NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six
Months Ended June 30, 2018 and 2017 (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 five 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 4 new developments totaling 123 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.
In
addition to the New Jersey market, the Company, through its Dream Building LLC subsidiary, has become licensed in Florida to pursue
recent opportunities for elevation, restoration, renovation and new construction brought about by the damage caused by recent
hurricanes. Initial markets to be targeted are located primarily in the southwest portion of the state, between Naples and Cape
Coral.
In
addition to the Company’s construction operations, the Company holds a bi-monthly “Dream Homes Nearly Famous Rebuilding
Seminar”, and publishes an informational blog known as the “Dream Homes Rebuilding Blog”. The Rebuilding Seminar
is an educational tool for homeowners who need rebuilding or renovations. This seminar has been presented steadily since early
2013, and is designed to educate and assist homeowners in deciphering the confusion about planning and executing complex residential
construction projects. A professional team attends each seminar and presents on a diverse variety of topics, including expert
advice from architects, engineers, finance people, attorneys, project managers, elevation professionals and builder/general contractors.
The “Dream Homes Rebuilding Blog” is an educational platform written by Vincent Simonelli, which offers comprehensive
advice on all aspects of construction, finance, development and real estate. The Blog is located at http://blog.dreamhomesltd.com.
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
August 19, 2016, Virtual Learning acquired 4.5% of Dream Homes, Ltd. (“DHL”), 100% of Dream Building, LLC (“DBL”)
, a wholly owned subsidiary of DHL, and use of all construction licensing and registrations held by Atlantic Northeast Construction
LLC (“ANCL”), a wholly owned subsidiary of DHL, in exchange for the issuance of 2,225,000 shares of Virtual Learning
common stock to DHL at an agreed price of $.05 per common share.
The
majority stockholder and chief executive officer of DHL was also the controlling stockholder and chief executive officer of Virtual
Learning. As Virtual Learning and DHL were entities under common control, the acquired assets were reflected by Virtual Learning
at DHL’s $0 carrying amount on the date of transfer pursuant to Accounting Standards Codification (“ASC”) 805-50-30-5.
From
August 19, 2016 to August 23, 2016, Virtual Learning acquired the rights to complete 6 in process construction contracts of ANCL
in exchange for the issuance of 2,287,367 shares of Virtual Learning common stock to DHL at an agreed price of $.05 per common
share for those ANCL contracts. As Virtual Learning and DHL were entities under common control, the acquired rights were reflected
at DHL’s $0 carrying amount on the date of transfer pursuant to ASC 805-50-30-5.
Due
to the Company’s change in focus to its construction business, the Company wrote off the remaining unamortized capitalized
curriculum development costs of $20,534 at December 31, 2016.
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.
Interim
Financial Statements
The
accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in
the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim
financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they may not include
all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations or cash
flows. It is management’s opinion, however, that all material adjustments (consisting of normal recurring adjustments) have
been made which are necessary for a fair financial statement presentation.
The
unaudited interim financial statements should be read in conjunction with the Company’s Annual Report filed on Form 10-K
for the year ended December 31, 2017, which contains the audited financial statements and notes thereto, together with Management’s
Discussion and Analysis of Financial Conditions and Results of Operations, for the year ended December 31, 2017. Operating results
for the six months ended June 30, 2018 are not necessarily indicative of the results to be expected for the year ending December
31, 2018.
Principles
of Consolidation
The
consolidated financial statements include the accounts of DHDC and its wholly owned subsidiary DBL (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 recognizes construction contract revenue 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:
|
|
●
|
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.
|
|
|
|
|
|
|
●
|
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.
|
Costs
and estimated earnings in excess of billings 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. The impact of this ASU on our financial position, results of operations and cash flows at June 30,
2018 and for the six months then ended has not been significant.
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:
|
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Office equipment
|
|
$
|
4,115
|
|
|
$
|
4,115
|
|
|
Vehicles
|
|
|
24,565
|
|
|
|
24,565
|
|
|
Less: Accumulated depreciation
|
|
|
(21,992
|
)
|
|
|
(19,536
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment- net
|
|
$
|
6,688
|
|
|
$
|
9,144
|
|
Depreciation
expense for the six months ended June 30, 2018 and 2017 was $2,456 and $347, 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:
|
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Lacey Township, New Jersey, Marina contract:
|
|
|
|
|
|
|
|
|
|
Deposit
|
|
|
25,000
|
|
|
|
25,000
|
|
|
Site engineering, permits and other costs:
|
|
|
70,098
|
|
|
|
23,657
|
|
|
Total Marina Contract
|
|
|
95,098
|
|
|
|
48,657
|
|
|
|
|
|
|
|
|
|
|
|
|
Lacey Township, New Jersey, Pines contract:
|
|
|
|
|
|
|
|
|
|
Deposit
|
|
|
0
|
|
|
|
10,000
|
|
|
Cost to acquire contract
|
|
|
10,000
|
|
|
|
10,000
|
|
|
Site engineering, permits, and other costs
|
|
|
118,288
|
|
|
|
111,215
|
|
|
Total Pines contract
|
|
|
138,288
|
|
|
|
131,215
|
|
|
|
|
|
|
|
|
|
|
|
|
Berkeley Township, New Jersey, Tallwoods contract:
|
|
|
|
|
|
|
|
|
|
Deposit
|
|
|
10,000
|
|
|
|
10,000
|
|
|
Site engineering, permits, and other costs
|
|
|
27,437
|
|
|
|
20,257
|
|
|
Total Tallwoods contract
|
|
|
37,437
|
|
|
|
30,257
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
270,823
|
|
|
$
|
210,129
|
|
Lacey
Township, New Jersey, “Dream Homes at the Pines”, Contract
On
December 15, 2016, the Company acquired from General Development Corp. (“GDC”) rights to a contract to purchase over
9 acres of undeveloped land without amenities in Lacey Township, New Jersey (the “Lacey Contract or Dream Homes at the Pines”)
for $15,000 cash (paid in December 2016) and 100,000 restricted shares of Company common stock (issued in April 2017) valued at
$5,000. GDC acquired the rights to the contract from DHL on December 14, 2016 for $10,000 cash. As discussed in Note 8, Commitments
and Contingencies under Line of Credit, the Company also has an available line of credit of $50,000 with GDC.
The
Lacey Contract between DHL and the seller of the land was dated March 18, 2016 and provides for a $1,000,000 purchase price with
closing on or about 60 days after memorialization of final Development Approvals has been obtained. DHL paid the seller a $10,000
refundable deposit in March 2016 pursuant to the Lacey Contract. In the event the transaction has not closed on at least a portion
of the property within 24 months of the completion of the Due Diligence Period (as may be extended by two 6- month extensions),
the seller has the option of terminating the contract. Notwithstanding this provision, the Company retains the right at all times
to waive any remaining contingencies and proceed to close on the property.
At
this time, the contract is in good standing and there is no risk of cancellation. As per the contract, the Company is required
to close on this property no later than March 18, 2019, which date is inclusive of the 24-month development period, and 2 additional
6-month extensions.
Due
diligence for the above property was completed as of May 17, 2016, and all costs were incurred by Dream Homes Ltd., which was
in the contract for the property at the time. No additional costs for due diligence have been incurred by the Company, nor are
any anticipated. The Company will incur all current costs associated with this property necessary to obtain all approvals, acquire
the land, install the infrastructure and prepare the property to commence construction.
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 permit
is expected to be issued in June or July of 2018. A Lacey Township Planning Board meeting was held on December 11, 2017. Additional
information was requested from the board and the next meeting will be scheduled upon receipt of outside agency permits and the
other requested information.
It
is anticipated that complete development approvals will cost approximately $50,000 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 $2,090,000 as of June 30, 2018.
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.
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). The Tallwoods Contract between DHL and the seller of the land was dated January 5, 2017 and provides for a $700,000
purchase price with closing on or about 60 days after final development approvals have been obtained and memorialized. DHL paid
the seller a refundable $10,000 deposit in January 2017 pursuant to the Tallwoods contract.
The
due diligence period associated with this property expired on March 4, 2017 and all costs associated with same were paid by Dream
Homes Ltd. prior to the expiration date. The Company will incur no further costs related to the due diligence aspect of this purchase.
The Company will incur all current and future costs associated with this property necessary to obtain all approvals, acquire the
land and prepare the property to commence construction.
The
land is currently improved with streets and all public utilities in place. As such, the necessary steps required to bring the
property through the approval process involve primarily design engineering. Since the property is on an improved street, a major
subdivision application will be filed with the township, which will create 13 conforming buildable lots from the existing single
7-acre parcel. Accordingly, the remaining costs will primarily involve engineering and approval costs, as opposed to costs associated
with the installation of infrastructure.
At
this time, the Company estimates that the total engineering and approval costs will be approximately $40,000. The amount of money
required to purchase the property is $700,000 of which $10,000 is currently on deposit. The Company has made application to the
Berkeley Township Zoning Board.
In
the event the transaction has not closed on at least a portion of the Property within 12 months of the completion of the Due Diligence
Period (as may be extended by two 6-month extensions), the seller has the option of terminating the contract. Notwithstanding
this provision, the Company retains the right at all times to waive any remaining contingencies and proceed to close on the property.
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.
Lacey
Township, New Jersey, “Dream Homes at Forked River”, Marina Contract
The
Company has acquired the rights to a purchase contract via contract assignment for 48 waterfront townhomes with boat slips in
Lacey, NJ. The project is currently in the approval process and significant engineering, environmental, traffic and architectural
work has been completed. The property is a waterfront property, and is partially improved with all boat slips currently installed,
the Department of Transportation permit received and the curb cut from Route 9 in place. The property when completely constructed
has a retail value of $21 million and is expected to begin site improvements in late 2018 or early 2019.
On
December 8, 2017, the Company acquired from DHL rights to a contract to purchase over +/- 7.5 acres of land in Lacey Township,
NJ (the “Marina Contract or Dream Homes at Forked River”) for 162,200 restricted shares of Company common stock (committed
but not issued as of May 21, 2018). The Contract between DHL and the seller of the land was dated February 24, 2016 and provides
for a $2,166,710 purchase price with closing on or about 60 days after final development approvals have been obtained and memorialized.
DHL paid the seller a refundable $25,000 deposit in February 2016 pursuant to the Marina contract.
The
due diligence period associated with this property expired on May 1, 2016 and all costs associated with same were paid by Dream
Homes Ltd. prior to the expiration date. The Company will incur no further costs related to the due diligence aspect of this purchase.
The Company will incur all current and future costs associated with this property necessary to obtain all approvals, acquire the
land and prepare the property to commence construction.
The
land is currently approved for a marina and it is the Company’s intention to modify the approvals to a townhome use, as
per the ordinance. The property is currently unimproved. As such, the necessary steps required to bring the property through the
approval process involve design engineering as well as environmental approvals. Accordingly, the remaining costs will primarily
involve engineering, legal and approval costs.
At
this time, the Company estimates that the total engineering and approval costs will be approximately $100,000. The amount of money
required to purchase the property is $2,430,000 of which $25,000 is currently on deposit.
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.
Little
Egg Harbor Township, New Jersey, “Dream Homes at Radio Road”, Contract
On
March 14, 2018, the Company signed a contract to purchase 4 improved lots in Little Egg Harbor Township, NJ (the “Dream
Homes at Radio Road”) for a total of $260,000. The Contract between the Company and the seller of the land provides for
a $65,000 per lot purchase price with closing occurring on a rolling basis, as each house is built and sold. In addition, the
Company is pursuing financing and is waiting for a formal commitment for a funding facility comprised of acquisition and development
funding.
The
Company intends to begin construction in the last quarter of 2018 and the homes are projected to sell in the $350,000 - $375,000
range.
Glassboro
Township, New Jersey – Robin’s Nest Solar Farm
On
May 28, 2018, the Company signed a contract to purchase a 700 KW property to be developed as a solar farm in Glassboro, NJ. The
purchase price is $900,000 and the contract is subject to obtaining funding for the solar array as well as a portion of the purchase
price. There is also a PPA (power production agreement) in place with a nursing home adjacent to the property, to purchase the
entire electrical output for the next 20 years.
In
early August, a funding proposal was submitted to Republic Bank, which is a local lender, and discussions are ongoing. If funding
is approved, it is expected that this transaction will close in late 2018.
4-Loans
Payable to Related Parties
Loans
payable to related parties is summarized as follows:
|
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Loans payable to chief executive officer
|
|
$
|
11,525
|
|
|
$
|
11,525
|
|
|
Loans payable to GPIL (see Note 5)
|
|
|
3,118
|
|
|
|
3,118
|
|
|
Loan payable to DHL
|
|
|
100
|
|
|
|
100
|
|
|
Total
|
|
$
|
14,743
|
|
|
$
|
14,743
|
|
All
the loans above are non-interest bearing and due on demand.
5
- Common Stock Issuances
On
August 18, 2016, Virtual Learning issued 2,000,000 restricted shares of common stock to GPIL in satisfaction of $20,000 loans
payable (see Note 4).
On
August 19, 2016 (see Note 1), Virtual Learning issued 2,225,000 restricted shares of common stock to Dream Homes Ltd. for a 4.5%
equity interest in Dream Homes Ltd. and certain other assets, at an agreed price of $.05 per share.
From
August 19, 2016 to August 23, 2016 (see Note 1), Virtual Learning issued a total of 2,287,367 restricted shares of common stock
to Dream Homes Ltd. for rights to complete 6 in process construction contracts of Atlantic Northeast Construction LLC, a wholly
owned subsidiary of Dream Homes Ltd. at an agreed price of $.05 per share.
On
August 19, 2016, Virtual Learning issued 250,000 restricted shares of common stock to Mr. Roger Fidler for legal services. The
250,000 shares were valued at $2,500 (or $.01 per share), which amount was expensed in the three months ended September 30, 2016.
On
October 13, 2016, DHL assigned 100,000 restricted shares of Company common stock it held to a minority shareholder of DHL. This
minority shareholder of DHL had contributed $100,000 out of approximately $500,000 in a private placement of common stock of DHL
in 2010. In addition, this minority stockholder of DHL also received 275,000 restricted shares from DHL in 2011 for consulting
services. Accordingly, the Company has not deemed it appropriate to measure stock-based compensation relating to the 100,000 shares
assigned by DHL to its minority stockholder.
On
October 21, 2016, Virtual Learning issued 160,000 restricted shares of common stock to an individual for accounting services.
The 160,000 restricted shares were valued at $8,000 (or $.05 per share), which amount was expensed in the three months ended December
31, 2016.
On
December 29, 2016, Virtual Learning issued a total of 326,857 restricted shares of common stock to convertible noteholders for
their notes and accrued interest totaling $65,371.
On
December 29, 2016, Virtual Learning issued a total of 180,000 restricted shares of common stock (50,000 shares to the Company’s
chief executive officer, 50,000 shares to the Company’s secretary, 10,000 shares each to our two outside directors, and
a total of 60,000 shares to four other individuals, principally DHL employees, for services rendered. The 180,000 shares were
valued at $9,000 (Company officers and outside directors- $6,000, DHL employees-$3,000) (or $.05 per share), which amount was
expensed in the three months ended December 31, 2016.
On
February 22, 2017, DHDC issued 56,000 restricted shares of common stock to Green Chip Investor Relations pursuant to an Investor
Relations and Consulting Services Agreement (see Note 8). The 56,000 restricted shares were valued at $2,800 ( or $.05 per share),
which amount was expensed in the three months ended March 31, 2017.
On
March 1, 2017, DHDC committed to issue 71,429 restricted shares of common stock (issued April 24, 2017) to DHL valued at $10,000,
representing the amount of the refundable deposit on land made by DHL to the Seller in January 2017 for the Berkeley Township
New Jersey contract (see Note 3).
On
March 14, 2017, DHL assigned 275,000 restricted shares of Company common stock it held to the same minority stockholder of DHL
that it assigned 100,000 shares of Company common stock on October 13, 2016 (see sixth preceding paragraph).
On
April 26, 2017, DHDC issued 100,000 shares of restricted stock to General Development Corp. as payment of an assignment fee related
to the 58 unit townhouse development in Lacey Township, NJ (see Note 3).
On
July 12, 2017, DHDC issued 40,000 restricted shares of DHDC’s common stock to Dream Homes, Ltd. (“DHL”) in exchange
for vehicles owned by DHL. The transaction reflected $6,000 net carrying value of the assets on DHL’s books at July 12,
2017.
On
September 21, 2017, DHL assigned 25,000 restricted shares of Company common stock it held to the Secretary of both DHDC and DHL
for services rendered to DHL. Accordingly, no stock-based compensation was recognized by DHDC.
On
December 8, 2017, DHDC committed to issue 162,200 restricted shares of common stock to DHL valued at $48,658 (DHL’s historical
cost of the assets being assigned), for the assignment of a contract to purchase property from DHL for the Lacey Township New
Jersey Pines contract (see Note 3).
On
December 11, 2017, DHL assigned 100,000 restricted shares of Company common stock it held to the Company Securities Counsel of
both DHDC and DHL in settlement of certain DHL accounts payable due him. Accordingly, no stock-based compensation was recognized
by DHDC.
On
December 27, 2017, DHDC committed to issue 12,500 restricted shares of DHDC’s common stock for cash proceeds of $ 5,000
at $.40 per share per the Subscription Agreement.
On
December 29, 2017, DHDC committed to issue 27,810 restricted shares of DHDC’s common stock for settlement of $ 11,124 accounts
payable at $.40 per share.
On
January 31, 2018, DHDC committed to issue 16,000 restricted shares of DHDC’s common stock for cash proceeds of $11,400 at
$ .40 per share per the subscription agreement.
On
February 9, 2018, DHL assigned 40,000 restricted shares of Company common stock it held to a minority stockholder of DHL. This
minority stockholder of DHL had contributed $10,000 out of approximately $500,000 in a private placement of common stock of DHL
in 2010. In addition, this minority stockholder of DHL also received 30,000 restricted shares of DHL common stock in 2011 for
legal services. Accordingly, no stock-based compensation was recognized by DHDC for this assignment of 40,000 shares.
On
February 9, 2018, DHL assigned 25,000 restricted shares of Company common stock it held to the Secretary of both DHDC and DHL
for accounting and administrative services rendered to DHL. Accordingly, no stock-based compensation was recognized by DHDC for
this assignment of 25,000 shares.
On
February 9, 2018, DHL assigned 25,000 restricted shares of Company common stock it held to a director of DHDC and service provider
to DHL for legal services provided to DHL. Accordingly, no stock-based compensation was recognized by DHDC for this assignment
of 25,000 shares.
On
February 26, 2018 DHDC issued 12,500 restricted shares of DHDC’s common stock for cash proceeds of $ 5,000 at $.40 per share
per the Subscription Agreement.
On
May 17, 2018, DHL assigned 115,340 restricted shares of Company common stock it held to Jerry Andy Jerad Villecco, a supplier
of both DHDC and DHL in settlement of certain DHL accounts payable due him. Accordingly, no stock-based compensation was recognized
by DHDC. These shares were previously authorized but had not been issued.
6
– Income Taxes
The
provisions for (benefit from) income taxes differ from the amounts computed by applying the statutory United States Federal income
tax rate (21% in 2018; 35% in 2017)to income (loss) before income taxes.
The
sources of the differences follow:
|
|
|
Six months ended
June 30, 2018
|
|
|
Six months ended
June 30, 2017
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Expected tax (benefit)
|
|
$
|
(5,812
|
)
|
|
$
|
66,033
|
|
|
State income taxes, net of Federal benefit
|
|
|
(1,661
|
)
|
|
|
7,974
|
|
|
Non-deductible stock-based compensation
|
|
|
14,275
|
|
|
|
980
|
|
|
Benefit from net operating loss carry forward
|
|
|
(6,802
|
)
|
|
|
-
|
|
|
Provision for Federal income taxes at lower tax rate on taxable income under $50,000
|
|
|
-
|
|
|
|
(11,781
|
)
|
|
Change in valuation allowance
|
|
|
-
|
|
|
|
(19,315
|
)
|
|
Provision for (benefit from) income taxes
|
|
$
|
-
|
|
|
$
|
43,891
|
|
The
significant components of DHDC’s deferred tax asset as of June 30, 2018 and December 31, 2017 are as follows:
|
|
|
June 30,2018
|
|
|
December 31, 2017
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Net operating loss carry forward
|
|
$
|
57,598
|
|
|
$
|
-
|
|
|
Valuation allowance
|
|
|
(57,598
|
)
|
|
|
-
|
|
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
At
June 30, 2018, the Company has a net operating loss carryforward of approximately $204,903 which expires in year 2038. Based on
management’s present assessment, the company has not yet determined it to be more likely than not that a deferred tax asset
of $57,598 attributable to the future utilization of the $204,903 net operating loss carryforward will be realized. Accordingly,
the company has recorded a 100% allowance against the deferred tax asset in the financial statements as of June 30, 2018.
Current
United States income tax law limits the amount of loss available to be offset against future taxable income when a substantial
change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited.
7-
Business Segments
The
company currently has one business segment which is residential construction, which is further divided into elevation/renovation,
demolition and new home construction and new single and multi-family home developments. The residential construction segment is
operated through DHDC’s wholly owned subsidiary Dream Building, LLC (since August 19, 2016).
As
discussed in Note 11 (subsequent events), the Company has signed a contract to purchase a property currently approved for a 700
KW solar farm.
8-
Commitments and Contingencies
Construction
Contracts
As
of June 30, 2018, Dream Building, LLC is committed under 22 construction contracts outstanding with home owners with contract
prices totaling $ 3,545,139 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
April 28, 2017, DHDC executed an Employment Agreement with its newly appointed Vice President of Business Development. The term
of the agreement is from April 28, 2017 to December 31, 2020 and is renewable thereafter at 1-year intervals based on certain
sales targets. The agreement provides for compensation based on sales.
On
May 8, 2017, DHDC executed an Employment Agreement with its newly appointed Sales Manager. The term of the agreement is from May
8, 2017 to May 8, 2019 and is renewable thereafter at 1-year intervals based on certain sales targets. The agreement provides
for compensation based on sales.
For
the six months ended June 30, 2018, sales commissions expense pursuant to these two employment agreements were $56,164.
Lease
Agreement
On
June 20, 2017, DHDC executed a lease for office and storage space located at 2109 Bridge Avenue, Point Pleasant, New Jersey. The
term of the Lease is five years from June 20, 2017 to June 20, 2022 with two (2) five (5) year options to renew. The Lease provides
for monthly rent commencing August 20, 2017 at $1,200 per month until the earlier of completion of upstairs offices or November
20, 2017, at which time the monthly rent increases to $2,200 per month. Assuming DHDC is current in all rent and other charges,
DHDC has the option to cancel the Lease with 90 days written notice to Landlord.
In
May of 2018, DHDC renegotiated the lease to provide for a monthly payment of $1,100, which commenced on June 1, 2018.
For
the six months ended June 30, 2018, rent expense under this lease agreement was $12,100.
Investor
Relations Agreement
On
February 10, 2017, the Company entered into an Investor Relations and Consulting Services Agreement with an investor relations
firm. The agreement expired on August 31, 2017 and provided for issuance of 56,000 restricted shares of common stock valued at
$2,800 to the investor relations firm (stock issued on February 22, 2017) and $2,000 per month fees to be paid to the investor
relations firm commencing March 2017.
For
the six months ended June 30, 2018 and 2017, consulting fees expense under this agreement was $2,000 and $4,800 respectively.
Line
of Credit
On
September 15, 2016, DHDC established a $50,000 line of credit with General Development Corp., a non-bank lender. Advances under
the line bear interest at a rate of 12% payable monthly and 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 if interest payments are current. To date, the Company has received $20,000 under the line of credit.
Private
Placement
On
November 3, 2017, the Company released a Private Placement Memorandum, which consists of an equity and debt offering for up to
$5,000,000 in new capital. This capital will be utilized for acquisition and development of several of the properties the Company
has under contract, as well as expansion into the Florida market. The offering is comprised of Units for sale as well as convertible
debt. Each Unit is priced at $.40 per common share and includes 1 warrant to purchase an additional share of common stock for
$.60 within 3 years of the date of Unit purchase. The convertible debt is offered at an 8% coupon, paid quarterly, has a maturity
of 4 years and is convertible at $.75 per share. The offering was scheduled to close on January 2, 2018 and was extended unchanged
by the Company to September 2, 2018.
As
of May 21, 2018, the Company has sold a total of 68,810 units and received $16,400 in cash ($5,000 in December 2017 for 12,500
units, $6,400 in January 2018 for 16,000 units and $5000 in February 2018 for 12,500 units) and was granted a reduction in accounts
payable from a lumber vendor of 11,124 for 27,810 units issuable to the vendor as of December 31, 2017.
9-
Related Party Transactions
Dream
Homes Ltd. Allocated payroll
The
Company uses the services of Dream Homes Ltd. (DHL) personnel for its operations. For the six months ended June 30, 2018 and 2017,
selling, general and administrative expenses include $236,906 and $217,948, respectively incurred for the Company’s estimated
share of DHL’s gross payroll and payroll taxes for the 2018 period. This amount includes $38,500 salary paid to the Company’s
Chief Executive Officer and $31,200 salary paid to the Company’s Secretary and VP of Human Resources. At June 30, 2018,
accounts payable and accrued expenses include $ 81,135 due to DHL for unpaid payroll reimbursement.
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 DHL monthly rent of $2,000 ($12,000 total for the six months ended June 30, 2018) for this office space.
10-
Stock Warrants
On
July 12, 2017, DHDC issued 750,000 stock warrants to various members of Dream Homes & Development Corporation’s executive
team (including 500,000 to the Company’s Chief Executive Officer, 100,000 to the Company’s Secretary, and a total
of 60,000 to the Company’s two other directors and 50,000 to a non-executive DHL project manager employee). These Warrants
entitle the holder to purchase shares of Dream Homes & Development Corporation at $0.30 per share through July 20, 2020. These
warrants vest to the Holder on a semi-annual basis over a 36-month period contingent upon Holder’s continued association
with the Company. The $407,850 total fair value (calculated using the Black Scholes option pricing model and the following assumptions:
(1) stock price of $0.60, (2) exercise price of $0.30, (3) dividend yield of 0%, (4) risk-free interest rate of 1.53%, (5) expected
volatility of 171%, and (6) term of 3 years) of the 750,000 warrants is being expensed evenly over the 3 years requisite service
period of the individuals that were granted these warrants commencing in July 2017. For the six months ended June 30, 2018, stock-based
compensation attributable to the warrants was $ 67,976 using the above Black Scholes option pricing model.
Included
within the 750,000 warrants described in the preceding paragraph are 20,000 warrants issued to the Company’s Vice President
of Business Development that are not covered by the Employment Agreement dated April 28, 2017 described in Note 8. Also included
within the 750,000 warrants described in the preceding paragraph are 20,000 warrants issued to the Company’s Sales Manager
that are not covered by the Employment Agreement dated May 8, 2017 described in Note 8.
In
addition to the 750,000 warrants issued on July 12, 2017 per above, the company issued a total of 68,810 warrants in connection
with the Private Placement described above in Note 8. The warrants are exercisable into common stock at an exercise price of $
.60 per share for a period of 3 years commencing from the respective issuance dates of these warrants.
11-
Subsequent Events
On
July 3, 2018 the Company borrowed $60,000 from 3 private lenders in equal amounts of $20,000 each. These lenders were Richard
Pezzullo, who is also a director and stockholder of DHDC, Dream Homes Ltd., who is a stockholder in DHDC and General Development
Corporation, which is a private lender. Terms for each note are identical. Notes bear interest at 12% APR and mature in 6 months,
with the right to extend as needed.
On
July 10, 2018, the Company closed on the purchase of a a single-family water view home in Ocean Township, NJ for $68,000. The
home is in need of elevation and renovation, which is expected to cost an additional $125,000.
It
is the Company’s intention to renovate and sell the property. The property is expected to sell to a 3rd party
purchasers for approximately $350,000.
On
July 23, 2018, the Company signed a contract to purchase 2.3 acres of improved/unimproved property in Berkeley Township, NJ. The
property was previously approved by the township for 12 duplex residential units. The purchase price is $370,000, for which the
company has paid $5,000 deposit to be held in escrow on signing of the contract.
During
the period following September 30, 2018, the Company has added $646,086.80 in executed elevation and new home contracts, comprised
of 2 separate elevation and renovation contracts, as well as one demolition and new single-family home contract.
During
the period following September 30, 2018, on October 20, 2018 the Company entered into contract for the purchase of assets from
Premier Modular Homes, LLC for the sum of $119,000, which sum shall be paid on a contingent basis for all sales generated through
Premier Modular leads. The acquired assets include phone numbers, web site, use of Premier Modular Home, LLC name, equipment,
vehicles and trailers.
The
Company also entered into an agreement to lease the Premier Modular Homes showroom and offices located at 884 Route 9 Tuckerton,
NJ 08087 for a annual amount of $18,000 with the option to renew yearly for the period of two years.
On
November 15, 2018, the Company also received variance approval for the 71 Sheridan Street property in Waretown, NJ. This property
was purchased on July 12, 2018. The Company intends to elevate and renovate this property, in preparation for a sale in spring
2019.
