MANUFACTURED HOUSING PROPERTIES INC. - Quarter Report: 2021 September (Form 10-Q)

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, 2021

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)

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.

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

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

As of November 12, 2021, there were 12,403,680 common shares of the registrant issued and outstanding.

Manufactured Housing Properties Inc.

Quarterly Report on Form 10-Q

Period Ended September 30, 2021

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

MANUFACTURED HOUSING PROPERTIES INC.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MANUFACTURED HOUSING PROPERTIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2021 AND DECEMBER 31, 2020

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

MANUFACTURED HOUSING PROPERTIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(UNAUDITED)

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

MANUFACTURED HOUSING PROPERTIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF DEFICIT

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(UNAUDITED)

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

MANUFACTURED HOUSING PROPERTIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(UNAUDITED)

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021 AND 2020

(UNAUDITED)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION

Organization

Manufactured Housing Properties Inc. (the “Company”) is a Nevada corporation whose principal activities are to acquire, own, and operate manufactured housing communities.

Basis of Presentation

The Company prepares its consolidated financial statements under the accrual basis of accounting, in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q of Regulation S-X. They do not include all information and footnotes required by GAAP for complete financial statements. The December 31, 2020 consolidated balance sheet data were derived from audited financial statements but do not include all disclosures required by GAAP. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 31, 2021. The interim unaudited condensed consolidated financial statements should be read in conjunction with those consolidated financial statements included in the Form 10-K. In the opinion of management, all adjustments considered necessary for a fair statement of the financial statements, consisting solely of normal recurring adjustments, have been made. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of the Company, entities controlled by the Company through its direct or indirect ownership of a majority interest and any other entities in which the Company has a controlling financial interest. The Company consolidates variable interest entities (“VIEs”) where the Company is the primary beneficiary. The primary beneficiary of a VIE is the party that has both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.

The Company’s formation of all subsidiaries and date of consolidation are as follows:

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

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021 AND 2020

(UNAUDITED)

Revenue Recognition

Mobile home sale revenues are recognized in accordance with Topic 606 of the Financial Accounting Standards Board (“FASB”) ASC for revenue recognition. On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09, which is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. The Company considers revenue realized or realizable and earned when all the five following criteria are met: (1) identification of the contract with a customer, (2) identification of the performance obligations in the contract, (3) determination of the transaction price, (4) allocation of the transaction price to the performance obligations in the contract, and (5) recognition of revenue when (or as) we satisfy a performance obligation.

Under ASC 842, the Company must assess on an individual lease basis whether it is probable that the Company will collect the future lease payments. The Company considers the tenant’s payment history and current credit status when assessing collectability. When collectability is not deemed probable, the Company will write-off the tenant’s receivables, including straight-line rent receivable, and limit lease income to cash received.

The Company’s revenues primarily consist of rental revenues and fee and other income. The Company has the following revenue sources and revenue recognition policies:

Accounts Receivable 

Accounts receivable consist primarily of amounts currently due from residents. Accounts receivables are reported in the balance sheet at outstanding principal adjusted for any charge-offs and the allowance for losses. The Company records an allowance for bad debt when receivables are over 90 days old.

Acquisitions

The Company accounts for acquisitions as asset acquisitions in accordance with ASC 805, “Business Combinations,” and allocates the purchase price of the property based upon the fair value of the assets acquired, which generally consist of land, site and land improvements, buildings and improvements and rental homes. The Company allocates the purchase price of an acquired property generally determined by internal evaluation as well as third-party appraisal of the property obtained in conjunction with the purchase.

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021 AND 2020

(UNAUDITED)

Variable Interest Entities

In December 2020, the Company sold 305 park owned homes in four communities to Gvest Finance LLC, a company owned and controlled by the Company’s parent company, Gvest Real Estate Capital LLC, an entity whose sole owner is Raymond M. Gee, the Company’s chairman and chief executive officer, and to its wholly owned subsidiary Gvest Homes I LLC, for a total of $4,648,967. The Company also executed a management agreement with these entities to manage the homes while remitting to the Company all income, less expenses and 5% of the debt service payment. During the nine months ended September 30, 2021, Gvest Finance LLC formed four new wholly owned subsidiaries, Gvest Anderson Homes LLC, Gvest Capital View Homes LLC, Gvest Hidden Oaks Homes LLC, and Gvest Springlake Homes LLC.

In 2021, the Company formed two entities, Brainerd Place LLC and Bull Creek LLC, for the purpose of exploring opportunities to develop mobile home communities. The Company owns 49% and Gvest Real Estate LLC, an entity whose sole owner is Raymond M. Gee  owns 51%. The Company also executed operating agreements with these entities which designate Gvest Capital Management LLC, a company owned and controlled by Gvest Real Estate Capital LLC as manager with the authority, power, and discretion to manage and control the entities’ business decisions. The operating agreements require the Company to make cash contributions to the entities to fund their activities, operations, and existence, if the Company approves the contribution requests from the manager, which ultimately provides the Company with power to direct the economically significant activities of these entities.

Primarily due to the Company’s common ownership by Mr. Gee, its power to direct the activities of these entities that most significantly impact their economic performance, and the fact that the Company has the obligation to absorb losses or the right to receive benefits from these entities that could potentially be significant to these entities, Gvest Finance LLC, Gvest Homes I LLC, Gvest Anderson Homes LLC, Gvest Capital View Homes LLC, Gvest Hidden Oaks Homes LLC, Gvest Springlake Homes LLC, Brainerd Place LLC, and Bull Creek LLC are considered to be VIEs in accordance applicable GAAP. A company with interests in a VIE must consolidate the entity if the company is deemed to be the primary beneficiary of the VIE; that is, if it has both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. Such a determination requires management to evaluate circumstances and relationships that may be difficult to understand and to make a significant judgment, and to repeat the evaluation at each subsequent reporting date. In accordance with applicable GAAP, because of the common ownership among the entities, the consolidation of the VIEs have been accounted for retrospectively as of the beginning of the first period presented in the unaudited condensed consolidated financial statements.

Net Income (Loss) Per Share

Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding, including vested stock options during the period. Diluted net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding plus the weighted average number of net shares that would be issued upon exercise of stock options pursuant to the treasury stock method. For the nine months ended September 30, 2021, the potentially dilutive penny options for the purchase of 519,675 shares of common stock were included in basic loss per share. Total dilutive securities outstanding as of September 30, 2021 and 2020 totaled 186,500 and 136,500 stock options, respectively, 1,886,000 convertible Preferred Series A shares which are convertible into common shares at $2.50 per share for a total of 754,400, which are not included in dilutive loss per share as the effect would be anti-dilutive. 

Use of Estimates

The presentation of financial statements in conformity with GAAP requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.

Investment Property and Equipment and Depreciation

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

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021 AND 2020

(UNAUDITED)

Impairment Policy

The Company applies FASB ASC 360-10, “Property, Plant & Equipment,” to measure impairment in real estate investments. Rental properties are individually evaluated for impairment when conditions exist which may indicate that it is probable that the sum of expected future cash flows (on an undiscounted basis without interest) from a rental property is less than the carrying value under its historical net cost basis. These expected future cash flows consider factors such as future operating income, trends and prospects as well as the effects of leasing demand, competition and other factors. Upon determination that a permanent impairment has occurred, rental properties are reduced to their fair value. For properties to be disposed of, an impairment loss is recognized when the fair value of the property, less the estimated cost to sell, is less than the carrying amount of the property measured at the time there is a commitment to sell the property and/or it is actively being marketed for sale. A property to be disposed of is reported at the lower of its carrying amount or its estimated fair value, less its cost to sell. Subsequent to the date that a property is held for disposition, depreciation expense is not recorded. There was no impairment during the nine months ended September 30, 2021 and 2020.

Cash and Cash Equivalents

The Company considers all highly liquid financial instruments purchased with an original maturity of three months or less to be cash equivalents.

The Company maintains cash balances at banks and deposits at times may exceed federally insured limits. Management believes that the financial institutions that hold the Company’s cash are financially secure and, accordingly, minimal credit risk exists. At September 30, 2021 and December 31, 2020, the Company had approximately $794,000 and $641,000 above the FDIC-insured limit, respectively, including restricted cash held for tenant security deposits of $541,620 and $339,152, 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 $38,033 and $1,724 during the nine months ended September 30, 2021 and 2020, respectively.

Fair Value of Financial Instruments

The Company follows paragraph 825-10-50-10 of the FASB ASC for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB ASC to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

Reclassifications

Certain amounts in the prior period presentation have been reclassified to conform with the current presentation. For the nine months ended September 30, 2020, the Company reclassed approximately $16,000 from general and administrative expense to corporate payroll and overhead and $131,000 from amortization expense to interest expense on the unaudited condensed consolidated statements of operations. For the three months ended September 30, 2020, the Company reclassed approximately $2,000 from corporate payroll and overhead to general and administrative expense and $58,000 from amortization expense to interest expense on the unaudited condensed consolidated statements of operations. Also for the year ended December 31, 2020, the Company reclassed approximately $7,000 from buildings to breakout separately as construction in process for comparison purposes to the current period.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021 AND 2020

(UNAUDITED)

The Company recognizes deferred tax assets to the extent that the Company believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

The Company recognizes interest and penalties, if any, with income tax expense in the accompanying consolidated statement of operations. As of September 30, 2021, and December 31, 2020, there were no such accrued interest or penalties.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires that entities use a new forward looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13 is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2022. The Company is currently evaluating the potential impact this standard may have on the consolidated financial statements.

In May 2020, the Securities and Exchange Commission adopted amendments to the financial disclosure requirements in Regulation S-X relating to the acquisition and disposition of businesses by registrants. The amendments, including Rule 3-05, Financial Statements of Businesses Acquired or to Be Acquired; Rule 3-14, Special Instructions for Real Estate Operations to Be Acquired; and Article 11, Pro Forma Financial Information, focus on the financial information required to be disclosed in connection with the acquisition and disposition of businesses, real estate operations, and investment companies and generally increased the thresholds at which acquisitions are deemed significant and require additional disclosures. The amendments are effective for fiscal years beginning after December 31, 2020. The Company has evaluated the impact this standard had on the consolidated financial statements and determined that it had no impact on the unaudited condensed consolidated financial statements. However, the Company will integrate these amendments in evaluating the significance and required additional disclosures upon acquisitions in future periods as necessary.

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying unaudited condensed consolidated financial statements.

Impact of Coronavirus Pandemic

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. On March 11, 2020, the World Health Organization declared the outbreak a pandemic, and on March 13, 2020, the United States declared a national emergency.

Most states and cities, including where the Company’s properties are located, have reacted by instituting quarantines, restrictions on travel, “stay at home” rules and restrictions on the types of businesses that may continue to operate, as well as guidance in response to the pandemic and the need to contain it.

The rules and restrictions put in place have had a negative impact on the economy and business activity and may adversely impact the ability of the Company’s tenants, many of whom may be restricted in their ability to work, to pay their rent as and when due. In addition, the Company’s property managers may be limited in their ability to properly maintain the Company’s properties. Enforcing the Company’s rights as landlord against tenants who fail to pay rent or otherwise do not comply with the terms of their leases may not be possible as many jurisdictions, including those where are properties are located, have established rules and/or regulations preventing us from evicting tenants for certain periods in response to the pandemic. If the Company is unable to enforce its rights as landlords, our business would be materially affected.

If the current pace of the pandemic does not continue to slow and the spread of the virus is not contained, the Company’s business operations could be further delayed or interrupted. The Company expects that government and health authorities may announce new or extend existing restrictions, which could require the Company to make further adjustments to its operations in order to comply with any such restrictions. The duration of any business disruption cannot be reasonably estimated at this time but may materially affect the Company’s ability to operate its business and result in additional costs.

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021 AND 2020

(UNAUDITED)

The extent to which the pandemic may impact the Company’s results will depend on future developments, which are highly uncertain and cannot be predicted as of the date of this report, including new information that may emerge concerning the severity of the pandemic and steps taken to contain the pandemic or treat its impact, among others. Nevertheless, the pandemic and the current financial, economic and capital markets environment present material uncertainty and risk with respect to the Company’s performance, financial condition, results of operations and cash flows.

NOTE 2 – RETROSPECTIVE APPLICATION OF CONSOLIDATION

The Company consolidates the accounts of Gvest Finance LLC, Gvest Homes I LLC, Gvest Anderson Homes LLC, Gvest Capital View Homes LLC, Gvest Hidden Oaks Homes LLC, Gvest Springlake Homes LLC, Brainerd Place LLC, and Bull Creek LLC. In accordance with applicable GAAP, due to common ownership among the entities, the consolidation has been accounted for retrospectively as of the beginning of the first period presented in the consolidated financial statements. The balances reported for the three and nine months ended September 30, 2020 on the condensed consolidated statement of operations, statement of deficit, and statements of cash flows have been adjusted accordingly.

NOTE 3 – VARIABLE INTEREST ENTITIES

The Company consolidates the accounts of Gvest Finance LLC, Gvest Homes I LLC, Gvest Anderson Homes LLC, Gvest Capital View Homes LLC, Gvest Hidden Oaks Homes LLC, Gvest Springlake Homes LLC, Brainerd Place LLC, and Bull Creek LLC and will continue to do so until they are no longer considered VIEs. During the nine months ended September 30, 2021, Gvest Finance LLC formed four wholly-owned subsidiaries Gvest Anderson Homes LLC, Gvest Capital View Homes LLC, Gvest Hidden Oaks Homes LLC, and Gvest Springlake Homes LLC and the Company formed two entities, Brainerd Place LLC and Bull Creek LLC, all of which are considered VIEs.

Included in the unaudited condensed consolidated results of operations for the three months ended September 30, 2021 and 2020 were $516,506 net loss and $41,649 net income, respectively after deducting an additional management fee equal to cash flow after debt service per the management agreement of $328,762 and $0, respectively. Included in the unaudited condensed consolidated results of operations for the nine months ended September 30, 2021 and 2020 were $343,073 net loss and $41,972 net income, respectively, after deducting an additional management fee equal to cash flow after debt service per the management agreement of $587,762 and $0, respectively. The Company charged and recorded this additional management fee on September 30, 2021 which represented the total fee owed year-to-date.

The consolidated balance sheets as of September 30, 2021 and December 31, 2020 included the following amounts related to the consolidated VIEs.

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021 AND 2020

(UNAUDITED)

NOTE 4 – INVESTMENT PROPERTY

The following table summarizes the Company’s property and equipment balances which are generally used to depreciate the assets on a straight-line basis:

Depreciation expense and amortization of acquisition costs totaled $507,493 and $447,266 for the three months ended September 30, 2021 and 2020, respectively, and $1,411,158 and $1,259,713 for the nine months ended September 30, 2021 and 2020, respectively.

During the nine months ended September 30, 2021, the Gvest Finance LLC, the Company’s VIE, acquired thirty-three new manufactured homes for $1,626,863 for use in our Springlake community that are not yet occupiable and still in the set-up phase as of September 30, 2021. These homes are included in Construction in Process on our balance sheet. In prior filings, Construction in Process account included homes undergoing renovations between tenants and was immaterial and thus, was included in the Buildings and Improvements line item and not separately stated on the unaudited condensed consolidated balance sheet. The December 31, 2020 Investment Property balances have been reclassified to separately state $7,092 Construction in Process for purposes of comparison across periods.

During the nine months ended September 30, 2021, the Company acquired four manufactured housing communities; one in Brunswick, Georgia, one in Anderson, South Carolina and two in Columbia, South Carolina, and accounted for all as asset acquisitions. Total gross acquisition costs incurred with 2021 acquisitions of $154,672 are included in Site and Land Improvements, $5,713 are included in Buildings and Improvements, and $1,269 of accumulated amortization of these acquisition costs are included in the above table and on the unaudited condensed consolidated balance sheet for the nine months ended September 30, 2021. The Company acquired two manufactured housing communities in Lancaster, South Carolina and Morristown, Tennessee and accounted for them as asset acquisitions during the nine months ended September 30, 2020 (See note 5).

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021 AND 2020

(UNAUDITED)

NOTE 5 – ACQUISITIONS AND DISPOSALS

The Company completed four acquisitions during the nine months ended September 30, 2021. These were asset acquisitions from third parties and have been accounted for as asset acquisitions. The mobile homes included in the buildings column of the table below were acquired by the Company’s VIEs: Gvest Finance LLC, Gvest Homes I LLC, Gvest Anderson Homes LLC, Gvest Capital View Homes LLC, and Gvest Hidden Oaks Homes LLC and are included in consolidation.

Butternut Sale

In December 2020, the Company sold the Butternut manufactured housing community for a total sale price of $2,100,000. The cost net of accumulated depreciation of the community at the time of the sale was $1,338,022. The Company wrote off mortgage costs of $109,529 which is included in refinancing costs on the consolidated statement of operations. The Company recognized a gain on the sale of the property of $761,978 during the year ended December 31, 2020.

Pro-forma Financial Information

The following unaudited pro-forma information presents the combined results of operations for the nine months ended September 30, 2021 as if the acquisitions of Golden Isles, Anderson, Capital View, and Hidden Oaks manufactured housing communities and the acquisition of the North Raleigh community which occurred subsequent to September 30, 2021 (see Note 10) had been completed on January 1, 2021.

The following unaudited pro-forma information also presents the combined results of operations for the nine months ended September 30, 2020 as if the acquisitions of the Countryside and Evergreen communities, the disposition of the Butternut manufactured housing community, the sale of the mobile homes within the ARC, Crestview, Countryside, and Maple communities in December 2020 to our VIEs Gvest Finance LLC and Gvest Homes I LLC, the four acquisitions which occurred during the nine months ended September 30, 2021, and the North Raleigh acquisition which occurred in October 2021 had been completed on January 1, 2020.

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021 AND 2020

(UNAUDITED)

NOTE 6 – PROMISSORY NOTES

Promissory Notes

The Company has issued promissory notes payable to lenders related to the acquisition of its manufactured housing communities and mobile homes. These promissory notes range from 3.31% to 6.62% with 5 to 30 years principal amortization. Two of the promissory notes had initial 12 month, seven have an initial 24 month, one has an initial 60 month, and one promissory note has a 180 month period of interest only payments. The promissory notes are secured by the real estate assets and $33,126,883 for sixteen loans were guaranteed by Raymond M. Gee.

On May 1, 2020, the Company received a $139,300 Paycheck Protection Program (the “PPP”) loan from the United States Small Business Administration (the “SBA”) under provisions of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The PPP loan has a two-year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments are deferred for six months after the date of disbursement. The PPP loan may be prepaid at any time prior to maturity with no prepayment penalties. The PPP loan contains events of default and other provisions customary for a loan of this type. The PPP provides that the loan may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. The Company used the proceeds from the PPP loan for qualifying expenses and applied for forgiveness of the PPP loan in accordance with the terms of the CARES Act. The loan was forgiven by the SBA on June 7, 2021.

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021 AND 2020

(UNAUDITED)

As of September 30, 2021, the outstanding balance on these notes was $40,199,689. The following are the terms of these notes:

*The Springlake MHP LLC and Gvest Finance LLC (Springlake homes) notes listed above were refinanced on November 12, 2021. See Note 10 for more details. 

Related Party Promissory Note

On May 8, 2017, the Company issued a promissory note to Metrolina Loan Holdings, LLC (“Metrolina”) in the principal amount of $3,000,000. The note is interest only payment based on 8%, and 10% deferred until maturity to be paid with principal balance. The note originally awarded Metrolina 455,000 shares of Common Stock as consideration, which resulted in making Metrolina a related party due to its significant ownership. During the year ended December 31, 2019, the Company paid off the entire balance on the note of $2,754,550 plus interest and amended the agreement to allow for the redeployment of the $3,000,000 available, eliminated the conversion option whereby Metrolina could convert the ratio of total outstanding debt at time of exercise of the option into an amount of newly issued shares of the Company’s Common Stock determined by dividing the outstanding indebtedness by $3,000,000 multiplied by 10% with a cap of 864,500 shares. The amendment resulted in issuing an additional 545,000 shares with a fair value of $305,200 for a total of 1,000,000 shares awarded to Metrolina. The note gives Metrolina the right and option to purchase its pro rata share of debt or equity securities issued to maintain up to 10% equity interest in the Company at the most recent price of any equity transaction for seven years from the amendment dated February 26, 2019. This note was to mature in May of 2023. In September 2020, we paid off the full balance and terminated the note. The related party note was guaranteed by Raymond M. Gee.

Revolving Promissory Note

On October 1, 2017, the Company issued a revolving promissory note to Raymond M. Gee pursuant to which the Company may borrow up to $1,500,000 from Mr. Gee on a revolving basis for working capital purposes. This note has a five-year term with no annual interest and principal payment is deferred until the maturity date. In December 2020, we paid off the full balance. As of September 30, 2021 and December 31, 2020, the outstanding balance on this note was $0; however, the line of credit is still available to the Company.

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021 AND 2020

(UNAUDITED)

Line of Credit – Occupied Home Facility

On December 24, 2020, Gvest Homes I LLC entered into a loan agreement with a lender for a commitment amount of up to $20,000,0000 provided that only up to $8,500,000 is to be used for used homes. The agreement requires the maintenance of certain financial ratios and other affirmative and negative covenants.

The loan bears interest at 8.375% and maturity date of the loan is January 1, 2030. Pursuant to the agreement, the Company is obligated to pay a fee to the lender equal to 1% of the amount of each advance which funding fee shall be deducted from the then available commitment amount. The advances are guaranteed by Raymond M. Gee.

On December 24, 2020 the lender agreed to advance $3,348,967 to the Company. The lender agreed to increase this amount to $3,422,260 offset with payments made by the Company of $35,073 during the nine months ended September 30, 2021, of which $850,000 was due from the lender as of the balance sheet date. As of September 30, 2021 and December 31, 2020, the outstanding balance on this line of credit was $3,387,187 and $3,348,967, respectively presented on the balance sheet net of discount direct lender fees of $124,693 and $134,051, respectively.

Line of Credit – Floor Plan and Rental Financing Facility 

On July 26, 2021, Gvest Finance LLC entered into a floorplan credit agreement, rental homes credit agreement, and a credit and security supplemental agreement pursuant to which the lender has agreed to make available to Gvest Finance LLC a secured credit facility whose joint aggregate credit limit is $5,000,000, consisting of (i) a credit limit of up to $1,000,000 under a floorplan line to be used to finance the acquisition of manufactured homes for retail sale and (ii) a credit limit of up to $4,000,000 under a rental line to finance the acquisition of rental homes. The lender subsequently agreed to extend the credit limit for the floorplan line to $2,000,000. As of September 30, 2021 and 2020, the balance on the floorplan line of credit was $1,626,863 and $0, respectively, and Gvest Finance LLC has not borrowed funds under the rental homes line of credit. This facility was refinanced on November 12. 2021 and the original lines of credit remain available to the Company. See Note 10 for more details.

The floorplan line of credit interest is calculated at a schedule as follows: (i) Day 1-360: LIBOR plus 6% per annum; (ii) Day 361-720: LIBOR plus 7% per annum; and (iii) Day 721+: LIBOR plus 8% per annum. Interest shall also accrue at the lesser of (a) the “LIBOR Rate”, plus 10% per annum and (b) the maximum lawful rate of interest permitted under applicable law. Interest shall be payable monthly, in arrears, and shall be due and payable on or before the 15th day of the month following the month in which such interest accrues. During the three and nine months ended September 30, 2021 and 2020, total interest expense was $0.

The maturity date of the of the floorplan line of credit will vary based on each statement of financial transaction (“SOFT”), a report identifying the funded homes and the applicable financial terms. Gvest Finance LLC promises to repay each floor plan advance as follows: (i) Gvest Finance LLC shall pay a principal amount in an amount equal to the original principal amount of such advance multiplied by the percentage specified in the applicable SOFT, commencing on the 15^th day of the first full month after the first anniversary of any advance and continuing on the 15^th day of each month thereafter; (ii) interest shall be payable monthly, in arrears, and shall be due and payable on or before the 15^th day of the month following the month in which such interest accrues; and (iii) Gvest Finance shall pay to lender an amount equal to the original invoice price of such homes inventory, less all principal payments made with respect to such inventory pursuant to (ii) above, plus all billed and unpaid interest and any applicable fees, upon the sale of inventory financed or refinanced by lender.

The floorplan line of credit agreement contains customary events of default and customary representations, warranties, and other covenants for loans of this type.

The floorplan and rental lines of credit are guaranteed by Raymond M. Gee.

Maturities of Long-Term Obligations for Five Years and Beyond

The minimum annual principal payments of notes payable at September 30, 2021 by fiscal year were:

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021 AND 2020

(UNAUDITED)

NOTE 7 – COMMITMENTS AND CONTINGENCIES

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

NOTE 8 – STOCKHOLDERS’ EQUITY

Preferred Stock

The Company is authorized to issue up to 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 Common Stock and pari passu with Series B Preferred Stock and Series C Preferred Stock. The terms of the Series A Preferred Stock will not limit the Company’s ability to (i) incur indebtedness or (ii) issue additional equity securities that are equal or junior in rank to the shares of Series A Preferred Stock as to distribution rights and rights upon liquidation, dissolution or winding up.

Dividend Rate and Payment Dates. Dividends on the Series A Preferred Stock are cumulative and payable monthly in arrears to all holders of record on the applicable record date. Holders of Series A Preferred Stock will be entitled to receive cumulative dividends in the amount of $0.017 per share each month, which is equivalent to the rate of 8% of the $2.50 liquidation preference per share. Dividends on shares of Series A Preferred Stock will continue to accrue even if any of the Company’s agreements prohibit the current payment of dividends or the Company does not have earnings. During the nine months ended September 30, 2021 and 2020, the Company paid dividends of $290,561 and $281,720, respectively.

Liquidation Preference. The liquidation preference for each share of Series A Preferred Stock is $2.50. Upon a liquidation, dissolution or winding up of the Company, holders of shares of Series A Preferred Stock will be entitled to receive the liquidation preference with respect to their shares plus an amount equal to any accrued but unpaid dividends (whether or not declared) to, but not including, the date of payment with respect to such shares.

Stockholder Optional Conversion. Each share of Series A Preferred Stock is convertible, at any time and from time to time, at the option of the holder thereof and without the payment of additional consideration, into that number of shares of Common Stock determined by dividing the liquidation preference of such share by the conversion price then in effect. The conversion price is initially equal $2.50, subject to adjustment as set forth in the certificate of designation. In addition, if at any time the trading price of the Common Stock is greater than the liquidation preference of $2.50, the Company may deliver a written notice to all holders to cause each holder to convert all or part of such holders’ Series A Preferred Stock.

Company Call and Stockholder Put Options. Commencing on the fifth anniversary of the initial issuance of shares of Series A Preferred Stock and continuing indefinitely thereafter, the Company will have a right to call for redemption the outstanding shares of Series A Preferred Stock at a call price equal to $3.75, or 150% of the original issue price of the Series A Preferred Stock, and correspondingly, each holder of shares of Series A Preferred Stock shall have a right to put the shares of Series A Preferred Stock held by such holder back to us at a put price equal to $3.75, or 150% of the original issue purchase price of such shares. During the nine months ended September 30, 2021 and 2020, the Company recorded a put option value accretion of $354,396 and 354,375, respectively.

Voting Rights. The Company may not authorize or issue any class or series of equity securities ranking senior to the Series A Preferred Stock as to dividends or distributions upon liquidation (including securities convertible into or exchangeable for any such senior securities) or amend the Company’s articles of incorporation (whether by merger, consolidation, or otherwise) to materially and adversely change the terms of the Series A Preferred Stock without the affirmative vote of at least two-thirds of the votes entitled to be cast on such matter by holders of the outstanding shares of Series A Preferred Stock, voting together as a class. Otherwise, holders of the shares of Series A Preferred Stock do not have any voting rights.

As of September 30, 2021, there were 1,886,000 shares of Series A Preferred Stock issued and outstanding and the Series A Preferred Stock balance was made up of Series A Preferred Stock totaling $4,715,000 and accretion of put options totaling $1,008,896. As of December 31, 2020, there were 1,890,000 shares of Series A Preferred Stock issued and outstanding and the Series A Preferred Stock balance was made up of Series A Preferred Stock totaling $4,725,000 and accretion of put options totaling $656,500.

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021 AND 2020

(UNAUDITED)

Series B Preferred Stock

On December 2, 2019, the Company filed a certificate of designation with the Nevada Secretary of State pursuant to which the Company designated 1,000,000 shares of its preferred stock as Series B Cumulative Redeemable Preferred Stock (the “Series B Preferred Stock”). The Series B Preferred Stock has the following voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions:

Ranking. The Series B Preferred Stock ranks, as to dividend rights and rights upon our liquidation, dissolution, or winding up, senior to Common Stock and pari passu with Series A Preferred Stock and Series C Preferred Stock. The terms of the Series B Preferred Stock do not limit the Company’s ability to (i) incur indebtedness or (ii) issue additional equity securities that are equal or junior in rank to the shares of Series B Preferred Stock as to distribution rights and rights upon liquidation, dissolution or winding up.

Dividend Rate and Payment Dates. Dividends on the Series B Preferred Stock are cumulative and payable monthly in arrears to all holders of record on the applicable record date. Holders of Series B Preferred Stock will be entitled to receive cumulative dividends in the amount of $0.067 per share each month, which is equivalent to the annual rate of 8% of the $10.00 liquidation preference per share; provided that upon an event of default (generally defined as the Company’s failure to pay dividends when due or to redeem shares when requested by a holder), such amount shall be increased to $0.083 per month, which is equivalent to the annual rate of 10% of the $10.00 liquidation preference per share. During the nine months ended September 30, 2021 and 2020, the Company paid dividends of $427,517 and $310,288, respectively.

Liquidation Preference. The liquidation preference for each share of Series B Preferred Stock is $10.00. Upon a liquidation, dissolution or winding up of the Company, holders of shares of Series B Preferred Stock will be entitled to receive the liquidation preference with respect to their shares plus an amount equal to any accrued but unpaid dividends (whether or not declared) to, but not including, the date of payment with respect to such shares.

Company Call and Stockholder Put Options. Commencing on the fifth anniversary of the initial issuance of shares of Series B Preferred Stock and continuing indefinitely thereafter, the Company will have a right to call for redemption the outstanding shares of Series B Preferred Stock at a call price equal to $15.00, or 150% of the original issue price of the Series B Preferred Stock, and correspondingly, each holder of shares of Series B Preferred Stock shall have a right to put the shares of Series B Preferred Stock held by such holder back to the Company at a put price equal to $15.00, or 150% of the original issue purchase price of such shares. During the nine months ended September 30, 2021 and 2020, the Company recorded a put option value accretion of $554,780 and $408,834, respectively.

Voting Rights. The Company may not authorize or issue any class or series of equity securities ranking senior to the Series B Preferred Stock as to dividends or distributions upon liquidation (including securities convertible into or exchangeable for any such senior securities) or amend the Company’s articles of incorporation (whether by merger, consolidation, or otherwise) to materially and adversely change the terms of the Series B Preferred Stock without the affirmative vote of at least two-thirds of the votes entitled to be cast on such matter by holders of outstanding shares of Series B Preferred Stock, voting together as a class. Otherwise, holders of the shares of Series B Preferred Stock do not have any voting rights.

No Conversion Right. The Series B Preferred Stock is not convertible into shares of Common Stock.

On November 1, 2019, the Company launched an offering under Regulation A of Section 3(6) of the Securities Act of 1933, as, amended, for Tier 2 offerings, pursuant to which the Company offered up to 1,000,000 shares of Series B Preferred Stock at an offering price of $10.00 per share, for a maximum offering amount of $10,000,000. In addition, the Company offered bonus shares to early investors in this offering, whereby the first 400 investors would receive, in addition to Series B Preferred Stock, 100 shares of Common Stock, regardless of the amount invested, for a total of up to 40,000 shares of Common Stock. This offering terminated on March 30, 2021.

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021 AND 2020

(UNAUDITED)

During the nine months ended September 30, 2021, the Company sold an aggregate of 117,297 shares of Series B Preferred Stock for total gross proceeds of $1,172,970. After deducting a placement fee and other expenses, the Company received net proceeds of $1,087,485. During the nine months ended September 30, 2020, the Company sold an aggregate of 205,569 shares of Series B Preferred Stock for total gross proceeds of $2,055,690. After deducting a placement fee and other expenses, the Company received net proceeds of $1,910,383.

As of September 30, 2021, there were 758,551 shares of Series B Preferred Stock issued and outstanding and the Series B Preferred Stock balance was made up of Series B Preferred Stock, net of commissions, totaling $7,185,716 and accretion of put options totaling $1,148,623. As of December 31, 2020, there were 641,254 shares of Series B Preferred Stock issued and outstanding and the Series B Preferred Stock balance was made up of Series B Preferred Stock, net of commissions, totaling $6,096,855 and accretion of put options totaling $595,221.

Series C Preferred Stock

On May 24, 2021, the Company filed an amended and restated certificate of designation with the Nevada Secretary of State pursuant to which the Company designated 47,000 shares of its preferred stock as Series C Cumulative Redeemable Preferred Stock (the “Series C Preferred Stock”). The Company filed this designation in anticipation of the launching of a new offering under Regulation A of Section 3(6) of the Securities Act of 1933, as amended, for Tier 2 offerings, pursuant to which the Company plans to offer up to 47,000 shares of Series C Preferred Stock at an offering price of $1,000 per share for a maximum offering amount of $47 million. The offering was qualified by the SEC and launched in June 2021.

The Series C Preferred Stock has the following voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions:

Ranking. The Series C Preferred Stock ranks, as to dividend rights and rights upon liquidation, dissolution, or winding up, senior to Common Stock and pari passu with Series A Preferred Stock and Series B Preferred Stock. The terms of the Series C Preferred Stock do not limit the Company’s ability to (i) incur indebtedness or (ii) issue additional equity securities that are equal or junior in rank to the shares of Series C Preferred Stock as to distribution rights and rights upon liquidation, dissolution or winding up.

Stated Value. Each share of Series C Preferred Stock has an initial stated value of $1,000, subject to appropriate adjustment in relation to certain events, such as recapitalizations, stock dividends, stock splits, stock combinations, reclassifications or similar events affecting the Series C Preferred Stock.

Dividend Rate and Payment Dates. Dividends on the Series C Preferred Stock are cumulative and payable monthly in arrears to all holders of record on the applicable record date. Holders of Series C Preferred Stock are entitled to receive cumulative monthly cash dividends at a per annum rate of 7% of the stated value (or $5.83 per share each month based on the initial stated value). Dividends on each share begin accruing on, and are cumulative from, the date of issuance and regardless of whether the board of directors declares and pays such dividends. Dividends on shares of Series C Preferred Stock will continue to accrue even if any of the Company’s agreements prohibit the current payment of dividends or the Company does not have earnings. During the nine months ended September 30, 2021, the Company paid dividends of $3,488 and due to timing of payments, accrued dividends of $18,555 and paid $0 dividends during the nine months ended September 30, 2020, respectively.

Liquidation Preference. Upon a liquidation, dissolution or winding up of the Company, holders of shares of Series C Preferred Stock are entitled to receive, before any payment or distribution is made to the holders of Common Stock and on a pari passu basis with holders of Series A Preferred Stock and Series B Preferred Stock, a liquidation preference equal to the stated value per share, plus accrued but unpaid dividends thereon.

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021 AND 2020

(UNAUDITED)

Redemption Request at the Option of a Holder. Once per calendar quarter, a holder will have the opportunity to request that the Company redeem that holder’s Series C Preferred Stock. The board of directors may, however, suspend cash redemptions at any time in its discretion if it determines that it would not be in the best interests of the Company to effectuate cash redemptions at a given time because the Company does not have sufficient cash, including because the board believes that the Company’s cash on hand should be utilized for other business purposes. Redemptions will be limited to four percent (4%) of the total outstanding Series C Preferred Stock per quarter and any redemptions in excess of such limit or to the extent suspended, shall be redeemed in subsequent quarters on a first come, first served, basis. The Company will redeem shares at a redemption price equal to the stated value of such redeemed shares, plus any accrued but unpaid dividends thereon, less the applicable redemption fee (if any). As a percentage of the aggregate redemption price of a holder’s shares to be redeemed, the redemption fee shall be:

Optional Redemption by the Company. The Company has the right (but not the obligation) to redeem shares of Series C Preferred Stock at a redemption price equal to the stated value of such redeemed shares, plus any accrued but unpaid dividends thereon; provided, however, that if the Company redeems any shares of Series C Preferred Stock prior to the fourth (4^th) anniversary of their issuance, then the redemption price shall include a premium equal to ten percent (10%) of the stated value.

Mandatory Redemption by the Company. The Company must redeem the outstanding shares of Series C Preferred Stock on the fourth (4^th) anniversary of their issuance at a redemption price equal to the stated value of such redeemed shares, plus any accrued but unpaid dividends thereon.

Voting Rights. The Series C Preferred Stock has no voting rights.

No Conversion Right. The Series C Preferred Stock is not convertible into shares of Common Stock.

In accordance with ASC 480-10, the Series C Preferred Stock is treated as a liability net of unamortized debt issuance costs on the balance sheet because the Company has an unconditional obligation to redeem the Series C Preferred Stock and dividends on the Preferred C Stock are included in interest expense.

During the nine months ended September 30, 2021, the Company sold an aggregate of 2,434 shares of Series C Preferred Stock for total gross proceeds of $2,434,000. After deducting a placement fee and other expenses, the Company received net proceeds of $2,266,955. The Company capitalized approximately $91,000 of issuance costs during the nine months ended September 31, 2021 which is included in the Series C Redeemable preferred Stock on the condensed consolidated balance sheet.

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, 2021 and December 31, 2020, there were 12,403,680  and 12,398,580 shares of Common Stock issued and outstanding, respectively.

Stock Issued for Service

During the nine months ended September 30, 2021, the Company did not issue any shares of Common Stock for services. In April 2020, the Company issued 50,000 shares of Common Stock to board members with a value of $32,500.

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021 AND 2020

(UNAUDITED)

Stock Issued for Cash

During the nine months ended September 30, 2021 and 2020, the Company issued 5,100 and 11,100 shares of Common Stock, respectively, to early investors in the Company’s prior Regulation A offering for Series B Preferred Stock, valued at $1,377 and $2,997, respectively.

Equity Incentive Plan

In December 2017, the Board of Directors, with the approval of a majority of the stockholders of the Company, adopted the Manufactured Housing Properties Inc. Stock Compensation Plan (the “Plan”) which is administered by the Compensation Committee. As of September 30, 2021, there were 706,175 shares granted and 293,825 shares remaining available under the Plan.

The Company has issued options to directors and officers under the Plan. One third of the options vest immediately, and two thirds vest in equal annual installments over a two-year period. The Company issued 50,000 options in January 2021. The Company recorded stock option expense of $38,033 and $1,724 during the nine months ended September 30, 2021 and 2020, respectively.

The following table summarizes the stock options outstanding as of September 30, 2021:

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company’s closing stock price at fiscal year-end and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holder had all options holders exercised their options on September 30, 2021. As of September 30, 2021, there were 706,175 “in-the-money” options with an aggregate intrinsic value of $2,133,591.

The following table summarizes information concerning options outstanding as of September 30, 2021.

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.

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021 AND 2020

(UNAUDITED)

NOTE 9 – RELATED PARTY TRANSACTIONS

On October 1, 2017, the Company issued a revolving promissory note to Raymond M. Gee, the Company’s chairman and chief executive officer, pursuant to which the Company may borrow up to $1,500,000 from Mr. Gee on a revolving basis for working capital purposes. This note has a five-year term with no annual interest and principal payment is deferred until the maturity date. In December 2020, the Company paid off the full balance. As of September 30, 2021 and December 31, 2020, the outstanding balance on this note was $0; however, the line of credit is still available to the Company.

On May 8, 2017, the Company issued a promissory note to Metrolina in the principal amount of $3,000,000. The note is interest only payment based on 8%, and 10% deferred until maturity to be paid with principal balance. The note originally awarded Metrolina 455,000 shares of Common Stock as consideration, which resulted in making Metrolina a related party due to its significant ownership. During the year ended December 31, 2019, the Company paid off the entire balance on the note of $2,754,550 plus interest and amended the agreement to allow for the redeployment of the $3,000,000 available, eliminated the conversion option whereby Metrolina could convert the ratio of total outstanding debt at time of exercise of the option into an amount of newly issued shares of the Company’s Common Stock determined by dividing the outstanding indebtedness by $3,000,000 multiplied by 10% with a cap of 864,500 shares. The amendment resulted in issuing an additional 545,000 shares with a fair value of $305,200 for a total of 1,000,000 shares awarded to Metrolina. The note gives Metrolina the right and option to purchase its pro rata share of debt or equity securities issued to maintain up to 10% equity interest in the Company at the most recent price of any equity transaction for seven years from the amendment dated February 26, 2019. This note was to mature in May of 2023. In September 2020, the Company paid off the full balance and terminated the loan facility. As of September 30, 2021 and December 31, 2020, the balance on this note was $0. During the nine months ended September 30, 2021 and 2020, the Company recorded interest expense related to the note totaling $0 and $56,441 respectively, and $0 and $36,028 during the three months ended September 30, 2021 and 2020, respectively. The related party note was guaranteed by Raymond M. Gee.

In August 2019, the Company entered into an office lease agreement with Gvest Real Estate Capital LLC for the lease of its offices. As of January 2021, the lease is $12,000 per month and is on a month-to-month term. Prior to that date, the lease was $4,000 per month. Total rent expense for the nine months ended September 30, 2021 and 2020 was $108,000 and $36,000, respectively, and $36,000 and $12,000 for the three months ended September 30, 2021 and 2020, respectively.

During the nine months ended September 30, 2021, Raymond M. Gee received fees totaling $400,000 for his personal guarantees on four promissory notes relating to the acquisitions of the assets acquired by the Company at our Anderson, Capital View, and Hidden Oaks Communities. During the nine months ended September 30, 2020, Mr. Gee received a $50,000 fee for his personal guarantee on a promissory note relating to a loan for one of the Company’s acquisitions and $70,000 fee for his personal guarantee on a promissory note relating to the refinancing of our loans for Butternut MHP Land LLC.

See Note 3 for information regarding related party VIEs.

NOTE 10 – SUBSEQUENT EVENTS

Series C Preferred Stock 

Subsequent to September 30, 2021, the Company completed three closings of the Regulation A offering pursuant to which the Company sold an aggregate of 980 shares of Series C Preferred Stock to investors for total gross proceeds of $980,000. After deducting the broker dealer commission, escrow fee, and dealer manager fee, the Company received net proceeds of $913,851.

North Raleigh Acquisition and Related Financing

On July 1, 2021, MHP Pursuits LLC, a wholly owned subsidiary of the Company, entered into a purchase and sale agreement (the “Franklin/Granville Purchase Agreement”) with Truman Properties LLC, Birdsong Properties LLC, CCE Properties LLC, and Youngsville MHP LLC for the purchase of five manufactured housing communities located in Franklin and Granville Counties, North Carolina consisting of 137 sites on approximately 135 acres for a total purchase price of $7,450,000. On October 22, 2021, MHP Pursuits LLC assigned the purchase agreement to the Company’s newly formed wholly owned subsidiary North Raleigh MHP LLC (“North Raleigh MHP”), pursuant to an assignment of purchase and sale agreement. On October 25, 2021, closing of the purchase agreement was completed and North Raleigh MHP purchased the communities. Proforma financial information for North Raleigh MHP is included in the unaudited proforma combined results of operations in Note 5.

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021 AND 2020

(UNAUDITED)

In connection with the closing, on October 25, 2021, North Raleigh MHP entered into a loan agreement with Liberty Bankers Life Insurance Company (“Liberty”) for a loan in the principal amount of $5,323,000 and North Raleigh MHP issued a promissory note to Liberty for the same amount.

The Liberty note bears interest at a rate of 4.75% per annum with payments to begin December 1, 2021 and matures on November 1, 2026. Principal and interest, in the amount of $30,347 per month, shall be due and payable based on a twenty-five (25) year amortization schedule. North Raleigh MHP may prepay the Liberty note in part or in full at any time if it pays a prepayment premium calculated in accordance with the Liberty loan agreement.

The Liberty loan is secured by a first priority security interest in the property pursuant to an assignment of leases, rents, and profits and a deed of trust, security agreement and fixture filing with assignment of rents that North Raleigh MHP entered into with the lender. The Liberty loan is guaranteed by the Company pursuant to a limited guaranty agreement dated October 25, 2021.

On October 22, 2021, the Company entered into a loan agreement with Metrolina, a related party due to its significant ownership,  for a loan in the principal amount of $1,500,000 and issued a promissory note to the lender for the same amount. The funds from the Metrolina note were used to pay the remainder of the purchase price, or $2,127,000, and closing costs.

The Metrolina note bears interest at a rate of 18% per annum with payments to begin November 1, 2021 and matures on April 1, 2023. Monthly payments for the term of the note shall be interest-only based on the principal outstanding and days in the period. During the first six months of the note, any prepayment would require the Company to pay a yield maintenance fee equal to six months of interest. Thereafter, the loan may be prepaid at any time without penalty or fee. The Metrolina note is unsecured and is guaranteed by Raymond M. Gee.

The loan agreements contain customary closing conditions, representations and warranties, financial and other covenants and events of default for loans of their type.

Idlewild Acres Purchase and Sale Agreement

On October 20, 2021, MHP Pursuits LLC entered into a purchase and sale agreement with Gary Coffey for the purchase of a manufactured housing community located in Morganton, North Carolina consisting of 61 sites on approximately 31.29 acres for a total purchase price of $2,750,000. As of November 15, 2021, closing of this agreement has not occurred.

Alterri Purchase and Sale Agreement

On October 22, 2021, MHP Pursuits LLC entered into a purchase and sale agreement with Alterri Properties LLC for the purchase of two manufactured housing communities located in Asheboro, North Carolina consisting of 84 sites on approximately 45.4 acres for a total purchase price of $2,750,000. As of November 15, 2021, closing of this agreement has not occurred.

Sunnyland Purchase and Sale Agreement

On November 3, 2021, MHP Pursuits LLC entered into a purchase and sale agreement with Billie Jean Faust for the purchase of a manufactured housing community located in Byron, Georgia consisting of 73 sites on approximately 18.57 acres for a total purchase price of $2,200,000. As of November 15, 2021, closing of this agreement has not occurred.

York Purchase and Sale Agreement

On November 2, 2021, Bull Creek LLC, a VIE, entered into a purchase and sale agreement with Rachel Holler for the purchase of 150 acres of undeveloped land and a mobile home community with 60 sites on approximately 10 acres in York, South Carolina for a total purchase price of $2,200,000. As of November 15, 2021, closing of this agreement has not occurred.

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021 AND 2020

(UNAUDITED)

Springlake Refinance

On November 12, 2021, Springlake MHP LLC  entered into a loan agreement with First Bank for a loan in the principal amount of $4,016,250 and issued a promissory note to the lender in the same amount. The funds from the loan were used on November 12, 2021 to pay off the Springlake MHP LLC with Truist Bank which was set to mature November 14, 2021.

The First Bank note bears interest at the lesser of the Wall Street Journal prime rate plus one percent or 4.75% per annum with payments to begin January 10, 2022 and matures on December 10, 2026. Payment for the first twelve (12) months of the term of the note shall be interest-only based on the principal outstanding, days in the period, and daily interest rate. Thereafter, principal and interest shall be due and payable based on a twenty-five (25) year amortization schedule. Springlake MHP LLC may prepay the note in part or in full subject to exit fees set out in the loan agreement.

The First Bank loan is secured by a first-priority security interest in the land and lot rent due under all leases  and is guaranteed by the Company and Raymond M. Gee.

Also on November 12, 2021, Gvest Springlake Homes LLC, a wholly owned subsidiary of our VIE, Gvest Finance LLC, entered into a loan and security agreement with First Bank for a line of credit in the principal amount of $2,000,000 and issued a promissory note to the lender in the same amount. The immediate advance of funds from the line of credit was used on November 12, 2021 to pay off Gvest Finance LLC’s loan for Springlake homes with 21^st Mortgage and the outstanding balance of the Line of Credit – Floor Plan Financing Facility (see Note 6). The Line of Credit – Floor Plan and Rental Financing Facilities remain available to Gvest Finance LLC after the payoff.

The First Bank line of credit bears interest at the lesser of the Wall Street Journal prime rate plus one percent or 6.75% per annum with principal and interest payments to begin on January 10, 2022. Principal and interest payments shall be due and payable on each advance allocated to each new home based on a fifteen (15) year amortization period and each advance allocated to a used home will be based on an amortization period ranging from twelve to five years determined by the age of the used home. The note matures on December 10, 2026. Gvest Springlake Homes LLC may prepay the note in full subject to exit fees set out in the loan agreement. Additionally, Gvest Springlake Homes LLC is required to make to mandatory prepayments prior to the maturity date if for any reason the aggregate principal amount of the loan outstanding exceeds $2,000,000, upon sale of a home securing the loan, the home collateral becomes ineligible as defined by the loan agreement, or if Springlake MHP LLC pays of its land loan with First Bank.

The First Bank line of credit loan is secured by a first-priority security interest in rent due under all leases and all assets owned by Gvest Springlake Homes LLC and is guaranteed by Gvest Finance and Raymond M. Gee pursuant to guaranty agreements dated November 12, 2021.

Both loan agreements contain customary representations and warranties, financial and other covenants and events of default for loans of their type.

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

Use of Terms

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

Special Note Regarding Forward Looking Statements

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

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

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

The specific discussions herein about our company include financial projections and future estimates and expectations about our company’s business. The projections, estimates and expectations are presented in this report only as a guide about future possibilities and do not represent actual amounts or assured events. All the projections and estimates are based exclusively on our management’s own assessment of our business, the industry in which we operate and the economy at large and other operational factors, including capital resources and liquidity, financial condition, fulfillment of contracts and opportunities. The actual results may differ significantly from the projections.

Overview

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

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

As of September 30, 2021, we owned and operated the following manufactured housing properties: