MANUFACTURED HOUSING PROPERTIES INC. - Quarter Report: 2019 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10−Q

 

(Mark One)

 

 

For the quarterly period ended: June 30, 2019

 

or

 

 

For the transition period from ____________ to _____________

 

Commission File Number: 000-51229

 

MANUFACTURED HOUSING PROPERTIES INC.

(Exact name of registrant as specified in its charter)

 

Nevada		51-0482104
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

136 Main Street, Pineville, North Carolina		28134
(Address of principal executive offices)		(Zip Code)

 

(980) 273-1702

(Registrant’s telephone number, including area code)

 

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

 

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

 

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

 

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

 

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

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

 

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

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

 

As of August 12, 2019, there were 12,799,568 common shares of the registrant issued and outstanding.  

 

Manufactured Housing Properties Inc.

 

Quarterly Report on Form 10-Q

 Period Ended June 30, 2019

 

TABLE OF CONTENTS

 

PART I

FINANCIAL INFORMATION

 

Item 1.	Financial Statements	2
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25

 

PART II

OTHER INFORMATION

 

Item 1.	Legal Proceedings	27
Item 1a.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	27

 

 

 

 

PART I

FINANCIAL INFORMATION

 

MANUFACTURED HOUSING PROPERTIES INC.

UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

		Page
Condensed Consolidated Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018		3
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018 (unaudited)		4
Condensed Consolidated Statements of Stockholders’ Deficit for the Three and Six Months Ended June 30, 2019 and 2018 (unaudited)		5
Condensed Consolidated Statements of Cash Flows for the Six Months June 30, 2019 and 2018 (unaudited)		6
Notes to Unaudited Condensed Consolidated Financial Statements		7

 

 

 

      

 

MANUFACTURED HOUSING PROPERTIES INC.

 CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2019 AND DECEMBER 31, 2018

 

	2019	2018
Assets	(unaudited)
Investment Property
Land	$7,727,771	$4,357,950
Site and Land Improvements	8,123,820	6,781,845
Buildings and Improvements	1,457,395	1,441,222
Acquisition Cost	268,430	140,758
Total Investment Property	17,577,416	12,721,775
Accumulated Depreciation and Amortization	(959,837)	(669,184)
Net Investment Property	16,617,579	12,022,591
Cash and Cash Equivalents	1,358,522	458,271
Accounts Receivable, net	19,000	12,987
Other Assets	327,980	99,472
Total Assets	$18,323,081	$12,593,321
Liabilities
Accounts Payable	$110,368	$71,091
Loans Payable, net	15,542,820	9,086,110
Loans Payable - related party	878,567	890,632
Convertible Note Payable - related party	1,270,000	2,754,550
Accrued Liabilities and Deposits	415,062	612,819
Tenant Security Deposits	126,104	131,149
Total Liabilities	18,303,741	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, 570,000 and zero shares are issued and outstanding as of June 30, 2019 and December 31, 2018, respectively redemption value $2,137,500	1,448,750	-
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 June 30, 2019 and December 31, 2018, respectively	127,995	103,500
Additional Paid in Capital	1,278,333	451,567
Retained Earnings (accumulated deficit)	(2,874,918)	(1,801,338)
Total Stockholders’ (Deficit)	(1,468,590)	(1,246,271)
Non-controlling interest	-	293,241
Total Stockholders' (Deficit)	(1,468,590)	(953,030)
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT)	$18,323,081	$12,593,321

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

 

MANUFACTURED HOUSING PROPERTIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

 

	Three Months Ended June 30,		Six Months Ended June 30,
	2019	2018	2019	2018
Revenue
Rental and Related Income	$644,918	$507,268	$1,169,292	$998,081
Management fees, related party	3,284	-	15,284	-
Total Revenues	648,202	507,268	1,184,576	998,081
Community Operating Expenses
Repair & Maintenance	51,937	34,191	95,227	76,865
Real estate taxes	44,921	19,030	68,482	38,295
Utilities	49,082	32,252	80,675	74,091
Insurance	19,658	19,880	25,929	30,781
General and Administrative Expense	65,516	129,957	160,622	252,147
Total Community Operating Expenses	231,114	235,310	430,935	472,179
Corporate Payroll and Overhead	326,271	152,004	462,234	275,478
Depreciation & Amortization Expense	157,321	133,162	292,247	265,984
Interest expense	287,762	262,280	520,468	496,412
Refinancing costs	-	-	552,272	-
Total Expenses	1,002,468	782,756	2,258,156	1,510,053
Net loss before provision for income taxes	(354,266)	(275,488)	(1,073,580)	(511,972)
Provision for income taxes	-	-	-	-
Net Loss	$(354,266)	$(275,488)	$(1,073,580)	$(511,972)
Net Income attributable to the noncontrolling interest	-	10,186	-	17,758
Net Loss attributable to the Company	$(354,266)	$(285,674)	$(1,073,580)	$(529,730)
Preferred stock dividends
Series A preferred	19,667	-	24,334	-
Series A preferred put option cost	23,750		23,750
Total preferred stock dividends	43,417	-	48,084	-
Net loss attributable to common stockholders	$(397,683)	$(285,674)	$(1,121,664)	$(529,730)
Weighted Average Shares Basic and Fully Diluted	12,886,564	10,000,062	12,708,157	10,000,062
Net Loss Per Share Basic	$(0.03)	$(0.03)	$(0.09)	$(0.05)
Net Loss Per Share Fully Diluted	$(0.03)	$(0.03)	$(0.09)	$(0.05)

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

 

MANUFACTURED HOUSING PROPERTIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

 

	PREFERRED STOCK		COMMON STOCK		ADDITIONAL	NON
		PAR		PAR	PAID IN	CONTROLLING	ACCUMULATED	STOCKHOLDERS’
	SHARES	VALUE	SHARES	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)
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 put option cost	-	-	-	-	(23,750)	-	-	(23,750)
Preferred shares Series A dividends	-	-	-	-	(19,667)	-	-	(19,667)
Net Loss	-	-	-	-	-	-	(354,266)	(354,266)
Balance at June 30, 2019	-	$-	12,799,568	$127,995	$1,278,333	$-	$(2,874,918)	$(1,468,590)

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

 

MANUFACTURED HOUSING PROPERTIES INC.

 CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

 

	2019	2018
Cash Flows From Operating Activities:
Net Loss	$(1,073,580)	$(511,972)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Stock option expense	16	245
Stock compensation expense	329,700	-
Write off of mortgage costs	68,195	-
Imputed interest	27,861	19,316
Provision for bad debts	17,620	59,082
Depreciation & Amortization	292,247	265,984
Changes in operating assets and liabilities:
Accounts receivable	(23,633)	(21,923)
Other assets	(228,509)	47,244
Accounts payable	39,277	14,846
Accrued expenses	(197,756)	131,191
Tenant security deposits	(5,045)	35,575
Net cash (used in) provided by operating activities	(753,607)	39,588
Cash Flow From Investing Activities:
Proceeds from sale of property	-	10,000
Purchase of property	(4,483,648)	(47,779)
Net cash used in investing activities	(4,483,648)	(37,779)
Cash Flows From Financing Activities:
Proceeds from related party note	7,076	277,540
Repayment of notes payable	(7,824,367)	(123,906)
Proceeds from notes payable	14,281,076	-
Non controlling interest distributions	-	(24,007)
Proceeds from issuance of Preferred Stock	1,425,000	-
Preferred Stock Series A dividends	(24,334)	-
Proceeds from issuance of common stock	68,717	-
Purchase of treasury stock	(64,511)	-
Capitalized financing cost	(227,461)	-
Repayment of line of credit	(2,754,550)	-
Repayment of notes payable – related party	(19,140)	-
Proceeds from line of credit	1,270,000	-
Net cash provided by financing activities	6,137,506	129,627
Net change in cash and cash equivalents	900,251	131,436
Cash and cash equivalents at beginning of the period	458,271	355,935
Cash and cash equivalents at end of the period	$1,358,522	$487,371
Cash paid for:
Income Taxes	$-	$-
Interest	$520,468	$477,095
Non-Cash Investment and Financing Activities
Purchase of minority interest in Pecan Grove	$537,562	$-
Non-cash Preferred Stock accretion	$23,750	$-

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 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%
April 2019		Hunt Club MHP, LLC		100%
May 2019		B&D MHP, LLC		100%
January 31, 2019		MHP Pursuits 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 six months ended June 30, 2018, 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.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 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 June 30, 2019 and 2018 totaled 541,334 and 698,000 stock options, respectively, and 570,000 and 0 convertible Preferred Series A shares, 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.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 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 June 30, 2019 and December 31, 2018, the Company had approximately $762,000 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 $16 and $245 during the six months ended June 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.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 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 January 1, 2019. 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 January 1, 2019. 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.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

 

The Company’s working capital has been provided by operating activities and a related party note. As of June 30, 2019, the related party entity with a common ownership to the Company’s CEO loaned the Company $878,567 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 $770,000 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 $878,567. 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:

	June 30, 2019	December 31, 2018
Land	$7,727,771	$4,357,950
Site and Land Improvements	8,123,820	6,781,845
Buildings and Improvements	1,457,395	1,441,222
Acquisition Cost	268,430	140,758
	17,577,416	12,721,775
Less: accumulated depreciation and amortization	(959,837)	(669,184)
	$16,617,579	$12,022,591

 

Depreciation and amortization expense totaled $157,321 and $133,162 for the three months ended June 30, 2019, and 2018, respectively, and $292,247 and $265,984 for the six months ended June 30, 2019, and 2018, respectively.

During the six months ended June 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 two manufactured housing communities during the six months ended June 30, 2019 totaling $4,483,648.

As of June 30, 2019, the Company wrote off mortgage cost of $68,195 and capitalized $227,461 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 six months ended June 30, 2019, the Company entered into promissory notes payable to lenders related to the acquisition of two manufactured housing communities.

During the six months ended June 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 June 30, 2019, the Company wrote off mortgage costs of $68,195 and capitalized $227,461 of mortgage costs due to the refinancing. During the three months ended June 30, 2019, the Company had additional notes payable totaling $3,306,649 relating to the two acquisitions and the refinancing. As of June 30, 2019, the outstanding loan balances are $15,542,820.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

 

Except for the 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 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 455,000 shares of common stock as compensation, which resulted in making the lender a related party due to its significant ownership. The promissory notes are secured by the real estate assets, and the line of credit is guaranteed by the owner of the principal stockholder of the Company. During the six months ended June 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 the lender 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 equal 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 the lender. As of June 30, 2019, the balance on the line of credit was $1,270,000.

The line of credit gives the lender an option to purchase up to 10% of outstanding common shares at the most recent price of any equity transaction for seven years from the amendment dated February 26, 2019.

 

The following are terms of the Company’s secured outstanding debt:

 

	Maturity	Interest	Balance	Balance
	Date	Rate	06/30/2019	12/31/18
Butternut MHP Land LLC	3/30/20	6.500%	$1,124,755	$1,134,971
Butternut MHP Land LLC Mezz	4/1/27	7.000%	283,550	287,086
Pecan Grove MHP LLC	11/4/26	4.500%	3,133,037	1,270,577
Azalea MHP LLC	11/10/27	5.000%	838,821	598,571
Holly Faye MHP LLC	10/1/38	4.000%	579,825	462,328
Chatham MHP LLC	12/1/22	5.125%	1,785,048	1,366,753
Lake View MHP LLC	12/1/22	5.125%	1,869,263	1,222,521
B&D MHP LLC	4/25/29	5.500%	1,869,261	2,743,303
Hunt Club MHP LLC	5/1/24	5.750%	1,345,411	-
Maple MHP LLC	1/1/23	5.125%	2,713,849	$-
Totals note payables			15,542,820	9,086,110
Convertible notes payable	12/12/21	18.000%	1,270,000	2,754,550
Related Party notes payable	12/31/20	(*)	878,567	890,632
Total convertible note and notes payable including related party, net			$17,691,387	$12,731,292

 

(*) As of June 30, 2019, a related party entity with a common ownership to the Company’s CEO loaned the Company $878,567 for working capital. The note has a three-year term with no annual interest and principal payments are deferred to maturity date. For the six month ended June 30, 2019 and 2018, the Company recorded imputed interest related to the note of $27,861 and $19,316, respectively.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

 

Maturities of Long Term Obligations for Five Years and Beyond

The minimum annual principal payments of notes payable at June 30, 2019 by fiscal year were:

2019	$220,007
2020	1,776,870
2021	307,816
2022	1,522,098
2023 and Thereafter	13,864,596
Total minimum principal payments	$17,691,387

 

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 Series A Redeemable Preferred Stock totaling $1,425,000 during the six months ended June 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 six months ended June 30, 2019, the Company paid $24,334 of Series A Preferred dividends distribution and recorded a put option cost of $23,750.

 

NOTE 6 – STOCKHOLDERS’ EQUITY

Preferred Stock

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

Series A Preferred Stock

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

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

Dividend Rate and Payment Dates. Dividends on the Series A Preferred Stock are cumulative and payable monthly in arrears to all holders of record on the applicable record date. Holders of Series A Preferred Stock will be entitled to receive cumulative dividends in the amount of $0.017 per share each month, which is equivalent to the rate of 8% of the $2.50 liquidation preference per share. Dividends on shares of Series A Preferred Stock will continue to accrue even if any of the Company’s agreements prohibit the current payment of dividends or the Company does not have earnings. During the six months ended June 30, 2019, the Company paid $24,334 of Series A Preferred dividends distribution and recorded a put option cost of $23,750.

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.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

 

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. During the six months ended June 30, 2019, the Company paid $24,334 of Series A Preferred dividends distribution and recorded a put option cost of $23,750.

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.

As of June 30, 2019, that Company has issued 570,000 shares of Series A Preferred Stock for a total of $1,425,000 in cash. As of June 30, 2019, the Company owed preferred distributions totaling $9,500 for the month of June 2019 that were paid on July 1, 2019.

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 June 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 six months ended June 30, 2019. During the six months ended June 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 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.

In February 2019, the Company issued an additional 545,000 shares of stock for services to Metrolina Loan Holdings, LLC (“Metrolina”), the same lender 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 stock for cash of $68,717 to Metrolina, the same lender under an amendment to the line of credit facility agreement, pursuant to which Metrolina exercised its option to purchase the additional shares to maintain up to 10% ownership of the Company’s outstanding common stock at a purchase price equal to the most recent price of any equity transaction of the Company.

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.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

 

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 $16 and $245 during the six months ended June 30, 2019 and 2018, respectively.

The following table summarizes the stock options outstanding as of June 30, 2019 and 2018:

 

	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 June 30, 2019	541,334	$0.01	8.5