Date: 8/16/2021
Form: 10-Q - Quarterly Report
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For
the Quarter ended
Commission
File Number:
(Exact name of registrant as specified in its charter)
| (State of organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
Registrant’s telephone number, including area code
Former address if changed since last report
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered. | ||
| The
| ||||
| The
| ||||
| The
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. X
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). X
Indicate by check mark whether the registrant is a large-accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer,” "accelerated filer,” "smaller reporting company,” and "emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller
reporting company | |
| Emerging
growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). |
☐
Yes X |
There are shares of common stock outstanding as of August 16, 2021.
TABLE OF CONTENTS
| i |
PART I–FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS
HARBOR CUSTOM DEVELOPMENT, INC. AND SUBSIDIARIES
D/B/A HARBOR CUSTOM HOMES
CONDENSED CONSOLIDATED BALANCE SHEETS
| 6/30/2021 | 12/31/2020 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Real Estate | $ | $ | ||||||
| Property, Plant and Equipment, net | ||||||||
| Right of Use Assets | ||||||||
| Cash | ||||||||
| Prepaid Expense | ||||||||
| Accounts Receivable, net | ||||||||
| Contract Assets, net | - | |||||||
| Deferred Offering Costs | - | |||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| LIABILITIES | ||||||||
| Construction Loans, net of Debt Discount of $ | $ | $ | ||||||
| Construction Loans - Related Parties, net of Debt Discount of $ | ||||||||
| Equipment Loans | ||||||||
| Accounts Payable and Accrued Expenses | ||||||||
| Operating Lease Liabilities | ||||||||
| Finance Leases | ||||||||
| Deferred Revenue | ||||||||
| Note Payable PPP | ||||||||
| Dividends Payable | - | |||||||
| Note Payable D&O Insurance | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES - SEE NOTE 10 | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred Stock, | $ | $ | ||||||
| Common Stock, | ||||||||
| Additional Paid In Capital | ||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity - Harbor Custom Development, Inc. | ||||||||
| Non-Controlling Interest | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements.
(Amounts rounded to the nearest $100)
| 1 |
HARBOR CUSTOM DEVELOPMENT, INC. AND SUBSIDIARIES
D/B/A HARBOR CUSTOM HOMES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Sales | $ | $ | $ | $ | ||||||||||||
| Cost of Sales | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Operating Expenses | ||||||||||||||||
| Operating Income (Loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Other Income (Expense) | ||||||||||||||||
| Loss on Sale of Equipment | ( | ) | ( | ) | ||||||||||||
| Forgiveness of Debt | ||||||||||||||||
| Other Income (Expense) | ||||||||||||||||
| Interest Expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total Other Income (Expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Income (Loss) Before Income Tax | ( | ) | ( | ) | ( | ) | ||||||||||
| Income Tax Benefit (Expense) | ( | ) | ( | ) | ||||||||||||
| Net Income (Loss) Attributable to Stockholders | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Net (Loss) Income Attributable to Non-controlling interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Preferred Dividends | ( | ) | ( | ) | ||||||||||||
| Net Income (Loss) Attributable to Common Stockholders | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Net Income (Loss) Per Share - Basic | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Net Income (Loss) Per Share - Diluted | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Weighted Average Common Shares Outstanding - Basic | ||||||||||||||||
| Weighted Average Common Shares Outstanding - Diluted | ||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
(Amounts rounded to the nearest $100)
| 2 |
HARBOR CUSTOM DEVELOPMENT, INC. AND SUBSIDIARIES
D/B/A HARBOR CUSTOM HOMES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2021 and 2020 (Unaudited)
| 6/30/21 | 6/30/20 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net (loss) | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash from operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of right of use assets | ||||||||
| Forgiveness on PPP loan | ( | ) | - | |||||
| Loss on sale of equipment | ||||||||
| Stock compensation | ||||||||
| Net change in assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Contract assets | ( | ) | - | |||||
| Prepaid expenses | ( | ) | ||||||
| Real estate | ( | ) | ( | ) | ||||
| Deferred revenue | ( | ) | ||||||
| Deferred income tax | - | |||||||
| Payments on right of use liability | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| NET CASH (USED IN) OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Proceeds on the sale of equipment | ||||||||
| NET CASH (USED IN) INVESTING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Construction loans, net | ||||||||
| Financing fees construction loans | ( | ) | ( | ) | ||||
| Construction loans related parties, net | ( | ) | ||||||
| Financing fees related party construction loans | ( | ) | - | |||||
| Payments on financing leases | ( | ) | ( | ) | ||||
| Payments on PPP loan | ( | ) | ||||||
| Due to related party | - | |||||||
| Repayments on note payable D&O insurance | ( | ) | - | |||||
| Net proceeds from issuance of common stock | - | |||||||
| Net proceeds from issuance of preferred stock | - | |||||||
| Repayment on equipment loans | ( | ) | ( | ) | ||||
| Proceeds from exercise of stock options | - | |||||||
| Deferred offering costs | - | |||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| NET INCREASE (DECREASE) IN CASH | ( | ) | ||||||
| CASH AT BEGINNING OF YEAR | ||||||||
| CASH AT END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||
| Interest paid | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Financing of assets additions | $ | $ | ||||||
| New right of use obligations | $ | $ | ||||||
| Cancellation of finance leases | $ | $ | ||||||
| Amortization of debt discount capitalized | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements.
(Amounts rounded to the nearest $100)
| 3 |
HARBOR CUSTOM DEVELOPMENT, INC. AND SUBSIDIARIES
D/B/A HARBOR CUSTOM HOMES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
For the Periods January 1, 2020 through June 30, 2020 and January 1, 2021 through June 30, 2021
(Unaudited)
| Common Stock | Preferred Stock | Additional | Stockholders’ | Total | ||||||||||||||||||||||||||||||||
| Shares | No | Shares | No | Paid | Accumulated | Equity | Non-Controlling | Equity | ||||||||||||||||||||||||||||
| Issued | Par | Issued | Par | in Capital | (Deficit) | (Deficit) | Interest | (Deficit) | ||||||||||||||||||||||||||||
| Balance, January 1, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||
| Net Loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance, March 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||
| Stock Compensation Expense | ||||||||||||||||||||||||||||||||||||
| Net Loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance, June 30, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||
| Balance, January 1, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Net proceeds issuance of common stock | ||||||||||||||||||||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||||||||||||||
| Stock Compensation Expense | ||||||||||||||||||||||||||||||||||||
| Net (Loss) Income | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Net proceeds issuance of preferred stock | ||||||||||||||||||||||||||||||||||||
| Dividends | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Stock Compensation Expense | ||||||||||||||||||||||||||||||||||||
| Net Income (Loss) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
See accompanying notes to the consolidated financial statements.
(Amounts rounded to the nearest $100)
| 4 |
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Company’s principal business activity involves acquiring raw land and developed lots for the purpose of building and selling single family and multi-family dwellings in Washington, California, Texas and Florida. It utilizes its heavy equipment resources to develop an inventory of finished lots and provide development infrastructure construction, on a contract basis, for other home builders. Single family construction and infrastructure construction contracts vary but are typically less than one year.
On August 1, 2019, the Company changed its name from Harbor Custom Homes, Inc. to Harbor Custom Development, Inc.
The Company became an effective filer with the Securities and Exchange Commission SEC and started trading on The Nasdaq Stock Market LLC ("Nasdaq”) on August 28, 2020.
Principles of Consolidation
The consolidated financial statements include the following subsidiaries of Harbor Custom Development, Inc. as of the reporting period ending dates as follows (all entities are formed as Washington LLCs):
| Names | Dates of Formation | Attributable Interest | ||||||||||
| June 30, | December 31, | |||||||||||
| 2021 | 2020 | |||||||||||
| Saylor View Estates, LLC | % | % | ||||||||||
| Harbor Materials, LLC* | N/A | % | ||||||||||
| Belfair Apartments, LLC | % | % | ||||||||||
| Pacific Ridge CMS, LLC | % | N/A | ||||||||||
| Tanglewilde, LLC | % | N/A | ||||||||||
| 5 |
| * |
All intercompany transactions and balances have been eliminated in consolidation.
As
of June 30, 2021 and December 31, 2020, the aggregate non-controlling interest was $(
Basis of Presentation
The unaudited financial information furnished herein reflects all adjustments, consisting solely of normal recurring items, which in the opinion of management are necessary to fairly state the financial position of the Company and the results of its operations for the periods presented. This report should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the ("SEC”) on March 31, 2021. The Company assumes that the users of the interim financial information herein have read or have access to the audited financial statements for the preceding fiscal year and the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The condensed consolidated balance sheet at December 31, 2020 was derived from the audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The results of operations for the interim periods presented are not necessarily indicative of results for the year ending December 31, 2021.
The
Company’s Board of Directors and stockholders approved a
| 6 |
Use of Estimates
Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were used.
Stock-Based Compensation
Effective as of November 19, 2018, the Company’s Board of Directors and stockholders approved and adopted the 2018 Incentive and Non-Statutory Stock Option Plan (the "2018 Plan”). The 2018 Plan allows the Administrator (as defined in the 2018 Plan), currently the Board of Directors, to determine the issuance of incentive stock options and non-qualified stock options to eligible employees and outside directors and consultants of the Company. The Company reserved shares of common stock for issuance under the 2018 Plan.
Effective as of December 3, 2020, the Company’s Board of Directors and stockholders approved and adopted the 2020 Restricted Stock Plan (the "2020 Plan”). The 2020 Plan allows the Administrator (currently the Compensation Committee) to determine the issuance of restricted stock to eligible officers, directors, and key employees. The Company reserved shares of common stock for issuance under the 2020 Plan.
The Company accounts for stock-based compensation in accordance with ASC Topic 718, "Compensation – Stock Compensation” ("ASC 718”) which establishes financial accounting and reporting standards for stock-based employee compensation. It defines a fair value-based method of accounting for an employee stock option or similar equity instrument.
The Company recognizes all forms of share-based payments, including stock option grants, warrants and restricted stock grants, at their fair value on the grant date, which is based on the estimated number of awards that are ultimately expected to vest.
Options and warrants are valued using a Black-Scholes option pricing model. Grants of share-based payment awards issued to non-employees for services rendered have been recorded at the fair value of the share-based payment. The grants are amortized on a straight-line basis over the requisite service periods, which is generally the vesting period. If an award is granted, but vesting does not occur, any previously recognized compensation expense is reversed in the period related to the termination of service.
Stock-based compensation expenses are included in selling, general and administrative expenses in the consolidated statement of operations.
| 7 |
| June 30, 2021 | June 30, 2020 | |||||||
| Risk-free interest rate | -% | % | ||||||
| Exercise price | $-$ | $ | ||||||
| Expected life of grants | - years | years | ||||||
| Expected volatility of underlying stock | %-% | % | ||||||
| Dividends | ||||||||
The expected term is computed using the "simplified” method as permitted under the provisions of ASC 718-10-S99. The Company uses the simplified method to calculate the expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The share price as of the grant date was determined by an independent third party 409(a) valuation until the Company’s stock became publicly traded. Now the share price is the public trading price at the time of grant. Expected volatility is based on the historical stock price volatility of comparable companies’ common stock, as the stock does not have sufficient historical trading activity. Risk free interest rates were obtained from U.S. Treasury rates for the applicable periods.
Earnings (Loss) per share ("EPS”) is the amount of earnings attributable to each share of common stock. For convenience, the term is used to refer to either earnings or loss per share. EPS is computed pursuant to Section 260-10-45 of the Financial Accounting Standards Board ("FASB”) Accounting Standards Codification ("ASC”). Pursuant to ASC Paragraphs 260-10-45-10 through 260-10-45-16, basic EPS shall be computed by dividing income available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the period. Income available to common stockholders shall be computed by deducting both the dividends declared in the period on preferred stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not earned) from income from continuing operations (if that amount appears in the income statement) and also from net income. The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options or warrants.
| 8 |
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net income (loss) attributable to common stockholders | $ | $ | ( | ) | ( | ) | $ | ( | ) | |||||||
| Effect of dilutive securities: | ||||||||||||||||
| Diluted income (net) loss | $ | $ | ( | ) | ( | ) | $ | ( | ) | |||||||
| Denominator: | ||||||||||||||||
| Weighted average common shares outstanding - basic | ||||||||||||||||
| Dilutive securities (a): | ||||||||||||||||
| Options | ||||||||||||||||
| Warrants | ||||||||||||||||
| Weighted average common shares outstanding and assumed | ||||||||||||||||
| conversion – diluted | ||||||||||||||||
| Basic net income (loss) per common share | $ | $ | ( | ) | ( | ) | $ | ( | ) | |||||||
| Diluted net income (loss) per common share | $ | $ | ( | ) | ( | ) | $ | ( | ) | |||||||
| (a) - Anti-dilutive securities excluded: | ||||||||||||||||
| 9 |
Fair Value of Financial Instruments
For purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. The carrying amount of the Company’s short-term financial instruments approximates fair value due to the relatively short period to maturity for these instruments.
Cash and Cash Equivalents
For
purposes of the statement of cash flows, the Company considers all short-term debt securities purchased with a maturity of three months
or less to be cash equivalents. There were
Accounts Receivable
Accounts
receivables are reported at the amount the Company expects to collect from outstanding balances. The Company provides an allowance for
doubtful accounts based upon a review of the outstanding accounts receivable, historical collection information and existing economic
conditions. The Company determines if receivables are past due based on days outstanding, and amounts are written off when determined
to be uncollectible by management. The allowance for doubtful accounts was $
| 10 |
Property and Equipment and Depreciation
Property and equipment are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is computed by the straight-line method (after considering their respective estimated residual values) over the estimated useful lives:
| Construction Equipment | |
| Leasehold Improvements | |
| Furniture and Fixtures | |
| Computers | |
| Vehicles |
Real Estate Assets
Real estate assets are recorded at cost, except when real estate assets are acquired that meet the definition of a business combination in accordance with FASB ASC 805, "Business Combinations,” where acquired assets are recorded at fair value. Interest, property taxes, insurance and other incremental costs (including salaries) directly related to a project are capitalized during the construction period of major facilities and land improvements. The capitalization period begins when activities to develop the parcel commence and ends when the asset constructed is completed. The capitalized costs are recorded as part of the asset to which they relate and are expensed when the underlying asset is sold.
The
Company capitalized interest from related party borrowings of $
A property is classified as "held for sale” when all the following criteria for a plan of sale have been met:
(1) Management, having the authority to approve the action, commits to a plan to sell the property;
(2) The property is available for immediate sale in its present condition, subject only to terms that are usual and customary;
(3) An active program to locate a buyer and other actions required to complete the plan to sell, have been initiated;
(4) The sale of the property is probable and is expected to be completed within one year of the contract date;
| 11 |
(5) The property is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and
(6) Actions necessary to complete the plan of sale indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
When all these criteria have been met, the property is classified as "held for sale.”
In addition to the annual assessment of potential triggering events in accordance with ASC 360, the Company applies a fair value-based impairment test to the net book value assets on an annual basis and on an interim basis if certain events or circumstances indicate that an impairment loss may have occurred.
As of June 30, 2021 and December 31, 2020, the Company did not have any projects that qualified for an impairment charge.
Revenue and Cost Recognition
ASC 606, Revenue from Contracts with Customers ("ASC 606”), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contract to provide goods or services to customers.
In accordance with ASC 606, revenue is recognized when a customer obtains control of the promised good or service. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods or services. The provision of ASC 606 includes a five-step process by which the Company determines revenue recognition, depicting the transfer of goods or services to customers in amounts reflecting the payment to which the Company expects to be entitled in exchange for those goods or services.
ASC 606 requires the Company to apply the following steps: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, performance obligations are satisfied.
| 12 |
A detailed breakdown of the five-step process for the revenue recognition of Entitled Land Revenue is as follows:
1. Identify the contract with a customer.
The Company signs an agreement with a buyer to purchase the parcel of entitled land.
2. Identify the performance obligations in the contract.
Performance obligations of the Company include delivering entitled land to the customer, which are required to meet certain specifications outlined in the contract.
3. Determine the transaction price.
The transaction price is fixed and specified in the contract. Any subsequent change orders or price changes are required to be approved by both parties.
4. Allocation of the transaction price to performance obligations in the contract
The parcel is a separate performance obligation for which the specific price is in the contract.
5. Recognize revenue when (or as) the entity satisfies a performance obligation.
The Company recognizes revenue when title is transferred. The Company does not have any further performance obligations once title is transferred.
| 13 |
A detailed breakdown of the five-step process for the revenue recognition of Developed Lots Revenue is as follows:
1. Identify the contract with a customer.
The Company signs an agreement with the buyer to purchase lots that have completed infrastructure.
2. Identify the performance obligations in the contract.
Performance obligations of the Company include delivering developed lots to the customer, which are required to meet certain specifications that are outlined in the contract.
3. Determine the transaction price.
The transaction price is fixed and specified in the contract. Any subsequent change orders or price changes are required to be approved by both parties.
4. Allocation of the transaction price to performance obligations in the contract
All lots are a single performance obligation for the specific price in the contract.
5. Recognize revenue when (or as) the entity satisfies a performance obligation.
The Company recognizes revenue when title is transferred. The Company does not have any further performance obligations once title is transferred.
A detailed breakdown of the five-step process for the revenue recognition of Fee Build Revenue is as follows:
1. Identify the contract with a customer.
The Company signs an agreement with a customer to construct the required infrastructure so that houses can be developed on the lots.
2. Identify the performance obligations in the contract.
Performance obligations of the Company include delivering developed lots which are required to meet certain specifications that are outlined in the contract.
3. Determine the transaction price.
The transaction price is fixed and specified in the contract. Any subsequent change orders or price changes are required to be approved by both parties.
4. Allocation of the transaction price to performance obligations in the contract
The nature of the industry involves a number of uncertainties that can affect the current state of the contract. Variable considerations are the estimates made due to a contract modification in the contractual service. Change orders, claims, extras, or back charges are common in contractual services activity as a form of variable consideration. If there is going to be a contract modification, judgment by management will need to be made to determine if the variable consideration is enforceable. The following factors are considered in determining if the variable consideration is enforceable:
| 1. | The customer’s written approval of the scope of the change order; | |
| 2. | Current contract language that indicates clear and enforceable entitlement relating to the change order; | |
| 3. | Separate documentation for the change order costs that are identifiable and reasonable; and | |
| 4. | The Company’s experience in negotiating change orders, especially as it relates to the specific type of contract and change order being evaluated |
Once the Company receives a contract, it generates a budget of projected costs for the contract based on the contract price. If the scope of the contract during the contractual period needs to be modified, the Company files a change order. The Company does not continue to perform services until the change modification is agreed upon with documentation by both the Company and the customer. There are few times that claims, extras, or back charges are included in the contract.
| 14 |
If there are multiple performance obligations to the contract, the costs must be allocated appropriately and consistently to each performance obligation. In the Company’s experience, usually only one performance obligation is stated per contract. If there are multiple services provided for one customer, the Company has a policy of splitting out the services over multiple contracts.
5. Recognize revenue when (or as) the entity satisfies a performance obligation.
The Company uses the total costs incurred on the project relative to the total expected costs to satisfy the performance obligation. The input method involves measuring the resources consumed, labor hours expended, costs incurred, time lapsed, or machine hours used relative to the total expected inputs to the satisfaction of the performance obligation. Costs incurred prior to actual contract (i.e. design, engineering, procurement of material, etc.) should not be recognized as the client does not have control of the good/service provided. When the estimate on a contract indicates a loss or claims against costs incurred reduce the likelihood of recoverability of such costs, the Company records the entire estimated loss in the period the loss becomes known. Project contracts typically provide for a schedule of billings or invoices to the customer based on the Company’s job to date percentage of completion of specific tasks inherent in the fulfillment of its performance obligation(s). The schedules for such billings usually do not precisely match the schedule on which costs are incurred. As a result, contract revenue recognized in the statement of operations can and usually does differ from amounts that can be billed or invoiced to the customer at any point during the contract. Amounts by which cumulative contract revenue recognized on a contract as of a given date exceed cumulative billings and unbilled receivables to the customer under the contract are reflected as a current asset in the Company’s balance sheet under the captions "Contract Asset” which is further disclosed in Note 14. Amounts by which cumulative billings to the customer under a contract as of a given date exceed cumulative contract revenue recognized on the contract are reflected as a current liability in the Company’s balance sheet under the caption "Billings in excess of costs and estimated earnings.”
A detailed breakdown of the five-step process for the revenue recognition of Home Revenue is as follows:
1. Identify the contract with a customer.
The Company signs an agreement with a home buyer to purchase a lot with a completed house.
2. Identify the performance obligations in the contract.
Performance obligations of the Company include delivering a developed lot with a completed house to the customer, which is required to meet certain specifications that are outlined in the contract.
3. Determine the transaction price.
The transaction price is fixed and specified in the contract. Any subsequent change orders or price changes are required to be approved by both parties.
| 15 |
4. Allocation of the transaction price to performance obligations in the contract
Each lot with a completed house is a separate performance obligation, for which the specific price in the contract is allocated.
5. Recognize revenue when (or as) the entity satisfies a performance obligation.
The Company recognizes revenue when title is transferred. The Company does not have any further performance obligations once title is transferred.
A detailed breakdown of the five-step process for the revenue recognition of Construction Materials sold to or received from contractors is as follows:
1. Identify the contract with a customer.
There are no signed contracts. Each transaction is verbally agreed to with the customer.
2. Identify the performance obligations in the contract.
The Company delivers or receives materials from customers based on the verbal agreement reached.
3. Determine the transaction price.
The Company has a set price list for receiving approved fill materials to recycle or provides customers with a combination of said materials.
4. Allocation of the transaction price to performance obligations in the contract.
There is only one performance obligation, which is to pick up or deliver the materials. The entire transaction price is therefore allocated to the performance obligation.
5. Recognize revenue when (or as) the entity satisfies a performance obligation.
The performance obligation is fulfilled, and revenue is recognized when the materials have been received or delivered by the Company.
| 16 |
Revenues from contracts with customers are summarized by category as follows for the three and six months ended June 30:
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Entitled Land | $ | $ | $ | $ | ||||||||||||
| Developed Lots | ||||||||||||||||
| Fee Build | ||||||||||||||||
| Homes | ||||||||||||||||
| Construction Materials | ||||||||||||||||
| Total Revenue | $ | $ | $ | $ | ||||||||||||
Disaggregation of Revenue from Contracts with Customers
The following table disaggregates the Company’s revenue based on the type of sale or service and the timing of satisfaction of performance obligations for the three and six months ended June 30, 2021 and 2020:
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Performance obligations satisfied at a point in time | $ | $ | $ | $ | ||||||||||||
| Performance obligations satisfied over time | ||||||||||||||||
| Total Revenue | $ | $ | $ | $ | ||||||||||||
| 17 |
Cost of Sales
Land acquisition costs are allocated to each lot based on the size of the lot in relation to the size of the total project. Development cost and capitalized interest are allocated to lots sold based on the same criteria.
Cost relating to the handling of recycled construction materials and converting items into usable construction materials for resale are charged to cost of sales as incurred.
Advertising
Costs for designing, producing and communicating advertising
are expensed as incurred. Advertising expense for the three months ended June 30, 2021 and 2020 was $
Advertising expense for the six months ended June
30, 2021 and 2020 was $
Leases
On January 1, 2019, the Company adopted ASU 2016-02 "Leases” (Topic 842) which amended guidance for lease arrangements to increase transparency and comparability by providing additional information to users of financial statements regarding an entity’s leasing activities.
As part of the adoption the Company elected the practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to:
| 1. | Not separate non-lease components from lease components and instead to account for each separate lease component and the non-lease components associated with that lease component as a single lease; | |
| 2. | Not to apply the recognition requirements in ASC 842 to short-term leases; and | |
| 3. | Not record a right of use asset or right of use liability for leases with an asset or liability balance that would be considered immaterial. |
| 18 |
Income Taxes
Deferred income tax assets and liabilities are determined based on the estimated future tax effects of net operating loss, credit carryforwards and temporary differences between the tax basis of assets and liabilities and their respective financial reporting amounts measured at the current enacted tax rates. Management applies the criteria established in the FASB released Accounting Standards Update No. 2019-12, Income taxes (Topic 740) (the Update) to determine if any valuation allowances are needed each year.
The Company recognizes a tax benefit for an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. There are no uncertain tax positions as of June 30, 2021 and December 31, 2020.
Recent Accounting Pronouncements
On December 18, 2019, the FASB released Accounting Standards Update No. 2019-12, Income taxes (Topic 740) (the Update). The Board issued this update as part of its initiative to reduce complexity in accounting standards. The Standard is effective for fiscal years beginning after December 15, 2020. The adoption did not have a material impact on the Company.
In August 2020, the FASB issued Accounting Standards Update 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) ("ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective January 1, 2022 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company adopted ASU 2020-06 on January 1, 2021. The adoption of ASU 2020-06 did not have an impact on the Company.
On May 3, 2021, the FASB released Accounting Standards Update No. 2021-04, Compensation – Earning Per Share (Topic 260), Debt - Modifications and Extinguishments (subtopic 470-50), Compensation - Stock compensation (Topic 718), Contracts in Entity’s Own Equity (Subtopic 815-40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. FASB issued this update to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example warrants) that remain equity classified after modification or exchange. The Standard is effective for fiscal years beginning after December 15, 2021. The Company does not believe the adoption will have a material impact on the Company.
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Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or circumstances indicate that the carrying value of such assets may not be fully recoverable. Impairment is present when the sum of undiscounted estimates future cash flow expected to result from use of the assets is less than carrying value. If impairment is present, the carrying value of the impaired asset is reduced to its fair value. Fair value is determined based on discounted cash flow or appraised values, depending on the nature of the assets. As of June 30, 2021 and December 31, 2020, there were no impairment losses recognized for long-lived assets.
Offering Costs Associated with a Public Offering
The Company complies with the requirements of FASB ASC 340-10-S99-1 and SEC Staff Accounting Bulletin ("SAB”) Topic 5A — "Expenses of Offering.”
On
January 15 and 20, 2021, the Company closed on a follow-on public offering and overallotment option, respectively, of common stock. During
2020, the Company incurred approximately $
2. CONCENTRATION, RISKS, AND UNCERTAINTIES
Cash Concentrations
The
Company maintains cash balances at various financial institutions. These balances are secured by the Federal Deposit Insurance Corporation.
These balances may exceed the federal insurance limits. Uninsured cash balances were $
| 20 |
Revenue Concentrations
For
the three months ended June 30, 2021 and 2020, revenue from Lennar Northwest, Inc. ("Lennar”) was $
For
the six months ended June 30, 2021 and 2020, revenue from Lennar was $
COVID-19
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus ("COVID-19”) as a pandemic which continues to spread throughout the United States and the world. The Company is monitoring the outbreak of COVID-19 and the related business and travel restrictions and changes to behavior intended to reduce its spread, in addition to the impact on its employees. Due to the rapid development and fluidity of this situation, the magnitude and duration of the pandemic and its impact on the Company’s operations and liquidity are uncertain as of the date of this report.
The COVID-19 Pandemic has had the following effect on the Company’s business:
| 1. | Construction not related to safety, spoliation, or critical infrastructure was halted by Washington State Governor Inslee (the "Governor”) on March 23, 2020. Some operations could continue based on the aforementioned exceptions to the shutdown order, but the Company did experience a significant operational slowdown. |
| 2. | Soundview Estates (a large Harbor Custom Development, Inc. site) continued selective activities that yielded rock byproduct, considered an essential material, needed for critical infrastructure projects for an Amazon distribution center and a local hospital. |
| 3. | On April 24, 2020, the Governor approved the restart of most residential housing projects, deeming them essential, as long as they adhered to certain safety measures. Under this order, most existing permitted residential homes or projects were considered essential. The order allowed the Company to resume near full construction activities on all permitted lots. |
| 4. | On May 1, 2020, the Governor established a four-phase plan for Washington businesses to follow. All Harbor Custom Development, Inc. development sites were in Phase 3 of the plan where construction was able to continue, and new construction was allowed, as long as the Company created a safety plan adhering to certain safety practices, which the Company had done. |
| 5. | As of June 30, 2021, Washington State reopened the state under the Washington Ready plan. All industry sectors previously covered by the Roadmap to Recovery or the Safe Start Plan (which included all Harbor Custom Development, Inc. operational activities) returned to usual capacity and operations. |
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The Company has not, at this time, experienced any cancelled sales contracts. The Company has experienced some supply-chain issues with both cabinetry and appliances related to COVID-19. As of the date of this report, the Company’s projects are on-schedule and operations are not being materially impacted by the COVID-19 pandemic. While there could ultimately be a material impact on operations and liquidity of the Company, at the time of issuance of this report, the ultimate impact could not be determined.
3. PROPERTY AND EQUIPMENT
Property and equipment stated at cost, less accumulated depreciation and amortization, consisted of the following:
| June 30, 2021 | December 31, 2020 | |||||||
| Machinery and Equipment | $ | $ | ||||||
| Vehicles | ||||||||
| Furniture and Fixtures | ||||||||
| Leasehold Improvements | ||||||||
| Total Fixed Assets | ||||||||
| Less Accumulated Depreciation | ( | ) | ( | ) | ||||
| Fixed Assets, Net | $ | $ | ||||||
Depreciation
expense was $
Depreciation
expense was $
| 22 |
4. REAL ESTATE
Real Estate consisted of the following components:
| June 30, 2021 | December 31, 2020 | |||||||
| Land Held for Development | $ | $ | ||||||
| Construction in Progress | ||||||||
| Held for Sale | - | |||||||
| $ | $ | |||||||
5. EQUIPMENT LOANS
Consists of the following:
| June 30, 2021 | December 31, 2020 | |||||||
| Various notes payable to banks and financial institutions with interest rates varying from | $ | $ | ||||||
| Book value of collateralized equipment: | $ | $ | ||||||
Future equipment loan maturities are as follows:
For the twelve months ended June 30:
| 2022 | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| $ |
| 23 |
6. CONSTRUCTION LOANS
The
Company has various construction loans with private individuals and finance companies. The loans are collateralized by specific construction
projects. All loans have a term but will be refinanced if the project is not completed within one year and will be due upon
the completion of the project. Interest accrues on the loans and is included with the payoff of the loan. Interest ranges from
7. NOTE PAYABLE D&O INSURANCE
The
Company purchased D&O insurance on August 28, 2020 for $
8. NOTE PAYABLE PPP
On
April 11, 2020, the Company entered into a term note with Timberland Bank, with a principal amount of $
The PPP Term Note is unsecured and guaranteed by the United States Small Business Administration. The Company may apply for forgiveness of the PPP Term Note, with the amount which may be forgiven equal to the sum of payroll costs, covered rent and mortgage obligations, and covered utility payments incurred by the Company during the applicable period beginning upon receipt of PPP Term Note funds, calculated in accordance with the terms of the CARES Act.
On
November 9, 2020 and February 1, 2021, the SBA forgave $
As
of June 30, 2021, and December 31, 2020, the balance of the PPP Loan was $
| 24 |
Future note payable loan maturities are as follows:
For the twelve months ended June 30:
| 2022 | $ | |||
| $ |
9. DEFINED CONTRIBUTION PLAN
Effective
January 1, 2016, the Company established a 401(k) plan for qualifying employees; employee contributions are voluntary. Company contributions
to the plan for the three months ended June 30, 2021 and 2020 were $
10. COMMITMENTS
From time to time the Company is subject to compliance audits by federal, state and local authorities relating to a variety of regulations including wage and hour laws, taxes, and workers’ compensation. There are no significant or pending litigation or regulatory proceedings known at this time.
On
September 17, 2020, the Company entered into a purchase and sale agreement for the acquisition of
On
June 15, 2020, the Company entered into a purchase and sale agreement to acquire property for the construction of 30 townhomes
located in East Bremerton, Washington for $
On
April 20, 2021, the Company entered into a purchase and sale agreement to acquire 106 lots in Horseshoe Bay, Texas for $
On
April 25, 2021, the Company entered into a purchase and sale agreement to acquire
On
May 6, 2021, the Company entered into a purchase and sale agreement to acquire
| 25 |
On
June 7, 2021 the Company entered into a purchase and sale agreement to acquire a 177-unit condominium site in Olympia, Washington
for $
On
June 22, 2021 the Company entered into a purchase and sale agreement to acquire a 112-unit condominium site in Burien, Washington
for $
11. RELATED PARTY TRANSACTIONS
Notes Payable
The Company entered into construction loans with
Sound Equity, LLC of which Robb Kenyon, a director and minority shareholder, is a partner. These loans were originated between
April 2019 and January 2021; all of the loans have a maturity with interest rates ranging between
The Company entered into a construction loan with
Curb Funding, LLC of which Robb Kenyon a director and minority shareholder, is 100% owner. The loan originated on August 13, 2020.
The loan has a maturity with an interest rate of
As discussed in Note 15 - Subsequent Events, Robb Kenyon resigned as a director of the Company on July 8, 2021.
On
April 19, 2019, the Company entered into a construction loan with Olympic Views, LLC of which the Company’s Chief Executive Officer
and President, previously owned a
| 26 |
Due to Related Party
The
Company utilizes a quarry to process waste materials from the completion of raw land into sellable/buildable lots. The quarry is located
on land owned by SGRE, LLC which is
Richard
Schmidtke, a Company director, provided accounting services in 2021 and 2020 to the Company. On June 30, 2021 and December 31, 2020,
the fees payable to Mr. Schmidtke were $
Land Purchase from a Related Party
On
September 2, 2020, the Company purchased 99 unfinished lots for $
12. STOCKHOLDERS’ EQUITY
Common Stock
The Company is authorized to issue shares of common stock, at par value per share. At June 30, 2021, the Company has shares of common stock issued and outstanding.
Each share of common stock has one vote per share for all purposes. Common stock does not provide any preemptive, subscription or conversion rights and there are no redemption or sinking fund provisions or rights. Common stockholders are not entitled to cumulative voting for purposes of electing members to the Board of Directors.
| 27 |
Preferred Stock
At June 30, 2021, the Company is
authorized to issue
shares of preferred stock, at
par value per share. As of June 30, 2021, the Company has
shares of Series A Cumulative Convertible Preferred Stock ("Series A Preferred Shares”) issued and outstanding. The
holders of the Series A Preferred Shares are entitled to receive dividends at a rate of
Conversion
at Option of Holder. Each Series A Preferred Share, together with accrued but unpaid dividends, is convertible into common stock
at a conversion Price of $
Dividends
Preferred
Stock. The holders of the Series A Preferred Shares are entitled to receive dividends at a rate of
Common Stock. The declaration of any future cash dividends is at the discretion of the board of directors and depends upon the Company’s earnings, if any, capital requirements and financial position, general economic conditions, and other pertinent conditions. It is the Company’s present intention not to pay any cash dividends on the Company’s common stock in the foreseeable future, but rather to reinvest earnings, if any, in business operations.
Public Offering and Conversion of Debt
The
registration statement for the Company’s initial public offering (the "Initial Public Offering”) became effective on
August 28, 2020. On September 1, 2020, the Company closed on the Initial Public Offering of shares of its common stock at the
public offering price of $ per share, which included shares of common stock sold upon full exercise of the underwriters’
option to purchase additional shares of common stock for gross proceeds of $
| 28 |
In
addition, upon closing of the Initial Public Offering the Company issued, to the underwriters, warrants to purchase an aggregate of
Also,
upon closing of the Initial Public Offering, the Company issued to Olympic Views, LLC ("Olympic”), shares of its common
stock as a result of the conversion of debt owed to Olympic in the amount of $
2021 Common Stock Offering
On
January 15 and 20, 2021, the Company closed on an offering (the "Follow-On Offering”) of shares of common stock
at the public offering price of $ per share, which includes shares of common stock sold upon full exercise of the underwriters’
option to purchase additional shares of common stock for gross proceeds of $
In
addition, upon closing of the Follow-On Offering the Company issued to the underwriters, warrants to purchase an aggregate of
Preferred Stock Offering
On
June 11, 2021, the Company closed an offering (the "Preferred Stock Offering”) for Series A Preferred Shares and
warrants to purchase shares of common stock at an exercise price of $ per share, which included
In
addition, upon closing of the Preferred Stock Offering, the Company issued to the underwriters two warrants, including (i) warrants to
purchase
The warrants issued to investors in this offering
have an exercise price of $
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(A) Options
| Options | Weighted Average Exercise Price | |||||||
| Outstanding – December 31, 2020 | $ | |||||||
| Exercisable – December 31, 2020 | $ | |||||||
| Granted | $ | |||||||
| Exercised | ( | ) | $ | |||||
| Forfeited/Cancelled | $ | |||||||
| Outstanding – June 30, 2021 | $ | |||||||
| Exercisable – June 30, 2021 | $ | |||||||
| Options Outstanding | Options Exercisable | |||||||||||||||||
Exercise Price | Number Outstanding | Weighted Average Remaining Contractual Life (in years) | Weighted Average Exercise
| Number Exercisable | Weighted Average Exercise Price | |||||||||||||
| $ | - $ | $ | $ | |||||||||||||||
| 30 |
During the six months ended June 30, 2021, the Company issued options to employees. The options have an exercise price between $ and per share, a term of , and vest over . The options have an aggregated fair value of approximately $ that was calculated using the Black-Scholes option-pricing model based on the assumptions discussed above in Note 1 under Stock-Based Compensation.
During the six months ended June 30, 2021, the Company had options exercised by a former employee. These shares were exercised at $ per share for a total of $ which has been included in additional paid in capital.
The Company recognized share-based compensation net of forfeitures related to options of $ and $ for the three months ended June 30, 2021 and 2020, respectively.
The Company recognized share-based compensation net of forfeitures related to options of $ and $ for the six months ended June 30, 2021 and 2020, respectively.
As of June 30, 2021, unrecognized share-based compensation was $.
The intrinsic value for outstanding and exercisable options as of June 30, 2021 was $ and $.
| 31 |
(B) Warrants
The following is a summary of the Company’s Common Stock Warrant activity:
| Warrants | Weighted Average Exercise Price | |||||||
| Outstanding – December 31, 2020 | $ | |||||||
| Exercisable – December 31, 2020 | $ | |||||||
| Granted | $ | |||||||
| Exercised | $ | |||||||
| Forfeited/Cancelled | $ | |||||||
| Outstanding – June 30, 2021 | $ | |||||||
| Exercisable – June 30, 2021 | $ | |||||||
| Warrants Outstanding | Warrants Exercisable | |||||||||||||||||
Exercise Price | Number Outstanding | Weighted Average Remaining Contractual Life (in years) | Weighted Average Exercise
| Number Exercisable | Weighted Average Exercise Price | |||||||||||||
| $ | - $ | $ | $ | |||||||||||||||
The intrinsic value for outstanding and exercisable warrants as of June 30, 2021 was $ and $, respectively.
| 32 |
The following is a summary of the Company’s Preferred Stock Warrant activity:
| Warrants | Weighted Average Exercise Price | |||||||
| Outstanding – December 31, 2020 | $ | |||||||
| Exercisable – December 31, 2020 | $ | |||||||
| Granted | $ | |||||||
| Exercised | $ | |||||||
| Forfeited/Cancelled | $ | |||||||
| Outstanding – June 30, 2021 | $ | |||||||
| Exercisable – June 30, 2021 | $ | |||||||
| Warrants Outstanding | Warrants Exercisable | |||||||||||||||||
| Exercise
Price | Number Outstanding | Weighted
Average Remaining Contractual Life (in years) | Weighted
Average Exercise Price | Number Exercisable | Weighted
Average Exercise Price | |||||||||||||
| $ | $ | $ | ||||||||||||||||
The intrinsic value for outstanding and exercisable warrants as of June 30, 2021 was $ and $, respectively.
| 33 |
(C) Restricted Stock Unit ("RSU”) Plan
| RSU | Weighted Average Exercise Price | |||||||
| Outstanding – December 31, 2020 | $ | |||||||
| Exercisable – December 31, 2020 | $ | |||||||
| Granted | $ | |||||||
| Exercised | $ | |||||||
| Forfeited/Cancelled | $ | |||||||
| Outstanding – June 30, 20201 | $ | |||||||
| Exercisable – June 30, 2021 | $ | |||||||
The Company periodically grants restricted stock awards to the board of directors and certain employees pursuant to the 2020 RSU plan. These typically are awarded by the board of directors at one time and from time to time, to vest in four equal installments on the last day of a fiscal quarter. The Company recognized $ and $ of share-based compensation expense during the three months ended June 30, 2021 and 2020, respectively. The Company recognized $ and $ of share-based compensation during the six months ended June 30, 2021 and 2020, respectively. On June 30, 2021, there was $ of unrecognized compensation related to non-vested restricted stock.
13. SEGMENTS
The Company’s business is organized into four material reportable segments which aggregate 99% of revenue:
1) Homes revenue
2) Completed lots revenue
3) Entitled land revenue
4) Fee build revenue
| 34 |
The reporting segments follow the same accounting policies used in the preparation of the Company’s consolidated financial statements. The following represents selected information for the Company’s reportable segment for the three months ended June 30, 2021 and 2020 and the six months ended June 30, 2021 and 2020. Immaterial construction materials revenues and costs are included in the homes segment.
| For the Three Months ended | For the Six Months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue by segment | ||||||||||||||||
| Homes | $ | $ | $ | $ | ||||||||||||
| Completed lots | ||||||||||||||||
| Entitled land | ||||||||||||||||
| Fee Build | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Cost of goods sold by segment | ||||||||||||||||
| Homes | $ | $ | $ | $ | ||||||||||||
| Completed lots | ||||||||||||||||
| Entitled land | ||||||||||||||||
| Fee Build | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Gross profit (loss) by segment | ||||||||||||||||
| Homes | $ | $ | $ | $ | ||||||||||||
| Completed lots | ( | ) | ||||||||||||||
| Entitled land | ||||||||||||||||
| Fee Build | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| 35 |
14. UNCOMPLETED CONTRACTS
Costs, estimated earnings and billings on uncompleted contracts are summarized as follows at June 30, 2021 and December 31, 2020:
| June 30, 2021 | December 31, 2020 | |||||||
| Costs incurred on uncompleted contracts | $ | $ | ||||||
| Estimated earnings | - | |||||||
| Costs and estimated earnings on uncompleted contracts | - | |||||||
| Billings to date | - | |||||||
| Costs and estimated earnings in excess of billings on uncompleted contracts | - | |||||||
| Costs and earnings in excess of billings on completed contracts | - | - | ||||||
| $ | $ | |||||||
| Costs in excess of billings | $ | $ | ||||||
| Billings in excess of cost | - | - | ||||||
| $ | $ | |||||||
The
contract asset of $
15. SUBSEQUENT EVENTS
On April 20, 2021, the Company entered into a purchase
and sale agreement to acquire 106 lots in Horseshoe Bay, Texas for $
On April 25, 2021, the Company entered into a purchase
and sale agreement to acquire
On May 6, 2021, the Company entered into a purchase
and sale agreement to acquire ten lots in Horseshoe Bay, Texas for $
On May 6, 2021, the Company entered into a purchase
and sale agreement to acquire
On June 7, 2021 the Company entered into a purchase
and sale agreement to acquire a 177-unit condominium site in Olympia, Washington for $
On July 8, 2021, Robb Kenyon resigned his position as a director of the Company.
On July 9, 2021, the Company entered into a purchase
and sale agreement to acquire one lot in Horseshoe Bay, Texas for $
On July 12, 2021, the Company entered into a purchase
and sale agreement to acquire 208-unit condominium site in Sacramento, California for $
On July 26, 2021, the Company entered into
a contract with Lennar to sell 144 entitled lots in Belfair Washington for $
On July 29, 2021, the Company entered into
a non-binding credit facilities agreement with US Capital Global in the amount of $
| 36 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITON AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
Statements made in this Form 10-Q that are not historical or current facts are "forward-looking statements” made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 (the "Act”) and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act”). These statements often can be identified by the use of terms including, but not limited to "may,” "expect,” "believe,” "anticipate,” "estimate,” "approximate” or "continue,” or the negative thereof. We intend that such forward-looking statements be subject to the safe harbors for such statements. Readers should not place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties, and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.
Overview and Outlook
We are a real estate development company involved in all aspects of the land development cycle including land acquisition, entitlements, construction of project infrastructure, home building, marketing, and sales of various single-family and condominium projects in Washington, California, Texas, and Florida. We have constructed single-family communities and homes in Gig Harbor, Bremerton, Silverdale, Bainbridge Island, Belfair, Allyn, and Port Orchard in the state of Washington, and have single-family homes in various early stages of plan development and construction in California, Texas, and Florida. Our business strategy is focused on the acquisition of land to develop property for the construction and sale of residential lots, home communities, or condominium properties within a 30 to 60-minute commute to major metropolitan employment corridors.
With $8,438,800 in heavy equipment, our infrastructure development division efficiently constructs a diverse range of residential communities and improved lots in a cost-effective manner. We utilize heavy equipment to develop raw land and create residential subdivisions and multi-family communities. The development process includes land clearing, site development, public and private road improvements, and installation of wet utilities such as sewer, water, and storm sewer lines, in addition to construction of dry utilities lines for power, gas, telephone, and cable service providers.
As of June 30, 2021, we own or control 25 communities in Washington, Texas, California, and Florida, containing an aggregate of 1,322 lots and 263.5 acres in various stages of development.
The core of our business plan is to acquire and develop land strategically, based on our understanding of population growth patterns, geo-economic forces, entitlement restrictions, and infrastructure development. We focus on locations within our target markets with convenient access to metropolitan areas that are generally characterized by diverse economic and employment bases and increasing populations. We believe that these conditions create strong demand for new housing and these locations represent what we believe to be attractive opportunities for long-term and sustainable growth.
Our business strategy is focused on the acquisition of land for development purposes and the design, construction, and sale of residential lots, single-family homes, townhomes, and condominiums in the Puget Sound region of Western Washington, with further expansion underway into similar markets in California, Texas, and Florida.
Our strategy is driven by the following: (i) to provide superior quality and homeowner experience and service; (ii) expansion into new and complementary markets; (iii) adherence to our core operating principles to drive consistent long-term performance; and (iv) focus on efficient operations.
It is customary for us to sign purchase and sale agreements that contain a due diligence period which allows us time, often between 30 and 60 days, to evaluate the acquisition. At times, through our due diligence efforts, we find that the property is not suitable for purchase due to economic forces, zoning issues, or other matters. If we determine that the property is not suitable for our desired purposes, we terminate the purchase and sale agreement. After termination within the due diligence period, our earnest money is returned to us. On February 21, 2021, we terminated a purchase and sale agreement for 44 acres of undeveloped land near Austin, Texas, which we had announced on January 22, 2021. After our termination of the agreement, our earnest money was returned. A $1,000 option contract fee included in the purchase and sale agreement was nonrefundable.
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Results of Operations for the Three Months Ended June 30, 2021 as Compared to the Three Months Ended June 30, 2020
The following table sets forth the summary statements of operations for the three months ended June 30, 2021 and 2020.
| For the Three Months Ended | ||||||||
| June 30, | ||||||||
| 2021 | 2020 | |||||||
| Sales | $ | 14,132,400 | $ | 8,329,800 | ||||
| Cost of sales | 10,805,100 | 7,436,000 | ||||||
| Gross profit | 3,327,300 | 893,800 | ||||||
| Operating expenses | 2,267,800 | 1,282,300 | ||||||
| Other income (expense) | 9,900 | (5,700 | ) | |||||
| Income tax expense | - | 39,900 | ||||||
| Net income (loss) | $ | 1,069,400 | $ | (434,100 | ) | |||
Sales
Our sales increased by 69.66% to $14,132,400 for the three months ended June 30, 2021 as compared to $8,329,800 for the three months ended June 30, 2020. Sales increased in 2021 due to the sale of entitled land of $9,310,000 to Lennar and fee build revenue of $1,348,200, which was offset by a decrease in home sales of $4,644,700.
Gross Profit
Our overall gross profit margin was 23.54% for the three months ended June 30, 2021 compared to 10.73% for the three months ended June 30, 2020. For the three months ended June 30, 2021 and 2020, the average gross margin for homes closed was 22.81% and 10.73%, respectively. Gross margin on finished entitled land to Lennar for the three months ended June 30, 2021 and 2020, respectively was 25.51% and 0%. For the three months ended June 30, 2021 and 2020, the gross margin for fee build was 11.83% and 0%, respectively.
Operating Expenses
Our operating expenses increased by 76.85% to $2,267,800 for the three months ended June 30, 2021, as compared to $1,282,300 for the three months ended June 30, 2020. The increase in total operating expenses is primarily attributable to the following:
| 1) | Insurance costs increased by $423,400, primarily driven by the purchase of director’s and officer’s insurance; | |
| 2) | Stock compensation costs increased by $114,700, primarily driven by options and restricted stock units ("RSUs”) issued to directors; | |
| 3) | Investor relations costs increased by $87,600, primarily driven by establishing and maintaining public company infrastructure and oversight; | |
| 4) | Additional depreciation expense of $98,900 related to equipment additions; and | |
| 5) | Payroll and related benefits increased by $191,400 due to increase in staff for increased compliance issues. |
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Other Income (Expense)
Other income increased by 158% to $9,900 for the three months ended June 30, 2021 as compared to ($5,700) for the three months ended June 30, 2020.
Net Income (Loss)
For the three months ended June 30, 2021 and 2020, we incurred a net income (loss) of $1,069,400 and ($434,100), respectively. The Income in net income was primarily attributable to an increase in revenue and improved profit margins in 2021 as explained above.
Results of Operations for the Six Months Ended June 30, 2021 as Compared to the Six Months Ended June 30, 2020
The following table sets forth the summary statements of operations for the six months ended June 30, 2021 and 2020.
| For the Six Months Ended | ||||||||
| June 30, | ||||||||
| 2021 | 2020 | |||||||
| Sales | $ | 28,006,600 | $ | 18,270,800 | ||||
| Cost of sales | 24,072,100 | 17,264,200 | ||||||
| Gross profit | 3,934,500 | 1,006,600 | ||||||
| Operating expenses | 4,317,600 | 2,311,700 | ||||||
| Other (expense) | (96,700 | ) | (92,800 | ) | ||||
| Income Tax Expense | - | (10,100 | ) | |||||
| Net Income (loss) | $ | (479,800 | ) | $ | (1,408,000 | ) | ||
Sales
Our sales increased by 53.29% to $28,006,600 for the six months ended June 30, 2021 as compared to $18,270,800 for the six months ended June 30, 2020. Sales increased in 2021 due to a land development sale of $7,000,000 to Lennar, sale of entitled land of $9,310,000 to Lennar, and fee build income of $1,348,200 which were partially offset by a decrease in home sales of $7,922,400.
Gross Profit
Our overall gross profit margin was 14.05% for the six months ended June 30, 2021 compared to 5.51% for the six months ended June 30, 2020. For the six months ended June 30, 2021 and 2020, the average gross margin for homes closed was 15.52% and 5.51%, respectively. Gross margin on finished lot sales to Lennar for the six months ended June 30, 2021 and 2020, was (-0.66%) and 0%, respectively. Gross margin on finished entitled land to Lennar for the six months ended June 30, 2021 and 2020, was 23.80% and 0%, respectively. For the six months ended June 30, 2021 and 2020, the gross margin for fee build was 11.83% and 0%, respectively
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Operating Expenses
Our operating expenses increased by 86.77% to $4,317,600 for the six months ended June 30, 2021, as compared to $2,311,700 for the six months ended June 30, 2020. The increase in total operating expenses is primarily attributable to the following:
| 1) | Insurance costs increased by $828,500, primarily driven by the purchase of director’s and officer’s insurance; | |
| 2) | Stock compensation- costs increased by $229,700, primarily driven by options and RSUs issued to directors; | |
| 3) | Investor relations costs increased by $202,000, primarily driven by establishing and maintaining public company infrastructure and oversight; | |
| 4) | Additional depreciation expense of $197,200 related to equipment additions; and | |
| 5) | Payroll and related benefits increased by $320,600 due to increase in staff for increased compliance issues. |
Other Expense
Other expense increased by 4% to $96,700 for the six months ended June 30, 2021 as compared to $92,800 for the six months ended June 30, 2020. For the six months ended June 30, 2021, we incurred $183,400 of interest expense related to our financing arrangements as compared to $90,300 for the six months ended June 30, 2020. In addition, we recorded $35,900 of loss on sales of equipment for the six months ended June 30, 2021 as compared to $15,500 for the six months ended June 30, 2020. For the six months ended June 30, 2021, other income increased for mainly due to timber sales of $135,800 as compared to $3,000 for the six months ended June 30, 2020.
Net Loss
Our net loss decreased by 66% to $479,800 for the six months ended June 30, 2021 as compared to $1,408,000 for the six months ended June 30, 2020. The decrease in net loss was primarily attributable to an increase in revenue and improved gross margins in 2021 as explained above.
Liquidity and Capital Resources
Real Estate Assets
Our real estate assets have increased to $85,217,800 as of June 30, 2021 from $20,370,300 as of December 31, 2020. This increase was due to an increase in the number of houses under construction and the purchase of additional developed and undeveloped lots.
Liabilities
Liabilities increased to $49,904,900 as of June 30, 2021 from $27,203,200 as of December 31, 2020. This increase is primarily attributable to the following:
| 1. | An increase in construction loans of $16,866,500 due to purchases of real estate; | |
| 2. | An increase in construction loans related-party of $4,532,900 due to purchases of real estate; and | |
| 3. | An increase in accounts payable and accrued expenses of $3,208,000 due to the increase of real estate projects in process. |
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Cash Balance
As of June 30, 2021, our cash balance was $12,785,600 compared to $2,396,500 as of December 31, 2020.
Operating Activities
Net cash used in operating activities for the six months ended June 30, 2021 and 2020 was $61,530,800 and $2,901,100, respectively. The increase is primarily due to the acquisition and development of real estate assets of $63,469,900. The net loss for the six months ended June 30, 2021 and 2020 was $479,800 and $1,408,000, respectively.
Investing Activities
Net cash used in investing activities for the six months ended June 30, 2021 and 2020 was $105,600 and $176,400, respectively. During the six months ended June 30, 2021, $175,100 was used for the acquisition of new property and equipment and there were proceeds from the sale of equipment of $69,500. During the six months ended June 30, 2020, $321,800 was used for the acquisition of new property and equipment and there were proceeds from the sale of equipment of $145,400.
Financing Activities
Net cash provided from investing activities for the six months ended June 30, 2021 and 2020 was $72,025,500 and $2,980,300, respectively. During the six months ended June 30, 2021, there was net proceeds from common stock issuances of $25,101,000, net proceeds from the Preferred Stock issuances of $28,661,000, net increase in construction loans of $16,245,500 and net increase in construction loans related party of $3,776,300. Also, During the six months ended June 30, 2020, there was a net increase in construction loans of $7,766,200 and a net decrease in construction loans related party of ($5,200,800).
Cash Resources
Although the expected revenue growth and control of expenses leads management to believe that it is probable that our cash resources will be sufficient to meet cash requirements through the fiscal year ending December 31, 2021, we may require additional funding to finance the growth of our current and expected future operations as well as to achieve our strategic objectives. There can be no assurance that financing will be available in amounts or terms acceptable to us, if at all. In that event, we would be required to change our growth strategy and seek funding on that basis, though there is no guarantee we will be able to do so.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as "special purpose entities” (SPEs).
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Inflation
Our homebuilding operations can be adversely impacted by inflation, primarily from higher land, financing, labor, material, and construction costs. In addition, inflation can lead to higher mortgage rates which can significantly affect the affordability of mortgage financing to homebuyers. While we attempt to pass on cost increases to customers through increased prices, when weak housing market conditions exist, we may be unable to offset cost increases with higher selling prices.
Critical Accounting Policies
Our condensed consolidated financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States ("GAAP”). GAAP requires the use of estimates, assumptions, judgments, and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues, and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk, and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
Our significant accounting policies are summarized in Note 1 of our condensed consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a "smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision of our Chief Executive Officer and President and Chief Financial Officer performed an evaluation (the "Evaluation”) of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide a reasonable level of assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Based on the Evaluation, our Chief Executive Officer and President and Chief Financial Officer concluded that our disclosure controls and procedures are operating effectively.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
As a "smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS FROM REGISTERED SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
| Exhibit No. | Description | |
| 31.1 | Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2 | Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32 | Certification of Principal Executive Officer and Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101. INS | XBRL Instance Document | |
| 101. SCH | XBRL Taxonomy Extension Schema Document | |
| 101. CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101. DEF | XBRL Taxonomy Extension definition Linkbase Document | |
| 101. LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| 101. PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
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SIGNATURES
In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| HARBOR CUSTOM DEVELOPMENT, INC. | ||
| Date: August 16, 2021 | By | /s/ Sterling Griffin |
| Sterling Griffin | ||
| Chief Executive Officer and President | ||
| (Principal Executive Officer) | ||
| Date: August 16, 2021 | By | /s/ Lynda Meadows |
Lynda Meadows Chief Financial Officer (Principal Financial and Accounting Officer) | ||
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Exhibit 31.1
CERTIFICATION OF PRESIDENT
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Sterling Griffin, certify that:
| 1. | I have reviewed this report on Form 10-Q of Harbor Custom Development, Inc. (the registrant); | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-a15(f) and 15d-15(f) for the registrant and have: |
| a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, is made known to me by others, particularly during the period in which this report is being prepared; | |
| b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | disclosed in this report any change in the registrant’s internal controls over financial reporting that occurred during the registrant’s current fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and; |
| 5. | I have disclosed, based on my most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions); |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal controls which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls. |
| Dated: August 16, 2021 | /s/ Sterling Griffin |
| Sterling Griffin | |
| Chief Executive Officer and President (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Lynda Meadows, certify that:
| 1. | I have reviewed this report on Form 10-Q of Harbor Custom Development, Inc. (the registrant); | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-a15(f) and 15d-15(f) for the registrant and have: |
| a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, is made known to me by others, particularly during the period in which this report is being prepared; | |
| b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | disclosed in this report any change in the registrant’s internal controls over financial reporting that occurred during the registrant’s current fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and; |
| 5. | I have disclosed, based on my most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions); |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal controls which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls. |
| Dated: August 16, 2021 | /s/ Lynda Meadows |
| Lynda Meadows | |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
Exhibit 32
CERTIFICATIONS PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of Harbor Custom Development, Inc., a Washington corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:
The quarterly report on Form 10-Q for the quarter ended June 30, 2021 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: August 16, 2021 | /s/ Sterling Griffin |
| Sterling Griffin | |
Chief Executive Officer and President (Principal Executive Officer) | |
| Date: August 16, 2021 | /s/ Lynda Meadows |
| Lynda Meadows | |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
A signed original of this written statement required by Section 906 has been provided to HARBOR CUSTOM DEVELOPMENT, INC. and will be retained by HARBOR CUSTOM DEVELOPMENT, INC. and furnished to the Securities and Exchange Commission or its staff upon request.