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EX-32.2 - CERTIFICATION - MANUFACTURED HOUSING PROPERTIES INC.f10q0920ex32-2_manufactured.htm
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EX-31.2 - CERTIFICATION - MANUFACTURED HOUSING PROPERTIES INC.f10q0920ex31-2_manufactured.htm
EX-31.1 - CERTIFICATION - MANUFACTURED HOUSING PROPERTIES INC.f10q0920ex31-1_manufactured.htm
 

 

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10−Q

 

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: September 30, 2020

 

or

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____________ to _____________

 

Commission File Number: 000-51229

 

MANUFACTURED HOUSING PROPERTIES INC.

(Exact name of registrant as specified in its charter)

 

Nevada   51-0482104
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
     
136 Main Street, Pineville, North Carolina   28134
(Address of principal executive offices)   (Zip Code)

 

(980) 273-1702

 

(Registrant’s telephone number, including area code)

 

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes ☒     No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes ☒     No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
  Emerging growth company

  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for comply with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes ☐     No ☒

 

As of November 9, 2020, there were 12,397,480 common shares of the registrant issued and outstanding.

 

 

 

 

 

 

Manufactured Housing Properties Inc.

 

Quarterly Report on Form 10-Q

Period Ended September 30, 2020

 

TABLE OF CONTENTS

 

PART I
FINANCIAL INFORMATION
     
Item 1. Financial Statements   1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   20
Item 3. Quantitative and Qualitative Disclosures About Market Risk   29
Item 4. Controls and Procedures   29
       
PART II
FINANCIAL INFORMATION
     
Item 1. Legal Proceedings   31
Item 1A. Risk Factors   31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   31
Item 3. Defaults Upon Senior Securities   31
Item 4. Mine Safety Disclosures   31
Item 5. Other Information   31
Item 6. Exhibits   32

 

 i

 

 

PART I

FINANCIAL INFORMATION

 

ITEM 1.FINANCIAL STATEMENTS.

 

MANUFACTURED HOUSING PROPERTIES INC.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

    Page
Condensed Consolidated Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019   2
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019 (unaudited)   3
Condensed Consolidated Statements of Stock holders’ Deficit for the Three and Nine Months Ended September 30, 2020 and 2019 (unaudited)   4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019 (unaudited)   5
Notes to Unaudited Condensed Consolidated Financial Statements   6

 

1

 

 

MANUFACTURED HOUSING PROPERTIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS 

AS OF SEPTEMBER 30, 2020 AND DECEMBER 31, 2019

 

   September 30,
2020
   December 31,
2019
 
Assets  (unaudited)   (as Revised) 
Investment Property          
Land  $11,378,818   $10,885,938 
Site and Land Improvements   22,007,126    17,466,801 
Buildings and Improvements   7,048,699    6,214,725 
Total Investment Property   40,434,643    34,567,464 
Accumulated Depreciation & Amortization   (2,621,354)   (1,394,958)
Net Investment Property   37,813,289    33,172,506 
Cash and Cash Equivalents, including restricted cash of $371,826 and $316,035 respectively   2,099,390    4,146,411 
Accounts Receivable, net   45,293    31,881 
Other Assets   601,010    557,012 
Total Assets  $40,558,982   $37,907,810 
           
Liabilities          
Accounts Payable  $214,289   $227,406 
Notes Payable, net of $746,560 and $633,629 debt discount   32,159,085    28,359,247 
Note Payable – Related Party   605,580    797,906 
Note Payable – Line of Credit Related Party   -    1,730,000 
Accrued Liabilities   583,922    551,481 
Tenant Security Deposits   371,826    316,035 
Total Liabilities   33,934,702    31,982,075 
           
Commitments and Contingencies (See note 5)   -    - 
           
Redeemable Preferred Stock – subject to redemption          
Series A Cumulative Redeemable Convertible Preferred Stock, par value $0.01 per share; 4,000,000 shares authorized; 1,890,000 shares issued and outstanding as of September 30, 2020 and December 31, 2019; redemption value $7,087,500   5,263,375    4,909,000 
Series B Cumulative Redeemable Preferred Stock, par value $0.01 per share; 1,000,000 shares authorized; 615,291 and 409,722 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively; redemption value $9,229,365   6,293,427    3,973,610 
           
Stockholders’ deficit          
Common Stock, par value $0.01 per share; 200,000,000 shares authorized; 12,397,180 and 12,336,080 shares are issued and outstanding as of September 30, 2020 and December 31, 2019, respectively   123,972    123,361 
Additional Paid in Capital   (558,758)   759,849 
Accumulated Deficit   (4,497,736)   (3,840,085)
Total Stockholders’ Deficit   (4,932,522)   (2,956,875)
           
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT  $40,558,982   $37,907,810 

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

2

 

 

MANUFACTURED HOUSING PROPERTIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(UNAUDITED)

 

   Three Months Ended
September 30,
   Nine months Ended
September 30,
 
   2020   2019   2020   2019 
Revenue                
Rental and related income  $1,615,994   $794,543   $4,422,002   $1,963,835 
Management fees, related party   5,004    4,164    13,267    19,448 
Total revenues   1,620,998    798,707    4,435,269    1,983,283 
                     
Community operating expenses                    
Repair and maintenance   93,501    65,394    234,996    160,621 
Real estate taxes   90,498    42,178    242,776    110,660 
Utilities   150,568    50,069    402,124    130,744 
Insurance   27,622    21,086    116,123    47,015 
General and administrative expense   133,279    66,566    384,949    227,188 
Total community operating expenses   495,468    245,293    1,380,968    676,228 
                     
Corporate payroll and overhead   311,787    125,229    1,065,624    587,463 
Depreciation and amortization expense   485,377    204,719    1,357,629    496,966 
Interest expense   385,190    555,786    1,288,699    1,076,254 
Refinancing costs   -    -    -    552,272 
Total expenses   1,677,822    1,131,027    5,092,920    3,389,183 
                     
Loss before provision for income taxes   (56,824)   (332,320)   (657,651)   (1,405,900)
Provision for income taxes   -    -    -    - 
Net Loss  $(56,824)  $(332,320)  $(657,651)  $(1,405,900)
                     
Preferred stock dividends and put option value accretion                    
Series A preferred dividends   89,500    19,000    281,720    43,334 
Series A preferred put option value accretion   118,125    23,750    354,375    47,500 
Series B preferred dividends   114,413    -    310,288    - 
Series B preferred put option value accretion   110,807    -    408,834    - 
Total preferred stock dividends and put option value accretion   432,845    42,750    1,355,217    90,834 
Net loss attributable to common stockholders  $(489,669)  $(375,070)  $(2,012,868)  $(1,496,734)
                     
Weighted average shares - basic and fully diluted   

12,395,376

    12,799,568    

12,369,344

    12,738,962 
                     
Net loss per share - basic  $(0.04)  $(0.03)  $(0.16)  $(0.12)
Net loss per share - fully diluted  $(0.04)  $(0.03)  $(0.16)  $(0.12)

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

3

 

 

MANUFACTURED HOUSING PROPERTIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(UNAUDITED) 

 

   COMMON STOCK  

ADDITIONAL

  

NON

    

  

STOCKHOLDERS’

 
   SHARES   PAR
VALUE
   PAID IN
CAPITAL
   CONTROLLING INTEREST   ACCUMULATED DEFICIT   EQUITY
(DEFICIT)
 
Balance at January 1, 2019   10,350,062   $103,500   $451,567   $293,241   $(1,801,338)  $(953,030)
Stock option expense   -    -    8    -    -    8 
Common Stock issuance for acquisition of minority interest (as revised) Note 2   2,000,000    20,000    273,241    (293,241)   -    - 
Common Stock issuance for line of credit   545,000    5,450    299,750    -    -    305,200 
Common Stock issuance for service   -    -    24,500    -    -    24,500 
Preferred shares Series A dividends   -    -    (4,667)   -    -    (4,667)
Imputed interest   -    -    14,004    -    -    14,004 
Net Loss   -    -    -    -    (719,314)   (719,314)
Balance at March 31, 2019 (as revised)   12,895,062    128,950   $1,058,403    -    (2,520,652)   (1,333,299)
Stock option expense   -    -    8    -    -    8 
Common Stock issuance for cash for line of credit   254,506    2,545    66,172    -    -    68,717 
Purchase Treasury Common Stock   (350,000)   (3,500)   (61,011)   -    -    (64,511)
Imputed interest   -    -    13,857    -    -    13,857 
Preferred shares Series A put option value accretion   -    -    (23,750)   -    -    (23,750)
Preferred shares Series A dividends   -    -    (19,667)   -    -    (19,667)
Net Loss   -    -    -    -    (354,266)   (354,266)
Balance at June 30, 2019 (as revised)   12,799,568   $127,995   $1,034,012   $-   $(2,874,918)  $(1,792,911)
Stock option expense   -    -    8    -    -    8 
Imputed interest   -    -    12,872    -    -    12,872 
Preferred shares Series A put option value accretion   -    -    (19,000)   -    -    (19,000)
Preferred shares Series A dividends   -    -    (23,750)   -    -    (23,750)
Net Loss   -    -    -    -    (332,320)   (332,320)
Balance at September 30, 2019 (as revised)   12,799,568   $127,995   $1,004,142   $-   $(3,207,238)  $(2,075,101)
Balance at January 1, 2020 (as revised)   12,336,080   $123,361   $759,849   $-   $(3,840,085)  $(2,956,875)
Stock option expense   -    -    539    -    -    539 
Common Stock issuance to preferred share holders   6,000    60    1,560    -    -    1,620 
Preferred shares Series A put option value accretion   -    -    (118,125)   -    -    (118,125)
Preferred shares Series A dividends   -    -    (94,500)   -    -    (94,500)
Preferred shares Series B put option value accretion   -    -    (127,368)   -    -    (127,368)
Preferred shares Series B dividends   -    -    (92,996)   -    -    (92,996)
Net Loss   -    -    -    -    (354,165)   (354,165)
Balance at March 31, 2020   12,342,080   $123,421   $328,959   $-   $(4,194,250)  $(3,741,870)
Stock option expense   -    -    539    -    -    539 
Common Stock issuance to preferred share holders   2,100    21    546    -    -    567 
Common shares issued to board of directors   50,000    500    32,000    -    -    32,500 
Preferred shares Series A put option value accretion   -    -    (118,125)   -    -    (118,125)
Preferred shares Series A dividends   -    -    (97,720)   -    -    (97,720)
Preferred shares Series B put option value accretion   -    -    (170,659)   -    -    (170,659)
Preferred shares Series B dividends   -    -    (102,879)   -    -    (102,879)
Net Loss   -    -    -    -    (246,662)   (246,662)
Balance at June 30, 2020   12,394,180   $123,942   $(127,339)  $-   $(4,440,912)  $(4,444,309)
Stock option expense   -    -    646    -    -    646 
Common Stock issuance to preferred share holders   3,000    30    780    -    -    810 
Preferred shares Series A put option value accretion   -    -    (118,125)   -    -    (118,125)
Preferred shares Series A dividends   -    -    (89,500)   -    -    (89,500)
Preferred shares Series B put option value accretion   -    -    (110,807)   -    -    (110,807)
Preferred shares Series B dividends   -    -    (114,413)   -    -    (114,413)
Net Loss   -    -    -    -    (56,824)   (56,824)
Balance at September 30, 2020   12,397,180   $123,972   $(558,758)  $-   $(4,497,736)  $(4,932,522)

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

4

 

 

MANUFACTURED HOUSING PROPERTIES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(UNAUDITED)

 

   2020   2019 
Cash Flows from Operating Activities:          
Net Loss  $(657,651)  $(1,405,900)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:          
In-kind contribution of interest   -    40,733 
Provision for bad debts   3,802    23,820 
Stock option expense   1,724    24 
Stock compensation expense   32,500    329,700 
Write off mortgage cost   -    68,195 
Depreciation and amortization   1,357,629    504,542 
Changes in operating assets and liabilities:          
Accounts receivable   (17,214)   (44,914)
Other assets   (43,998)   (461,532)
Accounts payable   (13,117)   230,164 
Accrued liabilities   25,415    119,135 
Tenant security deposits   55,791    92,923 
Net Cash Provided by (Used in) Operating Activities   744,881    (503,110)
           
Cash Flows from Investing Activities:          
Capital Improvements   (720,594)   - 
Purchases of investment properties   (1,001,000)   (10,138,342)
Net Cash Used in Investing Activities   (1,721,594)   (10,138,342)
           
Cash Flows from Financing Activities:          
Proceeds from related – party note   -    7,075 
Repayment of note payable – line of credit related party   (1,730,000)   (2,754,550)
Proceeds from note payable – line of credit related party   -    3,000,000 
Proceeds from notes payable   418,134    18,481,076 
Repayment of notes payable   (641,733)   (7,898,248)
Proceeds from issuance of preferred stock   1,911,792    1,465,000 
Proceeds from issuance of common stock   -    68,717 
Purchase of treasury stock   -    (64,511)
Repayment of note payable - related party   (192,326)   - 
Capitalized financing cost   -    (275,519)
Payment of mortgage costs recorded as debt discount   (244,167)   (73,434)
Preferred shares dividends   (592,008)   (43,334)
Net Cash Provided by (Used in) Financing Activities   (1,070,308)   11,912,272 
           
Net change in cash, cash equivalents and restricted cash   (2,047,021)   1,270,820 
Cash, cash equivalents and restricted cash at beginning of the period   4,146,411    458,271 
Cash, cash equivalents and restricted cash at end of the period  $2,099,390   $1,729,091 
           
Cash, cash equivalents and restricted cash consist of the following:          
End of period          
Cash and cash equivalents  $1,727,564   $1,505,019 
Restricted cash   371,826    224,072 
Total  $2,099,390   $1,729,091 
           
Cash, cash equivalents and restricted cash consist of the following:          
Beginning of period          
Cash and cash equivalents  $3,830,376   $327,122 
Restricted cash   316,035    131,149 
Total  $4,146,411   $458,271 
           
Cash paid for:          
Income Taxes  $-   $- 
Interest  $1,276,614   $577,769 
           
Non-Cash Investing and Financing Activities          
Purchase of Minority Interest in Pecan Grove  $-   $537,562 
Notes related to acquisitions  $4,150,000   $- 
Non-cash Preferred stock accretion  $763,209   $45,500 

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

5

 

 

MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

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, 2019 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, 2019 included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on April 14, 2020. 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 and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

 

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%*
Butternut MHP Land LLC  Delaware  March 1, 2017    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%

 

*The Company originally acquired a 75% interest. In January 2019, the Company acquired the remaining 25% interest from a related party.

 

All intercompany transactions and balances have been eliminated in consolidation. The Company does not have a majority or minority interest in any other company, either consolidated or unconsolidated.

 

6

 

 

MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Revenue Recognition

 

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 Accounting Standards Codification (“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.

 

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.

 

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.

 

Net Income (Loss) Per Share

 

Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding plus the weighted average number of net shares that would be issued upon exercise of stock options pursuant to the treasury stock method. Total dilutive securities outstanding as of September 30, 2020 and 2019 totaled 656,175 and 541,334 stock options, respectively, 1,890,000 and 586,000 convertible Preferred Series A shares, respectively, which are convertible into common shares at $2.50 per share for a total of 756,000 and 228,000, respectively, which are not included in dilutive loss per share as the effect would be anti-dilutive.

 

7

 

 

MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

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.

 

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 nine months ended September 30, 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 September 30, 2020 and December 31, 2019, the Company had approximately $586,000 and $2,553,000 above the FDIC-insured limit, respectively, including restricted cash held for tenant security deposits of $371,826 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 $1,724 and $24 during the nine months ended September 30, 2020 and 2019, respectively.

 

8

 

 

MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

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.

 

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 September 30, 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.

 

9

 

 

MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

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.

 

NOTE 2 – Revision of Prior Year Immaterial Misstatement

 

During the nine months ended September 30, 2020, the Company identified a certain error in recording our minority interest buyout for Pecan Grove during the first quarter of 2019. This error resulted in decreasing our land Investment Property and Equity by $244,321 and had no impact on our 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 our previously issued financial statements and will adjust the Form 10-K when filed in succeeding periods of this fiscal year.

 

10

 

 

MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

The table below present the impact of the revision in the Company’s condensed consolidated financial statements.

 

   December 31, 2019 
   As previously
reported
   Adjustment   As Revised 
Balance Sheet / Statement of Changes in Stockholders’ Equity            
Investment Property               
Land  $11,130,259   $(244,321)  $10,885,938 
Total Investment Property   34,811,785    (244,321)   34,567,464 
Net Investment Property   33,416,827    (244,321)   33,172,506 
Total Assets   38,152,131    (244,321)   37,907,810 
Additional Paid in Capital   1,004,170    (244,321)   759,849 
Total Stockholders’ Deficit   (2,712,554)   (244,321)   (2,956,875)
Total Liabilities and Stockholders’ Deficit  $38,152,131   $(244,321)  $37,907,810 

 

The unaudited condensed consolidated income statement and statement of cash flows are not presented because there is no impact to these statements.

 

NOTE 3 – INVESTMENT PROPERTY

 

Investment Property consists of the following as of:

 

  

September 30,
2020

   December 31,
2019
 
Investment Property          
Land  $11,378,818   $10,885,938 
Site and Land Improvements   22,007,126    17,466,801 
Buildings and Improvements   7,048,699    6,214,725 
Total Investment Property   40,434,643    34,567,464 
Less: accumulated depreciation and amortization   (2,621,354)   (1,394,958)
Net Investment Property  $37,813,289   $33,172,506 

 

Depreciation and amortization expense totaled $485,377 and $204,719 for the three months ended September 30, 2020 and 2019, respectively, and $1,357,629 and $496,966 for the nine months ended September 30, 2020 and 2019, respectively.

 

During the nine months ended September 30, 2019, the Company acquired the 25% minority interest in Pecan Grove MHP LLC. The Company also acquired two manufactured housing communities and accounted for them as asset acquisitions during the nine months ended September 30, 2020 totaling $5,310,767 (See note 8).

 

NOTE 4 – 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 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 $7,397,468 for four assets were guaranteed by Raymond M. Gee, the Company’s chairman, chief executive officer and owner of the principal stockholder of the Company. 

11

 

 

MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

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 (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.

During the nine months ended September 30, 2019, the Company refinanced a total of $4,940,750 from current loans payable to $8,241,000 of new notes payable from five of the communities, resulting in an additional loan payable of $3,320,859. The Company used the additional loans payable proceeds from the refinance to retire the related party note payable described below. During the nine months ended September 30, 2019, the Company wrote off mortgage costs of $68,195 and capitalized $110,039 of mortgage costs due to the refinancing.

 

On April 1, 2020, the Company refinanced the loans for Butternut MHP Land LLC with the existing lender to increase the loan amount to $1,382,269 and to extend the maturity date to April 10, 2025. In addition, the interest rate was changed to 6% per annum, provided that on April 10, 2023 and thereafter, the interest rate shall be equal to (i) the per annum rate of interest identified as the “Prime Rate” as published in the monthly rates section of the Wall Street Journal plus (ii) 1% per annum, adjusted as the first day of each calendar quarter. The loan, as modified, is secured by the real estate assets of Butternut MHP Land LLC and is guaranteed by the Company and Raymond M. Gee. The Company used the proceeds to extinguish and pay off the Butternut MHP Land LLC Mezz loan.

 

As of September 30, 2020, the Company recorded $151,365 of mortgage cost related to the two acquisitions.

 

The following are terms of these notes:

 

   Maturity
Date
  Interest
Rate
   Balance
09/30/20
   Balance
12/31/19
 
Butternut MHP Land LLC  04/10/25   6.000%  $1,375,106   $1,114,819 
Butternut MHP Land LLC Mezz  04/01/27   7.000%   -    280,013 
Pecan Grove MHP LLC  02/22/29   5.250%   3,054,267    3,095,274 
Azalea MHP LLC  03/01/29   5.400%   815,687    835,445 
Holly Faye MHP LLC  03/01/29   5.400%   579,825    574,096 
Chatham MHP LLC  04/01/24   5.875%   1,743,510    1,771,506 
Lake View MHP LLC  03/01/29   5.400%   1,838,780    1,857,266 
B&D MHP LLC  04/25/29   5.500%   1,827,754    1,854,788 
Hunt Club MHP LLC  05/01/24   5.750%   1,424,255    1,447,364 
Crestview MHP LLC  07/31/24   5.500%   4,105,637    4,173,652 
Maple MHP LLC  01/01/23   5.125%   2,636,854    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%   5,224,329    5,300,000 
Countryside MHP LLC  03/20/50   5.500%   3,000,000    - 
Evergreen MHP LLC  04/01/32   3.990%   1,140,341    - 
PPP Loan  05/01/22   1.000%   139,300    - 
Totals note payables           32,905,645    28,992,876 
Discount Direct Lender Fees           (746,560)   (633,629)
Total net of Discount          $32,159,085   $28,359,247 

 

12

 

 

MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

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 matures in May of 2023. As of September 30, 2020, and December 31, 2019, the balance on this note was $0 and $1,730,000, respectively. During the three months ended September 30, 2020, the Company paid off the full balance and terminated the loan facility. 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. As of September 30, 2020 and December 31, 2019, the outstanding balance on this note was $605,580 and $797,906, respectively.

 

Maturities of Long-Term Obligations for Five Years and Beyond

 

The minimum annual principal payments of notes payable at September 30, 2020 by fiscal year were:

 

2020 (remainder of year)   $135,491 
2021    667,735 
2022    4,648,421 
2023    3,067,795 
2024    7,195,039 
Thereafter    17,191,164 
Total minimum principal payments   $32,905,645 

 

NOTE 5 – COMMITMENTS AND CONTINGENCIES

 

From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise that may harm its business. The Company is currently not aware of any such legal proceedings or claims that they believe will have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results.

 

13

 

 

MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 6 – STOCKHOLDERS’ EQUITY

 

Preferred Stock

 

The Company is authorized to issue up to 10,000,000 shares of preferred stock, $0.01 par value.

 

Series A Preferred Stock

 

On May 8, 2019, the Company filed a certificate of designation with the Nevada Secretary of State pursuant to which the Company designated 4,000,000 shares of its preferred stock as Series A Cumulative Convertible Preferred Stock (the “Series A Preferred Stock”). The Series A Preferred Stock has the following voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions:

 

Ranking. The Series A Preferred Stock ranks, as to dividend rights and rights upon our liquidation, dissolution, or winding up, senior to the Common Stock.

 

Dividend Rate and Payment Dates. Dividends on the Series A Preferred Stock are cumulative and payable monthly in arrears to all holders of record on the applicable record date. Holders of Series A Preferred Stock will be entitled to receive cumulative dividends in the amount of $0.017 per share each month, which is equivalent to the rate of 8% of the $2.50 liquidation preference per share. Dividends on shares of Series A Preferred Stock will continue to accrue even if any of the Company’s agreements prohibit the current payment of dividends or the Company does not have earnings. During the nine months ended September 30, 2020 and 2019, the Company paid dividends of $281,720 and $43,334, 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 nine months ended September 30, 2020 and 2019, the Company recorded a put option value accretion of $354,375 and $47,500, 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 September 30, 2020, there were 1,890,000 shares of Series A Preferred Stock issued and outstanding. As of September 30, 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 $538,375. 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 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.

 

14

 

 

MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

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 nine months ended September 30, 2020 and 2019, the Company paid dividends of $310,288 and $0, 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.

 

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 nine months ended September 30, 2020 and 2019, the Company recorded a put option value accretion of $408,834 and $0, 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 nine months ended September 30, 2020, the Company sold an aggregate of 205,569 shares of Series B Preferred Stock for total gross proceeds of $2,055,690. After deducting a placement fee and other expenses, the Company received net proceeds of $1,911,792.

 

As of September 30, 2020, there were 615,291 shares of Series B Preferred Stock issued and outstanding.

 

Common Stock

 

The Company is authorized to issue up to 200,000,000 shares of Common Stock, par value $0.01 per share. As of September 30, 2020, there were 12,397,180 shares of Common Stock issued and outstanding.

 

Stock Issued for Service

 

In November 2018, the Company issued 350,000 shares of Common Stock for services to an investment bank for advisory services with a fair value of $171,500, 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.

 

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.

 

15

 

 

MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

During the nine months ended September 30, 2020 and 2019, the Company issued 8,100 and 0 shares of Common Stock, respectively, to early investors in the Regulation A offering, valued at $2,187 and $0, 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 September 30, 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 $1,724 and $24 during the nine months ended September 30, 2020 and 2019, respectively.

 

The following table summarizes the stock options outstanding as of September 30, 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 September 30, 2020   656,175   $0.03    8.2 

 

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company’s closing stock price at fiscal year-end and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holder had all options holders exercised their options on September 30, 2020. As of September 30, 2020, there were 656,175 “in-the-money” options with an aggregate intrinsic value of $2,648,266.

 

The following table summarizes information concerning options outstanding as of September 30, 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    7.2   $0.01    519,675   $0.01 
$0.27    136,500    9.3   $0.27    45,500   $0.27 

 

16

 

 

MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

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 

September 30,

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 7 – 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. As of September 30, 2020 and December 31, 2019, the outstanding balance on this note was $605,580 and $797,906, 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 matures in May of 2023. As of September 30, 2020 and December 31, 2019, the balance on this note was $0 and $1,730,000, respectively. During the three months ended September 30, 2020 the Company paid off the full balance and terminated the loan facility. The related party note was guaranteed by Mr. Gee, the Company’s Chief Executive Officer.

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 is $4,000 per month and is on a month-to-month term. Total rent expense for the nine months ended September 30, 2020 and 2019 was $36,000 and $0, respectively, and $12,000 and $0 for the three months ended September 30, 2020 and 2019, respectively.

 

During the three and nine months ended September 30, 2020, the Company recorded $5,004 and $13,267, respectively, in revenues related to property management consulting services provided to Gvest Real Estate Capital LLC, compared to $4,164 and $19,448 during the three and nine months ended September 30, 2019, respectively.

 

During the nine months ended September 30, 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, and $70,000 fee for his personal guarantee on a promissory note relating to the refinance of our loans for Butternut MHP Land LLC.

 

17

 

 

MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 8 – ACQUISITIONS

 

The Company completed two acquisitions during the nine months ended September 30, 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.

 

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 

 

Pro-forma Financial Information

 

The following unaudited pro-forma information presents the combined results of operations for the nine months ended September 30, 2020 and 2019 as if the above acquisitions of manufactured housing communities had been completed on January 1, 2020 and 2019. Pro-forma for the nine months ended September 30, 2019 includes the five acquisitions during 2019.

 

   Nine months
ended
September 30,
2020
Consolidated
   Acquisitions   Adjustment   Nine months
ended
September 30,
2020
Pro Forma
 
Total revenue  $4,435,269   $167,618   $   $4,602,887 
Total expenses   5,092,919    60,297         5,153,216 
Depreciation and amortization expense   -    -    49,445    49,445 
Interest expense   -    -    40,719    40,719 
Net income (loss)  $(657,650)  $107,321         (640,493)
Preferred stock dividends and put option value accretion   1,355,217    -         1,355,217 
Net loss attributable to common shareholders  $(2,012,867)  $107,321        $(1,995,710)
Weighted average - basic and fully diluted                 $(0.16)

 

   Nine months
ended
September 30,
2019
Consolidated
   Acquisitions   Adjustment   Nine months
ended
September 30,
2019
Pro Forma
 
Total revenue  $1,983,283   $2,242,274   $    $4,225,557 
Total expenses   3,389,183    915,444         4,304,627 
Depreciation and amortization expense   -    -    839,572    839,572 
Interest expense   -    -    612,296    612,296 
Net income (loss)  $(1,405,900)  $1,326,830         (1,530,938)
Preferred stock dividends and put option value accretion   90,834    -         90,834 
Net loss attributable to common shareholders  $(1,496,734)  $1,326,830        $(1,621,772)
Weighted average - basic and fully diluted                 $(0.13)

 

18

 

 

MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

   Three months
ended
September 30,
2019
Consolidated
   Acquisitions   Adjustment   Three months
ended
September 30,
2019
Pro Forma
 
Total revenue  $798,707   $751,211   $   $1,549,918 
Total expenses   1,131,027    311,335         1,442,362 
Depreciation and amortization expense   -    -    279,857    279,857 
Interest expense   -    -    204,099    204,099 
Net income (loss)  $(332,320)  $439,876         (376,400)
Preferred stock dividends and put option value accretion   42,750    -         42,750 
Net loss attributable to common shareholders  $(375,070)  $439,876        $(419,150)
Weighted average - basic and fully diluted                 $(0.03)

 

NOTE 9 – SUBSEQUENT EVENTS

 

Series B Preferred Stock

 

On October 27, 2020, the Company completed an additional closing of the Regulation A offering described below, pursuant to which the Company sold an aggregate of 11,885 shares of Series B Preferred Stock to investors for total gross proceeds of $118,850. After deducting the placement fee, the Company received net proceeds of $110,531. The Company also issued 300 shares of Common Stock to additional early investors.

 

19

 

 

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

Use of Terms

 

Except as otherwise indicated by the context and for the purposes of this report only, references in this report to “we,” “our” and the “Company” refer to Manufactured Housing Properties Inc., a Nevada corporation, and its consolidated subsidiaries.

 

Special Note Regarding Forward Looking Statements

 

In addition to historical information, this report contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that include information relating to future events, future financial performance, strategies, expectations, competitive environment, regulation and availability of resources. These forward-looking statements include, without limitation: statements concerning projections, predictions, expectations, estimates or forecasts for our business, financial and operating results and future economic performance; statements of management’s goals and objectives; trends affecting our financial condition, results of operations or future prospects; statements regarding our financing plans or growth strategies; statements concerning litigation or other matters; and other similar expressions concerning matters that are not historical facts. Words such as “may,” “will,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes” and “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements.

 

Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times, or by which, that performance or those results will be achieved. Forward-looking statements are based on information available at the time they are made and/or management’s good faith beliefs as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements.

 

Potential investors should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. Potential investors should not make an investment decision based solely on our projections, estimates or expectations.

 

Overview

 

We are a self-administered, self-managed, vertically integrated owner and operator of manufactured housing communities. Manufactured housing communities are residential developments designed and improved for the placement of detached, single-family manufactured homes that are produced off-site and installed and set on residential sites within the community. The owner of a manufactured home leases the site on which it is located and the lessee of a manufactured home leases both the home and site on which the home is located. We earn income from leasing manufactured home sites to tenants who own their own manufactured home and the rental of company-owned manufactured homes to residents of the communities.

 

We originally incorporated in the State of Nevada as Frontier Staffing, Inc. on September 3, 2003. Since our incorporation, we have experienced several name changes and have been engaged in several different business endeavors. On October 12, 2017, Mobile Home Rental Holdings LLC, a North Carolina limited liability company, which engaged in acquiring and operating manufactured housing properties, merged with and into the Company. In connection with the merger, the name of the Company was changed to Manufactured Housing Properties Inc., the former business and management of Mobile Home Rental Holdings LLC became the business and management, respectively of the Company.

 

As of September 30, 2020, we own and operate twenty manufactured housing communities containing approximately 1,308 developed sites, and a total of 461 company-owned manufactured homes, including:

 

Pecan Grove – a 81 lot, all-age community situated on 10.71 acres and located in Charlotte, North Carolina.

 

20

 

 

Butternut – a 59 lot, all-age community situated on 13.13 acres and located in Corryton, Tennessee, a suburb of Knoxville, Tennessee.

 

Azalea Hills – a 41 lot, all-age community situated on 7.46 acres and located in Gastonia, North Carolina, a suburb of Charlotte, North Carolina.

 

Holly Faye – a 37 lot all-age community situated on 8.01 acres and located in Gastonia, North Carolina, a suburb of Charlotte North Carolina.

 

Lakeview – a 97 lot all-age community situated on 17.26 acres in Spartanburg, South Carolina.

 

Chatham Pines – a 49 lot all-age community situated on 23.57 acres and located in Chapel Hill, North Carolina.

 

Maple Hills – a 73 lot all-age community situated on 21.20 acres and located in Mills River, North Carolina, which is part of the Asheville, North Carolina, Metropolitan Statistical Area.

 

Hunt Club Forest – a 79 lot all-age community situated on 13.02 acres and located in the Columbia, South Carolina metro area.

 

B&D – a 97 lot all-age community situated on 17.75 acres and located in Chester, South Carolina.

 

Crestview – a 113 lot all-age community situated on 17.1 acres and located in the Ashville, NC MSA, North Carolina, Metropolitan Statistical Area.

 

Spring Lake – three all-age communities with 225 lots situated on 72.7 acres and located in Warner Robins, Georgia.

 

ARC – five all-age communities with 182 lots situated on 39.34 acres and located in Lexington, South Carolina.

 

Countryside – a 110 lot all-age community situated on 35 acres and located in Lancaster, North Carolina.

 

Evergreen – a 65 lot all-age community situated on 28.4 acres and located in Dandridge, Tennessee.

 

We believe that manufactured housing is accepted by the public as a viable and economically attractive alternative to common stick-built single-family housing. We believe that the affordability of the modern manufactured home makes it a very attractive housing alternative. Manufactured housing is one of the only non-subsidized affordable housing options in the U.S. Demand for housing affordability continues to increase, but supply remains static, as there are virtually no new manufactured housing communities being developed. We are committed to becoming an industry leader in providing this affordable housing option and an improved level of service to our residents, while producing an attractive and stable risk adjusted return to our investors.

 

Recent Developments

 

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 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.

 

We are carefully reviewing all rules, regulations, and orders and responding accordingly. We have taken steps to take care of our 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. We have also taken precautions with regard to employee, facility and office hygiene as well as implementing significant travel restrictions. We are also assessing our business continuity plans for all business units in the context of the pandemic. This is a rapidly evolving situation, and we will continue to monitor and mitigate developments affecting our workforce, our tenants, and the public at large to the extent we are able to do so.

 

21

 

 

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 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, 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 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 the date of this Form 10-Q, 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.

 

Series B Preferred Stock

On October 27, 2020, the Company completed an additional closing of the Regulation A offering (see Note 6), pursuant to which the Company sold an aggregate of 11,885 shares of Series B Preferred Stock to investors for total gross proceeds of $118,850. After deducting the placement fee, the Company received net proceeds of $110,531. The Company also issued 300 shares of Common Stock to additional early investors.

Results of Operations

 

Comparison of Three Months Ended September 30, 2020 and 2019

 

The following table sets forth key components of our results of operations during the three months ended September 30, 2020 and 2019, both in dollars and as a percentage of our revenues.

 

   Three Months Ended
September 30,
2020
   Three Months Ended
September 30,
2019
 
   Amount   Percent of Revenues   Amount   Percent of Revenues 
Revenue                
Rental and related income  $1,615,994    99.69%  $794,543    99.48%
Management fees, related party   5,004    0.31%   4,164    0.52%
Total revenues   1,620,998    100.00%   798,707    100.00%
Community operating expenses                    
Repair and maintenance   93,501    5.77%   65,394    8.19%
Real estate taxes   90,498    5.58%   42,178    5.28%
Utilities   150,568    9.29%   50,069    6.27%
Insurance   27,622    1.70%   21,086    2.64%
General and administrative expense   133,279    8.22%   66,566    8.33%
Total community operating expenses   495,468    30.57%   245,293    30.71%
Corporate payroll and overhead   311,787    19.23%   125,229    15.68%
Depreciation and amortization expense   485,377    29.94%   204,719    25.63%
Interest expense   385,190    23.76%   555,786    69.59%
Total expenses   1,677,822    103.51%   1,131,027    141.61%
Net loss  $(56,824)   (3.51)%  $(332,320)   (41.61)%
Preferred stock dividends and put option value accretion   (432,845)   (26.70)%   (42,750)   (5.35)%
Net loss attributable to common stockholders  $(489,669)   (30.21)%  $(375,070)   (46.96)%

 

Revenues. For the three months ended September 30, 2020, we had total revenues of $1,620,998, as compared to $798,707 for the three months ended September 30, 2019, an increase of $822,291, or 102.9%. The increase in revenues between the periods was primarily due to $621,013 of rental income from the acquisition of four manufactured housing communities subsequent to September 30, 2019.

 

Community Operating Expenses. For the three months ended September 30, 2020, we had total community operating expenses of $495,468, as compared to $245,293 for the three months ended September 30, 2019, an increase of $250,175, or 101.9%. The increase in community operating expenses was primarily due to expenses related to the acquisition of four manufactured housing communities subsequent to September 30, 2019 totaling $223,052. Excluding the four acquisitions, our community operating expenses increased by $27,123 due to additional repair and maintenance costs incurred during 2020 as we stabilized newly acquired communities.

22

 

 

Corporate Payroll and Overhead Expenses. For the three months ended September 30, 2020, we had corporate payroll and overhead expenses of $311,787, as compared to $125,229 for the three months ended September 30, 2019, an increase of $186,558. Such increase was primarily due to additional audit fees due to our acquisition audits, and additional corporate personnel to support our growth.

Depreciation and Amortization Expense. For the three months ended September 30, 2020, we had depreciation and amortization expense of $485,377, as compared to $204,719 for the three months ended September 30, 2019, an increase of $280,658. The increase was primarily due to the acquisition of four manufactured housing communities subsequent to September 30, 2019.

 

Interest Expense. For the three months ended September 30, 2020, we had interest expense of $385,190, as compared to $555,786 for the three months ended September 30, 2019, a decrease of $170,596. The decrease was primarily related to the refinancing of five of our manufactured housing communities during the first quarter of 2019, and the payoff and termination of our related party line of credit during the three months ended September 30, 2020.

 

Net Loss. The factors described above resulted in a net loss of $56,824 for the three months ended September 30, 2020, as compared to $332,320 for the three months ended September 30, 2019, a decrease of $275,496, or 82.9%.

 

Comparison of Nine months Ended September 30, 2020 and 2019

 

The following table sets forth key components of our results of operations during the nine months ended September 30, 2020 and 2019, both in dollars and as a percentage of our revenues.

 

  

Nine months Ended

September 30,
2020

  

Nine months Ended

September 30,
2019

 
   Amount   Percent of Revenues   Amount   Percent of Revenues 
Revenue                
Rental and related income  $4,422,002    99.70%  $1,963,835    99.02%
Management fees, related party   13,267    0.30%   19,448    0.98%
Total revenues   4,435,269    100.00%   1,983,283    100.00%
Community operating expenses                    
Repair and maintenance   234,996    5.30%   160,621    8.10%
Real estate taxes   242,776    5.47%   110,660    5.58%
Utilities   402,124    9.07%   130,744    6.59%
Insurance   116,123    2.62%   47,015    2.37%
General and administrative expense   384,949    8.68%   227,188    11.46%
Total community operating expenses   1,380,968    31.14%   676,228    34.10%
                     
Corporate payroll and overhead   1,065,624    24.03%   587,463    29.62%
Depreciation and amortization expense   1,357,629    30.61%   496,966    25.06%
Interest expense   1,288,699    29.06%   1,076,254    54.27%
Refinancing costs   -    -    552,272    27.85%
Total expenses   5,092,920    114.83%   3,389,183    170.89%
Net loss  $(657,651)   (14.83)%  $(1,405,900)   (70.89)%
Preferred stock dividends and put option value accretion   (1,355,217)   (4.58)%   (90,834)   - 
Net loss attributable to common stockholders  $(2,012,868)   (45.38)%  $(1,496,734)   (75.46)%

 

Revenues. For the nine months ended September 30, 2020, we had total revenues of $4,435,269, as compared to $1,983,283 for the nine months ended September 30, 2019, an increase of $2,451,986, or 123.6%. The increase in revenues between the periods was primarily due to $1,672,227 of rental income from the acquisition of four manufactured housing communities subsequent to September 30, 2019.

 

Community Operating Expenses. For the nine months ended September 30, 2020, we had total community operating expenses of $1,380,968, as compared to $676,228 for the nine months ended September 30, 2019, an increase of $704,740, or 104.2%. The increase in community operating expenses was primarily due to expenses related to the acquisition of four manufactured housing communities subsequent to September 30, 2019 totaling $568,672. Excluding the four acquisitions, our community operating expenses increased by $136,068 due to additional repair and maintenance costs incurred during 2020 as we stabilized newly acquired communities.

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Corporate Payroll and Overhead Expenses. For the nine months ended September 30, 2020, we had corporate payroll and overhead expenses of $1,065,624, as compared to $587,463 for the nine months ended September 30, 2019, an increase of $478,161. Such increase was primarily due to additional audit fees due to our acquisition audits, and additional corporate personnel to support our growth.

 

Depreciation and Amortization Expense. For the nine months ended September 30, 2020, we had depreciation and amortization expense of $1,357,629, as compared to $496,966 for the nine months ended September 30, 2019, an increase of $860,663. The increase was primarily due to the acquisition of four manufactured housing communities subsequent to September 30, 2019.

 

Interest Expense. For the nine months ended September 30, 2020, we had interest expense of $1,288,699, as compared to $1,076,254 for the nine months ended September 30, 2019, an increase of $212,445. The increase was primarily comprised of $407,346 related to new debt associated with our acquisition of four manufactured housing communities subsequent to September 30, 2019. This was offset from the refinancing of five of our manufactured housing communities during the first quarter of 2019, and the payoff and termination of our related party line of credit during the three months ended September 30, 2020.

 

Refinancing Expenses. During the nine months ended September 30, 2019, we refinanced a total of $4,940,750 from our current loans payable to $8,241,000 of new notes payable from five of our ten existing communities, resulting in an additional loan payable of $3,320,859. We used the additional loans payable proceeds from the refinance to retire our convertible note payable of $2,754,550 plus accrued interest and recorded a loss of $552,272 on the refinancing. As of September 30, 2019, the Company wrote off mortgage costs of $68,195 and capitalized $110,039 of mortgage costs due to the refinancing.

 

Net Loss. The factors described above resulted in a net loss of $657,651 for the nine months ended September 30, 2020, as compared to $1,405,900 for the nine months ended September 30, 2019, a decrease of $748,249, or 53.2%.

 

Liquidity and Capital Resources

 

As of September 30, 2020, we had cash and cash equivalents of $2,099,390, including restricted cash of $371,826. In addition to cash generated through operations, we use a variety of sources to fund our cash needs, including acquisitions. We intend to continue to increase our real estate investments. Our business plan includes acquiring communities that yield in excess of our cost of funds and then investing in physical improvements, including adding rental homes onto otherwise vacant sites. Our ability to continue acquiring communities are dependent on our ability to raise capital. There is no guarantee that any of these additional opportunities will materialize or that we will be able to take advantage of such opportunities. The growth of our real estate portfolio depends on the availability of suitable properties which meet our investment criteria and appropriate financing.

 

We will require additional funding to finance the growth of our current and expected future operations as well as to achieve its strategic objectives. We believe that our current available cash along with anticipated revenues will be sufficient to meet our cash needs for the near future. There can be no assurance that financing will be available in amounts or terms acceptable to us, if at all.

 

Summary of Cash Flow

 

The following table provides detailed information about our net cash flow for the period indicated:

 

Cash Flow

 

   Nine Months Ended
September 30,
 
   2020   2019 
Net cash provided by (used in) operating activities  $744,881   $(503,110)
Net cash used in investing activities   (1,721,594)   (10,138,342)
Net cash provided by (used in) financing activities   (1,070,308)   11,912,272 
Net increase (decrease) in cash and cash equivalents   (2,047,021)   1,270,820 
Cash and cash equivalents at beginning of period   4,146,411    458,271 
Cash and cash equivalent at end of period  $2,099,390   $1,729,091 

 

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Net cash provided by operating activities was $744,881 for the nine months ended September 30, 2020, as compared to $503,110 net cash used in operating activities for the nine months ended September 30, 2019. For the nine months ended September 30, 2020, the net loss of $657,651, offset by depreciation and amortization in the amount of $1,357,629 and an increase in accrued liabilities in the amount of $25,415 were the primary drivers of the net cash provided by operating activities. For the nine months ended September 30, 2019, the net loss of $1,405,900, a decrease in other assets in the amount of $461,532 due to lender’s escrowed funds held by lender at closing to be released back to us upon the completion of certain capital improvement projects, offset by depreciation and amortization in the amount of $504,542, stock compensation expense in the amount of $329,700, an increase in accounts payable of $230,164, and accrued expenses in the amount of $119,135, were the primary drivers of the net cash used in operating activities.

Net cash used in investing activities was $1,721,594 for the nine months ended September 30, 2020, as compared to $10,138,342 for the nine months ended September 30, 2019. Net cash used in investing activities for the nine months ended September 30, 2020 consisted of the purchase of investment properties in the amount of $1,001,000 and capital improvements in the amount of $720,594, while net cash used in investing activities for the nine months ended September 30, 2019 consisted entirely of the purchase of property.

 

Net cash used in financing activities was $1,070,308 for the nine months ended September 30, 2020, as compared to $11,912,272 net cash provided by financing activities for the nine months ended September 30, 2019. For the nine months ended September 30, 2020, net cash used in financing activities consisted of repayment of related party notes payable of $1,730,000, repayment of notes payable $641,733, preferred share dividends of $592,008, payment of mortgage costs recorded as debt discount of $244,167, repayment of related party note of $192,326, offset by proceeds from issuance of preferred stock of $1,911,792 and proceeds from note payables of $418,134. For the nine months ended September 30, 2019, net cash provided by financing activities consisted of proceeds from notes payable in the amount of $18,481,076, proceeds from the issuance of preferred stock in the amount of $1,465,000, proceeds from line of credit in the amount of $3,000,000, proceeds from issuance of common stock in the amount of $68,717 and proceeds from related party note in the amount of $7,075, offset by repayment of notes payable in the amount of $7,898,248, repayment of line of credit in the amount of $2,754,550, capitalized financing costs of $275,519, purchase of treasury stock in the amount of $64,511 and preferred stock dividends in the amount of $43,334.

 

Regulation A Offering

 

On November 1, 2019, we launched an offering under Regulation A of Section 3(6) of the Securities Act for Tier 2 offerings, pursuant to which we are 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, we are 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.

 

As of September 30, 2020, we sold an aggregate of 615,291 shares of Series B Preferred Stock for total gross proceeds of $6,152,910. After deducting a placement fee and other expenses, we received net proceeds of $5,722,206.

 

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 $7,397,468 for four assets were guaranteed by Raymond M. Gee, the Company’s chairman, chief executive officer and owner of the principal stockholder of the Company. 

 

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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 (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.

The following are terms of these notes:

   Maturity
Date
  Interest
Rate
   Balance
09/30/20
   Balance
12/31/19
 
Butternut MHP Land LLC  04/10/25   6.000%  $1,375,106   $1,114,819 
Butternut MHP Land LLC Mezz  04/01/27   7.000%   -    280,013 
Pecan Grove MHP LLC  02/22/29   5.250%   3,054,267    3,095,274 
Azalea MHP LLC  03/01/29   5.400%   815,687    835,445 
Holly Faye MHP LLC  03/01/29   5.400%   579,825    574,096 
Chatham MHP LLC  04/01/24   5.875%   1,743,510    1,771,506 
Lake View MHP LLC  03/01/29   5.400%   1,838,780    1,857,266 
B&D MHP LLC  04/25/29   5.500%   1,827,754    1,854,788 
Hunt Club MHP LLC  05/01/24   5.750%   1,424,255    1,447,364 
Crestview MHP LLC  07/31/24   5.500%   4,105,637    4,173,652 
Maple MHP LLC  01/01/23   5.125%   2,636,854    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%   5,224,329    5,300,000 
Countryside MHP LLC  03/20/50   5.500%   3,000,000    - 
Evergreen MHP LLC  04/01/32   3.990%   1,140,341    - 
PPP Loan  05/01/22   1.000%   139,300    - 
Totals note payables           32,905,645    28,992,876 
Discount Direct Lender Fees           (746,560)   (633,629)
Total net of Discount          $32,159,085   $28,359,247 

 

Metrolina 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 matures in May of 2023. As of September 30, 2020 and December 31, 2019, the balance on this note was $0 and $1,730,000, respectively. During the three months ended September 30, 2020, the Company paid off the full balance and terminated the loan facility. The related party note was guaranteed by Mr. Gee, the Company’s Chief Executive Officer.

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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. As of September 30, 2020, and December 31, 2019, the outstanding balance on this note was $605,580 and $797,906, respectively.

 

Off-Balance Sheet Arrangements

 

As of September 30, 2020, we had no off-balance sheet arrangements.

 

Critical Accounting Policies

 

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles (“GAAP”). The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our consolidated financial statements. Actual results may differ from these estimates under different assumptions or conditions.

 

Significant accounting policies are defined as those that involve significant judgment and potentially could result in materially different results under different assumptions and conditions. Management believes the following critical accounting policies are affected by our more significant judgments and estimates used in the preparation of our consolidated financial statements.

 

Revenue Recognition. Our revenues primarily consist of rental revenues and fee and other income. We have the following revenue sources and revenue recognition policies:

 

Rental revenues include revenues from the leasing 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 our 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.

 

Revenues derived from fixed lease payments are recognized on a straight-line basis over the non-cancelable period of the lease. We commence 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. Our 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.

 

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, we 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. We consider 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, we must assess on an individual lease basis whether it is probable that we will collect the future lease payments. We consider the tenant’s payment history and current credit status when assessing collectability. When collectability is not deemed probable, we write-off the tenant’s receivables, including straight-line rent receivable, and limit lease income to cash received.

 

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Investment Property and Equipment and Depreciation. Property and equipment are carried at cost. Depreciation for Sites and Building is computed principally on the straight-line method over the estimated useful lives of the assets (ranging from 15 to 25 years). Depreciation of Improvements to Sites and Buildings, Rental Homes and Equipment and Vehicles is computed principally on the straight-line method over the estimated useful lives of the assets (ranging from 3 to 25 years). Land Development Costs are not depreciated until they are put in use, at which time they are capitalized as Sites and Land Improvements. Interest Expense pertaining to Land Development Costs are capitalized. Maintenance and Repairs are charged to expense as incurred and improvements are capitalized. The costs and related accumulated depreciation of property sold or otherwise disposed of are removed from the financial statement and any gain or loss is reflected in the current year’s results of operations.

 

Impairment Policy. The Company applies FASB ASC 360-10, “Property, Plant & Equipment,” to measure impairment in real estate investments. Rental properties are individually evaluated for impairment when conditions exist which may indicate that it is probable that the sum of expected future cash flows (on an undiscounted basis without interest) from a rental property is less than the carrying value under its historical net cost basis. These expected future cash flows consider factors such as future operating income, trends and prospects as well as the effects of leasing demand, competition and other factors. Upon determination that a permanent impairment has occurred, rental properties are reduced to their fair value. For properties to be disposed of, an impairment loss is recognized when the fair value of the property, less the estimated cost to sell, is less than the carrying amount of the property measured at the time there is a commitment to sell the property and/or it is actively being marketed for sale. A property to be disposed of is reported at the lower of its carrying amount or its estimated fair value, less its cost to sell. Subsequent to the date that a property is held for disposition, depreciation expense is not recorded. There was no impairment during the nine months ended September 30, 2020 and 2019.

 

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 $1,724 and $24 during the nine months ended September 30, 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.

 

Income Taxes. We account 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, we determine 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. We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider 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 we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine 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, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. We recognize and interest and penalties, if any, with income tax expense in the accompanying consolidated statement of operations. As of September 30, 2020 and December 31, 2019, there were no such accrued interest or penalties.

28

 

 

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 adopted this standard on January 1, 2020. The adopted of this standard had no impact on the unaudited condensed 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.

 

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.

 

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not applicable.

 

ITEM 4.CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

As required by Rule 13a-15(e) of the Exchange Act, our management has carried out an evaluation, with the participation and under the supervision of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as of September 30, 2020. Based upon, and as of the date of this evaluation, our chief executive officer and chief financial officer determined that, because of the material weaknesses described in Item 9A “Controls and Procedures” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and further referenced below, which we are still in the process of remediating as of September 30, 2020, our disclosure controls and procedures were not effective.

 

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Changes in Internal Control Over Financial Reporting

 

We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.

 

During its evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2020, our management identified the following material weaknesses:

 

We lack proper segregation of duties due to the limited number of employees within the accounting department.

 

We lack effective closing procedures.

 

To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of legal and accounting professionals. As we grow, we expect to increase our number of employees, which will enable us to implement adequate segregation of duties within the internal control framework.

 

Our management has identified the steps necessary to address the material weaknesses, and implemented the following remedial procedures:

 

We have implemented dual signatures and approvals on all payments.

 

We have added and plan to continue to add additional employees to assist in the financial closing procedures.

 

As necessary, we will continue to engage consultants or outside accounting firms in order to ensure proper accounting for our consolidated financial statements.

 

We intend to complete the remediation of the material weaknesses discussed above as soon as practicable but we can give no assurance that we will be able to do so. Designing and implementing an effective disclosure controls and procedures is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to devote significant resources to maintain a financial reporting system that adequately satisfies our reporting obligations. The remedial measures that we have taken and intend to take may not fully address the material weaknesses that we have identified, and material weaknesses in our disclosure controls and procedures may be identified in the future. Should we discover such conditions, we intend to remediate them as soon as practicable. We are committed to taking appropriate steps for remediation, as needed.

 

Other than in connection with the implementation of the remedial measures described above, there were no changes in our internal controls over financial reporting during the third quarter of fiscal 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

 

ITEM 1.LEGAL PROCEEDINGS.

 

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.

 

ITEM 1A.RISK FACTORS.

 

Not applicable.

 

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

We have not sold any equity securities during the three months ended September 30, 2020 that were not previously disclosed in a current report on Form 8-K that was filed during the quarter.

 

During the three months ended September 30, 2020, we did not repurchase any shares of our common stock.

 

ITEM 3.DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4.MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5.OTHER INFORMATION.

 

We have no information to disclose that was required to be in a report on Form 8-K during the third quarter of fiscal year 2020 but was not reported. There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.

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ITEM 6.EXHIBITS.

 

Exhibit No.   Description of Exhibit
3.1   Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form 10 filed on April 19, 2018)
3.2   Certificate of Designation of Series A Cumulative Convertible Preferred Stock (incorporated by reference to Exhibit 2.2 to the Offering Statement on Form 1-A filed on May 9, 2019)
3.3   Certificate of Designation of Series B Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on December 5, 2019)
3.4   Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Registration Statement on Form 10 filed on April 19, 2018)
31.1*   Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*   Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*   Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*   Certifications of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*   XBRL Instance Document
101.SCH*   XBRL Taxonomy Extension Schema Document
101.CAL*   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*   XBRL Taxonomy Extension Label Linkbase Document
101.PRE*   XBRL Taxonomy Extension Presentation Linkbase Document

 

 

*Filed herewith

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: November 10, 2020 MANUFACTURED HOUSING PROPERTIES INC.
   
  /s/ Raymond M. Gee
  Name: Raymond M. Gee
  Title: Chief Executive Officer
  (Principal Executive Officer)
   
   
  /s/ Michael Z. Anise
  Name: Michael Z. Anise
  Title: President and Chief Financial Officer
  (Principal Financial and Accounting Officer)

 

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