NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the six months ended June 30, 2021 and 2020
(Unaudited)
Note
1 - Significant Accounting Policies
Nature
of Operations
Dream
Homes & Development Corporation is a regional builder and developer of new single-family homes and subdivisions, as well as a market
leader in coastal construction, elevation and mitigation. In the nine years that have passed since Superstorm Sandy flooded 30,000 owner-occupied
homes, Dream Homes has helped hundreds of homeowners to rebuild or raise their homes to comply with new FEMA requirements.
In
addition to the coastal construction market, Dream Homes will continue to pursue opportunities in new single and multi-family home construction,
with 5 new developments totaling 265 units under contract and in development. Dream Homes’ operations will include the development
and sale of a variety of residential communities, including construction of semi-custom homes, entry-level and first time move-up single-family
and multi-family homes.
History
Dream
Homes & Development Corporation was originally incorporated as The Virtual Learning Company, Inc. (“Virtual Learning”)
on January 6, 2009 as a Nevada corporation with 75,000,000 shares of capital stock authorized, of which 70,000,000 shares are common
shares ($.001 par value), and 5,000,000 shares are preferred shares ($.001 par value).
On
March 14, 2017, Virtual Learning changed its name to Dream Homes & Development Corporation (“DHDC”). DHDC maintains a
web site at www.dreamhomesltd.com as well as a blog, located at http://blog.dreamhomesltd.com.
Principles
of Consolidation
The
consolidated financial statements include the accounts of DHDC and its wholly owned subsidiaries (collectively, the “Company”).
All intercompany balances and transactions have been eliminated in consolidation.
Property
and Equipment
Property
and equipment is stated at cost less accumulated depreciation. Depreciation is provided using the straight-line method over an estimated
useful life of five years. Repairs and maintenance costs are expensed as incurred, and renewals and betterments are capitalized.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying
notes. Actual results could differ materially from these estimates.
Fair
Value of Financial Instruments
Fair
value is defined as the price that we would receive to sell an asset or pay to transfer a liability (an exit price) in an orderly transaction
between market participants on the measurement date. In determining fair value, GAAP establishes a three-level hierarchy used in measuring
fair value, as follows:
●
Level 1 inputs are quoted prices available for identical assets and liabilities in active markets.
●
Level 2 inputs are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets and
liabilities in active markets or other inputs that are observable or can be corroborated by observable market data.
●
Level 3 inputs are less observable and reflect our own assumptions.
Our
financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses and loans payable
to related parties. The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, and
loans payable to related parties approximates fair value because of their short maturities.
Construction
Contracts
Revenue
recognition:
The
Company adopted Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“ASC 606”)
on January 1, 2018. In accordance with ASC 606, revenue is recognized when promised goods or services are transferred to customers in
an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services, in accordance
with the following five-step process:
|
|
●
|
Identify
the contract(s) with a customer
|
|
|
●
|
Identify
the performance obligations
|
|
|
●
|
Determine
the transaction price
|
|
|
●
|
Allocate
the transaction price
|
|
|
●
|
Recognize
revenue when the performance obligations are met
|
For
the periods presented prior to the adoption of ASC 606, revenues from long-term construction contracts were recognized in accordance
with ASC Topic 605-35, “Revenue Recognition-Construction-Type and Production-Type Contracts.”
The
Company recognizes construction contract revenue over time using the percentage-of-completion method, based primarily on contract cost
incurred to date compared to total estimated contract cost. Cost of revenue includes an allocation of depreciation, amortization and
general overhead cost. Changes to total estimated contract cost or losses, if any, are recognized in the period in which they are determined.
The
Company generally provides limited warranties for work performed under its construction contracts with periods typically extending for
a limited duration following substantial completion of the Company’s work on a project.
The
Company classifies construction-related receivables and payables that may be settled in periods exceeding one year from the balance sheet
date, if any, as current assets and liabilities consistent with the length of time of its project operating cycle. For example:
|
|
●
|
Contract
assets represent costs and estimated earnings in excess of billings represent the excess of contract costs and profits (or contract
revenue) over the amount of contract billings to date and are classified as a current asset.
|
|
|
●
|
Contract
liabilities represent billings in excess of costs and estimated earnings represent the excess of contract billings to date over the
amount of contract costs and profits (or contract revenue) recognized to date and are classified as a current liability.
|
Contract
liabilities result when either: 1) costs are incurred related to certain claims and unapproved change orders, or 2) the appropriate contract
revenue amount has been recognized in accordance with the percentage-of-completion accounting method, but a portion of the revenue recorded
cannot be billed currently due to the billing terms defined in the contract. Claims occur when there is a dispute regarding both a change
in the scope of work and the price associated with that change. Unapproved change orders occur when there is a dispute regarding only
the price associated with a change in scope of work. For both claims and unapproved change orders, the Company recognizes revenue, but
not profit, when it is determined that recovery of incurred cost is probable and the amounts can be reliably estimated.
Change
in Estimates:
The
Company’s estimates of contract revenue and cost are highly detailed and many factors change during a contract performance period
that result in a change to contract profitability. These factors include, but are not limited to, differing site conditions: availability
of skilled contract labor: performance of major material suppliers and subcontractors: on-going subcontractor negotiations and buyout
provisions: unusual weather conditions: changes in the timing of scheduled work: change orders: accuracy of the original bid estimate:
changes in estimated labor productivity and costs based on experience to date: achievement of incentive-based income targets: and the
expected, or actual, resolution terms for claims. The factors that cause changes in estimates vary depending on the maturation of the
project within its lifecycle. For example, in the ramp-up phase, these factors typically consist of revisions in anticipated project
costs and during the peak and close-out phases, these factors include the impact of change orders and claims as well as additional revisions
in remaining anticipated project costs. Generally, if the contract is at an early stage of completion, the current period impact is smaller
than if the same change in estimate is made to the contract at a later stage of completion. Management focuses on evaluating the performance
of contracts individually and uses the cumulative catch-up method to account for revisions in estimates. Material changes in estimates
are disclosed in the notes to the consolidated financial statements.
Income
Taxes
The
Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax reporting purposes. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in the provision for income tax in the statements of operations. The
Company evaluates the probability of realizing the future benefits of its deferred tax assets and provides a valuation allowance when
realization of the assets is not reasonably assured.
The
Company recognizes in its financial statements the impact of tax positions that meet a “more likely than not” threshold,
based on the technical merits of the position. The tax benefits recognized from such a position are measured based on the largest benefit
that has a greater than fifty percent likelihood of being realized upon ultimate settlement.
Net
Income (Loss) Per Common Share
Basic
net income (basic net loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares
outstanding during the period.
Diluted
net income (loss) per common share is computed using the weighted average number of common shares outstanding and potentially dilutive
securities outstanding during the period.
Recent
Accounting Pronouncements
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09,
Revenue from Contracts with Customers (Accounting Standards Codification “ASC” Topic 606). The purpose of this ASU is to
converge revenue recognition requirements per GAAP and International Financial Reporting Standards (“IFRS”). The core principle
of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount
that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in
this ASU were originally effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption not
permitted by the FASB; however, in August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral
of the Effective Date after public comment respondents supported a proposal to delay the effective date of this ASU to annual reporting
periods beginning after December 15, 2017, including interim reporting periods within that reporting period. We adopted this ASU on January
1, 2018 and adoption of this ASU did not have a material impact on our financial position, results of operations and cash flows.
In
February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” and subsequent amendments to the initial guidance:
ASU 2017-13, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01 (collectively, “Topic 842”), which provides guidance for
accounting for leases. Topic 842 requires lessees to classify leases as either finance or operating leases and to record a right-of-use
asset and a lease liability for all leases with a term greater than 12 months regardless of the lease classification. The lease classification
will determine whether the lease expense is recognized based on an effective interest rate method or on a straight line basis over the
term of the lease. We are currently evaluating both the method and the impact of adopting this guidance on our Condensed Consolidated
Financial Statements.
Certain
other accounting pronouncements have been issued by the FASB and other standard setting organizations which are not yet effective and
therefore have not yet been adopted by the Company. The impact on the Company’s financial position and results of operations from
adoption of these standards is not expected to be material.
2
- Property and Equipment
Property
and equipment is summarized as follows:
Schedule of Property and Equipment
|
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
|
|
|
|
|
|
|
|
Office equipment
|
|
$
|
5,115
|
|
|
$
|
5,115
|
|
|
Vehicles/Modular homes
|
|
|
58,065
|
|
|
|
58,065
|
|
|
Less: Accumulated depreciation
|
|
|
(42,502
|
)
|
|
|
(39,124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment- net
|
|
$
|
20,678
|
|
|
$
|
24,056
|
|
Depreciation
expense for the six months ended June 30, 2021 and 2020 was $ 3,378 and $ 3,307, respectively.
3-Deposits
and Costs Coincident to Acquisition of Land for Development
Deposits
and costs coincident to acquisition of land for development are summarized as follows:
Schedule of Deposits and Costs Coincident to Acquisition of Land for Development
|
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
|
|
|
|
|
|
|
|
Lacey Township, New Jersey, Pines contract:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition cost
|
|
$
|
1,115,577
|
|
|
$
|
-
|
|
|
Site engineering, permits, and other costs
|
|
|
364,066
|
|
|
|
111,833
|
|
|
Total Pines contract
|
|
|
1,479,643
|
|
|
|
121,833
|
|
|
|
|
|
|
|
|
|
|
|
|
Berkeley Township, New Jersey, Tallwoods contract:
|
|
|
|
|
|
|
|
|
|
Deposit
|
|
|
10,000
|
|
|
|
10,000
|
|
|
Site engineering, permits, and other costs
|
|
|
90,146
|
|
|
|
90,146
|
|
|
Total Tallwoods contract
|
|
|
100,146
|
|
|
|
100,146
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Deposits:
|
|
|
|
|
|
|
|
|
|
Station Drive LLC - Clayton, New Jersey - 112 apartments
|
|
|
2,186,254
|
|
|
|
161,694
|
|
|
Louis Avenue, Bayville, New Jersey-17 units
|
|
|
36,271
|
|
|
|
36,271
|
|
|
Berkeley Terrace – Bayville, New Jersey 70 units
|
|
|
2,506,990
|
|
|
|
20,000
|
|
|
201 East Ave – Clayton, New Jersey – 63 units
|
|
|
112,491
|
|
|
|
112,491
|
|
|
Academy St – Clayton, New Jersey – 2 lots
|
|
|
36,133
|
|
|
|
36,133
|
|
|
Other
|
|
|
22,542
|
|
|
|
191,263
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,480,470
|
|
|
$
|
779,831
|
|
Properties
Currently Owned
Berkeley
Terrace – Bayville, NJ – 70 approved townhome units
A
contract was signed to acquire 70 approved townhome units in October 2019, after 31 months of discussion. This property is scheduled
to close in mid to late June 2021, at which time site improvements will commence. Sales will accrete to 2022 & 2023 income. The Company
has secured a bridge loan and is awaiting a commitment with a permanent lender for an acquisition, development and construction finance
facility. Funding for land only has been secured at this time.
The
closing to acquire this property occurred on June 29, 2021.
The
Company is preparing to begin infrastructure work on the property, and start a presales program.
The
first closings are scheduled to occur in late spring of 2022.
Lacey
Township, New Jersey, “Dream Homes at the Pines”
Dream
Homes is in contract and under development for a parcel which will yield 68 new townhomes in the Ocean County NJ area, of which 54 are
market rate and 14 are affordable housing. The acquisition of the contract was made for common stock and occurred in the 4th quarter
of 2016. This property is currently in the approval process. This development project is scheduled to begin in late 2021 and will accrete
to 2022 sales.
All
costs associated with this property necessary to obtain all approvals, acquire the land, install the infrastructure and prepare the property
to commence construction are the Company’s responsibility.
In
order to obtain all developmental approvals and be prepared to begin installing infrastructure, various permits and engineering work
are required. These permits include but are not limited to township subdivision, county, municipal utility authority, CAFRA (NJ Department
of Environmental Protection) and NJ Department of Transportation. To date, design engineering has been completed and a CAFRA application
has been prepared and submitted to the environmental scientist, along with a check for $36,750 payable to the NJ DEP. Application for
this permit was made in April 2017. As of this date, the CAFRA application has been put on hold pending a determination if the township
will be approved by the State of New Jersey for a CAFRA Town Center designation. A Lacey Township Planning Board meeting was held on
December 11, 2017. Additional information was requested from the board and the next meeting was heard for preliminary and final approval
on April 19th of 2021. Preliminary approval was granted.
It
is anticipated that complete development approvals will cost approximately $20,000 more to complete. In addition to these approval costs
and acquisition costs, infrastructure costs are anticipated to cost approximately $1,000,000. The total amount of funding required to
acquire and make this property ready for home construction is approximately $1,900,000.
The
Company may need to seek loans from banks to finance this project. As part of their financing agreements, the banks typically require
Vincent Simonelli to personally guarantee these loans. If Mr. Simonelli cannot qualify as a guarantor and there is no one other than
him in the Corporation to provide those guarantees, the financing of the deal may be adversely affected. The exact amount of funding
required for this particular property is not clear at the present time but will be determined when full approvals have been obtained
and the Company is prepared to take title to the property.
As
of February 26, 2021, financing has been secured to purchase the land upon municipal approvals being granted.
The
closing to acquire this property occurred on June 29, 2021 and the Company is currently in title.
Dream
Homes Apartments - Fairview
On
May 3, 2018, the Company submitted a signed letter of intent to purchase 5.5 acres of property in Gloucester County, which is currently
being approved for a 112-unit apartment complex, with 8000 square feet of retail space. The Company has a signed contract and has been
proceeding with development approvals. The property is designated as a redevelopment property, and a redevelopment agreement is currently
being negotiated with the township.
On
February 26, 2021, the closing to acquire this property occurred via an assemblage of 3 parcels.
Louis
Avenue – Bayville, NJ – In title
In
October of 2018, the company entered into a contract to develop and acquire 17 townhouse lots in Bayville NJ. Engineering and approvals
are currently in process. Application was made to the Planning Board on March 20, 2020. The project was deemed complete by the township
engineer. Municipal scheduling has been delayed due to the Covid-19 virus.
The
Company was heard before the Berkeley Township Planning Board on October 3, 2020 and the planning board awarded preliminary approvals
for 17 townhome units.
Application
is currently being made for final approvals, and the Company should be heard at the October planning board meeting.
The
Company acquired this property on August 4, 2021.
Properties
Under Contract to Purchase and in the Approval Stage
Autumn
Run – Gloucester County
On
December 7, 2018, the Company signed a contract to purchase a property in Gloucester County, NJ, which will be approved for +/- 63 units
of age-restricted manufactured housing. The property is currently in the approval stage. An application was made to the DEP for a wetlands
letter of interpretation, which was approved as proposed. Further action before the planning board is pending due to delays caused by
township closures due to Covid-19. The Company had a virtual workshop meeting on September 15, 2020 and an additional virtual meeting
was conducted on November 17, 2020.
The
application for a use variance was heard on May 24, 2021 and the variance was approved.
The
Company is in the process of applying for preliminary and final site plan approval and should be heard at the October 2021 meeting.
Properties
on hold due to delay in approvals, environmental concerns or other reasons
Berkeley
Township, New Jersey, “Dream Homes at Tallwoods”, Contract
On
March 1, 2017, the Company acquired from DHL rights to a contract to purchase over 7 acres of land in Berkeley Township, NJ (the “Tallwoods
Contract or Dream Homes at Tallwoods”) for 71,429 restricted shares of Company common stock (issued in April 2017).
Since
the transaction had not occurred for at least a portion of the Property within 12 months of the completion of the Due Diligence Period,
as well as two 6-month extensions, the seller chose to terminate the contract. Though the Company retained the right to waive any remaining
development contingencies and proceed to close on the property, it was determined by senior management that the risk of acquiring an
unapproved property was not acceptable.
4-Loans
Payable to Related Parties
Loans
payable to related parties is summarized as follows:
Schedule of Loans Payable to Related Parties
|
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
General Property Investments
|
|
$
|
292,895
|
|
|
$
|
-
|
|
|
Loans payable to chief executive officer
|
|
|
-
|
|
|
|
3,671
|
|
|
Total
|
|
$
|
292,895
|
|
|
$
|
3,671
|
|
All
the loans above are non-interest bearing and due on demand.
5-Mortgages
Payable
Mortgages
payable consist of:
Schedule of Mortgages Payable
|
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
|
|
|
|
|
|
|
|
Lynx Asset Services, LLC-On June 29, 2021 the Company executed a mortgage payable to Lynx Asset Services, LLC for the acquisition of Berkeley. ( see Note-3) Terms include monthly interest payments of $15,000 per month for a period of three years.
|
|
$
|
1,725,000
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Edisto Loan Fund, LLC-On February 26, 2021 the Company executed a mortgage payable to Edisto Loan Fund, LLC for the acquisition of the Clayton Apartments 112 unit property (see Note-3) Terms include a one year note with prepaid interest of $183,840. Also with Edisto Loan Fund, LLC, on June 29, 2021, the Company executed a mortgage payable for the acquisition of the Lacey Pines property, which is 68 townhouse units. The combined amount of the two mortgages is reflected here.
|
|
|
3,238,563
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,963,563
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current portion
|
|
$
|
3,238,563
|
|
|
$
|
-
|
|
6
- Common Stock Issuances & Private Placement Memorandum
On
May 9, 2019, the Company issued 58,000 restricted shares of restricted common shares to two individuals for consulting services at $.10
per share.
On
June 6, 2019, the Company issued 520,000 restricted shares for stock-based compensation at $.10 per share to six individuals.
On
June 6, 2019, the Company issued 1,000,000 restricted shares for debt reduction to the Chief Executive Officer at $.10 per share.
On
June 6, 2019, the Company issued 100,000 restricted shares for reduction of note payable at $.10 per share.
In
March 2020, the Company issued 2,997,500 restricted shares for compensation valued at $ 119,500.
On
September 25, 2020, the Company issued 110,000 restricted shares for debt reduction value at $7,700.
On
September 30, 2020, the Company issued 2,600,000 restricted shares for compensation valued at $ 78,000.
On
October 28, 2020, the Company issued 48,000 restricted shares for compensation valued at $ 3,360.
On
November 10, 2020, the Company issued 30,000 restricted shares for compensation valued at $ 1,800.
On
February 11, 2021, the Company issued 2,830,000 restricted shares for compensation valued at $ 113,200.
Private
Placement Memorandum
On
May 7, 2021, the Company released a Private Placement Memorandum, which consists of an equity and debt offering for up to $1,000,000
in new capital. This capital will be utilized for acquisition and development of several of the properties the Company has under contract.
The offering is comprised of Units for sale as well as convertible debt. Each Unit is priced at $.20 per common share and includes 1
warrant to purchase an additional share of common stock for $.30 within 3 years of the date of Unit purchase. The convertible debt is
offered at an 8% coupon, paid quarterly, has a maturity of 3 years and is convertible at $.75 per share. The offering is scheduled to
close on November 7, 2021.
7
– Income Taxes
As
of June 30, 2021 the Company has available for federal and state income tax purposes a net operating loss carry forward that may be used
to offset future taxable income.
8-
Commitments and Contingencies
Construction
Contracts
As
of June 30, 2021, the Company was committed under 21 construction contracts outstanding with contract prices totaling $ 8,825,554, which
are being fulfilled in the ordinary course of business. None of these construction projects are expected to take significantly in excess
of one year to complete from commencement of construction. The Company has no significant commitments with material suppliers or subcontractors
that involve any sums of substance or of long-term duration at the date of issuance of these financial statements.
Employment
Agreements
On
May 8, 2017, DHDC executed an Employment Agreement with a Sales Manager. The original term of the agreement was from May 8, 2017 to May
8, 2019 and was renewable thereafter at 1-year intervals based on certain sales targets. That agreement has been renewed and is currently
in force. The agreement provides for compensation based on sales.
Lease
Agreements
The
Company has occupied office space located in Forked River, New Jersey. Commencing April 2017, the Company originally paid monthly rent
of $2,000 for this office space. This amount was subsequently increased to $2,500 per month.
On
February 28, 2020 the Company executed a lease for an office space located at 800 Riverview Drive in Brielle, which the Company feels
will better serve the southern Monmouth clientele. The lease term is 2 years, and the total rent is $25,140.
The
Company continues to operate an office/showroom located at 884 Rt. 9 in Little Egg Harbor. This lease was originally incepted in November
2018, and the Company continues to utilize the facility to service clients in Long Beach Island, Little Egg Harbor as well as points
south.
Line
of Credit
On
September 15, 2016, DHDC established a $500,000 line of credit with General Development Corp., a non-bank lender. Advances under the
line bear interest at a rate of 12%, with interest being payable on demand. The outstanding principal is due and payable in 60 months.
The line is secured by the personal guarantee of the Company’s Chief Executive Officer. The agreement to fund automatically renews
on a yearly basis as long as interest payments are current. To date, the Company has received several advances under the line of credit.
As of June 30, 2021, the outstanding principal balance was $ 893,160. Interest expense for the six months ended June 30, 2021 and 2020
was $ 34,439 and $ 6,272, respectively.
9.
Related Party Transactions
Office
Space
The
Company has occupied office space located in Forked River, New Jersey which is owned by an affiliated company. Commencing April 2017,
the Company has paid monthly rent of $2,500 for this office space.
10
- Stock Warrants
Effective
April 1, 2019, any previous warrants issued by the Company were cancelled.
11
– Subsequent Events
Louis
Avenue – Bayville, NJ – Property acquired
In
October of 2018, the company entered into a contract to develop and acquire 17 townhouse lots in Bayville NJ. Application was made to
the Planning Board on March 20, 2020.
The
Company was heard before the Berkeley Township Planning Board on October 3, 2020 and was awarded preliminary approvals for 17 townhome
units.
Application
is currently being made for final approvals, and the Company should be heard at the October planning board meeting.
The
Company acquired this property on August 4, 2021.
Other
subsequent events have been detailed in respective categories herein.