NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Nine
Months Ended September 30, 2020 and 2019
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 seven 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 3 new developments totaling 119 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 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
March 14, 2017, Virtual Learning changed its name to Dream Homes & Development Corporation (“DHDC”). DHDC maintains
a web site at www.dreamhomesltd.com as well as a blog, located at http://blog.dreamhomesltd.com.
Principles
of Consolidation
The
consolidated financial statements include the accounts of DHDC and its wholly owned 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 adopted Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“ASC 606”)
on January 1, 2018. In accordance with ASC 606, revenue is recognized when promised goods or services are transferred to customers
in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services,
in accordance with the following five-step process:
|
|
●
|
Identify
the contract(s) with a customer
|
|
|
●
|
Identify
the performance obligations
|
|
|
●
|
Determine
the transaction price
|
|
|
●
|
Allocate
the transaction price
|
|
|
●
|
Recognize
revenue when the performance obligations are met
|
For
the periods presented prior to the adoption of ASC 606, revenues from long-term construction contracts were recognized in accordance
with ASC Topic 605-35, “Revenue Recognition-Construction-Type and Production-Type Contracts.”
The
Company recognizes construction contract revenue over time using the percentage-of-completion method, based primarily on contract
cost incurred to date compared to total estimated contract cost. Cost of revenue includes an allocation of depreciation, amortization
and general overhead cost. Changes to total estimated contract cost or losses, if any, are recognized in the period in which they
are determined.
The
Company generally provides limited warranties for work performed under its construction contracts with periods typically extending
for a limited duration following substantial completion of the Company’s work on a project.
The
Company classifies construction-related receivables and payables that may be settled in periods exceeding one year from the balance
sheet date, if any, as current assets and liabilities consistent with the length of time of its project operating cycle. For example:
|
|
●
|
Contract
assets represent costs and estimated earnings in excess of billings represent the excess of contract costs and profits (or
contract revenue) over the amount of contract billings to date and are classified as a current asset.
|
|
|
●
|
Contract
liabilities represent billings in excess of costs and estimated earnings represent the excess of contract billings to date
over the amount of contract costs and profits (or contract revenue) recognized to date and are classified as a current liability.
|
Contract
liabilities result when either: 1) costs are incurred related to certain claims and unapproved change orders, or 2) the appropriate
contract revenue amount has been recognized in accordance with the percentage-of-completion accounting method, but a portion of
the revenue recorded cannot be billed currently due to the billing terms defined in the contract. Claims occur when there is a
dispute regarding both a change in the scope of work and the price associated with that change. Unapproved change orders occur
when there is a dispute regarding only the price associated with a change in scope of work. For both claims and unapproved change
orders, the Company recognizes revenue, but not profit, when it is determined that recovery of incurred cost is probable and the
amounts can be reliably estimated.
Change
in Estimates:
The
Company’s estimates of contract revenue and cost are highly detailed and many factors change during a contract performance
period that result in a change to contract profitability. These factors include, but are not limited to, differing site conditions:
availability of skilled contract labor: performance of major material suppliers and subcontractors: on-going subcontractor negotiations
and buyout provisions: unusual weather conditions: changes in the timing of scheduled work: change orders: accuracy of the original
bid estimate: changes in estimated labor productivity and costs based on experience to date: achievement of incentive-based income
targets: and the expected, or actual, resolution terms for claims. The factors that cause changes in estimates vary depending
on the maturation of the project within its lifecycle. For example, in the ramp-up phase, these factors typically consist of revisions
in anticipated project costs and during the peak and close-out phases, these factors include the impact of change orders and claims
as well as additional revisions in remaining anticipated project costs. Generally, if the contract is at an early stage of completion,
the current period impact is smaller than if the same change in estimate is made to the contract at a later stage of completion.
Management focuses on evaluating the performance of contracts individually and uses the cumulative catch-up method to account
for revisions in estimates. Material changes in estimates are disclosed in the notes to the consolidated financial statements.
Income
Taxes
The
Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax reporting purposes. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the provision for income
tax in the statements of operations. The Company evaluates the probability of realizing the future benefits of its deferred tax
assets and provides a valuation allowance when realization of the assets is not reasonably assured.
The
Company recognizes in its financial statements the impact of tax positions that meet a “more likely than not” threshold,
based on the technical merits of the position. The tax benefits recognized from such a position are measured based on the largest
benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.
Net
Income (Loss) Per Common Share
Basic
net income (basic net loss) per common share is calculated by dividing net income (loss) by the weighted average number of common
shares outstanding during the period.
Diluted
net income (loss) per common share is computed using the weighted average number of common shares outstanding and potentially
dilutive securities outstanding during the period.
Recent
Accounting Pronouncements
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2014-09, Revenue from Contracts with Customers (Accounting Standards Codification “ASC” Topic 606). The purpose
of this ASU is to converge revenue recognition requirements per GAAP and International Financial Reporting Standards (“IFRS”).
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services
to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services. The amendments in this ASU were originally effective for interim and annual reporting periods beginning after December
15, 2016, with early adoption not permitted by the FASB; however, in August 2015, the FASB issued ASU 2015-14, Revenue from Contracts
with Customers (Topic 606): Deferral of the Effective Date after public comment respondents supported a proposal to delay the
effective date of this ASU to annual reporting periods beginning after December 15, 2017, including interim reporting periods
within that reporting period. We adopted this ASU on January 1, 2018 and adoption of this ASU did not have a material impact on
our financial position, results of operations and cash flows.
In
February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” and subsequent amendments to the initial
guidance: ASU 2017-13, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01 (collectively, “Topic 842”), which provides
guidance for accounting for leases. Topic 842 requires lessees to classify leases as either finance or operating leases and to
record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of the lease classification.
The lease classification will determine whether the lease expense is recognized based on an effective interest rate method or
on a straight line basis over the term of the lease. We are currently evaluating both the method and the impact of adopting this
guidance on our Condensed Consolidated Financial Statements.
Certain
other accounting pronouncements have been issued by the FASB and other standard setting organizations which are not yet effective
and therefore have not yet been adopted by the Company. The impact on the Company’s financial position and results of operations
from adoption of these standards is not expected to be material.
2
- Property and Equipment
Property
and equipment is summarized as follows:
|
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
|
Office equipment
|
|
$
|
5,115
|
|
|
$
|
6,115
|
|
|
Vehicles/Modular homes
|
|
|
58,065
|
|
|
|
58,065
|
|
|
Less: Accumulated depreciation
|
|
|
(35,654
|
)
|
|
|
(30,679
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment- net
|
|
$
|
27,526
|
|
|
$
|
33,501
|
|
Depreciation
expense for the nine months ended September 30, 2020 and 2019 was $ 4,975 and $ 4,576, 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:
|
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
|
Lacey Township, New Jersey, Pines contract:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Cost to acquire contract
|
|
|
10,000
|
|
|
|
10,000
|
|
|
Site engineering, permits, and other costs
|
|
|
111,833
|
|
|
|
111,833
|
|
|
Total Pines contract
|
|
|
121,833
|
|
|
|
121,833
|
|
|
|
|
|
|
|
|
|
|
|
|
Berkeley Township, New Jersey, Tallwoods contract:
|
|
|
|
|
|
|
|
|
|
Deposit
|
|
|
10,000
|
|
|
|
10,000
|
|
|
Site engineering, permits, and other costs
|
|
|
90,146
|
|
|
|
90,146
|
|
|
Total Tallwoods contract
|
|
|
100,146
|
|
|
|
100,146
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Deposits:
|
|
|
|
|
|
|
|
|
|
Clayton, New Jersey - 120 apartments
|
|
|
62,662
|
|
|
|
62,662
|
|
|
71 Sheridan Avenue, Waretown, New Jersey
|
|
|
44,438
|
|
|
|
44,438
|
|
|
Louis Avenue, Bayville, New Jersey-17 units
|
|
|
36,271
|
|
|
|
36,271
|
|
|
Berkeley Terrace – Bayville, New Jersey 70 units
|
|
|
20,000
|
|
|
|
20,000
|
|
|
Station Dr – Forked River, New Jersey
|
|
|
99,032
|
|
|
|
99,032
|
|
|
201 East Ave – Clayton, New Jersey – 77 units
|
|
|
112,491
|
|
|
|
78,000
|
|
|
Academy St – Clayton, New Jersey – 2 lots
|
|
|
36,133
|
|
|
|
36,133
|
|
|
Other
|
|
|
22,542
|
|
|
|
7,726
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
655,548
|
|
|
$
|
606,241
|
|
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 9, 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.
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 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.
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.
Since
the transaction had not occurred for at least a portion of the Property within 12 months of the completion of the Due Diligence
Period, as well as two 6-month extensions, the seller chose to terminate the contract. Though the Company retained the right to
waive any remaining developmental contingencies and proceed to close on the property, it was determined by senior management that
the risk of acquiring an unapproved property was not acceptable.
Lacey
Township, New Jersey, “Dream Homes at Forked River”, Marina Contract
In
December of 2017, the Company had acquired the rights to a purchase contract via contract assignment for 48 waterfront townhomes
with boat slips in Lacey, NJ. The project has been 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.
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 has obtained a term sheet on April 5, 2018 and is waiting for a formal commitment from a lender for a funding facility
comprised of acquisition and development funding.
The
Company intends to begin construction in the second quarter 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.
This
acquisition has been put on hold pending availability of funding.
Louis
Avenue – Bayville, NJ – Property being developed
In
October of 2018, the company entered into a contract to develop and acquire 17 townhouse lots in Bayville NJ. Engineering and
approvals are currently in process. Application was made to the Planning Board on March 20, 2020. The project was deemed complete
by the township engineer and is awaiting a date for a planning board hearing. Municipal scheduling has been delayed due to the
Covid-19 virus. The Company is scheduled to be heard before the Berkeley Township Planning Board on October 3, 2020. The planning
board awarded preliminary approvals for 17 townhome units on October 3, 2020.
Berkeley
Terrace – Bayville, NJ – 70 approved townhome units
A
contract was signed to acquire 70 approved townhome units in October 2019, after 31 months of discussion. This property is scheduled
to close in fall of 2020, at which time improvements will commence. The Company is in discussion with several lenders to arrange
an acquisition, development and construction finance facility.
4-Loans
Payable to Related Parties
Loans
payable to related parties is summarized as follows:
|
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
|
Loans payable to chief executive officer
|
|
$
|
3,672
|
|
|
$
|
3,672
|
|
|
Loans payable to GPIL (see Note 5)
|
|
|
3,118
|
|
|
|
3,118
|
|
|
Total
|
|
$
|
6,790
|
|
|
$
|
6,790
|
|
All
the loans above are non-interest bearing and due on demand.
5
- Common Stock Issuances
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 9, 2019, the Company issued 58,000 restricted shares of restricted common shares to two individuals for consulting services
at $.10 per share.
On
June 6, 2019, the Company issued 520,000 restricted shares for stock-based compensation at $.10 per share to six individuals.
On
June 6, 2019, the Company issued 1,000,000 restricted shares for debt reduction to the Chief Executive Officer at $.10 per share.
On
June 6, 2019, the Company issued 100,000 restricted shares for reduction of note payable at $.10 per share.
In
March 2020, the Company issued 2,997,500 restricted shares for compensation valued at $ 119,500.
On
September 25, 2020, the Company issued 110,000 restricted shares for debt reduction value at $7,700.
On
September 30, 2020, the Company issued 2,600,000 restricted shares for compensation valued at $ 78,000.
6
– Income Taxes
As
of September 30, 2020 the Company has available for federal and state income tax purposes a net operating loss carry forward that
may be used to offset future taxable income. For the nine months ended September 30, 2020 and 2019, there was estimated income
taxes of $ 80,146 and $ 15,206 recorded.
7-
Commitments and Contingencies
Construction
Contracts
As
of September 30, 2020, the Company was committed under 23 construction contracts outstanding with home owners with contract prices
totaling $ 7,520,018, which are being fulfilled in the ordinary course of business. None of these construction projects are expected
to take significantly in excess of one year to complete from commencement of construction. The Company has no significant commitments
with material suppliers or subcontractors that involve any sums of substance or of long-term duration at the date of issuance
of these financial statements.
Employment
Agreements
On
May 8, 2017, DHDC executed an Employment Agreement with a Sales Manager. The original term of the agreement was from May 8, 2017
to May 8, 2019 and was renewable thereafter at 1-year intervals based on certain sales targets. That agreement has been renewed
and is currently in force. The agreement provides for compensation based on sales.
Lease
Agreements
On
June 20, 2017, DHDC executed a lease for office and storage space located at 2109 Bridge Avenue, Point Pleasant, New Jersey. This
lease ended as of December 31, 2019 and the Company has vacated the premises.
For
the nine months ended September 31, 2020 and 2019, rent expense under these leases agreements was $0 and $19,800, respectively.
On
February 28, 2020 the Company executed a lease for an office space located at 800 Riverview Drive in Brielle, which the Company
feels will better serve the southern Monmouth clientele. The lease term is 2 years, and the total rent is $25,140.
The
Company continues to operate an office/showroom located at 884 Rt. 9 in Little Egg Harbor. This lease was originally incepted
in November 2018, and the Company continues to utilize the facility to service clients in Long Beach Island, Little Egg Harbor
as well as points south.
Line
of Credit
On
September 15, 2016, DHDC established a $500,000 line of credit with General Development Corp., a non-bank lender. Advances under
the line bear interest at a rate of 12%, with interest being payable on demand. The outstanding principal is due and payable in
60 months. The line is secured by the personal guarantee of the Company’s Chief Executive Officer. The agreement to fund
automatically renews on a yearly basis as long as interest payments are current. To date, the Company has received several advances
under the line of credit. As of September 30, 2020, the outstanding principal balance was $198,660. Interest expense for the nine
months ended September 30, 2020 and 2019 was $ 15,826 and $ 1,470, respectively.
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 10,138 for 25,340 units issuable to the vendor as of December 31, 2017.
8.
Related Party Transactions
Office
Space
The
Company has occupied office space located in Forked River, New Jersey which is owned by an affiliated company. Commencing April
2017, the Company has paid monthly rent of $2,500 for this office space.
9
- 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).
Effective
April 1, 2019, all remaining warrants were cancelled.
10-
Receivable from Arbitration and settlement of in process customer construction contract in dispute and related losses recognized
and recorded by the Company
The
Company began work on a construction contract in the amount of $307,000 in August 2016. Through September 30, 2017 the Company
billed the customer a total of $219,565, collected a total of $130,247 from the customer, and accordingly had a balance due from
the customer of $89,318 at September 30, 2017. When the customer refused to pay the $89,318 balance, the Company ceased working
on the contract in July 2017, filed a request for arbitration on October 3, 2017 and filed a Construction Lien Claim in October
18, 2017. On March 6, 2018, the American Arbitration Association awarded the Company $75,000 in connection with its claim. On
July 10, 2018, the Superior Court of New Jersey confirmed the arbitration award and entered a judgement against the customer for
the $75,000 and prejudgment interest of $488. To date the Company has not yet collected the $75,000 owing to it under the arbitration
award. Based upon advice of Company Counsel it still has further legal actions available to it to ultimately facilitate payment
from the customer of the $75,000 in the contract dispute. Accordingly, at December 31, 2017 the Company has recognized a loss
of $14,318 on the write-down of accounts receivable from this customer which has been reflected as a reduction in revenue from
construction contracts and gross profit for the year ended December 31, 2017.
At
December 31, 2017 there was a “Cost and estimated earnings in excess of billings” asset relating to the Arbitration
Award disputed contract of $48,419 representing the difference between the amount billed to the customer of $219,565 and costs
and estimated earnings of $267,984 through December 31, 2017. Accordingly, at December 31, 2017 the Company recognized a loss
of $48,419 on the write-down of the “Costs and estimated earnings in excess of billings” asset attributable to this
disputed customer contract, which has been reflected as a reduction in revenue from construction contracts and gross profit for
the year ended December 31, 2017. Over the life of this contract the Company recognized a cumulative gross profit of $17,658 through
December 31, 2017, which is net of a negative gross profit of ($9,012) for the year ended December 31, 2017, based upon the write-down
of $14,318 described in the second preceding paragraph and the $48,419 write-down described in this paragraph, which aggregate
to $62,737.
11
– Subsequent Events
Subsequent
events have been detailed in respective categories herein.
