HARBOR CUSTOM DEVELOPMENT, INC. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q ("Report") contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact included in this Report are forward-looking statements. These forward-looking statements may include projections and estimates concerning the timing and success of specific projects and our future construction, revenues, income, cost of sales, expenses, and capital spending. Our forward-looking statements are generally accompanied by words such as "estimate," "project," "predict," "believe," "expect," "intend," "anticipate," "potential," "plan," "goal," "foresee," "likely," "target," "may," "should," "could," or other words that convey the uncertainty of future events or outcomes. The forward-looking statements in this Report speak only as of the date of this document, and we disclaim any obligation to update these statements unless required by law, and we caution you not to rely on them unduly. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory, and other risks, contingencies, and uncertainties, most of which are difficult to predict and many of which are beyond our control. The following factors, among others, may cause our actual results, performance, or achievements to differ materially from any future results, performance, or achievements expressed or implied by these forward-looking statements:
•economic changes either nationally or in the markets in which we operate, including declines in employment, volatility of mortgage interest rates, and inflation; •downturn in the homebuilding industry; •changes in assumptions used to make industry forecasts; •volatility and uncertainty in the credit markets and broader financial markets; •our future operating results and financial condition; •our business operations; •changes in our business and investment strategy; •availability of land to acquire and our ability to acquire such land on favorable terms or at all; •availability, terms, and deployment of capital; •shortages of or increased prices for labor, land, or raw materials used in housing construction; •delays in land development or home construction resulting from adverse weather conditions or other events outside our control; •the cost and availability of insurance and surety bonds; •changes in, or the failure or inability to comply with, governmental laws and regulations; •the timing of receipt of regulatory approvals and the opening of projects; •the degree and nature of our competition; •our leverage and debt service obligations; •general volatility of the capital markets; •availability of qualified personnel and our ability to retain our key personnel; •our financial performance; •our expectations regarding the period during which we qualify as an emerging growth company under the JOBS Act; •the extent to which the COVID-19 pandemic continues to impact our business; and •additional factors discussed under Part I - Item 1A. Risk Factors in our Annual Report on Form 10-K/A for the year endedDecember 31, 2021 (the "Annual Report on Form 10-K") as such factors may be updated from time to time in our periodic filings with theSecurities and Exchange Commission (the "SEC") which are accessible on theSEC's website at http://www.sec.gov.
These forward-looking statements reflect our management's beliefs and views with respect to future events and are based on estimates and assumptions as of the date of this Report and are subject to risks and uncertainties. Moreover, we operate in a very highly competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Given these uncertainties, you should not place undue reliance on forward-looking statements contained herein.
You should read this Report and the documents that we reference and have filed as exhibits with the understanding that our actual future results, levels of activity, performance, and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
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The forward-looking statements made in this Report relate only to events as of the date on which such statements are made. We undertake no obligation to update any forward-looking statements after the date of this Report or to conform such statements to actual results or revised expectations, except as required by law.
Overview
As a land developer and builder of single-family homes, luxury homes, townhomes, condominiums, and apartments, our business strategy is to acquire and develop land strategically based on an understanding of population growth patterns, entitlement restrictions and land use evaluation, infrastructure development, and geo-economic forces. We endeavor to acquire land with scenic views to develop and sell residential lots, new home communities, townhomes, and multi-story condominium or apartment properties within a 20- to 60-minute commute of some of the nation's fastest-growing metro employment corridors.
We are leading the real estate industry as the first national land developer and home builder accepting payment in the form of cryptocurrency for our properties.
Our portfolio of land, lots, home plans, and finishing options, coupled with a
historic low inventory of residential and multi-family housing in our principal
geographic areas, provide an opportunity for us to increase revenue and overall
market share. In addition to our single-family residential projects, we plan to
build and sell townhomes, condominiums, and apartments. In an effort to
strategically control the expanding needs of our corporate team, we signed a
lease on
It is customary for us to sign purchase and sale agreements that contain a due diligence period which allows us time, usually between 30 and 60 days, to evaluate the acquisition. At times, through our due diligence efforts, we find that a property is not suitable for purchase due to economic forces, zoning issues, or other matters. If we determine that a property is not suitable for our desired purposes, we terminate the purchase and sale agreement. After termination within the due diligence period, our earnest money is returned to us.
Our infrastructure development division constructs a diverse range of residential communities and improved lots. We own and lease heavy equipment which we utilize to build and develop residential subdivisions and multi-family communities. The equipment is primarily used for land clearing, site development, public and private road improvements, installation of wet utilities such as sewer, water, and storm sewer lines, in addition to construction of dry utility lines for power, gas, telephone, and cable service providers.
We are a general contractor and construct single-family homes, townhomes, condominiums, and apartments utilizing a base of employees in conjunction with third-party subcontractors.
As of
Results of Operations
Three Months Ended
The following table sets forth the summary statements of operations for the
three months ended
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2022 2021
Sales $ 10,286,400 $ 14,132,400
Cost of sales (12,218,300) (10,805,100)
Gross profit (loss) (1,931,900) 3,327,300
Operating expenses (3,654,100) (2,267,800)
Other income (expense) (301,700) 9,900
Income tax benefit 1,378,600 -
Net income (loss) $ (4,509,100) $ 1,069,400
Sales
Our sales decreased by 27.2% to
Gross Profit (Loss)
Our overall gross profit (loss) for the quarter decreased by 158.1% to
Operating Expenses
Our operating expenses increased by 61.1% to
1)Payroll expenses increased by
Other Income (Expense)
Other income (expense) was
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Net Income (Loss)
Our net income (loss) decreased by 521.6% to
Six Months Ended
The following table sets forth the summary statements of operations for the six
months ended
2022 2021
Sales $ 38,867,400 $ 28,006,600
Cost of sales (34,744,700) (24,072,100)
Gross profit 4,122,700 3,934,500
Operating expenses (7,493,400) (4,317,600)
Other income (expense) $ (363,100) $ (96,700)
Income tax benefit 870,000 -
Net income (loss) $ (2,863,800) $ (479,800)
Sales
Our sales increased by 38.8% to
Gross Profit
Our overall gross profit increased by 4.8% to
For the six months ended
Operating Expenses
Our operating expenses increased by 73.6% to
1)Payroll expenses increased by$1.6 million due to increase in staff from the continued investment in our public company infrastructure and personnel to support our future growth plan; 2)Professional fees and director fees increased by$0.5 million and$0.1 million , primarily driven by establishing and maintaining public company infrastructure and oversight; 3)Stock compensation costs increased by$0.1 million , primarily driven by stock options and restricted stock issued to directors, executives, and employees; 4)Advertising and marketing increased by$0.1 million as a result of increased marketing activities to promote our company and real estate projects; 5)We incurred additional right of use expense of$0.2 million from leasing an office space inTacoma, Washington for our new corporate headquarters; and 28
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6)We incurred additional depreciation expense of
Other Income (Expense)
Other income (expense) increased for the six months ended
Net Income (Loss)
Our net loss increased by 496.9% to
Liquidity and Capital Resources
Overview
Our principal uses of capital were operating expenses, land purchases, land development, single and multi-family construction, the payment of routine liabilities, payments on construction loans and related party construction loans, financing fees for the revolving line of credit and construction loans, and repurchase of company equity securities. We used funds generated by operations and available borrowings to meet our short-term working capital requirements. We remain focused on generating positive margins in land acquisitions and development operations and home construction operations in order to maintain a strong balance sheet and keep us poised for growth.
We employ both debt and equity as part of our ongoing financing strategy to provide us with the financial flexibility to access capital on the best terms available. In that regard, we employ prudent leverage levels to finance the acquisition and development of our lots and construction of our homes, townhomes, condominiums, and apartments. Our existing indebtedness is recourse to us and we anticipate that future indebtedness will likewise be recourse.
Our management considers a number of factors when evaluating our level of indebtedness and when making decisions regarding the incurrence of new indebtedness, including the purchase price of assets to be acquired with debt financing, the estimated market value of our assets, and the ability of particular assets, and our company as a whole, to generate cash flow to cover the expected debt service costs. Our governing documents do not contain a limitation on the amount of debt we may incur and our board of directors may change our target debt levels at any time without the approval of our shareholders.
We intend to finance future acquisitions and developments with the most advantageous source of capital available to us at the time of the transaction, which may include a combination of common and preferred equity, secured and unsecured corporate level debt, property level debt and mortgage financing, and other public, private, or bank debt.
Real Estate Assets
Our real estate assets increased to
Liabilities
Liabilities increased to
1.An increase in our construction loans of
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Unrestricted Cash Balance
As of
Operating Activities
Net cash used in operating activities for the six months ended
Investing Activities
Net cash used in investing activities for the six months ended
Financing Activities
Net cash provided by financing activities for the six months ended
Cash Resources
Although the expected revenue growth and control of expenses leads management to
believe that it is probable that our cash resources will be sufficient to meet
cash requirements through the fiscal year ending
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as "special purpose entities" (SPEs).
Inflation
Our operations can be adversely impacted by inflation, primarily from higher land, financing, labor, material, and construction costs. In addition, inflation can lead to higher mortgage rates which can significantly affect the affordability of mortgage financing to homebuyers. While we attempt to pass on cost increases to customers through increased prices, when weak housing market conditions exist, we may be unable to offset cost increases with higher selling prices.
Critical Accounting Policies
Our consolidated financial statements and related public financial information
are based on the application of accounting principles generally accepted in
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Our significant accounting policies are summarized in Note 1 of our consolidated financial statements.
Implications of Being an
We are an "emerging growth company" as defined in the JOBS Act and we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies." These provisions include:
•a requirement to present only two years of audited financial statements and
only two years of related Management's Discussion and Analysis of Financial
Condition and Results of Operations included in a public offering registration
statement;
•an exemption to provide fewer than five years of selected financial data in a
public offering registration statement;
•an exemption from the auditor attestation requirement of Section 404 of the
Sarbanes-Oxley Act ("SOX") in the assessment of the emerging growth company's
internal control over financial reporting;
•an exemption from the adoption of new or revised financial accounting standards
until they would apply to private companies; and
•an exemption from compliance with any new requirements adopted by the Public
Company Accounting Oversight Board requiring mandatory audit partner rotation or
a supplement to the auditor's report in which the auditor would be required to
provide additional information about the audit and the financial statements of
the issuer.
We have elected to adopt the reduced disclosure requirements available to emerging growth companies. As a result of this election, the information that we provide in this Report may be different than the information you may receive from other public companies in which you hold equity interests.
We will cease to be an "emerging growth company" upon the earliest of: (i) the
end of the fiscal year following the fifth anniversary of our initial public
offering (
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