10-Q 1 mhpc_10q.htm QUARTERLY REPORT Blueprint
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10−Q
 
(Mark One)
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended: September 30, 2019
 
or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ____________ to _____________
 
Commission File Number: 000-51229
 
MANUFACTURED HOUSING PROPERTIES INC.
(Exact name of registrant as specified in its charter)
 
Nevada
 
51-0482104
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
136 Main Street, Pineville, North Carolina
 
28134
(Address of principal executive offices)
 
(Zip Code)
 
(980) 273-1702
(Registrant’s telephone number, including area code)
 
 
(Former name, former address and former fiscal year, if changed since last report)
 
Securities registered pursuant to Section 12(b) of the Act: None
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesNo
 
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). ☒ No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
 
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for comply with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   YesNo
 
As of November 12, 2019, there were 12,245,680 common shares of the registrant issued and outstanding.  
 

 
 
 
Manufactured Housing Properties Inc.
 
Quarterly Report on Form 10-Q
 Period Ended September 30, 2019
 
TABLE OF CONTENTS
 
PART I
FINANCIAL INFORMATION
 
 
PART II
OTHER INFORMATION
 
 
 
 
2
 
 
PART I
FINANCIAL INFORMATION
 
ITEM 1. 
FINANCIAL STATEMENTS.
 
MANUFACTURED HOUSING PROPERTIES INC.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 
 
 
      
 
3
 
 
MANUFACTURED HOUSING PROPERTIES INC.
 CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2019 AND DECEMBER 31, 2018
 
 
 
2019
 
 
2018
 
Assets
 
(unaudited)
 
 
 
 
Investment Property
 
 
 
 
 
 
Land
 $7,933,521 
 $4,357,950 
Site and Land Improvements
  12,029,524 
  6,781,845 
Buildings and Improvements
  3,000,635 
  1,441,222 
Acquisition Cost
  316,488 
  140,758 
Total Investment Property
  23,280,168 
  12,721,775 
Accumulated Depreciation and Amortization
  (1,172,132)
  (699,184)
Net Investment Property
  22,108,036 
  12,022,591 
 
    
    
Cash and Cash Equivalents
  1,729,091 
  458,271 
Accounts Receivable, net
  34,081 
  12,987 
Other Assets
  561,004 
  99,472 
 
    
    
Total Assets
 $24,432,212 
 $12,593,321 
 
    
    
Liabilities
    
    
Accounts Payable
 $301,255 
 $71,091 
Loans Payable
  19,668,938 
  9,086,110 
Loans Payable - related party
  824,273 
  890,632 
Note Payable - related party
  3,000,000 
  - 
Convertible Note Payable - related party
  - 
  2,754,550 
Accrued Liabilities and Deposits
  731,954 
  612,819 
Tenant Security Deposits
  224,072 
  131,149 
Total Liabilities
  24,750,492 
  13,546,351 
 
    
    
Commitments and contingent liabilities (see note 5)
    
    
Redeemable preferred stock Series A – subject to redemption
    
    
Preferred Stock, 4,000,000 designated Series A par value $0.01 per share; 586,000 and zero shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively; redemption value $2,137,500
  1,512,500 
  - 
 
    
    
Stockholders’ (Deficit)
    
    
Preferred Stock, par value $0.01 per share; 10,000,000 shares authorized
  - 
  - 
Common Stock, par value $0.01 per share; 200,000,000 shares authorized; 12,799,568 and 10,350,062 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively
  127,995 
  103,500 
Additional Paid in Capital
  1,248,463 
  451,567 
Retained Earnings (accumulated deficit)
  (3,207,238)
  (1,801,338)
Total Manufactured Housing Properties Inc. Stockholders’ Equity (Deficit)
  (1,830,780)
  (1,246,271)
 
    
    
Non-controlling interest
  - 
  293,241 
Total (Deficit)
  (1,830,780)
  (953,030)
 
    
    
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT)
 $24,432,212 
 $12,593,321 
 
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
 
 
4
 
 
MANUFACTURED HOUSING PROPERTIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
(UNAUDITED)
 
 
 
Three Months Ended September 30,
 
 
Nine Months Ended September 30,
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
Rental and Related Income
 $794,543 
 $513,753 
 $1,963,835 
 $1,511,834 
Management fees, related party
  4,164 
  - 
  19,448 
  - 
Total Revenues
  798,707 
  513,753 
  1,983,283 
  1,511,834 
 
    
    
    
    
Community Operating Expenses
    
    
    
    
Repair & Maintenance
  65,394 
  35,772 
  160,621 
  112,637 
Real estate taxes
  42,178 
  24,436 
  110,660 
  62,731 
Utilities
  50,069 
  34,965 
  130,744 
  109,056 
Insurance
  21,086 
  10,284 
  47,015
  41,065 
General and Administrative Expense
  66,566 
  92,672 
  227,188 
  344,819 
Total Community Operating Expenses
  245,293 
  198,129 
  676,228 
  670,308 
 
    
    
    
    
Corporate Payroll and Overhead
  125,228 
  253,260 
  587,463 
  528,738 
Depreciation & Amortization Expense
  204,719 
  133,563 
  496,966 
  399,547 
Interest expense
  555,786 
  242,538 
  1,076,254 
  738,950 
Refinancing costs
  - 
  - 
  552,272 
  - 
 
    
    
    
    
Total Expenses
  1,131,027 
  827,490 
  3,389,183 
  2,337,543 
 
    
    
    
    
Net loss before provision for income taxes
  (332,320)
  (313,737)
  (1,405,900)
  (825,709)
 
    
    
    
    
Provision for income taxes
  - 
  - 
  - 
  - 
Net Loss
 $(332,320)
 $(313,737)
 $(1,405,900)
 $(825,709)
 
    
    
    
    
Net Income attributable to the noncontrolling interest
  - 
  12,276 
  - 
  30,034 
 
    
    
    
    
Net Loss attributable to the Company
 $(332,320)
 $(326,013)
 $(1,405,900)
 $(855,743)
 
    
    
    
    
Preferred stock dividends
    
    
    
    
Series A preferred
  19,000 
  - 
  43,334 
  - 
Series A preferred put option cost
  23,750 
  -
  47,500 
  -
Total preferred stock dividends
  42,750 
  - 
  90,834 
  - 
Net loss attributable to common stockholders
 $(375,070)
 $(285,674)
 $(1,496,734)
 $(529,730)
 
    
    
    
    
Weighted Average Shares Basic and Fully Diluted
  12,799,568 
  10,000,000 
  12,738,962 
  10,000,000 
 
    
    
    
    
Weighted Average Basic
 $(0.03)
 $(0.03)
 $(0.12)
 $(0.09)
Weighted Average Fully Diluted
 $(0.03)
 $(0.03)
 $(0.12)
 $(0.09)
 
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
 
 
5
 
 
MANUFACTURED HOUSING PROPERTIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
(UNAUDITED)
 
 
 
PREFERRED STOCK
 
 
COMMON STOCK
 
 
ADDITIONAL PAID IN
 
NON
CONTROLLING
 
 
ACCUMULATED
 
 
STOCKHOLDERS’ EQUITY
 
 
 
SHARES
 
 
PAR VALUE
 
 
SHARES
 
 
PAR VALUE
 
 
CAPITAL
 
 
INTEREST
 
 
DEFICIT
 
 
(DEFICIT)
 
Balance at January 1, 2018
  - 
 $- 
  10,000,062 
 $100,000 
 $238,803 
 $302,580 
 $(504,945)
 $136,438 
Stock option expense
  - 
  - 
  - 
  - 
  245 
  - 
  - 
  245 
Minority Interest distributions
  - 
  - 
  - 
  - 
  - 
  (4,498)
  - 
  (4,498)
Net Income (Loss)
  - 
  - 
  - 
  - 
  - 
  7,572 
  (244,056)
  (236,484)
Balance at March 31, 2018
  - 
  - 
  10,000,062 
  100,000 
  239,048 
  305,654 
  (749,001)
  (104,299)
Minority Interest distributions
  - 
  - 
  - 
  - 
  - 
  (19,509)
  - 
  (19,509)
Imputed Interest
  - 
  - 
  - 
  - 
  19,316 
  - 
  - 
  19,316 
Net Income (Loss)
  - 
  - 
  - 
  - 
  - 
  10,186 
  (285,674)
  (275,488)
Balance at June 30, 2018
    
    
  10,000,062 
  100,000 
  258,364 
  296,331 
  (1,034,675)
  (379,980)
Minority Interest distributions
    
    
  - 
  - 
  - 
  (6,751)
  - 
  (6,751)
Imputed Interest
    
    
  - 
  - 
 11,970
  - 
  - 
 11,970
Stock issued for services   
    
    
    
    
  24,500
    
    
  24,500 
Net Income (Loss)
    
    
  - 
  - 
  - 
  12,276 
  (326,013)
  (313,737)
Balance at September 30, 2018
  - 
 $- 
  10,000,062 
 $100,000 
 $294,834 
 $301,856 
 $(1,360,688)
 $(663,998)
 
    
    
    
    
    
    
    
    
Balance at January 1, 2019
  - 
 $- 
  10,350,062 
 $103,500 
 $451,567 
 $293,241 
 $(1,801,338)
 $(953,030)
Stock option expense
  - 
  - 
  - 
  - 
  8 
  - 
  - 
  8 
Common Stock issuance for acquisition of minority interest
  - 
  - 
  2,000,000 
  20,000 
  517,562 
  (293,241)
  - 
  244,321 
Common Stock issuance for line of credit
  - 
  - 
  545,000 
  5,450 
  299,750 
  - 
  - 
  305,200 
Common Stock issuance for service
  - 
  - 
  - 
  - 
  24,500 
  - 
  - 
  24,500 
Preferred shares Series A dividends
  - 
  - 
  - 
  - 
  (4,667)
  - 
  - 
  (4,667)
Imputed interest
  - 
  - 
  - 
  - 
  14,004 
  - 
  - 
  14,004 
Net Loss
  - 
  - 
  - 
  - 
  - 
  - 
  (719,314)
  (719,314)
Balance at March 31, 2019
  - 
  - 
  12,895,062 
  128,950 
  1,302,724 
  - 
  (2,520,652)
  (1,088,978)
Stock option expense
  - 
  - 
  - 
  - 
  8 
  - 
  - 
  8 
Common Stock issuance for cash for line of credit
  - 
  - 
  254,506 
  2,545 
  66,172 
  - 
  - 
  68,717 
Purchase treasury common stock
  - 
  - 
  (350,000)
  (3,500 
  (61,011)
  - 
  - 
  (64,511)
Imputed interest
  - 
  - 
  - 
  - 
  13,857 
  - 
  - 
  13,857 
Preferred shares Series A dividends
  - 
  - 
  - 
  - 
  (19,667)
  - 
  - 
  (19,667)
Preferred shares Series A put option
    
    
  - 
  - 
  (23,750)
  - 
  - 
  (23,750)
Net Loss
  - 
  - 
  - 
  - 
  - 
  - 
  (354,266)
  (354,2660)
Balance at June 30, 2019
  - 
  - 
  12,799,568 
  127,995 
  1,278,333
  - 
  (2,874,918)
  (1,468,590)
Stock option expense
  - 
  - 
  - 
  - 
  8 
  - 
  - 
  8 
Imputed interest
  - 
  - 
  - 
  - 
  12,872 
  - 
  - 
  12,872 
Preferred shares Series A dividends
  - 
  - 
  - 
  - 
  (19,000)
  - 
  - 
  (19,000)
Preferred shares Series A put option
    
    
  - 
  - 
  (23,750)
  - 
  - 
  (23,750)
Net Loss
  - 
  - 
  - 
  - 
  - 
  - 
  (332,320)
  (332,320)
Balance at September 30, 2019
  - 
 $- 
  12,799,568 
 $127,995 
 $1,248,463 
 $- 
 $(3,207,238)
 $(1,830,780)
 
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
 
 
6
 
 
MANUFACTURED HOUSING PROPERTIES INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
(UNAUDITED)
 
 
 
2019
 
 
2018
 
Cash Flows From Operating Activities:
 
 
 
 
 
 
Net Loss
 $(1,405,900)
 $(825,709)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
    
    
Stock option expense
  24 
  24,745 
Stock compensation expense
  329,700 
  - 
Write off of mortgage costs
  68,195 
  - 
Imputed interest
  40,733 
  31,286 
Provision for bad debts
  23,820 
  58,192 
Depreciation & Amortization
  504,542 
  399,547 
Changes in operating assets and liabilities:
    
    
Accounts receivable
  (44,914)
  (16,582)
Other assets
  (461,532)
  14,144 
Accounts payable
  230,164 
  51,563 
Accrued expenses
  119,135 
  294,199 
Other liabilities and deposits
  92,923 
  32,715 
Net cash (used in) provided by operating activities
  (503,110)
  64,100 
 
    
    
Cash Flow From Investing Activities:
    
    
Proceeds from sale of property
  - 
  21,000 
Purchase of property
  (10,138,342)
  (148,720)
Net cash used in investing activities
  (10,138,342)
  (127,720)
 
    
    
Cash Flows From Financing Activities:
    
    
Proceeds from related party note
  7,075
  363,332 
Repayment of notes payable
  (7,898,248)
  (181,650)
Proceeds from notes payable
  18,481,076 
  43,574 
Non controlling interest distributions
  - 
  (30,758)
Proceeds from issuance of Preferred Stock
  1,465,000 
  - 
Preferred Stock Series A dividends
  (43,334)
  - 
Proceeds from issuance of common stock
  68,717 
  - 
Purchase of treasury stock
  (64,511)
  - 
Capitalized financing cost
  (275,519)
  - 
Repayment of line of credit
  (2,754,550)
  - 
Repayment of notes payable – related party
  (73,434)
  - 
Proceeds from line of credit
  3,000,000 
  - 
Net cash provided by financing activities
  11,912,272 
  194,498 
 
    
    
Net change in cash and cash equivalents
  1,270,820 
  130,878 
Cash and cash equivalents at beginning of the period
  458,271 
  355,935 
Cash and cash equivalents at end of the period
 $1,729,091 
 $486,813 
 
    
    
Cash paid for:
    
    
Income Taxes
 $- 
 $- 
Interest
 $577,769 
 $561,671 
 
    
    
Non-Cash Investment and Financing Activities
    
    
Purchase of minority interest in Pecan Grove
 $537,562 
 $- 
Non-cash Preferred stock accretion
 $45,500 
 $- 
 
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
 
 
7
 
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019
 
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
 
Organization
 
Manufactured Housing Properties Inc. (the “Company”) is a Nevada corporation whose principal activities are to acquire, own, and operate manufactured housing communities. Mobile Home Rental Holdings (“MHRH”) was formed in April 2016 to acquire the assets for Pecan Grove MHP in November 2016 and Butternut MHP in April 2017. To continue the acquisition and aggregation of mobile home parks, MHRH intend to raise capital in the public markets. Therefore, on October 21, 2017, MHRH was acquired by and merged with a public entity Stack-it Storage, Inc. (OTC: STAK). As part of the merger transaction, Stack-it Storage, Inc. changed its name to Manufactured Housing Properties Inc. (OTC: MHPC).
 
For accounting purposes, this transaction was accounted for as a reverse merger and has been treated as a recapitalization of Stack-it Storage, Inc. with Manufactured Housing Properties, Inc. as the accounting acquirer.
 
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 Company’s subsidiaries are all formed in the state of North Carolina as limited liability companies, except for Butternut MHP Land LLC and Lakeview MHP LLC, which were formed in the States of Delaware and South Carolina, respectively. The acquisition and date of consolidation are as follows:
 
Date of Consolidation
 
Subsidiary
 
Ownership
October 2016*
 
Pecan Grove MPH LLC
 
100%
April 2017
 
Butternut MHP Land LLC
 
100%
November 2017
 
Azalea MHP LLC
 
100%
November 2017
 
Holly Faye MHP LLC
 
100%
November 2017
 
Chatham Pines MHP LLC
 
100%
November 2017
 
Lakeview MHP LLC
 
100%
December 2017
 
Maple Hills MHP LLC
 
100%
January 2019
 
MHP Pursuits LLC
 
100%
April 2019
 
Hunt Club MHP, LLC
 
100%
May 2019
 
B&D MHP, LLC
 
100%
July 2019
 
Crestview MHP, LLC
 
100%
 
*The Company originally acquired a 75% interest. In January 2019, the Company acquired the remaining 25% interest from a related party.
 
All intercompany transactions and balances have been eliminated in consolidation. The Company does not have a majority or minority interest in any other company, either consolidated or unconsolidated.
 
Revenue Recognition
 
The Company follows Topic 606 of the Financial Accounting Standards Board Accounting (“FASB”) Accounting Standards Codification (“ASC”) for revenue recognition and Accounting Standards Update (“ASU”) 2014-09. On January 1, 2018, the Company adopted 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) the Company satisfies a performance obligation. Results for reporting periods beginning after January 1, 2018 are presented under ASU 2014-09, while prior period amounts are not adjusted and continue to be reported under the previous accounting standards. There was no impact to revenues as a result of applying ASU 2014-09 for the nine months ended September 30, 2019, and there have not been any significant changes to the Company’s business processes, systems, or internal controls as a result of implementing the standard.
 
 
8
 
 
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019
 
The Company recognizes rental income revenues on a monthly basis based on the terms of the lease agreement which are for either the land or a combination of both, the mobile home and land. Home sales revenues are recognized upon the sale of a home with an executed sales agreement. The Company has deferred revenues from home lease purchase options and records those option fees as deferred revenues and then records them as revenues when (1) the lease purchase option term is completed and title has been transferred, or (2) the leaseholder defaults on the lease terms resulting in a termination of the agreement which allows us to keep any payments as liquidated damages.
 
Accounts Receivable 
 
Accounts receivable consist primarily of amounts currently due from residence. 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 in accordance with ASC 805, “Business Combinations,” and allocates the purchase price of the property based upon the fair value of the assets acquired, which generally consist of land, site and land improvements, buildings and improvements and rental homes. The Company allocates the purchase price of an acquired property generally determined by internal evaluation as well as third-party appraisal of the property obtained in conjunction with the purchase.
 
Net Income (Loss) Per Share
 
Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding plus the weighted average number of net shares that would be issued upon exercise of stock options pursuant to the treasury stock method. Total dilutive securities outstanding as of September 30, 2019 and 2018 totaled 541,334 and 698,000 stock options, respectively, 586,000 and 0 convertible Preferred Series A shares, respectively, and 0 and 786,695 shares under convertible notes payable, respectively. which are not included in dilutive loss per share as the effect would be anti-dilutive.
 
Use of Estimates
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect 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 reporting period.
 
The Company’s significant accounting estimates and assumptions affecting the consolidated financial statements were the estimates and assumptions used in valuation of equity and derivative instruments. Those significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to those estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.
 
Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
 
Management regularly reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates. Significant estimates include the assumptions used in valuing equity-based transactions, valuation of deferred tax assets, depreciable lives of property and equipment and valuation of investment property.
 
 
9
 
 
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019
 
Investment Property and Equipment and Depreciation
 
Property and equipment are carried at cost. Depreciation for Sites and Building is computed principally on the straight-line method over the estimated useful lives of the assets (ranging from 15 to 25 years). Depreciation of Improvements to Sites and Buildings, Rental Homes and Equipment and Vehicles is computed principally on the straight-line method over the estimated useful lives of the assets (ranging from 3 to 25 years). Land Development Costs are not depreciated until they are put in use, at which time they are capitalized as Sites and Land Improvements. Interest Expense pertaining to Land Development Costs are capitalized. Maintenance and Repairs are charged to expense as incurred and improvements are capitalized. The costs and related accumulated depreciation of property sold or otherwise disposed of are removed from the financial statement and any gain or loss is reflected in the current year’s results of operations.
 
Impairment Policy
 
The Company applies FASB ASC 360-10, “Property, Plant & Equipment,” to measure impairment in real estate investments. Rental properties are individually evaluated for impairment when conditions exist which may indicate that it is probable that the sum of expected future cash flows (on an undiscounted basis without interest) from a rental property is less than the carrying value under its historical net cost basis. These expected future cash flows consider factors such as future operating income, trends and prospects as well as the effects of leasing demand, competition and other factors. Upon determination that a permanent impairment has occurred, rental properties are reduced to their fair value. For properties to be disposed of, an impairment loss is recognized when the fair value of the property, less the estimated cost to sell, is less than the carrying amount of the property measured at the time there is a commitment to sell the property and/or it is actively being marketed for sale. A property to be disposed of is reported at the lower of its carrying amount or its estimated fair value, less its cost to sell. Subsequent to the date that a property is held for disposition, depreciation expense is not recorded.
 
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, 2019 and December 31, 2018, the Company had approximately $855,600 and $0 above the FDIC-insured limit, respectively.
 
Stock Based Compensation
 
All stock based payments to employees, nonemployee consultants, and to nonemployee directors for their services as directors, including any grants of restricted stock and stock options, are measured at fair value on the grant date and recognized in the statements of operations as compensation or other expense over the relevant service period in accordance with FASB ASC Topic 718. Stock based payments to nonemployees are recognized as an expense over the period of performance. Such payments are measured at fair value at the earlier of the date a performance commitment is reached or the date performance is completed. In addition, for awards that vest immediately and are nonforfeitable the measurement date is the date the award is issued. The Company recorded stock option expense of $24,524 and $24,724 during the nine months ended September 30, 2019 and 2018, respectively.
 
Fair Value of Financial Instruments
 
The Company follows paragraph 825-10-50-10 of the FASB ASC for disclosures about fair value of our financial instruments and paragraph 820-10-35-37 of the FASB ASC to measure the fair value of our 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.
 
 
10
 
 
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019
 
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, 2019. The Company is currently evaluating the potential impact this standard may have on the consolidated financial statements.
 
In February 2016, the FASB issued ASU 2016-02, “Leases.” ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. ASU 2016-02 will be effective for annual reporting periods beginning after December 15, 2018. Early adoption is permitted. The Company has evaluated the potential impact this standard may have on the consolidated financial statements and determined that it had no impact on the consolidated financial statements.
 
In June 2018, the FASB issued ASU 2018-07 “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” This ASU relates to the accounting for non-employee share-based payments. The amendment in this ASU expands the scope of Topic 718 to include all share-based payment transactions in which a grantor acquired goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The ASU excludes share-based payment awards that relate to (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts from Customers. The share-based payments are to be measured at grant-date fair value of the equity instruments that the entity is obligated to issue when the good or service has been delivered or rendered and all other conditions necessary to earn the right to benefit from the equity instruments have been satisfied. This standard will be effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption of Topic 606. The Company has evaluated the impact this standard had on the consolidated financial statements and determined that it had no impact on the consolidated financial statements.
 
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 condensed consolidated financial statements.
 
NOTE 2 – GOING CONCERN
 
The ability of the Company to continue its operations as a going concern is dependent on management’s plans, which include the raising of capital through debt and/or equity markets with some additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. There is substantial doubt about the Company’s ability to continue as a going concern.
 
The Company will require additional funding to finance the growth of its current and expected future operations as well as to achieve its strategic objectives. The Company believes its current available cash along with anticipated revenues may be insufficient to meet its cash needs for the near future. There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all. The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These unaudited condensed consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
 
 
11
 
 
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019
 
The Company’s working capital has been provided by operating activities and a related party note. As of September 30, 2019, the related party entity with a common ownership to the Company’s CEO loaned the Company $824,273 for costs related to reorganization and working capital. The related party note has a five-year term with no annual interest and principal payments are deferred to maturity date for a total credit line of $1.5 million. Except for the line of credit, generally, promissory notes on acquisitions range from 4.5% to 7.0% with 20 to 25 years principal amortization. Two of the promissory notes had an initial 6 months period on interest only payments. The line of credit is interest only payment based on 8%, and 10% deferred until maturity to be paid with principal balance. The Company plans to meet its short-term liquidity requirements of approximately $1,477,000 for the next twelve months, generally through available cash as well as net cash provided by operating activities and availability under the existing $1.5 million related party line of credit of which total outstanding note of $824,273. The Company also has availability from lenders under loan agreements for capital expenditure needs on acquisitions. The Company expects these resources to help the Company meet operating working capital requirements. The ability of the Company to continue its operations as a going concern is dependent on management’s plans, which include raising of capital through debt and/or equity markets with some additional funding from other traditional financing sources, including term notes.
 
NOTE 3 – FIXED ASSETS
 
Property and equipment consists of the following as of:
 
 
 
September 30,
2019
 
 
December 31,
2018
 
Land
 $7,933,521 
 $4,357,950 
Site and Land Improvements
  12,029,524 
  6,781,845 
Buildings and Improvements
  3,000,635 
  1,441,222 
Acquisition Cost
  316,488 
  140,758 
 
  23,280,168 
  12,721,775 
Less: accumulated depreciation and amortization
  (1,172,132)
  (669,184)
 
 $22,108,036 
 $12,022,591 
 
Depreciation and amortization expense totaled $204,719 and $133,563 for the three months ended September 30, 2019, and 2018, respectively, and $496,966 and $399,547 for the nine months ended September 30, 2019, and 2018, respectively.
 
During the nine months ended September 30, 2019 the Company acquired the 25% minority interest in Pecan Grove MHP LLC resulting in an additional asset write up to land of $244,321. The Company also acquired three manufactured housing communities during the nine months ended September 30, 2019 totaling $4,483,648.
 
As of September 30, 2019, the Company wrote off mortgage cost of $68,195 and capitalized $275,519 of mortgage cost related to the two acquisition and the refinancing from five of our nine existing communities.
 
NOTE 4 – PROMISSORY NOTES
 
During the years ended December 31, 2017 and 2016, the company entered into promissory notes payable to lenders related to the acquisition of seven manufactured housing communities. During the nine months ended September 30, 2019, the Company entered into promissory notes payable to lenders related to the acquisition of three manufactured housing communities.
 
During the nine months ended September 30, 2019, the Company refinanced a total of $4,940,750 from current loans payable to $8,241,000 of new notes payable from five of the ten existing communities, resulting in an additional loan payable of $3,320,859. The Company used the additional loans payable proceeds from the refinance to retire its convertible note payable of $2,754,550 plus accrued interest. As of September 30, 2019, the Company wrote off mortgage costs of $68,195 and capitalized $275,519 of mortgage costs due to the refinancing.
 
 
12
 
 
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019
 
Except for a line of credit, generally, the promissory notes range from 4.5% to 7.0% with 20 to 25 years principal amortization. Two of the promissory notes had an initial 6 months period on interest only payments. The promissory notes are secured by the Company’s real estate assets. The line of credit is interest only payment based on 8%, and 10% deferred until maturity to be paid with principal balance. The line of credit originally awarded the lender, Metrolina Loan Holdings, LLC (“Metrolina”), 455,000 shares of common stock as consideration, which resulted in making Metrolina a related party due to its significant ownership. The line of credit is guaranteed by the owner of the principal stockholder of the Company. During the nine months ended September 30, 2019, the Company paid off the entire balance on the line of credit of $2,754,550 plus interest and amended the agreement to allow for the redeployment of the $3,000,000 available, eliminated the conversion option whereby Metrolina could convert the ratio of total outstanding debt at time of exercise of the option into an amount of newly issued shares of the Company’s common stock determined by dividing the outstanding indebtedness by $3,000,000 multiplied by 10% with a cap of 864,500 shares. The amendment resulted in issuing an additional 545,000 shares with a fair value of $305,200 for a total of 1,000,000 shares awarded to Metrolina. The line of credit gives Metrolina the right and option to purchase it’s pro rata share of debt or equity securities issued to maintain up to 10% equity interest in the Company at the most recent price of any equity transaction for seven years from the amendment dated February 26, 2019. As of September 30, 2019, the balance on the line of credit was $3,000,000.
 
The following are terms of the Company’s secured outstanding debt:
 
 
 
Maturity Date
 
 
Interest Rate
 
 
Balance 09/30/19
 
 
Balance 12/31/18
 
Butternut MHP Land LLC
03/30/20
  6.500%
 $1,119,829 
 $1,134,971 
Butternut MHP Land LLC Mezz
04/01/27
  7.000%
  281,781 
  287,086 
Pecan Grove MHP LLC
11/04/26
  4.500%
  3,117,922 
  1,270,577 
Azalea MHP LLC
11/10/27
  5.000%
  834,405 
  598,571 
Holly Faye MHP LLC
10/01/38
  4.000%
  579,825 
  462,328 
Chatham MHP LLC
12/01/22
  5.125%
  1,776,993 
  1,366,753 
Lake View MHP LLC
12/01/22
  5.125%
  1,863,444 
  1,222,521 
B&D MHP LLC
04/25/29
  5.500%
  1,797,065 
  2,743,303 
Hunt Club MHP LLC
05/01/24
  5.750%
  1,411,930 
  - 
Crestview MHP LLC
07/31/24
  5.750%
  4,186,887 
  - 
Maple MHP LLC
01/01/23
  5.125%
  2,698,858 
  - 
Totals note payables
 
    
  19,668,938 
  9,086,110 
 
    
    
    
Convertible notes payable(*)
12/12/21
  18.000%
  3,000,000 
  2,754,550 
Related Party notes payable
12/31/20
  (**) 
  824,273 
  890,632 
Total convertible note and notes payable including related party
 
    
 $23,493,211 
 $12,731,292 
 
(*) This agreement was amended during 2019 to eliminate the conversion option making this a non-convertible note payable starting January 1, 2019.
 
(**) As of September 30, 2019, a related party entity with a common ownership to the Company’s CEO loaned the Company $824,273 for working capital. The note has a three-year term with no annual interest and principal payments are deferred to maturity date. For the nine month ended September 30, 2019 and 2018, the Company recorded imputed interest related to the note of $40,733 and $31,286, respectively.
 
Maturities of Long Term Obligations for Five Years and Beyond
 
The minimum annual principal payments of notes payable at September 30, 2019 by fiscal year were:
 
2019
 $220,007 
2020
  1,776,870 
2021
  307,816 
2022
  1,522,098 
2023 and Thereafter
  19,666,420 
Total minimum principal payments
 $23,493,211 
 
 
13
 
 
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019
 
NOTE 5 – COMMITMENTS AND CONTINGENCIES
 
From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise that may harm its business. The Company is currently not aware of any such legal proceedings or claims that they believe will have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results.
 
The Company issued redeemable preferred Series A Cumulative Convertible Preferred Stock (the “Series A Preferred Stock”) totaling $1,465,000 during the nine months ended September 30, 2019. Commencing on the fifth anniversary of the initial issuance of shares of Series A Preferred Stock and continuing indefinitely thereafter, the Company will have a right to call for redemption the outstanding shares of Series A Preferred Stock at a call price equal to $3.75, or 150% of the original issue price of the Series A Preferred Stock, and correspondingly, each holder of shares of Series A Preferred Stock shall have a right to put the shares of Series A Preferred Stock held by such holder back to us at a put price equal to $3.75, or 150% of the original issue purchase price of such shares. During the nine months ended September 30, 2019, the Company paid $43,334 of Series A Preferred dividends distribution and recorded a put option cost of $47,500.
 
NOTE 6 – STOCKHOLDERS’ EQUITY
 
Preferred Stock
 
The Company is authorized to issue up to 10,000,000 shares of preferred stock, $0.01 par value. The Company designated 4,000,000 shares as Series A preferred stock.
 
Series A Preferred Stock
 
On May 8, 2019, the Company filed a certificate of designation with the Nevada Secretary of State pursuant to which the Company designated 4,000,000 shares of its preferred stock as Series A Preferred Stock. The Series A Preferred Stock has the following voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions:
 
Ranking. The Series A Preferred Stock ranks, as to dividend rights and rights upon our liquidation, dissolution, or winding up, senior to the common stock.
 
Dividend Rate and Payment Dates. Dividends on the Series A Preferred Stock are cumulative and payable monthly in arrears to all holders of record on the applicable record date. Holders of Series A Preferred Stock will be entitled to receive cumulative dividends in the amount of $0.017 per share each month, which is equivalent to the rate of 8% of the $2.50 liquidation preference per share. Dividends on shares of Series A Preferred Stock will continue to accrue even if any of the Company’s agreements prohibit the current payment of dividends or the Company does not have earnings.
 
Liquidation Preference. The liquidation preference for each share of Series A Preferred Stock is $2.50. Upon a liquidation, dissolution or winding up of the Company, holders of shares of Series A Preferred Stock will be entitled to receive the liquidation preference with respect to their shares plus an amount equal to any accrued but unpaid dividends (whether or not declared) to, but not including, the date of payment with respect to such shares.
 
Stockholder Optional Conversion. Holders of shares of Series A Preferred Stock may at any time convert shares of Series A Preferred Stock in full, but not in part, into shares of common stock at a conversion rate of $2.50 per share. In the event that such conversion might result in the issuance of a fractional share, the number of shares of common stock issued to the holder shall be rounded up to the nearest whole number.
 
Company Call and Stockholder Put Options. Commencing on the fifth anniversary of the initial issuance of shares of Series A Preferred Stock and continuing indefinitely thereafter, the Company will have a right to call for redemption the outstanding shares of Series A Preferred Stock at a call price equal to $3.75, or 150% of the original issue price of the Series A Preferred Stock, and correspondingly, each holder of shares of Series A Preferred Stock shall have a right to put the shares of Series A Preferred Stock held by such holder back to us at a put price equal to $3.75, or 150% of the original issue purchase price of such shares.
 
 
14
 
 
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019
 
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 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.
 
The Company issued redeemable preferred Series A Preferred Stock totaling $1,465,000 during the nine months ended September 30, 2019. Commencing on the fifth anniversary of the initial issuance of shares of Series A Preferred Stock and continuing indefinitely thereafter, the Company will have a right to call for redemption the outstanding shares of Series A Preferred Stock at a call price equal to $3.75, or 150% of the original issue price of the Series A Preferred Stock, and correspondingly, each holder of shares of Series A Preferred Stock shall have a right to put the shares of Series A Preferred Stock held by such holder back to us at a put price equal to $3.75, or 150% of the original issue purchase price of such shares. During the nine months ended September 30, 2019, the Company paid $43,334 of Series A Preferred dividends distribution and recorded a put option cost of $47,500.
 
Common Stock
 
The Company is authorized to issue up to 200,000,000 shares of common stock, par value $0.01 per share. As of September 30, 2019, there were 12,799,568 shares of common stock issued and outstanding.
 
Stock Issued for Service
 
In November 2018, the Company issued 350,000 shares of common stock for services to an investment bank for advisory services with a fair value of $171,500, of which $24,500 was expensed during the nine months ended September 30, 2019. During the nine months ended September 30, 2019, the Company purchased back into treasury the 350,000 shares for a total of $64,511 due to the termination of the advisory service agreement with the investment bank.
 
In February 2019, the Company issued an additional 545,000 shares of common stock for services to Metrolina under an amendment to the line of credit facility agreement with a fair value of $305,200.
 
Stock Issued for Cash
 
In June 2019, the Company issued an additional 254,506 shares of common stock for cash of $68,717 to Metrolina upon its exercise of its option to purchase additional stock to maintain up to 10% ownership of the Company’s common stock outstanding.
 
Stock Split
 
In March 2018, the Company completed a 1-for-6 reverse split of its outstanding shares of common stock resulting in the reduction of the total outstanding common stock from 60,000,000 shares to 10,000,062 shares. The condensed consolidated financial statements have been retroactively adjusted to reflect the stock split.
 
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.
 
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. All of the options are exercisable at a purchase price of $0.01 per share.
 
The Company recorded stock option expense of $24 and $245 during the nine months ended September 30, 2019 and 2018, respectively.
 
 
15
 
 
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019
 
The following table summarizes the stock options outstanding as of September 30, 2019:
 
 
 
Number of options
 
 
Weighted average exercise price (per share)
 
 
Weighted average remaining contractual term (in years)
 
Outstanding at December 31, 2018
  541,334 
 $0.01 
  9.0 
Granted
  - 
  - 
  - 
Exercised
  - 
  - 
  - 
Forfeited / cancelled / expired
  - 
  - 
  - 
Outstanding at September 30, 2019
  541,334 
 $0.01 
  8.25 
 
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, 2019. As of September 30, 2019, there were 477,000 “in-the-money” options with an aggregate intrinsic value of $477,230.
 
The following table summarizes information concerning options outstanding as of September 30, 2019.
 
 
Strike Price Range ($)
 
 
Outstanding stock
options
 
 
Weighted average remaining contractual term (in years)
 
 
Weighted average outstanding strike price
 
 
Vested stock options
 
 
Weighted average vested strike price
 
 $0.01 
  541,334 
  8.25 
 $0.01 
  477,000 
 $0.01 
 
The table below presents the weighted average expected life in years of options granted under the Plan as described above. The risk-free rate of the stock options is based on the U.S. Treasury yield curve in effect at the time of grant, which corresponds with the expected term of the option granted.
 
The fair value of stock options was estimated using the Black Scholes option pricing model with the following assumptions for grants made during the periods indicated.
 
Stock option assumptions
 
September 30,
2019
 
 
December 31,
2018
 
Risk-free interest rate
  - 
  1.95%
Expected dividend yield
  - 
  0.00%
Expected volatility
  - 
  16.71%
Expected life of options (in years)
  - 
  9.0 
 
Non-Controlling Interest
 
Prior to January 1, 2019, the Company owned 75% of membership interest in Pecan Grove MHP LLC. The remaining 25% was owned by unaffiliated non-controlling investors.
 
In January 2019, the Company issued 2,000,000 shares of common stock to Gvest Real Estate to acquire the 25% minority interest in Pecan Grove, which were valued at the historical cost value of $537,562.
 
NOTE 7 ­ RELATED PARTY TRANSACTIONS
 
As of September 30, 2019, an entity with a common ownership to the Company’s founder loaned the Company $824,273 for reorganization costs and working capital. The note has a five-year term with no annual interest and principal payments are deferred to maturity date. The Company recorded an In-kind contribution of interest in the amount of $40,733 and $31,286 for the nine months ended September 30, 2019 and 2018, respectively.
 
 
16
 
 
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019
 
During the year ended December 31, 2017, the Company entered into a debt agreement for a revolving line of credit with Metrolina. The line of credit is interest only payment based on 8%, and 10% deferred until maturity to be paid with principal balance. The line of credit originally awarded Metrolina 455,000 shares of common stock as consideration, which resulted in making Metrolina a related party due to its significant ownership. The line of credit is guaranteed by the owner of the principal stockholder of the Company. During the nine months ended September 30, 2019, the Company paid off the entire balance on the line of credit of $2,754,550 plus interest and amended the agreement to allow for the redeployment of the $3,000,000 available, eliminated the conversion option whereby Metrolina could convert the ratio of total outstanding debt at time of exercise of the option into an amount of newly issued shares of the Company’s common stock determined by dividing the outstanding indebtedness by $3,000,000 multiplied by 10% with a cap of 864,500 shares. The amendment resulted in issuing an additional 545,000 shares with a fair value of $305,200 for a total of 1,000,000 shares awarded to Metrolina. The line of credit gives Metrolina the right and option to purchase it’s pro rata share of debt or equity securities issued to maintain up to 10% equity interest in the Company at the most recent price of any equity transaction for seven years from the amendment dated February 26, 2019. In June 2019, Metrolina exercised this option and the Company issued an additional 254,506 shares of common stock for cash of $68,717.
 
In January 2019, the Company issued 2,000,000 shares of common stock to Gvest Real Estate to acquire the 25% minority interest in Pecan Grove, which were valued at the historical cost value of $537,562.
 
During the nine months ended September 30, 2019, the Company recorded $19,448 in revenues related to property management consulting services provided to an entity with common ownership as the CEO of the Company.
 
During the nine months ended September 30, 2019, the Company’s founder received a $50,000 fee for his personal guarantee on a promissory note related to one of the Company’s acquisitions.
 
NOTE 8 – ACQUISITIONS
 
The Company had three acquisitions during the nine months ended September 30, 2019 totaling 289 sites. These were asset acquisitions from third parties and have been accounted for as asset acquisitions. The acquisition date estimated fair value was determined by third party appraisals.
 
Acquisition Date
Name
 
Land
 
 
Improvements
 
 
Building
 
 
Acquisition Cost
 
 
Total Purchase Price
 
April, 2019
Hunt Club MHP
 $589,500 
 $1,375,500 
 $- 
 $140,296 
 $2,105,296 
May, 2019
B&D MHP
  750,000 
  1,750,063 
  - 
  91,461 
  2,591,461 
July, 2019
Crestview MHP
  991,750 
  2,975,250 
  1,533,000 
  53,057 
  5,553,057 
 
Total
 $2,331,250 
 $6,100,813 
 $1,533,000 
 $284,814 
 $10,249,877 
 
Pro-forma Financial Information
 
The following unaudited pro-forma information presents the combined results of operations for the periods as if the above acquisitions of manufactured housing communities had been completed on January 1, 2019.
 
 
 
9/30/2019
Consolidated I/S
 
 
Hunt Club 1/1/2019 – 4/1/2019
 
 
B&D
1/1/2019 – 5/2/2019
 
 
Crestview 1/1/2019 – 7/31/2019
 
 
Totals
 
Total Revenue
 $1,983,283 
 $96,143 
 $128,254 
 $439,802 
 $2,647,482 
Total Expenses
  3,389,183 
  76,123 
  35,676 
  160,921 
  3,661,903 
Preferred stock dividends
  90,834 
    
    
    
  90,834 
Net Income (Loss)
 $(1,496,734)
 $20,020 
 $92,578 
 $278,881 
 $(1,110,255)
Net loss per share
    
    
    
    
 $(0.09)
 
 
 
17
 
 
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019
 
 
NOTE 9 – SUBSEQUENT EVENTS
 
On August 5, 2019, MHP Pursuits LLC entered into a purchase agreement with CSC Warner Robins, a Georgia limited liability company, for the purchase of a manufactured housing community known as Spring Lake Mobile Home Park, which is located in Georgia and totals 225 sites, for a total purchase price of $5.3 million.
 
On October 3, 2019, the Company repurchased 553,888 shares of common stock for a total of $57,500 due to a settlement from an advisory service agreement.
 
 
 
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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 
Use of Terms
 
Except as otherwise indicated by the context and for the purposes of this report only, references in this report to “we,” “our” and the “Company” refer to Manufactured Housing Properties Inc., a Nevada corporation, and its consolidated subsidiaries.
 
Special Note Regarding Forward Looking Statements
 
In addition to historical information, this report contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that include information relating to future events, future financial performance, strategies, expectations, competitive environment, regulation and availability of resources. These forward-looking statements include, without limitation: statements concerning projections, predictions, expectations, estimates or forecasts for our business, financial and operating results and future economic performance; statements of management’s goals and objectives; trends affecting our financial condition, results of operations or future prospects; statements regarding our financing plans or growth strategies; statements concerning litigation or other matters; and other similar expressions concerning matters that are not historical facts. Words such as “may,” “will,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes” and “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements.
 
Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times, or by which, that performance or those results will be achieved. Forward-looking statements are based on information available at the time they are made and/or management’s good faith beliefs as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements.
 
Potential investors should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. Potential investors should not make an investment decision based solely on our projections, estimates or expectations.
 
Overview
 
We are a self-administered, self-managed, vertically integrated owner and operator of manufactured housing communities. Manufactured housing communities are residential developments designed and improved for the placement of detached, single-family manufactured homes that are produced off-site and installed and set on residential sites within the community. The owner of a manufactured home leases the site on which it is located and the lessee of a manufactured home leases both the home and site on which the home is located. We earn income from leasing manufactured home sites to tenants who own their own manufactured home and the rental of company-owned manufactured homes to residents of the communities.
 
We originally incorporated in the State of Nevada as Frontier Staffing, Inc. on September 3, 2003. Since our incorporation, we have experienced several name changes and have been engaged in several different business endeavors. On October 12, 2017, Mobile Home Rental Holdings LLC, a North Carolina limited liability company, which engaged in acquiring and operating manufactured housing properties, merged with and into the Company. In connection with the merger, the name of the Company was changed to Manufactured Housing Properties Inc., the former business and management of Mobile Home Rental Holdings LLC became the business and management, respectively of the Company.
 
 
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As of September 30, 2019, we own and operate ten manufactured housing communities containing approximately 726 developed sites, and a total of 261 company-owned manufactured homes, including:
 
Pecan Grove – a 81 lot, all-age community situated on 10.71 acres and located in Charlotte, North Carolina.
 
Butternut – a 59 lot, all-age community situated on 13.13 acres and located in Corryton, Tennessee, a suburb of Knoxville, Tennessee.
 
Azalea Hills – a 41 lot, all-age community situated on 7.46 acres and located in Gastonia, North Carolina, a suburb of Charlotte, North Carolina.
 
Holly Faye – a 37 lot all-age community situated on 8.01 acres and located in Gastonia, North Carolina, a suburb of Charlotte North Carolina.
 
Lakeview – a 97 lot all-age community situated on 17.26 acres in Spartanburg, South Carolina.
 
Chatham Pines – a 49 lot all-age community situated on 23.57 acres and located in Chapel Hill, North Carolina.
 
Maple Hills – a 73 lot all-age community situated on 21.20 acres and located in Mills River, North Carolina, which is part of the Asheville, North Carolina, Metropolitan Statistical Area.
 
Hunt Club Forest – a 79 lot all-age community situated on 13.02 acres and located in the Columbia, South Carolina metro area.
 
B&D – a 97 lot all-age community situated on 17.75 acres and located in Chester, South Carolina.
 
Crestview – a 113 lot all-age community situated on 17.1 acres and located in the Ashville, NC MSA, North Carolina, Metropolitan Statistical Area.
 
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
 
On August 5, 2019, our wholly-owned subsidiary MHP Pursuits LLC entered into a purchase agreement with CSC Warner Robins, a Georgia limited liability company, for the purchase of a manufactured housing community known as Spring Lake Mobile Home Park, which is located in Georgia and totals 225 sites, for a total purchase price of $5.3 million.
 
Results of Operations
 
Comparison of Three Months Ended September 30, 2019 and 2018
 
The following table sets forth key components of our results of operations during the three months ended September 30, 2019 and 2018, both in dollars and as a percentage of our revenues.
 
 
 
Three Months Ended September 30, 2019
 
 
Three Months Ended September 30, 2018
 
 
 
Amount
 
 
Percent of Revenues
 
 
Amount
 
 
Percent of Revenues
 
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
Rental and related income
 $794,543 
  99.48%
 $513,753 
  100.00%
Management fees, related party
  4,164 
  0.52%
  - 
  - 
Total revenues
  798,707 
  100.00%
  513,753 
  100.00%
Community operating expenses
    
    
    
    
Repair and maintenance
  65,394 
  8.19%
  35,772 
  6.96%
Real estate taxes
  42,178 
  5.28%
  24,436 
  4.76%
Utilities
  50,069 
  6.27%
  34,965 
  6.81%
Insurance
  21,086 
  2.64%
  10,284 
  2.00%
General and administrative expense
  66,566 
  8.33%
  92,672 
  18.04%
Total community operating expenses
  245,293 
  30.71%
  198,129 
  38.57%
Corporate payroll and overhead
  125,228 
  15.68%
  253,260 
  49.30%
Depreciation and amortization expense
  204,719 
  25.63%
  133,563 
  26.00%
Interest expense
  555,786 
  69.59%
  242,538 
  47.21%
Total expenses
  1,131,028 
  141.61%
  827,490 
  161.07%
Net loss
 $(332,320)
  (41.61%)
 $(313,737)
  (61.07%)
Net income attributable to the noncontrolling interest
  - 
  - 
  12,276 
  2.39%
Net loss attributable to common stockholders
 $(332,320)
  (41.61%)
 $(326,013)
  (63.46%)
 
 
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Revenues. For the three months ended September 30, 2019, we had total revenues of $798,707, as compared to $513,753 for the three months ended September 30, 2018, an increase of $284,954, or 55.47%. The increase in revenues between the periods was primarily due to $290,077 of rental income from the acquisition of three manufactured housing communities during the second and third quarters of 2019.
 
Community Operating Expenses. For the three months ended September 30, 2019, we had total community operating expenses of $245,293, as compared to $198,129 for the three months ended September 30, 2018, an increase of $47,164, or 23.80%. The increase in community operating expenses was primarily due to expenses related to the acquisition of three manufactured housing communities during the second and third quarters of 2019 totaling $123,244. Excluding the three acquisitions, our community operating expenses decreased resulting from a decrease in bad debt and the ramp up of operational efficiencies.
 
Corporate Payroll and Overhead Expenses. For the three months ended September 30, 2019, we had corporate payroll and overhead expenses of $125,228, as compared to $253,260 for the three months ended September 30, 2018, a decrease of $128,032. Such decrease was primarily due to additional costs of $62,512 related to expenses incurred for potential acquisitions that were not completed during the three months ended September 30, 2018.
 
Depreciation and Amortization Expense. For the three months ended September 30, 2019, we had depreciation and amortization expense of $204,719, as compared to $133,563 for the three months ended September 30, 2018, an increase of $71,156, or 53.27%. The increase was primarily due to the acquisition of three manufactured housing communities during the second and third quarters of 2019.
 
Interest Expense. For the three months ended September 30, 2019, we had interest expense of $555,786, as compared to $242,538 for the three months ended September 30, 2018, an increase of $313,248. The increase was primarily comprised of $134,166 related to the acquisition of three manufactured housing communities during the second and third quarters of 2019, and the remaining increase was due to the refinancing of five of our manufactured housing communities during the first quarter of 2019.
 
Net Loss. The factors described above resulted in a net loss of $332,320 for the three months ended September 30, 2019, as compared to $313,737 for the three months ended September 30, 2018, an increase of $18,583, or 5.92%.
 
Comparison of Nine months ended September 30, 2019 and 2018
 
The following table sets forth key components of our results of operations during the nine months ended September 30, 2019 and 2018, both in dollars and as a percentage of our revenues.
 
 
 
Nine Months Ended September 30, 2019
 
 
Nine Months Ended September 30, 2018
 
 
 
Amount
 
 
Percent of Revenues
 
 
Amount
 
 
Percent of Revenues
 
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
Rental and related income
 $1,963,835 
  99.02%
 $1,511,834 
  100.00%
Management fees, related party
  19,448 
  0.98%
  - 
    
Total revenues
  1,983,283 
  100.00%
  1,511,834 
  100.00%
Community operating expenses
    
    
    
    
Repair and maintenance
  160,621 
  8.10%
  112,637 
  7.45%
Real estate taxes
  110,660 
  5.58%
 63,731
  7.32%
Utilities
  130,744 
  6.59%
  109,056 
  7.21%
Insurance
  47,015
  2.37%
  41,065 
  2.72%
General and administrative expense
  227,188 
  11.46%
  344,819 
  22.81%
Total community operating expenses
  676,228 
  34.10%
  670,308 
  44.34%
Corporate payroll and overhead
  587,463 
  29.62%
  528,738 
  34.97%
Depreciation and amortization expense
  496,966 
  25.06%
  399,547 
  26.43%
Interest expense
  1,076,254 
  54.27%
  738,950 
  48.88%
Refinancing costs
  552,272 
  27.85%
  - 
  - 
Total expenses
  3,389,183 
  170.89%
  2,337,543 
  154.62%
Net loss
 $(1,405,900)
  (70.89%)
 $(825,709)
  (54.62%)
Net income attributable to the noncontrolling interest
  - 
    
  30,034 
  1.99%
Net loss attributable to common stockholders
 $(1,405,900)
  (70.89%)
 $(855,743)
  (56.60%)
 
 
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Revenues. For the nine months ended September 30, 2019, we had total revenues of $1,983,283, as compared to $1,511,834 for the nine months ended September 30, 2018, an increase of $471,449, or 31.18%. The increase in revenues between the periods was primarily due to $422,147 of rental income from the acquisition of three manufactured housing communities during the second and third quarters of 2019. The remaining increase was due to an average 10% increase in occupancy and rental rates and we also recorded $19,448 of property management revenues from a related party in 2019.
 
Community Operating Expenses. For the nine months ended September 30, 2019, we had total community operating expenses of $676,228, as compared to $670,308 for the nine months ended September 30, 2018, a nominal increase of $5,920. The increase in community operating expenses was primarily due $131,620 of expenses from the acquisition of three manufactured housing communities during the second and third quarters of 2019. Excluding the three acquisitions, our community operating expenses decreased resulting from a decrease in bad debt and the ramp up of operational efficiencies.
 
Corporate Payroll and Overhead Expenses. For the nine months ended September 30, 2019, we had corporate payroll and overhead expenses of $587,463, as compared to $528,738 for the nine months ended September 30, 2018, an increase of $58,725. Such increase was primarily due to additional payroll to support our growth and acquisitions.
 
Depreciation and Amortization Expense. For the nine months ended September 30, 2019, we had depreciation and amortization expense of $496,966, as compared to $399,547 for the nine months ended September 30, 2018, an increase of $97,419, or 24.38%. The increase was primarily due to the acquisition of three manufactured housing communities during the second and third quarters of 2019.
 
Interest Expense. For the nine months ended September 30, 2019, we had interest expense of $1,076,254, as compared to $738,950 for the nine months ended September 30, 2018, an increase of $337,304, or 45.64%. The increase was primarily related to the three additional loans related to the three acquisitions of manufactured housing communities during the second and third quarters of 2019.
 
Refinancing costs. During the nine months ended September 30, 2019, we refinanced a total of $4,920,750 from our current loans payable to $8,241,000 of new notes payable from five of our ten existing communities, resulting in an additional loan payable of $3,320,859. We used the additional loans payable proceeds from the refinance to retire our convertible note payable of $2,754,550 plus accrued interest. As of September 30, 2019, we wrote off refinancing cost totaling $552,272.
 
Net Loss. The factors described above resulted in a net loss of $1,405,900 for the nine months ended September 30, 2019, as compared to $855,743 for the nine months ended September 30, 2018, an increase of $550,157, or 64.28%.
 
Liquidity and Capital Resources
 
As of September 30, 2019, we had cash and cash equivalents of $1,729,091. 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 may be insufficient 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. The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These unaudited condensed consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should we be unable to continue as a going concern.
 
 
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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,  
 
 
 
2019
 
 
2018  
 
Net cash provided by (used in) operating activities
 $(503,110)
 $64,100 
Net cash used in investing activities
  (10,138,342)
  (127,720)
Net cash provided by financing activities
  11,912,272 
  194,498 
Net increase in cash and cash equivalents
  1,270,820 
  130,878 
Cash and cash equivalents at beginning of period
  458,271 
  355,935 
Cash and cash equivalent at end of period
 $1,729,091 
 $486,813 
 
Net cash used in operating activities was $503,110 for the nine months ended September 30, 2019, as compared to $64,100 net cash provided by operating activities for the nine months ended September 30, 2018. For the nine months ended September 30, 2019, the net loss of $1,405,900, a decrease in other assets in the amount of $461,532 due to lender’s escrowed funds held by lender at closing to be released back to us upon the completion of certain capital improvement projects, offset by depreciation and amortization in the amount of $504,542, stock compensation expense in the amount of $329,724, an increase in accounts payable of $230,164, and accrued expenses in the amount of $119,135, were the primary drivers of the net cash used in operating activities. For the nine months ended September 30, 2018, the net loss of $825,709, offset by depreciation and amortization in the amount of $399,547 and an increase in accrued expenses in the amount of $294,199, were the primary drivers of the net cash provided by operating activities.
 
Net cash used in investing activities was $10,138,342 for the nine months ended September 30, 2019, as compared to $127,720 for the nine months ended September 30, 2018. Net cash used in investing activities for the nine months ended September 30, 2019 consisted entirely of the purchase of property, while net cash used in investing activities for the nine months ended September 30, 2018 consisted of the purchase of property in the amount of $148,720, offset by proceeds of sale of property in the amount of $21,000.
 
Net cash provided by financing activities was $11,912,272 for the nine months ended September 30, 2019, as compared to $194,498 for the nine months ended September 30, 2018. For the nine months ended September 30, 2019, net cash used in financing activities consisted of proceeds from notes payable in the amount of $18,481,076, proceeds from the issuance of preferred stock in the amount of $1,465,000, proceeds from line of credit in the amount of $3,000,000, proceeds from issuance of common stock in the amount of $68,717 and proceeds from related party note in the amount of $7,075, offset by repayment of notes payable in the amount of $7,898,248, repayment of line of credit in the amount of $2,754,550, capitalized financing costs of $275,519, purchase of treasury stock in the amount of $64,511 and preferred stock dividends in the amount of $43,334.
 
Promissory Notes
 
During the years ended December 31, 2017, we entered into promissory notes payable to lenders related to the acquisition of seven manufactured housing communities. Generally, the interest rates on the promissory notes range from 4.5% to 7.0% and have maturity dates ranging from March 2020 to October 2038. As of September 30, 2019, the outstanding balance on these notes was $16,442,601. The promissory notes are secured by the real estate assets. See Note 4 to our unaudited condensed consolidated financial statements for more details regarding these notes.
 
On May 8, 2017, we issued a convertible promissory note to Metrolina Loan Holdings, LLC, or Metrolina, in the principal amount of $3,000,000. The convertible note is interest only payment based on 8%, and 10% deferred until maturity to be paid with principal balance. The convertible note originally awarded Metrolina 455,000 shares of common stock as compensation, which resulted in making Metrolina a related party due to its significant ownership. During the nine months ended September 30, 2019, we paid off the entire balance on the convertible note of $2,754,550 plus interest and amended the agreement to allow for the redeployment of the $3,000,000 available, eliminated the conversion option whereby Metrolina could convert the ratio of total outstanding debt at time of exercise of the option into an amount of newly issued shares of our common stock determined by dividing the outstanding indebtedness by $3,000,000 multiplied by 10% with a cap of 864,500 shares. The amendment resulted in issuing an additional 545,000 shares with a fair value of $305,200 for a total of 1,000,000 shares awarded to Metrolina. As of September 30, 2019, the balance on the convertible note was $3,000,000. The line of credit gives Metrolina the right and option to purchase it’s pro rata share of debt or equity securities issued to maintain up to 10% equity interest in the Company at the most recent price of any equity transaction for seven years from the amendment dated February 26, 2019.
 
 
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Off-Balance Sheet Arrangements
 
As of September 30, 2019, we had no off-balance sheet arrangements.
 
Critical Accounting Policies
 
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our consolidated financial statements. Actual results may differ from these estimates under different assumptions or conditions.
 
Significant accounting policies are defined as those that involve significant judgment and potentially could result in materially different results under different assumptions and conditions. Management believes the following critical accounting policies are affected by our more significant judgments and estimates used in the preparation of our consolidated financial statements.
 
Revenue Recognition. The Company follows Topic 606 of the Financial Accounting Standards Board Accounting, or FASB, Accounting Standards Codification, or ASC, for revenue recognition and Accounting Standards Update, or ASU, 2014-09. On January 1, 2018, the Company adopted 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) the Company satisfies a performance obligation. Results for reporting periods beginning after January 1, 2018 are presented under ASU 2014-09, while prior period amounts are not adjusted and continue to be reported under the previous accounting standards. There was no impact to revenues as a result of applying ASU 2014-09 for the nine months ended September 30, 2019, and there have not been any significant changes to the Company’s business processes, systems, or internal controls as a result of implementing the standard. The Company recognizes rental income revenues on a monthly basis based on the terms of the lease agreement which are for either the land or a combination of both, the mobile home and land. Home sales revenues are recognized upon the sale of a home with an executed sales agreement. The Company has deferred revenues from home lease purchase options and records those option fees as deferred revenues and then records them as revenues when (1) the lease purchase option term is completed and title has been transferred, or (2) the leaseholder defaults on the lease terms resulting in a termination of the agreement which allows us to keep any payments as liquidated damages.
 
Acquisitions. The Company accounts for 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.
 
Investment Property and Equipment and Depreciation. Property and equipment are carried at cost. Depreciation for Sites and Building is computed principally on the straight-line method over the estimated useful lives of the assets (ranging from 15 to 25 years). Depreciation of Improvements to Sites and Buildings, Rental Homes and Equipment and Vehicles is computed principally on the straight-line method over the estimated useful lives of the assets (ranging from 3 to 25 years). Land Development Costs are not depreciated until they are put in use, at which time they are capitalized as Sites and Land Improvements. Interest Expense pertaining to Land Development Costs are capitalized. Maintenance and Repairs are charged to expense as incurred and improvements are capitalized. The costs and related accumulated depreciation of property sold or otherwise disposed of are removed from the financial statement and any gain or loss is reflected in the current year’s results of operations.
 
Impairment Policy. The Company applies FASB ASC 360-10, “Property, Plant & Equipment,” to measure impairment in real estate investments. Rental properties are individually evaluated for impairment when conditions exist which may indicate that it is probable that the sum of expected future cash flows (on an undiscounted basis without interest) from a rental property is less than the carrying value under its historical net cost basis. These expected future cash flows consider factors such as future operating income, trends and prospects as well as the effects of leasing demand, competition and other factors. Upon determination that a permanent impairment has occurred, rental properties are reduced to their fair value. For properties to be disposed of, an impairment loss is recognized when the fair value of the property, less the estimated cost to sell, is less than the carrying amount of the property measured at the time there is a commitment to sell the property and/or it is actively being marketed for sale. A property to be disposed of is reported at the lower of its carrying amount or its estimated fair value, less its cost to sell. Subsequent to the date that a property is held for disposition, depreciation expense is not recorded.
 
 
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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 $24 and $245 during the nine months ended September 30, 2019 and 2018, respectively.
 
Fair Value of Financial Instruments. The Company follows paragraph 825-10-50-10 of the FASB ASC for disclosures about fair value of our financial instruments and paragraph 820-10-35-37 of the FASB ASC to measure the fair value of our 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.
 
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, 2019. The Company is currently evaluating the potential impact this standard may have on the consolidated financial statements.
 
In February 2016, the FASB issued ASU 2016-02, “Leases.” ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. ASU 2016-02 will be effective for annual reporting periods beginning after December 15, 2018. Early adoption is permitted. The Company has evaluated the potential impact this standard may have on the consolidated financial statements and determined that it had no impact on the consolidated financial statements.
 
In June 2018, the FASB issued ASU 2018-07 “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” This ASU relates to the accounting for non-employee share-based payments. The amendment in this ASU expands the scope of Topic 718 to include all share-based payment transactions in which a grantor acquired goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The ASU excludes share-based payment awards that relate to (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts from Customers. The share-based payments are to be measured at grant-date fair value of the equity instruments that the entity is obligated to issue when the good or service has been delivered or rendered and all other conditions necessary to earn the right to benefit from the equity instruments have been satisfied. This standard will be effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption of Topic 606. The Company has evaluated the impact this standard had on the consolidated financial statements and determined that it had no impact on the consolidated financial statements.
 
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 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, 2019. 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, 2018 and further referenced below, which we are still in the process of remediating as of September 30, 2019, our disclosure controls and procedures were not effective.
 
Changes in Internal Control Over Financial Reporting
 
We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.
 
During its evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2019, 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 in the third quarter of fiscal 2019, we continued to implement the following remedial procedures:
 
Implemented dual signatures and approvals on all payments.
 
Added additional employees to assist in the financial closing procedures.
 
As necessary, we will continue to engage consultants or outside accounting firms in order to ensure proper accounting for our consolidated financial statements.
 
We intend to complete the remediation of the material weaknesses discussed above as soon as practicable but we can give no assurance that we will be able to do so. Designing and implementing an effective disclosure controls and procedures is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to devote significant resources to maintain a financial reporting system that adequately satisfies our reporting obligations. The remedial measures that we have taken and intend to take may not fully address the material weaknesses that we have identified, and material weaknesses in our disclosure controls and procedures may be identified in the future. Should we discover such conditions, we intend to remediate them as soon as practicable. We are committed to taking appropriate steps for remediation, as needed.
 
Other than in connection with the implementation of the remedial measures described above, there were no changes in our internal controls over financial reporting during the third quarter of fiscal 2019 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 third quarter of fiscal year 2019 that were not previously disclosed in a current report on Form 8-K that was filed during the quarter.
 
During the three month period ended September 30, 2019, 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 2019 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.
 
ITEM 6. EXHIBITS.
 
Exhibit No.
 
Description of Exhibit
 
Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form 10 filed on April 19, 2018)
 
Certificate of Designation of Series A Cumulative Convertible Preferred Stock (incorporated by reference to Exhibit 2.2 to the Offering Statement on Form 1-A filed on May 9, 2019)
 
Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Registration Statement on Form 10 filed on April 19, 2018)
 
Purchase and Sale Agreement, dated August 5, 2019, between MHP Pursuits LLC and CSC Warner Robins (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on August 6, 2019)
 
Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
Certifications of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*
 
XBRL Instance Document
101.SCH*
 
XBRL Taxonomy Extension Schema Document
101.CAL*
 
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
 
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
 
XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
 
XBRL Taxonomy Extension Presentation Linkbase Document
______________ 
*Filed herewith
 
 
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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
Date: November 12, 2019
MANUFACTURED HOUSING PROPERTIES INC.
 
 
 
 
 
/s/ Raymond M. Gee
 
 
Name: Raymond M. Gee
 
 
Title: Chief Executive Officer
 
 
(Principal Executive Officer)
 
 
 
 
 
/s/ Michael Z. Anise
 
 
Name: Michael Z. Anise
 
 
Title: President and Chief Financial Officer
 
 
(Principal Financial and Accounting Officer)
 
 
 
 
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