NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2022 AND 2021
(UNAUDITED)
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
Organization
Manufactured
Housing Properties Inc. (the “Company”) is a Nevada corporation whose principal activities are to acquire, own, and operate
manufactured housing communities.
Basis
of Presentation
The
Company prepares its consolidated financial statements under the accrual basis of accounting, in conformity with accounting principles
generally accepted in the United States of America (“GAAP”).
The
accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with GAAP for interim
financial information and with the instructions to Form 10-Q of Regulation S-X. They do not include all information and footnotes required
by GAAP for complete financial statements. The December 31, 2021 consolidated balance sheet data was derived from audited financial statements
but does not include all disclosures required by GAAP. However, except as disclosed herein, there has been no material change in the
information disclosed in the notes to the consolidated financial statements for the year ended December 31, 2021 included in the Company’s
Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 31, 2022. The interim unaudited condensed consolidated
financial statements should be read in conjunction with those consolidated financial statements included in the Form 10-K. In the opinion
of management, all adjustments considered necessary for a fair statement of the financial statements, consisting solely of normal recurring
adjustments, have been made. Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2022.
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.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022 AND 2021
(UNAUDITED)
The
Company’s formation of all subsidiaries and VIEs’ date of consolidation are as follows:
Name of Subsidiary |
|
State of Formation |
|
Date of Formation |
|
Ownership |
|
Pecan Grove MHP LLC |
|
North Carolina |
|
October 12, 2016 |
|
|
100% |
|
Azalea MHP LLC |
|
North Carolina |
|
October 25, 2017 |
|
|
100% |
|
Holly Faye MHP LLC |
|
North Carolina |
|
October 25, 2017 |
|
|
100% |
|
Chatham Pines MHP LLC |
|
North Carolina |
|
October 31, 2017 |
|
|
100% |
|
Maple Hills MHP LLC |
|
North Carolina |
|
October 31, 2017 |
|
|
100% |
|
Lakeview MHP LLC |
|
South Carolina |
|
November 1, 2017 |
|
|
100% |
|
MHP Pursuits LLC |
|
North Carolina |
|
January 31, 2019 |
|
|
100% |
|
Mobile Home Rentals LLC |
|
North Carolina |
|
September 30, 2016 |
|
|
100% |
|
Hunt Club MHP LLC |
|
South Carolina |
|
March 8, 2019 |
|
|
100% |
|
B&D MHP LLC |
|
South Carolina |
|
April 4, 2019 |
|
|
100% |
|
Crestview MHP LLC |
|
North Carolina |
|
June 28, 2019 |
|
|
100% |
|
Springlake MHP LLC |
|
Georgia |
|
October 10, 2019 |
|
|
100% |
|
ARC MHP LLC |
|
South Carolina |
|
November 13, 2019 |
|
|
100% |
|
Countryside MHP LLC |
|
South Carolina |
|
March 12, 2020 |
|
|
100% |
|
Evergreen MHP LLC |
|
Tennessee |
|
March 17, 2020 |
|
|
100% |
|
Golden Isles MHP LLC |
|
Georgia |
|
March 16, 2021 |
|
|
100% |
|
Anderson MHP LLC |
|
South Carolina |
|
June 2, 2021 |
|
|
100% |
|
Capital View MHP LLC |
|
South Carolina |
|
August 6, 2021 |
|
|
100% |
|
Hidden Oaks MHP LLC |
|
South Carolina |
|
August 6, 2021 |
|
|
100% |
|
North Raleigh MHP LLC |
|
North Carolina |
|
September 16, 2021 |
|
|
100% |
|
Carolinas 4 MHP LLC |
|
North Carolina |
|
November 30, 2021 |
|
|
100% |
|
Charlotte 3 Park MHP LLC |
|
North Carolina |
|
December 10, 2021 |
|
|
100% |
|
Sunnyland MHP LLC |
|
Georgia |
|
January 7, 2022 |
|
|
100% |
|
Warrenville MHP LLC |
|
South Carolina |
|
February 15, 2022 |
|
|
100% |
|
Solid Rock MHP LLC* |
|
South Carolina |
|
June 6, 2022 |
|
|
100% |
|
Spaulding MHP LLC |
|
Georgia |
|
June 10, 2022 |
|
|
100% |
|
Raeford MHP Development LLC |
|
North Carolina |
|
June 20, 2022 |
|
|
100% |
|
Solid Rock MHP Homes LLC* |
|
South Carolina |
|
June 22, 2022 |
|
|
100% |
|
Country Estates MHP LLC* |
|
North Carolina |
|
July 6, 2022 |
|
|
100% |
|
Statesville MHP LLC* |
|
North Carolina |
|
July 6, 2022 |
|
|
100% |
|
Timberview MHP LLC* |
|
North Carolina |
|
July 7, 2022 |
|
|
100% |
|
Red Fox MHP LLC* |
|
North Carolina |
|
July 7, 2022 |
|
|
100% |
|
Northview MHP LLC* |
|
North Carolina |
|
July 8, 2022 |
|
|
100% |
|
Meadowbrook MHP LLC* |
|
South Carolina |
|
July 25, 2022 |
|
|
100% |
|
Sunnyland 2 MHP LLC* |
|
Georgia |
|
July 27, 2022 |
|
|
100% |
|
Dalton 3 MHP LLC* |
|
Georgia |
|
August 8, 2022 |
|
|
100% |
|
Gvest Finance LLC |
|
North Carolina |
|
December 11, 2018 |
|
|
VIE |
|
Gvest Homes I LLC |
|
Delaware |
|
November 9, 2020 |
|
|
VIE |
|
Brainerd Place LLC |
|
Delaware |
|
February 24, 2021 |
|
|
VIE |
|
Bull Creek LLC |
|
Delaware |
|
April 13, 2021 |
|
|
VIE |
|
Gvest Anderson Homes LLC |
|
Delaware |
|
June 22, 2021 |
|
|
VIE |
|
Gvest Capital View Homes LLC |
|
Delaware |
|
August 6, 2021 |
|
|
VIE |
|
Gvest Hidden Oaks Homes LLC |
|
Delaware |
|
August 6, 2021 |
|
|
VIE |
|
Gvest Springlake Homes LLC |
|
Delaware |
|
September 24, 2021 |
|
|
VIE |
|
Gvest Carolinas 4 Homes LLC |
|
Delaware |
|
November 13, 2021 |
|
|
VIE |
|
Gvest Sunnyland Homes LLC |
|
Delaware |
|
January 6, 2022 |
|
|
VIE |
|
Gvest Warrenville Homes LLC |
|
Delaware |
|
February 14, 2022 |
|
|
VIE |
|
* | During the three and six months ended June 30, 2022, there was no activity
in Solid Rock MHP LLC, Solid Rock MHP Homes LLC, Red Fox MHP LLC, Meadowbrook MHP LLC, Sunnyland 2 MHP LLC, Country Estates MHP LLC, Northview
MHP LLC, Statesville MHP LLC, Timberview MHP LLC, and Dalton 3 MHP LLC. |
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
JUNE
30, 2022 AND 2021
(UNAUDITED)
Revenue
Recognition
Mobile
home rental and related income is generated from lease agreements for our sites and homes. The lease component of these agreements is
accounted for under Topic 842 of the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, for leases.
Under
ASC 842, the Company must assess on an individual lease basis whether it is probable that we will collect the future lease payments.
The Company considers the tenant’s payment history and current credit status when assessing collectability. When collectability
is not deemed probable, the Company will write-off the tenant’s receivables, including straight-line rent receivable, and limit
lease income to cash received.
The Company’s
revenues primarily consist of rental revenues and other rental related fee income. The Company has the following revenue sources and revenue
recognition policies:
| ● | Rental
revenues include revenues from the leasing of land lot or a combination of both, the mobile
home and land at our properties to tenants. |
| ● | Revenues
from the leasing of land lot or a combination of both, the mobile home and land at the Company’s
properties to tenants include (i) lease components, including land lot or a combination of
both, the mobile home and land, and (ii) reimbursement of utilities and account for the components
as a single lease component in accordance with ASC 842. |
| ● | Revenues
derived from fixed lease payments are recognized on a straight-line basis over the non-cancelable
period of the lease. The Company commences rental revenue recognition when the underlying
asset is available for use by the lessee. Revenue derived from the reimbursement of utilities
are generally recognized in the same period as the related expenses are incurred. The majority
of the Company’s leases are month-to-month. |
Revenue from sales of manufactured homes is recognized
in accordance with the core principle of ASC 606, at the time of closing when control of the home transfers to the customer. After closing
of the sale transaction, the Company generally has no remaining performance obligation.
Accounts
Receivable
Accounts
receivable consist primarily of amounts currently due from residents. Accounts receivable are reported in the balance sheet at outstanding
principal adjusted for any charge-offs and 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
JUNE 30, 2022 AND 2021
(UNAUDITED)
Variable
Interest Entities
In
December 2020, the Company entered into a property management agreement with Gvest Finance LLC, a company owned and controlled by the
Company’s parent company, Gvest Real Estate Capital LLC, an entity whose sole owner is Raymond M. Gee, the Company’s chairman
and chief executive officer, and has subsequently entered into property management agreements with Gvest Homes I LLC, Gvest Anderson
Homes LLC, Gvest Capital View Homes LLC, Gvest Hidden Oaks Homes LLC, Gvest Springlake Homes LLC, Gvest Carolinas 4 Homes LLC, Gvest
Sunnyland Homes LLC and Gvest Warrenville Homes LLC, which are all wholly owned subsidiaries of Gvest Finance LLC. Under the property
management agreements, the Company manages the homes owned by the VIEs and the VIEs remit to the Company all income, less any sums paid
out for operational expenses and debt service but retain 5% of the debt service payment as a reserve.
Additionally,
during 2021, the Company formed two entities, Brainerd Place LLC and Bull Creek LLC, for the purpose of exploring opportunities to develop
mobile home communities. The Company owns 49% of these entities and Gvest Real Estate LLC, an entity whose sole owner is Raymond
M. Gee, owns 51%. The Company also executed operating agreements with these entities which designate Gvest Capital Management LLC,
a company owned and controlled by Gvest Real Estate Capital LLC, as manager with the authority, power, and discretion to manage and control
the entities’ business decisions. The operating agreements require the Company to make cash contributions to the entities to fund
their activities, operations, and existence, if the Company approves the contribution requests from the manager, which ultimately provides
the Company with power to direct the economically significant activities of these entities.
A
company with interests in a VIE must consolidate the entity if the company is deemed to be the primary beneficiary of the VIE; that is,
if it has both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb
losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. Such a determination requires
management to evaluate circumstances and relationships that may be difficult to understand and to make a significant judgment, and to
repeat the evaluation at each subsequent reporting date. Primarily due to the Company’s common ownership by Mr. Gee, its power
to direct the activities of these entities that most significantly impact their economic performance, and the fact that the Company has
the obligation to absorb losses or the right to receive benefits from these entities that could potentially be significant to these entities,
the entities listed above are considered to be VIEs in accordance applicable GAAP.
Net
Income (Loss) Per Share
Basic
net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding,
including vested penny stock options during the period. Diluted net income (loss) per share is calculated by dividing net income (loss)
by the weighted average number of common shares outstanding plus the weighted average number of net shares that would be issued upon
exercise of stock options pursuant to the treasury stock method.
For the
six months ended June 30, 2022, the potentially dilutive penny options for the purchase of 428,176 shares of Common Stock were
included in basic loss per share. Other securities outstanding as of June 30, 2022 not included in dilutive loss per share, as the
effect would be anti-dilutive, were 1,886,000 shares of Series A Cumulative Redeemable Convertible Preferred Stock, which
are convertible into Common Stock for a total of 1,886,000 shares.
For
the six months ended June 30, 2021, the potentially dilutive penny options for the purchase of 519,675 shares of Common Stock
were included in basic loss per share. Other securities outstanding as of June 30, 2021 not included in dilutive loss per share,
as the effect would be anti-dilutive, were 186,500 stock options and 1,890,000 shares of Series A Cumulative Redeemable Convertible
Preferred Stock, which were convertible into Common Stock for a total of 1,890,000 shares.
Use
of Estimates
The
presentation of financial statements in conformity with GAAP requires management to make estimates and assumptions that effect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.
Investment
Property and Depreciation
Investment
real property and equipment are carried at cost. Depreciation of buildings, improvements to sites and buildings, rental homes, equipment,
and vehicles is computed principally on the straight-line method over the estimated useful lives of the assets (ranging from 3 to 25 years).
Land development costs are not depreciated until they are put in use, at which time they are capitalized as land improvements. Interest
Expense pertaining to Land Development Costs are capitalized. Maintenance and Repairs are charged to expense as incurred and improvements
are capitalized. The costs and related accumulated depreciation of property sold or otherwise disposed of are removed from the financial
statement and any gain or loss is reflected in the current period’s results of operations.
MANUFACTURED
HOUSING PROPERTIES INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2022 AND 2021
(UNAUDITED)
Impairment
Policy
The
Company applies FASB ASC 360-10, “Property, Plant & Equipment,” to measure impairment in real estate investments. Rental
properties are individually evaluated for impairment when conditions exist which may indicate that it is probable that the sum of expected
future cash flows (on an undiscounted basis without interest) from a rental property is less than the carrying value under its historical
net cost basis. These expected future cash flows consider factors such as future operating income, trends and prospects as well as the
effects of leasing demand, competition and other factors. Upon determination that a permanent impairment has occurred, rental properties
are reduced to their fair value. For properties to be disposed of, an impairment loss is recognized when the fair value of the property,
less the estimated cost to sell, is less than the carrying amount of the property measured at the time there is a commitment to sell
the property and/or it is actively being marketed for sale. A property to be disposed of is reported at the lower of its carrying amount
or its estimated fair value, less its cost to sell. Subsequent to the date that a property is held for disposition, depreciation expense
is not recorded. There was no impairment during the three and six months ended June 30, 2022 and 2021.
Cash
and Cash Equivalents
The
Company considers all highly liquid financial instruments purchased with an original maturity of three months or less to be cash equivalents.
The
Company maintains cash balances at banks and deposits at times may exceed federally insured limits. Management believes that the financial
institutions that hold the Company’s cash are financially secure and, accordingly, minimal credit risk exists. At June 30, 2022
and December 31, 2021, the Company had approximately $1,830,000 and $763,000 above the FDIC-insured limit, respectively, including restricted
cash held for tenant security deposits of $810,280 and $705,195, respectively.
Stock
Based Compensation
All
stock based payments to employees, nonemployee consultants, and to nonemployee directors for their services as directors, including any
grants of restricted stock and stock options, are measured at fair value on the grant date and recognized in the statements of operations
as compensation or other expense over the relevant service period in accordance with FASB ASC Topic 718. Stock based payments to nonemployees
are recognized as an expense over the period of performance. Such payments are measured at fair value at the earlier of the date a performance
commitment is reached or the date performance is completed. In addition, for awards that vest immediately and are nonforfeitable, the
measurement date is the date the award is issued. The Company recorded stock option expense of $77,822 and $37,817 during the six months
ended June 30, 2022 and 2021, respectively.
Fair
Value of Financial Instruments
The
Company follows paragraph 825-10-50-10 of the FASB ASC for disclosures about fair value of its financial instruments and paragraph 820-10-35-37
of the FASB ASC to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring
fair value in GAAP and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements
and related disclosures, paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques
used to measure fair value into broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active
markets for identical assets or liabilities and the lowest priority to unobservable inputs. Most of the Company’s financial
assets do not have a quoted market value. Therefore, estimates of fair value are necessarily based on a number of significant assumptions
(many of which involve events outside the control of management). Such assumptions include assessments of current economic conditions,
perceived risks associated with these financial instruments and their counterparties, future expected loss experience and other factors.
Given the uncertainties surrounding these assumptions, the reported fair values represent estimates only and, therefore, cannot be compared
to the historical accounting model. Use of different assumptions or methodologies is likely to result in significantly different fair
value estimates.
The
fair value of cash and cash equivalents, accounts receivables, and accounts payable approximates their current carrying amounts since
all such items are short-term in nature. The fair value of variable and fixed rate mortgages payable and lines of credit approximate
their current carrying amounts on the balance sheet since such amounts payable are at approximately a weighted average current market
rate of interest.
MANUFACTURED
HOUSING PROPERTIES INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2022 AND 2021
(UNAUDITED)
Income
Taxes
The
Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company
determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets
and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change
in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The
Company recognizes deferred tax assets to the extent that the Company believes that these assets are more likely than not to be realized.
In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing
taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company
determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, the Company
would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
The
Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) the Company determines
whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and
(2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax
benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
The
Company recognizes interest and penalties, if any, with income tax expense in the accompanying unaudited condensed consolidated statement
of operations. As of June 30, 2022, and December 31, 2021, there were no such accrued interest or penalties.
Reclassifications
Certain amounts in the prior
period presentation have been reclassified to conform with the current presentation. For the six months ended June 30, 2021, the Company
reclassed $65,244 from cash used for capital improvements to proceeds from sale of homes within the net cash used in investing activities
section of the unaudited condensed consolidated statement of cash flows.
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.
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.
Some
states and cities, including some where the Company’s properties are located, reacted by instituting quarantines, restrictions
on travel, “stay at home” rules and restrictions on the types of businesses that may continue to operate, as well as guidance
in response to the pandemic and the need to contain it.
The rules and restrictions put in place 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. 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.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022 AND 2021
(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 – VARIABLE INTEREST ENTITIES
During
the six months ended June 30, 2022, Gvest Finance LLC formed two wholly owned subsidiaries, Gvest Sunnyland Homes LLC and Gvest Warrenville
Homes LLC, both of which are considered VIEs. The Company consolidates the accounts of Gvest Finance LLC, Gvest Homes I LLC, Gvest Anderson
Homes LLC, Gvest Capital View Homes LLC, Gvest Hidden Oaks Homes LLC, Gvest Springlake Homes LLC, Gvest Carolinas 4 Homes LLC, Gvest
Sunnyland Homes LLC, Gvest Warrenville Homes LLC, Brainerd Place LLC, and Bull Creek LLC and will continue to do so until they are no
longer considered VIEs.
Included
in the unaudited condensed consolidated results of operations for the three months ended June 30, 2022 and 2021 were net loss of $250,915 and
net income of $118,348, respectively, after deducting an additional management fee equal to cash flow after debt service per the management
agreement of $222,566 and $0, respectively.
Included
in the unaudited condensed consolidated results of operations for the six months ended June 30, 2022 and 2021 were net loss of $410,485 and
net income of $173,433, respectively, after deducting an additional management fee equal to cash flow after debt service per the management
agreement of $305,579 and $0, respectively.
The
consolidated balance sheets as of June 30, 2022 and December 31, 2021 included the following amounts related to the consolidated VIEs.
| |
June
30, 2022 | | |
December 31,
2021 | |
| |
(Unaudited) | | |
| |
Assets | |
| | |
| |
Investment
Property | |
$ | 18,613,820 | | |
$ | 14,144,268 | |
Accumulated
Depreciation | |
| (881,741 | ) | |
| (597,650 | ) |
Net
Investment Property | |
| 17,732,079 | | |
| 13,546,618 | |
Cash
and Cash Equivalents | |
| 53,184 | | |
| 98,900 | |
Accounts
Receivable | |
| 95,882 | | |
| 60,506 | |
Other
Assets | |
| 244,108 | | |
| 158,920 | |
Total
Assets | |
$ | 18,125,253 | | |
$ | 13,864,944 | |
| |
| | | |
| | |
Liabilities
and Deficit | |
| | | |
| | |
Accounts
Payable | |
$ | 250,317 | | |
$ | 169,298 | |
Notes Payable, net of 27,558 and $0 debt discount, respectively | |
| 8,557,022 | | |
| 6,793,319 | |
Line of Credit, net of $173,508 and $151,749 debt discount, respectively | |
| 7,787,643 | | |
| 6,200,607 | |
Accrued
Liabilities* | |
| 2,978,269 | | |
| 1,679,233 | |
Total
Liabilities | |
| 19,573,251 | | |
| 14,842,457 | |
| |
| | | |
| | |
Non-controlling
Interest | |
| (1,447,998 | ) | |
| (977,513 | ) |
Total
Non-controlling Interest in Variable Interest Entities | |
| (1,447,998 | ) | |
| (977,513 | ) |
* | Included in accrued liabilities is an intercompany balance of $2,859,303 and $1,515,715 as of June 30, 2022 and December 31, 2021, respectively. The intercompany balances have been eliminated on the consolidated balance sheet. |
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022 AND 2021
(UNAUDITED)
NOTE
3 – INVESTMENT PROPERTY
The
following table summarizes the Company’s property and equipment balances are generally used to depreciate the assets on a straight-line
basis:
| |
June
30, 2022 | | |
December 31,
2021 | |
| |
(Unaudited) | | |
| |
Investment Property | |
| | |
| |
Land | |
$ | 22,508,158 | | |
$ | 18,854,760 | |
Site
and Land Improvements | |
| 37,703,886 | | |
| 35,133,079 | |
Buildings
and Improvements | |
| 19,730,527 | | |
| 14,666,296 | |
Construction
in Process | |
| 2,943,578 | | |
| 3,030,456 | |
Total
Investment Property | |
| 82,886,149 | | |
| 71,684,591 | |
Accumulated
Depreciation | |
| (6,390,849 | ) | |
| (4,832,300 | ) |
Net
Investment Property | |
$ | 76,495,300 | | |
$ | 66,852,291 | |
Depreciation
expense totaled $818,975 and $462,042 for the three months ended June 30, 2022 and 2021, respectively, and $1,578,679 and $903,665 for
the six months ended June 30, 2022 and 2021, respectively.
During the six months ended June 30, 2022, Gvest
Finance LLC, the Company’s VIE, purchased twenty-five new manufactured homes for approximately $1,300,000 for use in the Golden
Isles, Springlake, Sunnyland, and Crestview communities. The majority of these recently purchased homes along with several new homes purchased
during the first quarter of 2022 are not yet occupiable and still in the set-up phase as of June 30, 2022 and included in Construction
in Process on the balance sheet as June 30, 2022.
During
the year ended December 31, 2021, Gvest Finance LLC, acquired thirty-four new manufactured homes for approximately $1,900,000 including
set up costs for use in the Springlake community and fourteen new manufactured homes for approximately $860,000 including set
up costs for use in the Golden Isles community that were not yet occupiable and were still in the set-up phase as of December 31, 2021
and were included in Construction in Process on the balance sheet as of that date.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022 AND 2021
(UNAUDITED)
NOTE
4 – ACQUISITIONS AND DISPOSITIONS
During
the six months ended June 30, 2022, the Company acquired four communities and one large parcel of undeveloped land. These were acquisitions
from third parties and have been accounted for as asset acquisitions.
On
January 31, 2022, the Company purchased a manufactured housing community located in Byron, Georgia consisting of 73 sites on approximately
18.57 acres and an adjacent parcel of 15.09 acres of undeveloped land for a total purchase price of $2,200,000. Sunnyland MHP LLC
purchased the land and land improvements and the Company’s VIE, Gvest Sunnyland Homes LLC, purchased the homes.
On
March 31, 2022, the Company purchased two manufactured housing communities located in Warrenville, South Carolina consisting of 85 sites
on approximately 45 acres for a total purchase price of $3,050,000. Warrenville MHP LLC purchased the land and land improvements
and the Company’s VIE, Gvest Warrenville Homes LLC, purchased the homes.
On
June 17, 2022, the Company purchased a manufactured housing community located in Brunswick, Georgia consisting of 72 sites on approximately 17 acres
for a total purchase price of $2,000,000. Spaulding MHP LLC purchased the land, land improvements, and homes.
On
June 28, 2022, the Company, through its wholly owned subsidiary Raeford MHP Development LLC, purchased 62 acres of undeveloped land zoned
for approximately 200 mobile home lots in Raeford, North Carolina, a town in the Fayetteville Metropolitan Statistical Area for a total
purchase price of $650,000.
The Company entered into various purchase agreements during and after
the year ended June 30, 2022 totaling an aggregate purchase price commitment of $21,738,000 which are inclusive of probable and non-probable
acquisitions that have the potential to close at a future date. See Note 9 for more information about two community acquisitions that
occurred subsequent to June 30, 2022.
During the
six months ended June 30, 2021, the Company acquired one community located in Brunswick, Georgia consisting of 107 sites on approximately 17 acres
for a total purchase price of $2,325,000. Golden Isles MHP LLC purchased the land and land improvements and the Company’s VIE, Gvest
Finance LLC, purchased the homes. This was an acquisition from a third party and has been accounted for as an asset acquisition.
Acquisition
Date | |
Name (number of communities) | |
Land | | |
Improvements | | |
Building | | |
Total
Purchase
Price | |
March 2021 | |
Golden Isles MHP | |
$ | 1,050,000 | | |
$ | 487,500 | | |
$ | - | | |
$ | 1,537,500 | |
March 2021 | |
Golden
Isles Gvest | |
| - | | |
| - | | |
| 787,500 | | |
| 787,500 | |
| |
Total Purchase Price | |
$ | 1,050,000 | | |
$ | 487,500 | | |
$ | 787,500 | | |
$ | 2,325,000 | |
| |
Acquisition
Costs | |
| - | | |
| 123,319 | | |
| 250 | | |
| 123,569 | |
| |
Total
Investment Property | |
$ | 1,050,000 | | |
$ | 610,819 | | |
$ | 787,750 | | |
$ | 2,448,569 | |
| |
| |
| | | |
| | | |
| | | |
| | |
January 2022 | |
Sunnyland MHP | |
$ | 672,400 | | |
$ | 891,580 | | |
$ | - | | |
$ | 1,563,980 | |
January 2022 | |
Sunnyland Gvest | |
| - | | |
| - | | |
| 636,020 | | |
| 636,020 | |
March 2022 | |
Warrenville MHP (2) | |
| 975,397 | | |
| 853,473 | | |
| - | | |
| 1,828,870 | |
March 2022 | |
Warrenville Gvest (2) | |
| - | | |
| - | | |
| 1,221,130 | | |
| 1,221,130 | |
June 2022 | |
Spaulding MHP | |
| 1,217,635 | | |
| 304,409 | | |
| 477,956 | | |
| 2,000,000 | |
June 2022 | |
Raeford
MHP Parcel | |
| 650,000 | | |
| - | | |
| - | | |
| 650,000 | |
| |
Total Purchase Price | |
$ | 3,515,432 | | |
$ | 2,049,462 | | |
$ | 2,335,106 | | |
$ | 7,900,000 | |
| |
Acquisition
Costs | |
| 139,502 | | |
| 78,757 | | |
| 60,356 | | |
| 278,615 | |
| |
Total
Investment Property | |
$ | 3,654,934 | | |
$ | 2,128,219 | | |
$ | 2,395,462 | | |
$ | 8,178,615 | |
MANUFACTURED
HOUSING PROPERTIES INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2022 AND 2021
(UNAUDITED)
Pro-forma
Financial Information
The
following unaudited pro-forma information presents the combined results of operations for the three and six months ended June 30, 2022
as if all acquisitions of manufactured housing communities during the three and six months ended June 30, 2022, as well as several probable
future acquisitions, had all occurred on January 1, 2022.
The
below also presents the combined results of operations for the three and six months ended June 30, 2021 as if all acquisitions of manufactured
housing communities during the year ended December 31, 2021 and during the three and six months ended June 30, 2022, as well as several
probable future acquisitions, had all occurred on January 1, 2021.
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2022 Pro Forma | | |
2021 Pro Forma | | |
2022 Pro Forma | | |
2021 Pro Forma | |
Revenue | |
$ | 3,922,613 | | |
$ | 3,633,142 | | |
$ | 7,708,707 | | |
$ | 7,270,337 | |
Community operating expenses | |
| 1,535,595 | | |
| 1,348,137 | | |
| 2,912,618 | | |
| 2,806,577 | |
Corporate payroll and overhead expenses | |
| 1,254,918 | | |
| 583,733 | | |
| 2,163,996 | | |
| 1,164,467 | |
Depreciation expense | |
| 972,911 | | |
| 977,801 | | |
| 1,922,654 | | |
| 1,953,287 | |
Interest expense | |
| 1,432,720 | | |
| 968,208 | | |
| 2,783,505 | | |
| 1,950,908 | |
Refinance costs | |
| 15,751 | | |
| - | | |
| 15,751 | | |
| 16,675 | |
Cost of home sales | |
| 122,269 | | |
| - | | |
| 154,734 | | |
| - | |
Other income | |
| - | | |
| 139,300 | | |
| - | | |
| 139,300 | |
Net income (loss) | |
| (1,411,551 | ) | |
| (105,437 | ) | |
| (2,244,551 | ) | |
| (482,277 | ) |
Net income (loss) attributable to non-controlling interest | |
| (250,915 | ) | |
| 58,954 | | |
| (425,107 | ) | |
| 46,762 | |
Net loss attributable to Manufactured Housing Properties, Inc | |
| (1,160,636 | ) | |
| (164,391 | ) | |
| (1,819,444 | ) | |
| (529,039 | ) |
Preferred stock dividends / accretion | |
| 548,214 | | |
| 540,134 | | |
| 1,096,424 | | |
| 1,069,674 | |
Net income (loss) | |
$ | (1,708,852 | ) | |
$ | (704,525 | ) | |
$ | (2,915,868 | ) | |
$ | (1,598,713 | ) |
Net loss per share | |
$ | (0.13 | ) | |
$ | (0.05 | ) | |
$ | (0.23 | ) | |
$ | (0.12 | ) |
MANUFACTURED
HOUSING PROPERTIES INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2022 AND 2021
(UNAUDITED)
NOTE
5 – 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. The interest rates on these promissory notes range from 3.250% to 5.875% with 5 to 30 years principal
amortization. Three of the promissory notes had an initial 12 month, one an initial 18 month, six an initial 24 month, six an initial
36 month, one an initial 60 month, and one promissory note a 180 month period of interest only payments. The promissory notes are secured
by the real estate assets and twenty-one loans totaling $45,308,733 are guaranteed by Raymond M. Gee.
As
of June 30, 2022, the outstanding balance on these notes was $55,114,344. The following are the terms of these notes:
| |
Maturity
Date | |
Interest
Rate | | |
Balance
June 30, 2022 | | |
Balance
December 31, 2021 | |
Pecan Grove
MHP LLC | |
02/22/29 | |
| 5.250 | % | |
$ | 2,933,462 | | |
$ | 2,969,250 | |
Azalea MHP LLC | |
03/01/29 | |
| 5.400 | % | |
| 811,027 | | |
| 790,481 | |
Holly Faye MHP LLC | |
03/01/29 | |
| 5.400 | % | |
| 546,753 | | |
| 579,825 | |
Chatham MHP LLC | |
04/01/24 | |
| 5.875 | % | |
| 1,679,979 | | |
| 1,698,800 | |
Lakeview MHP LLC | |
03/01/29 | |
| 5.400 | % | |
| 1,789,063 | | |
| 1,805,569 | |
B&D MHP LLC | |
05/02/29 | |
| 5.500 | % | |
| 1,755,502 | | |
| 1,779,439 | |
Hunt Club MHP LLC | |
01/01/33 | |
| 3.430 | % | |
| 2,374,578 | | |
| 2,398,689 | |
Crestview MHP LLC | |
12/31/30 | |
| 3.250 | % | |
| 4,617,309 | | |
| 4,682,508 | |
Maple Hills MHP LLC | |
12/01/30 | |
| 3.250 | % | |
| 2,308,655 | | |
| 2,341,254 | |
Springlake MHP LLC | |
12/10/26 | |
| 4.750 | % | |
| 4,016,250 | | |
| 4,016,250 | |
ARC MHP LLC | |
01/01/30 | |
| 5.500 | % | |
| 3,770,365 | | |
| 3,809,742 | |
Countryside MHP LLC | |
03/20/50 | |
| 5.500 | % | |
| 1,669,702 | | |
| 1,684,100 | |
Evergreen MHP LLC | |
04/01/32 | |
| 3.990 | % | |
| 1,104,642 | | |
| 1,115,261 | |
Golden Isles MHP LLC | |
03/31/26 | |
| 4.000 | % | |
| 787,500 | | |
| 787,500 | |
Anderson MHP LLC* | |
07/10/26 | |
| 5.210 | % | |
| 2,153,807 | | |
| 2,153,807 | |
Capital View MHP LLC* | |
09/10/26 | |
| 5.390 | % | |
| 817,064 | | |
| 817,064 | |
Hidden Oaks MHP LLC* | |
09/10/26 | |
| 5.330 | % | |
| 823,440 | | |
| 823,440 | |
North Raleigh MHP LLC | |
11/01/26 | |
| 4.750 | % | |
| 5,247,746 | | |
| 5,304,409 | |
Charlotte 3 Park MHP LLC
(Dixie, Driftwood, Meadowbrook)(1) | |
03/01/22 | |
| 5.000 | % | |
| - | | |
| 1,500,000 | |
Charlotte 3 Park MHP LLC
(Dixie, Driftwood, Meadowbrook)* | |
11/01/28 | |
| 4.250 | % | |
| 1,875,000 | | |
| - | |
Carolinas 4 MHP LLC (Asheboro,
Morganton)* | |
01/10/27 | |
| 5.300 | % | |
| 3,105,070 | | |
| 3,105,070 | |
Sunnyland MHP LLC* | |
02/10/27 | |
| 5.370 | % | |
| 1,123,980 | | |
| - | |
Warrenville MHP LLC* | |
03/10/27 | |
| 5.590 | % | |
| 1,218,870 | | |
| - | |
Gvest Finance LLC (B&D
homes) | |
05/01/24 | |
| 5.000 | % | |
| 634,733 | | |
| 657,357 | |
Gvest Finance LLC (Countryside
homes) | |
03/20/50 | |
| 5.500 | % | |
| 1,276,834 | | |
| 1,287,843 | |
Gvest Finance LLC (Golden
Isles homes) | |
03/31/36 | |
| 4.000 | % | |
| 787,500 | | |
| 787,500 | |
Gvest Anderson Homes LLC* | |
07/10/26 | |
| 5.210 | % | |
| 1,992,015 | | |
| 2,006,193 | |
Gvest Capital View Homes
LLC* | |
09/10/26 | |
| 5.390 | % | |
| 342,936 | | |
| 342,936 | |
Gvest Hidden Oaks Homes
LLC* | |
09/10/26 | |
| 5.330 | % | |
| 411,063 | | |
| 416,560 | |
Gvest Carolinas 4 Homes
LLC (Asheboro, Morganton)* | |
01/10/27 | |
| 5.300 | % | |
| 1,282,349 | | |
| 1,294,930 | |
Gvest Sunnyland Homes LLC* | |
02/10/27 | |
| 5.370 | % | |
| 636,020 | | |
| - | |
Gvest
Warrenville Homes LLC* | |
03/10/27 | |
| 5.590 | % | |
| 1,221,130 | | |
| - | |
Total
Notes Payable | |
| |
| | | |
$ | 55,114,344 | | |
$ | 50,955,777 | |
Discount
Direct Lender Fees | |
| |
| | | |
| (2,390,363 | ) | |
| (2,064,294 | ) |
Total
Net of Discount | |
| |
| | | |
$ | 52,723,981 | | |
$ | 48,891,483 | |
(1) | The Company repaid the Charlotte 3 Park MHP LLC note payable of $1,500,000 on March 1, 2022 and recognized refinancing cost expense totaling $15,751. This community was refinanced on April 14, 2022 with a different lender and the Company capitalized $258,023 of debt issuance costs related to the new note. |
* |
The notes indicated above
are subject to certain financial covenants. |
MANUFACTURED
HOUSING PROPERTIES INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2022 AND 2021
(UNAUDITED)
Lines
of Credit – Variable Interest Entities
Facility | |
Borrower | |
Community | |
Maturity
Date | |
Interest
Rate | |
Maximum
Credit Limit | | |
Balance
June 30, 2022 | | |
Balance
December 31, 2021 | |
Occupied
Home Facility(1) | |
Gvest Homes I LLC | |
ARC, Crestview, Maple | |
01/01/30 | |
8.375% | |
$ | 20,000,000 | | |
$ | 2,484,999 | | |
$ | 2,517,620 | |
Multi-Community Rental
Home Facility | |
Gvest Finance LLC | |
ARC, Golden Isles | |
Various (3) | |
Greater of 3.25% or Prime, + 375 bps | |
$ | 4,000,000 | | |
$ | 1,218,259 | | |
$ | 838,000 | |
Multi-Community
Floorplan Home Facility(1)(2) | |
Gvest Finance LLC | |
Golden Isles, Springlake, Sunnyland, Crestview | |
Various (3) | |
LIBOR + 6 – 8% based on days outstanding | |
$ | 2,000,000 | | |
$ | 1,768,849 | | |
$ | 1,104,255 | |
Springlake
Home Facility(2) | |
Gvest Finance LLC | |
Springlake | |
12/10/26 | |
6.75% | |
$ | 3,300,000 | | |
$ | 2,489,044 | | |
$ | 1,892,481 | |
Total
Lines of Credit - VIEs | |
| |
| |
| |
| |
| | | |
$ | 7,961,151 | | |
$ | 6,352,356 | |
Discount
Direct Lender Fees | |
| |
| |
| |
| |
| | | |
$ | (173,508 | ) | |
$ | (151,749 | ) |
Total
Net of Discount | |
| |
| |
| |
| |
| | | |
$ | 7,787,643 | | |
$ | 6,200,607 | |
(1) | During the six months ended June 30, 2022, the Company drew down $19,145 related to the Occupied Home Facility and $1,251,321 related to the Multi-Community Floorplan Home Facility and $414,578 was transferred from the Multi-Community Floorplan Home Facility to the Multi-Community Rental Home Facility as the homes became occupied as rental units. Also during the six month ended June 30 2022, the Company drew down $596,563 related to the Springlake Home Facility and used the proceeds to pay down the same amount on the Multi-Community Floorplan Home Facility so that all homes at Springlake were financed by one lender. |
(2) |
Payments on
the Multi-Community Floorplan Home Facility advances are interest only until each advance is paid off or transferred to the Multi-Community
Rental Home Facility and payments on the Springlake Home Facility are interest only for the first six months. |
(3) |
The maturity date of the of the Multi-Community Floorplan Line of Credit will vary based on each statement of financial transaction, a report identifying the funded homes and the applicable financial terms. |
The
agreements for each of the above line of credit facilities require the maintenance of certain financial ratios or other affirmative and
negative covenants. All the above line of credit facilities are guaranteed by Raymond M. Gee.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022 AND 2021
(UNAUDITED)
Metrolina
Promissory Note
On
October 22, 2021, the Company issued a promissory note to Metrolina Loan Holdings, LLC (“Metrolina”), a significant stockholder,
in the principal amount of $1,500,000. The note bears interest at a rate of 18% per annum and matures on April 1, 2023. During
the first six months of the note, any prepayment would have required the Company to pay a yield maintenance fee equal to six months of
interest. Thereafter, the loan may be prepaid at any time without penalty or fee. The note is guaranteed by Raymond M. Gee. As of June
30, 2022 and December 31, 2021, the balance on this note was $1,500,000. During the six months ended June 30, 2022 and 2021, interest
expense totaled $133,890 and $0, respectively. During the three months ended June 30, 2022 and 2021, interest expense totaled $67,315 and
$0, respectively.
Raymond
M. Gee Promissory Note
On October 1, 2017, the Company
issued a revolving promissory note to Raymond M. Gee, pursuant to which the Company could borrow up to $1,500,000 from Mr. Gee on
a revolving basis for working capital purposes. In September 2020, the Company paid off the full balance; however, the line of credit
remained available to the Company until it was cancelled in December 2021. As of June 30, 2022 and December 31, 2021, there was no outstanding
balance on the note.
Gvest
Revolving Promissory Note
On December
27, 2021, the Company issued a revolving promissory note to Gvest Real Estate Capital, LLC, an entity whose sole owner is Raymond M. Gee,
the Company’s chairman and chief executive officer, pursuant to which the Company may borrow up to $1,500,000 on a revolving
basis for working capital or acquisition purposes. On the same date, the Company borrowed $150,000. During the six months ended June 30,
2022, the maximum credit limit on this note was increased to $2,000,000 and the Company borrowed an aggregate of $2,700,000 and repaid
$850,000. As of June 30, 2022 and December 31, 2021, the outstanding balance on this note was $2,000,000 and $150,000, respectively. This
note has a five-year term and is interest-only based on an 15% annual rate through the maturity date and is unsecured. During the three
and six months ended June 30, 2022 and 2021, interest expense totaled $13,657 and $0 and $28,375 and $0, respectively.
NAV
Real Estate LLC Promissory Note
On June 29, 2022, the Company
issued a revolving promissory note to NAV RE, LLC, an entity whose owners are Adam Martin, the Company’s chief investment officer,
and his spouse pursuant to which the Company may borrow up to $2,000,000 on a revolving basis for working capital or acquisition
purposes. On the same date, the Company borrowed $2,000,000. As of June 30, 2022, the outstanding principal balance on this note was $2,000,000. This
note has a five-year term and is interest-only based on an 15% annual rate through the maturity date and is unsecured. During the three
and six months ended June 30, 2022, interest expense totaled $833.
Pending
Debt Refinance
During the six months ended June 30, 2022, the Company entered into
an agreement with a lender to potentially refinance several of their loans pursuant to which the Company paid $1,668,690 in financing
costs which are included in other assets on the balance sheet. As of the date of this report, the company has not entered into a binding
agreement and are still negotiating loan proceeds and terms of the new loans.
Maturities
of Long-Term Obligations for Five Years and Beyond
The
minimum annual principal payments of notes payable at June 30, 2022 by fiscal year were:
2022 | |
| 434,661 | |
2023 | |
| 2,724,612 | |
2024 | |
| 5,084,441 | |
2025 | |
| 1,365,854 | |
2026 | |
| 19,111,728 | |
Thereafter | |
| 39,854,199 | |
Total minimum principal payments | |
$ | 68,575,494 | |
NOTE
6 – COMMITMENTS AND CONTINGENCIES
From
time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business.
However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise that may harm its
business. The Company is currently not aware of any such legal proceedings or claims that they believe will have, individually or in
the aggregate, a material adverse effect on its business, financial condition, or operating results.
MANUFACTURED
HOUSING PROPERTIES INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2022 AND 2021
(UNAUDITED)
NOTE
7 – STOCKHOLDERS’ EQUITY
Preferred
Stock
The
Company is authorized to issue up to 10,000,000 shares of preferred stock, $0.01 par value.
Series
A Cumulative Convertible Preferred Stock
On
May 8, 2019, the Company filed a certificate of designation with the Nevada Secretary of State pursuant to which the Company designated 4,000,000 shares
of its preferred stock as Series A Cumulative Convertible Preferred Stock (the “Series A Preferred Stock”). The Series A
Preferred Stock has the following voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions:
Ranking.
The Series A Preferred Stock ranks, as to dividend rights and rights upon our liquidation, dissolution, or winding up, senior to the
Common Stock and pari passu with the Series B Preferred Stock and Series C Preferred Stock (as defined below). The
terms of the Series A Preferred Stock will not limit the Company’s ability to (i) incur indebtedness or (ii) issue additional equity
securities that are equal or junior in rank to the shares of Series A Preferred Stock as to distribution rights and rights upon liquidation,
dissolution or winding up.
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, 2022 and 2021, the Company paid dividends
of $188,600 and $187,167, respectively.
Liquidation
Preference. The liquidation preference for each share of Series A Preferred Stock is $2.50. Upon a liquidation, dissolution or
winding up of the Company, holders of shares of Series A Preferred Stock will be entitled to receive, before any payment or distribution
is made to the holders of Common Stock and on a pari passu basis with holders of Series B Preferred Stock and Series
C Preferred Stock, the liquidation preference with respect to their shares plus an amount equal to any accrued but unpaid dividends (whether
or not declared) to, but not including, the date of payment with respect to such shares.
Stockholder
Optional Conversion. Each share of Series A Preferred Stock is convertible, at any time and from time to time, at the option
of the holder thereof and without the payment of additional consideration, into that number of shares of Common Stock determined by dividing
the liquidation preference of such share by the conversion price then in effect. The conversion price is initially equal $2.50, subject
to adjustment as set forth in the certificate of designation. In addition, if at any time the trading price of the Common Stock is greater
than the liquidation preference of $2.50, the Company may deliver a written notice to all holders to cause each holder to convert all
or part of such holders’ Series A Preferred Stock.
Company
Call and Stockholder Put Options. Commencing on the fifth anniversary of the initial issuance of shares of Series A Preferred
Stock and continuing indefinitely thereafter, the Company will have a right to call for redemption the outstanding shares of Series A
Preferred Stock at a call price equal to $3.75, or 150% of the original issue price of the Series A Preferred Stock, and correspondingly,
each holder of shares of Series A Preferred Stock shall have a right to put the shares of Series A Preferred Stock held by such holder
back to the Company at a put price equal to $3.75, or 150% of the original issue purchase price of such shares. During the six months
ended June 30, 2022 and 2021, the Company recorded a put option value accretion of $235,746 and $236,250, 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 June 30, 2022 and December 31, 2021, there were 1,886,000 shares of Series A Preferred Stock issued and outstanding. As
of June 30, 2022, the Series A Preferred Stock balance was made up of Series A Preferred Stock totaling $4,715,000 and accretion
of put options totaling $1,362,521. As of December 31, 2021, the Series A Preferred Stock balance was made up of Series A Preferred Stock
totaling $4,715,000 and accretion of put options totaling $1,126,771.
MANUFACTURED
HOUSING PROPERTIES INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2022 AND 2021
(UNAUDITED)
Series
B Cumulative Redeemable Preferred Stock
On
December 2, 2019, the Company filed a certificate of designation with the Nevada Secretary of State pursuant to which the Company designated 1,000,000 shares
of its preferred stock as Series B Cumulative Redeemable Preferred Stock (the “Series B Preferred Stock”). The Series B Preferred
Stock has the following voting powers, designations, preferences and relative rights, qualifications, limitations, or restrictions:
Ranking.
The Series B Preferred Stock rank, as to dividend rights and rights upon liquidation, dissolution, or winding up, senior to the Common
Stock and pari passu with the Series A Preferred Stock and Series C Preferred Stock. The terms of the Series B
Preferred Stock will not limit the Company’s ability to (i) incur indebtedness or (ii) issue additional equity securities that
are equal or junior in rank to the shares of Series B Preferred Stock as to distribution rights and rights upon liquidation, dissolution
or winding up.
Dividend
Rate and Payment Dates. Dividends on the Series B Preferred Stock are cumulative and payable monthly in arrears to all holders
of record on the applicable record date. Holders of Series B Preferred Stock will be entitled to receive cumulative dividends in
the amount of $0.067 per share each month, which is equivalent to the annual rate of 8% of the $10.00 liquidation preference per share;
provided that upon an event of default (generally defined as the Company’s failure to pay dividends when due or to redeem shares
when requested by a holder), such amount shall be increased to $0.083 per month, which is equivalent to the annual rate of 10% of the
$10.00 liquidation preference per share. During the six months ended June 30, 2022 and 2021, the Company paid dividends of $303,570 and
$275,731, respectively.
Liquidation
Preference. The liquidation preference for each share of Series B Preferred Stock is $10.00. Upon a liquidation, dissolution
or winding up of the Company, holders of shares of Series B Preferred Stock will be entitled to receive, before any payment or distribution
is made to the holders of Common Stock and on a pari passu basis with holders of Series A Preferred Stock and Series
C Preferred Stock, the liquidation preference with respect to their shares plus an amount equal to any accrued but unpaid dividends (whether
or not declared) to, but not including, the date of payment with respect to such shares.
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 six months
ended June 30, 2022 and 2021, the Company recorded a put option value accretion of $368,508 and $370,526, respectively.
Voting
Rights. The Company may not authorize or issue any class or series of equity securities ranking senior to the Series B Preferred
Stock as to dividends or distributions upon liquidation (including securities convertible into or exchangeable for any such senior securities)
or amend the Company’s articles of incorporation (whether by merger, consolidation, or otherwise) to materially and adversely change
the terms of the Series B Preferred Stock without the affirmative vote of at least two-thirds of the votes entitled to be cast on such
matter by holders of outstanding shares of Series B Preferred Stock, voting together as a class. Otherwise, holders of the shares of
Series B Preferred Stock do not have any voting rights.
No
Conversion Right. The Series B Preferred Stock is not convertible into shares of Common Stock.
On
November 1, 2019, the Company launched an offering under Regulation A of Section 3(6) of the Securities Act of 1933, as, amended, for
Tier 2 offerings, pursuant to which the Company offered up to 1,000,000 shares of Series B Preferred Stock at an offering price of $10.00
per share, for a maximum offering amount of $10,000,000. In addition, the Company offered bonus shares to early investors in this
offering, whereby the first 400 investors received, in addition to Series B Preferred Stock, 100 shares of Common Stock, regardless of
the amount invested, for a total of 40,000 shares of Common Stock.
This
offering terminated on March 30, 2021 thus, the Company sold no shares of Series B Preferred Stock during the six months ended June 30,
2022. During the six months ended June 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.
As
of June 30, 2022, there were 758,551 shares of Series B Preferred Stock issued and outstanding and the Series B Preferred Stock
balance was made up of Series B Preferred Stock, net of commissions, totaling $7,185,716 and accretion of put options totaling $1,701,386.
As of December 31, 2021, there were 758,551 shares of Series B Preferred Stock issued and outstanding and the Series B Preferred
Stock balance was made up of Series B Preferred Stock, net of commissions, totaling $7,185,716 and accretion of put options totaling
$1,332,878.
MANUFACTURED
HOUSING PROPERTIES INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2022 AND 2021
(UNAUDITED)
Series
C Cumulative Redeemable Preferred Stock
On
May 24, 2021, the Company filed an amended and restated certificate of designation with the Nevada Secretary of State pursuant to which
the Company designated 47,000 shares of its preferred stock as Series C Cumulative Redeemable Preferred Stock (the “Series
C Preferred Stock”). The Series C Preferred Stock has the following voting powers, designations, preferences and relative
rights, qualifications, limitations or restrictions:
Ranking.
The Series C Preferred Stock ranks, as to dividend rights and rights upon liquidation, dissolution, or winding up, senior to Common Stock
and pari passu with Series A Preferred Stock and Series B Preferred Stock. The terms of the Series C Preferred Stock
do not limit the Company’s ability to (i) incur indebtedness or (ii) issue additional equity securities that are equal or junior
in rank to the shares of Series C Preferred Stock as to distribution rights and rights upon liquidation, dissolution or winding up.
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 six months ended June 30, 2022, the Company
paid dividends of $275,137. Due to timing of payments, the Company accrued dividends of $55,785 during the six months ended June
30, 2022 and total accrued dividends of $82,746 is presented in accrued liabilities on the balance sheet as of June 30, 2022.
Liquidation
Preference. Upon a liquidation, dissolution or winding up of the Company, holders of shares of Series C Preferred Stock are entitled
to receive, before any payment or distribution is made to the holders of Common Stock and on a pari passu basis with
holders of Series A Preferred Stock and Series B Preferred Stock, a liquidation preference equal to the stated value per share, plus
accrued but unpaid dividends thereon.
Redemption
Request at the Option of a Holder. Once per calendar quarter, a holder will have the opportunity to request that the Company
redeem that holder’s Series C Preferred Stock. The board of directors may, however, suspend cash redemptions at any time in its
discretion if it determines that it would not be in the best interests of the Company to effectuate cash redemptions at a given time
because the Company does not have sufficient cash, including because the board believes that the Company’s cash on hand should
be utilized for other business purposes. Redemptions will be limited to four percent (4%) of the total outstanding Series C Preferred
Stock per quarter and any redemptions in excess of such limit or to the extent suspended, shall be redeemed in subsequent quarters on
a first come, first served, basis. The Company will redeem shares at a redemption price equal to the stated value of such redeemed shares,
plus any accrued but unpaid dividends thereon, less the applicable redemption fee (if any). As a percentage of the aggregate redemption
price of a holder’s shares to be redeemed, the redemption fee shall be:
| ● | 11% if the redemption is requested on or before the first anniversary of the original issuance of such shares; |
|
● |
8% if the redemption is
requested after the first anniversary and on or before the second anniversary of the original issuance of such shares; |
|
● |
5% if the redemption is
requested after the second anniversary and on or before the third anniversary of the original issuance of such shares; and |
| ● | after the third anniversary of the date of original issuance of shares to be redeemed, no redemption fee shall be subtracted from the redemption price. |
MANUFACTURED
HOUSING PROPERTIES INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2022 AND 2021
(UNAUDITED)
Optional
Redemption by the Company. The Company has the right (but not the obligation) to redeem shares of Series C Preferred Stock at
a redemption price equal to the stated value of such redeemed shares, plus any accrued but unpaid dividends thereon; provided, however,
that if the Company redeems any shares of Series C Preferred Stock prior to the fourth (4th) anniversary of their issuance,
then the redemption price shall include a premium equal to ten percent (10%) of the stated value.
Mandatory
Redemption by the Company. The Company must redeem the outstanding shares of Series C Preferred Stock on the fourth
(4th) anniversary of their issuance at a redemption price equal to the stated value of such redeemed shares, plus any accrued
but unpaid dividends thereon.
Voting
Rights. The Series C Preferred Stock has no voting rights.
No
Conversion Right. The Series C Preferred Stock is not convertible into shares of Common Stock.
In
accordance with ASC 480-10, the Series C Preferred Stock is treated as a liability and is presented net of unamortized debt issuance
costs on the balance sheet because the Company has an unconditional obligation to redeem the Series C Preferred Stock and dividends
on the Preferred C Stock are included in interest expense.
On
June 11, 2021, the Company launched a new offering under Regulation A of Section 3(6) of the Securities Act for Tier 2 offerings, pursuant
to which the Company is offering up to 47,000 shares of Series C Preferred Stock at an offering price of $1,000 per share
for a maximum offering amount of $47 million.
During the
six months ended June 30, 2022, the Company sold an aggregate of 6,303 shares of Series C Preferred Stock for total gross proceeds
of $6,297,617. After deducting a placement fee and other expenses, the Company received net proceeds of $5,877,935.
As
of June 30, 2022 there were 12,037 shares of Series C Preferred Stock issued and outstanding and the Series C Preferred Stock
balance was made up of Series C Preferred Stock gross proceeds totaling $12,032,017 net of total unamortized debt issuance costs
of $863,892.
As
of December 31, 2021, there were 5,734 shares of Series C Preferred Stock issued and outstanding and the Series C Preferred
Stock balance was made up of Series C Preferred Stock gross proceeds totaling $5,734,400 net of total unamortized debt issuance
costs of $520,030.
Common
Stock
The
Company is authorized to issue up to 200,000,000 shares of Common Stock, par value $0.01 per share. As of June 30, 2022
and December 31, 2021, there were 12,412,013 and 12,403,680 shares of Common Stock issued and outstanding, respectively.
Stock
Issued for Cash
During
the six months ended June 30, 2022, the Company issued 8,333 shares of Common Stock upon employee exercise of stock options
for total exercise price of $83.
During
the six months ended June 30, 2021, the Company issued 5,100 shares of Common Stock, valued at $1,377, to early investors in
the prior Regulation A offering.
MANUFACTURED
HOUSING PROPERTIES INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2022 AND 2021
(UNAUDITED)
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
June 30, 2022, there were 574,842 shares granted and 425,158 shares remaining available under the Plan. The
Company has issued options to directors, officers, and employees under the Plan.
During the six months ended June
30, 2022 and 2021, the Company issued 145,000 and 50,000 options and recorded stock option expense of $77,822 and
$37,817, respectively. The aggregate fair value of the options issued was $570,221. The vesting schedule for 100,000 options issued to
an officer in April 2022 is as follows: one third vest after one year, and two thirds vest in equal installments over the succeeding two-year
period. The vesting schedule for the other 45,000 options issued during the six months ended 2022 is as follows: one third vest immediately,
and two thirds vest in equal annual installments over the succeeding two-year period. All options were granted at a price of $0.01 per
share, which represents a price that may be deemed to be below the market value per share of the Company’s common stock as defined
by the Plan.
The
following table summarizes the stock options outstanding as of June 30, 2022:
| |
Number of options | | |
Weighted average exercise price (per share) | | |
Weighted average remaining contractual term (in years) | |
Outstanding at December 31, 2021 | |
| 706,175 | | |
$ | 0.01 | | |
| 6.6 | |
Granted | |
| 145,000 | | |
| 0.01 | | |
| 9.7 | |
Exercised | |
| (8,333 | ) | |
| (0.01 | ) | |
| (9.6 | ) |
Forfeited / cancelled / expired | |
| (268,000 | ) | |
| (0.01 | ) | |
| (6.1 | ) |
Outstanding at June 30, 2022 | |
| 574,842 | | |
$ | 0.01 | | |
| 6.9 | |
Exercisable at June 30, 2022 | |
| 428,176 | | |
| 0.01 | | |
| 6.0 | |
As of June 30, 2022, there were 574,842 “in-the-money”
options with an aggregate intrinsic value of $1,057,709. The aggregate intrinsic value represents the total intrinsic value (the difference
between the Company’s closing stock price at fiscal year-end and the exercise price, multiplied by the number of in-the-money options)
that would have been received by the option holder had all options holders exercised their options on June 30, 2022.
The
following table summarizes information concerning options outstanding as of June 30, 2022.
Strike Price Range ($) | | |
Outstanding stock options | | |
Weighted average remaining contractual term (in years) | | |
Weighted average outstanding strike price | | |
Vested stock options | | |
Weighted average vested strike price | |
$ | 0.01 | | |
| 338,675 | | |
| 5.5 | | |
$ | 0.01 | | |
| 338,675 | | |
$ | 0.01 | |
$ | 0.01 | | |
| 49,500 | | |
| 7.5 | | |
$ | 0.01 | | |
| 49,500 | | |
$ | 0.01 | |
$ | 0.01 | | |
| 50,000 | | |
| 8.5 | | |
$ | 0.01 | | |
| 33,333 | | |
$ | 0.01 | |
$ | 0.01 | | |
| 136,667 | | |
| 9.7 | | |
$ | 0.01 | | |
| 6,667 | | |
$ | 0.01 | |
The
table below presents the weighted average expected life in years of options granted under the Plan as described above. The risk-free
rate of the stock options is based on the U.S. Treasury yield curve in effect at the time of grant, which corresponds with the expected
term of the option granted.
The
fair value of stock options was estimated using the Black Scholes option pricing model with the following assumptions for grants made
during the periods indicated.
Stock option assumptions | |
June 30, 2022 | |
June 30, 2021 |
Risk-free interest rate | |
1.40-2.84% | |
0.26-1.40% |
Expected dividend yield | |
0.00% | |
0.00% |
Expected volatility | |
237.85-249.77% | |
16.03-273.98% |
Expected life of options (in years) | |
6.5-7 | |
6.5 |
MANUFACTURED
HOUSING PROPERTIES INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2022 AND 2021
(UNAUDITED)
NOTE
8 – RELATED PARTY TRANSACTIONS
See Note
5 for information regarding the promissory notes issued to Metrolina, a significant stockholder, the revolving promissory note issued
to Gvest Real Estate Capital, LLC, an entity whose sole owner is Raymond M. Gee, the Company’s chairman and chief executive officer,
and the revolving promissory note issued to NAV Real Estate, LLC, an entity whose owners are Adam Martin, the Company’s chief
investment officer, and his spouse.
In
August 2019, the Company entered into an office lease agreement with 136 Main Street LLC, an entity whose sole owner is Gvest Real Estate
LLC, whose sole owner is Mr. Gee, for the lease of the Company’s offices. The lease is $12,000 per month and is on a month-to-month
term. During the six months ended June 30, 2022 and 2021, the Company paid $72,000 of rent expense to 136 Main Street
LLC. During the three months ended June 30, 2022 and 2021, the Company paid $36,000 of rent expense to 136 Main Street LLC.
During
the six months ended June 30, 2022, Raymond M. Gee received fees totaling $620,000 for his personal guaranty on certain promissory
notes relating to the acquisitions of mobile home communities owned by the Company, including $250,000 in relation to the Asheboro
and Morganton acquisitions which were accrued for at December 31, 2021 and paid in January 2022. During the six months ended June 30,
2021, Mr. Gee received no fees for his personal guaranty.
See
Note 2 for information regarding related party VIEs.
NOTE
9 – SUBSEQUENT EVENTS
Additional
Closings of Regulation A Offering
Subsequent
to June 30, 2022, we sold an aggregate of 1,447 shares of Series C Preferred Stock in additional closings of this offering for
total gross proceeds of $1,447,000. After deducting a placement fee, we received net proceeds of approximately $1,349,728.
Red
Fox Run Acquisition
On February
11, 2022, MHP Pursuits LLC entered into a purchase and sale agreement with an individual for the purchase of a manufactured housing
community located in Clyde, North Carolina, a part of the Asheville Metropolitan Statistical Area, consisting of 51 sites and 51 homes
on approximately 9 acres for a total purchase price of $3,050,000. On July 12, 2022, MHP Pursuits LLC assigned its rights and
obligations in the purchase agreement to Red Fox MHP LLC, an entity wholly owned by the Company, pursuant to an assignment of purchase
and sale agreement. On July 29, 2022, closing of the purchase agreement was completed and Red Fox MHP LLC purchased the land, land improvement,
and buildings. Proforma financial information is included in the unaudited proforma combined results of operations in Note 4.
In
connection with the closing of the property, on July 29, 2022, Red Fox MHP LLC entered into a loan agreement with Charlotte Metro Credit
Union for a loan in the principal amount of $2,250,000 and issued a promissory note to the lender for the same amount.
Interest on the disbursed and unpaid principal
balance accrues as follows: (a) from the date funds are first disbursed at a rate of 5.25% per annum, interest only for the first twenty-four
months, and (b) on September 1, 2024, interest on the disbursed and unpaid principal balance accrues at a rate 5.25% per annum until
maturity. Interest is calculated on the basis of a 365-day year and the actual number of calendar days elapsed. Payments will begin on
September 1, 2024 and continue the 1st of every month until maturity on August 1, 2032. Red Fox MHP LLC may prepay the
note in part or in full at any time without penalty.
The
note is secured by a first priority security interest in the property and is guaranteed by the Company and Raymond M. Gee. The loan agreement
and note contain customary financial and other covenants and events of default for a loan of its type.
MANUFACTURED
HOUSING PROPERTIES INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2022 AND 2021
(UNAUDITED)
Solid
Rock Acquisition
On February
25, 2022, MHP Pursuits LLC entered into a purchase and sale agreement with K10 Enterprises LLC for the purchase of a manufactured housing
community located in Leesville, South Carolina, consisting of 39 sites and homes on approximately 11 acres for a total
purchase price of $1,700,000. On July 7, 2022, MHP Pursuits LLC assigned its rights and obligations in the purchase agreement to Solid
Rock MHP LLC and Solid Rock MHP Homes LLC, wholly owned subsidiaries of the Company, pursuant to an assignment of purchase and sale agreement.
On July 7, 2022, closing of the purchase agreement was completed and Solid Rock MHP LLC purchased the land and land improvements and Solid
Rock MHP Home LLC purchased the buildings. Proforma financial information is included in the unaudited proforma combined results of operations
in Note 4.
In
connection with the closing of the property, on July 7, 2022, Solid
Rock MHP LLC entered into a loan agreement with United Bank for a loan in the principal amount
of $1,125,000 and issued a promissory note to the lender for the same amount.
Interest
on the disbursed and unpaid principal balance accrues from the date funds are first disbursed at a rate of 5% per annum, interest only
for the first twelve months. The interest rate may change on June 30, 2027 and every five years thereafter based on the Wall Street Journal
U.S. Prime Rate plus 1 percentage point with the minimum rate being 5%. Interest is calculated on the basis of a 360-day year and the
actual number of calendar days elapsed. Payments began on July 30, 2022 and continue the 30th of every month until maturity
on July 7, 2032. Solid Rock MHP LLC may prepay the note
in part or in full at any time if it pays a prepayment premium calculated in accordance with the loan agreement.
The
note is secured by a first priority security interest in the property and is guaranteed by Raymond M. Gee. The loan agreement and note
contain customary financial and other covenants and events of default for a loan of its type.
Stock
Options Exercise
On August 2, 2022, the Company
issued 50,000 common shares upon exercise of stock options pursuant to the Stock Compensation Plan administered by the Compensation
Committee and a settlement agreement and release between the Company and a former employee.