Exhibit 3.4
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended:
or
For the transition period from ____________ to _____________
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
| (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.
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).
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 ☐ | ||
| Smaller reporting company | |||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for comply with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of November 12, 2021, there were
Manufactured Housing Properties Inc.
Quarterly Report on Form 10-Q
Period Ended September 30, 2021
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 | 25 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 35 |
| Item 4. | Controls and Procedures | 35 |
| PART II | ||
| FINANCIAL INFORMATION | ||
| Item 1. | Legal Proceedings | 36 |
| Item 1A. | Risk Factors | 36 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 36 |
| Item 3. | Defaults Upon Senior Securities | 36 |
| Item 4. | Mine Safety Disclosures | 36 |
| Item 5. | Other Information | 36 |
| Item 6. | Exhibits | 37 |
i
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
MANUFACTURED HOUSING PROPERTIES INC.
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1
MANUFACTURED HOUSING PROPERTIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2021 AND DECEMBER 31, 2020
| September 30, 2021 |
December 31,
2020 |
|||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Investment Property | ||||||||
| Land | $ | $ | ||||||
| Site and Land Improvements | ||||||||
| Buildings and Improvements | ||||||||
| Construction in Process | ||||||||
| Total Investment Property | ||||||||
| Accumulated Depreciation and Amortization | ( |
) | ( |
) | ||||
| Net Investment Property | ||||||||
| Cash and Cash Equivalents, including restricted cash of $ |
||||||||
| Accounts Receivable, net | ||||||||
| Other Assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities | ||||||||
| Accounts Payable | $ | $ | ||||||
| Notes Payable, net of $ |
||||||||
| Lines of Credit – Variable Interest Entity, net of $ |
||||||||
| Accrued Liabilities | ||||||||
| Tenant Security Deposits | ||||||||
| Series C Redeemable Preferred Stock, par value $ |
||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (See note 7) | ||||||||
| Redeemable Preferred Stock – subject to redemption | ||||||||
| Series A Cumulative Redeemable Convertible Preferred Stock, par value $ |
||||||||
| Series B Cumulative Redeemable Preferred Stock, par value $ |
||||||||
| Deficit | ||||||||
| Common Stock, par value $ |
||||||||
| Additional Paid in Capital | ( |
) | ( |
) | ||||
| Accumulated Deficit | ( |
) | ( |
) | ||||
| Total Manufactured Housing Properties Inc. Deficit | ( |
) | ( |
) | ||||
| Non-controlling interest in Variable Interest Entity | ||||||||
| Total Deficit | ( |
) | ( |
) | ||||
| TOTAL LIABILITIES AND DEFICIT | $ | $ | ||||||
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, 2021 AND 2020
(UNAUDITED)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020(a) | 2021 | 2020(a) | |||||||||||||
| Revenue | ||||||||||||||||
| Rental and related income | $ | $ | $ | $ | ||||||||||||
| Property sales | ||||||||||||||||
| Total revenues | ||||||||||||||||
| Community operating expenses | ||||||||||||||||
| Repair and maintenance | ||||||||||||||||
| Real estate taxes | ||||||||||||||||
| Utilities | ||||||||||||||||
| Insurance | ||||||||||||||||
| General and administrative expense | ||||||||||||||||
| Total community operating expenses | ||||||||||||||||
| Corporate payroll and overhead | ||||||||||||||||
| Depreciation and amortization expense | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Refinancing costs | ||||||||||||||||
| Total expenses | ||||||||||||||||
| Other income | - | |||||||||||||||
| Loss before provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net income (loss) attributable to non-controlling interest variable interest entity share of net income | ( | ) | ( | ) | ||||||||||||
| Net income (loss) attributable to Manufactured Housing Properties, Inc. | ( | ) | ( | ) | ( | ) | ||||||||||
| Preferred stock dividends and put option value accretion | ||||||||||||||||
| Series A preferred dividends | ||||||||||||||||
| Series A preferred put option value accretion | ||||||||||||||||
| Series B preferred dividends | ||||||||||||||||
| Series B preferred put option value accretion | ||||||||||||||||
| Total preferred stock dividends and put option value accretion | ||||||||||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average shares - basic and fully diluted | ||||||||||||||||
| Net loss per share – basic and fully diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| (a) |
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
3
MANUFACTURED HOUSING PROPERTIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF DEFICIT
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
| COMMON STOCK | ADDITIONAL PAID IN | ACCUMULATED | TOTAL MANUFACTURED HOUSING PROPERTIES | NON CONTROLLING | ||||||||||||||||||||||||
| SHARES | PAR VALUE | CAPITAL | DEFICIT | INC. | INTEREST | DEFICIT | ||||||||||||||||||||||
| Balance at January 1, 2020 (as revised) (a) | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||
| Stock option expense | - | |||||||||||||||||||||||||||
| Common Stock issuance to preferred share holders | ||||||||||||||||||||||||||||
| Preferred shares Series A put option value accretion | - | - | ( | ) | - | ( | ) | ( | ) | |||||||||||||||||||
| Preferred shares Series A dividends | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Preferred shares Series B put option value accretion | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Preferred shares Series B dividends | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Net Loss | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||
| Balance at March 31, 2020 (as revised) (a) | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||
| Stock option expense | - | |||||||||||||||||||||||||||
| Common Stock issuance to preferred share holders | ||||||||||||||||||||||||||||
| Common Stock issuance to board of directors | ||||||||||||||||||||||||||||
| Preferred shares Series A put option value accretion | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Preferred shares Series A dividends | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Preferred shares Series B put option value accretion | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Preferred shares Series B dividends | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Net Income (Loss) | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance at June 30, 2020 (as revised) (a) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||
| Stock option expense | - | - | - | - | ||||||||||||||||||||||||
| Common Stock issuance to preferred share holders | - | - | ||||||||||||||||||||||||||
| Preferred shares Series A put option value accretion | - | - | ( | ) | - | ( | ) | - | ( | ) | ||||||||||||||||||
| Preferred shares Series A dividend | - | - | ( | ) | - | ( | ) | - | ( | ) | ||||||||||||||||||
| Preferred shares Series B put option value accretion | - | - | ( | ) | - | ( | ) | - | ( | ) | ||||||||||||||||||
| Preferred shares Series B dividends | - | - | ( | ) | - | ( | ) | - | ( | ) | ||||||||||||||||||
| Distributions | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Net Income (Loss) | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||
| Balance at September 30, 2020 (as revised) (a) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Balance at January 1, 2021 (as revised) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||
| Stock option expense | - | |||||||||||||||||||||||||||
| Common Stock issuance to preferred share holders | ||||||||||||||||||||||||||||
| Preferred shares Series A put option value accretion | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Preferred shares Series A dividends | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Preferred shares Series B put option value accretion | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Preferred shares Series B dividends | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Contributions | - | - | - | - | - | |||||||||||||||||||||||
| Distributions | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Net Income (Loss) | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||
| Stock option expense | - | |||||||||||||||||||||||||||
| Preferred shares Series A put option value accretion | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Preferred shares Series A dividends | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Preferred shares Series B put option value accretion | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Preferred shares Series B dividends | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Distributions | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||
| Net Income (Loss) | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||
| Stock option expense | - | - | - | - | ||||||||||||||||||||||||
| Preferred shares Series A put option value accretion | - | - | ( | ) | - | ( | ) | - | ( | ) | ||||||||||||||||||
| Preferred shares Series A dividends | - | - | ( | ) | - | ( | ) | - | ( | ) | ||||||||||||||||||
| Preferred shares Series B put option value accretion | - | - | ( | ) | - | ( | ) | - | ( | ) | ||||||||||||||||||
| Preferred shares Series B dividends | - | - | ( | ) | - | ( | ) | - | ( | ) | ||||||||||||||||||
| Distributions | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Net Income (Loss) | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||
| Balance at September 30, 2021 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| (a) |
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
4
MANUFACTURED HOUSING PROPERTIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
| September 30, 2021 | September 30, 2020 (a) | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Provision for bad debts | ||||||||
| Stock option expense | ||||||||
| Stock compensation expense | ||||||||
| Amortization of debt discount | ||||||||
| Write off mortgage cost | ||||||||
| Gain on debt extinguishment | ( | ) | ||||||
| Loss on disposal of homes | ||||||||
| Depreciation and amortization | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Other assets | ||||||||
| Accounts payable | ( | ) | ||||||
| Tenant security deposits | ||||||||
| Accrued liabilities | ||||||||
| Net Cash Provided by Operating Activities | ||||||||
| Cash Flows from Investing Activities: | ||||||||
| Capital Improvements | ( | ) | ( | ) | ||||
| Purchases of investment properties | ( | ) | ( | ) | ||||
| Net Cash Used in Investing Activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Repayment of note payable – line of credit related party | ( | ) | ||||||
| Proceeds from note payables | ||||||||
| Repayment of notes payable | ( | ) | ( | ) | ||||
| Proceeds from issuance of common stock | ||||||||
| Proceeds from issuance of preferred stock | ||||||||
| Redemption of Series A Preferred Stock | ( | ) | ||||||
| Repayment of note payable - related party | ( | ) | ||||||
| Payment of debt and Series C Preferred Stock costs recorded as debt discount | ( | ) | ( | ) | ||||
| Payment of acquisition costs | ( | ) | - | |||||
| Preferred shares dividends | ( | ) | ( | ) | ||||
| Contribution | ||||||||
| Distribution | ( | ) | ||||||
| Net Cash Provided by (Used in) Financing Activities | ( | ) | ||||||
| Net change in cash, cash equivalents and restricted cash | ( | ) | ||||||
| Cash, cash equivalents and restricted cash at beginning of the period | ||||||||
| Cash, cash equivalents and restricted cash at end of the period | $ | $ | ||||||
| Cash, cash equivalents and restricted cash consist of the following: | ||||||||
| End of period | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Total | $ | $ | ||||||
| Cash, cash equivalents and restricted cash consist of the following: | ||||||||
| Beginning of period | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Total | $ | $ | ||||||
| Cash paid for: | ||||||||
| Income Taxes | $ | $ | ||||||
| Interest | $ | $ | ||||||
| Non-Cash Investing and Financing Activities | ||||||||
| Notes related to acquisitions | $ | $ | ||||||
| Non-cash Preferred stock accretion | $ | $ | ||||||
| Stock issued in connection with Series B Preferred Stock issuance | $ | $ | ||||||
| (a) |
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
5
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
Organization
Manufactured Housing Properties Inc. (the “Company”) is a Nevada corporation whose principal activities are to acquire, own, and operate manufactured housing communities.
Basis of Presentation
The Company prepares its consolidated financial statements under the accrual basis of accounting, in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q of Regulation S-X. They do not include all information and footnotes required by GAAP for complete financial statements. The December 31, 2020 consolidated balance sheet data were derived from audited financial statements but do not include all disclosures required by GAAP. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 31, 2021. The interim unaudited condensed consolidated financial statements should be read in conjunction with those consolidated financial statements included in the Form 10-K. In the opinion of management, all adjustments considered necessary for a fair statement of the financial statements, consisting solely of normal recurring adjustments, have been made. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.
Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts of the Company, entities controlled by the Company through its direct or indirect ownership of a majority interest and any other entities in which the Company has a controlling financial interest. The Company consolidates variable interest entities (“VIEs”) where the Company is the primary beneficiary. The primary beneficiary of a VIE is the party that has both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.
The Company’s formation of all subsidiaries and date of consolidation are as follows:
| Name of Subsidiary | State of Formation | Date of Formation | Ownership | |||||||
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| * |
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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
Revenue Recognition
Mobile home sale revenues are recognized in accordance with Topic 606 of the Financial Accounting Standards Board (“FASB”) ASC for revenue recognition. On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09, which is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. The Company considers revenue realized or realizable and earned when all the five following criteria are met: (1) identification of the contract with a customer, (2) identification of the performance obligations in the contract, (3) determination of the transaction price, (4) allocation of the transaction price to the performance obligations in the contract, and (5) recognition of revenue when (or as) we satisfy a performance obligation.
Under ASC 842, the Company must assess on an individual lease basis whether it is probable that the Company will collect the future lease payments. The Company considers the tenant’s payment history and current credit status when assessing collectability. When collectability is not deemed probable, the Company will write-off the tenant’s receivables, including straight-line rent receivable, and limit lease income to cash received.
The Company’s revenues primarily consist of rental revenues and fee and other income. The Company has the following revenue sources and revenue recognition policies:
| ● | Rental revenues include revenues from the leasing of land lot or a combination of both, the mobile home and land at our properties to tenants. |
| o | Revenues from the leasing of land lot or a combination of both, the mobile home and land at the Company’s properties to tenants include (i) lease components, including land lot or a combination of both, the mobile home and land, and (ii) reimbursement of utilities and account for the components as a single lease component in accordance with Accounting Standards Codification (“ASC”) 842. |
| o | Revenues derived from fixed lease payments are recognized on a straight-line basis over the non-cancelable period of the lease. The Company commences rental revenue recognition when the underlying asset is available for use by the lessee. Revenue derived from the reimbursement of utilities are generally recognized in the same period as the related expenses are incurred. The Company’s leases are month-to-month. |
| ● | Fee and other income include late fees, violation fees and other revenue arising from contractual agreements with third parties. This revenue is recognized as the services are transferred in accordance with ASC 606. |
Accounts Receivable
Accounts receivable consist primarily of amounts currently due from residents. Accounts receivables are reported in the balance sheet at outstanding principal adjusted for any charge-offs and the allowance for losses. The Company records an allowance for bad debt when receivables are over 90 days old.
Acquisitions
The Company accounts for acquisitions as asset acquisitions in accordance with ASC 805, “Business Combinations,” and allocates the purchase price of the property based upon the fair value of the assets acquired, which generally consist of land, site and land improvements, buildings and improvements and rental homes. The Company allocates the purchase price of an acquired property generally determined by internal evaluation as well as third-party appraisal of the property obtained in conjunction with the purchase.
7
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
Variable Interest Entities
In December 2020, the Company sold 305 park owned homes in four communities
to Gvest Finance LLC, a company owned and controlled by the Company’s parent company, Gvest Real Estate Capital LLC, an entity whose
sole owner is Raymond M. Gee, the Company’s chairman and chief executive officer, and to its wholly owned subsidiary Gvest Homes
I LLC, for a total of $
In 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
Primarily due to the Company’s common ownership by Mr. Gee, its power to direct the activities of these entities that most significantly impact their economic performance, and the fact that the Company has the obligation to absorb losses or the right to receive benefits from these entities that could potentially be significant to these entities, Gvest Finance LLC, Gvest Homes I LLC, Gvest Anderson Homes LLC, Gvest Capital View Homes LLC, Gvest Hidden Oaks Homes LLC, Gvest Springlake Homes LLC, Brainerd Place LLC, and Bull Creek LLC are considered to be VIEs in accordance applicable GAAP. A company with interests in a VIE must consolidate the entity if the company is deemed to be the primary beneficiary of the VIE; that is, if it has both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. Such a determination requires management to evaluate circumstances and relationships that may be difficult to understand and to make a significant judgment, and to repeat the evaluation at each subsequent reporting date. In accordance with applicable GAAP, because of the common ownership among the entities, the consolidation of the VIEs have been accounted for retrospectively as of the beginning of the first period presented in the unaudited condensed consolidated financial statements.
Net Income (Loss) Per Share
Basic net income (loss) per share is calculated
by dividing net income (loss) by the weighted average number of common shares outstanding, including vested stock options during the period.
Diluted net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding
plus the weighted average number of net shares that would be issued upon exercise of stock options pursuant to the treasury stock method.
For the nine months ended September 30, 2021, the potentially dilutive penny options for the purchase of
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 Equipment 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
8
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
Impairment Policy
The Company applies FASB ASC 360-10, “Property, Plant & Equipment,” to measure impairment in real estate investments. Rental properties are individually evaluated for impairment when conditions exist which may indicate that it is probable that the sum of expected future cash flows (on an undiscounted basis without interest) from a rental property is less than the carrying value under its historical net cost basis. These expected future cash flows consider factors such as future operating income, trends and prospects as well as the effects of leasing demand, competition and other factors. Upon determination that a permanent impairment has occurred, rental properties are reduced to their fair value. For properties to be disposed of, an impairment loss is recognized when the fair value of the property, less the estimated cost to sell, is less than the carrying amount of the property measured at the time there is a commitment to sell the property and/or it is actively being marketed for sale. A property to be disposed of is reported at the lower of its carrying amount or its estimated fair value, less its cost to sell. Subsequent to the date that a property is held for disposition, depreciation expense is not recorded. There was no impairment during the nine months ended September 30, 2021 and 2020.
Cash and Cash Equivalents
The Company considers all highly liquid financial instruments purchased with an original maturity of three months or less to be cash equivalents.
The Company maintains cash balances at banks and
deposits at times may exceed federally insured limits. Management believes that the financial institutions that hold the Company’s
cash are financially secure and, accordingly, minimal credit risk exists. At September 30, 2021 and December 31, 2020, the Company had
approximately $
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 $
Fair Value of Financial Instruments
The Company follows paragraph 825-10-50-10 of the FASB ASC for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB ASC to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.
Reclassifications
Certain amounts in the prior period presentation have been reclassified
to conform with the current presentation. For the nine months ended September 30, 2020, the Company reclassed approximately $
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.
9
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
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
The Company recognizes interest and penalties, if any, with income tax expense in the accompanying consolidated statement of operations. As of September 30, 2021, and December 31, 2020, there were no such accrued interest or penalties.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires that entities use a new forward looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13 is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2022. The Company is currently evaluating the potential impact this standard may have on the consolidated financial statements.
In May 2020, the Securities and Exchange Commission adopted amendments to the financial disclosure requirements in Regulation S-X relating to the acquisition and disposition of businesses by registrants. The amendments, including Rule 3-05, Financial Statements of Businesses Acquired or to Be Acquired; Rule 3-14, Special Instructions for Real Estate Operations to Be Acquired; and Article 11, Pro Forma Financial Information, focus on the financial information required to be disclosed in connection with the acquisition and disposition of businesses, real estate operations, and investment companies and generally increased the thresholds at which acquisitions are deemed significant and require additional disclosures. The amendments are effective for fiscal years beginning after December 31, 2020. The Company has evaluated the impact this standard had on the consolidated financial statements and determined that it had no impact on the unaudited condensed consolidated financial statements. However, the Company will integrate these amendments in evaluating the significance and required additional disclosures upon acquisitions in future periods as necessary.
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying unaudited condensed consolidated financial statements.
Impact of Coronavirus Pandemic
In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. On March 11, 2020, the World Health Organization declared the outbreak a pandemic, and on March 13, 2020, the United States declared a national emergency.
Most states and cities, including where the Company’s properties are located, have reacted by instituting quarantines, restrictions on travel, “stay at home” rules and restrictions on the types of businesses that may continue to operate, as well as guidance in response to the pandemic and the need to contain it.
The rules and restrictions put in place have had a negative impact on the economy and business activity and may adversely impact the ability of the Company’s tenants, many of whom may be restricted in their ability to work, to pay their rent as and when due. In addition, the Company’s property managers may be limited in their ability to properly maintain the Company’s properties. Enforcing the Company’s rights as landlord against tenants who fail to pay rent or otherwise do not comply with the terms of their leases may not be possible as many jurisdictions, including those where are properties are located, have established rules and/or regulations preventing us from evicting tenants for certain periods in response to the pandemic. If the Company is unable to enforce its rights as landlords, our business would be materially affected.
If the current pace of the pandemic does not continue to slow and the spread of the virus is not contained, the Company’s business operations could be further delayed or interrupted. The Company expects that government and health authorities may announce new or extend existing restrictions, which could require the Company to make further adjustments to its operations in order to comply with any such restrictions. The duration of any business disruption cannot be reasonably estimated at this time but may materially affect the Company’s ability to operate its business and result in additional costs.
10
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
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.
NOTE 2 – RETROSPECTIVE APPLICATION OF CONSOLIDATION
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, Brainerd Place LLC, and Bull Creek LLC. In accordance with applicable GAAP, due to common ownership among the entities, the consolidation has been accounted for retrospectively as of the beginning of the first period presented in the consolidated financial statements. The balances reported for the three and nine months ended September 30, 2020 on the condensed consolidated statement of operations, statement of deficit, and statements of cash flows have been adjusted accordingly.
NOTE 3 – VARIABLE INTEREST ENTITIES
The Company consolidates the accounts of Gvest Finance LLC, Gvest Homes I LLC, Gvest Anderson Homes LLC, Gvest Capital View Homes LLC, Gvest Hidden Oaks Homes LLC, Gvest Springlake Homes LLC, Brainerd Place LLC, and Bull Creek LLC and will continue to do so until they are no longer considered VIEs. During the nine months ended September 30, 2021, Gvest Finance LLC formed four wholly-owned subsidiaries Gvest Anderson Homes LLC, Gvest Capital View Homes LLC, Gvest Hidden Oaks Homes LLC, and Gvest Springlake Homes LLC and the Company formed two entities, Brainerd Place LLC and Bull Creek LLC, all of which are considered VIEs.
Included in the unaudited condensed consolidated
results of operations for the three months ended September 30, 2021 and 2020 were $
The consolidated balance sheets as of September 30, 2021 and December 31, 2020 included the following amounts related to the consolidated VIEs.
| September 30, 2021 (Unaudited) | December 31, 2020 | |||||||
| Assets | ||||||||
| Investment Property | $ | $ | ||||||
| Accumulated Depreciation and Amortization | ( | ) | ( | ) | ||||
| Net Investment Property | ||||||||
| Cash and Cash Equivalents | ||||||||
| Accounts Receivable, net | ||||||||
| Other Assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Deficit | ||||||||
| Accounts Payable | $ | $ | ||||||
| Notes Payable, net of $ | ||||||||
| Lines of Credit, net of $ | ||||||||
| Accrued Liabilities* | ||||||||
| Tenant Security Deposits | ||||||||
| Total Liabilities | ||||||||
| Non-Controlling interest | ||||||||
| Total Non-controlling interest in variable interest entity equity | ||||||||
| * | Included in accrued liabilities is an intercompany balance of $ |
11
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
NOTE 4 – INVESTMENT PROPERTY
The following table summarizes the Company’s property and equipment balances which are generally used to depreciate the assets on a straight-line basis:
| September 30, 2021 (Unaudited) | December 31, 2020 | |||||||
| Investment Property | ||||||||
| Land | $ | $ | ||||||
| Site and Land Improvements | ||||||||
| Buildings and Improvements | ||||||||
| Construction in Process | ||||||||
| Total Investment Property | ||||||||
| Less: Accumulated Depreciation and Amortization | ( | ) | ( | ) | ||||
| Net Investment Property | $ | $ | ||||||
Depreciation expense and amortization of acquisition
costs totaled 7,493 and $
During the nine months ended September 30, 2021,
the Gvest Finance LLC, the Company’s VIE, acquired thirty-three new manufactured homes for $
During the nine months ended September 30, 2021,
the Company acquired four manufactured housing communities; one in Brunswick, Georgia, one in Anderson, South Carolina and two in Columbia,
South Carolina, and accounted for all as asset acquisitions. Total gross acquisition costs incurred with 2021 acquisitions of $
12
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
NOTE 5 – ACQUISITIONS AND DISPOSALS
The Company completed four acquisitions during the nine months ended September 30, 2021. These were asset acquisitions from third parties and have been accounted for as asset acquisitions. The mobile homes included in the buildings column of the table below were acquired by the Company’s VIEs: Gvest Finance LLC, Gvest Homes I LLC, Gvest Anderson Homes LLC, Gvest Capital View Homes LLC, and Gvest Hidden Oaks Homes LLC and are included in consolidation.
Acquisition Date | Name | Land | Improvements | Building | Total Purchase Price | |||||||||||||
| Countryside MHP | $ | $ | $ | $ | ||||||||||||||
| Evergreen MHP | ||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||
| Golden Isles MHP | $ | $ | $ | $ | ||||||||||||||
| Golden Isles Gvest | ||||||||||||||||||
| Anderson MHP | (b) | |||||||||||||||||
| Anderson Gvest | ||||||||||||||||||
| Capital View MHP | ||||||||||||||||||
| Capital View Gvest | ||||||||||||||||||
| Hidden Oaks MHP | ||||||||||||||||||
| Hidden Oaks Gvest | ||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||
| (b) | Anderson MHP also purchased vehicles and equipment totaling
$ |
Butternut Sale
In December 2020, the
Company sold the Butternut manufactured housing community for a total sale price of $
Pro-forma Financial Information
The following unaudited pro-forma information presents the combined results of operations for the nine months ended September 30, 2021 as if the acquisitions of Golden Isles, Anderson, Capital View, and Hidden Oaks manufactured housing communities and the acquisition of the North Raleigh community which occurred subsequent to September 30, 2021 (see Note 10) had been completed on January 1, 2021.
The following unaudited pro-forma information also presents the combined results of operations for the nine months ended September 30, 2020 as if the acquisitions of the Countryside and Evergreen communities, the disposition of the Butternut manufactured housing community, the sale of the mobile homes within the ARC, Crestview, Countryside, and Maple communities in December 2020 to our VIEs Gvest Finance LLC and Gvest Homes I LLC, the four acquisitions which occurred during the nine months ended September 30, 2021, and the North Raleigh acquisition which occurred in October 2021 had been completed on January 1, 2020.
13
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
| Nine Months Ended September 30, 2021 Pro Forma | Nine Months Ended September 30, 2020 Pro Forma | |||||||
| Total revenue | $ | |||||||
| Total expenses | ||||||||
| Depreciation expense | ||||||||
| Interest expense | ||||||||
| Other income | - | |||||||
| Net income (loss) | $ | ( | ) | ( | ) | |||
| Net income (loss) attributable to non-controlling interest | ( | ) | ( | ) | ||||
| Net income (loss) attributable to Manufactured Housing Properties, Inc | ||||||||
| Preferred stock dividends / accretion | ||||||||
| Net income (loss) | $ | ( | ) | ( | ) | |||
| Net loss per share | $ | ( | ) | ( | ) | |||
| Three Months Ended September 30, 2021 Pro Forma | Three Months Ended September 30, 2020 Pro Forma | |||||||
| Total revenue | $ | |||||||
| Total expenses | ||||||||
| Depreciation expense | ||||||||
| Interest expense | ||||||||
| Net income (loss) | $ | ( | ) | |||||
| Net income (loss) attributable to non-controlling interest | ( | ) | ( | ) | ||||
| Net income (loss) attributable to Manufactured Housing Properties, Inc | ||||||||
| Preferred stock dividends / accretion | ||||||||
| Net income (loss) | $ | ( | ) | ( | ) | |||
| Net loss per share | $ | ( | ) | ( | ) | |||
NOTE 6 – PROMISSORY NOTES
Promissory Notes
The Company has issued promissory notes payable
to lenders related to the acquisition of its manufactured housing communities and mobile homes. These promissory notes range from
On May 1, 2020, the Company received a $
14
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
As of September 30, 2021, the outstanding balance
on these notes was $
| Maturity Date | Interest Rate | Balance 09/30/21 | Balance 12/31/20 | |||||||||||
| Pecan Grove MHP LLC | % | |||||||||||||
| Azalea MHP LLC | % | |||||||||||||
| Holly Faye MHP LLC | % | |||||||||||||
| Chatham MHP LLC | % | |||||||||||||
| Lakeview MHP LLC | % | |||||||||||||
| B&D MHP LLC | % | |||||||||||||
| Hunt Club MHP LLC | % | |||||||||||||
| Crestview MHP LLC | % | |||||||||||||
| Maple Hills MHP LLC | % | |||||||||||||
| Springlake MHP LLC* | % | |||||||||||||
| ARC MHP LLC | % | |||||||||||||
| Countryside MHP LLC | % | |||||||||||||
| Evergreen MHP LLC | % | |||||||||||||
| Golden Isles MHP LLC | % | |||||||||||||
| Anderson MHP LLC | % | - | ||||||||||||
| Capital View MHP LLC | % | - | ||||||||||||
| Hidden Oaks MHP LLC | % | - | ||||||||||||
| Gvest Finance LLC (B&D homes) | % | |||||||||||||
| Gvest Finance LLC (Countryside homes) | % | |||||||||||||
| Gvest Finance LLC (Golden Isles homes) | % | |||||||||||||
| Gvest Finance LLC (Springlake homes)* | % | |||||||||||||
| Gvest Anderson Homes LLC | % | - | ||||||||||||
| Gvest Capital View Homes LLC | % | - | ||||||||||||
| Gvest Hidden Oaks Homes LLC | % | - | ||||||||||||
| PPP Loan | % | |||||||||||||
| Total note payables | ||||||||||||||
| Discount Direct Lender Fees | ( | ) | ( | ) | ||||||||||
| Total net of Discount | $ | $ | ||||||||||||
*The Springlake MHP LLC and Gvest Finance LLC (Springlake homes) notes listed above were refinanced on November 12, 2021. See Note 10 for more details.
Related Party Promissory Note
On May 8, 2017,
Revolving Promissory Note
On October 1, 2017, the Company issued a revolving
promissory note to Raymond M. Gee pursuant to which the Company may borrow up to $
15
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
Line of Credit – Occupied Home Facility
On December 24, 2020, Gvest Homes I LLC entered
into a loan agreement with a lender for a commitment amount of up to $ provided that only up to $
The loan bears interest at
On December 24, 2020 the lender agreed to advance
$
Line of Credit – Floor Plan and Rental Financing Facility
On July 26, 2021,
The
floorplan line of credit interest is calculated at a schedule as follows:
The maturity date of the of the 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. Gvest Finance LLC promises to repay each floor plan advance as follows: (i) Gvest Finance LLC shall pay a principal amount in an amount equal to the original principal amount of such advance multiplied by the percentage specified in the applicable SOFT, commencing on the 15th day of the first full month after the first anniversary of any advance and continuing on the 15th day of each month thereafter; (ii) interest shall be payable monthly, in arrears, and shall be due and payable on or before the 15th day of the month following the month in which such interest accrues; and (iii) Gvest Finance shall pay to lender an amount equal to the original invoice price of such homes inventory, less all principal payments made with respect to such inventory pursuant to (ii) above, plus all billed and unpaid interest and any applicable fees, upon the sale of inventory financed or refinanced by lender.
The floorplan line of credit agreement contains customary events of default and customary representations, warranties, and other covenants for loans of this type.
The floorplan and rental lines of credit are guaranteed by Raymond M. Gee.
Maturities of Long-Term Obligations for Five Years and Beyond
The minimum annual principal payments of notes payable at September 30, 2021 by fiscal year were:
| 2021 | ||||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Total minimum principal payments | $ |
16
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
NOTE 7 – COMMITMENTS AND CONTINGENCIES
From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise that may harm its business. The Company is currently not aware of any such legal proceedings or claims that they believe will have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results.
NOTE 8 – STOCKHOLDERS’ EQUITY
Preferred Stock
The Company is authorized to issue up to
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
Ranking. The Series A Preferred Stock ranks, as to dividend rights and rights upon our liquidation, dissolution, or winding up, senior to Common Stock and pari passu with Series B Preferred Stock and Series C Preferred Stock. 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.
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 $
Liquidation Preference. The liquidation
preference for each share of Series A Preferred Stock is $
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 $
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 $
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, 2021, there were
17
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
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
Ranking. The Series B Preferred Stock ranks, as to dividend rights and rights upon our liquidation, dissolution, or winding up, senior to Common Stock and pari passu with Series A Preferred Stock and Series C Preferred Stock. The terms of the Series B 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 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.
Liquidation Preference. The liquidation
preference for each share of Series B Preferred Stock is $
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, 2021 and 2020, the Company
recorded a put option value accretion of $
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
18
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
During the nine months ended September 30, 2021,
the Company sold an aggregate of
As of September 30, 2021, there were
Series C 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
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.
Stated Value. Each share of Series
C Preferred Stock has an initial stated value of $
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.
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.
19
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
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 (
| ● | 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 |
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 (
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.
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 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.
During the nine months ended September 30,
2021, the Company sold an aggregate of
Common Stock
The
Company is authorized to issue up to
Stock Issued for Service
During the nine months ended September 30, 2021,
the Company did not issue any shares of Common Stock for services. In April 2020, the Company issued
20
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
Stock Issued for Cash
During the nine months ended September 30, 2021
and 2020, the Company issued
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, 2021, there were
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
The following table summarizes the stock options outstanding as of September 30, 2021:
| Number of options | Weighted average exercise price (per share) | Weighted average remaining contractual term (in years) | ||||||||||
| Outstanding at December 31, 2020 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Forfeited / cancelled / expired | ||||||||||||
| Outstanding at September 30, 2021 | $ | |||||||||||
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, 2021. As of September 30, 2021, there were
The following table summarizes information concerning options outstanding as of September 30, 2021.
| Strike Price Range ($) | Outstanding stock options | Weighted average remaining contractual term (in years) | Weighted average outstanding strike price | Vested stock options | Weighted average vested strike price | |||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
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.
| Risk-free interest rate | % | |
| Expected dividend yield | % | |
| Expected volatility | % | |
| Expected life of options (in years) |
21
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
NOTE 9 – RELATED PARTY TRANSACTIONS
On October
1, 2017, the Company issued a revolving promissory note to Raymond M. Gee, the Company’s chairman and chief executive officer, pursuant
to which the Company may borrow up to $
On May 8, 2017, the Company issued a promissory
note to Metrolina in the principal amount of $
In August 2019, the Company entered into an office
lease agreement with Gvest Real Estate Capital LLC for the lease of its offices. As of January 2021, the lease is $
During the nine months ended September 30, 2021,
Raymond M. Gee received fees totaling $
See Note 3 for information regarding related party VIEs.
NOTE 10 – SUBSEQUENT EVENTS
Series C Preferred Stock
Subsequent to September 30, 2021, the Company
completed three closings of the Regulation A offering pursuant to which the Company sold an aggregate of
North Raleigh Acquisition and Related Financing
On July 1, 2021, MHP Pursuits LLC, a wholly owned
subsidiary of the Company, entered into a purchase and sale agreement (the “Franklin/Granville Purchase Agreement”) with Truman
Properties LLC, Birdsong Properties LLC, CCE Properties LLC, and Youngsville MHP LLC for the purchase of
22
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
In connection with the closing, on October 25,
2021, North Raleigh MHP entered into a loan agreement with Liberty Bankers Life Insurance Company (“Liberty”) for a loan in
the principal amount of $
The Liberty note bears interest at a rate of 4.75% per annum with payments to begin December 1, 2021 and matures on November 1, 2026. Principal and interest, in the amount of $30,347 per month, shall be due and payable based on a twenty-five (25) year amortization schedule. North Raleigh MHP may prepay the Liberty note in part or in full at any time if it pays a prepayment premium calculated in accordance with the Liberty loan agreement.
The Liberty loan is secured by a first priority security interest in the property pursuant to an assignment of leases, rents, and profits and a deed of trust, security agreement and fixture filing with assignment of rents that North Raleigh MHP entered into with the lender. The Liberty loan is guaranteed by the Company pursuant to a limited guaranty agreement dated October 25, 2021.
On
October 22, 2021, the Company entered into a loan agreement with Metrolina, a related party due to its significant ownership, for
a loan in the principal amount of $
The loan agreements contain customary closing conditions, representations and warranties, financial and other covenants and events of default for loans of their type.
Idlewild Acres Purchase and Sale Agreement
On October 20, 2021, MHP Pursuits LLC entered into a purchase and sale agreement with Gary Coffey for the purchase of a manufactured housing community located in Morganton, North Carolina consisting of 61 sites on approximately 31.29 acres for a total purchase price of $2,750,000. As of November 15, 2021, closing of this agreement has not occurred.
Alterri Purchase and Sale Agreement
Sunnyland Purchase and Sale Agreement
On November 3, 2021, MHP Pursuits LLC entered into a purchase and sale agreement with Billie Jean Faust for the purchase of a manufactured housing community located in Byron, Georgia consisting of 73 sites on approximately 18.57 acres for a total purchase price of $2,200,000. As of November 15, 2021, closing of this agreement has not occurred.
York Purchase and Sale Agreement
23
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
Springlake Refinance
On
November 12, 2021, Springlake MHP LLC entered into a loan agreement
with First Bank for a loan in the principal amount of $
The First Bank note bears interest at the lesser
of the Wall Street Journal prime rate plus
The First Bank loan is secured by a first-priority security interest in the land and lot rent due under all leases and is guaranteed by the Company and Raymond M. Gee.
Also on November 12, 2021, Gvest Springlake Homes
LLC, a wholly owned subsidiary of our VIE, Gvest Finance LLC, entered into a loan and security agreement with First Bank for a line of
credit in the principal amount of $
The First Bank line of credit bears interest at
the lesser of the Wall Street Journal prime rate plus one percent or 6.75% per annum with principal and interest payments to begin on
January 10, 2022. Principal and interest payments shall be due and payable on each advance allocated to each new home based on a fifteen
(15) year amortization period and each advance allocated to a used home will be based on an amortization period ranging from twelve to
five years determined by the age of the used home. The note matures on December 10, 2026. Gvest Springlake Homes LLC may prepay the note
in full subject to exit fees set out in the loan agreement. Additionally, Gvest Springlake Homes LLC is required to make to mandatory
prepayments prior to the maturity date if for any reason the aggregate principal amount of the loan outstanding exceeds $
The First Bank line of credit loan is secured by a first-priority security interest in rent due under all leases and all assets owned by Gvest Springlake Homes LLC and is guaranteed by Gvest Finance and Raymond M. Gee pursuant to guaranty agreements dated November 12, 2021.
Both loan agreements contain customary representations and warranties, financial and other covenants and events of default for loans of their type.
24
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
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.
The specific discussions herein about our company include financial projections and future estimates and expectations about our company’s business. The projections, estimates and expectations are presented in this report only as a guide about future possibilities and do not represent actual amounts or assured events. All the projections and estimates are based exclusively on our management’s own assessment of our business, the industry in which we operate and the economy at large and other operational factors, including capital resources and liquidity, financial condition, fulfillment of contracts and opportunities. The actual results may differ significantly from the projections.
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.
25
As of September 30, 2021, we owned and operated the following manufactured housing properties:
| ● | Pecan Grove – a 81 lot, all-age community situated on 10.71 acres and located in Charlotte, North Carolina. |
| ● | 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 35 lot all-age community situated on 8.01 acres and located in Gastonia, North Carolina, a suburb of Charlotte North Carolina. |
| ● | Lakeview – a 84 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 78 lot all-age community situated on 13.02 acres and located in the Columbia, South Carolina metro area. |
| ● | B&D – a 95 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 226 lots situated on 72.7 acres and located in Warner Robins, Georgia. |
| ● | ARC – five all-age communities with 187 lots situated on 39.34 acres and located in Lexington, South Carolina. |
| ● | Countryside – a 109 lot all-age community situated on 35 acres and located in Lancaster, North Carolina. |
| ● | Evergreen – a 64 lot all-age community situated on 28.4 acres and located in Dandridge, Tennessee. |
| ● |
Golden Isles – a 118 lot all-age community situated on 16.76 acres and located in Brunswick, Georgia.
| |
| ● | Anderson – ten all-age communities with 179 lots situated on 50 acres and located in Anderson, South Carolina | |
|
●
● |
Capital View – a 32 lot all-age community situated on 10.65 acres and located in Gaston, South Carolina
Hidden Oaks – a 43 lot all-age community situated on 8.96 acres and located in West Columbia, South Carolina |
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. 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.
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.
26
If the current pace of the pandemic does not continue to slow 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 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 our performance, financial condition, results of operations and cash flows.
Regulation A Offering
In June 2021, we launched a new offering under Regulation A of Section 3(6) of the Securities Act for Tier 2 offerings, pursuant to which we are offering up to 47,000 shares of Series C Cumulative Redeemable Preferred Stock (the “Series C Preferred Stock”) at an offering price of $1,000 per share for a maximum offering amount of $47 million.
Subsequent to September 30, 2021, the Company completed three closings of the Regulation A offering pursuant to which the Company sold an aggregate of 980 shares of Series C Preferred Stock to investors for total gross proceeds of $980,000. After deducting the broker dealer commission, escrow fee, and dealer manager fee, the Company received net proceeds of $913,851.
North Raleigh Acquisition and Related Financing
On July 1, 2021, MHP Pursuits LLC, a wholly owned subsidiary of the Company, entered into a purchase and sale agreement (the “Franklin/Granville Purchase Agreement”) with Truman Properties LLC, Birdsong Properties LLC, CCE Properties LLC, and Youngsville MHP LLC for the purchase of five manufactured housing communities located in Franklin and Granville Counties, North Carolina consisting of 137 sites on approximately 135 acres for a total purchase price of $7,450,000. On October 22, 2021, MHP Pursuits LLC assigned the purchase agreement to the Company’s newly formed wholly owned subsidiary North Raleigh MHP LLC (“North Raleigh MHP”), pursuant to an assignment of purchase and sale agreement. On October 25, 2021, closing of the purchase agreement was completed and North Raleigh MHP purchased the communities. Proforma financial information for North Raleigh MHP is included in the unaudited proforma combined results of operations in Note 5.
In connection with the closing, on October 25, 2021, North Raleigh MHP entered into a loan agreement with Liberty Bankers Life Insurance Company (“Liberty”) for a loan in the principal amount of $5,323,000 and North Raleigh MHP issued a promissory note to Liberty for the same amount.
The Liberty note bears interest at a rate of 4.75% per annum with payments to begin December 1, 2021 and matures on November 1, 2026. Principal and interest, in the amount of $30,347 per month, shall be due and payable based on a twenty-five (25) year amortization schedule. North Raleigh MHP may prepay the Liberty note in part or in full at any time if it pays a prepayment premium calculated in accordance with the Liberty loan agreement.
The Liberty loan is secured by a first priority security interest in the property pursuant to an assignment of leases, rents, and profits and a deed of trust, security agreement and fixture filing with assignment of rents that North Raleigh MHP entered into with the lender. The Liberty loan is guaranteed by the Company pursuant to a limited guaranty agreement dated October 25, 2021.
On October 22, 2021, the Company entered into a loan agreement with Metrolina, a related party due to its significant ownership, for a loan in the principal amount of $1,500,000 and issued a promissory note to the lender for the same amount. The funds from the Metrolina note were used to pay the remainder of the purchase price, or $2,127,000, and closing costs.
The Metrolina note bears interest at a rate of 18% per annum with payments to begin November 1, 2021 and matures on April 1, 2023. Monthly payments for the term of the note shall be interest-only based on the principal outstanding and days in the period. 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 Metrolina note is unsecured and is guaranteed by Raymond M. Gee.
The loan agreements contain customary closing conditions, representations and warranties, financial and other covenants and events of default for loans of their type.
27
Idlewild Acres Purchase and Sale Agreement
On October 20, 2021, MHP Pursuits LLC entered into a purchase and sale agreement with Gary Coffey for the purchase of a manufactured housing community located in Morganton, North Carolina consisting of 61 sites on approximately 31.29 acres for a total purchase price of $2,750,000. As of November 15, 2021, closing of this agreement has not occurred.
Alterri Purchase and Sale Agreement
On October 22, 2021, MHP Pursuits LLC entered into a purchase and sale agreement with Alterri Properties LLC for the purchase of two manufactured housing communities located in Asheboro, North Carolina consisting of 84 sites on approximately 45.4 acres for a total purchase price of $2,750,000. As of November 15, 2021, closing of this agreement has not occurred.
Sunnyland Purchase and Sale Agreement
On November 3, 2021, MHP Pursuits LLC entered into a purchase and sale agreement with Billie Jean Faust for the purchase of a manufactured housing community located in Byron, Georgia consisting of 73 sites on approximately 18.57 acres for a total purchase price of $2,200,000. As of November 15, 2021, closing of this agreement has not occurred.
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 November 15, 2021, closing of this agreement has not occurred.
Springlake Refinance
On November 12, 2021, Springlake MHP LLC entered into a loan agreement with First Bank for a loan in the principal amount of $4,016,250 and issued a promissory note to the lender in the same amount. The funds from the loan were used on November 12, 2021 to pay off the Springlake MHP LLC with Truist Bank which was set to mature November 14, 2021.
The First Bank note bears interest at the lesser of the Wall Street Journal prime rate plus one percent or 4.75% per annum with payments to begin January 10, 2022 and matures on December 10, 2026. Payment for the first twelve (12) 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-five (25) year amortization schedule. Springlake MHP LLC may prepay the note in part or in full subject to exit fees set out in the loan agreement.
The First Bank loan is secured by a first-priority security interest in the land and lot rent due under all leases and is guaranteed by the Company and Raymond M. Gee.
Also on November 12, 2021, Gvest Springlake Homes LLC, a wholly owned subsidiary of our VIE, Gvest Finance LLC, entered into a loan and security agreement with First Bank for a line of credit in the principal amount of $2,000,000 and issued a promissory note to the lender in the same amount. The immediate advance of funds from the line of credit was used to pay off Gvest Finance LLC’s loan with 21st Mortgage and the outstanding balance of the Line of Credit – Floor Plan Financing Facility (see Note 6). The Line of Credit – Floor Plan and Rental Financing Facilities remain available to Gvest Finance LLC after the payoff.
The First Bank line of credit bears interest at the lesser of the Wall Street Journal prime rate plus one percent or 6.75% per annum with principal and interest payments to begin on January 10, 2022. Principal and interest payments shall be due and payable on each advance allocated to each new home based on a fifteen (15) year amortization period and each advance allocated to a used home will be based on an amortization period ranging from twelve to five years determined by the age of the used home. The note matures on December 10, 2026. Gvest Springlake Homes LLC may prepay the note in full subject to exit fees set out in the loan agreement. Additionally, Gvest Springlake Homes LLC is required to make to mandatory prepayments prior to the maturity date if for any reason the aggregate principal amount of the loan outstanding exceeds $2,000,000, upon sale of a home securing the loan, the home collateral becomes ineligible as defined by the loan agreement, or if Springlake MHP LLC pays of its land loan with First Bank.
The First Bank line of credit loan is secured by a first-priority security interest in rent due under all leases and all assets owned by Gvest Springlake Homes LLC and is guaranteed by Gvest Finance and Raymond M. Gee pursuant to guaranty agreements dated November 12, 2021.
Both loan agreements contain customary representations and warranties, financial and other covenants and events of default for loans of their type.
28
Results of Operations
Comparison of Three Months Ended September 30, 2021 and 2020
The following table sets forth key components of our results of operations during the three months ended September 30, 2021 and 2020, both in dollars and as a percentage of our revenues.
| Three Months Ended September 30, 2021 |
Three Months Ended September 30, 2020 |
|||||||||||||||
| Amount | Percent of Revenues | Amount | Percent of Revenues | |||||||||||||
| Revenue | ||||||||||||||||
| Rental and related income | $ | 2,250,169 | 99.60 | % | $ | 1,700,963 | 100.00 | % | ||||||||
| Property sales | 9,000 | 0.40 | % | - | - | |||||||||||
| Total revenues | 2,259,169 | 100.00 | % | 1,700,963 | 100.00 | % | ||||||||||
| Community operating expenses | ||||||||||||||||
| Repair and maintenance | 177,878 | 7.87 | % | 114,254 | 6.72 | % | ||||||||||
| Real estate taxes | 97,328 | 4.31 | % | 63,246 | 3.72 | % | ||||||||||
| Utilities | 189,022 | 8.37 | % | 153,850 | 9.04 | % | ||||||||||
| Insurance | 35,315 | 1.56 | % | 28,656 | 1.68 | % | ||||||||||
| General and administrative expense | 218,830 | 9.69 | % | 157,733 | 9.27 | % | ||||||||||
| Total community operating expenses | 718,373 | 31.80 | % | 517,739 | 30.44 | % | ||||||||||
| Corporate payroll and overhead | 580,109 | 25.68 | % | 310,136 | 18.23 | % | ||||||||||
| Depreciation expense | 507,493 | 22.46 | % | 447,266 | 26.29 | % | ||||||||||
| Interest expense | 546,065 | 24.17 | % | 440,997 | 25.93 | % | ||||||||||
| Total expenses | 2,352,040 | 104.11 | % | 1,716,138 | 100.89 | % | ||||||||||
| Net loss | $ | (92,871 | ) | (4.11 | )% | $ | (15,175 | ) | (0.89 | )% | ||||||
| Variable interest entity share of net income (loss) | (516,506 | ) | (22.86 | )% | 41,649 | 2.45 | % | |||||||||
| Net income (loss) attributable to our company | $ | 423,635 | 18.75 | % | $ | (56,824 | ) | (3.34 | )% | |||||||
| Preferred stock dividends and put option value accretion | 557,580 | 24.68 | % | 432,845 | 25.45 | % | ||||||||||
| Net loss attributable to common stockholders | $ | (133,945 | ) | (5.93 | )% | $ | (489,669 | ) | (28.79 | )% | ||||||
Revenues. For the three months ended September 30, 2021, we had total revenues of $2,259,169, as compared to $1,700,963 for the three months ended September 30, 2020, an increase of $558,206, or 32.82%. The increase in revenues between the periods was primarily due to home sales in 2021 of $9,000 and $420,230 of rental income from the Golden Isles property acquired on March 31, 2021 and the Anderson, Capital View, and Hidden Oaks properties acquired in July and September 2021. The remaining increase was due to occupancy and rental rate increases.
29
Community Operating Expenses. For the three months ended September 30, 2021, we had total community operating expenses of $718,373, as compared to $517,739 for the three months ended September 30, 2020, an increase of $200,634, or 38.75%. This increase was largely driven by an increase in repairs and maintenance expense of $63,624 as we stabilized our newly acquired communities, an increase in real estate taxes of $34,082 on newly acquired communities, and an increase of $83,201 in park payroll expense as we hired additional employees on-site as we acquired new parks to support our growth and efficiency.
Corporate Payroll and Overhead Expenses. For the three months ended September 30, 2021, we had corporate payroll and overhead expenses of $580,109, as compared to $310,136 for the three months ended September 30, 2020, an increase of $269,973 or 87.05%. Such increase was primarily due to increased payroll by $169,277 from adding corporate personnel to support our growth and increased marketing and conference expenses by $109,140 in an effort to raise capital and promote our Regulation A offering.
Depreciation Expense. For the three months ended September 30, 2021, we had depreciation expense of $507,493, as compared to $447,266 for the three months ended September 30, 2020, an increase of $60,227, or 13.47%. The increase was primarily due to depreciation expense of $55,001 related to Golden Isles and Anderson assets acquired subsequent to September 30, 2020.
Interest Expense. For the three months ended September 30, 2021, we had interest expense of $546,065, as compared to $440,997 for the three months ended September 30, 2020, an increase of $105,068 or 23.83%. The increase was primarily related to interest of $70,421 on debt incurred subsequent to September 30, 2020 for the acquisitions of Golden Isles, Anderson, Capital View, and Hidden Oaks communities as well as new mobile homes added to Springlake in 2021. The increase was also due to $22,043 of dividends to preferred shareholders issued during the three months ended September 30, 2021 which are included in interest expense given the liability treatment of the mandatorily redeemable Series C Preferred Stock.
Net Loss. The factors described above resulted in a net loss of $92,871 for the three months ended September 30, 2021, as compared to $15,175 for the three months ended September 30, 2020, an increase of $77,696, or 512.00%.
Comparison of Nine Months Ended September 30, 2021 and 2020
The following table sets forth key components of our results of operations during the nine months ended September 30, 2021 and 2020, both in dollars and as a percentage of our revenues.
Nine Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| Amount | Percent of Revenues | Amount | Percent of Revenues | |||||||||||||
| Revenue | ||||||||||||||||
| Rental and related income | $ | 5,690,227 | 98.71 | % | $ | 4,642,898 | 100.00 | % | ||||||||
| Property sales | 74,244 | 1.29 | % | - | - | |||||||||||
| Total revenues | 5,764,471 | 100.00 | % | 4,642,898 | 100.00 | % | ||||||||||
| Community operating expenses | ||||||||||||||||
| Repair and maintenance | 401,068 | 6.96 | % | 282,414 | 6.08 | % | ||||||||||
| Real estate taxes | 296,568 | 5.14 | % | 235,045 | 5.06 | % | ||||||||||
| Utilities | 488,334 | 8.47 | % | 429,455 | 9.25 | % | ||||||||||
| Insurance | 103,712 | 1.80 | % | 119,956 | 2.58 | % | ||||||||||
| General and administrative expense | 522,952 | 9.07 | % | 414,696 | 8.93 | % | ||||||||||
| Total community operating expenses | 1,812,634 | 31.44 | % | 1,481,566 | 31.91 | % | ||||||||||
| Corporate payroll and overhead | 1,744,576 | 30.26 | % | 1,081,496 | 23.29 | % | ||||||||||
| Depreciation expense | 1,411,158 | 24.48 | % | 1,259,713 | 27.13 | % | ||||||||||
| Interest expense | 1,439,419 | 24.97 | % | 1,435,802 | 30.92 | % | ||||||||||
| Refinancing costs | 16,675 | 0.29 | % | - | - | |||||||||||
| Total expenses | 6,424,462 | 111.45 | % | 5,258,577 | 113.26 | % | ||||||||||
| Other Income | 139,300 | 2.42 | % | - | - | |||||||||||
| Net loss | $ | (520,691 | ) | (9.03 | )% | $ | (615,679 | ) | (13.26 | )% | ||||||
| Variable interest entity share of net income (loss) | (343,073 | ) | (5.95 | )% | 41,972 | 0.90 | % | |||||||||
| Net loss attributable to our company | $ | (177,618 | ) | (3.08 | )% | $ | (657,651 | ) | (14.16 | )% | ||||||
| Preferred stock dividends and put option value accretion | 1,627,254 | 28.23 | % | 1,355,217 | 29.19 | % | ||||||||||
| Net loss attributable to common stockholders | $ | (1,804,872 | ) | (31.31 | )% | $ | (2,012,868 | ) | (43.35 | )% | ||||||
Revenues. For the nine months ended September 30, 2021, we had total revenues of $5,764,471, as compared to $4,642,898 for the nine months ended September 30, 2020, an increase of $1,121,573, or 24.16%. The increase in revenues between the periods was primarily due to three complete quarters of rental income of $273,612 from the Evergreen and Countryside manufactured housing communities that were purchased in March of 2020, property sales in 2021 of $74,244, $137,905 of rental income from the Golden Isles property acquired on March 31, 2021, and $361,143 of rental income from the Anderson, Capital View, and Hidden Oaks properties acquired during the third quarter of 2021. The remaining increase was due to occupancy and rental rate increases.
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Community Operating Expenses. For the nine months ended September 30, 2021, we had total community operating expenses of $1,812,634, as compared to $1,481,566 for the nine months ended September 30, 2020, an increase of $331,068, or 22.35%. This increase was largely driven by an increase in repairs and maintenance expense of $118,654 as we stabilized newly acquired communities, an increase in real estate taxes of $61,523 on newly acquired communities, and an increase of $125,239 in park payroll expense as we hired additional employees on-site as we acquired new parks to support our growth and efficiency.
Corporate Payroll and Overhead Expenses. For the nine months ended September 30, 2021, we had corporate payroll and overhead expenses of $1,744,576, as compared to $1,081,496 for the nine months ended September 30, 2020, an increase of $663,080 or 61.31%. Such increase was primarily due to increased corporate payroll by $415,432 from adding corporate personnel to support our growth, increased travel expenses by $37,408 with new hires commuting and travel to conferences in an effort to raise capital, and a $72,000 increase in rent expense for our corporate office.
Depreciation Expense. For the nine months ended September 30, 2021, we had depreciation expense of $1,411,158, as compared to $1,259,713 for the nine months ended September 30, 2020, an increase of $151,445, or 12.02%. The increase was primarily due to an increase of $83,459 from three complete quarters of depreciation expense for two communities acquired in March 2020, depreciation expense of $35,102 related to Golden Isles assets acquired on March 31, 2021 and $37,805 depreciation expense related to Anderson, Capital View, and Hidden Oaks assets acquired in the third quarter of 2021 offset by a decrease in depreciation due to the sale of Butternut in 2020.
Interest Expense. For the nine months ended September 30, 2021, we had interest expense of $1,439,419, as compared to $1,435,802 for the nine months ended September 30, 2020, a net increase of $3,617 or 0.25%. The increase was primarily related to the increase in interest expense of $84,403 on additional debt incurred to acquire new properties in 2021 and an increase of $22,043 from dividends to preferred shareholders which are included in interest expense given the liability treatment of the mandatorily redeemable Series C Preferred Stock, offset by decreases due to the payoff and termination of our related party line of credit and refinancing of several of our loans subsequent to September 30, 2020.
Other Income. For the nine months ended September 30, 2021, we had other income of $139,300 recognized upon the forgiveness of our Paycheck Protection Program loan by the Small Business Administration in June 2021 compared to $0 for the nine months ended September 30, 2020.
Net Loss. The factors described above resulted in a net loss of $520,691 for the nine months ended September 30, 2021, as compared to $615,679 for the nine months ended September 30, 2020, a decrease of $94,988, or 15.43%.
Liquidity and Capital Resources
As of September 30, 2021, we had cash and cash equivalents of $2,202,262, including restricted cash of $541,620. 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.
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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, | ||||||||
| 2021 | 2020 | |||||||
| Net cash provided by operating activities | $ | 2,669,208 | $ | 1,017,584 | ||||
| Net cash used in investing activities | (3,633,161 | ) | (1,965,528 | ) | ||||
| Net cash provided by (used in) financing activities | 1,177,358 | (1,099,677 | ) | |||||
| Net increase (decrease) in cash and cash equivalents | 213,405 | (2,047,621 | ) | |||||
| Cash and cash equivalents at beginning of period | 1,988,857 | 4,147,411 | ||||||
| Cash and cash equivalents at end of period | $ | 2,202,262 | $ | 2,099,790 | ||||
Net cash provided by operating activities was $2,669,208 for the nine months ended September 30, 2021, as compared to $1,017,584 for the nine months ended September 30, 2020. For the nine months ended September 30, 2021, the net loss of $520,691 and debt extinguishment of $139,300, offset by depreciation in the amount of $1,411,158, a decrease in other assets of $1,259,065, and an increase in tenant security deposits of $202,468, were the primary drivers of the net cash provided by operating activities. For the nine months ended September 30, 2020, the net loss of $615,679 offset by depreciation in the amount of $1,259,713, amortization of debt discount in the amount of $117,604 and a decrease in other assets in the amount of $145,142 were the primary drivers of the net cash provided by operating activities.
Net cash used in investing activities was $3,633,161 for the nine months ended September 30, 2021, as compared to $1,965,528 for the nine months ended September 30, 2020. Net cash used in investing activities for the nine months ended September 30, 2021 consisted of capital improvements of $1,243,161 and the purchase of investment properties of $2,390,000, while net cash used in investing activities for the nine months ended September 30, 2020 consisted capital improvements in the amount of $964,528 and the purchase of investment properties in the amount of $1,001,000.
Net cash provided by financing activities was $1,177,358 for the nine months ended September 30, 2021, as compared to $1,099,677 net cash used in financing activities for the nine months ended September 30, 2020. For the nine months ended September 30, 2021, net cash provided by financing activities consisted of proceeds from the issuance of preferred stock of $3,509,484, offset by preferred share dividends of $718,078, repayment of notes payable $458,844, and payment of mortgage costs recorded as debt discount of $927,191. For the nine months ended September 30, 2020, net cash used in financing activities consisted of proceeds from the issuance of preferred stock in the amount of $1,910,983 and proceeds from notes payable in the amount of $418,134, offset by repayment of related party line of credit in the amount of $1,730,000, repayment of notes payable in the amount of $679,233, preferred stock dividends in the amount of $592,008, payment of mortgage costs recorded as debt discount of $238,224 and repayment of related party note payable of $192,326.
Prior 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 offered up to 1,000,000 shares of Series B Cumulative Redeemable Preferred Stock (the “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 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.
In total, we sold an aggregate of 758,551 shares of Series B Preferred Stock for total gross proceeds of $7,585,510. After deducting a placement fee and other expenses, we received net proceeds of $7,185,717 and issued 29,000 shares of Common Stock to holders of Series B Preferred Stock.
Current Regulation A Offering
In June 2021, we launched a new offering under Regulation A of Section 3(6) of the Securities Act for Tier 2 offerings, pursuant to which we are offering up to 47,000 shares of Series C Cumulative Redeemable Preferred Stock (the “Series C Preferred Stock”) at an offering price of $1,000 per share for a maximum offering amount of $47 million.
During the nine months ending September 30, 2021, the Company sold an aggregate of 2,434 shares of Series C Preferred Stock for total gross proceeds of $2,434,000. After deducting a placement fee and other expenses, the Company received net proceeds of $2,266,955.
Promissory Notes
The Company has issued promissory notes payable to lenders related to the acquisition of its manufactured housing communities and mobile homes. These promissory notes range from 3.31% to 6.62% with 5 to 30 years principal amortization. Two of the promissory notes had initial 12 month, seven have an initial 24 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 $33,126,883 for sixteen loans 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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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. The loan was forgiven by the SBA on June 7, 2021.
As of September 30, 2021, the outstanding balance on these notes was $40,199,689. The following are the terms of these notes:
| Maturity Date | Interest Rate | Balance 09/30/21 | Balance 12/31/20 | |||||||||||
| Pecan Grove MHP LLC | 02/22/29 | 5.250 | % | 2,986,791 | 3,037,625 | |||||||||
| Azalea MHP LLC | 03/01/29 | 5.400 | % | 795,701 | 810,741 | |||||||||
| Holly Faye MHP LLC | 03/01/29 | 5.400 | % | 579,825 | 579,825 | |||||||||
| Chatham MHP LLC | 04/01/24 | 5.875 | % | 1,708,006 | 1,734,828 | |||||||||
| Lakeview MHP LLC | 03/01/29 | 5.400 | % | 1,812,446 | 1,832,264 | |||||||||
| B&D MHP LLC | 05/02/29 | 5.500 | % | 1,789,424 | 1,818,303 | |||||||||
| Hunt Club MHP LLC | 01/01/33 | 3.430 | % | 2,410,247 | 2,445,011 | |||||||||
| Crestview MHP LLC | 12/31/30 | 3.25 | % | 4,714,717 | 4,800,000 | |||||||||
| Maple Hills MHP LLC | 12/01/30 | 3.25 | % | 2,357,359 | 2,400,000 | |||||||||
| Springlake MHP LLC* | 11/14/21 | 3.310 | % | 4,000,000 | 4,000,000 | |||||||||
| ARC MHP LLC | 01/01/30 | 5.500 | % | 3,829,029 | 3,885,328 | |||||||||
| Countryside MHP LLC | 03/20/50 | 5.500 | % | 1,690,130 | 1,700,000 | |||||||||
| Evergreen MHP LLC | 04/01/32 | 3.990 | % | 1,120,305 | 1,135,502 | |||||||||
| Golden Isles MHP LLC | 03/31/26 | 4.000 | % | 787,500 | - | |||||||||
| Anderson MHP LLC | 07/10/26 | 5.210 | % | 2,153,807 | - | |||||||||
| Capital View MHP LLC | 09/10/26 | 5.390 | % | 817,064 | - | |||||||||
| Hidden Oaks MHP LLC | 09/10/26 | 5.330 | % | 823,440 | - | |||||||||
| Gvest Finance LLC (B&D homes) | 05/01/24 | 5.000 | % | 666,853 | 694,640 | |||||||||
| Gvest Finance LLC (Countryside homes) | 03/20/50 | 5.500 | % | 1,292,454 | 1,300,000 | |||||||||
| Gvest Finance LLC (Golden Isles homes) | 03/31/36 | 4.000 | % | 787,500 | - | |||||||||
| Gvest Finance LLC (Springlake homes)* | 04/01/36 | 6.620 | % | 311,402 | - | |||||||||
| Gvest Anderson Homes LLC | 07/10/26 | 5.210 | % | 2,006,193 | - | |||||||||
| Gvest Capital View Homes LLC | 09/10/26 | 5.390 | % | 342,936 | - | |||||||||
| Gvest Hidden Oaks | 09/10/26 | 5.330 | % | 416,560 | - | |||||||||
| PPP Loan | 05/01/22 | 1.000 | % | - | 139,300 | |||||||||
| Total note payables | 40,199,689 | 32,313,367 | ||||||||||||
| Discount Direct Lender Fees | (1,588,591 | ) | (1,096,629 | ) | ||||||||||
| Total net of Discount | $ | 38,611,098 | $ | 31,216,738 | ||||||||||
| * | The Springlake MHP LLC and Gvest Finance LLC (Springlake homes) notes listed above were refinanced on November 12, 2021. See Note 10 for more details. |
Revolving Promissory Note
On October 1, 2017, the Company issued a revolving promissory note to Raymond M. Gee, the Company’s chairman and chief executive officer, pursuant to which the Company may borrow up to $1,500,000 from Mr. Gee on a revolving basis for working capital purposes. This note has a five-year term with no annual interest and principal payment is deferred until the maturity date. In December 2020, we paid off the full balance. As of September 30, 2021 and December 31, 2020, the outstanding balance on this note was $0; however, the line of credit is still available to the Company.
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Line of Credit – Occupied Home Facility
On December 24, 2020, Gvest Homes I LLC entered into a loan agreement with a lender for a commitment amount of up to $20,000,0000 provided that only up to $8,500,000 is to be used for used homes. The agreement requires the maintenance of certain financial ratios and other affirmative and negative covenants.
The loan bears interest at 8.375% and maturity date of the loan is January 1, 2030. Pursuant to the agreement, the Company is obligated to pay a fee to the lender equal to 1% of the amount of each advance which funding fee shall be deducted from the then available commitment amount. The advances are guaranteed by Raymond M. Gee.
On December 24, 2020 the lender agreed to advance $3,348,967 to the Company. The lender agreed to increase this amount to $3,422,260 offset with payments made by the Company of $35,073 during the nine months ended September 30, 2021, of which $850,000 was due from the lender as of the balance sheet date. As of September 30, 2021 and December 31, 2020, the outstanding balance on this line of credit was $3,387,187 and $3,348,967, respectively presented on the balance sheet net of discount direct lender fees of $124,693 and $134,051, respectively.
Line of Credit – Floor Plan Financing Facility
On July 26, 2021, Gvest Finance LLC entered into a floorplan credit agreement, rental homes credit agreement, and a credit and security supplemental agreement pursuant to which the lender has agreed to make available to Gvest Finance LLC a secured credit facility whose joint aggregate credit limit is $5,000,000, consisting of (i) a credit limit of up to $1,000,000 under the floorplan line to be used to finance the acquisition of manufactured homes for retail sale and (ii) a credit limit of up to $4,000,000 under a rental line to finance the acquisition of rental homes. The lender subsequently agreed to extend the credit limit for the floorplan line to $2,000,000. As of September 30, 2021 and 2020, the balance on the floorplan line of credit was $1,626,863 and $0, respectively, and Gvest Finance LLC has not borrowed funds under the rental homes line of credit. This facility was refinanced on November 12. 2021 and the original lines of credit remain available to the Company. See Note 10 for more details.
The floorplan line of credit interest is calculated at a schedule as follows: (i) Day 1-360: LIBOR plus 6% per annum; (ii) Day 361-720: LIBOR plus 7% per annum; and (iii) Day 721+: LIBOR plus 8% per annum. Interest shall also accrue at the lesser of (a) the “LIBOR Rate”, plus 10% per annum and (b) the maximum lawful rate of interest permitted under applicable law. Interest shall be payable monthly, in arrears, and shall be due and payable on or before the 15th day of the month following the month in which such interest accrues. During the three and nine months ended September 30, 2021 and 2020, total interest expense was $0.
The maturity date of the of the 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. Gvest Finance LLC promises to repay each floor plan advance as follows: (i) Gvest Finance LLC shall pay a principal amount in an amount equal to the original principal amount of such advance multiplied by the percentage specified in the applicable SOFT, commencing on the 15th day of the first full month after the first anniversary of any advance and continuing on the 15th day of each month thereafter; (ii) interest shall be payable monthly, in arrears, and shall be due and payable on or before the 15th day of the month following the month in which such interest accrues; and (iii) Gvest Finance shall pay to lender an amount equal to the original invoice price of such homes inventory, less all principal payments made with respect to such inventory pursuant to (ii) above, plus all billed and unpaid interest and any applicable fees, upon the sale of inventory financed or refinanced by lender.
The floorplan line of credit agreement contains customary events of default and customary representations, warranties, and other covenants for loans of this type.
The floorplan and rental lines of credit are guaranteed by Raymond M. Gee.
Off-Balance Sheet Arrangements
As of September 30, 2021, we had no off-balance sheet arrangements.
Critical Accounting Policies
The preparation of the unaudited condensed consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On a regular basis, we evaluate these estimates. These estimates are based on management’s historical industry experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
For a description of the accounting policies that, in management’s opinion, involve the most significant application of judgment or involve complex estimation and which could, if different judgment or estimates were made, materially affect our reported financial position, results of operations, or cash flows, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the Securities and Exchange Commission on March 31, 2021.
During the three and nine months ended September 30, 2021, there were no significant changes in our accounting policies and estimates other than the newly adopted accounting standards that are disclosed in Note 1 to our unaudited condensed consolidated financial statements.
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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, 2021. 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, 2020 and further referenced below, which we are still in the process of remediating as of September 30, 2021, our disclosure controls and procedures were not effective.
During its evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2021, 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.
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 the nine months ended September 30, 2021, the Company hired a new vice president of finance who assists with the functions of the accounting department. This hire has led to more segregation of duties and levels of review in our day-to-day accounting functions, reporting, and closing procedures which historically have been material weaknesses for the Company in internal controls.
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 2021 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, 2021 that were not previously disclosed in a current report on Form 8-K .
During the three months ended September 30, 2021, 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 2021 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.
37
| * | Filed herewith |
38
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 15, 2021 | 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) |
39
Exhibit 3.4
Exhibit 31.1
CERTIFICATIONS
I, Raymond M. Gee, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Manufactured Housing Properties Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 15, 2021
|
/s/ Raymond M. Gee | |
| Raymond M. Gee | |
|
Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATIONS
I, Michael Z. Anise, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Manufactured Housing Properties Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 15, 2021
|
/s/ Michael Z. Anise | |
| Michael Z. Anise | |
|
President and Chief Financial Officer (Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
The undersigned Chief Executive Officer of MANUFACTURED HOUSING PROPERTIES INC. (the “Company”), DOES HEREBY CERTIFY that:
1. The Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. Information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
IN WITNESS WHEREOF, the undersigned has executed this statement on November 15, 2021.
|
/s/ Raymond M. Gee | |
| Raymond M. Gee | |
|
Chief Executive Officer (Principal Executive Officer) |
A signed original of this written statement required by Section 906 has been provided to Manufactured Housing Properties Inc. and will be retained by Manufactured Housing Properties Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
The forgoing certification is being furnished to the Securities and Exchange Commission pursuant to § 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
The undersigned Chief Financial Officer of MANUFACTURED HOUSING PROPERTIES INC. (the “Company”), DOES HEREBY CERTIFY that:
1. The Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. Information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
IN WITNESS WHEREOF, the undersigned has executed this statement on November 15, 2021.
|
/s/ Michael Z. Anise | |
| Michael Z. Anise | |
|
President and Chief Financial Officer (Principal Financial and Accounting Officer) |
A signed original of this written statement required by Section 906 has been provided to Manufactured Housing Properties Inc. and will be retained by Manufactured Housing Properties Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
The forgoing certification is being furnished to the Securities and Exchange Commission pursuant to § 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.