NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022 AND 2021
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES AND ORGANIZATION
Organization
Manufactured Housing Properties Inc. (the “Company”)
is a Nevada corporation whose principal activities are to acquire, own, and operate manufactured housing communities.
Basis of Presentation
The Company prepares its consolidated financial
statements under the accrual basis of accounting, in conformity with accounting principles generally accepted in the United States of
America (“GAAP”).
The accompanying unaudited condensed consolidated
financial statements of the Company have been prepared in accordance with GAAP for interim financial information and with the instructions
to Form 10-Q of Regulation S-X. They do not include all information and footnotes required by GAAP for complete financial statements.
The December 31, 2021 consolidated balance sheet data was derived from audited financial statements but does 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, 2021 included in the Company’s Annual Report on Form 10-K,
as filed with the Securities and Exchange Commission on March 31, 2022. The interim unaudited condensed consolidated financial statements
should be read in conjunction with those consolidated financial statements included in the Form 10-K. In the opinion of management, all
adjustments considered necessary for a fair statement of the financial statements, consisting solely of normal recurring adjustments,
have been made. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2022.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022 AND 2021
(UNAUDITED)
Principles of Consolidation
The unaudited
condensed consolidated financial statements include the accounts of the Company, entities controlled by the Company through its direct
or indirect ownership of a majority interest, and any other entities in which the Company has a controlling financial interest. The Company
consolidates variable interest entities (“VIEs”) where the Company is the primary beneficiary. The primary beneficiary of
a VIE is the party that has both the power to direct the activities that most significantly impact the VIE’s economic performance,
and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.
The Company’s formation of all subsidiaries
and VIE’s date of consolidation are as follows:
Name of Subsidiary | |
State of Formation | |
Date of Formation | |
Ownership | |
Pecan Grove MHP LLC | |
North Carolina | |
October 12, 2016 | |
| 100% | |
Azalea MHP LLC | |
North Carolina | |
October 25, 2017 | |
| 100% | |
Holly Faye MHP LLC | |
North Carolina | |
October 25, 2017 | |
| 100% | |
Chatham Pines MHP LLC | |
North Carolina | |
October 31, 2017 | |
| 100% | |
Maple Hills MHP LLC | |
North Carolina | |
October 31, 2017 | |
| 100% | |
Lakeview MHP LLC | |
South Carolina | |
November 1, 2017 | |
| 100% | |
MHP Pursuits LLC | |
North Carolina | |
January 31, 2019 | |
| 100% | |
Mobile Home Rentals LLC | |
North Carolina | |
September 30, 2016 | |
| 100% | |
Hunt Club MHP LLC | |
South Carolina | |
March 8, 2019 | |
| 100% | |
B&D MHP LLC | |
South Carolina | |
April 4, 2019 | |
| 100% | |
Crestview MHP LLC | |
North Carolina | |
June 28, 2019 | |
| 100% | |
Springlake MHP LLC | |
Georgia | |
October 10, 2019 | |
| 100% | |
ARC MHP LLC | |
South Carolina | |
November 13, 2019 | |
| 100% | |
Countryside MHP LLC | |
South Carolina | |
March 12, 2020 | |
| 100% | |
Evergreen MHP LLC | |
Tennessee | |
March 17, 2020 | |
| 100% | |
Golden Isles MHP LLC | |
Georgia | |
March 16, 2021 | |
| 100% | |
Anderson MHP LLC | |
South Carolina | |
June 2, 2021 | |
| 100% | |
Capital View MHP LLC | |
South Carolina | |
August 6, 2021 | |
| 100% | |
Hidden Oaks MHP LLC | |
South Carolina | |
August 6, 2021 | |
| 100% | |
North Raleigh MHP LLC | |
North Carolina | |
September 16, 2021 | |
| 100% | |
Carolinas 4 MHP LLC | |
North Carolina | |
November 30, 2021 | |
| 100% | |
Charlotte 3 Park MHP LLC | |
North Carolina | |
December 10, 2021 | |
| 100% | |
Sunnyland MHP LLC | |
Georgia | |
January 7, 2022 | |
| 100% | |
Warrenville MHP LLC | |
South Carolina | |
February 15, 2022 | |
| 100% | |
Gvest Finance LLC | |
North Carolina | |
December 11, 2018 | |
| VIE | |
Gvest Homes I LLC | |
Delaware | |
November 9, 2020 | |
| VIE | |
Brainerd Place LLC | |
Delaware | |
February 24, 2021 | |
| VIE | |
Bull Creek LLC | |
Delaware | |
April 13, 2021 | |
| VIE | |
Gvest Anderson Homes LLC | |
Delaware | |
June 22, 2021 | |
| VIE | |
Gvest Capital View Homes LLC | |
Delaware | |
August 6, 2021 | |
| VIE | |
Gvest Hidden Oaks Homes LLC | |
Delaware | |
August 6, 2021 | |
| VIE | |
Gvest Springlake Homes LLC | |
Delaware | |
September 24, 2021 | |
| VIE | |
Gvest Carolinas 4 Homes LLC | |
Delaware | |
November 13, 2021 | |
| VIE | |
Gvest Sunnyland Homes LLC | |
Delaware | |
January 6, 2022 | |
| VIE | |
Gvest Warrenville Homes LLC | |
Delaware | |
February 14, 2022 | |
| VIE | |
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.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022 AND 2021
(UNAUDITED)
Revenue Recognition
Mobile home rental and related income is generated
from lease agreements for our sites and homes. The lease component of these agreements is accounted for under Topic 842 of the Financial
Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, for leases.
Under ASC 842, the Company must assess on an individual
lease basis whether it is probable that we will collect the future lease payments. The Company considers the tenant’s payment history
and current credit status when assessing collectability. When collectability is not deemed probable, the Company will write-off the tenant’s
receivables, including straight-line rent receivable, and limit lease income to cash received.
The Company’s revenues primarily consist
of rental revenues and fee and other income. The Company has the following revenue sources and revenue recognition policies:
| ● | Rental
revenues include revenues from the leasing of land lot or a combination of both, the mobile home and land at our properties to tenants. |
| ● | Revenues
from the leasing of land lot or a combination of both, the mobile home and land at the Company’s properties to tenants include
(i) lease components, including land lot or a combination of both, the mobile home and land, and (ii) reimbursement of utilities and
account for the components as a single lease component in accordance with ASC 842. |
| ● | Revenues
derived from fixed lease payments are recognized on a straight-line basis over the non-cancelable period of the lease. The Company commences
rental revenue recognition when the underlying asset is available for use by the lessee. Revenue derived from the reimbursement of utilities
are generally recognized in the same period as the related expenses are incurred. The Company’s leases are month-to-month. |
Accounts Receivable
Accounts receivable consist primarily of amounts
currently due from residents. Accounts receivables are reported in the balance sheet at outstanding principal adjusted for any charge-offs
and the allowance for losses. The Company records an allowance for bad debt when receivables are over 90 days old.
Acquisitions
The Company accounts for acquisitions as asset
acquisitions in accordance with ASC 805, “Business Combinations,” and allocates the purchase price of the property based upon
the fair value of the assets acquired, which generally consist of land, site and land improvements, buildings and improvements and rental
homes. The Company allocates the purchase price of an acquired property generally determined by internal evaluation as well as third-party
appraisal of the property obtained in conjunction with the purchase.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022 AND 2021
(UNAUDITED)
Variable Interest
Entities
In December 2020, the Company entered into a property
management agreement with Gvest Finance LLC, a company owned and controlled by the Company’s parent company, Gvest Real Estate Capital
LLC, an entity whose sole owner is Raymond M. Gee, the Company’s chairman and chief executive officer, and has subsequently entered
into property management agreements with Gvest Homes I LLC, Gvest Anderson Homes LLC, Gvest Capital
View Homes LLC, Gvest Hidden Oaks Homes LLC, Gvest Springlake Homes LLC, Gvest Carolinas 4 Homes LLC, Gvest Sunnyland Homes LLC and Gvest
Warrenville Homes LLC, which are wholly owned subsidiaries of Gvest Finance LLC. Under the property management agreements, the
Company manages the homes owned by the VIEs and the VIEs remit to the Company all income, less any sums paid out for debt service plus
5% of the debt service payment.
Additionally,
during 2021, the Company formed two entities, Brainerd Place LLC and Bull Creek LLC, for the purpose of exploring opportunities to develop
mobile home communities. The Company owns 49% of these entities and Gvest Real Estate LLC, an entity whose sole owner is Raymond
M. Gee, owns 51%. The Company also executed operating agreements with these entities which designate Gvest Capital Management LLC,
a company owned and controlled by Gvest Real Estate Capital LLC, as manager with the authority, power, and discretion to manage and control
the entities’ business decisions. The operating agreements require the Company to make cash contributions to the entities to fund
their activities, operations, and existence, if the Company approves the contribution requests from the manager, which ultimately provides
the Company with power to direct the economically significant activities of these entities.
A company
with interests in a VIE must consolidate the entity if the company is deemed to be the primary beneficiary of the VIE; that is, if it
has both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses
of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. Such a determination requires
management to evaluate circumstances and relationships that may be difficult to understand and to make a significant judgment, and to
repeat the evaluation at each subsequent reporting date. Primarily due to the Company’s common ownership by Mr. Gee, its power to
direct the activities of these entities that most significantly impact their economic performance, and the fact that the Company has the
obligation to absorb losses or the right to receive benefits from these entities that could potentially be significant to these entities,
the entities listed above are considered to be VIEs in accordance applicable GAAP.
Net Income (Loss) Per Share
Basic net income (loss) per share is calculated
by dividing net income (loss) by the weighted average number of common shares outstanding, including vested penny stock options during
the period. Diluted net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares
outstanding plus the weighted average number of net shares that would be issued upon exercise of stock options pursuant to the treasury
stock method.
For the three months ended March 31, 2022, the potentially dilutive penny options for the purchase of 704,508 shares of Common Stock were included in basic loss per share. Other securities outstanding as of March 31, 2022 not included in dilutive loss per share, as the effect would be anti-dilutive, were 1,886,000 shares of Series A Cumulative Redeemable Convertible Preferred Stock, which are convertible into Common Stock for a total of 1,886,000 shares.
For the three months ended March 31, 2021, the
potentially dilutive penny options for the purchase of 519,675 shares of Common Stock were included in basic loss per share. Other
securities outstanding as of March 31, 2021 not included in dilutive loss per share, as the effect would be anti-dilutive, were 1,890,000
shares of Series A Cumulative Redeemable Convertible Preferred Stock, which are convertible into Common Stock for a total of 1,890,000
shares.
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 real property and equipment are carried
at cost. Depreciation of buildings, improvements to sites and buildings, rental homes, 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 land improvements. Interest Expense pertaining to Land Development
Costs are capitalized. Maintenance and Repairs are charged to expense as incurred and improvements are capitalized. The costs and related
accumulated depreciation of property sold or otherwise disposed of are removed from the financial statement and any gain or loss is reflected
in the current period’s results of operations.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022 AND 2021
(UNAUDITED)
Impairment Policy
The Company applies FASB ASC 360-10, “Property,
Plant & Equipment,” to measure impairment in real estate investments. Rental properties are individually evaluated for impairment
when conditions exist which may indicate that it is probable that the sum of expected future cash flows (on an undiscounted basis without
interest) from a rental property is less than the carrying value under its historical net cost basis. These expected future cash flows
consider factors such as future operating income, trends and prospects as well as the effects of leasing demand, competition and other
factors. Upon determination that a permanent impairment has occurred, rental properties are reduced to their fair value. For properties
to be disposed of, an impairment loss is recognized when the fair value of the property, less the estimated cost to sell, is less than
the carrying amount of the property measured at the time there is a commitment to sell the property and/or it is actively being marketed
for sale. A property to be disposed of is reported at the lower of its carrying amount or its estimated fair value, less its cost to sell.
Subsequent to the date that a property is held for disposition, depreciation expense is not recorded. There was no impairment during the
three months ended March 31, 2022 and 2021.
Cash and Cash Equivalents
The Company considers all highly liquid financial
instruments purchased with an original maturity of three months or less to be cash equivalents.
The Company maintains cash balances at banks and
deposits at times may exceed federally insured limits. Management believes that the financial institutions that hold the Company’s
cash are financially secure and, accordingly, minimal credit risk exists. At March 31, 2022 and December 31, 2021, the Company had approximately
$763,000 above the FDIC-insured limit, including restricted cash held for tenant security deposits of $754,079 and $705,195, 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 $49,760 and $646 during the three months ended March 31, 2022 and 2021,
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. Most of the Company’s financial assets do
not have a quoted market value. Therefore, estimates of fair value are necessarily based on a number of significant assumptions (many
of which involve events outside the control of management). Such assumptions include assessments of current economic conditions, perceived
risks associated with these financial instruments and their counterparties, future expected loss experience and other factors. Given the
uncertainties surrounding these assumptions, the reported fair values represent estimates only and, therefore, cannot be compared to the
historical accounting model. Use of different assumptions or methodologies is likely to result in significantly different fair value estimates.
The fair
value of cash and cash equivalents, accounts receivables, and accounts payable approximates their current carrying amounts since all such
items are short-term in nature. The fair value of variable and fixed rate mortgages payable and lines of credit approximate their current
carrying amounts on the balance sheet since such amounts payable are at approximately a weighted average current market rate of interest.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022 AND 2021
(UNAUDITED)
Income Taxes
The Company accounts for income taxes under the
asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences
of events that have been included in the financial statements. Under this method, the Company determines deferred tax assets and liabilities
on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in
effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities
is recognized in income in the period that includes the enactment date.
The Company recognizes deferred tax assets to
the extent that the Company believes that these assets are more likely than not to be realized. In making such a determination, the Company
considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected
future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize
its deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax
asset valuation allowance, which would reduce the provision for income taxes.
The Company records uncertain tax positions in
accordance with ASC 740 on the basis of a two-step process in which (1) the Company determines whether it is more likely than not that
the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the
more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely
to be realized upon ultimate settlement with the related tax authority.
The Company recognizes interest and penalties,
if any, with income tax expense in the accompanying unaudited condensed consolidated statement of operations. As of March 31, 2022, and
December 31, 2021, there were no such accrued interest or penalties.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13,
“Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13
requires that entities use a new forward looking “expected loss” model that generally will result in the earlier recognition
of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and
reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13 is effective for annual reporting
periods, including interim reporting periods within those periods, beginning after December 15, 2022. The Company is currently evaluating
the potential impact this standard may have on the unaudited condensed consolidated
financial statements.
Management does not believe that any other recently
issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying unaudited condensed
consolidated financial statements.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022 AND 2021
(UNAUDITED)
Impact of Coronavirus Pandemic
In December 2019, a novel strain of coronavirus
was reported to have surfaced in Wuhan, China. On March 11, 2020, the World Health Organization declared the outbreak a pandemic,
and on March 13, 2020, the United States declared a national emergency.
Some states and cities, including some where the
Company’s properties are located, reacted by instituting quarantines, restrictions on travel, “stay at home” rules and
restrictions on the types of businesses that may continue to operate and is what capacity, as well as guidance in response to the pandemic
and the need to contain it.
The rules and restrictions put in place have had
a negative impact on the economy and business activity and may adversely impact the ability of the Company’s tenants, many
of whom may be restricted in their ability to work, to pay their rent as and when due. In addition, the Company’s property
managers may be limited in their ability to properly maintain the Company’s properties. Enforcing the Company’s
rights as landlord against tenants who fail to pay rent or otherwise do not comply with the terms of their leases may not be
possible as many jurisdictions, including those where are properties are located, have established rules and/or regulations preventing
us from evicting tenants for certain periods in response to the pandemic. If the Company is unable to enforce its rights as landlords,
our business would be materially affected.
If the current pace of the pandemic does
not continue to slow and the spread of the virus is not contained, the Company’s business operations could be further delayed or
interrupted. Government and health authorities may announce new or extend existing restrictions, which could require the Company to make
further adjustments to its operations in order to comply with any such restrictions. The duration of any business disruption cannot be
reasonably estimated at this time but may materially affect the Company’s ability to operate its business and result in additional
costs.
The extent to which the pandemic may
impact the Company’s results will depend on future developments, which are highly uncertain and cannot be predicted as of the date
of this report, including new information that may emerge concerning the severity of the pandemic and steps taken to contain
the pandemic or treat its impact, among others. Nevertheless, the pandemic and the current financial, economic and capital markets
environment present material uncertainty and risk with respect to the Company’s performance, financial condition, results of operations
and cash flows.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022 AND 2021
(UNAUDITED)
NOTE 2 – VARIABLE INTEREST ENTITIES
During the
three months ended March 31, 2022, Gvest Finance LLC formed two wholly owned subsidiaries, Gvest Sunnyland Homes LLC and Gvest Warrenville
Homes LLC, both of which are considered VIEs. The Company consolidates the accounts of Gvest Finance LLC, Gvest Homes I LLC, Gvest Anderson
Homes LLC, Gvest Capital View Homes LLC, Gvest Hidden Oaks Homes LLC, Gvest Springlake Homes LLC, Gvest Carolinas 4 Homes LLC, Gvest Sunnyland
Homes LLC, Gvest Warrenville Homes LLC, Brainerd Place LLC, and Bull Creek LLC and will continue to do so until they are no longer considered
VIEs.
Included
in the unaudited condensed consolidated results of operations for the three months ended March 31, 2022 and 2021 were net loss of $159,570
and net income of $55,085, respectively, after deducting an additional management fee equal to cash flow after debt service per the management
agreement of $83,013 and $0, respectively.
The consolidated
balance sheets as of March 31, 2022 and December 31, 2021 included the following amounts related to the consolidated VIEs.
| |
March 31, 2022 | | |
December 31, 2021 | |
| |
(Unaudited) | | |
| |
Assets | |
| | |
| |
Investment Property | |
$ | 16,956,601 | | |
$ | 14,144,268 | |
Accumulated Depreciation | |
| (729,450 | ) | |
| (597,650 | ) |
Net Investment Property | |
| 16,227,151 | | |
| 13,546,618 | |
Cash and Cash Equivalents | |
| 44,016 | | |
| 98,900 | |
Accounts Receivable | |
| 50,006 | | |
| 60,506 | |
Other Assets | |
| 243,505 | | |
| 158,920 | |
Total Assets | |
$ | 16,564,678 | | |
$ | 13,864,944 | |
| |
| | | |
| | |
Liabilities and Deficit | |
| | | |
| | |
Accounts Payable | |
$ | 183,307 | | |
$ | 169,298 | |
Notes Payable | |
| 8,601,996 | | |
| 6,793,319 | |
Line of Credit, net of $166,504 and $151,749 debt discount | |
| 6,581,458 | | |
| 6,200,607 | |
Accrued Liabilities* | |
| 2,365,000 | | |
| 1,679,233 | |
Total Liabilities | |
| 17,731,761 | | |
| 14,842,457 | |
| |
| | | |
| | |
Non-controlling Interest | |
| (1,167,083 | ) | |
| (977,513 | ) |
Total Non-controlling Interest in Variable Interest Entities | |
| (1,167,083 | ) | |
| (977,513 | ) |
| * | Included in accrued liabilities is an intercompany balance of
$2,319,620 and $1,515,715 as of March 31, 2022 and December 31, 2021, respectively. The intercompany balances have been eliminated on
the consolidated balance sheet. |
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022 AND 2021
(UNAUDITED)
NOTE 3 – INVESTMENT PROPERTY
The following
table summarizes the Company’s property and equipment balances are generally used to depreciate the assets on a straight-line basis:
| |
March 31,
2022 | | |
December 31, 2021 | |
Investment Property | |
(Unaudited) | | |
| |
Land | |
$ | 20,554,318 | | |
$ | 18,854,760 | |
Site and Land Improvements | |
| 37,041,232 | | |
| 35,133,079 | |
Buildings and Improvements | |
| 17,048,182 | | |
| 14,666,296 | |
Construction in Process | |
| 3,605,886 | | |
| 3,030,456 | |
Total Investment Property | |
| 78,249,618 | | |
| 71,684,591 | |
Accumulated Depreciation | |
| (5,586,597 | ) | |
| (4,832,300 | ) |
Net Investment Property | |
$ | 72,663,021 | | |
$ | 66,852,291 | |
Depreciation expense totaled
$759,704 and $441,623 for the three months ended March 31, 2022 and 2021, respectively.
During the
three months ended March 31, 2022, Gvest Finance LLC, the Company’s VIE, purchased nine new manufactured homes for approximately
$424,000 for use in the Springlake, Sunnyland, and Crestview communities that are not yet occupiable and still in the set-up phase as
of March 31, 2022. These nine homes and several homes purchased at the end of 2021 are included in Construction in Process on the balance
sheet.
During the
year ended December 31, 2021, Gvest Finance LLC, acquired thirty-four new manufactured homes for approximately $1,900,000 including
set up costs for use in the Springlake community and fourteen new manufactured homes for approximately $860,000 including set
up costs for use in the Golden Isles community that were not yet occupiable and were still in the set-up phase as of December 31, 2021
and were included in Construction in Process on the balance sheet as of that date.
NOTE 4 – ACQUISITIONS AND DISPOSITIONS
During the three months ended March 31, 2022, the Company acquired
three communities. These were acquisitions from third parties and have been accounted for as asset acquisitions.
On January 31, 2022, the Company purchased a manufactured housing community
located in Byron, Georgia consisting of 73 sites on approximately 18.57 acres and an adjacent parcel of 15.09 acres of undeveloped land
for a total purchase price of $2,200,000. Sunnyland MHP LLC purchased the land and land improvements and the Company’s VIE, Gvest
Sunnyland Homes LLC, purchased the homes.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022 AND 2021
(UNAUDITED)
On March 31, 2022, the Company purchased two manufactured housing communities
located in Warrenville, South Carolina consisting of 85 sites on approximately 45 acres for a total purchase price of $3,050,000. Warrenville
MHP LLC purchased the land and land improvements and the Company’s VIE, Gvest Warrenville Homes LLC, purchased the homes.
During the three months ended March 31, 2021, the Company acquired
one community. This was an acquisition from a third party and has been accounted for as an asset acquisition.
On March 31, 2021, the Company purchased a manufactured housing community
located in Brunswick, Georgia consisting of 113 sites on approximately 17 acres for a total purchase price of $2,325,000. Golden Isles
MHP LLC purchased the land and land improvements and the Company’s VIE, Gvest Finance LLC, purchased the homes.
Acquisition Date | |
Name (number of communities) | |
Land | | |
Improvements | | |
Building | | |
Total Purchase Price | |
March 2021 | |
Golden Isles MHP | |
$ | 1,050,000 | | |
$ | 487,500 | | |
$ | - | | |
$ | 1,537,500 | |
March 2021 | |
Golden Isles Gvest | |
| - | | |
| - | | |
| 787,500 | | |
| 787,500 | |
| |
Total Purchase Price | |
$ | 1,050,000 | | |
$ | 487,500 | | |
$ | 787,500 | | |
$ | 2,325,000 | |
| |
Acquisition Costs | |
| - | | |
| 123,319 | | |
| 250 | | |
| 123,569 | |
| |
Total Investment Property | |
$ | 1,050,000 | | |
$ | 610,819 | | |
$ | 787,750 | | |
$ | 2,448,569 | |
| |
| |
| | | |
| | | |
| | | |
| | |
January 2022 | |
Sunnyland MHP | |
$ | 672,400 | | |
$ | 891,580 | | |
$ | - | | |
$ | 1,563,980 | |
January 2022 | |
Sunnyland Gvest | |
| - | | |
| - | | |
| 636,020 | | |
| 636,020 | |
March 2022 | |
Warrenville MHP | |
| 975,397 | | |
| 853,473 | | |
| - | | |
| 1,828,870 | |
March 2022 | |
Warrenville Gvest | |
| - | | |
| - | | |
| 1,221,130 | | |
| 1,221,130 | |
| |
Total Purchase Price | |
$ | 1,647,797 | | |
$ | 1,745,053 | | |
$ | 1,857,150 | | |
$ | 5,250,000 | |
| |
Acquisition Costs | |
| 51,760 | | |
| 62,097 | | |
| 38,367 | | |
| 152,224 | |
| |
Total Investment Property | |
$ | 1,669,557 | | |
$ | 1,807,150 | | |
$ | 1,895,517 | | |
$ | 5,402,224 | |
Pro-forma Financial Information
The following
unaudited pro-forma information presents the combined results of operations for the three months ended March 31, 2021 as if all acquisitions
of manufactured housing communities during the year ended December 31, 2021 had occurred on January 1, 2021.
The Company
determined that the acquisitions made during the three months ended March 31, 2022 were not significant acquisitions, therefore, proforma
financial information related to these acquisitions is not reported below.
| |
Three months ended March 31, 2021 Pro Forma | |
Revenue | |
| 2,788,937 | |
Community operating expenses | |
| 1,070,940 | |
Corporate payroll and overhead expenses | |
| 597,409 | |
Depreciation expense | |
| 756,006 | |
Interest expense | |
| 695,241 | |
Net income (loss) | |
| (330,659 | ) |
Net loss attributable to non-controlling interest | |
| 131,939 | |
Net loss attributable to Manufactured Housing Properties, Inc | |
| (462,598 | ) |
Preferred stock dividends / accretion | |
| 529,540 | |
Net income (loss) | |
| (992,138 | ) |
Net loss per share | |
| (0.08 | ) |
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022 AND 2021
(UNAUDITED)
NOTE 5 – PROMISSORY NOTES AND LINES
OF CREDIT
Promissory Notes
The Company
has issued promissory notes payable to lenders related to the acquisition of its manufactured housing communities and mobile homes. The
interest rates on these promissory notes range from 3.250% to 5.875% with 5 to 30 years principal amortization. Three of the promissory
notes had an initial 12 month, six have an initial 24 month, six have an initial 36 month, one has an initial 60 month, and one promissory
note has a 180 month period of interest only payments. The promissory notes are secured by the real estate assets and twenty loans totaling
$43,602,376 are guaranteed by Raymond M. Gee.
As of March 31, 2022,
the outstanding balance on these notes was $53,456,310. The following are the terms of these notes:
| |
Maturity Date | |
Interest Rate | | |
Balance March 31, 2022 | | |
Balance December 31, 2021 | |
Pecan Grove MHP LLC | |
02/22/29 | |
| 5.250 | % | |
$ | 2,951,049 | | |
$ | 2,969,250 | |
Azalea MHP LLC | |
03/01/29 | |
| 5.400 | % | |
| 813,683 | | |
| 790,481 | |
Holly Faye MHP LLC | |
03/01/29 | |
| 5.400 | % | |
| 549,485 | | |
| 579,825 | |
Chatham MHP LLC | |
04/01/24 | |
| 5.875 | % | |
| 1,689,459 | | |
| 1,698,800 | |
Lakeview MHP LLC | |
03/01/29 | |
| 5.400 | % | |
| 1,796,163 | | |
| 1,805,569 | |
B&D MHP LLC | |
05/02/29 | |
| 5.500 | % | |
| 1,765,818 | | |
| 1,779,439 | |
Hunt Club MHP LLC | |
01/01/33 | |
| 3.430 | % | |
| 2,386,572 | | |
| 2,398,689 | |
Crestview MHP LLC | |
12/31/30 | |
| 3.250 | % | |
| 4,649,631 | | |
| 4,682,508 | |
Maple Hills MHP LLC | |
12/01/30 | |
| 3.250 | % | |
| 2,324,815 | | |
| 2,341,254 | |
Springlake MHP LLC | |
12/10/26 | |
| 4.750 | % | |
| 4,016,250 | | |
| 4,016,250 | |
ARC MHP LLC | |
01/01/30 | |
| 5.500 | % | |
| 3,790,188 | | |
| 3,809,742 | |
Countryside MHP LLC | |
03/20/50 | |
| 5.500 | % | |
| 1,675,929 | | |
| 1,684,100 | |
Evergreen MHP LLC | |
04/01/32 | |
| 3.990 | % | |
| 1,109,917 | | |
| 1,115,261 | |
Golden Isles MHP LLC | |
03/31/26 | |
| 4.000 | % | |
| 787,500 | | |
| 787,500 | |
Anderson MHP LLC* | |
07/10/26 | |
| 5.210 | % | |
| 2,153,807 | | |
| 2,153,807 | |
Capital View MHP LLC* | |
09/10/26 | |
| 5.390 | % | |
| 817,064 | | |
| 817,064 | |
Hidden Oaks MHP LLC* | |
09/10/26 | |
| 5.330 | % | |
| 823,440 | | |
| 823,440 | |
North Raleigh MHP LLC | |
11/01/26 | |
| 4.750 | % | |
| 5,276,246 | | |
| 5,304,409 | |
Charlotte 3 Park MHP LLC (Dixie, Driftwood, Meadowbrook)(1) | |
03/01/22 | |
| 5.000 | % | |
| - | | |
| 1,500,000 | |
Carolinas 4 MHP LLC (Asheboro, Morganton)* | |
01/10/27 | |
| 5.300 | % | |
| 3,105,070 | | |
| 3,105,070 | |
Sunnyland MHP LLC* | |
02/10/27 | |
| 5.370 | % | |
| 1,123,980 | | |
| - | |
Warrenville MHP LLC* | |
03/10/27 | |
| 5.590 | % | |
| 1,218,870 | | |
| - | |
Gvest Finance LLC (B&D homes) | |
05/01/24 | |
| 5.000 | % | |
| 644,510 | | |
| 657,357 | |
Gvest Finance LLC (Countryside homes) | |
03/20/50 | |
| 5.500 | % | |
| 1,281,595 | | |
| 1,287,843 | |
Gvest Finance LLC (Golden Isles homes) | |
03/31/36 | |
| 4.000 | % | |
| 787,500 | | |
| 787,500 | |
Gvest Anderson Homes LLC* | |
07/10/26 | |
| 5.210 | % | |
| 2,006,193 | | |
| 2,006,193 | |
Gvest Capital View Homes LLC* | |
09/10/26 | |
| 5.390 | % | |
| 342,936 | | |
| 342,936 | |
Gvest Hidden Oaks Homes LLC* | |
09/10/26 | |
| 5.330 | % | |
| 416,560 | | |
| 416,560 | |
Gvest Carolinas 4 Homes LLC (Asheboro, Morganton)* | |
01/10/27 | |
| 5.300 | % | |
| 1,294,930 | | |
| 1,294,930 | |
Gvest Sunnyland Homes LLC* | |
02/10/27 | |
| 5.370 | % | |
| 636,020 | | |
| - | |
Gvest Warrenville Homes LLC* | |
03/10/27 | |
| 5.590 | % | |
| 1,221,130 | | |
| - | |
Total Notes Payable | |
| |
| | | |
| 53,456,310 | | |
| 50,955,777 | |
Discount Direct Lender Fees | |
| |
| | | |
| (2,229,776 | ) | |
| (2,064,294 | ) |
Total Net of Discount | |
| |
| | | |
$ | 51,226,534 | | |
$ | 48,891,483 | |
| (1) | The
Company repaid the Charlotte 3 Park MHP LLC note payable of $1,500,000 on March 1, 2022. This community was refinanced on April 14, 2022
with a different lender. See Note 9 for more information. |
| * | The
notes indicated above are subject to certain financial covenants. |
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022 AND 2021
(UNAUDITED)
Lines of Credit – Variable Interest
Entities
Facility | |
Borrower | |
Community | |
Maturity
Date | |
Interest
Rate | |
Maximum
Credit
Limit | | |
Balance
March 31,
2022 | | |
Balance
December 31,
2021 | |
Occupied Home Facility(1) | |
Gvest Homes I LLC | |
ARC, Crestview, Maple | |
01/01/30 | |
8.375% | |
$ | 20,000,000 | | |
$ | 2,507,435 | | |
$ | 2,517,620 | |
Multi-Community Rental Home Facility | |
Gvest Finance LLC | |
ARC | |
12/17/31 | |
Greater of 3.25% or Prime, + 375 bps | |
$ | 4,000,000 | | |
$ | 819,376 | | |
$ | 838,000 | |
Multi-Community Floorplan Home Facility(1), (2) | |
Gvest Finance LLC | |
Golden Isles, Springlake, Sunnyland, Crestview | |
Various (3) | |
LIBOR + 6 – 8% based on days outstanding | |
$ | 2,000,000 | | |
$ | 1,528,669 | | |
$ | 1,104,255 | |
Springlake Home Facility(2) | |
Gvest Finance LLC | |
Springlake | |
12/10/26 | |
6.75% | |
$ | 3,300,000 | | |
$ | 1,892,482 | | |
$ | 1,892,481 | |
Total Lines of Credit - VIEs | | |
$ | 6,747,962 | | |
$ | 6,352,356 | |
Discount Direct Lender Fees | | |
$ | (166,504 | ) | |
$ | (151,749 | ) |
Total Net of Discount | | |
$ | 6,581,458 | | |
$ | 6,200,607 | |
| (1) | During the three months ended March 31, 2022, the Company drew
down $19,145 related to the Occupied Home Facility and $424,414 related to the Multi-Community Floorplan Home Facility. |
| (2) | Payments on the Multi-Community Floorplan Home Facility advances
are interest only until each advance is paid off or transferred to the Multi-Community Rental Home Facility and payments on the Springlake
Home Facility are interest only for the first six months. |
| (3) | The maturity date of the of the Multi-Community Floorplan Line
of Credit will vary based on each statement of financial transaction (“SOFT”), a report identifying the funded homes and
the applicable financial terms. |
The agreements for each of the above line of credit
facilities require the maintenance of certain financial ratios or other affirmative and negative covenants. All the above line of credit
facilities are guaranteed by Raymond M. Gee.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022 AND 2021
(UNAUDITED)
Metrolina Promissory Note
On October 22, 2021, the Company issued a promissory
note to Metrolina Loan Holdings, LLC (“Metrolina”), a significant stockholder, in the principal amount of $1,500,000. The
note bears interest at a rate of 18% per annum and matures on April 1, 2023. During the first six months of the note, any prepayment would
require the Company to pay a yield maintenance fee equal to six months of interest. Thereafter, the loan may be prepaid at any time without
penalty or fee. The note is guaranteed by Raymond M. Gee. As of March 31, 2022 and December 31, 2021, the balance on this note was $1,500,000.
During the three months ended March 31, 2022 and 2021, interest expense totaled $66,575 and $0, respectively.
Raymond M. Gee Promissory Note
On October 1, 2017, the Company issued a revolving
promissory note to Raymond M. Gee, pursuant to which the Company could borrow up to $1,500,000 from Mr. Gee on a revolving basis for working
capital purposes. In September 2020, the Company paid off the full balance; however, the line of credit remained available to the Company
until it was cancelled in December 2021. As of March 31, 2022 and December 31, 2021, the outstanding balance on this note was $0.
Gvest Revolving Promissory Note
On December 27, 2021, the Company issued a revolving
promissory note to Gvest Real Estate Capital, LLC, an entity whose sole owner is Raymond M. Gee, the Company’s chairman and chief
executive officer, pursuant to which the Company may borrow up to $1,500,000 on a revolving basis for working capital or acquisition purposes.
On the same date, the Company borrowed $150,000. During the three months ended March 31, 2022, the Company borrowed an additional $700,000.
As of March 31, 2022 and December 31, 2021, the outstanding balance on this note was $850,000 and $150,000, respectively. This note has
a five-year term and is interest-only based on an 15% annual rate through the maturity date and is unsecured. During the three months
ended March 31, 2022 and 2021, interest expense totaled $14,718 and $0, respectively. The outstanding principal and accrued interest balance
on this note was repaid on April 15, 2022.
Maturities of Long-Term Obligations for Five Years and Beyond
The minimum annual principal payments of notes
payable and lines of credit at March 31, 2022 by fiscal year were:
2022 | |
| 670,266 | |
2023 | |
| 3,734,002 | |
2024 | |
| 3,779,094 | |
2025 | |
| 1,311,018 | |
2026 | |
| 18,406,106 | |
Thereafter | |
| 34,653,786 | |
Total minimum principal payments | |
$ | 62,554,272 | |
NOTE 6 – COMMITMENTS AND CONTINGENCIES
From time to time, the Company may become involved
in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent
uncertainties, and an adverse result in these or other matters may arise that may harm its business. The Company is currently not aware
of any such legal proceedings or claims that they believe will have, individually or in the aggregate, a material adverse effect on its
business, financial condition or operating results.
NOTE 7 – STOCKHOLDERS’ EQUITY
Preferred Stock
The Company is authorized to issue up to 10,000,000
shares of preferred stock, $0.01 par value.
Series A Cumulative Convertible Preferred
Stock
On May 8, 2019, the Company filed a certificate
of designation with the Nevada Secretary of State pursuant to which the Company designated 4,000,000 shares of its preferred stock as
Series A Cumulative 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 and pari
passu with the Series B Preferred Stock and Series C Preferred Stock (as defined below). The
terms of the Series A Preferred Stock will not limit the Company’s ability to (i) incur indebtedness or (ii) issue additional equity
securities that are equal or junior in rank to the shares of Series A Preferred Stock as to distribution rights and rights upon liquidation,
dissolution or winding up.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022 AND 2021
(UNAUDITED)
Dividend Rate and Payment Dates.
Dividends on the Series A Preferred Stock are cumulative and payable monthly in arrears to all holders of record on the applicable record
date. Holders of Series A Preferred Stock will be entitled to receive cumulative dividends in the amount of $0.017 per share each month,
which is equivalent to the rate of 8% of the $2.50 liquidation preference per share. Dividends on shares of Series A Preferred Stock will
continue to accrue even if any of the Company’s agreements prohibit the current payment of dividends or the Company does not have
earnings. During the three months ended March 31, 2022 and 2021, the Company paid dividends of $94,300 and $96,167, respectively.
Liquidation Preference. The liquidation
preference for each share of Series A Preferred Stock is $2.50. Upon a liquidation, dissolution or winding up of the Company, holders
of shares of Series A Preferred Stock will be entitled to receive, before any payment or distribution is made to the holders of Common
Stock and on a pari passu basis with holders of Series B Preferred Stock and Series C Preferred Stock, the liquidation
preference with respect to their shares plus an amount equal to any accrued but unpaid dividends (whether or not declared) to, but not
including, the date of payment with respect to such shares.
Stockholder Optional Conversion.
Each share of Series A Preferred Stock is convertible, at any time and from time to time, at the option of the holder thereof and without
the payment of additional consideration, into that number of shares of Common Stock determined by dividing the liquidation preference
of such share by the conversion price then in effect. The conversion price is initially equal $2.50, subject to adjustment as set forth
in the certificate of designation. In addition, if at any time the trading price of the Common Stock is greater than the liquidation preference
of $2.50, the Company may deliver a written notice to all holders to cause each holder to convert all or part of such holders’ Series
A Preferred Stock.
Company Call and Stockholder Put Options.
Commencing on the fifth anniversary of the initial issuance of shares of Series A Preferred Stock and continuing indefinitely thereafter,
the Company will have a right to call for redemption the outstanding shares of Series A Preferred Stock at a call price equal to $3.75,
or 150% of the original issue price of the Series A Preferred Stock, and correspondingly, each holder of shares of Series A Preferred
Stock shall have a right to put the shares of Series A Preferred Stock held by such holder back to the Company at a put price equal to
$3.75, or 150% of the original issue purchase price of such shares. During the three months ended March 31, 2022 and 2021, the Company
recorded a put option value accretion of $117,871 and $118,125, 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 March 31, 2022, there were 1,886,000 shares
of Series A Preferred Stock issued and outstanding. As of March 31, 2022, the Series A Preferred Stock balance was made up of Series A
Preferred Stock totaling $4,715,000 and accretion of put options totaling $1,244,646. As of December 31, 2021, the Series A Preferred
Stock balance was made up of Series A Preferred Stock totaling $4,715,000 and accretion of put options totaling $1,126,771.
Series B Cumulative Redeemable Preferred
Stock
On December 2, 2019, the Company filed a certificate
of designation with the Nevada Secretary of State pursuant to which the Company designated 1,000,000 shares of its preferred stock as
Series B Cumulative Redeemable Preferred Stock (the “Series B Preferred Stock”). The Series B Preferred Stock has the following
voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions:
Ranking. The Series B Preferred
Stock rank, as to dividend rights and rights upon liquidation, dissolution, or winding up, senior to the Common Stock and pari
passu with the Series A Preferred Stock and Series C Preferred Stock. The terms of the
Series B Preferred Stock will not limit the Company’s ability to (i) incur indebtedness or (ii) issue additional equity securities
that are equal or junior in rank to the shares of Series B Preferred Stock as to distribution rights and rights upon liquidation, dissolution
or winding up.
Dividend Rate and Payment Dates.
Dividends on the Series B Preferred Stock are cumulative and payable monthly in arrears to all holders of record on the applicable record
date. Holders of Series B Preferred Stock will be entitled to receive cumulative dividends in the amount of $0.067 per share each month,
which is equivalent to the annual rate of 8% of the $10.00 liquidation preference per share; provided that upon an event of default (generally
defined as the Company’s failure to pay dividends when due or to redeem shares when requested by a holder), such amount shall be
increased to $0.083 per month, which is equivalent to the annual rate of 10% of the $10.00 liquidation preference per share. During the
three months ended March 31, 2022 and 2021, the Company paid dividends of $151,785 and $129,409, respectively.
Liquidation Preference. The liquidation
preference for each share of Series B Preferred Stock is $10.00. Upon a liquidation, dissolution or winding up of the Company, holders
of shares of Series B Preferred Stock will be entitled to receive, before any payment or distribution is made to the holders of Common
Stock and on a pari passu basis with holders of Series A Preferred Stock and Series C Preferred Stock, the liquidation
preference with respect to their shares plus an amount equal to any accrued but unpaid dividends (whether or not declared) to, but not
including, the date of payment with respect to such shares.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022 AND 2021
(UNAUDITED)
Company Call and Stockholder Put Options.
Commencing on the fifth anniversary of the initial issuance of shares of Series B Preferred Stock and continuing indefinitely thereafter,
the Company will have a right to call for redemption the outstanding shares of Series B Preferred Stock at a call price equal to $15.00,
or 150% of the original issue price of the Series B Preferred Stock, and correspondingly, each holder of shares of Series B Preferred
Stock shall have a right to put the shares of Series B Preferred Stock held by such holder back to the Company at a put price equal to
$15.00, or 150% of the original issue purchase price of such shares. During the three months ended March 31, 2022 and 2021, the Company
recorded a put option value accretion of $184,254 and $185,839, respectively.
Voting Rights. The Company may not
authorize or issue any class or series of equity securities ranking senior to the Series B Preferred Stock as to dividends or distributions
upon liquidation (including securities convertible into or exchangeable for any such senior securities) or amend the Company’s articles
of incorporation (whether by merger, consolidation, or otherwise) to materially and adversely change the terms of the Series B Preferred
Stock without the affirmative vote of at least two-thirds of the votes entitled to be cast on such matter by holders of outstanding shares
of Series B Preferred Stock, voting together as a class. Otherwise, holders of the shares of Series B Preferred Stock do not have any
voting rights.
No Conversion Right. The Series
B Preferred Stock is not convertible into shares of Common Stock.
On November 1, 2019, the Company launched an offering
under Regulation A of Section 3(6) of the Securities Act of 1933, as, amended, for Tier 2 offerings, pursuant to which the Company offered
up to 1,000,000 shares of Series B Preferred Stock at an offering price of $10.00 per share, for a maximum offering amount of $10,000,000.
In addition, the Company offered bonus shares to early investors in this offering, whereby the first 400 investors received, in addition
to Series B Preferred Stock, 100 shares of Common Stock, regardless of the amount invested, for a total of 40,000 shares of Common Stock.
This offering terminated on March 30, 2021 thus,
the Company sold no shares of Series B Preferred Stock during the three months ended March 31, 2022. During the three months ended March
31, 2021, the Company sold an aggregate of 116,097 shares of Series B Preferred Stock for total gross proceeds of $1,160,970. After deducting
a placement fee and other expenses, the Company received net proceeds of $1,079,702.
As of March 31, 2022, there were 758,551 shares
of Series B Preferred Stock issued and outstanding and the Series B Preferred Stock balance was made up of Series B Preferred Stock, net
of commissions, totaling $7,185,716 and accretion of put options totaling $1,517,132. As of December 31, 2021, there were 758,551 shares
of Series B Preferred Stock issued and outstanding and the Series B Preferred Stock balance was made up of Series B Preferred Stock, net
of commissions, totaling $7,185,716 and accretion of put options totaling $1,332,878.
Series
C Cumulative Redeemable Preferred Stock
On May 24,
2021, the Company filed an amended and restated certificate of designation with the Nevada Secretary of State pursuant to which the Company
designated 47,000 shares of its preferred stock as Series C Cumulative Redeemable Preferred Stock (the “Series C Preferred
Stock”). The Series C Preferred Stock has the following voting powers, designations, preferences and relative rights, qualifications,
limitations or restrictions:
Ranking.
The Series C Preferred Stock ranks, as to dividend rights and rights upon liquidation, dissolution, or winding up, senior to Common Stock
and pari passu with Series A Preferred Stock and Series B Preferred Stock. The terms of the Series C Preferred Stock
do not limit the Company’s ability to (i) incur indebtedness or (ii) issue additional equity securities that are equal or junior
in rank to the shares of Series C Preferred Stock as to distribution rights and rights upon liquidation, dissolution or winding up.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022 AND 2021
(UNAUDITED)
Stated
Value. Each share of Series C Preferred Stock has an initial stated value of $1,000, subject to appropriate adjustment in relation
to certain events, such as recapitalizations, stock dividends, stock splits, stock combinations, reclassifications or similar events affecting
the Series C Preferred Stock.
Dividend
Rate and Payment Dates. Dividends on the Series C Preferred Stock are cumulative and payable monthly in arrears to all holders
of record on the applicable record date. Holders of Series C Preferred Stock are entitled to receive cumulative monthly cash dividends
at a per annum rate of 7% of the stated value (or $5.83 per share each month based on the initial stated value). Dividends on each
share begin accruing on, and are cumulative from, the date of issuance and regardless of whether the board of directors declares and pays
such dividends. Dividends on shares of Series C Preferred Stock will continue to accrue even if any of the Company’s agreements
prohibit the current payment of dividends or the Company does not have earnings. During the three months ended March 31, 2022, the Company
paid dividends of $96,126. Due to timing of payments, the company accrued dividends of $39,019 during the three months ended March 31,
2022 and total accrued dividends of $65,979 is presented in accrued liabilities on the balance sheet as of March 31, 2022.
Liquidation
Preference. Upon a liquidation, dissolution or winding up of the Company, holders of shares of Series C Preferred Stock are entitled
to receive, before any payment or distribution is made to the holders of Common Stock and on a pari passu basis with
holders of Series A Preferred Stock and Series B Preferred Stock, a liquidation preference equal to the stated value per share, plus accrued
but unpaid dividends thereon.
Redemption
Request at the Option of a Holder. Once per calendar quarter, a holder will have the opportunity to request that the Company redeem
that holder’s Series C Preferred Stock. The board of directors may, however, suspend cash redemptions at any time in its discretion
if it determines that it would not be in the best interests of the Company to effectuate cash redemptions at a given time because the
Company does not have sufficient cash, including because the board believes that the Company’s cash on hand should be utilized for
other business purposes. Redemptions will be limited to four percent (4%) of the total outstanding Series C Preferred Stock per quarter
and any redemptions in excess of such limit or to the extent suspended, shall be redeemed in subsequent quarters on a first come, first
served, basis. The Company will redeem shares at a redemption price equal to the stated value of such redeemed shares, plus any accrued
but unpaid dividends thereon, less the applicable redemption fee (if any). As a percentage of the aggregate redemption price of a holder’s
shares to be redeemed, the redemption fee shall be:
| ● | 11%
if the redemption is requested on or before the first anniversary of the original issuance of such shares; |
| ● | 8%
if the redemption is requested after the first anniversary and on or before the second anniversary of the original issuance of such shares; |
| ● | 5%
if the redemption is requested after the second anniversary and on or before the third anniversary of the original issuance of such shares;
and |
| ● | after
the third anniversary of the date of original issuance of shares to be redeemed, no redemption fee shall be subtracted from the redemption
price. |
Optional
Redemption by the Company. The Company has the right (but not the obligation) to redeem shares of Series C Preferred Stock at
a redemption price equal to the stated value of such redeemed shares, plus any accrued but unpaid dividends thereon; provided, however,
that if the Company redeems any shares of Series C Preferred Stock prior to the fourth (4th) anniversary of their issuance,
then the redemption price shall include a premium equal to ten percent (10%) of the stated value.
Mandatory
Redemption by the Company. The Company must redeem the outstanding shares of Series C Preferred Stock on the fourth (4th)
anniversary of their issuance at a redemption price equal to the stated value of such redeemed shares, plus any accrued but unpaid dividends
thereon.
Voting
Rights. The Series C Preferred Stock has no voting rights.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022 AND 2021
(UNAUDITED)
No
Conversion Right. The Series C Preferred Stock is not convertible into shares of Common Stock.
In accordance
with ASC 480-10, the Series C Preferred Stock is treated as a liability and is presented net of unamortized debt issuance costs on the
balance sheet because the Company has an unconditional obligation to redeem the Series C Preferred Stock and dividends on the
Preferred C Stock are included in interest expense.
On June 11, 2021, the Company launched a new offering
under Regulation A of Section 3(6) of the Securities Act for Tier 2 offerings, pursuant to which the Company is offering up to 47,000
shares of Series C Preferred Stock at an offering price of $1,000 per share for a maximum offering amount of $47 million.
During the
three months ended March 31, 2022, the Company sold an aggregate of 4,293 shares of Series C Preferred Stock for total gross
proceeds of $4,289,444. After deducting a placement fee and other expenses, the Company received net proceeds of $4,004,110.
As of March
31, 2022 there were 10,027 shares of Series C Preferred Stock issued and outstanding and the Series C Preferred Stock balance was
made up of Series C Preferred Stock gross proceeds totaling $10,023,840 net of total unamortized debt issuance costs of $774,961. As of
December 31, 2021, there were 5,734 shares of Series C Preferred Stock issued and outstanding and the Series C Preferred Stock balance
was made up of Series C Preferred Stock gross proceeds totaling $5,734,400 net of total unamortized debt issuance costs of $520,030.
Common Stock
The Company is authorized to issue up to 200,000,000
shares of Common Stock, par value $0.01 per share. As of March 31, 2022 and December 31, 2021, there were 12,403,680 shares of Common
Stock issued and outstanding.
Stock Issued for Cash
During the three months ended March 31, 2021,
the Company issued 5,100 shares of Common Stock, valued at $1,377, to early investors in the prior Regulation A offering.
Equity Incentive Plan
In December 2017, the Board of Directors, with
the approval of a majority of the stockholders of the Company, adopted the Manufactured Housing Properties Inc. Stock Compensation Plan
(the “Plan”) which is administered by the Compensation Committee. As of March 31, 2022, there were 751,175 shares granted
and 248,825 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.
During the three months ended March 31, 2022 and 2021, the Company issued 45,000 and 50,000 options and recorded stock option expense
of $49,760 and $646, respectively. A total of 45,000 of the options granted during this period were granted at a price of $0.01 per share,
which represents a price that may be deemed to be below the market value per share of the Company’s common stock as defined by the
Plan.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022 AND 2021
(UNAUDITED)
The following table summarizes the stock options
outstanding as of March 31, 2022:
| |
Number of
options | | |
Weighted
average
exercise
price (per share) | | |
Weighted
average
remaining
contractual term (in years) | |
Outstanding at December 31, 2021 | |
| 706,175 | | |
$ | 0.01 | | |
| 6.6 | |
Granted | |
| 45,000 | | |
| 0.01 | | |
| 9.8 | |
Exercised | |
| - | | |
| - | | |
| - | |
Forfeited / cancelled / expired | |
| - | | |
| - | | |
| - | |
Outstanding at March 31, 2022 | |
| 751,175 | | |
$ | 0.01 | | |
| 6.5 | |
Exercisable at March 31, 2022 | |
| 704,508 | | |
$ | 0.01 | | |
| 6.3 | |
As of March 31, 2022, there were 751,175 “in-the-money”
options with an aggregate intrinsic value of $2,621,601. The aggregate intrinsic value represents the total intrinsic value (the difference
between the Company’s closing stock price at fiscal year-end and the exercise price, multiplied by the number of in-the-money options)
that would have been received by the option holder had all options holders exercised their options on March 31, 2022.
The following table summarizes information concerning
options outstanding as of March 31, 2022.
Strike Price Range ($) | | |
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 | | |
| 5.7 | | |
$ | 0.01 | | |
| 519,675 | | |
$ | 0.01 | |
$ | 0.01 | | |
| 136,500 | | |
| 7.8 | | |
$ | 0.01 | | |
| 136,500 | | |
$ | 0.01 | |
$ | 0.01 | | |
| 50,000 | | |
| 8.8 | | |
$ | 0.01 | | |
| 33,333 | | |
$ | 0.01 | |
$ | 0.01 | | |
| 45,000 | | |
| 9.8 | | |
$ | 0.01 | | |
| 15,000 | | |
$ | 0.01 | |
The table below presents the weighted average
expected life in years of options granted under the Plan as described above. The risk-free rate of the stock options is based on the U.S.
Treasury yield curve in effect at the time of grant, which corresponds with the expected term of the option granted.
The fair value of stock options was estimated
using the Black Scholes option pricing model with the following assumptions for grants made during the periods indicated.
Stock option assumptions | |
March 31,
2022 | | |
March 31,
2021 | |
Risk-free interest rate | |
| 1.55 – 1.76 | % | |
| 0.26 – 1.40 | % |
Expected dividend yield | |
| 0.00 | % | |
| 0.00 | % |
Expected volatility | |
| 245.51 | % | |
| 16.03
– 273.98 | % |
Expected life of options (in years) | |
| 6.5 | | |
| 6.5 | |
NOTE 8 – RELATED PARTY TRANSACTIONS
See Note 5 for information regarding the promissory
notes issued to Metrolina, a significant stockholder, and the revolving promissory note issued to Gvest Real Estate Capital, LLC, an entity
whose sole owner is Raymond M. Gee, the Company’s chairman and chief executive officer.
In August 2019, the Company entered into an office
lease agreement with 136 Main Street LLC, an entity whose sole owner is Gvest Real Estate LLC, whose sole owner is Mr. Gee, for the lease
of the Company’s offices. The lease is $12,000 per month and is on a month-to-month term. During the three months ended March 31,
2022 and 2021, the Company paid $36,000 of rent expense to 136 Main Street LLC.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022 AND 2021
(UNAUDITED)
During the three months ended March 31, 2022,
Raymond M. Gee received fees totaling $450,000 for his personal guaranty on certain promissory notes relating to the acquisitions of mobile
home communities owned by the Company, including $250,000 in relation to the Asheboro and Morganton acquisitions which were accrued for
at December 31, 2021 and paid in January 2022. During the three months ended March 31, 2021, Mr. Gee received no fees for his personal
guaranty.
See Note
2 for information regarding related party VIEs.
NOTE 9 – SUBSEQUENT EVENTS
Additional Closings of Regulation A Offering
Subsequent to March 31, 2022, we sold an aggregate
of 1,380 shares of Series C Preferred Stock in additional closings of this offering for total gross proceeds of $1,380,000. After deducting
a placement fee, we received net proceeds of approximately $1,286,850.
York
Purchase and Sale Agreement
On November
2, 2021, Bull Creek LLC, a VIE, entered into a purchase and sale agreement with Rachel Holler for the purchase of 150 acres of undeveloped
land and a mobile home community with 60 sites on approximately 10 acres in York, South Carolina for a total purchase price of $2,200,000. As
of the date of this report, acquisition of this community has not occurred.
Spaulding
Purchase and Sale Agreement
On January
19, 2022, MHP Pursuits LLC entered into a purchase and sale agreement with Spaulding Enterprises, Inc. for the purchase of a manufactured
housing community located in Brunswick, Georgia consisting of 72 sites and 28 homes on approximately 17 acres
for a total purchase price of $2,000,000. As of the date of this report, acquisition of this community has not yet occurred.
Clyde
Purchase and Sale Agreement
On February
10, 2022, MHP Pursuits LLC entered into a purchase and sale agreement with Harold and Brenda Allen for the purchase of a manufactured
housing community located in Clyde, North Carolina, a part of the Asheville Metropolitan Statistical Area, consisting of 51 sites
and 51 homes on approximately 9 acres for a total purchase price of $3,050,000. As of the date of this report, acquisition
of this community has not yet occurred.
Solid
Rock Purchase and Sale Agreement
On February 25, 2022, MHP Pursuits
LLC entered into a purchase and sale agreement with K10 Enterprises LLC for the purchase of a manufactured housing community located in
Leesville, South Carolina, consisting of 39 sites and homes on approximately 11 acres for a total purchase price of
$1,700,000. As of the date of this report, acquisition of this community has not yet occurred.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022 AND 2021
(UNAUDITED)
Resaca Portfolio Purchase and Sale Agreement
On April 1, 2022, MHP Pursuits LLC entered into a purchase and sale
agreement with William Darryl Edwards for the purchase of three manufactured housing communities located in Murray County, Georgia, consisting
of 91 sites on approximately 79 acres for a total purchase price of $4,488,000. As of the date of this report, acquisition of this community
has not yet occurred.
Country Estates Purchase and Sale Agreement
On April 5, 2022, MHP Pursuits LLC entered into a purchase and sale
agreement with Ted Brown for the purchase of a manufactured housing community located in Cameron, North Carolina, consisting of 63 sites
on approximately 86 acres for a total purchase price of $2,050,000. As of the date of this report, acquisition of this community has not
yet occurred.
Stock Option Grant
On April 11, 2022, the Company issued 100,000
stock options to a key employee pursuant to the Stock Compensation Plan administered by the Compensation Committee.
Charlotte 3 Park (Dixie, Driftwood, and Meadowbook) Refinance
and Gvest Revolving Promissory Note Repayment
On April 14, 2022, Charlotte 3 Park MHP LLC entered into a loan agreement
with Townebank for a loan in the principal amount of $3,158,400 and issued a promissory note to the lender in the same amount. The funds
from the loan were used on April 15, 2022 to pay off the $850,000 revolving promissory note outstanding principal balance and accrued
interest of $19,979 due to Gvest Real Estate Capital LLC.
The Townebank note bears interest at 4.25% per annum with payments
to begin May 1, 2022 and matures on October 1, 2028. Payment for the first eighteen (18) months of the term of the note shall be interest-only
based on the principal outstanding, days in the period, and daily interest rate. Thereafter, principal and interest shall be due and payable
based on a twenty (20) year amortization schedule. Charlotte 3 Park MHP LLC may prepay the note in part or in full subject to prepayment
penalties set out in the loan agreement if repaid before May 1, 2027 and without penalty if repaid on or subsequent to that date.
The Townebank loan is secured by a first-priority security interest
in the land at the Dixie, Driftwood, and Meadowbrook communities and lot rent due under all leases at these communities and is guaranteed
by Raymond M. Gee. The loan agreement and note contain customary financial and other covenants and events of default for a loan of its
type.
North Carolina Core 3 Park Portfolio Purchase and Sale Agreement
On May 16, 2022, MHP Pursuits LLC entered into
a purchase and sale agreement with Statesville Estates MHC LLC, North Side MHC LLC, and Timber View LLC for the purchase of three manufactured
housing communities located in Statesville, North Carolina, Thomasville, North Carolina, and Trinity, North Carolina, respectively, consisting
of 122 sites on approximately 74 acres for a total purchase price of $5,350,000. As of the date of this report, acquisition of this community
has not yet occurred.