
|
|
706,175
|
|
|
$
|
0.08
|
|
|
|
7.3
|
|
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 March 31, 2021. As of March 31, 2021, there were 706,175 “in-the-money” options with an aggregate intrinsic
value of $1,554,527.
The following table summarizes information concerning
options outstanding as of March 31, 2021.
Strike Price
Range
($)
|
|
|
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
|
|
|
|
6.7
|
|
|
$
|
0.01
|
|
|
|
519,675
|
|
|
$
|
0.01
|
|
$
|
0.27
|
|
|
|
136,500
|
|
|
|
8.7
|
|
|
$
|
0.27
|
|
|
|
91,000
|
|
|
$
|
0.27
|
|
$
|
0.27
|
|
|
|
50,000
|
|
|
|
9.8
|
|
|
$
|
0.27
|
|
|
|
16,667
|
|
|
$
|
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
|
|
March 31,
2021
|
|
Risk-free interest rate
|
|
|
0.13
|
%
|
Expected dividend yield
|
|
|
0.00
|
%
|
Expected volatility
|
|
|
298.73
|
%
|
Expected life of options (in years)
|
|
|
7.5
|
|
NOTE 9 – 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 March 31, 2021, and December 31, 2020, the outstanding balance on this note was $0; however, the line of credit is
still available to the Company
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 AND 2020
(UNAUDITED)
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 March 31, 2021 and December 31, 2020, the balance on this note was $0. During
the three months ended March 31, 2021 and 2020, the Company recorded interest expense related to the note totaling $0 and $36,028 respectively.
The related party note was guaranteed by Mr. Gee, the Company’s Chief Executive Officer.
In August 2019, the Company entered into an office
lease agreement with Gvest Real Estate Capital LLC for the lease of its offices. As of January 2021, the lease is $12,000 per month and
is on a month-to-month term. Prior to that date, the lease was $4,000 per month. Total rent expense for the three months ended March 31,
2021 and 2020 was $36,000 and $12,000, respectively.
During the
three months ended March 31, 2020, Mr. Gee, the Company’s Chief Executive Officer, received a $50,000 fee for his personal guarantee
on a promissory note relating to a loan for one of the Company’s acquisitions.
NOTE 10 – SUBSEQUENT EVENTS
Designation of Series C Preferred Stock
On April 12, 2021, the Company filed a certificate
of designation with the Nevada Secretary of State pursuant to which the Company designated 47,000 shares of its preferred stock as Series
C Cumulative Redeemable Preferred Stock (the “Series C Preferred Stock”). The Company filed this designation in anticipation
of the launching of a new 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 plans to offer up to 47,000 shares of Series C Preferred Stock at an offering price of $1,000 per share
for a maximum offering amount of $47 million. The Company has filed an offering statement on Form 1-A in connection with this offering;
however, the offering statement has not yet been qualified by the Securities and Exchange Commission and the offering has not yet launched.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 AND 2020
(UNAUDITED)
The Series C Preferred Stock has the following
voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions:
Ranking. The Series C 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 A Preferred Stock and Series B Preferred Stock.
Stated Value. Each share of Series
C Preferred Stock has an initial stated value of $1,000, subject to appropriate adjustment in relation to certain events, such as recapitalizations,
stock dividends, stock splits, stock combinations, reclassifications or similar events affecting the Series C Preferred Stock. The stated
value shall automatically increase one time by ten percent (10%) on the fifth (5th) anniversary of the date of issuance of
the first share of Series C Preferred Stock.
Dividend Rate and Payment Dates.
Dividends on the Series C Preferred Stock are cumulative and payable monthly in arrears to all holders of record on the applicable record
date. Holders of Series C Preferred Stock are entitled to receive cumulative monthly cash dividends at a per annum rate of 7% of the stated
value (or $5.83 per share each month based on the initial stated value). Dividends on each share begin accruing on, and are cumulative
from, the date of issuance and regardless of whether the board of directors declares and pays such dividends. Dividends on shares of Series
C Preferred Stock will continue to accrue even if any agreements prohibit the current payment of dividends or the Company does do not
have earnings.
Liquidation Preference. Upon a liquidation,
dissolution or winding up of the Company, holders of shares of Series C Preferred Stock are 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
and Series B Preferred Stock, a liquidation preference equal to the stated value per share, plus accrued but unpaid dividends thereon.
Redemption Request at the Option of a Holder.
Once per calendar quarter, a holder will have the opportunity to request that the Company redeem that holder’s Series C Preferred
Stock. The board of directors may, however, suspend cash redemptions at any time in its discretion if it determines that it would not
be in the best interests of the Company to effectuate cash redemptions at a given time because the Company does not have sufficient cash,
including because the board believes that cash on hand should be utilized for other business purposes. Redemptions will be limited to
four percent (4%) of the total outstanding Series C Preferred Stock per quarter and any redemptions in excess of such limit or to the
extent suspended, shall be redeemed in subsequent quarters on a first come, first served, basis. The Company will redeem shares at a redemption
price equal to the stated value of such redeemed shares, plus any accrued but unpaid dividends thereon, less the applicable redemption
fee (if any). As a percentage of the aggregate redemption price of a holder’s shares to be redeemed, the redemption fee shall be:
|
●
|
11% if the redemption is requested on or before the first anniversary of the original issuance of such
shares;
|
|
●
|
8% if the redemption is requested after the first anniversary and on or before the second anniversary
of the original issuance of such shares;
|
|
●
|
5% if the redemption is requested after the second anniversary and on or before the third anniversary
of the original issuance of such shares; and
|
|
●
|
after the third anniversary of the date of original issuance of shares to be redeemed, no redemption fee
shall be subtracted from the redemption price.
|
Optional Redemption by the Company.
The Company has the right (but not the obligation) to redeem shares of Series C Preferred Stock at a redemption price equal to the stated
value of such redeemed shares, plus any accrued but unpaid dividends thereon; provided, however, that if the Company redeems
any shares of Series C Preferred Stock prior to the fifth (5th) anniversary of their issuance, then the redemption price shall
include a premium equal to ten percent (10%) of the stated value.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 AND 2020
(UNAUDITED)
Mandatory Redemption by the Company.
The Company is required to redeem all outstanding shares of Series C Preferred Stock on the tenth (10th) anniversary of the
date of issuance of the first share of Series C Preferred Stock at a redemption price equal to the stated value of such redeemed shares,
plus any accrued but unpaid dividends thereon.
Optional Repurchase Upon Death, Disability
or Bankruptcy of a Holder. Subject to certain restrictions and conditions, the Company will also repurchase shares of Series C
Preferred Stock of a holder who is a natural person (including an individual beneficial holder who holds shares through a custodian
or nominee, such as a broker-dealer) upon his or her death, total disability or bankruptcy, within sixty (60) days of the Company’s
receipt of a written request from the holder or the holder’s estate at a repurchase price equal to the stated value, plus accrued
and unpaid dividends thereon. A “total disability” means a determination by a physician approved by us that a holder, who
was gainfully employed and working at least forty (40) hours per week as of the date on which his or her shares were purchased, has been
unable to work forty (40) or more hours per week for at least twenty-four (24) consecutive months.
Restrictions on Redemption and Repurchase.
The Company is not obligated to redeem or repurchase shares of Series C Preferred Stock if the Company is restricted by applicable law
or its articles of incorporation from making such redemption or repurchase or to the extent any such redemption or repurchase would cause
or constitute a default under any borrowing agreements to which the Company or any of its subsidiaries are a party or otherwise bound.
In addition, the Company has no obligation to redeem shares in connection with a redemption request made by a holder if the Company determines,
as of the redemption date, that it does not have sufficient funds available to fund that redemption. In this regard, the Company will
have complete discretion under the certificate of designation for the Series C Preferred Stock to determine whether the Company is
in possession of “sufficient funds” to fund a redemption request. To the extent the Company is unable to complete redemptions
it may have earlier agreed to make, the Company will complete those redemptions promptly after it becomes able to do so, with all such
deferred redemptions being satisfied on a first come, first served, basis.
Voting Rights. The Series C Preferred
Stock has no voting rights relative to matters submitted to a vote of stockholders (other than as required by law). However, the Company
may not, without the affirmative vote or written consent of the holders of a majority of the then issued and outstanding Series C Preferred
Stock: (i) amend or waive any provision of the certificate of designation or otherwise take any action that modifies any powers, rights,
preferences, privileges or restrictions of the Series C Preferred Stock (other than an amendment solely for the purpose of changing the
number of shares of Series C Preferred Stock designated for issuance as provided in the certificate of designation); (ii) authorize, create
or issue shares of any class of stock having rights, preferences or privileges as to dividends or distributions upon a liquidation that
are superior to the Series C Preferred Stock; or (iii) amend the articles of incorporation in a manner that adversely and materially affects
the rights of the Series C Preferred Stock.
No Conversion Right. The Series
C Preferred Stock is not convertible into shares of Common Stock.