NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the nine months ended September 30, 2022 and 2021
(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 years since Superstorm Sandy flooded 40,000 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 new developments totaling 218 units in title, or 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.
A
new trend in the real estate market which has experienced significant growth in the last year is the emerging Build To Lease trend. This
focus and concentration on building both single and multi-family developments with the intention to lease them immediately upon completion
is being made in response to several factors. One factor is the extreme shortage of rental properties on the market, not only for first
time homemakers, but for retirees, and young professionals who are unclear as to the intentions of settling in one location. The second
factor is the overall lender and funding source preference to lend to Build To Lease developments, as opposed to more traditional Build
To Sell developments due to the perception of Build To Lease as a safer investment over the long term. Finally, the extraordinary amount
of interest from non-traditional sources such as pension and hedge funds, insurance companies and venture capital firms to purchase completed
new For Lease developments at attractive metrics based on capitalization rates has spurred a large growth in this market segment.
The
Company has made the decision to change focus in their new home developments to better accommodate this growing trend. Currently all
new multi-family developments located in Ocean and Gloucester counties, which represent a total count of 218 units, will be changed from
Build For Sale to Build for Lease. The Company now intends to hold these properties upon completion and lease-up for an indeterminate
period of time, and realize the rental income from ownership. This strategy will become a very significant revenue stream for the Company
and will become a third division of the Company, behind custom new homes and renovation/elevation projects.
History
Dream
Homes & Development Corporation was originally incorporated as The Virtual Learning Company, Inc. (“Virtual Learning”)
on January 6, 2009 as a Nevada corporation with 75,000,000 shares of capital stock authorized, of which 70,000,000 shares are common
shares ($.001 par value), and 5,000,000 shares are preferred shares ($.001 par value).
On
March 14, 2017, Virtual Learning changed its name to Dream Homes & Development Corporation (“DHDC”). DHDC maintains a
web site at www.dreamhomesltd.com as well as a blog, located at http://blog.dreamhomesltd.com.
Principles
of Consolidation
The
consolidated financial statements include the accounts of DHDC and its wholly owned subsidiaries (collectively, the “Company”).
All intercompany balances and transactions have been eliminated in consolidation.
Property
and Equipment
Property
and equipment is stated at cost less accumulated depreciation. Depreciation is provided using the straight-line method over an estimated
useful life of five years. Repairs and maintenance costs are expensed as incurred, and renewals and betterments are capitalized.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying
notes. Actual results could differ materially from these estimates.
Fair
Value of Financial Instruments
Fair
value is defined as the price that we would receive to sell an asset or pay to transfer a liability (an exit price) in an orderly transaction
between market participants on the measurement date. In determining fair value, GAAP establishes a three-level hierarchy used in measuring
fair value, as follows:
●
Level 1 inputs are quoted prices available for identical assets and liabilities in active markets.
●
Level 2 inputs are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets and
liabilities in active markets or other inputs that are observable or can be corroborated by observable market data.
●
Level 3 inputs are less observable and reflect our own assumptions.
Our
financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses and loans payable
to related parties. The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, and
loans payable to related parties approximates fair value because of their short maturities.
Construction
Contracts
Revenue
recognition:
The
Company 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. 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 adopted this ASU on January 1, 2019 and adoption of this ASU did not have a material impact on our financial position,
results of operations and cash flows.
Certain
other accounting pronouncements have been issued by the FASB and other standard setting organizations which are not yet effective and
therefore have not yet been adopted by the Company. The impact on the Company’s financial position and results of operations from
adoption of these standards is not expected to be material.
2
- Property and Equipment
Property
and equipment is summarized as follows:
Schedule of Property and Equipment
| | |
September 30,
2022 | | |
December 31,
2021 | |
| | |
| | |
| |
| Office equipment | |
$ | 5,115 | | |
$ | 5,115 | |
| Vehicles/Modular homes | |
| 60,772 | | |
| 58,065 | |
| Less: Accumulated depreciation | |
| (33,217 | ) | |
| (45,880 | ) |
| | |
| | | |
| | |
| Property and Equipment- net | |
$ | 32,670 | | |
$ | 17,300 | |
Depreciation
expense for the nine months ended September 30, 2022 and 2021 was $3,648 and $5,067, respectively.
3-
Deposits and Costs Coincident to Acquisition of Land for Development
Deposits
and costs coincident to acquisition of land for development are summarized as follows:
Schedule of Deposits and Costs Coincident to Acquisition of Land for Development
| | |
September 30,
2022 | | |
December 31,
2021 | |
| | |
| | |
| |
| Deposits and acquisition costs | |
$ | 1,813,445 | | |
$ | 1,579,789 | |
| Construction and other costs for development | |
| 4,502,750 | | |
| 5,689,265 | |
| | |
| | | |
| | |
| Total | |
$ | 6,316,195 | | |
$ | 7,269,054 | |
Properties
currently owned and in the development stage
Berkeley
Terrace – Bayville, NJ – 70 approved townhome units
The
Company is in title to this property and is actively working with several permanent lenders to finalize an infrastructure and construction
finance facility.
The
Company is preparing to begin heavy infrastructure work on the property, and clearing has been completed and the site stabilized for
soils erosion control. Infrastructure work should begin in the last quarter of 2022 or early 2023.
Lacey
Township, New Jersey, “Dream Homes at the Pines”
Dream
Homes currently owns a parcel approved for 68 new townhomes in Ocean County NJ, of which 54 are market rate and 14 are affordable housing.
The acquisition was made in June of 2021. This property has received final approvals, Department of Transportation approval, CAFRA approval,
MUA, County, Fire and other outside agency approvals. This development is scheduled to begin construction in 2023.
Preliminary
approval was granted in 2021 and Final approval was granted in fall of 2022.
It
is anticipated that costs for the balance of the development approvals will be approximately +/- $20,000.
The
Company may need to seek loans from funding sources to finance infrastructure and vertical construction for this project.
The
Company acquired this property occurred on June 29, 2021 and is currently in title.
Clayton
NJ – 112 Apartments
On
February 26, 2021, the Company took title to the property via an assemblage of 3 parcels.
The
Company successfully obtained Redevelopment Approval from the Borough in July 2021 and Preliminary and Final Site Plan approval in December
of 2021.
Subsequent
event: The Company sold this property on 8/15/22.
Louis
Avenue – Bayville, NJ – In title
The
Company was heard before the Berkeley Township Planning Board on October 3, 2020 and the planning board awarded preliminary approvals
for 17 townhome units.
The
Company acquired this property on August 4, 2021.
The
Company received Final approvals on August 8, 2021.
Properties
Under Contract to Purchase and in the Approval Stage
Autumn
Run – Gloucester County
On
December 7, 2018, the Company signed a contract to purchase a property in Gloucester County, NJ, which will be approved for +/- 63 units
of age-restricted manufactured housing. The property is currently in the approval stage. An application was made to the DEP for a wetlands
letter of interpretation, which was approved as proposed. Further action before the planning board is pending due to delays caused by
township closures due to Covid-19. The Company had a virtual workshop meeting on September 15, 2020 and an additional virtual meeting
was conducted on November 17, 2020.
The
application for a use variance was heard on May 24, 2021 and the variance was approved.
The
Company is in the process of applying for preliminary and final site plan approval and should be heard at the January 2023 planning board
meeting.
Mortgages
on Properties Held for Development:
Schedule Mortgages on Properties Held for Development
| | |
September 30,
2022 | | |
December 31,
2021 | |
| Edisto Loan Fund, LLC | |
$ | 1,388,563 | | |
$ | 2,969,535 | |
| Lynx Asset Services, LLC | |
| 1,760,935 | | |
| 1,725,000 | |
| AC Development, LLC | |
| - | | |
| 450,000 | |
| AVB Development | |
| 323,537 | | |
| 333,000 | |
| Total mortgages payable | |
| 3,473,035 | | |
| 5,477,535 | |
| Less current portion | |
| (1,388,563 | ) | |
| (2,969,535 | ) |
| Long-term portion | |
$ | 2,084,472 | | |
$ | 2,508,000 | |
4-Loans
Payable to Related Parties
Loans
payable to related parties is summarized as follows:
Schedule of Loans Payable to Related Parties
| | |
September 30,
2022 | | |
December 31,
2021 | |
| | |
| | | |
| | |
| Loans payable to GPIL | |
$ | 254,895 | | |
$ | 192,439 | |
Advances
from the loans bear interest at a rate of 12%, with interest being payable on demand.
5
- Common Stock Issuances
On
September 25, 2020, the Company issued 110,000 restricted shares for debt reduction value at $7,700.
On
September 30, 2020, the Company issued 2,600,000 restricted shares for compensation valued at $ 78,000.
On
October 28, 2020, the Company issued 48,000 restricted shares for compensation valued at $ 3,360.
On
November 10, 2020, the Company issued 30,000 restricted shares for compensation valued at $ 1,800.
On
February 11, 2021, the Company issued 2,830,000 restricted shares for compensation valued at $ 113,200.
On
July 13, 2021, the Company issued 28,000 restricted shares for legal services valued at $ 14,000.
On
October 22, 2021, the Company issued 500,000 restricted shares for compensation valued at $ 21,000.
On
October 28, 2021, the Company issued 550,000 restricted shares for compensation valued at $ 22,600..
6
– Income Taxes
As
a result of the Tax Cuts and Jobs Act (Tax Legislation) enacted on December 22, 2017, the United States corporate income tax rate is
21% effective January 1, 2018.
As
of September 30, 2022 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.
7-
Commitments and Contingencies
Construction
Contracts
As
of September 30, 2022, the Company was committed under 15 construction contracts outstanding with home owners and investors with contract
prices totaling $ 7,093,273, which are being fulfilled in the ordinary course of business. None of these construction projects are expected
to take over 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
DHDC
currently has an Employment Agreement in force with a Sales Manager. The original agreement expired on May 8, 2019 and has been renewed
on a yearly basis since that time and is currently in force. The agreement provides for compensation based on sales.
Lease
Agreements
The
Company has occupied office space located in Forked River, New Jersey. Commencing April 2017, the Company originally paid monthly rent
of $2,000 for this office space. This amount was subsequently increased to $2,500 per month.
On
February 28, 2020 the Company executed a lease for an office space located at 800 Riverview Drive in Brielle, which the Company feels
will better serve the southern Monmouth clientele. The lease term is 2 years, and the total rent is $25,140. The lease has been extended.
Line
of Credit
On
September 15, 2016, DHDC established a $500,000 line of credit with General Development Corp., a non-bank lender. On September 15, 2021,
DHDC increased the existing line of credit from $500,000 to $1,000,000. 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 or as agreed. To date, the Company has received several advances under the line of credit. As of September 30, 2022, the
outstanding principal balance was $908,660.
8.
Related Party Transactions
Dream
Homes Ltd. Allocated payroll
The
Company uses the services of Dream Homes Ltd. (DHL) personnel for its operations. For the nine months ended September 30, 2022 and 2021,
the Company’s estimated share of DHL’s gross payroll and payroll taxes and include $ 279,053 and $173,352, respectively.
9
- Stock Warrant
Effective
April 1, 2019, any previous warrants issued by the Company were cancelled.
10
– Subsequent Events
The
Company has evaluated subsequent events through the date the financial statements were available to be issued. The Company had no subsequent
events that require disclosure
